TaxTMI 
TaxTMI 
2005 (8) TMI 290
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.... Smt. Poonam Arora-Wife of Shri Kuljeet Singh Arora. M/s Arora Construction & Developers-Partnership firm. M/s Modern Dairy & Ice Plant-Partnership firm. M/s Modern Cream Dairy Ind. (P) Ltd.-Private limited company 1.2 Statement under s. 132(4) of the main person of group-assessee, Shri Jagmohan Singh Arora was recorded in the course of such search proceedings. The said interrogation began at 10 p.m. and continued till 5 a.m., the next morning. During the course of such interrogation the appellant was questioned about receipt of on-money on account of construction project at Bhayandar and also unaccounted investment in the land purchased at Bhayandar by the assessee-group. On being denied the allegation of receipt of such on-money and also of unaccounted investment, the Department presented before the assessee certain pages of a seized document identified as A-6, seized from the residence of one Shri J.P. Achnani and his statement under s. 132(4) wherein he had alleged the same to be belonging to the assessee-group containing recordings regarding receipts and payments (both accounted and unaccounted) relating to construction project and also purc....
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....he different individual members of the assessee-group were assessed at Rs. 40,75,490 for Shri Daya Singh Arora; Rs. 2,32,384 for Smt. Varyam Kaur Arora, Rs. 1,09,72,993 for Shri Jagmohan Singh Arora, Rs. 6,97,152 for Smt. Neeta Arora; Rs. 42,81,034 for Shri Kuljeet Singh Arora; Rs. 37,12,402 for Smt. Poonam K. Arora and Rs. 52,68,146 for M/s Arora Construction & Developers. In the said overall additions were included additions on account of unrecorded investments in Bhayandar land to the respective extent of Rs. 33,57,950; Rs. 2.32,384; Rs. 1,01,06,380; Rs. 6,97,152; Rs. 38,34,336, Rs. 37,16.402 and Rs. 52,68,146. In making the additions on proportionate basis in the hands of the different members of the appellant group in respect of Bhayandar land, on the basis of the so-called confession of Shri Jagmohan Singh Arora, the Department relied upon the following pronouncements (i) V. Kunhambu & Sons vs. CIT (1996) 131 CTR (Ker) 396 : (1996) 219 ITR 235 (Ker) (ii) Surjeet Singh Chabra vs. Union of India AIR 1997 SC 2660 (iii) Param Anand Builders (P) Ltd. vs. ITO (1996) 56 TTJ (Mum) 21 : (1996) 59 ITD 29 (Mum) The additions in the assessment order we....
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....II) dt. 10th March, 2003 issued by the CBDT also instructs the officers of the Department not to place much reliance on uncorroborated depositions taken at the time of the search. Copy of the said circular is reproduced below: F. No. 286/2/2003-IT (Inv. II) "Government of India Ministry of Finance & Company Affairs Department of Revenue Central Board of Direct Taxes Room No. 254, North Block, New Delhi, the 10th March, 2003. To All Chief CIT (Cadre Controlling) & All Directors General of IT (Inv.) Sir, Subject: Confession of additional income during the course of search and seizure and survey operation-regarding. Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search and seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, such confessions during the course of search and seizure and survey operation do not serve any useful purpose. It is, ....
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....up. He argued that such action of the Department is totally in violation of the principles of natural justice and is arbitrary. The learned Authorised Representative on behalf of the assessee had further argued that the above view is further strengthened by the fact that the papers on the basis of which the said additions were being proposed were simply loose sheets of paper and not a part of books of account of anybody. 2.3 The learned Authorised Representative on behalf of the assessee had relied on several judicial pronouncements in support of the principle that no addition can be made on the basis of entries made by a third party in his books of account or any loose sheet from the custody of a third party. The above view is supported by the Bombay High Court in the case of Asstt. CIT vs. Lata Mangeshkar (1974) 97 ITR 696 (Bom), wherein it has been held that entries in the accounts of third party regarding payment to the assessee were not sufficient as there was no proof that the same were genuine. The same view was endorsed by the Hon'ble Tribunal, Delhi Bench in the case of Amarjit Singh Bakshi (HUF) vs. Asstt. CIT (2003) 81 TTJ (Del)(TM) 169 : (2003) 263 ITR 75 (....
