The Dy. CIT., Baroda Circle-1, Baroda. V. Jal Hi-Power Petrochem Ltd., Baroda.

ITA 1065/AHD/2004

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5106 (ITAT-AHMEDABAD)
• Duration Of Justice: 15 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 27-06-2017
• Assessment Year: 1998-1999
• Appeal Filed On: 05-04-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMESH CHANDRA DANDAY
• Keywords: Bogus purchase; Unexplained investment; Unexplained expenditure; Gift; Business income; Depreciation; Search and seizure; Tangible material; Corroborative evidences; Tax effect; Set aside
• Section: 69C; 43B; 143(3); 234B; 133(6); 37(1); 205; 250; 139(1); 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE JUSTICE SHRI P. P. BHATT, PRESIDENT AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NOS. 1003 TO 1005/AHD/2004 (ASSESSMENT YEARS: 1998-99 TO 2000-01) M/S. ATREYA PETROCHEM LTD. (FORMERLY KNOWN AS JAL HI POWER PETRO LTD.) NR. SARDAR PATEL STATUE, SAYAJIGUNJ, BARODA. VS. DCIT, CIRCLE 1, BARODA. AND ITA NOS. 1065 TO 1067/AHD/2004 (ASSESSMENT YEARS :1998-99 TO 2000-01) DCIT, CIRCLE 1, BARODA VS. JAL HI-POWER PETROCHEM LTD, 9 TH FLOOR, GALAV CHAMBERS, NEAR SARDAR PATEL ESTATE, SAYAJIGUNJ, BARODA [PAN NO. AAACJ 4907 C] ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI SANJAY R. SHAH , A.R. REVENUE BY : SHRI RAMESH CHANDRA DANDAY, CIT-D.R. DATE OF HEARING 29/07/2019 DATE OF PRONOUNCEMENT 24 /10/2019 O R D E R PER SHRI WASEEM AHMED, ACCOUNTANT MEMBER : THESE ARE SIX APPEALS FILED BY THE ASSESSEE AND REV ENUE AGAINST THE SEPARATE ORDERS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-I, BARODA, DATED 28.01.2004 FOR THE ASSESSMENT YEARS (AYS) 1998-99 TO 2000-01. - 2 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 2. FIRST WE TAKE UP ASSESSEES APPEAL BEARING ITA N O.1003/AHD/2004 FOR THE A.Y. 1998-99. THE ASSESSEE HAS RAISED THE FOLLOWING CONCISE GROUNDS OF APPEAL: YOUR APPELLANT BEING AGGRIEVED BY THE ORDER PASSED BY THE CIT(A)-I, BARODA [HEREINAFTER REFERRED TO AS LEARNED CIT(A)] U/S 2 50 OF THE ACT, PRESENTS THIS APPEAL ON THE FOLLOWING AMONGST OTHER GROUNDS OF THE APPEAL. THE GROUNDS SET OUT HEREUNDER ARE INDEPENDENT OF AND WITHOUT PREJUDICE TO EACH OTHER. 1. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDING REJECTION OF APPELLANTS BOOKS U/S 145(2) AND IN RETAINING ADDIT ION OF RS. 16,19,419/- IN RESPECT OF ALLEGED SALE OF APPELLANTS SOLVENT PROD UCTS AT A PRICE HIGHER THAN THE ONE AT WHICH THEY ARE RECORDED IN THE BOOKS PARTICU LARLY WHEN THE SAME WAS ONLY ON THE BASIS OF THE ESTIMATION AND ALSO AS OBSERVED BY THE LEARNED CIT(A) HERSELF IS SUBJECT TO RECALL/RECTIFICATION BASED ON THE AVA ILABILITY OF FURTHER EVIDENCES. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING AND RETAI NING ADDITION OF RS. 16,19,419/- PARTICULARLY WHEN THE ORDER OF DISTRICT MAGISTRATE IMPLICATING THE APPELLANT IS CHALLENGED IN FURTHER PROCEEDINGS, WHOSE OUTCOME IS YET NOT FINAL AND PARTICULARLY WHEN NO PETROL PUMP OWNER WAS EVER EXAMINED BY THE A.O. TO SUPPORT HIS FINDINGS IN PARTICULARLY WHEN THE COMPLAINT WITH TH E DISTRICT MAGISTRATE DID NOT COVER FINANCIAL YEAR 1997-98 RELEVANT TO ASSESSMENT YEAR 1998-99. 3. THE LEARNED CIT(A) ERRED IN CONFIRMING AND RETAI NING THE ADDITION OF RS. 16,19,419/- IN RESPECT OF ALLEGED SALE OF SOLVENT P RODUCTS TO PETROL PUMP OWNERS IGNORING SOME VITAL FACTS AND GIVING INCORRECT FIND INGS CONTRARY TO THE EVIDENCES AND FACTS. 4. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDIT ION OF RS. 23,68,584/- ON ACCOUNT OF DISCREPANCY BETWEEN THE ACCOUNTS OF RELIANCE IND USTRIES LTD. AND HPCL IN APPELLANTS BOOKS AND THEIR CONTRA ACCOUNTS FROM TH EIR BOOKS. WITHOUT PREJUDICE TO ABOVE, IF IN ANY EVENT, IT IS HELD THAT SUCH ADDITION IS REQUIRED TO BE MADE, THE SAME SHOULD BE TELESCOPED AGAINST THE ADDITION OF RS. 16,19,419/- RETAINED IN RESPECT OF ALLEGED SOLVENT PRODUCTS. 5. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACT O F THE A.O. TO DISALLOW THE PRE- OPERATIVE EXPENSES W/OFF RS. 9,76,201/- DURING THE YEAR AS A PART OF CLAIM U/S. 35D OF THE I.T. ACT. 6. THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOWA NCE OF RS. 1,67,606/- TOWARDS FOREIGN TRAVELLING EXPENSES OF APPELLANTS MANAGING DIRECTOR. YOUR APPELLANT SUBMITS THAT THE SAME WERE FOR BUSINESS PURPOSE AND HENCE ADDITIONS CONFIRMED BE DELETED. - 3 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 7. THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOWA NCE OF RS. 18,376/- IN RESPECT OF DIWALI, OFFICE AND STAFF WELFARE EXPENSES. IT IS S UBMITTED THAT IT BE SO HELD NOW AND ADDITIONS CONFIRMED BE DELETED. 8. THE LEARNED A.O. AS WELL AS CIT(A) ERRED IN CONF IRMING CHARGING OF INTEREST U/S. 234B AND 234C OF THE ACT. 3. THE 1 ST ISSUE RAISED BY THE ASSESSEE IN GROUND NUMBERS 1 T O 3 IS THAT THE LD. CIT-A ERRED IN CONFIRMING THE ADDITION IN PART AMOUNTING TO RS. 16,19,419.00 ONLY REPRESENTING THE SALE PRICE HIGHER THAN THE PRICE RECORDED IN TH E BOOKS ON ACCOUNT OF UNACCOUNTED SALE TO THE PETROL PUMP OWNERS/OTHER INDUSTRIES AND AFTE R REJECTING THE BOOKS OF ACCOUNTS. 4. THE SAME ISSUE WAS ALSO RAISED IN THE AYS 1999-2 000 AND 2000-01, THEREFORE WE HAVE CLUBBED ALL OF THEM FOR THE SAKE OF BREVITY, C ONVENIENCE AND ADJUDICATION. 5. THE FACTS AS CULLED OUT FROM THE ORDER OF THE AU THORITIES BELOW ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A LIMITED COMPANY AND ENGAGE D IN THE BUSINESS OF MANUFACTURING OF VARIOUS PETROCHEMICAL PRODUCTS LIKE NAPTHA, SPRING OIL, INK OIL, GINNING OIL, SOLVENT ETC. THE ITEMS IN WHICH THE ASSESSEE IS DEALING ARE GOVE RNED AND CONTROLLED BY THE PREVENTION OF BLACK MARKETING OF ESSENTIAL COMMODIT IES ACT. THE ASSESSEE WAS PURCHASING SUCH PRODUCTS FROM VARI OUS COMPANIES SUCH AS IOCL, HPCL, BPCL, IPCL, RELIANCE INDUSTRIES ETC. THE ASSE SSEE CLAIMED THAT IT HAS SOLD SUCH PRODUCTS AFTER CARRYING OUT MANUFACTURING PROCESS T O VARIOUS COMPANIES FOR THE INDUSTRIAL PURPOSES. THE LIST OF THE PRODUCTS SOLD WITH THE QU ANTITY AND THE DETAILS OF THE COMPANIES/PARTIES AS CLAIMED BY THE ASSESSEE IS AVA ILABLE ON PAGES 5 TO 8 OF THE ASSESSMENT ORDER. 6. BEFORE COMING TO THE SPECIFIC ISSUE, IT IS PERTI NENT TO NOTE THE BACK GROUND OF THE DISPUTE INVOLVED IN THE CASE ON HAND WHICH GOES AS UNDER: - 4 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 A. BRIEF HISTORY OF THE CASE THERE WAS A SEARCH CONDUCTED BY THE SALE TAX DEPART MENT DATED 16 TH FEBRUARY 2000 AND THEREAFTER THERE WAS AN INSPECTION CARRIED OUT BY THE DISTRICT SUPPLY TEAM AT THE FACTORY PREMISES OF THE ASSESSEE DATED 18 FEBRUARY 2000 INCLUDING THE RAIDS OF THE POLICE. ACCORDINGLY, THE VARIOUS STATEMENTS OF THE PARTIES, TRANSPORTER, DRIVER AND OTHER ASSOCIATED PERSONS WERE RECORDED BY THE SALES TAX/ DSO/ POLICE OFFICER ETC. B. SEARCH BY THE SALES TAX DEPARTMENT DATED 16 FEBRUAR Y 2000 THE SALE TAX DEPARTMENT IN CONSEQUENCE TO THE SEARC H, VIDE ORDER DATED 31 AUGUST 2000 WITHDREW THE BENEFIT CLAIMED BY THE ASSESSEE O N THE PURCHASE OF THE GOODS AND TREATED THE ENTIRE AMOUNT OF INTERSTATE SALE AS LOC AL SALE AND ALSO INCREASED THE AMOUNT OF SALE ON AD-HOC BASIS. ACCORDINGLY, THE SALES TAX DE PARTMENT RAISED DEMAND OF TAX, CHARGED INTEREST AND LEVIED A PENALTY UNDER THE LOCAL AND C ENTRAL SALES TAX ACT FOR THE PREVIOUS YEARS 1997-98, 1998-99 AND 1999-2000(UP-TO 15 TH FEBRUARY 2000). THE DEPARTMENT ALSO SEIZED ALL THE BOOKS OF ACCOUNTS AND OTHER DOCUMENT S OF THE ASSESSEE IN THE SEARCH. THE ASSESSEE CARRIED THE MATTER TO THE HIGHER FORUM BUT NO SUCCESS. THE ASSESSEE FURTHER CARRIED THE MATTER TO THE SALES TAX TRIBUNA L WHICH RESTORED THE MATTER TO THE COMMISSIONER OF SALES TAX (APPEALS) WHO IN TURN SET ASIDE THE MATTER TO THE AO FOR FURTHER VERIFICATION. C. INSPECTION BY DISTRICT SUPPLY DEPARTMENT DATED 18 F EBRUARY 2000 AS ALL THE DOCUMENTS WERE SEIZED BY THE SALES TAX D EPARTMENT, THE DISTRICT SUPPLY TEAM COLLECTED THE NECESSARY DETAILS FROM THE SALES TAX OFFICE ABOUT THE PARTIES TO WHOM THE ASSESSEE CLAIMED TO HAVE SOLD THE GOODS. THE DISTRI CT SUPPLY TEAM ACCORDINGLY TO VERIFY THE GENUINENESS OF THE PARTIES TO WHOM THE ASSESSEE SOLD THE GOODS VISITED TO THE BUSINESS - 5 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 PREMISES OF ONE OF THE PARTY OF THE ASSESSEE NAMELY , PARSHWA INDUSTRIES ON 01-03-2000 LOCATED AT PLOT NO. F/93, RICCO INDUSTRIAL ESTATE, SWAROOP GANG, TAL PINDWARA, DISTT. SIROHI, RAJASTHAN. BUT THE TEAM DID NOT FIND ANY FA CTORY IN EXISTENCE AT THE GIVEN ADDRESS. HOWEVER, THE OWNER OF PARSHWA INDUSTRIES NAMELY SHR I GOPAL BHAI SHAH ADMITTED IN HIS STATEMENT DATED 7 TH MARCH 2000 THAT IT USED TO PURCHASE THE PRODUCTS F ROM THE ASSESSEE. BUT LATER ON, SHRI GOPAL BHAI SHAH IN HIS STATEMENT DATED 22 MARCH 2000 CHANGED HIS STAND AND ADMITTED THAT IT USED TO PROVIDE BOGUS EN TRIES TO THE ASSESSEE ON COMMISSION BASIS AT THE RATE OF RS 0.40 PER LITER THROUGH THE INVOLVEMENT OF SHRI MANOJ NAYAK A PERSON CLOSE TO THE DIRECTOR OF THE ASSESSEE COMPAN Y. THERE WAS ALSO A RAID AT THE RESIDENCE OF SHRI MANO J NAYAK DATED 8 TH OF MARCH 2000. HE ADMITTED THAT HE IS HAVING 3 TANKERS WHICH WERE FINANCED BY THE DIRECTOR OF THE ASSESSEE COMPANY NAMELY SHRI JAYESH THAKKAR IN HIS STATEMENT DATED 12-03-2000. AT THE TIME OF RAID AT THE PREMISES OF SHRI MANOJ THAKKAR, A PERSON RELATED TO THE DIRECTOR OF THE ASSESSEE COMPANY NAMELY SHRI NAVIN GANDHI HAS CONFE SSED THAT HE HAD BLANK BILL BOOK OF PARSHWA INDUSTRIES AND HARDIK INDUSTRIES. THE TEAM ALSO MADE THE ENQUIRY FROM THE CHECK POST NAMELY RAJASTHAN AND MAHARASHTRA AND FOUND THAT THERE WAS NO RECORD FOR THE TRANSFER OF THE GOODS OUTSIDE THE GUJARAT AS SHOWN BY THE ASSESSEE. IT WAS ALSO FOUND THAT THE TANKER NUMBERS MENTIONED IN THE BILL BOOK OF THE ASSESSEE WERE THE REGISTRATION NUMBER OF OTHER VEHI CLES. (THE DETAILS ARE AVAILABLE ON PAGE 238 OF THE PAPER BOOK). THERE WAS ALSO AN INSPECTION AT THE PREMISES OF THE ASSESSEE BY DSO ON 24 JUNE 1997 WHEREIN IT WAS FOUND THAT THE ASSESSEE IS INVO LVED IN THE ISSUING OF FAKE BILLS. ACCORDINGLY THE DSO SEIZED THE SOLVENT WORTH OF RS. 42,293.00. SIMILARLY, THERE WAS ONE - 6 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 MORE INSPECTION DATED 18 NOVEMBER 1997 WHERE THE LI CENSE OF THE ASSESSEE WAS CANCELLED AFTER FORFEITING THE DEPOSIT OF RS. 25,000.00. HOWE VER, THE ASSESSEE OBTAINED THE STAY AGAINST THE CANCELLATION OF THE LICENSE AND CONTINU ED HIS BUSINESS ACTIVITIES. IN VIEW OF THE ABOVE THE DISTRICT SUPPLY TEAM ALLEG ED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DISPATCHING THE GOODS IN GUJARAT BY PREPARING FAKE SALE BILLS. 7. NOW, TURNING TO THE PRESENT FACTS OF THE CASE THE AO BASED ON INVESTIGATING AGENCIES SUCH AS DIST RICT ADMINISTRATION, DISTRICT CIVIL SUPPLY AUTHORITIES, SALES TAX AUTHORITIES AND NEWSPAPER, REPORTS FOUND THAT THE ASSESSEE IS ENGAGED IN DIVERTING THE SALES OF ITS P RODUCT NAMELY SOLVENT AND OTHER PRODUCTS TO VARIOUS PETROL PUMP OWNERS BUT IN BOOKS IT IS SHOWING SALES IN THE NAME OF THE PARTIES AS DISCUSSED ABOVE. AS PER THE AO, THE ASSESSEE WAS UNDER THE OBLIGATION TO MAKE THE SALE OF ITS PRODUCTS ONLY FOR THE INDUSTRI AL PURPOSES BEING PROHIBITED / CONTROLLED PRODUCTS UNDER THE PREVENTION OF BLACK MARKETING OF ESSENTIAL COMMODITIES ACT. BASED ON THE ABOVE, THE AO WAS OF THE VIEW THAT THE ASSESSEE WAS SELLING THE PRODUCTS AT A PRICE HIGHER THAN THE PRICE RECORDED IN THE BOOKS BY DIVERTING THE SALES TO THE PATROL PUMP OWNERS/ OTHER INDUSTRIES IN THE MAN NER AS DISCUSSED ABOVE. THE ASSESSEE WAS DOING SO IN ORDER TO ACHIEVE HIGH PROFIT MARGIN . AS SUCH THE IMPUGNED PRODUCTS USED TO BE MIXED WITH THE PETROL BY THE PETROL PUMP OWNE RS. ACCORDINGLY, THE AO TO VERIFY THE VERACITY OF THE S ALES MADE BY THE ASSESSEE ISSUED NOTICES UNDER SECTION 133(6) OF THE ACT TO A LL THE PARTIES TO WHOM THE ASSESSEE CLAIMED TO HAVE SOLD THE PRODUCTS. HOWEVER, ALL SUC H NOTICES EXCEPT ONE REMAINED UN- SERVED WITH THE REMARKS NOT EXISTING/AVAILABLE AT THE GIVEN ADDRESS. ONE OF THE PARTY, - 7 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 NAMELY PRIME CHEMICALS HAS REPLIED VIDE LETTER DATE D 16-03-2001 THAT IT WAS ENGAGED IN BOGUS TRANSACTION WITH THE ASSESSEE AGAINST THE COM MISSION INCOME OF RS. 0.50 PER LITRE. THE AO ALSO OBSERVED THAT THERE WAS SUBSTANTIAL RED UCTION IN THE MANUFACTURING EXPENSES INCURRED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION VIZ A VIZ IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR DESPITE THE FAC T THE TURNOVER FOR THE CURRENT YEAR HAS BECOME DOUBLE. THE ASSESSEE IN THE IMMEDIATE PR ECEDING ASSESSMENT YEAR HAS CLAIMED EXPENSES FOR ELECTRICITY POWER AND FUEL AT RS. 8,29,372.00 AGAINST THE TURNOVER OF RS. 2,05,45,425.00 WHEREAS IT CLAIMED THE SAME EXPE NDITURE IN THE CURRENT YEAR AT RS. 5,94,354.00 AGAINST THE TURNOVER OF RS. 4,24,44,325 .00 ONLY. IN VIEW OF THE ABOVE, THE AO CONCLUDED THAT THE ASS ESSEE IS ENGAGED IN THE BUSINESS OF DIVERTING OF ITS SALES TO THE PETROL PUMP OWNERS IN THE AYS 1998-99, 1999-2000 AND 2000-01 AND ACCORDINGLY HELD AS UNDER: FOR THE AY 1998-99 12.8 FROM THE ABOVE DISCUSSION, IT IS PROVED BEYO ND DOUBT THAT THE ASSESSEE HAS NOT MADE ANY SALES OF THE VARIOUS PETROLEUM PRODUCT S AS CLAIMED TO HAVE BEEN MADE TO VARIOUS INDUSTRIAL UNITS FOR INDUSTRIAL PURPOSE. B UT IN FACT THE ENTIRE SALES HAVE BEEN DIVERTED TO NON-INDUSTRIAL PURPOSE AND ARE FOR THAT MATTER SOLD TO VARIOUS PETROL PUMPS SITUATED WITHIN GUJARAT WITH A VIEW TO GAIN MORE PR OFIT. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAS SHOWN TOTAL SALES OF 40 ,56,714/- LTRS. OF SOLVENT AND OTHER PRODUCTS TO VARIOUS PARTIES AS STATED HEREINABOVE. THE AVERAGE RATE OF THIS PER LITRE COMES TO RS. 10.46. HOWEVER, IN VIEW OF THE FACT T HAT THE ENTIRE SALES WAS MADE TO VARIOUS PETROL PUMPS, THE RATE PREVAILED AT THE REL EVANT ACCOUNTING YEAR IS ADOPTED TO WORK OUT THE EXACT SALE PRICE. THE CONSUMER PRICE OF PETROL DURING THE RELEVANT PREVIOUS YEAR WAS RS. 26.13 PAISE. HOWEVER, TAKING INTO CON SIDERATION OF THE PROFIT MARGIN OF PETROL PUMP OWNER AND THE COMMISSION FOR ACCOMMODAT ION OF SALES MADE TO SOME BOGUS COMPANIES BEING THE MAIN LENDER AS HAS BEEN CONFIRM ED BY M/S. PRIME CHEMICALS, THE AVERAGE NET SALE PRICE IS TAKEN AT RS. 24/- PER LIT ER. THUS, THE TOTAL SALES EFFECTED DURING THE PREVIOUS YEAR AND THE SUPPRESSED SALE CONSIDERA TION IS WORKED OUT AS UNDER:- TOTAL QUANTITY OF THE PRODUCTS SOLD 40,56,714 LTR S. SALE PRICE ADOPTED AS DISCUSSED ABOVE RS. 24/- PE R LITER THUS, THE TOTAL SALES REALISATIO IS + 40,56,714/- X 24 RS. 9,73,61,136/- LESS: SALES REALISATION SHOWN BY THE ASSESSEE RS . 