TaxTMI 
TaxTMI 
2017 (4) TMI 344
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....pecially the appeal for the Assessment Year 1984-85, which is the base year wherein issues have been discussed threadbare and will have permeating effect in the appeals of the other years. These events are illustrated by way of following chronology of events:- Date Events 29/06/1984: Return of income was filed by the assessee company declaring total income of Rs. 3,20,61,410/-. 31/03/1987: The assessment order was passed u/s.143(3) r.w.s.145(2) and income was assessed at Rs. 33,76,18,670/- which was made on two accounts; firstly, the addition on account of premium on sale of Cigarettes of Rs. 21,36,25,000/- and secondly, value of suppressed production of Rs. 10 crores. As against this, AO has allowed expenses outside the books of Rs. 1 crore only. 20/03/1988: In first appeal, the learned CIT (A) passed the order whereby relief was granted to the assessee for a sum of Rs. 10 crores towards value of suppressed production and other technical additions. The addition on account of alleged premium collected on sale of cigarettes of Rs. 21,36,25,000/- was confirmed. 09/02/1989: In the second appeal against the aforesaid order, the ITAT passed the order in ITA....
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....was given by him out of the premium amount added by the AO on the ground that on-money was being ploughed back in the form of commission in the books of accounts. 01/10/1993: Against the aforesaid order of ld. CIT (A), second appeal was filed by the assessee before this Tribunal being ITA No.5996/Bom/1993. 28/02/1995: Assessee again challenged the violation of natural justice and not allowing cross examination of witnesses. A preliminary order was passed by the Tribunal and decided the issue on preliminary ground of natural justice. The Tribunal held that there was no denial of principles of natural justice by the CIT (A) or by the AO and the said issue of violation of natural justice was thus decided against the assessee. Regarding merits, the Tribunal held that the appeal shall be heard in the normal course. 05/05/1995: The assessee filed a writ petition before the Hon'ble Bombay High Court against the said order of the Tribunal dated 28/02/1995. 31/07/1995: The Hon'ble High Court in Writ Petition No.707 of 1995 against the aforesaid order of the Tribunal passed the order and observed as under:- "We propose not to go into the merits of the cas....
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....to have cancelled / annulled the assessment and / or deleted the addition made by the Income tax Officer? (ii) Whether on the facts and circumstances of the case, the Tribunal went wrong in not deleting Rs. 23 crores representing the alleged realisation of premium? (iii) Whether on the facts and in the circumstances of the case, the Tribunal ought to have deleted the interest charged upon the applicant under section 215 of the Act? (iv) Whether on the facts and in the circumstances of the case and in law, the applicant should be allowed to cross examine only 5 witnesses instead of all the witnesses whose testimony had been used / relied by the department against the assessee company? 31/05/1999: The order of the Hon'ble Vice President Shri R.N. Mehta was passed and which was forwarded to the Hon'ble High Court (order of the Special Bench, third member which was issued separately as per the direction of the Hon'ble High Court). In the said order, he agreed with the conclusion of the Hon'ble President that there was no need to go into each of the 31 items and direct disclosure of the same to the assessee in any particular manner. 30/05/....
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....ould be made by the Assessing Officer to the assessee. According to him, the manner and the extent of disclosure ought to have been decided mutually by the assessee and the Revenue and in case of any conflict, the matter could have been taken by them to the Hon 'ble High Court for further directions. He agreed with the conclusion drawn by the Id. second Member of the Special Bench that there was no need to go into each of the 31 items and direct disclosure of the same to the assessee in any particular manner. At the same time, he also desisted from explicitly concurring with the Id. second Member on the question of the tribunal seeking clarification from the Hon'ble High Court in this regard. 17. Having regard to the majority of the three Members' view of the earlier Special Bench, we proceed to pass the confirmatory order. The only issue which was argued before the earlier special bench was as to whether the tribunal should give direction to the AO for disclosing complete material in respect of 31 items? The majority view is in favor of the Revenue and against the assessee. As such, in so far as the tribunal is concerned, it cannot issue any direction to t....
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....returned unanswered. Accordingly, the Reference is disposed of in the above terms. 4. In the terms of the aforesaid judgment of the Hon'ble High Court, dated 08/07/2016, it is manifest that, firstly, the present Special Bench needs to decide the appeals on merits without being influenced by the earlier order of the Tribunal dated 09/02/1989; and secondly, all the contention of the parties including those arising in this reference are expressly kept open to be urged before this Tribunal. 5. So far as the issue of further disclosure of material and cross examination of further witness is concerned which was vehemently argued by the ld counsel of the assessee before us, much water has flown by as the same already stands concluded by this Special Bench vide its confirmatory order dated 30/05/2012 as mentioned above. It has been brought on record that assessee against the said order of the Special Bench has approached the Hon'ble Bombay High Court in writ jurisdiction, being W.P.No.2672 of 2012. However, the assessee later on withdrew the ....
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.... The CIT(A) erred in law and on facts by relying on the material brought on record including of Asim Pathak by the assessing officer beyond the scope of directions given by the Hon'ble ITAT in the set aside proceedings. 7. The CIT(A) erred in law and on facts in holding that there was an attempt to influence the witnesses by the appellant though on the contrary he stated that in cross examination the witnesses confirmed their earlier statements given to the excise authorities. 8. The CIT (A) erred in law and on facts in holding that disbursements out of the alleged bank accounts towards advertisement, publicity, printing, mobile vans etc were the liability of the appellant and thus were incurred by the appellant. 9. Without prejudice to above grounds, it is stated that the CIT(A) erred in law and on facts in confirming the findings of the assessing officer in estimating the quantum of expenses allowable against the alleged additional income. 10. The CIT(A) acted on suspicion, surmises and conjectures in confirming the addition. 11. The CIT(A) erred in law and on facts in upholding the levy of interest u/s 215 of the Act. 7. The facts in brief qua the issues in....
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....s causing 'premium' to be generated on certain sought after brands in the market and the WBs all across the country were remitting such 'premium' by demand drafts purchased in cash in fictitious names and were being deposited in several bank accounts. In the impugned assessment order as many as 24 bank accounts have been referred where the drafts were remitted by the WBs which were unearthed during the course of DRI searches. On sample basis, there has been reference to two bank accounts in Indian Bank, Santa Cruz-West, Mumbai in the name of Mr. H K Patel, Current Account No.1391; and Mr. S.K. Mehta, SB Account No.8953 were investigated by the AO on random basis. Tracing back some credit entries in these accounts, independent survey was carried out by the Assessing Officer on the business premises of WBs at Gorakhpur, Muzaffarpur, Darbhanga and Varanasi. During the survey, statements of certain employees of the WBs were recorded wherein they have admitted to have made remittance by way of demand draft out of cash to the fictitious bank accounts in Mumbai in the account of Mr. H K Patel and Mr. S K Mehta. AO on further scrutiny of these bank accounts found that certain payments were....
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....umar Srivastava was examined on oath, wherein he deposed that drafts were prepared in the name of two persons namely, S.K. Mehta or H.K. Patel, however he admitted that he did not know anybody by the name of these persons. He also admitted that the drafts were purchased at the instance of his employer, Mr. S. K. Fogla and he also identified names in whose names drafts have been purchased. He further stated that cash for purchase of drafts were provided by his employer, Mr. S.K. Fogla and he even gave the calculation of premium. The AO also found that drafts purchased on account of these two names were though entered into the books of the accounts of the WBs but drafts were purchased in the name of M/S. Source Marketing and Advertising which has been debited as advertisement expenses in the books of M/S. Fog Fag. During the survey it was also found that six firms were operating from the premise of M/s. Fog Fag which were all the wholesale buyers of the assessee company. 10. Another survey was conducted at Muzaffarpur on the premise of one of the WBs, M/s. Sagar India, during which statements of employees were recorded namely, Mr. Shiv Kumar and Mr. Vinod Kumar Kevadia, who was th....
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....re received in his name for producing 15 jingles for radio advertisement of various products of GTC and the directives for producing such jingles was given by one, Mr. Rajiv Ohri, Marketing/ Advertising Manager of GTC. He further, clarified that bank drafts in question were given to him by Mr. Rajiv Ohri. AO further examined another payment which was made to M/s. Source Marketing and Advertising. When contacted by the Assessing Officer, they informed that receipts were on account of advertising bills of the various wholesale buyers of GTC (which has been listed at page B- 14 of the assessment order) and that the bills were raised against the wholesale buyers at the instance of GTC. One of the wholesale buyers, M/s. Uma Maheshwari Trader Private Limited was summoned and in response, its representative, Shri I C Jain, Chartered Accountant informed that his client has neither received any bill nor payment has been made to M/s. Source marketing. The AO then summoned Shri V. Shanta Kumar of M/s. Source Marketing who stated that effectively GTC alone was coordinating all the advertisements of its products through M/s. Source marketing and no wholesale buyer has contacted him in regard to....
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.... the AO in sum and substance can be summarized as under:- • Business liabilities or exigencies payments of GTC were made from the bank accounts of S.K. Mehta and H.K. Patel, which are nothing but fictitious bank accounts opened for the benefit of GTC. • Payment to third parties like advertisers etc., were though made by the wholesale buyers but in reality were paid by GTC. • Payments on behalf of several unconnected wholesale buyers all across the country have been made from single bank accounts in Bombay. • Some of the recipients of payments have stated that they had received payments from GTC, this shows the role and control of the assessee on these bank accounts. • The control of the bank accounts is also reflected from donation to Methodist Church and payments to various agencies which were made at the behest of GTC. In the assessment order there is also reference to investment in share capital of M/s. Century Hire Purchase Pvt. Ltd., through these bank accounts. AO had also referred to certain other bank accounts in the name of M/s. A K and Company, M/s. C.K. and Company, M/s. K.K. and Company and M/s. V.K. an....
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.... held that premium on sale of cigarettes was being generated and collected at the instance of the assessee and that the drafts to accounts of the assessee represent the actual transmission of such premia. It will be relevant that I had issued show cause why the ex-factory price differential between the ,higher and lower brand prices of two brands marketed, under deceptively similar names be not added to the assessee's income. While making such calculation, I have found that in many cases, such ex-factory price differential exceeded the actual premium per unit sale charged on a brand by a WB e.g. the ex-factory price differential between the prices of Panama Virginia and Panama Virginia Special is Rs. 24, whereas the premium actually being charged by the WBs on the basis of records seized by the DRI (Anti Evasion) is Rs. 20/-. This difference is because of differences in official WB's margin for the two brands being different whereas the WBs' margin for Panama Virginia was Rs. 9.09 (ignoring discounts), the same was Rs. 13.33 for Panama Virginia Special. This has caused the WBs selling price to be Rs. 94.20 in the case of Panama Virginia and Rs. 74.20 in the case of Panama Virginia ....
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....sentative has given a list of five persons along with their addresses whom they want to cross-examine. These five persons were as under:- i) Shri Haji Umer; ii) Kishore Jojharimal Chitlangia; iii) Shri V. Shantakumar; iv) Shri Ashok Tyagi; and v) Ms. Nirmala Sundaram Apart from that, AO was directed to complete the investigations on some of the fictitious accounts, the information of which was received after the completion of assessment. Accordingly, AO was directed to submit his remand report. In response to ld. CIT (A)'s remand, AO allowed cross examination of witnesses which have been elaborately discussed by the ld. CIT (A) from pages 6 to 16 of the impugned order. After discussing the points examined in cross-examination by the assessee, learned CIT(A) has observed that in the cross examination, assessee has made an attempt to provide an alternative to the witnesses and assessee had been putting leading questions to the witness and therefore, the cross examination has not been carried out within the parameters of the law. In the process of cross-examination, assessee had tried to establish that nothing clinching is coming out from the statement of witnesses w....
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....as conducted on 15/03/1990 at the residence of one, Shri Asim Pathak who was close associate of Shri Sanjay Dalmia the MD of GTC. In search, certain papers were seized which indicated that attempt was being made to influence the witnesses whom assessee wanted to cross examine. A note which was seized at the time of search at his residence have been reproduced by the CIT(A) at page 17. From this note, learned CIT(A) has inferred that the assessee had tried to influence the witnesses who were to be re- examined in view of the instruction of the Tribunal. It has also been brought on record that, Asim Pathak had joined Sanjay Dalmia as Official Secretary in 1977 and he was in the pay roll of Dalmia Brothers Pvt. Ltd. Looking to the proximity of the Asim Pathak with the key person of the assessee an inference has been drawn that assessee had influenced the witnesses. The learned CIT (A) has again reiterated the observations and the findings of the AO regarding various witnesses and material which has been recovered from the surveys conducted by DRI and also the survey done by the Assessing Officer. The entire discussion in this regard are appearing from pages 20-47 of the Appellate Orde....
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....he earlier order of the CIT (A) as well as the order of the AO. • Regarding computation of premium, he has discussed the matter in detail from pages 52-57 of the appellate order and observed that the commission shown by the assessee was actually on-money collected by the assessee company and ploughed back in the books of the assessee company in the form of commission. Accordingly, he gave the relief of Rs. 1,54,19,042/- which were shown separately by the assessee as commission and the balance amount of Rs. 19,94,64,749/- was confirmed. 19. Before us, learned Counsel for assessee, Shri Vinod Kumar Bindal after explaining the entire facts and background of the case submitted that the genesis of the entire controversy have started from searches conducted by the DRI, Central excise, during the course of which various statements were recorded which have been referred to extensively by the AO in the assessment order. By way of preliminary objection, he submitted that now that entire matter is open as per the order of the Hon'ble High Court dated 08/07/2016, therefore, the assessee has all the right to demand for all the materials which has been referred by the AO to draw ....
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....pointed out that, there was a committee constituted by the Government of India which studied the practice by the cigarette industry and gave a report that the wholesale buyers/dealers of all the cigarette manufacturers in the country were bearing the post manufacturing expenses including advertisement so as to reduce the cost of the manufacturer for the purpose of levy of excise duty. The revenue has not been able to point out with single concrete evidence despite several surveys at the various premises of the Assessee Company or elsewhere, that its wholesale buyers had given money directly to the assessee or there is any undisclosed expense incurred by the assessee or on its behalf so that the assessee company can be reckoned as beneficiary in any manner of such accounts. This is a case of public limited company and payment of such huge amount of undisclosed money for its benefit without recording the same in its books is not possible. There has to be some entry in the accounts of the assessee company or any single evidence that assessee has received the premium. If at all there is any benefit, then same may be of some personnel of the assessee company in the management and even f....
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....y share in such premium or there is some record that money has flown back to the assessee. Secondly, guess work and estimation by AO and CIT(A) has gone too farfetched and on the presumption that all the cigarettes of lower brand all across the country must have been sold at a higher price and millions of consumers must have paid higher money and all the extra money collected has reached to assessee cent percent. Such a wild estimation for making the addition is factually and legally unjustified. By way of a write-up he has also given the rebuttal of each and every observation and the finding of the AO as well as that of CIT (A). 21. Coming to the DRI (Investigations) and orders of CESTAT, Mr. Bindal submitted that the Central Excise Department has never alleged that GTC directly collected full or part of the premium alleged to be charged on sale of cigarettes nor any information of material was found by any authority in any search or survey action. The CESTAT Bench of Delhi order reported in 2006 TIOL CESTAT-Delhi has noted the show-cause notice issued by the Central Excise Department, the content of which reflects hereunder:- 3.2 That GTC Industries Limited had been claimin....
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....e premium. The CESTAT Tribunal in fact vide order dated 09/12/2005 after referring to the statement of wholesale buyers and salesmen of wholesale buyers came to the conclusion that the differential amount on the alleged extra collection received from the wholesale buyers does not belong to the assessee company. The Hon'ble CESTAT had also referred to the decision of Hon'ble Supreme Court in the case of ITC Limited vs. CCE (supra) and gave a categorical finding in favour of assessee. This decision of Hon'ble CESTAT Delhi has now been affirmed by the Hon'ble Supreme Court in the judgment and order dated 16/09/2015(supra). 22. Regarding the observations and the finding of the learned CIT(A) on the cross examination that assessee is not permitted to ask leading questions, ld. counsel submitted that same is contrary to the provisions of Evidence Act, as Sections 142, 143 and 146 specifically provide that leading question can be asked in the course of cross examination. Therefore, to reject the outcome of cross examination of the witnesses by the Ld. CIT(A) where the assessee has established that nothing can be implicated to the assessee cannot be upheld. 23. Regarding cross examin....
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....rs which is mainly coming from the statement of Mr. Rajkumar Thard, wholesale buyer of Mumbai that he was handling the publicity and advertisement from various agencies with the help of personnel/ representatives of GTC, ld. Counsel pointed out that in his statement he has categorically stated that payment of advertisement done from these agencies were made by him and these payments were out of sale proceeds of cigarettes. The bills were sometimes received directly or through GTC. Further the AO himself in the Assessment order for the A.Y.1986-87 has admitted that advertisement expenses were found to have been debited in the books of wholesale buyers. However, in the present assessment year, he has presumed that advertisement and publicity is the responsibility and expenditure of manufacturer only. He submitted that there are various decisions wherein it has been held that the wholesale buyers and marketing agent were entitled to carry out independent advertisement at their own costs. Even though assessee may derive some benefit or advantage but nowhere it goes to prove that the assessee alone had incurred such expenditure. 24. Regarding fictitious bank account and surveys at pr....
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....the effect that there were realization of extra payments for sales of cigarettes and part of excise collection flown back from retailers to the super buyers, then also there is no material on record to establish that there was direct or indirect flow back from super buyers to the assessee. Coming to the observations of excise department that the flow back was in form of interest margin that was collected from super buyers and the fact that super buyer had paid for advertisement of GTC products which were never reimbursed, he submitted that there is no finding at all that extra money collected in cash transaction or there is any evidence of further backwards flow of money from super buyers or wholesale buyers to manufacturers. Thus, the said finding of the CIT(A) itself gets vitiated. He further submitted that learned CIT(A) has decided the matter on general probabilities and circumstantial evidence which has been discussed by him from pages 22-27, and at the same time has admitted that there is no direct evidence available. Thus, the entire premise of the addition and rejection of books of accounts is based on circumstantial instances and general probabilities sans any evidence to ....
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....g., one such ad was "Panama is a good cigarette, enjoy it to the last puff'. Though officially the retail price of the new brand was 80 paisa per packet, but Panama cigarettes continued to be sold at Re.l/- a packet and 10 paisa per stick, thereby causing generation of 20 paisa per packet at all the street level. A year later, when the price of cigarettes had to be revised on account of change in basis of charge of excise duty on cigarettes, the assessee took permission to raise the price of Panama- Virginia Special from 80 paisa per packet of ten cigarettes to Rs. 1.25 per packet. In reality, the price of these cigarettes, at the street level increased from Re.1 to Rs. 1.25 per packet of ten cigarettes. For about two months, Panama Special continued to be sold at Rs. 1.25 per packet of ten cigarettes and there was no on-money on it. Once the consumers got habituated to paying Rs.l.25 per packet of 10 cigarettes, the assessee took permission of the Central Excise authorities to re-introduce "Panama Virginia" at the old price of 80 paisa per packet. There was no advertisement from the assessee that the prices of Panama cigarettes had been reduced/slashed. Officially, Panama Virg....
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....uiries and searches to corroborate the material information found during the DRI searches. It is not a case here that the Assessing Officer has not applied his mind independently, albeit has made his own efforts to establish the linkage between the generations of on-money in the form of premium and how the assessee company had controlled over the said collection of amount. He also drew our attention to various observations and materials which has been referred to by the learned Assessing Officer as well as learned CIT (A) in the impugned orders. Rebutting the various contentions raised by the learned Counsel he summarized the arguments of the learned Counsel in the following manner:- (a) The learned Assessing Officer did not make any inquiry of his own and reliance was made by him on statements made before the Central Excise authorities; (b) No incriminating material was found; (c) No addition was made on this basis in the assessment years 1983-84 even though show cause was issued based on same material as was available with the Central Excise authorities; (d) No flow back of money could be established by the learned Assessing Officer, which fact is evident from judgmen....
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.... only that, he also made his own set of enquiry to corroborate the same which could not have been done earlier in absence of material being made available to him. 31. As regards, heavy reliance placed by learned Counsel on the judgment of Hon'ble Supreme Court dated 16/09/2015 in Civil Appeal No.5617/06 to contend that Hon'ble Apex Court did not find any error on fact or in law of the decision of CESTAT dated 09/12/2005 is grossly misplaced. In that case, the assessee was claiming the benefit of concessional rate of duty during different periods of Golden Flake King Brands of Cigarettes. The learned Collector of Central Excise classified a product under sub-para-3 of notification and on facts it was found that the department's case was made out of statements of 44 witnesses who were ultimately cross-examined by GTC and it was found by the Tribunal that product of the assessee company was correctly classifiable under sub-para 2 of the table in the notification No.11/83 dated 01/03/1983 as amended by notification No.78/86 dated 10/02/1986 and not sub-paragraph 3 as held by the Collector. He pointed out that in fact the flow back of money was found in the case of the assessee in an....
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....has not dealt upon the issue on merits. 32. The allegation against the assessee was that the cigarettes were being sold at higher than the printed price was found to be correct. During the search, statements were recorded in the case of wholesale buyers wherein it was found to be a Pan-India Phenomena that cigarettes were being revalued at higher than the printed price for a given brand. The retailers were supplied cigarettes by the wholesale buyers at the printed price appearing in the invoice of the wholesale dealers and excise price which was collected from the retailers where mopped-up by them. This has been found in the form of statements of same wholesalers, retailers and all the employees of wholesale buyers recorded by the DRI during the search operations conducted all over the country in 1983 and also during the course of survey and statements recorded u/s.131 by the Department. The wholesale buyers had purchased demand drafts (DDs) in cash in round sums of tens of thousands (but below Rs. 50,000/-) mostly in the names of individuals and mostly by giving incomplete addresses of the purchasers of the DDs and by giving fictitious names or vague names like A. Kumar, B. Pra....
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....ly possible to investigate all such accounts because of sheer volume. The fact of on-money being sent to fictitious bank account was common to all such places where GTC had a wholesale buyer. On sample basis, learned Assessing Officer selected three places for survey to find out the identity of the remitter of the drafts, namely, Gorakhpur, Varanasi and Muzaffarpur. It was found that there were about six accounts where there were transfer debits in addition to cash withdrawals. In the six accounts where there were transfer debits [one such account being the account standing in the name of H K Patel in Indian Bank. Santa Cruz (W)], it was found that the transfer entries were for purchase of banker's cheques, Pay Orders. Over 100 such Pay orders were purchased through debits from the accounts. Except for three Pay Orders, all the remaining Pay Orders were payable to reputed advertisement agencies. When the reputed advertising agencies were contacted to gather information regarding who gave them the Pay Orders and for what purpose, all the advertising agencies confirmed that these were for advertisement work carried out by them for GTC products and the job orders were given to them by....
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....ly purchased by employees of WBs of the assessee at Muzaffarpur and Gorakhpur, were actually credited to the account. Thus, at least the account of H.K. Patel gets clearly linked to GTC as their Benami bank account. Once it is proved that the assessee has even one Benami bank account, it clearly means that the books of account maintained by the assessee are not correct and reliable and hence book results have to be rejected and income has to be estimated. This is what the AO has done. He further submitted that the other accounts which the Assessing Officer had examined is that of S.K. Mehta and enquiries done can be found in the Assessment order for the AY 1985-86 in this regard. 35. He further submitted that, the proof that WBs were charging on-money on the sale of cigarettes also comes from a survey converted into search in the premises of M/s. Sagar India, a WB of the assessee at Muzaffarpur in Bihar, where the then ITO, Central Circle having jurisdiction over the case of GTC was personally present. It is in the form of a chart where rate of charge of on-money for various brands was recovered. The basis of the charge was the difference between the printed price of the lower p....
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....Refer Page B22 of the assessment order); vii) Investment in share capital of M/s Century Hire Purchase Pvt. Ltd. and discussion of this issue is in Paras 51 to 61 at Pages 23 to 29 of the order of learned CIT (Appeals); viii) Evidence that bank accounts in the names of A.K & Co, C.K & Co, K.K & Co and V.K & Co belong to one single person and details of transfer debits by way of pay orders from the bank account of C.K. & Co on 21.4.1983, 26.4.1983 and 28.4.1983 and transfer debits by way of pay orders from the bank account of K.K. & Co on 26.4.1983, 29.4.1983 and 3.5.1983 (Refer Page B25 and B26 of the assessment order); and ix) Transactions relating to M/s Everest Advertising Pvt. Ltd. and Shilpa Arts & Colour Graphics Ltd. (Refer Paras 36 to 42 at Pages B27 to B33 of the assessment order). 37. On the issue of asessee's defence on the allegation of violation of principles of natural justice, he submitted that this issue has long been settled by the Hon'ble Tribunal while hearing the assessee's appeal in the A.Y.1984-85 and there is a categorical finding that where the statement of witnesses is backed by documentary evidence, then witness is not required to be cross-exam....
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....een brought into the books by showing unreal commission and trading income. Here, some of the transactions have been proved beyond reasonable doubt that these are not genuine. These findings are contained in Part-E, pages E-1 to E-45 of the assessment order for the A.Y. 1985-86. It may also be mentioned that in the case of commission having been received by GTC, for liaison work connected with the export of Seven Seas Cod Liver oil to Nigeria by M/s Universal Generics Ltd., M/S Pohoomal Kevalram Sons Exports Pvt. Ltd., l then assessed in Companies Circle III Bombay J the Assessing Officer made disallowances in this regard after making necessary enquiries. 40. The basis of estimation of income by the AO is to multiply the volume of sales of a lower priced brand with the differential price of its higher priced brand. This gives the gross generation of on-money owing to the twin branding mechanism. From this gross amount, a deduction of 10% was given as an estimated share of wholesale buyers who aided and abated in the generation of collection of on- money. After the deduction of 10%, further weightage was given for the on-money brought into the books in the guise of income in the ....
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....his appeal as expeditiously as possible and preferably within a period of six months. Thus, the mandate of the Hon'ble High Court is that, this Tribunal should decide the entire appeal on merits. So far as the issue of violation of principles of Natural Justice is concerned, the same has been duly complied with in terms of directions contained in the earlier orders of the Tribunal which has been finally settled in several rounds of litigation before this Special Bench. As per the direction of the Tribunal, finally, the Revenue was required to provide certain material and cross-examination of certain witnesses. In compliance thereof, the Revenue has provided the opportunity to cross-examine in the case of five persons as per the list given by the assessee. Thus, we are rejecting the similar contention raked up again before us. We are now proceeding to decide the appeal on merits, on the basis of material and evidence on record and on the basis of evidences discussed in the impugned orders as well as the arguments placed by the parties before us. 42. To briefly recapitulate, the assessee is a public limited company which is engaged in the manufacturing of cigarettes which is an ex....
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....ties in the show-cause notices had been that the extra money over and above the prices shown in the invoices was being collected in respect of sale of various brands of cigarettes and extra amount collected by the salesmen were passed on to the retailers and wholesale buyers and subsequently in cash to the super buyers and these super buyers were paying for advertisement of GTC products which was never reimbursed. In certain cases, there has been allegation that there was a flow back of such premium money to GTC mostly in the form of difference in the grades of interest under the security deposit scheme as well as by making the wholesale buyers and dealers bear the advertisement expenses of GTC without any reimbursements. There are another set of adjudications and orders by CESTAT, wherein a specific finding has been given that such flow back of on- money has never been passed on to GTC as there is no direct material as well as any statement of wholesale buyers recorded by DRI to point out that flow back of money can relate back to GTC, especially when most of the witnesses have rebutted their statements. How the on-money has been generated in the form of premium through Twin Brand....
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....dition in the hands of the assessee company as well as the rebuttal made by the assessee qua those statements / evidences are discussed in brief:- (I) Bogus Bank Accounts in the name of H.K. Patel and S.K. Mehta:- As discussed in our earlier part of the order, two bank accounts were picked up for scrutiny, that is, Account of Mr. H.K. Patel, C/A.No.1391; and Shri S.K. Mehta, S/B. No.8953. These bank accounts were found to be standing in the name of fictitious persons because at the given addresses no such persons were found and even there was discrepancy in account opening forms, signatures etc. In these bank accounts various drafts were deposited which were coming from all across the country and from these bank accounts there were certain out goings also. Though Assessing Officer admitted that 100% verification was not feasible to link all the drafts but he came to the conclusion that these drafts were originated from the places where the assessee had wholesale buyers, based on material brought on record by DRI and through his own set of enquiries. In this manner presumption was drawn that assessee had linkage with these deposits in the bank accounts. By way of rebuttal, the....
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....llected the premium. III. Survey at Muzaffarpur- M/s. Sagar India (Wholesale Buyer) In the survey conducted on the wholesale buyer, M/s. Sagar India, statement of employee, Shri Shiv Kumar and Shri Vinod Kumar Kedia in their statement admitted that premium was collected, however, he was unable to confirm about the final destination of the drafts or that it was sent at behest of GTC. A chart was found on the said premise indicating the rate of premium charged. By way of rebuttal, learned Counsel before us had stated that again the employer, i.e., wholesale buyer was not questioned even though the survey was converted into search. What prevented the department to ask the wholesale buyer to get the exact version of collection of premium and whether it was done on the instruction of GTC or not or the money so collected was meant for the benefit of GTC. Further, the search was conducted on 25/11/1986, i.e., post 02/09/1985, when the twin branding had stopped all over the country. The document which is un-dated and uncorroborated then it has to be presumed that same has been maintained for the current selling rate and it cannot relate back to the year 1984-85. The very factum that ....
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.... the said contention of the assessee on the ground that during the cross-examination leading question should not be asked which is contrary to the law. Once it is found that testimony was done at the behest of income tax official, then no adverse inference should be drawn against the assessee. He also admitted that drafts were received on behalf of the distributors of the GTC. Thus, again, there is no linkage that draft was given by the GTC and the only adverse inference which was drawn against assessee is that the assessee or one of the officials have asked him to produce the jingles but that does not implicate that the assessee had control over the bank account from where the drafts were sent. V. Source Marketing Advertisers - V. Shanta Kumar:- On examination of V. Shanta Kumar, the Assessing Officer found that payment were made through H.K. Patel for advertisement and on this basis he held that GTC was conducting publicity and no wholesale buyer ever contacted advertiser. The bills in the name of wholesale buyers were either handed over to the GTC or some time directly to the wholesale buyers. On this piece of material / statement, learned Counsel submitted that all along ....
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....hers. He has categorically stated that payment for advertisement done through these agencies were done by him and that these payments were out of sale proceeds of cigarettes and that bills were sometimes received directly and sometimes through GTC. He was very specific in stating that the advertisements in Mumbai and other parts of the Country were done primarily to popularise the products of GTC and this was done by the wholesale buyers under coordination and advice of GTC. Thus, from this information and material, it is quite apparent that the financial burden for incurring the advertisement expenses lay wholly upon the wholesale buyers and assessee merely acted as a coordinating entity. VI. H.K. Printers:- This agency was printing posters for advertising and like Source Marketing they had also stated that bills were handed over to GTC for passing it onwards to WBs which only goes to corroborate the stand of the assessee. VII. Uma Maheshwari / I.C. Jain (Wholesale Buyer) In this case, the AO found that some of the bills of Source Marketing were found entered in the books and some were not. Learned Counsel pointed out that on verification, it was found that these bills....
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....me of the person who brought these drafts and further she had no idea of the bank account from where bank cheques were issued and she had also admitted that there is no evidence or material that drafts were given by GTC, but she vaguely remembers that drafts for donation was arranged by GTC. Learned Counsel further pointed out that later on when Mr. Deepak's Poddar statements was recorded on 01/02/88, he denied having received any request for donation to any Church. Various other discrepancies have also been pointed out before us in her statement which we do not feel relevant to discuss here. Learned Counsel further submitted that, even if it is to be presumed that some donation was given to Church from these bank accounts then also it cannot be implicated that the entire fictitious bank accounts belong to the assessee or assessee had any control over the bank accounts. It only leads to an inference that there could be possibility that some GTC Officials must have requested wholesale buyer to give donation to the Church which may have flown from these bank accounts. Simply because donation has flown from this bank account on behest of some GTC official, it does not mean bank accoun....
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....d been that it was only co-coordinating the advertisements and promotional expenses. Once the burden of expenses was upon the wholesale buyers which have been confirmed in various statements of key witnesses before the DRI, then burden cannot be shifted to the assessee. The statement of Mr. Raj Kumar Tharad (wholesale buyer for Bombay) had admitted to the same, which cannot be set aside. Thus, even if the advertising expenses have been incurred through bogus/fictitious bank accounts, assessee cannot be held to be beneficiary or benami owner of such bank accounts. 45. By and large with the assistance from both the parties the relevant evidences, statements and materials which has been referred and relied upon by the AO as well as by the Ld. CIT(A) have been discussed by us and certain other details as discussed in the impugned orders are not being dealt with, because admittedly no implication or inference has been drawn for making the addition made by the AO or confirmed by Ld. CIT(A). From the materials and evidences as discussed above, following inference can be deduced:- • Firstly, some kind of premium was generated under alleged 'twin branding mechanism', that is....
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....or behest of GTC; or GTC was operating these bank accounts. No concrete material has been brought on record to suggest that Assessee Company or its employees were operating said bank accounts or the account holders were introduced by anyone from the assessee company. Nowhere has it been ascertained by the AO that the GTC or its employees had the actual control of the said benami bank accounts or the amount deposited in said bank accounts has gone to the coffers of the assessee. Various investigations/searches carried out by the DRI as well as survey/searches conducted by the Income Tax Department, not a single material has been unearthed or any statement has been given that GTC company had control over the premium amount generated all over the country. • Fourthly, the material and evidences gathered by the Revenue does show that the money deposited in the Benami accounts were used in post manufacturing expenses including advertisement of the brands and products of GTC. Transaction of some few lakhs of rupees have also been found to be undertaken from these bank accounts from where payment to certain advertising agencies has been made. On this information it can be pres....
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....e control over the contents of advertisement at all India level but there is no material on record to prove that it was the liability of the assessee to incur such expenditure. Even if it is remotely accepted that these fictitious bank accounts were opened for incurring the advertisement expenses, but to hold that this was the liability only of the assessee is farfetched sans any direct material or evidence on record. Though the Assessing Officer has very diligently carried out enquiries all across the country in various assessment years however, he could not collect any information or material that advertisement expenses were directly borne by the assessee or the assessee had full control of the bank accounts or these bank accounts are benami of assessee. All his enquiries only prove that premium money was collected on sale of cigarettes which found its way through series of chains to fictitious bank accounts. 46. In situations like this case, one may fall into realm of 'preponderance of probability' where there are many probable factors, some in favour of the assessee and some may go against the assessee. But the probable factors have to be weighed on material facts so collect....
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....able factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of facts that might go against assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigation have been carried out, then nothing can be implicated against the assessee. 47. Both the parties before us have relied upon decisions of CESTAT. One set of decisions have been cited by the learned Special Counsel wherein there is a finding that flow back of money has gone into the coffers of the assessee and other set of judgments relied upon the by the assessee where it has been found that there is no material on record to establish that there were direct or indirect flow back from super buyers to the assessee. Whereas the decision relied upon by the learned Special Counsel which has been stated by him has been confirmed by the Hon'ble Supreme Court and High Court (which has referred to above in the part of our order dealing with his argument), it is seen that the judgments of the Hon'ble Supreme Court or the High Court whereby one of the orders of the CESTAT dated....
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....win branding pricing mechanism. On these facts and background, the Hon'ble Apex Court after detailed discussion and analysis had made a very important observation which for the ready reference reproduced hereunder:- "It is this single retail price which has to be printed on the package. If one were to accept the High Court's prima facie view, the printed MRP should reflect the actual price at which the particular kind of cigarette is sold throughout the country. The patent impossibility of this was acknowledged by the Tribunal which held that the actual price at which the cigarettes were sold could not "lawfully or logically" be the printed MRP because "the manufacturer has limited or little control over the actions of the retailers" who are, in the case of the appellant, "about a million in number"; that the appellant could not be held responsible for "the tendency of the retailers to charge higher than the printed price so as to secure larger margin" and that different prices may be actually charged for the same brand all over the country. Therefore, the Tribunal held that the printed MRP should have been the "reasonable price" at which the cigarettes could be sold. This l....
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....dibility is substantially eroded. The reasoning of the Collector to discard the stand of the retailers and wholesale dealers in their cross-examination is that their statements have been retracted inter alia after several years. This may be relevant in so far as the confessional statements of accused are concerned, but as far as the statements of witnesses are concerned, such delay is not fatal. In any event, even if it is held that the original statements of wholesale dealers/wholesale retailers/retailers are to the effect that there were realizations of extra payment for sales of cigarettes and that part of excess collection flowed back from the retailers to the super buyers, there is no material on record to establish that there was direct or indirect flow back from the super buyers to the appellants. According to the Department, the flow back was indirect in the form of interest margin that was collected from the super buyers and also the fact that super buyers paid for advertisement of GTC products, which was never reimbursed. There is no finding that any extra amount collected in cash passed on further backwards from the super buyers to the manufacturers. The finding of the C....
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.... were taking similar deposit and this fact is brought out in the order dated 5th May j 994 of the Collector of Customs, Mumbai wherein the proceedings raised against GTC were dropped. Even in the case not covered by deposit scheme and where the payment was not made in time, interest at the rate of 18% was being charged by GTC, which is more or less corresponding to differential interest under security deposit scheme. Therefore, the differential interest cannot be considered a ploy to indirectly receive a part of the alleged extra collection received by the super buyer. We, therefore, hold that there is no link between security deposit schemes and so called extra collection. 22. In the light of the above discussion and the Apex Court's judgment cited supra, which is squarely applicable to the present case, we hold that the benefit of concessional rate of duty under Notification No. 201/85 and 78/86 is admissible to the appellants, set aside the duty demand and penalties and allow the appeals." Now it was brought to our attention that, this decision of CESTAT was subject matter of appeal by the Revenue before the Hon'ble Supreme Court which has upheld the order of the Tribu....
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.... Tribunal went into the standards terms and conditions of the" business with the wholesale buyers and after appreciating the witness statements made and particularly retractions made from the said statements in cross-examination. Ultimately, it held as under: "As regards security deposit scheme; we note that even after full deposit has been made to GTC towards sale of goods by super buyers the profit of the super buyer cannot be calculated directly In terms of deposit made in excess. The turnover of the super buyer fairly exceeds the deposit amount. Therefore, even after making deposits and paying differential 17% interest the super buyer can make profit in view of its very high turnover. The deposit scheme was started sometime in 1978-79, which is well before the issue of Notification No. 210/85 dated 20th September, 1985. Therefore, it cannot be alleged or found that the scheme was evolved only in order to indirectly receive the excess amount which may be collected by the retailers from the consumers, and, eventually by super buyer. From the affidavit filed by GTC, it is seen that even in the year in which the deposit was made, the turnover of the super buyer was 12 to 15 time....
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.... excise department has not been found be acceptable by the Hon'ble Apex Court, then the entire substratum on which the revenue's case hinges upon is shaken. The aforesaid judgment of the Hon'ble Apex Court clearly clinches the issue in favour of the assessee and without any corroborative material; it would be difficult to appreciate the stand of the revenue that the assessee was beneficiary of the premium money or relate back the flow back of the money to the assessee. It appears that the charging of premium amount over and above the MRP by the retailers and wholesale buyers may be keeping the assessee in loop to coordinate for meeting out certain expenses which also included advertisement and sales promotional expenses. The entire scheme was so designed that the liability of sales and promotion expenses or advertisement lies with the wholesale buyers and not on the assessee and assessee merely acts as a coordinating/managing central agency. But such a managing and coordinating of advertisement does not implicate the assessee that it is the sole beneficiary or owner of the entire premium money generated as held by the Hon'ble Apex Court in the case of the ITC that there could not b....
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....e cannot be upheld. As stated several times herein above, there is no finding or any cogent material to establish that extra amount collected in cash by shopkeepers/retailers have been passed on further from wholesale buyers/ super buyers to the manufacturer, i.e., assessee; and once that is so, the presumption of indirect flow back cannot be made the basis for such addition or estimation of income. Various case laws have been referred by the learned counsel before us on this point; however, we are not referring to these decisions because, we have arrived at our conclusion on the basis of material facts brought on record and as referred to before us. 51. Even though we have held that AO & CIT(A) were not correct in law and on facts to reject the books of account, however for the sake of completeness, we deem fit to deal with issue of estimation as has been made by A.O. in brief. The estimation made by the AO for assessing the income is very faulty because, it is based on high degree of presumption and hypothesis that on each and every sale of lower brand cigarette all across the country made to millions of consumers through millions of retailers, there has been collection of ext....