Income Tax Appellate Tribunal - Pune
Kirti Dal Mils Ltd., Nashik vs Department Of Income Tax on 22 May, 2013
1
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
Before Shri Shailendra Kumar Yadav, Judicial Member
and Shri R.K. Panda, Accountant Member
ITA No. 588, 907 and 908/PN/2012
(Asstt.Years : 2005-06, 2007-08 & 2009-10)
ITO, Central-I, Nashik .. Appellant
Vs.
Kirti Dal Mills Ltd.,
79-C, Market Yard, Latur.
PAN No. AAACK 7418F .. Respondent
ITA No. 615 and 616/PN/2012
(Asstt.Years : 2007-08 & 2009-10)
Kirti Dal Mills Ltd.,
79-C, Market Yard, Latur.
PAN No. AAACK 7418F .. Appellant
Vs.
ITO, Central-I, Nashik .. Respondent
ITA No. 591/PN/2012
(Asstt.Years : 2008-09)
ITO, Central-I, Nashik .. Appellant
Vs.
M/s. Kirti Agrovet Ltd.,
79-C, Market Yard, Latur.
PAN No. AACCK 3945M .. Respondent
ITA No. 617/PN/2012
(Asstt.Years : 2007-08)
M/s. Kirti Agrotech Ltd.,
79-C, Market Yard, Latur.
PAN No. AACCK 3945M .. Appellant
Vs.
ITO, Central-I, Nashik .. Respondent
ITA No. 590 and 912/PN/2012
(Asstt.Years : 2006-07 & 2009-10)
ITO, Central-I, Nashik .. Appellant
Vs.
M/s. Kirti Agrotech Ltd.,
79-C, Market Yard, Latur.
PAN No. AACCK 3945M .. Respondent
2
ITA No. 589 and 911/PN/2012
(Asstt.Years : 2003-04 and 2007-08)
ITO, Central-I, Nashik .. Appellant
Vs.
Kirti Solvex Ltd.,
79-C, Market Yard, Latur.
PAN No.AAACK 7419E .. Respondent
ITA No. 612/PN/2012
(Asstt.Year : 2007-08)
Kirti Solvex Ltd.,
79-C, Market Yard, Latur.
PAN No.AAACK 7419E .. Appellant
Vs.
ITO, Central-I, Nashik .. Respondent
ITA No. 592, 593, 594, 909 and 910/PN/2012
(Asstt.Years : 2003-04, 2004-05, 2006-07, 2008-09, 2009-10)
ITO, Central-I, Nashik .. Appellant
Vs.
Kirti Foods Ltd.
79-C, Market Yard, Latur.
PAN No. AABCK 5376K .. Respondent
ITA No. 613 and 614/PN/2012
(Asstt.Year : 2008-09 and 2009-10)
Kirti Foods Ltd.
79-C, Market Yard, Latur.
PAN No. AABCK 5376K .. Appellant
Vs.
ITO, Central-I, Nashik .. Respondent
Assessee by : Dr. Sunil Pathak
Revenue by : Sri Mukesh Verma
Date of Hearing : 22-05-2013
Date of Pronouncement : 28-06-2013
3
ORDER
PER BENCH :
All the above appeals filed by the respective Assessees and the Revenue are directed against the separate orders of the CIT(A)-I, Nashik relating to different assessment years as mentioned above. For the sake of convenience all these appeals were heard together and are being disposed of by this common order.
Kirti Dal Mills Ltd.ITA No.588/PN/2012 (By Revenue) (A.Y. 2005-06) (KIRTI DAL
MILLS LTD :
2. Facts of the case, in brief, are that the assessee is a company engaged in the business of manufacturing of Soyabean and Sunflower oil by process of Oil Expeller, Solvent Extraction Unit and Refinery Unit. A search and seizure action u/s.132 of the I.T. Act, 1961 was carried out on 28-08-2008 at the business premises of the assessee company as well as residential premises of the Directors. During the course of search action u/s 132 the group has declared an amount of Rs.845.00 lacs as additional income. The additional income shown by the company for A.Y. 2009-10 is Rs.1,14,50,000/-. For the assessment year under appeal, the assessee has declared an additional income of Rs.1,12,500/-. The assessee filed original return of income declaring total income of Rs.14,54,250/- on 28/10/2005. In response to the notice u/s 153A the assessee company filed the return of income for the year under consideration on 18/11/2009 declaring total income of Rs.l5,66,750/-.
3. During the course of assessment proceedings the Assessing Officer noted that during the course of search as well as post search 4 enquiries, the oil recovery both in the case of Soyabean and Sunflower by the various entities of the Kirti Group were verified. The DDIT compared the manufacturing data of the concerns of Kirti Group with those of Tina Oil Industries, Latur which has comparable scale and is located adjacent to the factory premises of the Kirti Group. Based on these analysis it was seen that the average soya crude oil and sunflower crude oil recovery in all assessment years from 2003-04 to 2009-10 in the various concerns of the Kirti Group was as follows :
Name of the Soya Crude Sunflower concern Oil Crude Oil Kirti Agro vet Ltd. 17.7% 31.24% Kirti Dal Mills Ltd. 17.82% 32.04% Kirti Solvex Ltd. -- 32.26 % Kirti Agrotech Ltd. 17.86% 32.69 % Kirti Foods Ltd. 17.7% 30.72%
On the other hand statistics for Tina Oil Mills were as under:
Commodity A.Y. 2005-06 A.Y. 2006-07
Oil Seed Crude Oil % of OIL Oil Seed Crude Oil % of OIL
consumed Produced consumed Produced
Soya bean 1 22975 MT 23010 MT 18.71 129950 MT 23146 17.81
Average Oil: % = 18.26%
Sunflower 42574 MT 19581 MT 45.99 40976 MT 18566 MT 45.30
Average Oil: % = 45.65 %
3.1 The AO therefore issued a show case notice asking the assessee to
explain the reasons for the difference and why it should not be treated that there has been suppression of oil production.
4. It was submitted by the assessee that the statistics are erroneous. It was submitted that Sunflower oil is produced in two stages. In the first stage which is expeller process, oil is produced from the oil seed and in the second stage, i.e. solvent process, the Sunflower cake is further processed to yield oil and De-oiled cake. The production data of second stage has not 5 been incorporated and hence the statistics mentioned in the show cause notice are erroneous. Based on the correct production data the assessee furnished the statistics for all five concerns the details of which are as follows :
Kirti Agrovet Ltd. :
A.Y. Soya Oil Soya Shortage Sunflower Sunflower Shortage DOC Oil DOC 2007-08 18.26% 80.39 % 1.35% -- -- --
2008-09 17.09 % 80.64 % 2.27 % 32.77 % * 64.83 % * 2.40 % * 2009-10 18.01 % 81.23% 0.77 % 43.52 % 54.78 % 1.70%
It was submitted that the oil seed has been put through the expeller process in this year and oil and cake produced. However, the second stage has not been carried out and the sunflower cake has been sold. Kirti Dal Mills Ltd. :
A.Y. Soya Oil Soya Shortage Sunflower Sunflower Shortage
DOC Oil DOC
2003-04 17.82% 79.98 % 2.19% -- -- --
2004-05 17.71 % 81.10% 1.19% -- -- --
2005-06 17.75% 79.58 % 2.67 % 38.20% 54.93 % 6.87 %
2006-07 17.64% 81.00 % 1.36% -- -- --
2007-08 18.04% 17.91 % 2.05 % -- -- --
2008-09 17.84% 80.83% 1.33% 39.52 % 56.17% 4.31 %
2009-10 17.94% 80.32% 1.73% 40.00 % 55.84 % 4.16%
Kirti Foods Ltd. :
A.Y. Soya Oil Soya DOC Shortage Sunflower Sunflower Shortage
Oil DOC
2003-04 17.12% 80.23% 2.66% 38.02% 57.13% 4.85%
2004-05 17.07% 80.76% 2.66% 35.82% 61.22% 2.96%
2005-06 17.13% 81.86% 1.01% 38.23% 59.57% 2.20%
2006-07 17.14% 81.00% 1.86% 38.44% 59.30% 2.26%
2007-08 17.20% 8133% 1.47% 38.32% 58.41% 3.27%
2008-09 17.01% 81.42% 1.57% 38.13% 57.20% 4.67%
2009-10 17.45% 81.48% 1.08% 38.59% 59.65% 1.76%
Kirti Solvex Ltd. :
A.Y. Soya Oil Soya DOC Shortage Sunflower Oil Sunflower DOC Shortage
2003-04 40.69% 54.21% 5.10%
2004-05 41.51% 56.54% 1.95%
2005-06 40.69% 58.15% 1.16%
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2006-07 38.92% 58.08% 3.00%
2007-08 38.34% 56.33% 5.33%
2008-09 38.31% 58.72% 2.97%
2009-10 38.80% 58.96% 2.24%
Kirti Agrotech Ltd. :
A.Y. Soya Oil Soya DOC Shortage Sunflower Oil Sunflower DOC
2003-04
2004-05
2005-06 18.21% 80.09% 1.69% 32.91% 64.56%
2006-07 17.03% 81.01% 1.96% 40.02% 56.33%
2007-08 18.01% 80.55% 1.43% 40.61% 56.85%
2008-09 18.09% 81.59% 0.32% 40.40% 59.44%
2009-10 17.96% 80.76% 1.28% 39.20% 58.75%
5. The assessee further pointed out that the statistics being quoted for Tina Oil Mills, Latur are also incorrect. Based on the audited Balance Sheet of this Company it was submitted that the correct statistics for Tina Oil Mills is as under:
F.Y. 2005-06 :
Oil from Cake Balance Oil % of Oil Recovery Total Qty.
from Seed
SF Crude 19,581 .00% 2,996.60 % 16,584.41 % 38.95%
Total Qty. DOC from Balance % of DOC
Cake DOC Recovery
from Seed
SD DOC 52,191.00 25,542.41 26,648.60 62.59 %
F.Y. 2006-07 :
Total Qty. Oil from Cake Balance Oil % of Oil Recovery from Seed SF Crude 18,566.00 2,637,81 15,928.19 38.87% Total Qty. DOC from Balance % of DOC Cake DOC Recovery from Seed SD FOC 47,847.00 22,484.19 25,362.81 61.90% 5.1 From the details supplied by the assessee the Assessing Officer noted that there is substantial variation between different units of Kirti group and 7 moreover one year to the other. He, therefore, obtained details in respect of Om Sri Agrotech, Dhule and Maharastra Solvent Extraction Pvt. Ltd.
Jalgaon which have processed Soyabean seed using the same technology as that of the assessee. From the details supplied by the above companies the Assessing Officer noted that the statistics of these two concerns are as follows:
Om Shri Agrotech, Dhule :
A.Y. 2007-08 2008-09 2009-10 2010-11 Oil 17.59% 17.66% 17.24% 17.65% DOC 82.64 % 79.29 % 79.9 % 82.58 % Shortage Nil 3.05 % 2.86 % Nil
Maharashtra Solvent Extraction Pvt. Ltd., Jaigaon A.Y. 2007-08 2008-09 2009-10 2010-11 Oil -- 17.97% 17.98% --
DOC -- 81.17 % 80.27 % __-- Shortage -- 0.86 % 1.75% --
5.2 The Assessing Officer therefore again asked the assessee to explain the variations in the production figures of the concerns of the Kirti group as well as variations vis-a-vis production figures of other similar concerns.
The assessee made detailed submission which has been reproduced by the Assessing Officer at page 5 & 6 of the order and which reads as under :
1) The oil recovery in the case of soyabean seed and sunflower seed varies from place to place, season to season, year to year as well as the technology being used. When there is higher atmospheric moisture in the harvesting season, it is natural that the oil seed shall contain higher moisture levels and give lower oil recovery. Hence, there cannot be any fixed percentage of oil and DOC in respect of any oil seed. However, soyabean contains approximately 18% oil and sunflower seed contains 40 % oil. This can be verified from the lab reports attached with each purchase bill. Some of these lab reports and purchase bills form part of the seized documents. Given the technology available, it is impossible that all the oil contained in any oil seed can be recovered. That is why, oil recovery from soyabean varies from 17% to 18% and in sunflower from 37% to 38.5 %. As shown in the charts above, the oil recovery in both soyabean and sunflower in all concerns of Kirti Group are within the industry norms and compare favourably with other similar concerns.
2) Soyabean seed is purchased on the principle of 2-2-10 and sunflower seed on the principle of 2-8. These are industry norms, and represent 2% for breakage, 2% for foreign particles such as sand, silica, dust, wood etc. and 10 % for moisture. 8 This is in the case of soyabeans. In the case of sunflower 2% foreign particles and 8% moisture is the standard norm. In case, foreign particles and moisture exceed the standard norms, necessary deduction for excess foreign particles and excess moisture is made in the purchase bill itself. In case of the assessee, substantial deduction has been made on these accounts and this is easily verifiable from the seized purchase bills. It is for this reason that our average purchase price every year is lower than the market price or the price prevailing on NCDEX.
3) In the case of Kirti Group companies, gross weight has been taken to compute oil and DOC recovery and shortage. The gross weight includes weight of gunny /jute bags. In the case of soyabean each bag contains 80 to 100 Kgs while in the case of sunflower each bag contains 33 to 50 Kgs. Each bag weighs approximately 1 Kg. Thus, approximately 1 % of gross weight of soyabean seed and 2 % of gross weight of sunflower seed is the weight of gunny bags, and is reflected in the shortages.
4) The Kirti group companies are using expeller technology in the case of processing of sunflower oil. On the other hand, Tina Oil Mills, Latur is using expander technology, Tina Oil Mills has imported this expander plant from USA. It is the latest available technology and gives higher yield of oil. Even then our oil recovery matches that of Tina Oil Mills.
5.3 The Assessing Officer noted that the contention of the assessee have some merit. However, it cannot be denied that the production figures especially generation of shortage varies substantially between different concerns and different years. According to the AO the technology available does not change year to year. He verified the contention of the assessee regarding weight of Gunny bags as well as deduction on account of foreign particles and moisture and came to the conclusion that this alone cannot explain the entire shortage. He further noted that during survey proceedings in the case of Laxmi Money Lenders, Latur on 28-08-2008 evidence of cheque discounting in the case of the assessee was found. It was seen that cheques issued by the Kirti group concerns including the assessee for purchase of oil seeds were being deposited in the bank accounts of Laxmi Money Lenders and/or its sister concern Dhanraj Pallod. The amount of cheque was then withdrawn in cash and handed over to various persons including the employees of Kirti group. Post search verification of some of the parties from whom oil seeds were purchased revealed that none of them were assessed to tax, no bank accounts were 9 maintained by them and they denied all transactions with the assessee group. Therefore, according to the Assessing Officer it is apparent that the bonafides of those parties to whom payment was made by crossed cheques is not beyond doubt. Therefore, under such circumstances an element of inflation of purchases cannot be ruled out. Keeping the various submissions made by the assessee the Assessing Officer came to the conclusion that shortage of 1.5% in the case of Soyabean and 3% in the case of Sunflower is justified and the balance amount has to be disallowed on account of inflation of purchase of oil seeds.
5.4 He noted that in the case of the assessee, 7420.000 tonnes of soyabean seed was consumed during the year. The oil produced was 17.75% and DOC 79.58% leading to a shortage of 2.67%. Allowing for 1.5% shortage in the case of soyabean he disallowed 1.17% of soyabean consumed (which works out to 86.814 tonnes) and added back as inflation of purchases. Applying the average purchase price for the year in the case of soyabean seed at Rs.12,525/- the AO added an amount of Rs.10,87,374/- to the total income of the assessee on account of inflated purchases. 5.5 The AO further noted that the assessee during the year has consumed 998.610 tonnes of sunflower. The oil recovery was 38.20% while DOC was 54.92 %. Shortage was hence 6.88 %. After allowing 3% shortage he calculated the excess shortage at 3.88%. (i.e. 38.746 tonnes). Applying the average purchase price of sunflower seed for the year at Rs.14958/-, the AO made addition of Rs.579571/- on account of inflated purchases of oil seed during the year. The AO accordingly made addition of Rs.16,66,945/- 10 to the total income of the assessee and determined the income at Rs.32,33,700/- as against Rs.15,66,750/- declared by the assessee. 5.6 Before the CIT(A) the assessee strongly challenged the addition made by the AO and reiterated the same submissions as made before the AO. It was submitted that the assessee maintains regular books of accounts such as cash book, ledger, sales purchase bills, vouchers etc. which are audited u/s.44AB and those were produced before the AO. It was submitted that the assessee and other concerns of Bhutada group were using the Expeller method of processing for manufacturing of Edible oils whereas M/s. Tine Oil Mills were using Expander Machinery for oil production. The other 2 comparisons used by the AO namely M/s. Om Shri Agrotech, Dhule and M/s. Maharastra Solvent Extraction Pvt. Ltd. are also using the Expander processes. Further, copies of the audited statement of accounts of M/s. Om Shri Agrotech, Dhule and M/s. Maharastra Solvent Extraction Pvt. Ltd. were not made available to the assessee during the assessment proceedings. Therefore, the yield figures of those 2 concerns used by the AO against the assessee without providing their audited statements etc. were against the principles of natural justice. It was submitted that the difference between the 2 types of oil manufacturing process was brought to the notice of the AO. The Expeller method used is the conventional method of oil production by pressing the oil seeds. It cannot remove every last trace of oil from the seeds and a significant amount of oil remains trapped inside the cake which is leftover after pressing and the mechanical pressing in the expeller which works out under high temperature and high pressure causes oxidation of oil. Therefore, in order to remove oil from the oil cake, i.e. still left over in the cake in the 11 expelling process, it is necessary to use solvent extraction process. However, in the expander system with the Squeezomatic attachment invariably ensures even direct extraction of high oil content from material like Sunflower, Rapeseed, Rice Bran, Soyabean producing the best quality of crude oil and it completely eliminates the pre-pressing operations of old technology expellers. Further in the expander process, the water steam used more than water steam used in the expeller process, therefore, yield is comparatively low in the expeller process. However, the AO without understanding the technologies used by different companies proceeded to make the addition. It was further submitted that the oil recovery in the case of Soyabean and Sunflower varies from place to place, season to season, year to year as well as the technology being used. It was submitted that when there is higher atmospheric moisture in the harvesting season the oil seeds shall contain higher moisture level and give lower level recovery, therefore, there cannot be any fixed percentage of oil and DOC in respect of any oil seed. However, the Soyabean contains approximately 18% of oil and Sunflower seed contains 40% oil. Therefore, oil recovery from Soyabean varies from 17-18% and in Sunflower from 37-38.5%. It was submitted that the oil recovery in both Soyabean and Sunflower in all concerns of Kirti group are within the industry norms and compare favourably with other similar concerns. It was further submitted that gross weight has been taken to compute oil and DOC recovery and shortage without considering weight of Gunny/Jute bags which is included in the gross weight. The elaborate written submission was given justifying the yield percentage of the assessee. Relying on various decisions it was submitted that the addition made by the AO is not at all justified. 12 5.7 Based on the arguments advanced by the assessee the Ld. CIT(A) deleted the addition by holding as under :
"5.5 I have carefully considered the facts of the case, the assessment order and the rival submissions. The appellant company purchased soyabean seeds and sunflower seeds from local parties and outside state purchases and most of the purchases are made after the respective harvest season i.e. during the months of September to January for Soyabean and Sunflower in Maharashtra. The appellant has maintained books of account including stock registers showing quantitative details for raw materials purchased and processed, oil cake produced, processed, de-oiled caked produced and sold also for oil produced and sold. The books of account are audited u/s 44AB of the I.T. Act and the audit report has been filed alongwith the return of income. The books of account were also audited as required by the Companies Act. The auditor has not pointed out any discrepancies in the Audit report and has not passed any qualifying remarks regarding purchases. In para 5 on page No.2 of the impugned assessment order, the Id. AO also has stated that regular books of account are maintained such as Cash book, Ledger, Sale/Purchase bills, vouchers, etc. which were produced for verification. The same were test checked by him. The learned AO has not pointed out any particular instances of .inflation of purchases. He has nowhere in the impugned assessment order given a specific and clear finding or even a whisper that he is rejecting the audited books of accounts or that he is invoking the provisions of section 145 of I.T. Act, 1961.
5.6 In para 7 on page 2 of the assessment order, the Id. AO has given the chart showing average yield of Soya Crude Oil and Sunflower Crude Oil for the various 5 concerns of Bhutada Group and the yield is in the range of 17.17% to 17.86% for Soya Crude Oil and 30.72 to 32.69% for Sunflower Crude Oil. For the purpose of making comparison, the Id. AO has given on page 3, the yield figures of M/s Tina Oil Mills for A.Y. 2005-06 and 2006-07 AT 18.71% and 17.81% for Soya Crude Oil and at 45.99% and 45.30% for Sunflower Crude Oil respectively.
The appellant has stated that the comparative figures of Tina Oil Mills stated by the AO are erroneous and not correct because the oil-cake apart from oil seeds was also purchased and used by M/s Tina Oil Mills for the production of 'sunflower Oil. After considering such quantities of oil-cake processed and quantities of the resulting de-oiled-cake, as given in their Audited Statements, the corrected yield figures of sunflower oil of M/s Tina Oil Mills were brought to the notice of the Id. AO and these correct figures of yield of M/s Tina Oil Mills are given on page 4 and 5 of the impugned assessment order. The appellant's contention that the Id. AO has made the comparison between the unequals is found to be correct. The appellant and other concerns of Bhutada group were using the Expeller Machinery of processing for manufacturing edible oils whereas M/s Tina Oil Mills was using Expander Machinery for its oil production. The Id. AO has not appreciated the difference between the two types of processes of oil production.
The Ld AO further compared the yield figures of M/s. Om Shri Agrotech, Dhule and M/s Maharashtra Solvent Extraction Pvt. Ltd., Dhule who are also using the Expander Machinery but during the course of assessment proceedings the AO did not give the audited statements of these two concerns to the appellant. In absence thereof the appellant could not make any comment thereon. The yield figures of oil for M/s Om Shri Agrotech, Dhule and M/s Maharashtra Solvent Extraction Pvt. Ltd. Dhule were used by the Id. AO without providing their audited statements from which their yield figures were obtained by the Id. AO 13 which is unjustified as the appellant was deprived an opportunity to rebut the A.O's findings.
5.7 There is a major difference in the two types of oil manufacturing processes i.e. the expeller method and expander method. The Expeller process is old technology where(as the Expander is the new and technically advanced process. The appellant has used the Expeller process. The expeller processing cannot remove every last trace of oil from the seeds. A significant amount of oil remains trapped inside of the cake which is leftover after pressing and the mechanical pressing in the Expeller which works under high temperatures and high pressure, causes oxidation of oil. Therefore, in order to remove oil from the oil cake that is still left over in the cake in the expelling process, it is necessary to use solvent extraction process. As against this; the recent technological developments of the Expander system with the squeezomatic attachment invariably ensures even direct extraction of high oil content from material like sunflower, rapeseed, Rice Bran, Soyabean producing the best quality of crude oil and completely eliminates the pre-pressing operations of old technology Expellers. Further, in Expander process the water steam is used more than water steam used in the Expeller process. Hence in the Expeller process, the yield is comparatively low and the oxidation-losses are more. While in the Expander process the oil recovery is much better and the shortages are less.
5.8 The oil recovery in the case of soyabean seed and sunflower seed varies from place to place, season to season, year to year as well as the technology being used. When there is higher atmospheric moisture in the harvesting season, it is natural that the oil seed shall contain higher moisture levels and give lower oil recovery. Hence, there cannot be any fixed percentage of oil in respect of any oil seed. However, soyabean contains approximately 18% oil and sunflower seed intains 40% oil. That is why, oil recovery from soyabean varies from 17% to 18% and sunflower from 37% to 38.5%. There is a merit in the appellant's contention that the soyabean seed is purchased on the principle of 2-2-10 and sunflower seed on the principle of 2-8. In the case of Soyabean it represents 2% for breakage, 2% for foreign particles such as sand, silica, dust, wood etc. and 10% for moisture. In the case of sunflower 2% foreign particles and 8% moisture is the standard norm. In case, foreign particles and moisture exceed the standard norms, necessary deduction for excess foreign particles and excess moisture is made in the purchase bill itself. The appellant has made substantial deduction on these accounts and it was easily verifiable from the seized purchase bills. It is for this reason that the average purchase price every year of the appellant was lower than the market price or the price prevailing on NCDEX.
It is nowhere established by the Id. AO that any specific purchase bill of the appellant or other concern of Bhutada group were bogus and that cash of discounted cheques had been ploughed back to the appellant or other concerns of Bhutada Group. For making an addition on inflated purchases, the burden of proof is on the AO to prove it and in this case he has not shifted the burden of proof on the appellant. The AO, therefore, has made the impugned addition on mere surmises, .guess work and conjectures. The method used by the Id. AO for the purpose of estimation of such alleged inflated purchases of soyabean seeds is against the principle of production accountancy as the Assessing Officer has assumed the yield for the reasons given by him disregarding the facts of the case and the mechanical innovations in this nature industry, and proceeded to question the purchases. This amounts to putting the cart before the horse. There is no material evidence found during the search or thereafter brought on record during assessment proceedings to suggest any inflation of purchases. In the appellant's case, there is no evidence either indicating any suppression of yield or inflation of purchases. In the AO's mind the operative 14 assumption of an average percentage of yield in these two products is imaginary and hypothetical. As is evident from the phrases such as that 'an element of inflation of purchases cannot be ruled out or A.Os reference to discounting of cheques, by Laxmi Money Lenders and Shri Dhanraj Palod, and doubting the appellant's purchases is extraneous to the determination of appellant's yield and purchases. Consequently, his questioning of the appellant's purchases which are otherwise supported by proper bills and books of account is arbitrary and cannot be justified. The appellant's case is, therefore, supported by the decisions of Hon'ble Delhi High Court in the case of Saroj Metal Works Pvt. Ltd. (supra) and M/s R.K. Rice Mills(Supra).
5.9 Considering the totality of the facts, I am of the considered view that the impugned addition made for inflated purchases/excess shortage in respect of soyabean seeds Rs.10,87,3747- and in respect of Sunflower seeds Rs.5,79,571/- aggregating to Rs.16,66,945/- are unwarranted and the same are deleted. This ground of appeal is allowed."
5.8 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us with the following grounds :
"1. On the facts and in the circumstances of the case and law, the Ld. CIT(A) erred in deleting the addition of Rs.16,66,945/- made on account of inflated purchases.
2. On the facts and in the circumstances of the case and law, the Ld. CIT(A) erred in not appreciating that the purchases claimed to have been made by the assessee have been proved to be bogus by the AO by bringing the necessary evidence on record.
3. On the facts and in the circumstances of the case and law, the Ld. CIT(A) erred in ignoring the evidence on record in as much as the parties from whom the alleged purchases were claimed to have been made denied having sold goods to the assessee.
4. On the facts and in the circumstances of the case and law, the Ld. CIT(A) erred in not appreciating that the shortage claimed by the assessee are not reliable in view of the fact that the assessee indulged in inflation of purchases.
5. The order of the CIT(A)-I, Nashik may be vacated and that of the AO be restored.
6. Any other ground that may be urged at the time of hearing".
5.9 We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions relied on by both the sides. We find in the instant case the assessee has maintained books of accounts which were audited under the Companies Act as well as audited u/s.44AB of the I.T. Act. The books of accounts 15 maintained and audited were produced before the AO who test checked the same and the AO has not pointed out any particular incidence of inflation of purchase. Further the finding of the Ld. CIT(A) that nowhere in the impugned assessment order the AO has given specific and clear finding or even a whisper that he is rejecting the books of accounts or that he is invoking the provisions of section 145 of the I.T. Act could not be controverted by the Ld. Departmental Representative. 5.10 We find the assessee during the course of assessment proceedings has narrated the method used by it for manufacture of its oil according to which it was using expeller method of processing for manufacturing edible oils whereas the comparative cases referred to the by the AO were using expander method of processing for manufacture of edible oils. Further, we find the AO has not given the copy of the audit reports of the concerns namely M/s. Om Shri Agrotech, Dhule and M/s. Maharastra Solvent Extraction Pvt. Ltd. Jalgaon whose cases were compared by him. This, in our opinion, is against the principles of natural justice since the evidence collected by the Assessing Officer behind the back of the assessee and used against the assessee has not been confronted. Similarly, we find from the assessment order that the Assessing Officer at Page 6 of the order has mentioned "the contentions of the assessee have some merit". Further, we find that the Assessing Officer nowhere has established that any specific purchase bill of the assessee or any other concern of the group was bogus and that cash of discounted cheque had been ploughed back to the assessee or other concern of the Bhutada group.
165.11 We find the Hon'ble Bombay High Court in the case of R.B. Bansilal Abirchand and Spinning and Weaving Mills Vs. CIT reported in 75 ITR 260 has held as under :
"We are also unable to accept the contention that the principles of section 13 of the Income tax Act are not attracted in this case. The asseseee has followed a regular method of keeping account of the cotton consumed in the whole of the spinning process. It is not shown that there is any other or better method of keeping account of such consumption. In fact, it does not appear to be disputed that the quantity of cotton shown to be consumed is not more than what has been found from the figures in the assessee's books. The ultimate conclusion is reached only on the basis of the alleged exaggeration in the percentage of dead losses. If there is no material on which it could be established that the increase in the percentage was attributable to any suppression of weight or any suppression of production, then we fail to see how the right under the proviso could be availed of by the Income tax Officer in making an estimate. The very condition for making use of the right under the proviso arises after the finding is recorded as to the non acceptability of the method and irregularity of the accounts kept. It does not appear that there is such a finding recorded by the authorities in this case; in the absence of such a finding the book result could not be ignored or brushed aside. The mere fact that the percentage of loss is very low in a particular year cannot possibly lead to an inference that thereby there has been a suppression in the weight of yarn that is produced. We are not satisfied that on the material on record that the sum of Rs.50,000/- could be included in the total income of the assessee on account of the alleged under stated production of yarn and soft waste. We, therefore, answer the second question referred to us in the negative and in favour of the assessee."
5.12 Further, we also find merit in the submission of the Ld. Counsel for the assessee that the oil recovery in the case of Soyabean seed and Sunflower seed varies from place to place, season to season, year to year as well as the technology being used. In view of the above and in view of the detailed reasoning given by the Ld. CIT(A) deleting the addition made by the AO on account of inflated purchases/excess shortage in respect of Soyabean and Sunflower seeds we do not find any infirmity in his order. Accordingly, we uphold the same. The grounds raised by the revenue are accordingly dismissed.
Kirti Foods Ltd.
ITA No.592, 593, 594/PN/2012 (A.Y. 2003-04, 2004-05, & 2006-07) :
Kirti Agrotech Ltd.ITA No.590/PN/2012 (A.Y. 2006-07) : 17
Kirti Agrovet Ltd.ITA No.591/PN/2012 (A.Y. 2008-09)
Kirti Solvex Ltd.ITA No.589/PN/2012 (A.Y. 2003-04) :
6. After hearing both the sides we find the Revenue in the grounds of appeal in the above appeals has challenged the order of the CIT(A) in deleting the addition made by the AO on account of inflated purchases, the details of which are as under :
ITA Nos. Amount
592/PN/2012 Rs.62,71,348/-
593/PN/2012 Rs.20,27,586/-
594/PN/2012 Rs.12,01,573/-
589/PN/2012 Rs.48,40,776/-
590/PN/2012 Rs.12,39,758/-
591/PN/2012 Rs.59,60,239/-
6.1 After hearing both the sides, we find the grounds raised by the
Revenue in the above appeals are identical to grounds of appeal in ITA No.588/PN/2012. We have already decided the issue and the grounds raised by the Revenue have been dismissed. Following the same ratio the grounds raised by the Revenue in the above appeals are also dismissed. Kirti Dal Mills Ltd.
ITA No.615/PN/2012 (A.Y. 2007-08) (By Assessee) :ITA No.907/PN/12 (A.Y. 2007-08) (By Revenue) :
7. Grounds of appeal No. 1 to 4 by the Revenue relates to the deletion of addition of Rs.8,37,726/- made by the AO on account of inflated purchases.
7.1 After hearing both the sides we find the above grounds are identical to the grounds of appeal in ITA No.588/PN/2012 filed by the Revenue. We have already decided the issue and the grounds raised by the Revenue have 18 been dismissed. Following the same ratio the above grounds raised by the revenue are dismissed.
8. Ground of appeal No.5 by the Revenue and Ground of appeal No.1 by the assessee relate to part relief given by the Ld. CIT(A) on account of addition by the AO u/s.40A(3). The respective grounds read as under :
Revenue :
"5. On the facts and in the circumstances of the case and law, the Ld. CIT(A) erred in admitting new evidence without following the provisions of Rule 46A, while deleting the addition of Rs.27,80,971/- on account of disallowance under section 40A(3)".
Assessee :
"1. On the facts and in the circumstances of the case the Ld. Hon.CIT(A)-I, Nashik has partly granted relief to the appellant company. The Ld. AO has made addition of Rs.46,29,750/- on account of disallowance u/s.40A(3) and out of which Hon. CIT(A)-I, Nashik has granted relief to the extent of RS.27,80,971/- and confirmed the balance addition of Rs.18,48,779/-."
8.1 Facts of the case, in brief, are that during the course of assessment proceedings the AO noted that the assessee made payments for purchase of raw materials for amounts exceeding Rs.20,000/- by crossed cheque and not Account Payee cheque. The AO asked the assessee to explain as to why 20% of such payments should not be disallowed and added back to the total income of the assessee. It was submitted that purchases were made from unregistered dealers who are nothing but agriculturists themselves. They are representatives of small agriculturists of their villages and nearby villages. They collect the produce from various agriculturists and hire vehicles to bring the produce to the various factories in the area including the assessee's factories. Cheques are issued in the names of these persons who are actually acting as agents. These persons are illiterate and have no knowledge of banking. Cheque discount houses such as M/s.Laxmi Money Lenders are located in the market yard so that they can pay to all the small 19 agriculturists whose produce they have sold in cash. The agriculturists did not have any bank accounts. For this reason crossed cheques were issued. However, since the assessee came to know of the change in the provisions of section 40A(3) it changed the practice and started issuing Account Payee cheques.
8.2 However, the AO was not convinced with the explanation given by the assessee. He noted from the purchase bills and the details of crossed cheques issued that such payments have been made to traders such as Ravi Traders, Solapur, Nilesh Traders, Tamsa, Samartha Traders, Akkalkot, Nagesh Traders, Latur. Therefore, the AO came to the conclusion that the assessee has not paid the cheques to the agriculturists but traders and in some of the places banking facilities are also available. He further observed that ignorance of law cannot be an excuse for being in violation of it. In view of the above, the AO disallowed an amount of Rs.46,29,750/- being 20% of the payments made by crossed cheques amounting to Rs.2,31,48,749/- for violation of provisions of section 40A(3) of the I.T. Act.
8.3 Before the CIT(A) the assessee reiterated the same arguments as made before the AO. The assessee further classified the gross amount of Rs.2,31,48,749/- into 4 categories the details of which are as under :
Laxmi Money Lenders Category Particulars Cheques Not Traceable Traced I Cheque issued before 13-07-2006 32,13,687 --
but cleared after 13-07-06
II Cheque issued after 13-07-2006 but 1,30,150 --
issued before 09-11-06
III Cheque amount below Rs.20,000/- 1,39,04,850 --
each
IV Cheque not traceable 59,00,062
20
8.4 It was submitted that during the assessment proceedings and even
thereafter the AO was requested to furnish the details of cheques issued which were considered by him for the purpose of quantification of such disallowance u/s.40A(3). However, such details were neither provided by him nor has he expressed his inability to provide such details. The AO has merely utilized the data collected from M/s. Laxmi Money Lenders and M/s. Dhanraj Pallod with whom the rural small suppliers of the assessee had discounted their cheques and at whose premises survey actions were conducted by the department simultaneously. It was submitted that the AO had not carried out any independent enquiries with M/s. Laxmi Money Lenders and M/s. Dhanraj, Pallod and had not ascertained the exact and actual details of such cheques discounted with them. It was submitted that the assessee himself carried out some verification work in respect of such cheques issued from the submissions of the bank accounts and payments were made to reconcile the actual amounts of such probable discounted cheques with reference to the amounts as per the data collected by the department from the above 2 money lenders. It was submitted that the money lenders had bunched several such discounted cheques and had deposited such bunch of several cheques under one pay-in-slip in their respective accounts for which it gives a twisted result in the sense that though the individual amount of each such cheque was below Rs.20,000/-
the amount of each such pay-in-slip entered exceeded the said limit of Rs.20,000/-. It was submitted that the department had obtained the details of such amounts of pay-in-slips of said money lenders instead of amounts of each such discounted cheque bunched together in that particular pay-in-
slips. Further, the AO had not given the copies of such pay-in-slips.
Relying on various decisions it was submitted that the AO had not 21 discharged the onus cast on him by proving that the amounts of such cheques issued by the assessee was in excess of the limit of Rs.20,000/-. It was further submitted that once book results are rejected and profit is estimated then provisions of section 40A(3) do not apply.
8.5 It was submitted that 13 cheques amounting to Rs.32,12,687/- were issued before 13-07-2006., i.e. before the date of amendment in section 40A(3) but they were cleared in the bank account of the assessee after 13-
07-2006. Therefore, the AO was not justified in making the addition of Rs.32,12,687/-. It was further submitted that Rule 6DD has been amended w.e.f. 09-11-2006. Therefore, the cheques issued after 13-07-2006 amounting to Rs.1,30,150/- but issued before 09-11-2006 should not have been added to the total income of the assessee. It was submitted that an amount of Rs.1,39,04,850/- represents cheque amounts below Rs.20,000/- each for which no such addition is called for. So far as the balance amount of Rs.59,00,062/- it was submitted that the AO has not proved that each such individual cheque was exceeding Rs.20,000/-.
8.6 However, the Ld. CIT(A) was not fully convinced with the arguments advanced by the assessee. So far as the argument of the assessee that cheques issued prior to 13-07-2006 but encashed after 13-07- 2006 amounting to Rs.32,12,687/- is not hit by the provisions of section 40A(3), he noted that such crossed cheques were debited in the assessee's account after 13-07-2006 and therefore the amended provisions of section 40A(3) w.e.f. 13-07-2006 are attracted. As regards the arguments of the Ld. Counsel for the assessee that cheques issued after 13-07-2006 but issued before 09-11-2006 amounting to Rs.1,30,150/- should not be added u/s.40A(3) since the provisions of section Rule 6DD were amended w.e.f. 22 09-11-2006 the LD. CIT(A) rejected the above contention by relying on the decision of the Pune Bench of the Tribunal in the case of R.S. Nayyar Vs. JCIT reported in 108 ITD 424 wherein it has been held that amendment made by the Finance Act constitutes substantive law and the same shall be applicable from the relevant Asst. Year and the date of amendment to Rule 6DD(J) shall not be relevant.
8.7 So far as the claim of the assessee that the amount of Rs.1,39,04,850/- represents cheque amounts where each amount is below Rs.20,000/- he observed that the assessee had issued crossed cheques below Rs.20,000/- amounting to Rs.1,39,04,850/- and therefore the same is not hit by the provisions of section 40A(3). So far as the claim of the assessee that amount of Rs.50,00,062/- represent cheques below Rs.20,000/- which are not traceable he rejected the contention of the assessee on the ground that no evidence has been placed before him by the assessee in this regard. Therefore, he held that the above amount falls within the mischief of provision of section 40A(3) of the I.T. Act. Thus, in effect the Ld. CIT(A) granted relief of Rs.27,80,971/- and confirmed the balance addition of Rs.18,48,779/- out of the disallowance made by the AO u/s.40A(3) of the I.T. Act.
8.8 Aggrieved with such part relief given by the Ld. CIT(A) both the Revenue and the Assessee are in appeal before us.
8.9 We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. There is no dispute to the fact that the assessee has made payments to various parties by crossed cheques and not by account payee 23 cheques. We find the provisions of section 40A(3) were amended w.e.f. 13-07-2006 by the Taxation Laws (Amendment) Act, 2006 according to which if the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day otherwise by an account payee cheque drawn in a bank or account payeee bank draft exceeds Rs.20,000/- no deduction shall be allowed in respect of such expenditure. We find the assessee has categorized the payments made to various parties by crossed cheques in respect of account payee cheque (a copy of which is filed in Paper Book Page No.239) and which was available before the AO also. We find although the AO has not discussed anything about the same in the assessment order the Ld. CIT(A) has considered the same. He has given a categorical finding that an amount of Rs.1,39,04,850/- out of the total amount of Rs.2,31,48,749/- consists of cheques where each cheque is below Rs.20,000/- each. Since the copy of Annexure-A giving details of list of such cheques provided by the AO and copy of Annexure-B giving the bifurcation of cheques into various categories ( copies of which are placed in paper Book page Nos. 240 to
259) were filed before the AO and since the Ld. CIT(A) after considering the same has considered that the amount of Rs.1,39,04,850/- does not fall under the mischief of section 40A(3), therefore, in absence of any contrary material brought to our notice we find no infirmity in the order of the CIT(A).
8.10 So far as the ground raised by the Revenue that Ld. CIT(A) admitted new evidence without following the provisions of Rule 46A we are of the opinion that the same is without any merit since the assessee has furnished all such details before the AO and no new evidence has been furnished 24 before the CIT(A). Nothing contrary was also brought to our notice by the Ld. Departmental Representative against the certification of the Paper Book according to which the details were furnished before the AO. Therefore, the amount of Rs.1,39,04,850/- do not fall under the mischief u/s.40A(3) and therefore we uphold the order of the CIT(A) on this issue. Ground raised by the revenue is accordingly dismissed. 8.11 So far as the amount of Rs.1,30,150/- which represent cheques issued after 13-07-2006 but issued before 09-11-2006 we find it is the contention of the Ld. Counsel for the assessee that Rule 6DD(J) has been amended w.e.f. 09-11-2006 and therefore cheques issued after amendment w.e.f. 13- 07-2006 to 09-11-2006 may not be disallowed. However, the above issue stands decided against the assessee by the decision of Pune Bench of the Tribunal in the case of R.S. Nayyar (Supra) wherein the Tribunal held that the amendment made by the Finance Act constitute substantive law and the same shall be applicable and the date of amendment to Rule 6DD(J) shall not be relevant. Nothing contrary was brought to our notice against the decision of the Coordinate Bench of the Tribunal. Therefore the CIT(A) was justified in sustaining the addition of Rs.1,30,150/- being crossed cheques issued after 13-07-2006 issued before 09-11-2006. 8.12 So far as the argument of the Ld. Counsel for the assessee that cheques issued before 13-07-2006 but cleared after 13-07-2006 amounting to Rs.32,13,687/- should not be added u/s.40A(3) we find the Ld. CIT(A) has given a finding that the crossed cheques were debited in the assessees books of accounts after 13-07-2006 and therefore the amended provisions of section 40A(3) w.e.f. 13-07-2006 are attracted.
258.13 We find the provisions of section 40A(3) read as under :
"(3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure".
From the above, it is clear that it is the date of tendering of the crossed cheques to the parties and not the entries in the books of accounts that matter. Since it is not clear from the records as to the date on which the cheques were handed over to the respective parties, therefore, we deem it proper to restore the issue to the file of the AO with a direction to give one more opportunity to the assessee to substantiate with evidence to his satisfaction that the crossed cheques were infact tendered to the concerned parties prior to 13-07-2006 which were cleared by the bank after that date. 8.14 So far as the cheques amounting to Rs.59,00,062/- it is the case of the assessee that he has issued the cheques which do not exceed Rs.20,000/-. According to him, the money lenders, i.e. M/s. Laxmi Money Lenders and M/s. Dhanraj Pallod had bunched several such discounted cheques and had deposited such bunch of cheques under one pay-in-slip and that the individual amount of each such cheque was below Rs.20,000/-. However, we find neither the AO had carried out any independent enquiry nor the assessee had proved beyond doubt that the pay-in-sips contains number of cheques and each cheque amount is below Rs.20,000/-. Considering the totality of the facts of the case we deem it proper to restore the issue to the file of the AO with a direction to give one more opportunity to the assessee to substantiate with evidence to his satisfaction that the money lenders had bunched several such discounted cheques and had deposited such bunch of several cheques under one pay-in-slip in their 26 respective bank accounts and that the pay-in-slips contain details of cheques which do not exceed Rs.20,000/- each at a time. Ground of appeal No.5 by the revenue is accordingly dismissed. Ground of appeal No.1 by the assessee is partly allowed for statistical purposes.
9. Ground of appeal No.2 by the assessee reads as under :
"2. The Ld. Hon.CIT(A)-I, Nashik has erred in confirming the addition of Rs.5,75,833/- on account of disallowance of depreciation".
9.1 After hearing both the sides we find during the course of assessment proceedings the AO noted from the seized documents from the office premises of Kirti group that the plant at Bijapur was purchased by the assessee on 09-11-2006 as per the documents available at Sl.No.35 of Annexure-A1. The assessee was requested to produce documentary evidence to prove that the plant was put to use in F.Y. 2006-07 and actual production was carried out during the year. In absence of any evidence produced by the assessee the AO rejected the claim of depreciation on land and building and plant and machinery of the said plant amounting to Rs.5,75,833/-. While doing so, the AO rejected the contention of the assessee that the value of newly acquired assets have been acquired with the said block of assets and therefore the assessee is entitled to depreciation. We find in appeal the Ld. CIT(A) upheld the action of the AO on the ground that depreciation is admissible only to asset if put to use for the business activity during the year under consideration. We find no infirmity in the order of the Ld. CIT(A). As per the language of section 32(1), for claiming depreciation, the buildings, plant, machinery or furniture etc. should be owned fully or partly by the assessee and used for the purpose of business or profession. In the instant case the assessee has purchased the land and buildings, plant and machinery. However, no 27 evidence was produced before the AO or CIT(A) or even before us that the plant has infact been put to use before the end of the accounting year. Merely because the assessee has added the same to the gross block of assets, the same in our opinion, cannot entitle the assessee to claim depreciation unless it is proved beyond doubt that the assessee has put to use such plant even for a single day before the end of the accounting year. We, therefore, do not find any infirmity in the order of the CIT(A) rejecting the claim of the assessee. Ground raised by the assessee is accordingly dismissed.
10. Ground of appeal No.3 by the assessee reads as under :
"3. The Ld. Hon. CIT(A)-I, Nashik has erred in confirming the addition of Rs.2,90,000/- on account of unexplained investment in Land and Building and Plant & Machinery".
10.1 Facts of the case, in brief are that the AO during the course of assessment proceedings noted that as per Page No.58 Sl.No.35 of Annexure A1 seized from the office premises of Kirti group there is a noting that Rs.2,90,0900/- has been given to Amrut Extraction Pvt. Ltd. in cash on 09- 11-2006. The above amount was not reflected in assessee's books of account. The AO therefore asked the assessee to explain as to why the same should not be added to the total income as payment out of unexplained source of income for A.Y. 2007-08. It was explained by the assessee that the amount pertains to the expenses on transfer of assets to Amrut Extraction Pvt. Ltd. However, the AO was not convinced with the explanation given by the assessee. He noted that the paper clearly mentioned that " Cash of Rs.2,90,000/- paid to Amrut Extraction Pvt. Ltd. on 09-11-2006 for plant transfer expenses" vide Chitti No.243. He 28 accordingly made addition of Rs.2,90,000/- to the total income of the assessee.
10.2 In appeal the Ld. CIT(A) upheld the addition made by the AO by holding as under :
"8.3 I have carefully considered the facts of the case, the assessment order and the rival contentions. On perusal it is noticed that the appellant Company has purchased Fixed Assets consisting Leasehold Land, Factory Building and Plant & Machinery from Amrut Extraction Pvt. Ltd. of Bijapur for total consideration Rs.85,11,11I/-. The sale deed in this regard was executed on 09/11/2006, wherein at point (7) and (8) of the sale deed it is mentioned that all the expenses related to transfer of the property to be borne by the seller i.e. Amrut Extraction Pvt. Ltd.
Admittedly, the payment is made by the appellant company as on date of execution of the sales deed as temporary advance to the seller to accommodate him for transfer expenses. The transfer expenses is supposed to be borne by the. seller and same is noted in the sale deed at point (7) and (8), wherein it is mentioned that all the expenses related to transfer of the property to be borne by the seller i.e. Amrut Extraction Pvt. Ltd. Accordingly the seller has borrowed the said sum from the appellant company for time being. The appellant has contended that it has received back the transfer charges from Amrut Extraction Pvt. Ltd. after execution and completion of the sale deed but the appellant has not furnished any documentary and could not substantiate to the satisfaction of the AO that it has received back the amount of transfer charges. Therefore, the disallowance made by the AO amounting to Rs.2,90,000/- is justified and the same is confirmed. This ground of appeal is dismissed."
10.3 The Ld. Counsel for the assessee submitted that the amount found to have been incurred is much less than the huge income declared. Therefore, the set off may kindly be granted to the assessee out of the declared amount. 10.4 We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the Paper Book filed on behalf of the assessee. Admittedly the seized document shows cash of 29 Rs.2,90,000/- paid to Amrut Extraction Pvt. Ltd. on 09-11-2006 for plant transfer expenses vide Chitti No.243. Since the assessee has paid the money and it is not recorded in the books of accounts, therefore, the AO was justified in treating the same as unexplained investment in land and building. We do not find any force in the submission of the Ld. Counsel for the assessee that set off should be granted to the assessee for this amount, since in the instant case the assessee has filed return in response to notice u/s.153A declaring additional income of Rs.37,530/- on account of excess claim of depreciation only. The income declared in another year cannot be set off from the addition for this year. In this view of the matter, the ground raised by the assessee is dismissed.
10.5 In the result, ITA No.907/PN/2012 by the Revenue is dismissed and ITA No.615/PN/2012 by the assessee is partly allowed for statistical purposes.
ITA No.908/PN/2012 (A.Y. 2009-10) (By Revenue) : ITA No.616/PN/2012 (A.Y. 2009-10) (By Assessee) :
11. Grounds of appeal No. 1 to 4 by the Revenue relate to the order of the CIT(A) in deleting the addition of Rs.34,36,426/- made on account of inflated purchases.
11.1 After hearing both the sides we find the above ground is identical to the grounds of appeal by the Revenue in ITA No.588/PN/2012. We have already decided the issue and the grounds raised by the Revenue have been dismissed. Following the same ratio, the above grounds raised by the Revenue are dismissed.
30
12. Grounds of appeal No. 5 to 7 by the Revenue reads as under :
"5. On the facts and in the circumstances of the case and law, the Ld. CIT(A) erred in deleting the addition of Rs.23,57,640/- made on account of unaccounted receipts, on the basis of seized incriminating documents.
6. On the facts and in the circumstances of the case and law, the Ld. CIT(A) erred in holding that the addition of Rs.23,57,640/- made on account of unaccounted receipts has been telescoped into the undisclosed income of Rs.1,14,50,000/- admitted in the statement under section 132(4) and declared in the return of income, eventhough the said declaration of undisclosed income of Rs.1,14,50,000/- does not include the amount of Rs.23,57,640/- thereby rendering his decision perverse.
7. On the facts and in the circumstances of the case and law, the Ld. CIT(A) erred in directing the AO to adjust the seized cash towards the advance tax liability which was not an existing liability as on the date of search".
12.1 Facts of the case, in brief, are that the documents inventorised at Sl.No.9 of Annexure-A found in the residential premises of Vishnudas Bhutada contains noting regarding amount received or receivable from 4 parties totaling to Rs.23,57,640/-. The AO noted that these documents are not recorded in the audited books of accounts. He, therefore, asked the assessee to explain as to how the payment has been recorded in the regular books of accounts. The assessee admitted that the said amounts received are not accounted for in the regular books of accounts and is ready for addition of the amount to the total income. The AO therefore added the same to the total income of the assessee.
12.2 Before the Ld. CIT(A) it was submitted that the assessee has declared additional income of Rs.1,14,50,000/- for the year under consideration. The additional income was partly on account of profit from sales consideration and partly on account of cash balance difference found in search. It was accordingly submitted that the AO should have considered the amount of Rs.23,57,640/- shown as receivables and received from the said seized documents as being received out of the suppressed 31 turnover. It was argued that the AO should have given telescoping benefit in respect of this amount of Rs.23,57,640/- against the additional income of Rs.1,14,50,000/-. Relying on various decisions of the Tribunal and different High Courts it was requested to delete the addition. 12.3 Based on the arguments advanced by the assessee the Ld. CIT(A) deleted the addition by holding as under :
"5.3 I have carefully considered the facts of the case, the assessment order and the rival contentions. As a result of the search action u/s.132 of the Act the appellant has made declaration of additional income for A.Y. 2009-10 of Rs.1,12,47,477/-. On perusal it is noticed that the learned AO has referred to the seized document marked Sr. No.9 of Annexure-A found at the residence of Directors containing noting about amounts received and receivables. As per that document amounts received were Rs.23,57,640/-. It was stated by the AO that those amounts received were not recorded in the regular books of accounts of the appellant and hence he had added the amount to the total income of the appellant. The appellant, claimed that the addition of Rs.23,57,640/- towards alleged amounts received should be telescoped against the above undisclosed income of Rs.1,12,47,477/- The above contention of the appellant is found to be correct and supported by following decisions: CIT Vs. Venkateswara Timber Depot (1997) 141 CTR (AP) 320; CIT vs. K.S.M. Guruswamy Nadar & Sons (1984) 149 ITR 127 (Mad.); Paul Mathews & Sons Vs. CIT (2003) 181 CTR (Ker.)207; Maj. Gen. (Retd.) Kanwarjit Singh Gill L/h of Smt. Naridner Kaur Gill (Deed.) vs. ACIT (2006) 101 TTJ (Asr.) 538; M. Balakirshna Hegde vs. DCIT(2010) 38 DTR (Bang.) (Trib.) 345; S.M. Dalvi Vs. ACIT(2011) 44 SOT ll(Mumbai); ACIT Vs. Shubham Construction (2002) 77 TTJ (Nag.) 520, B & Brothers Engineering Works vs. DCIT (2003) 78 TTJ (Ahd.) ™ 876; Rameshwar Lal Soni Vs. ACIT (2004) 85 TTJ (Jd.)™ 553; Smt. Maina Devi Vs. ITO (2005) 98 TTJ (Jd.) and Arun Kala Vs. ACIT (2005) 98 TTJ Op.); DCIT Vs. Sunil Umashankar Rungta (2005) 94 TTJ (Mumbai) 329; Omprakash Suresh Kumar Vs. ACIT(2004) 91 TTJ (Del.) 193. The addition of Rs. 23,57,640/- is, therefore, deleted. Ground No. 3 is, therefore deleted. Ground No. 3, therefore allowed".
12.4 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us.
3212.5 We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited by both the sides. There is no dispute to the fact that the amounts received were not recorded in the regular books of accounts of the assessee for which the AO made the addition. At the same time there is also no dispute to the fact that the assessee has declared undisclosed income of Rs.1,12,47,477/- for this year on account of profit from suppressed turnover and partly on account of cash balance difference found as a result of the search. We, therefore, find no infirmity in the order of the CIT(A) giving telescopic effect. We therefore dismiss the ground raised by the revenue on this issue.
13. Ground of appeal No.8 by the Revenue reads as under :
"8. On the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the fact that term 'paid' used in section 234B and 234C means the date of adjustment/actual payment".
13.1 After hearing both the sides we find the AO charged interest u/s.234B and 234C amounting to Rs.6,09,219/- by giving tax credit for amount adjusted against seized cash of Rs.11 lakhs. Before the CIT(A) the assessee challenged the said calculation. It was brought to the notice of Ld. CIT(A) that the assessee vide letter dated 11-09-2008 requested the ADIT (Investigation), Aurangabad for adjusting the same against the tax liability for A.Y.2009-10. However, the ADIT (Investigation) Aurangabad has not taken any cognizance of the same. It was submitted that the seized cash is required to be adjusted against the demand on account of advance tax if assessee has made a specific request in this regard. Various decisions were also brought to the notice of the Ld. CIT(A) on the basis of letter addressed 33 by the assessee to the ADIT (Investigation) Aurangabad that the seized cash should be adjusted against the demand on account of advance tax. The Ld. CIT(A) directed the AO that the amount of Rs.11 lakhs be considered as advance tax instalment due on 15-09-2008.
13.2 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us.
13.3 After hearing both the sides we find no infirmity in the order of the CIT(A) directing the AO to treat the seized cash of Rs.11 lakhs as advance tax instalment due on 15-09-2008. The finding of the Ld. CIT(A) that the assessee vide his letter dated 11-09-2008 had requested the ADIT (Investigation) Aurangabad for adjusting the same against current advance tax liability, i.e for A.Y. 2009-10 could not be controverted by the Ld. Departmental Representative. We therefore find no infirmity in the order of the CIT(A) directing the AO to treat the same as advance tax for the A.Y. 2009-10. This ground raised by the Revenue is accordingly dismissed.
ITA No.616/PN/2012 (A.Y. 2008-09) (By Assessee) :
14. The only ground raised by the assessee reads as under :
"The Ld. Hon. CIT(A)-I, Nashik has erred in confirming the addition of Rs.3,20,229/- on account of payment from undisclosed source of income".
14.1 Facts of the case, in brief, are that the documents appearing at Page No.52 of Annexure A1 at Sl.No.43 found in the office premises of Kirti group shows payment of Rs.3,24,669/- as made to Bhagamma Oil Industries, Bijapur. Since the above amount was not disclosed in the books 34 of accounts the AO asked the assessee to explain as to why the same should not be added to total income as payment out of unexplained sources. 14.1.1 The assessee explained that Bhagamma Oil Industries had requested to make payment of Rs.3,20,669/- in cash and Rs. 3 lakhs by cheque. Further, no such payment have been made by the assessee. It was accordingly requested not to make any addition. However, the AO was not satisfied with the explanation given by the assessee. He noted that the seized document clearly mentions that the amount of Rs.3,20,669/- can be paid either in cash or by cheque. If the amount is paid in cheque then Bhagamma Oil Industries would issue bill for the amount on account of Management expenses. Since the assessee has paid cash of Rs.3,20,669/- and the same has not been accounted for in the books of accounts, therefore, the same was disallowed by him.
14.2 In appeal the Ld. CIT(A) upheld the action of the AO by holding as under :
"6.3 I have carefully considered the facts of the case, the assessment order and the rival contentions. On perusal of the seized document, i.e. the letter pad/head of Bhagamma Oil Industries. It clearly mentions that the amount of Rs.3,20,669/- can be paid either in cash or by cheque. If the amount is paid in cheque the concern (Bhagama Oil) would have issued bill for the amount on account of management expense. As the appellant paid the full amount in cash, the payment has not been accounted for at all. As the payment of Rs.3,20,669/- was outside the books of account, the same was rightly added to the total income being payment made out of income from undisclosed sources by the AO. This ground of appeal is confirmed".
14.3 The Ld. Counsel for the assessee submitted that the assessee has not paid payment of Rs.3 lakhs to the said party. In his alternate contention, he submitted that the total amount of alleged undisclosed payment may be set off against the income offered by the assessee for A.Y. 2009-10. 35 14.4 The Ld. Departmental Representative on the other hand supported the order of the CIT(A).
14.5 We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the Paper Book filed on behalf of the assessee. We find some force in the argument of the Ld. Counsel for the assessee that set off may be granted against the alleged undisclosed payment out of additional income declared by the assessee for the impugned assessment year. We, therefore, restore the issue to the file of the AO with a direction to verify from the records as to whether any additional income is available to be set off. The AO shall decide the issue afresh after giving due opportunity of being heard to the assessee. We hold and direct accordingly. This ground by the assessee is accordingly allowed for statistical purposes.
ITA No.909/PN/2012 (A.Y. 2008-09) (By Revenue ) : ITA No.613/PN/2012 (A.Y. 2008-09) (By Assessee) :
15. Grounds of appeal No. 1 to 4 by the Revenue relate to the order of the CIT(A) in deleting the addition of Rs.83,02,576/- made by the AO on account of inflated purchases.
15.1 After hearing both the sides the above grounds are identical to grounds of appeal in ITA No.588/PN/2012 for A.Y. 2005-06. We have already decided the issue and the grounds raised by the Revenue have been dismissed. Following the same ratio, grounds of appeal No. 1 to 4 by the Revenue are dismissed.
16. Ground of appeal No.5 by the Revenue and Grounds of appeal No. 1 by the assessee reads as under :
36
"5. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in restricting the addition of Rs.10,56,715/- made on account of Gross Profit on unrecorded sales to Rs.8,52,655/- without appreciating the facts on records".
1. On the facts and circumstances of the case, the Ld. Hon.CIT(A)-I, Nashik has partly granted relief to the appellant company. The Ld. Assessing Officer has made addition of Rs.10,56,715/- on account of gross profit on unrecorded sales out of which Hon. CIT(A)-I, Nashik has granted relief to the extent of Rs.2,04,060/- and confirmed addition of Rs.8,52,655/-." 16.1 Facts of the case, in brief, are that the document inventorized at Annexure-11 and Annexure-12 are sale bills/ cash memos found in the factory premises which show sales to the tune of Rs.1,69,07,443/-. The AO noted that the above transactions are not reflected in regular books of accounts. On being questioned by the AO the assessee admitted that the sales have been remained to be taken. It was submitted that the assessee company has offered an amount of Rs.2,14,45,652/- as additional income for A.Y. 2009-10 which covers the profit earned on turnover outsides books.
16.2 However, the AO was not satisfied with the explanation given by the assessee. He noted that the additional income was declared for A.Y. 2009- 10 and not for A.Y. 2008-09. Therefore, the assessee cannot claim that income of the impugned year is offered for taxation in the subsequent year. He further noted that while recording statement u/s.132(4) during the course of search assessee has not admitted that the above sales are not recorded in the regular books of accounts. Rejecting the explanation given by the assessee the AO made addition of Rs.10,56,715/- being GP @6.25% on the unrecorded sales of Rs.1,69,07,443/- . In appeal, the Ld. CIT(A) restricted such GP to RS.8,52,655/- by holding as under : 37
"6.3 I have carefully considered the facts of the case, the assessment order and the rival submissions. The appellant claimed that if alleged sale is treated as out of the books, the necessary corollary of the same is that the purchases/production of the goods is also outside the books. The business of the appellant company is that of manufacturing and trading of edible oil extracted from Sunflower and Soyabean seeds. In view of the above facts, the sale effected by the appellant company outside the books amounting to Rs.1,69,07,443/- cannot be its profit. There has to be cost of material sold which is not recorded in the books of account. The gross profit of the appellant's business for the A.Ys 2006-07, 2007-08 and 2008- 09 was 3.41%, 3.64% and 2.31%. The average gross profit % of the 3 years works out to 3.12%. the income/profit on the sale of Rs.1,69,07,443/- could be reasonably estimated at 3.12% which is amounting to Rs.5,27,512/-.
6.3.1 This view is supported in the following judicial citations :
Janata Tile Vs. ACIT(2000) 66 TTJ (Pune) 695, wherein it has been held that suppressed sales cannot be added as profit/income and the addition could be made to the extent of amount arrived at by applying G.P. rate to be made to the extent of amount arrived at by applying G.P. rate to suppressed sales; Roopniketan Vs. ACIT (2004) 1 SOT 739, Mumbai, wherein it has been held that in respect of suppressed sale addition of gross profit on such sale is only justified, ACIT, Circle-1, Nashik Vs.Premier Electrodes, Nashik ITA No.1642/PN/04 A.Y. 1995-96 (Pune), wherein it has been held that in respect of suppressed sale addition of gross profit on such sale and initial investment for such sale outside the books could be made and CIT Vs. President Industries (258 ITR 654) (Guj.), wherein it has been held that suppressed sale could not represent the income of the assessee and only the excess amount realized over the cost incurred could be treated as profit.
6.3.2 Further, there is bound to be some initial investment in the said trading outside the books for purchasing material etc. The same also needs to be considered and added to the income after dividing Rs.1,69,07,443/- from 52 weeks works out to Rs.3,25,143/-. The initial investment outside the books for the highest sale outside the books is therefore reasonably estimated at Rs.3,25,143/-. This vies is also supported by ACIT, Circle-1, Nashik Vs. Premier Electrodes, Nashik ITA No.1642/PN/04 A.Y. 1995-96 (Pune), wherein it has been held that in respect of suppressed sale addition of gross profit on such sale and initial investment for such sale outside the books could be made. This view is supported by the decision of Hon.Gujarat High Court vide their order dated 05/12/2011 in Tax Appeal No.1828 of 2010 in the case of CIT-III Vs. Textiles, wherein on identical facts the Hon.Court has held that "On the ground that the entire undisclosed sales could not be treated as profit of the assessee, relying on the judgment of this Court in the case of CIT V. President Industries Ltd. [258 ITR 654 (Guj.)], it upheld the findings of the CIT(A) which applies the gross profit against the unaccounted sales for the purpose of making additions on account of undisclosed 38 income. The Tribunal also ratified the decision of the CIT(A) in considering the issue of deployment of minimum capital investment for the purpose of making and rotating the sales outside the books of account. For not having found anything contrary to the findings arrived at by the CIT(A) and on cumulatively examining the facts, which were presented before the Tribunal, it upheld the findings of the CIT(A) which applied the gross profit ratio as against the undisclosed sales made by the assessee for the purpose of making the additions".
6.3.3 In view of the facts of the case discussed above and the judicial decisions, the addition is justified to the extent of gross profit on the goods sold outside the books amounting to Rs.5,27,512/- as well as the initial investment of Rs.3,25,143/- aggregating to Rs.8,52,655/-. The Assessing Officer has made an addition of Rs.10,56,715/- on total unrecorded sales of Rs.1,69,07,443/- treating the gross profit @ 6.25% which is unjustified. Respectfully following the decisions mentioned in earlier paragraphs the addition made by the A.O. on this issue is restricted to Rs.8,52,655/- (i.e.Rs.5,27,512/- + Rs.3,25,143/-). The appellant gets a relief of Rs.2,04,060/-. The A.O. is directed accordingly. This ground of appeal is partly allowed."
16.3 Aggrieved with such order of the CIT(A) the Revenue as well as the assessee are in appeal before us.
16.4 We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and CIT(A). We have also considered the various decisions cited before us. There is no dispute to the fact that sales to the tune of Rs.1,69,07,443/- was not disclosed by the assessee. At the same time the entire sales cannot be added to the total income of the assessee without considering the cost of materials required for such sale. Further, the average GP for the last 3 years was 3.12% since such GP was 3.41% for A.Y.2006-07, 3.64% for A.Y. 2007-08 and 2.31% for A.Y. 2008-09. Therefore, we find no infirmity in the order of the CIT(A) accepting the average GP of 3.12% as against 6.25% taken by the Assessing Officer. We further find the finding given by the Ld. CIT(A) is supported by the decision of the Pune Bench of the Tribunal in the case of 39 Janata Tile Vs. ACIT reported in (2000) 66 TTJ (Pune) 695 and Roopniketan Vs. ACIT reported in (2004) 1 SOT 739 of the Mumbai Bench of the Tribunal. We further find no infirmity in the order of the Ld. CIT(A) in considering the initial investment for such sales outside books of accounts. The argument of the Ld. Counsel for the assessee that set off may be granted for such addition in our opinion is without any basis since admittedly, the undisclosed income was for A.Y. 2009-10. We, therefore, are of the opinion that no set off can be granted to the assessee on account of this addition from the additional income declared by the assessee for A.Y. 2009-10. The grounds raised by the Revenue and the grounds raised by the Assessee are accordingly dismissed.
Kirti Foods Ltd.
ITA No.910/PN/2012 (A.Y.2009-10) (By Revenue) :ITA No.614/PN/2012 (A.Y.2009-10) (By Assessee) :
17. Ground of appeal Nos. 1 & 2 by the Revenue relate to the order of the CIT(A) in deleting the disallowance of Rs.10,000/- made by the Assessing Officer on account of unaccounted advances to M/s.Bharathiya Refractories, Hyderabad.
17.1 Facts of the case, in brief, are that the documents appearing at Page No.15 of AnnexureA23 of the loose paper bundle found from the factory premises at Krushnoor, Nanded showed an advance of Rs.10,000/- to M/s. Bharatiya Refractories, Hyderabad which was not reflected in the regular books of accounts. On being asked by the Assessing Officer it was explained that neither the assessee had made any purchases from or utilised the services of M/s. Bharatiya Refractories, Hyderabad either during the relevant previous year or at any time subsequently. However, the 40 Assessing Officer did not accept the same and made addition of Rs.10,000/-.
17.2 Before the CIT(A) it was submitted that the single piece of paper referred to by the Assessing Officer is a dumb document and therefore the addition made by him was ill founded. It was submitted that it is only a quotation issued by M/s. Bharatiya Refractories, Hyderabad for machinery spare parts and the assessee has not made any advance payment to it. It was alternatively argued that the assessee had substantial funds available from the regular cash book as well as from the turnover of the business for which additional income of Rs.2,16,50,000/- has been shown in the return as per declaration made in the statement u/s.132(4). Therefore, telescoping effect of this amount paid to M/s. Bharatiya Refractories, Hyderabad against such additional income should have been given. 17.3 Based on the arguments advanced by the assessee the Ld. CIT(A) deleted the addition. While doing so, he noted that as a result of the search action u/s.132 of the I.T. Act the assessee has declared additional income of Rs.2,14,45,652/- for A.Y. 2009-10. Relying on various decisions he accepted the contention of the assessee that it has not purchased anything from M/s. Bharatiya Refractories, Hyderabad and even if the same is purchased then telescoping effect should be given of Rs.10,000/- out of the undisclosed income of Rs.2,14,45,652/-. He accordingly deleted the addition.
17.4 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us.
4117.5 We have heard the rival arguments made by both the sides and perused the orders of the Assessing Officer and the CIT(A). There is no dispute to the fact that the assessee had declared additional income of Rs.2,14,45,652/-. The various decisions relied on by Ld.CIT(A) as per Para 5.3 of his order while giving telescoping effect for this Rs.10.000/- out of the additional income declared supports the case of the assessee. We therefore uphold the order of the CIT(A) on this issue and the ground of appeal Nos. 1 and 2 by the Revenue are dismissed.
18. In Grounds of appeal No.3 and 4 the Revenue has challenged the order of the CIT(A) in deleting the addition of Rs.12,90,526/- made by the Assessing Officer on account of undisclosed stock found during the course of search.
18.1 Facts of the case, in brief, are that document bearing Page No. 19 to 21 of Annexure-A23 of loose paper bundle found in the factory premises at Krushnoor, Nanded contain details regarding Soyabean seeds seized by the Tahsil Office, Nanded as on 23-04-2008. As per this document the Tahsildar has seized stock of 279.480 Metric Tonne. On this date, as per the stock book, the stock is only 185.281 M.T. The seized document therefore indicate that assessee held unaccounted stock of 94.199 M.T. as on that day. The Assessing Officer asked the assessee to explain as to why the amount representing the sale of the above-mentioned difference should not be added to the total income of the assessee. In absence of any reply given by the assessee the Assessing Officer made addition of Rs.12,90,526/- by adopting the prevailing purchase cost on that day which was Rs.13,700/- per M.T. Adopting GP @6.5% the Assessing Officer 42 determined the profit at Rs.80,658/-. He accordingly made addition of Rs.13,71,184/- (i.e.12,90,526 + 80,658).
18.2 Before CIT(A) it was submitted that it was explained before the Assessing Officer that stock of Soyabean of assessee as on 23-04-2008 as per stock book was 185.28 M.T. It was submitted that 5 other sister concerns of Bhutada group were also having similar stock of Soyabean at Nanded as on 23-04-2001 as per the respective stock registers and the stock detained by the Tahsildar as on 23-04-2001 might be out of such combined stock of the group. The stock position of other sister concern as on 23-04- 2008 was brought to the notice of the CIT(A), the details of which are as under :
1. Kirti Foods Ltd. 185.281 M.T.
2. Kirti Dal Mills Ltd. 613.901 M.T.
3. Kirti Agrotech Ltd. 1153.060 M.T.
4. Kirti Agrovet Ltd. 924.152 M.T.
----------------
TOTAL 2876.394 M.T.
----------------
18.3 It was submitted that the total stock of Soyabean of the group concerns as on 23-4-2008 as per the stock register was much more than the difference of alleged unaccounted stock of 94.119 M.T. The Ld. Assessing Officer has not given a finding that there was no stock of other sister concerns available as on 23-04-2008. Tahsildar Nanded had detained such stock of 279.480 M.T. for short period. Such stock was not physically lifted from factory premises. It was released by order dated 23-05-2008.
Hence there was dislocation in the functioning of the factory. Considering the availability of stock of such other concerns of the group, the Ld. Assessing Officer need not have to come to the conclusion that the said 43 stock was the unaccounted stock of the assessee and should not have resorted to making such addition.
18.4 Without prejudice to the above it was submitted that the assessee had declared additional income of Rs.2,14,45,652/- during the course of search for the impugned assessment order. Therefore, it was submitted that telescoping effect should have been given by the Assessing Officer. 18.5 Based on the arguments advanced by the assessee the Ld. CIT(A) deleted the addition by holding as under :
"6.3 I have carefully considered the facts of the case, the assessment A order and the rival contentions. As a result of the search action u/s 132 of the Act the appellant has made declaration of additional income for A.Y. 2009-10 of Rs.2,14,45,652/-. On perusal it is noticed that the AO has made an addition of Rs.13,71,184/- on account of surplus stock seized by Tahasildar 279.480 M.T. of Soyabean seeds amounting to Rs.12,90,526/- and adding the G.P. @ 6.25% on the raw material, the AO had made an addition of Rs.13,71,184/- The appellant, claimed that the addition of Rs.13,71,184/- on a/c of seized soyabean seeds of 279.480 MT should be telescoped against the above undisclosed income of Rs.2,14,45,652/- The above contention of the appellant is found to be correct and supported by following decisions: CIT Vs. Venkateswara Timber Depot (1997) 141 CTR (AP) 320; CIT vs. K.S.M. Guruswamy Nadar & Sons (1984) 149 ITR 127 (Mad.); Paul Mathews & Sons Vs. CIT (2003) 181 CTR (Ker.)207; Maj. Gen. (Retd.) Kanwarjit Singh Gill L/h of Smt. Naridner Kaur Gill (Deed.) vs. ACIT (2006) 101 TTJ (Asr.) 538; M. Balakirshna Hegde vs. DCIT(2010) 38 DTR (Bang.) (Trib.) 345; S.M. Dalvi Vs. ACIT(2011) 44 SOT 11 (Mumbai); ACIT Vs. Shubham Construction (2002) 77 TTJ (Nag.) 520, B & Brothers Engineering Works vs. DCIT (2003) 78 TTJ (Ahd.) ™ 876; Rameshwar Lal Soni Vs. ACIT (2004) 85 TTJ (Jd.)™ 553; Smt. Maina Devi Vs. ITO (2005) 98 TTJ (Jd.) and Arun Kala Vs. ACIT (2005) 98 TTJ (Jp.); DCIT Vs. Sunil Umashankar Rungta(2005) 94 TTJ (Mumbai) 329; Omprakash Suresh Kumar Vs. ACIT(2004) 91 TTJ (Del.) 193. The addition of Rs. 13,71,184/- is, therefore, deleted. Ground Nos. 2 is, therefore allowed."
18.6 Aggrieved with such order of the Ld. CIT(A) the Revenue is in appeal before us.
18.7 After hearing both the sides we do not find any infirmity in the order of the Ld.CIT(A). Admittedly, the assessee had declared additional income of Rs.2,14,56,652/- for the impugned assessment year. Therefore, telescoping effect should have been given by the Assessing Officer which 44 he has not given. Based on various decisions the Ld. CIT(A) deleted the addition by giving telescoping effect which in our opinion is just and proper under the given facts and circumstances of the case. We therefore find no infirmity in the same. Accordingly, the grounds raised by the Revenue are dismissed
19. Grounds of appeal No. 5 and 6 by the Revenue reads as under "
"5. On the facts and circumstances of the case and in law the Ld. CIT(A) erred in directing the A.O. to adjust the seized cash towards advance tax liability which was not an existing liability as on the date of search.
6. On the facts and circumstances of the case and in law the Ld. CIT(A) erred in not appreciating the fact that term 'paid' used in section 234B & 234C means the date of adjustment/actual payment".
19.1 After hearing both the sides we find the above grounds are identical to grounds of appeal No.8 in ITA No.908/PN/2012. We have already decided the issue and the grounds raised by the Revenue have been dismissed. Following the same ratio, these grounds raised by the Revenue are dismissed.
20. Grounds of appeal No. 7 and 8 by the Revenue being general in nature are dismissed.
ITA No. 614/PN/2012 (A.Y. 2009-10) (By Assessee) :
21. The only effective ground raised by the assessee reads as under :
" The Ld. Hon.CIT(A)-I, Nashik has erred in confirming the addition of Rs.9,62,500/- on account of undisclosed cash balance."
21.1 Facts of the case, in brief, are that on the date of search cash of Rs.9,62,500/- was found at the factory premises of the assessee. On being asked by the AO to explain the same the assessee admitted the unrecorded cash of Rs.9,62,500/- and no specific reason was given. Therefore, the 45 Assessing Officer made addition of Rs.9,62,500/- to the total income of the assessee being unaccounted cash generated out of undisclosed source of income.
21.2 Before the CIT(A) it was submitted that based on the unaccounted turnover of about Rs.8.55 Crores the assessee has declared the undisclosed income of Rs.2,14,45,652/-. No other correspondence, undisclosed investment and assets were found in search. Accordingly, it was claimed that the said cash of Rs.9,62,500/- was unrecorded being out of such unrecorded turnover. It was further submitted that since the additional income of Rs.2.14 Cr. was over and above the returned income, therefore, telescoping effect should have been given. However, the CIT(A) was not convinced with the explanation given by the assessee and upheld the addition made by the Assessing Officer by holding as under :
"7.3 I have carefully considered the facts of the case, the assessment order and the rival contentions. The appellant has pleaded that this cash is part of the disclosure of Rs.2,14,45,652/- made by the appellant during the search in the year under appeal. However, it has not been substantiated from the statement recorded during the search. Further, in the return of income also it has not been specifically stated whether the seized cash forms part of the additional income. Therefore, no telescopic benefit is permissible. Consequently, the excess cash of Rs.9,62,500/- added by the Assessing Officer is confirmed. Ground Nos. 3 is therefore dismissed".
21.3 Aggrieved with such order of the CIT(A) the assessee is in appeal before us.
21.4 We have considered the rival arguments made by both the sides. There is no dispute to the fact that cash of Rs.9,62,500/- was found from factory premises of the assessee on the date of search which was added by the AO as undisclosed cash. The CIT(A) upheld the addition rejecting the plea of giving telescoping effect on the ground that return of income does not specifically mention that the seized cash forms part of additional 46 income. It is the plea of the Ld. Counsel for the assessee that on account of huge disclosure of additional income of Rs.2.14 cr. Telescoping benefit should be given which was wrongly denied by the CIT(A). We find some force in the above submission of the Ld. Counsel for the assessee. When the Cit(A) based on various decisions, has allowed telescoping benefit for other additions we fail to understand why the same principle was not followed for this excess cash found. Admittedly, the assessee was indulging in suppression of sales for which he declared the undisclosed income. It was already pleaded before the CIT(A) that this cash was part of the disclosure of Rs.2.14 Cr. Under these circumstances we hold that the assessee is entitled to telescoping benefit for the excess cash found. We hold and direct accordingly. This ground by the assessee is accordingly allowed.
Kirti Solvex Ltd.
ITA No.911/PN/2012 (A.Y.2007-08) (By Revenue) :ITA No.612/PN/2012 (A.Y. 2007-08) (By Assessee) :
22. Grounds of appeal No. 1 to 4 by the Revenue relate to the order of the CIT(A) in deleting the addition of Rs.77,59,321/- made on account of inflated purchases by the Assessing Officer.
22.1 After hearing both the sides we find the above grounds are identical to the grounds of appeal by the Revenue in ITA No.588/PN/2012 for A.Y. 2005-06. We have already decided the issue and the grounds raised by the Revenue have been dismissed. Following the same ratio, the grounds by the Revenue are dismissed.
22.2 Grounds of appeal No.5 by the Revenue and Grounds of appeal No.1 by the assessee relate to the part relief given by the CIT(A) out of the 47 addition of Rs.3,53,873/- made by the Assessing Officer on account of disallowance u/s.40A(3).
Revenue :
"5. On the facts and in the circumstances of the case and law, the Ld. CIT(A) erred in admitting new evidence without following the provisions of Rule46A, while deleting the addition of Rs.87,706/- on account of disallowance under section 40A(3).
Assessee :
1. On the facts and in the circumstances of the case, the Ld. Hon.CIT(A)-I, Nashik has partly granted relief to the appellant company. The Ld. Assessing Officer has made addition of Rs.3,53,873/- on account of disallowance u/s.40A(3) and out of which Hon.CIT(A)-I, Nashik has granted relief to the extent of Rs.87,706/- and confirmed and balance addition of Rs.2,66,167/-.".
22.3 After hearing both the sides we find the Assessing Officer made addition of Rs.3,53,873/- u/s.40A(3) since the assessee had made the payments by violating the provisions of section 40A(3). 22.4 In appeal the Ld. CIT(A) deleted the addition of Rs.87,706/- on the ground that the assessee had issued crossed cheques below Rs.20,000/- totalling to Rs.4,38,729/- and therefore the same is not hit by provisions of section 40A(3). He accordingly deleted the disallowance of 20% of the above amount being Rs.87,706/-.
22.5 So far as the remaining amount is concerned he rejected the contention of the assessee that certain crossed cheques were issued prior to 13-07-2006, therefore, the payments are not hit by the provisions of section 40A(3). We find the above grounds by the assessee as well as the Revenue are identical to Grounds of appeal No.5 by the Revenue and Grounds of appeal No.1 by the assessee in ITA No.615/PN/2012 and ITA No.907/PN/2012. We have dismissed the grounds raised by the Revenue and restored the matter to the file of the Assessing Officer in case of the grounds filed by the assessee. Following the same ratio, the ground raised 48 by the Revenue is dismissed and the ground raised by the assessee is restored to the file of the Assessing Officer for adjudication in the light of our directions given therein and in accordance with law after giving due opportunity of hearing to the assessee.
23. Grounds of appeal No.2 by the assessee reads as under :
"2. The Ld. Hon.CIT(A)-I, Nashik has erred in confirming the addition of Rs.1,36,042/- on account of difference in cash balance".
23.1 Facts of the case, in brief, are that during the course of assessment proceedings the Assessing Officer noted that assessee has maintained two sets of account, i.e. on computers as well as on manual. As per the manual cash book the cash balance on 01-04-2007 is Rs.33,09,307/- whereas the cash balance as per the computerised cash book on the same day was at Rs.31,73,265/-. Thus, there is a difference of Rs.1,36,042/-. The Assessing Officer therefore asked the assessee to explain such difference. It was explained by the assessee that it is making certain transactions at factory premises and few transactions are made at office premises. The expenses debited at factory premises are sometimes communicated late to the office and hence the same are not debited on the date of transactions and remained to be recorded in manual cash book. Due to the carelessness of the concerned dealing assistant the difference remained. However, the Assessing Officer was not satisfied with the explanation given by the assessee. He noted that search was carried out after almost 16 months of the discrepancy and the explanation given by the assessee is an afterthought. He accordingly made addition of the above amount. 49 23.2 Before the CIT(A) the assessee reiterated the same arguments. However, the Ld. CIT(A) was also not convinced with the explanation given by the assessee and upheld the addition by holding as under :
"7.3 I have carefully considered the facts of the case, the assessment order and the rival contentions. The issue under dispute is regarding cash balance as on 01/04/2007, Even assuming that there was certain time gap between recording the expenses in the manual cash book, it would not take more than a week to make the entry. Search was carried out almost after 16 months, therefore, there is no scope for appellant to take the plea that posting of certain entries were remaining. Since the appellant was unable to give any satisfactory explanation for the difference in the opening cash balance as on 01/04/2007 which was the closing balance as on 31/03/2007, the amount of Rs.1,36,042/-, being the excess cash balance as per the manual cash book was added to the total income being understatement of the value of total asset as on 31/03/2007. The addition made the by the AO amounting to Rs.1,36,042/- is justified and the same is confirmed. This ground of appeal is dismissed.
8. In the result, the appeal is partly allowed.".
23.3 Aggrieved with such order of the CIT(A) the assessee is in appeal before us.
23.4 After hearing both the sides we find no infirmity in the order of the Ld. CIT(A). The submission of the Ld. Counsel for the assessee that set off should be given is also without any merit since the assessee has not declared any undisclosed income for the impugned assessment year and the undisclosed income declared in A.Y. 2009-10 cannot be given set off for the income of A.Y. 2007-08. The ground raised by the assessee being devoid of merit is dismissed.
Kirti Agrotech Ltd.
ITA No.617/PN/2012 (A.Y. 2007-08) ( By Assessee) :
24. Grounds of appeal No.1 by the assessee reads as under :
"1. On the facts and in the circumstances of the case, the Ld. Hon.CIT(A)-I, Nashik has partly granted relief to the appellant company. The Ld. Assessing Officer has made addition of Rs.71,49,163/- on account of disallowance u/s.40A(3) and out of which Hon.CIT(A)-I, Nashik has granted relief to the extent of Rs.5,43,645/- and confirmed and balance addition of Rs.66,05,518/-.".50
24.1 After hearing both the sides we find the above ground is identical to ground of appeal No.1 by the assessee in ITA No.615/PN/2012. We have already decided the issue and the ground raised by the assessee has been restored to the file of the Assessing Officer for fresh adjudication with certain directions. Following the same ratio this ground by the assessee is restored to the file of the Assessing Officer for fresh adjudication in the light of our directions given therein. Ground of appeal No.1 by the assessee is accordingly allowed for statistical purposes.
25. Grounds of appeal No.2 by the assessee reads as under :
".2. The Ld. Hon.CIT(A)-I, Nashik has erred in confirming the addition of Rs.4,40,100/- on account of expenditure not recorded, detailed as under :
1. Construction expenses Rs.3,65,100/-
2. Labour Charges Rs. 75,000/-
-----------------
Rs.,4,40,100/-
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25.1 After hearing both the sides we find the Assessing Officer made addition of Rs.4,40,100/- on account of expenses not recorded in the books of accounts, the details of which are as under :
1. Construction expenses Rs.3,65,100/-
2. Labour Charges Rs. 75,000/-
-----------------
Rs.,4,40,100/-
----------------
The above addition was based on the basis of seized documents bearing Nos. 24 to 32 and 33 to 42 of Annexure-APO1 found in the office premises of the Kirti Solvex Ltd. which contain details of factory construction expenses and labour charges as mentioned above.
25.2 Before the CIT(A) it was submitted that the expenses were incurred in A.Y. 2009-10 and therefore telescoping benefit should be given out of 51 the additional income declared for the said assessment year. However, the Ld. CIT(A) was not convinced with the explanation given by the assessee and upheld the addition made by the Assessing Officer by holding as under:
"7.3 I have carefully considered the facts of the case, the assessment order and the rival contentions. On perusal of document bearing page Nos. 24 to 32 and 33 to 42 of Annexure APO-1 found in the office premises of Kirti Solvex Ltd., C-96, MIDC, Latur (Party No. 5) contained details of factory construction expenses of Rs.3,65,100/- and labour charges in respect of factory construction of Rs.75,000/- which are not reflected in the audited books of accounts. In view of the fact that the above payments totaling Rs.4,40,100/- were not reflected in the regular books of account, which was also admitted by the appellant, the amount was added to the total income being payments made out of undisclosed sources of income. The addition of Rs.4,40,100/- is, therefore, confirmed. This ground of appeal is dismissed".
25.3 Aggrieved with such order of the CIT(A) the assessee is in appeal before us.
25.4 After hearing both the sides we find no infirmity in the above. Admittedly, the expenses pertain to A.Y. 2007-08. Therefore, in absence of any additional income declared by the assessee for the impugned assessment year no telescopic effect for set-off is possible for additional income declared in A.Y. 2009-10. The ground raised by the assessee is accordingly dismissed.
ITA No.912/PN/2012 (A.Y. 2009-10) (By Revenue) :
26. Grounds of appeal No. 1 to 4 by the Revenue relate to the order of the CIT(A) in deleting the addition of Rs.2,26,855/- made on account of expenses out of undisclosed sources on the basis of seized incriminating documents by giving telescoping effect.
26.1 After hearing both the sides we find the documents bearing Page Nos. 1 to 72 of loose paper Bundle No.15 found in the office premises of Kirti Solves Ltd. contained the details of transportation of brick and freight 52 expenses of Rs.2,26,855/-. Since no such details were reflected in the audited books of accounts the AO asked the assessee to explain as to why the above-mentioned unaccounted payment should not be added to the total income of the assessee. The assessee admitted that no such entries have been recorded in regular books of accounts. The AO therefore made addition of Rs.2,26,855/-.
26.2 Before the CIT(A) the assessee submitted that it had substantial funds available from the regular cash book as well as from unaccounted turnover. It was submitted that the assessee had declared undisclosed income of Rs.1,69,50,000/- for the impugned assessment year and therefore telescoping benefit should be given to the assessee. 26.3 Based on the arguments advanced by the assessee and relying on various decisions the Ld. CIT(A) directed the AO to give telescoping benefit to the assessee for the above amount out of the additional income of Rs.1,69,50,000/- declared by the assessee for the impugned assessment year.
26.4 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us.
26.5 After hearing both the sides we find the above grounds are identical to ground of appeal No.5 to 7 in ITA No.908/PN/2012 filed by the Revenue. We have already decided the issue and the grounds raised by the Revenue have been dismissed. Following the same ratio, the above grounds by the Revenue are dismissed.
53
27. Grounds of appeal No. 5 and 6 by the Revenue read as under :
"5. On the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to adjust the seized cash towards advance tax liability which was not in existing liability as on the date of search.
6. On the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the fact that term 'paid' used in section 234B & 234C means the date of adjustment/actual payment".
27.1 After hearing both the sides we find the above grounds are identical to ground of appeal No. 5 to 8 in ITA No.908/PN/2012 filed by the Revenue. We have already decided the issue and the grounds raised by the Revenue have been dismissed. Following the same ratio, the above grounds by the Revenue are dismissed.
28. In the result the appeals filed by the Revenue as well as the respective assessee's are disposed of in the terms indicated above.
Pronounced in the Open court on this the 28th day of June, 2013.
Sd/- Sd/-
(SHAILENDRA KUMAR YADAV) (R.K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune, dated : 28th June 2013
satish
Copy of the order is forwarded to :
1. The assessee
2. The Department
3. The CIT(A)-I Nashik
4. The CIT-I, Nashik
5. D.R. "A" Bench, Pune
6. Guard File
By order
// True Copy //
Senior Private Secretary,
Income Tax Appellate Tribunal, Pune