Shri Dharmesh Manubhai Mehta,, RAJKOT-GUJARAT v. The Assistant Commissioner of Income Tax, Circle-1,, RAJKOT-GUJARAT

ITSSA 119/RJT/2012 | misc
Pronouncement Date: 12-07-2013 | Result: Partly Allowed

Appeal Details

RSA Number 11924916 RSA 2012
Assessee PAN ACDPM4762E
Bench Rajkot
Appeal Number ITSSA 119/RJT/2012
Duration Of Justice 6 month(s) 11 day(s)
Appellant Shri Dharmesh Manubhai Mehta,, RAJKOT-GUJARAT
Respondent The Assistant Commissioner of Income Tax, Circle-1,, RAJKOT-GUJARAT
Appeal Type Income Tax (Search & Seizure) Appeal
Pronouncement Date 12-07-2013
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 12-07-2013
Date Of Final Hearing 10-07-2013
Next Hearing Date 10-07-2013
Assessment Year misc
Appeal Filed On 31-12-2012
Judgment Text
A N IN THE INCOME TAX APPELLATE TRIBU N AL; RAJKOT BENCH RAJKOT. BEFORE SHRI T. K. SHARMA JM AND SHRI D. K. SRIVASTAVA AM IT (SS) A NO . 119 / RJT/20 12 1 1 / ASSESSMENT YEAR BLOCK PERIOD FROM FY 1989 - 90 TO 21. 10.1999 SHRI DHARMESH MANUBHAI MEHTA C/O J J ASSOCIATES OPP IMPERIAL PALACE HOTEL RAJKOT PAN : ACDPM 4762 E ( / APPELLANT) VS. THE ACIT CIRCLE - 1 RAJKOT / RESPONDENT IT (SS)A NO .06/RJT/2013 1 1 / ASSESSMENT YEAR BLOCK PE RIOD FROM FY 1989 - 90 TO 21.10.1999 THE ACIT CIRCLE - 1 RAJKOT ( / APPELLANT) VS. SHRI DHARMESH MANUBHAI MEHTA PROP. OF M/S. SWATI PRODUCTS 356 GIDC - 2 AJI VASAHAT RAJKOT PAN : ACDPM 4762 E / RESPONDENT 1FF / ASSESSE E BY SHRI SANJAY R SHAH CA 6 F / REVENUE BY DR M L MEENA DR F A /DATE OF HEARING 10 . 0 7 .2013 F A / DATE OF PRONOUNCEMENT 12 . 07 . 2013 / ORDER . . [ / T. K. SHARMA J. M . : THESE CROSS A PPEALS FILED BY THE ASSESSEE AS WELL AS BY THE REVENUE ARE AGAINST THE ORDER DATED 27 .11.201 2 OF LD CIT (A) - II RAJKOT FOR THE BLOCK PERIOD FY 1989 - 90 TO 21.10.1999. BOTH THE SE APPEALS WERE HEARD TOGETHER ON THE SAME DAY AND THEREFORE FOR THE SAKE OF CONVE NIENCE THESE ARE DISPOSED OF BY THIS COMMON ORDER. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF TRADING OF KEROSENE WICK STOVES. HE HAS ALSO STARTED PRODUCTION OF A LUMINIUM BOX AND LASTLY WAS INTO THE BUSIN ESS OF MANUFACTURING I CE - CANE. A SEARCH U/S 132 OF THE INCOME - TAX ACT WAS CONDUCTED BY THE DEPARTMENT ON 21.10.1999 AT THE BUSINESS AND RESIDENTIAL PREMISES OF THE ASSESSEE. DURING 119 - RJT - 2012 & 06 - RJT - 2013 SHRI DHARMESH MANUBHAI MEHTA 2 THE COURSE OF SEARCH CERTAIN VALUABLES BOOKS OF ACCOUNTS DIARIES AND LO OSE PAPERS WERE FOUND AND SEIZED. A STATEMENT OF ONE OF THE EMPLOYEE NAMELY SHRI RADHA KRISHNA NAIR WAS ALSO RECORDED U/S. 132 OF THE ACT. SUBSEQUENTLY THE ASSESSING OFFICER FRAMED THE ASSESSMENT U/S. 158BC OF THE INCOME - TAX ACT ON 31.10.2001 WHEREIN TH E ASSESSING OFFICER ASSESSED THE TOTAL INCOME AT RS. 15 29 455/ - REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND BY MAKING FOLLOWING THREE ADDITIONS.: - A . GROSS PROFIT FROM THE UNACCOUNTED TURNOVER RS.12 03 000/ - B . INITIAL UNDISCLOSED CAPITAL INVOLVED IN THE RS. 1 20 300/ - UNACCOUNTED TURNOVER C . SUPPRESSION OF NET PROFIT RS. 2 06 155/ - TOTAL RS.15 29 455/ - 3. ON APPEAL IN THE IMPUGNED ORDER THE LD CIT(A) ASSESSED THE UNDISCLOSED INCOME OF THE ASSESSEE AT RS.7 00 000/ - AS AGAINST THE INCOME DECLARE D BY THE ASSESSEE AT RS.2 93 370/ - FOR THE DETAILED REASON GIVEN IN PARAGRAPH 8 AND 9 WHICH ARE EXTRACTED BELOW: - 8.0 I HAVE CAREFULLY CONSIDERED THE STAND OF THE A.O. AS WELL AS THE SUBMISSIONS OF THE APPELLANT. I HAVE ALSO GONE THROUGH THE ASSESSM ENT ORDER AND SUBMISSIONS OF THE APPELLANT FILED DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. IT IS OBSERVED THAT THE ASSESSMENT ORDER IS AMBIGUOUS AND IT DOES NOT SPELL OUT THE FACTS OF THE CASE AND REASONING IN A CLEAR