DCIT, Central Circle, Kolhapur V. Ghodawat Industries (India) Pvt. Ltd., Kolhapur

ITA 1913/PUN/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84981 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 06-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 05-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VERMA
• Keywords: Unexplained investment; Business income; Depreciation; Search and seizure; Loose papers; Document seized; Charitable institution; Opportunity of cross examination; Question of law; Difference of opinion; Corroborative evidences; Third party statement; Retraction; Documents seized; Change of opinion; Revenue expenditure
• Section: 143(3); 142(1); 133A; 153A; 131; 145; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NOS. 1909 TO 1915/PN/2012 (ASSESSMENT YEARS 2003-04 TO 2009-10) ACIT CENTRAL CIRCLE, KOLHAPUR .. APPELLANT VS. GHODAWAT INDUSTRIES (INDIA) PVT. LTD., PLOT NO.438, A/P CHIPRI, TAL : SHIROL, DIST : KOLHAPUR PAN NO.AAACG6910C .. RESPONDENT CO NOS. 67 TO 72/PN/2013 (ASSESSMENT YEARS 2003-04 TO 2009-10) GHODAWAT ENERGY PVT. LTD., (FORMERLY GHODAWAT INDUSTRIES (INDIA) PVT. LTD., PLOT NO.438, A/P CHIPRI, TAL : SHIROL, DIST : KOLHAPUR PAN NO.AAACG6910C .. CROSS OBJECTOR VS. DCIT CENTRAL CIRCLE, KOLHAPUR .. APPELLANT IN THE APPEAL ITA NO. 1986/PN/2012 (ASSESSMENT YEAR 2009-10) GHODAWAT ENERGY PVT. LTD., (FORMERLY GHODAWAT INDUSTRIES (INDIA) PVT. LTD., PLOT NO.438, A/P CHIPRI, TAL : SHIROL, DIST : KOLHAPUR PAN NO.AAACG6910C .. APPELLANT VS. DCIT CENTRAL CIRCLE, KOLHAPUR .. RESPONDENT ASSESSEE BY : SHRI BHARAT SHAH REVENUE BY : SMT. M.S. VERMA, CIT DATE OF HEARING : 14-07-2014 DATE OF PRONOUNCEMENT : 12-09-2014 2 ORDER PER R.K. PANDA, A.M. : ITA NOS. 1909 TO 1914/PN/2012 FILED BY THE REVENUE AND CO NOS. 67 TO 72/PN/2013 FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE COMMON ORDER DATED 30-07-2012 OF THE CI T(A), KOLHAPUR FOR THE ASSESSMENT YEARS 2003-04 TO 2008-0 9 RESPECTIVELY. ITA NO.1915/PN/2012 FILED BY THE REVE NUE AND ITA NO. 1986/PN/2012 FILED BY THE ASSESSEE ARE CROS S APPEALS AND ARE DIRECTED AGAINST THE ORDER DATED 31-07-2012 OF THE CIT(A), KOLHAPUR RELATING TO ASSESSMENT YEAR 2009-1 0. FOR THE SAKE OF CONVENIENCE ALL THESE APPEALS AND CROSS OBJ ECTIONS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO MMON ORDER. ITA NO.1909/PN/2012 (A.Y. 2003-04) (REVENUE) : CO NO.67/PN/2013 (ASSESSEE) : 2. GROUND OF APPEAL NO.1 BY THE REVENUE AND GROUND OF APPEAL NO.2 OF THE CROSS OBJECTION BY THE ASSESSEE RELATE TO THE SAME ISSUE AND READ AS UNDER : GROUND BY REVENUE : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE CIT(A) ERRED IN ALLOWING THE DEPRECIATION CLAIM OF RS. 86,1 0,000/- FOR THE A.Y. 2003-04 OF THE ASSESSEE ON WIND MILL CROSS OBJECTION NO.2 BY THE ASSESSEE : 2. THE LEARNED CIT(APPEALS) ERRED IN FACTS AND CI RCUMSTANCES OF THE CASE AND IN LAW IN DISALLOWING THE CLAIM OF DEPRECIATION @ 80% ON THE TOTAL COST OF THE WINDMILL BY TREATING PA RT OF THE COST AS BEING INCURRED FOR CIVIL WORKS AND THEREBY ALLOWI NG DEPRECIATION @ 10% ONLY ON SUCH COSTS. IT BE HELD TH AT THE ENTIRE COSTS OF WINDMILL, ERECTION, FOUNDATION, INFRASTRUC TURE, INSTALLATION ETC ARE TO BE ALLOWED DEPRECIATION @ 80% AS THEY FO RM A INTEGRAL PART OF WINDMILL BY APPLYING THE FUNCTIONAL TESTS. 3 2.1 FACTS OF THE CASE IN BRIEF, ARE THAT THE ASSESS EE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AN D TRADING IN PAN MASALA, GUTKHA, TRADING IN SHARES AND ALSO E NGAGED IN THE BUSINESS OF CONSTRUCTION AND GENERATION OF POWER ET C. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFI CER OBSERVED THAT THE ASSESSEE HAS INSTALLED A NEW WIND MILL DUR ING THE YEAR UNDER CONSIDERATION. FROM THE VARIOUS DETAILS FURN ISHED BY THE ASSESSEE, HE NOTED THAT THE ASSESSEE HAS CLAIMED DE PRECIATION ON THE ENTIRE EXPENDITURE ON ACCOUNT OF PURCHASE AND I TS INSTALLATION. ALTHOUGH DEPRECIATION IS ALLOWABLE AT HIGHER RATE O N WIND MILLS HE NOTED THAT THE ASSESSEE HAS MISTAKEN THE DEFINIT ION OF WINDMILL AND HAS CLAIMED DEPRECIATION AT HIGHER R ATE ON EACH AND EVERY PART TOWARDS WINDMILL INCLUDING CIVIL CO NSTRUCTION AND OTHER EXPENSES TO ERECT THE WINDMILL. HE, THEREFOR E, ASKED THE ASSESSEE TO SUBSTANTIATE THE CLAIM OF DEPRECIATION ON ASSETS OTHER THAN WINDMILL. 2.2 IT WAS SUBMITTED BY THE ASSESSEE THAT THERE WAS NO CIVIL WORK INVOLVED IN ERECTION OF THE WIND TURBINE AS PA RTS LIKE, CONTROL PANELS AND DISPLAY METERS WERE USED WITHIN THE TOWER ITSELF. IT WAS SUBMITTED THAT THE CIVIL WORK DONE IN THE FORM OF FOUNDATION WORK COULD NOT BE SEPARATED FROM THE WIN D TURBINE AND THEREFORE IT WAS ENTITLED TO DEPRECIATION ON TH E ENTIRE COST OF WIND TURBINE. HOWEVER, THE ASSESSING OFFICER WAS N OT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. RELYIN G ON THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE C ASE OF 4 POONAVALA FINWEST & AGRO PVT. LTD. VS. ACIT REPORTE D IN 118 TTJ 68 AND RULE 32(1) OF THE INCOME TAX RULES, 1962 , APPENDIX-1, PART-A, ITEM NO.(III)(3)(XIII)(1) THE A SSESSING OFFICER DISALLOWED AN AMOUNT OF RS.86,10,000/- BEIN G EXCESS DEPRECIATION CLAIMED BY THE ASSESSEE ON THE WINDMIL L. 3. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE TRIB UNAL IN THE CASE OF POONAVALA FINWEST & AGRO PVT. LTD.(SUPRA) H AS HELD THAT COST OF TRANSFORMER UPTO DP STRUCTURE AND INTERNAL LINE UPTO THE METER WAS HELD TO BE AN INTEGRAL PART OF THE MAIN P LANT, I.E. WIND TURBINE AND HAVE ALLOWED 100%. IT WAS ACCORDINGLY SUBMITTED THAT THE NECESSARY CIVIL WORKS TOWARDS ERECTION AND INSTALLATION OF THE WIND TURBINE ARE INTEGRAL PART OF THE WINDMILL WITHOUT WHICH THE WINDMILL CANNOT COME INTO EXISTENCE AND GENERAT E ELECTRICITY AND THEREFORE THE SAME IS TO BE TREATED AS PART OF THE WINDMILL. 3.1 AS REGARDS THE DISALLOWANCE OF MEDA FEES IT WAS SUBMITTED THAT THESE EXPENSES WERE ALLOWED BY THE T RIBUNAL HOLDING IT TO BE REVENUE EXPENDITURE. THE COPIES O F THE BILLS FROM ENERCON (INDIA) PVT. LTD., SUZLON INFRASTRUCTURE SE RVICES LTD., & SUZLON ENERGY LTD. WERE ALSO PRODUCED. 4. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE, AND FOLLOWING HIS DECISION IN THE CASE OF CHHAPALKAR BR OTHERS FOR A.Y. 2008-09, THE CIT(A) HELD THAT THE SAID DECISIO N WILL BE APPLICABLE TO THE CASE OF THE ASSESSEE. HE HELD TH AT IN THE CASE OF CHHALPALHAR BROTHERS HE HAS DETERMINED THE VARIOUS COMPONENTS 5 WHICH GO ON TO MAKE UP THE CASE OF THE WINDMILL, TH E DETAILS OF WHICH ARE AS UNDER : SR.NO. PARTICULARS 1. COST OF WIND TURBINE GENERATOR 2.A) COST OF COMPONENT & ACCESSORY (COPPER WOUND WITH ACCESSORIES) B) COST OF COMPONENT FOR GENERATION OF ELECTRICI TY SUPPLY OF ROTOR BLADES C) ELECTRICAL ITEMS, COMPONENTS OF RE DEVICE 3. COST OF TUBULAR TOWER 4. COST OF WORK INCLUDING FOUNDATION WORK 5. LABOUR RELATED COST A) INSTALLATION OF WINDMILL B) INSTALLATION OF ELECTRICAL LINE FOR POWER TRA NSMISSION AND METER C) FINAL TESTING AND COMMISSIONING 6. REIMBURSEMENT OF POWER EVACUATION FACILITY AND CR EATION OF INFRASTRUCTURE 7. MISCELLANEOUS A) PROCESSING CHARGES B) INTEREST ON LOAN CAPITALIZED UPTO 17-01-2008 C) PROFESSIONAL FEES D) REGISTRATION FEES E) SUBSTATION CHARGES F) FRANKING CHARGES G) MEDA OR EQUIVALENT CHARGES 4.1 HE OBSERVED THAT HE HAD DIRECTED THE ASSESSING OFFICER IN THE SAID CASE TO RECOMPUTE THE DEPRECIATION ALLOWAN CE ACCORDING TO THE FOLLOWING: I) COST OF NEW WINDMILL WILL BE INCLUSIVE OF ALL ITEMS MENTIONED AT 1 TO 5 ABOVE. II) COST OF POWER EVACUATION FACILITY AND INFRAST RUCTURE WILL BE APPORTIONED BETWEEN THE RATES APPLICABLE TO BUILDING/ROADS AND WINDMILL IN 60 : 40 RATIO. III) COST OF OTHER MISCELLANEOUS EXPENSES WILL BE APPORTIONED ON PRORATA BASIS BETWEEN WINDMILL AND INFRASTRUCTURE FACILITIES. 4.2 HOWEVER, HE NOTED THAT THE ASSESSEE HAS PROVIDE D THE BILLS OF M/S ENERCON (INDIA) LTD. WHICH DO NOT GIVE THE B REAKUP OF THE COST OF WINDMILL AS PER THE CHART GIVEN ABOVE. UNDE R THESE CIRCUMSTANCES, ONE WOULD ONLY HAVE TO MAKE SOME GUE SSWORK AS 6 TO WHAT CONSTITUTES THE CHARGE OF POWER EVACUATION FACILITY AND CREATION OF INFRASTRUCTURE. THE INFRASTRUCTURE CREA TION COST WILL ALSO INCLUDED THE COST OF MAKING ROADS, PROVIDING F REE ACCESS, KEEPING THE AREA VACANT ETC., WHICH WOULD NOT QUALI FY AS A WINDMILL. HE NOTED THAT THE ASSESSEE HAS GIVEN A R EVISED WORKING OF DEPRECIATION WHICH HAS BEEN CLAIMED TO BE IN ACC ORDANCE WITH THE ABOVE GUIDELINES. HE THEREFORE DIRECTED THE AO TO GO THROUGH THE REVISED WORKING GIVEN BY THE ASSESSEE AND RECOM PUTE THE DEPRECIATION. 4.3 AGGRIEVED WITH SUCH ORDER OF CIT(A), THE REVENU E IS IN APPEAL BEFORE US AND THE ASSESSEE HAS FILED THE CRO SS OBJECTION. 5. THE LD. DEPARTMENTAL REPRESENTATIVE HEAVILY RELI ED ON THE ORDER OF THE ASSESSING OFFICER. 6. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HA ND REFERRED TO THE ORDER OF THE TRIBUNAL IN THE CASE O F CIT VS. EVERREADY INVESTMENTS PVT. LTD. VIDE ITA NOS.609 TO 614/PN/2013 ORDER DATED 29-11-2013 AND SUBMITTED TH AT THE TRIBUNAL IN THE SAID DECISION HAS HELD THAT COST OF CIVIL WORK APPORTIONED TOWARDS THE ERECTION OF FOUNDATION FOR WINDMILL SHALL BE ELIGIBLE FOR DEPRECIATION @80% AND THE BALANCE O F THE COST SHALL BE ELIGIBLE FOR DEPRECIATION @10%. HE ACCORD INGLY SUBMITTED THAT THIS BEING A COVERED MATTER THE GROU ND RAISED BY THE REVENUE SHOULD BE DISMISSED AND THE CO FILED BY THE ASSESSEE BE ALLOWED. 7 7. AFTER HEARING BOTH THE SIDES, WE FIND THE PUNE B ENCH OF THE TRIBUNAL IN THE CASE OF EVERREADY INVESTMENTS PVT. LTD (SUPRA) WHILE DECIDING AN IDENTICAL ISSUE HAS OBSERVED AS U NDER : 5. IN THIS BACKGROUND, WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT WAS A CONVERGENCE OF OPINION BETWEEN TH E ASSESSEE AND THE LEARNED CIT(DR) THAT SO FAR AS THE COST OF FOUNDATION OF WINDMILL IS CONCERNED, THE SAME IS LIABL E TO BE CONSIDERED AS AN INTEGRAL PART OF THE COST OF WINDMILL HAVING REGARD TO THE DECISION OF THE PUNE BENCH OF THE TRIB UNAL IN THE CASE OF AMINITY DEVELOPERS & BUILDERS VIDE ITA NO. 1505/PN/2011 DATED 12.12.2012 AND ALSO IN TERMS OF TH E JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. COOPER FOUNDARY PVT. LTD. VIDE INCOME TAX AP PEAL NO. 1326 OF 2010 DATED 14.06.2011. THE TRIBUNAL IN THE CASE OF AMINITY DEVELOPERS & BUILDERS (SUPRA) BY APPLYING THE FUNCTIONAL TEST HELD THAT THE COST INCURRED ON THE FOUNDATION OF THE WINDMILL IS TO BE CONSIDERED AS AN INTEGRAL PART O F THE COST OF WINDMILL ERECTION AND IS THUS ELIGIBLE FOR THE DEPREC IATION @ 80%, PRESCRIBED FOR WINDMILL. THE HONBLE BOMBAY HI GH COURT IN THE CASE OF COOPER FOUNDARY PVT. LTD. (SUPRA) HAS A LSO UPHELD THE PROPOSITION THAT CEMENT, CONCRETE FOUNDATION IS T O BE INCLUDED IN THE COST OF WINDMILL, WHILE GRANTING DEP RECIATION @ 80% ON THE WINDMILL. THEREFORE, ON THE BASIS OF THE AFORESAID, IN-PRINCIPLE THE PLEA OF THE ASSESSEE IS LIABLE TO BE UP HELD. 6. SO, HOWEVER IT IS PERTINENT TO OBSERVE THAT THE CO ST OF CIVIL WORKS, ETC. AMOUNTING TO RS.20,00,000/- INCURRED BY T HE ASSESSEE CANNOT BE SAID TO BE ENTIRELY TOWARDS THE COST OF CIVIL WORK FOUNDATION FOR THE WINDMILL. THE LEARNED COUN SEL HAS REFERRED TO THE COPY OF INVOICE RAISED BY SUZLON DEV ELOPERS PRIVATE LIMITED FOR THE COST OF CIVIL WORK, ETC. AMO UNTING TO RS.20,00,000/- WHICH SHOWS THAT IT IS A COMPOSITE BILL F OR FOUNDATION OF WINDMILL, PLINTH FOR TRANSFORMER, WIND MILL CONTROL ROOM, SITE DEVELOPMENT AND INTERNAL ROAD DEVELOPMENT, ETC. . IT IS IN THIS CONTEXT, ON BEING UNABLE TO DECIPHER THE EXACT COST OF THE CIVIL FOUNDATION WORK FOR WINDMILL/TRANSFORMER, THE LEARNED CIT(A) HAS APPORTIO NED THE COST BETWEEN THE BUILDINGS/ROADS AND WINDMILL IN THE R ATIO OF 60:40. THE LEARNED COUNSEL VEHEMENTLY POINTED OUT T HAT THOUGH SEPARATE COSTS WERE NOT ENUMERATED BY SUZLON DEVELOPE RS PRIVATE LIMITED WHO HAD UNDERTAKEN THE EXECUTION OF WORK, YET THE ITEMS OF CIVIL WORK ON ACCOUNT OF BUILDINGS/ROADS WAS MINIMAL AND THEREFORE APPORTIONMENT MADE BY THE CIT (A) WAS UNJUSTIFIED. THE LEARNED COUNSEL FURTHER POINTED OUT THAT THE MAJOR COSTS ARE IN RELATION TO THE CONSTRUCTION OF CIV IL FOUNDATION FOR THE WINDMILL/OTHER EQUIPMENT REQUIRED FOR POWER GENERATION AND IS LIABLE TO BE CONSIDERED AS A PART O F WINDMILL FOR THE PURPOSES OF GRANT OF DEPRECIATION @ 80%. 7. CONSIDERING THE ENTIRETY OF CIRCUMSTANCES, AND ALSO THE PLEA RAISED BEFORE US, IN OUR CONSIDERED OPINION IT WO ULD MEET THE ENDS OF JUSTICE IF 60% OF COST OF CIVIL WORK IS APP ORTIONED TO CIVIL WORK INVOLVED IN THE ERECTION OF FOUNDATION O F WINDMILL/OTHER POWER EQUIPMENT AND 40% BE APPORTION ED TOWARDS OTHER CIVIL WORKS WHICH SHALL BE ELIGIBLE FOR THE LOWER 8 RATE OF DEPRECIATION. THE COST OF CIVIL WORK APPORT IONED TOWARDS THE ERECTION OF FOUNDATION FOR WINDMILL SHALL BE ELI GIBLE FOR DEPRECIATION @ 80% AND THE BALANCE OF THE COST SHALL BE ELIGIBLE FOR DEPRECIATION @ 10%, AS ALLOWED BY THE ASSESSING OFFI CER. THE ORDER OF THE CIT(A) IS THEREFORE SET-ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO RE-COMPUTE THE ALLOWANCE OF D EPRECIATION ACCORDINGLY. 7.1 RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL CITED (SUPRA) WE RESTORE THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO RECOMPUTE THE DEPRECIATION IN THE LIGHT OF THE D IRECTION OF THE TRIBUNAL. THE GROUND RAISED BY THE REVENUE AS WELL AS THE GROUND RAISED BY THE ASSESSEE IN THE CO ARE ACCORDINGLY AL LOWED FOR STATISTICAL PURPOSES. 8. IDENTICAL GROUNDS HAVE BEEN TAKEN BY THE REVENUE IN ALL THE OTHER APPEALS. THE ASSESSEE HAS ALSO TAKEN SIM ILAR GROUND IN ALL THE COS (GROUND NO.2) AND GROUND OF APPEAL NO.3 IN ITA NO.1986/PN/2012. FOLLOWING OUR REASONINGS GIVEN IN THE PRECEDING PARAS, THE GROUND BY THE REVENUE AS WELL AS BY THE ASSESSEE IN THE APPEAL AND COS ON THE ISSUE OF DEPR ECIATION ON WINDMILL IS RESTORED TO THE FILE OF THE AO FOR RECO MPUTING DEPRECIATION IN THE LIGHT OF THE ORDER OF THE TRIBU NAL. THESE GROUNDS ARE ACCORDINGLY ALLOWED FOR STATISTICAL PUR POSES. 9. GROUND OF CO NO.1 BY THE ASSESSEE READS AS UNDER 1) THE LEARNED CIT( APPEALS) ERRED IN FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN HOLDING THAT A LL ITEMS OF ADDITION HAVE TO BE SEPARATELY CONSIDERED BEFORE IT C AN BE HELD THAT A PARTICULAR ISSUE FALLS WITHIN THE SCOPE OF SECTIO N 153A OR NOT. IT BE HELD THAT THE IMPUGNED ADDITIONS MADE ARE BEYOND THE SCOPE AND PROVISIONS OF SECTION 153 A AS THEY ARE NOT B ASED ON ANY SEIZED / INCRIMINATING MATERIAL FOUND DURING THE COURSE OF SEARCH. 9 9.1 THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS THE ABOVE GROUND FOR WHICH THE LD. DEPARTMENTAL REPRESENTATIV E HAS NO OBJECTION. ACCORDINGLY, THE ABOVE GROUND IS DISMIS SED. 10. IDENTICAL GROUND HAS BEEN TAKEN BY THE ASSESSEE IN ALL THE REMAINING COS TO THE PROPOSITION THAT THE VARIOUS A DDITIONS MADE ARE BEYOND THE SCOPE OF SECTION 153A. SINCE THE AS SESSEE DID NOT PRESS THE SAME, THESE GROUNDS OF THE CROSS OBJECTIO N ARE DISMISSED AS NOT PRESSED. 11. GROUNDS OF APPEAL NO.2 BY THE REVENUE READS AS UNDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) ERRED IN NOT CONSIDERING THE FACTUAL FINDINGS PUT F ORWARD BY THE AO ON THE ISSUE OF UNACCOUNTED INVESTMENT IN LA ND (ADDITION RS. 9,72,490/-) FOR THE A.Y. 2003-04 11.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSE SSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED T HAT SEARCH OPERATION WAS CARRIED OUT IN THIS GROUP OF CASES. THE ASSESSING OFFICER FURTHER NOTED THAT DURING POST SEARCH ENQUI RIES IT WAS ESTABLISHED THAT GROUP IS GENERATING UNACCOUNTED CA SH BY WAY OF UNACCOUNTED SALE. SIMILARLY, THE GROUP WAS PURCHAS ING REAL ESTATE BEING LAND, AND IS PAYING EQUAL AMOUNT IN CA SH AS COMPARED TO DOCUMENTATION PRICE. HE NOTED THAT IN THE CASE OF SMT. SUSHILA D. GHODAWAT CHARITABLE TRUST, THE LAND SELLERS WERE EXAMINED BY THE INVESTIGATION WING AND ALL THE 16 P ERSONS, WHO HAD SOLD LAND TO THE TRUST, HAD STATED TO HAVE RECE IVED ON MONEY OVER AND ABOVE THE DOCUMENTATION PRICE. SIMILAR RE SULTS HAD ALSO COME OUT ON POST SEARCH ENQUIRIES IN THE CASE OF OT HER GROUP MEMBERS. THE ASSESSING OFFICER NOTED THAT THE ASSE SSEE HAD 10 PURCHASED LAND DURING THE YEAR THE PRICE OF WHICH H AS BEEN SHOWN IN THE BOOKS AT RS.9,72,470/-. HE, THEREFORE , MADE ADDITION OF EQUIVALENT AMOUNT ON THE GROUND THAT TH E ASSESSEE MUST HAVE PAID THE EQUIVALENT AMOUNT IN CASH AS ON MONEY. 12. BEFORE THE CIT(A) IT WAS ARGUED THAT THE ASSESS ING OFFICER HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO SUBSTANTI ATE THAT THE ASSESSEE HAD PAID EXTRA MONEY OVER AND ABOVE WHAT I S STATED TO HAVE BEEN PAID AS REFLECTED IN THE BOOKS OF ACCOUNT . THERE WERE NO INCRIMINATING DOCUMENTS IN THIS REGARD FOUND DUR ING THE COURSE OF SEARCH. THE ASSESSING OFFICER, BASED ON THE TRANSACTIONS IN CASE OF OTHER FIRMS/INDIVIDUAL GROU PS, WHICH HAD NO BEARING TO THE ASSESSEES CASE HAS MADE THE ADDI TION. IT WAS ARGUED THAT THE LAND OWNER IN QUESTION WAS NEITHER SUMMONED DURING THE ASSESSMENT PROCEEDINGS NOR THE STATEMENT RECORDED OF THE LAND OWNER WAS BROUGHT TO THE NOTICE OF THE ASS ESSEE. IT WAS CONTENDED THAT THE ASSESSEE HAS NOT PAID ANYTHING O VER AND ABOVE THE DECLARED SALE PRICE. IT WAS SUBMITTED THAT ONE LAND OWNER BY NAME SHRI PANDURANG D. GORE HAD CONFIRMED IN HIS ST ATEMENT THAT HE HAS RECEIVED RS.1 LAKH IN CASH FROM THE ASS ESSEE IN RESPECT OF LAND PURCHASED FROM HIM AND 10 OTHER CO- OWNERS FOR A TOTAL CONSIDERATION OF RS.1,49,623/-. REFERRING TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF DHAKESHWAR I COTTON MILLS PVT. LTD. VS. CIT REPORTED IN 26 ITR 775 IT W AS SUBMITTED THAT THE ADDITION WHICH WAS MADE ON THE BASIS OF CO NJECTURES AND SURMISES SHOULD BE DELETED. 11 13. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDE R : 59. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT WITH REFERENCE TO THE FACTS ON RECORD. IT IS OBSERVED THAT IN THE CASE OF THE APPELLANT, THE LANDLORDS FROM WHOM THE LAND WAS P URCHASED IN THE PREVIOUS YEARS RELEVANT TO ASSESSMENT YEARS 2003-04 TO 2007-08 AND 2009-10 WERE NOT PRODUCED BY THE ASSESSEE B EFORE THE ASSESSING OFFICER DESPITE HIS REQUEST FOR PRODUCING TH E WITNESS. SIMULTANEOUSLY IT IS ALSO TRUE THAT THE ASSESSING O FFICER, WHO COULD HAVE USED THE POWERS UNDER SECTION 131 TO EN FORCE THE ATTENDANCE OF WITNESS, CHOSE NOT TO DO SO. IT IS A FACT THAT SIXTEEN LAND OWNERS IN THE TRUST CASES, ONE LAND OWNER IN THE CASE OF SHRI SANJAY GHODAWAT, INDIVIDUAL AND GHODAWA T INDUSTRIES INDIA PVT. LTD. AND THREE LAND OWNERS IN TH E CASE OF GHODAWAT FOODS INDUSTRY PVT. LTD. HAD STATED THAT THE Y HAD RECEIVED MONIES OVER AND ABOVE THE PRICE DOCUMENTED. THE ASSESSING OFFICER CONCLUDED THAT THE APPELLANT HAD PAID AN EQUAL AMOUNT OF UNACCOUNTED CASH, OVER AND ABOVE THE PRICE SHOWN AS LAND PURCHASED IN THE BOOKS OF ACCOUNT AND THEREFORE MADE THE IMPUGNED ADDITION. 60. IN MY OPINION, THOUGH IT IS WELL-KNOWN THAT REA L ESTATE TRANSACTIONS MORE OFTEN THAN NOT INVOLVE PAYMENTS IN C ASH WHEREBY THE UNTAXED MONEY EARNED BY THE BUYER IS SIEV ED OFF IN THE FORM OF 'ON MONEY' AND PAID TO THE SELLERS, AN AD DITION CANNOT BE MADE. THIS IS A BANE OF INDIAN ECONOMY AND IS A TRU TH WHICH EVERYONE ACCEPTS AS CORRECT. YET THIS IS NOT THE GOSPEL TRUTH I.E. IT IS NOT POSSIBLE TO STATE ITH UTMOST CERTAINTY THAT EACH AND EVERY REAL ESTATE DEAL INVOLVES A CASH COMPONENT WHICH IS NOT A PART OF THE DOCUMENTATION PRICE. THEREFORE, FOR THE PURPOSE OF INCOME- TAX, ONE CANNOT MAKE AN ADDITION MERELY ON AN ASSUMPT ION THAT BECAUSE OTHER INDIVIDUALS OR PERSON HAVE MADE PAYMENT OF ON MONEY IN REAL ESTATE PURCHASES, ANOTHER PERSON BELONGIN G TO THE SAME GROUP WOULD HAVE ALSO MADE A SIMILAR PAYMENT OF ON MONEY TO ACQUIRE REAL ESTATE IN HIS OR HER OWN NAME. THERE IS NO PRESUMPTION IN LAW THAT THERE HAS TO BE AN UNACCOUNTE D TRANSACTION WHEN THERE IS A DEALING IN REAL ESTATE. IT HAS TO BE NOTED THAT SEARCH AND SEIZURE WAS CONDUCTED ON THE PR EMISES OF THE APPELLANT AND NO DOCUMENT OR EVIDENCE WHATSOEVER WAS FOUND WHICH WOULD INDICATE UNACCOUNTED TRANSACTIONS I N LAND DEALING BETWEEN THE MEMBERS OF THE GHODAWAT GROUP AN D THE SELLERS. IT IS ONLY THE STATEMENT MADE BY SOME OF THE LA NDLORDS WHO HAD SOLD LANDS TO THE GHODAWAT GROUP WHICH IMPLIC ATED SOME MEMBERS OF THE GHODAWAT GROUP OF INDULGING IN TRANSACTIONS OF ON MONEY PAYMENTS. IN THE ABSENCE OF AN Y DOCUMENTARY EVIDENCE, THE ORAL EVIDENCE OF LANDLORD S IN OTHER CASES CANNOT BE USED TO JUSTIFY AN ADDITION OF ON MONEY PAYMENT IN THE HANDS OF THE APPELLANT. THE ASSESSING OFFICER HAS NOT SPECIFIED THE RELEVANT ASSESSMENT YEAR IN RESPECT OF WHIC H ONE SELLER HAD CONFIRMED THAT HE HAD RECEIVED A SUM OVER AND ABOVE THE DOCUMENTED PRICE IN THE ASSESSMENT ORDERS FOR THE YE ARS IN WHICH THIS ADDITION IS MADE. HENCE, HE IS DIRECTED TO FIND OUT THE RELEVANT ASSESSMENT YEAR FOR WHICH THE STATEMENT WAS MADE AND RETAIN THE ADDITION TO THAT EXTENT IN THE CONCERNED ASSESSMENT YEAR. CONSEQUENTLY, THE APPELLANT GETS RELIEF IN FIVE ASSESSMENT YEARS AND PARTIAL RELIEF IN ONE ASSESSMENT YEAR. 12 13.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 14. THE LD. DEPARTMENTAL REPRESENTATIVE HEAVILY REL IED ON THE ORDER OF THE ASSESSING OFFICER. 15. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER H AND REFERRING TO THE DECISION OF THE TRIBUNAL IN THE CA SE OF DCIT VS. GHODAWAT INTERNATIONAL PVT. LTD. VIDE ITA NOS. 2147 TO 2150/PN/2012 ORDER DATED 31-12-2012 FOR A.YRS. 2005 -06 TO 2009-10 SUBMITTED THAT UNDER IDENTICAL FACTS AND CI RCUMSTANCES THE ADDITION MADE ON ACCOUNT OF UNACCOUNTED INVESTM ENT IN LAND, WHICH WAS DELETED BY THE CIT(A), HAS BEEN UPHELD BY THE TRIBUNAL AND THE GROUND RAISED BY THE REVENUE HAS B EEN DISMISSED. THEREFORE, THE ABOVE GROUND BY THE REVE NUE SHOULD BE DISMISSED. 16. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. WE FIND IN THE CASE OF GHODAWAT FOODS INTER NATIONAL PVT. LTD. (SUPRA), A GROUP CONCERN IN WHICH SIMILAR ADDI TION WAS MADE WAS DELETED BY THE CIT(A) AND ON FURTHER APPEA L THE TRIBUNAL DISMISSED THE GROUND RAISED BY THE REVENUE BY OBSERVING AS UNDER : 3. THE ASSESSING OFFICER HAS MADE ADDITION OF RS.39,68,039/- ON ACCOUNT OF UNACCOUNTED INVESTMENT I N LAND. DURING THE A.Y. 2005-06, 2007-08, 2008-09 AND 2009- 10, THE ASSESSEE HAD PURCHASED LAND COSTING RS.39,68,039/-, RS.11,20,245/-, RS.92,040/- AND RS.11,76/227/- RESPECTI VELY. THE ASSESSING OFFICER OBSERVED THAT IN POST SEARCH ENQUIRI ES MADE, THE PERSONS WHO SOLD LAND TO THE OTHER CONCERNS / 13 INDIVIDUALS OF THE GHODAWAT GROUP, HAVING RECEIVED S ALE CONSIDERATION OVER AND ABOVE THE DOCUMENTATION PRICE . KEEPING THIS IN VIEW, IN THE INSTANT CASE, HE REQUIRED THE ASSESSE E TO PRODUCE THE SELLER OF THE LAND FOR EXAMINATION. HOWE VER, SINCE THE ASSESSEE WAS UNABLE TO PRODUCE THE CONCERNED SELLER O F THE LAND, THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAD PAI D AN EQUAL AMOUNT OVER AND ABOVE THE PURCHASE CONSIDERATIO N SHOWN IN BOOKS AND MADE AN ADDITION OF RS.39,68,039/-, RS.11 ,20,245/, RS.92,040/- AND RS.11,76,227/- TO THE ASSESSEE'S TOTAL INC OME FOR 3 ASSESSMENT YEARS 2005-06, 2007-08, 2008-09 AND 2009-10 RESPECTIVELY. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, WHEREIN, THE ASSESSEE STATED THAT ASSESSING OFFIC ER HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO ENABLE HIM TO MAKE THESE ADDITIONS. IT WAS ALSO CONTENDED ON BEHALF OF ASSESSEE, T HERE WAS NO INCRIMINATING DOCUMENT DURING THE COURSE OF SEARC H IN THIS REGARD. THE ASSESSING OFFICER HAS REFERRED TO TRANSACTIO NS MADE IN CASES OF OTHER FIRM / INDIVIDUALS OF THE GROUP, WH ICH HAS NO BEARING TO THE ASSESSEE'S CASE. THE ASSESSEE CONTENDED THAT IT HAD NOT PAID ANYTHING MORE THAN THE SALE DEED PRICE FOR PURCHASE OF THE LAND AND HENCE, THE ADDITION WAS NOT JUSTIFIED. THE LAND OWNERS FROM WHOM LAND WAS PURCHASED IN THE PR EVIOUS YEARS RELEVANT TO ASSESSMENT YEARS 2005-06, 2007-08, 200 8-09 AND 2009-10 WERE NOT PRODUCED AS WITNESS FOR CROSS EXAMINATION. THE ASSESSING OFFICER COULD HAVE USED THE POWERS UNDER SECTION 131 TO ENFORCE THE ATTENDANCE OF WITNE SS, BUT HE DID NOT CHOSE TO DO SO. SIXTEEN LAND OWNERS IN THE TRUST CASES, ONE LAND OWNER IN THE CASE OF SHRI SANJAY GHODAWAT, INDIVIDUAL AND GHODAWAT INDUSTRIES INDIA PVT. LTD. AND THREE LA ND OWNERS IN THE CASE OF GHODAWAT FOODS INDUSTRY PVT. LTD. H AS STATED THAT THEY HAD RECEIVED MONIES OVER AND ABOVE THE DOC UMENTED PRICE. THE ASSESSING OFFICER CONCLUDED THAT THE ASSESSEE H AS ALSO PAID AN EQUAL AMOUNT OF UNACCOUNTED CASH, OVER AND A BOVE THE PRICE SHOWN AS LAND PURCHASED IN THE BOOKS OF ACCOUNT, THEREFORE MADE THE ADDITION IN EVERY CASE OF LAND PURCHASE. T HOUGH IN THE REAL ESTATE TRANSACTIONS THERE IS A ROLE OF ON MONEY. BUT IT COULD NOT BE SAID THAT EACH OF EVERY REAL ESTATE TRANSACTION INVOLVED CASH COMPONENT WHICH IS NOT PART OF DOCUMENTATION PRI CE FOR THE PURPOSE OF INCOME TAX. ONE CANNOT MAKE ADDITION MER ELY ON ASSUMPTION THAT BECAUSE OTHER INDIVIDUALS OR PERSONS HAVE MADE PAYMENT OF EARNED MONEY IN REAL ESTATE PURCHASE S, ANOTHER PERSON BELONGING TO THE SAME GROUP WOULD HAVE ALSO MADE A SIMILAR PAYMENT OF ON MONEY TO ACQUIRE REAL E STATE IN HIS OR HER OWN NAME. THERE IS NO PRESUMPTION IN LAW THAT THERE HAS TO BE AN UNACCOUNTED TRANSACTION WHEN THERE IS A DEAL ING IN REAL ESTATE. IT IS PERTINENT TO MENTION THAT SEARCH AND SEIZ URE WAS CONDUCTED ON THE PREMISES OF THE ASSESSEE AND NO DOCUMENT OR EVIDENCE WHATSOEVER WAS FOUND WHICH COULD INDICATE UNACCOUNTED TRANSACTIONS IN LAND DEALING BETWEEN THE MEMBERS OF THE GHODAWAT GROUP AND THE SELLERS. IT IS ONLY THE STATEMENT MADE BY SOME OF THE LANDLORDS WHO HAD SOLD LANDS TO CER TAIN GHODAWAT GROUP WHICH IMPLICATED SOME MEMBERS OF THE GHODAWAT GROUP OF INDULGING IN TRANSACTIONS OF ON MON EY PAYMENTS. IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE, THE ORAL EVIDENCE OF LANDLORDS IN OTHER CASES COULD NOT BE USED TO JUSTIFY THE ADDITION OF ON MONEY PAYMENT IN THE HANDS OF THE ASSESSEE. THEREFORE, THE ASSESSEE WAS GIVEN RELIEF FOR ALL THE YEA RS AND IN THE YEARS BEFORE US. HOWEVER, THE RELIEF HAS NOT BEEN GRANTED IN RESPECT OF THE LAND SOLD BY THE THREE LANDOWNERS WHO H AVE MENTIONED THAT THEY HAVE RECEIVED EXTRA MONIES THAN WHAT WAS RECORDED AND DOCUMENTED IN SALE DEED. THIS IS FOR THE REASON 14 THAT THOUGH THEIR STATEMENT WAS GIVEN TO THE ASSESSEE, TH E ASSESSEE DID NOT DENY THESE TRANSACTIONS. HENCE, ADDITION MADE TO THAT EXTENT WAS CONFIRMED WHICH IS NOT SUBJECT MATT ER BEFORE. IN VIEW OF ABOVE, WE ARE NOT INCLINED TO INTERFERE IN FINDINGS OF CIT(A) BECAUSE ADDITION BASED ON PRESUMPTION CANNOT B E SUSTAINED. WE UPHOLD THE SAME. THIS TAKE CARES OF SIMIL AR ISSUE AROSE IN THE A.YS.2007-08 AND 2008-09. FACTS BEING SI MILAR, SO FOLLOWING THE SAME REASONING, ORDER OF CIT(A) NEEDS N O INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 16.1 RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL IN THE CASE OF GHODAWAT FOODS INTERNATIONAL PVT. LTD. (SUP RA) WHERE SIMILAR ADDITION MADE BY THE ASSESSING OFFICER WAS DELETED BY THE CIT(A) AND THE APPEAL FILED BY THE REVENUE HAS BEEN DISMISSED, THEREFORE, WE FIND NO INFIRMITY IN THE O RDER OF THE CIT(A) DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNACCOUNTED PAYMENT FOR PURCHASE OF LAND . THE GROUND RAISED BY THE REVENUE IS ACCORDINGLY DISMISS ED. 16.2 IDENTICAL GROUNDS HAVE BEEN TAKEN BY THE REVEN UE IN ALL THE APPEALS EXCEPT APPEAL FOR A.Y. 2008-09. FOLLOW ING OUR REASONINGS IN THE PRECEDING PARAGRAPHS, THE GROUNDS RAISED BY THE REVENUE ON THIS ISSUE IN THE ABOVE APPEALS ARE DISM ISSED. 17. GROUND OF APPEAL NO.3 BY THE REVENUE READS AS U NDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) ERRED IN DELETING THE ADDITIONS OF RS.20,84,85,103/- MADE BY THE AO IN RESPECT OF UNACCOUNTED SALE OF GUTKHA FOR A.Y. 2003-04. (RS.20,84,85,103/- EACH FOR A.Y. 2004-05 TO 2007-08 , RS.20,85,23,425/- FOR A.Y. 2008-09 AND RS.39,40,36,75 1/- FOR A.Y. 2009-10) 17.1 AS MENTIONED EARLIER, THE ASSESSEE IS A COMPAN Y ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING IN PAN MASALA, GUTKHA, TRADING IN SHARES AND ALSO ENGAGED IN THE B USINESS OF 15 CONSTRUCTION AND GENERATION OF POWER ETC. THE ORIG INAL RETURN OF INCOME FOR THE IMPUGNED YEAR WAS FILED ON 29-10-200 3 DECLARING TOTAL INCOME OF RS.10,28,780/- AND AGRICULTURAL INC OME OF RS.4,06,52,243/-. A SEARCH AND SEIZURE OPERATION U /S.132 /133A OF THE ACT WAS CARRIED OUT ON 04-02-2009. IN RESPO NSE TO THE NOTICE U/S.153A(1) THE ASSESSEE REQUESTED THE ASSES SING OFFICER TO TREAT THE RETURN FILED EARLIER AS RETURN FILED I N RESPONSE TO THE ABOVE NOTICE. 17.2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS TH E ASSESSING OFFICER NOTED THAT A SEARCH AND SEIZURE ACTION U/S. 132 WAS ALSO CARRIED OUT AT THE FACTORY PREMISES OF GHODAWAT IND USTRIES INDIA PVT. LTD. (IN SHORT GIIPL) AT VILLAGE MANKAPUR DI STRICT BELGAUM, KARNATAKA. GIIPL IS ENGAGED IN MANUFACTURI NG OF GUTKHA & PAN MASALA UNDER VARIOUS BRAND NAMES SUCH AS STAR 555 GUTKHA & PAN MASALA, JOSH 111 GUTKHA & PAN MASA LA, LAGAAN GUTKHA AND PAN MASALA, SG 555 GUTKHA & PAN M ASALA, CHAKDE GUTKHA & PAN MASALA, STAR 555 PREMIUM GUTKHA , STAR 555 PREMIUM GUTKHA (EXPORT), U.P. NO.1 GUTKHA AND P AN MASALA, STAR 555 SCENTED SUPARI & ZARDA. 17.3 THE ASSESSING OFFICER OBSERVED THAT THE SEARCH PARTY HAD NOTED THAT NO PRIMARY BASIC DOCUMENTS WERE MAINTAIN ED BY THE ASSESSEE IN RESPECT OF PRODUCTION OF GUTKHA AT ITS FACTORY PREMISES. BASED ON THE EXCISE RECORDS, THE SEARCH PARTY WORKED OUT THE QUANTUM OF PRODUCTION AND SUPPRESSED SALE O F GUTKHA ON THE BASIS OF PRODUCTION CAPACITY OF MACHINES WHICH RESULTED INTO 16 LARGE VARIATION OF PRODUCTION SHOWN AS SOLD IN THE BOOKS AND THE ACTUAL PRODUCTION OF GUTKHA RESULTING INTO SUPPRESS ION OF SALES AND PRODUCTION OUTSIDE BOOKS. SINCE NO BASIC DOCUM ENTS ARE MAINTAINED FOR PRODUCTION OF GUTKHA AND PAN MASALA AT ITS FACTORY PREMISES, A DETAILED STATEMENT OF SANJAY GH ODAWAT, CHAIRMAND AND MANAGING DIRECTOR OF GIIPL WAS RECORD ED ON OATH ON 5/6-02-2009 U/S.132(4) OF THE INCOME TAX AC T. SHRI SANJAY GHODAWAT, IN HIS STATEMENT RECORDED DURING T HE COURSE OF SEARCH, HAD ADMITTED THAT NO PRIMARY BASIC DOCUMENT S FOR PRODUCTION INCLUDING INWARD OF RAW MATERIAL AND OUT WARD OF FINISHED PRODUCTS ARE BEING MAINTAINED AT ITS FACTO RY PREMISES. HE HAD ADMITTED THAT EXCISE RECORDS ARE MAINTAINED IN RESPECT OF FINISHED GOODS WHEN MOVED OUT OF THE FACTORY PREMIS ES. HOWEVER, NO INWARD DOCUMENTS ARE MAINTAINED FOR RAW MATERIALS. 17.4 THE ASSESSING OFFICER ANALYSED THE STATEMENT R ECORDED U/S.132(4) DURING THE COURSE OF SEARCH AND CAME TO THE CONCLUSION THAT THE SAID STATEMENT CLEARLY BRINGS OUT A CASE T HAT NO PRIMARY BASIC DOCUMENTS ARE MAINTAINED IT ITS FACTORY PREMI SES IN RESPECT OF PRODUCTION OF GUTKHA AND PAN MASALA. THEREFORE, IN ABSENCE OF SUCH PRIMARY BASIC RECORDS, THE ASSESSING OFFICE R WAS OF THE OPINION THAT IT IS NOT PRACTICALLY POSSIBLE FOR THE ASSESSING AUTHORITIES TO KNOW THE OPENING AND CLOSING STOCK O F THE GUTKHA AND PAN MASALA AND THEREFORE THE CORRECT PROFIT OUT OF PRODUCTION AND SALE OF GUTKHA AND PAN MASALA ACTIVITIES CANNOT BE DETERMINED IN THE ABSENCE OF RELEVANT DETAILS. THE REFORE, HE WAS OF THE OPINION THAT THERE IS NO OTHER ALTERNATIVE B UT TO ADHERE TO 17 THE POLICY FOLLOWED BY THE CENTRAL EXCISE FOR LEVY OF EXCISE DUTY ON THE BASIS OF PRODUCTION CAPACITY OF EACH MACHINE INSTALLED IN THE FACTORY PREMISES. HE NOTED THAT THE RECORDS FO UND DURING THE COURSE OF SEARCH REVEAL THAT THE CENTRAL EXCISE AUT HORITIES HAVE CHARGED THE EXCISE DUTY ON PRODUCTION OF GUTKHA AND PAN MASALA ON THE BASIS OF PRODUCTION CAPACITY OF POWER MACHIN ES INSTALLED IN THE FACTORY PREMISES. THE SEARCH PARTY IN THE C OURSE OF SEARCH ACTION FOLLOWED THE METHOD ADOPTED BY THE EXCISE DE PARTMENT FOR LEVY OF EXCISE DUTY ON PRODUCTION. THE WORKING OF PRODUCTION CAPACITY PER MACHINE FOR THE MONTH OF OCTOBER 2007 WAS PREPARED AND QUANTIFIED BY THE SEARCH PARTY WHICH R ESULTED INTO SUPPRESSION OF PRODUCTION AND SALE TO THE TUNE OF RS.12,71,43,500/- BETWEEN THE PRODUCTION SHOWN IN T HE BOOKS AND THE PRODUCTION WORKED OUT ON THE BASIS OF MACHI NE CAPACITY. 17.5 THE ASSESSING OFFICER AFTER ANALYSING THE STAT EMENT RECORDED U/S.132(4) CAME TO THE CONCLUSION THAT SHR I SANJAY GHODAWAT WAS ALSO NOT ABLE TO GIVE A REBUTTAL AS TO WHY THE PRODUCTION METHOD ADOPTED BY EXCISE DEPARTMENT SHOU LD NOT BE ADOPTED AND BOOKS OF ACCOUNTS SHOULD NOT BE REJECTE D U/S.145 OF THE INCOME TAX ACT. THE ASSESSING OFFICER ALSO REF ERRED TO THE STATEMENT OF SOME OF THE EMPLOYEES/LABOURERS WORKIN G ON THE PRODUCTION MACHINE WHICH WERE RECORDED U/S.132(4) O N 04-02- 2009 AND 05-02-2009. IN THEIR SWORN STATEMENTS, TH E LABOURERS HANDLING THE MACHINE HAVE CONFIRMED THAT THE CAPACI TY OF EACH MACHINE IS PRODUCTION OF 75 TO 80 POUCHES OF GUTKHA AND PAN MASALA PER MINUTE WHICH IS IN CONFORMITY WITH THE C ENTRAL EXCISE 18 METHOD ADOPTED FOR LEVY OF CENTRAL EXCISE ON PRODUC TION CAPACITY OF MACHINES INSTALLED IN THE FACTORY PREMISES. 17.6 IN THE LIGHT OF THE STATEMENTS OF VARIOUS PERS ONS THE AO CAME TO THE CONCLUSION THAT THESE STATEMENTS ESTABL ISH THAT THE ASSESSEE IS INDULGING IN PRACTICE OF PRODUCING AND SELLING GOODS OUTSIDE BOOKS AND THUS AVOIDING TAX THERE UPON. TO STRENGTHEN HIS PRESUMPTION THAT THE ASSESSEE IS INDULGING IN P RODUCTION AND SELLING OF GOODS OUT OF BOOKS OF ACCOUNTS, THE ASSE SSING OFFICER NOTED THAT DURING THE COURSE OF SEARCH CERTAIN REGI STERS MAINTAINED BY THE ASSESSEE FOR CONSUMPTION OF LAMIN ATION WERE SEIZED VIDE ANNEXURE-A OF THE PANCHAMANA. HE EXAMIN ED THE CONSUMPTION OF LAMINATION FOR DIFFERENT BRANDS AS P ER THE TABULATION APPEARING AT PAGES 16 TO 19 OF THE ASSES SMENT ORDER. BY APPLYING THE SALE RATE RS.0.798 PER POUCH AND AD OPTING GP AT 54.87% HE DETERMINED THE SUPPRESSED INCOME ON ACCOU NT OF UNACCOUNTED SALE AT RS.2,28,95,133/- (I.E. RS.5,22, 88,398/- X 0.798 X 54.87%) 17.7 THE AO FURTHER NOTED THAT THE ASSESSEE SELLS G UTKHA AND PAN MASALA THOUGH C&F AND DISTRIBUTORS MAINLY IN KA RNATAKA AND MAHARASHTRA. DURING THE COURSE OF SEARCH, SURV EY ACTIONS U/S.133A WAS ALSO CONDUCTED SIMULTANEOUSLY ON SOME DISTRIBUTORS IN MAHARASHTRA. ACCORDING TO THE ASSES SING OFFICER, THE EVIDENCES FOUND AND IMPOUNDED FROM THESE C&F DI STRIBUTORS FOR GUTKHA & PAN MASALA CLEARLY REVEAL THAT THE ASS ESSEE WAS INDULGING IN SUPPRESSION OF SALE OF GUTKHA AND PAN MASALA 19 OUTSIDE BOOKS THROUGH THESE C&F DISTRIBUTORS. HE A NALYSED PARTYWISE FINDINGS OF THE C&F AGENTS. 17.8 HE NOTED THAT M/S. SHREE AMBIKA ENTERPRISES, M UMBAI, PROPRIETOR SHRI DHARMESH PATEL WAS APPOINTED AS C&F FOR DISTRIBUTION OF GUTKHA AND PAN MASALA MANUFACTURED BY GIIPL. SURVEY ACTION U/S.133A WAS CARRIED ON 05-02-2009 AN D HIS STATEMENT WAS RECORDED. IT WAS SEEN THAT THE SALE S TAX DEPARTMENT HAD ALREADY CONDUCTED A SEARCH AND SURVE Y OPERATION AT THE BUSINESS PREMISES OF M/S. SHREE AMBIKA ENTER PRISES, PROPRIETOR SHRI DHARMESH PATEL. THE ASSESSING OFFIC ER AFTER OBTAINING COPIES OF DOCUMENTS SEIZED BY THE SALES T AX DEPARTMENT ANALYSED THE SAME AND NOTED THAT SHREE AMBIKA ENTER PRISES HAS MADE SUBSTANTIAL SALES TO ITS 25 DISTRIBUTORS SPREA D OVER IN THE AREAS OF THANE, MUMBAI AND VASHI IN CASH WHICH ARE OUTSIDE BOOKS DURING F.Y. 2006-07 TO 2008-09 AND THE CASH R ECEIVED HAS ADMITTEDLY BEEN PASSED ON TO SHRI SANJAY GHODAWAT T HROUGH ONE MR. MAHESH, ONE OF THE EMPLOYEES OF GIIPL, WHO COLL ECTED CASH IN MUMBAI ON DAY-TO-DAY BASIS. AFTER ANALYSING THE VARIOUS DOCUMENTS SEIZED BY THE SALES TAX DEPARTMENT, THE S TATEMENT RECORDED DURING THE COURSE OF SURVEY OF SHRI DHARME SH PATEL, THE ASSESSING OFFICER DETERMINED THE UNACCOUNTED SALE O F GIIPL THROUGH M/S. SHREE AMBIKA ENTERPRISE AT RS.32,99,25 0/- FOR A PERIOD OF 4 MONTHS OF THE F.Y. 2006-07. RELYING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF H.M. E SUFALI H.M. ABDULALI REPORTED IN 90 ITR 271, THE AO DETERMINED THE 20 UNACCOUNTED SALES FOR F.Y. 2006-07 AT RS.98,97,750/ -. SIMILARLY, HE DETERMINED THE UNACCOUNTED SALES FOR F.Y. 2007-0 8 AT RS.32,04,31,758/- AND FOR F.Y. 2008-09 AT RS.65,85, 27,850/-. 17.9 SIMILARLY, IN THE CASE OF M/S. SHAIK TRADERS, SATARA, PROPRIETOR MR. KUTUBUDDIN SHAIKH, THE ASSESSING OFF ICER NOTED THAT THE SURVEY WAS CONDUCTED AT HIS BUSINESS PREMI SES DURING WHICH VARIOUS PAPERS AND DOCUMENTS FOUND WERE IMPOU NDED. SUCH IMPOUNDED DOCUMENTS REVEAL THAT M/S. SHAIK TRA DERS HAS PURCHASED GUTKHA AND PAN MASALA IN CASH FROM GIIPL TO THE TUNE OF RS.50 LAKHS. HE NOTED THAT THE SURVEY PARTY IN THE COURSE OF SURVEY FOUND A COPY OF LEDGER ACCOUNT OF SHRI DATTA IN THE BOOKS OF SHAIK TRADERS OF SATARA. THE SAID LEDGER ACCOUN T SHOWS THAT M/S. SHAIK TRADERS, SATARA HAS MADE CASH PURCHASES TO THE TUNE OF RS.24,82,196/- THROUGH GIIPL AND PAID THE CONSID ERATION IN CASH TO GIIPL THROUGH SHRI DATTA. THE GOODS PURCHA SED FROM GIIPL WERE SOLD IN CASH IN THE MARKET AND THE CASH REALISED OUT OF SUCH SALES, AFTER SETTING OFF THE MARGIN OF PROF IT, HAS BEEN PASSED ON TO SHRI SANJAY GHODAWAT, CHAIRMAN AND MAN AGING DIRECTOR OF GIIPL THROUGH SHRI DATTA WHO IS CASHIER IN GIIPL. THE ASSESSING OFFICER NOTED THAT THIS TRANSACTION I S IDENTICAL TO THAT OF TRANSACTION OF M/S. SHREE AMBIKA ENTERPRISE S OF MUMBAI. HE REFERRED TO THE STATEMENT OF SHRI K.R. SHAIK, PR OPRIETOR OF M/S. SHAIK TRADERS. IN HIS STATEMENT RECORDED U/S. 131 DURING THE COURSE OF SURVEY, HE HAD CONFESSED THAT HE HAS MADE TOTAL PURCHASES APPROXIMATELY TO THE TUNE OF RS.50 LAKHS FROM GIIPL DURING F.Y. 2008-09 FROM DECEMBER, 2008 TO FEBRUARY , 2009. 21 SINCE THE ABOVE FIGURE WAS FOR A PERIOD OF 3 MONTHS , THEREFORE, THE AO, RELYING ON THE DECISION OF THE HONBLE SUPR EME COURT IN THE CASE OF H.M. ESUFALI H.M. ABDULALI REPORTED IN 90 ITR 271, ESTIMATED THE SUPPRESSED SALES OF F.Y. 2007-08 AT R S. 2 CRORES. 17.10 THE ASSESSING OFFICER FURTHER NOTED THAT A SU RVEY ACTION U/S.133A WAS ALSO CONDUCTED AT THE BUSINESS PREMISE S OF M/S. SIDDESHWAR AGENCIES, SOLAPUR, PROPRIETOR SHRI UDHAV SHANKAR KHARGE (HUF), WHO IS ONE OF THE DISTRIBUTORS OF GUT KHA AND PAN MASALA OF GIIPL. DURING THE SAID SURVEY VARIOUS LO OSE PAPERS WERE IMPOUNDED. HE NOTED THAT AS PER THE ENTRIES D EPICTED ON PAGES 23 TO 31 OF LOOSE PAPER, BUNDLE NO.2 IT WAS F OUND THAT TOTAL SALES OF RS.66,51,159/- ON ACCOUNT OF SALE OF STAR AND CHAKDE GUTKHA AND PAN MASALA WERE NOT RECORDED IN R EGULAR BOOKS OF ACCOUNTS. THIS FACT WAS ALSO CONFESSED BY SHRI UDHAV SHANKAR KHARGE IN HIS STATEMENT RECORDED WHEREIN HE HAS CATEGORICALLY OWNED UP THE PAPERS AND DOCUMENTS AND THE NOTINGS IN THE DIARY. THE ASSESSING OFFICER REFERRED TO TH E STATEMENT RECORDED DURING THE SURVEY, THE DOCUMENTS IMPOUNDED DURING SUCH SURVEY AND NOTED THAT THE SUPPRESSED SALE OF G UTKHA AND PAN MASALA COMES TO RS.66 LAKHS FOR A PERIOD OF 2 MONTH S OF THE F.Y. 2008-09. RELYING ON THE DECISION OF THE HONBLE SU PREME COURT IN THE CASE OF H.M. ESUFALI H.M. ABDULALI REPORTED IN 90 ITR 271 THE ASSESSING OFFICER ESTIMATED THE SUPPRESSED SALES FOR F.Y. 2007-08 AT RS. 3,96,00,000/-. 22 17.11 SINCE THE BOOKS OF ACCOUNT DOES NOT GIVE A TR UE AND CORRECT PICTURE OF THE AFFAIRS OF THE ASSESSEE AND THE ASSE SSEE WAS INDULGING IN LARGE SCALE SALE OUTSIDE BOOKS OF ACCO UNT, THE AO REJECTED THE BOOKS OF ACCOUNT. ON THE BASIS OF HIS VARIOUS ANALYSIS, THE ASSESSING OFFICER DETERMINED THE SUPP RESSED SALES AT RS.265,97,33,413/- DURING THE PERIOD COVERED IN THE SEARCH AND DETERMINED THE PROFIT FOR DIFFERENT YEARS BY OBSERV ING AS UNDER : 9.6 THUS, THE TOTAL SUPPRESSED SALES COMES TO RS.265,97,33,413/- DURING THE PERIOD COVERED IN THE SEARCH AS TABULATED BELOW. THE PROFITS ATTRIBUTABLE TO THE SUP PRESSED SALES DURING THE VARIOUS YEARS OF THE SEARCH PERIOD FROM TH E F.YRS. 2002-03 TO 2008-09 IS WORKED OUT BY ADOPTING GP RATI O. THE YEAR-WISE BIFURCATION OF SUPPRESSED SALES IS AS UNDER : SR. NO FINANCIAL YEAR ESTIMATED SUPPRESSED SALES 1 2002 - 03 37,99,61,916 2 2003 - 04 37,99,61,916 3 2004 - 05 37,99,61,916 4 2005 - 06 37,99,61,916 5 2006 - 07 4,17,26,141 6 2007 - 08# 38,00,31,758 7 2008 - 09#* 71,81,27,850 TOTAL 265,97,33,413 F.Y. 06-07 RS. 4,17,26,141 SEPARATELY DISCUSSED IN PARA (B) ABOVE. # F.Y. 07-08 RS. 320431758+20000000+39600000=38,00,3 1,758 #* F.Y. 08-09 RS.658527850+20000000+39600000=71,81,27 ,850 9.7 IT CAN BE SEEN FROM THE ABOVE ANALYSIS OF THE SEIZE D PAPERS AND DOCUMENTS THAT THE TOTAL UNACCOUNTED SALES FOR THE PERIOD 2002-03 TO 2008-09 (TILL THE DATE OF SEARCH) WORKS OU T TO RS.265,97,33,413/-. IT IS MENTIONED THAT NO EVIDENCE RELATING TO THE CORRESPONDING UNACCOUNTED PURCHASES WAS FOUND AND SEIZED IN THE COURSE OF SEARCH ACTION. KEEPING IN VIEW OF TH IS FACT, THE TOTAL UNDISCLOSED TAXABLE PROFITS ATTRIBUTABLE TO SUPPR ESSED SALES DETECTED IN THE SEARCH AND POST SEARCH ENQUIRIES, THE G ROSS PROFIT RATIO METHOD IS ADOPTED TO DEDUCE THE PROFITS OF UNRE CORDED SALES. THE GROSS PROFIT ATTRIBUTABLE TO TOTAL SALES IS TAX ABLE IN THE RESPECTIVE FINANCIAL YEARS AS UNDISCLOSED INCOME OF GHOD AWAT INDUSTRIES INDIA PVT. LTD. THE ACTUAL GROSS PROFIT RATI O AS PER THE ACCOUNTS OF THE ASSESSEE COMPANY FOR THE F Y 2005-06 TO F Y 2007-08 IS AS UNDER: F.Y. SALES (AMOUNT IN RS.) GROSS PROFIT GP% 2005 - 06 1054456321 83699818 7.93 2006 - 07 910386077 45525460 5.00 2007-08 1254020055 97244366 7.75 23 9.8 THE ABOVE GROSS PROFIT RATIO INCLUDES THE EXCISE D UTY LEVIED ON MANUFACTURING OF GUTKHA & PAN-MASALA SOLD B Y THE ASSESSEE COMPANY IN THE RESPECTIVE YEARS. IT IS, HOWEVER , SIGNIFICANT TO MENTION HERE THAT NO EXCISE DUTY HAS BE EN PAID OR LEVIED IN RESPECT OF UNRECORDED SALES IN CASH, QUANTIFI ED AT RS. 265,97,33,413/-. THEREFORE, WHILE ARRIVING AT THE GROSS PROFIT RATIO ON THE UNRECORDED SALES, ACTUAL EXCISE DUTY LEVI ED ON GUTKHA AND PAN-MASALA INCLUDED IN THE SALES IS POCKETED BY THE ASSESSEE. THE GROSS PROFIT RATIO AFTER EXCLUDING THE EXCI SE DUTY IN RESPECT OF THE SALES DISCLOSED IN THE RETURNS FILED FOR F Y-2005-06 TO 2007-08 IS WORKED OUT AS UNDER: F. Y. GROSS SALES (AMOUNT IN RS.) EXCISE DUTY (LESS) NET SALES (EXCLUDING EXCISE DUTY) GROSS PROFIT G P% 2005 - 06 1054456321 495964051 558492270 579663869 54.97 2006 - 07 910386077 436220602 474165475 481846062 52.92 2007 - 08 1254020055 614197774 614197774 711442148 56.73 AVERAGE GROSS PROFIT RATIO 54.87 9.9 IT CAN BE SEEN FROM THE ABOVE THAT GROSS PROFIT R ATIO AFTER EXCLUDING THE EXCISE DUTY RANGES BETWEEN 52.92% TO 56 .73% FOR THE THREE FINANCIAL YEARS MENTIONED ABOVE. ADOPTING THE AVERAGE, GP RATIO FOR ALL THE THREE YEARS COMES TO 54.87%. APP LYING THE G P RATIO WORKED OUT @54.87, THE TOTAL TAXABLE UNDISCL OSED PROFITS IS DETERMINED AS UNDER. IT IS TO MENTION HERE THAT FOR THE ASSESSMENT YEAR 2007-08 THOUGH THE UNRECORDED SALE IS, ON THE BASIS OF PROOF FOUND DURING THE SEARCH AT RS. 4,17,26,1 41 ON WHICH PROFIT AT THE RATE OF 54.87 COMES TO RS. 2,28,9 5,133, FOR THE ASSESSMENT THE UNRECORDED INCOME IS TAKEN AT RS. 20,84,85,103/-. THE YEAR WISE PROFIT TAXABLE IN THE HANDS OF THE ASSESSEE IS WORKED OUT AS UNDER BY ADOPTING GP RATIO AT 54.87%: THUS FOR THE IMPUGNED ASSESSMENT YEAR THE ASSESSIN G OFFICER MADE ADDITION OF RS.20,84,85,103/- BEING PR OFIT ON UNACCOUNTED SALE OF GUTKHA AND PAN MASALA. SR. NO FINANCIAL YEAR SUPPRESSED SALES PROFIT @ 54.87% 1 2002 - 03 37,99,61,916 20,84,85,103 2 2003 - 04 37,99,61,916 20,84,85,103 3 2004 - 05 37,99,61,916 20,84,85,103 4 2005 - 06 37,99,61,916 20,84,85,103 5 2006 - 07 37,99,61,916 *20,84,85,103 6 2007 - 08 38,00,31,758 20,85,23,425 7 2008 - 09 71,81,27,850 39,40,36,751 24 18. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE ASS ESSEE HAS MAINTAINED RECORDS TO SHOW THE PRODUCTION AND STOC K OF GUTKHA AND PAN MASALA. IT WAS SUBMITTED THAT THE EXCISE D EPARTMENT HAD VERIFIED THE STOCK REGISTERS DURING THE YEAR 20 07-08 AND 2008-09 ON DIFFERENT DATES AND HAD CONFIRMED THAT T HE PRODUCTION ON SUCH DATES WERE VERIFIED AND FOUND CORRECT AND T HE EXCISE RECORDS ARE A PART OF THE SEIZED DOCUMENT. THE ASS ESSEE SUBMITTED THAT DURING THE COURSE OF SEARCH THE STOC K OF RAW MATERIAL AND FINISHED GOODS FOUND TALLIED WITH THE STOCK RECORDS FOR WHICH THERE WAS NO SEIZURE. THE ASSESSEE HAD A LSO NOT MADE ANY DECLARATION TO THIS EFFECT. FURTHER, DURING TH E COURSE OF SEARCH NO DOCUMENTS / EVIDENCE WERE FOUND FROM THE PREMISES OF THE ASSESSEE INDICATING SALES/PURCHASE/PRODUCTION M ADE OUTSIDE THE BOOKS OF ACCOUNT. THEREFORE, THE AO WAS NOT JU STIFIED IN CONCLUDING THAT THERE WAS SUPPRESSION OF PRODUCTION AND SUPPRESSED SALE OF GUTKHA OUTSIDE THE BOOKS OF ACCO UNT. THE ASSESSEE SUBMITTED THAT THE EXCISE RECORDS FOR THE YEAR 2007-08 AND 2008-09, WHICH ARE PART OF THE SEIZED DOCUMENTS , SHOW ENTRIES OF PRODUCTION, SALE AND STOCK OF DIFFERENT VARIETIES OF GUTKHA AND PAN MASALA ON DAILY BASIS. THE REGISTER S CONTAINING THE DATA OF ACTUAL PRODUCTION FOR THE MONTHS OF NOV EMBER 2007 & DECEMBER 2007 ON THE BASIS OF NUMBER OF PACKING M ACHINES BEING PUT TO USE AND THE NUMBER OF HOURS THE MACHIN ES HAVE WORKED IS ALSO PART OF THE SEIZED DOCUMENTS. ALL T HE DETAILS GIVING THE MONTH-WISE PRODUCTION, CONSUMPTION OF RA W MATERIALS, MACHINES BEING PUT TO USE ON THE BASIS OF DATA BEIN G SUBMITTED TO 25 THE EXCISE DEPARTMENT, CONSUMPTION OF ELECTRICITY A LONG WITH CONNECTED LOAD AND POWER RATING OF THE RESPECTIVE M ACHINES WERE ALSO SUBMITTED DURING THE COURSE OF ASSESSMENT PROC EEDINGS. IT WAS SUBMITTED THAT EVEN DURING THE COURSE OF SURVEY CONDUCTED AT THE FACTORY PREMISES ON 01-11-2010 NO DISCREPANCIES WERE FOUND IN RESPECT OF ELECTRICITY CONSUMPTION, CONNECTED LO AD AND POWER RATING. SIMILARLY, NO DISCREPANCIES WERE BROUGHT T O THE NOTICE OF THE ASSESSEE IN CONNECTION WITH BOOK STOCK AND PHYS ICAL STOCK, CONSUMPTION OF RAW MATERIAL ETC. NO INCRIMINATING D OCUMENTS WERE FOUND AND SEIZED WITH REGARD TO UNACCOUNTED PU RCHASE BILLS OR SALES BILL IN THE FACTORY OR OFFICE PREMISES. 18.1 IT WAS SUBMITTED THAT THE ACCOUNTS OF THE ASSE SSEE ARE AUDITED U/S.44AB AND QUANTITATIVE DETAILS OF RAW MA TERIALS PURCHASED AND CONSUMED AND ITS CLOSING STOCK IS GIV EN IN THE PRESCRIBED FORM. IT WAS SUBMITTED THAT IN ABSENCE OF PROPER RECORDS, THE ABOVE DETAILS COULD NOT HAVE BEEN GIVE N. THE ASSESSEE SUBMITTED THAT DIFFERENCE IN BOOK STOCK AS PER THE RECORDS MAINTAINED AT THE HEAD OFFICE AND PHYSICAL STOCK AT FACTORY PREMISES WAS NEVER BROUGHT OUT DURING SEARC H OR ASSESSMENT PROCEEDINGS. THE ASSESSEE SUBMITTED THA T THE EXCISE DUTY DURING A.Y. 2009-10 WAS ON ADVALOREM BASIS AND ACTUAL DISPATCHES. FROM 01-07-2008 THE EXCISE DUTY WAS SO UGHT TO BE LEVIED ON THE NUMBER OF OPERATIONAL PACKING MACHINE S USED VIDE NOTIFICATION NO.42/2008-CENTRAL EXCISE-DT. 01-07-20 08. IT WAS SUBMITTED THAT IN VIEW OF THE DECISION OF THE HONB LE KARNATAKA HIGH COURT GRANTING THE ASSESSEE INTERIM STAY ON LE VY OF EXCISE 26 DUTY ON OPERATIONAL PACKING MACHINES AND DIRECTING THE ASSESSEE TO PAY EXCISE AS WAS PAID PRIOR TO 11-09-2008 THE A SSESSEE DID NOT PAY EXCISE DUTY ON THE BASIS OF OPERATIONAL PAC KING MACHINES. THIS FACT WAS ALSO BROUGHT TO THE NOTICE OF THE AO. 18.2 AS REGARD THE DEPOSITION OF SOME OF THE WORKER S THAT THE CAPACITY OF PACKING MACHINES WAS 75 TO 80 POUCHES P ER MINUTE THE ASSESSEE SUBMITTED THAT THE CAPACITY OF PACKING MACHINES AND THAT OF PRODUCTION CAPACITY IS DIFFERENT AND THAT T HESE WERE THEORETICAL CALCULATIONS. THE EXCISE AND PRODUCTIO N RECORDS FOUND AND SEIZED DURING SEARCH PROCEEDINGS WERE VER IFIED DURING ASSESSMENT PROCEEDINGS AND NO DISCREPANCY WAS FOUND . 18.3 SO FAR AS THE CALCULATION BY THE AO OF THE NUM BER OF POUCHES THAT WOULD BE PRODUCED ON THE BASIS OF THE LAMINATION CONSUMPTION REGISTER, IT WAS SUBMITTED THAT THIS WA S PURELY A THEORETICAL CALCULATION. IT WAS ARGUED THAT SINCE T HE THICKNESS OF LAMINATION VARIED FOR EACH LOT, THEREFORE, THE NUMB ER OF POUCHES PRODUCED COULD NOT BE DETERMINED ON THE BASIS OF WE IGHT OF LAMINATION. WITHOUT PREJUDICE TO THE ABOVE, IT WAS SUBMITTED THAT EVEN IF IT IS ASSUMED THAT POUCHES PRODUCED ARE MOR E, IT CANNOT BE ASSUMED THAT THEY WERE SOLD BY FILLING FINISHED MATERIAL IN IT IN ABSENCE OF ANY EVIDENCE OF UNACCOUNTED PURCHASES. 18.4 IN RESPECT OF C&F AGENCIES / DISTRIBUTORS IT W AS SUBMITTED THAT M/S SHREE AMBICA ENTERPRISES, MUMBAI WAS APPOI NTED AS A DEALER FROM FEBRUARY 2006 AND NOT APPOINTED AS C&F AGENT. THE STATEMENT RECORDED OF THE PROPRIETOR SHRI DHARMESH PATEL ON 02- 27 04-2009 BY THE SEARCH PARTY WAS RETRACTED VIDE AFFI DAVIT DATED 04-04-2009. FURTHER, DURING ASSESSMENT PROCEEDINGS IN CROSS EXAMINATION THE PROPRIETOR HAS CATEGORICALLY DENIED OF HAVING ANY UNACCOUNTED TRANSACTION WITH THE ASSESSEE. IT W AS SUBMITTED THAT DURING CROSS EXAMINATION SHRI DHARMESH PATEL H AD ADMITTED THAT APART FROM GUTKHA PURCHASED FROM THE ASSESSEE HE ALSO PURCHASED FROM OTHER MANUFACTURERS. 18.5 REFERRING TO THE SHOW CAUSE NOTICE ISSUED TO D HARMESH PATEL BY THE SALES TAX DEPARTMENT AFTER SCRUTINY OF THE RECORDS SEIZED BY THEM IT WAS SUBMITTED THAT THE SAID NOTIC E PERTAINS TO UNACCOUNTED SALES FOR PURCHASES OUTSIDE MAHARASHTRA STATE FOR THE PERIOD APRIL 2008 TO JANUARY 2009 AT RS. 2,33,2 4,556/- AND TAX IS RS.29,15,570/- WHEREAS SALES BY ASSESSEE TO AMBIKA ENTERPRISES WERE WITHIN MAHARASHTRA STATE. REFERRIN G TO THE STATEMENT RECORDED ON 02-04-2009 AND ALSO THE AFFID AVIT FILED BY SHRI DHARMESH PATEL IT WAS STATED THAT SOME OF THE PAPERS THAT HE WAS CONFRONTED WITH DID NOT BELONG TO HIM. 18.6 SO FAR AS THE TRANSACTIONS WITH M/S. SHAIKH TR ADERS OF SATARA IS CONCERNED, IT WAS SUBMITTED THAT THE PROP RIETOR OF THE SAID FIRM WAS CROSS EXAMINED WHEREIN HE HAS DENIED OF HAVING PURCHASED ANY GOODS IN CASH FROM THE ASSESSEE. IT WAS SUBMITTED BY THE PROPRIETOR OF THE ABOVE FIRM THAT GOODS MANU FACTURED BY THE ASSESSEE WERE PURCHASED FROM OTHER PARTIES IN C ASH WHICH WERE ACCOUNTED FOR IN THE BOOKS OF ACCOUNT AND COPI ES OF SUCH PURCHASE BILLS WERE SUBMITTED DURING THE STATEMENT. THE 28 PROPRIETOR HAD MENTIONED THAT HE HAD THE BILLS IN R ESPECT OF PURCHASES FROM THE ASSESSEE AND THE PAYMENTS WERE M ADE BY CHEQUE ONLY. THE ASSESSEE FURTHER POINTED OUT THAT THE UNRECORDED TURNOVER IN THE STATEMENT RECORDED WAS N OT MENTIONED AT RS. 50 LAKHS FOR 3 MONTHS BUT RS.50 LA KHS FOR THE PERIOD 01-04-2008 TO 03-02-2009. 18.7 AS REGARDS THE SALES TO M/S SIDDHESHWAR AGENCI ES OF SOLAPUR IS CONCERNED, IT WAS SUBMITTED IN THE STATE MENT RECORDED IT WAS STATED BY THE ABOVE PARTY THAT THE PURCHASES FOR THE UNRECORDED SALES WERE MADE IN CASH FROM THE LOCAL M ARKET. AS FAR AS PURCHASES FROM THE ASSESSEE ARE CONCERNED TH EY HAVE RECEIVED BILLS FOR EACH SUPPLY AND PAYMENT THEREOF WAS MADE BY CHEQUE. IT WAS ACCORDINGLY SUBMITTED THAT THE ASSES SEE IS NOT INVOLVED IN MAKING ANY UNRECORDED SALES. 18.8 SO FAR AS ESTIMATION OF SALES FOR F.Y. 2008-09 IS CONCERNED, THE ASSESSEE SUBMITTED THAT DURING THE COURSE OF SE ARCH NO DOCUMENT/ MATERIAL WAS FOUND TO SUGGEST THAT THE CO MPANY WAS INDULGING IN MAKING PURCHASES OR SALES OUTSIDE THE BOOKS OF ACCOUNT. IT WAS SUBMITTED THAT THE PRODUCTS MANUFAC TURED BY THE COMPANY ARE LIABLE TO EXCISE DUTY AND THEREFORE ALL THE RECORDS OF PURCHASES, PRODUCTION, SALES AND CONSUMPTION WERE M AINTAINED. THESE RECORDS WERE VERIFIED BY THE ASSESSING OFFICE R AND THE EXCISE OFFICIALS ALSO CONDUCT REGULAR AUDIT. IT WAS SUBMITTED THAT THE FACTORY IS UNDER ACTIVE SUPERVISION AND SURVEIL LANCE BY THE EXCISE DEPARTMENT. FURTHER, NO DISCREPANCIES WERE FOUND IN THE 29 RECORDS SEIZED DURING THE SEARCH PROCEEDINGS. THERE WAS NO CASE PENDING AGAINST THE COMPANY FOR EXCISE DUTY VIOLATI ON. IT WAS ARGUED THAT THE SEARCH TOOK PLACE ON 04-02-2009 BUT ESTIMATED SALES WERE WORKED OUT FOR THE POST SEARCH PERIOD AL SO, I.E. 05-02- 2009 TO 31-03-2009. 18.9 AS REGARDS THE DECISIONS RELIED ON BY THE AO F OR WORKING OUT THE ESTIMATES ON THE BASIS OF THE DECISION OF T HE HONBLE SUPREME COURT IN THE CASE OF H. M ESUFALI REPORTED IN 90 ITR 271 AND THE DECISION OF THE HONBLE BOMBAY HIGH COU RT IN THE CASE OF CIT VS. DR. M K MEMON REPORTED IN 248 ITR 3 10 ARE CONCERNED IT WAS SUBMITTED THAT THE DECISION OF TH E HONBLE SUPREME COURT HAS TO BE RESTRICTED TO THE FACTS OF THAT CASE AND THAT NO ADDITION CAN BE MADE BASED ON ESTIMATES AND EXTRAPOLATION. 18.10 THE ASSESSEE SUBMITTED THAT WORKING OUT OF ES TIMATION OF SUPPRESSED SALES FOR F.Y. 2006-07 WAS ON THE BASIS OF ASSUMPTIONS, PRESUMPTIONS AND GUESS WORK. IN ABSEN CE OF ANY EVIDENCE FOUND DURING THE SEARCH, THE AO WAS NOT JU STIFIED IN WORKING OUT SUCH ESTIMATION. FOR THIS PROPOSITION, THE ASSESSEE RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RAMCHANDRA OIL MILLS VS. COMMISSIONER OF SALES TAX REPORTED IN (1977) 1977 CTR BOM 317, THE DECISION O F HONBLE SUPREME COURT IN THE CASE OF DHAKESWARI COTTON MILL S LTD VS. CIT REPORTED IN 26 ITR775 (SC), DECISION OF AHMEDA BAD BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. ROYAL MARWA R TOBACCO 30 PRODUCT (P) LTD REPORTED IN 120 TTJ 387 AND THE DEC ISION OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF VIJA Y ANAND FABRICS (P) LTD VS. ACIT REPORTED IN 45 DTR 222. 19. IT WAS SUBMITTED THAT SINCE THERE WAS NO QUESTI ON OF DETERMINING ANY SUPPRESSED SALE THERE WAS ALSO NO N EED TO DETERMINE THE PROFIT THEREON OF RS.20,84,85,103/- W HICH WAS MADE UNIFORMLY FOR FINANCIAL YEARS 2002-03 TO 2006- 07. WITHOUT PREJUDICE TO THE ABOVE IT WAS SUBMITTED THAT THOUGH FOR F.Y. 2006-07 SUPPRESSED SALES WAS ESTIMATED AT RS. 4,17, 26,141/- THE PROFIT ON SUCH SALES WAS ESTIMATED AT RS. 20,84,85, 103/- WHICH IS RIDICULOUS. THE ASSESSEE FURTHER CHALLENGED THE RE JECTION OF BOOKS OF ACCOUNT ON THE GROUND THAT NO DEFECTS WERE POINTED OUT IN THE BOOKS OF ACCOUNT WHICH WERE AUDITED. AUDITOR S HAVE NOT POINTED OUT ANY MISTAKE THEREIN. IT WAS ARGUED THA T BEFORE REJECTION OF THE BOOKS OF ACCOUNT, THE AO SHOULD HA VE RECORDED A CLEAR FINDING THAT CORRECT PROFITS CANNOT BE DEDUCE D FROM THE METHOD OF ACCOUNTING ADOPTED. FOR THE ABOVE PROPOSI TION, THE ASSESSEE ALSO RELIED ON THE FOLLOWING DECISIONS : 1. DCIT IS MEWAR TEXTILES MILLS LTD (MP) 64 TTJ 502. 2. CIT VS SMT POONAM RANI 326 ITR 223 (DEL) (2010) 3. RAGHUBAR MANDAL HARIHAR MANDAL VS. STATE OF BIHA R (1957) 8 STC 770 (SC) 20. BASED ON THE ARGUMENTS MADE BY THE ASSESSEE THE LD.CIT(A) CALLED FOR A REMAND REPORT FROM THE AO WH O REITERATED HIS EARLIER FINDINGS. THE SALIENT FEATUR ES OF THE REMAND REPORT BY THE AO AS BROUGHT OUT BY THE LD.CIT(A) AT PARA 93 OF HIS ORDER READ AS UNDER : 31 93. THE ABOVE SUBMISSION OF THE APPELLANT WAS REMANDE D TO THE ASSESSING OFFICER FOR HIS COMMENTS VIDE THIS OFFICE LETTER DATED 27/10/2011. THE ASSESSING OFFICER IN HIS REMAND REPORT DATED 14/03/2012 HAS NOT DEVIATED FROM HIS DECISIONS TAKEN DU RING ASSESSMENT ON THE OBJECTIONS RAISED BY THE APPELLANT. THE POINTS BROUGHT OUT IN THE REMAND REPORT ARE BRIEFLY THAT I) SHRI SANJAY GHODAWAT, CHAIRMAN AND M.D. OF TH E APPELLANT HAD CLEARLY STATED THAT NO PRIMARY RECORDS LIKE SHIFT, PRO DUCTION ISSUED FROM THE STORES DISPATCH OF FINISHED PRODUCTS ETC., WERE BEING MAINTAINED AT THE FACTORY. II) THE EXCISE DEPARTMENT HAS CHARGED EXCISE DUTY ON PRODUCTION OF GUTKHA POUCHES ON THE BASIS OF MACHINES PUT TO USE AND NOT ON THE BASIS OF PRODUCTION RECORDED IN THE BOOKS OF MANUF ACTURER. THE EXCISE DUTY WAS LEVIED PER MACHINE ON THE BASIS OF MANU FACTURING CAPACITY OF A PARTICULAR MACHINE. THE LEVY OF EXCISE ON THE BASIS OF MACHINES PUT TO USE CAME INTO EXISTENCE W.E.F. ASSESSMENT YEAR 2009-10. III) THE APPELLANT HAD NOT DENIED THAT DURING ASSESSME NT PROCEEDINGS IT HAD SUBMITTED DETAILS LIKE MONTH WISE, P RODUCTION CONSUMPTION OF RAW MATERIALS. FURTHER, MACHINES PUT TO USE WAS GIVEN ONLY FOR THE PART PERIOD AND NOT FOR THE FULL PERIOD OF ASSESSMENT UNDER SECTION 153A R.W.S. 143(3). IV) REGARDING THE DISPUTE OF THE APPELLANT IN THE KA RNATAKA HIGH COURT, THE ASSESSING OFFICER STATED THAT EXCISE DUTY WAS L EVIED PER MACHINE DEPENDING UPON THE CAPACITY OF PRODUCING PA RTICULAR NUMBER OF POUCHES (MINIMUM). THIS BASE WAS ADOPTED BY T HE INVESTIGATION WING AND ALSO DURING ASSESSMENT. V) THE STATEMENTS OF THE WORKERS RECORDED WERE JUST I NDICATIVE OF THE APPELLANT'S INDULGENCE IN UNRECORDED PRODUCTION AND THESE WERE NOT USED AS FINAL CONCLUSION TO ARRIVE AT THE UNACCOUN TED PRODUCTION / SALE. VI) UNACCOUNTED PRODUCTION ARRIVED ON THE BASIS OF LA MINATION CONSUMPTION WERE NOT HYPOTHETICAL CALCULATIONS AS THE NUMBER OF POUCHES WHICH WOULD HAVE BEEN PRODUCED WAS WORKED OUT BY DIVIDING TOTAL CONSUMPTION OF LAMINATION BY CONSUMPTI ON OF LAMINATION PER POUCH. VII) THE DEALERS / AGENTS DISCUSSED IN THE ASSESSMENT ORDER HAD CATEGORICALLY ADMITTED OF HAVING PURCHASED UNACCOUNT ED GOODS FROM THE APPELLANT AND ALSO HAD EXPLAINED HOW THE CASH WAS CHANNELIZED TO REACH THE APPELLANT. COPIES OF STATEMENT RECORDED OF THESE AGENTS/DEALERS WERE MADE AVAILABLE TO THE APPELLANT A ND OPPORTUNITY OF CROSS-EXAMINATION WAS AFFORDED TO THE APPELLANT. 21. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE AND AFTER CONSIDERING THE REMAND REPORT OF THE ASSESSING OFFI CER THE LD.CIT(A) SUSTAINED AN AMOUNT OF RS.1,27,98,183/- FOR A.Y. 32 2009-10 AND DELETED THE ADDITION MADE BY THE AO FOR DIFFERENT YEARS BY OBSERVING AS UNDER : 94. I HAVE CAREFULLY PERUSED THE SUBMISSIONS OF THE APP ELLANT, THE FACTS ON RECORDS AND ALSO THE REMAND REPORT. I HAV E HELD IN PARAGRAPH 35 OF THIS ORDER THAT IN NON-ABATED CASES, THE ASSESSING OFFICER HAS THE JURISDICTION TO MAKE AN ASSESSMENT ON ALL ISSUES EXCEPT THE CONCLUDED ISSUE. CONCLUDED ISSUES CAN BE REASSESSED ONLY ON THE BASIS OF NEW EVIDENCES OR DOCUMENT S OR INCOME OR ASSETS FOUND DURING THE COURSE OF SEARCH, WHI CH CAN BE HELD TO BE INCRIMINATING IN NATURE. HOWEVER, THERE CANNOT BE A CHANGE OF OPINION UNLESS THE SAME IS WARRANTED BY A CHA NGE IN LAW OR BY OPERATION OF A DECISION OF THE HIGHER JURI SDICTIONAL COURTS OR THE SUPREME COURT. THE APPELLANT HAS POINTE D OUT THAT IN THEIR CASE, ASSESSMENT UNDER SECTION 143(3) WAS COMPLE TED FOR ASSESSMENT YEARS 2003-04 TO 2006-07 ON VARIOUS DATES. IT WAS SUBMITTED THAT DURING THE COURSE OF REGULAR ASSESSMENT PROCEEDINGS VARIOUS INFORMATION WAS CALLED FOR IN RESPE CT OF RAW MATERIAL CONSUMPTION, PRODUCTION AND CONSUMPTION OF LAMINATES. QUESTIONS WERE ALSO ASKED REGARDING ELECTRICI TY CONSUMPTION IN THE MANUFACTURING PROCESS. THE APPELLA NT SUBMITTED THAT ALL THE DETAILS CALLED FOR WAS SUBMITTE D BEFORE THE ASSESSING OFFICER AND AFTER HAVING SATISFIED HIMSELF ABOUT THE VERACITY OF THE STATEMENTS PRODUCED, NO ADDITION WAS M ADE IN ALL THESE YEARS ON ACCOUNT OF SUPPRESSED PRODUCTION OR UNACCOUNTED SALES OR PURCHASES. THE APPELLANT STATED THA T THEIR BOOKS OF ACCOUNT HAVE BEEN AUDITED FOR ALL THE YEARS THAT FORM 3CD CONTAINS ALL THE QUANTITATIVE DETAILS OF RAW MATE RIAL CONSUMPTION, PRODUCTION, SALES, OPENING AND CLOSING STO CK AND THAT THEY WERE EXAMINED IN DEPTH DURING THE PROCESS OF ASSESSMENT UNDER SECTION 143(3) IN ALL THE ABOVE ASSESSMENT YEARS. THE APPELLANT REITERATED THAT NO DISCREPANCY W AS FOUND IN THE BOOK RESULTS OR IN THE MANUFACTURING RESULTS DESPIT E AN IN- DEPTH SCRUTINY OF ALL THE ACCOUNTS AND THE EVIDENCES M AINTAINED IN SUPPORT OF THE MANUFACTURING AND TRADING RESULTS. T HE APPELLANT THEREAFTER REITERATED THAT DURING THE COU RSE OF SEARCH, PHYSICAL STOCK OF RAW MATERIAL AND FINISHED GOODS WAS AL SO TALLIED WITH THE RECORDS AND NO IRREGULARITIES WERE N OTED. THEY DREW MY ATTENTION TO THE OBSERVATION OF THE ASSESSING OF FICER IN PARAGRAPH 12.3 OF THE ASSESSMENT ORDER OF ASSESSMENT YEAR 2009-10 WHEREIN IT IS MENTIONED THAT 'NO EVIDENCES R ELATING TO CORRESPONDING UNACCOUNTED PURCHASES WAS FOUND OR SEIZED IN THE COURSE OF SEARCH ACTION'. THE COUNSEL FOR THE APPE LLANT STATED THAT IN VIEW OF THEIR SUBMISSIONS AND THE FACT THAT NOT HING INCRIMINATING WAS FOUND IN RESPECT OF TRADING AND MAN UFACTURING RESULTS IN SEARCH AND SEIZURE, THE FINDINGS ABOUT BOOK R ESULTS AND TRADING AND MANUFACTURING RESULTS IN THE ASSESSMENTS COMP LETED UNDER SECTION 143(3) FOR ASSESSMENT YEAR 2003-04 TO 2006 -07 CANNOT BE DISTURBED AND HENCE THE ADDITIONS ON ACCOUN T OF SUPPRESSED SALES FOR THESE YEARS SHOULD BE DELETED. 95. I HAVE GONE THROUGH THE RECORDS OF THE CASE AND I FIND THAT NO INCRIMINATING DOCUMENT /MATERIAL WHATSOEVER HAS BEEN FOUND IN RESPECT OF PRODUCTION OR SALES OF PAN MASALA OR GUTKHA OR OTHER ALLIED PRODUCTS IN THE CASE OF THE APPELLANT FOR ANY OF THESE YEARS DURING THE COURSE OF SEARCH AND SEIZURE. IT IS A FACT T HAT NO INCRIMINATING DOCUMENT WHATSOEVER WAS FOUND IN RESPECT OF THE 33 CONCLUDED ITEMS OF PRODUCTION AND SALES OF PAN MASALA AND GUTKHA FOR EARLIER ASSESSMENT YEARS 2003-04 TO 2006-07. 96. I HAVE PERUSED THE RECORDS SUBMITTED DURING THE AP PELLATE PROCEEDINGS AND THE ORIGINALS LYING WITH THE APPELLAN T. I FIND THAT IN RESPECT OF ASSESSMENT YEAR 2006-07 A NOTICE UNDER SEC TION 142(1) DATED 05/05/2008 ALONG WITH A DETAILED QUESTI ONNAIRE WAS SENT TO THE APPELLANT. QUESTIONS 18 AND 19 SPECIFICA LLY DEAL WITH TURNOVER, GROSS PROFIT AND EXPENSES INCURRED IN RE SPECT OF TRADING AND PROFIT AND LOSS ACCOUNT. SIMILARLY, THESE ASPECTS WERE LOOKED INTO VIDE QUESTIONS NO. 14, 15, 16, 17 AND 18 FOR ASSESSMENT YEAR 2005-06. IN ASSESSMENT YEAR 2004-05, SIMILAR DETAILS WERE CALLED FOR VIDE A QUESTIONNAIRE SENT WITH THE NOTICE UNDER SECTION 142(1) DATED 11/07/2006. THE RELEVANT QUESTIONS ARE AT 2(VII)(A), (B) AND (C), 7, 11 AND 16. SIMILA RLY, QUESTIONS REGARDING CONSUMPTION OF RAW MATERIAL PRODUCTION, NU MBER OF POUCHES PRODUCED AND LAMINATION USED WAS CALLED FOR VI DE THE QUESTIONNAIRE SENT ALONG WITH NOTICE UNDER SECTION 14 2(1) DATED 21/09/2005 FOR ASSESSMENT YEAR 2003-04. THE APPELLANT PROVIDED QUANTITATIVE DETAILS OF PRODUCTION OF GUTKHA, PAN MASALA AND OTHER ALLIED PRODUCTS MANUFACTURED BY IT. SIMILA RLY DETAILS OF ALL SALES AND CONSUMPTION OF RAW MATERIALS W AS PROVIDED. THE ASPECT OF PRODUCTION AND SALES WAS EXAMIN ED IN DEPTH INASMUCH AS EVEN THE RATIO OF CONSUMPTION OF RAW MATERIAL FOR EVERY POUCH OF FINISHED PRODUCT AND CON SUMPTION OF LAMINATES PER POUCH WERE ALSO EXAMINED. FOR ALL THE F OUR YEARS, THE ASSESSING OFFICER WAS SATISFIED ABOUT THE GENUINENESS OF THE PRODUCTION RESULTS AND THE SALES AS WELL AS CONSUMPTION OF RAW MATERIAL AS REFLECTED IN THE BOOK RESULTS. HENCE, NO A DDITION ON ACCOUNT OF SUPPRESSED PRODUCTION, SALES AND CONSUMPTION O F RAW MATERIAL OR SUPPRESSED GROSS PROFITS WAS MADE IN ALL THE F OUR YEARS. UNDER THESE CIRCUMSTANCES, THE MATTER STOOD CONC LUDED AT THE TIME OF ORIGINAL ASSESSMENTS COMPLETED UNDER SECTION 143(3). SINCE NOTHING INCRIMINATING HAS BEEN FOUND I N THE SEARCH AND SEIZURE PROCEEDINGS IN RESPECT OF MANUFACTURING OR TRADING RESULTS IN THESE FOUR ASSESSMENT YEARS, NO ADDITION CAN BE MADE ON ACCOUNT OF SUPPRESSED PRODUCTION IN THESE FOUR YEARS. THE ADDITIONS MADE ARE DELETED. 97. IN ASSESSMENT ORDER (PARAGRAPH 7.2) THE ASSESSING OFFI CER HAS STATED THAT LARGE SCALE VARIATION OF PRODUCTION SHOWN AS SOLD IN THE BOOKS AND ACTUAL PRODUCTION OF GUTKHA WAS DETECTED ON THE BASIS OF EXCISE RECORDS FOUND DURING THE COURSE OF SEARCH AND SEIZURE. I FIND THAT THIS STATEMENT OF THE ASSESSING OFFI CER IS MISLEADING AND DOES NOT STATE THE FACT. IF THE EXCISE R ECORDS INDICATED ANY SUPPRESSION OF PRODUCTION AND CONSEQUENTL Y OF SUPPRESSION OF SALES AND PURCHASES OUTSIDE BOOKS THEN, THE S AME HAS NOT BEEN BROUGHT OUT IN THE ASSESSMENT ORDER AT ALL. IN FACT, THE QUANTUM OF PRODUCTION MENTIONED IN THE EXCISE RE CORDS IS NOT REFERRED TO ANYWHERE IN THE ASSESSMENT ORDER. I HAV E GONE THROUGH THE SEIZED RECORDS ALSO AND I FIND THAT, CONTR ARY TO WHAT THE ASSESSING OFFICER HAS STATED, THE EXCISE RECORDS DO NOT INDICATE ANY UNDERSTATEMENT OF PRODUCTION WHICH WOUL D CULMINATE IN SUPPRESSION OF SALE AND PURCHASES OR RAW MAT ERIAL OUTSIDE BOOKS. THE OBSERVATION OF THE ASSESSING OFFICER THAT THE BASIC DOCUMENTS REGARDING INPUT OF RAW MATERIAL IS NOT MAINTAINED AT THE FACTORY PREMISES IS HOWEVER, CORRECT . IT IS ALSO A FACT THAT EXCISE RECORDS ARE MAINTAINED AS PER THE E XCISE RULES AND THEY ARE IN RESPECT OF FINISHED GOODS WHICH HAVE M OVED OUT OF THE FACTORY PREMISES. BUT THESE FACTORS ARE NOT SUBSTA NTIAL ENOUGH TO STATE THAT THE EXCISE RECORDS ARE INCORRECT , FALSE AND 34 UNRELIABLE IN THE ABSENCE OF ANY COGENT EVIDENCE WHI CH WOULD BELIE A SUSPICION THAT THERE WAS UNACCOUNTED PURCHASE O F RAW MATERIAL, WHICH WAS CONSUMED AND THE RESULTANT PRODUCT ION WAS SUPPRESSED. 98. IN THIS CONTEXT, THE ASSESSING OFFICER HIMSELF STATES THAT THE CONCLUSIONS DRAWN FOR THE FINANCIAL YEARS 2006-07 TO 2 008-09 ARE BEING EXTRAPOLATED FOR THE FINANCIAL YEARS 2002- 03 TO 2005- 06 (PLEASE SEE PARAGRAPH 9.5 ON PAGE 38 FOR AY 2003-0 4). IN FACT, THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACCOUNT F OR ALL THESE ASSESSMENT YEARS UNDER SECTION 145 OF THE INCOME-TAX ACT ON THE GROUND THAT NO PRIMARY OR BASIC RECORDS ARE MA INTAINED AT THE FACTORY PREMISES. THUS, ABSENCE OF RECORDS INDI CATING CONSUMPTION OF RAW MATERIAL AND PRODUCTION OF FINISHE D GOODS HAS LED THE ASSESSING OFFICER TO CONCLUDE THAT THE CORR ECT BUSINESS RESULTS OF THE APPELLANT CANNOT BE DEDUCED. IN THIS RESPECT, THE ASSESSING OFFICER HAS COMPLETELY DISREGARDED THE FACT THAT NO EVIDENCE WHATSOEVER REFLECTING SUPPRESSED PRODUCTION OR SALES AND PURCHASES OUTSIDE THE BOOKS OF ACCOUNT WER E FOUND DURING THE COURSE OF SEARCH AND SEIZURE. IT IS A FAC T THAT THE RAW MATERIAL AND FINISHED PRODUCTS FOUND AT THE FACTORY W AS RECONCILED WITH THE BILLS AND VOUCHERS PRESENT IN THE HEAD OFFICE AND NOTHING INCRIMINATING WAS FOUND THERE. THEREFORE, THE ONLY REASON FOR REJECTION OF BOOKS OF ACCOUN T AS CAN BE SEEN FROM THE ORDER IS ........... TREND EMERGED (SIC) FROM THE IMPOUNDED PAPERS AS REGARDS THE VOLUME OF SUPPRESSI ON OF SALES IN THE F.Y. 2006-07 TO 2008-09, IT CANNOT BE SAID THAT THE ASSESSEE COMPANY HAS NOT SUPPRESSED ITS SALES IN THE EARLIER F. YS. THEREAFTER THE ASSESSING OFFICER HAS CONCLUDED ON THE BA SIS OF THE DECISION OF H M ESUFALI H.M. ABDULALI IN 90 ITR 271(SC) TO STATE THAT ........ THE SUPPRESSION OF SALES IN THE EARLIER YEARS FOR I.E. FOR THE F. YS.2002-03 TO 2005-06 FALLING IN TH E SEARCH PERIOD ARE ALSO EXTRAPOLATED AFTER ADOPTING THE REASONABLE RAT IO OF ACTUAL SUPPRESSION OF SALE OF GUTKHA AND PAN MASALA DETECT ED IN THE F.YS.2006-07 TO 2008-09. 99. GIVEN THE FACT THAT IT IS THE ASSESSING OFFICER'S OW N ADMISSION, THAT THE CONCLUSIONS DRAWN FOR THE FINANCIAL YEARS 200 6-07 TO 2008-09 ARE BEING EXTRAPOLATED TO FIND OUT AND ADOP T THE NOTION OF SUPPRESSION OF SALE OF GUTKHA AND PAN MASALA FOR THE FINANCIAL YEARS 2002-03 TO 2005-06, IS SUFFICIENT TO HOLD THAT SU CH AN EXTRAPOLATION IS NOT PERMISSIBLE IN RESPECT OF CONCLUDE D ITEMS IN AN EARLIER ASSESSMENT MADE UNDER SECTION 143(3) DURING T HE COURSE OF ASSESSMENT UNDER SECTION 153A. THIS IMPLIES, AS ST ATED EARLIER, THAT IN RESPECT OF CONCLUDED ITEMS IN AN ASSE SSMENT COMPLETED UNDER SECTION 143(3), NO ADDITIONS CAN BE M ADE UNLESS AND UNTIL SOME INCRIMINATING MATERIAL HAS BEEN F OUND DURING THE COURSE OF SEARCH AND SEIZURE. THUS, THE APPE LLANT GETS RELIEF FROM THE ADDITIONS MADE ON ACCOUNT OF SUPPRESSIO N OF SALES FOR THE ASSESSMENT YEARS 2003-04 TO 2006-07. 100. THIS LEADS US TO THE REMAINING YEARS I.E. ASSESSMENT Y EARS 2007-08, 2008-09 AND 2009-10. BEFORE COMMENTING ON THE NATURE OF THE ADDITIONS MADE AND ITS VALIDITY, I WOUL D LIKE TO RECAPITULATE THE METHODOLOGY FOLLOWED BY THE ASSESSING OFFICER IN MAKING THE ADDITIONS. THE ADDITIONS IN THESE THREE YEARS ARE BASED ON THE STATEMENT GIVEN BY SHRI DHARMESH PATEL, PROPRIETOR OF M/S SHREE AMBIKA ENTERPRISES, MUMBAI, S HRI KUTUBUDDHIN R SHAIKH, PROPRIETOR OF M/S SHAIKH TRADE RS, SATARA 35 AND UDHAV S KHARGE, HUF REPRESENTED BY THE KARTA, SH RI U S KHARGE. A SURVEY ACTION UNDER SECTION 133A WAS CARRIED OUT AT M/S SHREE AMBIKA ENTERPRISES, PROP. SHRI DHARMESH PATEL ON 05/02/2009 WHEN IT WAS FOUND THAT THE SALE-TAX DEPAR TMENT HAD ALREADY CONDUCTED A SURVEY OPERATION AT THE BUSIN ESS PREMISES OF SHRI DHARMESH PATEL. IT WAS FOUND THAT ALL THE BOOKS OF ACCOUNTS INCLUDING THE HARD DISK WERE TAKEN AWAY B Y THE SALE- TAX DEPARTMENT. ACCORDINGLY THE DY. COMMISSIONER OF S ALE-TAX WAS REQUISITIONED TO PROVIDE THE COPIES OF SEIZED DOCU MENTS. IT SEEMS FROM THE ASSESSMENT ORDER THAT THE COPIES REQUISITI ONED FOR, WERE SENT BY THE SALES-TAX DEPARTMENT TO THE IN VESTIGATION WING. THESE PAPERS APPARENTLY CONTAINED DETAILS OF SALE S OF GUTKHA AND PAN MASALA BY SHRI DHARMESH PATEL TO VARIOUS DISTRIBUTORS FOR THE FINANCIAL YEARS 2006-07, 2007-08 AND 2008- 09. STATEMENT OF SHRI DHARMESH PATEL WAS RECORDED ON OATH UNDER SECTION 131 ON 02/04/2009. IN THIS STATEMENT HE APPARENTLY CONFESSED THAT SALES TO ITS DISTRIBUTORS WERE M ADE IN CASH AND THAT THE CASH COLLECTED OUT OF SUPPLY TO DISTR IBUTORS WAS HANDED OVER TO SHRI SANJAY GHODAWAT THROUGH ONE SHR I MAHESH. ACCORDING TO THE STATEMENT TAKEN SHRI DHARMESH PATEL WAS APPOINTED AS THE C&F AGENT FOR GUTKHA AND PAN MASALA FOR MUMBAI AND THANE REGION. SHRI DHARMESH PATEL ALSO ADM ITTED THAT HE WAS NOT DEALING IN ANY OTHER BRANDS OF GUTKHA AND PAN MASALA. SHRI DHARMESH PATEL CONFIRMED THAT THE SALES-TAX DEPARTMENT HAD SEIZED THE REGULAR BOOKS OF ACCOUNTS RE CORDED IN THE CPU AND VARIOUS LOOSE PAPERS AND OTHER DOCUMENT S ON 20/01/2009. HE STATED THAT THE DATA REGARDING GUTKHA BUSINESS WAS FROM FEBRUARY 2006 ONWARDS I.E. THE YEAR AND TIME WHEN DISTRIBUTION OF GUTKHA AND PAN MASALA FOR THE APPELLANT STARTED. THEREAFTER SHRI DHARMESH PATEL GAVE THE MODUS OPERAND I OF RECORDING VARIOUS TRANSACTIONS AS PER THE MATERIAL SEIZE D BY THE SALE-TAX DEPARTMENT. IT APPEARS THAT SHRI DHARMESH PA TEL HAD CATEGORICALLY STATED IN ANSWER TO QUESTION NO. 16 THAT THE ENTRIES IN THE LOOSE PAPERS, DOCUMENTS AND REGISTERS PERTAINING TO GHODWATAT INDUSTRIES PVT. LTD. WAS NOT RECORDED BY HIM IN THE REGULAR BOOKS OF ACCOUNT. THIS IMPLIES THAT ALL THE T RANSACTIONS WHICH WERE CONFESSED BY HIM TO BE UNRECORDED TRANSACTI ONS PERTAINING TO THE GUTKHA AND PAN MASALA PROCURED FROM THE APPELLANT WAS NOT RECORDED BY HIM IN HIS REGULAR BOOK S FOR THE FINANCIAL YEARS 2005-06, 2006-07, 2007-08 AND 2008-0 9. DURING THE COURSE OF THE STATEMENT RECORDED BY THE INVESTIGAT ION WING, SHRI DHARMESH PATEL ALSO GAVE THE MOBILE NUMBER OF TH E PERSON SHRI MAHESH WHO ALLEGEDLY COLLECTED CASH ON BEHALF OF THE APPELLANT. WHETHER OR NOT SHRI MAHESH WAS CONTACTED B Y THE INVESTIGATION WING IS NOT KNOWN. THE ASSESSMENT ORDER DEFINITELY LEADS TO THE CONCLUSION THAT NO ATTEMPT WA S MADE TO CONTACT SHRI MAHESH AT THE TIME OF ASSESSMENT. IN A NUTSH ELL, IT CAN BE SAID THAT ALL THE TRANSACTIONS RECORDED IN VARI OUS DOCUMENTS, LOOSE PAPERS AND REGISTERS BY THE SALES-TAX DEPARTMENT WAS NOT RECORDED IN THE REGULAR BOOKS OF A CCOUNT OF SHRI DHARMESH PATEL. IT IS ON THE BASIS OF THIS STATEMEN T AND THE CONCLUSIONS DRAWN FROM THE CONTENT OF THE LOOSE PAPERS , REGISTERS AND DOCUMENTS PROVIDED BY THE SALES-TAX DEPA RTMENT TO THE INVESTIGATION WING THAT CONCLUSIONS OF SUPPRESSE D PRODUCTION BY THE APPELLANT AND ITS SALES HAVE BEEN DR AWN. 101. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE APP ELLANT REQUESTED THE ASSESSING OFFICER TO GRANT THEM AN OPPORTU NITY TO CROSS EXAMINE SHIR KHARGE, SHRI DHARMESH PATEL AND SHR I SHAIKH AS ALSO THE VARIOUS EMPLOYEES OF THESE PERSONS. CONSEQUENT TO 36 THE REQUEST, CROSS EXAMINATION OF THE THREE PERSONS NAME D ABOVE WAS HELD ON 24/12/2010. VIDE LETTER DATED 27/1 2/2010, THE APPELLANT STATED THAT THE COPIES OF DOCUMENTS FOUN D AND SEIZED AT THE PREMISES OF THESE THREE PERSONS SHOULD ALSO BE SUPPLIED TO THEM IN ORDER TO ENABLE THEM A CHANCE OF RECONCILIATION IN RESPECT OF THE CONTENTS OF THOSE DO CUMENTS. HOWEVER, THOSE DOCUMENTS WERE NOT MADE AVAILABLE TO T HE APPELLANT. IN FACT, THE ASSESSING OFFICER VIDE LETTER N O. KOP/DCIT(C)/CIR/SER.ASSTT./GHODAWAT/2010-11/745 DATED 06/12/2010 HAD REQUESTED THE ADIT(INV), KOLHAPUR THA T THE STATEMENTS WHICH WERE RECORDED AND REPORTED WAS NOT MA DE AVAILABLE TO THE ASSESSING OFFICER. THEREFORE, IT IS APP ARENT THAT THE ASSESSING OFFICER DID NOT ASK FOR THE RELEVANT BOOKS, REGISTERS ETC. ON THE BASIS OF WHICH STATEMENTS OF THESE THREE PER SONS WERE TAKEN. 102. DURING THE COURSE OF THIS APPELLATE PROCEEDING A LSO I HAD REQUESTED THE ASSESSING OFFICER TO PROVIDE ME WITH THE E VIDENCES ON THE BASIS OF WHICH STATEMENTS OF THESE THREE PERSONS WE RE TAKEN AND ON THE BASIS OF WHICH UNACCOUNTED, SUPPRESSE D PRODUCTION WAS CALCULATED. HOWEVER, THE ASSESSING OFFICE R WAS UNABLE TO SUPPLY ME WITH THESE EVIDENCES AS WELL. IT WI LL NOT BE OUT OF PLACE OVER HERE TO MENTION THAT SHRI DHARMESH PATEL HAD IMMEDIATELY RETRACTED FROM THE STATEMENT GIVEN TO TH E INVESTIGATION WING ON 02/04/2009. THE RETRACTION WAS MADE IN THE FORM OF AN AFFIDAVIT FILED BEFORE A NOTARY ON 0 4/04/2009. SUBSEQUENTLY, SHRI DHARMESH PATEL HAD ALSO RETRACTED F ROM THE STATEMENT BY WAY OF AN AFFIDAVIT FILED BEFORE THE ME TROPOLITAN MAGISTRATE ON 08/04/2009, THE SCANNED COPY OF WHICH IS AS UNDER : 37 103. IT IS VERY CLEAR THAT THE STATEMENT MADE ON 02/0 4/2009 WAS IMMEDIATELY RETRACTED BY SHRI DHARMESH PATEL ON 04/0 4/2009 BEFORE A NOTARY AND AGAIN ON 08/04/2009 BEFORE THE METROPOLITAN MAGISTRATE. SUCH RETRACTIONS CANNOT BE T AKEN LIGHTLY, ESPECIALLY IN LIGHT OF THE FACT THAT THE AP PELLANT HAD STATED THAT HE HAD SIGNED ON THE STATEMENT, THE CONTENTS OF W HICH WAS NOT KNOWN OR EXPLAINED TO HIM. DURING THE COURSE OF CROSS EXAMINATION, SHRI DHARMESH PATEL ALSO INFORMED THAT T HE SAID AFFIDAVIT WAS SUPPLIED TO THE INVESTIGATION WING BY PO ST AS WELL AS BY FAX ON 09/04/2009 ITSELF. IN ORDER TO APPRECIAT E THE IMPACT OF SHRI DHARMESH PATEL'S RETRACTION, IT IS IMPERATIVE TO LOOK INTO THE LAW AS IT STANDS NOW ON RETRACTION, VALIDITY OF TH IRD PARTY STATEMENTS AND CROSS-EXAMINATION OF THIRD PARTIES. 104. IT IS HELD IN THE CASE OF PULLANGODE RUBBER PRODUCE CO. LTD. V. STATE OF KERALA [1973] 91 ITR 18 (SC) THAT AN ADMISSION IS AN EXTREMELY IMPORTANT PIECE OF EVIDEN CE BUT IT CANNOT BE SAID THAT IT IS CONCLUSIVE. IT IS OPEN TO THE PERSON WHO MADE THE ADMISSION TO SHOW THAT IT IS INCORRECT. 105. EARLIER ALSO THE HONBLE SUPREME COURT IN NARAYAN BHAGWANTRAO GOSAVI BALAJIWALE V. GOPAL VINAYAK GOSA UI AIR 1960 SC 100 HAD HELD THAT AN ADMISSION IS THE BEST EVIDENCE THAT AN OPPOSITE PARTY CAN RELY UPON AND, THOUGH NOT CONCLUSI VE, YET COULD BE DECISIVE OF THE MATTER UNLESS SUCCESSFULLY WITH DRAWN OR PROVED ERRONEOUS. 38 106. THOUGH THERE IS NOTHING SPECIFIC IN THE INCOME- TAX ACT OR IN THE INDIAN EVIDENCE ACT TO MAKE ADMISSIONS AS CONCLUSIVE PROOF OR AS ALWAYS BINDING ON THE MAKER, YET AS EXPLAINED, I T IS ALMOST A SETTLED POSITION BY WAY OF JUDICIAL DECISIONS THAT IN THE ABSENCE OF REBUTTAL OR RETRACTION THE EARLIER STATED FACTS IN MOST OF THE CASES, MAY BE CONCLUSIVE AND CAN BE ACTED UPON. SPECIF IC PROVISIONS OF THE INCOME-TAX ACT AS CONTAINED UNDER SEC TIONS 132(4), 133A(5), ETC., PROVIDE THAT STATEMENTS RECORD ED IN THE INCOME-TAX PROCEEDINGS HAVE EVIDENTIARY VALUE. IN TH E INSTANT CASE THE STATEMENTS MADE BY THIRD PARTIES WAS NEITHER UN DER 132(4) OR UNDER SECTION 133A(5). THEREFORE, IT CAN B E STATED THAT THE EVIDENTIARY VALUE OF THE STATEMENTS RELIED UPON IN ASSESSMENT WAS DUBIOUS TO A CERTAIN EXTENT. EVEN THOUGH T HE STATEMENTS WOULD, FOR ARGUMENT SAKE, HAVE EVIDENTIARY VALUE, YET IT IS NOT A CONCLUSIVE PROOF OF THE FINANCIAL OR COMMERCIAL AFFAIRS OF THE APPELLANT. THE HON'BLE SUPREME COURT IN THE CASE OF AVADH KISHORE DAS V. RAM GOPAL AIR 1979 SC 861 HAS HELD THAT EVIDENTIARY ADMISSIONS ARE NOT CONCLUSIVE PROOF OF THE FACTS ADMITTED AND MAY BE EXPLAINED OR SHOWN TO BE WRONG. THEY DO HOWEVER, RAISE AN ESTOPPEL AND SHIFT THE BURDEN OF PRO OF ON TO THE PERSON MAKING THEM. THE SUPREME COURTFURTHER HEL D THAT THEY ARE NOT AN EFFICACIOUS PROOF OF THE FACTS ADMITT ED, IF SHOWN OR EXPLAINED TO BE WRONG. 107. THE STATEMENT TO BIND THE MAKER MUST BE VOLUNTAR Y AND IF IT APPEARS TO HAVE BEEN OBTAINED BY COERCION, INDUCEMEN T OR THREAT IT MUST BE REJECTED. ON RETRACTION, EARLIER ST ATED FACTS OR ADMISSION, LOSE THEIR EFFECT AS BINDING EVIDENCE AND IT IS NOT PERMISSIBLE FOR ANY AUTHORITY TO CONCLUDE A MATTER ON THE BASIS OF SUCH EARLIER STATEMENT ALONE. AT THE SAME TIME, BAL D RETRACTIONS OF EARLIER ADMISSIONS WILL NOT BE ENOUGH AN D EVEN AFTER RETRACTION SUCH STATEMENTS CANNOT AUTOMATICALLY BECOME NULLITIES. MERELY BECAUSE A STATEMENT IS RETRACTED, IT CANNOT BECOME AS INVOLUNTARY OR UNLAWFULLY OBTAINED. FOR AN Y RETRACTION TO BE SUCCESSFUL THE RETRACTOR MUST SHOW AS TO HOW EARLIER RECORDED STATEMENTS DO NOT STATE THE TRUE FACT S OR THAT THERE WAS COERCION, INDUCEMENT OR THREAT WHILE RECOR DING HIS EARLIER STATEMENTS. RETRACTION OF EARLIER ADMITTED FA CTS PUTS THE ASSESSING OFFICER ON A BACK FOOT AND HE IS NOT SUPPOSED T O ACCEPT THE RETRACTION WITHOUT PROBE OR CROSS-EXAMINATION. A RETRACTION TO HAVE ANY EVIDENTIARY VALUE MUST PREFERABLY BE IN A STATEMENT DENYING THE EARLIER STATED FACTS AND EXPLAINING THE REASONS FOR MAKING THE CONTRA STATEMENT EARLIER AND GIVING SUBSTIT UTED FACTS IN SUPPORT OF RETRACTION. AN EFFECTIVE AND CREDIBLE RETRACTION IS THE ONE WHICH IS INTIMATED TO THE INCOME-TAX AUTHORI TY AT THE EARLIEST WHEN THE MATTERS ARE STILL ALIVE. RETRACTION S MADE AFTER THE LAPSE OF A CONSIDERABLE TIME ARE LIABLE TO BE REJ ECTED BECAUSE OF POSSIBILITY OF CONCOCTIONS AND FABRICATION OF EVIDE NCES. 108. GENERALLY THE STATEMENTS MADE EARLIER ARE RET RACTED WHEN THE MAKER CONTENDS THAT EARLIER ADMISSIONS (I) WERE UNTRUE; OR (II) WERE ON A MISTAKEN UNDERSTANDING, MISCONCEPTION ; OR (III) WERE NOT VOLUNTARY; OR (IV) WERE UNDER MENTAL STRESS, UNDUE INFLUENCE, PRESSU RE OR COERCION. 39 109. RETRACTION OR REBUTTAL OF EARLIER STATEMENTS/AD MITTED FACTS CAN BE (A) IN THE FORM OF STATEMENT WHICH IS RECORDED LATER ON; OR (B) IN THE FORM OF A LETTER; OR (C) IN THE FORM OF AN AFFIDAVIT FILED. 110. THOUGH RETRACTIONS WOULD BE EFFECTIVE IN ALL TH E MANNERS DISCUSSED ABOVE, YET, COMPARATIVELY SPEAKING, LIKE A SUB SEQUENT STATEMENT RECORDED ON OATH BY THE CONCERNED INCOME-T AX AUTHORITY, RETRACTIONS BY WAY OF AFFIDAVIT FILED ON OATH OR AFFIRMATION ATTESTED BY THE NOTARY/ OATH COMMISSIONER/ JUDICIAL MAGISTRATE ARE CONSIDERED TO BE MORE EFFECTIVE FOR TH E SIMPLE REASON THAT IN THE EYES OF LAW THEY CARRY MORE VALUE IN VIEW OF THE SPECIFIC PROVISIONS OF THE INDIAN PENAL CODE AS CONTAIN ED IN SECTIONS 181, 191 & 193 WHICH PROVIDE FOR PROSECUTION IN CASE OF FALSE STATEMENTS GIVEN ON OATH. AFFIDAVIT, A SOLEMN AN D VOLUNTARY DECLARATION OR STATEMENT OF FACT IN WRITING, RELATIN G TO MATTERS IN QUESTION AND SWORN OR AFFIRMED AND SIGNED BY THE DEPON ENT BEFORE A PERSON OR OFFICER DULY AUTHORIZED TO ADMINI STER SUCH AN OATH OR AFFIRMATION, SHOWS THE CIRCUMSTANCES UNDER WHIC H ADMISSION WAS MADE AND THE GROUNDS FOR WHICH THE ADMISSIO N IS INCORRECT. NECESSARY SUPPORTING EVIDENCES TO SUPPORT THE CORRECT FACTS NEED TO BE FILED. WHEN BY A SWORN STATEMENT OR A FFIDAVIT FACTS ADMITTED, IN AN EARLIER STATEMENT WHICH WAS RECORDED ON OATH, ARE RETRACTED THE ASSESSING OFFICER MUST' EXAMINE THE MAKER CAREFULLY. ON FURNISHING OF AN AFFIDAVIT, THE ASSESSING OFFICER IS ENTITLED TO EXAMINE THE WITNESS OR CROSS EXAMINE THE DEPONENT. IF T HE ASSESSING OFFICER FAILS TO CROSS-EXAMINE THE DEPONENT THE STATEMENT MADE IN THE AFFIDAVIT BECOMES UNCHALLENGEAB LE. ON THIS POINT, USEFUL REFERENCE CAN BE MADE TO THE DECISION O F THE SUPREME COURT IN THE CASE OF MEHTA PARIKH & CO. V. CIT [1 956] 30 ITR 181 WHERE IT WAS HELD THAT IT WILL NOT BE OPEN TO THE RE VENUE TO CHALLENGE THE STATEMENTS MADE BY THE DEPONENT IN THEI R AFFIDAVITS LATER ON, IF NO CROSS EXAMINATION WITH REFERENCE TO T HE STATEMENTS MADE IN THE AFFIDAVITS IS DONE. 111. THE ACCEPTED POSITION OF ADMISSIONS OR CONFESSIONS MA DE IN THE STATEMENTS RECORDED DURING SEARCH OR SURVEY, WITHOU T THERE BEING ANY OTHER EVIDENCE TO SUPPORT SUCH ADMISSIONS, IS T HAT THEY CAN SUCCESSFULLY BE MADE USE OF TO ASSESS THE INCOME, UNLESS THEY ARE PROVED TO BE INVOLUNTARY OR ARE PROVED TO HAVE BEEN TAKEN UNDER DURESS, COERCION, MISCONCEPTION, OR ARE PATENTLY WRONG, OR NOT BACKED BY EVIDENCE ETC. THEREFORE, WE HAVE TO E XAMINE THE STATEMENTS OF SHRI PATEL, SHRI SHAIKH AND SHRI KHARGE IN THESE MILIEUS. WE HAVE TO EXAMINE THE STATEMENTS TO FIND OUT 1. IF THEY WERE OBTAINED BY COERCION, INDUCEMENT OR THREAT; OR 2. THE STATEMENT WAS MADE UNDER MISCONCEPTION OF FACT OR OF LAW; OR 3. THE STATEMENT IS PATENTLY WRONG; OR 4. THE STATEMENT IS NOT BACKED BY EVIDENCES OR THAT TH E EVIDENCES AT HAND ARE IN CONTRADISTINCTION AND STAND JUXTAPOSED TO THE ADMITTED FACTS; AND WHETHER 5. THERE IS A RETRACTION, AND IF SO THEN WHETHER THE RETRACTION CAN BE ACCEPTED OR NOT. 40 112. LAW ON ADMISSION AND RETRACTION IS WELL SETTLED. T HE HON'BLE TRIBUNAL IN THE CASE OF SUNIL KUMAR SINGHANIA V. ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2* [2012 ] 20 TAXMANN.COM 133 (HYD.) HAS LAID DOWN THE FOLLOWING PROPOSITIONS IN RESPECT OF ADMISSION AND RETRACTION (I) IT IS HELD IN DEEPCHAND & CO V. ASSTT. CIT [1995], 51 TTJ (BOM) 421 THAT STATEMENTS RECORDED DURING SEARCH PROCEEDING WHICH CONTINUED FOR AN UNDULY LONG PERIOD CANNOT BE CONSID ERED TO BE FREE, FEARLESS AND VOLUNTARY. THUS AN ELEMENT OF COMPU LSION IS DISCERNIBLE IN THE CASE OF THE APPELLANT ON THE FACTS AND CIRCUMSTANCES OF CASE JUSTIFYING RETRACTION. (II) THAT THE MEASURE OF SEARCH IS TO UNEARTH DOCUME NTS, REVEALING CONCEALED INCOME AND WEALTH. SINCE STRICTL Y SPEAKING, INTERROGATION IS NOT A PART OF THE OBJECT OF THE SEA RCH, IT IS EXPECTED THAT AN APPELLANT IS NOT PUT TO PRESSURE INTO MAKING A N ADMISSION AND THE STATEMENT SHOULD NOT GO BEYOND WHAT IS DISCOVER ED IN COURSE OF SEARCH FROM THE PREMISES OF THE APPELLANT. (III) IT IS A SETTLED PRINCIPLE OF EVIDENCE THAT THE APPROACH OF A COURT IS FIRST TO MARSHAL EVIDENCE AGAINST THE ACCUSED EXCLUDING CONFESSION ALTOGETHER AND SEE WHETHER THE ACCUSED CAN B E HELD GUILTY. THEREFORE THE ASSESSING OFFICER OUGHT NOT HAVE PLACED UNDUE IMPORTANCE ON THE ADMISSION WHICH WAS BEREFT OF ANY DOCUMENTARY EVIDENCE FOUND DURING THE COURSE OF SEARC H. ORAL EVIDENCE ONLY SUPPLEMENTS DOCUMENTARY EVIDENCE, CANNO T SUPPLANT THE SAME. (IV) IT IS ALSO A WELL-ACCEPTED PRINCIPLE THAT AN ADMISSION IS NOT CONCLUSIVE EVIDENCE AS TO THE TRUTH OF THE MATTER STAT ED THEREIN. IT IS ONLY A PIECE OF EVIDENCE, THE RELEVANCY OF WHICH IS REQUIRED TO BE JUDGED BASING ON THE MATERIAL EVIDENCE AND CIRCUM STANCES IN WHICH IT IS MADE. (V) A MERE CONFESSIONAL STATEMENT WITHOUT THERE BEING ANY DOCUMENTARY PROOF SHALL NOT BE USED AS EVIDENCE AGAINST THE APPELLANT. IN THE FOLLOWING CASE BEFORE THE COURT, A STATEMENT OF MANAGING DIRECTOR WAS RECORDED IN COURSE OF SEARCH WHE REIN HE ADMITTED UNDISCLOSED INCOME BUT LATER RETRACTED FROM THE SAID STATEMENT AND ACCORDINGLY THE COURT HELD THAT WITHOU T DOCUMENTARY PROOF, A STATEMENT ALONE CANNOT BE UTILI ZED AGAINST THE APPELLANT. CIT V. SHRI RAMDAS MOTOR TRANSPORT [1999] 238 ITR 1 77/102 TAXMAN 300 AP. (VI) IN THE CASE OF APPELLANT, NO SUFFICIENT EVIDENCE WAS FOUND IN COURSE OF SEARCH CONCLUSIVELY INDICATING RECEIPT OF EXACT AMOUNT OF CASH SALES WHICH RESULTED IN ADDITIONS. (VII) IT IS SETTLED PRINCIPLE THAT IN CASE EVIDENCE IS IN THE FORM OF STATEMENT WHICH IS SOUGHT TO BE UTILIZED AGAINST THE APPELLANT PERTAINS TO AN EX-PARTE STATEMENT OF WITNESS, THE SAME CANNOT BE UNILATERALLY UTILIZED AGAINST THE APPELLANT WITHOUT THE WITNESS BEING PUT TO CROSS EXAMINATION. IN THE CASE OF JAIKISAN R. AGARWAL V. ASSTT. CIT [2000] 66 TTJ 704 (PUNE) IT WAS HELD THAT IN A CASE WHERE NO DOCUMENT WAS SEIZED IN COURSE OF A SEARCH SHOWING PA YMENT OF EXTRA CONSIDERATION FOR PURCHASE OF A PROPERTY, WHETH ER ADDITIONS CAN BE MADE ON THE BASIS OF STATEMENT RECORDED FROM TH IRD PARTIES. IT WAS HELD THAT ANY STATEMENT RECORDED AT THE BACK O F THE APPELLANT HAS NO EVIDENTIARY VALUE AND IN THE ABSENCE OF ANY EVIDENCE SEIZED IN COURSE OF SEARCH INDICATING PAYMENT OF EXTRA CONSIDERATION OVER AND ABOVE WHAT IS MENTIONED IN THE DOCUMENT, THE ADDITION CANNOT BE SUSTAINED. THE DECISION 41 12. AS REGARDS THE ADDITION OF RS . 1,36,470 IS CONCERN ED, THE SAME HAS BEEN MADE BY THE ASSESSING OFFICER ON THE BASIS OF STA TEMENTS OF THE VENDORS RECORDED AT THE BACK OF THE ASSESSEE. SUC H STATEMENTS RECORDED AT THE BACK OF THE ASSESSEE HAVE NO EVIDENTIARY VALUE IN THE EYES OF LAW. LATER ON, WHEN THE ASSESSEE INSISTED IN THE CROSS-EXAMINATION, THESE VENDORS, RETRAC TED FROM THEIR STATEMENTS BEFORE THE ASSESSING OFFICER AND CONFIRM ED THAT THEY HAD NOT RECEIVED ANY MONEY MORE THAN THE AMOUN TS STATED IN THE DOCUMENTS. THE ASSESSING OFFICER HAS CONVENIENTLY IGN ORED THESE STATEMENTS. IT IS FURTHER NOTED THAT DURING THE COURSE OF SEARCH, NO DOCUMENT OR PAPER WHATSOEVER WAS FOUND TO I NDICATE THAT THE ASSESSEE HAD PAID ANY AMOUNT OVER AND ABOVE TH E AMOUNTS RECORDED IN THE DOCUMENTS EXECUTED FOR THE PU RCHASE OF LAND. ACCORDINGLY, WE SEE NO JUSTIFICATION FOR THIS AD DITIONS TOO. UNDER THE CIRCUMSTANCES, THIS GROUND SUCCEEDS AND THE ASSE SSEE GETS RELIEF OF RS.20,46,052. [EMPHASIS SUPPLIED.] (VIII) AS REGARDS RETRACTION, THE PRINCIPLE IS THAT IT SHOULD BE RETRACTED BEFORE THE CONCERNED AUTHORITY DECIDES THE MATTER. IN OTHER WORDS, THE APPELLANT SHOULD NOT PLACE THAT AUTH ORITIES IN SUCH A POSITION SO AS TO THWART THE PROCESS OF INVESTIGATI ON. THIS GAVE THE AUTHORITIES SUFFICIENT TIME TO COLLECT CORRO BORATIVE EVIDENCE WHICH THEY HAVE FAILED TO DO AS EXPLAINED I N THE PRECEDING PARAS. THAT A RETRACTION CAN BE MADE BEFOR E FILING THE RETURN IS ACCEPTED AS PRINCIPLE IN THE CASE OF R.P. MONGA V. DY. CIT [2003] 87ITD 287 (DELHI) (TM). 113. STATEMENT GIVEN BY A PERSON MAKES OUT A PRIMA FA CIE CASE AGAINST THE ASSESSEE. BUT THIS IS NOT ALWAYS IRREFUTABLE. I F SUCH A STATEMENT IS ALWAYS AN UNIMPEACHABLE EVIDENCE, THEN TH ERE WILL BE NO. NEED FOR ANY FURTHER ENQUIRIES IF THE DEPARTMENT HAS TO MAKE OUT A CASE OF UNDISCLOSED INCOME AGAINST THE ASSESSEE. THE REFORE, THE LAW PROVIDES THAT THE STATEMENTS EVEN THOUGH IN PO SSESSION OF PRIMARY EVIDENTIARY VALUE CAN BE REBUTTED IF MORE C ONVINCING EVIDENCES ARE FURNISHED BY THE ASSESSEE. IT IS IN THIS CONT EXT THAT THE ASSESSEES REQUESTED THE, ASSESSING OFFICER TO AFFORD AN OPPORTUNITY TO CROSS-EXAMINE SHRI DHARMESH PATEL, SHR I SHAIKH AND SHRI KHARGE. ALL OF THEM MADE THEMSELVES AVAILAB LE FOR FACILITATING THE CROSS-EXAMINATION BY THE ASSESSEES. ALL THESE PERSONS, WHO HAD INITIALLY DEPOSED AGAINST THE ASSESSEE, NE GATED THE STATEMENT MADE BY THEM DURING THE COURSE OF SURVE Y DURING THE CROSS EXAMINATION. UNDER THESE CIRCUMSTANCES THE. ED IFICE OF THE EVIDENTIARY VALUE BUILT ON THE STATEMENT OF THAT PERSON COLLAPSES. THIS IS THE RULE OF LAW. THEREFORE, THE INIT IAL STATEMENT DOES NOT CONSTITUTE OMNIPOTENT EVIDENCE AGAINST THE ASSE SSEES. 114. A PERUSAL OF THE CROSS EXAMINATION CONDUCTED BY T HE ASSESSING OFFICER REVEALS THAT AFTER RETRACTION OF THE ST ATEMENTS MADE BEFORE THE INVESTIGATION WING, SHRI DHARMESH PAT EL HAD CATEGORICALLY STATED THAT APART FROM THE PURCHASING O F GUTKHA AND PAN MASALA FROM THE KOTHARIS OF KANPUR AND FROM G M JOSHI GROUP, HE HAD NEVER GIVEN A STATEMENT THAT HE WAS A C&F AGEN T OF THE APPELLANT. HE FURTHER STATED THAT ALL THE GOODS PURCH ASED FROM GHODAWAT INDUSTRIES (INDIA) PVT. LTD. ARE ACCOMPANIED WITH THE BILL AND THE PAYMENTS ARE MADE BY CHEQUE ONLY. HE FU RTHER POINTED OUT THAT CONTRARY TO WHAT WAS RECORDED IN THE STATEME NT RECORDED ON 02/04/2009, THE SALES-TAX DEPARTMENT HAS ALSO SCRU TINIZED THE LOOSE PAPERS, REGISTERS AND OTHER DOCUMENTS SEIZED BY T HEM ON 20/01/2009. THEY HAVE, AFTER THE CLOSE SCRUTINY, HELD HIM TO BE LIABLE TO PAY SALES-TAX OF RS.29.15 LAKHS ON UNACCOUNT ED SALES OF 42 RS.233.25 LAKHS ONLY DURING THE FINANCIAL YEAR 2008-0 9. THIS UNACCOUNTED SALES WAS IN RESPECT OF HIS OUTSIDE MAHARASHTR A STATE PURCHASES AND THE SHOW CAUSE NOTICE WAS IN RESPECT OF OMS SALES FOR THE FINANCIAL YEAR 2008-09 ONLY. HE STATED THAT HE HAD INCLUDED THE ABOVE PROFITS IN HIS RETURN FILED FOR THE ASSESSMENT YEAR 2009- 10. 115. I FIND THAT THE STATEMENT OF SHRI DHARMESH PATEL RECORDED ON 02/04/2009 HAS BEEN MADE THE BASIS OF QUANTIFYING THE SUPPRESSED SALES AND CONSEQUENTLY THE SUPPRESSED INCOME BY APPLYING THE GROSS PROFIT OF 54.87%. THE METHODOLOGY ADOPTED BY THE ASSESSING OFFICER IN MAKING THIS COMPUTATION IS DISCUSSE D LATER. HOWEVER, IT WILL BE SUFFICIENT TO MENTION OVER HERE THAT THE STATEMENT SHRI DHARMESH PATEL WAS THE SOLE BASIS OF MAKI NG THE ADDITION ON ACCOUNT OF SUPPRESSED SALES FOR THE ASSESSMENT Y EARS 2007-08, 2008-09 AND 2009-10. IN THIS RESPECT, I FIND THAT THE CASE OF THE APPELLANT IS SQUARELY COVERED BY THE ; DECISION GIVEN BY THE JURISDICTIONAL TRIBUNAL IN RESPECT OF THIRD PARTY CO NFESSION STATEMENT IN THE CASE OF JAIKISAN R. AGARWAL V. ASSTT. CIT (SUPRA). RESPECTFULLY FOLLOWING THIS DECISION I HOLD THAT THE ST ATEMENT COULD NOT HAVE BEEN USED IN THE ABSENCE OF ANY OTHER EVIDEN CE INDICATING SUPPRESSION OF SALES TO MAKE THE AFORESAID ADDITIONS. APAR T FROM THESE, THE ASSESSING OFFICER DID NOTHING TO PROVE THAT R ETRACTION BY SHRI DHARMESH PATEL WAS INCORRECT. SHRI PATEL HAS (I) DENIED ANY UNACCOUNTED TRANSACTION WITH THE COMPANY (II) STATED THAT HE RETRACTED FROM EARLIER STATEMENT IMMEDIATELY UPON RE ACHING MUMBAI BECAUSE HE HAD NOT READ THE STATEMENT AND BECA USE THE CONTENTS OF THE STATEMENT WERE NOT MADE KNOWN TO HIM AND HE WAS NOT ALLOWED TO GO THROUGH THE CONTENTS OF THE STAT EMENT. INTERESTINGLY, THE DEPARTMENT DID NOT DO ANYTHING TO SHOW THAT THE CONTENTS OF THE AFFIDAVIT WERE UNTRUE OR MALICIOUS. E VEN DURING THE COURSE OF CROSS EXAMINATION, THE RETRACTION WAS FURTHER CRYSTALLIZED IN THE FORM OF DENIAL OF EVERY TRANSACTI ON EXPLAINED IN THE FIRST STATEMENT. EVEN THE FINDINGS OF THE SALES-TA X DEPARTMENT CONTRADICT THE ADMISSION OF SALES OUTSIDE BOOKS IN THE FI NANCIAL YEARS 2006-07 AND 2007-08. 116. THE ASSESSING OFFICER HAS COMPUTED THE SUPPRESSED SALES AND GROSS PROFIT IN THE FOLLOWING MANNER - 117. IN THE FINANCIAL YEAR 2006-07 THE MATERIAL SEIZ ED BY THE SALES- TAX DEPARTMENT APPARENTLY INDICATED THAT THERE WAS A SUPPRESSED SALES OF RS.32,99,250/- DURING THE FOUR MONTHS PERIOD. APPLYING THE DECISION OF H M ESUFALI H M ABDULALI (SUPRA) THE UNACCOUNTED SALES FOR THE ENTIRE YEAR WAS ARRIVED AT RS.98,97,750/- . HOWEVER, DURING THIS YEAR THE ASSESSING OFFICER HAD APPLIED ANOTH ER FORMULA WHICH WAS NOT USED IN ANY SUBSEQUENT OR ANY EARLIER YEA RS TO FIND OUT THE QUANTUM OF SUPPRESSED SALES. THIS FORMULA WAS USING THE AVERAGE WEIGHT OF LAMINATION PER POUCH TO ARRIVE AT THE 'SUPPRESSED SALES' FIGURE. ACCORDING TO THIS FORMULA, THE 'SUPPRESSED SALES' WAS TO THE TUNE OF RS.4,17,26,141/-. HO WEVER, THE INCOME WAS COMPUTED BY APPLYING THE MULTIPLIER O F 54.87% ON AVERAGE SALES, AS FOR FINANCIAL YEAR 2002-03 TO 2005- 06, AFTER EXCLUDING EXCISE TO ARRIVE AT A FIGURE OF RS. 20,84,8 5,103/-. FOR THE FINANCIAL YEAR 2007-08, THE MATERIAL COLLECTED BY T HE SALES-TAX DEPARTMENT INDICATED UNACCOUNTED SALES OF RS. 26,70,26 ,465/- DURING A TEN MONTHS PERIOD. THE ASSESSING OFFICER APPLIE D THE RATIO OF DECISION IN H M ESUFALI H M ABDULALI (SUPRA) TO ESTIMATE THE SALES AT RS. 32,04,31,758/-. FOR THE FINANCIAL YEAR 20 08-09, THE UNACCOUNTED SALES WAS WORKED OUT ON THE SAME BASIS AS IN 43 FINANCIAL YEARS 2006-07 AND 2007-08 AT RS. 32,92,63,9 25/- FOR SIX MONTHS PERIOD WHICH WAS CONVERTED INTO RS. 65,85,27,85 0/- FOR THE WHOLE YEAR. THEREAFTER THE ASSESSING OFFICER EMBARK ED UPON AN ATTEMPT TO FIND OUT THE RATIO OF SUPPRESSED SALES OF GUTKHA AND PAN MASALA. DURING THE FINANCIAL YEARS 2007-08 AND 2008-09 THE ASSESSING OFFICER HAD ALSO INCLUDED THE AMOUNT OF SALES OF GUTKHA AND PAN MASALA @ RS. 2 CRORES IN RESPECT OF THE UNACCOUNTED SALES MADE THROUGH SHRI SHAIKH OF SATARA AND RS. 3.96 CROR ES BEING THE AMOUNT OF UNACCOUNTED SALES ALLEGEDLY MADE THROUGH SH RI KHARGE OF SOLAPUR. BY ADDING THESE AMOUNTS AGGREGATING TO RS. 5.96 CRORES IN EACH OF THE YEARS, THE AGGREGATE UNACCOUNTED SALES WAS RECORDED AT RS. 38,00,31,758/- FOR THE FINANCIAL YEA R 2007-08 AND RS. 71,81,27,850/- FOR FINANCIAL YEAR 2008-09. THE A GGREGATE OF THE SUPPRESSED SALES SO ARRIVED AT WAS RS.113,98,85,749/-. THIS AMOUNT WAS AVERAGED OUT BY DIVIDING THE ALLEGED SUPPR ESSION OF SALES BY 03 I.E. THE NUMBER OF YEARS AND THUS THE FIGUR E OF RS.37,99,61,916/- WAS' ADOPTED AS THE FIGURE OF SUPPRESSE D SALES PER ANNUM FOR THE PERIOD FROM FINANCIAL YEARS 2002-0 3 TO 2006- 07. THE AGGREGATE OF SUPPRESSED SALES FOR THE ENTIRE PE RIOD I.E. FINANCIAL YEARS 2002-03 TO 2008-09 WAS THUS A FIGURE OF RS.265,97,33,413/- AND THIS FIGURE WAS APPORTIONED AMO NGST VARIOUS ASSESSMENT YEARS AS INDICATED ABOVE. TO THESE FIGUR ES OF SUPPRESSED SALES, A GROSS PROFIT RATIO OF 54.87% WAS APPLIE D. THE ASSESSING OFFICER OBSERVED THAT THE ACTUAL GROSS PROFIT RA TIO FOR FINANCIAL YEARS 2005-06 TO 2007-08 RANGED BETWEEN 7. 93% TO 7.75%. AFTER EXCLUDING THE EXCISE DUTY COMPONENT IN RESPECT OF THESE THREE YEARS, THE AVERAGE GROSS PROFIT RATIO WAS T AKEN AT 54.87%. THIS WAS APPLIED TO THE SUPPRESSED SALES OF EVERY YEAR TO ARRIVE AT PROFIT OF RS. 20,84,85,103/- FOR FINANCIAL YEARS 2002-03 TO 2006-07, RS. 20,85,23,425/- FOR FINANCIAL YEAR 2007- 08 AND RS. 39,40,36,751/- FOR THE FINANCIAL YEAR 2008-09. 118. THE APPELLANT HAS ALSO POINTED OUT THAT SOME OF T HE CONCLUSIONS RECORDED IN ASSESSMENT ORDER IS INCORRECT - (A) ESTIMATED UNACCOUNTED SALES HAVE BEEN MADE FOR POS T SEARCH PERIOD AS WELL. (B) SHRI SHAIKH HAS MENTIONED THAT UNRECORDED SALES I S FOR THE PERIOD 01/04/2008 TO 03/02/2009, BUT THE ASSESSING OFFICER HAS STATED THAT PERIOD OF UNACCOUNTED TURNOVER IS FOR THREE MONTHS ONLY. (C) ESTIMATIONS ARE PURE PRESUMPTIONS AND NOT BASED ON A NY EVIDENCES. (D) THE ASSESSING OFFICER HAS WRONGLY ASSUMED THAT THE APPELLANT IS PAYING EXCISE ON PRODUCTION CAPACITY OF MACHINES. THE KARNATAKA HIGH COURT HAS STAYED THE NOTIFICATION DATED 01/07/2008 NO.29/2008-CE(N.T.) ALLOWING LEVY OF XCI SE ON PRODUCTION CAPACITY OF INSTALLED MACHINERY. INSTEAD, EXCISE IS PAYABLE ON ACTUAL PRODUCTION AS PER THE INTERIM ORD ER DATED 11/07/2008 ISSUED IN FAVOUR OF THE APPELLANT IN WRIT PETITION FILED IN KARNATAKA HIGH COURT, CIRCUIT BRANCH AT DHARWAD. THIS IS AMPLE PROOF OF THE FACT THAT ALL MANUFACTURING RECORDS ARE VETTED BY THE EXCISE DEPARTMENT. THEY HAVE NOT MADE OUT ANY CASE OF SUPPRESSED PRODUCTION TILL DATE. 44 (E) THE APPELLANT HAS ALSO DRAWN MY ATTENTION TO THE EXCISE RECORDS AVAILABLE WITH THE DEPARTMENT. THIS EXCISE REC ORDS ARE FOR THE PERIOD 17/11/2007 TO 24/02/2008 I.E. FINANCIAL YEAR 2007-08. THEY ARE MAZHAR REPORTS OF EXCISE OFFICIALS OF VARIOUS DATES WHICH SHOW THE STOCK OF RAW MATERIALS, FINISHED GOODS, INWARD OF RAW AND PACKING MATERIALS RECEIVED, THE INVOICE NUMBERS AGAIN ST WHICH THEY HAVE BEEN RECEIVED, THE CLEARANCES AND FINAL STO CK TAKEN ON THESE DATES. THESE MAZHAR REPORTS OF THE EXCISE DEPARTME NT ARE FOR VARIOUS DATES. MAZHAR REPORT OF EXCISE OFFICIAL 1. 01/12/2007 2. 02/12/2007 3. 03/12/2007 4. 11/01/2008 5. 12/01/2008 6. 15/01/2008 7. 23/01/2008 8. 24/01/2008 9. 25/01/2008 10. 01/02/2008 11. 12/02/2008 STOCK AND PRODUCTION REGISTER CHECKED BY EXCISE B UNDLE 86 OF ANNEXURE-A DATED 04/02/2009 STAR PAN MASALA, J OSH, LAGAAN, S.G. GUTKHA 1. 20/09/2007 2. 30/11/2007 3. 05/12/2007 4. 12/01/2008 5. 14/01/2008 6. 15/01/2008 7. 02/12/2007 8. 04/12/2007 9. 01/02/2008 10. 03/02/2008 11. 23/02/2008 BUNDLE 77 OF ANNEXURE-A DATED 04/02/2009 1 15/12/2007 2 11/01/2008 3 12/01/2008 4 14/01/2008 5 15/01/2008 6 19/01/2008 7 31/01/2008 8 01/02/2008 9 12/02/2008 10 13/02/2008 11 14/02/2008 12 15/02/2008 13 16/02/2008 14 19/02/2008 15 21/02/2008 45 16 22/02/2008 17 23/02/2008 18 24/11/2007 19 28/11/2007 20 29/11/2007 21 30/11/2007 22 01/12/2007 JOSH 1 04/12/2007 2 21/01/2008 3 01/02/2008 4 12/02/2008 5 13/02/2008 6 14/02/2008 7 16/02/2008 8 21/02/2008 9 22/02/2008 10 23/02/2008 LAGAAN GUTKHA 1 24/11/2007 2 27/11/2007 3 28/11/2007 4 29/11/2007 5 30/11/2007 6 01/12/2007 7 02/12/2007 8 03/12/2007 9 04/12/2007 10 12/01/2008 11 14/01/2008 12 15/01/2008 13 23/01/2008 14 01/02/2008 15 12/02/2008 16 13/02/2008 17 14/02/2008 18 15/02/2008 19 16/02/2008 20 21/02/2008 21 22/02/2008 22 23/02/2008 S.G. GUTKHA 1 24/11/2007 2 28/11/2007 3 29/11/2007 4 30/11/2007 5 01/12/2008 6 02/12/2008 46 7 03/12/2008 8 04/12/2008 9 12/01/2008 10 14/01/2008 11 15/01/2008 12 23/01/2008 13 01/02/2008 14 12/02/2008 15 13/02/2008 16 14/02/2008 17 15/02/2008 18 16/02/2008 19 21/02/2008 20 22/02/2008 21 23/02/2008 CHAK DE PRODUCTION IN 2009-10 UP NO.1 1 23/11/2007 STAR PREMIUM 1 24/11/2007 2 28/11/2007 3 29/11/2007 4 30/11/2007 5 20/01/2008 6 24/01/2008 7 01/02/2008 8 14/02/2008 9 15/02/2008 10 16/02/2008 11 21/02/2008 12 22/02/2008 13 23/02/2008 STAR PREMIUM EXPORT 1 24/11/2007 2 24/01/2008 3 01/02/2008 CHAK DE (73B NO.) 1 24/11/2007 2 28/11/2007 3 29/11/2007 4 30/11/2007 5 02/12/2007 6 04/12/2007 7 05/12/2007 8 12/01/2008 9 14/01/2008 47 10 15/01/2008 11 22/01/2008 12 01/02/2008 13 12/02/2008 14 13/02/2008 15 14/02/2008 16 15/02/2008 17 16/02/2008 18 19/02/2008 19 21/02/2008 20 22/02/2008 21 23/02/2008 THESE ARE THE DATES ON WHICH THE EXCISE OFFICIALS ACTU ALLY OVERSAW THE ENTIRE PRODUCTION PROCESS AND NOTED DOWN THE QUAN TUM OF INWARD OF RAW AND PACKING MATERIAL AND THE CLEARANC ES OF BAGS OF VARIOUS PRODUCTS. THESE ARE CONTEMPORANEOUS DOCUMENTS W HICH ALSO RECORD THE STOPPAGE TIME IN PRODUCTION DURING TH E DAY. THE EXCISE OFFICIALS HAVE ALSO CONDUCTED RANDOM CHECK OF M ACHINE SPEED AND FOUND OUT THE NUMBER OF POUCHES PRODUCED BY THEM. IT WAS POINTED OUT THAT IT IS ON THIS ACTUAL PRODUCTION T HAT EXCISE HAS BEEN LEVIED DUE TO THE OPERATION OF THE INTERIM OR DER OF THE HONBLE KARNATAKA HIGH COURT IN RESPECT OF PAYMENT O F EXCISE DUTY. (F) THE APPELLANT HAS POINTED THAT CONTRARY TO THE NOTION HELD BY THE ASSESSING OFFICER THAT EXCISE DUTY IS PAYABLE ON MACH INE BASIS IRRESPECTIVE OF ACTUAL QUANTUM OF PRODUCTION, IN THEIR CASE EXCISE IS LEVIED ON ACTUAL PRODUCTION OF PAN MASALA AND GUTKHA. 119. I HAVE GONE THROUGH THE SUBMISSIONS OF THE APPELLA NT AND I FIND THEM TO BE CORRECT AND IN ORDER. IN LIGHT OF THE FA CT THAT SOME MISTAKES HAVE CREPT IN THE OBSERVATIONS OF THE ASSESSING OF FICER IN RESPECT OF. PRODUCTION AND LEVY OF EXCISE DUTY ON ACT UAL PRODUCTION AS ALSO THE FACT THAT THE EXCISE DEPARTMENT HAS OVERSEEN THE PRODUCTION ON VARIOUS DATES, I HOLD THAT THESE CONTEM PORANEOUS DOCUMENTS WILL HAVE GREATER SAY IN DETERMINING WHETHE R OR NOT THE APPELLANT HAD INDULGED IN UNDERSTATEMENT OF PRODUCTI ON AND THEREBY INDULGED IN SUPPRESSION OF PRODUCTION AND PURC HASE OF RAW MATERIAL. IN MY OPINION, THE EVIDENCE AT HAND DOES N OT SUGGEST THAT THE APPELLANT HAS INDULGED IN SUPPRESSING THE FIGURES O F PRODUCTION OR CONSUMPTION OF RAW MATERIAL. IT IS WORTHWHILE NOTI NG THAT NEITHER THE EXCISE DEPARTMENT NOR THE SALES-TAX DEPARTMENT H AVE DOUBTED THE STATEMENTS OF PRODUCTION AND CLEARANCES GIVEN BY T HE APPELLANT TILL DATE. UNDER THESE CIRCUMSTANCES, IT IS NOT POSSIBLE TO ACCEPT THE THEORY THAT MERELY BECAUSE THE MACHINES WERE CAPABLE OF PACKAGING MORE NUMBER OF POUCHES PER MINUTE, THEY HAD INDEED P ACKED MORE NUMBER OF POUCHES DURING THESE FINANCIAL YEARS. 120. THE ASSESSING OFFICER, IN PAGES 16 TO 19 OF THE ASSESSM ENT ORDER (PARAGRAPH 8(B) HAS COMPUTED THE CONSUMPTION OF LAMIN ATION FOR DIFFERENT BRANDS AND SUMMARIZED HIS FINDING IN A TABL E GIVEN ON PAGE 19 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER H AS NOT PROVIDED THE BASIS FOR WORKING THE AVERAGE WEIGHT OF LAMINATION USED FOR EVERY POUCH PRODUCED BY THE APPELLANT DURIN G THE FINANCIAL YEAR 2006-07. IN THE ABSENCE OF A SCIENTIFIC METHOD O F DETERMINING THE CONSUMPTION OF LAMINATION IN PRODUCTION PER POUC H, IT IS NOT 48 POSSIBLE TO CONCUR WITH THE VALUES OF WEIGHT OF THE PO UCHES ADOPTED BY THE ASSESSING OFFICER TO INFER THAT LAMINATION PER P OUCH WAS CONSUMED IN THE RANGE OF 0.326 TO 0.344 GMS. THE ENTI RE EXERCISE IS BASED ON ARMCHAIR INVESTIGATION WITHOUT ANY SUPPORTIN G EVIDENCES. THIS METHODOLOGY CANNOT BE ADOPTED FOR FINDING OUT T HE SUPPRESSED INCOME ON ACCOUNT OF SUPPRESSED SALES ON THE BASIS OF IMAG INARY CONSUMPTION OF LAMINATION PER POUCH DURING THE FINAN CIAL YEAR 2006-07. IN FACT, NOTHING HAS BEEN BROUGHT ON RECORD TO SUGGEST THAT THERE ARE EMPIRICAL EVIDENCES POINTING TOWARDS THE OV ERSTATEMENT IN CONSUMPTION OF LAMINATION / POUCH. 121. I HAVE ALREADY HELD ON THE BASIS OF VARIOUS CASE L AWS AND EXTANT POSITION IN LAW THAT IN THE ABSENCE OF ANY EVIDENCE T O THE CONTRARY, THIRD PARTY STATEMENTS CANNOT BE RELIED UPON TO MAKE ANY ADDITIONS ESPECIALLY OF THE KIND THAT HAS BEEN MADE IN THE APPE LLANT'S CASE. THE ADDITIONS ARE ARBITRARY IN NATURE AND THEY ARE B ASED ON SURMISES AND CONJECTURES AND IS NOT BACKED BY ANY EVIDEN CE. AS NOTED EARLIER, THERE WAS NO MATERIAL BEFORE THE ASSESSIN G OFFICER EXCEPT A RETRACTED STATEMENT OF ANOTHER PERSON THAT A NY PART OF THE TURNOVER OF THE APPELLANT WAS SUPPRESSED. IT IS TRUE THA T THERE WAS NO MATERIAL AT HAND AT THE PRODUCTION CENTRE REGARD ING INWARD OF RAW MATERIAL AND OUTWARD OF FINISHED PRODUCT, IT IS E QUALLY TRUE THAT THE BALANCE OF RAW MATERIAL, AND FINISHED PRODUCT AS PER THE BOOKS MAINTAINED IN THE HEAD OFFICE TALLIED WITH THE PHYSI CAL STOCK FOUND AT THE FACTORY PREMISES. THE BOOKS SEIZED BY THE SALES-TAX DEPARTMENT WHICH WERE RELIED UPON TO MAKE THESE GENERALIZATIONS, WERE NOT SHOWN TO THE APPELLANT AND IN FACT, EVEN THE ASSESSING OFFICER DID NOT HAVE A GLIMPSE OF THE BASIC DOCUMENTS ON THE BASIS OF W HICH CONCLUSION WAS DRAWN THAT THERE WAS SUPPRESSED PRODUCTION . THOSE DOCUMENTS AND EVIDENCES WERE NOT PRODUCED EVEN AT THE APPELLATE STAGE. IN FACT, DURING THE COURSE OF APPELLATE PROCEE DINGS, THE ASSESSING OFFICER ACCEPTED THAT HE DID NOT POSSESS ANY OF T HE DOCUMENTS OR EVIDENCES WHICH WERE USED IN TAKING THE ST ATEMENT OF THE THIRD PARTY, SHRI DHARMESH PATEL ON 02/04/2009. THE VERACITY OF SUCH A STATEMENT IS DOUBTFUL AND UNRELIABLE. FURTHE R, THE SALES-TAX DEPARTMENT ITSELF HAS NOT FOUND ANY SUPPRESSION OF SALES B Y SHRI DHARMESH PATEL DURING THE FINANCIAL YEARS 2006-07 AND 2007-08. THE SHOW CAUSE NOTICE ALSO IS IN RESPECT OF FINANCIAL YE AR 2008-09 ONLY. IT IS ALSO NOT KNOWN WHETHER DURING THIS FINANCI AL YEAR, ENTIRE TRANSACTION PERTAINED TO THE APPELLANT OR NOT. SIMUL TANEOUSLY, THE APPELLANT HAS ALSO NOT BROUGHT ANYTHING ON RECORD TO SUGGEST THAT THE OMS PURCHASES OF SHRI DHARMESH PATEL BELONGED TO T HIRD PARTIES. THEREFORE, IN ACCORDANCE WITH THE DISCUSSION O N RETRACTED STATEMENT (SUPRA), I HOLD THAT GROSS PROFIT OF 54.87% SHOULD BE APPLIED ON THE TURNOVER OF RS. 2,33,24,556/- TO ARRI VE AT THE SUPPRESSED PRODUCTION OF THE APPELLANT FOR THE ASSESSMENT YEAR 2009-10 ONLY. THIS IS FOR THE REASON THAT THE. SALES-T AX DEPARTMENT WHICH HAD MADE THE ORIGINAL SEIZURE AND WHO IS IN CUST ODY OF ALL THE BOOKS, DOCUMENTS, REGISTERS AND HARD DISK OF THE APPELLA NT HAVE NOT FOUND ANY INCRIMINATING MATERIAL IN RESPECT OF FINAN CIAL YEARS 2006- 07 AND 2007-08. THEREFORE, THE APPELLANT GETS FULL R ELIEF IN RESPECT OF FINANCIAL YEARS 2006-07 AND 2007-08 AND PARTIAL RELI EF FOR FINANCIAL YEAR 2008-09 IN RESPECT OF TURNOVER PERTAINING TO SHRI DHARMESH PATEL. 122. IN FINANCIAL YEARS 2007-08 AND 2008-09 THE ASSESSIN G OFFICER HAS ALSO MADE AN ADDITION OF RS. 2 CRORES ON ACCOUNT OF TRANSACTIONS WITH ONE SHRI KUTUBUDDHIN R SHAIKH OF SHAIKH TRADER S, SATARA. DURING THE. COURSE OF SURVEY CONDUCTED ON SHAIKH TRAD ERS ON 04/02/2009, THE DEPONENT MADE A CONFESSIONAL STATEMENT THAT HE HAD TRANSACTED IN GOODS OF THE APPELLANT BETWEEN 01/0 4/2008 TO 49 03/02/2009 (ANSWER TO QUESTION NO. 16 REPRODUCED ON P AGES 35 AND 36 OF THE ASSESSMENT ORDER FOR 2003-04) WHICH WERE NOT RECORDED IN HIS BOOKS OF ACCOUNT AND WHICH WAS PAID OV ER TO ONE SHRI DATTA ON BEHALF OF THE COMPANY I.E. THE APPELL ANT. THE TOTAL AMOUNT INVOLVED IN CASH WAS RS. 24,82,196/-. THE ASSESSIN G OFFICER INCORRECTLY STATED THAT SUPPRESSED SALES OF GUTKHA AND PAN MASALA ARE TO THE TUNE OF RS. 50 LAKHS DURING THE PERIOD OF THREE MONTHS. THE DEPONENT HAS STATED THAT GOODS WORTH AROUND RS. 25 LAKHS WERE PURCHASED BETWEEN 01/04/2008 TO 01/12/2008 AND ANOTH ER RS.24,82,196/- BETWEEN 02/12/2008 TO 03/02/2009. THE RE IS NO EVIDENCE OF ANY CASH PURCHASES BY SHRI SHAIKH BETWEEN 01/04/2008 TO 01/12/2008 AND AFTER 03/02/2009. HENC E, THE CONCLUSION DRAWN BY THE ASSESSING OFFICER THAT RS. 50 LAK HS WORTH OF UNACCOUNTED SALES WAS MADE THROUGH SHAIKH TRADERS OF S ATARA BY THE APPELLANT IN A THREE MONTHS PERIOD APPEARS TO BE INCORRECT. THE ACTUAL AMOUNT, EVEN IF WE TAKE THE STATEMENT OF SHRI SHAIKH AS CORRECT, IS TO THE TUNE OF APPROXIMATELY RS. 25 LAKHS FOR A THREE MONTHS PERIOD. THEREFORE, BY WAY OF LOGIC FOLLOWED B Y THE ASSESSING OFFICER AN EXTRAPOLATION COULD HAVE BEEN MADE ONLY TO THE EXTENT OF RS. 1 CRORE AND NOT RS. 2 CRORES. 123. I HAVE ALREADY DEALT WITH THE LEGAL ASPECTS ON THE RAMIFICATION OF STATEMENT OF THIRD PARTIES AND CROSS-EXAMINATION EA RLIER IN THIS ORDER. I HAVE ALSO REFERRED TO THE DECISIONS GIVEN IN THE JAI/DSAN R. AGARWAL V. ASSTT. CIT (SUPRA) WHEREIN IT HAS BEEN HELD THAT RETRACTED STATEMENTS CANNOT BE IGNORED AND THAT THE STATEMENTS TA KEN BEHIND THE BACK OF THE APPELLANT DO NOT HAVE ANY EVIDENTIA RY VALUE UNLESS BACKED BY SOME DOCUMENTS, PAPERS OR OTHER EVIDENCES WHI CH WOULD INDICATE THAT THE APPELLANT HAD INDEED INDULGED IN THE ACTIVITIES MENTIONED BY THE DEPONENTS IN THE ORIGINAL STATEMENT. IN THE INSTANT CASE OF SHRI SHAIKH, THE ORIGINAL STATEMENTS W ERE MADE BEFORE THE INVESTIGATION WING. THE ASSESSING OFFICER HAD NOT EXAMINED THESE WITNESSES AT ANY STAGE. IT WAS ONLY AFTER REPEATED REQUESTS FOR A CROSS-EXAMINATION THAT THIS OPPORTUNITY WAS GIVEN ON 24/12/2010. DURING THE COURSE OF CROSS-EXAMINATION IT WAS EXPLAINED BY SHRI SHAIKH THAT HE USED TO PLACE THE O RDERS FOR VARIOUS PRODUCTS MANUFACTURED BY THE APPELLANT BY PLA CING ORDERS DIRECTLY WITH THE APPELLANT. IF HE DID NOT RECEIVE ANY PRODUCT FROM THE APPELLANT THEN, HE WOULD PURCHASE THESE PRODUCTS F ROM ONE SHRI DATTA WHO WOULD GIVE THE PRODUCTS ALONG WITH THE BIL L OF ONE SAIRAJ TRADING COMPANY, SANGAMESHWAR. HE STATED THAT IT WAS O NLY IN RESPECT OF SUCH PURCHASES MADE FROM THE MARKET THROUGH SHRI DATTA THAT CASH PAYMENTS WERE MADE BY HIM. HE ALSO RETRACTE D FROM HIS EARLIER STATEMENT OF SHRI DATTA WAS AN EMPLOYEE OF TH E APPELLANT. HE RETRACTED FROM HIS EARLIER STATEMENT IMPLICATING THE APPELLANT IN ACCEPTING CASH AS THE MODE OF PAYMENT FOR ANY PURCHASE OR SALES. DURING HIS CROSS-CROSS-EXAMINATION, SHRI SHAIKH ACCEPT ED THAT HE HAD GIVEN A STATEMENT THAT HE HAD MADE A PURCHASE OF RS.24,82,196/- IN CASH. HE FURTHER STATED THAT IF SHRI DATTA WAS AN EMPLOYEE OF THE APPELLANT THEN, HE WOULD NOT HAVE G IVEN THE PRODUCT OF GHODAWAT INDUSTRIES (INDIA) PVT. LTD. IN C ASH TO HIM. THE DEPONENT DID NOT AGREE TO THE QUESTION POSED IN REFER ENCE TO THE STATEMENT GIVEN BY HIM DURING THE COURSE OF CROSS-EXAM INATION THAT SHRI DATTA WAS NOT EMPLOYEE OF THE APPELLANT, IS INCO RRECT. SO, APART FROM THE EXAMINATION BY THE INVESTIGATION WING, THER E IS A CLEAR-CUT STATEMENT OF THE DEPONENT RETRACTING FROM HIS EARLIER STATEMENT THAT HE HAD MADE CASH PURCHASES FROM GHODAWAT INDUSTRIES (IND IA) PVT. LTD. SINCE THERE ARE NO FURTHER QUESTIONS ON THIS ISSUE DURING THE CROSS-CROSS-EXAMINATION, THE ORIGINAL STATEMENT DOES NO T HOLD MUCH VALUE AS EXPLAINED IN THE CASE OF JAIKISAN R. AGARWAL V. ASSTT. CIT 50 (SUPRA). UNDER THESE CIRCUMSTANCES, THE SUPPRESSED SALES IN THE FINANCIAL YEAR 2007-08 AND 2008-09 ESTIMATED AT RS. 2 CRORES IS DELETED. 124. ADDITIONS MADE ON ACCOUNT OF STATEMENT GIVEN BY UDHAV S KHARGE (HUF), PROPRIETOR, M/S SIDDESHWAR AGENCIES, SOL APUR : A SURVEY WAS ALSO CONDUCTED ON THE PREMISES OF M/S SIDDESHWA R AGENCIES, SOLAPUR AND ICHALKARANJI. THE STATEMENTS OF SHRI UDHAV KHARGE WERE RECORDED ON 14/02/2009 AND 27/02/2009. IN THE STATEMENT, SHRI UDHAV KHARGE HAD ACCEPTED THAT HE HA D MADE A TOTAL SALE OF RS.66,51,159/- WHICH HE HAS NOT RECORDED IN HI S BOOKS OF ACCOUNT. SINCE THIS SALE PERTAINED TO A PERIOD OF TWO MONTHS ONLY DURING THE FINANCIAL YEAR 2008-09, THE QUANTUM OF T OTAL SALE WAS EXTRAPOLATED TO RS. 396 LAKHS FOR THE ENTIRE YEAR. THIS AMOUNT WAS ALSO ADDED IN THE ASSESSMENT YEAR RELEVANT TO THE FINANC IAL YEAR 2007-08. THUS, WE FIND THAT LIKE IN THE CASE OF M/S SH AIKH TRADERS, THOUGH THE PERIOD OF 'UNACCOUNTED' SALES PERTAINED TO THE FINANCIAL YEAR 2008-09, THE EXTRAPOLATION WAS ALSO DONE IN THE FINANCIAL YEARS 2007-08 FOR THE REASON THAT THESE PERSONS (SHRI SHAIKH AND SHRI UDHAV KHARGE) WERE ACTING AS DISTRIBUTORS OF THE APPEL LANT DURING THE FINANCIAL YEAR 2007-08 AS WELL. 125. SHRI UDHAV KHARGE WAS ALSO EXAMINED IN CROSS-EXAM INATION ON 24/12/2010 WHEREIN HIS ATTENTION WAS DRAWN TO QUESTION NO. 18 OF THE STATEMENT DATED 13/02/2009 WHEREIN HE HAD STATED THAT HE HAD ALSO PURCHASED THE PRODUCTS OF THE APPELLANT FROM THE LOCAL MARKET AND THAT GHODAWAT INDUSTRIES (INDIA) PVT. LTD. DID NO T HAVE ANYTHING TO DO WITH THESE PURCHASES. THUS, WE FIND THAT SHRI UDH AV KHARGE HAD NOT ACCEPTED THAT HE HAD MADE ANY UNACCOUNTED P URCHASES FROM THE APPELLANT FROM INITIAL STAGES ITSELF. WHAT HE STATED WAS THAT HE HAD MADE CERTAIN PURCHASES FROM THE LOCAL MARKET. EVEN IN THE CROSS-CROSS-EXAMINATION OF THE DEPONENT, NOTHING WAS B ROUGHT ON RECORD TO PROVE OTHERWISE. SINCE IN THIS CASE SHRI UD HAV KHARGE HAD NEVER STATED THAT HE HAD PURCHASED ANYTHING IN CASH FR OM THE APPELLANT EVEN DURING THE ORIGINAL PROCEEDINGS FOR E XAMINATION CONDUCTED BY THE INVESTIGATION WING, IT IS NOT POSSIBL E TO INFER FROM THE STATEMENT THAT THE APPELLANT HAD MADE ANY UNACCO UNTED SALES THROUGH SHRI UDHAV KHARGE. HENCE, THE ADDITIONS OF RS.3.76 CRORES MADE FOR BOTH THE YEARS ARE DELETED. 21.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 22. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY CH ALLENGED THE ORDER OF THE CIT(A). SHE SUBMITTED THAT SINCE THE ASSESSEE WAS NOT MAINTAINING THE PRIMARY DOCUMENTS IN RESPEC T OF PRODUCTION OF GUTKHA AT THE FACTORY PREMISES, THE S EARCH PARTY, BASED ON EXCISE RECORDS FOR PRODUCTION CAPACITY OF MACHINES WORKED OUT THE QUANTUM OF PRODUCTION AND SUPPRESSED SALE OF 51 GUTKHA. EVEN THE MANAGING DIRECTOR OF THE COMPANY SHRI SANJAY GHODAWAT HAD ADMITTED IN HIS STATEMENT RECORDED DUR ING THE COURSE OF SEARCH THAT RELEVANT RECORDS OF PURCHASE OF RAW MATERIALS WITH THE ONWARD DETAILS OF SUCH MATERIALS AT FACTORY PREMISES AND DETAILS OF FINISHED AND SEMI FINISHED PRODUCTS OF GUTKHA AND PAN MASALA AND OUTWARD DETAILS OF SUCH F INISHED PRODUCTS FROM FACTORY PREMISES ARE NEITHER MAINTAIN ED NOR THOSE WERE FOUND DURING THE COURSE OF SEARCH. SHE SUBMIT TED THAT THE RECORDS FOUND DURING THE SEARCH REVEALED THAT THE C ENTRAL EXCISE AUTHORITIES HAVE CHARGED THE EXCISE DUTY ON PRODUCT ION OF GUTKHA AND PAN MASALA ON THE BASIS OF PRODUCTION CAPACITY OF THE MACHINES INSTALLED IN THE FACTORY PREMISES. THE ST ATEMENTS RECORDED FROM SOME OF THE WORKERS OF THE FACTORY CO NFORM THAT THE CAPACITY OF EACH MACHINE IS PRODUCTION OF 75 TO 80 POUCHES OF GUTKHA AND PAN MASALA PER MINUTE. SIMILARLY, TH E STATEMENT OF C&F AGENTS ALSO CONCLUSIVELY PROVE THAT THE ASSESSE E WAS INDULGING IN SALE OF GOODS OUTSIDE BOOKS OF ACCOUNT S. UNDER THESE CIRCUMSTANCES THE ASSESSING OFFICER WAS FULLY JUSTIFIED IN EXTRAPOLATING THE SALES FOR THE PRECEDING YEARS AND ESTIMATION OF SALES AND PROFIT THEREON FOR ALL THE YEARS. APART F ROM THE VARIOUS DECISIONS RELIED ON BY THE ASSESSING OFFICER THE LD . DEPARTMENTAL REPRESENTATIVE ALSO RELIED ON THE FOLL OWING DECISIONS : 1. CIT VS. CHETAN DAS LACHMAN DAS REPORTED IN 25 TAXMANN.COM 227 (DELHI) 2. RAJNIK & CO. VS. ACIT REPORTED IN (2001) 117 TAXMAN 675 (AP) 3. CIT VS. M.K.E. MEMON REPORTED IN 112 TAXMAN 96 (BOM.) 52 4. CIT VS. HOTEL MERIYA REPORTED IN (2010) 195 TAXMAN 459 (KER.) 5. KHOPADE KISANRAO MANIKRAO VS. ACIT REPORTED IN (2000) 74 ITD 25 (PUNE) (TM) 23. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER H AND HEAVILY RELIED ON THE ORDER OF THE CIT(A) TO THE EXTENT OF RELIEF GRANTED BY HIM. REITERATING THE ARGUMENTS ADVANCED BEFORE CI T(A) HE SUBMITTED THAT THE ASSESSEE MAINTAINED PROPER BOOKS OF ACCOUNTS WHICH ARE AUDITED. THE ASSESSEE MAINTAINED PROPER EXCISE RECORDS SINCE THE PRODUCTS MANUFACTURED BY THE ASSE SSEE ARE LIABLE TO EXCISE DUTY AND ARE UNDER THE ACTIVE SUPE RVISION AND SURVEILLANCE OF THE CENTRAL EXCISE DEPARTMENT. HE SUBMITTED THAT DURING THE YEARS 2007-08 AND 2008-09 THE EXCISE AUT HORITIES HAVE VERIFIED THE STOCK REGISTERS ON DIFFERENT DATES AND HAVE CONFIRMED THAT THE PRODUCTION ON SUCH DATES ARE VERIFIED AND FOUND CORRECT. SUCH EXCISE STOCK RECORDS FOR THE YEARS 2007-08 AND 2008-09 ARE PART OF THE SEIZED DOCUMENTS. HE SUBMITTED THAT TH E SEARCH PARTY DURING THE COURSE OF SEARCH PROCEEDINGS BASED ON TH E EXCISE RECORDS GIVING PRODUCTION CAPACITY OF MACHINES WORK ED OUT THE QUANTUM OF PRODUCTION AND SUPPRESSED SALE OF GUTKHA . THIS RESULTED INTO LARGE VARIATION OF PRODUCTION SHOWN AS SOLD IN THE BOOKS AND ACTUAL PRODUCTION OF GUTKHA AS CALCULATED ON THE BASIS OF SUCH PRODUCTION CAPACITY. HOWEVER, THE ASSESSIN G OFFICER DID NOT APPLY HIS MIND AND HAS BLINDLY PROCEEDED WITH T HE REPORT OF THE SEARCH PARTY. HE SUBMITTED THAT THE ASSESSEE I S NOT AT ALL AWARE AS TO HOW THE FINDING OF SUPPRESSION OF SALES AND PURCHASES OUTSIDE BOOKS IS ARRIVED AT. HE SUBMITTED THAT DUR ING THE COURSE OF SEARCH THE STOCK OF RAW MATERIAL AND FINISHED GO ODS FOUND 53 DURING THE COURSE OF SEARCH TALLIED WITH THE STOCK RECORDS. FURTHER, DURING THE COURSE OF SEARCH NO DOCUMENTS/E VIDENCES WERE FOUND FROM THE PREMISES OF THE ASSESSEE TO SHO W THAT THE ASSESSEE, INFACT, HAD MADE SALES OR PURCHASES OUTSI DE BOOKS OF ACCOUNTS. EVEN THE CIT(A) ALSO HAS VERIFIED THE SE IZED RECORDS AS STATED IN HIS ORDER IN PARA 97 (PAGE 93) AND HAS HELD THAT OBSERVATIONS OF THE ASSESSING OFFICER ON THIS ISSUE IS MISLEADING AND DOES NOT STATE THE FACT. HE SUBMITTED THAT DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE HAD SUBMITTE D ALL THE DETAILS LIKE MONTH-WISE PRODUCTION, CONSUMPTION OF RAW MATERIAL, MACHINES BEING PUT TO USE ON THE BASIS OF THE DATA BEING SUBMITTED TO THE EXCISE DEPARTMENT ETC. THE ASSESS EE HAS ALSO SUBMITTED THE DETAILS OF THE ELECTRICITY UNITS CONS UMED ALONG WITH THE CONNECTED LOAD AND POWER OF THE RESPECTIVE MACH INES. THE DEPARTMENT HAS ALSO CARRIED OUT THE SURVEY AT THE F ACTORY PREMISES ON 01-1-2010 TO ASCERTAIN THE ELECTRICITY CONSUMED, CONNECTED LOAD AND POWER RATING OF THE MACHINES. HOWEVER, NO DISCREPANCIES WERE BROUGHT TO THE NOTICE OF THE ASS ESSEE TILL THE COMPLETION OF THE ASSESSMENT. EVEN DURING THE COUR SE OF SEARCH, NO INCRIMINATING DOCUMENTS WERE SEIZED FROM THE PRE MISES OF THE ASSESSEE AND NO UNACCOUNTED PURCHASE BILLS OR SALE BILLS IN THE FACTORY OR OFFICE PREMISES WERE FOUND. HE SUBMITTE D THAT THE AUDIT REPORT PREPARED U/S.44AB OF THE I.T. ACT GIVE S THE QUANTITATIVE DETAILS OF RAW MATERIALS PURCHASED AND CONSUMED AND ITS CLOSING STOCK IN THE TABULAR FORM. IF NO R ECORDS WERE MAINTAINED, THEN IT WOULD NOT HAVE BEEN POSSIBLE TO GIVE SUCH 54 DETAILS AS REQUIRED UNDER THE I.T. ACT. U/S.44AB. NEITHER THE SEARCH PARTY DURING SEARCH PROCEEDINGS NOR THE ASSE SSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS BROUGHT OUT ANY DISCREPANCY IN THE BOOK STOCK AS PER THE RECORDS M AINTAINED AT THE HEAD OFFICE AND PHYSICAL STOCK AT THE FACTORY P REMISES. 23.1 HE SUBMITTED THAT THE EXCISE DUTY DURING A.Y. 2009-10 WAS ON AD-VALOREM BASIS AND ON ACTUAL DISPATCHES. HOWEVER, FROM 01-07-2008, THE EXCISE DUTY WAS SOUGHT TO BE L EVIED ON THE NUMBER OF OPERATIONAL PACKING MACHINES USED VIDE NO TIFICATION NO.42/2008-CENTRAL EXCISE DATED 01-07-2008. IT WAS BROUGHT TO THE NOTICE OF THE SEARCH PARTY AS WELL AS THE ASSES SING OFFICER THAT THE HONBLE KARNATAKA HIGH COURT VIDE THEIR OR DER DATED 11- 07-2008 GRANTED INTERIM STAY ON LEVY OF EXCISE DUTY ON OPERATIONAL MACHINES AND DIRECTED THE ASSESSEE TO P AY EXCISE DUTY AS WAS PAID PRIOR TO 11-07-2008. SINCE THE FACTORI ES ARE LOCATED IN THE STATE OF KARNATAKA STATE, THE ASSESSEE WAS N OT PAYING EXCISE DUTY ON THE BASIS OF OPERATIONAL PACKING MAC HINES USED. HE SUBMITTED THAT DURING THE COURSE OF SEARCH, WORK ERS WERE POSED QUESTIONS REGARDING THE CAPACITY OF THE PACKI NG MACHINES. HOWEVER, CAPACITY OF PACKING MACHINES AND THAT OF P RODUCTION CAPACITY IS DIFFERENT. HE SUBMITTED THAT THE BASIS FOR WORKING OUT OF NUMBER OF POUCHES PRODUCED FROM CONSUMPTION OF P ACKING MATERIAL IS NOT KNOWN AND THE CALCULATION DONE BY T HE ASSESSING OFFICER IS PURELY A THEORETICAL CALCULATION. HE SU BMITTED THAT THE THICKNESS OF LAMINATION CHANGES FROM LOT TO LOT, HE NCE WEIGHT OF 55 LAMINATION CANNOT DETERMINE NUMBER OF POUCHES PRODU CED. WITHOUT PREJUDICE TO THE ABOVE, HE SUBMITTED THAT E VEN IF IT IS ASSUMED THAT POUCHES PRODUCED ARE MORE, IT CANNOT B E ASSUMED THAT THEY WERE SOLD BY FILLING FINISHED MATERIAL IN IT AS THERE IS NO EVIDENCE OF UNACCOUNTED PURCHASES. REFERRING TO TH E ASSESSMENT ORDER FOR A.Y. 2009-10, THE LD. COUNSEL FOR THE ASS ESSEE DREW THE ATTENTION OF THE BENCH TO PARA 12.3 OF THE ASSE SSMENT ORDER WHERE THE ASSESSING OFFICER HAS MENTIONED IT IS ME NTIONED THAT NO EVIDENCE RELATING TO CORRESPONDING UNACCOUNTED P URCHASES WAS FOUND AND SEIZED IN THE COURSE OF SEARCH ACTION . THIS EXERCISE IS WORKED OUT ONLY FOR F.Y. 2006-07 AND US ED AS A BASIS FOR MAKING ADDITIONS FOR ALL THE YEARS. HE SUBMITT ED THAT THE PRODUCTION AS PER EXCISE RECORDS WHICH ARE PART OF THE SEIZED DOCUMENTS WERE VERIFIED WITH THE BOOKS OF ACCOUNTS MAINTAINED AND NO DISCREPANCIES WERE FOUND. 23.2 SO FAR AS THE STATEMENT OF THE C&F AGENTS ARE CONCERNED, HE SUBMITTED THAT THE STATEMENT OF SHRI DHARMESH PA TEL, PROPRIETOR OF M/S. AMBIKA ENTERPRISES, MUMBAI WAS R ECORDED BY THE INVESTIGATION WING DURING THE SEARCH PROCEEDING S ON 02-04- 2009. IN THIS CASE, A SEARCH WAS CONDUCTED BY THE SALES TAX DEPARTMENT IN HIS PREMISES ON 20-01-2009 AND THE SU RVEY CONDUCTED BY THE INCOME-TAX DEPARTMENT WAS ON 05-02 -2009. HE SUBMITTED THAT THE ABOVE FIRM WAS APPOINTED AS A DE ALER FROM FEBRUARY 2006 AND WAS NOT APPOINTED AS C&F AGENT. 56 23.3 SO FAR AS THE STATEMENT RECORDED ON 02-04-2009 IS CONCERNED, HE SUBMITTED THAT SHRI DHARMESH PATEL VI DE HIS AFFIDAVIT DATED 04-04-2009 HAD RETRACTED FROM THE S TATEMENT. IN THE CROSS EXAMINATION DURING THE COURSE OF ASSESSME NT PROCEEDINGS SHRI DHARMESH PATEL HAD CATEGORICALLY DENIED TO HAVE ANY UNACCOUNTED TRANSACTIONS WITH GHODAWAT IND USTRIES PVT. LTD. IN THE CROSS EXAMINATION, HE HAD ALSO AD MITTED THAT APART FROM GUTKHA PURCHASED FROM GIIPL HE IS PURCHA SING GUTKHA FROM OTHER MANUFACTURERS ALSO. REFERRING TO THE SH OW CAUSE NOTICE DATED 12-03-2009 RECEIVED BY HIM FROM THE SA LES TAX DEPARTMENT AFTER THE SCRUTINY OF THE SEIZED RECORDS HE HAD SUBMITTED A COPY OF THE SHOW CAUSE NOTICE DURING TH E CROSS EXAMINATION, ACCORDING TO WHICH THE UNACCOUNTED SAL ES FOR THE CORRESPONDING OMS (OUT OF MAHARASHTRA STATE) PURCHA SES FOR THE PERIOD APRIL 2008 TO JANUARY 2009 ARE RS.2,33,24,55 6/- AND TAX IS RS.29,15,570/-. THE DEMAND NOTICE RAISED BY THE SA LES TAX DEPARTMENT WAS FOR UNACCOUNTED SALES FOR THE CORRES PONDING OMS (OUT OF MAHARASHTRA STATE) PURCHASES FOR THE PE RIOD APRIL 2008 TO JANUARY 2009 AMOUNTING TO RS.29,15,570/-. HE SUBMITTED THAT THE SALES TO AMBIKA ENTERPRISES ARE WITHIN MAHARASHTRA STATE. HE SUBMITTED THAT SHRI DHARMESH PATEL HAS ALSO STATED DURING CROSS EXAMINATION THAT SOME OF T HE PAPERS CONFRONTED TO HIM DURING RECORDING OF HIS STATEMENT ON 02-04- 2009 DO NOT BELONG TO HIM. FURTHER, IN HIS AFFIDAV IT SHRI DHARMESH PATEL, WHILE RETRACTING FROM THE STATEMENT MADE ON 02- 04-2009, HAS CATEGORICALLY STATED THAT SOME OF THE PAPERS 57 CONFRONTED TO HIM WERE NOT BELONGING TO HIM. REFER RING TO THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SHRI DHARMESH M. PATEL VS. ITO VIDE ITA NO.4522/MUM/2012 ORDER DATED 14-06-2013 FOR A.Y. 2008-09, HE SUBMITTED THA T THE TRIBUNAL IN THE SAID DECISION HAS HELD THAT RETRACT ED THE STATEMENT CANNOT BE USED FOR MAKING ADDITION UNLESS THERE IS CORROBORATIVE EVIDENCE. SINCE THE SAME WAS LACKING, THE ADDITION MADE IN THE HANDS OF SHRI DHARMESH PATEL WAS DELETED BY THE TR IBUNAL. 23.4 SO FAR AS THE STATEMENT RECORDED IN THE CASE O F SHRI KUTUBUDDIN R. SHEIK, PROPRIETOR OF M/S.SHAIK TRADER S OF SATARA ON 04-02-2009 DURING THE COURSE OF SURVEY IS CONCER NED, HE SUBMITTED THAT SHRI KUTUBUDDIN SHAIK HAS ADMITTED T O HAVE PURCHASED GOODS OF RS.50 LAKHS OF GHODAWAT INDUSTRI ES PVT. LTD. IN CASH DURING THE PERIOD 01-04-2008 TO 04-02-2009. HOWEVER, THE SAID PERSON WAS CROSS EXAMINED DURING THE COURS E OF ASSESSMENT PROCEEDINGS AND DURING SUCH CROSS EXAMIN ATION SHRI KUTUBUDDIN R. SHEIK DENIED TO HAVE PURCHASED ANY GO ODS IN CASH FROM GIIPL. HE HAD SUBMITTED THAT GOODS MANUFACTUR ED BY GIIPL WERE PURCHASED FROM OTHER PARTIES IN CASH. H OWEVER, THE SAME ARE DULY ACCOUNTED FOR IN THE BOOKS OF ACCOUNT AND COPIES OF SUCH PURCHASE BILLS WERE SUBMITTED DURING THE CR OSS EXAMINATION. SO FAR AS PURCHASES FROM GIIPL ARE CO NCERNED HE HAS PRODUCED THE BILLS AND THE PAYMENTS WERE MADE B Y CHEQUE ONLY. 58 23.5 AS REGARDS THE STATEMENT OF SHRI UDHAV S. KHAR GE, PROPRIETOR OF M/S. SIDDESWAR AGENCIES, SOLAPUR IS C ONCERNED, HE SUBMITTED THAT DURING THE COURSE OF SURVEY ON 14-02 -2009 IT WAS FOUND THAT SALE OF STAR, CHAKDE GUTKHA AND PAN MASA LA TO THE TUNE OF RS.66,51,159/- WAS NOT RECORDED IN THE BOOKS OF ACCOUNTS FOR WHICH THE FIRM HAD OFFERED GROSS PROFIT OF 3.66% OF THE UNDISCLOSED SALE AND INVESTMENT IN UNACCOUNTED BUSI NESS OF RS.7.50 LAKHS AS UNDISCLOSED INCOME. HE SUBMITTED THAT THE SAID PARTY IN HIS STATEMENT RECORDED AT THE TIME OF SURV EY AS WELL AS DURING THE COURSE OF CROSS EXAMINATION HAD NEVER ST ATED THAT THE UNRECORDED SALES MADE BY IT ARE OUT OF UNRECORDED P URCHASES FROM GHODAWAT INDUSTRIES PVT. LTD. HE SUBMITTED TH AT THE SAID PERSON HAD CLEARLY STATED IN THE STATEMENT THAT THE PURCHASES FOR THE UNRECORDED SALES WERE MADE IN CASH FROM THE LOC AL MARKET AND AS FAR AS PURCHASES FROM GIIPL ARE CONCERNED T HEY HAVE RECEIVED THE BILLS FOR EACH AND EVERY SUPPLY AND PA YMENTS THEREOF WERE MADE BY CHEQUE. SO THIS STATEMENT AT THE TIME OF SURVEY AS WELL AS AT THE TIME OF THE ASSESSMENT PROCEEDINGS C LEARLY SHOW THAT THE ASSESSEE COMPANY IS NOT INVOLVED IN MAKING ANY UNRECORDED SALES. 23.6 SO FAR AS ESTIMATION OF SALES FOR A.Y. 2007-08 AND 2008-09 ARE CONCERNED HE SUBMITTED THAT DURING THE COURSE O F SEARCH NO DOCUMENT/MATERIAL WAS FOUND TO SUGGEST THAT THE COM PANY WAS INDULGING IN MAKING PURCHASES OR SALES OUTSIDE THE BOOKS OF ACCOUNTS. SINCE THE PRODUCTS MANUFACTURED BY THE A SSESSEE 59 COMPANY ARE LIABLE TO EXCISE DUTY THE ASSESSEE HAS MAINTAINED PROPER RECORDS FOR EXCISE DUTY PURPOSES WHICH WERE DULY VERIFIED BY THE EXCISE DEPARTMENT AUTHORITIES AND WHICH ARE THE PART OF THE SEIZED DOCUMENTS. NOT A SINGLE CASE IS PENDING AGA INST THE COMPANY FOR EXCISE DUTY VIOLATION. FURTHER, THE DE ALERS AND C&F AGENTS IN THEIR STATEMENTS/AFFIDAVITS HAVE ALREADY DENIED THAT THEY HAVE MADE ANY UNACCOUNTED TRANSACTION WITH THE ASSE SSEE COMPANY. HE SUBMITTED THAT THE FIGURES ARRIVED AT BY THE ASSESSING OFFICER ARE IMAGINARY AND THERE IS NO BAS IS FOR THE SAME. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE LD.CIT(A) WHILE DELETING THE ADDITION MADE ON ACCOU NT OF ESTIMATED PROFIT ON ESTIMATED SALES FOR ALL THE YEA RS HAS SUSTAINED ADDITION OF RS.1,27,98,183/- BEING 54.87% OF SUPPRE SSED PRODUCTION OF RS.2,33,24,556/- FOR A.Y. 2009-10 ON THE BASIS OF THE SHOW CAUSE NOTICE OF THE SALES TAX DEPARTMENT T O MR. DHARMESH PATEL. 23.7 REFERRING TO THE ORDER OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DHARMESH M. PATEL (SUPRA) H E DREW THE ATTENTION OF THE BENCH TO PARA 11 OF THE ORDER WHIC H READS AS UNDER : 11. ANOTHER GLARING ASPECT OF CONFLICT BETWEEN THE SALES TAX DEPARTMENT AND INCOME TAX AUTHORITIES IS THE CONCLUSION ARRIVED WITH RESPECT TO THE UNACCOUNTED SALE. THE SALES TAX DEPARTMENT HAS ARRIVED TO THE CONCLUSION THAT THE UNACCOUNTED SALE IS FROM THE PURCHASE MADE FROM OUTSIDE THE MAHARASHTRA STATE WHERE AS THE ASSESSING OFFICER TOOK THE UNACCOUNTED SALE FROM THE PURCHASES FROM GODHWAT INDUSTRIES (WITHIN THE MAHARASHTRA STATE). THEREFORE WHEN THE SALES TAX DEPARTMENT WHO CARRIED OUT THE SEARCH AND SEIZURE OPERATION AND SEIZED THE RECORD IN QUESTION HAS COME TO THE CONCLUSION THAT THE UNACCOUNTED SALE IS FROM THE PURCHASE FROM OUTSIDE STATE THEN THE VIEW OF THE ASSESSING 60 OFFICER THAT THE UNACCOUNTED SALE IS FROM THE PURCHASES MADE WITHIN THE STATE IS NOT SUSTAINABLE. 23.8 HE SUBMITTED THAT SINCE THE ITAT, MUMBAI BENCH IN THE CASE CITED (SUPRA) HAS DELETED THE ADDITION IN THE HANDS OF SHRI DHARMESH PATEL, THEREFORE, THE BASIS OF SUPPRESSED PRODUCTION IN THE CASE OF THE ASSESSEE IS NOT JUSTIFIED. HE ACCO RDINGLY SUBMITTED THAT NO ADDITION ON ACCOUNT OF UNACCOUNTE D SALE OF GUTKHA IS WARRANTED AND THEREFORE ALL THE APPEALS F ILED BY THE REVENUE ON THIS ISSUE HAVE TO BE DISMISSED AND THE ADDITION SUSTAINED BY THE CIT(A) DURING A.Y. 2009-10 SHOULD BE DELETED AND THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE SHOULD BE ALLOWED. 24. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND IN THE INSTANT CASE THE ASSESSING OFFICER MADE ADDITION OF RS.20,84,85,103/- ON THE BASIS OF ESTIMATED PROFIT @54.87% ON THE SUPPRESSED SALE OF RS.37,99,61,916/- FOR A.Y. 2 003-04. UNIFORM ADDITIONS HAVE BEEN MADE BY THE ASSESSING O FFICER FOR A.YRS. 2004-05 TO 2007-08. SIMILARLY, HE MADE ADDI TION OF RS.20,85,23,425/- FOR A.Y. 2008-09 AND RS.39,40,36, 751/- FOR A.Y. 2009-10. THE ADDITION FOR THE IMPUGNED ASSESS MENT YEAR AS WELL AS FOR A.YRS. 2004-05 TO 2007-08 WERE MADE ON THE BASIS OF EXTRAPOLATION /ESTIMATION OF INCOME ON THE BASIS OF SUPPRESSED SALES DETERMINED BY HIM FOR THE A.Y. 2007-08. THE SAME WAS ON 61 THE BASIS OF STATEMENT RECORDED FROM 3 DEALERS/C&F AGENTS NAMELY, SHRI DHARMESH PATEL, PROPRIETOR OF M/S. AMB IKA ENTERPRISES, MUMBAI, SHRI KUTUBUDDIN R. SHAIK, PROP RIETOR OF M/S. SHAIK TRADERS, SATARA AND SHRI UDHAV KHARGE (H UF) REPRESENTED BY KATA SHRI U.S. KHARGE. FURTHER, THE ASSESSING OFFICER ALSO BASED HIS ESTIMATION ON THE BASIS OF P RODUCTION CAPACITY OF THE MACHINES, THE STATEMENTS OF SOME OF THE EMPLOYEES AND CONSUMPTION OF LAMINATION FOR PRODUCT ION OF POUCHES. 24.1 WE FIND THE LD.CIT(A) WHILE DELETING THE ADDIT ION OF ESTIMATED PROFIT ON SUPPRESSED SALES FOR A.YRS. 200 3-04 TO 2008- 09, HOWEVER, HAS SUSTAINED AN AMOUNT OF RS.1,27,98, 184/- FOR A.Y. 2009-10 ON ACCOUNT OF ESTIMATED PROFIT ON SUPP RESSED TURNOVER OF RS.2,33,24,556/- IN CASE OF SALES TO SH RI DHARMESH PATIL, PROPRIETOR OF M/S. AMBIKA ENTERPRISES, MUMBA I. THE ASSESSEE HAS CHALLENGED THE ABOVE IN ITS APPEAL FOR A.Y. 2009-10 24.2 SO FAR AS THE ORDER OF THE ORDER OF THE LD.CIT (A) DELETING THE ADDITION ON ACCOUNT OF UNACCOUNTED SALE OF GUTK HA FOR DIFFERENT YEARS ARE CONCERNED, WE FIND NO INFIRMITY IN THE SAME. THE LD.CIT(A) IN A VERY DETAILED AND EXHAUSTIVE ORD ER HAS DISCUSSED IN DETAILS THE REASONS FOR DELETING THE A DDITION. WE FIND IN THE INSTANT CASE, THE ACCOUNTS OF THE ASSES SEE ARE AUDITED. THE ASSESSMENTS OF THE ASSESSEE WERE COMPLETED FOR A.YRS. 2003- 04 TO 2006-07 U/S.143(3) ON DIFFERENT DATES AND THE ASSESSEE HAD FILED THE DETAILS AS CALLED FOR BY THE ASSESSING OF FICER FROM TIME TO TIME WHILE COMPLETING THE REGULAR ASSESSMENT PRO CEEDINGS. 62 DURING THE COURSE OF SEARCH NO INCRIMINATING MATERI ALS WERE FOUND. THE EXCISE STOCK RECORDS FOR THE A.YRS 2007 -08 AND 2008-09 WHICH ARE DULY VERIFIED BY THE EXCISE DEPAR TMENT AND FOUND TO BE CORRECT WERE SEIZED AND ARE PART OF THE SEIZED RECORDS. THERE WAS NO VARIATION BETWEEN THE STOCK FOUND PHYS ICALLY AND STOCK AS PER BOOKS OF ACCOUNTS. THE ASSESSEE IN TH E AUDIT REPORT HAS GIVEN FULL QUANTITATIVE DETAILS OF STOCK OF RAW MATERIALS AND FINISHED GOODS AS PER RECORDS MAINTAINED BY IT AND WHICH WERE DULY VERIFIED BY THE EXCISE AUTHORITIES FROM TIME T O TIME AND NO DISCREPANCIES WERE FOUND. NEITHER ANY INCRIMINATIN G DOCUMENT WAS SEIZED DURING THE COURSE OF SEARCH REGARDING SU CH VARIATION IN THE PRODUCTION AND SALES NOR ANY ADDITION HAS BE EN MADE EITHER BY EXCISE AUTHORITY OR SALES TAX DEPARTMENT IN THE CASE OF THE ASSESSEE. NO UNACCOUNTED STOCK WAS FOUND AND SEIZE D. NO UNACCOUNTED PURCHASE BILL OR SALE BILL EITHER IN TH E FACTORY PREMISES OR IN THE OFFICE PREMISES WAS FOUND OR SEI ZED DURING THE COURSE OF SEARCH. FURTHER, THE SUBMISSION OF T HE ASSESSEE THAT EXCISE DUTY DURING A.Y. 2009-10 WAS ON ADVALOREM BA SIS AND ON ACTUAL DESPATCHES AND FROM 01-07-2008 THE EXCISE DU TY WAS SOUGHT TO BE LEVIED ON THE NUMBER OF OPERATIONAL PA CKING MACHINES USED AND THE HONBLE HIGH COURT VIDE ORDER DATED 11- 07-2008 HAD GRANTED INTERIM STAY TO THE ASSESSEE ST AYING THE LEVY OF EXCISE ON OPERATIONAL PACKING MACHINES AND DIREC TING THE ASSESSEE TO PAY EXCISE DUTY AS WAS PAID PRIOR TO 01 -07-2008 AND THEREFORE THE ASSESSEE WAS NOT PAYING EXCISE DUTY O N THE BASIS OF 63 OPERATIONAL PACKING MACHINES USED COULD NOT BE CONT ROVERTED BY THE LD. DEPARTMENTAL REPRESENTATIVE. 24.3 WE FIND MERIT IN THE SUBMISSION OF THE LD. COU NSEL FOR THE ASSESSEE THAT THE THICKNESS OF LAMINATION CHANGES F ROM LOT TO LOT AND THEREFORE WEIGHT OF LAMINATION CANNOT BE THE BA SIS FOR DETERMINING THE NUMBER OF POUCHES PRODUCED. SO FAR AS THE STATEMENT OF SHRI DHARMESH PATIL, PROPRIETOR OF M/S . AMBIKA ENTERPRISES, MUMBAI IS CONCERNED, WE FIND ALTHOUGH THE ASSESSING OFFICER MADE HIS STATEMENT AS BASIS FOR E STIMATING THE SUPPRESSED SALES, HOWEVER, THE MUMBAI BENCH OF THE TRIBUNAL VIDE ITA NO.4522/MUM/2012 ORDER DATED 14-06-2013 HA S DELETED THE ADDITION IN THE HANDS OF SHRI DHARMESH PATEL BY OBSERVING AS UNDER : 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS THE RELEVANT MATERIAL ON RECORD THE ASSESSING OFFICER W ORKED OUT THE UNACCOUNTED SALE OF GUTKHA AND PAN MASALA PURPORTED LY ON THE BASIS OF THE DETAILS CONTAINED IN THE LOOSE PAPERS SEIZED BY THE SALES TAX DEPARTMENT DURING THE SEARCH ON 20 TH JANUARY, 2009. THE ASSESSING OFFICER HAS SUPPORTED ITS FINDING BY THE STATEMENT OF THE ASSESSEE RECORDED ON 02.04.2009 POST SURVEY CARRIED ON 05.02 .2009. WE FIND FROM THE RECORD THAT THE ASSESSING OFFICER SUPPLIED THE COPY OF THE SAID STATEMENT TO THE ASSESSEE BUT DID NOT SUPPLY THE OT HER DOCUMENTS/RECORD REQUISITIONED FROM THE SALES TAX D EPARTMENT BASED ON WHICH THE UNACCOUNTED SALE WAS WORKED OUT BY THE ASSESSING OFFICER. THE ASSESS VIDE ITS LETTER DATED 26.11.201 0 PLACED AT PAGE NO.46 OF THE PAPER BOOK SPECIFICALLY DEMANDED THE A LLEGED RECORD. THOUGH THE ASSESSING OFFICER HAS REFERRED THE NOTIC E UNDER SECTION 142(1) TO SHOW THAT THE COPIES OF THE DOCUMENTS WER E SHOWN TO THE AR FOR THE ASSESSEE FOR EXAMINATION. IT IS PERTINENT T O NOTE THAT NO DOCUMENTS CAN BE USED AGAINST THE ASSESSEE WITHOUT GIVING HIM PROPER OPPORTUNITY TO REBUTE THE SAME OR TO PRODUCE COUNTE R EVIDENCE. THE ASSESS DENIED THAT THE ALLEGED RECORD BELONGS TO TH E ASSESSEE AND DEMANDED THE CROSS-EXAMINATION OF THE PANCHNAMA ON THIS POINT. THE. WHOLE CASE OF THE DEPARTMENT IS BASED ON THE PRESUM PTION THAT THE ASSESSEE IS C & F AGENT OF GODHWAT INDUSTRIES FOR S ALE OF GUTKHA AND PAN MASALA. THE ASSESSING OFFICER MADE THE ESTIMATE D GP ADDITION BY WORKING OUT THE UNACCOUNTED SALE WHEREAS IN CASE OF C & F AGENT THE INCOME IS ONLY THE COMMISSION AS AGREED BETWEEN THE PARTIES AND NOT ANY PROFIT MARGIN FROM PURCHASE AND SALE BECAUSE TH E PURCHASE IS MADE BY THE TRADERS AND DEALERS AND THE SALE IS MADE BY THE MANUFACTURER. THE ROLE OF C & F AGENT IS LIMITED TO THE MARKETING SALE PROMOTION AND RECOVERY OF PAYMENT FROM THE TRADERS AND DEALERS DE PENDING UPON THE 64 TERMS AND CONDITIONS AGREED UPON BETWEEN THE PARTIE S. THEREFORE THERE CANNOT BE ANY PURCHASE AND SALE BY THE C & F AGENT BUT IT FACILITATES THE PURCHASE AND SALE BETWEEN THE TRADER/DEALER AND THE MANUFACTURER. EVEN OTHERWISE AN AGENT ACTS BEING A REPRESENTATIVE OF THE PRINCIPLE THEREFORE THERE CANNOT BE ANY PURCHASE AND SALE IN THE NAME OF THE AGENT. THE ASSESSING OFFICER ADOPTED THE GP RATE AD MITTED BY THE ASSESSEE ON ITS BUSINESS OF TRADE WHICH IS NOT PERM ITTED TO BE ADOPTED FOR THE INCOME BEING COMMISSION OF C & F AGENT. THO UGH THE ASSESSEE DENIED THAT HE IS C & F AGENT OF M/S GODHWAT INDUST RIES, HOWEVER THE ASSESSING OFFICER PROCEEDED ON THE BASIS THAT ASSES SEE IS C & F AGENT. 9. THE ASSESSING OFFICER WORKED OUT UNACCOUNTED SAL E FOR 10 MONTHS OSTENSIBLY ON THE REASON THAT THE SEARCH WAS CONDUCTED BY THE SALES TAX DEPARTMENT ON 20 TH JANUARY. THEREFORE THE 10 MONTHS SALE WAS WORKED OUT FROM THE APRIL 2007 TO JANUARY. 2008 . BUT IT IS MATERIAL TO NOTE THAT THE SEARCH WAS CONDUCTED ON 2 0 TH JANUARY.2009 AND NOT ON 20 TH JANYARY,2008, THEREFORE THE RECORD FOUND DURING TH E SEARCH CANNOT BE SAID TO BE UPTO TO 20TH JANUARY,20 08 SO THAT THE UNACCOUNTED SALE ON THE BASIS OF THAT RECORD CAN BE WORKED OUT UPTO 20 TH JANUARY,2008. IT. APPEARS THAT THE ASSESSING OFFIC ER TOOK THIS CLUE OF 10 MONTHS FROM THE SHOW CASE NOTICE TO THE SALES TAX DEPARTMENT WHEREIN THE PROPOSED UNACCOUNTED SALE WAS TO BE TAX ED FOR A 10 MONTHS W.E.F. 01.04.2008 TO 31 ST JANUARY, 2009. FOR READY REFERENCE WE REPRODUCED THE SHOW CAUSE NOTICE ISSUED BY THE SALE S TAX DEPARTMENT AS UNDER:- OFFICER OF THE DY. COMMR. OF SALES TAX (INV) THANE 4 TH FLOOR, COLLECTORS OFFICER COMP. ABOVE TREASURY OFFICER, THANE (W) TO, M/S SHRI AMBIKA ENTERPRISES 110, NARAYAN UDYOG BHAVAN, LALBAUG INDUSTRIAL ESTATE, GANESHNAGAR, LALBAUG, MUMBAI-400 012 NO. DCST/INV/THN/INV NO.41/08-09/B-28 DT.12/03/2009 SUB:- SHOW CAUSE NOTICE IN THE CASE OF M/S SHRI AMBIKA ENTERPRISES PERIOD 01/04/2008 TO 31/01/2009 TIN NO.-27350590340V/C REF:- INV VISIT NO. 41/08-09 WITH REFERENCE TO THE ABOVE, YOUR PLACE OF BUSINESS WAS VISITED U/S 64 OF MVAT ACT-2002 ON 20/01/2009. SOME BOOKS OF ACCOUNTS, LOOSE PAPERS, SALES/PURCHASES BILLS AND ESTIMATED MEMOS WERE BROUGHT TO THIS OFFICE. AFTER SCRUTINY OF THE RECORDS ITS IS REVEALED THAT YOU ARE DOING BUSINESS AS TRADING OF PAN MASALA (C & F AGENT) ETC. WHILE GOING THROUGH THE RECORDS IT IS SEEN THAT YOU HAVE SOLD GOODS ON CASH MEMOS WHICH ARE NOT ACCOUNTED IN YOUR REGULAR BOOKS OF ACCOUNTS FOR THE OMS CORRESPONDING PURCHASES. IN VIEW OF ABOVE FACTS THE TAX LIABILITY IS WORKED OUT AS UNDER: PERIOD UN- ACCOU NT E D TAX APRIL.08 TO JAN-09 2,33,24,556 29,15,570 TOTAL 2,33,24,556 29,15,570 AS PER THE EVIDENCE AVAILABLE IN THIS OFFICE YOUR HAVE COMMITTED AN OFFENCE U/S 74 OF MVAT ACT-2002. 65 YOUR ARE THEREFORE DIRECTED TO ATTEND THIS OFFICE ON 30/04/2009 AT 11:00 A.M. BEFORE ME & SHOW CAUSE AS TO WHY THE SAID TAX & PENALTY SHOULD NOT BE LEVIED. IF YOU FAIL TO COMPLY WITH THIS SHOW CAUSE NOTICED, FOLLOWING ACTIONS UNDER MVAT ACT-2002 WILL BE INITIATED WITHOUT ANY FURTHER INTIMATION TO YOU. 1) PENALTY U/S 29 EMPOWERS PENAL ACTION. 2) SUB SECTION (5) OF SECTION 23 OF THE SAID ACT PROVIDES FOR PASSING OF BEST JUDGMENT ASSESSMENT ORDER. . 3) ACTION U/S 75 & U/S 76 MVAT ACT-2002 PROVIDES FOR CRIMINAL PROSECUTION PRESCRIBED UNDER CODE OF CRIMINAL PROCEDURE 1973 (20 OF 1974) 4) INTEREST U/S 30 WILL BE LEVIED AS PER PROVISION OF LAW. DATE PLACE THANE (A.M.PATIL) DY. COMMISSIONER OF SALES TAX, (INVESTIGATION), THANE. 10. IT IS CLEAR THAT THE SALE TAX DEPARTMENT TOOK T HE UNACCOUNTED SALE FOR 10 MONTHS W.E.F. 01.04.2008 TILL THE DATE OF SE ARCH I.E. 20.01.2009 WHICH IS OBVIOUS BECAUSE IT COULD BE AT THE BEST UP TO THE DATE OF SEARCH. BUT WHEN THE ASSESSING OFFICER ATTEMPTED TO MAKE AD DITION OF THE UNACCOUNTED SALE FOR THE ASSESSMENT YEAR 2008-09 TH E SAME IS NOT CONTEMPORANEOUS TO THE PERIOD WHICH THE ADDITION IS MADE BY THE SALES TAX DEPARTMENT ON THE BASIS OF SAME SEIZED MATERIAL . FURTHER IT IS NOT UNSUSTAINABLE AS TO HOW ONLY 10 MONTHS SALE HAS BEE N WORKED OUT BY THE ASSESSING OFFICER AND REMAINING TWO MONTHS WAS PROJ ECTED WHEN THE SEARCH WAS ON 20TH. JANUARY.2009 AND THERE IS NO QU ESTION OF SEIZED MATERIAL TO BE CONSIDERED ONLY UPTO 20TH JANUARY.20 08. THIS CLEARLY SHOWS A SERIOUS LACUNA IN THE ASSESSMENT ORDER AND THE CA SUAL APPROACH OF THE ASSESSING OFFICER WITHOUT APPLICATION OF MIND. IT C REATES A SERIOUS DOUBT ON THE ACTION OF THE ASSESSING OFFICER BECAUSE ON T HE BASIS OF THE SAME SEIZED MATERIAL THE SALES TAX DEPARTMENT HAS MADE A N ADDITION FOR UNACCOUNTED SALE OF RS.2.33 CRORES TO BE TAXED FOR THE ASSESSMENT YEAR 2009-10, THEN HOW ON THE BASIS OF SAME MATERIAL THE ASSESSING OFFICER HAS MADE THE ADDITION FOR THE ASSESSMENT YEAR 2008-09. KEEPING IN MIND THAT THE RECORD IN QUESTION WAS SEIZED BY THE SALES TAX DEPARTMENT AND THE INCOME TAX AUTHORITIES HAVE REQUISITIONED THE SAME FROM SALES TAX DEPARTMENT THERE MAY BE SOME VARIATION IN APPRECIAT ION OF THE EVIDENCE BY DIFFERENT AUTHORITIES BUT IT CANNOT BE SAID THAT ONE COULD COMPLETELY DISCARD THE OTHER. THEREFORE IT. CANNOT BE TWO CONF LICTING VIEWS ON THE SAME EVIDENCE SO THAT WHEN IT PUT TO THE TEST OF SU STAINABILITY ONE BOUND TO FAIL. THE PRIMARY EVIDENCE IS WITH THE SALES TAX DE PARTMENT BEING SEIZED MATERIAL AND THE RECORD GATHERED BY THE INCOME TAX AUTHORITIES IS ONLY SECONDARY EVIDENCE AS THE ORIGINAL WAS NOT GIVEN TO THEM. HOWEVER THE OUTCOME OF THE APPRECIATION OF THE PRIMARY EVIDENCE CANNOT BE SUPERSEDED BY THE APPRECIATION OF THE SECONDARY EVIDENCE. 11. ANOTHER GLARING ASPECT OF CONFLICT BETWEEN THE SALES TAX DEPARTMENT AND INCOME TAX AUTHORITIES IS THE CONCLU SION ARRIVED WITH RESPECT TO THE UNACCOUNTED SALE. THE SALES TAX DEPA RTMENT HAS ARRIVED TO THE CONCLUSION THAT THE UNACCOUNTED SALE IS FROM TH E PURCHASE MADE FROM OUTSIDE THE MAHARASHTRA STATE WHERE AS THE ASSESSIN G OFFICER TOOK THE UNACCOUNTED SALE FROM THE PURCHASES FROM GODHWAT IN DUSTRIES (WITHIN THE MAHARASHTRA STATE). THEREFORE WHEN THE SALES TAX DE PARTMENT WHO CARRIED OUT THE SEARCH AND SEIZURE OPERATION AND SEIZED THE RECORD IN QUESTION HAS COME TO THE CONCLUSION THAT THE UNACCOUNTED SALE IS FROM THE PURCHASE 66 FROM OUTSIDE STATE THEN THE VIEW OF THE ASSESSING O FFICER THAT THE UNACCOUNTED SALE IS FROM THE PURCHASES MADE WITHIN THE STATE IS NOT SUSTAINABLE. 12. APART FROM COMPLETE DEPARTURE IN THE VIEWS OF T HE TWO AUTHORITIES ON THE SAME MATERIAL THE ASSESSING OFFICER HAS ALSO TOOK SHELTER TO THE PROVISIONS OF SECTION 292C . AS PER SECTION 292C A PRESUMPTION CAN BE RAISED IN RESPECT OF BOOKS OF ACCOUNTS, OTHER DOCUM ENTS, MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLES FOUND IN THE P OSSESSION OR CONTROL OF ANY PERSON IN THE COURSE OF SEARCH UNDER SECTION 13 2 OR SURVEY UNDER SECTION 133A THAT THE SAME BELONGS TO SUCH PERSON. IN CASE BOOKS OF ACCOUNTS, OTHER DOCUMENTS OR ASSETS HAVE BEEN DELIV ERED TO THE REQUISITIONING OFFICER UNDER SECTION 132A, IT IS DE EMED THAT THE SAME HAVE BEEN TAKEN INTO CUSTODY FROM SUCH PERSON. WE QUOTE SECTION 292 C AS UNDER: 292C. [(1)] WHERE ANY BOOKS OF ACCOUNT, OTHER DOCUMENTS, MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING ARE OR IS FOUND IN THE POSSESSION OR CONTROL OF ANY PERSON IN THE COURSE OF A SEARCH UNDER SECTION 132 [OR SURVEY UNDER SECTION 133A ], IT MAY, IN ANY PROCEEDING UNDER THIS ACT, BE PRESUMED (I) THAT SUCH BOOKS OF ACCOUNT, OTHER DOCUMENTS, MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING BELONG OR BELONGS TO SUCH PERSON; (II) THAT THE CONTENTS OF SUCH BOOKS OF ACCOUNT AND OTHER DOCUMENTS ARE TRUE; AND (III) THAT THE SIGNATURE AND EVERY OTHER PART OF SUCH BOOKS OF ACCOUNT AND OTHER DOCUMENTS WHICH PURPORT TO BE IN THE HANDWRITING OF ANY PARTICULAR PERSON OR WHICH MAY REASONABLY BE ASSUMED TO HAVE BEEN SIGNED BY, OR TO BE IN THE HANDWRITING OF, ANY PARTICULAR PERSON, ARE IN THAT PERSON'S HANDWRITING, AND IN THE CASE OF A DOCUMENT STAMPED, EXECUTED OR ATTESTED, THAT IT WAS DULY STAMPED AND EXECUTED OR ATTESTED BY THE PERSON BY WHOM IT PURPORTS TO HAVE BEEN SO EXECUTED OR ATTESTED.] [(2) WHERE ANY BOOKS OF ACCOUNT, OTHER DOCUMENTS OR ASSETS HAVE BEEN DELIVERED TO THE REQUISITIONING OFFICER IN ACCORDANCE WITH THE PROVISIONS OF SECTION 132A , THEN, THE PROVISIONS OF SUB- SECTION (1) SHALL APPLY AS IF SUCH BOOKS OF ACCOUNT, OTHER DOCUMENTS OR ASSETS WHICH HAD BEEN TAKEN INTO CUSTODY FROM THE PERSON REFERRED TO IN CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C), AS THE CASE MAY BE, OF SUB- SECTION (1) OF SECTION 132A , HAD BEEN FOUND IN THE POSSESSION OR CONTROL OF THAT PERSON IN THE COURSE OF A SEARCH UNDER SECTION 132 .] IT IS PREREQUISITE CONDITION FOR INVOKING THE PRESU MPTION UNDER SECTION 292 C THAT THE BOOKS OF ACCOUNTS, OTHER DOC UMENT OR ASSETS ARE EITHER FOUND IN THE POSSESSION OR CONTROL OF AN Y PERSON IN THE COURSE OF SEARCH UNDER SECTION 132 OR SURVEY UNDER SECTION 133A OR REQUISITIONED IN THE COURSE OF SEARCH UNDER SECTION 132. IN THE CASE OF THE ASSESSEE BEFORE US THERE IS NO SEARCH UNDER SECTION 132 AND THERE WAS ONLY SURVEY UNDER SECTION 133A. THE DOCUM ENTS IN QUESTION WERE NOT FOUND IN POSSESSION OR CONTROL OF THE ASSESSEE DURING THE SAID SURVEY. THE CASE OF THE DEPARTMENT IS THAT THESE DOCUMENTS ARE REQUISITIONED FROM THE SALES TAX DEPA RTMENT, BUT WHEN THERE IS NO SEARCH UNDER SECTION 132 OF THE IN COME TAX DEPARTMENT, THEN THE DOCUMENTS SO REQUISITIONED DOE S NOT FALL UNDER SUBSECTION 2 OF SECTION 292C. HENCE NO PRESUM PTION CAN BE 67 RAISED IN RESPECT OF THE DOCUMENTS WHICH ARE NEITHE R FOUND IN THE POSSESSION OR CONTROL THE ASSESSEE NOR REQUISITIONE D UNDER SECTION 132A. 13. THE ANOTHER QUESTION ARISES REGARDING THE ADMIS SION BY THE ASSESSEE IN THE STATEMENT RECORDED ON 02.04.2009. T HE STATEMENT WAS NOT RECORDED UNDER SECTION 132(4) OR DURING THE ASSESSM ENT PROCEEDINGS. IT WAS RECORDED POST SURVEY ACTION THEREFORE THOUGH IT CAN BE GOOD EVIDENCE AGAINST THE ASSESSEE, BUT NO ADDITION CAN BE MADE S OLELY ON THE BASIS OF THE STATEMENT WITHOUT CORROBORATING EVIDENCE. FURTHER T HE STATEMENT WAS IMMEDIATELY RETRACTED BY THE ASSESSEE ON 04.04.2009 AND 08.04.2009 BY WAY OF TWO SEPARATE AFFIDAVITS. THEREFORE IT BECOME S ESSENTIAL TO HAVE CORROBORATIVE EVIDENCE WHILE RELYING ON SUCH RETRAC TED STATEMENT. IN THE CASE IN HAND THE ASSESSING OFFICER HAS NOT GATHERED THE EVIDENCE FROM SALES TAX DEPARTMENT, BUT IT WAS STATED TO HAVE BEE N REQUISITIONED BY THE INVESTIGATION WING, EVEN OTHERWISE THE ASSESSING OF FICER HAS NOT EXAMINED THE SAID EVIDENCE OR ANY WITNESS TO PROVE THE SAID EVIDENCE OR EVEN THE ASSESSEE WAS NOT EXAMINED TO CONFRONT THE SAID EVIDENCE. ONCE THE ASSESSEE DENIED THAT THE ALLEGED DOCUMENTS BELO NG TO HIM IT WAS INCUMBENT UPON THE ASSESSING OFFICER TO PROVE THE S AME BY EXAMINATION OF NECESSARY WITNESS AS WELL AS THE ASSESSEE. FURTH ER THE PRIMARY EVIDENCE TO SHOW THAT THE REQUISITIONED RECORD BELO NGS AND ASSESSEE IS THE PANCHNAMA IF ANY DRAWN BY SALES TAX DEPARTMENT. ASS ESSING OFFICER DID NOT LAY HAND TO ANY SUCH PANCHNAMA TO PROVE THAT SA ID RECORD WAS SEIZED FROM THE POSSESSION OF THE ASSESSEE. IN VIEW OF THE FACT THAT THE SALES TAX DEPARTMENT HAS ARRIVED AT A DIFFERENT CONCLUSION TO THAT OF THE ASSESSING OFFICER WHILE APPRECIATING THE MATERIAL IN QUESTION , THEN IT . BECOMES NECESSARY TO EXAMINE THE MATERIAL/EVIDENCE ON THE B ASIS OF WHICH THE ASSESSING OFFICER HAS GIVEN THE FINDING. SINCE THE EVIDENCE IN QUESTION WAS NOT PROVIDED TO THE ASSESSEE AND THE REVENUE HA S ALSO NOT PRODUCE THE SAME BEFORE US, THEREFORE WE ARE UNABLE TO APPROVE THE VIEW OF THE AUTHORITIES BELOW WHICH IS CONTRADICTORY TO THE VIE W OF THE SALES TAX DEPARTMENT. 14. IN VIEW OF THE ABOVE DISCUSSION AND IN THE FACT AND CIRCUMSTANCES OF THE CASE WE SET-ASIDE THE ORDERS OF THE AUTHORIT IES BELOW QUA THIS ISSUE AND DELETE THE ADDITION OF ESTIMATED GP TOWARDS UNA CCOUNTED SALES. 24.4 SO FAR AS THE STATEMENT OF OTHER 2 C&F AGENTS ARE CONCERNED, WE FIND THEY HAVE CATEGORICALLY DENIED A NY UNACCOUNTED TRANSACTION WITH THE ASSESSEE AND THE A SSESSING OFFICER HAS NO CORROBORATIVE EVIDENCE TO NEGATE THE STATEMENT OF THE OTHER 2 C&F AGENTS NAMELY MR. KUTUBUDDIN R. SHA IK AND MR. U.S. KHARGE. WE FIND FORCE IN THE SUBMISSION O F LD. COUNSEL FOR THE ASSESSEE THAT RETRACTED STATEMENTS CANNOT B E MADE BASIS FOR ADDITION UNLESS THERE IS ANY CORROBORATIVE EVID ENCE. 68 24.5 SINCE THE ASSESSEE IN THE INSTANT CASE MAINTAI NS PROPER BOOKS OF ACCOUNTS WHICH ARE DULY AUDITED AND SINCE NO ADDITION HAS BEEN MADE BY THE EXCISE DEPARTMENT ON ACCOUNT O F PURCHASES, SALES OR PRODUCTION OUTSIDE BOOKS AND SINCE NO INCR IMINATING DOCUMENTS WHATSOEVER WERE EITHER FOUND OR SEIZED FR OM THE OFFICE OR THE FACTORY PREMISES OF THE ASSESSEE REGA RDING ANY UNACCOUNTED PURCHASES OR SALES AND SINCE THE STOCK FOUND AT THE TIME OF SEARCH TALLIED WITH THE STOCK AS PER BOOKS OF ACCOUNTS MAINTAINED, THEREFORE, UNDER THE FACTS AND CIRCUMST ANCES OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT NO ADDI TION CAN BE MADE ON ACCOUNT OF ESTIMATED PROFIT ON SUPPRESSED T URNOVER. 24.6 SO FAR AS THE DECISION OF HONBLE SUPREME COUR T IN THE CASE OF H.M. ESUFALI H. M. ABDULALI (SUPRA) AND VAR IOUS OTHER DECISIONS RELIED ON BY THE LD. DEPARTMENTAL REPRESE NTATIVE ARE CONCERNED, THE SAME IN OUR OPINION ARE NOT APPLICAB LE TO THE FACTS OF THE PRESENT CASE ESPECIALLY WHEN THERE IS NO EVI DENCE OF ANY SALE OF GOODS OUTSIDE BOOKS OF ACCOUNT. IN THIS VI EW OF THE MATTER AND IN VIEW OF THE DETAILED REASONING GIVEN BY THE LD.CIT(A) WHILE DELETING THE ESTIMATED PROFIT ON SU PPRESSED TURNOVER FOR ALL THE YEARS (EXCEPT AN AMOUNT OF RS. 1,27,98,184/- FOR A.Y. 2009-10) AND WHICH HAS BEEN REPRODUCED IN THE PRECEDING PARAS, WE FIND NO INFIRMITY IN HIS ORDER DELETING THE ADDITIONS MADE BY THE ASSESSING OFFICER FOR DIFFERE NT YEARS ON ACCOUNT OF ESTIMATED PROFIT ON SUPPRESSED TURNOVER. WE 69 ACCORDINGLY UPHOLD THE SAME AND THE GROUNDS RAISED BY THE REVENUE IN ALL THE YEARS ON THIS ISSUE ARE DISMISSE D. 24.7 SO FAR AS THE ADDITION SUSTAINED BY HIM AMOUNT ING TO RS.1,27,98,184/- FOR A.Y. 2009-10 ON ACCOUNT OF EST IMATED PROFIT ON SUPPRESSED SALES TO M/S. AMBIKA ENTERPRISES, MUM BAI IS CONCERNED, THE SAID ADDITION HAS TO BE DELETED IN V IEW OF THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF THE SAID DEALER NAMELY, DHARMESN MANIBHAI PATEL VIDE IT A NO.4522/MUM/2012 ORDER DATED 14-06-2013. ADMITTEDL Y, THE ABOVE DECISION WAS NOT AVAILABLE WHEN THE CIT(A) PA SSED THE ORDER. SINCE THE INCOME ON ACCOUNT OF SUPPRESSED S ALE HAS BEEN DELETED BY THE TRIBUNAL IN THE HANDS OF SHRI DHARME SH PATEL, THEREFORE, THERE IS NO QUESTION OF ANY UNACCOUNTED SALE BY THE ASSESSEE TO SHRI DHARMESH PATEL. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE FOR THE A.Y. 2009-10 IS ALLO WED. 25. GROUND OF APPEAL NO.4 BY THE REVENUE READS AS U NDER : 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE CIT(A) ERRED IN DELETING ADDITION OF RS.5 CRORES MAD E FOR THE A.Y. 2003-04 ON ACCOUNT OF WORKING CAPITAL EMPLOYED TO R UN UNACCOUNTED BUSINESS OF GUTKHA. (SIMILAR AMOUNT FOR A.Y. 2009-10). 25.1 THE ASSESSING OFFICER HAS DISCUSSED THE ISSUE AT PARA 11 (PAGE 42) OF THE ASSESSMENT ORDER. ACCORDING TO HI M ALTHOUGH NO EVIDENCE OF UNACCOUNTED PURCHASES WERE FOUND AND SE IZED EITHER IN THE COURSE OF SEARCH OR DURING POST SEARCH ENQUI RIES, HOWEVER, IT IS CLEAR THAT THE ASSESSEE WAS RUNNING A PARALLE L UNACCOUNTED BUSINESS IN VIEW OF THE EVIDENCES OF SUPPRESSED SAL ES OF GUTKHA 70 AND PAN MASALA DETECTED IN F.YRS. 2006-07 TO 2008-0 9. HE THEREFORE WAS OF THE OPINION THAT FOR RUNNING THE P ARALLEL UNACCOUNTED BUSINESS ASSESSEE REQUIRES WORKING CAPI TAL. CONSIDERING THE TURNOVER OF THE ASSESSEE AT RS.37 C RORES DURING THE YEAR, HE MADE ADDITION OF RS.5 CRORES AS INITIA L WORKING CAPITAL FOR THE A.Y. 2003-04. WHILE DOING SO, HE K EPT IN MIND THE PRODUCTION PROCESS AND AVERAGE CREDIT GIVEN TO C&F AGENTS, DISTRIBUTORS ETC. 26. BEFORE THE CIT(A) IT WAS SUBMITTED THAT NO EVID ENCE OF UNACCOUNTED PURCHASES WAS FOUND OR SEIZED IN THE CO URSE OF SEARCH ACTION OR IN POST SEARCH ENQUIRIES. IT WAS SUBMITTED THAT EVIDENCES, IF ANY, WERE FOR ALLEGED SUPPRESSED SALE S FOR F.YRS. 2006-07 AND 2008-09. IT WAS ARGUED THAT STOCK OF F INISHED PRODUCT AND RAW MATERIAL AND CASH FOUND DURING THE COURSE OF SEARCH TALLIED WITH THE BOOKS OF ACCOUNTS. THEREFO RE, THE ADDITION BASED ON PRESUMPTIONS, SURMISES CANNOT BE SUSTAINED . 27. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DELETED THE ADDITION. WHILE DOING SO, HE HELD THAT SINCE THE ADDITIONS FOR A.YRS. 2003-04 TO 2006-07 A ND SUBSEQUENTLY FOR A.YRS. 2007-08 TO 2009-10 WERE DEL ETED BY HIM WHICH WERE BASED ON PRESUMPTIONS, SURMISES AND CONJ ECTURES, THEREFORE, NO ADDITION ON ACCOUNT OF INITIAL WORKIN G CAPITAL IS WARRANTED SINCE THERE IS NO PRODUCTION REQUIRING IN FUSION OF FRESH CAPITAL. 71 27.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 28. WE HAVE CONSIDERED THE ARGUMENTS MADE BY BOTH T HE SIDED AND PERUSED THE ORDERS OF THE AO AND THE CIT(A). A DMITTEDLY, THE ADDITION WAS MADE BY THE AO ON THE GROUND THAT THE ASSESSEE IS RUNNING PARALLEL UNACCOUNTED BUSINESS FOR WHICH INITIAL CAPITAL IS REQUIRED CONSIDERING THE PRODUCTION PROCESS AND AVERAGE CREDIT GIVEN TO C&F AGENTS, DISTRIBUTORS ETC. IN THE PREC EDING PARAGRAPHS, WE HAVE ALREADY HELD THAT THE ORDER OF THE CIT(A) DELETING THE ADDITIONS MADE IN A.YRS. 2003-04 TO 20 06-07 AND 2007-08 TO 2009-10 ARE JUSTIFIED AND DOES NOT REQUI RE ANY INTERFERENCE IN ABSENCE OF EVIDENCE OF ANY UNACCOUN TED SALES. WE HAVE ALSO DELETED THE ADDITION SUSTAINED BY THE CIT(A) FOR A.Y. 2009-10. SINCE THERE IS NO FINDING OF ANY UNA CCOUNTED BUSINESS, THEREFORE, THERE IS NO REQUIREMENT OF ANY ADDITIONAL CAPITAL. IN THIS VIEW OF THE MATTER, WE UPHOLD THE ORDER OF THE CIT(A). GROUND RAISED BY THE REVENUE IS DISMISSED. 28.1 SIMILAR GROUND HAS BEEN RAISED BY THE REVENUE FOR A.Y. 2009-10. FOLLOWING OUR ABOVE REASONING THE GROUND RAISED BY THE REVENUE FOR A.Y. 2009-10 IS ALSO DISMISSED. 29. GROUND OF APPEAL NO.5 BY THE REVENUE READS AS U NDER : 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE CIT(A) ERRED IN NOT ACCEPTING THE REJECTION OF BOOK S OF ACCOUNTS U/S.145 OF THE ACT, BY THE AO FOR THE A.Y. 2003-04. 29.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO D URING THE COURSE OF ASSESSMENT PROCEEDINGS EXAMINED THE BOOKS OF 72 ACCOUNTS VIS--VIS THE SEIZED DOCUMENTS, STATEMENT RECORDED FROM VARIOUS PERSONS AND CAME TO THE CONCLUSION THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE DO NOT GIVE TRUE AND CORRECT PICTURE OF THE BUSINESS SINCE THE ASSESSEE WAS INDU LGING IN UNACCOUNTED BUSINESS OUTSIDE BOOKS OF ACCOUNTS. TH EREFORE, THE AO WAS NOT SATISFIED WITH THE CORRECTNESS AND COMPL ETENESS OF THE BOOKS AND THEREFORE HE REJECTED THE BOOKS U/S.1 45(3). 30. IN APPEAL THE LD.CIT(A) HELD THAT THE AO WAS N OT RIGHT IN REJECTING THE BOOKS OF ACCOUNTS U/S.145 FOR THE ALL THE YEARS UNDER CONSIDERATION BY OBSERVING AS UNDER : 126. THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACC OUNT OF THE APPELLANT FOR ALL THE ASSESSMENT YEARS. BOOKS OF ACCO UNTS OUGHT TO BE REJECTED IF SOME DISCREPANCY IS FOUND IN W HAT IS RECORDED IN THE ACCOUNTS. IN THE INSTANT CASE, DESPITE THE SEARCH AND SEIZURE, NOTHING HAS BEEN FOUND WHICH WILL INDICA TE THAT THE BOOKS OF ACCOUNT WERE WRONGLY WRITTEN OR THAT THE BO OKS HAD CERTAIN OMISSIONS AND COMMISSIONS DUE TO WHICH IT WAS NOT POSSIBLE TO ARRIVE AT THE CORRECT INCOME OF THE APPEL LANT. ALTHOUGH THE ASSESSING OFFICER HAS STATED OVER AND AGAIN THAT THE BOOKS OF ACCOUNT ARE NOT RELIABLE, I FIND THAT THIS A SSERTION HAS BEEN MADE SOLELY ON THE GROUND THAT INWARD AND OUTWA RD REGISTERS WERE NOT MAINTAINED AT THE PRODUCTION CENTR E OF GUTKHA AND PAAN MASALA. INWARD AND OUTWARD REGISTERS GIVE A COMPREHENSIVE PICTURE OF CONSUMPTION OF RAW MATERIAL AND OUTPUT OF FINISHED PRODUCTS. IF THERE IS ANY DISCREPANC Y BETWEEN WHAT HAS COME IN AND WHAT HAS GONE OUT AFTER ACCOUNTI NG FOR PRODUCTION THEN, THE SAME WOULD BE REFLECTED IN THE FINISHED PRODUCTS LYING IN THE GODOWN OR THE RAW MATERIAL LYI NG IN THE FACTORY PREMISES. ADMITTEDLY, NO SUCH DISCREPANCY HAS BE EN FOUND. IT HAS BEEN RECORDED SEVERAL TIMES IN THIS ORDER THAT NO INCRIMINATING EVIDENCES OR MATERIAL WAS FOUND WHICH W OULD INDICATE THAT THE BOOK RESULTS WERE UNRELIABLE. UNDER THESE CIRCUMSTANCES, I HOLD THAT THE ASSESSING OFFICER WAS NOT RIGHT IN REJECTING THE BOOKS OF ACCOUNT UNDER SECTION 145 FOR ALL THE YEARS UNDER CONSIDERATION. 30.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 31. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER 73 BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE AO HAS NOT POINTED OUT ANY DEFECT IN THE BOOKS OF ACCOUNTS WHI CH ARE AUDITED AND THE AUDITORS HAVE ALSO NOT POINTED OUT ANY MIST AKE. THE EXCISE AUTHORITIES HAVE ALSO EXAMINED THE BOOKS OF ACCOUNTS AND ACCEPTED THE SAME. DURING THE COURSE OF SEARCH NO EVIDENCE WHATSOEVER WAS FOUND SO AS TO COME TO A CONCLUSION THAT THE ASSESSEE WAS INDULGING IN ANY BUSINESS OUTSIDE BOOK S OF ACCOUNT. FURTHER THE STOCK AS PER BOOKS TALLIED WITH THE PHY SICAL STOCK ON THE DATE OF SEARCH AND THERE IS NO ADDITION ON ACCO UNT OF EXCESS/SHORTAGE OF STOCK. THE SUBMISSION OF THE LD . COUNSEL FOR THE ASSESSEE THAT THE CASH BALANCE AS ON THE DATE O F SEARCH TALLIED WITH THE BOOKS OF ACCOUNTS COULD NOT BE CONTROVERTE D BY THE LD. DEPARTMENTAL REPRESENTATIVE. WE FIND IN REGULAR AS SESSMENT PROCEEDINGS THE BOOKS OF ACCOUNTS WERE ALWAYS ACCEP TED AND THERE IS NO PAST HISTORY TO JUSTIFY THE REJECTION. 31.1 IT HAS BEEN HELD IN VARIOUS JUDICIAL DECISIONS THAT BEFORE REJECTING THE BOOKS OF ACCOUNTS THE AO MUST RECORD A CLEAR FINDING THAT CORRECT PROFIT CANNOT BE DETERMINED FR OM THE METHOD OF ACCOUNTING ADOPTED. THE HONBLE DELHI HIGH COUR T IN THE CASE OF CIT VS. POONAM RANI REPORTED IN 326 ITR 323 AND AS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE HAS O BSERVED AS UNDER (SHORT NOTES) : THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING COPPER WIRE. FOR THE ASSESSMENT YEAR 2003-04, THE ASSESS EE FILED A RETURN, DECLARING GROSS PROFIT AT THE RATE O F 1.4 PER CENT AS AGAINST GROSS PROFIT RATE OF 5.91 PER CENT FOR THE PRE CEDING YEAR. THE ASSESSEE CONTENDED THAT THE FALL IN GROSS PROFIT RATE WAS DUE TO INCREASE IN THE PURCHASE PRICE. HE ALSO NOTICED TH AT THE WEIGHT OF FINISHED PRODUCTS DECLARED BY THE ASSESSEE WAS 74 3,19,264 KGS. AS AGAINST THE WEIGHT OF RAW MATERIAL, W HICH WAS DECLARED AS 3,11,578 KGS. THE ASSESSEE SUBMITTED THAT AF TER DRAWING WIRE, THE PROCESS GOES ON TO PUT THE WIRE FOR ENAMELLING, AS A RESULT OF WHICH THE WEIGHT OF THE WIRE INCREASED BY 2-3 PER CENT. THE ASSESSING OFFICER FELT THAT IN THE ABSENCE OF ADEQUATE SUPPORTING EVIDENCE, THE EXPLANATION GIVEN BY THE ASSE SSEE COULD NOT BE ACCEPTED. HE, THEREFORE, REJECTED THE ACCOU NT BOOKS OF THE ASSESSEE UNDER SECTION 145(3) OF THE INCOME-TAX ACT, 196 1 AND HELD THAT IT WOULD BE FAIR AND REASONABLE TO TAKE TH E GROSS PROFIT AT 5.59 PER CENT, WHICH WAS ALSO THE RATE FOR THE PRE CEDING ASSESSMENT YEAR. WHILE ALLOWING THE APPEAL FILED BY THE ASSESSEE, THE COMMISSIONER (APPEALS) NOTED THAT THE ASSESSEE HAD FURNISHED COMPLETE DETAILS INCLUDING COMPARATIVE DETA ILS IN RESPECT OF PURCHASE OF RAW-MATERIALS, AND MANUFACTURE OF COPPER WIRE AS WELL AS IN RESPECT OF SALE DURING THE YEAR IN QUESTION, AS COMPARED TO THE EARLIER YEARS. HE ALSO FELT THAT THE ASSESSEE HAD EXPLAINED THE MARGINAL INCREASE IN THE WEIGHT OF WIR E ALONG WITH SUPPORTING DATA OF THE YEAR IN QUESTION AS WELL AS OF THE PRECEDING YEARS. HE ALSO TOOK NOTE OF THE FACT THAT THE ASSESSEE WAS DULY REGISTERED UNDER THE CENTRAL EXCISE ACT AND WAS MAINTAINING PROPER QUANTITATIVE DETAILS IN THE PRESCR IBED MANNER. HE, THEREFORE, HELD THAT THE ASSESSEE HAD ADOP TED A CONSISTENT AND REGULAR METHOD OF ACCOUNTING AND VALU ATION OF STOCK DURING THE YEAR IN QUESTION AS WAS DONE BY HER IN THE PRECEDING YEARS. HE, ACCORDINGLY, HELD THAT THE ASSESSIN G OFFICER WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT AN D IN APPLYING THE ENHANCED GROSS PROFIT RATIO. THE TRIBUNA L, WHILE REJECTING THE APPEAL FILED BY THE REVENUE, NOTED THAT SINCE NO DEFECTS IN THE ACCOUNT BOOKS WERE POINTED OUT, THE AC COUNTS COULD NOT HAVE BEEN REJECTED AND NO ADDITION COULD HAVE BEEN MADE MERELY ON ACCOUNT OF LOWER PROFIT DECLARED BY THE ASSESSEE. ON FURTHER APPEAL: HELD, DISMISSING THE APPEAL, THAT THE ASSESSING OFFICER HA D NOT POINTED OUT ANY PARTICULAR DEFECT OR DISCREPANCY IN THE ACCOUNT BOOKS MAINTAINED BY THE ASSESSEE. THE ASSESSING OFFICER HAD NO MATERIAL BEFORE HIM TO ACCOUNTS OF THE ASSESSEE AS DEFEC TIVE OR INCOMPLETE. THE ASSESSING OFFICER HAD NO MATERIAL BEFOR E HIM ON THE BASIS OF WHICH IT COULD BE SAID THAT THE WEIGHT OF THE WIRE DID NOT INCREASE EVEN MARGINALLY DURING THE PROCESS OF ENA MELLING. THEREFORE, HE HAD NO JUSTIFICATION IN LAW TO REJECT THE EXPLANATION GIVEN BY THE ASSESSEE IN THIS REGARD. THE FALL IN GROSS PR OFIT RATIO, IN THE ABSENCE OF ANY COGENT REASONS COULD NOT BY ITSEL F BE A GROUND TO HOLD THAT PROPER INCOME OF THE ASSESSEE COULD NOT BE DEDUCED FROM THE ACCOUNTS MAINTAINED BY THE ASSESSEE AND CONSEQUENTLY, COULD NOT HAVE BEEN A GROUND TO REJECT THE ACCOUNTS INVOKING SECTION 145(3) OF THE ACT. THERE WA S NO FINDING THAT THE ACTUAL COST OF THE RAW MATERIAL OR THE ACTUAL COST OF PROCESSING CARRIED OUT PURCHASED BY THE ASSESSEE WAS LE SS THAN WHAT WAS DECLARED IN THE ACCOUNT BOOKS. THERE WAS NO FINDING BY THE ASSESSING OFFICER THAT THE ACTUAL QUANTI TY OF THE FINISHED PRODUCT PRODUCED BY THE ASSESSEE WAS MORE THAN W HAT IT WAS SHOWN IN THE ACCOUNT BOOKS OR THAT THE FINISHED PRODUCT WAS SOLD BY THE ASSESSEE AT A PRICE HIGHER THAN WHAT WAS DECLARED IN THE ACCOUNT BOOKS. IN THESE CIRCUMSTANCES, THE COMMISSIONER (APPEALS) AND THE TRIBUNAL WERE JUSTIFIED IN HOLDING THAT THE ASSESSING OFFICER COULD NOT HAVE INCR EASED THE GROSS PROFIT RATIO MERELY BECAUSE IT WAS LOW AS COMPARE D TO THE GROSS PROFIT RATIO OF THE PRECEDING YEAR. IF THE STOC K REGISTER WAS NOT MAINTAINED BY THE ASSESSEE THAT MAY PUT THE ASSESSING OFFICER ON GUARD AGAINST THE FALSITY OF THE RETURN MA DE BY THE ASSESSEE AND PERSUADE HIM TO CAREFULLY SCRUTINIZE THE ACC OUNT BOOKS OF THE ASSESSEE. BUT THE ABSENCE OF ONE REGISTER AL ONE DID 75 NOT AMOUNT TO SUCH A MATERIAL AS WOULD LEAD TO THE CO NCLUSION THAT THE ACCOUNT BOOKS WERE INCOMPLETE OR INACCURATE . SIMILARLY, A LOW RATE OF GROSS PROFIT, IN THE ABSENCE OF ANY MATE RIAL POINTING TOWARDS FALSEHOOD OF THE ACCOUNT BOOKS, COULD NOT BY I TSELF BE A GROUND TO REJECT THE ACCOUNT BOOKS UNDER SECTION 145( 3) OF THE ACT. WHETHER FALL IN GROSS PROFIT STOOD EXPLAINED BY THE ASSESSEE OR NOT WAS A QUESTION OF FACT. BOTH THE TRIBUNAL AND THE COMMISSIONER (APPEALS) HAVING ACCEPTED THE EXPLANATION GIVEN BY THE ASSESSEE AND THE FINDING OF FACT RECORDED BY THE M HAVING NOT BEEN SHOWN TO BE PERVERSE IN ANY MANNER, NO SUBSTAN TIAL QUESTION OF LAW AROSE TO INTERFERE WITH. 31.2 RELYING ON THE ABOVE DECISION AND IN VIEW OF O UR DISCUSSION IN THE PRECEDING PARAGRAPHS WHILE ADJUDI CATING THE GROUND RELATING TO DELETION OF ESTIMATED PROFIT ON UNACCOUNTED SALES MADE BY THE AO, WE FIND NO INFIRMITY IN THE O RDER OF THE CIT(A) HOLDING THAT THE AO WAS NOT JUSTIFIED IN REJ ECTING THE BOOKS OF ACCOUNTS U/S.145 OF THE I.T. ACT. WE ACCOR DINGLY UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE AND THE GROUN D RAISED BY THE REVENUE ON THIS ISSUE IS DISMISSED. 32. GROUNDS OF APPEAL NO. 6 AND 7 BEING GENERAL IN NATURE ARE DISMISSED. 1910/PN/2012 (A.Y. 2004-05) : 33. GROUND OF APPEAL NO.2 BY THE REVENUE READS AS U NDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) ERRED IN DELETING THE ADDITION ON ACCOUNT OF DISALLO WANCE OF DEPRECIATION AND PETROL OF VEHICLES OF RS.86,54,762/- FOR THE A.Y. 2004-05. 33.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSE SSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED T HAT THE ASSESSEE HAS CLAIMED DEPRECIATION ON 25 VEHICLES AN D A HELICOPTER OWNED BY IT AT RS.80,41,241/-. SIMILARL Y, THE ASSESSEE HAS ALSO DEBITED PETROL EXPENSES TO THE TUNE OF RS. 30,67,608/-. 76 KEEPING IN VIEW THE PERSONAL ELEMENT INVOLVED IN US E OF THESE VEHICLES, THE ASSESSING OFFICER MADE ADHOC DISALLOW ANCE @20% AND DISALLOWED AN AMOUNT OF RS.86,54,762/-. 34. BEFORE THE CIT(A) IT WAS POINTED OUT THAT THE D ISALLOWANCE WAS WRONGLY WORKED OUT AT RS.86,54,762/- AND THE AC TUAL FIGURE SHOULD HAVE BEEN RS.22,21,770/-. RELYING ON THE DE CISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IR ON AND ENGINEERING COMPANY VS. CIT REPORTED IN 253 ITR 749 IT WAS ARGUED THAT IN THE CASE OF A PRIVATE LIMITED COMPAN Y, WHICH IS A DISTINCT ASSESSABLE ENTITY AS PER DEFINITION OF PER SON U/S.2(31), THERE CANNOT BE ANY PERSONAL EXPENDITURE ON ACCOUNT OF DEPRECIATION ON VEHICLES AND PETROL DIESEL EXPENSES . 35. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DELETED THE DISALLOWANCE BY OBSERVING AS UNDER : 52. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT WITH REFERENCE TO THE FACTS OF THE CASE. THE DISALLOWANCE O F DEPRECIATION ON CARS AND DISALLOWANCE OF EXPENDITURE ON PETROL ON EXPECTED PERSONAL USE OF DIRECTORS CANNOT BE TAKEN AS A GROUND F OR MAKING OF SUCH A DISALLOWANCE IN THE CASE OF A COMPANY FOR THE R EASON THAT A LIMITED COMPANY CANNOT HAVE ANY ELEMENT OF PERSONAL USAGE. IF THEY ARE USED BY THE DIRECTORS OR ANY OTHER PERSONS FOR THEI R PERSONAL PURPOSES THEN, THE SAME HAS TO BE INCLUDED AS INCOME OF THE PERSONS USING THE VEHICLE AS A PERQUISITE. DURING THE YE ARS WHEN FBT WAS APPLICABLE, THE PERSONAL USAGE WAS AUTOMATICALL Y TAKEN CARE OF BY WAY OF A SEPARATE TAXATION IN THE HANDS OF THE COMPANY ITSELF. THE APPELLANT HAS RELIED ON THE DECISION GIVEN IN THE CASE OF SAYAJI IRON & ENGG. CO. V. CIT [2002] 121 TAXMAN 43 (GUJ.) = [2002] 253 ITR 749 (GUJ.). THE RELEVANT PORTION OF THE DECISION IS 9.1 THERE IS ONE MORE ASPECT OF THE MATTER WHICH REQU IRES TO BE CONSIDERED. THE ASSESSEE WHICH IS A PRIVATE LIMITED COMPA NY IS A DISTINCT ASSESSABLE ENTITY AS PER DEFINITION OF 'PERSON' U NDER SECTION 2(31) OF THE ACT. THEREFORE, IT CANNOT BE STATED THA T WHEN THE VEHICLES ARE USED BY THE DIRECTORS, 'EVEN IF THEY ARE PERSONALLY USED BY THE DIRECTORS' THE VEHICLES ARE PERSONALLY USED BY T HE COMPANY, BECAUSE A LIMITED COMPANY BY ITS VERY NATURE CANNOT H AVE ANY 'PERSONAL USE'. THE LIMITED COMPANY IS AN INANIMATE PE RSON AND THERE CANNOT BE ANYTHING PERSONAL ABOUT SUCH AN ENTIT Y . THE VIEW 77 THAT WE ARE ADOPTING IS SUPPORTED BY THE PROVISIONS OF SECTION 40(C) AND SECTION 40A(5) OF THE ACT. 53. IN THE CASE OF URMILA & CO. LTD. V. DEPUTY COMMISSIONER OF INCOME-TAX [2012] 20 TAXMANN.COM 324 (MUM.), THE ASSESSING OFFICER DISALLOWED 25 PER CENT OF THE TOTAL CLAIM OF TELEPHONE EXPENSES ON THE GROUND OF PERSONAL USE OF THE TELEPHONE AT THE HOUSE OF THE EXECUTIVES AS WELL AS OTHER PLACES AND MADE ADDITION. IT WAS HELD THAT THE REIMBURSEMENT OF TELEPHONE EXPEN SES BY THE ASSESSEE COULD BE TREATED AS PERQUISITES IN THE HANDS OF TH E RESPECTIVE EXECUTIVES. THEREFORE, THE ADDITION WAS DEL ETED. 54. IN THE CASE OF RAMKISHIN TEXTILES (P.) LTD. V. INCOME-TAX OFFICER [2011] 16 TAXMANN.COM 57 (MUM.) THE COMMISSIONER OF INCOME-TAX (APPEAL) HAD APPROVED THE ADDITIONS MADE BY THE ASSESSIN G OFFICER IN RESPECT OF DISALLOWANCE OF TRANSPORT, OCTROI AND FR EIGHT CHARGES RS. 1,54,276, TELEPHONE EXPENSES RS.29,993 AND MISCELLAN EOUS EXPENSES RS. 46,971. THE PLEA OF THE ASSESSEE IS TO THE EFF ECT THAT NO DISALLOWANCE IS CALLED FOR ON ACCOUNT OF PERSONAL USE O F THESE FACILITIES AS IT IS A CASE OF COMPANY AS HELD IN THE CASE OF SAYAJI IRON & ENGG. CO. V. CIT [2002] 253 ITR 749/121 TAXMAN 43 (GUJ.) WHEREIN, THE DECISION THAT NO DISALLOWANCE ON ACCOUNT OF PERSONAL USE OF THE VEHICLES/TELEPHONE BY THE DIRECTORS/OFFICIA LS COULD BE MADE IN THE HANDS OF A COMPANY WAS UPHELD AND THE AD HOC DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS DELETED. 55. FOLLOWING THE ABOVE DECISIONS THE DISALLOWANCE MA DE ON ACCOUNT OF DEPRECIATION AND PETROL OF VEHICLES IS DEL ETED FOR BOTH THE ASSESSMENT YEARS. 35.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 36. AFTER HEARING BOTH THE SIDES, WE DO NOT FIND AN Y INFIRMITY IN THE ORDER OF THE CIT(A). ADMITTEDLY, THE ASSESS EE IS A PVT. LTD. COMPANY. THE LD.CIT(A) HAS DELETED THE ADHOC DISALLOWANCE MADE BY THE ASSESSING OFFICER BY FOLLO WING THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON AND ENGINEERING COMPANY (SUPRA). SIMILAR VIEW HAS BEEN TAKEN BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CA SE OF URMILA & COMPANY LTD., REPORTED IN 20 TAXMANN.COM 324 AND RAMKISHIN TEXTILES PVT. LTD. VS. ITO REPORTED IN 16 TAXMANN.COM 57 WHICH HAVE BEEN RELIED ON BY THE CIT (A). THE 78 LD. DEPARTMENTAL REPRESENTATIVE COULD NOT DISTINGUI SH ANY OF THE ABOVE DECISIONS RELIED ON BY THE CIT(A). UNDER THE SE CIRCUMSTANCES AND IN ABSENCE OF ANY DISTINGUISHABLE FEATURES BROUGHT ON RECORD BY THE REVENUE, WE DO NOT FIND AN Y INFIRMITY IN THE ORDER OF THE CIT(A) DELETING THE ADHOC DISAL LOWANCE. ACCORDINGLY, WE UPHOLD THE SAME. THE GROUND RAISED BY THE REVENUE IS ACCORDINGLY DISMISSED. 36.1 IDENTICAL GROUND HAS BEEN TAKEN BY THE REVENUE IN A.Y. 2005-06 (GROUND NO.2). FOLLOWING OUR ABOVE REASONI NGS, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 37. GROUND OF APPEAL NO.4 BY THE REVENUE READS AS U NDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) ERRED IN DELETING THE ADDITION OF RS.43,79,015/- FOR THE A.Y. 2004-05 ON UNEXPLAINED INVESTMENT IN CARS. 37.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSE SSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, OBSERV ED FROM THE INVENTORY OF CARS OWNED BY GHODAWAT GROUP THAT SECO ND HAND CARS USED FOR A SPAN OF LESS THAN 6 MONTHS WERE PUR CHASED BY THE ASSESSEE AT ABOUT HALF THE PRICE OF ITS ORIGINAL CO ST. SIMILARLY, IN SOME CASES, THE ASSESSING OFFICER NOTED THAT ONLY 5 0% OF THE COST, AT WHICH SUCH CARS WERE PURCHASED, WAS REFLEC TED IN BOOKS. THE ASSESSING OFFICER REFERRED TO THE STATEMENT REC ORDED DURING ASSESSMENT PROCEEDINGS OF ONE SHRI PONKSHE WHO HAD STATED TO HAVE SOLD THE MARUTI SX4 CAR TO GHODAWAT GROUP AT R S.7 LAKHS WHEREAS THE AMOUNT REFLECTED IN THE BALANCE SHEET W AS RS.3.50 LAKHS ONLY. THE DIFFERENCE COULD NOT BE EXPLAINED BY THE 79 AUTHORISED REPRESENTATIVE. IN ANOTHER GROUP CASE, HE OBSERVED THE ASSESSING OFFICER IN THAT CASE HAS OBSERVED THA T THE ASSESSEE HAD PURCHASED ONE MERCEDEZ S-CLASS CAR BEARING NO. MD-11- M55 FROM SHRI SUNIL RAMANLAL SHAH, AN LIC AGENT FOR RS.31 LAKHS WHICH WAS PURCHASED BY SRI SHAH AT RS.56,29,0 15/-. SIMILAR INSTANCES WERE THERE IN RESPECT OF CARS PUR CHASED FROM M/S.S.F. CHOUGULE, SANGLI AND SHRI H.T. TAMBOLI, SA TARA. BASED ON THE ABOVE OBSERVATIONS, THE ASSESSING OFFICER MA DE ADDITION OF RS.43,79,019/- FOR A.Y. 2004-05 (AND AN AMOUNT O F RS.15 LAKHS FOR A.Y. 2005-06). 38. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE ADD ITION MADE WAS ON THE BASIS OF PRESUMPTIONS AND SURMISES. THE ASSESSING OFFICER HAD NOT CONSIDERED THE WEAR AND TEAR OF THE SECOND HAND CARS. HE HAS NOT CONSIDERED THE WRITTEN DOWN VALUE OF THE VEHICLES SHOWN IN THE BOOKS OF THE OTHER PERSONS ON THE DATE OF SALE. IT WAS SUBMITTED THAT THE ASSESSING OFFICER HAD NOT BROUGHT ON RECORD THE DATE OF PURCHASE OF OTHER CARS AND TH EIR PURCHASE PRICE. RELYING ON THE DECISION OF THE HONBLE SUPR EME COURT IN THE CASE OF DHAKESHWARI COTTON MILLS VS. CIT REPORT ED IN 26 ITR 775 IT WAS ARGUED THAT THE ASSESSING OFFICER IS NOT ENTITLED TO MAKE PURE GUESS AND MAKE AN ASSESSMENT WITHOUT REFE RENCE TO ANY EVIDENCE OR ANY MATERIAL AT ALL. 39. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DELETED THE ADDITION FOR BOTH THE YEARS. WHILE DOING SO, HE NOTED THAT THE ASSESSING OFFICER CAME TO THE CONCLUSION 80 DRAWN BY THE INVESTIGATION WING WHEREIN THE MODUS O PERANDI BY THE ASSESSEE IS TO ASK OTHER PERSONS TO PURCHASE TH E VEHICLES THAT HE WANTS AND THEN TRANSFER THE SAME IN HIS OWN NAME AT A LATER DATE ABOUT HALF THE PRICE OF THE ORIGINAL COST. AC CORDING TO THE ASSESSING OFFICER THESE PURCHASES ARE EFFECTED IN A SHORT SPAN OF TIME FROM THE TIME OF ORIGINAL PURCHASE. SO FAR AS THE 4 INSTANCES GIVEN BY THE ASSESSING OFFICER ARE CONCERNED, THE L D.CIT(A) NOTED THAT THE ASSESSING OFFICER HAS NOT EXAMINED A NY OF THE SELLERS AND HE HAS SIMPLY RELIED ON THE CONCLUSION DRAWN BY THE INVESTIGATION WING. SO FAR AS THE STATEMENT RECORD ED FROM MR. PONKSHE IS CONCERNED HE NOTED THAT THE VEHICLE WAS PURCHASED IN THE F.Y. 2007-08 (18-09-2007) AND THEREFORE THE FIN DING SHOULD BE RELEVANT FOR THE A.Y. 2008-09. THE ASSESSING OF FICER HAS NOT GIVEN ANY OPPORTUNITY OF CROSS EXAMINATION TO THE A SSESSEE. HOWEVER, HE NOTED THAT THE ASSESSEE HAS ALSO NOT DE MANDED AN OPPORTUNITY OF CROSS EXAMINATION IN ASSESSMENT STAG E. SO FAR AS THE PURCHASE OF S-CLASS MERCEDEZ CAR, JAGAUR AND LA ND CRUISER ARE CONCERNED, HE NOTED THAT THE VEHICLES WERE PURC HASED AFTER TWO YEARS FROM THE ORIGINAL SALE. HE OBSERVED THAT COST OF VEHICLES UNDERGO SUBSTANTIAL EROSION WITHIN A COU PLE OF YEARS OF PURCHASE ESPECIALLY IN LUXURY SEGMENT. THEREFORE, I T WOULD BE UNFAIR TO SAY THAT THE ASSESSEE HAS PAID EQUIVALENT AMOUNT IN CASH FOR PURCHASE OF THE SECOND HAND VEHICLES. RELYING ON VARIOUS DECISIONS INCLUDING THE DECISION OF THE HONBLE SUP REME COURT IN THE CASE OF SALES TAX VS. H.M. ESUFALI H.M. ABDULAL I REPORTED IN 90 ITR 271 AND THE DECISION OF THE HONBLE BOMBAY H IGH COURT 81 IN THE CASE OF CIT VS. M.K. MEMON REPORTED IN 248 I TR 310 HE DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. WHILE DOING SO, HE FURTHER NOTED THAT THERE IS NO BASIS FOR MAK ING THE IMPUGNED ADDITIONS EXCEPT IN THE CASE OF CAR PURCHA SED FROM MR. VIKRAM PONKSHE WHO HAD STATED THAT HE RECEIVED TWIC E THE AMOUNT OF MONEY THAN WHAT WAS RECEIVED BY HIM IN CH EQUE. THERE WAS NO OTHER EVIDENCE APART FROM THE ORAL EVI DENCE GIVEN BY SOME SELLERS THAT THE ASSESSEE HAD PAID ANYTHING OVER AND ABOVE THE AMOUNTS SHOWN IN THE BOOKS OF ACCOUNTS. THERE WAS NO MATERIAL BEFORE THE ASSESSING OFFICER EXCEPT ORA L EVIDENCE OF ONE SELLER TO COME TO THE CONCLUSION THAT ASSESSEE HAD PAID TWICE THE AMOUNT OF REGISTRATION VALUE TO PURCHASE THE OT HER VEHICLES. HE ACCORDINGLY, DELETED THE ADDITION. 39.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 40. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BY BOTH THE SIDES. WE FIND IN THE INSTANT CASE THE AO MADE ADDITION OF RS.43,7 9,015/- ON THE GROUND THAT THE ASSESSEE USED TO BUY VEHICLES FROM DIFFERENT PERSONS BY PAYING 50% OVER AND ABOVE THE PURCHASE P RICE SHOWN IN ITS BOOKS OF ACCOUNT. FOR THIS PURPOSE, HE REFE RRED TO THE STATEMENT OF ONE MR. PONKSHE WHO HAS STATED TO HAVE SOLD ONE MARUTI SX4 CAR TO GHODAWAT GROUP AT RS.7 LAKHS WHER EAS THE 82 AMOUNT REFLECTED IN THE BALANCE SHEET WAS RS.3.50 L AKHS ONLY. HE HAD ALSO GIVEN AN EXAMPLE TOWARDS PURCHASE OF ONE M ERCEDEZ S- CLASS CAR TO MR. SUNIL RAMANLAL SHAH, A LIC AGENT W HICH WAS PURCHASED BY SHRI SHAH AT RS.56,29,015/- BUT SOLD T O THE ASSESSEE AT RS.31 LAKHS. HE HAD ALSO GIVEN EXAMPLES IN RES PECT OF CARS PURCHASED FROM SHRI S.F. CHOUGULE, SANGLI AND SHRI H.T. TAMBOLI, SATARA. THE AO ACCORDINGLY MADE ADDITION OF RS.43,79,015/- ON ACCOUNT OF UNACCOUNTED INVESTMENT IN CARS FOR THE IMPUGNED ASSESSMENT YEAR (UNDER IDENTICAL CIRCU MSTANCES THE AO MADE ADDITION OF RS.15 LAKHS DURING A.Y. 2005-06 ). WE FIND IN APPEAL THE LD.CIT(A) DELETED THE ADDITION M ADE BY THE AO ON ACCOUNT OF EXCESS MONEY PAID TOWARDS PURCHASE OF CARS ON THE GROUND THAT THE AO HAS NOT EXAMINED ANY OF T HE SELLERS AND HE HAS ONLY RELIED UPON CONCLUSIONS DRAWN BY TH E INVESTIGATION WING. HE FURTHER NOTED THAT THE VEHI CLE WAS PURCHASED FROM MR. PONKSHE DURING F.Y. 2007-08, THE REFORE, THE SAME IS RELEVANT FOR MAKING ADDITION IN A.Y. 2008-0 9 AND NO ADDITION COULD HAVE BEEN MADE DURING THE IMPUGNED A SSESSMENT YEAR. SIMILARLY, HE OBSERVED THAT THE PURCHASE OF S-CLASS MERCEDEZ BENZ CAR, JAGAUR, AND LANCER CRUISER ETC. THE VEHICLES WERE PURCHASED BY THE GROUP CONCERNS AFTER 2 YEARS FROM THE ORIGINAL SALE. ACCORDING TO HIM, THE VEHICLES UNDE RGO SUBSTANTIAL EROSION WITHIN A COUPLE OF YEARS OF PURCHASE ESPECI ALLY IN LUXURY SEGMENT. THEREFORE, IT CANNOT BE SAID THAT THE SEL LER WILL SELL AT THE SAME PRICE AT WHICH HE HAS PURCHASED THE VEHICL E. SINCE NOTHING HAS BEEN BROUGHT ON RECORD BY THE AO THAT T HE ASSESSEE 83 HAS PAID ANY EXTRA MONEY OVER AND ABOVE THE AGREED PRICE, THEREFORE, WE FIND NO INFIRMITY IN THE WELL REASONE D ORDER OF THE CIT(A) DELETING THE ADDITION. 40.1 IT HAS BEEN HELD IN VARIOUS DECISIONS THAT PRE SUMPTIONS AND SURMISES, HOWEVER STRONG MAY BE, CANNOT BE THE BASI S FOR ADDITION IN ABSENCE OF ANY CORROBORATIVE EVIDENCE. THERE IS NOTHING ON RECORD TO SHOW THAT DURING THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAS PAID ANY EXTRA MONEY OVER AND ABOVE THE PURCHASE PRICE AS RECORDED IN THE BOOKS OF ACCOUNTS . NONE OF THE SELLERS WAS EXAMINED BY THE AO. THE AO HAS NOT BRO UGHT ON RECORD THE DATE OF ORIGINAL PURCHASE PRICE BY THE S ELLERS, DATE OF PURCHASE BY THEM, DATE OF SALE TO THE ASSESSEE ETC. IT IS WELL KNOWN THAT THE PRICE OF VEHICLE DECREASES AFTER IT IS PURCHASED AND USED FOR SOME TIME AND THE VALUE NEVER REMAINS CONS TANT OR INCREASE. IT ONLY DECREASES. IN VIEW OF THE ABOVE AND CONSIDERING THE DETAILED ORDER OF THE CIT(A) WHICH IN OUR OPINION IS A REASONED ONE, WE FIND NO INFIRMITY IN THE SAME. ACCORDINGLY, THE SAME IS UPHELD AND THE GROUND RAIS ED BY THE REVENUE IS DISMISSED. 40.2 IDENTICAL GROUND HAS BEEN TAKEN BY THE REVENUE IN A.Y. 2005-06. FOLLOWING OUR ABOVE REASONING, THE GROUND RAISED BY THE REVENUE FOR A.Y. 2005-06 ON THIS ISSUE IS ALSO DISMISSED. 84 1913/PN/2012 (A.Y. 2007-08) : 41. GROUND OF APPEAL NO.3 BY THE REVENUE READS AS U NDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) ERRED IN ADOPTING THE EXPENDITURE OVER GROSS RECEIPT OF AGRICULTURAL INCOME AT 32% FOR A.Y. 2007-08 AS AGAIN ST 45% TAKEN FOR A.Y. 2006-07 OF RS.1,00,45,781/-. 41.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSE SSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVE D THAT THE ASSESSEE COMPANY HAS AN AGRICULTURAL DIVISION. HE OBSERVED THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATI ON HAS SHOWN GROSS AGRICULTURAL RECEIPT OF RS.5,33,69,815/- AND AFTER CLAIMING EXPENSES OF RS.1,70,85,615/- HAS DECLARED NET AGRIC ULTURAL INCOME AT RS.3,62,84,200/-. HE NOTED THAT THE PERC ENTAGE OF EXPENDITURE OVER GROSS RECEIPTS COMES TO 32% WHEREA S THE PERCENTAGE OF NET AGRICULTURAL INCOME SHOWN OVER GR OSS RECEIPTS WORKED OUT TO 79.03%. HE OBSERVED THAT THE RATIO O F EXPENDITURE OVER GROSS RECEIPT IS A LITTLE BETTER THAN THE EARL IER YEARS WHERE NET INCOME WAS SHOWN AT 83.67% OVER GROSS RECEIPTS IN T HE IMMEDIATELY PRECEDING YEAR AND 87% IN AY. 2004-05. INSPITE OF THE ABOVE FACT HE OBSERVED THAT THE EXPENDITURE SHO WN APPEARS TO BE VERY LOW SO FAR AS THE CLAIM OF ASSESSEE THAT BE TTER QUALITY CROP IS TAKEN. AFTER ANALYSING THE FIGURES FOR PAST YEA RS AND FOLLOWING HIS ORDER FOR A.Y. 2006-07 WHEREIN THE ISSUE WAS DE CIDED BY TAKING THE EXPENDITURE OVER GROSS RECEIPTS AT 45%, WHICH WAS ACCEPTED BY THE ASSESSEE, THE AO MADE ADDITION OF RS.1,00,45,781/-, THE COMPUTATION OF WHICH WAS AS U NDER : 85 GROSS AGRI RECEIPT SHOWN RS.5,33,69,815/- EXPENSES @45% RS.2,40,16,417/- NET AGRICULTURAL INCOME RS.2,93,53,398/- NET AGRICULTURAL INCOME SHOWN BY ASSESSEE RS.3,93,99,179/- HE ACCORDINGLY MADE ADDITION OF RS.1,00,45,781/- BE ING THE DIFFERENCE AS INCOME FROM OTHER SOURCES. 42. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE ADD ITION WAS MADE BY THE ASSESSING OFFICER WITHOUT ANY BASIS. I T WAS ARGUED THAT ACCEPTANCE OF EXPENDITURE DETERMINED IN A.Y. 2 006-07 CANNOT BE THE BASIS FOR MAKING A SIMILAR ADDITION I N THE SUBSEQUENT YEAR. WITHOUT PREJUDICE IT WAS ARGUED T HAT THE ADDITION MADE AT RS.1,00,45,781/- WAS ERRONEOUSLY T AKEN AND THE CORRECT FIGURE WOULD BE RS.69,30,802/- AS PER THE B ODY OF THE ASSESSMENT ORDER ITSELF. 43. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) GRANTED RELIEF OF RS.31,14,979/- AND SUST AINED ADDITION OF RS.69,30,802/- BY OBSERVING AS UNDER : 83. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT WITH REFERENCE TO THE FACTS OF THE CASE. THE APPELLANT HA S MERELY RAISED THIS ISSUE WITHOUT INDICATING AS TO WHY AND WITH OUT PROVIDING ANY EVIDENCE IN SUPPORT OF THE EXPENSE CLAI MED @ 32% WITH REFERENCE TO CROPS GROWN, USAGE OF LABOURERS , PURCHASE OF PESTICIDES, SEEDS, FERTILIZERS, LAND CESS, WATE R AND ELECTRICITY CONSUMPTION ETC. CONSIDERING THESE FACTS, I HOLD THAT THE DISALLOWANCE ACCEPTED IN EARLIER YEARS HOLD GOOD FOR THE CURRENT YEAR AS WELL. HOWEVER, AS STATED BY THE APPELL ANT, THE ADDITION SHOULD BE OF RS.69,30,802/- ONLY. APPELLANT GETS A RELIEF OF RS. 31,14,979/-. 43.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 86 44. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. WE FIND THE AO IN THE VERY FIRST PARAGRAPH HAS STATED THAT THE AGRICULTURAL INCOME SHOWN BY THE ASSESSEE IS RS .3,93,99,179/. HOWEVER, AT PARA 15 OF THE ORDER HE HAS STATED THE AGRICULTURAL INCOME DECLARED BY THE ASSESSEE AT RS.3,62,84,200/- . WE FIND ALTHOUGH THE LD.CIT(A) ACCEPTED THE REASONING GIVEN BY THE AO, HE HOWEVER ACCEPTED THE CONTENTION OF THE ASSESSEE THAT THERE IS SOME ARITHMETICAL INACCURACY. SINCE THERE IS SOME VARIATION IN THE AGRICULTURAL INCOME MENTIONED BY THE AO IN THE BODY OF THE ASSESSMENT ORDER, THEREFORE, WE RESTORE THIS ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO VERIFY THE FIGURES AND PASS APPROPRIATE ORDER. THE GROUND RAISED BY THE REVENUE IS ACCORDI NGLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1915/PN/2012 (A.Y. 2009-10) : 45. GROUND OF APPEAL NO.3 BY THE REVENUE READS AS U NDER : 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE CIT(A) ERRED IN DELETING THE FACTUAL ADDITIONS OF RS. 7,37,685/- FOR THE A.Y. 2009-10 MADE BY THE AO WITH REGARD TO SILVE R COINS. 45.1 FACTS OF THE CASE, IN BRIEF, ARE THAT DURING T HE COURSE OF SEARCH SILVER COINS VALUED AT RS.73,76,853/- WERE F OUND. IN ABSENCE OF ANY EXPLANATION FOR THE SOURCE OF THE IN VESTMENT, THE AO MADE ADDITION OF THE SAME. 46. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE ASS ESSEE HAD PURCHASED 66 KGS OF SILVER FROM HUNDIA EXPORTS VIDE BILL DATED 10-12-2008 FOR RS.11 LAKHS WHICH WAS MANUFACTURED I NTO COINS BY SAGAR TRADERS FOR RS.13,282/-. IT WAS ARGUED TH AT THESE BILLS 87 WERE DEBITED TO ADVERTISEMENT ACCOUNT AND THAT THE COINS WERE GIVEN TO DISTRIBUTORS ON ACHIEVING SALES TARGET. T HE ASSESSEE ALSO PRODUCED COPIES OF LEDGER ACCOUNTS AND BILLS FOR TH E SAME AND SUBMITTED THAT THE AO HAD NOT CONFRONTED THE ASSESS EE WITH THIS ISSUE AT THE ASSESSMENT STAGE, OTHERWISE THE ASSESS EE COULD HAVE PRODUCED THE DOCUMENTS. IT WAS FURTHER ARGUED THAT NO SEIZURE WAS MADE OF THE SILVER COINS. 47. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DELETED THE ADDITION HOLDING THAT THE SIL VER COINS STAND FULLY EXPLAINED IN THE BOOKS OF ACCOUNT. HE ACCORD INGLY DELETED THE ADDITION. 47.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 48. AFTER HEARING BOTH THE SIDES WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). THE ASSESSEE HAS PRODUCED THE BILL DATED 10-12-2008 FOR PURCHASE OF 66 KGS OF SILVER FROM HU NDIA EXPORTS AMOUNTING TO RS.11 LAKHS. THE COPIES OF THE LEDGER ACCOUNT WERE ALSO PRODUCED BEFORE THE CIT(A). IT IS THE SETTLED PROPOSITION OF LAW THAT THE POWERS OF THE CIT(A) ARE CO-TERMINUS W ITH THAT OF THE POWER OF THE ASSESSING OFFICER. HE CAN DO ANYTH ING WHICH THE ASSESSING OFFICER HAS FAILED TO DO. FROM THE C OPY OF THE ASSESSMENT ORDER, WE FIND THE ORDER OF THE AO IS SI LENT REGARDING AS TO WHAT TYPE OF QUERIES WERE ASKED TO THE ASSESS EE. THE AO SIMPLY HAS MENTIONED IN THE BODY OF THE ASSESSMENT ORDER THAT ASSESSEE HAS NOT GIVEN ANY EXPLANATION WITH REGARD TO SOURCE OF 88 INVESTMENT OF SILVER COINS FOUND AT THE BUSINESS PR EMISES. IT IS ALSO A FACT THAT NO SUCH SEIZURE WAS MADE OF THE SI LVER COINS. SINCE THE LEDGER ACCOUNT CONTAINS THE PURCHASE OF S ILVER AS WELL AS THE BILL FOR MANUFACTURING OF THE SAME INTO COIN S AND THAT THOSE BILLS WERE DEBITED TO ADVERTISEMENT ACCOUNT, THEREF ORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) DELET ING THE ABOVE ADDITION AFTER DUE VERIFICATION OF THE SAME. GROUN D RAISED THE REVENUE IS ACCORDINGLY DISMISSED. 49. IN THE RESULT, THE APPEALS FILED BY THE REVENUE AND COS AS WELL AS APPEAL FILED BY THE ASSESSEE ARE DECIDED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON 12-09-2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: 12 TH SEPTEMBER, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A), KOLHAPUR 4. THE CIT, KOLHAPUR 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE