Income Tax Appellate Tribunal - Chandigarh
Raj Pal Ashwani Kumar vs Assistant Commissioner Of Income Tax on 15 December, 1999
ORDER
B. S. Saluja, J.M.
1. The assessee has filed this appeal against the assessment order, dt. 26th February, 1998 passed under s. 158BC of the IT Act, 1961, (for short Act).
2. Ground Nos. 1 to 4 and 8 to 10 were not pressed by learned counsel. The same are, therefore, rejected. Ground No. 11 relates to telescoping of certain additions. The same is general in nature and needs no comments.
3. Learned counsel took up ground Nos. 5 and 6 together, whereby total addition of Rs. 48,90,712 has been made in relation to asst. yrs. 1994-95 to 1997-98, as per p. 11 of the assessment order on sale of rakhi, etc. The assessee is also agitated against addition of Rs. 17,26,774 for asst. yr. 1997-98 on account of excess stock under C & D categories of ash, on the basis of survey report. The assessee disputes the competency of the said valuation and is also agitated against telescoping of additions of Rs. 17,15,145 and Rs. 56,419 in other additions.
4. The facts, in brief, are that survey under s. 133A was conducted on business premises of the assessee on 24th December, 1996. Survey at dumps of rakhi was conducted on 4th and 5th February, 1997. At the same time, search and seizure operations were carried out at the residential premises of the partners of the firm and the last warrant was executed on 5th February, 1997. During the course of these operations, various books of account and documents were found and seized. The assessee was dealing in sale of rakhi, which was lifted from Balarpur Industries Ltd., Yamuna Nagar (for short BILT), through tenders. Notice under s. 158BC was issued on 23rd April, 1997, requiring the assessee to furnish return in Form No. 2B. The assessee sought extension of time and ultimately filed return on 8th December, 1997. AO issued query letter, dt. 29th January, 1998 and the assessee vide its reply dt. 13th February, 1998 contended that proceedings under the Act had become 'time-barred' by 31st December, 1997, and assessment could not be legally framed after that date in case of family members. AO considered this plea and for the reasons given in para 4.1 of order rejected the same. He observed that rakhi from BILT plant consisted of unburnt coal and carbon contents which made it extremely useful as fuel for lime kiln and brick kiln. This rakhi was being sold in its original form to the local parties but it is sifted and final coal content thus retrieved was sent outstation for sale at much higher rates. As per information received from BILT, on 3rd February, 1997 165 tons of rakhi was being lifted every day by the assessee group during financial year 1996-97. The assessee was not maintaining any quantitative tally of rakhi lifted, sold and balance left. The assessee was virtually showing 'nil' or negligible, closing stock at the end of the year. AO referred to pp. 84 and 105 and document A-55 and observed that the same showed sale of rakhi at Rs. 41 and Rs. 48 per quntal and that the said rates did not include freight charges. At p. 105, sales had been made to Shri Arjun Badwana from June, 1996 to October, 1996 and cash of Rs. 32,000 had been shown as received. AO held that all these sales had been made outside the books of account. Similar was the position with regard to documents A-50, A-51, A-55, A-61 and A-1-2 seized from the residence of Shri Raj Pal Anand partner. AO issued a query letter on 29th January, 1998 asking the assessee to explain as to why the books of accounts be not rejected. In reply, the assessee stated that the allegations that the books did not show correct picture of accounts when the firm was making sales outside the books and stock register was not maintained would not justify the rejection of books under s. 145(2) as there were no sales outside the books and total purchases and sales stood recorded and accounted for in the books of account. It was argued that AO had not mentioned as to on what basis books did not show correct picture of accounts. The books could not be rejected on arbitrary and imaginary grounds, unless specific defects were pointed out/proved. The assessee, therefore, wanted to know the specific instances where books did not show correct picture of accounts. AO considered the reply but did not accept it. He held that the books could not be relied upon and that the same were neither correct nor complete. He, therefore, rejected the books of account under s. 145(2) and proceeded to determine income of the assessee.
5. AO observed that during survey stock was lying in heaps. The stock was measured on 4th February, 1997 and 5th February, 1997 by the Department with the help of approved valuer, according to which, stock of rakhi was 26,02,115 cft. AO asked the assessee to get the stock reconciled with regular books of account, failing which adverse inference would be drawn. The assessee submitted that stocks were measured on 4th February, 1997 and physical verification to obtain percentage of usable material was done on 5th February, 1997 by the Department including the surveyor. The dump site was not exclusively related to Raj Pal Ashwani Kumar but also to Shakti Lime and Chemicals, S.K. Anand & Co., who purchased material from it for use of their own lime kilns after screening at the dump site. The assessee stressed that the site was not being used exclusively by Raj Pal Ashwani Kumar and, therefore, the material lying there did not belong to it only. The said fact was brought to the notice of the surveyor and the Departmental team which verified it. The quantity mentioned by AO comprised mainly of waste material left by different firms. AO observed that copies of measurements were supplied to the assessee on 2nd September, 1997 and 23rd October, 1997 and instead of getting the stock reconciled the assessee was trying to beat about the bush. If the claim of the assessee was correct, then no stock would have been available in its premises. AO also noted the contention that basic material for screening leaves behind 70 to 80 per cent of waste material in the form of 'Barik Rakhi', which had no consumption power and was mostly abandoned. Some time the material was sent to the consumer and it was rejected due to bad quality and the assessee had to get it unloaded at dump site and later improve it and sell it again. AO held that there was no force in the contentions of the assessee, as stock of A, B, C and D categories was found in its premises. AO noted the contention that the assessee was mainly involved in sale of material to registered dealers who are given delivery directly from mill. At the same time, the assessee has claimed that some time material was of bad quality and was not acceptable by the dealers directly and was sent back to dump site. With reference to stock, AO observed that the same had been measured in the presence of S/Shri Sanjay Kumar Anand and Surinder Anand and the assessee could not claim now that the stock did not belong to the firm. The assessee also referred to the reply of Shri H. S. Garg surveyor, wherein he had written about separate categories of C as basic material and D also. In his letter, he had admittedly written about certain inaccuracies considered in the survey report. In the final survey report, he had merged categories C and D with a free mind resulting in most misrepresenting figures. Copy of letter of the surveyor was sent by the assessee. It submitted that merger of waste material into stock was at the instance of the Department and it was not a reality noticed by the surveyor and as such unjustified, and unreal misrepresenting figures were liable to be set aside by AO. The assessee emphasised that category D material came into existence after basic material of category C was screened and categories A and B are derived out of it. AO considered the said reply and observed that letter of the surveyor clarified that categories C & D were clearly mentioned in the report submitted to the Department and those two categories were clearly visible on the site lying separately. At the time of measurement also, the surveyor had left the note in his report to the effect that :
"At the time of physical verification, Shri Sanjay Anand, representative of Raj Pal Ashwani Kumar and two others claimed a separate category D. However, no difference was found in the nature of stock of categories C & D. Therefore, in the survey report only category C has been adopted."
