TMI Blog2017 (4) TMI 344X X X X Extracts X X X X X X X X Extracts X X X X ..... e evidence to establish a link that GTC actually had some kind of a share in such secret money. It is quite a trite law that suspicion how so ever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of ‘preponderance of probability’ is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of facts that might go against assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigation have been carried out, then nothing can be implicated against the assessee. The entire basis of the Revenue to draw adverse inference in fact originated from the investigation and surveys carried out in the case of wholesale buyers and the statement given by the wholesale buyers about generation of premium money; and whence, finally the said allegation of the excise department has not been found be acceptable then the entire substratum on which the revenue’s case hinges. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to these decisions because, we have arrived at our conclusion on the basis of material facts brought on record and as referred to before us. Best judgment does not entail wild guess work or huge additions should be resorted to, albeit it lays down the determination of income based on fair and reasonable analysis based on some tangible material. The framing of the best judgment though entails some kind of fair and honest estimation but at the same time it should be based on material and information on record. The best judgment is not a provision to penalize the assessee and resort to wild estimate but it is a machinery provision which is to be based on assessing the correct income and that too based on material and evidence having live link nexus with the income which is to be assessed. Thus, on this count also, we are unable to uphold the kind of estimation or addition which has been made by the AO and sustained by the Ld. CIT (A) and accordingly, we direct the AO to delete the entire addition. - Decided in favour of assessee - ITA No.5996/Mum/1993, ITA NO.1055/Bom/94, ITA NO.1056/Bom/94 - - - Dated:- 7-3-2017 - SHRI R.C.SHARMA, AM, SHRI SAKTIJIT DEY JM AND SHRI AMIT SHUKLA, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under:- We make it clear that we have not expressed any opinion on merits as far as the points involved are concerned. This because after considering the entire material on record an after paying due regard to the detailed arguments that were made before us, we were convinced that an infirmity had crept in, In the assessment proceedings because of the fact that cross examination was not allowed in respect of certain witnesses and yet the statements of those witnesses have been virtually made the basis of making huge additions in the total income. The entire material on record was required to be considered afresh in the light of the answers that might be given by those witnesses in cross examination. Expressing any opinion on any particular piece of evidence at this stage would amounted to prejudging the issue. Consequently we have abstained from expressing any opinion on merits. 10/04/1989: The assessee filed an application u/s 256(1) before the Tribunal for making the reference of question of law to the Hon ble High Court. This reference was allowed by the Tribunal vide order dated 22/02/1999. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We propose not to go into the merits of the case and accept the statement made by Mr. Rana, learned Counsel appearing for the respondents, to dispose of this petition. Mr. Rana has stated that the department will disclose material if already not disclosed that may be relied upon by the department and the Tribunal shall decide about cross examination of the witnesses as are available. The Tribunal is, accordingly, directed to disclose material which is not yet disclosed and which may be relied upon by the Tribunal and decide the question of cross-examination of the witnesses whose evidence is likely to be relied upon. The Tribunal is at liberty to allow the petitioner to take the cross examination before itself or if it thinks fit to remand the matter to any of the authorities below for this limited purpose. We otherwise make it clear that the controversy is left open and the petition is accordingly stands disposed of. 20/06/1996: The Hon ble President of the Tribunal passed an order for constitution of Special Bench in respect of appeal No. 5996/Bom/1993, 1055 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and which was forwarded to the Hon ble High Court (order of the Special Bench, third member which was issued separately as per the direction of the Hon ble High Court). In the said order, he agreed with the conclusion of the Hon ble President that there was no need to go into each of the 31 items and direct disclosure of the same to the assessee in any particular manner. 30/05/2012: ITAT Special Bench deciding the majority view of the Special Bench order dated 24/08/1998 on the issue, whether the Tribunal should give direction to the AO for disclosing the complete material in respect of 31 items. The conclusion of confirmatory order reads as under:- 16. Under such circumstances it is manifest that firstly we need to give a logical conclusion to the proceedings of the earlier special bench and then proceed further to decide the appeals in entirety. It has been noticed above that both the sides are at variance in reading the majority conclusion drawn by the three Id. members of the earlier special bench. This has led us to tread through the orders of the three Id. Members of the earlier special bench thre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;ble High Court in this regard. 17. Having regard to the majority of the three Members' view of the earlier Special Bench, we proceed to pass the confirmatory order. The only issue which was argued before the earlier special bench was as to whether the tribunal should give direction to the AO for disclosing complete material in respect of 31 items? The majority view is in favor of the Revenue and against the assessee. As such, in so far as the tribunal is concerned, it cannot issue any direction to the AO to disclose the material in a particular manner or to a particular extent, 18. After hearing both the sides on the preliminary question, on which we have passed the confirmatory order in above terms, when a suggestion was sought about the suitable date on which the appeals could be taken up for disposal on merits, both the sides proposed a mutually acceptable date of 30th July, 2012, As such we direct the registry to put up these appeals for further hearing on the said date. 08/07/2016: In the reference made by the Tribunal u/s. 256(1), the Hon ble Bombay H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal dated 09/02/1989; and secondly, all the contention of the parties including those arising in this reference are expressly kept open to be urged before this Tribunal. 5. So far as the issue of further disclosure of material and cross examination of further witness is concerned which was vehemently argued by the ld counsel of the assessee before us, much water has flown by as the same already stands concluded by this Special Bench vide its confirmatory order dated 30/05/2012 as mentioned above. It has been brought on record that assessee against the said order of the Special Bench has approached the Hon ble Bombay High Court in writ jurisdiction, being W.P.No.2672 of 2012. However, the assessee later on withdrew the said petition and the Hon ble Court allowed the request of the assessee vide order dated 16/08/2013. In this manner the order of the Special Bench has attained finality. Hence, in the present round of litigation, we are confining ourselves for adjudication of the issues on merits on which we have heard the parties at length. 6. To understand the facts and implication thereof on the issues involved, we are taking up the appeal for the AY 198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their earlier statements given to the excise authorities. 8. The CIT (A) erred in law and on facts in holding that disbursements out of the alleged bank accounts towards advertisement, publicity, printing, mobile vans etc were the liability of the appellant and thus were incurred by the appellant. 9. Without prejudice to above grounds, it is stated that the CIT(A) erred in law and on facts in confirming the findings of the assessing officer in estimating the quantum of expenses allowable against the alleged additional income. 10. The CIT(A) acted on suspicion, surmises and conjectures in confirming the addition. 11. The CIT(A) erred in law and on facts in upholding the levy of interest u/s 215 of the Act. 7. The facts in brief qua the issues involved on merits are that, assessee-company is a public limited company, mainly engaged in manufacturing of cigarettes and for this purpose it had two tobacco processing units, one at Guntur and other at Hyderabad; and two factories situated at Mumbai and Baroda. In addition, assessee also got cigarettes manufactured through number of job working units across the country. For the Assessment Year 1984- 85, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the course of DRI searches. On sample basis, there has been reference to two bank accounts in Indian Bank, Santa Cruz-West, Mumbai in the name of Mr. H K Patel, Current Account No.1391; and Mr. S.K. Mehta, SB Account No.8953 were investigated by the AO on random basis. Tracing back some credit entries in these accounts, independent survey was carried out by the Assessing Officer on the business premises of WBs at Gorakhpur, Muzaffarpur, Darbhanga and Varanasi. During the survey, statements of certain employees of the WBs were recorded wherein they have admitted to have made remittance by way of demand draft out of cash to the fictitious bank accounts in Mumbai in the account of Mr. H K Patel and Mr. S K Mehta. AO on further scrutiny of these bank accounts found that certain payments were made to advertising agencies for the advertisement of the brand and cigarettes manufactured by the assessee company. There was also one incident of donation made to Methodist Church in India at behest of one Senior Official of the assessee company GTC. In the entire assessment order, the aforesaid evidences/materials have been referred to in detail which shall be discussed by us in brief herei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther stated that cash for purchase of drafts were provided by his employer, Mr. S.K. Fogla and he even gave the calculation of premium. The AO also found that drafts purchased on account of these two names were though entered into the books of the accounts of the WBs but drafts were purchased in the name of M/S. Source Marketing and Advertising which has been debited as advertisement expenses in the books of M/S. Fog Fag. During the survey it was also found that six firms were operating from the premise of M/s. Fog Fag which were all the wholesale buyers of the assessee company. 10. Another survey was conducted at Muzaffarpur on the premise of one of the WBs, M/s. Sagar India, during which statements of employees were recorded namely, Mr. Shiv Kumar and Mr. Vinod Kumar Kevadia, who was the Manager of M/s. Sagar India. In his statement Vinod Kumar admitted that he was collecting money which was not entered in the books and such money was around ₹ 2-3 lakhs per month and was remitted either in cash or through bank drafts to the owner of his concern (wholesale buyer) Mr. R.K. Goenka at Patna. The AO concluded that the fact that Mr. R.K. Goenka is residing at Patna while draf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ising. When contacted by the Assessing Officer, they informed that receipts were on account of advertising bills of the various wholesale buyers of GTC (which has been listed at page B- 14 of the assessment order) and that the bills were raised against the wholesale buyers at the instance of GTC. One of the wholesale buyers, M/s. Uma Maheshwari Trader Private Limited was summoned and in response, its representative, Shri I C Jain, Chartered Accountant informed that his client has neither received any bill nor payment has been made to M/s. Source marketing. The AO then summoned Shri V. Shanta Kumar of M/s. Source Marketing who stated that effectively GTC alone was coordinating all the advertisements of its products through M/s. Source marketing and no wholesale buyer has contacted him in regard to any advertisement. But he categorically stated that the advertising bills were sent in the names of wholesale buyers which were sent under the instructions of GTC and few bills at times were handed over to GTC also. He thus admitted that the bills for advertisements were sent directly to the wholesale buyers; payments against such bills were received either directly through WBs or through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on behalf of several unconnected wholesale buyers all across the country have been made from single bank accounts in Bombay. Some of the recipients of payments have stated that they had received payments from GTC, this shows the role and control of the assessee on these bank accounts. The control of the bank accounts is also reflected from donation to Methodist Church and payments to various agencies which were made at the behest of GTC. In the assessment order there is also reference to investment in share capital of M/s. Century Hire Purchase Pvt. Ltd., through these bank accounts. AO had also referred to certain other bank accounts in the name of M/s. A K and Company, M/s. C.K. and Company, M/s. K.K. and Company and M/s. V.K. and Company from where drafts sent by wholesale buyers of the company have been credited to these accounts. He observed that all these bank accounts were catering to a single party, that is, these are accounts of GTC. AO has also incorporated the details of pay orders purchased from these accounts in the name of various parties which are mostly advertisers and printers which have been discussed in detail from pages B-25 to B-33. The conclusion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... calculation, I have found that in many cases, such ex-factory price differential exceeded the actual premium per unit sale charged on a brand by a WB e.g. the ex-factory price differential between the prices of Panama Virginia and Panama Virginia Special is ₹ 24, whereas the premium actually being charged by the WBs on the basis of records seized by the DRI (Anti Evasion) is ₹ 20/-. This difference is because of differences in official WB s margin for the two brands being different whereas the WBs margin for Panama Virginia was ₹ 9.09 (ignoring discounts), the same was ₹ 13.33 for Panama Virginia Special. This has caused the WBs selling price to be ₹ 94.20 in the case of Panama Virginia and ₹ 74.20 in the case of Panama Virginia Special (through of course both were being actually said at ₹ 94.20). For this reason, I am taking the rate of premium on the basis of which addition will be made to the total income on account of premium for a brand to the same as that being charged by the WBs as determinable from the seized records of WBs lying with the DRI for the brand. This will be followed for all sales for the period upto 28.02.1983. As men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received after the completion of assessment. Accordingly, AO was directed to submit his remand report. In response to ld. CIT (A) s remand, AO allowed cross examination of witnesses which have been elaborately discussed by the ld. CIT (A) from pages 6 to 16 of the impugned order. After discussing the points examined in cross-examination by the assessee, learned CIT(A) has observed that in the cross examination, assessee has made an attempt to provide an alternative to the witnesses and assessee had been putting leading questions to the witness and therefore, the cross examination has not been carried out within the parameters of the law. In the process of cross-examination, assessee had tried to establish that nothing clinching is coming out from the statement of witnesses which can implicate assessee in any way, because none of the witness have even remotely stated that either the money has been given to the GTC or the bank accounts are in control of GTC except for the fact that certain work/ advertisement was done on behalf of the GTC. Certain aspects that came into light in the appellate order are discussed in short herein after. 16. In the case of Mr. Ashok Tyagi, who produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) has inferred that the assessee had tried to influence the witnesses who were to be re- examined in view of the instruction of the Tribunal. It has also been brought on record that, Asim Pathak had joined Sanjay Dalmia as Official Secretary in 1977 and he was in the pay roll of Dalmia Brothers Pvt. Ltd. Looking to the proximity of the Asim Pathak with the key person of the assessee an inference has been drawn that assessee had influenced the witnesses. The learned CIT (A) has again reiterated the observations and the findings of the AO regarding various witnesses and material which has been recovered from the surveys conducted by DRI and also the survey done by the Assessing Officer. The entire discussion in this regard are appearing from pages 20-47 of the Appellate Order. 18. After discussing the entire matter in detail, the learned CIT (A) upheld the action of the AO. In sum and substance the conclusion drawn by the learned CIT (A) can be summarized in the following manner:- First of all, learned CIT (A) had observed that evidence which has been brought by the AO may be direct, indirect or circumstantial and even the probabilities whose preponderance may constitute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eparately by the assessee as commission and the balance amount of ₹ 19,94,64,749/- was confirmed. 19. Before us, learned Counsel for assessee, Shri Vinod Kumar Bindal after explaining the entire facts and background of the case submitted that the genesis of the entire controversy have started from searches conducted by the DRI, Central excise, during the course of which various statements were recorded which have been referred to extensively by the AO in the assessment order. By way of preliminary objection, he submitted that now that entire matter is open as per the order of the Hon ble High Court dated 08/07/2016, therefore, the assessee has all the right to demand for all the materials which has been referred by the AO to draw adverse inference. AO has relied upon the materials from the DRI searches to come to the conclusion and further contented that cross examination of all the witnesses must be allowed and where there has been no cross examinations, no adverse inference should be drawn. He further pointed that in the assessment year 1983-84, similar show-cause notice was issued by the AO in the course of assessment proceeding based on same material, however, after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncrete evidence despite several surveys at the various premises of the Assessee Company or elsewhere, that its wholesale buyers had given money directly to the assessee or there is any undisclosed expense incurred by the assessee or on its behalf so that the assessee company can be reckoned as beneficiary in any manner of such accounts. This is a case of public limited company and payment of such huge amount of undisclosed money for its benefit without recording the same in its books is not possible. There has to be some entry in the accounts of the assessee company or any single evidence that assessee has received the premium. If at all there is any benefit, then same may be of some personnel of the assessee company in the management and even for that there is not a single evidence. The personal benefit or gain cannot be roped in the hands of the assessee company which is a corporate entity even if the entire allegation of the revenue is to be accepted. The MRP declared on the packet of the cigarette is duly approved by the Excise Department which requires lot of formalities and giving the complete statistics about the input cost of each cigarette, there is nothing on record to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making the addition is factually and legally unjustified. By way of a write-up he has also given the rebuttal of each and every observation and the finding of the AO as well as that of CIT (A). 21. Coming to the DRI (Investigations) and orders of CESTAT, Mr. Bindal submitted that the Central Excise Department has never alleged that GTC directly collected full or part of the premium alleged to be charged on sale of cigarettes nor any information of material was found by any authority in any search or survey action. The CESTAT Bench of Delhi order reported in 2006 TIOL CESTAT-Delhi has noted the show-cause notice issued by the Central Excise Department, the content of which reflects hereunder:- 3.2 That GTC Industries Limited had been claiming the benefit of concessional rate of Central Excise duty during the different periods mentioned in the show cause notices under Notification No.201/85 dated 2nd September 1995 cigarettes. While sending samples of the packets of cigarettes of the said brand for approval by Central Excise Authorities, the Appellants declared the price of ₹ 1.70 per pack of 10s and 3.40 per pack of 20s as maximum retail price [exclusive of local taxes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd gave a categorical finding in favour of assessee. This decision of Hon ble CESTAT Delhi has now been affirmed by the Hon ble Supreme Court in the judgment and order dated 16/09/2015(supra). 22. Regarding the observations and the finding of the learned CIT(A) on the cross examination that assessee is not permitted to ask leading questions, ld. counsel submitted that same is contrary to the provisions of Evidence Act, as Sections 142, 143 and 146 specifically provide that leading question can be asked in the course of cross examination. Therefore, to reject the outcome of cross examination of the witnesses by the Ld. CIT(A) where the assessee has established that nothing can be implicated to the assessee cannot be upheld. 23. Regarding cross examination of Mr. Ashok Tyagi (M/s. Dimensions), he pointed out that there are certain inherent contradictions and therefore, his statement as relied upon by the Assessing Officer cannot have any evidentiary value. Mr. Ashok Tyagi was a Proprietor of M/s. Dimensions who was a film producer, in his statement has stated that he was asked to produce jingles for the advertisement of GTC products. During the course of cross-examination, it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were sometimes received directly or through GTC. Further the AO himself in the Assessment order for the A.Y.1986-87 has admitted that advertisement expenses were found to have been debited in the books of wholesale buyers. However, in the present assessment year, he has presumed that advertisement and publicity is the responsibility and expenditure of manufacturer only. He submitted that there are various decisions wherein it has been held that the wholesale buyers and marketing agent were entitled to carry out independent advertisement at their own costs. Even though assessee may derive some benefit or advantage but nowhere it goes to prove that the assessee alone had incurred such expenditure. 24. Regarding fictitious bank account and surveys at premises of various wholesale buyers as discussed by the Assessing Officer, he pointed out that, nowhere it has been found that money has flown back to the GTC nor there is any statement that the demand drafts prepared was meant for GTC or the fictitious bank accounts in any way relates to the assessee. He pointed out that learned CIT (A) at pages 27 28 of the earlier order dated 23/03/1988 (i.e., in first round) has categorically ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act that super buyer had paid for advertisement of GTC products which were never reimbursed, he submitted that there is no finding at all that extra money collected in cash transaction or there is any evidence of further backwards flow of money from super buyers or wholesale buyers to manufacturers. Thus, the said finding of the CIT(A) itself gets vitiated. He further submitted that learned CIT(A) has decided the matter on general probabilities and circumstantial evidence which has been discussed by him from pages 22-27, and at the same time has admitted that there is no direct evidence available. Thus, the entire premise of the addition and rejection of books of accounts is based on circumstantial instances and general probabilities sans any evidence to prove the actual facts. Thus, this cannot be the basis for rejection of books of accounts. In support again the reliance has been placed on various decisions as have been highlighted in written statement filed before us. 27. Lastly, on the issue of note of Shri Asim Pathak found from his premises, he submitted that search party never questioned, Shri Asim Pathak for this note or any one from the assessee company was confronted a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on cigarettes, the assessee took permission to raise the price of Panama- Virginia Special from 80 paisa per packet of ten cigarettes to ₹ 1.25 per packet. In reality, the price of these cigarettes, at the street level increased from Re.1 to ₹ 1.25 per packet of ten cigarettes. For about two months, Panama Special continued to be sold at ₹ 1.25 per packet of ten cigarettes and there was no on-money on it. Once the consumers got habituated to paying Rs.l.25 per packet of 10 cigarettes, the assessee took permission of the Central Excise authorities to re-introduce Panama Virginia at the old price of 80 paisa per packet. There was no advertisement from the assessee that the prices of Panama cigarettes had been reduced/slashed. Officially, Panama Virginia bore the earlier MRP of 80 paisa per packet, but it continued to be sold at 1.25 per packet, thereby increasing the volume of on-money generated from the brand. The process continued over and over again across all brands. The device employed was that when MRP is reduced from Re. 1 to ₹ 0.80 per packet, the assessee loses 4 paisa per packet while Excise authorities lost ₹ 0.16 per packet of excise duty, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us observations and materials which has been referred to by the learned Assessing Officer as well as learned CIT (A) in the impugned orders. Rebutting the various contentions raised by the learned Counsel he summarized the arguments of the learned Counsel in the following manner:- (a) The learned Assessing Officer did not make any inquiry of his own and reliance was made by him on statements made before the Central Excise authorities; (b) No incriminating material was found; (c) No addition was made on this basis in the assessment years 1983-84 even though show cause was issued based on same material as was available with the Central Excise authorities; (d) No flow back of money could be established by the learned Assessing Officer, which fact is evident from judgment of Hon'ble Supreme Court as well from the decision of CESTAT. In support of this argument, learned Counsel sought to rely on Pages 132-140 of the submissions made for stay petition and Pages 141-142 of the same papers; (e) It was further argued that judgment of Hon'ble Supreme Court in ITC further proves the case of the appellant- Company which was compiled at Z-329; (f) It was stated that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 09/12/2005 is grossly misplaced. In that case, the assessee was claiming the benefit of concessional rate of duty during different periods of Golden Flake King Brands of Cigarettes. The learned Collector of Central Excise classified a product under sub-para-3 of notification and on facts it was found that the department s case was made out of statements of 44 witnesses who were ultimately cross-examined by GTC and it was found by the Tribunal that product of the assessee company was correctly classifiable under sub-para 2 of the table in the notification No.11/83 dated 01/03/1983 as amended by notification No.78/86 dated 10/02/1986 and not sub-paragraph 3 as held by the Collector. He pointed out that in fact the flow back of money was found in the case of the assessee in another decision of the CESTAT which issue was earlier not adverted upon by the CESTAT and on appeal by the department, the Hon ble Supreme Court vide judgment dated 31/07/2008 had remanded the matter back to the Tribunal to decide the same afresh. Pursuant to the remand of the matter by the Hon ble Supreme Court, CESTAT vide order dated 27/10/2010 reported in (2010)264 ELT 433 has passed the order implicating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were supplied cigarettes by the wholesale buyers at the printed price appearing in the invoice of the wholesale dealers and excise price which was collected from the retailers where mopped-up by them. This has been found in the form of statements of same wholesalers, retailers and all the employees of wholesale buyers recorded by the DRI during the search operations conducted all over the country in 1983 and also during the course of survey and statements recorded u/s.131 by the Department. The wholesale buyers had purchased demand drafts (DDs) in cash in round sums of tens of thousands (but below ₹ 50,000/-) mostly in the names of individuals and mostly by giving incomplete addresses of the purchasers of the DDs and by giving fictitious names or vague names like A. Kumar, B. Prasad, etc. and payable mostly in Mumbai, Kolkata and Delhi. Proof that the upcountry wholesale buyers of the Company purchased DDs in cash came by comparing handwritings by the Examiner of Questioned Documents, in the DD purchase application forms of such DDs purchased in cash and the DDs purchased by transfer in the name of GTC Industries Ltd., for making payment of outstanding. This aspect was thoro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... six accounts where there were transfer debits in addition to cash withdrawals. In the six accounts where there were transfer debits [one such account being the account standing in the name of H K Patel in Indian Bank. Santa Cruz (W)], it was found that the transfer entries were for purchase of banker s cheques, Pay Orders. Over 100 such Pay orders were purchased through debits from the accounts. Except for three Pay Orders, all the remaining Pay Orders were payable to reputed advertisement agencies. When the reputed advertising agencies were contacted to gather information regarding who gave them the Pay Orders and for what purpose, all the advertising agencies confirmed that these were for advertisement work carried out by them for GTC products and the job orders were given to them by Shri Rajiv Ohri, the Advertising manager of GTC. Only at the time of billing, the advertising agencies were asked to make the bill in third party names and the Pay Orders were received against such billings. As far as the remaining three Pay Orders were concerned, these aggregated to ₹ 64,000/ (approximately) and were in the names of suppliers of office equipments. The office equipments were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... results have to be rejected and income has to be estimated. This is what the AO has done. He further submitted that the other accounts which the Assessing Officer had examined is that of S.K. Mehta and enquiries done can be found in the Assessment order for the AY 1985-86 in this regard. 35. He further submitted that, the proof that WBs were charging on-money on the sale of cigarettes also comes from a survey converted into search in the premises of M/s. Sagar India, a WB of the assessee at Muzaffarpur in Bihar, where the then ITO, Central Circle having jurisdiction over the case of GTC was personally present. It is in the form of a chart where rate of charge of on-money for various brands was recovered. The basis of the charge was the difference between the printed price of the lower priced brand and its corresponding higher priced twin. This chart is reproduced in the body of the assessment order at Page B-9 for the A. Yr 1984-1985 and at Page G-7 for the A. Yr 1985-1986. He pointed out that, because of the under-invoicing of cigarettes, the assessee had gross loss from manufacture and sale of cigarettes to the extent that material cost plus manufacturing expenses plus Excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the bank account of C.K. Co on 21.4.1983, 26.4.1983 and 28.4.1983 and transfer debits by way of pay orders from the bank account of K.K. Co on 26.4.1983, 29.4.1983 and 3.5.1983 (Refer Page B25 and B26 of the assessment order); and ix) Transactions relating to M/s Everest Advertising Pvt. Ltd. and Shilpa Arts Colour Graphics Ltd. (Refer Paras 36 to 42 at Pages B27 to B33 of the assessment order). 37. On the issue of asessee s defence on the allegation of violation of principles of natural justice, he submitted that this issue has long been settled by the Hon ble Tribunal while hearing the assessee s appeal in the A.Y.1984-85 and there is a categorical finding that where the statement of witnesses is backed by documentary evidence, then witness is not required to be cross-examined. Only in such a situation where the demand of witness is not backed by any documentary evidence or even where statement is backed by some documentary evidence, but the statement is capable of ambiguous interpretation there the assessee can be set to be handicapped by absence of cross examination. The Tribunal identified around 11 witnesses which were required to be cross-examined and directe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e export of Seven Seas Cod Liver oil to Nigeria by M/s Universal Generics Ltd., M/S Pohoomal Kevalram Sons Exports Pvt. Ltd., l then assessed in Companies Circle III Bombay J the Assessing Officer made disallowances in this regard after making necessary enquiries. 40. The basis of estimation of income by the AO is to multiply the volume of sales of a lower priced brand with the differential price of its higher priced brand. This gives the gross generation of on-money owing to the twin branding mechanism. From this gross amount, a deduction of 10% was given as an estimated share of wholesale buyers who aided and abated in the generation of collection of on- money. After the deduction of 10%, further weightage was given for the on-money brought into the books in the guise of income in the form of bogus trading and commission receipts. Only the net amount, after giving credit to the bogus trading and commission income has been taxed. Thus, the addition as made by the AO and confirmed by the CIT (A) should be sustained. 41. We have carefully considered the entire gamut of facts, rival contentions raised by the parties before us and also the material referred to during the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finally settled in several rounds of litigation before this Special Bench. As per the direction of the Tribunal, finally, the Revenue was required to provide certain material and cross-examination of certain witnesses. In compliance thereof, the Revenue has provided the opportunity to cross-examine in the case of five persons as per the list given by the assessee. Thus, we are rejecting the similar contention raked up again before us. We are now proceeding to decide the appeal on merits, on the basis of material and evidence on record and on the basis of evidences discussed in the impugned orders as well as the arguments placed by the parties before us. 42. To briefly recapitulate, the assessee is a public limited company which is engaged in the manufacturing of cigarettes which is an excisable commodity and has to comply with the requirements of various provisions of excise laws, keeping of books of accounts, etc.. It has tobacco processing units at Guntur and Hyderabad and two factories situated at Mumbai and Baroda. In addition, assessee has also outsourced the manufacturing activity to number of job working units across the country. The distribution and sale of cigarettes is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... never reimbursed. In certain cases, there has been allegation that there was a flow back of such premium money to GTC mostly in the form of difference in the grades of interest under the security deposit scheme as well as by making the wholesale buyers and dealers bear the advertisement expenses of GTC without any reimbursements. There are another set of adjudications and orders by CESTAT, wherein a specific finding has been given that such flow back of on- money has never been passed on to GTC as there is no direct material as well as any statement of wholesale buyers recorded by DRI to point out that flow back of money can relate back to GTC, especially when most of the witnesses have rebutted their statements. How the on-money has been generated in the form of premium through Twin Branding Mechanism has been elaborately explained by Mr. Girish Dave before us, which has been discussed in our foregoing paragraphs. It has been pointed out that earlier basis of charge of excise duty of cigarettes was ad valorem on assessable value, but specific rate based levy of excise duty on the printed price on the packet was revised with effect from the Budget of 1983, from thereon excise duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rebuttal made by the assessee qua those statements / evidences are discussed in brief:- (I) Bogus Bank Accounts in the name of H.K. Patel and S.K. Mehta:- As discussed in our earlier part of the order, two bank accounts were picked up for scrutiny, that is, Account of Mr. H.K. Patel, C/A.No.1391; and Shri S.K. Mehta, S/B. No.8953. These bank accounts were found to be standing in the name of fictitious persons because at the given addresses no such persons were found and even there was discrepancy in account opening forms, signatures etc. In these bank accounts various drafts were deposited which were coming from all across the country and from these bank accounts there were certain out goings also. Though Assessing Officer admitted that 100% verification was not feasible to link all the drafts but he came to the conclusion that these drafts were originated from the places where the assessee had wholesale buyers, based on material brought on record by DRI and through his own set of enquiries. In this manner presumption was drawn that assessee had linkage with these deposits in the bank accounts. By way of rebuttal, the assessee s case before us had been that, firstly, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. Sagar India (Wholesale Buyer) In the survey conducted on the wholesale buyer, M/s. Sagar India, statement of employee, Shri Shiv Kumar and Shri Vinod Kumar Kedia in their statement admitted that premium was collected, however, he was unable to confirm about the final destination of the drafts or that it was sent at behest of GTC. A chart was found on the said premise indicating the rate of premium charged. By way of rebuttal, learned Counsel before us had stated that again the employer, i.e., wholesale buyer was not questioned even though the survey was converted into search. What prevented the department to ask the wholesale buyer to get the exact version of collection of premium and whether it was done on the instruction of GTC or not or the money so collected was meant for the benefit of GTC. Further, the search was conducted on 25/11/1986, i.e., post 02/09/1985, when the twin branding had stopped all over the country. The document which is un-dated and uncorroborated then it has to be presumed that same has been maintained for the current selling rate and it cannot relate back to the year 1984-85. The very factum that premium was charged by wholesale buyer even after 02 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that during the cross-examination leading question should not be asked which is contrary to the law. Once it is found that testimony was done at the behest of income tax official, then no adverse inference should be drawn against the assessee. He also admitted that drafts were received on behalf of the distributors of the GTC. Thus, again, there is no linkage that draft was given by the GTC and the only adverse inference which was drawn against assessee is that the assessee or one of the officials have asked him to produce the jingles but that does not implicate that the assessee had control over the bank account from where the drafts were sent. V. Source Marketing Advertisers V. Shanta Kumar:- On examination of V. Shanta Kumar, the Assessing Officer found that payment were made through H.K. Patel for advertisement and on this basis he held that GTC was conducting publicity and no wholesale buyer ever contacted advertiser. The bills in the name of wholesale buyers were either handed over to the GTC or some time directly to the wholesale buyers. On this piece of material / statement, learned Counsel submitted that all along the assessee had been contending that role of GT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for advertisement done through these agencies were done by him and that these payments were out of sale proceeds of cigarettes and that bills were sometimes received directly and sometimes through GTC. He was very specific in stating that the advertisements in Mumbai and other parts of the Country were done primarily to popularise the products of GTC and this was done by the wholesale buyers under coordination and advice of GTC. Thus, from this information and material, it is quite apparent that the financial burden for incurring the advertisement expenses lay wholly upon the wholesale buyers and assessee merely acted as a coordinating entity. VI. H.K. Printers:- This agency was printing posters for advertising and like Source Marketing they had also stated that bills were handed over to GTC for passing it onwards to WBs which only goes to corroborate the stand of the assessee. VII. Uma Maheshwari / I.C. Jain (Wholesale Buyer) In this case, the AO found that some of the bills of Source Marketing were found entered in the books and some were not. Learned Counsel pointed out that on verification, it was found that these bills were sent to another wholesale buyer and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rafts and further she had no idea of the bank account from where bank cheques were issued and she had also admitted that there is no evidence or material that drafts were given by GTC, but she vaguely remembers that drafts for donation was arranged by GTC. Learned Counsel further pointed out that later on when Mr. Deepak s Poddar statements was recorded on 01/02/88, he denied having received any request for donation to any Church. Various other discrepancies have also been pointed out before us in her statement which we do not feel relevant to discuss here. Learned Counsel further submitted that, even if it is to be presumed that some donation was given to Church from these bank accounts then also it cannot be implicated that the entire fictitious bank accounts belong to the assessee or assessee had any control over the bank accounts. It only leads to an inference that there could be possibility that some GTC Officials must have requested wholesale buyer to give donation to the Church which may have flown from these bank accounts. Simply because donation has flown from this bank account on behest of some GTC official, it does not mean bank account belongs to the assessee and thereb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating the advertisements and promotional expenses. Once the burden of expenses was upon the wholesale buyers which have been confirmed in various statements of key witnesses before the DRI, then burden cannot be shifted to the assessee. The statement of Mr. Raj Kumar Tharad (wholesale buyer for Bombay) had admitted to the same, which cannot be set aside. Thus, even if the advertising expenses have been incurred through bogus/fictitious bank accounts, assessee cannot be held to be beneficiary or benami owner of such bank accounts. 45. By and large with the assistance from both the parties the relevant evidences, statements and materials which has been referred and relied upon by the AO as well as by the Ld. CIT(A) have been discussed by us and certain other details as discussed in the impugned orders are not being dealt with, because admittedly no implication or inference has been drawn for making the addition made by the AO or confirmed by Ld. CIT(A). From the materials and evidences as discussed above, following inference can be deduced:- Firstly, some kind of premium was generated under alleged twin branding mechanism , that is, price higher than the declared/printed MR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rete material has been brought on record to suggest that Assessee Company or its employees were operating said bank accounts or the account holders were introduced by anyone from the assessee company. Nowhere has it been ascertained by the AO that the GTC or its employees had the actual control of the said benami bank accounts or the amount deposited in said bank accounts has gone to the coffers of the assessee. Various investigations/searches carried out by the DRI as well as survey/searches conducted by the Income Tax Department, not a single material has been unearthed or any statement has been given that GTC company had control over the premium amount generated all over the country. Fourthly, the material and evidences gathered by the Revenue does show that the money deposited in the Benami accounts were used in post manufacturing expenses including advertisement of the brands and products of GTC. Transaction of some few lakhs of rupees have also been found to be undertaken from these bank accounts from where payment to certain advertising agencies has been made. On this information it can be presumed that advertising expenses do have been incurred from these bank accounts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rove that it was the liability of the assessee to incur such expenditure. Even if it is remotely accepted that these fictitious bank accounts were opened for incurring the advertisement expenses, but to hold that this was the liability only of the assessee is farfetched sans any direct material or evidence on record. Though the Assessing Officer has very diligently carried out enquiries all across the country in various assessment years however, he could not collect any information or material that advertisement expenses were directly borne by the assessee or the assessee had full control of the bank accounts or these bank accounts are benami of assessee. All his enquiries only prove that premium money was collected on sale of cigarettes which found its way through series of chains to fictitious bank accounts. 46. In situations like this case, one may fall into realm of preponderance of probability where there are many probable factors, some in favour of the assessee and some may go against the assessee. But the probable factors have to be weighed on material facts so collected. Here in this case the material facts strongly indicate a probability that the wholesale buyers ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... materials and not on the basis of presumption of facts that might go against assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigation have been carried out, then nothing can be implicated against the assessee. 47. Both the parties before us have relied upon decisions of CESTAT. One set of decisions have been cited by the learned Special Counsel wherein there is a finding that flow back of money has gone into the coffers of the assessee and other set of judgments relied upon the by the assessee where it has been found that there is no material on record to establish that there were direct or indirect flow back from super buyers to the assessee. Whereas the decision relied upon by the learned Special Counsel which has been stated by him has been confirmed by the Hon ble Supreme Court and High Court (which has referred to above in the part of our order dealing with his argument), it is seen that the judgments of the Hon ble Supreme Court or the High Court whereby one of the orders of the CESTAT dated 27/10/2010 has been confirmed, is not on merits, albeit, assessee s appeal has been dismissed on tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussion and analysis had made a very important observation which for the ready reference reproduced hereunder:- It is this single retail price which has to be printed on the package. If one were to accept the High Court's prima facie view, the printed MRP should reflect the actual price at which the particular kind of cigarette is sold throughout the country. The patent impossibility of this was acknowledged by the Tribunal which held that the actual price at which the cigarettes were sold could not lawfully or logically be the printed MRP because the manufacturer has limited or little control over the actions of the retailers who are, in the case of the appellant, about a million in number ; that the appellant could not be held responsible for the tendency of the retailers to charge higher than the printed price so as to secure larger margin and that different prices may be actually charged for the same brand all over the country. Therefore, the Tribunal held that the printed MRP should have been the reasonable price at which the cigarettes could be sold. This led the Tribunal and the adjudicating authority to go into an elaborate exercise to determine what sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etailers and wholesale dealers in their cross-examination is that their statements have been retracted inter alia after several years. This may be relevant in so far as the confessional statements of accused are concerned, but as far as the statements of witnesses are concerned, such delay is not fatal. In any event, even if it is held that the original statements of wholesale dealers/wholesale retailers/retailers are to the effect that there were realizations of extra payment for sales of cigarettes and that part of excess collection flowed back from the retailers to the super buyers, there is no material on record to establish that there was direct or indirect flow back from the super buyers to the appellants. According to the Department, the flow back was indirect in the form of interest margin that was collected from the super buyers and also the fact that super buyers paid for advertisement of GTC products, which was never reimbursed. There is no finding that any extra amount collected in cash passed on further backwards from the super buyers to the manufacturers. The finding of the Collector that there was a flow back to GTC, is based upon his findings that money flow back is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Collector of Customs, Mumbai wherein the proceedings raised against GTC were dropped. Even in the case not covered by deposit scheme and where the payment was not made in time, interest at the rate of 18% was being charged by GTC, which is more or less corresponding to differential interest under security deposit scheme. Therefore, the differential interest cannot be considered a ploy to indirectly receive a part of the alleged extra collection received by the super buyer. We, therefore, hold that there is no link between security deposit schemes and so called extra collection. 22. In the light of the above discussion and the Apex Court's judgment cited supra, which is squarely applicable to the present case, we hold that the benefit of concessional rate of duty under Notification No. 201/85 and 78/86 is admissible to the appellants, set aside the duty demand and penalties and allow the appeals. Now it was brought to our attention that, this decision of CESTAT was subject matter of appeal by the Revenue before the Hon ble Supreme Court which has upheld the order of the Tribunal vide judgment and order dated 19/09/2015 reported (2015 TIOL- 213 SC-CX). The relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the wholesale buyers and after appreciating the witness statements made and particularly retractions made from the said statements in cross-examination. Ultimately, it held as under: As regards security deposit scheme; we note that even after full deposit has been made to GTC towards sale of goods by super buyers the profit of the super buyer cannot be calculated directly In terms of deposit made in excess. The turnover of the super buyer fairly exceeds the deposit amount. Therefore, even after making deposits and paying differential 17% interest the super buyer can make profit in view of its very high turnover. The deposit scheme was started sometime in 1978-79, which is well before the issue of Notification No. 210/85 dated 20th September, 1985. Therefore, it cannot be alleged or found that the scheme was evolved only in order to indirectly receive the excess amount which may be collected by the retailers from the consumers, and, eventually by super buyer. From the affidavit filed by GTC, it is seen that even in the year in which the deposit was made, the turnover of the super buyer was 12 to 15 times of the amount of deposit. However; the deposit scheme was not unique t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Apex Court, then the entire substratum on which the revenue s case hinges upon is shaken. The aforesaid judgment of the Hon ble Apex Court clearly clinches the issue in favour of the assessee and without any corroborative material; it would be difficult to appreciate the stand of the revenue that the assessee was beneficiary of the premium money or relate back the flow back of the money to the assessee. It appears that the charging of premium amount over and above the MRP by the retailers and wholesale buyers may be keeping the assessee in loop to coordinate for meeting out certain expenses which also included advertisement and sales promotional expenses. The entire scheme was so designed that the liability of sales and promotion expenses or advertisement lies with the wholesale buyers and not on the assessee and assessee merely acts as a coordinating/managing central agency. But such a managing and coordinating of advertisement does not implicate the assessee that it is the sole beneficiary or owner of the entire premium money generated as held by the Hon ble Apex Court in the case of the ITC that there could not be any presumption that manufacturer is getting the money over and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no finding or any cogent material to establish that extra amount collected in cash by shopkeepers/retailers have been passed on further from wholesale buyers/ super buyers to the manufacturer, i.e., assessee; and once that is so, the presumption of indirect flow back cannot be made the basis for such addition or estimation of income. Various case laws have been referred by the learned counsel before us on this point; however, we are not referring to these decisions because, we have arrived at our conclusion on the basis of material facts brought on record and as referred to before us. 51. Even though we have held that AO CIT(A) were not correct in law and on facts to reject the books of account, however for the sake of completeness, we deem fit to deal with issue of estimation as has been made by A.O. in brief. The estimation made by the AO for assessing the income is very faulty because, it is based on high degree of presumption and hypothesis that on each and every sale of lower brand cigarette all across the country made to millions of consumers through millions of retailers, there has been collection of extra money equivalent to the price of high brand value cigarettes and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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