SANKET FOOD PRODUCTS P. LTD, JALNA V. ASST. CIT CEN CIR 11, MUMBAI

ITSSA 47/MUM/2010

• Counselvise Citation: [2013] 121 COUNSELVISE.COM (IT) 9362 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 12-07-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 26-06-2013
• Assessment Year: misc
• Appeal Filed On: 29-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GIRIJA DAYAL
• Keywords: Search and seizure; Block assessment; Retraction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E , BENCH, MUMBAI , BEFORE SHRI R.K.GUPTA, JM & SHRI N.K.BILLAIYA , AM IT (SS) A NO. 47 / MUM/ 20 10 ( BLOCK PER I OD FROM A Y 1996 - 97 TO AY 2002 - 03 ) SANKET FOOD PRODUCTS PVT. LTD., A - 9/26, ADDITIONAL MIDC AREA, AURANGABAD ROAD, JALNA - 431 203 VS. A CIT, CC 11 , MUMBAI PAN/GIR NO. : A AECS 0131 P ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : MR. J.P.BAIRAGRA /REVENUE BY : MR. GIR I JA DAYAL DATE OF HEARING : 2 6 TH JUNE, 201 3 DATE OF PRONOUNCEMENT : 12 TH JULY, 2013 O R D E R PER SHRI R.K.GUPTA : TH E ASSESSEE HAS FILED THIS APPEAL AGAINST THE ORDER DATED 2 - 7 - 2010, PASSED BY THE LEARNED CIT(A) FOR THE BLOCK PERIOD AY 1996 - 987 TO AY 2002 - 03 . 2 . THE ASSESSEE IS OBJECTING IN CONFIRMING THE ADD ITION OF RS. 1,00,41,664/ - AS UNDISCLOSED INCOME WHILE COMPLETING THE ASSESSMENT UNDER SECTION 158BC. 3 . BRIEF FACTS OF THE CASE DISCUSSED IN THE ORDER OF THE CIT(A) IN PARA 2.1 AT PAGES 3 & 4 ARE AS UNDER : - 2.1. THE APPELLANT COMPANY WAS ENGAGED IN THE B USINESS OF MANUFACTURING OF PAN MASALA, SCENTED SUPARI AND ALSO GUTKHAS. HOWEVER, THERE WAS A BAN ON MANUFACTURING OF GUTKHA AND THE UNIT WAS CLOSED IN DECEMBER 2002. THE APPELLANT HAD ALSO SET UP A UNIT IT (SS) A NO . 47 / 10 2 FOR MANUFACTURING GUTKHA AT PATPARGANJ, NEW DELHI I N A RENTED PREMISES. APPELLANTS UNITS AT NEW DELHI AND AT A - 9/26, ADDITIONAL MIDC AREA, AURANGABAD ROAD, JALNA - 431 203 WERE RAIDED BY DGCEI ON 8 - 3 - 2002. THE OFFICERS OF CENTRAL EXCISE COMMISSIONRATE, DELHI ALSO RAIDED NEW DELHI UNIT ON 9/3/200 0. SUBSEQUE NTLY, THE APPELLANT WAS SERVED SHOW CAUSE NOTICE NO.NZU/INV 8/2002 DATED 29/8/2003 AND NO. NZU/INV/28/2002/2597 DATED 4/9/2002. APPELLANT'S PATPARGANJ UNIT, NEW DELHI WAS CLOSED DOWN AFTER THE AFORESAID RAID AND THE SAID PREMISES WAS HANDED BACK TO THE OWN ER/LANDLORD AFTER THE SEARCH AND SEIZURE ACTION. THEREAFTER, SEARCH AND SEIZURE U/S.132 OF THE ACT WAS UNDERTAKEN ON 14/3/2002 AT THE APPELLANT'S FACTORY PREMISES AT JALNA. SUBSEQUENTLY, A NOTICE U/S.158BC OF THE ACT WAS ISSUED TO THE APPELLANT ON 20/11120 02 CALLING FOR RETURN FOR THE BLOCK PERIOD COVERING A.Y. 1996 - 07 TO 2001 - 02 AND PART PERIOD FROM 114/2001 TO 14/3/2002. THE SAID NOTICE WAS DULY SERVED ON THE APPELLANT ON 26 - 11 - 2002. IN RESPONSE TO THE SAID NOTICE ISSUED UNDER SECTION 158BC, THE APPELLANT FURNISHED RETURN DECLARING NIL UNDISCLOSED INCOME ON 10/2/2003. LD. ASSESSING OFFICER HAS RELIED ON THE MATERIAL COLLECTED DURING THE SEARCH AND SEIZURE ACTION CARRIED OUT BY CENTRAL EXCISE DEPARTMENT, PARTICULARLY, CENTRAL EXCISE COMMISSIONERATE,DELHI A ND DGCEI. HE ALSO RELIED ON THE INFORMATION FURNISHED BY ONE SHRI SUDHIR KHANNA, A CLOSE ASSOCIATE OF THE APPELLANT, WHO HAD GIVEN STATEMENT ON OATH TO THE CENTRAL EXCISE AUTHORITY, ON THE BASIS OF WHICH THE SHOW CAUSE NOTICES