THE ACIT, CENTRAL CIRCLE-2,, MORBI vs. M/S. KISHAN PLUS MINARALS, RAJKOT

The grounds of appeal raised by the assessee in the CO No.02/RJT/2022 are as follows:

When the matter was called for hearing, the learned Counsel for the assessee at the outset submitted that the cross-objection filed by the assessee for the assessment year (A.Y.) 2019-20, is barred by limitation by 18 days. The learned Counsel adverted our attention and has explained ACIT Vs. Kishan Plus Minerals Co.02 (AY : 2019-20) 3 sufficient reasons for this delay stating that due to postal anomalies, the assessee received the signed copy of the appeal memo and grounds of appeal raised by the revenue, late and rather it is a mistake of the department in providing information to the assessee to the effect that they had preferred the appeal before the Tribunal against the impugned order of Ld. CIT(A). Therefore this minor delay may be condoned in the interest of justice. However, Ld. DR for the Revenue stated that assessee has failed to explain the sufficient cause, hence, delay should not be condoned. A perusal of the reasons explained by the learned Counsel for the assessee, gives us, an impression of existence of mitigating circumstances to enable us to exercise our discretion in favour of the assessee. Accordingly, the delay is condoned

Now first, we shall adjudicate, the Revenue`s appeal in . We advert to the relevant facts. The assessee has e-filed his return of Income, on 13.10.2018, declaring total income at Rs. 0/- The assessee has shown total business income of Rs. 10,04,597/- and also claimed the set-off of brought forward (b/f) unabsorbed depreciation, to the extent to the profit earned in current year. The assessee has earned income from manufacturing and trading of Body Clay, which is the basic raw-material for manufacturing of vitrified tiles. A search was conducted on the group cases of “Coral Group of Morbi” which was commenced on 03.01.2019 and was finally concluded on 02.03.2019 in all the group cases. Along with the search action, a survey u/s 133A of the Act, was also carried out on the business premises of the assessee Firm and certain incriminating documents were found and impounded. A backup of soft data which was maintained in the accounting software “profit- NX” has been taken in a separate Hard disk and office premises of Shri Bhagwanjibhai Amrutiya, who was partner in the assessee- firm till 31.03.2018, ACIT Vs. Kishan Plus Minerals Co.02 (AY : 2019-20) 4 was also covered u/s 133A of the Act and certain incriminating documents related to the assessee- firm were found and impounded. The Statement on oath was also recorded during the Survey proceedings and during investigation proceedings conducted, of Bhagwanji Bhai Amrutia. During the course of survey certain incriminating documents were found and impounded. Accordingly, case was selected for compulsory scrutiny and the notice u/s 143(2) of I.T Act, 1961 was issued and served on 26.09.2019 through ITBA. Notice u/s. 142(1) of the Act, was issued along with a questionnaire dated 06.02.2021 requesting to furnish the compliances in the matter as required. The assessee has complied to the notices/questioner issued by the assessing officer, from time to time, electronically.

Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the Ld. CIT(A) who has partly allowed the appeal of the assessee. The Ld. CIT(A) noticed that the first finding of the assessing officer is that the statement given by Shri Bhagwanjibhai was on oath who was ex-partner of the assessee -firm cannot be considered as a Third-party statement. The Ld. CIT(A) stated that how much credibility can be attributed to the documents found from the possession of a person who was no more a partner of the ACIT Vs. Kishan Plus Minerals Co.02 (AY : 2019-20) 10 assessee- firm at the time of survey. Much more, what is the sanctity of the impugned documents, which contained data of a period post retirement of the partner, particularly when there is neither the name of the assessee- firm nor the same are signed or authenticated or admitted as correct by any of the partners of the assessee- firm. Further, not a single figure of the impugned loose papers matches with the actual state of affairs of the assessee -firm as on that date. If the document is authentic, at-least the bank OD and bank balance should have been matching. Here not a single figure is matching. The second finding of the assessing officer was that, all statements are voluntary, consistent, trustworthy satisfying the test of reliability; that credibility of oral evidence depends considerably on evaluation of the totality, not isolated scrutiny. Here, the Ld. CIT(A) observed that first statement recorded was of Bhupendra Balubhai Patel on 03.01.2019, who is nowhere connected with the assessee- firm. In the said statement he had stated that the paper pertained to one Ashok of Jetpar. Then the statement of Shri Bhagwanjibhai Amrutiya was recorded later on 15.03.2019, wherein he stated that the papers pertained to the assessee firm. Thereafter, during the post-search / survey proceeding, Shri Bhagwanjibhai Amrutiya in his duly sworn and notarized affidavit dated 16.05.2019 clarified that averments made in his statement recorded during the post-search investigation was in haste without verification and reconciliation of actual facts and in absence of having correct information on the documents / data seized. Copy of affidavit of Shri Bhagwanjibhai Amrutiya is forming part of the paper book submitted in the appellate proceedings. Thus, there are three different inconsistencies arising, which clearly proves that the theory of the assessing officer about consistency, reliability and credibility of oral evidence is farce. Therefore, the Ld. CIT(A), after relying on the judgements of the Hon’ble Supreme Court in case of Common Cause (A Registered Society) And Others Versus Union Of India And Others [2017(1)TMI 1164] popularly known Sahara ACIT Vs. Kishan Plus Minerals Co.02 (AY : 2019-20) 11 diaries and Aditya Birla diaries case, and following the judgment rendered in case of V.C. Shukla , deleted the addition.

Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us, and assesse also filed cross objection before us.

Ld. DR for the Revenue, narrated the facts that there was an unaccounted income to the tune of Rs.4,10,91,050/- and that unaccounted income was derived by the assessee by way of unaccounted sales, unaccounted stock and unaccounted cash sales. The documents seized by the Department belonged to the assessee, therefore, Ld. DR took us through paper book filed by the assessee and reconciled the sundry creditors with the documents seized by the Department vis-à-vis audited books of the assessee. The Ld. DR also reconciled the sundry debtors in the seized documents and the figures mentioned in the audited Profit & Loss account. The Ld. CIT(A) has stated in his order that in the seized documents, bank balances and overdraft balances, do not tally with the assessee’s audited books of accounts, however, not only the bank balances and overdraft balances, are getting tallied but other figures of debtors and sundry creditors also getting tallied with the seized materials vis-à-vis audited financial statements. Therefore, the seized material cannot be treated as a dump documents because entries mentioned in the seized papers relating to the debtors and creditors and unaccounted sales are getting tallied with the audited financial statements. Therefore, the seized documents cannot be brushed aside and the addition made by the assessing officer based on the seized documents should be sustained.

The Ld. Counsel for the assessee submitted that the existing partners are not responsible to the retired partner`s documents which were found by the departments, as the search proceedings was conducted on the retired partners ACIT Vs. Kishan Plus Minerals Co.02 (AY : 2019-20) 12 and not on the assessee-firm, therefore, the existing partners do not accept these documents, found from the retired partner`s premises. Therefore, these old and dump documents found with the old partners, who had retired, from the assessee firm, cannot be related to the assessee- firm in the subsequent years. The search was conducted on the ex-partner, who has retired from the firm, and then simultaneously, survey action was conducted on the assessee- firm. After the retirement, the retired partner does not have any connection with the existing assessee-firm. Moreover, up to 31.03.2019, the books of accounts were not audited i.e. Revenue department has impounded the material pertaining to period 01.04.2018 to 30.6.2018, and in this accounting period, that is, up to 31.03.2019, the books of accounts of the assessee-firm were not audited. Therefore, the impounded material is only rough noting and rough statements. The Ld. Counsel took us through paper book Page No.48 and stated that all the papers were belonging to Ashokbhai Jetpar and these documents did not belong to the assessee-firm. The Ld. counsel stated that ex-partner who retired from the firm should be treated as third-party and such statement should not be relied without being given an opportunity of cross-examination to the existing partners. The Ld. Counsel also stated that the statement of Shri Bhupendrabhai is not relevant for the assessee-firm and moreover opportunity of cross- examination was not given to the assessee. Therefore, Ld. Counsel contended that order passed by the Ld. CIT(A), after considering the above facts, is just and proper.

In respect of grounds raised by the assessee in cross-objection No.2, filed by the assessee, the Ld. Counsel for the assessee argued that Ld. CIT(A) has confirmed the additions to the tune of Rs.7,50,328/- out of total addition of Rs.4,10,91,050/-. To confirm the addition of Rs.7,50,328/-, the Ld. CIT(A) does not have any corroborative evidence except two statements, therefore, the estimated addition sustained by the Ld. CIT(A) should be deleted.

The Ld. DR for the Revenue, in rejoinder stated that there is a correlation between unaccounted cash book, unaccounted balance sheet with the accounted Balance Sheet in the credit side. In the credit side, the creditors are getting tallied with the audited Balance Sheet and debit side, the debtors are getting tallied. The Balance Sheet of the seized materials are getting tallied with the audited books of accounts. Therefore, these documents cannot be treated as dump documents, and therefore, instead of confirming the addition of Rs.7,50,328/-, entire addition made by the assessing officer to the tune of Rs.4,10,91,050/- should be confirmed in the hands of the assessee.

We have given our thoughtful consideration to rival contention. We have perused case file as well as paper books furnished by assessee. Though facts have been discussed in detail in the foregoing paragraphs, however in the succinct manner, the relevant facts and background are reiterated in order to appreciate the controversy and the issue for adjudication. The assessee is a partnership firm, which came into existence on 02.05.2016. It is engaged in business of manufacturing and trading of ceramic body clay, which is used as raw material for manufacturing of tiles. The facts of the case is that, a survey action was carried out at the office premises of one Shri Bhagwanji Amrutiya on 03.01.2019. Simultaneously a survey action was also carried out at the premises of the assessee on same date viz., on 03.01.2019. It is gathered from the assessment order that, Shri Bhagwanji Amrutiya was ex-partner of the assessee firm. He retired on 31.03.2018. During the course of search at the premises of Shri Bhagwanji Amrutiya, certain loose papers were found and impounded (Page No. 112 to 116 of AnnexureA-3). Vide para 6 of the assessment order, the assessing officer had described the contents of the said loose papers viz., it is noticed that these pages contain profit and loss account, Balance Sheet, Sundry creditors (raw material), Sundry creditors from ACIT Vs. Kishan Plus Minerals Co.02 (AY : 2019-20) 14 01.04.2018 to 30.06.2018. This data is related to Kisan Plus Minerals, as stated by Shri Bhagwanjibhai Amrutiya, who was also one of the partner up to 31.03.2018. It is seen from the impounded papers that, there is no heading or any name of the assessee appearing on these impounded papers. The Investigation wing, in post survey verification, had inquired about these papers with Shri Bhagwanjibhai Amrutiya. He, in his statement recorded on 15.03.2019 stated that it relates to the assessee- firm. On this premise, the assessing officer proceeded to treat the same as pertaining to the assessee, while finalizing the assessment order of the assessee. The concurrent survey was also carried out at the premises of the assessee- firm, but the papers found and impounded during survey at the premises of Shri Bhagwanji Amrutiya, was never confronted to any of the partners of the assessee- firm. The existence of such impounded material was brought to the knowledge of the assessee and its partners, by the assessing officer vide notice u/s 142(1) dated 18.02.2021 and it was only then, such papers were provided to the assessee, and it was show caused as to why the difference between the figures mentioned in the impounded materials and those recorded in the actual books, should not be treated as unaccounted in the hands of the assessee. The assessee challenged the show cause notice, which was declined by the assessing officer and he made addition of difference of Rs. 4,10,91,050/-.

The Ld. CIT(A) observed that immediately post survey, the statement of one Shri Bhupendra Balubhai Patel was recorded on 03.01.2019, who was present at the time of survey at the office premises of Bhagwanji Amrutiya, wherein he stated that the impounded impugned papers belonged to one Ashokbhai of Jetpar. Interestingly, on the impounded note itself it is written Ashok Jetpar. Thereafter, a statement of Shri Bhagwanji Amrutiya was recorded on 15.03.2019, in post search/survey inquiry. In the said statement, Shri ACIT Vs. Kishan Plus Minerals Co.02 (AY : 2019-20) 15 Bhagwanji Amrutiya stated that the impugned papers pertained to the assessee. Thus, there are two inconsistencies arising here, that the finding of the assessing officer is contained in para 9 of the assessment order. The gist of the finding of the assessing officer is that, the statement given by Shri Bhagwanjibhai was on oath who was ex-partner of the assessee- firm cannot be considered as a Third- party statement; all statements are voluntary, consistent, trustworthy satisfying the test of reliability; that, credibility of oral evidence depends considerably on evaluation of the totality, not isolated scrutiny. It is not necessary that it should be perfect; that the statement recorded during the course of search/Survey is a strong piece of evidence; that Courts have given great significance to the statements recorded observing that the facts disclosed in the course of search / survey by way of statement has got evidentiary value; that no opportunity to cross examination is given to Shri Bhagwajibhai Amrutiya, as he was one of the partners of the assessee- firm till March-2018 and as such he cannot be considered as a third party; that there is other finding of unaccounted sale, shortage in stock of finished goods, and evidence of sale made in cash and all such things are corroboratory evidence which establishes that assessee has earned unaccounted profit from such activities and reinvested the same in the firm in the form of unaccounted credit in the name of partners. The Ld. CIT(A) noticed that the first finding of the assessing officer is that, the statement given by Shri Bhagwanjibhai was on oath who was ex-partner of the assessee- firm cannot be considered as a third-party statement. However, Ld. CIT(A) stated that how much credibility can be attributed to the documents found from the possession of a person who was no more a partner of the assessee -firm at the time of survey. Much more, what is the sanctity of the impugned documents, which contained data of a period post- retirement of the partner, particularly when there is neither the name of the assessee- firm nor the same are signed or authenticated or admitted as correct by any of the partners of the assessee- firm.

The Ld. CIT(A) further noticed that second finding of the assessing officer is that, all statements are voluntary, consistent, trustworthy satisfying the test of reliability; that, credibility of oral evidence depends considerably on evaluation of the totality, not isolated scrutiny. Here it needs to be seen that, the first statement recorded was of Bhupendra Balubhai Patel on 03.01.2019, who is nowhere connected with the assessee. In the said statement he had stated that the paper pertained to one Ashok of Jetpar. Then the statement of Shri Bhagwanjibhai Amrutiya was recorded later on 15.03.2019, wherein he stated that the papers pertained to the assessee. Thereafter, during the post-search / survey proceeding, Shri Bhagwanjibhai Amrutiya in his duly sworn and notarized affidavit dated 16.05.2019, clarified that averments made in his statement recorded during the post-search investigation was in haste without verification and reconciliation of actual facts and in absence of having correct information on the documents / data seized. Copy of affidavit of Shri Bhagwanjibhai Amrutiya is forming part of the paper book submitted in the appellate proceedings. Thus, there are three different inconsistencies arising, which clearly proves that the theory of the assessing officer about consistency, reliability and credibility of oral evidence is farce. The Hon’ble Supreme Court in case of Common Cause (A Registered Society) And Others Versus Union Of India And Others [2017(1)TMI 1164] popularly known Sahara diaries and Aditya Birla diaries case, following the judgment rendered in case of V.C. Shukla (supra), laid down the following principles:

Finally, the Ld. CIT(A) concluded that merely on the basis of alleged statement recorded from Shri Bhagwanjibhai Amrutiya, and failure to allow cross examination sought by the assessee, is a gross violation of principles of natural justice and hence, the action of the assessing officer is not justified and therefore the entire addition was deleted by Ld. CIT(A) except to Rs. 7,50,328/- . We do not find any infirmity in the above conclusion reached by the Ld. CIT(A). In the wake of above delineation, we see no error in the conclusion drawn by the CIT(A) in this regard. The CIT(A) in our view, has rightly deleted the addition. We thus decline to interfere with the conclusion so drawn by the CIT(A) whose order is under challenge by the revenue. Therefore, appeal filed by the revenue is dismissed.

Coming to the cross objection filed by the assessee, in CO. No.02/RJT/2022, we find that there were sources of the stock, as on the date of survey at the premises of assessee, unreconciled at Rs.7,50,328/- more so the practice of unaccounted sales is also suggesting the fact that during the course of survey, as per the impounded documents the cash receipts was Rs.5,74,976/- was noticed. Therefore, the suppressed sales to the extent of Rs.7,50,328/- not ACIT Vs. Kishan Plus Minerals Co.02 (AY : 2019-20) 21 recorded in the books of accounts has to be brought to be taxed and therefore the addition to this extent of Rs.7,50,328/- was confirmed by Ld. CIT(A). Based on the above factual position, we dismiss the cross objection of the assessee.

In the result, cross objection filed by the assessee (in Co.No.2/RJT/22), is dismissed.

In the combined result, the appeal of the Revenue is dismissed and cross- objection filed by the assessee is also dismissed.