TaxTMI 
TaxTMI 
2019 (6) TMI 1115
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.... for several Assessment Years [AY] arises out of common order passed by Ld. Commissioner of Income-Tax (Appeals)-16, Mumbai, [CIT(A)] on 25/11/2016 for AYs 2007-08 to 2013-14. For ease of reference and better understanding, the same could be tabulated in the following manner: - No. ITA / CO No. AY Assessment framed u/s Assessment order dated Remarks 1. 975/Mum/2017 2007-08 143(3) r.w.s. 147 24/03/2015 Revenue's Appeal 2. 984/Mum/2017 2008-09 143(3) r.w.s. 147 24/03/2015 Revenue's Appeal 3. 988/Mum/2017 2009-10 143(3) r.w.s. 147 26/03/2015 Revenue's Appeal 4. 985/Mum/2017 2010-11 143(3) r.w.s. 147 24/11/2015 Revenue's Appeal 5. 986/Mum/2017 2011-12 143(3) 27/01/2014 Revenue's Appeal 6. 987/Mum/2017 2012-13 143(3) 20/03/2015 Revenue's Appeal 7. 989/Mum/2017 2013-14 143(3) 22/02/2016 Revenue's Appeal 8. 126/Mum/2018 2008-09 143(3) r.w.s. 147 24/03/2015 Assessee's Cross-Objections 9. 127/Mum/2018 2009-10 143(3) r.w.s. 147 26/03/2015 Assessee's Cross-Objections 10. 128/Mum/2018 2010-11 143(3) r.w.s....
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....see on 31/07/2012 which was followed by notice u/s 142(1) wherein the assessee was directed to file requisite information / details / documents in support of the returned income. As evident from revenue's ground of appeal, the sole issue under consideration is certain estimated addition on account of alleged understatement of yield by the assessee in manufacturing process. Quantum Assessment Proceedings 2.3 During the course of assessment proceedings, It transpired that the assessee reflected yield of paper (in Metric Tons) at around 80% during AY 2011-12 as well as in the earlier years. The yield of impugned AY was reflected as 80.41%. The main raw material used for the production of M.G. Kraft Paper was indigenous paper waste and imported paper waste. The waste paper came from card-board of boxes / packing materials of TV, fridge and other packing material of similar nature. The company had two manufacturing units in the same premises at Plot No.57/FGH, GIDC,1st Phase, Vapi, Gujarat. Unit-I was set up in 1997 whereas Unit-2 was set up in 2004. Both the units were stated to be working on same technology. The only difference being the finished paper produced in Unit-II was of....
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.... vii) M/s Hetal Enterprises viii) M/s Raj Trading Co. It transpired that these parties made substantial sales to the assessee and declared meager income. Another feature noted was that these parties reflected substantial purchases from unregistered parties in cash. 2.8 The perusal of sample delivery challans issued by these parties revealed that all details on the challans were written in blue ink whereas the quantity was mentioned in black ink. Further, the signature of recipient of goods in the premises of the assessee was invariably in black ink. This peculiar feature was noted on all the challans issued by different parties. The said factors led the Ld. AO to believe that the quantities mentioned on the challans were filled by assessee's employees and not by the aforesaid suppliers / sellers. The perusal of bank accounts of few suppliers revealed that huge cash was withdrawn immediately after depositing the cheques. Another observation was that the weighing slips of all the purchases from these parties was issued by the assessee only and they were not carrying any serial number. It was observed that tare weight of few vehicles was different in weighing slip....
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....ed URD suppliers and payments towards the same? Ans. On our instruction, the URD suppliers deliver their goods at factory premises of our customers, viz, BEST Paper Mills Pvt. Ltd. or supreme Kraft Paper P.Ltd. We have kept our blank delivery challan books at the gate of Best Paper Mills Pvt. Ltd., who receive the goods on our behalf. The person at the gate of the Mill weighs the goods and fillup the blank delivery challan books kept with them. The delivery challans are prepared in duplicate, white copy is original which is kept by the Mill themselves and green copy is duplicate which is collected by us everyday from the Mill - almost twice a day. I am producing herewith delivery challans which were collected yesterday. Based on duplicate copy of delivery challans collected by us, we prepare purchase vouchers which are computerized. The bills prepared by us include the name of the URD suppliers, quantity, rate and value of the goods supplied by them. Depending upon cash withdrawals and available cash balance, we make Payments to the concerned URD suppliers. On payment of cash to the URD suppliers we obtain their signatures on payment vouchers. ....
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....ty, rate and amount. I am producing herewith sale bills raised upto 09-01 -2014 for your kind verification. Q.12 It is observed that both Purchase vouchers, and Sale bills are prepared based on delivery challans collected/received by you. However, while sale bills contain Vehicle/Truck Nos., purchase vouchers do not contain the same. Why? Ans.:This omission is by mistake and there is no particular reason for not writing the vehicle number in the purchase vouchers. Upon perusal of statement and factual matrix, Ld.AO formed an opinion that the stated entity was in collusion with the assessee and all the transactions were manipulated in order to accommodate the assessee. Similar statement was also recorded from Shri Kunjal Shah, Partner of M/s Poojan Trading Co. u/s. 131 prior to the date of survey, the relevant extract of which has also been reproduced in para 11 of the quantum assessment order. 2.12 During survey proceedings at assessee's premises on 10/01/2014, the statements of various other persons were also recorded. Shri Tarkeshwar Singh, Machine-in-charge of Plant No. 1 submitted that yield of the plant-1 varied between 80% to 90% whereas Sh....
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.... account of suppression of yield. Proceedings before Ld. CIT(A) 3.1 Aggrieved, the assessee contested the same before the Ld. CIT(A) vide impugned order dated 25/11/2016 which is common order for AYs 2007-08 to 2013-14. During appellate proceedings, the assessee filed detailed submissions and contested the rejection of books of accounts and consequential estimation of yield as made by Ld. AO. The relevant submissions of the assessee has already been extracted on para no. 5 of the impugned order, which are not reproduced here for the sake of brevity. 3.2 In the said submissions, the assessee, inter-alia, explaining the modus operandi of procurement of raw material and manufacturing process, controverted each and every findings of Ld. AO and assailed the conclusions drawn therefrom. It was submitted that the yield was estimated in an arbitrary manner without pointing out any specific defects in the books of account and without there being any incriminating material to substantiate the findings. The attention was also drawn to the fact that statements recorded during survey proceedings u/s 133A would have no evidentiary value unless corroborated with circumstantial evidences.....
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....ITR 480. Reliance was also placed on CBDT Comm. No. 286/2/2003-IT(Inv.) dated 10/03/2003 to submit that departmental authorities were not be obtain confessions as to undisclosed income but concentrate on the collection of evidence of undisclosed income. 4.5 The assessee also controverted the manner of yield estimation as adopted by Ld. AO and submitted that the same was arbitrary and without any basis. The attention was drawn to the fact that the yield of 87% as adopted by Ld. AO was nothing but estimated average yields of 85% & 90% of Unit-I & Unit-II respectively without there being any supportive material to substantiate the estimation. It was submitted that no expert opinion was obtained by Ld. AO to arrive at such estimation. Therefore, the addition merely on presumption, guess-work could not be sustained in the eyes of law. The assessee bolstered the same by submitting that the assessee approached government bodies i.e. Central Pulp & Research Unit (CPPRI) & Shriram Institute of Industrial Research (SRI) to study the manufacturing process and scientifically estimate the assessee's yield in manufacturing process. Both the reports, as per assessee's submissions, corrobora....
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....ted CBDT circular dated 10/03/2003. Third Remand proceedings 6. In view of assessee's submissions, Ld. AO was again called for along with assessment records and survey folders and also directed to point out any incriminating material collected during the course of survey and assessment proceedings. The Ld. AO, vide remand report dated 04/10/2016 reiterated the observations as made in earlier remand reports which were controverted by the assessee in similar manner. The assessee also submitted that the two entities namely M/s Aryan Paper Mills private Limited and M/s Gayatrishakti Paper & Board Limited as picked up by Ld. AO to make yield comparison, were not comparable to the assessee since the quality of paper manufactured by them was different and different Plant & Machinery was being used by them to manufacture the paper. Findings of Ld. CIT(A) 7.1 The Ld. CIT(A) considered the factual matrix in paras 9 to 9.12 and observed, in para-10, that no incriminating material regarding unaccounted cash, purchases, sales or investment was found during the course of the survey. No inventory of stock was prepared by the survey team and no defect was found either in cash or in sto....
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....on for AY 2011-12 without there being any other independent evidence in support of the yield either as per the self-confession of the assessee or as estimated by Ld. AO. The same was in contradiction to CBDT instructions dated 10/03/2003 and 18/12/2014 which discouraged the reliance on self-confessions and declarations obtained during the course of surveys and others proceedings with a view to make additions while farming assessment orders. The relevant extract of the circulars has already been reproduced in the impugned order. 7.6 It was further observed in para 10.6, that Ld. AO examined all the suppliers who corroborated the genuineness of sale of waste paper to the assessee. These suppliers were regularly filing their respective Income Tax Returns. All the suppliers were registered with the Sales Tax Department and filing the requisite Sales Tax / VAT Returns. Therefore, the conclusion that the assessee made bogus purchases was not factually correct. 7.7 Regarding huge cash withdrawals made by the suppliers of the assessee, the Ld. CIT(A) concurred with assessee's submissions that the assessee could not exercise control over the conduct of business of the suppliers. The a....
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.... given factual matrix was considered at the threshold of various judicial pronouncements, the gist of which has already been reproduced in the impugned order. In sum and substance, it was noted that no addition could be made merely on the basis of statement obtained during survey proceedings without there being any cogent material on record to substantiate the same and these statements would have no evidentiary value. It was sine qua non that there was some other material to corelate undisclosed income with such statement. 7.13 Finally, after due consideration, Ld. first appellate authority reached a conclusion that no incriminating material / documents regarding unaccounted cash, stock, sales, purchases or investments were found during the course of survey proceedings. No discrepancy was found either in the cash or physical stock and Ld. AO heavily relied upon the statement of the employees recorded during the course of survey. The MD of the assessee categorically submitted that records of consumption and production were duly maintained and accounted in the books of accounts. The books of account were duly maintained and no discrepancies could be found by the survey team in the....
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.... Moreover, they just stated estimate of percentage yield and not exact figures. As pointed out earlier, no incriminating documents were confronted during the course of survey while recording the statement of employees and M.D. of the company (statements recorded during the course of survey are attached as Annexure 1 to this order). Since these persons were not involved in the maintenance of accounts and calculation of the yield, therefore, in absence of any supporting documents their statements cannot be relied for making additions. For rejecting books of accounts, the Ld. A.O. mentioned in para 4 of the assessment that the assessee company had suppressed its yield by inflating purchases of indigenous waste paper in its books of accounts from various parties. 16.4 The names of such parties were mentioned at page 3 of the assessment order. U/s.250(4) of the Act, the A.O. was directed to issue summons u/s.131 and examine all the parties along with their books of accounts. In this regard a report was received 25.01.2016. All such parties not only appeared before the A.O. but also produced all necessary books and vouchers along with books of accounts. They not on....
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.... Institute which had conducted their on-spot trials and given their report which is reproduced at page no.53 of this order. The appellant has also submitted report of Shriram Institute for Industrial Research Institute which has prepared the report after on-spot trials. On the other hand, survey team did not try to take actual yield after observing the manufacturing trials during the course of survey. The technical reports prepared by the Central Pulp & Paper Research Institute and Shriram Institute for Industrial research Institute were also produced before the A.O. and also forwarded to the A.O. during remand proceedings. The A.O. had not found out any defect in the technical reports produced by the appellant. 16.8 The disclosure during the course of survey was not unconditional and it was also not supported by any documentary evidences. Moreover, the yield taken by the A.O. is also not supported by equal and fair comparable whereas the technical opinion given by the government agency supports the claim of the appellant. The A.O has failed to bring any cogent material necessary for invoking provisions of sections 145(3) of the Act. Hence without valid rejection ....
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....4/M/2011 dated 19/06/2015] iii) Mumbai Tribunal in ITO V/s Eternity Jewels [ITA No.1318/Mum/2016 dated 04/02/2019 iv) Hon'ble Kerala High Court in B.F.Varghese V/s State of Kerala [72 ITR 726] Our findings and Conclusions 9.1 We have carefully heard the rival submissions, perused relevant material on record including the orders of lower authorities and deliberated on judicial pronouncements as cited before us. 9.2 The order of Ld. AO would reveal that yield percentage reflected by the assessee has been disturbed primarily by relying upon statements of assessee's employees & Managing Director as recorded during survey proceedings on 10/01/2014. The Ld. AO formed an opinion that the delivery challan books were susceptible for manipulation and the assessee has understated yield percentage by inflating purchase of raw material in the books of accounts. 9.3 Before proceeding, it would be imperative to highlight the modus operandi adopted by the assessee to procure the raw material from various suppliers. The facts on record would reveal that the assessee was sourcing waste paper from few suppliers, who in turn, were procuring the same from small vendors inc....
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....and no adverse inference could be drawn against the assessee on the basis of cash withdrawals made by the suppliers. In fact, all the suppliers were filing their respective Income Tax Returns, their accounts were audited as per law and due compliances were made by them under VAT / Sales Tax laws. These suppliers confirmed having made sales to the assessee. There in not even an iota of submission that raw material was not supplied to the assessee. The payments to all the suppliers were made by the assessee through banking channels. No discrepancies have been found in the ledger statements of these suppliers. Nothing has been brought on record to establish that any cash got exchanged between the assessee and these suppliers on account of alleged bogus supplies. The allegations that these suppliers were in collusion with the assessee is not supported by any material. 9.5 Another pertinent fact to be noted is that no discrepancy has been pointed out by survey team in physical stock of raw material or finished goods on the date of survey. No evidence of suppressed sales, unaccounted cash / investments / sales have been brought on record. No defect has been pointed out either in ca....
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....ement that the yield could be in the range of 80% to 90% whereas Machine-in-Charge of Plan-II submitted that the yield could be 90% whereas Director (Technical) submitted that there could be wastage of 12% to 15% and there was insignificant difference between the yield of two plants. Therefore, none of the statements, in our opinion, could be termed as reliable statement but given by the employees based on their own personal perception. The Managing Director, on the other hand, submitted that yield could be around 83.44% which is corroborated by the finding of Ld. AO that yield on the date of survey was 83% which could not be manipulated by the assessee. In reply to question no. 11, Shri Ramesh K. Shah [MD] submitted that wastage was generally in the range of 18-20%. In reply to question No. 15, it was submitted that records of consumption and production were duly maintained and accounted for in the books of accounts. In reply to question no. 19, the composite yield during the financial year 2013-14 was submitted to be 83.44%. Further, in reply to question no.20, the said fact was reiterated and at the same time, it was submitted that to buy peace of mind, the yield is being declar....
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....sion is an extremely important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of account do not correctly disclose the correct state of facts, vide decision of the apex court in Pulkngode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 ; (ii) In contradistinction to the power under section 133A, section 132(4) of the Income-tax Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income-tax Act. On the other hand, whatever statement is recorded under section 133A of the Income-tax Act is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law, vide Paul Mathews and Sons v. CIT [2003] 263 ITR 101 (Ker.); (iii) The expression "such other materials or Information as are available with the Assessing Officer" contained in section....
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....eing used by those concerns and the contents / quality of raw material etc. procured by those firms. No conclusions, in our opinion, could be derived merely on the basis of bald comparison. 9.11 The assessee has also placed on record the yield percentage achieved during manufacturing process in earlier as well as succeeding years, which could be tabulated in the following manner: - AY Yield % 2004-05 80.481 2005-06 81.091 2006-07 80.057 2007-08 80.389 2008-09 81.395 2009-10 81.627 2010-11 80.627 2011-12 80.406 2012-13 81.191 2013-14 82.683 2014-15 83.672 2015-16 84.458 2016-17 84.602 2017-18 84.864 2018-19 86.822 Upon perusal, we find that the assessee was reflecting yield in the range of 80% to 81% from AYs 2004-05 to 2011-12. Thereafter, the yield has shown improvement which stood explained by the fact that there were additions in the Plant & Machinery from 01/04/2010 onwards which further corroborates assessee's stand. 10. Keeping in view the totality of facts and circumstances, we are of the considered opinion that Ld. CIT(A) was justified in deleting the quantum additions a....