AS PREVIOUSLY MENTIONED WERE ISSUED TO THE APPELLANT. LD. ASSESSING OFFICER HAS OBSERVED THAT EXCISE CENTRAL DELHI DIRECTORATE, NEW DELHI VIDE F.NO.NZU/NIV/28/2002/2631 DATED 29/8/2003 HAS ALLEGED THAT THE PRESENT APPELLANT EVADED EXCISE DUTY AMOUNTING TO RS.4,21,99,088/ - ON ASSESSAB LE VALUE OF RS.7,03,31,814/ - OF GOA 1000 GUTKHA MANUFACTURED AND CLEARED WITHOUT PAYING NECESSARY DUTY FOR THE PERIOD 15/9/2001 TO 28/2/2002. HOWEVER, EVASION OF EXCISE DUTY OF RS.5,72,832/ - WAS ALLEGED ON MANUFACTURING OF GOA 1000 GUTKHA DURING 113/2002 T O 8/3/2002. THE ASSESSABLE VALUE OF THE SAME WAS REPORTED AT RS.9,54,720/ - . THESE ARE DISCUSSED IN ANNEXURE A - 4 AND ANNEXURE A - 5 OF THE SAID SHOW CAUSE NOTICE (S CN). 3.1 THEREAFTER THE ASSESSMENT PROCEEDING WAS STARTED AND THE ASSESSEE WAS ASKED TO EXPLA IN THE CONTENTS OF THE SHOW CAUSE NOTICE ISSUED BY THE OFFICE OF CENTRAL EXCISE. IT WAS EXPLAINED BEFORE THE AO VIDE LETTER DATED 18 - 3 - 2004, WHICH ARE AS UNDER : - I) THE SEARCH BY THE CENTRAL EXCISE AUTHORITIES AT BUSINESS PREMISES OF THE ASSESSEE WAS CARR IED OUT ON 8 - 03 - 2002 WHER E AS THE EVIDENCE TO SHOW DISPATCH OF UNACCOUNTED FI N I S H ED GOODS (RAILWAY RECEIPTS ) PERTAINING TO 21 - 06 - 2002 LEADING TO NON - COR A BORATI ON BETWEEN THE TWO EVENTS. IT WAS IT (SS) A NO . 47 / 10 3 FURTHER CONT ENDED THAT THE EVIDENCE IN THE FORM OF RAILWAY RECEI PTS ETC. WERE NOT FOUND IN THE ASSESSEES OWN BUSINESS PREMISES. II) MR. SUDHIR KHANNA , ON WHOSE STATEMENT IS THE SHOW - NOTICE PRIMARILY BASED HAS RETRACTED FROM HIS STATEMENT ON THE GROUNDS THAT THE SAME WERE TAKEN ON APPLICATION OF FORCE AND COERCION IMM EDIATELY THEREAFTER. II) RELYING ON THE DECISION IN THE CASE OF CBI VS. VC SHUKLA, (1998) 3 SCC 410 AND ADDL. CIT BOMBAY CITY - 1 VS. LATA MANGESHKAR - 97 ITR 696, IT WAS ARGUE D THAT EVIDENCE FO UND AT THIRD PARTY PREMISES SHOULD NOT BE TREATED AS CON C LU SI VE PR OOF TO ARRIVE AT ANY ADVERSE FINDINGS AGAINST THE ASSESSEE. IV) AS PER THE SEARCH CARRIED OUT BY THE EXCISE AUTHORITIES AT THE BUSINESS PREMISES OF THE ASSESSEE AT DELHI, ONLY 3 MACHINES WERE FOUND IN OPERATION, IMPLYING THERE BY THAT IT WAS IMPOSSIBLE TO MANUFACTURE SUCH HUGE QUANTITY OF 14.25 CRORE POUCHES BY THE ASSESSEE DURING THE SPAN OF 140 WORKING DAYS FROM 15 - 9 - 2001 TO 28 - 2 - 2002. V) SINCE IT IS ONLY A SHOW CAUSE NOTICE RAISING ALLEGATIONS AND NOT A FINAL ORDER OF ADJUDICATION, IT IS PREMATURE TO DR AW ANY CONCLUSION ON THE BASIS OF SHOW CAUSE NOTICE. ASSESSEE HAS CONTENDED THAT IT HAS NOT GOT ANY OPPORTUNITY TO REBUTE THE CHARGES LEVIED AGAINST HIM BY THE EXCISE AUTHORITIES. 3.2 THEREAFTER THE AO, WHO WAS NOT SATISFIED WITH THE EXPLANATION, HELD T HAT THE ASSESSEE HAS BEEN INDULGED IN SALE PURCHASE OF GUTKHAS OUTSIDE THE BOOKS OF ACCOUNT. THE AO HAS OBSERVED IN HIS ORDER THAT DURING THE SEARCH, ASSESSEES PREMISES AT DELHI ALONG WITH THE PREMISES OF HIS CLOSE BUSINESS ASSOCIATES RESIDING THERE. IT I S ON THE BASIS OF MATERIAL GATHERED DURING THE SEARCH AND VARIOUS STATEMENT RECORDED BY THE EXCISE AUTHORITY, WHO HAD COME TO THE CONCLUSION THAT THE ASSESSEE WAS ENGAGED IN THE CLANDESTINE MANUFACTURING AND REMOVAL OF GOODS WITHOUT DISCLOSING THE SAME IN THE BOOKS. THE AO FURTHER OBSERVED THAT IN HIS ORDER THAT AFTER PERUSAL OF THE ENTIRE SEIZED MATERIALS AND MAKING DETAILED INVESTIGATION IN THE LIGHT OF STATEMENTS OF VARIOUS PERSONS, AS EVIDENT FROM THE SHOW CAUSE NOTICE DATED 29 - 8 - IT (SS) A NO . 