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....erials on the basis of which addition was proposed to be made. The same was not found from his custody. They were not written by him or any of his family members. His regular books were not available with him. That besides, the search had begun in the early . morning hours and continued throughout the whole night. Search was simultaneously conducted at other business premises. He was constantly misinformed about the happenings at such places. He was being continually interrogated and after more than 12-14 stressful hours, he was presented with materials seized from a third party, his statement on the same and him in person. He was in no state of mind to fully understand what was happening not to speak of being able to conduct a meaningful cross-examination. Hence the only opportunity provided by the Department was as good as not providing an opportunity to cross-examine thereby violating the principles of natural justice. 2.6 Further it was argued that the assessee went on arguing that the assessee must be made available. with a complete set of seized materials and statements proposed to be used against him. Such materials must be made available in advance so as to enable ....
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....seized documents. According to the learned Authorised Representative on behalf of the assessee such uncorroborated materials, even if they had been seized from the premises of the assessee, would not have had any evidentiary value. 2.9 Without prejudice to the above, the learned Authorised Representative- on behalf of the assessee further pointed out that the seized document A-6 in its entirety, on the basis of which additions have been made was not made available to the assessee-group till after the appeals were disposed of by the CIT(A). Since the complete set of documents was not available with the assessee-group they were not in a position to examine the same. On receipt of the said documents and its complete examination, it was found that only the part of it which is beneficial to the Revenue had been utilised by the Department and papers which are favourable to the appellant group had totally been ignored. In this regard our attention was invited to p. 412 of the paper book Part II of Jagmohan Singh Arora and Kuljeet Singh Arora being p. 119 of seized document A-6 which records receipt of substantial amounts. The same is stated to be money received against booking ad....
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....ts. He stated that such booking advances cannot be considered to be income inasmuch as the same is nothing but advances duly shown in the "liabilities" side of balance sheet. The same cannot be considered as an income. He drew our attention to the decision of the Tribunal, Calcutta Bench in the case of South Calcutta Promoters (P) Ltd. vs. ITO, wherein the above view has been upheld. 2.10 The learned Authorised Representative on behalf of the assessee had further argued that the assessments made by the Department are also erroneous inasmuch as each assessee belonging to the group has been considered independently of the others leading to multiple taxation. It belongs to "Modern Group" which is mainly engaged in dairy business. Two primary business concerns of the said group are M/s Modern Cream Dairy (P) Ltd. (a closely-held company) and M/s Modern Dairy & Ice Plant (a partnership concern) for which declarations of unaccounted income of Rs. 1 lakh and Rs. 55 lakhs have been made. The fact that unaccounted money, if any, in the hands of the assessee has come from such dairy business has been altogether ignored. He pointed out: (i) No effort whatsoever was made to r....
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....es below, rival submissions of both the sides and material on record, we are of the opinion that the question of whether any reliance and if so, how much reliance can be placed on the statements made during search, would depend on the facts of each case. We find enough force in the arguments on behalf of the learned Authorised Representative of the assessee as supported by the judgments cited by him and also corroborated by supporting materials and evidences, no addition can be made simply on the basis of such uncorroborated statement/disclosure. On the other hand, we find that the judgments as cited by the Departmental Representative are not applicable to the cases of the appellant group inasmuch as in each of the said cases, the respecting AO conducted independent enquiries to follow up the confessional statements made during the searches and found out corroborations of such statements in some way or other. In the instant cases, however, the present AO did not conduct any enquiry from any of the parties whose names appear in the seized documents and simply based his findings on the initial statements of Shri Jagmohan Singh Arora given at the time of the search and also the statem....
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....nsideration all the above aspects, we hold that the additions as made by the AO in this regard in the hands of the different members of the assessee-group including the partnership firm,. are untenable. We, therefore, delete them. 5. The next ground relates to additions on account of unexplained investment in jewellery in the hands of Shri Daya Singh Arora, Shri J.S. Arora and Shri Kuldeep Singh Arora of the amounts of Rs. 3,62,475, Rs. 3,41,613 and Rs. 2,68,698 respectively. The facts in this regard are that during the course of search, jewelleries of certain values were found. In absence of wealth-tax returns, the AO, after allowing the benefit as per CBDT Circular No. 1916, dt. 11th May, 1994, taxed the balance. 5.1 In this regard, the learned Authorised Representative of the assessee submitted that in the case of M/s Modern Dairy & Ice Plant, disclosure of a total amount of Rs. 55,00,000 was made out of which Rs. 25,93,595 was offered not towards any specific issue but just to cover any discrepancy (which may arise later on) and that the AO did not adjust the amounts of the additions against the figure offered on the ground that both were different entities ignoring the f....
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.... the business activity has already started, at least part payment could hardly be doubted. The AO relied on the statement of Shri Jagmohan Singh Arora recorded on 11th March, 1999, wherein he gave an approximate figure of Rs. 4,75,000 regarding the investment. 7.1 The learned Authorised Representative of the assessee submitted that the figure given is just an approximation and further no evidence in this regard was found in the course of search and that the MoU in itself was unsigned. He also pointed out that moreover in the case of M/s Modern Dairy & Ice Plant, Rs. 25,93,595 was offered to cover any discrepancy. The learned AO, did not adjust the said amount against the figure offered on the ground that both were different entities ignoring the fact that they belonged to a common group and the only source of income is the dairy group. 7.2 The issue is similar to those relating to unexplained cash and unexplained jewellery. We find that as the AO has not allowed any adjustment against the disclosure of Rs. 25,93,595 made by M/s Modern Dairy & Ice Plant, all the amounts considered as undisclosed income on account of unexplained cash, unexplained jewelleries and also the unexpl....
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....the sales of other products might have been inadvertently included in the sale of milk products, but as far as the sales value is concerned the sales value of all the products put together tallied with the sales as shown in the books of account. Hence, according to the assessee, there was no question of suppression of sales. 10.4 However, the AO found several defects in the said chart submitted by the assessee-group. Firstly, the quantity of milk available was less while the sale was more. That, according to the AO, clearly showed that unaccounted milk had been purchased and sold. 10.5 The second defect, according to the AP, was that in cases of paneer and cream there had been more production and less sales. Hence, according to the AO, this was a case of suppression of sales. The AO, further argued that since the expenses in respect of all such production of paneer and cream have already been debited to P&L a/c, the entire unaccounted sales were to be treated as unaccounted income. The AO worked out the unaccounted income in the former case by applying GP rate of 13 per cent on the difference in values of sales and in the latter case by treating the entire difference as unacc....
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....f the notings on the first half of the page, from which consumption of milk for making different items is deducted. The details and break-up of such consumption is recorded on lower half of the page. The balance is then compared with the physical balance and the "Ex" i.e., excess or deficit r is recorded. Page 348 is a recording of item-wise production and dispatch. Here, "W-Pkt" stands for whole milk packets, "W-loose" stands for whole milk loose, "T-Pkt" stands for Tone Milk whole, "T-loose" stands for toned milk loose, then there is cream, malai, paneer, fresh paneer, butter, curd, ghee and skimmed milk. "Pvt. Ltd." Stands for M/s Modern Dairy Ind. (P) Ltd., "Ice Plant" stands for M/s Modern Dairy & Ice Plant, "D/o" stands for delivery order, "R. Yadav" stands of the delivery person and "cash sale" stands for the same. The aggregate of all this is the total quantitative sale item-wise. The lower part of the page records opening balance, production, receipts and return item-wise of both the concerns. 10.8 It was explained by the learned Authorised Representative of the assessee that on the other hand, pp. 353 and 354 are a sample of the sales register maintained by the assesse....
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.... that milk and milk products are perishable in nature cannot be overlooked. 10.11 The learned Authorised Representative on behalf of the assessee had finally argued that an important point though put up before the Department but ignored is that the sale of milk might be included in sale of milk products. This may happen because in dairy business one item invariably becomes the raw material for the other. For example milk is the raw material for curd and curd is the raw material for ghee. He argued that the overall quantitative tally is more important and is required to be taken into account. 10.12 On the other hand, the learned Departmental Representative, relied strongly on the orders of the authorities below. 10.13 On a perusal of the records including the seized documents and also comparing the same with the regular books of account (copies of which have been furnished before us), we are inclined to agree with the contentions on behalf of the assessees. We are of the opinion that actually milk and milk products are similar items and that the first is used as the raw material for production of the second. Again, different items of milk products also form raw materials of....
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.... i.e., instruction books containing rough notings. The versions of the assessee before the AO were as follows. The figures of production of ghee noted therein were not the figures of fresh ghee produced. Those were the figures of production of ghee including the production of ghee made earlier. The assessee further submitted that the ghee was produced and kept in cans in molten form. ghee has to be packed in molten form only. Depending on the demand the molten ghee is packed. If the ghee in the cans freezes before packing then the frozen ghee is re-used for production in the next batch. The frozen ghee is re-melted and shown as production of that batch. Hence the ghee actually packed should be treated as production. The same is shown as sales in regular books and hence there was no suppression of the same. 11.1 However, the AO refused to accept the explanation of the assessee and on the aggregate of alleged production of 6822.3 kgs. as worked out from seized registers A-18 and A-19, he applied the average sale price of Rs. 140. From the figure of Rs. 9,55,122 so worked out, sales as per books being Rs. 4,26,562 was deducted and the balance Rs. 5,28,559 was treated as suppressed ....