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Income Tax Appellate Tribunal, DELHI BENCH: ‘C’ NEW DELHI
Before: SHRI J. SUDHAKAR REDDY & SMT SUCHITRA KAMBLE
PER SUCHITRA KAMBLE, JM
2 2929/Del/2012 Harsh These appeals are filed against the orders dated 03/04/2012 passed by CIT (A) XXXII, New Delhi.
The grounds of appeal are as follows: A.Y. 2004-2005 (filed by the Assessee)
“1. Whether on the facts and in the circumstances of the case, the Assessing Officer has grossly erred in law and on the facts in assessing the income of the appellant at Rs.8,29,03,390/- as against the returned income of Rs.8,02,150/-.
2. Whether on the facts and in the circumstances of the case, the Learned Assessing Officer has grossly erred in law and on the facts in making the following additions on the basis of estimates, surmises, conjectures & suspicion etc. a. On account of gross profit earned on sale outside the books account amounting to Rs.6,27,02,640/-. b. On account of undisclosed capital deployed for purchase of stock amounting to Rs.2,02,00,752/-.
3. Whether on the facts and in the circumstances of the case, the Learned Assessing Officer has grossly erred in law and on the facts in rejecting the books of account u/s 145(3) of the Act and in estimating the turnover, gross profit, undisclosed capital etc. on the basis of estimates, surmises, conjectures, speculation and on irrelevant materials etc.
4. Whether on the facts and in the circumstances of the case, the Learned Assessing Officer has grossly erred in law and on the facts in utilizing the statements of Sh. Govind Babu, various machine operators, Sh. Roop Singh and of the Harpal Singh etc. by rejecting their affidavit, by without giving the opportunity to cross examine them, by violating the principles of natural justice in utilizing material, for arriving at a finding of undisclosed income.
3 2929/Del/2012 Harsh
5. Whether on the facts and in the circumstances of the case, the Learned Assessing Officer has grossly erred in law and on the facts in rejecting the affidavit filed by the Panchas to the search to the effect that the statement were obtained by force.
6. Whether on the facts and in the circumstances of the case, the Learned CIT(A) has grossly erred in law and on the facts in confirming the estimation of undisclosed income to the extent confirmed instead of deleting the entire addition made by the Assessing Officer without any evidence in the search material. 7. The appellant prays that:- (a) Addition of Rs.8,21,01,240/- made on account of undisclosed income on the basis of estimates may please be deleted. (b) Any other relief your honor may deem fit. 8. The appellant craves leave to add, alter, amend or forgo any of the grounds of Appeal. A.Y. 2005-2006 (filed by the Assessee)
“1. Whether on the facts and in the circumstances of the case, the Ld. Assessing Officer has grossly erred in law and on the facts in assessing the income of the appellant at Rs.10,97,75,952/- as against he returned income of Rs.1,18,610/- on the basis of estimates, surmises, conjectures, speculation and on irrelevant materials etc.
2. Whether on the facts and in the circumstances of the case, the Ld. Assessing Officer has grossly erred in law and on the facts in rejecting the books of account u/s 145(3) of the Act and in estimating the turnover, gross profit etc. On the basis of estimates, surmises, conjectures, speculation and on irrelevant materials etc.
Whether on the facts and in the circumstances of the case, the Ld. Assessing Officer has grossly erred in law and on the facts in utilizing the statements of Sh. Govind Babu, various machine operators, Sh. Roop Singh and of the Harpal Singh etc. by rejecting their affidavit, by without giving the opportunity to cross examinee them, by violating the principles of 4 2929/Del/2012 Harsh natural justice in utilizing materials, for arriving at a finding of undisclosed income.
4. Whether on the facts and in the circumstances of the case, the Ld. Assessing Officer has grossly erred in law and on the facts in rejecting the affidavit filed by the Panchas to the search to the effect that the statement were obtained by force etc.
5. Whether on the facts and in the circumstances of the case, the Ld. Assessing Officer has grossly erred in law and on the facts in confirming the estimation of undisclosed income to the extent confirmed instead of deleting the entire addition made by the Assessing Officer by ignoring that there was no evidence to support such huge income.
6. The appellant prays that:- (c) Addition of Rs.10, 96,57,342/- made on account of undisclosed income on the basis of estimates may please be deleted. (d) Any other relief your honor may deem fit. A.Y. 2004-2005 (filed by the Revenue) 1. That the Commissioner of Income Tax (Appeals) erred in law and on facts of the case in allowing relief to the assessee by directing the A.O to recomputed G.P at the rate 30.45% of 75% of MRP turnover.
2. That the Commissioner of Income Tax (Appeals) erred in law and on facts in allowing relief to the assessee without properly appreciating the fact that there was no evidence on record to substantiate the assessee’s claim. 3. (a) The order of the CIT(A) is erroneous and not tenable in law and on facts. (b). The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.
A.Y. 2005-2006 (filed by the Revenue) 1. That the Commissioner of Income Tax (Appeals) erred in law and on facts of the case in allowing relief to the assessee by directing the A.O to recomputed G.P at the rate 53.3.1% of 78% of MRP turnover.
5 2929/Del/2012 Harsh 2. That the Commissioner of Income Tax (Appeals) erred in law and on facts in allowing relief to the assessee without properly appreciating the fact that there was no evidence on record to substantiate the assessee’s claim. 3. (a) The order of the CIT(A) is erroneous and not tenable in law and on facts. (b). The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.
The assessee company was engaged in the business of 3. commercial production and sale of Chaini Khaini, which is a tobacco product. This product involved a new concept wherein Khaini was packed in a filter pouch which is put in mouth without actually chewing it. The assessee company had filed its return of income on 30/10/2004 declaring total income of Rs. 8,02,150/-. Search & Seizure operations were carried out at the factory premises of M/s Harsh International Pvt. Ltd. at C-172, Mayapuri Industrial Area, Phase-II, New Delhi on 16/2/2005. During the search in the factory premises of the assessee company, certain incriminating documents were found and certain statements u/s 132(4) were recorded, which indicated towards large scale suppression of production & sales by the assessee company. After the search action, notice u/s 153A was issued to the assessee on 10/7/2006 and in response the assessee filed its return of income on 8/11/2006 declaring the same amount of total income at Rs.8,02,150/-. Subsequently, notices u/s 143(2) and 142(1) dated 6/11/2006 were issued to the assessee by the A.O. In response to these notices, Sh.
6 2929/Del/2012 Harsh Surjeet Singh Virdi, Chartered Accountant and Shri Mukesh Gupta, Chartered Accountant and A.R of assessee appeared from time to time and filed necessary details. The findings of the Assessing Officer in his assessment order are summarized as follows: 3.1. During the course of search the factory manager Shri Govind Babu, who subsequently became the Director company on 03/07/2005, stated under oath that :
(a) The company was basically manufacturing two types of products of Chaini Khaini which are differentiated on the basis of their packing, i.e., plain and zipped. The MRP of plain pouch is Rs. 2.50 per pouch where MRP of zipper pouch is Rs.3 per pouch. (b) About 1,00,000 to 1,40,000 pouches of 3.5 grams each are produced in one shifts. Since the factory is working in two shifts, 2,00,000 to 2,80,000 pouches of 3.5 grams each are manufactured in one day. (c) There are eighteen machines of German make installed in the factory premises of M/s Harsh International Pvt. Ltd. These machines are manufacturing filter pouches @ 180 - 200 filter pouches per minute. 10-12 machines are operated at any given time. (d) The factory is being run in 2 shifts. Each shift is of 8 hours. Thus in a given day, the factory is being run for 16 hours.
7 2929/Del/2012 Harsh (e) One of the week days is a holiday and thus the factory is being run for about 312 days in a year.
3.2. According to the AO, from the above statements of the factory manager, Shri Govind Babu it became absolutely clear that the assessee company was indulging in large scale production outside books. The production actually shown in the books found during the search was very meager in comparison to what was evident from the statement of Shri Gobind Babu. These facts also indicated that the books of the assessee company did not reflect the correct statement of affairs of its business.
3.3. The statement of several operators who were working on the machines used in manufacture of Chaini Khaini were also recorded during the course of search on the factory premises of the assessee on 16.02.2005. All these operators have affirmed the said statement of Shri Govind Babu that the production was being done in two shifts. The statement of the operators also corroborates the statement of Shri Gobind Babu that large scale production was being done outside the books of accounts.
3.4. At the time of search on 16.02.2005 about 80 workers were alleged to be working and physically present in the factory premises. This fact was confronted to Shri Govind Babu and he has also accepted the same. Shri Govind Babu, the Manager and the operators, had already stated that the machines were working in 8 2929/Del/2012 Harsh two shifts. This operation of machines in two shifts would not have been possible without the additional deployment of manpower. Thus, the statement of Shri Gobind Babu is corroborated by the presence of huge manpower on the day of search.
3.5. Further certain incriminating "documents were also-seized from the factory premises of the assessee company in which not only the names-of the 83 persons working was mentioned but also the shift in which they were working is written. These documents are marked as pages 68-71 of Annexure A-12 of Party GO-2. According to the document, 83-workers were found to be working on 15.02.2005.
From No. of employees. . . . . . . 9 AM to 9 PM 52 9 PM to AM 31 In 2 shifts 83 employees However, when the muster roll of employees was seen, it was found that only 20 employees had been shown to be on record. Thus, it was found that the assessee company was not showing its true employment of labour in its books of accounts.
3.6 Survey operating u/s 132(3) of the Act was simultaneously carried out at 7249, Ram Nagar, Qutab Road, New Delhi which is the godown of Mehak Gutka/Chaini Khaini manufactured by M/s Harsh International Pvt. Ltd. During the 9 2929/Del/2012 Harsh course of survey operations, one Tata 407 bearing registration No. HR-38C-8476 was found standing outside the gate of the godown and it was found containing stock of Chaini Khaini which was valued at Rs. 15,05,555/- as per the MRP listed on the stock. From the statement of Shri Roop Singh, the driver of the aforesaid Tata 407, it was found that the driver had brought these goods from the factory of M/s Harsh International Pvt. Ltd. The driver also admitted that he had no bills/ vouchers for these goods and that he merely had a slip which stated 11 bags of CK Chaini Khaini - 36 bags of Z3 ( pouches of Chaini Khaini.)
3.7. During the assessment proceedings, the books of assessee seized from the hard disc and the same were examined. However, it was found that no such sales had been recorded in books of accounts. In fact no local sales were recorded in the books after 11/2/2005. Thus, it became clear that stock of value of Rs.15,05,555/- had been sold by the assessee without recording it in its books of accounts and also without payment of excise duty.
3.8. In addition to the stock forming part of Tata 407, stock of Rs. 8,66,666/- was also found in the Godown at 7249, Ram Nagar. No bills/vouchers relating to the stock were found from the said premises. Further during the assessment proceedings, the sale of this stock could not be verified from the regular books
10 2929/Del/2012 Harsh of accounts. Thus, it became clear that the assessee company was indulging in undisclosed sales outside its books of accounts. The unexplained sale outside the books is a logical and conclusive inference for the fact established that production was being done outside the books of the assessee.
3.9. Information regarding evasion of excise duty was also sought from the Assistant Commissioner of Central Excise, MOD- V, C-19, DDA, Community Centre, Janak Puri, New Delhi. From the information received, it was found that evasion of excise duty amounting to Rs.56,000 had been detected in case of Chaini Khaini by the Central Excise Division, Gorakhpur (UP) on 06.09.2006. Thus, it became clear from the information received, though not pertaining to the instant year, that the assessee company was definitely indulging in sales outside its regular books of accounts.
3.10. In view of the above factual position, the AO concluded that the books of accounts of the assessee company were not reflecting the correct position of the income earned from the production and sales of Chaini Khaini and the book results shown were not reliable. He accordingly issued a show cause to the assessee in this regard, after considering the reply, the findings recorded by the AO in his assessment order as extracted herein below:
11 2929/Del/2012 Harsh
"3. SHOW CAUSE OPPORTUNITY TO ASSESSEE FOR REJECTION OF BOOKS OF ACCOUNT AND ESTIMATION OF PROFIT -
Thus, on basis of the above mentioned facts, the assessee was asked to show cause as to why his books of accounts should not be rejected and the profit be calculated on estimated basis. The assessee vide his letters dated 22.12.2006, 26.12.2006 and 27.12.2006 has made his submissions in this regard. The contentions of the assessee have been considered but are not found tenable in view of the following facts:-
(a). The assessee has submitted that the statement of Sh. Gobind Babu had been given under fear and coercion and had been obtained behind the back of the Director’s. An affidavit to this extent has also been furnished from Shri Gobind Babu.
The contentions of the assessee, that the statement has been obtained by the back of The Directors and that Shri Gobind Bab was a mere Supervisor-in the assessee company is not acceptable. Shri Gobind Babu was the. Manager of the company at the time of search on 16.02.2005, who was looking after almost the entire working of the company. He was considered so competent, reliable and trustworthy that he was made the Director of the Company on 3.7.2005. Moreover, almost 2 years have elapsed since the statement of Shri Gobind Babu was recorded on oath u/s 132(4). In these two years, Shri Gobind Babu had more than ample time to bring the correct facts to the knowledge of either the Director of Investigation or The Commissioner of Income Tax, (Central)-ll. However, he has not chosen to do so. Further, it is pertinent to point out that another statement u/s 132(4) was recorded on 21.2.2005 i.e. after 5 days of the first statement. Even, in this statement Shri Gobind Babu, has reiterated the same facts. Thus, the retraction from his statement at this stage of the assessment proceedings appears as an after thought to avoid the assessment proceedings. Thus, the contention of the assessee is not acceptable.
A similar stand has been taken by the assessee in the case of the statements recorded from the operators of the machines used in the production of Chaini- Khaini. In this context, it is pertinent to point out that the statement of more than 10 operators were recorded at the time of search and all of them have given almost similar statements. Their statements corroborates the statement of Shri Gobind Babu. The contention of the assessee that the statement was given under duress by the operators is also totally wrong. In fact, the assessee has 12 2929/Del/2012 Harsh more strangle hold over the operators as he has the means of controlling their livelihood, being their employer. Also, none of the operators have retracted from their statements. Hence, the submission of the assessee is not acceptable. (a) The assessee has further contended that the seized documents Page No. 68 to 71 of Annexure A-12, Party GO-2 are not reliable and that they are not part of any books of accounts or documents etc. He has further stated that these papers do not bear name/address of the assessee and may have been left by some stranger.
The contentions of the assessee have been considered but are not found acceptable. At the time of search, nearly 80 people were physically found in the premises. On the seized document also, details of the number of employees and their shifts also, the number of persons working in the two shifts are 83. This document pertains to the day prior to the search date i.e. 15.2.05. Thus, both the facts corroborate each other. The seized documents have been found and seized from the premises of the assessee. It was the onus of the assessee to prove that it belonged to somebody else. Moreover, the details on the seized documents are in consonance with the actual no. of people found working, statemeni of Shri Gobind Babu and the statement-of the operators.
(b) The assessee has further submitted numerous arguments regarding the undisclosed stock found in the survey at 7249 Ram Nagar, Qutab Road, Delhi. However, what has not been denied by the assessee is • That the stock was of the assessee company and that the product was Chaini- Khaini • That the sale of this stock could not be reconciled from the books of the assessee. company. In fact, the last recorded sale by the assessee company as per its book was on 11.2.2005. • That the driver did not have any vested interest in saying that the stock belonged to Mr. Jain.
Hence, the contention of the assessee is not acceptable.
(c) The assessee has further submitted that the premises had been inspected by the excise department and that nothing contrary to the records was ever found by these authorities. However, this contention of the assessee is not correct. A query was made in this regard with the Assistant Commissioner of Central Excise, Division-V, C-19 DDA
13 2929/Del/2012 Harsh
Community Centre, Janak Puri, New Delhi. He has vide his letter CNO.V(30) Div- V/Enq./HIPL/AE/52/2006-07/6722 dated 18.12.2006 intimated that the Central Excise Division, Gorakhpur (UP) had detected a case of evasion of excise duty for goods worth 55,080 on 6.9.2006. This finding also is in consonance with the findings of the Income Tax Department that the assessee was making sales outside his regular books of account. Hence, the contentions of the assessee are not acceptable. Thus, in view of all the above mentioned facts, the books of the assessee are being rejected and the turnover is being estimated as discussed in Para 2.1, the GP and the initial investment worked out as discussed in Para 2.2 and 2.3.”
3.11. Recording the above reasons, the AO rejected the book results of the assessee and calculated the income of the assessee as under:
“2.1 Calculation of Turnover of the Company
The total number of pouches of 3.5 grams produced in one shift are 1,0(1,000 to 1,40,000 i.e. average of Rs. 1,20,000. - (I) Since the factory is run in two shifts, total production of pouches of weight 3.5 grams comes to 2,40,000. Taking half of the pouches as zipped and half as plain, the average (II) MRP of a pouch comes to Rs.2.75 per pouch. (III) The factory is run for 6 days a week, Sunday being a holiday. Hence, the factory runs for 312 days in a year
Total production at MRP of Chaini 2,40,000 x 312 x 2.75 Khaini in a year comes to 20,59,20,000
Thus, the annual total turnover comes to Rs.20,59,20,000 crores.
14 2929/Del/2012 Harsh 2.2 WORKING OF GROSS PROFIT
As per the audit report in Form-3CD, Column-32(a) furnished alognwith the return, the GP rate of the assessee company is 30.45%. Adopting the same GP rate the gross profit of the assessee is being calculated as below:- G.P. = 20,59,20,000 X 30.45%
= 6,27,02,640/-
On the basis of above mentioned facts, I am satisfied that penalty proceedings under section 271(1)(c) should be initiated against the assessee company.
2.3 Estimation of Initial Investment Towards Purchases of Raw Material
The assessee is having huge undisclosed purchase and sale of Rs.20,59,20,000/- outside his books as has been discussed above. However, it is a matter of common knowledge that the assessee cannot make these purchases outside his books without making an huge investment in his business. Once this investment has been made, the assessee can keep the cyclicity of his unaccounted capital in rotation. .
As per Col. No. 32(c) of the Form No.3CD, wherein the accounting ratios of the business of the assessee company have been worked out and certified by the Tax Auditor* it is found that the stock-in-trade turnover ratio is 9.81%. Since, the undisclosed turnover of the company is Rs.20,59,20,000/-, the undisclosed investment in stock would work out to 15 2929/Del/2012 Harsh
20,59,20,000x9.81% = Rs.2,02,00,752/-”
For the Assessment Year 2004-05, the Assessing Officer estimated the gross profit earned on sales by the assessee, outside the books of accounts at Rs.6,27,02,640/-. He further estimated undisclosed capital deployed for purchase of stock at Rs.2,02,00,752/-. Similarly for the Assessment Year 2005-06 the gross profit earned on sales outside the books of account was estimated at Rs. Rs.10,97,75,952/-.
Aggrieved by the Assessment Order, the assessee carried the matter in appeal. The first appellate authority, after considering the detailed arguments of the assessee, forwarded the same to the Assessing Officer for examination and sought a remand report. The Assessing Officer in the remand report (Extracted from para 5.2.6 of CIT(A)’s order)stated as follows:-
“i. In his report dated 29/11/2011. The A.O has reported: a. That summons were issued to the then Directors of the company, but no compliance was made. The AR of the appellant company filed a letter before the A.O stating that the then Directors had resigned and their whereabouts were unknown to the appellant company.
16 2929/Del/2012 Harsh b. That letter to the Assistant VAT Officer, Vyapar Bhawan, New Delhi requesting him to furnish copy of returns filed with them, have not been answered and reminders have been issued. c. That to obtain details of the direct account of the parties to whom sales have been made and to examine parties from whom purchase of raw material was made by the company, the appellant was asked to provide addresses of the dealers with whom purchase and sales were made. ii. In his report dated 2/2/2012, the A.O has reported: a. That the appellant had not provided the addresses of the dealers with whom sales and purchases were made despite specific request. b. That the VAT department had only provided copy of sales tax assessment order for the year 2003-04 and no copy of returns filed with them was provided.”
6. The CIT(A) formulated the following questions to be answered by him:-
“(a) Whether the A.O had correctly invoked the provisions of Section 145(3) of the Act on the basis of material gathered during the search survey proceedings against the assessee company ; and 17 2929/Del/2012 Harsh (b) Whether the estimation of undisclosed income after rejecting the book results of the appellant was reasonable.
The CIT (A) further held as follows:
(a) On the contention that the statements were taken at the back of the assessee he held that the assessee is a Private Limited Company and is an independent Juristic personality and neither the directors nor share holders are owners of the company.
(b). When the search was conducted at the factory premises Shri Govind Babu was incharge of the factory as the manager and was in control of the men, machines and material found therein. Statement was recorded from Shri Govind Babu, as he is a person who is found in a control or possession of the undisclosed money, assets or books of accounts etc.
(c). On the contention of the assessee that Shri Govind Babu was not found to be in control or possession of any asset and hence his statement could not have been taken u/s 132(4) of the Act, the CIT(A) held that, explanation to Section 132(4), was inserted w.e.f. 1/4/1989 which gives power to the authorized officer to record statement to examine a person u/s 132(4) in respect of matter relevant for the purpose of being the investigation in connection with proceedings under the Income-Tax Act. Thus, the statement of Shri Govind Babu has evidentiary value.
18 2929/Del/2012 Harsh (d). On the retraction by Shri Govind Babu and two Panchas by way of affidavits he held that statement of Shri Govind Babu was recorded on 16/2/2005 and where as the affidavit of retraction was dated 22/12/2006, i.e. after 22 months, which indicates that this is an afterthought.
(e). Shri Govind Babu has been on the pay roll of the assessee company and was made a Director of the assessee Company in July 2005, which does not allow the possibility of the affidavit being filed at the behest of the assessee Company.
(f). The assessee has not controverted the observation of the A.O that statement of Shri Govind Babu was once again recorded on 21/2/2005 i.e. after 5 days of the first statement, wherein the facts stated on 16th February 2005 was retracted by Shri Govind Babu.
(g). In the affidavit dated 22/12/2006, Shri Govind Babu has recorded to his statement regarding statement given on 16/2/2005 and not mentioned in respect of the statement recorded on 21/2/2005. Thus, the statement of Shri Govind Babu has evidentiary value.
(h). As regards the Corroboration check of Two Panchas through affidavits, it is clear that the assessee company contacted them and got filed these affidavits after more than 22 months.
19 2929/Del/2012 Harsh (i). The affidavits cannot be said to be spontaneous and are never but afterthought.
(j). On the issue of non-production of machine operators for cross-examination, these persons were employees of the assessee at that point of time while taking their statements and that the assessee would be in a better position to know their where about at the time of assessment proceeding.
(k). The request for cross-examination was made at the fact end of the assessment proceedings, which was not possible.
(l). The provisions of Section 145(3) has been invoked not only on the basis of statement of the factory manager and machine operators, but also due to the fact that during a simultaneous survey at 7249, Ram Nagar, Qutub Road, New Delhi, stocks were found, which were not recorded in the regular books of accounts.
(m). The arguments of the assessee’s counsel that statements of the illiterate persons could not bind the assessee company. The same has to be rejected both the reasons that the A.O has during a factual finding that the products found during the course of survey were the products mandate by the assessee company, which were not recorded in the books of the assessee, remain uncontroverted.
20 2929/Del/2012 Harsh (n). He dismissed the contention of the assessee that the seized papers did not belong to the company and might have been left by relying on Section 292 C of the Act.
(o) As regards the mismatch of the number of labourers actually working in the factory at the time of search, he referred to the documents seized and the muster rolls maintained by the assessee company and came to a conclusion that the assessee is not incorrect about its true employment of labour in the books of accounts.
(p). He held that from the paper seized, the ‘in time’ and ‘out time’ in respect of persons is recorded along with the names and when confronted Shri Govind Babu accepted the mismatch of his statement under roll.
In view of the above, the Ld. CIT(A) held that, the Assessing Officer has correctly invoked the provisions of Section 145(3), on the basis of (a) material gathered in the statement u/s 132(4)
(b) Incriminating document suggesting non recording of labour working in the factory in the regular books of account and (c) Unaccounted stock found during the simultaneous survey conducted at the Godown and (d) Information of excise duty evasions as received from the excise authority.
21 2929/Del/2012 Harsh
Thereafter, he estimated the gross profit at GP Rate of 30.45% on 75% of the MRP, in the absence of any indication from the assessee on unaccounted production and sale, and held that the method adopted by the A.O was reasonable. He held that the assessee failed to substantiate the ratio of sale price to MRP with evidence, thought it argued that the A.O has committed an error in calculating the turnover on the basis of MRP, ignoring the fact that MRP is not a price at which the assessee company sells its product. The assessee contended that in this line of business the sale price is at 50% of the MRP.
The Ld.CIT(A) estimated that excise duty left after giving abatement of 50% of MRP and that the rate of excise duty at that relevant point of time was 60% and hence the sale price has to be taken at 50% of the MRP + 60% thereof on account of Excise duty which would translate to 80% of the MRP. He further accepted the contentions of the assessee and granted reduction of 5% on the ground that there was likely to be interpretation in availability of the raw material, poor labour capacity utilization etc.
Aggrieved by the order of CIT(A) the assessee as well as the Revenue are in appeal before us.
In these Cross-appeals filed by the parties, the issues that arise are common. These are:
22 2929/Del/2012 Harsh (a) Whether rejection of books of accounts u/s 145 (3) of the Act is correct or not by the A.O.
(b) Whether estimation done by the Assessing Officer of income and investment is correct or not.
11.1. The Ld. Counsel for the assessee Mr. Mukesh Gupta repeated the arguments made before the first appellate authority. He filed paper books as well as case laws which would be dealt with, as and when necessary. The sum and substance of these submissions are:
(a) the issue in question is whether there is suppression of substantial production and turnover and the revenue has no evidence to come to a conclusion that there is suppression of turnover production.
(b). The statements from Shri Govind Babu dated 16th February 2005 and 21st February 2005 were recorded under threat and coercive and have been retracted and hence these cannot be taken as evidence.
(c) Statement recorded from the supervisors, and driver of the Tempo Tata 407 were recorded behind the back of the assessee and no chance was given for cross-examination, hence these statements have no evidentiary value.
(d). The basis of valuation of the stock found in the loaded tempo, was not provided nor was any material or document found in 23 2929/Del/2012 Harsh support of the A.O’s allegation that the stock belongs to the assessee.
(e). The A.O has not intimated as to whether such stock was seized or whether the prohibition order was passed or whether the tempo was allowed to go with the material.
(f). It was submitted before the A.O that stock of Rs.8,66,666/- was found in the premises at Ram Nagar Market, Qutub Road, New Delhi does not belong to the assessee and that the Revenue has no material to allege otherwise. Statements were recorded for Mr. Harpal Singh and Roop Singh who are illiterate and no opportunity of cross examination was given and hence there statements have to be ignored.
(g). Reliance was placed on the following judgments for the proposition that statement recorded at the time of search cannot be used for making an addition, when opportunity to cross-examine the witness was denied and when there is no corroborate material in support of the statements.
(a) Andaman Timber Industries Vs. Commissioner of Central Excise (2015) 281 CTR (SC) 241
(b). Vinod Solanki Vs. Union of India (2008) 16 SCC 535 (SC).
(h). On the four loose papers seized during the course of search, the learned counsel submitted that a perusal of these papers demonstrates that nowhere the names of 83 persons were 24 2929/Del/2012 Harsh mentioned. It was submitted that the Assessing Officer has wrongly read these documents and has come to factually incorrect conclusion.
(i). These were also wrongly recorded by the A.O that only 20 employees were on the muster rolls and whereare on an examination of the muster rolls, 37 workers were working in the factory at the time of search.
(j). The Ld. AR vehemently contended that the additions in questions were based only on surmises and conjectures. He argued that addition u/s 69 of the Act cannot be made unless there is tangible material.
(k). That the statements relied upon by the A.O as well as the CIT(A) be ignored. The findings based on stock found during the course of survey loaded in a truck and which was also in the godown at Ram Nagar which never belong to the assessee, should be vacate.
The Ld. Departmental Representative Mr. A. K. Saroha, on the other hand vehemently contradicted the submission of the Ld. Counsel for the assessee.
12.1. He filed two sets of written submission. The submissions can be summarised as follows:-
(a). A common search had taken place on these group of assessee’s and writ petitions were filed by Shri S. K. Industries Pvt.
25 2929/Del/2012 Harsh Ltd. in CWP132364/2006 on 28/8/2006, which is a group concern and by Shri S. K. Jain who is the main person controlling this group in CWP NO. 15824/2006 on 5/10/2006 before the High Court.
(b). These writ petitions were dismissed by the Hon’ble Delhi High Court by observing that it is a fit case for imposition of exemplary cost and that the Chaini Khaini business disclosed, did not match either the output capacity of the packing machines nor the enormous assets acquired by the main family.
(c) The High Court’s observation on that the nebulous natures of the dealing and ownership of the properties within the group companies were highlighted by the Ld. DR. 12.2. Statement of Shri Govind Babu was recorded in English and that he is an educated man having M.Com degree and that the allegation of force, coercion etc. were false.
(i). That first statement was recorded by Mr. Subodh Kumar authorized officer on 16/2/2005 and whereas the second statement was recorded by another authorized officer Shri Pankaj Jindal dated 22/2/2005 after 5 days wherein the facts in the first statement were confirmed by Mr. Govind Babu. Two separate authorized officers have recorded the statement at different points of time and the allegation of coercion, threats, intimation physical assault etc. are baseless and after thoughts.
26 2929/Del/2012 Harsh (ii) Shri Govind Babu in his own writing at different points of time stated that the statement is voluntary. He referred to question No. 3 of the second statement which is at Page 250 of the paper book and pointed out that Shri Govind Babu referred (to the fist statement as follows:-
“As I told you in my earlier statement.”
(iii). In the statement given by Shri Govind Babu minute details on facts were stated and this is evident from examination of the answers. He argued that such minute details on facts and objections cannot be dictated by any revenue official and that these are from the personal knowledge of the person examined.
(iv). There is no denial of the fact as to what are the main ingredients for the production of Chaini Khaini and that they are 10-12 German made machines and that the factory worked in two shifts and as to the production capacity of which machine, the sale rate of the products, stated in that their statements.
(v). A close examination of the statement of Shri Govind Babu demonstrates that it is a speaking statement. No income has been surrendered, but only facts have been narrated. Thus the statement is a natural one and is good evidence.
(vi). On the issue of not providing opportunity for cross examination, it was submitted that only the Driver, Roop Singh’s cross-examination was sought and as regards the statement
27 2929/Del/2012 Harsh recorded from the work supervisors it was submitted, that the supervisors were the assessee’s own employee’s and the assessee is in a position to obtain information from them.
(vii). Copies of all statement were given to the assessee during assessment proceedings and hence there is no violating principles of natural justice.
(viii). That survey was conducted at the premises at Ram Nagar and in the spot enquiry, the revenue officials could come to know that the stock belongs to the assessee.
(ix) The finding of fact by the A.O there were 10-12 machines, 80 workers, and two shifts is not controverted by the assessee.
(x). That the statement of Shri Govind Babu is collaborated by the papers seized during the course of search and seizure. That the papers found and seized demonstrates multiple shifts of working of these machines and also the employment of more persons than mentioned in the muster.
(xi) That the benami nature of the godown was discovered by way of surveillance and her detected by spot enquiry.
(xii) The allegation of the assessee that Shri Govind Babu’s statement was totally false is not correct as no complaint was lodged by him despite being an educated person.
(xiii). He distinguishes the case laws relied upon by the assessee.
28 2929/Del/2012 Harsh (xiv) He relied on the judgment of the Hon’ble Delhi High Court in the case of CIT(A) VS. S. Chetan Das Laxman Das (2012) 25 Taxman.com 227 Delhi for the proposition that “Transactions can be presumed for the whole period based on seized material.” and submitted that this proposition is applicable in present case.
12.4. On the affidavits given by the Panchaas, he pointed out that the signatures of the Panchaas as appearing in the affidavits placed at Pages 116 & 117 of the paper book are different, from the signatures in the statements, copies of which placed at pages 1.1 to 3 and 1 to 9 of the paper book. This shows that the affidavits cannot be relied upon.
(i). Retraction is not to be considered, as it was done 22 months after the recording of the statement and that too in a general manner and that the denial is an afterthought.
(ii). That cash was seized from Sh. S. K. Jain the main person of the group and this shows evidence of unaccounted money.
12.5. The Ld. D.R relied on the order of the Assessing Officer as well as the CIT(A) and supported the same.
In reply, the Ld. Counsel for the assessee submitted that (a) the orders in writ petition in the case of Shi S. K. Industries Pvt. Ltd. and Shri S. K. Jain do not belong to the assessee and cannot be considered in present proceedings. (b) that there is no dispute that there are 18 machines and two shifts but the record
29 2929/Del/2012 Harsh demonstrates that there are only 38 employees in the premises when the search took place.
13.1. He further argued that Section 132 does not authorized the revenue official to record the statement of any person found unless he is found in control of Bullion, money, jewellery and other material. As these statements are recorded otherwise, the statements are invalid and cannot be considered. A request for cross-examination was made on 27/12/2006, a copy of which was placed at page 118 of the paper book and as the same was not granted the statements of i.e. Harpal Singh and Roor Singh should not be taken as evidence.
13.2. The Ld. DR submitted that the contention of the assessee that a statement u/s 132(4) cannot be recorded from any person who is not in a possession or control of any books of account, document, money bullion, jewellery etc. and that Shri Govind Babu was not in a possession of the same and hence, the statement in invalid, is not legally correct and has to be rejected. He pointed out that incriminating material found during the course of search was in the possession and control of Shri Govind Babu. He submitted that Direct Taxes Amendment Act (1987) w.e.f. 1/4/1999 had inserted as Explanation to Sub Section 4 of Section 132 and that by virtue of this Explanation, a person can be examined in respect of any matter relevant for the purpose of investigation connected with any proceedings under the Income-tax Act 1922 and hence, this 30 2929/Del/2012 Harsh argument of the assessee counsel is rightly rejected by the Ld.CIT (A).
We have heard both sides. On a careful consideration of the facts and circumstances of the case and a perusal of the papers on record and the orders of the authorities below, as well as the case law cited we hold as follow:
14.1. The first issue is whether the statement recorded for Shri Govind Babu on 16th February 2005 and 21st February 2005 can be considered as evidence. In the statement recorded on 16th February 2005 Shri Govind Babu had given graphic details of the facts. On the aspect of production of Chaini Khaini. A perusal of each of the answers to the questions, demonstrate that these were given out of personal knowledge and by a person who was in control and know of things. For example, the answers to question No. 4, 5, 6, 7 & 8 are extracted for ready reference:-
4. Ans. I am M. Com from Ruhal Khand University.
5.Ans. The main ingredients are Zarda (tobacco) (60%) lime (13%), Kiwan, Oil, Glycerin, method compound (flaour), salt, Garam Masala, sodium Bezoate and water.
6.Ans. The main party is M/s Raman Lal Gobind Lal Patel, 6370 Naya Bans, Delhi.
7.Ans. The oil and glycerin purchased from M/s Paras Impex & Petrocham, C-2/72, Phase-II Ashok Vihar, Delhi. Menthol is 31 2929/Del/2012 Harsh purchased from M/s Jagannath Janki Das Agrawal, 2075, Katra Tobacco, Khari Baoli Delhi. Flavour is purchased from M/s L. D. G Intrnational, A-42, Badli Extension, Badli Village, Delhi.
8.Ans. There are no dealers or main parties to whom sales are being made.
9.Ans. The detail of machinery is as under:-
Sl No. Description No. of units. 1. Filter pouch packing machine 18 (German Make) 2. Pouch Packing machine (Zipper) 8 (indicated MRP of Rs.3.00each) (Indian make) 3. Pouch packing machine 5 (M.R.P of Rs.2.50 each) (Indian make) 4. -do- 6 (out of order) 10.Ans. This machine manufacture 180-200 total vouchers per minute.
11.Ans. This machine produces 23 to 28 pouches per minute. One pouch contain 10 filter pouches and M.R.O of which is Rs.3.00 per pouch.
32 2929/Del/2012 Harsh 12.Ans. This machine produced 23 to 28pouches contain 10 filter pouches in each pouch. The M.R.P of this pouch is Rs.2.50 per pouch.
13.Ans. There are 38 employees working in the company Accountant, Mr. Virunder, store keeper Sh. Rinku. Besides there are three supervisors and 32 other worker including 12 operators.
14.Ans. WE have employed some worker only recently on trial basis. Therefore, there is difference between the non of workers as stated by you.
15.Ans. Their names are (1) Anuj Tyagi (2) Narinder Sharma (3) Amit Saini (4) Sudhir Kr. Das (5) Baldev Kumar (6) Jogminder (7) Sanjay (8) Nagender (9) Sultan (10) Anil Jain (11) Sanjay II (12) Gaurav.
23.Ans. About one lakh to one lakh forty thousand pouches of 3.5 gm each are produced in one shift. Since, the factory is working in two shifts, tow lakh eight thousand pouches of 3.5 gm each are manufactured in one day. Pouches are of two types i.e one 10. U M.R.P of Rs. 3/- per pouch and other with M. R. P of Rs. 2.50 per pouch.
24.Ans. We are not declaring our true quality of production for excise duty purpose and for the purpose for marinating our books of a/cs. This explains the discrepancy pointed out by you.”
33 2929/Del/2012 Harsh 14.2. Shri Govind Babu was working as a Manager at that point of time and was representing to Mr. Girish Chander Jain.
14.3. Shri Govind Babu was made a Director of the Company on 3/7/2005. Despite being an educated person and becoming a Director of the Company, Shri Govind Babu has not disputed or challenged or retracted the statements recorded by him within a reasonable time. It is only after 22 months that an affidavit has been filed stating as follows:-
“5. That content of the statement were dictated by the search team.
That while recording the statement I was beaten and threatened and the guard with the gun were also called by the search team at the time of the recording of statement.”
14.4. This affidavit in our view is an afterthought. It is not specific. Nowhere does Mr. Govind Babu state that the contents recorded in the statement dated 16/2/2005 are incorrect. No complaint has been made to any authority by Mr. Govind Babu. The minute factual details given in the statement does not demonstrate that the same was dictated by a person who has no personal knowledge of the facts which answer to which question, is factually incorrect is not stated. The answer given to each and every question cannot be said to be wrong. Hence in our view the affidavit is afterthought.
34 2929/Del/2012 Harsh 14.5. Coming to the affidavits filed by the Panchaas, we find variation in the signatures, as made in the statements recorded from Shri Govind Babu and the signature as found on the affidavits. In any event, we do not considered these belated affidavits reliable. Hence, we reject the same. Anyhow Mr. Govind Babu has not retracted for his second statement recorded on 21/2/2005. The affidavit refers to only the first statement.
Thus, we hold that the statements recorded from Shri Govind Babu are admissible as evidence.
14.6. The second piece of evidence is the statements recorded at the time of search from more than 10 operators, who were present and working in the factory. The case of the assessee is that, no opportunity to cross-examine these operators was granted and hence their statements cannot be relied upon. The contention of the Department is that, no such request for cross-examination has been made by the assessee and that these operators were employees of the assessee company and were dependent on assessee for their livelihood and that they were present and working in the factory at the time of search and that their statements merely support the factual details given by Shri Govind Babu in his statement. It was also submitted that these operators have not retracted the statement, though they were under the control and supervision of the assessee.
35 2929/Del/2012 Harsh 14.7. We find force in the submissions of the Ld. Departmental Representative on this issue. The statements of the operators merely support the factual details given by Shri Govind Babu in his two statements i.e on 16th February 2005 and 21st February 2005. As the statement only corroborate the factual position stated by manager. Even if these statements are not admitted, the factual scenario does not change. The assessee has not specifically requested for cross-examination of these persons. Hence, we are of the opinion that these statements can be accepted as evidence.
14.8. The third piece of evidence relied upon by the Assessing Officer, is that the document seized from the premises of the assessee which are at page Nos. 68 to 71 of Annexure A-12, party GO-2. The contention of the assessee that these papers do not belong to him, has to be dismissed as devoid of any merit. These papers were found in the premises of the assessee and disclose the information recorded by the assessee.
14.9 The first appellate authority has at pages 31 & 32 held as follows:-
“It is also to be noted that the legal presumption enshrined in Section 292C is applicable in the case of documents found during search u/s 132 according to which it is presumed
(i). That such books of account, other documents, money bullion, jewellery or other valuable article or thing belong or belongs to such person;
36 2929/Del/2012 Harsh (ii). That contents of such books of account and other documents are true; and (iii). That the signature and every other part of books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that persons handwriting, and in the case of documents, stamped, executed, or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.”
After insertion of the above presumption explicitly in Section 292C, any person subjected to search cannot get away by merely pleading that it is not for him but it is for the department to establish that books of account or other documents or assets of incriminating nature found during survey belong to that person or to prove his hand writing or signature thereon or that contents of such books of account or documents are true. Such a person is required to offer a reasonable explanation regarding the nature of such books of account or documents found in his possession or control and if the same is claimed to be belonging to somebody else, then also he is required to explain as to whom the same belong and as to how the same has come into his possession & that too by leading cogent evidence. No doubt, the presumption available u/s 292C is a rebuttable presumption but the onus to rebut the presumption lies on 37 2929/Del/2012 Harsh the assessee and if he is not able to discharge his onus by leading satisfactory evidences, adverse inference may be drawn against the assessee. In the instant cases, the appellant has simply made a bald statement that the paper does not belong to the appellant company, whereas from the papers it can be immediately seen that they contain list of persons working in the factory. In fact, the list for 15/2/2005 also contains “in time” and “Out time” in respect of these persons against their respective names. Again, these facts were brought to the notice of the factory manager Shri Govind Babu the time of search, who accepted the mismatch in his statement under oath. Therefore, it is held that the appellant has not been able to rebut the presumption u/s 292C of the Act and the contents of these papers have to be deemed to be true.”
14.10. We find no infirmity in these finding of the Ld. CIT(A). On examination of the seized documents, we find that it records details of the number of employees and the shifts in which they work. The details mentioned in the seized material does not tally with the records maintained by the assessee. Hence the A.O has rightly relied on this noting in the seized material. The number of employees recorded in these documents found and seized at the premises of the assessee and the number of employees recorded in the books and records maintained by the assessee, demonstrate suppression of facts. Shri Govind Babu in his statement admitted that these records belong to the assessee. Hence, in our view these documents are rightly admitted as evidence.
38 2929/Del/2012 Harsh 14.11. The last piece of evidence is undisclosed stock found in t the godown, at 7249, Ram Nagar, Qutub Road, New Delhi and on the TATA Tempo. On considering the rival contentions, we are of the considered view, that this survey and spot enquiry does not conclusively prove that these stocks necessarily belong to the assessee. The statement of Mr. Roop Singh and Shri Harpal Singh cannot be considered as evidences, without giving the assessee an opportunity of cross-examine. There is no evidence that these persons are employees of the assessee. In our view the fundamental difference is that these two persons were found in premises which the assessee alleges that it does not belong to them. In case of Paul Mathus & Sons Vs. CIT 263 ITR101, it was held that statement recorded during survey cannot be used as evidence. The Assessing Officer has not taking any steps nor collected any evidence to conclusively prove that the stock in the tempo or the stock in the godown belongs only to the assessee. The investigation was left incomplete. Thus, the material collected by way of survey at Ramnagar, Delhi cannot be used as evidence.
14.12. In view of the above discussion, and evaluation of evidence, we are of the considered view that the Assessing Officer has rightly rejected the books of accounts maintained by the assessee u/s 145(3) of the Act, as the Assessing Officer was not satisfied about the correctness or completeness of the accounts of the assessee. Thus, we partly uphold the reasons recorded by the 39 2929/Del/2012 Harsh Assessing Officer para 2 page 5 of the Assessment order in this regard.
14.13. Now, we consider the issue of estimation of income of the assessee. The assessee could not controvert the estimation of income made by the Assessing Officer to the extent confirmed by the Ld.CIT (A). No alternative or without prejudice arguments were made on these estimations. WE feel that the ld has done a fair estimate of income in this case.
14.14. Under these circumstances, we find no reason to interfere in the exercise done by the Ld.CIT(A) in estimating the income of the assessee.
14.15. In result, we uphold the estimation income.
14.16. Thus, the appeal of the assessee for both the assessment years is dismissed.
14.17. As in the assessee’s appeal, the orders of the Ld.CIT(A) are upheld, grounds raised by the Revenue on the issue of the estimation, have to be necessarily dismissed.
40 2929/Del/2012 Harsh
In result, all these appeals of the assessee as well as the appeal of the Revenue are dismissed.
The order is pronounced in the open court on 27th of June, 2016.