AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (9) TMI 2165
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....e by the AO amounting to Rs. 7,02,58,930/- for the years 2003-04 to 2009-10 treating the statement of MD of the assessee company as unreliable in the absence of any evidence supporting/confirming the modus operandi for sale of scrap. 2. On the facts and the circumstances of the case, the Ld. CIT(A) has erred in ignoring the ratio decidendi in the judgment of the Hon'ble Supreme Court in the case of Surjeet Singh Chhabra Vs. UOI (1986). 3. The order of the Ld. CIT(A) may be vacated and that of the Assessing Officer be restored. 4. The appellant craves leave to add, alter, amend and modify any of the above grounds of appeal." Revenue raised similar grounds in the rest of the appeals and the issue raised in all these 4 appeals relates to the relief granted by the CIT(A) in respect of disallowance on account of sale of scrap vis-à-vis the disclosure made by MD of the company during the search and seizure action. 3. Briefly stated relevant facts of the assessee are that the assessee is a company and engaged in the business of manufacturing of Grey Iron castings, Gate Valves, Mechanical Industrial Clutches, etc. Assessee company is one of the s....
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.... returned by the assessee and proceeded to make the addition of differential amounts as depicted above. AO relied on the contents of Para No. 5 of the assessment order which deals with this issue and the relevant extract for the A.Y. 2006-07 is given below : "5.1 On verification of returns of income for the above assessment years, it is seen that the assessee has offered additional income on account of above partially as against admitted income of Rs .2 Crores. It has offered the income only to the extent of seized chits/slips/vouchers. 5.2 The assessee company vide this office letter (questionnaire) dated was requested to show cause as to why the difference between admitted income of Rs .2 Crores and additional income actually offered in respective return of income should not be added. 5.3 The assessee company has filed its submission on all the points including that of less declaration. The verbatim submission of the assessee on partial offering of additional income is "During the course of search proceedings, the Dept., had found certain paper slips containing indication of sale of scrap and disposals amounting to Rs. 5,11,854/-pertaining to asst. year....
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....in its statement recorded u/s. 132(4) that cash sale of scrap and disposables was not included in the total income. * The assessee company categorically accepts that "both the documents are pertaining to disposals as well as payment vouchers have not been recorded in the books of account". * These were not recorded in the absence of supporting vouchers. 5.7 In spite of accepting the above facts, for which reason the M.D of the company has declared Rs. 2 crores each for 4 A.Ys, declaration is honoured only to the extent of proof seized during the course of search. 5.8 The assessee company's claim that additions can be made only on the basis of cash slips/chits/vouchers of concerned year. The arguments of the assessee are carefully perused and are not acceptable. Inferences are ought to be drawn based on the accepted modus operandi of the person. The assessee is accepting that it has not accounted the sale of scrap which is depicted in the seized papers. Because, there is no other option for the company. The vouchers are signed by Sri Kiran Patil, MD, Sri J.H. Kulkarni, Fin.Controller, cashier, Deptl. authority. These vouchers cannot be brushed....
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....he taxing authorities may base the assessment is not confined to direct testimony by witnesses. It may be reiterated that the word used in s. 143/s. 158BB is evidence. However, in making assessment the AO does not act merely on what is technically described as evidence in the Indian Evidence Act. It is observed from s. 143(3) that the AO can base his assessment not only on the evidence found during the course of the search but also on the material gathered by him. It is now well settled that the AO is not fettered by technical rules of evidence and the like and that he may act on material which may not strictly speaking be accepted as evidence in a Court of law. Such evidence need not necessarily be direct evidence. It may be circumstantial evidence or assessment based on preponderance of probabilities judged by human conduct. For instance, the past history of the case, living style of the assessee and general conditions of the market in the particular trade will constitute relevant material for the purposes of assessment.........................................the power of the AO to make an assessment based on relevant material is also enshrined in s. 143(3). If there is material ....
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....ddition by the AO on this account, the assessee filed the appeals before the CIT(A) for the years under consideration. CIT(A) examined this issue at length and analysed various decisions and eventually deleted the addition giving the following reasons : "3.30 In the appellant's case the seized papers do not reveal any pattern of scrap sold outside the books. There is no correlation between the scrap sold outside the books and the scrap sales accounted for in the books. The AO in asst year 2003-04, 2004-05 and 2005-06 has estimated total sale' of scrap to be about 1% of the turnover. In the asst year 2005-06 as the scrap sales exceeded 1% of the turnover, no further addition was made. In the asst years 2006-07 to 2009-10 the appellant has consistently shown scrap sale @ more than 1% of the turnover. The AO has given no reasons as to why he has estimated the scrap sale of these asst years at more than twice the estimate for the earlier years. If the AO follows the same rate of 1% of total turnover, the scrap sales accounted for in these asst years are much better than that and no addition would be required even on estimate basis. 3.31 Even if estimate of inc....
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....ing vouchers etc. The cash was admittedly paid to meet with urgent requirements such as travelling expenses etc. Full details regarding the purpose for which the cash was paid is not known. The seized vouchers are for different dates and the dates are not continuous. In a few cases there are many vouchers altogether for many days in between. From the seized vouchers no presumption can be made about periodicity of cash payments. 3.27.2 The source of the cash paid as per these vouchers can be presumed to be out of unaccounted sale of scrap. In such a scenario, whatever cash was generated and paid to the MD or other employees as per the seized vouchers has been disclosed in the returns. 3.27.3 Further there are a few chits showing scrap sales which is not accounted in the books. The appellant has offered the total sum of slips and cash vouchers as his additional income in the returns filed in response to the 153A notice. Thus unaccounted scrap sales are totally disclosed and offered to tax. There is nothing in the seized material or on the records to show that certain amount of scrap must have been sold every day outside the books. Further the appellant has shown sub....
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.... scrap sale was kept outside the books, has been found recorded the seized slips. No unexplained investments or expenditure have been found during the search. Therefore, in totality of facts no extrapolation of scrap sale is required or practical on the basis of few slips seized indicating unaccounted sales. .................." 7. Aggrieved with the above relief granted by the CIT(A) on this issue, the Revenue is in appeal for the 4 assessment years under consideration raising the aforesaid grounds. 8. Before us, Ld. DR for the Revenue brought our attention to the facts of the case as well as the decisions of AO/CIT(A) and submitted that the assessee offered the additional income of Rs. 2 crores per year for all the 4 assessment years and read out the relevant questions and answers in this regard. He also submitted that the relief granted by the CIT(A) is required to be reversed. 9. On the other hand, Ld. Counsel for the assessee furnished the following written submissions : "3] According to the learned A.O., the assessee should have adhered to the declaration made at the time of search and irrespective of the actual evidences found, he has held tha....
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.... basis of the statement recorded has been held to be invalid in law - a. Pullangode Rubber Produce Co. Ltd. v. State of Kerala & other [91 ITR 18 (SC)] b. Kailashben Manharlal Chokshi v. CIT [328 ITR 411(Guj H.C.)] c. Dhanvarsha Builders & Developers P. Ltd. v. DCIT [102 ITD 375 (Pune Trib)] d. CIT v. Ashok Kumar Soni [166 Taxmann 371 (Raj H.C.)] e. M. Narayanan & Bros v. ACIT [339 ITR 192 Mad H.C.)] f. ACIT v. Janak Raj Chauhan [102 TTJ 316 (Asr Trib)] g. Maheshwari Industries v. ACIT [81 TTJ 914 (Jodh Trib)] h. Jyotibhaichand Bhaichand Saraf & Sons P. Ltd. V. DCIT [139 ITD 10 (Pune Trib.)] i. M/s. Avishkar Infrastructure Pvt. Ltd. V. DCIT [7165/Mum./2011] 7. In view of the above decisions and the facts of the case, the assessee submits that the learned CIT(A) is justified in deleting the addition made by the learned A.O." 9.1 Further, Ld. Counsel for the assessee submitted that to the extent the seized material is available, assessee duly offered the undisclosed income. Regarding the disclosure of Rs. 2 crores per year, Ld. Counsel submitted that the said disclosure is given when there is....
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....) as my additional unaccounted income in equal proportion for the financial year 2005-06, 2006-07, 2007-08 and current financial year 2008-09, over and above my regular income. Question No. 9 : Please give the details of investment in Bungalow and land at Rajaram Talav where you are residing with your family. Answer : The land was purchased by Company in 1998 and Bungalow was constructed in the year 2007-08. The cost of construction is Rs. 83,60,561/- and the details of investment in the land will be submitted lateron. Question No. 10 : I am showing you the P & L Account of Ghatge Patil Industries Ltd. as on 31/3/2008 annexed at page No. 8 of Bundle No. A-8, showing the Net Profit of Rs. 11,25,14,273.29. Please confirm the same. Answer : Yes, I do confirm the same and the same will be offered for taxation as may regular income for AY 2008-09 subject to computation of income. I also confirm that the additional income of Rs. 2,00,00,000/- ( Rs. Two Crore) over and above my regular income for AY 2008-09. Question No. 11 : I am showing you the income and expenditure statement of Ghatge Patil Industries Ltd. for the period 1/4/08 to 12/09/08 ....
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....gned addition is in accordance with law or not. The law in this regard has already been described in the above part of this order and reference can be made to the decision of Hon'ble Telangana & Andhra Pradesh High Court in the case of Gajjam Chinna Yellapa vs. ITO (supra), where their Lordships have observed that in case statement is retracted then totally different consideration altogether will ensue and the situation would resemble to section 164 of the Code of Criminal Procedure. The evidentiary value of retracted statement become diluted and it loses its strength to stand on its own. In that case Assessing authority has to garner some support to the statement [or passing an order of assessment. It. is also held that retracted statement would not put an end to the procedure, then the AO is under an obligation to support his findings on the basis of other materials and if he does not have such material then it would reflect upon the very perfunctory nature of the survey. For holding so their Lordships have referred to the aforementioned circular dated 10/3/2003, wherein CBDT has clearly given the mandate to the officers that during the course of search, seizures and survey n....
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....ing sale and expenditure incurred on the impugned project and AO could not point out any defect in those particulars submitted by the assessee. Thus, the addition is made simply on the basis of statement recorded during the course of search and is not supported by any material. In view of case law relied upon by Ld. AR, the addition is not sustainable and is deleted." The above extract from the Tribunal supports the view that the statement recorded during the search and seizure action in the absence of any independent and corroborating/incriminating material is not to be relied upon. Assessee offered the undisclosed income to the extent the corroborating evidences were seized. It is not the case of the AO that total sum of Rs. 8 crores is backed up by such incriminating material. Considering the above, we are of the opinion that factually the assessee offered the income to the extent the seized material was available and not otherwise. AO's attempt to make the differential amounts of undisclosed strictly relying on the sworn statement of Mr. Kiran Patil, MD of the company is unsustainable considering the written submission of the assessee and the order of the Tribunal in t....
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.... to add, alter, amend and modify any of the above grounds of appeal." 13. Regarding the issue relating to the DVOs-report linked addition, relevant facts are that the assessee constructed a bungalow and the investment in the land and the said building was an area of enquiry during the search and seizure action. The statement from Mr. Kiran Patil, MD of the company was recorded. Facts relating to this building agreement include that the said land was purchased in 1998 and the building thereon was constructed in 2007-08. The cost of construction of the building is Rs. 83,60,568/-. Assessee promised to furnish the cost of purchase of land and the same never happened. Accordingly, the property was referred to the DVO for valuation u/s. 142 A of the Act. DVO submitted the report and estimated the cost of construction at Rs. 94,84,215/- and the difference works out to Rs. 11,23,557/-. When the said differential amount was apportioned among the assessment years 2004-05 to 2009-10 u/s. 69B of the Act, the a sum of Rs. 3,20,011/- pertains to the year under consideration Rs. 2,63,550/- for the A.Y. 2007-08 and Rs. 2,03,646/- for the A.Y. 2008-09. Relying on the said estimation of the DVO,....
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....the order is enclosed herewith. Accordingly, the addition made may kindly be deleted. 15. We heard both the parties on this issue of cost of construction of bungalow on the basis of DVO's report. We have also perused the order of Tribunal in the assessee's own case in ITA No. 1069/PUN/2016 for the A.Y. 2004-05 where similar was allowed in favour of the assessee relying on the order of Tribunal for the A.Y. 2005-06. We proceed to extract the finding given by the Tribunal here as under : "19. Both sides heard. The solitary issue raised by the assessee in appeal is against confirming addition of Rs. 28,621/ - on account of difference between cost of construction of bungalow as declared by assessee and value as determined by the DVO. We find that identical issue was raised by the assessee in ITA No. 1332/PUN/2014 for assessment year 2005-06 before the Tribunal. The Tribunal deleted the addition by observing as under: "10. The first issue which arises in the present appeal is jurisdictional issue that in the case of search proceedings where no incriminating documents were found, can the addition be made in respect of assessment proceedings, which had not abated. The....