TaxTMI 
TaxTMI 
2021 (10) TMI 1432
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....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 2009-10. 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 two counts; (1) additions of Rs. 4,56,00,000/- (A.Y. 2006-07), Rs. 95,00,000/- (A.Y. 2007-08) & Rs. 1,78,50,000/- (A.Y. 2009-10) 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. 2007-08 & 2008-09. 5. As per its cross objections for the various assessment years in question spanning over A.Ys. 2006-07 to 2009-10, the assessee has primarily raised a legal objection that in the absence of incriminating document qua the additions/disallowan....
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....rds low yields in other assessment years also. 7. Aggrieved, the assessee preferred appeal before the CIT(A) challenging the aforesaid additions in all these years. 8. 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 simultaneously 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 on merits. However, the legal objections of the Assessee questioning jurisdiction under S. 153A was discarded. 9. The CIT(A) addressed the first issue on additions made by the AO under S. 68 of the Act on merits in favour of the assessee for which the relevant operative para reads as under: "5. I have carefully gone through the assessment order and submissions of the appellant. As regards allegation of the A.O. regarding non-maintenance of Statutory Records, the appellant was a....
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....fice 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 company did show Members Register, share certificates and counterfoils of the appellant company and therefore, the allegation of the A.O appears to be baseless. Neither from the assessment order nor from the statements recorded during search proceedings, it is emerging....
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....ssment 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 of share application/capital money, the appellant has also explained the source of source by placing on record assessment order in the case of its subscriber company namely Antariksh Commerce Private Limited. Furthermore, I find that the said investor company was in existence even prior to th....
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....ceedings. 5.8 The appellant has submitted that Welfit Fasions Private Limited is a company, the appellant has placed on record, copy of assessment order in the case of Welfit Fasions Private Limited for the assessment year 2005-06. 5.9 It is also seen that the appellant was assessed in the past and case of assessment year 2006-07 and 2007-08 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. 5.10 It is seen that Welfit Fasions Private Limited was assessed u/s. 143(3) and the ITO, Ward-2(4), Kolkata recorded a specific finding that the said company had share capital of Rs. 53,50,000/- and reserve and surplus of Rs. 4,72,50,000/- as on 31.3.2005. I find that ITO, Ward-2(4), Kolkata was satisfied with the genuineness of addition to share capital and reserves of Welfit Fasions Private Limited inasmuch as no adverse inference was drawn by ITO, Ward-2(4), Kolkata with regard to said addition to share capital and reserves of Welfit Fasions Private Limited. Apart from the audited financial statements in support of credit worthiness of the said company, I am convinced that no a....
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....d from Escorts Finvest Private Limited & Antariksh Commerce Private Limited and therefore, the identity and creditworthiness of Escorts Finvest Private Limited & Antariksh Commerce Private Limited were undisputedly accepted and genuineness of addition was also duly accepted, hence, there cannot be any reason to take a contrary view in the case of appellant. 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. 5.13 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 inv....
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....but identical. The appellant has also relied upon the decision of the Hon'ble Supreme Court and jurisdictional High Court which cannot be ignored. The A.O has referred to the notices issued under section 133(6) which have been returned un-served in some of the cases. It is seen that in the subsequent paragraph, the A.O himself has given 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 esta....
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....fidavits. The result is that the contents of the affidavits have not been disproved. It also shows that the parties (deponents) were present at the given addresses against whom action could have been taken. 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. 5.17 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 shareholders 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 a....
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....sed "accommodation entry providers", whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the 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 materi....
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....he subscribers as also the genuineness of the transactions. In my considered opinion, the ratio of the aforesaid judgements of the Hon'ble Supreme 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. 24,40,90,000/- as unexplained cash credits under section 68 is uncalled for and hence, deleted. The appellant gets relief of Rs. 24,40,90,000/-. A.Y. Amount (Rs.) 2006-07 4,56,00,000.00 2007-08 95,00,000.00 2009-10 1,78,50,000.00 2010-11 9,40,00,000.00 2011-12 4,07,00,000.00 2012-13 3,64,....
