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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 ..... ring this search operation, incriminating 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in the daily stock account. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit on the 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, Part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made 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 ₹ 2,13,98,071 Less: Tax paid u/s 140A ₹ 24,595 Balance tax payable ₹ 2,13,73,476 Less: Demand raised u/s 143(1) ₹ 3,417 Additional demand now raised ₹ 2,13,70,059" 10. Aggrieved by this order, the assessee filed appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able 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 production and sales of such unaccounted production. 5. For these and other reasons that may be assed at the time of hearing, the order of the Commissioner of Income Tax(A) may be cancelled and that of the Assessing Officer be restored." 11. The above grounds raised in assessment year 2002-03 can be treated as sample grounds for all other assessment years as well. The issues are identical except for the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pendent 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 income of the assessee firm should not be determined at the following sums based on the show cause notices issued by the Central Excise Department obliterating the findings of the CEGA T and the orders of the Commissioner of Income Tax. Asst Sales Profit Enhancement Year proposed proposed proposed 2004-05 ₹ 28,22,07,538 ₹ 3,41,13,308 -- 2003-04 ₹ 16,96,98,949 ₹ 2,52,62,732 ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce 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 are no supporting evidence the additions cannot be sustained C I T V s. A N Dyaneswaran 297 ITR 135. 2. In respect of the contention that the assessee had never disputed the seized documents or its contents but only the procedure of seizure, we respectfully submit that the procedure of seizure being improper shall render the data unreliable. The contention of the assessee had all along been, the data had been improperly seized or retrieved, the data is not free from doubt of manipulation and therefore the data is unreliable. This contention of the assessee had been upheld by the CEGAT and therefore it had directed that only certain data can be used against the assessee. The de novo order is based on such direction and if at all reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 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 reliability of the seized documents and their authenticity. It was contended that the Assessing Officer has to obey the view taken by Hon'ble CESTAT unless any contrary evidence is available with him. The reliance on these documents by the Assessing Officer (Incometax) even thereafter, was assailed before the ld. CIT(A). It is an undeniable fact, the Hon'ble CESTAT has not found the seized documents as reliable and has therefore, directed the Commissioner of Central Excise to frame a de novo order. Thus, the basis on which the Income Tax Officer(Assessing Officer) has made the impugned additions, would not at all now survive. The Assessing Officer has tried to make out a case that, in law, even if the search is held to be illegal or invalid or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 Department which has been found to be unreliable to a greater extent. It is very strange that the remand report was sent after the lapse of three years and that too after repeated reminders having been sent by the ld. CIT(A). In fact, the Assessing Officer has not conducted any enquiry, let alone, any independent enquiry in this case. He has simply obtained copies of the records from Central Excise Department and the statements recorded by them from four persons despite the fact that he was specifically directed by the ld. CIT(A) to trace the transaction-trails from the square one upto the end to establish the generation of unaccounted income, if any, as had been alleged. In the remand report, the Assessing Officer has canvassed even the enhancement of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y considered. In this regard, decision of Hon'ble Madras High Court rendered in the case of CIT vs Mohammed Dhurabudeen, 4 DTR 218, wherein it has been held thus: "the question for consideration is when no deduction was sought and allowed under s.40A(3), was there any need to go into S.40A(3) and Rule 6DD(j). We see force in the view taken by the Tribunal that when the income of the assessee was computed applying the GP rate and when no deduction was allowed in regard to purchases of the assessee, there was no need to look into the provisions of section 40A(3) and Rule 6DD(j). No disallowance could have been made in view of the provisions of S.40A(3) read with rule 6DD(j) as no deduction was allowed to and claimed by the assessee in respect of purchases. When the GP rate is applied, that would take care of everything and there was no need for the A.O to make scrutiny of the amount incurred on the purchases by the assessee." 17. Consequently by following the above dictum of Hon'ble Jurisdictional High Court, the addition made u/s 40A(3) cannot be sustained and has been correctly deleted by the ld. CIT(A). The averment of Ground No.4.2 are very crude and general in nature ..... X X X X Extracts X X X X X X X X Extracts X X X X
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