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TMI Blog2011 (8) TMI 1335X X X X Extracts X X X X X X X X Extracts X X X X ..... riminating documents and evidences were found in the computers, floppies etc. and these were seized by the Central Excise Department. These seized materials are still in the custody of the Central Excise Department. The Central Excise Department, on the basis of seized material show caused the assessee. The Central Excise Department also sent a copy of this show cause notice to the DCIT,Circle-IV, Trichy (i.e Income-tax Department) . From this copy of show cause notice, it was evinced that the assessee had indulged in evading Central Excise Duty by making unaccounted purchase of raw materials, by suppressing production, by clandestine removing bars and rods, that too without accounting in daily stock register, without issue of invoice and without payment of duty. It was also noticed that the assessee was maintaining multi-accounts one set of account based on which excise returns were filed and another set for private consumption wherein transactions other than those reflected in the regular books of accounts. Apart from this, there were some private records which showed both the transactions. 3. During the course of investigations, it was found that the assessee was purchasing i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount. The actual production during each month for the year 2003-04 is recorded in the monthly transaction statements in file SASAI/Floppy-2/File-3, wherein the quantity accounted in the books of accounts is very less. The yearly statement in File SASAI/ Floppy-7/ FILE-1 allegedly shows actual transactions of the assessee for the years 2002-03 2003-04 and from October, 2001 to March, 2002. 6. Based on the show cause notice, the Assessing Officer has found that the assessee received the sale proceeds by way of cash for the unaccounted stock by issuing chits acknowledging receipt of cash which was seized from Trichy Steels, Pudukkottai. The assessee also received payments for unaccounted bars rods cleared by way of demand drafts in a fictitious name Shri Subrarnanian. The drafts received are discounted by Vasavi Finance and Cash was recovered by Sri Rathinam, one of the employee of the assessee as evidenced from the documents seized from Vasavi Finance. The entries for receipt of cash from SM Vasavi Finance is available inn File SASAI/Floppy-1/ Dat-50. 7. As per the show cause notice issued by the Central Excise Department, the accounted production for the Asst. year 2002- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unaccounted sales as returned by the assessee in the Trading Account. The Assessing Officer required the assessee to file its objection to the proposal to disallow 20% of the cash payments made for the various expenses incurred. The assessee s representative filed his objections and the assessment was completed as under: - Income returned ₹ 68,894 Add: As per the materials seized by the Central Excise Department, the total unaccounted materials cleared was 6307.361 tones. The assessable value of the materials is ₹ 11,53,61,633/- as per the Central Excise Department show-cause notice dated 30/6/05. The assessee s representative in his letter dt. 26/12/06 has stated that the sales suppression Is not proved and investigations are at a nascent stage and no conclusion can be drawn at this stage. The allegations by the Central Excise Department Is being disputed and the evidence relied by the Central Excise suffers from Incurable deficiencies and therefore, the same cannot be relied upon. The assessee s explanation is not accepted as the Central Excise Dept. has proved that the assessee has been Indulging In suppression of sales. Sun S.P. Muthuramailngam, Partner in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments in cash to Amman Steel Corporation for the ingots / billets purchased from JBA Steels and Sumangala Steels which were in turn adjusted by Amman Steel Corporation for the scrap supplied to the above suppliers. The assessee has also made payments In cash to JBA Steels and Sumangala Steels and the same is available in file SASAI/ Floppy 1/DAT-50. The total unaccounted sales was ₹ 11,53,61,633/-. The Gross profit estimated is ₹ 1,99,22,954/-. The expenses, therefore, comes to ₹ 9,54,36,679/- and this is considered as the amount paid to various concerns In cash for the expenses and 20% of the same is disallowed. ₹ 1,90,87,736 Total income determined ₹ 3,60,79,584 Income tax payable @ 35% ₹ 1,26,27,854 Add: surcharge @ 2% ₹ 2,52,557 Total tax payable ₹ 1,28,80,411 Add: Interest u/s 234B ₹ 85,16,519 Add: Interest u/s 234C ₹ 1,141 Total tax payable ₹ 2,13,98 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer has not taken the entire turnover as G.P. and has given weightage to purchase and other manufacturing expenses. 4.1. The Commissioner of Income Tax(A) has erred in deleting the disallowance made u/s.40A(3) by the Assessing Officer which in view of ratio of decision of Gujarat High Court in Commissioner of Income Tax vs. Hynoup Food and Oil Ind P Ltd 290 ITR 702 (Guj.) is also applicable to transactions outside the books of accounts. 4.2. The CITA) has not taken into account the decision of the Hon ble Apex Court in the case of Attar Singh Gurmurkh Singh vs. ITO (SC) 191 ITR 667 which held that in interpreting a taxing statue, the court cannot be oblivious of the proliferation of black money which is under circulation in our country. Any restraint intended to curb the chances and opportunities to use or create black money should not be regarded as curtailing freedom of trade or business. The above observation on the Hon ble apex Court is fully applicable to the facts of the instant case. It was clearly established by the Central Excise Department and also admitted by the partners of the firm on various accounts that the firm is indulging in unaccounted pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment has been framed primarily on the show cause notice issued by the Central Excise Department and the sole basis of the addition is the show cause notice mentioned above and no independent evidence has been gathered by the Assessing Officer for the impugned additions. Assessing Officer was directed to collect the copies of the materials/documents relied upon by the Central Excise Department and to make independent enquiries in all aspects of the case viz. alleged unaccounted purchase of raw materials, unaccounted production of finished goods, removal of such finished goods outside the factory premises and unaccounted sales of the same. The Assessing Officer was to make all the necessary enquiries including recording of the statements on oath of concerned parties in order to verify the facts and also to visit the places, which are necessary and to come to a definite finding about the extent of income, which has escaped assessment. During the course of remand proceedings, when so required by the ld. CIT(A), the assessee furnished the following explanation in the form of objections. By your letter referred to above the assessee had been called upon to show cause why the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income tax proceedings without any independent enquiry or appraisal of the evidence. In the instant case no enquiry had been conducted on the allegations of the unaccounted sles either before the assessment or before this date. Therefore the unrestricted and uninhibited reliance on the findings of the Central Excise in its orders is impermissible in law. Your kind attention is invited to the decision of the Hon 'ble Madras High Court in C I T Vs. Vignesh Kumar Jewellers 222 CTR 79. The facts of the cited case are on all fours with the present case. In that case the Income Tax authorities relied on the findings of the DR! without any independent enquiry and the jurisdictional court had held the action untenable. Therefore the reliance is bad in law. c) There is no evidence in the possession of the department to state that the assessee had made unaccounted sales and no unaccounted investment had been unearthed to buttress this suggestion. In the light of the absence of such proof no addition can be made much less the astronomical figures suggested by you. d) An assessment is to be made on the grounds of evidence gathered and available with the Assessing Officer. If there ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he income itself is to be re-determined and application of the gross profit rate will take of care of the allowance of all expenses of trading. 7. Finally we respectfully submit that no addition on the grounds of the findings of the Central Excise department be made as there is no corroborative or independent enquiry as mandated by the jurisdictional High Court in 222 CTR 79. Alternatively the additions may kindly be restricted to the quantifications made by the Commissioner Central Excise in his de novo order. The suggestion of the alternate course of action is without prejudice to the right of appeal of the assessee. 13. After receiving the remand report, the same was confronted to authorized representative of the assessee on 17.09.2010 calling for its objections. In response to which assessee filed its objections contending that the Hon ble CESTAT has given a finding that these evidences are not reliable except for the data contained in the floppies opened with the password provided by the employees of the assessee. The Hon'ble CESTAT is the final fact finding body insofar as Central Excise Department is concerned and this body has settled the facts regarding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enquiry has been independently made by him despite directed by the ld. CIT(A) . The assessee has clearly explained the electricity charges and wages and has accounted the same completely, and similar explanation has been accepted by the same Assessing Officer, in his order made for assessment year 2002-03. The Hon'ble Madras High Court in the case of CIT vs Vignesh Kumar Jewellers, 222 CTR 79, has clearly held that the findings of another Department cannot be simply incorporated in the assessment without any independent enquiry having been made. In this case, even a modicum of enquiry has not been made independently by the Assessing Officer. There is no corroborating or supporting evidence available on record. When the main evidence on the basis of which the assessment was framed has been found to be not reliable by the very same Department(Central Excise Department), the cumulative effect of finding given in the assessment order, remand report and submissions of the parties, would lead to only one conclusion that no addition can survive on the basis of unreliable evidence. The addition made by the Assessing Officer hinges on the show cause notice of the Central Excise Departm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14.67 3,10,665 2003-04 96,13,485 8.22 7,90,228 2004-05 4,82,55,983 7.33 35,37,164 2005-06 2,56,18,539 7.00 17,93,298 15. Before us, the ld.AR has not disputed the addition of the income as per the above chart. The balance addition made by the Assessing Officer has been deleted by the ld. CIT(A). We are of the considered opinion that the action of the ld. CIT(A) is correct and affirm the same. 16. The next issue is regarding disallowance u/s 40A(3) on purchases of steel ingots from various persons. Likewise, the quantum of purchases emanate from the assessment order which is based on show cause notice issued by the Central Excise Department and which has been found unreliable. In the given facts and circumstances where reliability of the allegation of purchases are not found to be free from doubt and the income has been estimated by estimating the turnover, no further expenditure can be separately considered. In this regard, decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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