9911796707
TMI Blog2014 (8) TMI 827X X X X Extracts X X X X X X X X Extracts X X X X ..... warrant of authorization u/s 132(1) of the I.T. Act, search and seizure operation was carried out on 27.08.2009 in the business premises of M/s Kesarwani Zarda Bhandar, including Head Office situated at Sahson, Allahabad, Branch Offices situated at Mumbai and Ahmedabad and the residential premises of the partners of the firm. Notices u/s 153A were issued and the assessee in compliance to same, filed return of income along with audited balance sheet, trading and profit & loss account. Statutory notices were issued and assessments were completed making many additions in all the appeals under consideration. In the background of these facts, now we take up all the additions and points raised in the present appeals issue-wise as under : Issue No. 1 : (Regarding validity of assessments u/s. 153A of the IT Act): 4. This legal issue is involved in appeals of the assessee in respect of assessment year 2004-05 to assessment year 2007-08. The assessee contended before the ld. CIT(A) that the assessment orders passed u/s. 153A(b) are without jurisdiction, illegal, bad in law and framed in arbitrary manner. The undisclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year under question. In these background abatement take place only in respect of pending assessment and not for regular assessment which was framed on the basis of the same books of account and become final. Therefore sanctity of such assessment framed under Section 143(3) dated 19.12.2006 of the Income Tax Act on the basis of same books of account duly audited and report already filed and considered u/s 143(3) assessment should be maintained since no incriminating material was found in the course of search. Sir from the assessment order dated 22.12.2011 passed under Section 153A(1)(b) of the Act it will be clear that in the entire assessment order there is no whisper of any incriminating material indicating any undisclosed income on which the additions or disallowances are made but the addition made are only based on regular book/same books which were already examined in original assessment as well as during assessment of the block period and found correct in all respect therefore, thus, as per provisions of Second proviso of the Section 153A(1)(b) of the Income Tax Act the present assessment made vide order dated 22.12.2011 is nullify and liable to be cancelled. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 627 Pune Bench (copy at page ...........) In addition the appellant rely upon the following decisions also in which it was held and observed that the decision of higher authorities is binding:- 1. (2008) 216 CTR 153 (M.P) 2. (2005) 274 ITR 6 (ITAT Panjai Bench) 3. (2002) 256 ITR 385 (Bombay) 4. (1987)168 ITR 387 (M.P) Since the facts of the present case and facts of the cited cases are similar and identical, therefore in view of such legal body sanctity of the original assessment dated 19.12.2006 passed under Section 143(3) of the Income Tax Act is liable to be maintained in all fairness and also in the interest of the justice and assessment made u/s 153A(1)(b) of the Act. May kindly be quashed." 5.1 The AO in the remand report relied on section 153A and stated when assessment is pending, the assessment proceedings of those years will be abated. The assessee in rejoinder reiterated submissions already made and relied on CBDT circular No. 7 of 2003 dated 05.09.13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; (1) 216 CTR 153 (MP) (2) 274 ITR 6 (ITAT, Panji Bench) (3) 256 ITR 385 (Bom.) (4) 168 ITR 387 (MP). In the remand report, the A.O. has relied on the 1st proviso to Section 153A which requires the A.O. to assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made. It is submitted by the A.O. that 2nd proviso to Section 153A(1) applies only where assessment is pending. If the assessment is pending, the same shall abate else all the total income of each of six assessment years will be liable to be assessed or reassessed. In the Rejoinder, i.e. comments on the remand report of the A.O., the appellant states that in the present case the assessment was made u/s 143(3) vide order dated 19.12.2004 by the then Deputy Commissioner of Income Tax, Allahabad which was a speaking and well reasoned order. The appellant has referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eassessment made u/s 153A. As may be seen, the Board has only laid down the procedure to pass assessment or reassessment order in the light of new provisions introduced. There is no such direction in the above Circular to prohibit the A.O. to make assessment or reassessment confined to evidence found in the course of the search. The appellant has heavily relied on the decision of jurisdictional High Court in the case of CIT Vs. Smt. Shaila Agrawal (2012) 346 ITR 130. It is necessary to understand that the contention of the appellant is distinguishable on the facts. The cited order pronounced by the jurisdictional High Court is in favour of the department, against the assessee. The question before the Hon'ble High Court was - whether as a consequence of issue of notice u/s 153A, the proceedings before the Tribunal relating to one of six assessment years shall also abate. In this context, the Tribunal had held that once a notice u/s 153A has been issued after search and seizure operations, all the assessments of six preceding years prior to the date of search have to abate and that even completed and concluded assessments should stand merged in the fresh assessment to be made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 153A. After May 31, 2003, the earlier provisions of block assessment in the case of search initiated against the assessee shall not apply, as the special procedure for assessment in search cases contained in Chapter XIV B stands abolished and a new provision of Section 153A has been introduced which provides procedure for single assessment of period comprising of previous years relating to six assessment years preceding the year in which the search was conducted. Further, the second proviso to Section 153A makes it clear that assessment or reassessment relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search shall abate. In other words, if on the date of initiation of search or requisition, any assessment or reassessment proceeding is initiated relating to any assessment year falling within the period of six assessment years, it shall stand abated but assessment or reassessment can be done u/s 153A in cases of completed assessments or in cases where assessments have not been framed due to non filing of returns etc. for the abovementioned assessment years even if such assessment made u/s 153A is not based o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ret the law and do not legislate the law. If a provision has been misused or is absurd, it is for the legislature to amend, modify, repeal, if deemed necessary. Thus, the provisions should be read as a whole and as they exist, and there is no necessity of reading them down or providing Casus Omissus. Where the search is conducted, there is no option with the A.O. but to issue notice calling for return of all six assessment years. Thereafter, the first proviso casts a duty on him to assess or reassess the total income in respect of each assessment year. In this respect he has no choice but to make six assessments. In order to obviate a necessity of making two assessments in respect of the year for which proceedings are pending, the second proviso provides that pending assessments shall abate, which means that only one assessment u/s 153A shall be made in respect of assessments which have abated because of this provision. Both the first and second proviso directed the A.O. to assess total income, which has to be computed in accordance with Section 5 of the Act, therefore, in respect of all six assessments, A.O. has to make assessment or reassessment of total income and in doing so t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case was selected for scrutiny. The assessee produced books of account and relevant details before the AO, which is evident from the copies of the order sheet placed on record and the AO after examining the books of account and the details furnished by the assessee accepted the returned income. Remaining assessments for assessment years 2005-06 to 2007-08 were completed u/s. 143(1). The assessee along with the return of income filed complete audited accounts and the relevant details. The assessee has filed a chart showing the dates of assessments, income declared along with copies of the audited reports and acknowledgement of filing of returns for these years. It is admitted fact that during the course of search operation on 27.08.2009, no incriminating material was found indicating any undisclosed income for the assessment years under appeals, on the basis of which any addition or disallowance were made, but the additions were made on the basis of regular books of account, which were already examined in original assessment proceedings as well as during the block assessment proceedings. Section 153A of IT Act provides as under : & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner: Provided that such revival shall cease to have effect, if such order of annulment is set aside.] Explanation.-For the removal of doubts, it is hereby declared that,- (i) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section; (ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year." In view of the above provisions contained in second proviso to section 153A(1)(b) of the IT Act, no assessment would be deemed to be pending in the year under appeal on the date of initiation of search and as such, the same could not be said to have abated. Hon'ble Allahabad High Court in the case of CIT vs. Smt. Shaila Agarwal, 65 DTR 41 (346 ITR 130) held as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment years, the abatement of assessment and reassessment proceedings, to give way to reassessment considering the additions in the assessment under s. 153A, will also include the assessment or reassessment, which has been completed. If as a result of search, some undisclosed income is found to have escaped assessment, the AO may initiate steps for reassessment after sanction of competent authority, within the prescribed period of limitation. Circular No. 7 of 2003 dt. 5th Sept., 2003 [(2003) 184 CTR (St) 33] issued by the CBDT has clarified the position". 7.1 ITAT, Mumbai Special Bench in the case of All Cargo Global Logistics Ltd. vs. DCIT, 147 TTJ 513 (Mum)(Special Bench) held as under : "In assessments that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/s 153A for which assessments shall be made for each of the six assessment years separately; In other cases, in addition to the income that has already been assessed, the assessment u/s 153A will be made on the basis of incriminating material, which in the context of relevant provisions means - (i) books of account, other documents, found in the course of search but not produced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Allahabad High Court, only assessment or re-assessment pending as on the date of initiation of search u/s. 132 of the IT Act, shall abate as per second proviso to section 153A of the IT Act. According to Special Bench decision, in case of All Cargo Global Logistics Ltd. (supra) the abatement takes place only in respect of pending assessments. ITAT, Pune Bench in the case of SRJ Peety Steels (P) Ltd. (supra) held that when the returns have already been accepted and no assessment as such could be said to be pending or abated on the date of initiation of search. The ld. DR referred to the statement of Shri Kailash Chand Kesarwani, partner of the assessee firm, copy of which is filed at page 263 of the paper book and in answer to question No. 13 (PB-272), the partner has surrendered Rs. 50,00,000/- as undisclosed income for the assessment year 2010-11. The ld. DR, therefore, submitted that the statement is relevant u/s. 132(4), which has legal sanctity and is incriminating in nature. However, the ld. counsel for the assessee argued that surrender of Rs. 50 lacs was not on account of any search material. In para 6 of the said statement, a query was made about the ratio mixed in 1 kg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd mainly containing the sale account without having any monetary reference to opening stock, purchase account, direct expenses or closing stock. These items are of trading account only and as such could not be considered part of profit and loss account. These facts would clearly disclose that the alleged paper taken from the CPU are only rough and dumb document and has no relevance to the matter in issue. Without having any details of opening stock, direct expenses and closing stock, it is difficult to prepare even trading account or complete accounts as per law. In these papers, the gross profit of assessee is shown and we do not find from where such figures have been arrived at. We may also note here that these papers now produced on record by the ld. DR have not been referred to or relied on by the authorities below in the impugned orders and no additions, whatsoever, have been made on the basis of the same. These are not considered relevant material by the authorities below, what to say of incriminating material. Therefore, these rough and dumb documents would not lead to anywhere or to say that these were incriminating documents in nature. Hon'ble Delhi High Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment (situation 2A in the graphic). In the circumstances, what we are dealing in instantly, there are finalized assessment proceedings and no incriminating material indicating any escaped income (situation 2B in the graphic). Taking a cue from the decision of Hon'ble Delhi High Court in the case of Anil Kumar Bhatia (supra) we can tread on the same premise and hold that on clubbing, what remains is the income originally determined or assessed (i.e. income originally determined + Zero = income originally determined - as there was no incriminating material)." (ii). Scope (P) Ltd. vs. DCIT, 33 Taxmann.com 167 (Mum. Trib.), in which in para 13, it was held - "Before parting with the issue, we make it clear that having held that initiation of proceedings u/s. 153A is valid, the Assessing Officer, cannot resort to a roving and fishing enquiry to find out whether any income has escaped assessment during the reassessment proceedings when there is no incriminating material found or seized during the course of search action u/s. 132." (iii). CIT vs. Anil Kumar Bhatia, 24 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of ITAT Special Bench in the case of All Cargo Global Logistics Ltd. (supra). 7.7 Considering the above discussion, when nothing incriminating material was found in the course of search relating to assessment years 2004-05 to 2007-08, completed / finalized assessments for such years could not be disturbed and as such invoking of the provisions of section 153A against the assessee in these years would not be valid and no addition could be made against the assessee as are made in the assessment orders. Recently, ITAT, Delhi Bench 'G' vide order dated 16.06.2014 in 3184/Del/2013 in the case of Sanjay Aggarwal vs. DCIT, after following the decision of Hon'ble Delhi High Court in the case of Anil Kumar Bhatia, 352 ITR 493 and ITAT Spcl. Bench in case of All Cargo (supra), has held as under :- "We, therefore, hold in principle that no addition can be made for any assessment year u/s. 153A, the assessment for which is not pending on the date of search, unless any incriminating material is found in the course of search." We accordingly set aside the orders of authorities below and delete all the additions mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e its dust contents, then it is coloured with the mixture of raw Kimam, powder of spices and compound of glycerin water. The moist tobacco is then dried in sunlight on the open roof to remove its water contents and then packed in gunny bags. The tobacco at this stage is called coloured tobacco. In such process there is some gain in weight of tobacco which depends on several factors. The coloured tobacco is mixed with compound of chemicals, perfumery substances and menthol and then is stored in drums for 2-3 days for absorption of odour, flavor and taste. Thereafter it is spread on plastic sheet for drying. After this process, 'silver vark' in addition to the above mixture is mixed in the final product 'Zarda'. The Zarda is manually filled in unit containers and pouches which are then packed and sealed. 8.1 The A.O. has produced Annexure D & E of form 3CD i.e. audit report for the financial year ending as on 31.03.2004. The same is reproduced as under:- TOBACCO Particulars Opening Stock (Kgs) Purchase (Kgs) Total (Kgs) Closing Stock (Kgs) Storage Loss (Kgs) Consumption (Kgs) TOBACCO LEAF 431627.500 920852.000 1352479.500 433285.500 0.000 919194.000 W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ap of 15 to 20 days. The A.O. has examined the difference of production (based on production register of Kimam) for F.Y. 2007-08 and found that there is no certain ratio of production of Kimam vis-à-vis the consumption. The assessee has not shown opening and closing stock of Kimam in all the assessment years under consideration. In another observation the A.O. remarked that in addition to its own production the assessee purchased Kimam from other parties namely Gupta Traders, Sultanpur, Prop. Smt. Shakun Devi, the sister concern of assessee. The husband of the proprietor is also partner of the assessee firm. The assessee has not maintained stock details of consumption of purchased Kimam. The assessee has also not maintained the details in respect of goods handed over to Karigars for mixture of tobacco and Kimam. During the course of discussion, the A.O. came to know that masala consists of several items, viz. Gond, Kateela, Kulanjan, Peepar, Kapoor, Kuchari, Hauber, Musali (Satawar), Muskdana, Dal Chini, Pipramool, Mulethi, Soth, Tulsi Beej, Brahami Patti, Kusum Phool, Tomar Beej, Lohban, Dhoop Ral, Mansalo Phool, Laung, Brass, Taj Moti, Nakhala, Chadila Phool, Pachauli Patt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... With regard to the consumption of 'silver vark' the A.O. asked the assessee to produce some Kamgars for examination but as stated by the A.O. Kamgars were not produced nor were their addresses furnished. There are no details of percentage of evaporation of aroma from ingredients and perfume items. To the issue that details of packing materials were also not maintained, the assessee submitted before the A.O. that it is not practically possible to maintain the consumption of containers, boxes, pouches, cotton, gunny bags etc. on day to day basis. In the assessment order the A.O. has mentioned that the details of all the ingredients in terms of quantity have not been maintained. All the items other than tobacco have been clubbed together under the name 'other materials'. Percentage of material consumed and finished goods varied substantively year after year. 8.4 The A.O. further proceeded to discuss the facts and findings related to subsequent years as according to her the issues are common for all the assessment years involved. In this context she made reference to inquiry related to purchase invoice No.172 dated 23.11.2006 for Rs. 27,21,888/- for the purchase of 150 Kg of sandal o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion unit, it was discovered that the goods as per invoice no.173 and 176 dated 23.11.2006 and 22.12.2006 were sent through Car No. UP 78B - 6780 which is 1992 model. The weight of the goods was 350 Kg and 100 Kg respectively. The A.O. noticed that the vehicle is LMV tracker through which goods were allegedly sent from Kanpur to Sahson, Allahabad. In a further inquiry the A.O. found that perfumes from M/s Cosmo Elemek, Varanasi, M/s S.P. Upadhyaya Fragrance Pvt. Ltd., Varanasi, M/s Deepak & Co., Varanasi, M/s Sanjay & Co., Varanasi were transported by LMVs. The A.O. collected the details of the vehicles allegedly used for transportation from the RTO office, Varanasi. As per the details obtained from RTO office, Varanasi, the vehicles were Maruti WagonR, Tata Sumo and Maruti Swift. The ADIT (Inv.) recorded the statement of the owner of the vehicle No. UP 65Y - 3901 u/s 131(1A). The owner Sri Chandra Shekhar Tripathi categorically denied the use of the said vehicle for the transportation of alleged goods. On the basis of the above statement, the A.O. inferred that no goods were transported by the aforesaid vehicles. The A.O. also examined the weight transported by these vehicles in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 838742.500 838742.500 890193.600 Details of production and issue of coloured tobacco Opening stock of WIP in Kg. Coloured tobacco produced in Kg. Total in Kg. Production of Zarda in Kg. Closing stock in Kg. 88819.550 970645.100 1059464.650 890193.600 169271.050 8.7 The A.O. further observed that Kimam is not included in the consumption figures, which is manufactured from whole leaf as stated by the assessee and 200 gms of kimam is extracted out of 1 kg of whole leaf. The whole leaf is used only in manufacturing of kimam. After manufacturing of Kimam the waste of whole leaf is not used further. During the year under consideration, the consumption of whole leaf was 60, 627 kg. for manufacturing of Kiman. The production of kimam as per books was 13,643 kg. The assessee also purchased kimam from Gupta Traders, Sultanpur. As per the submission, the total consumption of kimam during the year under consideration was stated to be 36,091 kg. On the basis of WIP, kimam and consumption, the A.O. worked out the percentage of consumption as under:- Items Quantity of consumption in Kg. Quantity of finished goods in Kg. %age of consumption Raw tobacco leaf afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee stated that column 32 of the audit report speaks of amount whereas percentage of yield should be given in terms of quantity. The A.O. has produced the statement of Sri Krishna Chandra Kesarwani mentioned above and remarked that no specific reply was given on the ratio of consumption and percentage of yield. The results of the assessee vary from year to year as regards percentage of consumption vis-à-vis yield. On the strength of the discussion, the A.O. held that the actual yield was only 83.17% as against the claim of 106%. In this respect, the A.O. has also referred to the statement of Sri Kailash Chandra Kesarwani, partner of the firm, recorded on oath on 04.09.2009 in which he had stated that he would not disclose the issue of consumption and yield on account of trade secrecy and surrendered Rs. 50,00,000/- for this reason. 8.11 Finally after extracting the statement of Sri Kailash Chandra Kesarwani, the A.O. concluded as under:- "From the statement, it is very clear that assessee is suppressing its production and for which it has been surrendered at the time of search and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g stock of Kimam has been shown. In this manner the assessing officer proceeded by making all her efforts to give a different colour away from the truth to mislead the higher authorities to make a show as how much hard labour was put to make the said high pitched addition under reference by mentioning hypothetical and misunderstanding the facts and figures. 20. That in the present case main arbitrary and illegal addition of Rs. 6,95,66,165/- was made by the assessing officer on account of alleged suppressed production. The similar type of addition has been made uniformly in all the subsequent assessment years. In this way it is necessary to bring the facts about the business results of the assessee firm to your kind knowledge which are as follows : A.Y Profit before Salary to Partners and Depreciation Net Profit 2004-2005 1,34,40,749.47 90,01,169.47 2005-2006 2,72,25,321.32 2,22,65,272.32 2006-2007 3,35,12,098.96 2,83,73,514.96 2007-2008 2,09,53,302.73 1,53,71,921.73 2008-2009 1,67,76,395.23 1,08,84,426.23 2009-2010 1,53,12,230.72 95,35,365.72 2010-2011 1,73,13,670.63 1,14,86,998.63 That from the above chart it will appear that the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in respect of such business activities the appellant maintained voluminous books of accounts, which are audited and the audit report is filed alongwith the return year after year. In the present case in the past number of assessments were framed U/s 143(3) of the Income Tax Act'1961 either by the rank of JCIT or DCIT. Copies of the orders are enclosed in the paper book at pages no. ______. In this regard in para no.4 on page no. 7 of the written submission, observations of the assessing officer regarding our books of account have been mentioned. Thus our book results, trading results, production activities and norms, consumptions and yields of various raw materials and production, sales, and profit etc. everything was accepted by the department in past in Toto by passing a well reasoned and speaking assessment order Under Section 143(3) of the Income Tax Act and not Under Section 143(1) of the Income Tax Act but unfortunately no cognizance was given to those earlier assessment records although apprised in the written submissions filed before the assessing officer though during the assessment year under consideration also similar method and manner of books of accounts and pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned CIT (Appeal) heard the appeal and by considering the entire facts of the case deleted the addition vide his order dated 10.12.2002. A photo copy of the Order of the Commissioner of Income Tax (Appeals) is enclosed in the paper book at page no. ________. The observations of the then learned Commissioner of Income Tax (Appeal) as per para 7 (at page _________) of his order are reproduced hereunder:- "I have considered the facts of the case and find merit in the arguments of the appellant. I agree that the addition is not based on any hard fact but on certain presumptions. From the Assessing Officer's Order it is clear that during survey proceeding under Section 133A of the Income Tax Act no incriminating document or material was found to give reason to conclude excess production or out of books sales or yield or out of books purchase of raw materials. There is less expenditure on account of consumption of raw material to produce more end product. Instead of appreciating better result in comparison to earlier years the assessing officer has assumed that the assessee might have consumed out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing officer only on her own whims and illogical surmises, wrong calculations and mis-understanding of the nature of incomes with set mind and to justify the search and also to please the higher authorities and to debar the assessee from getting proper justice from her end. Thus the huge addition was made by Assessing Officer. without any adverse or incriminating material brought on record nor found in search. Likewise before making such addition provision of section 145 (3) of the I.T. Act was not invoked, purchase, sale and closing stock have been accepted hence entire addition is illegal and baseless. This shows also that even principles of consistency is missing in the order. 28. That, Sir, similar and identical formula/ basis have been adopted for making addition for alleged suppressed production in all the assessment years 2004-05 to 2010-11 whereas appellant has adopted and followed the same method/manner/pattern for maintaining books of accounts and production process for manufacturing Tobacco on commercial principles since inception of the firm and there is no change in any way therefore the arbitrary addition made by the assessing officer by alleging suppressed produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax Act. 31. That in this regard copy of order sheet entries for the assessment year 2004-2005 written by the assessing officer in original assessment proceeding is enclosed at page ... of the paper book and from the order sheet entry it will appear that on number of dates hearing was fixed and relevant queries were made with regard to trading result, expenses etc. and in compliance to those queries various replies details/ informations / documents were furnished before the assessing officer and after thorough scrutiny of the same though the assessing officer was satisfied but she framed the assessment order by discarding all such facts/ details furnished and made the arbitrary addition which is unjustified and illegal. Sir, in the original assessment books result was accepted whereas in the proceeding u/s 153 A(1)(b) of the I.T. Act again on the same book of accounts addition was made by alleging suppression of production which is not correct and out of purview of section 153A(1)(b) of the I.T. Act. The provision of section 153A(1)(b) of the I.T. Act is not meant for repetition of proceedings and to draw different view as above in present case. 32 That sir the trading resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justification for not accepting the book results." That sir the above view is the view of the highest authorities and their view is to be considered as the law of land and therefore the same must be given absolute weightage accordingly. 33 That Sir during the course of the search operation in the appellant's factory (manufacturing place) the search party did not find any suppressed production lying in the premises due to which there is no adverse finding about closing stock in the assessment order nor any adverse findings about trading results. The search party prepared the inventory of raw materials and finished products but since no suppressed production was found in the premises nor any hidden place was unearthed by the search party, where any such alleged suppressed production was lying then Sir a question arises for consideration and adjudication before your goodself is that after all where such alleged suppressed production has gone specially when there is no allegation about EXIT of suppressed production by the Excise authorities (Central Excise) because the excise-duty is leviable at the point of EXIT (clearance) from the godown of the goods under the strict supervis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India) Tools & Forgings in which the Hon'ble Court held as under:- (i) Income from undisclosed sources-Addition-Alleged suppressed sale-Tribunal found that sales declared by the assessee are of excisable goods and the correctness of declared sales is supported by regular books of account which have duly been audited by the auditorsITA Sales recorded in the books of account are supported by various excise registers, which are periodically checked and verified by the excise authorities - It is beyond comprehension that any addition on account of alleged suppressed sales can be made without any valid basis whatsoever on record-Findings recorded by the Tribunal are based on appreciation of fact and material available on record and there is no illegality or infirmity in the order passed by the Tribunal- No interference is called for. (ii) Accounts - Rejection - Estimation of income - Books of account are supported by the purchase vouchers, vouchers for expenses, stock records, excise records and therefore, hypothetical and imaginary calculatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - A (As per Page 14 of Assessment Order) Details of consumption of raw tobacco and production of finished goods as per assessee: Consumption of raw tobacco in kgs. Adjusted consumption in kg Production of finished goods in kg. Raw Tobacco 919194.000 Op Bal of WIP + 88819.550 1008013.550 Cl. Bal of WIP - 169271.050 838742.500 890193.600 838742.500 % of consumption 94.22 % (838742.500/ 890193.600) % of yield 106 % (890193.600/838742.500) Details of Production and Issue of Coloured Tobacco Opening Stock of WIP in Kgs Coloured tobacco produced in Kgs Total in Kgs Production of Tobacco in Kgs Closing Stock in Kgs 88819.950 970645.100 1059464.650 890193.600 169271.050 That from the above chart marked as Annexure "A" it is submitted that chart "A" shows consumption at 94.22 % from adjusted consumption to production which is true and correct. The figure is supported by day to day stock register. CHART - B (As per Page 15 of Assessment Order) Items Quantity of consumption in kgs Quantity of finished goods in kg. % age of consumption Raw tobacco leaf after considerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year being normal feature in this nature of business. Therefore the whole confusion arises only because the quantam of evaporation and normal process loss was ignored which is the cause of deriving alleged suppressed production. In this connection it is further submitted that in the year 1990-1991 a survey was conducted by the excise department for verification of stock and they alleged that there was excess stock of tobacco as a result pilot experiment was also conducted by the excise authorities and thereafter they, arrived at a conclusion that the increase in weight on account of the addition of chemicals, perfumes, menthol etc. was purely temporary and the weight by and large come to the level of the weight of coloured leaves. Therefore the excess in weight found at the time of verification of the stock by the officers was on account of the addition of chemicals perfumers and other volatile substances and this increase in weight was purely temporary and the actual weight nearly settled down to the level of the weight of the coloured leaves after completion of the process of the manufacturing and was accounted for. In this way the higher authorities of the Central Excise departm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as at page 18 of the same assessment order a chart is reproduced from which it will appear that there is different in yield percentage figures in the A.Y. 2004-2005 to A.Y. 2007-2008 and yield percentage figures of A.Y. 2008-2009 to A.Y. 2010- 2011. Such difference is there only due to method of yield percentage working as adopted by the auditors and not due to any manipulation as alleged by the assessing officer. Sir, If a uniform method is adopted in all the assessment years then there will be no difference at all in the yield percentage figures in any of the years but the Learned assessing officer never tried to understand this fact and made such a irrelevant allegation based on her own wishes to justify the addition and search. Actually these two ratio - (i) the accounting ratio of material consumed/finished goods produced (as per class 32 of Form 3CD) (ii) the percentage of yield of the principal raw material (as per class 28 of Form 3CD) are altogether different in nature and purpose and the same can not be compared with each other as compared by the Ld. Assessing officer without understanding this true fact. 41 That at page 25 of the assessment order the assessing officer s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment. The matter of consumption / alleged suppressed production can by no means be created as a fresh or new issue and finding created by the assessing officer in the present order passed is based on assessing officer's own imagination ornamentaly during the search assessment since all details regarding consumption / production were before the department prior to the search. Sir, if department had any doubt regarding the same, it could have been raised during the regular assessment proceedings upto assessment year 2004-05 and not in the proceeding under section 132(1)/ 153 A(b) of the Act. When no incriminating material was found in the course of the search relating to any of the assessment year of the block period then the original assessment for such year could not be disturbed on the ground of alleged suppressed production through wrong working and own colourfull calculations of the assessing officer. In view of above factual and legal position the addition in question on account of so called suppressed production in a uniform manner for assessment year 2004-05 to 2010-11 are not corresponding to such material found during the course of search therefore the addition made in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r neither the Assessing Officer has mentioned it nor pointed out any defect regarding maintenance of excise records. Moreover broad steps of the manufacturing process have already been explained. c) That with a view to survive in the business market it is not possible for the appellant to disclose its tradesecrete. d) From the aforesaid brief account/ details the yield during the various stages of manufacturing process can not be uniform on account of the fact that the raw materials are purchased largely from agricultural produce or vegetable products, some of which are hygroscopic in nature and some are volatile. The consumption of silver leaves and other perfumery items varies on account of the various manual process and nature of the business as explained above. 45. That on the basis of charts as reproduced at para 36 above the assessing officer has tried her level best to make the issue clumsy and has narrated her concocted theory by attacking on the consumption of raw materials in a wrong way and with ill motive only. True facts were submitted before the Assessing Officer again and again that there is no fixed rate of ratio or parameter for the consumption of various raw ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that the assessee surrendered Rs. 50 lac at the time of search with an intention to save the trade - secret but while framing the assessment order the assessing officer failed to consider the statement of surrender correctly in its true spirit and tried to take disadvantage of the said surrender when such surrender was in good faith and only on persuasive query on the point of ratio of raw tobacco consumption and production and as a matter of fact it was a heavy surrender in volume as such adverse inference of the same has been wrongly taken for making a stand for the addition which is unjustified. That likewise the contention of the assessing officer that if 100 kg of items is consumed then 105.66 kgs finished goods would receive is totally incorrect because the assessing officer failed to understand this fact that it does not happen so in the production of tobacco and result of final product never comes in 1 to 1 ratio in comparison to the materials and ingredients used in the production, because it involves dust, wastage, evaporation and other processing losses, so, sir kindly consider this aspect in its practical background. For example, while preparing a cup of tea, its v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent or Sales Tax Department that any suppress purchase of raw tobacco, production and sales were made nor in this regard there is any whisper in the assessment order. For your convenience a chart is enclosed at page no. ______ of the paper book showing the consumption of raw tobacco and quantity of the production compared with the working of alleged suppressed production done by the assessing officer. In this connection it is also necessary to mention here that our earlier assessments were made after thorough scrutiny and passed under Section 143(3) of the Income Tax Act. Copies of the orders are at page no. ____ to ______ of the paper book. So kindly consider observations of various senior officers of the department in their orders and please compare the same with the present assessment order passed under Section 153A(b) of the Income Tax Act. In the referred chart earlier years position of consumption of the raw tobacco in the production has also been given based on which it is clear that on declared consumption the department has accepted our declared production. Therefore there is no sense to create artificial excess production without giving the source of raw tobacco used fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocess loss in to weight/quantity was allowed. In this way the quantity of production by considering the weight of other materials as it is (1:1) and over and above yield percentage of 105.66% was again applied by the Assessing officer in each year due to which figure of artificial suppressed production was increased and worked out by the assessing officer which is absolutely baseless. Sir, the process of manufacturing of tobacco is a technical matter and Zarda is not manufactured in the manner as suggested/calculated by the Assessing Officer. Sir fact is that since the assessing officer could not understand the entire manufacturing process as a whole due to which such type of confusion was designed/created by the assessing officer and Sir, if tobacco is manufactured in the manner as calculated/ decided by the assessing officer then the said Zarda shall be hardly purchased by any consumer/user because in Zarda, its taste & flavour is most important aspects & which only attracts the consumers. 50. That Sir already we have put and example for preparation of cup of tea in para 46 above similar position is there also in our production of Zarda and therefore in its true perspective onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come in the garb and suppressed production by ignoring the real income and commercial principles. Thus it is a patent and glaring mistake on the part of the assessing officer to tax the amount of alleged artificial production worked out by the assessing officer because in the production costs various other elements are also involved. The assessing officer nowhere has stated in the order that there was suppression of sale and purchases nor she mentioned anything about payment of excise of duty on the finished goods derived out of such alleged suppressed production or whether the excise duty was charged and paid on each and every exhit item of finished goods. Moreover there was no finding of excise department that any excise duty was suppressed then question of taxing the alleged suppressed production as worked out by the assessing officer does not arise. The records go to show that there is no finding nor any material referred in the assessment order about the suppression of investment in acquiring the alleged suppressed production. Sir total sales or total production cannot be regarded as profit/ income of the assessee. In support of this the assessee rely on following decisions.. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturer in the case of tobacco, Where large number of other raw materials are required to be used and also through various process mixed in obtaining finished products, Is it practicable to tell the ratio of the same in spite of the fact that it was trade secrete of the assessee which was asserted in statement by the appellant u/s 132(4) of the Act at the time of search?. 6- Whether where the business is of excisable goods and excise duty is levied and paid on the clearance of the finished goods from the factory godowns under the supervision and control of the Central Excise Department, the production and sale could be disbelieved on just whims and surmises of the assessing officer and also without any incriminating material found during the search. 7- Whether in any view of the matter and keeping in view the nature of production of chewing tobacco and manufacturing process as already explained earlier and various ingredients used in obtaining the finished product the evaporation/ driage/ shortage and process loss disclosed could be disbelieved on hypothetical grounds and surmises and exces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction which is absolutely unjust and arbitrary. Moreover till date the excise authorities never alleged that in any year there is any suppression of excise duty on the part of the assessee. The excise department and income tax department both are departments of the central government of India. Sir till date taxes have been levied by the income tax department on real income of the assessee only but in the year under consideration for the first time department is taxing on the "production" which is a clear mockery of the law and harassment to an old and one of the heavy tax payer assessee of the District, which is not permissible according to the spirit of in the I.T. Act or even against the guidance of Ministry of Finance of CBDT i.e. no uncalled for harassment should cause to the tax payer." 10. The submission of the assessee was forwarded to the A.O. for examination and comments. Vide his letter dated 19.08.2013, the A.O. has submitted as under:- "Addition of Rs. 6,95,66,165/- on the ground of suppression of production - A. O. in her assessment order has made addition on the ground of suppression of production a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess part of whole leaf tobacco and masala during the process of manufacturing, but what is the percentage of weight loss was not clear. Finding: As the assessee failed to produce any item wise chart of loss in the process of finishing Zarda, it is difficult to fully rely upon the submission of the assessee. Hence, addition made on this ground is correct." 11. The copy of remand report received from the A.O. was forwarded to the assessee. Vide their submission dated Nil, the counter comments have been given as under:- "B. Regarding addition of Rs. 6,95,66,165.00 on the allegation of suppression production of Zarda: That in this regard the detailed/ explanation was offered in the statement of fact in Para 19 to 53 at page 29 to 84 of the first paper book which comprises various charts etc. During the remand proceeding again the entire books of accounts including the excise records, stock and production register duly checked by central excise authorities books and records were examined and contentions of the assessee checked and found correct also. The books and records were thoroughly scrutinized by the assessing officer who was fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9-10 on 06.08.2013, the assessee explained about the process of manufacturing the Zarda by showing raw material. It was observed that the elements of the raw materials were not being reflected exactly in raw form in finished products, but it was also not clear whether the raw materials, particularly masala is used in grinded form or not because the colour of finished product was different from the colour of raw tobacco. It was also clear that some weight loss is there in the form of useless part of whole leaf tobacco and masala during the process of manufacturing, but what is the percentage of weight loss was not clear." That from the above observations of the assessing officer it will appear that the assessee fully explained the whole process of manufacturing of zarda by showing raw materials. The assessing officer also observed that it was clear that some weight loss is there in form of whole leaf tobacco and masala during the process of manufacturing. In this way a claim of loss/wastage/evaporation has been duly accepted by the department so the issue of loss/evaporation/wastage has finally concluded. But unfortunately the assessing officer worked out the production on own whim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That the assessee is maintaining the books of accounts in the systematic manners which are supported by day to day stock register and method of accounting has been accepted by the department in earlier year from the year of inception of business. (b) That in earlier year trading result was never disturbed though number of assessment were framed u/s 143(3) of the Income Tax Act by the various higher authorities of the department so as per the principles of consistency addition made is unwarranted as the assessing officer is bound to give cognizance to the past records. (c) That in the assessment year 1999-2000 for the first time in the history of the case an identical and similar addition of Rs. 3,40,69,013.00 was made under the head suppress production which was deleted in appeals and no reference filed even before the High Court. Thus the assessee's case is well covered by decision passed by the appellate court. (d) That in the entire block period of assessment there is no whispers about the invoking of provision of section 145(3) of the act and once the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is regard recorded in any order. (i) That from the assessment order it will appear that sales, purchases, closing stock are not in dispute and when all the heads of trading accounts are not in dispute. Hence the theory of suppressed production launched by the assessing officer is liable to be spunged. (j) That the assessing officer failed to state where such alleged suppressed production as worked out has gone and how disposed off closing the eyes of the central excise department. During the search or survey even no excess stock unaccounted cash or investment was found by the department and specially when till date there was no dispute by the side of excise authority about suppression of excise duty. (k) That it is an admitted fact that there is no fixed rate/ratio/parameter for consumption of various raw material used in manufacturing process as the same always varies at the stage of production depending on quality of raw material, atmosphere and moisture etc hence the percentage of consumption and production basis year after year . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is no adverse remark in the remand report. (r) That in the second paper book various decisions have been cited by the assessee and photocopy of those decisions also enclosed but due cognizance was not given by the assessing officer while preparing remand report. That in these backgrounds the remand report prepared without giving due weight to whole facts and legal position is no judicially correct facts narrated above." 12. The ld. CIT(A) considering the explanation of the assessee and the material on record did not justify the calculation made by the AO for the purpose of making addition, however, considering the comparable cases, reduced part of the addition. The assessee as well as the Revenue are in appeal on this ground. The findings of the ld. CIT(A) in para 5.15 are reproduced as under : "5.15 Decision: With reference to issue of suppression of production the A.O. started the discussion from page 2 of the assessment order in which first of all, she has thrown light on the process of manufacturing of Zarda. Thereafter, she has summarily remarked that the appellant has not shown the quantitative details of work in progress in the audit r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction lying in the premises, so no adverse finding could be given on the production of the finished products. The department could not find any hidden place to store the suppressed production. There is no allegation about exit of suppressed production by the Central Excise, the duty is leviable at the point of exit. The process of manufacturing was explained to the A.O. but the A.O. did not visit the manufacturing process. Relying on the decision of Allahabad High Court in the case of Mascot (India) Tools & Forges, the appellant has argued that no addition on account of suppression of sale can be made without any valid basis when the goods were excisable and correctness of the declared sales is supported by regular books of account, duly audited by the auditors. No G.P. rate addition can be made unless some specific mistakes in the accounts are pointed out. The A.O. has not considered the evaporation / wastage of percentage in arriving at her working of suppressed production. The appellant has also referred to one survey conducted by the excise department in the year 1991 for verification of stock in which they alleged that there was excess stock of tobacco found as a result of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, relevant for the purpose for which they are made and be reliable. In certain types of businesses, the absence of stock register or a quantitatively or qualitatively tallied manufacturing account can be a material ground for rejection of books [Namasivayan Chettiar (SN) Vs. C.I.T. (1960) 38 ITR 579 (SC), C.I.T. Vs. British Paints (India) Ltd. (1991) 188 ITR 44 (SC), Bimal Kumar Anant Kumar Vs. C.I.T. (2007) 288 ITR 278 (All.)]. In timber business, timber is sold with reference to length, girth and weight of timber, a stock account merely with reference to number of logs cannot be accepted as stock account capable of verification [C.I.T. Vs. Saatal Kattha & Chemical Pvt. Ltd. (2008) 296 ITR 197 (MP), Kachwala Gems Vs. JCIT (2007) 288 ITR 10 (SC)]. It is clear that when the business processes are complex, it is imperative that its relevant details could be ascertained at any stage. Where there is no record of details regarding wastage, shortage, shrinkage and like, the rejection of books has been upheld [Orissa Fisheries Development Corpn. Ltd. Vs. CIT (1978) 111 ITR 923 (Ori.)]. The valuation of work in progress at the end of the year is of great importance in certain cases. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was no way of checking whether the production of cloth shown in the books represents the true figure of production. The system of records adopted by the assessee is inadequate and does not afford an effective method of determining the true income, profits and gains so far as the production of cloth is concerned." 10. In the case of Bharat Milk Products v. Commissioner of Income Tax reported in 128 ITR page 682, the Division Bench of this Court in the absence of day to day manufacturing or production account, justified the applicability of the proviso to Section 145(1) of the Act. The Division Bench of this Court observed as follows:- "The proviso further says that even if the accounts are correct and complete but the method employed is such that the income cannot properly be deduced therefrom, the ITO can compute the income upon such basis and in such manner as he may determine. In the instant case it has been found as a fact and it was not disputed before us that the assessee did not maintain any day-to-day manufacturing and production account and the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the account books are not reliable or that particulars are not properly verifiable. Though, the judgment is under the U.P. Sales Tax Act but is relevant in the context of the present case. 15. The decision cited by the learned counsel for the assessee reported in 26 ITR page 159, 38 ITR 152 and 83 ITR 484 are not applicable to the present case. They were the cases of traders and not the manufacturer. It may be mentioned that there is nothing on record to show that in the previous year, assessee has maintained books of account in the similar fashion and its books of account have been accepted. 16. In view of foregoing discussions, question referred above, is answered in affirmative in favour of revenue and against the assessee. There shall be no order as to cost." Admittedly, the appellant whose case is before me, is the manufacturer of Zarda and it has not maintained production register on day to day basis to reflect the consumption and yield at any given stage. In accordance with the decision of Hon'ble Allahabad High Court in the case of Bharat Milk Products vs. Commissioner of Income Tax repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come can be deduced therefrom. It is incorrect to say that the officer is bound to accept the system of accounting regularly employed by the assessee, the correctness of which had not been questioned in the past. There is no estopel in these matters and the officer is not bound by the method followed in the earlier years. So the arguments of the assessee that when its books of account have been accepted in the past cannot be disturbed in future when the same system of accounting is maintained, deserves to be rejected. The appellate authority can also reject the books of account as per the decision of Hon'ble Supreme Court in the case of C.I.T. vs. McMillan & Co. (1958) 33 ITR 182. Now, let us examine the fallout and consequences of rejection of books of account. The rejection of the book results is a step-in-aid to the officer to compute the correct income on some reasonable and proper basis. As pointed out in C.I.T. Vs. Pilliah & Sons (Ky.), the estimation of turnover or profit rate or disallowance of claims of expenditure, shortage, wastage should be based on some material and cannot be arbitrary. As held in Shamsher Ali Abdul Hussain vs. C.I.T. (1945) 13 ITR 240 (Nag.), surroun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction vis-à-vis the consumption of raw materials cannot be one to one. There has to be generation of residuals and the process of evaporation. Now I would analyze the method of computation of the suppression of production as dealt with by the A.O. The A.O. has analyzed the quantitative details of raw materials and finished goods given in the audit report in column 28 of 3CD report. Though the A.O. has attempted to analyze the consumption of raw material and semi finished products for getting the finished products, in the process, the A.O. has also carried out some infructuous exercises. Apart from taking the quantitative details from audit report, the A.O. has also obtained the quantitative details of work in progress which is not part of details in the 3CD report. To this the appellant invited my attention to column 28 which requires the quantitative details of the principal items and byproducts. Therefore, the appellant has not shown the figures of work in progress in the said audit report. The work in progress has been shown only in the profit & loss account in terms of value. During the course of assessment proceedings the A.O. asked the assessee to produce the detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed goods given in the audit reports for above financial years is incorrect. The A.O. has quoted the reply of the assessee in this regard on Page 20 of the assessment order. Sri Krishna Chandra Kesarwani, the partner of the firm stated that the ratio is not that of quantity, but that of value of consumption of material to sales in terms of rupee. Secondly, the percentage has been shown against the consumption of raw tobacco only. Now it is important to understand the percentage of yield as shown by the assessee and understood by the A.O. On page 17 of the assessment order the A.O. has shown percentage of yield for financial years 2003-04 to 2009-10. As far as F.Y. 2003-04 is concerned, the same has been shown at 106.13%. In a reply to a question on the ratio of ingredients to produce 1 Kg of finished product, the partner of the firm Sri Kailash Chandra Kesarwani had stated that the ratio is 'trade secret' and he would not reveal the same. The A.O. also relied on the surrender of Rs. 50 Lakh for not disclosing the ratio of consumption of raw material. During the course of proceedings before me, the appellant emphasized that the A.O. misunderstood the average percentage of yield co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he yield of 8,90,193.600 Kg. There is no dispute on the weight of tobacco leaf and opening work in progress in the end product, as shown in the chart prepared by the A.O. and also accepted by the assessee. The only difference and bone of contention is with regard to other materials which remained 51,451.100 Kg in the finished goods while it was used 2,31,583.996 Kg as raw material. The A.O. analyzed the proportion of other materials in the finished product and held that on the use of other materials, the weight in the finished product remains only at 22%, meaning thereby approximately 78% gets evaporated. To explain the loss of weight, the appellant has submitted before me that:- "The major loss is in the use of Whole leaf, Masala and perfumery and chemicals items as detailed on page 222 of the paper book and also explained in Para (i) and (ii) of page 225, Para (v) of page 226 and Para (vii) of Page 227 of paper book in A.Y.2004-2005, the explanation may please be considered. That raw tobacco (Whole Leaf) is boiled in water to take out its ark known as "Raw Kimam". The residual water i.e. tobacco becomes useless and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the comparable cases of manufacturing of flavoured tobacco. The assessee has not come forward with any such comparable cases in this line of business. Therefore, I undertook this exercise and collected the audited reports of the two concerns. It may be noted that such figures are not available in the public domain or public data bases. It may also be added that these concerns are also engaged in the manufacturing of the same product. Though, the details of their manufacturing process are not available, it is presumed that they also follow a process more or less same as the appellant uses for the manufacturing. Therefore vide this office letter F.No. CIT(A)/Alld./KZB/2013-14 dated 05.09.2013, the appellant was required to furnish its comments on the contents of my letter and on the production data taken from the respective audit reports i.e. 3CD, column no. 32 :- "To, Kesarwani Zarda Bhandar, Sahson, Allahabad Sub: Ratio between production of finished goods with material consumed. Ref: Assessment Years 2004-05 to 2010-11 - reg. - Please refer to the above. 2.During the course of hearings, you have challenged the orders of respective assessment years of the A.O. comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to consider the ingredients used for manufacturing of zarda as well as processing of manufacturing of zarda but such thing are absent in the audit report considered as comparable cases. In the course of hearing a voluminous paper books was filed in respect of assessment years 2004-05 to 2010-11 and in the paper book entire stage wise manufacturing process were discussed in detail, various charts were filed therefore the undersigned person requesting your goodself to give weightage to the past record of the assessee past history where different authorities of the department examined our manufacturing process, considered our method of accounting, considered the method and maintenance of books of account, examined our central excise record and then accepted our production as well as trading result year after year including the assessment year 2004-05, 2005-06 and 2006-07. In this case a search operation was conducted on 27-08-2009 and in the course of search operation no incriminating material, no loose paper, no excess stock was found by the search party but simply because a search was conducted therefore as per regular practice of the department book result was disturbed in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leaf, grinding of spices, manufacturing of perfume. We manufacture different varities of zarda. The important facts for consideration is that even the taste of finished zarda of assessee's firm and comparable two cases are different which shows that ingredients and formula are not common, so the question of comparison does not arises. We used various types of ingredients for manufacturing of zarda but in the two comparable cases what types of ingredients they used are absent therefore question of comparison with two cases does not arise. Thus in nut shell the entire approach of the assessing officer is nothing but mislead and to ignore the norms of judicial proceeding and commercial principle with the view to determine abnormal income simply to justify search and proceeded hence the undersigned person pray that the books result may please be accepted. Under these circumstances the assessee pray that the two audit report which was enclosed alongwith the letter dated 05-09-2013 liable to be ignored/discarded in all fairness and justice and basis of the same kindly be not adopted for deciding our appeals." I have examined the submission of the appellant refuting the proposition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m. I do admit that there is loss of weight in form of evaporation & residuals in the process of manufacturing. I also admit that the cited cases of comparison may or may not have same or similar process of manufacturing. They may not be manufacturing the perfume (major source of loss of weight), they may be purchasing the perfumery items from the market. But the yield shown by the cited cases does give certain indication of percentage of production in this line of business. Therefore, I hold that the cited cases may be considered as comparable cases as far as the percentage of yield in the manufacturing of zarda is concerned. The average of yield in the cited cases is 91.33% (92.29 + 90.37)/2. Considering the facts (i) There may be slight variation in the percentage of yield depending on the factors of time i.e. from year to year (ii) The use of perfume by direct purchase or by manufacturing in own factory may affect the waste (iii) The processes adopted may vary resulting in variation in production (iv) The quality of raw materials used may also affect the yield and (v) The process of manufacturing of Kimam or its purchase from the market may be a distinguishable feature, especial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,57,13,680.75 5,20,13,036.25 2010-11 7,76,72,166 2,32,73,571.38 5,43,98,594.62 In accordance with the above, the addition of Rs. 2,69,03,083.68/- on this issue is confirmed. The appellant would get the relief of Rs. 4,26,63,081.32/- for the F.Y. 2003-04, relevant for A.Y. 2004-05." 13. We have considered the rival submissions and the material on record. The assessee challenged addition of Rs. 2,69,03,083/- whereas department challenged deletion of addition of Rs. 4,26,63,081/-. 14. The ld. counsel for the assessee reiterated the submissions made before the authorities below. He has submitted that in earlier year, lesser yield of the production has been accepted by the Revenue Authorities. In comparable cases cited by the ld. CIT(A), there are distinguishable features, which are noted at PB 235A of the paper book and even the ld. CIT(A) considered that these cases may not be comparable on facts because the declared turnover of the assessee is more than the turnover declared in the comparable cases. In assessment year 1999-2000 similar addition was made by the AO which has been deleted by the ld. CIT(A) and confirmed by the Tribunal. Copies of the orders are filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there is no material recovered against the assessee during the course of search and no specific defects have been pointed out in maintenance of books of account and in past also on the similar pattern the books of account have been maintained and lesser yield of production has been accepted by the Revenue Department. Even in assessment year 1999-2000 on identical facts, similar addition was made and it was a case of survey u/s. 133A and addition have been deleted. The ld. CIT(A) was of the view that production account is necessary for manufacturing business and the ld. CIT(A) rejected the books of account u/s. 145(3) by using the powers u/s. 251 of the IT Act even if the books were not rejected by the AO. The ld. CIT(A) found that the AO has analysed quantitative details of raw materials and finished goods as were given in the audit report. The ld. CIT(A) also found that though the AO has attempted to analyze the consumption of raw material and semi-finished products for getting the finished products, in the process, the AO has also carried out some infructuous exercise. The AO called for the details of work-in-progress in terms of quantity also which were furnished and same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bacco only. Therefore, the working of suppression of production by the AO was not found to be justified. It would mean that the ld. CIT(A) did not accept the theory of findings propounded by the AO for the purpose of making the addition. The finding of fact recorded by the ld. CIT(A) rejecting the findings of the AO have not been disputed before us during the course of arguments and have also not been rebutted by the ld. DR through any evidences or material on record. The ld. CIT(A) thereafter proceeded to decide the issue on the basis of comparable cases in the line of the business. The ld. CIT(A) collected the audit reports of two concerns, namely M/s. Kishore Zarda Factory and Sugandhi Snuff King showing ratio of material consumption to finished goods produced in 92.29% and 90.37%. The assessee submitted its objections before the ld. CIT(A) and distinguished the same to say that these are not comparable cases. The ld. CIT(A) accepted that audit reports of these two concerns do not speak of the manufacturing process, but the department is concerned with the percentage of yield. The ld. CIT(A) heavily relied upon the decision of the Hon'ble Supreme Court in the case of CIT vs. Br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is loss of weight in the form of evaporation and residuals in the process of manufacturing. Therefore, the submissions of the assessee shall have to be accepted for the purpose of believing the books of accounts properly maintained by the assessee. Hon'ble Supreme Court in the case of M/s. Flexi Pack, 319 ITR (Statute)(SC) 3, held that there is no question of going on estimate of income without rejecting the books of account of the assessee. In the case of assessee, it is admitted fact that the books of account of the assessee have not been rejected by the AO u/s. 145(3) of the IT Act. The ld. CIT(A) heavily relied upon the decision of Hon'ble Supreme Court in the case of CIT vs. British Paints (India) Ltd., 188 ITR 44, in which the facts are clearly distinguishable from the facts of the case of the assessee. In this case, the assessee company was engaged in the manufacture and sale of paints, had, as a consistent practice, valued its goods in process and finished products exclusively at cost of raw materials totally excluding overhead expenditure. The ITO held that there was no justification to recognize a practice of valuing stock otherwise than in accordance with well rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e may note here that it is well settled principle of law that even if the principle of res judicata does not apply to the Income-tax proceedings, but the income-tax authorities shall have to follow the principle of consistency. We rely upon the decision of Hon'ble Supreme Court in the case of Radhasoami Satsang vs. CIT, 193 ITR 321, the decision of M.P. High Court in the case of Godavari Corporation, 156 ITR 835, decision of Supreme Court in the case of Union of India vs. Satish Panalal Shah, 249 ITR 221 and the decision of Delhi High Court in the case of Escorts Ltd., 338 ITR 435. Therefore, identical issue considered and decided in earlier years in favour of the assessee by the AO as well as by the Tribunal in various years should have been followed by the authorities below on the identical issue. It is also not in dispute that the end product, i.e., Zarda is excisable item/goods and subjected to inspection and control by the Excise Authorities and it is admitted fact that the Excise Department accepted the manufactured goods and cleared the goods manufactured on duty paid. Such a circumstance also supports the explanation of the assessee that there is no suppression of the yield ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that goods sold outside the books of account were acquired from unexplained sources. The value of entire sale outside the books cannot be added. Only profit margin may be added. This view was re-confirmed in its later decision in the case of Samir Synthetics Mill, 326 ITR 410 (Guj.). Therefore, the addition maintained by the authorities below was highly unjustified. The ld.CIT(A) though cited the alleged comparable cases of M/s. Kishore Zarda Factory and Sugandhi Snuff King, but admitted in the impugned order that the cited cases of comparison may or may not have the same or similar process of manufacturing. They may not be manufacturing the perfumes, which is major source of loss of weight. They may be purchasing the perfumery items from the market. It would suggest that these were not the comparable cases to be cited against the assessee. The assessee has filed the complete details of sales declared by the assessee and these two concerns at page 235A of the paper book to show that in the case of Kishore Zarda Factory in assessment year 2008-09, the declared sales were Rs. 1.19 crores and in the case of Sugandhi Snuff King for assessment year 2012-13 the declared sales of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee from every possible angle, we are of the view that the authorities below were not justified in making or confirming any addition against the assessee. We accordingly, set side the orders of the authorities below and delete the entire addition in assessment year 2004-05. In the result, the appeal of the assessee is allowed and the departmental appeal is dismissed on this issue. 15.1 This issue is arising in the remaining appeals for the assessment year 2005- 06 to 2009-10 under appeals before us in which the assessee has declared percentage of yield at 84.69%, 84.04%, 85.08%, 83.80% and 83.80%. The AO took the percentage of yield at 105.66% and the ld. CIT(A) restricted the addition by taking the percentage of yield at 90% as has been taken in assessment year 2004-05. The assessee as well as the revenue are in cross appeals on the identical issue. By following the order for the assessment year 2004-05 above, we set aside the orders of the authorities below and delete the entire additions. In the result, all the remaining appeals of the assessee are allowed and the departmental appeals are dismissed on this issue. 16. Issue No. 3 (Bogus Liabilities): This issue arises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a sum of Rs. 30,04,511/-. The break-up of the same is given at page 328 of the paper book. At page 329 & 330 of the paper book, the list of sundry creditors for expenses from preceding assessment year 2003-04 have been mentioned in a sum of Rs. 57,34,725/-. Ongoing through the same, we find that most of the sundry creditors for expenses are coming up from preceding assessment year 2003-04 except one item of Tarun Bharat Associates, Nagpur was new item. The other item in the name of Vartman Kamal Jyoti Lucknow has reduced in assessment year under appeal as compared to preceding assessment year 2003-04. The ld. counsel for the assessee also filed the chart showing sundry creditors for expenses in submissions for all the assessment years under appeals and is reproduced as under : "Chart showing Sundry Creditors for Expenses. That the assessee claimed sundry creditor in the balance sheet and the amount of sundry creditor appearing in the balance sheet are as under :- A.Y. Total Liability under the head sundry creditors for expenses. Disputed Amount under the head "OTHERS" 2003-04 57,34,725.81 NIL 2004-05 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the addition to the building has been shown at Rs. 63,58,268/-. The assessee was asked to furnish the bills and vouchers in respect of the addition made to the building, but the assessee failed to produce the same. Reference to the DVO was made on 19.10.2011. The assessee could not produce bills and vouchers before the DVO as well. The assessee has only furnished break-up of addition in building at Sahson and Purna Bhiwandi, which was Rs. 7,06,980/- and Rs. 57,51,288/- respectively. The valuation officer valued the cost of construction for head office, Sahson building and not for building at Purna Bhiwandi. The valuation Officer submitted the report on 09.12.2011 and valued the cost of addition to the building at Sahson at Rs. 8,36,597/- as against Rs. 7,06,980/- declared by the assessee. So, there was difference of Rs. 1,29,617/-. The assessee explained before the AO that the DVO's report is only opinion based on estimate and the property is inspected on 18.11.2011 whereas the construction falls in different assessment years from 2004-05 to 2010-11. It was submitted that instead of CPWD rate, the DVO should have applied the PWD rate and in the rural area, the labour and building ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at pages 116 of the paper book, which support the submissions of the assessee that investment has been made from the assessment year 2004-05 to 2010-11. The assessee maintained proper books of account in past and it was only when no regular books of account were found during the course of survey, the AO inferred that the assessee did not maintain regular books of account, but with regard to shortage of cash on which addition of Rs. 37,30,710/- was made, the AO on perusal of the audit report relevant to assessment year under appeal took the figure of cash available with the assessee firm at Rs. 64,70,642/-. Thus, the AO acted on the audit report, which is prepared on the basis of the books of account maintained by the assessee. Thus, there were no reasons to discard the books of account merely because the same were not found during the course of survey. The AO should have verified each and every entry from the books of account of the assessee on this issue before making reference to the DVO. However, no such findings have been given and the AO merely because the assessee did not produce bills and vouchers referred the matter to the DVO for estimating cost of construction. The findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2004-05. In the assessment year 2004-05, the AO observed that a sum of Rs. 5,94,173/- has been debited on account of shop expenses out of which vouchers for expenses incurred on entertainment account of Rs. 78,780/- and expenses incurred on milk and Gur for workers are amounting to Rs. 33,556/-. The AO mentioned that vouchers of these expenses were not produced for verification, therefore, she disallowed 50% of both the expenses and made addition of Rs. 39,390/- and Rs. 16,780/- respectively. The AO also disallowed 10% of the expenses towards telephone to cover up personal use by the partners and made disallowance of Rs. 31,313/-. The disallowance of Rs. 12,635/- has been made out of generator expenses on the ground that some of the vouchers are not verifiable in nature. The AO also disallowed 10% out of motor vehicle expenses and petrol expenses on the ground that personal user of the petrol etc. by the partners cannot be ruled out and made additions of Rs. 37,915/- and Rs. 32,803/-. 21. The assessee submitted before the ld. CIT(A) that the assessee's principal place of business is at Sahson, which is about 22 kms. away from Allahabad city. The dealers and customers came fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lephone expenses. Generator expenses are also accepted in earlier years and on motor vehicle and petrol expenses about 5% have been disallowed in earlier years. It is, therefore, claimed that the same issue has been examined u/s. 143(3) in earlier years and no huge additions have been made or in fact no additions have been made. Even in original assessment proceedings for the assessment year 2004-05, the AO accepted these expenses. It would, therefore, show that volume of addition made by the authorities below is wholly excessive in nature. Therefore, considering the findings of the authorities that some vouchers have not been produced or that personal user are not ruled out, it would not be proper to delete the entire additions. However, same are excessive in nature and needs reduction to a reasonable extent because most of the expenses are incurred for business purposes. We set aside the orders of the authorities below and reduce the disallowance of expenses on all these heads to 5% of the total claim on different heads of expenses. The AO is directed to restrict the disallowance of expenses under all these heads to 5% in all. In the result, the appeal of the assessee for the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO was also called for. 24. The ld. CIT(A) found the contention of the assessee to be correct that the AO discussed this issue with regard to the purchase made from M/s. Sarita Industries, Kanpur and thereafter observed that the purchases were made from Cosmos Elmek, Varanasi. The ld. CIT(A) found this party to be genuine and assessed to Sales Tax also and sale in their case have been accepted by the Sales Tax Authorities. Their books of account are audited. No material was found during the course of search to hold that the bogus purchases from this party have been made. Payments were found to have been made of these purchases through different demand drafts. The ld. CIT(A), therefore, found that purchases should be genuine and accordingly deleted the addition. 25. On consideration of the rival submissions we do not find any justification to interfere with the order of the ld. CIT(A) in deleting the addition. The assessee has made out a case that genuine purchases have been made from M/s. Cosmos Elmek and the purchases are entered into the books of accounts. The payments are made through bank drafts, which are also entered into the books of account. No material was found duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchases have been made and these were accommodation entries only. The addition of Rs. 27,21,888/- against invoice No. 172 dated 23.11.2006 was accordingly made. 27. It was submitted before the ld. CT(A) that the purchases are debited in the books of account and no purchases outside the books of account found. Therefore, there is no question of bogus purchases. M/s. Sarita Industries, Kanpur is a genuine and reputed firm. In preceding assessment year 2006-07 and subsequent assessment years 2008-09, 2009-10 and 2010-11, the purchases from the same party have been accepted by the department. Copies of all the bills of purchases were submitted. It was submitted that in the year under consideration, the assessee made purchases of Rs. 1,23,64,142/- and the AO has doubted only the purchases of Rs. 27,21,888/- in respect of one bill No. 172 only and rest of the purchases have been accepted. It was submitted that this party has PAN and registered with the Central Excise Authorities. The proprietor has filed affidavit confirming the transaction with the assessee. The payments are made through banking channel, i.e., account payee demand drafts. In the statement of Shri Rakesh Narain Gupta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should not have been rejected by the ld. CIT(A) and no addition should be made against the assessee. The assessee has debited all the purchases in the books of account ad no purchases outside the books of account have been found during the course of search. Merely because the party withdrew the amount from bank is not sufficient to discard the explanation of the assessee. Proprietor of M/s. Sarita Industries also filed affidavit before the authorities below confirming the transaction with the assessee. Therefore, such should not have been the reason for treating the purchase to be bogus. In view of the above discussion, we set aside the orders of the authorities below and delete the addition of Rs. 27,21,888/-. In the result, ground No. 4 of appeal of the assessee is allowed in assessment year 2007-08. 29. Issue No. 8 (Bogus purchases from M/s. Cosmo Elmek): This issue arises in assessment year 2008-09. On ground No. 3, the assessee challenged the addition of Rs. 4,54,240/- in respect of purchase of perfumery items from M/s. Cosmo Elmek, Varanasi. The Revenue on ground No. 5 challenged the order of the ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t no enquiry has been conducted in respect of vehicle used for transportation of the goods, the part addition should not have been maintained. We following the order for the assessment year 2006-07 and considering the above discussion set aside the orders of authorities below and delete the addition of Rs. 4,54,240/-. In the result, the appeal of the assessee is allowed ad departmental appeal stands dismissed. 31. Issue No. 9 (Bogus purchase from M/s. Cosmo Elmek) : This issue arises in assessment year 2009-10. The assessee challenged the addition of Rs. 33,49,264/- on account of purchases made from M/s. Cosmo Elmek Varanasi. The Revenue on ground No. 5, challenged the reducing of disallowance of Rs. 1,64,38,134/-. The assessee challenged the addition of Rs. 1,64,38,134/- in respect of purchase made from Cosmo Elmek, Varanasi before the ld. CIT(A). The facts are same as are considered in the assessment years 2006-07 and 2008-09 above. The AO on the bass of use of vehicle inferred that the assessee has made bogus purchase. Bifurcation of purchase was submitted before the ld. CIT(A) to show that vehicle used for transportation was UP 65 AB 8414 and UP 65 Y-3901. The assessee made s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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