9911796707
TMI Blog2008 (12) TMI 287X X X X Extracts X X X X X X X X Extracts X X X X ..... uppressed sales (sales estimated at Rs. 4,30,00,000 against disclosed sale of Rs. 4,25,50,982) in view of the facts that assessee could not explain blank bills and reason for low sale in comparison to preceding years. (3) That the learned Commissioner of Income-tax (Appeals)-II, Agra has erred in law and on facts in deleting the addition of Rs. 7,62,485 made on account of entry in the loose papers found in the factory premises during the survey proceedings in spite of the fact that partner surrendered the amount in the statement recorded during the survey proceedings as he could not explain the same. (4) That the decision of learned Commissioner of Income-tax (Appeals)-II, Agra being erroneous in law and on facts deserves to be quashed and that of the Assessing Officer deserved to be restored. (5) That the appellant craves leave to add or alter any or more ground or grounds of appeal as may be deemed fit at the time of hearing of appeal." 2. The relevant facts of the case are that the assessee derives income from manufacturing of Diesel Engines. Survey under section 133A was conducted at the business premises of the assessee on 16-5-2001. On the said date inventory of books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; 42550982 Gross Profit 8304299 9407141 7656631 % of Gross Profit 17.80% 17.93% 17.99%" ------------------------------------------------------------- 8. The Assessing Officer was of the view that the assessee has not been able to explain the decline in sales. He was also of the view that since a large number of blank bills in the name of persons doing job work, painting etc. were found at the premises of the assessee. Accordingly the possibility of inflating job work/assembly charges/painting charges etc. could not be ruled out. Apart from the fact that there was difference in stock as compared to the book what was found at the time of survey not only in terms of number of items but in terms of values. Accordingly, he was of the view that the books of account of the assessee was not correct and complete and they were rejected under section 145(3). In this background, the Assessing Officer was of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er on the statement of the one of the partner of the assessee-firm to link the surrender of an amount of Rs. 8,00,000 whatever stated during survey time was absolutely under mental pressure and under the unwritten and untold compulsion of the survey team. The higher income-tax authorities were intimated after the survey about the retraction that the statement of the one of the partner were taken under force and pressure and shall not have any binding on the assessee-firm or any of the partner of the assessee-firm and that the income of the assessee or any of its partners must be assessed on the merit of the case and search material if it is contrary to the anything recorded in the books of account. This is an established law that the criteria of assessment must be based on logical, evidential and correct calculation of the incomes of the assessee and not the undue pressure tactics. The so-called paper on which a figure of Rs. 7,42,485 was written is absolutely nothing to do with any concealed investment or income of the assessee or any of the partners of the assessee-firm. In a trade and industrial environment of an enterprises which running into operations of several crores of rup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 (SC). It was held in this case that "An admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the assessee who made the admission to show that it is incorrect". Further in the matter of Nagubai Annal v. Shama Rao AIR 1956 SC 100 it was held by Hon'ble SC that "An admission is not conclusive as to the truth of the matters stated therein. It is only a piece of evidence, the weight to be attached to which must be depend on the circumstances under which it is made. It can be shown to be erroneous or untrue." Further in the matter of Krishan Lal Shiv Chand Rai v. CIT [1973] 88 ITR 293 (Punj. & Har.) it was held that "It is an established principle of law that a party is entitled to show and prove that the admission made by him probably is in fact not correct and true." 12. Not convinced by the explanation offered, an addition of Rs. 7,62,485 was made by the Assessing Officer in the following manner:- "I have considered the reply of the assessee but there is no force in the same since the partner Shri Radha Raman had surrendered on his own the investment contained/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 865. 15. It was also submitted that the Assessing Officer cannot presume and force a business entity to run their business exactly on G.P. basis and draw adverse inference thereon simply because for shorter period considered during the survey the G.P. shown therein did not match with the average G.P. for the entire years. 