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2005 (8) TMI 290 - AT - Income TaxBlock Assessment - documents, books of account and other valuables including cash and jewellery found and seized - Statement u/s. 132(4) - additions on unaccounted investments - Unexplained investment in Jewellery - HELD THAT - In the instant cases, however, the present AO did not conduct any enquiry from any of the parties whose names appear in the seized documents and simply based his findings on the initial statements of Shri Jagmohan Singh Arora given at the time of the search and also the statement of Shri Achnani. In that matter again, the principles of natural justice were clearly violated inasmuch as no due opportunity was afforded to Shri Arora for cross-examination and that the opportunity actually provided was just a farce as has been stated by the learned Authorised Representative of the assessee and found to be correct by us. There was again no statement given by Shri J.S. Arora regarding on-money. On the contrary he denied the same. The said statement (about on-money payment) was given by a third party. We also agree with the contention on behalf of the assessee-group that the assessee after denying such cash payments several times ultimately agreed to the statement of the abovesaid third party under the compelling circumstances as stated by the ld AR of the assessee. The statement cannot, therefore, be considered to be voluntary. Thus, where the Department has no other evidence to establish the concealment of income except the papers seized from a third party, his statement on the same, (which was subsequently retracted) and the assessee's acceptance under compelling circumstances of the same which was also subsequently retracted. The additions have not been duly corroborated by the Revenue. We are of the opinion that the Department has not been able to substantiate its finding with cogent reasoning. So the same cannot be upheld. Unaccounted sales - excess sale price of milk products cannot offset shortfall in the quantity of sale of milk or for that matter of purchase - On a perusal of the records including the seized documents and also comparing the same with the regular books of account (copies of which have been furnished before us), we are inclined to agree with the contentions on behalf of the assessees. We are of the opinion that actually milk and milk products are similar items and that the first is used as the raw material for production of the second. Again, different items of milk products also form raw materials of other items as pointed out by the assessees. The seized books are not books of account maintained accurately but on the other hand, are merely memorandum of rough records of production and dispatch, which they actually are as can be found from a perusal of them. Therefore, accurate maintenance of item-wise details therein cannot be expected. This is also clear from the fact that whereas in the regular books, items are categorised as taxable and nontaxable items, no such categorisation is found there in the seized documents. Hence, the seized books cannot be considered to represent duplicate sets of books of account recording the actual figure as against the regular books of account or even as supplementary sets of books of account. If a very wide discrepancy were, therefore, found between the regular books and the seized books, that would have been a cause for concern. Here, the most important aspect to be taken care of is that the production figures as recorded in the regular books do tally with those in the seized documents, if milk and milk products are considered together. The explanation furnished by the assessees regarding the different rates of various items of milk products also appears to be quite satisfactory. Hence, according to us, there is no case for considering the seized documents to be completely different sets of account and for making additions on that basis. Again, there is no doubt about the fact that the AO has applied different criteria for arriving at undisclosed income in respect of milk and milk products and has tried to hit the appellants in two opposite ways, which is not at all warranted. Taking an overall view of the matter, we are satisfied that when shortage in sale of milk is compensated by equivalent excess in sale of milk products, the discrepancy gets explained and there is no question of making any addition on account of undisclosed income regarding this matter. We have, therefore, no hesitation in deleting the additions in respect of both the assessees on this issue. We do so. We find enough substance in the arguments on behalf of the assessee. The seized documents in question are found to be rough notings as explained by the appellant and not of much importance. The AO did not put the same to any process of examination, enquiry or verification. In absence of the same, the documents do not seem to have any evidentiary value. On the other hand, the explanation furnished by the appellant about re-circulation of manufactured ghee seems to be quite plausible. The addition is found to have been made without appreciation of the proper facts and more on surmise than on actual examination. The addition is, thus, unwarranted and is being deleted. In the case of M/s Modern Dairy Ice Plant, the assessee has claimed bad debt of Rs. 14,07,500 in respect of certain loans given in earlier years on the basis of certain seized documents. The claim of the assessee has been rejected by the lower authorities. We are of the opinion that firstly that since the loans were never recorded in the proper books of account nor written off therein, there is no scope for allowing the same u/s 36(1)(vii). Furthermore, a block assessment is meant for assessing the undisclosed income of an assessee on the basis of materials found during search and not for allowing any claim for deduction in respect of certain items not recorded in the regular books of account. Hence, we uphold the orders of the lower authorities on this issue. The appellate ground is being dismissed. In the result, the appeals filed by the individual assessees and M/s Arora Construction Developers are allowed. The appeal filed by M/s Modern Cream Dairy Industries (P) Ltd. is also allowed while the appeal filed by M/s Modern Dairy Ice Plant is partly allowed.
Issues Involved:
1. Action under Section 132 of the IT Act, 1961. 2. Additions in respect of unaccounted investments in Bhayandar land. 3. Additions on account of unexplained investment in jewellery. 4. Additions on account of unexplained cash. 5. Additions towards alleged unexplained investment in M/s Hindustan Marbles. 6. Additions on account of alleged suppression of sale of ghee. 7. Claim of bad debt of Rs. 14,07,500. Detailed Analysis: 1. Action under Section 132 of the IT Act, 1961: Action under s. 132 of the IT Act, 1961, was conducted in the business as well as the residential premises of the appellant group on 10th Dec., 1998, during which certain documents, books of account, and other valuables including cash and jewellery were found and seized. Statements under s. 132(4) were recorded, and the main person of the group-assessee admitted to unaccounted income of Rs. 1.75 crores, which was later retracted on grounds of coercion and lack of proper opportunity to examine the seized materials. 2. Additions in respect of unaccounted investments in Bhayandar land:The Department made additions based on the statement of a third party, Shri J.P. Achnani, and the initial admission of the assessee, which was later retracted. The assessee argued that the statement was not voluntary and was extracted under pressure. The Tribunal found that the Department did not conduct independent enquiries to corroborate the statements and violated principles of natural justice by not providing a proper opportunity for cross-examination. The Tribunal concluded that no addition could be made based on uncorroborated statements and deleted the additions. 3. Additions on account of unexplained investment in jewellery:The AO taxed the balance jewellery found during the search after allowing the benefit as per CBDT Circular No. 1916. The assessee argued that the disclosed amount of Rs. 25,93,595 in the hands of M/s Modern Dairy & Ice Plant should cover any discrepancies. The Tribunal agreed with the assessee and directed that the additions be deleted by allowing adjustment against the disclosed amount. 4. Additions on account of unexplained cash:Similar to the unexplained jewellery, the AO made additions for unexplained cash. The Tribunal found that there was enough scope for telescoping these amounts against the disclosure made by M/s Modern Dairy & Ice Plant and deleted the additions. 5. Additions towards alleged unexplained investment in M/s Hindustan Marbles:The AO made an addition based on an unsigned MoU and the statement of the assessee. The Tribunal found that the addition was similar to the unexplained cash and jewellery issues and allowed adjustment against the disclosed amount by M/s Modern Dairy & Ice Plant, deleting the addition. 6. Additions on account of alleged suppression of sale of ghee:The AO made additions based on rough notings in seized documents. The Tribunal found that these documents were not reliable as they were maintained by floor-level staff and not verified by the AO. The Tribunal accepted the assessee's explanation of re-circulation of manufactured ghee and deleted the addition. 7. Claim of bad debt of Rs. 14,07,500:The assessee claimed bad debt based on certain seized documents. The Tribunal upheld the lower authorities' rejection of the claim, stating that since the loans were not recorded in proper books of account nor written off therein, there was no scope for allowing the same under s. 36(1)(vii). The Tribunal dismissed the appellate ground on this issue. Conclusion:The Tribunal allowed the appeals filed by the individual assessees and M/s Arora Construction & Developers, and M/s Modern Cream Dairy Industries (P) Ltd., while the appeal filed by M/s Modern Dairy & Ice Plant was partly allowed.
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