TaxTMI 
TaxTMI 
2003 (1) TMI 228
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....d therefore, the notice issued is invalid. 2.1 The learned CIT(A) has erred in holding that the purchases made from certain suppliers amounting to Rs. 4.76 crores, for asst. yr. 1998-99 and Rs. 7.23 crores for asst. yr. 1999-2000 amounting in all to Rs. 11.99 crores are bogus and thereby has erred in confirming addition of Rs. 11.99 crores as undisclosed income. 2.2 The appellant says and submits that the purchases of Rs. 4.76 crores for asst. yr. 1998-99 is recorded in the books of accounts and that the IT return for asst. yr. 1998-99 was submitted on 30th Nov., 1998, i.e., prior to the date of search and purchases of Rs. 7.23 crores for asst. yr. 1999-2000 have been recorded in the normal manner in books of accounts prior to the date of search, i.e., 24th Feb., 1999 and therefore, such transactions are not considered as undisclosed income as provided in s. 158BC(3). 2.3 The appellant further says and submits that the learned CIT(A) has erred in placing reliance on finding based on inquiry made by Addl. DIT under s. 131(1A) and that the learned Dy. CIT has not made any independent inquiry and therefore the addition made on the basis of inquiry made by learned Addl. DIT un....
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.... of material and the consumption thereof and about the yield. However, the learned CIT(A) has ignored the facts of the material received and ignored the remand report and submissions of the assessee. 2.9 The appellant further says and submits that the purchases were at the market rate which is confirmed by the learned Dy. CIT in the remand report dt. 26th Dec., 2001 and therefore, it is clear that the purchases were not made to deflate the profit. 2.10 The appellant further says and submits that the assessee-company has made the payment of the entire purchases by cheques to the suppliers which is not disputed. 3. The learned CIT(A) has erred in placing reliance on finding given by Addl. DIT in his appraisal report and has erred in ignoring the other submissions regarding factum of purchases and regarding the recording of purchases in the books of accounts in the normal manner. 4. The learned CIT(A) has erred in confirming the addition to the extent of Rs. 3,86,968 being the profit of alleged sales made by the company inasmuch as the transaction have never taken place. 5.1 The order of block assessment is bad in law and illegal inasmuch as the approval of Jt. CIT is g....
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....gus purchases in view of elaborate reasons recorded in the assessment order. Copies of bank accounts of these bogus parties were also obtained from the respective banks. The entire deposits in the bank accounts of these parties were treated as assessee's income on protective basis. It has been observed in the assessment order that inquiries are being conducted to find out the names of concerns which made these payments for purchases and other expenses to these parties. Substantive additions/disallowances will be made in those concerns after conclusion of inquiries. However, these additions were made protectively in the case of the assessee as "additions made as unaccounted payments". The summary of such additions made on account of bogus purchases and in respect of deposits in the bank accounts of these parties as given on p. 9 of the order passed by the CIT(A) are as under: (1) (2) (3) (4) (a) Adinath Corpn. 2,16,13,276 2,16,13,276 2,10,54,076 (b) Tirupati Corpn. 76,93,575* 4,76,93,575 3,33,07,324 (c) Vimal Industries 1,48,34,121 1,48,34,121 7,26,74,355 (d) Krishna Industries 3,19,56,782 3,19,56,782 2,79,02,721** (e) K....
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....s was that of Udaipur. The notices sent by RPAD were returned back with the postal remarks "not known". However, the Department found out the correct address of Shri Jaysukhlal Doshi who was then residing at Udaipur. The summons were served upon him. Shri Doshi did not appear in person in response to summons but sent an affidavit on a stamp paper of Rs. 10. The relevant facts stated in the said affidavit have been reproduced at pp. 7 and 8 of the assessment order, which read as under: "I, undersigned, Jaisukhlal Jamnadas Doshi, aged nearly 66 years, resident of A/5, Navprasthan Apartments, Nr Bhavsar Hostel, Nawa Wadaj, Ahmedabad at present residing at Toran Oil Mill (P) Ltd., 122, Chetak Marg, Sanghvi Bhavan, Udaipur, want to state under oath that I was doing trading of oil in Ahmedabad. Recently, I started Toran Oil Mill (P) Ltd. at Udaipur, but due to financial constrains could not commence the business. I, in my own name or in any other name have not supplied any goods to N. K. Proteins Ltd. nor have, I sold anything. I had signed the account opening form, blank cheque book, printed bill book on the direction of Shri Nileshbhai Patel of N. K. Proteins and had handed over the....
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....0-PM-2035 Wd 8(8) Q. 3. Have you ever done business with N.K. Proteins Ltd.? Have you ever sold goods to N.K. Proteins Ltd.? If yes, please tell when and at what rate and in what quantity? Ans. Till date, I have not sold any goods in my own name and I have not sold anybody else's goods to M/s N.K. Proteins Ltd. Q. 4. Are you sure that you have not sold any goods to N.K. Proteins Ltd. or you have not done any brokerage for sale of anybody else's goods to M/s N.K. Proteins Ltd.? Ans. Yes, I am sure that I have not sold any goods to N.K. Proteins Ltd. nor I have done brokerage for sale of others' goods to M/s N.K. Proteins Ltd. Q. 5. Do you know Shri Nileshbhai Patel? If yes, how do you know? Ans. Yes, I do know Shri Nileshbhai Patel. I am doing business with the other concerns of Shri Nileshbhai Patel namely, N.K. Industries Ltd. I am supplying castor seeds and I am also doing brokerage for castor oil sale to N.K. Industries. Ltd. and brokerage for purchase of castor oil from N.K. Industries Ltd. Q. 6. Do you know Adinath Corporation address A/5, Navprasthan Apartments, Nr. Bhavsar Hostel, Nava Wadaj, Ahmedabad? Ans. I do not know any concern of this name. ....
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....t were to the tune of Rs. 3,33,37,324. The entire amount has been deposited by transfer entries mostly from NKPL and the same has been withdrawn either in cash or by transfer entry on the date of deposit. The amount of withdrawal is exactly equivalent to the amount deposited on that particular date. The amount withdrawn from this bank account has gone by way of transfer to Triveni Corporation. The address of this concern given to the bank and address printed on their bills were different as in the case of AC. The AO relying upon the affidavit of Shri Jaisukhlal J Doshi reproduced in relation to Adinath Corporation, arrived at similar conclusions as in the case of AC. Vimal Industries: 10. Shri Dineshbhai Chaturbhai Patel is the proprietor of this concern. They had opened their bank account with Mehsana Urban Co-op. Bank, Usmanpura Branch, Ahmedabad. Their bank account No. is C/A 1117. The total deposits in their bank account during the period from 18th June, 1998 to 19th April, 1999 is Rs. 10,50,05,834. (Search was conducted on 24th Feb., 1999. It therefore appears that this figure includes payments after the search also). The summons sent to the aforesaid party at the addres....
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....d their goods through you to N.K. Proteins Ltd. or on behalf of N.K. Proteins Ltd. you haved purchased any goods and sold to N.K. Proteins Ltd. or NK Industries Ltd. have purchased any goods through you from above three parties? If yes, please give details. Ans. No, I do not know N.K. Proteins Ltd. and above three parties. Any type of their goods had not been sold through me to N.K. Proteins Ltd. or I had not purchased any goods on behalf of N.K. Proteins Ltd. from them or N.K. Proteins Ltd. had not purchased any type of goods from them through me. 11. On the bills of Vimal Industries and Karnavati Industries sales-tax numbers were given. The inquiry from Sales-tax Officer was made with a view to find out identity of the owners of these concerns. From the details so obtained from the Sales-tax Department, it was gathered that the owner of Vimal Industries was one Shri Dinesh Chaturbhai Patel and the owner of Karnavati Industries was Shri Rasik Keshavlal Patel. The statement of Shri Dinesh Chaturbhai Patel, proprietor of Vimal Industries was recorded under s. 131(1A). The relevant portion of his statement have been reproduced at pp. 17 to 19 of the assessment order, which is a....
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....money in the name of Vimal Industries? Ans. No, I have never visited the bank for doing any transaction in the name of Vimal Industries. Even on the account opening form, I had signed in the office of Nileshbhai Patel. Q. 12 You have signed in the name of Vimal Industries on the direction of Nileshbhai Patel. Have you done any business in any other name? If yes, please explain? Ans. No, I have not signed on behalf of any other concern except for Vimal Industries. Q. 13 Now I am showing you p. 92 of loose paper file A/22, which has been seized from the N.K. Proteins Ltd. which is blank cheque of account No. 1117 of Mehsana Urban Co-op. Bank Ltd. on which rubber stamp of Vimal Industries is there and there is a signature below that, is it your signature? Ans. Yes, it is my signature, which I have done as per the direction of Nileshbhai Patel and I am doing this type of signature in bank. Q. 14 Please sign as you have signed in the bank. Ans. Sample signatures. Q. 15 What is the address of Vimal Industries given to sales-tax? Ans. Address of Vimal Industries given to sales-tax is 105/1, Amrut Indl. Estate, Dudheshwar Road, Ahmedabad. Q. 16 Is the address ....
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....nd none of the entries of purchases from the aforesaid party were found in the gate inward register. Shri Kamlesh. I Patel had also stated in the said statement that if there is any discrepancy in making entries in the said inward register, the same shall be clarified from examination of books of NKPL. The AO found out the address of Rajesh Keshavlal Patel, proprietor of Krishna Industries from sales-tax registration form submitted by that party and with the help of Shri Dinesh Chaturbhai Patel, proprietor of Vimal Industries. He was summoned under s. 131(1A) and his statement was recorded on 3rd June, 1999. The relevant portion from the statement of Shri Rajesh Keshavlal Patel is reproduced at pp. 22 and 23 of the assessment order, which is as under: Extracts from statement of Shri Rajesh Keshavlal Patel, proprietor of M/s Krishna Industries: Q. 2. What are your sources of income? Ans. At present, I don't have any source of income. But sometimes that I was working for Shri Nileshbhai Patel of N.K. Proteins Ltd. For that he was paying me Rs. 2,500 per month. Q. 3. How do you know Shri Nileshbhai Patel? Ans. I was introduced to Shri Nileshbhai Patel by Shri Jagabhai P....
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....e reason, I have signed as per the direction of Shri Nileshbhai Patel. Q. 11. Have you ever sold any goods to N.K. Proteins Ltd.? Ans. No. till date I have not sold anything to N.K. Proteins Ltd. Q. 12. I am telling you the address of Krishna Industries given by you on the bill book and letter head, i.e., A/15-1, Chinaibag Indl. Estate, Nr. Water Tank, Dudheshwar Road, Ahmedabad. On inquiry, it has been found that at this address, there is a factory in the name of M/s Virchand & Brothers which is making gas hot plate. At this address, no business activity is going on in the name of Krishna Industries. Please explain the same? Ans. I had signed on the sales-tax registration form and bank account opening form as per the direction of Shri Nileshbhai Patel. I don't know about the address. It has been given by Shri Nileshbhai Patel. Q. 14 Are you filing IT return? Ans. No, I don't have any source of income and I am not filing the IT return. On the basis of aforesaid material, the AO came to similar conclusions as in the case of Adinath Corporation that the aforesaid supplier is a fictitious entity and its entire affairs were controlled by Shri Nileshbhai Patel, who ....
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....n the directions of Shri Nileshbhai Patel. Thereafter, I had signed blank cheque books and bill books of this concern and handed over to Shri Nileshbhai Patel. I have not done any business in the name of Karnavati Industries. What business is going on in this name, I don't know. If any sale or purchases has been done in the name of Karnavati Industries the entire work has been done by Shri Nileshbhai Patel. I don't have any share in the profit and loss arising out of business in the name of Karnavati Industries. I don't have anything to do with the activities of Karnavati Industries. If there any income or loss has arisen, it has gone to Shri Nileshbhai Patel. Q. 6 In which banks, the accounts of Karnavati Industries have been opened? Ans. The account of M/s Karnavati Industries was in the Visnagar Nagrik Sahakari Bank Ltd., Usmanpura Branch but I have never visited the bank for any work pertaining to Karnavati Industries Q. 7 Have you ever purchased or sold goods in the name of Karnavati Industries or have you ever delivered goods in the name of Karnavati Industries? Ans. No, I have never sold or purchased goods in the name of Karnavati Industries If any sale or purcha....