16. It was also submitted that in the peculiar trade of the assessee where the assessee has on record dealt in hundreds of items which are used in the manufacture of Diesel Engine. The diesel engine can be of different horse powers as such the items used vary moreover. It was submitted that even in the same type of diesel engine the item costs would vary due to the fact of who is the manufacturer of the specific part used. On account of the use of items of different suppliers the cost can vary from 1 to 15 per cent whereas the difference between value of hypothetical stock to the actual stock is only 3.68 per cent. In the facts the actual facts have been completely ignored. It was submitted that when the surrender of Rs. 3 lakhs is accepted by the assessee is taken into consideration the difference would work out to a mere 0.61 per cent. Referring to the survey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trading account prepared for one month and 16 days was never placed on record according to the assessee and was merely an out of book exercise by the survey team. It was also contended that the same was not even shown to the assessee. The fact that April and part of May the period considered is normally a lean period for the assessee and application of uniform rate for the entire year on this basis was faulted with. These facts and submissions are found recorded at page 5 of the impugned order. Considering these the addition of Rs. 96,181 was deleted by the CIT(A) with the following reasoning:- "(3.3) I have carefully considered the facts of the case and the submissions of the AR. In my view the appellant deserves to succeed. The facts of the case clearly indicate that valuation done by the survey team was not accurate and it was in slip shod manner. The appellant has pointed out arithmetical error of Rs. 4,640 in the inventory prepared by the survey team which was found correct. Even otherwise, it was not humanly possible to value each and every spare part with, finer precision. It is also an admitted fact that after valuing the stock survey team has confirmed it with hypothetic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not made any attempt to establish on facts that there was no arithmetic error which has been agitated by the assessee and confronted to the Assessing Officer and taken into consideration by the CIT(A) in granting relief. The revenue has also not made any attempt to rebut the consistent argument of the assessee and the finding of the CIT(A) that the valuation made by the survey team is based on approximation and not on actuals and in fact has been extrapolated on the basis of G.P. of the earlier years. In the peculiar facts and circumstances of the case as they stand, we find no good reason to interfere with the impugned order. Ground No. 1 raised by the revenue as such is rejected. 25. In regard to the second issue addressed by the revenue, the relevant finding of the Assessing Officer has already been considered in the earlier part of this order. Aggrieved by this, addition of Rs. 79,069 on account of rejection of books of account of the assessee under section 145(3) of the Act and the resultant estimation of sales thereon to which G.P. rate disclosed by the assessee was applied. The assessee contended before the CIT(A) that he has maintained all necessary books of account and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce the books of account of the assessee are rejected then the profit has to be estimated on the basis of proper material available. However, the Assessing Officer is not entitled to make a pure guess and make estimation without reference to any evidence or any material at all. There must be something more than mere suspicion to support such addition. In case of appellant, the Assessing Officer has not referred any material or any evidence in support of estimation of sales at Rs. 4.30 crores as against sales declared by the appellant at Rs. 4.25 crores. The Hon'ble Supreme Court has reconfirmed the earlier stand in case of CIT v. K.Y. Pillai & Sons 64 ITR 411 where it has been decided that any lump sum add back to the trading result if found justified must be done in proper exercise of discretion objectively and judiciously on the basis of relevant material. In view of above judicial pronouncement and facts of the case, the addition made by the Assessing Officer on this account is not sustainable. I, therefore, delete the addition of Rs. 76,069 made by the Assessing Officer." 27. Aggrieved by this the revenue is in appeal before the Tribunal. 28. The learned D.R. though placed re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted the figures were identical however handwriting was different. Numerical entries recorded on these loose papers were as under:- "6,49,065 34,400 7,000 30,000 3,400 5,920 2,700 10,000 --------- 7,42,485 5,60,000 --------- 1,82,435 --------- 1,30,000 --------- 52,485" --------- 32. Reliance was placed to the statement of Radha Raman Agarwal recorded during survey proceedings. 33. In the course of appellate proceedings the addition was challenged on various grounds namely that these are mere notings and did not represent any form of investment either movable or immovable property nor does it reflect any transaction having taken place of any nature. As such it was contended that it is simply a piece of paper on which addition or subtraction of figures were noted without any narration. The action of the Assessing Officer in adding the same as unexplained investment merely on the ground that one of the partners of the assessee-firm has admitted so at the time of survey was assailed. The action of making the addition des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sure and under the unwritten and untold compulsion of the Survey team. The higher income-tax authorities were intimated after the survey about the retraction that the statement of the one of the partner were taken under force and pressure and shall not have any binding on the assessee-firm or any of the partner of the assessee-firm and that the income of the assessee or any of its partners must be assessed on the merit of the case and search material if it is contrary to the anything recorded in the books of account. This is an established law and applied practices that the criteria of assessment must be based on logical, evidential and correct calculation of the incomes of the assessee and not the undue pressure tactics. The so-called paper on which a figure of Rs. 7,42,465 was written is absolutely nothing to do with any concealed investment or income of the assessee or any of the partners of the assessee-firm. In a trade and industrial environment of an enterprises which running into operations of several crores of rupees of purchases, sales, banking operations, debtors and creditors it is highly amazing that any amount written on a paper will constitute the incomes of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed all their incomes in the respective return of the incomes for financial year 2001-02 filed to your office on 31-10-2002 which was legally verified as true and correct and paid the income-tax thereon accordingly and acquired all assets of any nature out of his declared income only. Reliance is also being made on the Hon'ble Supreme Court order in the matter of Pullangode Rubber Produce Co. Ltd v. State of Kerala [1973] 91 ITR 18. It was held in this case that 'An admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the assessee who made the admission to show that it is incorrect'. Further reliance is being placed in the matter of Nagubai Annal v. Shama Rao AIR 1956 SC 100 it was held by Hon'ble Supreme Court that 'An admission is not conclusive as to the truth of the matters stated therein. It is only a piece of evidence, the weight to be attached to which must be depend on the circumstances under which it is made. It can be shown to be erroneous or untrue'. Further reliance is being placed in the matter of Krishan Lal Shiv Chand Rai v. CIT [1973] 88 ITR 293 (Punj. & Har.) it was held that 'It is an established princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent was made recorded by partner in his personal capacity only. This is an established law and applied practices that the criteria of assessment must be based on logical, evidential and correct calculation of the incomes of the assessee and not the undue pressure tactics. If it was the concealed or undeclared incomes of the assessee or any of its partner the survey team must have taken further evidence to that regard and must have put them on Statement recorded of partner, which they never did. They never asked any further question on that regard before coming to any conclusion of treating them as the concealed income declared later on during survey operation. The script writing on the paper does not belong to any of the partner of the assessee-firm. Appellant did not declared that amount of Rs. 8,00,000 on their return of income filed before the office of the ACIT, Circle 4(1) on 31-10-2002. Appellant also did not deposit any Advance Tax on 15-9-2001, 15-12-2001 or 15-3-2002 as was said to be noted by the survey team in the forced statement of the one partner of the appellant." 39. Considering these submissions, the CIT(A) deleted the addition of Rs. 7,62,485 for the followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot based on any material fact. Even at the time of survey Shri Radha Raman Agarwal was not probed further about nature of investment and nature of transactions relating to the aforesaid amount of Rs. 7,42,485. Without making any logical or conclusive enquiry and without collecting any evidence in this regard, the Assessing Officer has added the entire amount merely on the basis of statement of Shri Radha Raman Agarwal which was subsequently retracted since the appellant has not paid the advance tax and not included aforesaid amount while computing the total income of the concerned assessment year. Even if we ignore the alleged letter of the appellant submitted on 21-5-2001 retracting from the surrender, there are certain other ambiguity as noted above, regarding the manner in which the statement was recorded. During the course of assessment proceedings, the Assessing Officer has not made any