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TMI Blog2015 (11) TMI 395X X X X Extracts X X X X X X X X Extracts X X X X ..... income was arrived by applying a percentage rate on the unaccounted turnover ?" 2. The assessment in these appeals is relatable to the assessment years 2002-03, 2003-04 and 2004-05. The facts, in a nutshell, are as hereunder : The respondent-assessee is alleged to be engaged in the business of manufacture and sale of steel ingots and billets. The respondent-assessee filed the return of income for the above assessment years. It appears that the Central Excise Department conducted a search of the premises of the assessee on June 24, 2004, and in the course of the said search, incrimi nating documents and evidence were seized, which were found in the computer and floppy disks. On the basis of the seized materials, the Central Excise Department issued a show-cause notice in which it was alleged that the assessee indulged in evading central excise duty by making unaccounted purchase of raw materials, by suppressing production, indulged in clandestine removal of bars and rods without issue of invoice and without payment of duty. In the course of the investigation, it was found that the assessee was purchasing ingots and billets from certain per sons and it was found to be unaccounted p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation and in such circumstances, pleaded that on the finding of the Tribunal and the materials filed in support thereof, the demand for tax proposed cannot be justified, as those evidences were found to be unreliable and inadmissible in evidence. Nevertheless it was submitted that in view of the remand order, nothing survives for consideration for the purpose of determining the income as unaccounted transaction. On the said submission, the Commissioner of Income-tax (Appeals) came to the conclusion that the Assessing Officer, without conducting an independent enquiry, either at the time of assessment or during the remand proceedings, as directed by the Commissioner of Income-tax (Appeals), has simply relied upon the documents retrieved in the course of the proceedings initiated by the Central Excise Department as gospel truth and, therefore, held that the income should be brought to tax based on cogent material and evidence and the order of the Assessing Officer merely placing reliance on the show-cause notice, without making an independent enquiry, pursuant to the remand order, cannot be sustained. The Commissioner of Income-tax (Appeals) further held that the turnover was redete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee on the judgment of this court in CIT v. S. Mohammed Dhurabudeen [2008] 4 DTR 218 (Mad). The Commissioner of Income-tax (Appeals) held that since the basis of the additions itself is at fault, they are not valid and, therefore, the disallowance on the said income is not sustainable. 8. Aggrieved by the said order of the Commissioner of Income-tax (Appeals), the Department preferred appeals before the Tribunal. The Tribunal, on consideration of the entire matter and on considering the allegations raised in the show-cause notice, issued by the Central Excise Department, which came to be finally decided by the CESTAT by way of remand and the further de novo adjudication by the Commissioner of Central Excise, held that the Commissioner of Income-tax (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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer. There is no corroborating or supporting evidence available on record. When the main evidence on the basis of which the assessment was framed has been found to be not reliable by the very same Depart ment (Central Excise Department), the cumulative effect of finding given in the assessment order, remand report and submission of the parties, would lead to only one conclusion that no addition can sur vive on the basis of unreliable evidence. The addition made by the Assessing Officer hinges on the show-cause notice of the Central Excise Department which has been found to be unreliable to a greater extent. It is very strange that the remand report was sent after a lapse of three years and that too after repeated reminders having sent by the 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 sq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Department were dismissed. Aggrieved by the said order of the Tribunal, the Department is before this court by filing the present appeals. 9. Learned standing counsel appearing for the Department/appellant submitted that the Tribunal erred in holding that the materials seized by the Central Excise Department cannot be the basis to conclude that the assessee had undisclosed income for the purpose of making addition/disallowance. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as the Tribunal that merely on the basis of the show-cause notice issued by the Central Excise Department, determination of tax under the Income-tax Act cannot be made, as it is not incumbent on the Income-tax authorities to take into consideration only the materials made available by the Central Excise Department but the authorities are bound to make an independent enquiry, before passing any order, which enquiry 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 183 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A(3) of the Act is extracted hereinbelow : "40A. Expenses or payments not deductible in certain circum stances.-. . . (3) (a) Where the assessee incurs any expenditure in respect of which payment is made in a sum exceeding twenty thou sand rupees otherwise than by an account payee cheque drawn on a bank or account payee bank draft, no deduction shall be allowed in respect of such expenditure ; (b) where 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 rupe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Further, the ratio of the decision of the Supreme Court in K. T. M. S. Mohammed's case (supra), clearly applies to the facts of the present case. Such being the case, in the absence of any independent enquiry by the Assessing Officer, the disallowance sought to be made under the Income-tax Act by the Assessing Officer, on the basis of the show-cause notice, issued under the Central Excise Act cannot be sustained. When the assessable income was arrived at by applying a percentage rate, as held by this court in Mohammad Dhurabudeen's case (supra), the said exercise would take care of everything and there is no need for the Assessing Officer to make scrutiny of the amount incurred on the purchases by the assessee for the purposes of disallowance. Therefore, this court is of the considered view that the order of the Tribunal in concurring with the Commissioner of Income-tax (Appeals) on this issue is justified and this court finds no reason to differ with the same. 17. In view of the above findings and reasoning as recorded above, this court is of the considered view that no question of law, much less substantial question of law arises for consideration in these appeals. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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