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....25.04.2014. 9.4 The yield declared by the appellant and information regarding yield declared by other assessees, as received from the DCIT-1(2), Raipur, was compared with reference to the uniform and standard yield adopted by the A.O. The results of the comparison so made are as under:- Sl No. Name of Comparable assessee assessed in Circle 1(2), Raipur F.Y. Yield (%) Benchmark taken by AO Yield (%) of Appellant A.Y. 2008-09 1 Gopal Sponge & Power Pvt. Ltd. 2007-08 48.86 60.00 48.36 2 GR Sponge & Power Ltd. 2007-08 51.76 60.00 48.36 3 Shri Nakoda Ispat Pvt. Ltd. 2007-08 52.64 60.00 48.36 4 Rashmi Sponge Iron & Power Industries Ltd 2007-08 40.35 60.00 48.36 Arithmetical Mean of Yield 48.40 60.00 48.36 A.Y. 2009-10 1 GR Sponge & Power Ltd. 2008-09 52.77 60.00 56.35 2 Shri Nakoda Ispat Pvt. Ltd. 2008-09 53.68 60.00 56.35 3 Rashmi Sponge Iron & Power Industries Ltd 2008-09 52.78 60.00 56.35 4 Gopal Sponge & Power Pvt. Ltd. 2008-09 51.08 60.00 56.35 5 M/S Sunil Sponge & Private Limited 2008-09 ....
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....n 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 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 2544.88 23.13 12.49 48.36 Average Yield For F.Y. 2007-08 *** 40.35 1 Gopal Sponge & Power Pvt....
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....o observed that there is no direct co-relation between GP rate and yield, for instance, 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 Gopal Sponge & Power Pvt. Ltd. at 51.08% in F.Y 2008-09, however, the GP rate of Rashmi Sponge Iron & Power Industries Ltd. is found to be much better i.e. 18.79% in comparison to 11.15% declared by Gopal Sponge & Power Pvt. Ltd. I am in agreement with the submissions of the appellant that the variation in Consumption/yield is bound to take place as raw material i.e. iron ore is essentially a mineral which differs in Iron content as obtained from the mines, conversely, being mineral, the quality of ore and coal cannot be expected to be uniform. It needs no reiteration that at a given point of time, rate of iron ore will vary with the variation in iron content in iron ore, furthermore, it is a matter of common knowledge that the quality and quantity of output varies with the quality and composition of inputs. Therefore, in my considered view, yield cannot be said to be sole decisive factor while assessing the reliability of books of account. In other wor....
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....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 reference to purchase bills and on test check, the same was found to be satisfactory and no infirmity was observed. The quantity of finished goods cleared was also verified with the sales invoice/challan issued by the appellant and the same was found to be satisfactory. From the details furnished by the appellant in Form ER-6, the data for calculation of percentage of yield and burning loss is readily available. 9.11 The appellant was asked to submit copies of seized documents and reply/explanation of the appellant thereon. The explanation given by the appellant on seized documents during the course of assessment proceedings before 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 The findings of the A.O regarding capacity utilization and other points mentioned on Page no. 21 of the assessment order are discussed hereunder:- (1) Regarding capacity utilizati....
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....ge iron unit using Iron ore and coal as raw material may vary from 40 to 60% and coal consumption may vary from 1.60 to 2.1 MT depending upon fixed carbon in coal. The quantitative details of consumption of sponge iron and coal were found to be within the reasonable range as certified by the registered valuer. Furthermore, in my considered view, it is impractical to presume uniform quality of coal and iron ore, the A.O has not rebutted any submission of the appellant explaining the reasons for variation in coal and iron ore. (4) Regarding stock, the A.O. has made an addition of Rs. 1,76,51,940/- on account of difference in Sponge Iron. The issue has been elaborately dealt in Para 12 to 15 below. It is seen that, though, the appellant has surrendered the excess stock of coal and shell stone, the appellant has made various submissions on the veracity and correctness of Quantity Assessment Report of the DRV and vehemently objected against the action of the DRV in adopting density of coal at 1.50 MT per cu. meter which is for anthracite coal of solid state, particularly, when the DRV miserably failed to explain the basis of density adopted by the DRV and, on the contrary, the appella....
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....s 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 "Abhishek Steel Industries Limited" as raw material and both the said sister concerns are also part of Mahamaya Group of companies. Even if for the time being contention of the A.O that the appellant has suppressed the yield and indulged into unaccounted sales is accepted, preponderance of probabilities do not suggest this for the reason that the finished product of the appellant is ultimately consumed by the Group companies only, if....
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....18 I have carefully gone through the statement of Mr. M.R. Atri, President of the appellant company dated 21/22.06.2011. I find that the search team had seized certain documents referred as BS-1/1 which contains daily performance report for the period subsequent to November 2010, from the statement of Mr. M.R. Atri, it is seen that Mr. M.R. Atri had explained the modus operandi and system adopted by the appellant company for recording inward of raw material as well as for capturing of data relating to production, I also find that neither it is the case of the search team nor it is the case of the A.O that the figures of the production mentioned in the daily performance report did not tally with the production recorded in the regular books of account and excise records of the appellant company, in response to question no. 14, Shri M.R. Atri did state that every morning and evening i.e. before dispatch, the physical stock taking of sponge iron lying in the bunkers is carried out and no case of variation in quantity of production vis-à-vis stock has been noticed, undisputedly, the statement of Mr. M.R. Atri has remained un-rebutted either by search team or by the A.O. 9.19 I ....
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....hodology 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. 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 is the reason said loose papers are destroyed, at this juncture, I find that neither in the show cause notice nor in the assessment order there is any whisper of any such loose paper which bears the figures of production and which the appellant failed to reconcile with the entries in the regular books of accounts and Excise Records/Returns. In....
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....ctory 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 maintaining regular books of account along with all the supporting bills and vouchers. The assessee submitted that the variation in consumption of electricity has been explained during the course of assessment proceedings and the AO has not made any adverse comment on the same. According to the assessee the yield in this A. Y is better in comparison to the preceding assessment years which was also covered by scrutiny assessment under section 143(3) of the Act. The addition in question is not based on such material and the addition has been made only on presumptions and surmises and is not justified. The AO has also not made out any comparable cases. In such situation the addition in question made by AO is not justified same were rightly deleted by reasoned finding, we uphold the same." 9.24 The low yield in comparison to the benc....
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....vailing 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 submissions of the appellant and books of accounts along with bills and vouchers, having gone through all the statements recorded during the search proceedings, having analysed the results of enquiry conducted regarding yield, I am convinced that there was no tangible material before the A.O nor has the A.O brought any such evidence on record to corroborate his suspicion. The case of the appellant finds support from the decision in Income Tax Officer vs. W.D. Estate P. Ltd. (1993) 46 TTJ (Bom) 143 : 45 ITD 473. 9.28 Similar ratio was laid down by the Hon'ble High Court of Delhi in Commissioner of Income Tax Vs. Discovery Estates Pvt. Ltd. vide order dated 18th February, 2013 (2013) 356 ITR 159 (Delhi). I do find considerable force in the submission of the appellant that no unrecorded asset/investment was found during the course of search. The significance of tangible disproportionate asset having been found as a result of search was emphasized in Mangilal Rameshwarlal Soni (HUF) Vs. Assistan....
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....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 by bills/vouchers or that the quantitative details have not been maintained properly. In Polisetti Subbaraidu & Co. Vs. Commissioner of Income Tax SOURCE : (1968) 69 ITR 738 (AP). Another decision wherein it was held that non maintenance of daily stock register per se is not sufficient to reject the books of accounts as it is not mandated by law is the decision of the Hon'ble High Court of Delhi in Commissioner of Income Tax Vs. Smt. Poonam Rani (2010) 326 ITR 223. From the ratio of the aforesaid decision, it is also quite clear that the Courts have taken judicial note of the "estimation" i.e. recording of financial transactions with certain degree of estimation in the books of accounts. Drawing reference from the aforesaid decision, in my considered view, merely because certain transactions are recorded on the basis of estimation will not make the accounts liable for rejection u/s. 145, particularly when the estimation is not strikingly high or low either in comparison to past trend or comparable cases, incidentally, none....
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.... 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 addition was upheld by the High Court. The appellant's case finds support from the following decisions: a) Ashok Refractories Pvt. Ltd. Vs. CIT (2005) 148 Taxman 635 (Cal.). b) ITO v. Bothra International [2008] 117 TTJ (Jd.) 672 c) Delhi Securities Printers v. Dy. CIT [2007] 15 SOT 353 (Delhi) Considering the facts and circumstances of the case, as also decisions relied upon by the appellant and those cited above, I am of the view that there was no finding to the extent that the accounts were not correct and complete or that the A.O was of the opinion that the income could not be deduced from the accounts maintained by the appellant. 9.36 The A.O. has not brought any material on record to disbelieve the book result shown by the appellant. If there is no suppression of material facts, the authority cannot embark upon a speculative assessment of notional profits. The assessment should be based on cogent facts and there should be no vindictiveness or arbitrariness in passing the assessment order. The estimated additions made....
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....ained in the absence of tangible evidence. 9.41 On the contrary, the appellant had provided all the requisite details regarding its production activity. The items of raw material purchased are excisable products, the quantity of raw material purchased as mentioned in Excisable and Commercial Invoice was test checked with the entries in the Excise Record for raw material i.e. RG-1 and the same was found to be in order. The quantity appearing in the Excise Registers was cross checked with the entries in the Excise Returns and the same was found to be in order and tallying with the Excise Records. The inventory appearing in the Excise Records and Excise Returns was found to be the same as in financial records i.e. the books of accounts and Audited financial statements. Undisputedly, the production was meticulously routed through the appellant's daily production register/Excise Records. The entries therein were definitely co-relatable to the entries in the stock register, enabling an easy stock tally, if one was so required. However, the AO did not deem it fit to carry out the exercise of tallying the stock as per these entries in the two types of books. He merely went by the all....
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....R (Guj) 149, the Hon'ble High Court of Gujarat elaborately considered the various questions and issues and ultimately decided the question in favour of the assessee, identical issues and questions are present in the instant case. 9.47 Undisputedly, the case of the appellant was under scrutiny assessment for two consecutive years i.e. in A.Y 2006-07 and 2007-08. It is self evident from the above referred assessment orders u/s. 143(3) that the books of accounts of the appellant were accepted in all these years and yield declared by the appellant was also accepted. Even during the survey proceedings, no incriminating document was found which is evident from the fact that no addition was made in the scrutiny assessment, for the year in which survey proceedings took place, on the basis of incriminating document. The case of appellant finds support form decision in Sukhadia Jamnadas Maganlal Vs. Income Tax Officer (2008) 13 DTR (Guj) 149, the Hon'ble High Court of Gujarat. 9.48 The Hon'ble High court of Bombay in R.B. Bansilal Abirchand Spinning & Weaving Mills Ltd. Vs. Commissioner of Income Tax (1970) 75 ITR 260 (BOM) has held that "Merely by comparison of the percentag....
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....may vary. Undisputedly, the statistics of power consumption and production and the similar variation existed even during the course of assessment proceedings u/s. 143(3), but no adverse inference had been drawn in those assessment proceedings u/s. 143(3). It is gathered that the appellant has maintained regular books of account and sales/purchases are verifiable and vouched, recorded and supported by raw material consumption register and finished goods register and was also subjected to excise duty and its production declared for the instant years had duly been accepted by the Excise Department after verification. The case of the appellant certainly finds support from the decision in the case of N. Raja Pullaiah vs. Dy. CTO (1969) 73 ITR 224 (AP). 9.53 As regards variation in Power Consumption and for that matter variation in consumption of other raw material, it has been held that the mere variation in power consumption cannot be construed as reasonable ground for rejecting the books of accounts and estimation of income. In PONDY METAL & ROLLING MILLS (P) LTD. vs. DEPUTY COMMISSIONER OF INCOME TAX ITAT, DELHI 'B' BENCH (2007) 107 TTJ (Del) 336. The case of the appellan....
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...., be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other materials which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work." These observations received the imprimatur of the Supreme Court in State of Kerala vs. C. Velukutty (1966) 60 ITR 239 (SC) in the following words : "The Privy Council, while recognizing that an assessment made by an officer to the best of his judgment involved some guess-work, emphasized that he must exercise his judgment after taking into consideration the relevant material." Identical observations made by the Judicial Committee in Seth Gurmukh Singh vs. CIT (1992) 194 ITR 507 (All) : TC1R.357 were approved by the Supreme in Dhakeswari Cotton Mills Ltd. vs. CIT (1994) 117 CTR (Gau) 179 : (1994) 205 ITR 45 (Gau) : TC1R.508. 9.58 As emphasized by the Supreme Court in State of Kerala vs. C. Velukutty (1966) 60 ITR 239 (SC) though there is an element of guess-work in best judgment assessment, it should not b....
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....g to his whims and fancies which is not the spirit of the circulars issued by the Board on scrutiny assessment. An assessment cannot be made arbitrarily and in order that an assessment can be sustained, it must have nexus to the material on record. (CIT v. Mahesh Chand [1983] 199 ITR 247, 249 (All.). It is the settled position that, though the AO has very wide powers and is not fettered by technical rules of evidence and pleadings, there is one over-riding restriction on his judgement and that is, that, he must act honestly and diligently on the material, howsoever, inadequate it was, and not vindictively, capriciously or arbitrarily. "Probability cannot be construed as material evidence to form an opinion by the AO to conclude an assessment and for drawing adverse inference against the appellant unless there is evidence to substantiate such probable inference." Assessment has to be made based on the real income theory, i.e., income to be determined for taxation must invariably be proved to have been the correct quantum of income earned by the appellant during the relevant previous year and the one presumed to have been earned. The presumptions and hypothetical estimations and obse....
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....earch and seizure under s. 132 of the Act sufficiently empowers the AO to initiate the proceedings under s. 153A of the Act and to make all consequent additions/disallowances regardless of presence of incriminating documents or otherwise. It was submitted that the only condition for initiation of proceedings under s. 153A of the Act is occurrence of a valid search under s. 132 of the Act. It was reiterated that Section 153A of the Act does not provide that assessment/re-assessment should be based on 'incriminating material' alone and the AO is empowered to assess or re-assess the 'total income' of the six financial years covered under the search regardless of presence of incriminating material. On merits, it was pointed out that the assessee has failed to discharge the onus placed upon it to prove the creditworthiness and genuineness of the transaction of share application money and consequently, in the absence of satisfactory explanation towards nature and source of receipts, the AO has rightly invoked Section 68 of the Act. As regards low yields, it was contended that the assessee has failed to provide satisfactory explanation for lower yield qua the industry stan....
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..... Meeta Gutgutia (2018) 96 taxmann.com 468 (SC) and series of other decisions in large numbers governing the field. In the light of judicial view, it was thus asserted that in the absence of any incriminating material found in the course of search, the action of the AO to make additions is a complete non-starter. The time limit for issuance of notice under s. 143(2) of the Act is either expired at the time of search or the assessments were concluded under section 143(3), as the case may be, and hence could not be disturbed for making additions of regular & routine nature merely on account of search. The learned Counsel reiterated that in the light of judicial precedents, the legal position is crystal clear that in unabated search assessments, no addition is permissible merely on the basis of re-appreciation of regular books, accounts and documents maintained by the assessee in ordinary course. The ld. Counsel thus submitted that all additions/disallowances made in the impugned assessments covering AY 2006-07 to 2009-10 is absolutely without any legal foundation and deserves to be quashed at the threshold without going in merits. Some of the other precedents in this regard as cited ....
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.... known with the reason communicated by the Postal Department behind non-service of the letters sent by the Ld. AO. (d) The assessee company may kindly be confronted with the enquiry conducted by the Ld. AO regarding yield of assessee company and basis of inference of 60% in Sponge iron unit. (e) The assessee company may also be confronted with the enquiry conducted by the Ld. AO regarding addition to share application/share capital. " 15.5. It was next pointed out that assessment of the assessee was duly completed under s. 143(3) of the Act for A.Y. 2006-07 & A.Y. 2007-08 prior to search and the issue of receipt of share application money had already been examined by several rounds of questionnaires in the scrutiny assessment carried out under s. 143(3) of the Act. It was after due verification of factual aspects, the nature and source of share application money was found satisfactory by the AO. 15.6. As regards the alleged lower yield and alleged unaccounted production and sales, it was pointed out that the issue was thoroughly examined in the regular assessment as can be seen from the assessment orders passed under s. 143(3) of the Act. It was broadly submitted that while t....
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....f the assessee by large number of judicial precedents. As consistently echoed by the Hon'ble Courts of different jurisdiction, the scope of search assessments under s. 153A of the Act in respect of concluded and unabated assessments is narrower in its sweep and restricts the right of the AO to examine the issue emanating from some incriminating material. 16.3.1. We shall first refer to the decision of Hon'ble Delhi High court in the case of Pr. CIT vs. Meeta Gutgutia (2017) 395 ITR 526 (Del). The Hon'ble Delhi High Court referred to the judgment in the case of CIT vs. Kabul Chawla (2016) 380 ITR 573 (Del); Pr. CIT vs. Saumya Constructions Pvt. Ltd. (2016) 387 ITR 529 (Guj); Principal Commissioner of Income Tax-1 vs. Devangi alias Rupa 2017-TIOL-319-HC-AHM-IT; CIT vs. IBC Knowledge Park Pvt. Ltd. (2016) 385 ITR 346 (Kar); Pr. CIT-2 vs. Salasar Stock Broking Ltd. 2016-TIOL-2099-HC-KOL-IT and CIT vs. Gurinder Singh Bawa (2016) 386 ITR 483 (Bom), Reference is also made to another two decisions of Hon'ble Delhi Court in Pr. CIT vs. Mahesh Kumar Gupta 2016-TIOL-2994-HC-Del and the decision dated 7th February, 2017 in ITA Nos. 61/2017 and 62/2017 in the Pr. Commissioner o....
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....the fact that object of scheme legislated for assessment in search cases is to bring to tax the undisclosed income which is found in the course of or pursuant to search or requisition and therefore additions/disallowances must be linked with search/requisition. It was noted by the Hon'ble Court that additions made on the basis of some materials collected by the AO much subsequent to the search is not permissible. 16.3.4. Similar view has been expressed in catena of decisions viz; Pr. CIT vs. Deepak J. Panchal (Guj) 397 ITR 153 (Guj); Chetnaben J. shah vs. ITO Tax Appeal No. 1437 of 2007 judgment dated 14.07.2016; CIT vs. Continental Warehousing Corporation (2015) 374 ITR 645 (Bom.); Pr. CIT vs. Desai Construction Pvt. Ltd. 387 ITR 552 (Guj.); Gurinder Singh Baba 386 ITR 483 (Bom); & CIT vs. Deepak Kumar Agarwal (2017) 398 ITR 586 (Bom.). 16.3.5. The Hon'ble Delhi High Court in Pr. CIT vs. Subhash Khattar ITA No. 60/2017 judgment dated 25.07.2017 also held against the Revenue in similar circumstances where search did not result in discovery of any incriminating material qua the assessee. It was observed by the Hon'ble Delhi High Court that entire case against the asses....
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....ime 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. 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 without discharging the burden to show presence 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 assessee 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 date of search i.e. AY 2010-11 to 2012-13 which stood abated by operation of law will continue to be governed by ordinary powers of assessment under s. 153A of the Act in accordance with law. 17. The legal ground of ....
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....ce came on the surface as a result of search proceedings. 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 5.11 on page No. 16) 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 5.15 on page No. 18) 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 5.16 on page No. 19) 19.3. Apart from the factual position on total absence of any incriminating material as noted by the CIT(A) reproduced in preceding para, the CIT(A) has also analyzed and delineated the f....
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....or A.Y. 2007-08 and similar additions were also carried 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. 20.2. 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 in question 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. 20.3. 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 produc....
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....of sponge iron. The basis for determining standard yield @ 60% of input was not given despite repeated request by the assessee either. 21.1. 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 s....
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....cise records maintained by the assessee and the 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 2.1 mt 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 a....