Income Tax Appellate Tribunal - Delhi
Magnum Ventures Ltd., New Delhi vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'E': NEW DELHI)
BEFORE SHRI R.P.YADAV, JUDICIAL MEMBER
AND
SHRI T.S.KAPOOR, ACCOUNTANT MEMBER
ITA No.842 /DEL/ 2011
(Assessment Year: 2007-08)
Magnum Ventures Ltd. Vs. DCIT
(Formerly known as Magnum Papers Ltd.) Central Circle - 10
3/4326, Ansari Road Daryaganj New Delhi
New Delhi
AAACM6054H
(Appellant) (Respondent)
ITA No. 1227/DEL/2011 (Assessment Year : 2007-08)
ACIT Vs. Magnum Ventures Ltd.
Central Circle - 10 3/4326, Ansari Road,
New Delhi Darya Ganj
New Delhi
AAACM6054H
(Appellant) (Respondent)
ASSESSEE BY : Shri Salil Aggarwal, Adv. & Shri Gautam Jain, CA.
REVENUE BY : Shri Gunjan Prasad, CIT, DR.
ORDER
PER R.P.YADAV, JUDICIAL MEMBER:
The assessee and revenue are in cross appeals against the order of Ld. CIT(A) dated 13.12.2010 passed for assessment year 2007-08. The grounds of appeal taken by both the appellants are not inconsonance to rule 8 of the ITAT rules. They are descriptive and argumentative in nature. In brief, the grievance of both the appellants revolve around a singal issue. The Ld. Assessing Officer has rejected the books of accounts of the assessee u/s 145 of the Income Tax Act, 1961 (hereinafter referred to as Act) and made an addition of Rs. 15,95,54,390/- in the total income of the assessee. On appeal, Ld. First appellate authority has restricted this addition to Rs. 78,44,065/-. The revenue in its appeal is challenge deletion of Rs. 15,17,10,225/-, whereas the assessee in its appeal is challenge confirmation of addition of Rs. 78,44,065/-.
2. The brief facts of the case are that assessee is a Public Ltd. Company engaged in the business of manufacturing and sale of paper and paper goods, namely Duplex paper Board from waste paper. A search u/s 132 of the Act was carried out at various business premises of the assessee on 18th of January, 2007. In addition to the search carried out at the business premises of the assessee, residence of one ex employee Shri Sushil Kr. Verma at F-2A, Sector- 23, Sanjay Nagar, Gaziabad was also covered under the such operation. Shri Sushil Kr. Verma at that point of time was working as General Manager (Commercial) and Executive Director. The assessee has filed its return of Income for A.Y. 2007-08 on 7.11.2007 declaring an income of Rs. 7,58,27,020/-. At this stage, we deem it necessary to first take note of the status of past 6 assessment years. The assessee has submitted the status of its assessment from A.Y. 2001-02 up to 2006-07 in the return submissions filed before the CIT(A) which is available on page no. 2223 of the paper book. These details read as under :-
A.Y. Date of filing of return Income Return Date of Order of Assessment Asstt. u/s Income Assessed 2001-02 23.10.01 29,84,900/-
31.03.03 143(3) 29,84,900/-
2002-03 24.10.02 (38,68,300/-
25.02.03 143(1) (38,68,300/-) 2003-04 32.07.03 NIL 31.07.03 143(1) NIL 2004-05 30.09.04 NIL 08.12.06 143(3) NIL 2005-06 28.10.05 NIL 28.10.05 143(1) NIL 2006-07 30.11.06 1,17,71,330/-
30.11.06 143(1) 1,17,71,330/-
It is also pertinent to note that after the search assessment orders have been passed u/s 153(A) read with section 143(3) on 31.12.2008. The assessments made earlier have not been disturbed. In other words, the returned income declared by the assessee has been accepted.
3. During the course of search at the residence of Shri SushKr. Verma, General Manager (Commercial) and Executive Director of the assessee company, loose papers were found and inventoried. His statement was recorded u/s 132(4) of the Act. The Ld. Assessing Officer has reproduced the details contained in the loose papers on page no. 2 to 7 of the assessment order. On an analysis of these papers in the light of statement given by Shri Sushil Kr. Verma, which has been extensively reproduced in the assessment order, Ld. Assessing Officer formed an opinion that assessee was indulged in receiving unaccounted sale proceeds in cash. He confronted the assessee. In response to the querry of Ld. AO, assessee had filed written submission. It has produced copies of ledger accounts of all the parties against whom allegations of cash payment to the assessee for purchases were made. The assessee has also filed their affidavits denying alleged allegation of the assessing officer. The Ld. Assessing Officer on an analysis of the statements arrived at conclusion that books of the assessee are not reliable. Therefore, he rejected the book result and estimated income of the assessee. The conclusions drawn by the Assessing Officer in the operating part of the assessment order read as under :-
"16. In the light of the facts and in the circumstances of the case brought out above in detail in preceding paras, it can be concluded safely that the books of accounts of the assessee company do not reflect the true and correct picture of its business affairs and the same are, therefore, not reliable. I am, therefore, not satisfied about the completeness and correctness of the books of accounts maintained by the assessee. Accordingly, the trading results of the assessee company as deduced from these books of accounts can not be relied upon. Accordingly, I am left with no alternative other than to invoke provisions of Section 145(3) of the Income Tax Act, 1961 to reject the books of accounts which have been found defective in the manner described above.
17. As per details of unbilled and billed amount of sale given in para 3 above in respect various parties with whom the assessee has had bulk of business transactions, the unbilled and billed amount in respect of the sales made to these parties works out to Rs. 78,44,065/- and Rs. 1,47,43,200/- respectively. It is, therefore, clear that unbilled sales are about 53 % of the billed amount of sales. Since, the data of unbilled and billed amount of sales have been seized by the department only in the case of few parties only and as such it is not possible to work out the actual unbilled amount of sales. Under the circumstances, the only course left with the undersigned is to work out the turnover of the assessee company on the basis of the data available from the seized papers regarding the unbilled and billed amount in respect of the above mentioned parties. As per trading and manufacturing account filed by the assessee company alongwith the return in response to notice u/s 153A of the Income Tax Act, 1961 dated 24.09.2007, the assessee company has declared turnover of Rs. 1,00,81,91,366/-. The ratio of the unbilled sales to those of billed sale is worked out as under :
78,44,065/ 1,47,43,200X100= 53 Since the unbilled amount of sale is around 53% of the billed sales, a sum of Rs. 53,43,41,230/- being 53% of the disclosed turnover of Rs. 1,00,81,91,336/- is added to the declared turnover of the company. Accordingly, the turnover of the assessee company is work out at Rs. 1,54,25,32,596/-. Since, the assessee company has declared G.P. rate of 29.86% which compares well with those of the other reputed companies in the line of business of the assessee company, the same G.P. rate is being adopted for working out the gross profit of the company for the year under consideration. Accordingly, gross profit of the company is worked out at Rs. 46,06,00,233/- being 29.86% of the total turnover (both disclosed and undisclosed) worked out as above. This would mean an addition of Rs. 15,95,54,290/-. In view of the aforesaid facts and in the circumstances of the case, I am satisfied that the assessee has furnished inaccurate particulars of his income in the manner discussed above. Accordingly, penalty proceedings u/s 27(1)(c) of the I.T. Act are being initiated separately.
With the above remarks, the total income is computed as under :-
"Income as per return of income Rs. 7,58,27,020/- Add Income on account of undisclosed Rs. 15,95,54,290/- Turnover as discussed above Total Income Rs. 23,53,81,310/-"
4. Dissatisfied with the finding of the Assessing Officer, assessee carried the matter in appeal before the Ld. CIT(A). Ld. First Appellate Authority has granted major relief to the assessee. It is advantageous to take note of the finding of Ld. CIT(A). CIT(A) which reads as under :-
"I have considered the grounds of appeal, assessment order, the oral and written arguments taken by the appellant, the facts of the case and the position of law. In this respect the following conclusions immerge:
a) The AO has validly rejected the books of account of the company u/s 145(3). AO has concrete evidence of under invoicing and unbilled sales found from the residence of Sh. Sushil Verma, ED & GM of the company recovered u/s 132 before his dismissal from the company. Therefore, Ground No. 7 is dismissed.
b) Sh. Sushil Verma may have had differences with the management of the appellant company resulting in FIR with the police on 5.1.2007 etc, but he was still an employee of the company on the date of search i.e. 18.1.2007 and only later on 27.1.2007 he was expelled / resigned. In fact he remained authorized signatory of the company in a bank account till 16.2.2007 (i.e. a month after the search date). Therefore, the appellant's plea that this practice was done by an errant ex employee Sh. Sushil Verma, and the unbilled sales turnover was misappropriated by him and never reached the hands of the company, does not hold good in the eyes of the law, much less the taxation law, as this may be a matter of internal corruption inside the company by employees, but in the eyes of taxation law, the unrecorded sales and the under invoiced receipts will be held as part of the undisclosed income of the appellant particularly because the relevant sales bills are noted to be duly reflected in the books of the company and during the period the employee Sh. Sushil Verma was still on the payroll of the company. Therefore, ground no. 3 is dismissed.
c) The books of accounts of the company have been examined by my Ld. Predecessor vis-à-vis the bills in question and he has given a finding on the order sheet dated 5.2.2010 that "the entire seized material found from the premises of Sh. Sushil Verma is recorded for accounted transaction fully in the regular books of accounts. To that extent Sh. Pradeep Jain agreed ......." This would mean that these papers are not fabricated by anyone to implicate the appellant as alleged but belong to and reflect billed sales of the company on which under invoicing have been done by Sh. Sushil Verma with or without the knowledge of the management and undisclosed receipts have been generated by a serving employee.
If sales are to be increased, it has to be by the entire under invoiced/unbilled amount and not only the G.P. as was done by the A.O. in the case of the under invoiced / unbilled amount becomes unaccounted income of the appellant and not just the G.P. The statement of Sh. Sushil Verma recorded u/s 132(4) and quoted in the assessment order was not confronted to the appellant by the A.O. The AO has based his calculations on 53% ratio from this statement itself. No cross examination was provided despite request.
Even though the Director of the company had made a disclosure of Rs. 15 crores, albeit later retracted which has not been considered nor countered by the A.O. , and the AO has also made an addition of Rs. 15 crores, albeit not based on the disclosure but based on extrapolated calculation of the ratio of unaccounted income noticed on the entire sales of the year, the theory of extrapolating the calculated ratio of 53% on the billed vis-à-vis unbilled sales, to the entire sales of the year is neither bcked y available evidence, nor on post search enquiry, nor on investigation during assessment proceedings. The entire addition has been based on the ratio of 53% arrived through calculation by the AO on the available evidence of billed sales vis-à-vis unbilled sales and by applying this rtio to the entire turnover of the year. There does not appear to be any concrete evidence to support such extrapolation of this evidence on the entire year's turnover except the presumption of the AO that same practice of same ratio was certainly prevalent over the entire year including the months following the date of search. This presumption cannot take the place of evidence which is available only for the transactions that have been noticed from the seized material at the premises of the ED/GM. If this was so there would have been some more evidence in other premises searched. In any event, the appellant's premises have already been subjected to search u/s 132 and after this no scope for any surmises and conjectures are left. The AO inspite of specific directions u/s 250(4) of I.T.Act, has offered no comments on the documents filed by the appellant and the submissions made on 1.11.10 on these issues and has also not offered any further justification of his presumption regarding 53% ratio of unbilled sales being applicable to the entire turnover of the entire year.
The assessment order suffers from certain other short comings viz., undue significance has been attached to the dispute between the ex-employee Sh. Sushil Verma has remained as employee of the appellant company, the appellant company cannot disown any of the tax evasion committed by Sh. Verma on behalf of the appellant company. Secondly, the assessing officer has not been able to provide opportunity of rebuttal to the appellant regarding statements recorded u/s 132(4A) and other statements which have been used against the appellant in the assessment order in spite of requests. Further, the A.O. has also not been able to provide opportunity of cross examination to the appellant with the witnesses used against them including Sh. Sushil Verma.
The appellant has taken an alternative plea as per para 13 of their reply dt. 18.11.2009 quoted above in para 8(extracted) Para 13 "Without prejudice to the aforesaid and, in the alternative though the same is seriously disputed that, even assuming that, addition is warranted, then too the same should have been restricted to the alleged unbilled sales of Rs. 78,44,065/- and, no more. In other words, at best, addition could have been made of 29.86% of Rs. 78,44,065/- i.e. Rs. 23,42,237/-, though the appellant respectfully reiterates that, the entire presumption that, there are unrecorded sales is purely hypothetical and, thus,\ untenable."
and again by their letter dt. 1.11.2010- (extracted) "Without prejudice to the aforesaid and, in the alternative, though the same is seriously disputed that, even assuming that, addition is warranted then too the same should have been restricted to the unbilled sales of Rs. 78,44,065/- and, no more. In other words, at best, addition could have been made of 29.86% of Rs. 78,44,065/- i.e. Rs. 2342,237/-, though the appellant respectfully reiterates that, the entire presumption that, there are unrecorded sales is purely hypothetical and, thus untenable."
12) Having considered each of these conclusions carefully, I am of the considered view that in the facts and under the circumstances of the case and based on the available evidence, the AO' order can be upheld only to the extent of Rs. 78,44,065/- being the amount for which evidence of undisclosed receipts have been found during search action u/s 132. And contrary to the plea taken by the appellant the whole amount and not only any part of it being claimed as Gross Profit etc., would be taxable in the hands of the appellant as elaborated in the hearing in appellate stage on 5.2.2010.
In view of these facts, position of law, circumstances and evidences, it is held that the alternative plea taken by the appellant in their letter dated 18.11.2009 & 1.11.2010 and as per order sheet entry dated 5.2.2010, appears to be reasonably admissible and allowable. In other words as recorded on 5.2.2010 by my Ld. Predecessor, the entire unbilled/under invoiced amount of Rs. 78,44,065/- and not only the G.P. will be added to the income of the appellant as collected by the employee Sh. Sushil Verma over and above the billed amount of invoices found to be duly recorded in the books. This position has also been mentioned by the appellant in their alternative plea at para 13 of their reply dated 18.11.09 and in their letter dated 1.11.200 albeit with the condition that only G.P. @ 29.86% of Rs. 78,44,065/- may be taxed. However, in the appellant proceedings dated 5.2.2010 before my Ld. Predecessor, the appellant's AR agreed in principle that the entire under invoicing amount not only the G.P. is to be added in this case of under invoicing and would become the income of the appellant. The plea taken regarding disputes etc. with Sh. Sushil Verma is not found admissible in view of the findings that Sh. Sushil Verma was serving employee of the appellant during the period in which under invoices has been done, on the date of the search and the date of the statement recorded u/s 132(4) and also the fact that all the under invoiced bills have been found duly recorded in the company's books. (Relief to appellant Rs. 15,17,10,225/- (Rs. 15,95,54,290/- (-) Rs. 78,44,065/-) In the result, ground no. 3, 7 & 10 are dismissed, ground no. 9 is consequential and the A.O. is directed to give consequential relief and the balance grounds are partly allowed.
In the result, appeal is partly allowed."
5. The Ld. Counsel for the assessee, while impugning the order of Ld. CIT(A) contended that Ld. First Appellate Authority has not recorded specific finding qua the contentions of the assessee for application of Section 145 of the Act. The Ld. First Appellate Authority has upheld rejection of the books of accounts by making observation in just four lines. He took us through the finding of CIT(A) available in paragraph "a" on page 20. He further contended that assessee is maintaining complete books of accounts as required under the Income Tax Act. The books of accounts are duly audited u/s 44AB of the Act, and the auditor has not pointed out any defects in the books of the assessee. The entire sales and purchases are fully verifiable, because assessee has been maintaining all bills and vouchers. During the assessment proceedings, the assessee had produced cash book, ledger and vouchers. These accounts were verified by the assessing officer and he did not find any discrepancy in the books of accounts maintained by the assessee. The assessee has been maintaining stock register, which is subject to examination by Excise Authority and Sale Tax Authorities. Both these authorities had not found any discrepancy in the stock register maintained by the assessee. He drew our attention towards copies of sale tax assessment orders available in the paper books. On the strength of Hon'ble Supreme Court's decision in the case MG Abro additional collector of Customs Vs. Santi Lal and Company reported in AIR 1966 page 197, he contended that one Central Government Authority accepted the sales made by the assessee, then the other authority can not take a contrary stand on those very details. He took us through the details of Income Tax returns and status of assessment starting from A.Y. 2001-2002 to 2006-07. He pointed out that assessment u/s 143(3) was made in A.Y. 2001-02 and 2004-05. The GP declared by the assessee was 14.19%, 11.98%, 12.40%, 14.05%, 17.98% and 26.64% in A.Y.s 2001- 2002 to 2006-07 respectively. He pointed out that in this year assessee has declared sales of 101.545 crores and declared a GP of 29.86%, which is better from all these assessment years in the past. The assessments in AY 2001- 2002 to 2006-07 have not been disturbed by the Assessing Officer even after the search. The assessments in A.Y. 2001- 2002 and 2004-05 were passed u/s 143(3) and books of accounts were not rejected. He also pointed out that during the course of search and survey operation, no documents were found from the premises of the assessee indicating the fact that assessee is not maintaining its books of accounts, according to the statutory requirement. It was also not found that assessee is making sales / purchases outsided books or stock maintained by assessee is not recorded in the stock register. The assessing officer did not find any discrepancy in the stock maintained by the assessee. No cash or unexplained investment was also detected as a result of search on the assessee company.
6. The Ld. Counsel for the assessee further submitted that assessing officer had proceeded to reject the books of the assessee solely on the basis of the documents found and seized from the residence of Shri Sushil Verma and the disclosure made by him in his statement. He submitted that as per documents billed sales are to the tune of Rs. 1,47,43,200/-, whereas unbilled sales are to the extent of 78,44,065/-. This sale is not even 1 % of the total turn over of the assessee. According to the Ld. Counsel for the assessee, the documents found and seized from the premises of Shri Sushil Verma cannot be used against the assessee because they do not belong to the assessee. The Ld. Assessing Officer did not confront the statement of Shri Sushil Kr. Verma to the assessee, nor he was produced for cross examination. The Ld. A.O. ought to have confronted the assessee with the statement as well as ought to have produced him for cross examination, before placing reliance on his statement. In the absence of cross examination, his statement cannot be used against the assessee. For buttressing his contention. Ld. Counsel for the assessee has relied upon following decisions:-
1. 293ITR 43 (Delhi), CIT Vs. S.M. Agrawal (2) 125 ITR 713 (Supreme Court), Kishan Chandra Chella Ram Vs. CIT (3) 295 ITR 105(Delhi) CIT Vs. Dharam Pal Prem Chand Jain Ltd. (4) 303 ITR 95(Delhi) CIT Vs. Pradeep Kumar Gupta.
7. The Ld. Counsel for the assessee further submitted that assessee has not made any sales outside its books of accounts, it has produced affidavit of all the 21 persons against whom allegations were leveled that they have made purchases by making part payments in cash. All these parties are identifiable and transactions with them can be verified by the assessing officer. Assessee has submitted their complete details without examining the transactions with these parties, the Assessing Officer ought to have not drawn adverse inferences against the assessee on the basis of statement of disgruntled employee Shri Sushil Kr. Verma, who was caught committing embezzlement and other frauds with the company. He was admonished by the Managing Director, rather a scuffle had taken place between Shri Sushil Kr. Verma and the Managing Director Shri Praveen Jain. Shri Sushil Kr. Verma had lodged a complaint with the link road police station on 5th of January 2007. He was also served a notice on 6/1/2007 u/s 284 read with section 190 of the company's Act, 1956, for his removal. The Police had conducted an inquiry and ultimately statements of Shri Praveen Jain, Director of the assessee company, Statement of Shri S.P. Chaturbedi Workshop Manager of the assessee company and statement of Shri Sushil Kr. Verma were recorded by the Police on 27th of January, 2007. Thereafter a compromise was also recorded Shri Sushil Kr. Verma has resigned from the company on 27.1.2007. Ld. Cousnel for the assessee took us through the details of all these documents available on pages no. 2296 to 2390 of the paper book. Shri Sushil Kr. Verma had written a letter to his Income Tax Officer, during his assessment proceeding on 12.12.2008, Ld. Counsel for the assessee took us through this letter which is available on page no. 2310 and 2311 of the paper book, which is also reproduced in the return submissions filed before Ld. CIT(A). He pointed out that Shri Sushil Kr. Verma was not keeping good relation with the company and he was indulged in many manipulations, when he was caught; a quarrel taken place between him and Managing Director Shri Praveen Jain, Shri Praveen Jain has reprimanded him. All these things had happened prior to the search. Shri Sushil Kr. Verma in his letter to his Assessing Officer has alleged that his statement was recorded at 1.00 a.m. in the night. He was totally confused and exhausted. He alleged that he had working with the company for more than 27 years and when the Director Shri Praveen Kumar in the presence of other staff member has leveled allegation of fraud and embezzlement, then, he went to police station and registered a complaint. He further stated in the letter that during the course of search, the Income Tax Authorities had asked number of questions, whose reply were written by the Income Tax Authorities. He was totally confused and annoyed with the behavior of the Managing Director. Therefore, in the confused state of mind, he had given replies. Now, after 23 months , he did not know what reply, he had given. Therefore, he is unable to give reply to any question asked in the notice. The Ld. Counsel for the assessee, on strength of reply given by Shri Sushil Kr. Verma about incidence of fight between Shri Sushil Kr. Verma and the Managing Director, has submitted that relationship with this person were not good and in order to harm the company, he has given erratic replies. When the Managing Director was confronted with the replies given by the Shri Sushil Kr. Verma as referred in the assessment order, then, the Managing Director has alleged that he failed to understand, how Shri Sushil Kr. Verma has made notings on the pages and, why he has given such type of replies. All these materials were not in the notice of the Managing Director. Shri Shalil Agrawal, Ld. Counsel for the assessee, further, submitted that during the course of search, Shri Praveen Jain, who is a NRI was not available at the business premises. His statement was recorded on 9th of February, 2007. Shri Praveen Jain had surrender an income of Rs. 15 crore on the ground that incriminating materials were found from his premises. At that point of time, the material found from the assessee was not shown to Shri Praveen Jain; when it came to the notice of Shri Praveen Jain that no material was found from the premises of the assessee, he retracted his statement. The assessing officer has not made the addition on the basis of his statement but made a reference for corroboration purpose. The Ld. Counsel for the assessee on the strength of ITAT's order rendered in the case of ITO Vs. WD State Pvt. Ltd. reported in 45 ITD page 473 submitted, that addition on the basis of a file, that is a table diary belonging to a disgruntled employee showing receipt of on money on sale of flats, addition cannot be made because such type of evidence cannot be considered as a tangible evidence. According to the Ld. Counsel for the assessee, similar are the facts in the present case.
8. The Ld. Counsel for the assessee, further, took us through the details tabulated by the assessing officer on pages no. 2 to 8 and how these material did not lead to any adjudicated authority on a firm conclusion. He pointed out that on page 2 of the assessment order the first entry is on the strength of pages no. 23 to 25 of expenditure AI. In this entry the assessing officer is referring date of sale, September, 2006 billed amount 21,11,205/- and unbilled amount 13,27,436/-. The ledger account of Shri Sudarshan Lal Jain and Sons is available on pages no. 560 to 569. He drew our attention towards pages no. 564 to 565, wherein details of sales made in the month of September, 2006 are available. He pointed out that there is no amount of 21,11,205/- which represent the billed amount in the ledger account. The billed amount should have reflected the total amounts received by cheque by the assessee in the Month of September, which is 15.60 lacs, details of all these amounts have been noticed in the ledger accounts. Similarly, Ld. Counsel for the assessee has explained other discrepancies in the details . He took us through the details of Vikas Traders considered by the Assessing Officer, while making reference to the statement of Shri S.K. Verma and page no. 116.
9. Ld. Counsel for the assessee has raised an alternative contention. He pointed out that total unbilled sales noticed by the assessing officer is of Rs. 78,44,065/- at the most a G.P. at the rate of 29.86% on this amount could be added. In other words, an addition at the most at 23,42,237/- can be made.
10. The Ld. DR, on the other hand, submitted that Ld. Counsel for the assessee has tried his best to impeach the credibility of Shri Sushil Kr. Verma by highlighting the police complaint, his letter written to the assessing officer during his assessment proceeding. He pointed out that Shri Verma is an ordinary person, who was not indulged in any malpractice while perform his duties as an Executive Director and General Manager (Commercial) in the company of the assessee. He took us through page no. 252 of paper book 2 and pointed out that during the course of search, a sum of Rs. 1,01,900/- only was found from the residence of Shri Verma. Referring to page no. 251, Ld. DR pointed out that Shri Verma was having four insurance policy and he alone is having passport, there are number of bank accoaunts in the name of different family members about deposits are nominal. The list of all the bank accounts are placed on page 249 and copy of the FDRs are at page 247. All these details suggest that inspite of attaining strature of Executive Director / General Manager of a company, having turn over of more than Rs. 100 crore, Shri Verma is a man of ordinary means and he has highlighted all the business affairs of the assessee in right perspective. The affairs of the assessee company though controlled by four brothers, but Shri Pradeep Kumar has replied in his statement that Shri S.K. Verma can only through light on the details. It suggests that Shri Verma has a full knowledge of day- to-day working of the company. Taking through the alleged police complaint available at page no. 233 of the paper book Ld. CIT, DR submitted that it is not FIR rather it is a complaint, which is a daily diary report, such type of complaint can be made even subsequently. If Shri Verma has such a strained relation with the assessee, then, while submitting his resignation, why he used such a polite and mild language. The Ld. CIT, DR took us through page 231 of the paper book, where copy of resignation letter of Shri VErma is available. Up to 18th of Jaunary, 2007 Shri Verma was working with the company and no evidence of strained relationship are discernable. He is simple person. Ld. DR, further, submitted that on perusal of Shri Verma's statement starting from page 360 of the paper book would show that his strained relationship nowhere reflects. Shri Verma has not alleged any confusion either in the statement or subsequent to the statement. He also pointed out that normally wherever cash sales are made then papers are destroyed, but in this case Shri Verma has maintained such documents. As far as the affidavits of the purchasers are concerned, their evidentiary value can be evaluated even without cross examining them, if sufficient materials are available on the record contrary to affidavits, then the deposition made in the affidavits can be over looked. He drew our attention towards the judgment of Hon'ble Delhi High Court in the case of NOVA Promoters reported in 342 ITR page 169. With regard to non supplies of statement of Shri S.K. Verma and non affording of opportunity to cross examine is concerned, he submitted that Ld. CIT(A) basically not gone into this controversy but only taken alternative contention of the assessee. In such situation, for giving opportunity to the assessee it can be set aside to the assessing officer. As far as the expression "Coal" written on the seized paper are concern, coal was used as a raw material for drying. The Ld. DR, further, relied upon the judgment of Hon'ble Supreme Court in the case of Mac Dwell reported in 154 ITR page 148. He submitted that order of Ld. CIT(A) deserves to be modified and that of assessing officer deserves to be restored. Ld. Counsel for the assessee, on the other hand, submitted that Ld. DR at this stage can not question a document which has not been challenged by the assessing officer, that is the affidavits of the alleged purchaser. If the working of the assessing officer is accepted then GP would be 54% which is beyond imagine. In the last four years, no under invoicing noticed by the assessing officer, no additions are made. In the present assessment year, GP is the highest. The Sale Tax Authorities have accepted sale tax return including the turn over of the assessee.
11. We have duly considered the rival contention and gone through the record carefully. The Ld. Assessing Officer has rejected the book result of assessee by applying section 145 of the Income Tax of the Act and thereafter estimated the income of the assessee. Section 145 has a direct bearing on the controversy, therefore, it is salutary upon us to take note of this provision.
"145(1) Income chargeable under the head 'Profits and gains of business or profession' or 'Income from other sources' shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.
(2) The Central Government may notify in the official gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income.
(3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144."
12. From the bare reading of this section, it would reveal that it provides the mechanism how to compute the income of the assessee. According to sub-clause (i), the income chargeable under the head "Profits and gains of the business or professions or income from other sources" shall be computed in accordance with the method of accountancy employed by an assessee regularly subject to the sub-section (2) of section 145 of the Act. Sub-section (2) provides that the Central Government may notify in the Official Gazette from time to time the accounting standard required to be followed by any class of assessee in respect of any class of income. Thus, it indicates that income has to be computed in accordance with the method of accountancy followed by an assessee, i.e., cash or mercantile. Such method has to be followed keeping in view the accounting standard notified by the Central Government from time to time. Sub-clause (3) provides a situation, i.e., if the Assessing Officer is unable to deduce the true income on the basis of method of accountancy followed by an assessee then he can reject the book results and assess the income according to his estimate or according to his best judgment. The Assessing Officer in that case is required to point out the defects in the accounts of assessee and require to seek explanation of the assessee qua those defects. If the assessee failed to explain the defects then on the basis of the book results, income cannot be determined and Assessing Officer would compute the income according to his estimation keeping in view the guiding factor for estimating such income.
13. Before adverting to the facts and circumstances considered by the assessing officer in the assessment, it is important to note, though at the cost of repetition, as to how Ld. CIT(A) has considered this aspect.
"a) The AO has validly rejected the books of account of the company u/s 145(3). AO has concrete evidence of under invoicing and unbilled sales found from the residence of Sh. Sushil Verma, ED & GM of the company recovered u/s 132 before his dismissal from the company. Therefore, Ground No. 7 is dismissed."
14. On perusal of this finding would suggest that Ld. CIT(A) has not considered the various details in order to decide, whether sufficient material is available for rejection of the books of accounts of the assessee? The Ld. First Appellate Authority has rejected the contentions of the assessee summarily and thereafter proceed to examine the alternative contention.
On perusal of the assessment order it reveals that for rejecting the book results of the assessee. Ld. Assessing Officer has primarly relied upon the loose papers found from the residence of Shri Sushil Kr. Verma and how he interpreted those papers in his statement. The Ld. Assessing Officer has extensively reproduced the details narrated in these loose papers as well as the replies given by Shri S.K. Verma. The assessee has impugned this material with two fold of contentions; in the first fold of contentions, Ld. Counsel for the Assessee has impugned evidentiary Value of this material in the eyes of law for using against the assessee. In second fold of contention, the stand of the assessee is that this material in itself, per se does not goad any authority to say that assessee has accepted cash on sale of goods which is not accounted in the books. With regard to the first fold of contention, Ld. Counsel for the Assessee has raised number of arguments based on circumstances. We will take up that issue in the later part of this order.
Let us first consider whether the material relied upon by the assessing officer; without questioning its reliability or admissibility as an evidence, does in itself suggest that assessee was making sales in cash also which was not recorded in the books of accounts? On page 2 of the assessment order, Ld. Assessing Officer has narrated the details of Annexure A1 which contains pages number of loose papers inventarised by the search party. The Ld. AO while taking note of details available in Annexure A1 prepared a chart. It contains five column; (1) page no. (2) Party name to whom sale was made, (3) date of sale, (4) billed amount, and (5) unbilled amount. Similarly, up to page 7, he has noticed the other details of the seized paper. Ld. Counsel for the assessee at the time of hearing pointed out that on page 3. Ld. Assessing Officer has narrated details of Annexure A 7 twice. From page no. 10 up to page no. 20 of the assessment order, ld. Assessing Officer has reproduced statement of Shri S.K.Verma. Let us consider whether inferences drawn by the Assessing Officer has rhythmatic coherence with the material available on the record. The first relevant question is question number 13 starting on page 12 of the assessment order. In this question, the search party has asked the analysis of page number 116 in Annexure A1. In page no. 116, the assessing officer has observed that it relates to M/s Vikas Traders and it contains sale for July, 2006. Assessee has accounted the sales i.e. billed amount is 6,53,128/- and unbilled amount is 3,06,976. The copy of this loose paper is available on page 321 of paper book 2. There are number of details on this page but the relevant portion consider by the Assessing Officer is as under :-
"M/S SHANTI COAL CO.
VARANASI
Vikash
9-7 to 30-7
City 4062 e 3/25 13201=00
Rate 54381 e 5/75 312690=00
325891=00
- 1068=00
324823=00
-17847=00
306976=00+ 653128= 960104=00"
This paper was put to Shri S.K.Verma during course of search in question number 13 which is also being referred by the Assessing Officer. It is a very long reply but we are taking note of the relevant part which read as under :-"Q. No. 13
I am showing you annexure - A-1, bunch of loose papers which was found and seized during the course of search operation. Page-116, in this annexure is a handwritten sheet written on both sides. Please explain the entries on this sheet.
Ans:-
This paper is account of Shri Vikash who has purchased duplex board during the period 9-7-06 to 30-7-06. This papers indicates the cash component in addition to the regular billing for purchase of duplex Board Rs. 3.25 per Kg has been receive on sale of 4062 kg of duplex Board. In this way an amount of Rs. 13,201/- has been indicated as cash component in addition to bill amount. Similarly on sale of 5438 kg of Duplex board Rs. 3,12,609/- was received at the rate of Rs. 5.25 per kg in addition to the billed amount. In this way total of Rs. 3,25,891/- has been received as cash component in addition to billed amount. From this amount Rs. 1068/- is subtracted on account of shortage Rs. 17847/- is again deducted on account of discount. In the cash component of Rs. 3,06,976/- bill amount of Rs. 6,53,128/- has been added and total of Rs. 9,60,104/- receivable from the party have been written."
The Ld. Counsel for the assessee drew our attention towards the ledger account of Vikash papers which is available on page no. 611 to 625. Shri S.K.Verma has disclosed that this account is purchase of duplex board by Shri Vikash during the period 9.7.2006 to 30.7.2006. The assessee has accounted for cheques before 30.7.2006 the details in the ledger account for sale as well as credit received through account payee cheque are as under :-
Date Particular Vch. Type Vch.No. Debit Credit
"6-7-2006 Dr. O.B.C. C/c-94 Receipt 1432 5,00,000.00
Ch. No. :509152
8-7-2006 Dr. O.B.C. C/c-94 Receipt 1461 1,25,000.00
Ch. No. :509152
9-7-2006 Cr. Sales Agst. Sales 1619 27,511.00
Form 2%
To Bill no. 1937 Journal 5349 13,657.00
Cr. Depot
To Bill no. 092
11-7-2006 Dr. O.B.C. C/c-94 Receipt 1498 3,50,000.00
Ch. No. : 509156
Dr. Syndicate Bank Receipt 1567 2,00,000.00
Ch. No. : 509158
________________________
Carried over 56,99,696.00 69,83,036.00
Brought Forward 56,99,696.00 69,83,036.00
20-7-2006 Dr. O.B.C. C/c -94 Receipt 1629 2,50,000.00
Ch. No. :509160
Cr. Sales Agst.C Sales 1749 1,28,592.00
Form 2%
To Bill No. 2081
Cr. Sales Agst. C Sales 1750 31,799.00
Form 2%
To BILL No.2082
Cr. Sales Agst. C Sales 1751 59,799.00
Form 2%
TO BILL No. 2083
27-7-2006 Dr. O.B.C. C/c -94 Receipt 1755 1,60,000.00
Ch. No. 509167
Cr. Sales Agst. Sales 1874 48,455.00
C Form 2%
To Bill No. 2224
Cr. Sales Agst. Sales 1875 49,857.00
C Form 2%
To Bill No. 2225
Cr. Sales Agst. Sales 1877 4,510.00
C Form 2%
To Bill No. 2228
Cr. Sales Agst. Sales 1883 1,10,865.00
C Form 2%
To Bill No. 2234
Cr. Sales Agst. Sales 1911 42,767.00
C Form 2%
To Bill No. 2271
Cr Depot Journal 6310 41,159.00"
To Bill No. 102
18. On an analysis of these three aspects, we find that Shri S.K. Verma has deposed that this paper contains details of purchases by Shri Vikash during the period of 9th July, 2006 up to 30th of July, 2006. The total amount is 9,60,104/- out of that 6,53,128/- was received through account payee cheque and 3,06,976/- was received through cash. However, ledger account of this party with assessee suggest that amount of Rs. 9,60,000/- was received through account payee cheque all the details of the sale are recorded. The sales in this month are not more than 9,60,104/- which was received through account payee cheque. The total of sales during this period is Rs. 5,55,997/-. 19. Similarly for test cheque basis page no. 43 of Annexure A1 relating to M/s Associated paper was brought to our notice. This page is available on page no. 289 of the paper book. It contains 6 columns. In the first column description coal / sales / middeling is written, in the 2nd column supply in the month of 5-12 written, in the 3rd column quantity of 11388.4 is written. Rate is 17, amount Rs. 1,93,603/- is written. At the end, break up of this amount is given 1,25,339/- by cheques and 68,264/- by cash. The assessing officer has construed that cheque of Rs. 1,25,339/- has duly been credited by the assessee in its bank as well as in its ledger account. It suggest that the details mentioned on this page are relevant to the business of the assessee. It must have received a sum of Rs. 68,264/- by cash. The assessee has pointed out that in the Month of December, 2006. It has made sales on five occasions vide bill no. 5500, 5506, 5569, 5601 and 5922. These sales have been made on 5th, 6th, 8th, 9th and 20 December, 2006. The assessee had received a sum of Rs. 1,25,339/- through account payee cheque on 1st December, 2006, thereafter it has received a sum of Rs. 1,98,089/- on 11th of January, 2007. The total sale recognized by the assessee is of Rs. 3,23,428/-. The assessee has received this much amount vide two cheques thereafter, sales have been made in the Month of March, 2007 and in the closing balance, assessee has shown due towards associate papers 2,76,054/-. Both the cheques for which sales have been recognized by the assessee in the Month of December, 2006, are concerned, they were received before the search carried out at the premises of the assessee. In other words, there is no amount due towards this concern at the time of search, nor any credit balance of this concern was available towards the assessee. The ledger account of this concern is available on page 545.
20. We have duly examined this account. On an analysis of other evidence referred by the assessing officer in the table vis-à-vis available in the paper book, we find that assessing officer has not read the paper in toto along with the ledgers or books of accounts maintained by the assessee. He has picked up one item, for example from page no. 43 of Annexure A1, he has picked up the expression "paid cash" and assumed that this amount must have been paid in cash over and above the transactions recorded in the paper. He did not bother to reconcile this paper in terms of quantity, in terms of rate recorded in the books. Whether on such an analysis, it suggests that whatever written on the page has actually been given effect in the books of accounts or not? Similarly, we find that he has made reference to certain other transactions on page 6 of the assessment order. All these transactions have duly been recorded by the assessee. The allegation of the assessing officer is that some of the figures or aspects noticed by Shri S.K. Verma on the loose papers, also appear in the regular books, therefore, it should be construed that these loose papars are parallel books. The expression "cash received" written in these papers would be considered as cash sales. In our understanding, the Assessing Officer has not tried to reconcile these papers with the books of the assessee, rather he used the paper partly which is suitable to his conclusions. The assessing Officer ought to have made an analytical analysis and not to read the paper in half way. During the course of hearing, we, how, specifically put to the Ld. DR to show us the figures of billed amount mentioned in these papers in the ledger account of the asseseee, then, we can anticipate that unbilled amount should also be taken as part of the assesses regular transaction. But Ld. DR was unable to point out the figures of billed amount mentioned on page no. 2 and 3 of the assessment order tally with the sales recognized by the assessee in its ledger accounts on those days. The nexus of the papers would established, if billed transactions are appearing in the regular books but unbilled transactions are not available, in that situation assessing officer may be right to say that assessee has sold the goods without recording then in the books. This is one angle flowing from a prima facie analysis of seized paper vis-à-vis the regular books of accounts.
21. The other aspects highlighted by the Ld. Counsel for the assessee is that assessee has shown the best G.P. in this year, then, the past years. The details of GP submitted by the assessee in assessment years 2001-02 to 2007-08 reads as under :-
A.Y. As per return of Income As per Assessment Asst.
u/s Sales (Lacs) GP (Lacs) GP% Sales (Lacs) GP (Lacs) GP% 2001-02 4847.86 687.90 14.19 4847.86 687.90 14.19 143(3) 2002-03 5536.07 663.41 11.98 5536.07 663.41 11.98 143(1) 2003-04 5065.88 628.23 12.40 5065.88 628.23 12.40 143(1) 2004-05 6132.63 923.12 15.05 6132.63 923.12 15.05 143(3) 2005-06 7308.47 1314.37 17.98 7308.47 1314.37 17.98 143(1) 2006-07 8152.04 2172.09 26.64 8152.04 2172.09 26.64 143(1) 2007-08 10145.74 3030.21 29.86 15425.32 4606.00 29.86
--
22. Perusal of the above details would suggest that out of 7 assessment years scrutiny has taken place in three years i.e. A.Y. 2001-02, 2004-05 and the present assessment year. There is an increasing trend of the business, as discernable from the total sales. The assessee has also shown a better G.P.
23. The next circumstance highlighted by the assessee is that Shri S.K. Verma was caught manipulating the accounts. Therefore, he was reprimanded and scuffle had taken place Shri Verma approached the police on 5th of January, 2007, on that very day a notice for removing him from the job was also circulated as per the rules provided under the companies act. The cognizance of Shri Verma's complaint was not taken by the police initially, but he persue it with the higher officials and ultimately statement of Shri Verma, statement of Shri Mahesh Kr., Transport Incharge, statement of Shri S.P. Chaturbedi workshop Manager and statement of Shri Praveen Jain, Managing Director were recorded by the police, thereafter, a settlement was arrived. This exercise was carried out after the search i.e. on 27.1.2007. The complaint was made on 5th of January, 2007 copy of the complaint is available on page no. 2301 of the paper book. Perusal of statement of Shri Mahesh Kr., Transport Manager available on page 2304 given before the investigating officer disclosed the reason for the quarrel. He has alleged that Shri Verma had persuaded him for preparation of false bills which were brought to the notice of Shri Praveen Jain. It suggest that good equations were not between Shri S.K.Verma and the management. He ultimately resigned from the company.
24. The next circumstance pointed out is that from the premises of the assessee, no incriminating material was found. The turnover of the assessee is more than 100 crore. Alleged calculation by Shri Verma is less than 1 % of the total turnover. Shri S.K.Verma during his assessment proceeding has alleged ignorance about his replies i.e. what he has stated and why he has stated. He wrote a letter to the assessing officer and the copy of that letter was brought to the notice of Ld. CIT(A). Which has been reproduced in the submissions made before CIT(A) and available on pages no. 2250 to 2251 of the paper book.
25. The statement of Shri Verma was recorded u/s 132(4) of the Income Tax Act during the course of search carried out at his residence. Whatever, material found and disclosed by him would be relevant for his assessment proceeding. Qua the assessee, the admissibility of the information would be in the category of a corroborative piece of evidence, whose credibility would not be equalent to the credibility of an evidence given in a discloser statement, and used against the declarant. There is a variation in the degree of reability, because whenever any person made a declaration against his interest, such declaration would bind the declarant. But any declaration made qua a 3rd person, then, the declaration would come in the category of information which is a corroborative piece of evidence. Therefore, the loose papers explained by Shri S.K. Verma at 1.00 am of the night cannot be treated as a gospel truth. They have to be evaluated as a piece of corroborative evidence. It is aptly said that when an explanation or defence of an assessee based on number of facts supported by evidence and circumstances required consideration, whether explanation is sound or not must be determined not by considering the weight to be attached to each single fact in isolation but by assessing the cumulative effect of all the facts in their setting as a whole. If we weigh the two aspects i.e. inference drawn by the assessing officer on the basis of loose papers and statement of S.K.Verma vis-à-vis the explanation of the assessee for the loose papers with the help of books of accounts, with the help of substantial evidence showing enmity of Shri S.K. Verma towards the management, better G.P. of the assessee in this year from the last so many years, non-availability of any material quo any other year, non-discovery of any material at the premises of the assessee, acceptance of assessee's return in spite of scrutiny and search in earlier years without any interference, then, scale would tilt in favour of the assessee that its books of accounts does not deserves to be rejected. The defects inferred by the assessing officer are not based on credible evidence. In view of the above discussion, we allow the appeal of the assessee and held that assessing officer is not justified in rejecting the book result and estimating the income of assessee by applying Section 145.
26. The additions confirmed by Ld. CIT(A) at Rs. 78,44,065/- are deleted and charging of interest u/s 234B would be consequential, consequently, the appeal of revenue is rejected.
Order pronounced in Open Court ...14...June, 2013.
Sd/- Sd/- (T.S.Kapoor) (R.P.Yadav) Accountant Member Judicial Member Binita Rukhaiyar 14 June, 2013 Copy forwarded to APPELLANT RESPONDENT CIT CIT (A) CIT(ITAT), New Delhi. PAGE 38 ITA No. 842/Del/2011 ITA No. 1227/Del/2011