Income Tax Appellate Tribunal - Ahmedabad
Assistant Commissioner Of Income Tax vs Prabhat Oil Mills. on 3 April, 1995
Equivalent citations: (1995)52TTJ(AHD)533
ORDER
B. L. CHHIBBER, A. M. :
The appeal by the Revenue and the cross-objection by the assessee arise out of the order of the CIT(A), Ahmedabad.
2. The first grievance of the Revenue is that the learned CIT(A) is not justified in deleting an addition of Rs. 7,63,619 made on account of concealed profits of unrecorded sales.
3. The assessee is a partnership firm and enjoys income from manufacturing cotton seed oil and it sale. Action under S. 138 of the Act was carried out at the business premises of M/s. Hynoup Food & Oil Industries Pvt. Ltd. (hereinafter referred to as M/s. Hynoup) and at the residential premises of its director when one note-book was found and seized from the premises of the director of the company. In the said note book purchases of 69,923 kgs. of cotton seed oil valuing Rs. 7,73,619 made by the said company from the assessee-firm were recorded by the director of the company. The above transactions noted in the seized diary of the said company were not recorded in the books of accounts of the assessee and, therefore, the Asstt. CIT addressed a letter dt. 1st Feb., 1989 to the assessee-firm to explain as to why the above transactions be not treated as sales made from outside the books of accounts. Vide letter dt. 25th Feb., 1989, the assessee-firm denied to have made any sales to the said company with the exception of those which were already recorded in its books of accounts. Thereafter, the Asstt. CIT analysed the consumption of raw material, production, shortages and power consumption. According to him, the electricity consumption varied from month to month and was not in consonance with the quantity of raw materials crushed; the production of cotton seed oil varied from month to month and the shortages varied from month to month. According to the Asstt. CIT, therefore, the said suppressed sales were nothing but shown in the form of low yield and excess shortages. He, therefore, added a sum of Rs. 7,63,619 as suppressed sales.
4. On appeal, the learned CIT(A) deleted the addition on the following grounds :
(1) The Asstt. CIT has merely created a suspicion by discussing elaborately monthwise production, yield of oil, oil cake and consumption of electricity to draw doubt leading to the unsubstantiated inference that the yield of oil was low in some months and, therefore, some part of the actual production could have been sold out of the books and that such sale was made to M/s. Hynoup Food & Oil Industries Pvt. Ltd. The CIT(A) went through the elaborate chart of production submitted before the Assessing Officer (hereinafter referred to as the AO) and before him and came to the conclusion that yield of oil could not be exactly uniform in all the months inasmuch as it was dependent upon the quality of seeds and the assessee was crushing several varieties of cotton seeds and not Shankar-4 variety alone; consumption of electricity was also dependent upon various factors like efficiency of the electrical machineries, hardness and quality of the seeds. After analysing all the above factors the CIT(A) held that the production analysis on which some reliance has been placed by the Asstt. CIT had no direct or circumstantial evidentiary value for the proposition that the assessee-firm would have sold some quantity of oil outside books of accounts to M/s. Hynoup Food & Oil Industries Pvt. Ltd.
(2) The director of M/s. Hynoup Food & Industries P. Ltd. made an admission in the course of search and that admission was only binding upon him as per the established principle of law of evidence and such admission would not be foisted upon another party if there is no other corroboratory material to support the truthfulness of the admission. In support of this the learned CIT(A) relied upon the judgment of the Honble Supreme Court in the case of Kishinchand Chellaram vs. CIT (1980) 125 ITR 713 (SC). The CIT(A) also took note of the decision of Gujarat High Court in the case of CIT vs. M. K. Bros. (1987) 163 ITR 249 (Guj) and held that the assessee was on a stronger ground, inasmuch as, it had not been proved in any way that the assessee had any participation in the impugned transaction of sale to M/s. Hynoup Food & Oil Industries P. Ltd. as recorded by the director of the said company in his private diary. The CIT(A) further noted that the assessee-firm had made several sales to the said concern as also other associated concerns and those sales were duly recorded in the books of accounts. Hynoup Food & Oil Industries P. Ltd. was also purchasing oil for refining not only from the assessee and the associated concerns but also from outside parties on large scale. According to the CIT(A) if Hynoup Food & Oil Industries P. Ltd. did some unaccounted purchases and noted the name of the assessee, it could not be said that the sales in fact were made from the assessee and not from other parties.
5. Shri M. S. Rai, the learned Departmental Representative, submitted that the CIT(A) has not properly appreciated the facts of the case. According to him, the CIT(A) ought to have noted that the diary was seized in a search at the residential premises of one of the directors of M/s. Hynoup and the entries made therein were in a very systematic and normal style. These were not by any stretch of imagination cooked up entries. According to the Departmental Representative, the CIT(A) should have called for remand report from the Assessing Officer or should have restored the issue to his file to establish the facts in the correct perspective. He, therefore, prayed that to ascertain correct facts the matter should be restored back to the file of the Assessing Officer. The learned Departmental Representative further relied upon the decision of the Tribunal Ahmedabad Bench B, in the case of Rajdeep Sales Agency ITA No. 1837/Ahd/1990 to which both of us were parties and a similar addition on the basis of entries in the seized diary belonging to M/s. Hynoup was confirmed.
6. Shri S. N. Soparkar, the learned counsel for the assessee, relied upon the decision of the Tribunal, Ahmedabad Bench B in the case of Patel Oil Mills & Ginning Factory, Kadi (ITA No. 803/Ahd/99) where a similar addition amounting to Rs. 6,87,068 made on identical facts was deleted. He further submitted that reference application filed by the Revenue in the above case has also been rejected by the Tribunal. The learned counsel for the assessee submitted that M/s. Hynoup was a third party. The diary was seized during the course of search at the residential premises of the third party and it was not part of the record of the assessee-firm. The alleged statement of the director of M/s. Hynoup was also not part of the record of the assessee-firm and the Department was not justified in relying upon some entries/documents found at the premises of a third party. The learned counsel opposed the proposition of the Departmental Representative that the case should be set aside on the ground that all the facts were before the Assessing Officer and the CIT(A) on the basis of which the authorities below have arrived at the definite conclusions. He submitted that under the circumstances giving second inning to the Department will be against the principles of natural justice. In support of this conclusion he relied upon the judgment of the Gujarat High Court in the case of CIT vs. Harikishan Jethamal Patel (1987) 168 ITR 472 (Guj), CIT vs. M. K. Bros. (supra), Chiranji Lal Steel Rolling Mills vs. CIT (1972) 84 ITR 222 (P&H) and the decision of the Tribunal in the case of Rajkumar Jain vs. Asstt. CIT (1994) 49 TTJ (All) (TM) 558 : (1994) 208 ITR 22 (AT) (All). The learned counsel further submitted that reliance by the Departmental Representative on the judgment of the Tribunal in the case of Rajdeep Sales Agency (supra) was of no assistance to the Revenue as the facts were distinguishable. In the case of Rajdeep Sales Agency (supra) the said firm had admitted that the said entries in the seized documents pertained to them, while in the present case the assessee all through denied of having any deals with M/s. Hynoup except those recorded in its books of account.
7. We have considered the rival submissions and perused the facts on record. At the outset we must state that the facts here are identical with those of Patel Oil Mills & Ginning Factory, Kadi (supra) where an addition of Rs. 6,87,068 made by the Assessing Officer to the assessees returned income of allegedly suppressed sale of cotton seed oil to M/s. Hynoup on the basis of entries in the seized diary at the residential premises of one of the directors of the said concern, which was confirmed by the CIT(A), was deleted by this Tribunal to which one of us (Accountant Member) was a party. For the reasons given in the aforesaid decision of the Tribunal we find no ground to sustain the addition of Rs. 7,63,619.
8. In addition to the above, we would like to support our decision by the following observations.
As stated above the impugned addition has been made by the Assessing Officer on two grounds, viz., erratic yield of oil cake compared monthwise and secondly on the basis of some notings made in the note book found at the residential premises of one of the directors of the firm M/s. Hynoup during the course of search. In our view, both these points have been very ably discussed and analysed by the CIT(A). As regards the yield a detailed chart was filed before the Assessing Officer and the CIT(A) and the latter went through it threadbare and arrived at a conclusion that variation in the yield of monthwise and other allied factors were not indication of the fact that the assessee had made sales of oil to M/s. Hynoup. We have also gone through this chart and agree with the findings of the CIT(A). In addition to this a similar chart for the accounting year relevant to asst. yr. 1986-87 in the case of Patel Oil Mills & Ginning Factory was also produced before us. It is observed therefore that the average yield over accounting year relevant to asst. yr. 1986-87 in the case of Patel Oil Mills was 13.33% in case of cotton seed oil and 78.31% in the case of cotton seed oil cake, whereas in the case of Prabhat Oil Mills (the assessee) the average yield is 13.37% in case of cotton seed oil and in the case of cotton seed oil cake 80.61% which is higher than that reflected by Patel Oil Mills. This all the more justifies the arguments discussed in detail by the learned CIT(A) in his order before deleting the addition made by the Assessing Officer on this count. As regards the addition on the basis of certain notings in the seized diary from the residential premises of one of the directors of the said concern, it is noted that except relying on the entries in the said seized book the Assessing Officer has not brought any corroborative material on record to prove that such sales were made to M/s. Hynoup outside the books of account. When the assessee categorically denied of having made any sales to M/s. Hynoup except those recorded in its books of accounts, the onus was on the Assessing Officer to prove with corroborative evidence that the entries in the said seized book actually represented the sales made by the assessee-firm to M/s. Hynoup. Mere entries in the accounts of a third party was not sufficient to prove that the assessee had indulged in such transactions as there was no guarantee that the entries were genuine. In this we are supported by the judgment of the Bombay High Court in the case of Addl. CIT vs. Lata Mangeshkar (1974) 97 ITR 696 (Bom).
9. We do not find any merit in the submissions of the Departmental Representative that the matter should be restored to the file of the Assessing Officer for proper verification of the facts. We find that all the basic facts were before the Assessing Officer and he appreciated the same and arrived at a definite conclusion. In this we are supported by the judgment of the Gujarat High Court in the case of CIT vs. H. J. Patel (supra) where it has been held that where foundational facts do not exist raising even a remote doubt regarding the genuineness of the firm and/or the transaction in question, a second innings should not be permitted to the Revenue as it would result in avoidable hardship and harassment to hundreds of assessees. In the present case the facts have been thoroughly marshelled by the Assessing Officer and the CIT(A) and after hearing detailed arguments from both the sides, put before us we do not feel any necessity to restore the matter back to the file of the Assessing Officer.
10. Coming to the arguments of the Departmental Representative that the ground is covered against the assessee by our order in the case of Rajdeep Sales Agency (supra). We find that the facts here are distinguishable. In the case of Rajdeep Sales Agency (supra) the assessee-firm admitted that the said entries in the seized documents represented payment for the purchases made by the assessee-firm. In other words the assessee owned up such entries and prayed that only an addition for the peak should be made. In the case before us the assessee from the very beginning categorically denied that the entries in the seized diary pertained to it and the Assessing Officer failed to prove by corroborative evidence that such entries pertained to the assessee. The facts being distinguishable we reject the arguments of the learned Departmental Representative. In the light of above discussions we uphold the findings of the CIT(A) and dismiss this ground.
11. Ground No. 2 pertains to addition of Rs. 2,21,297 in respect of alleged sales at lower than the market rate to the sister concern M/s. Malguru Enterprises and M/s. Patel Traders. We find that the learned CIT(A) has deleted the addition following his orders relating to asst. yrs. 1984-85 and 1985-86.
12. The learned counsel for the assessee has drawn our attention to the order of the Tribunal in ITA Nos. 566 and 5669/Ahd/1089 relating to asst. yrs. 1984-85 and 1985-86 in the case of the assessee where the findings of the CIT(A) were upheld. Respectfully following the said order of the Tribunal we decline to interfere and uphold the findings of the CIT(A). This ground also fails and is dismissed.
13. Ground No. 3 is against the disallowance of Rs. 1,530 representing unpaid sales-tax liability of the test quarter under S. 43B. The CIT(A) noted that the amount was paid within time in the next year before due date for filing of return under S. 139(1) and, therefore, deleted the disallowance. The finding of the CIT(A) is in consonance with the judgment of the Gujarat High Court in the case of CIT vs. Chandulal Venichand (1994) 209 ITR (Guj) 257 : (1994) 73 Taxman 349 and we decline to interfere. This ground also fails and is dismissed.
14. The last grievance of the Revenue is that the CIT(A) is not justified in directing not to charge interest under S. 215 of the Act. This ground is consequential in nature and does not survive after taking into consideration the relief given by the CIT(A). Even otherwise the assessee could not have foreseen, the addition to its income and accordingly the CIT(A) is justified in giving his directions following the judgment of the Gujarat High Court in the case of CIT vs. Bharat Machinery & Hardware Mart (1982) 136 ITR 875 (Guj).
15. Now, we take up cross-objection filed by the assessee which reads as under :
"In law and in the facts and circumstances of the case of appellant the learned CIT(A) has grossly erred in not considering the ground the order passed by the Assessing Officer is bad in law in so far as such order was passed with the previous approval of the Dy. CIT who had no jurisdiction to pass such an order and or who had not given a specific opportunity to the appellant of being heard before approving the order which is prejudicial to the appellant it, therefore, deserved to be cancelled. The appellant, therefore, prays that this Honble Tribunal may be pleased to hold that the order passed by the Assessing Officer is bad in law and may be cancelled."
In view of our findings in the Revenues appeal above the cross-objection filed by the assessee has become infructuous. The same is accordingly dismissed.
16. In the result, the appeal by the Revenue and the cross-objection filed by the assessee are dismissed.