Income Tax Appellate Tribunal - Delhi
U.P. Ceramics And Potteries Ltd. vs Deputy Commissioner Of Income-Tax on 10 November, 1994
Equivalent citations: [1995]52ITD334(DELHI)
ORDER
M.A. Bakhshi, Judicial Member
1. We are disposing of these two appeals of the assessee relating to assessment years 1988-89 and 1989-90, by this consolidated order. Appellant is a private limited company engaged in the manufacture of potteries and ceramics items. A search and seizure operation under Section 132 was carried out at assessee's premises on 19-7-1989. During search operations, a statement being Annexure A-24 to the Panchnama dated 14-8-1989 was found and seized. This statement incorporates working of incentive bonus payable by the assessee to its distributors on the basis of increase effected by them in sales over the target fixed for the year. The Assessing Officer compared this statement with the sales register of the assessee and found discrepancies. For assessment year 1988-89, the said discrepancy was as under :
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S. No. Party's Name Sales on basic Basic value of Difference
value as per sales recorded
incentive bonus in assessee's
paper seized book
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1. M/s Sethi General Store 25,32,516 18,77,955 6,54,561
2. M/s Duggal Crockeries 11,40,961 3,34,605 8,06,356
3. M/s Capital Crockery 12,79,416 8,56,158 4,23.258
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18,84,175
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For assessment year 1989-90, discrepancy was noticed as under :
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S. No. Name of the dealer Basic value Basic value Sale of goods
as per sale as per suppressed
register for Annexure A-24 Basic value
88-89 (Annex. statement of of goods sold
B-4) incentive bonus
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1. Amar Singh & Sons, Delhi 6,90,327 7,49,569 59,242
2. Capital Crockery House 9,94,327 10,20,732 26,108
3. Delhi Crockery Agency, Delhi 6,05,475 6,61,464 55,989
4. Kashmir Traders, Delhi 4,09,363 4,10,501 1,138
5. Sethi General Stores, Delhi 3,06,514 10,46,267 7,39,753
6. Duggal Crockery Agency, Delhi 3,20,882 10,04,632 6,83,750
7. Shree Durga Agency, Saharanpur 2,84,504 3,26,074 41,570
8. Shukun Agency, Khurja 1,66,781 2,36,511 69,730
9. Proful Enterprises, Bombay 4,94,564 26,50,359 25,55,795
10. Hindustan Trading Co., Bombay 20,95,437 22,99,954 2,04,517
11. Darshan Ceramics, Jalgaon 2,67,254 2,86,613 19,359
12. Pottery Palace, Amritsar 1,47,963 1,53,507 5,544
13. Sharda Traders, Faridabad 4,66,530 5,08,176 41,646
14. PatelBros. Corpn., Ahmedabad 1,33,961 9,57,509 8,23,548
15. Ismail Yusuf Virmani, Goa - 3,05,028 3,05,028
16. Fair Traders, Ernakulam - 7,97,849 7,97,849
17. Punjab Crockery House, Ernakulam 7.91.957 8,89.598 97.641
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81,76,136 1,43,04,343 61,28,207
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2. When confronted assessee sought to explain the discrepancies by pointing out that in respect of the above distributors not only the sales effected directly to them was taken into account but the sales made to some other parties which had been introduced by them were also taken into account for payment of incentive bonus. For assessment year 1988-89, assessee pointed out that in the case of M/s Sethi General Stores, the sales made to M/s Verma Crockeries amounting to Rs. 33,567 and to M/s Feather Touch amounting to Rs. 6,30,387 were included as these parties had been introduced by M/s Sethi General Stores. In the case of M/s Duggal Crockery, the sales made to M/s Raju Crockery of Rs. 10,872 and M/s Crockery Centre of Rs. 7,95,534 have been taken into account for the purposes of computing the incentive bonus. Similarly, in the case of M/s Capital Crockery Stores, the sales made to M/s Cheap and Best amounting to Rs. 4,23,258 had been included as the said party was introduced by M/s Capital Crockery Stores. It was accordingly pleaded before the Assessing Officer that when sales made to these parties is also included, there would be no discrepancy as alleged. A reconciliation statement was also furnished before the Assessing Officer. Assessee filed confirmations from two distributors, namely, M/s Duggal Crockery, Delhi and M/s Capital Crockery Stores confirming the version of the assessee. A certificate from M/s Sethi General Stores, however, could not be filed on the ground that the party was not available at the relevant time. The Assessing Officer did not accept the explanation of the assessee as according to him, there were no supporting records available with the assessee in this regard. The Assessing Officer considered the explanation of the assessee as an innovative one and 'after thought'. Assessing Officer was of the view that assessee has made a frantic hit to somehow tally the sales figures available to incentive bonus by locating suitable bills that can match them. He accordingly concluded that the amounts of sales available on the incentive bonus statement are correct figures of the sales and the difference between the sales available on the seized paper and those recorded in the assessee's books was taken as assessee's sales outside the books. He not only added the difference on the basis of basic value but also added excise duty @ 20% plus sales tax @ 10%. Addition of Rs. 24,87,111 was accordingly made for assessment year 1988-89.
