ACIT, Thanjavur V. M/s. Sri Ulaganayaki Amman Steels, Karaikal

ITA 1633/CHNY/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61272 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-07-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 04-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SRIVATSAN
• Keywords: Unexplained expenditure; Business income; Depreciation; Income from undisclosed sources; Document seized; Cost of acquisition; Documents seized
• Section: 69C; 194C; 68; 69; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI [BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER] I.T.A.NOS.1633 TO 1635/MDS/2010 ASSESSMENT YEARS : 2004-05, 2005-06 AND 2006-07 THE ACIT CIRCLE I THANJAVUR VS M/S SRI ULAGANAYAKI AMMAN STEELS KEETAVUR VILLAGE THIRUNALLAR KARAIKAL [PAN AASFS9791C] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB, ADDL. CIT RESPONDENT BY : SHRI S.SRIVATSAN, CA DATE OF HEARING : 09-07-2012 DATE OF PRONOUNCEMENT : 13-07-2012 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER THESE ARE THE APPEALS FILED BY THE REVEN UE AGAINST SEPARATE ORDERS PASSED BY THE CIT(A), TIRUCHIRAPALLI, DATED 21.7.2010, FOR ASSESSMENT YEARS 2004-05, 2005-06 AND 2006-07. 2. SINCE ALL THESE APPEALS RELATE TO THE SAME ASSESS EE AND WERE ARGUED BY THE DR TOGETHER, THEY ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER. I.T.A.NOS. 1633 TO 1635/2010 :- 2 -: 3. IN I.T.A.NO.1633/MDS/2010 FOR ASSESSMENT YEAR 2 004-05, GROUND NOS.1 AND 5 ARE GENERAL IN NATURE AND HENCE, REQUIRES NO ADJUDICATION BY US. 4. IN GROUND NO.2 OF THE APPEAL, THE GRIEVANCE OF THE REVENUE IS THAT THE CIT(A) ERRED IN DELETING THE ADDITION O F ` 1,04,30,010/- REPRESENTING THE DIFFERENCE IN GROSS PROFIT AS PER THE PROFIT & LOSS ACCOUNT PREPARED BASED ON ACTUAL PRODUCTION AND SAL E FOUND DURING SEARCH ACTION BY THE CENTRAL EXCISE AUTHORITIES AND AS GROSS PROFIT SHOWN IN THE RETURN OF INCOME FILED BY THE ASSESSE E. 5. THE ASSESSING OFFICER HAS MADE THE ADDITION BY OBSE RVING AS UNDER: THE DETAILS OF PURCHASE, SALES, GROSS PROFITS ADMI TTED BY THE ASSESSEE AND ARRIVED AT BY THE EXCISE DEPARTMENT AR E GIVEN BELOW: ARRIVED AT BY THE CENTRAL EXCISE DEPARTMENT ADMITTED BY THE ASSESSEE DIFFERENCE PURCHASE 11,53,08,053 6,14,30,596 (INCLUDE PURCHASE FROM INTER STATE AND IMPORT) 5,38,77,457 SALES 13,47,38,635 7,42,69,319 6,04,67,316 CLOSING STOCK 1,40,96,088 (ADD STORES) 34,96,834 1,75,92,922 1,83,30,146 7,37,224 GROSS PROFIT 3,70,23,504 2,65,93,494 1,04,03,010 I.T.A.NOS. 1633 TO 1635/2010 :- 3 -: FROM THE ABOVE IT IS CLEAR THAT THE ASSESSEE HAS PURCHASED RAW MATERIALS FROM VARIOUS PLACES, PART OF WHICH IS OUT OF BOOKS AND SOLD IT MAINLY TO THE CONCERNS AS DISCUSSED ABOVE AND PART OF WHICH IS OUT OF BOOKS. AFTER DISCUSSION, THE ASSESSMENT IS FINALIZED AS UN DER.- WHEN THE ABOVE DISCREPANCIES ARE QUESTIONED, THE REPRESENTATIVE HAS STATED THAT THE DETAILS OF QUANTITY VALUE OF INGOTS' PURCHASED BY THE ASSESSEE AS REPRODUCED BY YOU ARE JOTTING CONTAINED IN A PIECE OF PAPER AND THE SAME ARE NOT CORROBORATED BY ANY EVIDENCE AND THIS IS ONLY ON THE BASIS OF SHOW CAUSE NOTICE ISSUED BY THE CENTRAL EXCISE DEPARTMENT AND REPL I ED BY THE ASSESSEE AND THE ADJUDICATION IS PENDING, AND INFORMATION IS NOT RELIABLE. EVE N ASSUMING WITHOUT ADMITTING THE SAME THE NET PROFIT DISCLOSED BY THAT PIECE OF PAPER IS ` 33,09,166/- WHEREAS THE PROFIT DISCLOSED BY THE ASSESSEE IS MUCH HIGHER IF DEPRECIATION IS NOT TAKEN IN TO ACCOUNT. THE CERTIFICATE ISSUED IN FORM 10CCB COVERS THE HIGHER PROFIT DISCLOSED AND THEREFORE, THE DEDUCTION AS PRAYED FOR MAY BE ALLOWED. IT IS FURTHER REQUESTED THAT THE NET PROFIT DISCLOSED MAY PLEASE BE COMPARED AND YOUR PROPOSAL TO ADD SUM OF ` 1,04,30,010/- MAY BE DROPPED. SINCE THE GROSS PROFIT ARRIVED AT BY THE CENTRAL EXCISE IS NOT A GUESS WORK OR WITHOUT MATERIAL EVIDENCE THE ASSESSEE'S CONTENTION CANNOT BE . ACCEPTED. THE GROSS PROFIT WORKED OUT BY THE CENTRAL EXCISE DEPARTMENT WAS PURELY BASED ON THE PAPERS/MATERIAL EVIDENCE/DOCUMENTS SEIZED FROM VARIOUS PLACES AS MENTIONED ABOVE. IN THIS CASE THE A FIRM NOT ONLY SUPPRESSED THE SALES, BUT SUPPRESSED THE PURCHASE ALSO. THEREFORE, INSTEAD OF MAKING ADDITION ON PERCENTAGE OF GROSS PROFIT THE ENTIRE DIFFERENCE OF GROSS PROFIT LE ADMITTED BY THE ASSESSEE AND ARRIVE D AT BY THE EXCISE DEPARTMENT IS ADDED WITH THE TOTAL INCOME ( ` 3,70,23,504 2,65,93,494) 1,04,30,010 6. ON APPEAL BY THE ASSESSEE, THE CIT(A) HAS DELETED THE ADDITION BY OBSERVING AS UNDER: 2. THE APPELLANT IS A MANUFACTURER OF STEEL INGOTS HAVING ITS FACTOR Y AT KARAIKAL . THE UNIT WAS ESTABLISHED DURING THE YEAR 31.03.2004 AND THE FIRST YEAR OF ITS OPERATION WAS THE YEAR ENDED I.T.A.NOS. 1633 TO 1635/2010 :- 4 -: 31.03.2004. THERE WAS A SEARCH IN THE PREMISES OF T HE APPELLANT ON 07.06.2004 BY THE DEPARTMENT OF CENTRAL EXCISE A ND CONSEQUENT ON THE SEARCH CERTAIN INCRIMINATING DOC UMENTS WERE SEIZED. THESE INCLUDED INTER ALIA A PRO F IT AND LOSS - ACCOUNT AND A MEMORANDUM OF UNDERSTANDING FOR PURCHASE AND ERECTI ON O F PLANT AND MACHINERY. 3. DURING THE COURSE OF ASSESSMENT FOR THE YEAR 2004-05 THE ASSESSING OFFICER NOTICED THESE SEIZED DOCUMENTS AN D RELYING ON THE SAID DOCUMENTS SHE HAD MADE AN ADDITION OF ` 1,43,90,454/- AS UNDER: I) DIFFERENCE IN GROSS PROFIT AS PER SHOW CAUSE NOTICE AND AS PER RETURN OF INCOME ` 1,04,30,010 II) SALE OF RUNNERS AND RISERS ` 12,62,857 III) SALE OF SCRAP ` 5,79,355 IV) PAYMENT OUT OF BOOKS ` 16,04,300 V) BANK INTEREST ` 78,932 VI) LOANS FROM RELATIVES ` 4,35,000 THE APPELLANT IS IN APPEAL REGARDING THE ADDITIO NS(I) TO (IV). THE ADDITIONS WERE DISPUTED ON THE FOLLOWING EFFECTIVE GROUNDS: 1) THE INCOME TAX OFFICER FAILED TO APPRECIATE THE SUBMISSIONS OF THE APPELLANT THAT THE SHOW CAUSE NO TICE IS AN UNPROVED FACT AND CANNOT BE THE BASIS OF ASSESSMEN T. 2) THE INCOME TAX OFFICER OUGHT TO HAVE APPRECIATED THAT THE SHOW CAUSE NOTICE IS THE FIRST STEP OF ADJUDICATION AND THE ADJUDICATION HAS NOT YET BEEN COMPLETED. 3) THE INCOME TAX OFFICER FAILED TO APPRECIATE THAT TH E VERACITY OF VARIOUS PIECES OF EVIDENCES RELIED BY THE CENTRAL E XCISE DEPARTMENT ARE UNDER SCRUTINY AND NONE OF THE ALLE GATIONS OF THE CENTRAL EXCISE HAD BEEN PROVED. 4) THE INCOME TAX OFFICER OUGHT TO HAVE APPRECIATED T HAT THE VERACITY OF THE TAPES SEIZED HAVE BEEN QUESTIONED AND THEIR RELIABILITY IS NOT FREE FROM DOUBT . 5) THE INCOME TAX OFFICER OUGHT NOT TO HAVE ADOPTED T HE GROSS PROFIT AS PER THE SHOW CAUSE NOTICE OF THE CENTRAL EXCISE DEPARTMENT ESPECIALLY WHEN THE NET PROFIT D ISCLOSED BY THE I.T.A.NOS. 1633 TO 1635/2010 :- 5 -: APPELLANT WAS HIGHER THAN THE NET PROFIT AS PER TH E RECORD RELIED BY THE CENTRAL EXCISE DEPARTMENT . 6) THE INCOME TAX OFFICER OUGHT TO HAVE APPRECIATED T HAT THE SALE OF SCRAP AND RUNNERS ALLEGED BY THE CENTRAL EXCISE DEPARTMENT ARE WITHOUT ANY BASIS AND THEY ARE NOT CORROBORATE D BY ANY EVIDENCE. 7) THE INCOME TAX OFFICER FAILED TO APPRECIATE THAT T HE TURNKEY OPERATOR HAD CLAIMED A HIGHER SUM AS OUTSTANDING T HAN THE AMOUNT STATED BY THE APPELLANT AND HIS CLAIM OF A LARGER LIABILITY CANNOT CONSTITUTE THE INCOME OF THE APPELLANT . 8) THE INCOME TAX OFFICER HAD CONVENIENTLY OVERLOOKED THE SEIZED MEMORANDUM OF UNDERSTANDING ON RECORD THAT CLEARLY CONTAINS THE DETAILS OF PAYMENTS WITH DATES AND THE STATEME NT OF RETURN OF ` 22,20,000 BY THE SAID TURNKEY OPERATOR RECORDED THEREIN. (COP Y ATTACHED) . 9) THE INCOME TAX OFFICER HAD OVERLOOKED THE FACT TH E TOTAL PAYMENTS ACKNOWLEDGED BY THE TURNKEY OPERATOR AS PE R PAGE 31 OF THE SHOW CAUSE NOTICE THAT HAD FORMED THE VERY BASIS OF THE ASSESSMENT IS LESS THAN THE INVESTMENT RECORDED BY THE APPELLANT. 