TMI Blog2021 (10) TMI 1432X X X X Extracts X X X X X X X X Extracts X X X X ..... e towards non-discovery of incriminating material at the time of drastic action of search on assessee and reference thereto in assessment order. There is nothing on record that information contained in seized documents as per list of inventory, were not recorded or reflected in the books of accounts. Hence, the action of the AO towards making additions in respect of concluded assessments towards undisclosed income is contrary to the judicial dicta. Accordingly, we are of the view that various additions/disallowances made by the AO are clearly beyond the scope of authority vested u/s 153A without discharging the burden to show presence of any incriminating material or evidence deduced as a result of search in so far as completed assessments are concerned. Additions/disallowances made in assessments framed u/s 153A of the Act in respect of captioned assessee pertaining to AYs. 2006-07 to 2009-10 are thus required to be struck down on this score itself. However, the assessments/re-assessments pending on the date of search i.e. AY 2010-11 to 2012-13 which stood abated by operation of law will continue to be governed by ordinary powers of assessment under s. 153A of the Act in accordanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd passed a very speaking order. Without repeating all the observations of the CIT(A), we find ourselves in complete agreement with the conclusion drawn by the CIT(A). The CIT(A) has objectively analyzed the factual situation and found complete absence of any adverse material against the assessee which can support the allegation of the AO towards unaccounted production presumed on the basis of alleged low yield declared by the assessee. On facts, the CIT(A) has found that the yield declared by the assessee is neither low nor the book results could be impeached by some tangible material to indulge in rejection of books of accounts. We are unable to discern any error whatsoever in the process of reasoning adopted by the CIT(A) while reversing the totally untenable action of the AO. We, thus, decline to interfere with the order of the CIT(A) on this score. In the result, grounds raised by the Revenue challenging the action of the CIT(A) for reversal of additions on the grounds of suppression of yield and unaccounted production and sales are dismissed for AYs. 2006-07 to A.Y. 2009-10 in appeal. Decided in favour of assessee. - Hon'ble Judges Pradip Kumar Kedia, Member (A) and Paw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng his opinion in favour of Revenue on legal objections. 6. Briefly stated, the assessee is engaged in the business of production of sponge iron from iron ore, for which, the company was incorporated on 31.03.2004. 6.1. A search was conducted on the residential/business premises of the assessee group, namely, Mahamaya Group on 21.06.2011 including the assessee herein. A sum of Rs. 20400/- was found in cash in main office at Tatibandh, Raipur and another Rs. 79,350/- was found kept in factory premises. Consequent upon search, notices under s. 153A of the Act were issued on the assessee. Pursuant thereto, the assessee filed return of income under s. 153A of the Act. The assessment was inter alia framed under s. 143(3) r.w.s. 153A of the Act for A.Ys. 2006-07 to 2009-10 in question. A common order covering all years under search was passed. 6.2. In the course of the search assessment noted above, the AO inter alia observed that credits in respect of share application money to the tune of Rs. 4,56,00,000/- (A.Y. 2006-07), Rs. 95,00,000/- (A.Y. 2007-08) Rs. 1,78,50,000/- (A.Y. 2009-10) in the books does not satisfy the requirements of Section 68 of the Act. It was essentially observed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny. With a view to ascertain the facts, during the course of appellate proceedings of other companies covered in the Mahamaya Group of cases and in appeal before the undersigned, namely (1) Mahamaya Steel Industries Limited, (2) Abhishek Steel Industries Limited, (3) Mahalaxmi Technocast Private Limited (4) Shree Shyam Sponge Power Limited, were asked to furnish copy of statements of all the persons recorded by the Search Team during the proceedings u/s. 132. The statements were furnished by the said companies. I have carefully gone through all the statements of all the persons recorded during the proceedings u/s. 132 on 21/22.06.2011. I am in agreement with the submissions of the appellant company that no statement of appellant company's representative was recorded during the search proceedings. The statements of other persons belonging to the aforesaid companies also does not, in any way, lead to an inference that the Group companies or the appellant company do not maintain statutory records/Registers. It is also seen that the appellant company had made specific request before the A.O. vide its letter submitted on 14.03.2014 and 18.03.2014 to dispel the doubts of the A.O. reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s seen that Escorts Finvest Private Limited was assessed u/s. 143(3) and the ITO, Ward-1(4), Kolkata recorded a specific finding that the said company had share capital and share premium reserve of Rs. 5,64,50,200/- and Rs. 44,37,90,000/- as on 31.3.2006 and that the ITO, Ward-1(4), Kolkata had conducted enquiries with the various shareholders of Escorts Finvest Private Limited by issuing notices u/s. 133(6) and verifying their responses. I find that ITO, Ward-1(4), Kolkata was satisfied with the genuineness of addition to share capital and reserves of Escorts Finvest Private Limited inasmuch as no adverse inference was drawn by ITO, Ward-1(4), Kolkata with regard to said addition to share capital and reserves of Escorts Finvest Private Limited. Apart from the audited financial statements in support of credit worthiness of the said company, I am convinced that no adverse view can be taken regarding identity or credit worthiness of the said company when the said company has been duly assessed and the share capital and reserves i.e. the net worth of the said company was duly accepted in scrutiny assessment proceedings, in the factual matrix of this case, I am convinced that the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has placed on record, copy of assessment order in the case of Callidora Traders Private Limited for the assessment year 2006-07. 