DCIT CENT. CIR. -11, MUMBAI V. M/s. ARUN MOHANLAL JOSHI., THANE

ITA 3402/MUM/2007

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49383 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 17-06-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 04-05-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOLI SRINIVAS ROAD V V SHASTRI
• Keywords: Unexplained cash credit; Depreciation; Loose papers; Document seized; Retrospective amendment; Wrong claim; Block assessment; Retraction; Documents seized
• Section: 143(3); 260A; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI R.K.PANDA (A .M) IT(SS)A 90/MUM/07(BLOCK PERIOD 1996-97 TO 2002-03) ITA NO.3987/MUM/07(A.Y. 2002-03) SHRI ARUN MOHANLAL JOSHI, 101/A, DEVIDARSHAN COMPLEX, TEMBHI NAKA, THANE (W) 400 601 PAN:ACOPJ 9865E (APPELLANT) VS. THE ACIT, CEN.CIR.11, 8 TH FLOOR, OLD CGO BUILDING, MK ROAD, MUMBAI 20. (RESPONDENT) IT(SS)A 100/MUM/07(BLOCK PERIOD 1996-97 TO 2002-03 ) ITA NO.3402/MUM/07(A.Y.2002-03) THE DCIT, CEN.CIR.11, 8 TH FLOOR, OLD CGO BUILDING, MK ROAD, MUMBAI 20. (APPELLANT) VS. SHRI ARUN MOHANLAL JOSHI, 101/A, DEVIDARSHAN COMPLEX, TEMBHI NAKA, THANE (W) 400 601 PAN:ACOPJ 9865E (RESPONDENT) ASSESSEE BY : SHRI K.GOPAL REVENUE BY : S/SHRI GOLI SRINIVAS ROAD/ V.V.SHASTRI ORDER PER BENCH, IT(SS)100/M/07 IS AN APPEAL BY THE REVENUE WHILE I T(SS)90/M/07 IS AN APPEAL BY THE ASSESSEE. BOTH THESE APPEALS ARE DIRECTED AGAINST THE ORDER DATED 21/3/2007 OF CIT(A),CEN.3, MUMBAI RELATING TO THE BLOCK PERIOD 1/4/1995 TO 14/03/2002 I.E., AY 95-96 TO 01-02 AND THE PERIOD FROM 1-4- 01 TO 14.3.2002. IT(SS)A 90&100/MUM/07 ITA NO.3987 & 3402/MUM/07 ) 2 2. ITA NO.3987/M/07 IS AN APPEAL BY THE ASSESSEE WH ILE ITA NO.3402/M/07 IS AN APPEAL BY THE REVENUE. BOTH THE SE APPEALS ARE DIRECTED AGAINST THE ORDER DATED 21/3/2002 OF CIT(A) CEN.3, MUMBAI RELATING TO ASSESSMENT YEAR 2002-03. FIRST WE SHALL TAKE UP FO R CONSIDERATION THE APPEALS RELATING TO BLOCK PERIOD. IT(SS)A 90/M/07: ASSESSEES APPEAL: 3. THE ASSESSEE IS AN INDIVIDUAL CARRYING ON THE BU SINESS OF MANUFACTURING, TRADING, EXPORT AND CONSULTANCY IN G UTKA AND TOBACCO RELATED PRODUCTS. THE ASSESSEE HAS GOT MANUFACTURI NG UNITS AT DELHI AND JODHPUR, WHILE TRADING IN DIFFERENT BRANDS OF GUTKA AND EXPORT BUSINESS IS CONDUCTED FROM THANE. THE ASSESSEE IS THE PROPRIET OR OF THE FOLLOWING CONCERNS, M/S. RAJ MARKETING, M/S. RAJ EXPORTS, M/S . ARUN JOSHI CONSULTANCY, M/S. RAJ ESSENTIAL OIL CO. AND M/S. SU NRISE FOOD PRODUCTS. A SEARCH ACTION U/S. 132(1) WAS CARRIED OUT ON 14/03/ 2002 AT THE RESIDENTIAL AND BUSINESS PREMISES OF THE ASSESSEE. IN RESPONS E TO NOTICE U/S. 158BC, THE ASSESSEE FILED RETURN OF UNDISCLOSED INCOME FO R THE BLOCK PERIOD 1/4/1995 TO 14/03/2002 IN FORM NO.2B ON 01/05/2003 DECLARING UNDISCLOSED INCOME OF RS.1,60,000/-. 4. ON 23/3/2002 THE CENTRAL EXCISE AUTHORITIES CARR IED OUT A SEARCH AT THE ASSESSEES PREMISES. THERE WAS ALSO A SEARCH I N THE BUSINESS PREMISES OF ONE SUDHIR KHANNA AT DELHI. IN THE COURSE OF SE ARCH CERTAIN INCRIMINATING DOCUMENTS WERE FOUND FROM THE POSSESSION OF SHRI SU DHIR KHANNA. STATEMENT OF SHRI SUDHIR KHANNA WAS RECORDED BY THE CENTRAL EXCISE AUTHORITIES UNDER THE PROVISIONS OF SECTION 14 OF T HE CENTRAL EXCISE ACT, 1944. THE GIST OF THE STATEMENT OF SHRI SUDHIR KHA NNA WAS THAT HE WAS CLANDESTINELY MANUFACTURING GOA GUTKA 1000 ON BEHAL F OF SANKET FOOD IT(SS)A 90&100/MUM/07 ITA NO.3987 & 3402/MUM/07 ) 3 PRODUCTS PVT. LTD., PATPARGANJ, NEW DELHI. HE FURT HER STATED THAT HE WAS GETTING GOA GUTKA 1000 MANUFACTURED FROM M/S. SUNRI SE FOOD PRODUCTS, ZINDUPUR DELHI AND JODHPUR (M/S. SUNRISE FOOD PRODU CTS IS A PROPRIETARY CONCERN OF THE ASSESSEE.) HE FURTHER STATED THAT O NE SHRI VINOD SHARMA OF M/S. SUNRISE FOOD PRODUCTS LOOKS AFTER THE PRODUCTI ON WORK AND GETS THE PRODUCTION OF GOA GUTKA 1000 DONE AS PER THE REQUIR EMENTS GIVEN BY HIM THROUGH SHRI VINOD SHARMA. HE FURTHER STATED THAT ALL THE PRODUCTION WAS UNACCOUNTED AND AFTER SALE BY SHRI SUDHIR KHANNA CA SH COULD BE HANDED OVER EITHER TO SHRI VINOD SHARMA OR SHRI ARUN JOSH I (THE ASSESSEE). CERTAIN SEIZED DOCUMENTS EVIDENCING RECEIPT OF GOA GUTKA 10 00 BY SHRI SUDHIR KHANNA AND SALE BY HIM WERE FOUND. IN SOME OF THE DOCUMENTS THERE WAS A REFERENCE TO ASSESSEES NAME AND SHRI SUDHIR KHANNA IN HIS STATEMENT AFFIRMED THAT THE FIGURES FOUND THEREIN WERE THE SA LES MADE BY HIM OF CLANDESTINELY MANUFACTURED GUTKA BY THE ASSESSEE. THE DETAILS OF THE SEIZED DOCUMENTS AND SALES FIGURES RECORDED THEREIN WERE A S FOLLOWS: PAGE NO. OF THE SEIZED PAPERS IN THE HANDS OF SHRI SUDHIR KHANNA/ DATE OF TRANSACTIONS. QTY. IN BORAS CREDIT ENTRY FOR GROSS SALES IN RS. DEBIT ENTRY FOR PAYMENTS RECEIVED FROM THE ASSESSE (IN RS) BALANCE DUE TO THE ASSESSEE. PAGE NO.11 (6.02.2002 TO 14.02.2002) 747 7,843,500 5,272,000 2,571,300 PAGE NO.10 (14.02.2002 TO 20.02.2002 820 8,610,000 NIL 11,181,300 PAGE NO.9 (21.2.2002 TO 25.2.2002) PAGE NO.8 (25.2.2002 TO 28.2.2002) 664 531 6,972,000 5,575,500 4,060,000 7,400,000 14,093,300 12,268,800 PAGE NO.7 (1-03-2002 TO 06.03.2002) 680 7,049,200 6,750,000 12,568,000 PAGE NO.6 (6.03.2002 TO 08.03.2002) 399 4,125,700 6,500,000 10,193,700 PAGE NO.5 (8.03.2002 TO 14.03.2002) 40 412,000 NIL 10,605,700 TOTAL 3,881 40,587,900 29,982,200 10,605,700 (*) PAGE NO.5 (14.3.2002 TO 28.03.2002) 80 824,00 NIL 11,429,700 TOTAL 3961 41,411,900 29,982,200 11,429,700 IT(SS)A 90&100/MUM/07 ITA NO.3987 & 3402/MUM/07 ) 4 5. SHRI SUDHIR KHANNA LATER ON RETRACTED HIS STATEM ENT REFERRED TO ABOVE AND HE WAS ALSO CROSS EXAMINED ON HIS STATEMENT BY PERSONS WHO WERE IMPLICATED BY HIM IN THE STATEMENT REFERRED TO ABOV E. IN SUCH CROSS EXAMINATION HE MAINTAINED THAT THE STATEMENT GIVEN BY HIM EARLIER WAS FALSE. THE EVIDENCE REGARDING CROSS EXAMINATION HAS BEEN SOUGHT TO BE FILED BY THE ASSESSEE BEFORE THE TRIBUNAL BY WAY OF ADDIT IONAL EVIDENCE. THESE DOCUMENTS, ACCORDING TO THE ASSESSEE, WERE MADE AVA ILABLE ONLY LATER AND COULD NOT BE FIELD BEFORE THE LOWER AUTHORITIES. IT HAS BEEN SUBMITTED THAT THESE DOCUMENTS HAVE A BEARING ON THE ISSUE TO BE D ECIDED IN THIS APPEAL AND, THEREFORE, THEY SHOULD BE ADMITTED AS ADDITION AL EVIDENCE. WE WILL CONSIDER THIS PLEA OF THE ASSESEE AT A LATER STAGE, IF REQUIRED. 6. BASED ON THE STATEMENT OF SHRI SUDHIR KHANNA RE CORDED BY THE CENTRAL EXCISE AUTHORITES THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAD INDULGED IN UNACCOUNTED MANUFACTURE AN D SALE OF GUTKA WORTH RS. 4,05,87,900( THE PERIOD UPTO THE DATE OF SEARCH COMMENCING FROM 6/2/2002). THE ASSESSEE SUBMITTED BEFORE THE ASSES SING OFFICER AS FOLLOWS: 1. THE SEARCH BY THE CENTRAL EXCISE AUTHORITIES AT THE BUSINESS PREMISES OF THE ASSESSEE WAS CARRIED OUT ON 23/3/20 02, WHEREAS THE SEARCH BY THE INCOME TAX DEPARTMENT U/S. 132 OF THE ACT HAD BEEN CARRIED OUT ON 14/3/2002 I.E., MUCH EARLIER THAN TH E SEARCH BY THE CENTRAL EXCISE AUTHORITIES. IN THE SAID SEARCH BY THE I.T. DEPARMENT NOTHING INCRIMINATING WAS FOUND LEADING TO THE CONC LUSION THAT THE ASSESSEE HAD EFFECTED ANY SALES TO THE SAID SHRI SU DHIR KHANNA OUT OF BOOKS. IT WAS FURTHER CONTENDED THAT SOME PAPERS F OUND IN THE THIRD PARTYS PREMISES CANNOT BE TREATED AS CONCLUSIVE EV IDENCE ON WHICH ADVERSE CONCLUSIONS CAN BE DRAWN. 2. MR. SUDHIR KHANNA, IN WHOSE HANDS INCRIMINATING DOCUMENTS HAVE BEEN SEIZED HAS RETRACED FROM HIS STATEMENT ON THE GROUNDS THAT THE SAME WERE TAKEN ON APPLICATION OF FORCE AND COERCIO N IMMEDIATELY THEREAFTER. IT(SS)A 90&100/MUM/07 ITA NO.3987 & 3402/MUM/07 ) 5 3. RELYING ON THE DECISIONS IN THE CASE OF CBI VS. VC SHUKLA (1998) 3 SCC 410 AND ADDL. CIT, THANE CITY 1, VS. LATA MANGE SHKAR 97 ITR 696, IT WAS ARGUED THAT EVIDENCE FOUND AT 3 RD PARTY PREMISES SHOULD NOT BE TREATED AS CONCLUSIVE PROOF TO ARRIVE AT ANY ADVERSE FINDINGS AGAINST THE ASSESSEE. 4. AS PER THE SEARCH CARRIED OUT BY THE EXCISE AUT HORITIES AT THE BUSINESS PREMISES OF THE ASSESSEE AT DELHI, ONLY 2 2 MACHINES WERE FOUND WHICH WERE NOT IN OPERATION BECAUSE OF SEARCH U/S. 132 BY THE INCOME TAX DEPARTMENT. IT WAS EXPLAINED THAT THE F ACTORY HAD BEEN SEALED BY THE INCOME TAX DEPARTMENT FROM 14/3/2002 TO 20/3/2002. THEREFORE, IT WAS HIGHLY IMPOSSIBLE TO MANUFACTURE SUCH HUGE QUANTITY OF 8.12 CRORE POUCHES BY THE ASSESSEE DURING THE SP AN OF 28 WORKING DAYS FROM 6/2/2002 TO 28/3/2002. 5. IT WAS FURTHER CONTENDED THAT THE CENTRAL EXCIS E AUTHORITIES HAVE NOT EVEN ISSUED A SHOW-CAUSE NOTICE IMPLICATING AS SESSEE FOR ANY UNLAWFUL ACT ON THE BASIS OF THE SEIZED MATERIALS A T THE HANDS OF SHRI SUDHIR KHANNA, LEAVE APART ADJUDICATING THE MATTER AGAINST THE ASSESSEE ON GIVING FULL OPPORTUNITY TO EXPLAIN THE CASE. 7. THE ASSESSING OFFICER HOWEVER WAS OF THE VIEW TH AT IN THE LIGHT OF STATEMENT OF SHRI SUDHIR KHANNA IT WAS CLEAR THAT T HE ASSESSEE WAS INDULGING IN UNACCOUNTED SALES OF GUTKA. IN THIS R EGARD THE ASSESSING OFFICER ALSO REFERRED TO THE FACT THAT IN THE SEIZE D DOCUMENTS, THE NAME OF THE ASSESSEE WAS CLEARLY MENTIONED. THE ASSESSING OFFI CER WAS ALSO OF THE VIEW THAT A RETRACTION OF HIS EARLIER STATEMENT BY SHRI SUDHIR KHANNA ON 25/4/2002 BY FILING AN APPLICATION BEFORE THE METRO POLITAN MAGISTRATE WAS ONLY TO HELP THE ASSESSEE. HE, THEREFORE, REFUSED TO GIVE ANY CREDENCE TO THE RETRACTION OF THE STATEMENT BY SHRI SUDHIR KHANNA. THE ASSESSING OFFICER ESTIMATED THE G.P RATE AT 11% (WHICH WAS THE GP RAT E FOR THE RELEVANT PERIOD AS PER THE BOOKS OF THE ASSESSEE IN RESPECT OF TRAN SACTIONS RECORDED IN THE BOOKS OF ACCOUNTS). THUS THE ASSESSING OFFICER ARR IVED AT AN UNDISCLOSED PROFIT OF RS. 44,64,669/- AND ADDED THE SAME AS UND ISCLOSED INCOME FOR THE BLOCK PERIOD. IT(SS)A 90&100/MUM/07 ITA NO.3987 & 3402/MUM/07 ) 6 8. THE ASSESSING OFFICER FURTHER HELD THAT THE ASSE SSEE NEEDED CAPITAL TO CARRY ON THE UNDISCLOSED MANUFACTURING ACTIVITY OF GUTKA AND HE ESTIMATED THE SAME AT A SUM OF RS.19,36,410/-. THIS ESTIMATI ON HAS BEEN DONE ON THE BASIS OF PRODUCTION THAT IS REQUIRED TO BE DONE PER DAY FOR MAKING THE QUANTITY OF GUTKA SOLD BY THE ASSESSEE, WHICH WAS N OT ACCOUNTED. THUS SUM OF RS. 19,36,410/- WAS ADDED AS UNDISCLOSED INC OME OF THE BLOCK PERIOD. 9. BEFORE CIT(A) THE ASSESSEE REITERATED THE SUBMIS SIONS AS WERE MADE BEFORE THE ASSESSING OFFICER. THE ASSESSEE RELIED ON SEVERAL JUDICIAL PRONOUNCEMENTS IN SUPPORT OF HIS CONTENTION THAT UN DISCLOSED INCOME CANNOT BE DETERMINED UNDER THE PROVISIONS OF CHAPTE R XIVB OF THE INCOME TAX ACT, 1961 (THE ACT). IN THIS REGARD THE ASSESS EE HIGH-LIGHTED THAT IN THE COURSE OF SEARCH CARRIED OUT BY THE INCOME TAX DEPA RTMENT IN HIS PREMISES NOTHING INCRIMINATING WAS FOUND FROM THE ASSESSEE T O SHOW THAT THE ASSESSEE HAS BEEN MAKING UNDISCLOSED SALES THROUGH SHRI SUDHIR KHANNA. THE ASSESSEE POINTED OUT THAT NO LOOSE PAPERS WERE FOUND FROM THE ASSESSEES POSSESSION. THE ASSESSEE ALSO POINTED O UT THAT IN THE EXAMINATION BY THE CENTRAL EXCISE AUTHORITIES IN A STATEMENT HE HAD CATEGORICALLY DENIED ANY CLANDESTINE MANUFACTURE OF GUTKA AND HAS ALSO DISOWNED ANY CONNECTION WITH THE SEIZED PAPERS FOUN D FROM THE POSSESSION OF SHRI SUDHIR KHANNA. THE CIT(A) HOWEVER DID NOT AGREE WITH THE SUBMISSIONS OF THE ASSESSEE. HE HELD AS FOLLOWS: 2.1 I HAVE GONE THROUGH THE FACTS BROUGHT ON RECO RD BY THE AO AS WELL AS THE CONTENTIONS OF THE APPELLANT. IT WAS D URING THE COURSE OF POST-SEARCH ENQUIRY THAT INFORMATION WAS GATHERED F ROM THE CENTRAL EXCISE DEPARTMENT REGARDING EVASION OF EXCISE DUTY BY THE APPELLANT. IT IS SETTLED LAW THAT BLOCK ASSESSMENT RELATES TO UNDISCLOSED INCOME FOUND AS A RESULT OF SEARCH AS WELL AS POST-SEARCH INVESTIGATION. THAT BEING SO, THE FACT THAT EVEN ON THE DATE OF COMPLET ION OF THE BLOCK ASSESSMENT ORDER, NO SHOW CAUSE HAD BEEN ISSUED BY THE CENTRAL EXCISE AUTHORITIES, OR THE FACT THAT ON THE DATE OF INCOME TAX SEARCH, NO SUCH EVIDENCE REGARDING CLANDESTINE MANUFACTURE OF GUITKHA WAS IT(SS)A 90&100/MUM/07 ITA NO.3987 & 3402/MUM/07 ) 7 FOUND ARE IRRELEVANT IN DECIDING THE MERIT OF THE O RDER PASSED UNDER SECTION 158 BC. IN VIEW OF THE UNDISPUTED FACT THA T IT WAS DURING THE COURSE OF POST-SEARCH ENQUIRY THAT EVIDENCES INDICA TING CLANDESTINE MANUFACTURE OF GUTKHA WAS RECEIVED FROM CENTRAL EXC ISE DEPARTMENT. IT IS THEREFORE, CLEAR THAT THE AO HAD JURISDICTION U/S. 158BC TO ASSESS THE PROFIT FROM SUCH CLANDESTINE MANUFACTURE OF GUT KHA. THIS GROUND OF APPEAL, IS THEREFORE, DISMISSED. 10. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE H AS RAISED GROUND NO.1 & 2 BEFORE THE TRIBUNAL. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE FACTS AS IT EMANATES FROM THE RECORD ARE AS FOLLOWS. THE ASSESSEE WAS SEARCH ED BY THE INCOME TAX DEPARTMENT UNDER SECTION 132 OF THE ACT ON 14/3/200 2. IN THE COURSE OF SUCH SEARCH NO INCRIMINATING EVIDENCE WHATSOEVER WA S FOUND RECORDING ANY UNRECORDED SALE OR MANUFACTURE OF GUTKHA. ON 23/1/ 2003 A SEARCH BY THE CENTRAL EXCISE AUTHORITIES WERE CONDUCTED IN THE CA SE OF SHRI SUDHIR KHANNA AS WELL AS THE ASSESSEE. SHRI SUDHIR KHANNA WAS SEARCHED IN DELHI AND THE ASSESSEES BUSINESS PREMISES AT DELHI WAS A LSO SEARCHED. IN THE COURSE OF SUCH SEARCH ON THE ASSESSEE BY THE CENTRA L EXCISE AUTHORITIES NO EVIDENCE WAS FOUND REGARDING CLANDESTINE MANUFACTUR E OF GUTKA BY THE ASSESSEE. THE CASE OF THE REVENUE IN THE INCOME TA X PROCEEDINGS, THEREFORE, RESTS PURELY ON THE STATEMENT OF SHRI SUDHIR KHANNA . THE ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE BEFORE US WAS THAT IN AN ASSESSMENT UNDER CHAPTER XIVB OF THE ACT UNDISCLOSED INCOME HAS TO B E DETERMINED ON THE BASIS OF EVIDENCE FOUND AS A RESULT OF A SEARCH. IN THIS REGARD IT IS NOT IN DISPUTE THAT NO EVIDENCE WAS FOUND IN THE COURSE OF SEARCH OF THE ASSESSEE UNDER SECTION 132 OF THE ACT. IN THE COURSE OF SEA RCH BY THE CENTRAL EXCISE AUTHORITIES ON SHRI SUDHIR KHANNA CERTAIN INCRIMINA TING EVIDENCE WAS FOUND. IT IS ALSO NOT DISPUTED THAT THIS EVIDENCE FOUND BY THE CENTRAL EXCISE AUTHORITIES HAS NOT BEEN REQUISITIONED BY THE DEPAR TMENT UNDER SECTION 132A OF THE ACT. THE REVENUE HAS PROCEEDED TO RELY ON THE SEIZED DOCUMENTS IT(SS)A 90&100/MUM/07 ITA NO.3987 & 3402/MUM/07 ) 8 AND STATEMENT OF SHRI SUDHIR KHANNA IN THE COURSE OF SEARCH BY THE CENTRAL EXCISE AUTHORITIES AFTER GETTING COPIES OF THE SME FROM THOSE AUTHORITIES. THEREFORE, IT CANNOT BE SAID THAT THE MATERIAL USED BY THE ASSESSING OFFICER AGAINST THE ASSESSEE IS A MATERIA L WHICH WAS REQUISITIONED UNDER SECTION 132A OF THE ACT. UNDER SECTION 158BB R.W.S. 158BC OF THE ACT UNDISCLOSED INCOME HAS TO BE DETERMINED ON THE BASI S OF EVIDENCE FOUND AS A RESULT OF SEARCH OR REQUISITION OF BOOKS OF ACCOUNT S OR OTHER DOCUMENTS. ADMITTEDLY THE UNDISCLOSED INCOME IN THE PRESENT CA SE IN THE FORM OF PROFIT ON UNACCOUNTED SALE AND CAPITAL REQUIREMENT TO CARR Y OUT THE UNACCOUNTED SALES HAVE NOT BEEN MADE ON THE BASIS OF THE EVIDEN CE FOUND AS A RESULT OF THE SEARCH. 12. THE LD. D.R HOWEVER SUBMITTED THAT THE UNDISCLO SED INCOME HAS TO BE COMPUTED BY THE ASSESSING OFFICER IN THE SAME MANNE R AS THE ASSESSING OFFICER MAKES AN ASSESSMENT UNDER SECTION 143(3) OF THE ACT, THEREFORE, UNDER SECTION 142 HE WAS EMPOWERED TO COLLECT EVIDE NCE FROM THE CENTRAL EXCISE AUTHORITIES. FURTHER IT WAS SUBMITTED THAT THE EVIDENCE FOUND BY THE CENTRAL EXCISE AUTHORITIES WAS A RELATABLE EVIDENCE I.E. IT CAN BE RELATED TO THE EVIDENCE FOUND IN THE COURSE OF SEARCH OF THE A SSESSEE UNDER SECTION 132 OF THE ACT. IN THIS REGARD IT WAS SUBMITTED BY HIM THAT THERE WAS EVIDENCE OF MANUFACTURE OF GUTKA BY THE ASSESSEE AND THE RELATA BLE EVIDENCE FOUND BY THE CENTRAL EXCISE AUTHORITIES SHOWED THAT THE ASSE SSEE WAS INDULGING IN CLANDESTINE MANUFACTURE OF GUTKA. THUS THE ASSESSI NG OFFICER WAS EMPOWERED TO MAKE THE ASSESSMENT OF UNDISCLOSED INC OME BY RELYING ON THE EVIDENCE GATHERED BY THE CENTRAL EXCISE AUTHORITIES IN A SEARCH CONDUCTED BY THEM. 13. WE HAVE CONSIDERED THE SUBMISSIONS AND ARE OF T HE VIEW THAT THE SAME CANNOT BE ACCEPTED. UNDISCLOSED INCOME HA S BEEN DEFINED IN THE ACT AS FOLLOWS: IT(SS)A 90&100/MUM/07 ITA NO.3987 & 3402/MUM/07 ) 9 158B. IN THIS CHAPTER, UNLESS THE CONTEXT OTHERWIS E REQUIRES,- (B) UNDISCLOSED INCOME INCLUDES ANY MONEY, BULLI ON, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING OR ANY INCOME BASED ON ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR TRANS ACTIONS, WHERE SUCH MONEY, BULLION, JEWELLERY, VALUABLE ARTI CLE, THING, ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENT OR TRANSA CTION REPRESENTS WHOLLY OR PARTLY INCOME OR PROPERTY WHIC H HAS NOT BEEN OR WOULD NOT HAVE BEEN DISCLOSED FOR THE PURPO SES OF THIS ACT, OR ANY EXPENSE, DEDUCTION OR ALLOWANCE CLAIMED UNDER THIS ACT WHICH IS FOUND TO BE FALSE. THE UNDERLINED PORTION IN THE DEFINITION OF UNDISC LOSED INCOME WAS ADDED BY THE FINANCE ACT, 2002 HAS AMENDED THE DEFINITION OF UNDISCLOSED INCOME IN SECTION 158B(B) W.R.E.F. 1-7-1995 14. EXPLANATION TO SEC. 158 BA (2) INSERTED BY THE FINANCE (NO. 2) ACT, 1998 WITH RETROSPECTIVE EFFECT FROM JULY 1, 1995, READS AS FOLLOWS: EXPLANATION FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT (A) THE ASSESSMENT MADE UNDER THIS CHAPTER SHALL BE IN ADDITION TO THE REGULAR ASSESSMENT IN RESPECT OF EA CH PREVIOUS YEAR INCLUDED IN THE BLOCK PERIOD; (B) THE TOTAL UNDISCLOSED INCOME RELATING TO THE BLOCK PERIOD SHALL NOT INCLUDE THE INCOME ASSESSED IN ANY REGULA R ASSESSMENT AS INCOME OF SUCH BLOCK PERIOD. (C) THE INCOME ASSESSED IN THIS CHAPTER SHALL NOT BE IN CLUDED IN THE REGULAR ASSESSMENT OF ANY PREVIOUS YEAR INCL UDED IN THE BLOCK PERIOD. 15. THE PROVISIONS OF SECTION 158BB(1) OF THE ACT LAYS DOWN THE COMPUTATION OF UNDISCLOSED INCOME OF THE BLOCK PERIOD. THE SAM E READS AS FOLLOWS: 158BB. COMPUTATION OF UNDISCLOSED INCOME OF THE BLO CK PERIOD.-- (1) THE UNDISCLOSED INCOME OF THE BLOCK PERIOD SHAL L BE THE AGGREGATE OF THE TOTAL INCOME OF THE PREVIOUS YEARS FALLING WITHIN IT(SS)A 90&100/MUM/07 ITA NO.3987 & 3402/MUM/07 ) 10 THE BLOCK PERIOD COMPUTED, **IN ACCORDANCE WITH TH E PROVISIONS OF THIS ACT, ON THE BASIS OF EVIDENCE FOUND AS A RE SULT OF SEARCH OR REQUISITION OF BOOKS OF ACCOUNT OR OTHER DOCUMENTS AND SUCH OTHER MATERIALS OR INFORMATION AS ARE AVAILABLE WIT H THE ASSESSING OFFICER AND RELATABLE TO SUCH EVIDENCE , AS REDUCED BY THE AGGREGATE OF THE TOTAL INCOME, OR, AS THE CASE MAY BE, AS INCREASED BY THE AGGREGATE OF THE LOSSES OF SUCH PREVIOUS YEA RS, DETERMINED,- - THE UNDERLINED PORTION IN THE ABOVE PROVISIONS WERE INTRODUCED BY THE FINANCE ACT, 2002, W.E.F. 1-7-1995. 16. PRIOR TO THE AFORESAID AMENDMENTS, THE PROVISI ONS OF SEC.158BB REFERRED TO ONLY EVIDENCE FOUND AS A RESULT OF SEARCH OR REQ UISITION OF BOOKS OF ACCOUNTS OR OTHER DOCUMENTS AND THEREFORE IT WAS IN TERPRETED BY COURTS AND TRIBUNALS THAT TWO ELEMENTS HAVE TO BE SATISFIED BE FORE THE INCOME CAN BE SAID TO BE UNDISCLOSED INCOME: A) THERE SHOULD BE A FACTUM OF NON DISCLOSURE ON THE P ART OF THE ASSESSEE B) SUCH NON DISCLOSURE SHOULD HAVE BEEN DETECTED AS A RESULT OF SEARCH. AS ALREADY SEEN THE FINANCE ACT, 2002 HAS AMENDED T HE DEFINITION OF UNDISCLOSED INCOME IN SECTION 158B(B) W.E.F. 1-7-19 95 TO SPECIFICALLY INCLUDE THEREIN INCOME BASED ON ENTRIES IN BOOKS OF ACCOUNT OR OTHER DOCUMENTS WHICH REPRESENT A FALSE CLAIM OF ANY EXPENSE, DEDUC TION, OR ALLOWANCE UNDER THE INCOME-TAX ACT. THE AFORESAID AMENDMENT NOW MA KES IT POSSIBLE TO DISALLOW ANY EXPENSE OR DEDUCTION OR ALLOWANCE CLAI MED UNDER THIS ACT, WHICH IS FOUND TO BE FALSE. THE EXPRESSION FOUND TO BE FALSE IS VERY IMPORTANT. IT IS ONLY WHEN AS A RESULT OF SEARCH E VIDENCE IS FOUND WHICH SHOWS THAT THE EXPENSES, DEDUCTION OR ALLOWANCE CLA IMED UNDER THE ACT IS FOUND TO BE FALSE CAN IT BE SAID TO BE UNDISCLOSED INCOME NOTWITHSTANDING THE FACT THAT IT HAD ALREADY BEEN DISCLOSED TO THE DEPARTMENT EITHER BY DISCLOSING IN THE RETURN FILED PRIOR TO SEARCH OR I N THE FORM OF ENTRIES IN THE BOOKS OF ACCOUNTS PRIOR TO SEARCH. TO THIS EXTENT THE PROPOSITION LAID DOWN IT(SS)A 90&100/MUM/07 ITA NO.3987 & 3402/MUM/07 ) 11 BY THE VARIOUS BENCHES OF ITAT REFERRED TO ABOVE ST ANDS MODIFIED. THE QUESTION THEREFORE IS AS TO WHETHER EVIDENCE FOUND IN THE COURSE OF SEARCH AND SUCH OTHER EVIDENCE AND MATERIAL RELATABLE TO E VIDENCE FOUND IN THE COURSE OF SEARCH ESTABLISHED THAT THE CLAIM OF THE ASSESSEE FOR ALLOWANCE OF DEPRECIATION AND FIANC CHARGES WERE BOGUS. FURTHE R THE AMENDMENT TO SECTION 158BB WITH RETROSPECTIVE EFFECT FROM JULY 1 , 1995, BY ADDING THE WORDS AND SUCH OTHER MATERIALS OR INFORMATION AS A RE AVAILABLE WITH THE ASSESSING OFFICER AND RELATABLE TO SUCH EVIDENCE HAS IT FURTHER WIDENED THE SCOPE OF MAKING ASSESSMENT OF UNDISCLOSED INCOME. 17. IN MANGERAM MITTAL VS. ACIT 289 ITR 112 (AT) ( DEL), THE ITAT EXAMINED THE SCOPE OF THE ABOVE AMENDMENTS TO THE VARIOUS PR OVISIONS OF CHAPTER XIV- B OF THE ACT, FOR MAKING BLOCK ASSESSMENTS, IN THE FOLLOWING WORDS: THE COMPUTATION OF UNDISCLOSED INCOME OF THE BLOCK PERIOD IN A BLOCK ASSESSMENT MUST BE RELATED TO EVIDENCE FOUND AS A R ESULT OF SEARCH PROCEEDINGS. THE FINANCE ACT, 2002, BY THE AMENDMEN T TO SECTION 158BB WITH RETROSPECTIVE EFFECT FROM JULY 1, 1995, ADDED THE WORDS AND RELATABLE TO SUCH EVIDENCE : THE UNDISCLOSED INCOME HAS TO BE COMPUTED ON THE BASIS OF EVIDENCE FOUND AS A RESULT OF SEARCH AND/OR OTHER MATERIALS OR INFORMATION RELATABLE TO SUCH EV IDENCE. AT THE SAME TIME IT CANNOT BE CONCLUDED THAT UNDISCLOSED INCOM E TO BE COMPUTED UNDER THE PROVISIONS OF SECTION 158BC SHOULD BE CON FINED TO THE EVIDENCE FOUND DURING THE COURSE OF THE SEARCH. EVE N AFTER THE AMENDMENT BY THE FINANCE ACT, 2002, WITH RETROSPECT IVE EFFECT FROM JULY 1, 1995, THERE IS SCOPE TO LET IN OTHER MATERI ALS OR INFORMATION GATHERED BY THE ASSESSING OFFICERS DURING THE COURS E OF POST-SEARCH ENQUIRY, BUT SUCH OTHER MATERIALS OR INFORMATION AS NOW CLEARLY MANDATED BY THE LEGISLATURE MUST BE RELATABLE TO EV IDENCE FOUND AS A RESULT OF SEARCH. THE INSERTION OF THE WORDS RELATABLE TO SUCH EVIDE NCE BY THE FINANCE ACT, 2002, WITH RETROSPECTIVE EFFECT FROM JULY 1, 1 995, IS INTENDED TO RESTRICT THE SCOPE OF MATERIAL OR INFORMATION THAT MAY BE RELIED UPON BY THE ASSESSING OFFICER BECAUSE IT HAS TO BE RELAT ABLE TO EVIDENCE IT(SS)A 90&100/MUM/07 ITA NO.3987 & 3402/MUM/07 ) 12 FOUND AS A RESULT OF SEARCH IN THE FIRST INSTANCE. AS LONG AS THERE IS AN EVIDENCE OF UNDISCLOSED INCOME OF THE ASSESSEE, THA T WOULD BE SUFFICIENT TO CLOTHE THE ASSESSING OFFICER WITH THE POWERS TO ADD TO SUCH EVIDENCE ANY FURTHER MATERIAL OR INFORMATION T HAT MAY BE PERTINENT OR NECESSARY TO REACH A LOGICAL CONCLUSIO N BUT THERE HAS TO BE A CERTAIN AND SPECIFIC NEXUS BETWEEN THE EVIDENCE F OUND AS A RESULT OF SEARCH AND UNDISCLOSED INCOME PROPOSED TO BE ASSESS ED IN THE BLOCK ASSESSMENT UNDER SECTION 158BC. AT THE SAME TIME IT CANNOT BE HELD THAT CONCLUSIVE EVIDENCE OF UNDISCLOSED INCOME SHOU LD BE FOUND DURING THE COURSE OF SEARCH ACTION ITSELF AND NOTHI NG FURTHER CAN BE ADDED OR SUPPLEMENTED BY WAY OF SUBSEQUENT ENQUIRY. THERE SHOULD BE, IN THE FIRST INSTANCE, EVIDENCE FOUND AS A RESULT OF SEARCH OR REQUISITION OF BOOKS OF ACCOUNT OR OTHER DOCUMENTS THAT MAY CONSTITUTE THE BASIS OF COMPUTATION OF UNDISCLOSED INCOME. THAT EVIDENCE MAY NOT BE CONCLUSIVE TO ARRIVE AT THE F INDING OF UNDISCLOSED INCOME AND THE ASSESSING OFFICER MAY SUPPLEMENT IT WITH MATERIALS OR INFORMATION THAT HE MAY GATHER OR THAT MAY BE OTHERWISE AVAILABLE WITH HIM AT THE TIME OF COMPUTATION OF UNDISCLOSED INCOME OF THE BLOCK PERIOD. THE EXPRESSION RELATABLE APPEARING IN SECTION 158BB(1) PERMITS THE ASSESSING OFFICER TO BRING MATERIAL ON RECORD AS MAY BE REQUIRED FOR COMPUTATION OF UNDISCLOSED INCOME IN R ELATION TO EVIDENCE FOUND AS A RESULT OF SEARCH. ALL MATERIA LS OR INFORMATION GATHERED BY THE ASSESSING OFFICER OR RECEIVED BY TH E ASSESSING OFFICER IN THE PROCESS OF COMPUTATION OF UNDISCLOSED INCOME ON THE BASIS OF EVIDENCE WOULD CONSTITUTE MATERIALS OR INFORMATIO N RELATABLE TO SUCH EVIDENCE. 'ANY UNDISCLOSED INCOME DISCOVERED BY THE ASSESSING OFFICER ENTIRELY ON THE BASIS OF MATERIAL OR INFORMATION GATHERED BY HIM ON HIS OWN WITHOUT THERE BEING ANY RELATIONSHIP WHATSOEVER WIT H AN EVIDENCE FOUND AS A RESULT OF SEARCH, CANNOT FORM PART OF UN DISCLOSED INCOME TO BE BROUGHT TO BLOCK ASSESSMENT UNDER THE PROVISIONS OF SECTION 158BC. 18. WE SHALL NOW PROCEED TO EXAMINE THE SEQUENCE O F EVENTS TO FIND OUT, IF THERE WAS EVIDENCE FOUND AS A RESULT OF SEARCH AND WHETHER SUCH OTHER MATERIAL OR INFORMATION RELATABLE TO THE EVIDENCE F OUND IN THE COURSE OF IT(SS)A 90&100/MUM/07 ITA NO.3987 & 3402/MUM/07 ) 13 SEARCH WERE GATHERED BY THE AO TO DISALLOW DEPRECIA TION ON PLANT AND MACHINERY AND THE FINANCE CHARGES. 19. AS WE HAVE ALREADY SEEN NO EVIDENCE WAS FOUND A S A RESULT OF SEARCH UNDER SECTION 132 OF THE ACT IN THE CASE OF THE ASS ESSEE. IN SUCH CIRCUMSTANCES THERE IS NO QUESTION OF USING ANY REL ATABLE EVIDENCE. THE FACT THAT THE ASSESSEE WAS MANUFACTURER OF GUTKA IS WELL WITHIN THE KNOWLEDGE OF THE DEPARTMENT AND IT CANNOT BE SAID THAT THE DEPAR TMENT CAME TO KNOW ABOUT THE SAME ONLY AS A RESULT OF SEARCH. WE ARE , THEREFORE, OF THE VIEW THAT THE EVIDENCE FOUND BY THE CENTRAL EXCISE AUTHO RITIES CANNOT BE SAID TO BE RELATABLE EVIDENCE. HAD THE EVIDENCE FOUND BY T HE CENTRAL EXCISE AUTHORITIES PURSUANT TO THE SEARCH BEEN REQUISITION ED BY THE INCOME TAX DEPARTMENT UNDER SECTION 132A OF THE ACT THEN IT CO ULD HAVE BEEN USED AS EVIDENCE FOUND AS A RESULT OF SEARCH. THE REVENUE NOT HAVING DONE SO CANNOT SEEK TO RELY ON SUCH EVIDENCE OF DETERMINING UNDISC LOSED INCOME IN THE HANDS OF THE ASSESSEE. MOREOVER AS CAN BE SEEN THE RE WAS A RETRACTION BY SHRI SUDHIR KHANNA AS EARLY AS 25/4/2002 BEFORE THE METROPOLITAN MAGISTRATE. THIS FACT WAS BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER ALSO. LATER ON I.E. ON 9/3/2004 IN THE PROCEEDINGS BEFORE THE CENTRAL EXCISE AUTHORITIES SHRI SUDHIR KHANNA HAD RETRACTED FROM H IS EARLIER STATEMENT MADE IN THE COURSE OF SEARCH BY THE CENTRA EXCISE A UTHORITIES. IN THE LIGHT OF THE ABOVE FACTUAL POSITION, WE ARE OF THE VIEW T HAT THE ADDITION MADE IN THE CASE OF THE ASSESSEE OF PROFIT ON ACCOUNT OF UNACCO UNTED SALES OF GUTKA AND INVESTMENT MADE TO CARRY ON THE CLANDESTINE MANUFAC TURE OF GUTKA WHICH IS BASED PURELY ON THE STATEMENT OF SHRI SUDHIR KHANNA CANNOT BE SUSTAINED. IN THE COURSE OF HEARING IT WAS ALSO BROUGHT TO OUR NOTICE THAT CENTRAL EXCISE AUTHORITIES HAVE ALSO INITIATED PROCEEDINGS AGAINST THE ASSESSEE AND THE SAME ARE PENDING DETERMINATION BEFORE THE CENTRAL E XCISE AUTHORITIES. WE WILL DISCUSS IMPLICATIONS OF THE SAME IN THE REGULA R ASSESSMENT FOR A.Y. IT(SS)A 90&100/MUM/07 ITA NO.3987 & 3402/MUM/07 ) 14 2002-03. AS FAR AS BLOCK ASSESSMENT ARE CONCERNED WE ARE OF THE VIEW THAT THE ADDITION MADE CANNOT BE SUSTAINED AND THE SAME ARE DIRECTED TO BE DELETED. GROUND NO.1 & 2 RAISED BY THE ASSESSEE AR E ALLOWED. 20. GROUND NO.3 RAISED BY THE ASSESSEE READS AS FOL LOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), CENTRAL III, MUMBAI HAS ERRED LEGALLY AND FACTUALLY IN CONFIRMING AN ADDITION OF RS.5,65,000/- ( BEING UNEXPLAINED CASH CREDIT U/S. 68, BEING CAPITAL INTR ODUCED IN CASH IN THE APPELLANTS PROPERTY CONCERN M/S. SUNRISE FOOD PRODUCTS, JODHPUR IN A.Y 1999-2000), MADE IN TO THE UNDISCLOS ED INCOME BY THE ASSESSING OFFICER, ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRLE 11, MUMBAI, THE ADDITION WAS MADE ON THE BASIS OF A BSENCE OF PROOF OF TRANSPORT FROM THANE UNIT TO JODHPUR UNIT . 21. IN THE COURSE OF SEARCH UNDER SECTION 132 OF TH E ACT THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD INTRODUCED CA PITAL IN THE FORM OF CASH IN THE PROPRIETARY CONCERN M/S. SUNRISE FOOD PRODUC TS, JODHPUR. THE ASSESSEE EXPLAINED THE INTRODUCTION OF SUCH CASH AS CAPITAL AND THE SOURCE OF SUCH CAPITAL AS WITHDRAWAL FROM OTHER PROPRIETAR Y CONCERN M/S. ARUN JOSHI CONSULTANCY AND M/S. RAJ ESSENTIAL OIL COMPAN Y, THANE. THE ASSESSEE GIVEN THE FOLLOWING DETAILS REGARDING WIT HDRAWAL OF CASH FROM THE AFORESAID TWO BUSINESS. S.NO. DATE OF INTRODUCTION IN CAPITAL ACCOUNT OF SUNRISE FOOD PRODUCTS. AMOUNT OF CASH INTRODUCED AS CAPITAL IN M/S. SUNRISE FOOD PRODUCTS, JODHPUR. DATE ON WHICH THE AMOUNT WAS ALLEGED TO HAVE BEEN WITHDRAWN FROM OTHER TWO PROPRIETARY CONCERNS AND STATED TO BE SOURCE OF THE CASH CAPITAL. 1 21/4/98 RS.10,000/- 18/4/98- AMJ CONSULTANCY 2. 5/9/98 RS.60,000/- 1/9/98 AMJ CONSULTANCY 3. 1/10/98 RS. 30,000/- 26/9/98-AMJ CONSULTANCY 4 1/1/99 RS. 1,00,000/- 28/10/98- AMJ CONSULTANCY 5. 28/1/99 RS.30,000/- 28.1.99-RAJ ESSENTIAL OIL 6. 1/2/99 & 1/2/99 RS.50,000& RS.35000/- 28/1/99-RAJ ESSENTIAL OIL 7, 28/2/99 RS.40,000/- 29/1/99- AMJ CONSULTANCY 8. 4.3.99 RS.50,000/- 1/2/99- AMJ CONSULTANCY 9. 10/3/99 RS.10,000/- 29/1/99-AMJ CONSULTANCY 10. 14/3/99 RS.50,000/- IT(SS)A 90&100/MUM/07 ITA NO.3987 & 3402/MUM/07 ) 15 11. 16/3/99 RS.50,000/- 13/3/99- AMJ CONSULTANCY 12. 28/3/99 RS.50,000/- 22/3/99 AMJ CONSULTANCY TOTAL RS.5,65,000/- 22. THE ASSESSEE THUS EXPLAINED INTRODUCTION OF CAS H. THE ASSESSING OFFICER HOWEVER DID NOT ACCEPT THE EXPLANATION FOR THE REASON THAT THE WITHDRAWAL OF CASH WAS FROM THANE AND THE DEPOSIT W AS IN JODHPUR AND THAT THE ASSESSEE DID NOT EXPLAIN AS TO HOW CASH WA S SENT FROM THANE TO JODHPUR. THE ASSESSEE EXPLAINED THAT WHENEVER ANY EMPLOYEE OF THE ASSESSEE GOES TO JODHPUR, CASH IS SENT THROUGH THEM AS PER THE REQUIREMENT OF THE JODHPUR UNIT. ACCORDING TO THE ASSESSING OF FICER NO DETAILS OF THE EMPLOYEES WHO WENT WERE FURNISHED. HE, THEREFORE, TREATED A SUM OF RS.5,65,000/- AS UNEXPLAINED CASH CREDIT. THE CIT( A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN O UR VIEW ADDITIONS HAVE BEEN MADE PURELY ON THE BASIS OF SURMISES AND CONJE CTURES. THE BOOKS OF ACCOUNTS CLEARLY EVIDENCES THE WITHDRAWAL OF CASH A ND DEPOSIT OF CASH. ADMITTEDLY THERE WAS A GAP OF 2-3 DAYS BETWEEN WITH DRAWAL OF CASH AT THANE AND CREDITING AT JODHPUR. IN SUCH CIRCUMSTANCES TH E EXPLANATION OFFERED BY THE ASSESSEE CANNOT BE IGNORED. THERE IS NO MATERI AL TO SHOW THAT THE PLEA RAISED BY THE ASSESSEE IS NOT ACCEPTABLE. MOREOVER , THE ADDITION SOUGHT TO BE MADE IN THE BLOCK ASSESSMENT WITHOUT ANY MATERIAL D ETECTED IN THE COURSE OF SEARCH, CANNOT BE SUSTAINED. FOR THE REASONS GIVEN ABOVE WE DIRECT THAT THE ADDITION SUSTAINED BY THE CIT(A) BE DELETED. GROUN D NO.3 RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 24. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS A LLOWED. IT(SS) 100/MUM/07:- REVENUES APPEAL: IT(SS)A 90&100/MUM/07 ITA NO.3987 & 3402/MUM/07 ) 16 25. GROUND NO.1 & 2 RAISED BY THE REVENUE READ AS F OLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN : 1. DELETING THE ADDITION OF RS. 9,02,183/- MADE BY THE AO ON TREATING THE INCOME OF A.Y. 2001-02 AS UNDISCLOSED INCOME. 2. RELYING ON THE DECISION OF ITAT, MUMBAIS DECISION IN THE CASE OF PR PATEL VS. DCIT (2001) IGNORING THE FACT THAT THE DE CISION HAS NOT BEEN ACCEPTED AND AN APPEAL U/S. 260A HAS BEEN PREFERRED BY THE DEPARTMENT. 26. WE HAVE ALREADY SEEN THAT THE SEARCH UNDER SECT ION 132 OF THE ACT WAS CONDUCTED IN THE CASE OF THE ASSESSEE ON 14/3/2002. THE ASSESSEE HAD FILED THE REGULAR RETURN OF INCOME FOR A.Y. 2001-02 DECLA RING THE INCOME OF RS. 9,02,183/-. ACCORDING TO THE ASSESSING OFFICER T HE DUE DATE FOR FILING THE RETURN OF INCOME WAS 31/10/2001 AND THE ASSESSEE HA D NOT FILED THE RETURN OF INCOME ON THE DUE DATE. SINCE RETURN OF INCOME FOR A.Y. 2001-02 WAS FILED ON 31/3/2002 AFTER THE SEARCH TOOK PLACE THE INCOM E DECLARED IN SUCH RETURN WAS ALSO TREATED AS UNDISCLOSED INCOME BY TH E ASSESSING OFFICER. THE CIT(A) HOWEVER DELETED THE ADDITION MADE BY THE ASS ESSING OFFICER FOR THE FOLLOWING REASONS. 8. GROUND NO.6 RELATES TO THE ADDITION OF RS. 9,0 2,183/- BY TREATING THE RETURNED INCOME FOR A.Y 2001-02 AS UNDISCLOSED INCOME. THE RELATED FACTS IN BRIEF ARE THAT THE APPELLANT FILED THE RETURN OF INCOME FOR A.Y. 2001-02 ON 31.03.2003 U/S. 139 (4). AS RE TURN WAS FILED AFTER THE DATE OF SEARCH, WHICH WAS 14/03/2002, THE AO TR EATED THE SAME AS UNDISCLOSED INCOME BY INVOKING PROVISION OF SECT ION 158BB(1)(CA). DURING THE COURSE OF APPEAL PROCEEDINGS, IT WAS SU BMITTED THAT THE RETURNED INCOME WAS NOT ONLY SUBJECT TO TDS BUT ADV ANCE TAX AND ALSO BEEN PAID ON THE RETURNED INCOME BEFORE THE DATE OF SEARCH AND AS SUCH THE INCOME DECLARED IN THE BELATED RETURN, THO UGH AFTER THE DATE OF SEARCH COULD NOT BE CONSIDERED AS UNDISCLOSED IN COME. RELIANCE WAS PLACED ON THE DECISION OF THE MUMBAI TRIBUNAL I N THE CASE OF P.R. PATEL V. DCIT (2001) (78 ITD 51) (MUM) WHEREIN IT HAS BEEN HELD THAT INCOME SUBJECT TO TDS AND INCOME CORRESPONDING TO A DVANCE TAX PAYMENT SHALL NOT BE TREATED AS ASSESSEES UNDISCLO SED INCOME AND SHALL NOT BE TAXED IN THE BLOCK ASSESSMENT U/S. 158 BC. RELIANCE WAS ALSO PLACED ON THE DECISION IN THE CASES (I) SALVI DIVAKAR SHANKAR VS. ACIT (2000) (72 ITD 552) (PUNE); (II) SOU. VIDYA MA DANLAL MALANI IT(SS)A 90&100/MUM/07 ITA NO.3987 & 3402/MUM/07 ) 17 (2000) (74 ITD 341)(PUNE) ; AND (III) HARISH KUMAR GUPTA V. DCIT (2001) (69 TTJ 440). I HAVE GONE THROUGH THE FACTS AS WELL AS CASE LAWS RELIED UPON BY THE APPELLANT. IT IS SETTLED LAW THAT INCOME COVERED B Y PAYMENT OF ADVANCE TAX AND TDS IS TO BE TREATED AS INCOME DISCLOSED AN D EXCLUDED FOR THE PURPOSE OF THE COMPUTATION OF UNDISCLOSED INCOME. THAT BEING SO, THE ADDITION OF RS. 9,02,183/- AS UNDISCLOSED INCOME IS DELETED. 27. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENU E HAS RAISED GROUND NO.1 & 2 BEFORE THE TRIBUNAL. 28. WE HAVE HEARD THE SUBMISSIONS OF THE LD. D.R, W HO REITERATED THE STAND OF THE REVENUE AS REFLECTED IN THE GROUNDS OF APPEAL. WE ARE OF THE VIEW THAT THE TAX ON THE INCOME DECLARED BY THE ASS ESSEE HAVING ALREADY BEEN SUBJECT TO TDS AND THE FACT THAT THE ASSESSEE HAD ALSO PAID ADVANCE TAX ON SUCH INCOME ONLY SHOWS THAT THE ASSESSEE HAD NO INTENTION NOT TO DISCLOSE THE SAID INCOME TO THE REVENUE. THEREFORE , THE INCOME DECLARED IN THE REGULAR RETURN OF INCOME CANNOT BE SAID TO BE U NDISCLOSED INCOME. IN OUR VIEW THE CIT(A) HAS RIGHTLY DELETED THE ADDITIO N MADE BY THE ASSESSING OFFICER. GROUND NO.1 & 2 ARE DISMISSED. 29. GROUND NO.3 RAISED BY THE REVENUE READS AS FOLL OWS: INFERRING THAT NO SURCHARGE IS LEVIABLE IN RESPEC T OF SEARCH PRIOR TO INSERTION OF PROVISO TO SECTION 113 (I.E. 1.6.2002) IGNORING THE FACT THAT IN THE FINANCIAL YEAR IN WHICH THE SEARCH TOOK PLA CE, SURCHARGE WAS LEVIABLE. 30. IT IS NOT IN DISPUTE BEFORE US THAT CONSEQUENT TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. SURESH N. GUPTA, 297 ITR 322 IF AS PER THE FINANCE ACT APPLICABLE AS ON THE DATE OF SUCH SURCHARGE IS LEVIABLE THEN THE SAME IS VALID. ADMITTEDLY SURCHA RGE WAS LEVIABLE AS PER FINANCE ACT WHEN THE SEARCH TOOK PLACE. THEREFORE, LEVY OF SURCHARGE WOULD IT(SS)A 90&100/MUM/07 ITA NO.3987 & 3402/MUM/07 ) 18 BE VALID. WE THEREFORE, REVERSE THE ORDER OF CIT(A ) IN THIS GROUND. GROUND NO.3 IS ACCORDINGLY ALLOWED. 31. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED. ITA NO.3987/M/07: ASSESEES APPEAL: 32. THE GROUND OF APPEAL OF THE ASSESEE READS AS FO LLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A), CEN.III , MUMBAI HAS ERRED LEGALLY AND FACTUALLY IN CONFIRMING AN ADDITION OF RS.90,640/-, ( AS UNDISCLOSED INCOME BE ING 11% OF UNDISCLOSED SALE OF CLANDESTINELY MANUFACTURED GUTK HA) MADE IN TO THE TOTAL INCOME BY THE ASSESSING OFFICER, ASSISTAN T COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 11, MUMBAI, ON THE BASIS OF THE FINDING IN THE BLOCK ASSESSMENT ORDER PASSED FOR THE PERIOD A. Y 1996-97 TO 14/03/2002 (BLOCK PERIOD). THE ADDITION MADE WAS F OR THE REMAINING PERIOD IN THE F.Y. 2001-2002 AFTER THE BLOCK PERIOD ENDED ON 14.03.2002 . ON THE BASIS OF EXCISE CASE AND AS PE R BLOCK ORDER PASSED WHERE EXCISE CASE ITSELF WAS IN APPELLATE ST AGE. 33. THIS ADDITION IS IDENTICAL TO THE ADDITION THAT WAS MADE IN THE BLOCK ASSESSMENT. THE ONLY DIFFERENCE IS THAT THE ADDITI ON IN A.Y 2002-03, WHICH IS DISPUTED IN THIS APPEAL BY THE ASSESSEE IS PROFI T ON UNDISCLOSED SALES. THESE BEING A REGULAR ASSESSMENT THE EVIDENCE GATHE RED BY THE ASSESSING OFFICER FROM THE CENTRAL EXCISE AUTHORITIES WOULD B E RELEVANT EVIDENCE. WE HAVE ALREADY SEEN THAT THE ASSESSEE HAS ALREADY DIS PUTED THE FACT OF CLANDESTINE MANUFACTURE OF GUTKA BEFORE THE CENTRAL EXCISE AUTHORITIES. SUCH PROCEEDINGS ARE STATED TO BE PENDING EVEN AS O N TODAY. IN SUCH CIRCUMSTANCES, WE FEEL IT APPROPRIATE TO SET ASIDE THE ORDER OF THE CIT(A) AND REMAND THIS ISSUE TO THE ASSESSING OFFICER FOR FRES H CONSIDERATION IN THE LIGHT OF THE FINDINGS THAT MAY BE ARRIVED AT BY THE CIT( A). FOR STATISTICAL PURPOSES THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED. IT(SS)A 90&100/MUM/07 ITA NO.3987 & 3402/MUM/07 ) 19 ITA NO.3402/MUM/07: REVENUES APPEAL: 34. GROUND OF APPEAL RAISED BY THE REVENUE READS A S FOLLOWS. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN: 1) ALLOWING 80IA DEDUCTION IN RESPECT OF THE CLAIM OF CASH SALES OF ESSENTIAL OIL TO THE TUNE OF RS. 17,50,000/- IGNO RING THE FACT THAT THE ASSESSEE HAD NOT FURNISHED THE ADDRESS OF THE PURCH ASERS. 2) RECOGNIZING THE CASH SALE OF RS. 17,50,000/- IGN ORING THE FACT THAT THE PRODUCT ESSENTIAL OIL WAS INDUSTRIAL PRODUCTS USED IN THE MANUFACTURE OF SCENTED SUPARIS, GUTKA, AND PAN MASA LA AND COULD NOT BE SOLD TO SMALL AND PETTY RETAILERS. 35. THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 80 IA A MOUNTING TO RS. 12,45,366/- FROM THE PROFIT OF INDUSTRIAL UNIT, M/S . RAJ ESSENTIAL OIL SITUATED AT SILVASSA. ON VERIFICATION OF THE DETAILS SUBMIT TED BY THE ASSESSEES REPRESENTATIVE, THE AO NOTICED THAT THE ASSESSEES TURNOVER OF RS. 21,20,000/- INCLUDED CASH SALE OF RS. 17,50,000/-. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE SALES ARE MAINLY TO SMALL TR ADERS AND IN SMALL QUANTITIES. IT WAS FURTHER STATED THAT SALES TAX O RDER HAS ALSO BEEN PASSED AND A COPY OF WHICH WAS ALSO PRODUCED BEFORE THE A O. IT WAS FURTHER STATED THAT GOODS WERE SOLD FROM THE FACTORY GODOWN. ACCO RDING TO THE AO, THE ASSESSEE FAILED TO GIVE THE ADDRESSES OF THE PURCHA SERS OF THE GOODS. ACCORDING TO THE AO, THE ASSESSEE WAS PRODUCING ES SENTIAL OIL WHICH IS MAINLY USED IN MANUFACTURING OF GUTKA, PAN MASALA A ND SCENTED SUPARI. IT IS NOT AN ITEM WHICH COULD BE SOLD TO TRADERS FOR P UBLIC SALE. IT HAS TO BE USED FOR MANUFACTURING OF SOME ARTICLES (SUPRA). T HE PRODUCT IS ALSO NOT EXCISABLE. UNDER THESE CIRCUMSTANCES, LOOKING TO T HE MARGIN OF PROFIT EARNED, THE AO WAS OF THE VIEW THAT IT IS NOT FREE FROM DOUBT THAT THE CASH SALE MAY BE BY WAY OF OTHER RECEIPTS. ACCORDING TO THE AO, THE ASSESSEE IN ORDER TO CLAIM 100% DEDUCTION U/S. 80IA, MAY HAVE B ROUGHT THE INCOME FROM OTHER SOURCES AS INCOME EARNED FROM SALE OF ES SENTIAL OIL. IN THAT VIEW IT(SS)A 90&100/MUM/07 ITA NO.3987 & 3402/MUM/07 ) 20 OF THE ISSUE, THE AO TREATED THE PROFIT FROM ALLEGE D CASH SALE AS INCOME FROM OTHER SOURCES AND DID NOT ALLOW DEDUCTION U/S.80-IA OF THE ACT ON SALE OF RS.17,50,000/-. 36. ON APPEAL BY THE ASSESSEE CIT(A) DELETED THE A DDITION MADE BY THE ASSESSING OFFICER FOR THE FOLLOWING REASONS: 2.1 DURING THE COURSE OF APPEAL PROCEEDINGS, IT W AS SUBMITTED THAT THE CASH SALES WERE DULY ACCOUNTED IN THE BOOKS OF ACCOUNT SUPPORTED BY PROPER SALE BILL AND FURTHER, ALSO SUBSTANTIATED BY THE SALES TAX ORDER WHEREIN THE SALES REFLECTED BY THE APPELLANT HAD BEEN ACCEPTED. IT WAS EMPHASIZED THAT THE AO HAD DENIED DEDUCTION U/S. 80 IA MERELY ON THE BASIS OF PRESUMPTION AND ASSUMPTION T HAT THE LOOKING AT THE PROFIT MARGIN, IT WAS NOT FREE FROM DOUBT TH AT THE CASH SALE MAY BE OTHER RECEIPTS AND HENCE THE PROFIT FROM SUCH SA LES WAS ASSESSED BY HIM AS INCOME FROM OTHER SOURCES. IT WAS ALSO STRE SSED THAT MERELY BECAUSE OF ADDRESSES OF THE CUSTOMERS WERE NOT RECO RDED ON CASH SALE BILLS DID NOT JUSTIFY THE DENIAL OF DEDUCTION U/S. 80 IA. RELIANCE WAS PLACED ON SEVERAL CASE LAWS FOR THE PROPOSITION THA T THE MERE NOT MENTIONING THE ADDRESSES OF PURCHASERS ON THE CASH MEMO COPIES DID NOT CONSTITUTE A FATAL DEFECT IN THE MAINTENANCE OF BOOKS OF ACCOUNT CALLING FOR THEIR REJECTION. IT WAS ALSO SUBMITTED THAT THE AO HAD ALSO PRESUMED THAT THE ESSENTIAL OIL COULD ONLY BE PURCH ASED BY MANUFACTURERS OF SCENTED SUPARIES, PAN MASALA, GUTK HA ETC. IT WAS POINTED OUT THAT HERE WERE VARIOUS SMALL TIME TRADE RS WHO TRADED IN THIS PRODUCT AND THERE WERE ALSO SMALL MANUFACTURER S WHO MADE SMALL PURCHASES FOR SMALL SCALE MANUFACTURE. IT WAS THER EFORE, SUBMITTED THAT THE AO HAD WRONGLY TREATED CASH SALES OF ESSEN TIAL OIL MANUFACTURED AS INCOME FROM OTHER SOURCES, AND THER EBY REDUCING THE DEDUCTION U/S. 80 IA ON PROPORTIONATE BASIS. 2.2. I HAVE GONE THROUGH THE FACTS BROUGHT ON RECO RD BY THE AO AS WELL AS THE CONTENTIONS OF THE APPELLANT. IT IS RELEVA NT, AT THIS JUNCTURE TO EXAMINE THE REASONS OF THE AO IN THIS REGARD. THE RELEVANT PORTION IS REPRODUCED BELOW: UNDER THESE CIRCUMSTANCES, LOOKING TO THE MARGIN O F PROFIT EARNED, IT IS NOT FREE FROM DOUBT THAT THE CASH SAL E MAY BE BY WAY OF OTHER RECEIPTS. THE ASSESSEE IN ORDER TO CLAIM 100% DEDUCTION U/S. 80IA, MAY HAVE BROUGHT THE INCO ME FROM OTHER SOURCES AS INCOME EARNED FROM SALE OF ES SENTIAL IT(SS)A 90&100/MUM/07 ITA NO.3987 & 3402/MUM/07 ) 21 OIL. CONSIDERING THIS FACT, I TREAT THE PROFIT FRO M ALLEGED CASH SALE AS INCOME FROM OTHER SOURCES. 2.3 IT IS THEREFORE, CLEAR FROM THE ABOVE EXTRACT THAT IN DENYING DEDUCTION U/S. 80 IA ON CASH SALES, THE AO HAS NOT BROUGHT ANY MATERIAL IN SUPPORT OF HIS CONTENTION AND HAS NOT A LSO BROUGHT ANY EVIDENCE TO SHOW THAT SUCH QUANTITY WAS NOT PRODUCE D BY THE INDUSTRIAL UNIT OR THAT EARNING SUCH HUGE INCOME IN CASH WAS FROM SOME DIFFERENCE SOURCES. IT IS SETTLED LAW THAT S USPICION HOWEVER STRONG, CANNOT TAKE THE PLACE OF PROOF. THE FACT O F SALES OF RS. 21,20,0000/- HAS BEEN CONFIRMED BY A THIRD PARTY NA MELY THE SALES TAX AUTHORITIES AND THEREFORE, WITHOUT BRINGING ON RECORD ANY MATERIAL INDICATING THAT SUCH SALE DID NOT TAKE PLACE, THE A O COULD NOT HAVE DENIED THE DEDUCTION U/S. 80 IA. THE AO IS THEREFO RE, DIRECTED TO ALLOW THE DEDUCTION U/S. 80 IA ON CASH SALE. 37. WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. ADMITTEDLY, CASH SALES WERE DULY ACCO UNTED IN THE BOOKS OF ACCOUNT SUPPORTED BY PROPER SALE BILL AND FURTHER, ALSO SUBSTANTIATED BY THE SALES TAX ORDER WHEREIN THE SALES REFLECTED BY THE APPELLANT HAD BEEN ACCEPTED. THE FACT THAT ADDRESSES OF THE CUSTOMER S WERE NOT RECORDED ON CASH SALE BILLS DID NOT JUSTIFY THE DENIAL OF DEDUC TION U/S. 80 IA. THE AO HAD PRESUMED THAT THE ESSENTIAL OIL COULD ONLY BE PURCH ASED BY MANUFACTURERS OF SCENTED SUPARIES, PAN MASALA, GUTKHA ETC. THE A SSESSEE HAD IN THIS REGARD SUBMITTED THAT THERE WERE VARIOUS SMALL TIME TRADERS WHO TRADED IN THIS PRODUCT AND THERE WERE ALSO SMALL MANUFACTURER S WHO MADE SMALL PURCHASES FOR SMALL SCALE MANUFACTURERS. IN THIS B ACKGROUND, THE AO HAS NOT BROUGHT ANY MATERIAL IN SUPPORT OF HIS CONCLUSI ON AND HAS NOT ALSO BROUGHT ANY EVIDENCE TO SHOW THAT SUCH QUANTITY WAS NOT PRODUCED BY THE INDUSTRIAL UNIT OR THAT EARNING SUCH HUGE INCOME IN CASH WAS FROM SOME DIFFERENCE SOURCES. AS RIGHTLY HELD BY THE CIT(A) SUSPICION HOWEVER STRONG, CANNOT TAKE THE PLACE OF PROOF. THE FACT OF SALES OF RS. 21,20,0000/- HAS BEEN CONFIRMED BY A THIRD PARTY NAMELY THE SALES TA X AUTHORITIES AND THEREFORE, WITHOUT BRINGING ON RECORD ANY MATERIAL INDICATING THAT SUCH SALE IT(SS)A 90&100/MUM/07 ITA NO.3987 & 3402/MUM/07 ) 22 DID NOT TAKE PLACE, THE AO COULD NOT HAVE DENIED TH E DEDUCTION U/S. 80 IA. ACCORDINGLY THE APPEAL OF THE REVENUE IS DISMISSED. 33. IN THE RESULT, IT(SS) 90/M/07 IS ALLOWED, IT(SS )100/M/07 IS PARTLY ALLOWED, ITA NO.3987/M/07 IS ALLOWED FOR STATISTIC AL PURPOSES AND ITA NO.3402/M/07 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 24 TH DAY OF JUNE, 2011. SD/- SD/- (R.K.PANDA ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 24 TH JUNE.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RH BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. IT(SS)A 90&100/MUM/07 ITA NO.3987 & 3402/MUM/07 ) 23 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 17/6/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 20/6/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER