Income Tax Appellate Tribunal - Ahmedabad
B & Brothers Engineering Works vs Deputy Commissioner Of Income Tax on 17 December, 2002
Equivalent citations: (2003)78TTJ(AHD)876
ORDER
R.K. Bali, A.M.
1. This is an appeal by the assessee against the order dt. 28th Jan., 1999, passed by the Dy. CIT, Circle 10(1), Ahmedabad, under Section 158BC r/w Section 158BD of the IT Act, 1961. The substantial grounds raised by the assessee in this appeal are as under:
The learned Dy. CIT has grievously erred in law and/or on facts in making following additions as undisclosed income :
Rs.(1)
Admitted unaccounted income due to under-invoicing of is bill 9,77,000 (2) Unaccounted income due to under-invoicing of machinery 55,63,255 (3) Unaccounted income due to under-invoicing of machinery 13,36,982 (4) Unaccounted sale of machineries due to stock deficit 6,39,000 (5) Unaccounted purchase of materials 13,59,000 (6) Unaccounted income on account of various credits recorded in the diary maintained by Maltiben 2,27,000 (7) Unaccounted sale of scrap 3,79,700 (8) Unaccounted income due to forfeiture of advance money received from M/s Mahendra Suitings 36,975 1,05,18,882
2. The assessee-firm derives income from manufacture and sale of textile machinery. A search and seizure operation was carried out on 8th Sept., 1995, at the residential premises of the partners of the firm viz., S/Shri Ashwin B Patel and Naresh B Patel. A survey operation under Section 133A was also carried out at the business premises of the assessee-firm as well as its sister concern viz., M/s B & Brothers Machinery Mfg. (P) Ltd. The authorised officer recorded the statement of Shri Ashwin B Patel-partner of the firm on 8th Sept., 1995. Thereafter on receipt of intimation from the Jt. CIT, Special Range 4, Ahmedabad, who held jurisdiction over the case of the partners, the AO having jurisdiction over the case of the partners, the AO having jurisdiction over the case of the assessee-firm, issued notice under Section 158BD on the assessee requiring it to file the return for the block period 1st April, 1985 to 8th Sept., 1995. In response to the said notice, the assessee-firm filed the return for the block period on 18th April, 1998, declaring total undisclosed income at Rs. NIL.
3. The AO took up the assessment proceedings and on the basis of statement of Shri Ashwin B Patel-partner, and also that of Shri H.A. Patel technical executive of the assessee-firm, the AO concluded that the assessee-firm had earned huge unaccounted income on account of:
(a) Under-in voicing of sale price of machineries
(b) Unaccounted sale of machinery and parts
(c) Unaccounted sale of scrap
(d) Unaccounted purchase of machinery parts
4. The AO also gave a finding in the assessment order that Shri Ashwin B Patel had admitted under-invoicing of Rs. 9.50 lacs in respect of the following four parties, viz., Rs.
M/s Anjani Synthetics 2.50 lakh M/s Shalu Dyeing & Ptg. Mills 2.00 lakh M/s York Fashion Mills 3.00 lakh M/s Dayaram Ptg. & Dyeing Mills 2.00 lakh
5. Subsequently, during the course of assessment proceedings the AO recorded the statement of Shri Ram Bhagat Sarogi, the director of M/s Anjani Synthetics who stated that he in fact paid Rs. 2,77,000 in cash against the supply of stenter machine on 27th Dec., 1990, the Shri Ashwin B Patel partner of the assessee-firm on account of under-invoicing of sale bill of stenter machine and related parts. Thus, the AO held that the assessee had in fact received Rs. 9.77 lacs over and above the invoice price in respect of sales made to the aforesaid four parties.
6. The AO relying on the statement of Shri H.A. Patel technical executive and also those of the partners S/Shri Ashwin B Patel and Naresh B Patel, estimated under-invoicing at an average of 20 per cent in respect of the entire sales of machineries and parts because according to the statement of Shri H.A. Patel normal under-invoicing indulged into by the assessee-firm was from 10 per cent to 30 per cent of the sale price.
7. On the above basis, the AO estimated the under-invoicing in respect of fifteen parties to whom the sales were made by the assessee in the block period at Rs. 65,40,025 as per the working given at p. 7 of the assessment order which is as under:
Sr. No. Name of the party Date of sale Invoice price before sales-tax/Central Ex. packing expenditure Actual price before ST/CST packing expenditure B = A x 1.25 Difference (1) (2) (3) (4) (5) (6) 1 Shalu Dyeing 11-10-86 10,00,000 12,50,000 2,50,000 2 Advance Synthetics 26-3-87 12,91,000 16,13,750 3,22,750 3 Anjani Synthetics 27-11-90 14,01,000 17,51,250 3,50,000 4 Guera Synthetics 31-8-90 17,56,000 21,95,000 4.39,000 5 Karnavati Synthetics 28-2-93 26,07,500 32,59,375 6,51,875 6 Sangam Processors 25-3-91 20,97,837 26,22,296 5,24,459 7 Digvijay Synthetics 28-9-91 20,00,000 25,00,000 5,00,000 8 Gauhati Cotton Mills 25-2-92 23,64,500 29,55,625 5,91,125 9 Aspief Textile Prints 30-3-92 17,00,000 21,25,000 4,25,000 10 Yorks Fabrics 7-2-93 16,59,000 20,73,750 4,14,750 11 Rama Raju Surgicals 16-8-93 16,53,000 20,66,250 4,13,250 12 Trim Exports 7-9-93 11.71,000 14,63,750 2,92.750 13 Dayaram Ptg. & Dyeing 29-11-93 19,73,264 24,66,580 4,93,316 14 Paras Fab. & Dyeing 18-5-94 14,61,000 18,26,250 3,65,250 15 Chamunda Textile 13-3-95 20,25,000 25,31,250 5,06,250 Total 65,40,025
8. Since the assesses during the course of recording of statement has admitted the receipt of Rs. 9.77 lacs in respect of the parties listed at Sr. Nos. 1,3, 10 and 13, the AO further made an addition of Rs. 55,63,025 (65,40,025-9,77,000).
9. Similarly, the AO made a further addition of Rs. 13,36,982 on account of under-invoicing of machines other than stenter machines as mentioned at pp: 8 and 9 of the assessment order which we will like to reproduce hereunder:
Sr. no.
Name of the party Date of sale Invoice price before sales-tax/Central Ex. packing expenditure Actual price before ST/CST packing expd. B = Ax 1.25 Difference (1) (2) (3) (4) (5) (6)
1.
Rajlaxmi Textiles 28-6-93 23,31,000 29,13,750 5,82,750
2. Dhanesh Textiles 31-5-93 2,40,000 3,00,000 60,000
3. Gurdayal Shyamlal (P) Ltd.
21-4-93 3,21,000 4,01,250 80,250
4. Advance 24-3-90 5,11,000 6,38,750 1,27,750 Synthetics 31-3-90 90,000 1,12,500 22,500
5. Pavan Export 27-1-95 2,25,000 2,81,250 56,250 1-2-95 2,00,000 2,50,000 50,000 4-2-95 3,00,000 3,25,000 75,000 17-1-95 5,00,000 6,25,000 1,25,000 17-1-95 1,51,000 1,88,750 37,750
6. Ashok Fashion 31-8-95 2,50,000 3,12,500 62,500 31-8-90 2,28,930 2,86,162 37,232 Total 13,36,982
10. The AO further made an addition on account of alleged unaccounted sale of machineries/parts on the basis of shortage of stock estimated by the survey party amounting to Rs. 6,39,000 and he further made an addition of Rs. 13,59,000 on account of alleged unaccounted investment in the purchase of materials as discussed in paras 3 to 3.2 of the assessment order.
11. Besides the above, the AO made a further addition of Rs. 2,27,000 on account of unaccounted income recorded in the form of various credits in the diary maintained by Smt. Maltiben one of the partners as per discussion contained in para 4 of the assessment order.
12. The AO made a further addition of Rs. 3,79,700 on account of alleged unaccounted sale of scrap as per discussion given in para 5 of the assessment order. The AO made a further addition of Rs. 36,975 on account of forfeiture of advance money received by the assessee given by M/s Mahendra Suitings for sale of machinery which that party subsequently refused to buy. The AO accordingly completed the assessment at undisclosed income of Rs. 1,05,18,882 vide order dt. 28th Jan., 1999.
13. Aggrieved with the said order, the assessee has filed this appeal. Shri S.N. Divetia, the learned authorised representative of the assessee pleaded that, no doubt, Shri Ashwin B. Patel during the course of recording of statement by the authorised officer under Section 132(4) has admitted the factum of under-invoicing of sales in respect of four parties but that does not mean that the sale transactions relating to all other parties were also not properly recorded in the books of account and those were also under-invoiced . It was submitted that Shri Ashwin B Patel has stated before the authorised officer that he will have to verify the relevant files which were found during the course of search of indicate as to whether the sale price mentioned in the invoice was less than the sale consideration actually received by it. It was further submitted that Shri H.A. Patel was working with the assessee as a technical executive from 11th Nov., 1991, and subsequently as sales marketing executive for the last one year prior to the date of search. Accordingly, it was pleaded that how the sales effected by the assessee prior to this period could be known to him and as such the AO was not justified in holding that the assessee has under-invoiced the sales effected by the assessee to all the parties mentioned in the assessment order at a uniform rate of 20 per cent. It was pleaded that the AO has not been able to find from the purchasers as to whether they have paid any extra cash money over and above the invoiced price charged by the assessee from the prospective purchasers. It was submitted that the AO has not brought any material or evidence on record except the statement of Shri H.A. Patel to allege that the extra sale price in cash was received by the assessee from all those parties mentioned in paras 7 and 9 above.
13.1. As regards the addition made on account of alleged discrepancy in stock, it was submitted that the assessee has given detailed working in its letter dt. 16th Oct., 1995, pointing out the mistakes/corrections in the working of the alleged stock difference by the AO. It was pleaded that the AO did not allow deduction of Rs. 1,55,000 worth for machinery sent for job work though he has accepted this fact at p. 10 of the assessment order.
13.2 As regards the addition made on account of unaccounted purchases is concerned, it was submitted that the assessee has explained the same by its letter dt. 24th Dec., 1998, which has not been properly appreciated by the AO. It was submitted that the purchases to the extent of Rs. 9,21,500 out of those added by the AO on the basis of seized papers, were recorded in the books of account and in respect of last three items no payment was made. It was further submitted that even assuming though not admitting that the purchases were made out of undisclosed income and accordingly these will be assessable as unaccounted expenditure under Section 69C, the assessee will be entitled for deduction under Section 37 in respect of these purchases. Reliance was placed on the decision of the Ahmedabad Bench of the Tribunal in the case of Ruby Builders v. ITO (1999) 63 TTJ (Ahd) 202.
13.3. Coming to the addition made on account of alleged unaccounted sale of scrap, it was submitted that these were shown at Rs. 1,60,671 in the P&L a/c for three years. Accordingly, it was pleaded that there was no justification for making any further addition on account of unrecorded sales of scrap and in any case the addition made by the AO is highly excessive based on unrealistic estimate, 13.4. As regards the addition on account of credits in Smt. Maltiben's diary, it was submitted that the AO has not properly considered the explanation given by the assessee in its letter dt. 24th Dec., 1998. In any case it was submitted that the credits introduced in the diary are out of admitted cash receipts on account of under-invoicing and the assessee should be allowed the benefit of telescoping of this addition with the addition which is required to be made on account of under-invoicing in relation to four parties conceded by the assessee.
13.5. As regards the addition of Rs. 36,975 on account of cancellation of contract, it was pleaded that the advance was duly recorded in the books of account and the assessee had offered the same as income in the subsequent year. In any case it was submitted that it cannot be said to be undisclosed income of the assessee as the advance was duly recorded in the books of account. He accordingly submitted that the computation of undisclosed income by the AO at an exorbitant figure of Rs. 1,05,18,882 is not at all justified in the facts and circumstances of the case.
14. The learned Departmental Representative strongly relied on the order of the AO and further submitted that it is undisputed and is quite clear from the admission of Shri Ashwin B, Patel during the course of search that the assessee-firm has received cash amounting to Rs. 9,77,000 over and above the invoiced price in relation to the four parties mentioned in para 4 above on account of under-invoicing of sale bills. Accordingly, it was pleaded that based on law of probability the assessee must also have under-invoiced the sale price in respect of machineries sold and mentioned in paras 7 and 9 above and as such the AO was fully justified in making the additions on account of under-invoicing of sale price in respect of all the machines mentioned in the assessment order. It was pleaded that Shri H.A. Patel technical executive of the assessee-firm has admitted that under-invoicing of sale price ranged from 10 per cent to 30 per cent and as such the AO was perfectly justified in making the addition on account of under-invoicing of sales by taking quantum of under-invoicing at 20 per cent of the sale price shown in the invoice.
14.1. As regards the various other additions made on account of stock discrepancy, unaccounted purchases, credits in the diary of Smt. Maltiben and the unaccounted sale of scrap, the learned Departmental Representative strongly relied on the order of the AO. With regard to forfeiture of deposits from M/s Mahendra Suitings, it was submitted that the same was rightly taxed by the AO a the income of the assessee in view of the decision of the Hon'ble Supreme Court in the case of CIT v. Laxmivilas Bank Ltd. (1996) 220 ITR 305 (SC).
15. We have considered the rival submissions and have also gone through the order passed by the AO. The assessee-firm is in the business of manufacture and sale of textile machinery and Shri Ashwin B Patel-partner of the assessee-firm, has admitted during the course of recording of statement under Section 132(4) that the firm has charged on money in respect of four parties mentioned in para 4 above to the extent of Rs. 9,77,000. However, the case of the assessee before us is that merely because the assessee has charged on money in respect of four sale transactions, it cannot be held that the assessee must be charging on money in respect of every other transaction noted by the AO in the assessment order. The charging of on money in respect of four parties is admitted by the assessee and has also been proved by the inquiries conducted by the AO from the buyers of machineries. However, in respect of the remaining parties mentioned at p. 7 of the assessment order (which have been noted by us in para 7 above) and also in respect of parties to whom the machines other than stenter machines were sold (as noted by the AO at pp. 8 and 9 of the assessment order which we have also reproduced in para. 9 of this order), the AO has not been able to prove that the purchasers of these machines have in fact paid any "on money" in cash to the assessee over and above the invoiced price noted by the assessee while supplying those machines to the respective purchasers. The learned authorised representative of the assessee has furnished correspondence entered into between the AO and those parties noted in paras. 7 and 9 of this order above (except the four parties in respect of which "on money" receipts of Rs. 9,77,000 were admitted by the assessee and confirmed by the purchasers of machines) wherein the AO called for information under Section 133(6) from those parties and those parties have replied to the AO stating that they have only paid the considerations for purchases made as noted in the invoice. All these purchasers are assessed to tax. The relevant correspondence has been furnished to us at pp. 1 to 77 of the paper book. The AO has not brought any material on record (except the statement of Shri H.A. Patel so-called technical executive that the assessee was charging "on money" varying from 10 per cent to 30 per cent in respect of the machines sold by it) to indicate that the assessee has in fact received any "on money" in respect of the transactions of sale of machineries to these parties as noted by us in paras 7 and 9 of this order above. Chapter XIV-B deals with a special procedure for the assessment of search cases and is a code in itself for the computation of undisclosed income. As per Section 158BB(2) in computing undisclosed income for the block period, the provisions of Section 68, 69, 69A, 69B and 69C may be applied but nowhere it is provided in this chapter that the provisions of Section 145 would be applicable in computing the undisclosed income in the block assessment and there being no such provisions made, no undisclosed income could be computed on estimate basis by invoking the provisions of Section 145 on the basis of some vague statement made by one of the employees of the assessee-firm. Since the sales to these parties are accounted for in the books of account found during the survey which were subsequently seized, if the AO is not satisfied with the correctness of the profit shown in those books, the AO is free to make inquiries and on the basis of material found he can make additions while framing the regular assessment in the case of the assessee under Section 143(3) or 144 for the relevant assessment years. However, no addition can be made by invoking the provisions of Section 145 by estimating undisclosed income which is required to be computed in accordance with the provisions contained in Chapter XIV-B of the Act. Our above conclusion is supported by the view of the Hon'ble Gujarat High Court in the case of N.R. Paper & Boards Ltd v. Dy. CIT (1998) 234 ITR 733 (Guj). However, as far as the receipt of "on money" in respect of four parties mentioned in paras. 4 and 5 of this order is concerned, we will uphold the action of the AO in taxing the amount of Rs. 9,77,000 as the undisclosed income of the assessee. Accordingly, ground of appeal No. (1) is dismissed whereas ground of appeal Nos. (2) and (3) are allowed.
16. Coming to ground of appeal No. (4), the dispute is with regard to the addition made by the AO on account of alleged unaccounted sale of machinery due to stock deficit found at the time of survey. The AO has worked out the value of stock on the date of survey i.e., 8th Sept., 1995, by adopting a GP stated to be earned by the assessee by Shri Ashwin B. Patel in the statement according to which the valuation of stock should be Rs. 44.09 lacs as per the calculation given at p. 11 of the assessment order. Since the valuation of stock found by the survey party was Rs. 37.56 lacs, there was an apparent shortage of Rs, 7.43 lacs in the valuation of stock. The contention of the assessee before us was that there was no such discrepancy as alleged by the AO because the assessee was following cardex system regularly and consistently from year to year and the valuation of stock as per the working given by the AO at pp. 100 to 101 of the paper book comes to Rs. 40,45,968. This valuation included the stock valuing Rs. 1,55,000 given by the assessee to three outside parties viz., Lathia Rubber (P) Ltd., M/s Western Engg., and M/s Mukta Rubber noted by the AO at p. 10 of the assessment order but for which credit was not given by him while making the addition. The AO, however, reduced the amount of Rs. 1,04,000 on account of alleged unaccounted stock considered in the hands of sister concern M/s Babros Machinery Mfg. (P) Ltd. and accordingly made an addition of Rs. 6,39,000. However, even if we accept the working of the assessee as given at pp. 100 and 101 of the paper book, the stock as per that working comes to Rs. 40,45,968 (which includes Rs. 1,55,000 given by the assessee to outside parties for job work). Thus, even according to the assessee there was a shortage in stock of about Rs. 3.63 lacs (Rs. 44.09 lacs-Rs. 40.46 lacs). The case of the Revenue is that this stock has been sold by the assessee outside the books of account. However, the amount of sales by itself cannot represent the income of the assessee which has not disclosed these sales. The sales only represent the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realisation of excess over the cost incurred that will form part of the profit included in the consideration of sales. What is to be taxed in the block assessment is undisclosed income and not the undisclosed receipt. Accordingly, the addition on account of undisclosed income earned by the assessee on account of sales not recorded in the books is directed to be restricted to Rs. 40,000 which could be the net profit earned by the assessee at the normal rate which could have been earned by it on selling the alleged stock. The above view finds support from the decision of the Tribunal in the case of Abhishek Corporation, reference application against which was rejected by the Tribunal vide RA No. 869/Ahd/1997 and even the petition under Section 256(2) filed by the Revenue was rejected by the Hon'ble Gujarat High Court in CIT v. Abhishek Corporation. This ground of appeal is partly allowed.
17. The next ground of appeal relates to the addition made by the AO on account of investment of Rs. 13,59,000 on account of alleged unrecorded purchases as per discussion contained in para. 3 of the assessment order. The contention of the assessee before us was that there was no unrecorded purchase as per detailed explanation given by the assessee vide letters dt. 21st Dec., 1998, and 24th Dec., 1998, copies of which have been given to us at pp. 124 to 139 of the paper book. However, the assessee has taken an alternative plea that even if it is assumed for argument's sake that there has been unaccounted investment in the purchase, the same is required to be taxed under Section 69C and accordingly deduction of an equivalent amount has to be allowed under Section 32 because the expenditure has been incurred for the purpose of acquiring goods/raw materials for the purpose of business of the assessee. We find force in this submission which is duly supported by the decision of the Ahmedabad Bench of the Tribunal in the case of Ruby Builders (supra). Accordingly, the addition of Rs. 13,59,000 on account of alleged unaccounted purchase of material is directed to be deleted.
18. Ground of appeal No. (6) relates to the addition made on account of unaccounted income represented by various credits entered into the diary maintained by Smt. Maltiben-partner. The AO has discussed this issue in para 4 at pp. 16 and 17 of the assessment order. The assessee has furnished zerox copies of the diary at pp. 146 to 155 of the paper book. The facts relating to this addition are that Smt. Maltiben used to make record of various amounts received by her from her husband Shri Naresh B Patel and her brother-in-law Shri Ashwin B Patel. She has also recorded various payments made to different parties. Out of the various credits found payments made to different parties. Out of the various credits found in the diary the AO has made an addition in respect of the following items :
(1)Opening balance 1,45,000 (2) Received back from Shri Manubhai 20,000 6-4-1993 (3) Received bank from Shri Thakorbhai 2,000 2-2-1993 (4) Received back from Shri Manubhai 60,000 8-4-1993 The explanation of the assessee before us is that the opening balance represents the cash received by Smt. Maltiben which was given to her by her husband/brother-in-law out of cash received from four parties in respect of which the assessee admitted during the course of search under Section 132(4) that they have received the "on money" to the extent of Rs. 9,77,000. With regard to the other items, the explanation of the assessee was that these were given out of withdrawals made by her husband Shri Naresh B. Patel on 10th Sept., 1992. With regard to the amount of Rs. 60,000 received on 8th April, 1993, it was submitted that Rs. 60,000 were given by Smt. Maltiben on 27th Feb., 1993, which were received back on 8th April, 1993, and thus no addition of this amount is required to be made. In any case it was submitted before us that the benefit of telescoping of this addition should be allowed in case the addition of Rs. 9,77,000 on account of "on money" receipt is sustained. We find force in the alternative submission of the assessee. Admittedly the assessee has received a sum of Rs. 9,77,000 on account of "on money" on sales of machines to four parties and the benefit of telescoping is allowable to the assessee in view of the decision of the Hon'ble Supreme Court in the case of Anantharam Veerasinghaiah & Co. v. CIT 1980) 123 ITR 457 (SC). Accordingly, the addition of Rs. 2,27,000 made by the AO on account of credits recorded in the diary maintained by Smt. Maltiben, is directed to be deleted. This ground of appeal is allowed.
19. The next ground relates to the addition of Rs. 3,79,700 on account of alleged unrecorded sale of scrap. The addition has been made by the AO on the basis of diaries maintained by both the partners of the firm Shri Ashwin B Patel and Naresh B Patel and on the basis of those diaries the AO has worked out the addition of Rs. 2,44,700 and also included Rs. 1,35,000 on account of unaccounted sale of scrap for a period of nine years on the basis of Rs. 15,000 per year. We have considered the rival submissions. It is undisputed that the assessee admitted Lochru receipts of Rs. 13,000 and Rs. 52,500 for asst. yrs. 1992-93 and 1994-95 which has not been reflected in the books of account. Further, there are notings of various items on account of sale of scrap in the diaries maintained by the two partners, copies of which have been given to us at pp. 140 to 145 and 156 to 159 of the paper book. A perusal of these pages indicates that there is overlaping of receipts on account of sale of Lochru in both the diaries. For example, in the diary maintained by Shri Naresh B. Patel, at p. 143 at item No. 3 Rs. 15,000 on 26th July, 1993, has been recorded as Lochru receipt. The same amount has been recorded by Shri Ashwin B. Patel in his diary at p. 158 and the assessee has also given explanation before the AO vide his letter dt. 24th Dec., 1998, at p. 134 of the paper book. Therefore, taking into consideration the totality of the facts and circumstances of the case, we are of the opinion that it will be fair and reasonable to restrict the addition on account of unaccounted sale of scrap/Lochru at Rs. 2,00,000 for the entire block period. This ground of appeal is partly allowed.
20. Coming to the last ground relating to forfeiture of advance given by M/s Mahendra Suitings to the assessee for purchase of machinery, it is seen that the same is duly recorded in the books of account and has been offered by the assessee as its income in the subsequent year as the same was forfeited by the assessee from the party M/s Mahendra Suitings as the party did not purchase any machinery from the assessee. However, this cannot be considered as the undisclosed income of the assessee under Chapter XIV-B of the Act as the same has been duly recorded in the books of account and has also been offered for assessment in the subsequent year, in view of the decision of the Hon'ble Gujarat High Court in the case of N.R. Paper & Boards Ltd. (supra). This ground is allowed.
21. In the result, the appeal is partly allowed.
S.K. Yadav, J.M.
1. I have gone through the order of my learned brother Shri R.K. Bali, AM. I have not been able to persuade myself to agree with order of my esteemed colleague in relation to additions of Rs. 55,63,025 and Rs. 13,36,982 in relation to ground Nos. I and II
2. This is an appeal by the assessee against the order dt. 28th Jan., 1999, passed by the learned Dy. CIT Circle-10(1), Ahmedabad, under Section 158BC r/w Section 158BD of the IT Act, 1961.
3. The grounds raised by the assessee in this appeal are as under :
The learned Dy. GIT has grievously erred in law and/or on facts in making following additions as undisclosed income :
Rs.(1)
Admitted unaccounted income due to under-invoicing of bills 9,77,000 (2) Unaccounted income due to under-invoicing of machinery 55,63,255 (3) Unaccounted income due to under-invoicing of machinery 13,36,982 (4) Unaccounted sale of machineries due to stock deficit 6,39,000 (5) Unaccounted purchase of materials 13,59,000 (6) Unaccounted income on account of various credits recorded in the diary maintained by Maltiben 2,27,000 (7) Unaccounted sale of scrap 3,79,700 (8) Unaccounted income due to forfeiture of advance money received from M/s Mahendra Suitings 36,975 1,05,18,882 3.1. The assessee-firm derives income from manufacture and sale of textile machinery. A search and seizure operation was carried out on 8th Sept., 1995, at the residential premises of the partners of the firm viz., S/Shri Ashwin B. Patel and Naresh B. Patel. A survey operation under Section 133A was also carried out at the business premises of the assessee-firm as well as its sister concern viz., M/s B & Brothers Machinery Mfg. (P) Ltd. The authorised officer recorded the statement of Shri Ashwin B. Patel partner of the firm, on 8th Sept., 1995. Thereafter, on receipt of intimation from the Jt. GIT, Special Range 4, Ahmedabad, who held jurisdiction over the case of the partners, the AO having jurisdiction over the case of the assessee-firm, issued notice under Section 158BD on the assessee requiring it to file the return for the block period 1st April, 1985, to 8th Sept., 1995. In response to the said notice, the assessee-firm filed the return for the block period on 18th April, 1998, declaring total undisclosed income at Rs. Nil.
4. The AO took up the assessment proceedings and on the basis of statement of Shri Ashwin B. Patel--partner, and also that of Shri H.A. Patel technical executive of the assessee-firm, the AO concluded that the assessee-firm had earned huge unaccounted income on account of:
(a) Under-invoicing of sale price of machineries.
(b) Unaccounted sale of machinery and parts.
(c) Unaccounted sale of scrap.
(d) Unaccounted purchase of machinery parts.
5. Regarding under-invoicing of sale price of machineries, the AO observed that incriminating evidence collected at the time of search action indicated that the assessee has earned huge unaccounted income on account of (a) under-invoicing of sale price of major machineries, and (b) charging income in cash over and above the billed sale price outside the books of accounts. Regarding the facts where the assessee-firm had taken cash over and above the billed sale price of machineries, in response to question No. 5 of the statement recorded on 8th Sept., 1995, under Section 133A, Shri Ashwin B. Patel, a partner of the firm, admitted that indeed the cash was taken over and above the sale bill price. Question No. 5 and its answer are reproduced as under :
"Q. 5 : Have you or your concern ever taken cash against the sale which is not accounted for in the books of account Ans : Yes."
6. In response to question No. 7, 8, 10, 11, 13 and 20 of the statement recorded on 8th Sept., 1995, the assessee admitted to have received cash over and above the sale bill price. Shri Ashwin B. Patel--partner of the assessee-firm, admitted that on the basis of sale price and costing based on the specifications of the machinery, he could identify the instances where such cash was taken. In reply to question No. 20 of the statement recorded under Section 133A of the IT Act, Shri Ashwinbhai B. Patel admitted to have received the following cash from following parties on account of under-invoicing of sales bills :
Name of the party Amount taken in cash M/s Shalu Dyeing & Ptg. Mills 2.00 lakh M/s York Fashion Mills 3.00 lakh M/s Dayaram Ptg. & Dyeing Mills 2.00 lakh
7. Subsequently, the AO recorded the statement of Ram Bhagat Sarogi, the director of M/s Anjani Synthetics, who stated in response to question Nos. 4, 5 and 6 that he had paid Rs. 2,77,000 in cash against the supply of stenter machine on 27th Dec., 1990, to Shri Ashwinbhai B. Patel on account of under-invoicing of sale bill of stenter machine and related parts.
8. In addition to the above, the AO found that the corroborative evidence in the form of cash received from the above parties was recorded in the various loose papers seized/impounded from the residence of the partners of the firm :
Referred loose papers Nature of description/transaction written on the loose paper Page No. 121 seized from the residence of Ashwin B. Patel & Naresh B. Patel inventorised at Sr. No. 10 of Annexure A-l.
Rs. 2,77,000 received from M/s Anjani Synthetic.
Page 155 sei2ed from the residence of A.B. Patel & N.B. Patel inventorised at Sr. No. 10 of Annexure A-l.
Rs. 3,00,000 received from M/s York Fashion/York Fabrics.
Diary seized from residence of N.B. Patel written in the handwriting of Mrs. Maltiben w/o of N.B. Patel.
Received Rs. 2 lakh from M/s Dayaram Ptg. & Dyeing Mills on 27th Dec., 1993.
9. The AO concluded that the assessee has received Rs. 2,77,000 from M/s Anjani Synthetics and not Rs. 2,50,000 as admitted during the course of statement recorded under Section 133A on 8th Sept., 1995, on account of under-invoicing of sale bill for supply of 5 chamber stenter machine on 27th Oct., 1990.
10. Further, the statement of Shri Hiralal Patel, technical executive was also recorded under Section 131 of the IT Act on 8th Sept., 1995, at factory premises of B & Bros. Engg. Works. He stated that he is doing the job of giving quotation to customers and to assist the owner to decide sale price with customer, He also stated that during the negotiation the bill price and the amount of cheque and cash are also finalised. The same are decided on the proposal of customers. Shri H.A. Patel further stated that Shri Ashwin B. Patel is doing all such transactions in his cabin. He further stated that as per the proposal of the customer 10 to 30 per cent, of the sales price of the machinery were taken in cash and balance by cheque which is decided by Sheth mentioned above. He has stated that as per his knowledge it'was decided in his presence to take cash from M/s York Fabrics at Rs. 3 lakh and with Dayaram Ptg. & Dyeing Mills at Rs. 2 lakh. He also stated that 5 chamber stenter machines were sent to Dayaram Printing.
11. On the basis of entries in the books of accounts, the AO found that the assessee had sold stenter machine of different sizes to above-mentioned four parties as discussed at para 1.1 of the assessment order and the date of sale, specification of stenter machine, the price of stenter machine received as per sale bill is given below :
Sr. No. Date of sale Name of the party Type of machine Sale bill amount Asstyr
1.
27-12-90 Anjani Synth.
5 Ch. Pin & Clip Stenter + 3BPM 15.15,000 91-92
2. 11-10-86 Shalu Dyeing Surat Hot Air Stent. M/c + 3BPM 10,96,000 86-87
3. 7-2-93 York Fabrics 3 Ch. Pin & Clip Stenter + 3BPM 18,10,254 93-94
4. 29-11-93 Dayaiam Ptg. & Dyeing Mills 5 Ch. Pin & Clip Stenter + 3BPM 21,80,122 94-95
12. The assessee vide letter dt. 21st Dec., 1998, was required to show cause as to why total cash receipt of Rs. 9.77 lakh shall not be treated as unaccounted income/concealed income on account of under-invoicing of sale bills to following parties for supply of stenter machines :
Name of the party Amount Rs.
M/s Shalu Dyeing & Ptg. Mills 2,00,000 M/s York Fabrics/York Fashion 3,00,000 M/s Dayaram Dyeing & Ptg. Mills 2,00,000 Total 9,77,000
13. In response to the letter dt. 21st Dec., 1998, mentioned above, the assessee submitted that he did not receive Rs. 3 lakh from York Fashion, but statement under Section 133A was made by him without knowledge about the actual transaction. The assessee further stated that same was denied by him after search. The assessee also denied the receipt of cash from M/s York Fabrics after nearly one month from the original confessional statement recorded under oath under Section 133A of the IT Act to this effect which was made by the assessee under free will and without any pressure. The AO further found from the various notings made in the loose paper 155 seized from the residence of assessee inventorised at Sr. No. 10 of Annexure A-l as discussed in para 1.2 of the assessment order and confessional statement by Shri Ashwin B. Patel wherein response to question No. 20 recorded under Section 133A and also confessional statement made by Shri H.A. Patel, technical executive of the firm as discussed in para 1.3 of the assessment order, prove that subsequent retraction with respect to receipt of cash of Rs. 3 lakh from M/s York Fabrics is an after thought the baseless. Therefore, the entire receipt of Rs. 9.77 lakh is unaccounted income on account of under-invoicing of sale bills to four parties as discussed above, during the relevant accounting year in which these machineries were sold.
14. The AO further found that the assessee has under-invoiced the sale price of machinery in almost every other stenter and other machines supplied by it in addition to what was originally admitted during the course of search action. In this connection, the deposition under oath of Shri Hiralal Patel the technical executive of the firm is relevant to prove that the assessee is actually under-invoicing of stenter machine. In addition to the above, it was detected by the Department during the course of search that the assessee was doing wrong classification of machinery in the bills mainly to justify low sale price in the books of accounts. It was noticed that the assessee had supplied 5 chamber stenter machines to M/s Dayaram Ptg. & Dyeing Mills and the same was billed as 3 chamber stenter machines. In this transaction, the assessee had admitted to have received Rs. 2 lakh from the aforesaid party. Similarly, the AO noticed that the assessee had supplied 4 chamber pin and clips stenter machine with 3BPM to M/s Gauhati Cotton Mills at a bill price (before sales-tax and Central excise) of Rs. 23,64,000. On the other hand, similar machine having similar specifications was supplied to M/s Digvijay Synthetics at a basic billed price of Rs. 20,00,000. This kind of variation in the billed price in respect of similar machines without any reasonable cause was found in all other transactions. Regarding the variation in the billed price of similar machines, the assessee could not give any plausible explanation.
14.1. As discussed above in preceding para, Shri H.A. Patel, technical executive, stated that 10 per cent to 30 per cent of sale price was taken in cash and balance is taken by cheques.
15. In the course of search action in response to question Nos. 46, 47 and 48 of the statement recorded on 9th Sept., 1995, the assessee had categorically stated that he had received the cash in respect of the number of parties in addition to the four parties in which specific quantum of concealment was admitted by him. The AO observed that the assessee did not give the quantum of concealment in respect of other parties only to avoid payment of tax in respect of concealed income during the entire block period. Taking into consideration the statement of Shri H.A. Patel, technical executive of the firm, and the statement of Shri Ashwin B. Patel as discussed above and also other corroborative evidence as discussed in paras. 1.1 to 1.6 of the assessment order, the AO held that the assessee had taken cash over actual sales invoice at 20 per cent (i.e., average of 10 per cent to 30 per cent as admitted by Shri H.A. Patel) in respect of sale of stenter machines during the block period,
16. During the block period the assessee has sold at least 15 stenter machines. The recorded price as per books i.e., under-invoiced price, the date of sale, name of the party, the actual price (i.e., estimated by multiplying 1.25 to the recorded price), the difference is given below :
Sr. No. Name of party Date of sale Invoice price before sales-tax/Cent. Ex. packing expend.
Actual price before ST/CST packing expend. B= Ax 3.25 Difference (1) (2) (3) (4) (5) (6)
1.
Shalu Dyeing 11-10-86 10.00,000 12,50,000 2,50,000
2. Advance Synthetics 26-3-87 12,91,000 16,13,750 3,22,750
3. Anjani Synthetics 27-11-90 14,01,000 17,51.250 3,50,000
4. Gurera Synthetics 31-8-90 17,56,000 21,95,000 4,39,000
5. Karnavati Synthetics 28-2-93 26,07,500 32,59,375 6,51,875
6. Sangam Processors 25-3-91 20,97,837 26,22,296 5,24,459
7. Digvijay Synth.
28-9-91 20,00,000 25,00,000 5,00,000
8. Gauhati Cotton Mills 25-2-92 23.64,500 29,55,625 5,91,125
9. Aspief Tex. Prints 30-3-92 17,00,000 21,25,000 4,25,000
10. York Fabrics 7-2-93 16,59,000 20.73,750 4,14,750
11. Rama Raju Surgicals 16-8-93 16,53,000 20,66.250 4,13,250
12. Trim Exports 7-9-93 11,71,000 14,63,750 2,92,750
13. Dayaram Ptg.
& Dyeing 29-11-93 19,73,264 24,66,580 4,93,316
14.
Paras Fab. International 18-5-94 14,61,000 18,26,250 3,65,250 15. Chamunda Textile 13-5-95 20,25,000 25,31,250 5,06,250 Total 65,40,025
16.1. Out of the above, the assessee has already admitted concealment of Rs. 9,77,000 in respect of parties listed at Sr. Nos. 1, 3, 10 and 13 as stated above and the same was added to the total income of the assessee vide para 1.5 of the assessment order. Therefore, additional concealment of Rs. 55,63,025 (Rs. 65,40,250-Rs. 9,77,000) was added to the total income of the assessee due to under-invoicing of sales in respect of 15 parties as stated above in addition to Rs. 9,77,000 added separately.
17. The AO also observed the concealment on account of under-invoicing of sales of machinery by the assessee other than the stenter machines. The AO observed in paras 1.2 to 1.5 of the assessment order that the assessee himself admitted to have concealed income on account of under-invoicing of sales of machinery. As discussed in para. 1.6 of his order, technical executive of the assessee-firm Shri H.A. Patel in response to question No. 11 of the statement recorded under Section 131 on 9th Aug., 1995, has categorically stated that 10 per cent to 30 per cent of the sale price of the machinery was taken in cash and the balance is taken by cheques. Further, during the course of search in response to question Nos. 46, 47 and 48 of the statement recorded on 9th Sept., 1995, the assessee has categorically stated that he had received the cash in respect of number of parties in addition to four parties as discussed in para. 1.5 of the assessment order in which specific quantum of concealment was admitted by him. However, the assessee failed to give specific quantum of cash receipt due to under-invoicing of machinery except in respect of four parties only to avoid payment of tax. As discussed above in para. 1.6(i) of the assessment order, the AO estimated the concealment of 20 per cent of actual price as amount of under-invoicing of sale of machineries. Due to similar reasons as stated in para 1.6 of the assessment order, the AO estimated 20 per cent (average of 10 per cent to 30 per cent as admitted by Shri H.A. Patel) of the actual price as the concealment in respect of remaining parties as discussed below. Following are such parties in which assessee had admitted to have received the cash while selling the machinery other than stenter machines, but no specific amount of underinvoicement was admitted. The name of the party, the date of sale, the invoice price, the actual price, the difference between actual price and sale price i.e., concealment is given below :
Sr. No Name of the patty Date of sale Invoice price before sales-tax/Cent ex packing expend. (A) Actual price before ST/CST packing expend. B= Ax 1.25 Difference (1) (2) (3) (4) (5) (6)
1.
Rajlaxmi Textiles 28-6-93 23,31,000 29,13,750 5,82,750
2. Dhanesh Textiles 31-5-93 2,40.000 3,00,000 60,000
3. GurdayalShyamlal (P) Ltd.
21-4-93 3,21,000 4,01,250 80,250
4. Advance Synthetics 24-3-90 5,11,000 6,38,750 1,27,750 31-3-90 90,000 1,12,500 22,500
5. Pavan Export 27-1-95 2,25,000 2,81,250 56,250 1-2-95 2,00,000 2,50,000 50,000 4-2-95 3,00,000 3,25,000 75,000 17-1-95 5.00,000 6,25,000 1,25,000 17-1-95 1,51,000 1,88,750 37,750
7. Ashok Fashion 31-8-90 2,50,000 3,12.500 62,500 31-8-90 2,28,930 2,86,162 37,232 Total 13,36,982 17.1. Thus, the total concealment worked out on sale of machinery other than the stenter machines is Rs. 13,36,982. Since the assessee admitted to have received the cash from the above parties and due to the fact that the technical executive of the assessee-firm admitted to have stated that the assessee has taken cash between 10 per cent to 30 per cent of the sale price, the AO held that the assessee has concealed income of Rs. 13,36,982 due to sale of machinery on account of under-invoicing of the sales in addition to the concealment worked out at para. 1.5 and 1.6 of the assessment order and the same was added to the total income of the assessee.
18. The above-stated three additions were opposed vide ground Nos. 1 to 3 of appeal before us wherein it was pleaded that no doubt Shri Ashwin B. Patel during the course of recording of the statement by the authorised officer under Section 133 has admitted the factum of under-invoicing of sale in respect of four parties but that does not mean that the sale transactions relating to all other parties were also not properly recorded in the books of accounts and those were also under-invoiced. It was submitted that Shri Ashwin B. Patel had stated before the authorised officer that he will have to verify the relevant files which were found during the course of search to indicate as to whether sale price mentioned in the invoice was less than sale consideration actually received by it. It was further submitted that Shri H.A. Patel was working with assessee as technical executive from 11th Nov., 1991, and subsequently as sales marketing executive for last one year prior to date of search. Accordingly, it was submitted that how sales effected by the assessee prior to this period could be known to him and as such the AO was not justified in holding that the assessee has under-invoiced the sales effected by the assessee to all the parties mentioned in the assessment order at a uniform rate of 20 per cent. The learned authorised representative also pleaded that the AO has not been able to find from the purchasers as to whether they have paid any extra cash money over and above the invoiced price charged by the assessee from the prospective purchasers. The AO has also not brought on record any material or evidence except the statement of Shri H.A. Patel to allege that the extra sale price in cash was received by the assessee from four parties mentioned above in preceding paras. The learned authorised representative of the assessee relied on the decision in the case of N.R. Paper & Boards Ltd. and Ors. v. Dy. CIT (1998) 234 ITR 733 (Guj).
19. On the other hand, the learned Departmental Representative still relied on the order of the AO and further submitted that it is undisputed and quite clear from the admission of Shri Ashwin B. Patel that the assessee had received cash amounting to Rs. 9,77,000 over and above the invoiced price in relation to four parties mentioned above in para 1.6 on account of under-invoicing of sale price. Accordingly it was pleaded that based on law of probabilities the assessee must also have under-invoiced the sale price in respect of machinery sold and mentioned in para above and as such the AO was fully justified in making the addition on account of under-invoicing of sale price in respect of all machineries mentioned in the assessment order. It was also pleaded that Shri H.A. Patel, technical executive of the assessee-firm has admitted that under-invoicing of sale price ranges from 10 per cent to 30 per cent. As such the AO was perfectly justified in making the addition on account of under-invoicing of sale price by taking quantum of under-invoicing of 20 per cent of sale price shown in the invoice. The learned Departmental Representative relied on the decisions in CIT v. Lakshm Vilas Bank Ltd. (1996) 220 ITR 305 (SC) and CST v. H.M. Esufali H.M. Abulali (1973) 90 ITR 271 (SC).
20. The assessee-firm is engaged in the business of manufacture and sale of textile machinery. Shri Ashwin B. Patel, partner of the assessee-firm, admitted during the course of recording of the statement under Section 133A that the assessee has charged on money in respect of four parties mentioned in para 13 of this order to the extent of Rs. 9,77,000. Shri Ashwin B Patel clearly admitted to have received the following cash from the following parties on account of under-invoicing of sale bills :
Name of the party Amount taken in cash M/s Anjani Synthetics 2.50 lakh M/s Shalu Dyeing & Ptg. Mills 2.00 lakh M/s York Fashion Mills 3.00 lakh M/s Dayaram Ptg. & Dyeing Mills 2.00 lakh
21. Subsequently, the AO recorded the statement of Ram Bhagat Sarogi, the director of M/s Anjani Synthetics, who stated in response to question Nos. 4, 5 and 6 that he had paid Rs. 2,77,000 in cash against the supply of stenter machine on 27th Dec., 1990, to Shri Ashwinbhai B. Patel on account of under-invoicing of sale bill of stenter machine and related parts. In addition to the above, the AO found that the corroborative evidence in the form of cash received from the above parties was recorded in the various loose papers seized/impounded from the residence of the other partners of the firm. As per p. 121 seized from the residence of Shri Ashwin B. Patel and Shri Naresh B. Patel inventorised at Sr. No. 10 of Annexure A-1, the assessee received Rs. 2,77,000 from M/s Anjani Synthetics. As per p. 154 seized from the residence of Shri Ashwin B Patel and Shri N.B. Patel inventorised at Sr. No. 10 of annexure A-1, the assessee received Rs. 3 lakhs from M/s York Fashion/Fabrics. As per diary seized from residence of Shri N.B. Patel written in the handwriting of Mrs. Maltiben, wife of Shri N.B. Patel, the assessee received Rs. 2 lakhs from M/s Dayaram Printing & Dyeing Mills on 27th Dec., 1993. Further, receipt of on money was corroborated by the statement of Shri H.A. Patel, technical executive whose statement was recorded under Section 131 of the Act on 8th Sept., 1995, at factory premises of B & Bros Engg. Works wherein he stated that as per proposal of the customers 10 to 30 per cent, of the sale price of the machinery was taken in cash and balance by cheque which is decided by Shri Ashwinbhai B. Patel. He also stated that as per his knowledge it was decided in his presence to take cash from M/s York Fashion at Rs. 3 lakhs and with Dayaram Ptg. & Dyeing Mills at Rs. 2 lakhs. Besides this, the AO also found that in addition to the above under-invoicing , the assessee was found involved in doing wrong classification of machinery in bills mainly to justify low sale price in books of accounts which is clear from the fact that the assessee supplied 5 chamber stenter machines to Dayaram Ptg. & Dyeing Mills and same were billed as 3 stenter machines. In the said transactions the assessee had admitted to have received Rs. 2 lakh from the aforesaid parties. Similarly, it was found that the assessee had supplied four chamber pin and clip stenter machines with 3BPM to M/s Gauhati Cotton Mills at a bill price (before sales-tax and Central excise) of Rs. 23,64,000. On the other hand, similar machines having similar specifications were supplied to M/s Digvijay Synthetics at a basic billed price of Rs. 20,00,000. This kind of variation in the billed price in respect of similar machines without any reasonable cause was found in all other transactions and the assessee could not give any plausible explanation regarding the variation in the billed price of similar machines. In view of the above discussions, Rs. 9,77,000 received as on money from M/s Anjani Synthetics, M/s Shalu Dyeing, York Fashion and Dayaram Ptg. & Dyeing Mills is added in the income of the assessee as undisclosed income. This addition has been confirmed by the Hon'ble AM in his order with which I respectfully agree with the observation that the entire reason and basis given for sustaining this addition equally supports the addition of Rs. 55,63,255 and Rs. 13,36,982 made by the AO vide ground Nos. (2) and (3).
22. Besides on money received in respect of four parties mentioned above, the AO found that the assessee had under-invoiced the sale price of machinery in almost every stenter machines supplied by it in addition to what was originally admitted during the course of search. Shri H.A. Patel, technical executive of the firm in his statement admitted that the assessee is actually under-invoicing the stenter machines and receiving 10 per cent to 30 per cent as on money. It was also detected during the course of search that the assessee was doing wrong classification in the bills mainly to justify low sale price in books of account. The assessee could not give any reasonable explanation in respect of various instances of variations in billed price and wrong classification, etc. pointed out in assessment order; In the course of search action in response to question Nos. 46, 47 and 48 of the statement recorded on 9th Sept., 1995, the assessee had categorically stated that he had received cash in respect of number of parties in addition to four parties in which specific quantum of concealment was admitted by him. Though the assessee admitted concealment in respect of other parties but quantum of concealment could not be given only to avoid payment of tax in respect of concealed income during the entire period. In this situation, taking into consideration the statement of Shri H.A. Patel, technical executive of the assessee-firm and the statement of Shri Ashwin B. Patel as discussed above and other corroborative evidence discussed in para 1.1 to 1.6 of the assessment order, the AO has rightly concluded that the assessee had taken cash over actual sale invoice at 20 per cent (i.e., average 10 per cent to 30 per cent) as admitted by Shri H.A. Patel in respect of sales of stenter machines during the block period. Therefore, in my view, the additional concealment of Rs. 55,63,025 (65,40,025-9,77,000) has been correctly added as undisclosed income to the total income of the assessee. Hence, ground No. (2) of assessee appeal is rejected.
23. As regards unaccounted income due to under-invoicing of sale of machinery by the assessee other than stenter machines, the AO observed that the assessee himself admitted to have concealed income on account of under-invoicing of sale of machinery as discussed in para 1.6 of the assessment order; the technical executive of the assessee-firm Shri H.A. Patel in response to question to No. 11 of the statement recorded under Section 131 on 9th Aug., 1995, has categorically stated that 10 per cent to 30 per cent of sale price of machinery was taken in cash and balance was taken by cheque. We also find that during the course of search in response to question Nos. 46,47, 48 of the statement recorded on 9th Sept., 1995, the assessee has categorically stated that he had received cash in respect of sale of machineries other than stenter machines sold to other parties in addition to four parties as discussed in para 1.5 of the assessment order in which specific quantum of concealment was admitted by him. The assessee has failed to give specific quantum of cash received due to under-invoicing of sale price of machinery except in respect of four parties only to avoid payment of tax.
24. On the parity of reasoning given for confirming addition of Rs. 55,63,025, I am of the considered opinion that the AO has also rightly make the addition of Rs. 13,36,982 as undisclosed income by estimating on money received on sale of machines other than stenter machines. In view of elaborate facts discussed in the assessment order and in the foregoing paragraphs, the aforesaid addition made by the AO is held to be justified.
25. The learned counsel appearing on behalf of the assessee placed heavy reliance on the judgment of the Hon'ble Gujarat High Court in the case of N.R. Paper & Board (supra). The said decision does not in any manner help the assessee, as the Hon'ble Gujarat High Court has held in the aforesaid case that income disclosed in the regular books will be assessed in regular assessment while undisclosed income will be assessed in assessment for block period. Each case will depend on facts and circumstances of that particular case. In the present case, the addition in respect of on money received on sale of machinery has not been accounted for in regular books of account. The fact of receipt of on money has been detected as a result of search and post-search investigation. The falsity of sale consideration recorded in books of account has been exposed by proceedings of search. Various notings in the loose papers, statements of Shri Ashwin B. Patel, Shri H.A, Patel and admission by purchasers referred to in earlier para of this order fully support that the aforesaid income referred to in ground Nos. (2) and (3) are assessable as undisclosed income in assessment for block period under Chapter XIV-B.
26. It may now be imperative to make a useful reference to the judgment of the Hon'ble Supreme Court in the case of CST v. H.M. Esufali H.M. Abdulali (supra) to support the conclusion arrived at by the AO and confirmed by me that receipt of on money can be validly estimated on the basis of few admitted specific instances of receipt of such on money on sale of four stenter machines based on the aforesaid material/statements, etc. discussed above. The headnote of the aforesaid judgment of the Hon'ble Supreme Court is reproduced below :
"Held, that the reassessments were valid. From the circumstances that the assessee had dealings outside the accounts of the value of Rs. 13,171.28 for 19 days, it was open to the officer to infer that the assessee had large-scale dealings outside the accounts. In such a situation, it was not possible for the officer to find out precisely the turnover suppressed and he could only make an estimate of the suppressed turnover on the basis of the material before him. So long as the estimate made by him was not arbitrary and had a reasonable nexus with the facts discovered, it could not be questioned. It was wrong to hold that the officer must have material before him to prove the exact turnover suppressed.
In estimating any escaped turnover, it is inevitable that there is some guess-work. The assessing authority while making the best judgment assessment, no doubt, should arrive at his conclusion without any bias and on a rational basis. That authority should not be vindictive or capricious. If the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. It is his best judgment and not any one else's. The High Court cannot substitute its best judgment for that of the assessing authority.
Held also, that penalty of Rs. 2,000 imposed on the footing of the revision of the amount of turnover for the whole year was justified."
27. In view of the above facts and circumstances, I am of the view that the additions of Rs. 55,63,025 and Rs. 13,36,982 have been rightly made by the AO and I uphold the order of the AO in relation to ground Nos. (2) and (3). Hence, ground Nos. (2) and (3) of the appeal are rejected.
REFERENCE UNDER S. 255(4) OF IT ACT, 1961 R.K. Bali, A.M.
1. As there is difference of opinion between the two members who heard the appeal in IT(SS)A No. 2/Ahd/1999 for the block period 1st April, 1985 to 8th Sept., 1995, we refer the same to the Hon'ble President, ITAT for further action as provided under Section 255(4) of IT Act, 1961.
(Q) Whether in the facts and circumstances of the case, the view of the AM that no addition on account of alleged undisclosed income due to alleged under-invoicing of stenter machinery to the extent of Rs. 55,63,025 and alleged undisclosed income due to under-invoicing of machinery other than stenter machinery to the extent of Rs. 13,36,982 made by the AO under Chapter XIV-B cannot be sustained in absence of any specific material brought on record by the AO that the assessee has in fact received any 'on money' over and above the invoice price in relation to the transactions with various parties, is correct ?
OR the view of the JM that the disputed additions made by the AO on account of under-invoicing of stenter machines to the extent of Rs. 55,63,025 and under-invoicing of machines other than stenter machines to the extent of Rs. 13,36,982 is required to be sustained on the basis of statement of Shri H.A. Patel, an employee called 'technical executive' with the assessee, that the assessee was charging 'on money' varying from 10 per cent to 30 per cent in respect of every machinery sold by it, is justified.
S.K. Yadav, J.M.
1. As there is difference of opinion between the two Members who heard the appeal in IT(SS)A No. 2/Ahd/1999 for the block period 1st April, 1985, to 8th Sept., 1995, Hon'ble AM framed point of difference under Section 255(4) of the IT Act, 1961. I find that all the points raised in my dissenting order regarding sustaining additions in question, have not been incorporated in difference of opinion framed by my esteemed colleague. So I am compelled to frame difference of opinion and referring the same to the Hon'ble President, ITAT, for further action as provided under Section 255(4) of the IT Act, 1961. Point of difference proposed by JM is as under:
Q. "Whether on the facts and in the circumstances of this case, the view of JM that addition on account of under-invoicing of stenter machinery to the extent of Rs. 55,63,025 and under-invoicing of other machinery to the extent of Rs. 13,36,982 is justified on the basis of (i) statement of Shri Ashwin B. Patel, partner of the assessee-firm, (ii) Shri H.A. Patel, technical executive of assessee-firm, coupled with (iii) admission of few purchasers, and (iv) notings on loose papers seized during the search operation from the residence of partners of assessee-firm, particularly on the basis of which this Bench has already sustained additions of Rs. 9,77,000 ?"
Point of difference suggested by the Hon'ble AM is as under:
"Whether in the facts and circumstances of the case, the view of the AM that no addition on account of alleged undisclosed income due to alleged under-invoicing of stenter machinery to the extent of Rs. 55,63,025 and alleged undisclosed income due to under-invoicing of machinery other than stenter machinery to the extent of Rs. 13,36,982 made by the AO under Chapter XIV-B cannot be sustained in absence of any specific material brought on record by the AO that the assessee has in fact received any 'on money' over and above the invoice price in relation to the transactions with various parties, is correct?"
R.M. Mehta, Vice President
1. This is a reference under Section 255(4) of the IT Act, 1961, pursuant to a difference of opinion between the learned Members constituting the Division Bench. Both the learned Members have dissented on two issues and I must at the outset mention that both of them have proposed separate questions as would be apparent from the reproduction hereinunder but inasmuch as these pertain to two additions made by the AO in the course of the block assessment, I need not say anything more :
Questions proposed by the AM:
"Q. Whether in the facts and circumstances of the case, the view of the AM that no addition on account of alleged undisclosed income due to alleged under-invoicing of stenter machinery to the extent of Rs. 55,63,025 and alleged undisclosed income due to under-invoicing of machinery other than stenter machinery to the extent of Rs. 13,36,982 made by the AO under Chapter XIV-B cannot be sustained in absence of any specific material brought on record by the AO that the assessee has in fact received any 'on money' over and above the invoice price in relation to the transactions with various parties is correct ?
OR The view of JM that the disputed additions made by the AO on account of under-invoicing of stenter machines to the extent of Rs. 55,63,025 and under-invoicing of machines other than stenter machines to the extent of Rs. 13,36,982 is required to be sustained on the basis of statement of Shri H.A. Patel, an employee called 'technical executive' with the assessee, that the assessee was charging on money' varying from 10 per cent to 30 per cent in respect of every machinery sold by it, is justified."
Questions proposed by the JM:
"Q. Whether on the facts and in the circumstances of this case, the view of JM that addition on account of under-invoicing of stenter machinery to the extent of Rs. 55,63,025 and under-invoicing of other machinery to the extent of Rs. 13,36,982 is justified on the basis of (i) statement of Shri Ashwin B. Patel, partner of the assessee-firm, (ii) Shri H.A. Patel, technical executive of assessee-firm, coupled with, (iii) admission of few purchasers, and (iv) notings on loose papers seized during the search operation from the residence of partners of assessee-firm, particularly on the basis of which this Bench has already sustained additions of Rs. 9,77,000 ?"
OR Point of difference suggested by the Hon'ble AM is as under:
"Whether in the facts and circumstances of the case, the view of the AM that no addition on account of alleged undisclosed income due to alleged under-invoicing of stenter machinery to the extent of Rs. 55,63,025 and alleged undisclosed income due to under-invoicing of machinery other than stenter machinery to the extent of Rs. 13,36,982 made by the AO under Chapter XIV-B cannot be sustained in absence of any specific material brought on record by the AO that the assessee has in fact received any 'on money' over and above the invoice price in relation to the transactions with various parties, is correct?"
2. The facts in respect of the two additions are quite interconnected and these are that the assessee-firm derives income from manufacture and sale of textile machinery and a search and seizure operation was carried out on 8th Sept., 1995, at the residential premises of the partners Shri Ashwin B. Patel and Shri Naresh B. Patel. A survey operation under Section 133A was also carried out at the business premises of the firm as also its sister concern viz., M/s B. & Brothers Machinery Manufacturing (P) Ltd. The authorized officer recorded the statement of Shri Ashwin B. Patel, the partner of the firm on 8th Sept., 1995.
3. During the subsequent assessment proceedings, the AO on the basis of the statement of Shri Ashwin B. Patel, partner as also of one Shri H.A. Patel, technical executive of the assessee-firm took the view that the firm had earned huge unaccounted income due to under-invoicing of sale price of machineries as also the unaccounted sale of machinery and parts, scrap and unaccounted purchase of machinery parts. In the present reference, I am apparently concerned with the additions pertaining to the first item i.e., under-invoicing of sale price of machineries.
4. The AO recorded a finding in the assessment order to the effect that Shri Ashwin B. Patel had admitted under-invoicing of a sum of Rs. 9.50 lakhs in respect of the following four parties :
M/s Anjani Synthetics 2.50 lakh M/s Shalu Dyeing & Ptg. Mills 2.00 lakh M/s York Fashion Mills 3.00 lakh M/s Dayaram Printing & Dyeing Mills 2.00 lakh
5. In the course of the assessment proceedings, the AO recorded the statement of one Shri Ram Bhagat Sarogi, director of M/s Anjani Synthetics, who stated that he had paid a sum of Rs. 2,77,000 in cash against the supply of a stenter machine on 27th Dec., 1990, to Shri Ashwin B. Patel, partner of the assessee-firm. The AO ultimately held that the assessee had received a sum of Rs. 9.77 lakhs over and above the invoice price in respect of the sales made to the aforesaid four parties.
6. Further, the AO relying on the statement of Shri H.A. Patel, technical executive as also the statements of the partners Shri Ashwin B. Patel and Shri Naresh B. Patel estimated under-invoicing at an average of 20 per cent in respect of the total sales of machineries since according to the statement of Shri H.A. Patel normal under-invoicing indulged in by the assessee-firm varied from 10 per cent to 30 per cent of the sale price. As a result of the aforesaid, the AO estimated under-invoicing in respect of 15 parties to whom sales were made by the assessee in the block period at Rs. 65,40,025 and details thereof appear at p. 4 of the order of the learned AM. As the assessee had admitted unaccounted receipts of Rs. 9.77 lakhs in respect of four of the parties, the AO made an addition of Rs. 55,63,025 (Rs. 65,40,025 Rs. 9,77,000).
7. Considering the same facts as aforesaid, the AO made a further addition of Rs. 13,36,982 on account of under-invoicing of machines other than stenter machines and the details of such sales effected to six parties appear in para 9 at p. 5 of the order of the learned AM.
8. On the matter travelling to the Tribunal, the assessee's counsel contended that although Shri Ashwin B. Patel during the course of recording of his statement under Section 132(4) had admitted the factum of under-invoicing in respect of four parties but that did not mean that the sale transactions relating to all other parties were also under-invoiced and not properly recorded in the books of accounts. It was emphasized that Shri Ashwin B. Patel had stated before the AO that he would have to verify the relevant files, which were found during the course of search to indicate as to whether sale price mentioned in the invoice was lower than the sale consideration actually received. The further submission was to the effect that Shri H.A. Patel was working as a technical executive w.e.f. 11th Nov., 1991, and subsequently as sales marketing executive for the last one year prior to the date of search. The plea, in other words, was that the details of sales effected by the assessee prior to the said period could not be in the know of Shri H.A. Patel and the AO, therefore, was not justified in opining that the assessee had under-invoiced the sales effected by the assessee to all the parties mentioned in the assessment order at a uniform rate of 20 per cent.
9. The further submission on the part of the assessee before the Division Bench was that the AO had not been able to find out from the purchasers as to whether they had paid any extra money in cash over and above the invoice price charged by the assessee from the purchasers. It was emphasized that the AO had not brought any material or evidence on record except the statement of Shri H.A. Patel to allege that amounts had been received in cash over and above the declared sale price from the numerous parties numbering 15 in respect of stenter machines and numbering 6 in respect of machines other than stenter machines.
10. The learned Departmental Representative on behalf of the Department, on the other hand, strongly relied upon the order passed by the AO contending that it was clear and in fact undisputed from the statement of Shri Ashwin B. Patel during the course of search that the assessee-firm had received cash amounting to Rs. 9.77 lakhs over and above the invoice price in relation to four parties and the learned Departmental Representative in fact pleaded that based on the law of probability, the assessee must have also under-invoiced the sale price in respect of other machineries sold during the block period. A reference was also made to the statement of Shri H.A. Patel, technical executive of the assessee-firm, admitting that under-invoicing of sale price ranged from 10 per cent to 30 per cent. On the basis of the aforesaid submissions, the learned Departmental Representative supported the action of the AO.
11. The learned AM who wrote the initial order at the outset noted the admission of Shri Ashwin B. Patel, partner of the assessee-firm about the receipt of a sum of Rs. 9.77 lakhs in cash outside the books of accounts due to under-invoicing but considering the facts of the case as brought out on record, he recorded a finding to the effect that the AO had not been able to prove that the purchasers of machines other than the four listed at p. 3 of his order had paid any 'on money' in cash to the assessee over and above the invoice price noted by the AO while supplying machines to the respective purchasers. The assessee's counsel in fact was able to place before the Division Bench the copies of the correspondence entered into between the AO and the numerous other parties except the four in respect of which 'on money' receipts of Rs. 9.77 lakhs were admitted. It was noted by the learned AM that the AO had called for information from the various parties under Section 133(6) and in replying to the AO, the parties had stated that they had only paid the consideration as noted in the invoice. The learned AM further observed that all the respective purchasers were assessed to tax and the AO had not brought any material on record other than the statement of Shri H.A. Patel, the so-called technical executive, to indicate that the assessee had in fact received any 'on money' in respect of the transactions of sale of machineries to such parties.
12. According to the learned AM Chapter XIV-B dealt with a special procedure for the assessment of search cases and was a code in itself for the computation of undisclosed income. It was the view of the learned AM that whereas provisions of Sections 68, 69, 69A, 69B and 69C could be applied but it was nowhere provided in the said chapter that provisions of Section 145 would be applicable in computing the undisclosed income in a block assessment. The view, in other words, was that undisclosed income could not be computed/added on estimate basis by invoking the provisions of Section 145 on the basis of a vague statement made by one of the employees of assessee-firm. According to the learned AM in case the AO was not satisfied with the correctness of the profit shown in the books of accounts then he was free to make enquiries and on the basis of material found, he could make additions while framing a regular assessment under Section 143(3) or 144 for the relevant assessment years. The aforesaid conclusions, according to the learned AM, were supported by the judgment of the Hon'ble Gujarat High Court in the case of N.R. Paper & Boards Ltd. v. Dy. CIT (1998) 234 ITR 733 (Quj). The learned AM accordingly upheld the action of the AO in bringing to tax the sum of Rs. 9.77 lakhs but proceedings at the same time to delete the additions of Rs. 55,63,025 and Rs. 13,36,982.
13. The learned JM, however, did not subscribe to the view taken by the learned AM and he passed a separate detailed order. For the purpose of deciding the present reference, I find it necessary to refer to some of the facts noticed by the learned JM to come to the conclusion that he did. These are :
(i) That Shri Ashwin B. Patel, partner of the firm had admitted that cash had been taken over and above the sale bill price and question No. 5 in the recording of his statement was relevant;
(ii) In response to question Nos, 7,8,10,11, 13 and 20 of the statement recorded on 8th Sept., 1995, the assessee admitted having received in cash over and above the sale bill price ;
(iii) Shri Ashwin B. Patel, partner, stated that he could identify the instances where cash was taken over and above the sale price and in reply to question No. 20 of the statement recorded under Section 133A of the IT Act, 1961, Shri Ashwin B. Patel admitted receiving cash from the four parties on account of under-invoicing of sale bills;
(iv) The AO recorded the statement of Shri Ram Bhagat Sarogi, director of Anjani Synthetics, who stated in response to certain questions that he had paid Rs. 2.77 lakhs in cash against the supply of stenter machine on 27th Dec., 1990, to Shri Ashwin B. Patel;
(v) The AO referred to corroborative evidence in the form of loose papers seized/impounded from the residence of the partners of the firm, which proved receipt of cash to the tune of Rs. 9.77 lakhs as against Rs. 9.50 lakhs admitted during the course of recording of statement under Section 133A on 8th Sept., 1995;
(vi) The statement of Shri H.A. Patel, technical executive, recorded under Section 131 of the IT Act on 8th Sept., 1995, at the factory premises also proved that during the negotiation of the bill price, the amount to be paid by cheque and the amount to be paid by cash were also finalized and further as per the proposal of the customers, 10 per cent to 30 per cent of the sale price of the machinery was taken in cash and the balance by cheque;
(vii) That the receipt of Rs. 9.77 lakhs was the unaccounted income of the assessee as a result of under-invoicing of sales to four parties and that it stood proved not only from the material available on record but also as a result of confessional statement made by Shri Ashwin B. Patel as also the confessional statement made by Shri H.A. Patel, technical executive of the assessee-firm.
(viii) That the AO had found that the assessee had under-invoiced the sale price of every other machinery supplied by it in addition to what was originally admitted during the course of search action. A reference was also made to the deposition under oath of Shri H.A. Patel, technical executive of the firm;
(ix) It was found by the Department during the course of the search that the assessee was making wrong classification of the machinery in the bills mainly to justify the lower sale price in the books of accounts; and
(x) In the course of the statement recorded on 9th Sept., 1995, more specifically Question Nos. 46, 47 and 48 the assessee had categorically stated that he had received cash from a number of parties in addition to the four parties in respect of which specific receipts in cash over and above the bill figure had been admitted.
14. The learned JM after recording the aforesaid facts vis-a-vis the assessment order itself proceeded to record the submissions made on behalf of the assessee in para 18 of his order and those urged on behalf of the Department in para 19. As these are quite identical to those taken note of by the learned AM and which I have already reproduced earlier, I do not propose to repeat these. All that I would like to say is that as against the reliance of the assessee on the judgment of the Hon'ble Gujarat High Court in the case of N.R. Paper & Boards Ltd. (supra), the learned Departmental Representative placed reliance on the judgments of the Hon'ble Supreme Court in the case of CIT v. Lakshmi Vilas Bank Ltd. (1996) 220 ITR 305 (SC) and CST v. H.M. Esufali H.M. Abdulali (1973) 90 ITR 271 (SC).
15. Beginning para 20 of his order at p. 29 and going up to the end of para 22 at pp. 32 of his order, the learned, JM discussed at length the addition of Rs. 9.77 lakhs, which had been confirmed by the learned AM and a close reading of this part of his order clearly shows that he is in full agreement with the learned AM in confirming the addition of Rs. 9.77 lakhs but now comes the point of difference when he observes that the various reasons and the basis given for sustaining the addition of Rs. 9.77 lakhs equally supports the additions of Rs. 55,63,255 and Rs. 13,36,982 made by the AO. According to the learned JM, the AO had found that the assessee had under-invoiced the sale price of machineries other than those in respect of which the under-invoicing had been admitted during the course of search. Much reliance was placed on the statement of Shri H.A. Patel, technical executive of the firm, wherein he is purported to have stated that 10 per cent to 30 per cent of the sale price was received in the form of cash. The learned JM relied heavily on the "wrong" classification in the bills and observed that no reasonable explanation was given. He once again referred to question Nos. 46, 47 and 48 of the statement recorded on 9th Sept., 1995, of Shri Ashwin B. Patel where he is purported to have stated that he had received cash from numerous other parties in addition to the four parties in respect of which specific receipts in cash outside the books of accounts had been admitted. On the basis of the aforesaid observations/line of reasoning, the learned JM confirmed the addition of Rs. 55,63,255 and coming to the other addition of Rs. 13,36,982 in respect of sales of machinery other than stenter machines, the learned JM once again referred to the earlier facts including the statement of Shri H.A. Patel, technical executive and the relevant question being No. 11 of the statement recorded on 9th Sept., 1995, and wherein he had categorically stated that 10 per cent to 30 per cent of the sale price was taken in cash and the balance was taken by cheque. A reference was once again made to question Nos. 46, 47 and 48 of the statement recorded on 9th Sept., 1995. The learned JM thereafter proceeded to confirm the addition of Rs. 13,36,982. Coming to the decisions relied upon by both the parties, the learned JM proceeded to distinguish the judgment of the Gujarat High Court in the case of N.R. Paper & Boards Ltd (supra) observing that this did not help the assessee in any manner and he in turn derived support from the judgment of the Hon'ble Supreme Court in the case of CIT v. H.M. Esufali H.M. Abdulali (supra).
16. Before me, the learned counsel for the assessee vehemently supported the view taken by the learned AM on both the additions and subsequent arguments advanced by him were a reiteration of those tendered before the Division Bench. He laid emphasis on the following :
(i) The AO had relied heavily on the statement of one Shri Hiralal Patel, who had been employed only on 11th Nov., 1991, and initially his duty, was to assist other engineers and workers in production, planning and designing and it was only since the last one year i.e., from 1994, that he was assisting the assessee in selling machines;
(ii) The said person was totally unconnected, unrelated and uninformed about the sale price of stenter machines and perusal of the material on record would show that except for one sale, all other transactions had taken place in the years 1986 to 1994 and most of these pertained to periods when the said Shri Hiralal Patel was not even in the employment of the assessee;
(iii) A perusal of the statement of Shri Hiralal Patel more particularly the answers to question Nos, 1, 5, 6, 7, 9 and 11 would show that he was not aware about the final sale price decided with the customers by Shri Ashwin Bhai and, therefore, his statement could not be relied upon to hold that the assessee had indulged in under-invoicing;
(iv) In response to Question No. 14, Shri Hiralal Patel had stated that whenever the invoice value was less than the cost price then cash might have been received whereas the material on record clearly showed that the assessee-firm had charged much more than the cost price and, therefore, the theory advanced by Shri Hiralal Patel did not hold good;
(v) The AO had called for information from various parties under Section 133(6) and the result of such verification had shown that the said customers had recorded the same sale price as shown in the assessee's sales invoice and not a single customer had confirmed receiving extra sale price over and above the invoice value;
(vi) Further, the statements of some of the parties were also supposed to have been recorded by the ADI but the outcome had not been mentioned in the assessment order probably because no one had confirmed paying cash over and above the invoice value;
(vii) The additions had proceeded on presumptions and surmises without bringing on record any evidence, which would show that the assessee had in fact (sic-not) received cash over and above the sale price. That even the seized material did not indicate any under-invoicing ;
(viii) It was an accepted proposition of law that addition on estimate basis could not be made in a block assessment;
(ix) That even the calculation at p. 7 of the assessment order was arbitrary and based on presumptions since the multiplier of 1.25 was a hypothetical figure;
(x) That in respect of the addition pertaining to machines other than stenter machines, the submission of Shri Hiralal Patel could not be relied upon since he had not said anything pertaining to receipt of extra cash in respect of the sale of machineries other than stenter machines;
(xi) As in the case of stenter machines, this addition was also on estimate basis whereas it was an accepted position of law that the AO was to restrict himself to the evidence/material found as a result of the search;
(xii) That the ADI in his appraisal report had made an estimate of Rs. 10 lakhs and the AO while making the block assessment of the sister concern i.e., Babros Machinery Manufacturing (P) Ltd. had made an observation about "the sheer estimate made by the investigating officer";
(xiii) That Shri Ashwin B. Patel had not admitted receipt of "on money' in respect of transactions other than those, which had resulted in the addition of Rs. 9.77 lakhs;
(xiv) That Shri Hiralal Patel had categorically stated that he was not aware of the final sale price and which in his absence was decided by Shri Ashwinbhai;
(xv) The learned JM had failed to appreciate that in the case of Dayaram Printing & Dyeing Mills, there was a mistake of mentioning in the invoice three stenter machines although it had been consistently mentioned as five in the correspondence between the parties, the packing list, the excise gate pass and the delivery notes;
(xvi) The learned JM had also failed to appreciate that the price variation was on account of difference in specifications as also various other factors like extra items, change in design, etc. (xvii) It was not correct to state that the assessee was involved in wrong classification of machinery since even in an order dt. 19th Dec., 2000, passed subsequent to the search by the excise authorities, no such allegation had been made and in any case there was no material in support thereof; and (xviii) The provisions of Section 145 were not applicable in the case of a block assessment and the judgment of the Hon'ble Supreme Court in the case of CST v. H.M. Esufali H.M. Abdulali (supra) was not applicable.
17. In support of his numerous arguments and more so in support of the view expressed by the learned AM, the learned counsel for the appellant placed reliance on the same very decisions as cited in IT(SS)A No. 45/Ahd/99 being the case of the sister concern i.e., M/s Babros Machinery Manufacturing (P) Ltd. heard along with the present reference and since disposed of. To mention some of these (1998) 234 ITR 733 (Guj) (supra). CIT v. M.K.E. Memon (2001) 248 ITR 310 (Bom), CTT v. Rajendia Prasad Gupta (2001) 248 ITR 350 (Raj), Samiat Beer Bar v. Asstt. CIT (2000) 69 TTJ (Pune)(TM) 113 : (2001) 251 ITR 1 (AT) (Pune)(TM), Unique Organisers & Developers (P) Ltd. v. Dy. CIT (2001) 70 TTJ (Ahd) 131, Smt. Usha Tripathi v. Asstt. CIT (2000) 66 TTJ (AS) 508, 75 TTJ 185 (sic) and D.N. Kamani (HUF) v. Dy. CTT (1999) 65 TTJ (Pat)(TM) 504 : (1999) 70 ITD 77 (Pat)(TM).
18. I may mention that during the course of the hearing of this reference the learned counsel for the appellant also placed on record an order dt. 19th Dec., 2000, passed by the Addl. Commr. (Central Excise), Ahmedabad-I, and reading through the said order, the learned counsel contended that no case was made out vis-a-vis the allegation of the IT Department that the assessee had received 'on money' in respect of the sale of stenter machinery as also machinery other than the stenter machinery. I may also mention that during the course of hearing, the learned counsel made an alternative submission pertaining to the estimate made by the AO in a sum of Rs. 65.40 lakhs and his submission was that four items in which under-invoicing had been admitted to the tune of Rs. 9.77 lakhs were to be excluded. I must categorically state that ultimately this alternative submission was not pressed and nothing more is retired to be said on it.
19. The learned Departmental Representative on behalf of the Department vehemently supported the view expressed by the learned JM and inasmuch as his submissions were identical to those tendered in the case of the sister concern viz., M/s Babros Machinery Manufacturing (P) Ltd. I need not repeat the same in the present order. His reliance was also on the same authorities as cited in the case of the sister concern and on this ground such authorities need not find mention in the present order.
20. I have considered the rival submissions and have also perused minutely the orders passed by the learned members constituting the Division Bench. The decisions cited at the Bar have also been taken into account.
21. At the outset, I must mention that quite a few legal propositions raised in the present appeal have already been dealt with in the case of the sister concern i.e., Babros Machinery Manufacturing (P) Ltd. in IT(SS)A No. 45/Ahd/99 and which has already been disposed of by me by means of an order dt. 14th Nov., 2002 [reported as Babros Machinery Manufacturing (P) Ltd. v. Dy. CUT (2003; 78 TTJ (Ahd)(TM) 857--Ed.]. To the extent such legal propositions are relevant and applicable to the present reference, the observations made by me in the case of the sister concern would squarely apply. To mention some of these the applicability of provisions of Section 145 to a block assessment the applicability of the judgment of the Hon'ble Supreme Court in the case of CST v. H.M. Esufali H.M. Abdulali (supra) as also the applicability or otherwise of various other decisions relied upon by both the parties in the case of the sister concern and which are also cited in the present reference. I have already dealt with in detail the various decisions relied upon by the parties while disposing of the reference under Section 255(4) in the case of the sister concern and my observations would, therefore, apply in the present reference as well. Coming to the facts of the present case, the learned AM while sustaining the addition to the tune of Rs. 9.77 lakhs deleted the other two additions of Rs. 55,63,255 and Rs. 13,36,982 on the following main grounds :
(1) That Shri Ashwin B. Patel, partner of the assessee-firm, had admitted during the course of recording of his statement under Section 132(4) that 'on money' had been charged in respect of four parties aggregating Rs. 9.77 lakhs but this by itself could not lead to the conclusion that 'on money' had been charged in respect of every other transaction noted in the assessment order:
(2) The charging of 'on money' in respect of four parties was admitted by the assessee and had also been proved by the enquiries conducted by the AO from the buyers of the machineries;
(3) In respect of the remaining parties including those to whom machines other than stenter machines had been sold, the AO had not been able to prove that the purchasers of such machines had paid 'on money' in cash to the assessee over and above the invoice price ;
(4) There was correspondence between the AO and various parties other than the four in respect of which 'on money' receipts had been confirmed and such parties had in replies to the AO furnished under Section 133(6) of the IT Act, 1961, stated that they had paid only the amount mentioned in the invoice.
(5) All the purchasers aforesaid were assessed to tax and copies of the correspondence between the parties had been placed on the paper book;
(6) The AO had not brought any material on record except the submission of one Shri Hiralal Patel, the so-called technical executive to indicate that the assessee had in fact received 'on money' in respect of transaction of sale of machinery to various parties other than those in respect of which addition of Rs. 9.77 lakhs was sustained;
(7) Provisions of Section 145 were not applicable in computing the undisclosed income in a block assessment and action, if any, could be taken by the AO in a regular assessment made under Section 143(3) or 144 for the relevant assessment years.
[See my observations in respect of applicability of Section 145 in the case of the sister concern, which are made applicable in the present reference as well.]
22. According to the learned AM the decision of the Hon'ble Gujarat High Court in the case of N.R. Paper & Boards Ltd. (supra) was squarely applicable.
23. As against the aforesaid, the learned JM relied heavily on the statement of Shri Hiralal Patel, the so-called technical executive as also the statement of Shri Ashwin B. Patel, partner, who categorically accepted receipt of 'on money' in respect of four transactions aggregating Rs. 9.77 lakhs. The learned JM agreed with the AO that the estimate could be made in respect of all other transactions following the judgment of the Hon'ble Supreme Court in the case of CST v. H.M. Esufali H.M. Abdulali (supra) but which in my opinion is not applicable. The learned JM has no doubt written a detailed order but he has not countered any of the factual observations made by the learned AM more so the one's which I have already summarized in para 21 of the present order.
24. Coming to the statement of Shri Hiralal Patel, it is quite apparent from a perusal of the record and not rebutted before me by the learned Departmental Representative on behalf of the Department that he was employed by the assessee only on 11th Nov., 1991, and most of the transactions in respect of stenter machines as also the other machines pertained to periods when he was not an employee of the assessee. It is also not countered before me on behalf of the Department that the duties of the said person as emerging from his own statement related to two areas other than the involvement and discussion with the clients about the price fixation in respect of various types of machneries. In addition to the aforesaid, there is no counter by the Department to the factual submission made on behalf of the assessee that the invoice value in each of the cases was more than the cost price.
25. I have perused minutely the statements recorded in respect of Shri Haralal Patel as also Shri Ashwin B. Patel, partner of the assessee-firm and copies thereof being placed on the paper books filed by the parties and do not find any categorical assertion or acceptance by either of them that there was an organised and systematic activity of receiving 'on money' on each and every transaction of sale of stenter machines as also other machines, and the observations of the learned JM to the contrary are, therefore, not treated to be in order. It must be emphasized that the duty cast on the learned Member who writes a dissenting order is much heavier inasmuch as he has not only to meet each and every point made by his colleague but also to give thereafter his detailed reasoning for coming to a different conclusion. In this reference, I do not find any such exercise having been carried out on the part of the learned JM, who has written a dissenting order.
26. As already stated earlier, the assessee's counsel placed on record during the course of the present reference a copy of the order passed by the Addl. Commr. (Central Excise) Ahmedabad-I, and a perusal thereof shows that other than the four transactions, which resulted in an addition of Rs. 9.77 lakhs in the present case, it is not the stand of the excise authorities that 'on money' was received in each and every transactions. At p. 9 of the order, the recovery proceedings in respect of M/s Dayaram Dyeing & Printing Works have been dropped on grounds of limitation and the demand of Rs. 10,000 in respect of a sum of Rs. 2 lakhs recovered as 'on money' from M/s Shalu Dyeing has been confirmed and there is also a recovery of Rs. 654 in respect of waste and scrap, which of course is not the subject-matter of the present reference. Lastly, there are levies of three separate penalties as also interest. I do not find a word in the order passed by the excise authorities about any other excise duty evasion on the part of the assessee.
27. In conclusion and in the final analysis, I uphold the view taken by the learned AM in respect of both the additions and direct that the matter may now be listed before the Division Bench for passing an order in conformity with the majority opinion.