5.7 It is seen that Callidora Traders Private Limited was assessed u/s. 143(3) and the ITO, Ward-1(1), Kolkata recorded a specific finding that the said company had share capital and share premium reserve of Rs. 45,00,000/- and Rs. 10,51,20,000/- as on 31.3.2006 and that the ITO, Ward-1(1), Kolkata had conducted enquiries with the various shareholders of Callidora Traders Private Limited by issuing notices u/s. 133(6) and verifying their responses. I find that ITO, Ward-1(1), Kolkata was satisfied with the genuineness of addition to share capital and reserves of Callidora Traders Private Limited inasmuch as no adverse inference was drawn by ITO, Ward-1(1), Kolkata with regard to said addition to share capital and reserves of Callidora Traders Private Limited. Apart from the audited financial statements in support of credit worthiness of the said company, I am convinced that no adverse view can be taken regarding identity or credit worthiness of the said company when the said company has been duly assessed and the share capital and reserves i.e. the net wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has also explained the source of source by placing on record assessment order in the case of its subscriber company namely Welfit Fasions Private Limited. Furthermore, I find that the said investor company was in existence even prior to the period covered under the present search assessment proceedings, therefore, even assuming without accepting the contention of the A.O., no undisclosed income can be added in the present search assessment proceedings as the same are beyond the period covered under the present search assessment proceedings . 5.11 It is seen that the addition to share application and capital was duly accepted in the scrutiny assessment proceedings of the appellant u/s. 143(3) for A.Y 2006-07 and 2007-08, the present action of the A.O is not culminating from any specific finding against the appellant that it was a beneficiary of any racket which has been unearthed as a result of search proceedings nor has the A.O brought on record any other evidence to indicate that the appellant did make undisclosed income and such evidence came on the surface as a result of search proceedings. The A.O has not rebutted the details of tangible net worth submitted by the appellant to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icial pronouncements, however, the appellant has made elaborate submissions distinguishing the facts, I am convinced with the explanation of the appellant that the decisions relied upon by the A.O are not applicable in the facts of the present case as there is nothing on record which can indicate that the receipt of share application money was by way of accommodation entries only. It is also not the case of the A.O that the investors have accepted by way of statement that the sums paid to the appellant was in fact received from the appellant and investors merely routed the undisclosed income of the appellant through money laundering process in the form of share application money. On the contrary, the A.O himself has stated in the assessment order that the investors have sent confirmatory letters, I have gone through the confirmatory letters, it is seen that the letters were sent through registered/speed post which cannot be said to be unauthentic mode, secondly, the investors have confirmed having made the investment by way of affidavits which are duly notarized, the investors have also furnished the copies of share application forms, their audited financial statements, ITR, bank s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in the case of the ACIT vs. Venkateshwar Ispat (P) Ltd. reported in 319 ITR 393 for the reason that the facts in such cases are entirely same, particularly, when no differentiation could be effectively demonstrated and brought on to the record by the A.O. The submissions of the AO that the decision of the Hon'ble Supreme Court in the case of Lovely Exports (P) Limited was rendered in the light of different facts inasmuch as the said judgement was rendered by the Hon'ble Supreme Court in the context of public issue, is devoid of merit because the decision was rendered by the Hon'ble Supreme Court in the case of Lovely Exports (P) Ltd. which is a Private Limited Company and which cannot bring public issue of shares. I find that the investments made by the share applicants were duly reflected in the audited financial statements of the corporate investors. It is a settled principle of law that reason for suspicion, however grave it may be, cannot be a basis for holding adversity against appellant. 5.16 The Assessing Officer has disregarded the documentary evidences adduced by the appellant such as confirmation from the share applicants, their PAN, certificate of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xmann.com 247 (Delhi) c) In the case of Commissioner of Income-tax-IV v. Dwarkadhish Investment (P.) Ltd. [2010] 194 TAXMAN 43 (DELHI) d) In the case of Commissioner of Income-tax v. Winstral Petrochemicals (P.) Ltd. [2011] 10 taxmann.com 137 (Delhi) e) In the case of Commissioner of Income-tax v. Arunananda Textiles (P.) Ltd. [2011] 15 taxmann.com 226 (Kar.) f) In the case of Commissioner of Income-tax v. Creative World Telefilms Ltd. [2011] 15 taxmann.com 183 (Bom.) 5.19 The A.O has relied upon the decision in CIT v. Nova Promoters Finlease (P) Ltd. [2012] 342 ITR 169/206 Taxman 207/18 taxmann.com 217 (Delhi). However, on going through the said decision in Nova Promoters Finlease (P) Ltd. (supra) I find that the facts are clearly distinguishable. In fact, in Nova Promoters Finlease (P) Ltd. (supra) itself the Hon'ble Delhi High Court has observed, in the context of Lovely Exports (P) Ltd. (supra), as under:- The ratio of a decision is to be understood and appreciated in the background of the facts of that case. So understood, it will be seen that where the complete particulars of the share applicants such as their names and addresses, income tax file numbers, their creditwort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n.com 271 (Gujarat); (b) Commissioner of Income Tax v. Kuber Ploritech Ltd. [2010] 2 DTLONLINE 136 (DELHI); (c) Commissioner of Income-tax v. Tania Investments (P.) Ltd. IT Appeal No. 15 of 2009, High Court of Mumbai; (d) Bhav Shakti Steel Mines (P.) Ltd. v. Commissioner of Income-tax [2009] 179 TAXMAN 25 (DELHI); (e) Commissioner of Income-tax v. Samir Bio-Tech (P.) Ltd. [2010] 325 ITR 294 (DELHI) (f) Commissioner of Income-tax-I v. Micro Melt (P.) Ltd. [2009] 177 TAXMAN 35 (GUJ.) (g) Commissioner of Income-tax-V v. Real Time Marketing (P.) Ltd. [2008] 173 TAXMAN 41 (DELHI) (h) Assistant Commissioner of Income-tax v. Mansarovar Urban Co-Operative Bank Ltd. [2009] 124 TTJ 269(LUCKNOW); (i) Commissioner of Income-tax -IV v. Empire Buildtech (P.) Ltd. [2014] 43 taxmann.com 269 (Delhi); (j) Commissioner of Income-tax v. Mulberry Silk International Ltd. [2012] 19 taxmann.com 31 (Kar.); (k) Commissioner of Income-tax-III v. Nilchem Capital Ltd. [2012] 18 taxmann.com 350 (Guj.); (l) Commissioner of Income-tax v. Jay Dee Securities Finance Ltd. [2013] 32 taxmann.com 91 (Allahabad); (m) Commissioner of Income-tax, Delhi-II v. Kinetic Capital Finance Ltd. [2011] 14 taxmann.com 150 (Delhi); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions of the appellant. The search operation u/s. 132 had taken place in the premises of the appellant including residential premises of the directors. The A.O had issued show cause notice cum query letter inter alia asking the appellant to show cause why addition should not be made as the yield of sponge iron using iron ore as raw material declared by the appellant was less than 60%. 9.2 The A.O has made the addition on account of alleged unaccounted sales based on unaccounted production by estimating the production at 60%. The A.O has reproduced various mathematical calculations and tables containing data of consumption of Iron ore, coal, power, production, average consumption, highest and lowest consumption etc. The A.O ultimately zeroed down to the issue of yield of sponge iron using iron ore as raw material declared by the appellant. The A.O has failed to establish the nexus between the mathematical calculations of highest and lowest consumption of power, raw material etc. with Yield of 60% adopted by the A.O. The A.O has merely stated that the yield being shown by the appellant is quiet low in comparison to the yield shown by other manufacturers of CG, however, wherefro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8-09 and 2009-10 was 40.35% and 52.78% respectively. (c) Not even a single comparable instance was found declaring yield of 60% except the appellant itself. (d) The arithmetical mean of yield declared by other assessees was computed on the basis of data available within the Department. However, the yield declared by the appellant in different years was found to be more than the arithmetical mean of the yield declared by the other assessees. (e) From the table above, wherein average yield of the industry has been computed based on data received from DCIT-1(2), Raipur, it is seen that the yield achieved by the appellant in financial year 2007-08 and 2008-09 is more than the average industry yield. In view of aforesaid findings, the action of the A.O in adopting uniform and standard yield of 60% appears to be unreasonable. 9.5 Thereafter, with a view to make comparison of financial results of the appellant with other assessees engaged in similar line of business, Letter was issued to DCIT-1(2), Raipur on 28.04.2014. The desired documents were received from the DCIT-1(2), Raipur vide letter dated 26th May, 2014. 9.6 I have carefully gone through the Tax Audit Reports, audited financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 Rashmi Sponge Iron Power Industries Ltd 2007-08 34167 84683.42 40.35 Average Yield for FY 2007-08 2007-08 34167 84683.42 40.35 48.36 1 Gopal Sponge Power Pvt. Ltd. 2008-09 48990 95910 51.08 2 M/S Sunil Sponge Private Limited 2008-09 33027.4 64035.721 51.58 3 M/S Baldev Alloys Private Limited 2008-09 16959.19 31471.605 53.89 Average Yield for FY 2008-09 2008-09 98976.59 191417.326 51.71 56.35 9.8 I have carefully compared the financial results of the appellant company with the financial results of other comparable cases as received from DCIT-1(2), Raipur. As is self explanatory from the details tabulated above, in my considered view, the financial results declared by the appellant are found to be better in comparison to all the comparable instances in terms of GP rate as well as NP rate and even in terms of yield. It is also observed that there is no direct co-relation between GP rate and yield, for instance, the yield declared by Rashmi Sponge Iron Power Industries Ltd. in financial year 2007-08 is 40.35% which is lower than the yield declared by Gopal Sponge Power Pvt. Ltd. at 51.08% in F.Y 2008-09, however, the GP rate of Rashmi Sponge Iron Power Industries Ltd. is found to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the manufacture of dutiable and exempted finished goods, Removed as such for export or for home consumption, Closing balance, Finished goods manufactured out of input, Quantity code of finished goods, Quantity of finished goods manufactured. 