TaxTMI 
TaxTMI 
2014 (8) TMI 827
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....n as 'Zarda', excisable goods. In pursuance of warrant of authorization u/s 132(1) of the I.T. Act, search and seizure operation was carried out on 27.08.2009 in the business premises of M/s Kesarwani Zarda Bhandar, including Head Office situated at Sahson, Allahabad, Branch Offices situated at Mumbai and Ahmedabad and the residential premises of the partners of the firm. Notices u/s 153A were issued and the assessee in compliance to same, filed return of income along with audited balance sheet, trading and profit & loss account. Statutory notices were issued and assessments were completed making many additions in all the appeals under consideration. In the background of these facts, now we take up all the additions and points raised in the present appeals issue-wise as under : Issue No. 1 : (Regarding validity of assessments u/s. 153A of the IT Act): 4. This legal issue is involved in appeals of the assessee in respect of assessment year 2004-05 to assessment year 2007-08. The assessee contended before the ld. CIT(A) that the assessment orders passed u/s. 153A(b) are without jurisdiction, illegal, bad i....
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....ls was found in the course of the search which relate to the assessment year under question. In these background abatement take place only in respect of pending assessment and not for regular assessment which was framed on the basis of the same books of account and become final. Therefore sanctity of such assessment framed under Section 143(3) dated 19.12.2006 of the Income Tax Act on the basis of same books of account duly audited and report already filed and considered u/s 143(3) assessment should be maintained since no incriminating material was found in the course of search. Sir from the assessment order dated 22.12.2011 passed under Section 153A(1)(b) of the Act it will be clear that in the entire assessment order there is no whisper of any incriminating material indicating any undisclosed income on which the additions or disallowances are made but the addition made are only based on regular book/same books which were already examined in original assessment as well as during assessment of the block period and found correct in all respect therefore, thus, as per provisions of Second proviso of the Section 153A(1)(b) of the Income Tax Act the present assessment made vide orde....
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....same. The other decisions are as reported in 137 TTJ of 2011 page 627 Pune Bench (copy at page ...........) In addition the appellant rely upon the following decisions also in which it was held and observed that the decision of higher authorities is binding:- 1. (2008) 216 CTR 153 (M.P) 2. (2005) 274 ITR 6 (ITAT Panjai Bench) 3. (2002) 256 ITR 385 (Bombay) 4. (1987)168 ITR 387 (M.P) Since the facts of the present case and facts of the cited cases are similar and identical, therefore in view of such legal body sanctity of the original assessment dated 19.12.2006 passed under Section 143(3) of the Income Tax Act is liable to be maintained in all fairness and also in the interest of the justice and assessment made u/s 153A(1)(b) of the Act. May kindly be quashed." 5.1 The AO in the remand report relied on section 153A and stated when assessment is pending, the assessment proceedings of those years will be abated. The assessee in rejoinder reiterated submi....
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....o relied on the following decisions, complete references to which are not given. (1) 216 CTR 153 (MP) (2) 274 ITR 6 (ITAT, Panji Bench) (3) 256 ITR 385 (Bom.) (4) 168 ITR 387 (MP). In the remand report, the A.O. has relied on the 1st proviso to Section 153A which requires the A.O. to assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made. It is submitted by the A.O. that 2nd proviso to Section 153A(1) applies only where assessment is pending. If the assessment is pending, the same shall abate else all the total income of each of six assessment years will be liable to be assessed or reassessed. In the Rejoinder, i.e. comments on the remand report of the A.O., the appellant states that in the present case the assessment was made u/s 143(3) vide order dated 19.12.2004 by the then Deputy Commissioner of I....
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....sed Section 153A, 153B and 153C, all other provisions of this Act shall apply to the assessment or reassessment made u/s 153A. As may be seen, the Board has only laid down the procedure to pass assessment or reassessment order in the light of new provisions introduced. There is no such direction in the above Circular to prohibit the A.O. to make assessment or reassessment confined to evidence found in the course of the search. The appellant has heavily relied on the decision of jurisdictional High Court in the case of CIT Vs. Smt. Shaila Agrawal (2012) 346 ITR 130. It is necessary to understand that the contention of the appellant is distinguishable on the facts. The cited order pronounced by the jurisdictional High Court is in favour of the department, against the assessee. The question before the Hon'ble High Court was - whether as a consequence of issue of notice u/s 153A, the proceedings before the Tribunal relating to one of six assessment years shall also abate. In this context, the Tribunal had held that once a notice u/s 153A has been issued after search and seizure operations, all the assessments of six preceding years prior to the date of search have to abate and that ....
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....B and section 153C, all other provisions of this Act shall apply to the assessment or reassessment made u/s 153A. After May 31, 2003, the earlier provisions of block assessment in the case of search initiated against the assessee shall not apply, as the special procedure for assessment in search cases contained in Chapter XIV B stands abolished and a new provision of Section 153A has been introduced which provides procedure for single assessment of period comprising of previous years relating to six assessment years preceding the year in which the search was conducted. Further, the second proviso to Section 153A makes it clear that assessment or reassessment relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search shall abate. In other words, if on the date of initiation of search or requisition, any assessment or reassessment proceeding is initiated relating to any assessment year falling within the period of six assessment years, it shall stand abated but assessment or reassessment can be done u/s 153A in cases of completed assessments or in cases where assessments have not been framed due to non filing of r....
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.... construction is that the intention has to be found from the words used by the legislature itself. The courts interpret the law and do not legislate the law. If a provision has been misused or is absurd, it is for the legislature to amend, modify, repeal, if deemed necessary. Thus, the provisions should be read as a whole and as they exist, and there is no necessity of reading them down or providing Casus Omissus. Where the search is conducted, there is no option with the A.O. but to issue notice calling for return of all six assessment years. Thereafter, the first proviso casts a duty on him to assess or reassess the total income in respect of each assessment year. In this respect he has no choice but to make six assessments. In order to obviate a necessity of making two assessments in respect of the year for which proceedings are pending, the second proviso provides that pending assessments shall abate, which means that only one assessment u/s 153A shall be made in respect of assessments which have abated because of this provision. Both the first and second proviso directed the A.O. to assess total income, which has to be computed in accordance with Section 5 of the Act, there....
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....before the search. In the assessment year 2004-05, the AO passed the assessment order u/s. 143(3) dated 19.12.2006 after the case was selected for scrutiny. The assessee produced books of account and relevant details before the AO, which is evident from the copies of the order sheet placed on record and the AO after examining the books of account and the details furnished by the assessee accepted the returned income. Remaining assessments for assessment years 2005-06 to 2007-08 were completed u/s. 143(1). The assessee along with the return of income filed complete audited accounts and the relevant details. The assessee has filed a chart showing the dates of assessments, income declared along with copies of the audited reports and acknowledgement of filing of returns for these years. It is admitted fact that during the course of search operation on 27.08.2009, no incriminating material was found indicating any undisclosed income for the assessment years under appeals, on the basis of which any addition or disallowance were made, but the additions were made on the basis of regular books of account, which were already examined in original assessment proceedings as well as during the b....
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....then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner: Provided that such revival shall cease to have effect, if such order of annulment is set aside.] Explanation.-For the removal of doubts, it is hereby declared that,- (i) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section; (ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year." In view of the above provisions contained in second proviso to section 153A(1)(b) of the IT Act, no assessment would be deemed to be pending in the year under appeal on the date of initiation of search and as such, the same could not be said to ha....
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....n given after the search operations under s. 132, for filing assessment for the block period of six years, and if such period includes any of the assessment years, the abatement of assessment and reassessment proceedings, to give way to reassessment considering the additions in the assessment under s. 153A, will also include the assessment or reassessment, which has been completed. If as a result of search, some undisclosed income is found to have escaped assessment, the AO may initiate steps for reassessment after sanction of competent authority, within the prescribed period of limitation. Circular No. 7 of 2003 dt. 5th Sept., 2003 [(2003) 184 CTR (St) 33] issued by the CBDT has clarified the position". 7.1 ITAT, Mumbai Special Bench in the case of All Cargo Global Logistics Ltd. vs. DCIT, 147 TTJ 513 (Mum)(Special Bench) held as under : "In assessments that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/s 153A for which assessments shall be made for each of the six assessment years separately; In other cases, in addition to the income that has already been assessed, the assessment u/s 153A will be made on the basis of incriminat....
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....initiation of search and abated in light of the provisions of s. 153A." 7.3 According to the decision in case of Smt. Shaila Aggarwal (supra) of jurisdictional Allahabad High Court, only assessment or re-assessment pending as on the date of initiation of search u/s. 132 of the IT Act, shall abate as per second proviso to section 153A of the IT Act. According to Special Bench decision, in case of All Cargo Global Logistics Ltd. (supra) the abatement takes place only in respect of pending assessments. ITAT, Pune Bench in the case of SRJ Peety Steels (P) Ltd. (supra) held that when the returns have already been accepted and no assessment as such could be said to be pending or abated on the date of initiation of search. The ld. DR referred to the statement of Shri Kailash Chand Kesarwani, partner of the assessee firm, copy of which is filed at page 263 of the paper book and in answer to question No. 13 (PB-272), the partner has surrendered Rs. 50,00,000/- as undisclosed income for the assessment year 2010-11. The ld. DR, therefore, submitted that the statement is relevant u/s. 132(4), which has legal sanctity and is incriminating in nature. However, the ld. counsel for the assessee ....
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....e inference could be taken against the assessee. In assessment years 2004-05, 2006-07 and 2007-08, CPU printout of profit and loss account are of half page only and mainly containing the sale account without having any monetary reference to opening stock, purchase account, direct expenses or closing stock. These items are of trading account only and as such could not be considered part of profit and loss account. These facts would clearly disclose that the alleged paper taken from the CPU are only rough and dumb document and has no relevance to the matter in issue. Without having any details of opening stock, direct expenses and closing stock, it is difficult to prepare even trading account or complete accounts as per law. In these papers, the gross profit of assessee is shown and we do not find from where such figures have been arrived at. We may also note here that these papers now produced on record by the ld. DR have not been referred to or relied on by the authorities below in the impugned orders and no additions, whatsoever, have been made on the basis of the same. These are not considered relevant material by the authorities below, what to say of incriminating material. Ther....
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.... is no abatement, total income has to be determined by clubbing together the income already determined in the original assessment order and the income that escaped assessment (situation 2A in the graphic). In the circumstances, what we are dealing in instantly, there are finalized assessment proceedings and no incriminating material indicating any escaped income (situation 2B in the graphic). Taking a cue from the decision of Hon'ble Delhi High Court in the case of Anil Kumar Bhatia (supra) we can tread on the same premise and hold that on clubbing, what remains is the income originally determined or assessed (i.e. income originally determined + Zero = income originally determined - as there was no incriminating material)." (ii). Scope (P) Ltd. vs. DCIT, 33 Taxmann.com 167 (Mum. Trib.), in which in para 13, it was held - "Before parting with the issue, we make it clear that having held that initiation of proceedings u/s. 153A is valid, the Assessing Officer, cannot resort to a roving and fishing enquiry to find out whether any income has escaped assessment during the reassessment proceedings when there is no incrimi....
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....essee, the above cases would not support the case of the Revenue particularly in view of the decision of jurisdictional High Court in the case of Smt. Shaila Agarwal (supra) and the order of ITAT Special Bench in the case of All Cargo Global Logistics Ltd. (supra). 7.7 Considering the above discussion, when nothing incriminating material was found in the course of search relating to assessment years 2004-05 to 2007-08, completed / finalized assessments for such years could not be disturbed and as such invoking of the provisions of section 153A against the assessee in these years would not be valid and no addition could be made against the assessee as are made in the assessment orders. Recently, ITAT, Delhi Bench 'G' vide order dated 16.06.2014 in 3184/Del/2013 in the case of Sanjay Aggarwal vs. DCIT, after following the decision of Hon'ble Delhi High Court in the case of Anil Kumar Bhatia, 352 ITR 493 and ITAT Spcl. Bench in case of All Cargo (supra), has held as under :- "We, therefore, hold in principle that no addition can be made for any assessment year u/s. 153A, the assessment for which is not pend....
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....e varies from time to time and its quality depends on the quality of the spices, its moisture contents and number of times of distillation repeated. The raw tobacco (tobacco leaf) is sieved to remove its dust contents, then it is coloured with the mixture of raw Kimam, powder of spices and compound of glycerin water. The moist tobacco is then dried in sunlight on the open roof to remove its water contents and then packed in gunny bags. The tobacco at this stage is called coloured tobacco. In such process there is some gain in weight of tobacco which depends on several factors. The coloured tobacco is mixed with compound of chemicals, perfumery substances and menthol and then is stored in drums for 2-3 days for absorption of odour, flavor and taste. Thereafter it is spread on plastic sheet for drying. After this process, 'silver vark' in addition to the above mixture is mixed in the final product 'Zarda'. The Zarda is manually filled in unit containers and pouches which are then packed and sealed. 8.1 The A.O. has produced Annexure D & E of form 3CD i.e. audit report for the financial year ending as on 31.03.2004. The same is reproduced as under:- TOBACCO Particulars Ope....
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....01% NA Material consumed/finished goods 77.34% 77.53% 79.52% 81.43% 98.93% 98.75% 99.05% 8.3 The A.O has remarked that the assessee has not maintained the details of consumption of raw material at various stages. The ratio of consumption of whole leaf with Kimam has not been explained. It was, further, stated that approximately 200 gm of Kimam is produced in one Kg of whole leaf consumed. It was told to the A.O. that the product of raw Kimam is taken out after gap of 15 to 20 days. The A.O. has examined the difference of production (based on production register of Kimam) for F.Y. 2007-08 and found that there is no certain ratio of production of Kimam vis-à-vis the consumption. The assessee has not shown opening and closing stock of Kimam in all the assessment years under consideration. In another observation the A.O. remarked that in addition to its own production the assessee purchased Kimam from other parties namely Gupta Traders, Sultanpur, Prop. Smt. Shakun Devi, the sister concern of assessee. The husband of the proprietor is also partner of the assessee firm. The assessee has not maintained stock details of consumption of purchas....
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....issing. In the Silver Vitran Register for subsequent assessment years, the difference was found in the closing stock and opening stock. There are no details of quantity of 'silver vark' received back from Karigars. There are no details of issue of 'Silver vark' for manufacturing. The assessee submitted before the A.O. that the silver items are kept in the custody of partners / managements and the same were released as and when required. There was no need to maintain stock register for the 'silver vark'. With regard to the consumption of 'silver vark' the A.O. asked the assessee to produce some Kamgars for examination but as stated by the A.O. Kamgars were not produced nor were their addresses furnished. There are no details of percentage of evaporation of aroma from ingredients and perfume items. To the issue that details of packing materials were also not maintained, the assessee submitted before the A.O. that it is not practically possible to maintain the consumption of containers, boxes, pouches, cotton, gunny bags etc. on day to day basis. In the assessment order the A.O. has mentioned that the details of all the ingredients in terms of quantity have not been maintained. All th....
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....nboards displayed the firm's name and the name of a furniture shop. In a further inquiry, the A.O. found that Sri Rakesh Narayan Gupta, in his bank account with State Bank of India, withdrew the cash immediately after the deposit of the drafts. The A.O. also noticed discrepancy in the cheque numbers in the ledger account of assessee in the books of Sarita Industries for the F.Y.2006-07 on the comparison of the entries in the bank statements of the assessee firm. In a post search inquiry conducted by investigation unit, it was discovered that the goods as per invoice no.173 and 176 dated 23.11.2006 and 22.12.2006 were sent through Car No. UP 78B - 6780 which is 1992 model. The weight of the goods was 350 Kg and 100 Kg respectively. The A.O. noticed that the vehicle is LMV tracker through which goods were allegedly sent from Kanpur to Sahson, Allahabad. In a further inquiry the A.O. found that perfumes from M/s Cosmo Elemek, Varanasi, M/s S.P. Upadhyaya Fragrance Pvt. Ltd., Varanasi, M/s Deepak & Co., Varanasi, M/s Sanjay & Co., Varanasi were transported by LMVs. The A.O. collected the details of the vehicles allegedly used for transportation from the RTO office, Varanasi. As per the....
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....ubmitted the quantitative details of opening and closing stock of WIP, details of production and issue of coloured tobacco. The details as produced in the assessment order are reproduced herein under:- Details of consumption of raw tobacco and production of finished goods as per assessee Consumption of Raw tobacco in Kg. Adjusted consumption in Kg. Production of finished goods in Kg. Raw tobacco 919194.000 Opening balance of WIP + 88819.550 1008013.550 Closing balance of WIP - 169271.050 838742.500 838742.500 890193.600 Details of production and issue of coloured tobacco Opening stock of WIP in Kg. Coloured tobacco produced in Kg. Total in Kg. Production of Zarda in Kg. Closing stock in Kg. 88819.550 970645.100 1059464.650 890193.600 169271.050 8.7 The A.O. further observed that Kimam is not included in the consumption figures, which is manufactured from whole leaf as stated by the assessee and 200 gms of kimam is extracted out of 1 kg of whole leaf. The whole leaf is used only in manufacturing of kimam. After manufacturing of Kimam the waste of whole leaf is not used further. Duri....
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....o leaf was worked out to 84.24%. The consumption of other materials at 26%. WIP was 88,819.550 kg. Thus, total percentage of consumption was worked out to 120.23% as against 77.34% shown in the audit report. The A.O. referred to the statement of the assessee that at the stage of colouring, the tobacco gains the weight. Then in another observation, the A.O. has remarked that as per the assessee, percentage of yield was about 106%. The A.O. referred to the audit report, as per which the percentage of material consumed with reference to finished goods was ranging from 77.34% for A.Y.2004-05 to 99.05% for A.Y.2010-11. Then the A.O. has extracted the submission of the appellant in which the assessee stated that column 32 of the audit report speaks of amount whereas percentage of yield should be given in terms of quantity. The A.O. has produced the statement of Sri Krishna Chandra Kesarwani mentioned above and remarked that no specific reply was given on the ratio of consumption and percentage of yield. The results of the assessee vary from year to year as regards percentage of consumption vis-à-vis yield. On the strength of the discussion, the A.O. held that the actual yield w....
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....ontains simply reproduction of statement of Kailash Chandra in eight (8) pages, issue of purchase of sandal wood from M/s Sarita Industries on 26.11.2006 which relates to Assessment Year 2007-08 in 5 pages, charts from our audit reports in 4 pages. Thus likewise in other pages the assessing officer has reproduced details of production process furnished by the appellant and also various charts as appearing in the audit reports. The other discussion is that no details of percentage of evaporation of aroma, no ingredients and perfumery items have been maintained, no detail of silver leaves consumption has been produced, no percentage of dust has been shown in the audit report, no opening and closing stock of Kimam has been shown. In this manner the assessing officer proceeded by making all her efforts to give a different colour away from the truth to mislead the higher authorities to make a show as how much hard labour was put to make the said high pitched addition under reference by mentioning hypothetical and misunderstanding the facts and figures. 20. That in the present case main arbitrary and illegal addition of Rs. 6,95,66,165/- was made by the assessing officer on account of....
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....r authorities of the Department. 23. That since the allegation of alleged suppression of production is a common issue in all the subsequent years, therefore it is necessary to deal the same separately in all respective years by considering the facts and figures of those years which has been ignored by the assessing officer as she developed a concocted and common theory for all the years which is wrong and against facts & law. Therefore it is necessary to briefly touch upon the background of captioned dispute that the appellant is a registered firm and came into existence in the year 1967 and is engaged in business of manufacture and sale of chewing tobacco known as 'Tobacco'. The appellant firm is assessed to income tax from the very beginning and in respect of such business activities the appellant maintained voluminous books of accounts, which are audited and the audit report is filed alongwith the return year after year. In the present case in the past number of assessments were framed U/s 143(3) of the Income Tax Act'1961 either by the rank of JCIT or DCIT. Copies of the orders are enclosed in the paper book at pages no. ______. In this regard in para no.4 on pag....
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....e assessee stated that the assessee has manufactured Tobacco, which is subjected to excise duty on production and for which all details have been maintained under the Central excise rules and regulations and according to which figures have been submitted for this year also which is quite true and correct." 25 That thereafter the assessing officer examined the books of account and noted number of defects to invoke provisions of Section 145(3) of the Income Tax Act and by applying his own designed ratio/format he estimated the value and worked out the addition ignoring the factual position and explanation of the assessee then the appellant had no other option but to file First Appeal against the said assessment order before the first appellate authority. The then learned CIT (Appeal) heard the appeal and by considering the entire facts of the case deleted the addition vide his order dated 10.12.2002. A photo copy of the Order of the Commissioner of Income Tax (Appeals) is enclosed in the paper book at page no. ________. The observations of the then learned Commissioner of Income Tax (Appeal) as per para 7 (at page _________) of his order are reproduced hereunder:- &....
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....th his conclusion." 27 That now in the year under consideration at present second time such an huge addition has been again made by observing that there was suppression of production but before saying so the assessing officer failed to invoke provision of section 145 (3) of the I.T. Act. though sales and gross profit as shown were accepted. In this way the approach of assessing officer in the A.Y. in question is not judicious approach rather arbitrary approach as compared to A.Y 1999-2000. Sir In the entire order there is no whisper of Section 145 (3) of the I.T. Act or rejection of account, sales or gross profit meaning thereby that the addition was made on own whims and calculation and not on any concrete material and alleged suppressed production was created by the assessing officer only on her own whims and illogical surmises, wrong calculations and mis-understanding of the nature of incomes with set mind and to justify the search and also to please the higher authorities and to debar the assessee from getting proper justice from her end. Thus the huge addition was made by Assessing Officer. without any adverse or incriminating material brought on record nor found in search.....
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....proach of the then assessing officer. 30 That in this case a search action under Section 132(i) of the Income Tax Act was conducted by the department at the business and residential premises of the partners of the appellant firm. As a consequence of the search, the assessing officer framed the impugned assessment order under Section 153A (b) of the act. But Sir, in the entire assessment order there is no whisper of any search material or any new evidence found in the search rather the entire additions/disallowances have been made only on the basis of the same books of accounts which were produced in the original assessment proceedings under Section 143(3) of the Income Tax Act and accordingly a well reasoned and speaking assessment order was framed Under Section 143(3) of the Income Tax Act. 31. That in this regard copy of order sheet entries for the assessment year 2004-2005 written by the assessing officer in original assessment proceeding is enclosed at page ... of the paper book and from the order sheet entry it will appear that on number of dates hearing was fixed and relevant queries were made with regard to trading result, expenses etc. and in compliance to those queri....
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....tistical formula prepared according to her own whims and wishes to justify the arbitrary addition made in absence of any search material brought on record and without any adverse finding made for invoking section 145 of the I.T Act. That in this regard the Hon'ble supreme court in 319 ITR page 3 in the matter of CIT Vs Flexi Pack in SLP Civil No 18112 of 2009 held as under - Copy enclosed page ...... of paper books. " That no substantial question of law arose from the order of the Tribunal, that there was no question of going into estimation without rejection of the books which has been properly maintained in the regular course. The Tribunal held that the assessing officer had not invoked the provisions of section 145 of the Act and therefore, there was no justification for not accepting the book results." That sir the above view is the view of the highest authorities and their view is to be considered as the law of land and therefore the same must be given absolute weightage accordingly. 33 That Sir during the course of the search operation in the appellant's factory (manufacturing place) the sea....
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....n making the assessment, the Assessing Officer must proceed on judicial and accountancy principles which is completely lacking in this case. Moreover the appellant explained entire stage wise manufacturing process of Tobacco to the Assessing Officer in writing and also produced details of various materials and ingredients used in the manufacturing process and also requested the Assessing Officer to visit the appellant's place of manufacturing to see and understand the entire manual process but neither the Assessing Officer visited nor considered the real facts nor mentioned anything about this in the assessment order. 35. That in support of above contention, the appellant invites your's kind attention to the decision of Hon'ble jurisdictional High Court of Allahabad reported in 320 ITR 116, (Alld) in the case of CIT Vs MOSCOT (India) Tools & Forgings in which the Hon'ble Court held as under:- (i) Income from undisclosed sources-Addition-Alleged suppressed sale-Tribunal found that sales declared by the assessee are of excisable goods and the correctness of declared sales is supported by regula....
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....d in the assessment order at page 16 of the assessment order are based on the information, already available in the audit report of relevant assessment years and a biased attempt has been initiated to draw adverse inference by the assessing officer which is totally incorrect as the same does not match with our actual nature of manufacturing process inserted in production chart as already explained above. Moreover from the entire order it is clear that the assessing officer made all her efforts only to find out the consumption of raw materials in one Kg. of finished goods by twisting the audit figures in a designed fashion to make the addition ignoring the true facts and real production norms. That the assessing officer has reproduced certain chart at page 14-16 of assessment order which require your kind consideration to solve the issue: CHART - A (As per Page 14 of Assessment Order) Details of consumption of raw tobacco and production of finished goods as per assessee: Consumption of raw tobacco in kgs. Adjusted consumption in kg Production of finished goods in kg. Raw Tobacco 919194.000 Op Bal of WIP + 88819.550 1008013.550....
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.... 890193.600 kgs which is correct. In this way % of yield has been worked out at 83.17 % [ (890193.600/ 1070326.496) X 100]. The said yield as worked out at 83.17 % is incorrect in so far as the total consumption was taken at 1070326.496 kgs because while considering other materials shown at 231583.996 kgs the evaporation/wastage percentage was not considered and excluded rather ignored. Thus if percentage of evaporation/wastage is taken into account and excluded then the actual consumption comes to 838742.500 kgs and not 1070326.496 kgs as shown as per chart "A" above. In this way the correct percentage of yield is as under: By Assessee By Assessing officer Final products as shown (No dispute) 890193.600 890193.600 Total consumption 838742.500 1070326.490 percentage of yield 106.24 % 83.17 % 37 That thus the assessing officer in fact totally ignored and discarded the actual evaporation/wastage of other materials used in production appearing in chart "B" where as such evaporation/wastage has been allowed year after year being normal feature in this nature of business. Therefore the whole confusion arises only because ....
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.... by the assessee. Due to such haphazard working alleged suppression of production was worked out at 240713.375 kgs and in this way by applying cost of production at 289.00 per kg a huge addition of Rs. 6,95,66,165/- has been made. Since the so called suppressed production as worked out by the assessing officer at 240713.375 kgs is nothing but reduction in weight of material due to evaporation normal processing loss of 180182.996 kgs and 60581 kgs on account of difference in alleged production as worked out by applying percentage of yield on alleged consumption. The total of alleged shortage and difference in alleged production was worked out to 240713 (180132+ 60581).Thus the assessing officer has made addition all together on different logic without considering nature of manufacturing process, nature of ingredients used and explanation given by the appellant which is highly unjustified. 40 That at page 25 of the assessment order the assessing officer has alleged that no specific reply was given on ratio of consumption and percentage of yield which is absolutely incorrect in so far as at page 18 of the same assessment order a chart is reproduced from which it will appear that th....
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.... to buy peace of mind from the department and settle the matter and also to stop the assessing officer from repeated persuasion of telling the ratio of consumption. 42. That in the course of search no incriminating material was found relating to present year which could have been added back in the proceeding under section 153A(1)(b) of the I.T. Act. Prior to date of search the return of income for the assessment year 2004-05 to assessment year 2008-09 had already been filed under section 139(1) of the act accompanied by all the requisite documents and proceeding under section 143(1) of the act stood completed except the year 2004-05 which was made under section 143(3) of the income tax act. The details regarding opening stock, purchase, sales, closing stock and consumption of materials for the production of Tobacco for each year under consideration were also placed before the authorities below. This fact has not been disputed by the revenue. The audit report also contains the facts of production of each year which were accepted from year after year and no dispute was ever raised by the department. The matter of consumption / alleged suppressed production can by no means be creat....
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.... view to justify the search because no material was found in the course of search. Thus the appellant prays that when nothing was found in the course of search which facts also appear from the assessment order therefore the original assessments for the assessment years 2004-05 to 2010-11 could not be disturbed in all fairness and justice. 44 That Sir, all these details were furnished before the assessing officer also for consideration during the assessment proceeding but the same were totally ignored without assigning any reasons or justification. The Assessing officer failed to understand and consider the real facts such as:- a) That the appellant manufacture and sale 'Tobacco' and the product is subjected to the excise act/rules and regulations. b) That complete statutory records were maintained as required under the control of the excise Act/Rules made there under. Those records from the stage of raw tobacco to the sale of branded Tobacco were periodically checked and verified by the officials of the Central Excise Department. This is an important fact that in the assessment order neither the Assessing Officer has mentioned it nor pointed out any defect regardin....
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....rom the statement, it is very clear that assessee is suppressing its production and for which it has been surrendered at the time of search and seizure proceedings. The average percentage of yield comes to 105. 66% as per above submission of assessee. Clearly, if 100 kgs. Of items is consumed then 105.66 kg of finished goods would receive. Total production has been shown 890193.600 kgs as against total consumption of raw material at 1070326.496 kgs (838742.500+231583.996). Thus total production worked out as 1130906.975 kgs (1070326.496 X 105.66%) As the assessee has shown finished products at 890193.600 kgs, there will be suppression in production by 240713.375 kgs not shown by the assessee. Cost of goods produced comes to Rs. 289/- per kgs as per details shown in the audit report. The value of above suppressed production comes to Rs. 6,95,66,105/- which is added to the income of the assessee firm on account of suppression of production in manufacturing of ZARDA for the year under consideration." That from the above, it will appear that the cause of the addition according to the assessing officer is only this that the assessee surrendered Rs. 50 lac at the time of search with a....
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....ffected or stock/ kept and left from the eyes of central excise department because the assessing officer has accepted our opening stock, purchases, sales and also closing stock of raw tobacco and other materials including finished goods. And when these four major heads have been accepted then a natural question arises there for consideration of your goodself that from which source the raw tobacco (Base Raw Material) used in the so called excess production had come specially when the raw tobacco shown by us is based on day to day stock excise register with quantity wise. Meaning thereby that consumption of the raw tobacco, as per books, used for declared production is true and accepted by the Department and left quantity is in closing stock which was also accepted by the Assessing Officer. Moreover no loose paper or any incriminating document indicating any such suppressed production, purchase of raw tobacco was found during the course of the search. Although it is a known fact that our entire production/sale is subject to the excise duty and till date no case was ever made by the excise department or Income Tax Department or Sales Tax Department that any suppress purchase of raw to....
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....ception of the firm including the assessment year under consideration of which assessment was framed under Section 143(3) of the Income Tax Act but simply because a search was conducted though no incriminating materials was found in the course of the search and also the present assessing officer was not ready to understand the process as a result a theory of suppressed production was created by the assessing officer according to her own wishes to make huge addition without considering the true facts and factors as elaborated above. In this regard a decision of the jurisdiction High Court reported in 320 ITR Page 116 is fully applicable in the appellant's case as the facts of the case are identical and copy of the order is at page no._____ of the paper book. 49. That from the said relevant chart at page no. ________kindly consider the working of assessing officer. Sir, the assessing officer considered the quantity of other materials in same ratio (1:1) which is absolutely incorrect. Meaning thereby that various ingredients, masala & spices etc. were mixed in the raw tobacco as it is without processing and no benefit of process loss in to weight/quantity was allowed. In this w....
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.... and not on real income when the law is settled that the income tax is leviable on real income only based on a working done on commercial principles. Sir the production is final outcome of the various materials used for the production. In para 27 of the order the assessing officer has stated that the total production is worked out to 240713.375 Kgs @ Rs. 289/- kgs value of which comes to Rs. 6,95,66,165/-. The assessing officer has clearly stated that it is the value (Cost) of such suppressed production and the same has been added to the income of the assessee firm on account of alleged suppressed production. Likewise at page 35 of the assessment order where the income has been computed, the assessing officer has stated that the income of the assessee is computed as under and there also the assessing officer has added the amount of the suppressed production, Sir it is not a judicious way to tax sale, production, and purchases etc. but in the appellant's case the department travelled beyond the procedures of the Income tax law and principles of accountancy and judicial parameter of observing the real income and not to tax the artificial income in the garb and suppressed production b....
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....case any trading results addition on the ground of alleged suppressed production could be made.? 2- Whether considering the nature of business of assessee i.e chewing tobacco manufacturing and its sales in the absence of any material on record that the assessee made purchases/ obtained base raw material i.e tobacco was obtained from any other sources which was used in the manufacturing of chewing tobacco and thus suppressed production? 3- Whether in search made on 27.08.2009 any such material was found and seized which could have been given a cleu that the assessee was indulged in suppressing the production of finished production i.e. chewing tobacco? 4- Whether on the ground that the assessee could not justify the consumption of other raw materials which was quite in large number in the production of one kg of manufactured tobacco would justify the presumption of suppressed production? 5- Whether keeping in view the practical difficulties of a trader/manufacturer in the ....
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....ppressed production may kindly be deleted and justice be done. 52 That it may further be submitted that instead of taxing the assessee on real income as worked out and declared in the return on the basis of closed books of accounts duly audited, the department is taxing on the artificial alleged production which action is against the fundamental principles./ practice of the income tax law. The real income has been defined in the decision by the Hon'ble Supreme Court reported in 322 ITR of 10 Page 678 wherein it has been observed by the Hon'ble court as under :----- "Income tax is a tax on real income i.e. the profits arrived at on commercial principles subject to the provision of the income tax act" 53 That sir, there are well settled laws that sales tax is levied on sale of goods, excise duty is levied on production/ sale of finished goods, service tax is levied on the services provided and likewise the income tax is levied on real income of an assessee but in assessee's case the learned Assessing Officer has violated the settled principles of law by ignoring commercial principles and has taxed on producti....
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.... years. The assessee also made written submission in which he had explained the different method. Regarding the variance in the ratio of material consumed, assessee's submission is reliable. Assessee's main submission was that ' there is nothing outside the books of account and the conclusion has been drawn, on which ground addition was made, on the basis of the Audit Report submitted by the assessee itself. Assessee further contended that the addition had been made on the basis of different interpretation of the facts and figures disclosed in the Audit Report. But the assessee could not substantiate his claim by providing item wise chart of weight loss. During the remand proceedings for the A.Y. 2009-10 on 06.08.2013, the assessee explained about the process of manufacturing of Zarda by showing raw material. It was observed that the elements of the raw materials were not being reflected exactly in raw form in finished products, but it was also not clear whether the raw materials, particularly masala is used in grinded form or not because the colour of finished product was different from the colour of raw tobacco. It was also clear that some weight loss is there in the form of usel....
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.... assessee failed to produce any itemwise chart or loss in the processing of finished Zarda. It is difficult to fully rely upon the submission of the assessee hence addition made on this count is correct." That in this connection it is necessary to mention here that in the remand proceeding on 06.08.2013 the assessee produced various raw products/materials which are used in manufacturing of Zarda and demonstrated the entire production process and right from tobacco whole leaf for boiling and taking out of liquid kimam only and other raw materials purchased and coloured and mixed with various other ingredients and after understanding the whole system of manufacturing process and production the assessing officer arrived on a conclusion that element of loss/element of evaporation are involved and by considering the various items of raw products and their nature the assessing officer recorded the facts in the order sheet which is enclosed at page .... The relevant contents of the order sheet and in the remand proceedings and facts narrated in following manner. "During the remand proceeding for the asses....
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....age/ evaporation as admitted by your goodself is true and correct. That in this way now no dispute is left about the fact of wastage/evaporation/element of loss in the production activity do arise and in this background finding recorded by the assessing officer that the addition is correct is nothing but miserable to support illegal addition already made by the then assessing officer in wrong way. Sir, once the assessing officer was satisfied that element of wastage/evaporation is involved in materials used in production of Zarda then allegation of suppress production does not arise. There is no dispute with the department about the consumption of raw tobacco which is the main item of production of Zarda i.e. 95% of total production which is supported by day to day stock excise register as maintained in regular way as per the norms of Central excise law and duly checked by them and on the basis of production register excise duty has been paid and thus in such situation to support the addition in remand proceeding is nothing but miscarriage of justice. That in the remand report there is no reference or any adverse remark on the following issue:- &nbs....
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....cond paper book and a copy of the same is also attached herewith for ready reference. (f) That the assessing officer measurably failed to state and locate the source for manufacture of suppress production in the entire block assessment specially when purchase, sales, opening and closing stock has been accepted. In this regard a chart is enclosed in paper book and photo copy of same is enclosed herewith for your kind consideration. (g) That it is also a fact that in the course of survey proceeding u/s 133A in assessment year 1999-2000 as well as in search proceeding u/s 132 of the income tax act conducted on 27.08.2009 no incriminating material, no suppression of stock, no loose paper was found hence there is no whisper in the order about adverse material. In this way the entire discussion/addition in the order are based on regular books of account therefore liable to be deleted. (h) That during the assessment in question gross profit rate was progressive and in all the block assessment order in subsequent year trading result is accepted and not d....
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.... such alleged amount could be considered and as such from all angels the addition of Rs. 6,95,66,165/- as income unjustified and uncalled for. The assessee relies on following decisions : 263 ITR Page 610 (Copy enclosed) 258 ITR Page 654 (Copy enclosed) 11 ITR Page 476 (I.T. at Report) (Copy enclosed) (o) That the sales tax authorities also examined our books year after year and the said authorities accepted declared result and there is no dispute till date i.e. the sale tax authorities accepted the turnover as per the books. (p) The Central Excise authorities issued several times for performance in payment of excise duty by issuing "SAMMAN PATRA AND COMMENDATION CERTIFICATE" under the signature of Commissioner, Customs, Central Excise and Service Tax Allahabad. This certificate itself proved that sanctity of books. The Copy of the certificate are enclosed herewith for your ready reference. (q) That the above facts were placed before the concerned assessing officer in the written submission in details but while preparing the remand report the assessing....
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....13/- made on identical issues for A.Y. 1999-2000 which was in pursuance of survey proceedings u/s 133A and the same was deleted by the first appellate authority. The appeal of the department against the order of Commissioner of Income Tax (Appeals) was dismissed. It is also alleged that the A.O. has made the addition without invoking the provisions of section 145(3) of the I.T. Act. It is also submitted that the production of tobacco is an excisable item under the supervision of Central Excise Department. The appellant has relied on the decision of Hon'ble Allahabad High Court in 320 ITR 116 in the case of C.I.T. Vs. Mascot (India) Tools & Forges Pvt. Ltd. The provisions of Section 153A are not meant for repetition of proceedings and to have different view on the concluded matters. To support the arguments, the appellant has relied on the decision of the Hon'ble Supreme Court in the matter of C.I.T. Vs. Flexi Pack in SLP (C) No.18112 of 2009 reported in 319 ITR Page 3. The Hon'ble Court held that there was no question of going into estimation without rejection of books of account, properly maintained in the regular course. Another argument put forward by the appellant is that the s....
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....is simple fact. The appellant has given the example of preparation of a cup of tea wherein various ingredients such as water, milk, sugar, tea leaf are mixed and heated, after getting the essence and colour of the tea, leaf and other ingredients used are thrown out. It is argued that the A.O. has not held that there was any suppression of sale or purchases. Ongoing through the discussion of the facts, specially on the maintenance of stock register, one thing is clear that the appellant has not maintained the production account reflecting stage wise consumption and yield. When the entire process of manufacturing is opaque, it is very difficult, rather impossible, for an Assessing Officer to accept the disclosed results. The maintenance of production register is very vital aspect when the assessment is related to yield in the manufacturing process. As per the provisions of section 44AA of the I.T. Act, the persons refer to in the said provisions, shall keep and maintain such books of account and other documents as may enable the A.O. to compute his total income in accordance with the provisions of this Act. The purpose of maintaining books of account and accounting standards re....
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....o maintain production register and day to day record of production and consumption register of raw material. Unless the consumption register for raw material and the production register relating to the manufactured goods are maintained, the production cannot be verified. 8. Apart from non-maintenance of production register and the raw material consumption register, Assessing-Authority also found that proper accounts relating to the payment of wages have also not been maintained. In our view, the aforesaid reasons are sufficient to invoke the proviso to Section 145(1) of the Act. 9. In the case of Raza Textiles Ltd. v. Commissioner of Income Tax reported in 86 ITR page 673, the Division Bench of this Court up-held the rejection of account in the absence of production register. The Division Bench held as follows:- "In the absence of a register indicating the supply of yarn issued from the spinning department to the weaving department it is plain that the....
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....me Tax reported in 210 ITR page 406, the Division Bench of this Court has up-held the rejection of books of account on the ground that neither the stock register was maintained nor sales were found verifiable in the absence of cash memo. 13. In the case of Bastiram Narayan das Maheshwari v. Commissioner of Income Tax reported in 210 ITR page 438, the Division Bench of Bombay High Court has up held the rejection of books of account and the application of the proviso to Section 145 in the absence of day-to-day manufacturing account of Bidi including quantity of Bidi manufactured daily, figures of Bidi leaves consumed per day in the factory. 14. In the case of Commissioner of Sales Tax, U.P. Lucknow v. Girja Shanker Awanish Kumar reported in Supreme Court (1996) 11 SCC page 648, books of account of the dealer was rejected for non maintenance of manufacturing account as required under Section 12(2) of the U.P. Sales Tax Act. Section 12(2) requires to maintain stock register in respect of raw-materials as well as products obtained at every stage of production. Apex Court held that if a stock book....
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..... Though the judgment is under the U.P. Sales Tax Act, it is relevant in the context of the present case. The A.O. has gone at length dealing with the issue of purchase of sandal wood oil and has established that certain purchases were not genuine. On the facts that the appellant has not maintained production register to ascertain stage wise consumption and yield on day to day basis coupled with the fact that certain purchases of sandal wood oil are not found to be genuine, it can be held that the books of account of the assessee are not reliable which can give complete and true picture to deduce the profits therefrom. Though the A.O. has not expressely mentioned invoking the provisions of Section 145(3) of the I.T. Act, the whole discussion is focused on rejecting the books of account u/s 145(3) of the I.T. Act. To remove any doubt, I reject the books of account of the assessee u/s 145(3) of the I.T. Act by virtue of the powers of C.I.T.(A) u/s 251 of the I.T. Act. Before proceeding further, it is important to discuss the decision of the Hon'ble Supreme Court in the case of C.I.T. vs. British Paints (India) Ltd. (1991) 188 ITR 44, the Hon'ble Court held that it is not only t....
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....in wastage and residuals. In the process of manufacturing of Kimam, it is explained that, whole leaf tobacco is put in big containers for boiling along with the water. The Ark i.e. raw kimam is taken out from the containers. The residuals / waste become useless and are thrown away. The photographs of residuals / waste are given on page 79 of the paper book 3. The spices are dried under the sun, those are baked and grinded. This process also results in certain weight loss as the skin of the spices is removed before grinding. The tobacco, mixed with the spices and raw kimam and glycerin is spread on the roof for drying, obviously to remove the water content. Then the appellant has explained the process of making aroma. In this process, the spices are put in boiling water, the same is distilled in base oil i.e. perfumery substances. The process obviously creates the residuals of spices because at this stage the spices are used to make the perfume only. The appellant has enclosed a photograph given on page 98 of the paper book depicting the residuals of used spices to make the perfume. The coloured tobacco mixed with chemicals, perfumes and menthol is spread for drying. There is aga....
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....t i.e. as under:- Total Consumption 10,70,326.496 Kg. Weight of finished product 8,90,193.600 Kg. 10,70,326.496 x 100 8,90,193.600 120.23% The yield has been calculated at 83.17% by the A.O. The same can be understood as under:- 8,90,193.600 x 100 = = 83.17% 10,70,326.496 The figures what they represent, are explained. As regards the percentage of consumption with reference to yield, the A.O. has remarked that the percentage of consumption with reference to raw tobacco leaf used during the year under consideration is 120.23% whereas in column 32 of the audit report the same has been shown at 77.34%. During the appellate proceeding before me the appellant pointed out that the A.O. misunderstood the figures of material consumed vis-à-vis finished goods produced which is in terms of value in column 32 of the audit report. The A.O. misunderstood it for in terms of quantity. The appellant also explained before me that earlier auditor had given the figures of sales in place of the value of finished goods produced, in the audit reports for Assessment Years 2004-05, 2005-06, 2006-07 and 2007-08. Later these figures have been co....
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....f 120.23% of raw materials. This fact is discussed by the A.O. on page 16 of the assessment order. The ratio of production shown by the appellant is with reference to the consumption of raw tobacco only. Here the appellant has not included the consumption of other materials. In a submission before the A.O., i.e. part of the paper book before me, the assessee had produced before the A.O. the chart of adjusted consumption and production. In respect of F.Y. 2003-04 the adjusted consumption is shown as 8,38,742.500 Kg. The weight of finished goods produced has been shown as 8,90,193.600 Kg. The appellant has pleaded before me that the percentage of production as shown by it should be understood with reference to these figures only wherein the consumption of raw tobacco was 9,19,194 kg less work in progress at 80,451,500 Kg. This chart is on page 359 of the paper book submitted before me. Clearly the consumption of raw materials shown in this table does not include the consumption of other materials mentioned above. The most important issue to be decided is the yield in the form of end product i.e. Zarda. As regards the manufacturing process and the use of raw materials, the assessee....
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....esponsibility to compute correct income of the assessee when the books of a/c are rejected u/s 145(3) or proviso to Section 145 of the Act. This also requires the A.O. to evaluate not only the facts available on the records of the assessee but also the surrounding facts to arrive at a decision. As discussed in the foregoing paras, the assessee has not maintained stage wise production account to verify the wastage and yield. One has only the volume of raw materials and end product. The intermediary processes are not transparent, viz., how much kimam or perfume is produced on consumption of required raw materials. This means, the production of zarda shown by the assessee cannot be verified. This situation calls for judicious approach by the tax authorities. As discussed above, the A.O. failed to consider two facts important to evaluate the percentage of yield, one, that use of spices and other ingredients, mainly to prepare the flavor & perfume, cannot give yield of equal weight, meaning thereby the residuals & waste are bound to be there, secondly, the yield of 106% was not with reference to the weight of all the materials, it was only with reference to raw tobacco only. Therefor....
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.... as per Column 32(d) of 3CD reports is as under:- i ) Kishore Zarda Factory 92.29% ii) Sugandhi Snuff King 90.37% You may furnish your comments on the comparability of the yield keeping in view of the above cases. The copy of the audit reports is enclosed herewith. Your comments, if any, may be furnished within a week of receipt of this letter." On the above, the appellant has submitted as under: "With reference to above it is submitted that alongwith the notice dated 05-09-2013 photo copy of two audit reports in the case of M/s Kishor Zarda Factory of Varanasi and M/s Sugandhi Snuff King of Delhi were provided to the assessee and required assessee's comment on the basis of these two comparable cases. In this connection it is submitted that simply on the basis of audit report comparison is too difficult because the audit report do not speak about their manufacturing process where as the assessee elaborately explained/demonstrated the manufacturing process in details in the course of remand proceeding as well as before your goodself. In the remand proceeding the raw materials which are used in manufacturing ....
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.... after year production work is going on and the same was accepted by the department. The assessee is also registered with the central excise authorities and paying huge excise duty year after year on sale of zarda at the point of exit of goods from the manufacturing premises. The excise authorities also satisfied with our method of accounting. In this way our product/production is under the strict supervision of excise authority as a result excise authority issued recognition certificate from time to time which are also placed on record. These facts required consideration at your end. That, Sir the assessee's industry is not a organized industry in the eyes of law and the entire manufacturing work is handmade work as there is no involvement of machinery in the manufacturing process of zarda. Therefore on different stages losses are liable to be incurred whereas certain losses are visible and as well as certain losses are invisible. Such losses occurred in the course of manufacturing process of zarda. Invisible losses arises because of drying and evaporation wgere as visible losses occurred on account of waste material obtained while processing of kimam, grinding of spices and ma....
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....ssessee not found fully transparent and when the production account does not give determinable picture of production, the book results must be rejected. Another argument by the appellant is that no incriminating material or excess stock was found during the course of search also deserves to be rejected as the A.O. has adversely commented on the stock found during the search, in the respective assessment orders. It is not necessary that direct incriminating evidences only will prove the suppression of production. Indirect and surrounding factors like investments in valuable items, real estate, bogus cash credits, huge expenses on households also prove generation of unaccounted income. The comparison between assessment based on survey relating to A.Y. 1999-2000 (before search & seizure action ) and present assessments is also not fair as the rejection of books of a/c owing to opaque production process and absence of true and correct accounts of yield at each stage is a dominant factor in the cases under consideration. The arguments like past history of assessment, reputation of the firm are also weak in the face of hard facts discussed. As regards the inspection of accounts & audit f....
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.... 1 2 3 4 5 6 7 2004-2005 1070326.496 963293.846 890193.600 73100.246 368.030 26903083.68 2005-2006 996506.132 896855.519 843932.800 52922.719 380.290 20125980.73 2006-2007 951155.518 856039.966 799339.000 56700.966 394.730 22381572.39 2007-2008 959679.193 863711.274 816464.000 47247.274 382.930 18092398.52 2008-2009 1109204.482 998284.034 929478.000 68806.034 365.850 25172687.47 2009-2010 1007166.032 906449.429 843983.000 62466.429 411.640 25713680.75 2010-2011 945101.031 850590.928 799434.600 51156.328 454.950 23273571.38 TOTAL 161662974.92 It may be noted that the A.O. had worked out the value of suppressed production on the average cost price. But that was not correct as concealed production would result in sale to fetch unaccounted income. So while correcting the approach of the A.O., assessment year wise income sustained and relief are also worked out as under: Table - B Assessment Year The value of cost of suppressed production worked....
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....entire sales could not be profit of the assessee. The details of each material consumption were explained in the audit report. Copies of the same are filed at pages 206 to 235 of the paper book. On the other hand, the ld. DR relied upon the order of the AO and submitted that the ld. CIT(A) correctly rejected the books of account u/s. 145(3). Even if books are not rejected by the AO, the assessee did not maintain day-to-day record of the production at each stage and even in the appraisal report, the cost of other material etc. have been mentioned. The orders of the Sales Tax Authorities and Excise Authorities are not relevant. The assessee suppressed the sales and rule of consistency should not be applied when facts have been brought on record against the assessee. 15. We have bestowed our careful consideration. In assessment year 2004-05, the AO made addition of Rs. 6,95,66,165/- by alleging suppression of production. The assessee declared percentage of yield of total raw material to finished goods produced at 83.17%. The AO took it at 105.66% and the ld. CIT(A) restricted the same to 90%. In this way, the ld. CIT(A) reduced the addition and granted relief to the assessee in ....
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.... goods given in the audit reports for these financial years is incorrect. The AO also relied upon the surrender of Rs. 50,00,000/- made by the partner for the purpose of addition. The assessee pleaded that the AO misunderstood the ratio of yield taking that if the weight of all the consumables is 100 kg, the yield would be 105.66 kg. The ld. CIT(A) on examination of the record found that the findings of the AO are incorrect and invalid with reference to the facts analysed by her. The ld. CIT(A) on examination of the record found that the yield of 105.66% is with reference to the consumption of 120.23 of raw materials. The ratio of production shown by the assessee is with reference to the consumption of raw tobacco only. The assessee has not included the consumption of other raw materials. Thus, the finding of fact recorded by the AO against the assessee was found to be incorrect. The ld. CIT(A) thereafter proceeded to decide the yield in the form of end product, i.e. Zarda. The submissions of the assessee was called for on the same and after considering the explanation of the assessee, the ld. CIT(A) noted that the A.O. has to evaluate not only the facts available on the records of....
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....comparable case with regard to the percentage of yield in the manufacturing of Zarda and took the percentage at 90% in the case of assessee for making the addition as against yield taken by the AO. The ld. CIT(A) also noted that AO had worked out the value of suppressed production on the average cost price but it was not correct as the concealed production would result in sale to fetch unaccounted income. The appeal of the assessee was accordingly partly allowed and both the parties are in appeals before us. These findings of facts given by the ld. CIT(A) clearly prove that the finding of fact given by the AO against the assessee calculating the percentage of yield was not correct and the AO on mere assumption and presumptions and on distorted figures made huge addition against the assessee by enhancing the percentage of yield. Since the case set up by the AO was not accepted by the ld. CIT(A), therefore, the ld. CIT(A) proceeded to decide the case/issue on the basis of comparable cases only. These facts clearly show that the department has no case for interference in departmental appeal and now we have to consider the merits of the additions sustained by the ld. CIT(A). It is admi....
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....les or stock. The ld. CIT(A) accepted that the concealed production would result in sales to fetch unaccounted income, but no such concealed production or sales outside the books of account were found against the assessee. It is admitted fact that in assessment year 1999-2000, similar addition was made by the AO against the assessee which have been deleted by the ld. /CIT(A) and the order of the ld. CIT(A) has been confirmed by the ITAT, Allahabad Bench vide order dated 07.06.2006. Copy of the order is placed on record at page 345 of the paper book. In assessment year 2002-03 and 2003-04, the AO accepted the percentage of yield at 81.69% and 83.62% under regular assessment orders u/s. 143(3) of the Act. In assessment year 2004-05 under appeal, the AO also accepted the yield of 83.17% u/s. 143(3) dated 19.12.2006 prior to search. PB-387 is the copy of assessment order which is supported by order sheet to show that the AO examined the books of account and all materials before accepting the book results of the assessee with regard to manufacturing / production and the sales. Since the system of accounting regularly employed by the assessee, the correctness of which had been questioned....
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....so note here that though ld. CIT(A) has invoked his powers u/s. 251 of the IT Act for the purpose of rejection of books of account u/s. 145(3), which have not been rejected by the AO, but there is no observation in the appellate order if the ld. CIT(A) while using such powers, issued any show cause notice to the assessee for taking any adverse inference which has not been taken by the AO in the assessment order. Therefore, such powers should not have been used against the assessee without affording opportunity of being heard to the assessee. The authorities below have also considered the statement of partner Shri Kailash Chand adverse in nature who has made surrender of Rs. 50 lacs in the assessment year 2010-11, but it is not considered that in his statement, the partner has stated that the books of account are complete in all respect and in anticipation of some discrepancies, surrender of Rs. 50,00,000/- is made for the assessment year 2010-11. It was also on account of that the assessee did not reveal the trade secretes. Therefore, the same may not be relevant for assessment years under appeals and could not be said to be adverse in nature to take different percentage of y....
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....the foundation of making addition by AO has completely been demolished. Hon'ble Rajasthan High Court in the case of Gotan Lime Khanij Udyog, 250 ITR 243 held that on mere rejection of books of account, does not mean the addition shall have to be necessarily made against the assessee. Hon'ble Privy Council in the case of Laxmi Narain Badri Das, 5 ITR 170 held that estimate of income should be fair. The AO should not act dishonestly or vindictively or capriciously. His knowledge of previous returns, local knowledge, circumstance of assessee are to be considered to arrive at fair and proper estimate of income. Hon'ble Delhi High Court in the case of Aero Club 336 ITR 400 held that the assessment should be on rational basis. Profit margin declared by the assessee cannot be rejected arbitrarily. It is well settled law that taxes should be collected on real income and not on imaginary income. In case of assessee, admittedly, the book results on almost same percentage of yield were accepted in earlier years in scrutiny proceedings by the AO as well as by the Tribunal. Nothing was found against the assessee during the course of search i.e., any excess stock or sales made outside the boo....
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....heads are specified, but 39th is mentioned as "others" amounting to Rs. 30,04,511/-. The assessee had not furnished the break-up of others. So the AO asked the assessee to furnish the break-up and produce the vouchers for expenses claimed under the head 'others'. The AO added the amount of Rs. 30,04,511/- as bogus liability and added to the income of the assessee. It was submitted before the ld. CIT(A) that the list of current liabilities was given to the AO at assessment stage. During the block assessment proceedings also, the details of the same were provided. This issue was examined at original assessment stage u/s. 143(3) and no addition has been made. Moreover, such nature of liabilities for expenses are brought forward from past years. The assessee submitted the details of liabilities for assessment years 2002-03 and 2003-04 to prove that it is carried forward from the earlier years. It was submitted that most of the liabilities are existing in earlier years and had been carried forward only. Therefore, the addition be deleted. The ld. CIT(A), however, did not accept the contention of the assessee because the composition of 'other' has been changing every year and new part....
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....find from the above list that total liabilities most of the times have reduced, therefore, in assessment year 2004-05, the matter requires reconsideration at the level of ld. CIT(A) to verify the old balances, which if coming from earlier years should have been deleted and for the new parties, the assessee would be required to furnish evidences to prove the genuineness of the same. It appears that the AO has not done any exercise in this matter and old liabilities coming up from earlier years have been added without any just cause. We accordingly set aside the order of the authority below and restore this issue to the file of ld. CIT(A) with direction to re-decide this issue after verifying the old balances coming up from earlier years and in case the balances are coming up from earlier years, no addition should be made against the assessee and for new items appearing for the first time under sundry creditors, the assessee shall have to furnish the evidences before the ld. CIT(A) for verification of the same. The ld. CIT(A) shall give reasonable sufficient opportunity of being heard to the assessee and shall also allow to furnish material before him for clarification of the issue. ....
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....concern of the assessee for the assessment year 2005-06 dismissed this ground of appeal of the assessee. Similar additions have been made in other assessment years as above on the identical facts. 19. On consideration of the rival submissions, we are of the view, the matter requires reconsideration at the level of the ld. CIT(A). The ld. CIT(A) did not give any finding on the submission of the assessee and followed his order in the case of M/s. Kesarwani Sheetalaya for the assessment year 2005-06. ITAT, Allahabad Bench in the case of M/s. Kesarwani Sheetalaya vs. DCIT, Central Circle, Allahabad in ITA No. 440/2012 for the assessment year 2008-09 decided the issue vide order dated 30.11.2012. In this order reference to AY 2005-06 is made. The findings in para 20 are reproduced as under : "20. We have considered the rival submissions and the material on record. Hon'ble Supreme Court in the case of Sargam Cinena vs. CIT, 328 ITR 513 held that when books of account of the assessee are not rejected, the Assessing Officer cannot refer the matter to the Departmental Valuation Officer. Hon'ble Rajasthan High court in the case of ....
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....CIT(A) followed his order in the case of M/s. Kesarwani Sheetalaya for the assessment year 2005-06 and confirmed the addition. Since in this case the issue is restored for re-consideration, therefore, the ld. CIT(A) is bound to pass reasoned order. We may also note here that the ld. counsel for the assessee contended that the books of account have not been rejected and the issue is covered in his favour by the decision of Hon'ble Supreme Court in the case of Sargam Cinema, 328 ITR 513 and the decision of Hon'ble Allahabad High Court in the case of CIT vs. Lucknow Public Educational Society, 339 ITR 588, in which it was held that when books of account of the assessee are not rejected, the AO cannot refer the matter to the DVO. We also find that difference may be around 10% or so as per valuation shown by the assessee and the report given by the DVO, which should have been ignored for the purpose of making addition. In view of the above discussion and following the order in the case of M/s. Keserwani Sheetalaya (supra) and other decisions above, we set aside the order of ld. CIT(A) and restore this issue to his file with the direction to re-decide this issue in the light of the above....
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....rs and on humanitarian grounds, Gur and milk are provided to them during working hours. In past, no disallowances have been made. It was submitted that telephone expenses have been disallowed without any reason. Generator is used for running of the factory because of the break-down of electricity for which complete details have been maintained and accepted the same deduction in past. Motor vehicle expenses and petrol are used for the purpose of business like any other years. Therefore, no addition was made in earlier years. Therefore, the addition was wholly unjustified. The ld. CIT(A), however, confirmed the additions. 22. We have considered the rival submissions and the material on record. It is not in dispute that the nature of business of assessee is manufacturing of tobacco and must have the dust and other ingredients while working of labourers. Therefore, it may be hazardous to the working of labourers. The business premises of the assessee is said to be far away from the city. Therefore, vehicles must have been used for the purpose of business and if milk and Gur are provided to the labourers during working hours, we do not find any wrong in the same. It is a fact that....
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....urchases. The assessee claimed before the ld. CIT(A) that the purchase was made from M/s. Cosmo Elmek, Varanasi which was wrongly treated as bogus purchase by the AO. Copy of the account was filed before the AO from the books of account on the invoice, Tin Number, name of the banker, telephone number and payment made through drafts have been mentioned. The AO discussed this issue in the assessment order with regard to enquiry made for purchases made from M/s. Sarita Industries and the vehicle number was found different. On further enquiry, the AO found that perfumes have been purchased from M/s. Cosmo Elmek, Varanasi and other parties. The AO collected the details of use of vehicle for supply of the material. The owner of the vehicle denied use of vehicle for transportation of goods. Therefore, the AO inferred that no goods were transported and ultimately purchases were found to be bogus. The ld. CIT(A) asked for the break-up of the purchase of the amount in question and the vehicle used for supply of the material. The assessee submitted before the ld. CIT(A) that the purchases have been made genuinely from this party. The AO started enquiry in the case of Sarita Industries, but....
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...., i.e., vehicle No. UP 65-P-8308. Therefore, the ld. CIT(A) was justified in deleting the addition. Ground No. 5 of the departmental appeal is accordingly dismissed. 26. Issue No. 7 (Bogus purchases from M/s. Sarita Industries): This issue arises in assessment year 2007-08 in assessee's appeal. The assessee on ground No. 4, challenged the addition of Rs. 27,21,888/- in respect of purchase of perfumery items from M/s. Sarita Industries, Kanpur. The AO conducted enquiry in respect of purchase invoice No. 172 dated 23.11.2006 for Rs. 27,21,888/- for the purchase of 150 kg of Sandal Oil issued by M/s. Sarita Industries, Kanpur, proprietor Rakesh Narin Gupta. The goods were sent by vehicle No. MH04 - 8300. On enquiry, it was found that it is a Bajaaj Chetak Scooter, 1990 Model. Letter of RTO was confronted to the assessee and the AO also asked the assessee to produce Shri Rakesh Narain Gupta, proprietor of M/s. Sarita Industries for examination. The statement of Shri Rakesh Narain Gupta was recorded during the course of assessment proceedings in which he has explained that vehicle Number was wrongly mentioned because the correct number is MH 04-AW-8300.The address of the owner of ....
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....yments made through demand drafts and entered into the books of account of the assessee. PB-48 is confirmation made by M/s. Sarita Industries, Kanpur to DCIT for selling their product to the assessee. PB-54 is the statement of Proprietor of M/s. Sarita Industries, Shri Rakesh Narain Gupta in which he has confirmed to have made sales to the assessee during whole of the year in a sum of Rs. 1,23,64,142/-. It would, therefore, show that the assessee made genuine purchase from M/s. Sarita Industries. In preceding and subsequent assessment years, the assessee has similarly made purchases from same party which have not been doubted by the Revenue department. It is also interesting to note that in the assessment year under appeal, the assessee made total purchases from M/s. Sarita Industries for a sum of Rs. 1.23 crores approximately through six invoices. The AO accepted five purchases and did not make any addition. The AO doubted only purchase through one bill No. 172 without assigning any cogent and specific reason. It appears that the purchase of one bill was not found to be genuine because of particular use of vehicle for transportation or that owner of the vehicle did not confirm the....
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....icle was not commercial. The AO mainly with regard to use of vehicle held the purchases to be bogus. The assessee submitted break-up of the purchase of Rs. 27,59,714/- before the ld. CIT(A), which is noted at page 18 of the impugned order to show that on various dates, the purchases were made through vehicle No. UP 65 AB 8414. This party was assessed to tax and Sales Tax Authorities accepted their sales. Payments are made through demand drafts and confirmation of the party was also fled. The ld. CIT(A) found this party to be genuine and registered with the Sales Tax Authorities and assessed with Income tax Authorities also. Purchases have been accepted by the Sales Tax department. No material was found during the course of search to prove bogus purchases. The payments are made through demand drafts. It was also found that no inquiry was made in the case of vehicle No. UP-65-AB 8414 used in transportation of goods. No other enquiry was made. The ld. CIT(A) despite these findings confirmed the addition of Rs. 4,54,240/- and balance addition of Rs. 23,05,474/- was deleted. Both the parties are in cross appeals on this issue. 30. On consideration of the rival submissions, we are ....