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TMI Blog2000 (3) TMI 206X X X X Extracts X X X X X X X X Extracts X X X X ..... 07 Kgs. of silver from 18 NRI passengers on 11-2-1993 and 12-2-1993 through their representatives. The said 18 persons held Custom Baggage Receipts issued by the Customs department, and that the said Receipts were delivered by the representatives to the assessee. 3. The Directorate of Revenue Intelligence, on getting information that the silver purchased by the assessee on 11-2-1993 and 12-2-1993 was of foreign origin, raided the business premises of the assessee-firm on 13th and 14th February, 1993. During the search operations carried out by the DRI authorities, seizure of 1913.295 Kgs. of silver was made by them. 4. A show-cause notice was issued by the Customs Department on 7-8-1993 under section 124 of the Customs Act, 1962. The Collector, Central Excise and Customs, Aurangabad by his order dated 21-9-1994 discharged the said notice on all counts and ordered the release of silver seized by the DRI on 13/14-2-1993. The Customs Department was not satisfied with the order of the Collector and hence, it preferred an appeal against the said order before the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT), Western Regional Bench, Mumbai. 5. The CEGAT reversed the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; Cash involving amounts less than Rs. 10,000 in each case to various persons to settle their accounts Rs. 90,724 ---------- Rs. 92,29,856 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the stand that the silver was purchased on credit basis was not acceptable. He held that the CEGAT had ordered confiscation of silver and therefore, it was deemed to have been acquired through illegal sources for which payments by and large are to be made instantly on the spot. However, in the end, he held that this was not a case for disallowance under section 40A(3), but a case of investment made to the tune of Rs. 92,29,856 in purchase of alleged silver from the illegal transaction out of unaccounted income. Thus, he sustained the impugned addition of Rs. 92,29,856. He also held, "As regards, as to whether these payments in DDs, cash and exchange of gold, if at all, accepted are covered under section 40A(3), I am in full agreement with the Assessing Officer's view.' 12. Aggrieved by the orders of the authorities below, the assessee is in appeal before us. Shri N.A. Dalvi, the learned counsel for the assesseefirm, submitted that due to the change in the Government policy regarding import of silver, the assessee-firm wanted to start wholesale business in silver. The silver purchased by it stood duly recorded in the books of account, which were not seized by the Customs authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Rajmal Lakhichand is the smuggled silver for which payment was promised to be made in cash.' 14. The learned counsel further submitted that the provisions of section 69/69C do not apply at all to the facts of the present case as the purchase of silver has been duly recorded in the books of account maintained by the assessee. According to the learned counsel, the allegation of the department that cash must have been paid at the time of purchase of silver out of unaccounted income is not at all borne out by the records. He submitted that no payment out of unaccounted income was made for the purchase of silver. He heavily relied upon paras 4 and 5 (Pages 27 and 28 of paper book) of the Collector's order to show that the payment of cash as alleged was not made at the time of purchase or at any time later. He pointed out that the said paras were chronological sequence of events noted from the depositions of Shri Suresh Jain alias Seth and Shri Dilip Jain respectively. In this connection, he mentioned that Shri Suresh Jain was the person who had negotiated the deal for purchase of silver. He was dealing in the business of arranging the sale of silver on commission basis. This is very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effected." The learned counsel read out from the depositions of Shri Dilip Kumar Jain and Shri Suresh Kumar Seth recorded on 22-2-1993 and 7-4-1993 to stress the point that the assessee-firm did not make repayment of purchase of silver at the time of its receipts. He further drew our attention to the observations of the CEGAT in para 14.1 of its order at 'it is also available from the records and the plea raised by Babuji himself that for purchase of subject silver, there was no spot payment and payment towards the purchase price commenced only from 18-2-1993 or thereafter'. The learned counsel also pointed out that the nature of the transactions was required to be taken into account, the impugned silver having been acquired through a middle man. Shri Dalvi reiterated that the purchase transactions were duly recorded in the purchase book and the melting charges payable to the melters were also recorded in the cash book on the respective dates.' The Bardana purchases were also recorded in the cash book on 10-2-1993. AU these books were produced before us. Shri Dalvi also submitted that all the accounting/other record for the assessee-firm including melting register/cash book were p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t make any independent inquiry, but relied on the findings of the Customs Department and the News Paper report regarding the CEGAT order. Out of the 18 persons who held Custom Baggage Receipts, only three persons were examined by the Investigating Agency, namely, DRI/Customs. This would show that the Assessing Officer did not apply his mind while making the addition of Rs. 92,29,856. 17. As regards the applicability of section 69/69C, the burden to prove that the investment/expenditure was incurred out of unaccounted income lies heavily on the department. For this proposition, the learned counsel placed reliance on the following decisions: (1) CIT v. Lalchand Bhabutmal Jain [1985] 151 ITR 360 (Bom.), (2) CIT v. Daya Chand Jain Vaidya [1975] 98 ITR 280 (All.) and (3) S. F. Wadia v. ITO [1986] 19 ITD 306 (Ahd.). 