TMI Blog2015 (11) TMI 395X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions under the two laws, viz., the Central Excise Act and the Income-tax Act, operate in two different fields. Without there being an independent enquiry by the concerned taxing authorities the demand made under the provisions of the Central Excise Act cannot be incorporated as such, more so when the notice of demand has been modified by the adjudicating authority. See K. T. M. S. Mohammed v. Union of India [1992 (4) TMI 6 - SUPREME Court -]. Thus no hesitation to hold that the method adopted by the Commissioner of Income-tax (Appeals) with regard to taxation under the Income-tax Act, as affirmed by the Tribunal, is the correct method of determining the income based on the unaccounted turnover. - Decided against revenue Disallowance under section 40A(3) - CIT(Appeals) held that the additions made under section 40A(3) of the Act are to be deleted since the basis of the additions had been faulted and are no more valid and since the income is estimated, no disallowance on this account can be made affirmed by the Tribunal - Held that:- As already held in the former portion of the order that the assessment order came to be passed only on the basis of the show-cause notice issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was purchasing ingots and billets from certain per sons and it was found to be unaccounted purchase. Based on the abovesaid show-cause notice, the Assessing Officer concluded that the documents seized indicate collection of sale proceeds of unaccounted bars/rods by the assessee in cash and unaccounted sale proceeds collected by cash. The Assessing Officer, based on the show-cause notice, issued by the Central Excise Department and the documents in support of the show-cause notice, estimated the gross profit at 16.36 per cent. and, accordingly, demanded tax on the same. The assessee, aggrieved by the said order, moved the appellate authority, viz., the Commissioner of Income-tax (Appeals) by filing an appeal. 3. It was contended by the assessee before the Commissioner of Income- tax (Appeals) that the show-cause notice and the papers seized by the Central Excise Department cannot be the basis for addition/disallowance under the Income-tax proceedings. The Commissioner of Income-tax (Appeals), accepting the contention, primarily directed the Assessing Officer to collect the materials seized by the Central Excise Department and further directed the Assessing Officer to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order, cannot be sustained. The Commissioner of Income-tax (Appeals) further held that the turnover was redetermined by the Commissioner of Central Excise in the de novo order and since the direction as given by the Commissioner of Income-tax (Appeals) in the remand proceedings having not been carried out, the Commissioner of Income-tax (Appeals) adopted the redetermined turnover as unaccounted turnover of the assessee by modifying the rate of gross profit after giving deduction towards power and labour charges. The findings of the Commissioner of Income-tax (Appeals), for better clarity, are extracted hereinbelow : 22. I have considered the rival contentions. I am of the considered opinion that any income can be brought to tax based only on cogent material buttressed by evidence. In the present instance, the Assess ing Officer cannot claim to have any evidence to sustain the addi tions. He speaks at length only about the allegations contained in the show-cause notice and some of them in material not worthy of admission in evidence. Under these circumstances, I am inclined to hold that the turnover determined by the Commissioner of Central Excise in his de novo order giving effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals) has rightly ordered that turnover as determined by the Commissioner of Central Excise in the de novo adjudication order shall be the unaccounted turnover of the appellant for the relevant years and, accordingly, the gross profit was worked out. The Tribunal further took note of the fact that such a conclusion drawn by the Commissioner of Income-tax (Appeals) is correct since mere reliance on the show-cause notice issued by the Central Excise Department is of no avail and the Assessing Officer has not made independent enquiries even pursuant to the remand order passed by the Commissioner of Income-tax (Appeals). The Tribunal further held that the Assessing Officer merely collected all the documents and forwarded the same with his report, which is not the correct procedure. The relevant portion of the order of the Tribunal, in our opinion, requires to be placed on record, for better clarity, and the same is extracted hereunder : 14. Undisputedly and admittedly, the Assessing Officer in this case has not made any independent enquiries. When the hon'ble CES TAT has found those evidence unreliable and not a good evidence for framing assessment, the same cannot be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Commissioner of Income-tax (Appeals). In fact, the Assessing Officer has not conducted any enquiry, let alone, any independent enquiry in this case. He has simply obtained the copies of the records from the Central Excise Department and the statements recorded by them from four persons despite the fact that he was specifically directed by the learned Commissioner of Income-tax (Appeals) to trace the transaction-trails from the square one up to the end to establish the generation of unaccounted income, if any, as had been alleged. In the remand report, the Assessing Officer has canvassed even the enhancement of the addition by way of withdrawal of deduction allowed for furnace oil as explained. We are convinced that the addi tions which are made solely on the basis of the materials seized by the Central Excise Department and which have been dubbed as unreliable by the hon'ble CESTAT, no addition can be made by the Assessing Officer (Income-tax) in the eyes of law. There is no doubt about the legal position that any income which is based on material evidence found or gathered by the Assessing Officer can be brought to tax. In the given case, there is no such evidence avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance. Learned counsel further submitted that the assessee maintained a second set of account books where falsification of entries was found and, thereby, concealment of income is evident from the materials seized by the Central Excise Department. Further, the large scale unaccounted purchase, suppressed sales, which are evident from the documents seized by the Central Excise Department, have not been appreciated by the Tribunal in its proper perspective. Further, it is contended by the learned standing counsel for the Department/appellant that the Assessing Officer, during the remand proceedings, had recorded statements of the respondent- assessee, wherein admissions as to the veracity of the contents of the seized materials are available, which have not been appreciated in proper perspective by the Commissioner of Income-tax (Appeals) as well as the Tribunal. Learned standing counsel, placing reliance on the decision reported in CIT v. Hynoup Food and Oil Ind. P. Ltd. [2007] 290 ITR 702 (Guj) submitted that the payment in cash for expenditure not being disputed by the assessee, the Assessing Officer is justified in ordering disallowance under section 40A(3) of the Act, which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not happened in the present case. There is no provision to simply incorporate the demand made in the show-cause notice issued under the central excise laws for the purpose of computation of tax under the Income-tax laws. The provisions under the two laws, viz., the Central Excise Act and the Income-tax Act, operate in two different fields. Without there being an independent enquiry by the concerned taxing authorities the demand made under the provisions of the Central Excise Act cannot be incorporated as such, more so when the notice of demand has been modified by the adjudicating authority. The above view of this court is further fortified by the decision of the Supreme Court in K. T. M. S. Mohammed v. Union of India [1992] 197 ITR 196 (SC) ; AIR 1992 SC 1831, wherein the Supreme Court while considering the scope of the provisions of the Foreign Exchange Regulation Act and the Income-tax Act, held as under (page 211) : Needless to emphasise that the Foreign Exchange Regulation Act and the Income-tax Act are two separate and independent special Acts operating in two different fields. This court in Rao Bahadur Ravulu Subba Rao v. CIT [1956] 30 ITR 163 (SC) ; AIR 1956 SC 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year (hereinafter referred to as subsequent year) the assessee makes payment in respect thereof, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, the payment so made shall be deemed to be the profits and gains of business or profession and accordingly chargeable to Income-tax as income of the subsequent year if the amount of payment exceeds twenty thousand rupees : Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under this sub-section where any payment in a sum exceeding twenty thou sand rupees is made otherwise than by an account payee cheque drawn on a bank or account payee bank draft, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors. 14. On the issue relating to disallowance under section 40A(3) of the Act, the same was considered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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