ACIT CIR. - 4(2), MUMBAI V. M/s. MANAK OVERSEAS LTD., MUMBAI

ITA 170/MUM/2007

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0803 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-04-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 05-01-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained expenditure; Document seized; Cost of acquisition; Retraction; Documents seized
• Section: 69C; 153A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE HONBLE S/SHRI JOGINDER SINGH ( JM ) , AND B.R.BASKARAN (AM) , . . , ./ I.T.A. NO S . 170 TO 172 /MUM/ 200 7 ( / ASSESSMENT YEAR : 200 2 - 03 ) ASSTT. COMMISSIONER OF INCOME TAX - 4 ( 2 ), ROOM NO.642, 6 TH FLOOR, A A YAKAR BHAVAN, M.K.ROAD, MUMBAI - 400020 / VS. M/S MANAK OVERSEAS LTD, 44, C P TANK ROAD, MUMBAI - 40 0004 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AAACM4811G / APPELLANT BY SHRI S J SINGH / RSPONDENT BY SHRI VIJAY MEHTA / DAT E OF HEARING : 1 8 .6. 201 5 / DATE OF PRONOUNCEMENT : 31. 7. 201 5 / O R D E R PER B.R. BASKARAN (AM) THE REVENUE HAS FILED THESE THREE APPEALS CHALLENGING THE COMMON ORDER DATED 13.10.2006 PASSED BY LD CIT (A) - IV, MUMBAI AND THEY RELATE TO THE ASSESSMENT YEAR 2002 - 03 TO 2004 - 05. THE REVENUE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN DELETING THE ADDITION MADE BY THE AO U/S 69C OF THE ACT IN ALL THE THREE YEARS. I.T.A. NOS.170 TO 172/MUM/2007 2 2. THE FACTS RELEVANT TO THE ISSUE UNDER CO NSIDERATION ARE COMMON IN ALL THE THREE YEARS AND THEY ARE SET OUT IN BRIEF. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN FERROUS AND NON - FERROUS METALS. IT HAS GOT ITS REGISTERED AND HEAD OFFICE IN MUMBAI AND BRANCH OFFICE AT JODHPUR, W HERE IT CARRIES ON SALE OF S.S. FLATS. THE ASSESSEE RECEIVES MATERIALS FROM DELHI ON CONSIGNMENT BASIS AND SELLS THEM IN JAIPUR ON AGENCY BASIS. BESIDES THE ABOVE, THE ASSESSEE IS ALSO CARRYING ON BUSINESS ON ITS OWN ALSO. 3. THE REVENUE CARRIED ON SEARC H AND SEIZURE OPERATIONS IN THE HANDS OF CERTAIN CONCERNS LOCATED IN JODHPUR. DURING THE COURSE OF SEARCH OPERATIONS CONDUCTED ON 07.09.2003 IN THE HANDS OF CHOPRA GROUP AND M/S JINDAL STRIPS LTD, IT CAME TO LIGHT THAT THE SUPPLIERS OF S.S FLATS ARE UNDER INVOICING SALE OF S.S. FLATS. WHILE THE AMOUNT RECEIVED AGAINST THE INVOICED BILLS WERE DULY ACCOUNTED FOR, IT WAS NOTICED THAT THE DIFFERENCE IN SALE PRICE WAS RECEIVED BY WAY OF CASH. THIS FACT CAME INTO LIGHT FROM THE STATEMENT RECORDED FROM SHRI SAN DEEP BANSAL ON 17.09.2003, WHO WORKED AS BRANCH MANAGER OF M/S JINDAL STRIPS LTD AND ALSO FROM THE SEARCH CONDUCTED IN THE HANDS OF CHOPRA GROUP, WHO HAD PURCHASED S.S. FLATS. IT WAS NOTICED THAT A BUSINESS GROUP NAMED M/S SUNCITY ALLOYS GROUP HAS PAID AN AGGREGATE AMOUNT OF RS.1,24,04,718/ - IN CASH IN CONNECTION WITH THE PURCHASE OF S.S. FLATS FROM M/S JINDAL STRIPS LTD DURING THE PERIOD FROM 01.01.2003 TO 25.08.2003. IT WAS FURTHER NOTICED THAT M/S SANDEEP BANSAL HAD RECEIVED CASH OF RS.14.19 CRORES ON A CCOUNT OF UNDER BILLING DONE DURING THE PERIOD FROM 01 - 01 - 2003 TO 15 - 09 - 2003. 4. CONSEQUENT TO THE RECEIPT OF INFORMATION ABOUT THE UNDER INVOICING, THE ASSESSEE HEREIN WAS ALSO SUBJECTED TO SEARCH OPERATIONS ON 20 - 02 - 2004. CONSEQUENT TO THE SEARCH, THE ASSESSMENTS UNDER CONSIDERATION WERE COMPLETED U/S 153A OF THE ACT. DURING THE COURSE OF ASSESSMENT I.T.A. NOS.170 TO 172/MUM/2007 3 PROCEEDINGS, THE ASSESSING OFFICER COMPARED THE PURCHASE RATE OF RAW MATERIALS ACCOUNTED FOR BY THE ASSESSEE WITH THE PURCHASE RATE NOTICED IN THE CASE OF M/S SUNCITY ALLOYS GROUP. IT WAS NOTICED THAT THE PURCHASE RATE WAS SAME. SINCE M/S JINDAL STRIPS LTD HAD UNDER BILLED ITS SUPPLIES TO M/S SUNCITY ALLOYS GROUP, THE AO