10) THE INCOME TAX OFFICER FAILED TO APPRECIATE THAT THE ADDITIONAL BUSINESS INCOME DERIVED FROM THE UNDERTA KING IS ALSO ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IB. 4. DURING THE PERIOD BETWEEN THE DATE OF ASSESSME NT ORDER AND THIS DATE THE CENTRAL EXCISE APPELLATE TRIBUNAL HAD HEARD THE APPEAL OF THE APPELLANT ON THE CENTRAL EXCISE LAWS AND HAD GIVEN A FINDING THAT THE PROFIT AND LOSS AC IS RELIABLE DOCUMENT. THEREFORE, THE INCOME OF THE APPELLANT AS PER THE S AID PROFIT AND LOSS ACCOUNT IS TO BE ADOPTED. 5. IN THE MEANWHILE A REMAND REPORT WAS CALLED FOR BY ME FROM THE ASSESSING OFFICER WHO HAD FURNISHED THE REMAND REPORT AND HAD SUPPORTED THE ASSESSMENT MADE REGARDING THE INC LUSION OF THE GROSS PROFIT OF ` 1,04,30,010/- WHILE IT HAD SUGGESTED THAT THE ADDITION FOR RUNNERS AND RISERS AND SCRAP ARE NOT C ALLED FOR. THIS REMAND REPORT WAS DISCUSSED WITH THE APPELLANT WHO HAD SUBMITTED THE FOLLOWING SUBMISSIONS IN RESPECT OF THE ADDITION ON ACCOUNT OF GROSS PROFIT: I.T.A.NOS. 1633 TO 1635/2010 :- 6 -: THE MAIN ADDITION TO THE INCOME RETURNED IS A SUM OF ` 1,04,30,010/- REPRESENTING . HE DIFFERENCE IN THE GROSS PROFIT AS PER THE RECORDS SEIZED BY THE CENTRAL EXCISE DEPART MENT AND THE GROSS PROFIT REPORTED BY THE APPELLANT AS PER ITS I NCOME TAX RETURN. L N RESPECT OF THE ADDITION IT IS RESPECTFULLY SUBMIT TED: A) THE APPELLATE TRIBUNAL OF THE CENTRAL EXCISE DEPA RTMENT HAD FOUND THAT THE PROFIT AND LOSS ACCOUNT SEIZED BY T HEM IS A RELIABLE DOCUMENT . THE NET PROFIT AS PER THIS DOCUMENT IS ` 31,31,492/-. THE GROSS PROFIT AS PER THE SEIZED DO CUMENT IS ` 3,70,23,504/- AND AS PER THE PROFIT AND LOSS ACCOUN T, THE GROSS PROFIT IS ` 2,65,93,944/-. THE ASSESSING OFFICER HAD ADDED THE DIFFERENCE BETWEEN THE TWO CONVENIENTLY IGNORING TH E NET PROFIT DISCLOSED BY THE SEIZED DOCUMENT . THE CENTRAL EXCISE DEPARTMENT HAD FOUND THAT THE SEIZED PROFIT AND LOS S ACCOUNT TO BE RELIABLE AND IN THAT EVENT THE WHOLE DOCUMENT IS RELIABLE AND NOT THAT PORTION THAT SUITS THE IN TERESTS OF THE REVENUE. AS THE PROFIT DISCLOSED BY THE APPELLANT I S HIGHER THAN THE PROFITS THAT HAD BEEN ARRIVED AT BY THE CE NTRAL EXCISE NO ADDITION IS CALLED FOR. B) THE CLAIM OF THE ASSESSING OFFICER THAT THE EXPENS ES THAT HAD BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT SEIZED BY THE CENTRAL EXCISE OVER AND ABOVE WHAT HAD BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT FILED ALONG WITH THE RETURN ON THE GR OUND THAT THE PROVISIONS OF SEC 69C PROHIBIT THE ALLOWANCE OF TH E EXPENSES THAT HAD BEEN ADDED AS UNEXPLAINED EXPENDITURE IS TOTALLY MISPLACED. THE PROSCRIPTION FOR DISALLOWANCE OF EX PENSES IS IN REFERENCE TO UNEXPLAINED EXPENDITURE AND NOT UNACC OUNTED EXPENDITURE. THE EXPENDITURE CONTAINED IN THE SEIZE D PROFIT AND LOSS ACCOUNT ARE FULLY EXPLAINED TO HAVE BEEN INCUR RED OUT OF THE GROSS PROFIT ARRIVED AT IN THE SEIZED RECORDS. THUS THEY ARE NOT UNEXPLAINED BUT THEY ARE ONLY UNACCOUNTED. THE DIFF ERENCE BETWEEN TOO HAD ALSO RECEIVED JUDICIAL NOTICE AND DUE RECOGNITION IN THE DECISION OF C. I . T. VS. TIPS INDUSTRIES P LTD. A COPY OF THE DECISION IS ENCLOSED. IN VIEW OF THE AB OVE THAT THE ADDITION MADE ON THIS REGARD MAY KINDLY BE DELETED . 6. I HAVE CAREFULLY CONSIDERED THE ABOVE CONTENTION OF THE APPELLANT . THE CONTENTION OF THE APPELLANT THAT A DOCUMENT CONSIDERED RELIABLE BY A FACT FINDING AUTHORITY HA S TO BE RELIABLE FOR ANOTHER. THEREFORE, I HAVE TO CONCLUDE THAT THE PROFIT AND LOSS ACCOUNT THAT IS SEIZED BY THE CENTRAL EXCISE DEPART MENT AS RELIABLE. ONCE THE DO C UMENT IS FOUND TO BE RELIABLE IT IS RELIABLE IN I.T.A.NOS. 1633 TO 1635/2010 :- 7 -: TOTO AND NOT IN PARTS. I FIND THAT THERE IS MERIT I N THE CONTENTION OF THE APPELLANT THAT SEC 69 C APPLIES TO UNEXPLAINED EXPENDITURE AND NOT IN RESPECT OF UNDISCLOSED EXPENDITURE. THE EXPLANATION OF THE APPELLANT THAT THE EXPENSES WERE MET OUT OF TH E UNDISCLOSED REVENUE AND THUS THE ENTIRE EXPENDITURE IS EXPLAIN ED IS, IN MY VIEW TENABLE. THIS VIEW IS FORTIFIED BY THE DECISIO N REPORTED IN 321 ITR 154 THAT SUCCINCTLY ADDRESSED THE ISSUE IN A SI MILAR CASE WHERE DURING THE COURSE OF SEARCH CERTAIN MATERIALS WERE SEIZED THAT BORE TESTIMONY TO UNACCOUNTED INCOME AND UNAC COUNTED EXPENDITURE. THE HON'BLE HIGH COURT CONCLUDED THAT THE UNACCOUNTED INCOME HAD FUNDED THE UNACCOUNTED EXPEN DITURE AND THEREFORE THE EXPENDITURE IS NOT UNEXPLAINED. THE FACTUAL SITUATION IN THE PRESENT CASE IS ALMOST IDENTICAL . THE EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT HAD OBVIOUS LY COME OUT OF THE GROSS PROFIT ADDITIONALLY BROUGHT TO TAX BY THE ASSESSING OFFICER AND THEREFORE THE CONTENTION OF THE ASSESSI NG OFFICER THAT SUCH EXPENDITURE IS UNEXPLAINED CANNOT BE SUSTAINE D. IN THE LIGHT OF THE ABOVE I DIRECT THE ADDITION OF ` 1,04,30,010 TO BE DELETED. 7. THE DR, IN THE WRITTEN SUBMISSION, HAS STATED AS UN DER: ASSESSEE FIRM FILED RETURN ENCLOSING P&L A/C, BALANCE SHEET AND AUDIT REPORT ON 01-02-2005. SUBSEQUENTLY ASSESS ING OFFICER GOT INFORMATION THAT THERE WAS A SEARCH CO NDUCTED BY CENTRAL EXCISE AUTHORITIES IN THE PREMISES OF ASSE SSEE AND RELATED PARTIES ON 24-06-2004 AND VARIOUS DOCUMENTS WERE SEIZED. DETAILS OF PURCHASES, SALES AND GROSS PROFI T AS PER THE RETURN FILED BY THE ASSESSEE AS WELL AS DOCUMENTS S EIZED BY THE CENTRAL EXCISE AUTHORITIES ARE GIVEN IN PARA. 3 .1 OF THE ASSESSMENT ORDER. COPY OF SEIZED P&L A/C IS AVAILAB LE AS PAGES 1 & 2 OF PAPER BOOK. COPY OF P&L ALC FILED ALONG WITH THE RETURN IS AVAILABLE AS PAGE 3 OF PAPER BOOK. AS PER THESE DOCUMENTS, GROSS PROFIT SUPPRESSED BY THE ASSESSEE IS RS. 1,04,30,010. THESE FIGURES STAND ACCEPTED BY THE A SSESSEE ALSO. SINCE THE ASSESSEE HAS CLAIMED ALL THE EXPENSES ELI GIBLE UNDER THE I.T. ACT IN ITS PROFIT AND LOSS ACCOUNT F ILED ALONG WITH THE RETURN, AO. DID NOT MAKE ANY ADJUSTMENTS TO THE NET PROFIT OR OTHER REVENUE EXPENSES. ON APPEAL, CIT(A) HELD THAT CEGAT HAS TREATED THE P &L A/C SEIZED IN THIS CASE AS RELIABLE DOCUMENT. ACCORDING TO CLT(A) A DOCUMENT HAS TO BE RELIED ON IN TOTO AND NOT IN PARTS. ACCORDINGLY THE ADDITION WAS DELETED. CLT(A) FAILED TO NOTE THAT I.T.A.NOS. 1633 TO 1635/2010 :- 8 -: CENTRAL EXCISE AUTHORITIES ARE ONLY CONCERNED WITH UNACCOUNTED PRODUCTION OF EXCISABLE GOODS AND HENCE THEY CONSIDERED ONLY THE OPENING AND CLOSING STOCK AS WE LL AS PURCHASES, MANUFACTURING COSTS AND SALES. THE ANALY SIS MADE BY CEGAT ON SUCH ISSUES STANDS ACCEPTED BY ASSESSEE AND HENCE AO. ALSO ADOPTED SUCH FIGURES TO ARRIVE AT THE G.P. CENTRAL EXCISE AUTHORITIES DID NOT EXAMINE THE ENTR IES APPEARING IN P & L A/C. TO COMPUTE THE TAXABLE INCOME AS PER THE !.T. ACT A S PER SEC. 29, ENTRIES APPEARING IN SEIZED P&L A/C CANNOT BE ALLOWED IN TOTO WITHOUT EXAMINING THEM IN THE BACKGROUND OF THE PROVISIONS CONTAINED IN SECTIONS 30 TO 43D. CLT(A) OUGHT TO HAVE NOTED THAT THERE IS WIDE VARIA TION IN THE FIGURES OF VARIOUS ITEMS APPEARING IN THE AUDITED BOOKS OF ACCOUNT AND THE P&L A/C PREPARED OUT OF IT WHICH W AS FILED WITH THE RETURN OF INCOME VIS-A-VIS THE SEIZED P&L A/C [ PAGE 12 OF PAPER BOOK ]. THERE ARE MANY NEW HEADS APPEAR ING IN THE SEIZED P&L A/C AND MOST OF THE FIGURES UNDER O THER HEADS ARE EXCESSIVE. EVEN AUDITORS OF THE ASSESSEE DID N OT EXAMINE SUCH INFLATED FIGURES WHICH ARE AT VARIANC E WITH THE BOOKS OF ACCOUNTS AUDITED BY THEM THOUGH SUCH P&L A/C WAS AVAILABLE WHEN THEY CONDUCTED THE AUDIT. STILL THE CLT(A) DIRECTED THE A.O. TO ACCEPT SUCH ITEMS OF EXPENDITU RE WITHOUT ANYBODY (I.E EITHER THE A.O OR ASSESSEES OWN STATU TORY AUDITORS) EXAMINING IT. THESE FACTS ARE DISCUSSED IN DETAIL IN THE REMAND R EPORT FILED BY THE A.O. [ PAGES 5 TO 11 OF PAPER BOOK]. A.O. HAS CONSIDERED ONLY THE DIFFERENCE IN G.P. ON THE BASIS OF THE FINDINGS BY CENTRAL EXCISE AUTHORITIES. FOR OTHER ENTRIES IN THE P&L A/C. A.O. RELIED ON THE P&L A/C CERTIFIED BY THE AUDITORS OF THE ASSESSEE. EVEN IF CLT(A) WANTED TH E A.O. TO CONSIDER SUCH SEIZED P&L A/C AS A RELIABLE DOCUMEN T, HE SHOULD HAVE EXAMINED