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TMI Blog2005 (8) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... rary he denied the same. The said statement (about on-money payment) was given by a third party. We also agree with the contention on behalf of the assessee-group that the assessee after denying such cash payments several times ultimately agreed to the statement of the abovesaid third party under the compelling circumstances as stated by the ld AR of the assessee. The statement cannot, therefore, be considered to be voluntary. Thus, where the Department has no other evidence to establish the concealment of income except the papers seized from a third party, his statement on the same, (which was subsequently retracted) and the assessee s acceptance under compelling circumstances of the same which was also subsequently retracted. The additions have not been duly corroborated by the Revenue. We are of the opinion that the Department has not been able to substantiate its finding with cogent reasoning. So the same cannot be upheld. Unaccounted sales - excess sale price of milk products cannot offset shortfall in the quantity of sale of milk or for that matter of purchase - On a perusal of the records including the seized documents and also comparing the same with the regular books of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We find enough substance in the arguments on behalf of the assessee. The seized documents in question are found to be rough notings as explained by the appellant and not of much importance. The AO did not put the same to any process of examination, enquiry or verification. In absence of the same, the documents do not seem to have any evidentiary value. On the other hand, the explanation furnished by the appellant about re-circulation of manufactured ghee seems to be quite plausible. The addition is found to have been made without appreciation of the proper facts and more on surmise than on actual examination. The addition is, thus, unwarranted and is being deleted. In the case of M/s Modern Dairy Ice Plant, the assessee has claimed bad debt of Rs. 14,07,500 in respect of certain loans given in earlier years on the basis of certain seized documents. The claim of the assessee has been rejected by the lower authorities. We are of the opinion that firstly that since the loans were never recorded in the proper books of account nor written off therein, there is no scope for allowing the same u/s 36(1)(vii). Furthermore, a block assessment is meant for assessing the undisclosed income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be belonging to the assessee-group containing recordings regarding receipts and payments (both accounted and unaccounted) relating to construction project and also purchase of land at Bhayandar for the proposed housing project called "Satguru Shelters". According to the statement given by Shri J.P. Achnani, the said documents were found in his custody because he was in-charge of all the activities of the project. The said Shri J.P. Achnani was also presented before Shri Jagmohan Singh Arora, who was then asked to cross-examine Shri Achnani. Shri Jagmohan Singh Arora refused to do so and agreed to confirm the statement of the said J.P. Achnani. He admitted unaccounted income to the tune of Rs. 1.75 crores. 1.3 Subsequently, block return was filed by Shri Jagmohan Singh Arora on 7th July, 1999 and also the other individual assessees, declaring "nil" income each. The statement under s. 132(4) of the IT Act, 1961, wherein admission of unaccounted investment in the land at Bhayandar had been made was also retracted by him subsequently. The said retraction was made on the following grounds: (i) The interrogation started at 10 p.m., and was concluded at 5 a.m. o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P) Ltd. vs. ITO (1996) 56 TTJ (Mum) 21 : (1996) 59 ITD 29 (Mum) The additions in the assessment order were confirmed by the CIT(A). 2. During the course of the hearing of the further appeals preferred by the assessee-group, in the matter of the first issue i.e. additions in respect of unaccounted investments in Bhayandar land, the learned Authorised Representative of the assessee-group argued as follows: 2.1 The addition was made solely on the basis of the statement of Shri J.P. Achnani relating to the recordings of so-called undisclosed income of the assessee-group in the materials seized from his residence allegedly corroborated by Shri Jagmohan Singh Arora. The learned Authorised Representative of the assessee has pleaded that the statement given by Shri Jagmohan Singh Arora was not a voluntary one but an extracted one inasmuch as pressure tactics were applied by the Department to compel him to agree to confirm the statement of said J.P. Achnani. He relied on the following judgments and Departmental circular to argue that in the circumstances of the case, the statement of Shri Jagmohan Singh Arora made on the date of the search under difficult circumstances, does not have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the IT Department. Similarly, while recording statement during the course of search and seizure and survey operations, no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely Further, in respect of pending assessment proceedings also, AG's should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders. Yours faithfully, (S.K. Mahapatra) Under Secretary (Inv. IT)" The learned Authorised Representative on behalf of the assessee had argued that in view of the above direction by the CBDT itself, it can safely be said that not much credence need be placed merely on the so-called confessional statements of the searched parties, which are not supported by any concrete evidence or material. Further, the statement has lost all its value because neither the assessee nor the Department has gone by the above statement. The De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur attention to the decision taken by the Hon'ble Tribunal, Mumbai Bench in the case of S.P. Goyal vs. Dy. ClT (2002) 77 TTJ (Mum)(TM) 1 : (2004) 269 ITR 59 (Bom)(AT), wherein it has been held that no addition can be made under such situation. Accordingly, the learned Authorised. Representative of the assessee pointed out that similar views have been held in the cases of Prarthana Constructions (P) Ltd. vs. Dy. CIT (2001) 70 TTJ (Ahd) 122, CBI vs. V.C. Shukla & Ors. 3 SCC 410, Chuharmal vs. CIT (1988) 70 CTR (SC) 88 and in the case of Niranjan Kumar Agarwal vs. Asstt. CIT in ITA No. 658/C/1998 (Tribunal, Kolkata Bench). 2.4 The learned Authorised Representative on behalf of the assessee furthermore argued that the principle of natural justice has also been violated inasmuch as no proper opportunity to cross-examine the said third party was made available to the assessee. The only opportunity provided was a farce inasmuch as the same was provided on the date of search, in the middle of the night and in the absence of complete set of seized material on which addition was proposed to be made. Furthermore, no opportunity to examine the regular books was made available to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -vis his regular books. All these are the preconditions of a proper opportunity of cross-examination which were not at all observed in the case of the assessee-group and, hence, he can be said to have been deprived of the opportunity to cross-examine thereby violating the principles of natural justice. 2.7 Furthermore, he argued that the addition made by the Department is legally incorrect. Undisclosed income has to be computed in accordance with the manner laid down in s. 158BB of the IT Act, 1961, and as per the definition of "undisclosed income" as provided therein. The different judicial pronouncements have held that unaccounted income has to be computed on the basis of materials found in the course of search. 2.8 The learned Authorised Representative of the assessee summed up his arguments by pointing out that a perusal of the assessment order would show that nothing was found to show or suggest that the assessee or any member of the group had made any unaccounted investment for acquisition of land at Bhayandar. Furthermore, nothing in the materials seized from the appellant group supported such view. Even the learned AO has not mentioned anything to this effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the fact that the page contains cash as well as cheque receipts and the cheque receipts are shown as booking advances in the books of M/s Arora Constructers and Developers. Hence the cash receipt is also the same. In absence of any date of the cash receipts, the same principle followed by the Department in regard to addition, i.e., in proportion to amounts shown in regular books has to be resorted to. The same would show that the receipts are before payments and hence if at all any addition is called for, it has to be done after taking the same into consideration. Moreover, the assessee is not sure as to what other documents in this connection were seized from Shri Achnani and whether there were more sources for meeting cash payments. The learned Authorised Representative on behalf of the assessee vehemently argued in this connection that even one paper found from Shri Achnani's place goes to show advances having been received in cash prior to making payments of on-money towards acquisition of land he argued that even according to the version of Shri Achnani it was he alone who was handling the entire affairs relating to receipts (by way of advances) and payments (towards on- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipts in the hands of the said concerns ignoring the fact that there was no other business of the assessee. (ii) Our attention has also been invited to the fact that the AO has made an addition of Rs. 68,65,134 on account of alleged suppressed sale in the hands of two primary concerns of the group mentioned above. However, no effort was made to set off the same against the alleged unexplained investment. (iii) In a nutshell, income was assessed at two points i.e., accrual and application (investment), i.e., both asset and income were taxed ignoring the fact that the asset has been financed out of the said income and it is only the excess of the investment over income, if any, which needs to be taxed. (iv) Failure on the part of the AO, to telescope the receipt against the payment and refusal to consider the appellant as a part of the group as a whole has led to multiple taxation and high-pitched assessment orders which are fundamentally erroneous and hence needs to be re-examined. 3. On the other hand, the Departmental Representative strongly supported the orders of the lower authorities. Reliance has also been placed by him on the judgments of (i) Tribunal, Mumbai Bench ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re clearly violated inasmuch as no due opportunity was afforded to Shri Arora for cross-examination and that the opportunity actually provided was just a farce as has been stated by the learned Authorised Representative of the assessee and found to be correct by us. There was again no statement given by Shri J.S. Arora regarding on-money. On the contrary he denied the same. The said statement (about on-money payment) was given by a third party. We also agree with the contention on behalf of the assessee-group that the assessee after denying such cash payments several times ultimately agreed to the statement of the abovesaid third party under the compelling circumstances as stated by the learned Authorised Representative of the assessee. The statement cannot, therefore, be considered to be voluntary. In the above background, where the Department has no other evidence to establish the concealment of income except the papers seized from a third party, his statement on the same, (which was subsequently retracted) and the assessee's acceptance under compelling circumstances of the same which was also subsequently retracted. The additions have not been duly corroborated by the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness. The learned Authorised Representative of the assessee submitted that by adopting this attitude, the AO had made double taxation of one amount both at the point of receipt and investment which is wrong and should be deleted. In support of the proposition that telescoping should be done in such cases, the learned Authorised Representative of the assessee relied on the judgment in the case of B & Brothers Engineering Works vs. Dy. CIT (2003) 78 TTJ (Ahd)(TM) 876 : (2003) 84 IT'D 243 (Ahd)(TM). 5.2 We find enough force in the argument of the learned Authorised Representative of the assessee, we direct that when the disclosed amount of Rs. 25,93,595 has been added in the hands of M/s Modern Dairy & Ice Plant on the basis of disclosure simply and without any connection with any seized material as such and when no other utilisation of this amount has been found out by the AO, it will be fair to allow adjustment of the amounts added back on account of unexplained jewellery in the hands of the individual members of the group against the said undisclosed income. We, therefore, direct that separate additions made in this regard be deleted. 6. The next issue relates to additions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Modern Dairy & Ice Plant. We are, therefore, of the opinion that, there is no scope for making this further addition. We, therefore, delete the same. 8. Now, we deal with the appeal of M/s Dairy & Ice Plant and M/s Modern Cream Dairy Ind. Ltd. In both the appeals the assessees have raised various grounds, which are being dealt with as follows. 9. As we have discussed above that action under s. 132 was conducted in the business as well as the residential premises of the assessee-group consisting of the two assessees engaged in dairy business, a number of individuals and another partnership firm engaged in construction business, on 10th Dec., 1998, during which certain documents, books of account and other valuables were found and seized. During the course of the search, the two assessees offered the amounts of Rs. 55,00,000 (M/s Modern Dairy & Ice Plant) and Rs. 1,00,000 [M/s Modern Cream Dairy Industries (P) Ltd.] under s. 132(4) of the IT Act, 1961. 10. During the course of search, certain register identified as A-39, A-43 and A-48 were seized. As per the explanation provided by the assessee-group, the same contained production details of two concerns, viz., M/s Modern Dairy & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which pertained to both the concerns, viz., M/s Modem Dairy & Ice Plant and M/s Modem Cream Dairy Ind. (P) Ltd. The shares in the above total unaccounted/suppressed sale were computed by the AO according to the respective turnover figures of the two concerns and thus an amount of Rs. 38,44.476 was added back in the hands of M/s Modem Dairy & Ice Plant @ 54 per cent and an amount of Rs. 30,20,658 was added back in the hands of M/s Modern Cream Dairy Ind. (P) Ltd. @ 46 per cent. 10.6 In the first appeals, the CIT(A) upheld the above additions on the ground that the rates at which milk and its various products are sold vary widely. Further, consumption of milk in the production of various products varies depending upon the items produced. Hence, according to the CIT(A), quantity of milk sold cannot substitute quantum of sale of milk products. Hence, he held that the excess sale price of milk products cannot offset shortfall in the quantity of sale of milk or for that matter of purchase that has been noticed by the AO, and brought out in the assessment order. Hence according to the CIT(A), failure on the part of the appellants' representative to substitute and justify shortfall a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ategorisation is maintained of taxable and tax-free items. He continued that a perusal of seized documents vis-a-vis the regular books would show that whole milk pkt. whole milk loose, skimmed milk pkt., skimmed milk loose, toned milk pkt. and toned milk loose are all separate items as far as sale price is concerned. However, at the same time, all the above items fall under the category of milk. The learned Authorised Representative on behalf of the assessee had further submitted that in preparing the chart presented before the Department, the assessee resorted to the concept of average pricing. But in the sales register there is the exact categorization. Hence, according to him, the difference. 10.9 The learned Authorised representative of the assessee had further submitted that the above-stated chart prepared by the assessee and presented before the Department, was merely a general working to highlight the fact that the same was totally included in the regular books of both the concerns. He argued that the said registers are merely memorandum records is further established from the fact that no break-up of taxable and tax-free items were maintained therein. 10.10 The learned Au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted out by the assessees. The seized books are not books of account maintained accurately but on the other hand, are merely memorandum of rough records of production and dispatch, which they actually are as can be found from a perusal of them. Therefore, accurate maintenance of item-wise details therein cannot be expected. This is also clear from the fact that whereas in the regular books, items are categorised as taxable and nontaxable items, no such categorisation is found there in the seized documents. Hence, the seized books cannot be considered to represent duplicate sets of books of account recording the actual figure as against the regular books of account or even as supplementary sets of books of account. If a very wide discrepancy were, therefore, found between the regular books and the seized books, that would have been a cause for concern. Here, the most important aspect to be taken care of is that the production figures as recorded in the regular books do tally with those in the seized documents, if milk and milk products are considered together. The explanation furnished by the assessees regarding the different rates of various items of milk products also appears to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and added back. The same was confirmed in the first appeal. 11.2 During the course of hearing of the further appeal before us, the learned Authorised Representative on behalf of the assessee had submitted that before reaching any kind of conclusion the seized document has to be considered in its entirety. He pointed out that the perusal of the said seized documents being pp. 190-344 of paper book Part II of M/s Modern Cream Dairy Industries (P) Ltd., and M/s Modern Dairy & Ice Plant would show that the same is an information and instruction register maintained by: staff of one shift to update the staff of the other shift. The kind of recordings therein would clearly reflect the fact that the same was maintained by floor level people who were not very educated or knowledgeable. He argued that the recordings made by these people cannot be taken to be very reliable as the same has not been recorded by any person of responsible position. The learned Authorised Representative of the assessee further argued that the AO did not even bother to question the people maintaining these records for verifying the version of the assessee and simply brushed aside the explanation of the appellant w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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