TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 662
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....Rs. 2,32,73,571.38 as maintained by the CIT(A) by alleging suppressed production without any search material is unjustified, incorrect and illegal in the facts and circumstances of the case. 3. That in any view of the matter addition of Rs. 19,86,573.00/- maintained by the CIT(A) in respect of purchases of perfumery items from M/s Cosmo Elmek, Varanasi by alleging bogus purchase is highly unjustified and incorrect in the facts and circumstances of the case. 4. That in any view of the matter addition of Rs. 3,58,05,157/- made by the A.O. by alleging extra sales and her action as confirmed by the CIT(A) is highly unjustified and incorrect in so far as in the trading account for the period form 01.04.2009 to 27.08.2009 figure of closing stock was not correctly taken and even the A.O. also failed to consider and draw trading account in the order for the period from 28.08.2009 to 31.03.2010, hence the addition is unwarranted and liable to be deleted. 5. That in any view of the matter, entire basis adopted by the assessing officer in respect of addition of Rs. 3,58,05,157/- is incorrect and the such addition made in a very general causal manner ignoring the true and real facts of t....
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....rly appreciating the discrepancies in accounts and non verifiable expenses. 5. That the Ld. CIT(A) has erred in law and facts in reducing the disallowance by Rs. 73,16,513/- on account of bogus purchases even though the facts brought on records by the AO have been admitted by the CIT(A). 6. That the order of the Ld. CIT (A) being erroneous in law and on facts needs to be vacated and the order of the A.O. be restored." 2. The facts of the case, in brief, are that a search operation u/s 132 of the Income Tax Act, 1961 ("the Act" for short) was carried out by Revenue on 27/08/2009. In response to notice u/s 142(1) of the Act, dated 31/01/2011, return of income was filed by the assessee showing an income of Rs. 1,66,99,236/- on 23/02/2011. Vide assessment order dated 22/12/2011 passed by the Assessing Officer u/s 143(3) of the Act, the assessee's total income was determined at Rs. 16,17,03,481/- (rounded off to Rs. 16,17,03,480/-). Aggrieved, the assessee filed appeal in the office of the learned CIT(A). Vide impugned appellate order dated 30/09/2013, the assessee's appeal was partly allowed by the learned CIT(A). Now both Revenue and the assessee are in appeal in Income Tax Appel....
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....he Assessing Officer for making the aforesaid total addition of Rs. 7,76,72,166/- was based on even more excessive estimation of yield. He submitted that the issue regarding the yield in the case of the assessee is already settled by the aforesaid order dated 15/07/2014 of Co-ordinate Bench of the ITAT, Allahabad, which accepted the yield percentage in the range of 83.80% and 83.80%, 84.04%, 84.69% and 85.08% respectively. As the assessee's yield in this assessment year is also in the same range, the learned A.R. for the assessee submitted that the yield as disclosed by the assessee should be accepted in this assessment year also. In this regard in support of his submissions, learned A.R. for the assessee also mentioned that no incriminating materials were found in the course of aforesaid search conducted u/s 132 of the Act on 27/08/2009, and that no discrepancy was found in the stock of materials. He also mentioned that the item manufactured by the assessee is subject to Excise Act and detailed records of raw material and finished goods as well as production are regularly maintained by the assessee in compliance with the Excise Act. He also mentioned that no defect was found by th....
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....1-131 15. Trading Account as prepared by the assessee as per the accepted book of accounts for the period 01.04.2009 to 27.08.2009 (Before Search) and for the period 28.08.2009 to 31.03.2010 (After Search). 132 16. Summaries Trading account as prepared by the assessee as per the accepted books of accounts for the F.Y. 2009-2010 (i.e from 1st April-2009 to 31 March-2010. 133 17. Brief of manufacturing process of Tobacco. 134-139 18. Assessee's comment on remand report furnished by the assessing officer after examination of books of accounts. 140-156 19. Photocopy of written submission filed before the Commissioner of Income Tax (Appeals). For the A.Y. 2010-2011 157-282 20 Photocopy of the Audit report for the assessment year 2010-11 283-322 21. Chart prepared in the light of Audit report of comparable cases. 323 22. Photocopy of reply filed on the basis of comparable cases brought by the Commissioner of Income Tax (Appeals). 324-350 23. Photocopy of statement of Kailash Chandra recorded on the date of search. 351-360 24. Photocopy of reply to notice dated 11.07.2011along with photo copy of notices. 361-493 25 Photocopy of sundry creditors for expe....
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....fter it is spread on plastic sheet for drying. After this process, 'silver vark' in addition to the above mixture is mixed in the final product 'Zarda'. The Zarda is manually filled in unit containers and pouches which are then packed and sealed. 8.1 The A.O. has produced Annexure D & E of form 3CD i.e. audit report for the financial year ending as on 31.03.2004. The same is reproduced as under :- TOBACCO Particulars Opening Stock (Kgs) Purchase (Kgs) Total (Kgs) Closing Stock (Kgs Storage Loss (Kgs) Consumption (Kgs) TOBACCO LEAF 431627.500 920852.000 1352479.500 433285.500 0.000 919194.000 WHOLE LEAF 34474.000 32441.000 66915.000 6288.000 0.000 60627.000 TOBACCO DUST 0.000 0.000 0.000 0.000 0.000 0.000 Total 466101.500 953293.000 1419394.500 439573.500 0.000 979821.000 OTHER RAW MATERIALS Particulars Opening Stock (Kgs) Purchase (Kgs) Total (Kgs) Closing Stock (Kgs) Storage Loss (Kgs) Consumption (Kgs) CHEMICALS & PERFUMES 35469.000 86441.450 121910.450 36999.000 0.000 84911.450 SILVER & SILVR VARK 532.000 3994.758 4526.758 117....
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....ncern of assessee. The husband of the proprietor is also partner of the assessee firm. The assessee has not maintained stock details of consumption of purchased Kimam. The assessee has also not maintained the details in respect of goods handed over to Karigars for mixture of tobacco and Kimam. During the course of discussion, the A.O. came to know that masala consists of several items, viz. Gond, Kateela, Kulanjan, Peepar, Kapoor, Kuchari, Hauber, Musali (Satawar), Muskdana, Dal Chini, Pipramool, Mulethi, Soth, Tulsi Beej, Brahami Patti, Kusum Phool, Tomar Beej, Lohban, Dhoop Ral, Mansalo Phool, Laung, Brass, Taj Moti, Nakhala, Chadila Phool, Pachauli Patti, Bal Char (Jatamasi), Keshar, Javitri, Sugandh Bala, Balum Powder, Mongra Safron, Kethiya, Nakh, Talish Pat, Nagar Motha, Ekangi, Elayachi, Bakchi, Sugandh Chemical, Narak Choor etc. The assessee firm also manufactured the perfumes from masala over and above perfumes purchased from other parties. The A.O. has remarked that quantitative details of consumption have not been maintained. To this, the assessee replied to the A.O. that the same is not practically feasible. The production of perfumes, from masala, highly depends on the....
