M/s South Malabar Steels & Alloys (P) Ltd, Thrissur V. DCIT, Thrissur

ITA 201/COCH/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64978 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 13-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 16-03-2011
• Court: TRIBUNAL
• Department Lawyers: A S BINDHU
• Assessee Lawyers: T M SREEDHARAN
• Keywords: Unexplained cash credit; Gift; Business income; Income from undisclosed sources; Principle of natural justice; Source of fund; Accommodation entries; Block assessment
• Section: 133A; 153A; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NOS. 197-202/COCH/2011 ASSESSMENT YEARS: 2003-04 TO 2008-09 SOUTH MALABAR STEELS & ALLOYS PVT. LTD., KALLADIPATTA, PATTAMBI, PALAKKAD. [PAN: AAFCS 8265F] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, THRISSUR. (ASSESSEE- APPELLANT) (REVENUE-RES PONDENT) I.T.A NOS. 234-239/COCH/2011 ASSESSMENT YEARS: 2003-04 TO 2008-09 THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, THRISSUR. VS. SOUTH MALABAR STEELS & ALLOYS PVT. LTD., KALLADIPATTA, PATTAMBI, PALAKKAD. [PAN: AAFCS 8265F] (REVENUE-APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI T.M. SREEDHARAN, SR. ADV. REVENUE BY MS. A.S. BINDHU, SR. DR DATE OF HEARING 14/09/2012 DATE OF PRONOUNCEMENT 30/11/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER S PASSED BY LD CIT(A)-I, KOCHI AND THEY RELATE TO THE ASSESSMENT YEARS 2003-04 TO 2008-09. SINCE THE ISSUES URGED IN THESE APPEALS ARE ARISING OUT OF COMMON SET OF FACT S, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAK E OF CONVENIENCE. I.T.A. NOS. 197-202 & 234-239/COCH/2011 2 2. THE ASSESSEE HEREIN IS ENGAGED IN MANUFACTUR E AND SALE OF STEEL INGOTS AND MS PRODUCTS. THE DEPARTMENT CARRIED OUT SEARCH AND SE IZURE OPERATIONS IN THE HANDS OF ITS MANAGING DIRECTOR NAMED SHRI K.P.UMMER AND ALSO IN THE HANDS OF ITS DIRECTOR NAMED SMT. NAZIA UMMER ON 06-09-2007. CONSEQUENTLY, A SU RVEY OPERATION U/S 133A OF THE ACT WAS CONDUCTED IN THE BUSINESS PREMISES OF THE A SSESSEE HEREIN. IT IS PERTINENT TO NOTE THAT BOTH THE MANAGING DIRECTOR AND THE DIRECT OR ARE RUNNING STEEL UNITS IN THEIR INDIVIDUAL CAPACITIES ALSO. CONSEQUENT TO THE SEAR CH OPERATIONS CARRIED IN THE HANDS OF ITS MANAGING DIRECTOR, THE AO INITIATED ASSESSMENT PROCEEDINGS U/S 153C OF THE ACT IN THE HANDS OF THE ASSESSEE COMPANY HEREIN FOR THE YE ARS UNDER CONSIDERATION. WHILE COMPLETING THE SAID ASSESSMENT, THE AO MADE ADDITIO NS IN BUSINESS INCOME ON ACCOUNT OF SUPPRESSION OF SALES FOR ALL THE YEARS UNDER CON SIDERATION AND ALSO MADE ADDITIONS U/S 68 OF THE ACT IN SOME OF THE YEARS. THE ASSESS EE CHALLENGED THE VALIDITY OF INITIATION OF PROCEEDINGS U/S 153C OF THE ACT AND ALSO THE VAR IOUS ADDITIONS MADE BY FILING APPEAL BEFORE LD CIT(A), BUT COULD GET ONLY PARTIAL RELIEF . WHILE GRANTING RELIEF, THE LD CIT(A) SUBSTANTIALLY REDUCED THE ADDITIONS BY CHANGING THE METHOD OF COMPUTATION OF SUPPRESSED BUSINESS INCOME. AGGRIEVED BY HIS ORDER , BOTH THE PARTIES ARE IN APPEAL BEFORE US CHALLENGING THE ORDER OF FIRST APPELLATE AUTHORITY ON THE POINTS DECIDED BY HIM AGAINST EACH OF THEM. 3. WE SHALL FIRST TAKE UP THE APPEALS FILED BY THE ASSESSEE. THE GROUNDS RAISED BY THE ASSESSEE RELATE TO THE FOLLOWING ISSUES:- (A) VALIDITY OF INITIATION OF PROCEEDINGS U/S 153 C OF THE ACT. (B) VIOLATION OF PRINCIPLES OF NATURAL JUSTICE IN NOT CONFRONTING THE DOCUMENTS OBTAINED FROM THIRD PARTIES. (C) VALIDITY OF ADDITIONS MADE IN THE ASSESSMENTS . 4. THE FIRST ISSUE CONTESTED BY THE ASSESSEE RE LATES TO THE VALIDITY OF INITIATION OF PROCEEDINGS U/S 153C OF THE ACT ON THE GROUND THAT THE DEPARTMENT DID NOT UNEARTH ANY INCRIMINATING MATERIAL BELONGING TO THE ASSESSEE DU RING THE COURSE OF SEARCH CONDUCTED IN THE HANDS OF ITS MANAGING DIRECTOR/DIRECTOR. TH E LD A.R SUBMITTED THAT THE TAX AUTHORITIES HAVE PLACED RELIANCE ONLY ON THE STATEM ENT GIVEN BY THE MANAGING DIRECTOR I.T.A. NOS. 197-202 & 234-239/COCH/2011 3 OF THE COMPANY, SHRI K.P. UMMER, U/S 132(4) OF THE ACT DURING THE COURSE OF SEARCH CONDUCTED ON 06-09-2007, WHEREIN HE HAD STATED ABOU T THE SUPPRESSION OF SALES. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS RETRACTED H IS STATEMENT BY FILING A LETTER ON 10- 09-2007 AND HENCE THE SAID STATEMENT SHALL NOT HAVE ANY EVIDENTIARY VALUE. 5. ON THE CONTRARY, THE LD D.R SUBMITTED THAT T HE STATEMENT GIVEN U/S 132(4) IS ALSO PERMITTED TO BE USED IN EVIDENCE AND HENCE THE AVER MENT MADE THEREIN SHOULD BE CONSIDERED AS TRUE UNLESS THERE IS CONTRA EVIDENCE TO DISPEL SUCH ASSUMPTION. FOR THIS PROPOSITION, SHE PLACED RELIANCE ON THE DECISION OF HONBLE JURISDICTIONAL KERALA HIGH COURT IN THE CASE OF CIT VS. O. ABDUL RAZAK (2012)( 68 DTR (KER) 237). FURTHER, BY PLACING RELIANCE ON THE DECISION OF THE SAME JURISD ICTIONAL HIGH COURT IN THE CASE OF CIT VS. KAMADHENU MILK PRODUCTS & ANR (2012)(71 DTR (K ER) 91), THE LD D.R SUBMITTED THAT THE PRESUMPTION GOES STRONGER AGAINST THE ASSE SSEE IF THE STATEMENT MADE U/S 132(4) CAN BE CORROBORATED WITH THE DOCUMENTS SEIZE D DURING THE COURSE OF SEARCH. LD D.R SUBMITTED THAT THE ASSESSEE HAS GIVEN A CLEAR C UT STATEMENT U/S 132(4) THAT THERE WAS SUPPRESSION OF PURCHASE AND SALES IN ALL THE ES TABLISHMENTS RUN BY HIM. THE LD D.R FURTHER SUBMITTED THAT THE DEPARTMENT SEIZED CE RTAIN DOCUMENTS BELONGING TO THE ASSESSEE COMPANY DURING THE COURSE OF SEARCH CONDUC TED IN THE HANDS OF THE DIRECTORS OF THE ASSESSEE COMPANY AND THEY HAVE BEEN MARKED A S OPA 19 AND OPA 26. ACCORDINGLY, LD D.R CONTENDED THAT IT IS NOT CORREC T TO SAY THAT THE PROCEEDINGS U/S 153C OF THE ACT WAS INITIATED ONLY ON THE BASIS OF SWORN STATEMENT. 6. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. IT IS AN UNDISPUTED FACT THAT THE MANAGING DIRECTOR OF THE ASSESSEE COMPANY, I.E. SHRI K.P.UMMER HAS CONFESSED ABOUT THE SUPPRESSION OF PURCHASES AND SALES IN THE SWORN STATEMENT TAKEN U/S 132(4) OF THE ACT. THE RELEVANT QUESTION AND ANSWERS ARE EXTRACTED BELOW:- Q. NO.13 - HAVE YOU PROPERLY MAINTAINED ACCOUNTS RELATING TO SCRAP PURCHASES, FINISHED GOODS, SALES ETC OF YOUR ESTABLISHMENTS. ANS.:- IN SCRAP PURCHASE 90% IS IMPORTED SCRAP AND SPONGE IRON. DETAILS OF ITS PURCHASES HAVE BEEN PROPERLY ACCOUNTED. 10% INCLUDE S LOCAL PURCHASE. 90% OF I.T.A. NOS. 197-202 & 234-239/COCH/2011 4 THE LOCAL PURCHASE HAS BEEN ACCOUNTED. 10% OF LOCAL PURCHASE HAS NOT BEEN ACCOUNTED. 8% OF THE SALES ALSO HAS NOT BEEN ACCOUN TED. Q. NO.14 - YOU HAVE SAID IN YOUR EARLIER QUESTION THAT 8% OF THE SALES HAVE NOT BEEN ACCOUNTED. WHAT DID YOU DO WITH THE PROFIT SO OBTAINED FROM THE SALES. ANS.:- MONEY OBTAINED FROM SUCH UNACCOUNTED SALES HAVE BEEN UTILISED FOR PURCHASING PROPERTY IN MY NAME AND ALSO FOR THE HOU SE WHICH IS UNDER CONSTRUCTION. THESE QUESTIONS AND ANSWERS GIVEN BY THE MANAGING D IRECTOR CLEARLY INDICATE THAT THERE WAS SUPPRESSION OF PURCHASES AND SALES IN ALL THE ESTABLISHMENTS UNDER HIS CONTROL , INCLUDING THE ASSESSEE COMPANY HEREIN, WHICH IS UND ER HIS CONTROL. BESIDES THE ABOVE, THE LD D.R HAS STATED THAT THE DEPARTMENT HAS SEIZE D TWO DOCUMENTS BELONGING TO THE ASSESSEE COMPANY DURING THE COURSE OF SEARCH, VIZ., OPA -19, WHICH CONTAINED DETAILS OF PURCHASE OF 7.46 ACRES OF LAND AND ANOTHER ONE N UMBERED AS OPA-36, WHICH CONTAINED DETAILS OF SALE OF RUBBER BY THE ASSESSEE COMPANY. HENCE, IT CANNOT BE SAID THAT THE AO HAS INITIATED THE PROCEEDINGS U/S 153C OF THE ACT ON THE BASIS OF SWORN STATEMENT ONLY. THE LD A.R HAS STATED THAT THE ASS ESSEE HAS RETRACTED FROM THE STATEMENT BY FILING A LETTER ON 10.09.2007. WE HAV E GONE THROUGH THE SAID LETTER, WHEREIN THE ASSESSEE HAS STATED AS UNDER IN PARAGRA PH 3:- IT IS SUBMITTED THAT, I HAVE FULLY CO-OPERATED WIT H THE DEPARTMENT THROUGHOUT THE SEARCH AND HAVE MADE AVAILABLE ALL THE RECORDS AVAILABLE WITH ME. YOUR GOODSELF HAVE TAKEN DOWN STATEMENTS WITHOUT VERIFIC ATION OF RECORDS. I HAVE NOT BEEN ABLE TO VERIFY THE RECORDS IN ORDER TO FURNISH THE CORRECT FACTS. WHATEVER WAS STATED WAS WITHOUT HAVING VERIFIED THE RELEVANT RECORDS. HOWEVER, THE CORRECT FIGURES CAN BE FURNISHED ONLY AFTER VERIFIC ATION OF THE RECORDS AND DOCUMENTS FOR WHICH AN OPPORTUNITY MAY BE GIVEN. I N THIS CONNECTION, YOU MAY KINDLY BE PLEASED TO FURNISH TO ME A COPY OF THE ST ATEMENTS RECORDED FOR ME SO THAT THE MATTERS CAN BE CLARIFIED NOW ITSELF. A CAREFUL READING OF THE ABOVE PARAGRAPH WOULD SHOW THAT THE ASSESSEE, IN FACT, DID NOT RETRACT FROM THE STATEMENT GIVEN BY HIM IN THE SWOR N STATEMENT. WHAT IS STATED IS A GENERAL STATEMENT THAT THE CORRECT POSITION OF FACT S SHALL BE KNOWN ON VERIFICATION OF VARIOUS RECORDS. HENCE, IT CANNOT BE SAID THAT THE ASSESSEE HAS RETRACTED FROM THE STATEMENT GIVEN BY HIM U/S 132(4) OF THE ACT. MORE OVER, THE DETAILS OF SUPPRESSION OF I.T.A. NOS. 197-202 & 234-239/COCH/2011 5 PURCHASES OR SALES ARE WITHIN THE PERSONAL KNOWLEDG E OF THE PERSONS CONTROLLING THE BUSINESS OPERATIONS AND HENCE THE SWORN STATEMENTS GIVEN IN THIS REGARD, IN OUR VIEW, CANNOT BE DISCOUNTED WITH SO EASILY. ACCORDINGLY, WE ARE OF THE VIEW THAT THE AO WAS RIGHT IN LAW IN INITIATING PROCEEDINGS U/S 153C OF THE ACT IN THE HANDS OF THE ASSESSEE COMPANY HEREIN. 7. THE SECOND ISSUE RELATES TO THE CLAIM OF VIO LATION OF PRINCIPLES OF NATURAL JUSTICE BY NOT CONFRONTING THE DOCUMENTS OBTAINED BY THE AO FR OM THE THIRD PARTIES. IT IS NOTICED THAT THE AO PRIMARILY RELIED UPON CERTAIN DOCUMENTS OBTAINED THOUGH THE COMMERCIAL TAXES DEPARTMENT, I.E., THE REPORT OF KSIDC ABOUT T HE STEEL INDUSTRY, FOR ARRIVING AT THE SUPPRESSED BUSINESS INCOME. FROM THE ASSESSMENT OR DER, IT IS NOT CLEAR AS TO WHETHER THOSE DOCUMENTS WERE CONFRONTED WITH THE ASSESSEE O R NOT. HOWEVER, WE NOTICE THAT THE ASSESSEE HAS GIVEN ITS VIEW ON THOSE DOCUMENTS IN THE NOTES FILED BEFORE THE LD CIT(A) AND THE FIRST APPELLATE AUTHORITY HAS ALSO D ULY CONSIDERED THEM WHILE FRAMING HIS ORDER. HENCE, THE VIOLATION OF NATURAL JUSTICE AT THE LEVEL OF THE AO, IF ANY, HAS BEEN MADE GOOD AT THE LEVEL OF LD CIT(A). THIS IS CLEA R FROM THE FOLLOWING OBSERVATIONS MADE BY LD CIT(A). 11. I HAVE CAREFULLY CONSIDERED THE RELEVANT FACT S AND PROVISIONS OF LAW WITH REGARD TO THE ISSUE INVOLVED. I FIND THAT ASSESSIN G OFFICER HAS MADE SUBSTANTIAL ADDITION RELYING ON INFORMATION GATHERED BY COMMER CIAL TAXES AUTHORITIES FROM KSIDC LTD. THE INFORMATION SO RELIED UPON BY THE ASSESSING OFFICER WAS APPARENTLY NOT MADE AVAILABLE TO THE APPELLANT BEF ORE USING THE SAME AGAINST THE APPELLANT BEFORE DRAWING AN ADVERSE INFERENCE. TH IS IS EVIDENT FROM THE FACT THAT THE ASSESSMENT ORDER IS TOTALLY SILENT WITH REGARD TO ARGUMENTS PUT FORTH BY THE APPELLANT IN RESPONSE TO SUCH AN OPPORTUNITY, IF A NY, GRANTED TO IT DURING ASSESSMENT PROCEEDINGS. IN FACT, THE ASSESSING OF FICER OUGHT TO HAVE ISSUED A PRE ASSESSMENT NOTICE INDICATING THEREIN THE PROPO SED ADDITIONS. NO SUCH PRE ASSESSMENT NOTICE HAS BEEN ISSUED IN THE APPELLANT S CASE AS THERE IS NO MENTION OF THE SAME AS WELL AS OBJECTIONS, IF ANY TAKEN BY THE APPELLANT WITH REGARD TO THE SAME IN THE BODY OF THE ASSESSMENT ORDER. THE PLEA OF THE APPELLANT THAT DUE OPPORTUNITY WAS NOT GRANTED TO IT DURING THE C OURSE OF ASSESSMENT PROCEEDINGS AND THAT MATERIAL ADVERSELY USED AGAI NST IT WAS NOT MADE AVAILABLE, THEREFORE, HAS SOME MERITS. THIS GRIEVANCE OF THE APPELLANT, HOWEVER, HAS BEEN DULY ADDRESSED DURING THE COURSE OF APPELLAT E PROCEEDINGS WHEREIN FULL OPPORTUNITY HAS BEEN GRANTED TO THE A PPELLANT WITH REFERENCE TO VARIOUS ISSUES AND EVIDENCES INVOLVED . I.T.A. NOS. 197-202 & 234-239/COCH/2011 6 THERE CANNOT BE ANY DISPUTE THAT THE APPELLATE PROC EEDINGS ARE ALSO CONSIDERED AS CONTINUATION OF ASSESSMENT PROCEEDINGS IN CERTAIN A SPECTS, PARTICULARLY IN VIEW OF THE FACT THAT THE POWERS OF THE LD CIT(A) ARE CO-TERMIN US WITH THAT OF THE AO. HENCE, THE ASSESSEE SHOULD NOT HAVE ANY GRIEVANCE IN THIS REGA RD AFTER THE COMPLETION OF APPELLATE PROCEEDINGS, AS THE FIRST APPELLATE AUTHORITY HAS D ULY CONSIDERED THE VIEWS EXPRESSED BY THE ASSESSEE ON THE DOCUMENTS RELIED UPON BY THE AS SESSING OFFICER. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE GROUNDS RAISED ON THIS ISSUE. 8. THE NEXT ISSUE, WHICH IS COMMON IN ALL THE A PPEALS BEFORE US, RELATES TO THE CORRECTNESS OF ESTIMATION OF SUPPRESSED BUSINESS IN COME. THE DEPARTMENT HAS ALSO FILED APPEALS FOR ALL THE YEARS ON THE VERY SAME IS SUE, AS THE LD CIT(A) HAS MODIFIED THE METHOD OF COMPUTATION OF SUPPRESSED INCOME AND SUCH MODIFICATION HAS RESULTED IN REDUCTION OF INCOME. 9. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. THE LD A.R BROADLY REITERATED THE CONTENTIONS RAISED BEFORE LD CIT(A) AND THE LD D.R STRONGLY SUPPORTED THE ORDER PASSED BY THE ASSESSING OFFICER. THE FACTS RELATI NG TO THE SAME ARE STATED IN BRIEF. AS STATED EARLIER, THE ASSESSEE IS ENGAGED IN THE BUSI NESS OF PRODUCTION OF M.S INGOTS AND M.S PRODUCTS FROM IRON SCRAP. THE ASSESSEE COMPANY HAS FILED ITS RETURNS OF INCOME FOR THE YEARS 2003-04 TO 2006-07, PRIOR TO THE SEARCH A ND SURVEY PROCEEDINGS, ON THE BASIS OF AUDITED ACCOUNTS. HOWEVER, THE AO DECIDED TO REJ ECT THE BOOK RESULTS FOR THE FOLLOWING REASONS, WHICHIS NARRATED IN PAGE 8 & 9 O F ASSESSMENT ORDER:- (I) THE SEARCH CONDUCTED BY THE DEPARTMENT ON 6/9/ 2007 AT THE BUSINESS PREMISES OF THE ASSESSEE ALSO REVEALED INDICATIVE B UT SERIOUS DEFECTS. ON THAT DAY THE DIRECTOR SHRI UMMER DEPOSED THAT THERE ARE SERIOUS DEFECTS IN HIS BOOKS OF ACCOUNT: Q.13: DO YOU RECORD THE SCRAP PURCHASE AS WELL AS FURNISHED GOODS IN YOUR BOOKS OF ACCOUNTS EXACTLY? ANS: 90% OF THE SCRAP PURCHASES INCLUDE IMPORTED SCRAP AND SPONGE IRON. ALL THESE PURCHASES HAVE COME INTO ACCOUNTS CORRECTLY. BUT THERE ARE 10% LOCAL PURCHASES. 90% OF THE LOCAL PURCHASES ARE ALSO AC COUNTED. AS SUCH 10% OF THE I.T.A. NOS. 197-202 & 234-239/COCH/2011 7 LOCAL PURCHASE HAS NOT COME INTO ACCOUNT. 8% OF S ALES ARE ALSO NOT RECORDED IN THE BOOKS OF ACCOUNTS. Q.14: YOU HAVE STATED IN REPLY TO MY EARLIER QUEST ION THAT 8% OF SALES ARE UNACCOUNTED. WHAT HAVE YOU DONE BY THE PROFIT YOU EARNED FROM SUCH SALE? ANS: I HAVE DEPLOYED THE UNACCOUNTED MONEY RECEIV ED FROM SUCH TRANSACTION IN PURCHASING IMMOVABLE PROPERTY IN MY NAME AND TO IN VEST IN THE RESIDENTIAL BUILDING WHICH IS BEING BUILT. (II) IN HIS STATEMENT DURING THE SEARCH HE HAD AL SO STATED THAT THERE WAS SUPPRESSION IN PRODUCTION, PURCHASES AND CLOSING S TOCK. IT WAS ALSO FOUND THAT HE WAS NOT KEEPING UP-TO-DATE STOCK REGISTER. [Q.1 0&11] THE STOCK IS ALWAYS ESTIMATED BY HIM. (III) THE ANTI POWER THEFT SQUAD OFFICIALS OF KSEB DURING THEIR INSPECTION DETECTED POWER THEFT BY THE ASSESSEE ON 26.4.05 AN D SERVICE CONNECTIONS WERE DISCONNECTED. (IV) THE FACTORY WAS INSPECTED BY THE OFFICIALS OF COMMERCIAL TAXES DEPARTMENT ON 15.11.2006 AND PREPARED SIR INCORPORATING THE P HYSICAL STOCK OF GOODS FOUND AT THE TIME OF INSPECTION AND FOUND SERIOUS STOCK DIFFERENCE IN INGOTS, TOR AND ROD, M.S. FLAT & SQUARE, SPONGE IRON, M.S. SCRAP, ROUND RODS AND SILCO MANGANESE. THE COMMERCIAL TAX AUTHORITIES CONCLUD ED THAT THE ABOVE NOTED IRREGULARITIES IN MAINTAINING OF BOOKS OF ACCOUNTS POINTED OUT UNACCOUNTED PRODUCTION OF MS INGOTS AS WELL AS M.S. PRODUCTS A ND CONSEQUENT SALES. ACCORDINGLY, THE AO DECIDED TO COMPUTE THE PROBABLE PRODUCTION QUANTITIES ON THE BASIS OF POWER CONSUMED BY THE ASSESSEE. FOR THIS PURP OSE, THE AO OBTAINED A REPORT RELATING TO POWER CONSUMPTION IN STEEL INDUSTRIES F ROM THE COMMERCIAL TAXES DEPARTMENT. THE SAID DEPARTMENT SUPPLIED THE INFOR MATION WHICH IT OBTAINED FROM KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LT D (KSIDC), A FINANCIAL INSTITUTION OWNED BY THE GOVERNMENT OF KERALA. THE SAID REPORT HAD THE FOLLOWING TITLE. NORMS AND ASSUMPTIONS UNDERLYING COST OF PRODUCTION AND PROFITABILITY PROJECTIONS. ACCORDING TO THE SAID REPORT, THE OPTIMUM POWER REQ UIRED FOR PRODUCTION OF 1 METRIC TON OF M.S. INGOTS WAS 800 UNITS OF POWER AND FOR P RODUCTION OF 1 METRIC TON OF M.S PRODUCTS WAS 100 UNITS OF POWER. BASED ON THE POW ER FACTOR STATED ABOVE, THE AO ARRIVED AT THE PRODUCTION QUANTITY OF M.S INGOTS AN D M.S PRODUCTS BY APPLYING THE SAID I.T.A. NOS. 197-202 & 234-239/COCH/2011 8 POWER FACTOR TO THE ELECTRICAL UNITS CONSUMED BY TH E ASSESSEE. THE DETAILS OF WORKINGS MADE BY THE AO ARE GIVEN IN PARAGRAPH 6 AND 7 OF TH E ASSESSMENT ORDER AS UNDER: 6. INGOTS: ASST YEAR POWER CONSUMPTION PRODUCTION AS PER NORMS (IN TONNES) PRODUCTION AS PER RETURN SUPPRESSED PRODUCTION COST PER M.T. OF INGOT PRODUCED : RS. VALUE OF SUPPRESSI ON: RS. 2003-2004 *235090 293.865 **112.5 181.362 *13167 23 87993 2004-2005 2,47,464 3,09.330 125.920 183.410 *13860 2542062 2005-2006 78,13,320 6250.656 6145.747 104.909 14590 1530622 2006-2007 88,08,288 7046.630 6741.735 304.895 15358 .42 4682712 2007-2008 88,66,080 7092.864 6392.115 700.749 15484 .45 10850712 2008-09 93,20,496 7456.397 6872.815 583.582 16752.3 9 9776359 TOTAL 3,52,90,738 2,81,55,877 2,62,78,332 18,77,545 89212.26 31770460 *SINCE THE ASSESSEE DID NOT SUPPLY THE REQUIRED DAT A ESTIMATED @ 5% DECREASE FOR EACH PRECEDING YEAR **SINCE THE ASSESSEE DID NOT SUPPLY THE REQUIRED D ATA ESTIMATED @ 10% DECREASE FOR EACH PRECEDING YEAR. 7. M.S. FLATS & RODS: ASST YEAR POWER CONSUMPTION PRODUCTION AS PER NORMS (IN TONNES) PRODUCTION AS PER RETURN SUPPRESSED PRODUCTION COST PER M.T. OF INGOT PRODUCE D: RS. VALUE OF SUPPRESSION : RS. 2003-2004 *1265845 *12658.450 **4428.367 8230.083 * 16591.58 136550080 2004-2005 1031644 10316.440 2888.805 7427635 *17464 .83 129722382 2005-2006 1402598 14025.980 5467.121 8558.859 18384 .03 157346155 2006-2007 1370070 13700.700 5581.166 8119.534 19351 .61 157125896 2007-2008 1379660 13796.600 6124.485 7672.115 18963 .93 145493357 2008-2009 1275300 12753.000 5982.440 6770.560 22779 .22 154228076 TOTAL 7725117 77251.17 30472.384 7466986.151 113535 .2 880465946 *SINCE THE ASSESSEE DID NOT SUPPLY THE REQUIRED DATA ESTIMATED @ 5% DECREASE FOR EACH PRECEDING YEAR **SINCE THE ASSESSEE DID NOT SUPPLY THE REQUIRED D ATA ESTIMATED @ 10% DECREASE FOR EACH PRECEDING YEAR. 10. THE AO NOTICED THAT THE ASSESSEE HAS DISCLOS ED THE GROSS PROFIT @ 14.61% IN THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR 2008 -09. THE AO CONSIDERED THE SAID I.T.A. NOS. 197-202 & 234-239/COCH/2011 9 RATE OF GROSS PROFIT AS CLOSER TO ACTUAL FACTS AND ACCORDINGLY DECIDED TO APPLY THE SAID RATE UNIFORMLY ON THE SUPPRESSED SALES FOR ALL THE YEARS. THE WORKINGS MADE BY THE AO IN THIS REGARD AS GIVEN IN PAGE 10 OF THE ASSESSMEN T ARE GIVEN BELOW: ASST YEAR VALUE OF SUPPRESSED PRODUCTION OF INGOTS (RS.) VALUE OF SUPPRESSED PRODUCTION OF MS PRODUCTS (RS.) TOTAL PROFIT APPLIED AT THE RATE OF 14.61% (RS.) 2003-04 2387993 136550080 138938073 20298852 2004-05 2542062 129722382 132264444 19323835 2005-06 1530622 157346155 158876777 23211897 2006-07 4682712 157125896 161808608 23640237 2007-08 10850712 145493357 156344069 21888169 2008-09 9776359 154228076 164004435 23961047 TOTAL 31770460 880465946 912236406 132324037 THE PROFIT ON THE SUPPRESSED SALES, SO ARRIVED BY T HE AO, WAS ADDED BY HIM IN THE RESPECTIVE YEARS UNDER CONSIDERATION. 11. IN THE APPELLATE PROCEEDINGS, THE LD CIT( A) NOTICED MANY MISTAKES IN THE ASSESSMENT ORDER AND ACCORDINGLY CONCLUDED THAT THE AO HAS PASSED THE ASSESSMENT ORDERS IN HASTE WITHOUT TAKING INTO ACCOUNT CORRECT FACTS. THE RELEVANT OBSERVATIONS MADE BY LD CIT(A) ARE EXTRACTED BELOW:- 11.1 IT IS FURTHER SEEN THAT THE ASSESSING OFFICE R HAS COMMITTED SERIOUS ERRORS IN THE ASSESSMENT ORDER AS UNDER: -THE ASSESSING OFFICER ESTIMATED SUBSTANTIAL PRODU CTION OF INGOTS FOR A.Y. 2003- 04 AND A.Y. 2004-05 IN PARA 6 OF THE ASSESSMENT OR DER WHEREAS THE APPELLANT STARTED PRODUCTION OF INGOTS ONLY FROM 19 TH MARCH, 2004. -IN PARA 7 OF THE ASSESSMENT THE ASSESSING OFFICER , FOR A.Y. 2003-04 INDICATED ESTIMATION OF POWER CONSUMPTION AND PRODUCTION AS PER RETURN RESPECTIVELY 5% AND 10% LESS THAN A.Y. 2004-05 BUT ADOPTED HIGHER FIGURES THAN FOR A.Y. 2004- 05. -THE ASSESSING OFFICER AGGREGATED ESTIMATED SUPPRE SSED PRODUCTION OF INGOTS ALONG WITH ESTIMATED SUPPRESSED PRODUCTION OF MS F LATS AND RODS AND APPLIED GROSS PROFIT RATE DECLARED FOR A.Y. 2008-09 TO WOR K OUT UNDISCLOSED PROFIT WITHOUT I.T.A. NOS. 197-202 & 234-239/COCH/2011 10 APPRECIATING THE FACT ON RECORD THAT INGOTS WERE P RODUCED BASICALLY FOR OWN CONSUMPTION AS RAW MATERIAL FOR PRODUCTION OF MS F LATS AND RODS. -THE ASSESSING OFFICER APPLIED GROSS PROFIT RATE O F 14.61% FOR ALL THE ASSESSMENT YEARS BY STATING THE SAME TO BE GP DECLARED BY THE APPELLANT FOR A.Y. 2008-09. AS AGAINST THE SAME, THE GP DECLARED BY THE APPELL ANT FOR A.Y. 2008-09 WAS ONLY 9.73%. THIS FACTOR ITSELF RESULTED IN HUGE ADDITI ON. -GIFTS AND LOANS TOTALLING TO RS. 1,37,50,000 AS U NEXPLAINED CREDIT WERE WRONGLY ADDED IN A.Y. 2006-07 WHEREAS THEY PERTAINED TO A. Y. 2007-08. -IN A SIMILAR MANNER, GIFTS TOTALLING TO RS.60,21,0 00/- AS UNEXPLAINED CREDIT WERE WRONGLY ADDED IN A.Y. 2007-08 WHEREAS THEY PER TAINED TO A.Y. 2008-09. FROM THE ABOVE, IT IS OBVIOUS THAT THE ASSESSING O FFICER PASSED THE ASSESSMENT ORDER IN HASTE WITHOUT TAKING INTO ACCOUNT CORRECT FACTS ON RECORD AND WITHOUT AFFORDING DUE OPPORTUNITY TO THE APPELLANT AND WIT HOUT PROPERLY TAKING INTO ACCOUNT THE MATERIAL PLACED ON RECORD BY THE APPEL LANT DURING ASSESSMENT PROCEEDINGS. THE CONCLUSIONS DRAWN BY THE ASSESSING OFFICER AND THE CONSEQUENTIAL ADDITIONS MADE ARE THEREFORE CONSIDE RED ON MERITS AFTER DULY TAKING INTO ACCOUNT THE RELEVANT MATERIAL AN D ARGUMENTS PUT FORTH BY THE APPELLANT DURING THE COURSE OF APPELL ATE PROCEEDINGS. 12. THE AO HAD STATED CERTAIN REASONS FOR REJECT ING THE BOOK RESULTS, VIZ., DEFECTS NOTICED BY COMMERCIAL TAX DEPARTMENT DURING THEIR I NSPECTION; POWER THEFT NOTICED BY ELECTRICITY DEPARTMENT AND STATEMENT GIVEN BY THE MA NAGING DIRECTOR. THE LD CIT(A) NOTICED THAT THE DEFECTS NOTICED DURING THE COURSE OF INSPECTION CONDUCTED BY COMMERCIAL TAXES DEPARTMENT WERE NOT SERIOUS ENOUGH TO WARRANT REJECTION OF BOOKS OF ACCOUNT. THE RELEVANT OBSERVATIONS MADE BY HIM ARE GIVEN BELOW:- THE DEFECTS DETECTED BY COMMERCIAL TAXED DEPARTME NT HAVE BEEN DULY DEALT WITH BY THE LEARNED COUNSEL FOR THE APPELLANT IN T HE WRITTEN SUBMISSIONS OF 23 RD NOVEMBER, 2010. IT IS POINTED OUT THAT THERE WERE TWO INSPECTIONS BY COMMERCIAL TAXES DEPARTMENT. FIRST ON 25 TH JANUARY, 2005. IN THIS INSPECTION, THE FOLLOWING VARIATIONS WERE NOTICED: 1. SCRAP -13.543 MT - EX CESS 2. INGOTS -1.372 MT - EXCESS 3. M.S. RODS -0.861 M T - EXCESS 4. M.S. FLATS -0.017 MT - SHORT I.T.A. NOS. 197-202 & 234-239/COCH/2011 11 THE CONSEQUENTIAL ADDITION OF RS. 2,56,620 WAS MADE AS AGAINST DECLARED TURNOVER OF RS. 12,37,41,737. THE DIFFERENCE FOUND WAS NEGLIGIBLE COMPARED TO THE TURNOVER DISCLOSED. ANOTHER INSPECTION BY INTE LLIGENCE SQUAD OF COMMERCIAL TAXES DEPARTMENT TOOK PLACE ON 15.11.2006 WHEREIN O NLY SHORTAGES OF MINOR QUANTITIES WERE DETECTED AS UNDER: 1. M.S. INGOTS 0. 208 MT SHORT 2. M.S. TOR & ROD 0.60 0 MT 4. M.S. FLAT & SQUARE 4.77 0 MT THE PENALTY LEVIED AS A CONSEQUENCE OF ABOVE INSPEC TION OF 15.11.2006 HAS SINCE BEEN SET ASIDE BY DY. COMMISSIONER (APPEALS) VIDE O RDER DATED 10.11.2010. I HAVE GONE THROUGH THIS ORDER AND FIND THAT THE APPE LLATE AUTHORITY HAS POINTED OUT DEFAULTS IN THE WORKING OF STOCK BY THE INTELLI GENCE OFFICER IN FOLLOWING WORDS: THE INTELLIGENCE OFFICER IS CONSIDERING THE OPENI NG STOCK AS ON 6.11.2006 AND PHYSICAL STOCK ON 16.11.2006. WITHOUT CONSIDERING THE PRODUCTION CONSUMPTION, SALES FROM 6.11.2006 UPTO INSPECTION, THE PHYSICAL STOCK VERIFICATION IS FOUND TO BE NOT IN ORDER. 13. THE LD CIT(A) ALSO NOTICED THAT THE POWER THEF T INCIDENT THAT OCCURRED IN THE ASSESSEES FACTORY DID NOT HAVE MUCH CONSEQUENCE, S INCE THE POWER CONNECTION WAS DISCONNECTED ONLY FOR FIVE DAYS. ACCORDINGLY, THE LD CIT(A) HELD THAT THIS FACT IN ITSELF CANNOT JUSTIFY THE DETERMINATION OF SUBSTANTIAL UNA CCOUNTED PRODUCTION, AS DONE BY THE ASSESSING OFFICER. 14. THE AO HAD PLACED RELIANCE ON THE REPORT GIV EN BY KSIDC, WHICH WAS SUPPLIED TO HIM BY THE COMMERCIAL TAXES DEPARTMENT, FOR DETERMI NING THE POWER FACTOR, AS STATED EARLIER. HOWEVER, THE LD CIT(A) NOTICED THAT THE COMMERCIAL TAXES DEPARTMENT HAD ALSO PLACED RELIANCE ON THE REPORT OF KSIDC IN THE IDENTICAL WAY FOR ESTIMATING THE SALES IN THE HANDS OF THE ASSESSEE AND LEVYING CONSEQUENT IAL PENALTY. THE MATTER WAS TAKEN UP IN APPEAL BY THE ASSESSEE AND THE PENALTY IMPOSE D WAS SET ASIDE BY THE APPELLATE AUTHORITY OF COMMERCIAL TAXES DEPARTMENT. THE LD C IT(A) ALSO NOTICED THAT THE KSIDC HAS ISSUED A CLARIFICATION IN ITS LETTER DATED 20.1 1.2008, WHEREIN IT IS STATED THAT THE POWER FACTOR THAT WAS GIVEN IN ITS APPRAISAL REPORT IS PURELY THEORETICAL IN NATURE AND IT CANNOT BE TAKEN AS A BASIS FOR ASSESSING SALES TAX. THE LD CIT(A) ALSO NOTICED THAT THE I.T.A. NOS. 197-202 & 234-239/COCH/2011 12 NORMS PRESCRIBED BY THE KSIDC FOR THE POWER CONSUM PTION ARE BASED ON PROJECT REPORTS SUBMITTED TO IT BY INDUSTRIAL UNITS FOR GET TING FINANCIAL ASSISTANCE FROM IT. ACCORDINGLY, THE LD CIT(A) CAME TO THE CONCLUSION T HAT THE REPORT OF KSIDC CANNOT BE TAKEN AS A BASIS FOR ESTIMATING THE PRODUCTION. T HE RELEVANT OBSERVATIONS MADE BY LD CIT(A) ARE EXTRACTED BELOW:- WITH REFERENCE TO REPORT OF KSIDC, WHICH HAS BEEN MADE SOLE BASIS BY THE ASSESSING OFFICER FOR ESTIMATING PRODUCTION AT A MU CH HIGHER FIGURES IN VARIOUS ASSESSMENT YEARS, THE FOLLOWING OBSERVATIONS HAVE B EEN MADE IN THE APPELLATE ORDER (COMMERCIAL TAXES) WHILE SETTING ASIDE THE PE NALTY IMPOSED: THE INTELLIGENCE OFFICER HAD PLACED RELIANCE ON TH E REPORT OF KSIDC, ADMITTEDLY THAT REPORT IS NOT BASED ON ANY TRIAL RU N CONDUCTED AT THE BUSINESS PLACE OF THE APPELLANT. WITH REGARD TO CONTENTION RAISED BY THE APPELLANT THAT THE FACTS MENTIONED IN THE PROJECT REPORT WERE ONLY IN SUPPORT OF THE CLAIM FOR FINANCIAL ASSISTANCE WHICH HAS NO RELEVANCE WITH RESPECT TO THE ACTUAL RUNNING OF THE MACHINERIES. THE LEARNED AUTHORIZED REPRESENTATIVE HAD ALSO ARGUED THAT THE POWER REQUI RED FOR MAINTENANCE OF ESTABLISHMENT OTHER THAN THE MACHINERIES WAS ALS O NOT CONSIDERED BY THE INTELLIGENCE OFFICER. THE INTELLIGENCE OFFICER HAS NOT CONSIDERED THE POWER USED FOR THE FUNCTIONING OF POLLUTION CONTROL EQUIPMENT, WATER PUMPS, CRANE COOLER, LIGHTING FANS ETC. HE ALSO IN VITED TO MY ATTENTION TO A DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN C ENTRAL EXCISE VS. AIR CARRYING CORPN. (P) LTD. WHEREIN IT WAS HELD THAT W HEN THE CERTIFICATE ISSUED BY THE CHARTERED ENGINEER WAS TO BE DISBELIE VED, THE REVENUE COULD HAVE AND OUGHT TO HAVE RECORDED HIS STATEMENT OR CALLED HIM FOR CROSS EXAMINATION. BASED ON THE RATIO SET UP IN TH E ABOVE DECISION, HE CONTENDED THAT DISREGARDING THE CERTIFICATE OF THE CHARTERED ENGINEER WITHOUT ASSIGNING A VALID REASON BY THE INTELLIGENC E OFFICER IS UNSUSTAINABLE. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF T HE CASE, I AM OF THE VIEW THAT THE INTELLIGENCE OFFICER COULD NOT GIVE A NY SATISFACTORY EXPLANATION EITHER FOR PLACING RELIANCE ON THE REPO RT OF KSIDC OR FOR REJECTING OF CERTIFICATES ISSUED BY THE CHARTERED E NGINEER AND OTHER COMPETENT AUTHORITIES. CONSIDERING THE ABOVE FACTS , I AM OF THE VIEW THAT ONLY AFTER CONDUCTING TEST RUN IN THE APPELLANTS I NDUSTRY, THAT THE INTELLIGENCE OFFICER CAN REACH A DEFINITE CONCLUSIO N AS TO THE POWER REQUIRED FOR PRODUCTION OF 1 MS INGOTS. FOR THAT P URPOSE, IF NECESSARY, HE CAN SEEK THE ASSISTANCE OF EXPERTS IN THE FIELD. A FTER CONDUCTING SUCH TEST RUN AND DETERMINING THE ACTUAL ELECTRICITY REQUIRED FOR PRODUCTION OF 1 MT OF MS INGOTS, THE INTELLIGENCE OFFICER IS UPTO ESTI MATE THE PRODUCTION OF MS INGOTS BASED ON SUCH FINDINGS. THEREAFTER, HE C AN DETERMINE WHETHER I.T.A. NOS. 197-202 & 234-239/COCH/2011 13 THERE IS ANY SUPPRESSED TURNOVER ON THE BASIS OF WH ICH FINDINGS HE SHALL ALSO BE ELIGIBLE TO IMPOSE NECESSARY PENALTY ON THE APPELLANT. THE ASSESSING OFFICER PLACED RELIANCE ON THE INFORM ATION COLLECTED FROM COMMERCIAL TAXED DEPTT. WHO IN TURN HAD COLLECTED I NFORMATION FROM KSIDC. THE INFORMATION COLLECTED FROM KSIDC BY THE COMMERC IAL TAXES DEPTT. COULD NOT JUSTIFY THE PENALTY AS IS EVIDENT FROM THE ABOVE AP PELLATE ORDER. FURTHER TO ABOVE, KSIDC ISSUED A CLARIFICATION DATED 20.11.200 8 TO THE INTELLIGENCE OFFICER, SQUAD NO. 1 KOTTAYAM THAT DAT A FURNISHED WITH REGARD TO THE POWER FACTOR BEING PURELY THERETICAL CANNOT BE TAKEN AS A BASIS FOR ASSESSING SALES TAX. THE CONTENTION OF THE ASSESSING OFFICER IN THE REMAND REPORT THAT ABOVE CLARIFICATION DESERVED REJ ECTION IS NOT SUPPORTED BY ANY MATERIAL OR EVIDENCE. ON THE CONTRARY IN THE CASE OF SHRI PADMABALAJI ALLOYS (P) LTD. NIDA, PALAKKAD, A CASE COMPARABLE WITH THAT OF THE APPELLANT, KERALA VAT APPELLATE TRIBUNAL HELD THAT ASSESSING OFFICER WAS NOT JUSTIFIED IN RELYING SOLELY ON THE DATA OBTAINED FROM KSIDC LTD. WITHOUT CONDUC TING AN INDEPENDENT ENQUIRY. THIS JUDICIAL PRONOUNCEMENT HAS BEEN RELI ED UPON BY THE LEARNED COUNSEL FOR THE APPELLANT IN REPRESENTATION OF 27 TH OCTOBER, 2010. THE DATA PROVIDED BY KSDIC ARE BASICALLY ON THE BASIS OF PRO JECT REPORTS WHICH ARE SUBMITTED FOR SEEKING FINANCIAL ASSISTANCE. IT IS A NORMAL PRACTICE THAT THESE DATA ARE NOT ONLY THEORETICAL BUT AMBITIOUS PROJECTIONS WITH HIGH EFFICIENCY ARE MADE IN SUCH PROJECT REPORTS IN AN EFFORT TO GET THE FIN ANCIAL ASSISTANCE. THESE THEORETICAL DATA OBVIOUSLY CANNOT BE MADE SOLE BASI S FOR WORKING OUT PRODUCTION OF ANY UNIT IN A MECHANICAL MANNER WITHOUT TAKING I NTO ACCOUNT OTHER FACTORS SUCH AS QUALITY OF RAW MATERIAL, EFFICIENCY OF TRAN SFORMERS AND MACHINERY INSTALLED, POWER FLUCTUATIONS, POWER FAILURES, EFFI CIENCY OF STAFF DEPLOYED ETC. FOR ACTUALLY VERIFYING THE VERACITY OF PRODUCTION SHOWN BY AN ASSESSEE, IT WAS ESSENTIAL TO PHYSICAL RUN THE MACHINES OF THAT ASSE SSEE AND MEASURE THE PRODUCTION VIS--VIS CONSUMPTION OF ELECTRICITY AS IS HELD BY THE APPELLATE AUTHORITY OF THE COMMERCIAL TAXES DEPTT. THE REFER ENCE BY THE ASSESSING OFFICER TO A POWER THEFT INCIDENT IN THE APPELLANTS FACTOR Y IS OF NOT MUCH CONSEQUENCE AS THE SERVICE CONNECTION WAS DISCONNECTED ONLY FOR A PERIOD OF FIVE DAYS AND THIS FACT IN ITSELF CANNOT JUSTIFY DETERMINATION OF SUBSTANTIAL UNACCOUNTED PRODUCTION AS DONE BY THE ASSESSING OFFICER. I THUS FIND THAT ASSESSING OFFICER DID NOT BRING ON RECORD ANY SPECIFIC AND GR OSS DEFECTS IN THE BOOKS OF ACCOUNTS OF THE APPELLANT TO JUSTIFY RESOR TING TO ESTIMATION OF PRODUCTION ON THE BASIS OF ELECTRICITY CONSUMPTION AND THAT TOO ON THE BASIS OF PROJECT REPORT WITH KSIDC COLLECTED FROM C OMMERCIAL TAXES AUTHORITIES . 15. THE LD CIT(A) NOTICED THAT THE CASE LAW REL IED UPON BY THE AO FOR MAKING ESTIMATE OF PRODUCTION ON THE BASIS OF POWER CONSUM PTION WAS ALSO NOT CORRECT. IN THIS REGARD, THE LD CIT(A) HAS OBSERVED AS UNDER:- I.T.A. NOS. 197-202 & 234-239/COCH/2011 14 THE DECISIONS RELIED UPON BY THE ASSESSING OFFICER HAVE BEEN DEALT WITH BY THE LEARNED COUNSEL FOR THE APPELLANT IN PARA 6 & 7 OF WRITTEN SUBMISSION OF 23 RD NOVEMBER 2010. THE LEARNED COUNSEL FOR THE APPELLA NT HAS ALSO PLACED RELIANCE ON THE FOLLOWING TWO JUDICIAL PRONOUNCEMENTS: 1. AMAR ISPAT PVT. LTD VS. CCE, THANE-1 (2009) 235 ELT 487 (TRI MUMBAI) 2. R.A. CASTINGS PVT LTD VS. CCE, MEERUT-1 (2009) 237 EL T 674 (TRI DELHI) IN THE ABOVE JUDICIAL PRONOUNCEMENTS IT WAS HELD TH AT ELECTRIC CONSUMPTION WAS NOT AN ABSTRACT FIGURE AND WAS TO DEPEND ON MANY FA CTORS SUCH AS, QUALITY OF SCRAP USED, NUMBER OF BREAK DOWNS, ELECTRICITY FAIL URES, POWER CUT/VOLTAGE FLUCTUATIONS ETC. 16. THE ASSESSING OFFICER HAD REFERRED TO A TEST REPORT CONDUCTED BY MR. M JACOB VARGHESE IN PARAGRAPH 7.2 OF THE ASSESSMENT ORDER A ND IN THE REMAND REPORT DATED 05- 10-2010 FILED BEFORE THE LD CIT(A), THE AO HAS STAT ED AS UNDER:- 8.2 THE NORMS PRESCRIBED BY KERALA STATE INDUSTRI AL DEVELOPMENT CORPORATION LTD (KSIDC) WHICH WAS IN CONJUNCTION WITH THE ORDER OF THE DEPARTMENT OF COMMERCIAL TAXES DATED 15.4.2006 AND THE ASSESSEES SUBMISSION DATED 6.12.2009 OF THE INSPECTION AND TEST REPORT OF MR. M.JACOB VARGHESE, FORMERLY DEPUTY CHIEF ENGINEER, KERALA ELECTRICITY BOARD AND H OLDER OF SUPERVISORY LICENCE NO. SA264 ISSUED BY LICENCING BOARD, KERALA STATE EL ECTRICAL INSPECTORATE AUTHORISING TO CARRY OUT ALL ELECTRICAL INSULATION WORKS OF ANY VOLTAGE WHO HAD CERTIFIED THAT THE POWER CONSUMPTION FACTOR OF THE UNIT ON TESTING WAS FOUND TO BE CORRECT WERE RELIED FOR THE DETERMINATION OF THE SUPPRESSED PRODUCTION. THE LD CIT(A) HAS NOTICED THAT THE AVERMENTS MADE B Y THE AO IN THE REMAND REPORT, WHICH IS EXTRACTED SUPRA, IS ERRONEOUS AND TOTALLY AGAINST THE FACTS. THE RELEVANT OBSERVATIONS MADE BY THE FIRST APPELLATE AUTHORITY ARE EXTRACTED BELOW:- THE ASSESSING OFFICER IN PARA 8.2 OF THE REMAND RE PORT, HAS ERRONEOUSLY MENTIONED THAT THE REPORT OF MR. M. JACOB VARGHESE WAS RELIED UPON FOR DETERMINATION OF THE SUPPRESSED PRODUCTION. IN ABO VE REPORT IT WAS FOUND THAT 1485 UNITS OF POWER WAS CONSUMED FOR PRODUCTION OF 1 MT OF INGOTS. AS AGAINST THE SAME THE APPELLANT HAD SHOWN POWER CONSUMPTION IN INGOTS UNIT AS UNDER:- I.T.A. NOS. 197-202 & 234-239/COCH/2011 15 A.Y. POWER CONSUMPTION (UNITS) PRODUCTION OF INGOTS (MT) POWER CONSUMPTION (UNITS PER MT) 2004-05 247464 125.920 1965.25 2005-06 7813320 6145.747 1271.34 2006-07 8808288 6741.735 1306.53 2007-08 8866080 6392.115 1387.03 2008-09 9320496 6872.815 1356.14 IT IS THEREFORE APPARENT THAT POWER CONSUMPTION SHOWN BY THE APPELLANT WAS ON AN AVERAGE LESSER THAN DETERMINED IN THE ABOVE R EPORT OF MR. M.JACOB VARGHESE EXCEPT IN A.Y. 2004-05 WHEREIN THE FACTORY STARTED AND FUNCTIONED ONLY FOR 12 DAYS AND WOULD OBVIOUSLY INCLUDE TRIAL RUNS. 17. THE LD CIT(A) THEN WENT ON TO ANALYSE THE A VERAGE POWER CONSUMPTION FOR PRODUCTION OF MS PRODUCTS, VIZ., MS FLATS AND RODS AND NOTICED THAT THERE IS NO ABNORMAL FLUCTUATION IN POWER CONSUMPTION OVER THE YEARS AND IN FACT, THE EFFICIENCY LEVEL HAS INCREASED GRADUALLY. THE RELEVANT OBSERVATIONS AR E EXTRACTED BELOW:- THERE IS ALSO NO ABNORMAL FLUCTUATION IN POWER CON SUMPTION OVER THE YEARS. IN A SIMILAR MANNER APPELLANT HAD SHOWN POWER CONSUMPT ION IN MS FLATS RODS AS UNDER:- A.Y. POWER CONSUMPTION (UNITS) PRODUCTION OF MS FLATS AND RODS (MT) POWER CONSUMPTION (UNITS PER MT) 2003-04 1001832 3109.113 322.22 2004-05 1031272 3619.091 284.95 2005-06 1402598 5467.121 256.55 2006-07 1370070 5581.166 245.48 2007-08 1379660 5875.753 234.81 2008-09 1275300 5982.440 231.17 IT IS SEEN THAT THERE IS ALSO NO ABNORMAL OR ABRUPT FLUCTUATION IN POWER CONSUMPTION OVER THE YEARS. THE EFFICIENCY HAS GRA DUALLY GONE UP OVER THE YEARS. 18. BASED UPON THE FACTUAL FINDINGS NARRATED ABO VE AND ALSO BASED UPON FURTHER DEFICIENCIES NOTICED IN THE APPROACH OF THE AO, THE LD CIT(A) CONCLUDED THAT THE ESTIMATION OF HUGE UNACCOUNTED TURNOVER MADE BY THE AO WAS NOT SUPPORTED BY ANY SPECIFIC EVIDENCE AND HENCE THE SAID ESTIMATES ARE NOT SUSTAINABLE. THE RELEVANT OBSERVATIONS ARE EXTRACTED BELOW:- I.T.A. NOS. 197-202 & 234-239/COCH/2011 16 I FURTHER FIND THAT THE ASSESSING OFFICER EVEN DID NOT ADOPT CORRECT FIGURES FOR ARRIVING AT THE ABOVE ESTIMATIONS. THE ASSESSING O FFICER DID NOT TAKE INTO ACCOUNT THE JOB WORK OF 1496.621 MT IN A.Y. 2003-04 AND THUS WRONGLY ADOPTED PRODUCTION OF 4428.367 MT BY THE APPELLANT AS AGAIN ST ONLY 1612.492 MT PRODUCTION OF MS FLATS AND RODS DONE BY THE APPELLA NT. IN A SIMILAR MANNER, THE ASSESSING OFFICER WRONGLY ADOPTED AND ESTIMATED PRO DUCTION OF INGOTS FOR A.Y. 2003-04 WHEREAS THE PRODUCTION UNIT OF MS INGOTS HA D STARTED FUNCTIONING ONLY ON 19 TH MARCH 2004 (I.E. AT THE FAG END OF A.Y. 2004-05). THE ASSESSING OFFICER HAS NOT IDENTIFIED ANY EVIDENCE (INCLUDING INFRASTR UCTURE, TRANSPORTATION, MANPOWER ETC. TO HANDLE HUGE PRODUCTION ESTIMATED B Y ASSESSING OFFICER IN VARIOUS ASSESSMENT YEARS) GATHERED DURING SEARCH, S URVEY OR OTHERWISE DURING ASSESSMENT PROCEEDINGS WHICH COULD INDICATE LARGE S CALE SUPPRESSION OF PRODUCTION AND TURNOVER AS ESTIMATED BY THE ASSESSI NG OFFICER. NO SUCH ESTIMATIONS HAVE BEEN RESORTED TO BY EXCISE AUTHORIT IES AS HAS BEEN POINTED OUT BY THE LEARNED COUNSEL FOR THE APPELLANT. CONSIDERING THE TOTALITY OF FACTS AND MATERIAL AVAILABLE ON RECORD, THEREFORE, I FIND THAT THERE WAS NO JUSTIFICATION FOR THE ASSESSING OFFICER TO RESORT T O ESTIMATION OF PRODUCTION ON THE BASIS OF ELECTRICITY CONSUMPTION. IN VIEW OF THE ABOVE, THEREFORE I HOLD THAT ESTIMATION OF HUGE UNA CCOUNTED TURNOVER BY THE ASSESSING OFFICER ON THE BASIS OF ELECTRICIT Y CONSUMPTION WAS NOT BACKED BY ANY SPECIFIC EVIDENCE IN THE CASE OF THE APPELLANT AND WAS THUS NOT SUSTAINABLE. 19. THE FOREGOING DISCUSSIONS REVEAL THAT THE L D CIT(A) HAS EFFECTIVELY DISMANTLED THE VIEW OF THE ASSESSING OFFICER WITH REGARD TO TH E ESTIMATION OF SUPPRESSED PRODUCTION AND ALSO IT WAS PROVED THAT THE BASIS (KSIDC REPORT ) ADOPTED BY THE AO CANNOT BE CONSIDERED AS A SCIENTIFIC ONE. FOR THE SAKE OF RE PETITION, WE MAY STATE THAT THE AO HAD TAKEN ADVERSE VIEWS (A) WITH REGARD TO THE DISCREPANCIES NOTICED BY THE COMMERCIAL TAXES DEPARTMENT. (B) WITH REGARD TO THE POWER THEFT ALLEGED BY THE ELECTRICITY BOARD OFFICIALS. AND THEY WERE PROVED TO BE INSIGNIFICANT WHEN COMPA RED TO THE VOLUME OF TRANSACTIONS CARRIED OUT BY THE ASSESSEE. THE AO HAD ADOPTED TH E BASIS OF POWER CONSUMPTION FACTOR SUPPLIED BY THE KSIDC, WHICH WAS PROVED TO BE UNRELIABLE. IT IS PERTINENT TO NOTE THAT THE KSIDC IS A FINANCIAL INSTITUTION AND IT PROCESSES THE PROJECT REPORTS SUBMITTED BY THE PROSPECTIVE BORROWERS. THE POWER CONSUMPTION FACTOR SUBMITTED BY THE KSIDC IS BASED ON SUCH PROJECT REPORTS. THE RE PORT GIVEN BY KSIDC HAS GOT THE HEADING VIZ., NORMS AND ASSUMPTIONS UNDERLYING COST OF PRODUCTION. THE I.T.A. NOS. 197-202 & 234-239/COCH/2011 17 SAID HEADING ITSELF CLEARLY SHOWS THAT THE POWER C ONSUMPTION FACTOR IS AN ASSUMPTION/NORM FIXED BY KSIDC FOR PROCESSING THE P ROJECT REPORTS. THERE CANNOT BE ANY DISPUTE THAT THE KSIDC, BEING A FINANCIAL INSTI TUTION, CANNOT BE CONSIDERED AS A TECHNICAL EXPERT AND HENCE RELIANCE PLACED BY THE A O ON THE SAID REPORT, IN OUR VIEW, IS TOTALLY WRONG. 20. ON THE CONTRARY, THE INSPECTION CARRIED OUT BY AN INDEPENDENT PERSON NAMED MR. M. JACOB VARGHESE HAS VINDICATED THE POWER CONSUMPT ION FIGURES REPORTED BY THE ASSESSEE. THE LD CIT(A) HAS ALSO GIVEN A SPECIFIC FINDING THAT THERE WAS NO ABNORMAL OR ABRUPT FLUCTUATION IN THE AVERAGE POWER CONSUMPT ION OVER THE YEARS AND IN FACT THE EFFICIENCY LEVEL OF POWER CONSUMPTION PER MT OF PRO DUCTION HAS INCREASED SIGNIFICANTLY OVER THE YEARS. THERE CANNOT BE ANY DISPUTE THAT I T IS POSSIBLE TO SUSPECT ABOUT SUPPRESSION OF PRODUCTION IF THERE WAS ANY ABNORMAL FLUCTUATION IN POWER CONSUMPTION OR IF THERE WAS NO IMPROVEMENT AT ALL IN THE AVERAG E POWER CONSUMPTION PER MT OF PRODUCTION. THE LD CIT(A) HAS ALSO TAKEN NOTE OF THE FACT THAT THE HUGE LEVEL OF UNACCOUNTED PRODUCTION ESTIMATED BY THE AO WOULD RE QUIRE CORRESPONDING LEVEL OF WORKING CAPITAL, MACHINERY AND LABOUR FORCE, WHICH WERE NOT PROVED TO BE AVAILABLE WITH THE ASSESSEE. ABSENCE OF SUCH A KING OF HUGE RESOU RCES, ITSELF PROVES THE FACT THAT THE LEVEL OF ESTIMATE MADE BY THE AO WAS IMAGINARY ONE, INCONSISTENT WITH THE LEVEL OF OPERATIONS CARRIED ON BY THE ASSESSEE. THE FOREGOI NG DISCUSSIONS SHOW THAT THE LD CIT(A) HAS CONSIDERED THE ENTIRE GAMUT OF THE ISSUE IN AN OBJECTIVE MANNER AND HENCE WE DO NOT FIND ANY INFIRMITY IN HIM IN HOLDING THAT THE ESTIMATE MADE BY THE AO WAS UNREALISTIC AND UNSUSTAINABLE. 21. AFTER REJECTING THE ESTIMATE MADE BY THE AO , THE LD CIT(A) HAS PROCEEDED TO MAKE HIS OWN ESTIMATE OF SUPPRESSION OF PRODUCTION. THE LD CIT(A) NOTICED THAT THE SWORN STATEMENT GIVEN BY THE MANAGING DIRECTOR SHRI UMMER U/S 132(4) OF THE ACT TURNS OUT TO BE THE SPECIFIC EVIDENCE THAT WAS AVAI LABLE TO SUBSTANTIATE THE FACT OF SUPPRESSION OF PRODUCTION. THE RELEVANT OBSERVATIO NS MADE BY LD CIT(A) ARE EXTRACTED BELOW:- I.T.A. NOS. 197-202 & 234-239/COCH/2011 18 THE SPECIFIC EVIDENCES GATHERED DURING THE COURSE OF SEARCH/SURVEY IN THE CASE OF APPELLANT GROUP, WERE TO BE TAKEN COGNIZANCE OF FOR DETERMINATION OF UNDISCLOSED TURNOVER AND CONSEQUENTIAL UNACCOUNTED INCOME. DURING THE COURSE OF SEARCH ACTION, MR. UMMER CLEARLY ADMITTED WHILE ANSWERING QUESTION NO. 13 THAT 8% OF THE SALES WERE NOT RECORDED IN THE BOOK S OF ACCOUNTS. THE RELEVANT QUESTION AND ANSWER REPRODUCED IN THE ASSESSMENT O RDER IS NOT TRANSLATED PROPERLY AND IS REPRODUCED BELOW FOR READY REFEREN CE: Q NO. 13 HAVE YOU PROPERLY MAINTAINED ACCOUNT S RELATING TO SCRAP PURCHASE, FINISHED GOODS, SALES ETC. OF YOUR ESTABLISHMENTS. ANS. IN SCRAP PURCHASE, 90% IS IMPORTE D SCRAP AND SPONGE IRON. DETAILS OF ITS PURCHASE HAVE BEEN PROPERLY ACCOUNTED. 10% INCLUDES LOCAL PURCHASE. 90% OF THE LOCAL PURCHASE HAS NOT BEEN ACCOUNTED. 8% OF THE SALES ALSO HAS NOT BEEN ACCOUNTED. THE ABOVE DEPOSITION OF THE DIRECTOR OF THE APPELL ANT COMPANY CLEARLY ADMITS THAT THE TURNOVER WAS SUPPRESSED TO THE TUNE OF AB OUT 8%. THE ARGUMENT OF THE LEARNED COUNSEL FOR THE APPELLANT THAT ABOVE STATE MENT WAS ONLY WITH REFERENCE TO PROPRIETORY CONCERN OF MR. UMMER DOES NOT HAVE MUCH MERIT FOR THE REASON THAT MR. UMMER REPLIED WITH REFERENCE TO THE BUSIN ESS ACTIVITIES OF ALL HIS ESTABLISHMENTS WHICH OBVIOUSLY DID INCLUDE THE APP ELLANT COMPANY. IN VIEW OF ABOVE DEPOSITION, ANOTHER ARGUMENT OF THE LEARNED COUNSEL FOR THE APPELLANT THAT PROPER BOOKS OF ACCOUNTS WERE MAINTAINED AND WERE DULY AUDITED ALSO DOES NOT HAVE MUCH MERITS. THIS IS MORE SO FOR THE REASON THAT IN THE ABOVE DEPOSITION (Q.10) IT WAS FURTHER ADMITTED THAT ACTUAL STOCK W AS NOT TAKEN BUT WAS ADOPTED BASED ON OUTPUT PERCENTAGE. HE FURTHER ADMITTED T HAT INCOME EARNED FROM UNACCOUNTED ACTIVITY WAS UTILIZED FOR PURCHASING P ROPERTY IN HIS NAME AND FOR HOUSE WHICH WAS UNDER CONSTRUCTION (Q.14). IT IS FURTHER SEEN THAT THE ABOVE DEPOSITION OF MR. UMMER IS OF GENERAL NATURE DESCR IBING THE MODUS OPERANDI OF HIS ESTABLISHMENTS WITHOUT REFERENCE TO ANY SPECIF IC ASSESSMENT YEAR AND WAS THUS APPLICABLE TO ALL THE ASSESSMENT YEARS I.E. F ROM A.Y. 2004-04 TO 2008-09. A FAIR JUDICIOUS AND HONEST ATTEMPT IN SUCH SET OF C IRCUMSTANCES TO ARRIVE AT INCOME EARNED BY THE APPELLANT OUT OF SUCH UNACCOUNTED BU SINESS ACTIVITY IS DULY APPROVED BY THE APEX COURT IN THE CASE OF CST VS. H.M. ESUFALI,, H.M. ABDULALI (1973) 90 ITR 271 (SC). TO THAT EXTENT THEREFORE THIS JUDICIAL PRONOUNCEMENT OF THE APEX COURT WAS ALSO APPLICABLE FOR DETERMINATI ON OF INCOME FOR ALL THE ASSESSMENT YEARS I.E., FROM A.Y. 2003-04 TO 2008-0 9. I, THUS, DO NOT FIND MUCH MERIT IN THE ARGUMENTS OF THE LEARNED COUNSEL FOR THE APPELLANT THAT THE DEPOSITION WAS RELEVANT ONLY FOR THE A.Y. 2008-09. IN VIEW OF THE ABOVE, I HOLD THAT THERE WAS ENOUGH MATERIAL ON RECORD TO JUSTIF Y REJECTION OF BOOK RESULTS DECLARED BY THE APPELLANT. THE ACTION OF THE ASSE SSING OFFICER TO THIS EXTENT IS THEREFORE CONFIRMED. I.T.A. NOS. 197-202 & 234-239/COCH/2011 19 22. BY PLACING RELIANCE ON THE DEPOSITION OF SH RI UMMER, THE LD CIT(A) ESTIMATED THE ACTUAL TURNOVER AT 108% OF THE DISCLOSED TURNOVER A S PER THE TABLE GIVEN BELOW:- A.Y. 2003-04 2004-05 2005-06 2006-07 2007-08 2008-0 9 TURNOVER SHOWN 2,13,80,091 4,96,31,400 11,10,77,961 10,83,58,188 11,78,68,416 15,95,89,148 TURNOVER ESTIMATED 2,30,90,498 5,36,01,912 11,99,64,198 11,70,26,843 12,72,97,889 17,23,56,280 23. THEN NEXT QUESTION THAT AROSE BEFORE LD CIT (A) WAS ABOUT THE PROFIT TO BE ESTIMATED ON THE SUPPRESSED TURNOVER. THE AO HAD A DOPTED THE GROSS PROFIT RATE OF 14.61% AND APPLIED THE SAME ON THE SUPPRESSED PRODU CTION ESTIMATED BY HIM UNIFORMLY FOR ALL THE YEARS. IT APPEARS THAT THE A SSESSEE HAD SUBMITTED GROSS PROFIT RATE WORKINGS FOR THE ASSESSMENT YEAR 2008-09 BEFORE THE AO, WHEREIN THE GROSS PROFIT RATE WAS SHOWN AT 14.61%. HOWEVER, BEFORE THE LD CIT(A) , THE ASSESSEE FILED A REVISED WORKINGS OF GROSS PROFIT RATE, ACCORDING TO WHICH T HE GROSS PROFIT RATE WORKED OUT TO 9.73%. THE AO HAD APPLIED THE GROSS PROFIT RATE OF 14.16% ONLY ON THE SUPPRESSED PRODUCTION LEAVING INTACT THE GROSS PROFIT DECLARED BY THE ASSESSEE FOR THE DISCLOSED TURNOVER. THE LD CIT(A) DID NOT AGREE TO IT AND HE NCE OPINED THAT THE GROSS PROFIT RATE SHOULD HAVE BEEN APPLIED TO THE ENTIRE SALES VALUE, BOTH DISCLOSED AND UNDISCLOSED. 24. THE ASSESSEE HAD DECLARED THE RATE OF GROSS PROFIT AS UNDER IN VARIOUS YEARS:- ASST. YEAR G.P. RATE 2003-04 2.24% 2004-05 5.83% 2005-06 4.00% 2006-07 4.59% 2007-08 6.10% 2008-09 9.73% THE LD CIT(A) TOOK THE VIEW THAT THE FLUCTUATION IN THE RATE OF GROSS PROFIT DECLARED OVER THE YEARS IS UNREASONABLE. ACCORDINGLY HE TOO K THE VIEW THAT THE GROSS PROFIT MAY BE ESTIMATED UNIFORMLY @ 6.50% FOR THE ASSESSMENT Y EARS 2003-04 TO 2007-08. SINCE THE ASSESSEE HAD DECLARED THE RATE OF GROSS P ROFIT FOR THE ASSESSMENT YEAR 2008- 09 AT 9.73%, THE LD CIT(A) HELD THAT THE SAME RATE MAY BE ADOPTED FOR THAT YEAR. I.T.A. NOS. 197-202 & 234-239/COCH/2011 20 ACCORDINGLY HE CALCULATED THE GROSS PROFIT ON THE E NHANCED TURNOVER (108% OF THE DISCLOSED TURNOVER) AND DEDUCTED THERE FROM THE AMO UNT OF GROSS PROFIT DECLARED BY THE ASSESSEE AND SUSTAINED THE ADDITION TO THE EXTENT O F THE DIFFERENCE. THE WORKINGS MADE BY LD CIT(A) IS GIVEN BELOW:- A.Y. 2003-04 2004-05 2005-06 2006-07 2007-08 2008-0 9 TURNOVER SHOWN 2,13,80,091 4,96,31,400 11,10,77,961 10,83,58,188 1 1,78,68,416 15,95,89,148 @TURNOVER ESTIMATED 2,30,90,498 5,36,01,912 11,99,64,198 11,70,26,843 1 2,72,97,889 17,23,56,280 #GROSS PROFIT THEREON 15,00,882 34,84,125 77,97,673 76,06,745 82,74,36 3 1,67,70,266 GP DECLARED 4,77,905 28,95,929 44,39,040 49,77,598 71,86,254 1,55,25,482 ADDITION SUSTAINED 10,22,977 5,88,195 33,58,683 26,29,147 10,88,109 12,44,784 @108 % OF THE TURNOVER SHOWN #9.73 FOR A.Y. 2008-09 AND 6.5% FOR OTHER YEARS. 25. FROM THE FOREGOING DISCUSSIONS, IN OUR VIEW , FOLLOWING TWO ISSUES EMERGE FOR OUR CONSIDERATION AND BOTH THE PARTIES ARE AGGRIEVED ON THESE TWO ISSUES:- (A) WHETHER THE LD CIT(A) IS JUSTIFIED IN DETERMIN ING THE SUPPRESSED SALES AT 8% OF THE DISCLOSED TURNOVER. (B) WHETHER THE LD CIT(A) IS JUSTIFIED IN ADOPTING THE RATE OF GROSS PROFIT AT 6.5% FOR ASSESSMENT YEARS 2003-04 TO 2007-08. TH E DEPARTMENT IS AGGRIEVED IN ADOPTING THE RATE OF GROSS PROFIT AT 9 .73% FOR ASST. YEAR 2008-09. 26. WE HAVE ALREADY UPHELD THE VIEW OF THE LD CI T(A) THAT THE PRESUMPTIONS MADE BY THE AO AND THE BASIS ADOPTED BY THE AO FOR ESTIM ATING THE SUPPRESSED PRODUCTION IS UNSUSTAINABLE. THUS, THE SOLITARY EVIDENCE, WHICH WAS AVAILABLE WITH THE DEPARTMENT IN THE INSTANT CASE, IS THE SWORN STATEMENT GIVEN BY T HE MANAGING DIRECTOR SHRI UMMER. THE LD A.R CONTENDED THAT THE SAID SWORN STATEMENT CANNOT BE PLACED RELIANCE, AS IT IS NOT CORROBORATED WITH ANY OTHER MATERIAL. IN THAT R EGARD, HE ALSO PLACED RELIANCE ON THE FOLLOWING CASE LAW:- I.T.A. NOS. 197-202 & 234-239/COCH/2011 21 (A) DCIT VS. PRAMUKH BUILDERS (2008)(115 TTJ (AHD )(TM). (B) SMT. SUSHILA SURESH MALGE VS. ACIT (IT(SS)A 0 5/MUM/2012) (C) FIRST GLOBAL STOCK BROKING (P) LTD VS. ACIT ( 115 TTJ (MUM) 173) THE CASE LAW LISTED AS (B) AND (C) ABOVE RELATES TO THE BLOCK ASSESSMENT PROCEEDING. SINCE THE SCOPE OF BLOCK ASSESSMENT UNDER CHAPTER X IV-B OF THE ACT IS DIFFERENT FROM THE SCOPE OF PROCEEDINGS U/S 153A OF THE ACT, IN OU R VIEW, THE ASSESSEE CANNOT PLACE RELIANCE ON THE SAID DECISIONS. WITH REGARD TO THE CASE LAW LISTED AS (A) ABOVE, WE NOTICE THE ASSESSEE THEREIN HAS PROVED THAT THE STA TEMENT U/S 132(4) WAS GIVEN IN A STATE OF CONFUSION AND LATER RETRACTED. HOWEVER, I N THE INSTANT CASE, IT IS NOT SHOWN THAT THE STATEMENT U/S 132(4) WAS GIVEN BY THE ASSE SSEE IN A STATE OF CONFUSION. FURTHER WE HAVE ALREADY RECORDED A FINDING THAT THE ASSESSEE HAS NOT RETRACTED FROM THE STATEMENT GIVEN BY HIM. HENCE, THE SAID DECISI ON IS ALSO NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE. 27. IN OUR VIEW, THE ADMISSION MADE BY THE MANA GING DIRECTOR IS AN IMPORTANT PIECE OF EVIDENCE. GENERALLY THE DETAILS REGARDING SUPPR ESSION OF PURCHASES AND SALES ARE WITHIN THE PERSONAL KNOWLEDGE OF THE PARTIES WHO AR E INDULGING IN SUCH TYPE OF ACTIVITIES. IF THE ASSESSEE HAD NOT INDULGED IN SU CH KIND OF TRADE PRACTICES, THERE WOULD NOT HAVE BEEN ANY OCCASION FOR THE MANAGING DIRECTO R TO GIVE A STATEMENT ABOUT THE SUPPRESSION OF PURCHASES AND SALES. HENCE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IN OUR VIEW, IT WOULD BE VERY MUCH REASONABLE TO PR ESUME THAT THE ASSESSEE WAS INDULGING IN SUPPRESSION OF PURCHASES AND SALES. S INCE THE MANAGING DIRECTOR HIMSELF HAS DEPOSED THAT THE SALES SUPPRESSION WAS TO THE T UNE OF 8%, IN OUR VIEW, THE LD CIT(A) WAS JUSTIFIED IN DETERMINING THE SALES SUPPR ESSION AT 8% OF THE TOTAL TURNOVER, PARTICULARLY IN VIEW OF THE FACT THAT THE DEPARTMEN T HAS NOT SEIZED ANY MATERIAL TO MAKE ESTIMATE OF SALES SUPPRESSION IN ANY OTHER MANNER. 28. THE NEXT QUESTION RELATES TO THE GROSS PROF IT RATE TO BE ADOPTED FOR ESTIMATING THE INCOME FOR ALL THE YEARS. THERE CANNOT BE ANY DISPUTE THAT THE RATE OF GROSS PROFIT DEPENDS UPON VARIOUS FACTORS LIKE PURCHASE QUANTITY /RATE, SALES QUANTITY/RATE, VARIATION OF RATES, COST OF MANUFACTURE AND ITS VARIATION ETC . A SIGNIFICANT VARIATION IN ONE OF THE I.T.A. NOS. 197-202 & 234-239/COCH/2011 22 FACTORS WOULD BADLY AFFECT THE GROSS PROFIT RATE. A SIGNIFICANT INCREASE IN THE SELLING RATE WOULD BOOST THE RATE OF GROSS PROFIT. THIS POINT W AS EXACTLY CLARIFIED BY THE ASSESSEE BEFORE THE LD CIT(A) WITH REGARD TO THE VARIATION O F RATE OF GROSS PROFIT FOR THE ASSESSMENT YEAR 2008-09. THE FIRST APPELLATE AUTHO RITY HAS ALSO EXTRACTED THE WORKINGS GIVEN BY THE ASSESSEE IN PARAGRAPH 11.7 OF HIS ORDE R. THE WORKINGS GIVEN BY THE ASSESSEE DISCLOSED THE FACT THAT THE SHARP RISE IN THE SELLING RATE OF FINISHED GOODS HAS HELPED IN THE INCREASE OF GROSS PROFIT RATE FOR THE ASSESSMENT YEAR 2008-09 BY 6.02%. 29. ACCORDINGLY, THE LD CIT(A) HAS GIVEN A SPEC IFIC FINDING THAT THE EFFECT OF INCREASE IN PRICES IN THE YEAR RELEVANT TO THE ASSESSMENT YE AR 2008-09 IS EVENED OUT, I.E., (9.73% (-) 6.02%), THE GROSS PROFIT RATE FOR THAT Y EAR WOULD WORK OUT TO 3.71% ONLY. ACCORDINGLY, THE LD CIT(A) HAS OPINED THAT THE GROS S PROFIT RATE OF 3.71% WAS COMPARABLE WITH THE GROSS PROFIT DECLARED IN SOME O F THE YEARS. HAVING OPINED SO, STILL THE LD CIT(A) HELD THAT THE FLUCTUATION IN THE GP R ATE IN VARIOUS RATES ARE UNREASONABLE. IN OUR VIEW, THE SAID DECISION OF THE LD CIT(A) DOE S NOT HAVE ANY BASIS. HAVING UNDERSTOOD THAT THERE MIGHT BE VARIOUS REASONS FOR THE FLUCTUATION IN THE RATE OF G.P, IN OUR VIEW, THE LD CIT(A) SHOULD NOT HAVE COME TO SUC H A CONCLUSION. 30. THE FOLLOWING FINDINGS GIVEN BY THE LD CIT(A ) ACTUALLY MILITATE AGAINST HIS OPINION ON THE ISSUE OF RATE OF G.P. (A) THE LEVEL OF EFFICIENCY IN THE POWER CONSUMPTI ON PER MT OF PRODUCTION HAS INCREASED CONSISTENTLY OVER THE YEARS. (B) THE INSPECTION CARRIED OUT BY MR. M. JACOB VA RGHESE HAS VINDICATED THE FIGURES REPORTED BY THE ASSESSEE. IT IS PERTINENT TO NOTE THAT THE LEVEL OF EFFICIENC Y IN THE POWER CONSUMPTION STANDS CORROBORATED BY THE FACT THAT THE GROSS PROFIT RATE DISCLOSED BY THE ASSESSEE WAS ALSO INCREASING CONSISTENTLY. THE ABNORMAL INCREASE WAS SEEN ONLY IN ASSESSMENT YEAR 2004- 05 AND 2008-09. THE ASSESSEE HAS PROVED THAT THE R EASON FOR THE ABNORMAL INCREASE IN ASSESSMENT YEAR 2008-09 WAS THE PRICE RISE WITNESSE D IN THAT YEAR. THE LD CIT(A) HAS ALREADY GIVEN A FINDING THAT THE FACTORY WORKED FOR ONLY 12 DAYS IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2004-05. THUS THE ABNORMAL VA RIATION FOR THESE TWO YEARS STAND I.T.A. NOS. 197-202 & 234-239/COCH/2011 23 EXPLAINED. BESIDES THE ABOVE, THE LD CIT(A) HAS N OT BROUGHT ON RECORD ANY MATERIAL TO SUSPECT THE RATE OF GROSS PROFIT DECLARED BY THE AS SESSEE OVER THE YEARS. WE MAY ALSO OBSERVE HERE THAT THE ASSUMPTION MADE BY THE AO THA T THE GROSS PROFIT RATE DECLARED FOR THE ASSESSMENT YEAR 2008-09 IS THE CORRECT RATE TO BE ADOPTED FOR ALL THE YEARS IS ALSO NOT BASED ON ANY MATERIAL. UNDER THESE CIRCUM STANCES, WE FIND NO REASON TO ADOPT A RATE OF GROSS PROFIT, WHICH IS ALTOGETHER DIFFERE NT FROM GROSS PROFIT RATE DECLARED BY THE ASSESSEE, FOR ESTIMATING THE UNDISCLOSED INCOME . UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, PARTICULARLY IN VIEW OF THE DISCUSSIONS MADE SUPRA, WE ARE OF THE VIEW THAT IT WOULD BE JUST AND REASONABLE, IF T HE GROSS PROFIT RATE DECLARED BY THE ASSESSEE IN VARIOUS YEARS IS ADOPTED TO DETERMINE T HE UNDISCLOSED INCOME OF THE RESPECTIVE YEARS. WE ACCORDINGLY ORDER THAT THE UN DISCLOSED INCOME SHALL BE DETERMINED IN THE FOLLOWING MANNER. (A) TO DETERMINE THE TOTAL TURNOVER AT 108% OF THE DISC LOSED TURNOVER. (B) TO DETERMINE THE AMOUNT OF GROSS PROFIT BY APPLYING THE RATE OF GROSS PROFIT DISCLOSED BY THE ASSESSEE FOR THE RESPECTIVE ASSESS MENT YEARS ON THE TURNOVER DETERMINED IN (A) ABOVE. (C) FROM THE AMOUNT COMPUTED IN (B) ABOVE, TO DEDUCT TH E GROSS PROFIT ALREADY DISCLOSED BY THE ASSESSEE. (D) THE RESULTANT FIGURE IS THE UNDISCLOSED INCOME OF T HE RESPECTIVE YEARS. THE ORDER OF LD CIT(A) ON THIS ISSUE IS MODIFIED AC CORDINGLY. 31. WE HAVE ALREADY NOTED THAT THE ASSESSEE ORI GINALLY WORKED OUT THE RATE OF GROSS PROFIT FOR THE ASSESSMENT YEAR 2008-09 AT 14.61% AN D LATER MODIFIED IT TO 9.73%. DURING THE COURSE OF HEARING, THE LD D.R SUBMITTED THAT THE REVISED WORKINGS SUBMITTED BY THE ASSESSEE NEEDS VERIFICATION AT THE END OF TH E AO. WE AGREE WITH THE SAID PLEA AND ACCORDINGLY DIRECT THE AO TO VERIFY THE G.P RAT E WORKINGS FOR THE ASSESSMENT YEAR 2008-09 AFTER AFFORDING OPPORTUNITY TO THE ASSESSEE AND ADOPT THE RATE DETERMINED BY HIM IN ACCORDANCE WITH ACCOUNTING PRINCIPLES FOR TH AT YEAR TO DETERMINE THE UNDISCLOSED INCOME OF THAT YEAR. 32. THE NEXT ISSUE, WHICH IS CONTESTED BY THE RE VENUE IN THE APPEALS FILED BY IT FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08 RELATES TO THE DELETION OF ADDITIONS MADE U/S 68 I.T.A. NOS. 197-202 & 234-239/COCH/2011 24 OF THE ACT. THE FACTS RELATING TO THE SAME ARE ST ATED IN BRIEF. THE AO NOTICED THAT THERE WERE FREQUENT CREDITS IN THE ACCOUNT OF THE M ANAGING DIRECTOR SHRI K.P. UMMER. WHEN QUESTIONED, IT WAS EXPLAINED THAT THE MANAGING DIRECTOR RECEIVED FUNDS FROM HIS SON NAMED SHRI MUHAMMED SHERIFF, WHO WAS WORKING AB ROAD AND ALSO FROM A PERSON NAMED SHRI SATHER CHAVAKAD AND THE FUNDS SO RECEIVE D WERE FIRST TAKEN INTO THE PERSONAL BANK ACCOUNT OF THE MANAGING DIRECTOR. SU BSEQUENTLY, THE MANAGING DIRECTOR INVESTED THOSE FUNDS INTO THE ASSESSEE COMPANY. TH OUGH THE AO HAD ADDED THE FUNDS CLAIMED TO HAVE BEEN RECEIVED FROM SHRI MUHAMMED SH ERIF IN THE INDIVIDUAL ASSESSMENTS OF SHRI K.P. UMMER, YET HE CHOSE TO ADD THEM AGAIN IN THE HANDS OF THE ASSESSEE COMPANY ALSO. IT IS PERTINENT TO NOTE THA T THE AO DID NOT MAKE ANY ADDITION WITH REGARD TO THE FUNDS RECEIVED FROM SHRI SATHER CHAVAKAD IN THE INDIVIDUAL ASSESSMENT OF SHRI K.P. UMMER, APPARENTLY ACCEPTING THE GENUINENESS OF THE CREDIT. IN SPITE OF THE SAID FACT, THE AO CHOSE TO ASSESS THE SAME IN THE HANDS OF THE ASSESSEE COMPANY. ACCORDINGLY THE AO ASSESSED A SUM OF RS.1 ,37,50,000/- IN THE ASSESSMENT YEAR 2006-07 AND A SUM OF RS.60,21,000/- IN THE ASS ESSMENT YEAR 2007-08. BY PLACING RELIANCE ON THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF JAGMOHAN RAM RAM CHANDRA VS. CIT (153 CTR 193), THE AO HELD THAT THE ASSESSMENT OF THE VERY SAME AMOUNT AGAIN IN THE HANDS OF ASSESSEE COMPANY IS LEGALLY VALID, EVEN THOUGH IT HAS ALREADY BEEN ASSESSED IN THE HANDS OF SHRI K.P. UMMER. 33. BEFORE LD CIT(A), THE ASSESSEE SUBMITTED THA T THE SUM OF RS.1,37,50,000/- WAS RECEIVED BY THE ASSESSEE DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08 AND HENCE THE AO WAS WRONG IN ASSESSING THE SAME IN THE ASST. YEAR 2006-07. IN THE SAME MANNER, THE SUM OF RS.60,21,000/- PERTA INING TO THE ASST. YEAR 2008-09 WAS WRONGLY ASSESSED BY THE AO IN THE ASST. YEAR 20 07-08. THE ASSESSEE ALSO CONTENDED THAT THE DECISION RENDERED IN THE CASE OF JAGMOHAN RAM RAM CHANDRA (SUPRA), SHALL NOT APPLY TO THE FACTS OF THE INSTAN T CASE ON THE GROUND THAT IN THE CASE OF JAGMOHAN RAM RAM CHANDRA (SUPRA), THE DECISION R ESTED UPON THE GENUINENESS OF THE TRANSACTIONS. IT WAS SUBMITTED THAT THE GENUINE NESS WAS NOT AN ISSUE IN THE INSTANT CASE AND ACCORDINGLY IT WAS CONTENDED THAT THE SAID DECISION SHALL NOT APPLY TO THE FACTS OF THE INSTANT CASE. I.T.A. NOS. 197-202 & 234-239/COCH/2011 25 34. THE LD CIT(A) WAS CONVINCED WITH THE SUBMISSIO NS MADE BY THE ASSESSEE AND ACCORDINGLY DELETED THE ASSESSMENT OF CASH CREDITS IN BOTH THE YEARS VIZ., ASSESSMENT YEAR 2006-07 AND 2007-08. THE OBSERVATIONS MADE BY THE LD CIT(A) ARE EXTRACTED BELOW:- 20. I HAVE CAREFULLY CONSIDERED THE RELEVANT FACT S AND PROVISIONS OF LAW WITH REGARD TO THE ISSUE INVOLVED. I FIND THAT AS PER SPECIFIC DETAILS ELABORATED IN PARA 8.3 OF THE ASSESSMENT ORDER THE IDENTIFIED BORROWI NGS FROM MR. K.P. UMMER OF RS. 1,37,50,000 ARE PERTAINING TO A.Y. 2007-08 AND THEREFORE, NO ADDITION WAS JUSTIFIED IN A.Y. 2006-07. IN A SIMILAR MANNER, I DENTIFIED BORROWINGS FROM MR. K.P. UMMER OF RS. 60,21,000 ARE PERTAINING TO A.Y. 2008-09 AND THEREFORE, THIS ADDITION WAS NO JUSTIFIED IN A.Y. 2007-08. I FURT HER FIND THAT WHEREAS THE ASSESSING OFFICER IS DISBELIEVING CREDITWORTHINESS IN RESPECT OF FUNDS TO THE TUNE OF RS. 35,00,000 ADVANCED BY MR. SATHAR CHAVAKKAD TO MR. K.P. UMMER IN THE PERIOD RELEVANT TO A.Y. 2007-08, THE SAME HAS BEEN ACCEPTED BY THE ASSESSING OFFICER IN THE ASSESSMENT OF MR. K.P. UMMER WHOSE ASSESSMENTS HAVE BEEN FINALIZED SIMULTANEOUSLY BY THE SAME ASSESSING OFF ICER. IN A SIMILAR MANNER, I FIND THAT WHEREAS THE ASSESSING OFFICER DISBELIEVE D CREDITWORTHINESS IN RESPECT OF GIFTS TO THE TUNE OF RS. 60,21,000 RECEIVED BY MR. K.P. UMMER IN THE PERIOD RELEVANT TO A.Y. 2008-09, AN ADDITION ONLY OF RS. 47,21,000 HAS BEEN MADE IN THE HANDS OF MR. K.P. UMMER. I THUS FIND THAT ADDITIO NS MADE BY THE ASSESSING OFFICER WERE FACTUALLY INCORRECT. 20.1 COMING TO THE MERITS OF THE ADDITION, I FIND T HAT AS FAR AS APPELLANT COMPANY WAS CONCERNED, THE BORROWINGS HAD COME FROM MR. K.P. UMMER, WHO WAS DIRECTOR OF THE APPELLANT COMPANY. AS PER COPY OF ACCOUNT OF MR. K.P. UMMER IN THE BOOKS OF APPELLANT COMPANY, I FIND THA T THERE ARE DEPOSITS AS WELL AS WITHDRAWALS BY MR. K.P. UMMER ON VARIOUS OCCASIO NS DURING THE RELEVANT PREVIOUS YEARS. THE ASSESSING OFFICER HAS SELECTIV ELY IDENTIFIED CERTAIN ENTRIES FOR NON ACCEPTANCE OF THE BORROWINGS. THIS WAS NOT PER MISSIBLE FOR THE BASIC REASON THAT EITHER THE CREDITWORTHINESS OF THE LOANEE WAS TO BE BELIEVED OR DISBELIEVED. THERE WAS NO PROVISION IN LAW TO PARTLY BELIEVE THE CREDITWORTHINESS OF A LOANEE. AS FAR AS THE APPELLANT COMPANY WAS CONCERNED THE B ORROWINGS WERE FROM MR. K.P. UMMER WHO WAS NOT ONLY DIRECTOR AND MANAGING T HE BUSINESS AFFAIRS OF THE APPELLANT COMPANY IN A SINGLE HANDED MANNER BUT WAS ALSO HAVING SUBSTANTIAL AND OSTENSIBLE SOURCES OF INCOME IN HIS INDIVIDUAL CAPACITY AND WAS ALSO ASSESSED TO TAX WITH THE SAME ASSESSING OFFICER. THE BASIC SPIRIT BEHIND DEEMING PROVISIONS OF SEC. 68 WAS THAT THE BENEFICIARY OF A LOAN TRANSACTION SHOULD BE BROUGHT TO TAX IF THE CREDITWORTHINESS OF THE LOANE E WAS NOT ESTABLISHED. THESE WERE DEEMING PROVISIONS AND THERE WAS UNDERLYING PR ESUMPTION THAT AN ASSESSEE HAVING UNACCOUNTED FUNDS WAS BRINGING IN MONEY THRO UGH ACCOMMODATION ENTRIES SO THAT SUCH UNACCOUNTED FUNDS ARE AVAILABL E FOR HIS USE IN THE BOOKS OF ACCOUNTS EVEN WHEN THE FUNDS APPEAR IN THE BOOKS AS LOANS FROM PERSONS LACKING I.T.A. NOS. 197-202 & 234-239/COCH/2011 26 CREDITWORTHINESS AND CAPACITY TO ADVANCE THE LOANS. THE FUNDS BROUGHT IN BY MR. K.P. UMMER IN THE BOOKS OF THE APPELLANT COMPANY AS BORROWINGS, IN NO MANNER, MAKES THE APPELLANT COMPANY AS BENEFICIARY AS MR. U MMER WAS FREE TO WITHDRAW THE FUNDS AT ANY POINT OF TIME AS HE STOOD AS CREDI TOR IN THE BOOKS OF ACCOUNTS OF THE APPELLANT COMPANY. IN THE PREVIOUS YEAR RELEVA NT TO A.Y.2007-08 FOR WHICH THE BORROWINGS OF RS. 1,37,50,000 HAVE BEEN IDENTIF IED BY THE ASSESSING OFFICER, I FIND THAT AS AGAINST NIL OPENING BALANCE, THE CRE DIT BALANCE TO THE ACCOUNT OF MR. K.P. UMMER AT THE YEAR END IS ONLY RS. 1,24,39, 096 I.E. MUCH LESSER FIGURE THAN THE ONE IDENTIFIED BY THE ASSESSING OFFICER. I N A SIMILAR MANNER, I FIND THAT IN THE PREVIOUS YEAR RELEVANT TO A.Y. 2008-09 FOR W HICH THE BORROWINGS OF RS. 60,21,000 HAVE BEEN IDENTIFIED BY THE ASSESSING OFF ICER, I FIND THAT AS AGAINST OPENING BALANCE OF RS. 1,24,39,096, THE CREDIT BALA NCE TO THE ACCOUNT OF MR. K.P. UMMER AT THE YEAR END IS ONLY RS. 82,19,246 I.E. MU CH LESSER FIGURE THAN THE ONE IDENTIFIED BY THE ASSESSING OFFICER TAKEN TOGETHER FOR A.YS. 2007-08 AND 2008-09 AND IN FACT THERE IS NET WITHDRAWAL BY HIM IN THIS YEAR. IT IS THEREFORE, APPARENT THAT MR. K.P. UMMER WAS THE ACTUAL BENEFICIARY AND WAS IN ACTUAL COMMAND OF SUCH FUNDS AND IF THERE WAS ANY DEFECT IN THE SOURC ES OF FUNDS IN HIS HANDS WITH REGARD TO BORROWINGS OR GIFTS CLAIMED BY HIM, THE S AME DESERVED TO BE CONSIDERED ONLY IN HIS HANDS AND NOT IN THE HANDS O F THE APPELLANT COMPANY. THE SAME ARE THEREFORE BEING CONSIDERED IN THE HAND OF MR. K.P. UMMER WHOSE APPEALS ARE BEING DECIDED SIMULTANEOUSLY. NONE OF THE PARAMETERS OF THE JUDICIAL PRONOUNCEMENT IN THE CASE OF CIT VS. C.P. MOHANKALA & OTHERS (2007) 291 ITR 278 (SC) RELIED UPON BY THE ASSESSING OFFIC ER WERE THUS APPLICABLE IN THE CASE OF BORROWINGS BY THE APPELLANT COMPANY FRO M ITS DIRECTOR MR. UMMER AS HAS BEEN RIGHTLY POINTED OUT BY THE LEARNED COUNSEL FOR THE APPELLANT. ANOTHER DECISION OF ALLAHABAD HIGH COURT IN THE CASE OF JAG MOHAN RAM RAM CHANDRA 153 CTR 193 RELIED UPON BY THE ASSESSING OFFICER TO TAX THE SAME FUNDS IN THE BOTH THE HANDS I.E. APPELLANT COMPANY AND MR. K.P. UMMER WAS TOTALLY IN A DIFFERENT CONTEXT AND HAS BEEN DULY DISTINGUISHED BY THE LEAR NED COUNSEL FOR THE APPELLANT. THE SAME WAS NOT DISCUSSED ABOVE WHICH WERE CLEARLY DISTINGUISHABLE FROM THE FACTS INVOLVED IN THE CASE OF ABOVE JUDICI AL PRONOUNCEMENT. THE ADDITIONS MADE BY THE ASSESSING OFFICER ON THIS ACC OUNT IN A.Y. 2006-07 AND 2007-08 ARE ACCORDINGLY DIRECTED TO BE WITHDRAWN. T HE ASSESSING OFFICER SHALL ACCORDINGLY GRANT APPROPRIATE RELIEF TO THE APPELLA NT. THIS GROUND OF APPEAL IS THEREFORE ALLOWED. (PARA 20 AND 20.1 OF LD CIT(A) IN A. Y 2006-07) 35. WE HAVE CAREFULLY CONSIDERED THE DECISION R ENDERED BY LD CIT(A) ON THIS ISSUE. THE FACT REMAINS THAT THE CASH CREDITS SOUGHT TO BE ASSESSED IN THE HANDS OF THE ASSESSEE HEREIN HAVE ALREADY BEEN ASSESSED IN THE H ANDS OF THE MANAGING DIRECTOR SHRI K.P. UMMER. THE LD CIT(A) HAS OBSERVED THAT THE DE CISION RENDERED BY HONBLE ALLAHABAD HIGH COURT IN THE CASE OF JAGMOHAN RAM RA M CHANDRA, (SUPRA) IS DISTINGUISHABLE. EVEN OTHERWISE, IN OUR VIEW, THE A SSESSMENT OF VERY SAME AMOUNT BOTH IN THE HANDS OF THE MANAGING DIRECTOR SHRI K.P .UMMER AND ALSO IN THE HANDS OF I.T.A. NOS. 197-202 & 234-239/COCH/2011 27 THE ASSESSEE COMPANY WOULD LEAD TO DOUBLE ASSESSMEN T OF THE VERY SAME AMOUNT, WHICH IS AGAINST THE SCHEME OF THE ACT. IN THIS REG ARD, WE MAY GAINFULLY REFER TO THE OBSERVATIONS OF HONBLE SUPREME COURT IN THE CASE O F ITO VS.CH. ATCHIAH (218 ITR 239), WHEREIN THE HONBLE APEX COURT OBSERVED THAT UNDER THE INCOME TAX ACT 1961, THE ITO CAN AND HE MUST, TAX THE RIGHT PERSON AND T HE RIGHT PERSON ALONE. BY RIGHT PERSON, THE HONBLE SUPREME COURT MEANT THE PERSON WHO IS LIABLE TO TAXED, ACCORDING TO LAW, WITH RESPECT TO A PARTICULAR INCOME. IN THE INSTANT CASE, THE SOURCES FOR THE CREDITS NOTICED IN THE ACCOUNT OF MANAGING DIRECTOR IS ALREADY EXPLAINED IN HIS INDIVIDUAL ASSESSMENT AS LOANS/GIFTS. THUS, FROM THE POINT OF VIEW OF THE ASSESSEE COMPANY, THE SOURCES OF CREDITS STAND EXPLAINED. IT IS NOT THAT THIS VIEW SHALL BE VALID ONLY IF THE GENUINENESS OF LOANS/GIFTS ARE ACCEPTED IN THE INDI VIDUAL STATUS. EVEN IF GENUINENESS IS NOT ACCEPTED AND CONSEQUENT ADDITION IS MADE U/S. 6 8 OF THE ACT, STILL THE SOURCES OF CREDITS IN THE ACCOUNT OF MANAGING DIRECTOR STANDS EXPLAINED, AS THEY ARE COMING OUT OF FUNDS TREATED AS HIS INCOME. ACCORDINGLY, WE AGREE WITH THE FINAL DECISION RENDERED BY LD CIT(A) ON THIS ISSUE. 36. IN THE RESULT, THE APPEALS FILED BY THE ASS ESSEE ARE PARTLY ALLOWED AND THE APPEALS OF THE REVENUE ARE DISMISSED. PRONOUNCED ACCORDINGLY ON 30-11- 2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 30TH NOVEMBER, 2012 GJ COPY TO: 1.SOUTH MALABAR STEELS & ALLOYS PVT. LTD., KALLADIP ATTA, PATTAMBI, PALAKKAD. 2.THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CI RCLE, THRISSUR. 3.THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, KOCHI . 4.THE COMMISSIONER OF INCOME-TAX, CENTRAL, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) ITAT, COCHIN I.T.A. NOS. 197-202 & 234-239/COCH/2011 28