DCIT - 9(2)(1), MUMBAI vs. BEST PAPER MILLS PVT. LTD., MUMBAI

AadoSa / O R D E R महावीर ससुंह, न्याययक सदस्य/ PER MAHAVIR SINGH, JM:

This appeal of Revenue and cross objection of the assessee are directed against the order of the Commissioner of Income Tax (Appeals)-16, Mumbai, dated 25-04-2017 in Appeal No. CIT(A)-16/IT- 329/DCIT 9(2)(1)/2016-17. The assessment was framed by the Dy. Commissioner of Income Tax-9(2)(1), Mumbai, u/s. 143(3) of the Income Tax Act, 1961 [herein after referred to as ‘Act’] for the AY.2014- 15, vide his order dated 20-12-2016.

3. Whether on facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in ignoring the evidence in the form of blank challans, statements of the suppliers and statement of the Technical Director”

“9.1 We have carefully heard the rival submissions, perused relevant material on record including the orders of lower authorities and deliberated on judicial pronouncements as cited before us.

9.2 The order of Ld. AO would reveal that yield percentage reflected by the assessee has been disturbed primarily by relying upon statements of assessee’s employees & Managing Director as recorded during survey proceedings on 10/01/2014. The Ld. AO formed an opinion that the delivery challan books were susceptible for manipulation and the assessee has understated yield percentage by inflating purchase of raw material in the books of accounts.

9.3 Before proceeding, it would be imperative to highlight the modus operandi adopted by the assessee to procure the raw material from various suppliers. The facts on record would reveal that the assessee was sourcing waste paper from few suppliers, who in turn, were procuring the same from small vendors including Raddiwal as who were mainly operating in unorganized sectors. The rates of raw material were negotiated by these suppliers with the small vendors and after finalizing the same, the vendors were directed to deliver the waste paper directly at assessee’s premises. Accordingly, truckloads of waste paper were directly delivered at assessee’s factory gate where the weight of the waste paper was taken and entered into respective blank delivery challans kept by these suppliers at assessee’s premises. One copy of the same was obtained by the suppliers from assessee’s premises which formed the basis for generating sales invoices against the assessee and for making onward payment by these suppliers to the vendors. Another copy was retained at assessee’s premises for feeding into the stock register which was maintained electronically. These peculiar modus operandi adopted by the assessee stood corroborated by the statement of all the suppliers as obtained by Ld. AO. The suppliers, in their statements, confirmed that blank delivery challans books were kept assessee’s premises for operational convenience to facilitate delivery of raw material. The survey team also found the blank delivery challan books at assessee’s premises. The weight of truck loads was taken assessee’s factory gate which was filled into delivery challan books. This modus operandi, in itself explain the findings of Ld. AO that blank delivery challan books were found during the course of survey. In fact, the suppliers have admitted that blank books were kept at assessee’s premises, which were filled with quantitative details after weighing the raw material at the factory gate. This practice was adopted by the assessee for number of years for operational convenience. Therefore, no adverse inference could be drawn against the assessee by the fact that blank delivery challan books were found at the factory gate. Similarly, no inference could be drawn by the fact that the weight was written in different ink.

9.4 Proceeding further, another fact to be noted is that the vendors of the suppliers were mostly unregistered dealers operating in unorganized sectors and were dealing in cash. The fact explains heavy cash withdrawal made by the suppliers from their respective bank accounts. Be that as may be, the assessee was not exercising any control over the conduct of suppliers’ business and no adverse inference could be drawn against the assessee on the basis of cash withdrawals made by the suppliers. In fact, all the suppliers were filing their respective Income Tax Returns, their accounts were audited as per law and due compliances were made by them under VAT / Sales Tax laws. These suppliers confirmed having made sales to the assessee. There in not even an iota of submission that raw material was not supplied to the assessee. The payments to all the suppliers were made by the assessee through banking channels. No discrepancies have been found in the ledger statements of these suppliers. Nothing has been brought on record to establish that any cash got exchanged between the assessee and these suppliers on account of alleged bogus supplies. The allegations that these suppliers were in collusion with the assessee is not supported by any material.

9.5 Another pertinent fact to be noted is that no discrepancy has been pointed out by survey team in physical stock of raw material or finished goods on the date of survey. No evidence of suppressed sales, unaccounted cash / investments / sales have been brought on record. No defect has been pointed out either in cash or in stock during survey. The revenue is unable to point out that except for statements, any incriminating material was found during the course of survey proceedings. Pitied against the same was the fact that the assessee was a corporate entity and its books were duly audited as per law over the years. The auditors have not made any adverse comment on quantitative details being maintained by the assessee.

9.6 So far as the rejection of books of accounts is concerned, we find that no specific discrepancy or defects have been pointed out by Ld. AO in the books of accounts. In fact, the addition has been made by Ld. AO merely by disturbing the figures of purchase of raw material without disturbing any other component of books of accounts. We find that the assessee’s books were subjected to Audit under Income Tax Act as well as under The Companies Act and the same could not be rejected in alight manner. Our view is fortified by the decision of this Tribunal rendered in ITO V/s M/s Eternity Jewels [ITA N0. 1318/Mum/2016dated 04/02/2019] wherein it has been observed that Ld. AO could not reject the books merely on the basis of surmises and conjectures without pointing out any defect in the books of accounts. Similarly, Hon’ble Kerala High court in B.F Varghese V/s State of Kerala [supra] has held that mere fact that the yield disclosed in the books of accounts was not comparable with estimation made by assessing authority would be no ground to reject the books of accounts. This Tribunal in ITO V/s Time and Space Haulers [ITA No.1824/Mum/2011 19/06/2015] has confirmed the stand of Ld. CIT(A) that without pointing any particular defect in the audited accounts, it was not correct to reject the books u/s145(3).This decision of Tribunal has already been confirmed by Hon’ble Bombay High Court wherein Hon’ble Court has observed that the power to reject books could be exercised only where Assessing Officer was not satisfied with the correctness and completeness of books of accounts. This satisfaction was sine qua non before rejecting the books. Therefore, the given factual matrix does not inspire us to sustain the stand of Ld.AO in rejecting the assessee’s books of accounts.

9.7 So far as the veracity of statement recorded u/s 133A is concerned, we find that the same to be contradictory in nature since the Machine-in-Charge of Plant-I made a bald statement that the yield could be in the range of 80% to 90% whereas Machine-in-Charge of Plan-II submitted that the yield could be 90% whereas Director (Technical) submitted that there could be wastage of 12% to 15% and there was insignificant difference between the yield of two plants. Therefore, none of the statements, in our opinion, could be termed as reliable statement but given by the employees based on their own personal perception. The Managing Director, on the other hand, submitted that yield could be around 83.44% which is corroborated by the finding of Ld. AO that yield on the date of survey was 83% which could not be manipulated by the assessee. In reply to question no. 11, Shri Ramesh K. Shah [MD]submitted that wastage was generally in the range of 18-20%. In reply to question No. 15, it was submitted that records of consumption and production were duly maintained and accounted for in the books of accounts. In reply to question no. 19, the composite yield during the financial year 2013- 14 was submitted to be 83.44%. Further, in reply to question no.20, the said fact was reiterated and at the same time, it was submitted that to buy peace of mind, the yield is being declared as 85%from AYs 2011-12 to till date, which has led Ld. AO to proceed with the additions in the hands of the assessee. However, Ld. AO, while estimating the yield, has disregarded the same also and adopted an arbitrary yield of 87%. No evidence, whatsoever, has been brought on record to establish as to how the yield was suppressed by the assessee and how the correct yield was 87%. The said estimates, in our opinion, were arbitrary and without any sound basis. The said estimation, as rightly noted out by Ld. first Appellate authority, was nothing more than an average of 85% and 90%, as submitted by the employees in their statements.

9.8 As against Ld. AO’s estimation, the assessee placed on record expert opinion in the shape of reports of govt. agencies viz.

Central Pulp& Research Unit (CPPRI) & Shriram Institute of Industrial Research(SRI) who studied the manufacturing process and scientifically estimated the assessee’s yield in manufacturing process. The same was completely been disregarded and Ld. AO has not brought on record any expert opinion to counter the same which is contrary to CBDT instructionNo.5/2011 [F.No.225/61/2011-IT(A- 11) dated 30/03/2011 which require Ld. AO to seek technical opinion of experts and bring on record technical evidences in cases involving complex issue of technical nature. This requirement has also been highlighted by Hon’ble Supreme Court in CIT V/s. Bharti Cellular Ltd. [330 ITR 239] wherein the Hon’ble Court emphasized on the need to rely upon the opinion from technical experts in cases involving complex technical matters so that Appellate forums are able to decide the legal issues based on the factual foundation of a case.

9.9 It is settled law that statements recorded during survey proceedings would have no evidentiary value unless corroborated with circumstantial evidences or cogent material to substantiate the same. The Hon’ble Madras High Court in similar factual matrix in CIT V/s S. Khader Khan[300 ITR 157] after considering the decisions of Hon’ble Supreme Court rendered in Pullangode Rubber Produce Co. Ltd. V/s State of Kerala[91 ITR 18] &Hon’ble Kerala High Court in Paul Matthews and Sons V/s CIT [263 ITR 101] culled out following principle as to statement made during survey operations u/s 133A: - From the foregoing discussion, the following principles can be culled out:

(i) An admission is an extremely important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of account do not correctly disclose the correct state of facts, vide decision of the apex court in Pulkngode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18; (ii) In contradistinction to the power under section 133A, section 132(4) of the Income-tax Act enables the authorized officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income-tax Act. On the other hand, whatever statement is recorded under section 133A of the Income-tax Act is not given any evidentiary value obviously for the reason that the officer is not authorized to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law, vide Paul Mathews and Sons v. CIT [2003] 263 ITR 101 (Ker.); (iii) The expression "such other materials or Information as are available with the Assessing Officer" contained in section 158BB of the Income-tax Act, 1961,would include the materials gathered during the survey operation undersection 133A, vide CIT v. G. K. Senniappan [2006] 284 ITR 220 (Mad.) ; (iv) The material or information found in the course of survey proceeding could not be a basis for making any addition in the block assessment, vide decision of this court in T. C (A) No. 2620 of 2006 (between CIT v. S. Ajit Kumar [2008] 300 ITR 152 (Mad.); (iv) Finally, the word "may" used in section 133A(3)(iii) of the Act, viz., "record the statement of any person which may be useful for, or relevant to, any proceeding under this Act", as already extracted above, makes it clear that the materials collected and the statement recorded during the survey undersection 133A are not conclusive piece of evidence by itself.

For all these reasons, particularly, when the Commissioner and the Tribunal followed the circular of the Central Board of Direct Taxes dated March 10, 2003, extracted above, for arriving at the conclusion that the materials collected and the statement, obtained under section 133A would not automatically bind upon the assesses we do not see any reason to interfere with the order of the Tribunal.

This cited decision has already been confirmed by Hon’ble Supreme Court by way of dismissal of Revenue’s Appeal reported at 352 ITR 480.Applying the aforesaid principal to the facts of the present case, we find that additions have primarily been made by Ld. AO on the basis of statements recorded during survey proceedings without bringing on record any circumstantial evidences or cogent material to substantiate the additions and therefore, the same could not be sustained under law. The CBDT Comm. No. 286/2/2003-IT(Inv.) dated 10/03/2003 & Comm No.286/98/2013 IT (Inv.II) dated 18/12/2014 also reinforces the view that confessions, if not based on credible evidences, would serve no useful purpose.

Further, it is trite law that additions could not be made merely on the basis of certain presumptions, conjectures or surmises. It is pertinent to note that, despite three remand proceedings, Ld. AO is unable to place on record any incriminating material as found during survey operations which would suggest suppression of yield by the assessee.

9.10 The Ld. AO has compared the assessee’s yield with other entities without elaborating the technology being used by those concerns and the contents / quality of raw material etc. procured by those firms. No conclusions, in our opinion, could be derived merely on the basis of bald comparison.

9.11 The assessee has also placed on record the yield percentage achieved during manufacturing process in earlier as well as succeeding years, which could be tabulated in the following manner: -

AY Yield % 2004-05 80.481 2005-06 81.091 2006-07 80.057 2007-08 80.389 2008-09 81.395 2009-10 81.627 2010-11 80.627

2011-12 80.406 2012-13 81.191 2013-14 82.683 2014-15 83.672 2015-16 84.458 2016-17 84.602 2017-18 84.864 2018-19 86.822 Upon perusal, we find that the assessee was reflecting yield in the range of 80% to 81% from AYs 2004-05 to 2011-12. Thereafter, the yield has shown improvement which stood explained by the fact that there were additions in the Plant & Machinery from 01/04/2010 onwards which further corroborates assessee’s stand.