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.... to day basis. In the assessment order the A.O. has mentioned that the details of all the ingredients in terms of quantity have not been maintained. All the items other than tobacco have been clubbed together under the name 'other materials'. Percentage of material consumed and finished goods varied substantively year after year. 8.4 The A.O. further proceeded to discuss the facts and findings related to subsequent years as according to her the issues are common for all the assessment years involved. In this context she made reference to inquiry related to purchase invoice No.172 dated 23.11.2006 for Rs. 27,21,888/- for the purchase of 150 Kg of sandal oil issued by M/s Sarita Industries, Prop. Sri Rakesh Narayan Gupta, 105/682, Chandrika Devi Chauraha, Deputy Ka Padao, Kanpur. On inquiry conducted by the Deputy Director of Income Tax (inv.)-1, Thane from Regional Transport Officer, Thane Range it was found that the vehicle which was allegedly used for the transportation, No. MH 04 - 8300 is Bajaj Chetak Scooter 1990. The said letter of RTO was confronted to the assessee and the A.O. also asked the assessee to produce Sri Rakesh Narayan Gupta for examination. Subsequently the A.....
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..... Ltd., Varanasi, M/s Deepak & Co., Varanasi, M/s Sanjay & Co., Varanasi were transported by LMVs. The A.O. collected the details of the vehicles allegedly used for transportation from the RTO office, Varanasi. As per the details obtained from RTO office, Varanasi, the vehicles were Maruti Wagon-R, Tata Sumo and Maruti Swift. The ADIT (Inv.) recorded the statement of the owner of the vehicle No. UP 65Y - 3901 u/s 131(1A). The owner Sri Chandra Shekhar Tripathi categorically denied the use of the said vehicle for the transportation of alleged goods. On the basis of the above statement, the A.O. inferred that no goods were transported by the aforesaid vehicles. The A.O. also examined the weight transported by these vehicles in respect of given invoices. The A.O. has quoted the statement of Sri Chandreshwar Tiwari to support her finding. Further, the A.O. remarked that voluminous liquid perfume was allegedly transported by Maruti Swift and Maruti Wagon-R from Varanasi to Sahson, Allahabad. Transportation of huge quantity, for example 960 Kg, 707 Kg, 565 Kg, 725 Kg in small cars is not possible. The A.O. remarked that by no stretch of imagination, the perfume weighing above quantity co....
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....nsumption as under :- Items Quantity of consumption in Kg. Quantity of finished goods in Kg. % age of consumption Raw tobacco leaf after considering CB of WIP 749922.950 890193.600 84.24 Chemicals and perfumes 84911.450 9.54 Silver and silver-vark 3353.246 0.38 Masala 107228.300 12.05 Kimam 36091.000 4.05 WIP 88819.550 9.97 8.8 By making arithmetic calculations, the A.O. has shown that the coloured tobacco produced during the year should be 8,01,374.050 kg. The tobacco leaf has been consumed at 7,49,922.950 kg (8,01,374.050 - 51,451.100 - the balance after consumption) during the year under consideration. The A.O. recast the consumption of raw materials as under:- Tobacco Leaf 7,49,922.950 kg Other materials 2,31,583.996 kg Opening WIP 88,819.550 kg Total consumption 10,70,326.496 kg Total percentage of consumption 120.33% 8.9 From the details, the A.O. worked out the output of other materials which remains 51,451.100 kg from 2,31,583.996 kg. Accordingly, the yield is worked out as under :- Tobacco leaf consumed - 749922.950 Add: Opening WIP - 88819.550 838742.500 Add: Other materi....
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....search and seizure proceedings. The average percentage of yield comes to 105.66% as per above submission of assessee. Clearly, if 100 Kg. of items is consumed then 105.66 Kg. of finished goods would receive. Total production has been shown 890193.600 Kg. as against total consumption of raw materials at 1070326.496 kg. (838742.500 + 231583.996). Thus, total production worked out as 1130906.975 Kg. (1070326.496 x 105.66%). As the assessee has shown finished products at 890193.600 Kg., there will be suppression in production by 240713.375 Kg. not shown by the assessee. Cost of goods produced comes to Rs. 289/- per Kg. as per detail shown in the audit report. The value of above suppressed production comes to Rs. 6,95,66,165/- which is added to the income of the assessee firm on account of suppression of production in manufacturing of ZARDA for the year under consideration." 9. Addition of Rs. 6,95,66,165/- was challenged before the ld. CIT(A) and the assessee's written arguments before him are reproduced as under : "19. Regarding addition of Rs. 6,95,66,165/- by alleging Suppression of production (Ground No.4 to 20): That in this regard the assessing officer has discussed the m....
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....t has been ignored from consideration by the learned authorities. 21. That during the entire assessment proceeding only a single notice dated 11.07.2011 was issued connected with the production activities and such notice is a common notice by mentioning the assessment year 2004-05 to assessment year 2010-11 and in compliance to the said notice a voluminous reply in 109 pages (copy enclosed) explaining there in each and every points was filed justifying the books results and thereafter the assessing officer framed the assessment orders in her own designed calculations purely based upon surmises and conjectures and it is also very important to consider before making such a huge addition that neither any mind was applied nor before making such huge addition proper opportunity was given to the appellant by the assessing officer. Hence on this ground also the addition made is arbitrary and uncalled for 22. That notice dated 11.07.2011 is a common notice issued in syncline manner which fact itself proves the seriousness taken by the assessing officer because according to assessing officer alleged suppression of production was only there in all the seven years of assessment which she ....
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....been adopted and maintained by the appellant. 24. That in this regard there is an another very important point/ facts to be considered by your good self is that this issue was already raised and considered during Assessment Year 1999-2000 where vide assessment order dated 22.03.2002 passed under Section 143(3) of the Income Tax Act while an identical addition of Rs. 3,40,69,013/- was made under the head manufacturing account/ suppression of production on the similar ground as has been done in the present assessment under Section 153A(1)(b) of the Act. A photo copy of the assessment order dated 22.03.2002 is placed in the paper book at page no. _________. The then assessing officer has discussed the facts and his observations are appearing at page 6 to 10 of the order for making the said arbitrary addition, which are reproduced as under:- "That a survey under Section 133A of the Income Tax Act was conducted at the business premises of the assessee on 05.11.98 where various stock was found. It was found that except tobacco no stock register of any other material is being kept. No day to day consumption of other items are maintained. Then vide order-sheet entry dated 18.02.2002 ....
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....l Calculations. The finding of the Assessing Officer is without any tangible evidence and it is based on inferences involving unwarranted assumption. Accordingly the addition of Rs. 3,40,69,013/- made by the Assessing Officer Under Section 69 of the Income Tax Act is deleted." 26. That the department went into Second Appeal against the aforesaid order of the learned Commissioner of Income Tax (Appeal). The Hon'ble Income Tax Appellate Tribunal, Allahabad Bench heard the appeal and vide their order dated June 2006 as per ITA No.126/A/09 dismissed the departmental appeal. A copy of the Income Tax Appellate Tribunal's Order is enclosed in the paper book at page no. ______ and in this regard observations/findings of the Hon'ble Tribunal as mentioned at page 8 in last para no. 9 of the order are reproduced hereunder:- "However, again as discussed above, we have held that there is no warrant for invoking the provisions of Section 145(3). It automatically follows that the imaginary exercise undertaken by the assessing officer is futile and hence the additions cannot be sustained. Moreover during the survey, no incriminating was found. No irregularity with regard to books ....
