TaxTMI 
TaxTMI 
TaxTMI 
2018 (9) TMI 2165
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 sister concern of Kiran Patil Group. Assessee company filed the return of incom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 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 06-07. Similarly, the Dept had found cash payment vouchers amounting to Rs. 95,65,428/- pertaining to the above asst. year. The slips indicating cash sale of scrap and disposables was not included....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hers 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 aside without any reason. The evidences found and seized during the course of search are only indicative evidences. The offering of income by the assessee only to that extent is not at all acceptable. Because of search operations, these evidences have come to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 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 on record to establish that the assessee has charged on money in regard to land deals which is not recorded in the regular books of account, it is permissible for the AO to make an assessment on the basis of such material. The AO might not get the entire material in regard to the u....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 income is justified in a particular case, the quantum of estimate cannot be arbitrary. The quantum should be based on relevant facts. In the appellant's case the AO has based the asst on a retracted statement which is not the same as an assessment based on the AO's estimation. Further the AO has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 substantial sale of scrap in the regular books of accounts. The scrap sales shown by the appellant in his books in different years are as under : Sr. No. Fin Year Turnover in lakhs Scrap sales in lakhs % 1 1998-99 5982.52 55.84 0.93 2 1999-00 6427.21 107.66 1.68 3 2000-01 6367.36 59.43 0.93 4 2001-02 6642.05....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ounds. 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 that the assessee should have offered Rs. 2 Crs each for A.Ys. 2006-07 to 2009-10. Thus, the learned A.O. has made the addition by considering the declaration made of Rs. 2 Crs. and after reducing the income on account of loose papers I vouchers offered by the assessee in its return filed u/s. 153 A. In nutshell, the learned A.O. has held that the addition is warranted on the basis of the statement of Shri Kiran Patil. 4] The learned CIT(A) has discussed this issue in para 3 to 3.32 of his order. According to him, there i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tibhaichand 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 no specific material and the disclosure is given on estimation basis. Such estimations in either way is not bonafide. Therefore, the addition made by the AO sincerely relying on the statement of assessee given u/s. 132(4) of the Act is unsustainable. In support of the said retraction of the statement of assessee, Ld. Counsel relied on various decisions including the decision of the Mumbai Bench of the Tribunal in the case of M/s. Avishkar Infrastructure Pvt. Ltd. Vs. DCIT - ITA No. 7165/Mum/2011, dated 17-06-2015. He brought our attention to Para No. 6.1 to 6.3 of the order of Tribunal and submitted....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 showing the profit at Rs. 4,61,69,920.13 annexed at page No. 27 at Bundle No. A-7. Please confirm the same. Answer : Yes I do confirm the same and the profit will be offered for taxation for AY. 2009-10 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 2009-2010. Question No. 12 : In your statement vide reply to Question No. 8 you have offered additional unaccounted income of Rs. 8,00,00,000/- ( Rs. Eight Crore only) as under: F.Y Additional income offered (in Rs.) 2005-06 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etracted 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 no attempt should be made to obtain confession as to the undisclosed income and such instructions to CBDT were applicable when the search and seizure was made and assessment was framed. CBDT has further mandated that in respect of pending assessment also AO should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing relevant assessment order. The addition made in the present case is contrary to the aforementioned decision of Hon'ble Telangana & Andhra Pradesh High Court as well as aforementioned circular of CBDT as the assessment is entirely based upon the statement recorded during the course of search and no independent material has been brought on record by t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 the case of M/s. Avishkar Infrastructure Pvt. Ld. (supra). Therefore, we hold that the relief granted by the CIT(A) in his order is fair and reasonable and it does not call for any interference. Accordingly, the common ground raised by the Revenue in the grounds of appeal has to be decided against the Revenue and in favour of the assessee. 11. In the result, all the 4 appeals of the Revenue are dismissed. ITA Nos. 1070 to 1072/PUN/2016 - By Assessee A.Yrs. 2006-07 to 2008-09 12. In all the 3 appeals by the assessee, couple of issues are raised (i) relating to addition based on DVOs report; and (ii) the allowability of depreciation on the building occupied by Mr. Kiran Patil, MD of the company. The first issue is common in all the 3 appeals an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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, the AO invoked the provisions of section 69 of the Act and added the said amount as undisclosed income of the assessee. 14. Before us, Ld. Counsel for the assessee brought our attention to the figures and submitted that the estimated cost of construction of Rs. 94,84,215/- against the disclosed sum of Rs. 83,60,568/- constitutes the difference which works out to merely 13.43%. In this regard, Ld. Counsel for the assessee relied on various decisions to demonstrate that the difference in estimations need to be ignored when the difference merely works out to less than 15% of the accounted values. Ld. Counsel relied on the order of Tribunal in the assessee's own case in ITA No. 1069/PUN/2016 and connected appeals for the A. Yr. 2004-05 decided on 31-08-2018. Further, Ld. Counsel fi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 second issue which is arising is that where the difference in the valuation is about approximately of Rs. 11 lakhs which works out to 13.43% and where the DVO has failed to give the benefit of deduction under self supervision and had also applied CPWD rates as against the prescribed rates of PWD rates, can any addition be made in the hands of assessee. We find merit in the plea of assessee in this regard. The total addition made in the instant assessment year was only Rs. 85,988/ - and difference shall stand reduced in case the rates of PWD for construction are applied as against the DVO applying the rates of CPWD and further, the assessee is entitled to the deduction in value on account of self supervision. In the totality of the above said facts and circumstances and in view of the difference being about 13.43%....