TaxTMI 
TaxTMI 
2010 (7) TMI 561
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....rong and contrary to the facts of the case, the provisions 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.....
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.... - 30% - 3. Ramkishan Lohia 29.1.2003 Employee, Factory 32.23% - 4. Gajanan Toshiniwal 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 28^th 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 4^th 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....
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....e was made under duress and pressure. 15. That no credence, value or significance be made of my statement recorded on 30-01-2003 nor do the entries recorded in the loose papers/pads have any bearing 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 4^th 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 ....
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..... Mr. Kabra has reiterated the same facts which were reflected in his affidavit. The AO also examined purchasing parties. The observations of the AO are reproduced as under:- "In order to see the other side of the coin the parties who purchased scrap from the assessee 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 3....
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.... on which basis the appellant seeks to defend itself against the AO's charge of concealment of income arising from cash sale of scrap, and it seeks to nullify the statement of Mr. P.R. Kabra recorded on oath on 30.01.03, was not filed by the appellant at the earliest opportunity 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 suppo....
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....pector's report was a circumstantial and secondary evidence, which only strengthens the primary evidence. Even if the said report is found to be debatable, it yet cannot dilute or deface the value and efficacy of the primary evidence. 6. The learned AR submitted that a massive search action u/s 132 was carried out on 29^th 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 searc....
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....ement before the Directors of the assessee-company for cross examination but the ADI failed to do so. For this contention, the learned AR relied upon the judgment in the case of CIT Vs. SMC Share Brokers Ltd., 288 ITR 345 (Delhi) wherein it was held that statement relied on by the department cannot 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 be....
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....of scrap ever stated or confirmed such out of books cash transactions. (f) Documentary evidence were submitted to demonstrate that the rate at which the assessee has sold the scrap was very much comparable and was in consonance with the rates charged by other dealers. (g) List of NALCO rates for 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. D....
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....is not accounted for in the books of account. The learned DR submitted that documents found in the form of loose papers during the course of search are an important document and the same is admissible unless it is proved otherwise. The learned DR in support of his contention relied upon the decisions in the case of Pullangode Rubber Produce Co. 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 Champa....
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....oses of the said Act. These assets referred to in clause (c) of section 132(1) are for the purpose of section 132, and described as 'the undisclosed income or property'. In a nutshell the object of section 132 was to get hold of evidence on the tax liability of a person, to get hold of assets representing income believed to be undisclosed and finally applying so much of them 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 examina....
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....ocess. The assessee furnished the relevant materials to establish that the generation of scarps was the reasonable. The AO did not accept the assessee's contention and held that the part of scrap sale was not recorded in the books of account. The case of the revenue is that noting and calculation found in incriminating documents which were related to scrap sale and were 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....
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....above condition to be examined is the word "income". "Income" is defined in section 2(24) of the Act. Income includes profits and gains/loss. Profits/loss is a result of business transactions. It is pertinent to mention that profit and gains/loss can be earned from a transaction only on completion of its business circles. A business transaction has its own independent circles and after 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.....
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....n 139 and the Assessing Officer considers it necessary or expedient under section 143(2) to ensure that the assessee had not understated the income or has not computed excessive loss or has not underpaid tax in any manner. Both these areas are different and there is no warrant to prevent the statutory power of regular assessment from being exercised where the block assessment is undertaken or 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 e....
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....,98,294 3,00,04,573 From the above table we find that the scarp sales were accounted for in the books of account. This fact has admitted by the AO himself. The scrap sales which have accounted for in the books of account were subject to regular assessments. In the regular assessments all books of account, vouchers, challans were subject to verification by the officer. We find that in the regular assessment no additions were made on account 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 l....
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....st difference between the rate at which the scrap is sold and the rate at which the invoices are being raised? Further, the assessee in support of their explanation submitted comparative rates of scarps of different parties vide letter dated 15th February, 2005 which is reproduced at page 17 of assessment order. As per that details the comparative rates of scrap was Rs. 35 to 42 per kg and accordingly the selling rate of scarp was not found abnormal. 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 obviousl....
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....quired to be noted is that the statement of the assessee was recorded under Section 132(4) of the Act at mid night. In normal circumstances, it is too much to give any credit to the statement recorded at such odd hours. The person may not be in a position to make any correct or conscious disclosure in a statement if such statement is recorded at such odd hours. Moreover, this statement was retracted after two months. The main grievance of the Assessing Officer was that the statement was not retracted immediately and it was done after two months. It was an afterthought and made under legal advice. However, if such retraction is to be viewed in light of the evidence furnished along with the affidavit, it would immediately be clear that the assessee has given proper explanation for all the items under which disclosure was sought to be obtained from the assessee. Hence there is no justification for making addition merely on the basis of statement recorded under section 132 (4).Similar is the position in the case under consideration therefore the addition cannot be sustained merely on the basis of the stamen of the Mr. Kabra. Further, Even for the sake of argument if we acce....