9.10 It is seen that the excise returns in Form ER-1 and ER-6 filed by the appellant on monthly basis are duly acknowledged and bears the seal and signature of the Central Excise Authority. The appellant was asked to produce the excise records maintained on daily basis. The appellant did produce the excise records in Form-IV and RG-1 for raw material and finished goods respectively for all the years under consideration. On test check of excise records maintained on daily basis with the figures of production, consumption of raw material and closing stock of finished goods and raw material shown in Form-ER-1 and ER-6, it was found that the same are tallying and thus, were found to be satisfactory. The entries in the excise records for material inwards was cross checked with reference to purchase bills and on test check, the same was found to be satisfactory and no infirmity was observed. The quantity of finished goods cleared was also verified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... picion, however, at the same time, it is settled principle of law that suspicion, howsoever grave it may be, cannot take place of the evidence. On an independent appreciation of reasons explained by the appellant for variation in yield i.e. for variation in consumption of coal and iron ore, I find the explanation of the appellant to be convincing, particularly, when the appellant has brought on record certificate from registered valuer which is placed in the paper book at Page no. 8 of Volume 7 of the Paper Book in the case of appellant. The A.O. has not brought on record any evidence to disbelieve the certificate of registered valuer who is duly approved u/s. 34AB of the Wealth Tax Act, 1957 vide order dated 06.07.2011. As per the said certificate of the registered valuer, the average yield of sponge iron unit using Iron ore and coal as raw material may vary from 40 to 60% and coal consumption may vary from 1.60 to 2.1 MT depending upon fixed carbon in coal. The quantitative details of consumption of sponge iron and coal were found to be within the reasonable range as certified by the registered valuer. Furthermore, in my considered view, it is impractical to presume uniform quali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant case, the A.O has completely failed to record the reasons based on material available as the A.O has not referred to even a single seized document which could be regarded as incriminating document and used as an evidence to even remotely support the conclusion of the A.O. The A.O seems to have blown out of proportion merely on the basis of mathematical and mechanical calculations. The A.O has laid too much emphasis on statistics, those statistics which cannot be said to have been gathered as a result of search only. The statistics relied upon by the A.O are those which are quite routinely called for even during the regular assessment proceedings u/s. 143(3). The A.O has not stated what according to him should have been the average consumption of coal, iron ore etc. Another fact noticed is that the case of the appellant was under scrutiny assessment for two consecutive years i.e. in A.Y 2006-07 and 2007-08 where regular assessments were made under scrutiny and the yield was shown by the appellant was not disputed. 9.15 I find that the A.O, in Para 9.1 has stated that the evidences of unaccounted production by suppressing its yield were found and these evidences are discussed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant has sold sponge iron appears to be unreasonable in as much as why would a person go for backward integration (Sponge Iron Unit) and then sell its own intermediary product and at the same time buy the same product from the open market. It is a matter of common knowledge that the businessman goes for backward integration when he is able to produce the goods indigenously at a cost lower than the purchase cost from market. The A.O has duly accepted the purchase of sponge iron by the group companies that are recorded in their books of accounts and consumed in SMS Division of group companies, therefore, it is hard to believe that the appellant must have sold its product i.e. sponge iron which, in fact, is an intermediary product from the perspective of the group as a whole. 9.18 I have carefully gone through the statement of Mr. M.R. Atri, President of the appellant company dated 21/22.06.2011. I find that the search team had seized certain documents referred as BS-1/1 which contains daily performance report for the period subsequent to November 2010, from the statement of Mr. M.R. Atri, it is seen that Mr. M.R. Atri had explained the modus operandi and system adopted by the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he accounts invoking section 145(3) of the Act. The variation in yield and consumption of power etc. could be for various reasons. There is no finding by the A.O that actual quantity of finished goods sold by the appellant was more than what it was shown in the accounts books on the strength of documentary evidence. 9.21 Had there been scientific methodology in place for measurement of inputs, in my considered view, it is only the accuracy level of statistics which will increase, however, it is hard to believe that merely due to scientific methodology for measurement of inputs, the yield of the appellant will also increase, the imagination of the A.O is too farfetched and devoid of logic. I find no merit in the allegation of the A.O that absence of scientific methodology for measurement of inputs is leading to an inference that the appellant has suppressed the yield. I have also carefully perused the statement of Shri Rishikesh Dixit recorded on 21.6.2011 as regards common allegation in case of all the four manufacturing companies i.e. sister concerns of Mahamaya Group that the group is following the system of destroying the initial document i.e. the loose slip in which quantity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee has indulged in unaccounted sales no addition is called for, are squarely applicable in this case. 9.23 Similarly in the case of ACIT vs. M/s. Super Iron Steel Pvt. Ltd., which is one of the comparable cases cited above, in ITA No. 139 to 141/BLPR/2010, the jurisdictional Bench of Hon'ble ITAT had an occasion to decide similar issue and the Hon'ble Tribunal has observed as under:- 6. After hearing the rival submissions and perusing the material on record we find that the assessee is engaged in the business of manufacturing of MS Ingots with Sponge Iron as the main raw material. According to the AO there was no basic document regarding consumption of raw material and production of finished goods were maintained by the assessee in the factory premises. The AO found that there is no system in place for keeping record of consumption of raw material and production of finished goods, it is apparent that the unaccounted production is evidenced from variation in units of electricity consumed per MT of finished goods so AO made the addition in question. The stand of the assessee was that it is maintaining regular books of account along with all the supporting bills and vouchers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suspected by the A.O that must have been achieved by the appellant. The assessment order conclusively indicates that the addition has been made out of some lurking suspicion based either on rumours or on something less serious than that. 9.26 The A.O has merely referred to variations based on mathematical calculations viz Variation in coal, iron ore, this may well be the basis of suspicion, however, these cannot per se constitute the basis of the addition, though it can very well be a starting point for further investigation. In Lalchand Bhagat Ambica Ram vs. CIT: (1959) 37 ITR 288, the Supreme Court disapproved the practice of making additions in the assessment on mere suspicion and surmises or by taking note of the notorious practice prevailing in trade circles. 9.27 The significance of tangible evidence has been emphasized in various judicial pronouncements. Having test checked the seized documents with reference to submissions of the appellant and books of accounts along with bills and vouchers, having gone through all the statements recorded during the search proceedings, having analysed the results of enquiry conducted regarding yield, I am convinced that there was no tangibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted sales and earned such hefty amount of income. The facts in the case of the appellant are much better than the facts before the Hon'ble HIGH COURT OF GUJARAT in Commissioner of Income Tax Vs. Maulikkumar K. Shah (2008) 307 ITR 137 (Guj). 9.32 I find that even non maintenance of stock register is not fatal as held in Commissioner of Income Tax Vs. Jacksons House (2010) 39 DTR (Del) 212 : (2011) 198 TAXMAN 385. 11.35. Similar view was taken in M. Durai Raj Vs. Commissioner of Income Tax (1972) 83 ITR 484 (KER). 9.33 On the matter of recording the consumption of raw material going in to klin and quantity of production coming out from klin, in my considered opinion, the mere fact of estimation cannot be made the basis of rejection of books of accounts so long as the financial results are not strikingly lower than the industry average or that the results are not supported by bills/vouchers or that the quantitative details have not been maintained properly. In Polisetti Subbaraidu Co. Vs. Commissioner of Income Tax SOURCE : (1968) 69 ITR 738 (AP). Another decision wherein it was held that non maintenance of daily stock register per se is not sufficient to reject the books of accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re duly audited. If the stock register was not maintained by the appellant, that may put the A.O on guard against the falsity of the return made by the appellant and persuade him to carefully scrutinize the account books of the appellant. The low yield in comparison to the benchmark adopted by the A.O, in the absence of any material pointing towards falsehood of the account books, could not by itself be a ground to reject the account books u/s. 145(3) of the I.T. Act, 1961 much less a ground to make estimated addition. I find that there is no dispute with regard to the fact that the appellant has maintained quantitative details. In the case of CIT vs. Smt. Poonam Rani 326 ITR 223 (Delhi) it was held that where an addition was made because of mere fall in gross profit without any defect in the accounts except for the absence of stock register- deletion of addition was upheld by the High Court. The appellant's case finds support from the following decisions: a) Ashok Refractories Pvt. Ltd. Vs. CIT (2005) 148 Taxman 635 (Cal.). b) ITO v. Bothra International [2008] 117 TTJ (Jd.) 672 c) Delhi Securities Printers v. Dy. CIT [2007] 15 SOT 353 (Delhi) Considering the facts and circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact the Search Team could not come across any evidence of unaccounted sales, in my considered opinion, had there been any unaccounted sales, the same would have been detected by the Search Team. The case of the appellant also finds support from the decision of the jurisdictional Tribunal i.e. ITAT, BILASPUR BENCH in Chhattisgarh Steel Casting (P) Ltd. Vs. Assistant Commissioner of Income Tax (2008) 8 DTR (Bilaspur) (Trib) 14. 9.40 The significance of tangible evidence is indicative from the fact that in Commissioner of Income Tax Vs. Vishal Rubber Products (2003) 264 ITR 542 (P H) : (2004) 136 TAXMAN 151 despite Balance Sheet having been found from the premises searched, no addition was sustained in the absence of tangible evidence. 9.41 On the contrary, the appellant had provided all the requisite details regarding its production activity. The items of raw material purchased are excisable products, the quantity of raw material purchased as mentioned in Excisable and Commercial Invoice was test checked with the entries in the Excise Record for raw material i.e. RG-1 and the same was found to be in order. The quantity appearing in the Excise Registers was cross checked with the ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant in all these 7 years was uniform and standardized one. The Hon'ble Madras High Court took judicial note of such facts in C. ARUMUGASWAMI NADAR vs. COMMISSIONER OF INCOME TAX (1961) 42 ITR 237 (MAD). 9.45 The facts in the case of the appellant are akin to the facts before the Hon'ble High Court of Assam in Harakchand Arakchand Radhakisan vs. Commissioner of Income Tax (1962) 46 ITR 196 (ASSAM). The Hon'ble High Court of Delhi has laid down certain principles on rejection of books of accounts in Commissioner of Income Tax Vs. Paradise Holidays (2010) 48 DTR (Del) 349 : (2010) 325 ITR 13. 9.46 In SUKHADIA JAMNADAS MAGANLAL vs. INCOME TAX OFFICER (2008) 13 DTR (Guj) 149, the Hon'ble High Court of Gujarat elaborately considered the various questions and issues and ultimately decided the question in favour of the assessee, identical issues and questions are present in the instant case. 9.47 Undisputedly, the case of the appellant was under scrutiny assessment for two consecutive years i.e. in A.Y 2006-07 and 2007-08. It is self evident from the above referred assessment orders u/s. 143(3) that the books of accounts of the appellant were accepted in all these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clared by the appellant in its books of accounts was not accepted by the other Revenue Authorities such as Sales Tax Department or the Excise Department. The case of appellant finds support from the decision of Hon'ble High Court of Gujarat in COMMISSIONER OF INCOME TAX vs. SANJAY OIL CAKE INDUSTRIES (2005) 197 CTR (Guj) 520 : (2005) 149 TAXMAN 190: 9.52 I am convinced with the reasons for variation in power consumed in comparison to the production in different periods which could be on account of furnace condition, quality of raw material used, labour productivity, incoming voltage, breakdown time, etc. Due to the above reasons, monthly consumption of power may vary. Undisputedly, the statistics of power consumption and production and the similar variation existed even during the course of assessment proceedings u/s. 143(3), but no adverse inference had been drawn in those assessment proceedings u/s. 143(3). It is gathered that the appellant has maintained regular books of account and sales/purchases are verifiable and vouched, recorded and supported by raw material consumption register and finished goods register and was also subjected to excise duty and its production declar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the leading decision on the point is the one rendered by the Privy Council in CIT vs. Laxmi Narain Badridas (1937) 5 ITR 170 (PC) : TC11R. 192, reversing Laxmi Narain Badridas vs. CIT (1934) 2 ITR 246 (Nag) : TC11R.201 and approving Abdul Baree Chowdhury vs. CIT (1932) 5 ITC 352 (Rang). In this decision rendered under the provisions of the 1922 Act, it was observed : He (the assessing authority) must not act dishonestly or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other materials which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work. These observations received the imprimatur of the Supreme Court in State of Kerala vs. C. Velukutty (1966) 60 ITR 239 (SC) in the following words : The Privy Council ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was held by the Calcutta High Court that the ITO acted illegally. As assessment has to be completed on the basis of records and material available before the AO and personal knowledge and excitement on events and extraneous facts should not lead the AO to a State of affairs where the salient/primary/direct evidences are overlooked and should not influence the AO for resorting to ad hoc additions/disallowances. If general/casual/routine observations of the AO are to be considered as material evidence for the purpose of framing an assessment, the AO shall have blanket and arbitrary powers to dispose of the scrutiny assessments according to his whims and fancies which is not the spirit of the circulars issued by the Board on scrutiny assessment. An assessment cannot be made arbitrarily and in order that an assessment can be sustained, it must have nexus to the material on record. (CIT v. Mahesh Chand [1983] 199 ITR 247, 249 (All.). It is the settled position that, though the AO has very wide powers and is not fettered by technical rules of evidence and pleadings, there is one over-riding restriction on his judgement and that is, that, he must act honestly and diligently on the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of additions/disallowances dehors any reference to incriminating documents in unabated assessments covering AY 2006-07 to AY 2009-10 in question. 14. When the matter was called for hearing, the learned CIT-DR for the Revenue, at the outset, strongly relied upon the factual matrix discussed in assessment orders in question. As regards legal objection of the Assessee, it is the case of the Revenue that discovery of any incriminating document is not a condition precedent to make assessment under s. 153A of the Act. It was thus contended that the AO and the CIT(A) rightly observed that the issue of warrant of search and seizure under s. 132 of the Act sufficiently empowers the AO to initiate the proceedings under s. 153A of the Act and to make all consequent additions/disallowances regardless of presence of incriminating documents or otherwise. It was submitted that the only condition for initiation of proceedings under s. 153A of the Act is occurrence of a valid search under s. 132 of the Act. It was reiterated that Section 153A of the Act does not provide that assessment/re-assessment should be based on 'incriminating material' alone and the AO is empowered to assess or re- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The documents found supports the entries made in the books. Hence, the assessments for AYs 2006-07 to 2009-10 in question which stood concluded and remained unabated is barred by principles of finality and could not be disturbed by the AO in the absence of the incriminating material. 15.2. To buttress the legal position that presence of incriminating material discovered in the course of search as a sine qua non for additions/disallowances in respect of unabated assessment, the learned counsel for the assessee relied upon the decision rendered in the case of Kabul Chawla (2016) 380 ITR 573 (Del); Pr. CIT vs. Meeta Gutgutia (2018) 96 taxmann.com 468 (SC) and series of other decisions in large numbers governing the field. In the light of judicial view, it was thus asserted that in the absence of any incriminating material found in the course of search, the action of the AO to make additions is a complete non-starter. The time limit for issuance of notice under s. 143(2) of the Act is either expired at the time of search or the assessments were concluded under section 143(3), as the case may be, and hence could not be disturbed for making additions of regular routine nature merely on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee submitted that the assessee has made several pro-active requests before the AO during the assessment proceedings some of which are noted hereunder as referred; (a) To provide the assessee company with the copy of all the letters sent by the Ld. AO to the investors/share applicants regarding investment made in the shares of assessee company. (b) The assessee company may kindly be appraised with the cases i.e. the name of the company on whom letter sent by the Ld. AO remained un-served. (c) The assessee company may kindly be made known with the reason communicated by the Postal Department behind non-service of the letters sent by the Ld. AO. (d) The assessee company may kindly be confronted with the enquiry conducted by the Ld. AO regarding yield of assessee company and basis of inference of 60% in Sponge iron unit. (e) The assessee company may also be confronted with the enquiry conducted by the Ld. AO regarding addition to share application/share capital. 15.5. It was next pointed out that assessment of the assessee was duly completed under s. 143(3) of the Act for A.Y. 2006-07 A.Y. 2007-08 prior to search and the issue of receipt of share application money had already bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds reopened. Once the assessment is reopened, the A.O. has full powers to assess the income which has escaped, whether found as a result of search or otherwise. Accordingly, the additions made by the A.O are within the powers assigned to him u/s. 153A and for this reason, this ground of appeal is hereby dismissed. 16.3. We have examined the legal objection on jurisdiction to make additions independent of incriminating material found in the course of search. The issue is no longer res integra and answered in favour of the assessee by large number of judicial precedents. As consistently echoed by the Hon'ble Courts of different jurisdiction, the scope of search assessments under s. 153A of the Act in respect of concluded and unabated assessments is narrower in its sweep and restricts the right of the AO to examine the issue emanating from some incriminating material. 16.3.1. We shall first refer to the decision of Hon'ble Delhi High court in the case of Pr. CIT vs. Meeta Gutgutia (2017) 395 ITR 526 (Del). The Hon'ble Delhi High Court referred to the judgment in the case of CIT vs. Kabul Chawla (2016) 380 ITR 573 (Del); Pr. CIT vs. Saumya Constructions Pvt. Ltd. (2016) 38 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of some incriminating material unearthed during the course of search or requisition of documents etc. The Hon'ble Gujarat High Court noted that the trigger point for exercise of powers under s. 153A of the Act is a valid search under s. 132 of the Act or a requisition under s. 132A of the Act. Once a search or requisition is made, the mandate is cast upon the AO to issue notice under s. 153A of the Act and complete the assessment of 6 assessment years. The Hon'ble Gujarat High Court took note of the fact that object of scheme legislated for assessment in search cases is to bring to tax the undisclosed income which is found in the course of or pursuant to search or requisition and therefore additions/disallowances must be linked with search/requisition. It was noted by the Hon'ble Court that additions made on the basis of some materials collected by the AO much subsequent to the search is not permissible. 16.3.4. Similar view has been expressed in catena of decisions viz; Pr. CIT vs. Deepak J. Panchal (Guj) 397 ITR 153 (Guj); Chetnaben J. shah vs. ITO Tax Appeal No. 1437 of 2007 judgment dated 14.07.2016; CIT vs. Continental Warehousing Corporation (2015) 374 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment i.e. AYs. 2006-07 to 2009-10 in instant appeals, are not permissible in law. The burden of proof towards existence of undisclosed income discovered as a result of search is on the Revenue. No evidence has been referred to by AO or brought on record as claimed to be found at search of assessee to suggest existence of undisclosed income as perceived by the AO. The Revenue has failed to rebut the factual assertions made on behalf of the assessee towards non-discovery of incriminating material at the time of drastic action of search on assessee and reference thereto in assessment order. There is nothing on record that information contained in seized documents as per list of inventory, were not recorded or reflected in the books of accounts. Hence, the action of the AO towards making additions in respect of concluded assessments towards undisclosed income is contrary to the judicial dicta. Accordingly, we are of the view that various additions/disallowances made by the AO are clearly beyond the scope of authority vested under s. 153A of the Act without discharging the burden to show presence of any incriminating material or evidence deduced as a result of search in so far as comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt out of it relate to or suggest that any undisclosed income of these persons has been routed back in the form of share application money. (Para 4.4 on page No. 9) The present action of the A. O is not culminating from any specific finding against the appellant that it was a beneficiary of any racket which has been unearthed as a result of search proceedings nor has the A. O brought on record any other evidence to indicate that the appellant did make undisclosed income and such evidence came on the surface as a result of search proceedings. In this background, in my considered view, there is no scope and reason to take a contrary view than that taken by the then A.O without there being any documentary evidence against the appellant to demonstrate that the share application money was nothing but undisclosed income of the appellant. (Para 5.11 on page No. 16) In my considered opinion, apart from drawing presumptions, the AO has not brought any clinching material or evidence on record to prove that the said share capital money belongs to the appellant since no nexus has been established that the money for augmenting the investment in the business has flown from appellant's own mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merits without demur. The objection of the Revenue is found to be unsubstantiated and dehors the tell-tale evidences and hence not sustainable. We thus decline to interfere with the view expressed by the CIT(A) on merits of additions. 20. We now advert to the second issue concerning additions on low yield in various assessment years in question. 20.1. The AO made an addition of 72,19,622/- on account of low of yield declared by the Assessee in sponge iron division for A.Y. 2007-08 and similar additions were also carried out on the ground of low yield in other assessment years in question. It is the case of the assessee that allegation of the AO is totally unsubstantiated and is wholly in the realm of surmises and conjunctures without any iota of evidence against the assessee. 20.2. The Assessee has raised two fold submissions to defend his stance. One, in the absence of incriminating material, no addition is permissible in law on account of low yield at least in the unabated assessments from 2006-07 to AY 2009-10 in question and secondly, yield and book result declared by the assessee is corroborated by the underlying evidences and also comparable with other manufacturers as exami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjectively, the CIT(A) rightly concluded that the action of the AO in rejecting the books of accounts merely owing to the reason that yield achieved by the assessee is less than standard yield percentage i.e. 60% which has not been achieved even by other assessee engaged in similar line of business. While concluding in favour of the assessee the CIT(A) also observed that the AO has not brought on record the manner in which he worked out the standard yield of 60% of sponge iron. The basis for determining standard yield @ 60% of input was not given despite repeated request by the assessee either. 21.1. We observe that the CIT(A) has capsulated the findings of the AO and reproduced the tabulated statement wherein year-wise yield of finished goods (sponge iron) shown by the assessee were compared with the an innocuous standard of 60% set by the AO. The AO consequently calculated the difference in the actual production vis- -vis standard production [yield of 60% considered as standard production] and computed the value of difference in actual production versus standard production as unaccounted production/sales in respective assessment years. We similarly observe that the CIT(A) has als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inally lower yield at some instances. It was thus noted by the CIT(A) that the percentage of yield cannot be said to be sole decisive factor while assessing reliability of books of accounts and merely low yield cannot lead to an indefeasible presumption with books of accounts of the assessee are unreliable and true profit earned by the assessee cannot be deduced therefrom. In para 9.9 of its order, the CIT(A) has made reference to the excise records maintained by the assessee and the returns filed with the Central Excise Authority on monthly basis and daily basis. On analysis of such records, it was found to be tallying with the financial records. (v) The CIT(A) also took cognizance of the fact that capacity utilization in an industry depends on number of working days and in the case of assessee where the kiln used for manufacturing of sponge iron need to be shut down periodically, the production operation consequently halts and effect the yield. The CIT(A), thereafter, observed that no infirmity in the details furnished by the assessee has been found by the AO in this regard. (vi) The assessee has brought on record the certificate from registered valuer according to which the aver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse of search and the explanation of the assessee were test checked with reference to seized material, books of accounts, bills/invoices and other evidences and found to be satisfactory. It was further noted that the AO has not pointed out any infirmity in the explanation of the Assessee. 21.4. The CIT(A), in our mind, has analysed the factual matrix threadbare and passed a very speaking order. Without repeating all the observations of the CIT(A), we find ourselves in complete agreement with the conclusion drawn by the CIT(A). The CIT(A) has objectively analyzed the factual situation and found complete absence of any adverse material against the assessee which can support the allegation of the AO towards unaccounted production presumed on the basis of alleged low yield declared by the assessee. On facts, the CIT(A) has found that the yield declared by the assessee is neither low nor the book results could be impeached by some tangible material to indulge in rejection of books of accounts. We are unable to discern any error whatsoever in the process of reasoning adopted by the CIT(A) while reversing the totally untenable action of the AO. We, thus, decline to interfere with the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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