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....se Department and our declared sales was accepted year after year and in view of this fact no such addition could be made. Kindly consider Allahabad High Court decision as reported in 320 ITR 116 in the case of CIT Vs. Mascot (India) Tools & Forges Pvt. Ltd. (Copy of the order at page .... Of the paper books) 29. That Sir, the most important fact that even for the year under consideration i.e. Assessment Year 2004-05, originally the assessment was made Under Section 143(3) of the act vide order dated 19.12.2006 by the Deputy Commissioner of Income Tax, who examined the books and other details on various dates of hearing by calling various details which will appear from the order-sheet entries written by the then assessing officer, copies of the order sheet are in the paper book at page no. ________. Similarly the copies of order sheet in respect of present assessment under Section 153A(b) of the act is enclosed at Page -.... of the paper book. Kindly compare the same with the order sheet of block proceeding which shows the manner of the examination of records/facts adopted by the assessing officer which is absolutely casual. The order sheet entry is an important document of the ....
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....739 21.34% Accepted u/s 143(3) 2004-05 (under consideration) 32,76,14,467 7,03,55,084 21.47% Accepted u/s 143(3) and now in dispute u/s 153A(b) That from the above chart it will appear that overall position is progressive which was accepted by the assessing officer and more so regarding trading result there is no adverse view in the assessment order under consideration. Sir, there is no dispute with regard to Opening Stock, purchases, Sales & Closing Stock as well as gross profit and when everything was found in order and nothing adverse has been recorded in the order then there is no justification to proceed to make incorrect/ uncalled for addition by brushing-aside the entire facts, explanations, past-records, Submissions, and earlier assessments and results etc. The most important fact is that in the whole assessment order there is no whisper of Section 145(3) of the Income Tax Act which proves that the assessing officer was fully satisfied with our books of accounts/ method of account. The only provision in the Income Tax Act is Section 145 which empowers the Assessing Officer to reject the books for making addition, if any. But in this present case on this issue the A....
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....n doubted or challenged during the year or also during last 45 years by the authorities of Income Tax, Sales Tax or Excise departments. 34. That, Sir the books of account are supported by purchase vouchers, vouchers for expenses, Stock records registers and Excise records etc. therefore hypothetical and imaginary calculations for deriving of alleged suppressed production as has been made in the present assessment order, cannot be treated as authentic and no specific mistake in the book of account has been pointed out and mentioned in the order by the Assessing Officer in the Assessment Order. During the year under consideration when turnover is on higher side and G.P. Rate is also more or less same then there is no justification to corner the appellant's books of accounts for making an arbitrary addition based on assumption and estimation for alleged suppressed production. Thus inspite of all these facts the Assessing Officer made huge addition which is total disregard of complete records, and specific and precise details submitted by the appellant which is indeed an arbitrary and unjustified addition. The procedure of framing assessment is of judicial nature and in making th....
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....n of material did not call for interference. That Sir in the light of the aforesaid decision since appellant's books of account are true and correct as the same have duly been audited by the auditors and declared sales recorded in the books of accounts are also supported by various excise registers which are periodically checked and verified by the excise authorities and accepted therefore the addition on count of alleged suppressed production as made by the Assessing Officer is highly unjustified and illegal in view of the decision reported in 337 ITR page 541 (Bombay) search addition should be confined to the material discovered in search. 36. That regarding addition made by alleging suppressed production, it is submitted that observations and findings of the assessing officer in the order are incorrect and contrary to the actual facts and figures of the case. The assessing officer made the addition based on presumptions ignoring the norms, true facts and explanations furnished by the appellant. In reality tables reproduced in the assessment order at page 16 of the assessment order are based on the information, already available in the audit report of relevant assessment ....
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....cise Appellate Tribunal in assessee's own case. 38. That the assessing officer considered the item of other material such as perfume, chemicals, silver and silver vark, kimam, masala at 231583.96 kgs whereas after evaporation it comes to 51451 Kgs. Thus the difference of 180132.996 kgs is shortage in weight (kgs) due to evaporation in normal process and processing loss and not weight of suppressed production as claimed by the assessing officer. 39. That like wise another mistake committed by the Assessing Officer is that precentage of yield as admitted by assessee at 106 % as per chart marked as annexure "A' above was applied again on total alleged consumption at 1070326.496 kgs. In this way the alleged production was worked out to 1130906.975 Kgs (1070326.496 X 105.66 %) as per working of the Assessing Officer at page 27 para 8 of the assessment order. The difference comes to 60581.00 kgs (113096- 1070326 ) In this way the alleged total production was worked out at 1130906.975 kgs as against 890193.600 kg as shown by the assessee. Due to such haphazard working alleged suppression of production was worked out at 240713.375 kgs and in this way by applying cost of product....
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....ng stock. But the assessing officer failed to examine the past records which proves that such temporary shortage is caused due to evaporation and normal processing loss at stages of the manufacturing processes as a regular features which was accepted by the department. Thus to support and to give strength to the assessment order the assessing officer in the order stated that the assessee failed to state the ratio of different constituents mixed to get one kg of product of tobacco when the assessee stated only this that because it is a trade secret and nobody can compel to state the trade secret. The amount of Rs. 50,00,000.00/- was also surrendered only with the intention to purchase peace of mind and to avoid litigation. Sir, there could be thousand and one reason for offering some amount for taxation which is quiet usual in the search and survey. The department is no stranger to the same fact but it is not correct on the part of assessing officer to take shelter for such surrender to misuse it whereas such surrender was made to buy peace of mind from the department and settle the matter and also to stop the assessing officer from repeated persuasion of telling the ratio of consum....
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....urful statistical formula prepared in general and vague manner which is not based on any real facts or figure found in the course of search but were applied uniformly in order to work out certain production in hypothetical manner. The assessing officer simply discussed various facts in general way as discussed in different para of the assessee's submissions and worked out unrealistic figures for suppressed production for the purpose of making addition. Infact and in real sense the method of computing so called suppressed production is not justified in absence of any sound basis for the same. Sir, it is an admitted fact that each year of the assessment is independent and since no adverse evidence or any new evidence was found in the course of search reflecting any adverse impact then why such addition. Sir, from the nature of addition it appears that simply because the assessing officer, while framing the assessment order under section 153A (1)(b) of the act, had no other way out but to make the addition in haphazard manner with a view to justify the search because no material was found in the course of search. Thus the appellant prays that when nothing was found in the course o....
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.... market and level of like business competition as well as also loses in the process but since the assessing officer was adamant to make the addition at any cost therefore these true facts were ignored. The nature of manufacturing process / stages from inception of the firm are also same and similar and already accepted by the department in past, therefore the consumption and product cannot be derived at one to one ratio but the assessing officer failed to understand this simple and established fact and by ignoring the same a wrong working was manipulated and inserted to justify the addition which is incorrect. 46. That in this regard the assessing officer at the end at page number 27 of the assessment order has concluded her justification to make the addition by alleging suppressed production in a cyclostyle manner in all the respective assessment years of the block period. Even language word by word is same which is now reproduced here under : "From the statement, it is very clear that assessee is suppressing its production and for which it has been surrendered at the time of search and seizure proceedings. The average percentage of yield comes to 105. 66% as per above submiss....
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....ients nor the quantity increases. So sir similar position is here also in our production and in its true perspective only assessments in all the earlier years have been done by accepting our norms of production since the inception of the firm. That the assessing officer miserably failed to mention the fact in the assessment order that where such suppressed production have gone and thus now it is an important issue for your kind adjudication. 47. That Sir the most important fact for consideration at your end is that the assessing officer worked out the alleged production of 1130906.975 Kgs. whereas in reality our production is 890193.600 Kgs only. In this way an artificial differences of 40713.375 Kgs of alleged excess production was created by the Assessing Officer but the assessing officer miserably failed to state that for such alleged excess production from which source the raw tobacco (Base Raw Material) had come and where the sales effected or stock/ kept and left from the eyes of central excise department because the assessing officer has accepted our opening stock, purchases, sales and also closing stock of raw tobacco and other materials including finished goods. And w....
