Income Tax Appellate Tribunal - Jodhpur
R.K. Synthetics vs Income Tax Officer on 17 October, 2003
Equivalent citations: (2003)81TTJ(JODH)909
ORDER
Hari Om Maratha, JM.
1. Both these appeals relate to same assessee pertaining to different asst. yrs. 1998-99 and. 1997-98. So they are being disposed of by this common order for the sake of convenience.
2. The brief facts leading to these appeals are that the appellant M/s R.K. Synthetics, a partnership firm, engaged in the trading of processed man-made fabrics. The assessee-appellant used to get the grey manufactured by it or purchased by it, processed from a processor namely M/s R.K. Texcom Ltd., Bhilwara situated at Hamirgarh Road, Bhilwara (hereinafter referred to as the processor). A search was carried out by the Central Excise Authorities at the factory premises of the said processor on 7th Nov., 1997. The appellant as well as the said processor were served with show-cause notices under the provisions of Central Excise Rules, 1944 wherein it was alleged that certain amount of cloth was removed clandestinely by them and the differential duty of Rs. 20,529 was paid short. As a result, a penalty of Rs. 50,000. was also imposed on the appellant treating it to be a connected person under Section 209A of the Central Excise Rules, 1944. A statement of Shri K.G. Kabra was recorded on 10th Nov., 1997 by the Central Excise. Authorities. Shri Kabra, above named, is stated to have admitted that they had received 9,986.04 mtr. And 7,006.07 mtr (totalling to 16,993.10 mtr) of processed man-made fabrics from the said processors which were without cover of invoices and without payment of Central excise duty. On this basis, the learned AO was of the view that the said goods were manufactured and processed outside the books of accounts were also sold outside the books of accounts. As a result, the alleged unexplained investment made in the purchase of raw materials relating to such goods and the weaving charges and processing charges were added by the learned AO under Section 69 of the IT Act, 1961, (hereinafter, referred to as 'the Act', for short). The learned AO estimated the cost at the rate of Rs. 50 per mtr. on the fabrics of 16,993.10 mtr. and made addition of Rs. 8,49,655.
3. The assessee was aggrieved by this addition made by the learned AO under Section 69 of the Act and filed appeal before the learned CIT(A). The learned CIT(A) dealt with this issue extensively in his order and confirmed the addition made by the AO. The learned CIT(A) relied upon the statement of Shri Kabra, above named, which was taken by the Central excise authorities. Against the same, the assessee is in appeal before us.
4. First we will deal with the appeal in ITA No. 150/Jdpr/2002 which has been filed by the assessee.
5. We have heard the rival submissions and have also perused the records.
6. The learned authorised representative Shri Mahendra Gargieya has submitted that unlike Section 68 of the Act, a heavy burden is cast upon the Department under Section 69 of the Act to establish beyond doubt that the assessee made the investment in the purchase of raw material and processing charges thereof as has been alleged by the authorities below. According to the learned authorised representative, the Department has utterly failed to discharge this onus cast by clear provisions of the Act. To substantiate this fact, the learned authorised representative has given various arguments. First of all, the learned authorised representative has submitted that the only evidence on which this addition has been made and sustained in the statement made by Shri. Kabra, a partner of the assessee-firm before the Central excise authorities. To further corroborate this, the learned authorised representative has drawn our attention to the learned CIT(A)'s order at p. 2 last line of para 4.2 wherein the learned CIT(A) has observed that the statement of the partner should be taken as credible. The learned authorised representative has disputed this finding of the learned CIT(A) and has submitted that this statement cannot be reliable and acceptable for the reasons, firstly, the statement so recorded seriously suffered of the taint of duress and pressure and cannot be said to be free from a tensed and surcharged atmosphere during search. That immediately after recording of the statement by the Central excise authorities, the appellant filed an affidavit dt. 23rd March, 1999, solemnly affirmed by Shri Kabra, which finds place at p. 9 of paper book, wherein the deponent has stated that as a matter of fact, the assessee never got any fabrics processed by any processing house without payment of duty. The deponent also affirmed that the statements were recorded under threatening and tensed atmosphere. The Central excise authorities never rebutted the averments made in the affidavit. The learned authorised representative has further submitted that although an admission is the best evidence against the maker, but it cannot be made the sole basis of assessment and the assessee is free to retract from the same if it shown that it was due to ambiguity, under tension or was against the fact. For that matter, the learned authorised representative has relied on various decisions including that of Hon'ble Supreme Court reported in Pullangode Rubber and Produce Co. Ltd. v. State of Kerala and Anr. (1973) 91 ITR 18 (SC) wherein it has been held as under:
"Such admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the assessee who made the admission to show that it is incorrect and the assessee should be given a proper opportunity to show that the books of account do not disclose the correct state of facts."
7. In the light of the above arguments, the learned authorised representative has further submitted that since the matter involving Central excise authorities has not reached finality, and is pending before CEGAT for disposal and coupled with the fact that the IT authorities have not made independent enquiries and has based their addition only on the statement made by partner Shri Kabra, the addition cannot be sustained in the eyes of law.
8. The learned authorised representative has argued in the alternative that assuming that Shri Kabra in his statement admitted something, a question further arises whether the admission made by him was such so that the AO could make an addition under Section 69 straightaway in the hands of the assessee as its income. As Shri Kabra has never stated that some unaccounted/undisclosed income was introduced in the purchases of yarn or in the payment of processing charges nor the Department has gone into sugh details. According to the learned authorised representative, suspicion howsoever, strong cannot take the place of reality and there must be something more than suspicion to support the view of the learned AO. For that matter, the learned authorised representative has relied on the following decisions :
(a) Asstt.CIT v. Shyam Bihari Sharma 27 Tax World 367 (Jd);
(b) Dhakeshwari Cotton Mils v. CIT (1954) 26 ITR 775 (SC); and
(c) Oswal Wollen Mills v. ITO (1986) 26 TTJ (Chd) 357.
9. The learned Departmental Representative relied upon the orders of authorities below and has further submitted that the issue can be sent back to the file of the AO for reexamination.
10. After careful consideration, we are of the opinion that this is an undeniable fact that the addition in question under Section 69 has been made on the sole basis of the statement of the partner Shri Kabra recorded by the Central excise authorities which fact has been incorporated by the learned CIT(A) in his order as we have mentioned above. This is also an undeniable fact that the learned AO never recorded any further statements of Shri Kabra or anybody else. A copy of the statements recorded by the Central excise authorities was never provided to the assessee. No independent investigation was carried by the learned AO even though he proposed to make an addition under Section 69 of the Act in the hands of the assessee. There is no evidence of suppressed sales as the sales declared by the assessee have been accepted fully by the AO and no action has been taken by the ST Department despite there being information regarding the fact that the statement made by Shri Kabra has been retracted in the very next opportunity immediately after making of the statement. The assessee has been maintaining complete financial and quantitative records at all stages of production and no specific defects have been pointed out by the authorities below. The learned CIT(A) has categorically mentioned at various places at paras 5.2 at p. 5 of its order that the learned AO has not pointed out any defects in the books of accounts nor brought on record and that the AO was not justified in rejecting the books of accounts which the Department has not come in second appeal. In these circumstances, we are of the opinion that the totality of the facts and circumstances before us do not justify additions under Section 69 merely on the basis of the statement of the partner Shri Kabra without any further supporting evidence being on record. We find support from the CBDT's Circular No. 286/2/2003, dt. 10th March, 2003.
11. The other ground No. 3 taken by the appellant is consequential in nature and the same is decided accordingly.
12. In the result, the appeal is allowed.
13. Now coming to appeal No. 127/Jdpr/2001, the main arguments taken by the learned authorised representative at the very outset that no opportunity was given to the assessee of hearing in regard to the additions made and sustained by the authorities below.
14. The learned Departmental Representative did not object to the same.
15. After going through the records, we convinced that the assessee was not given adequate opportunity to defend its case. This fact is evident from the appellate order as well. Para 2 of the appellate order speaks about the request for adjournment and adjournment granted. The Chartered Accountant of the assessee had again requested for adjournment on the ground that the counsel was busy in doing audit, but the request was declined. In the interest of justice, we are of the opinion that the issues under consideration be sent back to the file of the learned CIT(A) for fresh consideration of each and every issue raised in the appeal. However, the learned CIT(A) is directed to give clear opportunity of hearing to the assessee.
16. As a result, this appeal of the assessee is treated to be accepted for statistical purposes.