TMI Blog1995 (10) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... irm and its partners on 20-1-1984 and books of account and certain other documents besides cash of Rs. 12,550 were seized. Search of the residential premises of one of the partners Shri Sallesh J. Parekh revealed that two credit purchase bills dated 10-4-1982 and 13-4-1982 were not entered in the regular account books of the appellant firm. The bill dated 10-4-1982 was for purchase of 550 tins of oil value of which was Rs. 1,14,550 and the bill dated 13-4-1982 was for purchase of 50 tins of oil the value of which was Rs. 10,350. Both those, credit purchase bills were seized by the search party. These two bills were issued by M/s. United Brothers of Dhasa, Dist. Bhavnagar, to the appellant. A statement under section 131 was recorded by the ADI (Investigation), Surat on 30-1-1984 of one of the partners of the appellant firm viz. Shri Sailash Parekh. The said partner in his statement explained that the entire lot of goods purchased through those two credit bills were returned to M/s. United Brothers (UB) as on prima facie inspection it was found that quality of oil was not of marketable quality. It was further stated before the ADI by the said partner that the goods were therefore, re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment of M/s. UB as is evident from the assessment order dated 31-3-1986 of the firm of M/s. UB which is placed at pages 58 to 60 of assessee's paper book. It is further to be noted in this case that M/s. UB and their partners filed a revised return on 31-3-1986 declaring a sum of Rs. 1,28,100 as additional income in respect of the alleged purchases by the said firm from M/s. Shakti Oil Mills which were not recorded in the account books of M/s. UB. The revised computation of total income with acknowledgment of firm and partners can be found at pages 52 to 57 of the assessee's paper book. The firm of M/s. UB also made an application for the benefit of amnesty circulars before the jurisdictional Income-tax Commissioner and a copy of the said application can be found at pages 48 to 51 of the assessee's paper book. 8. The Assessing Officer made addition of a sum of Rs. 9,245 on account of 1/3rd car expenses incurred for personal use of the partners. The same is also disputed in the present appeal as stated by us elsewhere above. When the matter came up before the AC it was submitted that the appellant maintained complete books of account including quantity records which are s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was further stated before the first appellate authority that M/s. UB and their partners have offered for taxation the sum of Rs. 1,28,400 in respect of the alleged two bills on the ground that the same were not recorded in their (in the books of M/s. UB) account books and revised returns were filed and additional tax paid as per the various benevolent circulars issued by the Central Board of Direct Taxes which popularly came to be called and known as Amnesty Scheme. It was further strenuously in first appeal argued that if the said sum is again taxed in the hands of the appellant firm then it would amount to double taxation of the same amount, once in the hands of the suppliers M/s. UB and again in the hands of the appellant firm. 9. All the abovementioned submissions and arguments did not find any favour with the AC who upheld the addition made by the Assessing Officer aggregating to Rs. 1,28,100 inclusive of profit as extracted by us above. The assessee therefore has a grievance in this appeal against the order of the AC confirming the aforesaid addition made by the Assessing Officer unjustifiably. 10. In the second appeal before us the assessee's A.R. reiterated the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving the factual position existing viz. no purchases having been made by the appellant firm and no sales having been made by the firm of M/s. UB nor payment being made by the appellant firm and received by the firm of M/s. UB (seller). In the absence of any such evidence on record it will be very harsh to make an addition and sustain the same on the ground of investment in purchases outside the account books. The addition has been made on mere suspicion and conjectures and surmises and not on the basis of positive evidence about payment by the appellant firm to M/s. UB. We also do not wish to lose sight of the admitted position that, the firm of M/s. UB declared the sum of Rs. 1,28,400 in respect of the alleged purchases by the said firm under the Amnesty Scheme formulated by the Central Board of Direct Taxes as can be seen from the relevant document placed in the paper book at pages 52 to 57 and at pages 48 to 51 of the paper book. Looking this case from any angle we see no justification on the part of the AC to sustain the entire addition of Rs. 1,28,100 towards income from undisclosed sources for the alleged purchases including a sum of Rs. 2,800 being profit estimated at the ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand Parekh of M/s. United Brothers on oath under section 131 of the IT Act, 1961 who stated that the entries for the goods sold to M/s Prabhat Oil Traders of Surat on 10-4-1982 and 13-4-1982 were made in the stock register of M/s. United Brothers but subsequently they were rubbed out because the said goods were purchased from M/s. Shree Shakti Oil Industries of Mahuva and were sent to Surat from Mahuva directly and again returned from Surat to Mahuva directly. Thereafter the ITO, Ward-D, Bhavnagar made on the spot inquiry at Mahuva and intimated that there was no oil industry at Mahuva in the name of Shree Shakti Oil Industries. The said ITO also intimated that Shri Jayant Hemchand Parekh could not produce bills or vouchers for the purchase of the goods from the so-called M/s. Shree Shakti Oil Industries of Mahuva, nor did he produce duplicate bills dt. 10-4-1982 and 14-3-1982 issued to M/s. Prabhat Oil Traders of Surat. Further the ITO, Ward-G, Bhavnagar by his subsequent letter dated 10-12-1985 reported the following :--- "In continuation to my letter No. G/BHR/Misc./1985-86 dated 5-12-1985, I have to inform you that in the case referred above Mr. M.R. Samtani, ITO, Ward-D, Bh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s requested to furnish his explanation, if any. According to the CIT (Appeals) "the assessee remained silent". 6. In view of the above it cannot be said that the impugned addition has been made on mere suspicion, conjectures and surmises. On the other hand, the authorities below have brought on record cogent evidence in support of the impugned addition. The fact of the matter is that when during the course of search the two purchase bills referred to supra were found and the same were admittedly found to be not recorded in the books of account a story was concocted that the bills were not entered because the goods were returned to M/s. United Brothers. In the process M/s. United Brothers who are sister concern of the assessee firm came to the help of the assessee. It is pertinent to note that the partners of the assessee firm are partners in M/s. United Brothers as kartas of their respective H.U.Fs. If the assessee had really returned the oil purchased then how is it that the two bills of purchases were not returned to M/s. United Brothers. As stated above, the bills are dated 10-4-1982 and 13-4-1982 and the search took place on 20-1-1984. If the assessee had really returned the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 600 tins of oil as per the bills of 10th and 13th April, 1982 issued by M/s United Bros., Bhavnagar, a sister concern of the assessee-firm and which were found and seized in search operation under section 132 of the Income-tax Act, 1961? (ii) Whether, in view of the fact that the sum of Rs. 1,28,100 has been offered for tax under the Amnesty Scheme by the firm of M/s. United Bros., Bhavnagar, towards the unexplained investment in purchases of six hundred oil tins by the said firm, the assessee firm can still be assessed and subjected to tax in respect of the said sum of Rs. 1,28,100 under section 69 of the Income-tax Act, 1961? THIRD MEMBER ORDER 1. This appeal came up before me as a Third Member to express my opinion on the following questions :--- "(i) Whether, on the facts and in the circumstances of the case and on the basis of available evidence/material on record the assessee can be assessed under section 69 of the Income-tax Act, 1961 in respect of the sum of Rs. 1,28,100 (inclusive of estimated G.P. of Rs. 2,800) towards the value of 600 tins of oil as per the bills of 10th and 13th April, 1982 issued by M/s. United Brothers, Bhavnagar, a sister concern of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A letter dated 30-1-1984 of the Manager of UB confirming the above statement was also filed. However, in order to verify the genuineness of the above transaction further enquiry was made through the Income-tax Officer, Ward-D Bhavnagar who is the Assessing Officer of UB. It was intimated by the ITO, Ward-D Bhavnagar vide his letter dated 16-3-1984 that entries relating to goods received or goods sold or goods stated to have been returned by the assessee did not appear in the stock register of UB. The said ITO Bhavnagar examined one of the partners of UB --- Shri Jayant Hemchand Parekh (JHP for short) in this regard. In his statement on oath under section 131 dated 2-3-1984 JHP declared that he was also a partner in the assessee firm. JHP further stated that the entries for the goods sold to assessee on 10-4-1982 and 13-4-1982 were made in the stock register of UB but subsequently they were rubbed out because the said goods were purchased from M/s Shree Shakti Oil Industries of Mahuva (SSOI for short) and were sent from Surat to Mahuva directly and again returned from Surat to Mahuva directly. The ITO Bhavnagar made enquiry at Mahuva and intimated that there was no oil industry at M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gister of UB. He further stated that as per written statement of partner JHP the entries for the goods were made in the stock register but as goods were sent from Mahuva to Surat directly and again from Surat to Mahuva directly, entries made earlier were rubbed out. According to the AO, "The photostat copies of stock register filed before the ADI Surat did not confirm this fact. The entries are not rubbed out at all. It seems that M/s. United Brothers maintains two different sets of stock register". To verify the correctness of the photostat copies of stock register filed before the ADI (Investigation), Surat, the Assessing Officer addressed a letter dated 21-1-1985 to the Income-tax Officer, Bhavnagar. By his reply dated 5-12-1985 Income-tax Officer, Bhavnagar stated that the stock register of UB was seen, that it was found that there was inward and outward entries of 8,800 kgs. of oil, that the stock register was not signed by any Officer/Inspector of the Income Tax Department and that the stock register was having a seal of Mamlatdar of Bhavnagar. In continuation of his letter dated 5-12-1985, Income-tax Officer, Bhavnagar wrote another letter dated 10-12-1985 to the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. The Assessing Officer summed up that the assessee's contention that the goods purchased under the bills dated 10-4-1982 and 13-4-1982 were returned back to UB was not acceptable for the following reasons :--- (1) As stated in the order under section 132(5), UB could not produce duplicate copies of purchases and sales bills of these two transactions. This shows that there are not real purchases and sales by UB and in fact the assessee purchased 600 tins from undisclosed sources and sold outside the books of account. (2) The assessee could not produce the books of account of the goods carriers through which these tins were received and returned back. In the absence of such verification it could easily be held that these tins were never returned back by the assessee and that they were sold by the assessee outside the books of account. (3) Even the preliminary statement of SJP to the effect that the groundnut oil sent by UB under the two bills dated 10-4-1982 and 13-4-1982 was of inferior quality, is very much doubtful by itself. This is because delivery of the goods was not taken at all and as such it was not possible for the assessee to know about the inferiority of the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of returning the goods by the assessee in the past was brought to my notice. On the facts and the circumstances it clearly transpires that the assessee sold 600 tins of groundnut oil outside the books of account and in order to hide these transactions, the relevant bills dated 10-4-1982 and 13-4-1982 were kept at the residence of the partner. Otherwise, such bills are normally kept at the business place only. 6. In that view of the matter, the Assessing Officer added purchases of these 600 tins of groundnut oil and profit thereon as follows :--- -------------------------------------------------------------------------- Sr. No. Description of the transaction Amount of tins -------------------------------------------------------------------------- 1. Purchase of 550 tins on 10-4-1982 as per books of account of M/s United Brothers Rs. 1,14,950 2. Purchase of 50 tins on 13-4-1982 as per books of account of M/s United Bros. Rs. 10,350 3. Profit at the rate of 2.14% as shown by the assessee in groundnut oil business during the year Rs. 2,800. -------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shows M/s. United Brothers was maintaining two sets of stock register which utilised for explaining away the transactions of 600 tins of groundnut oil. There was no oil Mill in the name of Shree Shakti Oil Industries at Mahuva and statement of partner of M/s. United Brothers the goods were sent directly to Mahuva is obviously not reliable. Some other facts have been established in the order of the ITO to establish that purchases were made out of books and sold similarly. Considering the same, I am of the opinion that the ITO was justified in concluding that there was purchase of 600 tins of groundnut oil viz. (i) 550 tins on 10-4-1982 as per books of account of M/s. United Brothers for Rs. 1,14,950 and (ii) purchase of 50 tins on 13-4-1982 as per the books of account of M/s. United Brothers for Rs. 10,350. The profit established at the rate of 2.14% is very nominal and justifiable. Accordingly, the same is confirmed. The profit on these sales at Rs. 2,800 is also confirmed. In the result, the appeal on this point is dismissed." Aggrieved by the order of the CIT (Appeals), the assessee preferred an appeal before the Tribunal. 8. The learned Judicial Member observed that it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lected any evidence which would go to prove that the assessee firm did purchase oil from UB and did make payment on the dates mentioned in the alleged two bills or on any date thereafter during the previous year relevant to the assessment year 1983-84. The case of the Assessing Officer rested on disbelieving the factual existing position, viz. no purchases having been made by the assessee-firm and no sales having been made by UB nor payment being made by the assessee and received by UB. In the absence of any such evidence on record, it will be very harsh to make an addition and sustain the same on the ground of investment in purchases outside the account books. The addition has been made on mere suspicion and conjectures and surmises and not on the basis of positive evidence about payment by the assessee firm to UB. The learned Judicial Member further held that the Tribunal should not lose sight of the admitted position that the firm UB declared the sum of Rs. 1,28,100 in respect of the alleged purchases by the said firm under the Amnesty Scheme as can be seen from the relevant documents placed in the assessee's Paper Book at pages 48 to 57. Finally he held that there was no justif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... written submissions dated 20-4-1995 running into 12 pages and photostat copy of the statement given by Shri Vinod, Manager of UB in Gujarat dated 30-1-1984 and its free translation in English and photostat copy of page 5 of the stock register of UB from 1-4-1982 to 30-4-1982. The arguments of the assessee's counsel were to the following effect : The assessee is a registered firm. The business is purchase and sale of oil on wholesale basis, etc. The purchase bills dated 10-4-1982 and 13-4-1982 are admittedly not entered in the books of the assessee. The reason was explained by SJP in his statement under section 131 before ADI on 30-1-1984. The entries were not made in the books of account as the quality of oil was not good and as the entire lot was returned to UB. A letter dated 30-1-1984 from the Manager of UB, Shri Vinod, was also filed before the ADI. The books of account including stock register of UB for the S.Y. 2038 was produced before the ADI. Copy of the stock register signed by the Manager of UB was filed before the ADI. In the letter dated 30-1-1984 the Manager of UB referred to the sale bills dated 10-4-1982 and 13-4-1982 made on credit and the return of the goods. He a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goods carrier through which these tins are received and returned back. He does not deny the filing of the extracts from the cash book of M/s. Sonal Enterprises regarding the transport charges. The photostat copies of the entries from the cash book of M/s Sonal Enterprises can be seen at pages 68 and 69 of the Paper Book. Further when the Assessing Officer disbelieved the assessee's explanation and held that the assessee had purchased and sold 600 tins of oil outside its books of account, he cannot add the entire purchase price of Rs. 1,25,300. At best he can only add the net profit on the same. As rightly noticed by the learned Judicial Member, the Assessing Officer has not collected any evidence to prove that the assessee made payment to UB for the impugned purchase bills during the relevant previous year. The purchase bills seized by the Department are only credit bills. Since there is no payment/investment in the purchase of 600 oil tins, the Assessing Officer cannot make any addition under section 69 of the Income-tax Act, 1961. The Assessing Officer in para 13(ix) referred to the ITO, Bhavnagar's letter dated 16-3-1984 (given at pages 10-11 of the Paper Book filed by the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Inspector has not stated that SSOI did not exist in April 1982. He simply stated that there is no such oil mill as on 7-3-1984 the date of his visit and 8-3-1984 the date of his report. The learned Accountant Member relied on the case of Durga Prasad More that the taxation authorities were entitled to look into the surrounding circumstances to find out the reality. In fact, the surrounding circumstances in the present assessee's case are in favour of the assessee only. He has not appreciated the entries in the cash book of UB and the entries in the books of M/s Sonal Enterprises, Transporters. They amply prove the return of the goods by the assessee. In these circumstances, the order of the learned Accountant Member should be discarded and the order of the learned Judicial Member should be upheld. 11. The Departmental Representative filed a Paper Book of 50 pages and urged to the following effect : Xerox copies of bills dated 10-4-1982 and 13-4-1982 issued by UB to the assessee are given at pages 1 2 of the Paper Book filed by the Department. These two bills are direct-evidence. The addition is not based on surmises. The sale by UB is admitted by them (UB). Unless delivery is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee and his sources. Even though section 69 was not specifically referred to by the Assessing Officer, that is the rule of evidence and it can be invoked. 12. In reply, the assessee's counsel submitted to the following effect : Section 69 speaks of deemed income and not actual income. If section 69 is not invoked by the Assessing Officer in the present case, he should have brought on record how the actual income arose and how investment in alleged purchases has been made. For section 69, prima facie evidence is required and not circumstantial evidence. In the present case, there is no prima facie evidence and hence no prima facie case. Even though clinching evidence in the form of return of goods as reflected in the books of account of UB and the Transporter Sonal Enterprises, it is not properly appreciated. Rejection of the same by the Departmental Authorities is not justified. UB originally filed its return of income for the assessment year 1983-84 on 30-8-1983 declaring income of Rs. 72,400. The search on the assessee was made on 20-1-1984. So there cannot be any manipulation of entries in the books of account of UB. There is no bar in filing the evidence---entries from the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r dated 25-10-1983. These events have taken place long before the search under section 132 carried on 20-1-1984 on the assessee and its partners and so it cannot be simply brushed aside by the Assessing Officer stating that passing of entries in the cash book, regarding receipt of oil tins and other incidental expenses of UB is nothing but a futile exercise to show colour of genuineness to these transactions, and this could possibly be done by UB even after the seizure of the bills at Surat [Para 13(vi) in the assessment order dated 6-1-1986]. This inference of the Assessing Officer is to be held as figment of imagination and his suspicion. The assessee filed copies of entries in the cash book of M/s. Sonal Enterprises, Transport Contractor which confirmed that the goods were returned to Mahuva by Truck Nos. GTS-7772 and GTS-6595. These were not properly taken into consideration and appreciated, by the Assessing Officer. The Assessing Officer simply ignored the copies of entries from the cash book of M/s Sonal Enterprises by simply mentioning that the assessee could not produce the books of account of the goods carrier through which these tins were received and returned back. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Mahuva. He did not say that in April 1982 SSOI did not exist. From the seized credit bills dated 10-4-1982 and 13-4-1982 issued by UB, it cannot be inferred that the assessee had invested Rs. 1,25,300 in the purchase of 600 tins of oil and that it sold the said tins outside the books of account. The findings of the Assessing Officer that the assessee purchased 600 tins from undisclosed sources and sold outside the books of account are based on surmises and conjectures without there being any evidence or material in support thereon. Accordingly, I hold that the additions of Rs. 1,25,300 towards purchases and Rs. 2,800 towards profit are not at all justified. In coming to this conclusion, I derive support from the judgment of the Hon'ble Allahabad High Court in the case of Ashok Kumar Rastogi v. CIT [1991] 55 Taxman 433 also. I, therefore, agree with the direction of the learned Judicial Member in directing the Assessing Officer to delete the entire addition of Rs. 1,28,100. 15. The matter should go before the Regular Bench and they should decide according to the majority opinion. ORDER UNDER SECTION 255(4) OF THE IT ACT, 1961 Per Jordan Kachchap, JM--- In accordance wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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