M/S SHREE ANU MILK PRODUCTS LTD., Jaipur V. ACIT, Jaipur

ITA 122/JPR/2012

• Counselvise Citation: 12223114 RSA 2012
• Duration Of Justice: 1 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 23-07-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 06-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C SHARMA
• Assessee Lawyers: MANISH AGARWAL; JAV ED
• Keywords: Bogus purchase; Unexplained investment; Sale consideration of property below Jantri Value; Depreciation; Income from undisclosed sources; Retraction; Unabsorbed depreciation
• Section: 131; 145; 132; 143(3); 133A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH, JAIPUR (BEFORE SHRI HARI OM MARATHA AND SHRI N.K. SAI NI) ITA NO. 122/JP/2012 ASSESSMENT YEAR : 2008-09 PAN: AAICS 3816 P M/S. SHREE ANNU MILK PRODUCTS LTD. VS. THE ACIT G-1. 49-49, VKI AREA AREA EXTENSION CIRCLE- 4 BADRANA, JAIPUR JAIPUR (APPELLANT) (RESPONDENT) ITA NO. 229/JP/2012 ASSESSMENT YEAR : 2008-09 PAN: AAICS 3816 P THE ACIT VS. M/S. SHREE ANNU MILK PRODUCTS LTD. CIRCLE- 4 G-1, 49-49, VKI AREA AREA EXTENSION JAIPUR BADRANA, JAIPUR (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI D.C. SHARMA ASSESSEE BY : SHRI MANISH AGARWAL & SHRI JAV ED DATE OF HEARING: 22-01-2014 DATE OF PRONOUNCEMENT: 31 -01-2014 ORDER PER HARI OM MARATHA, JM:- THESE ARE THE CROSS APPEALS PERTAINING TO ASSESSME NT YEAR 2008-09, HAVING BEEN FILED AGAINST THE ORDER OF THE LD. CIT( A)-II, JAIPUR DATED 26-12- 2011. 2.1 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS I N ITS APPEAL. 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE ADDITION OF RS. 2,01,89,800/- MADE BY THE LD. A.O. ON ACCOUNT OF AL LEGED STOCK STATED TO HAVE BEEN FOUND IN EXCESS DURING THE COURSE OF S URVEY ARBITRARILY. 1.1 THAT THE LD. CIT(A) HAS FURTHER ERRED IN SUSTAI NING THE ADDITION WITHOUT CONSIDERING THE SUBMISSIONS MADE A ND EVIDENCES ADDUCED AND BY IGNORING THE FACT THAT THE INVENTORY TAKEN BY DEPARTMENT DURING THE SURVEY CANNOT BE STORED IN TH E PLACE AVAILABLE IN APPELLANTS GODOWN. HENCE THE ADDITION OF RS. 2, 01,89,800/- DESERVES TO BE DELETED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) HAS GROSSLY ERRED IN SUSTAINING AN ADDITION OF RS. 27,45,862/- ON ACCOUNT OF INFLATION IN THE PURCHASES ARBITRARIL Y, WITHOUT CONSIDERING THE VITAL EVIDENCES IN THE SHAPE OF STA TEMENTS. THUS THE ADDITION OF RS. 27,45,862/- DESERVES TO BE DELETED. ( NO SEPARATE ADDITION MADE AND ADDITION HAS BEEN TELESCOPED WITH THE ADDITION SUSTAINED IN GOA NO. 1 ABOVE). 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) HAS GROSSLY ERRED IN UPHOLDING AN ADDITION O F RS. 4,00,000/- MADE ON ACCOUNT OF UNEXPLAINED INVESTMENT IN RENOVA TION OF OFFICE PREMISES SIMPLY ON THE BASIS OF SURRENDER OBTAINED DURING SURVEY ARBITRARILY. 3.1 THAT THE LD. CIT(A) HAS FURTHER ERRED IN IGNORI NG THE FACT THAT THE PREMISES IS ON RENT AND MINOR REPAIR WERE DONE WHICH ARE PROPERLY ACCOUNTED FOR AN OTHER FIXTURES ARE SEPARA TELY DEBITED UNDER RESPECTIVE HEADS. HENCE THE ADDITION OF RS. 4,00,00 0/- SO MADE DESERVES TO BE DELETED. 3.2 THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE TH E FACT THAT THE A.O. HAS NOT BROUGHT ON RECORD A SINGLE INSTANC E OF EXPENSES INCURRED ON OFFICE RENOVATION WHICH WAS NOT ACCOUNT ED FOR THUS THE ADDITION OF RS. 4,00,000/- DESERVES TO BE DELETED. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE DISALLOW ANCE OF RS. 66,439/- (BEING 20% OF THE AMOUNT CLAIMED) ON ACCOU NT OF TELEPHONE EXPENSES CLAIMED IN THE PROFIT & LOSS ACCOUNT AS IN CURRED NOT FOR THE 3 PURPOSE OF BUSINESS ARBITRARILY WITHOUT CONSIDERING THE FACT THAT THE SAID EXPENSE HAS SUFFERED FBT AT THE PRESCRIBED RAT E. IN THE CIRCUMSTANCES THE DISALLOWANCES DESERVES TO BE ALLO WED. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF R. 72,157/- U/S 36(1)(VA) MADE BY THE A.O. ON ACCOUNT OF LATE DEPOS IT OF PF AND ESI, AS THE RESPECTIVE PAYMENT OF PF AND ESI HAS BEEN MA DE IN THE PREVIOUS YEAR RELEVANT TO A.Y. UNDER CONSIDERATION EXCEPT FOR RS. 13,030/- WHICH HAS BEEN DEPOSITED BEFORE FILING THE RETURN OF INCOME, THUS THE SAME DESERVES TO BE ALLOWED AS CLAIMED. 6. THAT THE APPELLANT CRAVES THE RIGHT TO ADD, DELE TE, AMEND OR ABANDON ANY OF THE GROUNDS OF APPEAL EITHER BEFO RE OR AT THE TIME OF HEARING OF APPEAL. 2.2 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(APPEALS) HAS ERRED IN:- (II) RESTRICTING ADDITION ON ACCOUNT OF BOGUS PURCH ASES OF RAW MATERIAL TO RS. 27,45,862/- AS AGAINST SURRE NDER OF RS. 1,37,29,301/- MADE BY THE ASSESSEE AND ADDITION MAD E BY THE A.O. DESPITE THE FACT THAT THE ASSESSEE FAILED TO F URNISH THE IDENTITY PROOF OF THESE PERSONS NOR COULD PRODUCE T HE ALLEGED SELLERS FOR VERIFICATION BEFORE THE A.O. EXCEPT TWO PERSONS. FURTHER ENTIRE PURCHASE WERE MADE IN CASH. (III) GIVING DIRECTIONS TO TELESCOPE ABOVE SUSTAINE D ADDITION OF RS. 27,45,862/- WITH THE ADDITION OF RS . 