TaxTMI 
TaxTMI 
TaxTMI 
2004 (9) TMI 719
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....nbsp;1,38,73,032, which comprised of the following items : The assessee in first appeal, contested the determination of undisclosed income in relation to items at (a) and (c), above. The CIT (A) though confirmed the action of the AO in determining the undisclosed income in relation to oil gain, estimated such gain at 1 per cent as against 2 per cent adopted by the AO, and thus, gave relief in the matter of quantum. As for the item at (c) above, the CIT (A) confirmed the addition of Rs. 5,25,000 made by the AO in that behalf. 3. While the Revenue filed its appeal, IT(SS)A No. 158/Mum/2002 aggrieved by the relief granted o by the CIT(A), assessee preferred appeal IT(SS)A No. 169/Mum/2002, aggrieved by the additions sustained by the CIT(A). 4. Let us first consider the addition on account of alleged 'oil gain', which is the subject-matter of both these appeals. 5. Assessee is in the business of manufacture of dyed texturised yarn and twisted yarn. The raw materials used for the purpose of texturising is partially oriented yarn (POY), which is purchased from companies like M/s Reliance Industries Ltd./M/s Grasim Industries Ltd., M/s Parasrampuria Synthetics ....
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....ght gain due to dye addition to the fabric depends on the depth of shade which is produced. Thus, in normal practice it is known to vary from 1 per cent to 3 per cent. (4) The waste generated during various dyeing processes including preparatory process may be in the range of 0.5 per cent to 2 per cent. (5) Twisting does not involve processes which leads to any significant change in weight, provided no oil is applied before twisting. (6) The wastage generated in two for one twister may range between 0.8 per cent to. 1.2 per cent." The above information was qualified by the scientist, stating that the figures given are based on standard norms, literature available and experienced, and actual values may differ significantly depending on specific material, machinery and men involved. 6. The assessee, from its side, furnished certificates issued by chartered engineers, Shri Vilas J. Bardapurkar and Shri A.G. Lakkimar, according to whom, there cannot be any oil gain in dyed yarn and instead there can be some weight loss, Shri Lakkimar has also confirmed that in the process of twisting, there is possibility of loss of weight to the extent of oil applied to the yarn in the previou....
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....ned Order did not entertain and admit the additional evidence sought to be adduced by the assessee. The CIT (A) agreed with the learned counsel for the assessee that the statement of employees of Santogen Silk Mills having different offices as well as different factory units, having nothing to do with the assessee-company cannot be relied upon. He however, rejected arguments of the assessee for rejecting the validity of relying on the statement of Shri N.P. Deora, director, who is commonly involved in the assessee as well as others. 9. Dealing with the merits of the matter in the light of the seized material, the CIT (A) observed that in any manufacturing process of this nature, existence of oil gain is an accepted phenomenon, and there is nothing in the fact that the presence of oil gain is a part and parcel of the texturised yarn produced by the appellant. Taking note of the fact that the assessee has been continuously engaged in the manufacturing/processing activity for several years since its inception, the CIT.(A) observed that the noting in the seized documents suggests the existence of oil gain in the finished product and it was further clarified and confirmed by Shri N.P. ....
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.... sale transactions, and the search has not unearthed any material, which revealed any sale which has occurred, but not recorded by the assessee. In the circumstances, it is pleaded that there is no justification for any addition on account of oil gain He also submitted that the observations of the AO as to the oil gain, are based on the statements of employees and director of Santogen Silk Mills Ltd. and not of the assessee, M/s Santogen Textile Mills Ltd. He submitted that though the method of texturising is universal, as the men machinery and also the purpose of manufacture involved is different from company to company, based on such third party statements, no inference can be drawn as to presume any oil gain derived by the assessee. In support of this proposition, he also invited our attention to the last para of the general report of SASMIRA, obtained by the Department itself for making the impugned addition, wherein it qualified its report stating that the figures given therein were based on standard norms, literature available and experience, and actual values may differ significantly depending on specified material, machinery and men involved. At this juncture, he also invit....
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....xchanged with the Department and submissions made before the lower authorities, it is pleaded that the impugned addition sustained by the CIT (A) is unjustified and uncalled for and the same should be deleted. 12. The learned Departmental Representative, on the other hand, besides countering the above submissions of the learned counsel for the assessee, strongly supporting the Order of the AO, has submitted that the AO has made out a clear-cut case, whereas the assessee has suppressed the oil gain derived by it in the course of its manufacture/processing, and consequently, the addition made by him is perfectly justified. The director of SSML, whose evidence was relied upon, was also director of the assessee-company, and since the statements of the employees of even SSML throw light on the existence of oil gain in assessee's nature of business. Such evidence gathered in assessee's own group of concerns, can be taken as circumstantial evidence relevant to the assessee and acted upon. He also submitted that evidence gathered even from a third party can be taken cognisance of and acted upon, in a block assessment, if it has relevance and application to the facts of the case of....
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....;, that is generally derived in assessee's line of business, by relying on various material, including the statements of various employees and director, Shri N.P. Deora, of Santogen Silk Mills Ltd., who also happens to be the director of the assessee-company. This view of the AO as to existence of general phenomena of oil gain, is further strengthened by the information in the form of general report obtained by him from SASMIRA, an independent research organisation at Mumbai. Proceeding on the basis of the said view, the AO concluded that there has been incriminating evidence to suggest that presence of oil gain in the texturised yarn is not properly taken into account by the assessee. But for this view nursed and strengthened by the AO, as to the existence of 'oil gain' in the process of texturising, etc., there is no material, found at the time of search, to justify the impugned addition. Thus, there is no nexus between the search or the material found at the time of search, and the 'oil gain' claimed to be a universal phenomena in the line of assessee's business. When oil gain is claimed to be a universal phenomena, if the assessee has not properly taken ....
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....ditional evidence file before the CIT (A) which was not admitted, test reports issued by the SASMIRA itself dt. 7th Feb., 2001 and 27th Feb., 2001, based on the samples submitted by Suresh Synthetics, to dispute the 'oil gain' claimed to have been derived by it, but not accounted for in its books. 14. Further, the so-called oil gain, itself is a matter of estimation, and based on such estimation of oil gain, further estimation of value of excess production in relation to oil gain has to be worked out. There is limited scope for estimated additions in a block assessment. In the absence of any incriminating material to suggest either 'oil gain' derived by the assessee, or production or any transaction of purchase or sale made by the assessee outside its books of account, found at the time of search, there is no justification to make any addition on that count. In this view of the matter, the case law relied upon by the Revenue has no application to the facts of this case. 15. In the circumstances, we set aside the Order of the CIT (A) on this issue, and delete the entire addition made by the AO on account of oil gain. Consequently, assessee's contentions on this....
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..... 19. The learned counsel for the assessee, reiterating the contentions urged before the lower authorities, submitted that the stand of the assessee all along has been that the papers received by fax did not relate to the assessee, and the assessee has done all that in its control to establish this fact, and the party to whom the papers belonged has not only owned up the same and the transactions contained therein, and has even identified itself by furnishing the PAN number and the AO in whose jurisdiction its assessment lies. In the circumstances, it is pleaded that the impugned addition is unjustified and uncalled for, and the same should as such be deleted. 20. The learned Departmental Representative on the other hand, strongly supported the impugned orders of the lower authorities, and submitted that the assessee has not discharged the onus that lay on it, and consequently, the addition correctly made in its hands deserves to be upheld. 21. We have considered the rival submissions and perused the material on record. In the instant case, the plea of the assessee all along has been that the papers received at the time of search by fax do not relate to it at all. Disbelieving t....