Income Tax Appellate Tribunal - Ahmedabad
Western Gum & Chemicals Inds, Ahmedabad vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH - AHMEDABAD
(BEFORE S/SHRI BHAVNESH SAINI, JM AND D. C. AGRAWAL, AM)
ITA No.1161/Ahd/1999
A. Y.: 1995-96
M/s. Western Gum & Vs The Income Tax Officer,
Chemical Industries, Ward 2(5),
4/4111, G. I. D. C., Naroda, Insurance Building, Ashram
Ahmedabad Road, Ahmedabad
PA No. FQ 7441
(Appellant) (Respondent)
Appellant by Shri S. N. Divetia, AR
Respondent by Shri S. K. Jha, Sr. DR
ORDER
PER BHAVNESH SAINI: This appeal by the assessee is directed against the order of the learned CIT(A)-II, Ahmedabad dated 22-03-1999 for assessment year 1995-96.
2. The learned Counsel for the assessee submitted that ground No.1 of the appeal is general and he would not rely upon ground No.2 of the appeal. These grounds are accordingly dismissed.
3. On grounds No.3, 4 and 5, the assessee challenged the additions of Rs.1,00,000/- on account of profit on sale of fire wood and Rs.1,90,000/- on account of profit on sale of machinery spare parts.
ITA No.1161/Ahd/2009 2Western Gum & Chemical Industries Vs ITO, Ward 2(5), Ahmedabad
4. The facts of the case are that a survey action u/s 133A of the IT Act was conducted at the business premises of the assessee on 16-11-1994. As per the assessment order, during the course of survey it was noticed that the assessee was not accounting fully and truly the job work receipts of crushing oil seeds for manufacturing and processing of mustard oil. During the course of survey a statement of Shri Prabhudas Vachhani, described as the main partner of the assessee firm in the assessment order, was recorded and he has surrendered Rs.7,00,000/- as additional income on behalf of the assessee firm:
(a) Additional labour charges not accounted
in the books of accounts Rs.2,50,000/-
(b) Profit on sale of firewood not accounted
in the books of accounts Rs.1,00,000/-
(c ) Profit on sale of machinery spare-parts
not accounted in the books of accounts Rs.1,90,000/-
(d) Profit earned on transaction of certain
shares not accounted in the books Rs.1,60,000/-
Rs.7,00,000/-
It appears that subsequently on 18-11-1994, Shri Prabhudas Vachhani filed an affidavit retracting from the additional income disclosed by him except regarding the additional income earned on job work of Rs.2,50,000/-. It is stated that Shri Prabhudas Vachhani is the main partner along with other partners and has overall supervision. It was noted in the assessment order that disclosure of ITA No.1161/Ahd/2009 3 Western Gum & Chemical Industries Vs ITO, Ward 2(5), Ahmedabad the additional income was made without any pressure. The assessment order also stated retraction has been made on some of the issues because the department did not have any evidence to show that addition is justified. It was stated that the addition is made of Rs.4,50,000/- only on the statement of one of the partners and neither any discrepancy in the stock or cash was found nor any suppression in the purchases and sales was found. It was submitted that the department put harrasment and irrelevant questions were asked and the assessee was forced to declare additional income without any basis. Certain decisions were relied upon in support of the same that if the assessee explains the issue then addition cannot be made merely on admission made at the time of survey. It was also explained that the assessee did not retract from the statement for additional labour charges of Rs.2,50,000/-. It was explained that on other items, addition is made without any basis.
5. The learned CIT(A) considering the submissions of the assessee noted with regard to retraction from the statement that once retraction has been made from the surrender made by the assessee during the course of survey, it would not be reasonable to uphold the addition merely on the basis of surrender made in the absence of any supporting evidence. The learned CIT(A) thereafter discussed the issue of sale of unaccounted fire wood in the assessment year under appeal and the other years and on comparison noted that the assessee has calculated consumption of fire wood excessively and variation in consumption of fire wood in the assessment year as compared with the earlier years is not explained. He has also noted ITA No.1161/Ahd/2009 4 Western Gum & Chemical Industries Vs ITO, Ward 2(5), Ahmedabad that the AO rejected the books of accounts and the assessee failed to produce complete record. The assessee should explain in writing the fire wood used in production in respect of job work and investment and withdrawal should also be explained. The learned CIT(A) also noted with regard to consumption of fire wood that no stock register and movement of fire wood have been produced and there is change in the accounting system. Therefore, addition of Rs.1,00,000/- is correctly made. As regards the addition of Rs.1,90,000/- the learned CIT(A) also noted that though there is positive evidence that the assessee was indulging in consumption of machinery spare parts but the circumstantial evidence is sufficient to uphold the addition. Similarly, comparison of the job work with consumption of machinery spare parts in the assessment year under appeal and preceding assessment year was made and adverse inference was drawn against the assessee for making the addition. It was also noted that considering the comparison with the earlier years, the statement of the main partner cannot be ignored and accordingly, addition of Rs.1,90,000/- was confirmed on account of sale of machinery spare parts. With regard to the addition of Rs.1,60,000/-, the learned CIT(A) noted that there was no evidence on record to support the addition and accordingly addition was deleted.
6. The learned Counsel for the assessee submitted that the learned CIT(A) in the beginning of the impugned order held that once retraction has been made from the surrender made during the course of survey, it will not be reasonable to uphold the additions merely on the basis of surrender made in the absence of any ITA No.1161/Ahd/2009 5 Western Gum & Chemical Industries Vs ITO, Ward 2(5), Ahmedabad supporting evidence. He has submitted that the addition of Rs.1,60,000/- on account of unaccounted profit earned on transaction on shares was deleted because no evidence was found except oral statement of the partner of the assessee. He has, therefore, submitted that since department is not in appeal, therefore, on the same reasons the learned CIT(A) should have deleted both the additions because no evidence was found during the course of survey against the assessee for sale of fire wood or sale of machinery spare parts. He has submitted that the assessee earned income on account of job charges and fire wood and machinery spare parts are consumable items which cannot be sold in the market to earn profit. He has filed audited profit & loss account to show that the assessee has main source of income from job charges and that inventory of the fire wood and machinery spare parts have been maintained to show that both the items were consumed for earning job charges. He has submitted that assessee's partner retracted from the statement precisely on the reason that on both the additions no evidence was found during the course of survey and that both the items were consumed for earning job charges. Therefore, on mere declaration of additional income is not sufficient to make the additions. He has submitted that despite the assessee took specific objection in his reply and in the affidavit that no evidence of sale outside the books has been found, the authorities below without discussing any evidence or material in the assessment order or the appellate order made the additions without any basis. He has relied upon the order of the ITAT Ahmedabad Bench in the case of B. Ramakrishnaiah Vs ITO 39 SOT 379 in which it was held that "no ITA No.1161/Ahd/2009 6 Western Gum & Chemical Industries Vs ITO, Ward 2(5), Ahmedabad substantive evidence was found, therefore, addition is unjustified." He has also relied upon the order of the ITAT Ahmedabad Bench in the case of ACIT Vs Jorawar Singh M. Rathod 94 TTJ 867 in which it was held that "addition made by the AO merely on the basis of retracted statement under s. 132(4) could not be sustained in the absence of any evidence, material or recovery of any movable or immovable assets at the time of search to corroborate the disclosure made by the assessee." He has similarly, relied upon the decision reported in 128 ITD 75 (TM) Agra.
7. The learned DR on the other hand, relied upon the orders of the authorities below and submitted that statement of the partner of the assessee firm was rightly taken into consideration for the purpose of making the additions.
8. We have considered the rival submissions and material on record. It is not in dispute that one of the partners of the assessee firm Shri Prabhudas Vachhani made statement during the course of survey declaring additional income on 4 counts noted above. The main source of income of the assessee is from job work. The partner of the assessee firm later on retracted from the statement with regard to the 3 items of unaccounted profit on sale of fire wood, sale of machinery spare parts and transaction of shares, because no evidence was found during the course of survey against the assessee. It was, therefore, pleaded that the assessee has a right to retract from the statement. It was also explained in the affidavit that ITA No.1161/Ahd/2009 7 Western Gum & Chemical Industries Vs ITO, Ward 2(5), Ahmedabad the never did any type of business of purchase and sale of fire wood or machinery spare parts neither doing any business of share purchasing. The assessee in the explanation before the AO also explained that fire wood and machinery spare parts are consumable items used by the assessee for completing job work and that no evidence was found during the course of survey for sale of fire wood or machinery spare parts. The learned CIT(A) on consideration of the explanation of the assessee accepted the contention of the assessee that once retraction has been made from the surrender made during the course of survey, it will not be reasonable to uphold the addition on the basis of surrender made in the absence of any supporting evidence. The learned CIT(A) with regard to addition of Rs.1,60,000/- on account of unaccounted profit earned on share transaction noted that there is no evidence on record to support the addition of Rs.1,60,000/-. Such addition was deleted. Nothing was brought on record to show if the department has preferred any appeal against the above findings of the learned CIT(A) in deciding the issue in favour of the assessee. As is noted above also, it is settled law that the addition cannot be made on mere admission in the absence of any supporting evidence or material. The assessee can explain later on that admission is incorrect or based on no evidence or that such admission does not show correct state of the facts. We rely upon the decision of the Hon'ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. Vs State of Kerala 91 ITR 18 and the decision of the Hon'ble Punjab & Haryana High Court in the case of Kishan Lal Shiv Chand Rai Vs CIT 88 ITR 293. Considering the facts and circumstances of the case and the findings of the learned CIT(A), ITA No.1161/Ahd/2009 8 Western Gum & Chemical Industries Vs ITO, Ward 2(5), Ahmedabad it is clear that there was also no evidence with regard to sale of fire wood or machinery spare parts made by the assessee in the assessment year under appeal. Despite the assessee took a specific objection in this regard, the authorities below have not pointed out or referred to in the impugned orders if there was any evidence or material found during the course of survey that the assessee made unaccounted sales of fire wood or machinery spare parts. The learned CIT(A) on the face of his own findings was bound to follow his findings on these issues also in order to delete the additions. Considering the facts and circumstances of the case and in the absence of any evidence or material found during the course of survey against the assessee, we are of the view on mere statement of the partner of the assessee firm, no such additions could be made. We accordingly, set aside the orders of the authorities below and deleted the addition of Rs.1,00,000/- and Rs.1,90,000/-. In the result, grounds No.3, 4 and 5 of the appeal of the assessee are allowed.
9. On grounds No.6 and 7, the assessee challenged the disallowance of Rs.3,000/- out of telephone expenses and Rs.5,000/- out of vehicle expenses. The learned Counsel for the assessee did not argue these grounds. We find that the learned CIT(A) on proper appreciation of the facts and material on record rightly sustained part of the additions. We, therefore, do not find any justification to interfere in grounds No.6 and 7 of the appeal of the assessee. Same are accordingly dismissed.
10. No other point is argued or pressed.
ITA No.1161/Ahd/2009 9Western Gum & Chemical Industries Vs ITO, Ward 2(5), Ahmedabad
11. In the result, appeal of the assessee is partly allowed.
Order pronounced in the open Court on 25-03-2011 Sd/- Sd/-
(D. C. AGRAWAL) (BHAVNESH SAINI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Date : 25-03-2011
Lakshmikant/-
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Dy. Registrar, ITAT, Ahmedabad