2,01,89,800/- ON ACCOUNT OF EXCESS STOCK WITHOUT AP PRECIATION THAT THERE WAS NOT EVIDENCE TO SHOW THAT AMOUNT OF BOGUS PURCHASES WAS INVESTED IN STOCK. (IV) DELETING THE ADDITION OF RS. 25,00,000/- ON AC COUNT OF SHARE APPLICATION MONEY WITHOUT APPRECIATING THA T SHRI HEMRAJ JAIN, DIRECTOR OF THE ASSESSEE COMPANY, IN H IS STATEMENTS CATEGORICALLY ADMITTED THAT THESE ENTRIE S WERE ARRANGED BY HIM THROUGH HIS RELATIVES AND REPRESENT ED ASSESSEE COMPANYS UNACCOUNTED INCOME. THIS AMOUNT WAS SURRE NDERED 4 AS UNACCOUNTED INCOME OF THE ASSESSEE COMPANY. 2.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CA REFULLY PERUSED THE ENTIRE RECORD. THE FACTS OF THE CASE IN BRIEF ARE T HAT THE ASSESSEE COMPANY DERIVES ITS INCOME FROM MANUFACTURING AND TRADING I N PURE GHEE IN THE BRAND NAMES OFBINOLA AND DIARY FRESH. FOR ASSESSM ENT YEAR 2008-09, THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 30-0 9-2008 DECLARING ITS INCOME AT NIL. HOWEVER, THE ASSESSMENT WAS COMPLETE D U/S 143(3) OF THE I.T. ACT, 1961 (THE ACT FOR SHORT) AT A TOTAL INC OME OF RS. 3,39,40,466/-. THE INCOME OF THE ASSESSEE HAS BEEN COMPUTED AS UND ER:- INCOME FROM BUSINESS NET FROM AS PER BALANCE SHEET ADD (AS PER COMPUTATION SHEET) RS. (-) 5632971 /- DEPRECIATION DISALLOWED RS. 735319/- DISALLOWED U/S 37 RS. 183041 RS. 918360/- ADDITION AS DISCUSSED ABOVE I. DISALLOWANCE OUT OF TELEPHONE EXPENSES AS DISCUSSED ABOVE RS. 66439/- II. DELAYED PF AND ESI RS. 72157/- RS. 138596/- --------------------- TOTAL (A) RS. (-) 4576015/- INCOME FROM OTHER SOURCES ADDITION AS DISCUSSED ABOVE I. EXCESS UNDISCLOSED STOCK OF RS. 2,01,89,800/- II. BOGUS PURCHASES RS. 1,61,50,168/- III. UNEXPLAINED EXCESS CASH RS. 7,75,000/- IV. UNEXPLAINED INVESTMENT IN 5 SHARES RS. 25,00,000/- V. UNEXPLAINED INVESTMENT IN CONSTRUCTION OF OFFICE RS. 4,00,000/- TOTAL(B) RS. 4,00,14,980/- --------------------------- TOTAL (A+B) RS. 3,54,38,965/- LESS: UNABSORBED DEPRECIATION SET OFF RS. 14, 98,499/- NET TAXABLE INCOME RS. 3,39,40,466/- 2.4 AGGRIEVED, THE ASSESSEE WENT IN APPEAL AND THE LD. CIT(A) HAS GIVEN A PART RELIEF. 2.5 NOW BOTH THE PARTIES ARE AGGRIEVED AND HAVE FIL ED THEIR RESPECTIVE APPEALS BY RAISING THE ABOVE INCORPORATED GROUNDS. 3.1 THE GROUND NO. 1 AND 1.1 OF THE ASSESSEE'S APPE AL PERTAIN TO ADDITION OF RS. 2,01,89,800/- MADE ON ACCOUNT OF STOCK BY T REATING IT AS UNEXPLAINED. IN FACT, THE SURVEY U/S 133(A) OF THE ACT, WAS COND UCTED ON 26-02-2008 AT THE BUSINESS PREMISES OF THE ASSESSEE. DURING THE C OURSE THIS SURVEY PROCEEDINGS, THE STOCK WAS PHYSICALLY QUANTIFIED AN D VALUED. DURING THE SURVEY PROCEEDINGS, THE STATEMENTS OF THE DIRECTOR THE ASSESSEE COMPANY WERE ALSO RECORDED. IN THE RETURN FILED FOR THIS YE AR, THE ASSESSEE HAS DISCLOSED THE LOSS OF RS. 47,39,611/-. THE ADDITION OF RS. 2,01,89,800/- HAS BEEN, ADMITTEDLY, MADE ON ACCOUNT OF STATEMENTS RE CORDED BY THE SURVEY PARTY U/S 133A OF THE ACT, I.E. ON OATH, OF SHRI HEM RAJ JAIN, ONE OF THE DIRECTOR, WHO HAS ADMITTED CERTAIN INCOME AS UNDISC LOSED WITHOUT ANY 6 CORROBORATIVE EVIDENCE BEING AVAILABLE ON RECORD TO SUPPORT THE ABOVE ADDITION MADE. A COPY OF THE STATEMENT OF SHRI HEM RAJ JAIN, DIRECTOR OF THE COMPANY RECORDED U/S 133A OF THE ACT IS ENCLOSED AT PAGES 106-125 OF THE ASSESSEE'S PAPER BOOK. IT WAS ARGUED BY THE LD. AR THAT REVENUE AUTHORITY IS NOT VESTED WITH POWER IN SURVEY PROCEEDINGS CONDUCT ED U/S 133A OF THE ACT TO RECORD THE STATEMENT ON OATH OF THE ASSESSEE OR OF ANY OTHER PERSONS. IT IS STATED THAT THIS CONTENTION OF THE ASSESSEE IS SUPP ORTED BY VARIOUS JUDICIAL PRONOUNCEMENTS INCLUDING ONE RENDERED IN THE CASE O F M/S. UNIQUE AGE ART VS. ACIT (ITA NOS. 271/JP/2013 AND 458/JP/2013 FOR THE ASSESSMENT YEAR 2008-09) VIDE ORDER DATED 18-12-2013 FROM THIS VER Y BENCH. IN ADDITION TO THIS, THE LD. AR HAS ALSO RELIED ON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF CIT VS. KHADER KHAN (2012) 254 CTR 229. 3.2 TO CONTRADICT THE ABOVE, LD. DR STATED THAT THE REVENUE AUTHORITIES HAVE POWERS TO RECORD THE STATEMENT EVEN DURING SUR VEY PROCEEDINGS AND THAT ANY ADMISSION MADE DURING SURVEY PROCEEDINGS IS JUS TIFIED. 3.3 AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE HAV E FOUND THAT THE IMPUGNED ADDITION IS SOLELY BASED ON ADMISSION MADE BY THE DIRECTOR SHRI HEM RAJ JAIN, RECORDED ON OATH DURING SURVEY PROCEE DINGS. WE HAVE GONE THROUGH THE RELEVANT PORTION OF THIS STATEMENT ALSO . THE SUBMISSIONS OF THE LD. AR THAT ANY STATEMENT RECORDED DURING SURVEY PR OCEEDINGS CONDUCTED U/S 133A OF THE ACT HAS NO EVIDENTIARY VALUE IS FOUND T O BE A CORRECT POSITION OF 7 LAW. THE HON'BLE APEX COURT HAS CLEARLY LAID DOWN THIS PRINCIPLE IN THE CASE OF CIT VS. KHADER KHAN (SUPRA). THIS BENCH HAS CLEARLY SPELT OUT THIS ISSUE IN FAVOUR OF THE ASSESSEE VIDE PARA 3.4 OF IT S ORDER IN THE CASE OF M/S. UNIQUE ART AGE VS. ACIT (SUPRA). FOR READY REFERENC E, WE EXTRACT PARA 3.4 AS UNDER:- 3.4 .AFTER CONSIDERING THE ABOVE SUBMISSIONS VIS -A-VIS THE REFERRED TO PORTIONS OF THE RECORDS, WE ARE OF THE CONSIDERED OPINION THAT THE IMPUGNED STATEMENT RECORDED U/S 133A OF THE ACT AND THAT TOO ON OATH DO NOT HAVE ANY EVIDENTIARY VALUE. IN THIS REGARD, THE DECISION OF HON'BLE SUPREME COURT RENDERED IN THE CASE OF CIT VS. KHADE R KHAN SON REPORTED IN (2012) 254 CTR 229 IS RELEVANT. IN THIS CASE, TH EIR LORDSHIPS HAVE HELD THAT SECTION 133A OF THE ACT DOES NOT EMPOWER ANY I NCOME TAX AUTHORITY TO EXAMINE ANY PERSON ON OATH, AND THEREFORE, ANY A DMISSION MADE IN A STATEMENT RECORDED DURING SURVEY CANNOT, BY ITSELF, BE MADE THE BASIS FOR ADDITION. THE HON'BLE MADRAS HIGH COURT WHILE DECID ING THE CASE OF CIT VS. S. KHADER KHAN SON REPORTED IN (2008), 300 ITR 157, WHICH HAS BEEN UPHELD BY THE HON'BLE APEX COURT AS DISCUSSED ABOVE , HAS HELD THAT IN VIEW OF THE SCOPE AND AMBIT OF THE MATERIALS COLLEC TED DURING THE COURSE OF SURVEY ACTION U/S 133A SHALL NOT HAVE ANY EVIDENTIA RY VALUE. IT COULD NOT BE SAID SOLELY ON THE BASIS OF THE STATEMENT GIVEN BY ONE OF THE PARTNERS OF THE ASSESSEE FIRM THAT THE DISCLOSED INCOME WAS A SSESSABLE AS LAWFUL INCOME OF THE ASSESSEE. SIMILAR VIEW HAS BEEN TAKEN BY HON'BLE KERALA HIGH COURT WHILE DECIDING THE CASE PAUL MATHEWS AND SONS VS. CIT REPORTED IN (2003) 263 ITR 101. IN THE VERY STRONG WORDS, THE HON'BLE KERALA HIGH COURT OBSERVED THAT DURING SURVEY OPERA TION, IF ANY STATEMENT IS RECORDED, IT HAS GOT NO EVIDENTIARY VALUE AND IF THE ASSESSEE HAVING FOUND THAT THERE WERE SOME OMISSIONS ON ITS PART, O FFERED CERTAIN AMOUNTS AS ADDITIONAL INCOME FOR THE YEARS IN QUESTION AND GAVE A WRITTEN OFFER. SIMILAR VIEW HAS BEEN TAKE BY HON'BLE GUJARAT HIGH COURT AND THE HON'BLE 8 MADRAS HIGH COURT. THEREFORE, IN VIEW OF THE SETTLE D POSITION OF LAW , THE STATEMENT OF ADMISSION OBTAINED ON OATH FROM THE AS SESSEE WOULD NOT EFFECT OR WOULD BE MADE A BASIS FOR ADDITION EVEN I F ADMISSION WAS MADE IN THOSE STATEMENTS AND THE ASSESSEE MADE SURRENDER OF INCOME. THE ASSESSEE HAS A RIGHT TO RETRACT ANY ADMISSION EVEN IF IT IS A VALID ADMISSION AND TO DISPROVE ANY SUCH ADMISSION EVEN IF IT IS MADE UNDER THE PROCEEDINGS CONDUCTED U/S 132 OF THE ACT. THERE FORE, WE IGNORE THE ADMISSION PART OF THE STATEMENT RECORDED U/S 133A. ACCORDINGLY, BY RESPECTFULLY FOLLOWING THE LEGAL PO SITION, WE EXCLUDE THE ADMISSION MADE IN THE STATEMENT FOR SUPPORTING THE IMPUGNED ADDITION. NOW WE HAVE TO SEE AS TO WHETHER DE HORS THIS STATEMENT CAN ANY ADDITION IN THIS ITEM BE MADE OR SUSTAINED. IT WAS STATED BY THE LD. AR THAT THERE IS NO DISCREPANCY IN THE STOCK FOUND DURING SURVEY AND TO SUPPORT THIS VERSION, THE LD. AR HAS SUBMITTED WRITTEN SUBMISSION WHICH IS B EING EXTRACTED VERBATIM AS UNDER:- THAT A SURVEY OPERATION IN THIS CASE WAS CARRIED OU T U/S 133A OF THE INCOME TAX ACT, 1961 AT THE BUSINESS PREMISES OF TH E ASSESSEE AND DURING THE COURSE OF SURVEY IT WAS INFORMED TO THE DIRECTORS O F THE APPELLANT COMPANY THAT THE ENTIRE STOCK STATED TO HAVE BEEN TAKEN PHYSICALLY A ND AVAILABLE WAS QUANTIFIED BY THE SURVEY TEAM AND ACCORDINGLY EXCESS STOCK WAS WO RKED OUT AND A SURRENDERED TOWARDS THE EXCESS STOCK WAS OBTAINED FROM THE DIRE CTORS OF THE APPELLANT COMPANY IN THEIR STATEMENTS RECORDED ON OATH, THOUG H ACTUALLY THERE WAS NO EXCESS STOCK AVAILABLE WITH THE ASSESSEE. THE DETAILS OF THE STOCK AS PER BOOKS AND PHYSICAL LY QUANTIFIED BY THE SURVEY TEAM DURING THE COURSE OF SURVEY IS TABULATE D AS UNDER:- NAME OF ITEM QTY. AS PER BOOKS QTY. AS PER SURVEY TEAM DIFFERENCE RAT E EXCESS STOCK IN VALUE MILK CREAM 12,774.00 KG 42,074.00 KG 29,300.00 KG 93 ` 27,24,900 BUTTER 29,700.00 KG 72,900.00 KG 43,200.00 KG 110 ` 47,52,000 BUTTER IN PROCESS - 4,930.00 KG 4,930.00KG 110 ` 5,42,300 9 GHEE 34,852.80 KG 1,28,472.80 KG 93,620.00 KG 130 ` 1,21,70,600 TOTAL 77,326.80KG 2,48,376.80 KG 1,71,050 KG ` `` ` 2,01,89,800 IN THIS REGARD DURING THE COURSE OF ASSESSMENT PRO CEEDINGS A DETAILED REPLY WAS MADE WHEREIN CERTAIN OBJECTIONS REGARDING THE M ODE AND MANNER OF THE QUANTIFICATION OF THE STOCK ETC WERE RAISED BUT THE Y WERE GROSSLY BRUSHED ASIDE BY THE LD. AO AND SOLELY FOR THE REASON THAT DURING TH E COURSE OF SURVEY SINCE THE DIRECTOR OF THE APPELLANT COMPANY HAS ADMITTED THE SAME AS UNEXPLAINED AND RETRACTION WAS MADE AFTER THE EXPIRY OF ALMOST 33 M ONTHS, HE MADE THE ADDITION WITHOUT EVEN MAKING AN EFFORT TO REBUT THE OBJECTIO NS MADE AND THE CONTENTION RAISED. THE SURVEY U/S 133(A) COMMENCED IN THE AFTERNOON OF 26.02.2008 AND WAS CONCLUDED ON THE VERY SAME DAY AND DURING THE C OURSE OF SURVEY THE STOCK OF AROUND 248000 KG. OF BUTTER AND GHEE WAS PHYSICALLY STATED TO BE QUANTIFIED AND VERIFIED WHICH IN SUCH A SHORT PERIOD OF TIME IS HU MANLY IMPOSSIBLE. DURING THE COURSE OF SURVEY NO PROPER PHYSICAL QUANTIFICATION OF THE STOCK AVAILABLE AT THE FACTORY PREMISES WAS ACTUALLY DONE AND THE QUANTITY WAS ESTIMATED AND THE SURVEY TEAM HAD WORKED OUT THE ALLEGED EXCESS STOCK AND SU RRENDER WAS OBTAINED FROM THE DIRECTOR IN THE STATEMENTS RECORDED. LOOKING TO THE STATED LARGE QUANTITY OF STOCK AVAILABLE THE PHYSICAL QUANTIFICATION OF THE SAME IN A SHORT PERIOD OF TIME AGAIN RENDERS IT HUMANLY IMPOSSIBLE TO TAKE PHYSICA L AND ACTUAL MEASUREMENTS. THE DIRECTOR WHO MADE THE SURRENDER HAD SIGNED ON T HE DOTTED LINES ON ACCOUNT OF IGNORANCE (NOT BEING AWARE OF THE CONSEQUENCES). HE WAS UNAWARE OF THE TECHNICALITIES AND WAS ONLY LOOKING AFTER THE PRODU CTION WORK AND WAS NOT KNOWING ANYTHING ABOUT THE MAINTENANCE OF BOOKS OF ACCOUNT, STOCK REGISTER ETC. THIS IS ALSO SUBMITTED THAT THE VERY SERIATIM OF TH E QUESTIONS AND ANSWERS IS SUGGESTIVE OF UNUSUAL MANNER OF RECORDING OF STATEM ENT DURING THE SURVEY. THE FLAWLESS AND HIGHLY INCRIMINATING ADMISSIONS MADE B Y THE DIRECTOR PUTS THE VERACITY OF THE STATEMENTS IN DOUBT AS NO SANE PERS ON WOULD MAKE SUCH ADMISSIONS UNDER NORMAL CIRCUMSTANCES, THE FACT THA T THE ATMOSPHERE DURING THE COURSE OF SURVEY AND SEARCH CONDUCTED BY THE INCOME TAX DEPARTMENT IS A CHARGED ATMOSPHERE AND THE DEPARTMENTS ACTION GENERATES HEAT. THUS T HE PERSON DEPOSING THE STATEMENT IS BOUND TO SUFFER FROM THE PERSECUTION-MANIA AND THE STATEMENTS AS RECORDED DESERVES TO BE VIEWED BY TAK ING INTO CONSIDERATION THE ENTIRE SET OF FACTS. THE STOCK STATED TO BE FOUND I N THE BUSINESS PREMISES IS AN IMPOSSIBLE QUANTITY WHICH COULD BE STORED IN THE AV AILABLE AREA WHICH CONTINUES TO BE REMAIN SO AS IT EXISTED ON THE DATE OF SURVEY AN D COULD THUS BE VERIFIED EVEN AFTER SURVEY AND A PROPOSAL WAS MADE TO THE DEPARTM ENT DURING THE ASSESSMENT PROCEEDINGS, BUT LD. AO NEVER PAID ANY ATTENTION ON SUCH A REQUEST BECAUSE IT WOULD HAVE BROUGHT THE TRUTH TO SURFACE. DURING THE COURSE OF ASSESSMENT PROCEEDING A REPORT OF THE TECHNICAL EXPERT WAS ALSO SUBMITTED BEFORE LD. AO (APB 101-105) WHEREIN IT HAS CATEGORICALLY BEEN STATED THAT THE MAXIMUM QUANTITY WHICH COULD BE STORED IN THE GODOWN (COLD STORAGE) OF THE ASSESSEE IS ONLY OF 94 000 KG. AS AGAINST WHICH SURVEY TEAM HAS QUANTIFIED THE PHYSICAL STOCK OF RA W MATERIAL I.E. BUTTER AND MILK CREAM AT 114974 KGS. IT IS FURTHER SUBMITTED THAT T HE RAW MATERIAL BEING 10 PERISHABLE IN NATURE IT COULD NOT BE STORED IN OPEN AREA AND IT IS COMPULSORILY TO BE KEPT UNDER THE SPECIFIC TEMPERATURE CREATED IN THE COLD STORAGE ONLY. IT IS FURTHER SUBMITTED THAT THE INVENTORY SHEET PREPARED DURING THE COURSE OF SURVEY HAS NOT YET BEEN PROVIDED IN SPITE OF SPECIFIC REQUEST MADE BY THE ASSESSEE IN TERMS OF THE LETTERS SUBMITTED JUST AFTER THE SURVEY PROCEEDINGS . COPY OF SUCH CORRESPONDENCE WAS ALSO SUBMITTED BEFORE LD. AO HOWEVER HE DID NOT BOTHER TO PROVIDE THE SAME TO THE ASSESSEE ( APB 52-54) . THE ASSESSEE HAS MAINTAINED DAY TO DAY STOCK REGI STER WITH REGARD TO THE PURCHASE OF RAW MATERIAL, ITS CONSUMPTION AND PRODU CTION THEREOF WHICH IS DULY BACKED BY THE RESPECTIVE PURCHASE VOUCHERS AND SALE S INVOICES AND THE SALES MADE BY THE ASSESSEE COMPANY HAS BEEN SUBJECT TO THE VER IFICATION OF OTHER STATUTORY AUTHORITIES SUCH AS SALES TAX AND THE PRODUCTION BE ING SUPERVISED UNDER THE AGMARK LICENSE ALL THE PRODUCTION PROCESS AND THE STANDARD FOR INPUT OF RAW MATERIAL HAS BEEN PROPERLY FOLLOWED THUS THE QUESTI ON OF UNDERSTATEMENT OF PRODUCTION OR AVAILABILITY OF EXCESS STOCK IS PATEN TLY WRONG. THE BOOKS OF ACCOUNT AND OTHER RECORDS PRODUCED BEFORE LD. AO FOR HIS EX AMINATION, HOWEVER, HE HAS FAILED TO POINT OUT A SINGLE DEFECT IN THE ENTRIES RECORDED THEREIN. THE RAW MATERIAL AND FINISHED GOODS ARE PERISHABLE IN NATURE THUS A PRUDENT BUSINESSMAN WILL NEVER KEEP SUCH A HIGH QUANTITY OF INVENTORY. THE AVERAGE STOCK AS PER BOOKS IS 86,118.15 KG. AGAINST THE PHYSICAL STOCK WAS 2,48,3 76.80KG. WHICH IS 2.88 TIMES OF TOTAL STOCK QUANTIFIED. ALL THESE FACTS WERE BROUGHT TO THE NOTICE OF THE L D. CIT (A) IN THE APPELLATE PROCEEDINGS WHO HAS SUMMARILY REJECTED TH E CONTENTION OF THE ASSESSEE BY MAKING FOLLOWING OBSERVATIONS:- 1. THE STATEMENTS OF SHRI HEMRAJ JAIN WAS NOT RECORDED UNDER DURESS OR THREAT AND PHYSICAL INVENTORY OF STOCK WAS TAKEN BY THE OFFICE RS IN PRESENCE OF HIS BROTHER, ANOTHER DIRECTOR NAMELY SHRI PRADEEP KUMAR JAIN AND SHRI PAWAN KUMAR SHARMA, ONE OF THE EMPLOYEES AND THE ASSESSEE COULD NOT EST ABLISH THE FACT THAT THE STATEMENT WAS RECORD UNDER DURESS AND THREAT. 2. THE STORAGE CAPACITY OF COLD STORAGE WAS 94,000 KG. AS PER THE REPORT OF TECHNICAL EXPERT AND SURVEY TEAM HAD QUANTIFIED THE SAME AT ` 1,14,974/- AND ASSUMED THE DIFFERENCE IN QUANTITY WAS DUE TO THE FACT THAT QUA NTITY OF BUTTER WAS IN PROCESS AND NOT REQUIRED TO BE STORED IN THE COLD STORAGE A S IT DEPENDED ON THE AGE OF CREAM OR BUTTER. ALL THE ABOVE OBSERVATIONS / ALLEGATION OF THE LD. CIT (A) DO NOT FIND FORCE IN VIEW OF FOLLOWING FACTS:- 1. ON THE PERUSAL OF THE STATEMENT OF THE ASSESSEE REC ORDED U/S 133A IT WOULD BE EVIDENT THAT THE STATEMENT RECORDED ARE NOTHING MOR E THAN THE WRITTEN PAPERS SIGNED BY THE ASSESSEE AND ARE THE OBTAINED STATEM ENTS SIGNED ON DOTTED LINES. SHRI HEMRAJ JAIN HAS MADE SURRENDER OF ` 4,00,14,980/- ON VARIOUS ISSUES AS UNDISCLOSED INCOME OF THE ASSESSEE COMPANY WITHOUT IN ANY MANNER CONSULTING WITH THE OTHER DIRECTOR OR WITHOUT LINKING OR REFER RING THE BOOKS OF ACCOUNTS 11 MAINTAINED IN THE NORMAL COURSE OF BUSINESS. AFTER THE SURVEY, ASSESSMENT PROCEEDING WAS FIRST OPPORTUNITY AVAILABLE TO THE A SSESSEE, WHEN HE COULD HAVE POINTED OUT ANY IRREGULARITY IN THE SURVEY PROCEEDI NGS AND FURTHER THE ASSESSEE HAS RETRACTED THE STATEMENT AT THE TIME OF FILING OF RE TURN OF INCOME WHEREIN THE INCOME ADMITTED DURING THE COURSE OF SURVEY WAS NOT INCLUDED IN THE INCOME DECLARED, THUS THE STATEMENTS OF THE ASSESSEE RECOR DED DURING THE SURVEY ON OATH DESERVES TO BE IGNORED AND EXCLUDED WHICH HAVE BEEN MADE THE SOLE BASIS FOR MAKING SUCH A HUGE ADDITIONS. 2. THE LD. AO AS WELL AS LD. CIT (A) HAVE NOT GIVEN AN Y FINDING ABOUT THE IRREGULARITIES POINTED OUT BY THE ASSESSEE IN THE S URVEY. THE SURVEY TEAM STATED TO QUANTIFIED STOCK OF AROUND 2,48,000 KG. OF BUTTER A ND GHEE ON THE SAME DAY WHICH IN SUCH A SHORT PERIOD OF TIME IS NOT HUMANLY POSSI BLE. THE STOCK STATED TO BE FOUND IN THE BUSINESS PREMISES IS AN IMPOSSIBLE QUA NTITY WHICH COULD BE STORED IN THE AVAILABLE AREA WITH THE ASSESSEE. 3. THE LD. CIT (A) HAS MERELY ON ASSUMPTION AND PRESUM PTION HAS HELD THAT DIFFERENCE IN QUANTITY OF RAW MATERIAL I.E. BUTTER AND MILK CREAM OF 20,974 KG. ON ACCOUNT OF MAXIMUM QUANTITY COULD BE STORED IN COL D STORAGE OF 94,000 KG. AND PHYSICALLY STOCK QUANTIFIED BY THE SURVEY TEAM 1,14 ,974 KG. WAS DUE TO FACT THAT QUANTITY OF BUTTER WAS IN PROCESS. HOWEVER, THE LD. CIT (A) HAS FULLY IGNORED THE FACT THAT THE DEPARTMENT HAS ITSELF QUANTIFY THE BU TTER IN PROCESS AT 4,930 KG. AND HOW THE SAME COULD BE AT 20,974 KG. AS PER THE LD. CIT (A) VERSION. THUS OBSERVATION OF THE LD. CIT (A) DESERVES TO BE IGNOR ED AND EXCLUDED. 4. THE LD. CIT (A) HAS FULLY IGNORED THE FACT THAT INV ENTORY SHEET PREPARED DURING THE COURSE OF SURVEY HAS NOT BEEN YET PROVIDED IN S PITE OF SPECIFIC REQUEST MADE BY THE ASSESSEE AND WITHOUT WHICH ASSESSEE WAS NOT ABLE TO VERIFY THE QUANTITY OF STOCK FOUND DURING THE SURVEY WITH THE STOCK AVAILA BLE IN THE BOOKS OF ACCOUNTS. 5. THE LD. CIT (A) HAS NOT APPRECIATED THE FACT THAT T RADING RESULTS DECLARED BY THE ASSESSEE COMPANY WERE ACCEPTED AND PROVISION OF SEC TION 145 (3) WERE NOT INVOKED MEANING THEREBY THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ARE FREE FROM ANY DEFECTS. FURTHER EXCEPT THE SO CA LLED ADMISSION OF EXCESS STOCK, LD. AO HAS FAILED TO BRING ON ANY CORROBORATIVE EVI DENCE WITH REGARD TO THE ALLEGATIONS MADE. IT IS FOURTH YEAR OF BUSINESS AND TRADING RESULTS DECLARED WERE NEVER DOUBTED THUS, THERE WAS NO SOURCE FROM WHERE ASSESSEE COULD HAVE EARNED SUCH A HUGE INCOME. THE ASSUMPTIONS MADE AND APPROXIMATIONS DONE IN STO CK INVENTORISATION HAS BEEN DISAPPROVED BY THE HONBLE INCOME TAX APPE LLATE TRIBUNAL, DELHI BENCH IN THE CASE OF BANSAL STRIPS (P) LTD. VS. ACI T REPORTED IN 99 ITD 177 WHEREIN IT HAS BEEN HELD THAT DURING THE COURSE OF SEARCH PROCEEDINGS, THE SE ARCH AUTHORITIES HAD ATTEMPTED TO VERIFY THE STOCK DETAI LS KEPT BY THE ASSESSEES BY COMPARING THE STOCK AS PER BOOKS WITH INVENTORY OF PHYSICAL STOCK TAKEN DURING THE COURSE OF SEARCH. THE ENTIRE EXERCISE IN THE CASES OF ABOUT HALF A 12 DOZEN BUSINESS CONCERNS WAS COMMENCED AND COMPLETED WITHIN A FEW HOURS. THAT BEING SO, THE FINDING OF EXCESS STOCK BEING FO UND DURING THE COURSE OF SEARCH OPERATION HAD BEEN GIVEN BY THE AU THORITIES BELOW ON GROSSLY INADEQUATE MATERIAL. THAT FINDING WOULD NOT BE SUSTAINED EVEN UNDER THE PARAMETERS OF INCOME TAX ASSESSMENT PROCE EDINGS NOT BOUND BY TECHNICAL RULES OF EVIDENCE. THEREFORE, THE ADDITIO NS MADE BY THE AUTHORITIES BELOW, ON THE ALLEGED EXCESS STOCK, SHORTAGE OF STO CK PHYSICALLY FOUND DURING THE COURSE OF SEARCH PROCEEDINGS IN ALL THE APPEALS WERE DIRECTED TO BE DELETED. IT IS FURTHER SUBMITTED THAT THE ASSESSEE IS MAIN TAINING REGULAR BOOKS OF ACCOUNTS CONSISTING OF CASH BOOK, LEDGER, BANK STAT EMENTS AND VOUCHERS FOR EXPENSES. THE ACCOUNTS OF THE ASSESSEE HAVE BEEN AU DITED BY A FIRM OF CHARTERED ACCOUNTANT WHO HAVE NOT REPORTED ANY DEFECTS IN THE MAINTENANCE OF ACCOUNTS. THE PURCHASES AND SALES OF THE ASSESSEE ARE FULLY V OUCHED AND BACKED BY NECESSARY EVIDENCE AND NO DEFECTS OF WHATSOEVER NAT URE HAS BEEN POINTED OUT AND ASSESSEE IS IN A REGULAR PRACTICE OF PHYSICALLY VER IFYING THE STOCK SO AS TO GET RID OF ANY POSSIBLE LEAKAGE WHICH IS DULY SUPPORTED BY DAY TO DAY STOCK REGISTER. IN THE CIRCUMSTANCE, IT IS SUBMITTED THAT THE ADD ITION MADE AND SUSTAINED SOLELY ON THE BASIS OF THE SURRENDER MADE DURING TH E COURSE OF SURVEY WHICH WAS NOT ACCEPTED AND ALSO WITHOUT MAKING ANY ENQUIRY OR EFFORT TO REBUT THE SUBMISSION MADE BY THE ASSESSEE ALONGWITH THE SUPPO RTING EVIDENCE THUS THE ADDITION MADE DESERVES TO BE DELETED. RELIANCE IS PLACED ON THE FOLLOWING CASE LAWS: 1. CIT V/S RAMDAS MOTOR TRANSPORT 238 ITR 177 (AP ) IT HAS BEEN HELD THAT STATEMENT OF MD OR PARTNER HAS NO EVIDENTIARY VALUE AS THEY WERE NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCE. 2. DCIT V/S SADHURAM WADHWANI 81 TTJ (NAG ) ADDITION MADE ON THE BASIS OF STATEMENT BEING NOT VOLUNTARY ADMISSION WAS INCORRECT. ADDITION MADE BY AO ON THAT COUNT WA S NOT SUSTAINABLE. FURTHER HELD THAT WHETHER STATEMENT RECORDED U/S 132(4) CAN BE A BINDING FORCE OF EVIDENCE AS AN ADMISSION ON BEHALF OF ASSESSEE. HEL D NO - 3. DIT V/S POORANMALL & SONS 96 ITR 390 (SC) : CONFESSION CANNOT BE MADE FOUNDATION OF ASSESSME NT. 4. ASHOK MANILAL THAKKAR VS. ACIT (ITAT AHMADABAD ) 279 ITR 145 (AT) HELD THAT THE STATEMENT OF THE ASSESSEE RECORDED UNDER SECTION 133A(3)(III) COULD BE SAID TO BE USEFUL OR RELEVANT TO THE ASSESSMENT PROCEEDINGS ONLY WHEN THERE WAS MATERIAL ON RECORD TO PROVE THE EXISTENCE OF ANY OF THE FOUR ACTIVITIES ON THE BASIS OF WHICH THE DISCLOSURE WAS STATED TO BE MADE. THE 13 STATEMENT RECORDED UNDER SECTION 133A CANNOT BE GIV EN EVIDENTIARY VALUE AS SUCH EVIDENTIARY VALUE WAS NOT ATTACHED TO IT BY THE PRO VISIONS OF SECTION 133A. THUS, IT COULD NOT BE SAID SOLELY ON THE BASIS OF THE STATEM ENT GIVEN BY THE ASSESSEE THAT THE DISCLOSED INCOME WAS ASSESSABLE AS LAWFUL INCOM E OF THE ASSESSEE. SINCE THERE WAS NO MATERIAL ON RECORD TO PROVE THE EXISTENCE OF SUCH DISCLOSED INCOME OR EARNING OF SUCH INCOME IN THE HANDS OF ASSESSEE, IT COULD NOT BE SAID THAT THE REVENUE HAD LOST LAWFUL TAX PAYABLE BY THE ASSESSEE . THE VIEW ADOPTED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER PASSED UN DER SECTION 143(3) WAS NOT UNSUSTAINABLE IN LAW AND WAS ONE POSSIBLE VIEW. THU S, THE COMMISSIONER HAD WRONGLY EXERCISED HIS POWER UNDER SECTION 263 FOR B OTH THE YEARS AND HIS ORDERS WERE QUASHED FOR BOTH THE YEARS. 3.4 IN CONTRA TO THE ABOVE SUBMISSIONS, THE LD. DR HAS SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND HAS JUSTIFIED T HE IMPUGNED ADDITION. 3.5 HOWEVER, AFTER CAREFULLY CONSIDERING THE RIVAL SUBMISSIONS ON THIS ISSUE AND AFTER RELYING ON THE RELEVANT DECISIONS T HERETO, WE ARE OF THE CONSIDERED OPINION THAT DIFFERENCE IN STOCK IS NOT REAL. THE SURVEY PARTY HAS QUANTIFIED THE STOCK OF AROUND 2,48,000 KG OF BUTTE R AND GHEE ON THE SAME DAY WHICH IS HUMANLY IMPOSSIBLE ON SAME DAY. THE AO HAS ASSUMED AND PRESUMED THAT DIFFERENCE IN QUANTITY OF RAW MATERIA L I.E. BUTTER AND MILK CREAM OF 20,974 KG ON ACCOUNT OF MAXIMUM QUANTITY COULD BE STORAGE OF 94,000 KG AND PHYSICALLY STOCK QUANTIFIED BY THE SU RVEY TEAM AT 1,14,974 KG WAS DUE TO THE FACT THAT QUANTITY OF BUTTER WAS IN PROCESS. THIS FACT HAS BEEN IGNORED BY THE AUTHORITIES BELOW BECAUSE WHEN THE A O HIMSELF QUANTIFIED THE BUTTER IN PROCESS AT 4,930 KG THEN HOW THE SAME COULD BE AT 20,974 KG . FURTHER, WE ARE SATISFIED THAT INVENTORY SHEET PREP ARED DURING THE COURSE OF SURVEY WAS NOT PROVIDED TO THE ASSESSEE DESPITE REP EATED REQUESTS MADE BY IT. 14 MOREOVER, THE AO HAS ACCEPTED THE DECLARED RESULTS AND HAS NOT INVOKED THE PROVISION OF SECTION 145(3) OF THE ACT. THE AO HAS NOT FOUND ANY MATERIAL DEFECT IN THE BOOKS OF ACCOUNT. ACCORDINGLY, THE IM PUGNED ADDITION ON MERITS IS ALSO NOT SUSTAINABLE AND THE SAME IS DELE TED. THUS GROUND NOS. 1 AND 1.1 OF THE ASSESSEE ARE ALLOWED. 4.1 NOW WE COME GROUND NO. 2 OF THE ASSESSEE'S APPE AL AND GROUND NOS, 2 AND 3 OF THE REVENUES APPEAL WHICH ARE IN RELATI ON ADDITION OF RS. 1,61,50,168/- MADE ON ACCOUNT OF PURCHASED MADE FR OM UNREGISTERED DEALERS ON THE ALLEGATION THAT THE SAME ARE BOGUS. 4.2 THE LD. CIT(A) HAS REDUCED THIS ADDITION TO RS. 27,45,862/- AND BY GIVING TELESCOPING EFFECT, NO ADDITION ON THIS ACCO UNT WAS MADE. 4.3 AGAINST THIS FINDING, BOTH ASSESSEE AND THE DEP ARTMENT ARE IN APPEAL BEFORE US. 4.4 WE HAVE HEARD THE RIVAL SUBMISSIONS. IT WAS ARG UED BY THE LD. AR THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF DESHI GHEE FOR WHICH THE BASIC RAW MATERIAL IS MILK CREAM AND BUTTER. THE ASSESSEE COMPANY PURCHASED MILK CREAM AND BUTTER FR OM THE REGISTERED DEALERS AS WELL AS FROM LOCAL VILLAGES RESIDING IN SURROUNDING AREAS OF JAIPUR DISTRICT. THE VILLAGERS BELONG TO UNORGANIZED SECTO R AND DEMAND THE CASH PAYMENT AS THEY DO NOT HAVE THE BANK ACCOUNT. THE P URCHASE MADE FROM THEM HAVE BEEN MADE THROUGH PURCHASE VOUCHERS ON WH ICH THEIR SIGNATURES 15 HAVE BEEN OBTAINED IN CONFIRMATION TO THE PAYMENTS MADE TO THEM AND THE RAW MATERIAL RECEIVED FROM THEM IS DULY REGISTERED IN QUANTITATIVE RECORDS WHICH WERE PRODUCED BEFORE THE AO FOR HIS VERIFICAT ION. THE AO HAS NOT FINGERED ANY DEFECT IN THE ACCOUNTS AND RATHER HE H AS ACCEPTED THE TRADING RESULTS DECLARED BY THE ASSESSEE. DURING ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD FURNISHED THE FOLLOWING EVIDENCE TO PR OVE THESE PURCHASES. 1. COMPLETE NAME OF THE SUPPLIERS. 2. COMPLETE ADDRESS OF THE SUPPLIERS. 3. COPY OF RATION CARD/VOTER ID TO PROVE THEIR EXI STENCE AND ADDRESS. 4. PURCHASE VOUCHERS WHEREIN THEIR SIGNATURES WERE OBTAINED. THE AO ISSUED SUMMON U/S 131 OF THE ACT TO 09 SUPPL IERS AS LISTED AT PAGES 15 AND 16 OF THE ASSESSMENT ORDER. THESE SUMMONS W ERE DULY SERVED UPON THEM AND HAS NOT BEEN DISPUTED BY THE AO. HOWEVER O UT OF THE TOTAL 09 SUPPLIERS TO WHOM SUMMONS WERE ISSUED, TWO APPEARED BEFORE THE AO WHO HAD DEPOSED THEIR STATEMENTS WHEREIN THEY BOTH ADMI TTED THE FACT OF SUPPLY OF MILK CREAM TO THE ASSESSEE COMPANY BUT THE AO DI D NOT ACCEPT THEIR EVIDENCES. AFTER HEARING THE ABOVE SUBMISSIONS, WE ARE LEFT WITH NO OTHER INFERENCE THAT THE CONTENTION OF THE LD. AR IS CORR ECT. THE ASSESSEE HAS MAINTAINED DAY TO DAY QUANTITATIVE DETAILS FOR THE CONSUMPTION OF RAW MATERIAL AND PRODUCTION THEREOF. IT HAS ALSO MAINTA INED THE QUANTITY OF INPUT 16 OF RAW MATERIAL VIS-A-VIS THE OUT PUT OF THE FINISH ED GOODS. THE METHOD OF ACCOUNTING AND MODE AND MANNER OF RECORDING THE QUA NTITY CONSUMED AND PRODUCTION THEREOF HAS REGULARLY BEEN FOLLOWED SINC E INCEPTION. THIS METHOD OF ACCOUNTING HAS NOT BEEN DOUBTED BY THE AO. THE P URCHASES OF RAW MATERIAL ARE DULY SUPPORTED BY THE PURCHASE VOUCHER S AND SALE VOUCHERS. THESE PURCHASES / SALES ARE SUBJECTED TO CHECK BY T HE SALES TAX AUTHORITY. THE QUALITY OF PRODUCTION IS ALSO SUPERVISED UNDER AGMARK LICENSE. IT IS NOT THE CASE OF THE REVENUE THAT PRODUCTION PROCESS AND STANDARD FOR INPUT OF RAW MATERIAL HAS NOT BEEN PROPERLY FOLLOWED. THUS I N THESE CIRCUMSTANCES, THE PRODUCTION OF FINISHED GODS AND SALES THEREOF O N THE CONSUMPTION OF RAW MATERIAL CANNOT BE DOUBTED WHEN THE AO HAS HIMSELF ACCEPTED THE TRADING RESULTS. WE ARE ALSO IN AGREEMENT WITH THE SUBMISSI ON OF THE LD. AR THAT THE ASSESSEE HAS MAINTAINED DAY TO DAY CONSUMPTION AND PRODUCTION RECORDS, BASED ON WHICH NECESSARY DETAILS OF THE RAW MATERIA L CONSUMED AND PRODUCTION THEREOF IS AS UNDER:- PARTICULARS A.Y. 2007-08 A.Y. 2008-09 CONSUMPTION OF CREAM & BUTTER 900964 KG. 643823 KG. PRODUCTION OF GHEE 719327 KG. 497972 KG. PRODUCTION YIELD 79.84% 77.35% WE ARE SATISFIED WITH THIS SMALL FALL OF YIELD AS C OMPARED TO PRECEDING YEAR DEPENDING UPON QUALITY OF THE RAW MATERIAL INPUT AN D OTHER FACTORS ETC. WE ARE IN AGREEMENT WITH THE LD. AR THAT IF THE ENTIRE PURCHASES MADE FROM THESE 17 PARTIES ARE ADDED, IT WILL GIVE DISTORTED PICTURE O F GROSS PROFIT RATE WHICH CAN BE SEEN FROM THE FOLLOWING TABLE. A.Y. TURNOVER G.P. G.P. % 2005-06 22,03,36,816.00 58,70,582.00 2.66% 2006-07 23,78,33,335.00 71,46,940.00 3.01% 2007-08 28,57,22,100.00 28,17,647.00 0.99% THE PURCHASES MADE FROM VILLAGES CANNOT BE DOUBTED AS THEY ARE NOT FOUND TO BE RELATED TO THE DIRECTOR OF THE ASSESSEE COMPA NY. THE AO HAS NOT MADE ANY DIRECT ENQUIRY AND HAS FAILED TO BRING ANY CORR OBORATIVE MATERIAL ON RECORD TO SUPPORT HIS CONCLUSION AND HAS BASED THE ADDITION SOLELY ON THE STATEMENT OF THE DIRECTOR RECORDED DURING SURVEY. T HUS WE DO NOT FIND ANY REASON TO UPHOLD THE FINDINGS OF THE LD. CIT(A) WHO HAS TREATED SOME PART OF THESE PURCHASES AS BOGUS. THE ASSESSEE HAS DISCHARG E ITS BURDEN BY ESTABLISHING THE IDENTITY OF THE SUPPLIERS AND THER E IS NO EVIDENCE TO SUGGEST THAT THERE IS INFLATION IN PURCHASE PRICE. THEREFOR E, WE CANNOT IGNORE THE PURCHASE PRICE RECORDED IN THE PURCHASE VOUCHERS FO UND DURING THE COURSE OF SURVEY WHICH ARE DULY RECORDED IN THE STOCK INVENTO RY AND THE CONSUMPTION AND PRODUCTION HAVE NOT BEEN DOUBTED WITH THE HELP OF ANY EVIDENCE ON RECORD. THEREFORE, THE SUSTAINED ADDITION OF RS. 27 ,45,862/- IS ALSO UNCALLED FOR. THUS THE GROUND NO. 2 OF THE ASSESSEE IS ALLO WED AND THE GROUND NOS. (II) AND (III) OF THE DEPARTMENT ARE DISMISSED. 18 5.1 THE GROUND NO. 3, 3.1 AND 3.2 OF ASSESSEE'S APP EAL IS REGARDING THE SUSTAINED ADDITION OF RS. 4.00 LACS MADE ON ACCOUNT OF INVESTMENT IN THE CONSTRUCTION OF OFFICE BY HOLDING THE SAME AS UNEXP LAINED. 5.2 THE FACTS TO THIS GROUND ARE THAT DURING THE CO URSE OF SURVEY , A SURRENDER OF RS. 4.00 LACS WAS MADE ON ACCOUNT OF RENOVATION OF OFFICE PREMISES. THE CASE OF THE ASSESSEE IS THAT THE ASSE SSEE HAS TAKEN THE OFFICE AT A-4, SHASTRI NAGAR, JAIPUR ON RENT AND THE PETTY RE PAIR WORK WAS CARRIED OUT WHICH WAS DULY ACCOUNTED FOR UNDER THE HEAD REPAIR S AND MAINTENANCE APPEARING IN THE PROFIT AND LOSS ACCOUNT OF THE AS SESSEE COMPANY. IT WAS STATED THAT THE ASSESSEE COMPANY HAD PURCHASED CERT AIN COMPUTERS AND THOSE ARE ALSO RECORDED IN ITS BOOKS OF ACCOUNT AND ALSO APPEAR IN THE STATEMENT OF FIXED ASSETS. IT WAS ASSERTED THAT THE DIRECTOR OF THE ASSESSEE COMPANY SHRI HEM RAJ JAIN MADE THIS SURRENDER WITHOUT REFERRING TO THE BOOKS OF ACCOUNT IN THIS REGARD. HOWVER, THE AO AS WELL AS THE LD. C IT(A) WERE NOT CONVINCED AND THAT IS WHY THIS GROUND HAS BEEN RAKED UP BEFOR E US. 5.3 AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE HAV E FOUND THAT THE IMPUGNED AMOUNTS DESERVES TO BE DELETED. BOTH THE A UTHORITIES BELOW HAVE IGNORED THE FACT THAT THIS ADDITION IS ALSO BASED O N SIMPLY THE SURRENDER MADE BY THE DIRECTOR OF THE ASSESSEE COMPANY WHICH STAN DS DISPROVED WITH THE HELP OF EXISTING EVIDENCE. THE ASSESSEE HAS FILED A LL THE NECESSARY DETAILS OF THE EXPENDITURE INCURRED ALONGWITH COPY OF LEDGER A CCOUNT OF REPAIRS AND 19 MAINTENANCE AND COPY OF LEDGER ACCOUNT OF FIXED ASS ETS. THESE PAPERS ARE ALSO ENCLOSED IN THE ASSESSEE'S PAPER BOOK FILED BE FORE US. THE AO HAS NOT POINTED OUT ANY DEFECT IN THE SAME. THEREFORE, WITH OUT BRINGING ANY CONTRARY MATERIAL TO SUBSTANTIATE THE ADMISSIONS MADE BY THE DIRECTOR OF THE ASSESSEE COMPANY AND THAT TOO DURING THE COURSE OF SURVEY, C ANNOT BE UPHELD. THE EXPENDITURE INCURRED ON COMPUTER ETC. RELATED TO OF FICE ALSO STANDS SUPPORTED BY THE EVIDENCE ON RECORD. THEREFORE, WE ORDER TO D ELETE THE IMPUGNED ADDITION AND ALLOW GROUND NOS. 3, 3.1 AND 3.2 OF TH E ASSESSEES APPEAL. 6.1 THE GROUND NO. 4 OF THE ASSESSEE'S APPEAL IS RE GARDING DISALLOWANCE OF RS. 66,439/-MADE ON ACCOUNT OF TELEPHONE EXPENSE S. 6.2 THE FACTS OF THE CASE ARE THAT ON PERUSAL OF TH E PROFIT AND LOSS ACCOUNT, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS CLAI MED TELEPHONE EXPENSES TO THE TUNE OF RS. 3,32,197/- BECAUSE THE CALL DETAILS WERE NOT MAINTAINED BY THE ASSESSEE COMPANY. THE AO MADE A LUMPSUM DISALLOWANC E @ 20% OF THE TOTAL EXPENSES MAINLY ON ACCOUNT OF PERSONAL USER BY THE DIRECTOR OF THE ASSESSEE COMPANY. 6.3 AFTER HEARING BOTH SIDES, WE ARE OF THE OPINION THAT IN THE CASE OF A COMPANY, THE USAGE OF TELEPHONE ETC. ON ACCOUNT OF NON-BUSINESS PURPOSES CANNOT BE ADDED IN THE HANDS OF THE COMPANY, PARTIC ULARLY BECAUSE THE COMPANY HAS A SEPARATE LEGAL ENTITY AND ITS ENTIRE BUSINESS IS CONDUCTED THROUGH THE DIRECTORS. IN CASE ANY BENEFIT IS DRAWN BY THE DIRECTOR, THE 20 DIRECTOR HAS TO SUFFER THE FRINGE BENEFIT TAX AT TH E PRESCRIBE RATES WHICH IT HAS ALREADY SUFFERED. ACCORDINGLY, WE ORDER TO DELE TE THE ENTIRE EXPENDITURE. THUS THE GROUND NO. 4 OF THE ASSESSEE IS ALLOWED. 7.1 THE GROUND NO. 5 OF THE ASSESSEE IS REGARDING D ISALLOWANCE OF RS. 72,157/- MADE OUT OF EMPLOYEES CONTRIBUTION TO PF A ND ESI ON THE REASONING THAT THESE PAYMENTS WERE DELAYED. 7.2 THIS DISALLOWANCE HAS BEEN CONFIRMED BY THE LD. CIT(A) ON THE GROUND THAT THE PROVISIONS OF SECTION 43(B) ARE APP LICABLE IN RESPECT OF EMPLOYERS CONTRIBUTION TO PF OR ESI AND NOT TO EMP LOYEES CONTRIBUTION. 7.3 AFTER HEARING BOTH THE SIDES, WE ARE OF THE CON SIDERED OPINION THAT THIS ISSUE NOW STANDS COVERED TO THE EFFECT THAT EMPLOYE ES/ EMPLOYERS CONTRIBUTION TO PF OR ESI ARE DEPOSITED OR PAID BEF ORE FILING OF RETURN. THESE ARE ALLOWABLE. THE HON'BLE APEX COURT IN THE CASE O F CIT VS. VINAY CEMENTS REPORTED 213 CTR 268 HAS REPLIED TO VARIOUS QUERIES RAISED IN THIS REGARD BY DIFFERENT DECISIONS/ ORDERS. THIS ISSUE H AS BEEN FURTHER CHURNED WITH REFERENCE TO HON'BLE SUPREME COURT DECISION REPORTED IN THE CASE OF CIT VS. VINAY CEMENT (SUPRA) BY HON'BLE GAUHATI H IGH COURT WHILE DECIDING THE CASE OF CIT VS. GEORGE WILLIAMSONS LTD . , 284 ITR 619. ACCORDINGLY, WE ORDER TO DELETE THIS ADDITION FROM THE HANDS OF THE ASSESSEE AND ALLOW THE GROUND NO. 5 OF THE ASSESSEE. 21 8.1 THE GROUND NO. 4 OF THE REVENUES APPEAL RELATE S TO DELETION OF ADDITION OF RS. 25.00 LACS WHICH WAS MADE BY THE AO BY HOLDING THE RECEIPT OF SHARE CAPITAL OF THIS AMOUNT AS UNACCOUNTED INCO ME OF THE ASSESSEE COMPANY AND THE LD. CIT(A) HAS DELETED THIS ADDITIO N. 8.2 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. BOTH THE PARTIES HAVE REITERATED THEIR EARL IER STANDS. TO UNDERSTAND THE POSITION OF SHARE APPLICANTS AND THEIR IDENTITY , FOLLOWING CHART IS RELEVANT. S.NO. NAME ADDRESS PAN AMOUNT 1. SNEH TEXTILE PVT. LTD. 4-G-8, NEW HOSING BOARD, SHASTRI NAGAR, BHILWARA AABCS9863K 5,00,000/- 2. SHIV GANGA SUITING PVT. LTD. TARBON KA MOHALLA, MANDOWARI BAZAR, POST MANDAL, BHILWARA AAHCS9088J 2,00,000/- 3. LAXMI SYNTHETIC & PACKAGING PVT. LTD. 6, CHANDANWAD, CIRCUIT HOUSE, SHAHI BAUGH, AHMEDABAD, GUJARAT AAACL2689K 5,00,000/- 4. JAMUNA SYNTHETIC PVT. LTD. UDYOG BHAWAN OPP. HIGHER SEC. SCHOOL, BHILWARA AABCJ3150C 5,00,000/- 5. VISAKA SYNTHETIC PVT. LTD. 202, KEDIA SHOPPING CENTER, OPP. RAILWAY STATION, MALAD WEST, MUMBAI AAACV1811D 5,00,000/- 6. GOPALI DEVI DHAKAR B-78, SANJAY COLONY, BHILWARA AJGPD3924M 1,00,000/- 7. BRIJENDRA KUMAR TAILOR OPP. AZAD TAILOR AZAD NAGAR, BHILWARA AAJPT9260H 2,00,000/- TOTAL 25,00,000/- THE AVERMENTS OF THESE ABOVE CHART WERE NOT DISPUTE D BY THE LD. DR. THE LAW ON THIS SUBJECT IS SETTLED TO THIS EXTENT IF TH E IDENTITY OF THE SHARE APPLICANTS IS ESTABLISHED. THERE IS NO FURTHER NEED TO PROVE ANYTHING BY THE 22 ASSESSEE COMPANY EVEN THE CREDITWORTHINESS OF THE A PPLICANTS. IN THIS REGARD, THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF BARKHA SYNTHETICS LTD. VS. ACIT, 283 ITR 377 (RAJ.) IS REL EVANT. THE OTHER MAIN DECISION OF HON'BLE HIGH COURT WHICH SUPPORT OUR AB OVE FINDINGS IS THAT OF ARAWALI TRADING CO. 187 TAXMAN (RAJ.), INTER ALIA. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) ACCORDINGL Y, THIS ADDITION HAS BEEN CORRECTLY DELETED FROM THE HANDS OF THE ASSESSEE CO MPANY . THUS GROUND NO. (IV) OF THE REVENUE IS DISMISSED 9.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED AND THAT OF THE REVENUE IS DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 31 -01-2014 SD/- SD/- (.N.K. SAINI) (HARI OM MARATHA) ACCOUNTANT MEMBER JUDICIAL MEMEBR JAIPUR DATED: 31 ST JAN 2014 *MISHRA COPY FORWARDED TO:- BY ORDER 1. M/S. ANNU MILK PRODUCTS LTD. JAIPUR 2. THE ACIT, CIRCLE- 4, JAIPUR 3. THE LD. CIT(A) 4. THE LD. CIT 5. THE DR 6. THE GUARD FILE (IT NO.122/JP/12) A.R., ITAT, J AIPUR 23 24 25