4,24,44,325/- - 8 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 NET DIFFERENCE RS. 5,49,16,811/- . FOR THE A.Y. 1999-00 TOTAL QUANTITY OF THE PRODUCT SOLD : 1,15,18,960 LI TRES SALE PRICE @ RS.24 PER LITER RS.27,64,55,040/ - LESS: SALES SHOWN BY THE ASSESSEE RS.10,46,85,7 02/- RS.17,17,69,338/- FOR THE A.Y. 2000-01 TOTAL QUANTITY OF THE PRODUCT SOLD : (13762155 X RS.24) RS.33,02,91,720/- LESS: SALES SHOWN BY THE ASSESSEE RS.11,77,32,6 09/- RS.21,25,59,111/- IN VIEW OF THE ABOVE, THE AO MADE THE ADDITION OF T HE AMOUNT STATED ABOVE IN THE DIFFERENT ASSESSMENT YEARS TO THE TOTAL INCOME OF T HE ASSESSEE. 8. THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO TH E LD. CIT(A). 9. THE ASSESSEE BEFORE THE LD. CIT(A) SUBMITTED THA T THE ADDITION HAS BEEN MADE BY THE AO AFTER PLACING HIS RELIANCE ON THE STATEMENT/ REPLY OF THE OWNER/PROPRIETOR OF M/S PARSHWA CHEMICALS, PRIME CHEMICALS, REPORT OF THE D ISTRICT SUPPLY AUTHORITY, TANKER DRIVER AND THE INVESTIGATION CARRIED OUT BY THE POLICE AUT HORITIES, DISTRICT ADMINISTRATION, SALES TAX DEPARTMENT AND NEWSPAPER REPORT. BUT SUCH DETAI LS/INFORMATIONS/STATEMENTS AS RELIED BY THE AO WERE NOT SUPPLIED TO THE ASSESSEE FOR HIS REBUTTAL/COMMENTS. 10. THE FACT THAT THE NOTICES ISSUED BY THE AO UNDE R SECTION 133(6) OF THE ACT TO THE PARTIES OF THE ASSESSEE WAS BROUGHT TO THE NOTICE O F THE ASSESSEE AT THE FAG-END OF THE ASSESSMENT IN MARCH 2001 JUST BEFORE FEW DAYS OF FI NALIZATION OF ASSESSMENT WHICH WAS COMPLETED BY THE AO ON 30-03-2001. - 9 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 11. IN CASE OF NON-SERVICE OF NOTICE TO THE PARTIES , THE AO WAS TO DEPUTE THE INSPECTOR OF THE INCOME TAX TO CARRY OUT THE VERIFICATION FOR THE GENUINENESS OF THE PARTIES. THE ASSESSEE ALSO SUBMITTED THAT ITS CASE WAS VERY MUCH HIGHLIGHTED IN THE NEWSPAPER, THEREFORE IT MIGHT BE POSSIBLE THAT THE PARTIES DID NOT ACCEPT THE NOTICES ISSUED UNDER SECTION 133(6) OF THE ACT OUT OF THE FEAR OF GETTIN G THEIR NAME DRAGGED BY THE DISTRICT ADMINISTRATOR AND POLICE AUTHORITIES IN CRIMINAL PR OSECUTION. THE ASSESSEE FURTHER APPREHENDED THAT IT MIGHT BE POSSIBLE THAT THE BUYE R AFTER THE PURCHASE OF THE SOLVENT FROM IT SOLD TO PETROL PUMP OWNER/ OTHER INDUSTRIES AND ACCORDINGLY AVOIDED THE NOTICE OF ISSUED UNDER SECTION 133(6) OF THE ACT. 12. THE ASSESSEE ALSO CLAIMED TO HAVE FILED THE CON FIRMATION FROM THE SOME PARTIES FOR THE SALES MADE TO THEM. THE NAMES OF THE PARTIES ST AND AS UNDER: SR. NO. PARTYS NAME SALES MADE (RS.) 1. SHIDIMO INTERQUX (P) LTD., SURAT 8,43,300/- 2. MAZDA CHEM, DAMAN 1,19,480/- 3. ARIHANT PETROCHEMICALS SACHIN 4,88,400/- 4. MAHAVIR TRADERS, SURAT 1,50,000/- 13. THE ASSESSEE ALSO FURNISHED THE AFFIDAVITS FROM THE PARTIES, NAMELY M/S SARVANABAVA CHEMICAL INDUSTRIES, M/S ARIHANT INDUST RIES, M/S SOUTH PETROCHEMICAL CORPORATION, M/S ARIHANT CHEMICALS AND M/S GALAXY P LASTO CHEM-INDUSTRIES LIMITED WHEREIN IT WAS STATED THAT THEY HAVE PURCHASED SOLV ENT FROM IT. SIMILARLY, THE ASSESSEE FURTHER CLAIMED THAT THERE WAS NO OPPORTUNITY EXTENDED TO IT FOR THE CONFRONTATION/CROSS-EXAMINATION WITH THE ST ATEMENTS OF THE PARTIES INVOLVED AS ELABORATED ABOVE. NEVERTHELESS, NONE OF THE PETROL PUMP OWNER WAS EXA MINED BY THE AO TO WHOM THE ASSESSEE WAS ALLEGED TO HAVE DIVERTED ITS PRODU CTS AT A HIGHER PRICE WHICH WAS NOT - 10 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 RECORDED IN THE BOOKS IN THE GUISE OF SELLING TO TH E PARTIES ELABORATED ABOVE/ RECORDED IN ITS BOOKS. 14. THE ASSESSEE FURTHER SUBMITTED THAT ITS SALES P OLICY WAS TO DELIVER THE GOODS TO THE BUYER AT ITS FACTORY GATE. ONCE, THE BUYER HAS TAKE N THE DELIVERY FROM THE ASSESSEE, THE GOODS/PRODUCTS ARE NOT IN ITS POSSESSION. THEREFORE , THERE IS A POSSIBILITY OF MISUSING THE PRODUCTS BY THE BUYERS FOR SUPPLYING THE SAME TO TH E PETROL PUMP OWNERS. ACCORDINGLY, THE ASSESSEE CANNOT BE PENALIZED FOR THE ACTION OF THE BUYERS. 15. THE ASSESSEE ALSO SUBMITTED THAT THE PARTIES NA MELY M/S PARSHWA CHEMICALS, PRIME CHEMICAL HAVE NOT STATED THAT THE ASSESSEE WAS ENGA GED IN SUPPLYING THE PRODUCTS TO THE PETROL PUMP OWNERS/ OTHER NON-INDUSTRIES. 16. THE ASSESSEE ALSO CLAIMED THAT IT USED TO COLLE CT THE LICENSES, AFFIDAVITS/UNDERTAKINGS AND INDEMNITY RECEIPT FROM THE PARTIES BEFORE SUPPLYING THE GOODS TO THEM AS ITS PRODUCTS WERE GOVERNED BY THE PREVEN TION OF BLACK MARKETING OF ESSENTIAL COMMODITIES ACT. 17. THE ASSESSEE ALSO CLAIMED THAT IT HAS SUBMITTED COPY OF THE LICENSES, AFFIDAVITS/UNDERTAKINGS AND INDEMNITY RECEIPT FROM THE PARSHWA INDUSTRIES WHICH WERE OBTAINED BY IT BEFORE THE GOODS SOLD TO THEM AS REQ UIRED BY THE PREVENTION OF BLACK MARKETING OF ESSENTIAL COMMODITIES ACT. THE OWNER OF THE PARSHWA INDUSTRIES ADMITTED IN HIS STATEMENT ADMITTED THAT HE WAS INVOLVED IN HAWALA ENTRIES BUT THE AO DID NOT C ONDUCT ANY INQUIRY TO FIND OUT WHO ARE THE BENEFICIARIES OF ALL THESE ACTIVITIES. - 11 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 18. THE ASSESSEE FURTHER SUBMITTED THAT SOME OF THE SALE RETURN FROM M/S LAKSMI TRADING CO. AND TASHKIL OIL CO. PVT. LTD. WERE DULY RECORDED IN THE BOOKS OF ACCOUNT. HAD THE ASSESSEE BEEN INVOLVED IN ISSUANCE OF BOGUS BILL THEN THE SALE RETURN WAS NO POSSIBLE. ACCORDINGLY, THE ASSESSEE CLAIMED THAT AL L THE TRANSACTIONS WERE GENUINE. 19. THE ASSESSEE FURTHER CLAIMED TO HAVE FURNISHED THE DETAILS OF ALL THE QUANTITIES AND VALUES OF THE OPENING AND CLOSING STOCK, ALONG WITH THE RAW MATERIAL PURCHASES, PRODUCTION DETAILS, DISPATCH OF THE FINISHED GOODS AND THE CLOSING STOCK OF THE RAW MATERIALS AND THE FINISHED GOODS. IT HAS ALSO FURNI SHED THE MANUFACTURING PROCESSING FLOWCHART. AS SUCH ALL THE MOVEMENT OF GOODS WHETHE R RAW MATERIAL OR FINISHED GOODS WERE DULY RECORDED AND ACCOUNTED IN THE BOOKS OF AC COUNTS. 20. THE ASSESSEE FURTHER SUBMITTED THAT EVEN IN THE COMPLAINT FILED BY THE DISTRICT ADMINISTRATOR THERE IS NO SPECIFIC ALLEGATION WHETH ER IT WAS SELLING THE GOODS EITHER TO THE PETROL PUMPS OWNER OR IN THE BLACK MARKET FOR NON-I NDUSTRIAL PURPOSES. THEREFORE, THE AO ERRED IN PRESUMING THAT THE ASSESSEE IS ENGAGED IN SUPPLYING THE PRODUCTS TO THE PETROL PUMP OWNERS IN THE GARB OF SUPPLYING TO THE PARTIES AS ELABORATED IN THE ORDER OF THE AO. MOREOVER, THE COMPLAINT FILED BY THE DISTRICT AUTHO RITIES HAS BEEN CHALLENGED BEFORE THE COMPETENT COURT WHICH IS PENDING. THEREFORE, SUCH C OMPLAINTS CANNOT BE TREATED AS CONCLUSIVE EVIDENCE THAT THE ASSESSEE WAS INVOLVED IN THE TRANSACTIONS AS ALLEGED BY THE AO. 21. THE ASSESSEE FURTHER SUBMITTED THAT IN THE NOTI CE OF THE MAGISTRATE IT WAS ALLEGED THAT; I. IT (THE ASSESSEE) WAS INVOLVED IN DIVERTING THE PRO DUCTS ONLY IN RESPECT OF FEW PARTIES IN WHOSE NAME IT (ASSESSEE) HAS SHOWN S ALE AS INTERSTATE SALE AMOUNTING TO RS. 14,11,006/- ONLY. - 12 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 II. SIMILARLY, THERE WAS THE MISMATCH IN THE TANKER NOS . SHOWN IN THE INVOICE VIZ A VIZ REPORT FROM THE RTO WITH RESPECT TO THE 1 6 SALES INVOICES. HOWEVER, IT (THE ASSESSEE) FURNISHED THE 5 CERTIFIC ATE OF RTO OUT OF 17 THAT THE VEHICLE NO. MENTION ON THE BILL WAS THE TANKER REGISTERED WITH RTO. 22. THE ASSESSEE FURTHER SUBMITTED THAT AS PER THE NOTICE ISSUED BY THE MAGISTRATE, THE OFFENCE WAS COMMITTED BY THE ASSESSEE DURING THE FY 1999-2000 PERTAINING TO AY 2000- 01. ACCORDINGLY, THE AO, BASED ON THE ACTION TAKEN BY THE DISTRICT ADMINISTRATIVE TEAM, CANNOT MAKE ADDITION IN EARLIER YEAR/S. 23. THE ASSESSEE ALSO CLAIMED THAT ITS PRODUCTS CAN NOT BE MIXED/ SUBSTITUTED WITH THE PATROL AS ALLEGED BY THE AO. THE ASSESSEE IN SUPPOR T OF HIS CONTENTION FILED THE CERTIFICATES OF VARIOUS AUTHORITIES BEFORE THE LD.C IT (A). 24. THE ASSESSEE ALSO SUBMITTED THAT ITS DIRECTORS AND ITS EMPLOYEES IN ANY PROCEEDING HAVE NOWHERE ADMITTED THAT IT WAS SUPPLYING THE PRO DUCTS TO THE PETROL PUMP OWNERS IN THE MANNER AS ALLEGED BY THE AO. IT WAS ALSO CLAIMED THAT HAD THE ASSESSEE EARNED IN COME OUTSIDE THE BOOKS OF ACCOUNTS AS ALLEGED BY THE AO, THERE SHOULD HAVE BE EN SOME KIND OF INVESTMENT OR THE EXPENDITURE OUT OF SUCH INCOME. BUT THE AO HAS NOT POINTED OUT ANY IOTA OF EVIDENCE SUGGESTING ANY INVESTMENT WAS MADE OR ANY EXPENDITU RE INCURRED BY THE ASSESSEE/ ITS DIRECTORS OUTSIDE THE BOOKS. THE AO MADE ADDITION WITHOUT ANY CORROBORATIVE EVID ENCE AND PROVING THAT THE ASSESSEE SOLD ITS PRODUCT TO PETROL PUMP OWNER. THE AO HAS TAKEN THE PRICE OF THE PRODUCTS SOLD AT RS. 24/- PER LITRE WHICH IS NOT VA LID PRICE. AS SUCH, NO ONE CAN PURCHASE SOLVENT AT PETROL PRICE. IF IT PURCHASES SOLVENT AT PETROL PRICE THEN THERE IS NO BENEFIT TO THE PURCHASER. - 13 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 25. THE ASSESSEE WITHOUT PREJUDICE TO THE ABOVE ALS O SUBMITTED THAT IF ANY ADDITION NEEDS TO BE MADE TO THE TOTAL INCOME OF THE ASSESSE E THEN IT SHOULD HAVE BEEN MADE WITH RESPECT TO THE PARTIES INVOLVED NAMELY PARSHWA INDU STRIES AND PRIME CHEMICALS IF IT IS PROVED THAT THE ASSESSEE HAS RECOVERED ANY SUM OF M ONEY OVER AND ABOVE THE SALE PRICE DECLARED IN THE RETURN OF INCOME. AS SUCH THE TRANS ACTION WITH OTHER PARTIES WITHOUT HAVING ANY CONTRARY EVIDENCE CANNOT BE EQUATED/ TRE ATED/ COMPARED WITH THE TRANSACTIONS WITH THE AFORESAID PARTIES NAMELY PARSHWA INDUSTRIE S AND PRIME CHEMICALS. 26. THE LD.CIT (A) CALLED FOR THE REMAND REPORT FRO M THE AO ON THE SUBMISSION FILED BY THE ASSESSEE. 27. THE AO IN HIS REMAND REPORT SUBMITTED THAT HE H AS MADE THE ADDITION AS DISCUSSED ABOVE ON THE BASIS OF THE ENQUIRIES, STATEMENTS REC ORDED BY THE CRIME BRANCH AND CIVIL SUPPLIES DEPARTMENT WHICH WERE EXPLAINING THE MODUS OF OPERANDI ADOPTED BY THE ASSESSEE FOR DIVERTING THE SALE OF THE PRODUCTS TO THE PETROL PUMP OWNERS. 28. THE AO ISSUED SUMMON TO THE DIRECTOR OF THE COM PANY ON 30-06-2003 FOR CROSS EXAMINATION OF THE VARIOUS PERSONS BUT HE WAS NOT A VAILABLE IN INDIA AT THAT TIME. 29. THE AO IN HIS REMAND REPORT ALSO SUBMITTED THAT THERE WAS NO STATEMENT RECORDED OF ANY PETROL PUMP OWNER BY ANY OF THE AUTHORITY SU CH AS CRIME BRANCH, CIVIL SUPPLIES DEPARTMENT ETC. 30. THE AO FURTHER ADMITTED THAT SHRI JAYES THAKKER , DIRECTOR OF THE COMPANY IN HIS STATEMENT RECORDED ON 21-03-2000 HIMSELF DENIED HAV ING INVOLVEMENT IN ANY ILLEGAL SALE OF SOLVENT. THEREFORE, NO COMMENT ON THE ALLEGATION THAT THE STATEMENTS WERE DEPOSED UNDER THREAT OR PRESSURE FROM THE PARTIES AS DISCUS SED ABOVE. - 14 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 31. THE LD.CIT (A) AFTER CONSIDERING THE REMAND REP ORT AND THE SUBMISSION OF THE ASSESSEE OBSERVED CERTAIN FACTS AS ENUMERATED BELOW : A. THE ASSESSEE WAS ENGAGED IN DIVERTING THE SALES OF ITS PRODUCT EITHER TO THE PETROL PUMP OWNERS OR OTHER PARTIES FOR THE USE OF NON-INDUSTRIAL PURPOSES IN THE GARB OF SELLING TO THE PARTIES FOR THE USE OF I NDUSTRIAL ACTIVITY. THE OBSERVATION OF THE LEARNED CIT (A) WAS BASED ON THE FOLLOWING: I. THERE WAS NO INDUSTRIAL ACTIVITY CARRIED OUT BY M/S PARSHWA INDUSTRIES AS EVIDENT FROM THE STATEMENT OF THE OWNER AS WELL AS THE ORDER OF THE DISTRICT MAGISTRATE. MOREOVER, THERE WAS A BLANK BI LL BOOK OF M/S PARSHWA INDUSTRIES WAS FOUND WITH A PERSON RELATED TO THE ASSESSEE. II. THERE WAS NO CLEARANCE REPORT/CLEAN CHIT FURNISHED BY THE POLICE AUTHORITIES FOR THE INVOLVEMENT OF ALLEGED TRANSACT IONS. III. THERE WERE THE STATEMENTS RECORDED BY THE POLICE AU THORITIES, DISTRICT SUPPLY OFFICERS, DRIVERS OF THE TANKERS AND OTHER R ELATED PERSONS. B. THE ASSESSEE WAS ENGAGED IN THE ACTIVITY AS DESCRIB ED ABOVE FOR THE PERIOD BEGINNING FROM THE FINANCIAL YEAR 1997-98, 1998-199 9 AND 1999-2000. THE LEARNED CIT (A) IN CONFIRMING SUCH FINDING OF THE A O HAS REFERRED TO THE ORDER OF THE DISTRICT MAGISTRATE WHERE IT WAS CLEARLY ALL EGED THAT THE ASSESSEE WAS 1 ST CHARGED BY THE DISTRICT SUPPLY TEAM DATED 24-06-199 7 AS WELL AS THE REGISTRATION CERTIFICATE OF THE ASSESSEE WAS ALSO CANCELLED AS A RESULT OF INSPECTION OF DISTRICT SUPPLY DEPARTMENT DATED 18-11-1997. ACCORDINGLY, TH E LEARNED CIT (A) HELD THAT THE CASE OF THE ASSESSEE WAS RIGHTLY COVERED B Y THE AO FOR THE FINANCIAL YEARS AS DISCUSSED ABOVE. C. THE LD.CIT (A) ALSO FOUND THAT THE ISSUE REGARDING THE SALE TO THE PETROL PUMP IS LIMITED TO THE SOLVENT PRODUCT ONLY. AS SUCH THE RE WAS NO EVIDENCE ABOUT THE FAKE SALE OF OTHER PRODUCTS AS ALLEGED BY THE AO. D. THE LD.CIT (A) ALSO FOUND THAT THE ALLEGATION OF UN ACCOUNTED SALES USING THE NAME OF OTHER PARTIES AS MENTIONED IN THE COMPLAINT WERE OF THE FOLLOWING PARTIES: I. PARSHWA INDUSTRIES - 15 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 II. DA ENTERPRISES III. ARISTO ADICHEM IV. EXCEL ORGANICS V. AVI ENTERPRISES FURTHER, THERE WAS THE NAME OF ONE OF THE PARTY NAM ELY M/S PRIME CHEMICALS WHICH FILE NEGATIVE RESPONSE OF THE NOTICE ISSUED B Y THE AO U/S 133(6) OF THE ACT. HOWEVER, THERE WAS NO SALE MADE BY THE ASSESSEE OF ITS PRODUCTS NAMELY SOLVENT TO AVI ENTERPRISES, THEREFORE THE LD.CIT (A ) DID NOT CONSIDER THE SAME FOR CONFIRMING THE ADDITION. AS SUCH, THE LD.CIT (A ) WAS OF THE VIEW THAT OTHER PARTIES SHOULD NOT BE CONSIDERED FOR ADDITION BECAU SE THEY HAVE CONFIRMED THE TRANSACTION. AS SUCH ALL THE EVIDENCES ARE AVAILABL E AGAINST THE ABOVE MENTION PARTIES ONLY. THESE PARTIES SHOULD BE CONSIDERED FO R HAWALA ENTRIES. E. THE LD.CIT (A) ALSO FOUND THAT THE BASIS ADOPTED BY THE AO FOR WORKING OUT THE AMOUNT OF PROFIT IN THE FORM OF UNACCOUNTED SAL E WAS NOT REASONABLE. AS SUCH HE OPINED THAT IT SHOULD BE THE AVERAGE OF SAL E PRICE OF RS 10/- AND 24/- PER LITRE. ACCORDINGLY THE LD.CIT (A) DETERMINED TH E REASONABLE PRICE AT RS.17/- PER LITRE OF SOLVENT. ACCORDINGLY, THE LD.CIT (A) CONFIRMED THE ADDITION IN PART MADE BY THE AO BY OBSERVING AS UNDER: A.Y. 98-99 NAME OF THE COMPANY KILOLITRES SALE PRICE SHOWN (RS.) 1. PRIME CHEMICALS 165 1904012 2. PARSHWA INDS. 121.60 1348769 TOTAL 286.60 3252781 SALES REALISATION CALCULATED AT RS. 17 PER LITRE 4872200 SALES REALISATION AS PER BOOKS 3252781 THE DIFFERENCE TO BE TAXED 1619419 - 16 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 A.Y. 99-2000 1. M/S. ARISTO ADECHEM P. LTD. 246 2395174 2. PARSHWA INDS. 1492.66 14037494 TOTAL 1738.66 16432668 SALES REALISATION CALCULATED AT RS. 17 PER LITRE 29557220 SALES REALISATION AS PER BOOKS 16432668 THE DIFFERENCE TO BE TAXED 13124552 A.Y. 2000-01 1. M/S. ARISTO ADECHEM P. LTD. 874.5 10683517 2. D A ENTERPRISES 1571.0 18008174 3. EXCEL ORGANICS 274.0 3441377 4. PARSHWA INDS. 2242.5 24525025 TOTAL 4962.0 56658093 SALES REALISATION CALCULATED AT RS. 17 PER LITRE 84354000 SALES REALISATION AS PER BOOKS 56658093 THE DIFFERENCE TO BE TAXED 27695907 BEING AGGRIEVED BY THE ORDER OF THE LD. CIT (A), TH E ASSESSEE AND THE REVENUE ARE IN APPEAL BEFORE US. THE ASSESSEE IS IN APPEAL AGAI NST THE CONFIRMATION OF THE ADDITION FOR RS. 16,19,419/- WHEREAS THE REVENUE IS IN APPEAL AG AINST THE DELETION OF THE ADDITION MADE BY THE AO FOR RS. 5,32,97,392/- ONLY. THE RELE VANT GROUND OF APPEAL OF THE REVENUE IN ITA NO. 1065/AHD/2004 READS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A), BARODA HAS ERRED IN (I) DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF BOGUS SALES AMOUNTING TO RS.5,32,97,392/- 32. THE LD. AR BEFORE US SUBMITTED AS UNDER: NO INDEPENDENT INQUIRY BY LEARNED AO. HE ONLY REL IES ON THE STATEMENTS RECORDED AND COMPLAINTS MADE BY DISTRICT SUPPLIES AUTHORITIES. - 17 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 THE CASE AGAINST THE ASSESSEE MADE OUT BY DISTRICT SUPPLIES AUTHORITIES ITSELF IS WITHOUT ANY FIRM FINDING. THEIR CASE IS BASED PURELY ON AS SUMPTION WHEN WE READ THE COMPLAINT WHICH IS MENTIONED IN FOLLOWING WORDS YOU USED TO PREPARE FALSE BILLS IN THE NAME OF PARSHWA INDUSTRIES AND ABOVE SUPPLY OF SOLVENT STAT ED IN BILLS WAS EITHER USED FOR ADULTERATION IN PETROL PUMPS OR SOLD TO OTHER PARTI ES IN GUJARAT. NO EXAMINATION OF ANY PETROL PUMP OWNER. NO EVIDEN CE FOR THE SAME EXCEPT ONE STATEMENT OF DRIVER WHICH TOO HAS NOT BEEN CROSS EX AMINED FOR FINDING OUT ITS VERACITY. THEREFORE, IT HAS EVIDENTIAL VALUE. WITHOUT PREJUDICE TO ABOVE, NO EVIDENCE ABOUT THE P RICE AT WHICH THE SAID SOLVENT COULD HAVE BEEN SOLD TO THE PETROL PUMP OWNERS. THE ENTI RE EXERCISE DONE BY THE LEARNED AO AS WELL AS CONFIRMED BY CIT(A) IS PURELY ON THE BASIS OF HYPOTHETICAL PRICE WHICH CANNOT BE DONE. THE ASSESSEE IS THIS REGARD RELIES ON SEVERA L DECISIONS ATTACHED AT PAPER BOOK NO. 3. AMOUNT INVOLVED IN SO CALLED VIOLATION UNDER ESSENT IAL COMMODITIES ACT MENTIONED IN THE COMPLAINT OF CIVIL SUPPLIES AUTHORITIES IS ON LY RS.14 LAKHS, WHEREAS ON THAT BASIS ADDITION OF CRORES OF RUPEES IS MADE IN THREE YEARS BY EXTRA POLATING THE FIGURES, WHICH CANNOT BE SUSTAINED IN VIEW OF SEVERAL DECISIONS IN PAPER BOOK-III. THE SAMPLES TAKEN BY THE EXCISE AUTHORITIES FOR THE PRODUCTS MENTIONED BY THE ASSESSEE SHOW THAT THEY CANNOT BE MIXED WITH PETROL AS THEY DO NOT HAVE CHARACTERISTICS OF MOTOR SPIRIT AND HENCE ALSO THE THEORY OF SALE TO PETROL PUMP OWNERS CANNOT BE GIVEN CREDENCE TO. THERE ARE SALES RETURNS MADE BY THE PARTIES WHICH A RE SHOWN IN THE ACCOUNTS OF THESE PARTIES. SIMILARLY, SALE CONFIRMATION FROM THE PARTIES ALSO, COPIES OF WHICH ARE ATTACHED IN THE PAPER BOOK. THEN HOW COULD SUCH SALES BE CONSIDERED TO BE MADE TO PETROL PUMP OWNERS AND ACCORDINGLY ADDITION MADE IN THE HANDS OF THE ASSES SEE ? THE ACTUAL SALES PRICE REALIZED BY THE ASSESSEE BY SELLING THE GOODS IS ALREADY RECORDED IN THE BOOKS. THE LEARNED AO'S ONLY ALLEGATION IS THAT ASSESSEE HAS OBTAINED MORE PRICE BY SELLING TO PETROL PUMP OWNERS. THERE IS NO EVIDEN CE FOR EITHER THE SALE TO PETROL PUMP OWNERS NOR THE PRICE AT WHICH IT IS SOLD TO PETROL PUMP OWNERS. THE STATEMENT OF DRIVER AT BEST TELLS THAT THE GOODS WERE UNLOADED AT PETROL P UMP, BUT THERE IS NO MENTION OF ANY EVIDENCE IN ANY OF THE FINDINGS BY THE LOWER AUTHOR ITIES AS TO WHETHER THERE IS ANY EXCESS PRICE REALIZED OVER AND ABOVE THAT RECORDED IN THE BOOKS. THE SALE POLICY OF THE ASSESSEE IS TO SALE GOODS TO THE INTENDING PURCHASER AT THE FACTORY GATE. BEFORE SELLING GOODS TO THE PARTIES, THE ASSE SSEE ENSURES THAT PROPER DOCUMENTATION IN THE FORM OF GENUINENESS OF BUYER A RE PROCURED. THEREAFTER WHAT THE PURCHASER DOES WITH THE GOODS SOLD TO THEM IS NOT I N CONTROL OF THE ASSESSEE. IF LEARNED AO AND CIT(A) CAME TO CONCLUSION ON THE HYPOTHESIS THAT ASSESSEE COULD HAVE SOLD GOODS - 18 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 TO PETROL PUMP OWNERS, THAT HYPOTHESIS EQUALLY APPLY TO THE PROPOSITION THAT THE PURCHASER FROM THE ASSESSEE ALSO WOULD HAVE SOLD TH E SAME TO THE PETROL PUMP OWNERS. THE SALES TAX ORDER FOR A.Y. 1999-00 REFERRED TO IN PARA 3.7 OF C1T(A) ORDER IS SUBSEQUENTLY SET-ASIDE BY THE VAT TRIBUNAL. THE STATEMENT RECORDED BY PRIME CHEMICALS ALSO NOWH ERE STATES THAT THEY WERE DOING BUSINESS AT THE BEHEST OF THE MANAGEMENT OF THE ASS ESSEE. FIVE SAMPLES OF RTO CERTIFICATES SHOWING MOVEMENT O F GOODS OUT OF BARDOA WERE PRODUCED TO CORROBORATE THAT THE GOODS ACTUALLY MOV ED OUT OF BARODA BY TANKERS WHEN SOLD BY THE ASSESSEE. THE GP PERCENTAGE OF ASSESSMENT YEAR 1 998-99 IS BE TTER THAN THE GP PERCENTAGE OF A.Y. 1997-98 (ASSESSMENT ORDER PAGE 2, PARA 3). IN A.Y. 1 997-98 THERE IS NO SUCH ALLEGATIONS MADE NOR ADDITION MADE ON ACCOUNT OF SUPPRESSION OF SALE. SINCE GP A.Y. 1998-99 IS BETTER THAN THAT OF A.Y. 1997-98, SUCH ADDITIONS ON THE BASIS OF HYPOTHETICAL SALE PRICE CANNOT BE SUSTAINED. 33. ON THE OTHER HAND THE LD. DR BEFORE US SUBMITTE D THAT THE ASSESSEE DURING THE REMAND PROCEEDINGS WAS GRANTED THE OPPORTUNITY FOR THE CROSS-EXAMINATION. BUT THE ASSESSEE FAILED TO AVAIL THE SAME ON THE GROUND THA T ITS DIRECTOR NAMELY SHRI JAYESH THAKKAR IS OUTSIDE INDIA. AS PER THE ASSESSEE SHRI JAYESH THAKKAR WAS THE KEY PERSON AND THEREFORE HE WAS IN A POSITION TO ANSWER THE QUESTI ONS OF THE REVENUE. 34. THE LD. DR ALSO ALLEGED THAT THE ASSESSEE DID N OT APPROACH TO THE AO FOR SEEKING ANY OTHER DATE FOR THE CROSS-EXAMINATION AS THE KEY PERSON WAS OUTSIDE INDIA DURING THE RELEVANT TIME. THE LD. DR IN SUPPORT OF HIS CONTENT ION DREW ATTENTION ON PAGES 205 WHERE THE COPY OF THE REMAND REPORT IS PLACED. 35. THE LD. DR FURTHER SUBMITTED THAT THE VAT TRIBU NAL AT GUJARAT HAS SET ASIDE THE ORDER TO THE FILE OF THE COMMISSION OF SALES TAX (A PPEAL) WITH THE DIRECTION TO DECIDE THE ISSUE AFRESH ON MERIT WHO IN TURN SET ASIDE TO THE SALES TAX OFFICER FOR FURTHER VERIFICATION. THEREFORE THE DEMAND OF THE VAT WAS DELETED ON TECH NICAL REASONS. THUS, NO RELIANCE CAN BE PLACED ON THE ORDER OF THE VAT TRIBUNAL. - 19 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 36. BOTH THE LD. AR AND THE DR BEFORE US RELIED ON THE ORDER OF AUTHORITIES BELOW TO THE EXTENT FAVOURABLE TO THEM. 37. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THERE WAS A SEARCH AND SEIZURE OPERATION CARRIED OUT BY THE SALES TAX DEPARTMENT AT THE PREMISES OF THE ASSESSEE DATED 16 FEBRUARY 2000. THE SALES TAX DEPARTMENT SEIZED THE BOOKS OF ACCOUNTS OF THE ASSE SSEE. SUBSEQUENTLY, THERE WAS AN INSPECTION BY THE DISTRICT SUPPLIES TEAM AT THE PRE MISES OF THE ASSESSEE DATED 18 FEBRUARY 2000. BUT THE DISTRICT SUPPLY TEAM DID NOT FIND ANY RECORDS AS THE SAME WAS SEIZED BY THE SALE TAX DEPARTMENT. ACCORDINGLY, THE DISTRICT SUPP LY TEAM COLLECTED THE REQUISITE INFORMATION FROM THE OFFICE OF THE SALES TAX DEPART MENT TO CARRY OUT NECESSARY INSPECTION. THE MAIN THRUST OF THE DISTRICT SUPPLY TEAM WAS TO INVESTIGATE WHETHER THE ASSESSEE IS DIVERTING ITS SALES OF THE PRODUCT NAMELY SOLVENT T O THE PETROL PUMP OWNERS. THE SOLVENT BEING A CONTROLLED ITEM UNDER THE ESSENTIAL COMMODI TIES ACT WAS TO BE USED ONLY FOR THE INDUSTRIAL PURPOSES, BUT AS PER THE DISTRICT SUPPLY TEAM THE ASSESSEE WAS ENGAGED IN DIVERTING ITS SALES TO THE PETROL PUMP OWNERS WHICH IS AN OFFENCE UNDER THE LAW. 38. THE DISTRICT SUPPLY TEAM TO INVESTIGATE THE MAT TER TRAVELLED TO RAJASTHAN TO ONE OF THE PARTY NAMELY PARSHWA INDUSTRIES LOCATED AT PLOT NO. F/93, RICCO INDUSTRIAL ESTATE, SWAROOP GANG, TAL PINDWARA, DISTT. SIROHI, RAJASTHA N, TO WHOM THE ASSESSEE CLAIMED TO HAVE SOLD SOLVENT FOR THE INDUSTRIAL PURPOSES. BUT THE DISTRICT SUPPLY TEAM FOUND THAT THERE WAS NO MANUFACTURING FACILITY AVAILABLE AT THE PREM ISES OF THE PARTY. ACCORDINGLY, THE INSPECTOR OF DISTRICT SUPPLY TEAM ALSO RECORDED THE STATEMENT OF THE OWNER OF PARSHWA INDUSTRIES NAMELY SHRI GOPAL BHAI RAMESH CHANDRA SH AH ON TWO DIFFERENT DATES I.E. 7 TH MARCH 2000 AND 22 ND MARCH 2000. THE PARTY IN HIS 1 ST STATEMENT ACCEPTED THE TRANSACTION WITH THE ASSESSEE BUT DENIED TO HAVE SUCH TRANSACTI ON WITH THE ASSESSEE IN THE LATER - 20 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 STATEMENT. THUS IT WAS CONCLUDED THAT PARSHWA INDUS TRIES WAS NOT ENGAGED IN ANY MANUFACTURING ACTIVITY. 39. THE DISTRICT SUPPLY TEAM ALSO RECORDED THE STAT EMENT OF THE PARTIES INVOLVED WITH THE ASSESSEE I.E. THE DIRECTOR NAMELY JAYESH THAKKA R OF THE ASSESSEE COMPANY, THE DRIVER OF THE TANKER, MANOJ NAYAK PROVIDING TANKERS TO THE ASSESSEE, CONFESSION OF SHRI NAVIN GANDHI A PERSON RELATED TO THE ASSESSEE THAT HE IS HOLDING THE BLANK BILL BOOK OF PARSHWA INDUSTRIES. 40. THE DISTRICT SUPPLY DEPARTMENT FURTHER NOTICED THAT THE ASSESSEE HAS CLAIMED TO HAVE SOLD ITS PRODUCTS TO CERTAIN PARTIES AND DELIV ERED THE GOODS TO THEM THROUGH THE TANKERS. BUT THE DISTRICT SUPPLY TEAM ON VERIFICATI ON OF THOSE TANKERS REGISTRATION NUMBERS FROM THE OFFICE OF THE RTO FOUND THAT THESE WERE NO T ACTUALLY TANKERS BUT THEY WERE THE REGISTRATION NUMBERS OF SOME OTHER VEHICLES. THE LI ST OF SUCH PARTIES ALONG WITH BILL NUMBERS & DATE & THE PRODUCT NAME WITH QUANTITY & B ILL AMOUNT, SO-CALLED TANKERS NUMBERS MENTION IN THE BILL AND INFORMATION OBTAINE D FROM THE RTO ARE AVAILABLE ON PAGE 18 OF THE LD. CIT-A ORDER. IN VIEW OF THE ABOVE, THE DISTRICT SUPPLY TEAM HELD THAT THE ASSESSEE WAS DIVERTING THE PRODUCTS TO THE PETROL PUMP OWNERS/ IN THE BLAC K MARKET WHICH IS AN OFFENCE UNDER THE LAW. 41. THE AO ON THE BASIS OF INSPECTION REPORT WHICH WAS CARRIED OUT BY THE DISTRICT SUPPLY TEAM DATED 18 FEBRUARY 2000 IN THE FINANCIAL YEAR 1999-2000 ALLEGED THAT THE ASSESSEE WAS INVOLVED IN DIVERTING THE PETROLEUM PR ODUCTS PURCHASED BY IT TO THE PETROL PUMP OWNERS INSTEAD OF PARTIES SHOWN IN THE BOOKS O F ACCOUNTS. AS PER THE AO, THE ASSESSEE WAS SELLING THE GOODS WITHOUT RECORDING TH E SAME IN THE BOOKS OF ACCOUNTS TO THE - 21 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 PETROL PUMP OWNERS AT MUCH HIGHER PRICE WHEREAS IT HAS SHOWN SALES IN THE BOOKS OF ACCOUNTS TO CERTAIN INDUSTRIES AS ELABORATED IN THE PRECEDING PARAGRAPH. 42. THE AO DID NOT DISPUTE THE QUANTITY OF THE PROD UCT PURCHASED AND SOLD BY THE ASSESSEE. THE ALLEGATION OF THE AO WAS THAT THE ASS ESSEE HAS SOLD THE ENTIRE QUANTITY OF ALL THE ITEMS PURCHASED DURING THE YEAR BY DIVERTING TH E SAME TO PETROL PUMP OWNERS IN THE MANNER AS DISCUSSED ABOVE. FURTHER, SUCH PETROL PUM P OWNERS WERE MIXING SUCH PETROLEUM PRODUCTS WITH THE PETROL AND SELLING THE SAME AT A MARKET PRICE OF PETROL RS. 26.13 PER LITER. ACCORDINGLY, THE AO FURTHER REDUCE D THE MARGIN OF THE PETROL PUMP OWNERS I.E. RS. 2.13 PER LITER FROM THE SALE PRICE OF THE PETROL RS. 26.13 PER LITER AND COMPUTED THE SALE PRICE CHARGE BY THE ASSESSEE TO T HE PETROL PUMP OWNERS AT 24 PER LITER. ACCORDINGLY, THE AO MULTIPLIED THE QUANTITY SOLD BY THE ASSESSEE WITH THE SALE PRICE OF THE PATROL TO WORK OUT THE SUPPRESSED SALE OF RS . 5,49,16,811.00 WHICH WAS TREATED AS INCOME OF THE ASSESSEE. HOWEVER, WE FIND THAT THE LD.CIT (A) HAS CONCLUDED THAT THE ASSESSEE HAS NOT DIVERTED ALL PRODUCTS TO THE PATROL PUMP OWNERS BUT ONLY THE SOLVENT. THEREFORE, THE LD.CIT (A) RESTRICTED THE ADDITION MADE BY THE AO W ITH RESPECT TO THE SALE OF THE PRODUCT SOLVENT AS DIVERSION OF SALE TO THE PATROL PUMP OWN ERS. 43. NOW THE CONTROVERSY BEFORE US ARISES FOR OUR AD JUDICATION AS DETAILED UNDER: I. WHETHER THE ASSESSEE WAS ENGAGED IN THE ACTIVITY OF DIVERTING THE SALE OF ITS PRODUCTS TO THE PATROL PUMP OWNERS IN THE GARB OF S UPPLYING THE PRODUCTS TO THE PARTIES AS DISCUSSED ABOVE. II. IF YES, WHETHER SUCH ACTIVITY WAS CARRIED ON BY THE ASSESSEE FOR THE ASSESSMENT YEARS 1998-1999, 1999-2000 AND 2000-01. - 22 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 III. WHETHER THE ASSESSEE HAS DIVERTED ONLY SOLVENT PRODUCT TO THE PETROL PUMP OWNERS IN THE MANNER AS GIVEN ABOVE OR ALL THE PRODUCTS. IV. WHETHER THE ASSESSEE HAS DIVERTED SOLVENT PRODU CT TO THE PARTIES MENTIONED IN THE DETENTION ORDER OF THE DISTRICT MAGISTRATE OR ALL T HE PARTIES TO WHOM IT HAD SOLD SOLVENT PRODUCTS. V. WHETHER THE ASSESSEE HAS DIVERTED ITS SOLVENT PR ODUCT TO THE PETROL PUMP OWNERS/OTHER BLACK MARKETS AT THE RATE OF 24 PER LITRE BEING THE PURCHASE PRICE OF THE PETROL PUMP. 44. NOW WE PROCEED TO ADJUDICATE THE ABOVE QUESTION ONE BY ONE AS DETAILED UNDER: WHETHER THE ASSESSEE WAS ENGAGED IN THE ACTIVITY OF DIVERTING THE SALE OF ITS PRODUCTS TO THE PATROL PUMP OWNERS/ FOR NON-INDUSTR IAL USE IN THE GARB OF SUPPLYING THE PRODUCTS TO THE PARTIES AS DISCUSSED ABOVE. 45. IN THIS REGARD WE NOTE THAT THE ENTIRE THRUST O F THE REVENUE IS THAT THE ASSESSEE IS CHARGING HIGHER AMOUNT OF SALE PRICE OVER AND ABOVE THE PRICE DECLARED IN THE RETURN OF INCOME BASED ON THE PROCEEDINGS OF DISTRICT SUPPLY DEPARTMENT WHICH IS PENDING IN THE COURT OF LAW. IN THE PROCEEDING IT WAS ALLEGED THAT THE ASSESSEE IS DIVERTING ITS SALES TO THE PATROL PUMP OWNERS/ FOR NON-INDUSTRIAL USE IN THE G ARB OF SUPPLYING THE PRODUCTS TO THE PARTIES AS DISCUSSED ABOVE. THUS IN OUR CONSIDERED VIEW, THE OUTCOME OF THE MATTER PENDING BEFORE THE COURT OF LAW IS IMPORTANT TO DEC IDE THE ISSUE ON HAND. HOWEVER, IT WAS INFORMED BY THE LEARNED AR FOR THE ASSESSEE THAT THE MATTER IS STILL PENDING BEFORE THE COMPETENT COURT EVEN AFTER THE L APSE OF 20 YEARS (APPROX) AND THE SAME HAS NOT BEEN YET LISTED FOR THE HEARING. THE L D. DR HAS NOT BROUGHT ANYTHING CONTRARY TO THE ARGUMENT ADVANCED BY THE LD. AR FOR THE ASSESSEE. - 23 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 46. WE ALSO NOTE THAT RECENTLY THE HONBLE DELHI HI GH COURT IN THE CASE OF NOKIA SOLUTIONS AND NETWORKS ITALIA SPA VS. THE DEPUTY DI RECTOR OF INCOME TAX REPORTED IN W.P.(C) 2477/2019 HAS DIRECTED THIS TRIBUNAL TO EXP EDITE TO DECIDE THE OLD MATTERS. THE RELEVANT EXTRACT OF THE JUDGMENT IS REPRODUCED AS U NDER: THE PETITIONERS GRIEVANCE IN THIS CASE IS THAT TH E INCOME TAX APPEALS, PERTAINING TO ASSESSMENT YEARS OF ABOUT 20 YEARS AGO, FILED BY THE PETITIONER, HAVE BEEN PENDING FOR 10 TO 16 YEAR S (2003-2009). IN THE LIGHT OF THESE AVERMENTS, THIS COURT IS OF THE OPINION THAT THE PRESIDENT OR THE SENIOR VICE PRESIDENT CONCERNED OF THE TRIBUNAL SHOULD TAKE APPROPRIATE STEPS AND EXPEDITE THE HEAR ING IN THESE APPEALS, SO AS TO ENSURE THAT FINAL ORDERS IN ALL T HESE APPEALS ARE ANNOUNCED AT THE EARLIEST, PREFERABLY WITHIN FOUR M ONTHS FROM TODAY. ALTHOUGH THESE DIRECTIONS DISPOSE OF THE PETITIONER S GRIEVANCE, HOWEVER, THIS COURT IS OF THE OPINION THAT GIVEN TH E NATURE OF THE AVERMENTS IN THIS PETITION, THE PRESIDENT OF THE TR IBUNAL, THROUGH THE REGISTRAR, SHOULD INFORM THIS COURT AS TO THE NATUR E OF THE PENDENCY WITH RESPECT TO THE OLD CASES PARTICULARLY, THE N UMBER OF APPEALS PENDING WHICH ARE OVER 5 YEARS, IN EACH BENCH. A TA BULAR STATEMENT INDICATING THE AGE OF THESE APPEALS AS WELL AS AN A CTION PLAN OF THE ITAT WITH RESPECT TO THE LIKELY TIME FOR THEIR DISP OSAL, HAVING REGARD TO THE PRIORITIES THAT ITAT MAY SET IN THIS REGARD, SHALL ALSO BE FILED IN THIS COURT WITHIN 8 WEEKS. KEEPING IN MIND THE AFORESAID DIRECTION OF THE HON BLE DELHI HIGH COURT, WE DEEMED IT FIT TO DECIDE THE ISSUE ON MERIT BASED ON THE MATERIALS AVAILABLE ON RECORD AND WITHOUT WAITING FOR THE OUTCOME OF THE COMPETENT CO URT WHERE THE MATTER IS PENDING. 47. WE ALSO NOTE THAT THE GOVERNMENT IS ALSO INTEND ING NOT TO PROLONG THE DISPUTES WHERE IT IS THE PARTY AS APPLICANT. THEREFORE, IT A PPEARS THAT THE FOCUS OF THE GOVERNMENT IS TO REDUCE PENDENCY. IN THIS REGARD, WE ALSO FIND THAT THERE IS A RECENT CIRCULAR ISSUED BY CBDT BEARING NO. 17 OF 2019 DATED 8-8-2019 WHERE TH E APPEAL IS PENDING BEFORE THE ITAT INVOLVING TAX EFFECT OF 50 LAKHS OR LESS HAS BEEN WITHDRAWN. THE RELEVANT EXTRACT OF THE CIRCULAR STANDS AS UNDER: 2. AS A STEP TOWARDS FURTHER MANAGEMENT OF LITIGA TION. IT HAS BEEN DECIDED BY THE BOARD THAT MONETARY LIMITS FOR FILING OF APPEAL S IN INCOME-TAX CASES BE ENHANCED FURTHER THROUGH AMENDMENT IN PARA 3 OF THE CIRCULAR MENTIONED ABOVE - 24 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 AND ACCORDINGLY. THE TABLE FOR MONETARY LIMITS SPEC IFIED IN PARA 3 OF THE CIRCULAR SHALL READ AS FOLLOWS: S.NO. APPEALS/SLPS IN INCOME-TAX MATTERS MONETARY L IMIT (RS.) 1 BEFORE APPELLATE TRIBUNAL 50,00,000 2 BEFORE HIGH COURT 1,00,00,000 3 BEFORE SUPREME COURT 2,00,00,000 48. THERE IS ALSO VERY OLD PROVERB THAT THE DELAY I N JUSTICE IS EQUIVALENT TO THE DENIAL OF JUSTICE. IN THE CASE ON HAND, 20 YEARS APPROXIMATEL Y HAVE ALREADY BEEN LAPSED BUT THERE IS NO MOVEMENT IN THE FILE BEFORE THE COMPETENT COURT. THUS IN VIEW OF THE ABOVE, WE ARE INCLINED TO PROCEED TO DECIDE THE ISSUE BASED ON MA TERIALS AVAILABLE ON RECORD. 49. IN THE BACKDROP OF THE AFORESAID FACTS AND CIRC UMSTANCES AND CONSIDERING THE MATERIALS AVAILABLE ON RECORD SUCH AS THE FINDING O F THE DISTRICT MAGISTRATE, PAST HISTORY OF THE ASSESSEE, STATEMENTS RECORDED BY THE POLICE DEP ARTMENT AND DISTRICT SUPPLY DEPARTMENT, SALES TAX SEARCH WE ARE OF THE VIEW THA T THESE EVIDENCES ARE REASONABLY SUFFICIENT ENOUGH TO ALLEGE THAT THE ASSESSEE WAS E NGAGED IN DIVERTING THE SALE OF ITS PRODUCTS FOR NON-INDUSTRIAL USE/TO THE PATROL PUMP OWNERS. BUT THE FACT THAT THE MATTER IS PENDING BEFORE THE COURT OF LAW CANNOT BE IGNORED W HICH WILL CERTAINLY HAVE THE CRUCIAL BEARING ON THE ISSUE ON HAND. BE THAT AS IT MAY BE, WE ARE NOT INCLINED TO ADJUDICATE THE IMPUGNED QUESTION. THUS, WE KEEP THIS QUESTION OPEN AS THE SAME IS PENDING BEFORE THE HONBLE COURT. WHETHER SUCH ACTIVITY WAS CARRIED ON BY THE ASSESSE E FOR THE ASSESSMENT YEARS 1998-1999, 1999-2000 AND 2000-01 50. THERE WAS AN INSPECTION OF THE DISTRICT SUPPLY TEAM DATED 18 TH FEBRUARY 2000 WHEREIN IT WAS ALLEGED THAT THE ASSESSEE IS DIVERTI NG ITS SALES TO THE PATROL PUMP OWNERS/ FOR NON INDUSTRIAL USE. THERE WAS NO SPECIFIC MENTI ONED ABOUT THE PERIOD IN THE PROCEEDINGS OF DISTRICT SUPPLY DEPARTMENT BUT THE D ISTRICT MAGISTRATE IN ITS DETENTION ORDER HAS GIVEN A CLEAR FINDING THAT THERE WERE TWO MORE INSPECTIONS DATED 24-06-1997 AND 18- - 25 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 11-1997 WHERE THE ASSESSEE WAS ALLEGED TO BE ENGAGE D IN THE SIMILAR ACTIVITY. THE FINDING OF THE DISTRICT MAGISTRATE STANDS AS UNDER: (11) IN EARLIER YEAR DURING 24.6.97 AN INSPECTION AT YOUR FACTORY WAS CARRIED OUT BY THE D.S.O., IT WAS FOUND DURING SUCH INSPECTION THA T THE NAME OF PARTIES TO WHOM THE MATERIAL WAS SOLD AND UPON INQUIRY WITH SUCH PARTIE S IT WAS FOUND THAT YOUR OWN EMPLOYEES HAD PREPARED FALSE BILLS AND SUPPLY OF SO LVENT WAS FOUND TO HAVE BEEN SOLD TO SOME PARTIES IN GUJARAT OR MIGHT HAVE BEEN SENT TO PETROL PUMP FOR ADULTERATION IN PETROL WAS CLEARLY PROVED AND ACCORDINGLY BY AN ORDER NO. SP MFG./B/CASE 2 ND NO. 97/97 VASHI/5414 TO 2097 DT. 29.12.98 ISSUED BY D.S.O, ST OCK OF SOLVENT WORTH RS. 42,293/- WAS SEIZED. (PAGE NO. 301-313) (12) YOUR COMPANY WAS INSPECTED ON 18.11.97 BY GAND HINAGAR INSPECTION TEAM AN IN REFERENCE THERETO THE DISTRICT SUPPLY OFFICE VADODA RA BY HIS ORDER NO. SP/ENFO/B/CASE REGISTER NO. 15/97/WASHI/5936 TO 5940/98 DT. 25. .99 CANCELLED THE PRODUCTION AND WHOLESALE LICENCE AND THE FORFEITURE OF DEPOSIT OF RS. 25,000/- LOOKING TO THE FACTS OF THE CASE. AGAINST THIS ORDER YOU HAD GONE IN APPEAL BE FORE THE COLLECTOR VADODARA WHO BY HIS ORDER NO. SP/ENFO/B/APPEAL/17/98/WASHI/3131 TO 36. 51. SIMILARLY, IT WAS ALSO NOTICED BY THE DISTRICT MAGISTRATE THAT THE ASSESSEE WAS INVOLVED IN SIMILAR ACTIVITY IN EARLIER YEAR ALSO. FURTHER THE SEARCH CONDUCTED IN FY 1999- 2000 RELATES TO THE ACTIVITY CARRIED OUT BY THE ASS ESSEE IN THE EARLIER YEARS. THEREFORE, IT APPEARS THAT THE ASSESSEE, IF PROVED IN THE QUESTIO N NO. 1 AS ABOVE, WAS INVOLVED IN SUCH ACTIVITY AT LEAST FOR THE PERIOD STATED IN THE CURR ENT QUESTION. HOWEVER, IT IS PERTINENT TO NOTE THAT OUR FINDING IS SUBJECT TO THE QUESTION NO . 1 AS DISCUSSED ABOVE. WHETHER THE ASSESSEE HAS DIVERTED ONLY SOLVENT PROD UCT TO THE PETROL PUMP OWNERS/ FOR THE NON-INDUSTRIAL USE IN THE MANNER AS GIVEN ABOVE OR ALL THE PRODUCTS 52. IN THIS REGARD, WE FIND PERTINENT TO REFER THE DETENTION ORDER OF THE DISTRICT MAGISTRATE WHICH IS THE BASIS OF THE ENTIRE DISPUTE ON HAND. THE RELEVANT EXTRACT OF THE ORDER READS AS UNDER: (13) FROM THE FACTS STATED ABOVE IT WOULD APPEAR Y OU HAVE INDULGED YOURSELF INTO SERIOUS IRREGULARITIES, WHEREBY THE INDUSTRIAL SOLV ENT STOCK WHICH CAN BE EASILY MIXED WITH PETROL WHICH LIQUID WAS APPEARED TO HAVE BEEN SOLD IN GUJARAT BY PREPARING BOGUS BILL OF OUTSIDE GUJARAT PARTIES, IN COLLUSION WITH THE SAID PARTIES BY OFFERING FINANCIAL INCENTIVES AND ECONOMIC GAIN TO THEM AND IT IS REAS ONABLY BELIEVED TO HAVE BEEN SOLD THE SOLVENT IN GUJARAT OR MIXED IN PETROL AT PETROL PUM P. THUS, YOU HAVE INDULGED IN - 26 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 SPREADING POLLUTION BY ADDING LOW COST SOLVENT WITH HIGH COST PETROL, THEREBY EARNING HIGH FINANCIAL GAIN BY INDULGING IN BLACK MARKETING OF SOLVENT STOCK IS CLEARLY PROVED. THUS YOU HAVE VIOLATED THE CLAUSE 23 & 24 OF GUJARA T ESSENTIAL COMMODITIES (LICENCE, CONTROL AND DECLARATION OF STOCK) ORDER, 1981 AND M ADE BREACH OF CONDITION 4,6 & 12 OF THE SAID ORDER, THEREBY VIOLATING SECTION 3 OF THE ESSENTIAL COMMODITIES ACT, 1955. 53. FROM THE ABOVE, WE NOTE THAT THE ASSESSEE IS IN VOLVED IN ONLY SOLVENT PRODUCT FOR DIVERTING THE SAME TO THE PETROL PUMP OWNER/ NON-IN DUSTRIAL USE. THE LD. DR AT THE TIME OF HEARING HAS NOT CONTROVERTED THE FINDING OF THE LD.CIT (A). THEREFORE WE ARE OF THE VIEW THAT THE DISPUTE REVOLVES TO THE EXTENT OF THE SALE OF THE PRODUCT NAMELY SOLVENT. WE CONCUR WITH THE FINDING OF THE LD. CIT-A TO THIS EX TENT. 54. WE ALSO NOTE THAT A SPECIFIC QUESTION WAS RAISE D BY THE CIT (A) TO THE AO AT THE TIME OF APPELLATE PROCEEDINGS WHETHER THERE IS ANY ALLEGATION FOR THE DIVERSION ABOUT THE SALE OF NAPTHA AND OTHER PURCHASED ITEM, HE SIMPLY REPLIED THAT NO OTHER EVIDENCE AVAILABLE BESIDE THE ITEMS ALREADY MENTIONED IN REC ORDED. THE RELEVANT FINDING OF THE CIT-A STANDS AS UNDER: THE ASSESSING OFFICER WAS ALSO DIRECTED TO CLARIFY WHETHER THERE WAS ANY ALLEGATION SPECIFICALLY MENTIONING SALE OF NAPTHA OR OTHER PUR CHASED ITEMS. THE ASSESSING OFFICER DURING HEARINGS CLARIFIED THAT THERE WAS NO OTHER E VIDENCE BESIDES THAT ALREADY MENTIONED ON RECORD. 55. AT THE TIME OF HEARING, THE ABOVE FINDING OF TH E LD. CIT-A HAS NOT BEEN CONTROVERTED BY THE LD. DR FOR THE REVENUE. 56. WE ALSO NOTE THAT THE LEARNED CIT (A) HAS CLEAR LY GIVEN A FINDING AFTER ANALYZING THE TECHNICAL REPORT FURNISHED BY THE ASSESSEE THAT THE ONLY PRODUCT SOLVENT CAN ONLY BE USED FOR MIXING WITH THE PETROL. THE OTHER PRODUCTS ARE NOT CAPABLE OF MIXING WITH THE PATROLS. THE FINDING OF THE LEARNED CIT (A) IS EXTR ACTED BELOW: ON THE CONTRARY, IN ALL THE ALLEGATIONS MADE, THE WORD CONSTANTLY USED IS SOLVENT. THEREFORE, IT HAS TO PRESUMED THAT OUT OF ALL THE P RODUCTS TREATED OR MANUFACTURED BY THE APPELLANT, IT IS THE SOLVENT ITEM WHICH ARE LIKELY TO HAVE BEEN SOLD TO PETROL PUMPS OR - 27 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 OTHER PARTIES FOR NON-INDUSTRIAL USE. THIS IS ALSO VERIFIABLE FROM THE CHEMICAL ANALYSIS OF OTHER ITEMS WHERE THE REPORTS SHOW THAT THEY CANNOT BE MIXED WITH THE PETROL. 57. THE ABOVE FINDING HAS NOT BEEN CONTROVERTED BY THE LD. DR FOR THE REVENUE AT THE TIME OF HEARING. THEREFORE IN THE ABSENCE OF ANY CO NTRARY INFORMATION, WE CONCLUDE THAT THE ASSESSEE WAS ENGAGED ONLY IN DIVERTING THE SOLV ENT PRODUCTS. HOWEVER, IT IS PERTINENT TO NOTE THAT OUR FINDING IS SUBJECT TO THE QUESTION NO. 1 AS DISCUSSED ABOVE. WHETHER THE ASSESSEE HAS DIVERTED SOLVENT PRODUCT T O THE PARTIES MENTIONED IN THE DETENTION ORDER OF THE DISTRICT MAGISTRATE OR A LL THE PARTIES TO WHOM IT HAS SOLD SOLVENT PRODUCTS. 58. TAKING UP THE MATTER FURTHER, WE NOTE THAT THE DISTRICT SUPPLY DEPARTMENT HAS ALLEGED IN ITS REPORT THAT M/S PARSHWA INDUSTRIES W AS A BOGUS COMPANY. 59. SIMILARLY, THE DISTRICT SUPPLY DEPARTMENT ALSO NOTICED THE MISMATCH IN THE TANKERS NOS. FURNISHED BY THE ASSESSEE AND THE DETAILS OBTA INED FROM THE OFFICE OF THE RTO. SUCH DIFFERENCE WAS NOTICED BY THE DISTRICT SUPPLY WITH RESPECT TO FIVE PARTIES (INCLUDING M/S PARSHAWA INDUSTRIES) LOCATED OUTSIDE GUJARAT TO WHO M THE SOLVENT WAS SOLD EXCEPT ONE NAMELY AVI ENTERPRISE TO WHOM THE NON-SOLVENT PRODU CT WAS SOLD. THEREFORE, IT APPEARS FROM THE DETENTION ORDER THAT THE ASSESSEE HAS USED THE NAME OF 4 PARTIES ONLY FOR GENERATING THE FAKE BILLS IN THE GARB OF SALES TO T HE PETROL PUMP OWNERS OR IN THE BLACK MARKET FOR THE USE OF NON-INDUSTRIAL PURPOSES. THE LIST OF SUCH PARTIES AS MENTIONED IN THE DETENTION ORDER STANDS AS UNDER: I. PARSHWA INDUSTRIES II. DA ENTERPRISES III. ARISTO ADICHEM IV. EXCEL ORGANICS V. AVI ENTERPRISES HOWEVER, THE AO ISSUED NOTICES TO ALL THE PARTIES U NDER SECTION 133(6) OF THE ACT TO CONFIRM THE SALE TRANSACTION AS CLAIMED BY THE A SSESSEE. BUT THERE WAS NO RESPONSE - 28 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 FROM ANY OF THE PARTY EXCEPT ONE, NAMELY M/S PRIME CHEMICAL, WHICH ACCEPTED TO BE INVOLVED IN THE BOGUS BILLING AGAINST THE COMMISSIO N FROM THE ASSESSEE. BUT THE AO HELD THAT THE ASSESSEE HAD USED THE NAME OF ALL THE PART IES FOR SHOWING THE SALES OF THE PETROLEUM PRODUCTS BUT IN ACTUALITY THE PRODUCTS WE RE SOLD TO THE PETROL PUMP OWNERS WITHOUT RECORDING THE SAME IN THE BOOKS OF ACCOUNTS . HOWEVER, THE LD. CIT(A) HELD THAT THERE WERE 6 PART IES INVOLVED IN CREATING FAKE BILLS BY THE ASSESSEE AS PER THE DETENTION ORDER AN D ENQUIRY OF THE AO. BUT THE LD. CIT-A FOUND THAT M/S AVI ENTERPRISES PURCHASED THE NON-SO LVENT PRODUCT FROM THE ASSESSEE. THEREFORE, HE EXCLUDED THE NAME OF SUCH PARTY. ACCO RDINGLY, THE LD. CIT (A) RESTRICTED THE ADDITION WITH RESPECT TO ONLY 5 PARTIES. NOW THE ISSUE ARISES WHETHER THERE WERE INVOLVED AL L THE PARTIES TO WHOM THE ASSESSEE HAS ALLEGED TO HAVE MADE THE SALES AS RECORDED IN THE B OOKS OF ACCOUNTS OR ONLY 5 PARTIES AS DISCUSSED ABOVE. 60. ADMITTEDLY, THE NOTICES ISSUED UNDER SECTION 13 3(6) OF THE ACT, TO WHOM THE ASSESSEE CLAIMED TO HAVE MADE SALES, WERE REMAINED UN-SERVED. THESE PARTIES ARE 25 IN NUMBERS FOR THE AY 1998-99. HOWEVER, WE NOTE THAT O UT OF SUCH NUMBER OF PARTIES, THE ASSESSEE HAD FILED THE CONFIRMATION WITH RESPECT TO 4 PARTIES PERTAINING TO THE AY 1998-99 AS DETAILED UNDER: SR. NO. PARTY NAME AMOUNT 1. SIDIMO INERAUX PVT LTD. 8,43,300/- 2. MAZAD CHEM 1,19,480/- 3. ARIHANT PETROCHEMICALS 4,88,400/- 4. MAHAVIR TRADERS 1,50,000/- 61. BESIDES THERE ARE ALSO AFFIDAVITS FILED BY THE 4 PARTIES PERTAINING TO THE AY 2000- 01 IN WHICH IT WAS ADMITTED THAT THEY PURCHASED IND USTRIAL SOLVENT FROM THE ASSESSEE. NAME OF THE PARTIES ARE AS UNDER: - 29 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 SR. NO. NAME 1. SARVANABAVA CHEMICALS 2. SOUTH PETROCHEMICALS 3. ARIHANT CHEMICALS 4. GALAXY PLASTOCHEM INDUSTRIES LTD 62. WE FURTHER NOTE THAT THE DISTRICT MAGISTRATE IN HIS ORDER RECORDED THAT THE ASSESSEE WAS INVOLVED IN THE PREPARATION OF BOGUS BILLS OF S OLVENT IN THE NAME OF PARTIES LOCATED OUTSIDE GUJARAT WHICH WERE ACTUALLY SOLD WITHIN GUJ ARAT ONLY IN COLLUSION WITH THE SAID PARTIES. THE RELEVANT FINDING STANDS AS UNDER: (13) FROM THE FACTS STATED ABOVE IT WOULD APPEAR Y OU HAVE INDULGED YOURSELF INTO SERIOUS IRREGULARITIES, WHEREBY THE INDUSTRIAL SOLV ENT STOCK WHICH CAN BE EASILY MIXED WITH PETROL WHICH LIQUID WAS APPEARED TO HAVE BEEN SOLD IN GUJARAT BY PREPARING BOGUS BILL OF OUTSIDE GUJARAT PARTIES, IN COLLUSION WITH THE SAID PARTIES BY OFFERING FINANCIAL INCENTIVES AND ECONOMIC GAIN TO THEM AND IT IS REAS ONABLY BELIEVED TO HAVE BEEN SOLD THE SOLVENT IN GUJARAT OR MIXED IN PETROL AT PETROL PUM P. FROM THE ABOVE IT APPEARS THAT THE ASSESSEE WAS ENG AGED IN CREATING THE FAKE BILLS IN THE NAME OF THE PARTIES AS DISCUSSED ABOVE FOR T HE SOLVENT PRODUCT ONLY. 63. WE FURTHER NOTE FROM THE STATEMENT OF FACTS SUB MITTED BY THE ASSESSEE BEFORE THE SALE TAX TRIBUNAL THAT THE SALE TAX DEPARTMENT CARR IED OUT SEARCH AT THE PREMISES OF THE ASSESSEE AS IT WAS ENJOYING EXEMPTION CERTIFICATE O N SALE AND ALSO GOT THE BENEFIT OF LOW TAX PAID ON PURCHASES. THE DEPARTMENT DOUBTED THAT THE ASSESSEE SOLD THE GOODS IN GUJARAT AND ISSUED THE BILLS IN THE NAME OF PARTIES SITUATED OUTSIDE GUJARAT. ACCORDINGLY THE SALES TAX DEPARTMENT TREATED THE INTERSTATE SAL E MADE BY THE ASSESSEE AS LOCAL SALE. THEREFORE IT IS CLEAR THAT ALL THE MATTER RELATED T O BILL ISSUED TO THE PARTIES OUTSIDE THE GUJARAT ONLY FOR THE DIVERSION OF THE SALES. 64. WE ALSO NOTE THAT THE MAIN THRUST OF THE AO WAS BASED ON THE INSPECTION CARRIED OUT BY THE DISTRICT SUPPLY DEPARTMENT WHEREIN THE N AME OF 5 PARTIES ARE RECORDED AS DISCUSSED IN THE PRECEDING PARAGRAPH. THUS IN OUR C ONSIDERED VIEW, THE AO IF THE WAS TO INVOLVE ALL THE PARTIES TO WHOM THE ASSESSEE HAS MA DE SALES, THEN HE HAS TO BRING - 30 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 SUFFICIENT EVIDENCES JUSTIFYING THE DIVERSION OF TH E SALE TO THE PETROL PUMP OWNERS. INDEED, THE NOTICES REMAINED UN-SERVED BUT THAT CAN NOT BE CONCLUSIVE EVIDENCE IN THE GIVEN FACTS AND CIRCUMSTANCES THAT THE SALES HAVE B EEN DIVERTED. AS SUCH, IF THE SALES HAD NOT BEEN MADE TO THE CONCERNED PARTIES, THEN THE ON US SHIFTS ON THE REVENUE TO PROVE BASED ON COGENT MATERIALS THAT THE SALES WAS MADE T O THE PETROL PUMP OWNERS/OTHER INDUSTRIES. WE ALSO FIND THAT THERE WAS NO MENTION OF ANY PETROL PUMP OWNER/OTHER INDUSTRY TO WHICH THE SALE WAS MADE. EVEN, THERE WA S NOT ISSUED ANY NOTICE TO THE PETROL PUMP OWNERS. ACCORDINGLY, WE FIND NO INFIRMITY IN T HE FINDING OF THE LD. CIT-A WHICH HAS BEEN REPRODUCED IN THE PRECEDING PARAGRAPH. THEREFORE IT IS CLEAR THAT THE MATTER FOR THE DIVER SION OF SALES OF SOLVENT IS RESTRICTED ONLY TO PARTIES MENTION IN THE ORDER OF THE DISTRIC T MAGISTRATE AND LD. CIT-A. HOWEVER, IT IS PERTINENT TO NOTE THAT OUR FINDING IS SUBJECT TO THE QUESTION NO. 1 AS DISCUSSED ABOVE. WHETHER THE ASSESSEE HAS DIVERTED ITS SOLVENT PRODU CT TO THE PETROL PUMP OWNERS/OTHER BLACK MARKETS AT THE RATE OF 24 PER LITRE BEING THE PURCHASE PRICE OF THE PETROL PUMP 65. THE LD. CIT(A) REJECTED THE SALE PRICE OF RS. 2 4 PER LITRE ADOPTED BY THE AO FOR FINDING OUT THE SUPPRESSED SALE MADE BY THE ASSESSE E TO THE PETROL PUMP OWNERS. THE LD. CIT(A) HAS ADOPTED THE AVERAGE PRICE OF RS. 17 PER LITRE BEING THE AVERAGE AMOUNT OF SALE PRICE THE ASSESSEE CLAIMED TO HAVE SOLD TO IS PARTI ES VIZ A VIZ THE PATROL PRICE CHARGED BY THE PETROL PUMP OWNER. ACCORDINGLY, THE LD. CIT(A) RESTRICTED THE ADDITION TO THE AMOUNT OF RS. 16,19,419/- WITH RESPECT TO THE LIMITED NUMB ER OF PARTIES AND SOLVENT PRODUCT ONLY. THEREFORE BOTH THE ASSESSEE AND REVENUE ARE IN APPE AL BEFORE US. 66. NOW THE CONTROVERSY ARISES, ASSUMING THE ASSESS EE IS SELLING THE SOLVENT TO THE PETROL PUMP OWNERS IN THE GARB OF SALES TO THE PART IES AS DISCUSSED ABOVE, THEN WHAT SHOULD BE THE SALE PRICE OF THE SOLVENT TO THE PETR OL PUMP OWNERS. IN THIS REGARD, WE NOTE THAT THERE IS NO DIRECT EVIDENCE AVAILABLE WITH THE AO SUGGESTING SUCH PRICE CHARGED BY - 31 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 THE ASSESSEE TO THE PETROL PUMP OWNERS/ OTHER INDUS TRIES. BUT THE CIRCUMSTANTIAL EVIDENCES SUGGEST THAT THE ASSESSEE SHALL CERTAINLY SALE THE PRODUCTS AT A HIGHER PRICE THAN THE PRICE CHARGED BY IT FROM THE ACTUAL PARTIES. THESE CIRCUM STANTIAL EVIDENCES CANNOT BE IGNORED WHILE DECIDING THE ISSUE ON HAND. 67. TAKING UP THE MATTER FURTHER, WE NOTE THAT THER E CAN BE 2 SITUATIONS AS DESCRIBED BELOW: SITUATION ONE: THE ASSESSEE LOSES ITS CASE BEFORE T HE COMPETENT COURT OF LAW. 68. IN THIS SITUATION, IT WILL BE ESTABLISHED THAT THE ASSESSEE WAS ENGAGED IN THE DIVERSION OF ITS PRODUCTS TO THE PETROL PUMP OWNERS /FOR NON-INDUSTRIAL USE IN THE BLACK- MARKET IN THE GARB OF SUPPLYING THE PRODUCTS TO THE PARTIES AS LISTED ABOVE. THUS, IT CAN SAFELY BE INFERRED THAT THE ASSESSEE TO MAKE HIGHER AMOUNT OF PROFIT HAS DONE SO. ACCORDINGLY, SUCH HIGHER AMOUNT OF PROFIT SHOULD CE RTAINLY BE SUBJECT TO TAX UNDER THE PROVISIONS OF LAW. BUT AGAIN THE DISPUTE WILL REMAI N UNSETTLE TO QUANTIFY THE AMOUNT OF PROFIT/SALE PRICE CHARGED BY THE ASSESSEE FROM THE PETROL PUMP OWNERS AND OTHER INDUSTRIES. SITUATION TWO: THE ASSESSEE SUCCEEDS IN ITS CASE BE FORE THE COMPETENT COURT OF LAW. 69. IN CASE, THE ASSESSEE SUCCEEDS BEFORE THE COMPE TENT COURT OF LAW, THEN THERE WILL NOT BE ANY QUESTION OF MAKING ANY ADDITION TO THE T OTAL INCOME OF THE ASSESSEE ON ACCOUNT OF DIVERSION OF SALES TO THE PATROL PUMP OWNERS/OTH ER INDUSTRIES. THEN IT SHALL BE INFERRED THAT THE ASSESSEE HAS SOLD THE GOODS TO THE PARTIES AT THE PRICE SHOWN BY IT IN THE BOOKS OF ACCOUNTS. 70. NOW COMING TO THE ISSUE ON MERIT, WE NOTE THAT THE ALLEGATION OF THE AO IS THAT THE ASSESSEE HAS SOLD THE PRODUCTS AT 24 PER LITER WHICH WAS REDUCED BY THE LEARNED CIT ( A) - 32 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 TO 17 PER LITER AS DISCUSSED ABOVE. IN THIS REGARD WE NOTE THAT THERE IS NO RIGHT/ CONCLUSIVE EVIDENCE AVAILABLE WITH THE REVENUE SUGG ESTING THAT THE ASSESSEE HAS SOLD ITS PRODUCTS AT 17 PER LITER. THERE ARE CERTAIN CIRCUMSTANTIAL EVID ENCES SUGGESTING THAT THE ASSESSEE IS INVOLVED IN MAKING FAKE SALES BILLS TO THE PARTIES, BUT THERE IS NO INFORMATION ABOUT THE PRICE THAT THE ASSESSEE HAS CHARGED THE T O THE PETROL PUMP OWNERS. IN OUR CONSIDERED VIEW THESE CIRCUMSTANTIAL EVIDENCES MAY CREATE THE SUSPICION IN THE MIND BUT THESE CANNOT BE CONCLUSIVE EVIDENCE TO DECIDE THE I SSUE ON HAND. THEREFORE THERE CANNOT BE ANY ADDITION ON ACCOUNT OF SUPPRESSED SALES BASE D ON THE SUSPICION. 71. WE ARE ALSO CONSCIOUS TO THE FACT THAT THERE WA S NO ENQUIRY CONDUCTED BY THE AO FROM THE PETROL PUMP OWNERS WHICH WAS VERY NECESSAR Y TO HOLD THAT THE ASSESSEE HAS DIVERTED ITS PRODUCTS TO THE PETROL PUMP OWNERS. AS SUCH THERE IS NO WHISPER ABOUT SUCH PETROL PUMP OWNERS/ OTHER INDUSTRIES DEALING WITH T HE ASSESSEE. THERE WAS THE STATEMENT OF THE DRIVER, NAMELY SHRI V.M. CHAUHAN WHO ADMITTE D IN HIS STATEMENT THAT HE HAS DIVERTED THE PRODUCT OF THE ASSESSEE TO THE HINDUST AN PETROLEUM PETROL PUMP LOCATED AT BORSAD JAKATNAKA. THE RELEVANT EXTRACT OF THE STATE MENT IS REPRODUCED AS UNDER: ONE DAY AT NOON, I DO NOT REMEMBER THE EXACT DATE AND TIME. SHRI MANOJBHAI ASKED ME TO ATTEND THE ASSIGNMENT AT THE JAL-HI POWER COMPAN Y AND HE TOLD ME TO CONTACT NAVINBHAI GANDHI. I WENT THERE WITH THE TANKER AND MET THERE SHRI NAVINBHAI GANDHI ALONGWITH BHAVESHBHAI. BHAVESHBHAI GOT THE TANKER F ILLED WITH SOLVENT AT JAL HI POWER. SHRI NAVINBHAI ACCOMPANIED ME WITH A BILL FOR PARSH WA INDUSTRY, SWAROPGUNJ, SHIROHI, RAJSHTHAN AND A SECOND BILL FOR BHAVNAGAR. WE PASSE D THE GATE OF THE COMPANY OF SHOWING THE BILL FOR PARSHWA INDUSTRY. AFTER PASSIN G THE GATE, AND REACHING DUMOD CHOKDY, NAVINBHAI TORE OUT THE BILLS ISSUED IN THE NAME OF PARSHA INDUSTRY AND TOLD ME THAT WE HAVE THE BILL FOR BHAVNAGAR AND DIRECTED ME TO DRIVE TOWARDS BORSAD. NEAR THE JAKATNAKA OF BORSAD, HE ASKED ME TO DRIVE THE TANKE R TOWARDS A PETROL PUMP AT BORSAD JAKATNAKA AND REACHING THE PETROL PUMP AFTER SOME C ONVERSATION WITH THE OWNER OF THE PETROL PUMP, THE GOODS WAS DELIVERED/ THE TANK WAS EMPTIED AT THE TANK OF THE PETROL PUMP AT BORSAD JAKATNAKA. ON WAY TO BARODA, NAVINBH AI TORE OUT THE BILL FOR BHAVNAGAR. I DO NOT REMEMBER THE NAME OF THE PETROL PUMP AT BORSAD JAKATNAKA, BUT IT IS A HINDUSTAN PETROLEUM PETROL PUMP. BUT YET THERE WAS NO INQUIRY BY THE REVENUE FROM SU CH PETROL PUMP OWNERS DESPITE THE HAVING SOME INFORMATION ABOUT THE PETRO L PUMP OWNERS. - 33 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 72. WE ALSO NOTE THAT THERE WAS NO INFORMATION AVAI LABLE FROM THE AUTHORITIES BELOW THAT THE ASSESSEE OR ITS DIRECTORS HAVE MADE SOME U NACCOUNTED INVESTMENTS OR HAS INCURRED SOME EXPENDITURE OUTSIDE THE BOOKS OF ACCO UNTS. THE INCOME OF THE ASSESSEE CAN BE DETERMINED BASED ON ASSETS OR THE EXPENDITURE. T HERE IS NO INFORMATION ABOUT ANY UNDISCLOSED INVESTMENTS OR UNEXPLAINED EXPENDITURE. THUS, EVEN IF THE REAL INCOME THEORY TEST IS APPLIED IN THE CASE ON HAND, WE NOTE THAT T HE REVENUE HAS NOT BROUGHT ANYTHING ON RECORD ABOUT THE INVESTMENT MADE BY THE ASSESSEE/IT S DIRECTORS OR THERE WAS INCURRED ANY EXPENSES BY THE ASSESSEE/ITS DIRECTORS. 73. THE AO IN THE ASSESSMENT ORDER RECORDED THAT TH E ASSESSEE MIGHT HAVE INCURRED SUBSTANTIAL EXPENSES TO SALE THE PRODUCT TO THE PET ROL PUMP IN THIS MODUS OPERANDI OF SALE BUT THESE EXPENSES ARE NOT RECORDED IN THE BOOKS OF ACCOUNTS. THEREFORE THESES EXPENSES WERE NOT ALLOWABLE. THE FINDING OF THE AO STANDS AS UNDER: IT WAS ALSO POINTED OUT THAT IN THIS TYPE OF BUSIN ESS, SUBSTANTIAL EXPENDITURE HAS TO BE INCURRED WHICH IS NOT ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS. HOWEVER, AS AGAINST THESE CLAIMS THE ASSESSEE HAS FAILED TO FURNISH ANY EVIDE NCE, ACCORDINGLY, THE SAME STANDS REJECTED. 74. ON PERUSAL OF THE REASONING GIVEN BY THE AO FOR REJECTING THE CLAIM OF THE ASSESSEE FOR THE EXPENSES INCURRED AGAINST THE SALES DIVERTE D TO THE PETROL PUMP OWNERS/OTHER INDUSTRIES, WE NOTE THAT THE AO HAS TAKEN CONTRADIC TORY STAND. THE AO ON ONE HAND IS ESTIMATING THE INCOME WHICH WAS NOT RECORDED IN THE BOOKS OF ACCOUNTS BUT ON THE OTHER HAND DENIED TO ALLOW THE CORRESPONDING EXPENSES ON THE GROUND THAT THESE EXPENSES WERE NOT RECORDED IN THE BOOKS OF ACCOUNTS. IN OUR CONSI DERED VIEW, THE AO CANNOT ADOPT DIFFERENT STANDS FOR WORKING OUT THE INCOME OF THE ASSESSEE VIZ A VIZ DISALLOWING THE EXPENSES. 75. THE LD. CIT ALSO ADMITTED THAT THERE IS NO CORR OBORATIVE EVIDENCE TO DECIDE WHETHER THE ASSESSEE SOLD THE SOLVENT TO THE PETROL PUMP OR OTHER PARTIES. HOWEVER THE LD. CIT(A) TOOK THE RATE AS TAKEN BY THE AO FOR SALE OF SOLVENT TO THE PETROL PUMP OWNER TO - 34 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 DECIDE THE REASONABLE PRICE AND ACCORDINGLY DETERMI NED THE AVERAGE PRICE. HOWEVER, THERE WAS NOT CONDUCTED ANY INQUIRY ITSELF ABOUT TH E ALLEGATION THAT THE ASSESSEE SOLD THE SOLVENT TO THE PETROL PUMP. THIS FACT WAS DULY ADMI TTED BY THE AO IN HIS REMAND REPORT BY STATING THAT HE USED THE ENQUIRY CONDUCTED BY TH E OTHER DEPARTMENT AS DISCUSSED ABOVE. THE RELEVANT EXTRACT OF THE REMAND REPORT STANDS AS UNDER: THE ASSESSEES SUBMISSION IS CONSIDERED. HOWEVER, IT MAY BE STATED THAT ALL THE ENQUIRIES, RECORDING OF STATEMENTS ETC., WERE CARRI ED OUT BY CRIME BRANCH AND CIVIL SUPPLIES DEPARTMENTS, ETC. AND THE ASSESSING OFFI CER WAS USING THE STATEMENTS AS ONLY TO STRENGTHEN HIS FINDINGS REGARDING THE MODUS OPE RANDI OF THE ASSESSEE COMPANY. IN THESE CIRCUMSTANCES, A SUMMONS WAS ALSO ISSUED TO T HE MANAGING DIRECTOR OF THE ASSESSEE, SHRI JAYESH THAKKAR TO APPEAR ON 30 .6.2003. HOWEVER, THE ASSESSEE VIDE LETTER DATED 30.6.2003 STATED THAT 'HE IS THE O NLY PRINCIPAL OFFICER, WHO CAN SATISFACTORILY EXPLAIN THE MATTER. HOWEVER, AT PRESENT HE IS AT U.S.A. (OUT OF INDIA) AND, THEREFORE, UNABLE TO ATTEND PERSONALLY'. IT IS A FACT THAT SHRI JAYESH THAKKAR WAS THE , O RIGINAL ACCUSED IN THE SOLVENT SCAM AND HE IS NOT AVAILABLE IN INDIA. THOUGH, IT WILL BE CR UCIAL TO EXAMINE HIM TO EXACTLY FIND OUT THE VERACITY OF STATEMENTS TO ASCERTAIN THE EXACT P RICE AT WHICH HE SOLD THE SOLVENT TO PETROL PUMPS. IT IS ALSO A FACT THAT THOUGH THE POLICE AUTHORITIE S R.AVE RECORDED STATEMENTS OF PERSONS RESIDING AS FAR AS CHENNAI, BANGALORE AND GOA, TO G ET THE DENIAL OF SOLVENT BUYERS, BUT NOT A SINGLE STATEMENT OF PETROL PUMP OWNERS WAS RE CORDED THOUGH INDICATIONS WERE AVAILABLE TO THEM. IN THE CIRCUMSTANCES, THE ASSESS ING OFFICER WAS JUSTIFIED IN ADOPTING A REASONABLE PRICE TO ESTIMATE SUPPRESSED INCOME. NO COMMENTS CAN BE MADE AS TO THE ALLEGATION THAT THE STATEMENTS WERE DEPOSED UNDER T HREAT OR PRESSURE. IN FACT, SHRI JAYEOH THAKKAR HIMSELF HAS DENIED OF HAVING INVOLVED HIMSE LF IN ANY ILLEGAL SALE OF SOLVENT VIDE STATEMENT DATED 21.3.2000 RECORDED BY THE DISTRICT CIVIL SUPPLIES OFFICER. THE STATEMENTS OF VARIOUS PERSONS RECORDED BY THE P OLICE/CIVIL SUPPLIES AUTHORITIES ARE AVAILABLE AND WILL BE PRODUCED AS AND WHEN DESIRED BY YOUR KIND HONOUR. AS THE MATTER IS SUB-JUDICE, HOWEVER, NO COMMENTS R EGARDING ANTICIPATED FINAL OUTCOME ARE BEING MADE IN THIS REGARD. FROM THE ABOVE REMAND REPORT, WE NOTE THAT THERE WA S NO EXERCISE CARRIED OUT BY THE REVENUE TO ARRIVE AT THE CONCLUSION THAT THE AS SESSEE HAS DIVERTED ITS PRODUCT TO THE PETROL PUMP OWNERS/OTHER INDUSTRIES DESPITE HAVING THE INFORMATION IN HAND. AS SUCH THE ENTIRE ADDITION WAS BASED ON THE INVESTIGATION CARR IED OUT BY THE DISTRICT SUPPLY TEAM/CRIME BRANCH ETC. - 35 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 76. IT IS ALSO IMPORTANT TO NOTE THAT THERE WAS A S EARCH BY THE SALES TAX DEPARTMENT DATED 16 FEBRUARY 2000 WHEREIN IT WAS ALLEGED THAT THE ASSESSEE IS MAKING SALES WITHIN THE STATE OF GUJARAT IN ACTUALITY BUT IT WAS SHOWIN G IN THE BOOKS OF ACCOUNTS AS INTERSTATE SALE IN ORDER TO AVOID THE TAX LIABILITY. AS SUCH T HE RATE OF TAX FOR THE INTERSTATE SALE UNDER CST ACT IS 2% ON FURNISHING OF FORM C BY THE PARTY TO THE ASSESSEE WHEREAS THE RATE OF SALES TAX ON LOCAL SALE I.E. WITHIN THE ESTATE WAS RANGING FROM 12 TO 14% OF THE SALE VALUE. AS SUCH, WE NOTE THAT THERE WAS NO ALLEGATION ABOUT THE SALE PRICE CHARGED BY THE ASSESSEE FROM THE PARTIES. THUS, THE SALE PRICE DECLARED BY THE ASSESSEE WAS ACCEPTED BY THE SALES TAX DEPARTMENT EXCEPT THE AD HOC ADDITION BY THE SA LES TAX DEPARTMENT FOR THE ASSESSMENT YEAR 2000-01. INDEED, SUCH AD HOC ADDITION REPRESEN TS THE ENHANCED VALUE OF SALE PRICE, BUT IT WAS NEVER COMPARED WITH THE PRICE OF THE PAT ROL. 77. WE FURTHER NOTE THAT SUCH AD HOC ADDITION BY TH E SALES TAX DEPARTMENT AND THE ADDITION ON ACCOUNT OF TREATING THE INTERSTATE SALE AS LOCAL SALE WAS SUBSEQUENTLY DELETED BY THE SALES TAX DEPARTMENT. IN THIS REGARD WE ARE INCLINED TO REFER THE AFFIDAVIT DATED 10- 04-2019 FURNISHED BY THE ASSESSEE WHICH READS AS UN DER: I, THE UNDERSIGNED, MR. JAYESHBHAI R. THAKKAR, DIR ECTOR OF M/S KAVIT INDUSTRIES LTD. (FORMERLY KNOWN AS M/S ATREYA PETROCHEM LTD. AND M/ S JAL HI PETROCHEM LTD.], BARODA DO HEREBY SOLEMNLY AND ON OATH AFFIRM THAT 1. I AM AGED ABOUT 53 YEARS, WORKING AS A DIRECTOR FOR M/S KAVIT INDUSTRIES LTD. ['M/S KAVIT'] FOR PAST 24 YEARS. MY OFFICE IS AT 9 TH FLOOR. GALAV CHAMBERS, SAYAJIGUNJ, VADODARA. 2. THE SALES TAX OFFICER HAD RAISED DEMAND FOR THE YEA R 1997-98, 1998-99 AND 1999-2000 MAKING HIGH PITCHED ASSESSMENTS ON M/S KAVIT, WHICH WERE CHALLENGED IN FIRST APPEAL BEFORE ASSISTANT SALES TAX COMMISSIONER, VADODARA, WHO HAD DECIDED THE MATTERS AGAINST M/S KAVIT. 3. AGAINST THE SAID ORDER OF ASSISTANT SALES TAX COMMI SSIONER, VADODARA, M/S KAVIT HAD FILED APPEALS BEFORE GUJARAT SALES TAX TRIBUNAL BEA RING NO.36 TO 41 OF 2003, WHICH WERE DISPOSED OFF BY THE ORDER OF GUJARAT SALES TAX TRIB UNAL DATED 11/2/2003 WHEREBY THE APPEALS WERE REMANDED TO THE FILE OF ASSISTANT COMM ISSIONER OF SALES TAX WITH A DIRECTION TO DECIDE THE SAME ON MERITS. - 36 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 4. THE ASSISTANT COMMISSIONER OF SALES TAX (VADODARA) THEN REMANDED CASE TO SALES TAX OFFICER FOR FURTHER INQUIRY VIDE HIS ORDERS DATED 3 1.05.2003. 5. THEREAFTER, THE SALES TAX OFFICER (VADODARA) SATIS FIED WITH THE CASE OF M/S. KAVIT DID NOT PASS ANY ORDER AND AT PRESENT THERE ARE NO DEMANDS OUTSTANDING FOR THE ABOVE YEARS FROM SALES TAX DEPARTMENT AGAINST M/S. KAVIT. 6. WHATEVER IS MENTIONED ABOVE IS TRUE AND NOTHING BUT THE TRUTH AND THERE ARE NO SALESJAX LIABILITIES OUTSTANDING AGAINST M/S KAVIT FOR THE A BOVE YEARS OUT OF THE ASSESSMENT ORDERS AND THE CONSEQUENTIAL DEMANDS RAISED BY THE SALES T AX AUTHORITIES. 7. THE ABOVE AFFIDAVIT IS FIELD TO PUT IN PROPER PERSP ECTIVE THE STATUS OF THE DEMANDS RAISED BY THE SALES TAX AUTHORITIES FOR THE ABOVE YEARS AG AINST M/S KAVIT. SOLEMNLY AFFIRMED ON THIS 10 TH DAY OF APRIL, 2019 AT BARODA. THE CONTENTS OF THE ABOVE AFFIDAVIT HAVE NOT BEEN C ONTROVERTED BY THE LEARNED DR APPEARING FOR THE REVENUE. 78. WE ALSO NOTE THAT THE ASSESSEE BEFORE THE AUTHO RITIES BELOW HAS CLAIMED TO HAVE MADE SALES TO THE PARTIES AT ITS FACTORY GATE WHICH HAS NOT BEEN DISPUTED BY THEM. THUS, THERE IS A POSSIBILITY THAT THE PARTIES TO WHOM THE ASSESSEE HAS SOLD THE GOODS MIGHT HAVE DIVERTED THE PRODUCTS TO THE PETROL PUMP OWNERS/OTH ER INDUSTRIES. IF THAT BE SO, THE ASSESSEE CANNOT BE PENALIZED FOR THE ACT DONE BY TH E OTHER PARTIES. HOWEVER, THE REVENUE HAS NOT BROUGHT ANYTHING ON RECORD CONTRARY TO THE ARGUMENTS OF THE ASSESSEE. THUS, IN THE FACTS AND CIRCUMSTANCES IT CANNOT BE CONCLUDED THAT THE ASSESSEE WAS ENGAGED IN THE DIVERSION OF ITS PRODUCT AS DISCUSSED ABOVE. HOWEVE R, IT IS PERTINENT TO NOTE THAT OUR FINDING IS SUBJECT TO THE QUESTION NO. 1 AS DISCUSS ED ABOVE. 79. WE ALSO NOTE THAT, THE ASSESSING HAS FURNISHED ALL THE REQUISITE DOCUMENTS ABOUT M/S PARSHWA INDUSTRIES SUCH AS COPY OF THE LICENSE, ALLOTMENT LETTER FROM RAJASTHAN ESTATE INDUSTRIAL INVESTMENT AND DEVELOPMENT CORPORATION, UNDERTAKING FOR THE END USE OF SOLVENT. IT APPEARS THAT THE ASSESSEE HAS DISCHARGE D ITS ONUS BEFORE MAKING THE SALES TO THE PARTY. ACCORDINGLY, IF ON A LATER DATE IT IS DISCOV ERED THAT THE SAID PARTY IS NOT ENGAGED IN - 37 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 THE MANUFACTURING/INDUSTRIAL ACTIVITY BUT THE ASSES SEE CANNOT BE PENALIZED FOR THE FAULT OF THE PARTY. THE RELEVANT DOCUMENTS ABOUT THE PARTY A RE PLACED ON PAGES 157 TO 186 OF THE PAPER BOOK. 80. EVEN IF THE THEORY OF PREPONDERANCE OF PROBABIL ITY IS APPLIED IN THE GIVEN FACTS OF THE CASE, THE ISSUE GOES AGAINST THE REVENUE. IT IS BECAUSE THE PROBABILITY IN THE CASE ON HAND IS THAT THE ASSESSEE HAS DIVERTED ITS PETROLEU M PRODUCTS TO THE PETROL PUMP OWNERS/OTHER INDUSTRIES. BUT NONE OF THE AUTHORITIE S BELOW HAS BROUGHT ON RECORD SUCH DETAILS ABOUT THE PETROL PUMP OWNER/OTHER INDUSTRY WHERE THE ASSESSEE HAS DIVERTED ITS PRODUCTS. ANY ALLEGATION THOUGH VERY STRONG BUT IT MUST BE SUPPORTED BASED ON THE TANGIBLE MATERIALS WHICH IS MISSING IN THE CASE ON HAND I.E. THE PARTIES TO WHOM THE ASSESSEE HAS DIVERTED ITS PRODUCTS. 81. SIMILARLY, THERE IS DECLINE IN THE MANUFACTURIN G EXPENSES IN COMPARISON TO THE EARLIER ASSESSMENT YEAR DESPITE THE TURNOVER OF THE ASSESSEE HAS INCREASED BY HUNDRED PERCENT. SUCH INFORMATION CERTAINLY CREATES SUSPICI ON TO INVESTIGATE THE MATTER BUT THE SAME CANNOT BE THE BASIS OF MAKING THE ADDITION UNT IL AND UNLESS OTHER CRUCIAL EVIDENCES FOR DIVERTING THE SALES ARE BROUGHT ON RECORD. 82. AFTER CONSIDERING THE FACTS INVOLVED IN THE PRE SENT CASE IN TOTALITY, WE ARE OF THE VIEW THAT IT WAS THE QUESTION OF FACT BEFORE THE RE VENUE TO FIND OUT THAT THE ASSESSEE HAS DIVERTED THE SALES TO THE PETROL PUMP OWNERS/OTHER INDUSTRIES WHICH IS POSSIBLE TO DECIDE ON THE BASIS OF DOCUMENTARY EVIDENCE. BUT THE REVEN UE HAS NOT BROUGHT NECESSARY TANGIBLE MATERIALS IN SUPPORT OF HIS CLAIM. THUS IN OUR CONSIDERED VIEW, THE ADDITION MADE BY THE AUTHORITIES BELOW IS NOT SUSTAINABLE IN THE ABSENCE OF SUFFICIENT DOCUMENTARY EVIDENCE. IN THIS REGARD WE FIND SUPPORT AND GUIDAN CE FROM THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VERSUS MK BRO THERS REPORTED IN 163 ITR 249 WHEREIN IT WAS HELD AS UNDER: - 38 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 8. ON A PERUSAL OF THE ORDER OF THE TRIBUNAL IT CLEAR LY APPEARS THAT WHETHER THE SAID TRANSACTIONS WERE BOGUS OR NOT WAS A QUESTION OF FA CT. THE TRIBUNAL HAS ALSO POINTED OUT THAT NOTHING IS SHOWN TO INDICATE THAT ANY PART OF THE FUND GIVEN BY THE ASSESSEE TO THESE PARTIES CAME BACK TO THE ASSESSEE IN ANY FORM. IT I S FURTHER OBSERVED BY THE TRIBUNAL THAT THERE IS NO EVIDENCE ANYWHERE THAT THESE CONCERNS I MPLICATE VOUCHERS TO THE ASSESSEE. EVEN THE TWO STATEMENTS DO NOT IMPLICATE THE TRANSA CTIONS WITH THE ASSESSEE IN ANY WAY. WITH THESE OBSERVATIONS THE TRIBUNAL ULTIMATELY HAS OBSERVED THAT THERE ARE CERTAIN DOUBTFUL FEATURES, BUT THE EVIDENCE IS NOT ADEQUATE TO CONCLUDE THAT THE PURCHASES MADE BY THE ASSESSEE FROM THESE PARTIES WERE BOGUS. IT M AY BE STATED THAT THE ASSESSEE WAS GIVEN CREDIT FACILITIES FOR A SHORT DURATION AND TH E PAYMENTS WERE GIVEN BY CHEQUES. WHEN THAT IS SO, IT CANNOT BE SAID THAT THE ENTRIES FOR THE PURCHASES OF THE GOODS MADE, IN THE BOOKS OF ACCOUNT WERE BOGUS ENTRIES. WE, THEREFORE, DO NOT FIND THAT THE CONCLUSION ARRIVED AT BY THE TRIBUNAL IS AGAINST THE WEIGHT OF EVIDENCE. IN THAT VIEW OF THE MATTER WE ANSWER THE QUESTION IN THE AFFIRMATIVE, THAT IS, IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. IN THIS REGARD, WE NOTE THAT THERE IS NO IOTA OF EV IDENCE AVAILABLE WITH THE REVENUE THAT THE ASSESSEE HAS CHARGED ANY AMOUNT OVER AND A BOVE THE INVOICE VALUE. THUS WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAI NST THE REVENUE. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED WHEREAS THE GROUN D OF APPEAL OF THE REVENUE IS DISMISSED. 83. THE 2 ND ISSUE RAISED BY THE ASSESSEE IN GROUND NUMBER 4 IS THAT THE LD. CIT-A ERRED IN CONFIRMING THE ADDITION IN PART MADE BY THE AO A MOUNTING TO RS. 23,68,584.00 ON ACCOUNT OF MISMATCH IN THE ACCOUNT OF THE PARTIES ( CREDITORS). 84. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HA S SHOWN PURCHASES FROM RELIANCE INDUSTRIES AND HPCL FOR 62,000 LITRES AND 3,19,000 LITRES FOR RS. 7,06,413/- AND 26,62,670/- RESPECTIVELY. HOWEVER, THE AO ON CONFIRMATION FROM THE PARTIES OB SERVED THAT THESE PARTIES NAMELY RELIANCE INDUSTRIES AND HPCL HAVE SHOWN SALE S IN THEIR BOOKS FOR 94,532 LITRES AND 9,39,300 LITRES FOR RS. 12,53,264/- AND 85,54,8 84/- RESPECTIVELY LEADING A DIFFERENCE OF RS. 64,74,065/- IN THE AMOUNT OF PURCHASE SHOWN BY THE ASSESSEE. - 39 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 85. ON QUESTION, THE ASSESSEE SUBMITTED THAT THE IN FORMATION FURNISHED BY HPCL IS IN SUMMARIZED FORM AND THEREFORE IT IS DIFFICULT TO RE CONCILE THE SAME. ACCORDINGLY, THE ASSESSEE SUBMITS BEFORE THE AO TO OBTAIN FURTHER DE TAILS SUCH AS DELIVERY ORDER, TRANSPORTERS AUTHORITY LETTER, DELIVERY CHALLANS, D ETAILED ACCOUNT STATEMENT, INDENT LETTER, INVOICE COPIES, PAYMENT DETAILS, COPY OF THE JOURNA L VOUCHER ETC. 86. SIMILARLY, THE ASSESSEE AGREES WITH THE TRANSAC TION SHOWN BY IT WITH THE RELIANCE INDUSTRIES BUT REQUESTED TO FURNISH THE COPY OF JOU RNAL VOUCHER. HOWEVER THE AO DISAGREED WITH THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT IT FAILED TO RECONCILE THE DIFFERENCE OF THE PURCHASES WITH THE CONFIRMATION RECEIVED FROM THE PARTIES. THE AO ALSO OBSERVED THAT THE ASSESSEE IS ALREADY ENGAGED IN MAKING/DIVERTING IT SALES TO THE PATROL PUMP OWNERS/FOR NON-INDUSTRIAL USE AT A HIGHER PRICE WITHOUT RECORDING THE SAME IN ITS BOOKS. ACCORDINGLY, THE AO MADE THE ADDITION OF RS. 1,56,67,920/- AFTER REJECTING THE BOOKS OF ACCOUNTS IN THE MANNER AS DE TAILED UNDER: NET SALE AT THE RATE OF RS. 24/- PER LTR. FOR UNAC COUNTED SALES OF 652.830 LTRS. RS. 1,56,67,920/- LESS: PURCHASE CONSIDERATION AS DISCUSSED ABOVE RS . 64,74,065/- RS. 91,93,835/- ADD: UNACCOUNTED INVESTMENT AS DISCUSSED ABOVE RS. 64,74,065/- RS. 1,56,67,920/- ========== 87. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE L D. CIT(A). 88. THE ASSESSEE BEFORE THE LD. CIT(A) SUBMITTED TH AT ADDITION HAS BEEN MADE CONSIDERING THE SALE PRICE OF THE UNACCOUNTED QUANT ITY AT RS. 24/- PER LITRE TO THE PETROL PUMP OWNERS WHICH IS QUITE UNREASONABLE AND WITHOUT ANY EVIDENCE. - 40 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 89. THE AO HAS NOT FURNISHED THE DETAILS BREAKUP AS REQUESTED BY THE ASSESSEE SUCH AS DELIVERY ORDER, TRANSPORTERS AUTHORITY LETTER, DELI VERY CHALLANS, DETAILED ACCOUNT STATEMENT, INDENT LETTER, INVOICE COPIES, PAYMENT DETAILS, COP Y OF THE JOURNAL VOUCHER ETC. FOR MAKING THE RECONCILIATION. 90. THE ASSESSEE WITHOUT PREJUDICE TO THE ABOVE ALS O CLAIMED THE DEDUCTION OF RS.64,74,065/- EXPENDITURE UNDER SECTION 37 OF THE ACT. THE ASSESSEE ALSO CLAIMED THAT SUCH DEDUCTION/SET OFF IS AVAILABLE FOR THE YEAR UN DER CONSIDERATION AS PER SECTION 69C OF THE ACT. 91. THE ASSESSEE FURTHER SUBMITTED THAT SUCH THE AM OUNT OF PURCHASES SHOULD BE SET OFF OF AGAINST THE AMOUNT OF THE ADDITION MADE BY THE A O FOR RS 5.49 CRORES AS RAISED IN THE GROUND NO. 1 TO 3 WITH THE MEMO APPEAL. 92. THE ASSESSEE ALSO CLAIMED THAT THE EMPLOYEES OF THE PARTIES ABOVE WERE ENGAGED IN MAKING THE SALES IN THE NAME OF VARIOUS BOGUS PARTI ES AND SOME OF THEM WERE ALSO ARRESTED. 93. THE LD. CIT (A) ON THE SUBMISSION OF THE ASSESS EE CALLED FOR THE REMAND REPORT FROM THE AO. 94. THE ASSESSEE DURING THE REMAND PROCEEDINGS BEFO RE THE AO SUBMITTED THAT THE INVOICES RAISED BY HPCL AMOUNTING TO RS. 26,92,006/ - HAVE BEEN REVERSED OR CANCELLED BY THE PARTY. 95. THE ASSESSEE SIMILARLY ALSO SUBMITTED THAT THE INVOICES AMOUNTING TO RS. 11,52,372/- PERTAINS TO THE FINANCIAL YEAR 1996-97 AND THEREFORE THE SAME CANNOT BE INCLUDED IN THE PURCHASES OF THE CURRENT YEAR UNDER CONSIDERATION. - 41 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 96. THE ASSESSEE ALSO SUBMITTED THAT THE NAME OF TH E ASSESSEE HAS BEEN USED FOR SHOWING THE SALE IN ITS NAME BUT THE GOODS HAVE BEE N SOLD TO SOME OTHER PARTY. THE ASSESSEE ALSO SUBMITTED THAT THERE WAS NO ADDITION ON ACCOUNT OF BOGUS PURCHASES IN THE ASSESSMENT YEARS 1999-2000 AND 2000-2001. 97. THE AO IN HIS REMAND REPORT SUBMITTED THAT THER E WAS NO RESPONSE FROM HPCL IN RESPONSE TO THE ENQUIRIES LETTERS SENT TO IT. THE A O ALSO SUBMITTED THAT EVEN THE VERSION OF THE ASSESSEE IS PRESUMED CORRECT, STILL THERE IS TH E DIFFERENCE OF RS. 20,82,836/- WITH RESPECT TO THE TRANSACTIONS WITH HPCL. 98. THE AO REGARDING THE PURCHASES FROM THE RELIANC E INDUSTRIES LTD SUBMITTED THAT THE ASSESSEE FAILED TO RECONCILE THE PURCHASES AMOU NTING TO RS. 2,85,748/- ONLY. 99. THE LD. CIT (A) AFTER CONSIDERING THE REMAND RE PORT AND THE SUBMISSION OF THE ASSESSEE DELETED THE ADDITION MADE BY THE AO IN PAR T BY OBSERVING AS UNDER: 6.9 AFTER GOING THROUGH THE ENTIRE DETAILS SUBMITT ED FROM BOTH SIDES, I FIND THAT THE APPELLANT HAVE BEEN ABLE TO RECONCILE MOST OF THE D IFFERENCES EXCEPT AS PER THE FIGURES MENTIONED BY THE ASSESSING OFFICER IN HIS REMAND RE PORT. THERE IS ALSO SOME SUBSTANCE IN THE APPELLANTS CLAIM THAT THERE MAY BE SOME CAUSE FOR MISTAKE ENTRIES OR OTHER MAL PRACTICES IN THE CONCERNED OIL COMPANIES WHICH WERE ALSO HIGHLIGHTED IN THE PRESS AT THE SAME TIME AS THE ALLEGATIONS AGAINST THE APPELLANT COMPANY. TAKING INTO ACCOUNT ALL THE FACTORS DISCUSSED INTO CONSIDERATION, I HOLD THAT F IRSTLY, THIS IS NO CASE FOR MAKING AN ADDITION OF RS.1,56,57,920/- WHEN INFACT THE UNACCO UNTED PURCHASES SHOULD BE DEDUCTED AS EXPENDITURE. THE CASE LAW CITED ON THIS POINT IS VERY RELEVANT. SECONDLY, MOST OF THE FIGURES HAVE BEEN TALLIED THEN ONLY THE DIFFERENCE REMAINING SHOULD BE THE SUBJECT OF TAXATION WHICH IS RS.13,68,584/-. 7. THE NEXT ISSUE THAT ARISES IS WHETHER ON THESE P URCHASES, SALES HAVE TO BE ESTIMATED @ RS.24. IN MY VIEW, AGAIN, FIRSTLY AS PE R REASONING GIVEN IN THE EARLIER CONSIDER IN RESPECT OF THE MAIN GROUND OF APPEAL, T HE RATE CAN NEVER BE TAKEN AT RS.24 AND INFACT IT HAS BEEN CONSIDERED AT AN AVERAGE RAT E OF RS.17. THIS ALSO CANNOT BE APPLIED TO THE PURCHASES AS THERE IS NO PROOF THAT THESE IT EMS WERE EITHER ACTUALLY RECEIVED AND SECONDLY, THAT THEY WERE ACTUALLY SOLD TO PETROL PU MPS. IN FACT AS DISCUSSED IN GROUND NO.1 ABOVE ITEMS LIKE NAPTHA, BENZENE AND HSD AS PE R CHEMICAL REPORTS AVAILABLE ARE NOT CAPABLE OF BEING MIXED WITH PETROL FOR USE AS MOTOR SPIRIT. THE ONLY POSSIBLE THING IS THAT - 42 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 THE PURCHASE THEMSELVES MAY HAVE BEEN DIVERTED TO O UTSIDE PARTIES WITHOUT PROCESSING FOR ANY OTHER NONINDUSTRIAL USE. HOWEVER, IN THE ABSENC E OF ANY PROOF OF SUCH SALES, I FIND THAT THE APPELLANTS ORIGINAL ARGUMENT THAT THE FIR ST GROUND OF APPEAL REGARDING UNACCOUNTED SALES SHOULD ALSO COVER SUCH ADDITION I N RESPECT OF UNACCOUNTED PURCHASES. THEREFORE, I WOULD UPHOLD THE ADDITION ONLY TO THE EXTENT OF RS.23,68,584/-, WHICH IS THE ACTUAL DISCREPANCY FOUND BY THE ASSESSING OFFICER I N HIS REMAND REPORT, AND THE PROFIT OF WHICH WOULD BE DEEMED TO BE COVERED BY THE ADDITION ON ACCOUNT OF SALES IN GROUND NO.1. 100. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CI T (A), THE ASSESSEE IS IN APPEAL BEFORE US FOR CONFIRMATION OF ADDITION OF RS. 23,68 ,584/- AND THE REVENUE FOR DELETION OF ADDITION OF RS. 1,32,99,336/-. 101. REVENUE HAS RAISED THE FOLLOWING GROUND AS UND ER: IV. DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF BOGUS PURCHASES AMOUNTING TO RS. 1,32,99,336.00 102. THE LD. AR BEFORE US SUBMITTED THAT: 1. THERE IS NO REQUEST MADE BY LEARNED DR NOR IT IS TH ERE IN THE APPLICATION FOR ADMISSION OF ADDITIONAL GROUND TO ADMIT THE SAME IN DEPARTMENT GROUND. HENCE, MERELY FILING OF ADDITIONAL GROUND WITH A PRESUMPTI ON THAT THE SAME WOULD BE ADMITTED AS A MATTER OF RIGHT BY DEPARTMENT SHOULD NOT BE ACCEPTED AS FULFILLING REQUIREMENTS FOR ADMISSION OF ADDITIONAL GROUND. 2. ON FACTUAL ASPECT OF CORRECTNESS OF THE ADDITION MA DE, LEARNED A.O. IN HIS REMAND REPORT HAS ALREADY ACCEPTED THAT AT THE BEST ADDITI ON COULD BE SUSTAINED IS FOR RS.23,68,584/-ONLY FOR FOLLOWING TWO PARTIES: RS. I) HPCL 20,82,836 II) RELIANCE INDUSTRIES 2,85,748 TOTAL RS. 23,68,584 - 43 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 3. EVEN ABOVE ADDITION OF RS.23,68,584/- CANNOT BE SUS TAINED AS UPTO ASST. YEAR 1998-99 (BEFORE AMENDMENT IN SECTION 69C W.E.F. A.Y . 1999-00 BY INSERTION OF PROVISO) WHATEVER ADDITION IS MADE U/S 69C WILL BE ALLOWED AS DEDUCTION U/S 37 AND NET ADDITION WILL BE NIL. ASSESSEE RELIES ON FO LLOWING DECISIONS WHICH ARE ALSO MENTIONED IN CIT(A) ORDER. A) S. F. WADIA V/S ITO 19 ITD 306 (AHMEDABAD) B) NISHANT HOUSING DEV. 52 ITD 103 (PATNA) C) M.K. MITHI VANTHAN V/S ITO 31 ITD 114 (MADRAS) 103. ON THE OTHER HAND, THE LEARNED DR VEHEMENTLY S UPPORTED THE ORDER OF THE AUTHORITIES BELOW. 104. BOTH THE PARTIES THE LD. AR AND THE DR BEFORE US VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW AS FAVOURABLE TO THEM. 105. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH TH E PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE INSTANT CASE RELATES TO THE DIFFERENCE IN THE AMOUNT OF PURCHASES SHOWN BY THE ASSESSEE VIZ A VIZ THE SALES SHOWN BY THE PARTIES NAMELY HPCL AND THE RELIANCE INDUSTRIES LTD. THE DIFFERENCE WAS DETERMINED BY THE AO AT RS. 64,74,065/- WHICH WAS REDUCED BY THE LD. CIT (A) TO RS. 23,68,584/-. 106. THE ONUS LIES ON THE ASSESSEE TO SUBSTANTIATE ITS CLAIM FOR THE PURCHASES BASED ON THE DOCUMENTARY EVIDENCE. BUT THE ASSESSEE FAILED T O RECONCILE THE DIFFERENCE IN THE AMOUNT OF PURCHASES DESPITE SUFFICIENT OPPORTUNITIE S WERE FURNISHED TO IT. IT WAS ALLEGED BY THE AUTHORITIES BELOW THAT THE ASSESSEE HAS PURC HASED THE GOODS OUTSIDE THE BOOKS OF ACCOUNTS WHICH WERE ALSO SOLD IN THE MARKET WITHOUT RECORDING THE SAME IN ITS BOOKS OF ACCOUNTS. - 44 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 107. THE ASSESSEE IN THE CASE ON HAND FAILED TO REC ONCILE THE AMOUNT OF PURCHASES AMOUNTING TO RS. 23,68,584/- WHICH WAS ADDED AS INC OME OF THE ASSESSEE AS UNEXPLAINED PURCHASES UNDER SECTION 69C OF THE ACT. HOWEVER, WE NOTE THAT THERE WAS NO EVIDENCE AVAILABLE WITH THE AUTHORITIES BELOW THAT THE ASSES SEE HAS MADE ANY INVESTMENT IN SUCH PURCHASES. IN FACT, WE NOTE THAT THE LD. CIT-A DIRE CTED THE AO TO COLLECT THE DETAILS OF THE PAYMENT RECEIVED BY THE PARTIES FROM THE ASSESSEE A GAINST SUCH UNACCOUNTED PURCHASES. BUT, THE AO FAILED TO COLLECT ANY DETAILS FROM THE PARTIES LISTED ABOVE. THUS IT CAN BE INFERRED THAT THERE IS NO INFORMATION AVAILABLE WIT H THE AUTHORITIES BELOW ON ACCOUNT OF INVESTMENT IN SUCH UNEXPLAINED EXPENDITURE FOR THE PURCHASES UNDER SECTION 69C OF THE ACT. 108. IN THE ABSENCE OF DOCUMENTARY EVIDENCE, WE ARE OF THE VIEW THAT THE AMOUNT OF GROSS PROFIT WILL ONLY BE SUBJECT MATTER OF ADDITIO N WITH RESPECT TO SUCH UNACCOUNTED TRANSACTION. IT IS UNDOUBTEDLY A BUSINESS TRANSACTI ON. IN SUCH FACTS AND CIRCUMSTANCES THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. P RESIDENT INDUSTRIES REPORTED IN 258 ITR 654 HAS DIRECTED TO MAKE THE ADDITION ONLY TO T HE EXTENT OF GROSS PROFIT. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: THE AMOUNT OF SALES BY ITSELF CANNOT REPRESENT THE INCOME OF THE ASSESSEE WHO HAS NOT DISCLOSED THE SALES. THE SALES ONLY REPRESENT THE P RICE RECEIVED BY THE SELLER OF THE GOODS FOR THE ACQUISITION OF WHICH IT HAS ALREADY INCURRE D THE COST. IT IS THE REALISATION OF EXCESS OVER THE COST INCURRED THAT ONLY FORMS PART OF THE PROFIT INCLUDED IN THE CONSIDERATION OF SALES. THEREFORE, UNLESS THERE IS A FINDING TO THE EFFECT THAT THE INVESTMENT BY WAY OF INCURRING COST IN ACQUIRING GOODS WHICH HAVE BEEN S OLD HAS BEEN MADE BY THE ASSESSEE AND THAT HAS ALSO NOT BEEN DISCLOSED, THE QUESTION WHETHER ENTIRE SUM OF UNDISCLOSED SALES PROCEEDS CAN BE TREATED AS INCOME, ANSWERS BY ITSELF IN THE NEGATIVE. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT THE A DDITION OF THE GROSS PROFIT TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF SUCH PUR CHASES WILL MEET THE END OF JUSTICE. HOWEVER, IN THE CASE ON HAND, WE NOTE THAT THE ASSE SSEE HAS ALREADY BEEN ALLEGED BY THE DISTRICT SUPPLY DEPARTMENT TO HAVE MADE SALES AT A HIGHER PRICE BY DIVERTING TO THE PETROL PUMP OWNERS/FOR NON-INDUSTRIAL USE AS DISCUSSED IN THE GROUND NO. 1. THE MATTER IS STILL - 45 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 PENDING BEFORE THE COMPETENT COURT OF LAW. THEREFOR E WE ARE OF THE VIEW THAT, IT WILL BE DIFFICULT TO FIND OUT THE EXACT AMOUNT/DATE OF GROS S PROFIT EMBEDDED IN SUCH TRANSACTION OF UNACCOUNTED PURCHASE. HOWEVER, TO PUT A FULL STOP O N THE ONGOING DISPUTE, WE FEEL THAT AN ADDITION TO THE EXTENT OF 25% OF SUCH UNACCOUNTED P URCHASES WILL MEET THE END OF JUSTICE. IN VIEW OF THE ABOVE, WE DIRECT THE AO TO MAKE THE ADDITION OF THE AMOUNT BEING 25% OF SUCH UNACCOUNTED PURCHASES OF RS. 23,68,584/- TO TH E TOTAL INCOME OF THE ASSESSEE. HENCE, THE GROUND OF APPEAL OF THE ASSESSEE IS PART LY ALLOWED AND GROUND OF APPEAL OF THE REVENUE DISMISSED. 109. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUN D NO. 5 IS THAT THE LD. CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS. 9,76,201/- ON ACC OUNT OF PREOPERATIVE EXPENSES UNDER SECTION 35D OF THE ACT. 110. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION H AS WRITTEN OFF MISCELLANEOUS EXPENSES AMOUNTING TO RS. RS. 14,24,844/- IN ITS PR OFIT AND LOSS ACCOUNT UNDER SECTION 35D OF THE ACT. THE DETAILS OF THE EXPENSES STAND A S UNDER: 1) PRELIMINARY EXPENSES WRITTEN OFF RS. 10,560/- 2) PUBLIC ISSUE EXPENSES WRITTEN OFF RS. 4,38,083/- 3) PRE-OPERATIVE EXPENSES WRITTEN OFF RS. 9,76,201/- HOWEVER, THE AO FOUND THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 35D TO THE EXTENT OF RS. 1,10,671/- AS DECIDED BY HIS P REDECESSOR IN THE ASSESSMENT YEAR 1996- 97 VIDE ORDER DATED 26-2-1999 UNDER SECTION 143(3) OF THE ACT. ACCORDINGLY, THE AO DISALLOWED THE BALANCE CLAIMED BY THE ASSESSEE FOR RS. 13,14,173/-AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 111. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LD. CIT(A). - 46 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 112. THE ASSESSEE BEFORE THE LD.CIT(A) SUBMITTED TH AT IF THE PREOPERATIVE EXPENSES DO NOT FALL UNDER SECTION 35D OF THE ACT, THEN THE SAM E SHOULD BE CAPITALIZED TO THE FIXED ASSETS. ACCORDINGLY, THE DEPRECIATION ON SUCH ASSES S SHOULD BE GRANTED TO THE ASSESSEE. HOWEVER, THE LD. CIT (A) DISREGARDED THE CONTENTION OF THE ASSESSEE BY OBSERVING AS UNDER: 8.2 I AM NOT IN AGREEMENT WITH THE APPELLANT ON TH E ABOVE POINT. THE ISSUE OF PRELIMINARY AND PREOPERATIVE EXPENSES WRITTEN OF HA VE ALREADY BEEN DEALT WITH IN A.Y. 1996-97 AND CANNOT BE RECONSIDERED NOW. THE DEDUCTI ON AS SPECIFIED IN THAT ORDER HAVE BEEN CORRECTLY FOLLOWED BY THE ASSESSING OFFICER, H ENCE, THE DISALLOWANCE OF THE EXCESS CLAIM IS CONFIRMED. HOWEVER, THE ASSESSING OFFICER IS DIRECTED TO TAKE THE FIGURE, AS FINALIZED U/S 144 IN THE PREVIOUS YEARS ORDER DATE D 18.02.2002. 113. BEING AGGRIEVED BY THE ORDER OF THE LD.CIT (A) , THE ASSESSEE IS IN APPEAL BEFORE US. 114. THE LD. AR BEFORE US SUBMITTED THAT THE PREOPE RATIVE EXPENSES TO THE EXTENT OF RS. 3,64,917/- WAS AMORTIZED OVER A PERIOD OF 10 YEARS BY THE AO IN THE ASSESSMENT FRAMED UNDER SECTION 143(3) OF THE ACT FOR THE ASSESSMENT AY 1996- 97. ACCORDINGLY THE LD. AR FOR THE ASSESSEE PRAYED FOR THE DEDUCTION OF SUCH A MOUNT. 115. ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPOR TED THE ORDER OF THE AUTHORITIES BELOW. 116. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH TH E PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET WE NOTE THAT THE ASSESSEE HAS CLAIMED PREOPERATIVE EXPENSES AMOUNTING TO RS. 36,49,179/-IN THE 1 ST YEAR BEING 1996-97 IN WHICH THE COMMERCIAL PRODUCTION WAS COMMENCED. THE AO IN THAT ASSESSMENT WAS PLEASED TO GRANT THE DEDUCTION BY AMORTIZING SUCH PREOPERATIVE EXPEN SES OVER A PERIOD OF 10 YEARS. THE RELEVANT EXTRACT OF THE FINDING OF THE AO IS TENSE AS UNDER: 3. FURTHER, DURING THE COURSE OF ASSESSMENT PROCE EDINGS IT IS NOTED THAT IT HAS CLAIMED PRE-OPERATIVE/PRELIMINARY EXPENSES AMOUNTIN G TO R S . 97,78,171/- TILL THE DATE OF - 47 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 COMMERCIAL PRODUCTION OF THE BUSINESS. OUT OF PRELI MINARY EXPENSES OF RS.97,78,171/- A SUM OF R S .60,28,992/- IS CONSIDERED AS PART OF PUBLIC ISSUE EXPENSES VIDE PARA-8 OF THE LETTER DATED 22ND FEBRUARY, 1999, SUBMITTED BY THE ASSESSEE. THEREFORE, CONSIDERING THE SAME AND FURTHER INVOKING THE PROVISIONS OF SECTION 35D OF THE I. T. ACT OUT OF THE TOTAL PUBLIC ISSUE EXPENSES AMOUNTING TO RS.61,28,992/- N ET ALLOWABLE DEDUCTION DURING THE PREVIOUS YEAR RELEVANT TO CURRENT ASSTT. YEAR WORKS OUT TO ONLY R S . 1,10,671/-. THE TOTAL CAPITAL EMPLOYED BY THE ASSESSEE TILL THE END OF JAL HI POWER PETROCHEM LTD. A.Y. 1996-97/ORDER U/S.143(3) THE CURRENT YEAR IS RS.4,42,68,500/-. 2.5% OF THE S ANE COMES TO RS.11,06,712/-. THEREFORE, 1/10 TH OF THE ADMISSIBLE AMOUNT COMAS TO ONLY RS. 1,10,67 1/- U/S.35D OF THE I. T. ACT. 4. THE BALANCE AMOUNT OF RS.36,49,179/- (97,78,17 1 - 61,28,992/-) IS ALLOWED TO BE WRITE OFF OVER A PERIOD OF 10 YEARS CONSIDERING THE SAME AS PRO-OPER ATIVE/PRELIMINARY EXPENSES SINCE THE ASSESSEE HAS NOT ADJUSTED/CAPITA LISED THE SAME AS PART OF ITS ASSETS AS PER THE RETURN OF INCOME FILED. THEREFORE, ON ACCOU NT OF THE SAME AS AGAINST THE WRITE OFF OF RS.6,77,959/- AS PER SCHEDULE 9 TO THE BALANCE-S HEET, ONLY A SUM OF RS.3,64,917/- IS ALLOWED TO BE WRITE OFF DURING THE CURRENT YEAR AND THE BALANCE AMOUNT IS TO BE ADJUSTED IN THE LATER YEARS AS DISCUSSED ABOVE. 117. A PLAIN READING OF THE ABOVE ORDER SHOWS THAT THE AO AS ALREADY ALLOWED THE CLAIM OF THE ASSESSEE ON ACCOUNT OF PREOPERATIVE EXPENSES BY AMORTIZING OVER A PERIOD OF 10 YEARS. THUS, THE AMOUNT TO THE EXTENT OF RS. 3,64,9 17/- IS ARISING FROM THE EARLIER YEAR AS DISCUSSED ABOVE. THEREFORE, WE GRANT THE RELIEF TO THE ASSESSEE TO THE EXTENT OF RS. 3,64,917/- BEING THE AMOUNT BROUGHT FORWARD FROM TH E EARLIER YEAR. ACCORDINGLY, WE REJECT THE CLAIM OF THE ASSESSEE FOR THE BALANCE AM OUNT OF RS. 6,11,284/- ONLY. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED IN PART . 118. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 6 IS THAT THE LD. CIT (A) ERRED IN CONFIRMING THE ADDITION MADE BY THE AO FOR RS. 1,67 ,606/- ON ACCOUNT OF FOREIGN TRAVELLING EXPENSES. 119. AT THE OUTSET THE LD.AR FOR THE ASSESSEE CONCE DED THAT THE IMPUGNED ISSUE CAN BE DECIDED AGAINST THE ASSESSEE. THEREFORE, WE REJECT THE GROUND OF APPEAL OF THE ASSESSEE. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS DISMI SSED. - 48 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 120. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 7 IS THAT THE LD. CIT (A) ERRED IN CONFIRMING AND EXPENSE OF RS. 18,376/- ON ACCOUNT O F PERSONAL EXPENSES. 121. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION H AS CLAIMED CERTAIN EXPENSES AS DETAILED BELOW: 1) GIFT EXPENSES 53,558/- 2) DIWALI EXPENSES 30,651/- 3) OFFICE EXPENSES 18,736/- 4) STAFF WALFARE EXPENSES 80,814/- TOTAL 1,83,759/- 122. THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS FAILED TO FURNISH THE SUPPORTING EVIDENCES WITH RESPECT TO THE AFORESAID EXPENSES. A CCORDINGLY, THE AO IN THE ABSENCE OF DOCUMENTARY EVIDENCE AND CONSIDERING THE FACT THAT SUCH EXPENDITURES WERE INCURRED IN CASH, HAS DISALLOWED 1/10 TH OF SUCH EXPENSES, HOLDING THEM AS PERSONAL. 123. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LD.CIT(A) WHO HAS ALSO UPHELD THE ORDER OF THE AO IN THE ABSENCE OF DOCUMENTARY EVIDE NCE. 124. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT (A ) THE ASSESSEE IS IN APPEAL BEFORE US. 125. THE LD. AR BEFORE US SUBMITTED THAT THE ASSESS EE BEING OUR BODY CORPORATE CANNOT INCUR ANY EXPENSE WHICH IS PERSONAL IN NATURE. 126. ON THE OTHER HAND, THE LD. DR VEHEMENTLY SUPPO RTED THE ORDER OF THE AUTHORITIES BELOW. - 49 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 127. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH TH E PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THERE IS AMBIGUITY TO THE FACT THAT THE ONUS LIES ON THE ASSESSEE FOR CLAIMING THE DEDUCTION OF ANY EXPENSE UNDER SECTION 37(1) OF THE ACT. HOWEVER, THE ASSESSEE FAILED TO FURNISH THE SUPPORTING EVIDENCE FOR THE EXPENSES INCURRED BY IT. THEREFORE WE DECLINE TO INTERFERE IN THE FINDING OF THE AUTHORITIES BELOW. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED. COMING TO THE REVENUES APPEAL BEARING ITA NUMBER 1 065/AHD/2004 FOR THE ASSESSMENT 1998-99 128. THE REVENUE HAS RAISED THE FOLLOWING REVISED G ROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW. THE LEARNED CIT(A), BARODA HAS ERRED IN I) DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF BOGUS SALES AMOUNTING TO RS. 5,32,97,392/-. II) DISALLOWING THE ADDITION MADE OF RS. 91,416/- MADE ON ACCOUNT NON INCLUSION OF EXCISE DUTY ON FINISHED GOODS WHILE VA LUING CLOSING STOCK. THE EXCISE DUTY PAYABLE ON FINISHED GOODS SHOULD BE INC LUDED IN THE COST. THE VIEW IS ALSO ACCEPTED BY THE INSTITUTION ON C.AS AN D AS PER INSTRUCTION NO. 1389 DATED 24.3.1981 ISSUED BY THE CBDT. THE HON. SUPREME COURT IN THE CASE OF MC. DOWELL & CO. LTD. VS. CIT (154 ITR 146) HAS ALSO OPINED THAT IT IS A PART OF MANUFACTURING COST. III) DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF BOGUS PURCHASES AMOUNTING TO 1,32,99,336/- 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LEARNED CIT(A) OUGHT TO HAVE UPHOLD THE ORDER PASSED BY THE ASSESSING OFFIC ER. 3. IT IS THEREFORE, PRAYED THAT THE ORDER OF THE CI T(A) BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED. 129. THE ISSUE RAISED BY THE REVENUE IN GROUND NO. 1 (A) HAS ALREADY BEEN ADJUDICATED ALONG WITH THE APPEAL OF THE ASSESSEE BEARING ITA N O. 1003/AHD/2004 WHICH WE HAVE DECIDED IN FAVOUR OF THE ASSESSEE. FOR THE DETAILED DISCUSSION, PLEASE REFER THE RELEVANT - 50 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 PARAGRAPH BEARING NUMBER 37 TO 82 OF THIS ORDER. RE SPECTFULLY FOLLOWING THE SAME WE, THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 130. THE 2 ND ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 1(B) HA S ALREADY BEEN ADJUDICATED ALONG WITH THE APPEAL OF THE ASSESSEE B EARING ITA NUMBER 1003/AHD/2004 WHICH WE HAVE DECIDED IN FAVOUR OF THE ASSESSEE IN PART. FOR THE DETAILED DISCUSSION, PLEASE REFER THE RELEVANT PARAGRAPH BEARING NO. 105 TO 108 OF THIS ORDER. RESPECTFULLY FOLLOWING THE SAME, WE ALLOW THE GROUND OF APPEAL R AISED BY THE REVENUE IN PART. 131. THE 3 RD ISSUE RAISED BY THE REVENUE IN GROUND NO. 1(II) IS THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR R S. 91,416/- ON ACCOUNT OF NON- INCLUSION OF EXCISE DUTY IN THE CLOSING STOCK OF FI NISHED GOODS. 132. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION H AS VALUED THE CLOSING STOCK OF FINISHED GOODS AS ON 31 MARCH 1998 AMOUNTING TO RS. 8,11,984/- WITHOUT INCLUDING THE EXCISE DUTY ELEMENT OF RS. 91,416/-. THE ASSESSEE C LAIMED DURING THE ASSESSMENT PROCEEDINGS THAT IT HAS COLLECTED THE AMOUNT OF EXC ISE DUTY AND PAID IN THE SUBSEQUENT ASSESSMENT YEAR 1999-2000. HOWEVER, THE AO REJECTED THE CONTENTION OF THE ASSE SSEE BY OBSERVING THAT THE LIABILITY OF THE EXCISE DUTY HAS ACCRUED ON THE FIN ISHED GOODS SHOWN AS ON 31 MARCH 1998. THEREFORE THE SAME IS LIABLE TO BE ADDED TO T HE VALUE OF THE CLOSING STOCK. ACCORDINGLY THE AO ADDED THE SAME TO THE TOTAL INCO ME OF THE ASSESSEE. 133. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LD. CIT(A). - 51 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 134. THE ASSESSEE BEFORE THE LD. CIT (A) SUBMITTED THAT IT HAS PAID THE AMOUNT OF EXCISE DUTY BEFORE FILING THE RETURN OF INCOME. THE REFORE THE SAME SHOULD BE ALLOWED AS DEDUCTION UNDER SECTION 43B OF THE ACT. 135. THE ASSESSEE ALSO SUBMITTED THAT THE SIMILAR A DDITION WAS MADE BY THE AO IN THE ASSESSMENT YEAR 1997-98. ACCORDINGLY, HE CLAIMED FO R THE DEDUCTION OF SUCH AMOUNT OF EXCISE DUTY EMBEDDED IN THE OPENING STOCK OF THE FI NISHED GOODS. 136. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIO N OF THE ASSESSEE DELETED THE ADDITION MADE BY THE AO BY OBSERVING THAT THE ASSES SEE IS ENTITLED FOR THE DEDUCTION BY VIRTUE OF THE PROVISIONS OF SECTION 43B OF THE ACT AS THE AMOUNT OF EXCISE DUTY LIABILITY WAS PAID BEFORE FILING THE RETURN OF INCOME. 137. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT (A ), THE REVENUE IS IN APPEAL BEFORE US. 138. THE LD. DR AND THE AR BEFORE US RELIED ON THE ORDER OF THE AUTHORITIES BELOW AS FAVOURABLE TO THEM. 139. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH TH E PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. INDEED THE PROVISION OF SECTIO N 145A OF THE ACT REQUIRES THE ASSESSEE TO INCLUDE THE AMOUNT OF EXCISE DUTY WHILE VALUING THE CLOSING STOCK OF THE FINISHED GOODS AS ON 31 ST MARCH 1998. HOWEVER, THE DEDUCTION FOR THE SAME IS ALLOWED IF SUCH EXCISE DUTY WAS PAID BY THE ASSESSEE ON OR BEFORE FILING T HE INCOME TAX RETURN BEFORE THE DUE DATE AS SPECIFIED UNDER SECTION 139(1) OF THE ACT. THE LD. CIT(A) HAS GIVEN VERY CLEAR FINDING THAT THE AMOUNT OF EXCISE DUTY WAS PAID ON OR BEFORE THE DUE DATE OF FILING THE INCOME TAX RETURN. THUS IN OTHER WORDS EVEN THE AMO UNT OF EXCISE DUTY NOT INCLUDED IN THE VALUE OF CLOSING STOCK, THEN ALSO THE ASSESSEE WAS ENTITLED FOR THE DEDUCTION OF SUCH - 52 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 PAYMENT OF EXCISE DUTY UNDER THE PROVISIONS OF SECT ION 43B OF THE ACT. ACCORDINGLY THERE WAS NO IMPACT ON THE TAXABLE INCOME OF THE ASSESSEE . ACCORDINGLY WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE LD. CIT (A) . HENCE THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS A LLOWED IN PART. COMING TO THE ASSESSEES APPEAL BEARING ITA N. 1004 /AHD/2004 FOR THE ASSESSMENT 1999-2000 140. THE ASSESSEE HAS RAISED THE FOLLOWING CONCISE GROUNDS OF APPEAL: YOUR APPELLANT BEING AGGRIEVED BY THE ORDER PASSED BY THE LEARNED CIT(A)-I, BARODA (HEREINAFTER REFERRED TO AS LEARNED CIT(A) ) U/S 25 0 OF THE ACT, PRESENTS THIS APPEAL ON THE FOLLOWING AMONGST OTHER GROUNDS OF APPEAL. THE GROU NDS SET OUT HEREUNDER ARE INDEPENDENT OF AND WITHOUT PREJUDICE TO EACH OTHER. 1. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN UPH OLDING REJECTION OF APPELLANTS BOOKS U/S 145(2) AND IN RETAINING ADDIT ION OF RS.1,31,24,552/- IN RESPECT OF ALLEGED SALE OF APPELLANTS SOLVENT PROD UCTS AT THE PRICE HIGHER THAN THE ONE AT WHICH THEY ARE RECORDED IN THE BOOKS PARTICU LARLY WHEN THE SAME WAS ONLY ON THE BASIS OF THE ESTIMATION AND ALSO AS OBSERVED BY THE LEARNED CIT(A) HERSELF IS SUBJECT TO RECALL/RECTIFICATION BASED ON THE AVA ILABILITY OF FURTHER EVIDENCE. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING AND RETAININ G ADDITION OF RS.1,31,24,552/- PARTICULARLY WHEN THE ORDER OF DIS TRICT MAGISTRATE IMPLICATING THE APPELLANT IS CHALLENGED IN FURTHER PROCEEDINGS, WHOSE OUTCOME IS YET NOT FINAL AND PARTICULARLY WHEN NO PETROL PUMP OWNER WAS EVER EXAMINED BY THE AO TO SUPPORT HIS FINDINGS IN PARTICULARLY WHEN THE COMPL AINT WITH THE DISTRICT MAGISTRATE DID NOT COVER FINANCIAL YEAR 1998-99 REL EVANT TO ASSESSMENT YEAR 1999-00. 3. THE LEARNED CIT(A) ERRED IN CONFIRMING AND RETAININ G ADDITION OF RS.1,31,24,552/- IN RESPECT OF ALLEGED SALE OF SOLV ENT PRODUCT TO PETROL PUMP OWNERS IGNORING SOME VITAL FACTS AND GIVING INCORRE CT FINDINGS CONTRARY TO THE EVIDENCES AND FACTS. 4. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDING THE DISALLOWANCE OF RS.73,447/- AS PRIOR YEAR EXPENSES. IT IS SUBMITTED THAT SINCE THE LIABILITY TO PAY THIS AMOUNT CRYSTALLIZED DURING THE YEAR AND THAT S OME OF THE EXPENSES WERE TO BE ALLOWED U/S 43B, THE SAME SHOULD NOT HAVE BEEN CONS IDERED FOR DISALLOWANCE U/S 37. IT IS SUBMITTED THAT IT BE SO HELD NOW AND DISA LLOWANCE MADE BE DELETED. - 53 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 5. THE LEARNED AO AS WELL AS CIT(A) ERRED IN CONFIR MING CHARGING OF INTEREST U/S 243A, 234B AND 234C OF THE ACT. YOUR APPELLANT PRAYS FOR LEAVE TO ADD, ALTER, AMEND , DROP OR SUBSTITUTE ALL OR ANY OF THE AFORESAID GROUNDS BEFORE THIS APPEAL IS DISPOSED OF F. 141. THE 1 ST ISSUE RAISED BY THE ASSESSEE IS THAT THE LEARNED C IT (A) ERRED IN CONFIRMING THE ADDITION MADE BY THE AO FOR RS. 1,31,24,552.00. 142. THE IDENTICAL ISSUE HAS ALREADY BEEN DECIDED B Y US IN THE APPEAL OF THE ASSESSEE BEARING NO. 1003/AHD/2004 PERTAINING TO THE ASSESSM ENT YEAR 1998-99 VIDE PARAGRAPH NUMBER 37 TO 82 OF THIS ORDER WHICH WE HAVE DECIDED IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE SAME WE ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. 143. THE NEXT ISSUE RAISED BY THE ASSESSEE IS THAT THE LD. CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE AO FOR RS. 73,447/- ON ACCOUNT OF PRIOR PERIOD EXPENSES. 144. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION C LAIMED CERTAIN PRIOR PERIOD EXPENSES RELATED TO SALARY, FREIGHT CHARGES ETC. HOWEVER THE AO WAS OF THE VIEW THAT THE ASSESSEE IS MAINTAINING ITS BOOKS OF ACCOUNTS BASED ON MERCANTI LE SYSTEM OF ACCOUNTING. THEREFORE THE SAME CANNOT BE ALLOWED IN THE YEAR UNDER CONSID ERATION. THEREFORE THE AO ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 145. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LD.CIT (A) AND SUBMITTED THAT SOME OF THE EXPENSES ARE ALLOWABLE AS DEDUCTION UNDER SE CTION 43B OF THE ACT. THE ASSESSEE SUBMITTED THE BREAKUP OF THE EXPENSES AS DETAILED U NDER: 1 AMOUNT (RS.) 120 NARRATION DIFFERENCE OF JAN 98 PAID TO STAFF 2 3 2,010 1,009 CARGO MOTORS- REPAIRS AND MAINTENANCE EAST AFRICA MOTORS- REPAIRS AND MAINTENANCE 4 17,500 LISTING FEES TO VADODARA STOCK EXCHANGE TO BE CLAIMED U/S. 43B IN THE YEAR OF PAYMENT 5 1,250 PROFESSIONAL TAX ALSO U/S. 43B TO BE ALLOWE D IN THE YEAR OF - 54 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 PAYMENT. 6 42,108.24 DIFFERENCE OF EXCISE MODVAT OPENING D IFFERENCE ADJUSTED TO BE CONSIDERED U/S. 43B IN THE YEAR OF ADJUSTMENT 7 7,500 SAGAR TRANSPORT FREIGHT CHARGES BILL SETT LED DURING THE YEAR. 71,497.24 HOWEVER THE LD. CIT (A), REJECTED THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT THERE IS NO SUBMISSION FROM THE SIDE OF THE ASSESSE E JUSTIFYING THAT SUCH EXPENSES WERE CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION. SIMIL ARLY THERE WAS NO DETAIL FURNISHED BY THE ASSESSEE SUGGESTING THAT THE EXPENSES COVERED U NDER SECTION 43B OF THE ACT WERE PAID BEFORE FILING THE RETURN OF INCOME. 146. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) , THE ASSESSEE IS IN APPEAL BEFORE US. 147. THE LD. AR BEFORE US REITERATED THE SUBMISSION MADE BEFORE THE AUTHORITIES BELOW. 148. ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPOR TED THE ORDER OF THE AUTHORITIES BELOW. 149. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH TH E PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET WE NOTE THAT THE IMPUGNED ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF BOMBAY HIGH COURT IN T HE CASE OF CIT V. NAGRI MILLS CO. LTD.[1958] 33 ITR 681 WHEREIN IT WAS HELD AS UNDER: '3. WE HAVE OFTEN WONDERED WHY THE INCOME-TAX AUTHO RITIES, IN A MATTER SUCH AS THIS WHERE THE DEDUCTION IS OBVIOUSLY A PERMISSIBLE DEDU CTION UNDER THE INCOME-TAX ACT, RAISE DISPUTES AS TO THE YEAR IN WHICH THE DEDUCTION SHOU LD BE ALLOWED. THE QUESTION AS TO THE YEAR IN WHICH A DEDUCTION IS ALLOWABLE MAY BE MATER IAL WHEN THE RATE OF TAX CHARGEABLE ON THE ASSESSEE IN TWO DIFFERENT YEARS IS DIFFERENT ; BUT IN THE CASE OF INCOME OF A COMPANY, TAX IS ATTRACTED AT A UNIFORM RATE, AND WHETHER THE DEDUCTION IN RESPECT OF BONUS WAS GRANTED IN THE ASSESSMENT YEAR 1952-53 OR IN THE AS SESSMENT YEAR CORRESPONDING TO THE ACCOUNTING YEAR 1952, THAT IS IN THE ASSESSMENT YEA R 1953-54, SHOULD BE A MATTER OF NO CONSEQUENCE TO THE DEPARTMENT; AND ONE SHOULD HAVE THOUGHT THAT THE DEPARTMENT WOULD - 55 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 NOT FRITTER AWAY ITS ENERGIES IN FIGHTING MATTERS O F THIS KIND. BUT, OBVIOUSLY, JUDGING FROM THE REFERENCES THAT COME UP TO US EVERY NOW AND THE N, THE DEPARTMENT APPEARS TO DELIGHT IN RAISING POINTS OF THIS CHARACTER WHICH DO NOT AF FECT THE TAXABILITY OF THE ASSESSEE OR THE TAX THAT THE DEPARTMENT IS LIKELY TO COLLECT FROM H IM WHETHER IN ONE YEAR OR THE OTHER. 150. THERE IS NO AMBIGUITY THAT SUCH EXPENSES WERE INCURRED FOR THE PURPOSE OF THE BUSINESS. THEREFORE IN OUR CONSIDERED VIEW, APPLYIN G THE PRINCIPLES OF BOMBAY HIGH COURT AS DISCUSSED ABOVE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM. HENCE THE GROUND O F APPEAL OF THE ASSESSEE IS ALLOWED. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED . COMING TO THE REVENUES APPEAL BEARING ITA N. 1066/ AHD/2004 FOR THE ASSESSMENT 1999-2000 151. THE REVENUE HAS RAISED THE FOLLOWING GROUND OF APPEAL: 1. ON THE FACTS AND IN TEH CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A), BARODA HAS ERRED IN (I) DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT BOGUS SALES AMOUNTING TO RS. 15,86,44,786/- 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER PASSED BY THE ASSESSING OFFIC ER. 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE C IT(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 152. THE ONLY GROUND RAISED BY THE REVENUE IS THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS. 15,86,44,786/- ON A CCOUNT OF BOGUS SALE. 153. THE IDENTICAL ISSUE HAS ALREADY BEEN DECIDED B Y US IN THE APPEAL OF THE ASSESSEE BEARING NO. 1003/AHD/2004 IN GROUND NO 1-3 PERTAINI NG TO THE ASSESSMENT YEAR 1998-99 VIDE PARAGRAPH NUMBER 37 TO 82 OF THIS ORDER WHICH WE HAVE DECIDED IN FAVOUR OF THE - 56 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 ASSESSEE. RESPECTFULLY FOLLOWING THE SAME, WE DISMI SS THE GROUND OF APPEAL OF THE REVENUE. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS D ISMISSED. COMING TO THE ASSESSEES APPEAL BEARING ITA N. 1005 /AHD/2004 FOR THE ASSESSMENT 2000-01 154. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND O F APPEAL: YOUR APPELLANT BEING AGGRIEVED BY THE ORDER PASSED BY THE LEARNED CIT(A)-I, BARODA (HEREINAFTER REFERRED TO AS LEARNED CIT(A)) U/S 250 OF THE ACT, PRESENTS THIS APPEAL ON THE FOLLOWING AMONGST OTHER GROUNDS OF APPEAL. THE GROU NDS SET OUT HEREUNDER ARE INDEPENDENT OF AND WITHOUT PREJUDICE TO EACH OTHER. 1. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN UPH OLDING REJECTION OF APPELLANTS BOOKS U/S 145(2) AND IN RETAINING ADDITION OF RS.2, 76,95,907/- IN RESPECT OF ALLEGED SALE OF APPELLANTS SOLVENT PRODUCTS AT THE PRICE H IGHER THAN THE ONE AT WHICH THEY ARE RECORDED IN THE BOOKS PARTICULARLY WHEN THE SAME WA S ONLY ON THE BASIS OF THE ESTIMATION AND ALSO AS OBSERVED BY THE LEARNED CIT( A) HERSELF IS SUBJECT TO RECALL/RECTIFICATION BASED ON THE AVAILABILITY OF F URTHER EVIDENCES. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING AND RETAININ G ADDITION OF RS.2,76,95,907/- PARTICULARLY WHEN THE ORDER OF DISTRICT MAGISTRATE IMPLICATING THE APPELLANT IS CHALLENGED IN FURTHER PROCEEDINGS, WHOSE OUTCOME IS YET NOT FINAL AND PARTICULARLY WHEN NO PETROL PUMP OWNER WAS EVER EXAMINED BY THE AO TO SUPPORT HIS FINDINGS. 3. THE LEARNED CIT(A) ERRED IN CONFIRMING AND RETAININ G ADDITION OF RS.2,76,95,907/- IN RESPECT OF ALLEGED SALE OF SOLVENT PRODUCTS TO PETR OL PUMP OWNERS IGNORING SOME VITAL FACTS AND GIVING INCORRECT FINDINGS CONTRARY TO THE EVIDENCES AND FACTS. 4. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN UPH OLDING THE DISALLOWANCE OF RS.2,61,942/- AS PRIOR YEAR EXPENSES. IT IS SUBMITT ED THAT SINCE THE LIABILITY TO PAY THIS AMOUNT CRYSTALLIZED DURING THE YEAR AND THAT SOME O F THE EXPENSES WERE TO BE ALLOWED U/S 43B, THE SAME SHOULD NOT HAVE BEEN CONSIDERED F OR DISALLOWANCE U/S 37. IT IS SUBMITTED THAT IT BE SO HELD NOW AND DISALLOWANCE M ADE BE DELETED. 5. THE LEARNED AO AS WELL AS CIT(A) ERRED IN CONFIRMIN G CHARGING OF INTEREST U/S 243A, 234B AND 234C OF THE ACT. YOUR APPELLANT PRAYS FOR LEAVE TO ADD, ALTER, AMEND , DROP OR SUBSTITUTE ALL OR ANY OF THE AFORESAID GROUNDS BEFORE THIS APPEAL IS DISPOSED OF F. - 57 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 155. THE 1 ST ISSUE RAISED BY THE ASSESSEE IN GROUND 1 TO 3 IS T HAT THE LEARNED CIT (A) ERRED IN CONFIRMING THE ADDITION MADE BY THE AO FOR RS. 2,76,95,907/-. 156. THE IDENTICAL ISSUE HAS ALREADY BEEN DECIDED B Y US IN THE APPEAL OF THE ASSESSEE BEARING NO. 1003/AHD/2004 IN GROUND NO. 1 TO 3 PERT AINING TO THE ASSESSMENT YEAR 1998- 99 VIDE PARAGRAPH NUMBER 37 TO 82 OF THIS ORDER WHI CH WE HAVE DECIDED IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE SAME, WE ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. 157. THE 2 ND ISSUE RAISED BY THE ASSESSEE IN GROUND IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION MADE BY THE AO FOR RS. 2,61 ,042/- ON ACCOUNT OF PRIOR PERIOD EXPENSES. 158. THE IDENTICAL ISSUE HAS ALREADY BEEN DECIDED B Y US IN THE APPEAL OF THE ASSESSEE BEARING NO. 1004/AHD/2004 IN GROUND NO 4 PERTAINING TO THE ASSESSMENT YEAR 1990-00 VIDE PARAGRAPH NUMBER 149 TO 150 OF THIS ORDER WHIC H WE HAVE DECIDED IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE SAME, WE ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED . COMING TO THE REVENUES APPEAL BEARING ITA N. 1067/ AHD/2004 FOR THE ASSESSMENT 2000-01 160. THE REVENUE HAS RAISED THE FOLLOWING GROUND OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A), BARODA HAS ERRED IN (I) DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT BOGUS SALES AMOUNTING TO RS. 18,48,63,204/- (II) 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER PASSED BY THE ASSESSING OFFIC ER. - 58 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 161. THE ONLY GROUND RAISED BY THE REVENUE IS THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS. 18,48,63,204/- ON A CCOUNT OF BOGUS SALE. 162. THE IDENTICAL ISSUE HAS ALREADY BEEN DECIDED B Y US IN THE APPEAL OF THE ASSESSEE BEARING NO. 1003/AHD/2004 IN GROUND NO 1-3 PERTAINI NG TO THE ASSESSMENT YEAR 1998-99 VIDE PARAGRAPH NUMBER 37 TO 82 OF THIS ORDER WHICH WE HAVE DECIDED IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE SAME, WE DISMI SS THE GROUND OF APPEAL OF THE REVENUE. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS D ISMISSED. 163 IN THE COMBINED RESULT, ASSESSEES APPEAL BEARI NG ITA NO.1003/AHD/2004 IS PARTLY ALLOWED AND BEARING ITA NOS.1004 & 1005/AHD/2004 AR E ALLOWED AND REVENUES APPEAL BEARING ITA NO.1065/AHD/2004 IS PARTLY ALLOWED AND BEARING ITA NOS.1066 & 1067/AHD/2004 ARE DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 24 /10/2019 SD/- SD/- ( JUSTICE P. P. BHATT ) (WASEEM AHMED ) PRESIDENT ACCOUNTANT MEMBER AHMEDABAD; DATED 24 /10/2019 PRITI YADAV, SR.PS - 59 - ITA NOS.1003 TO 1005/AHD /2004 AND ITA NOS.1065 TO 1067/AHD/2004 ATREYA PETROCHEM LTD. ASST. YEARS -1998-99 TO 2000-01 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-I, BARODA. 5. ! , # $ , / DR, ITAT, AHMEDABAD 6. () *+ / GUARD FILE. / BY ORDER, //TRUE COPY// / ( DY./ASSTT. REGISTRAR) !'#, / ITAT, AHMEDABAD