Mardia Copper Extn. Pvt.Ltd., Ahmedabad V. The ACIT., Cent.Cir.1(4), Ahmedabad

ITA 4290/AHD/1995

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0177 (ITAT-AHMEDABAD)
• Duration Of Justice: 14 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 19-08-2009
• Assessment Year: 1992-1993
• Appeal Filed On: 13-10-1995
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B S GEHLOT
• Keywords: Bogus purchase; Business income
• Section: 143(3); 274; 251; 80HH; 131; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD B BENCH (BEFORE S/SHRI R.V.EASWAR, VICE-PRESIDENT AND P.K. BANSAL, ACCOUNTANT MEMBER) ITA NO.4097/AHD/1995 [ASSTT.YEAR : 1992-1993] ACIT, CENT.CIR.1(4) AHMEDABAD. VS. MARDIA COPPER EXTRUSION PVT. LTD. BUDASAN, TALUKA KADI. ITA NO.4290/AHD/1995 [ASSTT.YEAR : 1992-1993] MARDIA COPPER EXTRUSION PVT. LTD. BUDASAN, TALUKA KADI. VS. ACIT, CENT.CIR.1(4) AHMEDABAD. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI B.S.GEHLOT ASSESSEE BY : SHRI S.N.SOPARKAR WITH SHRI P.D.SHAH O R D E R PER R.V.EASWAR, VICE-PRESIDENT : THESE ARE CROSS APPEALS RELATING TO THE ASSESSMENT YEAR 1992-93. THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE MANUFACTURE OF COPPER AND COPPER ALL OYS. IT ALSO CARRIES ON TRADING ACTIVITIES. THE ITEMS MANUFACTURED ARE BR ASS TUBES, BILLETS, RODS ETC. THE APPEALS ARISE OUT OF THE ASSESSMENT ORDER PASSE D ON 31-3-1995 UNDER SECTION 143(3) OF THE INCOME TAX ACT. 2. DEPARTMENTS APPEAL: THE FIRST GROUND IN THIS APPEAL IS AGAINST THE REL IEF OF RS.40,23,570/- GIVEN BY THE CIT(A) FROM THE ADDITION MADE ON ACCOU NT OF UNRECORDED PRODUCTION. THE SECOND GROUND IS AGAINST THE RELIE F OF RS.68,11,785/- GIVEN BY THE CIT(A) AGAIN FROM THE ADDITION MADE ON ACCOUNT OF UNRECORDED PRODUCTION. BOTH THE GROUNDS ARE CONNECTED, IN THE SENSE THAT T HE FIRST GROUND RELATES TO THE ADDITION MADE FOR THE PRE-SEARCH PERIOD WHEREAS THE SECOND GROUND RELATES TO PAGE - 2 ITA NO.4097 AND 4290/AHD/1995 -2- THE ADDITION MADE IN THE POST-SEARCH PERIOD. SINC E BOTH THE GROUNDS ARE CONNECTED THEY ARE DEALT WITH IN A CONSOLIDATED MAN NER. 3. THE BRIEF FACTS IN THIS CONNECTION ARE THAT THER E WAS SEARCH UNDER SECTION 132 OF THE ACT IN THE ASSESSEES PREMISES, ITS ASSO CIATE CONCERNS AND THE RESIDENCES OF ITS DIRECTORS ON 23-1-1992. ONE OF T HE MATERIALS SEIZED DURING THE SEARCH WAS A FILE CONTAINING THE REPORT OF CHEMICAL ANALYSIS. THE CHEMICAL ANALYSIS REPORT WAS PREPARED AFTER TESTING THE MATE RIAL IN THE LABORATORY OF THE ASSESSEES FACTORY AT KHADI. THE REPORTS CONTAINED AN ANALYSIS IN A STANDARD PROFORMA BOTH FOR COPPER AND BRASS PRODUCTS. THEY CONTAINED DETAILS FOR THE PERIOD FROM 31-5-1991 TO 6-1-1992, THE PRE-SEARCH P ERIOD. ON THE BASIS OF THESE REPORTS, THE AO WORKED OUT THE PRODUCTION OF THE BRASS PRODUCTS AT 332.9 M.TS. AND COPPER PRODUCTS AT 397.6 M.TS. THE TOTAL CAME 730.5 M.TS. AS AGAINST THESE FIGURES REVEALED IN THE REPORTS SEIZE D DURING THE SEARCH, THE PRODUCTION AS PER THE BOOKS OF ACCOUNT SHOWED PRODU CTION OF 202.1 M.TS. OF BRASS ITEMS AND 137.1 M.TS. OF COPPER ITEMS, TOTALL ING TO 339.2 M.TS. THE DIFFERENCE WHICH WAS TAKEN AS SHORT FALL OR UNRECOR DED PRODUCTION CAME TO 130.8 M.TS. OF BRASS PRODUCTS AND 260.5 M.TS. OF CO PPER PRODUCTS. THE AGGREGATE SHORT FALL WAS 391.3 M.TS. 4. IN THE COURSE OF THE SEARCH, A STATEMENT WAS REC ORDED FROM ONE GULSHAN KATHURIA WHO WAS THE PRODUCTION ENGINEER AND MECHAN ICAL ENGINEER LOOKING AFTER THE DAY-TO-DAY PRODUCTION. IN THIS STATEMENT HE STATED THAT THE MONTHLY PRODUCTION WAS 75.80 M.TS. IN THE LAST TWO YEARS BU T FROM THE PERIOD COMMENCING ON 1-4-91 THE MONTHLY PRODUCTION WAS 90 M.TS. HE ALSO STATED THAT THE TOTAL PRODUCTION FOR THE PERIOD COVERED BY THE REPORTS (31-5-1991 TO 6- 1-92) WAS 685 M.TS. APPROXIMATELY. 5. THE AO ALSO REFERRED TO ANNEXURE-A34 WHICH IS A RECEIPT AND DESPATCH REGISTER SEIZED. ON THE BASIS OF THE FIGURES MENTI ONED THEREIN FOR THE MONTH OF JANUARY, 1992, HE NOTED THAT FOR A PERIOD OF 20 DAY S OF THE MONTH THE PAGE - 3 ITA NO.4097 AND 4290/AHD/1995 -3- PRODUCTION WAS ABOUT 60 M.TS. AS AGAINST WHICH THE REGULAR BOOKS OF THE ASSESSEE SHOWED ONLY 34 M.TS. FOR THE MONTH OF JANU ARY, 1992. 6. THE EXTRUSION REGISTERS SEIZED DURING THE SEARCH ALSO CONFIRMED THE NUMBER OF BILLETS AND THE NUMBER OF HEATS MENTIONED IN THE CHEMICAL ANALYSIS REPORT. 7. APART FROM THE ABOVE, THE AO ALSO REFERRED TO TH E RECEIPT AND DESPATCH REGISTERS FOR THE PERIOD DECEMBER, 1991 AND JANUARY 1992 WHICH WERE MAINTAINED BY THE SUPERVISOR. THE AO COMPARED TH E SAME WITH THE EXCISE CHALLANS MAINTAINED UNDER RULE 57F(2) OF THE CENTRA L EXCISE RULES AND FOUND THAT ONLY 1/10TH OF THE GOODS SENT FOR JOB WORKS WE RE BEING RECORDED IN THE EXCISE CHALLANS AND THE BALANCE OF 9/10TH OF THE GO ODS ARE DISPOSED OF DIRECTLY WITHOUT BEING RECORDED IN THE BOOKS OF ACCOUNT. T O PROVE THIS POINT, THE AO GAVE THE RELEVANT DETAILS IN PAGE-6 OF THE ASSESSME NT ORDER. 8. WHEN THE ABOVE FACTS WERE BROUGHT TO THE NOTICE OF THE ASSESSEE, IT WAS SUBMITTED THAT THE CHEMICAL ANALYSIS REPORT DID NOT REFLECT THE ACTUAL PRODUCTION. THE AO HOWEVER ASKED THE ASSESSEE TO FURNISH DETAIL S OF THE ACTUAL PRODUCTION BUT WHEN THE DETAILS WERE SUBMITTED HE OBSERVED THA T THE ASSESSEE IS NOT CLEAR ABOUT ITS OWN PRODUCTION. HE FURTHER NOTICED THAT THE PRODUCTION LOSS SHOWN BY THE ASSESSEE AMOUNTED TO 11.56% WHICH WAS HIGH COMP ARED TO THE CASE OF M/S.SHELL EXTRUDERS, VATVA, AHMEDABAD. IN THIS CON NECTION, THE AO ALSO REFERRED TO THE STATEMENT OF GULSHAN KATURIA IN WHI CH HE HAS SAID THAT THE BURNING LOSS AT THE MELTING STAGE WAS 1% TO 2%. 9. FOR THE ABOVE REASONS, THE AO REJECTED THE BOOK RESULTS UNDER SECTION 145(3) AND PROCEEDED TO COMPUTE THE UNDISCLOSED PRO FIT EARNED BY THE ASSESSEE ON THE UNRECORDED PRODUCTION OF 391.3 M.TS. OF BRAS S AND COPPER ITEMS. AS REGARDS THE BRASS ITEMS, ACCORDING TO THE ASSESSEE S BOOKS OF ACCOUNT THE AVERAGE SALE PRICE CAME TO RS.104.50 PER KG. AS AGA INST THE PURCHASE PRICE OF RS.105.00 PER KG. THE AO REJECTED THE PURCHASE PRI CE SINCE THE BOOK RESULTS PAGE - 4 ITA NO.4097 AND 4290/AHD/1995 -4- HAD BEEN REJECTED BY HIM AND PROCEEDED TO COMPUTE T HE SAME AT RS.80 PER KG. BASED ON THE PURCHASE PRICE OF RS.70 TO 83 PER KG. OF SCRAP. THE DIFFERENCE BETWEEN THE SALE PRICE AND PURCHASE PRICE WAS THUS CALCULATED AT RS.24.50 PER KG. AS PER THE CHEMICAL ANALYSIS REPORT, THE UNREC ORDED PRODUCTION OF BRASS ITEMS WAS 1,30,727 KGS. THE TOTAL UNRECORDED PRODU CTION WAS TAKEN TO BE OF THE VALUE OF RS.32,02,811/-. SIMILAR CALCULATIONS WERE MADE FOR COPPER ITEMS AND THE UNDISCLOSED INCOME ARISING OUT OF UNRECORDE D PRODUCTION OF 2,60,519 KGS. WAS TAKEN AT RS.1,04,20,760/-. THUS, THE UNRE CORDED PROFITS WERE CALCULATED AT RS.1,36,23,570/- FOR BOTH COPPER AND BRASS ITEMS AND DEDUCTING RS.96.00 LAKHS WHICH THE ASSESSEE HAD DISCLOSED DUR ING THE SEARCH AND SHOWN IN THE PROFIT AND LOSS ACCOUNT, THE BALANCE OF RS.4 0,23,570/- WAS ADDED AS UNDISCLOSED INCOME FOR THE PRE-SEARCH PERIOD. 10. COMING TO THE POST-SEARCH PERIOD, THE AO MADE T HE FOLLOWING CALCULATIONS. FROM THE MATERIAL FOUND DURING THE S EARCH INCLUDING THE CHEMICAL ANALYSIS REPORT AND OTHER PAPERS PERTAINING TO A PE RIOD OF EIGHT MONTHS FROM JUNE 1991 TO JANUARY 1992 HE HAD CALCULATED THE UND ISCLOSED PROFITS FROM UNRECORDED SALES OF BRASS AND COPPER ITEMS AT RS.1, 36,23,570/-. THE AVERAGE MONTHLY PRODUCTION AS SHOWN BY THE SEIZED MATERIAL WAS 91 MTS., AS STATED BY GULSHAN KATURIA. HE HAD ALSO CLARIFIED THAT THIS P RODUCTION WAS FOR THE PERIOD COMMENCING FROM 1-4-1991. ON THIS BASIS, THE UNREC ORDED PRODUCTION FOR THE REMAINING FOUR MONTHS VIZ. APRIL AND MAY, 1991 AND FEBRUARY AND MARCH, 1992 WAS CALCULATED AT 364 MTS.(91 X 4). DEDUCTING THE PRODUCTION OF 104 MTS. RECORDED IN THE BOOKS, THE UNRECORDED PRODUCTI ON OF BRASS AND COPPER ITEMS FOR THE POST-SEARCH PERIOD WAS TAKEN AT 260 M TS. THE QUESTION AROSE AS TO HOW THE UNDISCLOSED PROFITS FOR THIS PERIOD SHOULD BE COMPUTED. THE AO NOTED THAT THE PROFIT ON THE UNRECORDED PRODUCTION FOR EI GHT MONTHS WAS ESTIMATED BY HIM AT RS.1,36,23,570/- WHICH GAVE AN AVERAGE MONTH LY PROFIT OF RS.17,02,946/-. HE APPLIED THIS FIGURE FOR THE POS T-SEARCH PERIOD OF FOUR MONTHS AND CALCULATED THE UNRECORDED PROFITS AT RS. 68,11,785/-. PAGE - 5 ITA NO.4097 AND 4290/AHD/1995 -5- 11. THUS, THE AO MADE AN ADDITION OF RS.40,23,520/- IN RESPECT OF THE PRE- SEARCH PERIOD AND RS.68,11,785/- FOR THE POST-SEARC H PERIOD. 12. ON APPEAL, THE CIT(A) DELETED THE AFORESAID ADD ITIONS. IN RESPECT OF THE ADDITION OF RS.40,23,570/-, HE DELETED THE SAME ON THE FOLLOWING GROUNDS: A) IN THE CASE OF THE ASSESSEE THERE WAS NO SEIZURE O F ASSETS BUT ONLY PROHIBITORY ORDERS WERE PLACED ON STOCK. IN THE CO URSE OF THE SEARCH THE ASSESSEE DISCLOSED AN INCOME OF RS.1.02 CRORES AND ALSO EXPLAINED THE MANNER IN WHICH IT WAS INCURRED. B) NO EVIDENCE REGARDING SALE MADE OUTSIDE THE BOOK S OF ACCOUNT WAS FOUND DURING THE SEARCH. C) THE AO WAS WRONG IN SAYING THAT 90% OF THE PRODU CTION WAS UNRECORDED AND WAS SOLD OUTSIDE THE BOOKS OF ACCOUN T. THE CALCULATIONS MADE BY THE AO HIMSELF SHOW THAT THE U NRECORDED PRODUCTION IS 30%. D) MR.BHATTI FROM WHOSE CUSTODY THE REGISTER WAS SE IZED HAS STATED THAT THE MONTHLY PRODUCTION WAS 55 TO 60 MTS. WHICH IF CALCULATED ON YEARLY BASIS WILL ONLY BE SLIGHTLY MO RE THAN THE PRODUCTION SHOWN IN THE SEIZED BOOKS. AT LEAST THR EE PARTIES HAVE CONFIRMED IN WRITING THAT THEY HAVE RECEIVED THE GO ODS FROM THE ASSESSEE AS SHOWN IN THE CHALLANS AND OTHER REGISTE RS. E) IF, AS ALLEGED BY THE AO, AS HIGH AS 90% OF THE PRODUCTION WAS SHOWN OUTSIDE THE BOOKS THEN CERTAINLY THERE MUST B E SOME EVIDENCE SHOWING CORRESPONDING UNACCOUNTED PURCHASE S WHICH WOULD HAVE BEEN FOUND DURING THE SEARCH. NO SUCH E VIDENCE WAS HOWEVER FOUND. PAGE - 6 ITA NO.4097 AND 4290/AHD/1995 -6- F) THE PRODUCTION SHOWN AS PER THE BOOKS TALLIES AS PER THE EXCISE RECORDS AND ALSO TALLIES WITH THE STATEMENT GIVEN B Y THREE MAIN PARTIES TO WHOM THE ASSESSEE SOLD GOODS. G) NO STOCK OUTSIDE THE BOOKS WAS FOUND DURING THE SEARCH. H) NO TRANSPORT RECEIPT OR EVIDENCE OF ANY SORT WAS FOUND SHOWING DESPATCH OF THE UNRECORDED PRODUCTION. I) THE AVERAGE RATE OF SALE OF COPPER WAS WRONGLY T AKEN AT RS.155 PER KG. AS AGAINST THE AVERAGE RATE OF RS.147 PER K G. WHICH HAS BEEN WORKED OUT BY THE ASSESSEE AFTER TAKING THE SA LE OF THE COPPER FOR THE ENTIRE YEAR. J) EVEN IF THE METHOD FOLLOWED BY THE AO TO ARRIVE AT THE FIGURE OF UNRECORDED PRODUCTION OF COPPER IS ADOPTED, THE DIF FERENCE WOULD ONLY AMOUNT TO RS.83,36,608/- IN RESPECT OF 2,60,19 0 KGS. AGAINST WHICH THE PURCHASES AND MANUFACTURING AND OTHER EXP ENSES HAVE TO BE ADJUSTED TO ARRIVE AT THE PROFIT ELEMENT. K) THE AO WAS WRONG IN TAKING AVERAGE PURCHASE PRIC E OF THE BRASS AT RS.80 PER KG. WHEN HE HAS HIMSELF CALCULATED THE AVERAGE PRICE AT RS.105 PER KG. 13. SO FAR AS THE POST-SEARCH PERIOD IS CONCERNED, THE CIT(A) DELETED THE ADDITION OF RS.68,11,785/- ON THE FOLLOWING GROUNDS : A) AFTER THE SEARCH, THERE IS NO BASIS FOR MAKING A NY PRESUMPTION THAT THE ASSESSEE WOULD HAVE SUPPRESSED THE PRODUCT ION AND EFFECTED SALES THEREOF OUTSIDE THE BOOKS. B) IN ANY CASE THERE WAS NO EVIDENCE IN RESPECT OF THE FOUR MONTHS PERIOD TO SHOW SUPPRESSED PRODUCTION OR SALES. AN ADDITION MADE PAGE - 7 ITA NO.4097 AND 4290/AHD/1995 -7- FOR SIMILAR REASONS IN THE ASSESSMENT YEAR 1990-91 AND 1991-92 HAS BEEN DELETED BY THE CIT(A) ON THE GROUND THAT T HERE WAS NO RECORD OR EVIDENCE FOR THE POST SEARCH PERIOD. ACCORDINGLY, THE ADDITION WAS DELETED. 14. THE REVENUE IS IN APPEAL AGAINST THE DECISION O F THE CIT(A) IN RESPECT OF BOTH THE PERIODS AND WE HAVE HEARD THE RIVAL SUBMIS SIONS. WE FIND THAT FOR THE ASSESSMENT YEARS 1990-91 AND 1991-92 THE MATTER HAD REACHED THE TRIBUNAL IN ITA NOS.1601 AND 2165/AHD/1995. A COPY OF THE ORDE R DATED 30-11-2006 WAS FILED. THIS ISSUE REGARDING PROFITS ON UNRECORDED PRODUCTION AND SALES OF BRASS AND COPPER ITEMS HAS BEEN CONSIDERED IN PARA-11 OF THE SAID ORDER. THE TRIBUNAL HAS REFERRED TO ITS EARLIER ORDER DATED 22 -9-2005 IN ITA NO.5105/AHD/1996 IN THE CASE OF MARDIA COPPER INDUS TRIES FOR THE ASSESSMENT YEAR 1992-93 AND HAS UPHELD THE REJECTION OF THE BO OKS UNDER SECTION 145(3). HOWEVER, SO FAR AS THE ACTUAL ADDITION TO BE MADE A FTER REJECTING THE BOOKS IS CONCERNED, THE TRIBUNAL IN PARA-12.3 OF THE ORDER H ELD THAT LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, IT WOULD MEET THE EN DS OF JUSTICE IF ONE PER CENT OF THE ESTIMATED SALE FOR BOTH THE YEARS IS TAKEN A S THE PROFITS OF THE BUSINESS ON WHICH THE ASSESSEE IS ASSESSABLE. ACCORDINGLY, IT WAS HELD THAT FOR THE ASSESSMENT YEAR 1990-91 THE ASSESSEE WAS ASSESSABLE ON RS.2,71,350/- AND FOR THE ASSESSMENT YEAR 1991-92, ON RS.4,40,100/-. ON BEHALF OF THE ASSESSEE IT WAS URGED THAT THIS ORDER SHOULD BE FOLLOWED. CALC ULATIONS WERE GIVEN TO THE EFFECT THAT IF THE ORDER OF THE TRIBUNAL IS FOLLOWE D, THE ADDITION TO BE SUSTAINED FOR THE PRE-SEARCH PERIOD WOULD BE RS.4,03,804/- AN D FOR THE POST-SEARCH PERIOD IT WOULD BE RS.1,36,612/-. THESE CALCULATIONS ARE BASED ON THE EARLIER ORDER OF THE TRIBUNAL WHERE 1% OF THE SALE PRICE WAS TAKEN A S THE PROFIT. IN RESPECT OF COPPER THE AVERAGE SALE PRICE AS PER THE AOS CALCU LATIONS WAS RS.155 PER KG. IF 1% THEREOF IS TAKEN AS THE PROFIT, IT MEANS THE PROFIT PER KG. WOULD BE RS.1.55. APPLYING THIS TO 2,60,519 KGS. OF UNRECOR DED PRODUCTION, THE PROFIT ASSESSABLE WOULD BE RS.4,03,804/- IN RESPECT OF COP PER. ON SIMILAR BASIS AND PAGE - 8 ITA NO.4097 AND 4290/AHD/1995 -8- APPLYING THE SALE PRICE OF RS.104.50 FOR BRASS ITEM S ON 1,30,727 KGS. OF UNRECORDED PRODUCTION, THE PROFIT ASSESSABLE WOULD BE RS.1,36,612/-. THE ARGUMENT OF THE LEARNED CIT-DR HOWEVER WAS THAT THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 1990-91 AND 1991-92 CANNOT AUTO MATICALLY APPLY BECAUSE IN THOSE YEARS THERE WAS NO SEARCH AND NO MATERIALS HAVE BEEN FOUND AGAINST THE ASSESSEE, WHEREAS FOR THE YEAR UNDER APPEAL THE REC ORDS AND MATERIALS HAVE BEEN SEIZED DURING THE SEARCH SHOWING THE ACTUAL PRODUCT ION AND THUS THERE WAS A SIGNIFICANT DIFFERENCE IN THE FACTS. HE ALSO DREW OUR ATTENTION TO THE ORDER OF THE TRIBUNAL DATED 22-9-2005 IN ITA NOS.5105/AHD/1996 R ELATING TO THE ASSESSMENT YEAR 1990-91 TO 1993-94 IN THE CASE OF M /S. MARDIA COPPER INDUSTRIES, AHMEDABAD, A GROUP CONCERN AND SUBMITTE D THAT THE DECISION OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 1992-93 IN THIS CA SE IS TO BE APPLIED SINCE THE FACTS OF THE ASSESSEES CASE ARE COMPARABLE AND THE RE IS NO DISTINCTION BETWEEN THE TWO CASES. HE POINTED OUT FURTHER THAT THE DEC ISION OF THE TRIBUNAL IN THE ABOVE CASE FOR THE ASSESSMENT YEAR 1992-93 WAS ALSO BASED ON THE MATERIALS GATHERED DURING THE SEARCH. THE LEARNED COUNSEL FO R THE ASSESSEE HOWEVER POINTED OUT THAT THE ORDER OF THE TRIBUNAL IN THE C ASE OF M/S.MARDIA COPPER INDUSTRIES FOR THE ASSESSMENT YEAR 1992-93 IN ITA N O.5105/AHD/1996 DATED 22-9-2005 HAS BEEN FOLLOWED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1990-91 AND 1991-92. IN OTHER WORD S, WHAT HE MEANT WAS THAT IN ARRIVING AT ITS CONCLUSION IN THE ORDER IN THE A SSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1990-91 AND 1991-92, WHICH WERE AS SESSMENT YEARS PRIOR TO THE SEARCH, THE TRIBUNAL HAS ADOPTED ITS ORDER IN T HE CASE OF MARDIA COPPER INDUSTRIES FOR THE ASSESSMENT YEAR 1992-93, WHICH I S THE YEAR IN WHICH SEARCH TOOK PLACE BUT STILL DIRECTED THE AO TO ADOPT ONLY 1% OF THE ESTIMATED SALES AS PROFITS. 15. IN RESPECT OF THE POST-SEARCH PERIOD, THOUGH TH E LEARNED CIT-DR PLACED STRONG RELIANCE ON THE ORDER OF THE AO, THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE ADDITION WAS BASED ON PURE GUESS WORK TO ARRIVE AT THE PAGE - 9 ITA NO.4097 AND 4290/AHD/1995 -9- UNRECORDED PRODUCTION AT 364 MTS. AND THERE WAS TOT AL ABSENCE OF ANY EVIDENCE TO SHOW UNRECORDED PRODUCTION IN THIS PERI OD. 16. SO FAR AS THE POST-SEARCH PERIOD IS CONCERNED, NO DOUBT THERE WAS EVIDENCE SEIZED BY THE DEPARTMENT IN RESPECT OF THE EIGHT MONTH PRE-SEARCH PERIOD. HOWEVER, THERE WAS NO EVIDENCE FOR THE PER IOD OF FOUR MONTHS VIZ. APRIL AND MAY, 1991 AND FEBRUARY AND MARCH, 1992. BUT EVEN HERE THE AO HAS APPLIED THE STATEMENT OF KATURIA THAT THE AVERA GE MONTHLY PRODUCTION WOULD BE 90 MTS. AND HAS ALSO RELIED ON THE SEIZED MATERI AL TO SHOW THAT THE AVERAGE MONTHLY PRODUCTION WAS ACTUALLY 91 MTS. ON THIS BA SIS HE HAS ESTIMATED THE UNRECORDED PRODUCTION FOR THE FOUR MONTH PERIOD AT 364 MTS. IT IS TO BE REMEMBERED THAT THE TWO MONTH PERIOD OF APRIL AND M AY, 1991 CANNOT BE STRICTLY DESCRIBED AS POST-SEARCH PERIOD. IT IS ME RELY THAT THE CHEMICAL ANALYSIS REPORT AND THE OTHER SEIZED PAPERS PERTAINED TO THE PERIOD OF EIGHT MONTHS FROM JUNE, 1991 TO JANUARY, 1992. EVEN IF ONE CAN ASSU ME REASONABLY THAT ONCE THE DEPARTMENT HAS STRUCK UNDER SECTION 132 THEREAFTER IT IS EXPECTED THAT THE ASSESSEE WOULD NOT INDULGE IN MANIPULATIVE PRACTICE S AT LEAST FOR SOME PERIOD, THAT WOULD EXCLUDE ONLY THE TWO MONTHS OF FEBRUARY AND MARCH, 1992, AS THE SEARCH ACTUALLY TOOK PLACE ON 23-1-1992. IN RESPEC T OF THE MONTHS OF APRIL AND MAY, 1991, STRICTLY SPEAKING THERE WAS NO DIRECT EV IDENCE OF UNRECORDED PRODUCTION BUT THERE IS NO REASON TO THINK THAT THE MANNER IN WHICH THE ASSESSEE CARRIED ON BUSINESS DURING THIS TWO MONTH PERIOD WO ULD HAVE BEEN DIFFERENT FROM THE WAY IN WHICH IT WAS CARRYING ON BUSINESS F OR THE EIGHT MONTH PERIOD COMMENCING FROM JUNE, 1991. WE ARE THEREFORE NOT I MPRESSED WITH THE SUBMISSION MADE ON BEHALF OF THE ASSESSEE THAT NO A DDITION CAN BE MADE FOR UNRECORDED PRODUCTION IN THE MONTHS OF APRIL AND MA Y, 1991. IN OUR OPINION THE AO WAS RIGHT IN PROJECTING BACKWARDS THE SEIZED MATERIALS AND IN ESTIMATING THE UNRECORDED PRODUCTION FOR THESE TWO MONTHS AT 91 MTS. PER MONTH. THUS, THE TOTAL UNRECORDED PRODUCTION FOR THESE TWO MONTHS WOULD BE 182 MTS. AN ADDITION HAS TO BE MADE FOR THE SAME TH OUGH NOT FOR THE MONTHS OF FEBRUARY AND MARCH, 1992. PAGE - 10 ITA NO.4097 AND 4290/AHD/1995 -10- 17. TURNING NOW TO THE EIGHT MONTH PERIOD FROM JUNE 1991 TO JANUARY, 1992, THE CONTENTION OF THE ASSESSEE, IT MAY BE REC ALLED, WAS THAT ONLY 1% OF THE ESTIMATED SALES SHOULD BE TAKEN AS THE PROFITS ON T HE BASIS OF THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSM ENT YEARS 1990-91 AND 1991-92. WE ARE UNABLE TO GIVE EFFECT TO THE CONTE NTION BECAUSE WE FIND FORCE IN THE ARGUMENT OF THE LEARNED CIT-DR THAT IN THOSE YEARS THE TRIBUNAL WAS NOT CONCERNED WITH SEIZED MATERIALS SINCE THE SEARCH IT SELF WAS ONLY ON 23-1-1992 AND THEREFORE IT IS THE ORDER OF THE TRIBUNAL FOR T HE ASSESSMENT YEAR 1992-93 IN THE CASE OF MARDIA COPPER INDUSTRIES, ANOTHER COMPA NY BELONGING TO THE SAME GROUP, SHOULD BE FOLLOWED BECAUSE THAT COMPANY WAS ALSO SEARCHED ON 23-1- 1992 AS PART OF THE ASSESSEE GROUP AND HENCE THE FA CTS WERE COMPARABLE. A PERUSAL OF THE ORDER OF THE TRIBUNAL IN THE CASE OF MARDIA COPPER INDUSTRIES FOR THE ASSESSMENT YEAR 1992-93 SHOWS THAT IN THAT CASE THE ASSESSEE WAS FOUND TO HAVE BEEN MANIPULATING ITS BOOKS OF ACCOUNT WITH RE GARD TO JOB WORK AND WAS RECORDING ONLY 10% OF THE QUANTITY RECEIVED FOR JOB WORK. AN ADDITION OF RS.4,38,414/- HAD BEEN MADE FOR SUPPRESSION OF JOB WORK RECEIPTS AND THE SAME WAS UPHELD BY THE TRIBUNAL. THIS ORDER OF THE TRIB UNAL HAS BEEN REFERRED TO BY THE TRIBUNAL IN ITS ORDER DATED 30-11-2006 IN THE A SSESSEES CASE FOR THE ASSESSMENT YEARS 1990-91 AND 1991-92 BUT IN A DIFFE RENT CONTEXT AND NOT AS SUBMITTED ON BEHALF OF THE ASSESSEE BEFORE US. THE TRIBUNAL IN ITS ORDER IN THE ASSESSEES OWN CASE HAS ACTUALLY REFERRED TO ITS OR DER IN THE CASE OF MARDIA COPPER INDUSTRIES ONLY TO REVERSE THE FINDING OF TH E CIT(A) THAT THE BOOKS OF ACCOUNT CANNOT BE REJECTED. IN OTHER WORDS, THE TR IBUNAL HAS ACTUALLY HELD THAT THE BOOKS OF ACCOUNT WERE RIGHTLY REJECTED EVEN FOR THE ASSESSMENT YEAR 1990- 91 AND 1991-92, WHICH WERE PRE-SEARCH YEARS. THE POSITION WITH REGARD TO THE ASSESSMENT YEAR 1992-93 WHICH IS BEFORE US IS A FO RTIORI BECAUSE SEVERAL MATERIALS HAVE BEEN SEIZED DURING THE SEARCH SUCH A S THE CHEMICAL ANALYSIS REPORTS, RECEIPTS AND DESPATCH REGISTERS, STATEMENT OF GULSHAN KATURIA ETC. WE ARE THEREFORE OF THE OPINION THAT THE ADDITION IF A NY FOR UNRECORDED PRODUCTION PAGE - 11 ITA NO.4097 AND 4290/AHD/1995 -11- AND SALE OUTSIDE THE BOOKS OF ACCOUNT HAS TO BE MAD E ON THE BASIS OF THE SEIZED MATERIAL. 18. IT WAS THEN SUBMITTED ON BEHALF OF THE ASSESSEE THAT IN PARA-12.3 OF THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FO R THE ASSESSMENT YEARS 1990- 91 AND 1991-92 THE TRIBUNAL HAS, AFTER REJECTING TH E ASSESSEES BOOKS OF ACCOUNT, HELD THAT IT WOULD MEET ENDS OF JUSTICE IF 1% IN BOTH THE YEARS IS ADDED ON THE ESTIMATED SALES AS AGAINST 10% ESTIMATED BY THE AO. IT MUST BE REMEMBERED THAT IN THOSE YEARS BEFORE THE TRIBUNAL IT WAS ONLY A QUESTION OF ESTIMATING THE PROFITS OF THE ASSESSEE. THE AO HAD MENTIONED FOUR REASONS FOR REJECTING THE BOOKS INCLUDING THE REASON THAT THE A SSESSEE RECORDED ONLY 1/10TH OF THE JOB WORK RECEIPTS AND SUPPRESSING THE BALANC E. IT IS PERHAPS THIS REASON GIVEN BY THE AO THAT HAS PROMPTED THE LEARNED COUNS EL FOR THE ASSESSEE TO CONTEND THAT THERE IS SIMILARITY IN THE FACTS IN TH OSE YEARS AND IN THE YEAR UNDER APPEAL AND THEREFORE THAT DECISION HAS TO BE APPLIE D. THERE IS NO DOUBT A REFERENCE IN THE ORDER OF THE TRIBUNAL TO THE FACT THAT THE AO RELIED ON THE STATEMENT OF ONE SUNIL MARDIA RECORDED ON 24-1-1992 TO HOLD THAT THE ASSESSEE INDULGED IN SUPPRESSION OF PRODUCTION AND SALES. H OWEVER, FOR THE YEAR BEFORE US, THERE ARE STRONGER MATERIALS IN THE FORM OF CHE MICAL ANALYSIS REPORT, RECEIPT AND DESPATCH REGISTER, STATEMENT OF KATURIA ETC. SE IZED DURING THE SEARCH AND THE IMPACT OF THESE MATERIALS ON THE ULTIMATE DECISION OF THE AO CANNOT BE ASSESSED MERELY ON THE BASIS ADOPTED BY THE TRIBUNAL IN ITS ORDER IN THE ASSESSEES OWN FOR THE ASSESSMENT YEARS 1990-91 AND 1991-92. FAC TS BEING DIFFERENT AND SOMEWHAT STRONGER FROM THE POINT OF VIEW OF THE REV ENUE, IT MAY NOT BE APPROPRIATE FOR US TO ADOPT THE FORMULA OF 1% OF TH E ESTIMATED SALES BEING TAKEN AS PROFITS. 19. THAT TAKES US TO QUESTION AS TO HOW THE ADDITIO N HAS TO BE MADE, AND ALSO THE QUESTION AS TO WHETHER AN ADDITION IS ACTUALLY JUSTIFIED. WE DO NOT THINK THAT IT CAN BE SERIOUSLY DISPUTED THAT ALL WAS NOT WELL WITH THE MAINTENANCE OF THE BOOKS OF ACCOUNT AND RECORD OF THE ASSESSEE AS HAS BEEN REVEALED IN THE PAGE - 12 ITA NO.4097 AND 4290/AHD/1995 -12- ASSESSMENT ORDER. IN FACT BY SUBMITTING BEFORE US THAT THE EARLIER ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEARS 1990-91 AND 1991- 92 MAY BE FOLLOWED, THE ASSESSEE HAS AT LEAST IMPLIEDLY ACCEPTED THAT ITS B OOK RESULTS ARE FAULTY. THAT ALSO EXPLAINS THE SUBMISSION THAT, IF AT ALL, AN AD DITION OF RS.4,03,804/- FOR THE COPPER ITEMS AND RS.1,36,612/- FOR THE BRASS ITEMS FOR THE PRE-SEARCH PERIOD (EIGHT MONTH PERIOD FROM JUNE 1991 TO JANUARY, 1992 ) MAY BE SUSTAINED. THEREFORE, THE BOOK RESULTS CANNOT BE ACCEPTED. SO FAR AS THE ADDITION THAT HAS TO BE MADE FOR UNRECORDED PRODUCTION AND SALE THERE OF OUTSIDE THE BOOKS OF ACCOUNT IS CONCERNED, IT SEEMS TO US THAT THE REASO NS GIVEN BY THE CIT(A) TO DELETE THE ENTIRE ADDITION OF RS.40,23,570/- CANNOT BE UPHELD WHOLESALE. IT MAY BE TRUE THAT THE CHEMICAL ANALYSIS REPORTS SEIZED F ROM THE FACTORY AT KHADI WERE BASED ON THE SAMPLE TAKEN FROM THE MELTED RAW MATER IAL IN THE FURNACE. FROM THE SAMPLE THE AO HAS ARRIVED AT THE PRODUCTION OF BRASS AND COPPER ITEMS AT 730.5 MTS. AGAINST WHICH THE PRODUCTION SHOWN IN TH E BOOKS WAS ONLY 339.2 MTS., THUS SHOWING A SUPPRESSION OF PRODUCTION OF 3 91.3 MTS. THOUGH THE FIGURE OF 730.5 MTS. IS BASED ON SAMPLE, IT WAS FOR THE ASSESSEE TO SPELL OUT REASONS AS TO WHY THE SAMPLE CANNOT BE RELIED UPON OR CANNOT FORM THE BASIS FOR ASCERTAINING THE ACTUAL PRODUCTION. THE FIGURE OF 730.5 MTS. COMPARES WELL WITH THE FIGURE OF 685 MTS. ARRIVED AT ON THE BASIS OF THE STATEMENT OF KHATURIA WHICH IN TURN IS BASED ON THE CHEMICAL ANALYSIS REP ORT. EVEN THE DESPATCH AND RECEIPT REGISTERS INDICATE PRODUCTION OF 28 MTS. FO R TEN DAYS WHICH MEANS THE MONTHLY PRODUCTION WOULD BE AROUND 84 MTS. WHICH AL SO BROADLY ACCORDS WITH STATEMENT OF KHATURIA. IT IS THEREFORE CLEAR THAT NO FAULT CAN BE FOUND WITH THE FINDING OF THE AO THAT THERE IS SUPPRESSION OF THE UNRECORDED PRODUCTION OF BRASS AND COPPER ITEMS. THE AO HAS TAKEN THE SUPPR ESSION OF COPPER ITEMS AT 260.5 MTS. OR 2,60,590 KGS. AND THE SUPPRESSION OF THE BRASS ITEMS AT 130.80 MTS. OR 1,30,627 KGS. THIS IS ON THE BASIS THAT THE PRODUCTION AS PER THE SEIZED RECORDS WAS 730.5 MTS. AGAINST WHICH THE ASSESSEE H AS SHOWN IN ITS BOOKS ONLY 339.2 MTS. FOR BOTH THE ITEMS. THE CIT(A) HAS MAD E MUCH OF THE AOS FINDING THAT THE ASSESSEE WAS SHOWING ONLY 10% OF T HE PRODUCTION AND PAGE - 13 ITA NO.4097 AND 4290/AHD/1995 -13- SUPPRESSING 90% THEREOF. THIS IS NOT ENTIRELY CORR ECT. THOUGH IN PARA-5.7 OF THE ASSESSMENT ORDER THE AO HAS GIVEN STATISTICS ON THE BASIS OF THE REGISTERS MAINTAINED BY THE ASSESSEE TO PROVE HIS POINT, ULTI MATELY, HE HAS ARRIVED AT THE SUPPRESSED PRODUCTION ON A DIFFERENT BASIS, THAT IS TO SAY, BY COMPARING THE SEIZED RECORDS SHOWING ACTUAL PRODUCTION WITH THE B OOKS OF ACCOUNT SHOWING LESSER PRODUCTION. IT MAY BE TRUE, AS FOUND BY TH E CIT(A) THAT NO EVIDENCE OF SALES MADE OUTSIDE THE BOOKS OF ACCOUNT WAS FOUND D URING THE SEARCH BUT WHEN THERE IS CLEAR EVIDENCE TO SHOW SUPPRESSED PRODUCTI ON, THE LOGICAL CONCLUSION IS THAT SUCH PRODUCTION WOULD HAVE BEEN SOLD OUTSIDE T HE BOOKS OF ACCOUNT AND IN THE CIRCUMSTANCES NO SEPARATE EVIDENCE FOR THE SALE THEREOF NEED BE INSISTED UPON. IT WOULD BE PURELY COMMON SENSE TO DRAW THE INFERENCE THAT THE SUPPRESSED PRODUCTION WAS SOLD WITHOUT BRINGING THE SALE PROCEEDS INTO THE BOOKS. THE REASONING OF THE CIT(A) THOUGH AT FIRST BLUSH SEEMS PLAUSIBLE, CANNOT BEAR DEEPER SCRUTINY. 20. SO FAR AS THE AVERAGE SALE PRICE IS CONCERNED, THE AO HAS CALCULATED THE SAME AT RS.155 PER KG. FOR COPPER ITEMS. THE PURCH ASE PRICE HAS BEEN ADOPTED AT RS.115/- PER KG. THE PROFIT HAS BEEN THUS TAKEN AT RS.40 PER KG. THE CIT(A) HAS REFERRED TO THE CONTENTION OF THE ASSESSEE THAT THE AVERAGE SALE PRICE WAS RS.147 PER KG. IF IT IS TAKEN ON THE BASIS OF THE F ULL YEAR. THERE IS NO EVIDENCE TO SHOW THAT THIS FIGURE OF RS.147 PER KG. IS INCOR RECT. THE DIFFERENCE BETWEEN THE SALE PRICE AND PURCHASE PRICE WILL THEREFORE BE RS.32 ONLY AS AGAINST RS.40/- ADOPTED BY THE AO. ON THIS BASIS, THE TOTAL ADDITI ON TO BE MADE FOR COPPER ITEMS WILL BE 2,60,190 X 32 = RS.83,36,608/- 21. AS REGARDS THE BRASS ITEMS, THE AVERAGE SALE PR ICE PER KG. HAS BEEN TAKEN BY THE AO AT RS.104.50. AS REGARDS THE PURCHASE PR ICE, THOUGH HE HAS CALCULATED THE AVERAGE TO BE RS.105/- PER KG., BUT SINCE APPARENTLY THIS WOULD RESULT IN A LOSS, HE HAS TAKEN THE AVERAGE PURCHASE PRICE AT RS.80/- PER KG. BASED ON THE FIGURES SHOWN BY THE ASSESSEE FOR PURCHASE O F BRASS SCRAP. HE HAS NOT TAKEN THE AVERAGE PURCHASE PRICE AT RS.105/- ON THE GROUND THAT IT IS FOR FINISHED PAGE - 14 ITA NO.4097 AND 4290/AHD/1995 -14- BRASS TUBES. WE ARE UNABLE TO FIND FAULT WITH THE A PPROACH ADOPTED BY THE AO. ON THIS BASIS HE HAS ARRIVED AT PROFIT OF RS.24.50 PER KG. AND 1,30,727 KGS. IT COMES TO RS.32,02,811/-. 22. THUS, THE SALE PROCEEDS OUT OF SUPPRESSED PRODU CTION OF BRASS AND COPPER ITEMS COMES TO RS.1,15,39,418/- (I.E. RS.83, 36,608 + RS.32,02,810/-). DEDUCTING THE DISCLOSURE OF RS.96.00 LAKHS MADE IN THE COURSE OF THE SEARCH AND INCLUDED ALSO IN THE PROFIT AND LOSS ACCOUNT, T HE ADDITION TO BE MADE COMES TO RS.19,39,418/-. THE SAME IS SUSTAINED FOR BOTH BRASS AND COPPER ITEMS FOR THE PRE-SEARCH PERIOD. 23. AS REGARDS THE POST-SEARCH PERIOD, WE HAVE ALRE ADY SEEN IN PARA-16 THAT THE SUPPRESSED PRODUCTION FOR THE MONTHS OF APRIL A ND MAY 1991 CAN BE ESTIMATED AT 182 MTS. WE AGREE WITH THE AOS OBSE RVATION THAT SEPARATE DETAILS FOR BRASS AND COPPER ITEMS WERE NOT AVAILAB LE FOR THESE TWO MONTHS. WE HAVE TO THEREFORE ESTIMATE THE PROFIT FOR THESE TWO MONTHS. WE HAVE ALREADY SEEN THAT THE PROFIT ON THE SUPPRESSED PRODUCTION F OR THE EIGHT MONTH PERIOD FROM JUNE, 1991 TO JANUARY, 1992 CAN BE WORKED OUT AT RS.1,15,39,418/-. THE AVERAGE MONTHLY PROFIT WOULD BE RS.14,42,427/- DIVI DING RS.1,15,39,418/- BY 8. FOR THE TWO MONTHS OF APRIL AND MAY, 1991, THE SUPPRESSED PROFITS WOULD BE RS.14,42,427/- X 2 WHICH COULD COME TO RS.28,84,854 /-. THE SAME IS SUSTAINED OUT OF THE ADDITION OF RS.68,11,785/- MADE BY THE A O. AS ALREADY HELD IN PARA- 16, FOR THE MONTHS OF FEBRUARY AND MARCH, 1992 NO A DDITION CAN BE MADE FOR SUPPRESSED PROFITS. 24. TO SUMMARISE, THE ADDITION TO BE MADE FOR SUPPR ESSED PROFITS FOR THE 8 MONTHS PERIOD FROM JUNE 1991 TO JANUARY 1992 IS COM PUTED AT RS.19,39,418/- AS AGAINST RS.40,23,570/- ADDED BY THE AO. THE SUP PRESSED PROFITS FOR THE MONTHS OF APRIL AND MAY, 1991 ARE DIRECTED TO BE TA KEN AT RS.28,84,854/-. NO ADDITION CAN BE MADE FOR SUPPRESSED PROFITS FOR THE MONTHS OF FEBRUARY AND MARCH, 1992. THUS, THE GROUNDS OF THE REVENUE ARE PARTLY ALLOWED. PAGE - 15 ITA NO.4097 AND 4290/AHD/1995 -15- 25. GROUND NO.3 IS DIRECTED AGAINST THE RELIEF OF R S.51,08,219/- GIVEN BY THE CIT(A) ON ACCOUNT OF THE ADDITIONS MADE FOR BOGUS P URCHASES. WHILE COMPLETING THE ASSESSMENT THE AO NOTICED THAT THE A SSESSEE PURCHASED BRASS TUBES FROM SHREYAS METCHEM PVT. LTD., BOMBAY AND TH ESE GOODS WERE TRANSPORTED THROUGH SEVERAL TRANSPORTERS. THE AO T OOK UP FOR SCRUTINY THE GOODS TRANSPORTED TO THE ASSESSEE THROUGH MAHAKALI ROADLINES. THE PARTNER OF THE TRANSPORTER FIRM, MR.N.H.MALI WAS EXAMINED UNDE R SECTION 131 DURING WHICH HE DENIED TO HAVE TRANSPORTED THE GOODS. EVE N DURING THE CROSS EXAMINATION BY THE ASSESSEE, HE STUCK TO HIS ORIGIN AL VERSION. HE HAD ALSO GIVEN A STATEMENT BEFORE THE EXCISE AUTHORITY IN WH ICH HE HAS STATED THAT HE DID NOT TRANSPORT ANY GOODS SHOWN IN THE LORRY RECEIPTS AND FURTHER STATED THAT HE RECEIVED IN CASH A SUM OF RS.20/- PER LORRY RECEIPT FOR ISSUING THEM. HE CLARIFIED THAT SINCE HE RECEIVED SOME TRANSPORT JOB FROM THE ASSESSEE, HE HAD ISSUED BOGUS BILLS BY WAY OF ACCOMMODATION. THE AO THUS FOUND THAT SHREYAS METCHEM DID NOT ACTUALLY SUPPLY THE GOODS TO THE AS SESSEE AND THAT THE TRANSPORT CHARGES WERE PAID BACK TO THE ASSESSEE IN CASH BY THE TRANSPORTER. THE AO HAS REFERRED ALSO TO THE LETTER DATED 6-2-19 95 WRITTEN BY SHREYAS METACHEM THAT THEY PURCHASED THE GOODS FROM THE ASS ESSEES GROUP CONCERNS VIZ. MARDIA COPPER INDUSTRIES, MARDIA METAL AGENCY AND MARDIA INDUSTRIES. THE AO ALSO REFERRED TO ONE DELIVERY CHALLAN WHICH HAS BEEN SIGNED BY THE SAME PERSON WHO WAS STATED TO HAVE RECEIVED THE GOO DS AT BOMBAY ON BEHALF OF SHREYAS METACHEM, BOMBAY AND WAS ALSO STATED TO HAV E RECEIVED THE SAME GOODS ON BEHALF OF THE ASSESSEE AT KHADI IN GUJARAT . ALL DELIVERY CHALLANS WERE NOTED BY THE AO TO HAVE BEEN SIGNED BOTH AT BOMBAY AND KHADI BY ONE AND ONLY PERSON. HE THUS CAME TO THE CONCLUSION THAT THE GOODS WERE NOT TRANSPORTED FROM BOMBAY TO KHADI BUT PAPER ARRANGEM ENT WAS MADE TO SHOW AS IF THEY WERE. 26. THE AO ALSO NOTED THAT THE ASSESSEE MADE PAYMEN T BY CHEQUES TO SHREYAS METACHEM WHO IMMEDIATELY MADE PAYMENT TO TH E ASSESSEES SISTER PAGE - 16 ITA NO.4097 AND 4290/AHD/1995 -16- CONCERNS VIZ. MARDIA COPPER INDUSTRIES, MARDIA META L AGENCY AND MARDIA INDUSTRIES, FROM WHOM IT HAD PURCHASED THE GOODS FO R ALLEGEDLY BEING TRANSPORTED TO THE ASSESSEE. THE AO THUS FOUND THA T THE FUNDS OF THE ASSESSEE WERE ROUTED TO ITS SISTER CONCERNS THROUGH THE MEDI UM OF SHREYAS METACHEM. WHEN THIS WAS POINTED OUT, SHREYAS METACHEM SEEMS T O HAVE CLARIFIED THAT IT HAD SHOWN PURCHASES FROM THE SISTER CONCERNS OF THE ASSESSEE AND SOLD THE SAME TO THE ASSESSEE SO THAT THE ASSESSEE CAN AVAIL OF T HE BILL DISCOUNTING FACILITY FROM THE BANK. 27. FROM THE ABOVE FACTS, THE AO CONCLUDED THAT THE PURCHASES OF 45,600 KGS. VALUED AT RS.51,08,219/- WERE BOGUS PURCHASES AND ACCORDINGLY DISALLOWED THE SAME. 28. BEFORE THE CIT(A), THE ASSESSEE RAISED SEVERAL CONTENTIONS WHICH ARE SUMMARISED AS FOLLOWS: A) SHREYAS METACHEM HAVE CONFIRMED THE SALE TO THE ASS ESSEE (BRASS TUBES). B) THESE BRASS TUBES HAVE PURCHASED BY SHREYAS METACHE M FROM SISTER CONCERNS OF THE ASSESSEE. C) THE EXCISE GATE PASSES ALSO CONFIRM THE SALE. D) SHREYAS METACHEM IS ASSESSED TO TAX AND ITS INCOME HAS BEEN ACCEPTED IN ITS ASSESSMENT. IT IS A PRIVATE LIMITED COMPANY AND BOOKS ARE AUDITED. E) INSTEAD OF DIRECTLY PURCHASING THE GOODS FROM THE S ISTER CONCERNS THE ASSESSEE ROUTED THE SAME THROUGH SHREYAS METACH EM SO THAT IT CAN ENJOY BILL DISCOUNTING FACILITY AND THUS TIDE O VER LIQUIDITY PROBLEMS. F) ALL THE GOODS HAVE BEEN ENTERED IN THE INWARD REGIS TERS OF THE ASSESSEE AND THE PRODUCTION RECORDS HAVE BEEN ACCEP TED BY THE EXCISE AUTHORITY. PAGE - 17 ITA NO.4097 AND 4290/AHD/1995 -17- G) THE SALES HAVE BEEN ACCEPTED AS GENUINE AND THEREFO RE THE PURCHASES CANNOT BE DISALLOWED AS BOGUS SINCE THE S ALES WOULD NOT HAVE BEEN POSSIBLE WITHOUT THE PURCHASES. H) THE STATEMENT OF THE PARTNER OF MAHAKALI ROADLINES CANNOT BE ACCEPTED AS TRUE SINCE HE WAS INIMICALLY DISPOSED T OWARDS THE ASSESSEE SINCE THE ASSESSEE HAS STOPPED GIVING HIM BUSINESS. HE MIGHT HAVE DENIED THE TRANSPORT OF THE GOODS SINCE HE MAY NOT HAVE SHOWN THE TRANSPORT RECEIPTS IN HIS BOOKS. HI S STATEMENT IS NOT CONCLUSIVE. THE CIT(A) CONSIDERED THE ABOVE SUBMISSION AND HELD AS UNDER: 5.4 THERE IS NO DOUBT THAT THE GOODS IN QUESTION HAVE BEEN PURCHASED FROM SHREYAS METACHEM PVT. LTD. SHREYAS METACHEM P VT. LTD. HAS CONFIRMED THAT THEY HAVE SOLD THE BRASS TUBES OF 45 ,609 KGS. VALUED AT RS.51,08,219/- TO THE ASSESSEE. THE GATE PASS, DUL Y ENDORSED BY THE EXCISE AUTHORITIES, IS PREPARED AND AVAILABLE FOR T HE SAID PURCHASES. TO GET THE FACILITY OF LC, THE GOODS HAVE BEEN PURCHAS ED BY THE ASSESSEE FROM SHREYAS METACHEM PVT. LTD. 5.5 THE BRASS TUBES PURCHASED HAVE GONE THROUGH PR OCESS AND THE FINAL PRODUCT HAVE BEEN SHOWN BY THE ASSESSEE. THE FINAL PRODUCT COULD NOT BE OBTAINED WITHOUT THE PURCHASES OF THE SAID B RASS TUBES OF SAID QUANTITY AND SAID PRICE. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE PURCHASE OF BRASS TUBES HAS BEEN MADE BY THE AS SESSEE AT A HIGHER RATE THAN THE PREVAILING MARKET RATE. SINCE THE P RODUCTION AND SALE OF THE END PRODUCT HAS NOT BEEN DOUBTED, THE PURCHASE OF RAW MATERIALS ALSO CANNOT BE DOUBTED AND THE SAME, THEREFORE, CAN NOT BE TREATED AS BOGUS. SINCE MAHAKALI ROADLINES HAD STATED THAT TH EY HAVE NOT TRANSPORTED THE GOODS IN QUESTION, THE SAME GOODS M IGHT HAVE BEEN TRANSPORTED BY SOME OTHER TRANSPORTER AND, THEREFOR E, THE TRANSPORT CHARGES SHOWN IN THE NAME OF MAHAKALI ROADLINES MAY BE DISALLOWED BY THE ASSESSING OFFICER. IN VIEW OF THESE FACTS, THE ADDITION OF RS.51,08,219/- IS DELETED. 29. THE REVENUE IS IN APPEAL AND STRONG RELIANCE IS PLACED ON THE FINDINGS AND REASONING OF THE AO. IT IS SUBMITTED VEHEMENTL Y THAT THE FINDING OF THE CIT(A) THAT IF MAHAKALI ROADLINES HAD NOT TRANSPORT ED THE GOODS, THEY MIGHT HAVE BEEN TRANSPORTED BY SOME OTHER TRANSPORTER IS TOTALLY UNACCEPTABLE AND IS A PAGE - 18 ITA NO.4097 AND 4290/AHD/1995 -18- MERE SURMISE AND NO RELIEF OUGHT TO HAVE BEEN GIVEN ON THAT BASIS. IT IS ALSO POINTED OUT THAT THE IRREGULARITIES IN THE CHALLANS POINTED OUT BY THE AO AND THE STATEMENT OF THE PARTNER OF MAHAKALI ROADLINES BELI E THE ASSESSEES CLAIM THAT THE PURCHASES WERE GENUINE. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE REVENUE HAS ONLY DISP UTED THE TRANSPORTATION AND THE OTHER EVIDENCE SUCH AS THE RECORDS MAINTAINED B Y THE ASSESSEE HAVE NOT BEEN IMPEACHED AND THEREFORE , THE AO WAS NOT JUSTI FIED IN DISALLOWING THE PURCHASES AS BOGUS MERELY ON THE BASIS OF THE DISCR EPANCY IN THE TRANSPORTATION CLAIM. IT IS FURTHER POINTED OUT THAT THE PURCHAS ES FROM SHREYAS METACHEM WHICH WERE NOT TRANSPORTED THROUGH MAHAKALI ROADLIN ES HAVE BEEN ACCEPTED AS GENUINE. IT IS SUBMITTED THAT IN THESE CIRCUMSTANC ES AND HAVING REGARD TO THE EXPLANATION GIVEN BY THE ASSESSEE BEFORE THE DEPART MENTAL AUTHORITIES, THE DECISION OF THE CIT(A) REQUIRES TO BE UPHELD. IN SUPPORT HIS CONTENTION, THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE JUDG MENT OF THE HONBLE GUJARAT HIGH COURT IN CIT VS. M.K.BROTHERS, (1987) 163 ITR 249. 30. WE HAVE CAREFULLY CONSIDERED THE FACTS AND THE RIVAL SUBMISSIONS. WE ARE UNABLE TO AGREE WITH THE CIT(A) THAT THE PURCHA SE OF BRASS TUBES FROM SHREYAS METACHEM TO THE EXTENT OF 45,609 KGS. AND S TATED TO HAVE BEEN TRANSPORTED THROUGH MAHAKALI ROADLINES IS GENUINE. THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT IN THE LIGHT OF OTHER RECORDS MAINTAINED BY THE ASSESSEE THE DISALLOWANCE BASED MERELY ON THE D ISCREPANCY IN THE TRANSPORTATION CHALLANS AND THE STATEMENT OF THE PA RTNER OF MAHAKALI ROADLINES IS NOT JUSTIFIED CANNOT BE GIVEN EFFECT TO, BECAUSE WE CAN SEE NO REASON TO DISCARD THE STATEMENT OF THE PARTNER OF THE MAHAKAL I ROADLLINES, WHICH HAS WITHSTOOD THE CROSS-EXAMINATION BY THE ASSESSEE, AS ALSO THE UNUSUAL FEATURES IN THE DELIVERY CHALLANS. THE TRANSPORTATION RECORDS ARE UNDENIABLY CRUCIAL AND THE MERE FACT THAT THE OTHER RECORDS MAINTAINED BY THE ASSESSEE ARE NOT DEFECTIVE, DOES NOT MEAN THAT THEY HAVE TO BE BELIEVED. IT MU ST BE REMEMBERED THAT THE TRANSPORTER IS A THIRD PARTY AND EXCEPT A LOOSE STA TEMENT MADE BY THE ASSESSEE BEFORE THE CIT(A) THAT HE MIGHT HAVE BEEN INIMICALL Y DISPOSED TOWARDS THE PAGE - 19 ITA NO.4097 AND 4290/AHD/1995 -19- ASSESSEE SINCE HIS SERVICES WERE DISCONTINUED, THER E IS NOTHING TO DISCREDIT THE VERSION OF N.H. MALI, THE PARTNER OF MAHAKALI ROADL INES. NOT ONLY HAS HE DENIED THAT HE TRANSPORTED THE GOODS FROM BOMBAY TO KHADI IN HIS TRUCKS, BUT HE HAS REITERATED THE SAME IN THE COURSE OF THE CRO SS EXAMINATION AND HAS FURTHER STATED THAT HE ISSUED BILLS BY ACCEPTING A SMALL AMOUNT OF RS.20 IN CASH FROM THE ASSESSEE FOR EACH BILL. HE ALSO STATED TH AT SINCE HE DID RECEIVE SOME OTHER TRANSPORT JOBS FROM THE ASSESSEE HE WAS WILLI NG TO ISSUE THE BOGUS BILLS BY ACCEPTING A SMALL CASH PAYMENT. WE ARE UNABLE TO S AY THAT HIS STATEMENT WAS MOTIVATED AGAINST THE ASSESSEE, AND THERE IS NO EVI DENCE ON RECORD TO SHOW THAT HE BORE ANY ILL-WILL TOWARDS THE ASSESSEE. THE MAN NER IN WHICH THE PURCHASES WERE ALLEGEDLY PUT THROUGH ALSO RAISES SERIOUS QUES TIONS AS TO THEIR GENUINENESS. WE ARE ASKED TO BELIEVE THAT SHREYAS METACHEM FIRST PURCHASED THE GOODS FROM THE SISTER CONCERNS OF THE ASSESSEE AND THEN SOLD T HEM TO THE ASSESSEE IN ORDER TO FACILITATE THE ASSESSEE TO ENJOY CREDIT FOR 90 DAYS . IT IS NOT KNOWN WHY THE ASSESSEE CANNOT ENJOY THE SAME CREDIT FACILITY FROM THE SISTER CONCERNS THEMSELVES DIRECTLY AND SHOULD ADOPT SUCH A DEVIOUS COURSE. THE CHEQUES ISSUED BY THE ASSESSEE TO SHREYAS METACHEM HAVE BEE N USED BY THAT COMPANY TO PAY FOR THE PURCHASES IT ALLEGEDLY MADE FROM THE SISTER CONCERNS OF THE ASSESSEE. THE AMOUNTS HAVE THUS FOUND THEIR WAY TO THE ASSESSEES SISTER CONCERNS AND THUS REMAINED IN THE CONTROL OF THE GR OUP. IN THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT CITED SUPRA THERE WAS NO EVIDENCE TO SHOW THAT BOGUS VOUCHERS HAVE BEEN GIVEN TO THE ASSESSEE OR T HAT ANY PART OF THE PAYMENTS MADE BY THE ASSESSEE BY CHEQUE CAME BACK T O THE ASSESSEE IN ANY FORM. IN THE PRESENT CASE HOWEVER, MAHAKALI ROADLI NES ADMITTED BOTH IN THE COURSE OF THE STATEMENT AS WELL AS DURING THE CROSS -EXAMINATION BY THE ASSESSEE THAT HE HAD ISSUED BOGUS LORRY RECEIPTS FOR CASH PA YMENT OF AS LITTLE AS RS.20/- PER RECEIPT. IN THE CITED JUDGMENT THE SELLERS HAD GIVEN STATEMENTS BEFORE THE SALES TAX AUTHORITIES THAT THEY WERE IN THE BUSINES S OF ISSUING BOGUS VOUCHERS BUT AS FOUND BY THE TRIBUNAL TO WHICH REFERENCE HAS BEEN MADE BY THE HONBLE HIGH COURT AT PAGE 251 OF THE REPORT EVEN THE TWO STATEMENTS DO NOT IMPLICATE PAGE - 20 ITA NO.4097 AND 4290/AHD/1995 -20- THE TRANSACTIONS WITH THE ASSESSEE IN ANY WAY. TH IS IS A CRUCIAL DISTINCTION BETWEEN THE FACTS OF THE PRESENT CASE AND THE FACTS BEFORE THE HONBLE HIGH COURT. FURTHER, IN THE CITED CASE, THERE WAS NO E VIDENCE TO SHOW THAT THE FUNDS GIVEN BY THE ASSESSEE TO THE SELLERS CAME BACK IN A NY FORM. IN THE PRESENT CASE HOWEVER, BY REASON OF THE CIRCUITOUS NATURE OF THE TRANSACTIONS, WE HAVE ALREADY SEEN THAT THE PAYMENTS MADE BY THE ASSESSEE REACHED ITS SISTER CONCERNS AND THUS IN SUBSTANCE AND EFFECT REMAINED WITHIN THE RE ACH AND CONTROL OF THE ASSESSEE. BECAUSE OF THESE VITAL DISTINGUISHING F EATURES, THE JUDGMENT IS NOT OF ANY HELP TO THE ASSESSEE BEFORE US. 31. IT WAS THEN CONTENDED ON BEHALF OF THE ASSESSEE THAT THE SALES HAVE NOT BEEN DOUBTED AND THEY WOULD NOT HAVE BEEN POSSIBLE BUT FOR THE PURCHASES FROM SHREYAS METACHEM. THE SALES HAVE BEEN ADMITTED BY THE ASSESSEE AND THERE IS NO REASON WHY THAT SHOULD BE IGNORED. IT IS THE A SSESSEE WHICH HAS MADE THE CLAIM THAT IT HAD PURCHASED 45,609 KGS. OF BRASS TU BES FROM SHREYAS METACHEM PVT. LTD. AND IT IS ELEMENTARY THAT IT IS FOR THE A SSESSEE TO SHOW THAT THE SAME IS GENUINE. IF IT FAILS TO DO SO AND DISCHARGE ITS BU RDEN, IT IS OPEN TO THE REVENUE AUTHORITIES TO DISALLOW THE PURCHASES IRRESPECTIVE OF ANY OTHER CONSIDERATION INCLUDING THE FACT THAT THERE COULD NOT HAVE BEEN C ORRESPONDING SALES WITHOUT THOSE PURCHASES. IF THE PURCHASES HAVE BEEN FOUND TO BE NON-GENUINE, WE THINK THAT THE ASSESSEE CANNOT TAKE ADVANTAGE OF THE SAME TO SAY THAT THE CORRESPONDING SALES SHOULD BE IGNORED OR TO CONTEND THAT THE SALES WOULD NOT HAVE BEEN POSSIBLE WITHOUT THE PURCHASES. THE GEN UINENESS OF THE PURCHASES HAS TO BE INDEPENDENTLY PROVED AND NOT MERELY INFER ENTIALLY. WE ARE THEREFORE NOT INCLINED TO AGREE WITH THE CONTENTION OF THE LE ARNED COUNSEL FOR THE ASSESSEE. 32. IT ONLY REMAINS FOR US TO CONSIDER, THE RATHER UNUSUAL OBSERVATION, IF WE MAY SAY SO WITH RESPECT, OF THE CIT(A) THAT IF IT I S FOUND THAT MAHAKALI ROADLINES HAVE NOT TRANSPORTED THE GOODS, THEN THEY MIGHT HAVE BEEN TRANSPORTED BY SOME OTHER TRANSPORTER AND THE ONLY THING WHICH THE AO CAN DO IS TO DISALLOW THE TRANSPORT CHARGES BUT NOT THE PU RCHASES. WE ARE TOTALLY PAGE - 21 ITA NO.4097 AND 4290/AHD/1995 -21- UNABLE TO UNDERSTAND OR APPRECIATE THE LOGIC OF THE OBSERVATION. IF THE CLAIM OF TRANSPORTATION OF THE GOODS IS FOUND TO BE BOGUS OR NOT GENUINE, THE LOGICAL RESULT WOULD NOT ONLY BE THAT THE TRANSPORTATION CH ARGES SHOULD BE DISALLOWED BUT SINCE THE FACT THAT THE GOODS WERE TRANSPORTED ITSELF STANDS DISPROVED OR UNPROVED, THE PURCHASES ALSO STAND UNPROVED. IT IS NOT PROPER FOR THE CIT(A) TO GIVE THE BENEFIT OF DOUBT TO THE ASSESSEE, BY OBSER VING THAT THE GOODS MIGHT HAVE BEEN TRANSPORTED BY SOME OTHER TRANSPORTER. E VEN THE ASSESSEE HAS NO CASE THAT THE GOODS WERE TRANSPORTED BY SOME OTHER TRANS PORTER. THE CIT(A) IN OUR OPINION WAS NOT JUSTIFIED AT ALL IN MAKING THE AFOR ESAID OBSERVATION AND ALSO IN MAKING IT PART OF HIS REASONING FOR DELETING THE DI SALLOWANCE. 33. FOR THE ABOVE REASONS, WE REVERSE THE ORDER OF THE CIT(A) AND RESTORE THE DISALLOWANCE OF RS.51,08,219/- . THE GROUND IS ALLOWED. 34. THE FOURTH GROUND RELATES TO THE LOSS OF RS.28, 27,448/- WHICH WAS ALLOWED BY THE CIT(A) OUT OF THE LOSS OF RS.33,71,1 88/- CLAIMED BY THE ASSESSEE ON SALE OF BRASS BILLETS, (WRONGLY STATED IN THE GROUNDS AS INGOTS). AS REGARDS THE BALANCE OF THE LOSS OF RS.5,43,748/-, W HICH HAS BEEN SUSTAINED BY THE CIT(A), THE ASSESSEE IS IN APPEAL. SINCE THE I SSUE IS COMMON, WE DEAL WITH BOTH THE GROUNDS HERE IN A CONSOLIDATED MANNER. 35. WHILE COMPLETING THE ASSESSMENT, THE AO NOTICED THAT IN THE PURCHASE AND SALE OF BRASS BILLETS THE ASSESSEE HAS BEEN SHO WING LOSS. THE PURCHASE OF BRASS TUBES WAS MADE AT RS.112/- PER KG. THEY WERE CONVERTED INTO BRASS BILLETS AND THE BILLETS WERE CLAIMED TO HAVE BEEN SOLD AT R ATES VARYING FROM RS.80/- TO RS.103/- PER KG. THE BRASS TUBES REMAINING UNUTILI SED WERE SHOWN AS SCRAP. ACCORDING TO THE AO, NO PRUDENT BUSINESSMEN WILL PU RCHASE FINISHED GOODS, CONVERT THEM INTO BILLETS AND SELL THE BILLETS TO I NCUR HUGE LOSS. THE ASSESSEES EXPLANATION WAS THAT IT WAS WAITING FOR AN ORDER TO MATERIALISE FROM THE UP STATE SUGAR CORPORATION LTD., FOR BRASS TUBES IN AU GUST, 1991 BUT AFTER SOME TUBES WERE SUPPLIED THE REST WERE NOT REQUIRED BY T HE ABOVE CORPORATION. THE PAGE - 22 ITA NO.4097 AND 4290/AHD/1995 -22- ASSESSEE WAS STUCK WITH HUGE NUMBER OF BRASS TUBES WHICH WERE CONVERTED INTO BILLETS AND SOLD IN BOMBAY AT A LOSS. THE AO THOUG HT THIS EXPLANATION TO BE UNACCEPTABLE BECAUSE THE TUBES COULD HAVE BEEN SOLD AS IT IS INSTEAD OF INCURRING ADDITIONAL EXPENDITURE ON CONVERTING THEM INTO BILLETS, WHICH WERE CHEAPER THAN THE TUBES. HE ALSO DID NOT BELIEVE T HE ASSESSEES EXPLANATION ABOUT ANTICIPATED ORDER FROM UP SUGAR CORPORATION. THE AO ALSO NOTICED THAT IT WAS ONLY AFTER THE SEARCH IN JANUARY, 1992 THAT THE ASSESSEE HAS CLAIMED TO HAVE SOLD THE BILLETS AT A VERY LOW PRICE AT RS.80/ - PER KG. IN FEBRUARY, 1992. ACCORDING TO THE AO THE INTENTION OF THE ASSESSEE W AS TO SHOW A LOSS WHICH COULD BE SET OFF AGAINST THE DISCLOSURE MADE DURING THE SEARCH. 36. FOR THE ABOVE REASONS, THE AO DISALLOWED THE LO SS OF RS.33,71,188/- CLAIMED BY THE ASSESSEE. THE WORKING IS AS FOLLOWS : COST OF MATERIAL (TUBES) 112 X 108748 RS.1,21,79, 776/- MANUFACTURING EXPENSES. RS.1,08,748 X 10 = 10,87,480 RS. 10,87,480/- TOTAL EXPENSES RS.1,32,67,256/- LESS: SALE PRICE OF BILLETS RS. 98,96,068/- RS.1,08,748 X 91 -------------------- LOSS RS.33,71,188/- ============ 37. BEFORE THE CIT(A) THE SUBMISSIONS WERE REITERAT ED AND THE CIT(A) ACCEPTED THE SAME PARTLY. HE HELD THAT THE PURCHA SE OF BRASS TUBES, INCURRING OF MANUFACTURING EXPENSES TO CONVERT THEM INTO BILL ETS AND THE SALE IN THE MARKET WERE ALL GENUINE AND THEY HAVE NOT BEEN DOUB TED BY THE AO. HE ALSO HELD THAT THE AO WAS NOT JUSTIFIED IN COMPUTING THE LOSS AT RS.33,71,188/-. ACCORDING TO HIM THE CORRECT METHOD WAS TO COMPARE THE COST OF THE RAW MATERIALS WITH PREVAILING MARKET RATE. HE NOTED TH AT AS PER THE VERSION OF MMTC, A GOVERNMENT OF INDIA UNDERTAKING, THE MARKET PRICE OF BRASS TUBES WAS RS.107/- PER KG. THE CIT(A) APPLIED THE SAME IN RESPECT OF 1,08,748 KGS. OF BRASS TUBES PURCHASED BY THE ASSESSEE, AS AGAINS T RS.112/- APPLIED BY THE AO PAGE - 23 ITA NO.4097 AND 4290/AHD/1995 -23- TO REWORK THE LOSS. THIS CAME TO RS.28,27,448/-, H E THUS GAVE RELIEF OF RS.28,27,448/- AND SUSTAINED THE BALANCE OF RS.5,43 ,748/-. 38. THE REVENUE IS IN APPEAL REITERATING THE VIEWS OF THE AO . ON BEHALF OF THE ASSESSEE IT IS ARGUED THAT THERE WAS NO DISPUTE ABOUT THE PURCHASE PRICE OF THE BRASS TUBES OR THE QUANTITY PURCHASED, THAT THE SALE OF BRASS BILLETS AT THE MARKET PRICE WAS ALSO ACCEPTED, THAT SECTION 40A(2) (B) OF THE ACT WAS NOT INVOKED AND IN THESE CIRCUMSTANCES THERE IS NO QUES TION OF DISALLOWING ANY PART OF THE LOSS. IT WAS ARGUED THAT THE ENTIRE LOSS OF RS.33,71,188/- WAS TO BE ALLOWED AS A DEDUCTION. REFERENCE WAS MADE TO THE JUDGMENT. OF THE SUPREME COURT IN THE CASE OF CIT VS. CALCUTTA DISCOUNT COMP ANY LTD., 91 ITR 8. 39. WE HAVE CAREFULLY CONSIDERED THE FACTS AND THE RIVAL CONTENTIONS. THOUGH IT APPEARS RATHER UNUSUAL THAT A PERSON SHOU LD PURCHASE BRASS TUBES AT RS.112/- PER KG., INCUR EXPENSES IN CONVERTING THEM INTO BILLETS WHICH ARE A SEMI-FINISHED PRODUCT, SELL THEM AT A LESSER PRICE AND INCUR A LOSS, SINCE THE AO HAS ACCEPTED THAT THE BRASS TUBES WERE IN FACT CONV ERTED INTO BRASS BILLETS, THE TRANSACTIONS CANNOT BE DOUBTED. IN PAGE 13, PARA-I I OF THE ASSESSMENT ORDER THE AO HAS OBSERVED THAT IT IS SEEN THAT THE BRASS TUB ES ARE CONVERTED INTO SEMI- FINISHED PRODUCT I.E. BILLETS IMMEDIATELY AND THE B ILLETS WERE SOLD AT A RATE VARYING FROM RS.80 PER KG. TO RS.103/- PER KG. TH E CIT(A) HAS REDUCED THE PURCHASE PRICE FROM RS.112/- TO RS.107/- PER KG. ON THE BASIS OF THE VERSION OF MMTC BUT THE AO HAS NOT QUESTIONED THE PURCHASE PRI CE OF RS.112/- PER KG. OF BRASS TUBES. IF THAT IS SO, THEN THE ENTIRE LOS S OF RS.33,71,188/- SHOULD BE ALLOWED. IT HAS TO BE OBSERVED THAT DESPITE THE SO MEWHAT UNUSUAL REASONS GIVEN BY THE ASSESSEE FOR INCURRING THE LOSS, SINCE THE A O HAS NOT BROUGHT ANY MATERIAL ON RECORD TO DOUBT THE FACT OF PURCHASE OF BRASS TUBES, CONVERTING THEM INTO BRASS BILLETS AND SELLING THEM AS SUCH AND HAS ALSO NOT BEEN ABLE TO PROVE THAT THE PURCHASE PRICE IS INFLATED OR THAT THE SAL E PRICE HAS BEEN SUPPRESSED, WE HAVE NO OPTION BUT TO HOLD THAT HE WAS NOT JUSTIFIE D IN DISALLOWING ANY PART OF THE LOSS. THE CIT(A) WAS ALSO NOT JUSTIFIED IN RED UCING THE PURCHASE PRICE OF PAGE - 24 ITA NO.4097 AND 4290/AHD/1995 -24- BRASS TUBES TO RS.107/- PER KG. ON THE BASIS OF THE VERSION OF MMTC WITHOUT GIVING ANY REASONS AS TO WHY IT SHOULD BE PREFERRED TO THE PURCHASE PRICE SHOWN BY THE ASSESSEE AND ACCEPTED BY THE AO. ACCORDINGL Y, WE AFFIRM THE VIEW OF THE CIT(A) THAT THE LOSS SHOULD BE ALLOWED AND ALSO HOLD THAT THE ENTIRE LOSS OF RS.33,71,188/- IS REQUIRED TO BE ALLOWED. ACCORDIN GLY, GROUND NO.4 IN THE DEPARTMENTS APPEAL IS DISMISSED AND THE GROUND TAK EN BY THE ASSESSEE IN ITS APPEAL IS ALLOWED. 40. THE FIFTH GROUND IN THE DEPARTMENTS APPEAL REL ATES TO THE LOSS OF RS.96,581/- ON THE TRADING OF SAME DAY TRANSACTIONS . THE AO FOUND THAT THE ASSESSEE PURCHASED SOME MATERIALS AND SOLD THEM AT A LOWER RATE ON THE SAME DAY AND THUS DECLARED A LOSS OF RS.96,581/-. THESE WERE BRASS RODS PURCHASED AT RS.100/- PER KG. FROM A GROUP CONCERN ON 23-3-19 92 AND SOLD FOR RS.89/- PER KG ON THE SAME DAY TO JASH METAL CORPORATION, BOMBA Y. WHEN ASKED TO EXPLAIN THE ASSESSEE GAVE THE USUAL ARGUMENTS VIZ. THAT IT IS THE NORMAL BUSINESS TRANSACTIONS, THAT IT IS SUPPORTED BY THE EVIDENCE AND THAT THE LOSS WAS INCURRED BECAUSE THE ASSESSEE HAD AN ADVANCE ORDER FROM JASH METAL CORPORATION FOR A LOWER GRADE WHICH HAD TO BE COMPLIED WITH, BUT IN T HE MEANTIME THE PRICE HAD RISEN. THE AO DID NOT ACCEPT THIS STORY. HE ALSO NOTED THAT THE ASSESSEE COULD NOT SUPPORT ITS CLAIM THAT IT RECEIVED AN ADVANCE O RDER AT A LOWER RATE FROM JASH METAL CORPORATION AND WHY IT SHOULD HAVE ACCEPTED T HE SAME. HE ACCORDINGLY DISALLOWED THE LOSS. 41. ON APPEAL, THE CIT(A) DELETED THE DISALLOWANCE OF RS.96,581/- HOLDING THAT NEITHER THE PURCHASE NOR THE SALE WAS DISPROVE D NOR WAS THERE ANY MATERIAL TO SHOW THAT THE PURCHASE WAS INFLATED OR THE SALE PRICE WAS SUPPRESSED. AFTER HEARING THE RIVAL CONTENTIONS, WE ARE OF THE VIEW T HAT THE SAME REASONS AS WE HAVE GIVEN IN RESPECT OF GROUND NO.4 WOULD HOLD GOO D FOR THIS GROUND ALSO. SINCE THERE WAS NO MATERIAL TO DOUBT THE PURCHASES AND SALES AND THE PRICES FOR WHICH THEY HAVE BEEN SHOWN BY THE ASSESSEE, DESPITE THE UNUSUAL FEATURE, VIZ. THAT THE ASSESSEE COULD NOT SUPPORT ITS CLAIM THAT THE PURCHASER HAD GIVEN AN PAGE - 25 ITA NO.4097 AND 4290/AHD/1995 -25- ADVANCE ORDER FOR A LOWER RATE, WE HAVE NO OPTION B UT AFFIRM THE DECISION OF THE CIT(A). WE DO SO AND DISMISS THE GROUND TAKEN BY T HE REVENUE. 42. GROUND NO.6 IS THAT THE CIT(A) ERRED IN LAW AND ON FACTS IN ALLOWING DEDUCTION UNDER SECTION 80HH AND 80I INDEPENDENTLY FROM THE GROSS TOTAL INCOME. THE CONTENTION IS THAT THE DEDUCTION SHOUL D BE GIVEN NOT SIMULTANEOUSLY FROM THE GROSS TOTAL INCOME BUT ONE AFTER THE OTHER. THIS CONTENTION IS SUPPORTED BY THE RECENT ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN ACIT VS. HINDUSTAN MINT & AGRO PRODUCTS PVT. LTD ., (2009) 119 ITD 107 (DELHI)(SB), ACCORDING TO THE DEPARTMENT. ACCORDIN G TO THE ASSESSEE THE AFORESAID ORDER IS NOT RELEVANT TO THE PRESENT CONT ROVERSY WHICH ACCORDING TO THE LEARNED COUNSEL IS COVERED IN FAVOUR OF THE ASSESSE E BY THE JUDGMENT OF THE SUPREME COURT IN JCIT VS. MANDIDEEP ENGG. AND PKG. IND. P. LTD., 292 ITR 1 AND CIT VS. AMOD STAMPING, 274 ITR 176. 43. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT TH E BUSINESS INCOME WAS COMPUTED AT RS.1,54,53,196/- FROM WHICH DEDUCTION O F RS.30,90,639/- WAS ALLOWED UNDER SECTION 80HH AT 20% OF THE BUSINESS I NCOME AND THE BALANCE BUSINESS INCOME WAS ARRIVED AT RS.1,23,62,556/-. T HEREAFTER, THE AO GAVE DEDUCTION UNDER SECTION 80I AT 25% OF RS.1,23,62,55 6/-. THIS CAME TO RS.30,90,639/-. THE ASSESSEE OBJECTED TO THIS AND THE OBJECTION WAS THAT THE DEDUCTION UNDER SECTION 80I SHOULD ALSO BE GIVEN AT THE RATE OF 25% OF THE BUSINESS INCOME OF RS.1,54,53,196/- AND NOT FROM T HE BUSINESS INCOME REMAINING AFTER ALLOWING THE DEDUCTION OF RS.30,90, 639/- UNDER SECTION 80HH. THIS CONTENTION WAS ACCEPTED BY THE CIT(A) AGAINST WHICH THE DEPARTMENT IS IN APPEAL. 44. THE DEPARTMENTS GROUND, WITH RESPECT IS MISCON CEIVED. IN JCIT VS. MANDIDEEP ENG. AND PKG.IND.P. LTD., (2007) 292 ITR 1 IT WAS HELD BY THE SUPREME COURT SECTIONS 80HH AND 80I ARE INDEPENDENT AND THEREFORE THE DEDUCTIONS CAN BE CLAIMED BY A NEWLY ESTABLISHED IN DUSTRIAL UNDERTAKING UNDER PAGE - 26 ITA NO.4097 AND 4290/AHD/1995 -26- BOTH THE SECTIONS FROM THE GROSS TOTAL INCOME. EAR LIER THE HONBLE GUJARAT HIGH COURT HAD HELD IN CIT VS. AMOD STAMPING, (2005) 274 ITR 176 THAT THE SPECIAL DEDUCTION UNDER SECTION 80I SHOULD ALSO BE GIVEN AGAINST THE PROFITS AND GAINS WITHOUT THE SAME BEING REDUCED BY THE SPECIAL DEDUCTIONS ADMISSIBLE UNDER SECTION 80HH. WHAT THE DEPARTMENT CONTENDS, WHICH IS SUPPORTED BY THE ORDER OF THE SPECIAL BENCH (SUPRA) IS NOT APPLI CABLE TO THE PRESENT CASE. THE DEPARTMENTS OBJECTION IS THAT BOTH THE DEDUCTIONS CANNOT BE GIVEN AGAINST THE GROSS TOTAL INCOME IN SUCH A MANNER THAT IT WOULD B ECOME A NEGATIVE FIGURE. THAT CONTROVERSY DOES NOT ARISE IN THE PRESENT CASE . WE ACCORDINGLY HOLD, RESPECTFULLY FOLLOWING, THE JUDGMENTS CITED SUPRA, THAT THE DECISION OF THE CIT(A) IS CORRECT. THE SAME IS UPHELD AND THE GROU ND IS DISMISSED. 45. THE SEVENTH AND LAST GROUND IN THE APPEAL IS AG AINST THE RELIEF OF RS.5,39,580/- ALLOWED BY THE CIT(A) ON ACCOUNT OF S ALE OF SCRAP. WHILE COMPLETING THE ASSESSMENT, IT WAS NOTICED THAT THE DISCLOSURE OF RS.102 LAKHS MADE BY THE ASSESSEE DURING THE SEARCH, AGAINST IDE NTIFIED ASSETS, WAS REDUCED IN THE RETURN OF INCOME TO RS.96 LAKHS AND THE BALA NCE OF RS.6 LAKHS WAS NOT SHOWN ANYWHERE. THE ASSESSEE EXPLAINED THAT THE DI FFERENCE OF RS.6 LAKHS WAS ON ACCOUNT OF STOCK OF DROSS (WASTE) OF 20 MTS. VAL UED AT RS.30/- PER KG. WHICH WAS SOLD SUBSEQUENTLY AND ULTIMATE SALE VALUE HAS B EEN REFLECTED AS SCRAP SALES. IN THE PROFIT AND LOSS ACCOUNT THE ASSESSEE WAS FOU ND TO HAVE SHOWN MISCELLANEOUS SCRAP SALES OF RS.60,420/-. ACCORDI NG TO THE AO THE ASSESSEE COULD NOT EXPLAIN THE DIFFERENCE OF RS.5,39,580/-, BEING THE DIFFERENCE BETWEEN RS.6 LAKHS AND RS.60,420/-. SINCE THE ASSESSEE CO ULD NOT POINT OUT WHERE THIS AMOUNT HAS BEEN DISCLOSED, THE AMOUNT WAS ADDED TO THE INCOME. 46. ON APPEAL, THE CIT(A) FOUND THAT AT THE TIME OF THE SEARCH THE DROSS WAS VALUED BY THE INCOME TAX AUTHORITIES AT RS.30/- PER KG. AND IT WAS IN RESPECT OF THIS IDENTIFIED ASSET THAT THE ASSESSEE HAD DISCLOS ED RS.6 LAKHS, FOR 20 MTS. (20,000 KGS.) HOWEVER, THIS DROSS WAS SOLD AND THE ASSESSEE COULD REALISE ONLY RS.60,420/-. SINCE THIS WAS A GENUINE BUSINESS LOS S IT WAS ALLOWED AS PAGE - 27 ITA NO.4097 AND 4290/AHD/1995 -27- DEDUCTION BY THE CIT(A). WE ARE INCLINED TO AFFIRM THIS DECISION IN THE ABSENCE OF ANY SUGGESTION, LET ALONE PROOF, THAT TH E SALE PRICE OF THE DROSS WAS SUPPRESSED BY THE ASSESSEE. IT CANNOT THEREFORE BE SAID, AS WAS OPINED BY THE AO, THAT THE DISCLOSURE OF RS.102 LAKHS AGAINST IDE NTIFIED ASSETS WAS SOUGHT TO BE REDUCED BY RS.6 LAKHS. IN THIS VIEW OF THE MATT ER, WE AFFIRM THE DECISION OF THE CIT(A) AND DISMISS THE GROUND. 47. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS PARTLY ALLOWED. 48. AS REGARDS THE ASSESSEES APPEAL, THE ONLY GROU ND IS AGAINST THE DISALLOWANCE OF THE LOSS OF RS.5,43,748/- ON ACCOUN T OF SALE OF BRASS BILLETS. THIS GROUND HAS BEEN DEALT WITH BY US WHILE DECIDIN G GROUND NO.4 OF THE DEPARTMENTS APPEAL. FOR THE REASONS STATED THEREI N THE DISALLOWANCE IS DELETED. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. 49. IN THE RESULT, THE DEPARTMENTS APPEAL IS PARTL Y ALLOWED AND ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 30 TH OCTOBER, 2009. SD/- SD/- (P.K. BANSAL) ACCOUNTANT MEMBER (R.V.EASWAR) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 30-10-2009 COPY OF THE ORDER FORWARDED TO: 1) : ASSESSEE 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR, ITAT, AHMEDABAD