TaxTMI 
TaxTMI 
1997 (4) TMI 104
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....sp; Rs. 34,71,505 2. Inflation of consumption of other raw-materials Rs. 8,74,391 3. Suppression of production: Rs. 20,00,000 ------------- Rs. 63,45,896 ....
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....ises of the assessee and residential premises of the partners from 13-11-1987 to 15-11-1987 during the course of which certain discrepancies were found in the stock and the assessee made a disclosure of Rs.40 lacs. Further, the Assessing Officer, at the request of the assessee, visited the factory premises of the assessee along with his Inspector on 20-2-1989 when the entire process of manufacture of chewing tobacco was demonstrated before him and explained. The Assessing Officer noted that the assessee was not declaring the correct position about the consumption of various raw-materials like silver-foils and other materials. He has summerised his observations as under: "(1) Raw-tobacco bags were not weighed, when issued from R-G-12 Excise record, but standard weight of 40 Kgs. per bag was adopted. (2) After sieving the raw tobacco, neither the powder tobacco nor tobacco-patti is weighed. (3) Fixed quantity of Masala & Menthol per bag of raw-tobacco are added to a bowl, but no record is maintained for the Masala or Menthol used during the day. (4) Fixed quantity of perfume compound measured by standard container is added to the bowl for each bag of raw tobacco. No recor....
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....e is applied to the 15 Kgs. mixture which is being packed and the tobacco contained comes to 12.73 Kgs. This means that according to our analysis details above 120 grams silver varakh is added to 12.73 Kgs. of tobacco contained in 15 Kgs. of mixture giving a silver consumption percentage of 0.94265 with respect to tobacco. This is in contrast to the percentage at 1.13 claimed by the assessee." He did not find any change in the quantity of silver foil normally added to the mixture. The consumption of ratio of raw-materials was taken at 0.94% during the assessment year 1985-86 and worked out excess consumption of silver-foil to the tune of 749.785 kgs. and made an addition of Rs.34,71,505 as per the following computation: "1. Raw tobacco consumption shown by the assessee 3,25,991 Kgs 2. Silver-foils consumption as percentage of the above &....
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....sessment year 1986-87. 13. The third major addition made by the Assessing Officer relates to suppression of production. He has discussed this issue in para 8.1 of his order. The Assessing Officer noted two types of shortages during assessment year 1985-86 as follows: 1. Wastage of raw tobacco 10,809 Kgs. 2. Difference in production 14,416.300 Kgs. The Assessing Officer accepted the wastage of raw tobacco of 10,809 Kgs. in the nature of wasted tobacco which could not be used. However, according to him, the wastage during the manufacturing process was on the higher side. He restricted the same to 4,416.300 Kgs. and made an addition of Rs.20 lacs (10 X 200) for excess shortage observing as under: "At the time of my visit to the factory on 20-2-1989, it was observed that the shortage due to the above processes was very limited and cannot exceed 4,416.300 Kgs. even by the most liberal estimate. The suppressed production, therefore, works out to 10,000 Kgs." 14. On th....
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....eckup by the Excise Authorities. I, therefore, uphold the addition of Rs.20,00,000 in relation to the extra production not declared." 18. Shri M.S. Rai, the learned DR drew our attention to para 3.1 of the ITO's order and submitted that the Assessing-Officer has gone step by step and has rightly held that there was inflation in respect of use of silver-foil and other raw materials and the shortages claimed by the assessee were excessive. He submitted that during the course of search at the business premises of the assessee and residential premises of the partners from 13-11-1987 to 15-11-1987 showed the existence of excess stock and the results of the raid cannot be ignored/brushed aside. He submitted that the assessee was indulging in inflation of various ingredients used in the process of manufacturing of chewing tobacco and the manufacturing process being the same the results of the search-year are very important as guide for the additions made by the Assessing Officer during the years under appeal. He further relied upon the fact that the Assessing Officer visited the factory premises of the assessee on 20-2-1989 and saw/verified for himself various stages of the manufacturi....
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....assessee has been engaged in the manufacture of chewing tobacco since 1964 and all through it has maintained an accepted history. The learned counsel further submitted that consistently both as to raw materials and finished products, the Excise Laws are applicable and the assessee is regularly maintaining different prescribed registers showing full particulars of purchase, consumption stock, output etc. of the said raw materials as well as the finished products. Complete excise records were produced before the Assessing Officer by way of xerox copies and in this connection he drew our attention to the following submissions made before the CIT (Appeals) as contained in the statement of the case: "The only ground for these proposed additions were non-production of excise registers and non-maintenance of quantity records at different stages of mixing and also on the ground that tobacco was found in less quantity at the time of search in 1987. Reply to the show-cause notice was given and Excise records were also produced along with the books at the time of hearing from time to time. Xerox copies of the Excise records were also given before the assessment order is passed. In the show....
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....ng to him, the same being clinching evidence in favour of the assessee could not have been ignored. The learned counsel further submitted that all purchases and sales were duly vouched and shortages at different level prove to be normal mode of measurement, weighment etc. at different steps is the same as in the past. The learned counsel further submitted that the evidence in the form of statement of employees is not relevant as they were recorded after several years and they were not cross-examined either in the course of proceedings under section 132(5) or were presented for chief-examination etc. in the course of proceedings under section 143(3). Similarly, the panchas, though requested, were not examined in section 132(5) proceedings or thereafter. 21. As regards the additions on account of excess shortages during the two years under appeal, the learned counsel for the assessee submitted that the shortages are proved to be normal taking into account the shortage of the preceding year for which full details were given before the Assessing Officer and the CIT (Appeals). He submitted that in the immediate preceding year i.e., assessment year 1984-85 the overall shortage was cla....
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....accepted by the CIT (Appeals) in the fifth year and the same could not have nexus with the present two assessment years under appeal. The mere stigma of search and seizure carried on after a long lapse of time from the close of the two assessment years under appeal cannot be the basis for the impugned additions when the assessee placed all facts/ evidence with regard to the business carried on by it during the two years under appeal. 24. The second base for making the impugned additions is the observations and the impressions gathered by the Assessing Officer when accompanied by his Inspector who visited the factory premises of the assessee on 20-2-1989. Obviously, the visit was paid after a long lapse of time from the close of the accounts of the two years under appeal and search operations carried on from 13th to 15th November, 1987. The Assessing Officer spent a few hours at the business premises of the assessee and observed manufacturing process and thereafter he has invented certain tailor made formulae like the one i.e., that there should be uniform consumption of 0.94% of silver foils and that the assessee had inflated raw materials (other than tobacco and silver foils) b....
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....axable income the ITO did not adopt any method or basis and he was not acting according to the provisions of the statute." Further, in the case of Jhandu Mal Tara Chand Rice Mills v. CIT[1969] 73 ITR 192, the Hon'ble Punjab & Haryana High Court has held as under: "The accounts of the assessee were accepted in all years up to and inclusive of 1957-58 but in 1958-59 the ITO rejected the accounts and applied the proviso to section 13 on the grounds that no day to day dryage register had been maintained and that in another case the yield proposed to be adopted by him was held to be reasonably by Tribunal, and added Rs.32,053 to the income disclosed by the assessee. The Appellate Assistant Commissioner on appeal, confirmed the applicability of the proviso to section 13 but reduced the addition to Rs.15,000. The appeal to the Tribunal was dismissed. On a reference-- Held (1) that the method of accounting adopted by the assessee having been accepted by the department in the previous years and the income computed on that basis, there were not sufficient grounds for applying the proviso to section 13 to the facts of the case. (2) that even assuming that the proviso was attracted....
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....must have said that the proportion is the same for all the years. The Revenue wanted to have further clarification from him and question No. 68 was put to him which is as follows: Q. 68. I am again showing to you the statement of Pravinbhai Naranbhai Shrimali. You peacefully read this statement. In question No. 3 of this statement, Shri Pravinbhai has stated that you are mixing in tobacco the masalas, perfumes, Glycerin and other mixable item and on 15 Kg. of tobacco in No. 135 product, 16 folds i.e., 120 gms. silver foil using. Is it true? A. 68. The statement which is shown to me, they are doing work of opening the foil and they are not doing this work. I do not agree with it. From the above answer given by Shri Nanubhai it can be seen that he has categorically mentioned about his disagreement with the statement of Pravinbhai and so the conclusion drawn by the Assessing Officer from the statement of Nanubhai is factually not correct. It is further noted that Pravinbhai and Baldevbhai both have admitted in their statements that they were merely opening varakh (question No. 2 in the statement of Baldevbhai and question No. 5 in the statement of Shri Pravinbhai). Further bo....
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....bsp; 11 90 gms. 5. 460 11 90 gms. -------------------------------------------------------------- The selling rate of each brand is as under: ---------------------------------------------------- Quality 16/1/1984 26/9/1984 No. Rs. Ps. Rs. Ps. ---------------------------------------------------- 135 100-65 &nb....
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....not correct so far as the consumption of silver foil in relation to 15 Kgs. container. The container which the assessee was using is not of 15 Kgs. but is of 12.6 Kgs. and this was pointed out to the ACIT at the time of his visit to the factory of the assessee and he was also asked to take note of the same but he did not deliberately mention the same in the assessment order. This is clear from the reply to show-cause notice submitted to the Assessing Officer. Further, the Assessing Officer ignored the consumption of silver foil which were actually found from the register found from the cupboard of the assessee's residence and which tallies with the books of account. This register which is seized material is a vital piece of evidence and cannot be ignored. It is noted that consumption of silver foil in assessment year 1984-85 as mentioned. in the seized paper is 1.22% which has been accepted as correct by the Revenue. When the department accepts the consumption of silver foil at the rate of 1.22% in assessment year 1984-85 i.e., in the immediate preceding year the Revenue cannot blow hot and cold and fix an uniform rate of consumption of silver foil at 0.94%. We also find that the a....
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....es. 29. Coming to the additions on account of excess shortage claimed by the assessee we find some merit in the case of the Assessing Officer. But in our view, the additions of Rs.20 lacs and Rs.24 lacs made by the Assessing Officer for two assessment years 1985-86 & 1986-87 respectively and confirmed by the CIT (Appeals) are on the higher side. As stated above, the assessee claimed two types of shortages viz. a shortage of 10,809 kgs. of raw tobacco. This shortage has been allowed by the Assessing Oficer. The other shortage claimed was during the process of manufacturing which was claimed at 14,416.300 Kgs. This gives a percentage of 3.6%. This shortage was during the course of manufacturing process by way of evaporation of different ingredients and raw materials wasted at the stage of packing etc. and handling etc. The Assessing Officer considered this type of shortage as excessive and allowed only 4416.300 Kgs. as reasonable shortage which comes to 1.1% only and worked out 10,000 Kgs. as suppressed production and by applying rate of 200 Kgs. as reasonable shortage which comes to 1.1% only and worked out 10,000 Kgs. as suppressed production and by applying rate of 200 Kgs. mad....
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....r, Accountant Member in these Cross Appeals of revenue and the assessee relating to assessment years 1985-86 abd 1986-87 and had discussed the matter in detail relating to certain additions made by the Assessing Officer (hereinafter referred to as Assessing Officer) in both the assessment years and deleted/confirmed by the ld. CIT (Appeals) and after two-three sittings with learned Brother, I was not able to convince myself with the findings arrived at by him on those additions and thus I am writing this dissenting order. 34. As mentioned in the draft order, the Assessing Officer has made the following additions in assessment year 1985-86:-- 1. Inflation of consumption of silver-foils: Rs.34,71,505 2. Inflation of consumption of other raw-materials: Rs. 8,74,391 3. Suppression of production: &n....
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....sp; ------------- Rs. 72,03,633 ------------- 37. As earlier, the ld. CIT (Appeals) deleted the first two additions and confirmed the addition of Rs.24,00,000 at item No. 3. The revenue is in appeal against the deletion, while the assessee has come in appeal against confirmation of Rs. 24 lakhs. The assessee has also raised some minor grounds in its appeals ....
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....assessee requested the Assessing Officer to pay personal visit to its factory to have a personal inspection of the process of manufacturing of different types of Jafrani Patti, but the assessee was not obliged by the Assessing Officer till the end of proceedings under section 132(5) of the Act. However, the Assessing Officer visited the factory of assessee on 20-2-1989 at the instance of assessee and was witness to the existing demonstration of entire process of manufacturing o chewing to acco which was also explained to him. After that the Assessing Officer served two letters dated 21-2-1989 and 1-3-1989 on the assessee calling it upon to produce Excise Record showing opening stock of raw tobacco, receipt of raw tobacco and issue in assessment year 1985-86 and further Excise Record showing production of various products in that year alongwith produce wise consumption of various raw materials in that year. The Assessing Officer observed that assessee failed to produce the said record and a show-cause notice dated 7-3-1989 was issued to the assessee proposing the following additions:-- 1. Inflation of consumption of raw material @ 5% of the value of total  ....
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....bsp;7,41,632 6. Glycerine 25,427.300 7.80% 8,39,101 7. Kesar 40,750 0.0125% 4,07,500 Total --------------- ---------- -------------- consumption: 3,95,370.100 3,90,30,725 ---------------- ----------- -------------- --------------------------------------------------------------------- 40. After going through the figures from File A-10 and on the basis of his observations at the visit of factory premises of assessee, the Assessing Officer was of the....
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....985-86, the Assessing Officer concluded that assessee has inflated consumption of silver foils to the extent of 749.785 Kgs. and valued at Rs.34,81,505 which was added to the income of the assessee for assessment year 1985-86. 41. On the same circumstances, the Assessing Officer made an addition of Rs.36,33,684 value of 730.242 kgs. of silver foil in assessment year 1986-87. 42. Both these additions were assailed through two appeals and the CIT (Appeals) heard both the appeals together. The assessee took several legal as well as factual pleas. It was contended by the assessee-firm that in view of the reasoning of Hon'ble Supreme Court in the case of C. Velukutty the Assessing Officer was not justified to base his conclusion on the result of search and seizure which took place in November, 1987 which was much after the previous year under assessment was over. In the same way inspection of the factory was made by Assessing Officer in February, 1989 just after 4 years of said search and that was also not to be relied upon by the Assessing Officer. The other legal point was that the Assessing Officer wrongly placed reliance on the statements of employees of assessee who were not ....
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....in so many years. However, the ld CIT (Appeals) deleted this addition with the observation as under: "However, the ACIT has not made out a case that there was inflation of consumption in relation to the production and to the extent of inflated value there was ficticious debate to reduce the profit. It has rather been found out that such excess stocks were found on physical checkup which too reflect that they must have been accounted for. It is not the case of the Officer that there was extra investment in the extra silver foils. The inflation of extra consumption of silver foils if duly accounted for would only result in extra production for which the addition has been separately made. There is also force in the contention of the appellant that the variation may be because of the variation in the weight in terms of quantity as per tin and due to uniform application of consumption of silver foil to all brands of tobacco, which need different ratio and mixing of silver foil as already evidenced by the statement of brandwise mixing reproduced in para 6. In view of the aforesaid inference which can reasonably be drawn from the facts given above, there is no case of addition on accou....
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....lained by assessee. He further submitted the past history of the assessee-firm and acceptance of its book results since assessment year 1964-65 onwards. He attacked the order of Assessing Officer on the ground that all purchases and sales of different raw materials, including silver foils were duly vouched and no justification for adverse inference against such correct accounting was called for. He pointed out that Assessing Officer was not justified in placing reliance on the statements of employees without affording an opportunity to assessee for their cross-examination. In the end it was the substance of the ld. counsel for assessee that the order of CIT (Appeals) is based on sound footings and deserves no interference. 47. After going through the rival submissions of the ld. representatives of both the parties and on the basis of materials to which may attention was drawn during the course of arguments, it is significant to point out that the first point requiring scrutiny is whether the Assessing Officer was justified in rejecting the book results of the assessee-firm and in case the answer is in affirmative then the reasonableness of the addition is to be examined. 48. ....
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.... family members of the assessee's partners. It is an admitted fact that the statement of Nanubhai B. Thakkar was recorded under section 132(4) and under section 131 of the Act on the date of search and in the statement dated 13-11-1987, the partner of assessee firm, Mr. Thakkar admitted that he and his family members had been concealing the income from income-tax. Mr. Thakkar mentioned that his concealed income to be treated as number 2 income and in reply to question No. 59 he had mentioned that Babul Products had made Rs.21 lakhs No. 2 income since 1981. The A.D.I. tried to enquire from him about the modus operandi to earn No. 2 income but this witness did not yield though admitted further that their family members had purchased bearer bonds worth Rs.1.93 crores prior to assessment year 1985-86 from No. 2 income (see answer No. 42 dated 14-4-1987). He further admitted that different family members and partners of assessee-firm had declared No. 2 income under Amnesty Scheme in assessment year 1985-86. Further this partner of assessee firm admitted excess stock of Rs.50 lakhs which was ultimately rest at Rs.40 lakhs in reply to question No. 77 recorded on 14-11-1987 itself. These t....
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....co patti put in mixture machine, and the mixture emptied into 4 aluminium containers -- this mixture is not weighed, 7. The mixture i.e., tobacco patti treated with the above ingredients is emptied into the sieve machine and impurities, if any, sifted. No weight is taken either of the impurity or of the mixture, 8. Fixed quantity of silver-foils cut into small pieces is added to the tobacco mixture, but neither the silver foil added are weighed nor the final mixture, 9. 50 gms or 10 gms tins are manually filled with the final mixture and the tins are sealed. Neither the tins are weighed nor the tobacco spilt at the time of sealing the tins. 53. These observations have not been alleged to be against facts by assessee and thus the Assessing Officer was justified in observing that quantity of consumption of different raw materials prepared by the assessee was only theoritical or estimate and closing stock of different raw materials reflected in the books cannot be treated as real or correct. 54. Apart from the above, excessive consumption of raw materials particularly use of silver foils proved by Assessing Officer in his order for the following reason is another factor....
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....kh --------------------------------------------------------------------- 1. 135 16 120 gms. 2. 99 10 75 gms. 3. 65 10 75 gms. 4. 390 11 &nbs....
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....65 10 75 gms. 4. 390 11 90 gms. 5. 460 11 90 gms. --------------------------------------------------------------------- As stated above after putting in varakh, varakh and tobacco is mixed properly. From this ready mixture 50 gms tins are filled up and sealed on machine sometimes 10 gms tins and sometime 250 gms tins also we are packing. Except this I do not know anything. Q.5 From the above system of preparing product shown by you, in that what particula....
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.... Kg. 4.700 15.500 3. Kg. 18.100 Kg. 20.100 Kg. 5.000 15.100 -------------------------------------------------------------------------------- Above three weights are done by myself as sample which are true and correct. Ultimately A.D.I. further asked question No. 18. Q.18. Since you have joined the service whether the proportion of mixing varakh in tobacco has remained same? A.18 Yes, we are mixing in the same proportion. The plea of the learned counsel for assessee before CIT (Appeals) and before us was that both the employees were not at all concerned with mixing silver foils in the mixture and were simple labourers earning Rs.20 per day and were not in service even in the relevant period to assessment years under consideration. These arguments of the learned counsel are apparently forceless. Statements of the two witnesses were recorded on 13-11-1987 and 14-11-1987 and one of them stated to be work....
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....ioned about change in usage of silver foil, is it wrong? And do you accept it? A. 67 Yes, it is alright. Once statement of employees had been put up to partner of assessee-firm who admitted the correctness of the answer then there was no necessity for cross-examination. Further as a word of caution A.D.I. put up to said Nanubhai B. Thakkar, the rate of consumption given by Pravinbhai and that Mr. Thakkar gave the answer which are as follows:-- Q. 68 I am again showing to you the statement of Provinbhai Naranbhai Shrimali. You peacefully read this statement. In question No. 3 of this statement, Shri Pravinbhai has stated that you are mixing in tobacco the masala, perfumes, glycerine and other mixable item and on 15 Kgs. of tobacco in No. 135 products, 16 flds i.e. 120 gms silver foil using. Is it true? A. 68 The statement which is shown to me, they are doing work of opening the foil and they are not doing this work. I do not agree with it. No doubt Mr. Thakkar denied the correct use of particular weight of silver foils given by Mr. Pravinbhai, it is nothing but retraction as he must have realised the havoc to be caused by his replies to question Nos. 66 & 67. The e....
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....ee was mixing more silver foils /gaddies in brand No. 460 or in No. 390 or less gaddies in brand No. 135. I have perused the answers No. 17 of Nanubhai B. Thakkar recorded on 13-11-1987 in which he mentioned that difference in brand Nos. 460 and 390 is on account of costlier perfume. Thus difference in use of silver foils in these types brands of tobacco has not come from the side of assessee. Even if the contention of the ld. counsel is accepted for the sake of arguments, still that will be having no impact as Assessing Officer has worked out the ratio of consumption of silver foils taking the use of 16 gaddies even in inferior quality of tobacco brand Nos. 90 and 65 even though the employees stated that 10 gaddies were being used in those brands of tobacco. If the best quality of brand No. 460 and 390 were using more silver foils then 16 gaddies as worked out by Assessing Officer, the same shall be compensated by the working out of 16 gaddies rate applied to inferior quality of brand No. 99 and No. 65. The result will be the same. Assessing Officer has observed that most of the production is of brand 135 i.e. why rate of gaddies used in that brand of tobacco is applied for workin....
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....985-86 and Rs.36,33,684 for assessment year 1986-87. 62. The ld. counsel for assessee argued that no tailor made formula can be laid down to arrive at the rate of consumption of silver foils as the same depends upon different factors and what has been shown by the assessee was the correct result of the actual consummations. I have already discussed that book results shown by assessee are not reliable and further the way the Assessing Officer has worked out the ratio of consumption of silver foils in the years under consideration is based on the facts and figures and on the basis of statements of concerned employees duly corroborated by admission of one of the partners and as a result of actual experiments and thus it is not to be treated as tailor-made formula. 63. An attempt was also made by the assessee to mention that statement of employees about consumption of silver foils in relation to 15 Kgs. container has wrongly been noted while contentions were of 12.6 kgs. This does not appear to be correct as search party noted the result after practical experiments during the statement of Pravinbhai N. Shrimali. 64. The ultimate conclusion on the basis of above is that I am in....
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.... brother. 70. I also do agree with the other findings of my ld. brother, Shri B.L. Chibber. 71. In the result, the appeals of revenue are partly allowed. ORDER UNDER SECTION 255(4) OF THE IT ACT, 1961 Per Shri B.L Chibber, Accountant Member -- As there is a difference of opinion between the Judicial Member and the Accountant Member, the matter is being referred to the President of the Income-tax Appellate Tribunal with a request that the following question may be referred to a Third Member or to pass such orders as the President may desire: "Whether on the facts and circumstances of the case, the Assessing Officer was justified in making additions of Rs.34,71,505 and Rs.36,33,684 for the assessment years 1985-86 and 1986-87 respectively to the income declared on account of alleged inflation of consumption of silver foils?" THIRD MEMBER ORDER 1. In the referred question it is explicit that the learned Members differed on the issue of quantity of silver-foil (varakh) used in producing the 'Zarda' by the assessee in the two assessment years under appeal. After comparing the decision of learned Accountant Member and learned Judicial Member, I have no hesitation to ....
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....; 120 gms. 2. 99 10 75 gms. 3. 65 10 75 gms. 4. 380 12 90 gms. 5. 460 12 &n....
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....--------------------------------------------------------- 1. 18,500 Kgs. 20.700 Kgs. 5.000 Kgs. 15.700 Kgs. 2. 18,000 Kgs. 20.200 Kgs. 4.700 Kgs. 15.500 Kgs. 3. 18,100 Kgs. 20.100 Kgs. 5.000 Kgs. 15.100 Kgs. ---------------------------------------------------------------------- 3.1 Anomalies are clearly noticeable in the deposition of the employees. For that reason it is worthwhile to quote the demonstration carried out by the Assessing Officer in the factory on 20-2-1989 which runs as follows:-- "4.3 At the time of my visit to the Factory on 20-2-1989, as stated earlier, the entire process of manufacturing chewing tobacco was demonstrated and explained. It was admitted that: (i) Raw-tobacco bags were not weighed, when issued from R-G-12 Excise record, but standard weight of 40 Kgs. per bag was adopted, (ii) Afte....
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....p; Gaddis silver-foil -------------------------------------------------------------- 1. 135 16 120 gms. 2. 99 10 75 gms. 3. 65 10 75 gms. 4. 380 &....
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....ned about change in usage of silver foil, is it wrong? And do you accept it? A. Yes, it is alright. Q. 68. I am again showing to you the statement of Pravinbhai Naranbhai Shrimali. You peacefully read this statement. In question No. 3 of this statement, Shri Pravinbhai has stated that you are mixing in tobacco the masala, perfume, glycerine and other, mixable item and on 15 Kgs. of tobacco in No. 135. products, 16 flds. i.e., 120 gms silver foil using. Is it true? A. 68 The statement which is shown to me, they ate doing work of opening the foil and they are not doing this work. I do not agree with it." It will be pertinent to note that neither in question No. 66 nor in question No. 67 the weight of silver-foil for mixing was enquired. The questions related only to the changes in last 5 years. It is definitely when the, Investigating Officer realised that the questions were not properly asked in the context of the weight that he asked question No. 68 where the exact weight of silver foil for mixing had been enquired into. Had the first two questions been sufficient there was no need to ask another question starting at question No. 68. 4. In these circumstances, the ad....
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....tock of the silver-foils in the years under appeal. 6. Coming to the legal aspect of the matter, it is seen that decision of Hon'ble Supreme Court in the case of C. Velukutty applies in this case mutatis mutandis. In that case the Hon'ble Supreme Court held that on the basis of materials of another year turnover of the subsequent year cannot be made as there is no nexus between materials obtained at the time of search of one year with the facts of another year. 7. It is further surprising that though a partner was shown the depositions of two employees on the basis of which additions had been made in these two assessment years, after the replies from the partner objecting to the correctness of the deposition, opportunity of cross-examination was not given to the assessee. The Assessing Officer mentioned that employees were directed to carry out the actual consumption of silver foil at 16 gaddis of silver-foil to 15 Kgs. of tobacco mixture. It clearly shows that mixtures were made at the direction of the investigating officer. No evidence has been brought into record to show that the said mixture was similar to the products of the assessee sold in the market. The analysis made....
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....r and his family members had made declaration in the Amensty Scheme, without bringing any materials on the record that they are attributable to the excess stock sale of silver-foils, addition should not have been sustained on that ground. The reason given by the ld. JM cannot therefore, be accepted. 10. At para 51 the ld. JM pointed out that at the time of search the excess stock was found and on that basis the books of account cannot be relied. 10.1 But the rejection of books of account does not give unfettered power to estimate the income. There must be something to support the estimate and that should be more than the suspicion as laid down by the Supreme Court in the case of Dhakeswari Cotton Mills Ltd v. CIT[1954] 26 ITR 775 at page 782. The above decision applies mutatis mutandis in this case. Here also no materials had been brought into record that the assessee had sold silver-foils for generating black money by claiming higher consumption rate on that account. No materials had also been brought into record th at the stocks shown in the relevant assessment year were untrue. If there is no dispute about the purchase of silver-foil and there is no material on record to i....
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....ely enough no assessment prior to assessment year 1985-86 had been reopened for the concealment of the income in the context of over-consumption of silver-foils. If the revenue was so sure that the result which was obtained in 1987 is same for all other earlier assessment years since the employees joined the service of the firm then why only in the assessment years 1985-86 and 1986-87 the additions have been made and earlier assessments had not been reopened. It goes to prove that the Department had no sufficient materials and they are also not very sure in the matter of consumption of silver-foils in earlier assessment years. It may further be pointed out that the suppression detected in a subsequent year cannot be made the basis of the addition in earlier years on presumed similar suppression [please see Delhi Iron Syndicate (P.) Ltd v. CST 1979 TLR 70-75 (All.)]. 13. At para 56 the ld. JM had examined the question Nos. 66 and 67 put to the partner Nanubhai and his answers to them. He observed that no doubt in reply to question No. 68 the partner denied the correctness of use of particular weight of silver-foils given by the employees, it is nothing but retraction as he must h....
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....lver-foils were being used in two of best brands bearing No. 460 and 390 and more gaddies in brand No. 135 was negatived by the ld.JM. Higher consumption is compensated by the lower consumption of other brands. This opinion of the ld. JM could have been accepted if the quantity produced by the assessee for all brands are same. The method of averaging cannot be adopted if the quantity of every brand is not equal to each other. The observation of the ld. JM therefore, cannot be accepted. 17. At para 60 the ld. JM observed that the admission of the employees duly coupled with admission made by Nanubhai and duly corroborated by the physical verification of consumption of silver by the searching authorities, at the time of search, is proper basis in rejecting the book results and to come to the conclusion that the rate of consumption of silver-foil, as shown by the assessee, was not correct and should not have been relied on. 17.1 As already discussed the admission of Nanubhai does not pertain to the quantity of silver foil consumed and the physical verification of consumption of silver foil should not be made as the basis because the analysis had been made on the direction of the....