3. Similarly, for assessment year 1989-90, addition of Rs. 61,28,207 was made on the basis of difference in the basic value in respect of 17 parties. For this year custom duty @ 20% and the sales tax @ 10% was somehow not added for the purpose of computing the sales made outside the books of account.
4. Assessee appealed to the CIT(A) and reiterated his contentions. The CIT(A) not being satisfied with the explanation of the assessee confirmed the view of the Assessing Officer. It was observed by the first appellate authority that assessee had not established that the sales made to other parties were to be considered for working out the incentive bonus payable to the dealers. For assessment year 1989-90, the CIT(A) following his order for assessment year 1988-89, confirmed the addition of Rs. 58,24,911 on account of suppressed sales. In respect of three parties, namely, Kashmir Traders, Hindustan Trading Co., Bombay and Punjab Crockery House, Ernakulam, the matter has been remitted back to the Assessing Officer for verification of the claim of the assessee that there was no discrepancy in respect of these parties.
5. The learned counsel for the assessee contended that the only basis for making the additions on account of suppressed sales is the statement for payment of incentive bonus seized at the time of search. There was a discrepancy in the sales figures recorded in the statement. Assessee was asked to explain the discrepancy and an explanation was furnished. The explanation of the assessee was corroborated by at least two of the dealers out of the three for assessment year 1988-89. The Assessing Officer did not place any material on record to rebut the claim of the assessee. The onus placed on the assessee to explain the difference was discharged by giving an explanation as also the certificates from the dealers. The Assessing Officer, according to the learned counsel, has brushed aside the evidence furnished by the assessee and proceeded arbitrarily to make the addition. The learned counsel further pointed out that assessee is a manufacturer of pottery and ceramic items and liable to pay excise duty. No adverse comments have been given by the excise authorities in respect of the statutory records maintained by the assessee. Similarly, assessee is liable to pay sales-tax and assessments have been made by the sales-tax authorities without adverse comments. The Assessing Officer, according to the learned counsel, has not examined the parties. Shri Monga contended that assessee was free to arrange his affairs in the manner best suited to his business. The Assessing Officer without making proper enquiries and collecting any material in rebuttal has proceeded arbitrarily in rejecting the claim of the assessee. The learned counsel placed reliance on the decision of the J & K High Court in the case of International Forest Co. v. CIT [1975] 101 ITR 721 in support of the contention that the onus in regard to the suppression of sales was on the revenue. The learned counsel also invited our attention to the written explanations furnished before the authorities in support of the contention that the discrepancies pointed out by the Assessing Officer had been satisfactorily explained.
6. The learned counsel further contended that assessee had been paying incentive bonus in the past on the same basis as during the years under appeal. In earlier years also sales made to various persons have been grouped together in order to settle the claim of incentive of some of the dealers as and when they were introduced by them. Assessing Officer was thus not justified in disbelieving the assessee's version. Referring to the finding of the revenue authorities that proper records were not maintained by the assessee, the learned counsel invited our attention to the letter dated 26-5-1991 placed at pages 27 to 29 of the paper book wherein it was specifically claimed that proper register has been maintained by the assessee giving the basic value of the turnover made to the various dealers including the basic value of the sales made through them. The said register, according to the assessee, forms part of the seized material. Some extracts from the register had been placed on record in support of the contention. It was accordingly pleaded that the addition made by the Assessing Officer of Rs. 24,87,111 for assessment year 1988-89 and of Rs. 61,28,207 for assessment year 1989-90 may be deleted.
7. The learned Departmental Representative, on the other hand, contended that the additions have rightly been made by the Assessing Officer and deserve to be sustained. According to the learned D.R., the document found at the time of search forms the basis for working out the discrepancies in the sales made to various dealers. The burden to explain the discrepancy as per the statement seized by the Department vis-a-vis books of account maintained by the assessee was to be discharged by the assessee. This burden, according to the learned D.R., has not been discharged. Assessee has not furnished any evidence to support the claim that the sales made to some of the dealers was made through others. No scheme for payment of incentive bonus was either found by the search party or produced by the assessee. The learned D.R. contended that there was a scheme for the payment of incentive bonus for a particular year which had been circulated by the assessee and claim made in the profit and loss account. The said incentive was claimed as a deduction and allowed as such. Assessee, according to the learned D.R., did not claim any incentive bonus specifically in the trading account or in the profit and loss account. It was wrong, according to the learned D.R., on the part of the assessee, to claim that deduction was allowed to him on account of incentive bonus for the past. The learned D.R. further contended that there was discrepancy in the amount also when assessee tried to include the sales made to other dealers for the purposes of computation of incentive bonus. The amount did not tally. Referring to the statement for assessment year 1989-90, the learned D.R. pointed out that in each case there was a difference of Rs. 4 to Rs. 5. This, according to the learned D.R., establishes the fact that assessee has tried to pick up certain sale bills to be included in the case of sales made to other dealers for the purposes of payment of incentive bonus so as to tally the statement seized during the course of search operations. It was accordingly pleaded that the additions made by the Assessing Officer may be confirmed.
8. We have given our careful consideration to the rival contentions. It is by now well-settled that when certain documents etc., are found from the possession of the assessee during the search operations, burden lies on the assessee to explain the nature of the transactions recorded in such documents, statements or books of account. Assessee is duty bound to explain the discrepancy, if any, found on the basis of the seized material vis-a-vis the books of account. However, when assessee furnished an explanation which is sought to be supported by evidence, the onus would then shift back to the revenue. In this case, during search operations statement of incentive bonus being Annexure A-24 to the Panchnama was found and when the sales recorded in that statement were compared with the sales recorded in the books of account, a discrepancy was found. For assessment year 1988-89, the discrepancy was noticed in the case of three dealers and for assessment year 1989-90, the discrepancy was noticed in the case of 17 dealers, as has been referred to elsewhere in this order. When confronted assessee sought to explain the discrepancy. The issue before us is as to whether the assessee has given satisfactory explanation for the discrepancy and as to whether such explanation is plausible in the light of the evidence on record and the one furnished by the assessee. For assessment year 1988-89, the Assessing Officer has brought out the discrepancy, the explanation of the assessee and his findings in the assessment order. The relevant portion of which we consider worthwhile to reproduce hereunder :
A search and seizure operation under Section 132 was carried out at the assessee's premises on 19-7-1989. Among other things, the search party discovered a very vital piece of paper contained as Annexure A-24 to the Panchnama dated 14-8-1989. The said piece of paper incorporates working of incentive bonus payable by the assessee to its distributors on the basis of increase effected by them in sales over the target for the year. A comparison of this statement with the sales register of the assessee reveals alarming discrepancies in sales which are given as under :-
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S. No. Party's Name Sales on Basic value Difference
basic value of sales
as per recorded
incentive in assessee's
bonus paper book
seized
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1. M/s Sethi General Store 25,32,516 18,77,955 6,54,561
2. M/s Duggal Crockeries 11,40,961 3,34,605 8,06,356
3. M/s Capital Crockery Store 12,79,416 8,56,158 4,23.258
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18,84,175
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In order to explain the above-mentioned discrepancy the assessee's representatives submitted that the incentive was worked out to above-mentioned distributors not only on sales directly effected to them but also on sales to some other parties which came through them. Thus as per assessee's statement if the sales of M/s Verma Crockeries and Feather Touch amounting to Rs. 33,567 and Rs. 6,30,387 respectively are accounted for in the sales of Sethi General Stores for the purpose of incentive bonus and sales made to Rajti Crockery at Rs. 10,872 and Crockery Centre Rs. 7,95,534 are accounted for in the sales of M/s Duggal Crockery and sales made to Cheap and Best amounting to Rs. 4,23,258 are included in the Capital Crockery Store, then there will be no discrepancy in the case of M/s Duggal Crockery and Capital Crockery Stores. In regard to some discrepancy still remaining in the case of M/s Sethi General Store, the assessee has stated that it was due to non-adjustment of certain debit and credit notes. A reconciliation statement has been furnished. It is thus claimed that there does not remain any discrepancy in any of the cases. The argument that the sales of some other parties are to be accounted for in the sales of above-mentioned distributors for the purpose of incentive bonus is indeed an innovative one and certainly afterthought. The fact of inclusion of sales to X in the sales of Y is not borne out of any of Assessee's record. The sale bills are silent and so are other connected papers. It is only the assessee's oral assertion coupled with accommodative yet vague statement of two of the above mentioned distributors which the assessee can rely on. M/s Sethi General Store have however did not give any statement to support the assessee's above assertion. It is not known as to how and on what basis above arrangement had been made and it is still a mystry as to who remembers all relevant facts. Thus, it is evident that there is no substance in the arguments now taken by the assessee and it is obviously aimed at explaining irreconcilable discrepancies. It appears that the assessee has made a frantic bit to somehow tally the sale figures available on incentive bonus by locating suitable bills that can match them. It is, therefore, concluded that the amounts of sales available on the incentive bonus paper are correct figures of sales to the concerned parties and the difference between the sales available on the seized paper and that recorded in the assessee's books is to be taken as assessee's sales outside its books. It may be clarified here that total sales difference involving the above referred three parties amounting to Rs. 18,84,175 is on basic value. In order to arrive at the correct amount of sales, excise duty @ 20% plus sales-tax @ 10% will have to be added. Thus total amount of sales recorded outside account books is Rs. 24,87, 111 (18,84,175 + 3,76,835 - 8,26,101). Since the above-mentioned unrecorded sales emanated from purchase and manufacturing account and also that all related expenses have supposedly been taken care of in the P & L account, entire amount of unrecorded sales is directly taken as assessee's suppressed income, which is accordingly added.
9. A perusal of the above findings reveals that assessee had furnished an explanation regarding discrepancy. The relevant explanation furnished by the assessee is contained in letter dated 26th March, 1991 for assessment year 1988-89 videpara 6 (placed at pages 27 to 29 of the paper book) which is reproduced hereunder :
Incentive to dealers : We gave incentive to those dealers whose sales are more than the target fixed by us. They are entitled to incentive if the turnover made to them or through them exceeded the fixed target. The incentive is calculated on the basic value of the sales (excluding the excise duty and sales-tax) exceeding the target figure.
We have prepared a chart of the customers showing the sales made to them or through them to arrive at the eligibility of the dealers who are entitled to incentive. The said statement has been seized by the authorised officials during search operation in July 1985. In the case of Capital Crockery House, Duggal Crockery House and Sethi General Stores the sales of the following dealers are also included in the target figure of these dealers. The details of it are given hereunder :
(i) In the turnover of the Capital Crockery House, the basic value of the sales made to Cheap and Bench furniture is also included and it was made through Capital Crockery House.
(ii) In the turnover of Duggal Crockery, the basic value of the sales made to Raju Crockeries and Crockery Centre are also included.
(iii) In the turnover of Sethi General Store, the basic value of sales made to Verma Crockery and Feather Touch are included. We have maintained register where the figures of the basic value of the sales made through them have been mentioned. From this register a statement showing the basic value of the turnover of various dealers including the basic value of turnover of other details made through them and target figures have been prepared. It has been seized during the search operation. The Register where these figures are noted have been produced before your goodself. The confirmation certificates from Capital Crockery House and Duggal Crockery confirming the aforesaid fact have already been filed to your goodself. The confirmation certificate from M/s Sethi General Store could not be obtained as his sons brain tumour operation has been done. He is not available. You can certify the said fact from Sethi General Stores.
It is also brought to your kind notice that the amount of incentive bonus have been paid by crediting the said sum to their accounts.
The difference in the computation of the sales figures told by you, have been explained and clarified to your goodself. If still there remains any difference kindly intimate the same to us so that we can clarify the same.
10. There is another letter dated 26th March, 1991, whereby the assessee has sought to explain the entries appearing in the accounts of M/s Sethi General Store as also the difference of Rs. 34,724.43 in regard to M/s Delhi Crockery Agency. Vide para 6 of the letter the assessee had further informed the Assessing Officer that there is no difference at all in the sales and that the payment of incentive bonus was on the same basis as in the earlier years which was accepted in the past. As per the note filed before the CIT(A) placed at page 35 of the paper book, the assessee had reiterated that the company maintains records wherein basic value of the turnover of the various dealers including basic value of the sales made through them are recorded and at the end of the year a statement was prepared for working out incentive bonus. This is clear from the note reproduced hereunder :
In the assessment order, a reference to Annexure A-24 to the Panchnama dated 14th August, 1989 has been made. The assessee-company maintains records wherein basic value of the turnover of various dealers including basic value of sales made through them are recorded and at the end of the year a statement is prepared for working out incentive bonus. This statement has been seized under Section 132 of the Income-tax Act, 1961. There is no after thought about the incentive bonus as mentioned by the Deputy Commissioner of Income-tax but a fact which is verifiable from records. It is not the assessee's oral assertion but is supported with the certificate of the parties, mentioned above, past history and credits of bonus given to the respective accounts of the dealers.
As far as parties connected with the dealers are concerned, there are only 2 to 3 parties attached with a dealer and hence it is not at all difficult to remember their names or to identify them with reference to the dealers.
11. Confirmation certificates from Capital Crockery House and Duggal Crockery had been filed before the Assessing Officer. As is evident from the above explanation furnished by the assessee the finding of the Assessing Officer that the "fact of inclusion of sale to X in the sales of Y are not borne in any of the assessee's records" is incorrect and contrary to the explanation of the assessee on record. The books of account of the assessee form part of the seized records. When assessee is giving in writing that he has maintained the records of the dealers whose turnover is included in the turnover of other dealers, it was the duty of the Assessing Officer to verify the claim of the assessee. In the absence of any verification by the Assessing Officer, the finding recorded to the contrary is arbitrary and unjustified. Let us now compare the evidence on record for and against the assessee:
(A) EVIDENCE RELIED UPON BY THE REVENUE :
1. Statement prepared by the assessee for the purposes of payment of incentive bonus being Annexure A-24 of the seized material.
2. The sales recorded in the books of account (as per the statement of the incentive bonus and the sales recorded in the books of account, there is alleged discrepancy in the sales.
(B) EVIDENCE IN FAVOUR OF THE ASSESSEE :
1. Explanation of the assessee that there is no discrepancy when the turnover of various dealers (basic value) and that of the other dealers made through them is taken into account.
2. Reconciliation statement.
3. Sale bills duly recorded in the books of account.
4. Register where the basic value of the turnover to the various dealers including the basic value of the sales made through them have been maintained (Refer page 35 of the paper book).
5. Confirmation certificates from M/s Capital Crockery House and Duggal Crockery confirming the claim of the assessee.
6. The books of account maintained by the assessee wherein the incentive bonus Is duly credited to the parties concerned.
12. When we consider the evidence for and against the assessee, we have no doubt in our minds that assessee deserves to succeed. The revenue had undoubtedly seized the document on the basis of which a strong suspicion was bound to arise regarding assessee having suppressed Its turnover when the sales recorded in the case of some of the dealers did not tally with the sales recorded in the books of account of the assessee. Thus the seized documents referred to above warranted thorough probe and enquiry which the Assessing Officer was justified to initiate by asking the assessee to explain the discrepancy. The assessee has sought to explain the difference with documentary evidence. The claim of the assessee is supported by the books of account maintained by him. We are not holding that whatever Is recorded in the books of account, the Assessing Officer is bound to accept the same. But what is required under law is that the explanation of the assessee and the books of account maintained by him in the regular course of business have got to be tested and scrutinized. Assessing Officer Is not empowered to act arbitrarily when assessee is furnishing an explanation which is supported by the relevant entries and other documents and also files certificates from the dealers affirming the version of the assessee. The Assessing Officer had two options. Either to accept the explanation of the assessee as correct or to make further enquiries. In this case apart from rejecting the explanation of the assessee, Assessing Officer has not made any further enquiry whatsoever. The case of the Assessing Officer is based on mere suspicion. Suspicion is mother of enquiry, but it does not take place of proof. If the explanation of the assessee was suspected to be after thought and unreliable Assessing Officer would have discharged his duties properly by making further enquiries. That would serve a dual purpose. Either the suspicion of the Assessing Officer would have been strengthened by the evidence so collected to support the case of the revenue or in the alternative the suspicion would have vanished to the advantage of the assessee. In our view. In this case there was scope for enquiry. For example, Assessing Officer could have made enquiries from the parties whose turnover has been included by the assessee In the turnover of other dealers for computation of incentive bonus and the Independent enquiry from such dealers would have revealed the truth in favour or against the assessee. We have emphasized time and again that Assessing Officers are entrusted with the task of making fair assessments. When certain material is thought to be incriminating, assessee is bound to explain and furnish necessary evidence. When an explanation is furnished by the assessee which is said to be supported by evidence, it is the duty of the Assessing Officer to consider the explanation and the evidence with an objective mind. In case the Assessing Officer considers the explanation and/or the evidence furnished by the assessee to be unreliable, it would be just and reasonable to ask the assessee to furnish further evidence as the Assessing Officer may deem necessary. In this case even that has not been done. It is nobody's case that assessee was asked to furnish any specific evidence which he has failed to furnish. The claim of the revenue is that the assessee should have voluntarily furnished further evidence to support its claim. Undoubtedly, there was scope for the assessee to further strengthen his case by filing certificates of confirmations from such dealers whose turnover was included in the turnover of others for the purposes of computation of incentive bonus. The failure of the assessee to produce such evidence does not entitle the department to ignore the other evidence and explanation furnished by the assessee. We derive support for this view from the decision of the J & K High Court in the case of International Forest Co. (supra) at page 728, their Lordships have observed as under :
The Income-tax authorities were also wrong in brushing aside the report of the Divisional Forest Officer dated May 11, 1962 regarding the incidence of rot. There was no material on the record to show that there was collusion between the assessee and the Divisional Forest Officer, or that the assessment of rot made by him was exaggerated or incorrect, if the authorities thought, that certain things which had been left vague and obscure by him needed clarification they ought to have sent for and examined him. Without adopting that course they ought not to have ignored his report.
The sales alleged to have been made in favour of Shri Abdul Rehman Guru of Doabgah could also have been easily verified by the Income-tax Officer by sending for the former and examining him. Without doing so it was not just and proper for the Income-tax Officer to have treated it as fictitious and thus to have abstained from relying on it.
In the present case, Assessing Officer did not ask the assessee to furnish certificates/confirmations from the dealers whose turnover was included in the turnover of others. The Assessing Officer also did not make any enquiries of his own from such dealers. The taxpayers are not experts so as to judge the mind of quasi-judicial authority. Sometimes assessee considers some evidence to be sufficient to support its claim. If the Assessing Officer thinks otherwise, nothing prevents him in informing the assessee about the inadequacy of the evidence. An Assessing Officer exercising quasi-judicial authority is not supposed to take advantage of ignorance of the assessees. The job of the Assessing Officer is to make a fair and reasonable assessment and not to fight a ping pong battle of wits with the assessees. A fair and reasonable assessment is possible only by giving a fair and reasonable opportunity to the assessee and if necessary by guiding the assessee as to the evidence that is required in support of the claim made by the assessee. In the present case, assessee having furnished evidence in support of the claim in the form of books of account, sale bills register maintained for the purposes of incentive bonus and certificates from M/s Duggal Crockeries, Delhi and M/s Capital Crockery Stores supporting the version of the assessee, the fact of incentive bonus having been credited in the ledger account of respective dealers, the primary onus that vested with them stood discharged. By giving a satisfactory explanation and the evidence referred to above, the onus had shifted to the revenue and the latter having failed to make enquiries from the concerned dealers whose turnover had been included by the assessee in the turnover of other dealers for the purposes of computation of Incentive bonus as also having failed to collect any material against the assessee disproving their claim, the addition made by the Assessing Officer, in our view, is uncalled for and unwarranted. We, therefore, hold that the Assessing Officer was not justified in making the additions of Rs. 24,87,111 for assessment year 1988-89 and Rs. 61,28,207 for assessment year 1989-90 on account of suppressed sales. The said additions are accordingly deleted.
13 to 27. [These paras are not reproduced here as they Involve minor issues.]