TaxTMI 
TaxTMI 
2015 (5) TMI 849
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....case, the Learned CIT(Appeals) has erred in restricting the addition of Rs. 11,69,98,750 to the account of the undisclosed stock. 4. On the facts and in the circumstances of the case, the Learned CIT(Appeals) has erred in reducing the addition of Rs. 2,04,91,750 to Rs. 89,51,760 made by the Assessing Officer on account of undisclosed income in the investment of property". 3. The assessee on the other hand has impugned First Appellate Order on the following grounds: "1. That the Learned CIT(Appeals)-XXXI, New Delhi has erred both in law and on facts in sustaining an addition of Rs. 4,18,80,000 out of an aggregate addition of Rs. 8,37,60,000 by applying the rate of 5% on alleged suppressed sales assumed on the basis of a diary seized from third party. 1.1 That the Learned CIT(Appeals)-XXXI, New Delhi has failed to appreciate that diary marked as Annexure A-I found adnd seized from residential premises of Shri Salek Chand Garg and the statement recorded Shri Salek Chand....
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....of alleged unexplained investmentin- stock, more particularly when the same was supported by order of assessment from Excise Department and VAT authorities. 2.2 That the Learned CIT(Appeals) having accepted that inventory given to the bank had been inflated in few of the items of raw material so as to obtain higher funding, the finding that there is unexplained investment in stock is highly arbitrarily, illegal and therefore untenable, particularly since no evidence either alleging or establishing purchase or sales outside books was found from the premises of the appellant company. 2.3 That the Learned CIT(Appeals) has erred both in law and on facts in processing to sustain the addition on account of alleged unexplained investment-in-stock on the basis of diary found from thirty party. 2.4 That ever otherwise the computation of alleged peak is based on surmises, conjecture and hence unsustainable. &nbs....
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....figures of Rs. 44.94 crores as been arrived by adopting a rate from the diary seized from Shri Salek Cand Garg. It is not disputed that there is no material that the sales made by the assessee company are at the rates stated in the diary. The entire addition is based on supposition and presumption. He submitted that following are the undisputed facts of the present case: a) That complete books of accounts have been maintained by the assessee company; b) That such books of accounts are duly audited; c) That goods manufactured and sold by the assessee company are excisable goods and no defect has even been allowed by excise authorities. The copies of the excise return have been placed at pages 279 to 313 of Paper Book; d) That even the VAT authorities have accepted the turnover declared by the assessee company. The return filed with the VAT authorities are placed at pages 314 to 329 of Paper Book; e) That no evidence either in the shape of unexplained cash or unexplained investment or material has been found from the premises of the assessee company as a result of search f) That entire stock found in the course of search was duly reconciled with the books of account....
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....les of the appellant company 8.6 The Learned AR added here that even Shri Salek Chand Garg in a subsequent statement recorded on 21.10.2011 (pages 108A-110A of type copies of statement) has not even alleged that such diaries pertains to appellant company. On the contrary he has admittedly to the fact that such diary pertains to his business. It was also submitted that the learned Assessing Officer has therefore deliberately in the order of assessment overlooked the aforesaid statement before making the additions. Moreover even the learned CIT(A) after having found and held that Shri Salek Chand Garg had denied his admission earlier yet proceeded to make addition on conjecture, surmises and suspicion. It was submitted both the authorities namely the AO and Ld.CIT(A) have overlooked the initial statement of Shri Vijay Pal Garg, MD of the appellant company (pages 103A to 105A of type copies of statement) wherein it was denied that there is any connection of Shri Salek Chand Garg with the appellant company. It was clearly stated that assessee had only dealing with Shri Sawar Mal Goyal and there is no material on record to establish any dealing with Shri Salek Chand Garg. 8.7 It w....
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....aced on record. He submitted that, the reading of the material even relied upon would further establish that there is no material to suggest let alone conclude that there is understatement of consideration. The diary relied upon by the Assessing officer has absolutely no connection with whatever transactions entered into by assessee company. In other words, there is not even a single instance referred to by the Assessing officer in the order of assessment, which is based on concluded sales transaction. Therefore, in absence of any material to suspect let alone establish that any of the actual sales made by the appellant company had an element of understatement of consideration, the allegation remains totally and, wholly unsubstantiated and, as such the addition made is untenable, unwarranted and, unsustainable. The Learned AR submitted that, in the case of ACIT vs. Shailesh S Shah reported in 63 ITD 153 (Mum), it has been held that, burden is on the revenue to establish that loose papers constitute income of the assessee. Similarly, in the case of ITO vs. M.A. Chidambaram reported in 63 ITD 203 (Chennai), it has been held that, in the facts and circumstances of the case, the depart....
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....of Hon'ble Delhi High Court in the cases of CIT vs. Kulwant Rai reported in 291 ITR 36 and CIT vs, D.K. Gupta reported in 308 ITR 230. 9.6 The Learned AR also placed reliance on the decision in the case of CIT V Genesis Commet (P) Ltd reported in 163 Taxman 482 (Del), wherein it has been held that, an officer, if he was not inclined to believe the material placed by assessee he could have used coercive powers available to him. Infact, Hon'ble Delhi High Court in the case of CIT v Ved Parkash Chaudhary reported in 305 ITR 245 (pages 575-577 of JPB) wherein even where an MOU was found then too in view of the denial of the parties to the MOU, it was held that, no addition is tenable in view of the non-availability of the corroborative evidence. The case of the assessee is far stronger in as much as no MOU is found but unsigned paper have been found from the residential premises of former director of the appellant company. Infact, here too the appellant has denied receipt/payment of any money and, even the buyers of space in the projects have never alleged payment of any on money. Further, there is no corroborative evidence and, in such circumstances, the paper is a dumb document. ....
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....He submitted that during the course of assessment proceedings, the assessee company was required to explain the documents found and seized in the course of search, to which the assessee has thoroughly failed to, hence, the Assessing Officer was having no option but to estimate the suppressed profit by applying g.p. rate of 10% on the undisclosed sales of Rs. 83.76 crores resulting into the addition of Rs. 8,37,60,000 on account of profit made on undisclosed sales by the assessee company. The Learned CIT(DR) submitted that the statements recorded during the course of search has got substantial value than the retraction made later. He submitted that datewise payments has been recorded in the diary seized. The Learned CIT(DR) pointed out that figure of Rs. 44.94 crores as undisclosed sales has been arrived at by adopting a rate from the diary seized from Shri Salek Chand Garg and figure of Rs. 38.82 crores on the basis that the assessee company had sold the goods outside the books of account and profit earned on the sales was not reflected in the books of account. He furnished tables stating that various figures from the diary if are analyzed then they all indicate that there was unac....
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....remises and his statements were recorded during the course of search and after search during the course of assessment proceedings and based upon the same, the Assessing Officer has worked out the undisclosed sales at Rs. 83.76 crores. In his statement recorded on 07.01.2010 i.e. during the course of search, Shri Salek Chand Garg stated that diary belongs to him and he along with Shri Sawarmal Goel used to work as commission agent of assessee and the transaction recorded in the diary are the business transaction made on behalf of the assessee. During the course of assessment proceedings, in his statement recorded on 21.10.2011 by the Assessing Officer, Shri Salek Chand Garg vide question No.2 was required to state his business and source of income. In response, he stated that he is proprietor of M/s. Ashutosh Hot Rerolling which is situated at B-31, Industrial Area, Wazirpur, New Delhi, where he does job work. He replied further that he is also the proprietor of Shivan Industries, Shahbad, Daultpur where he does job work. He replied that these are his source of income and apart from the aforesaid, he sales and purchases steel patra and sheets. Again in reply to question No. 11, wher....
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....ukla (supra) has been pleased to hold that an evidence which is not found in the possession of a person cannot be used against him unless the evidence being used is supported by other concrete evidence. When the Revenue in the present case sought to rely upon the statement of Shri Salek Chand Garg and diary found from his possession, the burden was on the Revenue to produce Shri Salek Chand Garg for cross examination of the assessee and the addition made without affording this opportunity of cross examination to the assessee, is in violation of principles of natural justice. It is also noted that the allegation of the Assessing Officer that the assessee has affected sales to the magnitude of Rs. 83.76 crores outside its books of account is approximately 12% of the declared sales but no evidence in support either in the shape of unexplained cash or unexplained investment or material has been found from the premises of the assessee company as a result of search. The entire stock found in the course of the search was duly reconciled with the books of account. The entire sales as made by the assessee during the year aggregate to Rs. 699.73 crores and sale of manufactured goods is of Rs....
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....essing Officer in the books of account and if the Assessing Officer is not satisfied with the explanation of the assessee to those defects pointed out by the Assessing Officer, then the Assessing Officer will reject the books of account by invoking the provisions of sec. 145(3) of the Act and will estimate the profit. In the present case, in view of the above finding on sub-issue No.(i), the Assessing Officer was having no reason to reject the books of account of the assessee, hence, he was not justified to jump on the second step for estimation of the profit by applying different g.p. rate than that shown by the assessee. The sub-issue No.( ii ) is thus decided in favour of the assessee. 22. Sub-issue No.(iii): No plausible reason has been assigned by the Assessing Officer for application of g.p. rate at 10% nor has the Learned CIT(Appeals) assigned any convincing reason for applying the g.p. rate at 5% of the turnover. The g.p. rate declared by the assessee in respect of manufacturing was 1.24%. Also keeping in mind the above findings on other sub-issues, the issue is decided in favour of the assessee. 23. In totality of the above discussion, the Assessing Officer was no....
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....re was no difference in the stock on the date of search and the stock was not pledged with the bank but only hypothecated to bank. Learned AR contended that the stock statement given to the bank cannot be a basis to assume unexplained investment in stock and placed reliance on the following decisions: i) Ashok Kumar vs. ITO - 201 CTR 178 (J&K); ii) Relaxo Footwear - 259 ITR 744 (Raj.); iii) Sidho Rice & General Mills - 281 ITR 428 ( P&H); iv) CIT vs. Veertip Rollers (P) Ltd. - 323 ITR 341 (Guj.); v) CIT vs. Acrow India Ltd. - 298 ITR 447 (Bom.); vi) CIT vs. Das Industries - 303 ITR 199 (All.); vii) CIT vs. Apcom Computers (P) Ltd.- 292 ITR 630 (Chennai); 27. The Learned AR submitted further that the Assessing Officer had also referred to annexure A1 (diary) seized from Shri Salek Chand Garg. On the basis of the diary, he observed that there is unexplained investment in stock of Rs. 11,97,85,000 which was not separately being made as it was covered by the addition of Rs. 17,69,98,750. The Learned CIT(Appeals) has dealt with this issue at page Nos. 35 to 40 of the First Appellate Order. He submitted further that complete books of account are duly supported by ....
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....2 ITR 789 (Bom) Melmould Corporation vs. CIT j) That closing stock as on 31.3.2009 in any case cannot be added as unexplained investment for Assessment year 2010-11 as its is then unexplained investment for Assessment year 2009-10, as has been held in the case of CIT vs. Om Prakash Mahajan reported in 152 ITR 583 (Del) k) That even otherwise the closing stock having been accepted, it has to be held that such stock was sold and therefore there was loss and, as such no addition is untenable. This was held by the judgment of Hon'ble Delhi High Court in the case of J.M. Wire Inds. Vs. CIT in ITA No. 96/1989 dated 15.7.2010 4.4 In view of the aforesaid, the addition sustained of Rs. 6,62,35,000/- may kindly be deleted, argued the Learned AR. 29. Considering the above submissions, we find that the Assessing Officer has dealt with the issues in para Nos 5 to 7 at page Nos. 18 to 22 of the assessment order and has made the addition in the following manner: Sr. No. Particulars Amount (Rs.) i) Valuation of stock as per bank statement furnished to bank 27,43,33,861 (page 18 para 5 of order) ....
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.... Nickle 716000 21.00 11.00 10 71,60,000 Sub Total (B) 17,69,98,750 GRAND TOTAL (A+B) 17,69,98,750 32. The Learned CIT(Appeals) thereafter has held that variation in quantity of raw material of six items was imaginary to obtain credit facility from bank on account of accounts financial crises. He also held that there was no difference in stock on the date of search and that the stock has not been pledged with the bank but only hypothecated to bank as such stock statement given to bank cannot be a basis to assume unexplained investment in stock. In this regard, he placed reliance on several decisions. We also find that on the issue, there are several decisions in favour of the assessee as well as the Revenue. In such a situation, it is now a well settled position of the law that in absence of decision of Hon'ble jurisdictional High Court on the issue, the decision favoring the assessee will have to be followed. The finding of the Learned CIT(Appeals) on the issue following the decision in favour of the assessee thus cannot be held erroneous. The same i....
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....ance in the contention of the Learned AR against the sustenance of the addition of Rs. 6,62,35,000 made by the Learned CIT(Appeals) that once closing stock as on 31.3.2009 has been accepted in the assessment order framed under sec. 143(3) of the Act, there cannot be unexplained investment in opening stock. In support, the assessee has furnished audited financial statement as on 31.3.2009 as well as assessment order for the assessment year 2009-10. Copies of these audited financial statement and assessment order have been made available at page Nos. 231 to 278 of the paper book and page Nos. 767 to 769 of the paper book respectively. We also concur with the contention of the assessee that books of third party alone cannot be a basis to presume that there was unexplained investment in stocks, particularly when nature of stock is also not known, where it was kept. It is also not the case of the Revenue that Shri Salek Chand Garg was in possession of any stock of the assessee. The conclusion of the Learned CIT(Appeals) that stocks as on 01.04.2009 of 1324.70 MTs is based on page Nos. 177 to 178 of the diary, tabulated at page No. 31 of the First Appellate Order, per se is a misnomer. ....
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....se of search meant for submission to the consortium of banks to avail the credit facilities showing the value of the property at Rs. 2,33,16,750 as on 28.7.2009, cannot be a basis to accept the said value of the property in absence of finding of incriminating papers relating to the transaction of cash or otherwise or any other corroborative evidence to support. The Learned CIT(Appeals) has, however, adopted the cost of construction shown at Rs. 39,66,750 in the said valuation report as based on CPWD/Govt. approved schedule of rates and the value of the land as per circle rate. The Learned CIT(Appeals) added the above stated two values i.e. value of the construction on the land and value of the land as per circle rate as total value of the property and worked out the amount in difference at Rs. 61,26,760 in view of the value of the property shown in the agreement to sale at Rs. 28,25,000. 36. In support of the ground No.4 of the appeal preferred by the Revenue, the Learned CIT(DR) has basically placed reliance on the assessment order with the submission that the Learned CIT(Appeals) was not justified in interfering with the value of the property adopted by the Assessing Officer a....
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....ve been accepted and there is no material to disbelieve the sale deed. He placed reliance on the following decision in support: a) 328 ITR 516 (Del) CIT v. Naveen Gera; b) 328 ITR 604 (Del) CIT v. Smt. Suraj Devi; c) 338 ITR 485 (Del) CIT v. Puneet Sabharwal; d) 328 ITR 7 (Del) CIT v. I.P. Chaudhari e) 294 ITR 143 (Del) CIT v. Ashok Khetrapal f) 196 Taxman 415 (Del) CIT v Mahesh Kumar g) ITA 1104/2011 High Court of Delhi CIT v Arvind Khanna h) ITA 482/2010 dated 05.05.2010 CIT v Vinod Singhal i) 357 ITR 671 (Del) CIT vs. Lahsa Construction (P) Ltd. j) 352 ITR 595 (Del) CIT vs. Sadhna Gupta k) ITA No. 3760/D/2011 A.Y. 2003-04 dated 11.4.2014 ACIT vs. Rashmi Chaturvedi 39. The Learned AR contended further that under sec. 69 of the Act, the burden is upon the Revenue to establish that the assessee had made investment, which burden remained to be discharged. Thus, it was not permissible in law to draw adverse inference against the assessee. In support, he cited the following decisions: a) 131 ITR 597 (SC) K.P. Varghese v. ITO b) 316 ITR 46 (Del) CIT v. Shakuntala Devi; c) 335 ITR 572 (Del) CIT v. Bajrang Lal Bansal d) 261 ITR 664 (Del) CI....