TMI Blog2021 (11) TMI 707X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 drawn by the CIT(A). CIT(A) has objectively analyzed the factual situation and found complete absence of any adverse material against the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rfere. - I.T.A. Nos. 243 to 249/RPR/2014 A/W. CROSS OBJECTION Nos. 18 to 24/RPR/2015 - - - Dated:- 21-10-2021 - Shri Pradip Kumar Kedia, Accountant Member And Shri Pawan Singh, Judicial Member For the Revenue : Shri P. K. Mishra, CIT.DR For the Assessee : Shri Veekaas S Sharma, A.R. ORDER PER PRADIP KUMAR KEDIA - AM: The captioned appeals are directed at the instance of Revenue in respect of the assessee captioned above, arising from the common and combined orders of the Commissioner of Income Tax (Appeals) [ CIT(A) ] for all assessment years. In counter, the assessee has also filed cross objections in all Revenue s appeals as tabulated hereunder: ITA Nos. Name of assessee AY Combined order of CIT(A) dated Combined order of AO dated Assessment order passed under Section 243 to 249 /RPR/14 a/w. CO Nos. 18 to 24/RPR/2015 Shree Shyam Sponge And Power Pvt. Ltd. 2006-07 to 2012-13 18.07.14 27.03.14 153A r.w.s. 143(3) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .s. 153A of the Act for A.Ys. 2006-07 to 2011-12, whereas the assessment for A.Y. 2012-13 was passed under normal provisions under s.143(3) of the Act. A common assessment order for A.Ys. 2006-07 to 2012-13 was passed having regard to common issues 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 132. The statements were furnished by the said companies. I have carefully gone through all the statements of all the persons recorded during the proceedings u/s 132 on 21/22.06.2011. I am in agreement with the submissions of the appellant company that no statement 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t ITO, Ward-1(4), Kolkata was satisfied with the genuineness of addition to share capital and reserves of Escorts Finvest Private Limited inasmuch as no adverse inference was drawn by ITO, Ward-1(4), Kolkata with regard to said addition to share capital and reserves of Escorts 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result of search proceedings. The A.O has not rebutted the details of tangible net worth submitted by the appellant to demonstrate that the subscribers had sufficient means to invest in the share application/capital of the appellant company, I have perused the details of net worth of the 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are duly notarized, the investors have also furnished the copies of share application forms, their audited financial statements, ITR, bank statement. In the backdrop of these facts and documentary evidences, in my considered opinion, the identity and creditworthiness of the subscribers has been established 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egarded the documentary evidences adduced by the appellant such as confirmation from the share applicants, their PAN, certificate of incorporation of subscriber companies, records of the Registrars of Companies (ROC) generated from the website, affidavits filed in support of the fact of advancing share applications 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he background of the facts of that case. So understood, it will be seen that where the complete particulars of the share applicants such as their names and addresses, income tax file numbers, their creditworthiness, share application forms and share holders' register, share transfer register etc. are furnished to the Assessing Officer and the Assessing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner of Income-tax-III v. Nilchem Capital Ltd. [2012] 18 taxmann.com 350 (Guj.); (l) Commissioner of Income-tax v. Jay Dee Securities Finance Ltd. [2013] 32 taxmann.com 91 (Allahabad); (m) Commissioner of Income-tax, Delhi-II v. Kinetic Capital Finance Ltd. [2011] 14 taxmann.com 150 (Delhi); (n) Commissioner of Income-tax v. VLS Foods (P.) Ltd. [2011] 15 taxmann.com 225 (Delhi); (o) Commissioner 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 L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant is quiet low in comparison to the yield shown by other manufacturers of CG, however, wherefrom the A.O derived this figure of 60% is best known to the A.O only. The undersigned made an attempt to work out the average yield in the industry based on data available from the Department itself. 9.3 The appellant has submitted that despite repeated requests made before the A.O, the basis of adopting yield in the case of appellant at 60% was not provided. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 M/S Baldev Alloys Private Limited 2008-09 53.88 60.00 50.68 Arithmetical Mean of Yield 52.22 60.00 50.68 A.Y. 2010-11 1 Gopal Sponge Power Pvt. Ltd. 2009-10 55.14 60.00 59.40 2 GR SPONGE POWER LTD 2009-10 53.69 60.00 59.40 3 Shri Nakoda Ispat Pvt. Ltd. 2009-10 53.09 60.00 59.40 Arithmetical Mean of Yield 53.97 60.00 59.40 The aforesaid Table leads to following inferences: (a) The Yield d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 18.79 4.66 * 40.35 2394.51 18.42 12.88 54.07 Average Yield For F.Y. 2007-08 *** 40.35 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 468433831.2 140359915 26193426.2 301880490 Purchase 348971102.5 80086986 0 268884116.5 G.P. 119462728.7 60272929 26193426.2 32996373.5 G.P. Ratio 25.50 10.93 N.P. 44639793.23 60272929 26193426.2 -41826561.97 N.P. Ratio 9.53 -13.86 The Average Yield of the industry was calculated as under: Sl. No. Name of Comparable assessee assessed in Circle 1(2), Raipur F.Y. Total Production Total Consum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 variation in Consumption/yield is bound to take place as raw material i.e. iron ore is essentially a mineral which differs in Iron content as obtained from the mines, conversely, being mineral, the quality of ore and coal cannot be expected to be uniform. It needs no reiteration that at a given point of time, rate of iron ore will vary with the variation in iron content in iron ore, furthermore, it is a matter of common knowledge that the quality and quantity of output varies with the quality and composit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der 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, the data for calculation of percentage of yield and burning loss is readily available. 9.11 The appellant was asked to submit copies of seized documents and reply / explanation of the appellant thereon. The explanation given by the appellant on seized documents during the course of assessment proceedings before the A.O. was cross checked with reference to the seized documents, excise records, books of account and bill and vouchers and the same was found to be satisfactory. 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 variation in coal and iron ore. (4) Regarding stock, the A.O. has made an addition of ₹ 71,76,306/- on account of difference in Sponge Iron. The issue has been elaborately dealt in Para 12 to 15 below. It is seen that, though, the appellant has surrendered the excess stock of Iron ore fines, the appellant has made various submissions against the veracity and correctness of Quantity Assessment Report of the DRV. It is seen that the A.O has not mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsequent 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 by the Group companies only, if the appellant starts to sell its finished goods, the Sister concern of the appellant may have to buy the same in higher quantity from the open market, the business sense is not suggesting what has been suspected and inferred by the A.O. 9.17 It is gathered that M/s Mahamaya Steel Industries Limited (Formerly known as Rajesh Strips Limited) was primarily into manufacturing of re-rolled produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ishikesh 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 A.O, I am constrained to construe the allegation of the A.O as mere bald statement. 9.19 The low yield in comparison to the benchmark adopted by the A.O basis whereof is still in the dark and hasn t come on the surface, in the absence of any cogent reasons could not, by itself, have been a ground to hold that proper income of the appellant cannot be deduced from the accounts maintained by it and consequently, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring 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 assessment proceedings and the AO has not made any adverse comment on the same. According to the assessee the yield in this A. Y is better in comparison to the preceding assessment years which was also covered by scrutiny assessment under section 143(3) of the Act. The addition in question is not based on such material and the addition has been made only on presumptions and surmises and is not justified. The AO has als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestigation. 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 suspicion. The case of the appellant is find support from the case of Income Tax Officer vs. W.D. Estate P. Ltd. (1993) 46 TTJ (Bom) 143 : 45 ITD 473. 9.26 Similar ratio was laid down by the Hon ble High Court of Delhi in Commissioner of Income Tax Vs. Discovery Estates Pvt. Ltd. vide order dated 18th February, 2013 (2013) 356 ITR 159 (Delhi). 9.27 I do find considerable force in the submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Of Income Tax Vs. Smt. Poonam Rani (2010) 326 ITR 223. From the ratio of the aforesaid decision, it is also quite clear that the Courts have taken judicial note of the estimation i.e. recording of financial transactions with certain degree of estimation in the books of accounts. Drawing reference from the aforesaid decision, in my considered view, merely because certain t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 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 view that there was no finding to the extent that the accounts were not correct and complete or that the A.O was of the opinion that the income could not be deduced from the accounts maintained by the appellant. 9.35 The A.O. has not brought any material on record to disbelieve the book result shown by the appellant. If there is no suppr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Records. The inventory appearing in the Excise Records and Excise Returns was found to be the same as in financial records i.e. the books of accounts and Audited financial statements. Undisputedly, the production was meticulously routed through the appellant s daily production register/ Excise Records. The entrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 incriminating document was found which is evident from the fact that no addition was made in the scrutiny assessment, for the year in which survey proceedings took place, on the basis of incriminating document. The case of appellant finds support form decision in Sukhadia Jamnadas Maganlal Vs. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 certainly finds support from the decision in the case of N. Raja Pullaiah vs. Dy. CTO (1969) 73 ITR 224 (AP). 9.52 As regards variation in Power Consumption and for that matter variation in consumption of other raw material, it has been held that the mere va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, emphasized that he must exercise his judgment after taking into consideration the relevant material. Identical observations made by the Judicial Committee in Seth Gurmukh Singh vs. CIT (1992) 194 ITR 507 (All) : TC1R.357 were approved by the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould 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 construed as material evidence to form an opinion by the AO to conclude an assessment and for drawing adverse inference against the appellant unless there is evidence to substantiate such probable inference. Assessment has to be mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n lower yield and corresponding unrecorded sales in all the captioned appeals. The revenue has also raised objection to the relief granted by the CIT(A) on account 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 sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formation in relation to share applicants were found in the course of search. It was further asserted that no document relating to various assessment years in question were 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a matter of record that assessee has filed several documentary evidences of subscribers before the AO to support the nature and source of share application money: (a) PAN, Address, Name (b) COI, MOA, AOA (C) Audited Financial Statement (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocuments unearthed as a result of search or not. As per the aforesaid question, the controversy that arises for adjudication is on the scope and ambit of assessment proceedings in search cases under s.153A of the Act. 17.2 In the first appeal, the CIT(A) dismissed the legal ground of jurisdiction by observing as under: 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-exam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sustainable in law. The SLP of the Revenue against the aforesaid decision of the Hon ble Delhi High court was dismissed by the Hon ble Supreme Court in Pr.CIT vs. Meeta Gutgutia (2018) 96 taxmann.com 468 (SC). Contextually, we also observe that the Hon ble Supreme Court has stayed the operation of judgment of Hon ble Delhi High Court in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t additions/disallowances under s.153A of the Act towards unabated assessments are permissible only where incriminating materials are found in search showing unaccounted income. 17.4 However, at this juncture, we simultaneously take note of various decisions for the proposition that presence of incriminating material discovered during the course of search 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undisclosed income is contrary to the judicial dicta. Accordingly, we are of the view that various additions/disallowances made by the AO are clearly beyond the scope of authority vested under s.153A of the Act owing to absence of any incriminating material or evidence deduced as a result of search in so far as completed assessments are concerned. Additions/disallowances 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 applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the money for augmenting the investment in the business has flown from appellant's own money. (Para 5.10 on page No. 16) 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. (Para 5.11 on page No. 17) 20.3. Apart from the 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 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is corroborated by the underlying evidences and also comparable with other manufacturers as examined by the CIT(A). On the other hand, the AO has not discharged the burden lay upon him as associated with rejection of books for making artificial estimations. 21.3 Adverting to legal ground, the Assessee contends that no 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. 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 mom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... naccounted production/ sales in respective assessment years. We similarly observe that the CIT(A) has also recorded the detailed submissions of the assessee filed in its defense whereby reasons for justification of the actual yield generated by the assessee were given. The CIT(A) also recorded the comparative analysis of the yield of the assessee versus various other companies who are engaged in production of sponge iron and operating in the same field 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 despi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und by the AO in this regard. (vi) The assessee has brought on record the certificate from registered valuer according to which 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 1.62 to 2.1mt depending upon fixed carbon in coal. The quantitative CIT(A) observed that the quantity details of consumption of sponge iron and coal were found to be within reasonable range as certified 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 ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the CIT(A) while reversing the totally untenable action of the AO. We, thus, decline to interfere with the order of the CIT(A) on this score. 23. In the result, grounds raised by the Revenue challenging the action of the CIT(A) for reversal of additions on the grounds of suppression of yield and unaccounted production and sales are dismissed in AYs. 2006-07 to A.Y. 2012-13 in appeal. 24. Third issue in the combined appeals relates to additions of ₹ 71,76,306 in AY 2012-13 [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- -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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Firstly, it is seen that the A.O himself admitted that the inventory taken by the Valuer at the time of search has certain deficiencies and discrepancies, as a corollary, the Quantity Assessment Report of the DRV is also vitiated and has deficiencies, it is also seen that the sole basis of addition is the Report of the DRV. It is seen that the appellant had made various submissions before the A.O during the course of assessment proceedings in response to the show cause notice cum query letter issued by the A.O. The appellant had requested for allowing opportunity to cross examine the DRV and the opportunity was afforded to the appellant. The appellant was asked to furnish the copy of statements recorded during the course of cross examination of the DRV namely Mr. Manish Pilliwar and the same was furnished by the appellant. I have carefully perused the statements of Mr. Manish Pilliwar. I find that the appellant has raised a very relevant and serious issue regarding eligibility and competence of Mr. Manish Pilliwar who is registered as a valuer for valuation of immovable properties. 13.2 It is seen that in response to question no.12 of the statement recorded on 13.02. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... items such as coal / sponge iron and their density with reference to different grades. The statement of the DRV is self contradictory in as much as on one hand he has stated that he has used the standard tables and on the other hand he states that he had collected the details about grades and density from the representative of appellant company. (b) The DRV has made the valuation by taking the Density of Coal at 1.50 MT/Cu.M. During the course of cross examination, the DRV has provided the Standard Table and as per the response to Q.No.22 of the statement recorded on 29.01.2014, the DRV has adopted the density of Anthracite Coal of Solid State which is 1.506 MT/Cu.m. It has been submitted by the appellant that Anthracite Coal is not available at all in the mines of Chhattisgarh State nor in the nearby States, hence, the question of using Anthracite Coal of solid state does not arise at all and hence, there is no question of such coal available in the appellant s factory. The correct density of coal used by the appellant is 0.83 MT/Cu.M. The appellant company used broken coal for manufacturing of sponge iron and as per the generally accepted norms also, the density of such c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion No.11 of the statement recorded on 26.12.2013, the DRV admitted that for measurement of the heaps average height of the heaps was taken. 13.8 From the aforesaid statements of the DRV, I am convinced that the quantity assessment done by the DRV cannot be accepted as sacrosanct nor the quantity arrived at by the DRV can be accepted in toto. 13.9 It is seen that the DRV has applied the density of 1.50 MT per Cu. Meter for valuation of inventory, I have carefully perused the standard table relied upon by the DRV, it is seen that the said standard table referred by the DRV itself contains varied densities viz. a) Coal, Anthracite, solid 1506 Kg/Cu. M b) Coal, Anthracite, broken 1105 Kg/Cu. M c) Coal, Bituminous, solid 1346 Kg/Cu. M d) Coal, Bituminous, broken 833 Kg/Cu. M 13.10 It is seen that the appellant has taken consistent stand that it is using bituminous coal of broken state in its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) 28 X 23.5 X 2 1316.00 0.83 1092.28 b) 18.5 X 13.8 X 3 765.90 0.83 635.70 c) 15 X 17.5 X 3 787.50 0.83 653.63 d) 10 X 15 X 2.5 375.00 0.83 311.25 e) 8 X 12 X 2.5 240.00 0.83 199.20 Kiln Machine 50.00 TOTAL 2942.05 13.15 The result of the re-computation has reduced the stock as per DRV from 5276.600 MT to 2942.050 MT, I am convinced with the submissions of the appellant that the corrected quantity shall work out to 2942.050 MT by change in the variable i.e. density of coal. I find that the total stock of coal as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst 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 (526.10 + 99.76 + 140) = 5734.680 MT]. I have carefully gone through the Sales Register submitted by the appellant during the course of assessment proceedings before the A.O, from the perusal thereof, I am convinced that the actual sales realization of iron ore fines was ₹ 49,41,505/- and therefore, the addition of ₹ 26,91,102.50 made by the A.O cannot be sustained, therefore, the addition is deleted. The appellant gets relief of ₹ 71,76,306.20 (4470000+15203.70+2691102.50) The CIT(A) thus, reversed the additions so made on account of excess stock and accepted the book results. 24.3 The Revenue is aggrieved by the relief granted by the CIT(A). 24.4 We have heard the rival submissions on the issue. Excess stock of inventory has been alleged on account of raw material i.e. coal and iron ore. On perusal of the orders of the lower authorities, we find that AO himself admitted that inventory taken by the valuer at the time of search carries certain deficiencies and discrepancies. As a corol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the assessee, no further additions were found sustainable in the absence of any evidence of adversial nature. In summation, we see no error in the conclusion drawn 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. 25 In the result, appeal of the Revenue is required to be dismissed on this count. 26. Hence all the captioned appeals of the revenue are dismissed. 27. The question of jurisdiction raised by the assessee in respect unabated assessment years in search assessment has been adjudicated in favour of the assessee and the findings of the CIT(A) are set aside and quashed. Likewise, the supportive plea of the Assessee on the order of CIT(A) on merits has also been affirmed in the preceding paragraphs. Consequently, the cross objections of assessee in respective appeals of revenue stands allowed. 28. Resultantly, all the captioned Revenue appeals are dismissed whereas all the cross objection ..... X X X X Extracts X X X X X X X X Extracts X X X X
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