TaxTMI 
TaxTMI 
2016 (5) TMI 1309
X X X X Extracts X X X X
X X X X Extracts X X X X
....or A.Y. 2004-05 are as under: "The following grounds are taken without prejudice to each other - On facts and in law, 1. The Ld.CIT(A) erred in sustaining the addition of undisclosed income based on the papers found with Shri Mithulal Jain and not with the appellant company during the course of search and hence, such addition made is not justified in the asst. completed u/s. 153A. 2. The Ld CIT(A) erred in sustaining an addition of Rs. 20,78,41,250/- on the basis of the papers found during the course of search at the premises of Shri Mithulal Jain and which belonged to Shri Sohanraj Mehta and not the appellant company. 3. The Ld CIT(A) failed to appreciate that there was no incriminating evidence found at the appellant's premises during the course of search nor was there any corroborative evidence as regards unaccounted production in the factory of the appellant and therefore, the additions based on some notings by Shri Sohanraj Mehta is not justified in the hands of the appellant. 4. Without prejudice, the Id CIT(A) erred in adopting the profit percentage @ 30% on the estimated unaccounted turnover based on the papers found during t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ances of the case the Ld. CIT(A) erred in allowing the claim of depreciation on assets of Hyderabad division, although block of assets installed in Hyderabad division, were not used in previous year, current year and subsequent years. 7. The order of the CIT(A) may be vacated and that of the Assessing Officer be restored. 8. The appellant craves leave to add, alter, amend and modify any of the above grounds." 4. Grounds of appeal No.1 to 4 by the assessee and Grounds of appeal No. 1 and 2 by the revenue relate to part relief given by the CIT(A) by sustaining an amount of Rs. 20,78,41,250/- out of the addition of Rs. 40,88,32,514/-. 5. Facts of the case, in brief, are that the assessee filed the original return of income on 28-10-2004 disclosing total loss of Rs. 4,09,43,385/-. A search action u/s.132 of the I.T. Act was conducted in the RMD Gutkha Group of cases on 20-01-2010. In response to the notice u/s.153A the assessee filed the return of income on 15-10-2010 disclosing total loss of Rs. 4,09,43,385/- which is the same loss as disclosed in the original return of income. The AO issued a questionnaire dated 08-09-2011 along with notice u/s.142(1) of the I....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... crores approximately. Thus, as per the said seized documents, the total unaccounted sales effected by Shri Sohanraj Mehta, C&F Agent of RMD Gutkha on behalf of M/s. DIL for the period April 2003 to February 2008 was Rs. 345.72 crores approximately. 8. The AO further noted that Shri Sohanraj Mehta had provided English translation of the books written in Marvari language working and quantifying the unaccounted turnover of M/s.DIL for various years. Further, he has declared that he has earned commission from sale of Gutkha for various years and offered the income before ADIT (Investigation). The AO also noted that Shri Sohanraj Mehta has explained the entire unaccounted business chain regarding unaccounted purchases, unaccounted manufacture, unaccounted packing, unaccounted printing, clandestine removal of goods, unaccounted sale and utilization of the sale proceeds which he has admitted to have done for and on behalf of M/s.DIL between 2003 to 2008. 9. The AO also noted that the seized books and documents revealed the entire facts about unaccounted business of M/s. DIL which he summarized as under : "a) The seized material contains the daily, monthly and yearly summar....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... g) The C&F Agent has agreed and offered unaccounted commission received on behalf of unaccounted sales and further, there is a reflection of sales tax mamul paid to sales tax authorities for carrying out this modus operandi of unaccounted sales. h) Packing materials and unaccounted payment of freight and tempo and hamali Charges are also reflected. All these evidences prove beyond reasonable doubt that entire unaccounted business chain has been established in this case regarding unaccounted purchase, unaccounted manufacture, unaccounted packing, unaccounted printing, clandestine removal of goods, unaccounted sale and utilization of the sale proceeds etc. This evidence is not more than enough to bring the said undisclosed income to tax." 10. The AO further noted that the following facts prove that the seized documents belong to the assessee company : • "The said documents seized by the Investigation Wing of Bangalore have details of the accounted dispatches and also the unaccounted dispatches made by M/s Dhariwal Industries Ltd. to Shri Sohanraj Mehta. The unaccounted dispatches apparently have letter 'A' mentioned before them and the accounted di....
X X X X Extracts X X X X
X X X X Extracts X X X X
....utka or to people who have transacted with M/s. DIL etc. Moreover, as per seized material A/M/29, there are receipts signed by Shri. Rasiklal M. Dhariwal or by his son Shri. Prakash Dhariwal or by others on his behalf for having received unaccounted sale proceeds which were sent to them. • All third parties appearing in A/M/08 of page no. 34 have stated that they had transactions only with M/s. DIL, most of them denying for having even known Shri. Sohanraj Mehta. • Other supporting documents available in the seized material like A/M/01 shows the daily sales of gutka belonging to M/s. DIL, A/M/07 contains ledger extract of unaccounted considerations paid to various parties. • Further, most of the parties belonging to Bangalore which are appearing on right side of the page 34 of A/M/08 were examined on oath by the OCIT Central Circle 2(2), Bangalore and they have clarified that they had transactions only with M/s. DIL or some entity belonging to them but not with Shri. Sohanraj Mehta. This substantiates the fact that all the third parties who are appearing in the seized material namely A/M/08 of page no. 34 are having transactions only with M/s.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ication. In the course of the search action, it was accepted by Shri Mallikarjun of Shimoga that the said amount of Rs. 46.56 crores represents sales which are outside the regular books of accounts. 15. The AO also noted that in the course of the search action on 20/01/2010, statements on oath were also recorded of Shri Shital B. Patil, Area Sales Manager of Karnataka Region for RMD Gutkha Group. In course of the statement on oath, it was admitted by him that the accounted as well as the unaccounted stock of M/s Dhariwal Industries Ltd. is carried out through Mr. Sohanraj Mehta, C&F through the network of dealers/distributors across Karnataka. This statement on oath of Shri Shital B. Patil was also confirmed by Shri K.A. Raghunath, Sales Supervisor of M/s Dhariwal Industries Ltd. 16. The AO further noted that the analysis of the seized documents reveal that the assessee has resorted to the following modus operandi : "i) The assessee company carries out a parallel production of its accounted production and also its unaccounted production in its factory at Bangalore. For its accounted as well as its unaccounted production, the purchases of major raw materials like edib....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the amounts mentioned therein are not in the code form as explained by Shri Sohanraj Mehta u/s 132(4) of the I,T.Act. b. Though the accounted transactions appearing in seized documents belong to the assessee company, the unaccounted transactions appearing in impugned seized documents have nothing to do with the assesee company. c. The seized documents signed by the directors of assessee company Shri Rasiklal Dhariwal and/or Shri Prakash R Dhariwal, relate to recovery of certain advances/refunds due from Shri Sohanraj Mehta. d. The seized documents have not been seized from the assessee and have nothing to do with Dhariwal Industries Ltd, Rasiklal Manikchand Dhariwal and their Group concerns. e. Unaccounted assets commensurate with the unaccounted income generated through suppressed sales were not found by the department. f. No evidence of suppression of turnover/income were found by government agencies like Central Excise dept, Sales Tax dept, etc. g. No evidence of unaccounted purchases were found. h. The seized documents relate to Shri Sohanraj Mehta's unaccounted business in some other brands of gutkha. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....plained by Shri. Sohanraj Mehta was absolutely correct, which also gets support from the seized documents themselves. 21. The AO inferred that on the basis of the instructions given in the said signed chits either by Shri Rasiklal M. Dhariwal or Shri Prakash R. Dhariwal, Shri Sohanraj Mehta used to make payments to the parties whose names were mentioned on the said chits. In many instances, these payments were spread over more than one installment. The day books maintained by Shri Sohanraj Mehta have a detailed narration of the various installment payments for the amounts mentioned in the signed chits. At many places, in the day books the amounts have been mentioned in de-coded form. 22. The AO discussed some of the instances as well as the statement given by Shri Rasiklal M. Dhariwal and the various evidences gathered during the search and post search enquiries. The AO rejected the contention of the assessee that the decoding explained by Shri Sohanraj Mehta that the amounts mentioned in the seized documents namely A/M/29 in "lakhs" actually stand for "crores" of rupees and the word "packet" stands for a "lakh" of rupees is wrong. 23. As regards the contention of the asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ence Act and Sec.147, 158BD and 153C of Income Tax Act, 1961 become redundant. According to him, it is true that the strict rules of evidence are inapplicable to the proceedings under the I.T.Act, 1961. However that does not mean that the principles of evidence act are inapplicable to the proceedings under the I.T.Act. He noted that in the instant case, Shri Sohanraj Mehta is a business associate of assessee. The seized documents are in the handwriting of Shri Soharaj Mehta himself. Signatures of Shri Rasiklal Dhariwal and Shri Prakash Dhariwal are available in the said seized documents and duly admitted by both of them and the said documents contain both accounted as well as unaccounted transactions of the assessee company. Thus, if the ratio decidendi of VC Shukla case is applied to the facts of the case, it becomes very clear that assessee company can be taxed based on entries in the documents seized from Bangalore. He accordingly rejected the averment of the assessee that third party evidence cannot be used against it. He also rejected the contention of the assessee that unaccounted assets commensurate with the unaccounted income generated through suppressed sales were not foun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d before the Investigation Wing of Bangalore, Shri Mallikarjun of Shimoga has retracted his admission made u/s.132(4) of the I.T. Act. This retraction, according to the AO is unsubstantiated and the circumstantial evidence found at the time of revocation of the Prohibitory order from the searched premises of Shri Mallikarjun of Shimoga brings out following peculiar facts : "(1) Shri Mallikarjun is having a branch office at Bangalore located at 799/6, Shop No.2, Anekal Road, Chandapur, Bangalore which is in close proximity to the Bangalore Factory of RMD Gutkha group. (2) The entire turnover of this branch office at Bangalore is in cash and is around Rs. 50.28 crores for the period starting from the financial year 2006-07 to 2008-09. (3) The branch office has no evidences in the form of names, addresses, etc .of the parties to whom sales have been effected. (4) Though it has been claimed that they are carrying out retail sales from this branch office, surprisingly for each truck exactly 65 bills are raised. It is a height of coincidence that for each truck load of betel nut which arrives at Bangalore from Shimoga, every time exactly 65 sale bills ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es such as raw material suppliers of M/s DIL, employees of DIL, friends and business associates of Shri RMD/DIL, whose names appear in the said seized pages as recipients of unaccounted sale proceeds have categorically accepted that they know M/s DIL/RMD and they transact business only with M/s DIL/RMD and not with Shri Sohanraj Mehta. 5. It is an undisputed fact that Shri Sohanraj Mehta, through his firm MIs Mehta Associates, acts as C & F agent of M/s DIL for Karnataka Region. 6. For making such a claim in his retraction letter dated 23/12/2009, Shri. Sohanraj Mehta has neither pointed out nor submitted any proof whatsoever, in support of his contention that the said seized documents relate to his unaccounted business in some other brands of gutkha. Even the assessee company who is mainly relying on this contention in its defense that Shri. Sohanraj Mehta was doing unaccounted business in some other brands of gutkha, could not furnish any evidence whatsoever in this regard. This inability of the assessee to substantiate the above contention which is the most important plank of its defense on the matter involved can be seen from the answer of Chairman of the asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt case, the person M/s Dhariwal Industries Ltd., Shri. Rasiklal M. Dhariwal wish to cross-examine, namely Shri. Sohanraj Mehta, a resident of Bangalore and as such, the AO at Pune is not empowered to issue summons to him so as to accord an opportunity of cross examination to M/s. Dhariwal Industries Ltd., Shri Rasiklal M. Dhariwal. Therefore, the AO had issued commission on 01/12/2011 to Departmental Officer in Bangalore to grant M/s. Dhariwal Industries Ltd., Shri Rasiklal M. Dhjariwal an opportunity of cross examining Shri Sohanraj Mehta. This opportunity of cross examination was not availed by the assessee. In the interest of justice one more opportunity was afforded vide officer letter to assessee dated 23/12/2011. This time also, assessee chose not to avail the opportunity to cross examine Shri Sohanraj Mehta. He therefore concluded that assessee was afforded sufficient opportunity to cross examine Shri Sohanraj Mehta 33. As regards submission of the assessee that Shri.Sohanraj Mehta, Shri. Mallikarjuna, Shri Shital Patil, Shri K. Raghunath and Shri. S. Balan on whose statements Department is placing reliance, had retracted their respective statements is concerned, the AO ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the provisions, In order to allow a withdrawal or a retraction of the same conclusively, there must be mitigating circumstances making out a case for such retraction, a fact which is completely absent in the facts and circumstances of the present case. To allow a retraction without any cogent material would amount to making a mockery and travesty of the search and seizure operations. The assessee having estopped the Revenue by the admission cannot be allowed to go back on its "promise" held out by him. The "promise" here would mean the surrender made at the time of search. Any retraction at a later stage would violate the principles of promissory estoppel and have very grave and serious consequences and ramifications. Further, when statement was made voluntarily and was not alleged to have been obtained under threat or coercion, onus was on assessee to prove that said declaration was made under any misconception of facts - Since assessee had not taken any steps to rectify its declaration before authorities before whom such declaration was made, there was no valid reason for retraction of same after a gap of about two and a half months. 36. The AO further noted that Shri Sohan....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Sohanraj Mehta has put the old address on a very recent letter of retraction dated 03-12-2011, unmindful of the fact that the envelope carrying this very letter carries a different address outside. He further noted that the assessee intuitively quoted this letter of Shri Sohanraj Mehta dated 03-12-2011 in his letter dated 08-12-2011. However, in the envelope enclosed to the petition submitted before the Department for grant of opportunity of cross- examination, the said letter of Shri Sohanraj Mehta dated 03-12-2011 was actually received by the assessee on 09-12-2011 at 13.15 hrs. Therefore, he doubted as how the assessee quoted in its letter addressed to the AO on 08-12-2011. The AO further noted that his office could not communicate to Shri Sohanraj Mehta till 03-12-2011, regarding the issue of his proposed cross-examination at Bangalore by M/s Dhariwal Industries Ltd/Shri Rasiklal M. Dhariwal. 39. However, the AO noted that the contents of the said letter of Shri Sohanraj Mehta dated 03-12-20111 are surprisingly matching with the petitions of M/s. Dhariwal Industries Ltd./Shri Rasiklal M. Dhariwal dated 26-11-2011 & 29-11-2011 for allowing crossexamination of Shri Mehta at P....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction and also post search action provides clear evidence which suggests the authenticity of the documents seized by the Investigation Wing of Bangalore pertaining to the unaccounted sales carried out by Shri Sohanraj Mehta, C&F Agent of RMD Gutkha for Karnataka Region. It also provides the evidence that Shri Mallikarjun was carrying out unaccounted sale of Supari to RMD Gutkha group and that its cash sales from its branch office at Bangalore were actually being diverted to RMD Gutkha Group which in turn has been used for the unaccounted production and subsequent sale. 42. So far as retraction of Mr.S. Balan is concerned, the AO noted that Shri S. Balan is a close family friend and business associate of Shri Rasiklal M. Dhariwal/M/s. DIL. He had admitted on 20-012010 vide his statement on oath that he was a custodian of about Rs. 14 crores money of Dhariwal and the said seized documents also depict that about Rs. 14.35 crores money was handed over by Shri Sohanraj Mehta to Shri S. Balan/his representatives on the directions of RMD/PRD. Shri S. Balan has retracted later on 25-112011 by filing an affidavit stating that the admission made by him during search action was not actuall....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are dependent. It can further be concluded that the statements u/s 132(4) have not been retracted successfully. Thus, notwithstanding the subsequent unsuccessful retractions, the statements u/s 132(4) discussed above, still command immense evidentiary value. 45. During the course of assessment proceedings, it was argued by the assessee that the undisclosed income should not be assessed in the hands of M/s DIL. However, the AO rejected such argument as baseless on account of the following reasons : • The names of brands dealt namely big, mini, 2 gms are belonging to M/s. DIL. The prices quoted in the unaccounted books and also unaccounted turnover of Shri. Sohanraj Mehta on behalf of M/s. DIL also match with that of prices of M/s. DIL. • The sale proceeds of unaccounted turnover of Gutka has been applied/utilized by Shri. Sohanraj Mehta on behalf of M/s. DIL. The parties who are appearing in right side of A/M/08 of page 34 are parties having transaction with M/s. DIL or Directors. The transactions are either being suppliers, sellers of property, people on their pay roles (sales tax department), C&F agent (Sohanraj mehta), legal advisors, etc. Though, the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... • Further, most of the parties belonging to Bangalore which are appearing on right side of the page 34 of A/M/08 were examined on oath by the DCIT Central Circle 2(2), Bangalore and they have clarified that they had transactions only with M/s. DIL or some entity belonging to them but not with Shri. Sohanraj Mehta. This substantiates the fact that all the third parties who are entering in the seized material namely A/M/08 of page no. 34 are having transactions only with M/s. DIL. Similarly, some of the other parties which are appearing on right side of the page 34 of A/M/08 and are presently being assessed in this office, were also examined in this regard. • The various details submitted by the third parties were verified and it was found that most of the third parties were even not aware of Shri. Sohanraj Mehta. Some of the parties who knew Shri. Sohanraj Mehta were the employee's like Shri. Jeevan Sanchethi and Shri. Prashant Bafna. 46. Relying on various decisions the AO held that the seized documents should be read as a whole. However, the assessee in the instant case is accepting a part of the seized document and disowning that part of the seized do....
X X X X Extracts X X X X
X X X X Extracts X X X X
....05-06 3,144,960 1,785,894 1,742,338 1,613,588,052 0.5679 2006-07 3,144,960 1,484,182 1,516,674 1,485,618,362 0.4719 2007-08 3,144,960 1,671,249 1,668,445 1,617,466,480 0.5314 2008-09 3,144,960 1,832,888 1,822,016 1,857,488,286 0.5828 TOTAL 15,724,800 8,354,853 8,290,315 8,004,215,610 0.5313 (Notes : Estimated Production is arrived at in Kgs. by considering machine packing capacity of 60 pouches/min, working hours of 8 hrs/day, working days of 25 days/month and considering actual no. of machines (146) for Baroda factory for the relevant period) 49. The AO observed that if accounted as well as unaccounted production, as gathered from said seized documents is considered for Bangalore factory as mentioned in Table below, the average load factor becomes comparable with Baroda factory of the assessee. BANGALORE FACTORY: Accounted plus Unaccounted production considered Assessment Year Estimate of machine based production based on installed capacity Accounted Production Unacc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... not incurred any excise duty expense on the said unaccounted sales of gutkha. Therefore, applying the 'Gross- profit ratio excluding the excise duty payment' to Bangalore factory of the assessee company, the AO calculated the taxable profit for the relevant years, attributable to said unaccounted sale of Gutkha as under: Asst. Year Accounted Sales Excise Duty paid GP normal Excise duty as a % of Turnover GP excluding the expense of Excise city Unaccounted Turnover GP excluding the expense of Excise duty Taxable Profit of unaccounted sales (1) (2) (3) (4) (4) (5) (6) (7) (8) 2004-05 34,96,64,955 13,17,93,150 21.32 37.69 59.01 69,28,04,168 0.59 40,88,32,514 2005-06 48,4377,240 19,33,22,849 21.93 39.91 61.84 53,22,77,170 0.62 32,91,68,875 2006-07 53,77,31,832 21,99,87,873 20.28 40.91 61.19 63,84,17,650 0.61 39,06,49,874 2007-08 84,00,95,315 34,25,56,039 15.67 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2008-09 82,10,000 TOTAL 3,14,35,000 54. For the AY 2004-05, the AO disallowed Rs. 60,00,000/- u/s.37 of the I.T. Act, 1961. 55. Before CIT(A) the assessee submitted that the addition of Rs. 40,38,32,514/- made by the AO as undisclosed income from unaccounted sales of Gutkha is purely based on statement and seized materials belonging and found from Shri Sohanraj Mehta without there being any other corroborative and confirming evidences. Further, the statement of Shri Sohanraj Mehta is inconsistent and has been retracted. It was submitted that the AO has failed to produce appropriate and reasonable opportunity to cross examine Shri Sohanraj Mehta. Relying on various decisions it was submitted that the material seized from third parties and statement of third party do not carry any evidentiary value in the eyes of law, if the same is not corroborated with other justifiable evidences. It was submitted that the Chairman of the Company of M/s. DIL, Shri R.M. Dhariwal has repeatedly submitted that the seized documents found from the place of Shri Sohanraj Mehta are forged and intentionally created to mislead. It was submitted that the material seiz....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pply of raw material for carrying out alleged unaccounted turnover. 59. As regards the decoding of the figures in the chits is concerned it was argued that wherever instructions were given by Shri R.M.Dhariwal and his Son Shri Prakash M. Dhariwal as per the chits signed by them the amounts are mentioned in the chits and figures are same and there is no other meaning or requirement of decoding the same to read it for an amount beyond which it has been mentioned on those chits. 60. As regards the utilization of third party evidence against the assessee is concerned, it was submitted that the department has to first establish evidences against Shri Sohanraj Mehta in common conspiracy and thereafter establish that the assessee is a coconspirator to design the common theory for effecting unaccounted turnover. The AO has completely failed to establish any of the allegations. 61. It was submitted that the AO is making routine and unsubstantiated statement with regard to the cases with the Central Excise and Sales Tax department indicating suppression of turnover. It was argued that in a huge business like that of the assessee there happens to be a fewer occasions where difference....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts subsequent retraction can be made applicable only to him and never be made applicable to a third party. In absence of any corroborative evidence the AO cannot make huge additions in the hands of the assessee on the basis of the sole and exclusive statement of Shri Sohanraj Mehta. 63. It was further argued that the seized document related to Shri Sohanraj Mehta's unaccounted business in some other brands of Gutkha. Further, the seized documents have not been seized from the assessee and have nothing to do with M/s. DIL, Shri R.M. Dhariwal or their group concern. Further, no unaccounted assets commensurate with the unaccounted income generated through such suppressed sales were found from the premises of the assessee. No evidence of suppression of income or turnover was found by any of the Government Agency such as Excise, Sales Tax, Income Tax etc. Relying on various decisions it was submitted that the addition made by the AO in the instant case is incorrect. 64. The assessee without prejudice to the above further submitted that the AO has erroneously determined the unaccounted sales in sum total for the block of assessment years at Rs. 345.72 crores inspite of there being ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as been the subject matter of 263 proceedings and the appeal is pending before the Tribunal. It was further submitted that estimation of unaccounted income for A.Y. 1992-93 was made on the basis of the gross profit ratio as worked out on the books of account adopted by the AO. It was accordingly argued that the addition made by the AO be deleted. 66. However, the Ld.CIT(A) also was not fully convinced with the arguments advanced by the assessee. He observed that the assessee for the first time sought opportunity to cross-examine Shri Sohanraj Mehta on 23-11-2011 and the assessee was offered the said opportunity vide letter dated 01-12-2011 as per which the assessee was requested to be present between 12th to 15th December, 2011 in the office of the DCIT, Central Circle-2(2) Bangalore who had conducted examination-in-chief of the witness sought to be cross examined by the assessee namely Shri Sohanraj Mehta. However, the assessee chose not to avail the said opportunity and instead requested that the said cross examination be conducted at Pune. Thereafter the assessee was again offered another opportunity vide letter dated 23-12-2011. However, the assessee again chose not to avail....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion. 68. As regards the contention of the assessee that additions were made on the basis of statement and seized material belonging and found from Shri Sohanraj Mehta and that too without any corroborative and confirming evidences is concerned, he held that during the course of search action u/s.132 and the post search enquiries and the statement recorded u/s.132(4) and 131 of the Act, Shri Sohanraj Mehta, being the author of the seized documents, had admitted to have written the documents in his own hand writing. A seized document has much more greater value than what it would have been otherwise. Shri Sohanraj Mehta has explained the entire modus operandi of the business notings and also the details made on the seized document written in Marvari Language by him makes the document a speaking one and the entries contained therein does not by way of any stretch of imagination be called a dumb document. 69. The Ld.CIT(A) also rejected the contention of the assessee that the seized document related to Shri Sohanraj Mehta's unaccounted business in some other brands of Gutkha. According to him the AO has stated that during the search action stock of only M/s. DIL was found with n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee that no corresponding proof of unaccounted purchases was found is hard to be believed and therefore he justified the action of the AO in rejecting the same. 71. As regards the contention of the assessee that the seized documents have not been seized from him and have nothing to do with M/s. DIL, Shri R.M. Dhariwal and other group concern is concerned, he held that the seized documents, which have been admittedly written in the hand writing of Shri Sohanraj Mehta on which the signatures of both Shri R.M. Dhariwal and his son Shri Prakash R. Dhariwal are available and also admitted by them reveal both the unaccounted sales and unaccounted transactions. 72. As regards the contention of the assessee that unaccounted asset commensurate with the unaccounted income generated through suppressed sales were not found he upheld the observation of the AO that if generation of income is proved the corresponding asset or expenses need not be proved. According to him, since the search action at Bangalore was conducted on 10-10-2009 and the search action in the case of the assessee group took place on 20-012010, i.e. after a gap of nearly 3 months, therefore, the assessee being on an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ri Prakash R. Dhariwal. He also rejected the contention of the assessee that documents seized cannot be the basis for addition and the presumptions cannot be used against it. 76. So far as the argument of the assessee regarding the manner of estimation of the unaccounted sales and adoption of gross profit is concerned, the Ld.CIT(A) directed the AO to adopt the profit rate of 30% on the unaccounted sales by observing as under : "5.6 In the light of the law stated above, let us now examine and evaluate, the evidence produced by the assessee, evidence required by the AO, relevant material which the AD has gathered, while making assessment of the total income of the assessee as required under section 143(3)(ii) of the Act. Let us first see how excise duty comes into play. Central Excise duty is an indirect tax levied on those goods which are manufactured in India and are meant for home consumption. The taxable, event is 'manufacture' and the liability of central excise duty arises as soon as the goods are manufactured. It is a tax on manufacturing, which is paid by a manufacturer, who passes its incidence on to the customers. As incidence of excise duty arises on p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dent Industries (2002) 258 ITR 654 (Guj); Sambhav Textiles Ltd. (2010) 328 ITR 444 (P&H) and other judicial authorities. The Gujarat High Court in the case of CIT Vs President Industries. (supra) has held as under: "In the absence of any finding or material that there was suppression of investment in acquiring the goods which are subject of undisclosed sales, Tribunal was justified in holding that entire undisclosed sales could not be added as income of assessee but addition could be made only to the extent of estimated profits embedded in sales for which net profit rate was adopted; no referable question of law arises." 5.6.2 In view of the established law, the mandate is that only a net rate of profit can be applied in respect of the goods sold outside the books of account. Therefore, it is obvious that in the light of the material on record the Assessing Officer's approach in arriving at the gross profit ratio in the present case is not proper and correct. Even in the case of suppression of sales and evasion of excise duty detected in the case of Chetna Zarda Company Vs DCIT (2012) 144 TT J 401 (Mum), the addition was made only of gross profit, apart from t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....indicate the evasion of excise duty by the appellant. The conclusion drawn by the Assessing Officer in determining G.P. by factoring in excise duty element is not understandable and r in any case has remained unsubstantiated that the assessee is indulging in evasion of excise duty. 5.8 I am convinced that .the estimation of gross profit margin is to be based on the evidences available with regard to the gross profit earned by the appellant. However, the said estimation can be increased or reduced on the basis of justifiable evidences available to give effect to such increase or reduction and in its absence the gross profit result as arrived at year after year in the same set of fact should be made a basis of estimation of unaccounted income. In the present case as the appellant is manufacturing goods which have been accounted for in its books of account as also manufacturing goods which are sold outside the books of account, the G.P. rate ought to be increased further on the ground that the margin of the profit in the unaccounted sales is likely to be higher as the risk factor is higher. The expenses directly related to the unaccounted sales which are matching in scale wit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he instructions of Shri. Prakash R Dhariwal and Shri Rasiklal Dhariwal, Directors of the assessee Company. He further stated that these papers are in his handwriting wherein the receipts of Gutkha consignments are written and the payments mentioned therein are as per the instructions from Dhariwal. 79. He submitted that a search u/s.132 of the I.T. Act was conducted on the assessee on 20-01-2010 and no incriminating documents were found. No unaccounted stock or unaccounted purchases/expenses/sales were found. There was not a single unaccounted sale/purchase voucher found during the search. Thus, during both the searches i.e. at Mehta's place and the assessee's place, there was no direct evidence found in the form of any unaccounted voucher or any unaccounted sale receipt or any unaccounted stock. What was found were the incriminating papers written and maintained by Shri Mehta and that too, they were found during the search on Mehta and nothing was found during the search on the assessee. 80. Referring to Page Nos. 53 to 85 of the paper book Volume-IV he submitted that Shri Rasiklal M Dhariwal, Chairman of the assessee Company, was asked during the course of search at....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the slips to the bearer of the slips and he does not know the person who is the bearer of the chit. The chits are the evidences for the payments made by him out of the unaccounted income of the assessee and these chits are received from the directors of the assessee. On page 18, he states that he gets the commission of Rs. 50/- per box of gutkha sold from the assessee. He admits that the papers are written by him. On page 43, he admits that he has given loans to various persons on interest and such interest income is not disclosed by him in the return. Further, in the statement he disclosed an additional income of Rs. 2 Crs on account of the unaccounted turnover of the assessee company for all these years (page 19 PB I). On one side, in the search on the assessee, no unaccounted investment, income was found to be pertaining to the assessee but on the other hand, Mehta disclosed additional income and admitted unaccounted investment. Does it mean that all these transactions are of Mehta and in order to get away from huge tax liability, he floated the story that the papers indicate the transactions of the assessee. On page 48 to 52, he gives a retraction on page 49 wherein he makes a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was that substantial sales tax refunds of the assessee were received by Mehta and he was not making the payments to the assessee. Secondly, some persons known to the assessee required small amounts at Bengaluru and that is why the assessee asked Mehta to make these payments. Mehta could not produce any evidence to support his interpretation of the papers written by the assessee to him that all these figures were coded figures. No evidence was found during the searches to support Mehta's contention that assessee asked him to advance such large amounts (coded) to various persons. Thus, the assessee right from beginning refuted Mehta's story. 85. As regards the statements of third parties are concerned the Ld. Counsel for the assessee referring to pages 138,141,153 and 176 etc. of Paper Book Volume-I submitted that some of the persons whose names figured in the loose papers were interrogated by the dept. such as Sheetal Patil, K. Raghunath, Mallikarjun and Balan. They were searched and under tension they admitted the notings in the papers but later on, they all retracted and submitted that the papers do not reveal any unaccounted money of the assessee. Similarly, no evidenc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s production from Bangalore factory to various C & F Agents in Tamilnadu, Andhra Pradesh, Kerala, South Maharashtra. No record about these agents taking the stock from Mehta was found. No proof that these persons paid money to the assessee or Mehta was found. He submitted that if all these sales are made through Mehta in these territories, the above C & F Agents would have objected. Secondly, no evidence that Mehta maintained the ware houses in various states was found. Thus, if what Mehta says is correct, these unaccounted sales can be made by Mehta only and that too, in his region i.e. Karnataka. Any other presumption is not possible. He submitted that the assessee pays commission to Mehta on sales made by him in Karnataka. Why should he make commission payment to him on sales as per the loose papers. There is no reason. If the sales are made in other states, the assessee would make payment of commission to other C & F Agents and not to Mehta. Accordingly, Mehta's contention that he received commission on all these sales of more than Rs. 300 Crs as per the loose papers is not correct and secondly, there is no reason for the assessee to ask Mehta to make these sales to other s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hey reflect unaccounted purchases, they would have been in some odd amounts also. The accounts written by Mehta are written for the period from Jan. 2003 to Feb. 2008. However the payment chits written by the assessee to Mehta are for the period June 2006 to Oct. 2007. No letters for the balance period were found during the searches. What is not found is presumed to be not there. Hence, Mehta has not corroborated that the assessee has verified all these loose papers found with him. 90. He submitted that no evidence was found that the figures mentioned by the assessee in his letters to Mehta are coded figures. No evidence was found that the assessee has checked, signed and okayed the notings of Mehta. Thus, Mehta has not maintained these figures for the purposes of reporting to the assessee or for purposes of giving account of unaccounted transactions to the assessee. He submitted that Mehta's papers are for the period from Jan. 2003 to Feb. 2008. The search on Mehta was conducted on 09.10.2009. For the period from March 2008 till the date of search, no such loose papers are found. No reason was attributed. If assessee was having such roaring unaccounted business, there is no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tory at Bengaluru. It had maintained quantitative stock account, RG 1 register for the production and till the date of search, no discrepancy was noticed by excise dept. Thus, there being no discrepancy noted by the excise dept. in the production record of the assessee, no addition on the basis of such unaccounted estimated sales can be made in the hands of the assessee. Referring to page No. 124 of paper book Volume-IV, he submitted that the assessee has given the list of the dates on which the excise officers visited the factory at Bengaluru and no discrepancy was noticed by them. 94.1 Referring to the decision of the Commissioner, Central Excize, dated 31-12-2015 he submitted that the Commissioner has given a finding that there is no sign of excess consumption of raw material or packing material or excess use of machine or excess manufacturing of Gutkha. Therefore, once there is no unaccounted production, the question of unaccounted sale does not arise. He submitted that if the goods manufactured are excisable and the excise authority has not found any discrepancy and the assessee has maintained the records, no addition can be made on account of unaccounted production/sales i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on the sales mentioned therein. Thus, there being no evidence that the assessee collected excise duty on the unaccounted sales, the G.P. around 60% adopted by the A.O. is not justified. He submitted that without prejudice to the assessee's main contention in its appeal that no addition is warranted on account of unaccounted profits based on the papers found with Mehta, the assessee submits that if at all, addition is made, the GP should be taken as per books and not as per the estimate made by the A.O. 99. The Ld. Departmental Representative on the other hand heavily relied on the order of the AO. He submitted that Shri Sohanraj Mehta is a C&F agent of the assessee company for the State of Karnataka. The initial admission of Shri Sohanraj Mehta that seized documents belonged to the appellant company, is important because same is duly witnessed by the Panchas during the course of search. First response on spot would always be true. Referring to the decision in the case of Kantilal C Shah Vs. ACIT reported in 14 taxmann.com 108 he submitted that the Tribunal in the said decision has held that statement recorded u/s. 132(4A) is an evidence by itself and any retraction should be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....did not furnish the names of vendors to whom the income in question was passed on. In the second last paragraph of his letter dated 23.12.2009, he reached an inference that owing to the nature of trade and not being sure of said business associates whose names are found in seized records, it is difficult to say that who is liable to be taxed in respect of seized documents. 105. The Ld. Departmental Representative submitted that in response to summons issued by DCIT, Central Circle-2(2), the statement of Mr. Sohanraj Mehta was recorded on 10-08-2011 where he again confirmed that he had retracted at the behest of Dhariwal Industries Ltd. and what he had said during the course of search was true. In response to notice u/s. 153A, he has duly offered to tax commission income of Rs. 1,52,83,320/- in his return of income. Moreover documentary evidence is valuable as per section 91 & 92 of Indian Evidence Act as compared to oral evidence. For the above proposition he relied on the decision of Hon'ble Punjab & Haryana High Court in the case of Paramjit Singh Vs. ITO reported in 323 ITR 588. He submitted that the Hon'ble Bombay High Court in case of CIT Vs. Omprakash Jain reported in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se chits after decoding is Rs. 72.02 crores (two zeros have to put up after each figure). The AO has dealt with this issue of decoding on pages 19 to 25 of the assessment order. These figures are then carried forward to page 34 of A/M/08. It is not in dispute that these pages show recorded sales as shown in the books of account (mentioned as DIL). The unrecorded sales of Rs. 345.72 crores are not found recorded anywhere (mentioned as "A"). There can't be any contra confirmation of the unrecorded sales or expenses for mutual benefit. 109. He submitted that it can't be said that the appellant was not provided any opportunity to cross-examine Sohanraj Mehta. The AO had allowed two opportunities i.e. on 01.12.2011 & 23.12.2011. It could not take place due to absence of Rasiklal Manekchand Dhariwal. The department can't be blamed for such lapse on the part of the assessee. Even otherwise, the opportunity to crossexamine will depend on the facts of a given case and may not be necessary. For the above proposition he relied on the decision of Hon'ble Punjab & Haryana High Court in the case of CIT Vs. K D Bali reported in 10 taxmann.com 215 and the decision of Punjab & Haryan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mitted that the provisions of section 132(4A)/292C have been rightly invoked. It is not in dispute that chits are signed by Prakash Dhariwal or Rasiklal Dhariwal for making payments to various suppliers. The entries were made at the instance of Rasiklal Dhariwal/Prakash Dhariwal. There is no evidence for duplicate business being carried by Sohanraj Mehta ( Question 4 of statement of RMD on 03.02.2010 page 29 and 45 of the assessment order). During the search, only stock of Dhariwal Industries Limited was found in the premises of Sohanraj Mehta. If Sohanraj Mehta was doing some duplicate/parallel business why would he give commission @ 65 per carton on unrecorded sales to him. All the suppliers admitted that they were supplying goods to DIL and not to Sohanraj Mehta. 115. He submitted that the AO has applied GP of 60% which is correct in the facts & circumstances of the case. The appellant company has itself shown GP of almost 20% in its regular books of account. When sales are not duly recorded and made out of books of account, there will be saving on account of local taxes such as sales tax/excise duty. In this case, the element of excise duty was itself 40 %. If these two are ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om Shri Mithulal which were owned up by Shri Sohanraj Mehta, the AO held that all these papers reflect the unaccounted sales made by the assessee company through Shri Sohanraj Mehta for the period from 2003 to 2009. After analyzing the papers, the AO came to the following conclusion : a. The seized papers contained daily, monthly and yearly summary of unaccounted sales of Gutkha. b. There are matching unaccounted purchases of raw material noted on the papers. c. The unaccounted sale proceeds have been invested in the real estate and the assessee has paid money to various parties. d. The papers indicate that the unaccounted sale proceeds have been paid to assessee's employees, Shri Rasiklal Dhariwal and Shri Prakash Dhariwal. e. Shri Mehta has offered commission on unaccounted sales as income in his hands. f. The packing material, freight, hamali are also reflected in the seized papers found with Mehta. g. These unaccounted sale proceeds are paid to various persons on behalf of assessee like suppliers, C & F Agents, Legal advisers, etc. Although they have not accepted the receipts of such amounts, they have accepted ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the said chits are not reliable. It is also the submission of the Ld. Counsel for the assessee that if the assessee could have given such huge amounts to various persons out of the unaccounted profit of the suppressed turnover, then atleast some sort of receipts, acknowledgements, security, blank cheque etc. could have been found from the place of either the assessee or Shri Sohanraj Mehta or Shri Mithulal. It is also the submission of the Ld. Counsel for the assessee that on the basis of the information provided by the Income-tax Department to Central Excise Department, they have conducted extensive investigations. The Commissioner, Central Excise on the basis of the directions issued by the CESTAT has held that the assessee has not indulged in any unaccounted production. Therefore, it is the submission of the Ld. Counsel for the assessee that no addition can be made in the hands of the assessee on account of undisclosed profit on suppressed turnover. 121. It is the submission of the Ld. Departmental Representative that the documents seized during the course of search action in the case of Shri Sohanraj Mehta and Shri Mithulal unequivocally show that they reflect the unaccoun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Commissioner, Central Excise and Customs gives the background of the case : "3.1 The relevant records were obtained from the Income Tax Department. Perusal of the' Assessment Proceedings of the assessees, revealed that the case against M/s. Dhariwal Industries Limited originated on account of the search carried by the Income Tax Authorities at the premises of an individual at Bangalore wherefrom documents/records relating to unaccounted sale of Gutkha were recovered. The said incriminating documents were allegedly belonging to an individual by name Shri.Sohanraj Mehta. The investigation focused on the activities of Shri. Sohanraj Mehta who was found to be dealing in the business of Gutkha and was sole C&F Agent of Dhariwal Industries Limited in Karnataka. Further enquiry of the said individual resulted in unearthing of illegal and unaccounted transaction of Gutkha dealt by him purportedly belonging to M/s. Dhariwal Industries Limited. Scrutiny of the documents seized by Income Tax revealed the details of unaccounted transaction dealt by him during the period from 2003-04 to 2007-08 causing huge loss to the Government revenue. Accordingly, search assessment proceedi....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., Basaveshwaranagar, Bangalore-560079 who was C & F Agent of M/s. Dhariwal Industries Limited. v) M/s. Stuti Enterprises, No.52/1, 2nd Floor, Lalbagh Road, Bangalore - 560027 who are appointed as authorized distributors of Dhariwal Industries Limited. 4.2 Later, on 01.06.2012 the premises of M/s.Gajanana Arecanut Agencies, No.799/6, Shop No.2, Anekal Road, Chandapura, Bangalore - 560 081 who are suppliers of Supari/Arecanut to M/s. Dhariwal Industries Limited was also' visited by the team of officers. 4.3 During the search operations conducted at the above mentioned premises on 17.05.2012 and 18.05.2012, certain incriminating records and documents like Stock Registers, sales invoices, purchase invoices, ledger extracts, correspondences, etc., were recovered for further investigation in connection with the case. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124.1 We find after elaborate discussion, the Ld. Commissioner of Central Excise has given his findings which read as under : "DISCUSSIONS AND FINDINGS: 46. I have carefully perused the case records, the Fi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in detail. 47. Seizure or interception of any consignment while clearing without payment of duty : 47.1 On the question whether there was any seizure or interception of any consignment of gutkha which was allegedly cleared from the assessee's factory without payment of duty, I find from the records of the case that the officers who had visited the assessee's factory premises and conducted the investigation, have' not found any consignment of unaccounted gutkha lying in the factory-premises demonstrating clandestine manufacture of gutkha. Further, no seizure of unaccounted gutkha has been made from any premises including the premises of the assessee or that of the C&F Agents or the buyers. There is also no instance of unaccounted gutkha being intercepted by the Department. The case of clandestine clearance of gutkha is made out by the department on the basis of loose slips belonging to Shri.Sohanraj Mehta, seized by the Investigation Wing of the Income Tax Department from the residential premises of one Shri.Manoj Mitulal and the statement dated 21.10.2009 of Shri.Sohanraj Mehta, recorded by Investigating Agency of Income Tax and statement dated 05.06.2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rge quantities. I also take note of the submission made by the Noticee before the' Tribunal that for clearance of 57085 cartons of gutkha, around 900 trucks are required. This submission was demonstrated before the Tribunal by showing the Tribunal one sample carton box. I find that the officers have not carried out the any investigation in this direction and not a single truck carrying the unaccounted gutkha has been intercepted. There is also no evidence to suggest that the assessee employed extra labour for the manufacture of unaccounted gutkha. In the absence of evidences to show that the assessee had used extra machines, employed extra labour or operated additional shifts at the factory to manufacture the alleged large quantities of, unaccounted gutkha, I am constrained to hold that the charges of clandestine manufacture and clearance of gutkha is not demonstrated in this case. 49. Excess consumption of raw materials/mis-declaration of consumption by the party: 49.1 As regards the consumption of raw material, the Preventive officers had conducted Investigation to examine the same. A' statement of Shri.M.B.Mallikarjuna was recorded on 07.06.2012 before ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dence to demonstrate sale of unaccounted arecanut by Shri Mallikarjuna to the assessee. Therefore, I find that the allegations are baseless more so when the. investigation has also failed to prove that he had supplied unaccounted arecanut to the assessee and not even a single consignment of unaccounted arecanut has been seized in the case. Thus, in the absence of evidence, I cannot accept the charges made in the notice that Shri Mallikarjuna has supplied unaccounted arecanut to the assessee and had received payments for the same through Shri Sohanraj Mehta. 49.3 Further, investigation was also conducted on the supplier of lamination rolls viz., M/s.Champion Packaging Industries Pvt. Ltd., Bangalore. A statement dated 14.06.2012 of Shri Rajesh Bachhawat, Director of M/s.Champion Packaging Industries Pvt. Ltd., Bangalore (CPI' for short), was recorded by the Superintendent of Central Excise (Preventive). Banglaore-I Commissionerate. In the said statement* Shri Rajesh has interalia stated that they always received payments from Bangalore factory of the assessee through account payee cheques favouring CPI. On showing the summary of records which indicated that Shri.Soharaj....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... supplied to the assessee. It is therefore* not established in the case that unaccounted rolls were being supplied by CPI to the assessee as these allegations are loosely based on only the slips recovered from Shri.Sohanraj Mehta wherein the name of Shri.Srinivasa, Accountant of CPI is mentioned and certain amounts are mentioned against his name. There is no investigation carried out against the said Shri.Srinivasa and he has not been examined to ascertain the facts and reasons as to why these amounts were paid to him, if at all they were paid to him. In the absence of investigation on this point, I am forced to hold that the investigation has only presumed that the impugned amounts mentioned against the name of Shri Srinivasa, Accountant of CPI, were paid to (PI who in turn have supplied unaccounted lamination rolls to the assessee for packing of unaccounted gutkha. Thus, in the absence of concrete documentary evidence. I am not inclined to accept the charges made in the notice that CPI have supplied unaccounted lamination rolls to the assessee. 49.5 During the investigation, it was observed that M/s.Rajhans Enterprises, Bangalore were supplying carton boxes to the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the Department by producing cogent, convincing 'and tangible evidence and such a charge cannot be based on assumptions and presumptions." Further, in the case of CCE, Kanpur Vs. S.C.Manufacturers reported in 2005 (179) ELT 193 (Tri.), the Hon'ble' Tribunal observed that, The duty demand was raised on the allegations of clandestine removal of the goods after visit of the Central Excise Officers to the factory premises of the appellants who took into possession certain torn pieces of paper and other documents. But, neither any shortage nor excess of the raw material as well as of the finished goods, was found by the Central Excise officers in the factory premises of the Respondents. It is also evident that Shri Sodhi, the then partner of the Respondents (now deceased) never admitted categorically in his statement about the clandestine manufacture and removal of the finished goods by his firm. The bald testimony of D.K. Bajpai, authorised signatory of the Respondents firm also did not advance the case of the Department as none of the consignees named in the alleged parallel invoices admitted the receipt of the goods from the Respondent's firm, No evidence regarding t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o evidences which corroborate that the entries in the impugned slips suffixed with letter 'A' actually relate to the sale of unaccounted gutkha manufactured by the assessee. Thus, I find that the allegation that the letter 'A' represents clearance of unaccounted gutkha manufactured by the assessee is not corroborated. Further, during the proceedings initiated by Income Tax Authorities against Shri.Sohanraj Mehta, it is seen that Shri.Sohanraj Mehta had stated that he is dealing with gutkha manufactured by the assessee as well as' other brands of gutkha. From the records of the case, it is seen that there is no investigation conducted to ascertain whether Shri.Sohanraj Mehta was dealing with other brands of gutkha. In. the absence of any investigation on this aspect, it cannot be concluded that the entries made in the impugned slips by suffixing with letter 'A' relate to unaccounted gutkha manufactured and clandestinely cleared by the assessee and that Shri.Sohanraj Mehta had not dealt with other brands of gutkha. I also find that the proceedings initiated by the Income Tax Authorities on the impugned slips have been dropped by the Commissioner of Income Tax (App....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on the basis of loose slips recovered from the premises of the C&F Agent of the .assessee and the statement of Shri.Sohanraj Mehta, the C&F Agent, when no evidence to show that excess raw material or finished goods or packing materials were found in the assessee's factory. In this regard, I rely on the decision of the Tribunal in the case of New India Dyeing & Finishing Mills Vs. CCE, Chandigarh reported in 2004 (165) ELT 316 (Tri.Calcutta) and R.K.Patel & Co. Vs. CCE, Nashik reported in 2008 (227) ELT 558 (Tri. Mumbai) wherein it is held that unaccounted production or clandestine clearance not found despite several surprise checks by the Department and therefore clandestine manufacture and clearance not proved. I find that the above decisions are squarely applicable to the case on hand. 53. Retraction of the statement of Shri.Sohanraj Mehta. 53 .1 The allegations of clearance of unaccounted gutkha by the assessee in the instant case are based on the statement dated 21.10.2009 of Shri.Sohanraj Mehta given before the Income Tax Authorities and his statement dated 05.06.2012 given before* the Superintendent of Central Excise (Preventive), Bangalore-I Commission....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t he also received gutkha without invoice and I find that no question is' put to him to elicit this* information. Further, there is also no investigation regarding how the transfer of sale proceeds in connection with the sale of unaccounted gutkha, from Shri Sohanraj Mehta to the assessee took place. 54. Cross examination of Shri.Sohanraj Mehta. 54.1 The CESTAT while remanding the case back for denovo adjudication, has observed that the appellants had asked for crossexamination of only three . persons and only one has been 'allowed and no reasons have been given for denying the cross examination of others and that this needs reconsideration. The assessee filed a request to allow cross-examination of Shri.Sohanraj Mehta, Partner of M/s.Mehta Associates, Shri.D.Srinivas of M/s.Champion Packaging Industries Pvt. Ltd. and the officers who had conducted survey and visited the assessee and also the investigating officers. It was informed to the assessee under letter dated 03.06.2015 that in the light of the decision of the Hon'ble Supreme Court in the' case of CCE, Mumbai Vs. Kalvert Foods India Pvt. Ltd., cross-examination is not mandatory and that as p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... failed to appear for crossexamination even after giving three opportunities thereby rendering it doubtful that he was dealing with only the gutkha manufactured by the assessee and not dealing with other brands also. Thus, the contention of the noticee .that Shri.5ohanraj Mehta was dealing with other brands of gutkha is not free from doubt and no reliance can be placed on his statement given before the Superintendent of Central Excise (Preventive). In support of this, I place reliance on the decision in the case of Nu-Trend Business Machines (P) ltd. Vs. CCE, Chennai - 2002 (141) ELT 119 (Tri.). wherein it is held that "When a person does not turn up for cross-examination, his statement cannot be accepted and on the basis of that statement demands cannot be confirmed": 55. I have further examined the case based on the additional written submissions dated 30.11.2015 made by the assessee along with the case records and my findings are detailed in the below paragraphs. 55.1 In the instant case, I find that there is also no evidence on record to show that the assessee manufactured and cleared the said unaccounted gutkha to the C&F agents. Further, not even a single bu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....een examined and no statement of any buyers of impugned unaccounted guktha is recorded. Thus, in my view, a demand based on records of third parties, without considering other parameters like power consumption, procurement of raw materials, usage of additional machinery, deployment of extra labour, etc., is not sustainable. In support of my views, I place reliance on the decisions in the case of Rhino Rubbers Pvt. Ltd. Vs. CCE, reported in 1996 (85) ELT 260 (Tri.) where it is held that "It is not safe to rely only on the third party's records evidence when no direct links of the transactions established - Other parameters like electricity consumption etc. should have been considered before demanding duty on the alleged clandestine manufacture and removal of goods' and Kothari Synthetic Industries Vs. CCE, reported in 2002 (14) ELT 558 (Tri.) wherein it is observed that "No statement of any buyer to whom the appellants allegedly sold the processed fabrics had been recorded nor any documents showing the clearance of such fabrics by them, in a clandestine manner; had been placed on record. It is well settled that the charge of clandestine removal of the goods has to be establi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble to the instant case. 55.4 The Hon'ble Tribunal while remanding the case back to the original authority had observed that" what is required to be proved by the Department is preponderance of probability". There is no doubt that the Department need not establish an offence case with mathematical precision as required in a criminal case but preponderance of probability is also sufficient in a department's case. In the present proceedings there is no evidence recovered from the factory premises of the assessee pointing towards alleged clandestine clearance of gutkha.' Not a single pouch of illicitly cleared gutkha is seized in the case either in the factory premises or at the premises of the C&F agents. Also, no gutkha that is alleged to have been manufactured and cleared clandestinely is seized from the dealer or distributors or even the buyers of the said goods. When it is alleged that excess production of gutkha happened at the factory premises of the assessee and that the goods were cleared from the factory to the C&F Agents, no instance of transportation of the said unaccounted gutkha has been established. In this regard; the investigation has not identifi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. done in additional shifts of work by the assessee during the relevant period. Also, not a single consignment of unaccounted gutkha has been seized or intercepted while being allegedly cleared without payment of duty. I find that the only evidence available is the statement of Shri.Sohanraj Mehta, which is not at all corroborated by any other evidence. 57. I find that there is failure on part of the investigation to gather corroborative evidences in the case, which has resulted in the investigation being inconclusive. As pointed out the Hon'ble CESTAT in its Final Order dated 20.10.2014, many crucial aspects have not been verified by the investigating team. Based on such incomplete investigation, no definite conclusion can be arrived at. In my view, incomplete investigation cannot and could not constitute the grounds for any allegation. As a result of this, it cannot be alleged that the stamps of the Check Post, seen on the transport documents, are fake. Hence, I am compelled to hold that no case of clandestine manufacture and clearance of gutkha has been established against the assessee. 58. In view of the above, I hold that the total demand of Rs.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Bangalore and M/s.Rajhans Enterprises. Bangalore, in the said notice." 125. We find the AO in the instant case while estimating the estimated production and turnover of the Bangalore factory has also based his calculation on the basis of the production of the Baroda unit of the assessee company. However, since the Commissioner, Central Excise after thorough investigation by the Excise department has come to a conclusion that there is no suppressed production or excess consumption of raw materials or packing materials by the assessee or excess use of machines or excess manufacturing of Gutkha done in additional shifts worked by the assessee during the relevant period, therefore, the huge suppressed turnover determined by the AO and upheld by the CIT(A) in our opinion is not justified. 126. We find, the assessee is liable to pay excise duty on its production in the factory at Bangalore. It had maintained quantitative stock account, RG1 Register for the production and till the date of search no discrepancy was noticed by the excise department. On page 124 of the paper book the assessee has given the details of dates on which the excise officials have visited the factory premise....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The details of domestic sales, commission and discount paid thereon was furnished by the assessee before the lower authorities. The entire sales made by the assessee are' of excisable goods. While deleting the addition of Rs. 15,99,158 made by the AO the Tribunal, inter alia, has observed as follows: "It is beyond comprehension that the charge of alleged suppression of sales has been confirmed by the CIT(A) without applying his mind on such elaborate written submission and comprehensive details submitted before him by the assessee. The AO has brought no material or evidence on records to prove the existence of any unaccounted local sales having been made by the assessee. The sales declared by the assessee are of excisable goods. The correctness of declared sales is supported by regular books of account which have duly been audited by the auditors as required by various provisions of the Companies Act and the IT Act. The auditors have given unqualified report. The excise authorities have not doubted the correctness of the declared sales. The sales recorded in the books of account are supported by various excise registers, which are periodically checked and verified by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pression in the books of account maintained by the assessee. Nor has the Revenue disputed the fact that in case of various ether oil mills, the percentage of production of oil and oil-cakes during the year under consideration is less when compared to the percentage of production in case of the assessee. On the basis of these factors, the Tribunal has came to the conclusion that the CIT(A) was justified in deleting the additions on account of alleged suppression of unaccounted sales of oil and oil-cakes of Rs. 54,23,457 and Rs. 12,44,130, respectively. 9. The aforesaid findings recorded by the Tribunal are supported by the evidence which is available in the paper book and no material has been pointed out so as to take a different view of the matter. The Tribunal has taken into consideration all relevant facts for the purpose of adjudicating the issue as to whether there was any suppressed production of oil and oil-cakes resulting in sales outside books and consequently undisclosed income. In the result, it is not necessary to reiterate the reasons and the factors which have weighed with the Tribunal while deleting the additions on this count and there being no infirmity in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aka, the submission of the Ld. Counsel that spurious Pan Masala and Gutkha under the brand name of the assessee company was being produced and sold in the market cannot be simply brushed aside. 130. So far as the finding of the Revenue authorities that the profit generated from suppressed production and sale was diverted to various persons whose names appear in the seized documents is concerned, we find the different Benches of the Tribunal have deleted such addition made in their hands. We find the Bangalore Bench of the Tribunal in the case of CIT Vs. H.S. Chandramouli vide ITA No.1551/Bang/2012 order dated 20-08-2013 has upheld the order of the CIT(A) in deleting the addition of Rs. 22,75,000/- which was added by the AO on account of receipt of the above sum from Shri Sohanraj Mehta, C&F agent of M/s. DIL for Karnataka Region. The Lucknow Bench of the Tribunal in the case of Mohd. Yakub perfumers Pvt. Ltd. vide ITA No.388/Lkw/2013 order dated 10-122014 has upheld the order of the CIT(A) in deleting the addition of Rs. 50 lakhs which was added by the AO on account of entry found in the documents of Shri Sohanraj Mehta, C&F Agent of RMD Group at Bangalore. The Lucknow Bench of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is findings that there was no unaccounted production. In our opinion, the question of unaccounted turnover will arise only when there is unaccounted production. Since one Government authority, after thorough investigation, has given a finding that there is no unaccounted production and clearance of such unaccounted Gutkha to the C&F Agent, therefore, estimation of huge unaccounted producuction and sale thereof as determined by the AO in the body of the assessment order and upheld by the CIT(A), in our opinion is uncalled for. 133. There is another aspect which we have noticed is regarding decoding of the figures. We find there are certain chits which are found during the course of search in the place of Shri Sohanraj Mehta/Shri Mithulal, copies of which are placed at paper book pages 41 to 102 of the paper book. These chits show amounts written both in words as well as in figures. Therefore, when the chits contain the amounts written both in words and figures, therefore, in absence of any cogent evidence in the hands of the department, it is not proper to decode the same by adding two more zeros. 134. So far as the statement of various persons recorded during the course of se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....destroyed the papers, there is no reason as to why he should have maintained the papers for the old period. This defies logic. 137. Another aspect which the Ld. Counsel for the assessee has argued and which in our opinion finds force is that there is no signature of confirmation by the assessee in the statements. For example Page No.204 of the paper book is the statement for the period 02-04-2003 to 31-08-2006. There is no signature of confirmation by the assessee on this paper. If the paper was written by Shri Sohanraj Mehta for the benefit of the assessee so as to give him details of his account, he should have obtained the signature of the assessee on this paper as a token of confirmation. Thus, we find force in the submission of the Ld. Counsel for the assessee that there is no evidence that the loose papers belong to the assessee. 138. We also find merit in the arguments of the Ld. Counsel for the assessee that the assessee normally sells its product from Bangalore factory to various C&F agents in Tamilnadu, Andhra Pradesh, Kerala, South Maharashtra etc. No proof that these agents have taken the stock from Shri Sohanraj Mehta and paid money to the assessee or Mr. Mehta w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rnover and thereby generation of huge unaccounted income as determined by the AO, in our opinion, is incorrect. Therefore, the addition made by the AO and partly sustained by the CIT(A) on account of unaccounted profit on suppressed production and sale thereof is directed to be deleted. 140.1 At the same time, it is also an admitted fact that certain chits duly signed by the assessee were found from the possession of Shri Sohranraj Mehta during the course of search on 10-10-2009. Those chits were in the hand writing of the assessee for different years. It is not known as to why and for what purpose the assessee used to give such chits in his hand writing. Further, the amount of such chits according to the assessee is about Rs. 61 lakhs whereas the Revenue has considered the same at about Rs. 61 crores by adding two zeros to the figures. We have already held at Para No.133 of this order that in absence of any cogent evidence in the hands of the revenue, it is not proper to decode the same by adding two zeros. The argument of the Ld. Counsel for the assessee that certain sales tax refunds were due to be received by Shri Sohanraj Mehta for which he has issued chits to be handed ove....
X X X X Extracts X X X X
X X X X Extracts X X X X
....5, 1559 and 1560/PN/2007 order dated 29-05-2015 has decided the issue and held that the sales tax subsidy received by the assessee in the instant case was in the course of carrying of its trade more profitably for which it cannot be held as capital receipt and the order of the CIT(A) treating the same as revenue receipt has been upheld. The Ld. Authorised Representative also conceded that the issue has been decided against the assessee by the order of the Tribunal in assessee's own case. In view of the decision of the Tribunal in assessee's own case this ground by the assessee is dismissed. 147. Identical ground has been raised by the assessee in A.Y. 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10. Following the reasons given in the preceding paragraphs, this issue by the assessee in the above years is dismissed. 148. In Ground of appeal No.3 the Revenue has challenged the order of the CIT(A) in deleting the addition of Rs. 60 lakhs made by the AO under Explanation to section 37(1) of the I.T. Act. 149. After hearing both the sides, we find the AO during the course of assessment proceedings noted from the seized documents that M/s. DIL had made certain unlawful payments to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al No. 4 and 5 by the revenue read as under : "4. On the facts and in circumstances of the case the Ld. CIT(A) erred in allowing the claim of assessee that employee's Contribution of Rs. 4,96,738/- to PF and ESI u/s. 36(1)(va) of the Act, although the same was not paid within due date prescribed within section 36(1)(va) of the Act. 5. On the facts and in circumstances of the case the Ld. CIT(A) erred in allowing the claim of assessee that employee's Contribution of Rs. 4,96,738/- to PF and ESI u/s. 36(1)(va) of the Act, relying on the decision of the Apex court in the case of Alom Extrusions Ltd, although the same is not applicable in present facts of the case. " 155. Facts in brief are that the AO passed the assessment order u/s.143(3) on 29-12-2006 for A.Y. 2004-05 and made disallowance of Rs. 4,96,738/- u/s.36(1)(va) on account of delayed payment of employees contribution to PF and ESI. Before CIT(A) it was submitted that the payments of PF and ESI contribution were made before due date of filing of returns. The CIT(A) following the decision of Hon'ble Supreme Court in the case of CIT Vs. Alom Extrusions Ltd. reported in 319 ITR 306 deleted the disal....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to retrieve the barge was uneconomical the barge was sold on as is where is basis for Rs. 55 lakhs in the month of May 2001 relevant to A.Y. 2002-03. As the barge was non operational and not used for business at a later date in A.Y. 2001-02 the AO denied depreciation. The Tribunal held that after the concept of "Block of Asset" w.e.f. 01-04-1988, individual assets had lost their identity once it entered with the Block of Assets and only the Block of Assets had to be considered. It was held that the test of user had to be applied upon the block of assets as a whole and not on individual assets. On appeal by the Revenue, the Hon'ble High Court dismissed the appeal filed by the Revenue. Therefore, since the Ld.CIT(A) in the instant case has allowed the claim of depreciation on the block of assets installed at Hyderabad Division which were not used during the impugned assessment year by following the decision of Hon'ble Bombay High Court, therefore, in absence of any contrary material brought to our notice we do not find any infirmity in the order of the CIT(A). Ground raised by the Revenue is accordingly dismissed. 162. Identical grounds have been raised by the Revenue in A.Yrs. 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he directors only take the decisions for which no expenses have been incurred, therefore, disallowance of the above amount is high and excessive. 167. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). 168. After hearing both the sides, we find the AO disallowed Rs. 8,64,152/- being administrative expenses incurred for earning the exempt income. We find the Ld.CIT(A) considering the totality of the facts of the case has restricted such disallowance to Rs. 3,50,000/- which in our opinion is a reasoned one. We uphold the order of the CIT(A) on this issue and the grounds raised by the assessee as well as the revenue on this issue are dismissed. 168.1 The Ld. Counsel for the assessee did not press ground of appeal No.7 regarding disallowance of Rs. 50,000/- in respect of sales promotion expenses because of smallness of the amount. Therefore, the ground raised by the assessee is dismissed. 169. The next issue that arises in A.Y. 2008-09 by the assessee is regarding disallowance of Rs. 26,42,480/- u.s.14A r.w.Rule 8D. Ground of appeal No.6 on this issue read as under : "6. The Ld CIT(A) erred in confirming the disallow....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat when assessee is paying interest on borrowing and the assessee is not able to show that investment in shares are out of internal accruals or non interest bearing funds disallowance u/s.14A can be made. 172. Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 173. The Ld. Counsel for the assessee submitted that no borrowings have been made for investment in exempt income and whatever borrowings were made were specifically for the windmill. Referring to page 10 of Volume-I of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to the following chart : A.Y. Disallowance out of interest expenses u/s.14A r.w.R8D(ii) Disallowance out of admn. Expenses u/s.14A r.w. R8D(ii) Total disallowance u/s.14A 2008-09 14,69,688 11,72,792 26,42,480 2009-10 12,32,112 18,01,966 30,34,078 2010-11 7,84,674 22,26,799 30,11,473 He submitted that the mutual fund houses provide door step services for investment and are also charging entry load of 0.5% to 2.5% for administrative expenses which forms part of cost of investments. Therefore, no separate disallowance is warranted. Further, the decisio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed (Supra). If the own capital and free reserves are more than the investments in shares and mutual funds, the income of which is exempt, in that case, no disallowance u/s.14A r.w. Rule 8D is warranted on account of interest expenditure. 176. So far as disallowance of administrative expenses is concerned, we find the AO has disallowed an amount of Rs. 11,72,792/- which has been upheld by the CIT(A). Disallowance of such expenses in our opinion is highly excessive and unreasonable under the facts and circumstances of the case. We find force in the submission of the Ld. Counsel for the assessee that the mutual funds are charging entry load varying from 0.5% to 2.5%. Further, the directors are also not drawing any salary who are implementing the decision of investment in mutual funds etc. At the same time, incurring of some administrative expenses for earning such huge tax free income cannot be ruled out. Considering the totality of the facts of the case, we restrict the disallowance on account of administrative expenses at Rs. 2 lakhs each for A.Yrs. 2008-09, 2009-20 and 2010-11 respectively. Ground raised by the assessee is accordingly allowed for statistical purposes. 177.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is allowable to an assessee which is engaged in the business of manufacture or production of any article or thing. Even otherwise assessee is engaged in the business of manufacture or production of any article or thing. 180. However, the AO was not satisfied with the explanation given by the assessee and held that provisions of section 32(1)(iia) of the Act are not applicable to the newly installed windmills since those do not fall in the category of "machinery or plant for the business of manufacturing or production of article or thing" and setting up of these windmills has absolutely no action with the assessee's business of manufacture which in the instant case is manufacture of Gutkha. The AO held that assessee does not have to pay any Excise duty on the so called production of the electricity. Had it been a manufacture or production of article or thing it would have been covered by the provisions of the Excise Act. Relying on the decision of the Hon'ble Supreme Court in the case of Escorts Ltd. where the Hon'ble Apex Court has underscored the philosophy of discouraging double benefit the AO disallowed the claim of additional depreciation on windmills amounting to Rs. 9,15,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction with the assessees business of manufacture of Gutkha. We find the Ld.CIT(A) based on various decisions allowed the claim of additional depreciation on wind mills. The relevant operative portion of the Ld.CIT(A) at Para 3.4 and 3.5 of the order reads as under : "3.4 The Assessing Officer has not disputed the installation of the new plant and machinery in the form of windmill. The Assessing Officer has disallowed the claim of additional depreciation to the appellant on the ground that the same is available on any plant and machinery acquired or installed by the assessee engaged in the business of manufacture or production of article or thing and the appellant was not engaged in such business and that the windmill is classified as renewed energy device and in the generation of power which is not an article or thing. The appellant has brought to notice of the undersigned and also filed a copy of the decision in the case of NTPL Vs DCIT cited supra, wherein the Delhi bench of the ITAT has held as under: "On due consideration of settled judicial decisions, it is implicitly clear that the Supreme Court has explained the meaning of electricity, the Court has conside....
X X X X Extracts X X X X
X X X X Extracts X X X X
....isallowance is deleted." 3.4.1 In the case of CIT Vs Hi Tech Arai Ltd supra the Madras High court has held as under: "Sec 32(1 )(iia) does not state that the setting up a new machinery or a plant, which was acquired or installed upto 31st March 2002, should have any operational connectivity to the article or a thing that was already being manufactured by the assessee. Therefore the contention that the setting up of a windmill had nothing to do with the power industry, namely manufacture of oil seeds etc, was totally not germane to the specific provision contained in Sec 32(1 )(iia). It could not also be said that setting up of a windmill not fall within the expression setting up of a new machinery or a plant. Hence, the assessee was entitled to additional depreciation." The aforesaid decision of the Madras High court is seen to have been followed by the Jaipur ITAT in the case of Fashion Suits Pvt. Ltd Vs DCIT in ITA No. 142/Jod/2011 dated 16-12-2011. 3.4.2 In the case of ACIT Vs M. Satishkumar (2012) 191 ITR (Trib) 646 (Chennai) it was held that the generation of electricity is a manufacturing activity. The assessee was involved in the manufactu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bunal held that since the assessee was generating electricity by windmills, the condition for granting additional depreciation was fulfilled even if it was used for captive consumption. Again the Tribunal relied upon the same CBDT circular as stated above. The appellant has thus emphasised that these two were direct decisions of ITAT Chennai on this particular issue of allowing additional depreciation uls 32(1 )(iia), which have also been separately upheld by the Madras High Court in the cases cited above, and therefore, the appellant's claim was acceptable. 3.5 In view of the facts brought on record and the ratio of the decisions cited above, it becomes apparent that the appellant is entitled to the claim of additional depreciation. Thus the disallowance made by the Assessing Officer of Rs. 9,15,52,187/- is directed to be deleted and the ground of appeal No 1 raised by the appellant is liable to be allowed." 185. Since the Ld.CIT(A) while allowing the claim of additional depreciation has relied on various decisions including the decisions of Hon'ble Madras High Court in the case of VTM Ltd. (Supra) and M/s. Hitech Arai Ltd. (Supra) and since nothing contrary was br....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... admission made by the key person of the assessee company Shri Ajit Jain is that the said unaccounted expenses belong to the assessee company. Shri Ajit Jain is the Chief Executive Officer of its Baroda factory and manages all the affairs of the Baroda factory. Therefore, his statement recorded on oath u/s.132(4) of the I.T. Act carries high evidentiary value in the eyes of law. The AO accordingly made addition of Rs. 2,05,000/- to the total income of the assessee as its unaccounted expenses. 190. Before CIT(A) it was submitted that the said document itself is titled Dhariwal and Doshi Industries Pvt. Ltd. (in short 'DDIPL') and the assessee has nothing to do with the said page. Based on the arguments advanced by the assessee the Ld.CIT(A) deleted the addition by observing as under : "5.2 I have considered the submission made by the appellant and perused material on record. The notings made on page 4 and seized from the office premises of the appellant at Vadodara records the details of the pet jars which is actually utilized by M/s DDIPL which is engaged in the tea business. In the statement recorded u/s 132(4) of Shri. Ajit Jain this fact has been explained by him and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sons for deleting the addition. The Ld. Departmental Representative could not controvert the factual finding given by the Ld.CIT(A). We accordingly uphold the order of the CIT(A) on this issue. The ground raised by the Revenue on this issue is accordingly dismissed. 193. Ground of appeal No.1 by the assessee for A.Y. 2010-11 reads as under ; "1] The Ld CIT(A) erred in sustaining the addition towards the alleged difference in stock of packing material of Rs. 1,75,66,534/- disregarding the stock of packing material lying on factory floor and even the department considered by the department itself in the process of physical verification during the course of search proceedings." 194. Facts of the case, in brief, are that the AO noted that during the course of survey action u/s.133A of the I.T. Act carried out on 20-01-2010 at the factory premises of M/s. Dhariwal Industries Ltd. at Gut No.1524/2, 1526 and 1528, Village Saradwadi, Tal. Shirur, Pune, which was later on converted into a search operation u/s.132, stock of raw material, i.e. Polyester, metalized polyester, metalized BOPP, poly etc., were found amounting to Rs. 4,47,87,898/-. As per the stock register maintain....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onsidered the submission made by the appellant and perused material on record. It is noticed that the difference of stock of Rs. 1,75,66,534/- during the search action was also brought to the notice of the Chief Executive of the appellant company Shri Arun Seth and whose statement u/s.131 was also recorded on 20-01-2010 and he was specifically asked to explain the aforesaid difference, however the CEO of the appellant company, Shri Arun Sheth could not explain the difference. It is also seen that the statement recorded u/s.132(4) of Shri Madhusudhan Brahme, factory manager of M/s. Manikchand Packaging also failed to reconcile the difference between the physical stock and the stock as per books though he had stated that the difference in stock with regard to the quality and quantity would be worked out and submitted within a week which was never submitted. The appellant during the assessment proceedings also could not reconcile the stock difference with the assessment proceedings also could not reconcile the stock difference with the regular books of account maintained by way of cogent proof and evidences and the explanation furnished was found to be not satisfactory. The apex court....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation of such difference. It is the submission of the Ld. Counsel for the assessee that instead of taking the actual rates the search/survey party has applied average rate for which this huge difference has arose. It is also the submission of the Ld. Counsel for the assessee that the maximum difference will be Rs. 15,11,132/- if the correct valuation as per actual invoice is made. According to him, although the reconciliation statement was given to the AO and CIT(A), however, they have not appreciated the same. From the order of the AO as well as the submission of the assessee it is not verifiable as to what method of accounting for valuation of stock was being adopted by the assessee. If the valuation is being made as per actual invoice price, then taking average price will give a distorted figure. In view of the above discussion and keeping in mind the interest of justice, we deem it proper to restore the issue to the file of the AO with a direction to give one more opportunity to the assessee to substantiate with evidence to his satisfaction regarding the difference between physical stock and the stock as per books. Ground raised by the assessee is accordingly allowed for statis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....asis of any dumb document is absolutely improper and illegal and bad in law. 204. However, the AO was not satisfied with the explanation given by the assessee and found the same to be not acceptable. According to him, the admission made by the key person of the assessee company Shri Ajit Jain that the said unaccounted expenses belong to assessee company carries higher evidentiary value in the eyes of law since the statement was recorded on oath u/s.132(4) of the I.T. Act. He accordingly made addition of Rs. 1,04,84,609/-. 205. Before CIT(A) it was submitted that the addition is based on a single page which is just a dumb document as it does not contain the name of the person, date and place, his signature and relevance to any person and does not contain any signature of the person who prepared it. The same has not even been identified or accepted of having been prepared by any of the directors/employees of the company. The said paper is in no way connected to the assessee company. Relying on various decisions it was submitted that addition based on a dumb document is not sustainable. 206. However, the Ld.CIT(A) was also not satisfied with the explanation given by the asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oceedings. 6.3 Similar view was taken by the Pune ITAT in the case of Dhanvarsha Builders and Developers (P) Ltd Vs DCIT (2007) 2891TR (AT) 50 Pune) that it cannot be said that the document is a dumb document even though it does not contain assessee's name and that the statement recorded u/s 132(4) can be used in evidence in block assessment in the context of fact found in the search. Loose papers unlike bound books are generally not to be a basis for ready inference of concealment of figures found in them, but it cannot be said that they are totally irrelevant, if they have something to connect them with the assessee's business. The inference drawn in the case is on fact. Sec.132(4A) which raises a presumption of legality of documents found, would mean that they cannot be totally ignored. 6.4 In view of the above fact the addition made by the Assessing Officer is upheld and the grounds of appeal No.4 raised by the appellant is liable to be dismissed." 207. Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 208. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper b....