ACIT, Trichy V. M/s. Amman Steel & Allied Industries, Trichy

ITA 2058/CHNY/2010

• Counselvise Citation: 205821714 RSA 2010
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 17-08-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 06-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T N BETGIRI J
• Assessee Lawyers: S SRIVATSAN
• Keywords: Unexplained investment; Income from undisclosed sources; Document seized; Principle of natural justice; Corroborative evidences; Right to appeal; Revised return; Documents seized
• Section: 40A(3); 234B; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER] I.T.A NOS. 2057 TO 2060/MDS/2010 (ASSESSMENT YEARS : 2002-03 TO 2005-06 ) THE ACIT CIRCLE IV TRICHY VS M/S AMMAN STEEL & ALLIED INDUSTRIES SILAMBUDAYANPATTI NAGAMANGALAM TRICHY [PAN AAMFS4876J ] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI T.N.BETGIRI, JCIT/DR RESPONDENT BY : SHRI S.SRIVATSAN, C.A. DATE OF HEARING : 17-08-2011 DATE OF PRONOUNCEMENT : 23-08-2011 O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER: THIS IS A BUNCH OF FOUR APPEALS FILED BY THE R EVENUE AGAINST THE SAME ASSESSEE FOR ASSESSMENT YEARS 2002 -2003 T O 2005-2006, IN WHICH IDENTICAL ISSUES ARISING OUT OF COMMON FACTS ARE INVOLVED. THEREFORE, FOR THE SAKE OF CONVENIENCE AND BREVITY, WE ARE PROCEEDING TO DECIDE THEM ALL BY A COMMON ORDER. ITA 2057 TO 2060/2010 :- 2 -: 2. TO BE SPECIFIC AND TO UNDERSTAND THE IDENTICAL ISS UES, WE WOULD LIKE TO NARRATE THE FACTS OF APPEAL FOR ASSES SMENT YEAR 2002- 2003. THE ASSESSEE IS A FIRM ENGAGED IN THE MANUFA CTURING OF STEEL RODS OUT OF INGOTS AND BILLETS. FOR THE ASSESSMENT YEAR 2002-03, THE FIRM HAD FILED ITS RETURN OF INCOME ON 21.10.2002 D ISCLOSING TOTAL INCOME OF ` 68,894/-. A SEARCH U/S.132 OF THE ACT WAS CONDU CTED ON 24.6.2004 IN THE PREMISES OF THE ASSESSEE BY THE C ENTRAL EXCISE DEPARTMENT. DURING THIS SEARCH OPERATION, INCRIMI NATING DOCUMENTS AND EVIDENCES WERE FOUND IN THE COMPUTERS, FLOPPIES ETC. AND THESE WERE SEIZED BY THE CENTRAL EXCISE DEPARTMENT. THES E SEIZED MATERIALS ARE STILL IN THE CUSTODY OF THE CENTRAL EXCISE DEPA RTMENT. THE CENTRAL EXCISE DEPARTMENT, ON THE BASIS OF SEIZED MATERIAL SHOW CAUSED THE ASSESSEE. THE CENTRAL EXCISE DEPARTMENT ALSO SENT A COPY OF THIS SHOW CAUSE NOTICE TO THE DCIT,CIRCLE-IV, TRICHY (I. E INCOME-TAX DEPARTMENT) . FROM THIS COPY OF SHOW CAUSE NOTICE, IT WAS EVINCED THAT THE ASSESSEE HAD INDULGED IN EVADING CENTRAL E XCISE DUTY BY MAKING UNACCOUNTED PURCHASE OF RAW MATERIALS, BY SU PPRESSING PRODUCTION, BY CLANDESTINE REMOVING BARS AND RODS, THAT TOO WITHOUT ACCOUNTING IN DAILY STOCK REGISTER, WITHOUT ISSUE O F INVOICE AND WITHOUT PAYMENT OF DUTY. IT WAS ALSO NOTICED THAT THE ASS ESSEE WAS MAINTAINING MULTI-ACCOUNTS ONE SET OF ACCOUNT BASED ON WHICH EXCISE RETURNS WERE FILED AND ANOTHER SET FOR PRIVATE CONS UMPTION WHEREIN ITA 2057 TO 2060/2010 :- 3 -: TRANSACTIONS OTHER THAN THOSE REFLECTED IN THE REGU LAR BOOKS OF ACCOUNTS. APART FROM THIS, THERE WERE SOME PRIVATE RECORDS WHICH SHOWED BOTH THE TRANSACTIONS. 3. DURING THE COURSE OF INVESTIGATIONS, IT WAS FOUND T HAT THE ASSESSEE WAS PURCHASING INGOTS/BILLETS MAINLY FROM SRI ULAGANAYAGI AMMAN STEEL, JBA STEELS & SUMANGALA STEELS, PONDICH ERRY. THE DOCUMENTARY EVIDENCE INDICATE THE RECEIPT OF UNACC OUNTED PURCHASES BY THE ASSESSEE FROM THE ABOVE CONCERNS. THE ACTUAL PURCHASE AND CONSUMPTION OF INGOTS/BILLETS RECORDED IN THE YEARL Y STATEMENTS AVAILABLE IN THE SEIZED DOCUMENTS OF FILE SASAI/FIO PPY-7/FLLE-1 INDICATE HUGE SUPPRESSION OF PURCHASE AND CONSUMPTI ON OF RAW MATERIALS. AS PER THE ASSESSING OFFICER, THE SHORT AGE OF INGOTS/BILLETS FOUND ON THE DATE OF SEARCH WAS 70.507 TONNES AND E XCESS STOCK WAS OF 89 MT OF BARS AND RODS WHICH INDICATED THE UNACC OUNTED PURCHASE OF RAW MATERIALS AND ALSO UNACCOUNTED PRODUCTION. 4. THE ASSESSING OFFICER HAS CONCLUDED THAT THE DOCUME NTS SEIZED INDICATE COLLECTION OF SALE PROCEEDS OF UNAC COUNTED BARS/RODS BY THE ASSESSEE IN CASH AND THAT THE UNACCOUNTED SALE PROCEEDS IS ALSO COLLECTED BY SRI ULAGANAYAGI AMMAN STEELS AND THE S AME IS ADJUSTED BY SRI ULAGNAYAGI AMMAN STEELS AGAINST THE UNACCOUN TED SALE OF BILLETS ITA 2057 TO 2060/2010 :- 4 -: MADE TO THE ASSESSEE. HE HAS FOUND THAT THE DOCUME NTS SEIZED INDICATED PAYMENTS MADE BY THE ASSESSEE TO AMMAN ST EEL CORPORATION, FOR THE INGOTS/BILLETS PURCHASED BY TH E ASSESSEE FROM JBA STEELS AND SUMANGALA STEELS. THESE PAYMENTS MADE BY THE ASSESSEE WERE IN TURN ADJUSTED BY AMMAN STEEL CORPORATION FO R THE SCRAP SUPPLIED TO THE ABOVE CONCERNS. THESE TRANSACTIONS ARE RECORDED IN FILE SASAI/FLPY- DAT-50. THE ASSESSEE ALSO MADE PAYMENTS IN CASH TO JBA STEELS AND SUMANGALA STEELS FOR THE BILLETS PUR CHASED AND THE TRANSACTIONS ARE ALLEGEDLY RECORDED IN FILE SASAI/ FLPY-1/DAT-50. THE ASSESSEE ALLEGEDLY HAS ALSO MADE PAYMENTS IN CASH T O JBA STEELS AND SUMANGALA STEELS FOR THE BILLETS PURCHASED AND THE TRANSACTIONS ARE RECORDED IN FILE SASI/FLY-1/DAT-50. 5. THE ASSESSEE IS STATED TO HAVE PURCHASED FURNACE OI L WITHOUT ACCOUNTING AND THE EVIDENCE FOR THE SAME IS FOUND IN THE SEIZED DOCUMENTS IN FILE SASAI FLPY1-DAT-50. AS PER THE ASSESSING OFFICER, THE UNACCOUNTED PURCHASED DURING THE ASST. YEAR 2004-05 ARE REFLECTED UNDER EXP-II IN THE MONTHLY TRANSACTION S TATEMENT AVAILABLE IN THE SEIZED DOCUMENT SASAI/FLPPY-2/FILE3. THE ASSESSING OFFICER HAS FURTHER INFERRED THAT THE DATE-WISE PRODUCTION STATEMENT FOR APRIL, 2004 TO MAY, 2004 AND THE OBSERVATION NOTE BOOK OF SHRI SURESH, ENGINEER, M/S VEKAY ENERCON, CHENNAI, INDICATE SUPP RESSION OF PRODUCTION IN THE DAILY STOCK ACCOUNT. THE ACTUAL P RODUCTION DURING ITA 2057 TO 2060/2010 :- 5 -: EACH MONTH FOR THE YEAR 2003-04 IS RECORDED IN THE MONTHLY TRANSACTION STATEMENTS IN FILE SASAI/FLOPPY-2/FILE- 3, WHEREIN THE QUANTITY ACCOUNTED IN THE BOOKS OF ACCOUNTS IS VERY LESS. THE YEARLY STATEMENT IN FILE SASAI/ FLOPPY-7/ FILE-1 ALLEGEDLY SHOWS ACTUAL TRANSACTIONS OF THE ASSESSEE FOR THE YEARS 2002-03 & 2003-04 AND FROM OCTOBER, 2001 TO MARCH, 2002. 6. BASED ON THE SHOW CAUSE NOTICE, THE ASSESSING OFFIC ER HAS FOUND THAT THE ASSESSEE RECEIVED THE SALE PROCEEDS BY WAY OF CASH FOR THE UNACCOUNTED STOCK BY ISSUING CHITS ACKNOWLEDGIN G RECEIPT OF CASH WHICH WAS SEIZED FROM TRICHY STEELS, PUDUKKOTTAI. T HE ASSESSEE ALSO RECEIVED PAYMENTS FOR UNACCOUNTED BARS & RODS CLEAR ED BY WAY OF DEMAND DRAFTS IN A FICTITIOUS NAME SHRI SUBRARNANIA N. THE DRAFTS RECEIVED ARE DISCOUNTED BY VASAVI FINANCE AND CASH WAS RECOVERED BY SRI RATHINAM, ONE OF THE EMPLOYEE OF THE ASSESSEE A S EVIDENCED FROM THE DOCUMENTS SEIZED FROM VASAVI FINANCE. THE ENTRI ES FOR RECEIPT OF CASH FROM SM VASAVI FINANCE IS AVAILABLE INN FILE S ASAI/FLOPPY-1/ DAT-50. 7. AS PER THE SHOW CAUSE NOTICE ISSUED BY THE CENTRAL EXCISE DEPARTMENT, THE ACCOUNTED PRODUCTION FOR THE ASST. YEAR 2002-03 WAS 7833.41 MT. THE QUANTITY CLEARED WAS 7655.477 MT. A ND DUTY HAS ITA 2057 TO 2060/2010 :- 6 -: BEEN PAID ON THIS HEREUNDER. THE QUANTITY CLEARED W ITHOUT DUTY WAS 6,307.361 MT. THE TOTAL VALUE OF THE MATERIAL CLEAR ED WITHOUT PAYMENT OF DUTY WAS ` 11,5361,633/. ON THAT BASIS, THE ASSESSING OFFICER HAS CONCLUDED THAT SINCE THE ASSESSEE HAS EARNED UNACCO UNTED INCOME BY SUPPRESSION OF PRODUCTION AND SALES, INCOME CHARGEA BLE TO TAX HAS ESCAPED ASSESSMENT. THE ASSESSMENT WAS REOPENED U/ S 147 OF THE ACT AND A NOTICE U/S 148 WAS ISSUED ON 21.12.20 05. THE ASSESSEE VIDE ITS LETTER DATED 9.01.2006 REQUESTED TIME TO FILE THE RETURN OF INCOME. 8. THE ASSESSEE FILED THE RETURN OF INCOME ON 15.2.200 6 RETURNING A TOTAL INCOME OF ` 68,894/- IN RESPONSE TO THE NOTICE ISSUED U/S 148 OF THE ACT. A NOTICE U/S 143(2) WAS ISSU ED ON 17.2.2006 AND THE NOTICE WAS SERVED ON THE ASSESSEE ON 20.2.2006. A LETTER DATED 12.12.2006 WAS ISSUED REQUESTING THE ASSESSEE TO EX PLAIN THE UNACCOUNTED PRODUCTION OF BARS AND RODS DETECTED BY THE CENTRAL EXCISE DEPARTMENT. IN RESPONSE TO THE LETTER, THE A SSESSEES REPRESENTATIVE, SHRI S. SRIVATASAN, C.A APPEARED AN D THE ASSESSEE REPRESENTATIVE IN HIS LETTER HAS STATED AS UNDER: 1) THE ASSESSEE HAS DISPUTED THE EVIDENTIARY V ALUE OF THE DAT TAPES SEIZED AND RETRIEVED BY THE DEPARTMENT. ITA 2057 TO 2060/2010 :- 7 -: 2) THE ASSESSEE HAS ALSO SOUGHT CROSS-EXAMINATION OF THE WITNESSES. 3) THE ENQUIRY PROCEEDINGS OF THE CENTRAL EXCISE DEPARTMENT IS PENDING AND NO FINALITY HAS BEEN REACHED IN THE MATTER. 4) NO ORDER IMPOSING DUTY OR PENALTY ARE PASSED TILL DATE. 5) THE VARIATIONS NOTICED AT THE TIME OF SEARCH BY THE CENTRAL EXCISE DEPARTMENT ARE BASED ON RECORDS WHOSE VERACITY HAS BEEN QUESTIONED AND THE DOCUMENTS HAVE TO BE ESTABLISHED THAT THEY ARE RELIABLE. 6) THE VARIATION IN THE PRODUCTION ALLEGED BY THE CENTRAL EXCISE DEPARTMENT ARE SHEER ALLEGATIONS AND NOT ESTABLISHED. 7) FURTHER, THE PROCESS OF EXAMINING OF WITNESSES AND THE CROSS-VERIFICATION/CLASSIFICATION OF THE QUANTITY IS GOING ON AND THEREFORE, IT IS DIFFICULT TO EXPLAIN THE VARIATION. 9. THE ABOVE EXPLANATION WAS NOT ACCEPTABLE TO THE ASS ESSING OFFICER AS THE CENTRAL EXCISE DEPARTMENT, BASED ON THE MATERIALS SEIZED FROM VARIOUS PREMISES HAS PROVED THAT THE AS SESSEE HAS BEEN SUPPRESSING THE PRODUCTION. HENCE, THE ASSESSEE WA S REQUESTED TO FILE HIS OBJECTION FOR THE PROPOSAL TO ESTIMATE THE GROS S PROFIT ON THE UNACCOUNTED SALES AS RETURNED BY THE ASSESSEE IN TH E TRADING ACCOUNT. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO FIL E ITS OBJECTION TO THE PROPOSAL TO DISALLOW 20% OF THE CASH PAYMENTS MADE FOR THE VARIOUS ITA 2057 TO 2060/2010 :- 8 -: EXPENSES INCURRED. THE ASSESSEES REPRESENTATIVE FI LED HIS OBJECTIONS AND THE ASSESSMENT WAS COMPLETED AS UNDER: - INCOME RETURNED ` 68,894 ADD : AS PER THE MATERIALS SEIZED BY THE CENTRAL EXCISE DEPARTMENT, THE TOTAL UNACCOUNTED MATERIALS CLEARED WAS 6307.361 TONES. THE ASSESSABLE VALUE OF THE MATERIALS IS ` 11,53,61,633/- AS PER THE CENTRAL EXCISE DEPARTMENT SHOW-CAUSE NOTICE DATED 30/6/05. THE ASSESSEES REPRESENTATIVE IN HIS LETTER DT. 26/12/06 HAS STATED THAT THE SALES SUPPRESSION IS NOT PROVED AND INVESTIGATIONS ARE AT A NASCENT STAGE AND NO CONCLUSION CAN BE DRAWN AT THIS STAGE. THE ALLEGATIONS BY THE CENTRAL EXCISE DEPARTMENT IS BEING DISPUTED AND THE EVIDENCE RELIED BY THE CENTRAL EXCISE SUFFERS FROM INCURABLE DEFICIENCIES AND THEREFORE, THE SAME CANNOT BE RELIED UPON. THE ASSESSEES EXPLANATION IS NOT ACCEPTED AS THE CENTRAL EXCISE DEPT. HAS PROVED THAT THE ASSESSEE HAS BEEN INDULGING IN SUPPRESSION OF SALES. SUN S.P. MUTHURAMAILNGAM, PARTNER IN SRI ULAGANAYAGI AMMAN STEELS HAS ALSO OFFERED A SUM OF ` 50 LAKHS AS HIS UNACCOUNTED INCOME FOR THE ASST, YEAR 2003-04 ARID ` 8 IAKHS AS HIS UNDISCLOSED INCOME FOR THE ASST, YEAR 2004- 05. THE ASSESSEE IN THE REVISED RETURN OF INCOME FOR THE ASST. YEAR 2004-05 FILED ON 15/2/06 HAS OFFERED AN ADDITIONAL INCOME OF ` 18 IAKHS. THE ASSESSEE HAS ALSO ADMITTED IN THE STATEMENT FLIED ALONG WITH THE REVISED RETURN OF INCOME FOR THE ASST. YEAR 2004-05, THAT THERE ARE SUPPRESSION OF SALES AND HAS PAID A SUM OF ` 20 LAKHS AS ADDITIONAL EXCISE DUTY. THE FILING THE REVISED RETU RN OF INCOME AND PAYING OF ADDITIONAL DUTY CLEARLY SHOWS THAT THE ASSESSES HAS BEEN INDULGING IN SUPPRESSION OF PRODUCTION AND SATE OF MS BARS & RODS. THE GROSS PROFIT RETURNED BY THE ASSESSEE FOR THE ASST. YEAR 2002-03 WAS 17.27%. THE G.P WAS BEFORE ALLOWING EXPENSES OF ELECTRICITY CHARGES AND WAGES. IT HAS BEEN ESTABLISHED THAT THE ACTUAL ITA 2057 TO 2060/2010 :- 9 -: ELECTRICITY CHARGES AND WAGES INCURRED ARE ACCOUNTED IN FULL. HOWEVER, THE FURNACE OIL USED BY THE ASSESSEE IN THE PRODUCTION ARE PARTLY NOT ACCOUNTED. THEREFORE, THE GROSS PROFIT OF THE ASSESSEE IS THEREFORE ESTIMATED AT 17.27% ON THE UNACCOUNTED TURNOVER OF ` 11,53,61,633/- AND IT COME TO ` 1,99,22,954/- THE UNACCOUNTED FURNACE OIL EXPENSES IS ESTIMATED AT ` 30 LAKHS AND THE SAME IS ALLOWED AS AN EXPENSE AND THE BALANCE OF ` 1,69,22,954/- IS ADDED TO THE TOTAL INCOME. ` 1,69,22,954 THE ASSESSEE HAS BEEN PURCHASING THE INGOTS / BILLETS AND FURNACE OIL IN CASH. THE ASSESSEE HAS CONTRAVENED THE PROVISIONS OF SECTION 40A(3) BY MAKING THE PURCHASE IN CASH. THE ASSESSEE WAS REQUESTED TO EXPLAIN WHY DISALLOWANCE U/S 40A(3) SHOULD NOT BE MADE ON THE UNACCOUNTED PURCHASES. THE ANDHRA PRADESH HIGH COURT IN VENKATA SUBBA RAO VS. CIT REPORTED IN 173 ITR 340 HAS HELD THAT SECTION 40A(3) DISALLOWANCE IS APPLICABLE ON UNACCOUNTED TRANSACTIONS ALSO. THE ASSESSEE HAS REPLIED THAT THE PAYMENTS FOR THE EXPENSES AND ALLEGED PURCHASES ARE ONLY ESTIMATES AND THERE IS NO PROOF THAT THESE WERE INCURRED BY CASH OR PAID FOR OTHERWISE THEN BY CROSSED CHEQUES. THE MATERIALS SEIZED IN ULAGANAYAGI AMMAN STEELS AND JBA STEELS CLEARLY ESTABLISHES THAT SHIL ULAGANAYAGI AMMAN STEEL HAS COLLECTED THE MONEY IN CASH FOR THE UNACCOUNTED SALES AND THE SAME HAS BEEN ADJUSTED AGAINST THE RAW MATERIALS SUPPLIED. SIMILARLY, THE ASSESSEE HAS MADE PAYMENTS IN CASH TO AMMAN STEEL CORPORATION FOR THE INGOTS / BILLETS PURCHASED FROM JBA STEELS AND SUMANGALA STEELS WHICH WERE IN TURN ADJUSTED BY AMMAN STEEL CORPORATION FOR THE SCRAP SUPPLIED TO THE ABOVE SUPPLIERS. THE ASSESSEE HAS ALSO MADE PAYMENTS IN CASH TO JBA STEELS AND SUMANGALA STEELS AND THE SAME IS AVAILABLE IN FILE SASAI/ FLOPPY 1/DAT-50. THE TOTAL UNACCOUNTED SALES WAS ` 11,53,61,633/-. THE GROSS PROFIT ESTIMATED IS ` 1,99,22,954/-. THE EXPENSES, THEREFORE, COMES ITA 2057 TO 2060/2010 :- 10 - : TO ` 9,54,36,679/- AND THIS IS CONSIDERED AS THE AMOUNT PAID TO VARIOUS CONCERNS IN CASH FOR THE EXPENSES AND 20% OF THE SAME IS DISALLOWED. ` 1,90,87,736 TOTAL INCOME DETERMINED ` 3,60,79,584 INCOME TAX PAYABLE @ 35% ` 1,26,27,854 ADD: SURCHARGE @ 2% ` 2,52,557 TOTAL TAX PAYABLE ` 1,28,80,411 ADD: INTEREST U/S 234B ` 85,16,519 ADD: INTEREST U/S 234C ` 1,141 TOTAL TAX PAYABLE ` 2,13,98,071 LESS: TAX PAID U/S 140A ` 24,595 BALANCE TAX PAYABLE ` 2,13,73,476 LESS: DEMAND RAISED U/S 143(1) ` 3,417 ADDITIONAL DEMAND NOW RAISED ` 2,13,70,059 10. AGGRIEVED BY THIS ORDER, THE ASSESSEE FILED APPEALS BEFORE THE LD. CIT(A), WHO HAS DELETED A MAJOR PART OF THE A DDITION FOLLOWING THE DE NOVO ORDER PASSED BY THE CENTRAL EXCISE DEPARTMENT IN C OMPLIANCE WITH THE DIRECTIONS GIVEN IN THE ORDER PASSED BY CE NTRAL EXCISE APPELLATE TRIBUNAL (CESTAT). THE LD. CIT(A) HAS S USTAINED THE ADDITIONS COMMENSURATE WITH THE DE NOVO ORDER OF CENTRAL EXCISE DEPARTMENT. BUT HE HAS DELETED THE ADDITION MADE U /S.40A(3) OF THE ACT TO THE TUNE OF ` 1.9 AND ODD CRORES WHICH WAS ADDED BY ESTIMATING UNACCOUNTED PURCHASE ALLEGEDLY MADE BY THE ASSESSEE . NOW, THE REVENUE IS AGGRIEVED AND HAS RAISED THE FOLLOWING I N ITS APPEAL: ITA 2057 TO 2060/2010 :- 11 - : 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX(A) IS CONTRARY TO LAW, FACTS AND CIRCUMSTANCES OF THE CAS E. 2. THE LD. COMMISSIONER OF INCOME TAX(A) HAS ERRE D IN DELETING GROSS PROFIT ADDITION TO THE TUNE OF ` 1,69,22,954/- ON THE UNACCOUNTED SALES TURNOVER MADE, WHEN THE SAME WAS MADE BY THE ASSESSING OFFICER BASED ON THE MATERIALS GATHERED DURING THE COURSE OF SEARCH BY CENTRAL EXCISE DEPARTMENT. 2.1. THE LD. COMMISSIONER OF INCOME TAX(A) HAS ER RED IN DELETING G.P. ADDITION BY DISREGARDING THE EVIDENTIARY VALUE OF THE MATERIAL GATHERED DURING SEARCH BY THE CENTRAL EXCISE DEPARTMENT. 3. THE LD. COMMISSIONER OF INCOME TAX(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO ADOPT THE TURNOV ER AS PER THE ORDER OF COMMISSIONER OF CENTRAL EXCISE IN THE DE NOVO ORDER GIVING EFFECT TO THE DIRECTION S OF THE CESTAT. 3.1. THE COMMISSIONER OF INCOME TAX(A) ERRED IN ACCEPTING THE NEW EVIDENCE IN THE FORM OF ORDER OF CESTAT & DE NOVO ORDER OF THE CENTRAL EXCISE WITHOUT GIVING ANY OPPORTUNITY TO THE ASSESSING OFFICER TO VERIFY THE CLAIM WHICH IS IN VIOLATION O F THE PRINCIPLES OF NATURAL JUSTICE AND RULE 46(3) OF THE INCOME TAX RULES. 4. THE LD. COMMISSIONER OF INCOME TAX(A) HAS ERRED IN DELETING THE ADDITION MADE U/S.40A(3) TO THAT TUNE OF ` 1,90,87,736/- ON THE ESTIMATED UNACCOUNTED PURCHASE MADE BY THE ASSESSEE WITHOUT APPRECIATING THE FACT THAT THE ASSESSING OFFICER HA S NOT TAKEN THE ENTIRE TURNOVER AS G.P. AND HAS GIVEN WEIGHTAGE TO PURCHASE AND OTHER MANUFACTURING EXPENSES. 4.1. THE COMMISSIONER OF INCOME TAX(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE U/S.40A(3) BY THE ASSESSING OFFICER WHICH IN VIEW OF RATIO OF DECISIO N OF GUJARAT HIGH COURT IN COMMISSIONER OF INCOME TAX VS. HYNOUP FOOD AND OIL IND P LTD 290 ITR 702 (GUJ.) IS ALSO APPLICABLE TO TRANSACTIONS OUTSIDE T HE BOOKS OF ACCOUNTS. ITA 2057 TO 2060/2010 :- 12 - : 4.2. THE CITA) HAS NOT TAKEN INTO ACCOUNT THE DECI SION OF THE HONBLE APEX COURT IN THE CASE OF ATTAR SINGH GURMURKH SINGH VS. ITO (SC) 191 ITR 667 WHICH HELD THAT IN INTERPRETING A TAXING STATUE, THE COUR T CANNOT BE OBLIVIOUS OF THE PROLIFERATION OF BLACK MONEY WHICH IS UNDER CIRCULATION IN OUR COUNTRY. AN Y RESTRAINT INTENDED TO CURB THE CHANCES AND OPPORTUNITIES TO USE OR CREATE BLACK MONEY SHOULD NOT BE REGARDED AS CURTAILING FREEDOM OF TRADE OR BUSINESS. THE ABOVE OBSERVATION ON THE HONBLE APEX COURT IS FULLY APPLICABLE TO THE FACTS OF THE INSTANT CASE. IT WAS CLEARLY ESTABLISHED BY THE CENTRAL EXCISE DEPARTMENT AND ALSO ADMITTED BY THE PARTNERS OF THE FIRM ON VARIOUS ACCOUNTS THAT THE F IRM IS INDULGING IN UNACCOUNTED PRODUCTION AND SALES OF SUCH UNACCOUNTED PRODUCTION. 5. FOR THESE AND OTHER REASONS THAT MAY BE ASSED AT THE TIME OF HEARING, THE ORDER OF THE COMMISSIONER OF INCOME TAX(A) MAY BE CANCELLED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 11. THE ABOVE GROUNDS RAISED IN ASSESSMENT YEAR 2002-03 CAN BE TREATED AS SAMPLE GROUNDS FOR ALL OTHER ASSESS MENT YEARS AS WELL. THE ISSUES ARE IDENTICAL EXCEPT FOR THE AMOUNTS INV OLVED IN EACH YEAR BEING DIFFERENT, BUT FACTS AND OTHER CIRCUMSTANCES ARE IDENTICAL. HENCE, THE DECISION TAKEN ON THE ABOVE GROUNDS WILL , MUTATIS MUTANDIS, APPLY TO OTHER YEARS APPEALS ALSO. 12. WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD BEFORE US. BOTH SIDES HAVE TAKEN SIMILAR ARGUMENTS AS WERE TAKEN BEFORE THE LD. CIT( A). IT IS AN ITA 2057 TO 2060/2010 :- 13 - : UNDENIABLE FACT THAT THE LD. CIT(A) HAS RELIED ON T HE DE NOVO ORDER MADE BY THE CENTRAL EXCISE DEPARTMENT IN COMPLIANCE OF THE ORDER OF HONBLE CENTRAL EXCISE APPELLATE TRIBUNAL (CESTAT) PASSED IN RELATION TO THE SAME SHOW CAUSE NOTICE, WHOSE COPY WAS SENT TO THE ITO/ASSESSING OFFICER IN THIS CASE AND COMPLETELY R ELYING ON THAT IMPUGNED ADDITIONS, IN ALL THESE YEARS, WERE MADE. THE SHOW CAUSE NOTICE BEING CONFIRMED BY THE COMMISSIONER OF CENTR AL EXCISE, THE ASSESSEE FILED APPEAL BEFORE CESTAT AND HONBLE TRIBUNAL HAS SINCE DISPOSED OF THE APPEAL DIRECTING THE COMMISSIONER T O PASS A DE NOVO ORDER IN ACCORDANCE WITH HIS DIRECTIONS CONTAINED I N THAT ORDER. IN COMPLIANCE THEREOF, A DE NOVO ORDER WAS FRAMED BY THE COMMISSIONER OF CENTRAL EXCISE IN THE MONTH OF MAR CH, 2009. THE COPIES OF SHOW CAUSE NOTICE, ORDER OF CESTAT AND ORDER OF COMMISSIONER OF CENTRAL EXCISE GIVING EFFECT TO THE DIRECTIONS OF THE TRIBUNAL WERE PLACED BEFORE THE LD. CIT(A), IN INC OME-TAX APPEAL. THE ASSESSEE HAS FILED A DETAILED WRITTEN SUBMISSIO N CHALLENGING THE ADDITIONS MAINLY ON THE REASONING THAT WHEN THE ALL EGATIONS MADE IN SHOW CAUSE NOTICE BEING REJECTED BY HON'BLE CESTAT, HOW THE ADDITIONS CAN NOW SURVIVE BECAUSE THE ASSESSING OFF ICER HAD MADE THE IMPUGNED ADDITIONS ONLY ON THE BASIS OF SHOW CAUSE NOTICE. THE ASSESSEES OBJECTIONS, WHICH WERE CONTAINED IN PARA NO.5 & 6 OF APPELLATE ORDER, WERE SENT TO THE ASSESSING OFFICER ALONG WITH THE ITA 2057 TO 2060/2010 :- 14 - : ORDER OF HON'BLE CESTAT FOR HIS COMMENTS IN THE FOR M OF A REMAND REPORT. REMAND REPORT WAS CALLED ON 04.07.2007 SPEC IFICALLY STATING THAT THE ASSESSMENT HAS BEEN FRAMED PRIMARILY ON TH E SHOW CAUSE NOTICE ISSUED BY THE CENTRAL EXCISE DEPARTMENT AND THE SOLE BASIS OF THE ADDITION IS THE SHOW CAUSE NOTICE MENTIONED ABO VE AND NO INDEPENDENT EVIDENCE HAS BEEN GATHERED BY THE ASSES SING OFFICER FOR THE IMPUGNED ADDITIONS. ASSESSING OFFICER WAS DIRE CTED TO COLLECT THE COPIES OF THE MATERIALS/DOCUMENTS RELIED UPON BY TH E CENTRAL EXCISE DEPARTMENT AND TO MAKE INDEPENDENT ENQUIRIES IN AL L ASPECTS OF THE CASE VIZ. ALLEGED UNACCOUNTED PURCHASE OF RAW MATER IALS, UNACCOUNTED PRODUCTION OF FINISHED GOODS, REMOVAL OF SUCH FINIS HED GOODS OUTSIDE THE FACTORY PREMISES AND UNACCOUNTED SALES OF THE S AME. THE ASSESSING OFFICER WAS TO MAKE ALL THE NECESSARY ENQ UIRIES INCLUDING RECORDING OF THE STATEMENTS ON OATH OF CONCERNED PA RTIES IN ORDER TO VERIFY THE FACTS AND ALSO TO VISIT THE PLACES, WHIC H ARE NECESSARY AND TO COME TO A DEFINITE FINDING ABOUT THE EXTENT OF INC OME, WHICH HAS ESCAPED ASSESSMENT. DURING THE COURSE OF REMAND PR OCEEDINGS, WHEN SO REQUIRED BY THE LD. CIT(A), THE ASSESSEE FURNI SHED THE FOLLOWING EXPLANATION IN THE FORM OF OBJECTIONS. BY YOUR LETTER REFERRED TO ABOVE THE ASSESSEE HAD BEEN CALLED UPON TO SHOW CAUSE WHY THE INCOME OF THE ASSESSEE F IRM SHOULD NOT BE DETERMINED AT THE FOLLOWING SUMS BASED ON TH E SHOW CAUSE NOTICES ISSUED BY THE CENTRAL EXCISE DEPARTME NT OBLITERATING THE FINDINGS OF THE CEGA T AND THE ORD ERS OF THE COMMISSIONER OF INCOME TAX. ITA 2057 TO 2060/2010 :- 15 - : ASST SALES PROFIT ENHANCEMENT YEAR PROPOSED PROPOSED PROPOSED 2004-05 ` 28,22,07,538 ` 3,41,13,308 -- 2003-04 ` 16,96,98,949 ` 2,52,62,732 ` 25,00,000 2002-03 ` 11,53,61,633 ` 1,69,22,954 ` 30,00,000 IN RESPECT OF THESE PROPOSALS WE ARE INSTRUCTED TO SUBMIT OUR OBJECTIONS AS UNDER: 1) THE PRESENT PROPOSALS AND THE ASSESSMENT ORDER HEA VILY RELY ON THE SHOW CAUSE NOTICES ISSUED BY THE CENTRA L EXCISE DEPARTMENT. THE SHOW CAUSE NOTICES HAD BEEN ADJUDICATED UPON BY THE COMMISSIONER CENTRAL EXCISE AND THE APPELLATE TRIBUNAL UNDER THE CENTRAL EXCISE LAWS. THESE ORDERS HAD BEEN PLACED BEFORE YOU. HOWEVER YO U HAD CHOSEN NOT TO RELY ON THESE ORDERS ON THE GROUN D 'AS THE ISSUES RELATING TO THE UNACCOUNTED PRODUCTION A ND SALE OF GOODS OF ` 28,22,07,538/- AND NET PROFIT OF ` 3,41,13,308 HAS NOT BEEN DISCUSSED IN THE DE-NOVO ORDER, IT IS CONCLUDED THAT THE ORIGINAL ORDER NO: 7/2007 DATED 10.5.2007 IS EXIGIBLE.' THESE OBSERVATIONS ARE REBUTTED ON THE FOLLOWING GR OUNDS: A) THE ORDER OF THE CEGAT HAD CATEGORICALLY DECLARE D THAT DATA RETRIEVED EXCEPT THROUGH AUTHORISED SOFTWARE A ND RETRIEVED IN THE PRESENCE OF THE ASSESSEE OR ITS REPRESENTATIVE ARE ALONE RELIABLE AND ADMISSIBLE AS EVIDENCE. THUS THE JOTTINGS IN THE LOOSE SHEETS OR THOSE CONTAINED AND RETRIEVED FROM FLOPPIES THROUGH UNAUTHORIZED SOFTWARE OR SEIZED WITHOUT FOLLOWING T HE GUIDELINES LAID DOWN FOR SEIZURE ARE INADMISSIBLE EVIDENCE. ONCE THEY HAVE BEEN DECLARED AS INADMISSI BLE EVIDENCE UNDER THE CENTRAL EXCISE LAW THEY CANNOT CONSTITUTE EVIDENCE FOR INCOME TAX PURPOSES. THEREF ORE THE RELIANCE ON THE FINDINGS CONTAINED IN THE SHOW CAUSE NOTICE AND IN THE ORDER 7/2007 IS TOTALLY MISPLACED . B) THE FINDINGS OF THE CENTRAL EXCISE AUTHORITIES C ANNOT BE INCORPORATED IN THE INCOME TAX PROCEEDINGS WITHOUT ANY INDEPENDENT ENQUIRY OR APPRAISAL OF THE EVIDENCE. I N THE INSTANT CASE NO ENQUIRY HAD BEEN CONDUCTED ON THE ALLEGATIONS OF THE UNACCOUNTED SLES EITHER BEFORE T HE ASSESSMENT OR BEFORE THIS DATE. THEREFORE THE UNRESTRICTED AND UNINHIBITED RELIANCE ON THE FINDIN GS OF THE CENTRAL EXCISE IN ITS ORDERS IS IMPERMISSIBLE IN LA W. YOUR KIND ATTENTION IS INVITED TO THE DECISION OF THE HO N 'BLE ITA 2057 TO 2060/2010 :- 16 - : MADRAS HIGH COURT IN C I T VS. VIGNESH KUMAR JEWELL ERS 222 CTR 79. THE FACTS OF THE CITED CASE ARE ON ALL FOURS WITH THE PRESENT CASE. IN THAT CASE THE INCOME TAX AUTHORITIES RELIED ON THE FINDINGS OF THE DR! WITHO UT ANY INDEPENDENT ENQUIRY AND THE JURISDICTIONAL COURT HA D HELD THE ACTION UNTENABLE. THEREFORE THE RELIANCE IS BAD IN LAW. C) THERE IS NO EVIDENCE IN THE POSSESSION OF THE DE PARTMENT TO STATE THAT THE ASSESSEE HAD MADE UNACCOUNTED SAL ES AND NO UNACCOUNTED INVESTMENT HAD BEEN UNEARTHED TO BUTTRESS THIS SUGGESTION. IN THE LIGHT OF THE ABSEN CE OF SUCH PROOF NO ADDITION CAN BE MADE MUCH LESS THE ASTRONOMICAL FIGURES SUGGESTED BY YOU. D) AN ASSESSMENT IS TO BE MADE ON THE GROUNDS OF EV IDENCE GATHERED AND AVAILABLE WITH THE ASSESSING OFFICER. IF THERE ARE NO SUPPORTING EVIDENCE THE ADDITIONS CANNOT BE SUSTAINED C I T V S. A N DYANESWARAN 297 ITR 135. 2. IN RESPECT OF THE CONTENTION THAT THE ASSESSEE HAD NEVER DISPUTED THE SEIZED DOCUMENTS OR ITS CONTENTS BUT O NLY THE PROCEDURE OF SEIZURE, WE RESPECTFULLY SUBMIT TH AT THE PROCEDURE OF SEIZURE BEING IMPROPER SHALL RENDER TH E DATA UNRELIABLE. THE CONTENTION OF THE ASSESSEE HAD ALL ALONG BEEN, THE DATA HAD BEEN IMPROPERLY SEIZED OR RETRIE VED, THE DATA IS NOT FREE FROM DOUBT OF MANIPULATION AND THEREFORE THE DATA IS UNRELIABLE. THIS CONTENTION O F THE ASSESSEE HAD BEEN UPHELD BY THE CEGAT AND THEREFOR E IT HAD DIRECTED THAT ONLY CERTAIN DATA CAN BE USED AGAINST THE ASSESSEE. THE DE NOVO ORDER IS BASED ON SUCH DIRECTION AND IF AT ALL RELIANCE CAN BE PLACED IT HAS TO BE RESTRICTED TO THE FINDINGS CONTAINED IN THE DE NOVO ORDER. 3. IN RESPECT OF YOUR CONTENTION THAT ONCE THE DOCUMENTS ARE SEIZED FROM THE PREMISES OF THE ASSESSEE IT IS HIS DUTY TO EXPLAIN ITS CONTENTS, WE SUBMIT THAT THE ASSESSEE HAD SUCCESSFULLY DEMONSTRATED BEFORE THE CEGAT THAT THE DATA COULD BE SUBJECT TO UNAUTHORIZED MANIPULATION AND THE CEGAT HAD UPHELD THIS CONTENTION AND HAD DIRECTED THE COMMISSIONER TO RESTRICT THE QUANTIFICATION TO CERTAIN ITEMS OF DATA. THUS CEGAT HAD FOUND ONLY CERTAIN DATA ADMISSIBLE IN EVIDENCE AND THEREFORE T HE RELIANCE ON THE ORDER 7/2007 IS MISPLACED. 4. YOUR OBSERVATIONS CONTAINED IN PARAGRAPHS C,D,E AND F OF PAGES 7 AND 8 OF THE LETTER ADVOCATE THAT THE ITA 2057 TO 2060/2010 :- 17 - : ASSESSEE HAD BEEN ENGAGING IN TRANSACTIONS OUTSIDE THE BOOKS AND HAD CONCEDED BEFORE THE CENTRAL EXCISE AUTHORITIES THAT THEY DO AND THEREFORE THE ADDITION IS JUSTIFIED. IN THIS REGARD WE WISH TO PO INT OUT THAT THE CONCESSION OF THE ASSESSEE BEFORE THE CENTRAL EXCISE DEPARTMENT AND ITS ACT OF FILING A REVISED RETURN DO INDICATE THE EXISTENCE OF SUCH TRANSACTIONS, NONETHELESS, THE QUANTIFICATION OF SU CH TRANSACTIONS HAVE TO BE GROUNDED ON PROPER EVIDENCE. IN THE EVENT OF INADEQUATE EVIDENCE THE BROAD ADMISSION CANNOT RESULT IN AN ADDITION OF FANCIFUL AMOUNT AS INCOME. 5. THE CEGAT IN ITS WISDOM HAD HELD ONLY CERTAIN PR INT OUTS ADMISSIBLE IN EVIDENCE. THEREFORE YOUR RELIANC E ON ALL THE PRINT OUTS CANNOT BE COUNTENANCED AND IT WILL NOT TANTAMOUNT TO RELIANCE ON THE DECISIONS OF THE FACT FINDING AUTHORITY. 6. IN RESPECT OF YOUR SUGGESTION FOR ENHANCEMENT WE WISH TO SUBMIT THAT THE SAME IS NOT WARRANTED AS TH E INCOME ITSELF IS TO BE RE-DETERMINED AND APPLICATION OF THE GROSS PROFIT RATE WILL TAKE OF CARE OF THE ALLO WANCE OF ALL EXPENSES OF TRADING. 7. FINALLY WE RESPECTFULLY SUBMIT THAT NO ADDITION ON THE GROUNDS OF THE FINDINGS OF THE CENTRAL EXCISE DEPAR TMENT BE MADE AS THERE IS NO CORROBORATIVE OR INDEPENDENT ENQUIRY AS MANDATED BY THE JURISDICTIONAL HIGH COUR T IN 222 CTR 79. ALTERNATIVELY THE ADDITIONS MAY KINDLY BE RESTRICTED TO THE QUANTIFICATIONS MADE BY THE COMMISSIONER CENTRAL EXCISE IN HIS DE NOVO ORDER. T HE SUGGESTION OF THE ALTERNATE COURSE OF ACTION IS WIT HOUT PREJUDICE TO THE RIGHT OF APPEAL OF THE ASSESSEE. 13. AFTER RECEIVING THE REMAND REPORT, THE SAME WAS CON FRONTED TO AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ON 17. 09.2010 CALLING FOR ITS OBJECTIONS. IN RESPONSE TO WHICH ASSESSEE FILE D ITS OBJECTIONS CONTENDING THAT THE HONBLE CESTAT HAS GIVEN A FIND ING THAT THESE EVIDENCES ARE NOT RELIABLE EXCEPT FOR THE DATA CON TAINED IN THE FLOPPIES ITA 2057 TO 2060/2010 :- 18 - : OPENED WITH THE PASSWORD PROVIDED BY THE EMPLOYEES OF THE ASSESSEE. THE HON'BLE CESTAT IS THE FINAL FACT FINDING BODY I NSOFAR AS CENTRAL EXCISE DEPARTMENT IS CONCERNED AND THIS BODY HAS SE TTLED THE FACTS REGARDING THE RELIABILITY OF THE SEIZED DOCUMENTS A ND THEIR AUTHENTICITY. IT WAS CONTENDED THAT THE ASSESSING OFFICER HAS TO OBEY THE VIEW TAKEN BY HON'BLE CESTAT UNLESS ANY CONTRARY EVIDENCE IS A VAILABLE WITH HIM. THE RELIANCE ON THESE DOCUMENTS BY THE ASSESSING OF FICER (INCOME- TAX) EVEN THEREAFTER, WAS ASSAILED BEFORE THE LD. C IT(A). IT IS AN UNDENIABLE FACT, THE HONBLE CESTAT HAS NOT FOUND T HE SEIZED DOCUMENTS AS RELIABLE AND HAS THEREFORE, DIRECTED THE COMMISSIONER OF CENTRAL EXCISE TO FRAME A DE NOVO ORDER. THUS, THE BASIS ON WHICH THE INCOME TAX OFFICER(ASSESSING OFFICER) HAS MADE THE IMPUGNED ADDITIONS, WOULD NOT AT ALL NOW SURVIVE. THE ASSE SSING OFFICER HAS TRIED TO MAKE OUT A CASE THAT, IN LAW, EVEN IF THE SEARCH IS HELD TO BE ILLEGAL OR INVALID OR AGAINST THE LAW, YET ANY EVID ENCE FOUND AND COLLECTED DURING THAT OPERATION, CAN BE CONSIDERED AS A PIECE OF EVIDENCE AGAINST THE ASSESSEE. BUT, FIRST OF ALL T HIS IS NOT A CASE OF SEARCH UNDER THE INCOME-TAX ACT. SECONDLY, THE ASS ESSING OFFICER HAS FOUND NOTHING INCRIMINATING AGAINST THE ASSESSEE. THE EVIDENCE FOUND BY CENTRAL EXCISE DEPARTMENT HAS BEEN HELD TO BE UN RELIABLE. THE ASSESSING OFFICER HAS NOT TESTED THE RELIABILITY OF THE SAME BY MAKING INDEPENDENT ENQUIRIES. ITA 2057 TO 2060/2010 :- 19 - : 14. UNDISPUTEDLY AND ADMITTEDLY, THE ASSESSING OFFICER IN THIS CASE HAS NOT MADE ANY INDEPENDENT ENQUIRIES. WHEN T HE HON'BLE CESTAT HAS FOUND THOSE EVIDENCE UNRELIABLE AND NOT A GOOD EVIDENCE FOR FRAMING ASSESSMENT, THE SAME CANNOT BE MADE A B ASIS FOR MAKING ASSESSMENT UNDER INCOME-TAX ACT. IN THESE CIRCUM STANCES, THE ASSESSEE IS NOT REQUIRED TO EXPLAIN THE DOCUMENTS I N SO FAR AS INCOME- TAX PROCEEDINGS ARE CONCERNED. IT IS FOUND FOR A F ACT THAT NEITHER THE MANAGING PARTNERS OF THE FIRM NOR ANY OTHER PERSON IN-CHARGE OF THE BUSINESS HAD EVER ADMITTED ON OATH THAT ALL THE MAT ERIALS SEIZED BY THE CENTRAL EXCISE DEPARTMENT COULD BE USED BY THE ITO IN FRAMING THE ASSESSMENT ORDER. ON THE CONTRARY, THE RELEVANT AN SWER OF THE MANAGING PARTNER CLEARLY STATES THAT THE HON'BLE CE STAT HAD ALREADY FOUND THE RETRIEVED DATA TO BE UNRELIABLE AND REQUE STED TO RELY ONLY ON THE DE NOVO ORDER MADE BY THE COMMISSIONER, CENTRAL EXCISE DEPARTMENT. IN OUR CONSIDERED OPINION, TO THE EXTE NT THE HON'BLE CESTAT HAS FOUND THE DOCUMENTS/EVIDENCE TO BE UNREL IABLE, THE SAME CANNOT BE USED IN MAKING ASSESSMENT UNDER INCOME-T AX ACT, SPECIALLY WHEN NOT EVEN A WHIT OF ENQUIRY HAS BEEN INDEPENDE NTLY MADE BY HIM DESPITE DIRECTED BY THE LD. CIT(A) . THE ASSES SEE HAS CLEARLY EXPLAINED THE ELECTRICITY CHARGES AND WAGES AND HAS ACCOUNTED THE SAME COMPLETELY, AND SIMILAR EXPLANATION HAS BEEN A CCEPTED BY THE SAME ASSESSING OFFICER, IN HIS ORDER MADE FOR ASSES SMENT YEAR 2002- ITA 2057 TO 2060/2010 :- 20 - : 03. THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS VIGNESH KUMAR JEWELLERS, 222 CTR 79, HAS CLEARLY HELD THAT THE FINDINGS OF ANOTHER DEPARTMENT CANNOT BE SIMPLY INCORPORATED IN THE ASSESSMENT WITHOUT ANY INDEPENDENT ENQUIRY HAVING BEEN MADE. IN THIS CASE, EVEN A MODICUM OF ENQUIRY HAS NOT BEEN MADE INDEPEN DENTLY BY THE ASSESSING OFFICER. THERE IS NO CORROBORATING OR SU PPORTING EVIDENCE AVAILABLE ON RECORD. WHEN THE MAIN EVIDENCE ON THE BASIS OF WHICH THE ASSESSMENT WAS FRAMED HAS BEEN FOUND TO BE NOT RELIABLE BY THE VERY SAME DEPARTMENT(CENTRAL EXCISE DEPARTMENT), TH E CUMULATIVE EFFECT OF FINDING GIVEN IN THE ASSESSMENT ORDER, RE MAND REPORT AND SUBMISSIONS OF THE PARTIES, WOULD LEAD TO ONLY ONE CONCLUSION THAT NO ADDITION CAN SURVIVE ON THE BASIS OF UNRELIABLE EVI DENCE. THE ADDITION MADE BY THE ASSESSING OFFICER HINGES ON THE SHOW C AUSE NOTICE OF THE CENTRAL EXCISE DEPARTMENT WHICH HAS BEEN FOUND TO B E UNRELIABLE TO A GREATER EXTENT. IT IS VERY STRANGE THAT THE REMAND REPORT WAS SENT AFTER THE LAPSE OF THREE YEARS AND THAT TOO AFTER R EPEATED REMINDERS HAVING BEEN SENT BY THE LD. CIT(A). IN FACT, THE A SSESSING OFFICER HAS NOT CONDUCTED ANY ENQUIRY, LET ALONE, ANY INDEPENDE NT ENQUIRY IN THIS CASE. HE HAS SIMPLY OBTAINED COPIES OF THE RECORDS FROM CENTRAL EXCISE DEPARTMENT AND THE STATEMENTS RECORDED BY TH EM FROM FOUR PERSONS DESPITE THE FACT THAT HE WAS SPECIFICALLY D IRECTED BY THE LD. CIT(A) TO TRACE THE TRANSACTION-TRAILS FROM THE SQU ARE ONE UPTO THE END ITA 2057 TO 2060/2010 :- 21 - : TO ESTABLISH THE GENERATION OF UNACCOUNTED INCOME, IF ANY, AS HAD BEEN ALLEGED. IN THE REMAND REPORT, THE ASSESSING OFFIC ER HAS CANVASSED EVEN THE ENHANCEMENT OF THE ADDITION BY WAY OF WITH DRAWAL OF DEDUCTION ALLOWED FOR FURNACE OIL AS EXPLAINED. WE ARE CONVINCED THAT THE ADDITIONS WHICH ARE MADE SOLELY ON THE BASIS OF THE MATERIAL SEIZED BY THE CENTRAL EXCISE DEPARTMENT AND WHICH HAVE BEE N DUBBED AS UNRELIABLE BY HON'BLE CESTAT, NO ADDITION CAN BE MA DE BY THE ASSESSING OFFICER(INCOME TAX) IN THE EYES OF LAW. THERE IS NO DOUBT ABOUT THE LEGAL POSITION THAT ANY INCOME WHICH IS BASED ON MATERIAL EVIDENCE FOUND OR GATHERED BY THE ASSESSING OFFICER CAN BE BROUGHT TO TAX. IN THE GIVEN CASE, THERE IS NO SUCH EVIDENCE AVAILABLE WITH THE ASSESSING OFFICER TO SUSTAIN THE IMPUGNED ADDITION. THE ALLEGATIONS MADE IN THE SHOW CAUSE NOTICE NO LONGER SURVIVE. B UT WE HAVE TO ACCEPT THE FACTS WHICH HAVE BEEN FOUND BY THE HON'B LE CESTAT TO BE CORRECT AND RELIABLE AND ON THE BASIS OF WHICH DE NOVO ASSESSMENT HAS BEEN MADE. THE TURNOVER DETERMINED BY THE COMM ISSIONER OF CENTRAL EXCISE DEPARTMENT IN HIS DE NOVO ORDER GIVI NG EFFECT TO THE HON'BLE CESTATS ORDER HAS TO BE TREATED AS UNACCO UNTED TURNOVER OF THE ASSESSEE FOR THE RELEVANT YEARS. THE GROSS PR OFIT ON THIS TURNOVER HAS TO BE DETERMINED AND ADDED TO THE RETURNED INCO ME FOR THE RESPECTIVE ASSESSMENT YEARS. THE POWER AND LABOUR CHARGES HAVE TO ITA 2057 TO 2060/2010 :- 22 - : BE DEDUCTED IN ARRIVING AT THE RATE OF GROSS PROFIT . THE RATE OF GROSS PROFIT WORKED OUT BY THE LD. CIT(A) IS AS UNDER: ASSESSMENT YEAR NET TURNOVER RATE OF G.P AS OBTAINED EACH YEAR NET PROFIT ` % ` 2002-03 21,17,688 14.67 3,10,665 2003-04 96,13,485 8.22 7,90,228 2004-05 4,82,55,983 7.33 35,37,164 2005-06 2,56,18,539 7.00 17,93,298 15. BEFORE US, THE LD.AR HAS NOT DISPUTED THE ADDITION OF THE INCOME AS PER THE ABOVE CHART. THE BALANCE ADDITIO N MADE BY THE ASSESSING OFFICER HAS BEEN DELETED BY THE LD. CIT(A ). WE ARE OF THE CONSIDERED OPINION THAT THE ACTION OF THE LD. CIT(A ) IS CORRECT AND AFFIRM THE SAME. 16. THE NEXT ISSUE IS REGARDING DISALLOWANCE U/S 40A(3) ON PURCHASES OF STEEL INGOTS FROM VARIOUS PERSONS. LI KEWISE, THE QUANTUM OF PURCHASES EMANATE FROM THE ASSESSMENT ORDER WHI CH IS BASED ON SHOW CAUSE NOTICE ISSUED BY THE CENTRAL EXCISE DEPA RTMENT AND WHICH HAS BEEN FOUND UNRELIABLE. IN THE GIVEN FACTS AND CIRCUMSTANCES WHERE RELIABILITY OF THE ALLEGATION OF PURCHASES AR E NOT FOUND TO BE FREE FROM DOUBT AND THE INCOME HAS BEEN ESTIMATED BY EST IMATING THE TURNOVER, NO FURTHER EXPENDITURE CAN BE SEPARATELY CONSIDERED. IN THIS ITA 2057 TO 2060/2010 :- 23 - : REGARD, DECISION OF HON'BLE MADRAS HIGH COURT RENDE RED IN THE CASE OF CIT VS MOHAMMED DHURABUDEEN, 4 DTR 218, WHEREIN IT HAS BEEN HELD THUS: THE QUESTION FOR CONSIDERATION IS WHEN NO DEDUCTIO N WAS SOUGHT AND ALLOWED UNDER S.40A(3), WAS THERE ANY NE ED TO GO INTO S.40A(3) AND RULE 6DD(J). WE SEE FORCE IN THE VIEW TAKEN BY THE TRIBUNAL THAT WHEN THE INCOME OF THE ASSESSEE WAS COMPUTED APPLYING THE GP RATE AND WHEN NO DEDUCTION WAS ALLOWED IN REGARD TO PURCHASES OF THE ASSESSEE, THERE WAS NO NEED TO LOOK INTO THE PROVIS IONS OF SECTION 40A(3) AND RULE 6DD(J). NO DISALLOWANCE CO ULD HAVE BEEN MADE IN VIEW OF THE PROVISIONS OF S.40A(3 ) READ WITH RULE 6DD(J) AS NO DEDUCTION WAS ALLOWED TO AND CLAIMED BY THE ASSESSEE IN RESPECT OF PURCHASES. WHEN THE GP RATE IS APPLIED, THAT WOULD TAKE CARE OF EVE RYTHING AND THERE WAS NO NEED FOR THE A.O TO MAKE SCRUTINY OF THE AMOUNT INCURRED ON THE PURCHASES BY THE ASSESSEE. 17. CONSEQUENTLY BY FOLLOWING THE ABOVE DICTUM OF HON'B LE JURISDICTIONAL HIGH COURT, THE ADDITION MADE U/S 40 A(3) CANNOT BE SUSTAINED AND HAS BEEN CORRECTLY DELETED BY THE LD. CIT(A). THE AVERMENT OF GROUND NO.4.2 ARE VERY CRUDE AND GENERA L IN NATURE AND HAVE NO DIRECT NEXUS WITH THE FACTS OF THIS CASE I N VIEW OF OUR ABOVE FINDING. CONSEQUENTLY, THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2002-03 STANDS DISMISSED. 18. NOW, COMING TO OTHER ASSESSMENT YEARS 2003-04, 2004 -05 AND 2005-06, EXCEPT FOR THE SUMS ADDED ON ACCOUNT OF GROSS PROFIT, ITA 2057 TO 2060/2010 :- 24 - : ON ACCOUNT OF UNACCOUNTED SALES TURNOVER; AND ADDI TION MADE U/S 40A(3), THE OTHER FACTS, CIRCUMSTANCES, EVIDENCE AN D SUBMISSIONS OF THE PARTIES ARE EXACTLY SIMILAR AND IDENTICAL. TH EREFORE, WITH SIMILAR REASONING, WE DISMISS ALL THE APPEALS OF THE REVENU E AND CONFIRM THE FINDING GIVEN BY THE LD. CIT(A) IN HIS COMMON ORDER DATED 21.9.2010. ACCORDINGLY, ALL THE FOUR APPEALS OF THE REVENUE ST AND DISMISSED. 19. TO SUMMARIZE THE RESULT, ALL THE FOUR APPEALS OF T HE REVENUE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.08.2011. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 23 RD AUGUST, 2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR