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TMI Blog2013 (10) TMI 1453X X X X Extracts X X X X X X X X Extracts X X X X ..... J. M. Joshi on 14/03/2002. During the search, assessee s relatives/family members, close business associates and other persons connected with his business activities were also covered. Surveys u/s 133A of the Income tax Act, 1961 were also conducted at business premises of some of the persons having close nexus with assessee s business activities. The assessee was running several proprietorship concerns. One of the main business activities of the assessee was manufacture of Attar Hina (herein after referred as AH ) which is stated to be used in Gutkha and other tobacco/Supari related products for fragrance purpose. The manufacturing of AH is being done under the name and style of assessee s proprietorship concern M/s J. M. Essential Oil Co. It was contended by the assessee that AH is a premium quality product sold at a very high price. It is observed by the Ld. A.O that the products like Gutkha/scented tobacco etc. which are of very high addictive nature are patronised by the people because of the typical characteristic flavour of a particular Brand. It was informed by the assessee that due to his special ability of manufacture and blending of perfumes of high quality, he had b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was noticed that the assessee was showing manufacturing of very huge quantities of AH. The same was being sold to various parties across the country and thereby the assessee generated huge money claimed to be exempted u/s 80IA. The Ld. DR has referred the relevant part of the statement of Shri NCM as reproduced by the Assessing Officer and submitted that two statements of Shri NCM were recorded by the investigation wing one in the course of search and seizure action and another in the post search inquiry. In both the statements Shri NCM fail to explain the use of AH allegedly purchased from the assessee and the sale of the alleged scented brooms in huge quantity. He has submitted that Shri NCM has stated that he has purchased substantial quantity of AH from the assessee and has used the same for manufacturing scented brooms which is extremely surprising and against the human probabilities that a premium quality perfumes worth of more than ₹ 40 crores was allegedly used for manufacturing of brooms. Shri NCM also failed to explain how the brooms were manufactured, stored and sold in such a huge quantity. The Ld. CIT DR has forcefully contended that Shri NCM has also failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e accepted because of the close nexus between the parties. In support of his contention he has relied upon the following decisions: Dr. S.C. Gupta Vs CIT 248 ITR 782 Kunhambu (V.) and Sons Vs CIT 219 ITR 235 Rameshchandra and Company Vs CIT 168 ITR 375 6. The Ld. DR has contended that the retraction of statement does not materially impeach first statement made by NCM as no explanation has been furnished for such a retraction. The Ld. DR has contended that the retraction is after thought as it was after a considerable time gap therefore, cannot be accepted. The Ld. DR has then submitted that there are contradictory statements about the rented premises of the assessee being used by NCM for its business purpose. He has contended that in his statement NCM stated that he has taken the premises of the assessee in Mumbai on rent whereas the assessee denied of letting out of such premises. In the circumstances of the case where the affairs are apparently suspicious, the assessee failed to discharge its onus to prove the genuineness of the transaction. The Ld. DR has referred the observation of CIT(A) as page 15 of the impugned order regarding resale of AH by Shri NCM which is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee therefore, in the absence of any material found during the search no addition can be made in the block assessment. The AO has relied upon the statements recorded during the search and seizure action in the case of Shri NCM whereas the Ld. AR has forcefully contended that when nothing was found during the search and seizure action then the post search inquiry becomes irrelevant because it has to be relatable only to the evidence found during the search and seizure action. The sale was duly recorded in the books of account prior to the search. No unaccounted cash found or any other incriminating material found during the search. Even Shri NCM has also recorded all sale and purchase transaction with the assessee in his books of account. Therefore, no iota of evidence found to show that the sales being bogus. He has relied upon the decision of Hon ble Jurisdiction High Court in case of CIT Vs Vinod Danchand Ghodawat 247 ITR 448 and submitted that when the transaction are recorded in the books of account then no addition can be made on ground of undisclosed income. In support of his contention the Ld. AR has also relied upon the following decisions: CIT Vs Shamlal Balram Gurbani 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details of plant and machinery, raw material used, list of employees, workers. Thus, the assessee has brought on record all relevant material and information to prove that the transactions are genuine and duly recorded in the regular books of accounts. The Ld. AR has further pointed out that even in the block assessment for the block period ended on 30.7.1997 for 10 years the claim of deduction u/s 80IA has been allowed. The Ld. AR has referred the details of party wise and transport wise sale during the block period at page no. 249 to 259 of paper book and submitted that the AO has doubted the sale of goods dispatch through Shri Siddhi Vinayak Express Cargo only to the extent of 2500 kg each to JPL and JIL out of the total quantity of 33,680 to these companies of Shri NCM. The AO has not disputed the transport charges paid to the other transporters/cargo services through which the goods were dispatched to JPL and JIL which shows that the assessee established beyond doubt the transportation of the goods sold to JPL and JIL. On the one hand, the AO accepted the transportation of the goods whereas on the other hand the sale was treated as bogus and addition was made as undisclosed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and submitted that it is proved from the statements of the employees that the assessee was in the business of manufacturing of AH and the products was sold to the various parties. The Ld. AR has also referred the comparative chart of net profit ratio of the various years right from the assessment year 1999-2000 and submitted that the net profit ratio in all the years including block assessment is comparable therefore, there is nothing on record to suggest the inflated figure of sale. Further in the absence of any incrementing material or out of books stock of AH found during the search, the sales duly recorded in the books of accounts cannot be treated as bogus and assessed as undisclosed income in the block assessment. The Ld. AR has also filed the declaration under Central Excise Act, Sales Tax Act as well as the quantitative details of raw material and finished goods as per the 3CDs comprising opening stock, purchase, consumption, closing stock, sales, manufacturing, manufacture quantity, work in progress etc. and submitted that there was no discrepancy found in the record of the assessee. He has also referred the affidavit of Shri NCM whereby the earlier statements wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h shows that the transaction of sale of AH by the assessee to Shri NCM is genuine. The Ld. AR has further submitted that the explanation regarding use of AH by Shri NCM is not an obligation of the assessee because what the assessee has sold to Shri NCM is AH and thereafter the utilisation of the same by Shri NCM is none of the assessee s business. Thus, what is suspected by the department is the utilisation of AH in manufacturing of brooms and not the purchase of AH by Shri NCM. Thus, the statement of Shri NCM, though retracted subsequently, cannot be used against the assessee as nothing has been stated by Shri NCM that the purchase/sale transaction between the assessee and Shri NCM is not genuine. The Ld. AR has submitted that the transportation of AH is proved by the assessee which is also confirmed by Shri NCM in his statement. The assessee has proved the transportation of AH to JIL and JPL through the various transporters then the nonsatisfactory explanation by Shri NCM cannot disapprove the fact established by the assessee by producing the evidence. 12. The Ld. AR has thus, summarised his arguments that the fact of purchase of AH has not been denied by Shri NCM who has also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was inferred that the sale of AH by the assessee to NCM is bogus. The other reasons for treating the sale of AH as bogus by the A.O are the failure of NCM to produce evidence of transportation of AH and deposit of cash in the bank account from which cheques were issued to the assessee. In his statement Shri NCM stated that the goods were being supplied by the assessee at his factories namely M/s JPL and M/s JIL. These two companies of Shri NCM are assessed to tax at Hubli and showing the transaction of purchase of AH. On the other hand, the assessee has produced all requisite evidence to prove the sale and transportation of AH to Shri NCM. Further the A.O has allowed the transportation charges paid for supply of AH to NCM except the transport through Shri Siddhi Vinayak Express Cargo. It is pertinent to note that only 5000 kg of AH was supplied 2500 kg each to JPL and JIL through Shri Siddhi Vinayak Express Cargo (transporter). Further the transportation charges disallowed by the A.O in respect of Shri Siddhi Vinayak Express Cargo has been allowed by the CIT(A) and the Revenue has accepted the order of the CIT(A) ON THIS POINT. It is clear that the A.O has doubted the transport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Hon ble Jurisdiction High Court has held that the transactions in question were disclosed in the returns which were the subject matter of regular assessment cannot be said to be undisclosed transaction falling u/s 158B of Income Tax Act. This ought to have been assessed in the regular assessment and not in block assessment. In case of CIT Vs P. K. Ganeshwar (supra) the Hon ble Madras High Court has held that even information gathered during the post search investigation cannot be used to arrive at the undisclosed income under the block assessment u/s 158BB when no such information was found in the search operation. In case of CIT Vs Jupiter Builders P. Ltd. (supra), the Hon ble Delhi High Court has held that since there was no evidence found during the search on which the A.O to make addition and the relevant expenses/income had been duly reflected and disclosed in the course of assessment proceedings by the assessee it could not be said to be undisclosed income of the assessee and assessed in proceedings under block assessment. In case of CIT Vs GOM Industries Ltd. (supra), the Hon ble Madhya Pradesh High Court has held that the amount could not be added as income from undis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... litigation therefore, the genuineness of the transaction between the assessee and NCM cannot be doubted merely on the basis of non-cooperation and evasive reply by NCM in the course of statement recorded by the department. In this case the A.O relied upon the statement of third party and not of the assessee therefore the decision relied upon by the Ld. DR are not applicable in the facts of this case. As regards the observation of the CIT(A) that there was a possibility of resale of AH by NCM. We note that this fact was already expressed by the assessee at the time of increasing the rate of AH and consequently the NCM filed the suit for the year 1998. Further the A.O has also not ruled out the resale of AH by NCM. 16. The CIT(A) has discussed the matter in detail by considering all relevant material and circumstances and gave the finding in para 2.6.9, 2.6.11 to 2.6.27 as under: 2.6.9 On perusing the material brought before me and upon the analysis of sequence of events, it is apparent that there could not have been a situation of bogus sale until and unless the whole manufacturing the purchases were held to be bogus by the Ld. A.O. I find that whereas he has not disturbed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduction records at Silvassa; all audited accounts, reports including 3CDs showing all quantitative details about raw material, production and sale, filed for all the years covered under block period lying with the Ld. AO himself; and all evidences and facts produced before the Ld. AO during the assessment proceedings, in holding that sales of AH made to JIL JPL are not proved while accepting the manufacturing of AH arid sale thereof to other parties. 2.6.14 With respect to unaccounted money alleged to be routed through the bank accounts of JIL and JPL, it was submitted that it cannot be denied that the amount deposited in the bank account were received from J.P.L. and J.I.L and as such to say that they are receipt from undisclosed sources of the appellant is contrary to factual matrix of the instant case. Payments made by these customers must have been duly reflected in their books of account as they are companies (public limited companies duly quoted on recognized stock exchange) whose accounts are statutorily audited and as such to say that the amount in question are unaccounted money of the appellant is inconsistent with the facts on the records and as such the finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom which the receipts have arisen is also identifiable. Even the Ld. AO has himself admittedly allowed the deduction u/s.801A in respect of the very item manufactured by the some unit and thus to say the receipts are from undisclosed source is incomprehensible. It is thus, very clear that the Ld. AO has based his assessment not on facts and evidences available on record but only on conjectures and presumptions which cannot stand the scrutiny of law and thus, is unreasonable and based on no evidence. 2.6.19 Further, findings in the previous search of block period 1988-89 to 1997-98 and from 1.4.97 to 30.7.1997 are also apt for reference. Vide assessment order u/s.158BC dated 10.05.1999, a finding was given that the appellant manufactured and sold perfumes by the name of Attar Hina at Silvasa from 15.12.1995 to the ending of the block period 30.7.1997. Said perfume was stated to be sold at a price of ₹ 11,500 per kg. It was seen from the perusal of records seized during the search that the following quantity of Attar Hina was manufactured - 15.12.1995 to March, 1996 : 2545 kg 1.4.96 to 31.3.97 : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatement he categorically admitted of receiving Attar Hina from the appellant as explained above . Question of bringing own unaccounted money does not appear to be backed by evidence as no unaccounted cash or unaccounted source of income was found in the case of the appellant during the search. The allegation that the appellant brought its own unaccounted money is thus based on presumptions and surmises. 2.6.24 Quantity wise details of Liquid paraffin purchased during block period, Qty. wise details of Attar Hina Produced during the block period, Quantity wise details of items, produced during the block period were submitted during the assessment proceedings On the basis of the same, it has been averred that verification of raw material registers, issue slips and production registers ( few of them seized during the search) clearly show quantity wise details of product manufactured by the appellant. 2.6.25 Sales made by the appellant is proved with documentary evidences. Book result of the appellant has been accepted by the Department in the earlier years, in the order of Block period of earlier search and orders of regular assessments. 2.6.26 In view of this, alleg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod. Therefore, addition of ₹ 17,040/- is also deleted. 2.7.1 Ld. AO stated that in view of the statements of persons behind the hawala bill operations of M/s Kalpataru Roadlines M/s Siddhi Vinayak Express Cargo Co., notional hawala charges paid by the appellant @ 6% were also disallowed being made from undisclosed sources. AY M/s Kalpataru Roadlines: M/s Siddhi Vinayak 2001-02 301.20 - 1/04/2001 to 14/03/2002 325.2 721.2 2.7.2 Ld. AG added ₹ 626/- being 6% of flotional Transport charges of ₹ 10,440/- paid to M/s Kalpataru Roadlines as Hawala charges paid by the appellant and ₹ 721.2 to M/s Siddhi Vinayak Express Cargo Co.. 2.7.3 Appellant submitted that in view of the submissions made, actual transportation of appellant s goods by the transporter is beyond any doubt and documentary evidences in support of this such as confirmations of both the consignees, affidavit from Shri Dhiren Shah, Proprietor of M/s Kalpataru Roadlines proves the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant or the respondent to raise a new point or new contention provided the two conditions are satisfied namely no new facts are required to be brought on record for disposing of such new point and opportunity to be given to the other side to meet the point. Thus, the Ld. Authorised Representative of the assessee has submitted that a legal issue which does not require any new fact to be brought on record can be raised on the validity of the block assessment u/s 158BC. The Ld. AR of the assessee has submitted that the AO has not issued notice u/s 143(2) therefore, the order passed by the AO is without jurisdiction. He has relied upon the decision of Hon ble Supreme Court in case of Hotel Blue Moon 321 ITR 362 as well as the decision of Hon ble Delhi High Court in case of CIT Vs CPR Capital Services Ltd. 330 ITR 43. 20. On the other hand, the Ld. CIT DR has submitted that the AO has issued a composite notice u/s 142(1) and 143(2). The Ld. DR has referred the letter of the AO whereby various queries were raised as well as the assessee was asked the required compliance in respect of various points. The Ld. DR has submitted that this letter specifically mentioned that the noti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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