attempt to even verify the status in which the statement was made and entity in which the aforesaid amount was surrendered. Either during the course of surveyor during the assessment proceedings, no inquiries were made in respect of notings recorded on the aforesaid piece of paper. In fact bala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant has explained the circumstances in which the statement was recorded and also explained that noting on the aforesaid piece of paper has nothing to do with any unexplained investment by the appellant. By doing so, appellant has shifted the onus on the Assessing Officer to disprove aforesaid contention. However, the Assessing Officer failed miserably in doing so and added the entire amount, without making any inquiry, merely on the ground that Shri Radha Raman Agarwal has admitted the aforesaid amount as his undisclosed income during the course of survey proceedings. (b) In case of Jayanti Lal Patel v. ACIT 23 ITR 568 the Hon'ble Rajasthan High Court has held that addition on the basis of a noting on a piece of paper cannot be sustained when it is not even in assessee's writing. The appellant's case is fully covered with aforesaid decision since the writing on the piece of paper was neither in the hand of Shri Radha Raman Agarwal or any other partner of the appellant firm. (c) In the case of Manga Metal (P.) Ltd v. ACIT 67 TTJ 247 (All.) it was held that burden is on the revenue to establish that figure appearing in the loose paper found in search constitute undisclosed inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t assailed by the learned DR. The CIT(A) has taken cognizance of the fact that even for a moment the letter of retraction written within 5 days is ignored the fact remains the ambiguities in regard to the manner in which statement was recorded namely in the individual capacity and director coupled with the fact that the figures mentioned neither during the surveyor thereafter have been linked with any investment or income by the Assessing Officer has not been assailed. As such, these facts were also not addressed by the learned DR who has chosen to place reliance only on the Assessment Order. 42. Learned AR on the other hand place heavy reliance upon the detailed findings based upon the detailed reasons advanced before the Assessing Officer and the CIT(A). 43. We have heard the rival submissions and perused the material available on record. In the facts as they stand which have been addressed at length in the earlier part of this order which have not been assailed by the revenue we find ourselves unable to come to any contrary view. On a perusal of the reproduction of the impugned paper cognizance of which has been taken by the Assessing Officer. It is seen that the balancing fig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is engaged in the business of manufacture of diesel engines. A survey under section 133A of the Income-tax Act, 1961, was carried at the business premises of the assessee on 16-5-2001. The survey team took inventory of stocks and valued the same, at Rs. 93,68,405. The assessee himself prepared a trading account and worked out the inventory of stock of the value of Rs. 97,64,586. The statement of its partner Shri Radha Raman was also recorded. He was required to reconcile the stock difference with reference to stock register maintained by the assessee-firm. The assessee, however, showed its inability to reconcile the stock and accordingly, surrendered an amount of Rs. 3,00,000 on account of unexplained investment in the stock. Blank cheques, blank bills and other loose papers were also found. 3. During the course of assessment proceedings, the Assessing Officer required the assessee to explain difference in the stock. The assessee being unable to give any explanation stated that he had already surrendered a sum of Rs. 3,00,000. Accordingly an addition of Rs. 96,181 has been made for unexplained investment in the stock. The same stood deleted by the learned CIT (Appeals). 4. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as blank bills and difference in stock is concerned, the assessee explained during the course of assessment proceedings that blank bills relate to various contractors working from the appellant's premises. As regards difference in stock, the same has already been dealt in earlier ground where unexplained investment for Rs. 96,181 has not been found and the addition on that account stands deleted. Furthermore, after rejection of account books, the estimation of income was stated to have been made by Assessing Officer without any concrete basis. He, therefore, deleted the addition of Rs. 79,069 made by the Assessing Officer. Aggrieved with the decision to delete addition of Rs. 79,069, the revenue has taken following ground in appeal:- "2 That the learned Commissioner of Income-tax (Appeals)-II, Agra has erred in law and on facts in deleting the addition of Rs. 79,069 (Rs. 76,069) made on account of suppressed sales (sales estimated at Rs. 4,30,00,000 against disclosed sale of Rs. 4,25,50,982) in view of the facts that assessee could not explain blank bills and reason for low sale in comparison to preceding years." 8. The ld. Departmental Representative while assailing the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is not denied. Let that as it may be, the fact also remains that there was an overall shortage of Rs. 3,96,181 as worked out by the Assessing Officer in his order after considering the explanation of the assessee. The assessee was not able to reconcile this difference. The only presumption for such a short stock that could be made is that the assessee has sold its stock outside the books. This gave a valid basis for taking action under section 145(3) of the Act. Reference may be had to the judgment by Bombay Tribunal in the case of Roop Niketan v. Asstt. CIT [2004] 1 SOT 739, B. & Brothers Engineering Works v. Dy. CIT [2003] 78 TTJ (Ahd.) (TM) 876 and Janta Tiles v. Asstt. CIT [2000] 66 TTJ (Pune) 695. That being the position, the ld. CIT (Appeals) can be said to have erred in saying that the reason quoted by the Assessing Officer for rejecting the books of account is not justified. 11. Another reason taken by the Assessing Officer for rejecting the books of account is that the sales of the assessee have declined to Rs. 4,25,50,982 during the year under consideration as against sales of Rs. 5,24,62,410 in the immediately preceding year. The assessee offered no explanation regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over all facts and circumstances of the case and the findings as aforesaid, I do not find any justification in the action of the ld. CIT (Appeals) to come to the conclusion that the reason quoted by the Assessing Officer for rejecting the books of assessee are not justified. I, therefore, set aside his findings and restore the findings and reasons taken by the Assessing Officer which are good reasons to reach a satisfaction that the accounts of the assessee are not correct and complete and as such the rejection of accounts made under section 145(3) is also upheld. 14. The learned CIT (Appeals) has also stated in his order that the Assessing Officer after rejecting the books did not take any concrete basis for estimating the income. This is also not correct. As has already been found that there was a short stock to the extent of Rs. 3,96,181 found at the time of survey which is presumed to have been sold outside the books with gross profit earned thereon at the rate of 17.99 per cent and the short stock found being only for a period of say about 45 days, the assessee can be held to have rotated the same in the entire year thereby making more sales outside the books. Thus, after re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escription nor it is in the handwriting of any of the partner of the assessee-firm. The calculation on the paper mayor may not relate to the business of the assessee. The paper belongs to supplies or purchase made by the assessee-firm. It was also asserted that in any case, the entries do not reflect any unexplained investment or income of the assessee. It was also informed that the assessee has already made retraction of this statement and as such, addition is not warranted. 18. The Assessing Officer being not satisfied with the explanation, proceeded to make addition of Rs. 7,42,485 on account of entries in the loose paper and Rs. 20,000 on account of cash found at the time of survey. 19. This action of the Assessing Officer was assailed in appeal. The ld. CIT (Appeals) found that the statement of Shri Radha Raman Agarwal was recorded in both the capacity as director of M/s. Ravi Agricultural Equipments (P.) Ltd., as well as partner of the assessee-firm besides as an individual. The learned CIT (Appeals) on perusal of reply to question No. 3 of the statement of Shri Radha Raman Agarwal taken during the survey proceedings, found that the surrender of Rs. 3,00,000 was made in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 covering undisclosed income from the entries in the said paper including the cash found at the business premises. He also agreed to pay tax on this additional income [or the assessment year 2002-03, but did not do so in the return of income filed by it. Consequent to this, the Assessing Officer provided due and effective opportunity to explain the same and assign reasons as to why addition as per surrender made by him should not be made. 23. It is also an admitted position that the piece of paper was recovered from the premises of the assessee and has duly been inventorised. Even though the assessee has been making contradictory explanations, the explanation filed before the authorities below reveals that the assessee in his explanation has also admitted of the fact that "this paper belongs to the supplies or purchases made by the assessee-firm." The paper so recovered from the assessee's premises was available on the record of Assessing Officer though the same is not available in the records of the Tribunal. This paper available on the record of the Assessing Officer constituted a material for the purpose of making assessment in sub-section (3) of section 143 of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases made by the assessee-firm and that being so, taking all the facts, circumstances and probabilities into consideration, it is clear that the ld. CIT(A) accepted the plea of the assessee half heartedly without making enquiry into the facts himself or requiring the assessee to reconcile the entries of purchases and sales with the sales recorded in its books of account if the same was not found done before the Assessing Officer. I, therefore, do not find any factual or legal justification in his action to delete the addition. His order, therefore is directed to be set aside and the matter is restored back to his file so that a proper and effective opportunity of being heard is given to the assessee to discharge the burden that stood shifted to him to explain the loose paper. After taking the evidence, the ld. CIT(A) shall take the decision afresh in accordance with law. He shall also pass a speaking order showing as to whether the amount surrendered for Rs. 3,00,000 on account of unexplained investment is taken part of this addition or otherwise the same needs to be sustained. Needless to add, the Assessing Officer shall also be given due and proper opportunity of being heard. TH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A), it was contended that there was arithmetical error in the value of closing stock by the survey team. On verification of annexure prepared by the survey team, there was a mistake of Rs. 46,460 on pages 3 and 8 of Annexure-S. It was also contended before the CIT(A) that it was humanly impossible to value each and every spare part with fine accuracy. After all, the valuation of the stock by the survey team was done on hypothetical figure of closing stock extrapolated by utilizing the earlier year GP rate. In respect of these shortcomings, the difference between the actual and estimated cost was only claimed to be .61 per cent. Considering these facts, the ld. CIT(A) was of the view that the amount surrendered by the assessee was sufficient to cover up their discrepancy in stock and further addition was not warranted. The addition, therefore, got deleted. The revenue challenged this deletion apart from other addition before the ITAT. As regards this issue, the ld. Judicial Member found no reason to interfere with the findings of the ld. CIT(A). On this issue, although some discussion is made in the dissenting order of the Accountant Member, he has not given any finding adverse in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k bills found during the course of survey were actually belonging to various contractors who worked for the assessee-firm. The CIT(A) was of the opinion that the reasons quoted by the Assessing Officer for rejecting the books of the assessee were not justified and the Assessing Officer has made a pure guess work without any material in arriving at the disputed addition. He deleted the addition. 4. The ld. J.M. concurred with these findings. The ld. A.M. justified the reasons which prompted the Assessing Officer to reject the books of account and restored the impugned addition. 5. I have heard both the sides and carefully gone through the impugned order. The ld. DR has filed written submissions. The very fact that there was discrepancy in the stock position at the time of survey shows that books of account maintained by the assessee were not authenticated. The Assessing Officer was quite liberal in estimating the sales of only Rs. 4,25,50,982 as against Rs. 45,24,62,410 shown in the preceding year, particularly when no cogent reasons were furnished by the assessee for such a sharp decline in sales. According to him, the order of the Accountant Member deserves to be upheld. 6. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of survey, the assessee was confronted with these papers. It appears that the partner agreed to surrender a sum of Rs. 8 lakhs on account of investment contained in this paper and the assessee, immediately thereafter, retracted before the tax authorities that the statement of surrender of the partner was taken under force and shall not have any binding on the appellant-firm or any of the partners of the that even when there is admission, it is incumbent upon the department to establish by relevant material that the amount in question was income in the hands of the assessee. Here, the department is relying upon the surrender of the amount in the course of survey and the piece of papers found in the course of survey as basis for making the addition. The admission made by one of the partners has already been retracted within five days from the date of search. The CIT(A) in fact has referred those letters to the Assessing Officer in the remand proceedings. When the assessee has retracted the statement, an addition should be supported by enough material in the possession of the department. Now looking at the paper, it has some numerical figures but does not, in any way, show that it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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