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....kind convenience which is based on our books of accounts and audit report. From this chart it will appear that there is no dispute in respect of consumption of raw tobacco whereas for the first time in the history of the case doubts in respect of other materials used in the production have been raised and details of which is appearing in col. no. 4 of the said chart. From the chart it will also appear that in other materials (such as chemicals, perfumers, silver & silver verk, various types of other ingredients, kimam and masala etc) there is loss/shortage on account of processing wastage, evaporation and dust etc and as a result weight of some other materials/ ingredients gets reduced and ultimately by mixing the same in the raw tobacco such nominal weight increases and it contains taste/essence of those other items and this system/processing of manufacturing of our product has already been accepted by the department since the date of inception of the firm including the assessment year under consideration of which assessment was framed under Section 143(3) of the Income Tax Act but simply because a search was conducted though no incriminating materials was found in the course of t....
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....aterials apart from the raw tobacco, processing wastage/shortage/ evaporation was not allowed when in earlier years including the year under consideration the same were allowed. (ii) The assessing officer considered quantity of other ingredients/materials in comparison to the production in 1:1 ratio which is at all not possible nor actual manufacturing way of Zarda. (iii) The yield of percentage as applied twice by the assessing officer, first from raw tobacco to finished production at flat rate and again applying yield percentage on production which is wrong and impractical. Thus the entire working of the alleged suppressed production done by the assessing officer in haphazard way is baseless and far away from the real working based on commercial principles. 51. That the 3rd important issue is that the department is taxing us on the value of production as worked out by the assessing officer treating the entire value as income and not on real income when the law is settled that the income tax is leviable on real income only based on a working done on commercial principles. Sir the production is final outcome of the various materials used for the production. In para 27 of th....
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....tobacco and addition of Rs 6,95,66,165/- treating such amount as income of the assessee. The questions to be considered for adjudication by the Learned appellate court are broadly as under : - 1- Whether when the assessee maintained regular and proper books of accounts duly audited by chartered accountant year after year and the nature of business of the assessee is that of excisable goods and past history of the assessee is neat and clean and whether without invoking the provisions of 145 (3) of the I.T. Act and rejecting the books of accounts maintained by assessee merely on whims and wrong understanding of the material facts of the case any trading results addition on the ground of alleged suppressed production could be made .? 2- Whether considering the nature of business of assessee i.e chewing tobacco manufacturing and its sales in the absence of any material on record that the assessee made purchases/ obtained base raw material i.e tobacco was obtained from any other sources which was used in the manufacturing of chewing tobacco and thus suppressed production? 3- Whether in search made on 27.08.2009 any such material was found and seized which could have been given a c....
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....on to the income has been made by the assessing officer in subsequent year also. Sir, according to the assessee's arguments and pleading the answer to the above questions raised are "NO". Hence requested (i) assessment be quashed and (2) that the addition of Rs. 6,95,66,165/- made in total income for alleged suppressed production may kindly be deleted and justice be done. 52. That it may further be submitted that instead of taxing the assessee on real income as worked out and declared in the return on the basis of closed books of accounts duly audited, the department is taxing on the artificial alleged production which action is against the fundamental principles./ practice of the income tax law. The real income has been defined in the decision by the Hon'ble Supreme Court reported in 322 ITR of 10 Page 678 wherein it has been observed by the Hon'ble court as under :----- "Income tax is a tax on real income i.e. the profits arrived at on commercial principles subject to the provision of the income tax act" 53. That sir, there are well settled laws that sales tax is levied on sale of goods, excise duty is levied on production/ sale of finished goods, service tax ....
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....in the ratio of material consumed/finished goods mentioned at Page No. 9 of the Assessment Order. A.R. of the assessee submitted that it is because of the different method applied for last three years. The assessee also made written submission in which he had explained the different method. Regarding the variance in the ratio of material consumed, assessee's submission is reliable. Assessee's main submission was that ' there is nothing outside the books of account and the conclusion has been drawn, on which ground addition was made, on the basis of the Audit Report submitted by the assessee itself. Assessee further contended that the addition had been made on the basis of different interpretation of the facts and figures disclosed in the Audit Report. But the assessee could not substantiate his claim by providing item wise chart of weight loss. During the remand proceedings for the A.Y. 2009-10 on 06.08.2013, the assessee explained about the process of manufacturing of Zarda by showing raw material. It was observed that the elements of the raw materials were not being reflected exactly in raw form in finished products, but it was also not clear whether the raw materials, particular....
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....in remand report a finding was recorded in following manner: "As the assessee failed to produce any itemwise chart or loss in the processing of finished Zarda. It is difficult to fully rely upon the submission of the assessee hence addition made on this count is correct." That in this connection it is necessary to mention here that in the remand proceeding on 06.08.2013 the assessee produced various raw products/materials which are used in manufacturing of Zarda and demonstrated the entire production process and right from tobacco whole leaf for boiling and taking out of liquid kimam only and other raw materials purchased and coloured and mixed with various other ingredients and after understanding the whole system of manufacturing process and production the assessing officer arrived on a conclusion that element of loss/element of evaporation are involved and by considering the various items of raw products and their nature the assessing officer recorded the facts in the order sheet which is enclosed at page .... The relevant contents of the order sheet and in the remand proceedings and facts narrated in following manner. "During the remand proceeding for the assessment year ....
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....oration as admitted by your goodself is true and correct. That in this way now no dispute is left about the fact of wastage/evaporation/element of loss in the production activity do arise and in this background finding recorded by the assessing officer that the addition is correct is nothing but miserable to support illegal addition already made by the then assessing officer in wrong way. Sir, once the assessing officer was satisfied that element of wastage/evaporation is involved in materials used in production of Zarda then allegation of suppress production does not arise. There is no dispute with the department about the consumption of raw tobacco which is the main item of production of Zarda i.e. 95% of total production which is supported by day to day stock excise register as maintained in regular way as per the norms of Central excise law and duly checked by them and on the basis of production register excise duty has been paid and thus in such situation to support the addition in remand proceeding is nothing but miscarriage of justice. That in the remand report there is no reference or any adverse remark on the following issue :- (a) That the assessee is maintaining th....
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....ire block assessment specially when purchase, sales, opening and closing stock has been accepted. In this regard a chart is enclosed in paper book and photo copy of same is enclosed herewith for your kind consideration. (g) That it is also a fact that in the course of survey proceeding u/s 133A in assessment year 1999-2000 as well as in search proceeding u/s 132 of the income tax act conducted on 27.08.2009 no incriminating material, no suppression of stock, no loose paper was found hence there is no whisper in the order about adverse material. In this way the entire discussion/addition in the order are based on regular books of account therefore liable to be deleted. (h) That during the assessment in question gross profit rate was progressive and in all the block assessment order in subsequent year trading result is accepted and not disturbed nor any adverse finding in this regard recorded in any order. (i) That from the assessment order it will appear that sales, purchases, closing stock are not in dispute and when all the heads of trading accounts are not in dispute. Hence the theory of suppressed production launched by the assessing officer is liable to be spunged. (j) ....
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....ssued several times for performance in payment of excise duty by issuing "SAMMAN PATRA AND COMMENDATION CERTIFICATE" under the signature of Commissioner, Customs, Central Excise and Service Tax Allahabad. This certificate itself proved that sanctity of books. The Copy of the certificate are enclosed herewith for your ready reference. (q) That the above facts were placed before the concerned assessing officer in the written submission in details but while preparing the remand report the assessing officer nowhere disagrees with the facts as stated above as there is no adverse remark in the remand report. (r) That in the second paper book various decisions have been cited by the assessee and photocopy of those decisions also enclosed but due cognizance was not given by the assessing officer while preparing remand report. That in these backgrounds the remand report prepared without giving due weight to whole facts and legal position is no judicially correct facts narrated above." 12. The ld. CIT(A) considering the explanation of the assessee and the material on record did not justify the calculation made by the AO for the purpose of making addition, however, considering the com....
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....oceedings and to have different view on the concluded matters. To support the arguments, the appellant has relied on the decision of the Hon'ble Supreme Court in the matter of C.I.T. Vs. Flexi Pack in SLP (C) No.18112 of 2009 reported in 319 ITR Page 3. The Hon'ble Court held that there was no question of going into estimation without rejection of books of account, properly maintained in the regular course. Another argument put forward by the appellant is that the search and seizure action did not result in the discovery of any suppressed production lying in the premises, so no adverse finding could be given on the production of the finished products. The department could not find any hidden place to store the suppressed production. There is no allegation about exit of suppressed production by the Central Excise, the duty is leviable at the point of exit. The process of manufacturing was explained to the A.O. but the A.O. did not visit the manufacturing process. Relying on the decision of Allahabad High Court in the case of Mascot (India) Tools & Forges, the appellant has argued that no addition on account of suppression of sale can be made without any valid basis when the ....
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....esults. The maintenance of production register is very vital aspect when the assessment is related to yield in the manufacturing process. As per the provisions of section 44AA of the I.T. Act, the persons refer to in the said provisions, shall keep and maintain such books of account and other documents as may enable the A.O. to compute his total income in accordance with the provisions of this Act. The purpose of maintaining books of account and accounting standards related to the maintenance are that the account should be transparent, understandable, relevant for the purpose for which they are made and be reliable. In certain types of businesses, the absence of stock register or a quantitatively or qualitatively tallied manufacturing account can be a material ground for rejection of books [Namasivayan Chettiar (SN) Vs. C.I.T. (1960) 38 ITR 579 (SC), C.I.T. Vs. British Paints (India) Ltd. (1991) 188 ITR 44 (SC), Bimal Kumar Anant Kumar Vs. C.I.T. (2007) 288 ITR 278 (All.)]. In timber business, timber is sold with reference to length, girth and weight of timber, a stock account merely with reference to number of logs cannot be accepted as stock account capable of verification [C.I....
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....er. The Division Bench held as follows :- "In the absence of a register indicating the supply of yarn issued from the spinning department to the weaving department it is plain that there is no possibility of co-relating the supply of yarn and the production of cloth. Therefore, there was no way of checking whether the production of cloth shown in the books represents the true figure of production. The system of records adopted by the assessee is inadequate and does not afford an effective method of determining the true income, profits and gains so far as the production of cloth is concerned." 10. In the case of Bharat Milk Products v. Commissioner of Income Tax reported in 128 ITR page 682, the Division Bench of this Court in the absence of day to day manufacturing or production account, justified the applicability of the proviso to Section 145(1) of the Act. The Division Bench of this Court observed as follows :- "The proviso further says that even if the accounts are correct and complete but the method employed is such that the income cannot properly be deduced therefrom, the ITO can compute the income upon such basis and in such manner as he may determine. In the instant c....
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....t books are not reliable or that particulars are not properly verifiable. Though, the judgment is under the U.P. Sales Tax Act but is relevant in the context of the present case. 15. The decision cited by the learned counsel for the assessee reported in 26 ITR page 159, 38 ITR 152 and 83 ITR 484 are not applicable to the present case. They were the cases of traders and not the manufacturer. It may be mentioned that there is nothing on record to show that in the previous year, assessee has maintained books of account in the similar fashion and its books of account have been accepted. 16. In view of foregoing discussions, question referred above, is answered in affirmative in favour of revenue and against the assessee. There shall be no order as to cost." Admittedly, the appellant whose case is before me, is the manufacturer of Zarda and it has not maintained production register on day to day basis to reflect the consumption and yield at any given stage. In accordance with the decision of Hon'ble Allahabad High Court in the case of Bharat Milk Products vs. Commissioner of Income Tax reported in 128 ITR page 682, the absence of day to day manufacturing or production account,....
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.... bound to accept the system of accounting regularly employed by the assessee, the correctness of which had not been questioned in the past. There is no estopel in these matters and the officer is not bound by the method followed in the earlier years. So the arguments of the assessee that when its books of account have been accepted in the past cannot be disturbed in future when the same system of accounting is maintained, deserves to be rejected. The appellate authority can also reject the books of account as per the decision of Hon'ble Supreme Court in the case of C.I.T. vs. McMillan & Co. (1958) 33 ITR 182. Now, let us examine the fallout and consequences of rejection of books of account. The rejection of the book results is a step-in-aid to the officer to compute the correct income on some reasonable and proper basis. As pointed out in C.I.T. Vs. Pilliah & Sons (Ky.), the estimation of turnover or profit rate or disallowance of claims of expenditure, shortage, wastage should be based on some material and cannot be arbitrary. As held in Shamsher Ali Abdul Hussain vs. C.I.T. (1945) 13 ITR 240 (Nag.), surrounding circumstances may be taken into account in estimating the incom....
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....ne to one. There has to be generation of residuals and the process of evaporation. Now I would analyze the method of computation of the suppression of production as dealt with by the A.O. The A.O. has analyzed the quantitative details of raw materials and finished goods given in the audit report in column 28 of 3CD report. Though the A.O. has attempted to analyze the consumption of raw material and semi finished products for getting the finished products, in the process, the A.O. has also carried out some infructuous exercises. Apart from taking the quantitative details from audit report, the A.O. has also obtained the quantitative details of work in progress which is not part of details in the 3CD report. To this the appellant invited my attention to column 28 which requires the quantitative details of the principal items and byproducts. Therefore, the appellant has not shown the figures of work in progress in the said audit report. The work in progress has been shown only in the profit & loss account in terms of value. During the course of assessment proceedings the A.O. asked the assessee to produce the details of work in progress in terms of quantity also. Accordingly, the ....
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....has quoted the reply of the assessee in this regard on Page 20 of the assessment order. Sri Krishna Chandra Kesarwani, the partner of the firm stated that the ratio is not that of quantity, but that of value of consumption of material to sales in terms of rupee. Secondly, the percentage has been shown against the consumption of raw tobacco only. Now it is important to understand the percentage of yield as shown by the assessee and understood by the A.O. On page 17 of the assessment order the A.O. has shown percentage of yield for financial years 2003-04 to 2009-10. As far as F.Y. 2003-04 is concerned, the same has been shown at 106.13%. In a reply to a question on the ratio of ingredients to produce 1 Kg of finished product, the partner of the firm Sri Kailash Chandra Kesarwani had stated that the ratio is 'trade secret' and he would not reveal the same. The A.O. also relied on the surrender of Rs. 50 Lakh for not disclosing the ratio of consumption of raw material. During the course of proceedings before me, the appellant emphasized that the A.O. misunderstood the average percentage of yield computed at 105.66%. The A.O. was of the view that if 100 Kg of items are consum....
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.... and opening work in progress in the end product, as shown in the chart prepared by the A.O. and also accepted by the assessee. The only difference and bone of contention is with regard to other materials which remained 51,451.100 Kg in the finished goods while it was used 2,31,583.996 Kg as raw material. The A.O. analyzed the proportion of other materials in the finished product and held that on the use of other materials, the weight in the finished product remains only at 22%, meaning thereby approximately 78% gets evaporated. To explain the loss of weight, the appellant has submitted before me that :- "The major loss is in the use of Whole leaf, Masala and perfumery and chemicals items as detailed on page 222 of the paper book and also explained in Para (i) and (ii) of page 225, Para (v) of page 226 and Para (vii) of Page 227 of paper book in A.Y.2004-2005, the explanation may please be considered. That raw tobacco (Whole Leaf) is boiled in water to take out its ark known as "Raw Kimam". The residual water i.e. tobacco becomes useless and thrown away. Various spices / Masala are baked, grinded and sieved to convert them into a powder form as well as aromatic spices/Masala ar....
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....ine of business. Therefore, I undertook this exercise and collected the audited reports of the two concerns. It may be noted that such figures are not available in the public domain or public data bases. It may also be added that these concerns are also engaged in the manufacturing of the same product. Though, the details of their manufacturing process are not available, it is presumed that they also follow a process more or less same as the appellant uses for the manufacturing. Therefore vide this office letter F.No. CIT(A)/Alld./KZB/2013-14 dated 05.09.2013, the appellant was required to furnish its comments on the contents of my letter and on the production data taken from the respective audit reports i.e. 3CD, column no. 32 :- "To, Kesarwani Zarda Bhandar, Sahson, Allahabad Sub: Ratio between production of finished goods with material consumed. Ref: Assessment Years 2004-05 to 2010-11 - reg. - Please refer to the above. 2. During the course of hearings, you have challenged the orders of respective assessment years of the A.O. computing the suppressed production. But it has also been noticed that you have not maintained day to day production statements to verify ....
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....es. In the course of hearing a voluminous paper books was filed in respect of assessment years 2004-05 to 2010-11 and in the paper book entire stage wise manufacturing process were discussed in detail, various charts were filed therefore the undersigned person requesting your goodself to give weightage to the past record of the assessee past history where different authorities of the department examined our manufacturing process, considered our method of accounting, considered the method and maintenance of books of account, examined our central excise record and then accepted our production as well as trading result year after year including the assessment year 2004-05, 2005-06 and 2006-07. In this case a search operation was conducted on 27-08-2009 and in the course of search operation no incriminating material, no loose paper, no excess stock was found by the search party but simply because a search was conducted therefore as per regular practice of the department book result was disturbed in respect of block period for assessment year 2004-05 (first year of Block) to 2010-11 when in the assessment year 2004- 05 after thorough scrutiny book result was accepted by passing an order....
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....a of assessee's firm and comparable two cases are different which shows that ingredients and formula are not common, so the question of comparison does not arises. We used various types of ingredients for manufacturing of zarda but in the two comparable cases what types of ingredients they used are absent therefore question of comparison with two cases does not arise. Thus in nut shell the entire approach of the assessing officer is nothing but mislead and to ignore the norms of judicial proceeding and commercial principle with the view to determine abnormal income simply to justify search and proceeded hence the undersigned person pray that the books result may please be accepted. Under these circumstances the assessee pray that the two audit report which was enclosed alongwith the letter dated 05-09-2013 liable to be ignored/discarded in all fairness and justice and basis of the same kindly be not adopted for deciding our appeals." I have examined the submission of the appellant refuting the proposition of comparability and find that it lacks necessary substance and reasonable contents. The appellant states that the audit reports of the comparable cases do not speak of th....
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.... may not have same or similar process of manufacturing. They may not be manufacturing the perfume (major source of loss of weight), they may be purchasing the perfumery items from the market. But the yield shown by the cited cases does give certain indication of percentage of production in this line of business. Therefore, I hold that the cited cases may be considered as comparable cases as far as the percentage of yield in the manufacturing of zarda is concerned. The average of yield in the cited cases is 91.33% (92.29 + 90.37)/2. Considering the facts (i) There may be slight variation in the percentage of yield depending on the factors of time i.e. from year to year (ii) The use of perfume by direct purchase or by manufacturing in own factory may affect the waste (iii) The processes adopted may vary resulting in variation in production (iv) The quality of raw materials used may also affect the yield and (v) The process of manufacturing of Kimam or its purchase from the market may be a distinguishable feature, especially when the quantity is substantial, I take the percentage of yield @ 90% in the case of the appellant, in all the assessment years under consideration, to take in t....
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....5(3). Even if books are not rejected by the AO, the assessee did not maintain day-to-day record of the production at each stage and even in the appraisal report, the cost of other material etc. have been mentioned. The orders of the Sales Tax Authorities and Excise Authorities are not relevant. The assessee suppressed the sales and rule of consistency should not be applied when facts have been brought on record against the assessee. 15. We have bestowed our careful consideration. In assessment year 2004-05, the AO made addition of Rs. 6,95,66,165/- by alleging suppression of production. The assessee declared percentage of yield of total raw material to finished goods produced at 83.17%. The AO took it at 105.66% and the ld. CIT(A) restricted the same to 90%. In this way, the ld. CIT(A) reduced the addition and granted relief to the assessee in a sum of Rs. 4,26,63,081/- on which the Revenue is in appeal. However, the ld. CIT(A) confirmed the addition to Rs. 2,69,03,083/- on which the assessee is in appeal. The basic reason for making the addition was that the details of consumption at various stages have not been furnished. Therefore, the process is not open to verification and f....
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....ination of the record found that the findings of the AO are incorrect and invalid with reference to the facts analysed by her. The ld. CIT(A) on examination of the record found that the yield of 105.66% is with reference to the consumption of 120.23 of raw materials. The ratio of production shown by the assessee is with reference to the consumption of raw tobacco only. The assessee has not included the consumption of other raw materials. Thus, the finding of fact recorded by the AO against the assessee was found to be incorrect. The ld. CIT(A) thereafter proceeded to decide the yield in the form of end product, i.e. Zarda. submissions of the assessee was called for on the same and after considering the explanation of the assessee, the ld. CIT(A) noted that the A.O. has to evaluate not only the facts available on the records of the assessee but also the surrounding facts to arrive at a decision in the matter. The ld. CIT(A) noted that the A.O. failed to consider two facts important to evaluate the percentage of yield, one, that use of spices and other ingredients, mainly to prepare the flavor & perfume, cannot give yield of equal weight, meaning thereby the residuals & wastes are bo....
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....result in sale to fetch unaccounted income. The appeal of the assessee was accordingly partly allowed and both the parties are in appeals before us. These findings of facts given by the ld. CIT(A) clearly prove that the finding of fact given by the AO against the assessee calculating the percentage of yield was not correct and the AO on mere assumption and presumptions and on distorted figures made huge addition against the assessee by enhancing the percentage of yield. Since the case set up by the AO was not accepted by the ld. CIT(A), therefore, the ld. CIT(A) proceeded to decide the case/issue on the basis of comparable cases only. These facts clearly show that the department has no case for interference in departmental appeal and now we have to consider the merits of the additions sustained by the ld. CIT(A). It is admitted fact that no specific defects have been pointed out by the authorities below in maintaining all the books of account by the assessee. It is also not in dispute that the assessee maintained books of account on the same pattern as have been maintained in preceding assessment years. It is also clear that the AO has ignored actual evaporation and wastage of the ....
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.... ld. /CIT(A) and the order of the ld. CIT(A) has been confirmed by the ITAT, Allahabad Bench vide order dated 07.06.2006. Copy of the order is placed on record at page 345 of the paper book. In assessment year 2002-03 and 2003-04, the AO accepted the percentage of yield at 81.69% and 83.62% under regular assessment orders u/s. 143(3) of the Act. In assessment year 2004-05 under appeal, the AO also accepted the yield of 83.17% u/s. 143(3) dated 19.12.2006 prior to search. PB-387 is the copy of assessment order which is supported by order sheet to show that the AO examined the books of account and all materials before accepting the book results of the assessee with regard to manufacturing / production and the sales. Since the system of accounting regularly employed by the assessee, the correctness of which had been questioned by the Revenue in past and after examination of the records and material produced by the assessee, book results have been accepted on the identical facts by the Revenue Department, therefore, the decision in the case of British Paints India Ltd. (supra) would not apply against the assessee. No case is also made out before us that the percentage of yield shown by....
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....en taken by the AO in the assessment order. Therefore, such powers should not have been used against the assessee without affording opportunity of being heard to the assessee. The authorities below have also considered the statement of partner Shri Kailash Chand adverse in nature who has made surrender of Rs.50 lacs in the assessment year 2010-11, but it is not considered that in his statement, the partner has stated that the books of account are complete in all respect and in anticipation of some discrepancies, surrender of Rs.50,00,000/- is made for the assessment year 2010-11. It was also on account of that the assessee did not reveal the trade secretes. Therefore, the same may not be relevant for assessment years under appeals and could not be said to be adverse in nature to take different percentage of yield. The ld. CIT(A) also noted at page 90 of the impugned order that the AO had worked out the value of suppressed production on the average cost price, but the same is not correct as concealed production would result in sale to fetch unaccounted income. These findings of the ld. CIT(A) also suggest that even part addition sustained by the ld. CIT(A) and the addition made by t....
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....ld be fair. The AO should not act dishonestly or vindictively or capriciously. His knowledge of previous returns, local knowledge, circumstance of assessee are to be considered to arrive at fair and proper estimate of income. Hon'ble Delhi High Court in the case of Aero Club 336 ITR 400 held that the assessment should be on rational basis. Profit margin declared by the assessee cannot be rejected arbitrarily. It is well settled law that taxes should be collected on real income and not on imaginary income. In case of assessee, admittedly, the book results on almost same percentage of yield were accepted in earlier years in scrutiny proceedings by the AO as well as by the Tribunal. Nothing was found against the assessee during the course of search i.e., any excess stock or sales made outside the books of account. Therefore, going by some illogical calculations based on figures provided in the audit report, the AO should not have made huge additions against the assessee, which is also not approved by the ld. CIT(A). Therefore, on mere comparison of cases without bringing adequate material on record, the ld. CIT(A) should not have sustained part addition without considering the princip....
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....ellate order dated 30/09/2013 and the remaining amount of Rs. 19,86,573/- was sustained. Both Revenue and assessee are in appeal in Income Tax Appellate Tribunal, on this issue against the impugned appellate order of the learned CIT(A). 7.1 The learned A.R. for the assessee submitted that in similar facts and circumstances, additions have already been deleted by Co-ordinate Bench of Allahabad Tribunal in assessment years 2006-07, 2008-09 and 2009-10. He drew our attention to the relevant portion of the aforesaid order dated 15/07/2014 of Co-ordinate Bench of Allahabad Tribunal, relevant portion of which is reproduced below: 23. Issue No. 6 (Bogus Purchases): In assessment year 2006-07, the Revenue has raised ground No. 5, challenging the deletion of disallowance of Rs. 16,11,270/- on account of bogus purchases. The assessee claimed before the ld. CIT(A) that the purchase was made from M/s. Cosmo Elmek, Varanasi which was wrongly treated as bogus purchase by the AO. Copy of the account was filed before the AO from the books of account on the invoice, Tin Number, name of the banker, telephone number and payment ITA Nos.358 & 374 to 378/Alld./2014 ITA Nos. 06 to 11/Alld./2014 125....
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.... the order of the ld. CIT(A) in deleting the addition. The assessee has made out a case that genuine purchases have been made from M/s. Cosmos Elmek and the purchases are entered into the books of accounts. The payments are made through bank drafts, which are also entered into the books of account. No material was found during the course of search to prove that it was bogus purchase. The sales made by M/s. Cosmo Elmek have been accepted by the Sales Tax Authorities and was genuine party. The AO merely on the basis of test check and statement of the driver of the vehicle, who was not subjected to cross examination, held the purchases to be suspicious, as the transportation by other vehicle was found doubtful. This itself is no ground to consider the purchases to be bogus. No enquiry has been made in respect to the vehicle used for transportation of goods in this case, i.e., vehicle No. UP 65-P-8308. Therefore, the ld. CIT(A) was justified in deleting the addition. Ground No. 5 of the departmental appeal is accordingly dismissed. 26 Issue No. 7 (Bogus purchases from M/s. Sarita Industries): This issue arises in assessment year 2007-08 in assessee's appeal. The assessee on gro....
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....e purchases have been accepted. It was submitted that this party has PAN and registered with the Central Excise Authorities. The proprietor has filed affidavit confirming the transaction with the assessee. The payments are made through banking channel, i.e., account payee demand drafts. In the statement of Shri Rakesh Narain Gupta, he has confirmed the transaction with the assessee. Merely no commercial vehicle was used or owner of the vehicle was not found at the given address is no ground to make the addition. The ld. CIT(A), however, did not accept the contention of the assessee and on the basis of different use of vehicle for transportation of goods confirmed the addition. 28. On consideration of the rival submissions and the material on record, we do not find any justification to sustain the addition. PB-45 and 46 are the details of the purchases made and payments made through demand drafts and entered into the books of account of the assessee. PB-48 is confirmation made by M/s. Sarita Industries, Kanpur to DCIT for selling their product to the assessee. PB-54 is the statement of Proprietor of M/s. Sarita Industries, Shri Rakesh Narain Gupta in which he has confirmed to have....
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....ek); This issue arises in assessment year 2008-09. On ground No. 3, the assessee challenged the addition of Rs. 4,54,240/- in respect of purchase of perfumery items from M/s. Cosmo Elmek, Varanasi. The Revenue on ground No. 5 challenged the order of the ld. CIT(A) in reducing the disallowance of Rs. 27,59,714/- on the same issue. The assessee challenged the addition of Rs. 27,59,714/- before the ld. CIT(A) in respect of purchase from Cosmo Elmek, Varanasi treated as bogus by the AO. The AO conducted the enquiries with regard to M/s. Sarita Industries regarding use of the vehicle in transportation of the goods. In further enquiry, the AO found perfumes purchased from M/s. Cosmo Elmek Varanasi. The AO obtained the details of use of vehicle for transportation of the goods and found that the vehicle was not commercial. The AO mainly with regard to use of vehicle held the purchases to be bogus. The assessee submitted break-up of the purchase of Rs. 27,59,714/- before the ld. CIT(A), which is noted at page 18 of the impugned order to show that on various dates, the purchases were made through vehicle No. UP 65 AB 8414. This party was assessed to tax and Sales Tax Authorities accepted t....
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....The facts are same as are considered in the assessment years 2006-07 and 2008-09 above. The AO on the bass of use of vehicle inferred that the assessee has made bogus purchase. Bifurcation of purchase was submitted before the ld. CIT(A) to show that vehicle used for transportation was UP 65 AB 8414 and UP 65 Y-3901. The assessee made similar submissions as were made in earlier years. The ld. CIT(A) almost gave the same findings. The ld. CIT(A) found some additions should be duplicate in nature and no enquiry was made in respect of concerned vehicle. However, the ld. CIT(A) maintained the addition of Rs. 33,49,264/- and deleted the remaining addition of Rs. 1,30,88,870/-. Both the parties are in cross appeals. 32. The ld. representatives of both the parties submitted that the issue is same as is considered in the assessment year 2008-09. Copies of the bills etc. and confirmation are filed in the paper book. We, therefore, following the order on this identical issue for the assessment year 2006-07 and 2008-09, delete the part addition maintained by the ld. CIT(A). In the result, the appeal of the assessee is allowed and the departmental appeal is dismissed." He also drew our atten....
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....r surmises and conjectures hence the same is liable to be sponged and no cognizance is to be given for such baseless observations. In view of all the facts of the case and submissions made above the entire discussion, observations and conclusion are totally incorrect an irrelevant for the year under consideration. 2- That in this connection it is necessary to mention here that during the year total purchases of all materials was of Rs. 29,35,87,468.63 out of which purchases to the extent of Rs. 73,16,513/- only as made from M/s Cosmo Elmek was declared as bogus purchase by the assessing officer based on her own presumptions. The percentage of such purchase comes to 2.49% which is an important point for your kind consideration as there was a doubt about purchases to the extent of 2.49% only out of the total purchase, which is of course not a judicious approach and which is negligible percentage. That M/s COSMO Elmek is a genuine and reputed party of Varanasi and deals in purchase and sale of perfumery items. The said party is registered with the Sales tax authorities and their Sales Tax Registration Number is 09183500480 and likewise the party in question is also on income tax r....
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....were also passed in the books. But no doubt has been created by the Assessing Officer about such book entries. In this way during the year, earlier years and in subsequent years payments were made to the party through bank. The assessing officer has not doubted the purchase value and therefore not ascertained the market value of the purchased items. It is not the case of Assessing Officer that there is any mismatch between the item in the invoice and item recorded in books. Even no evidence was brought on record to prove that any expenditure on purchase was made outside the books of account. That even the provision of section 69 of the Income Tax Act was not invoked and before invoking section 69C of the Income Tax Act, the assessing officer must have some material in her possession indicating that assessee has incurred expenditure which has not been entered in the books but in present case no such material has been brought on record by the assessing officer. That the assessee has discharged its primary onus regarding purchase from M/s Cosmo Elmek, Varanasi and now the burden was shifted on the department to rebut the same but the department failed in it. So considering in the ....
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....n-genuine. In the assessment year 2004-2005 total purchase of Rs. 66,40,719.05, in assessment year 2005-2006 total purchase of Rs. 11,70,676.00, in assessment year 2006-07 total purchases of Rs. 16,11,269.75 and in * assessment year 2007-08 total purchases of Rs. 34,04,992.50 from M/s Cosmo Elmek were accepted. In this way according to the two lower authorities M/s Cosmo Elmek of Varanasi is a genuine party in Assessment Year 2004-05 to 2007-08 but in assessment year 2010-2011 the same party on similar set of facts was declared by the two lower authorities as non-genuine, which is wrong and only shows that the two lower authorities were not consistent and fair in considering the facts. The assessee relies on the following decision. (a) 135 Taxman 66 -- (b) 49 ITD 177 (Bom.)- (c) 42 ITD 135 (Delhi) - (d) 77 ITD 71 (Asr.) TM (e) 154 ITR 244 (Pat). 10. That in the course of hearing of the appeal, the CIT(A) called a remand report on the point of purchases and in the compliance to notice by A.O., book, vouchers, invoices were produced before the concerned A.O., who verified the purchases form books and arrived at conclusion at page 18 of CIT(A) order, who reproduced the f....
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....y the Commissioner of Income Tax (Appeals) in appropriate and judicious manner but simply in haste. Even the evidences brought on records were not doubted by the Commissioner of Income Tax (appeals). Therefore the addition made and partly confirmed by the two lower authorities is un-justified and incorrect." 7.2 The learned CIT, D.R. for Revenue relied on the order of the Assessing Officer. 8. We have heard the rival parties and have gone through the material placed on record. The issue is already covered by order dated 15/07/2024 of Co-ordinate Bench of Allahabad Tribunal in which in similar facts and circumstances, the additions on account of bogus purchases were deleted. No distinguishable facts and circumstances have been brought for our consideration to take a view different from the view taken by Co-ordinate Bench of Allahabad Tribunal in aforesaid order dated 15/07/2024. Respectfully following the aforesaid order dated 15/07/2024 of Co-ordinate Bench of Allahabad Tribunal and in view of the foregoing discussion, the relief of Rs. 53,29,940/- given by the learned CIT(A) in the impugned appellate order dated 30/09/2013 is sustained and the addition of Rs. 19,86,573/- sustain....
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....nd not assessee's income. He also relied on the submissions made during the appellate proceedings in the office of the learned CIT(A). The learned CIT, D.R. relied on the orders of the Assessing Officer and the learned CIT(A). 11. Both sides have been heard. The materials placed on record have been perused. The submissions and contentions made by learned A.R. for the assessee have some force. The Assessing Officer and the learned CIT(A) have failed to make a case for the aforesaid addition of Rs. 3,58,05,157/- on the basis of accounting principles and provisions of Income Tax Act. The Assessing Officer is directed to delete the aforesaid addition of Rs. 3,58,05,157/-. 12. In the assessee's appeal there is a dispute regarding addition of Rs. 1,17,90,328/-. The Assessing Officer made this addition towards alleged bogus liability. In the impugned appellate order dated 30/09/2013, the learned CIT(A) confirmed the aforesaid addition of Rs. 1,17,90,328/-. 13. At the time of hearing before us, the learned A.R. for the assessee submitted that similar addition was made in the case of the assessee in earlier years; and the issue was decided by Co-ordinate Bench of Allahabad Tribun....
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....een brought to our attention by either side to distinguish the facts and circumstances of the present appeals before us, from the facts and circumstances in the aforesaid order dated 15/07/2024 of the Co-ordinate Bench of Allahabad Tribunal. Respectfully following the aforesaid order of Co-ordinate Bench of Allahabad Tribunal, we direct the Assessing Officer to restrict the disallowance out of aforesaid heads of expenditure to 5% of the total claim. 16. The last remaining issue in assessee's appeal is regarding the disallowance Rs.3,08,045/- out of freight & cartage (outward) expenses. The relevant portion of the assessment order is at paragraph No. 19, which is being reproduced below for the ease of reference: 17. The Assessing Officer disallowed 25% out of the total claim of Rs. 12,32,181/- observing that the assessee had failed to furnish the details of transporters, name and complete address of the transporters, agreement if any etc. The aforesaid addition has been confirmed by learned CIT(A) in the impugned appellate order, the relevant discussion is at paragraph No. 11 at pages 136 to 143 of the impugned appellate order. 18. At the time of hearing, the learned A.R. for the....