TMI Blog2010 (7) TMI 561X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no justification for making addition merely on the basis of statement recorded under section 132 (4) Addition on account of undisclosed income - the material found during the course of search basis on which it can be held that any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, or any expense, deduction or allowance claimed under this Act which is found to be false or where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents income or property which has not been or would not have been disclosed for the purposes of this Act. Since no undisclosed income was found therefore amount taken by the AO as undisclosed on this account in the block assessment is deleted. - IT(SS) No. 166/M/06 - - - Dated:- 16-7-2010 - V. DURGA RAO, JUDICIAL MEMBER J. A.L. GEHLOT ACCOUNTANT MEMBER J. Appellant by : Mr. Arvind Sonde Respondent by : Mr. S.K. Pahwa ORDER PER A.L. GEHLOT, A.M.: This appeal filed by the Assessee is directed against the order passed by the CIT(A)-IV, Mumbai, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluding the scrap of Misc. items. This has been calculated by taking a rate of Rs. 70/- per Kg. for aluminium scrap and Rs. 5/- per Kg. of the tinplate scrap. I have also estimated, the sale of misc. scrap of Rs. 10 lakhs. Q.No. 14. On going through the invoices for sae of scrap of aluminium, it is found that the rate billed in the invoices is Rs. 35/- per Kg. along with Excise and Sales Tax as applicable which comes to effective rate of Rs. 43/- per K.G. including Excise and Sales Tax, whereas as per the reply by you in response to question no. 13, it has been stated that the sale rate is Rs. 70/- per K.G. why there is such a vast difference between the rate at which the scrap is sold and the rate at which the invoices are being raised? Ans. The difference is received in cash out of books of accounts. The accounting entries are made as per the invoices raised and the balance is received in cash. Q.No. 15. What do you do with this cash once it is received from parties ? Ans.This cash is utilized for meeting unaccounted expenses which are paid in cash. Q.No. 16. Why the sale proceeds of scraps is not being accounted fully and why a part of it is being received i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or which I am taking medicines for the last 15-20 years under regular supervision of family doctor and specialist Dr. Shri Bhupendra Gandhi. 4. That during the course of Interrogation I was made to accept that I was working as Director (commercial) though I was not an employee of the company. 5. That presently I am working as an Advisor to Oriental Containers Limited advising on procurement of raw material and visiting the office occasionally. 6. That at the time of action on 29-01-2003, I was not present in the office. My cabin was broken in my absence by Income-tax Authorities and some papers were seized. I was informed on 30-01-2003 by the Income-tax Authorities that if I don t attend and given statement, my house could be searched under section 132. Though I was not well, I had to come to give statement before Income-tax Authorities under duress and pressures. 7. That I was interrogated by a team of Income-tax officials on 30-01-2003 from 11.30 am up to around 6.00 p.m. 8. That I was forced to give a statement pertaining to the loose papers/pad found from my cabin with regards to alleged sale of scrap. 9. That on account of ill health I succumbed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, as under:- Name of the company Invoice date of sale Rate Descrption Polycap 6.10.2002 Rs. 35/- per kg. Aluminium scrap Payal Industries 16.12.2002 Rs. 38/- per kg. Aluminium scrap Shalimar tubes 04.11.1999 Rs. 42/- per kg. Aluminium scap 3.6 The assessee has also furnished rates of fresh materials i.e. aluminium ingots of National Aluminium Co. Ltd., which is as under:- Year Rates per kg. (Rs.) 1996 61.65 1997 66.95 1998 71.70 1999 68.20 2000 80.50 2001 80.50 2002 80.50 The assessee submitted that the price of aluminium scrap can never be the price of aluminium ingots. The scrap prices are normally very much lower than the prime material. 3.7 A summon under section 131 was issued to Mr. Kabra and on 29-11-2004 his statement was recorded under oath. Mr. Kabra has reiterated the same facts which were reflected in his affidavit. The AO also examined purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ratio between the evidences found for scrap sale and sale of scrap in books works out to Rs. 27.63%. In order to work out total unaccounted sale of scrap during the block period the AO applied this ratio of 27.63%(In AO s order it is 27.65%) on total scrap sale shown in the books during the block period of Rs. 11,05,98,294, which works out to Rs. 3,05,80,428. The AO held that out of the total unaccounted scrap sale Rs. 3,05,80,428, unaccounted sale of scrap of Rs. 3,00,04,573 is supported by clinching evidences found during the course of search. The additional amount of Rs. 5,75,855 represented unaccounted sale of scrap worked out on the basis of ratio 27.63%. Accordingly, the AO made addition of Rs. 3,05,80,428. 5 The addition made by the AO has been confirmed by the CIT(A) observing as under:- Regarding retraction by P.R. Kabra:- The conduct of the appellant and Mr. P.R. Kabra in this regards is strange and patently smacks of blatant falsehood. It is surprising to note that such a critical document viz, the retraction affidavit dated 04.02.03, on which basis the appellant seeks to defend itself against the AO s charge of concealment of income arising from cash sale of scra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a furnace to convert scrap into aluminums ingots/bars by showing the notional loss suffered by the company by not putting up a furnace, the CIT(A) did not accept this contention of the assessee on the ground that why such explanation was not given by Mr. Kabra at the inception when his statement was recorded. 5.4 As regards comparative rates, the CIT(A) held that mere photocopies of invoices are not proper or acceptable evidence in this regard without bringing their applicability that the scrap was sold by the assessee. The CIT(A) held that the assessee has placed excessive reliance on the purported retracted statement of Mr. Kabra does not found to be bona fide and true. The CIT(A) also considered section 132(4) and held that bald delayed and unsubstantiated retraction is worthless. 5.5 The CIT(A) held that the AO made the addition of Rs. 3,05,80,423/- based on primary evidence and based on documents found during the course of search. The CIT(A) further held that reliance of the AO on the Inspector s report was a circumstantial and secondary evidence, which only strengthens the primary evidence. Even if the said report is found to be debatable, it yet cannot dilute or deface ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory statement along by passing the other cannot be legally permissible because admissibility, reliability and the evidentiary value of the inculpatory statement depend on the bench-mark of the provisions of the Evidence Act and general criminal law. 6.1 The learned AR submitted that the investigating officers had only taken a confession statement from Mr. Kabra and apart from that no attempt has been made to controvert the retraction made by Mr. Kabra on 04-02-2003. He submitted that there is no allegation that the management of the assessee was in any way party to such arrangement, which is evident from the statement of Mr. Kabra dated 30-01-2003 29-11-04. Further Mr. Kabra vide letter dated 25-11-04 clarified that the assessee did not have any knowledge of loose papers written by him and the same were never shared by him with any person in the assessee-company. The learned AR contended that during the course of search the ADI should have produced the said statement before the Directors of the assessee-company for cross examination but the ADI failed to do so. For this contention, the learned AR relied upon the judgment in the case of CIT Vs. SMC Share Brokers Ltd., 288 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proved by third parties the same cannot be accepted as the conclusive proof. For this contention, the AR placed on the decision of CBI Vs. V.C. Shukla Others , AIR 1998 SC (pg. 1406) wherein the Apex Court has held that in the absence of independent and corroborative evidence the document or papers seized will not have any evidentiary value. 6.2 The learned AR submitted that the AO has not found any of the following from the materials produced by the assessee, leading to make an addition:- (a) No unaccounted cash/assets was found. (b) No unaccounted expenses were found. (c) The parties (scrap merchants) have confirmed the scrap sale and receipts as per books of account and have denied any cash transactions with the assessee. (d) Loose papers in the personal handwriting of P.R. Kabra were explained by him and he has retracted his earlier statement. (e) Neither the directors/nor the other persons involved with generation of scrap ever stated or confirmed such out of books cash transactions. (f) Documentary evidence were submitted to demonstrate that the rate at which the assessee has sold the scrap was very much comparable and was in consonance with the rates charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned DR submitted that Mr. Kabra has categorically admitted in his statement at the time of search that those papers were related to unaccounted scrap sale. The learned DR submitted that there is no evidence on record to show that the statement of Mr. Kabra was taken by force or undue pressure. He further submitted that there is no compliant by Mr. Kabra that the statement was taken by force or undue pressure. The learned DR submitted that admission made at the time of search is acceptable evidence. He relied upon the decision reported in the case of Hiralal Maganlal Co. v. Deputy Commissioner of Income-tax , SR-5296 ITD 113. The learned DR submitted that the assessee came out with a theory which is an after thought. The learned DR submitted that the paper found at the time of search clearly showed two items, one is accounted for in the books of account and the other is not accounted for in the books of account. The learned DR submitted that documents found in the form of loose papers during the course of search are an important document and the same is admissible unless it is proved otherwise. The learned DR in support of his contention relied upon the decisions in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re Code, 1908 such as the powers of discovery and inspections and enforcing attendance of witnesses, etc. The powers were embodied in section 132 of the Income-tax Act, 1961. However, section 30 of the Finance Act, 1964 which replaced section 132 by a completely new provision enlarged these powers. The provisions of this section have since been granted several extensions by department circulars. Such search and seizure can be authorised under that provision if in consequence of information in possession of the concerned authority, he has reason to believe that the books or documents are not, or would not be produced or any money, bullion, jewellery or other valuable article or thing which represents either wholly or partly income or property, has not been, or would not be disclosed for the purposes of the said Act. These assets referred to in clause (c) of section 132(1) are for the purpose of section 132, and described as the undisclosed income or property . In a nutshell the object of section 132 was to get hold of evidence on the tax liability of a person, to get hold of assets representing income believed to be undisclosed and finally applying so much of them as may be necessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of scrap were admitted that they purchased the scrap sale at the price at which the assessee accounted for in their books of account and no cash payments were made on and above that price. The assessee tried to justify that the scrap sales were correctly recorded in the books of account and no extra amount was received in cash as alleged by the department. The assessee in support of their contention furnished evidence in the form of comparable rates of scraps of the market others. Scarp sale and books of account are subject to examination by the Excise Authorities. There is no material on record which shows any adverse remarks by the Excise authorities in this regards. It is not the case of the revenue that there was abnormal generation of scarps in the productions process. The assessee furnished the relevant materials to establish that the generation of scarps was the reasonable. The AO did not accept the assessee s contention and held that the part of scrap sale was not recorded in the books of account. The case of the revenue is that noting and calculation found in incriminating documents which were related to scrap sale and were not accounted for the books of account. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons/circulars pointing out that document found at the time search and statement taken at the time of search should back by income/ assets.( Circular No 286/2/2003-IT (INV,), DT. 10.3.2003)According to the definition of undisclosed income we find that in the case under consideration the revenue s case falls under clause 2 mentioned above, any income based on any entry in the books of account or other documents or transactions. In the case under consideration the question to be examined here is that whether on the basis of material found at the time of search can it be held that the income was undisclosed income and has not been or would not have been disclosed for the purpose of this Act? The first aspect of the above condition to be examined is the word income . Income is defined in section 2(24) of the Act. Income includes profits and gains/loss. Profits/loss is a result of business transactions. It is pertinent to mention that profit and gains/loss can be earned from a transaction only on completion of its business circles. A business transaction has its own independent circles and after completion of the circles of the transaction, the business profit/loss can be determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch has not been or would not have been disclosed for the purpose of this Act. If we see the facts of the case under consideration, we find that the scrap sale has already been accounted for in the books of account of the assessee and the same were offered for tax in the respective years. The assessment of undisclosed income of a block period is different from the regular assessment of the total income of a previous regular assessment year .The block assessment targets the area of undisclosed income that what was not disclosed and would not be disclosed while the regular assessment is to assess the total income or loss of the previous year where return is filed under section 139 and the Assessing Officer considers it necessary or expedient under section 143(2) to ensure that the assessee had not understated the income or has not computed excessive loss or has not underpaid tax in any manner. Both these areas are different and there is no warrant to prevent the statutory power of regular assessment from being exercised where the block assessment is undertaken or completed for assessing the undisclosed income. That surely is not intended by the Legislature and no such disastrous resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been disclosed by the assessee. There would, therefore, be no overlapping in the nature of the assessment made under this Chapter of undisclosed income and the regular assessment made under section 143(3).In the case under consideration position of scarp sale as noted by in his order at page 20 reads as under :- F.Y. Scrap sale as per books Cash sales as per the seized papers 1996-97 1,70,12,798 Nil 1997-98 1,64,55,173 1,22,47,146 1998-99 2,19,09,393 57,90,000 1999-2000 1,73,18,477 31,91,451 2000-01 1,57,80,391 12,97,644 2001-02 1,10,94,604 2,90,335 2002-03 1,10,27,458 71,87,997 Total 11,05,98,294 3,00,04,573 From the above table we find that the scarp sales were accounted for in the books of account. This fact has admitted by the AO himself. The scrap sales which have accounted for in the books of account were subject to regular assessments. In the regular assessments all books of account, vouchers, challans were subject to verification by the officer. We find that in the regu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to examination by the Excise authorities. There is no material on record which shows any adverse remarks by the Excise authorities in this regards. The revenue authorities admitted that scrap sale was subject to excise.It is evident from the fact that while faming question 14 to Mr Kabra the revenue raised following question:- Q.No. 14. On going through the invoices for sae of scrap of aluminium, it is found that the rate billed in the invoices is Rs. 35 per Kg. Along-with Excise and Sales Tax as applicable which comes to effective rate of Rs. 43 per K.G. including Excise and Sales Tax, whereas as per the reply by you in response to question No. 13, it has been stated that the sale rate is Rs. 70 per Kg. why there is such a vast difference between the rate at which the scrap is sold and the rate at which the invoices are being raised? Further, the assessee in support of their explanation submitted comparative rates of scarps of different parties vide letter dated 15th February, 2005 which is reproduced at page 17 of assessment order. As per that details the comparative rates of scrap was Rs. 35 to 42 per kg and accordingly the selling rate of scarp was not found abnor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h party to satisfy them and to get rid of their grilling. I gave statement under stress and pressure and only to save my life from heart attack due to high blood pressure and put an end to continuous harassment by the search officials. Whatever statement was given by me under stress and pressure and I disown the same. The rough working related to sale of scrap was notional work to given value addition to scrap and did not represent any actual transaction. 8.7 In respect of retraction from the statement recorded during the course of search we would like to refer a judgment of Gujarat High Court in the case of Kailashben Manharlal Chokshi v.CIT- (Guj) 220 CTR ITR138 (Guj).The court observed that the glaring fact required to be noted is that the statement of the assessee was recorded under Section 132(4) of the Act at mid night. In normal circumstances, it is too much to give any credit to the statement recorded at such odd hours. The person may not be in a position to make any correct or conscious disclosure in a statement if such statement is recorded at such odd hours. Moreover, this statement was retracted after two months. The main grievance of the Assessing Officer was that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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