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TMI Blog2019 (6) TMI 1115X X X X Extracts X X X X X X X X Extracts X X X X ..... t of common order passed by Ld. Commissioner of Income-Tax (Appeals)-16, Mumbai, [CIT(A)] on 25/11/2016 for AYs 2007-08 to 2013-14. For ease of reference and better understanding, the same could be tabulated in the following manner: - No. ITA / CO No. AY Assessment framed u/s Assessment order dated Remarks 1. 975/Mum/2017 2007-08 143(3) r.w.s. 147 24/03/2015 Revenue's Appeal 2. 984/Mum/2017 2008-09 143(3) r.w.s. 147 24/03/2015 Revenue's Appeal 3. 988/Mum/2017 2009-10 143(3) r.w.s. 147 26/03/2015 Revenue's Appeal 4. 985/Mum/2017 2010-11 143(3) r.w.s. 147 24/11/2015 Revenue's Appeal 5. 986/Mum/2017 2011-12 143(3) 27/01/2014 Revenue's Appeal 6. 987/Mum/2017 2012-13 143(3) 20/03/2015 Revenue's Appeal 7. 989/Mum/2017 2013-14 143(3) 22/02/2016 Revenue's Appeal 8. 126/Mum/2018 2008-09 143(3) r.w.s. 147 24/03/2015 Assessee's Cross-Objections 9. 127/Mum/2018 2009-10 143(3) r.w.s. 147 26/03/2015 Assessee's Cross-Objections 10. 128/Mum/2018 2010-11 143(3) r.w.s. 147 24/11/2015 Assessee's Cross-Objections 11. 129/Mum/2018 2011-12 143(3) 27/01/2014 Assessee's Cross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground of appeal, the sole issue under consideration is certain estimated addition on account of alleged understatement of yield by the assessee in manufacturing process. Quantum Assessment Proceedings 2.3 During the course of assessment proceedings, It transpired that the assessee reflected yield of paper (in Metric Tons) at around 80% during AY 2011-12 as well as in the earlier years. The yield of impugned AY was reflected as 80.41%. The main raw material used for the production of M.G. Kraft Paper was indigenous paper waste and imported paper waste. The waste paper came from card-board of boxes / packing materials of TV, fridge and other packing material of similar nature. The company had two manufacturing units in the same premises at Plot No.57/FGH, GIDC,1st Phase, Vapi, Gujarat. Unit-I was set up in 1997 whereas Unit-2 was set up in 2004. Both the units were stated to be working on same technology. The only difference being the finished paper produced in Unit-II was of higher strength because of use of higher percentage of imported paper waste. 2.4 The raw material i.e. waster paper was stated to be supplied to the assessee by various agents & suppliers in lorries / truck ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in cash. 2.8 The perusal of sample delivery challans issued by these parties revealed that all details on the challans were written in blue ink whereas the quantity was mentioned in black ink. Further, the signature of recipient of goods in the premises of the assessee was invariably in black ink. This peculiar feature was noted on all the challans issued by different parties. The said factors led the Ld. AO to believe that the quantities mentioned on the challans were filled by assessee's employees and not by the aforesaid suppliers / sellers. The perusal of bank accounts of few suppliers revealed that huge cash was withdrawn immediately after depositing the cheques. Another observation was that the weighing slips of all the purchases from these parties was issued by the assessee only and they were not carrying any serial number. It was observed that tare weight of few vehicles was different in weighing slips for same vehicle. The perusal of purchase bills, weighing slips and delivery challans pertaining to M/s Ajay Trading Co., M/s Ajit Trading Co. & M/s Anmol Trading Co. were produced during the course of assessment proceedings for verification wherein it was noted that delive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceive the goods on our behalf. The person at the gate of the Mill weighs the goods and fillup the blank delivery challan books kept with them. The delivery challans are prepared in duplicate, white copy is original which is kept by the Mill themselves and green copy is duplicate which is collected by us everyday from the Mill - almost twice a day. I am producing herewith delivery challans which were collected yesterday. Based on duplicate copy of delivery challans collected by us, we prepare purchase vouchers which are computerized. The bills prepared by us include the name of the URD suppliers, quantity, rate and value of the goods supplied by them. Depending upon cash withdrawals and available cash balance, we make Payments to the concerned URD suppliers. On payment of cash to the URD suppliers we obtain their signatures on payment vouchers. The purchase vouchers are with regard to supply of goods by the URD suppliers whereas payment vouchers are with regard to payments made to the URD suppliers for the goods delivered by them to the mills on our behalf. I am producing herewith purchase vouchers and payment vouchers for your kind verification. Q.7 On verification, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the vehicle number in the purchase vouchers. Upon perusal of statement and factual matrix, Ld.AO formed an opinion that the stated entity was in collusion with the assessee and all the transactions were manipulated in order to accommodate the assessee. Similar statement was also recorded from Shri Kunjal Shah, Partner of M/s Poojan Trading Co. u/s. 131 prior to the date of survey, the relevant extract of which has also been reproduced in para 11 of the quantum assessment order. 2.12 During survey proceedings at assessee's premises on 10/01/2014, the statements of various other persons were also recorded. Shri Tarkeshwar Singh, Machine-in-charge of Plant No. 1 submitted that yield of the plant-1 varied between 80% to 90% whereas Shri Arvind Singh, Machine-in-charge of Plant No.2 submitted that yield was 90%. Shri Rajeev Shetty, Accounts-in-charge submitted that the goods were received at the factory gate where the goods receipt notes [GRN] were generated, Based on GRN, the inward register was maintained in the computer and stock register was prepared. The goods lying in the store was issued based on consumption needs of Plant-1 & Plant-2. The consumption need was delivered throu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted on para no. 5 of the impugned order, which are not reproduced here for the sake of brevity. 3.2 In the said submissions, the assessee, inter-alia, explaining the modus operandi of procurement of raw material and manufacturing process, controverted each and every findings of Ld. AO and assailed the conclusions drawn therefrom. It was submitted that the yield was estimated in an arbitrary manner without pointing out any specific defects in the books of account and without there being any incriminating material to substantiate the findings. The attention was also drawn to the fact that statements recorded during survey proceedings u/s 133A would have no evidentiary value unless corroborated with circumstantial evidences. It was also submitted that MD of the assessee never admitted that yield was manipulated in the books of accounts. The assessee also denied having admitted to surrender of additional income before Ld.AO. 3.3 The information as well as documents filed by the assessee were subjected to three remand proceedings vide remand reports dated 23/11/2015, 08/08/2016 & 05/10/2016 which were furnished by Ld. AO along with assessment & survey folders and the said material was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. AO was nothing but estimated average yields of 85% & 90% of Unit-I & Unit-II respectively without there being any supportive material to substantiate the estimation. It was submitted that no expert opinion was obtained by Ld. AO to arrive at such estimation. Therefore, the addition merely on presumption, guess-work could not be sustained in the eyes of law. The assessee bolstered the same by submitting that the assessee approached government bodies i.e. Central Pulp & Research Unit (CPPRI) & Shriram Institute of Industrial Research (SRI) to study the manufacturing process and scientifically estimate the assessee's yield in manufacturing process. Both the reports, as per assessee's submissions, corroborates the yield reflected by the assessee during manufacturing process and the same has remained uncontroverted. Second Remand Proceedings 5.1 In the above background, Ld.AO was specifically asked to file details of any incriminating material in the form of documents found during survey proceedings which could prove that the purchases were inflated or sales were suppressed. The Ld. AO filed another remand report dated 08/08/2016 which was again confronted to the assessee. 5.2 Du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the two entities namely M/s Aryan Paper Mills private Limited and M/s Gayatrishakti Paper & Board Limited as picked up by Ld. AO to make yield comparison, were not comparable to the assessee since the quality of paper manufactured by them was different and different Plant & Machinery was being used by them to manufacture the paper. Findings of Ld. CIT(A) 7.1 The Ld. CIT(A) considered the factual matrix in paras 9 to 9.12 and observed, in para-10, that no incriminating material regarding unaccounted cash, purchases, sales or investment was found during the course of the survey. No inventory of stock was prepared by the survey team and no defect was found either in cash or in stock on the date of survey. Further, no incriminating material regarding suppression of sales or of unaccounted purchases were found during the course of the survey. 7.2 It was observed in para 10.1, that the MD of assessee company, while answering to question nos. 16 to 27, submitted that all the books of accounts were correct and there was no manipulation of yield. The MD of the company did not agree with the interpretation of survey team regarding the yield ratio. The MD clearly explained all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the impugned order. 7.6 It was further observed in para 10.6, that Ld. AO examined all the suppliers who corroborated the genuineness of sale of waste paper to the assessee. These suppliers were regularly filing their respective Income Tax Returns. All the suppliers were registered with the Sales Tax Department and filing the requisite Sales Tax / VAT Returns. Therefore, the conclusion that the assessee made bogus purchases was not factually correct. 7.7 Regarding huge cash withdrawals made by the suppliers of the assessee, the Ld. CIT(A) concurred with assessee's submissions that the assessee could not exercise control over the conduct of business of the suppliers. The assessee purchased huge volume of waste paper which was delivered by approx. 50 to 60 trucks every day. The payments to the suppliers were through banking channels and the suppliers were assessed to tax and therefore, no adverse inference could be drawn from such business practices of the suppliers in relation to yield of the assessee which was manufacturing related subject. 7.8 The Ld. CIT(A) also observed that no independent evidence in support of declaration obtained during the course of survey has been br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. 7.13 Finally, after due consideration, Ld. first appellate authority reached a conclusion that no incriminating material / documents regarding unaccounted cash, stock, sales, purchases or investments were found during the course of survey proceedings. No discrepancy was found either in the cash or physical stock and Ld. AO heavily relied upon the statement of the employees recorded during the course of survey. The MD of the assessee categorically submitted that records of consumption and production were duly maintained and accounted in the books of accounts. The books of account were duly maintained and no discrepancies could be found by the survey team in the records maintained by the assessee. Finally convinced with assessee's submissions, the impugned additions as made by Ld. AO were deleted. The final observation of Ld. CIT(A) could be extracted in the following manner: - 16.1 From perusal of the relevant questions and their answers it is evident that the M.D. of the company categorically and repeatedly reiterated that records of consumption and production were duly maintained and accounted in the books of account. It was further stated that all the books of accounts w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounts, the Ld. A.O. mentioned in para 4 of the assessment that the assessee company had suppressed its yield by inflating purchases of indigenous waste paper in its books of accounts from various parties. 16.4 The names of such parties were mentioned at page 3 of the assessment order. U/s.250(4) of the Act, the A.O. was directed to issue summons u/s.131 and examine all the parties along with their books of accounts. In this regard a report was received 25.01.2016. All such parties not only appeared before the A.O. but also produced all necessary books and vouchers along with books of accounts. They not only admitted that all the purchases made by the appellant were genuine but also produced other supporting evidences. All were filing their income tax return and were also registered with the Sales tax Department. The A.O. had simply mentioned that purchases made by the vendor were mostly in cash and there were heavy cash withdrawals in the accounts of all these vendors. These parties were dealing in purchases of waste papers from small vendors. Keeping in view the nature of trade practice, discrepancies pointed out by the A.O. are not significant. Moreover, the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the A.O. during remand proceedings. The A.O. had not found out any defect in the technical reports produced by the appellant. 16.8 The disclosure during the course of survey was not unconditional and it was also not supported by any documentary evidences. Moreover, the yield taken by the A.O. is also not supported by equal and fair comparable whereas the technical opinion given by the government agency supports the claim of the appellant. The A.O has failed to bring any cogent material necessary for invoking provisions of sections 145(3) of the Act. Hence without valid rejection of books of account, yield cannot be changed. As stated in the foregoing paragraphs, the A.O. has heavily relied upon the statement of various employees and M.D. of the appellant company which are discussed in the assessment order without bringing any independent cogent evidence in support of such reliance placed on it. In view of this, the facts of the appellant are similar to the facts of various case laws decided by the Hon'ble ITAT and Hon'ble High Courts discussed in the foregoing paras. Respectfully following the judgements of the Hon'ble High Courts and Tribunals, the appeal of the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs on 10/01/2014. The Ld. AO formed an opinion that the delivery challan books were susceptible for manipulation and the assessee has understated yield percentage by inflating purchase of raw material in the books of accounts. 9.3 Before proceeding, it would be imperative to highlight the modus operandi adopted by the assessee to procure the raw material from various suppliers. The facts on record would reveal that the assessee was sourcing waste paper from few suppliers, who in turn, were procuring the same from small vendors including Raddiwalas who were mainly operating in unorganized sectors. The rates of raw material were negotiated by these suppliers with the small vendors and after finalizing the same, the vendors were directed to deliver the waste paper directly at assessee's premises. Accordingly, truck loads of waste paper were directly delivered at assessee's factory gate where the weight of the waste paper was taken and entered into respective blank delivery challans kept by these suppliers at assessee's premises. One copy of the same was obtained by the suppliers from assessee's premises which formed the basis for generating sales invoices against the assessee and for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny cash got exchanged between the assessee and these suppliers on account of alleged bogus supplies. The allegations that these suppliers were in collusion with the assessee is not supported by any material. 9.5 Another pertinent fact to be noted is that no discrepancy has been pointed out by survey team in physical stock of raw material or finished goods on the date of survey. No evidence of suppressed sales, unaccounted cash / investments / sales have been brought on record. No defect has been pointed out either in cash or in stock during survey. The revenue is unable to point out that except for statements, any incriminating material was found during the course of survey proceedings. Pitied against the same was the fact that the assessee was a corporate entity and its books were duly audited as per law over the years. The auditors have not made any adverse comment on quantitative details being maintained by the assessee. 9.6 So far as the rejection of books of accounts is concerned, we find that no specific discrepancy or defects have been pointed out by Ld. AO in the books of accounts. In fact, the addition has been made by Ld. AO merely by disturbing the figures of purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on no. 11, Shri Ramesh K. Shah [MD] submitted that wastage was generally in the range of 18-20%. In reply to question No. 15, it was submitted that records of consumption and production were duly maintained and accounted for in the books of accounts. In reply to question no. 19, the composite yield during the financial year 2013-14 was submitted to be 83.44%. Further, in reply to question no.20, the said fact was reiterated and at the same time, it was submitted that to buy peace of mind, the yield is being declared as 85% from AYs 2011-12 to till date, which has led Ld. AO to proceed with the additions in the hands of the assessee. However, Ld. AO, while estimating the yield, has disregarded the same also and adopted an arbitrary yield of 87%. No evidence, whatsoever, has been brought on record to establish as to how the yield was suppressed by the assessee and how the correct yield was 87%. The said estimates, in our opinion, were arbitrary and without any sound basis. The said estimation, as rightly noted out by Ld. first Appellate authority, was nothing more than an average of 85% and 90%, as submitted by the employees in their statements. 9.8 As against Ld. AO's estimation, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. On the other hand, whatever statement is recorded under section 133A of the Income-tax Act is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law, vide Paul Mathews and Sons v. CIT [2003] 263 ITR 101 (Ker.); (iii) The expression "such other materials or Information as are available with the Assessing Officer" contained in section 158BB of the Income-tax Act, 1961, would include the materials gathered during the survey operation under section 133A, vide CIT v. G. K. Senniappan [2006] 284 ITR 220 (Mad.) ; (iv) The material or information found in the course of survey proceeding could not be a basis for making any addition in the block assessment, vide decision of this court in T. C (A) No. 2620 of 2006 (between CIT v. S. Ajit Kumar [2008] 300 ITR 152 (Mad.); (iv) Finally, the word "may" used in section 133A(3)(iii) of the Act, viz., "record the statement of any person which may be useful for, or relevant to, any proceeding under this Act", as already extracted above, makes it clear that the materials collected and the statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge of 80% to 81% from AYs 2004-05 to 2011-12. Thereafter, the yield has shown improvement which stood explained by the fact that there were additions in the Plant & Machinery from 01/04/2010 onwards which further corroborates assessee's stand. 10. Keeping in view the totality of facts and circumstances, we are of the considered opinion that Ld. CIT(A) was justified in deleting the quantum additions as made by Ld. AO on account of alleged suppression of yield. By confirming the same, we dismiss the appeal. Revenue's Appeal for AY 2007-08 to 2010-11 & 2012-13 to 2013-14 11. Identical grounds have been raised by the revenue in these AYs. The impugned order is common order for all the years. Following its finding in AY 2011-12, Ld. first appellate authority has deleted additions in other AYs. Therefore, our findings, observations and conclusions as made for AY 2011-12, would mutatis mutandis apply to all these years. Resultantly, the revenue's appeals stands dismissed. Assessee's Cross-Appeals : AYs 2007-08 to 2010-11 12.1 The assessee's appeal for 2007-08 to 2010-11 are identical worded and contest the validity of reassessment proceedings initiated by Ld. AO u/s 147 on the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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