TMI Blog1993 (6) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... . 4. The Assessing Officer in the course of the assessment proceedings took note of the fact that the manufacture of Zarda accounted for the lion's share of the firms manufacturing and trading activities. It was also noted that the main ingredients of Zarda were tobacco flakes, two varieties of which, namely, Gujarati and Nepani were being used. The "other ingredients" which were purported to have been used in the manufacture of Zarda were 29 in number including menthol, musk, saffron, spices, kiwam, silver and various types of perfumes (attar). As noted by the Assessing Officer the assessee was required to maintain three registers under the Excise laws giving quantitative details of the inputs and outputs. It is not disputed that these were statutory registers subject to check by the Excise authorities as and when they desired. The Assessing Officer has recorded as a fact that during the year under consideration none of the three registers maintained bore any marks of inspection. The CIT(A) has, however, stated otherwise. By reference to the RG-12 register the Assessing Officer noted that this contained details of inputs issued and consumed in terms of weight, outputs in term of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of consumption had been worked out as a balancing figure, i.e,, the opening stock plus purchases minus closing stock. 8. On16th Nov., 1987the assessee firm filed a quantitative summary of raw materials consumed wherein it had been mentioned that the plain water to the tune of 7,900 kgs. had also been used in the manufacturing process and this was included in the weight of "other ingredients" as stated in the RG-12 register. The submission, in other words, was that the difference in the material consumed as per the RG-12 register and that stated in the books of accounts was solely due to the use of plain water whose weight was 7,900 kgs. The Assessing Officer, however, noted that the difference as per the two figures of 53,337.700 kgs. and 45,891.600 kgs. was to the tune of 7,446.100 kgs. which was less than the weight of water purported to have been used, viz., 7,900 kgs. 9. In order to verify the veracity of the assessee's submissions the Assessing Officer recorded the statement of Shri Gupta under s. 131 on20th Oct., 1987and wherein he sought to provide certain clarifications about the two sets of figures of consumption. A specific question was asked regarding the consumptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l used and its source being the same in case of most of the manufacturers. 12. After making the aforesaid enquiries the Assessing Officer sent a letter to the assessee on9th March, 1988allowing it an opportunity to explain its position regarding the use of plain water. The assessee furnished a reply in response to the aforesaid letter, but as per the Assessing Officer, the assessee only made a statement that plain water was used without giving any evidence in support. The Assessing Officer also made a reference to the same letter wherein the assessee had stated that plain water was never treated as an ingredient although purporting to record its consumption in the RG-12 register under the head "other ingredients". In the ultimate analysis, the Assessing Officer treated the difference between the figure for consumption as stated in the RG-12 register, viz., 53,337.700 kgs. and the consumption as shown in the books of accounts, i.e., 45,891.600 kgs., namely, 7,446.100 kgs. as the purchases made outside the books of accounts and representing the undisclosed/concealed income of the assessee firm for the financial year 1984-85, the assessment year being 1985-86. At an average rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vii) That the use of plain water was necessary for the manufacture of the assessee's products and the Excise authorities were not justified in stating otherwise, since they were not concerned with the manufacturing process and the assessee's secret formulae was not in their possession; (viii) That plain water had been used in the earlier years as also in the succeeding assessment years; (ix) That not only had the Assessing Officer not intimated to the assessee the details of the enquiries conducted by him, but there was no mention at all about the book "Wealth of India" relied upon by him and the said fact being disclosed to the assessee only on 18th March, 1988 by which time the proceedings had already been concluded; (x) That the contents of the formulae for purposes of undertaking manufacturing activities was a closely guarded secret and its disclosure would have immensely harmed business interest of the assessee. Attention was invited to the fact that in asst. yr. 1983-84 the assessee had made an offer to reveal the contents of the formulae provided the same were not brought on record by the Assessing Officer. That although the exact composition of the various items used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Department; (8) That the contention of the assessee that it was purchasing "Biri type tobacco" and not the quality of tobacco which had been made the basis for working out the moisture content was not proved and that the assessee was also purchasing various other types of tobacco. 15. The CIT(A) after considering the submissions made by the assessee's counsel as also by the Dy. CIT (Asst) with reference to the material on record proceeded to delete the addition. In doing so he recorded detailed findings in paras 2.12 and 2.13 of his order. We, however, feel inclined to refer to the main findings which led to the deletion as follows: (i) The manufacturing formulae of the assessee was admittedly a closely guarded secret and the same could not be divulged lest the assessee's business interest be endangered; (ii) The formulae of the appellant had been gone into by the Assessing Officer while framing the assessment for asst. yr. 1983-84 and a finding to this effect given in the body of the assessment order itself; (iii) That the Assessing Officer appeared to have taken into consideration a variety of tobacco which was apparently not being used by the assessee and which was pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot been checked stood belied by the fact that the same had been checked in October, 1984 and April, 1985. That the checking of the Excise register was not a relevant point and all that which had to be taken into consideration was that the said register had been maintained as prescribed by law; (x) That the statement of Shri Sri Gopal during the course of the search operations on 26th Nov., 1987 as also in the course of the recording of his statement under s.131 on 3rd Feb., 1988 was not important at all since these pertained to the manufacture of Zarda by him at his residence in his individual capacity and such activities having no nexus with the business of the assessee firm. That Shri Sri Gopal had at no point of time attributed his "clandestine" activities to the partnership firm. 16. After recording the aforesaid views, the CIT(A) proceeded to delete the addition on the following main grounds: "On a consideration of all relevant facts and circumstances of the case, it is apparent that the Assessing Officer misread the facts as recorded in appellant's books of accounts including variety of tobacco allegedly used by the appellant when the appellant was admittedly using biri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time of search a sum of Rs. 28 lakhs and odd and this reflected on his bona fides and to some extent of the assessee; (vii) That the assessee had not discharged the onus which lay on it and sought to keep back relevant details and explanations under the shadow of secrecy. 18. On the basis of the aforesaid main arguments and raising these with reference to the material on record to which our attention was invited during the course of the hearing the learned Departmental Representative made an impassioned plea for the confirmation of the order passed by the Assessing Officer. 19. The learned counsel for the respondent, on the other hand, vehemently supported the order passed by the CIT(A). His detailed arguments advanced before us being a reiteration of those tendered before the tax authorities are not required to be restated, but the following are being highlighted: (i) No additions were made in any of the past assessments on the same set of facts; (ii) The details of "other ingredients" were not required to be given in the Excise register, viz., RG-12. (iii) The ITO had not rejected the books of accounts since there was no observation to that effect in the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e off set against each other. 20. On the basis of the aforesaid arguments and with reference to the material on record which appeared on the paper book filed by the learned counsel it was urged that the order passed by the CIT(A) be confirmed. 21. Before we proceed to express our views on the arguments advanced by both the parties, it may be mentioned that the learned Departmental Representative while arguing the appeal of the Department referred over and over again to the fact that the addition made by the Assessing Officer pertained to the manufacture of Betel Paste and not to the manufacture of Zarda as stated by the CIT(A) and as argued by the learned counsel for the assessee. This line of argument, however, stands belied from the categorical observations recorded by the tax authorities and these making a clear reference to the manufacturing activities pertaining to "Zarda" and not Betel Paste. We may also refer to a statement made by the learned counsel for the respondent to the effect that Betel Paste is not an excisable item and is not required to be entered in the Excise register. The learned Departmental Representative, on the other hand, stated that the same was an ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact that the assessee would be entering wrong figures in these statutory registers; (iv) It is also an accepted fact that the claim made by the assessee for deduction is the lower amount as reflected in its books of accounts and it is not the higher figure which is entered in the Excise register which is being claimed as a deduction; (v) It is also an accepted fact that percentage-wise the use of plain water compares favourably with the trading results vis-a-vis production, sales and the gross profit; (vi) That even if it was to be assumed that the assessee had made purchases of "other ingredients" outside the books of accounts the addition otherwise would not be sustainable since there is no dispute between the parties that whatever is entered in the Excise register is actually consumed and the corresponding addition would be set off by allowing a deduction in respect of such consumption. That use of water in Betel Paste has been duly accepted by the Assessing Officer not only in the preceding two assessment years but in the assessment year under appeal as well and it is only the use of water in the manufacture of Zarda which is being disputed in the assessment year und ..... X X X X Extracts X X X X X X X X Extracts X X X X
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