THE ITEMS IN THE P&L A/C IN TH E BACKGROUND OF THE PROVISIONS CONTAINED IN SECTIONS 30 TO 43D OR DIRECTED THE A.O. TO DO THAT EXERCISE. IN FACT SOME HEADS OF EXPENSES APPEARING IN THE SEIZED P&L A/C READS AS 'CONVERSATE', 'FURNACE', 'OTHER' ETC. NOBODY KNOWS THE NATURE OF SUCH EXPENSES AND UNDER WHICH SECTION OF THE I.T. ACT SUCH EXPENSES ARE ALLOWABLE. THERE IS VARIATION IN 'SALARY A/C' WHICH WAS NOT CLARIFIED. I.T.A.NOS. 1633 TO 1635/2010 :- 9 -: 8. THE A.R OF THE ASSESSEE SUBMITTED THAT ASSESSEE COMMENCED PRODUCTION ON 8.5.2003 AND THAT THE YEAR ENDING ON 31.3.2004 WAS THE FIRST YEAR OF OPERATION OF THE A SSESSEE AND THAT THE ASSESSEE HAS NOT CARRIED OUT ANY OPERATION BEFORE 8 .5.2008 AS A COMMERCIAL ESTABLISHMENT. THEREFORE, THE CIT(A) WA S JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF GROSS PROFIT OF ` 1,04,30,010/-. HE SUBMITTED THAT THE ASSESSING OFFICER HAS TAKEN THE GROSS PROFIT AS SHOWN IN THE SEIZED PROFIT & LOSS ACCOUNT BY THE CENTRAL EXCISE DEPARTMENT, AT ` 3,70,23,504/- AND TAKEN THE GROSS PROFIT OF THE ASSESSEE FROM THE P ROFIT & LOSS ACCOUNT FILED ALONGWITH THE RETURN AS ` 2,65,93,494/- AND MADE THE ADDITION OF THE DIFFERENCE AMOUNT OF ` 1,04,30,010/-. HE SUBMITTED THAT THE SEIZED PROFIT & LOSS ACCOUNT ALSO SHOWED EXPENSES O F ` 2,09,16,980/- WHICH WAS NOT TAKEN BY THE ASSESSING OFFICER. HE T OOK THE FIGURES FROM THE PROFIT & LOSS ACCOUNT FILED BY THE ASSESS EE ALONGWITH THE RETURN OF INCOME FOR THE YEAR ENDED 31.3.2004. HE STATED THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN ADOPTING THE FIGURES WHICH ARE FAVOURABLE TO IT FROM THE SEIZED DOCUMENT AND NOT A DOPTING THE FIGURES WHICH ARE NOT FAVOURABLE TO IT WHILE MAKING THE ADD ITION TO THE INCOME OF THE ASSESSEE. THE ASSESSING OFFICER CANNOT BE ALLOWED TO BLOW HOT AND COLD AT THE SAME TIME. HE SUBMITTED THAT FROM THE SEIZED PROFIT & LOSS ACCOUNT FILED AT PAGES 1 & 2 OF THE PAPER BOOK BY THE I.T.A.NOS. 1633 TO 1635/2010 :- 10 -: DEPARTMENT, IT CAN BE SEEN THAT THE PROFIT OF THE ASSESSEE IS ONLY ` 37,09,619/-. WHEREAS IN THE RETURN OF INCOME, THE ASSESSEE HAD SHOWN A NET PROFIT OF ` 74,18,135/-. HE ALSO ARGUED THAT THE CIT(A) HAS FURTHER RECORDED IN HIS ORDER AT PAGE 4 PARA 4 THAT BETWEEN THE PERIOD FROM ASSESSMENT ORDER AND TILL THE DATE OF H EARING OF THE APPEAL BEFORE HIM THE CENTRAL EXCISE APPELALTE TRIBUNAL HA S HEARD THE APPEAL OF THE ASSESSEE ON THE CENTRAL EXCISE LAWS AND HAD GIVEN A FINDING THAT THE PROFIT & LOSS ACCOUNT IS RELIABLE DOCUME NT. THEREFORE, THE INCOME OF THE ASSESSEE AS PER THE PROFIT & LOSS AC COUNT IS TO BE ADOPTED. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 1.2.2005 DECLARING NET PROFIT AS PER AUDITED PROFIT & LOSS ACCOUNT OF ` 74,18,134.92. A SEARCH BY CENTRAL EXCISE DEPARTMENT WAS CARRIED OUT AT THE PREMISES OF THE ASSESSEE ON 24.6.2004. DURING THE COURSE O F THE SEARCH, CERTAIN DOCUMENTS WERE FOUND AND SEIZED BY THE CENT RAL EXCISE DEPARTMENT WHICH INCLUDED A PROFIT & LOSS ACCOUNT A S ON 31.3.2004. THE ASSESSING OFFICER OBSERVED THAT THE FIGURES OF PURCHASES, SALES AND VARIOUS OTHER EXPENSES DISCLOSED IN THE AUDITED PROFIT & LOSS ACCOUNT ARE AT VARIANCE WITH THE FIGURES REFLECTED BY THE SEIZED PROFIT I.T.A.NOS. 1633 TO 1635/2010 :- 11 -: & LOSS ACCOUNT. THE ASSESSING OFFICER OBSERVED THA T THE GROSS PROFIT AS PER THE AUDITED PROFIT & LOSS ACCOUNT COMES TO ` 2,65,93,494/- AND THE GROSS PROFIT AS PER THE SEIZED PROFIT & LOSS AC COUNT WAS WORKED OUT BY HIM AT ` 3,70,23,504/-. IN OTHER WORDS, ACCORDING TO THE ASSESSING OFFICER, THE GROSS PROFIT AS PER THE SEIZ ED DOCUMENT WAS MORE BY ` 1,04,30,010/- THAN THE GROSS PROFIT DISCLOSED IN T HE AUDITED PROFIT & LOSS ACCOUNT. THEREFORE, THE ASSESSING OF FICER ADDED ` 1,04,30,010/- TO THE INCOME OF THE ASSESSEE. 10. ON APPEAL, THE CIT(A) DELETED THE ADDITION BY OBSER VING THAT THE NET PROFIT DISCLOSED AS PER THE AUDITED PROFIT & LOSS ACCOUNT IS MUCH MORE THAN THE NET PROFIT REVEALED FROM THE SEI ZED DOCUMENT. IT IS NOT OPEN TO THE DEPARTMENT TO ACCEPT SOME OF THE FIGURES OF THE SEIZED DOCUMENT AS CORRECT AND REJECT OTHER FIGURES REVEALED BY THE VERY SAME SEIZED DOCUMENT WHICH IS NOT IN FAVOUR OF THE DEPARTMENT. FURTHER, THE CIT(A) ALSO OBSERVED THAT THE SOURCE O F EXPENSES REVEALED BY THE SEIZED DOCUMENT CANNOT BE HELD AS U NEXPLAINED AS THEIR SOURCE STANDS EXPLAINED FROM THE EXCESS REVEN UE OR SALES REVEALED BY THE SEIZED DOCUMENT ITSELF. 11. BEFORE US, THE MAIN CONTENTION OF THE DR IS THAT TH E CENTRAL EXCISE DEPARTMENT IS CONCERNED WITH THE MANUFACTURI NG ACCOUNT ONLY AND THEREFORE, THEY VERIFIED THE SEIZED DOCUMENT ON LY UPTO GROSS PROFIT AND THEY HAVE NOT VERIFIED THE EXPENSES REVEALED BY THE SEIZED I.T.A.NOS. 1633 TO 1635/2010 :- 12 -: DOCUMENT. THE EXPENSES REVEALED BY THE SEIZED DOCU MENT WERE ALSO NOT EXAMINED BY THE ASSESSING OFFICER OR BY THE AUD ITOR OF THE ASSESSEE-COMPANY AND THEY WERE AT VARIANCE WITH THE AUDITED PROFIT & LOSS ACCOUNT. AS THESE EXPENSES WERE NOT EXAMINED BY ANYBODY, THE CIT(A) WAS NOT JUSTIFIED IN HOLDING THE SEIZED DOCU MENT AS RELIABLE IN RESPECT OF THE EXPENSES. THE DR ALSO POINTED OUT F ROM THE SEIZED DOCUMENT THAT THE EXPENSES WERE CLAIMED UNDER THE H EADS CONVERSION CHARGES, FURNACE CHARGES AND OTHERS, THE NATURE OF WHICH WAS NOT KNOWN AND THEREFORE, IT IS NOT ASCERTAINABL E WHETHER THEY ARE ALLOWABLE AS DEDUCTION UNDER THE I.T ACT OR NOT. 12. THE A.R OF THE ASSESSEE, ON THE OTHER HAND, SUPPOR TED THE ORDER OF THE CIT(A) AND SUBMITTED THAT IT WAS NOT O PEN TO THE DEPARTMENT TO ACCEPT SOME OF THE ENTRIES FROM THE S EIZED DOCUMENT AND REJECT OTHERS. 13. WE FIND THAT IT IS NOT IN DISPUTE THAT THE SEIZED P ROFIT & LOSS ACCOUNT WAS NOT PREPARED BY THE ASSESSEE FOR DISCL OSING THE SAME EITHER TO THE CENTRAL EXCISE DEPARTMENT OR TO THE I .T. DEPARTMENT. THUS, IT CANNOT BE ASSUMED THAT UPTO THE GROSS PROF IT THE SAID DOCUMENT WILL REVEAL THE CORRECT PICTURE AND IN RES PECT OF EXPENSES ONLY IT WILL CONTAIN THE INCORRECT POSITION. THUS, IN OUR CONSIDERED OPINION, EITHER THE COMPLETE PROFIT & LOSS ACCOUNT AS PER THE SEIZED DOCUMENT IS TO BE ACCEPTED OR COMPLETELY REJECTED A S UNRELIABLE. IN I.T.A.NOS. 1633 TO 1635/2010 :- 13 -: THE CIRCUMSTANCES OF THE INSTANT CASE, IT WAS NOT O PEN TO THE REVENUE TO ACCEPT ONLY THE MANUFACTURE ACCOUNT FROM THE SEI ZED PAPER AS CORRECT AND TO IGNORE THE EXPENSES REVEALED BY THE SEIZED PAPER. 14. FURTHER WE FIND THAT THE WORKING OUT OF GROSS PROFI T AT ` 2,65,93,494/- AS PER THE AUDITED PROFIT & LOSS ACCO UNT, THE ASSESSING OFFICER HAS TAKEN INTO CONSIDERATION THE EXPENSES U NDER THE HEAD CONSUMABLE STORES WHEREAS FOR WORKING OUT THE GROSS PROFIT AS PER THE SEIZED DOCUMENT AT ` 3,70,23,504/- THE ASSESSING OFFICER HAS NOT TAKEN INTO CONSIDERATION THE EXPENSES OF ` 1,02,89,714/- REVEALED BY THE SEIZED PROFIT & LOSS ACCOUNT. WHEN GROSS PROFI T IS WORKED OUT BY CONSIDERING THE EXPENSES UNDER THE HEAD CONSUMABLE STORES AS PER THE SEIZED PROFIT & LOSS ACCOUNT, THE GROSS PROFIT COMES TO ` 2,67,35,790/- AND NOT ` 3,70,23,504/- AS CONSIDERED BY THE ASSESSING OFFICER. BE THAT AS IT MAY. WE FIND THAT NO MATER IAL HAS BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER TO SHOW THAT THE EXPENSE REVEALED BY THE SEIZED DOCUMENT UNDER THE HEADS CONVERSION C HARGES, FURNACE EXPENSES AND OTHERS ARE NOT TENABLE WHILE COMPUTING THE TOTAL INCOME AS PER THE PROVISIONS OF THE INCOME-TAX ACT. WE FI ND FROM THE AUDITED PROFIT & LOSS ACCOUNT THAT THE EXPENSES CLAIMED THE REIN INCLUDE EXPENSES UNDER THE HEADS CONVERSION CHARGES AND FUR NACE CHARGES. WE FIND THAT IT WAS NOT THE CASE OF THE ASSESSING O FFICER THAT THE EXPENSES REVEALED BY THE SEIZED PROFIT & LOSS ACCOU NT ALSO CONTAIN I.T.A.NOS. 1633 TO 1635/2010 :- 14 -: CERTAIN EXPENSES WHICH WERE NOT ALLOWABLE U/S 28 T O 44AC AND THUS, WE DO NOT FIND ANY FORCE IN SUCH ARGUMENT OF THE DR . WE FIND THAT THE NET PROFIT DISCLOSED BY THE ASSESSEE IN THE RETURN OF INCOME IS MORE THAN THE NET PROFIT REVEALED BY THE SEIZED PROFIT & LOSS ACCOUNT. THEREFORE, IN OUR CONSIDERED OPINION, THE CIT(A) WA S JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER BY CONSIDERING ONLY PART OF THE ENTRIES REVEALED BY THE SEIZED PRO FIT & LOSS ACCOUNT. WE, THEREFORE, CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 15. GROUND NO.3 OF THE APPEAL OF THE REVENUE IS DIRECTE D AGAINST THE ORDER OF THE CIT(A) IN DELETING THE ADDITION OF ` 16,04,300/- REPRESENTING PAYMENTS OUTSIDE THE BOOKS FOR THE PUR CHASE OF LAND AND MACHINERY. 