TMI Blog1997 (4) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of production: Rs. 20,00,000 ------------- Rs. 63,45,896 ------------- 5. The learned CIT (Appeals) deleted the first two additions aggregating to Rs.43,45,896 against which the Revenue is in appeal while against the confirmation of addition at item No. 3, i.e., Rs.20,00,000 the assessee is in appeal. 6. For the second assessment year 1986-87, the Assessing Officer has made the following additions: 1. Inflation of consumption of silver-foils Rs. 36,33,684 2. Inflation of consumption of other raw-materials Rs. 11,69,949 3. Suppression of production: Rs. 24,00,000 ------------- Rs. 72,03,633 ------------- 7. The learned CIT (Appeals) deleted the first two additions aggregating to Rs.48,03,633 and confirmed the addition of Rs.24,00,000 at item No. 3. The Revenue is in appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either the tins are weighed nor the tobacco split at the time of sealing the tins." The Assessing Officer also relied upon the statements of the employees, viz., S/Shri Baldev Budhalal Prajapati and Pravinbhai Naranbhai Shrimali, recorded ex parte behind the back of the assessee in the course of proceedings under section 132(5) of the Act. 9. The Assessing Officer has mentioned excess stock of silver-foils at different stages as below: (a) Value of silver-foil determined in section 132(5) proceedings Rs. 49,73,544 (b) Value of silver-foil admitted by the assessee in section 132(5) proceedings Rs. 41,98,752 (c) Stock of silver-foils on the date of search Rs. 34,17,899 The Assessing Officer worked out the excess quantity of silver-foil with reference to the facts of various constituents elements of the mixture in S.Y. 2042 i.e., assessment year 1987-88. He observed from the consumption figures of that year as under: "Thus during S.Y. 2042 the total tobacco mixture prepared by, the assessee was 4,44,617 Kgs. This mixture contained 3,77,340 Kgs. of tobacco which is 84.86854%. This percentage is applied to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of other raw materials is accordingly made." 12. On the same analogy, he made an addition of Rs.11,69,949 during the assessment year 1986-87. 13. The third major addition made by the Assessing Officer relates to suppression of production. He has discussed this issue in para 8.1 of his order. The Assessing Officer noted two types of shortages during assessment year 1985-86 as follows: 1. Wastage of raw tobacco 10,809 Kgs. 2. Difference in production 14,416.300 Kgs. The Assessing Officer accepted the wastage of raw tobacco of 10,809 Kgs. in the nature of wasted tobacco which could not be used. However, according to him, the wastage during the manufacturing process was on the higher side. He restricted the same to 4,416.300 Kgs. and made an addition of Rs.20 lacs (10 X 200) for excess shortage observing as under: "At the time of my visit to the factory on 20-2-1989, it was observed that the shortage due to the above processes was very limited and cannot exceed 4,416.300 Kgs. even by the most liberal estimate. The suppressed production, therefore, works out to 10,000 Kgs." 14. On the same analogy, he made an addition of Rs.24 lac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hold the addition of Rs.20,00,000 in relation to the extra production not declared." 18. Shri M.S. Rai, the learned DR drew our attention to para 3.1 of the ITO's order and submitted that the Assessing-Officer has gone step by step and has rightly held that there was inflation in respect of use of silver-foil and other raw materials and the shortages claimed by the assessee were excessive. He submitted that during the course of search at the business premises of the assessee and residential premises of the partners from 13-11-1987 to 15-11-1987 showed the existence of excess stock and the results of the raid cannot be ignored/brushed aside. He submitted that the assessee was indulging in inflation of various ingredients used in the process of manufacturing of chewing tobacco and the manufacturing process being the same the results of the search-year are very important as guide for the additions made by the Assessing Officer during the years under appeal. He further relied upon the fact that the Assessing Officer visited the factory premises of the assessee on 20-2-1989 and saw/verified for himself various stages of the manufacturing process and in each stage he observed discrepa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hewing tobacco since 1964 and all through it has maintained an accepted history. The learned counsel further submitted that consistently both as to raw materials and finished products, the Excise Laws are applicable and the assessee is regularly maintaining different prescribed registers showing full particulars of purchase, consumption stock, output etc. of the said raw materials as well as the finished products. Complete excise records were produced before the Assessing Officer by way of xerox copies and in this connection he drew our attention to the following submissions made before the CIT (Appeals) as contained in the statement of the case: "The only ground for these proposed additions were non-production of excise registers and non-maintenance of quantity records at different stages of mixing and also on the ground that tobacco was found in less quantity at the time of search in 1987. Reply to the show-cause notice was given and Excise records were also produced along with the books at the time of hearing from time to time. Xerox copies of the Excise records were also given before the assessment order is passed. In the show-cause notice it was mentioned that 221 bags of to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vour of the assessee could not have been ignored. The learned counsel further submitted that all purchases and sales were duly vouched and shortages at different level prove to be normal mode of measurement, weighment etc. at different steps is the same as in the past. The learned counsel further submitted that the evidence in the form of statement of employees is not relevant as they were recorded after several years and they were not cross-examined either in the course of proceedings under section 132(5) or were presented for chief-examination etc. in the course of proceedings under section 143(3). Similarly, the panchas, though requested, were not examined in section 132(5) proceedings or thereafter. 21. As regards the additions on account of excess shortages during the two years under appeal, the learned counsel for the assessee submitted that the shortages are proved to be normal taking into account the shortage of the preceding year for which full details were given before the Assessing Officer and the CIT (Appeals). He submitted that in the immediate preceding year i.e., assessment year 1984-85 the overall shortage was claimed by the assessee at 6.83% which was accepted. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same could not have nexus with the present two assessment years under appeal. The mere stigma of search and seizure carried on after a long lapse of time from the close of the two assessment years under appeal cannot be the basis for the impugned additions when the assessee placed all facts/ evidence with regard to the business carried on by it during the two years under appeal. 24. The second base for making the impugned additions is the observations and the impressions gathered by the Assessing Officer when accompanied by his Inspector who visited the factory premises of the assessee on 20-2-1989. Obviously, the visit was paid after a long lapse of time from the close of the accounts of the two years under appeal and search operations carried on from 13th to 15th November, 1987. The Assessing Officer spent a few hours at the business premises of the assessee and observed manufacturing process and thereafter he has invented certain tailor made formulae like the one i.e., that there should be uniform consumption of 0.94% of silver foils and that the assessee had inflated raw materials (other than tobacco and silver foils) by 5%. In our view, there is no justification for suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is and he was not acting according to the provisions of the statute." Further, in the case of Jhandu Mal Tara Chand Rice Mills v. CIT[1969] 73 ITR 192, the Hon'ble Punjab Haryana High Court has held as under: "The accounts of the assessee were accepted in all years up to and inclusive of 1957-58 but in 1958-59 the ITO rejected the accounts and applied the proviso to section 13 on the grounds that no day to day dryage register had been maintained and that in another case the yield proposed to be adopted by him was held to be reasonably by Tribunal, and added Rs.32,053 to the income disclosed by the assessee. The Appellate Assistant Commissioner on appeal, confirmed the applicability of the proviso to section 13 but reduced the addition to Rs.15,000. The appeal to the Tribunal was dismissed. On a reference-- Held (1) that the method of accounting adopted by the assessee having been accepted by the department in the previous years and the income computed on that basis, there were not sufficient grounds for applying the proviso to section 13 to the facts of the case. (2) that even assuming that the proviso was attracted, the income tax authorities not having determined in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years. The Revenue wanted to have further clarification from him and question No. 68 was put to him which is as follows: Q. 68. I am again showing to you the statement of Pravinbhai Naranbhai Shrimali. You peacefully read this statement. In question No. 3 of this statement, Shri Pravinbhai has stated that you are mixing in tobacco the masalas, perfumes, Glycerin and other mixable item and on 15 Kg. of tobacco in No. 135 product, 16 folds i.e., 120 gms. silver foil using. Is it true? A. 68. The statement which is shown to me, they are doing work of opening the foil and they are not doing this work. I do not agree with it. From the above answer given by Shri Nanubhai it can be seen that he has categorically mentioned about his disagreement with the statement of Pravinbhai and so the conclusion drawn by the Assessing Officer from the statement of Nanubhai is factually not correct. It is further noted that Pravinbhai and Baldevbhai both have admitted in their statements that they were merely opening varakh (question No. 2 in the statement of Baldevbhai and question No. 5 in the statement of Shri Pravinbhai). Further both were getting Rs.20 per day and this shows that they wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of inferior quality the worker has given use of 16 Gaddies. According to the assessee in brand No. 360,30 Gaddies are used. The above facts show that the two Gumastas of the assessee were only workers and did not know anything about the mixing up of silver foil and placing reliance on their statements which remain unsubstantiated, is unwarranted. It is further noted that the above statements of the workers are also not correct so far as the consumption of silver foil in relation to 15 Kgs. container. The container which the assessee was using is not of 15 Kgs. but is of 12.6 Kgs. and this was pointed out to the ACIT at the time of his visit to the factory of the assessee and he was also asked to take note of the same but he did not deliberately mention the same in the assessment order. This is clear from the reply to show-cause notice submitted to the Assessing Officer. Further, the Assessing Officer ignored the consumption of silver foil which were actually found from the register found from the cupboard of the assessee's residence and which tallies with the books of account. This register which is seized material is a vital piece of evidence and cannot be ignored. It is noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ials. We accordingly uphold the findings of the CIT (Appeals) in deleting the additions for alleged inflation of raw materials. The view that income cannot be estimated by applying a tailor-made formula, stands supported by the decision of the Tribunal, Ahmedabad Bench "B" (V.P. as a Third Member) in the case of Rakeshkumar J. Gupta v. IAC [IT Appeal No. 1136 (Ahd.) of 1993 dated 28-4-1995 to which both of us were parties. 29. Coming to the additions on account of excess shortage claimed by the assessee we find some merit in the case of the Assessing Officer. But in our view, the additions of Rs.20 lacs and Rs.24 lacs made by the Assessing Officer for two assessment years 1985-86 1986-87 respectively and confirmed by the CIT (Appeals) are on the higher side. As stated above, the assessee claimed two types of shortages viz. a shortage of 10,809 kgs. of raw tobacco. This shortage has been allowed by the Assessing Oficer. The other shortage claimed was during the process of manufacturing which was claimed at 14,416.300 Kgs. This gives a percentage of 3.6%. This shortage was during the course of manufacturing process by way of evaporation of different ingredients and raw materials ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 139(8) and 215 of the Income-tax Act". The same is accordingly restored to his file for fresh adjudication after giving an opportunity of being heard to the assessee. 32. In the result, the Revenue's appeals are dismissed and the assessee's appeals are allowed in part. Per Shri Phool Singh, Judicial Member 33. I had the privilege to go through the draft order prepared by my ld. Brother, Shri B.L. Chhibber, Accountant Member in these Cross Appeals of revenue and the assessee relating to assessment years 1985-86 abd 1986-87 and had discussed the matter in detail relating to certain additions made by the Assessing Officer (hereinafter referred to as Assessing Officer) in both the assessment years and deleted/confirmed by the ld. CIT (Appeals) and after two-three sittings with learned Brother, I was not able to convince myself with the findings arrived at by him on those additions and thus I am writing this dissenting order. 34. As mentioned in the draft order, the Assessing Officer has made the following additions in assessment year 1985-86:-- 1. Inflation of consumption of silver-foils: Rs.34,71,505 2. Inflation of consumption of other raw-materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9, 65 etc. The basic raw material used for manufacturing of chewing tobacco consists of raw tobacco, perfumes, menthol, silver foils, glycerine, masala, keshar etc. The issues involved before us are of S.Y. 2040 ending on 24-10-1984 relevant to assessment year 1985-86 and S.Y. 2041 ending on 12-11-1985 relevant to assessment year 1986-87. The assessee filed return of income for assessment year 1985-86 at Rs.33,31,230 which was revised to Rs.33,31,730 and income shown in the return for assessment year 1986-87 was at Rs.51,81,270. There was a search operation under section 132 of the ITAT, 1961 (herein after referred to as the Act) at the business premises of the assessee-firm as well as residential premises of its partners and other connected persons between 13th to 15th November 87 in which unaccounted cash, valuables, excess stock, books of account etc. were found and seized. Statements of some of the partners of assessee-firm as well as some of the employees engaged in the manufacturing of Jafrani Patti, were recorded under section 132(4)/131 of the Act and order under section 132(5) of the Act was framed and served on the assessee in which different types of additions were propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ----------------------------------------------------- 1. Tobacco 3,25,991.000 38,90,040 2. Perfume 24,775,350 67.60% 21,64,696 3. Silver foils 3,814.100 1.17% 1,76,52,869 4. Menthol 7,171.800 2.20% 33,34,887 5. Masala 8,149.800 2.50% 7,41,632 6. Glycerine 25,427.300 7.80% 8,39,101 7. Kesar 40,750 0.0125% 4,07,500 Total --------------- ---------- -------------- consumption: 3,95,370.100 3,90,30,725 ---------------- ----------- -------------- --------------------------------------------------------------------- 40. After going through the figures from File A-10 and on the basis of his observations at the visit of factory premises of assessee, the Assessing Officer was of the opinion that assessee had been showing the consumption of different raw materials on estimate basis and closing stock of different raw materials reflected in the books of account was not real. He gave out the details of raw materials including toba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances, the Assessing Officer made an addition of Rs.36,33,684 value of 730.242 kgs. of silver foil in assessment year 1986-87. 42. Both these additions were assailed through two appeals and the CIT (Appeals) heard both the appeals together. The assessee took several legal as well as factual pleas. It was contended by the assessee-firm that in view of the reasoning of Hon'ble Supreme Court in the case of C. Velukutty the Assessing Officer was not justified to base his conclusion on the result of search and seizure which took place in November, 1987 which was much after the previous year under assessment was over. In the same way inspection of the factory was made by Assessing Officer in February, 1989 just after 4 years of said search and that was also not to be relied upon by the Assessing Officer. The other legal point was that the Assessing Officer wrongly placed reliance on the statements of employees of assessee who were not concerned with the actual mixing of silver foils or mixture of tobacco nor they were examined in the presence of any partner of the assessee. The Assessing Officer has also not given any opportunity to assessee to cross-examine those employees. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue there was ficticious debate to reduce the profit. It has rather been found out that such excess stocks were found on physical checkup which too reflect that they must have been accounted for. It is not the case of the Officer that there was extra investment in the extra silver foils. The inflation of extra consumption of silver foils if duly accounted for would only result in extra production for which the addition has been separately made. There is also force in the contention of the appellant that the variation may be because of the variation in the weight in terms of quantity as per tin and due to uniform application of consumption of silver foil to all brands of tobacco, which need different ratio and mixing of silver foil as already evidenced by the statement of brandwise mixing reproduced in para 6. In view of the aforesaid inference which can reasonably be drawn from the facts given above, there is no case of addition on account of inflation of silver foils. There would be relief of Rs.34,71,505." The above order shall show that CIT (Appeals) deleted this amount in just 20-22 lines only without going into the necessary details. This order is challenged by the revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raw materials, including silver foils were duly vouched and no justification for adverse inference against such correct accounting was called for. He pointed out that Assessing Officer was not justified in placing reliance on the statements of employees without affording an opportunity to assessee for their cross-examination. In the end it was the substance of the ld. counsel for assessee that the order of CIT (Appeals) is based on sound footings and deserves no interference. 47. After going through the rival submissions of the ld. representatives of both the parties and on the basis of materials to which may attention was drawn during the course of arguments, it is significant to point out that the first point requiring scrutiny is whether the Assessing Officer was justified in rejecting the book results of the assessee-firm and in case the answer is in affirmative then the reasonableness of the addition is to be examined. 48. To begin with, the first plea from the side of ld. counsel for assessee before CIT (Appeals) against the action of Assessing Officer in rejecting the book results was that the assessee was a well established firm subject to IT assessment since 1964 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee firm, Mr. Thakkar admitted that he and his family members had been concealing the income from income-tax. Mr. Thakkar mentioned that his concealed income to be treated as number 2 income and in reply to question No. 59 he had mentioned that Babul Products had made Rs.21 lakhs No. 2 income since 1981. The A.D.I. tried to enquire from him about the modus operandi to earn No. 2 income but this witness did not yield though admitted further that their family members had purchased bearer bonds worth Rs.1.93 crores prior to assessment year 1985-86 from No. 2 income (see answer No. 42 dated 14-4-1987). He further admitted that different family members and partners of assessee-firm had declared No. 2 income under Amnesty Scheme in assessment year 1985-86. Further this partner of assessee firm admitted excess stock of Rs.50 lakhs which was ultimately rest at Rs.40 lakhs in reply to question No. 77 recorded on 14-11-1987 itself. These three sets of answers if read together, go to show that partners of the assessee-firm were generating No. 2 income (black money) out of assessee-firm since 1981 onwards as is evident from the above referred to disclosures. The A.D.I. put up specific qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. No weight is taken either of the impurity or of the mixture, 8. Fixed quantity of silver-foils cut into small pieces is added to the tobacco mixture, but neither the silver foil added are weighed nor the final mixture, 9. 50 gms or 10 gms tins are manually filled with the final mixture and the tins are sealed. Neither the tins are weighed nor the tobacco spilt at the time of sealing the tins. 53. These observations have not been alleged to be against facts by assessee and thus the Assessing Officer was justified in observing that quantity of consumption of different raw materials prepared by the assessee was only theoritical or estimate and closing stock of different raw materials reflected in the books cannot be treated as real or correct. 54. Apart from the above, excessive consumption of raw materials particularly use of silver foils proved by Assessing Officer in his order for the following reason is another factor which goes to show that book results of the assessee-firm was rightly rejected by Assessing Officer. 55. In this case statements of two employees of the assessee-firm Baldevbhai V. Prajapati and Pravinbhai N. Shrimali were recorded under section 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90 gms. --------------------------------------------------------------------- Q.7 Is the proportion of silver varakh shown in above tobacco perfectly right? A.7 According to my knowledge, it is a right proportion. Pravinbhai Naranbhai Shrimali Q.2 Since how many years are you working in factory of M/s. Babul Products? A.2 From 1-12-1983 I am working in this factory. I have got identity card of factory and this date is written in that. In reply to question No. 4 he gave out the process of mixing as follows:-- A.4 First of all tobacco is put in mixture machine thereafter Maganbhai Sheth or Nanubhai Sheth is giving some masala that is mixed with that and therefore mixture machine is operated. After mixing products we are sifting that product and thereafter big drum is filled. From the drum product is put in Aluminium big dhaki (Tasak). This product is spread up this drum and three tagaries at a time filled in Dhaki (Tasak) the weight of which is estimated about 15 Kgs. Thereafter in this mixture which is about 15 kgs. Varakh is added in that, the proportion of which is as under:-- --------------------------------------------------------------------- No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------- Above three weights are done by myself as sample which are true and correct. Ultimately A.D.I. further asked question No. 18. Q.18. Since you have joined the service whether the proportion of mixing varakh in tobacco has remained same? A.18 Yes, we are mixing in the same proportion. The plea of the learned counsel for assessee before CIT (Appeals) and before us was that both the employees were not at all concerned with mixing silver foils in the mixture and were simple labourers earning Rs.20 per day and were not in service even in the relevant period to assessment years under consideration. These arguments of the learned counsel are apparently forceless. Statements of the two witnesses were recorded on 13-11-1987 and 14-11-1987 and one of them stated to be working in the firm for last six years and the other joined on 1-3-1983. It means both were working for good length of time and as per their admissions they were doing the work of mixing of silver foils as apparent from underlined sentences of their answers. The way these two witnesses have given the number of Gaddies being used in different brands of tobacco along with specific weight of those gaddies had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thakkar gave the answer which are as follows:-- Q. 68 I am again showing to you the statement of Provinbhai Naranbhai Shrimali. You peacefully read this statement. In question No. 3 of this statement, Shri Pravinbhai has stated that you are mixing in tobacco the masala, perfumes, glycerine and other mixable item and on 15 Kgs. of tobacco in No. 135 products, 16 flds i.e. 120 gms silver foil using. Is it true? A. 68 The statement which is shown to me, they are doing work of opening the foil and they are not doing this work. I do not agree with it. No doubt Mr. Thakkar denied the correct use of particular weight of silver foils given by Mr. Pravinbhai, it is nothing but retraction as he must have realised the havoc to be caused by his replies to question Nos. 66 67. The earlier answer given by this partner of assessee admitted the correctness of statement given by Pravinbhai has to be treated as correct first hand version while the other denial is nothing but an afterthought self serving device. Even otherwise also, if Mr. Thakkar was not in agreement that 16 folds of 120 gms. of silver foils were being used in 15 Kgs. of tobacco in brand No. 135 he should have given ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contention of the ld. counsel is accepted for the sake of arguments, still that will be having no impact as Assessing Officer has worked out the ratio of consumption of silver foils taking the use of 16 gaddies even in inferior quality of tobacco brand Nos. 90 and 65 even though the employees stated that 10 gaddies were being used in those brands of tobacco. If the best quality of brand No. 460 and 390 were using more silver foils then 16 gaddies as worked out by Assessing Officer, the same shall be compensated by the working out of 16 gaddies rate applied to inferior quality of brand No. 99 and No. 65. The result will be the same. Assessing Officer has observed that most of the production is of brand 135 i.e. why rate of gaddies used in that brand of tobacco is applied for working out the ratio of consumption of silver foils and thus statements of those two employees were not going to be rejected on the pleas raised by the ld. counsel. 60. On the basis of above discussions in which I have considered the statements of the employees and the same duly coupled with the admission made by Nanubhai B. Thakkar and duly corroborated by physical verification of consumption of silver f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and further the way the Assessing Officer has worked out the ratio of consumption of silver foils in the years under consideration is based on the facts and figures and on the basis of statements of concerned employees duly corroborated by admission of one of the partners and as a result of actual experiments and thus it is not to be treated as tailor-made formula. 63. An attempt was also made by the assessee to mention that statement of employees about consumption of silver foils in relation to 15 Kgs. container has wrongly been noted while contentions were of 12.6 kgs. This does not appear to be correct as search party noted the result after practical experiments during the statement of Pravinbhai N. Shrimali. 64. The ultimate conclusion on the basis of above is that I am in full agreement with the conclusion arrived at by the Assessing Officer on the correct rate of consumption of silver foils @ 0.94% and about the working of the additions for both the years which are hereby confirmed and this ground of revenue in each appeal stands allowed. 65. The next addition relates on account of inflation of consumption of other raw materials to the extent of Rs.8,74,391 for asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Appellate Tribunal with a request that the following question may be referred to a Third Member or to pass such orders as the President may desire: "Whether on the facts and circumstances of the case, the Assessing Officer was justified in making additions of Rs.34,71,505 and Rs.36,33,684 for the assessment years 1985-86 and 1986-87 respectively to the income declared on account of alleged inflation of consumption of silver foils?" THIRD MEMBER ORDER 1. In the referred question it is explicit that the learned Members differed on the issue of quantity of silver-foil (varakh) used in producing the 'Zarda' by the assessee in the two assessment years under appeal. After comparing the decision of learned Accountant Member and learned Judicial Member, I have no hesitation to say that the order of the learned Accountant Member is sound, logical and it is preferred to the decision of learned Judicial Member for the following reasons. 2. It emerges from the facts of the case that the addition was made in respect of consumption of silver foil. The following grounds have been taken as a bastion for making such addition:-- (i) Statements of several persons actually carryin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut this? A. The statement given by our helper Pravinbhai Narayanbhai is correct and acceptable to me. 7.4 In the second stage, physical verification of the actual consumption of silver-foil was carried out. For this purpose, the assessee's employee Pravinbhai was asked to carry out the process of adding 16 gaddis of silver-foil to 15 Kgs. of tobacco mixture. The result of sample checks carried out is reproduced below: ---------------------------------------------------------------------- "Weight of ready- Weight of ready- Weight Net weight made tobacco filed made tobacco of empty of tobacco in Aluminum drums filled in drum drums together with its together with 3 lids Tagaries with ready-made tobacco lids of drums ---------------------------------------------------------------------- 1. 18,500 Kgs. 20.700 Kgs. 5.000 Kgs. 15.700 Kgs. 2. 18,000 Kgs. 20.200 Kgs. 4.700 Kgs. 15.500 Kgs. 3. 18,100 Kgs. 20.100 Kgs. 5.000 Kgs. 15.100 Kgs. --------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or deposition of the employees for making addition for only difference of .2% is quite illogical and unjust. 3.4 Further it may be noted that in the deposition following weights of silver-foils had been given for mixture: -------------------------------------------------------------- S.No. Brand No. Silver-foil Weight of Gaddis silver-foil -------------------------------------------------------------- 1. 135 16 120 gms. 2. 99 10 75 gms. 3. 65 10 75 gms. 4. 380 12 90 gms. 5. 460 12 90 gms. -------------------------------------------------------------- 3.5 If a plain mathematical calculation is made it would be seen that the weights of the silver-foil given by the employees are erroneous. One gaddi is equal to 7.5 grams (120/16). If this rate is adopted 11 gaddis cannot be 90 grams because 7.5 x 11 would be 82.5 grams and not 90 grams as a stated by the employees. Again, if the Pancha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer realised that the questions were not properly asked in the context of the weight that he asked question No. 68 where the exact weight of silver foil for mixing had been enquired into. Had the first two questions been sufficient there was no need to ask another question starting at question No. 68. 4. In these circumstances, the addition made for only variation of .2% is uncalled for and unjustified. Moreover, the consumption claimed by the assessee is supported by the seized document captioned as "A9". It is pertinent to note that the consumption of silver-foil had been noted in the seized document captioned as "A9". The Assessing Officer had demolished this evidence by saying that they are merely estimate and not supported by any primary record maintained for this purpose. Surprisingly, he had not mentioned what is the primary record noted in this case. There is no dispute about the purchase of raw materials including the silverfoils and there is no evidence of Sale of silver-foils by the assessee, found at the time of search. 