MANNER. IT WAS FOUND AT THE TIM E OF SEARCH THAT THE APPELLANTS COMPUTER WAS GIVING DIFFERENT STOCK STATEMENTS WHICH WERE ERRONEOUS. THE APPELLANT ADMITTED THE SAME. IT WAS CONTENDED BY THE APPELLANT THAT THE SAME WAS ON ACCOUNT OF MALFUNCTIONING OF THE COMPUTER. DURING THE COURSE OF AS SESSMENT PROCEEDINGS THE APPELLANT HAD TRIED TO EXPLAIN THE SAME AND RECONCILE THE SAME IN HIS SUBMISSIONS. HOWEVER THE A.O. HAS SIMPLY BRUSHED ASIDE THE SAME WITHOUT EXPLICITLY DISCUSSING THE REASONS FOR DENIAL IN THE ASSESSMENT ORDER. IN RESPECT OF DIF FERENCE IN GP FOUND FROM THE LOOSE PAPER THE APPELLANT EXPLAINED THAT THE ROUGH FIGURES AS MENTIONED IN THE LOOSE PAPERS UNDERGO A NUMBER OF CHECKING AND COUNTER CHECKING SO AS TO ELIMINATE ALL THE ERRORS BEFORE THEY ARE SUBMITTED TO THE GOVERNMENT DEPART MENT AND AGENCIES AND THEREFORE THE APPELLANT PLEADED THAT FIGURES AS PER BOOKS OF ACCOUNTS AND AUDITED ACCOUNTS WERE THE CORRECT FIGURES. IN RESPECT OF STOCK THE APPELLANT OFFERED AN AMOUNT OF RS.2 13 457/ - IN THE RETURN OF INCOME BASED ON DIFFERENCE OF VALUE OF STOCK AS PER PAGE NO.30 OF ANNEXURE A1 - 13 AND VALUE TAKEN IN THE FINAL ACCOUNTS. THE APPELLANT SUBMITTED THAT THIS VALUE WAS ARRIVED AT AFTER CORRECTING ALL THE ERRORS ARISING FROM MALFUNCTIONING OF THE COMPUTER. IT CLEARLY APPEARS FROM THE ASSESS MENT ORDER THAT THE A.O. HAS NOT OBJECTIVELY DEALT WITH THE EXPLANATIONS OF THE APPELLANT AND THE SAME HAVE BEEN REJECTED SIMPLY ON DISBELIEF. IT IS A SETTLED POSITION OF LAW THAT POST SEARCH ASSESSMENTS SHOULD BE BASED ON INCRIMINATING EVIDENCES FOUND DUR ING THE COURSE OF SEARCH. THE DETERMINATION OF INCOME MAY BE BASED ON ESTIMATES BUT SUCH ESTIMATE SHOULD HAVE A LOGICAL LINK WITH MATERIAL FOUND DURING THE COURSE OF SEACH AND SUCH ESTIMATE SHOULD NOT BE AT ONES OWN WILL. IT SHOULD BE WELL BASED AND DULY SUPPORTED. WITH THIS BACKGROUND OF THE MATTER I PROCEED TO DECIDE THE INDIVIDUAL ADDITIONS MADE BY THE A.O. IN THE ASSESSMENT ORDER AS UNDER: - 119 - RJT - 2012 & 06 - RJT - 2013 SHRI DHARMESH MANUBHAI MEHTA 3 A . THE FIRST IS GP ADDITION IN RESPECT OF CALCULATION OF UNACCOUNTED TURNOVER. IN THIS REGARD IT IS OBSERVED THAT THE INCOME WAS ESTIMATED ON THE BASIS OF STATEMENT OF ONE WORKER NAMELY SHRI RADHAKISHAN NAYAR. EXCEPT HIS FIRST STATEMENT WHEREIN HE MENTIONED SOME FIGURES OF PRODUCTION NO OTHER MATERIAL IS REFERRED TO WHICH CAN THROW LIGHT ON THE ASPECT THAT THE APPEL LANT WAS ENGAGED IN OUTSIDE BOOKS TRANSACTIONS. THERE IS SUBSTANCE IN THE ARGUMENTS OF THE APPELLANT THAT THERE WAS NO EVIDENCE FOUND DURING SEARCH REGARDING UNACCOUNTED SALES OF THE MAGNITUDE ESTIMATED BY THE A.O. UNACCOUNTED LABOUR CHARGES OR DISPROPORT IONATE ELECTRICITY CONSUMPTION OR ANY SIGNIFICANT ASSET IN WHICH SUCH UNDISCLOSED INCOME WAS INVESTED. HAD THERE BEEN ANY UNDISCLOSED TRANSACTIONS OF THIS MAGNITUDE SOME EVIDENCE SHOWING ANY OF THE SAME OUGHT TO HAVE BEEN FOUND AND SHOULD BE IN THE POSSES SION OF THE A.O. IT IS ALSO A SETTLED POSITION OF LAW THAT NO ADDITION CAN BE MADE SIMPLY ON THE BASIS OF STATEMENT OF A THIRD PARTY WHEN THERE IS NO CORROBORATIVE EVIDENCE TO SUPPORT SUCH STATEMENT. IT IS THE TANGIBLE MATERIAL/EVIDENCE FOUND DURING THE SE ARCH WHICH SHOULD SPEAK OF UNDISCLOSED INCOME AND NOT MERE A STATEMENT OF A THIRD PARTY. FURTHER THE TWO STATEMENTS OF SHRI RADHAKISHAN NAYAR ARE SELF CONTRADICTORY AND THEREFORE THEY LOOSE THEIR SIGNIFICANCE AS A VALID MATERIAL. IN MY VIEW THE A.O. CAN NOT RELY UPON HIS FIRST STATEMENT AS A GOSPEL TRUTH OVERLOOKING AND IGNORING HIS SUBSEQUENT STATEMENT. EVEN IF THE A.O. WANTS TO RELY UPON THE FIRST STATEMENT HE OUGHT TO HAVE GRANTED THE OPPORTUNITY OF CROSS EXAMINATION TO THE APPELLANT IN VIEW OF PRINCI PLES OF NATURAL JUSTICE. THIS DOES NOT APPEAR TO HAVE BEEN DONE. IN THE ABSENCE OF CROSS EXAMINATION THE STATEMENT HAS NO EVIDENTIARY VALUE WHATSOEVER AND THE SAME CAN NOT BE THE BASIS FOR DETERMINATION OF INCOME MORE PARTICULARLY WHEN THERE IS NO CORROBO RATIVE EVIDENCE TO SUPPORT THE CONTENT. THE SAID PERSON WAS A WORKER ENGAGED IN ONE PROCESS OF PRODUCTION AND HENCE HIS STATEMENTS IN RELATION TO ENTIRE PRODUCTION AND SALES MAY BE A MATTER OF BROAD IMAGINATION RATHER THAN A COGENT FACT. THE UNACCOUNTED TU RNOVER HAS BEEN ESTIMATED BY THE A.O. THROUGH SERIES OF ESTIMATES WHICH AGAIN IS NOT BACKED BY ANY EVIDENCE FOUND DURING THE SEARCH ACTION. THIS WAS ONLY THE SECOND YEAR OF ICE - CAN BUSINESS AND THERE IS A HUGE GAP BETWEEN THE PRODUCTION SHOWN BY THE APPELL ANT AND THAT DETERMINED BY THE A.O. ON THE OTHER HAND THE FIGURES OF PRODUCTION SHOWN BY THE APPELLANT ARE BROADLY MATCHING WITH THE FIGURES GIVEN BY HIM TO OTHER DEPARTMENT. THE APPLICATION OF HIGHER GP BY THE A.O. @ 20% IS ALSO AN ESTIMATE RATHER THAN B Y TAKING ANY COMPARABLE CASE. ON ONE SIDE THE A.O. ALLEGES EXCESS STOCK IN CASE OF ICE - CAN BUSINESS AND ON THE OTHER HAND HE ALLEGES SHORTAGE OF STOCK IN STOVE BUSINESS HAVING SIMILAR ITEMS. THIS MAKES THE ENTIRE SITUATION DOUBTFUL AND UNBELIEVABLE TO A C ERTAIN EXTENT. EVEN IF THE SAME IS BELIEVED CREDIT OF REALIZATION OF SHORTAGE OF STOCK HAS TO BE GRANTED AGAINST THE EXCESS STOCK DETERMINED BY HIM. TO SUM UP THE ESTIMATION OF THE INCOME BY THE A.O. IS NOT WELL GROUNDED. THE FACTUAL FINDINGS LOOSE PAPE RS AND DIFFERENCE MENTIONED THEREIN THE FIGURES OF PRODUCTION SHOWN BY THE APPELLANT TO OTHER DEPARTMENTS AND GAP BETWEEN THOSE ADOPTED BY THE A.O. ABSENCE OF CORROBORATIVE EVIDENCE AND UNRELIABILITY & CONTRADICTIONS IN THE STATEMENT OF WORKER SHREE RADH AKISHAN NAYAR LEAD TO THE CONCLUSION THAT THE APPELLANT COULD NOT HAVE EARNED UNDISCLOSED INCOME OF THIS MAGNITUDE. B . THE ESTIMATION OF SEED CAPITAL IS ALSO SUPPORTED BY ANY EVIDENCE FOUND IN THE SEARCH. THE HONBLE GUJARAT HC AND RAJKOT ITAT HAVE HELD THA T IN THE ABSENCE OF ANY MATERIAL SUCH ESTIMATION CAN NOT BE UPHELD. IN HIS REPORT THE A.O. HAS NOT GIVEN ANY COGENT REPLY IN THE REGARD. THESE JUDGMENTS AND RATIONAL LAID DOWN THEREIN HAS A BINDING FORCE. 119 - RJT - 2012 & 06 - RJT - 2013 SHRI DHARMESH MANUBHAI MEHTA 4 C . IN RESPECT OF SUPPRESSED NET PROFIT FOR F.Y.1997 - 98 THE APPELLANT HAS FURNISHED RECONCILIATION IN THE PAPER BOOK WITH AUDITED ACCOUNTS. THE SAME WAS FORWARDED TO THE A.O. FOR VERIFICATION. THE A.O. HAS NOT MADE ANY SPECIFIC ADVERSE COMMENT IN THIS REGARD. SHE HAS JUST SUBMITTED THAT THE ADDITION WAS MA DE ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. THE RECONCILIATION SUBMITTED BY THE APPELLANT APPEARS TO BE REASONABLE MORE SO WHEN GP WAS ESTIMATED NO SEPARATE ADDITION OF THIS KIND OUGHT TO HAVE BEEN MADE. 9 . IN VIEW OF THE ABOVE DISCUSSION IT IS OBSE RVED THAT THE INCOME OF THE APPELLANT IS OVER ASSESSED ON THE BASIS OF OVER ESTIMATIONS. HOWEVER AT THE SAME TIME IT IS ALSO A FACT THAT THERE REMAINED IRREGULARITIES IN THE ACCOUNTS OF THE APPELLANT WHICH WERE OBSERVED AT THE TIME OF SEARCH. IN MY VIEW THE APPELLANT HAS NOT BEEN ABLE TO EXPLAIN AND RECONCILE THE SAME FULLY THOUGH BROADLY REASONABLE EXPLANATIONS HAVE BEEN FURNISHED. THE FACTS OF THE CASE AND SURROUNDING VIEW EMERGING THEREFROM SUGGEST THAT THE APPELLANTS RETURNED INCOME CAN NOT BE ACCEP TED AT FACE VALUE. IN ABSENCE OF ANY EVIDENCES GATHERED BY THE A.O. AND IN ABSENCE OF ANY COGENT EVIDENCES SUBMITTED BY THE APPELLANT SUCH IRREGULARITIES HAVE TO BE ESTIMATED FOR THE PURPOSE OF QUANTIFICATION. LOOKING AT THE ENTIRE SET OF FACTS AND CIRCUM STANCES OF THE CASE MAGNITUDE OF THE BUSINESS AND KEEPING IN MIND THE REASONABLE QUANTIFICATION OF FINDINGS OF THE A.O. IT WILL BE FIT IN MY VIEW IF INCOME IS ASSESSED AT RS.7 00 000/ - AS AGAINST 2 93 370/ - RETURNED BY THE APPELLANT. THE A.O. IS DIRECTED ACCORDINGLY. THUS THESE GROUNDS ARE PARTLY ALLOWED. 4. AGGRIEVED BY THE ORDER OF LD CIT(A) BOTH THE SIDES ARE IN APPEAL BEFORE THIS TRIBUNAL. THE GROUNDS RAISED BY THE ASSESSEE IN ITS APPEAL ARE AS UNDER: - 1. THE ORDER U/S 158BC IS BAD IN LAW. 2. THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN ESTIMATING ASSESSED INCOME AT RS.7 00 000/ - AS AGAINST DECLARED INCOME OF RS.2 93 370/ - . 3. THE LD. A.O. AS WELL AS LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN MAKING OVER ESTIMATION IN RESPEC T OF ASSESSED INCOME WITHOUT ANY COGENT BASIS AND MATERIAL ON RECORDS. 5. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL ARE AS UNDER: - 1. THE LD. CIT(A) - II RAJKOT HAS ERRED IN LAW AND ON FACT OF THE CASE IN RESTRICTING THE ADDITION TO THE TUNE OF RS .7 00 000/ - AS AGAINST THE ADDITION MADE BY THE AO OF RS.15 29 455/ - [(I) RS. 12 03 000/ - BY ESTIMATING NET PROFIT (II) RS.1 20 3000/ - BY C ALCULATING CAPITAL INVOLVED IN THIS BUSINESS AS 10% OF THE TOTAL TURNOVER (III) RS.2 06 155/ - SUPPRESSION OF NET PROFI T FOR THE A.Y. 1997 - 98]. THE LD CIT(A) RESTRICTED THE ADDITION WITHOUT DISCUSSING ON WHICH BASIS HE ADOPTED THE INCOME OF THE ASSESSEE AS RS.7 00 000/ - WHEREAS THE AO MADE ADDITION ANALYTICALLY AND BY APPLYING SCIENTIFIC METHOD TO CALCULATE THE TURNOVER O F THE ASSESSEE TREATED THE INITIAL CAPITAL INVOLVED IN THE BUSINESS AS UNACCOUNTED AND SUPPRESSION OF RECEIPT FOR THE A.Y. 1997 - 98 ON THE BASIS OF THE INVENTORY FOUND DURING THE COURSE OF SEARCH PROCEEDING AND COMPUTED THE INCOME OF THE ASSESSEE ACCORDING LY. 2. IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 119 - RJT - 2012 & 06 - RJT - 2013 SHRI DHARMESH MANUBHAI MEHTA 5 6. AT THE TIME OF HEARING BEFORE US ON BEHALF OF ASSESSEE SHRI SANJAY R. SHAH CA APPEARED AND CONTENDED THAT THE SEARCH TEAM FOUND THAT THE ASSESSEES COMPUTER WAS GIVING VARIED STOCK STATEMENT FOR THE SAME DATE I.E. 21.10.1999 DUE TO SOME TECHNICAL ERROR IN THE COMPUTER/PRINTER; AND THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS ONLY FOR THIS REASON. HE SUBMITTED THAT THE ASSESSEE HAD FILED RETURN DISCLOSING THE UNDISCLOSED INCOME OF RS.2 93 370/ - IN RESPONSE TO THE NOTICE U/S. 158BC OF THE INCOME - TAX ACT. AS AGAINST THIS THE LD CIT(A) ESTIMATED THE UNDISCLOSED INCOME AT RS.7 00 000/ - . HE SUBMITTED THAT THE UNDISCLOSE D INCOME DECLARED BY THE ASSESSEE AT RS.2 93 370/ - BE ACCEPTED AS THERE IS NO JUSTIFICATION WHATSOEVER FOR MAKING THE AFORESAID THREE SEPARATE ADDITIONS TOTALING RS.15 29 455/ - . IN SUPPORT OF THIS THE ASSESSEE MADE THE FOLLOWING WRITTEN SUBMISSIONS WITH REGARD TO THE AFORESAID THREE SEPARATE ADDITIONS : - (I ) GROSS PROFIT OF RS.1203000/ - ON UNACCOUNTED PRODUCTION /TURNOVER: AS STATED ABOVE THAT DURING THE COURSE OF SEARCH CERTAIN DAIRIES AND LOOSE PAPERS WERE FOUND AND ON THAT BASIS LEARNED A.O. REJEC TED THE BOOKS RESULTS AND MADE THE ADDITION OF RS.1203000/ - ON ACCOUNT OF G. P . ON UNACCOUNTED PRODUCTION / TURNOVER. THIS ADDITION MADE BY THE LEARNED A.O. COMPRISES OF FOLLOWING TWO AMOUNTS: 1 . ALLEGED G. P. ON ICE - CANS RS.1112670/ - 2 . ALLEGED G. P. ON ITEMS OTHER THAN ICE - CANS RS . 90326/ - TOTAL (ROUNDED OFF) RS . 1203000/ - 1 . ALLEGED GROSS PROFIT ON ICE - CANS. A ) DETERMINATION OF UNACCOUNTED ICE - CANS PRODUCED: APPELLANT WAS ENGAGED IN THE BUSINESS OF PRODUCING ALUMINUM BOXES AND TRADING IN KEROSEN E WICK STOVES. IN THE F. Y. 1998 - 99 HE STARTED PRODUCING ICE - CANS. 1 . ADDITION ON THE BASIS OF STATEMENT OF THIRD PARTY CANNOT BE MADE: AT THE TIME OF SEARCH A STATEMENT OF SHRI RADHA KRISHNA NAIR WAS RECORDED U/S. 132 OF THE ACT FIRST ON 21.10.1999 AN D SECONDLY ON 28.10.1999. SHRI R. K. NAIR IS A WORKER. ON THE STATEMENT OF THE WORKER THE LEARNED A.O. ESTIMATED THAT AVERAGE DAILY PRODUCTION OF ICE - CANS IS 22 NOS. AND TAKING THAT FIGURE FOR 9 MONTHS HE WORKED OUT AN YEARLY PRODUCTION OF 8382 NOS. AGAIN ST THE 20 NOS. PRODUCED IN F.Y. 1998 - 99 AND 120 NOS. PRODUCED TILL THE DATE OF SEARCH IN THE F.Y. 1999 - 2000 . AFTER CONSIDERING THE PRODUCTION SHOWN BY THE APPELLANT DURING THE YEAR LEARNED A.O. CALCULATED SUPPRESSED TURNOVER AT THE RATE OF RS .675/ - PER PI ECE ON 8242 NOS. WHICH AMOUNTS TO R S.5563350/ - . ON SUCH AMOUNT GROSS PROFIT AT THE RATE OF 20% WAS CALCULATED AMOUNTING TO RS.1112670/ - . 119 - RJT - 2012 & 06 - RJT - 2013 SHRI DHARMESH MANUBHAI MEHTA 6 FIRSTLY THE WORKER ON WHOSE STATEMENT LEARNED A.O. HAS CALCULATED THE ABOVE SAID AMOUNT AS PROFIT ON UNACCOUNTED P RODUCTION WAS ASSOCIATED WITH THE APPELLANT ONLY SINCE LAST 4 TO 5 MONTHS. STATEMENT OF SHRI R. K. NAI R WAS TAKEN IN THE ABSENCE OF THE APPELLANT AND HE WAS NOT GIVEN AN OPPORTUNITY TO CROSS EXAMINE THE WORKER. SHRI R. K. NAIR IS NOT INVOLVED IN THE ENTIR E PRODUCTION PROCESS. HE IS A JOB WORKER WHO CARRIES ON THE WELDING WORK FOR THE APPELLANT AND THAT ALSO ON PART TIME BASIS. A WORKER CARRYING OUT ONLY THE PART OF A PRODUCTION PROCESS CANNOT NOT HAVE ANY KNOWLEDGE ABOUT THE ENTIRE PRODUCTION THAT IS CARR IED OUT BY THE APPELLANT. SECONDLY THE STATEMENT OF SHRI R. K. NAIR CANNOT BE RELIED UPON AS HIS BOTH STATEMENTS ARE CONTRADICTORY TO EACH OTHER. ON 21.10.1999 WHEN HE GAVE HIS STATEMENT FOR THE FIRST TIME HE STATED THAT HE PRODUCES 20 TO 25 ICE - CANS DAILY. HOWEVER HE IS NOT INVOLVED IN THE ENTIRE PRODUCTION PROCESS OTHER THAN THE WELDING WORKS. ON 28.10.1999 HIS STATEMENT WAS AGAIN RECORDED WHEREIN HE HAS STATED THAT THE ICE - CANS ARE MANUFACTURED AS PER THE ORDER RECEIVED FROM THE CLIENTS AND THER E IS NO REGULAR PRODUCTION PROCESS CARRIED OUT. THIRDLY THE LEARNED A.O. HAS MADE THE ADDITION JUST ON THE BASIS OF THE STATEMENT OF SHRI R. K. NAIR AND NOT ON THE BASIS OF ANY RECORDS OR DOCUMENTS FOUND DURING THE SEARCH. NO EVIDENCE HAS BEEN ADDUCED BY THE LEARNED A.O. THAT PROVES THE FACT THAT THERE WAS UNRECORDED PRODUCTION. EVEN THE GALVANIZED SHEETS USED FOR THE PRODUCTION OF ICE - CANS ARE AS PER RECORDS AND THERE IS NO EVIDENCE THAT THERE WERE UNRECORDED PURCHASES OF SUCH SHEETS. TO SUPPORT HIS CONTENTION APPELLANT HAS FILED VIDE ITS SUBMISSION DATED 25.10.2001 BEFORE THE LEARNED A.O. A COPY OF DECLARATION FILED BEFORE THE CENTRAL EXCISE AUTHORITIES ON 13.4.1999 WHEREIN HE HAS STATED THAT HE INTENDED TO MANUFACTURE 450 ICE - CANS DURING THE F.Y. 1999 - 2000 WHICH IS HIS SECOND YEAR OF PRODUCTION. FROM THE ABOVE FACTS IT IS CLEAR THAT THE STATEMENT OF SHRI R. K. NAIR IS NOT RELIABLE AND THE ADDITION MADE BASED ON HIS STATEMENT TOWARDS SUPPRESSED GROSS PROFIT ON UNACCOUNTED PRODUCTION SHOULD BE DELETED. 2 . DURING THE COURSE OF SEARCH PROCEEDINGS NO INCRIMANITATING EVIDENCE WAS FOUND WHICH EVEN REMOTELY SUGGEST THAT ( A ) APPELLANT HAS PURCHASED UNACCOUNTED RAW MATERIAL FOR PRODUCTION OF THIS HUGE NUMBERS OF ICE - CANS . ( B ) APPELLANT HAS PAID AMOUNT OF UNAC COUNTED WAGES FOR PRODUCTION OF THE NUMBER OF ICE - CANS DETERMINED BY LEARNED A.O. ( C ) APPELLANT HAS MADE ANY KIND OF UNACCOUNTED SALES OF ICE - CANS PRODUCED. ( D ) APPELLANT HAS INVESTED THE MONEY GENERATED OUT OF THIS UNACCOUNTED PRODUCTION IN ANY OTHER ASSETS. IN THE ABSENCE OF ANY ALLEGATION AS WELL AS OF ANY EVIDENCE TOTAL ADDITION MADE BY A.O. IS BASED ON CONJECTURES AND SURMISES. 3 . ACCORDING TO THE PROVISIONS OF SECTION 158BB OF THE ACT THE ASSESSMENT IN BLOCK ASSESSMENT PROCEEDINGS HAS TO BE MADE ON THE BAS IS OF EVIDENCE FOUND AS A RESULT OF SEARCH. IN THIS CASE NOTHING WAS FOUND DURING THE COURSE OF SEARCH WHICH SUGGESTED THAT APPELLANT IS ENGAGED IN PRODUCTION OF ICE - CANS OUT OF THE BOOKS. THEREFORE THE 119 - RJT - 2012 & 06 - RJT - 2013 SHRI DHARMESH MANUBHAI MEHTA 7 ADDITION MADE IS TOTALLY ERRONEOUS AS IT IS NOT IN A CCORDANCE WITH SECTION 158BB OF THE ACT. 4 . TO REJECT THE BOOKS OF ACCOUNTS AND TO RESORT TO ESTIMATION OF INCOME IT IS IMPERATIVE TO FIND SOME PATENT LETHAL AND GLARING MISTAKE IN BOOKS OF ACCOUNTS OF THE APPELLANT. THE BOOKS OF ACCOUNTS OF THE APPELLANT ARE AUDITED U/S. 44AB OF THE ACT AND APPELLANT HAS ALSO FILED DECLARATION WITH EXCISE AUTHORITIES. THERE IS NO QUERRY FROM SALES TAX AUTHORITIES ALSO. COPIES OF ORDER OF SALES TAX DEPARTMENT ARE ALSO ENCLOSED HEREWITH . IN VIEW OF THIS IT IS SUBMITTED THA T BOOKS OF ACCOUNTS SHOW CORRECT AMOUNT OF PROFIT PRODUCTION AND SALES. 5 . PRODUCTION OF ICE - CANS CANNOT BE MADE WITHOUT ELECTRICITY CONSUMPTION. THERE IS NO DISPARITY BETWEEN ELECTRICITY UNITS CON SUMED BY THE APPELLANT FOR THE WHOLE PERIOD FOR WHAT UNACCOU NTED PRODUCTION IS ESTIMATED. B ) DETERMINATION OF GROSS P ROFIT AT THE RATE OF 20% IS NOT CORRECT: LEARNED A.O. HAS TAKEN A RATE OF 20% AS G. P. ON THE ESTIMATION THAT IT WOULD REPRESENT APPELLANT'S INCOME NET OF ALL EXPENSES. AS STATED ABOVE THAT IN THE F .Y. 1998 - 99 APPELLANT STARTED THE BUSINESS OF MANUFACTURING ICE - CANS. THEREFORE THE BUSINESS OF MANUFACTURING ICE - CANS WAS NOT EVEN TWO YEARS OLD ON THE DATE OF SEARCH I.E. 21.10~1999. IN THE INITIAL PERIOD OF ANY BUSINESS IT IS NOT POSSIBLE FOR ANYBODY TO UNDERTAKE MANUFACTURING OF GOODS ON LARGE - SCALE BASIS. IN THE INITIAL STAGE BUSINESS DEVELOPS SLOWLY AND THE GROWTH RATE IS GENERALLY LOWER. CERTAIN HEAVY EXPENDITURE IS ALSO INCURRED IN ORDER TO PROMOTE THE BUSINESS. DUE TO THIS THE CHANCES OF HAVING HIGHER G.P. IS LESS. WHILE DETERMINING SUCH G.P. LEARNED A.O. HAS PRESUMED THAT THE RISE IN THE G. P. IS DUE TO THE NEW BUSINESS OF MANUFACTURING ICE - CANS. THIS CONTENTION OF THE LEARNED A.O. IS BASELESS AND IS BASED MERELY ON THE BASIS OF SURMISES AND CONJECTURES. THE RISE IN GROSS PROFIT COULD ALSO BE BECAUSE OF GOOD BUSINESS DONE IN OTHER BUSINESS. LEARNED A.O. DID NOT FURNISH ANY EVIDENCE TO SUPPORT HIS CONTENTION. IN THE ORDER LEARNED A.O. HAS STATED THAT THE AVERAGE G. P. OF THE APPELLANT IS 8. 9% AND FOR F.Y. 1998 - 99 & 1999 - 2000 THE AVERAGE G. P. HAS SHARPLY INCREASED TO 14.73. IT WOULD BE WORTHWHILE TO NOTE THAT THE GROSS PROFIT RATIO POINTED OUT BY THE LEARNED A.O. IS THE NET G. P. OF THE APPELLANT COMPRISING OF ALL THE BUSINESS OF THE APPEL LANT. IT IS NOT THE GROSS PROFIT EARNED FROM THE BUSINESS OF THE ICE - CANS ONLY. THE REAL GROSS PROFIT EARNED BY THE APPELLANT IN SUCH BUSINESS MAY BE QUITE LOWER THAN THOSE DETERMINED BY THE LEARNED A.O . FROM THE ABOVE FACTS IT IS SUBMITTED THAT THE LEA RNED A.O. WITHOUT GIVING ANY COGENT REASON HAS DETERMINED THE G.P. AT SUCH HIGH RATE OF 20% WHICH IS NOT POSSIBLE. LEARNED A.O. OUGHT NOT TO HAVE DETERMINED THE GROSS PROFIT AT THE RATE OF 20%. 2) ALLEGED GROSS PROFIT ON ITEMS OTHER THAN ICE - CANS. LEA RNED A.O. HAS CONTENDED IN HIS ORDER THAT THERE WAS A SHORTAGE OF STOCK OF RS.602170/ - IN THE ITEMS OTHER THAN ICE - CANS. SUCH OTHER ITEMS ARE MAINLY AMUL STOVE RUNNING ALUMINUM SHEET RIVET WIRE CRCA IRON SCRAP STEEL RAW - MATERIAL. LEARNED A.O. HAS MADE ADDITION AT THE RATE OF 15% AS GROSS PROFIT ON THE UNACCOUNTED TURNOVER WHICH IS AMOUNTING TO RS.90326/ - . 119 - RJT - 2012 & 06 - RJT - 2013 SHRI DHARMESH MANUBHAI MEHTA 8 THE ADDITION MADE BY THE LEARNED A.O. IS BASELESS. LEARNED A.O. HAS NOT SHOWN HOW THE UNACCOUNTED TURNOVER OF RS.602170/ - HAS BEEN ARRIVED AT AND ON WHAT BASIS THE GROSS PROFIT RATE OF 15% IS DETERMINED. IN THE PARA 6.AD OF HIS ORDER LEARNED A.O. HAS STATED THAT THE AVERAGE GROSS PROFIT RATE FOR THE TWO FINANCIAL YEARS 1998 - 99 & 1999 - 2000 OF THE APPELLANT IS 14.73% AND HAS ESTIMATED THE G. P. RATE AT 20% FOR THE ICE - CANS BUSINESS. THE RATE OF 14.73% IS THE OVERALL AVERAGE RATE OF APPELLANT'S ALL BUSINESS. IF THE AVERAGE RATE IS 14.73% OF ALL THE BUSINESS THEN HOW CAN THE GROSS PROFIT RATE BE 15% IN THE BUSINESS OTHER THAN THE ICE - CANS AS THE G. P. RATE DETERMINED IN ICE - CANS BUSINESS IS 20%. FROM THE ABOVE FACTS IT IS SUBMITTED THAT THE ADDITION MADE BY THE LEARNED A.O. IS MERELY ON THE BASIS OF CONJECTURES AND SURMISES. LEARNED A.O. IS NOT JUSTIFIED IN MAKING ADDITION OF RS.90326/ - TOWARDS GROS S PROFIT ON UNACCOUNTED TURNOVER OF RS.602170/ - . LEARNED A.O. OUGHT NOT TO HAVE NOT MADE THE ADDITION OF RS.90326/ - . THUS ON THE BASIS OF THE ABOVE SUBMISSION IT IS PRAYED THAT THE ADDITION MADE OF RS.1203000/ - TOWARDS GROSS PROFIT ON UNACCOUNTED PRODUC TION/TURNOVER SHOULD BE DELETED. (II) ADDITION OF RS.120300/ - MADE ON ACCOUNT OF CAPITAL REQUIRED TO EARN ALLEGED SUPPRESSED PROFIT OF RS.1203000 / - : IN PARA 6.AE OF THE ORDER LEARNED A.O. HAS CONTENDED THAT THE BUSINESS OF ANY MAGNITUDE REQUIRES CAPIT AL AND THE CAPITAL ON THE ABOVE SUPPRESSED PROFIT OF RS.1203000/ - IS CALCULATED AT 10% AMOUNTING TO RS.120300/ - AND THE SAME IS ADDED TO THE TOTAL INCOME OF THE APPELLANT. WITH REGARD TO THIS POINT APPELLANT WOULD LIKE TO SUBMIT THAT THE ADDITION MADE B Y LEARNED A.O. IS BASELESS AND WITHOUT GIVING ANY COGENT REASON. IT SEEMS THAT THE ADDITION IS MADE MERELY ON THE BASIS OF CONJECTURES AND SURMISES. LEARNED A.O. IS NOT JUSTIFIED IN MAKING THE ADDITION OF RS.120300/ - ON ACCOUNT OF CAPITAL INVESTMENT AND H E OUGHT NOT TO HAVE MADE SUCH ADDITION. IT IS PRAYED THAT THE ADDITION MADE BY THE LEARNED A.O. OF RS.120300/ - SHOULD BE DELETED . (III) ADDITION OF RS.206155/ - ON ACCOUNT OF SUPPRESSED NET PROFIT OF F.Y . 1997 - 98 : DURING THE COURSE OF SEARCH LOOSE PAP ERS WERE FOUND FROM THE PREMISES OF THE APPELLANT. A NET PROFIT OF RS.303552/ - IS WORKED OUT AS PER PAGE NO 36 AND 37 OF ANNEXURE A - 3/17 WHICH IS A DRAFT PROFIT AND LOSS ACCOUNT FOR THE F.Y. 1997 - 98 PREPARED BY THE APPELLANT. AS PER PAGE NO.103 OF ANNEXU RE A - 3/19 A NET PROFIT OF RS.97937/ - IS WORKED OUT WHICH IS THE FINAL PROFIT CALCULATED BY THE APPELLANT FOR THE F.Y. 1997 - 98. THE DIFFERENCE THUS ARRIVED OF RS.206155/ - IS CHARGED TO TAX AS SUPPRESSED NET PROFIT FOR THE F.Y. 1997 - 98 BY THE LEARNED A.O. IN RESPECT TO THE ABOVE SAID ADDITION MADE BY THE LEARNED A.O. APPELLANT WOULD LIKE TO SUBMIT THAT HE WAS NOT GIVEN AN OPPORTUNITY TO GIVE ANY EXPLANATION OR CLARIFICATION WITH RESPECT TO THE ABOVE SAID MATTER. FURTHER THE ADDITION IS ALSO MADE WITHOUT CONSIDERING ANY RECORDS IF THE RECONCILIATION IS MADE OF THE FIGURES SHOWN IN THE PAGES 119 - RJT - 2012 & 06 - RJT - 2013 SHRI DHARMESH MANUBHAI MEHTA 9 36 AND 37 OF ANNEXURE A - 3/17 AND THE FINAL ACCOUNTS FOR THE F.Y. 1997 - 98 THEN THE DIFFERENCE WOULD BE AS FOLLOWS: PARTICULARS AMOUNT (RS.) 1 . NET PROFIT AS PER PAGE NO.36 & 37 OF 303551 ANNEX. A - 3/17 LESS 2 . ITEMS NOT FOUND DEBITED IN PROFIT & LOSS A/C AS PER PAGE NO. 36 & 37 OF ANNEX A - 3/17 AND APPEARING IN FINAL ACCOUNTS ( I ) OCTROI & FREIGHT EXPENES 70526 ( II ) WORKERS/STAFF EXPENSES 119754 ( III ) PROFESSIONAL TAX EXPENSES 1000 ( IV ) STATIONARY EXPENSES OF RS.23425/ - DEBITED IN FINAL ACCOUNTS AND RS.21625/ - DEBITED IN ANNEX A - 3/17 593 ( V ) SIMILAR DIFFERENCE IN INTEREST ACCOUNT ( VI ) SIMILAR DIFFERENCE IN DEPRECIATION A/C 12235 205908 3 . NET PROFI T AFTER THE ABOVE ADJUSTMENT (1 - 2) 97643 4 . NET PROFIT AS PER FINAL ACCOUNTS 97937 DIFFERENCE (3 - 4) - 294 SO ON THE BASIS OF THE ABOVE CALCULATION IT IS CLEAR THAT THE APPELLANT HAS DISCLOSED MORE NET PROFIT THOUGH IT MAY BE BY A LITT LE MARGIN . THUS THE LEARNED A.O. HAS MADE THE ADDITION MERELY ON THE BASIS OF CONJECTURE AND SURMISES. IT IS ALSO AGAINST THE RULE OF NATURAL JUSTICE AS THE APPELLANT WAS NOT GIVEN ANY OPPORTUNITY TO SUBMIT ANY EXPLANATION FOR THE SAME. THE LEARNED A.O. DID NOT EVEN RAISE THE QUERIES REGARDING THIS MATTER IN THE NOTICE ISSUED TO THE APPELLANT. THUS ON THE BASIS OF THE ABOVE SUBMISSION IT IS PRAYED THAT THE ADDITION MADE OF RS.206155/ - TOWARDS SUPPRESSED NET PROFIT FOR F.Y. 1997 - 98 SHOULD BE DELETED. EV EN OTHERWISE WHEN LEARNED A.O. HAS MADE THE ADDITION ON ACCOUNT OF UNACCOUNTABLE PRODUCTION THE ADDITION SHOULD NOT HAVE BEEN MADE SEPARATELY BY HIM AS IT AMOUNTS TO DOUBLE ADDITION. BASED ON THE ABOVE PARAGRAPH IT IS SUBMITTED THAT ADDITION OF RS.15294 55/ - SHOULD BE DELETED. 7. ON THE OTHER HAND THE LD DEPARTMENTAL REPRESENTATIVE POINTED OUT THAT THE ASSESSING OFFICER HAS GIVEN COGENT REASON FOR MAKING THE THREE SEPARATE ADDITIONS VIZ . (A) GROSS PROFIT FROM THE UNACCOUNTED TURNOVER - RS.12 03 000/ - (2 ) INITIAL UNDISCLOSED CAPITAL INVOLVED IN THE UNACCOUNTED TURNOVER - RS.1 20 300/ - & (3) SUPPRESSION OF NET PROFIT - RS. 2 06 155/ - IN THE ASSESSMENT ORDER . HE FURTHER SUBMITTED THAT THESE ADDITIONS HAVE BEEN MADE ON THE BASIS OF STATEMENT OF SHRI RADHA KRISH NA NAIR RECORDED AT THE TIME OF SEARCH; THEREFORE THE ADDITION OF 119 - RJT - 2012 & 06 - RJT - 2013 SHRI DHARMESH MANUBHAI MEHTA 10 RS.15 29 455/ - AS ASSESSED BY THE ASSESSING OFFICER BE RESTORED AS AGAINST THE UNDISCLOSED INCOME ESTIMATED BY LD CIT(A) AT RS.7 00 000/ - . 8. HAVING HEARD BOTH THE SIDES WE HAVE CAREFUL LY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT THE ASSESSING OFFICER MADE THREE SEPARATE ADDITIONS ON ACCOUNT OF DISCREPANCIES/IRREGULARITIES FOUND IN THE ASSESSEES BOOKS OF ACCOUNT AT THE TIME OF SEARCH. BEFORE THE ASS ESSING OFFICER THE ASSESSEE COULD NOT RECONCILE THE SAME FULLY AND HAD GIVEN BROAD EXPLANATION WITHOUT SUPPORTING TANGIBLE EVIDENCE. LOOKING TO THE MAGNITUDE OF THE BUSINESS WHICH IS CARRIED ON BY THE ASSESSEE THE APPROACH OF LD CIT(A) IN ESTIMATING THE LUMP - SUM UNDISCLOSED INCOME IS CORRECT BUT IN OUR CONSIDERED OPINION ESTIMATION OF INCOME AT RS.7 00 000/ - IS ON LITTLE BIT HIGHER SIDE. KEEPING IN VIEW THE MAGNITUDE AND NATURE OF BUSINESS CARRIED OUT BY THE ASSESSEE IT WILL MEET THE END OF JUSTICE I F UNDISCLOSED INCOME OF ASSESSEE IS ESTIMATED AT RS.6 00 000/ - AS AGAINST RS.7 00 000/ - ASSESSED BY LD CIT(A) IN THE IMPUGNED ORDER. WE HOLD ACCORDINGLY. THE ASSESSEE WILL GET A FURTHER RELIEF OF RS.1 00 000/ - . 9. IN THE RESULT THE APPEAL OF THE REVEN UE IS DISMISSED AND APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THIS ORDER IS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED HEREINABOVE. SD/ - SD/ - ( D. K. SRIVASTAVA ) (T. K. SHARMA) A / ACCOUNTANT MEMBER 6 / JUDICIAL MEMBER / ORDER DATE 12 . 0 7 .2013 . /RAJKOT *B T B JO O / COPY OF ORDER FORWARDED TO: - 1 . / APPELLANT - SHRI DHARMESH MANUBHAI MEH TA RAJKOT 2 . / RESPONDENT - THE ACIT CIRCLE - 1 RAJKOT 3 . N T / CONCERNED CIT - I RAJKOT 4 . T - / CIT (A) - II RAJKOT 5 . N A N / DR ITAT RAJKOT 6 . 1 / GUARD FILE. / BY ORDER TRUE COPY PRIVATE SECRETARY ITAT RAJKOT