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TMI Blog2000 (3) TMI 206X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.807 Kgs. of silver from 18 NRI passengers on 11-2-1993 and 12-2-1993 through their representatives. The said 18 persons held Custom Baggage Receipts issued by the Customs department, and that the said Receipts were delivered by the representatives to the assessee. 3. The Directorate of Revenue Intelligence, on getting information that the silver purchased by the assessee on 11-2-1993 and 12-2-1993 was of foreign origin, raided the business premises of the assessee-firm on 13th and 14th February, 1993. During the search operations carried out by the DRI authorities, seizure of 1913.295 Kgs. of silver was made by them. 4. A show-cause notice was issued by the Customs Department on 7-8-1993 under section 124 of the Customs Act, 1962. The Collector, Central Excise and Customs, Aurangabad by his order dated 21-9-1994 discharged the said notice on all counts and ordered the release of silver seized by the DRI on 13/14-2-1993. The Customs Department was not satisfied with the order of the Collector and hence, it preferred an appeal against the said order before the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT), Western Regional Bench, Mumbai. 5. The CEGAT reversed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entions of the assessee. After considering the various facts involved in this case and arguments advanced on behalf of the assessee and in the light of investigations conducted by DRI, Mumbai and the decision of the CEGAT, the Assessing Officer held that the payment for the above purchases of silver must have been made by the assessee from sources outside the books and, accordingly, he made an addition of Rs. 92,29,856 for purchase of the alleged silver, out of smuggled goods. Alternatively, he further held that the above payment also deserves to be disallowed under section 40A(3) because the same was apparently made in cash. 9. The assessee appealed to the CIT(A) and submitted that the Assessing Officer was not justified in disallowing the amount of Rs. 92,29,856 by applying the provisions of section 40A(3). It was submitted that the adjustment against the amounts due on supply of gold could not be considered to be a payment in the form of gold and that in any case such adjustment was covered by Rule 6DD(3). The cash payment in each case was below the amount of Rs. 10,000 and was clearly made to the suppliers of silver or their representatives. The payments by demand draft were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lver. The Manager of the firm, who was present during the course of search operations, was not aware of the transactions in silver entered into on behalf of the assessee-firm, as another firm (sister concern) by the name M/s. Rajmal Lakhichand Sons was also dealing in silver. The Manager, therefore, informed the search party that trading in silver was carried on by the firm M/s. Rajmal Lakhichand Sons. The raiding party, therefore, seized record from the said firm. Shri Dalvi submitted that the transaction of purchase of silver was duly recorded in the books of the assessee-firm; however, the books of the assessee-firm, though seen by the search party, were not seized. 13. Shri Dalvi further submitted that the Assessing Officer finalised the assessment on 19-3-1996. However, the order passed by the CEGAT on 19-3-1996 was not before the Assessing Officer. The Assessing Officer has referred to a News Paper report appearing in Daily Sakal on 24-3-1996 regarding the decision given by the CEGAT. The learned counsel pointed out that the Assessing Officer has only relied upon the content of the show-cause notice issued by the Customs Department; in fact, the said show-cause notice i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were searched on 17-2- 1993 where no incriminating evidence was found but while search was going on, one Jagdish Purohit entered the premises with Rs. 50,000 in cash which he reported to be belonging to Suresh Seth. Several statements of Mr. Suresh Seth were recorded where he reportedly admitted to have been arranging for sale of smuggled silver on commission basis and stated that he had received a phone call from Mr. Haji Bhai of Dubai on 5-2-1993 asking to arrange for sale of silver on commission of Rs. 100 per kg. and on learning from the market sources that Babuji of Jalgaon was dealing in such silver and hence on procuring his telephone numbers, he telephoned to him on 5-2-1993 itself and as the follow up, Babuji also telephoned to him twice on the same day and a deal was struck...' The learned counsel further submitted that Shri Dilip Jain was reportedly on record stating that he had arranged the customs receipts for the assessee for the above purchases of silver. In his statement dated 7-4-1993, Shri Dilip Jain has also stated that Shri Suresh had told him that about 132 slabs of silver were given Lo the assessee and the assessee had not made the payment for the same. He a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seized the account book/other records pertaining to M/s. Rajmal Lakhichand Sons. In nutshell, the learned counsel contended that the CEGAT itself has given a finding that no money was paid till the search operation by the assessee in regard to these purchases. If that be so, the issue regarding addition of purchase of silver must be decided keeping in mind the above observations of the CEGAT. According to the learned counsel, the department is not justified in basing its decision only on a part of the order of the CEGAT and ignoring the other part. It is always a principle of law that if any statement, document, evidence, etc. is to be made use of by the Assessing Officer against the assessee, the game has to be considered in entirety by the Assessing Officer and not in parts. Keeping this principle in view, the learned counsel, assuming without admitting, stated that if the CIT(A) is justified in holding that the silver purchased by the assessee was contraband as per the order of the CEGAT, in that, he ought to have given due weightage to the finding of the CEGAT that no payment was made by the assessee for the acquisition or such silver till the date of search and therefore, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sister concern M/s. Rajmal Lakhichand Sons, were complete and even seen by the DRI authorities, on the date of search itself. Referring to the extracts from the books of account, copies of which have been placed on record, the learned counsel tried to prove that the assessee before the search and thereafter had sufficient stock of gold and cash to make the alleged payments to the suppliers of silver. Even the DRI authorities who made detailed enquiry and recorded the statements of Accountant later after the search could not come to the conclusion that the payment in cash was made at the time of purchase. Indeed, according to the learned counsel, it has never been the case of DRI authorities that the assessee had made any cash payment when the impugned silver was acquired. The learned counsel further submitted that the Income-tax department also did not make any independent enquiry, but relied on the findings of the Customs department and the News Paper report regarding the CEGAT order. It is to be noted that out of 18 persons, only three were examined by the Investigating Agency, namely, DRI/Customs. The term expenditure incurred means expenditure paid out. To support this cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id order, it has been observed, "The narration of the events made by the Customs department in customs proceedings as well as in criminal proceedings before the Judicial Magistrate lends credence to the plea of the assessee to the effect that he had fished out the silver slabs from the sea bed." Similarly in the case of Sandvik Asia v. DCIT in IT Appeal No. 705 (PN) of 1992 the Tribunal has followed the orders passed by the Civil Court and the Appellate Court. On page 4, para 6 of the said order, it had been observed that the perusal of the orders passed by the Civil Court and the Appellate Court reveals that the assessee had encroached upon land. 20. Reliance was also placed by the learned senior DR on the judgment of the Hon'ble Allahabad High Court in the case of Gangadhar Baijnath v. CIT [1976] 102 ITR 382 where the ITO while making a best judgment assessment relied upon, inter alia, material collected by the Income-tax Investigation Commission'. It was held by the Hon'ble High Court that the reliance by the ITO on the material collected by the Income-tax Investigation Commission was correct, even though the Act under which the Income-tax Investigation Commission was constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40A(3) and submitted that the provisions of the said section are applicable to the businesses carried out illegally. For this proposition, he relied upon the following decisions: (1) CIT v. Sri Jagannath Steel Corpn. [1991] 191 ITR 676 (Cal.) and (2) S. Venkata Subba Rao v.CIT [1988] 173 ITR 340 (AP). 23. In rejoinder, Shri A.K Khaladkar, who also appeared with Shri N.A. Dalvi, submitted that the CIT(A) has held that the provisions of section 40A(3) are not applicable because he has confirmed the addition only on the ground that the investment was made for the purchase of alleged silver out of unaccounted income. Shri Khaladkar reiterated that the Assessing Officer has not applied his mind at all and has only relied on the points in the show-cause notice issued by the Collector, Central Excise and Customs and daily Sakal's report about the CEGAT order. He submitted that the order of the CEGAT covered a different aspect and does not have any beating on the Income-tax proceedings. He further informed that the assessee-firm has filed an appeal to the High Court at Mumbai against the said order which has been admitted and the matter has not reached any finality. 24. Shri Khala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayments for the purchase of subject silver from known/ explained sources. The controversy whether the subject silver is of foreign origin or whether or not it was licitly imported has no relevance for deciding this appeal. From the perusal of statements which were produced before the Assessing Officer; before the customs authorities and before us, one thing is crystal clear that the assessee did purchase the subject silver; did enter it into its books of account, the purchase of Bardana for storing the silver and melting charges also stand recorded in the books of account of the assessee-firm; though seen by the search party were not seized by them. It is also noted that the genuineness of the purchase transactions, the fact that these had been duly recorded on the basis of original customs duty paid receipts in the accounts of the assessee-firm on the date of purchase itself, Le., before the date of action by the DRI authorities has not been disputed either by the DRI or by the Income-tax authorities. It is further noted that the DRI authorities have checked and verified the cash balances of both the assessee-firm and the sister concern and found the same in order. This proves the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enior D.R. that the department need not make its own enquiries but can base the entire case on the findings of the customs authorities, according to us, it is imperative that in that event the Assessing Officer/CIT(A) follow the entire findings of the customs authorities. It is a well-settled principle of law that if the statement/ deposition/evidence/judgment is to be relied upon by any authority, reliance must be placed on such documents entirely. In the case of Chander Mohan Mehta v. Asstt. CIT [1999] 71 ITD 245 (Pune), this Bench has held that a paper found during the search has to be read as whole. In our opinion, the Assessing Officer is not justified in picking a convenient portion of such judgment which is only in his favour and ignoring the portion which is in favour of the assessee. In this case, there is no doubt that the department on its own has not made any enquiries to prove that the assessee had purchased the contraband silver and it is also not proved that the assessee had made payments for the same in cash at the time of delivery. The department has based the entire addition on the findings of the customs authorities, but it has not given due weightage to the find ..... X X X X Extracts X X X X X X X X Extracts X X X X
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