TaxTMI 
TaxTMI 
2021 (11) TMI 708
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.... 21.07.2014 -Do- 153A r.w.s. 143(3) of the Act 2. The issues being common, interlinked and similar and arising from a common order of CIT(A), all the captioned Revenues' 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 to all the assessment years in appeal beginning from A.Y. 2006-07 upto 2012-13. The grounds are thus clubbed & 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) on four counts; (1) additions of Rs. 8,80,00,000/- (A.Y. 2006-07), Rs. 1,05,00,000/- (A.Y. 2009-10) & Rs. 3,80,00,000/- (A.Y. 2012-13) carried out under 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, 2008-09 to 2012-13; (3) additions of Rs. 85,70,724/- on account of excess stock of finished goods/ raw material in A.Y. 2012-13; & ....
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....se of the search assessment noted above, the AO inter alia observed that credits in respect of share application money to the tune of Rs. 8,80,00,000/- (A.Y. 2006-07), Rs. 1,05,00,000/- (A.Y. 2009-10) & Rs. 3,80,00,000/- (A.Y. 2012-13) in the books does not satisfy the requirements of Section 68 of the Act towards satisfactory explanation. It was essentially observed that the assessee has failed to discharge onus towards genuineness and creditworthiness of the share applicants (subscribers). The AO secondly observed that the assessee has indulged in suppression of yield of billets and blooms manufacture in SMS Division qua the consumption of raw material such as sponge iron, pig iron and melting scrap etc. and has thus indulged into unaccounted sales in the all these years under appeals. The books of accounts were rejected and estimated additions were made on account of low yield and consequent alleged suppression of production/ sales of varied amounts were made after comparison of actual yield with a benchmark yield of 89% assumed by the AO. Thus, an addition of Rs. 78,71,592/- was made on account of difference in production while framing the assessment order for AY 2006-07. Simil....
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....ence that the Group companies or the appellant company do not maintain Statutory records / Registers. It is also seen that the appellant company had made specific request before the A.O. vide its letter submitted on 14.03.2014 and 18.03.2014 to dispel the doubts of the A.O. regarding non-maintenance of statutory records and registers. From the assessment order, it appears that the A.O. did not take any cognizance of the assertion made by the appellant regarding maintenance of Statutory Records and registers in accordance with the provisions of Companies Act and without verifying the verifiable facts regarding maintenance or otherwise of Statutory records and registers, the A.O simply seems to have found it convenient to remain silent and sit back after making the allegation without any 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 had asked a specific query to the appellant company's representative with regard to maintenance of statutory records and that the appellant company's repre....
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....ned the source of source by placing on record assessment order in the case of its subscriber company namely Escorts Finvest Private Limited. Furthermore, I find that the said investor company was in existence even prior to the period covered under the present search assessment proceedings, therefore, even assuming without accepting the contention of the A.O., no undisclosed income can be added 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 sa....
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.... on record assessment order in the case of its subscriber company namely Welfit Fasions Private Limited. Furthermore, I find that the said investor company was in existence even prior to the period covered under the present search assessment proceedings, therefore, even assuming without accepting the contention of the A.O., no undisclosed income can be added in the present search assessment proceedings as the same are beyond the period covered under the present search assessment proceedings. 5.8 It is also seen that the appellant was assessed in the past and case of assessment year 2006-07, 2007-08 and 2008-09 was under scrutiny assessment u/s 143(3) and in the said assessment proceedings, the addition to share application / share capital was duly accepted as genuine. 5.9 It is seen that the addition to share application and capital was duly accepted in the scrutiny assessment proceedings, the present action of the A.O is not culminating from any specific finding against the appellant that it was a beneficiary of any racket which has been unearthed as a result of search proceedings nor has the A.O brought on record any other evidence to indicate that the appellant....
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.... the genuineness of the impugned transactions. 5.12 It is observed from the records and assessment order that for the purpose of making addition as unexplained cash credits, the AO has heavily relied upon the judicial pronouncements, however, the appellant has made elaborate submissions distinguishing the facts, I am convinced with the explanation of the appellant that the decisions relied upon by the A.O are not applicable in the facts of the present case as there is nothing on record which can indicate that the receipt of share application money was by way of accommodation entries only. It is also not the case of the A.O that the investors have accepted by way of statement that the sums paid to the appellant was in fact received from the appellant and investors merely routed the undisclosed income of the appellant through money laundering process in the form of share application money. On the contrary, the A.O himself has stated in the assessment order that the investors have sent confirmatory letters, I have gone through the confirmatory letters, it is seen that the letters were sent through registered/speed post which cannot be said to be unauthentic mode, secondly, th....
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.... 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 (P) Ltd. reported in 216 CTR 195 and the jurisdictional High Court viz. the Chhattisgarh High Court in the case of the ACIT vs. Venkateshwar Ispat (P) Ltd. reported in 319 ITR 393 for the reason that the facts in such cases are entirely same, particularly, when no differentiation could be effectively demonstrated and brought on to the record by the A.O. The submissions of the AO that the decision of the Hon'ble Supreme Court in the case of Lovely Exports (P) Limited was rendered in the light of different facts inasmuch as the said judgement was rendered by the Hon'ble Supreme Court in the context of public issue, is devoid of merit because the decision was rendered by the Hon'ble Supreme Court in the case of Lovely Exports (P) Ltd. which is a Private Limited Company and which cannot bring public issue of shares. I find that the investments made by the share applicants were duly reflected in the audited financial statements of the corporate investors. It is a settled principle of law that reason for suspicion, however grave it may be, cannot be a basis....
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....income. 5.16 The case of the appellant finds support from the decision in: 1. CIT vs. Kamdhenu Steel & Alloys Limited & Ors. (2012) 68 DTR (Del) 38. 2. In the case of Commissioner of Income-tax v. HLT Finance (P.) Ltd. [2011] 12 taxmann.com 247 (Delhi) 3. In the case of Commissioner of Income-tax-IV v. Dwarkadhish Investment (P.) Ltd. [2010] 194 TAXMAN 43 (DELHI) 4. In the case of Commissioner of Income-tax v. Winstral Petrochemicals (P.) Ltd. [2011] 10 taxmann.com 137 (Delhi) 5. In the case of Commissioner of Income-tax v. Arunananda Textiles (P.) Ltd. [2011] 15 taxmann.com 226 (Kar.), 6. In the case of Commissioner of Income-tax v. Creative World Telefilms Ltd. [2011] 15 taxmann.com 183 (Bom.) 5.17 The A.O has relied upon the decision in CIT v. Nova Promoters & Finlease (P) Ltd. [2012] 342 ITR 169/206 Taxman 207/18 taxmann.com 217 (Delhi). However, on going through the said decision in Nova Promoters & Finlease (P) Ltd. (supra) I find that the facts are clearly distinguishable. In fact, in Nova Promoters & Finlease (P) Ltd. (supra) itself the Hon'ble Delhi High Court has observed, in the context of Lovely Exp....
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..... 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." 5.18 The case of the appellant also finds support from the following judicial pronouncements:- (a) Commissioner of Income-tax-III v. Namastey Chemicals (P.) Ltd. [2013] 33 taxmann.com 271 (Gujarat); (b) Commissioner of Income Tax v. Kuber Ploritech Ltd. [2010] 2 DTLONLINE 136 (DELHI); (c) Commissioner of Income-tax v. Tania Investments (P.) Ltd. IT Appeal No. 15 OF 2009, High Court of Mumbai; (d) Bhav Shakti Steel Mines (P.) Ltd. v. Commissioner of Income-tax [2009] 179 TAXMAN 25 (DELHI); (e) Commissioner of Income-tax v. Samir Bio-Tech (P.) Ltd. [2010] 325 ITR 294 (DELHI) (f) Commissioner of Income-tax-I v. Micro Melt (P.) Ltd. [2009] 177 TAXMAN 35 (GUJ.) (g) Commissioner of Income-tax-V v. Real Time Marketing (P.) Ltd. [2008] 173 TAXMAN 41 (DELHI) (h) Assistant Commissioner of Income-tax v. Mansarovar Urban Co-Operative Bank Ltd. [2009] 124 TTJ 269(LUCKNOW); (i) Commissioner of Income-tax -IV v. Empire Buildtech (P.) Ltd. [2014] 43 taxmann.com 269 (Delhi); ....
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....r section 68 is uncalled for and hence, deleted." The appellant gets relief of Rs. 13,65,00,000/- as tabulated below: A.Y. Amount (Rs.) 2006-07 8,80,00,000.00 2009-10 1,05,00,000.00 2012-13 3,80,00,000.00 10. As regards second issue pertaining to low yield and alleged suppression of production and unaccounted sales, the CIT(A) took note of the nuances of factual matrix and legal submissions placed before him by the assessee towards untenability of additions 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) on low yield is also extracted hereunder for easy reference: "9. I have carefully gone through the assessment order and submissions of the appellant. The search operation u/s 132 had taken place in the premises of the appellant including residential premises of the directors. The A.O had issued show cause notice cum query letter inter alia asking the appellant to show cause why addition should not be made as the yield declared by the appellant was less than 89% from Steel Melting Shop (SMS) Division. 9.2 The A.O has....
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....8-09 1 Shri Nakoda Ispat Ltd. 2007-08 79.78 89.00 88.24 2 Sadguru Ispat Pvt. Ltd. 2007-08 77.36 89.00 88.24 3 Rashmi Sponge Iron and Power Industries Ltd. 2007-08 77.88 89.00 88.24 4 Jagdamba Sponge Pvt. Ltd. 2007-08 73.06 89.00 88.24 5 Super Iron and Steel Pvt. Ltd. 2007-08 83.91 89.00 88.24 Arithmetical Mean of Yield 83.40 89.00 85.80 A.Y. 2009-10 1 Nandan Steel and Power Ltd. 2008-09 83.44 89.00 85.80 2 Shri Nakoda Ispat Ltd. 2008-09 79.50 89.00 85.80 3 Sadguru Ispat Pvt. Ltd. 2008-09 81.35 89.00 85.80 4 Rashmi Sponge Iron and Power Industries Ltd. 2008-09 84.79 89.00 85.80 5 Shri Rupanadham Steel Pvt. Ltd. 2008-09 85.06 89.00 85.80 6 Super Iron and Steel Pvt. Ltd. 2008-09 84.65 89.00 85.80 7 Steel Abrasive Industries Ltd. 2008-09 84.89 89.00 85.80 8 Cosmos Castings India Ltd. 2008-09 83.15 89.00 85.80 9 Narmada Iron and....
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.... 83.59 4 Super Iron and Steel Pvt. Ltd. 2008-09 46688.02 55152.00 84.65 5 Shri Nakoda Ispat Ltd. 2008-09 22011.00 27431.94 80.24 6 Nandan Steel and Power Ltd. 2008-09 46140.10 55259.96 83.50 Average Yield for FY 2008-09 165909.71 198943.21 83.40 85.80 7 Cosmos Castings India Ltd. 2009-10 50585.93 60148.65 84.10 8 Ishwar Ispat Pvt. Ltd. 2009-10 10114.13 11892.71 85.04 9 Jagdamba Sponge Pvt. Ltd. 2009-10 13780.42 17076.24 80.70 10 Nandan Steel and Power Ltd. 2009-10 59042.30 70259.19 84.03 11 Shri Nakoda Ispat Ltd. 2009-10 359.40 464.30 77.41 12 Sadguru Ispat Pvt. Ltd. 2009-10 12838.60 16534.90 77.65 13 Shri Rupanadham Steel Pvt. Ltd. 2009-10 16963.05 19461.97 87.16 14 Super Iron and Steel Pvt. Ltd. 2009-10 8933.37 10420.18 85.73 Average Yield for FY 2009-10 172617.20 206258.14 83.69 84.05 15 S....
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....al statements and assessment orders passed by the DCIT-1(2), Raipur in the case of other assessees referred supra. From the perusal of said assessment orders, it was gathered that no adverse inference was drawn in the case of those assessees that were assessed in the past in the office of DCIT-1(2), Raipur on the issue of lower yield, and in fact declared less yield than that declared by the appellant. In none of the comparable case received from DCIT-1(2), Raipur, such standard yield of 89% was adopted despite of the fact that all the comparable cases declared yield much less than 89% 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: Sl No. Name of Comparable assessee assessed in Circle 1(2), Raipur F.Y. Turnover (Rs. In Lacs.) GP (%) NP (%) Yield (%) Turnover of Appellant (Rs. In Lacs) GP (%) of Appellant NP (%) of Appellant Yield (%) of Appellant 1 Sadguru Ispat Pvt. Ltd. ....
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.... 83.94 18 Narmada Iron and Steel Pvt. Ltd. 2010-11 7064.62 1.72 0.40 85.02 29332.56 2.93 0.70 83.94 19 Steel Abrasive Industries Ltd. 2010-11 6732.23 -9.59 11.41 74.00 29332.56 2.93 0.70 83.94 Average Yield for FY 2010-11 81.71 Note: In the above comparative table for comparison of GP and NP, following companies have not been considered as the figures are not comparable due to the reasons mentioned for each case:- Shri Nakoda Ispat Limited-F.Y 2008-09 and 2009-10 Shri Nakoda Ispat Limited is deriving its major income from power division i.e. sale of electricity to CSEB and other parties, it is also captively consuming electricity and deriving income from sale of carbon credits, all these facts have been noted from the finding in the assessment order passed in the case of said company, hence, excluded while making comparison. Rashmi Sponge Iron and Power Industries Limited-FY 2007-08 Rashmi Sponge Iron and Power Industries Ltd. is deriving its income from manufacturing and tradin....
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....int of time, rate of sponge iron will vary depending upon the metallization rate and similarly, rate of iron ore will vary with the variation in iron content in iron ore. Therefore, in my considered view, yield cannot be said to be sole decisive factor while assessing the reliability of books of account. In other words, merely low yield cannot lead to an irrevocable presumption that the books of accounts of the appellant are unreliable and reasonable profit cannot be deduced therefrom. In my considered view, if a person uses low grade of raw material which will give low yield, yet he may make handsome profit if he is able to buy raw material at competitive rates, in such a situation, it cannot be said that the books of accounts are not reliable merely due to low yield. Dictation GP 9.9 It is a matter on record that the appellant has maintained quantitative records of raw material consumed and finished product produced. The books of accounts were subjected to tax audit as well as audit under Company Law which were produced before the A.O. together with bills and vouchers and the same were examined by test check. The appellant has furnished the copies of excise returns filed....
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.... the A.O. was cross checked with reference to the seized documents, excise records, books of account and bill and vouchers and the same was found to be satisfactory. 9.12 On page no.14 of the assessment order, the A.O. has referred to the difference in inventory, however, it is seen that the excess stock of blooms/billets and end cuttings was less than 10% of the total stock as per books of accounts of the appellant. If the appellant was actually suppressing the yield as alleged by the A.O, in all probabilities, the difference in stock of blooms and billets must have been very wide and it cannot be just a sheer coincidence that, the search team did not come across any incriminating document; that no striking discrepancy was observed in stock/inventory. 9.13 The findings of the A.O at Para 9.7 on Page no.28 of the assessment order are discussed hereunder:- (1) Regarding stock, as stated supra, the difference in stock of blooms/billets and end cuttings was less than 10% of the total stock as per books of accounts of the appellant. (2) Regarding capacity utilization, the allegation of the A.O that the actual production is much less than the installe....
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....ms and Billets in SMS Division may vary from 800 to 1500 KW for production of each MT of Blooms and Billets. The quantitative details of consumption of sponge iron and power were found to be within the reasonable range as certified by the registered valuer. 9.14 The recording of 'reasons' by the AO is a condition precedent for any belief of the A.O, however, in the instant case, the A.O has not stated any reason for his inference regarding standardized yield of 89% in the SMS division. Reason must be recorded by the AO that any undisclosed income belongs to the appellant. The material itself should not be vague, indefinite, distinct or remote. If there is no rational or intangible nexus between the material and the satisfaction that a person has 'undisclosed income', the conclusion would not deserve acceptation. Then the satisfaction is vitiated. 9.15 In the instant case, the A.O has completely failed to record the reasons based on material available as the A.O has not referred to even a single seized document which could be regarded as incriminating document and used as an evidence to even remotely support the conclusion of the A.O. The A.O seems to have blown ou....
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....g the course of search of the following persons:- (a) Shri Shivman Shukla (b) Shri Rajesh Singh (c) Shri Anil Singh (d) Shri Virendra Parghania From the aforesaid statements, the A.O. has made an attempt to emphasize that there is absence of uniform/scientific methodology for measurement of input of raw material, secondly, it appears to the A.O that there is modus operandi to destroy the primary data regarding the actual production 9.18 I have carefully perused the statement of Shri Shivman Shukla, Shift Incharge of the appellant company recorded during the course of proceedings u/s 132 on 22.06.2011. In response to question no.11, I find that Shri Shivman Shukla has given categorical statement that the yield in SMS Division is 80% and 20% is waste material, in my considered view, the said statement of Shift Incharge cannot be said to be an afterthought as the same was recorded during the curse of search proceedings itself. Further, in response to question No. 5 and 9, it is seen that Mr. Shivaman Shukla has stated that the input is measured on the weighbridge and thereafter, the raw material is unloaded near the Furnace, in my ....
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....ointed out even an single entry in the printout / data in the computer system which was not found recorded in the regular books of accounts of the appellant company. It is also seen that the said person clearly stated that the data regarding production received from the Production Department are entered in the computer system on daily basis. 9.21 Had there been scientific methodology in place for measurement of inputs, in my considered view, it is only the accuracy level of statistics which will increase, however, it is hard to believe that merely due to scientific methodology for measurement of inputs, the yield of the appellant will also increase, the imagination of the A.O is too far fetched and devoid of logic. I find no merit in the allegation of the A.O that absence of scientific methodology for measurement of inputs is leading to an inference that the appellant has suppressed the yield. 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.....
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.... 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. 9.23 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 of finished goods, it is apparent that the unaccounted production is evidenced from variation in units of electricity consumed per MT of finished goods so AO made the addition in question. The stand of the assessee was that it is....
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....ion of the difference between the unaccounted production/sales worked out on the basis of 89% 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. 9.26 The A.O has merely referred to variations based on mathematical calculations viz_ Variation in power, sponge iron (raw material of SMS Division for manufacturing of Blooms and Billets), variation in consumption of furnace oil in Rolling Mill Division, 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. 9.27 The significance of "tangible evidence" has been emphasized in various judicial pronouncements. Having test checked the seized documents with reference to sub....
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....or 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). 9.33 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). 9.34 On the matter of recording the consumption of raw material going in to furnace and quantity of production coming out from furnace, 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 are not strikingly lower than the industry average or that the results are not supported ....
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.... 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 any defect in the accounts except for the absence of stock register- deletion of....
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....sclosed 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. 9.40 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. 9.41 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 absence of tangible evidence. 9.42 On the contrar....
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....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. 89 % 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 89% in SMS division. 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). 9.46 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. 9.47 In SUKHADIA JAMNADAS MAGANLAL vs. INCOME TAX OFFICER (2008) 13 DTR (Guj) 149, the Hon'ble High Cou....
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.... 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). 9.52 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: 9.53 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 consumption of power may vary. U....
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....see. 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. 9.58 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 purpose he must, their Lordships think, be a....
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....alcutta 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 of the scrutiny assessments according t....
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.... 11. As noted earlier, while adjudicating the issues involved in favour of the assessee on factual matrix, the legal objection of the Assessee on point of jurisdiction under S. 153A for making additions concerning AY 2006-07 to 2009-10 was seen with disfavour and decided against the assessee by the CIT(A). 12. 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; & (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 of excess stock and relief granted towards adjustment of cash seized against tax demand in AY 2012-13 which shall be dealt with at appropriate place in succeeding paragraphs. 13. The Assessee, on the other hand, has filed cross objections challenging the very legitimacy of additions/ disallowances dehors any reference to incriminating documents in unabated assessments i.e. AY 2006-07 to AY 2009-10. 14. When the matter was called for hearing, the learned CIT-DR for the Revenue, at the outse....
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.... terms of 2nd proviso to S. 153A and hence, normal assessments under s.153A r.w.s. 143(3) of the Act would be permissible as per the schematic interpretation of the law governing search assessments. 15.1 Turning to the facts, 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 cash found in search was meager having regard to the scale of operations. The documents found and seized were of routine nature maintained in the ordinary course of business which naturally will be found in the business premises. The documents foun....
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....(f) Best Infrastructure (India) Pvt. Ltd. &Ors. Vs. ACIT, (2016) 47 CCH 0159, ITAT Delhi Bench; (g) Moon Beverages Ltd. &Anr vs. ACIT, (2018) 53 CCH 0120, ITAT Delhi Bench; (h) CIT vs. Sinhgad Technical Education Society, (2017) 156 DTK 0161 SC; (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) 398 ITR 586(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) 15.3 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 ....
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....atory. It was thus submitted that no interference therewith is called for on merits. 16. We have carefully considered the rival submissions and perused the materials placed on record and referred to in terms of Rule18(6) of the Income Tax (Appellate Tribunal), Rules 1963. 16.1 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 additions / disallowances in dispute. 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 an 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?. As a corollary, the scope and ambit of assessment proceedings in search cases under s.153A of the Act is put under scanner. 16.2 In the first appeal, the CIT(A) dismissed the legal ground of jurisdiction by observing as under: "16. I have care....
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....h such unabated assessment years. Eventually, the Hon'ble Delhi High court in Meeta Gutgutia (supra) held that additions based on appreciation of facts dehors 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). . 16.3.2 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 seized during search has been endorsed by the Hon'ble Gujarat High Court in Pr.CIT vs. Sunrise Finlease (P.) Ltd. (2018) 89 taxmann.com 1 (Guj.). 16.3.3 The Hon'ble Gujarat High Court in Pr.CIT vs. Saumya Constructions Pvt. Ltd. (2016) 387 ITR 529 (Guj) also declined to agree with the plea on behalf of the Revenue that the new procedure provided under s.153A of the Act is different from earlier procedure provided under s.158BC r.w.s. 158BB of the Act and consequently, the plea of the Revenue that there is no condition in Section 153A of the Act that additions should be made strictly on the basis of evidence found during the co....
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.... s.153A of the Act towards unabated assessments are permissible only where incriminating materials are found in search showing unaccounted income. 16.4 In summation, in the light of the aforesaid overwhelming legal precedents as laid down by the Hon'ble Bombay High Court, Delhi High Court & Gujarat High Court as also various benches of Tribunal, the correct legal position in respect of the assessments under s.153A of the Act may be summarized as follows: (i) the scope of assessment under s.153A of the Act is limited to the incriminating evidence found during the search and no further in so far as unabated assessments are concerned; & (ii) unless there is incriminating material qua each assessment years to which additions are sought to be made in respect of concluded assessments, the assessment under s.153A of the Act by making additions/disallowances would be vitiated in law. 16.5 As discussed in length, the issue has been dynamic and a matter of legal interpretation. We are governed by the schematic interpretation given to provisions of Section 153A of the Act by different Hon'ble Courts. In the light of judicial fiat reading down the scope and spectrum of assessment under s....
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....de in A.Ys. 2006-07, 2008-09 to 2012-13 on merits. 19. As noted earlier, the AO has invoked Section 68 of the Act and made additions on account of share application money received by the assessee in A.Y. 2006-07 & 2009-10 as unexplained cash credit. The CIT(A), however, after taking note of observations made in the assessment order and oral & written submissions made on behalf of the assessee, found merit in the plea of the assessee and reversed the additions so made. 19.1 The CIT(A) has succinctly analyzed the issue. The detailed findings of the CIT(A) dealing with the issue has been reproduced in the preceding paragraph 9 of this order. 19.2 On perusal of the order of the CIT(A), it is noticed that CIT(A) has recorded a finding on fact that additions on account of share application money has been made without any reference to the incriminating material detected in the course of search. The CIT(A) has recorded some noticeable observations on the issue of share application money in A.Y. 2006-07 & 2009-10 as summarized hereunder: "The A.O. did not pay any heed to the requests seeking supply of results of inquiry conducted if any for arriving at such conclusions. Fu....
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....the subscribers were duly assessed and payments have come through banking channels. It was further found that the tangible net worth of the subscribers company is sufficiently enough to meet the criteria of creditworthiness as understood in ordinary parlance. The bank statements, audited financial statement and confirmations were analyzed. The source of investment was thus found to be explained satisfactorily in the facts of the case. It was further noted that the credit for share application money was accepted in the regular assessment under s.143(3) of the Act concerning A.Y. 2006-07 prior to search after making due enquiries. The subscriber co. namely Antariksh Commerce Pvt. Ltd. and Escort Finvest Pvt. Ltd. were found to be group companies. The share application money Rs. 200 Lakhs received from Group co. namely Devi Iron & Power Ltd. was refunded in A.Y. 2009-10 through banking channel. The assessments of the subscriber companies carried out under S. 143(3) /S. 143(3) r.w.s. 147 were noted. A pertinent observation was made that the same AO in the case of other group concern (Mahamaya Steel Industries Ltd.) accepted the creditworthiness of the investor company namely 'Escorts F....
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....of the Act was justified in the instant case where the assessee has not satisfactorily explained the nature and source of credit and has failed to discharge the onus which lay upon the assessee. 23. Per contra, the learned counsel for the assessee, at the outset, submitted that the assessee received the amount in question from a group company, namely, Escorts Finvest Pvt. Ltd., which is regularly assessed to tax and carries substantial net worth. A notice under s.133(6) of the Act was issued by the AO to the potential subscriber and in response, the aforesaid potential subscriber had confirmed the fact of advancing share application money to the assessee. This apart, all these relevant documents, such as, share application form, certificate of registration from the Registrar of the companies, PAN card & Income Tax Return of the applicant together with audited financial accounts, bank statements, memorandum of association of the share applicant was also provided. It was further pointed out by way of a statement on bar that the money so received was ultimately returned and repaid to the subscriber in the subsequent assessment years as the proposed subscription in the assessee's co....
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....ceived. Further, it is contended that no legal obligation is prescribed upon assessee in law to prove the 'source of source' of such receipts in view of the prospective insertion of proviso to s.68 of the Act from AY 2013-14 foisting such obligations. A reference has been made to the decision of the Hon'ble Bombay High Court in the case of CIT vs. Gagandeep Infrastructure Pvt. Ltd. 80 taxmann.com 272 (Bom.) in this regard. Besides, without prejudice to every attempt made before the AO to prove the bonafides to the hilt being a group company, a reference was also made to the decision of Lovely Exports Pvt. Ltd. 319 ITR 5 (SC) wherein it was held that in the case of alleged bogus share holders, the department is free to proceed to reopen the individual assessments of the subscribers in accordance with law. Reliance was placed on multiple decisions including the binding precedent rendered by the Hon'ble Chhattisgarh High Court in ACIT Vs. Venkateshwar Ispat (P) Ltd. (2009) 319 ITR 393 b) & CIT vs. Abdul Aziz (2012) 251 CTR (Chhattisgarh) 58 as referred to order of CIT(A) in para 4.9 of his order. The Jurisdictional High Court, as stated, has answered the issue in favour of assessee in....
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....ium of Rs. 90/- per share, it is claimed on behalf of the assessee, with the help of correspondences, that one of the group company, namely Devi Iron & Power Private Limited was pursuing for mining right by way of mining lease of iron ore mines. Such right had the potential of increasing profitability of entire group manifold for the reason that iron ore is the basic raw material for production of sponge iron and thereafter using the sponge iron in Rolling Mill Divisions after its conversion in billets and blooms. The seamless availability at a cheaper price of its main raw material would have entirely changed the business complexion. Besides, whereas the shareholders in NRA did not express their willingness to appear before the AO, the subscriber in the instant case not only came forward and volunteered its willingness to appear before the AO through Director, an affidavit was also filed to assert the factum of share application. No field enquiries were made by the AO in the instant case, whereas the adverse findings were given by the AO in NRA Iron and Steel Pvt. Ltd. case based on certain enquiries. The bank statements of the subscriber were not placed before the in NRA nor were....
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....on reversal of additions under s.68 of the Act pertaining to A.Y. 2012-13 in question. We thus decline to interfere. 25. In the result, Ground Nos. 1 & 2 for A.Y. 2006-07 & 2009-10 and 2012-13 concerning additions under s.68 of the Act in the Revenue's appeal are dismissed. The cross objection of the assessee on the legal point of lack of jurisdiction for A.Y. 2006-07 & 2009- 10 are allowed. The cross objections for A.Y. 2006-07, 2009-10 & 2012-13 of the assessee on merits supporting the action of the CIT(A) is also affirmed and allowed on the issue. 26. We now advert to the second issue concerning additions on low yield in various assessment years in question. 26.1 The AO made an addition of Rs. 1,05,81,079/- on account of low yield declared by the Assessee in SMS division for A.Y. 2006- 07 and similar additions were also carried out on the ground of low yield in other assessment years in question also. It is the case of the assessee that allegation of the AO is totally misconceived & unsubstantiated and is wholly in the realm of surmises and conjunctures without any iota of evidence against the assessee. 26.2 The Assessee has raised two fold submissions to defend his ....
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.... the Assessee company is better than its peers and the yield of other companies also varies from year to year. Also the alleged low yield in comparison to the benchmark adopted by the AO could not be the basis to reject the books of accounts under s.145(3) of the Act without bringing any material on record pointing out towards falsehood in the accounts. The search team could not come across any unaccounted sales as recorded in para 9.12& 9.39 of the first appellate authority. The inventory appearing in the elaborate excise records and excise returns were also found to be matching with the financial records as observed in para 9.9 & 9.10 of the first appellate order. 27. We note that after taking extensive note of the facts and circumstances of the case objectively, the CIT(A) rightly found lack of justification in the action of the AO in rejecting the books of accounts merely owing to the reason that yield achieved by the assessee is less than standard yield percentage i.e. 89% which has not been achieved even by other assessee engaged in similar line of business. While concluding in favour of the assessee, the CIT(A) also observed that the AO has not brought on record the manne....
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....ct of other parties vis-à-vis 83.94% shown by the assessee. It was also found by the CIT(A) that yield declared by the different parties in the same year is not uniform and every party has declared a different yield. Likewise, there is a wide variation in the yield of one year with another year in other cases as well. Not even a single comparable instance was found declaring yield of 89% adopted by the AO. The yield achieved by the assessee is generally more than average industry yield. (iv) Financial results of the assessee as well as other parties engaged in similar line of business was also compared as discussed in para 9.7 & para 9.8 of the order. On analysis of factual data tabulated in the first appellate order, it was observed that the gross profit & net profit declared by the assessee is stronger than its competitors despite marginally lower yield at some instances. It was thus noted by the CIT(A) that the percentage of yield cannot be said to be sole decisive factor while assessing reliability of books of accounts and merely low yield cannot lead to an indefeasible presumption that books of accounts of the assessee are unreliable and true profit earned by t....
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....ks of accounts without showing any defect in books by tangible evidence. (x) The AO has merely proceeded on the basis of suspicion and conjunctures. It is trite that suspicion howsoever strong cannot take place of proof. (xi) The CIT(A) in para 9.22 onwards analyzed the decision rendered by the co-ordinate bench in similar factual matrix to find that addition on account of low yield as made by the AO is not sustainable in law in the absence of tangible material. 27.3 Significantly, in para 9.2 of the first appellate order, the CIT(A) noted while the AO has made discussions on mathematical calculations pertaining rolling material division, the additions have been made towards low yield in SMS Division. 27.4 In conclusion, the CIT(A) observed that assessee has furnished explanation on all the documents seized during the course of search and the explanation of the assessee were test checked with reference to seized material, books of accounts, bills/invoices and other evidences and found to be satisfactory. It was further noted that the AO has not pointed out any infirmity in the explanation of the Assessee. 27.5 The CIT(A) in our mind has analysed the factu....
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.... difference in stock found at the time of search vis-à-vis the stock as per books of accounts of the assessee. In response, the assessee company disputed the measurement and valuation of stock. It was submitted that Departmental Registered Valuer (DRV) has estimated the stock of sponge iron based simply on eye measurement and proceeded to estimate quantity of stock on wrong assumption that assessee is engaged in manufacturing of finished product namely structural channel of 25 meters length. The Assessee on the other hand asserts that the capacity available with the Assessee is to produce 23 meters length at maximum. The DRV has thus calculated quantity by adopting measurement at 12.5 *2 meters whereas actual length is 11.5* 2 meters ( cut into two pieces for transportation purposes). The DRV estimating excess stock was cross examined by the assessee A reading of cross unravels his lack of understanding on the subject. The DRV has drawn blank on many pertinent aspects of business, the stock of which he seeks to value and ascertain. Despite such a wrong assumptions in length etc. by DRV, the AO, however, continued to discredit the submissions of the assessee on the ground tha....
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....shed 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 I do find considerable force in the submissions of the appellant that different Sub-rules of Rule 8A of Wealth Tax Rule, 1957 are mutually exclusive and there is no overlapping, therefore, the quantity assessment of movable items such as the sponge iron in the present case, cannot be carried out by the Valuer who is registered as a Valuer for valuation of immovable properties, in other words, a person who is registered as a Valuer for valuation of jewellery cannot be engaged for quantity assessment of movable items other than jewellery, similarly, the DRV engaged namely Shri Manish Pilliwar being valuer for immovable properties could not have been engaged for valuation of movable items such as the items of inventory in the instant case. Hence, in my considered view, the reliance placed by the A.O on the said Quantity Assessment Report of the DRV, despite having accepted the deficiencies....
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....00, the appellant has claimed that it has never manufactured channels/structures of said description and specification i.e. ISMC5000. The said mistake has also resulted in over quantification of stock by the DRV. (c) The net impact of aforesaid mistakes is that, the stock has been excessively quantified by 251.030 MT. The correct figure after correction of aforesaid two mistakes is 2036.71 MT, as against this, the quantity of finished goods as per books of accounts as on the date of search was 2022.628 MT. In this way, 14.082 MT (2036.710 - 2022.628 MT) was excessive in comparison to books of accounts on physical verification. The appellant has further claimed that the difference of 14.082 MT is negligible and the same is not even 1% of total stock. 13.5 I have carefully perused the Quantity Assessment Report of the DRV, submissions of the appellant, statement given by the DRV during cross examination by the appellant and certificate from another Registered Valuer. 13.6 It is seen that the A.O. did not accept the submissions of the appellant as regards excess quantity computed by the DRV namely Shri Manish Pilliwar on an incorrect presumption in respect o....
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....hical error and ISMC-5000 should be read as ISMC-500. On the contrary, the appellant has placed on record certificate from the registered valuer wherein the registered valuer has certified vide certificate dated 18.08.2011 that the finished product i.e. channels/angles may be re-rolled up to maximum ISMC-400. As the said certificate of the registered valuer is dated 18.08.2011, there is no room to construe the same as an afterthought on the part of the appellant. Furthermore, the certificate was placed before the A.O during the course of assessment proceedings, however, the A.O has not brought on record any evidence to disbelieve the contents of the said certificate or rebut the certification done by the registered valuer. I am convinced that there was a gross error in the quantity assessment report and thus, 87.60 MT deserves to be excluded from the total quantity arrived at by the DRV in the quantity assessment report. 13.10 The total inventory was re-computed by taking 23 meters length as the base instead of 25 meters length as adopted by the DRV, the results of re-computation after excluding quantity against ISMC-5000 are extracted hereunder:- 13.11 From the a....
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....ot rebutted the valuation adopted by the appellant based on audited account, I am convinced with the details and basis of valuation furnished by the appellant before the A.O, hence, in the absence of any basis having been brought on record by the A.O nor any reason having been mentioned by the A.O for disregarding the valuation of inventory done by the appellant, the addition of Rs. 57,160/- and Rs. 29,980/- cannot be sustained. Hence, the additions are deleted. The appellant gets relief of Rs. 85,70,724/- (Rs. 84,83,584 + Rs. 57,160 + Rs. 29,980) The CIT(A) thus, reversed the additions so made on account of excess stock and accepted the book results. 29.3 The Revenue is aggrieved by the relief granted by the CIT(A). 29.4 We have heard the rival submissions on the issue. Excess stock of inventory has been alleged on account of finished products namely structurals/ channels. On perusal of the orders of the lower authorities, we find that AO himself admitted that inventory taken 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....
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....ted by AO was not assigned. Thus, having regard to the declarations already made by the assessee and in the absence of any definite basis in the action of AO, no further additions were found sustainable in the absence of any evidence of adversial nature. In summation, we see no error in the process of reasoning adopted by the CIT(A) and conclusion thereon. The revenue could not rebut the factual findings of the CIT(A). The order of the CIT(A) is self-explanatory and does not require any reiteration. We thus decline to interfere. 30 In the result, appeal of the Revenue is required to be dismissed on this count. 31. The fourth issue concerns treatment of credit for cash amounting to Rs. 3,05,000/- seized in search as prepaid tax while computing the demand. 32. The CIT(A) considered the submissions of the assessee in its appellate order, has dealt with the issue as under: "18. Submissions of the appellant: The appellant has submitted that the A.O is not justified in not allowing credit for cash seized during the course of search as prepaid tax despite specific request having been made by the appellant in this regard. Hence, the A.O may kindly be directed to ....