5. Again, there exists a fallacy in the order of the Assessing Officer in the context of consumption of silver-foils. There is no dispute abou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the actual consumption of silver foil at 16 gaddis of silver-foil to 15 Kgs. of tobacco mixture. It clearly shows that mixtures were made at the direction of the investigating officer. No evidence has been brought into record to show that the said mixture was similar to the products of the assessee sold in the market. The analysis made on the basis of the direction of the investigating officer cannot construe the real mixture of silver foils. No attempts have been made by the revenue to make a chemical analysis through specialist in respect of the finished products of the assessee to verify the correctness of the statement made by the assessee. 8. Looking to the totality of the circumstances, it cannot be said that any addition should have been made to the extent of .23% when everything is on estimate and no exact analysis of the final product is brought into record. 9. Now the opinion of the ld. Judicial Member is examined in seriatim. At para 50 of his order the ld. JM pointed out that one of the partners of the assessee-firm had admitted that be and his family members had been concealing the income from income-tax. In reply to question No. 59 he had mentioned that Bab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto record that the assessee had sold silver-foils for generating black money by claiming higher consumption rate on that account. No materials had also been brought into record th at the stocks shown in the relevant assessment year were untrue. If there is no dispute about the purchase of silver-foil and there is no material on record to illustrate that the assessee did not show the stock correctly in the relevant assessment year, the additions made by the Assessing Officer supported by the ld. JM cannot be accepted. 11. At para 52, the ld. JM depicted the observation of the Assessing Officer when he (Assessing Officer) visited the factory premises of the assessee. The ld. JM at para 53 observed that the observation from the demonstration had not been alleged to be against the facts by the assessee and thus the Assessing Officer was justified in observing that quantity of consumption of different raw materials prepared by the assessee was only theoretical or estimate and closing stock of different raw materials reflected in the books of account cannot be treated as real and correct. 11.1 As already pointed out earlier the demonstration of Assessing Officer only indicates tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TLR 70-75 (All.)]. 13. At para 56 the ld. JM had examined the question Nos. 66 and 67 put to the partner Nanubhai and his answers to them. He observed that no doubt in reply to question No. 68 the partner denied the correctness of use of particular weight of silver-foils given by the employees, it is nothing but retraction as he must have realised the havoc to be caused by replies to question Nos. 66 and 67. 13.1 It has already been stated earlier that the replies of Nanubhai did not go against the assessee's claim. It has already been pointed out that in reply to question No. 66 Nanubhai admitted only that there is no change of usage of silver-foil for last 5 years. Again in reply to question No. 67 he almost reiterated the same thing and there also he did not mention about the quantity of silver-foils used to be same as there was no specific question in this respect. Most probably, apprehending that the questions put to Nanubhai in question Nos. 66 and 67 were not complete ones the Investigating Officer put question No. 68 again in the context of the specific quantity. There, Nanubhai clarified the position about the quantity consumption. Therefore, the observation of ld. J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s shown by the assessee, was not correct and should not have been relied on. 17.1 As already discussed the admission of Nanubhai does not pertain to the quantity of silver foil consumed and the physical verification of consumption of silver foil should not be made as the basis because the analysis had been made on the direction of the A.D.I. and there is no evidence brought into record to show that the assessee is selling the product containing similar mixtures. 18. As to the reasonableness of the addition at para 61 the ld. JM again adopted the physical verification/experiment of actual consumption of silver-foils carried out by the employees between the recording of the statement under section 132(4). 18.1 This issue had already been discussed where it has been pointed out that the mixtures had been made at the direction of the searching party and no materials had been made at the direction of the searching party and no materials had been brought into record that the assessee is selling the products similar to the products produced at the time of verification. It has also been pointed out that the actual product produced and sold by the assessee had not been put into examin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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