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....000 to the assessee which has been reproduced on pp. 2 to 4 of the assessment order. In this show-cause notice, the AO clearly stated that inquiries made by the Department revealed that the purchases made from these parties appeared to be bogus. The gist of inquiries so conducted along with the copies of relevant statements and affidavits of bogus suppliers had also been provided along with the letter dt. 4th Dec., 2000. The assessee submitted a reply dt. 15th Dec., 2000 stating that the entire purchases made from these parties are duly recorded in the books of accounts in the normal course before the date of search and therefore it does not fall within the purview of block assessment. The AO once again issued a show-cause notice dt. 8th Jan., 2001, which is reproduced at p. 28 of the assessment order. The assessee submitted a reply dt. 22nd Jan., 2001 which has been reproduced in para 6.3 on pp. 28 to 30 of the assessment order. The AO considered various replies and gave following findings in paras 6.4 to 6.6 on pp. 30 to 34 of the assessment order: "6.4 The reply of the assessee is carefully considered. The assessee has raised following arguments in its favour. (i) It is ar....
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.... of the assessee is not correct. From the evidences found during the search, it is clearly established that these parties are bogus parties from which the assessee has shown purchases to inflate its purchases and reduce its profit. This is the real fact, which is established on the basis of evidences found at the time of search. From the evidences found during the course of search, it is also established that Triveni Corporation is fictitious one to whom the assessee has shown sale of goods. The assessee has also shown sale to Karnavati Industries which is also a bogus concern. If the quantity of this sale is reduced, then the revised yield would be less than 100 per cent. (iii) The assessee filed affidavits purported to be of four proprietors. It is very important to mention here that the signatures on two affidavits filed by the assessee do not tally with the signatures on the affidavit filed before the Dy. DIT. This shows that the assessee has fabricated these affidavits. These affidavits cannot be relied upon. (iv) During the course of search, blank signed cheque books, printed bill books and vouchers were seized from the office and factory premises of N.K. Proteins Ltd. ....
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.... of wilful evasion of tax. (vii)....[same as para (vi) has been mentioned in this order]. 6.6 From the above discussion, it is very much clear that these are the bogus concerns from which the assessee has shown purchases to inflate its total purchases. Total purchases from these concerns shown by the assessee in its books of accounts comes to Rs. 11,99,07,754. Therefore, an amount of Rs. 11,99,07,754 is considered as bogus purchases and added back to the total income of the assessee in respective assessment years, being bogus purchases. The yearwise break up is as under: Asst. yr. Amount 1998-99 4,75,93,575 1999-2000 7,23,14,179 Total 11,99,07,754" 15. The assessee preferred an appeal before the CIT(A) against the aforesaid order. The assessee submitted written submissions before the CIT(A) in which the assessee gave para-wise reply to the various findings and conclusions arrived at by the AO in paras 6.4 to 6.6 of assessment order. The relevant extract from the written submissions are reproduced below: Extracts from written submissions made by the assessee before the CIT(A): 2.5.2 The learned AO stated that since certain material such as blan....
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....ect that they have not sold goods to NKPL and that they have given their signature on the blank bills at the instance of Nilesh K. Patel—managing director of the company cannot be relied for following reasons: 2.5.6.1 They are obtained under s. 131(1A) by Addl. DIT He has no power whatsoever to make inquiry after conclusion of search and to record the statements and obtain affidavits under s. 131(1A). 2.5.6.2 From the affidavits and statements, it may please be seen that the contents are similar. The type of question and the inquiries are same which show that they are recorded and obtained under undue influence and coersion. 2.5.6.3 The affidavits filed by the assessee from the said persons are not taken into account on the ground that the signature in one case vary. If such is the case, then the learned AO should have summoned the said persons and found out the truth or the genuineness of the signature. 2.5.6.4 The affidavits submitted by the assessee at the time of assessment state that the statements and affidavits given before Addl. DIT were under influence and coersion and that such statements and affidavits stand cancelled. He further stated that he was carrying....
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....than 100 per cent." The learned AO failed to appreciate the submission of the assessee that there cannot be yield of more than 100 per cent. In the present case, yield would be 102.45 per cent (financial year 1997-98) and 102.61 per cent (financial year 1998-99) as against 99.01 per cent (financial year 1997-98) and 98.73 per cent (financial year 1998-99), if alleged purchases are excluded. The learned AO has observed that sales to Karnavati Industries and Triveni being bogus concerns, if ignored, yield would be less than 100 per cent. The view taken is not proper inasmuch as the sales to Karnavati Industries and Triveni Corporation is recorded in the books of accounts and quantity is also recorded in the stock register. Therefore, quantity of sales cannot be ignored for the purpose of working out yield. Further, even if sales quantity to Triveni Corporation and Karnavati Industries is excluded to calculate the yield, the yield would be more than 100 per cent if alleged purchases are excluded. In other words, the learned AO has not met with the contention of the assessee. This shows that the contentions raised by the assessee are correct. From the above, it is very clear t....
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.... of any addition. 2.7.2 Even if presumed that the purchases are bogus, the company has received the quantity entered in the stock register, consumed and finished products are sold. Therefore, addition cannot be made. 2.7.3 In any case purchases are duly recorded in the books of accounts in the normal manner and therefore it does not form part of block assessment." 17. It may also be relevant here to reproduce the affidavits of all the suppliers submitted by the assessee before the AO during the course of assessment proceedings, in which they have retracted from their earlier affidavits/statements given to the Addl. DIT and Dy. DIT. (i) The affidavit dt. 12th April, 2001 of Shri Jaysukhlal Jamnadas Doshi, who is proprietor of Adinath Corporation and Tirupati Corporation appearing at p. 126 of the paper book dt. 1st July, 2002 is reproduced below: "I, Jaysukhlal Jamnadas Doshi, aged about residing at A/5, Navprasthan Apartments Nr. Bhavsar Hostel, Nava Wadaj, Ahmedabad do hereby solemnly affirm that at present Pratik, B/5, Agashi Road, Virar (W), 1. I had given an affidavit on 18th June, 1999 at the instance of Dy. DIT, Unit-3.1. This affidavit was made under pressu....
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....elled. The correct facts are as under: 2. I was serving with N.K. Proteins Ltd. during 1995-96 and thereafter, I started carrying on business as dealer in oil and oil seeds under the name and style of Vimal Industries independently. I sold cotton seeds wash oil to N.K. Proteins Ltd. during 1998-99 and I used to make the profit of about Rs. 1,800 per tanker from carrying on of the said business. I have not taken any help from Nileshbhai Patel of N.K. Proteins Ltd. or he has not given any instruction to me for making application for sales-tax number, opening of bank account, operation of bank account for the purpose of said business. The office of Vimal Industries was situated at 105/1, Amrut Industrial Estate, Opp.: Water Tank, Dudheshwar Road, Ahmedabad. The bill book and cheque books were kept at the office of N.K. Proteins Ltd. for the business convenience. I signed cheque book only for the sake of business convenience and that I did not sign the cheques at the instance of Nileshbhai Patel. The profit or loss from the said business belongs to me and that Nileshbhai Patel of N.K. Proteins Ltd. had no interest whatsoever in the said profit or loss. Nileshbhai Patel did not pay a....
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....avit is made voluntarily and willingly without pressure from anybody. Dt.: 23rd Feb., 2001 Sd/- Place: Seal of Notary" (iv) The affidavit of Shri Rasik K. Patel, proprietor of Karnavati Industries placed at p. 135 of the paper book is reproduced below: "I, Rasik K Patel aged about 28 residing at 49, First Floor, Abhishek Society, Meghaninagar, Ahmedabad and proprietor of Karnavati Industries do hereby solemnly affirm that, 1. I made one affidavit on 18th June, 1999 as per direction of Dy. DIT, (Unit-3)-1 and also gave a statement on 3rd June, 1999 before him. The above referred statement and affidavit were given under pressure and coercion of Dy. DIT and as per his direction. Certain facts therein are not correct and therefore affidavit dt. 18th June, 1999 and statement dt. 3rd June, 1999 stand cancelled. The correct facts are as under: I was carrying on business as dealer in oil and oil seeds at Siddhpur before some time under the name and style of Karnavati Industries. I sold cotton seeds wash oil to N.K. Proteins Ltd. during the year 1998-99 and I used to make the profit about Rs. 2,000 per tanker from carrying on of the said business....
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....ourt in the case of N.R. Paper & Board Ltd. & Ors. vs. Dy. CIT (1998) 146 CTR (Guj) 612 : (1998) 234 ITR 733 (Guj) has no application to the facts of the present case, as the blank bills, blank signed cheque books etc. of these bogus suppliers were found and seized during the search. The documents found and seized during the search exposed the falsity of entries made in the books of accounts. The decision in the case of N.R. Paper Board vs. Dy. CIT is not relevant. The CIT(A) also observed that first affidavits submitted by these suppliers must be relied upon as some of those affidavits were given before the Metropolitan Magistrate or those represent statements on oath. The burden lies on the assessee to prove that there was any pressure or coercion. Reliance was placed by the learned CIT(A) on the judgments reported in V. Kunhambu & Sons vs. CIT (1996) 131 CTR (Ker) 396 : (1996) 219 ITR 235 (Ker) and Param Anand Builders (P) Ltd. vs. ITO (1996) 56 TTJ (Mumbai) 21 : (1996) 59 ITD 29 (Mumbai). The CIT(A) also placed reliance on the judgment of the Hon'ble Delhi High Court in the case reported in CIT vs. La Medica (2001) 168 CTR (Del) 314 : (2001) 250 ITR 575 (Del). The CIT(A) has al....
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....made by the assessee from these concerns were only of Rs. 11.99 crores. The bank accounts of only one of these five suppliers viz. Adinath Corporation was introduced by Shri Nileshbhai K. Patel as director of N.K. Proteins Ltd. The Department has failed to verify as to which other parties have made payments by cheques to these five alleged bogus suppliers, which have been deposited in their bank accounts. 21. The learned counsel further submitted that so far as the assessee is concerned, they have proved by producing documentary evidence of contemporary period that the goods in fact were received by the assessee. Such material was consumed in manufacture of goods which is supported by corresponding sales. The statement of yield obtained by the assessee were also given before the learned Departmental authorities. Summary thereof has been placed at pp. 14 to 16 of the paper book. If the purchases made from these five parties are excluded, the yield would be more than the raw material consumed, which is impossible. The learned counsel also drew our attention to written submissions regarding receipt of material furnished at p. 12 of the paper book dt. 1st July, 2002 in which attenti....
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....search. This proves beyond doubt that the stock as per stocks register and other records found during the course of search was fully verifiable and no unexplained stocks were found during the search. This supports the genuineness of purchases made from these alleged bogus parties and also proves the receipt of material purchased from them. 23. The AO had also compared the purchase price of the material purchased from these parties with the prevailing market price at which the purchases were made from other regular dealers. In the aforesaid remand report he has also confirmed the fact that the purchases from these five parties were made at prevailing market price. It cannot therefore be a case of inflation of purchase price also. 24. The declared trading results are supported by books of accounts which are regularly maintained. The correctness and completeness and regularity of method of accounting followed by the assessee has not been doubted. The entire purchases and sales are supported by vouchers. The stocks are periodically checked by civil supply authorities. No defects have been pointed out by the AO in the books of accounts and records maintained by the assessee. Our a....
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.... opening the bank account, is therefore patently wrong in view of such evidence gathered by the Department itself behind the back of the assessee. The learned counsel also submitted that the signature of Shri J.J. Doshi on the affidavit dt. 12th April, 2001 submitted by the assessee during the course of assessment proceedings exactly tallies with the seized cheque of Adinath Corporation submitted by the Department in their paper book at p. 1. Both the signatures can be compared which will support the correctness of this contention. The learned counsel further contended that let us examine the contents of the affidavit dt. 18th June, 1999 obtained by Dy. DIT behind the back of the assessee. In this affidavit also Shri J.J. Doshi has confirmed that he was carrying on the business as dealer in oil and oil seeds at Ahmedabad and at present he formed a company known as "Toran Oil (P) Ltd." at Udaipur. This shows that Shri Doshi was an old and established dealer in oil and oil seeds. In the subsequent affidavit dt. 12th April, 2001, Shri J.J. Doshi has clearly stated that the statement given on 18th June, 1999 was under pressure and coercion and therefore, such affidavit stands cancelled....
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....d dealings with various other manufacturing concerns/other parties. For this purpose, he drew our attention to the copies of accounts of Karnavati Industries placed at p. 88 of the paper book. He pointed out that out of total credits in the bank account of Karnavati Industries aggregating to more than Rs. 12 crores, the purchases made by the assessee from Karnavati Industries were only of Rs. 38,10,000. The remaining cheques were received by M/s Karnavati Industries from other parties. This necessarily implies that M/s Karnavati Industries were supplying material or issuing bills to various other parties. A perusal of the copy of bank account of M/s Karnavati Industries obtained by the Department also indicates that there are various debits by cheques given to other parties. For example, cheque No. 518492 dt. 18th Feb., 1998 has been given to "Marudhar" for Rs. 9,50,000; cheque No. 518491 dt. 18th Feb., 1998 has been given to "Mayur" for Rs. 9,50,000; cheque No. 518490 dt. 18th Feb., 1998 has been given to "Sanjay" for Rs. 2,15,000. The AO could easily ascertain the destination of this money by obtaining paid cheques from the bank and interrogating the persons to whom these cheques....
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....om the premises of the assessee. This should put an end to the suspicion about existence of having large unaccounted income of several crores, as arbitrarily estimated and added by the AO. The learned counsel contended that the result of search adequately proves an honest and correct declaration of income by the assessee. 29. The AO has placed reliance on the statements of Shri Rajesh broker and Shri Lalchand broker. No reliance can be placed on these statements as those were recorded behind the back of the assessee. The AO has also placed reliance on the statements of Shri Nileshbhai Patel recorded on 6th April, 1999 during the search. All these statements were recorded behind the back of the assessee-company. The assessee-company is a separate and distinct person/entity. Before using these statements against the assessee-company, the AO should have examined Shri Rajesh broker, Shri Lalchand broker, Shri Nileshbhai Patel and other persons during the course of assessment proceedings in the presence of assessee's representative. 30. During the course of hearing the Bench required the learned Departmental Representative to prepare a statement of peak of credit balance in the ac....
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....ring the course of hearing, there was outstanding balance in the account of bogus supplier to the extent of Rs. 17.99 lakhs and that amount was added by the AO. No separate addition was made in that case as the disallowance in respect of bogus purchases was more than the said sum and it was treated as covered by addition made in respect of disallowance relating to bogus purchases. In the case of the assessee, there is no outstanding balance at the end of the year in the accounts of all these suppliers and no addition has been made by the AO in this regard. Therefore, this point is not the subject-matter of present appeal. 33. The learned counsel submitted that the CIT(A) has erred in placing reliance on the decision of the Hon'ble Delhi High Court in the case of La Medica vs. CIT. In that case, it was held that the question of law arises from the order of the Tribunal in view of the facts of that case and it does not lay down any principles of law relating to the point in issue. Likewise the learned counsel explained that reliance placed by the CIT(A) on various other decisions is not correct as the facts of those cases are clearly distinguishable. 34. The learned counsel pla....
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.... absence of such complete inquiries, the addition could not be sustained. It may be relevant here to mention that the assessee in this case had given full address of the so-called billing agents M/s Geeta Industries. There is no affidavit or statement of the suppliers stating that they have not made any supplies to the assessee. Furthermore the transactions of purchases by Adinath Industries from M/s Geeta Industries (billing agent) were made through Dalals. The brokers duly confirmed the genuineness of the transactions. The address of the suppliers given by the assessee were not found to be incorrect. It is not a case, where the suppliers were not found at the given address. In the present case the suppliers have given their statements/affidavits to Dy. DIT clearly stating that they have not supplied any material to the assessee as shown in the bills issued by their concerns. They have also admitted that they were only name-lenders. The brokers Shri Rajesh and Shri Lalchandbhai have also stated that these suppliers have not supplied any material to the assessee through them. The assessee is not prepared to produce those suppliers along with their records, although a specific oppor....
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....e very items made in subsequent years. In view of these material on record, the Tribunal confirmed the order of the CIT(A). The facts of the present case are clearly distinguishable with the facts of that case. (D) Sagar Bose vs. ITO (1996) 56 ITD 561 (Cal): In this case the assessee made total purchases from different concerns worth Rs. 6,76,038 and against those purchases, sales were effected at Rs. 9,36,679 with a resultant GP rate of 25 per cent which was considered fair and reasonable and, therefore, there was no need of further addition. The Tribunal held that the payments were made by account payee cheques and they were certainly deposited in some bank accounts which were opened, maintained and operated by suppliers or by some other persons and the amount was credited in those accounts. Who were the persons who operated the accounts, who introduced them to the bank, who deposited these account payee cheques and who was withdrawing and enjoying the money and whether these payments had reverted back to the originator, could very easily be known to the Department. No inquiries were made from sales-tax department as to whether those sales-tax registration numbers were allo....
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....The assessee-company, thus, as per themodus operandi adopted, had inflated the purchase rate by bringing in "B" as an intermediatry and such inflation in purchase rate could be in the range of about 15 per cent and at this rate the inflation in purchase of rice husk would work out to Rs. 7,88,000. Considering all these facts, the addition of Rs. 7,50,000 was sustained. This decision does not support the assessee's claim for deduction of entire purchase price. The estimate of income on account of inflation of purchase price is bound to vary from case to case depending on nature of business and the fact whether it was shown as credit purchases or cash purchases. (G) Asstt. CIT vs. Rehmat Khan Chandan Khan & Party (1995) 52 TTJ (Jp) 203: This was a case where lump sum addition made on account of low GP was held to be not justified. This case is not of any relevance to the point in issue. (H) ITO vs. Chandrakant Manilal Shah, Tribunal, Ahmedabad Bench: Copy has been submitted along with the compilation dt. 1st July, 2002. In this case, the suppliers initially denied. Later on they admitted. The supplier was dealer in colour and chemicals for last four years and was duly ass....
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.... of AP & Ors. (2001) 165 CTR (SC) 672 : (2001) 247 ITR 36 (SC). The assessee also placed reliance on the decision of the Tribunal, Madras Bench in the case of Kirtilal Kalidas & Co. vs. Dy. CIT (1999) 64 TTJ (Mad) 77 : (1998) 67 ITD 573 (Mad) to support his contention that an assessment based on appraisal report is bad in law. 38. The learned counsel has relied upon the following further decisions where the additions made on account of bogus purchases have either been deleted or in some cases, some additions have been sustained on the basis of comparative position of gross profit declared in various years: (i) J.H. Metals vs. ITO (2001) 71 TTJ (Asr) (TM) 683 : (2001) 77 ITD 71 (Asr) (TM) (ii) J.R. Solvent Industries vs. Asstt. CIT (1999) 63 TTJ (Chd) (TM) 165 : (1999) 68 ITD 65 (Chd) (TM) (iii) Balaji Textiles (1994) 49 ITD 177 (Bom) (iv) Dy. CIT vs. Brahmaputra Steels (P) Ltd. (2002) 76 TTJ (Gau) 447 39. Our attention was also invited to GP chart submitted along with the supplementary notes given on 22nd Oct., 2002 which is reproduced below: Asst. yr. GP Yield 1995-96 2.14% 97.80% 1996-97 3.28% 97.12% 1997-98 3.52% 97.15% 19....
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....roduce those written submissions which adequately cover all the oral submissions made by him on various dates of hearing: "During the course of appellate proceedings in this case, the learned Representative of the assessee have raised several issues and contentions regarding first ground of appeal. 2. The Authorised Representative of the assessee has stated that enquiries have been conducted at the back of the assessee. However, this is not the true fact. It is the assessee who refused to attend before the Dy. DIT (Inv.) Unit-III(1), Ahmedabad and has stated in his letter dt. 20th April, 1999 that the company has taken stand that the notice under s. 131(1A) is ill conceived and has requested not to press for any more statement. Extract of this letter is on page No. 4 of the paper book submitted by the undersigned on 21st Oct., 2002. In view of the assessee's refusal and non-co-operation, the Dy. DIT carried out his enquiry in this case on seized material, incriminating documents, statements of various persons and leads coming out of bank enquiries and other enquiries. 2.1 The Dy. DIT was perfectly legal in carrying out such enquiries and the Hon'ble Gujarat High Court has ....
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....of all the enquiries conducted by the Department and his explanation was called for on these enquiries as early as on 4th Dec., 2000 and the present case was getting time-barred only in the month of April, 2002. However, assessee chose not to cross-examine any of the bogus party or other witnesses and only raised technical ground stating that the income cannot be assessed in block assessment. Copies of reply of the assessee dt. 26th Dec., 2000 are enclosed in the paper book of the Department filed on 21st Oct., 2002 from page Nos. 10 to 13. 3. In the case of the assessee group, searches were conducted at the residence, factory premises, office premises and surveys under s. 133A were carried out on 24th Feb., 1999 and subsequently on N. K. Group. During the course of search, assets as mentioned on p. 1 of paper book filed on 21st Oct., 2002 of the Department were seized. 3.1 During the search, certain blank bills, letter head, delivery challan and blank cheque books of various parties were found. Blank bills of transporters were also found. Xeroxes of cheques found in the case of M/s Adinath Corporation has been given as first paper book containing 8 pages. Xeroxes of blank ch....
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....wal of cash as is apparent from the above bank a/c statement and the Department has seized signed blank cheques of above concerns from 74342 to 74345 which shows the control over cheque books of M/s Adinath Corporation. 3.5 It can further be seen from the bills that these bills does not contain any telephone number and the address given on these bills of Rajasthan proves to be bogus as assessee was having permanent residence at Ahmedabad itself and assessee has claimed in this regard that cheques were lying with him for business convenience does not hold water as transaction with M/s Adinath Corporation ended in the month of July, 1998 and search was conducted in the month of February, 1999 and which is more than 8 months from the last transaction and there is no reason for keeping blank signed cheque book, blank bills, letter heads, vouchers etc. 3.6 The assessee has shown purchase of Rs. 2.16 crores from M/s Adinath Corporation. However, bank a/c shows deposits of Rs. 2,10,49,035 which means cheques were deposited somewhere else also. It has been found that payment for first three transactions which are mentioned in the copy of a/c on page No. 37 of Department's paper book ....
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....company by means of blank signed cheques, which were found during the course of search. It is clear that all these parties are not capable of such large scale transaction. It may be mentioned here that one oil tanker of 12000 litre of wash cotton seed oil is of about Rs. 3 to 4 lakhs, wash cotton seed oil is not a commodity which is available in open market and it has to be purchased from oil miller/expeller and whereabouts of these oil millers are known to the assessee-company as most of the time its transport were used and if these were genuine transaction, the assessee could have purchased directly from them or through broker. All these parties does not have storage capacity to store such a huge quantity of oil on their own. It is worthwhile to mention here that M/s Tirupati Corporation has sold 19 trucks of oil worth more than Rs. 1 crore on a single day, i.e., on 29th Dec., 1997 and again have sold 9 trucks of oil on 16th Nov., 1997. 3.11 Yield of cotton seed oil is about 10 to 12 per cent which means approximately 1 lakh kg. of cotton seed is required to produce one tanker of oil, i.e., 10000 litre of oil which means oil miller/expeller should have capacity to crush such a....
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....essment proceedings that these are cancelled bills and no material has been received on these bills and also the bills prepared of sales in anticipation of these purchases to M/s Triveni Corporation and M/s Tirupati Corporation are not the actual transaction. In the register A-1/15 as mentioned above, these bills are entered in the name of M/s Kothari Global Ltd. and same inward number for same weight of the quantity mentioned which clearly shows that assessee is creating documents as per his will and need and has nothing to do with the actual happening in the company. This fact gets further support from the following analysis of these seized material (A-6) itself. Asessee has stated that these purchase bills of value of about Rs. 2 crores were sold to M/s Triveni Corporation and M/s Tirupati Corporation (which the later denied and stated that these all bills were cancelled) is also not correct. All the purchase bills from N.K. Industries Ltd. are for the item wash cotton seed oil and all the sales bills to M/s Triveni Corporation and M/s Tirupati Corporation are for soyabean oil. How the person can sell soyabean oil out of purchase of wash cotton seed oil. Thirty pages from the se....
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.... 1st April, 1997 to 11th May, 1997 which are also reflected on page No. 42 of assessee's paper book where sales of more than Rs. 1 crore has not been considered by the assessee for the purpose of computing the yield. If these bogus sales are also excluded the yield after excluding bogus sales and bogus purchase will come to 99.35 per cent for the financial year 1997-98. The revised working of this yield has been given on page No. 65 of the paper book of the Department dt. 21st Oct., 2002. 4.1 Yield may be more than 100 per cent and depends upon number of factors which are to be considered while arriving at the figure for the yield. (i) Additive use in the process of refining cotton seed oil—Process of refining of cotton seed oil has been explained by Shri Kamlesh L. Patel in response to question No. 8 on page Nos. 153 to 155 of assessee's paper book. It can be seen that besides various chemicals like soda ash and water has also been used in the process. Use of any of these things may result yield of more than 100 per cent. (ii) Maintenance of accounts—It has been observed by the special auditors in the case of M/s N.K. Industries Ltd. which is under the same management....
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.... 181 ITR 340 (Cal): That there is aprima facie presumption that those who have been found in possession of certain articles are the owner that of. However, the presumption can be rebutted by cogent evidence. (iv) Pioneer Publicity Corporation vs. Dy. CIT (2000) 67 TTJ (Del) 471, Tribunal, Delhi : As per the provisions of s. 132(4) of the Act, diary found at the premises of assessee has to be presumed to be belonging to the assessee, in absence of any valid explanation that it belonged to somebody else. The assessee states that the diary belonged to a Government Officer. However, there was no valid explanation to the identity of such officer and as to why it was found in the premises of the assessee and why officer has not come forward to own the diary. The addition in respect of unexplained entries in the diary was to be sustained in the hands of the assessee. (v) CIT vs. P.R. Metrani HUF (2001) 169 CTR (Kar) 149 : (2001) 251 ITR 244 (Kar): Presumption under s. 132(4A) that the articles found in possession or control of person belonged to him is not restricted under s. 132(5) only. Such, presumption is absolute for purpose of s. 132(5) and rebuttable for purposes of ....
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....een pointed out by the appellant that the learned Senior Departmental Representative have dovetailed two concepts of "bogus purchases" and "inflated purchases". Both these concepts are distinct and different. The expression "bogus purchases" would imply that there are no purchases effected at all and mere financial entries are made in the books with a view to reduce the profits. In other words, in case of bogus purchases, no goods are purchased in fact and truth. The expression "inflated purchases" on the other hand, would imply that the purchases which are in fact and truth effected, have been shown at a higher rate than the market price. The findings given by the AO about the bogus purchases are, therefore, completely vitiated. Reliance has been placed on the judgment of the Hon'ble Supreme Court in the case of Omar Salay Mohamed Sait vs. CIT (1959) 37 ITR 151 (SC) to support their contention that the conclusions reached by the Tribunal should not be coloured by any irrelevant considerations. It has been reiterated that the AO in the remand report has accepted that the material purchased from these parties was in fact received and properly accounted for in inward register, stocks....
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....ay be signed by the clerk. Therefore the signature of Shri J.J. Doshi on the affidavit cannot be validly doubted, as erroneously presumed by the AO. As regards the withdrawal of cash from the accounts of those suppliers and equivalent amounts of cheques deposited in their accounts, the assessee has once again drawn our attention to the decision of the Hon'ble Gujarat High Court in CIT vs. M.K. Brothers (1986) 52 CTR (Guj) 228 : (1987) 163 ITR 249 (Guj) wherein it was observed that the supplier has withdrawn the said amount and might have given the same to the person from whom he made purchases. The assessee has also pointed out that the transactions with Adinath Corporation ended in the month of July, 1998. The account was closed in July, 1998. Some bills/cheques were found during the course of search on 24th Feb., 1999. This shows that those cheques could not have been used when the account had already been closed in July, 1998. In para 9 of the rejoinder, the assessee has stated that these suppliers were traders. They were carrying on business not only with the appellant but with outsiders also. The total deposits in bank accounts of these suppliers upto April, 1999 were about Rs....
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....observation of the learned Senior Departmental Representative is of no significance. As regards the actual receipt of material purchased from these parties, the assessee has once again invited our attention to letter dt. 14th March, 2001 and 27th April, 2001 addressed to the AO regarding stock found during the search and which is reconciled with the books of account and inventory prepared by the AO at the time of search. The AO has accepted the same inasmuch as no addition is made on this account. Further it was stated that the stock registers are subject to verification by Civil Supplies Department from time to time. 46. In para 13.1 the observations made with regard to supplies made by Kothari Global has been challenged. It has been stated that Kothari Global has supplied from some trader or manufacturer nearby Ahmedabad. The supply was in December, 1997. Old records are not available. Further such evidence is being produced for the first time before the Tribunal. Therefore it cannot be entertained. The assessee has contended in para 16 that he AO has taken a contradictory stand in the said written submissions as compared to the stand taken by him in the remand report. The sam....
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....TR 745 (All)andCIT vs. Govind Kumar (2002) 172 CTR (Raj) 411 : (2001) 119 Taxman 110 (Raj). All these cases are not applicable to the facts of the present case as no defect is found in the notice issued by the AO. The assessee has rightly understood the contents of the said notice and has made perfect compliance by filing the return pursuant to such notice. The learned CIT(A) in para 5.3 of his order has observed that the basic condition precedent for assessment under Chapter VI-A is execution of a search warrant under s. 132(1). This condition is satisfied. The conduct of the appellant also indicates that it was, aware about the precise requirements of notice under s. 158BC. It accordingly filed the return in respect of "N.K. Proteins Ltd.". The point raised by the assessee is purely a technical one and even assuming there is some infirmity in the notice, it is curable under s. 292B. Reliance was placed on the decision reported in Dr. R.M.L. Mehrotra vs. Asstt. CIT (1999) 64 TTJ (All) 259 : (1999) 68 ITD 288 (All). The learned CIT(A) rejected the said ground. In our view, the CIT(A) has rightly rejected this ground raised by the assessee. 48. In ground nos. 5.1 and 5.2, it has ....
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....e from these suppliers does not come within the ambit of block assessment. Heavy reliance was placed on the judgment of the Hon'ble Gujarat High Court in the case of CIT vs. N.R. Paper & Boards Ltd. and other such decisions. 51. Before we go through the ratio of judgment of the Hon'ble Gujarat High Court in the case of NR Paper & Boards Ltd., it would be relevant here to refer to the decision of the Hon'ble Supreme Court in the case of CIT vs. Sun Engineering Works (P) Ltd. (1992) 107 CTR (SC) 209 : (1992) 198 ITR 297 (SC). The Hon'ble Supreme Court has observed as under at p. 320 of 198 ITR: "Such an interpretation would be reading that judgment totally out of context in which the questions arose for decision in that case. It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete "law" declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in....
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....ction with the return of income submitted by them for the asst. yr. 1995-96. The assessee pointed out that the search and seizure operation carried out on 1st Dec., 1995, was concluded on 6th Jan., 1996. Their block assessment under Chapter XIV-B of the Act was made for the block period from 1st April, 1985 to 6th Jan., 1996. In accordance with the provisions of s. 158BB of the Act, the total income was worked out after giving credit for the amount disclosed. The assessee pointed out that the income for the asst. yr. 1995-96 was already computed in the assessment for the block period. Hence, there was no question of proceeding with the regular assessment for the asst. yr. 1995-96. It was further submitted that in any event no addition could be made to the total income disclosed in the said returns in view of the block assessment made for the period which included the said asst. yr. 1995-96. The Division Bench of this Court in the case of N.R. Paper & Boards Ltd. vs. Dy. CIT (1998) 146 CTR (Guj) 612 : (1998) 234 ITR 733 (Guj) considered the provisions in detail. The Court pointed out that the block assessment of undisclosed income to be charged at a higher rate of tax prescribed was....
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....he assessee had already disclosed or would have disclosed is not to be treated as undisclosed income. From the provisions of s. 158BA(1), it would appear that the AO can proceed to assess the undisclosed income only if a search is initiated under s. 132 of the Act by the authorised officer. The total undisclosed income relating to the block period is to be charged to tax at the higher rate of 60 per cent presently specified in s. 113 of the Act after such undisclosed income is assessed in accordance with the provisions of this chapter by the AO as income of the "block period" as defined in s. 158B(a) of the Act. This has to be done "irrespective of the previous year or years to which such income relates and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not" as provided in sub-s. (2) of s. 158BA. This expression clearly indicates that the block assessment of undisclosed income and its being charged to a higher rate of tax prescribed, was independent of the pending regular assessments and it operated in a different field from the assessment of undisclosed income which was not and would not have been disclosed....
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....). The powers of regular assessment are kept intact. All the provisions affecting such regular assessments and all the statutory consequences flowing from exercise of such powers would follow along with this special assessment procedure devised for dealing with undisclosed income as a result of search. 56. The legislature thought it fit to insert an Explanation to s. 158BA by the Finance (No. 2) Act, 1998 with retrospective effect from 1st July, 1995 to explain and declare that the assessment made under Chapter XIV-B of the Act shall be in addition to the regular assessment in respect of each previous year included in the block period, and the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period. It further provides that the income assessed in this chapter shall not be included in the regular assessment of any previous year included in the block period. The mere fact that the AO is empowered to assess the concealed income in regular assessment does not lead to the conclusion that what the ITO can assess in regular assessment cannot be assessed in block assessment. The Hon'ble Gujarat ....
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....pter, unless the context otherwise requires,— (a)... (b) "undisclosed income" includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act or any expense, deduction or allowance claimed under this Act which is found to be false." It may also be relevant here to reproduce s. 158BB(1): "158BB(1).—The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the AO and relatable to such evidence, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such ....
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...., that the addition, if any, is required to be made in respect of alleged bogus purchases or inflated purchases made from these five suppliers, it is to be made in the block assessment and not necessarily in the regular assessment. If this point is not considered in block assessment, it will escape tax altogether, as regular assessments have already been made, in which no such additions have been made. In view of the aforesaid facts and discussions, we are of the view that the question relating to addition of purchases made, from these bogus suppliers or addition in respect of inflated purchase price shown as paid to these bogus suppliers comes within the ambit of block assessment under Chapter XIV-B. 59. The other main argument advanced by the learned counsel was that the impugned assessment made by the AO for the block period is solely based on enquiries made by the Addl. DIT/Dy. DIT and on the appraisal report sent by them. All the affidavits/statements on which the AO has placed reliance were obtained by the investigation wing. The AO has simply relied on the appraisal report. The learned counsel has vehemently argued that the Addl. DIT/Dy. DIT have no power to conduct enqui....
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....ve process to unfold legislative intent in a case where statutory language is clear, is impermissible, is misplaced, as the judgment of the Hon'ble Gujarat High Court in the case of Arti Gases is a direct decision involving interpretation of the relevant provisions contained in the IT Act, 1961. Furthermore, there is no merit in the aforesaid submissions of the learned counsel as the AO has provided adequate and reasonable opportunity to the assessee in respect of all such material, affidavits, statements obtained by the Dy. DIT/Addl. DIT in the course of assessment proceedings for the block period. A perusal of the assessment order at p. 2 shows that the AO gave complete details about such inquiries, affidavits/statements along with the letter dt. 4th Dec., 2000. Thereafter, the AO gave several opportunities to the assessee in respect of all such material gathered by the Addl. DIT/Dy. DIT before using the same against the assessee in the assessment order. The AO has thus fully complied with the relevant provisions of law and the principles of natural justice before using the material against the assessee. This contention of the learned counsel also, therefore, has no merit. 61.....
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....ts stated by the AO in the assessment order in relation to all these five parties viz. Adinath Corporation, Tirupati Corporation, M/s Krishna Industries, M/s Karnavati Industries and M/s Vimal Industries, clearly indicate the following facts and features: (A) Certain blank bill books, blank signed cheque books, letter heads and vouchers of these concerns were found from the business premises of the assessee during the course of search conducted on 24th Feb., 1999. (B)(i) There are various similar features in relation to bank accounts of all these suppliers. For instance, the bank account of Adinath Corporation was opened on 17th April, 1998 by depositing Rs. 1,000 in cash on that date during the block period from 17th April, 1998 to 7th July, 1998. The total deposits in their bank account was Rs. 2,10,54,076.50. Whenever any cheque given by the assessee towards payment of purchase price to this party was credited in their bank account, on that very day, on most of the occasions, an equivalent amount had been withdrawn by a self cheque. For instance, cheque of Rs. 3,69,857 was credited in their bank account on 23rd April, 1998 and there is a cash withdrawal of an equivalent am....
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....m 8th April, 1998 to 7th July, 1998. Likewise, cheque No. 79489 dt. 7th July, 1998 for Rs. 3,79,967 debited in the account of Krishna Industries in the books of the assessee has been deposited in the bank account No. 531 with Mehsana Urban Co-op. Bank Ltd. in the name of M/s Adinath Corporation. It may also be relevant here to mention that the total purchases claimed to have been made by the assessee from M/s Adinath Corporation during the period from 8th April, 1998 to 7th July, 1998 was Rs. 2,16,13,276 out of which deposits in their bank account were only Rs. 2,10,54,076. This implies that remaining cheques must have been deposited by M/s Adinath Corporation in some other bank accounts. (B)(ii) The bank account of M/s Tirupati Corporation was also opened with an initial deposit of Rs. 1,000 on 29th Sept., 1997. The cheques deposited in this account which are mostly from NKPL (assessee-company) are also followed by immediate withdrawal of an equivalent amount on most of the occasions leaving a balance of Rs. 7,616 on most of the days. Most of the cheques are either cash withdrawn or have been issued in favour of Triveni Corporation, as is apparent from the narration given in th....
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..... 79 of the paper book dt. 1st July, 2002. The assessee in the paper book has also submitted copy of bank statement of Krishna Industries with Mehsana Urban Co-op. Bank account No. 1130. This account was opened with an initial deposit of Rs. 1,000 on 2nd July, 1998. The total purchases claimed to have been made by the assessee from this party were of Rs. 3,19,56,782. The total deposits credited in the bank accounts of Krishna Industries as mentioned at p. 34 of the assessment order in Rs. 2,79,01,621. The deposits in bank account No. 4203 with Visnagar Nagrik Sahakari Bank were followed by withdrawal of an equivalent amount on the same day when the cheques were credited. However most of the withdrawals in other bank account No. 1130 with Mehsana Urban Co-op. Bank are also by way of self cheques but there are other few withdrawals by way of cheques/DDs. For example there is a debit of Rs. 6,50,100 by way of demand draft dt. 28th July, 1998. Likewise, there are some withdrawals by cheques also. But most of the withdrawals from this bank account are by way of self cheques of substantial amounts withdrawn almost on the same day when corresponding cheques were credited in the said bank ....
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.... the cheques in their bank accounts were credited exposes the impossibility of their having supplied such material of lacs/crores of rupees on credit to the assessee. (C) The ITO made inquiries from sales-tax authorities in respect of some of these suppliers. Those inquiries revealed that the copies of ration cards given by these name lenders to sales-tax Department were found to be fake. Copies of electricity bills did not pertain to the addresses given. Also the residential addresses of owners given to the sales-tax authorities were not correct. (D) The notice sent by the IT authorities to these suppliers at the addresses given to the banks were returned back. The inquiries conducted through the inspector revealed that none of them existed at the given addresses. (E) Most vital and significant evidence brought on records by the IT authorities is clear and categorical admission by all these parties in the form of affidavits/statements. Copies of affidavits/statements given by all these supplier concerns referred to in the assessment orders clearly indicate that all of them have clearly denied having supplied any material to the assessee. They also stated that they were be....
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....a reply dt. 22nd Jan., 2001 which has been reproduced at pp. 28 and 29 of the assessment order. In this letter the assessee hasinter alia, simply stated as under: "You have based your such opinion on the basis of statements and affidavits of certain parties. In this connection, it may please be noted that as far as the company is concerned, the company has purchased the goods from these parties and has made the payment through a/c payee cheque which is not disputed by any of the above referred parties. Further, it may please be noted that statements and affidavits appears to be similar. If the statements are recorded from different parties, contents are bound to be different." The assessee did not ask the AO even at this stage to examine or cross-examine the suppliers and the brokers in their presence. The assessee only repeated the arguments that material had really been received and the payments had been made by account payee cheques. It was also stated that since these transactions are recorded in the regular books of accounts, therefore, the question of considering the same in block assessment does not arise. 65. Thereafter, it appears that the affidavits of some....
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....imed by the assessee, the assessee would at once raise a strong protest after receiving the copies of statements of those suppliers/brokers explicitly and emphatically denying such transactions and the assessee would have submitted in the very first reply to show-cause notice dt. 4th Dec., 2000 that their affidavits are blatantly false and all these persons should be examined in their presence. The assessee should have himself produced all these suppliers/brokers soon after the receipt of first show-cause notice or well before the completion of the block assessment before the AO to acquaint him with the reality in rebuttal of those affidavits/statements obtained behind his back by the Dy. DIT. The assessee simply submitted the affidavits of these suppliers at the fag end of the assessment proceedings and did not produce these suppliers before the AO along with their books of accounts and records from which the capacity of the suppliers and the reality and genuineness of credit sales of such large magnitude made by them to the assessee could have been verified. The assessee also did not produce the brokers through whom it was stated by Shri Nileshbhai Patel that the purchases from t....
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....nder coercion. The assessee failed to produce them before the AO. They have also failed to produce them before the Tribunal along with their relevant records, though a specific opportunity was granted to them during hearing. All these facts prove beyond doubt that all the five supplier concerns were created/floated only for the purposes of issuing fake/fictitious bills. They had no capacity to supply wash cotton seed oil of such large magnitude to the assessee. They also did not have adequate capital and infrastructure for carrying out business of such large scale. None of them appear to be existing income-tax assessee as GIR Number/PAN Number and ward, etc. are not stated in any of their affidavits. We therefore agree with the findings of the learned Departmental authorities that all these suppliers were only name lenders/billing agents. The purchases claimed to have been made by the assessee from them do not represent genuine purchases made from those parties. 68. The question still remains to be considered is as to whether the assessee had in fact received the material in question which was claimed as allegedly purchased from these name lenders/billing agents. The evidence ex....
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....lity, colour and odour and then after obtaining lab report it has to be emptied in the assessee's tanks. The assessee in the rejoinder has replied that they had adequate capacity to unload 10 to 12 tankers at their unloading station. It has also been submitted that there are other instances where third parties have unloaded their tankers within such short time. The day-to-day stock records are prepared on the basis of raw material entered into the said inward register. The receipt of material is also corroborated by various other documents of contemporary period such as weighment of the material inward receipts and analysis reports etc. All these documents were furnished to the AO to prove the fact of real receipt of material shown as purchased through such fictitious invoices. (C) The learned CIT(A) called for a remand report from the AO during the course of appellate proceedings before him. As already stated hereinbefore, the AO in his remand report dt. 26th Dec., 2001 has clearly stated that the test check of the purchase bills and other supporting documents with reference to inward register, stock register etc. have been made and it is found that the entries in respect of pu....
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....by the Hon'ble Gujarat High Court. The judgment of the Hon'ble Gujarat High Court is binding, says the learned counsel. We have already indicated while discussing the ratio of principles laid down by the Hon'ble Gujarat High Court in these two cases that the facts of the present case are totally different. In the present case there is an unequivocal, clear and emphetic denial by these suppliers as well as brokers in their first affidavits/statements submitted to the Dy. DIT. The assessee has not produced those suppliers/brokers before the AO along with the relevant records. The Tribunal also gave the assessee a specific opportunity to produce those suppliers/brokers along with their books of accounts and other relevant records. The assessee has expressed their inability to produce them before the Tribunal. The facts of those two cases are therefore totally distinguishable as in those cases there was no such clear but categorical denial by the brokers/suppliers. The assessee must have obtained fictitious bills from such billing agents/name lenders with a view to derive some definite gain. It is true that the material in question was received by the assessee but those materials were ....
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....done by the civil supply department and by other departments. The assessee has not only derived the benefit of circulation of large black money for purchases of such unaccounted material from open market but has also derived extra profit by purchasing them at a much lower rate from the real suppliers/mills, who had really supplied the material in question to the assessee. Therefore what was actual profit derived by the assessee from such device/practice adopted by them is exclusively known to the assessee. The assessee does not want to tell the truth but simply wants to have total deletion on technical and legal grounds which have no valid base whatsoever. 70. The question which now arises for our consideration is as to whether the entire amount of the said bogus purchases should be disallowed or the assessee should be held to be eligible for grant of deduction of a reasonable amount of purchase price of wash cotton seed oil which in fact had really been received by the assessee but was sought to be supported by fictitious invoices obtained from billing agents/name lenders. It is well settled law that tax can be levied only on real income. It is an elementary rule of accountancy....
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....r crossed demand draft. Here is a case where not only the benefit by way of avoidance of various kinds of taxes such as excise duty, sales-tax at various stages of inputs are there but it is a case where such purchases on the strength of fictitious invoices given by the billing agents/name lenders are treated as credit purchases. Therefore, while estimating the amount liable to be treated as undisclosed income in relation to such purchases aggregating to Rs. 11.99 crores, the question relating to unexplained non-genuine credit shown in the accounts of these name lenders/billing agents will have to be kept in mind. The assessee's counsel contended that no such addition was made by the AO under s. 68 nor s. 68 applies in relation to such credit purchases. All these facts and decisions submitted by the learned counsel are not relevant because we are not making any fresh addition in respect of any unexplained cash credit but this vital factor is being taken into consideration while estimating the amount of undisclosed income liable to tax in the block assessment in relation to such purchases of Rs. 11.99 crores. The peak credit as on any one date in the account of one of these billing ....
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.... made to NKPL were found. The said file also contained certain sale bills issued by NKPL in respect of sales made to Triveni Corporation and Tirupati Corporation. These bills of purchases and sales found from the said seized file were not accounted for in the books of accounts of the assessee as well as in the books of NKIL. Before the AO, it was submitted on behalf of the assessee that the assessee-company raised certain sale bills in favour of Triveni Corporation and Tirupati Corporation in anticipation of goods to be purchased from NKIL. Finally, NKIL could not deliver the goods and therefore, the company also did not give delivery to Triveni Corporation and Tirupati Corporation. Therefore all these purchase and sale bills are cancelled bills. No actual purchase of goods or sale of goods was made by the assessee. The delivery of the goods was also not effected. This fact was verifiable from the inward register lying seized with the Department in which such transactions are not recorded. The assessee-company has also not received any payment from Triveni Corporation and Tirupati Corporation in respect of these sale bills which can be verified from their bank statements available ....
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.... wash cotton seed oil. The addition cannot be made merely on the basis of certain loose papers found during the search. Copy of board's resolution confirming the cancellation of these bills was also furnished at the time of assessment. An alternative prayer was also made before the CIT(A) that if the assessee's contention is not accepted, then only profit on such sales amounting to Rs. 3,86,968 can be taxed. The CIT(A) after considering these submissions confirmed the addition to the extent of Rs. 3,86,968. The learned counsel on the strength of similar arguments urged that the addition of Rs. 3,86,968 should be cancelled. 75. The learned Senior Departmental Representative, on the other hand, vehemently contended that the CIT(A) has erred in deleting the addition of Rs. 2,01,99,793 being purchases made from NKIL, which are proved beyond doubts from the sales invoices issued by NKIL in favour of NKPL, which were found and seized from the business premises of NKPL. Those sale bills bear the gate entry number. It also contains all other particulars such as truck number etc. A subsequent resolution of the board cannot nullify the facts so clearly revealed from the documents found an....
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....e before the Tribunal. Such objection was not raised by the Addl. DIT or by the AO or CIT(A). The same cannot therefore be raised for the time before the Tribunal. 77. We have considered the submissions made by the learned representatives of both sides and have gone through the orders of the learned Departmental authorities. The contention of the assessee that submissions made with reference to entries of material received from Kothari Global constitute additional evidence, is not correct. Such a submission has been made on the basis of seized inward register of NKPL lying seized with the Department. The assessee has himself heavily relied upon the entries of the said register while dealing with the main ground of addition relating to receipt of material purchased from bogus suppliers. It is evident from the photo copies of sale invoices issued by NKIL to NKPL and from copies of sale basis issued by NKPL to Triveni Corporation and Tirupati Corporation that what was purchased by the assessee from NKIL was wash cotton seed oil and what was sold by the assessee to Triveni Corporation and Tirupati Corporation was soyabean oil. These two items of purchase and sale reflected from the ....
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....explained investments. 2. The learned CIT(A) has erred in law and on facts in deleting the addition of Rs. 2,01,99,792 made on a/c of unexplained purchases." 82. The AO has discussed this point in para 7 on pp. 34 and 35 of the assessment order which is reproduced as under: "7. Unaccounted payments: As already discussed in the preceding paras, certain bank accounts were found during the course of search of different concerns. After inquiries it was held that these concerns are bogus and purchases made by the assessee from these concerns are added as bogus purchases. From the perusal of these bank accounts, it is noticed that these are in following names: Rs. 1. Adinath Corporation 2,10,54,076 2. Tirupati Corporation 3,33,07,324 3. Vimal Industries 7,26,74,355 4. Karnavati Industries 12,34,73,600 5. Krishna Industries 2,79,01,621 6. Triveni Corporation 3,64,01,356 Total 31,48,12,332 These also represent payments made by assessee group concerns for purchases and other expenses. Inquiries are being conducted from banks to find out the concerns which made these payments for purchases and other expenses. Substan....
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....s in respect of deposits in the accounts of these alleged bogus suppliers have also been made in the case of Shri Nileshbhai K. Patel on substantive basis. A show-cause notice was issued by the AO on 18th Jan., 2001 to Shri Nileshbhai K. Patel in which it was stated that several blank cheque books and vouchers of number of concerns were found and seized at the office premises of NKPL. The affidavits were filed by the owners of those concerns. From all these affidavits it is clear that these are bogus concerns created by you. The business of these concerns were totally managed by you. The bank accounts relating to those concerns were also managed by you as stated by so-called proprietors of these concerns. The AO, therefore, required the assessee to explain as to why the amounts deposited in the bank accounts of these suppliers be not treated as unaccounted income of the assessee. The details of amounts deposited in these bank accounts were given in the aforesaid show-cause notice as under No. Name of the holder Amount credited 1. Krishna Industries 29,93,310 2. Triveni Corporation 3,64,01,356 3. Karnavati Industries 12,30,13,600 4. Adinath ....
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.... the assessee in relation to such bogus suppliers which,inter alia, include the affidavits/statements given by the suppliers denying having supplied any goods to NKPL and NKIL and statements of brokers and other facts discussed in the assessment orders passed in the case of NKPL and NKIL. The AO has also discussed various replies and affidavits of suppliers submitted on behalf of the assessee in rebuttal of the earlier affidavits. The AO thus made an addition in respect of entire amount found credited in the bank accounts of these so-called bogus suppliers aggregating to Rs. 37,19,85,062 in the hands of Shri Nileshbhai K. Patel on substantive basis. 86. Before the CIT(A) the assessee prepared and compiled the details from copies of bank accounts of these suppliers supplied by the Department to the assessee and furnished the following summarised details. "The details of deposits of cheques in the bank account from the above referred companies and outsiders are given below: Name of Suppliers Amount received by cheque from NKPL Amount received by cheque from outsiders Total amount received Somnath Industries 1,05,26,152 2,19,31,416 3,24,57,568 Krishna ....
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.... necessary inquiries and investigation. The assessee has placed reliance on the following judgments before the CIT(A): (i) CIT vs. Daulatram Rawatmal 1972 CTR (SC) 411 : (1973) 87 ITR 349 (SC) (ii) Parakh Foods Ltd. vs. Dy. CIT (1998) 64 ITD 396 (Pune) (iii) Omkarmal Gaurishankar vs. ITO (1991) 39 TTJ 223 (Ahd) (iv) Dimco Silk Mills vs. ITO (1999) 107 Taxman 41 (Mag) 88. The CIT(A) after considering the entire relevant facts and material gave the following findings in para 4.8 of his appellate order in the case of Shri Nileshbhai K. Patel. "4.8 I have carefully considered the submissions made by the appellant's counsel, Shri Ashwini Shah and have also perused the facts of the case laws cited and also the materials which was found during the course of search and also further inquiries conducted by the AO during the course of assessment. After perusing the said materials and records, I have no hesitation in holding that the inference drawn that the moneys deposited in the said accounts belong to the appellant is not supported by sufficient evidence for the following reasons: (a) The appeal in respect of NKIL has been disposed of by the undersigned as per order dt....
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....is based on any material discovered as a result of search. (d) The appellant has strongly submitted that the transactions between the account holders and the appellant are only in the capacity of his being MD of NKIL and NKPL and that he has never done any business in his individual capacity. It is further submitted that no adverse inference can be drawn for mere introduction to the proprietor of the concern for opening a bank account. Reliance is placed on the decision of Tribunal, Ahmedabad in the case of Dimco Silk Mills vs. ITO which is relied upon as mentioned earlier in this order. It is submitted that the onus is on the AO to hold that the said deposits are on account of undisclosed income of the appellant and this view is correct in view of the decision of the Supreme Court in the case of CIT vs. Daulatram Rawatmal. (e) It is further submitted that as discussed by the AO himself in the orders of NKIL and NKPL, no cheque books were found from the residential premises of the appellant in respect of any of the above account holders relating to the abovementioned concerns. This is found to be correct since the same were found from the residence of Kamleshbhai Patel. As su....
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....ores as unaccounted payments. 10.2 The assessee made purchases which is considered as bogus and the assessee also made payment for such purchases by cheques. The learned AO obtained bank statement of the said suppliers and the total deposits made in the said accounts by the assessee-company and outsiders are considered as payment made by the assessee-company and is also considered as unaccounted payments. Therefore, the learned AO has made addition of Rs. 5.71 crores as unaccounted payments on protective basis. The details of such unaccounted payments and purchases are given below: Purchases considered as bogus in the case of NKIL: Rs. Somnath Industries 1,14,78,000 Krishna Marketing 51,67,228 Sejal Enterprises 1,26,48,060 2,92,93,288 The details of deposit of cheques in the bank account from the above referred companies and outsiders are as under: Name of Suppliers Amount recd. by cheque from NKIL Rs. Amount recd. by cheque from outsiders Rs. Total Rs. Somnath Industries 1,05,26,152 2,19,31,416 3,24,57,568 Krishna Marketing 51,67,228 1,95,46,834 2,47,14,062 Sejal Enterprises 1,42,60,231 ....
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....ver adduced by the learned AO for holding Sejal Enterprises as benamidar of the company. In fact, the company has made purchases from Sejal Enterprises to the extent of Rs. 1,26,48,060 and such purchases are considered as bogus and the addition is already made in the case of NKIL which is being contested. Therefore, the question of making any addition as unexplained deposit in the case of assessee-company does not arise." 6.2 I have carefully considered the same and in view of my findings given in respect of Krishna Marketing and Somnath Industries, there is no justification for treating the same as income of the appellant in the block assessment. In respect of the addition of Rs. 91,47,866, addition of Rs. 1,26,48,060 has already been confirmed and there is no basis for making further addition in the absence of any additional evidence that the same is co-related with purchases out of unexplained monies. This would amount to double taxation. In view of the above facts, these 2 additions are directed to be deleted." 91. The learned Senior Departmental Representative relied upon the reasons mentioned in the assessment orders. The Bench persistently required the learned Senior D....
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....to shifting process our records related to our branch we are unable to submit all such data in time. 3. Kindly see the page No. 20 of which the bank has given a/c No. 4002, this bank a/c is in the name of Swastik Overseas Ltd. From the bank a/c opening found which is on page No. 37, it is seen that this a/c is introduced by N.K. Industries Ltd. Kindly see page No. 34 which is the account opening form of Issan Overseas Ltd. This account is also introduced by N.K. Industries Ltd. 4. Kindly see the page No. 38 in which the Mehsana Urban Co-op. Bank Ltd. has stated that as per statement of a/c of Adinath Corporation a/c No. 531 of credit entries by transfer in the period from 17th April, 1998 to 7th July, 1998 from N.K. Proteins Ltd. Ahmedabad." 92. The various correspondence exchanged by the AO with the concerned banks are only upto May, 2001. The learned Senior Departmental Representative submitted that in view of the difficulties indicated in the aforesaid letters, it has not been possible to conduct further enquiries. In reply to a specific query from the Bench, the learned Senior Departmental Representative candidly admitted that no further enquiries were made after May, ....
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....mitted at p. 20 of the said submissions by the Department shows that the cheques given by M/s Swastik Overseas and Issan Overseas were also deposited in the bank account of Tirupati Corporation. No evidence has been brought on record to show that Swastik Overseas and Issan Overseas were benamidars of the assessee or cheques given by Swastik/Issan Overseas came out of the funds belonging to the persons or concerns of NK group. These cheques of Swastik/Issan Overseas constitute a small figure of about Rs. 10 lakhs which is a small fraction of the total deposits aggregating to more than Rs. 44 crores deposited in the bank accounts of such bogus suppliers/name lenders/billing agents. The Department has not even examined the partners/proprietors/directors of Swastik Overseas Ltd. and Issan Overseas Ltd. The Department has not made any serious efforts to find out the complete names, addresses of various other concerns which gave cheques to all these bogus suppliers, which have been credited in their respective bank accounts. The concerned IT authorities having vast powers vested upon them under the provisions of the Act could very easily obtain complete details of all the persons who gav....
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....example, attention was invited towards letter dt. 20th March, 2001 of Mehsana Urban Co-op. Bank Ltd. p. 39 of this paper book in which they have indicated that the AO should contact service branch/head office of respective banks for the required details. However all these inquiries continued only upto May, 2001. The assessment in the case of NKPL and NKIL were made on 30th April, 2001. The assessment in the case of Nileshbhai Patel was completed on 28th Feb., 2001. No effective efforts were made by the officers of the Department for further investigation in this regard. The AO on p. 35 in the case of NKPL and on p. 39 of the assessment order in the case of NKIL has observed that the inquiries are being conducted from the banks to find out the names and particulars of other concerns which made these payments for purchases and other expenses. Substantive disallowances will be made in the cases of those concerns after conclusion of enquiries. The additions were protectively made in the cases of NKIL and NKPL subject to further investigation so that appropriate additions can be made in the hands of the concerns who gave such cheques to these bogus suppliers. However, no further inquiri....
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....that no notice under s. 158BD had been issued to any other concerns who gave such cheques to these suppliers. Reliance was also placed on the decision in the case reported in 68 ITD 273 (sic). The learned counsel contended that the documents submitted along with letter dt. 18th Dec., 2002 by the learned Senior Departmental Representative further supports the assessee's contention. For example, cheques of Madhukant Agrotech (P) Ltd. were credited in the bank account of Karnavati Industries. M/s Madhukant Agrotech have no connection whatsoever with the assessee. This strongly supports the view that Karnavati Industries, if they are treated as bogus suppliers/billing agents/name lenders, they are acting as such on behalf of other parties. Similar inference can be drawn from the bank opening forms of Swastik Overseas Ltd. and Issan Overseas Ltd. The Department ought to have examined Shri Rajesh B. Mehta and other directors/owners of those concerns to find out as to who were real persons who gave such cheques to these bogus suppliers. The learned counsel drew our attention to the copies of bank statements submitted by the learned Senior Departmental Representative along with the letter ....
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.... to prove that the cheques of third parties deposited in the bank accounts of these suppliers were out of funds provided by any of these three assessees. In order to prove that the bank accounts in the names of these suppliers are benami accounts or that the suppliers are benamidar persons/concerns, the following tests are very vital and significant: (i) Who provided the funds for deposit (ii) Who enjoyed these funds (iii) What is ultimate destination of these funds. 98. The Department has to prove by bringing on record definite, positive and clinching evidence on all these three aspects to support their conclusion that these bank accounts are benami accounts and deposits in these bank accounts in the names of suppliers really belong to NKPL or NKIL or Shri Nileshbhai Patel and they were the persons who enjoyed these funds and the entire funds have directly or indirectly flown back in their favour. The degree of proof for proving the concept of benami bank accounts/benami persons is very stronger and that has to be discharged by bringing positive material on record. Such conclusion cannot be derived on the basis of mere suspicion and surmises. It may be relevant here to....
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....ich the total deposits in their bank accounts upto the date of search was only Rs. 37,19,85,062. Out of this, the payment made by NKIL and NKPL towards purchase invoices supplied by these bogus suppliers were to the tune of Rs. 14,82,49,194. In addition to this, a cheque of Rs. 3,64,01,316 was given by Triveni towards goods sold by NKPL. This left the balance deposit aggregating to Rs. 21,89,82,084 received by bogus suppliers/billing agents from other parties/third parties with which it is contended that the persons or concerns of N.K. Group had no connection whatsoever. The names and particulars of parties who deposited the cheques in the bank accounts of these suppliers after the search have also not been brought on record. It was primary duty of the Department to find out as to which other parties/concerns have given these cheques which have been deposited in the bank accounts of these bogus parties. The Department has completely failed to discharge such burden, which heavily lies on them to support their conclusion that any of these three assessees were real owners of cheques of all such other concerns/third parties deposited in the bank accounts of these bogus suppliers. The D....
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....nd concerns, whose cheques have been credited in the bank accounts of these bogus suppliers, necessary action against those concerns/persons should be initiated under s. 158BD or under s. 147 or any other relevant provisions of the IT Act. The Department cannot exonerate such "other concerns" by leaving investigation at incomplete stage like this. It would be imperative to mention that the time limit for initiating action under s. 147 has been reduced to only six years in s. 149. The time left with the officers of the Department now is very short. It is, therefore, necessary to strive the best possible time-bound programme for ascertaining the full particulars viz. names and addresses of all other concerns/parties/persons whose cheques have been deposited in the bank accounts of these bogus suppliers, so that timely action can be initiated against all such other persons/concerns/parties. If, as a result of further investigation, it comes to the notice of the Department that those other concerns/third parties are benamis of the persons and concerns of assessee's group, the Department will be entitled to take necessary action under s. 147, if they have in their possession adequate ma....
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....ect block period and therefore the notice issued is invalid. 2.1 The learned CIT(A) has erred in holding that the purchases made from Sejal Enterprises amounting to Rs. 2,50,427 for asst. yr. 1995-96, Rs. 62,75,837 for asst. yr. 1998-99 and Rs. 61,21,796 for asst. yr. 1999-2000 amounting in all to Rs. 1,26,48,060 are bogus and thereby has erred in confirming addition of Rs. 1,26,48,060 as undisclosed income. 2.2 The appellant says and submits that the purchases of Rs. 2,50,427 for asst. yr. 1995-96 and Rs. 62,75,835 for asst. yr. 1998-99 is recorded in the books of accounts and that the income-tax return for asst. yr. 1995-96 and asst. yr. 1998-99 were submitted prior to the date of search and purchases of Rs. 61,21,796 for asst. yr. 1999-2000 have been recorded in the normal manner in books of accounts prior to the date of search i.e. 24th Feb., 1999 and, therefore, such transactions are not considered as undisclosed income as provided in s. 158BA(3). 2.3 The appellant further says and submits that the learned CIT(A) has erred in placing reliance on finding based on inquiry made by Addl. DIT under s. 131(1A) and that the learned Dy. CIT has not made any independent inquir....
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....h is confirmed by the learned Dy. CIT in the remand report dt. 26th Dec., 2001 and therefore, it is clear that the purchases were not made to deflate the profit. 2.10 The appellant further says and submits that the assessee-company has made the payment of the entire purchases by cheques to the suppliers which is not disputed. 3. The learned CIT(A) has erred in placing reliance on finding given by Addl. DIT in his appraisal report and has erred in ignoring the other submissions regarding factum of purchases and regarding the recording of purchases in the books of accounts in the normal manner. 4.1 The learned CIT(A) has erred in confirming the addition of Rs. 2,01,99,793 being alleged sales made by the company inasmuch as the transaction have never taken place. 4.2 The appellant further says and submits that, alternatively, only profit of the sales amount can be taxed and not the entire gross amount. 5.1 The learned CIT(A) has erred in confirming the addition to the extent of Rs. 19 lakhs as unaccounted deposit with Pari L T Shroff inasmuch as no evidences were adduced by the learned Dy. CIT as undisclosed income of the appellant. 5.2 The appellant further says and....
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....be appropriate to deal with Ground Nos. 2 and 3 of assessee's appeal along with Ground No. 1 of appeal filed by the Revenue in the case of NKIL (IT (SS) A No. 38/Ahd/2002), all of which deal with the issue relating to bogus purchases made from bogus suppliers. The AO made an addition of Rs. 2,92,93,288 in respect of purchases made from the following three alleged bogus suppliers: Name of Suppliers Asst. yr. Amount (Rs.) Sejal Enterprises 1995-96 2,50,427 1998-99 62,75,837 1999-2000 61,21,796 1,26,48,060 Somnath Industries 1999-2000 1,14,78,000 Krishna Marketing 1999-2000 51,67,228 2,92,93,288 106. The AO has discussed the facts relating to these bogus concerns in para 6 on pp. 6 to 16 of the assessment order. The facts pertaining to purchases made from Somnath Industries have been discussed on pp. 7 to 9 of the assessment order. The AO has observed that during the investigation, it was found that NKIL has shown purchases,inter alia, from Somnath Industries. The results of investigation revealed that this concern was owned by one Shri K.R. Soni. He was summoned under ....
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.... these purchases shown to have been made from Sejal Enterprises as also bogus purchases. 109. The AO thereafter gave a notice dt. 4th Dec., 2000 in which entire material gathered behind back of the assessee in relation to such bogus purchases was supplied and the assessee was required to explain as to why purchases made from these concerns should not be disallowed. The assessee filed reply dt. 15th Dec., 2000 stating that the entire purchases are recorded in the books of accounts in the normal course before the date of search and therefore it does not fall within the purview of block assessment. The AO has thereafter discussed the various show-cause notices given by him and the replies received from the assessee in this regard. The show-cause notices and the replies were also almost as that in the case of NKPL. The AO arrived at the conclusion that all such purchases made from these three parties are bogus purchases and he disallowed the total purchases of Rs. 2,92,93,288 made from them. 110. The learned CIT(A) has dealt with this issue in para 5 on pp. 4 to 11 of his order. The CIT(A) has observed in para 5.5 of his order that except 2 blank sale bills in respect of Sejal En....
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.... been confirmed by the AO in the remand report submitted before the CIT(A). On the strength of similar arguments as were made in the case of NKPL, the learned counsel contended that the addition of Rs. 1,26,48,060 in respect of purchases made from Sejal Enterprises should be deleted. 112. On the other hand, the learned senior Departmental Representative relied upon similar arguments and contended that all these three parties are bogus parties. They had no capacity to supply raw material of such large magnitude. The bank accounts were opened and operated in similar manner as in the case of NKPL. 113. During the course of hearing, the Bench specifically required the assessee to produce all these three parties along with their records. The learned counsel contended that the assessee cannot produce them along with their records as they are not under the control of the assessee. The assessee has thus refused to produce these three suppliers along with their relevant records before the Tribunal inspite of specific opportunity granted to them. 114. We have carefully considered the submissions made by the learned representatives. In our view, the order passed by the learned CIT(A)....
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....es are similar as that in the case of NKPL in relation to purchases of Rs. 11.99 crores made by them from various such bogus suppliers. The facts and circumstances are absolutely similar. 115. In view of the aforesaid facts and circumstances, we hold that all the three parties from whom the assessee claimed to have purchased material to the tune of Rs. 2.92 crores are merely name lenders/billing agents and the sale invoices issued by them in the name of NKIL are fictitious invoices. The burden lies on the assessee to support any claim for deduction made by them. In the present case such burden should have been discharged by the assessee only by producing those three suppliers along with their records so that the genuineness of their purchases, sales, financial capacity and all other relevant facts could be examined. The assessee has not produced them before the AO. We gave a specific opportunity to the assessee to produce all of them before the Tribunal along with their records. The assessee has expressed their inability to produce them before the Tribunal. However, it is also true that the receipt of material shown to have been purchased from these three parties had really been....
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....d that the seized bills represent transactions which did not take place. The cancellation of transactions is supported by board's resolution. No entries of inward and outward were made in the seized records of NKPL and NKIL. The addition is made on the basis of suspicion and conjectures without any evidence. The sale bill is for wash cotton seed oil whereas the assessee manufactures castor seed oil. In the alternative the learned counsel submitted that even if it is presumed to be unaccounted sales, only profit on sale can be added and not the entire amount of sales. Reliance was placed on the judgment of the Hon'ble Gujarat High Court reported in Ashok Mfg. Co. (P) Ltd. vs. CIT (2000) 158 CTR (Guj) 273. The learned Senior Departmental Representative made similar submissions as were made in the case of NKPL. 119. We have considered the submissions made by the learned representatives of the parties. This point is similar as that raised in the appeal of NKPL vide Ground No. 4 and in the appeal filed by Revenue in the case of NKPL vide Ground No. 2. After consideration of the entire relevant facts and material, we have restored this issue back in the case of NKPL. Since the matter ....
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....that his group was borrowing and lending money from/to L.T. Shroff since 1993 till 1997. In response to question no. 33, he stated that the unaccounted transactions with M/s L.T. Shroff were declared under the VDIS 1997. He however failed to give details of the same and the basis of calculation of amounts offered under VDIS. It is pertinent to note that Shri Nimish Patel had accepted having unaccounted transactions with L.T. Shroff in those statements. The AO gave show-cause notice to the assessee as to why the addition in respect of unaccounted deposits revealed from the diary/documents seized from L.T. Shroff be not added in the hands of the assessee. The assessee pointed out that actual amount of unaccounted deposits as per said seized diary comes to Rs. 55,09,000. The assessee made withdrawal of Rs. 16,01,000 from L.T. Shroff. After giving benefit of this unaccounted withdrawal, the net unaccounted deposits come to Rs. 39,08,000. The assessee made a disclosure of Rs. 20,08,000 under VDIS. Copy of certificate received from CIT and application was furnished. The AO did not accept the assessee's claim for deduction of Rs. 20,08,000 and made the addition of Rs. 39,08,000 as unaccou....
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....wals aggregating to Rs. 16,01,000. The learned counsel contended that the amount was offered for tax under VDIS on the basis of aforesaid details given by the Asstt. CIT Central Circle, Ahmedabad vide letter dt. 10th Nov., 1997. The details of payments in question reproduced at p. 20 of the assessment order comes to Rs. 45,09,000 as against the total payments mentioned in the said list annexed with the notice dt. 10th Nov., 1997 of Rs. 36,09,000. A perusal of datewise and amountwise details given along with the letter of Asstt. CIT dt. 10th Nov., 1997 and the information received by the AO from Bombay authorities from seized diary indicates that one entry of deposit of 22nd March, 1995 of Rs. 9 lakhs had not been mentioned in the list annexed with the Asstt. CIT's letter dt. 10th Nov., 1997. The learned counsel also submitted that the copies of statement of Shri K.L. Thakkar, son of L.T. Thakkar recorded under s. 132(4) on 3rd Aug., 1996 and photo copies of the relevant seized Bombay diary have not been supplied to the assessee before placing reliance on those documents. Copy of statement of Shri Nimish Patel recorded on 24th Feb., 1999 had also not been given. The AO has erred in ....
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....top further investigation in this regard. He strongly urged that the order of the CIT(A) deleting the addition of Rs. 20,08,000 should be set aside and that of the AO should be restored. He further urged that the addition of Rs. 19 lakhs confirmed by the CIT(A) does not require any interference. 125. We have carefully considered the submissions made by the learned representatives of the parties. So far as the relief of Rs. 20,08,000 given by the CIT(A) in this regard is concerned, we do not find any justification to interfere with the view taken by the CIT(A), as the amount to that extent had been offered for tax by the assessee under VDIS. The learned CIT(A) has verified the application for VDIS submitted by the assessee and has given a finding that the said application was made in relation to unaccounted deposits made by the assessee with L.T. Shroff. Therefore, the income declared under VDIS had a direct nexus with the deposits in question added by the AO in the impugned assessment. The CIT(A) has therefore rightly deleted the addition to the extent of Rs. 20,08,000. 126. However, we are not inclined to agree with the view taken by the CIT(A) with regard to confirmation of....
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....hanical manner, are held to be devoid of any merit and hereby rejected. 128. Ground No. 7 relates to levy of interest under s. 158BFA(1). No arguments were advanced by the learned representatives of both sides. The AO is directed to grant consequential relief. 129. Ground No. 8 relates to initiation of penalty proceeding under s. 271(1)(c). No appeal is maintainable in relation to penalty in an appeal against the quantum proceedings. Separate appeal is maintainable against penalty order. This ground is, therefore, not entertainable and is accordingly rejected. IT (SS) A no. 38/Ahd/2002 by the Revenue in the case of NKIL: 130. Now we will deal with the Revenue's appeal in the case of NKIL being IT (SS) A No. 38/Ahd/2002. Ground No. 1 relating to deletion of disallowance of Rs. 1,66,45,228 made by the AO in respect of bogus purchases has already been discussed and decided hereinbefore. This ground raised by the Revenue has been partly allowed. 131. Ground No. 2 relating to deletion of addition of Rs. 6,63,19,496 made in respect of unexplained deposits in the bank accounts of bogus suppliers has already been dealt with and decided while dealing with similar ground raise....
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....ed the order of the CIT(A). He submitted that the machinery once purchased is merged with the block of assets and thereafter identity of individual asset is lost. The block of assets cannot thereafter be segregated with reference to itemwise claim for depreciation. The CIT(A) after a careful consideration of all the relevant details, material and evidence has come to the conclusion that all these items of machinery were ready for use. The assessee is clearly entitled to grant of depreciation in view of the judgments in the cases reported as CIT vs. Geo Tech Construction Corporation (2000) 162 CTR (Ker) 528 : (2000) 244 ITR 452 (Ker), Inductotherm (India) Ltd. vs. Dy. CIT (2000) 69 TTJ (Ahd) 753 : (2000) 73 ITD 329 (Ahd), 251 ITR 333 (Guj) (sic), CIT vs. Refrigeration & Allied Industries Ltd. (2000) 160 CTR (Del) 498 : (2000) 113 Taxman 103 (Del)and77 ITD 401 (sic). 135. We have considered the submissions made by the learned representatives of the parties and have perused the orders of the learned Departmental authorities. The Department has not disputed the correctness of the fact of purchase of these assets by the assessee. According to the assessee, all these items of machiner....
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..... and further stated that the assessee does not know anything about the seized diary of M/s J.D. Shroff. Xerox copy of the diary on which the words "N K" and "K V" have been mentioned does not mean that the amount is in respect of assessee's transactions. It was further stated that nothing was found during the search at the place of the assessee regarding the transactions with M/s J.D. Shroff. In the absence of any material, it cannot be treated as undisclosed income within the purview of block assessment. 138. The AO considered the submissions and gave following finding on p. 25 of the assessment order in the case of NKIL: "The submission of the assessee is carefully considered. There is no substance in the contention of the assessee that these are not related to them. As already discussed J.D. Shroff have admitted that these are unaccounted books and he identified the parties whose names are mentioned in these books. The unaccounted cash deposit as on 31st March, 1996 is Rs. 3,12,21,991 and on 31st March, 1997 is Rs. 4,21,34,604 as per these seized documents. These cash deposits are related to two companies viz. NKIL and K.V. Patel & Co. No bifurcation is given in these loo....
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....eted the addition made in respect of unaccounted interest on aforesaid deposits. 142. The learned Senior Departmental Representative submitted that the aforesaid additions made on the basis of records seized during the search from the premises of J.D. Shroff comes within the ambit of undisclosed income under Chapter XIV-B in the case of the assessee also. Since the raid under s. 132 had also been conducted in the case of the assessee, the AO could validly rely upon such material found and seized during the search. The learned Senior Departmental Representative submitted that this is one of the reasons recorded in the satisfaction note prepared by the concerned authorities before conducting the search. The addition in question therefore squarely comes within the definition of "undisclosed income" given in s. 158B(b) and 158BB(1) of the Act. The learned Senior Departmental Representative strongly relied upon the reasons mentioned in the assessment order. 143. The learned counsel strongly supported the order of the CIT(A). He submitted that no reliance can be placed on the statement of M/s J.D. Shroff recorded under s. 131 during the course of assessment proceedings in the case ....
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....ooks of accounts in both these cases were found and seized. In both these cases it was noticed that these two Shroffs were having huge unaccounted transactions with N.K. Group concerns. In their statements recorded under s. 132(4) and 131(1A), they confirmed huge unaccounted transactions with N.K. Group of concerns. It is, therefore, clear that the addition, if any, is sustainable in relation to entries found in the seized diary and other seized records found and seized from J.D. Shroff and L.T. Shroff Group would come within the ambit of undisclosed income in the block assessment required to be made in the cases of these assessees after the searches were conducted against these assessees also. The mere fact that the AO could initiate action under s. 158BD soon after the searches in the cases of J.D. Shroff and L.T. Shroff, but had not done so, would not disentitle the AO to include such undisclosed income while making assessments under Chapter XIV-B in the cases of these assessees. The undisclosed income found as a result of search, would include within its ambit the undisclosed income found as a result of pre-search, investigation leading to search, material found during the sear....
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....ontents of the above referred seized documents. 147. On a careful consideration of the entire relevant facts, we are of the view that the point raised in both these appeals by the Revenue, one in the case of NKIL vide Ground No. 5 and the other raised in Revenue's appeal in the case of M/s K.V. Patel & Co. vide ground Nos. 1 and 2 should be restored back to the AO for passing fresh order. The orders of the CIT(A) and the AO in relation to these grounds in both these cases are, therefore, set aside and the matter is restored back to the AO with a direction that he should pass fresh order after providing adequate and reasonable opportunity to the assessee and in accordance with the provisions of law. Hence these grounds raised by the Revenue in these two appeals are treated as allowed for statistical purposes. 148. Ground No. 6 raised by the Revenue in their appeal in the case of NKIL-IT (SS) A No. 38/Ahd/2002-relates to deletion of addition of Rs. 29,56,33,782 made on account of alleged unaccounted sales. The learned Senior Departmental Representative simply relied on the reasons mentioned in the assessment order. 149. The learned counsel appearing on behalf of the assessee....
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....the figures as stated therein are found to be valid having regard to the above factual position, I am inclined to hold that the AO has to adopt a consistent approach in either accepting the entire production records and closing stock as per A-98 or accept the actual records of production and stock as per A-97. The AO cannot pick and choose entries which are suitable for taking additions and ignore those items which would result in loss in closing stock or profits. Keeping in view the argument of the appellant and the fact that the closing stock figures of castor oil and castor cake as discussed above, at the end of the financial year 1996-97 and financial year 1997-98 are much higher than those reflected in Annex. A-98, the additions made of Rs. 29.56 crores cannot be sustained since the corresponding relief would be much more than in respect of lower closing stock adopted on the basis of Annex. A-98 for the relevant periods in respect of castor oil and caster cake are adopted. Accordingly this addition is directed to be deleted." 150. The learned Senior Departmental Representative has not pointed out as to how the order passed by the CIT(A) in relation to this ground suffers fr....
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.... order. The CIT(A) has discussed this issue in para 11 on pp. 25 to 28 of his order. 152. The AO has observed that during the search, certain documents were found in respect of loss of stock from the tankers of M/s Naranbhai P. Patel (P) Ltd. (in short M/s NPPL) at Kandla. A survey report on physical verification of the stock of FSG castor oil at Kandla tankers furnished by SGS was found during the search. The survey was conducted by the surveyor at the instance of Bank of Baroda. The AO examined Shri Nimish Patel, chairman and MD of NKIL and also Shri Nilesh Patel another director of respondent company. The extracts from their statements have been given on pp. 26 and 27 of the assessment order. Survey under s. 133A was conducted at the office premises of M/s Geochem Laboratories (P) Ltd. Survey report has been reproduced in para 10.2 on p. 28 of the assessment order. A show-cause notice was thereafter issued by the AO to the assessee. The assessee's reply has been reproduced in para 10.3 on p. 29. The reply given by the assessee is reproduced below: "It is stated by you that shortage of stock of 13713 MT valued at Rs. 37.07 crores is bogus and it is stated why such claim sho....
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....CIT(A) accordingly deleted the addition. 155. The learned Senior Departmental Representative drew our attention to an appellate order passed by the appellate authority for industrial and financial reconstruction, New Delhi on 23rd May, 2000 in an appeal against BIFR order dt. 9th July, 1999 in the case of NKIL. The findings given in this appellate order with regard to the alleged shortage of 13713 MT of FSG castor oil worth Rs. 37.08 crores are very vital and relevant for deciding the point in issue. The learned Senior Departmental Representative submitted that the AO has not made addition of Rs. 37.08 crores for which the assessee has issued a bill in the name of M/s NPPL and credited the said amount to sales account with corresponding debit to the account of M/s NPPL with the remarks that recovery is doubtful. The AO has only made an addition of GP at the rate of 10 per cent because the sale bill issued by the assessee against M/s NPPL is false and fabricated as M/s NPPL have denied having received any such goods for storage in their tanks or as the purchases made from NKIL. It is, therefore, clear that the assessee has sold the aforesaid material outside the books of accounts....
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....und on the basis of physical verification of stocks conducted by SGS in respect of finished goods storage at Kandla, and NKIL has raised debit note of the said amount on the tank owner NIPPIPL, that the said amount is included in sales and classified as doubtful debts. The statutory auditors have expressed their inability to give opinion on the recoverability of the amount. (c) NKIL failed to provide any documentary evidence about the transport of the missing oil from NKIL's plant at Kadi to Kandla port. This is evident from NKIL's letter dt. 7th Nov., 1998 to M/s R.C. Shah & Co., CAs. (d) The missing quantity of castor oil and the value thereof were included in sales by NKIL only after the shortage came to the notice of the bankers following physical verification of stocks. The fact that the amount of Rs. 38 crores is shown as doubtful debtors of less than 6 months is indicative of future plans for writing off the said amount. The prime responsibility for this shortage rests with NKIL/management. Such a large quantity of FSG castor oil (about 1400 truck-tank loads) cannot disappear into thin air. This, in our view, is a case of clandestine sales and siphoning away of sales p....
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.... as a result of post-search investigation conducted by Dy. DIT/Addl. DIT. The AO gave full opportunity to the assessee in relation to the aforesaid point. The statement of the directors have also been recorded. The profit at the rate of 10 per cent has been taken by the AO on the basis of GP rate of preceding years. The assessee has not given any details of cost of material in question and direct expenses incurred on transportation etc. to show that sale account was credited at market value. Even assuming it was credited at market value, the sale proceeds of material sold in clandestine manner was kept outside the books, as the debit in the account of NPIPL is a bogus debit entry. The income derived on such sale proceeds of more than Rs. 37 crores kept outside the books during block period is likely to be more than 10 per cent for the period covered in the block assessment. We are therefore of the considered opinion that the AO had rightly made the addition of Rs. 3,70,78,125 being 10 per cent profit derived on such clandestine sale of FSG castor oil sold by the assessee outside the books. 159. The Revenue's appeal in the case of M/s K.V. Patel & Co. being IT(SS)A No. 39/Ahd/200....
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....Rs. 37,19,85,062 made on account of unexplained investments. 163. This ground has already been considered and decided while dealing with the similar ground in the cases of NKPL and NKIL. The Revenue's appeal is accordingly dismissed subject to observations made para-100 of this order. 164. Shri Nileshbhai K. Patel has raised the following grounds in CO No. 65/Ahd/2002: 1. The block assessment is voidab initio since the notice issued under s. 158BC does not mention the status of the assessee and does not mention the correct block period and therefore the notice issued is invalid. 2. The block assessment is bad in law inasmuch as nothing the found during search about the deposits in the bank account of the proprietory concerns held as benami and that it does not form part of the block assessment. 3(a) The order of block assessment is bad in law and illegal inasmuch as the approval of Jt. CIT is granted under s. 158BC without giving any opportunity to the assessee of being heard. The power to grant approval is quasi-judicial and not administrative and therefore, there has to be a judicial approach on entire facts, material and evidence [Kirtilal Kalidas & Co. vs. Dy. CI....