Income Tax Appellate Tribunal - Delhi
Star Wire (India) Ltd., Faridabad vs Assessee on 31 January, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH : G : NEW DELHI
BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT
AND
SHRI A.D. JAIN, JUDICIAL MEMBER
ITA No.1103/Del/2012
Assessment Year : 2009-10
Star Wire (India) Ltd., Vs. ACIT,
21/4, Mathura Road, Central Circle-I,
Ballabhgarh, New Delhi.
Faridabad.
PAN : AAECS1124Q
(Appellant) (Respondent)
Assessee by : S/Shri Ashwani Kumar & Aditya
Kumar, CAs
Revenue by : Shri Niranjan Kouli, CIT, DR
ORDER
PER A.D. JAIN, JUDICIAL MEMBER
This is an appeal filed by the assessee for Assessment Year 2009-10 against the order dated 31.01.2012 passed by the ld. CIT (Central), Gurgaon. The assessee has taken the following grounds of appeal:-
"1. That order passed u/s 263 of the Income Tax Act, 1961 by the Ld. Commissioner of Income Tax (Central), Gurgaon is against law and facts on the file in as much he was not justified to hold that the assessment order dated 31.12.2010 passed u/s 143(3) r.w.s. 153B(1)(b) of the Income Tax Act, 1961 by the ld. Assistant Commissioner of Income Tax, Central Circle-I, Faridabad is erroneous in so far as it is prejudicial to the interests of the revenue.
2. That the Ld. Commissioner of Income Tax failed to appreciate the import of detailed submissions made both during the course of assessment proceedings before the ld. Assessing Officer as well as in response to notice u/s 263 of the Income 2 ITA No.1103/Del/2012 Tax Act, 1961 and the facts and circumstances of the case while arriving at a conclusion that the said assessment order passed by the ld. Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue.
3. That the Ld. Commissioner of Income Tax gravely erred in directing the ld. Assessing Officer to make an addition of Rs.3,01,69,000/- on account of alleged excess stock by simply ignoring the entire gamut of investigations and enquiries carried out by the Investigation Wing and the Ld. Assessing Officer during the course of assessment proceedings and the detailed written submissions made on behalf of the appellant company.
4. That the Commissioner of Income Tax was further not justified to arbitrarily propose an addition of Rs.3,90,00,000/- on account of introduction of cash as alleged unexplained cash deposit u/s 68 of the Income Tax Act, 1961 by ignoring the fact that the same had already been duly voluntarily surrendered during the investigation proceedings during the course of search u/s 132 of the Income Tax Act, 1961 and offered as additional income thereby leading to double taxation of the same.
5. That the Ld. Commissioner of Income Tax gravely erred in proposing the above mentioned two additions whereas in para 5 of the show cause notice, he has observed that the ld. Assessing Officer did not make enquiry or investigation on the said two issues."
2. Ground Nos.1 and 2 are general.
3. Apropos Ground Nos.3 and 5, the facts as per the relevant orders are that the business of the assessee company is to convert steel scrap into ingots of spring steel/alloy steel and liquid metal for its casting division. The ingots are further rolled by the rolling mills to become saleable products like ordinary steel items, flat bars, rods and special steel items. During the course of search and seizure operation in the factory premises at 21/4, Mathura Road, Ballabgarh, Faridabad which is a manufacturing unit of the company, M/s Star Wire (India) Ltd., a trading account as on 02.02.2009 was prepared by the assessee company which depicted the stock as per the books of account. After drawing the inventory of stock by the search team, it was found that the value of stock of scrap was ` 5,45,40,000/-, instead of ` 3 ITA No.1103/Del/2012 2,43,71,000/- shown by the assessee in its books of account. Thus, the excess stock of scrap to the tune of ` 3,01,69,000/- was worked out. This fact was confronted to Shri Mohinder Kumar Gupta, Director of the company at the time of the search operation. The relevant extract of his statement is reproduced below:-
"Q.6 On physical verification of stock of MS scrap lying in your factory premises, it is seen that the same is lying at three different quantities/volumes. For the purpose of valuing the same, an inventory has to be drawn showing total quantity of scrap at different places. In this connection, one cubic meter of scrap in loose condition has been weighted by your employee Shri R.D. Saini in the presence of yourself and Shri H.R. Goel (EO). According to it, the weight per cubic meter app. Comes to 628 Kgs. On the basis of same, the total quantity of scrap comes to 2727 MT and by applying the rate of Rs.20000/- PMT, the value of the scrap comes to Rs.5,45,40,000/-. Thus, there is excess stock to the tune of Rs.301.69 lacs. What do you have to say in this regard.
A. This is a matter of fact based on the calculation made at the site and I have no comments for the same. However, the excess value so arrived at is and will form part of my surrender of income already made on 30.01.2009."
Even though the excess stock of scraps was found at the time of search and this fact was accepted by the employee, EO and MD of the company stating that this was part of surrender made at the time of search, this was not included in the return filed by the assessee. However, during the course of assessment proceedings, the assessee company filed a reply claiming that weight of scrap was re-examined by them physically and the weight of scrap of one cubic meter in the scrap mix was 250 Kg. In this way, the assessee worked out total weight of scrap at 1230 MT as against the 2727 MT calculated during the search operation. The Assessing Officer completed the assessment accepting this stand of the assessee as narrated below:-
(i) While completing the assessment proceedings, the Assessing Officer could not consider the fact that surrender of Rs.301.69 lacs had already been made but the assessee had not shown this amount in the return of income.
(ii) The Assessing Officer also could not consider the fact that the value of stock on the date of search was prepared by Sh. R.D. Saini an employee of the company who was store in charge and this was done in the presence of Managing Director and Shri H.R. Goyal (EO).4 ITA No.1103/Del/2012
(iii) The Assessing Officer further forgot to consider that the MD of the assessee company had admitted the excess value on the date of stock taking of scrap and any re-examination f scrap by the assessee on its own at a later date was clearly an afterthought and the weight of scrap in loose condition was calculated by employee of the assessee company himself in the presence of Director & EO. In this manner, the excess stock of ` 301.69 lacs was not brought within the ambit of tax by the Assessing Officer.
4. During the course of the assessment proceedings, the assessee was asked to explain as to why the amount of ` 3,90,00,000/- in cash deposited in its bank account should not be treated as income in addition to the income declared in the return. The assessee stated that this amount was received from different debtors but it was not in a position to give the names and addresses of the persons from whom the cash was received. It stated that this amount was part of the amount surrendered at the time of search. It further stated, "The above offer of undisclosed income by the assessee company was accepted without putting any further condition by the Ld. Addl. Director. According to the above letter of offer the assessee company is entitled to raise sundry debtors with ` 3,90,00,000/- without maintaining any name or address or identification. Further, on realization, the said debtor is to be credited and cash is debited. Following the terms and conditions as above, the assessee company has accounted for the undisclosed income by debiting sundry debtors. On realization of sundry debtors the cash was received and debtors were credited. Finally, cash received was deposited in the bank."
5. Vide the impugned order, passed u/s 263 of the IT Act, the ld. CIT held that the assessment order was erroneous in so far as it was prejudicial to the interests of the revenue, since the cash deposits of ` 390 lacs in the bank account of the assessee company remained unexplained and were not brought to tax during Assessment Year 2009-10. The ld. CIT, thus, directed the Assessing Officer to make an 5 ITA No.1103/Del/2012 addition of ` 3,01,69,000/- on account of the alleged excess stock. Aggrieved thereby, the assessee is in appeal before us.