6. AO held that the said letter of the surveyor was self-explanatory and did not support the conclusion of the assessee. The assessee had filed a report of his valuer, Shri P. S. Chauhan, wherein he had considered category D at the time of measuring stock. The assessee had pointed out certain mathematical mistakes, as noted at pp. 7-8 of order. AO held that the assessee had not pointed out even a single mistake at the time of measurement. He, therefore, rejected the said contention. AO also noted the contention that the surveyor had tried to do certain manipulations deliberately and certain technical mistakes have been noticed by the technical team of the assessee. The surveyor had very smartly tried to omit heaps of category D, shown in the form of rectangles in the drawings. AO referred to the note given by the surveyor in report regarding physical verification of stock, when Shri Sanjay Anand and two others were present and claimed category D and that no difference was found in categories C & D. He, therefore, held that there was no manipulation at the instance of the Department. The report of the valuer had not been prepared in the presence of Departmental officers and hence it could not be accepted as evidence. In case any arithmetical errors were pointed out and to the extent the same were found to be correct, corrective action as per law would be taken. In view of the foregoing, AO held that he had gone through the books of account in which no stock as on date of survey had been shown. The assessee had furnished trading account as on 5th February, 1997 along with its reply filed on 25th November, 1997. AO noticed that the assessee had shown closing stock of Rs. 11,27,346 as on 5th February, 1997. He observed that stock as per surveyor's report was as under :
"A class 122.36 tons
B class 1428.56 tons
C class 50045.09 tons"
7. AO then proceeded to work out value of the said stock. He observed that the rates of rakhi categorised as A were taken @ Rs. 66 per qtl as per documents A-1-2 and A-51. Similarly, he took the rate of category B rakhi @ Rs. 3,000 per truck, as per sale bill. Accordingly, value of A category was worked out at Rs. 80,757, of B category at Rs. 6,28,566 and of C category at Rs. 83,40,983, aggregating to Rs. 90,50,306. AO observed that the weight carried by one truck was 9 MT and dividing stock of category C by 9, total number of trucks came to 5,560 and by multiplying the same by Rs. 1,500, value of C category of rakhi came to Rs. 83,40,983. Value of stock on physical verification as on 5th February, 1997 thus came to Rs. 90,50,306, out of which he deducted an amount of Rs. 24,32,820, being value of stock as per books of account, arriving at figure of excess stock at Rs. 66,17,486. AO further referred to trading account as on 5th February, 1997 and noted that opening stock as on that date was 'nil' and sales as per books were of Rs. 7.72 lakhs, interstate sales were Rs. 4,14,700 and sales to registered dealers were Rs. 38,60,541, aggregating to Rs. 46,74,241. He, therefore, calculated closing stock (balancing figure) at Rs. 24,32,820. Similarly, he observed that purchases worked out in the chart at the time of computing income for asst. yr. 1997-98 were of Rs. 68.64 lakhs and profit @ 5.2 per cent as shown in earlier years worked out to Rs. 2,43,061. In view of the foregoing, AO observed that though the assessee had not shown any closing stock in earlier years worked out to Rs. 2,43,061. In view of the foregoing, AO observed that though the assessee had not shown any closing stock in earlier assessment years but there must be stock accumulated over a number of years which has not been disclosed. This fact got support, as it was inconceivable to imagine that the assessee could be selling of total recovery on day-to-day basis and then even recovery made during the last period of accounting year was also sold. The existence of stock itself indicated that total recovery was not sold on day-to-day basis but there was substantial quantity left over which had been suppressed from year to year. AO observed that the aforesaid stock position related to subsequent operations and not to the day of survey, i.e., 24th December, 1996, therefore, the same could not be considered under s. 158. Return filed was for the year ending 31st March, 1997 and the same was also not relevant for bringing to tax income liable to tax upto 24th December, 1996. He, therefore, held that under the circumstances income of the assessee for assessment year, i.e. up to 24th December, 1996 was estimated on the basis of estimation of income for earlier years, i.e. 1996-97 and while doing so expenses were allowed on proportionate basis allowed for earlier years. He, therefore, held that income of the assessee for asst. yrs. 1994-95 onwards was estimated on the basis of information obtained from BILT and on the basis of evidence for sales made outside the books of account. As per tender notice, lifting of boiler cinders would be approximately 180 MT per day, however, they also informed lifting of 160 to 165 MT per day for the year 1996-97. From the seized record and from the site enquiries, it emerged that unsifted rakhi in local market was being sold at Rs. 14 per qtl in Financial year 1996-97, especially after hike in contract money in September, 1996, sifted rakhi (cinder) was being sold at average rate of Rs. 45 per qtl and that transportation/freight charges were being taken extra in both the cases. AO held that it was clear from the seized record that all sales of outstation parties were of cinder and not of unsifted rakhi. Trading sales of cinder were not recorded in regular books. On an average, 50 per cent of total receipt of rakhi was being sold in local market as unsifted rakhi. Retrieval of cinder was at 40 per cent. AO, therefore, proceeded to work out income for asst. yrs. 1994-95 to 1997-98 by taking 355 days in a year. He first calculated annual lifting of rakhi at an average rate of 165 MT per day. Out of total rakhi so worked out, he applied rate of Rs. 140 per MT to 50 per cent and worked out figures of income for the said years. He further worked out retrieval of cinder at 40 per cent, out of 29,287 MT at 11,715 MT and applied rate of Rs. 450 per ton. AO worked out total sales during four assessment years and deducted annual contract money paid by the assessee to BILT and further allowed expenses on proportionate basis and arrived at income of Rs. 5,71,554 for asst. yr. 1994-95, Rs. 17,19,903 for asst. yr. 1995-96, Rs. 14,25,930 for asst. yr. 1996-97 and Rs. 11,73,698 for asst. yr. 1997-98. The said income was added as undisclosed income. AO further observed that excess stock was to the tune of Rs. 66,17,486, which was available. He, therefore, reduced the above-mentioned addition from excess stock and arrived at a figure of Rs. 17,26,774, which was ultimately added to the income for asst. yr. 1997-98.
8. Learned counsel Shri P. C. Jain referred in brief to the background of the case and submitted that the assessee is a partnership firm and it was buying cinder ash from BILT through tenders. The said ash contained some unburnt coal, which was useful for fuel energy. He referred to p. 28 of paper-book and submitted that the grading of material as done by the surveyor of the Department was not scientific. D category of cinder ash was only a dust and it had no value. Retrieval value of cinder is approximately 20 per cent and the same was physically verified by AO on 5th February, 1997, on the basis of samples of 50 'canastars' (tins) taken on that day. Throwing of ash/dust was a costly affair, with the result that the same was lying in heaps. He referred to pp. 38-40 of paper-book, in order to show that there was annual contract for sale of boiler cinder ash by BILT. A copy of tender notice published in the Punjab Kesari dt. 6th August, 1996 is placed at p. 40 of paper-book Maximum removal of boiler cinder ash from BILT could be 180 MT per day. He referred to pp. 41-45 of paper-book, where copies of agreements entered into between the assessee and BILT for periods from 1st June, 1993 to 31st March, 1994, 1st April, 1994 to 30th September, 1995 and 4th October, 1996 to 30th September, 1997 are placed. He referred to para 4 of the agreement at p. 42, wherein it is stipulated that the assessee would be fully responsible for compliance of all municipal, local, state and central laws in addition to requirements of the Pollution Board and in case of any infringement BILT will be fully absolved of all the responsibilities. In order to avoid pollution, the assessee was using a conveyor belt and 75 per cent of sales were to local customers and these details were given to AO. However, for the reasons best known to him AO held that local sales were 50 per cent of total cinder ash purchased. Sales of rakhi are entered in the books and the parties to whom sales had been made had given sales tax numbers and registration certificates and that payments from the said parties had been received by cheque. Learned counsel urged that sales made were duly supported by bills and sales tax declarations. Purchasers do screening of material and retrieve coal and use the same in their 'Bhattis, mostly lime manufacturers. Remaining 25 per cent of cinder ash is sold to outsiders in Haryana and the said parties are not registered dealers and they have to pay sales tax @ 8 per cent. Proper 'bilties' in respect of such sales were made and freight paid by those parties or they arranged their own trucks. Learned counsel submitted that next category of purchases were from outside the State, for example, from U.P. On such sales, the assessee had charged 10 per cent sales tax where no CST forms were given. Names of such parties are there, proper bilties were prepared and the parties are identifiable. In some cases, there were cash sales. Some parties asked the assessee to do screening of cinder ash so that only coal was loaded in trucks. The assessee was charging 10 per cent as labour charges for screening of material. He submitted that there could be a question as to what the assessee was gaining in the process. If retrieval of coal was more than 20 per cent, then the assessee used to get balance over 20 per cent and the same constituted its extra profit. For example, if four trucks of ash were sold, sales of Rs. 4,000 were entered in the books and sales tax paid thereon. The assessee also accounted for labour charges. With reference to write document No. A-1-2, learned counsel submitted that there were separate notebooks containing such entries of sales. He stressed that the assessee could not sell more than 165 MT per day and, therefore, bringing in any extra sale by AO was not correct. Inputs with reference to purchase of rakhi could not be more than 165 MT per day. Entries reflected in document No. A-1-2 could be extra profit, as extra work done by the assessee was written in the same. During asst. yr. 1991-92, contract for purchase of cinder ash was by other sister concern of Ved Kumar Sanjay Kumar, which assessment had been annulled by the Tribunal for want of satisfaction by AO under s. 158BD. There is no addition in the hands of the assessee during four years preceding asst. yr. 1994-95. Learned counsel referred to pp. 55-58 of paper-book, where certificates from paper-book certain purchasers are placed certifying that they were purchasing rakhi (cinder coal ash) from the assessee and they were getting about 25-30 per cent as useable material and that approximately 70-75 per cent of material was waste which was abandoned as it had no value. He referred to copy of survey report placed at p. 60 of paper-book. In the note given there-below, Shri Hemant Singh Garg has mentioned that Shri Sanjay Anand, representative of the assessee and two others claimed a separate category D. However, no difference was found in the nature of the stock of categories C & D. Therefore, in the survey report only category C has been adopted. Learned counsel submitted that AO made enquiries from the customers under s. 131 but the same have not been mentioned in assessment order, as the same were favourable to the assessee. He referred to p. 106 onwards of paper-book, where copies of sale/purchase account including bill numbers, etc., are placed. He referred to pp. 190 onwards, where copies of sales-tax forms and list showing particulars of goods sold to registered dealers as furnished in ST-23 are placed. He submitted that details of ST with reference to each party have been given and that AO did not find any defects therein. He, therefore, urged that AO did not find any sales outside the books. He referred to p. 9 of assessment order, where sales amounting to Rs. 38,60,541 have been shown to registered dealers. He also referred to p. 8 of the order, where stock of category C with cinder ash has been worked out at 50.045.09 MT for one year @ 165 MT per day. Stock of categories C & D has been combined by the surveyor under C. He, therefore, urged that valuation of the said stock at Rs. 83,40,983 is based on surmises and conjectures. He submitted that it being a search case, additions ought to be based on evidence. If 80 per cent of cinder ash had some value, the parties would not have asked the assessee to screen/sift the material. 10 to 15 days stock was lying unscreened and that three samples out of said stock were produced before the Tribunal. Category 'D' (left over ash) has been valued by the Department as category C ash. He referred to p. 60 of paper-book and submitted that the surveyor has not given any reason as to why there is no difference between category C & D and that he has treated both the categories as C and valuation accordingly made by AO. He also referred to copy of layout plan with reference to heaps of rakhi, as prepared by the surveyor given at pp. 69-73 of paper-book. He urged that cateogry C ash was that which had come down to the assessee for screening. He referred to the objections filed by the assessee vide reply dt. 24th November, 1997 at pp. 9-10 of paper-book, wherein it has been mentioned that 'the quantity urged by your honour comprised mainly of waste material left by different firms as explained, which was actually measured by the Department with full understanding of it to be waste but due to some unknown reasons has been added into actual figure of stocks to project the figure towards higher side. The material under consideration is nothing but material which is left behind after burning of coal in the paper mill. Therefore, it is natural that it contains 70-80 per cent as waste powder left by burning of coal called as 'Rakh'. This rakh is screened from total material and useable material is obtained with varying percentages from lot to lot'. He then referred to p. 12 of paper-book, where the assessee pointed out that the figure arrived at by AO could only be arrived at by merging categories C & D ash. It is further mentioned that the assessee wrote a letter to the concerned surveyor/Department, wherein it asked to clarify merger of categories C & D when they were located, identified and categorised separately during physical verification and while conducting survey. The assessee pointed out that during visits of the Departmental team on sites of different persons working in town and consuming material supplied, who confirmed regarding waste material D and even percentage of the material. In view of the foregoing, learned counsel submitted that the expert called by the Department must survey existence of specific categories of material and he could not depend on guess. He submitted that the aforesaid contentions of the assessee have not been challenged by AO/Department. He referred to p. 14 of paper-book, where the assessee requested to cross-examine the surveyor. He also referred to the reply dt. 11th November, 1997 by Shri Garg surveyor at pp. 100-101 of paper-book. In para 7, it has been stated that - '...... we have very clearly mentioned in the survey report submitted to the Department about C & D categories which you must have noticed in the report. These two categories were clearly visible on site lying separately. These were even indicated and separated in physical verification done by the Department independently. We propose separate categories in accordance with physical verification done by the Department. The difference between two categories was in weight and hence in surface area and may be in chemical nature which can be confirmed from analyst. Therefore, at the instance of the Department two were merged. The heaps of D quality are shown as based figures as rectangle on which heaps of A, B and C are clearly placed, as shown in the drawings also. It is further mentioned in para. 2 that - '........ It was not possible to measure breadth at different levels. In a few cases only speculative measurement could be possible. Under these circumstances, only formula was suitable and possible to be adopted'. In view of the said reply, learned counsel submitted that categories C & D could not be the same. He submitted that the said surveyor Shri Garg was not an approved surveyor. He stressed on the aforesaid reply, wherein the surveyor had advised the assessee that chemical nature of categories C & D could be confirmed from analyst. Therefore, at the instance of the Department both the categories had been treated as one and that it was a case of corrupted evidence in legal terminology obtained at the behest of the Department. It was a mockery of physical law. He emphasised on reply of the said surveyor that length and breadth was not possible and speculative measurement had been done. He referred to letter written by the assessee on 10th February, 1998, wherein it was submitted that Shri Garg surveyor had committed number of technical and arithmetical mistakes giving rise to serious doubts about his capability and the assessee had enquired regarding basis of approval given to the said surveyor. The assessee referred to its letter dt. 9th November, 1997 to Shri Garg, wherein it enquired about his qualifications etc. and pointed out that he had given no satisfactory reply. Learned counsel referred to letter dt. 17th February, 1998, written to AO, wherein criminal proceedings against the surveyor were proposed to be lodged. It was pointed out that Shri Garg had failed to furnish basis of approval, learned counsel submitted that AO is silent on these objections, though the same have been noted in order. He pointed out that the father of Shri H. S. Garg, i.e. Shri Didar Singh Garg, was holding a certificate as approved valuer and that his registration No. CA/76/3339 has been given on the letterhead at p. 100 of paper-book. Survey report was signed by Shri Hemant Singh Garg, who is not approved valuer. Certificate of approval is given to the concerned individual and not to a firm. He referred to pp. 74-98 of paper-book, where a report from Shri P. S. Chauhan, approved valuer, is placed. He referred to p. 76, where it has been pointed out that there were huge number of mathematical mistakes throughout the survey report chart prepared by Shri Garg and the quantity has been over-stated by 10,010.05 MT, as mentioned in Annexure A-1 of report. It is further mentioned in para 2 that total effect due to mathematical, technical and merger of waste into actual stock was huge. Total figure of stock was 10,411.205 MT and not as alleged by the Department. In para. 3, it is mentioned that there were large scale errors while converting cubic volume into weight (tons), as indicated in Annexures A-1 and A-2. As per physical verification done by Shri Chauhan, there were four categories found, namely, A.B.C and D along with their percentage as shown in physical verification done by the Department, the heaps of different categories were also located and identified. Learned counsel further referred to p. 98 of paper-book, where quantity of category D ash has been shown and the same has been valued at 'nil'. He submitted that the aforesaid report has been given to AO and he has not found any defect so as to discard the same. He urged that the case of the assessee is that category D ash is of no value. While valuation done by the surveyor of the Department is not correct, as admitted by Shri Garg in his reply at pp. 100-101 of paper-book, valuation report by Shri Chauhan is a report from an expert and the same cannot be brushed aside. He reiterated that the certificates given by purchasers of the material at pp. 55-58 of paper-book, wherein they have certified that only 25-30 per cent of total material is useable after recovery and rest is waste, have not been rebutted by AO. Learned Departmental Representative intervened to say as to whether these papers were before AO, to which learned counsel replied emphatically that these papers were filed before AO. Learned counsel referred to p. 27 of paper-book, where a copy of affidavit is placed, in which the assessee has submitted that it is ready to abandon total material identified as D by the surveyor/Department and that total quantity of such material is approximately 18,10,748.3 cft lying on dump site as waste. He referred to the Stay Application No. 25/98 and submitted that the assessee had given an undertaking that if demand is not pressed the Department can take possession of the said material and adjust the demand out of recoveries made therefrom. He referred to p. 13 of paper-book, where the assessee requested AO to verify waste material by visiting the site. It was pointed out that even at present dump sites most of the material was waste, therefore, merger of such waste material into actual stock figures would only lead to a misrepresenting figure. Learned counsel referred to p. 220 of paper-book, where a copy of statement of material lifted as per books and as per calculations of the Department is placed. Total quantity of material lifted from BILT during year 1993-94 upto 24th December, 1996 has been worked out on the basis of 165 MT per day for 1,274 days at 2,10,210 MT. Sales at site for 365 days per year, as per bills, have been shown at 2,26,156 MT and sales at yard, as per Department, at 21,910 MT. Total sales come to 2,48,066 MT. Stock taken by the Department at site has been shown at 51,596 minus closing stock of 10696, i.e. 40,900 MT. The average of stock per day works out to 32 MT per day. Total figures as per Department work 'out to 227 MT per day. It has been mentioned that as per queries made from BILT, average of 160 to 165 MT per day is lifted by the assessee and figures at p. 220 clearly show that the additions are hypothetical and without any basis. Learned counsel referred to an article published in the Daily Tribune dt. 10th March, 1999, wherein heaps of rakhi situated near Haryana Resort Known as Grey Pelican have been described as health hazard. Learned counsel urged that the assessee has given direct inferral and direct circumstantial evidence to show that the addition made by AO is based on surmises and conjectures and the same ought to be deleted. In support of his contentions, learned counsel relied on the following decisions :
(i) State of H.P. vs. Jai Lal etc. JT 1999 (6) SC 548, whether it has been observed, that in order to bring the evidence of a witness as that of an expert it has to be shown that he has made a special study of the subject or acquired a special experience therein or, in other words, that he is skilled and has adequate knowledge of the subject. It further objected that Shri Panwar's evidence was beset with many unsatisfactory features which rendered it clearly unreasonable and in any case inadequate to establish the charges levelled against the accused persons. This case has been cited with reference to report of surveyor of the Department at the time of survey;
(ii) CIT vs. Daulat Ram Rawatmull (1973) 87 ITR 349 (SC);
(iii) Mirah Exports (P) Ltd. vs. CIT (1998) 3 SCC 292;
wherein it was observed that burden to prove the charge of undervaluation lies upon the Revenue and the Revenue has to produce necessary evidence to prove the said charge. It further observed that what has to be examined is whether the Revenue has succeeded in showing that apparent is not real and that the price shown in invoices does not reflect the true sale price;
(iv) Chaman Lal & Co. vs. ITO (1995) 53 TTJ (Chd) 241;
(v) Nagindas Dahyabhai Patel vs. Asstt. CIT (1999) 104 Taxman 80 (Ahmedabad Bench C), wherein it was observed with reference to retraction made by the assessee that the same was made before AO at the time of assessment proceedings and it could not be dismissed as a self-serving statement, especially when no disproportionate asset was found and seized by the search party except an amount of Rs. 16,000, which addition was subsequently deleted by CIT(A). It further observed that AO, instead of merely relying on the provisions of s. 132(4) should have pointed out some defects, deficiency with regard to the explanation given by the assessee in respect of transaction/asset found during search. The Tribunal concluded that in other words some collateral evidence should have been found out by AO;
(vi) Dr. R. M. L. Mehotra vs. Asstt. CIT (1999) 64 TTJ (All) 259 : (1999) 68 ITD 288 (All);
(vii) CIT vs. Wavin (India) Ltd. (1999) 236 ITR 314 (SC), wherein it was observed that '........... The computation of income is made in accordance with the method of accounting regularly employed by the assessee. It may be either the cash system where entries are made on the basis of actual receipts and actual outgoings or disbursements; or it may be the mercantile system where entries are made on accrual basis, that is to say, accrual of the right to receive payment and the accrual of the liability to disburse or pay. However, in both cases unless there is real income, there cannot be any 'income-tax'.
(viii) Dalmia Cement Ltd. vs. CIT (1999) 237 ITR 617 (SC). - In view of the foregoing, learned counsel submitted that AO has not proved what has been alleged in the order for making the additions. AO had made estimates of sales based on surmises and conjectures. Basic concept is of real income with reference to stock and that the said income should be available in the form of asset found during search. He again referred to the calculation of purchase and sales, as given at p. 220 of paper-book and submitted that there was no possibility of sales of 227 MT per day, as computed by the Department. He, therefore, urged that the addition of Rs. 48,90,712 as made by AO and telescoped into alleged excess stock of Rs. 66,17,486 ought to be deleted.
9. Learned counsel further referred to additions of Rs. 94,483 for asst. yr. 1994-95, of Rs. 3,07,619 for asst. yr. 1995-96, of Rs. 11,16,631 for asst. yr. 1996-97 and of Rs. 37,63,508 for asst. yr. 1997-98, as raised in ground No. 7. He referred to additions of Rs. 17,15,145 as made by AO vide para 9.2 and of Rs. 56,419 with reference to squared up accounts as made vide para 10 of order and which have been telescoped in other additions. Brief facts are that documents Nos. A-1-2, A-51, A-55 and A-61 were found from the residence of Shri Raj Pal Anand and contained details of sale of rakhi, lying lime, etc. AO asked the assessee to get entries recorded in those documents verified from regular books of account. The reply of the assessee has been reproduced at pp. 11-13 of order. The main thrust of the reply was that the assessee only provided trucks for carriage of rakhi and the expenditure was almost equal to the amount of gross income and, therefore, no income was taken into account in record maintained for truck freight or carriage. Some income was declared in the hands of truck owners on the basis of income fixed under s. 44AE. The assessee pointed out that truck owners were not maintaining any books and their income was assessed on the basis of provisions of s. 44AE. The assessee contended that sale of rakhi was made by Shri Rajiv Oberoi and the same could be assessed in the hands of Shri Raj Pal Anand, Smt. Shanti Rani wife of Shri Raj Pal Anand, Smt. Poonam Anand wife of Shri S.R. Anand and Smt. Rita Anand wife of Shri Sanjay Anand. The assessee pointed out that sales of rakhi as mentioned in seized record were of screened rakhi, whose sale rate amounted to Rs. 35 to Rs. 45 per qtl and the balance amount represented truck freight and expenditure on carriage and running of trucks was almost equal to gross freight charges. AO did not accept that sale of rakhi was being made by Shri Oberoi, as Raj Pal Ashwani Kumar was dealing in sale of rakhi and the accounts of Shriniwas Chemicals and Khanna Lime appeared in document A-1-2. AO observed that entries recorded in document A-1-2 were partly recorded in regular books of the assessee-firm and others have been kept outside the books of account. Statement of Shri Oberoi was recorded on 6th February, 1998 and he replied that he was doing the business on site where stocks of Raj Pal Ashwani Kumar were lying. AO observed that Shri Oberoi could not tell the names of the customers to whom rakhi was sold. Shri Oberoi contended that he was purchasing rakhi from Bhatta mazdoors/labourers but he could not tell the names of Bhattas/brick kilns in which labourers were working. AO observed that Shri Oberoi was a student upto financial year 1996-97 and was attending classes in Sri Guru Ram Rai Public School, Dehradun. He did this business only for asst. yr. 1993-94 and neither before nor after that he did this business. He could not produce any bill regarding purchase and sale of rakhi and stated that bills were being issued by Raj Pal Ashwani Kumar in cash and sales-tax was being charged by Raj Pal Ashwani Kumar @ 10 per cent. AO also referred to the statement of Shri S. P. Oberoi, father of Shri Rajiv Oberoi, recorded on 31st December, 1996, wherein he stated that his son Shri Sanjeev Oberoi was doing business of general merchant on small basis and that his other two sons, including Shri Rajiv, were studying in B.A. AO, therefore, held that name of Shri Rajiv had been put forward as an afterthought. He, therefore, held that document No. A-1-2 clearly showed that the amounts had been received by S/Shri Sanjay Anand, Sukhwant Rai Anand and Raj Pal Anand, whose names are appearing in the notebook. On a further query regarding seized documents, the assessee stated that documents Nos. A-50, A-51, A-55 and A-61 stood explained vide letter dt. 9th July, 1997 with reference to document No. A-1-2. Ultimately, AO held that the assessee was selling rakhi outside the books of account. He worked out total sales of rakhi as per seized documents and made the impugned additions in relation to asst. yr. 1994-95 to 1997-98 at p. 15 of order. AO further referred to document No. 60 and observed that it contained details of weight of rakhi through various trucks in the account of Shri Raj Pal Anand and Shri Ved Parkash Anand. The said rakhi was sold from 1st October, 1996 to 31st October, 1996. Total weight of rakhi worked out to 99,579 qtls. AO observed that the assessee did not get the said entries verified and the same were neither recorded in regular books of account nor verified by the assessee. He held that one truck of rakhi contained 90 qtls and total number of trucks would work out to 1106.43. By adopting rate per truck at Rs. 1,500, AO worked out the said addition at Rs. 17,15,145. He observed that no addition was being made on this account as the same was covered in the addition made on account of excess stock found. There were also squared up accounts in the names of S/Shri Som Parkash, Roshan Lal and Shanti Nath, aggregating to Rs. 56,419. He asked the assessee to prove genuineness of the cash credits. The assessee did not produce the said persons nor any documentary evidence had been filed. AO, therefore, treated the said amount as income of the assessee. However, no addition was made on account of these cash credits as the amount was available with the assessee out of sales made outside the books for which additions had been made in relation to asst. yrs. 1994-95 to 1997-98.
10. 5.2. Learned counsel made almost the same submissions as had been made with reference to earlier additions. He referred to p. 220 of paper-book and submitted that as per calculations of the Department the assessee was producing cinder ash @ 227 MT per day, whereas on an average it was lifting cinder ash of 160 to 165 MT from BILT. The extra quantity taken at 60 MT per day worked out to 20,000 MT per year and the same was not practicable in the face of evidence that the assessee had procured 2,10,210 MT in 1,274 days from BILT during the period from 30th June, 1993 to 24th December, 1996. He, therefore, submitted that addition has been made by AO for the sake of addition only. AO had acted partly as an adjudicator but was also acting as a prosecutor. He submitted that balance approach of the Department is expected and that the assessee has discharged its burden. He relied on the case of Arumugham & Ors. vs. Sundarambal & Anr. 1999 4 SCC 350. He reiterated that sales of rakhi are duly entered. He pointed out that 25 per cent of material was shifted to other site for screening and that four trucks which were at site for lifting the material were there at the request of the customers. He referred to Sr. Nos. 2 to 6 of second paper-book, where copies of documents A-60, A-51, A-55 and A-61 are placed. He also referred to pp. 254-275 of second paper-book, where detailed explanation has been furnished with reference to various additions. He referred in particular to p. 260, where the assessee submitted that it had made no sale of rakhi as per details contained in document A-1-2 but only provided trucks for its carriage. A-1-2 is the main document and that sales mentioned therein are duplicate of what has been taken by AO at p. 11 of order. He invited our attention to pp. 229-232 of paper-book, where comparative position of entries in documents A-51 and A-2 has been given. He referred in particular to p. 231 and submitted that on left hand side details of entries as mentioned in document A-51 are given and on right hand details of entries as in document A-2 are given. He pointed out that truck number, quantity of material in quintals and amount received tally in both the cases. The same amounts have been considered by AO and no defect has been pointed out with reference to details furnished. He referred to pp. 233-235, where comparative position of entries in documents Nos. A-55, A-2 and A-61, A-2 have been given. He referred to p. 221, where entries in document A-50 find place in document A-60, reproduced on same pattern as at other pages. He referred in particular to entries dt. 30th April, 1996 in case of Vikas Lime Industries at p. 221 and dt. 30th September, 1996 in the case of Apollo Chemical Industries at p. 226 of paper-book. These items are also found in document A-60. He referred to p. 292 of paper-book, where the amount in relation to document A-56 is Rs. 6,800 which has been taken by AO at Rs. 67,000. The said amount of Rs. 6,800 represented labour charges paid to rakhiwalas for removing rakhi. He referred to reply at p. 310, where the assessee urged that the said labour charges be allowed. The assessee also stated that it is not in receipt of income against waste material which was given totally free. An amount of approximately 24 lakhs remained to be explained out of addition of Rs. 52 lakhs and odd made vide para 8.2 of order and that it was a result of duplication of entries in various documents, as mentioned above. The impact of the said additions is reflected in 50 per cent removal of ash by the assessee. He referred to pp. 236 onwards of paper-book, where a copy of chart of peak amount worked out on the basis of document A-1-2 is placed. Peak amount worked out to Rs. 5,54,179, as mentioned at p. 253 of the said chart. The assessee could have extra earnings to that extent. He pleaded that in all fairness, addition of Rs. 5,54,179 could be made. The said amount of peak was supported by the amount due to the assessee to the extent of Rs. 4 lakhs and odd. He, therefore, submitted that addition of Rs. 52 lakhs and odd made on the basis of surmises and conjectures ought to be deleted.
11. Learned counsel further referred to addition of Rs. 17,15,145 made vide para 9.2 of order. He submitted that document A-60 represented challan book and that both the partners were maintaining one copy each of the challan book. He referred to pp. 221-228, where details indicated in the said challan book have been mentioned and cash book folio and ledger folio have also been indicated with reference to each bill number and name of the party. Total amount indicated in the said pages worked out to Rs. 17,15,145. He urged that these sales cannot be treated as sales outside the books. Details which were also before AO have not been rebutted, according to learned counsel. He next referred to addition of Rs. 56,419 made by AO vide para 10 of order. Total addition of Rs. 5,54,179 worked out on the basis of peak would cover this addition also.
12. Departmental Representative Shri Y. R. Saini relied heavily on assessment order and submitted that learned counsel has tried to give a tilt to the whole issue. The material sold from the godown of the assessee is valuable cinder ash and not a waste, as claimed. AO has made addition on physical verification of stock of ash made in presence of the assessee. No objection was raised by the assessee/partners about quantification of material in cft by applying possible formula. The contention of the assessee that the stock did not belong to it, that in certain cases stock was returned and that category D ash was not useable, have been dealt with by AO. Learned Departmental Representative remarked that even dust was not free and that in many cases the Department allows cost for filling of a plot by dust. He, therefore, supported order of AO. With reference to qualification of surveyor, learned Departmental Representative submitted that coal was not a complicated compound for which expert opinion was required and that even a layman can distinguish between plain rakhi and rakhi having coal. He, therefore, defended survey report by Shri H. S. Garg. The plea of the assessee that purchasers were sending material for screening did not carry any weight as generally purchasers won't buy material and then again send it for screening to the assessee. He pointed out that the assessee had never shown closing stock of cinder ash and suddenly closing stock has been shown at Rs. 11,27,346 in trading account as on 5th February, 1997. He, therefore, stressed that normal practice of the assessee has been to sell valuable coal outside the books of account. With reference to opinion of surveyor of the Department, learned Departmental Representative submitted that the decision in the case of Jai Lal & Ors. (supra) was distinguishable on facts, as in the said case the opinion given by Shri Panwar was rejected on the basis that he had not stated anything in his testimony to show that he had made any scientific study or research in assessing the productivity of apple trees in the State of Himachal Pradesh. The surveyor had made measurement of various heaps and categorised ash, whereby he wanted to say that coal might have more value. With reference to assessee's valuer's report, he submitted that mistakes, if any, could be rectified by AO but the assessee could not point out any. AO has applied reasonable rates with reference to closing stock which could not be acquired in a day. AO has gone back and made calculations on reasonable basis and addition could not be called as duplicate, as the purpose is to telescope the additions and work out closing stock. With reference to unaccounted sales of cinder ash after sifting, AO applied the rates on the basis of sale bills issued by the assessee. He, therefore, urged that the basic contention of learned counsel that only labour was being charged and profit was only on extra retrieval beyond 20 per cent made by the assessee was on the basis of hypothetical situation. Learned Departmental Representative referred to p. 6 of Department paper-book, where a copy of document No. A-1-2 is placed. Entries therein are elaborated and the same have not been tallied by the assessee with regular books. He, therefore, submitted that cash flow drawn on the said basis was not acceptable. Purchases made from BILT and expenses relating thereto are reflected in the P&L a/c. AO is not a super human being so that he could detect anything and everything.
13. With reference to addition made on sale of rakhi as at p. 15 of order, learned Departmental Representative submitted that AO gave due opportunity and that the assessee claimed that the said sales belonged to Shri Rajiv Oberoi but it could not adduce any evidence that sales were actually made by Shri Oberoi, AO made certain calculations with reference to document No. 60 relating to weight of rakhi through various trucks in account of Shri Raj Pal Anand and Shri Ved Pal Anand but did not make any addition. With reference to addition made in relation to squared up accounts as per para. 10 of order learned Departmental Representative submitted that it was a small addition. In view of the foregoing, learned Departmental Representative submitted that when unaccounted sales were being made, it was reasonable for AO to make estimates after rejection of books and valuation has been made taking into account totality of circumstances. With reference to plea of learned counsel that the surveyor's report is a corrupted evidence, learned Departmental Representative submitted that it was not so as no chemical analysis of coal was required. The surveyor was called by the Department as an independent person to take measurement of ash, as AO could not say as to how many cft of material was lying in heaps. On a query as to why measurement was required and as to whether categorisation of coal could be done by anybody, learned Departmental Representative submitted that Shri H. S. Garg was thought to be a proper person at that point of time. After some discussion, learned Departmental Representative was asked to produce evidence regarding appointment/approval of Shri Garg as valuer, with reference to plea of learned counsel regarding abandonment of category D material learned Departmental Representative submitted that as it was a case of survey stock was not seized. He was fair enough to mention that in recovery proceedings also stock was not attached. He pleaded that in income-tax matters rigours of Evidence Act could not be applied. He submitted that the case law relied upon by learned counsel is distinguishable on facts and not applicable. AO has tried to compute real income and that he has rightly telescoped various additions. In support of his contentions, learned Departmental Representative relied on the following decisions :
(a) Punjab Trading Co. Ltd. vs. CIT (1964) 53 ITR 335 (Punj), wherein it was held that there was sufficient material in the case for invoking the provisions of s. 13, proviso, as the assessee had not kept any register from day-to-day about consumption of raw cotton and production of ginned cotton;
(b) Chhabildas Tribhuvandas Shah & Ors. vs. CIT (1966) 59 ITR 733 (SC), wherein it was held that rejection of accounts by invoking the provisions of s. 13, proviso, was a question of law;
(c) Orissa Fisheries Development Corpn. Ltd. vs. CIT (1978) 111 ITR 923 (Ori), wherein it was held that an assessee who carries on business has to keep its accounts in a proper manner and if it fails to do so its accounts are liable to be rejected;
(d) CST vs. H.M. Esufali H.M. Abdulali (1973) 90 ITR 271 (SC), wherein it was detected that sales for 19 days were not entered in the account books and it was held that the same can form basis for estimating escaped turnover for whole year. Best judgment assessment was made in the said case; and
(e) Amiya Kumar Roy & Bros. vs. CIT (1994) 206 ITR 306 (Cal), wherein it was held that due to no explanation for low profit, addition on the basis of reasonable estimate was justified.
14. Learned counsel, in his reply, submitted that the real dispute is whether category D ash as computed by Department is coal. Even ash, which is a waste material, is being called coal. The contention of learned Departmental Representative that no chemical analysis was required, is without any basis and that for making addition chemical analysis of categories C & D ash was required. He emphasised that objections raised by the assessee have not been dealt with and with reference to qualification of surveyor Shri Garg, AO is silent. He reiterated that the decision in the case of Jai Lal & Ors. (supra) was on the point and applicable with reference to opinion of surveyor. AO was applying highest rates for working out value of closing stock on the basis of g.p. rate and that the said valuation is not given by the assessee. With reference to plea of learned Departmental Representative that AO was going back to earlier years for computing closing stock, learned counsel submitted that doctrine of 'relating back' cannot be applied as the assessee could not be having stock for four years. He submitted that the provisions of s. 145(3), whereunder in certain situations AO can make assessment in the manner provided in s. 144, have been introduced w.e.f. 1st April, 1997, and that AO has applied wrong procedure for computing income for a part of year. The assessee was not charging for labour with reference to sale of rakhi and that it was only earning profit on extra yield of coal retrieved from cinder ash and that peak of Rs. 5,54,179 denotes such profit. He submitted that if peak so worked out is not acceptable, let learned Departmental Representative mention the alternative method. With reference to case law relied upon by the learned Departmental Representative, have been dealt with in Jhandumal Tara Chand Rice Mills vs. CIT (1969) 73 ITR 192 (P&H). The decision in (1978) 111 ITR 923 (Ori) (supra) have been deals with rejection of books and decision in (1973) 90 ITR 271 (SC) (supra) relates to a case of sales-tax and the same is not applicable to the facts of the case. With reference to submission of learned Departmental Representative that it was a case of survey and stock could not be seized, he submitted that it was a case of deemed search under s. 158BD and, therefore, the said plea is not correct. He referred to the provisions of s. 132(1A) and submitted that the concept of deemed seizure has been introduced for such a situation. He, therefore, urged that the Department knows that category D ash has no value and that is why it was not seized even in recovery proceedings. He referred to the affidavit filed by the assessee in this respect. He urged Department to take custody of stock and try to recover whatever is possible. He reiterated that in a search case the provisions of the Evidence Act were applicable and the evidence adduced was required to be rebutted. He referred to the decision in the case of Chuharmal vs. CIT (1988) 172 ITR 250 (SC).
15. Learned Departmental Representative has filed a reply on 25th October, 1999 relating to approval of surveyor Shri H. S. Garg. He has attached a copy of letter dt. 21st October, 1999 from AO. AO has reported as under :
"Shri Hemant Singh Garg is a qualified architect having degree of B. Architect, B.Bs. However, he is not approved by the IT Department, as enquired from Shri Hemant Singh Garg."
16. He has also made some submissions with reference to measurement of cinder ash lying in heaps and has stressed that Shri Sanjay Anand partner was present and did not object to the procedure of measurement adopted by the valuer. Learned Departmental Representative has stressed that valuation of different categories of material found at sites had been done by AO on the basis of sale bills of the assessee for the relevant period. He has mentioned that different categories of coal were identified by the Departmental officers in the presence of the assessee/partners. He has, therefore, urged that it is not material whether the said architect/valuer had been approved by the IT Department or not and that more important was whether measurement and quantification of different categories of coal was correct or not. He has submitted that objection of the assessee that valuation report is not a valid evidence does not carry any weight.
17. Learned counsel, in his rejoinder, has submitted that the directions of the Bench were to the extent as to whether Shri Garg, engaged for valuation and stock taking, is a registered/approved valuer or not. He has stated that learned Departmental Representative has chosen to give arguments also in the matter and, therefore, a rejoinder has been given by him in writing. Stress has again been laid on the fact that category C cinder ash is material which came from BILT after original coal was burnt and ash contained some unburnt particles of coal called categories A & B. After the said cinder ash is screened, balance left is pure ash called D category and which is not saleable and has no calorific value. The assessee has completely entered total sale of cinder ash being 160 to 165 MT per day in its books of account and this fact has been verified by AO from BILT also and nothing more has been received. Out of said sold material, some cinder ash was lifted and screened on behalf of various customers since they were to take away coal only out of Yamuna Nagar in the State of Haryana and outside to other cities. Category D ash constituted 80 per cent and additional amount received on such retrieved material has been shown in peak chart on account of such screening done. Leaned counsel has further stated that now the stand of the Department is that value has not identified this remainder as category C but has only done a measurement, whereas report of the valuer speaks otherwise. He has referred to reply to Shri Garg placed at pp. 100-101 of PB, wherein he has clearly mentioned that C & D categories are different products and category D had been included in C at the instance of the Department. He has urged that the Department does not have any evidence to prove that category D ash is also C ash which is saleable and which is purchased from BILT. He has referred to objections raised vide p. 60 of paper-book that category D ash should not be added in C. He submitted that in view of the stand now taken by the Department that Shri Garg is not a vlauer or an expect in identification of cinder ash, impliedly the Department has admitted that addition of D category has been made in C category on its behest. The Department did not have any technical personnel to prove that category D ash is the same as C. It has been stressed that the assessee has proved that 100 per cent sales of total material purchased as category C has been entered in the books of account. On the basis of various additions made by the Department total purchases made by the assessee worked out to about 227 MT per day, which fact is against evidence on record collected by the Department itself from BILT regarding purchase of 160 to 165 MT per day. It has also been mentioned that valuer of the assessee, who is an expert registered valuer, had certified that category D ash was a separate category having no value and that the said certification has not been rebutted. Finally, it has been mentioned that in view of the foregoing, valuation arrived at by the assessing authority is based on surmises and conjectures.
18. We have carefully considered the submissions made by both the parties on the issues involved and have perused assessment order as also various documents placed in the paper-books to which our attention was invited during the course of hearing. We have also seen the case law relied upon by them. First issue relates to excess stock of cinder ash and valuation thereof, as done by AO at p. 9 of the order. AO noted that as per surveyor's report, stock of category A ash was 122.36 MT, of B ash 1,428.56 MT and of C ash 50,045.09 MT. He applied rate of Rs. 660 per truck for category A, Rs. 440 per truck for category B and Rs. 1,500 per truck for C category. A dispute has been raised before us that the categorisation done by the surveyor is not scientific and which has led to a distorted picture. Even at the time of survey, the assessee claimed that there were two categories of ash-C & D. Category C ash represented retrieved coal out of virgin ash purchased from BILT and category D represented ash left out after retrieval of coal, which according to the assessee had no value. The assessee has referred to reply to Shri Garg at pp. 100-101 of paper-book. He has mentioned that '.......... we have very clearly mentioned in the survey report submitted to the Department about C & D categories which you must have noticed in report. These two categories were clearly visible at site lying separately. These were even indicated as separate in physical verification done by the Department independently. We propose separate categories in accordance with physical verification done by the Department. The difference between two categories was in weight and hence in surface area and may be in chemical nature which can be confirmed from analyst. Therefore, at the instance of the Department two were merged. The heaps of D category are shown as the base figure as rectangle, on which heaps of A, B and C are clearly placed as shown in the drawings also'. The surveyor has also mentioned that in a few cases only speculative measurements could be possible, as it was not possible to measure breadth at different levels. It is observed that, as now reported by AO vide letter dt. 21st October, 1999, Shri Garg was only an architect and not an approved valuer of the Department and survey report and reply of Shri Garg, as mentioned above, show that he was not sure of what he was doing while categorising heaps of cinder ash. He has clearly admitted that categories C & D were merged into one at the instance of the Department. We, therefore, feel that in view of the above AO was not right in rejecting the submissions made by the assessee by observing at pp. 7-8 of the order that '....... no difference was found in nature of stock of categories C & D, therefore, in the survey report only category C has been adopted and it could not be said that there was any manipulation at the instance of the Department'. It is further observed that the assessee submitted valuation report from Shri P. S. Chauhan at pp. 74-77 of paper-book, wherein mistakes have been pointed out in measurement of stock and total figure has been mentioned at 10,411.205 MT as against total stock of various categories taken at 51596.01 MT by the Department. No defects have been pointed out and AO has only ignored the said report on the basis that it is not prepared in the presence of Departmental officers and at the time of stock taking by the Department. He has observed that if there were any arithmetical errors, the same could be considered but no such mistake had been pointed out by the assessee or its valuer. We feel that the aforesaid observations of AO are not borne out from specific observations of Shri Chauhan as at p. 76 of paper-book. We, therefore, feel that the method adopted by AO for working out value of excess stock at Rs. 66,17,486 is not based on any sound footing in view of the aforesaid contradictions in the surveyor's report read with his reply as the main valuation done at Rs. 83,40,983 is in respect of disputed category C ash.
19. It is further observed that AO noted that the assessee had shown closing stock of Rs. 11,27,346 as on 5th February, 1997. He has assumed that though the assessee had not shown any closing stock in earlier years but there must be stock accumulated over a number of years which had not been disclosed. He based this assumption by observing that it was inconceivable to imagine that the assessee could be selling total recovery on day-to-day basis and that even recovery made during last period of accounting year was also sold. He, therefore, concluded that there was substantial quantity left over which had been suppressed from year to year. He, therefore, proceeded to estimate income for asst. yr. 1994-95 on the basis of evidence for sales made outside the books. The assessee was lifting approximately 160 to 165 MT per day from BILT. He, therefore, proceeded to work out rakhi lifted @ 165 MT per day for 355 days in a year. He observed that on an average, 50 per cent of total receipt of rakhi were being sold in local market as unsifted rakhi and that retrieval of cinder ash was at 40 per cent. He, therefore, worked out total sales during asst. yrs. 1994-95 to 1997-98 by applying rate of Rs. 140 per Truck with reference to local sales and Rs. 450 per Truck with reference to cinder ash retrieved, which was worked out at 11715 ton. He deducted the amount of annual contract money paid to BILT and also reduced expenses on proportionate basis as claimed in financial year 1995-96 and arrived at undisclosed income of Rs. 5,71,154 for financial year 1994-95, Rs. 17,19,930 for financial year 1995-96, Rs. 14,25,930 for asst. yr. 1996-97 and Rs. 11,73,698 for asst. yr. 1997-98. Learned counsel has submitted that 75 per cent of sales were made at BILT itself and that only 25 per cent material was removed to the site of the assessee. He has referred to details of sale bills issued, sales tax charged in respect of 75 per cent of sales so made. These details were before AO and are also placed in the paper-book, as already mentioned above. He has submitted that out of 25 per cent of material removed to site, about 15 per cent sales were made within State of Haryana and remaining 10 per cent to outside parties. Even in respect of said 25 per cent of material, challans and bills were issued and sales tax etc. charged and that all these details were filed before AO and that no defect has been found. Copies of sale and purchase account for the period from 30th June, 1993 to 23rd December, 1996 are placed at pp. 106-108 of paper-book. Relevant copies of sales tax record relating to acknowledgment, sales tax deposit, etc. are placed at pp. 189-219 of paper-book. AO has not controverted the said details. It is also observed that AO has not given any basis for holding that there were 50 per cent sales in local market and remainder 50 per cent related to sifted cinder ash. The contentions of the assessee before AO have not been rebutted by him while proceeding to compute undisclosed income as at p. 11 of order. The assessee had filed certificates from certain purchasers as at pp. 55-58 of PB to the effect that they were purchasing cinder coal from the assessee produced by BILT and they were getting about 25 to 30 per cent as useable material and balance 70 to 75 per cent was waste material which was latter abandoned. These certificates have not been adverted to by AO and he did not make any inquiry from the said parties about the averments made. We, therefore, feel that the submissions made by learned counsel have force that about 75 per cent of sales were local sales made from BILT and out of balance of 25 per cent of cinder ash there could be retrieval of useable coal to the extent of 25 to 30 per cent. In view of the foregoing, we do not find any merit in the contentions of learned Departmental Representative that the material sold from the godown was only valuable cinder ash and that it was normal practice of the assessee to sell valuable coal outside the books. No concrete material has been brought on record to support the contentions. We, therefore, feel that computation of undisclosed income of Rs. 48,90,712 by AO as at p. 11 of order and its telescoping into alleged excess stock of Rs. 66,17,486 and making of an addition of Rs. 17,26,774, is based on surmises and conjectures and has no legs to stand. Further details of sales/purchases filed before AO have not been rebutted and we feel that aforesaid addition without examining and discarding the said details, cannot be sustained.
20. It is further observed that on the basis of documents Nos. A-1-2, A-51, A-55 to A-61 seized from the residence of Shri Raj Pal Anand, AO for reasons recorded at pp. 11-15 made an aggregate addition of Rs. 52,82,661 in relation to asst. yrs. 1994-95 to 1997-98. Learned counsel has submitted that the assessee has entered total purchases/sales of cinder ash (a) 160-165 MT per day in its books of account. It has been further urged that AO has also verified the quantify lifted by the assessee from BILT and thus nothing more than that has been received. Learned counsel referred to pp. 254-275 of paper-book, where a copy of detailed reply given by the assessee is placed. He further referred to pp. 221-235, where comparative position of figures occurring in documents A-50, as entered in A-60, A-51 as entered in A-1-2, A-55 as entered in A-1-2 and A-61 as entered in A-1-2, has been given. Learned counsel demonstrated before us the common entries made in various documents, mentioned above, and stressed that document A-1-2 is the main document and that sales of rakhi mentioned by AO are covered by the said document. He has further referred to the chart of peak amount worked out on the basis of document A-1-2 and submitted that the peak worked out to Rs. 5,54,179 and that the same would cover sales of useable coal retrieved and kept by the assessee by screening of cinder ash. He urged that no defects have been found by AO in the explanation furnished by the assessee and in these documents or the figures of peak amount. He has submitted that to be fair to the Department addition of Rs. 5,54,179 representing peak should be made. He further submitted that in a search case, addition must be based on evidence and not on assumptions made by AO. If 80 per cent of cinder ash had some value, the material could not have come to the assessee for sifting. Samples of various categories of ash were produced before us. Learned counsel has also referred to the affidavit filed by the assessee regarding abandonment of category D material to the Department and stressed that there is no reaction by AO to this offer, as he knew that such material is of no value. He, therefore, urged that addition could only be made with reference to useable coal retrieved and kept by the assessee.
21. Learned Departmental Representative has stressed that the main contention of learned counsel that only labour charges are being collected for sale of rakhi and that profit is only on extra coal retrieved by the assessee beyond 20 per cent is the basis of hypothetical situation. Entries of sale of rakhi have been elaborated at pp. 6-12 of Departmental paper-book, on the basis of document A-1-2, and the said entries have not been tallied by the assessee with any regular books of account. He, therefore, submitted that cash flow drawn on the basis of document A-1-2 is not acceptable. He urged that the amount received by the assessee on sale of rakhi were net and liable to tax.
22. We have carefully considered the rival submissions on this issue and have seen the case law relied upon by both the parties. While dealing with addition of Rs. 48,90,712, we have examined at length the veracity of surveyor's report, the certificates from purchasers of cinder ash and other relevant material to come to the conclusion that there were two separate categories of ash, i.e. C and D and that the latter category was mere ash and had no value. We have also noted that the assessee was making approximately 75 per cent sale of cinder ash at BILT and only 25 per cent of cinder ash was being removed to the site of the assessee for screening. The explanation of the assessee in this behalf appears to be quite logical, as parties purchasing material for taking it outside Yamuna Nagar within the State or outside Haryana would not have liked to incur extra freight for carrying waste material. With reference to argument of learned Departmental Representative that the impugned addition of Rs. 52,82,661 for asst. yr. 1994-95 to 1997-98 is not and cannot be related to cash flow statement prepared by the assessee, it is observed that details of dates of sale, truck numbers, weight of rakhi and rate of sale have been given in cash flow statement prepared for relevant assessment years on the basis of document A-1-2. It is further observed that entries in documents A-51, A-55 and A-61 are covered by said document A-1-2. The aforesaid entries in case flow statement based on document A-1-2, which were also before AO, have not been controverted either by AO or learned Departmental Representative and no defect has been pointed out therein. Thus, in view of the fact that only category C cinder ash is of value, we feel that the submissions made by learned counsel that peak of Rs. 5,54,179 will cover sale of extra rakhi retrieved by the assessee have force, as receipt on account of sale of such ash have been recycled into further purchases/sale of cinder ash. It is also observed that the Department has not adverted to request of the assessee, supported by affidavit, that it is prepared to hand over category D rakhi and the Department could lift the said stocks and realise the amount, if possible. The Department has not resorted to the provisions of deemed seizure of ash in spite of the said request as mentioned in s. 132(1A). Thus, on the facts and circumstances of the case we feel that an addition of Rs. 5.60 lakhs (in round figures) on account of sale of such ash will meet the ends of justice. We may mention that while reaching this conclusion, we have duly considered the case law relied upon by both the parties.
23. Now taking up addition of Rs. 17,15,145 as made by AO at pp. 16-17 of order on the basis of document No. 60, it is observed that learned counsel has submitted that both the partners were maintaining one copy each of the challan book. He has invited our attention to pp. 221-228 of paper-book, where details of entries in cash book and ledger along with folio numbers have been given. Further the entries mentioned in document No. 60 also find place in document No. 50, as mentioned at pp. 221-228 of paper-book. It has also been urged before us that total of these pages work out to Rs. 17,15,145 and the same cannot be treated as sales outside the books of account, as actual sales stand entered in the books.
24. Learned Departmental Representative relied on assessment order. AO noted that total weight of rakhi mentioned in document 60 worked out to 99,579 qtls. He converted this weight into 1,106.43 trucks containing 90 qtls each and applying a rate of Rs. 1,500 for C category of ash arrived at figure of Rs. 17,15,145.
25. We have carefully considered the rival submissions on this issue and have perused assessment order and various documents placed in the paper-books filed by both the parties. It is observed that a copy of document A-50 is placed at pp. 13-14 of DPB. Further the comparative statement of entries in document A-50, as entered in document No. 60, on the basis of which AO made addition, is placed at pp. 221-228 of assessee's paper-book. We have compared entries as appearing in the seized pages in both the paper-books and it appears that entries relating to dates, bill numbers, weight of rakhi, names of parties and amount involved are common. The assessee has also indicated relevant cash book folio numbers and ledger folio numbers. These documents were also before AO but the same have not been adverted to by him and no defects have been found therein. We, therefore, feel that the submissions made by learned counsel that these sales are entered in the books and cannot be treated as sales outside books, have force. We feel that the aforesaid addition cannot be sustained merely on the basis of certain assumptions without controverting the submissions of the assessee and bringing some material on record to establish that sales outside the books have taken place. Accordingly, the impugned addition of Rs. 17,15,145 stands deleted.
26. The last addition of Rs. 56,419 has been made by AO w.r.t certain squared up accounts mentioned at pp. 17-18 of assessment order. He observed that the assessee did not produce concerned papers nor any documentary evidence was filed.
27. Learned counsel submitted that the said addition will be covered by the peak amount reflected in cash flow. Learned Departmental Representative relied on assessment order.
28. We have carefully considered the rival submissions on this issue. It is observed that the assessee neither produced the concerned parties nor filed any evidence in support of the said cash credits. A general plea has been taken before us that the peak amount reflected in chart of cash flow will cover the impugned addition also. We feel that the said chart, which has been drawn on the basis of document A-1-2, is not relevant with reference to addition relating to cash credits. Further there are no entries in the said chart on the relevant dates on which cash credits have been shown, i.e. 1st April, 1995, 17th June, 1995 and 23rd June, 1995. In view of above, we sustain the addition of Rs. 56,419.
29. In the result, the appeal is allowed in part.