TaxTMI 
TaxTMI 
2021 (11) TMI 707
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....3) of the Income Tax Act, 1961 (in short 'the Act') 2. The issues being common, interlinked and similar, all the captioned Revenue's appeals in respect of the captioned assessee have been heard together and are being disposed of by this common order. 3. The Revenue has raised several grounds in its appeals some which transcends in various assessments from A.Y. 2006-07 to 2012-13. The grounds are thus consolidated for various years for the sake of convenience of adjudication. 4. As per its grounds of appeal, the Revenue has broadly challenged the relief granted by the CIT(A) three counts; (1) additions of Rs. 5,08,90,000/- in A.Y. 2006-07 invoking the provisions of Section 68 of the Act in respect of receipt of share application/share capital; (2) additions of different amounts on account of suppression of yield and unaccounted productions/sales in each assessment year from A.Ys. 2006-07 to 2012-13; & (3) additions of Rs. 71,76,306/- on account of excess stock on finished goods/ raw material in A.Y. 2012-13. 5. As per its cross objections for the various assessment years in question spanning over A.Ys. 2006-07 to 2012-13, the assessee has primarily raised a legal objecti....
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....le framing the assessment order for AY 2006-07. The directions of the superior authority under s.144A of the Act were taken into account. The income of the assessee was accordingly assessed at Rs. 7,01,82,112/- as against loss of Rs. 87,11,033/- (AO wrongly treated Rs. 87,11,033/- as income) under s.153A of the Act for AY 2006-07 in question. Similar additions towards low yields were made towards low yields in other assessment years also. 8. Aggrieved, the assessee preferred appeal before the CIT(A) challenging the aforesaid additions in all these years. 9. The assessee filed detailed submissions before the CIT(A) and the documentary evidences to substantiate its claim on both issues; namely, (i) additions under s.68 of the Act on account of share application money & (ii) additions on account of low yield of finished product. A legal objection was also raised on jurisdiction under S. 153A in respect of assessments unabated and concluded prior to search. The CIT(A) took note of factual and legal submissions so made and found merit in the plea of the assessee on both issues involved. 10. The CIT(A) addressed the first issue on additions made by the AO under S.68 of the Act o....
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....ny proper basis. I do find considerable force in the submissions of the appellant that the A.O. merely made the allegation, however, the A.O. has not brought on record any basis for such allegation. It is not the case of the A.O. that the search team did visit the Registered Office premises of the appellant company and had asked a specific query to the appellant company's representative with regard to maintenance of statutory records and that the appellant company's representative failed to produce the Statutory Records or registers or expressed their inability to produce the same or had admitted that no such records are being maintained. I find that on one hand, the A.O made the allegation, however, without bringing on records its basis and on the other hand, the A.O. did not also adhere to the appellant company's specific request to verify the statutory records that are being maintained by the appellant company, such an action of the A.O. has made the assessment order vitiated by one sided conclusion by the A.O. I have carefully perused the statement of Ms. Jaswinder Kaur Mission recorded on 21.6.2011, from the perusal of said statement, I find that the said employee of group com....
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.... in the present search assessment proceedings as the same are beyond the period covered under the present search assessment proceedings. 5.4 The appellant has submitted that Antariksh Commerce Private Limited is a group company, the appellant has placed on record, copy of assessment order in the case of Antariksh Commerce Private Limited for the assessment year 2005-06 and 2008-09. 5.5 It is seen that Antariksh Commerce Private Limited was assessed u/s 143(3) r.w.s 147 and even as on 31.3.2005, the said company had share capital and reserves of Rs. 23.62 crores. Apart from the audited financial statements in support of credit worthiness of the said company, I am convinced that no adverse view can be taken regarding identity or credit worthiness of the said company when the said company has been duly assessed and the share capital and reserves i.e. the net worth of the said company was duly accepted in scrutiny assessment proceedings and the said company had sufficient means to invest even prior to the period covered under present search proceedings, in the factual matrix of this case, I am convinced that the appellant has not only explained the source of receipt o....
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....t. The A.O cannot be permitted to take two divergent views on same set of facts and on same set of evidences, when the same A.O undisputedly accepted the genuineness of addition to share capital of Mahamaya Steel Industries Limited, there was no reason for him to take a contrary view in the case of the appellant. 5.8 It is an undisputed fact that the names, addresses and assessment particulars of the investors, their active status as per the website of Ministry of Corporate Affairs and bank statement of the applicants had been furnished by the appellant before the AO. It is further observed that the share application/capital money has been received by way of account payee cheques from the investors most of whom are companies and is duly reflected in the bank account of the appellant. I have perused the bank statements of the investors, their audited financial statements and confirmation for making such investments, which clearly establishes the factum of making investments. These facts are clearly establishing the identity of the investors and the genuineness of the impugned transactions. 5.9 It is observed from the records and assessment order that for the purpos....
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.... the particulars of receipt of replies from the investors, therefore, in my considered view, no adverse inference can be drawn against the appellant for mere non service of notices initially, I have carefully perused the explanation submitted by the appellant in respect of cases where the notices remained unserved, the submissions of the appellant are found to be convincing. It is further observed that no further enquiry or investigation has been conducted by the AO to corroborate or support the conclusions drawn in the assessment order so as to assess the share capital money as the undisclosed income of the appellant company. In my considered opinion, apart from drawing presumptions, the AO has not brought any clinching material or evidence on record to prove that the said share capital money belongs to the appellant since no nexus has been established that the money for augmenting the investment in the business has flown from appellant's own money which is an essential pre-requisite for making addition in such cases. I am convinced that the case of the appellant is squarely covered by the the decisions rendered by the Hon'ble Apex Court in the case of the CIT vs. Lovely Exports (....
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....partment to show that the monies represented the appellant's undisclosed income. 5.12 The Hon'ble Supreme Court in CIT vs. Lovely Export, 216 ITR 198 SC and the Delhi High Court in Divine Leasing and Finance Limited, (2008) 299 ITR 268 have held that in the case of money received towards share capital only the identity of the share holders needs to be proved and once that is established and it is also shown that the money did in fact come from them, it is not for the assessee to prove as to how the share applicants came to be in possession of the money. In the light of the above discussion, I am inclined to agree with the arguments and evidences provided by the appellant to substantiate that the transaction regarding Share Application Money received by it were genuine transactions and the same were not accommodation entries. I also do not find any evidence collected by the A.O. Which could prove otherwise. Accordingly, the AO was not justified in treating the amount of share application money received by the appellant as its undisclosed income. 5.13 The case of the appellant finds support from the decision in: 1. CIT vs. Kamdhenu Steel & Alloys Limite....
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....he assessee in such modus operandi is clearly indicated by valid material made available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such "entry providers". The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre- meditated plan - a smokescreen - conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under sec.68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary....
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....eme Court in Lovely Exports and that of jurisdictional High Court are certainly binding in nature on all the revenue authorities and courts etc. and further, the judgement of the jurisdictional High Court as well as that of the Hon'ble Supreme Court in Lovely Exports has been rendered on identical facts. Hence, it is impermissible to deviate from the ratio laid down therein and against the law of judicial precedents. I am convinced that the action of the A.O in making the addition in respect of even those sums which were refunded is illegal as the same is clearly beyond the purview of Section 68. In view of the above and respectfully following the ratio of the binding judgements, the addition of share application/capital money of Rs. 5,08,90,000/- as unexplained cash credits under section 68 is uncalled for and hence, deleted." 11. As regards second issue pertaining to low yield and alleged suppression of production and unaccounted sales, the CIT(A) took note of the relevant facts placed before him by the assessee and passed a detailed common and combined order on the issue covering all the assessment years noted above. The relevant operative para of the order of the CIT(A) also....
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.... Yield (%) of Appellant A.Y. 2008-09 1 Gopal Sponge & Power Pvt. Ltd. 2007-08 48.86 60.00 54.07 2 GR Sponge & Power Ltd. 2007-08 51.76 60.00 54.07 3 Shri Nakoda Ispat Pvt. Ltd. 2007-08 52.64 60.00 54.07 4 Rashmi Sponge Iron & Power Industries Ltd 2007-08 40.35 60.00 54.07 Arithmetical Mean of Yield 48.40 60.00 54.07 A.Y. 2009-10 1 GR Sponge & Power Ltd. 2008-09 52.77 60.00 50.68 2 Shri Nakoda Ispat Pvt. Ltd. 2008-09 53.68 60.00 50.68 3 Rashmi Sponge Iron & Power Industries Ltd 2008-09 52.78 60.00 50.68 4 Gopal Sponge & Power Pvt. Ltd. 2008-09 51.08 60.00 50.68 5 M/S Sunil Sponge & Private Limited 2008-09 51.58 60.00 50.68 6 M/S Mahendra Sponge & Power Limited 2008-09 49.74 60.00 50.68 7 M/S Baldev Alloys Private Limited 2008-09 53.88 60.00 50.68 Arithmetical Mean of Yield 52.22 60.00 50.68 A.Y. 2010-11 1 Gopal Sponge & ....
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....nt. In none of the comparable case received from DCIT-1(2), Raipur, such standard yield of 60% was adopted despite of the fact that all the comparable cases declared yield much less than 60% and even less than that declared by the appellant. 9.7 I have carefully analyzed the financial results of the appellant and a comparison of GP and NP rate was drawn between GP and NP rate declared by the appellant and the comparable cases received from DCIT-1(2), Raipur. The result of the comparison is as under: S.No. Name of comparable assessee assessed in Circle 1(2), Raipur F.Y. Turnover (Rs. In Lacs.) G.P. (%) N.P . (%) YIELD (%) Turnover of appellant (Rs. In Lacs.) GP (%) of appellant NP (%) of appellant Yield (%) of appellant 1 Rashmi Sponge Iron & Power Industries Ltd 2007-08 9061.33 18.79 4.66 * 40.35 2394.51 18.42 12.88 54.07 Average Yield For F.Y. 2007-08 *** 40.35 1 Gopal Sponge & Power Pvt. Ltd. 20....
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....in my considered view, the financial results declared by the appellant are found to be better in comparison to most of the comparable instances in terms of GP rate as well as NP rate and even in terms of yield. It is also observed that there is no direct corelation between GP rate and yield, for instance, the yield declared by Gopal Sponge & Power Pvt. Ltd. in financial year 2008-09 is 51.08% which is marginally higher than the yield declared by the appellant at 50.68%, however, the GP rate and NP rate of the appellant are found to be much better i.e. 13.13% and 7.84% respectively in comparison to 11.15% and 4.73% respectively declared by Gopal Sponge & Power Pvt. Ltd. Similarly, it is observed that the GP rate declared by M/S Baldev Alloys Private Limited was 10.93% as against 13.13% declared by the appellant company, however, at the same time it is also seen that net loss of 13.86% was declared by M/S Baldev Alloys Private Limited as against NP rate of 7.84% declared by the appellant though the yield was marginally low at 50.68%. Similarly the yield declared by Rashmi Sponge Iron & Power Industries Ltd in financial year 2007-08 is 40.35% which is lower than the yield declared by ....
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....Form ER-6, the appellant furnished the details on monthly basis viz. Description of principal inputs, Quantity code, Opening balance, Receipt, Taken for use in the manufacture of dutiable and exempted finished goods, Removed as such for export or for home consumption, Closing balance, Finished goods manufactured out of input, Quantity code of finished goods, Quantity of finished goods manufactured. 9.10 It is seen that the excise returns in Form ER-1 and ER-6 filed by the appellant on monthly basis are duly acknowledged and bears the seal and signature of the Central Excise Authority. The appellant was asked to produce the excise records maintained on daily basis. The appellant did produce the excise records in Form-IV and RG-1 for raw material and finished goods respectively for all the years under consideration. On test check of excise records maintained on daily basis with the figures of production, consumption of raw material and closing stock of finished goods and raw material shown in Form-ER-1 and ER-6, it was found that the same are tallying and thus, were found to be satisfactory. The entries in the excise records for material inwards was cross checked with refere....
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....er as presumed by the A.O. on the basis of incorrect interpretation of facts. (3) Regarding variation in consumption of coal and Iron ore, in my considered view, the same may lay foundation for raising suspicion, however, at the same time, it is settled principle of law that suspicion, howsoever grave it may be, cannot take place of the evidence. On an independent appreciation of reasons explained by the appellant for variation in yield i.e. for variation in consumption of coal and iron ore, I find the explanation of the appellant to be convincing, particularly, when the appellant has brought on record certificate from registered valuer which is placed in the paper book at Page no.321 of Volume 3 as well as Page no. 7 of Volume 4 of the Paper Book in the case of appellant. The A.O. has not brought on record any evidence to disbelieve the certificate of registered valuer who is duly approved u/s 34AB of the Wealth Tax Act, 1957 vide order dated 06.07.2011. As per the said certificate of the registered valuer, the average yield of sponge iron unit using Iron ore and coal as raw material may vary from 40 to 60% and coal consumption may vary from 1.6 to 2.1 MT dependi....
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....he A.O has laid too much emphasis on statistics, those statistics which cannot be said to have been gathered as a result of search only. The statistics relied upon by the A.O are those which are quite routinely called for even during the regular assessment proceedings u/s 143(3). The A.O has not stated what according to him should have been the average consumption of coal, iron ore etc. Another fact noticed is that the case of the appellant was under scrutiny assessment for two consecutive years i.e. in A.Y 2006-07 and 2007-08 where regular assessments were made under scrutiny and the yield was shown by the appellant was not disputed. 9.15 I find that the A.O, in Para 9.1 has stated that the evidences of unaccounted production by suppressing its yield were found and these evidences are discussed in the subsequent paragraphs, from this assertion of the A.O, I am inclined to draw a reasonable inference that apart from what has been stated in the assessment order, the A.O has no other evidence in any form whatsoever. 9.16 Finished goods of the appellant is Sponge Iron which is consumed by its sister concerns namely "Mahamaya Steels Industries Limited" and "A....
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....oduce the goods indigenously at a cost lower than the purchase cost from market. The A.O has duly accepted the purchase of sponge iron by the group companies that are recorded in their books of accounts and consumed in SMS Division of group companies, therefore, it is hard to believe that the appellant must have sold its product i.e. sponge iron which, in fact, is an intermediary product from the perspective of the group as a whole. 9.18 I have also carefully perused the statement of Shri Rishikesh Dixit recorded on 21.6.2011 as regards common allegation in case of all the four manufacturing companies i.e. sister concerns of Mahamaya Group that the group is following the system of destroying the initial document i.e. the loose slip in which quantity of production and consumption is recorded. From the statement of Shri Rishikesh Dixit, it is gathered that it was stated in clear terms that the quantity recorded in the loose slips tallies with the quantity recorded in the regular books of accounts, excise records and excise returns; that as the Excise Return is being filed on monthly basis, therefore, after filing of Excise Return such loose papers become redundant and that i....
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....owever, ratio of the principles decided that (i) when the A.O. has not considered the assessee's explanation by merely mentioning that it is not found to be acceptable and (ii) when Excise Department has accepted the yield and when the department has no other material to prove that the assessee has indulged in unaccounted sales no addition is called for, are squarely applicable in this case. 9.21 Similarly in the case of ACIT vs. M/s. Super Iron & Steel Pvt. Ltd., which is one of the comparable cases cited above, in ITA No.139 to 141/ BLPR/2010, the jurisdictional Bench of Hon'ble ITAT had an occasion to decide similar issue and the Hon'ble Tribunal has observed as under:- "6. After hearing the rival submissions and perusing the material on record we find that the assessee is engaged in the business of manufacturing of MS Ingots with Sponge Iron as the main raw material. According to the AO there was no basic document regarding consumption of raw material and production of finished goods were maintained by the assessee in the factory premises. The AO found that there is no system in place for keeping record of consumption of raw material and production....
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....ny of law. The facts and circumstances of the present case reveal that the A.O just brushed aside the objections/submissions and contentions raised by the appellant and evidences placed on record. The A.O has made mechanical addition of the difference between the unaccounted production/sales worked out on the basis of 60% yield suspected by the A.O that must have been achieved by the appellant. The assessment order conclusively indicates that the addition has been made out of some lurking suspicion based either on rumours or on something less serious than that. 9.24 The A.O has merely referred to variations based on mathematical calculations viz_ Variation in coal, iron ore, this may well be the basis of suspicion, however, these cannot per se constitute the basis of the addition, though it can very well be a starting point for further investigation. In Lalchand Bhagat Ambica Ram vs. CIT: (1959) 37 ITR 288, the Supreme Court disapproved the practice of making additions in the assessment on mere suspicion and surmises or by taking note of the "notorious practice" prevailing in trade circles. 9.25 The significance of "tangible evidence" has been emphasized in variou....
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....that the A.O has also not pointed out any infirmity in the explanation of the appellant and nor did the A.O bring on record any documentary evidence or reasoning to negate the submissions/explanation of the appellant. It is also an undisputed fact that in the case of the appellant neither any diary or loose paper was found which indicates that the appellant did indulge into unaccounted sales and earned such hefty amount of income. The facts in the case of the appellant are much better than the facts before the Hon'ble HIGH COURT OF GUJARAT in Commissioner of Income Tax Vs. Maulikkumar K. Shah (2008) 307 ITR 137 (Guj). 9.31 I find that even non maintenance of stock register is not fatal as held in Commissioner Of Income Tax Vs. Jacksons House (2010) 39 DTR (Del) 212 : (2011) 198 TAXMAN 385. 11.35 . Similar view was taken in M. Durai Raj Vs. Commissioner Of Income Tax (1972) 83 ITR 484 (KER). 9.32 On the matter of recording the consumption of raw material going in to klin and quantity of production coming out from klin, in my considered opinion, the mere fact of estimation cannot be made the basis of rejection of books of accounts so long as the financial results ar....
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....that the appellant has not followed the mercantile system of accounting. It is also not the case of the A.O that the appellant has not followed any particular accounting standards which are notified by the Central Government. It is also not in dispute that the appellant has maintained books of account regularly and these are duly audited u/s 44AB of the I.T. Act and the quantitative details were prepared and were duly audited. If the stock register was not maintained by the appellant, that may put the A.O on guard against the falsity of the return made by the appellant and persuade him to carefully scrutinize the account books of the appellant. The low yield in comparison to the benchmark adopted by the A.O, in the absence of any material pointing towards falsehood of the account books, could not by itself be a ground to reject the account books u/s 145(3) of the I.T. Act, 1961 much less a ground to make estimated addition. I find that there is no dispute with regard to the fact that the appellant has maintained quantitative details. In the case of CIT vs. Smt Poonam Rani 326 ITR 223 (Delhi) it was held that where an addition was made because of mere fall in gross profit without an....
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....could be termed as evidence on the basis of which the undisclosed income could be computed. Certain documents were seized, but there was nothing in those materials relating to sales which could establish that appellant had undisclosed income. Therefore, in my considered view, it is unreasonable to estimate the suppressed sales on the basis of undisclosed yield. It cannot be said that there is always standardized yield during the search period. 9.38 As a matter of fact the Search Team could not come across any evidence of unaccounted sales, in my considered opinion, had there been any unaccounted sales, the same would have been detected by the Search Team. The case of the appellant also finds support from the decision of the jurisdictional Tribunal i.e. ITAT, BILASPUR BENCH in Chhattisgarh Steel Casting (P) Ltd. Vs. Assistant Commissioner of Income Tax (2008) 8 DTR (Bilaspur) (Trib) 14. 9.39 The significance of tangible evidence is indicative from the fact that in Commissioner of Income Tax Vs. Vishal Rubber Products (2003) 264 ITR 542 (P&H) : (2004) 136 TAXMAN 151 despite Balance Sheet having been found from the premises searched, no addition was sustained in the ....
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..... Cherian (1979) 117 ITR 371 (KER) 9.43 I find no merit in the action of the A.O in rejecting the books of accounts merely due to the reason that the yield achieved by the appellant is less than the yield percentage i.e. 60 % which has not been achieved even by other assessees engaged in similar line of business, the A.O has not brought on record the manner in which he worked out the yield of 60%. The A.O has no evidence in his possession to indicate that the quality of raw material used by the appellant in all these 7 years was uniform and standardized one. The Hon'ble Madras High Court took judicial note of such facts in C. ARUMUGASWAMI NADAR vs. COMMISSIONER OF INCOME TAX (1961) 42 ITR 237 (MAD). 9.44 The facts in the case of the appellant are akin to the facts before the Hon'ble High Court of Assam in Harakchand Arakchand Radhakisan vs. Commissioner of Income Tax (1962) 46 ITR 196 (ASSAM). The Hon'ble High Court of Delhi has laid down certain principles on rejection of books of accounts in Commissioner Of Income Tax Vs. Paradise Holidays (2010) 48 DTR (Del) 349 : (2010) 325 ITR 13. 9.45 In SUKHADIA JAMNADAS MAGANLAL vs. INCOME TAX OFFICER (2008) 13 DT....
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.... (J&K) 88 : (1975) 101 ITR 721 (J&K). Where AO had failed to bring on record any cogent material to show quantum of sales of assessee out of books of accounts, then addition made by revenue on estimated basis was not justified, this was held in COMMISSIONER OF INCOME TAX vs. MAHAN MARBLES (P) LTD. by Hon'ble High Court of Rajasthan vide order dated 9th January, 2013 (2013) 354 ITR 238 (Raj). 9.50 It is not the case of the A.O that the stock records and inventory of the appellant or the quantity of production and sales declared by the appellant in its books of accounts was not accepted by the other Revenue Authorities such as Sales Tax Department or the Excise Department. The case of appellant finds support from the decision of Hon'ble High Court of Gujarat in COMMISSIONER OF INCOME TAX vs. SANJAY OIL CAKE INDUSTRIES (2005) 197 CTR (Guj) 520 : (2005) 149 TAXMAN 190: 9.51 I am convinced with the reasons for variation in power consumed in comparison to the production in different periods which could be on account of furnace condition, quality of raw material used, labour productivity, incoming voltage, breakdown time, etc. Due to the above reasons, monthly consumptio....
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....andigarh) has decided in favour of assessee. The extrapolation of figures for estimation of income has been held to be unsustainable in Evergreen Bar & Restaurant Vs. Additional Commissioner Of Income Tax (2008) 6 DTR (Mumbai)(Trib) 56. 9.56 In my considered view, there was no ground for the A.O to reject the books of accounts of the appellant u/s 145, however, even if it is assumed that there was sufficient ground for rejecting the books of accounts, the assessment had to be made to the best of his judgement. As to how the best judgment assessment should be made, the leading decision on the point is the one rendered by the Privy Council in CIT vs. Laxmi Narain Badridas (1937) 5 ITR 170 (PC) : TC11R. 192, reversing Laxmi Narain Badridas vs. CIT (1934) 2 ITR 246 (Nag) : TC11R.201 and approving Abdul Baree Chowdhury vs. CIT (1932) 5 ITC 352 (Rang). In this decision rendered under the provisions of the 1922 Act, it was observed : "He (the assessing authority) must not act dishonestly or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purp....
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....ing any basis of its own estimate. The Calcutta High Court held that the order of the Tribunal being arbitrary, the same could not be sustained. In Ganga Prasad Sharma vs. CIT (1981) 132 ITR 87 (MP) : TC11R.285 the Madhya Pradesh High Court emphasized that while making a best judgment assessment, the basis of computation should be disclosed by the ITO. In CIT vs. Ranicherra Tea Co. Ltd. (1994) 207 ITR 979 (Cal) : TC11PS.3, the ITO rejected the loss return and determined the loss at nil on default of assessee to produce books of account. No basis for computation was disclosed by the ITO. It was held by the Calcutta High Court that the ITO acted illegally. As assessment has to be completed on the basis of records and material available before the AO and personal knowledge and excitement on events and extraneous facts should not lead the AO to a State of affairs where the salient/primary/direct evidences are overlooked and should not influence the AO for resorting to adhoc additions/disallowances. If general/casual/routine observations of the AO are to be considered as material evidence for the purpose of framing an assessment, the AO shall have blanket and arbitrary powers to dispose....
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....071.00 2012-13 3,02,55,482.00 12. While adjudicating the issues involved in favour of the assessee on factual matrix, the legal objection of the Assessee on jurisdiction under S. 153A concerning AY 2006-07 to 2011-12 was however seen with disfavour and decided against the assessee by the CIT(A). 13. The Revenue is aggrieved by the relief granted to the assessee on merits by the CIT(A) on both the issues of (i) additions under s.68 of the Act towards share application money amounting to Rs. 5,08,90,000/- in A.Y. 2006-07; & (ii) suppression of production based on lower yield and corresponding unrecorded sales in all the captioned appeals. The revenue has also raised objection to the relief granted by the CIT(A) on account excess stock in AY 2012-13 which shall be dealt with at appropriate place in succeeding paragraphs. 14. The Assessee, on the other hand, has filed cross objections challenging the legitimacy of additions/ disallowances dehors any reference to incriminating documents in unabated assessments [AY 2006-07 to AY 2009-10]. 15. When the matter was called for hearing, the learned CIT-DR for the Revenue, at the outset, strongly relied upon the factual matri....
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....3A r.w.s. 143(3) of the Act would be permissible under the schematic interpretation of the law governing search assessments. Turning to the fact, the learned counsel for the assessee submitted that a search and seizure operation under s.132(1) of the Act was carried out on the residential and business premises of various companies and its Directors on 21.06.2011. However, significantly, no search action was carried out at the registered office of the assessee company where the share certificates, relevant statutory records are kept as required in law. No adverse information in relation to share applicants were found in the course of search. It was further asserted that no document relating to various assessment years in question were either found or seized which can be branded to be incriminating in nature indicating presence of any undisclosed income. The documents found and seized were of routine nature maintained in the ordinary course of business which naturally will be kept in the business premises. Hence, the assessments for AYs 2006-07 to 2009-10 which stood concluded and remained unabated is barred by principles of finality and could not be disturbed by the AO in the absenc....
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....i) ACIT & Anr. vs. Madhuri Sunil Kotecha &Anr, (2016) 55 CCH 0187, ITAT Pune Bench; (j) Trilok Chand Chaudhary Vs. ACIT, (2019) 56 CCH 0435, ITAT Delhi Bench; (k) Commissioner of Income Tax Vs. Deepak Kumar Agrawal & Ors., (2017) 398ITR586(Bom); (l) PCIT Cental-3 Vs. Anand Kumar Jain, TS-105-HC-2021(Del); (m) Principal Commissioner of Income Tax Vs. Dipak Jashvantlal Panchal,(2017) 397 ITR 153 (Guj); (n) Rajat Minerals (P) Ltd. vs. DCIT (2020) 114 taxmann.com 536 (Ranchi) 16.2 On merits, the learned Counsel for the assessee submitted that it is a matter of record that assessee has filed several documentary evidences of subscribers before the AO to support the nature and source of share application money: (a) PAN, Address, Name (b) COI, MOA, AOA (C) Audited Financial Statement (d) Income Tax Return (e) Bank Statement (f) Share Application Form (g) Payment received through banking channel (h) Details of payment received 16.3 Moving further, the learned counsel for the assessee adverted to page nos. 151 & 152 of Volume 2 of paper book and submitted that the assess....
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....es 1963. 17.1 Before we deal with additions on merits, it will be desirable to adjudicate the pertinent legal objection of overwhelming nature raised on behalf of the assessee which goes to the root of the matter and affects the very foundation of assessment. The legal question that arises as per cross objection is whether while making assessment under s.153A of the Act, the Revenue is entitled to interfere with the already concluded (and not abated) assessment passed either under s.143(1) of the Act or under s.143(3) of the Act and not pending at the time of search in the absence of incriminating documents unearthed as a result of search or not. As per the aforesaid question, the controversy that arises for adjudication is on the scope and ambit of assessment proceedings in search cases under s.153A of the Act. 17.2 In the first appeal, the CIT(A) dismissed the legal ground of jurisdiction by observing as under: "22. I have carefully gone through the assessment order and submissions of the appellant. Where a search has been initiated u/s 132 of the Act, the A.O. is entitled to issue notice for six assessment years immediately preceding the year in which search has b....
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....yawanti Gupta (supra), a chart prepared indicated that there had been a year-wise non-recording of transactions. The inferences drawn in respect of undisclosed income were premised on the material found and statement recorded thereon. As stated, there is no such statement in the present case which could be said to constitute admission by assessee on failure to record any transaction in accounts of the assessee for assessment years in question. Eventually, the Hon'ble Delhi High court in Meeta Gutgutia (supra) held that additions based on appreciation of facts de hors incriminating material are not sustainable in law. The SLP of the Revenue against the aforesaid decision of the Hon'ble Delhi High court was dismissed by the Hon'ble Supreme Court in Pr.CIT vs. Meeta Gutgutia (2018) 96 taxmann.com 468 (SC). Contextually, we also observe that the Hon'ble Supreme Court has stayed the operation of judgment of Hon'ble Delhi High Court in Dayawanti Gupta (supra) vide order dated 3rd October, 2017 in SLP Petition No.20559/2017. 17.3.2 Similar view that no additions could be made on the basis of material collected after search and in the absence of any incriminating evidence found or seize....
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....in similar circumstances where search did not result in discovery of any incriminating material qua assessee. It was observed by the Hon'ble Delhi High Court that entire case against the assessee was based on what was found during the search of the premises of other parties and thus, it is apparent on the face of it that notice to assessee under s.153A of the Act was misconceived since the so-called incriminating material was not found during the search of assessee's premises. 17.3.6 On the conspectus of aforesaid judgments of different courts, the position of law is loud and clear that additions/disallowances under s.153A of the Act towards unabated assessments are permissible only where incriminating materials are found in search showing unaccounted income. 17.4 However, at this juncture, we simultaneously take note of various decisions for the proposition that presence of incriminating material discovered during the course of search is not a condition precedent for making additions/disallowances under s.153A of the Act. We do not consider it necessary to re-visit the judgments cited. The objections raised on behalf of the Revenue have been dealt with in the judicial preced....
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....earch of assessee to suggest existence of undisclosed income as perceived by the AO. The Revenue has failed to rebut the factual assertions made on behalf of the assessee towards non-discovery of incriminating material at the time of drastic action of search on assessee and reference thereto in assessment order. There is nothing on record that information contained in seized documents as per list of inventory, were not recorded or reflected in the books of accounts. found during search. Hence, the action of the AO towards making additions in respect of concluded assessments towards undisclosed income is contrary to the judicial dicta. Accordingly, we are of the view that various additions/disallowances made by the AO are clearly beyond the scope of authority vested under s.153A of the Act owing to absence of any incriminating material or evidence deduced as a result of search in so far as completed assessments are concerned. Additions/disallowances made in assessments framed under s.153A of the Act in respect of captioned assessees pertaining to AYs. 2006-07 to 2009-10 are thus required to be struck down on this score itself. However, the assessments/re-assessments pending on the d....
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....dings. In this background, in my considered view, there is no scope and reason to take a contrary view than that taken by the then A.O without there being any documentary evidence against the appellant to demonstrate that the share application money was nothing but undisclosed income of the appellant. (Para 5.6 on page No. 14) In my considered opinion, apart from drawing presumptions, the AO has not brought any clinching material or evidence on record to prove that the said share capital money belongs to the appellant since no nexus has been established that the money for augmenting the investment in the business has flown from appellant's own money. (Para 5.10 on page No. 16) No material was brought on record by the A.O independently of the information received, if any, from the investigation wing of the Income Tax Department to show that the monies represented the appellant's undisclosed income. " (Para 5.11 on page No. 17) 20.3. Apart from the factual position on absence of any incriminating material as noted by the CIT(A) reproduced in preceding para, the CIT(A) has also analyzed and delineated the facts and circumstances in proper....
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.... out on the ground of low yield in other assessment years in question. It is the case of the assessee that allegation of the AO is totally unsubstantiated and is wholly in the realm of surmises and conjunctures without any iota of evidence against the assessee. 21.2 The Assessee has raised two fold submissions to defend his stance. One, in the absence of incriminating material, no addition is permissible in law on account of low yield at least in the unabated assessments from 2006-07 to AY 2009-10 and secondly, yield and book result declared by the assessee is corroborated by the underlying evidences and also comparable with other manufacturers as examined by the CIT(A). On the other hand, the AO has not discharged the burden lay upon him as associated with rejection of books for making artificial estimations. 21.3 Adverting to legal ground, the Assessee contends that no incriminating material were found in the course of search operations showing any unaccounted production or unaccounted sales resulting from alleged low yield on production shown in the books. No documents or sheet showing record of actual production in excess of what is recorded in books were found in the cou....
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....t given despite repeated request by the assessee either. 22.1 We observe that the CIT(A) has capsulated the findings of the AO and reproduced the tabulated statement wherein year-wise yield of finished goods (sponge iron) shown by the assessee were compared with the an innocuous standard of 60% set by the AO. The AO consequently calculated the difference in the actual production vis-à-vis standard production [yield of 60% considered as standard production] and computed the value of difference in actual production versus standard production as unaccounted production/ sales in respective assessment years. We similarly observe that the CIT(A) has also recorded the detailed submissions of the assessee filed in its defense whereby reasons for justification of the actual yield generated by the assessee were given. The CIT(A) also recorded the comparative analysis of the yield of the assessee versus various other companies who are engaged in production of sponge iron and operating in the same field in the state of Chhattisgarh. By this exercise, the assessee has attempted to show that actual production shown by the assessee is either higher than its peers or quite comparable and....
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.... returns filed with the Central Excise Authority on monthly basis and daily basis. On analysis of such records, it was found to be tallying with the financial records. (v) The CIT(A) also took cognizance of the fact that capacity utilization in an industry depends on number of working days and in the case of assessee where the kiln used for manufacturing of sponge iron need to be shut down periodically, the production operation consequently halts and effect the yield. The CIT(A), thereafter, observed that no infirmity in the details furnished by the assessee has been found by the AO in this regard. (vi) The assessee has brought on record the certificate from registered valuer according to which the average yield of sponge iron unit using iron ore and coal as raw material may vary from 40% to 60% and coal consumption may vary from 1.62 to 2.1mt depending upon fixed carbon in coal. The quantitative CIT(A) observed that the quantity details of consumption of sponge iron and coal were found to be within reasonable range as certified by registered valuer. The CIT(A) also noted that it is impractical to presume uniform quality of coal and iron ore. (vii) The AO....
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....d ourselves in complete agreement with the conclusion drawn by the CIT(A). The CIT(A) has objectively analyzed the factual situation and found complete absence of any adverse material against the assessee which can support the allegation of the AO towards unaccounted production presumed on the basis of alleged low yield declared by the assessee. On facts, the CIT(A) has found that the yield declared by the assessee is neither low nor the book results could be impeached by some tangible material to indulge in rejection of books of accounts. We see no error whatsoever in the process of reasoning adopted by the CIT(A) while reversing the totally untenable action of the AO. We, thus, decline to interfere with the order of the CIT(A) on this score. 23. In the result, grounds raised by the Revenue challenging the action of the CIT(A) for reversal of additions on the grounds of suppression of yield and unaccounted production and sales are dismissed in AYs. 2006-07 to A.Y. 2012-13 in appeal. 24. Third issue in the combined appeals relates to additions of Rs. 71,76,306 in AY 2012-13 [ITA No. 249/RPR/2014 -AY 2012-13 Revenue appeal] on account of excess stock of finished goods/ raw mat....
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....the Valuer at the time of search has certain deficiencies and discrepancies, as a corollary, the Quantity Assessment Report of the DRV is also vitiated and has deficiencies, it is also seen that the sole basis of addition is the Report of the DRV. It is seen that the appellant had made various submissions before the A.O during the course of assessment proceedings in response to the show cause notice cum query letter issued by the A.O. The appellant had requested for allowing opportunity to cross examine the DRV and the opportunity was afforded to the appellant. The appellant was asked to furnish the copy of statements recorded during the course of cross examination of the DRV namely Mr. Manish Pilliwar and the same was furnished by the appellant. I have carefully perused the statements of Mr. Manish Pilliwar. I find that the appellant has raised a very relevant and serious issue regarding eligibility and competence of Mr. Manish Pilliwar who is registered as a valuer for valuation of immovable properties. 13.2 It is seen that in response to question no.12 of the statement recorded on 13.02.2014, the said DRV admitted that he is registered as Valuer for valuation of immovab....
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....t grades. The statement of the DRV is self contradictory in as much as on one hand he has stated that he has used the standard tables and on the other hand he states that he had collected the details about grades and density from the representative of appellant company. (b) The DRV has made the valuation by taking the Density of Coal at 1.50 MT/Cu.M. During the course of cross examination, the DRV has provided the Standard Table and as per the response to Q.No.22 of the statement recorded on 29.01.2014, the DRV has adopted the density of Anthracite Coal of Solid State which is 1.506 MT/Cu.m. It has been submitted by the appellant that Anthracite Coal is not available at all in the mines of Chhattisgarh State nor in the nearby States, hence, the question of using Anthracite Coal of solid state does not arise at all and hence, there is no question of such coal available in the appellant's factory. The correct density of coal used by the appellant is 0.83 MT/Cu.M. The appellant company used broken coal for manufacturing of sponge iron and as per the generally accepted norms also, the density of such coal is 0.83 MT/Cu.M, applying the said density, the quantity of coal works o....
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....tted that for measurement of the heaps average height of the heaps was taken. 13.8 From the aforesaid statements of the DRV, I am convinced that the quantity assessment done by the DRV cannot be accepted as sacrosanct nor the quantity arrived at by the DRV can be accepted in toto. 13.9 It is seen that the DRV has applied the density of 1.50 MT per Cu. Meter for valuation of inventory, I have carefully perused the standard table relied upon by the DRV, it is seen that the said standard table referred by the DRV itself contains varied densities viz. a) Coal, Anthracite, solid 1506 Kg/Cu. M b) Coal, Anthracite, broken 1105 Kg/Cu. M c) Coal, Bituminous, solid 1346 Kg/Cu. M d) Coal, Bituminous, broken 833 Kg/Cu. M 13.10 It is seen that the appellant has taken consistent stand that it is using bituminous coal of broken state in its factory premises and density whereof is 0.833 MT per Cu. meter. I find that the standard table relied upon by the DRV is also affirming the contention of the appellant. Now, the issue to be decided is whether the coal used in the factory premises of the appellant is Anthracite coal of solid ....
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....nt that the corrected quantity shall work out to 2942.050 MT by change in the variable i.e. density of coal. I find that the total stock of coal as on 21.06.2011 was 3488.600 MT which, in fact, is more than the recomputed stock calculated by taking density of 0.833 MT per Cu. meter. In my considered view, as the stock as per books of accounts of the appellant is more than the re-computed stock, there is no question of any addition to total income on account of unexplained investment and therefore, the addition of Rs. 44,70,000/- made by the A.O on account of unexplained investment in stock of coal cannot be sustained. Hence, the addition of Rs. 44,70,000/- is deleted. 13.16 As regards the addition made by the A.O in respect of dolomite, I find that the difference in inventory was merely 11.262 MT which is less than 10% of the total inventory i.e. stock held as on 21.06.2011 and therefore, no addition is warranted for such a negligible difference in inventory. Therefore, the addition of Rs. 15,203.70 is deleted. 13.17 As regards the addition of Rs. 26,91,102.50 made by the A.O on account of unexplained investment in stock of iron ore fines, I find that there is no ....
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....n by the valuer at the time of search carries certain deficiencies and discrepancies. As a corollary, the quantity assessment report of DRV is vitiated and carried discrepancies which remained undefined. The solitary basis of additions is the report of the DRV whereby excess stock has been presumed. It is further noticed that on cross examination of DRV (Mr. Manish Pilliwar) by the assessee, the DRV has faltered in defending its valuation report. It is also seen from the perusal of the order of the CIT(A) that the DRV appointed for valuation of stock was not expert in the sponge iron business and was found to be not competent to carry out the valuation in question. It is also noticed that DRV himself accepted that he does not have any knowledge about the items, such as, coal, sponge iron and their density with reference to two different grades. The statement of the DRV was also found contradictory by the CIT(A). It was further noticed by the CIT(A) that the density of coal taken by the DRV relates to anthracite coal, which is not available at all in the mines of Chhattisgarh State nor in the nearby States. Hence, the plea of the assessee towards lesser density of coal used by it co....