18. The learned counsel further submitted that it was worthwhile to note that the genuineness of the purchase transactions, the fact that they had been duly recorded on the basis of original customs duty paid receipts in the accounts of the assessee-firm on the date of purchase itself, ie. before the date of action by the DRI authorities, has not been disputed either by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CEGAT. He pointed out that under the relevant provisions of the Customs and Central Excise and Gold Control Act, the CEGAT is the final fact finding authority like the Income-tax Appellate Tribunal. The Assessing Officer had gone through the order of the Customs, the DRI authorities, the News Paper report and after having applied his mind had issued showcause notice to the assessee. Therefore, according to the learned senior D.R., it cannot be said that the Assessing Officer did not apply his mind. It was for the assessee to produce necessary evidence before the Assessing Officer to prove that the facts found out by the Customs authorities and DRI Officers and CEGAT are either irrelevant or factually incorrect or have no bearing on the proceedings under the Income-tax Act. However, nothing of this kind has been done by the assessee. Therefore, in view of the finding of facts of the CEGAT, the Assessing Officer was justified in arriving at the conclusion he has arrived at. He brought to our notice that the ITAT, Pune Bench, has been following the orders of the Customs Authorities and Courts. In this regard, he pointed to the decision of this Tribunal in [ITA No. 866/PN of 198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng independent enquiries regarding the same set of facts. It is not the case of the assessee that Shri Suresh Kumar did not make the statement dated 17-2-1993 before the Customs/DRI Authorities. It is not the case of the assessee that the facts as recorded by the CEGAT @ere not there. It is not the case of the assessee that the silver with foreign markings wrapped in gunny bags was not found by the DRI Authorities. All these facts, according to the learned senior DR., have been taken into consideration by CEGAT. 22. Shri Naresh Kumar further submitted that the Assessing Officer has applied his mind and pointed out that the assessee's argument that the assessee-firm decided to enter into the business in silver in wholesale, after the Government of India liberalised the import of silver from 1992-93, is found to be factually incorrect by the CEGAT in its order in para 14.6 which he read before us. According to him, the books of account of M/s. Rajmal Lakhichand, i.e., the assessee-firm also did not reflect the impugned transactions. He submitted that the CEGAT had given a finding that the impugned silver was of foreign origin and was not licitly imported. He further submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndicate clearly that no payment was made by the assessee till the date of search for the purchases of alleged contraband of silver. If that be so, the Assessing Officer is not justified in presuming on his own that the assessee made the payment in cash for the above purchases and hence addition made under section 69/69C is not justified. Shri Khaladkar countered the contention of the learned D.R. that the CEGAT order states that the payments were made in cash. He relied again on paras 14.1 and 14.3 of the CEGAT order and the show-cause notice to support the case that no payment was made by the assessee till the search and hence the question of making any addition under section 69/619C does not arise at all. In a nutshell, the learned counsel submitted that even if the contention of the learned D.R. is accepted that the silver was contraband, it is not proved by the department that money was paid out of the books for acquiring the same and hence no addition is warranted at all. The learned counsel also distinguished the case laws cited by the learned D.R. and submitted that the decisions are not applicable to the facts of the present case. 26. We have considered the rival submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... silver was acquired. From the details placed on record, it is noticed that against the purchase of silver, the assessee has shown in the books the payments in the form of cash and sale of gold on 19th and 20th February, 1993, apart from a few payments on 23rd to 26th February, 1993 by demand drafts. It is noted that the revenue has not made any investigation to show that the payments by demand drafts were withdrawn by the assessee or his own men. In view of this fact, the assessee had discharged the onus of proving the fact that it had paid for the purchase of silver and the department has not controverted the assessee's claim that all the payments were made to the parties concerned. In fact, as the Assessing Officer has made an addition under section 69/69C, it was incumbent upon him to show that the assessee had made payments before the date of search or alternatively to prove that the alleged payments shown by the assessee were bogus. As none of the above burdens is discharged by the Assessing Officer, we are inclined to accept that the assessee had made payments for the purchase of silver as shown in its books of account and, therefore, no addition is possible under section 69/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned senior D.R. that provisions of section 40A(3) are applicable in this case, we find that the learned CIT(A) has clearly held that provisions of section 40A(3) are not applicable and the department is not in appeal against this finding of the CIT(A). Even otherwise, we are of the opinion that the question of invoking this provision does not arise at all. The provision is to be invoked when the department has evidence with itself that the assessee has made payments in cash exceeding the limits prescribed in the section. Disallowance cannot be made merely on a presumption that the assessee must have made payments in cash and that too exceeding the limits prescribed under the section. This proposition finds support from the decision of the ITAT, Pune Bench in the case of Sharma Associates [1996] 217 ITR 1 ITAT (Pune). Thus, we do not agree with the learned senior D.R. that the above disallowance can be sustained under section 40A(3) because the department has not proved that the assessee has made payments in cash. 27. In view of the above factual and legal position, the impugned addition made by the Assessing Officer and sustained by the learned CIT(A) is deleted. 28. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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