DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, PANAJI vs. M/S MOHIT ISPAT LTD., KUNDAIM

The Ld. CIT(A) has erred in deleting the addition of Rs. 6,98,306/ - on account of Difference/Discrepancy in stock at the factory premise of M/s West Coast Ingots Pvt. Ltd.

The CIT(A) erred in deleting the addition of Rs. 27,27,314/- on account of excess of stock of raw materials at M/s Mohit Ispat Pvt. Ltd., Navelim.

The CIT(A) erred in not appreciating the fact that the discrepancy in raw material stock was admitted in sworn statement.

The CIT(A) erred in deleting the addition of Rs. 1,25,53,820/- on account of unaccounted sale of finished products.

We note that, a search & seizure operation was conducted on the respondent assessee, whereas the Kundaim Factory premises was covered under survey u/s 133A of the Act wherein physical inventory of finished goods & raw material was taken. Upon the comparison of actual stock of inventory with that of books excess stock in respect of two items was found namely; (i) sponge iron & import scrap was found excess over recorded stock by 115.3 metric tonne and (ii) stock of MS Ingots was found excess by 2.4 metric tonne. The value of such excess stock found over and above the recorded stock which was computed at prevailing market rate @₹12000/mt and ITAT-Panaji Page 7 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 @₹22000/mt, respectively. The total excess stock thus was arrived at ₹14,36,400/-. Since the assessee had already declared additional income of ₹7,38,094/- in relation to aforestated findings, the net addition as ‘unexplained investment’ u/s 69 of the Act after giving credit therefore was restricted to ₹6,98,306/-.

In first appeal, the Ld. CIT(A) deleted the former addition upon satisfying that, while computing the aforestated excess stock of inventory, the Ld. AO did fail to consider shortage in stock of ‘runner & risers’ by 63.65 metric tonne which was valued at ₹11,45,700. The net valuation of inventory/stock at the former survey premises thus was arrived at ₹2,88,980/- against which the assessee already declared an addition income of ₹7,38,094/-.

We find much less merits in the submission of the Revenue but strength in respondent’s plea. We say so because ‘runner & raisers’ are critical components in casting gating system used to manage molten metal flow and solidification. A runner is a channel that ITAT-Panaji Page 9 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 directs metal into cavity. A riser acts as a reservoir, feeding extra molten metal to compensate for shrinkage, preventing voids, and ensuring sound, defect-free castings. These two items work together as conduit & reservoir in metal casting & ingot production. So essentially there are raw material and part of stock/inventory. Admittedly, the survey party while noting the difference in raw material & finished product at Kundaim factory premises beside finding excess stock of sponge iron & import scrap etc., alongside also found shortage of runners & raisers which was dropped out in computing net difference of stock/inventory. In our view had such value of shortage of runners & raisers considered the net difference for addition would have been only ₹2,88,980/- as against which the respondent since already offered an addition income of ₹7,38,094/-, therefore further addition was unwarranted. ITAT-Panaji Page 10 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 8. It is an accepted principle in fiscal law that addition if any is to be made where survey based on incriminating material [‘IMs’] seized. If such IMs reveals excess as well as shortage of line-items inventory ‘over & above’ or ‘below & down’ the inventory recorded in books, then additions if any to be made be on wholesome computation because both excess & shortage of inventory represents vertical line items ingot manufacturing. While making addition on the basis of IMs the law does not permit the Revenue to considered only items/figure enhancing taxation and ignore items/figures of same IMs reducing addition thus taxation, as was done in the present case. Such action being arbitrary therefore impermissible in law, hence deserves to be vacated. Therefore, we see no error in deleting the addition of ₹6,98,306/-. Ergo, we upheld the deletion. In result the ground no. 2 stands dismissed as meritless. ITAT-Panaji Page 11 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 (ii) addition unrecorded towards excess stock of raw material scrap at the Navelim Factory premises ₹27,27,314/- and (iii) addition towards shortage of stock of finished product of TMT- Bars, MS Ingots, Billets etc., at the Navelim Factory premises ₹2,32,01,070/-.

We note that, alongside to a search & seizure operation conducted on the respondent assessee a survey action at the Navelim Factory Premises u/s 133A of the Act was also conducted wherein alike in Kundaim Factory Premises physical inventory of raw material was taken and compared with that of books to find out the difference if any. The comparison revealed excess stock of scarp being the raw material for production to the tune of 216 metric tonne. The findings after notifying and on respondent’s information were valued at prevailing market rate @₹15000/mt. Since an additional income of ₹7,01,680/- was had already declared on this score ITAT-Panaji Page 12 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 therefore the net addition of ₹27,27,314/- was made as ‘unexplained investment’ u/s 69 of the Act.

Further when physical inventory of finished goods was taken at Navelim Factory Premises and compared with that of books, the said comparison revealed that shortage of (i) TMT-Bars for 774 metric tonnes; (ii) MS Ingots for 56 metric tonne and (iii) Billets for 24 metric tonnes. After notifying the former findings, the of value of shortage of these three stocks of finished goods were treated as sold out of books and accordingly added ₹2,32,01,070/- to total income as ‘unaccounted sales’ of the business.

In first appeal, the Ld. CIT(A) deleted the former addition on finding that, the difference of excess of stock of scrap was wrongly taken which rather included the quantity of by-product such as ‘end cuttings and randoms’ manufactured in the process ITAT-Panaji Page 13 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 of production of final product. In view of the Ld. CIT(A) the Ld. AO erred in computing the excess stock of scrap including therein the by-products which meant for production as ‘raw material. Therefore, in net effect there was no shortage in the quantity of TMT- Bars, MS Ingots and Billets as identified by the Ld. AO. While deleting the former two additions, the Ld. CIT(A) finds that there was no excess stock of scrap instead stock of scrap was short for which the respondent assessee already declared an additional income in the return, therefore deleted the both the additions finding no materiality therein.

The Revenue alleged that the findings of the Ld. CIT(A) are totally perverse and unsustainable in the evince of IMs. The Ld. Naveen Kumar highlighted the respondent’s varied version of explanation tendered before the Ld. AO and that of before Ld. CIT(A) and ITAT-Panaji Page 14 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 argued that the respondent sought the relief by mis- representing the facts in first appellate proceedings and also by withholding the submission made before the Ld. AO. In the assessment proceedings, the assessee claimed to have declared an additional income on the basis of gross profit of 3.58% on net value of difference in inventory of ₹1,90,21,809/- (both raw material scrap and finished goods taken together), per contra diversed before Ld. CIT(A). The deletion on the basis of variation or turnabout facts was arbitrary further such deletion was indeed unsupported by any deprecative evidence, therefore the prayed for reversal of both additions in tandem.

Au contraire, the Ld. Lotlikar submitted that, the during the course of assessment proceedings due to paucity of time computational differences in inventory (raw material & finished goods) were not much ITAT-Panaji Page 15 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 agitated and in view of settled position of law an average & fair % of GP on the net difference was computed for declaring the same in the return as additional income. It was further averred by Ld. AR that, though an average & fair GP computed @3.58% on net difference of ₹1,90,21,809 was only ₹6,80,981/- the assessee however declared additional income of ₹7,01,680 in the return filed for all the variation found at the Navelim Factory Premises. It is only off the back of assessment; the figure of inventory differences were reconciled by the assessee under the pretext that it came to its notice subsequently that stock of raw material & finished goods were inadvertently clubbed and valued together for twin additions. When same was explained in first appellate proceedings, the Ld. CIT(A) accepted the assessee’s version of reconciliation and deleted aforestated twin addition as unwarranted. ITAT-Panaji Page 16 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 14. At the outset we note that, there has been no additional information or evidence brought before Ld. CIT(A) u/r 46A of the Income Tax Rules, 1962. It being so, then there was much less scope for the Ld. CIT(A) to vouch the additions on the basis of fresh material, & submission thereon. What was available before the Ld. AO was literally same was made available in first appellate proceedings before the Ld. CIT(A). Asfar as the explanation about assessee’s declaration of additional income on the basis of average GP @ 3.58% on net difference is concerned, we hardly find any whisper in entire body of the impugned order. This shall alone squarely sufficient to conclude that, while adjudicating former twin issue, the Ld. CIT(A) did turn blind eye to submission of the respondent assessee made in the assessment proceedings, the notings and the findings of the Ld. AO made in the assessment order. ITAT-Panaji Page 17 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 15. From the respondent’s paper book pg 13 titled as ‘Annexure-1’ we noted the physical inventory listed therein by the survey party at the Navelim Factory Premises. An item of scrap (raw material) noted at Sr No 3 which is self-explanatory about the actual stock laying at the factory was 277 metric tonne as against the recorded stock of scrap 61.76 metric tonne. Insofar as the finished stock is concerned, Sr No 1 & 2 clearly notes actual stock of MS Ingots & Billets which were 298 metric tonne & 264 metric tonnes, respectively. The recorded stock in the books of the assessee as on that day was 354.260 metric tonne & 288.530 metric tonne, thus leaving a shortage of 56 metric tonne of MS Ingots & 24 metric tonne of Billets. Insofar as the TMT-Bar stock is concerned, there were fifteen varied sizes of TMT-bar noted Sr No. 4 to 15 with corresponding figures of actual quantity found at the time of survey. The effective total of such all TMT- ITAT-Panaji Page 18 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 Bars quantity was worked out with the help of respondent assessee was 1252.648 metric tonne and when it was compared with the book stock of 2026.005, the difference of was stock came to 773.357 metric tonne, however rounded-off to 774 metric tonnes. The survey party notified the aforestated findings to the respondent assessee who without dispute endorsed the same affixing signature on the very same day & date. In response to show cause dt. 15/12/2017 the respondent assessee vide letter dt. 20/12/2017 without disputing the difference worked out by the Ld. AO, claimed to have netted the value of excess stock of scarp with that of value of shortage of finished goods namely; MS Ingots, Billets & TMT-Bars and claimed to have declared an additional income @ 3.58% GP on such valuation of net differential stock found at the Navelim Factory premises by the survey party. ITAT-Panaji Page 19 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 16. As we note in case of survey u/s 133A of the Act and search u/s 132 of the Act, the addition can only be made on the basis of IMs and not on the exclusive strength of statement or declaration. Inversely, additions made (if any) exclusively on the basis of declaration or statement in view of settled position of law laid down by Hon’ble Courts is unsustainable in law. The reference in this regard can be made to the decision in ‘Paul Mathew & Sons Vs CIT’ [2003, 263 ITR 101 (Ker)], ‘CIT Vs Dhingra Metal Works’ [2010, 328 ITR 384 (Del)], and ‘CIT Vs S Khader Khan Son’ [2012, 210 Taxman 248 (SC)], following which hon’ble courts rejected the Revenues claim for making addition solitarily on the basis of statement, such for instance are; ‘CIT Vs P. Balasubramanian’ [2013, 354 ITR 116 (Mad)], ‘CIT Vs Ibis Infonet Pvt. Ltd.’ (2017) 394 ITR 538 (Del)], ‘PCIT Vs Sunshine Import & Export (P) Ltd.’ [2020, 272 Taxman 173 (Bom)]. ITAT-Panaji Page 20 of 44 ACIT Vs M/s Mohit Ispat Limited ITA No. 009/PAN/2020 AY: 2016-17 17. Per contra, in the present case we note that, former twin additions were not at all founded exclusively on the basis of statement recorded but such statement was mere simpliciter to confirm the concrete findings of the Revenue from the unwavering contents of seized IMs. The former additions on the contrary were carried out on the basis of inventory differences noted on physical verification with that of book/stock records after being confirmed by the respondent. In this case, the actual/physical inventory (raw material & finished goods) since did not match with the book/stock records of the respondent, therefore the difference was exigible to tax as undisclosed. The statement detailing physical verification as accepted by the assessee which differed from relevant book/stock record in our considered view partaken the character of incriminating documents so as to enable the former twin additions ITAT-Panaji Page 21 of 44 ACIT Vs M/s Mohit Ispat Limited ITA No. 009/PAN/2020 AY: 2016-17 without supplementary confirmation/statement, as such IMs in our view were sacrosanct for Revenue’s action in the absence of entries in books when compared with. On the other hand there is no direct evidence of any allegation of any pressure or coercion by the Revenue for confirming the factual matrix in the statement so recorded, and further there being no evidence placed on record by the respondent assessee to overturn the contents of statement or otherwise proving it to be originally incorrect, we see no merits in the rebuttal of the respondent assessee but find one in the argument of the Revenue.

Though in present case the Revenue is better placed, a reference still can be drawn from decision of Hon’ble jurisdictional High Court in ‘T Lakhamshi Ladha & Co Vs CIT’ [2016, 73 Taxmann.com 117 (Bom)] wherein hon’ble lordships have upheld the ITAT-Panaji Page 22 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 addition made on the basis of statement of one partner who confirmed the findings from seized IMs, discrediting the retraction of other partner.

We find that, the impugned twin additions were deleted together without much identifying, verifying the facts on record, thus predominantly on reaching wrongful conclusion persuaded by respondent’s incorrect narration of facts and diverse version of explanation. Therefore, there is much less merits in the reversal of twin additions made. For the reasons, we vacate the action of Ld. CIT(A) and restore the twin addition on very terms.

Having decided so, however, it is essential in the interest of justice to direct correction of arithmetical error in relation to addition made towards excess stock of scrap which was rounded off to 216 metric tonnes instead of actual difference of 215.24 metric ITAT-Panaji Page 23 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 tonne, further applying accelerated rate prevailing at the time of framing of assessment @15,000/- instead rate prevailing as on the survey date @12,000/-. Ground 3 thus stands party allowed. The ground 4 & connected ground are allowed in aforestated terms.

In relation to former addition, we find that, the search action also covered the residential premises of one the director of respondent assessee company viz; Mr Hitvardhan Mittal, wherein certain incriminating materials were found, seized & inventoried as ‘A/HVM/01’ [‘IMs]. From pg 04 to 08 of ITAT-Panaji Page 24 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 such IMs the details of production/manufacturing & sales for the month of December 2015 pertaining to three factory premises viz; Navelim unit, Amona unit & Kundaim unit were noted and compared with the books of respondent assessee company. The said comparison prima-facie revealed stark difference in sale of MS Ingots, TMT-Bars, Randoms, Misroll and Scraps. The actual sales as noted in IMs were found under-recorded by ₹12,23,46,040/- in the books of the respondent assessee company. Therefore, vide a show cause notice/letter dt. 15/12/2017 the findings noted by the Ld. AO were confronted to the respondent assessee for explaining the difference and reasons for short recording or suppressing actual sales in the books of account so maintained. The respondent vide its reply dt. 20/12/2017 stated that, without getting into dispute over the issue but to buy peace, had declared an additional income of ITAT-Panaji Page 25 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 ₹8,51,62,704/- towards such notified difference by way of gross profit computed on such difference of sales. The explanation of the respondent assessee partly inspired therefore the Ld. AO proceeded to add difference of suppressed sales ₹3,71,83,336/- after giving credit to the income additionally declared. We find that, while making former addition the Ld. AO founded addition on basis of IMs seized in the course of search action, books of account etc., made available and supported by admission on statement recorded in the course of search proceedings. In first appellate proceedings, the Ld. CIT(A) reversed the additions without much independent findings but on twofold premise/basis that; (i) the Ld. Coordinate bench’s decision in assessee’s own case where addition was restricted to profit element only and (ii) Ld. AO did not adhere to basic rule that for every sale there must of corresponding purchases. ITAT-Panaji Page 26 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 22. The Ld. Mr Nayak strongly relied on the impugned order and more specifically the decision of Ld. Co- ordinate bench rendered in assessee’s own case i.e., dt. 25/11/2014 and made twofold arguments to bolster relief granted by Ld. CIT(A) and blast the Revenue’s case viz; (i) declared profit is more than 50% of suppression of sales worked by the Ld. AO and (ii) in such cases, entire sales cannot be added ignoring the corresponding purchases as well as conversion cost needed for. On the flip side, the Ld. Naveen Kumar submitted that; the respondent did not declare a GP on suppressed sales worked out by the Ld. AO but declared an ad- hoc income though it has much less basis but far exceeds GP Margin. The corresponding purchases not been shown as not recorded, thus were already booked and been considered by the assessee while filing return of income for the year. ITAT-Panaji Page 27 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 23. Next in collapsing the assessee’s argument like a house of cards, Ld. DR adverted to the assessee’s submission reproduced in the assessment order at pg 10 of 15 and drew our attention to the chart and submitted that, the unit-wise GP margin for three units were 1.55%, 2.56% and 2.99% which average outs to 2.37%. The additional profit thus worked out by assessee itself to ₹30,98,878/- against which the respondent declared an ad-hoc income of ₹8,51,62,704/- and no basis therefore was explained in the course any tax proceedings. The assessee’s contention therefore is factually incorrect and with no basis at all because on one hand it claimed to have declared a GP margin on suppressed sales and on other hand explains no basis or rationale in coming to such magical ad-hoc declaration. It was further argued that the decision relied upon by the Ld. CIT(A) dealt with bogus purchases hence inapplicable. ITAT-Panaji Page 28 of 44 ACIT Vs M/s Mohit Ispat Limited ITA No. 009/PAN/2020 AY: 2016-17 24. The search was conducted in the FY 2015-16 relevant to assessment year under consideration. The addition on account of supressed sales for the month of December 2015 was found to have been made on the basis of unrefuted IMs found, seized, and confronted to the respondent. All the more such suppression of sale when confronted for explanation, same was admitted by the respondent’s director and such admission till the present proceedings stands unaltered. Thus, the impugned addition towards suppressed sales found better placed in view of the admission which remained unretracted. Had there been a retraction of admission (if any), such retraction in our considered view would not have even slightly impaired the vigour of IMs to form a standalone basis for impugned additions. Therefore, we prima-facie find no error in brining to tax entire amount of suppressed sale for the month December 2015. ITAT-Panaji Page 29 of 44 ACIT Vs M/s Mohit Ispat Limited ITA No. 009/PAN/2020 AY: 2016-17 25. In view of provisions of section 292C of the Act that entries in such a seized incriminating material indeed carry presumption of correctness which neither rebutted in the assessment proceedings, nor in the impugned appellate proceedings and nor in the present proceedings. It for the reasons we say that the Ld. AO had rightly made the impugned addition based on contents of the IMs found & seized during the course of search herein at the residential premises of respondent director who upon confrontation confirmed the same in the statement recorded on oath. In view therefore, we find that the Ld. CIT(A)'s action of deleting the impugned addition was founded without referring to the contents of IMs seized in the course of search/survey and difference of sales worked out for the month of December 2015 qua books of the respondent. Therefore, such action deserves to be reversed on this score alone. ITAT-Panaji Page 30 of 44 ACIT Vs M/s Mohit Ispat Limited ITA No. 009/PAN/2020 AY: 2016-17 26. We say so because, it is well settled principle in fiscal law that, in cases of search/survey an addition in assessment can be permissible only on the basis of incriminating material unearthed and not otherwise. A reference can be made to the decision of jurisdictional Hon’ble Bombay High Court in the case of ‘CIT Vs Continental Warehousing Corp. Ltd’ [2015, 58 taxmann.com 78 (Bom)] and ‘CIT Vs Kabul Chawla’ [2015, 61 taxmann.com 412] wherein the ratio laid by their hon’ble lordship conversely sanctions the addition on the basis of incriminating material is permissible not only in abated assessment but even in concluded assessments. In the case in hand, the impugned addition is made on the basis of incriminating material the presumption about contents whereof never challenged or rebutted, and such addition more importantly made in the search year therefore better acted by the Revenue. ITAT-Panaji Page 31 of 44 ACIT Vs M/s Mohit Ispat Limited ITA No. 009/PAN/2020 AY: 2016-17 27. Insofar as the reliance placed on the decision of Ld. Co-ordinate bench in assessee’s own is concerned, the facts of that year were immensely distinguishable as it dealt with bogus purchase wherein the assessee to the satisfaction of the bench established the case for restricting the addition on such account to be accepted to profit margin only, unlike this case. In view of this, the reliance found misplaced by the respondent. We also note that, the respondent also misplaced its reliance on ‘Mahashwari Synthetics (P) Ltd. Vs CIT’ [2010, 189 taxman 266 (P&H)] because by the said judgement of Hon’ble Court in first instance dismissed the appeal filed by the assessee and thus did not adjudicate the rightness of the Ld. Co-ordinate bench’s decision in restoring the matter back for making fresh observations for making addition as falling short of substantial question of law. ITAT-Panaji Page 32 of 44 ACIT Vs M/s Mohit Ispat Limited ITA No. 009/PAN/2020 AY: 2016-17 28. Now coming to the tail end argument of the assessee. We note that, the respondent neither adduced any evidence to deprecate the findings of the Ld. AO who noted difference in sales on comparing IMs with that of books nor adduce any document to showcase to our satisfaction that there were no unaccounted sales. This infers the respondent not only failed but chosen not to adduce any documents to disprove the case of the Revenue or to prove its case either. In this context it shall be pertinent to refer to the ratio laid down in ‘CIT Vs Motor General Finance’ [2002, 254 ITR 449 (Del)] wherein their hon’ble lordship have categorically held that, when assessee fails to produce documents or evidence in connection with the matter at issue the Revenue authorities well within their power to draw adverse inferences to the effect that had those documents been produced, they would have gone against the interest of the assessee. ITAT-Panaji Page 33 of 44 ACIT Vs M/s Mohit Ispat Limited ITA No. 009/PAN/2020 AY: 2016-17 29. Sighting the adjudication out of hand, the respondent tried to roll the dice by arguing that, if entire sales are accepted as unrecorded thus suppressed for the purpose of taxation, then corresponding out of books purchases should also be deducted therefrom as accepted by the Ld. CIT(A). Per contra, the Ld. DR also raised a concerned contending that, if respondent’s claim is considered positively then equal addition of such credit be permitted to be added as ‘unexplained expenditure.’ We note by this rival party’s arguments in effect claims were nullified.

In search proceedings, had there been any corresponding purchases which are not recorded in the books, the respondent assessee itself would have declared only gross margin on such suppressed sales unearthed in the search/survey proceedings and not the ad-hoc amount of such suppressed sales which ITAT-Panaji Page 34 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 upon computation was roughly about 69%-70% (approx.) of suppressed sales. Needless to mention such computation for declaration remained unexplained in all proceedings including the present one. We are also mindful to the ad-hoc computation laid by the assessee in the proceedings before tax authorities, wherein the respondent after working out the gross margin qua factory premises (whereupon survey was conducted) was computed the addition profit based upon such margin in relation to suppressed sales but thoughtfully chosen to declared ad-hoc additional income for taxation over the profit margin income of ₹30,98,878/- The respondent all along has failed; (i) to explain methodology/basis applied to arrive at such ad-hoc figure (ii) to explain rationale applied in computing such ad-hoc and (ii) justify such ad-hoc declaration, in all proceedings including the present one. ITAT-Panaji Page 35 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 31. Admittedly, in the present case, the unrecorded sales were never the product of estimation, but the actual difference of sales recorded in books over recorded in the incriminating material seized in the course of search/survey proceedings. The fact remained unaltered that, the assessee did not explain the difference of sales when confronted rather confirmed them as out of books. While confirming so, the assessee neither in the course of such survey/search nor at the time of framing the assessment raised the contention of corresponding unaccounted purchase cost should be excluded from such unrecorded sales unearthed. The declaration of ad-hoc additional income of 69%-70% (approx.) in place of additional income computed on gross margin indeed suggest on recorded that, all the corresponding purchases were recorded in the books. On the contrary, had the assessee claimed that there ITAT-Panaji Page 36 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 were corresponding unrecorded purchases against such unrecorded sales, then Ld. AO would have brought such unrecorded purchases to tax as unrecorded/unexplained expenditure, and the effect would be the same as resulted owning the impugned addition. A reliance can be placed on ‘NK Proteins Ltd. Vs DCIT’ [2017, 250 Taxman 22(SC)] & ‘Rajesh Trade Links Vs DCIT’ [2013, 37 Taxmann.com 392 (Guj)]

Before we concluded, it shall suffice to state that, the cases relied upon by the respondent cannot squarely be applied herein for three factual variations, (i) firstly the assessee before us is neither a trader nor a dealer but a manufacturer of (ii) in-spite being subjected to mandatory cost audit compliance there was complete absentia with regards to unrecorded quantitative details raw-material etc., purchased, consumption, and details of conversion cost incurred ITAT-Panaji Page 37 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 in relation suppressed sales. Therefore, the bald argument of the respondent that, owning to complex nature of business process the computation cannot be precisely explained or justified finds no merit. The respondent throughout all proceedings failed to showcase with cogent evidence that there were indeed unrecorded purchases used in manufacturing the corresponding unrecorded sales and on the other hand also failed to dismantle the Revenue stands that there were no unrecorded purchase in relation to suppressed sale unearthed in the course of search. In view of the aforestated discussion and judicial precedents, all the contentions raised, arguments advanced and alternative claims by the respondent stands rejected as meritless. In consequence the impugned reversal of addition is vacated and the addition made by the Ld. AO is restored. The ground no. 7 of appeal thus stands allowed. ITAT-Panaji Page 38 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 (ii) ₹1,25,53,820/- unaccounted sales found for 02/01/2016 which was imputed from the incriminating material found at Navelim factory premises surveyed u/s 133A of the Act.

The rival party’s solidified that the impugned addition was made out of IMs found and seized at the Navelim factory premises which is one of three manufacturing facilities with which the respondent is in business. From the comparative analysis of Pg 84, 88 & 89 of IMs inventorised as ‘A/MI/25 and the books of the respondent, it was ‘for a particular day i.e. 02/01/2026’ found that the sales effected for 02/01/2026 qua factory premises were under recorded or suppressed in the books.

The findings of Ld. AO as tabulated on page 13 of the assessment order were notified to the respondent vide show cause notice dt. 15/12/2017 for explaining the difference or otherwise to refute the findings. ITAT-Panaji Page 39 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 35. The assessee vide letter dt. 20/12/2017 responded to the Revenue that while declaring the additional income the gross profit margin on this suppression was also considered, therefore no separate declaration vis-à-vis addition thus required to be made. The said explanation was since common for both the addition under the issue (B) for which credit of was already granted while making former addition therefore the Ld. AO proceeded with difference in sales and added the same suppressed sales ₹1,28,57,679/-

We find that, while making former addition the Ld. AO founded addition on basis of IMs seized in the course of survey action, books of account etc., made available and supported by admission on statement recorded in the course of search proceedings. In first appellate proceedings however, the Ld. CIT(A)

We further refer the ratio laid in the case of ‘CIT Vs Daulat Ram Rawat Mull’ [1973, 87 ITR 349] it has been held that onus of proving what is apparent is not real is on the party who claims it to be so. There should be direct nexus between the conclusions of fact arrived at, or inferred, and the primary facts ITAT-Panaji Page 43 of 44 ACIT Vs M/s Mohit Ispat Limited AY: 2016-17 upon which the conclusion is based. Since the onus fastened on the respondent remain undischarged, & the Revenue on the other hand proved its case with the support of unrefuted evidential IMs etc., therefore Revenue to succeed. In view thereof we vacate the reversal and restore the addition in very terms. The ground no. 8 raised in the appeal memo thus stands allowed. All remaining grounds being supportive to the grounds decided discretely, shall accordingly stands adjudicated & disposed of.

In result, this appeal of the Revenue is PARTLY ALLOWED in aforestated terms. In terms of rule 34 of ITAT Rules, 1963 the order pronounced in the open court on date mentioned hereinbefore.