6. Challenging the impugned order, the ld. counsel for the assessee has contended that the ld. CIT was not justified in holding that the assessment order was erroneous and prejudicial to the interests of the revenue; that while doing so, the ld. CIT failed to appreciate the detailed submissions made by the assessee both before the Assessing Officer as well as in response to the notice u/s 263 of the Act; that the ld. CIT further failed to take into consideration the facts and circumstances of the case and ignored the detailed investigations and inquiries legally carried out by the Investigation Wing of the department and by the Assessing Officer in the assessment proceedings; that the ld. CIT also failed to consider the detailed written submissions filed on behalf of the assessee company; that the ld. CIT was not justified in proposing the addition of ` 390 lacs on account of introduction of cash as alleged unexplained cash deposit u/s 68 of the Act; that in doing so, the ld. CIT illegally ignored the fact that this amount had been already voluntarily surrendered during the investigation proceedings, during the search conduced and had been offered as additional income; that the action of the ld. CIT has led to double taxation of the amount. The ld. counsel for the assessee has drawn our attention to the show cause notice dated 28.10.2010 issued by the Assessing Officer to the assessee. A copy thereof has been filed before us and has been placed at pages 21-35 of the assessee's paper book ('APB', for short). Pointed reference has been made to Question No.4, as contained at page 27 of the APB, dealing with inventory of scrap found at three different places. It was stated by the A.O. that the weight/cubic metre of the scrap was taken as told by the employees of the assessee company. It was further stated that from the purchase bills, it was evident that most of the scrap items were purchased for 6 ITA No.1103/Del/2012 more than the value taken in the inventory. The assessee was asked to explain the basis on which the rate of scrap was decided. The assessee was also asked to produce the relevant books of account along with purchase bills of scrap to verify the actual position of the stock of scrap. Then, attention has been invited to the assessee's reply to the aforesaid question, a copy whereof has been filed at APB 33-35. The answer to the aforesaid question No.4 is in para No.22 of the sid reply, at APB 47 and 48. It has been argued that the assessee gave a detailed reply, giving the complete facts regarding the stock, stating, inter alia, that on 02.02.2009, the ADI visited the assessee's factory premises, but could not weigh the stock of scrap lying thereat; that, however, so as to ascertain the quantity of stock, he recorded the statement of Shri R.D. Saini, Store Incharge; that this statement was recorded at a time when the person having the knowledge of scrap stock, was not available; that Shri Saini was a store incharge and he never handled scrap stocks; that subsequently, it came to notice that Shri Saini had made a wrong statement about the facts of the scrap stocks and their weight per cubic metre; that accordingly, the MD of the assessee company Shri M.K. Gupta submitted written submissions on 06.02.2009 to the ADI, explaining and clarifying the correct facts, and submitting along therewith, a certificate from a Sr. Engineer of the assessee company; that the computation of the stock of scrap at 2727 MT was incorrect, based on wrong calculation; that if the correct factor of 250 kg/cubic metre were applied, the quantity would work out to 1230 MT, while the stock as per the books came to 1229.27 MT; that therefore, it clearly stood established that the average stock per cubic metre could never exceed 250 Kg/sq. metre; and that the assessee company was valuing the stock of scrap on the Weighted Average Value Method consistently, since long and the weighted average value for the period under reference came to ` 2050.82/MT. The ld. counsel for the assessee has submitted that along with this reply, the assessee 7 ITA No.1103/Del/2012 had submitted copies of the letter dated 06.02.2009 written by the MD of the assessee company to the ADI, the relevant excise record, sheet showing the weighted average value of the stock of scrap for the period under consideration and the scrap purchase register along with purchase vouchers. Reference has then been made to the aforementioned statement of Shri R.D. Saini, Storekeeper of the assessee company, which was recorded by the Assessing Officer even prior to the issuance of the show cause notice i.e., on 19.10.2010. Further, reference has been made to APB 150-154 which is a copy of the statement of Shri Amarendera Jha, recorded by the Assessing Officer on 22.10.2010 and to APB 155-157, which is a copy of the statement of Shri Ved Prakash Khichuka, recorded by the Assessing Officer on 28.10.2010. Then, attention has been invited to APB 146, which is a copy of certificate dated 19.12.2010 issued by Shri A.K. Taneja, former Chairman & MD, Mishra Dhatu Nigam Ltd., Hyderabad. He has certified that one cubic metre melting scrap in scrap mix would weigh about 235 Kg. with a variation of about 10% plus or minus, according to the thickness/thinness of scrap and change in the variety and charge mix. The ld. counsel for the assessee has contended that in spite of all these detailed and in-depth inquiries, the ld. CIT in the revisional order, has wrongly observed that no inquiry was conduced at the assessment stage. We have been taken through APB 1-3, which is a copy of the show cause notice issued to the assessee u/s 263 of the Act. It has been stressed that the ld. CIT has wrongly stated in the notice that "while finalizing the assessment order, the Assessing Officer did not consider the factual position and did not make inquiry or investigation on above mentioned issue (s). Failure to make such inquiry, resulting in undue benefit to the assessee, has made the assessment order erroneous and prejudicial to the interest of the revenue." We have then been taken through APB 4-19, which constitute a copy of the assessee's reply to the aforesaid show cause 8 ITA No.1103/Del/2012 notice issued u/s 263 of the Act. It has been pointed out that complete details in support of the assessment order were given, showing as to how the Assessing Officer had made due detailed in-depth inquiries into the matter, which was why the assessment order was neither erroneous, nor prejudicial to the interests of the revenue. Then, attention has also been drawn to APB-20, which is a copy of the assessee's second reply dated 12.01.2012. Along with this reply, the assessee had filed photo copies of letter dated 30.01.2009 surrendering ` 22 crores as undisclosed income, declaration signed by all the declarants, surrendering ` 2200 lacs as undisclosed income in various heads, order of the CIT (A) for the year under consideration and the aforesaid certificate issued by Shri A.K. Taneja.
7. So far as regards the observations made by the ld. CIT in the order under appeal, the ld. counsel for the assessee has contended that therein, only the statement of Shri R.D. Saini, Storekeeper of the assessee company, recorded by the ADI has been referred to and there is no mention of the statements recorded by the Assessing Officer in the assessment proceedings. It has further been argued that the order under appeal is also not sustainable inasmuch as in one breath, the ld. CIT says that there was no inquiry conducted by the Assessing Officer, whereas at the same time, in para 6, sub-paras (v) and (vi), the ld. CIT gives a judgement over the Assessing Officer's judgement. Regarding the CIT (A)'s observations, it has been submitted that the amount of ` 22 crores was duly surrendered by the assessee and the ld. CIT has gone wrong in observing that no declaration thereof was given. Our attention, in this regard, has been invited to APB 90-96, which is a copy of the statement of Shri M.K. Gupta, Managing Director of the assessee company, recorded on 02.02.2009, under oath, as also reproduced by the ld. CIT in the impugned order. The ld. counsel for the assessee, then, has referred to the case laws relied on, copies whereof have 9 ITA No.1103/Del/2012 been filed by way of a separate compilation of judgements, and which will be dealt with at the appropriate stage, in the succeeding portion of the order.
8. The ld. counsel for the assessee has further contended that there was a surrender of ` 3.90 crores before the Assessing Officer; that this was shown in the assessee's income and was introduced in the assessee's bank account; and that as such, this amount cannot be taxed twice in the same year. Attention has been drawn to APB 70, which is a schedule of the assessee's. Other Income. We have, then been taken to APB-81, which contains the details of the assessee's Miscellaneous Income. It has been contended that this is a summary of the closing balance of ` 713,76,699.66, wherein the amount of ` 7 crores stands included, which, in turn, includes the aforesaid amount of ` 3.90 crores. It has been averred that if an amount is surrendered and that amount is introduced in the books/bank account of the assessee, it cannot be taxed twice in the same year. It has then been argued, referring to APB-26, question Nos.1 and 2, forming part of the show cause notice issued by the Assessing Officer to the assessee u/s 153A/142 (1) read with Section 143 (3) of the Act, that this issue was duly considered by the Assessing Officer. We have also been taken to the assessee's reply to these queries. The same is contained at APB- 45, para 20 (c). It has been pointed out that at APB-46, in sub-para (e), the complete bifurcation of the amount of ` 782.00 lacs has been delineated. The ld. counsel for the assessee has contended that as such, on both the issues, detailed incisive enquiries were carried out by the Assessing Officer. It has been submitted that with regard to the issue of alleged excess stock, the Assessing Officer's view is a plausible view, whereas apropos the alleged introduction of cash as alleged unexplained cash deposit of the assessee, the view taken by the Assessing Officer is the only possible view.
10 ITA No.1103/Del/20129. In response, the Ld. DR has strongly supported the impugned order. It has been contended that the Assessing Officer wrongly accepted the assessee's submissions one long year after the search was conducted; that the weight of 628 Kg. was taken in the presence of everybody; that there was no inquiry whatsoever conducted by the Assessing Officer, as a result of which, the revenue was visited with a huge loss.
10. The Ld. DR has sought to place reliance on the decision in the case of "Malabar Industrial Com Ltd. vs. CIT", 243 ITR 83 (SC) and that in the case of "CIT vs. Deepak Kumar Garg", 249 ITR 435 (MP). It has been submitted that the issue of introduction of cash as unexplained cash deposit was never as much as even examined by the Assessing Officer; that there was only a disclosure on the basis of undisclosed debtors. Attention has been invited to the impugned order, from page 7, sub-para (vii), to page 8. The Ld. DR has contended that as such, the order passed by the ld. CIT is a well versed order, which requires no interference at our hands and which needs to be confirmed while dismissing the appeal filed by the assessee.
11. We have heard the parties and have perused the material on record. To begin with, it would be appropriate to reproduce hereunder, the notice issued to the assessee by the ld. CIT on 9/11.11.2011, u/s 263 of the IT Act. A copy thereof has been appended at pages 1-3 of the APB:-
To M/s Star Wire (India) Ltd.
21/4, Mathura Road, Ballabhgarh, Faridabad.
Sub: Proceedings u/s 263 of the I. T. Act, 1961 in the case of M/s Star Wire (India) Ltd, for the A. Y. 2009-10 and Assessment order dated 31.12.2010(PAN-AAECS1124Q) **'***** 11 ITA No.1103/Del/2012 The examination of the Income Tax assessment records of above mentioned assessee for A.Y 2009-10 reveals that:-
a) During the course of search and seizure operation in the factory premises at 21/4, Mathura ' Road Ballabgarh, Faridabad which is a manufacturing unit of the company M/s Star Wire (India) Ltd., a trading account as on 02.02.2009 was prepared by the assessee company which depicted the stock as per books of account. After drawing the inventory of stock by the search team, it was found that the value of stock of scrap was Rs.
5,45,40,000/- instead of Rs. 2,43.71,000/- shown by the assessee in its books of accounts. Thus, the excess stock of scrap to the tune of Rs. 3,01,69,000/- was worked out.
This fact was confronted with Sh. Mohinder Kumar Gupta Director of the company at the time of search operation. The relevant extract of his statement is reproduced below:-
"Q.6 On physical verification of stock of MS scrap lying in your factory premises, it is seen that the same is lying at three different quantities/volumes. For the purpose of valuing the same, an inventory has to be drawn showing total quantity of scrap at different places. In this connection, one cubic meter of scrap in loose condition has been weighted by your employee Shri R. D. Saini in the presence of yourself and Shri H R Goel, (EO). According to it, the weight per cubic meter app. comes to 628 kgs. On the basis of same, the total quantity of scrap comes to 2727 MT and by applying the rate of Rs. 20000/- PMT, the value of the scrap comes to Rs. 5,45,40,000/-. Thus, there is excess stock to the tune of Rs. 301.69 lacs. What do you have to say in this regard?
A. This is a matter of fact based on the calculation made at the side and I have no comments for the same. However, the excess value so arrived at is and will form part of my surrender of income already made on 30.01.2009. "
b) However, during the course of assessment proceedings, the assessee company filed a reply claiming that weight of scrap was re-examined by them physically and the weight of scrap of one cubic meter in the scrap mix was 250 Kg. In this way, the assessee worked out total weight of scrap at 1230 MT as against the 2727 MT calculated during the search operation. The Assessing Officer completed the assessment accepting this stand of the assessee.
2. While completing the assessment proceeding the Assessing Officer could not consider the fact that surrender of Rs. 301.69Iacs had already been made but the assessee had not shown this amount in the return of income. The Assessing Officer also could not consider the fact that the value of stock on the date of search was prepared by Sh. R D Saini an employee of 12 ITA No.1103/Del/2012 the company who was store in charge and this was done in the presence of Managing Director and Sh. H.R. Goyal (EO). The assessing Officer further forgot to consider that the MD of the assessee company had admitted the excess value on the date of stock taking of scrap and any re-examination of scrap by the assessee on its own at a later date was clear1y an afterthought and the weight of scrap in loose condition was calculated by employee of the assessee company himself in the presence of Director & E.O. In this manner, the excess stock of Rs. 301.69 lacs was not brought within the ambit of tax by the Assessing Officer.
3. During the course of assessment proceedings, the assessee was asked to explain as to why the amount of RS.3,90,00,000/- in cash deposited in your bank account should not be treated as income in addition to the Income declared by you. The assessee stated it was that not in a position to give the names and addresses of persons from whom cash was received. In the reply , vide letter dated 08.12.2010, it submitted that 'the amount is to be credited to the miscellaneous income and correspondingly debited to cash lying seized with the Income Tax Department account, in the books of M/s Star Wire (India) Ltd., with Rs. 2,40,00,000/- and sundry debtors with Rs.3,90,00,000/-" "'the above offer of undisclosed income by the assessee company was accepted without putting any further condition by the ld. Addl. Director. According to the above letter of offer the assessee company is entitled to raise sundry debtors with Rs.3,90,00,000/- without maintaining any name or address or identification. Further on realization the said debtor is to be credited and cash is debited. Following the terms and conditions as above the assessee company has accounted for the undisclosed income by debiting sundry debtors. On realization of sundry debtors the cash was received and debtors were credited. Finally, cash received was deposited in the bank."
4. The Assessing Officer could not make any further enquiry regarding the source of cash deposit made in the bank account, claimed to have been received from the debtors but their , identities were not given. This shows that source of deposits of cash of Rs. 3,90,00,000/- remained unexplained and this amount was required to be added to the income of the company u/s 68 of the I. T. Act. This could not be done by the Assessing Officer. ,
5. The above mentioned facts, arising from examination of assessment records, indicate that while finalizing the assessment order, the Assessing Officer did not consider the factual position and did not make inquiry or investigation on above mentioned issue(s). Failure to make such inquiry, resulting in undue benefit to the assessee, has made the assessment order erroneous and prejudicial to the interest of the revenue.
13 ITA No.1103/Del/20126. I have examined the assessment records and have concluded that the facts mentioned above clearly indicate that the assessment order of the assessee appears to be erroneous and prejudicial to the interest of the revenue. Therefore, I am of the opinion that this is a fit case where provisions of section 263 of the I. T. Act, 1961 are required to be invoked and the assessment order should be revised.
4. If you have any objections to the proposed revision in the assessment order on the lines mentioned above, you may submit the same before me, either in person or through your authorized representative, at 11:30A.M. on 30.11.2011.
5. You may please note that in case no reply is received, it may be presumed that you have nothing to say in this matter and the assessment order will be revised u/s 263 on the basis of materials available before me. .
Yours faithfully, Sd/-
(AMARENDRA K. TEWARY) COMMISSIONER OF INCOME TAX (CENTRAL) GURGAON "
12. Thus, the first issue on which the show cause notice was issued to the assessee by the ld. CIT was that of excess stock of scrap, amounting to ` 3,01,69,000/-. The only other issue was that of unexplained deposit of ` 390 lacs in cash in the assessee's bank account.
13. The assessee company, as per the concerned orders, was, during the year, engaged in converting steel scrap into ingots of spring steel/alloy steel and liquid metal, for its casting division. The ingots were further rolled by the rolling mills to become saleable products like ordinary steel items, flat bars/rods and special steel items. A search and seizure operation was conducted on the assessee on 29.01.2009 at its business premises in Faridabad, its registered office in New Delhi, the residential premises of the Directors of the company and other premises of the Star Wire India Ltd. group, simultaneously. Cash, jewellery and documents/books were seized and impounded from the 14 ITA No.1103/Del/2012 business premises of the company and from the residential premises of its directors.
14. Apropos the first issue, i.e., of excess stock fo scrap of ` 3,01,69,000/-, a trading account as on 02.02.2009 was prepared by the assessee company. This depicted the stock as per the books of account of the assessee. The search team drew the inventory of stock, finding that the value of the stock of scrap was ` 5,45,40,000/- as against that of ` 2,43,71,000/- shown by the assessee in its books of account. There was, thus, found to be an excess stock of scrap to the tune of ` 3,01,69,000/-. Shri Mohinder Kumar Gupta, the MD of the assessee company, was confronted with this position at the time of the search. In his statement, Shri Gupta submitted that this was a matter of fact based on the calculation made at the site; that he did not have any comment to offer for the same; and that however, the excess value so arrived at would form part of his surrender of income already made on 30.01.2009.
15. In the assessment proceedings, however, in its reply filed before the Assessing Officer, the assessee claimed that the weight of the scrap was re-examined by them physically, in which re-examination, it had been found that the weight of scrap of 1 cubic metre in the scrap mix was 250 kg., working out to a total weight of scrap of 1230 MT, as against that of 2727 MT calculated during the search operation. The Assessing Officer accepted this stand of the assessee and no addition was made on this count in the assessment order.
16. Before the ld. CIT, in the reply filed by the assessee company in response to the show cause notice issued u/s 263 of the Act, vide reply dated 06.01.2012 (copy at APB 4-19), the assessee contended, inter alia, that as per the excise records, the total quantity of scrap showed 15 ITA No.1103/Del/2012 1227 MT and not 2727 MT, as calculated during the search operation; that the assessment order dated 31.12.2010 had merged with the order dated 23.06.2011 passed by the Ld. CIT (A) and it could not be revised; that extensive inquiries had been conducted by the Investigation Wing of the department before revoking the orders u/s 132 (3) of the Act and so, it could not be said that there was lack of inquiry; that before concluding that there was excess stock of melting scrap as on the date of search on the assessee, the Assessing Officer had also made extensive inquiries into the matter; that the statement of Shri Mohinder Kumar Gupta, MD of the assessee company, recorded by the ADI at the time of search, showed that Shri Gupta could not reconcile the position of excess stock; that the assessee company, subsequently, had filed a letter, in which it was submitted that while computing the total stock of scrap at 2700 (sic. 2727), the basis taken was the measurement undertaken in terms of cubic metres at site; that the conversion of cubic metres into weight was done on the basis of the opinion of one Mr. R.D. Saini, an employee of the assessee company, who was practically a storekeeper in charge, rather than a qualified engineer, in the absence of any other qualified person to ascertain the correct formula; that the assessee had consulted their GM-Steel Melting Shop, Shri A. Jha, a qualified metallurgist of industries; that according to Shri Jha, the formula to calculate the stock was "volume x density = weight"; that according to him, however, packing density would be very different when scrap was stored in a cubic metre area, depending purely on the shape, size and configuration of the scrap; that he had also opined that it would also depend on how the scrap was stored; that as such, the company had physically re-examined the weight of the scrap of one cubic metre in the scrap mix available at the assessee's works and it had been found that the packing density varied approximately abut 0.25 gm/cc, i.e., one cubic metre 0.25 = 250 kg; that if this calculation were to be 16 ITA No.1103/Del/2012 applied, the total weight of the scrap would come to 1230 MT; that as such, the allegation that the stock of scrap actually found lying was more than the quantity thereof available in the books of account of the assessee, be withdrawn; that the assessee was ready to produce such other evidence or explanation, as might be further required; that the assessee company was also filing a certificate, in this regard, from Amrendra Jha, General Manager, Steel Melting Shop of the assessee company; that this certificate also took note of the fact that the assessee company had filed a certificate dated 06.02.2009 from Shri Ved Prakash Khichuka, Chartered Engineer, the Institute of Engineers (India), New Delhi, certifying that on the basis of his (Shri Khichuka's) examination of documents, inspection and explanations received by him on the subject, the approximate density of the scrap in question varied between 0.15 g/c to 0.35 g/cc, averaging to approximately 0.25 g/c and, accordingly, one cubic metre of such scrap weighed approximately 250 Kg.; that it was in view of this letter addressed by the assessee to the ADI, that the restraint order dated 30.01.2009, passed u/s 132 (3) of the Act, restraining the assessee company from removing, parting with, or otherwise dealing with any goods/material, etc., from its premises, without the specific written permission of the authorized officer, was revoked by the ADI on 02.02.2009, without imposing any further condition, being satisfied about the stock position as explained by the assessee; that thereafter, a detailed statement of the Managing Director of the assessee company, Shri Mohinder Kumar Gupta, was recorded, a copy whereof was being filed; that the statement categorically explained as to how the process could be set in motion and the correct values computed; that the necessary voluminous data with regard thereto had also been submitted before the Investigation Wing of the department and no discrepancy or irregularity was found therein; that based on the said data, a trading and manufacturing account had also been prepared and handed over 17 ITA No.1103/Del/2012 to the Investigation Wing of the Department; that in the case of melting scrap, physical inventory thereof was not possible to be prepared in the short time available with the Investigation Wing during the search; that it was, therefore, that the Investigation Wing thought it fit to estimate the quantity of scrap applying the formula suggested by Shri R.D. Saini, store incharge; that however, specifically, the assessee company had established that there was no excess stock, as opined by Shri Amrendra Jha, the GM, Steel Melting Shop of the assessee company and Shri Ved Prakash Khichuka, Chartered Engineer, the Institution of Engineers (India); that this showed that the Investigation Wing was satisfied with the explanation offered and the evidence adduced by the assessee regarding there being no excess stock; that the fact that neither any disclosure of income on account of under valuation of stock of melting scrap was obtained, nor any verification was conduced, showed the satisfaction of the Investigation Wing in this regard; that so far as regards the Assessing Officer, he, at his end, made efforts to obtain further expert opinion in the matter;
that such expert opinion was sought by the Assessing Officer from Shri A.K. Taneja, former Chairman & MD of Mishra Dhatu Nigam Ltd., Hyderabad, a Public Sector Undertaking under the Ministry of Defence; that Shri A.K. Taneja was a retired Government officer having extensive experience and high qualification in the field of metallurgy and having never remained attached with the assessee company, either directly, or indirectly, in any manner; that further, vide questionnaire dated 28.10.2010, by way of question No.4, the Assessing Officer asked the assessee to explain the basis on which the rate of scrap was decided and to produce the relevant books along with purchase bills of scrap, to verify the actual position of the stock of scrap; that vide reply dated 22.11.2010, had clarified the position as above and had stated, inter alia, that:
18 ITA No.1103/Del/2012"(i) The monthly stock of scrap held by the assessee company during the period relevant to Assessment Year 2009-10 is in the range of 1052.520 MT and 1856.181 MT. The month wise position of stock held by the assessee company also showing purchases month wise, internal accruals month wise and consumption month wise. Perusal of this statement shows that the assessee company is making purchases to the tune of 1246.800 MT on an average per month. Similarly, the assessee company is consuming scrap to the tune of 1227.515 MT on an average per month. Thus the average monthly stock, average monthly purchase, average monthly consumption is very much in conformity to each other. Thus, the figure work out by the learned ADI does not fit within the chart
(ii) That the assessee company is making purchases from bona fide factories and that is why the majority of the purchases say 95% is from the persons who are registered in the excise department. As a result of this our 95% persons are duty paid purchases and MODVAT is claimed in this respect.
(iii) That we have also prepared average monthly figures for the subsequent period which are also in conformity to the figure of stock shown and worked out by us.
(iv) That we have also prepared a statement for the month of January 2009 i.e., the month f search wherein we have worked out quantity per cubic metre for each inward transaction (in respect of only standard container). These figures also show and support the contention of assessee company.19 ITA No.1103/Del/2012
(v) That our bankers i.e., State Bank of India has also undertaken stock audit in respect of our unit and at no point of time any discrepancy was found or reported. A copy of the report of the auditor is also available and same is also attached herewith."
The assessee further stated that the assessee company was valuing the stock of scrap on the weighted average value method consistently since long and the weighted average value for the period under reference came to ` 20,506.82 per MT; that a sheet showing this calculation was being filed; that the assessee had also produced the scrap purchase register along with purchase vouchers, as desired by the Assessing Officer that a copy of the aforesaid reply dated 22.11.2010 to the Assessing Officer was being filed along with the relevant annexures; that the Assessing Officer had further raised queries in this regard vide sl. No.8 of the order sheet entry; that the reply thereto had been submitted by the assessee vide letter dated 03.12.2010, a copy whereof was being filed; that the Assessing Officer, during the assessment proceedings, had also examined Shri Amrendra Jha and Shri Ved Prakash Khichuka; that further, the assessee had prepared a monthly chart of melting scrap as per the statutory record, i.e., Form-IV maintained under the Central Excise Law; that as per the said monthly chart for the period under Assessment as well as for the subsequent Assessment, i.e., A.Y. 2010-11, the assessee company was holding the stocks of melting scrap in the range of 1052.520 MT (as on 30.4.2008) and 1856.181 MT (as on 30.6.2008); that similarly, the assessee company was holding the stock of Melting Scrap during the period relevant to Assessment Year 2010-11 in the range of 1191.946 MT (as on 31.5.2009) and 2268.998 MT (as on 28.2.2010); that in view of the said range, the physical stock estimated at 2727 MT by the search and seizure team on the date of the search did not fall 20 ITA No.1103/Del/2012 within the range and thus, it could safely be said that the estimate was not correct; that the assessee had also prepared a statement of scrap purchases in the classified form for the FY 2008-09 and 2009-10 and the copy of the same was attached therewith; that perusal of these statements of purchases showed that the 80% purchase of scrap was from the Industrial Unit duly covered under the Excise Law and the assessee company had purchased the scrap after paying the excise duty to that extent; that this statement also showed that the assessee company had never purchased any scrap from any un-registered dealers, or otherwise, in cash; that all the purchases had been made through bank payments only and from duly registered dealers under the VAT Act; that thus, the assessee company had enjoyed MODVAT in respect of Central Excise paid and VAT paid; that there was no exception to this proposition in both the Assessment Years; that the proposition of excess stock of melting scrap, presupposed that the purchases had been made from unregistered dealers and that too, in cash; that the proposition itself did not stand the test of justification in view of the facts mentioned; that the assessee company could not be expected to make purchases without enjoying the benefit of MODVAT in respect of Central Excise, and benefit of VAT in respect of the VAT Act; and that this benefit was not a small benefit, it was around 8-16% Central Excise and 4% in the VAT Act.
17. The ld. CIT, however, completely disregarded the aforesaid position as explained by the assessee, along with documentary evidence, as discussed. He observed, inter alia, that:
(i) While completing the assessment proceedings, the Assessing Officer could not consider the fact that surrender of Rs.301.69 lacs had already been made but the assessee had not shown this amount in the return of income.21 ITA No.1103/Del/2012
(ii) The Assessing Officer also could not consider the fact that the value of stock on the date of search was prepared by Sh. R.D. Saini an employee of the company who was store in charge and this was done in the presence of Managing Director and Shri H.R. Goyal (EO).
(iii) The Assessing Officer further forgot to consider that the MD of the assessee company had admitted the excess value on the date of stock taking of scrap and any re-examination f scrap by the assessee on its own at a later date was clearly an afterthought and the weight of scrap in loose condition was calculated by employee of the assessee company himself in the presence of Director & EO. In this manner, the excess stock of ` 301.69 lacs was not brought within the ambit of tax by the Assessing Officer.
18. The Ld. CIT further observed that on 20.02.2009, the assessee had filed a chart (infra) before the department, wherein an amount of ` 7 crores had been shown to have been declared/surrendered with regard to the year under consideration, under the head 'business inocme', to be accounted for as credited to the miscellaneous income of the assessee and correspondingly debited to cash lying seized with the Income-tax Department account, in the books of the assessee, that ` 240 lacs and sundry debtors with ` 390 lac; and that it had also been shown in the chart that the further various business expenses account had been debited, as per the seized record and correspondingly, miscellaneous income credited with ` 70 lac and also covering other transactions found in the seized material. The ld. CIT further observed that when the assessee's representative appeared before him and submitted that he had filed a surrender letter dated 06.02.2009, which was in addition to the first letter dated 30.01.2009, he (the CIT) asked him to produce the same on 12.01.2012; that however, on that date, the AR only produced the aforementioned chart dated 20.02.2009 and could not produce any letter dated 06.02.2009; that there was no letter of any surrender in addition to the first letter dated 30.01.2009, either with the assessee, or in the assessment record; that such chart 22 ITA No.1103/Del/2012 dated 20.02.2009 had no relevance, since the assessee could not change the fact by furnishing a marginal source of income to explain the surrender made on the date of search; that the assessee also could not dictate terms on how a surrendered amount was to be accounted for; that these were matters of fact and had to be taken as they existed on the date of search; that the assessee had to disclose the source and manner of earning the disclosed income and such income would be accounted for in accordance with the accounting practice relating to the source of income; that so far as regards the excess stock of scrap, this was a matter of fact and its omission in the chart furnished on 20.02.2009 would not alter the position; that the certificate given by a private person after more than one year of search had no meaning at all; and that such certificate, relied on by the Assessing Officer, could not be considered as an alternative to the valuation of stock done on the date of search, as per the formula suggested by the store incharge of the assessee company.
19. For ready reference, it would be appropriate to reproduce hereunder the exact observations made by the ld. CIT:-
"d. Subsequently, a chart was furnished on 20th February, 2009 to the Department, mentioning the following in respect of the company:
S. Particulars of Amount of A.Y. to Head of Particular How to be No. assessee Income which Income source of accounted for declaring the Declared incom income, if any income /surrendered e relate s
1. Star Wire 7,00,00,000/- 2009- Business The assessee The amount is (India) Ltd., (Rupees 10 Income company has to be credited 35, Link Road, seven crores earned this to the Lajpat Nagar- only) money by way miscellaneous III, New Delhi- of undertaking income and 24, PAN transactions of correspondingly No.AAECS112 purchase & debited to cash 4Q sales of lying seized land/agriculture with the Income lands. In all Tax Department such cases account. In the written books of M/s 23 ITA No.1103/Del/2012 documents are Star Wire (India) not available. Ltd. with Furthermore, Rs.2,40,00,000/-
the entire and sundry
transaction was debtors with
in cash. The Rs.3,90,00,000/-
modus . Further
operandi various
normally business
employed was expenses
to enter into an account debited
agreement for (as per seized
purchase and record) and
even before correspondingly
the final miscellaneous
execution of income credited
the document with
transfer the Rs.70,00,000/-
land by way of and also
direct covering other
agreement transactions
between the found in seized
original seller material.
and the
purchaser. And
the difference
on these facts
is taken as
income.
e. When the assessee's representative appeared before me and submitted that he had filed a surrender letter dated 6.2.2009, which was in addition to the first letter dated 30.01.2009, I asked him to produce the same. The case was fixed for on 12.01.2012. On that date he produced only the chart signed on
20.02.2009 as mentioned above. He could not produce any letter dated 06.02.2009. There is no letter of any surrender in addition to the first letter dated 30.01.2009 either with the assessee or in the assessment records.
6. the factual position makes it clear that:-
(i) ............ (ii) ..... (iii) ........ (iv) .......... (v) The certificate given by private person after more than
one year of search has no meaning at all. Such certificate, relied upon by the Assessing Officer, cannot be considered as an alternative to the valuation of stock done on the date of search, as per the formula suggested by the store in charge of the company.
24 ITA No.1103/Del/2012(vi) The chart given on 20.02.2009 has no relevance because the assessee cannot change the facts by furnishing an imaginary source of income to explain the surrender made on the date of search. At the same time the assessee cannot dictate terms on how the surrendered amount was to be accounted for. These are matter of facts and have to be taken as they exist on the date of search. The assessee has to disclose the source and manner of earning disclosed income and such income will be accounted for in accordance with the accounting practice relating to the source of income. As regards the excess stock of scrap, this is a matter of fact and its omission in the chart furnished on 20.02.2009 will not alter the position."
20. It was on the basis of the above, that the ld. CIT opined that excess stock valued at ` 3,01,69,000/- was not brought to tax during the year, i.e., A.Y. 2009-10, as a result of which, the assessment order had become erroneous and prejudicial to the interests of the revenue.
21. It is, thus, seen that the effective objections recorded by the ld. CIT to hold the assessment order as erroneous and prejudicial to the interests of the revenue on the issue of excess stock of scrap, amounting to ` 3,01,69,000/-, are as follows:-
(i) That the AO did not consider the fact that the value of stock of scrap on the date of search was prepared by Shri R.D. Saini, an employee - store incharge - of the assessee company, in the presence of the MD of the assessee company, i.e., Shri H.R. Goel (EO III).
(ii) That the AO did not consider the fact that the MD of the assessee company had admitted the excess value on the date of stock taking of scrap and any re-examination of the scrap by the assessee on its own on a later date was clearly an afterthought and the weight of scrap in loose condition was calculated by the employee of the assessee company itself, in the presence of its Director and EO.25 ITA No.1103/Del/2012
(iii) That there was no surrender letter dated 06.02.2009 in addition to the surrender letter dated 30.01.2009, either with the assessee, or in the assessment record.
(iv) That the chart given by the assessee on 20.02.2009 was not relevant as it furnished an imaginary source of income to explain surrender made on the date of search and it admitted to tell as to how a surrendered amount was to be accounted for and the excess stock of scrap was omitted in the chart.
(v) That the certificate given by a private person (Shri Amrendra Jha, GM, Steel Melting Shop of the assessee) after more than one year of the search had wrongly been relied on by the AO.
22. So far as regards the first objection of the ld. CIT, that the AO did not consider that the stock valuation was done by Shri R.D. Saini, Store Incharge of the assessee company itself, in the presence of its Managing Director and Shri H.R. Goel (EO),it is found that this objection is not correct. Vide notice dated 28.10.2010 (APB 21-35), issued under sections 153A/152(1) read with Section 143(3) of the IT Act, the AO had put question No.4 (APB 27) to the assessee. This question runs as follows:-
"Q.4 During the course of search and seizure operation conducted at the factory premises at 21/4, Mathura Road, Ballabhgarh, Faridabad, Inventory of scrap found at three different places was prepared as under:-
S.No. Area/ Volume Quantity Rate (Rs.) Total value Location of Scrap (in MT) in M3
1. Scrap 3160 1984.48 20,000 3,96,89,600 Gowdown
2. Open 700 439.60 20,000 87,92,000 Gowdown
3. Open 482.35 302.92 20,000 60,58,400 gowdown Total value 4342.35 2727.00 20,000 5,45,40,000 The total value of above stock found at the factory of above concerns of M.S. Scrap was valued at Rs.5,45,40,000/-. The 26 ITA No.1103/Del/2012 inventory prepared was duly admitted by the employees who were present there as evident from the copy of inventory placed on record which is duly singed by different five persons including the authorized officer. The weight per cubic meter was taken as told by the employees of the company. Further, from the perusal of purchase bills it is also evident that most of the scrap items were purchased more than the value taken in the inventory therefore you are requested to explain the basis on which the rate of scrap was decided.
You are further asked to produce the relevant books of account along with purchase bills of scrap to verify the actual position of stock of scraps."
23. This question specifically finds mention, that ".........the weight per cubic metre was taken as told by the employees of the company." From this, it is evident that the AO did consider such fact. It is entirely another matter that the assessee, in its reply dated 22.11.2010 (APB 36-53), in response to question No.4, submitted in para 22 (APB 47-
48), as reproduced hereinabove, that for the assertions made therein, the average stock per cubic metre could not exceed 250 Kg per cubic metre. It was made out that the Storekeeper, Shri R.D. Saini had never handled the stocks of scrap and had given a wrong statement. It was stated that the correct facts and relevant factors were clarified before the ADI vide written submissions dated 06.02.2009 of the MD of the assessee company, Shri M.K. Gupta. It was further stated that a certificate from the Sr. Engineer of the assessee company had also been filed with the ADI. It was, thus, explained that the quantity by stock of scrap, taken at 2727 MT at the time of search, was incorrect, based on a wrong calculation in respect of volume of scrap per cubic metre, whereas it was 1230 MT, as against that shown at 1229.27 MT in the excise record of the assessee.
24. In the statement (APB 147-149) recorded u/s 131 of the Act on 19.10.2010, i.e., even prior to the issuance of the show cause notice 27 ITA No.1103/Del/2012 dated 28.10.2010 (supra), Shri R.D. Saini was, inter alia, put the following question, to which he gave the succeeding reply:-
"Q. According to you the weight of one cubic metre lime is 650 to 700 Kgs and as per general rule lime is lighter than steel, then how you compared the weight of scrap with the weight of lime? What was the base of estimating the weight of 628 Kgs per cubic of scrap lying in the yard?
Ans. It was a late night statement above 11.00 O'clock. There was no persons available in the factory, who can guide or tell the correct facts in this regard and I was the only man who was looking after stores and thus considered more appropriate by IT team to make the statement. There was no other alternative with me except to measure the weight of scrap on the basis of method utilized by me to measure the weight of lime."
25. It is evident from the above that Shri Saini made it clear that in the obtaining circumstance of there being no person available to tell the correct method of weighing the scrap of steel lying at site, he (Shri Saini) was left with no alternative, but to measure the scrap of steel on the basis of the method utilized by him to measure the weight of lime, even though as per the question asked of him, as a general rule, lime is lighter than steel.
26. It is, thus, evident from the record that the AO did take into consideration the concerned facts. It was, being satisfied from the record as produced and averments as made on behalf of the assessee, including the aforesaid statement of Shri R.D. Saini, that the AO did not make the addition in question.
27. Now, the objection of the ld. CIT is not that the AO has not made any inquiry into the matter, giving rise to an erroneous order which was prejudicial to the interests of the revenue. Rather, the objection of the ld. CIT is that the AO did not take into consideration the fact that the value of stock was prepared by Shri R.D. Saini in the presence of 28 ITA No.1103/Del/2012 the MD of the assessee company and Shri H.R. Goel, EO of the company. This, in our opinion, does not lie in the purview of revision of an order, u/s 263 of the Act, though it may well lie in a regular appeal before the ld. CIT (A), which is not the case here.
28. So far as regards the Commissioner's objection that the AO did not consider that the MD of the assessee company had admitted the excess value of the stock and that any re-examination of the stock later was only an afterthought, first of all, it is seen that in his statement recorded at the time of search, Shri Mohinder Kumar Gupta, MD of the assessee company stated that: "this is a matter of fact based on the calculation made at the site and I have no comments for the same. However, the excess value was arrived at is and will form part of my surrender of income already made on 30.01.2009."
29. This deposition of the MD of the assessee company clearly shows that he did not have any comment to offer on the value arrived at at the time of search. He stated that it was a matter of fact based on the valuation made at the site. Thus, it cannot be said that he admitted the excess value of the stock as at the time of search. His statement that the excess value so arrived at would form part of the surrender also does not inculpate the MD. Further, so far as regards the Commissioner's objection that the later re-examination of the scrap by the assessee was an afterthought, this is not a matter open to the Commissioner in proceedings u/s 263 of the Act. This matter would lie before the Commissioner (Appeals) in a regular appeal filed.
30. Moreover, as rightly contended on behalf of the assessee, it is only the statement of Shri R.D. Saini, Storekeeper/Store Incharge of the assessee company, which has been taken into consideration by the ld. CIT. The statement of Shri Amrender Jha and Shri Ved Prakash 29 ITA No.1103/Del/2012 Khichuka do not even find so much as a mention in the impugned order, rendering the Order under appeal to be an order passed as a result of non-reading of material evidence brought on record by the assessee.
31. Further, Shri Ved Prakash Khichuka, in his statement (APB 155-
157), recorded on 28.10.2010, in response to question No.7, confirmed having given a certificate relating to weight and volume of scrap to the assessee company. In response to question No.10, Shri Khichuka stated that it was correct that in the certificate given by him, he had estimated 250 Kg per cubic metre as the weight of light commercial scrap. He stated that one truck with a volume of approximately 25 cubic metres capacity contains about six tons maximum of scrap and that this fact could be verified from any scrap trader.
32. These statements are a matter of record. In fact, these were statements recorded on oath u/s 131 of the Act, in the course of assessment proceedings, amply demonstrating the elaborate inquiry carried out by the Assessing Officer into the matter. It was on duly taking into consideration these statements along with the voluminous other evidence produced by the assessee, that the Assessing Officer found himself to be satisfied with regard to the issue and it was hence, that no addition was made.
33. Coming to the fourth objection raised by the ld. CIT, he has observed that the chart given by the assessee on 20.02.2009 was not relevant, since the assessee could not change the facts of the case by furnishing an imaginary source of income to explain the surrender made on the date of search and that the assessee could not dictate as to how the surrendered amount was to be accounted for. Now, this, again, is a matter lying outside the purview of proceedings u/s 263 of 30 ITA No.1103/Del/2012 the Act. It is obvious that the said chart, submitted on 20.02.2009, was submitted before the Assessing Officer, before the passing of the assessment order, which is dated 30.01.2009. It cannot be gainsaid that the ld. CIT cannot sit in judgement over that of the Assessing Officer. Besides, whereas in one breath the ld. CIT states that no inquiry was conducted by the Assessing Officer, in the same breath, he speaks of taking cognizance of the chart and passes judgement over the validity thereof, as if he were exercising the powers of the CIT(A). This is eloquent from the following observations of the CIT, which, obviously, he could not make in a revision:-
"(vi) The chart given on 20.02.2009 has no relevance because the assessee cannot change the facts by furnishing an imaginary source of income to explain the surrender made on the date of search. At the same time the assessee cannot dictate terms on how the surrendered amount was to be accounted for. These are matter of facts and have to be taken as they exist on the date of search. The assessee has to disclose the source and manner of earning disclosed income and such income will be accounted for in accordance with the accounting practice relating to the source of income. As regards the excess stock of scrap, this is a matter of fact and its omission in the chart furnished on 20.02.2009 will not alter the position."
34. The fifth and last objection raised by the ld. CIT is that the certificate given by a private person, i.e., Shri Amrendera Jha, which took into consideration the certificate given by Shri Ved Prakash Khichuka. Here too, the ld. CIT is pronouncing judgement over the assessment order, which does not lie within his domain under his revisional powers.
35. It is, thus, seen that so far as regards the issue of excess stock, the Assessing Officer has carried out extensive inquiry. Besides the evidence produced by the assessee, the statement of the MD of the company, the data provided by the assessee before the Investigation Wing, the trading and manufacturing account furnished before the 31 ITA No.1103/Del/2012 Investigation Wing, the statement of Shri Amrender Jha, the General Manager, Steel Melting Shop of the assessee company and the opinion of Shri Ved Prakash Khichuka, Chartered Engineer, as produced before the Investigation Wing, were considered in depth by the Assessing Officer. Further, the Assessing Officer himself called for and examined Shri A.K. Taneja, former Chairman and Managing Director of a Public Sector Undertaking under the Ministry of Defence, i.e., Mishra Dhatu Nigam Ltd., Hyderabad, a retired government officer having extensive experience and high qualification in the field of metallurgy. Shri Taneja had, in no manner, ever remained connected with the assessee company, either directly or indirectly. The opinion of Shri Taneja also went in favour of the assessee. In the questionnaire dated 28.10.2010 issued to the assessee, detailed specific questions were raised, to which, the assessee gave elaborate pointed replies to establish its case, as discussed hereinbefore. The assessee also produced before the Assessing Officer Scrap Purchase Register and purchase vouchers, as required by the Assessing Officer, besides the report of the auditor concerning stock audit conducted by the State Bank of India in respect of the assessee's unit, wherein no discrepancy was found. A statement for the month of search, i.e., January, 2009 was filed before the Assessing Officer. Therein, quantity per cubic metre for each inward transaction, was depicted. Then, the assessee also furnished before the Assessing Officer, average monthly figures for the period subsequent to the search. These figures were entirely in conformity with the figure of stock as worked out and shown by the assessee. The month-wise position of stock held by the assessee company, showing purchase month-wise, internal accruals monthwise and consumption monthwise, was given. As per the statement, the assessee company was making purchases to the tune of 1246.800 MT on an average per mensem. Likewise, the assessee was consuming scrap to the tune of 1227.515 MT per month, on an average. Therefore, over the monthly 32 ITA No.1103/Del/2012 stock, the average monthly purchase and the average monthly consumption of the assessee was entirely in conformity inter se.
36. All this was duly taken into consideration by the Assessing Officer while deciding not to make the addition. All this evidence was produced also before the ld. CIT. The ld. CIT, however, did not deem it fit to even so much as make a mention thereof in the order under appeal, rendering the impugned order liable to be set aside on this score.
37. In "Malabar Industrial Company Ltd. vs. CIT", 243 ITR 83 (SC), it has, inter alia, been held that when an Assessing Officer adopts one of the courses permissible in law and it has resulted in loss of revenue, and where the Commissioner does not agree with such view of the ITO, the assessment order cannot be treated as an erroneous order prejudicial to the interests of the revenue, unless the view taken by the Assessing Officer is unsustainable in law. In the present case, as would be evident from the foregoing discussion, the Assessing Officer decided not to make the addition on account of excess stock of scrap, after due detailed inquiry into the matter and on being fully satisfied that there was no excess stock of scrap. This view of the Assessing Officer cannot at all be said to be a view unsustainable in law. The Assessing Officer adopted one of the courses permissible in law, thus, not making the addition on satisfying himself that no addition was called for in the attending facts and circumstances. Therefore, in keeping with "Malabar Industrial Company" (supra), the ld. CIT is wrong in holding the assessment order to be erroneous and prejudicial to the interests of the revenue.
38. In "CIT vs. Gabriel India Ltd.", 203 ITR 108 (Bom) it has been held that merely because the Commissioner differs with the conclusion 33 ITA No.1103/Del/2012 arrived at by the Assessing Officer, he would not revise the assessment order. Herein, as discussed elaborately, the Commissioner has merely differed with the Assessing Officer's conclusion. This, obviously, cannot entitle him to revise the Assessment Order.
39. In "CIT vs. Sunbeam Auto Ltd.", 332 ITR 157 (Del), it has been held that where there is no material before the Commissioner to vary the opinion of the Assessing Officer, the assessment order is not prejudicial to the revenue. In the present case, as seen, there was no material whatsoever with the ld. CIT to distinguish the opinion held by the Assessing Officer.
40. In "CIT vs. Anil Kumar Sharma", 335 ITR 83 (Del), the findings of the Tribunal that the Assessing Officer had made inquiry and that the Commissioner was not able to point out any error in his order, was upheld, holding the order of revision to be not valid. In the present case too, we find nothing in the impugned order to point out any error in the assessment order. The Assessing Officer, as discussed, has made due detailed inquiry before deciding not to make the addition.
41. In "CIT vs. Mehrotra Brothers", 270 ITR 157 (MP), it was held that when the Assessing Officer considers the records before him and completes the assessment after considering the evidence filed and being satisfied therewith, the order of revision on the ground that the Assessing Officer did not make proper inquiry is not valid. In the present case, as considered, the Assessing Officer has duly taken into consideration the records before him and the evidence filed and it was only thereafter that he got satisfied that no addition was to be made. He also carried out investigation into the matter of his own accord by seeking the expert opinion of Shri A.K. Taneja, former Chairman and 34 ITA No.1103/Del/2012 MD of Mishra Dhatu Nigam Ltd., Hyderabad, a Public Sector Undertaking under the Ministry of Defence.
42. In "CIT vs. Arvind Jewellers", 259 ITR 502 (Guj), it was held that since material was there on record and the said material was considered by the Assessing Officer and a particular view was taken, the mere fact that a different view can be taken, should not be the basis for action u/s 263 of the Act. The present is a case in an exactly similar situation. Here, there was material on record. The said material was considered by the Assessing Officer and thereafter, a particular view was taken, i.e., no addition was made. The impugned order just expresses a view different from that of the Assessing Officer. Such expression does not entitle invocation of powers u/s 263 of the Act.
43. In "CIT, Delhi-IV vs. International Travel House Ltd", the Hon'ble Delhi High Court, in ITA, No.94/2010 (copy at pages 41-42 of the case laws paper book filed by the assessee), confirmed the Tribunal's Order wherein it was held by the Tribunal that the assessment order passed by the Assessing Officer was after proper allocation of amount and the Assessing Officer had considered the details and the explanation filed by the assessee and, therefore, the order passed by the Assessing Officer u/s 143 (3) of the Act was neither erroneous nor prejudicial to the interests of the revenue. This finding of the Tribunal was upheld by the Hon'ble High Court. Here too, as discussed, the situation is entirely similar. It was after proper elaborate enquiry, that the Assessing Officer decided not to make the addition. No error or prejudice to the interests of the revenue can, thus, be said to be existing in the Assessment order.
35 ITA No.1103/Del/201244. In "Saw Pipes Ltd. vs. Addl. CIT" 3 SOT 237 (Del), it was held that merely because proper inquiry was not conducted by the Assessing Officer, the assessment order would not become prejudicial to the interests of the revenue. In the present case, as seen, proper inquiry was conducted by the Assessing Officer and so, the ld. CIT was in error in holding the assessment order prejudicial to the interests of the revenue.
45. In "Addl. CIT, Range-I, Ghaziabad vs. Shipra Estate Ltd. 35 SOT 256 (Del), it was held where acting in accordance with the law, the Assessing Officer framed an assessment order, the same cannot be branded as erroneous, simply because according to the Commissioner, the assessment order should be written more elaborately. Though in the present case, the assessment order does not elaborate the reasons for not making the addition, firstly, as held in "Shipra Estate" (supra), this by itself, does not render the assessment order erroneous. Also, it is not in the hands of the assessee as to how the assessment order is written. Moreover, as discussed, the voluminous evidence himself recorded by the Assessing Officer himself, beside the evidence produced by the assessee, has been duly taken into account by the Assessing Officer while passing the assessment order. Therefore, the assessment order can neither be said to be erroneous, nor prejudicial to the interests of the revenue.
46. In view of the above, finding force in the grievance raised by the assessee in this regard, ground No.3 is accepted.
47. So far as the only other issue on which the ld. CIT has held the assessment order to be erroneous and prejudicial to the interests of the revenue, in the show cause notice, the ld. CIT observed as follows:-
36 ITA No.1103/Del/2012"b). During the course of assessment proceedings, the assessee was asked to explain as to why the amount of Rs.3,90,00,000/-
in cash deposited in your bank account should not be treated as income in addition to the Income declared by you. The assessee stated that this amount was received from different debtors but it was not in a position to give the names and addresses of persons from whom cash was received. It stated that this amount was part of amount surrendered at the time of search. It further stated, "The above offer of undisclosed income by the assessee company was accepted without putting any further condition by the ld. Addl. Director. According to the above letter of offer the assessee company is entitled to raise sundry debtors with Rs.3,90,00,000/- without maintaining any name or address or identification. Further on realization the said debtor is to be credited and cash is debited. Following the terms and conditions as above the assessee company has accounted for the undisclosed income by debiting sundry debtors. On realization of sundry debtors the cash was received and debtors were credited. Finally, cash received was deposited in the bank."
48. The assessee, in response, submitted that it had deposited ` 390 lac in cash with the State Bank of India, Patiala, Punjab, during the period from 03.03.2009 to 16.03.2009; that this amount represented income declared by the assessee and formed part of the disclosure of ` 22 crores made by the group companies of Star Wire India Ltd., the assessee company. It was submitted that Shri M.K. Gupta, in his statement dated 20.02.2009, recorded u/s 132 of the Act, in response to a specific question, had stated that the transactions recorded in Annexures A-1 and A-2 were settled transactions and none of them was pending; and that since the advances given in the three concerned cases could not be established, these advances had been surrendered as the assessee's income and would be accounted for as and when received. A declaration chart was furnished and it was submitted that it clearly established that the income surrendered by the assessee was available with the assessee in the form of advances given, though such advances could not be explained. It was also explained that the Assessing Officer had made extensive inquiries into 37 ITA No.1103/Del/2012 the matter, by way of question Nos. 1 and 2 of the Assessing Officer's questionnaire dated 28.10.2010. It was submitted that the assessee had given detailed replies to such questions raised by the Assessing Officer, wherein it had been explained that out of the disclosure made by the assessee, a sum of ` 390 lacs represented sundry debtors, arising on account of property transaction found entered in Neel Kamal diary; and that the assessee had prepared a memorandum account, consisting of cash account, income account, supplier account, customer account, sale and purchase account, etc., which was filed before the Assessing Officer, explaining as to how the undisclosed income was computed, generated and utilized, the undisclosed income having been accounted for in the assessee's books of account for Assessment Year 2009-10, showing it as income in the annual account under "Sales and miscellaneous income", the balance undisclosed income having been declared in the computation of income for Assessment Years 2007-08 to 2009-10. It was, further, explained before the ld. CIT, in the reply filed by the assessee, that the income surrendered, i.e., of ` 390 lacs, had not been represented in the form of assets in any way or in any manner; that the income based neither on any document or any real estate, cannot be said to be real income and cannot be brought to tax; that it would become real income only as and when the debtor gets realized and the realized cash is deposited in the bank account; that so, the assessment of ` 390 lacs represented the income deposited into the bank account in the month of March, 2009, in the form of cash, not attracting the provisions of Section 68 of the Act at all; and that if the assessee's stand on debtor were to be disbelieved, the surrender of income itself would not fall for assessment under Sections 68 or 69 or 69A or 69B or 69C or 69D of the Act.
38 ITA No.1103/Del/201249. The ld. CIT, however, did not agree with the explanation offered by the assessee and he declared the assessment order to be erroneous and prejudicial to the interests of the revenue on this score also. While doing so, it was held as follows:-
"9. I have gone through the assessment records carefully. The relevant facts are as under:-
i. The surrender of income was made by the assessee only, i.e. on 30.01.2009, in the form of a letter reproduced above in paragraph 4(a).
ii. In the surrender letter dated 30.01.2009 the manner of earning income was not mentioned at all. This is one of the mandatory ingredients for making surrender u/s 132(4) of the Act. It is not open for the assessee to furnish imaginary source of income.
iii. In the chart submitted on 20.02.2009 in the Vth column the assessee has given source of income and in the VI column it has given "How to be accounted for". The VI column has no meaning at all. The source and manner of earning income has to be related to the transaction of purchase and sale of land in cash, as mentioned here.
iv. If the source of income is amount recovered/recoverable from debtors, such source must be mentioned. No such mention has been made in the surrender letter dated 30.01.2009. In this letter it was not mentioned that surrender was being made on account of receivables from debtors. The surrender was made on account of cash, jewellery, loose papers and documents seized. Nowhere in any documents there is mention of any debtor. It is only an afterthought of the assessee company in order to launder unaccounted cash in its possession which was not found and seized at the time of search. It was such cash which was deposited in bank account and the source of which is not being disclosed.39 ITA No.1103/Del/2012
v. Even in the chart furnished on 20.02.2009, no detail of any debtor has been given.
vi. When the AO asked the assessee to furnish the names of debtors, it was not given.
vii. The assessee did not furnish the name even after cash, stated to be received from debtors, was deposited in bank account.
viii. VIII. The deposit of cash in bank account in March, 2009 and surrender made by letter dated 30.01.2009 has no relation at all. Surrender made by the assessee does not give any right to the assessee to credit cash in its account without giving source and satisfactory explanation.
ix. As regard deposit of cash of RS.3,90,00,000/- in bank in March, 2009 the assessee has to furnish explanation regarding the source of deposits. It has not given any explanation taking shelter behind the chart furnished on 20.02.20-09 that it had mentioned that it was entitled to raise sundry debtors for 3.90 Crore. No such entitlement is provided to any assessee under any provisions of the Act. The assessee cannot launder black money in the garb of surrender made on the date of search. The simple fact is that the assessee deposited cash in the bank account in March, 2009 and source of such deposits remain unexplained. The assessee is refusing to explain the source. Such unexplained cash deposits are covered u/s 68 of the I. T. Act. The Assessing Officer failed to bring this to tax and, accordingly, the assessment order becomes erroneous and prejudicial to the interest of revenue.
x. Based on above, I am of the opinion that cash deposits of Rs. 3,90,00,000 in the bank account of the assessee company remain unexplained and has not been brought to tax during the Assessment Year 2009-10, as a result of which the assessment order has become erroneous and prejudicial to the interest of revenue.40 ITA No.1103/Del/2012
10. The Assessing Officer is directed to reframe the assessment order in view of the conclusion arrived at in paragraph 6 and 9 above and also initiate penalty proceedings for concealment of income."
50. In this regard, the ld. counsel for the assessee has contended that here also, the ld. CIT has erred in proposing addition of ` 390 lac on account of introduction of cash as unexplained cash deposit u/s 68 of the IT Act; that the ld. CIT illegally ignored the fact that this amount had already been voluntarily surrendered by the assessee during the investigation proceedings in the course of the search conducted on the assessee and it was offered as additional income; that the action of the ld. CIT has led to double taxation of the amount, causing prejudice to the assessee no end; that the assessee had shown this amount as the assessee's income; and that it was introduced in the assessee's bank account. Attention has been drawn to APB 70, which is a schedule of 'Other Income' of the assessee. Attention has been drawn to APB 81, which is the summary of ` 713 lacs shown as Miscellaneous Income in the ledger account of the assessee for the period from 01.04.2008 to 31.03.2009, wherein the amount of ` 390 lacs stands included. It has been contended that it is well settled that if an amount is surrendered and that amount is introduced in the books of the assessee or deposited in the bank account of the assessee, it cannot be taxed twice in the same year. Attention has been drawn to APB 26 to 27, which contain question Nos.1 and 2 raised by the Assessing Officer in the notice dated 28.10.2010 issued under sections 153A/142(1) read with Section 143 (3) of the IT Act (APB 21-35). It has been argued that this shows that the issue was actively considered by the Assessing Officer, making extensive inquiries into it. Attention has been drawn to APB-45, which is a part of the assessee's reply to the aforesaid notice issued by the Assessing Officer. This reply is contained at APB 36-53. It has been pointed out that in para 20(c) at APB 45, the assessee has 41 ITA No.1103/Del/2012 given a specific reply to the query raised by the Assessing Officer by way of question Nos.1 and 2 of his questionnaire. It has been pointed out that at APB-46, in sub-para (e) to para 20, a complete bifurcation of the amount has been given.
51. On the other hand, the Ld. DR has strongly supported the impugned order in this regard. It has been contended that the issue was never examined by the Assessing Officer and that only the disclosure on the basis of undisclosed debtors was accepted, which has rightly been called into question by the ld. CIT.
52. In this regard, it is seen, that the amount of ` 390 lac represented sundry debtors arising on account of property transaction entered in the Neelkamal Diary found in the course of search. Since as per the assessee, the amount could not be explained, it was disclosed by way of surrender. The Assessing Officer, in his questionnaire put specific queries in this regard to the assessee, thereby evincing his having made due inquiry into the matter. The assessee gave specific reply to the questions asked by the Assessing Officer. Upon surrender, the amount was brought to tax. The assessee paid the tax. Now, as correctly contended, if an amount is surrendered and it is introduced either in the books of account or in the assessee's bank account, it cannot be taxed twice in the same year. In the reply filed by the assessee before the Assessing Officer, a complete bifurcation of the amount of ` 7.82 crores was given. This included the amount of ` 3.90 crores, i.e., undisclosed income lying with sundry debtors.
53. The ld. CIT has not brought anything on record contrary to the afore-discussed facts. The Assessing Officer, on the other hand, had conducted proper inquiry into the matter. Therefore, it was not for the Commissioner to term the assessment order in this regard as 42 ITA No.1103/Del/2012 erroneous and prejudicial to the interests of the revenue, in the absence of any adverse material and thereby, to impose double taxation on the amount. Here also, it is only that the ld. CIT wants to hold an opinion different from that of the Assessing Officer, which is impermissible while exercising powers u/s 263 of the Act.
54. Thus, in view of the above discussion, with regard to this issue also, we hold that the assessment order is neither erroneous nor prejudicial to the interests of the revenue and the ld. CIT has erred in holding to the contrary.
55. The assessee's grievance in this regard, by way of ground No.4 is, hence, also accepted.
56. In the result, the appeal filed by the assessee is allowed.
The order pronounced in the open court on 23.11.2012.
Sd/- Sd/-
[G.D. AGRAWAL] [A.D. JAIN]
VICE PRESIDENT JUDICIAL MEMBER
Dated, 23.11.2012.
dk
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
Deputy Registrar,
ITAT, Delhi Benches