16. THE ASSESSING OFFICER HAS MADE THE ADDITION BY OBSE RVING AS UNDER: ` ACCORDING TO MEMORANDUM OF UNDERSTANDING EXECUTED ON 20.10.2002, THE CONSIDERATION FOR LAND AND BUILDING AND PLANT & MACHINERY IS ` 3.06 CRORES. A SUMMON DATED 20.12.2006 WAS ISSUED TO MR.S.P.SATHIAMOORTHY, A TURNKEY PERSON OF THE FIRM AND A STATEMENT WAS RECORDED FROM HIM ON 26.12.2006. A CCORDING TO HIM, THE TOTAL AMOUNT RECEIVED BY HIM ON VARIOUS DA TES ARE ` 2.59 CRORES. ON VERIFICATION OF BOOKS OF ACCOUNT, IT IS SEEN THAT THE FOLLOWING AMOUNT WAS RECORDED ON VARIOUS DATES, BY CHEQUE/DRAFT: I.T.A.NOS. 1633 TO 1635/2010 :- 15 -: ` 84,00,000 } ` 30,00,000 } PAID TOWARDS MACHINERY ` 42,00,000 PAID TOWARDS LAND AND BUILDING ` 1,56,00,000 BUT AS DISCUSSED ABOVE AMOUNT RECEIVED FROM MR.SATHIYAMOORTHY IS ` 2.59 CRORES. BALANCE AMOUNT PAID OUT OF BOOKS IS ` 1,03,00,000 (2.59 CRORES 1 .56 CRORES) FOR WHICH THE PARTNERS OF THE FIRM HAS OFFERED A SUM OF ` 85,02,000/- AS UNDER : NAME OF THE PARTNERS AMOUNT ASST. YEAR 1. SRI S.P.MUTHURAMALINGAM ` 50,00,000 2003-04 2. SRI S.P.MUTHURAMALINGAM ` 8,00,000 2004-05 3. SMT. RADHA ` 22,80,000 2003-04 4. SMT. RADHA ` 4,22,000 2004-05 TOTAL INCOME OFFERED ` 85,02,000 BALANCE TRANSACTION OUT OF BOOKS IS ` 17,98,000 ( 1,03,00,000 85,02,000) WHEN IT WAS QUESTIONED, THE REPRESENTATIVE HAS STA TED ON 29.12.2006 THAT A SUM OF ` 47 LAKHS HAS TO BE PAID TO MR.S.P.SATHIAMOORTHY AND DUE TO DISPUTE THE FIRM HA S REFUSED TO PAY ` 17 LAKHS FOR BREACH OF CONTRACT AND A SUM OF ` 20,00,000 HAS TO BE PAID TO HIM WHICH IS SHOWN AS OUTSTANDIN G LIABILITY (IN THE LIST OF CREDITORS). FURTHER HE HAS STATED THAT THE ASSESSEE FIRM HAS PAID ` 42 LAKHS TOWARDS LAND AND BUILDING ` 134 LAKHS TOWARDS MACHINERY AND REQUESTED THAT TOTAL INVESTMENTS REPORTED BY T HE FIRM IS ` 2,61,20,000 WHICH IS HIGHER THAN THE SUM STATED BY MR.SATHIYAMOORTHY. BUT ACCORDING TO BOOKS, THE ASSESSEE HAS PAID FOR MACHINERY ONLY A SUM OF ` 1,14,00,000/- ON VARIOUS DATES, WHICH WAS CONFIRMED BY THE ASSESSEES REPRESENTATIVE AT THE TIME OF PREVIOUS HEARINGS AND A WRITTEN STATEMENT WAS ALSO GIVEN WHICH IS REPRODUCED HEREUNDER: PARTICULARS DEBTORS CREDITS 1.4.03 BY PURCHASE VARIOUS MACHINERY AS PER UOU CREDITED 134,00,000 TO CHEQUE 867826 15,00,000 3.4.03 -DO- 867827 15,00,000 I.T.A.NOS. 1633 TO 1635/2010 :- 16 -: 3.4.03 -DO- 867828 5,00,000 3.4.03 -DO- 867829 5,00,000 5.4.03 -DO- 867830 10,00,000 5.4.03 -DO- 867831 10,00,000 30.4.03 -DO- 867834 20,00,000 30.4.03 PAY ORDER OF KBL 22,00,000 11.7.03 KBL TAKEN LOAN 25,00,000 19.7.03 -DO- 5 ,00,000 1,14,00,000 1,14,00,000 20,00,000 TOTAL INVESTMENTS REPORTED BY THE FIRM IS ` 2,61,20,000/- ACCORDING TO THE REVISED BALANCE SHEET TOTAL VALUE OF LAND AND BUILDING IS ` 2,62,95,700/- OUT OF WHICH TO BE PAID I.E OUTSTANDING IS ` 20,00,000 PAID AS PER BOOKS ` 2,42,95,700 LESS: SO FAR RECEIVED BY SHRI SATHIYAMOORTHY ACCORDING TO HIS STATEMENT ` 2,59,00,000 BALANCE PAID OUT OF BOOKS ` 16,04,300 THEREFORE, A SUM OF ` 16,04,300/- IS ADDED WITH THE TOTAL INCOME. 17. ON APPEAL, THE CIT(A) HAS DELETED THE ADDITION BY O BSERVING AS UNDER: 7. IN THE REMAND REPORT THE ASSESSING OFFICER HAD NOT ONLY SOUGHT TO SUSTAIN THE ADDITION ON ACCOUNT OF THE UN EXPLAINED INVESTMENT OF ` 16,04,300/- BUT ALSO TO ENHANCE THE SAME. IN RESPONSE TO THIS APART FROM THE GROUNDS ALREADY MEN TIONED ABOVE THE APPELLANT HAD SUBMITTED AS UNDER: 1. ' THE OTHER ADDITION IS IN RESPECT OF ALLEGED UNACCOU NTED INVESTMENT IN TH E CAPITAL OF THE FIRM BY THE PARTNERS . IN THIS REGARD IT IS RESPECTFULLY SUBMITT E D THAT THERE IS NO ADDITIONAL INVESTMENT AT ALL. THE ADDITION IS MADE ON THE BASI S OF THE CLAIM OF THE TURNKEY OPERATOR THAT HE IS DUE A HIGH ER SUM OF MONEY THAN THAT HAD BEEN ADMITTED BY THE APPELLANT TO BE PAYABLE. THIS CANNOT CONSTITUTE AN Y INCOME IN THE HANDS OF TH E APPELLANT . WHILE ONE CAN UNDER S TAND THAT IF T HE TURNKE Y OPERATOR C L A IM S TO HAVE RECEIVED HIGHER AMOUNT THAN W HAT WAS ADMITTED BY THE APP E LLANT TO BE UNEXPLAINED INVESTM E NT , IT C ANNO T BE UNEXP L AI N ED I.T.A.NOS. 1633 TO 1635/2010 :- 17 -: I N VE STM E NT W H E N TH E C LAIM IS THAT MOR E MONE Y I S PAYAB L E TO H IM . THU S TH E ADDITION IS IN TH E F I RST PLACE DUE TO MIS - APPLICATION OF LA W AND R U L ES OF ACC OUNTAN CY AND DES E R VE S TO BE DELETED. 2. EVEN ASSUMING WITHOUT ADMITTING THAT IT IS CASE OF UNEXPLAINED INVE S TM E NT , TH E F I RM HAD COME IN TO E XISTENCE ONLY IN THE RELEVANT PREVIOUS Y EAR. T H E INVESTMENT IF AT ALL AN Y MUST HAVE COME ONLY FROM THE PARTNERS . THEREFOR E I T IS TO B E ASSESSED IN THE HANDS OF THE PARTNERS ONLY . YOUR KIND ATT E NTION I S IN VI T ED TO THE DECISION OF CIT V S. BHARAT ENGINEERING AND CONSTRUCTION COMPAN Y 83 ITR 1 87 ( SC ) . IN THI S LIGHT OF THE MATTER ALSO THE ADDITION D ESERVES TO BE DE L E T ED. 8. I HAVE CAREFULL Y CONSIDERED THIS ISSUE. THIS IS THE FIRST YEA R O F BUSIN ESS O F THE APPELLANT . THE INVESTMENT IN THE FACTORY HAD TO BE MADE PRIO R T O COMMENCEMENT OF THE BUSINESS . THE INVESTMENT IN ALL PROBABILITY HAS TO COM E IN TH E EARLIER PREVIOUS YEARS WHEN THE FIRM HAD NOT COMMENCED ANY BUSINESS OR IN TH E CURRENT YEAR PRIOR TO COMMENCEMENT OF BUSINESS. IF THE INVESTMENT IS IN THE CUR RE N T Y EAR T HE INCOME EARNING APPARATUS IS NOT IN PLACE AT THE TIME OF INVESTMENT . SO IT I S HIGHLY IMPROBABLE AND AGAINST HUMAN PROBABILITY TO PRESUME THAT THE INVESTMEN T SHOULD HAVE COME FROM THE FIRM. THEREFORE RELYING ON THE DECISION OF THE APE X CO URT IN 83 ITR 187 , I HOLD THAT THE ADDITION ON THIS GROUND IS NOT SUSTAINABLE AND HENC E DELETE THE SAME. 18. THE DR, IN THE WRITTEN SUBMISSION, HAS STATED AS UN DER: A S PER THE MOU DATED 20-10-2002 S EIZED BY THE CE N T R AL EX C ISE AUTH ORI TI ES , ASS ESS EE FIRM PURCHASED THE ASSET S OF THIS BUSINE SS FROM TH E E R S TW H IL E F IRM F O R R S . 3 . 06 C RORE S . IN THE AS S ESSMENT ORDER A . O . REL I ED ON T HE STA TEMENT BY O NE O F THE BUYER THAT HE RECEIVED R S . 2 . 59 CRORE S AND GAVE C R EDI T FOR R S . 1 , 56 , 00 , 000 A CCOUNTED IN THE BOOKS AS WELL AS S UM OF R S . 8 5 , 0 2 , 000 D EC L A RED B Y VARIOUS PARTNERS IN A . Y. 2003-04 AND 2004-05 WH IC H L EA V ES A DI FF E RENCE OF RS . 17 , 98 , 000 . HO W E V ER A . O . FOUND THAT TOTAL INVESTMENTS AS PER TH E R EVISE D BALANCE S H EE T I S 2 , 62 , 95 , 7 00 O UT OF W HI C H R S . 20 LAKHS I S YET TO B E P A I D BY TH E FIRM AS PE R T H E BALAN CE SH EE T . I.T.A.NOS. 1633 TO 1635/2010 :- 18 -: THUS A C TUAL INVES T MENT I N TH E BO O KS I S R S . 2 , 4 2 , 9 5 , 700 AS A G AINST WH I CH THE ERSTWHILE PARTNER SRI SATHY AM O OR T HY AD MITTED TO HAVE ALRE AD Y RECEIVED SUM OF RS. 2 , 59 , 00 , 000 FR OM T HE ASS ES SE E. HENCE T HE DIFFERENCE OF RS. 16 , 04 , 300 PAID OUTSID E TH E BOOKS W AS TREATED A S UN EX PLAINED INVESTMENT . IN THE R EM AND REPORT FILED BY THE A . O . [ PAGES 5 TO 11 O F P A PER B OOK] , HE RE QU ES TED FOR ENHANCEMENT OF THE ASSESSMENT SINCE AS AG AINST THE P UR C HASE CONS I DERATION OF RS. 3.06 CRORES , ASSESSEE 'S B ALAN CE SHEET [ PAG E 4 O F PAPE R BOOK ] ONLY SHOWS INVESTMENT OF R S . 1 , 83 , 16 , 2 3 6 A N D H ENCE THE DIFFERENCE OF RS. 1 , 22 , 83 , 764 I S UNEXPLAINED INVEST ME N T OF ASS E SS EE FIRM. IN FACT THE SEIZED DOCUMENTS VIZ . MOU BETW EEN THE ER S TWHILE PARTNERS AND PARTNERS OF THE ASSESSEE FIRM SHOWS TH AT L AND AND BUILDING WAS PURCHASED FOR RS . 3.06 C R ORES AND MACHINERY F O R ANOT HER SUM OF RS. 1.34 CRORES [PAGE S 13 TO 33 OF PAPER BOOK] . CLT(A) HOWEVER DELETED THE ADDIT I ON ON THE R EASONING THAT INVE STMENT IN BU SIN ES S MADE BY THE FIRM IS PRIOR TO COMMENCEMENT OF ITS BUS I N ESS AND HEN C E CA N NOT BE TREATED AS INCOME OF THE ASSESSEE FIRM. F OR T H IS P ROPOSITIO N HE RELIED ON THE DECISION OF THE APEX COURT IN CIT V S B HA RAT ENGINEERING & CON S TRUCTION CO . REPORTED IN 83 ITR 187. THE DECISION OF CIT(A) IS NOT MAINTAINABLE ON ACCOU NT OF THE FOLLOWING REASONS: THIS DECISION WAS CONSIDERED BY THE CALCUTTA HIGH COURT IN CIT VS ASHOK TIMBER INDUSTRIES (125 ITR 336) AND HELD THAT THE DECISION IS NOT APPLICABLE UND E R THE 1961 ACT SIN C E AS PER T H E WO R D ING S I N SE C . 68 , E V E N AN AM O U N T C R E D I T E D ON THE V E R Y FIR S T DAY O F ACCO U NTI N G YEAR C AN B E A S SES SE D AS IN C OME OF THE ACCOUNTIN G Y E AR F OR WH I C H BOOK S ARE M AINTAINED . SIMILAR V I EW WAS HELD IN BASANTIP UR T EA C O . (P) LTD . VS CLT (CAL) 180 ITR 261 . FURTHER , IN THIS CA S E THE SEARCH CONDUCTED BY CENT RA L E XC I SE AUTHORITIES PROVED UNACCOUNTED PRODUCTION AND SALES IN THE V E RY FIRST YEAR OF PRODUCTION ITSELF . HENCE THE DECISION OF THE APE X C OURT IN THE CASE OF BHA R AT ENGINEERING & CONSTRUCTION CO . (SUPR A ) IS N OT APPLICABLE IN THE PRESENT CASE SINCE THE APE X COURT ONLY H EL D THAT THE F I NDING BY TRIBUNAL THAT AN I.T.A.NOS. 1633 TO 1635/2010 :- 19 -: ASSESSEE ENGAGED IN ENGINE E RIN G C ON S T R UCT I ON CAN NO T G ENE RA TE MUCH UNAC C OUNTED INCOM E IN TH E VERY FIRST YEAR OF OPERATION , IS A FINDING ON FACTS AND HENCE IT IS N OT T O BE INTERFERED WITH . THE POSITION IS DIFFE R ENT HERE. GE NE R A TION OF UNACCOUNT E D INCOME IN THE VERY FIRST YEAR OF PRODUCTI O N I S AN AC C EPTED FACT IN THI S CASE . CLT(A) IN PARA. 8 HELD THAT INVESTMENT IN FA C TORY HAS TO B E MA DE PRIOR TO C OMMENCEMENT OF BUSINESS AND HENCE IT W AS MADE IN EARLIER YEARS . THIS FINDING IS PERVERSE AS IT IS AGAINST THE DO C U MEN TA R Y EV I DENCE AVAILABLE ON RECORD. FOR EG . ART. 111(2) [ PAGE 18 OF P A P ER BOOK] SPEAKS ABOUT PAYMENT OF RS . 88 LAKHS O NLY A FTER C OMMISSIONING OF A FURNACE . SIMILARLY ARTICLE 111(3) , (4) & (5) [ PAGE 32 & 33 OF PAPE R BOOK] SPEAKS ABOUT PAYMENTS AFTER COMMIS SI ONIN G O F FU R NACE . PAGES 29 & 31 OF PAPER BOOK EVIDENCES VA R IOUS PAYMENT S MADE BY ASSESSEE DURING THE YEAR . ALL THE S E DOCUMENTARY EVIDENCES CONTRADICTS THE FINDING OF CLT(A). IF A . O . MADE REQUE S T FOR ENHANCEMENT OF ASSESSMENT AND CL T (A) FAILED TO MAKE ENHANCEMENT , A . O . CAN F I LE APPEAL ON THIS I SS UE BEFORE THE ITAT AS HELD I N POPULAR AUTOMOBILES VS CLT (KER) 187 ITR 86. 19. THE A.R OF THE ASSESSEE SUBMITTED THAT THE ASSESS EE HAS COMMENCED PRODUCTION ON 8.5.2003 AND THE YEAR ENDED ON 31.3.2004. WAS THE FIRST YEAR OF OPERATION OF THE ASSESSEE, T HEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE HAS EARNED UNDISCLOSED INCO ME OUT OF ITS EARLIER OPERATIONS FOR MAKING THE ADDITION ON ACCOU NT OF UNDISCLOSED INVESTMENT IN THE HANDS OF THE ASSESSEE. THE CIT( A) WAS FULLY JUSTIFIED IN DELETING THE ADDITION. FURTHER, HE RE FERRED TO PAGE 26 OF THE PAPER BOOK FILED BY THE DEPARTMENT WHICH CONTAI NS THE I.T.A.NOS. 1633 TO 1635/2010 :- 20 -: MEMORANDUM OF UNDERSTANDING DATED 20.10.2002 AND ON THE REVERSE SIDE OF PAGES 29 TO 31 OF THE PAPER BOOK THE PAYMEN T DETAILS ARE NOTED WHEREIN THE TOTAL PAYMENTS SHOWN ARE ` 2,40,72,137/-. HE SUBMITTED THAT THE ASSESSING OFFICER RECORDED THE S TATEMENT OF SHRI S.P.SATHIAMOORTHY ON 26.12.2006, WHO STATED THAT TH E TOTAL AMOUNT RECEIVED FROM THE ASSESSEE IS ` 2.59 CRORES. HE SUBMITTED THAT IT IS EVIDENT FROM THE SEIZED DOCUMENT ITSELF THAT TOTAL PAYMENT MADE BY THE ASSESSEE WAS ` 2,40,72,137/- UPTO 31.3.2004 AND THE OTHER AMOUNTS WERE PAYABLE BY THE ASSESSEE SUBSEQUENTLY AND IN THE STATEMENT RECORDED ON 26.12.2006 BY SHRI S.P.SATHIA MOORTHY HE HAS STATED THE AMOUNT RECEIVED BY HIM TILL THAT DATE AN D THEREFORE, ON THE BASIS OF SUCH STATEMENT, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE ADDITION TO THE INCOME OF THE ASSESSEE. IT WAS SUBMITTED THAT SUCH AN EXPLANATION WAS ALSO GIVEN BEFORE THE ASSESSING OFFICER WHICH WAS NOT ACCEPTED BY HIM. 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. DURING THE COURSE OF SEARCH BY THE CENTRAL EXCISE DEPARTMENT, TWO MOUS IN RESPECT OF PURCHASE OF LAND AND BUILDING AND PLANT AND MACHINERY ENTERED INTO BY THE ASSESSEE WERE SEIZED. ACCORDI NG TO ONE MOU, THE ASSESSEE HAS AGREED TO PURCHASE PLANT AND MACHINERY FOR ` 1.34 CRORES. ACCORDING TO THE OTHER MOU, THE ASSESSEE AGREED TO PURCHASE I.T.A.NOS. 1633 TO 1635/2010 :- 21 -: LAND AND BUILDING ALONGWITH PLANT AND MACHINERY AND ALONG WITH LAND YET TO BE ACQUIRED BY THE VENDOR AT AN AGGREGATE AM OUNT OF ` 3.06 CRORES. THE ASSESSING OFFICER EXAMINED THE VENDOR ON 26.12.2006 WHEN THE VENDOR NAMELY, SHRI S.P.SATHIAMOORTHY ACKN OWLEDGED RECEIPT OF ` 2.59 CRORES FROM THE ASSESSEE IN RESPECT OF LAND AND BUILDING AND PLANT AND MACHINERY. THE ASSESSING OF FICER OBSERVED FROM THE REVISED BALANCE SHEET FILED BY THE ASSESS EE THAT THE ASSESSEE DECLARED TOTAL CONSIDERATION OF LAND AND B UILDING AND PLANT AND MACHINERY AT ` 2,62,95,700/- AND OUT OF WHICH ` 20 LAKHS WAS PAYABLE BY THE ASSESSEE AS ON 31.3.2004. THUS, A CCORDING TO THE REVISED BALANCE SHEET OF THE ASSESSEE, THE ASSESS EE HAS PAID ` 2,42,95,700/-. THE ASSESSING OFFICER, CONSIDERING THE DIFFERENCE IN THE AMOUNT OF ` 2.59 CRORES WHICH WAS ACKNOWLEDGED BY THE VENDOR A S RECEIVED FROM THE ASSESSEE AND ` 2,42,95,700/- REVEALED AS PAID BY THE ASSESSEE WORKED OUT TO ` 16,04,300/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 21. ON APPEAL, THE CIT(A) DELETED THE ADDITION OF ` 16,04,300/- ON THE GROUND THAT THE PURCHASE OF LAND AND BUILDIN G AND PLANT AND MACHINERY ARE ITEMS WHICH ARE PURCHASED BEFORE COMM ENCEMENT OF PRODUCTION BY THE ASSESSEE AND THEREFORE, THE SAME CANNOT BE OUT OF UNDISCLOSED INCOME OF THE ASSESSEE. I.T.A.NOS. 1633 TO 1635/2010 :- 22 -: 22. THE DR BEFORE US SUBMITTED THAT THE ABOVE DECISION OF THE CIT(A) WAS NOT JUSTIFIED AND FOR WHICH HE PLACED RE LIANCE ON THE DECISIONS OF HON'BLE CALCUTTA HIGH COURT IN THE CAS E OF CIT VS ASHOK TIMBER INDUSTRIES, 125 ITR 336 (CAL) AND BASANTIPUR TEA CO.(P) LTD VS CIT, 180 ITR 261 (CAL) AND SUBMITTED THAT THE DECIS ION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS BHARAT ENGINEER ING & CONSTRUCTION CO., 83 ITR 187(S.C) IS NOT APPLICABLE IN THE INSTANT CASE. HE ALSO SUBMITTED THAT THE FINDING OF THE CIT(A) TH AT PAYMENTS FOR ACQUISITION OF ASSETS IN QUESTION WERE MADE BEFORE THE COMMENCEMENT OF PRODUCTION IS PERVERSE AS REVEALED FROM DIFFEREN T CLAUSES OF MOU. HE ALSO SUBMITTED THAT THE REVENUE CAN FILE APPEAL AGAINST THE DECISION OF THE CIT(A) FOR NOT ADMITTING THE ADDITI ON AS REQUIRED BY THE ASSESSING OFFICER IN THE REMAND REPORT. 23. ON THE OTHER HAND, THE A.R OF THE ASSESSEE SUPPORT ED THE ORDER OF THE CIT(A) AND SUBMITTED THAT THE STATEME NT OF SHRI S.P.SATHIAMOORTHY WAS RECORDED ON 26.12.2006 AND TH EREFORE, THE AMOUNT OF ` 2.59 CRORES ADMITTED BY HIM AS RECEIVED FROM THE ASSESSEE WAS UPTO THE PERIOD OF DECEMBER 2006 AND O N THE BASIS OF HIS STATEMENT, THE ASSESSING OFFICER WAS NOT JUSTIF IED IN ASSUMING THAT RECEIPT OF ANY AMOUNT MORE THAN ` 2,42,95,702/- WAS MADE BY THE ASSESSEE BEFORE 31.3.2004. THE A.R ALSO POINTED OU T THAT THE SEIZED MOU ITSELF REVEALS THE AMOUNT PAID BY THE ASSESSEE ON VARIOUS DATES I.T.A.NOS. 1633 TO 1635/2010 :- 23 -: UPTO 31.3.2004 WHICH WORKS OUT TO ` 2,40,72,137/-. THUS, ON THE BASIS OF THE AFORESAID SEIZED MOU, THE ADDITION MAD E BY THE ASSESSING OFFICER IS UNTENABLE. 24. WE FIND FORCE IN THE ARGUMENT OF THE DR THAT THE CI T(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION BY ASSUMING THAT THE PAYMENTS FOR LAND AND BUILDING AND PLANT AND MACHINERY WERE MADE PRIOR TO COMMENCEMENT OF PRODUCTION AND THEREFORE, IN EARLIE R PREVIOUS YEAR. WE FIND THAT IT IS NOT IN DISPUTE THAT THE SEIZED M OU ITSELF RECORDS THE VARIOUS DATES ON WHICH VARIOUS PAYMENTS WERE MADE B Y THE ASSESSEE TO THE VENDOR FOR PURCHASE OF ASSETS IN QUESTION. WE ALSO FIND THAT AS PER THE SEIZED MOU THE TOTAL PAYMENT MADE BY THE A SSESSEE UPTO 31.3.2004 COMES TO ` 2,40,72,137/-. THUS, ON THE BASIS OF STATEMENT RECORDED OF SHRI S.P.SATHIAMOORTHY ON 26.12.2006 WH EREIN HE ADMITTED RECEIPT OF ` 2.59 CRORES FROM THE ASSESSEE CANNOT BE ASSUMED AS ENTIRE ` 2.59 CRORES WAS RECEIVED BY HIM PRIOR TO 31.3.2004. WE FIND THAT THE REVENUE HAS BROUGHT NO MATERIAL BEFORE US TO SHOW THAT IN FACT, THE ASSESSEE HAS PAID ANY AMOUNT MORE THAN ` 2.42 CRORES BEFORE 31.3.2004 AGAINST THE PURCHASE OF ASSETS IN QUESTION. THEREFORE, IN OUR CONSIDERED OPINION, TH E ADDITION OF ` 16,04,300/- MADE BY THE ASSESSING OFFICER IS UNTENA BLE ON THE FACTS OF THE INSTANT CASE. FURTHER WE FIND THAT IN THE REMA ND REPORT THE SUBSEQUENT ASSESSING OFFICER HAS CLAIMED THAT IN DE TERMINING THE I.T.A.NOS. 1633 TO 1635/2010 :- 24 -: PAYMENT OF ` 2.42 CRORES, THE PREDECESSOR ASSESSING OFFICER HA S ALLOWED THE BENEFIT OF ` 85.02 LAKHS WHICH WAS OFFERED TO TAX BY THE PARTNERS OF THE FIRM NAMELY, SHRI S.P.MUTHURAMALING AM AND SMT. RADHA IN ASSESSMENT YEARS 2003-04 AND 2004-05 AS TH EIR UNDISCLOSED INCOME INVESTED IN PURCHASE OF FACTORY BUT AS PER T HE MOU, THE CASH HAS BEEN PAID ON VARIOUS DATES BY SHRI M.SOMASUNDAR AM, PARTNER. WE DO NOT FIND ANY FORCE IN THIS ARGUMENT OF THE SU CCESSOR ASSESSING OFFICER. IN OUR CONSIDERED VIEW, THE SUCCESSOR ASS ESSING OFFICER HAS NO POWER TO REVIEW THE ORDER OF HIS PREDECESSOR. F URTHER, NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER TO SHOW THAT ` 85.02 LAKHS WAS NOT HANDED OVER BY THE SAID SHRI S.P.MUTHURAMALINGAM AND SMT. RADHA, PARTNERS FOR PU RCHASE OF LAND AND BUILDING AND SHRI M.SOMASUNDARAM HAS PAID THE A MOUNT OUT OF THE FUNDS OF THE FIRM AND NOT FROM CONTRIBUTION MAD E BY SHRI S.P.MUTHURAMALINGAM AND SMT. RADHA. IN THE ABOVE F ACTS OF THE CASE, IN OUR CONSIDERED VIEW, THE ADDITION MADE BY THE ASSESSING OFFICER AND THE ENHANCEMENT PROPOSED BY THE ASSESSI NG OFFICER ARE UNTENABLE. WE ACCORDINGLY DISMISS THE GROUND OF TH E REVENUE. 25. IN GROUND NO.4 OF THE APPEAL OF THE REVENUE, THE GRIEVANCE IS THAT THE CIT(A) ERRED IN DELETING THE ADDITION OF ` 12,62,857/- REPRESENTING THE SALE PROCEEDS OF RUNNE RS AND RAISERS. I.T.A.NOS. 1633 TO 1635/2010 :- 25 -: 26. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. FROM THE SEIZED PROFIT & LOSS ACCOUNT, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS SOLD RUNNERS AND RAISERS FOR ` 12,62,857/- WHICH WERE NOT ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNT. THE ASSESSING OFFICER, THEREFORE, ADDED ` 12,62,857/- TO THE INCOME OF THE ASSESSEE. ON APPEAL, THE CIT(A) DELETED THE ADDITION AS IN TH E REMAND REPORT THE ASSESSING OFFICER HAS STATED THAT IN VIEW OF ADDITI ON OF ` 1,04,30,010/- TO THE GROSS PROFIT OF THE ASSESSEE, SEPARATE ADDI TION OF ` 12,62,857/- IS NOT WARRANTED. 27. THE DR BEFORE US ARGUED THAT AS NO COST WAS INVOLVE D IN RESPECT OF RUNNERS AND RAISERS WHICH IS A BY-PRODUC T, THE CIT(A) SHOULD NOT HAVE DELETED THIS ADDITION. 28. ON THE OTHER HAND, THE A.R SUBMITTED THAT THESE SAL ES WERE INCLUDED IN THE SEIZED PROFIT & LOSS ACCOUNT AND AF TER SUCH INCLUSION NET PROFIT AS PER THE SEIZED PROFIT & LOSS ACCOUNT COMES TO ` 37,09,619/- WHEREAS THE ASSESSEE HAS DISCLOSED NE T PROFIT OF ` 74,18,134.82, THEREFORE, SEPARATE ADDITION OF ` 12,62,857/- WAS NOT WARRANTED. 29. WE FIND THAT THE ISSUE IS COVERED BY OUR DECISION I N RESPECT OF GROUND NO.1 OF THIS APPEAL. IN OUR CONSIDERED O PINION, THE SEIZED I.T.A.NOS. 1633 TO 1635/2010 :- 26 -: PROFIT & LOSS ACCOUNT IS TO BE CONSIDERED IN TOTALI TY AND IT IS NOT FAIR AND REASONABLE TO PICK ONE OR TWO FIGURES FROM THE SEIZED PROFIT & LOSS ACCOUNT AND IGNORE THE OTHER FIGURES STATED THEREIN . WE FIND THAT AFTER INCLUSION OF ` 12,62,857/- IN THE SEIZED PROFIT & LOSS ACCOUNT, T HE NET PROFIT WAS ` 37,09,619/- ONLY WHEREAS THE NET PROFIT DISCLOSED BY THE ASSESSEE IN THE RETURN OF INCOME WAS MUCH MORE THAN THE SAID AMOUNT. THEREFORE, IN OUR CONSIDERED OPINION, SEPA RATE ADDITION OF ` 12,62,857/- WAS NOT WARRANTED. WE, THEREFORE, DISM ISS THIS GROUND OF APPEAL OF THE REVENUE. 30. IN I.T.A.NO. 1634/MDS/2010, FOR ASSESSMENT YEAR 200 5-06, GROUND NOS.1 AND 5 ARE GENERAL IN NATURE AND HENCE, REQUIRES NO ADJUDICATION BY US. 31. GROUND NO.2 OF THE APPEAL OF THE REVENUE IS DIRECT ED AGAINST THE ORDER OF THE CIT(A) IN DELETING THE ADD ITION OF ` 22,20,492/- REPRESENTING THE DIFFERENCE IN GROSS PR OFIT AS PER THE PROFIT & LOSS ACCOUNT SEIZED AND AS PER THE RETURN OF INCO ME FILED BY THE ASSESSEE. 32. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSING OFFICER HAS ESTIMATED G ROSS PROFIT AT ` I.T.A.NOS. 1633 TO 1635/2010 :- 27 -: 22,20,492/- ON UNRECORDED SALES OF ` 1,87,02,473/- ON THE BASIS OF GROSS PROFIT RATE OF 11.21% BASED ON PRECEDING YEAR S RESULT. 33. ON APPEAL, THE CIT(A) ESTIMATED SUCH GROSS PROFIT A T ` 18,34,713/- BEING 9.81% ON THE BASIS OF RATE OF GRO SS PROFIT ACCEPTED FOR THE YEAR UNDER CONSIDERATION ON DISCLOSED SALES . 34. THE DR ARGUED BEFORE US THAT THE BOOKS OF ACCOUNT O F THE YEAR UNDER CONSIDERATION WERE NOT RELIABLE AS UNREC ORDED SALES WERE FOUND AND THEREFORE, THE GROSS PROFIT RATE OF THE C URRENT YEAR SHOULD NOT HAVE BEEN APPLIED AND GROSS PROFIT RATE OF PREC EDING YEAR SHOULD ALONE HAVE BEEN APPLIED FOR DETERMINING THE GROSS P ROFIT ON UNRECORDED SALES. 35. THE A.R OF THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A) AND POINTED OUT THAT IN RESPECT OF DISCLOSED SALES OF THE CURRENT YEAR, THE ASSESSING OFFICER HAS ACCEPTED GROSS PROFIT WHI CH COMES TO 9.81% AND THE SAME WAS MORE RELEVANT FOR ESTIMATING THE G ROSS PROFIT OF THE CURRENT YEAR. 36. WE FIND THAT IT IS NOT IN DISPUTE THAT THE GROSS PR OFIT OF THE CURRENT YEAR ACCEPTED BY THE DEPARTMENT ON DISCLOSE D SALES COMES TO 9.81%. WE FIND THAT IN THE INSTANT CASE THE GROSS PROFIT ON THE UNRECORDED SALES IS REQUIRED TO BE ESTIMATED IN ABS ENCE OF COMPLETE I.T.A.NOS. 1633 TO 1635/2010 :- 28 -: RECORDS AVAILABLE. IN SUCH AN ESTIMATE SOME ELEMEN T OF GUESS WORK COULD NOT BE RULED OUT THOUGH THE DEPARTMENT SHOULD ENDEAVOR TO ESTIMATE AS FAR AS POSSIBLE THE REAL PROFIT EARNED BY THE ASSESSEE. IN OUR CONSIDERED VIEW, THE RATE OF GROSS PROFIT OF TH E CURRENT YEAR IS VERY RELEVANT THAN THE GROSS PROFIT RATE OF THE EARLIER YEAR UNLESS IT IS SHOWN THAT THE PROFIT EARNED ON THE UNRECORDED SALES WERE ACTUALLY MORE THAN THE PROFIT EARNED ON RECORDED SALES OF THE RELEVANT YEAR. WE FIND THAT THE ESTIMATE MADE BY THE CIT(A) IS ON THE BASIS OF RELEVANT MATERIAL AND THEREFORE, REQUIRES NO INTERFERENCE BY US. WE, THEREFORE, DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 37. GROUND NO.3 OF THE APPEAL IS DIRECTED AGAINST THE O RDER OF THE CIT(A) IN DELETING THE ADDITION OF ` 21,32,923/- REPRESENTING UNACCOUNTED SALE OF RUNNERS AND RAISERS. 38. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HAS REMOVED 135.110 MT OF BY- PRODUCT, WASTE AND SCRAP DURING THE PERIOD FROM A PRIL 2004 TO JUNE 2004 VALUED AT ` 21,32,923/- AS THESE WERE NOT RECORDED IN THE BOOK S OF ACCOUNT OF THE ASSESSEE AND AS IT DID NOT INVOL VE ANY SEPARATE COST TO THE ASSESSEE, THE ASSESSING OFFICER ADDED ` 21,32,923/- TO THE INCOME OF THE ASSESSEE. I.T.A.NOS. 1633 TO 1635/2010 :- 29 -: 39. ON APPEAL, THE CIT(A) DELETED THIS ADDITION BY OBSE RVING THAT THE RUNNERS AND RAISERS GENERATED DURING THE COURSE OF PRODUCTION ARE NOT SOLD IN THE MARKET AND RATHER THEY ARE CONSUMED AGAIN BY THE ASSESSEE IN ITS MANUFACTURING PROCESS. 40. THE DR BEFORE US ARGUED THAT THE CIT(A), IN ARRIVIN G AT THE ABOVE CONCLUSION HAS IGNORED THE CONTENTS OF SEIZED DOCUMENT AND FINDING IN THE ORDER OF THE CEGAT. THE DR ALSO POI NTED OUT THAT IN THE SEIZED PROFIT & LOSS ACCOUNT FOUND FOR THE PRECEDIN G YEAR, SALE OF RUNNERS AND RAISERS WERE RECORDED AND THEREFORE, TH E FINDING OF THE CIT(A) THAT THE RUNNERS AND RAISERS ARE NOT SOLD IS NOT CORRECT. 41. ON THE OTHER HAND, THE A.R OF THE ASSESSEE SUBMITT ED THAT IN THE EARLIER YEAR ALSO RUNNERS AND RAISERS WERE N OT SOLD AND WHAT WAS SOLD WAS RE-ROLLERS WHICH WAS WRITTEN AS RR IN TH E SEIZED DOCUMENTS. 42. WE FIND THAT BOTH THE PARTIES BEFORE US HAVE NOT PR ODUCED COPY OF THE SEIZED DOCUMENT AND ORDER OF THE CEGAT. WE FIND THAT THESE ARE ALSO NOT DISCLOSED IN THE ORDER OF THE C IT(A). THE CIT(A) DELETED THE ADDITION MERELY RELYING ON THE SUBMISSI ON OF THE ASSESSEE WITHOUT VERIFYING THE CONTENTS OF THE SEIZED DOCUME NT. IN THE ABSENCE OF ANY SEIZED DOCUMENT AND THE ORDER OF THE CEGAT, WE ARE NOT IN A POSITION TO ADJUDICATE THIS ISSUE COMPLETELY. THE ASSESSEE HAS ALSO NOT BROUGHT ANY MATERIAL BEFORE US TO SHOW THAT SAL E OF RE-ROLLERS WERE I.T.A.NOS. 1633 TO 1635/2010 :- 30 -: RECORDED IN THE BOOKS OF ACCOUNT OF THE CURRENT YEA R. IN THE ABOVE CIRCUMSTANCES, IN OUR CONSIDERED OPINION, IT SHALL BE IN THE INTEREST OF JUSTICE TO RESTORE THIS ISSUE BACK TO THE FILE OF T HE CIT(A) FOR ADJUDICATION AFRESH AFTER PROPER VERIFICATION IN TH E LIGHT OF THE DISCUSSION MADE HEREINABOVE BY PASSING A SPEAKING O RDER. NEEDLESS TO MENTION THAT THE CIT(A) SHALL ALLOW REASONABLE O PPORTUNITY OF HEARING TO BOTH THE PARTIES BEFORE ADJUDICATING THE ISSUE AFRESH. WE ORDER ACCORDINGLY. THUS, THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 43. GROUND NO.4 OF THE APPEAL IS DIRECTED AGAINST THE O RDER OF THE CIT(A) IN DELETING THE ADDITION OF ` 7,37,224/- REPRESENTING THE DIFFERENCE IN OPENING STOCK. 44. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. ACCORDING TO THE ASSESSING OFFICER, AS PER THE SEIZED PROFIT & LOSS ACCOUNT OF THE PRECEDING YEAR, THE CLOSING STOCK OF THE ASSESSEE WAS ` 1,75,92,922/- WHICH WAS FOUND CORRECT BY THE CEGAT. THE ASSESSE E HAS TAKEN THE OPENING STOCK AT ` 1,83,30,146/- WHICH WAS AS PER THE CLOSING STOCK DISCLOSED BY THE ASSESSEE IN THE IMMEDIATELY PRECE DING YEAR. AS CLOSING STOCK WAS LESS BY ` 7,37,224/- AS PER THE SEIZED PROFIT & LOSS ACCOUNT, THE ASSESSING OFFICER ADOPTED OPENING STOC K OF THE CURRENT I.T.A.NOS. 1633 TO 1635/2010 :- 31 -: YEAR OF ` 1,75,92,922/- AND ADDED THE DIFFERENCE AMOUNT OF ` 7,37,224/- TO THE INCOME OF THE ASSESSEE. 45. ON APPEAL, THE CIT(A) DELETED THIS ADDITION BY OBSE RVING THAT THE OPENING STOCK OF CURRENT YEAR OF ` 1,83,30,146/- CLAIMED BY THE ASSESSEE IS AS PER THE CLOSING STOCK SHOWN IN THE R ETURN OF INCOME OF LAST YEAR AND AS IN THE LAST YEAR THE NET PROFIT AS PER THE PROFIT & LOSS ACCOUNT FILED WITH THE RETURN OF INCOME WAS MORE TH AN THE NET PROFIT DISCLOSED AS PER THE DISCLOSED PROFIT & LOSS ACCOUN T AND THEREFORE, THE PROFIT & LOSS ACCOUNT FILED ALONGWITH THE RETURN OF INCOME WAS ACCEPTED FOR THE PURPOSE OF DETERMINING TAXABLE INC OME OF THE ASSESSEE. AS A NATURAL COROLLARY TO THIS THE OPENI NG STOCK HAS TO BE ACCEPTED AT ` 1,83,30,146/-. 46. THE DR RELIED UPON THE ORDER OF THE ASSESSING OFFIC ER AND REITERATED THE REASONS RECORDED BY THE ASSESSING OF FICER. 47. THE A.R OF THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A). 48. WE FIND THAT IT IS AN ESTABLISHED POSITION OF LAW THAT THE CLOSING STOCK OF ONE YEAR IS TO BE ACCEPTED AS THE OPENING STOCK OF THE IMMEDIATELY SUCCEEDING YEAR. WE FIND THAT THE CLO SING STOCK OF ` 1,83,30,146/- AS DISCLOSED IN THE PROFIT & LOSS ACC OUNT FILED ALONGWITH I.T.A.NOS. 1633 TO 1635/2010 :- 32 -: THE RETURN OF INCOME OF THE IMMEDIATELY PRECEDING YEAR ON THE BASIS OF WHICH TAXABLE INCOME OF THE ASSESSEE WAS ARRIVE D AT WAS ACCEPTED BY THE CIT(A) AS THE OPENING STOCK OF THE CURRENT YEAR. THERE IS NO ERROR IN THE ORDER OF THE CIT(A). THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 49. IN I.T.A.NO.1635/MDS/2010 FOR ASSESSMENT YEAR 2006-07 GROUND NOS.1 AND 4 ARE GENERAL IN NATURE AND HENCE, REQUIRES NO ADJUDICATION BY US. 50. IN GROUND NO.2 OF THE APPEAL, THE GRIEVANCE OF THE REVENUE IS THAT THE CIT(A) ERRED IN DELETING THE ADDITION O F ` 22,20,492/- REPRESENTING THE UNACCOUNTED INCOME EARNED FROM SUP PRESSED PRODUCTION. 51. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSING OFFICER OBSERVED THAT T HERE WAS A SEARCH AT THE PREMISES OF THE ASSESSEE ON 24.6.2004 CONDUCTE D BY THE ANTI- EVASION UNIT TRICHY CENTRAL EXCISE COMMISSIONRATE, DURING THE COURSE OF WHICH VARIOUS INCRIMINATING DOCUMENTS WERE SEIZE D. THE SEIZED MATERIALS INCLUDED DAILY PRODUCTION SHEETS FOR 26.5 .2004, 27.5.2004, 14.6.2004 TO 17.6.2004. THESE SHEETS CONTAINED THE DETAILS OF HEAT NUMBER AND WEIGHT OF INGOTS PRODUCED. BASED ON THE SE DETAILS, THE I.T.A.NOS. 1633 TO 1635/2010 :- 33 -: CENTRAL EXCISE AUTHORITIES WORKED OUT THE AVERAGE C ONSUMPTION OF POWER PER MT AT 725 UNITS AS AGAINST 1150 UNITS PER MT SHOWN IN THE PRODUCTION RECORDS OF THE ASSESSEE. THE ASSESSI NG OFFICER FURTHER NOTED THAT AT THE RATE OF 725 UNITS OF POWER PER MT TOTAL PRODUCTION FOR THE CONSUMPTION OF 78,03,072 UNITS WORKS OUT T O 10762.860 MT OF MS INGOTS AS AGAINST 7859.320 MT OF PRODUCTION SHOW N BY THE ASSESSEE. THUS, THE ASSESSEE HAD SUPPRESSED PRODU CTION OF 2903.54 MT. THE ASSESSING OFFICER FURTHER NOTED THAT DURIN G THE YEAR UNDER CONSIDERATION, THE ASSESSEE FIRM SOLD 7817.80MT OF MS INGOTS FOR ` 13,94,05,769/-. THUS, THE AVERAGE SALE PRICE PER M T COMES TO ` 17832/-. HE, THEREFORE, DETERMINED THE SALE VALUE OF SUPPRESSED PRODUCTION OF 2903.54 MT BY APPLYING THE AVERAGE RA TE OF ` 17832/- PER MT AND WORKED OUT THE SUPPRESSED SALE AT ` 5,17,75,925/-. THESE FACTS ARE NOT IN DISPUTE BEFORE US. THE ASSESSING OFFICER ALSO OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSES SEE HAS SHOWN GROSS PROFIT OF THE YEAR AS 0.79% AND IF THIS WAS A PPLIED TO THE SUPPRESSED SALES, THE GROSS PROFIT WORKS OUT TO ` 3,83,309/-. THE ASSESSING OFFICER OBSERVED THAT THE GROSS PROFIT RA TE FOR THE YEAR WAS VERY LOW WHEN COMPARED TO THE EARLIER YEARS I.E. 11 .21% IN ASSESSMENT YEAR 2004-05 AND 9.81% IN ASSESSMENT YEA R 2005-06. HE, THEREFORE, TAKING THE AVERAGE OF THE GROSS PROF IT RATE OF THESE TWO YEARS ARRIVED AT THE GROSS PROFIT RATE OF 10.50%. BY APPLYING THIS I.T.A.NOS. 1633 TO 1635/2010 :- 34 -: GROSS PROFIT RATE TO THE SUPPRESSED SALES OF ` 5,17,75,925/-, HE ARRIVED AT THE GROSS PROFIT AT ` 54,36,416/- WHICH WAS ADDED TO THE INCOME OF THE ASSESSEE AS UNACCOUNTED INCOME FROM SUPPRESSED PRODUCTION. 52. ON APPEAL, THE CIT(A) DELETED THE ADDITION ON THE G ROUND THAT THE GROSS PROFIT RATE OBTAINED FOR THE CURRENT YEAR MUST BE PREFERRED TO THE RATE OBTAINED IN THE EARLIER YEAR. FURTHER, THE ASSESSEES EXPLANATION THAT THE ADDITIONAL INCOME A S ESTIMATED BY THE ASSESSING OFFICER HAD ALREADY BEEN OFFERED UNDER TH E HEAD OTHER INCOME APPEARS PLAUSIBLE SPECIALLY WHEN THERE IS N O EVIDENCE TO CONTROVERT THE CLAIM AND ON THE FACT THERE IS NO IN CENTIVE FOR NON- DISCLOSURE OF INCOME AS THE INCOME OF THE UNIT IS E XEMPT U/S 80-I. 53. THE DR HAS SUPPORTED THE ORDER OF THE ASSESSING OFF ICER WHEREAS THE A.R OF THE ASSESSEE HAS SUPPORTED THE ORDER OF THE CIT(A) AND REITERATED THE SUBMISSIONS MADE BEFORE T HE CIT(A). 54. WE FIND THAT IN ASSESSMENT IT IS THE DUTY OF THE A SSESSING OFFICER TO DETERMINE THE REAL INCOME OF THE ASSESS EE. WHEN ESTIMATION IS REQUIRED TO BE MADE OF AN INCOME, ELE MENT OF SOME GUESS WORK CANNOT BE RULED OUT. THE RATE OF PROFIT ACHIEVED BY A BUSINESSMAN VARIES FROM YEAR TO YEAR DEPENDING UPON THE MARKET CONDITION PREVALENT IN THE MARKET IN A PARTICULAR Y EAR. WHEN THE MARKET CONDITION OF A YEAR IS DIFFERENT THEN THE R ATE OF PROFIT ACHIEVED I.T.A.NOS. 1633 TO 1635/2010 :- 35 -: IN A DIFFERENT YEAR MAY NOT BE VERY RELEVANT FOR DE TERMINING THE PROFIT OF ANOTHER YEAR. IN THE INSTANT CASE, WE FIND THAT THE REVENUE HAS ACCEPTED THAT THE GROSS PROFIT IN RESPECT OF DISCLO SED SALES ACHIEVED BY THE ASSESSEE IN ASSESSMENT YEAR 2004-05 WAS 11.21% , ASSESSMENT YEAR 2005-06 WAS 9.81% AND IN THE YEAR UNDER CONSID ERATION WAS 0.79%. THUS, THIS ACCEPTED FACT ON RECORD ESTABLIS HES THAT MARKET CONDITION IN THE YEAR UNDER CONSIDERATION WAS NOT T HE SAME AS WAS PREVALENT IN THE EARLIER YEAR. WE AGREE WITH THE F INDING OF THE CIT(A) THAT IN SUCH A SITUATION THE GROSS PROFIT RATE FOUN D FOR THE DISCLOSED SALES OF THE CURRENT YEAR IS A BETTER PARAMETER TO ESTIMATE THE GROSS PROFIT ON UNDISCLOSED SALES THAN THE GROSS PROFIT S ECURED BY THE ASSESSEE IN EARLIER YEARS. WE FURTHER FIND THAT TH E REVENUE HAS BROUGHT NO MATERIAL ON RECORD TO CONTROVERT THE FIN DING OF THE CIT(A) THAT THE ASSESSEES EXPLANATION THAT THE ADDITIONAL INC OME AS ESTIMATED BY THE ASSESSING OFFICER HAD ALREADY BEEN OFFERED UNDER THE HEAD OTHER INCOME APPEARS PLAUSIBLE SPECIALLY WHE N THERE IS NO EVIDENCE TO CONTROVERT THE CLAIM AND ON THE FACT TH ERE IS NO INCENTIVE FOR NON-DISCLOSURE OF INCOME AS THE INCOME OF THE U NIT IS EXEMPT U/S 80-I. 55. THE REVENUE HAS BROUGHT NO MATERIAL BEFORE US TO SH OW THAT OTHER INCOME OF ` 51,07,980/- ASSESSED BY THE ASSESSING OFFICER WAS I.T.A.NOS. 1633 TO 1635/2010 :- 36 -: DERIVED FROM ANY SOURCE OTHER THAN THE PROFIT DERIV ED FROM THE SUPPRESSED SALES. IN THE ABSENCE OF ANY SUCH MATER IAL BROUGHT BEFORE US WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE FINDING OF THE CIT(A). THEREFORE, THIS GROUND OF APPEAL OF THE RE VENUE IS DISMISSED. 56. GROUND NO.3 OF THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE CIT(A) IN DELETING THE DIS U/S 40(A)(IA) FOR NON-DEDUCTION OF TDS ON CONTRACT PAYMENTS BY THE ASSESSEE FIRM. 57. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAIL ABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSING OFFICER OBSERVED FR OM THE RETURN OF INCOME FILED BY THE ASSESSEE THAT THE ASSESSEE HA S CLAIMED DEDUCTION FOR TRANSPORT CHARGES OF ` 16,72,463/- PAID TO M/S S.K. TRANSPORTS AND ` 2,17,897/- PAID TO SHRI UMESH TOTALING TO ` 18,90,360/- ON WHICH TDS WAS NOT DEDUCTED BY THE ASSESSEE. IN REPLY TO THE SHOW CAUSE NOTICE WHY THE EXPENDITURE SHOULD NOT BE DISALLOWED U/S 40(A)(IA) OF THE ACT, THE ASSESSEE SUBMITTED THAT FOR INVOKING THE PROVISIONS OF SECTION 40(A)(IA), EXPENDITURE CLAIMED SHOULD BE U /S 30 TO 38 AND SINCE THE FREIGHT CHARGES WERE INCURRED IN BRINGING THE RAW MATERIAL TO THE FACTORY OF THE ASSESSEE WAS PART OF COST OF RA W MATERIAL WAS DEDUCTIBLE U/S 28 AND NOT U/S 30 TO 38 OF THE ACT . THEREFORE, THE PROVISIONS OF SECTION 40(A)(IA) WERE NOT APPLICABLE TO THE FACTS OF THE I.T.A.NOS. 1633 TO 1635/2010 :- 37 -: CASE OF THE ASSESSEE. THE ASSESSING OFFICER DID N OT ACCEPT THE SAID EXPLANATION OF THE ASSESSEE. HE OBSERVED THAT THE NATURE OF BUSINESS OF M/S S.K.TRANSPORTS SHOWS THAT THEY ACT AS TRANSP ORT CONTRACTORS ACTING LIKE A BRIDGE BETWEEN THE LORRY OWNERS AND O THER CUSTOMERS AND THEREFORE, SECTION 194C WAS ATTRACTED AND SINCE THE ASSESSEE HAS NOT DEDUCTED TDS ON THE PAYMENTS MADE TO THESE PERSONS, HE DISALLOWED THE EXPENDITURE OF ` 18,90,360/- U/S 40(A)(IA) OF THE ACT. 58. ON APPEAL, THE CIT(A) DELETED THE DISALLOWANCE ON T HE GROUND THAT THE PROVISIONS OF SECTION 40(A)(IA) WER E APPLICABLE ONLY TO EXPENSES COVERED UNDER SECTIONS 30 TO 38 AND THAT T HE FREIGHT CHARGES PAID BY THE ASSESSEE FOR BRINGING THE MATERIAL TO THE FACTORY OF THE ASSESSEE WERE PART OF THE PURCHASE COST AND WERE DE DUCTIBLE U/S 28 OF THE ACT. THEREFORE, THE PROVISIONS OF SECTION 4 0(A)(IA) WERE NOT APPLICABLE TO THE CASE OF THE ASSESSEE. 59. THE DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER WHEREAS THE A.R OF THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A). 60. WE FIND THAT THE CONTENTION OF THE ASSESSEE IS THA T THE RAW MATERIALS WERE PURCHASED FROM THE SUPPLIERS WHO ENT ERED INTO A SUPPLY AGREEMENT AND WERE REQUIRED TO SUPPLY THE MATERIAL AT THE FACTORY GATE OF THE ASSESSEE. THE EXPENDITURE INCURRED ON FREIGHT CHARGES WAS INCLUDED IN THE BILLS BY THE SUPPLIERS. THE A SSESSEE CONTENDED I.T.A.NOS. 1633 TO 1635/2010 :- 38 -: THAT THOUGH THE FREIGHT CHARGES WERE INCLUDED IN TH E BILLS OF THE SUPPLIERS THE PAYMENTS WERE MADE BY THE ASSESSEE T HROUGH THE LORRY DRIVERS ON BEHALF OF THE SUPPLIERS AND DEBITED TO T HE ACCOUNT OF THE SUPPLIERS. THEREFORE, THE CONTRACT FOR TRANSPORT OF MATERIALS WAS BETWEEN THE SUPPLIERS OF THE MATERIALS AND THE TRAN SPORTERS AND NOT BETWEEN THE ASSESSEE AND THE TRANSPORTERS. IF AT ALL TDS WAS REQUIRED TO BE DEDUCTED, IT WAS TO BE DEDUCTED BY T HE SUPPLIERS AND NOT BY THE ASSESSEE. 61. WHEN THE BENCH ASKED THE DR WITH WHOM THE TRANSPORT ERS HAD THE CONTRACT FOR TRANSPORTING OF THE GOODS, WHE THER WITH THE ASSESSEE OR WITH THE SUPPLIERS, THE DR SUBMITTED TH AT NONE OF THE AUTHORITIES BELOW HAS LOOKED INTO THIS ASPECT. IN OUR CONSIDERED OPINION, IF THE GOODS WERE PURCHASED BY THE ASSESS EE AT FACTORY OF THE ASSESSEE AND IF IT WAS THE DUTY OF THE SUPPLIER TO DELIVER THE GOODS AT THE FACTORY OF THE ASSESSEE THEN THE ASSESSEE PAI D ONLY PURCHASE PRICE OF THE GOODS AND ON SUCH PURCHASE PRICE THE ASSESSEE IS NOT OBLIGED TO DEDUCT TAX. IN SUCH CIRCUMSTANCES, EVEN WHEN THE ASSESSEE MADE PAYMENT TO TRANSPORTER IT HAS MADE TH E PAYMENT FOR AND ON BEHALF OF THE SUPPLIER AND HAS DEDUCTED THE SAID AMOUNT FROM THE BILL OF THE SUPPLIER. THE ASSESSEE HAS NOT CL AIMED ANY DEDUCTION FOR TRANSPORTING EXPENDITURE AND THEREFORE, QUESTIO N OF DISALLOWANCE I.T.A.NOS. 1633 TO 1635/2010 :- 39 -: U/S 40(A)(IA) DOES NOT ARISE. HOWEVER, IN A CASE W HERE THE ASSESSEE PURCHASED GOODS ON PREMISES OF THE SUPPLIER AND IT WAS THE DUTY OF THE ASSESSEE TO GET ITS GOODS TRANSPORTED FROM THE PREMISES OF THE SUPPLIER TO ITS OWN FACTORY IN SUCH CIRCUMSTANCES, THE ASSESSEE WAS RESPONSIBLE FOR DEDUCTING TAX ON PAYMENT OF FREIGHT AS PER THE PROVISIONS OF I.T ACT AND THE ASSESSEE CLAIMED DE DUCTION FOR ITS TRANSPORTING EXPENSES WHICH CAN BE DISALLOWED U/S 40(A)(IA) ON INCURRING OF A DEFAULT SPECIFIED IN THAT SECTION. WE ALSO OBSERVE THAT THE ASSESSEE HAS ALSO NOT FILED ANY MATERIAL TO SH OW THAT THE SUPPLIERS WERE TO SUPPLY THE GOODS AT THE FACTORY O F THE ASSESSEE. IN OUR CONSIDERED OPINION, THE SAME NEEDS TO BE VERIFI ED FROM THE PURCHASE BILLS OF THE ASSESSEE AND OTHER CONNECTED DOCUMENTS. SINCE BOTH THE PARTIES HAVE NOT FILED THE RELEVANT MATERI ALS BEFORE US, WE ARE UNABLE TO ADJUDICATE THE ISSUE COMPLETELY. THEREFO RE, IT SHALL BE IN THE INTEREST OF JUSTICE TO RESTORE THIS ISSUE BACK TO T HE FILE OF THE ASSESSING OFFICER FOR PROPER VERIFICATION AND THEREAFTER ADJU DICATION AFRESH AS PER LAW. NEEDLESS TO MENTION THAT BEFORE RE-ADJUDICATI NG THE ISSUE AFRESH, THE ASSESSING OFFICER SHALL ALLOW REASONABLE AND PR OPER OPPORTUNITY OF HEARING TO THE ASSESSEE. THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. I.T.A.NOS. 1633 TO 1635/2010 :- 40 -: 62. IN THE RESULT, THE APPEAL FILED BY THE REVEN UE IN I.T.A.NO.1633/MDS/2010 FOR ASSESSMENT YEAR 2004-05 IS DISMISSED WHEREAS I.T.A.NOS.1634/MDS/2010 AND 1635/MDS/2010 F OR ASSESSMENT YEARS 2005-06 AND 2006-07 RESPECTIVELY, ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON FRIDAY, THE 13 TH OF JULY, 2012, AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER DATED: 13 TH JULY, 2012 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR