TaxTMI 
TaxTMI 
2010 (7) TMI 561
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....ovisions of the Income-tax Act, 1961 and Rules made thereunder." 3. Briefly the facts of the case are that a search action conducted at the various premises of the assessee on 29-01-03 and concluded on 26-3-2003. During the course of search a number of loose papers and documents were found from the cabin of Mr. P.R. Kabra, who is reported to be its Director-Commercial. Since Mr. P.R. Kabra was not present in the premises on 29-01-2003, his cabin was duly opened by the search party, which lead to the finding of the impugned documents, which pertain to various matters related to the company's affairs, including the sale of scrap by the company. The statement on oath of Mr. P.R. Kabra, under section 132(4) of the Act was recorded on 30-01-2003, wherin questions and answers about the sale of scrap by the company were recorded. 3.1 On the basis of statement of Mr. P.R. Kabra, the AO noticed that there was difference of rate in the sale of scrap to the tune of Rs. 35/- in case of aluminium scrap and there will be difference of rate to the tune of Rs. 5/- in case of tin plate scrap. The AO further noted that Mr. Kabra stated in his statement that these differences ....
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....al 29.1.2003 Sr. Officer-Excise 1-1.5% 5. Bhavesh D. Patel Sr. Production Engineer 14.23% 6. Lawrence Marcus/29.1.2003 Printing Manager 2-3% 7. U.M. Kala/29.1.2003 GM 20-22% 20-25% 8. Mohan P Chaudhary Employee-Pen 10-12% 9. S.N. Maheshwari G.M. Goa 2-5% 3.3 During the course of block assessment, the AO asked the assessee to give explanation in respect of seized papers and quantify the undisclosed income on account of cash sale of scrap. The assessee vide his letter 28th October, 2004 submitted that the assessee had no knowledge of the papers found and seized from the cabin of Mr. Kabra. An affidavit of Mr. Kabra dated 4th February, 2003 was submitted along with the letter.The contents of the affidavit reads as under:- "I. Parasram Kabra, son of late Shri Ramchandra Kabra, aged about 62 years and residing at 129, Pankaj 'C', Dr. A.B. Road, Worli, Mumbai-400 018, solemnly affirm and state as under:- 1. That an action under section 132 was taken in office premises of Oriental Containers Limited on 29-01-2003 and continued up to 30-01-2003. 2. That at the time of action under section 132, I was not an employee of ....
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....ng with the actual working and accounts declared by Oriental Containers Limited. 16. That whatever stated above is true and correct to the best of my knowledge and belief. Solemnly affirmed before me at Mumbai This 4th day of February, 2003 (Parasram Kabra) In the affidavit Mr. Kabra stated that his statement recorded by Asstt. Director of Income-tax on 30-01-2003 was under pressure, therefore, no credence should be given to the contents of same. The assessee submitted his comments and explanation in respect of the document found from the cabin of Mr. Kabra, reads as under:- "The rough paper found in the cabin of P.R. Kabra. Since this paper contains working of Mr. P.R. Kabra, necessary explanation with regard to this paper could be obtained from him. We have no knowledge of the contents recorded in the said paper. On enquiry from Mr. P.R. Kabra, he had explained to us that the noting made by him were his working of notional loss/value addition suffered by the company as projected by him by not setting up furnace for the purpose of converting scrap into aluminium ingots/M.S. Bars." 3.5 The assessee furnished copy of invoices of other ....
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....were summoned and their statements were recorded. Almost all of them denied having paid any cash to the assessee company. All of them were shown the relevant seized documents and were asked to confirm the purchases and payment of cash components. However, for obvious reasons all of them denied having paid any cash component. They all believed in the age old maxim 'ask me no questions and we will tell no lies'. They all knew that the moment truth is revealed they will be landing themselves in trouble. The logic behind denying payments, particularly when the entries are not in their handwriting can well be understood. But when the nature of entries are self-explanatory, they can stand on their own feet without the need of any support" 4. The AO did not accept the assessee's explanation. The AO also rejected Mr. Kabra's explanation and noted that Mr. Kabra gave elaborate statement regarding sale of scrap on 30-01-2003. He further made an affidavit on 4th February'03 but the same was failed to bring on record till 28th October'04 when the same was submitted in the office of the AO. The AO noted that panchnama prepared during the search on 30-01-2003 do not reveal any untoward in....
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....i.e. on 4.02.03 itself and that is was filed after a lapse of over 20 months. The appellant/PR Kabra preferred to not file this purported retraction and decided to let several occasions to do so go amiss, solely to its own detriment. The delay in filing a document of this significance and the overall conduct of the appellant raises irreversible suspicious of its bona fide and truth. The reason as to why the appellant waited so long to file the retraction affidavit and damaged its own case further, by raising inexplicable doubts about the bona fides and veracity of the said affidavit remains unanswered, solely to the detriment of the appellant. The retraction of the statement on oath of Mr. P.R. Kabra, is thus not bona fide and genuine, not just because of the suspicious and contumacious conduct of the appellant in this regard, but moreso because it is wholly devoid of any supporting evidence, so as to negate the glaring evidences of unaccounted cash sales of scrap, found during the course of the search action. He even makes such a ridiculous statement that it was the ADI who dictated the answers and that he merely signed across the dotted line. Such ....
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....earch action u/s 132 was carried out on 29th January, 2003 with a force of about 100 officers and continued up to 28-06-2003. During the course of search no unaccounted cash, raw material or finished goods were found at any of the premises of the assessee company. The learned AR further submitted that no unaccounted cash/asset was found at the personal residence of the promoters, directors and executive director. All the jewellery was tallied as per the income-tax/wealth tax returns filed. All the cash in hand in the company's account was tallied and was not seized by the search party. The learned AR further submitted that seized from the cabin of Managing Director Mr. Rajendra Somani of Rs. 6.00 lakh, which was his personal and has been explained by Mr. Rajendra Somani in his personal file in his personal submission of block assessment. The learned AR submitted that during the course of search no incriminating documents were found representing undisclosed income. It is also the submission of the learned AR that loose papers were found in the cabin of Mr. P.R. Kabra with some noting by him who was not an employee of the assessee co. The learned AR submitted that the statement of Mr....
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....not be used against the assessee without it being tested and made available to the assessee for cross-examination. The learned AR contended that the revenue authorities have erred in relying upon the confessional statement alone. In a case of circumstantial evidence the totality of the circumstances has got to be taken into consideration and the combined effect of all those circumstances is determinative of the question as to whether or not a particular fact is proved, for which he relied upon the judgment in the case of CIT Vs. Rameshwar Prasad Bagla 68 ITR 653 (All.) The learned AR has submitted that in the assessment records of the buyers of the scrap wherein the sale price of the assessee and the purchase price of the buyer have been tallied and no addition whatsoever has been made in their respective assessments. Further the sale price of most of the dealers of the assessee has been examined wherein learned AO has not found any discrepancy. The AO cannot blow hot & cold at the same time. The learned AR pointed out that once the admission made in the earlier statement is retracted, the second statement has to be read together to evaluate the weight of the admission ....
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.... fresh aluminium ingots were also submitted to prove that scrap rate cannot be more than the rates of prime material. (h) the assessee had unabsorbed brought forward losses up to 2003-04 and was not availing the benefits of deduction u/s 80IA & u/s 80 HHC in lieu of losses declared in the return of income. Hence, there was no motivation or benefit what so ever to the assessee to enter into such kind of cash transactions. (i) No adverse inference can be drawn out of loose papers kept by a person who is not an employee of company, not supported by actual cash or generation of any tangible asset out of books. (j) the assessee company had no knowledge of papers found and seized from the cabin of Mr. Kabra. How can the same are taken as assessee companies income. 6.3 In support of his case the learned AR relied upon the following decisions:- 1. Dy. CIT Vs. Pramukh Builders, 112 ITD 179 (Ahd)(TM) 2. DCIT Vs. M/s Premsons, (MUM) ITAT - ITA No.4698/Mum/2006. 3. Kailashben Manharlal Choksi Vs. CIT 174 Taxman 466 (Guj.) 4. CIT Vs. Vivek Dougall [2008] 4 DTR 103 (Del.) 5. Pangambam Kalanjay Singh V.State of Manipur, AIR 1956 SC9 6. Sri Krishna Vs. Kurukshetra Uni....
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.... Ltd. v. State of Kerala 91 ITR 18(SC) and T.S. Kumarasamy v. Assistant Commissioner of Income-tax [1998] 65 ITD 188 (MAD.) 7.1 The learned DR submitted that retraction affidavit has been rightly rejected by the AO as the reasons given for retraction in the affidavit were not proper and good reasons. Mr. Kabra was to tell to be having illness but how he discharged his duties. The learned DR was referring various questions and answers to the statement of Mr. Kabra. The learned DR submitted that the type of duress and pressure was not pointed out by Mr. Kabra. The learned DR submitted that documentary evidence never states lie and what is stated in the affidavit is not tenable which self servings/self made evidence. The learned DR in support of his contention relied upon the following decisions:- 1) Seth Champalal Ram Swarup (R.B.) v. Commissioner of Income-tax 68 ITR 181 (SC) 2) P.R. Patel v. Deputy Commissioner of Income-tax 78 ITD 51(Mum.) 3). Asia Investments Ltd. v. Deputy Commissioner of Income-tax 90 ITD 630 (Mum) 4) Income-tax Officer v. Skyjet Aviation (P.) Ltd. [1999] 71 ITD 95 (AHD.) (TM) 7.2 The learned DR submitted th....
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....as may be necessary in discharge of the existing or anticipated tax liability of the person concerned. The objective of the search is just to ascertain facts and collect evidence of concealed and undisclosed income but it is not their main objective to extract declaration from the persons searched about the alleged undisclosed income. Search and its assessment powers are extraordinary powers of revenue authorities which require to be exercised strictly in accordance with the provisions of the Act. 8.1 Under sub-section (4) of section 132, the authorised officer may, during the course of his search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents or other assets mentioned therein and any statement made by such person during such examination may thereafter be used in evidence in any proceedings under the Act. In assessing undisclosed income of the assessee on the basis of material found during search, it is necessary that the material should be perfect in evidence to indicate the existence of undisclosed income. In the absence of such evidence, the addition made has to be deleted. The power to interrogate on o....
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....re not accounted for the books of account. As per the noting the scrap sales near about Rs. 70 per kg. whereas scrap bills were of Rs. 35 per kg. The difference amount of cash sales of scrap sale was the undisclosed income for the block period. The explanation of the assessee is that these papers were found form the office/ cabin of Mr. Kabra and these were the working of Mr. Kabra for the project of setting up furnace for the purpose of converting scrap into aluminium ingots/ms bars. All calculation is the calculation of notional calculation. 8.3 As per the above discussions, in case of search a separate procedure is devised in Chapter XIV-B to deal with the cases where search is initiated or requisition made under section 132 or 132A, after 30-6-1995.Chapter XIV-B lays down a special procedure for assessment of search cases and provides for assessment of undisclosed income as a result of search. The 'undisclosed income' is defined in clause (b) of section 158B . According to this section "undisclosed income" includes (1) (1) any money, bullion, jewellery or other valuable article or thing or (2) any income based on any entry in the books of account or....
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.... completion of the circles of the transaction, the business profit/loss can be determined. The revenue's case in this appeal is that there was unaccounted sale of scrap on the basis of material found at the time of search. This sale of scrap transaction has also its own circle. The assessee is seller of scrap and there must be some other parties, who are purchasers. The transaction must have consideration, as in the case under consideration, stated to be cash. The circle of the transaction further requires/extends, that on receipt of the cash, that cash must be utilized or applied in acquiring, bullion, jewellery or other valuable article or thing or investment of properties or incurring expenditure for the purpose of the business or keep the cash in the form of asset as it is. When the department exercises extraordinary power of search in that case evidence, documents and material pertain to the circle of the transactions related to income must be found. Keeping in view above discussion on circles of business transaction, in the case under consideration we find that only the first step of the circle of transaction of scrap sales satisfied but the other subsequent....
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....completed for assessing the undisclosed income. That surely is not intended by the Legislature and no such disastrous result is contemplated by introducing special procedure for assessment of search cases in Chapter XIV-B. The special procedure for assessment of undisclosed income as a result of search, which is intended to target that income or property which has not been or would not have been disclosed for the purposes of the Act, is not meant to provide an insulation to such assessees from the consequences of regular assessments made or to be made for any previous year falling under the block period. The powers of regular assessment are kept intact and so are all the appellate, revision and other powers affecting such regular assessment and all the statutory consequences flowing from the exercise of such powers would follow alongside of this special assessment procedure devised for dealing with the undisclosed income as a result of search. Once the assessee disclosed those transactions in the books of account, those transactions are subject to regular assessment and not subjected to block assessment. That the block assessment of undisclosed income and its being charged to a hig....
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....unt of scrap sales. When on the basis of those documents/material no additions were made in regular assessments, then how additions can be made in block assessment on those same material/documents. Further, when the AO examined those bills/challans during the course of regular assessments at that time of regular assessment there were no additional working as on the working on which the AO make in the case under consideration. .In other words the working on those papers were carried out after the regular assessments .A businessmen usually doing such working calculations, ratio analysis etc. for setting up future projects and purposes of the business. It is to be seen that such working is found for the AYs. 1997-98 to 2002-03. If we look into the issue from the view point of a businessman, we find that such working is only in respect of some project otherwise no prudent businessman will give those working of cash scrap sale which were made out of books of account and keep safe in the cabin of a person like Kabra who is not even employee of the assessee-company. The presumption of revenue is that it is unaccounted scrap sale. The presumption of the AO is not acceptable even by t....
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..... 8.6 Now come to the Mr. Kabra's statment recorded at the time of search. According to section 132(4), during the course of the search and seizure the authorised office empowers to examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the I.T. Act. Statement under section 134(4) is one of the important pieces of evidence but it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect. This provision embedded in sub-section (4) is obviously based on the well established rule of evidence that mere confessional statement without there being any documentary proof shall not be used in evidence against the person who made such statement. First of all we find that Mr Kabra has retracted from his statement by filing an affidavit. The AO examined Mr. Kabra by issuing summons u/s 131. The AO clearly pointed out fate of the untrue submission made against the statement recorded u/s 131 in spit....