DCIT CC 11, MUMBAI V. J.M. JOSHI, MUMBAI

ITSSA 24/MUM/2012

• Counselvise Citation: [2013] 121 COUNSELVISE.COM (IT) 9629 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 31-10-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 21-10-2013
• Assessment Year: misc
• Appeal Filed On: 17-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S D SHRIVASTAVA
• Keywords: Income from undisclosed sources; Search and seizure; Block assessment; Onus to prove; Retraction
• Section: 142(1); 133A; 145; 132

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL J JJ J BENCH, BENCH, BENCH, BENCH, MUMBAI MUMBAI MUMBAI MUMBAI , . . . ! ! ! ! , ' ' ' ' #$ #$ #$ #$ BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM & & & & SHRI SHRI SHRI SHRI N. K. BILLAIYA N. K. BILLAIYA N. K. BILLAIYA N. K. BILLAIYA, AM , AM , AM , AM ./ I.T.A I.T.A I.T.A I.T.A. NO. . NO. . NO. . NO.IT(SS)A 24/M/2012 IT(SS)A 24/M/2012 IT(SS)A 24/M/2012 IT(SS)A 24/M/2012 ( % % % % & & & & / ASSESSMENT YEAR :1996-97 TO 2001-02) DCIT, CENTRAL CIR. 11, ROOM NO. 804, 8 TH FLOOR, OLD CGO BUILDING (ANNEX), M. K. ROAD, MUMBAI-400020 / VS. SHRI JAGDISHPRASAD MOHANLAL JOSHI, 604, GATEWAY PLAZA, CENTRAL AVENUE ROAD, HIRANANDANI, POWAI, MUMBAI-400076 $' ' ./ ( ./ PAN/GIR NO. :AAAPJ5006B ( ') / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( *+') / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) $ $ $ $ - . - . - . - . / REVENUE BY : SHRI S. D. SHRIVASTAVA % %% % /0 /0 /0 /0 - . - . - . - . /ASSESSEE BY : SHRI RAJIV KHANDELWAL & SHRI NEELKANTH KHANDELWAL - -- - 0' 0' 0' 0' / DATE OF HEARING : 22 ND OCTOBER 2013 12& 12& 12& 12& - -- -0' 0' 0' 0' /DATE OF PRONOUNCEMENT: 31 ST OCTOBER 2013 #3 / O R D E R PER : , . . / VIJAY PAL RAO, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 11.5.2012 OF COMMISSIONER OF INCOME TAX(APPEALS) AR ISING FROM BLOCK ASSESSMENT U/S 158BC OF INCOME TAX ACT FOR THE BLOC K PERIOD 1996-97 TO 2001-02 AND PART PERIOD FROM 1.4.2001 TO 14.3.2002. 2. THE REVENUE HAS RAISED ONLY GROUND IN THIS APPEA L AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING DEDUCTION U/S 80IA WITHOUT APPRECIATING THE FACTUAL EVIDENCE OF BOGUS AND FABR ICATED PURCHASES AND SALE WITH TWO ARMS OF THE SAME BUSINE SS OF THE ASSESSEE. ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 2 3. THE BRIEF FACTS OF THE CASE AS RECORDED BY CIT(A ) IN PARA 2.3.1 ARE AS UNDER: IN THIS CASE SEARCH U/S 132 OF THE INCOME TAX ACT, 1961 WAS CARRIED OUT AT THE VARIOUS PREMISES OF THE APPELLANT SHRI J. M. JOSHI ON 14/03/2002. DURING THE SEARCH, ASSESSEES RELATIVES/FAMILY MEMB ERS, CLOSE BUSINESS ASSOCIATES AND OTHER PERSONS CONNECTED WITH HIS BUS INESS ACTIVITIES WERE ALSO COVERED. SURVEYS U/S 133A OF THE INCOME TAX AC T, 1961 WERE ALSO CONDUCTED AT BUSINESS PREMISES OF SOME OF THE PERSO NS HAVING CLOSE NEXUS WITH ASSESSEES BUSINESS ACTIVITIES. THE ASSE SSEE WAS RUNNING SEVERAL PROPRIETORSHIP CONCERNS. ONE OF THE MAIN BU SINESS ACTIVITIES OF THE ASSESSEE WAS MANUFACTURE OF ATTAR HINA (HEREIN AF TER REFERRED AS AH) WHICH IS STATED TO BE USED IN GUTKHA AND OTHER TOBA CCO/SUPARI RELATED PRODUCTS FOR FRAGRANCE PURPOSE. THE MANUFACTURING O F AH IS BEING DONE UNDER THE NAME AND STYLE OF ASSESSEES PROPRIETORSH IP CONCERN M/S J. M. ESSENTIAL OIL CO. IT WAS CONTENDED BY THE ASSESSEE THAT AH IS A PREMIUM QUALITY PRODUCT SOLD AT A VERY HIGH PRICE. IT IS OB SERVED BY THE LD. A.O THAT THE PRODUCTS LIKE GUTKHA/SCENTED TOBACCO ETC. WHICH ARE OF VERY HIGH ADDICTIVE NATURE ARE PATRONISED BY THE PEOPLE BECAU SE OF THE TYPICAL CHARACTERISTIC FLAVOUR OF A PARTICULAR BRAND. IT WA S INFORMED BY THE ASSESSEE THAT DUE TO HIS SPECIAL ABILITY OF MANUFAC TURE AND BLENDING OF PERFUMES OF HIGH QUALITY, HE HAD BEEN ABLE TO CAPTU RE A SIZEABLE MARKET OF GUTKHA AND SCENTED TOBACCO INDUSTRY BY SUPPLYING THE VARIOUS MANUFACTURERS HIS HIGH QUALITY AH AND OTHER PRODUCT S. BESIDES MANUFACTURING AH, THE ASSESSEE WAS ALSO DEVELOPING OTHER VARIETIES OF ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 3 SCENTS AND PERFUMES, WHICH ARE AGAIN USED BY THE MA NUFACTURES OF GUTKHA, SCENTED TOBACCO AND SUPARI PRODUCTS. UNDER HIS OTHER PROPRIETORSHIP CONCERNS VIZ. M/S J. M. PERFUMERY, S ACHIN PERFUMERY & COSMETICS ETC. UNDER THE OTHER PROPRIETORSHIP CONCE RNS THE ASSESSEE WAS DOING OTHER ACTIVITIES ALSO, BUT SIZEABLE PART OF H IS ACTIVITIES WERE LINKED TO EDIBLE PERFUMES OR GUTKHA/TOBACCO RELATED ITEMS. TH E LD. A.O ALSO POINTED OUT THAT THE ASSESSEE WAS SHOWING SUBSTANTIAL ACTIV ITIES IN HIS PROPRIETORSHIP CONCERN M/S J. M. ESSENTIAL OIL CO. THIS CONCERN IS LOCATED AT VILLAGE GALONDA, SILVASSA AND DEDUCTION U/S 80IA OF THE INCOME TAX ACT, 1961 WAS CLAIMED IN RESPECT OF SALE OF AH MANUFACTU RED BY THIS UNIT. 4. THE ASSESSING OFFICER HEAVILY RELIED UPON THE ST ATEMENT OF SHRI NEMICHAND MEHTA (NCM) RECORDED DURING THE SEARCH AN D SEIZURE ACTION ON 21.3.2002 AND ARRIVED AT THE CONCLUSION THAT THE SA LE OF ATTAR HINA (AH) TO M/S JAYWANT PRODUCTS LTD. (JPL) AND M/S JAYWANT IND USTRIES LTD. (JIL) OF SHRI NEMICHAND MEHTA ARE BOGUS BOGUS BOGUS BOGUS. THE A.O OBSERVED THAT THE ASSESSEE WAS SHOWING MANUFACTURING OF VERY HUGE QUANTITY OF AH. THE SAME WAS BEING SOLD TO DIFFERENT PARTIES ACROSS THE COUNTRY @ ` 11 ,500/- PER KG AND CLAIMED DEDUCTION U/S 80IA WITH RESPECT TO THE SALE S MADE INCLUDING SALES TO THE TWO COMPANIES NAMELY JPL AND JIL OF SHRI NCM . SINCE THE SALE OF AH TO JPL AND JIL WAS TREATED AS BOGUS, CONSEQUENTLY T HE A.O DISALLOWED THE DEDUCTION U/S 80IA ON THIS SALES. ON APPEAL, THE CI T(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE A.OS FINDING ARE BASED ON THE EVASIVE STATEMENT OF SHRI NCM WITHOUT CONSIDERI NG THE RELEVANT RECORD, MATERIAL AND EVIDENCE PRODUCED BY THE ASSES SEE. THE CIT(A) HAS ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 4 OBSERVED THAT THE A.O TOTALLY IGNORED THE FACT OF T HE CASE AND DOCUMENTARY EVIDENCES SUPPORTING THE FACT OF MANUFA CTURING OF AH AND ITS SALE TO JPL AND JIL. THUS, THE CIT(A) HAS HELD THAT THE ASSESSEE HAS PROVED BY PLETHORA OF EVIDENCE BOTH EXTERNAL AS WEL L AS INTERNAL THAT THE ASSESSEE WAS MANUFACTURING AH AND IT WAS SOLD TO JP L AND JIL. 5. BEFORE US THE LD. DR HAS REFERRED THE ASSESSMENT ORDER AND SUBMITTED THAT DURING THE COURSE OF SEARCH IT WAS N OTICED THAT THE ASSESSEE WAS SHOWING MANUFACTURING OF VERY HUGE QUA NTITIES OF AH. THE SAME WAS BEING SOLD TO VARIOUS PARTIES ACROSS THE C OUNTRY AND THEREBY THE ASSESSEE GENERATED HUGE MONEY CLAIMED TO BE EXEMPTE D U/S 80IA. THE LD. DR HAS REFERRED THE RELEVANT PART OF THE STATEM ENT OF SHRI NCM AS REPRODUCED BY THE ASSESSING OFFICER AND SUBMITTED T HAT TWO STATEMENTS OF SHRI NCM WERE RECORDED BY THE INVESTIGATION WING ON E IN THE COURSE OF SEARCH AND SEIZURE ACTION AND ANOTHER IN THE POST S EARCH INQUIRY. IN BOTH THE STATEMENTS SHRI NCM FAIL TO EXPLAIN THE USE OF AH ALLEGEDLY PURCHASED FROM THE ASSESSEE AND THE SALE OF THE ALLEGED SCENT ED BROOMS IN HUGE QUANTITY. HE HAS SUBMITTED THAT SHRI NCM HAS STATED THAT HE HAS PURCHASED SUBSTANTIAL QUANTITY OF AH FROM THE ASSES SEE AND HAS USED THE SAME FOR MANUFACTURING SCENTED BROOMS WHICH IS EXTR EMELY SURPRISING AND AGAINST THE HUMAN PROBABILITIES THAT A PREMIUM QUALITY PERFUMES WORTH OF MORE THAN ` 40 CRORES WAS ALLEGEDLY USED FOR MANUFACTURING OF BROOMS. SHRI NCM ALSO FAILED TO EXPLAIN HOW THE BRO OMS WERE MANUFACTURED, STORED AND SOLD IN SUCH A HUGE QUANTI TY. THE LD. CIT DR HAS FORCEFULLY CONTENDED THAT SHRI NCM HAS ALSO FAI LED TO EXPLAIN AND ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 5 PRODUCE ANY RECORD TO SHOW THAT THE AH WAS TRANSPOR TED TO ITS PLACE AND FURTHER HOW THE BROOMS WERE TRANSPORTED FROM THE MA NUFACTURING SITE TO MUMBAI BECAUSE THE ENTIRE SALE WAS ALLEGEDLY SHOWN FROM MUMBAI. HE HAS ARGUED THAT IN HIS STATEMENT SHRI NCM STATED TH AT HE HIMSELF IS HANDLING THE ENTIRE SALES ACTIVITY OF BROOMS BUT HE FAILED TO EXPLAIN HOW HE HAS SUPPLIED THE BROOMS TO THE PARTIES. FURTHER SHRI NCM HAS STATED THAT HE HIMSELF HAS CARRIED THE CASH TO DEPOSIT IN THE BANK WHEREAS THE CONCERN EMPLOYEE OF THE BANK WAS EXAMINED BY THE DE PARTMENT WHO HAS STATED IN THE STATEMENT THAT THE CASH WAS DEPOSITED BY ONE SHRI SUSIL AND NOT BY SHRI NCM IN PERSON. THE LD. DR HAS REFERRED THE STATEMENT OF SHRI SANJEEV DEVAPPA VIROJI, CASHIER OF RATNAKAR BANK, V ARTAK NAGAR, THANE AND SUBMITTED THAT IN HIS STATEMENT SHRI SANJEEV DE VAPPA VIROJI HAS CATEGORICALLY STATED THAT EVERY TIME 2 TO 3 PERSONS USED TO COME TO DEPOSIT THE CASH AND THE MAIN PERSON IS MR. SURESH WHO USED TO COME EVERY TIME. THIS IS CLEARLY CONTRADICTORY TO THE ST ATEMENT OF SHRI NCM WHO STATED THAT HE HIMSELF VISITED THE BANK IN TAXI TO DEPOSIT CASH WHEREAS THE CASHIER HAS STATED THAT MR. SURESH USED TO COME IN THE BANK IN PRIVATE MOTOR VEHICLE. THUS, IT IS CLEAR FROM THE STATEMENT OF SHRI NCM AND THE CASHIER OF THE BANK THAT THE ENTIRE CLAIM OF SALES TO SHRI NCM WAS FOUND AS BOGUS AND THEREFORE, THE ASSESSEES OWN FUND HAS BE EN DEPOSITED IN THE BANK ACCOUNT FROM WHERE THE CHEQUES WERE ISSUED IN THE NAME OF THE ASSESSEE BY SHRI NCM. THE LD. DR HAS FURTHER CONTEN DED THAT THE ASSESSEE HAS RELIED UPON THE COURT CASES FILED BY S HRI NCM AGAINST THE ASSESSEE BUT IN THOSE CASES THERE IS NOTHING REGARD ING THE GENUINENESS OF THE SALE TRANSACTION BUT THE DISPUTE WAS RAISED IN RESPECT OF THE RATE OF ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 6 AH. FURTHER THE SUITS WERE DISMISSED IN LIMINIE ON THE GROUND OF LACK OF JURISDICTION OF THE COURT. THUS, THE SUITS BETWEEN THE PARTIES ARE NOT CONCLUSIVE EVIDENCES UNDER THE INCOME TAX ACT FOR T REATMENT OF SALE RESULTING DEDUCTION U/S 80IA. THE ENTIRE AFFAIR OF BOGUS SALE AND DEPOSIT OF CASH AND THEN ISSUING OF CHEQUE HAS BEEN ARRANGED B Y THE ASSESSEE. THUS, IT IS A DISTURBING COMMUNALITY AS AGAINST THE HUMAN PROBABILITY IN THE FACTS AND CIRCUMSTANCES BROUGHT OUT BY THE INVE STIGATION AND ASSESSING OFFICER DURING THE INQUIRY. THE LD. DR HA S FURTHER CONTENDED THAT THE RETRACTION OF STATEMENT BY NCM CANNOT BE A CCEPTED BECAUSE OF THE CLOSE NEXUS BETWEEN THE PARTIES. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE FOLLOWING DECISIONS: DR. S.C. GUPTA VS CIT 248 ITR 782 KUNHAMBU (V.) AND SONS VS CIT 219 ITR 235 RAMESHCHANDRA AND COMPANY VS CIT 168 ITR 375 6. THE LD. DR HAS CONTENDED THAT THE RETRACTION OF STATEMENT DOES NOT MATERIALLY IMPEACH FIRST STATEMENT MADE BY NCM AS N O EXPLANATION HAS BEEN FURNISHED FOR SUCH A RETRACTION. THE LD. DR HA S CONTENDED THAT THE RETRACTION IS AFTER THOUGHT AS IT WAS AFTER A CONSI DERABLE TIME GAP THEREFORE, CANNOT BE ACCEPTED. THE LD. DR HAS THEN SUBMITTED THAT THERE ARE CONTRADICTORY STATEMENTS ABOUT THE RENTED PREMI SES OF THE ASSESSEE BEING USED BY NCM FOR ITS BUSINESS PURPOSE. HE HAS CONTENDED THAT IN HIS STATEMENT NCM STATED THAT HE HAS TAKEN THE PREMISES OF THE ASSESSEE IN MUMBAI ON RENT WHEREAS THE ASSESSEE DENIED OF LETTI NG OUT OF SUCH PREMISES. IN THE CIRCUMSTANCES OF THE CASE WHERE TH E AFFAIRS ARE ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 7 APPARENTLY SUSPICIOUS, THE ASSESSEE FAILED TO DISCH ARGE ITS ONUS TO PROVE THE GENUINENESS OF THE TRANSACTION. THE LD. DR HAS REFERRED THE OBSERVATION OF CIT(A) AS PAGE 15 OF THE IMPUGNED OR DER REGARDING RESALE OF AH BY SHRI NCM WHICH IS CONTRADICTORY TO THE FAC T AS NOTHING WAS FOUND OR BROUGHT ON RECORD TO SHOW THE RESALE OF AH BY SH RI NCM. WHEN THE USE OF ALLEGED HUGE QUANTITY OF AH REMAINS UNEXPLAINED BY SHRI NCM THEN THE TRANSACTION OF PURCHASE AND SALE OF THE AH BETWEEN THE ASSESSEE AND SHRI NCM IS NOT A GENUINE TRANSACTION. THE LD. DR TOOK U S THROUGH THE STATEMENT OF SHRI NCM AND SUBMITTED THAT NCM STATED THAT HE WAS GETTING AH TO HIS FACTORY AT HUBLI THROUGH LORRIES ARRANGED BY THE SUPPLIER BUT FAILED TO PRODUCE ANY RECEIPT OR OTHER RECORD TO SH OW THAT THE GOODS WERE ACTUALLY TRANSPORTED TO THE FACTORY OF SHRI NCM. SH RI NCM ALSO STATE THAT SEMI FINISHED PRODUCTS FROM HUBLI FACTORY IS SENT T O MUMBAI UNIT FOR WRAPPING WITH PLASTIC COVER TO MAKE IT FINISHED GOO DS AND THEY ARE SOLD AT MUMBAI LOCALLY BY HIMSELF ONLY. SHRI NCM ALSO FAILE D TO EXPLAIN THE PROCESS INVOLVED IN THE MANUFACTURING OF BROOMS AS WELL AS MACHINERY USED IN THE PROCESS. THUS, THE CLAIM OF SALE OF AH TO SHRI NCM TURNED OUT TO BE FALLS AND ASSESSEES OWN CASH WAS BEING DEPOSITED IN THE BANK ACCOUNT FROM WHICH THE CHEQUES WERE ISSUED TO THE ASSESSEE. 7. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE HA S SUBMITTED THAT NO INCRIMINATING MATERIAL/DOCUMENT WAS FOUND DURING TH E SEARCH. THE ASSESSING OFFICER HAS NEITHER REFERRED NOR RELIED O N ANY DOCUMENT FOUND DURING THE SEARCH AND SEIZURE ACTION FOR MAKING THE ADDITION AND DENIAL OF DEDUCTION U/S 80IA. THUS, THERE IS NO SEIZED MATERI AL IN THIS CASE TO ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 8 SUPPORT THE CASE OF THE REVENUE FOR FRAMING THE ASS ESSMENT U/S 158BC. THE ENTIRE CASE OF THE ASSESSING OFFICER IS BASED O N THE STATEMENT OF SHRI NCM. THE LD. AR HAS THUS SUBMITTED THAT NO ADDITION CAN BE MADE IN THE ASSESSMENT U/S 158BC MERELY ON THE BASIS OF STATEME NT OF THIRD PARTY THAT TOO WAS NOT RECORDED DURING THE SEARCH AND SEIZURE ACTION IN THE CASE OF THE ASSESSEE. IN THE ABSENCE OF SPECIFIC DOCUMENT F OUND DURING THE SEARCH THE BLOCK ASSESSMENT U/S 158BC ON THE BASIS OF VAGUE AVERMENT IS NOT SUSTAINABLE. THE LD. AR OF THE ASSESSEE HAS SUB MITTED THAT THE AO AS WELL AS THE INVESTIGATION TEAM HAS NOT DOUBTED THE GENUINENESS OF THE PARTIES TO WHOM THE SALE HAS BEEN MADE BY THE ASSES SEE. THE IDENTITY AND GENUINENESS OF THE PARTIES HAVE NOT BEEN DISPUT ED BY THE AO. NOTHING WAS FOUND DURING THE SEARCH AND SEIZURE ACT ION IN THE CASE OF THE ASSESSEE. THE ENTIRE SALE IS UNDISPUTEDLY RECORDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE THEREFORE, IN THE ABSENCE OF ANY MA TERIAL FOUND DURING THE SEARCH NO ADDITION CAN BE MADE IN THE BLOCK ASSESSM ENT. THE AO HAS RELIED UPON THE STATEMENTS RECORDED DURING THE SEAR CH AND SEIZURE ACTION IN THE CASE OF SHRI NCM WHEREAS THE LD. AR HAS FORC EFULLY CONTENDED THAT WHEN NOTHING WAS FOUND DURING THE SEARCH AND SEIZUR E ACTION THEN THE POST SEARCH INQUIRY BECOMES IRRELEVANT BECAUSE IT H AS TO BE RELATABLE ONLY TO THE EVIDENCE FOUND DURING THE SEARCH AND SEIZURE ACTION. THE SALE WAS DULY RECORDED IN THE BOOKS OF ACCOUNT PRIOR TO THE SEARCH. NO UNACCOUNTED CASH FOUND OR ANY OTHER INCRIMINATING MATERIAL FOUN D DURING THE SEARCH. EVEN SHRI NCM HAS ALSO RECORDED ALL SALE AND PURCHA SE TRANSACTION WITH THE ASSESSEE IN HIS BOOKS OF ACCOUNT. THEREFORE, NO IOTA OF EVIDENCE FOUND TO SHOW THAT THE SALES BEING BOGUS. HE HAS RELIED U PON THE DECISION OF ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 9 HONBLE JURISDICTION HIGH COURT IN CASE OF CIT VS V INOD DANCHAND GHODAWAT 247 ITR 448 AND SUBMITTED THAT WHEN THE TRANSACTION ARE RECORDED IN THE BOOKS OF ACCOUNT THEN NO ADDITION C AN BE MADE ON GROUND OF UNDISCLOSED INCOME. IN SUPPORT OF HIS CONTENTION THE LD. AR HAS ALSO RELIED UPON THE FOLLOWING DECISIONS: CIT VS SHAMLAL BALRAM GURBANI 249 ITR 501 CIT VS MS. LEENA V. DOSHI 256 ITR 129 CIT VS P. K. GANESHWAR 308 ITR 124 CIT VS JUPITER BUILDERS P. LTD. 287 ITR 287 CIT VS GOM INDUSTRIES LTD. 257 ITR 78 DCIT VS RADHE DEVELOPERS INDIA LTD. 329 ITR 1 215 CTR 13 (RAJ.) 223 CTR 179 8. THE LD. AR HAS SUBMITTED THAT IT HAS BEEN HELD BY THE HONBLE HIGH COURTS IN THE VARIOUS DECISIONS THAT THE BLOCK ASSE SSMENT CANNOT BE BASED ON INFERENCES BUT SHALL BE BASED ON CLEAR FACTS, RE CORD AND MATERIAL FOUND AND SEIZED DURING THE SEARCH. THUS, THE LD. AR HAS SUBMITTED THAT THE BLOCK ASSESSMENT U/S 158BC IS NOT SUSTAINABLE IN TH E ABSENCE OF ANY SEIZED MATERIAL AND ALL THE TRANSACTIONS ARE RECORD ED IN THE BOOKS OF ACCOUNT PRIOR TO THE DATE OF SEARCH. 9. ON THE MERITS OF THE ADDITION AS AN UNDISCLOSED INCOME THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT THE AO MADE TOTAL 8 ADDITIONS. HE HAS REFERRED PAGE NO. 9 AND 10 OF CIT(A) AND SUBMITTED THAT APART FROM THE SALE OF AH TO JPL AND JIL, THE AO HAS ALSO MADE ADD ITION IN RESPECT OF DISALLOWANCE OF TRANSPORT CHARGES TO SHRI SIDDHI VI NAYAK EXPRESS CARGO. ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 10 THE AO ALSO DISALLOWED THE TRANSPORT CHARGES PAID T O KALPATARU ROAD LINES AND GOLDEN TRANSPORT. THE LD. AR HAS SUBMITTED THAT THE CIT(A) HAS DELETED THE ADDITION MADE ON ACCOUNT OF TRANSPORT C HARGES AFTER EXAMINING THE RECORD WHEREBY THE ASSESSEE PROVED TH AT THE GOODS WERE TRANSPORTED THROUGH THESE TRANSPORTERS. THE REVENUE HAS NOT CHALLENGED THE TRANSPORT CHARGES ALLOWED BY THE CIT(A) AND THE REFORE, THE REVENUE BY ACCEPTING THE CLAIM OF TRANSPORT CHARGES CANNOT DISPUTE THE SALE OF GOODS DISPATCHED THROUGH THESE TRANSPORTERS. THE LD . AR HAS FURTHER SUBMITTED THAT THE AO REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE U/S 145 WHICH HAS BEEN REVERSED BY THE CIT(A) AND THE R EVENUE HAS NOT CHALLENGED THE FINDING OF THE CIT(A) IN RESPECT OF REJECTION OF BOOKS OF ACCOUNT. THEREFORE, WHEN ALL THE TRANSACTIONS ARE R ECORDED IN THE BOOKS OF ACCOUNT ARE ACCEPTED BY THE CIT(A) AND THE REVENUE HAS ACCEPTED THE SAID FINDING THEN THE REVENUE CANNOT CHALLENGE THE FINDING OF THE CIT(A) REGARDING THE BOGUS SALE OF AH TO JPL AND JIL OF SH RI NCM. THE LD. AR HAS POINTED OUT THAT THE AO HAS NOT DISPUTED THE MANUFA CTURING ACTIVITY OF THE ASSESSEE AND SALE OF AH TO OTHER PARTIES EVEN THE P RODUCTION OF AH AND SALE OF THE SAME HAS BEEN ACCEPTED BY THE REVENUE P RIOR TO THE BLOCK PERIOD. THE ASSESSEE HAS FURNISHED FULL DETAILS OF PLANT AND MACHINERY, RAW MATERIAL USED, LIST OF EMPLOYEES, WORKERS. THUS , THE ASSESSEE HAS BROUGHT ON RECORD ALL RELEVANT MATERIAL AND INFORMA TION TO PROVE THAT THE TRANSACTIONS ARE GENUINE AND DULY RECORDED IN THE R EGULAR BOOKS OF ACCOUNTS. THE LD. AR HAS FURTHER POINTED OUT THAT E VEN IN THE BLOCK ASSESSMENT FOR THE BLOCK PERIOD ENDED ON 30.7.1997 FOR 10 YEARS THE CLAIM OF DEDUCTION U/S 80IA HAS BEEN ALLOWED. THE L D. AR HAS REFERRED THE ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 11 DETAILS OF PARTY WISE AND TRANSPORT WISE SALE DURIN G THE BLOCK PERIOD AT PAGE NO. 249 TO 259 OF PAPER BOOK AND SUBMITTED THA T THE AO HAS DOUBTED THE SALE OF GOODS DISPATCH THROUGH SHRI SID DHI VINAYAK EXPRESS CARGO ONLY TO THE EXTENT OF 2500 KG EACH TO JPL AND JIL OUT OF THE TOTAL QUANTITY OF 33,680 TO THESE COMPANIES OF SHRI NCM. THE AO HAS NOT DISPUTED THE TRANSPORT CHARGES PAID TO THE OTHER TR ANSPORTERS/CARGO SERVICES THROUGH WHICH THE GOODS WERE DISPATCHED TO JPL AND JIL WHICH SHOWS THAT THE ASSESSEE ESTABLISHED BEYOND DOUBT TH E TRANSPORTATION OF THE GOODS SOLD TO JPL AND JIL. ON THE ONE HAND, THE AO ACCEPTED THE TRANSPORTATION OF THE GOODS WHEREAS ON THE OTHER HA ND THE SALE WAS TREATED AS BOGUS AND ADDITION WAS MADE AS UNDISCLOS ED INCOME. THE LD. AR HAS FURTHER SUBMITTED THAT WHEN THE SALES OF GOO DS TO OTHER PARTIES TRANSPORTED THROUGH THE GOLDEN TRANSPORT CORPORATIO N, KALPATARU ROAD LINES AND SHRI SIDDHI VINAYAK EXPRESS CARGO WERE AC CEPTED BY THE REVENUE THEN THE ENTIRE CASE OF THE AO IS BASED ON CONJECTURE AND SURMISES. THE ASSETS FOUND AND SEIZED DURING THE CO URSE OF SEARCH WERE DULY RECORDED IN THE BOOKS OF ACCOUNTS THEREFORE, C ANNOT BE A SUBJECT MATTER OF BLOCK ASSESSMENT FOR THE PURPOSE OF UNDIS CLOSED INCOME. EVEN OTHERWISE THE STATEMENT OF SHRI NCM WAS RECORDED AF TER THE SEARCH AND SEIZURE IN THE CASE OF THE ASSESSEE THEREFORE THE I NFORMATION AND RECORD GATHERED FROM SHRI NCM CANNOT A BASIS OF BLOCK ASSE SSMENT OF THE ASSESSEE. THE LD. AR HAS SUBMITTED THAT THE AO HAS NOT FOUND ANYTHING WHETHER IT IS SALE AND TRANSPORT OF GOODS OR OTHER TRANSACTIONS WHICH ARE NOT RECORDED IN THE BOOKS OF ACCOUNT. THE LD. AR HA S REFERRED THE DETAILS OF SALES DURING THE BLOCK PERIOD, DETAILS OF TRANSP ORT WITH THE NAME OF ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 12 CUSTOMERS AND VEHICLE NUMBER AT PAGE NO. 72 TO 82 O F THE PAPER BOOK. HE HAS ALSO REFERRED A DETAIL OF TRANSPORT OF GOODS WI TH CONFIRMATION AT PAGE NO. 249 TO 259 OF THE PAPER BOOK. THUS, THE LD. AR HAS SUBMITTED THAT THE AO HAS DOUBTED THE TRANSPORT OF GOODS THROUGH SHRI SIDDHI VINAYAK EXPRESS CARGO WHICH IS ONLY 5000 KG BUT DISALLOWED THE ENTIRE SALE TO JPL AND JIL. EVEN THE DISALLOWANCE OF TRANSPORT CHARGES HAS BEEN ALLOWED BY THE CIT(A) AND THEREFORE, THE TRANSPORTATION OF THE GOODS ARE NO MORE IN DISPUTE THEN THE QUESTION OF BOGUS SALE DOES NOT AR ISE. 10. AS REGARDS THE SUIT FILED BY THE JPL AND JIL TH E LD. AR HAS SUBMITTED THAT THERE WAS A DISPUTED REGARDING THE RATE OF AH BECAUSE THE ASSESSEE INCREASED RATE WHICH WAS CHALLENGED BY THE JPL AND JIL BY FILING THE SUITS IN THE YEAR 1998 WHICH SHOWS THAT THE TRANSACTION B ETWEEN THE PARTIES DO EXISTS AND CANNOT BE DOUBTED. THE LD. AUTHORISED RE PRESENTATIVE HAS REFERRED THE ASSESSMENT ORDER AND SUBMITTED THAT TH E ASSESSEE HAS EXPLAINED BEFORE THE AO THAT WHEN THE ASSESSEE RECE IVED COMPLAINT THAT SHRI NCM WAS SELLING THE AH TO THE COMPETITORS THEN THE ASSESSEE INCREASE THE PRICE OF AH WHICH WAS DISPUTED BY SHRI NCM. THE LD. CIVIL JUDGE INITIALLY GRANTED INTERIM STAY VIDE ORDER DAT ED 21.9.1998, HOWEVER, SUBSEQUENTLY THE SUITS WERE DISMISSED FOR WANT OF J URISDICTION. THE LD. AR HAS ALSO REFERRED THE STATEMENT OF THE EMPLOYEES OF THE ASSESSEE AND SUBMITTED THAT IT IS PROVED FROM THE STATEMENTS OF THE EMPLOYEES THAT THE ASSESSEE WAS IN THE BUSINESS OF MANUFACTURING OF AH AND THE PRODUCTS WAS SOLD TO THE VARIOUS PARTIES. THE LD. AR HAS ALS O REFERRED THE COMPARATIVE CHART OF NET PROFIT RATIO OF THE VARIOU S YEARS RIGHT FROM THE ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 13 ASSESSMENT YEAR 1999-2000 AND SUBMITTED THAT THE NE T PROFIT RATIO IN ALL THE YEARS INCLUDING BLOCK ASSESSMENT IS COMPARABLE THEREFORE, THERE IS NOTHING ON RECORD TO SUGGEST THE INFLATED FIGURE OF SALE. FURTHER IN THE ABSENCE OF ANY INCREMENTING MATERIAL OR OUT OF BOOK S STOCK OF AH FOUND DURING THE SEARCH, THE SALES DULY RECORDED IN THE B OOKS OF ACCOUNTS CANNOT BE TREATED AS BOGUS AND ASSESSED AS UNDISCLOSED INC OME IN THE BLOCK ASSESSMENT. THE LD. AR HAS ALSO FILED THE DECLARATI ON UNDER CENTRAL EXCISE ACT, SALES TAX ACT AS WELL AS THE QUANTITATIVE DETA ILS OF RAW MATERIAL AND FINISHED GOODS AS PER THE 3CDS COMPRISING OPENING S TOCK, PURCHASE, CONSUMPTION, CLOSING STOCK, SALES, MANUFACTURING, M ANUFACTURE QUANTITY, WORK IN PROGRESS ETC. AND SUBMITTED THAT THERE WAS NO DISCREPANCY FOUND IN THE RECORD OF THE ASSESSEE. HE HAS ALSO REFERRED THE AFFIDAVIT OF SHRI NCM WHEREBY THE EARLIER STATEMENTS WAS RETRACTED. T HE RETRACTION OF THE STATEMENT HAS BEEN CONSIDERED BY THE CIT(A). IN HIS AFFIDAVITS SHRI NCM HAS CONFIRMED THE SUPPLY OF GOODS OF THE ASSESSEE A ND PAYMENTS. THE LD. AR HAS ALSO REFERRED THE AFFIDAVITS FILED BY THE KA LPATARU ROAD LINES AND CROSS EXAMINATION OF THE STATEMENTS DURING THE REMA ND PROCEEDINGS. HE HAS ALSO REFERRED LETTER TO THE ASSESSING OFFICER A ND DDIT BY RAMA FRAGRANCE LTD. AND RASIK TRADING COMPANY AS WELL AS AFFIDAVITS FILED BY THE RESPECTIVE PERSONS REPRESENTING THESE COMPANIES ALONG WITH THE DETAILS OF TRANSPORTERS. SIMILARLY, THE LD. AR HAS ALSO REFERRED THE LETTERS AND AFFIDAVITS FILED ON BEHALF OF SIDDHI VINAYAK EX PRESS CARGO AND GOLDEN TRANSPORT CONFIRMING THE TRANSPORTATION OF GOODS SO LD BY THE ASSESSEE TO THE PARTIES. THUS, THE LD. AR HAS SUBMITTED THAT TH E ASSESSEE HAS PROVED BY PRODUCING THE EVIDENCE THAT THE SALES ARE GENUIN E AND DULY RECORDED IN ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 14 BOOKS OF ACCOUNT. THIS FACT HAS BEEN CORROBORATED B Y THE STATEMENT AND AFFIDAVIT FILED BY THE TRANSPORTERS AS WELL AS CONF IRMATION BY PURCHASING PARTIES. THE LD. AR OF THE ASSESSEE HAS POINTED OUT THAT SINCE SHRI NCM HAS SOLD THE COMPANY NAMELY JIL AND JPL AND ALSO GI VEN THE POSSESSION OF THE FACTORY TO ONE MR. NAND KUMAR IN NOVEMBER 2001 AND THEREFORE, IT WAS NOT POSSIBLE FOR NCM TO TRACE THE PURCHASE INVO ICES AND OTHER RECORD WHEREAS THE ASSESSEE HAS ALL THE SALE BILLS THAT HA VE BEEN VERIFIED BY THE DEPARTMENT DURING THE COURSE OF THE SEARCH AS WELL AS ASSESSMENT PROCEEDINGS. THE LD. AR HAS REFERRED THE STATEMENT OF SHRI NCM AND POINT OUT THAT WHEN SHRI NCM HAS MADE IT CLEAR THAT HE HA D ALREADY SOLD THE COMPANY AND HANDED OVER THE POSSESSION OF THE FACTO RY TO MR. NAND KUMAR IN NOVEMBER 2001 THEN THE DEPARTMENT OUGHT TO HAVE SUMMONED SHRI NAND KUMAR TO PRODUCE THE RELEVANT RECORD FOR VERIFICATION. 11. IT IS SUBMITTED BY THE LD. AR THAT THE DEPARTME NT SEEMS TO BE NOT SATISFIED WITH THE EXPLANATION OF SHRI NCM REGARDIN G USE OF AH IN MANUFACTURING OF BROOMS BUT THIS DOES NOT MEAN THAT SALE BY THE ASSESSEE TO SHRI NCM IS BOGUS. THE LD. AR HAS REFER RED THE ASSESSMENT ORDER AND SUBMITTED THAT THE AO AT PAGE NO. 21 OF T HE ASSESSMENT ORDER HAS OBSERVED THAT THE USE OF AH IN PRODUCTION OF SC ENTED BROOMS IS NOT PROVED, THE ONLY OTHER POSSIBILITY REMAINS IS RESAL E OF AH BY SHRI NCM. THE LD. AR HAS CONTENDED THAT EVEN THE DEPARTMENT HAS N OT RULED OUT THE RESALE OF AH BY SHRI NCM WHICH SHOWS THAT THE TRANS ACTION OF SALE OF AH BY THE ASSESSEE TO SHRI NCM IS GENUINE. THE LD. AR HAS FURTHER SUBMITTED THAT THE EXPLANATION REGARDING USE OF AH BY SHRI NC M IS NOT AN OBLIGATION ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 15 OF THE ASSESSEE BECAUSE WHAT THE ASSESSEE HAS SOLD TO SHRI NCM IS AH AND THEREAFTER THE UTILISATION OF THE SAME BY SHRI NCM IS NONE OF THE ASSESSEES BUSINESS. THUS, WHAT IS SUSPECTED BY THE DEPARTMENT IS THE UTILISATION OF AH IN MANUFACTURING OF BROOMS AND NO T THE PURCHASE OF AH BY SHRI NCM. THUS, THE STATEMENT OF SHRI NCM, THOUG H RETRACTED SUBSEQUENTLY, CANNOT BE USED AGAINST THE ASSESSEE A S NOTHING HAS BEEN STATED BY SHRI NCM THAT THE PURCHASE/SALE TRANSACTI ON BETWEEN THE ASSESSEE AND SHRI NCM IS NOT GENUINE. THE LD. AR HA S SUBMITTED THAT THE TRANSPORTATION OF AH IS PROVED BY THE ASSESSEE WHIC H IS ALSO CONFIRMED BY SHRI NCM IN HIS STATEMENT. THE ASSESSEE HAS PROVED THE TRANSPORTATION OF AH TO JIL AND JPL THROUGH THE VARIOUS TRANSPORTERS THEN THE NON- SATISFACTORY EXPLANATION BY SHRI NCM CANNOT DISAPPR OVE THE FACT ESTABLISHED BY THE ASSESSEE BY PRODUCING THE EVIDEN CE. 12. THE LD. AR HAS THUS, SUMMARISED HIS ARGUMENTS T HAT THE FACT OF PURCHASE OF AH HAS NOT BEEN DENIED BY SHRI NCM WHO HAS ALSO CLAIMED TO RECOGNISE THE PRODUCT BY SMELLING. THE SAME TRANSPO RTATION OF AH HAS BEEN EXPLAINED AND PROVED BY PRODUCTION OF THE RELE VANT INVOICES, BILLS AS WELL AS AFFIDAVITS AND CONFIRMATION OF THE RESPECTI VE TRANSPORTERS. THE TRANSPORT CHARGES HAVE BEEN DEBITED IN THE REGULAR ACCOUNT OF THE ASSESSEE AND HAVE NOT BEEN DISALLOWED BY THE ASSESS ING OFFICER EXCEPT IN SOME CASES WHICH HAVE BEEN ALLOWED BY CIT(A). THERE MAY BE SUSPICION REGARDING THE UTILISATION OF AH IN MANUFACTURING OF BROOMS BUT THAT BY ITSELF CANNOT NEGATE THE SALE OF AH MADE BY THE ASS ESSEE. THE LD. AR HAS SUBMITTED THAT THERE MAY BE INNUMERABLE REASONS FOR GIVING THE SO-CALLED ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 16 EVASIVE REPLY BY SHRI NCM NAMELY AH SOLD TO THE COM PETITORS OF THE ASSESSEE, MAY BE TRYING TO AVOID PAYMENT OF OCTRAI AND SALES TAX ACT IN THE GARB OF SELLING BROOMS. THIS IS BEST KNOWN TO S HRI NCM AS TO WHY NOT DISCLOSED HIS ACTUAL BUSINESS AFFAIRS OF SALE OF AH OR USE OF AH. THUS, THE LD. AR HAS SUBMITTED THAT IN THE ABSENCE OF ANY UNA CCOUNTED CASH, INCREMENTING DOCUMENT FOUND DURING THE COURSE OF SE ARCH THE AO IS NOT JUSTIFIED TO ASSESS THE SALE OF AH TO JIL AND JPL A S UNDISCLOSED INCOME. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. THE BLOCK ASSESSMENT IN THIS CA SE IS BASED UPON TWO SEARCH AND SEIZURE ACTION: FIRST ON 14.3.2002 IN TH E CASE OF THE ASSESSEE AND SECOND ON 21.3.2002 IN CASE OF SHRI NCM, THE DI RECTOR OF JPL AND JIL. THERE IS NO INCREMENTING MATERIAL FOUND DURING THE SEARCH OPERATION IN THE CASE OF THE ASSESSEE WHICH WAS NOT RECORDED IN THE REGULAR BOOKS OF ACCOUNT OF THE ASSESSEE. IN OTHER WORDS WHATEVER, A SSET, CASH, BULLION OR OTHER INFORMATION FOUND DURING THE SEARCH OPERATION WAS DULY RECORDED IN THE BOOKS OF ACCOUNT THEREFORE, THE ENTIRE CASE OF THE A.O IS BASED ON TWO STATEMENTS OF SHRI NCM RECORDED ON 21.3.2002 AND 30 .3.2002 RESPECTIVELY. THUS, THE CASE OF THE A.O AND THE ARG UMENT OF LD. CIT DR BEFORE US CENTRED ON THE STATEMENT OF SHRI NCM AND THAT TOO ARE NOT BASED ON THE PLAIN CONTENTS OF THE STATEMENT BUT ON THE NEGATIVE/ADVERSE INFERENCE DRAWN FROM THE STATEMENT OF SHRI NCM. IT IS PERTINENT TO NOTE THAT THE STATEMENTS OF SHRI NCM DO NOT SAY OR CONTE MPLATE ANYTHING WHICH LEAD TO CONCLUSION THAT THE SALE OF AH BY THE ASSESSEE TO NCM IS BOGUS. AS NCM HAS NOT EXPLAINED THE USE OF AH AND T HE SALE OF ALLEGED ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 17 SCENTED BROOMS TO THE SATISFACTION OF THE A.O, IT W AS INFERRED THAT THE SALE OF AH BY THE ASSESSEE TO NCM IS BOGUS. THE OTHER RE ASONS FOR TREATING THE SALE OF AH AS BOGUS BY THE A.O ARE THE FAILURE OF N CM TO PRODUCE EVIDENCE OF TRANSPORTATION OF AH AND DEPOSIT OF CASH IN THE BANK ACCOUNT FROM WHICH CHEQUES WERE ISSUED TO THE ASSESSEE. IN HIS S TATEMENT SHRI NCM STATED THAT THE GOODS WERE BEING SUPPLIED BY THE AS SESSEE AT HIS FACTORIES NAMELY M/S JPL AND M/S JIL. THESE TWO COMPANIES OF SHRI NCM ARE ASSESSED TO TAX AT HUBLI AND SHOWING THE TRANSACTIO N OF PURCHASE OF AH. ON THE OTHER HAND, THE ASSESSEE HAS PRODUCED ALL RE QUISITE EVIDENCE TO PROVE THE SALE AND TRANSPORTATION OF AH TO SHRI NCM . FURTHER THE A.O HAS ALLOWED THE TRANSPORTATION CHARGES PAID FOR SUPPLY OF AH TO NCM EXCEPT THE TRANSPORT THROUGH SHRI SIDDHI VINAYAK EXPRESS C ARGO. IT IS PERTINENT TO NOTE THAT ONLY 5000 KG OF AH WAS SUPPLIED 2500 KG E ACH TO JPL AND JIL THROUGH SHRI SIDDHI VINAYAK EXPRESS CARGO (TRANSPOR TER). FURTHER THE TRANSPORTATION CHARGES DISALLOWED BY THE A.O IN RES PECT OF SHRI SIDDHI VINAYAK EXPRESS CARGO HAS BEEN ALLOWED BY THE CIT(A ) AND THE REVENUE HAS ACCEPTED THE ORDER OF THE CIT(A) ON THIS POINT. IT IS CLEAR THAT THE A.O HAS DOUBTED THE TRANSPORTATION OF ONLY 5000 KG OF AH OUT OF TOTAL SUPPLY OF 33,680 KG OF AH TO JPL AND JIL DURING THE YEAR UNDER CONSIDERATION. THEREFORE, THERE IS NO JUSTIFICATION OF TREATING THE ENTIRE SALE OF AH TO SHRI NCM AS BOGUS WHEN THE TRANSPORTATION OF MORE THAN 28,000 KG OF AH HAS BEEN ACCEPTED BY THE A.O. THE TRANSPOR TATION THROUGH SHRI SIDDHI VINAYAK EXPRESS CARGO HAS ALSO BEEN ACCEPTED BY THE CIT(A) AND THE TRANSPORTATION CHARGES DISALLOWED BY THE A.O HA S BEEN ALLOWED. THE REVENUE HAS ACCEPTED THE ORDER OF THE CIT(A) ON THI S ISSUE THEREFORE, THE ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 18 REVENUE HAS NO CASE ON MERITS TO SUSTAIN THE TREATM ENT OF SALE AS BOGUS AND CONSEQUENTLY DISALLOWANCE OF DEDUCTION U/S 80IA . THERE IS NO ADDITION ON THE QUANTUM OF INCOME BUT THE A.O TREATED THE SA LE OF AH TO NCM AS BOGUS AND ASSESSED THE SAME AS UNDISCLOSED INCOME A ND THEREBY DENIED THE CLAIM U/S 80IA. THE REVENUE HAS OTHERWISE NOT D ISPUTED THE ELLEGIBILITY OF THE ASSESSEE TO CLAIM DEDUCTION U/S 80IA AND ACC EPTED THE MANUFACTURING ACTIVITY OF THE ASSESSEE. THIS IS EVI DENT FROM THE ASSESSMENTS OF THE EARLIER YEARS INCLUDING THE BLOC K ASSESSMENT FOR THE BLOCK PERIOD ENDED ON 30.7.1997 IN WHICH THE CLAIM U/S 80IA HAS BEEN ACCEPTED FOR MANUFACTURING OF AH. 14. THUS, IT IS CLEAR THAT THE CASE OF THE A.O AND THE THRUST OF THE ARGUMENT OF LD. CIT DR ARE BASED ON THE INFERENCE D RAWN FROM THE STATEMENT OF NCM. NOW THE ISSUE ARISES IS WHETHER U NDISCLOSED INCOME IN THE BLOCK ASSESSMENT CAN BE ASSESSED PURELY ON THE BASIS OF INFERENCE OF STATEMENT OF THIRD PARTY RECORDED SUBSEQUENT TO THE SEARCH OPERATION AS IN THE CASE OF THE ASSESSEE. IT IS SETTLED PROPOSIT ION OF LAW THAT THERE IS NO SCOPE OF INFERENCE IN THE BLOCK ASSESSMENT WITHOUT ANY DIRECT EVIDENCE TO SHOW THE UNDISCLOSED INCOME. IN THE CASE IN HAND UN DISPUTEDLY THE TRANSACTION IN QUESTION ARE FOUND DULY RECORDED IN THE BOOKS OF ACCOUNT THEREFORE, THE SAME CANNOT BE THE SUBJECT MATTER OF BLOCK ASSESSMENT U/S 158BC. IN CASE OF CIT VS SHAMLAL BALRAM GURBANI (SU PRA) THE HONBLE JURISDICTION HIGH COURT HAS UPHELD THE FINDING OF T HE TRIBUNAL THAT THE INCOME WHICH WAS TREATED BY THE A.O AS UNDISCLOSED IN THE BLOCK ASSESSMENT WAS DULY REFLECTED IN THE SCHEDULE TO TH E AUDITED BALANCE ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 19 SHEET OF THE ASSESSEE AND THAT THE FINDING OF THE A .O REGARDING UNDISCLOSED INCOME WERE NOT TO BE BASED ON ANY MATE RIAL FOUND IN THE SEARCH OPERATION. SIMILARLY, IN CASE OF CIT VS MS. LEENA V. DOSHI (SUPRA), THE HONBLE JURISDICTION HIGH COURT HAS HELD THAT T HE TRANSACTIONS IN QUESTION WERE DISCLOSED IN THE RETURNS WHICH WERE T HE SUBJECT MATTER OF REGULAR ASSESSMENT CANNOT BE SAID TO BE UNDISCLOSED TRANSACTION FALLING U/S 158B OF INCOME TAX ACT. THIS OUGHT TO HAVE BEEN ASSESSED IN THE REGULAR ASSESSMENT AND NOT IN BLOCK ASSESSMENT. IN CASE OF CIT VS P. K. GANESHWAR (SUPRA) THE HONBLE MADRAS HIGH COURT HAS HELD THAT EVEN INFORMATION GATHERED DURING THE POST SEARCH INVESTI GATION CANNOT BE USED TO ARRIVE AT THE UNDISCLOSED INCOME UNDER THE BLOCK ASSESSMENT U/S 158BB WHEN NO SUCH INFORMATION WAS FOUND IN THE SEARCH OP ERATION. IN CASE OF CIT VS JUPITER BUILDERS P. LTD. (SUPRA), THE HONBL E DELHI HIGH COURT HAS HELD THAT SINCE THERE WAS NO EVIDENCE FOUND DURING THE SEARCH ON WHICH THE A.O TO MAKE ADDITION AND THE RELEVANT EXPENSES/ INCOME HAD BEEN DULY REFLECTED AND DISCLOSED IN THE COURSE OF ASSES SMENT PROCEEDINGS BY THE ASSESSEE IT COULD NOT BE SAID TO BE UNDISCLOSED INCOME OF THE ASSESSEE AND ASSESSED IN PROCEEDINGS UNDER BLOCK ASSESSMENT. IN CASE OF CIT VS GOM INDUSTRIES LTD. (SUPRA), THE HONBLE MADHYA PRA DESH HIGH COURT HAS HELD THAT THE AMOUNT COULD NOT BE ADDED AS INCOME F ROM UNDISCLOSED SOURCE WHEN IT WAS FOUND THAT THE ASSESSEE HAD RECO RDED THE TRANSACTION IN ITS BOOKS OF ACCOUNT. IN CASE OF DCIT VS RADHE D EVELOPERS INDIA LTD. AND ANOTHER (SUPRA), THE HONBLE GUJARAT HIGH COURT HAS HELD IN PARA 27 AS UNDER: ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 20 27. IN SO FAR AS THE ADDITIONS OF ` 99,00,000 ODD AND ` 4,00,000 ARE CONCERNED, ADMITTEDLY THE AMOUNTS WERE FOUND HA VING BEEN ENTERED IN THE REGULAR BOOKS OF ACCOUNT. THEREFORE, INQUIRY, IF ANY, WAS PERMISSIBLE IN THE COURSE OF REGULAR ASSES SMENT PROCEEDINGS AND THE FINDING OF THE TRIBUNAL IN THIS REGARD BEING IN CONSONANCE WITH THE RATIO OF THE JUDGMENT OF THI S COURT IN THE CASE OF N. R. PAPER AND BOARD LTD. (1998) 234 ITR 7 33 (GUJ), NO INTERFERENCE IS WARRANTED. 15. THUS, IN THE SERIES OF DECISIONS IT HAS BEEN HE LD THAT WHEN THE TRANSACTIONS ARE DULY RECORDED IN THE BOOKS OF ACCO UNT THEN THE SAME CANNOT BE ASSESSED AS UNDISCLOSED INCOME UNDER BLOC K ASSESSMENT. THE DEFINITION OF UNDISCLOSED INCOME IS PROVIDED IN SEC TION 158B(B) AND COMPUTATION OF UNDISCLOSED INCOME OF THE BLOCK PERI OD IS PROVIDED U/S 158BB. THESE TWO SECTIONS STIPULATE THE CONDITION T HAT UNDISCLOSED INCOME FOR BLOCK PERIOD SHALL BE COMPUTED BASED ON THE EVIDENCE FOUND AS A RESULT OF SEARCH AND SUCH OTHER MATERIAL OR IN FORMATION RELATABLE TO SUCH EVIDENCE. THEREFORE, IN THE ABSENCE OF ANY EVI DENCE FOUND IN THE SEARCH OPERATION AND THE TRANSACTION WERE DULY RECO RDED IN THE BOOKS OF ACCOUNT, THE SAME CANNOT BE ASSESSED AS UNDISCLOSED INCOME UNDER BLOCK ASSESSMENT. THOUGH THE ISSUE OF BOGUS SALE AND ASSE SSMENT OF UNDISCLOSED INCOME UNDER BLOCK ASSESSMENT DOES NOT REQUIRE ANY FURTHER DISCUSSION HOWEVER, FOR THE SAKE OF COMPLETENESS WE FURTHER NOTE THAT THE TWO COMPANIES NAMELY JPL AND JIL WERE TRANSFERRED B Y SHRI NCM IN NOVEMBER 2001 PRIOR TO THE SEARCH AND THEREFORE, TH IS IS A CRUCIAL ASPECT TO BE CONSIDERED AS TO WHY SHRI NCM WAS NOT IN POSS ESSION OF THE RELEVANT RECORD AT THE TIME OF SEARCH. FURTHER THERE WAS A D ISPUTE BETWEEN THE ASSESSEE AND NCM ABOUT THE ENHANCEMENT OF THE CONTR ACT RATE OF AH. SHRI ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 2 1 NCM FILED TWO CIVIL SUITS IN THE YEAR 1998 FOR REST RAINING THE ASSESSEE FROM INCREASING THE CONTRACT RATE OF AH WHICH SHOWS THAT THE ASSESSEE AND JPL AS WELL AS JIL WERE HAVING REGULAR BUSINESS TRANSAC TIONS AND ALSO ENTERED INTO THE CONTRACT FOR SUPPLY OF AH. SINCE ALL THESE EVENTS HAPPENED PRIOR TO THE DATE OF SEARCH AND MATTER OF RECORD IN THE L ITIGATION THEREFORE, THE GENUINENESS OF THE TRANSACTION BETWEEN THE ASSESSEE AND NCM CANNOT BE DOUBTED MERELY ON THE BASIS OF NON-COOPERATION AND EVASIVE REPLY BY NCM IN THE COURSE OF STATEMENT RECORDED BY THE DEPARTME NT. IN THIS CASE THE A.O RELIED UPON THE STATEMENT OF THIRD PARTY AND NO T OF THE ASSESSEE THEREFORE THE DECISION RELIED UPON BY THE LD. DR AR E NOT APPLICABLE IN THE FACTS OF THIS CASE. AS REGARDS THE OBSERVATION OF T HE CIT(A) THAT THERE WAS A POSSIBILITY OF RESALE OF AH BY NCM. WE NOTE THAT THIS FACT WAS ALREADY EXPRESSED BY THE ASSESSEE AT THE TIME OF INCREASING THE RATE OF AH AND CONSEQUENTLY THE NCM FILED THE SUIT FOR THE YEAR 19 98. FURTHER THE A.O HAS ALSO NOT RULED OUT THE RESALE OF AH BY NCM. 16. THE CIT(A) HAS DISCUSSED THE MATTER IN DETAIL B Y CONSIDERING ALL RELEVANT MATERIAL AND CIRCUMSTANCES AND GAVE THE FI NDING IN PARA 2.6.9, 2.6.11 TO 2.6.27 AS UNDER: 2.6.9 ON PERUSING THE MATERIAL BROUGHT BEFORE ME A ND UPON THE ANALYSIS OF SEQUENCE OF EVENTS, IT IS APPARENT THAT THERE COULD NOT HAVE BEEN A SITUATION OF BOGUS SALE UNTIL AND U NLESS THE WHOLE MANUFACTURING THE PURCHASES WERE HELD TO BE B OGUS BY THE LD. A.O. I FIND THAT WHEREAS HE HAS NOT DISTURB ED THE FIGURES OF PURCHASES AS WELL AS THE PRODUCTION EXPENSES, HE HAS SIMPLY GONE ON TO DISBELIEVE THE SALES MADE BY HE APPELLAN T AND TREATED IT AS SHAM. EVEN AS PER THE PRINCIPALS OF A CCOUNTANCY, THE SAME CANNOT BE LOGICAL. UNLESS AND UNTIL PURCHA SES AND MANUFACTURING EXPENSES ARE FOUND TO BE BOGUS, IT IS NOT PERMISSIBLE FOR THE LD. A.O TO TREAT THE ENTIRE SAL ES AS BOGUS. ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 22 FURTHER, LD. A.O HAS HIMSELF RECOGNISED THAT THERE COULD BE A POSSIBILITY OF RESALE OF ATTAR HINA BY SHRI NEMICHA ND MEHTA AND THEREFORE TO TURN AROUND AND HOLD THE ENTIRE SALES OF APPELLANT AS BOGUS DEFIES ALL LEGAL CANONS. 2.6.10 . 2.6.11 IT IS VERY INTERESTING TO NOTE THAT THE LD. AO HAS, CIT THE SAME TIME AS THE APPELLANTS BLOCK ASSESSMENT, ALSO CONCLUDED AND ASSESSED LOSS (AND TREATED THE SAME AS UNDISCLO SED INCOME) OF RS. 3971/- IN THE CASE OF JPL AND OF RS. 21,07,7 22/- IN THE CASE OF JIL BY EMPLOYING DIFFERENT METHODS OF COMPUTATIO N WHEREAS PURCHASES OF AH BY BOTH THE COMPANIES WAS IDENTICAL / EQUAL I.E. OF RS. 20 CRORES BY EACH COMPANY, WHICH ARE MANAGED BY COMMON MD I.E. SHRI NEMICHAND J. MEHTA AND HAVING S AME NATURE OF BUSINESS I.E. OF MAKING BROOMS AND PLACE OF BUSINESS I.E. HUBLI. 2.6.12 WHILE FURTHER COMMENTING ON THE ISSUE RAISED BY THE APPELLANT THAT HE (BEING SELLER OF AH) HAS NO ONUS OF PROVING USE/ CONSUMPTION OF IT BY BUYER (I.E. JIL & JPL), THE LD . AO OBSERVES AT PAGE 21 OF HIS ORDER, 2. HOWEVER, IN THIS CASE, TH E CIRCUMSTANCES CLEARLY PROVE THAT NO GOODS WERE SOLD AT ALL. IT IS BEYOND ANY DOUBT THAT A PERSON, WHO IS PROCURING GO ODS WORTH RS. 40,46,29,800/-, WILL CERTAINLY USE IT SOMEWHERE OR WILL RESALE IT. NO EVIDENCE HAS BEEN GATHERED DESPITE CARRYING OUT EXTENSIVE SEARCH AS TO WHAT HAPPENED TO AH ALLEGEDL Y PURCHASED BY JIL AND JPL. THE ONLY INFORMATION AVAILABLE ABOU T THE USE OF AH IS THROUGH THE STATEMENT OF NCM RECORDED ON OATH .. . SINCE, USE OF AH IN THE PRODUCTION OF SCENTED BROOMS IS NOT PR OVED, IN THE LIGHT OF ABOVE DISCUSSIONS, THE ONLY OTHER POSSIBIL ITY REMAINS IS RE-SALE OF AH BY SHRI NEMICHAND MEHTA..IN FACT, I N ONE OF THE ALLEGED CORRESPONDENCES WITH NCM DATED 26.10.98. TH E ASSESSEE HAS MADE ALLEGATIONS.(EMPHASIS SUPPLIED.) 2.6.13 THUS, THE LD. AO HAS ARBITRARILY IGNORED ALL THE FACTS AND EVIDENCES GATHERED BY SEARCH PARTY FROM THE FACTORI ES AND OFFICE OF THE APPELLANT ABOUT PRODUCTION AND PRODUCTION RE CORDS AT SILVASSA; ALL AUDITED ACCOUNTS, REPORTS INCLUDING 3 CDS SHOWING ALL QUANTITATIVE DETAILS ABOUT RAW MATERIAL, PRODUCTION AND SALE, FILED FOR ALL THE YEARS COVERED UNDER BLOCK PERIOD LYING WITH THE LD. AO HIMSELF; AND ALL EVIDENCES AND FACTS PRODUCED BEFOR E THE LD. AO DURING THE ASSESSMENT PROCEEDINGS, IN HOLDING THAT SALES OF AH MADE TO JIL & JPL ARE NOT PROVED WHILE ACCEPTING TH E MANUFACTURING OF AH ARID SALE THEREOF TO OTHER PART IES. 2.6.14 WITH RESPECT TO UNACCOUNTED MONEY ALLEGED TO BE ROUTED THROUGH THE BANK ACCOUNTS OF JIL AND JPL, IT WAS SU BMITTED THAT IT CANNOT BE DENIED THAT THE AMOUNT DEPOSITED IN THE B ANK ACCOUNT WERE RECEIVED FROM J.P.L. AND J.I.L AND AS SUCH TO SAY THAT THEY ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 23 ARE RECEIPT FROM UNDISCLOSED SOURCES OF THE APPELLA NT IS CONTRARY TO FACTUAL MATRIX OF THE INSTANT CASE. PAYMENTS MAD E BY THESE CUSTOMERS MUST HAVE BEEN DULY REFLECTED IN THEIR BO OKS OF ACCOUNT AS THEY ARE COMPANIES (PUBLIC LIMITED COMPA NIES DULY QUOTED ON RECOGNIZED STOCK EXCHANGE) WHOSE ACCOUNTS ARE STATUTORILY AUDITED AND AS SUCH TO SAY THAT THE AMO UNT IN QUESTION ARE UNACCOUNTED MONEY OF THE APPELLANT IS INCONSISTENT WITH THE FACTS ON THE RECORDS AND AS SUCH THE FINDI NG THAT THE AMOUNTS IN QUESTION ARE FROM UNDISCLOSED SOURCES IS ERRONEOUS. I FIND CONSIDERABLE FORCE IN THESE ARGUMENTS AS JIL & JPL ARE PUBLIC LTD. LISTED COMPANIES. 2.6.15 BY REJECTING EXPLANATION OF THE APPELLANT, T HE LD. A.O. CAME TO THE CONCLUSION THAT THE AMOUNT IN QUESTION IS THE INCOME OF THE APPELLANT. HOWEVER, BY REJECTING EXPL ANATION, ONE CANNOT COME TO THE CONCLUSION THAT THE AMOUNT IN QU ESTION IS INCOME OF ASSESSEE WHEN THE SAME IS RECEIVED BY ACC OUNT PAYEE CHEQUE FROM PERSONS WHO ARE ASSESSED TO TAX AND THE PARTIES FROM WHOM THE AMOUNT WERE RECEIVED WERE CREDITWORTH Y AND IDENTIFIED. THUS IT CAN REASONABLY BE CONCLUDED THA T THE APPELLANT HAS DISCHARGED THE BURDEN THAT LAY ON IT AND THEREFORE, THE CONCLUSION DRAWN BY THE LD. A.O. TREATING THE S AME AS INCOME FROM UNDISCLOSED SOURCES OF THE APPELLANT WA S UNREASONABLE AND BASED ON NO EVIDENCE. 2.6.16 AS POINTED OUT ABOVE, BOTH THESE COMPANIES V IZ. JIL AND JPL ARE IDENTIFIABLE, VERIFIABLE AND SUBJECT TO INC OME-TAX SCRUTINY, AS THE SAME HAVE BEEN ASSESSED FOR THE SAME BLOCK P ERIOD AS THAT OF THE APPELLANT. FURTHER, IT HAS ALSO BEEN AC KNOWLEDGED BY THE LD. AO HIMSELF ON THE SAME PAGE NO. 25 OF HIS O RDER WHERE HE STATES THAT THESE COMPANIES HAVE BEEN SOLD BY NEMICHAND MEHTA TO SOME OTHER PARTY. (NAME AND ADD RESS OF THE OTHER PARTIES HAVE ALSO BEEN GIVEN BY NEMICHAND MEHTA IN HIS STATEMENTS TAKEN BY SEARCH PARTIES). 2.6.17 LD. AO HAS TREATED THE SALE PROCEEDS RECEIVE D FROM THESE TWO COMPANIES AS MONEY FROM UNDISCLOSED SOURCES. NO WHERE IN HIS ORDER, LD. AO HAS STATED OR GIVEN WHAT ARE THE UNDISCLOSED SOURCES OR WHERE ARE THE UNDISCLOSED SOURCES FROM W HICH MONEY WAS GENERATED TO BE ROUTED THROUGH THESE COMPANIES. HE HAS IGNORED THE FACT THAT THE BLOCK ASSESSMENT UNDER AP PEAL WAS ITSELF AN OUTCOME OF AN EXTENSIVE SEARCH UNDERTAKEN ON ALL THE BUSINESS, OFFICES, FACTORIES AND, RESIDENCES PREMIS ES OF NOT ONLY THE APPELLANT BUT OF HIS RELATIVES AND BUSINESS ASS OCIATES AS WELL. SEARCH PARTIES DID NOT COME ACROSS ANY UNACCOUNTED MONEY OR VALUABLES OR UNDISCLOSED SOURCE OF INCOME. IN SPITE OF ALL THESE, MONEYS RECEIVED THROUGH ACCOUNT PAYEE CHEQUES FROM CUSTOMERS AGAINST SALE PROCEEDS HAVE BEEN TREATED A S UNACCOUNTED MONEY RECEIVED FROM UNDISCLOSED SOURCE WITHOUT AN IOTA OF EVIDENCE ON RECORD. ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 24 2.6.18 THE APPELLANT IS HAVING A UNIT AT SILVASSA A T WHICH AH IS MANUFACTURED AND THUS THE SOURCE FROM WHICH THE REC EIPTS HAVE ARISEN IS ALSO IDENTIFIABLE. EVEN THE LD. AO HAS HI MSELF ADMITTEDLY ALLOWED THE DEDUCTION U/S.801A IN RESPECT OF THE VE RY ITEM MANUFACTURED BY THE SOME UNIT AND THUS TO SAY THE R ECEIPTS ARE FROM UNDISCLOSED SOURCE IS INCOMPREHENSIBLE. IT IS THUS, VERY CLEAR THAT THE LD. AO HAS BASED HIS ASSESSMENT NOT ON FACTS AND EVIDENCES AVAILABLE ON RECORD BUT ONLY ON CONJECTUR ES AND PRESUMPTIONS WHICH CANNOT STAND THE SCRUTINY OF LAW AND THUS, IS UNREASONABLE AND BASED ON NO EVIDENCE. 2.6.19 FURTHER, FINDINGS IN THE PREVIOUS SEARCH OF BLOCK PERIOD 1988-89 TO 1997-98 AND FROM 1.4.97 TO 30.7.1997 ARE ALSO APT FOR REFERENCE. VIDE ASSESSMENT ORDER U/S.158BC DATE D 10.05.1999, A FINDING WAS GIVEN THAT THE APPELLANT MANUFACTURED AND SOLD PERFUMES BY THE NAME OF ATTAR HINA AT SILV ASA FROM 15.12.1995 TO THE ENDING OF THE BLOCK PERIOD 30.7.1 997. SAID PERFUME WAS STATED TO BE SOLD AT A PRICE OF RS.11,5 00 PER KG. IT WAS SEEN FROM THE PERUSAL OF RECORDS SEIZED DURING THE SEARCH THAT THE FOLLOWING QUANTITY OF ATTAR HINA WAS MANUF ACTURED - 15.12.1995 TO MARCH, 1996 : 2545 KG 1.4.96 TO 31.3.97 : 12502.05 KG 1.4.97 TO 30.7.1997 : 500 KG 2.6.20 THUS, SALES TO JIL AND JPL ARE PROVED WITH V ARIOUS DOCUMENTARY EVIDENCES AND FACTS. UNDISPUTED FACTS S TATED ABOVE PROVE SALES TO JIL AND JPL BY J M ESSENTIAL OIL COM PANY. LD. AO REFERRED TO CIRCUMSTANTIAL EVIDENCES ON PAGE 16 OF HIS ORDER TO STATE THAT SHRI NEMICHAND J. MEHTA WAS NOTHING BUT A DUMMY .IN THIS REGARD, IT HAS BEEN SUBMITTED THAT MANUFACTURI NG AND SALES ARE PROVED BY THE AFORESAID UNDISPUTED FACTS AND WH EN EXISTING FACTS WHICH ARE SUBSTANTIATED WITH DOCUMENTARY EVID ENCES PROVED THE APPELLANT S CONTENTION QUESTION OF REFER RING TO CIRCUMSTANTIAL EVIDENCES DOES NOT ARISE AT ALL. CON FIRMATIONS BY ALL TRANSPORTERS OF THE J M ESSENTIAL OIL COMPANY A ND THE FACT THAT NO UNACCOUNTED CASH WAS FOUND DURING SEARCH PROVES THAT ALLEGATIONS MADE BY THE LD. A.O ARE TOTALLY INCORRE CT. 2.6.21 IT IS ALSO NECESSARY TO DEAL WITH THE PRINCI PAL REASONS AS STATED BY THE LD. A.O FOR REJECTING BOOKS OF ACCOUN TS WHICH ARE AS UNDER: A. NO AH WAS SOLD TO JIL OR JPL BY THE ASSESSEE AND SUCH SALES CLAIMED IN THE ASSESSEES BOOKS ARE NOT GENUI NE. B. BY CREATING A DUMMY LIKE NCM AND BY OBTAINING HA WALA BILLS FOR TRANSPORTATION, THE ASSESSEE HAS MANIPULA TED TO GIVE A REAL SHAPE TO THE ALLEGED SALE OF AH AND IN THE GARB OF THE SAME, IT HAS BOUGHT ITS OWN UNACCOUNTED MONE Y ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 25 UNDER THE PURVIEW OF SECTION 801A OF THE INCOME TAX ACT, 1961. C. THE FIGURES RELATED TO QUANTITY MANUFACTURED BY THE ASSESSEE ARE NOT ASCERTAINABLE AND VERIFIABLE AND S ALES FIGURES SHOWN IN THE BOOKS ORE INCORRECT, THE BOOK RESULTS OF THE ASSESSEES BUSINESS ALSO DO NOT GIVE A TRUE AND CORRECT STATE OF HIS AFFAIRS. 2.6.22 IN THE SUBMISSION MADE VIDE LETTER DATED 29. 11.2004, IT IS PROVED BEYOND DOUBT AND WITH DOCUMENTARY EVIDENCES THAT THE APPELLANT MANUFACTURED ATTAR HINA AND THE SALE OF THE SAME TO JIL AND JPL AS RECORDED IN THE REGULAR BOOKS OF ACC OUNTS IS ALSO PROVED BY THE APPELLANT WITH EVIDENCES. THUS ALLEGA TION OF THE LD. AO THAT NO AH WAS SOLD TO JIL OR JPL BY THE APP ELLANT AND SUCH SALES CLAIMED IN THE APPELLANTS BOOKS ARE NOT GENU INE IS INCORRECT AND FAR AWAY FRO THE FACTS. 2.6.23 ALLEGATION OF LD. AO THAT SHRI NEMICHAND MEH TA WAS A DUMMY IS TOTALLY INCORRECT AS HE IS ONE OF THE DIRE CTORS OF JIL AND JPL , COMPANIES TO WHOM APPELLANT SOLD GOODS AND IN HIS STATEMENT HE CATEGORICALLY ADMITTED OF RECEIVING A TTAR HINA FROM THE APPELLANT AS EXPLAINED ABOVE . QUESTION OF BRINGING OWN UNACCOUNTED MONEY DOES NOT APPEAR TO BE BACKED BY E VIDENCE AS NO UNACCOUNTED CASH OR UNACCOUNTED SOURCE OF INC OME WAS FOUND IN THE CASE OF THE APPELLANT DURING THE SEARC H. THE ALLEGATION THAT THE APPELLANT BROUGHT ITS OWN UNACC OUNTED MONEY IS THUS BASED ON PRESUMPTIONS AND SURMISES. 2.6.24 QUANTITY WISE DETAILS OF LIQUID PARAFFIN PUR CHASED DURING BLOCK PERIOD, QTY. WISE DETAILS OF ATTAR HINA PRODU CED DURING THE BLOCK PERIOD, QUANTITY WISE DETAILS OF ITEMS, PRODU CED DURING THE BLOCK PERIOD WERE SUBMITTED DURING THE ASSESSMENT P ROCEEDINGS ON THE BASIS OF THE SAME, IT HAS BEEN AVERRED THAT VERIFICATION OF RAW MATERIAL REGISTERS, ISSUE SLIPS AND PRODUCTION REGISTERS ( FEW OF THEM SEIZED DURING THE SEARCH) CLEARLY SHOW QUAN TITY WISE DETAILS OF PRODUCT MANUFACTURED BY THE APPELLANT. 2.6.25 SALES MADE BY THE APPELLANT IS PROVED WITH D OCUMENTARY EVIDENCES. BOOK RESULT OF THE APPELLANT HAS BEEN AC CEPTED BY THE DEPARTMENT IN THE EARLIER YEARS, IN THE ORDER OF BL OCK PERIOD OF EARLIER SEARCH AND ORDERS OF REGULAR ASSESSMENTS. 2.6.26 IN VIEW OF THIS, ALLEGATION OF THE LD. AO TH AT FIGURES RELATED TO QUANTITY MANUFACTURED BY THE ASSESSEE ARE NOT AS CERTAINABLE AND VERIFIABLE AND SALES FIGURES SHOWN IN THE BOOKS ARE INCORRECT AND THAT THE BOOK RESULTS OF THE APPELLANTS BUSINE SS ALSO NOT GIVE A TRUE AND CORRECT STATE HIS AFFAIRS IS NOT BO RNE BY RECORDS. 2.6.27 LD. AO HAS MADE REFERENCE TO VARIOUS CIRCUMS TANTIAL EVIDENCES TO PROVE HIS CONTENTION TOTALLY IGNORING THE FACTS OF THE ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 26 CASE AND DOCUMENTARY EVIDENCES SUPPORTING THE FACTS OF THE CASE. FOR RELYING ON CIRCUMSTANTIAL EVIDENCES, LD. AO HAS RELIED ON VARIOUS DECISIONS. AS STATED ABOVE, THE FACT OF MANUFACTURING OF ATTAR HINA AND ITS SALES TO JIL AND JPL BY THE A PPELLANT COMPANY IS PROVED BY PLETHORA OF EVIDENCES BOTH EXT ERNAL AS WELL AS INTERNAL AND IN VIEW OF THIS, QUESTION OF R ELYING ON THE CIRCUMSTANTIAL EVIDENCES DOES NOT ARISE. CIRCUMSTAN TIAL EVIDENCES CAN BE RELIED UPON AND CAN BE TAKEN AS SU PPORT ONLY WHEN NO DIRECT EVIDENCES ARE AVAILABLE. 17. FURTHER THE CIT(A) HAS ALSO DISCUSSED THE RELEV ANT EVIDENCE AND FACTS AND GIVEN THE FINDING REGARDING DISALLOWANCE OF TRANSPORT EXPENSES IN PARA 2.6.56 TO 2.7.3 AS UNDER: 2.6.56 IT IS ALSO PERTINENT TO REFER TO THE ITATS DECISION IN APPELLANTS OWN CASE IN ITA NO. (S&S) 18/MUM/2000 F OR BLOCK PERIOD 1988-89 TO 1997-98 DATED 26.5.2004 WHEREIN T HIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE APPELLANT. 2.6.58. IN VIEW OF THE ABOVE, THE LD. AOS ALLEGATI ON ABOUT INFLATION OF SALES INVOLVING THE SO CALLED NON EXIS TING TRANSPORTERS AND DISALLOWANCE OF THE CLAIM U/S.801A IS FAR AWAY FROM FACTS. ON THE CONTRARY, IDENTITY OF TRANSPORTERS IS VERY MUCH ESTABLISHED. FACT THAT APPELLANT TRANSPORTED GOODS THROUGH BOTH THESE TRANSPORT COMPANIES AS CONFIRMED BY WAY OF AFFIDAVI TS, RECEIPT OF GOODS BY RASIK TRADING AND RAMA FRAGRANCE THROUGH T HESE TRANSPORT COMPANIES FROM J M ESSENTIAL OIL COMPANY CONFIRMED BY BOTH THE CONSIGNEES PROVES BEYOND DOUBT THE GENU INENESS OF SALES THROUGH THESE TRANSPORT COMPANIES AND IN VIEW OF THIS, CONTENTION OF THE LD. AO TO DISALLOW DEDUCTION U/S. 801A TO THE EXTENT OF SALES VALUE OF GOODS THROUGH THESE TRANSP ORT COMPANIES DURING THE BLOCK PERIOD APPEARS TO BE BAS ELESS, ARBITRARY AND BASED ON SURMISES AND PRESUMPTIONS AN D IS DIRECTED TO BE CANCELLED AND DEDUCTION U/S.801A IS TO BE ALLOWED IN RESPECT OF SALES VALUE OF GOODS DISPATCHED THROU GH THESE TRANSPORT COMPANIES DURING THE BLOCK PERIOD. THEREF ORE, ADDITION OF RS. 17,040/- IS ALSO DELETED. 2.7.1 LD. AO STATED THAT IN VIEW OF THE STATEMENTS OF PERSONS BEHIND THE HAWALA BILL OPERATIONS OF M/S KALPATARU ROADLINES & M/S SIDDHI VINAYAK EXPRESS CARGO CO., NOTIONAL HAWA LA CHARGES PAID BY THE APPELLANT @ 6% WERE ALSO DISALLOWED BEI NG MADE FROM UNDISCLOSED SOURCES. ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 27 AY M/S KALPATARU ROADLINES: M/S SIDDHI VINAYAK 2001-02 301.20 - 1/04/2001 TO 14/03/2002 325.2 721.2 2.7.2 LD. AG ADDED RS.626/- BEING 6% OF FLOTIONAL T RANSPORT CHARGES OF RS.10,440/- PAID TO M/S KALPATARU ROADLI NES AS HAWALA CHARGES PAID BY THE APPELLANT AND RS.721.2 TO M/S SIDDHI VINAYAK EXPRESS CARGO CO.. 2.7.3 APPELLANT SUBMITTED THAT IN VIEW OF THE SUBMI SSIONS MADE, ACTUAL TRANSPORTATION OF APPELLANTS GOODS BY THE T RANSPORTER IS BEYOND ANY DOUBT AND DOCUMENTARY EVIDENCES IN SUPPO RT OF THIS SUCH AS CONFIRMATIONS OF BOTH THE CONSIGNEES, AFFID AVIT FROM SHRI DHIREN SHAH, PROPRIETOR OF M/S KALPATARU ROADLINES PROVES THE TRANSPORTATION OF GOODS. QUESTION OF HAWALA BILLS A ND CHARGES FOR THE SAME DOES NOT ARISE AT ALL. THUS, THIS ADDITION IS ARBITRARY AND WITHOUT APPRECIATING DOCUMENTARY EVIDENCES ON RECOR D NEEDS TO BE DELETED. IN VIEW OF THE DETAILED DISCUSSION SUPR A, I FIND CONSIDERABLE FORCE IN THESE ARGUMENTS AND HENCE:, D IRECT THE LD. A.O. TO DELETE THE ADDITION. 18. THE CIT(A) HAS REVERSED THE ACTION OF THE A.O I N REJECTING THE BOOKS OF ACCOUNT AS WELL AS DISALLOWANCE OF TRANSPORTATIO N EXPENSES WHICH HAS NOT BEEN CHALLENGED BY THE REVENUE. THEREFORE, WE D O NOT FIND ANY MERIT OR SUBSTANCE IN THE APPEAL OF THE REVENUE WHEN THE PURCHASE OF RAW MATERIAL, MANUFACTURING ACTIVITY OF AH AND OTHER EX PENSES ARE NOT DISPUTED THEN TREATING THE SALE OF AH TO ONE PARTY AS BOGUS WITHOUT ANY COGENT MATERIAL IS NOT JUSTIFIED. FURTHER NO DISCRE PANCY WAS FOUND IN THE NET PROFIT RATIO OVER THE YEARS WHICH WAS ACCEPTED BY THE REVENUE IN THE LAST 5 ASSESSMENT YEARS AS WELL AS IN THE EARLIER B LOCK ASSESSMENT. IN VIEW OF THE ABOVE DISCUSSION AND IN THE FACTS AND CIRCUM STANCES WE UPHOLD THE IMPUGNED ORDER OF THE CIT(A). ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 28 19. THE ASSESSEE HAS ALSO RAISED A FRESH PLEA REGAR DING VALIDITY OF BLOCK ASSESSMENT U/S 158BC FOR WANT OF NOTICE U/S 143(2). THE LD. AR HAS SUBMITTED THAT THE ASSESSING OFFICER HAS NO JURISDI CTION TO INITIATE THE BLOCK ASSESSMENT WITHOUT ISSUING THE NOTICE U/S 143 (2) THEREFORE, THIS ISSUE IS PURELY LEGAL WHICH DOES NOT REQUIRED ANY I NVESTIGATION OR VERIFICATION OF ACTS. THE LD. AR OF THE ASSESSEE HA S SUBMITTED THAT THOUGH THIS ISSUE HAS BEEN RAISED FIRST TIME BEFORE THIS T RIBUNAL HOWEVER, KEEPING IN VIEW THE LEGAL NATURE OF THE ISSUE WHICH GOES TO THE ROOT OF THE MATTER IT IS PERMITTED TO RAISE SUCH A PLEA AT THIS STAGE. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN CASE OF NATIONAL THERMAL POWER CO. LTD. VS CIT 229 ITR 383. THE LD. AR OF THE ASSESSEE HAS FURTHER SUBMITTED THAT THOUGH THE ASSE SSEE HAS NOT FILED ANY APPEAL AGAINST THE IMPUGNED ORDER OF THE CIT(A) HOW EVER, UNDER RULE 11 AND RULE 27 OF THE INCOME TAX APPELLATE TRIBUNAL RU LE THE ASSESSEE CAN RAISE A FRESH PLEA. HE HAS RELIED UPON THE DECISION OF HONBLE JURISDICTION HIGH COURT IN CASE OF CIT VS GILBERT AND BARKER MAN UFACTURING CO., USA 111 ITR 529 AND SUBMITTED THAT THE HONBLE HIGH COU RT HAS HELD THAT THE TRIBUNAL HAS DISCRETION TO ALLOW ANY PARTY TO AN AP PEAL MAY BE THE APPELLANT OR THE RESPONDENT TO RAISE A NEW POINT OR NEW CONTENTION PROVIDED THE TWO CONDITIONS ARE SATISFIED NAMELY NO NEW FACTS ARE REQUIRED TO BE BROUGHT ON RECORD FOR DISPOSING OF S UCH NEW POINT AND OPPORTUNITY TO BE GIVEN TO THE OTHER SIDE TO MEET T HE POINT. THUS, THE LD. AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMI TTED THAT A LEGAL ISSUE WHICH DOES NOT REQUIRE ANY NEW FACT TO BE BRO UGHT ON RECORD CAN BE RAISED ON THE VALIDITY OF THE BLOCK ASSESSMENT U/S 158BC. THE LD. AR OF ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 29 THE ASSESSEE HAS SUBMITTED THAT THE AO HAS NOT ISSU ED NOTICE U/S 143(2) THEREFORE, THE ORDER PASSED BY THE AO IS WITHOUT JU RISDICTION. HE HAS RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN CASE OF HOTEL BLUE MOON 321 ITR 362 AS WELL AS THE DECISION OF HONBLE DELH I HIGH COURT IN CASE OF CIT VS CPR CAPITAL SERVICES LTD. 330 ITR 43. 20. ON THE OTHER HAND, THE LD. CIT DR HAS SUBMITTED THAT THE AO HAS ISSUED A COMPOSITE NOTICE U/S 142(1) AND 143(2). TH E LD. DR HAS REFERRED THE LETTER OF THE AO WHEREBY VARIOUS QUERIES WERE R AISED AS WELL AS THE ASSESSEE WAS ASKED THE REQUIRED COMPLIANCE IN RESPE CT OF VARIOUS POINTS. THE LD. DR HAS SUBMITTED THAT THIS LETTER SPECIFICA LLY MENTIONED THAT THE NOTICES U/S 142(1)/143(2) ARE ENCLOSED THEREFORE, E VEN IF THE NOTICE UNDER INCOME TAX NON-STATUTORY PERFORMA DOES NOT SPECIFIC ALLY MENTION SECTION 143(2) THE CONTENTS OF LETTER DATED 23.5.2003 SATIS FY THE REQUIREMENT OF SECTION 143(2). THE LD. DR HAS FURTHER SUBMITTED TH AT THE AO HAS RAISED VARIOUS QUERIES IN RESPECT OF THE CLAIMS OF THE ASS ESSEE WHICH AMOUNTS TO REPUDIATE OF THE RETURN OF INCOME FILED U/S 158BC. THE LD. DR HAS SUBMITTED THAT THE HONBLE SUPREME COURT IN CASE OF HOTEL BLUE MOON HAS OBSERVED THAT BY ISSUING THE NOTICE U/S 143(2) THE AO REPUDIATE THE RETURN OF INCOME. THIS CONDITION HAS BEEN SATISFIED IN THE CASE OF THE ASSESSEE BY ISSUING LETTER DATED 23.5.2003. THUS, THE LD. DR HA S SUBMITTED EVEN IF A SEPARATE NOTICE U/S 143(2) IS NOT ISSUED IN THE PER FORMA, THE LETTER DATED 23.5.2003 ITSELF SATISFIES THE REQUIREMENT OF SECTI ON 143(2). THE LD. DR HAS ALSO REFERRED THE REPLY OF THE ASSESSEE TO THE SAID LETTER DATED 23.5.2003 OF THE AO MENTIONING NOTICE U/S 143(2), 1 42(1). FURTHER THE ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 30 ASSESSEE PARTICIPATED IN THE PROCEEDINGS, INVESTIGA TION AND INQUIRY IN RESPONSE TO THE LETTER ISSUED BY THE AO. THUS, THE ASSESSEE DID NOT RAISE ANY OBJECTION REGARDING THE NOTICE U/S 143(2) DURIN G THE ASSESSMENT PROCEEDINGS AS THE ASSESSEE ALSO ACCEPTED THE LETTE R DATED 23.5.2003 AS NOTICE U/S 143(2). THE LD. DR HAS ALSO CONTENDED TH AT THE CO-JOINED NOTICE U/S 143(2), 142(1) IS ALSO PERMISSIBLE AS HELD BY T HE HONBLE MADRAS HIGH COURT IN CASE OF DEVARAJAN (I.) V. TAMIL NADU FARME RS SERVICE CO-OPERATIVE FEDERATION 131 ITR 506. EVEN OTHERWISE IT IS ONLY A MINOR IRREGULARITY AND NOT ILLEGALITY BECAUSE IN THE PERFORMA NOTICE SECTI ON 143(2) IS NOT MENTIONED. THE ASSESSEE HAS COOPERATED AND PARTICIP ATED IN THE ASSESSMENT THEREFORE, THE SAID THE IRREGULARITY HAS BEEN CURED. HE HAS REFERRED SECTION 292B OF THE INCOME TAX ACT AND SUB MITTED THAT THE ASSESSMENT CANNOT BE DEEMED TO BE INVALID MERELY BY THE REASON OF A MISTAKE IN THE NOTICE. 21. IN REBUTTAL THE LD. AR HAS SUBMITTED THAT THE A O HAS ISSUED ONLY A NOTICE U/S 142(1) AND THERE IS NO NOTICE U/S 143(2) . THE LETTER DATED 23.5.2003 IS AN ANNEXURE TO NOTICE U/S 142(1) AND T HEREFORE, THE REQUIREMENT OF SECTION 143(2) ARE NOT SATISFIED. EV EN IN A COMBINED NOTICE THE REQUIREMENT OF BOTH THE SECTIONS ARE TO BE SATI SFIED WHICH ARE NOT SATISFIED IN THE CASE OF THE ASSESSEE. IT IS NOT A MISTAKE BUT THE ILLEGALITY BECAUSE THE MANDATORY REQUIREMENT WAS NOT FULFILLED . 22. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL AND DECISIONS RELIED UPON BY THE PARTIES W E ARE OF THE VIEW THAT ANY PARTY TO THE APPEAL CAN RAISE A FRESH PLEA SUBJ ECT TO THE FULFILMENT OF ITA NO.IT(SS)A 24/M/2012 SHRI J. M. JOSHI 31 CONDITION THAT NO NEW FACTS ARE TO BE BROUGHT ON RE CORD FOR DISPOSING OF SUCH NEW POINT AND AN OPPORTUNITY IS GIVEN TO THE O THER SIDE TO MEET THE POINT AS HELD BY THE HONBLE JURISDICTION HIGH COUR T IN CASE OF CIT VS GILBERT AND BARKER MANUFACTURING CO., USA (SUPRA). HOWEVER, IN VIEW OF OUR FINDING ON THE MERITS OF THE CASE WHEREBY THE A PPEAL OF THE REVENUE IS DISMISSED, WE DO NOT PROPOSE TO ADJUDICATE THIS NEW PLEA RAISED BY THE ASSESSEE BEING ACADEMIC. 23. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF OCTOBER 2013 SD/- SD/- ( . . ! ) ' #$ (N. K. BILLAIYA) ACCOUNTANT MEMBER ( ) % #$ (VIJAY PAL RAO) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 31 ST OCTOBER 2013 SUBODH COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI