9911796707
TMI Blog1999 (12) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... ions. 4. The facts, in brief, are that survey under s. 133A was conducted on business premises of the assessee on 24th Dec, 1996. Survey at dumps of rakhi was conducted on 4th and 5th Feb., 1997. At the same time, search and seizure operations were carried out at the residential premises of the partners of the firm and the last warrant was executed on 5th Feb., 1997. During the course of these operations, various books of account and documents were found and seized. The assessee was dealing in sale of rakhi, which was lifted from Balarpur Industries Ltd., Yamuna Nagar (for short BILT), through tenders. Notice under s. 158BC was issued on 23rd April, 1997, requiring the assessee to furnish return in Form No. 2B. The assessee sought extension of time and ultimately filed return on 8th Dec, 1997. AO issued query letter, dt. 29th Jan., 1998 and the assessee vide its reply dt. 13th Feb., 1998 contended that proceedings under the Act had become 'time-barred' by 31st Dec, 1997, and assessment could not be legally framed after that date in case of family members. AO considered this plea and for the reasons given in para 4.1 of order rejected the same. He observed that rakhi from BILT plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Department with the help of approved valuer, according to which, stock of rakhi was 26,02,115 cft. AO asked the assessee to get the stock reconciled with regular books of account, failing which adverse inference would be drawn. The assessee submitted that stocks were measured on 4th Feb., 1997 and physical verification to obtain percentage of usable material was done on 5th Feb., 1997 by the Department including the surveyor. The dump site was not exclusively related to Raj Pal Ashwani Kumar but also to Shakti Lime and Chemicals, S.K. Anand & Co., who purchased material from it for use of their own lime kilns after screening at the dump site. The assessee stressed that the site was not being used exclusively by Raj Pal Ashwani Kumar and, therefore, the material lying there did not belong to it only. The said fact was brought to the notice of the surveyor and the Departmental team which verified it. The quantity mentioned by AO comprised mainly of waste material left by different firms. AO observed that copies of measurements were supplied to the assessee on 2nd Sept., 1997 and 23rd Oct., 1997 and instead of getting the stock reconciled the assessee was trying to beat about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Ashwani Kumar and two others claimed a separate category D. However, no difference was found in the nature of stock of categories C & D. Therefore, in the survey report only category C has been adopted." AO held that the said letter of the surveyor was self-explanatory and did not support the conclusion of the assessee. The assessee had filed, a report of his valuer, Shri P.S. Chauhan, wherein he had considered category D at the time of measuring stock. The assessee had pointed out certain mathematical mistakes, as noted at pp. 7-8 of order. AO held that the assessee had not pointed out even a single mistake at the time of measurement. He, therefore, rejected the said contention. AO also noted the contention that the surveyor had tried to do certain manipulations deliberately and certain technical mistakes have been noticed by the technical team of the assessee. The surveyor had very smartly tried to omit heaps of category D, shown in the form of rectangles in the drawings. AO referred to the note given by the surveyor in report regarding physical verification of stock, when Shri Sanjay Anand and two others were present and claimed category D and that no difference was found in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancing figure) at Rs. 24,32,820. Similarly, he observed that purchases worked out in the chart at the time of computing income for asst. yr. 1997-98 were of Rs. 68.64 lakhs and profit @ 5.2 per cent as shown in earlier years worked out to Rs. 2,43,061. In view of the foregoing, AO observed that though the assessee had not shown any closing stock in earlier years worked out to Rs. 2,43,061. In view of the foregoing, AO observed that though the assessee had not shown any closing stock in earlier assessment years but there must be stock accumulated over a number of years which has not been disclosed. This fact got support, as it was inconceivable to imagine that the assessee could be selling of total recovery on day-to-day basis and then even recovery made during the last period of accounting year was also sold. The existence of stock itself indicated that total recovery was not sold on day-today basis but there was substantial quantity left over which had been suppressed from year to year. AO observed that the aforesaid stock position related to subsequent operations and not to the day of survey, i.e., 24th Dec, 1996, therefore, the same could not be considered under s. 158. Return f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock was to the tune of Rs. 66,17,486, which was available. He, therefore, reduced the above-mentioned addition from excess stock and arrived at a figure of Rs. 17,26,774, which was ultimately added to the income for asst. yr 1997-98. 