ENTERTAINED PRESUMPTION THAT THE PURCHASES MADE BY THE ASSESSEE WERE ALSO UNDER BILLED AND THE ASSESSEE WOULD HAVE PAID THE DIFFERENCE AMOUNT BY WAY OF CASH OUTSIDE THE BOOKS OF ACCOUNT, I.E., THE AO PRESUMED THAT THE MODUS OPERANDI ALLEGED TO HAVE BEEN FOLLOWED BY M/S JINDAL STRIPS LTD WOULD HAVE BEEN FOLLOWED IN RESPECT OF THE PURCHASES M ADE BY THE ASSESSEE ALSO. 5. A SURVEY OPERATION WAS ALSO CONDUCTED AT THE PREMISES OF THE ASSESSEE AND CERTAIN INCRIMINATING DOCUMENTS WERE FOUND. FROM THE COMPUTER OF THE ASSESSEE, A STATEMENT STORED IN THE FILE NAMED CONSALE WAS ALSO RECOVERED. THE ASSESSING OFFICER HAS DISCUSSED ABOUT BOTH THESE DOCUMENTS IN PARAGRAPH 7.1 AND 7.2 OF THE ASSESSMENT ORDER. IN THE INCRIMINATING MATERIALS DISCUSSED IN PARAGRAPH 7.1 OF THE ASSESSMENT ORDER, THE RATES OF DIFFERENT LOTS OF MATERIALS WERE FOUND TO HAVE BE EN NOTED DOWN. THE RATES NOTICED WERE IN THE RANGE OF RS.32.25 TO RS.37.50. THE PURCHASES WERE MADE FROM M/S AMAN TRADERS AND M/S HARYANA STEELS. HOWEVER, THE AVERAGE RATE OF PURCHASES OF S.S FLATS ACCOUNTED FOR BY THE ASSESSEE WAS FOUND TO BE RS.27/ - P ER KG ONLY. FURTHER, IT WAS SEEN THAT THE ASSESSEE HAS MADE PAYMENT OF RS.14.54 CRORES TO M/S HARYANA STEELS DURING THE YEAR RELEVANT TO AY 2003 - 04 AS PER THEIR BOOKS, BUT THE BOOKS OF THE ASSESSEE DISCLOSED PAYMENT OF RS.13.54 CRORES. THE COMPUTER PRINT OUT OF FILE NAMED CONSALE (DISCUSSED IN PARAGRAPH 7.2 OF THE ASSESSMENT ORDER) DISCLOSED TWO RATES VIZ., PURCHASE RATE AS PER BOOK AND PURCHASE RATE AS PER PAPER. THE PURCHASE AMOUNT WAS SEEN COMPUTED AS PER THE PURCHASE RATE AS PER BOOK. I.T.A. NOS.170 TO 172/MUM/2007 4 6. TH E ASSESSEE SUBMITTED THAT IS ACTING AS CONSIGNEE AGENT FOR CERTAIN SUPPLIERS AND RECEIVES COMMISSION ON SUCH SALES. IT IS SUBMITTED THAT ENTRIES FOUND IN THE SEIZED DOCUMENTS PERTAINED TO THE CONSIGNMENT SALES AND THEY HAVE BEEN PREPARED TO DEVISE A PLAN FOR COLLECTION OF HUGE OUTSTANDING. ACCORDINGLY, THE ASSESSEE CONTENDED THAT THESE DOCUMENTS DO NOT PERTAIN TO IT. THE ASSESSEE ALSO FURNISHED A RECONCILIATION STATEMENT WITH REGARD TO THE DIFFERENCE FOUND IN THE PAYMENTS MADE TO M/S HARYANA STEELS. IT WAS FURTHER SUBMITTED THAT THE STATEMENT GIVEN BY SHRI SANDEEP BANSAL HAS BEEN RETRACTED BY HIM. THE AO WAS NOT CONVINCED WITH THE EXPLANATIONS GIVEN BY THE ASSESSEE. THE AO ALSO OBSERVED THAT THE RETRACTION OF THE STATEMENT GIVEN BY SHRI SANDEEP BANSAL WAS NOT ACCEPTABLE TO THE DEPARTMENT. THE AO FURTHER OBSERVED THAT THE ENTRIES FOUND IN THE SEIZED DOCUMENTS SHOULD BE CONSIDERED AS CORRECT AS PER THE PRESUMPTION PROVIDED IN SEC. 132(4) OF THE ACT. HE FURTHER HELD THAT THE MODUS OPERANDI ADOPTED IN THE TRADE HAS BEEN ASCERTAINED FROM THE TRANSACTIONS ENTERED BY M/S JINDAL STRIPS LTD AND THE SAME SHOULD ALSO BE FOLLOWED IN THE ASSESSEES CASE. ACCORDINGLY, THE AO HELD THAT THE SEIZED DOCUMENTS SHOW THAT THE ASSESSEE WOULD HAVE ALSO PURCHASED GOODS AT A HIGHER RATE THAN THAT DISCLOSED IN THE INVOICES AND WOULD HAVE PAID THE DIFFERENCE BY WAY OF CASH OUTSIDE THE BOOKS OF ACCOUNTS. THOUGH THE TRANSACTION NOTICED IN THE SEIZED DOCUMENTS WERE FOR CERTAIN PERIOD ONLY, YET THE AO HELD THAT HE CAN EXTRAPOLATE T HE SAME FOR OTHER YEARS ALSO AS PER THE DECISION OF HONBLE SUPREME COURT RENDERED IN THE CASE OF COMMISSIONER OF SALES TAX, MADHYA PRADESH VS. H.M. ESUFALI, H.M. ABDULALI (90 ITR 271). ACCORDINGLY, THE AO HELD THAT THE CASH PAYMENTS MADE BY THE ASSESSEE OUTSIDE THE BOOKS OF ACCOUNT ARE ASSESSABLE AS UNEXPLAINED EXPENDITURE U/S 69C OF THE ACT. I.T.A. NOS.170 TO 172/MUM/2007 5 7. THE ASSESSING OFFICER DETERMINED THE AVERAGE RATE OF PURCHASES AT RS.35/ - PER KG. THE AVERAGE RATE OF PURCHASES DISCLOSED IN THE BOOKS OF ACCOUNT WA S SEEN AT RS.26.54, RS.29.23 AND RS.30.95 RESPECTIVELY FOR THE YEARS RELEVANT TO THE ASSESSMENT YEARS 2002 - 03, 2003 - 04 AND 2004 - 05. ACCORDINGLY, THE DIFFERENT IN THE RATE PER KG, WHICH WAS PRESUMED TO BE THE CASH PAID OUTSIDE THE BOOKS, WAS DETERMINED AT RS.8.46, RS.5.77 AND RS.4.05 PER KG RESPECTIVELY IN THE YEARS RELEVANT TO THE AY 2002 - 03, 2003 - 04 AND 2004 - 05. ACCORDINGLY THE AGGREGATE AMOUNT PAID OUTSIDE THE BOOKS OF ACCOUNT WAS DETERMINED BY THE AO AS UNDER: - ASSESSMENT YEAR PURCHASE QUANTITY (IN KG ) RATE DIFFERENCE (RS.) PAYMENT MADE OUTSIDE BOOKS. (RS.) 2002 - 03 2,29,970 8.46 19,45,546 2003 - 04 1,81,31,340 5.77 10,46,17,832 2004 - 05 1,94,51,920 4.05 7,87,80,276 THE ASSESSING OFFICER ASSESSED THE ABOVE SAID AMOUNTS AS INCOME OF THE ASSESSEE U/S 6 9C OF THE ACT IN THE RESPECTIVE ASSESSMENT YEARS. 8. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) DELETED THE ADDITIONS MADE U/S 69C OF THE ACT ON THE FOLLOWING REASONS: - ( A ) THE PROVISIONS OF SEC. 69C OF THE ACT ARE ATTRACTED ONLY IF THE ASSESSEE OFFERS NO E XPLANATION OR THE EXPLANATION FURNISHED BY THE ASSESSEE IS NOT SATISFACTORY IN THE OPINION OF ASSESSING OFFICER. ( B ) THERE IS NO CLARITY IN THE APPROACH OF THE AO. INITIALLY HE PROPOSED TO APPLY RATE OF RS.5/ - AS THE DIFFERENCE AMOUNT AND PROPOSED RS.8/ - LAT ER. ( C ) THE AO DID NOT HAVE ANY COGENT MATERIAL OR ANY DOCUMENT HAVING EVIDENTIARY VALUE IN ORDER TO SUPPORT HER ACTION, SINCE NOTHING INCRIMINATORY WAS FOUND AT THE TIME OF SEARCH AND THE DOCUMENTS FOUND AT THE TIME OF SURVEY WERE NOT SUFFICIENT TO JUSTIF Y THE ADDITION. I.T.A. NOS.170 TO 172/MUM/2007 6 ( D ) UNDER SEC. 69C OF THE ACT, THE AO WAS BOUND TO POINT OUT THE SPECIFIC EXPENDITURE INCURRED BY THE ASSESSEE AND NOT EARNING OF INCOME. IN THE SHOW CAUSE NOTICES, THE AO HAS REFERRED TO UNDER INVOICING OF SALES AND SUBSEQUENT RECEIPT OF CASH BY THE ASSESSEE. HOWEVER IN THE INITIAL SHOW CAUSE NOTICE THE AO HAS REFERRED TO UNDER BILLED PURCHASES WHILE CITING THE FACTS OF SUN CITY GROUP. ( E ) HENCE THE ADDITION MADE BY THE AO DOES NOT NECESSARILY FALL UNDER SECTION 69C OF THE ACT. 9. WITH REGARD TO THE SEIZED DOCUMENTS RELIED UPON THE ASSESSING OFFICER, THE LD CIT(A) HAS OBSERVED AS UNDER: - ( A ) THE AO DID NOT CONSIDER THE DOCUMENTS AND RECONCILIATION STATEMENTS FILED BY THE ASSESSEE. IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAD FILED CONFIRM ATION LETTERS FROM SUPPLIERS AND CUSTOMERS. ( B ) THE AO DID NOT MAKE ANY EFFORT TO GET THE RECONCILIATION STATEMENT/CONFIRMATIONS CROSS CHECKED FROM THE CONCERNED PARTIES. ( C ) THE AO HAS PLACED RELIANCE ON THE STATEMENTS GIVEN IN THE CASE OF JINDAL GROUP. HOWEV ER, THE PRESENT STATUS OF THE PROCEEDINGS IN THEIR HAND WAS NOT ASCERTAINED. ( D ) THE AO DID NOT PROVIDE TO THE ASSESSEE ANY OPPORTUNITY TO CROSS EXAMINE THE EVIDENCES BEING USED BY HER. ( E ) EVEN IF SOME DOCUMENT SHOWED HIGHER COST, THE ASSESSEE HAS SHOWN THAT SIMILAR ITEMS HAVE BEEN PURCHASED AT LOWER COST. ( F ) THE AO MADE THE ADDITION ON ACCOUNT OF UNDER INVOICING OF SALE AND NOT FOR UNDER INVOICING OF PURCHASES. HENCE THE ADDITION IS BEYOND THE SCOPE OF SEC. 69C OF THE ACT. ( G ) THE ASSESSING OFFICER HAS ESTIMATE D THE PURCHASE RATE AT RS.35/ - WITHOUT BRINGING ANY MATERIAL TO SUPPORT THE SAME. ( H ) THE AO HAS ASCERTAINED AVERAGE RATE OF PURCHASES FOR ENTIRE YEAR AND TOOK THE VIEW THAT THE DIFFERENCE BETWEEN THE RATE OF RS.35/ - PER KG AND THE AVERAGE RATE REPRESENT CAS H PAID OUTSIDE THE BOOKS. THE AO HAS NOT POINTED OUT ANY SPECIFIC INSTANCES. I.T.A. NOS.170 TO 172/MUM/2007 7 THE LD CIT(A) ALSO REFERRED TO MANY DECISIONS, WHICH LAY DOWN THE PRINCIPLES AS TO HOW TO DEAL WITH THE LOOSE DOCUMENTS FOUND DURING THE COURSE OF SEARCH. ACCORDINGLY, THE LD CIT (A) HELD THAT THE ASSESSING OFFICER CANNOT MAKE ADDITIONS ON THE BASIS OF CONJECTURES AND SURMISES AND THE ESTIMATES HAVE BEEN MADE ONLY ON PRESUMPTIONS, WHICH ARE NOT SUPPORTED BY EVIDENCES OR DOCUMENTS FOUND DURING THE COURSE OF SEARCH. FURTHER, THE LD CIT(A) ALSO APPRECIATED THE FACT THAT THE ASSESSEE HAS ACTED AS CONSIGNEE AGENT FOR CERTAIN SUPPLIERS, I.E., THE ASSESSEE WAS NOT THE OWNER OF THOSE GOODS. ACCORDINGLY, THE LD CIT(A) DELETED THE ADDITIONS MADE U/S 69C OF THE ACT IN ALL THE THREE YEARS UND ER CONSIDERATION. 10. THE LD D.R PLACED STRONG RELIANCE ON THE ASSESSMENT ORDER AND SUBMITTED THAT THE ADDITION MADE BY THE ASSESSING OFFICER IS SUPPORTED BY THE EVIDENCES FOUND DURING THE COURSE OF SEARCH. THE LD D.R INVITED OUR ATTENTION TO PAGE 65 OF THE PAPER BOOK AND SUBMITTED THAT THE SAID DOCUMENT CLEARLY SHOWS THAT THE PURCHASE RATE WAS IN THE RANGE OF RS.33.50 TO RS.37/ - PER KG, WHEREAS THE AVERAGE PURCHASE RATE ACCOUNTED BY THE ASSESSEE WAS LOWER THAN THAT. HE SUBMITTED THAT THE ASSESSING O FFICER HAS PROVIDED PROPER OPPORTUNITY TO THE ASSESSEE ASKING IT TO EXPLAIN THE DIFFERENCE IN PURCHASE PRICE. THE LD D.R ALSO SUBMITTED THAT THE ASSESSEE COULD NOT FULLY RECONCILE THE DIFFERENCE IN THE PAYMENTS MADE TO M/S HARYANA STEELS. 11. THE LD D.R FURTHER SUBMITTED THAT THE LD CIT(A) HAS MISUNDERSTOOD THAT THE ASSESSING OFFICER HAS REFERRED TO UNDER INVOICING OF SALES AND MADE ADDITION FOR UNDER BILLING OF PURCHASES. THE LD D.R SUBMITTED THAT THE ASSESSING OFFICER HAS MADE THE ADDITION U/S 69C OF THE ACT ONLY IN RESPECT OF PAYMENT MADE OUTSIDE BOOKS FOR UNDER BILLING OF PURCHASES. THE LD D.R, THEN, INVITED OUR ATTENTION TO THE PAGE NO.72 OF THE PAPER BOOK I.T.A. NOS.170 TO 172/MUM/2007 8 AND SUBMITTED THAT THE PRICE OF 18175 KGS WAS SHOWN AS RS.5,33,482/ - . HOWEVER THE PRICE OF SAME 18175 KGS WAS SHOWN AS RS.7,17,913/ - IN PAGE 73 OF THE PAPER BOOK. THE LD D.R SUBMITTED THAT THESE TWO DOCUMENTS AMPLY PROVE THAT THE PURCHASE PRICE HAS BEEN UNDER INVOICED RESULTING IN PAYMENT OF CASH OUTSIDE THE BOOKS OF ACCOUNTS. THE LD D.R FU RTHER SUBMITTED THAT THE OTHER DOCUMENTS SEIZED ALSO SHOW THAT THE PURCHASE RATE WAS IN THE RANGE OF RS.32.50 TO RS.42.50 PER KG. HOWEVER, THE AVERAGE RATE OF PURCHASES SHOWN IN THE BOOKS OF ACCOUNT WAS LESS THAN RS.30/ - PER KG, WHICH CLEARLY SUBSTANTIATE THE CONCLUSION REACHED BY THE AO. THE LD D.R ALSO PLACED RELIANCE ON THE DECISIONS RENDERED IN THE CASE REPORTED IN 154 TAXMANN 10 (P &H) AND 40 SOT 225 (HYD ITAT) TO SUPPORT HIS CONTENTIONS. 12. ON THE CONTRARY, THE LD A.R SUBMITTED THAT THE ASSESS ING OFFICER HAS PRIMARILY PLACED RELIANCE ON THE EVIDENCES FOUND IN THE CASE OF M/S JINDAL STRIPS LTD. HE SUBMITTED THAT THE ASSESSEE HAS NOT PURCHASED ANY GOODS FROM M/S JINDAL STRIPS LTD AND HENCE THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DRAWING ADVER SE INFERENCES ON THE BASIS OF EVIDENCES FOUND IN THE HANDS OF A THIRD PARTY, WHO IS NOT CONNECTED TO THE ASSESSEE AT ALL. HE SUBMITTED THAT THE ADDITIONS MADE BY THE AO ARE NOT BASED UPON THE DOCUMENTS PLACED AT PAGES 72 & 73 OF THE PAPER BOOK AND HENCE T HE LD D.R WAS NOT JUSTIFIED IN REFERRING TO THOSE PAGES. IN ANY CASE, THE ASSESSEE HAS ACTED AS CONSIGNMENT AGENT IN RESPECT OF THE ITEMS REFERRED IN PAGE 72 & 73 AND HENCE IT IS NOT THE PURCHASE TRANSACTIONS PERTAINING TO THE ASSESSEE. THESE FACTS HAVE BEEN UNDERSTOOD BY THE LD CIT(A) AND HE HAS DISCUSSED ABOUT THE SAME IN PAGE 3 OF HIS ORDER. THE LD A.R FURTHER SUBMITTED THAT THE ASSESSEE HAS EXPLAINED THAT THE ABOVE SAID DOCUMENTS ARE THE PLANS DEVISED BY THE ASSESSEE AND SUPPLIERS TO COLLECT OUTSTAND ING DUES. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS EXPLAINED THAT THE I.T.A. NOS.170 TO 172/MUM/2007 9 COMPANY, M/S JINDAL STRIPS LTD IS MANUFACTURING HIGH QUALITY ITEMS, WHERE AS THE ASSESSEE HAS PURCHASED GOODS FROM LOCAL MANUFACTURERS WHOSE COST IS ALWAYS LOWER. THE LD A.R SUBMITTE D THAT THE ASSESSEE HAS FURNISHED A LIST OF COMPARABLES IN ORDER TO SUPPORT THE PURCHASE RATE ACCOUNTED FOR BY THE ASSESSEE AND THE SAME HAS ALSO BEEN INCORPORATED BY LD CIT(A). THE LD A.R FURTHER SUBMITTED THAT THE AO ALSO COULD NOT REJECT THOSE COMPARAB LES. HE SUBMITTED THAT THE DOCUMENTS PLACED AT PAGES 65 & 66 CONTAIN DIFFERENT KINDS OF TRANSACTIONS AND HENCE THE AO WAS NOT JUSTIFIED IN DRAWING ADVERSE INFERENCES WITHOUT PROPERLY EXAMINING THE SAME. THE LD A.R FURTHER SUBMITTED THAT THE ASSESSEE HAS RECONCILED THE ACCOUNTS RELATING TO M/S HARYANA STEELS EXCEPT A SMALL DIFFERENCE OF RS.258/ - , WHICH WAS EXPLAINED TO BE THE REBATE DIFFERENCE. HENCE THE AO WAS NOT JUSTIFIED IN OBSERVING THAT THE ASSESSEE COULD NOT RECONCILE THE ACCOUNT MAINTAINED WITH M/ S HARYANA STEELS. 13. THE LD A.R FURTHER SUBMITTED THAT THE PROVISIONS OF SEC. 69C ARE ATTRACTED ONLY WHEN THE ASSESSEE HAS INCURRED ANY EXPENDITURE AND FURTHER HE COULD NOT PROPERLY EXPLAIN THE SAME TO THE SATISFACTION OF THE AO. HOWEVER, IN THE INSTA NT CASE, THE AO HAS PRESUMED THAT THE PURCHASES WERE MADE AT AN AVERAGE RATE OF RS.35/ - PER KG. AND HE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SUBSTANTIATE THE SAID PRESUMPTION. THE ASSESSING OFFICER MERELY REJECTED THE EXPLANATIONS GIVEN BY THE ASSESSE E ON THE DOCUMENTS SEIZED/ IMPOUNDED DURING THE COURSE OF SEARCH/SURVEY OPERATIONS WITHOUT BRINGING ANY CONTRARY MATERIAL ON RECORD. BEFORE THE AO, THE ASSESSEE HAS FURNISHED THE CONFIRMATION LETTERS OBTAINED FROM THE SUPPLIERS AND CUSTOMERS TO SUBSTANTIA TE THE PURCHASE PRICE SHOWN IN THE BOOKS OF ACCOUNT. THE AO DID NOT MAKE ANY ENQUIRY WITH ANY OF THE PERSONS TO DISPROVE ALL OF THEM. ACCORDINGLY HE SUBMITTED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE ADDITIONS U/S 69C OF THE I.T.A. NOS.170 TO 172/MUM/2007 10 ACT IN ALL THE THREE YEARS UNDER CONSIDERATION AND HENCE THE LD CIT(A) WAS JUSTIFIED IN DELETING THEM. 14. IN THE REJOINDER, THE LD D.R SUBMITTED THAT THE DOCUMENTS PLACED AT PAGES 72 - 73 HAVE BEEN TAKEN FROM THE COMPUTER OF THE ASSESSEE AND HENCE THE AO WAS JUST IFIED IN PLACING RELIANCE UPON THEM. 15. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ADDITIONS UNDER DISPUTE HAVE BEEN MADE BY THE ASSESSING OFFICER U/S 69C OF THE ACT. THE PROVISIONS OF SEC. 69C READ AS UNDER: - WHERE IN ANY FINANCIAL Y EAR AN ASSESSEE HAS INCURRED ANY EXPENDITURE AND HE OFFERS NO EXPLANATION ABOUT THE SOURCE OR SUCH EXPENDITURE OR PART THEREOF, OR THE EXPLANATION, IF ANY, OFFERED BY HIM IS NOT, IN THE OPINION OF THE ASSESSING OFFICER, SATISFACTORY, THE AMOUNT COVERED BY SUCH EXPENDITURE OR PART THEREOF, AS THE CASE MAY BE, MAY BE DEEMED TO BE THE INCOME OF THE ASSESSEE FOR SUCH FINANCIAL YEAR. PROVIDED THAT, NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, SUCH UNEXPLAINED EXPENDITURE WHICH IS DEE MED TO BE THE INCOME OF THE ASSESSEE SHALL NOT BE ALLOWED AS A DEDUCTION UNDER ANY HEAD OF INCOME. A CAREFUL PERUSAL OF THE ABOVE SAID PROVISIONS WOULD SHOW THAT THE FIRST AND FOREMOST CONDITION STATED THEREIN IS THAT THE ASSESSEE SHOULD HAVE INCURRED AN Y EXPENDITURE. MERELY BY ESTABLISHING THAT THE ASSESSEE HAS INCURRED ANY EXPENDITURE, THIS PROVISION CANNOT BE INVOKED AUTOMATICALLY. IT HAS TO BE FURTHER SHOWN THAT EITHER THE ASSESSEE HAS OFFERED NO EXPLANATION ABOUT THE SOURCES FOR INCURRING THE SAID EXPENDITURE OR THE EXPLANATION, IF ANY, OFFERED BY HIM IS NOT SATISFACTORY IN THE OPINION OF THE ASSESSING OFFICER. ONLY IF THE ABOVE SAID TWO CONDITIONS ARE SATISFIED, THEN THE ASSESSING OFFICER MAY ASSESS THE AMOUNT COVERED BY THE EXPENDITURE AS INCOME OF THE ASSESSEE. I.T.A. NOS.170 TO 172/MUM/2007 11 16. NOW, WE SHALL CONSIDER THE FACTS AVAILABLE IN THE INSTANT CASE IN ORDER TO ASCERTAIN AS TO WHETHER THE ASSESSING OFFICER WAS JUSTIFIED IN ASSESSING INCOME U/S 69C OF THE ACT. THE FOLLOWING FACTS AVAILABLE IN THE CASE ARE UNDISPUTED: - (A) THE ASSESSEE HAS PURCHASED AND SOLD SS FLATS ON CONSIGNMENT BASIS AND ALSO ON ITS OWN ACCOUNT. (B) IN RESPECT OF GOODS SOLD ON CONSIGNMENT BASIS, THE ASSESSEE HAS ACTED AS AGENT ONLY ON RECEIPT OF COMMISSION INCOME. HENCE, ANY DIFFERENCE IN THE SELLING PRICE OF THE GOODS IN RESPECT OF CONSIGNMENT SALES WILL NOT MAKE ANY DIFFERENCE TO THE ASSESSEE, SINCE THE CONCERNED PRINCIPAL IS LIABLE TO EXPLAIN THE SAME. (C) THE STATEMENT GIVEN BY SHRI SANDEEP BANSAL OF M/S JINDAL STRIPS LTD DURING THE COUR SE OF SEARCH PROCEEDINGS CONDUCTED IN THE HANDS OF M/S JINDAL STRIPS LTD HAS FORMED THE BASIS FOR CONDUCTING SEARCH IN THE HANDS OF THE ASSESSEE COMPANY. (D) THOUGH SHRI SANDEEP BANSAL HAS ACCEPTED THE FACT OF UNDER INVOICING OF BILLS IN THE STATEMENT TAKEN FROM HIM AT THE TIME OF SEARCH, IT IS STATED THAT HE HAS RETRACTED FROM THE SAME SUBSEQUENTLY. HOWEVER, THE ASSESSING OFFICER HAS NOT ASCERTAINED AS TO WHETHER THE SAID RETRACTION HAS BEEN UPHELD BY APPELLATE AUTHORITIES OR NOT. (E) THE ASSESSEE HAS NOT PURCHASED ANY GOODS FROM M/S JINDAL STRIPS LTD. SINCE THE ASSESSEE HAS NOT PURCHASED ANY GOODS FROM M/S JINDAL STRIPS LTD, WE ARE OF THE VIEW THAT THE STATEMENT GIVEN BY SHRI SANDEEP BANSAL, EVEN IF HIS RETRACTION HAS NOT BEEN ACCEPTED, CANNOT BE PLACED RELIANCE WHILE ASSESSING THE INCOME OF THE ASSESSEE. FURTHER, THE ASSESSING OFFICER, TIME AND AGAIN, HAS STATED THAT THE SEARCH CONDUCTED IN THE HANDS OF M/S JINDAL STRIPS LTD HAS BROUGHT TO LIGHT THE MODUS OPERANDI OF THE PRACTICE FOLLOWED IN THE STEEL TRADE. ACCORDINGLY, THE AO HAS TAKEN THE VIEW THAT THE ASSESSEE WOULD HAVE ALSO PURCHASED GOODS THROUGH UNDER INVOICED BILL I.T.A. NOS.170 TO 172/MUM/2007 12 AND WOULD HAVE PAID THE DIFFERENCE AMOUNT BY WAY OF CASH OUTSIDE THE BOOKS OF ACCOUNT. 17. WE NOTICE THAT THE ASSESSING OFF ICER HAS ENTERTAINED SUCH A VIEW SOLELY ON THE BASIS OF PRACTICE ALLEGED TO HAVE BEEN FOLLOWED IN THE CASE OF M/S JINDAL STRIPS LTD. HOWEVER, AS OBSERVED BY LD CIT(A), THE ASSESSING OFFICER HAS NOT TAKEN ANY STEPS TO FIND OUT THE FATE OF ADDITION, IF ANY, MADE IN THE HANDS OF M/S JINDAL STRIPS LTD. EVEN OTHERWISE, IN OUR VIEW, IT MAY BE CORRECT TO GENERALIZE THE TRADE PRACTICE SOLELY ON THE BASIS OF PRACTICE FOLLOWED BY A COMPANY. THUS, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER WAS NOT CORRECT IN PRE SUMING THAT THE ASSESSEE WOULD HAVE PURCHASED GOODS THROUGH UNDER BILLING. 18. IT IS PERTINENT TO NOTE THAT THE ASSESSING OFFICER HAS GIVEN A CLEAR FINDING THAT THE ASSESSEE HEREIN WAS NOT FOUND TO BE SELLING GOODS ON CASH, MEANING THEREBY, THE ASSESSEE WAS NOT FOUND TO BE INDULGING IN UNDER INVOICING OF SALES MADE ON ITS OWN ACCOUNT. (SEE PARA 10 OF THE ASSESSMENT ORDER). THE OBSERVATION OF THE AO THAT THE ASSESSEE IS PURCHASING GOODS THROUGH UNDER BILLING OF PURCHASES AND SELLING GOODS ON ACTUAL BASIS DEFIES THE LOGIC. FOR EXAMPLE, IF SALE PRICE IS RS.100/ - AND ACTUAL PURCHASE COST IS RS.80/ - , THEN GROSS PROFIT WOULD WORK OUT TO RS.20/ - . IF WE ASSUME THAT THE PURCHASE IS MADE THROUGH UNDER INVOICED BILL, SAY AT RS.70/ - , THEN THE GROSS PROFIT WOULD GO UP TO RS.30/ - , WHICH COURSE A PRUDENT BUSINESS MAN IS NOT EXPECTED TO FOLLOW. IN THE NORMAL COURSE, A BUSINESS MAN WOULD MAKE CORRESPONDING REDUCTION IN SALES ALSO THROUGH UNDER INVOICING SO THAT THE GROSS PROFIT IS MAINTAINED AT ACTUAL LEVEL. HENCE, THE PROPOSITION OF THE ASSESSING OFFICER THAT THE ASSESSEE HAS INDULGED IN PURCHASING GOODS THROUGH UNDER INVOICING DEFIES THE LOGIC. I.T.A. NOS.170 TO 172/MUM/2007 13 19. WE NOTICE THAT THE LD CIT(A) HAS ENTERTAINED THE VIEW THAT THE ASSESSING OFFICER HAS MADE THE IMPUGNED ADDITION ON ACC OUNT OF UNDER INVOICING OF SALES AND NOT PURCHASES. THE RELEVANT OBSERVATIONS ARE FOUND IN PARAGRAPH 2.7 (PAGE 11) OF THE ORDER OF LD CIT(A). AS POINTED OUT BY LD D.R, THIS OBSERVATION OF THE LD CIT(A) IS AGAINST THE FACTS PREVAILING IN THE INSTANT CASE. THE ASSESSING OFFICER, BY MENTIONING ABOUT UNDER INVOICING OF SALES, HAS ACTUALLY MEANT THE PURCHASES MADE BY THE ASSESSEE THROUGH UNDER INVOICED BILLS. HENCE WE SET ASIDE THE RELEVANT OBSERVATIONS MADE BY LD CIT(A), WHICH ARE DISCUSSED IN THIS PARAGRAP H. 20. IN THE INSTANT CASE, WE NOTICE THAT THE ASSESSING OFFICER HAS PLACED HEAVY RELIANCE ON CERTAIN DOCUMENTS MENTIONED IN PARAGRAPH 7.1 AND 7.2 OF THE ASSESSMENT ORDER. IN PARAGRAPH 7.1, THE ASSESSING OFFICER IS FIRST REFERRING TO PAGES 81 AND 82 OF THE SEIZED MATERIAL. THE AO HIMSELF OBSERVES THAT THE PAGE 81 PERTAINS TO CONSIGNMENT PURCHASES. THERE SHOULD NOT BE ANY DISPUTE THAT THE ASSESSEE WOULD BE ACTING AS AN AGENT ONLY IN RESPECT OF CONSIGNMENT PURCHASES AND HENCE THE CONCERNED PRINCIPAL WOUL D BE LIABLE TO ANSWER THE DIFFERENCES, IF ANY, IN THE TRANSACTIONS. IN RESPECT OF TRANSACTIONS FOUND IN PAGE 82 RELATING TO M/S HARYANA STEELS, THE ASSESSEE HAS STATED THAT THEY ARE ALSO RELATED TO CONSIGNMENT PURCHASE. WE NOTICE THAT THE ASSESSING OFFIC ER HAS, IN FACT, EXAMINED LEDGER ACCOUNT COPY OF THE ASSESSEE AS AVAILABLE IN THE BOOKS OF M/S HARYANA STEELS AND FOUND THAT THERE ARE DIFFERENCES. THOUGH THE AO OBSERVES THAT THE ASSESSEE COULD NOT RECONCILE THE DIFFERENCE, YET WE NOTICE THAT THERE WAS A DIFFERENCE OF A MEAGER AMOUNT, WHICH THE ASSESSEE HAS EXPLAINED THAT IT COULD BE A REBATE DIFFERENCE. WE NOTICE THAT THE ASSESSING OFFICER HAS NOT EXAMINED M/S HARYANA STEELS IN ORDER TO DISPROVE THE CLAIM OF THE ASSESSEE. WITHOUT EXAMINING THE EXPLANAT IONS GIVEN BY THE ASSESSEE AND WITHOUT DISPROVING THE SAME, WE ARE OF THE I.T.A. NOS.170 TO 172/MUM/2007 14 VIEW THAT THE AO WAS NOT JUSTIFIED IN DRAWING ADVERSE INFERENCES AGAINST THE ASSESSEE. 21. DURING THE COURSE OF HEARING, THE LD D.R POINTED OUT THE DIFFERENCE IN RATES AS FOUND IN THE DOCUMENTS PLACED IN PAGES 72 AND 73 OF THE PAPER BOOK. A PERUSAL OF THE SAME WOULD SHOW THAT THERE IS, INDEED, A DIFFERENCE IN PURCHASE RATES. THE LD A.R, IN HIS CONTENTIONS, HAS STATED THAT IT WAS NOT SHOWN THAT THE ASSESSEE HEREIN HAS MADE THE SAID PURCHASES, WHEREIN THE RATE DIFFERENCE WAS FOUND. WE HAVE NOTICED EARLIER THAT THE AO, IN ORDER TO INVOKE THE PROVISIONS OF SEC. 69C, SHOULD GIVE A CATEGORICAL FINDING THAT THE ASSESSEE HAS INCURRED ANY EXPENDITURE. IN THE INSTANT CASE, THE ASSESSING OF FICER HAS NOT EVEN ATTEMPTED TO FIND OUT AS TO WHETHER THE RELEVANT TRANSACTIONS, IN WHICH THE ALLEGED RATE DIFFERENCE WAS FOUND, PERTAIN TO THE ASSESSEE OR NOT. IN THIS REGARD, THE AO SHOULD HAVE EXAMINED THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE, WHICH HE HAS FAILED TO DO. IN OUR VIEW, THE AO COULD NOT HAVE DRAWN ADVERSE INFERENCE WITHOUT EXAMINING THE BOOKS OF ACCOUNT IN ORDER TO FIND OUT AS TO WHETHER THE SAID TRANSACTIONS BELONG TO THE ASSESSEE, PARTICULARLY IN VIEW OF THE FACT THAT THE ASSESS EE HAS BEEN ACTING AS CONSIGNMENT AGENT ALSO. HENCE WE ARE OF THE VIEW THAT THE RATE DIFFERENCE NOTICED IN THE DOCUMENTS PLACED IN PAGES 72 & 73 OF THE PAPER BOOK CANNOT COME TO THE SUPPORT OF THE AO. 22. COMING TO THE DOCUMENT MENTIONED IN PARAGRAPH 7. 2 OF THE ASSESSMENT ORDER, WE HAVE NOTICED THAT THE SAME HAS BEEN TAKEN OUT FROM THE COMPUTER FROM OUT OF THE FILE NAMED CONSALE. THE NAME OF THE FILE VIZ., CONSALE MAY BE REFERRING TO CONSIGNMENT SALES AND THE SAME SUPPORTS THE SUBMISSION OF THE ASSE SSEE THAT THE SAID TRANSACTIONS PERTAIN TO CONSIGNMENT TRANSACTIONS, WHEREIN THE ASSESSEE HAS ACTED AS AGENT ONLY. THE SAID CLAIM OF THE ASSESSEE, AGAIN, HAS BEEN REJECTED BY THE AO I.T.A. NOS.170 TO 172/MUM/2007 15 ON THE FACE OF IT WITHOUT CONDUCTING ANY ENQUIRY. HENCE, WE ARE OF THE V IEW THAT THE ASSESSING OFFICER CANNOT PLACE RELIANCE ON THE COMPUTER PRINTOUT EXTRACTED IN PAGE 7.2 ALSO. 23. WE NOTICE THAT THE ASSESSEE, ON THE CONTRARY, HAS FURNISHED CONFIRMATION LETTERS OBTAINED FROM THE SUPPLIERS AND CUSTOMERS TO SUBSTANTIATE THE ENTRIES MADE IN THE BOOKS OF ACCOUNT. THE LD CIT(A) HAS, IN PARAGRAPH 2.1 OF HIS ORDER, OBSERVED THAT THE ASSESSING OFFICER WAS NOT ABLE TO DISPROVE THEM OR FIND FAULT WITH THEM. FURTHER, THE ASSESSEE HAS STATED THAT IT WAS PURCHASING GOODS FROM SMALL UNITS WHICH CANNOT BE EQUATED WITH M/S JINDAL STRIPS LTD AND HENCE THE QUALITY OF MATERIALS PURCHASED BY IT CANNOT BE COMPARED WITH THE QUALITY OF GOODS PRODUCED BY M/S JINDAL STRIPS LTD. ACCORDINGLY IT WAS SUBMITTED THAT THERE IS BOUND TO BE DIFFERENCE I N THE PURCHASE RATE OF MATERIALS. IN ORDER TO SUBSTANTIATE THIS CLAIM, THE ASSESSEE HAS FURNISHED COMPARATIVE RATES OBTAINED FROM VARIOUS PARTIES. THE LD CIT(A) HAS TABULATED THE SAME IN PAGE 7 OF HIS ORDER. THESE FACTUAL ASPECTS HAVE NOT BEEN DISPROVED BY THE ASSESSING OFFICER. 24. FURTHER, WE NOTICE THAT THE ASSESSING OFFICER HAS DETERMINED THE PURCHASE RATE UNIFORMLY AT RS.35/ - PER KG IN ALL THE THREE YEARS. IN A FLUCTUATING MARKET, THE PRICE OF INDUSTRIAL GOODS WOULD ALSO BE EXPECTED TO FLUCTUATE AND HENCE THE CONSTANT PRICE ADOPTED BY THE AO IS AGAINST THE NORMAL MARKET CONDITIONS. FURTHER, THE ASSESSING OFFICER HAS PRESUMED THAT THERE WAS UNDER BILLING IN ALL THE PURCHASES MADE BY THE ASSESSEE AND HENCE HE HAS COMPUTED AVERAGE PURCHASE COST OF T HE ASSESSEE FOR THE ENTIRE FINANCIAL YEAR, WHICH WAS FOUND TO BE RS.26.54, RS.29.23 AND RS.30.95 RESPECTIVELY FOR THE YEARS RELEVANT TO THE ASSESSMENT YEARS 2002 - 03, 2003 - 04 AND 2004 - 05. THIS IS AGAIN AN UNPROVED FACT AND THE AO HAS I.T.A. NOS.170 TO 172/MUM/2007 16 ENTERTAINED THE SAID VI EW ONLY ON SURMISES AND CONJECTURES. WE HAVE ALREADY OBSERVED THAT THE PROVISIONS OF SEC. 69C CAN BE INVOKED ONLY IF IT IS ESTABLISHED THAT THE ASSESSEE HAS INCURRED ANY EXPENDITURE. IN THE INSTANT CASE, THE VIEW OF THE AO COULD HAVE BEEN UPHELD IF HE HA D MADE ONE TO ONE COMPARISON OF PURCHASE BILLS FOUND DURING THE COURSE OF SEARCH/SURVEY WITH THE ENTRIES RECORDED IN THE BOOKS OF ACCOUNT, CONDUCTED NECESSARY INVESTIGATION/ENQUIRIES AND THEN ESTABLISHED THE FACT OF UNACCOUNTED PAYMENTS. ADMITTEDLY, IN TH E INSTANT CASE, THE AO HAS FAILED TO DO THIS EXERCISE. 25. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN DELETING THE ADDITIONS MADE U/S 69C OF THE ACT IN ALL THE THREE YEARS. ACCORDINGLY, WE UPHOLD HIS O RDER PASSED ON THIS ISSUE IN ALL THE THREE YEARS. 26. IN THE RESULT, ALL THE THREE APPEALS FILED BY THE REVENUE ARE DISMISSED. PRONOUNCED ACCORDINGLY ON 31ST JULY , 2015. 31ST JULY , 2015 SD SD ( / JOGINDER SINGH ) ( . . , / B.R. BASKARAN ) / JUD ICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI: 31ST JULY ,2015 . . . ./ SRL , SR. PS I.T.A. NOS.170 TO 172/MUM/2007 17 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3 . ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI