The ACIT, Circle-2, RAJKOT-GUJARAT V. Shri Manubhai Maganlal Mehta, Prop. Swaraj Steel, RAJKOT-GUJARAT

ITSSA 41/RJT/2010

• Counselvise Citation: [2011] 124 COUNSELVISE.COM (IT) 8354 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 1 month(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: misc
• Appeal Filed On: 13-04-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PRABHAT JAIN
• Assessee Lawyers: S L MEENA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI N.R.S. GANESA N (JM) IT(SS) A NO.34/RJT/2010 (BLOCK PERIOD FY 1989-90 TO 21-10-1999) SHRI MANUBHAI MAGANLAL MEHTA VS THE ACIT, CIR.3 C/O TANISHQ, DR. YAGNIK ROAD RAJKOT OPP HOTEL IMPERIAL PALACE RAJKOT PAN : ACDPM4760G (APPELLANT) (RESPONDENT) IT(SS) A NO.41/RJT/2010 (BLOCK PERIOD FY 1989-90 TO 21-10-1999) ACIT, CIR.2 VS SHRI MANUBHAI MAGANLAL MEHTA RAJKOT RAJKOT (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PRABHAT JAIN RESPONDENT BY: SHRI SL MEENA O R D E R PER N.R.S. GANESAN, JM BOTH THE APPEAL OF THE ASSESSEE AND REVENUE ARE DI RECTED AGAINST THE ORDER OF CIT(A)-III, RAJKOT DATED 04-01-2010 AND PE RTAIN TO BLOCK PERIOD FY 1989- 90 TO 21-10-1999. 2. THE FIRST ISSUE THAT ARISES IN BOTH THE APPEALS FOR CONSIDERATION IS DETERMINATION OF UNDISCLOSED INCOME. SHRI PRABHAT JAIN, THE LD.REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THERE WAS A SEARCH IN T HE PREMISES OF THE ASSESSEE ON 21-10-1999. THE ASSESSEE FILED RETURN OF INCOME DISCLOSING AN UNDISCLOSED INCOME OF RS.20,27,590. HOWEVER, THE ASSESSING OFF ICER COMPUTED THE UNDISCLOSED INCOME AT RS.33,01,679. THE LEARNED RE PRESENTATIVE FURTHER SUBMITTED THAT DURING THE COURSE OF SEARCH OPERATIO N SOME NOTE BOOKS AND DIARY WAS FOUND AND SEIZED. THE SAID NOTE BOOKS WERE MAI NTAINED BY THE WORKERS ITSS NO.34 & 41/RJT/2010 2 WHICH CONTAINED THE DETAILS OF PARTS AND COMPONENTS PRODUCED BY THEM ON DAY TO DAY BASIS. ON THE BASIS OF THE ENTRIES FOUND IN TH E NOTE BOOK, THE WAGES WAS PAID TO THE EMPLOYEES. ACCORDING TO THE LEARNED RE PRESENTATIVE, EACH WORKER ENGAGED HIMSELF IN PRODUCTION OF VARIOUS PARTS OF S TOVE. THEREFORE, THE DETAILS CONTAINED IN THE WORKERS NOTE BOOK CANNOT BE TAKEN AS THE PRODUCTION OF FINISHED GOODS, VIZ. KEROSENE WICK STOVE. THE PARTICULARS C ONTAINED IN THE WORKERS BOOK ARE WITH REGARD TO PRODUCTION OF COMPONENTS / PARTS OF THE STOVE AND NOT THE STOVE ITSELF. THEREFORE, THE WORKERS NOTE BOOK CAN NOT BE A BASIS FOR MAKING ANY ADDITION. THE LEARNED REPRESENTATIVE FURTHER SUBMI TTED THAT THE STATEMENT FROM FEW WORKERS WAS ALSO RECORDED ON 21-10-1999. THIS STATEMENT RECORDED ON 21- 10-1999 WAS CONTRARY TO THE STATEMENT RECORDED FROM VERY SAME WORKERS ON 28- 10-1999. THE ASSESSEE WAS NOT GIVEN ANY OPPORTUNIT Y TO CROSS EXAMINE THE SAID WORKERS WITH REGARD TO THE CONTRADICTION FOUND IN T HE STATEMENTS MADE ON 21-10- 1999 AND 28-10-1999. THEREFORE, ACCORDING TO THE L EARNED REPRESENTATIVE, THE UNDISCLOSED INCOME CANNOT BE ESTIMATED ON THE BASIS OF THE STATEMENT OF THE SAID WORKERS. THE LEARNED REPRESENTATIVE FURTHER S UBMITTED THAT THE ASSESSEE IS MAINTAINING BOOKS OF ACCOUNT UNDER THE CENTRAL EXCI SE LAW AND SALES-TAX LAW. THEREFORE, THE PRODUCTION OF THE FINISHED PRODUCT, VIZ. KEROSENE WICK STOVE WAS REGULATED NOT ONLY UNDER ONE OF THE LAWS BUT ALSO R EGULATED BY THE SALES-TAX LAW AND EXCISE LAW, ETC. THE ASSESSEE HAS ALSO MAINTAI NED THE PRODUCTION REGISTER UNDER THE EXCISE LAWS AND THE SALES REGISTER UNDER THE SALES-TAX LAWS. THE DETAILS WERE FURNISHED TO THOSE DEPARTMENTS AND NO DISCREPANCY WHATSOEVER WAS FOUND BY THE CONCERNED DEPARTMENT. THEREFORE, ACCO RDING TO THE LEARNED REPRESENTATIVE, ADDITION MADE BY THE ASSESSING OFFI CER ON THE BASIS OF THE STATEMENT SAID TO BE RECORDED FROM THE WORKERS CANN OT BE SUSTAINED. REFERRING TO THE ORDER OF CIT(A), THE LD.REPRESENTATIVE FOR T HE ASSESSEE SUBMITTED THAT THE CIT(A) FOUND THAT THE ESTIMATION MADE BY THE ASSESS ING OFFICER APPEARS TO BE ARBITRARY AND HAS NO BASIS. AFTER RECORDING THIS F INDING, THE CIT(A) SUSTAINED THE ADDITION OF RS.6 LAKHS WITH REGARD TO THE UNDISCLOS ED INCOME OVER AND ABOVE THE INCOME RETURNED BY THE ASSESSEE. ONCE THE CIT(A) F OUND THAT THE ESTIMATION MADE BY THE ASSESSING OFFICER IS ARBITRARY AND HAS NO BASIS THE QUESTION OF ITSS NO.34 & 41/RJT/2010 3 MAKING ANY FURTHER ADDITION WOULD NOT ARISE FOR CON SIDERATION. ACCORDING TO THE LEARNED REPRESENTATIVE, THE ADDITION HAS TO BE MADE ONLY ON THE BASIS OF THE SEIZED MATERIAL AND THE MATERIAL RELEVANT TO THE SE IZED MATERIAL. IN THE ABSENCE OF ANY MATERIAL THERE CANNOT BE ANY ADDITION ON THE BASIS OF THE SO-CALLED CONTRADICTORY STATEMENT RECORDED FROM THE WORKERS O F THE ASSESSEE. 3. ON THE CONTRARY, SHRI SL MEENA, THE LEARNED DEPA RTMENTAL REPRESENTATIVE SUBMITTED THAT DURING THE COURSE OF SEARCH OPERATIO N COMPUTERIZED STATEMENT WITH REGARD TO VARIOUS STOCK WAS FOUND. THE BOOKS OF ACCOUNT IN THE SHAPE OF NOTE BOOKS, DIARIES WERE FOUND AND SEIZED DURING TH E COURSE OF SEARCH OPERATION. ACCORDING TO THE LD.DR THE DIARY AND NOTE BOOKS FOU ND DURING THE COURSE OF SEARCH OPERATION ARE VERY AUTHENTIC. EACH BOOKS CO NTAINED THE PRESENCE OR ABSENCE OF THE WORKERS. THE COMPONENTS MANUFACTURE D BY THEM ARE ON DAY TO DAY BASIS. SINCE THERE WAS A CONTRADICTION IN THE BOOKS OF ACCOUNT AND SEIZED DIARY, THE ASSESSING OFFICER FOUND THAT THE BOOKS O F ACCOUNT MAINTAINED BY THE ASSESSEE WERE NOT CORRECT. ACCORDINGLY THE ASSESSI NG OFFICER REJECTED THE BOOK RESULTS. THE LD.DR FURTHER SUBMITTED THAT WHEN THE PRODUCTION WAS FOUND OUTSIDE THE BOOKS OF ACCOUNT, THE GROSS PROFIT RATE HAS TO BE APPLIED AT A FIGURE GREATER THAN THE GROSS PROFIT FOR THE GOODS MANUFACTURED AN D REFLECTED IN THE REGULAR BOOKS OF ACCOUNT. REFERRING TO PAGE 5 OF THE PAPER BOOK THE LD.DR SUBMITTED THAT THE ASSESSING OFFICER BROUGHT ON RECORD THE AC TUAL PRODUCTION MADE BY THE ASSESSEE AND THE DIFFERENCE. THEREFORE, IT IS NOT A CASE THAT ONLY ON THE PRODUCTION OF COMPONENTS / PARTS THE ASSESSING OFFI CER HAS TAKEN THE PRODUCTION. THE ASSESSING OFFICER HAS DETERMINED THE ACTUAL PRO DUCTION ON THE BASIS OF THE SEIZED MATERIAL AND THE DIFFERENCE AND THEREAFTER E STIMATED THE GROSS PROFIT ADDITION. THEREFORE, THE CIT(A) COULD NOT HAVE RES TRICTED THE UNDISCLOSED INCOME TO RS.6 LAKHS. REFERRING TO THE ORDER OF THE CIT(A ), THE LD.DR POINTED OUT THAT THE CIT(A) WITHOUT ANY BASIS HAS DELETED THE ADDITION A ND RESTRICTED THE SAME AT RS.6 LAKHS. THEREFORE, THE DEPARTMENT HAS FILED THE APP EAL. ITSS NO.34 & 41/RJT/2010 4 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND HAVE ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. NO DOUBT , THERE WAS A SEARCH OPERATION IN THE PREMISES OF THE ASSESSEE AND INCRI MINATING MATERIALS WERE FOUND AND SEIZED. THE ASSESSEE CLAIMS THAT THE DIARIES A ND NOTE BOOKS MAINTAINED BY THE WORKERS FOR PRODUCTION OF COMPONENTS / PARTS WE RE FOUND AND SEIZED WHICH DID NOT DISCLOSE THE PRODUCTION OF FINISHED PRODUCT . HOWEVER, THE ASSESSING OFFICER, ON THE BASIS OF THE SEIZED MATERIAL BROUGH T ON RECORD THE ACTUAL FINISHED PRODUCT AND THE DIFFERENCE WITH RESPECT TO BOOKS OF ACCOUNT. THE CIT(A) FOUND THAT THE ASSESSEE WAS MAINTAINING BOOKS OF ACCOUNT UNDER EXCISE AND SALES-TAX LAWS AND FILING REGULAR RETURNS WHERE THE ASSESSEE HAS DISCLOSED THE ACTUAL PRODUCTION WHICH HAS BEEN ACCEPTED BY THEM. THE ES TIMATION OF ACTUAL PRODUCTION BY THE ASSESSING OFFICER AS WORKED OUT O N PAGE 5 OF THE ASSESSMENT ORDER WAS FOUND BY THE CIT(A) AS ARBITRARY AND WITH OUT ANY BASIS. HAVING FOUND THAT THE ASSESSING OFFICER ESTIMATED THE TOTAL PROD UCTION ARBITRARILY AND WITHOUT ANY BASIS, THE CIT(A) FOUND THAT THERE WAS SOME DEF ECTS IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. THEREFORE, HE RESTRICT ED THE ADDITION AT RS.6 LAKHS. ONCE THE CIT(A) FOUND THAT THE ASSESSEE WAS MAINTAI NING BOOKS OF ACCOUNT UNDER THE EXCISE LAW AND SALES-TAX LAW PROPERLY AND THERE WAS NO ADDITIONAL PRODUCTION WHERE IS THE QUESTION OF ANY ADDITION. THE CIT(A) PROBABLY CONFIRMED THE ADDITION ON THE BASIS OF THE DEFECTS FOUND DURI NG THE COURSE OF SEARCH OPERATION. THEREFORE, CIT(A) HIMSELF ADMITS THAT T HERE WAS SOME DEFECTS IN THE BOOKS MAINTAINED BY THE ASSESSEE. 5. UNDISCLOSED INCOME HAS TO BE COMPUTED ON THE BAS IS OF THE MATERIAL FOUND DURING THE COURSE OF SEARCH OPERATION OR INFO RMATION AVAILABLE WITH THE ASSESSING OFFICER WHICH RELATES TO THE SEIZED MATER IAL. THE CIT(A) WITHOUT REFERRING TO ANY SEIZED MATERIAL SIMPLY SAYS THAT T HERE ARE VARIOUS DEFECTS AND DETAILS FOUND DURING THE COURSE OF SEARCH OPERATION AND THEREFORE, HE HAS RESTRICTED THE ADDITION AT RS.6 LAKHS. IN OUR OPIN ION, THE METHODOLOGY ADOPTED BY THE CIT(A) IS NOT IN ACCORDANCE WITH LAW. THE CIT( A) HAS TO GIVE A CATEGORICAL FINDING AS TO WHETHER THERE WAS ANY UNACCOUNTED PRO DUCTION OR MATERIAL FOUND ITSS NO.34 & 41/RJT/2010 5 DURING THE COURSE OF SEARCH OPERATION. THE ASSESSI NG OFFICER HAS CATEGORICALLY FOUND THAT THERE WAS AN UNACCOUNTED PRODUCTION. HO WEVER, THE ASSESSING OFFICER HAS NOT TAKEN INTO CONSIDERATION THE RETURNS FILED UNDER THE EXCISE LAW AND SALES- TAX LAW. THE ASSESSEE CLAIMS THAT THE SEIZED MATER IAL, VIZ. THE NOTE BOOKS AND DIARY SHOWED THE PRODUCTION OF COMPONENTS AND THE P ARTS AND NOT THE FINISHED PRODUCT. IF THAT IS SO, HOW THE ASSESSING OFFICER WAS ABLE TO BRING ON RECORD ON PAGE 5 OF THE ASSESSMENT ORDER WITH REGARD TO THE D ETAILS OF FINISHED GOODS. NO MATERIAL IS AVAILABLE ON RECORD OF THE TRIBUNAL. B OTH PARTIES HAVE NOT PRODUCED THE COPIES OF THE SEIZED MATERIAL. IN THE ABSENCE OF ANY MATERIAL, IN OUR OPINION, THE MATTER NEEDS TO BE RECONSIDERED BY THE ASSESSIN G OFFICER. ACCORDINGLY, THE ORDER OF THE LOWER AUTHORITY IS SET ASIDE AND THE E NTIRE ISSUE WITH REGARD TO THE UNDISCLOSED INCOME IS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE-CONSIDER THE ISSUE AFRES H AND THEREAFTER DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER GIVING THE ASSESS EE REASONABLE OPPORTUNITY OF HEARING. 6. IN THE RESULT, BOTH THE APPEAL OF THE ASSESSEE A ND REVENUE ARE ALLOWED, FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 13-05-2011 . SD/- SD/- (A.L. GEHLOT) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER RAJKOT, DT : 13 TH MAY, 2011 PK/- COPY TO: 1. ASSESSEE 2. RESPONDENT 3. THE CIT(A)-III, RAJKOT 4. THE CIT-II, RAJKOT 5. THE DR, I.T.A.T., RAJKOT (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT