TMI Blog1999 (12) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 plant consist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the bush ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ni 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 catego ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 filed was for the year ending 31st March, 1997 and the same was also not relevant for bringing to tax income liable to tax upto 24th Dec, 1996. He, therefore, held that under the circumstances income of the assessee for assessment year, i.e. up to 24th Dec, 1996 was estimated on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. 40 of paper-book Maximum removal of boiler cinder ash from BILT could be 180 MT per day. He referred to pp. 41-45 of paper-book, where copies of agreements entered into between the assessee and BILT for periods from 1st June, 1993 to 31st March, 1994, 1st April, 1994 to 30th Sept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 useable material and that approximately 70-75 per cent of material was waste which was abandoned as it had no value. He referred to copy of survey report placed at p. 60 of paper-book. In the note given there-below, Shri Hemant Singh Garg has mentioned that Shri Sanjay Anand, repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial 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 when they were located, identified and categorised separately during physical verification and while conducting survey. The assessee pointed out that during visits of the Departmental team on sites of different persons working in town and consuming material supplied, who confirmed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i 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 p. 100 of paper-book. Survey report was signed by Shri Hemant Singh Garg, who is not approved valuer. Certificate of approval is given to the concerned individual and not to a firm. He referred to pp 74-98 of paper-book, where a report from Shri P.S. Chauhan, approved valuer, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 closing stock of 10696, i.e. 40,900 MT. The average of stock per day works out to 32 MT per day. Total figures as per Department work 'out to 227 MT per day. It has been mentioned that as per queries made from BILT, average of 160 to 165 MT per day is lifted by the assessee and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cannot be any 'income-tax'. (viii) Dalmia Cement Ltd. vs. CIT (1999) 153 CTR (SC) 401 : (1999) 237 ITR 617 (SC).- In view of the foregoing, learned counsel submitted that AO has not proved what has been alleged in the order for making the additions. AO had made estimates of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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, Dehradun. He did this business only for asst. yr. 1993-94 and neither before nor after that he did this business. He could not produce any bill regarding purchase and sale of rakhi and stated that bills were being issued by Raj Pal Ashwani Kumar in cash and sales-tax was being c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Arumugham Ors. vs. Sundarambal Anr. 1999 4 SCC 350. He reiterated that sales of rakhi are duly entered. He pointed out that 25 per cent of material was shifted to other site for screening and that four trucks which were at site for lifting the material were there at the requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 folio and ledger folio have also been indicated with reference to each bill number and name of the party. Total amount indicated in the said pages worked out to Rs. 17,15,145. He urged that these sales cannot be treated as sales outside the books. Details which were also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Department paper-book, where a copy of document No. A-1-2 is placed. Entries therein are elaborated and the same have not been tallied by the assessee with regular books. He, therefore, submitted that cash flow drawn on the said basis was not acceptable. Purchases made fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 it was detected that sales for 19 days were not entered in the account books and it was held that the same can form basis for estimating escaped turnover for whole year. Best judgment assessment was made in the said case; and (e) Amiya Kumar Roy Bros. vs. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Oct., 1999 from AO. AO has reported as under: "Shri Hemant Singh Garg is a qualified architect having degree of B. Architect, B.Bs. However, he is not approved by the IT Department, as enquired from Shri Hemant Singh Garg." He has also made some submissions w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise. 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 category C has been entered in the books of account. On the basis of various additions made by the Department total purchases made by the assessee worked out to about 227 MT per day, which fact is against evidence on record collected by the Department itsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is further observed that the assessee submitted valuation report from Shri P.S. Chauhan at pp. 74-77 of paper-book, wherein mistakes have been pointed out in measurement of stock and total figure has been mentioned at 10,411.205 MT as against total stock o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 30th June, 1993 to 23rd Dec, 1996 are placed at pp. 106-108 of paper-book. Relevant copies of sales tax record relating to acknowledgment, sales tax deposit, etc. are placed at pp. 189-219 of paper-book. AO has not controverted the said details. It is also o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 has submitted that to be fair to the Department addition of Rs. 5,54,179 representing peak should be made. He further submitted that in a search case, addition must be based on evidence and not on assumptions made by AO. If 80 per cent of cinder ash had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Department could lift the said stocks and realise the amount, if possible. The Department has not resorted to the provisions of deemed seizure of ash in spite of the said request as mentioned in s. 132(1A). Thus, on the facts and circumstances of the case we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 will cover the impugned addition also. We feel that the said chart, which has been drawn on the basis of document A-1-2, is not relevant with reference to addition relating to cash credits. Further there are no entries in the said chart on the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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