5. Learned counsel Shri P.C. Jam referred in brief to the background of the case and submitted that the assessee is a partnership firm and it was buying cinder ash from BILT through tenders. The said ash contained some unburnt coal, which was useful for fuel energy. He referred to p. 28 of paper-book and submitted that the grading of material as done by the surveyor of the Department was not scientific. D category of cinder ash was only a dust and it had no value. Retrieval value of cinder is approximately 20 per cent and the same was physically verified by AO on 5th Feb., 1997, on the basis of samples of 50 'canastars' (tins) taken on that day. Throwing of ash/dust was a costly affair, with the result that the same was lying in heaps. He referred to pp. 38-40 of paper-book, in order to show that there was annual contract for sale of boiler cinder ash by BILT. A copy of tender notice published in the Punjab Kesari dt. 6th Aug., 1996 is placed at p. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For example, if four trucks of ash were sold, sales of Rs. 4,000 were entered in the books and sales tax paid thereon. The assessee also accounted for labour charges. With reference to wrt document No. A-1-2, learned counsel submitted that there were separate notebooks containing such entries of sales. He stressed that the assessee could not sell more than 165 MT per day and, therefore, bringing in any extra sale by AO was not correct. Inputs with reference to purchase of rakhi could not be more than 165 MT per day. Entries reflected in document No. A-1-2 could be extra profit, as extra work done by the assessee was written in the same. During asst. yr. 1991-92, contract for purchase of cinder ash was by other sister concern of Ved Kumar Sanjay Kumar, which assessment had been annulled by the Tribunal for want of satisfaction by AO under s. 158BD. There is no addition in the hands of the assessee during four years preceding asst. yr. 1994-95. Learned counsel referred to pp. 55-58 of paper-book, where certificates from paper-book certain purchasers are placed certifying that they were purchasing rakhi (cinder coal ash) from the assessee and they were getting about 25-30 per cent as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ategory C ash was that which had come down to the assessee for screening. He referred to the objections filed by the assessee vide reply dt. 24th Nov., 1997 at pp. 9-10 of paper-book, wherein it has been mentioned that 'the quantity urged by your honour comprised mainly of waste material left by different firms as explained, which was actually measured by the Department with full understanding of it to be waste but due to some unknown reasons has been added into actual figure of stocks to project the figure towards higher side. The material under consideration is nothing but material which is left behind after burning of coal in the paper mill. Therefore, it is natural that it contains 70-80 per cent as waste powder left by burning of coal called as 'Rakh'. This rakh is screened from total material and useable material is obtained with varying percentages from lot to lot'. He then referred to p. 12 of paper-book, where the assessee pointed out that the figure arrived at by AO could only be arrived at by merging categories C & D ash. It is further mentioned that the assessee wrote a letter to the concerned surveyor/ Department, wherein it asked to clarify merger of categories C & D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Department. It was a mockery of physical law. He emphasised on reply of the said surveyor that length and breadth was not possible and speculative measurement had been done. He referred to letter written by the assessee on 10th Feb., 1998, wherein it was submitted that Shri Garg surveyor had committed number of technical and arithmetical mistakes giving rise to serious doubts about his capability and the assessee had enquired regarding basis of approval given to the said surveyor. The assessee referred to its letter dt. 9th Nov., 1997 to Shri Garg, wherein it enquired about his qualifications etc. and pointed out that he had given no satisfactory reply. Learned counsel referred to letter dt. 17th Feb., 1998, written to AO, wherein criminal proceedings against the surveyor were proposed to be lodged. It was pointed out that Shri Garg had failed to furnish basis of approval, learned counsel submitted that AO is silent on these objections, though the same have been noted in order. He pointed out that the father of Shri H.S. Garg, i.e. Shri Didar Singh Garg, was holding a certificate as approved valuer and that his registration No. CA/76/3339 has been given on the letterhead at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of such material is approximately 18,10,748.3 cft lying on dump site as waste. He referred to the Stay Application No. 25/98 and submitted that the assessee had given an undertaking that if demand is not pressed the Department can take possession of the said material and adjust the demand out of recoveries made therefrom. He referred to p. 13 of paper-book, where the assessee requested AO to verify waste material by visiting the site. It was pointed out that even at present dump sites most of the material was waste, therefore, merger of such waste material into actual stock figures would only lead to a misrepresenting figure. Learned counsel referred to p. 220 of paper-book, where a copy of statement of material lifted as per books and as per calculations of the Department is placed. Total quantity of material lifted from BILT during year 1993-94 upto 24th Dec, 1996 has been worked out on the basis of 165 MT per day for 1,274 days at 2,10,210 MT. Sales at site for 365 days per year, as per bills, have been shown at 2,26,156 MT and sales at yard, as per Department, at 21,910 MT. Total sales come to 2,48,066 MT. Stock taken by the Department at site has been shown at 51,596 minus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en no disproportionate asset was found and seized by the search party except an amount of Rs. 16,000, which addition was subsequently deleted by CIT(A). It further observed that AO, instead of merely relying on the provisions of s. 132(4) should have pointed out some defects, deficiency with regard to the explanation given by the assessee in respect of transaction/asset found during search. The Tribunal concluded that in other words some collateral evidence should have been found out by AO; (vi) Dr. R.M.L. Mehotra vs. Asstt. CIT (1999) 64 TTJ (All) 259 : (1999) 68 ITD 288 (All); (vii) CIT vs. Wavin (India) Ltd. (1999) 155 CTR (SC) 164 : (1999) 236 ITR 314 (SC), wherein it was observed that '...........The computation of income is made in accordance with the method of accounting regularly employed by the assessee. It may be either the cash system where entries are made on the basis of actual receipts and actual outgoings or disbursements; or it may be the mercantile system where entries are made on accrual basis, that is to say, accrual of the right to receive payment and the accrual of the liability to disburse of pay. However, in both cases unless there is real income, there can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales of rakhi as mentioned in seized record were of screened rakhi, whose sale rate amounted to Rs. 35 to Rs. 45 per qtl and the balance amount represented truck freight and expenditure on carriage and running of trucks was almost equal to gross freight charges. AO did not accept that sale of rakhi was being made by Shri Oberoi, as Raj Pal Ashwani Kumar was dealing in sale of rakhi and the accounts of Shriniwas Chemicals and Khanna Lime appeared in document A-1-2. AO observed that entries recorded in document A-1-2 were partly recorded in regular books of the assessee-firm and others have been kept outside the books of account. Statement of Shri Oberoi was recorded on 6th Feb., 1998 and he replied that he was doing the business on site where stocks of Raj Pal Ashwani Kumar were lying. AO observed that Shri Oberoi could not tell the names of the customers to whom rakhi was sold. Shri Oberoi contended that he was purchasing rakhi from Bhatta mazdoors/labourers but he could not tell the names of Bhattas/brick kilns in which labourers were working. AO observed that Shri Oberoi was a student upto financial year 1996-97 and was attending classes in Sri Guru Ram Rai Public School, Dehradu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled. AO, therefore, treated the said amount as income of the assessee. However, no addition was made on account of these cash credits as the amount was available with the assessee out of sales made outside the books for which additions had been made in relation to asst. yrs. 1994-95 to 1997-98. 5.2. Learned counsel made almost the same submissions as had been made with reference to earlier additions. He referred to p. 220 of paper-book and submitted that as per calculations of the Department the assessee was producing cinder ash @ 227 MT per day, whereas on an average it was lifting cinder ash of 160 to 165 MT from BILT. The extra quantity taken at 60 MT per day worked out to 20,000 MT per year and the same was not practicable in the face of evidence that the assessee had procured 2,10,210 MT in 1,274 days from BILT during the period from 30th June, 1993 to 24th Dec, 1996. He, therefore, submitted that addition has been made by AO for the sake of addition only. AO had acted partly as an adjudicator but was also acting as a prosecutor. He submitted that balance approach of the Department is expected and that the assessee has discharged its burden. He relied on the case of Arumugha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be explained out of addition of Rs. 52 lakhs and odd made vide para 8.2 of order and that it was a result of duplication of entries in various documents, as mentioned above. The impact of the said additions is reflected in 50 per cent removal of ash by the assessee. He referred to pp. 236 onwards of paper-book, where a copy of chart of peak amount worked out on the basis of document A-1-2 is placed. Peak amount worked out to Rs. 5,54,179, as mentioned at p. 253 of the said chart. The assessee could have extra earnings to that extent. He pleaded that in all fairness, addition of Rs. 5,54,179 could be made. The said amount of peak was supported by the amount due to the assessee to the extent of Rs. 4 lakhs and odd. He, therefore, submitted that addition of Rs. 52 lakhs and odd made on the basis of surmises and conjectures ought to be deleted. 5.3. Learned counsel further referred to addition of Rs. 17,15,145 made vide para 9.2 of order. He submitted that document A-60 represented challan book and that both the partners were maintaining one copy each of the challan book. He referred to pp. 221-228, where details indicated in the said challan book have been mentioned and cash book f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Panwar was rejected on the basis that he had not stated anything in his testimony to show that he had made any scientific study or research in assessing the productivity of apple trees in the State of Himachal Pradesh. The surveyor had made measurement of various heaps and categorised ash, whereby he wanted to say that coal might have more value. With reference to assessee's valuer's report, he submitted that mistakes, if any, could be rectified by AO but the assessee could not point out any. AO has applied reasonable rates with reference to closing stock which could not be acquired in a day. AO has gone back and made calculations on reasonable basis and addition could not be called as duplicate, as the purpose is to telescope the additions and work out closing stock. With reference to unaccounted sales of cinder ash after sifting, AO applied the rates on the basis of sale bills issued by the assessee. He, therefore, urged that the basic contention of learned counsel that only labour was being charged and profit was only on extra retrieval beyond 20 per cent made by the assessee was on the basis of hypothetical situation. Learned Departmental Representative referred to p. 6 of Depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in income-tax matters rigours of Evidence Act could not be applied. He submitted that the case law relied upon by learned counsel is distinguishable on facts and not applicable. AO has tried to compute real income and that he has rightly telescoped various additions. In support of his contentions, learned Departmental Representative relied on the following decisions: (a) Punjab Trading Co. Ltd. vs. CIT (1964) 53 ITR 335 (Punj), wherein it was held that there was sufficient material in the case for invoking the provisions of s. 13, proviso, as the assessee had not kept any register from day-to-day about consumption of raw cotton and production of ginned cotton; (b) Chhabildas Tribhuvandas Shah & Ors. vs. CIT (1966) 59 ITR 733 (SC), wherein it was held that rejection of accounts by invoking the provisions of s. 13, proviso, was a question of law; (c) Orissa Fisheries Development Corpn. Ltd. vs. CIT (1978) 111 ITR 923 (Ori), wherein it was held that an assessee who carries on business has to keep its accounts in a proper manner and if it fails to do so its accounts are liable to be rejected; (d) CST vs. H.M. Esufali H.M. Abdulali 1973 CTR (SC) 317 : (1973) 90 ITR 271 (SC), wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) 90 ITR 271 (SC) relates to a case of sales-tax and the same is not applicable to the facts of the case. With reference to submission of learned Departmental Representative that it was a case of survey and stock could not be seized, he submitted that it was a case of deemed search under s. 158BD and, therefore, the said plea is not correct. He referred to the provisions of s. 132(1A) and submitted that the concept of deemed seizure has been introduced for such a situation. He, therefore, urged that the Department knows that category D ash has no value and that is why it was not seized even in recovery proceedings. He referred to the affidavit filed by the assessee in this respect. He urged Department to take custody of stock and try to recover whatever is possible. He reiterated that in a search case the provisions of the Evidence Act were applicable and the evidence adduced was required to be rebutted. He referred to the decision in the case of Chuharmal vs. CIT (1988) 70 CTR (SC) 88 : (1988) 172 ITR 250 (SC). 5.7 Learned Departmental Representative has filed a reply on 25th Oct., 1999 relating to approval of surveyor Shri H.S. Garg. He has attached a copy of letter dt. 21st Oc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in peak chart on account of such screening done. Leaned counsel has further stated that now the stand of the Department is that value has not identified this remainder as category C but has only done a measurement, whereas report of the valuer speaks otherwise. He has referred to reply to Shri Garg placed at pp. 100-101 of PB, wherein he has clearly mentioned that C & D categories are different products and category D had been included in C at the instance of the Department. He has urged that the Department does not have any evidence to prove that category D ash is also C ash which is saleable and which is purchased from BILT. He has referred to objections raised vide p. 60 of paper-book that category D ash should not be added in C. He submitted that in view of the stand now taken by the Department that Shri Garg is not a valuer or an expect in identification of cinder ash, impliedly the Department has admitted that addition of D category has been made in C category on its behest. The Department did not have any technical personnel to prove that category D ash is the same as C. It has been stressed that the assessee has proved that 100 per cent sales of total material purchased as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich can be confirmed from analyst. Therefore, at the instance of the Department two were merged. The heaps of D category are shown as the base figure as rectangle, on which heaps of A, B and C are clearly placed as shown in the drawings also'. The surveyor has also mentioned that in a few cases only speculative measurements could be possible, as it was not possible to measure breadth at different levels. It is observed that, as now reported by AO vide letter dt. 21st Oct., 1999, Shri Garg was only an architect and not an approved valuer of the Department and survey report and reply of Shri Garg, as mentioned above, show that he was not sure of what he was doing while categorizing heaps of cinder ash. He has clearly admitted that categories C & D were merged into one at the instance of the Department. We, therefore, feel that in view of the above AO was not right in rejecting the submissions made by the assessee by observing at pp. 7-8 of the order that '....... no difference was found in nature of stock of categories C & D, therefore, in the survey report only category C has been adopted and it could not be said that there was any manipulation at the instance of the Department'. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference to cinder ash retrieved, which was worked out at 11715 ton. He deducted the amount of annual contract money paid to BILT and also reduced expenses on proportionate basis as claimed in financial year 1995-96 and arrived at undisclosed income of Rs. 5,71,154 for financial year 1994-95, Rs. 17,19,930 for financial year 1995-96, Rs. 14,25,930 for asst. yr. 1996-97 and Rs. 11,73,698 for asst. yr. 1997-98. Learned counsel has submitted that 75 per cent of sales were made at BILT itself and that only 25 per cent material was removed to the site of the assessee. He has referred to details of sale bills issued, sales tax charged in respect of 75 per cent of sales so made. These details were before AO and are also placed in the paper-book, as already mentioned above. He has submitted that out of 25 per cent of material removed to site, about 15 per cent sales were made within State of Haryana and remaining 10 per cent to outside parties. Even in respect of said 25 per cent of material, challans and bills were issued and sales tax etc. charged and that all these details were filed before AO and that no defect has been found. Copies of sale and purchase account for the period from 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s/sales of cinder ash (a) 160-165 MT per day in its books of account. It has been further urged that AO has also verified the quantify lifted by the assessee from BILT and thus nothing more than that has been received. Learned counsel referred to pp. 254-275 of paper-book, where a copy of detailed reply given by the assessee is placed. He further referred to pp. 221-235, where comparative position of figures occurring in documents A-50, as entered in A-60, A-51 as entered in A-1-2, A-55 as entered in A-1-2 and A-61 as entered in A-1-2, has been given. Learned counsel demonstrated before us the common entries made in various documents, mentioned above, and stressed that document A-1-2 is the main document and that sales of rakhi mentioned by AO are covered by the said document. He has further referred to the chart of peak amount worked out on the basis of document A-1-2 and submitted that the peak worked out to Rs. 5,54,179 and that the same would cover sales of useable coal retrieved and kept by the assessee by screening of cinder ash. He urged that no defects have been found by AO in the explanation furnished by the assessee and in these documents or the figures of peak amount. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ental Representative that the impugned addition of Rs. 52,82,661 for asst. yr. 1994-95 to 1997-98 is not and cannot be related to cash flow statement prepared by the assessee, it is observed that details of dates of sale, truck numbers, weight of rakhi and rate of sale have been given in cash flow statement prepared for relevant assessment years on the basis of document A-1-2. It is further observed that entries in documents A-51, A-55 and A-61 are covered by said document A-1-2. The aforesaid entries in case flow statement based on document A-1-2, which were also before AO, have not been controverted either by AO or learned Departmental Representative and no defect has been pointed out therein. Thus, in view of the fact that only category C cinder ash is of value, we feel that the submissions made by learned counsel that peak of Rs. 5,54,179 will cover sale of extra rakhi retrieved by the assessee have force, as receipt on account of sale of such ash have been recycled into further purchases/sale of cinder ash. It is also observed that the Department has not adverted to request of the assessee, supported by affidavit, that it is prepared to hand over category D rakhi and the Depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, therefore, feel that the submissions made by learned counsel that these sales are entered in the books and cannot be treated as sales outside books, have force. We feel that the aforesaid addition cannot be sustained merely on the basis of certain assumptions without controverting the submissions of the assessee and bringing some material on record to establish that sales outside the books have taken place. Accordingly, the impugned addition of Rs. 17,15,145 stands deleted. 6.4. The last addition of Rs. 56,419 has been made by AO w.r.t certain squared up accounts mentioned at pp. 17-18 of assessment order. He observed that the assessee did not produce concerned papers nor any documentary evidence was filed. 6.4.1. Learned counsel submitted that the said addition will be covered by the peak amount reflected in cash flow. Learned Departmental Representative relied on assessment order. 6.4.2. We have carefully considered the rival submissions on this issue. It is observed that the assessee neither produced the concerned parties nor filed any evidence in support of the said cash credits. A general plea has been taken before us that the peak amount reflected in chart of cash flow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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