47 / 10 4 2003 ISSUED TO THE ASSE SSEE, THE EXCISE AUTHORITIES HAVE REACHED TO THE FOLLOWING CONCLUSION : - (A) AS MENTIONED IN ANNEXURES A - 4, TO THE ABOVE SHOW CAUSE NOTICE, 6867 BORAS (GUNNY SACKS) OF GOA (1000) GUTKHA WERE REMOVED WITHOUT PAYMENT OF NECESSARY EXCISE DUTY IN CLANDESTINE MANNER AND WITHOUT RECORDING THE SAME IN BOOKS. THEREFORE, NUMBER OF PURCHASES CONTAINED IN THESE BORAS WORK OUT AS UNDER : - NO. OF PURCH ES : 6867 BORAS X 6 BAGS X 51 PACKETS X 67 POUCHES == 1 4.07,87,234 PURCHES (B) AS MENTIONED IN ANNEXURE A - 5 TO THE AB OVE SHOW CAUSE NOTICE, 104 BORAS OF GOO (1000) GURKHA WERE AL SO REMOVED WITHOUT PAYMENT OF NECESSARY EXCISE DUTY IN CLANDESTINE MANNER AND WITHOUT RECORDING THE SAME IN BOOKS. THE TOTAL NUMBER OF POUCHES CONTAINED IN THESE BORAS WORK OUT AS UNDER: NO. OF POUCHES : 104 BORAS X 6 BAGS X 51 PACKETS X 67 POUCHES = 21,32,208 POUCHES. THUS THE TOTAL NUMBER OF POUCHES DISPATCHED FOR SALE OUTSIDE BOOKS AS PER THE FINDINGS OF EXCISE AUTHORITIES IN THEIR SHOW CAUSE NOTICE IS - 14,07,,87,234 + 21,32,208 = 14,29,19,44 2/ - POUCHES OF GUTKHA AS EVIDENT FROM THE RECORDS, ASSESSEE SELLS EACH POUCH @ 0.60 PAISE TO ITS IMMEDIATE DISTRIBUTOR AND THEREFORE, THE SE PRICE 14 .29,19,442 POUCHES WORKS OUT AT &.8,57,5.1.6651/ - . THIS WILL THEREFORE BE THE TOTAL SALE CONSI DERATION OF GU TKHA POUCHES MANUF ACTURED OUTSIDE BOO KS. DURING THE RELEVANT PERIOD. THE ASSESSEE HAS SHOWN GROSS PROFIT @ 10.81% WHICH, WHEN ROUNDED OFF, COMES OUT AT II%. THEREFORE, ON THE ALLEGED UNACCOUNTED SALE OF GUTKHA POUCHES, WHEN 11 %. THEREFORE, ON THE ALLEGED U NACCOUNTED SALE OF GUTKHA POUCHES, WHEN 11% GROSS PROFIT IS APPLIED, THE UNDISCLOSED INCOME WORKS OUT AT RS. 94,32,683/ - (RELEVANT FOR AY 2002 - 03) ON THE BASIS OF THE SAID SHOW CAUSE NOTICE. THE NEXT ISSUE WILL BE TO ASCERTAIN THE INITIAL AMOUNT INVESTED B Y THE ASSESSEE IN PROCURING RAW MATERIALS AND MAKING OTHER RELATED EXPENSES IN THE INITIAL MANUFACTURING OF UNACCOUNTED GUTKHA . AS NOTICED FROM THE INFORMATION AVAILABLE IN TH E SHOW CAUSE NOTICE, 14,29,19,442/ - POUCHES WERE MANUFACTURED WITHIN A SPAN OF 14 0 DAYS. THEREFORE, PRODUCTION PER DAY WOULD WO RK OUT AT 10.20.853 POUCHES ON AN AVERAGE. A WORKING IS BEING DONE AS UNDER TO DETERMINE AS TO HOW IT (SS) A NO . 47 / 10 5 MUCH INITIAL COST IS NEEDED TO PRODUCE 10.20,853 NUMBER OF POUCHES - ONE POUCH O F GUTKA WEIGHS - 1.6 GMS TOT AL QUANTITY OF GUTKHA IN 10,20,853 POUCHES = 10,20,853 X 1.6 = 1633.36 KG COSTING IN RESPECT OF PRODUCTION 0000 KGS OF GUTKA : SRL.NO. INGREDIENT AVERAGE QUANTITY OF INGREDIENT IN 100 KG OF GUTKHA AVERAGE RATE (RS.) TOTAL (RS.) 1. SUPARI 87KGS 50 4,3 00 3. LIME POWDER 2KGS 10 20 4. CATECHU 8.5KGS 300 2.550 5 . TOBACCO 8.75KGS 130 1,138 6 . CARDAMOM 8.75 KGS 300 300 7 . MENTHOD 1 KG 470 282 8 . LESS:PROCESS LOSS 0.60 KG 9 . LAMINATION 7.85KGT(APPRX.) 150 3,750 10 . POLYTHENE BAG 25KS 0.65 608 11 . COTTON BAG 935PCS 16 304 19 PCS TOTAL 13,911 THUS, TO PRODUCE 100 KG OF GUTKHA, COST IS RS.I3, 9111 - . THERE FORE COST FOR MANUFACTURING 1633.36 KG OFGUTKHA COMES AT RS.2, 27,2171 - PER DAY. IF WE TAKE INTO CONSIDERATION THE NORMAL BUSINESS PRACTICE THAT ONE DAY IS TAKEN IN PRODUCTION, THE NEXT DAY IN SALES AND THE SALE CONSIDERATION IS RECEIVED BY THE END OF THE THIRD DAY, A ROLLING PERIOD OF THREE DAYS IS INVOLVED FOR SUSTAINING INITIAL PRODUCTION. HENCE, THE INITIAL INVESTMENT IN RAW MATERIALS ETC. WORKS OUT AT RS.2,27,217 X 3 = RS. 6,81. 650/ - , THEREFORE, AN AMOUNT OF RS.6,81,6501 - REQUIRES TO BE CONSID ERED AS UNACCOUNTED INITIAL MONEY POURED IN BY THE ASSESSEE FOR STARTING THE UNACCOUNTED MANUFACTURING ACTIVITY IN THE YEAR RE LEVANT TO A. Y 2002 - 03, AS ALLEGED IN THE SAID SHOW CAUSE NOTICE. ' 3.3 IN THIS WAY, THE AO MADE AN ADDITION OF RS. 1,00,41,664/ - TO PROTECT THE INTEREST OF REVENUE AND TO KEEP THE ISSUE ALIVE TI LL THE IT (SS) A NO . 47 / 10 6 CENTRAL EXCISE SCN GETS ADJUDICATED BY THE EXCISE AUTHORITIES INCLUDING CEGAT, NEW DELHI. 4 . ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A) , BEFORE WHOM IT WAS STRONGLY ARGUED THAT THE ADDITION MADE ON THE BASIS OF CENTRAL EXCISE AUTHORITY RAID CONDUCT ED ON THE JALANA AND NEW DELHI PREMISES OF THE ASSESSEE AND ALSO ON THE BASIS OF STATEMENT RECORDED OF SHRI SUDHIR KHANNA, AN ASSOCIATE OF THE ASSESSEE COMPANY. IT WAS ARGUED THAT THE SAID SHRI SUDHIR KHANNA HAD RETRACTED HIS STATEMENTS GIVEN TO CENTRAL EX CISE AUTHORITY. IT WAS FURTHER ARGUED THAT EVIDENCES FOUND FROM THIRD PARTY PREMISES SHOULD NOT BE TREATED AS CONCLUSIVE PROOF TO ARRIVE AT ANY ADVERSE FINDINGS AGAINST THE ASSESSEE. RELIANCE WAS PLACED ON THE DECISION IN THE CASE OF CBI VS. V.C.SHUKLA, RE PORTED IN (1998)3 SCC 410 AND IN THE CASE OF ACIT, BOMBAY CITY - I VS. LATA MANGESHKAR, REPORTED IN (1973) 97 ITR 696 (BOM) . IT WAS FURTHER STATED THAT TWO NOTICES WERE ISSUED ON THE ASSESSEE AND IN RESPECT TO NOTICES ISSUED FOR JALANA UNIT, THE CENTRAL EXCI SE DEPARTMENT PASSED AN ORDER AGAINST THE ASSESSEE, WHICH WAS CHALLENGED BEFORE THE CEGAT, NEW DELHI, WHO HAS QUASHED THE ORDER PASSED BY THE CENTRAL EXCISE AUTHORITY. IT WAS FURTHER STATED THAT ON SIMILAR FACTS, THE NOTICES WERE ISSUED IN RESPECT TO DELHI UNIT AND ON SIMILAR BASIS THE SHOW CAUSE NOTICE HAS BEEN ISSUED TO THE ASSESSEE . THE ASSESSEE HAS FILED APPEAL BEFORE THE CEGAT, WHICH IS PENDING FOR DISPOSAL. SINCE THE FACTS ARE SIMILAR, THEREFORE, NO ADDITION CAN BE MADE IN THE HANDS OF THE IT (SS) A NO . 47 / 10 7 ASSESSEE. I T WAS EXPLAINED THAT NO INCRIMINATING MATERIAL WAS FOUND DURING THE SEARCH CONDUCTED ON ASSESSEE BY THE INCOME TAX DEPARTMENT AND ALSO NO ADDITION HAS BEEN MADE ON THE BASIS OF ANY MATERIAL FROM THE POSSESSION OF THE ASSESSEE AS ADDITION HAS BEEN MADE ONLY ON THE BASIS OF CERTAIN EVIDENCES GATHERED FROM THIRD PARTY AND ON THE BASIS OF EVIDENCES COLLECTED FROM THIRD PARTY, NO ADDITION CAN BE MADE IN THE HANDS OF THE ASSESSEE. LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSION AND PERUSING THE MATERIAL ON RECORD , FOUND THAT SINCE CERTAIN MATERIAL WAS FOUND AND GATHERED BY THE EXCISE DEPARTMENT AND DETAILED SHOW CAUSE NOTICE WAS GIVEN, ON THE BASIS OF DETAILED SHOW CAUSE NOTICE, THE SEARCH UNDER SECTION 158BC WAS CONDUCTED ON ASSESSEE AND ON THAT BASIS THE ASSESSM ENT WAS COMPLETED AND THE AO FOUND THAT THE EXCISE DEPARTMENT HAD COME TO THE CONCLUSION THAT THE ASSESSEE WAS ENGAGED IN CLANDESTINE MANUFACTURING AND REMOVAL OF GOODS WITHOUT DISCLOSING THE SAME IN THE BOOKS. THE CIT(A) FURTHER NOTED THAT TWO NOTICES ISS UED BY THE CENTRAL EXCISE DEPARTMENT ARE STILL IN EXISTENCE AND THEY HAVE NOT BEEN MODIFIED ON THE SUPERIOR CENTRAL EXCISE AUTHORITY, NEITHER BY THE CEGAT . THEREFORE, THE CONCLUSION DRAWN BY THE AO IS CORRECT. HOWEVER, THE CIT(A) WAS OF THE VIEW THAT THE G ROSS PROFIT APPLIED AT THE RATE OF 11% IS NOT JUSTIFIED. THEREFORE, THE AO WAS DIRECTED TO APPLY THE GP RATE AT THE RATE OF 10.81%. LEARNED CIT(A) FURTHER MODIFIED THE ADDITION AND ULTIMATELY CONFIRMED THE ADDITION OF RS. 1,00,41,664/ - . THE IT (SS) A NO . 47 / 10 8 GROUND OF THE A SSESSEE WAS ALSO REJECTED ON THE GROUND THAT THE AO HAS MADE PROTRACTIVE ADDITION BY HOLDING THAT THE AO HAS MADE SUBSTANTIVE ADDITION. AGAINST THIS ORDER OF THE CIT(A), NOW THE ASSESSEE IS IN APPEAL HERE BEFORE THE TRIBUNAL. 5 . THE CONTENTIONS RAISED BE FORE THE LOWER AUTHORITIES, WERE REITERATED HERE BEFORE THE TRIBUNAL BY THE LEARNED AR. COPY OF THE WRITTEN STATEMENT WAS ALSO FILED. RELIANCE WAS PLACED ON VARIOUS CASE LAWS MENTIONED IN THE WRITTEN SUBMISSION. ATTENTION OF THE BENCH WAS DRAWN ON VARIOUS EVIDENCE AND DETAILS PLACED IN THE PAPER BOOK INCLUDING THE ORDER OF THE CEGAT PASSED IN RESPECT TO SHOW CAUSE NOTICE ISSUED BY THE CENTRAL EXCISE DEPARTMENT IN CASE OF JALNA UNIT. 6 . ON THE OTHER HAND, LEARNED DR STRONGLY PLACED RELIANCE ON THE ORDER OF AO AND CIT(A) . 7 . WE HAVE HEARD RIVAL SUBMISSION AND CONSIDERED THEM CAREFULLY. AFTER CONSIDERING THE SUBMISSION AND PERUSING THE MATERIAL ON RECORD ALONG WITH VARIOUS CASE LAWS, WE FOUND THAT THE ADDITION MADE BY THE AO, WHICH IS CONFIRMED BY THE LE ARNED CIT(A), IS NOT JUSTIFIED. FIRSTLY, THERE NO INCRIMINATING MATERIAL WAS FOUND DURING THE COURSE OF SEARCH CONDUCTED BY THE ASSESSEE, NEITHER ANY ADDITION HAS BEEN MADE ON THE BASIS OF ANY INCRIMINATING MATERIAL FOUND. IT (SS) A NO . 47 / 10 9 8 . IT IS FURTHER SEEN THAT A SH OW CAUSE NOTICE WAS ISSUED BY MUMBAI EXCISE DEPARTMENT DATED 4 - 9 - 2002, IN RESPECT OF SEARCH CONDUCTED AT JALNA UNIT. NO COGNIZANCE HAS BEEN TAKEN BY THE AO IN RESPECT TO THE SHOW CAUSE NOTICE BY THE MUMBAI EXCISE DEPARTMENT , WHEREAS THE FACTS WERE SIMILAR TO THE SHOW CAUSE NOTICE ISSUED IN RESPECT OF EXCISE DEPARTMENT DELHI DATED 29 - 8 - 2003. IT IS FURTHER SEEN THAT CERTAIN ADDITIONS WERE MADE FOR ASSESSMENT YEAR 2001 - 02 IN THE HANDS OF THE ASSESSEE. THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A) , WHO DELETE D THE ADDITION ON THE BASIS OF THE ORDER OF CEGAT DATED 18 - 6 - 2003, WHEREIN THE HEAVY DEMAND RAISED BY THE EXCISE DEPARTMENT WERE DELETED BY THE CEGAT EXCEPT THE EXCISE DUTY ON GOODS VALUED AT RS. 7,65,180/ - ON WHICH THE EXCISE DUTY ELEMENT IS ONLY RS. 1,22,4 38/ - AND THIS ORDER OF THE LEARNED CIT(A) HAS NOT BEEN CHALLENGED BY THE DEPARTMENT AS MENTIONED BY THE LEARNED AR IN HIS WRITTEN SUBMISSION PLACED ON RECORD. IT IS FURTHER SEEN THAT THE COGNIZANCE TAKEN BY THE AO IS TAKEN ON THE BASIS OF THE SHOW CAUSE NO TICE ISSUED BY THE DELHI EXCISE DEPARTMENT. IT IS A MATTER OF FACT THAT SHOW CAUSE NOTICE ISSUED BY THE MUMBAI EXCISE DEPARTMENT AND DELHI EXCISE DEPARTMENT ARE ON THE SAME FACTS AS THE SEARCH WAS CONDUCTED AT THE JALNA UNIT AS WELL AS AT DELHI FACTORY BY THE EXCISE DEPARTMENT. AGAINST SEARCH CONDUCTED IN THE CASE OF JALNA FACTORY, THE DEPARTMENT RAISED CERTAIN DEMAND, WHICH WAS CHALLENGED BEFORE THE CEGAT AND THE SAME HAS BEEN CANCELLED BY THE CEGAT. ON SIMILAR FACTS, THE IT (SS) A NO . 47 / 10 10 SHOW CAUSE NOTICE IS GIVEN BY THE EXCISE DEPARTMENT AND ON THESE BASIS THE AO HAS MADE THE ADDITION THAT EXCISE DEPARTMENT HAS CAME TO THE CONCLUSION THAT THE ASSESSEE WAS INDULGED IN CLANDESTINE MANUFACTURING AND REMOVAL OF GOODS WITHOUT DISCLOSING THE SAME IN BOOKS. 8.1 IT IS FURTHER S EEN THAT THE EXCISE DEPARTMENT HAS PASSED ORDER ON THE STATEMENT RECORDED DURING THE SEARCH CONDUCTED BY THE EXCISE DEPARTMENT. THE STATEMENT OF ONE SHRI SUDHIR KHANNA WAS RECORDED, WHO ADMITTED IN INDULGING OF REMOVAL OF GOODS WITHOUT RECORDING IN BOOKS OF ACCOUNTS. THEREAFTER MR. SUDHIR KHANNA ALONG WITH VARIOUS OTHER ASSOCIATES OR RELATED PERSONS WERE CROSS - EXAMINED. MR. SUDHIR KHANNA CATEGORICALLY DENIED THAT HE WAS ASSOCIATED WITH THE ASSESSEE. HE ALSO DENIED I N HAVING PURCHASED ANY MATERIAL FROM THE ASSESSEE. WHATEVER THE MATERIAL WAS PURCHASED, DETAILS OF THESE MATERIALS WAS FURNISHED AND THEY WERE NOT RELATED TO THE ASSESSEE. THIS FACT HAS BEEN NOTED BY THE CE STAT WHILE ADJUDICATING THE APPEAL AGAINST THE ORDER OF EXCISE DEPARTMENT RELATING TO JALNA UNIT. THIS ORDER IS PRONOUNCED ON 26 - 4 - 2005 IN THE ORDER NO. 356/2361/05 - 06, COPY OF WHICH IS PLACED AT PAGES NO. 395 TO 417 IN PAPER BOOK. IN PARA 17, THE C ESTAT HAS RECORDED A FINDING THAT, F ROM THE RECORD WE FIND THAT SOME DOCUMENTS ARE RECOVERED FROM THE RESIDENCE PREMISES OF SHRI SUDHIR KHANNA, WHICH HAVE BEEN REFERRED AT PAGES 22, 23 & 25 OF THE IT (SS) A NO . 47 / 10 11 FILE, COPIES OF WHICH HAVE BEEN PLACED AT PAGES 170 TO 172 OF THE PAPER BOOK, FILED BY THE SDR AND HIS STATEMENT WAS ALSO RECORDED IN RESPECT THEREOF, WHEREI N HE STATED THAT HE WAS WORKING FOR SALE OF PRODUCTS MANUFACTURED BY THE ASSESSEES COMPANY AT JALAN AND THE DOCUMENTS RECOVERED FROM THE PREMISES OF SHRI SURESH N SONI, THE MARKETING OFFICER ALSO INDICATED THE TRANSACTION OF THE GOODS FROM JALAN TO NEW DE LHI DURING THE PERIOD FROM JULY, 2001 TO SEPTEMBER, 2001. HE HAD ALSO DISCLOSED THE GUTKHA SOLD IN DELHI PRIOR TO DECEMBER, 2001, WAS RECEIVED FROM FACTORY OF THE ASSESSEE/COMPANY A T JALNA WITHOUT PAYMENT OF DUTY . THE ENTRIES AT PAGE 21 PERTAIN TO BORAS OF GUTKHA RECEIVED BY HIM AT NEW DELHI FROM JALAN DURING OCTOBER, 2000 TO FEBRUARY, 2001 AND ENTRIES AT PAGE 22 INDICATED THE SUMMARY OF THE ACCOUNT, WHILE ENTRIES AT PAGE 25 SHOW ED , THE SUMMARY OF THE ACCOUNT OF THE MARKETING IN RESPECT OF BORAS OF THE GOA GUTKHA RECEIVED DURING FEBRUARY, 2001 TO MARCH, 2001 FROM THE APPELLANT/COMPANY. BUT SHRI SUDHIR KHANNA DURING THE CROSS EXAMINATION HAD DENIED ALL THESE FACTS. HIS DENIAL CAN BE ACCEPTED AS THE SAME WAS MADE BY HIM WHEN HE WAS CROSS EXAMINED BY THE ASSESS EE DURING THE ADJUDICATION FOR DECIDING THE VERACITY OF HIS EARLIER STATEMENT. MOREOVER, EVEN FROM THE READING OF THIS PAGES/DOCUMENTS REFERRED TO ABOVE, IT CANNOT BE MADE TRUE THAT THE CASE WAS REACHED BY HIM IN A CLANDESTINE MANNER FROM THE ASSESSEE COMP ANY AT JALNA AND DISPOSED OF IN THE MARKET WITHOUT PAYMENT OF DUTY. THEREAFTER LEARNED CSTAT ALSO DISCUSSED THE IT (SS) A NO . 47 / 10 12 STATEMENT OF SHRI SUDHIR KHANNA. ULTIMATELY, PLACING RELIANCE ON VARIOUS CASE LAWS, THE CSTAT HELD THAT THE ORDER PASSED BY THE EXCISE DEPART MENT IS NOT MAINTAINABLE. ACCORDINGLY, THE APPEAL OF THE ASSESSEE WAS ALLOWED. 8.2 WE HAVE ALSO SEEN THE ORDER PASSED BY THE CENTRAL EXCISE DEPARTMENT, WHEREIN THE CONTENTS OF THE STATEMENT OF SHRI SUDHIR KHANNA ALONG WITH CONTENTS OF CROSS EXAMINATION A RE RECORDED. COPY OF THE ORDER PASSED BY THE EXCISE COMMISSION IS PLACED AT PAGE 260 TO 292. THE CROSS EXAMINATION OF SHRI SUDHIR KHANNA CONDUCTED ON 9 - 3 - 2004 IS INCORPORATED IN THE ORDER OF EXCISE COMMISSIONER AT PAGE 39. THE FIRST QUESTION WAS THAT WHAT ARE YOU DOING. IN REPLY, IT WAS STATED THAT HE IS THE PROPRIETOR OF M/S JOY FOODS INDIA MANUFACTURING GUTKHA AND SCENTED SUPRARI UNDER THE BRAND NAME DEEPU. THE NEXT QUESTION WAS HOW YOU ARE RELATED WITH M/S SANKET FOODS PVT. LTD., JALNA. IT WAS ANSWERED THAT HIS BROTHER SHRI ASHOK KHANNA, PROPRIETOR M/S KHANNA TRADERS, DELHI IS A DISTRIBUTOR OF M/S SANKET FOOD PRODUCTS DEALING IN GUTKHA, PAN MASALA, SILVER MINT ETC. HIS ASSOCIATION WITH M/S SANKET FOOD WAS TO IM PROVE THEIR BRANDS IN DELHI MARKET THAT IS S ALE TO VARIOUS PANWALAS AND CONSUMER CONTRACT. THEREAFTER THE NEXT QUESTION WAS PUT THAT IN THE STATEMENT DATED 8 - 3 - 2002 , YOU HAVE SAID THAT YOU WERE PROCURING GOA GUTKHA FROM JALNA TILL DECEMBER 2001 AND AFTER FROM PRATAPGANJ UNIT OF M/S SAKET FOOD AND YO U HAVE NOT MAINTAINED ANY RECORD AS THE SALES WERE IN CASH? WHETHER IT IS RIGHT OR WRONG? . IN REPLY IT (SS) A NO . 47 / 10 13 IT WAS STATED THAT IT WAS STATED THAT HE HAS NEVER RECEIVED STOCK FROM M/S SANKET FOOD, JALNA OR DELHI AS HE WAS DOING ONLY SALE PROMOTION. SMALL QUANTITY S TOCK I.E. ONE BAG HE WAS GETTING FROM M/S KHANNA TRADERS AND ARRANGING SALES TO PANWALAS. IN RESPECT TO THE QUESTION THAT YOU W ERE LOOKING AFTER THE PRODUCTION OF THE DELHI UNIT OF THE ASSESSEE, IT WAS REPLIED THAT THE STATEMENT WAS RECORDED BY THE EXCISE DEPARTMENT UNDER PRESSURE . IT WAS ALSO STATED THAT THE STATEMENT WAS RETRACTED BY HIM ON THE VERY NEXT DAY. THEREAFTER IT WAS STATED THAT HE WILL PRODUCE COPY OF THE RETRACTION IN A DAYS TIME. 8.3 FROM THE ORDER OF LEARNED CSTAT AS WELL AS FROM THE CROS S EXAMINATION OF MR. SUDHIR KHANNA, IT IS AMPLY PROVED THAT THE ASSESSEE WAS NOT INVOLVED IN ANY UNAUTHORIZED ACTIVITY. PERHAPS THE EXCISE AUTHORITY ISSUED SHOW CAUSE NOTICE ON THE BASIS OF ORIGINAL STATEMENT OF SHRI SUDHIR KHANNA, WHICH WAS RECORDED DURIN G THE SEARCH TAKEN BY THE EXCISE DEPARTMENT, HOWEVER, THEY HAVE NOT TAKEN INTO CONSIDERATION THE RETRACTION MADE BY MR. SUDHIR KHANNA. 8.4 THE CSTAT HAS TAKEN INTO CONSIDERATION THE RETRACTION OF SUDHIR KHANNA AND HAS HELD THAT ON THE BASIS OF MERELY STA TEMENT GIVEN BY SHRI SUDHIR KHANNA, THE ASSESSEE CANNOT BE HELD AS DEFAULTER IN EVADING EXCISE DUTY. THEREFORE, FOR THIS REASON ALSO , WE ARE OF THE VIEW THAT THE ADDITION MADE ON THE BASIS OF SHOW CAUSE NOTICE ISSUED BY THE EXCISE DEPARTMENT IS NOT JUSTIFI ED. WE FURTHER NOTED THAT EVEN THE AO WAS NOT SURE THAT INCOME HAS ESCAPED ASSESSMENT BECAUSE IN THE IT (SS) A NO . 47 / 10 14 ASSESSMENT ORDER AT PAGE 5 THE AO HAS OBSERVED THAT THE ASSESSEES ABOVE CONTENTIONS ARE CAREFULLY CONSIDERED. IT IS, HOWEVER, A FACT THAT THE ALLEGATIONS APPEARING IN THE SAID SHOW CAUSE NOTICE FIND THEIR ORIGIN IN THE MATERIAL GATHERED DURING SEARCH BY THE EXCISE AUTHORITIES. THEREFORE, THE SAME CANNOT BE IGNORED ON ITS FACE. THEREFORE, TO PROTECT THE INTEREST OF REVENUE AND TO KEEP THE ISSUE ALIVE TILL T HE MATTER GETS ADJUDICATED BY THE EXCISE AUTHORITIES, AN ADDITION OF RS. 1,01,14,333/ - AS DISCUSSED ABOVE, IS BEING MADE IN THE BLOCK ASSESSMENT AS UNDISCLOSED INCOME. FROM THESE NOTINGS OF THE AO, IT IS INFERRED THAT EVEN THE AO WAS NOT SURE THAT ANY INC OME HAS ESCAPED ASSESSMENT BECAUSE HE MADE ADDITION ON THE BASIS OF SHOW CAUSE NOTICE ISSUED BY THE EXCISE DEPARTMENT. HE HAS ESTIMATED THE TURN OVER BY CALCULATING CERTAIN FIGURE WHICH ARE REPRODUCED SOMEWHERE ABOVE IN THIS ORDER AND THEN HAS APPLIED A GP RATE OF 11%. IT IS A SETTLED POSITION OF LAW THAT IN THE CASE OF SEARCH WHILE COMPLETING THE ASSESSMENT UNDER SECTION 158BC, NO ADDITION CAN BE MADE IF NO MATERIAL IS FOUND FROM THE POSSESSION OF THE ASSESSEE. UNDISPUTEDLY, NO MATERIAL WAS FOUND FROM THE POSSESSION OF THE ASSESSEE DURING THE COURSE OF SEARCH MADE BY THE INCOME TAX DEPARTMENT. WHATEVER THE MATERIAL WAS FOUND THAT WAS INCORPORATED IN THE BOOKS OF ACCOUNT AND WAS TALLIED. ONLY ON THE BASIS OF INFORMATION GATHERED FROM THIRD PARTY THAT TOO BY A DIFFERENT DEPARTMENT I.E. EXCISE DEPARTMENT, THE ADDITION IT (SS) A NO . 47 / 10 15 HAS BEEN MADE BY THE AO, WHICH IN OUR CONSIDERED VIEW IS NOT PERMISSIBLE UNDER THE INCOME TAX ACT. 9 . AS STATED ABOVE, IN BOTH THE SHOW CAUSE NOTICE ISSUED BY THE EXCISE DEPARTMENT, IN RESPECT OF SEARCH TOOK PLACE AT JALNA UNIT, WHEREIN ALLEGATIONS ARE SIMILAR AS DISCUSSED ABOVE. THE EXCISE DEMAND RAISED BY THE EXCISE DEPARTMENT, AURANGABAD ON THE BASIS OF SHOW CAUSE NOTICE ISSUED IN RESPECT OF SEARCH AT JALNA UNIT HAS BEEN CANCELLED BY THE CST AT AND SINCE FACTS ARE SIMILAR WITH THE NOTICE ISSUED BY THE DELHI EXCISE DEPARTMENT, THEREFORE, ON THIS BASIS ALSO, NO ADDITION SHOULD HAVE BEEN MADE IN THE HANDS OF THE ASSESSEE. 10 . WE HAVE ALSO SEEN THE COPIES OF ANNEXURE - A/1, A/2 & A/3, WHICH WERE S EIZED FROM ONE SHRI JITENDRA OF M/S SURESH N. SURI & SONS, FROM SHRI SUDHIR KHANNA. FROM THESE ANNEXURES, IT IS CLEARLY SEEN THAT DETAILS WERE COLLECTED BY THE EXCISE DEPARTMENT FROM THE THIRD PARTY PREMISES WHICH ARE DISPUTED BY THE ASSESSEE. SINCE ALL TH E DETAILS WERE GATHERED FROM THE THIRD PARTY AND NO MATERIAL WAS FOUND SHOWING THAT THE ASSESSEE WAS INDULGED IN A CLANDESTINE MANUFACTURING OR REMOVING GOODS FROM ITS FACTORY WITHOUT PAYING EXCISE DUTY, NOTICES ISSUED BY THE EXCISE DEPARTMENT IS ONLY ON T HE BASIS OF STATEMENT OF THIRD PARTY OR SOME INFORMATION GATHERED FROM 3 RD PARTY AS NO DIRECT MATERIAL OR EVIDENCE WAS FOUND OR SEIZED FROM THE PREMISES OF THE ASSESSEE. NEITHER ANY STOCK WAS SEIZED NOR IT WAS FOUND THAT IT WAS IT (SS) A NO . 47 / 10 16 CASE OF LESS STOCK OR EXCESS STOCK FOUND. KEEPING IN MIND ALL THESE FACTS AND CIRCUMSTANCES OF THE CASE AND TAKING INTO CONSIDERATION THE ORDER OF C E S AT PASSED IN THE CASE OF JALNA UNIT, WE HOLD THAT THE ADDITION MADE AND SUSTAINED BY THE LEARNED CIT(A), WAS NOT JUSTIFIED. ACCORDINGL Y, THE ENTIRE ADDITION IS DELETED. 1 1 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF JULY . 2013 . SD/ - ( ) ( N.K.BILLAIYA ) SD/ - ( ) ( R.K.GUPTA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 12/07 /2013 . /PKM , PS COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI