9911796707
TMI Blog2021 (11) TMI 707X X X X Extracts X X X X X X X X Extracts X X X X ..... mination, the CIT(A) eventually set aside the additions made by the AO under s. 68 in the unabated search assessment without any iota of incriminating material to support the allegation of accommodation entries. We completely endorse his action on merits without demur. The objection of the Revenue is found to be unsubstantiated and dehors the tell-tale evidences and hence not sustainable. Additions on low yield - Whether incriminating material were found in the course of search operations showing any unaccounted production or unaccounted sales resulting from alleged low yield on production shown in the books? - HELD THAT:- CIT(A) observed that assessee has furnished explanation on all the documents seized during the course of search and the explanation of the assessee were test checked with reference to seized material, books of accounts, bills/invoices and other evidences and found to be satisfactory. It was further noted that the AO has not pointed out any infirmity in the explanation of the Assessee. CIT(A) in our mind has analysed the factual matrix threadbare. Without repeating all the observations of the CIT(A), we find ourselves in complete agreement with the conclusion draw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the CIT(A) both on account of stock of coal and iron ore, in the absence of any concrete rebuttal thereof. We thus decline to interfere. X X X X Extracts X X X X X X X X Extracts X X X X ..... sues are involved in all these assessment years. 7. In the course of the search assessment noted above, the AO inter alia observed that credits in respect of share application money to the tune of ₹ 5,08,90,000/- in the books concerning AY 2006-07 does not satisfy the requirements of Section 68 of the Act. It was observed that the assessee had failed to prove the genuineness and creditworthiness of the share applicants (subscribers). The AO also observed that the assessee has suppressed the yield of sponge iron qua the consumption of iron ore and coal and has thus indulged into unaccounted sales in the all these years under appeals. The books of accounts were rejected and additions were made on account of low yield and consequent alleged suppression of production/ sales of varied amounts were made after comparison of actual yield with a benchmark yield of 60% expected by the AO. Thus, an addition of ₹ 1,05,81,079/- was made on account of difference in production while framing the assessment order for AY 2006-07. The directions of the superior authority under s.144A of the Act were taken into account. The income of the assessee was accordingly assessed at ₹ 7,01,8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of appellant company's representative was recorded during the search proceedings. The statements of other persons belonging to the aforesaid companies also does not, in any way, lead to an inference that the Group companies or the appellant company do not maintain statutory records / Registers. It is also seen that the appellant company had made specific request before the A.O. vide its letter submitted on 14.03.2014 and 18.03.2014 to dispel the doubts of the A.O. regarding non-maintenance of statutory records and registers. From the assessment order, it appears that the A.O. did not take any cognizance of the assertion made by the appellant regarding maintenance of Statutory Records and registers in accordance with the provisions of Companies Act and without verifying the verifiable facts regarding maintenance or otherwise of Statutory records and registers, the A.O simply seems to have found it convenient to remain silent and sit back after making the allegation without any proper basis. I do find considerable force in the submissions of the appellant that the A.O. merely made the allegation, however, the A.O. has not brought on record any basis for such allegation. It is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rts Finvest Private Limited. Apart from the audited financial statements in support of credit worthiness of the said company, I am convinced that no adverse view can be taken regarding identity or credit worthiness of the said company when the said company has been duly assessed and the share capital and reserves i.e. the net worth of the said company was duly accepted in scrutiny assessment proceedings, in the factual matrix of this case, I am convinced that the appellant has not only explained the source of receipt of share application / capital money, the appellant has also explained the source of source by placing on record assessment order in the case of its subscriber company namely Escorts Finvest Private Limited. Furthermore, I find that the said investor company was in existence even prior to the period covered under the present search assessment proceedings, therefore, even assuming without accepting the contention of the A.O., no undisclosed income can be added in the present search assessment proceedings as the same are beyond the period covered under the present search assessment proceedings. 5.4 The appellant has submitted that Antariksh Commerce Private Limited is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subscribers with reference to the audited financial statements of the subscribers and found satisfactory. In this background, in my considered view, there is no scope and reason to take a contrary view than that taken by the then A.O without there being any documentary evidence against the appellant to demonstrate that the share application money was nothing but undisclosed income of the appellant. 5.7 Furthermore, I am in agreement with the submissions of the appellant that the same A.O has accepted the addition to Preference Share Capital in the case of Mahamaya Steel Industries Limited received from Escorts Finvest Private Limited & Antariksh Commerce Private Limited and therefore, the identity and creditworthiness of Escorts Finvest Private Limited & Antariksh Commerce Private Limited were undisputedly accepted and genuineness of addition was also duly accepted, hence, there cannot be any reason to take a contrary view in the case of appellant. The A.O cannot be permitted to take two divergent views on same set of facts and on same set of evidences, when the same A.O undisputedly accepted the genuineness of addition to share capital of Mahamaya Steel Industries Limited, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed and cannot be doubted, it is not justified on the part of the A.O to simply reject the documentary evidences on record and take an adverse view and clothing the case of the appellant with the judicial pronouncements which have been rendered on absolutely different facts and circumstances. 5.10 The appellant has relied upon various judicial pronouncements and correlated the facts in those decisions with the facts in the case of the appellant. I am convinced that the decisions relied upon by the appellant are certainly applicable in the case of the appellant as the facts are not only similar but identical. The appellant has also relied upon the decision of the Hon'ble Supreme Court and jurisdictional High Court which cannot be ignored. The A.O has referred to the notices issued under section 133(6) which have been returned un-served in some of the cases. It is seen that in the subsequent paragraph, the A.O himself has given the particulars of receipt of replies from the investors, therefore, in my considered view, no adverse inference can be drawn against the appellant for mere non service of notices initially, I have carefully perused the explanation submitted by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns monies etc. The subscription for the shares were received through cheques. The Investor-companies were active as per the website of the Ministry of Corporate Affairs and they were duly registered with ROC. Those companies were also having their income tax PAN numbers and regularly filed returns of income. No material was brought on record by the Assessing Officer to show that the affidavits filed by the Directors of the investor- companies were not genuine. No enquiries were conducted about the contents of the affidavits. The A.O did not make any attempt to discredit the affidavits. The result is that the contents of the affidavits have not been disproved. It also shows that the parties (deponents) were present at the given addresses against whom action could have been taken. No material was brought on record by the A.O independently of the information received, if any, from the investigation wing of the Income Tax Department to show that the monies represented the appellant's undisclosed income. 5.12 The Hon'ble Supreme Court in CIT vs. Lovely Export, 216 ITR 198 SC and the Delhi High Court in Divine Leasing and Finance Limited, (2008) 299 ITR 268 have held that in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and cannot be acted upon, then no addition can be made in the hands of the company under sec.68 and the remedy open to the revenue is to go after the share applicants in accordance with law. We are afraid that we cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self-confessed "accommodation entry providers", whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the assessee in such modus operandi is clearly indicated by valid material made available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such "entry providers". The existence with the Assessing Officer of material showing that the share subsc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner of Income-tax v. Ambuja Ginning Pressing and Oil Co. (P.) Ltd. [2011] 15 taxmann.com 273 (Guj.); (p) Commissioner of Income-tax v. Rock Fort Metal & Minerals Ltd. [2011] 198 TAXMAN 497 (Delhi); (q) Commissioner of Income-tax v. Siri Ram Syal Hydro Power (P.) Ltd.[2011] 196 TAXMAN 441(Delhi); (r) Commissioner of Income-tax v. Orbital Communication (P.) Ltd. [2010] 327 ITR 560 (DELHI); (s) Commissioner of Income-tax-I v. Himatsu Bimet Ltd. [2011] 12 taxmann.com 87 (Guj.); 5.16 I am convinced that the appellant has been able to establish the identity and creditworthiness of the subscribers as also the genuineness of the transactions. In my considered opinion, the ratio of the aforesaid judgements of the Hon'ble Supreme Court in Lovely Exports and that of jurisdictional High Court are certainly binding in nature on all the revenue authorities and courts etc. and further, the judgement of the jurisdictional High Court as well as that of the Hon'ble Supreme Court in Lovely Exports has been rendered on identical facts. Hence, it is impermissible to deviate from the ratio laid down therein and against the law of judicial precedents. I am convinced that the action of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided. With a view to make the comparison of yield declared by other assessees engaged in similar line of business, information regarding yield was sought from the office of DCIT-1(2), Raipur vide letter dated 22.04.2014. The information was received from the Office of DCIT-1(2), Raipur vide letter dated 25.04.2014. 9.4 The yield declared by the appellant and information regarding yield declared by other assessees, as received from the DCIT-1(2), Raipur, was compared with reference to the uniform and standard yield adopted by the A.O. The results of the comparison so made are as under:- Sl No. Name of Comparable assessee assessed in Circle 1(2), Raipur F.Y. Yield (%) Benchmark taken by AO Yield (%) of Appellant A.Y. 2008-09 1 Gopal Sponge & Power Pvt. Ltd. 2007-08 48.86 60.00 54.07 2 GR Sponge & Power Ltd. 2007-08 51.76 60.00 54.07 3 Shri Nakoda Ispat Pvt. Ltd. 2007-08 52.64 60.00 54.07 4 Rashmi Sponge Iron & Power Industries Ltd 2007-08 40.35 60.00 54.07 Arithmetical Mean of Yield 48.40 60.00 54.07 A.Y. 2009-10 1 GR Sponge & Power Ltd. 2008-09 52.77 60.00 50.68 2 Shri Nakoda Ispat Pvt. Ltd. 2008-09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment orders passed by the DCIT-1(2), Raipur in the case of other assessees referred supra. From the perusal of said assessment orders, it was gathered that no adverse inference was drawn in the case of those assessees that were assessed in the past in the office of DCIT-1(2), Raipur on the issue of lower yield, and in fact declared less yield than that declared by the appellant. In none of the comparable case received from DCIT-1(2), Raipur, such standard yield of 60% was adopted despite of the fact that all the comparable cases declared yield much less than 60% and even less than that declared by the appellant. 9.7 I have carefully analyzed the financial results of the appellant and a comparison of GP and NP rate was drawn between GP and NP rate declared by the appellant and the comparable cases received from DCIT-1(2), Raipur. The result of the comparison is as under: S.No. Name of comparable assessee assessed in Circle 1(2), Raipur F.Y. Turnover (Rs. In Lacs.) G.P. (%) N.P . (%) YIELD (%) Turnover of appellant (Rs. In Lacs.) GP (%) of appellant NP (%) of appellant Yield (%) of appellant 1 Rashmi Sponge Iron & Power Industries Ltd 2007-08 9061.33 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the yield declared by Gopal Sponge & Power Pvt. Ltd. in financial year 2008-09 is 51.08% which is marginally higher than the yield declared by the appellant at 50.68%, however, the GP rate and NP rate of the appellant are found to be much better i.e. 13.13% and 7.84% respectively in comparison to 11.15% and 4.73% respectively declared by Gopal Sponge & Power Pvt. Ltd. Similarly, it is observed that the GP rate declared by M/S Baldev Alloys Private Limited was 10.93% as against 13.13% declared by the appellant company, however, at the same time it is also seen that net loss of 13.86% was declared by M/S Baldev Alloys Private Limited as against NP rate of 7.84% declared by the appellant though the yield was marginally low at 50.68%. Similarly the yield declared by Rashmi Sponge Iron & Power Industries Ltd in financial year 2007-08 is 40.35% which is lower than the yield declared by Gopal Sponge & Power Pvt. Ltd. at 51.08% in F.Y 2008-09, however, the GP rate of Rashmi Sponge Iron & Power Industries Ltd is found to be much better i.e. 18.79% in comparison to 11.15% declared by Gopal Sponge & Power Pvt. Ltd. I am in agreement with the submissions of the appellant that the variatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of input, Quantity code of finished goods, Quantity of finished goods manufactured. 9.10 It is seen that the excise returns in Form ER-1 and ER-6 filed by the appellant on monthly basis are duly acknowledged and bears the seal and signature of the Central Excise Authority. The appellant was asked to produce the excise records maintained on daily basis. The appellant did produce the excise records in Form-IV and RG-1 for raw material and finished goods respectively for all the years under consideration. On test check of excise records maintained on daily basis with the figures of production, consumption of raw material and closing stock of finished goods and raw material shown in Form-ER-1 and ER-6, it was found that the same are tallying and thus, were found to be satisfactory. The entries in the excise records for material inwards was cross checked with reference to purchase bills and on test check, the same was found to be satisfactory and no infirmity was observed. The quantity of finished goods cleared was also verified with the sales invoice/challan issued by the appellant and the same was found to be satisfactory. From the details furnished by the appellant in Form ER-6, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n an independent appreciation of reasons explained by the appellant for variation in yield i.e. for variation in consumption of coal and iron ore, I find the explanation of the appellant to be convincing, particularly, when the appellant has brought on record certificate from registered valuer which is placed in the paper book at Page no.321 of Volume 3 as well as Page no. 7 of Volume 4 of the Paper Book in the case of appellant. The A.O. has not brought on record any evidence to disbelieve the certificate of registered valuer who is duly approved u/s 34AB of the Wealth Tax Act, 1957 vide order dated 06.07.2011. As per the said certificate of the registered valuer, the average yield of sponge iron unit using Iron ore and coal as raw material may vary from 40 to 60% and coal consumption may vary from 1.6 to 2.1 MT depending upon fixed carbon in coal. The quantitative details of consumption of sponge iron and coal were found to be within the reasonable range as certified by the registered valuer. Furthermore, in my considered view, it is impractical to presume uniform quality of coal and iron ore, the A.O has not rebutted any submission of the appellant explaining the reasons for v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e etc. Another fact noticed is that the case of the appellant was under scrutiny assessment for two consecutive years i.e. in A.Y 2006-07 and 2007-08 where regular assessments were made under scrutiny and the yield was shown by the appellant was not disputed. 9.15 I find that the A.O, in Para 9.1 has stated that the evidences of unaccounted production by suppressing its yield were found and these evidences are discussed in the subsequent paragraphs, from this assertion of the A.O, I am inclined to draw a reasonable inference that apart from what has been stated in the assessment order, the A.O has no other evidence in any form whatsoever. 9.16 Finished goods of the appellant is Sponge Iron which is consumed by its sister concerns namely "Mahamaya Steels Industries Limited" and "Abhishek Steel Industries Limited" as raw material and both the said sister concerns are also part of Mahamaya Group of companies. Even if for the time being contention of the A.O that the appellant has suppressed the yield and indulged into unaccounted sales is accepted, preponderance of probabilities do not suggest this for the reason that the finished product of the appellant is ultimately consumed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the group as a whole. 9.18 I have also carefully perused the statement of Shri Rishikesh Dixit recorded on 21.6.2011 as regards common allegation in case of all the four manufacturing companies i.e. sister concerns of Mahamaya Group that the group is following the system of destroying the initial document i.e. the loose slip in which quantity of production and consumption is recorded. From the statement of Shri Rishikesh Dixit, it is gathered that it was stated in clear terms that the quantity recorded in the loose slips tallies with the quantity recorded in the regular books of accounts, excise records and excise returns; that as the Excise Return is being filed on monthly basis, therefore, after filing of Excise Return such loose papers become redundant and that is the reason said loose papers are destroyed, at this juncture, I find that neither in the show cause notice nor in the assessment order there is any whisper of any such loose paper which bears the figures of production and which the appellant failed to reconcile with the entries in the regular books of accounts and Excise Records/Returns. In the absence of any specific instance having been brought on record by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ACIT vs. M/s. Super Iron & Steel Pvt. Ltd., which is one of the comparable cases cited above, in ITA No.139 to 141/ BLPR/2010, the jurisdictional Bench of Hon'ble ITAT had an occasion to decide similar issue and the Hon'ble Tribunal has observed as under:- "6. After hearing the rival submissions and perusing the material on record we find that the assessee is engaged in the business of manufacturing of MS Ingots with Sponge Iron as the main raw material. According to the AO there was no basic document regarding consumption of raw material and production of finished goods were maintained by the assessee in the factory premises. The AO found that there is no system in place for keeping record of consumption of raw material and production of finished goods, it is apparent that the unaccounted production is evidenced from variation in units of electricity consumed per MT of finished goods so AO made the addition in question. The stand of the assessee was that it is maintaining regular books of account along with all the supporting bills and vouchers. The assessee submitted that the variation in consumption of electricity has been explained during the course of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the addition has been made out of some lurking suspicion based either on rumours or on something less serious than that. 9.24 The A.O has merely referred to variations based on mathematical calculations viz_ Variation in coal, iron ore, this may well be the basis of suspicion, however, these cannot per se constitute the basis of the addition, though it can very well be a starting point for further investigation. In Lalchand Bhagat Ambica Ram vs. CIT: (1959) 37 ITR 288, the Supreme Court disapproved the practice of making additions in the assessment on mere suspicion and surmises or by taking note of the "notorious practice" prevailing in trade circles. 9.25 The significance of "tangible evidence" has been emphasized in various judicial pronouncements. Having test checked the seized documents with reference to submissions of the appellant and books of accounts along with bills and vouchers, having gone through all the statements recorded during the search proceedings, having analysed the results of enquiry conducted regarding yield, I am convinced that there was no tangible material before the A.O nor has the A.O brought any such evidence on record to corroborate his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than the facts before the Hon'ble HIGH COURT OF GUJARAT in Commissioner of Income Tax Vs. Maulikkumar K. Shah (2008) 307 ITR 137 (Guj). 9.31 I find that even non maintenance of stock register is not fatal as held in Commissioner Of Income Tax Vs. Jacksons House (2010) 39 DTR (Del) 212 : (2011) 198 TAXMAN 385. 11.35 . Similar view was taken in M. Durai Raj Vs. Commissioner Of Income Tax (1972) 83 ITR 484 (KER). 9.32 On the matter of recording the consumption of raw material going in to klin and quantity of production coming out from klin, in my considered opinion, the mere fact of estimation cannot be made the basis of rejection of books of accounts so long as the financial results are not strikingly lower than the industry average or that the results are not supported by bills/vouchers or that the quantitative details have not been maintained properly. In Polisetti Subbaraidu & Co. Vs. Commissioner Of Income Tax SOURCE : (1968) 69 ITR 738 (AP). Another decision wherein it was held that non maintenance of daily stock register per se is not sufficient to reject the books of accounts as it is not mandated by law is the decision of the Hon'ble High Court of Delhi in Commissioner O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd against the falsity of the return made by the appellant and persuade him to carefully scrutinize the account books of the appellant. The low yield in comparison to the benchmark adopted by the A.O, in the absence of any material pointing towards falsehood of the account books, could not by itself be a ground to reject the account books u/s 145(3) of the I.T. Act, 1961 much less a ground to make estimated addition. I find that there is no dispute with regard to the fact that the appellant has maintained quantitative details. In the case of CIT vs. Smt Poonam Rani 326 ITR 223 (Delhi) it was held that where an addition was made because of mere fall in gross profit without any defect in the accounts except for the absence of stock register-deletion of addition was upheld by the High Court. The appellant's case finds support from the following decisions: a) Ashok Refractories Pvt Ltd. Vs. CIT (2005) 148 Taxman 635 (Cal.). b) ITO v. Bothra International [2008] 117 TTJ (Jd.) 672 c) Delhi Securities Printers v. Dy. CIT [2007] 15 SOT 353 (Delhi) Considering the facts and circumstances of the case, as also decisions relied upon by the appellant and those cited above, I am of the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion, had there been any unaccounted sales, the same would have been detected by the Search Team. The case of the appellant also finds support from the decision of the jurisdictional Tribunal i.e. ITAT, BILASPUR BENCH in Chhattisgarh Steel Casting (P) Ltd. Vs. Assistant Commissioner of Income Tax (2008) 8 DTR (Bilaspur) (Trib) 14. 9.39 The significance of tangible evidence is indicative from the fact that in Commissioner of Income Tax Vs. Vishal Rubber Products (2003) 264 ITR 542 (P&H) : (2004) 136 TAXMAN 151 despite Balance Sheet having been found from the premises searched, no addition was sustained in the absence of tangible evidence. 9.40 On the contrary, the appellant had provided all the requisite details regarding its production activity. The items of raw material purchased are excisable products, the quantity of raw material purchased as mentioned in Excisable and Commercial Invoice was test checked with the entries in the Excise Record for raw material i.e. RG1 and the same was found to be in order. The quantity appearing in the Excise Registers was cross checked with the entries in the Excise Returns and the same was found to be in order and tallying with the Excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt took judicial note of such facts in C. ARUMUGASWAMI NADAR vs. COMMISSIONER OF INCOME TAX (1961) 42 ITR 237 (MAD). 9.44 The facts in the case of the appellant are akin to the facts before the Hon'ble High Court of Assam in Harakchand Arakchand Radhakisan vs. Commissioner of Income Tax (1962) 46 ITR 196 (ASSAM). The Hon'ble High Court of Delhi has laid down certain principles on rejection of books of accounts in Commissioner Of Income Tax Vs. Paradise Holidays (2010) 48 DTR (Del) 349 : (2010) 325 ITR 13. 9.45 In SUKHADIA JAMNADAS MAGANLAL vs. INCOME TAX OFFICER (2008) 13 DTR (Guj) 149, the Hon'ble High Court of Gujarat elaborately considered the various questions and issues and ultimately decided the question in favour of the assessee, identical issues and questions are present in the instant case. 9.46 Undisputedly, the case of the appellant was under scrutiny assessment for two consecutive years i.e. in A.Y 2006-07 and 2007-08. It is self evident from the above referred assessment orders u/s 143(3) that the books of accounts of the appellant were accepted in all these years and yield declared by the appellant was also accepted. Even during the survey proceedings, no incrim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Department or the Excise Department. The case of appellant finds support from the decision of Hon'ble High Court of Gujarat in COMMISSIONER OF INCOME TAX vs. SANJAY OIL CAKE INDUSTRIES (2005) 197 CTR (Guj) 520 : (2005) 149 TAXMAN 190: 9.51 I am convinced with the reasons for variation in power consumed in comparison to the production in different periods which could be on account of furnace condition, quality of raw material used, labour productivity, incoming voltage, breakdown time, etc. Due to the above reasons, monthly consumption of power may vary. Undisputedly, the statistics of power consumption and production and the similar variation existed even during the course of assessment proceedings u/s 143(3), but no adverse inference had been drawn in those assessment proceedings u/s 143(3). It is gathered that the appellant has maintained regular books of account and sales/purchases are verifiable and vouched, recorded and supported by raw material consumption register and finished goods register and was also subjected to excise duty and its production declared for the instant years had duly been accepted by the Excise Department after verification. The case of the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 170 (PC) : TC11R. 192, reversing Laxmi Narain Badridas vs. CIT (1934) 2 ITR 246 (Nag) : TC11R.201 and approving Abdul Baree Chowdhury vs. CIT (1932) 5 ITC 352 (Rang). In this decision rendered under the provisions of the 1922 Act, it was observed : "He (the assessing authority) must not act dishonestly or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other materials which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work." These observations received the imprimatur of the Supreme Court in State of Kerala vs. C. Velukutty (1966) 60 ITR 239 (SC) in the following words : "The Privy Council, while recognizing that an assessment made by an officer to the best of his judgment involved some guess-work, emphasize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of records and material available before the AO and personal knowledge and excitement on events and extraneous facts should not lead the AO to a State of affairs where the salient/primary/direct evidences are overlooked and should not influence the AO for resorting to adhoc additions/disallowances. If general/casual/routine observations of the AO are to be considered as material evidence for the purpose of framing an assessment, the AO shall have blanket and arbitrary powers to dispose of the scrutiny assessments according to his whims and fancies which is not the spirit of the circulars issued by the Board on scrutiny assessment. An assessment cannot be made arbitrarily and in order that an assessment can be sustained, it must have nexus to the material on record. (CIT v. Mahesh Chand [1983] 199 ITR 247, 249 (All.). It is the settled position that, though the AO has very wide powers and is not fettered by technical rules of evidence and pleadings, there is one over-riding restriction on his judgement and that is, that, he must act honestly and diligently on the material, howsoever, inadequate it was, and not vindictively, capriciously or arbitrarily. "Probability cannot be con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount excess stock in AY 2012-13 which shall be dealt with at appropriate place in succeeding paragraphs. 14. The Assessee, on the other hand, has filed cross objections challenging the legitimacy of additions/ disallowances dehors any reference to incriminating documents in unabated assessments [AY 2006-07 to AY 2009-10]. 15. When the matter was called for hearing, the learned CIT-DR for the Revenue, at the outset, strongly relied upon the factual matrix discussed in assessment orders in question. As regards legal objection of the Assessee, it is the case of the Revenue that discovery of any incriminating document is not a sin qua non to make assessment under s.153A of the Act. it was thus contended that the AO and the CIT(A) rightly observed that the issue of warrant of search and seizure under s.132 of the Act sufficiently empowers the AO to initiate the proceedings under s.153A of the Act and to make all consequent additions/disallowances regardless of presence of incriminating documents or otherwise. It was submitted that the only condition for initiation of proceedings under s.153A of the Act is occurrence of search under s.132 of the Act. It was further argued that Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere either found or seized which can be branded to be incriminating in nature indicating presence of any undisclosed income. The documents found and seized were of routine nature maintained in the ordinary course of business which naturally will be kept in the business premises. Hence, the assessments for AYs 2006-07 to 2009-10 which stood concluded and remained unabated is barred by principles of finality and could not be disturbed by the AO in the absence of the incriminating material. 16.1 To buttress the legal position that presence of incriminating material discovered in the course of search as a sine qua non for additions/disallowances in respect of unabated assessment, the learned counsel for the assessee relied upon the decision rendered in the case of Kabul Chawla (2016) 380 ITR 573 (Del); Pr.CIT vs. Meeta Gutgutia (2018) 96 taxmann.com 468 (SC) and large number of other decisions governing the field. It was thus asserted that in the absence of any incriminating material found in the course of search, the action of the AO to make additions is a complete non starter. It was also submitted that in the light of judicial precedents, in unabated search assessments, no addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (d) Income Tax Return (e) Bank Statement (f) Share Application Form (g) Payment received through banking channel (h) Details of payment received 16.3 Moving further, the learned counsel for the assessee adverted to page nos. 151 & 152 of Volume 2 of paper book and submitted that the assessee has made several pro-active requests before the AO during the assessment proceedings some of which are noted hereunder as referred; "(a) To provide the assessee company with the copy of all the letters sent by the Ld. AO to the investors /share applicants regarding investment made in the shares of assessee company. (b) The assessee company may kindly be appraised with the cases i.e. the name of the company on whom letter sent by the Ld. AO remained un-served. (c) The assessee company may kindly be made known with the reason communicated by the Postal Department behind non-service of the letters sent by the Ld. AO. (d) The assessee company may kindly be confronted with the enquiry conducted by the Ld. AO regarding yield of assessee company and basis of inference of 60% in Sponge Iron Unit. (e) The assessee company may also be confronted with the enquiry conducted by the Ld. AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "22. I have carefully gone through the assessment order and submissions of the appellant. Where a search has been initiated u/s 132 of the Act, the A.O. is entitled to issue notice for six assessment years immediately preceding the year in which search has been initiated. As such, the assessment for those six assessment years stands reopened. Once the assessment is reopened, the A.O. has full powers to assess the income which has escaped, whether found as a result of search or otherwise. Accordingly, the additions made by the A.O are within the powers assigned to him u/s 153A and for this reason, this ground of appeal is hereby dismissed." 17.3 We have examined the legal objection on jurisdiction to make additions independent of incriminating material found in the course of search. The issue is no longer res integra and thus does not call for re-examination of the contentions in this regard. As consistently echoed by the Hon'ble Courts of different jurisdiction, the scope of search assessments under s.153A of the Act in respect of concluded and unabated assessments is narrower in its sweep and restricts the right of the AO to examine the issue emanating from some incriminating m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dayawanti Gupta (supra) vide order dated 3rd October, 2017 in SLP Petition No.20559/2017. 17.3.2 Similar view that no additions could be made on the basis of material collected after search and in the absence of any incriminating evidence found or seized during search has been endorsed by the Hon'ble Gujarat High Court in Pr.CIT vs. Sunrise Finlease (P.) Ltd. (2018) 89 taxmann.com 1 (Guj.). 17.3.3 The Hon'ble Gujarat High Court in Pr.CIT vs. Saumya Constructions Pvt. Ltd. (2016) 387 ITR 529 (Guj) also declined to agree with the plea on behalf of the Revenue that the new procedure provided under s.153A of the Act is different from earlier procedure provided under s.158BC r.w.s. 158BB of the Act and consequently, the plea of the Revenue that there is no condition in Section 153A of the Act that additions should be made strictly on the basis of evidence found during the course of search was not approved. The Hon'ble Gujarat High Court analyzed the position of law and took note of several judicial precedents and concluded that completed assessments can be interfered with by the AO while making the assessment under s.153A of the Act only on the basis of some incriminating material une ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not a condition precedent for making additions/disallowances under s.153A of the Act. We do not consider it necessary to re-visit the judgments cited. The objections raised on behalf of the Revenue have been dealt with in the judicial precedents quoted in favour of the assessee. The decision cited in the case of Canara Housing Development Co.(supra) as well as Filatex India Ltd. (supra) has been taken note of by the Hon'ble Gujarat High Court in Saumya Constructions Pvt. Ltd. (supra) while adjudicating the issue in favour of the assessee. Filatex India Ltd. (supra) was also considered in Meeta Gutgutia (supra). The decision rendered by the Hon'ble Allahabad High Court in CIT vs. Rajkumar Arora (2014) 52 taxmann.com 172 (All.) is rendered without taking note of the judicial view expressed by other High Courts prevailing at the relevant time. The decision rendered in Pr.CIT (Central) vs. Kesarvani Zarda Bhandar, Lucknow ITA No. 270 of 2014 (All.) is only reiteration of the decision of Hon'ble Allahabad High Court in case of Rajkumar Arora (supra). 17.5 In summation, in the light of the aforesaid overwhelming legal precedents as laid down by the Hon'ble Bombay High Court, Delhi Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es made in assessments framed under s.153A of the Act in respect of captioned assessees pertaining to AYs. 2006-07 to 2009-10 are thus required to be struck down on this score itself. However, the assessments/re-assessments pending on the date of search i.e. AY 2010-11 to 2012-13 which stood abated by operation of law will however be governed by normal assessment powers of assessment under s.153A of the Act. 18. The legal ground of jurisdiction raised by the Assessee as per the cross objections, is thus allowed in respect of AY 2006-07 to 2009-10. 19. Notwithstanding and without prejudice, we shall now advert to the correctness of various additions made in A.Ys. 2006-07 to 2012- 13 on merits. 20. As noted earlier, the AO has invoked Section 68 of the Act and made additions on account of share application money received by the assessee in A.Y. 2006-07 as unexplained cash credit. The CIT(A), however, after taking note of observations made in the assessment order and oral & written submissions made on behalf of the assessee, found merit in the plea of the assessee and reversed the additions so made. 20.1 The findings of the CIT(A) dealing with the issue has been reproduced in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he factual position on absence of any incriminating material as noted by the CIT(A) reproduced in preceding para, the CIT(A) has also analyzed and delineated the facts and circumstances in proper perspective while dealing on merits of additions. The CIT(A) found that primary onus placed upon the assessee under s.68 of the Act was satisfactorily discharged by the assessee. The CIT(A) has examined the factual matrix in relation to each and every subscriber individually, as extracted in para 10 of this order, and found that the subscribers were duly assessed and payments have come through banking channels. It was further found that the tangible net worth of the subscribers company is sufficiently enough to meet the criteria of creditworthiness envisaged in law. The bank statements, audited financial statement and confirmations were analyzed. The source of the investment was thus found to be explained satisfactorily in the facts of the case. It was further noted that the credit for share application money was accepted in the regular assessment under 143(3) prior to search after making enquiries. The subscriber co. namely Antariksh Commerce Pvt. Ltd. and Escort Finvest Pvt. Ltd. were fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales resulting from alleged low yield on production shown in the books. No documents or sheet showing record of actual production in excess of what is recorded in books were found in the course of search. It was emphasized on behalf of the assessee that each and every seized documents, loose papers found in the course of search was explained and were not incriminating the assessee in any manner. Even though, all the premises of the assessee were thoroughly searched by the search team, not a single piece of paper was found from the premises of the assessee to corroborate and support the allegation of unaccounted production and sale. 21.4 On facts, the broad counters of the multiple contentions of the assessee are that even if it is momentarily assumed that the yield shown by the assessee is less than industrial average, in the absence of any corroborative material, the adverse inference remains unsubstantiated. Even if, it is assumed that production facilities and resources even not utilized optimally or efficiently, this by itself will not entitle the AO to allege unaccounted production by presuming higher yield by some mathematical calculation. With reference to the tabular stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the state of Chhattisgarh. By this exercise, the assessee has attempted to show that actual production shown by the assessee is either higher than its peers or quite comparable and bracketed in the same range. The standard yield presumed by the AO was thus sought to be demolished on facts. 22.2 Having examined the findings of the AO and the submissions of the assessee in rebuttal, the CIT(A) has made wide ranging observations noted hereunder: (i) The AO has failed to establish the nexus between the mathematical calculations of highest and lowest consumption of power, iron ore (raw material) etc. with yield of 60% adopted by the AO. (ii) The basis for arriving at the standard yield of 60% has not been disclosed despite repeated requests on behalf of the assessee. The CIT(A) himself attempted to work out the average yield in the industry based on data available from the department but failed to arrive at this so called standard figure of 60%. (iii) Comparison of yield declared by the other assessee engaged in the similar line of business was carried out as tabulated in para 9.4 of the appellate order. On the basis of such comparison, arithmetical mean of yield stands at 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied by registered valuer. The CIT(A) also noted that it is impractical to presume uniform quality of coal and iron ore. (vii) The AO has proceeded to estimate higher yield on the basis of mathematical and mechanical calculations. The AO has laid too much emphasis on statistics which cannot be said to have been gathered as a result of search only. The statistics relied upon by the AO are those which are quite routinely called for even during the regular assessment proceedings under s.143(3) of the Act. The AO has not stated what according to him should have been the average consumption of coal iron ore etc. (viii) The statement of Shri Rishikesh Dixit recorded on 21.06.2011 was taken note of from which it was gathered that the aforesaid Director stated in clear terms that the quantity recorded in the loose slips tallies with the quantity recorded in the regular books of accounts and excise records. These loose slips are destroyed after it becomes redundant with the passage of time. The CIT(A) further observed that neither in the show cause notice nor in the assessment order, there is any whisper of any such loose papers which bears the figure of production and which the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [ITA No. 249/RPR/2014 -AY 2012-13 Revenue appeal] on account of excess stock of finished goods/ raw material stated to be discovered during the search. 24.1 The AO observed that during post search proceedings, the assessee was required to explain the difference in stock found at the time of search vis-à-vis the stock as per books of accounts of the assessee. In response, the assessee company disputed the measurement and valuation of stock. It was submitted that Departmental Registered Valuer (DRV) has estimated the stock of sponge iron based on eye measurement and has applied the density of 3.2 MT/Cubic Meter in the case of assessee. The DRV was cross examined by the assessee but the state valuer was unable to provide the basis for applying this density. The AO, however, discredited the submissions of the assessee on the ground that the assessee himself has not been able to conclusively establish the correct density of the iron ore. The AO accordingly adopted the valuation done by the search team at the time of search at the most reasonable estimation of stock. 24.2 The CIT(A) took note of the relevant facts placed before him by the assessee and passed a detailed order on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble properties and he possesses qualifications provided in Rule 8A(2) of Wealth Tax Rules 1957. It is also seen that in response to question no.14 of the statement recorded on 13.02.2014 the said DRV has stated that the work of quantity assessment was carried out as per the competence and qualification mentioned in Rule 8A(2)(ii)(B)(b). The DRV did state that he prepared the Quantity Assessment Report as per his qualification mentioned in Rule 8A(2)(ii)(B)(b) of Wealth Tax Rules, 1957 which pertains to Quantity surveying in building construction. Undisputedly, the appellant is not engaged in any construction work. I do find force in the submissions of the appellant that the report of the DRV is vitiated as the DRV applied irrelevant knowledge which has no nexus with the business of the appellant and product under consideration. 13.3 I do find considerable force in the submissions of the appellant that different Sub-rules of Rule 8A of Wealth Tax Rule, 1957 are mutually exclusive and there is no overlapping, therefore, the quantity assessment of movable items such as the coal, dolomite and iron ore fines in the present case, cannot be carried out by the Valuer who is registered as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e present circumstances, no adverse action is warranted against the appellant company as the stock as per book records is already on higher side, which was 3488.600 MT as on 21.06.2011, secondly, the fact that the difference in the quantity of stock is merely owing to the difference in assumptions and mathematical formula applied by the DRV, thirdly, the quantity reported by the DRV is not based on physical weighment which is prone to change with the change in underlying assumptions and variables. (c) The appellant company requested the A.O. to visit the appellant's factory premises so that the live physical demonstration of density of coal used and its weighment on the weighbridge can be given. The appellant company has made a container of 1 cubic meter size, the quantity of coal in one cubic meter container is much less than 1.506 MT. (d) In addition to above, the appellant company provided the Certificate dated 18.08.2011 from the Registered Valuer wherein it has been certified that the density of broken coal is 0.800 to 0.960 MT/cu.m. 13.5 I have carefully perused the Quantity Assessment Report of the DRV, submissions of the appellant, statement given by the DRV during cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.11 In this regard, unfortunately, the DRV miserably failed to justify or provide any logical reasoning behind adoption of density of coal at 1.50 MT per Cu. meter and has, in fact, expressed his ignorance about minerals and their different grades and relevant densities. 13.12 On the contrary, the appellant has relied upon certificate from the Registered Valuer namely Mr. Sunil Bhandari wherein he has certified that the density of broken coal is 0.800 to 0.960 MT per Cu. meter. 13.13 I have also taken note of the fact that the appellant had vehemently requested the A.O. to witness the live physical demonstration for ascertaining the density of coal, however, it is seen that the A.O. did not adhere to the appellant's request for live physical demonstration. It remains an undisputed fact that the appellant is not using Anthracite coal of solid state, on the contrary, considering the submissions of the appellant and the circumstantial evidences in the form of the statement of the DRV and acceptance of deficiencies on the part of the A.O. in the quantity assessment report of the DRV, I am inclined to accept the submissions of the appellant that the DRV has grossly erred and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es by 3053.043 MT, thus, the appellant has valued the inventory at an average rate of ₹ 1,618.55 per MT of iron ore fines. As against this, it is seen that the A.O has taken the total value of investment at ₹ 76,32,607.50 for 3053.043 MT of iron ore fines, thus, the A.O. has valued the inventory at an average rate of ₹ 2,500/- per MT. I find that the appellant has offered the income for taxation based on actual sales realization as iron ore fines is not purchased by the appellant, on the contrary, iron ore fines are generated during crushing of iron ore lumps screening of iron ore. I find that the A.O has not rebutted the submissions of the appellant that the payment against sales consideration of iron ore fines was received through proper banking channel and applicable VAT has also been paid by the appellant. In the background of these facts, the addition made by the A.O by applying an average rate of ₹ 2,500/- per MT cannot be sustained, particularly, when the appellant has vehemently contested against adoption of density at 2.90 MT per Cu. meter for iron ore and total quantity of iron ore fines as per report of DRV himself is 5734.680 MT [6500.62 - (526.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue in favour of the assessee after recording tell-tale facts, such as, DRV having admitted that no scientific or mechanical equipment was used by him for the purposes of valuation; no physical verification was carried out at all etc.. After having analyzed the facts and circumstances of the case, the CIT(A) has objectively concluded that addition to the total income on account of unexplained investment towards excess stock on account of coal is without any sound basis is patently unjustified. We find that the CIT(A) has arrived at his findings with very logical analysis in sync with factual matrix. Such finding of fact does not call for any interference for any reason. 24.5 With reference to excess stock on account of iron ore or fines, the CIT(A) has observed that the dispute revolves around the rate adopted by the AO and there is no dispute regarding the total quantity. It was noticed by the CIT(A) that the assessee has offered the income for taxation based on actual sales realization as iron ore fines are not purchased by the assessee. The sales register of the assessee was examined and the method was found satisfactory. Thus, having regard to the declarations already made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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