Income Tax Appellate Tribunal - Ahmedabad
Prabhat Oil Traders vs Income-Tax Officer (No. 1) on 31 August, 1995
ORDER
Abdul Razack (Judicial Member)
1. The appeal before this Tribunal is preferred by the assessee against the order of the Appellate Commissioner relating to the assessment year 1983-84.
2. The relief sought by the assessee in this appeal is the deletion of Rs. 1,28,100 made by the Assessing Officer on account of alleged unrecorded purchases of oil and the notional profit thereon on its sale. Another grievance which has been made out is regarding confirmation of an addition of Rs. 9,245 on account of one-third car expenses incurred for personal use by the partners.
3. The brief facts are as under : The appellant is a registered firm dealing in sale of oil on wholesale basis. It filed its return of income declaring a taxable income of Rs. 54,915 and the assessment was completed on January 6, 1986, computing the total income in a sum of Rs. 1,96,526.
4. There were search and seizure operations on the appellant-firm and its partners on January 20, 1984, and books of account and certain other documents besides cash of Rs. 12,550 were seized. Search of the residential premises of one of the partners, Shri Sailesh J. Parekh, revealed that two credit purchase bills dated April 10, 1982, and April 13, 1982, were not entered in the regular account books of the appellant-firm. The bill dated April 10, 1982, was for the purchase of 550 tins of oil the value of which was Rs. 1,14,550 and the bill dated April 13, 1982, was for the purchase of 50 tins of oil the value of which was Rs. 10,350. Both these credit purchase bills were seized by the search party. These two bills were issued by United Brothers of Dhasa, District Bhavnagar, to the appellant. A statement under Section 131 was recorded by the Assistant Director of Inspection (Investigation), Surat, on January 30, 1984, of one of the partners of the appellant-firm, viz., Shri Sailesh Parekh. The said partner in his statement explained that the entire lot of goods purchased through those two credit bills were returned to United Brothers (UB) as on prima facie inspection it was found that the quality of the oil was not of marketable quality. It was further stated before the Assistant Director of Inspection by the said partner that the goods were, therefore, returned to the suppliers, i.e., United Brothers and, therefore, no entries regarding the purchase of oil under those credit bills were made in the account books of the appellant-firm. In order to support this statement, a letter from the manager of the suppliers, United Brothers, was also produced before the Assistant Director of Inspection in which it was stated that since the goods (oil) sent to the appellant-firm was not of good marketable quality the appellant-firm returned those goods. In support of the fact of return of goods, the books of account including the stock register of United Brothers were also produced wherein the entries of the goods sold to the appellant and return of goods by the appellant were duly passed.
5. For further verification of the appellant's plea, the officer assessing the firm of United Brothers conducted survey operations under Section 133A of the Act on March 2, 1984, and impounded the account books of the said firm of United Brothers for the relevant period. The copies of accounts of United Brothers confirming the sale and return of goods are placed in the assessee's paper book at pages 61 to 67 which has the identification mark placed by the Income-tax Officer, Ward-B, Bhavnagar, In the course of survey under Section 133A, one of the partners of the firm of United Brothers, Shri Jayant Parekh, was examined and he explained that the goods sold to the appellant and which were immediately returned were purchased from the firm of Shakti Oil Mills of Mahuva, who sent the goods directly to the appellant-firm and the appellant directly returned the goods to Shakti Oil Mills on noticing that the quality of oil was not up to standard. However, Shri Jayant Parekh, the said partner of United Brothers, was unable to produce any purchase bills evidencing the purchase of oil from Shakti Oil Mills.
6. When regular assessment proceedings were taken up the same facts were narrated to the Assessing Officer, but he was not satisfied with the explanation so given and after making enquiries through the Income-tax Officer, Bhavnagar, and through the Inspector came to the conclusion that the purchases were made from unaccounted money and, therefore, added the sum of Rs. 1,28,100 as income from undisclosed sources, which sum included a sum of Rs. 2,800 being profit on these purchases at the rate of 2.14 per cent.
7. It is pertinent to mention that the partners of United Brothers and the appellant-firm are common except the fact that the partners of United Brothers are in a Hindu undivided family capacity. Similar addition was also made in the assessment of United Brothers as is evident from the assessment order dated March 31, 1986, of the firm of United Brothers which is placed at pages 58 to 60 of the assessee's paper booh. It is further to be noted in this case that United Brothers and their partners filed a revised return on March 31, 1986, declaring a sum of Rs. 1,28,100 as additional income in respect of the alleged purchases by the said firm from Shakti Oil Mills which were not recorded in the account books of United Brothers. The revised computation of total income with the acknowledgment of firm and partners can be found at pages 52 to 57 of the assessee's paper book. The firm of United Brothers also made an application for the benefit of amnesty circulars before the jurisdictional Income-tax Commissioner and a copy of the said application can be found at pages 48 to 51 of the assessee's paper book.
8. The Assessing Officer made an addition of a sum of Rs. 9,245 on account of one-third car expenses incurred for the personal use of the partners. The same is also disputed in the present appeal as stated by us elsewhere above. When the matter came up before the Assistant Commissioner, it was submitted that the appellant maintained complete books of account including the quantity records which are subject to scrutiny and inspection by the Civil Supplies Department of the Government of Gujarat. It was further submitted in the first appeal that the appellant did not make any entry regarding the purchase of oil from United Brothers on credit as no delivery was taken of the oil tins as it was found that the quality of oil was inferior. It was also brought to the notice of the first appellate authority that this fact of non-acceptance of delivery of 500 tins of oil was also confirmed by United Brothers. It was brought to the notice of the Assistant Commissioner that the books of account of United Brothers which were produced before the Assistant Director of Inspection, Surat, clearly revealed that the relevant entries were made in the account books of the said firm evidencing first the sale to the assessee and then the reversal of entries on the return of goods by the appellant-firm and that the Income-tax Officer of Bhavnagar has also placed an identification mark. It was the contention of the appellant before the first appellate authority that the appellant filed copies of entries in the books of Sonal Enterprises who is the transport operator evidencing receipt of transport charges from United Brothers for the goods sent from Mahuva to Surat and again returned from Surat to Mahuva. This evidence can be found at pages 68 and 69 of the paper book. It was argued in the first appeal that these vital facts were not at all considered by the Assessing Officer. It was the case of the assessee before the lower authorities that even assuming that the assessee did make purchases of 600 tins of oil, the same was on credit basis and no actual cash was paid to United Brothers either on April 10, 1982, or on April 13, 1982, or any time within the previous year relevant to the year under appeal. The Assessing Officer has not collected any evidence or material to hold that the assessee did make purchases of 600 tins of oil from United Brothers and made payment without recording the same in its account books. Thus, in short, the assessee's case in the first appeal as well as before the Assessing Officer has been that in the absence of any evidence about the payment of Rs. 1,25,300 to United Brothers or any evidence that the sale was effected outside the books of account there was no justification for making addition towards purchases outside the account books or for that matter making any addition towards the notional profit of Rs. 2,800 being earned on clandestine sale of the alleged suppressed purchases from United Brothers. It was further stated before the first appellate authority that United Brothers and their partners have offered for taxation the sum of Rs. 1,28,400 in respect of the alleged two bills on the ground that the same were not recorded in their (in the books of United Brothers) account books and revised returns were filed and additional tax paid as per the various benevolent circulars issued by the Central Board of Direct Taxes which popularly came to be called and known as amnesty scheme. It was further strenuously argued in the first appeal that if the said sum is again taxed in the hands of the appellant-firm then it would amount to double taxation of the same amount, once in the hands of the suppliers United Brothers and again in the hands of the appellant-firm.
9. All the abovementioned submissions and arguments did not find any favour with the Assistant Commissioner who upheld the addition made by the Assessing Officer aggregating to Rs. 1,28,100 inclusive of profit as extracted by us above. The assessee, therefore, has a grievance in this appeal against the order of the Assistant Commissioner confirming the aforesaid addition made by the Assessing Officer unjustifiably.
10. In the second appeal before us the assessee's Authorised Representative reiterated the same submissions as were made in the course of first appeal and our attention was drawn by the assessee's Authorised Representative to the relevant papers and documents which are found in the assessee's paper book and which we have referred to elsewhere in this order. It was strongly pleaded by the assessee's Authorised Representative that the Revenue has no case at all for making or sustaining the addition of Rs. 1,28,100 and the Assistant Commissioner ought to have deleted the said addition. The learned Departmental Representative, on the other hand, repelled all the contentions raised by the assessee's Authorised Representative and relied upon the reasons given by both the lower authorities. The Departmental Representative pleaded for upholding the impugned order of the Assistant Commissioner in this regard.
11. We have given anxious consideration to the facts of the case and the submissions made by both the sides. We have also examined the relevant documents to which our attention was drawn and which are found in the paper book filed by the assessee. In our view, the assessee has a strong case to succeed. When the partner of the assessee-firm stated that the appellant-firm has not purchased the 600 tins of oil under the two credit purchase invoices dated April 10, 1982, and April 13, 1982, and, therefore, no entries were made or recorded in the books of the appellant-firm and when this fact was further corroborated and supported by the manager of the firm of United Brothers, we find no case for making any addition towards income from undisclosed sources. We would have upheld the addition and agreed with the Revenue authorities had United Brothers confirmed that the sales were made and the payments received from the appellant-firm. But, in the instant case, the appellant-firm (purchaser) denied having made purchases from United Brothers of 600 tins of oil under the two alleged invoices and the firm of United Brothers (sellers) have denied having sold the goods to the appellant-firm. The firm of United Brothers has not admitted that the appellant-firm purchased the goods and made payments either on the dates mentioned in the bills or at any time during the previous year relevant to the year under appeal. The Assessing Officer as submitted by the assessee's Authorised Representative has not collected any evidence which would go to prove that the appellant-firm did purchase oil from United Brothers and did make payment on the dates mentioned in the two alleged bills or on any date thereafter during the previous year relevant to the year under appeal. The case of the Assessing Officer rests on disbelieving the factual position existing, viz., no purchases having been made by the appellant-firm and no sales having been made by the firm of United Brothers nor payment being made by the appellant-firm and received by the firm of United Brothers (seller). In the absence of any such evidence on record, it will be very harsh to make an addition and sustain the same on the ground of investment in purchases outside the account books. The addition has been made on mere suspicion and conjectures and surmises and not on the basis of positive evidence about payment by the appellant-firm to United Brothers. We also do not wish to lose sight of the admitted position that the firm of United Brothers declared the sum of Rs. 1,28,100 in respect of the alleged purchases by the said firm under the amnesty scheme formulated by the Central Board of Direct Taxes as can be seen from the relevant document placed in the paper book at pages 52 to 57 and at pages 48 to 51 of the paper book. Looking at this case from any angle we see no justification on the part of the Assistant Commissioner to sustain the entire addition of Rs. 1,28,100 towards income from undisclosed sources for the alleged purchases including a sum of Rs. 2,800 being profit estimated at the rate of 2.14 per cent. on the alleged sales in respect of the alleged purchases. We, therefore, direct the Assessing Officer to delete the entire addition of Rs. 1,28,100.
12. We have also heard the representatives of both the sides in respect of the other addition of Rs. 9,245. on account of one-third car expenses incurred for the personal use of the partners. We do not wish to interfere in this regard as it cannot be said that the partners of the appellant-firm did not use the firm's car for personal purposes. The addition is, therefore, rightly sustained by the Assistant Commissioner.
13. In the end, the appeal is partly allowed.
B.L. Chhibber (Accountant Member)
14. Regretting my inability to persuade myself to the view taken in the order of my learned brother, I proceed to write a dissenting order.
15. The facts leading to the addition of Rs. 1,28,100 by the Assessing Officer on account of the alleged unrecorded purchase of oil and the. notional profits thereon on its sale have been rightly set out by my learned brother and I need not repeat the same.
16. My learned brother has deleted the addition of Rs. 1,28,100 mainly on the following two grounds :
(a) That the addition has been made on mere suspicion and conjectures and surmises and not on the basis of positive evidence ; and
(b) That the firm, United Brothers, declared the sum of Rs. 1,28,100 in respect of the alleged purchases by the said firm under the amnesty scheme formulated by the Central Board of Direct Taxes.
17. It is an admitted fact that during the course of search operations on January 20, 1984, two purchase bills in respect of 550 and 50 tins of oil purchased by the assessee on April 10, 1982, and April 13, 1982, respectively, from United Brothers, Commission Agents of Dhasa, District Bhav-nagar, were found and seized. It is also an admitted fact that the assessee firm did not enter these bills in its books of account. In his statement under Section 131 of the Income-tax Act, 1961, before the Assistant Director of Inspection (Investigation), Surat, on January 30, 1984, Shri Shailesh Jayantkumar Parekh--partner, at whose residential premises the above-noted two bills were found, stated that the quality of the goods purchased under the abovementioned two bills was not good and, hence, the entire lot of the oil tins were returned to United Brothers of Dhasa. Later on, the Income-tax Officer, Ward-D, Bhavnagar, examined one of the partners, viz., Shri Jayant Hemchand Parekh, of United Brothers on oath under Section 131 of the Income-tax Act, 1961, who stated that the entries for the goods sold to Prabhat Oil Traders of Surat on April 10, 1982, and April 13, 1982, were made in the stock register of United Brothers but subsequently they were rubbed out because the said goods were purchased from Shree Shakti Oil Industries of Mahuva and were sent to Surat from Mahuva directly and again returned from Surat to Mahuva directly. Thereafter, the Income-tax Officer, Ward-D, Bhavnagar, made on the spot inquiry at Mahuva and intimated that there was no oil industry at Mahuva in the name of Shree Shakti Oil Industries. The said Income-tax Officer also intimated that Shri Jayant Hemchand Parekh could not produce the bills or vouchers for the purchases of the goods from the so-called Shree Shakti Oil Industries of Mahuva, nor did he produce duplicate bills dated April 10, 1982, and April 13, 1982, issued to Prabhat Oil Traders of Surat. Further, the Income-tax Officer, Ward-C, Bhavnagar, by his subsequent letter dated December 10, 1985, reported the following :
" In continuation to my letter No. G/BHR/Misc. of 1985-86 dated 5th December, 1985, I have to inform you that in the case referred above, Mr. M. R. Samtani, Income-tax Officer, Ward-D, Bhavnagar, and Mr. M. L. Khavadia, Inspector, who are the persons who make necessary enquiries in the case at the time of the survey were conducted and the following issues came across :
Mr. M. R. Samtani, Income-tax Officer, Ward-D, Bhavnagar, vide his confidential letter No. D/BHR of 1983-84 dated March 16, 1984, informed your office that United Brothers has debited and credited the purchase and sales of 550 and 50 tins of oil in their cash book from 10th April, 1982, to 15th April, 1982, and the same is also reflected in tax paid oil account as well as Prabhat Oil Traders, Surat. He mentioned further that there were no entries for goods received or goods sold in the stock register. In the written statement by the partner, Shri Jayantkumar Hemchand Parekh, it was stated that the entries for the goods were sent to Surat from Mahuva directly and again from Surat to Mahuva directly. The entries made earlier were rubbed out. The copy of the statement of Shri Jayantkumar Hemchand dated March 2, 1984, was also enclosed with the letter of Shri M. R. Samtani.
As mentioned in paragraph 1, there were no entries in the stock register or those were rubbed out as stated in the statement of Shri Jayantkumar Hemchand Parekh, you vide your letter No. 515-G/IIG of 1985-86 dated November 2, 1985, informed me to look into the cash book and stock register and to make necessary report on it.
I called for the books of account of United Brothers, Dhasa, and the findings were reported to you by me by letter No. G/BHR/Misc. of 1985-86 dated December 5, 1985. But as I mentioned in my letter dated December 5, 1985, that a stock register was not signed by any income-tax authority, if seems that the assessee has changed the stoch register. It is further confirmed by Samtani, Income-tax Officer, in which he has stated that a stock register has been signed, whereas the stock register which was produced before me was not signed by any income-tax authority.
All these things reveal that the assessee is dealing in bogus transactions of purchases and sales and, therefore, the entire case needs deep scrutiny at your end.
The facts stated by Mr. Samtani in his letter dated March 16, 1984, that Shri Jayantkumar, partner, has given the statement that the 600 tins of oil were purchased from Shakti Oil Industries, Mahuva, which was not in existence is also true."
18. The above findings of the Income-tax Officer, Ward-G, Bhavnagar, were shown to the assessee by the first appellate authority (paragraph 10 of the order) and he was requested to furnish his explanation, if any. According to the Commissioner of Income-tax (Appeals) "the assessee remained silent".
19. In view of the above, it cannot be said that the impugned addition has been made on mere suspicion, conjectures and surmises. On the other hand, the authorities below have brought on record cogent evidence in support of the impugned addition. The fact of the matter is that when during the course of the search, the two purchase bills referred to supra were found and the same were admittedly found to be not recorded in the books of account, a story was concocted that the bills were not entered because the goods were returned to United Brothers. In the process, United Brothers, who are the sister concern of the assessee-firm, came to the help of the assessee. It is pertinent to note that the partners of the assessee-firm are partners in United Brothers as kartas of their respective Hindu undivided families. If the assessee had really returned the oil purchased, then how is it that the two bills of purchases were not returned to United Brothers. As stated above, the bills are dated April 10, 1982, and April 13, 1982, and the search took place on January 20, 1984. If the assessee had really returned the goods to United Brothers it does not appeal to common sense as to why the assessee should preserve these two bills for a period of two years after the transaction was allegedly terminated. A further story was concocted by United Brothers obviously to save the assessee-firm that the goods were purchased from Shree Shakti Oil Industries of Mahuva and directly transported to the assessee-firm at Surat and thereafter retransported back to Mahuva from Surat. This story stands demolished as the enquiries made by the Income-tax Officer, Ward-D, Bhavnagar, revealed that there was no oil industry in the name of Shree Shakti Oil Industries in Mahuva. When this fact came to the knowledge of the assessee and its sister concern, United Brothers, the latter in order to save the assessee-firm from penal action/prosecution surrendered the amount of Rs. 1,28,100 under the Amnesty Scheme. Thus, merely because United Brothers, who are admittedly the sister concern of the assessee-firm, surrendered the amount of Rs. 1,28,100, it does not absolve the assessee of concealing the income of Rs. 1,28,100 by purchasing 600 tins of oil outside the books of account and selling the same outside the books of account. It is now well-settled that the taxing authorities are entitled to look into the surrounding circumstances to find out the real positionCIT v. Durga Prasad More [1971] 82 ITR 540 (SC). Viewed in the background cited supra, the surrounding circumstances of the two transactions and the totality of the circumstances, I do not find any infirmity in the orders of the authorities below which are very well-reasoned and supported by cogent evidence. The addition of Rs. 1,28,100 is accordingly confirmed.
ORDER OF REFERENCE TO THIRD member
20. As we are differing in our views in the appeal filed by the assessee, Prabhat Oil Traders, in I. T. A. No. 4710/(Ahd) of 1989 relating to the assessment year 1982-83, we request the Hon'ble President, Income-tax Appellate Tribunal, to refer under Section 255(4) of the Income-tax Act, 1961, the below given points/questions to other Member(s) of the Tribunal for his/their opinion :
"(i) Whether, on the facts and in the circumstances of the case and on the basis of available evidence/material on record the assessee can be assessed under Section 69 of the Income-tax Act, 1961, in respect of the sum of Rs. 1,28,100 (inclusive of estimated gross profit of Rs. 2,800) towards the value of 600 tins of oil as per the bills of 10th and 13th April, 1982, issued by United Brothers, Bhavnagar, a sister concern of the assessee-firm and which were found and seized in search operation under Section 132 of the Income-tax Act, 1961 ?
(ii) Whether, in view of the fact that the sum of Rs. 1,28,100 has been offered for tax under the amnesty scheme by the firm of United Brothers, Bhavnagar, towards the unexplained investment in purchases of six hundred oil tins by the said firm, the assessee-firm can still be assessed and subjected to tax in respect of the said sum of Rs. 1,28,100 under Section 69 of the Income-tax Act, 1961 ?"
ORDER OF THIRD MEMBER A. Satyanarayana, (Vice-President)
21. This appeal came up before me as a Third Member to express my opinion on the following questions :
" (i) Whether, on the facts and in the circumstances of the case and on the basis of available evidence/material on record the assessee can be assessed under Section 69 of the Income-tax Act, 1961, in respect of the sum of Rs. 1,28,100 (inclusive of estimated gross profit of Rs. 2,800) towards the value of 600 tins of oil as per the bills of 10th and 13th April, 1982, issued by United Brothers, Bhavnagar, a sister concern of the assessee-firm and which were found and seized in search operation under Section 132 of the Income-tax Act, 1961 ?
(ii) Whether, in view of the fact that the sum of Rs. 1,28,100 has been offered for tax under the amnesty scheme by the firm of United Brothers, Bhavnagar, towards the unexplained investment in purchases of six hundred oil tins by the said firm, the assessee-firm can still be assessed and subjected to tax in respect of the said sum of Rs. 1,28,100 under Section 69 of the Income-tax Act, 1961 ?"
22. These are the differences of opinion forwarded to me by my learned brothers who heard the appeal originally.
23. The assessee is a partnership consisting of three partners. It is engaged in the business of wholesale dealing in groundnut oil, vegetable oil, soyabean, grease, yarn, wheat, etc. The appeal relates to the assessment year 1983-84 for which the previous year is from October 28, 1981, to November 15, 1982 (Samvat year 2038).
24. A search under Section 132 was carried out on January 20, 1984, and books of account and certain other documents besides cash of Rs. 12,550 were seized. Search operations were carried out in the residential premises of the partners. During the search of the residential premises of Shri Sailesh Jayant Kumar Parekh ("SJP", for short), two purchase bills dated April 10, 1982, and April 13, 1982, were found and as he could not explain the presence of these bills of the assessee in his house, these bills were seized. On further verification, it was found that these purchase bills were not accounted for in the books of account of the assessee. These purchase bills were in respect of 550 and 50 tins of groundnut oil purchased by the assessee on April 10, 1982, and April 13, 1982, respectively, from United Brothers ("UB", for short), Merchants and Commission Agents, Dhasa, Bhavnagar District. In his statement under Section 131 of the Income-tax Act, 1961, before the Assistant Director of Inspection (Investigation), Surat, dated January 30, 1984, SJP had stated that the quality of goods purchased under the abovementioned two bills was not good and hence the entire lot of the oil tins was returned to United Brothers and the delivery of the said goods was not taken and as such the said purchases were not accounted for in the books of account of the assessee. In support of this contention, he produced the books of account including the stock register of United Brothers for the Samvat year 2038 before the Assistant Director of Inspection, Surat. A letter dated January 30, 1984, of the manager of United Brothers confirming the above statement was also filed. However, in order to verify the genuineness of the above transaction, further enquiry was made through the Income-tax Officer, Ward-D, Bhavnagar, who is the Assessing Officer of United Brothers. It was intimated by the Income-tax Officer, Ward-D, Bhavnagar, vide his letter dated March 16, 1984, that the entries relating to the goods received or goods sold or goods stated to have been returned by the assessee did not appear in the stock register of United Brothers. The said Income-tax Officer, Bhavnagar, examined one of the partners of United Brothers-Sim Jayant Hemchand Parekh ("JHP", for short), in this regard. In his statement on oath under Section 131 dated March 2, 1984, Shri Jayant Hemchand Parekh declared that he was also a partner in the assessee-firm. Shri Jayant Hemchand Parekh further stated that the entries for the goods sold to the assessee on April 10, 1982, and April 13, 1982, were made in the stock register of United Brothers, but subsequently they were rubbed out because the said goods were purchased from Shree Shakti Oil Industries of Mahuva ("SSOI", for short) and were sent from Mahuva to Surat directly and again returned from Surat to Mahuva directly. The Income-tax Officer, Bhavnagar, made enquiry at Mahuva and intimated that there was no oil industry at Mahuva in the name of Shree Shakti Oil Industries. The said Income-tax Officer also intimated that Shri Jayant Hemchand Parekh could not produce bills or vouchers for the purchase of goods from the so-called Shree Shakti Oil Industries and duplicate bills dated April 10, 1982, and April 13, 1982, issued to the assessee. After considering all these facts, it was held in the order passed under Section 132(5) of the Income-tax Act, 1961, that the purchases of these 600 tins of groundnut oil were made by the assessee outside the books of account and, therefore, purchases amounting to Rs. 1,25,300 and profit on those sales at Rs. 2,800 were treated as suppressed income of the assessee-firm.
25. During the course of the assessment proceedings under Section 143(2), the same facts were brought to the notice of the assessee and it was requested to produce further evidence, if any, in this regard. The assessee repeated the same arguments as advanced in the proceedings under Section 132(5). The assessee further stated that the partner, Shri Jayant Hemchand Parekh, had since expired and that they cannot say anything about the statement given by Shri Jayant Hemant Parekh before the Income-tax Officer, Bhavnagar, on March 2, 1984. The assessee-firm again produced the books of account of United Brothers and filed photostat copies of the relevant pages except stock register (sic). The assessee stated that the entries regarding purchases of these tins from Shree Shakti Oil Industries and sales of the same to the assessee were reflected in the books of account of United Brothers. Moreover, the expenses relating to these transactions were also reflected in the books of account of United Brothers. The assessee . stated that the stock register of United Brothers was produced on January 30, 1984, before the Assistant Director of Inspection and photostat copy was filed. On going through the photostat copy of the stock register of United Brothers filed before the Assistant Director of Inspection by the assessee it was noted that there were entries of 8,800 kgs. on April 10, 1982, and again on April 12, 1982, and entries of 800 kgs. on April 13, 1982, and again on April 15, 1982. The assessee stated that United Brothers purchased 550 tins of 16 kgs. each (8,800 kgs.) on April 10, 1982, and on the same date, these tins were sent to the assessee and on April 12, 1982, these tins were received back from the assessee and sent back to Shree Shakti Oil Industries. According to the Assessing Officer, "similarly, regarding other transaction of 50 tins there is a credit entry of 800 kgs. on April 13, 1982, and simultaneously debit entry of 800 kgs. and again on April 15, 1982, these entries are repeated." The Income-tax Officer, Bhavnagar, in his letter dated March 16, 1984, intimated that there were no such entries in the stock register of United Brothers. He further stated that as per the written statement of the partner, Shri Jayant Hemchand Parekh, the entries for the goods were made in the stock register but as goods were sent from Mahuva to Surat directly and again from Surat to Mahuva directly, entries made earlier were rubbed out. According to the Assessing Officer, "The photostat copies of stock register filed before the Assistant Director of Inspection, Surat, did not confirm this fact. The entries are not rubbed out at all. It seems that United Brothers maintains two different sets of stock register." To verify the correctness of the photostat copies of the stock register filed before the Assistant Director of Inspection (Investigation), Surat, the Assessing Officer addressed a letter dated January 21, 1985, to the Income-tax Officer, Bhavnagar. By his reply dated December 5, 1985, the Income-tax Officer, Bhavnagar, stated that the stock register of United Brothers was seen, that it was found that there were inward and outward entries of 8,800 kgs. of oil, that the stock register was not signed by any Officer/Inspector of the Income-tax Department and that the stock register was having a seal of the Mamlatdar of Bhavnagar. In continuation of his letter dated December 5, 1985, the Income-tax Officer, Bhavnagar, wrote another letter dated December 10, 1985, to the Assessing Officer. In that letter dated December 10, 1985, he mentioned that he contacted Shri M. R. Samtani, Income-tax Officer, Bhavnagar, and Shri M. L. Khavadia, Inspector, who made the necessary enquiries at the time of survey, that Shri Samtani wrote a confidential letter dated March 16, 1984, to the Income-tax Officer, Surat, that there were no entries for goods received or goods sold in the stock register of United Brothers, that he called for the books of account of United Brothers, that he found that the stock register was not signed by any income-tax authority, that it appeared that the assessee had changed the stock register, that the inventory of books of account prepared by Shri M. R. Samtani stated that a stock register had been signed by Mr. Samtani whereas the stock register produced before him was not signed by any income-tax authority and that all these things revealed that the assessee was dealing in bogus transactions of purchases and sales. The above findings of the Income-tax Officer, Bhavnagar, were shown to the assessee and it was requested to furnish its explanation, if any. The assessee remained silent. The Assessing Officer concluded that it was clear that these purchases and sales were not accounted for by the assessee in its books of account. All the three partners of the assessee-firm are also partners in their Hindu undivided family capacity in United Brothers having one-third share each. Thus, both the firms, i.e., Prabhat Oil Traders (the assessee), and United Brothers, were run by the same family. Therefore, in the circumstances, the onus is more on the assessee to prove the correctness of these transactions from the books of United Brothers. Here the assessee failed to discharge its burden. It is clear that to cover up these transactions, the partners tried to manipulate the books of account of United Brothers. As per the enquiry report of the Income-tax Officer, Bhavnagar, no oil industry in the name of Shree Shakti Oil Industries existed in Mahuva. Shri M. L. Khavadia, Inspector, contacted the Sales Tax Officer, Civil Supplies Department, Mamlatdar office, and it was found that there was no such oil industry in the name of Shree Shakti Oil Industries at Mahuva. The assessee simply stated that it was not its concern wherefrom 600 tins were purchased by United Brothers and the goods purchased by these bills were returned by United Brothers (sic). The arguments of the assessee are not tenable because these two firms were run by the same partners and, therefore, the responsibility of this firm is more.
26. The Assessing Officer summed up that the assessee's contention that the goods purchased under the bills dated April 10, 1982, and April 13, 1982, were returned to United Brothers was not acceptable for the following reasons :
(1) As stated in the order under Section 132(5), United Brothers could not produce duplicate copies of purchases and sales bills of these two transactions. This shows that there are no real purchases and sales by United Brothers and in fact the assessee purchased 600 tins from undisclosed sources and sold outside the books of account.
(2) The assessee could not produce the books of account of the goods carriers through which these tins were received and returned. In the absence of such verification it could easily be held that these tins were never returned by the assessee and that they were sold by the assessee outside the books of account.
(3) Even the preliminary statement of Shri Sailesh Jayant Kumar Parekh to the effect that the groundnut oil sent by United Brothers under the two bills dated April 10, 1982, and April 13, 1982, was of inferior quality, is very much doubtful by itself. This is because delivery of the goods was not taken at all and as such it was not possible for the assessee to know about the inferiority of the goods without such goods having been actually received and tested.
(4) Even if it is presumed that the goods were of inferior quality, the broker, United Brothers, could not have thought it fit to call back the entire lot of 600 tins from Surat. United Brothers could have sold the said 600 tins in Surat itself either to the assessee or other merchants at a lesser rate than that fixed originally.
(5) In the letter dated January 30, 1984, United Brothers stated that the entire lot of 600 tins was returned by the assessee to them. However, when the Income-tax Officer, Bhavnagar, did not find any entry relating to the goods returned in the stock book of United Brothers, Shri Jayant Hemchand Parekh took a shifting stand by stating that the goods belonged to Shree Shakti Oil Industries and, hence, the same were returned by the assessee-firm directly to Shree Shakti Oil Industries. The contradiction between the two statements of the same concern obviously pinpoints to the fact that the story regarding the return of the goods by the assessee-firm is a made up one and not real.
(6) Passing of entries in the cash book regarding receipt of the oil tins and other incidental expenses of United Brothers is nothing but a futile exercise to show the colour of germineness to the transaction and this could possibly be done by United Brothers even after the seizure of the bills at Surat because it was a sister concern of the assessee-firm.
(7) The stock book of a dealer in oil is subject to scrutiny of the supply department and, therefore, whatever transactions are entered into by the dealer in respect of the goods dealt in, must find place in his stock book. Accordingly, the assessee as well as the broker, United Brothers, were supposed to make the entries relating to the transactions in question in their stock books, if according to them, the transactions were genuine.
(8) The stock register of United Brothers produced by the assessee before the Assistant Director of Inspection (Investigation) and produced before the Income-tax Officer, Bhavnagar, is not the same. United Brothers maintains two sets of stock registers.
(9) There is no oil mill in the name of Shree Shakti Oil Industries at Mahuva. As such the statement of Shri Jayant Hemchand Parekh to the effect that the goods returned by the assessee were directly sent to Shree Shakti Oil Industries is obviously false.
(10) For the above reasons, the evidence led by the assessee in the form of books of account and letter dated January 30, 1984, of United Brothers are not at all reliable as United Brothers being a sister concern of the assessee-firm merely tried to accommodate the assessee in connection with the unaccounted purchases detected during the course of the search.
(11) No such incidence of returning the goods by the assessee in the past was brought to my notice. On the facts and the circumstances, it dearly transpires that the assessee sold 600 tins of groundnut oil outside the books of account and in order to hide these transactions, the relevant bills dated April 10, 1982, and April 13, 1982, were kept at the residence of the partner. Otherwise, such bills are normally kept at the business place only.
27. In that view of the matter, the Assessing Officer added purchases of these 600 tins of groundnut oil and profit thereon as follows :
Sl. No. Description of the transaction Amount of tins
1.
Purchase of 550 tins on 10-4-82, as per books of account of United Brothers Rs. 1,14,950
2. Purchase of 50 tins on 13-4-82, as per books of account of United Brothers 10,350
3. Profit at the rate of 2.14 per cent. as shown by the assessee in groundnut oil business during the year 2,800
28. Aggrieved by the said addition of Rs. 1,28,100, the assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals).
29. The Commissioner of Income-tax (Appeals) upheld the addition by observing as under :
"From the order of the Income-tax Officer and the arguments as have been taken as per the statement of facts and grounds of appeal, during the course of hearing, it is found that the arguments raised by the learned representative of the appellant have been dealt with by the Income-tax Officer. He has made elaborate discussion in this respect. The enquiries have also been made by the Income-tax Officer and ultimately it is found that the contentions raised by the appellant were not acceptable that the goods purchased under the bills before April 10, 1982, and April 13, 1982, were returned to United Brothers, Dhasa. The appellant could not produce the duplicate of purchase and sale bills of these two transactions. Further, they could not produce the books of account to whom the goods are claimed to have been returned to Dhasa. Therefore, corroborative evidence could not be produced to prove that the goods were of inferior quality and, therefore, they were returned could not be established. Further, the so-called seller, United Brothers could have sold the goods to the appellant or to any other concern at Surat, if necessary at a lesser rate, instead of taking it back to Dhasa. Further, it has been established that the Income-tax Officer, Circle I-D, Bhavnagar, did not find any entry relating to the goods returned in the books of United Brothers. Further, the partner, Shri Jayant H. Parekh, took the stand stating that the goods belonged to Shree Shakti Oil Industries of Mahuva. However, the same also could not be established. Further, the transactions did not find place in the stock register of United Brothers, the stand that some other department is to verify the transactions does not find much strength as enquiries have been made to other departments also but no existence of Shri Shakti Mills has been found. The claim that the goods were returned to Shri Shakti Mills, therefore, could not be substantiated. Furthermore, an important aspect has been established by the enquiry officers including the Income-tax Officer, Ward-D, Bhavnagar, that the register, viz., the stock register maintained by the United Brothers, is not the same which was produced before the Assistant Director of Inspection, Surat, and produced before the Income-tax Officer, Ward-D, Bhavnagar. That shows United Brothers was maintaining two sets of stock registers which were utilised for explaining away the transactions of 600 tins of groundnut oil. There was no oil mill in the name of Shree Shakti Oil Industries at Mahuva and the statement of the partner of United Brothers that goods were sent directly to Mahuva is obviously not reliable. Some other facts have been established in the order of the Income-tax Officer to establish that purchases were made out of the books and sold similarly. Considering the same, I am of the opinion that the Income-tax Officer was justified in concluding that there was purchase of 600 tins of groundnut oil, viz., (i) 550 tins on April 10, 1982, as per books of account of United Brothers for Rs. 1,14,950 ; and (ii) purchase of 50 tins on April 13, 1982, as per the books of account of United Brothers for Rs. 10,350. The profit established at the rate of 2.14 per cent. is very nominal and justifiable. Accordingly, the same is confirmed. The profit on these sales at Rs. 2,800 is also confirmed. In the result, the appeal on this point is dismissed."
30. Aggrieved by the order of the Commissioner of Income-tax (Appeals), the assessee preferred an appeal before the Tribunal.
31. The learned Judicial Member observed that it was brought to the notice of the first appellate authority that the fact of non-acceptance of delivery of 500 tins of oil was also confirmed by United Brothers and that the books of account which were produced before the Assistant Director of Inspection, Surat, clearly revealed that the relevant entries were made in the account books of the said firm evidencing first the sale to the assessee and then reversal of entries on the return of goods by the assessee-firm and that the Income-tax Officer, Bhavnagar, had placed an identification mark. He further observed that the contention of the assessee before the first appellate authority was that the assessee filed copies of entries in the books of Sonal Enterprises who is the transport operator evidencing receipt of transport charges from United Brothers for the goods sent from Mahuva to Surat and again returned from Surat to Mahuva. This evidence was given at pages 68 and 69 of the paper book filed by the assessee before the Tribunal. It was urged in the first appeal that these vital facts were not at all considered by the Assessing Officer. It was the case of the assessee before the lower authorities that even assuming that the assessee did make purchases of 600 tins of oil, the same was on credit basis and no actual cash was paid to United Brothers either on April 10, 1982, or on April 13, 1982, or at any time within the previous year relevant to the assessment year 1983-84. The Assessing Officer has not collected any evidence or material to hold that the assessee did make purchases of 600 tins of oil from United Brothers and made payment without recording the same in its account books. The learned Judicial Member held that when the partner of the assessee-firm stated that the assessee-firm has not purchased the 600 tins of oil under the two credit purchase invoices dated April 10, 1982, and April 13, 1982, and, therefore, no entries were made or recorded in the books of the assessee-firm and when this fact was further corroborated and supported by the manager of United Brothers, there was no case for making any addition towards income from undisclosed sources. He further held that he would have upheld the addition and agreed with the Revenue had United Brothers confirmed that the sales were made and the payments were received from the assessee-firm. He also held that the assessee-firm denied having made purchases from United Brothers of 600 tins of oil under the alleged two invoices and the firm United Brothers have denied having sold the goods to the assessee. The Assessing Officer has not collected any evidence which would go to prove that the assessee-firm did purchase oil from United Brothers and did make payment on the dates mentioned in the alleged two bills or on any date thereafter during the previous year relevant to the assessment year 1983-84. The case of the Assessing Officer rested on disbelieving the factual existing position, viz., no purchases having been made by the assessee-firm and no sales having been made by United Brothers nor payment being made by the assessee and received by United Brothers, In the absence of any such evidence on record, it will be very harsh to make an addition and sustain the same on the ground of investment in purchases outside the account books. The addition has been made on mere suspicion and conjectures and surmises and not on the basis of positive evidence about payment by the assessee-firm to United Brothers. The learned Judicial Member further held that the Tribunal should not lose sight of the admitted position that the firm United Brothers declared the sum of Rs. 1,28,100 in respect of the alleged purchases by the said firm under the amnesty scheme as can be seen from the relevant documents placed in the assessee's paper book at pages 48 to 57. Finally, he held that there was no justification on the part of the Commissioner of Income-tax (Appeals) to sustain the entire addition of Rs. 1,28,100. Accordingly, he directed the Assessing Officer to delete the entire addition of Rs. 1,28,100.
32. The learned Accountant Member held that it cannot be said that the impugned addition of Rs. 1,28,100 has been made on mere suspicion, conjectures and surmises. The authorities below have brought on record cogent evidence in support of the impugned addition. The fact of the matter is that when during the course of search two purchase bills dated April 10, 1982, and April 13, 1982, were found and the same were admittedly found to be not recorded in the books of the assessee, a story was concocted that the bills were not entered because the goods were returned to United Brothers. In the process, United Brothers, who is a sister concern of the assessee-firm, came to the help of the assessee. It is pertinent to note that the partners of the assessee-firm are partners in United Brothers as kartas of their respective Hindu undivided families. If the assessee had really returned the oil purchased, then how is it that the two bills of purchases were not returned to United Brothers ? If the assessee had really returned the goods to United Brothers it does not appeal to common sense as to why the assessee should preserve the two bills for a period of two years after the transaction was allegedly terminated. A further story was concocted by United Brothers obviously to save the assessee-firm that the goods were purchased from Shree Shakti Oil Industries and directly transported to the assessee-firm at Surat and thereafter retransported back to Mahuva from Surat. This story stood demolished as the enquiries made by the Income-tax Officer, Bhavnagar, revealed that there was no oil industry in the name of Shree Shakti Oil Industries in Mahuva. When this fact came to the knowledge of the assessee and United Brothers, the latter firm in order to save the assessee from penal action/prosecution surrendered the amount of Rs. 1,28,100 under the amnesty scheme. Merely because United Brothers surrendered the amount of Rs. 1,28,100 it does not absolve the assessee of concealing the income of Rs. 1,28,100 by purchasing 600 tins of oil outside the books of account and selling the same outside the books of account. Taxing authorities are entitled to look into the surrounding circumstances to find out the real position as laid down in the case of CIT v. Durga Prasad More [1971] 82 ITR 540 (SC). In that view of the matter, the learned Accountant Member confirmed the addition of Rs. 1,28,100.
33. Before me, the assessee's counsel filed written submissions dated April 20, 1995, running into 12 pages and a photostat copy of the statement given by Shri Vinod, manager of United Brothers in Gujarat, dated January 30, 1984, and its free translation in English and a photostat copy of page 5 of the stock register of United Brothers from April 1, 1982, to April 30, 1982. The arguments of the assessee's counsel were to the following effect : The assessee is a registered firm. The business is purchase and sale of oil on wholesale basis, etc. The purchase bills dated April 10, 1982, and April 13, 1982, are admittedly not. entered in the books of the assessee. The reason was explained by Shri Shailesh Jayantkumar Parekh in his statement under Section 131 before the Assistant Director of Inspection on January 30, 1984. The entries were not made in the books of account as the quality of oil was not good and as the entire lot was returned to United Brothers. A letter dated January 30, 1984, from the manager of United Brothers, Shri Vinod, was also filed before the Assistant Director of Inspection, The books of account including the stock register of United Brothers for the Samvat year 2038 was produced before the Assistant Director of Inspection. Copy of the stock register signed by the manager of United Brothers was filed before the Assistant Director of Inspection. In the letter dated January 30, 1984, the manager of United Brothers referred to the sale bills dated April 10, 1982, and April 13, 1982, made on credit and the return of the goods. He also stated that all these entries pertaining to these transactions with the assessee were entered in the cash book, ledger and stock register of United Brothers. These could be verified from the papers filed before the Tribunal now. The photostat copies of the cash book of United Brothers were given at pages 61 to 66 of the paper book. At page 61, the entries can be seen for the sale of 550 tins of oil. In the same page, the transaction of purchase from Shree Shakti Oil Industries is also entered. When the goods were returned by the assessee, necessary entries were made and they can be seen at page 62 of the paper book. In the same manner in pages 63 and 65, the purchase of 50 tins of oil from Shree Shakti Oil Industries, sale to the assessee and the subsequent return were all recorded. The existence of these entries is confirmed by the Income-tax Officer, Bhavnagar, in his letter dated December 5, 1985. This can be seen at pages 12 and 13 of the paper book filed by the Department. In fact, the cash book pages were signed by Mr. M. L. Kavadia, Inspector of Income-tax, on behalf of the Income-tax Officer, on March 2, 1984. This fact also is mentioned in the said letter dated December 5, 1985. In the same letter dated December 5, 1985, the Income-tax Officer stated that there were inward and outward entries for 550 tins and 50 tins of oil. He further submitted that the stock register was having a seal of Mamlatdar of Bhavnagar. His only comment was that the said stock register was not signed by any Officer/Inspector of Income-tax Department. The stock register, page 5, after the rubbing out of entries was signed by Mr. Kavadia on March 2, 1984, and it can be seen at page 67 of the paper book. Copy of page 5 of the stock register, before the entries were rubbed out, signed by Mr. Vinod, manager of United Brothers, was filed before the Assistant Director of Inspection on January 30, 1984. A photostat copy of the same is filed by the Departmental Representative before the Tribunal now. This shows the inward and outward entries of 550 tins and 50 tins clearly. The fact that the oil tins were returned from Surat to Mahuva was substantiated by the entries in the books of account of the transporter, Sonal Enterprises. The truck numbers, GTS 7772 and GTS 6595, were also mentioned therein. The assessee filed copies of cash book entries from Sonal Enterprises before the Assessing Officer. These vital facts were not at all considered by the Assessing Officer. The Assessing Officer simply mentioned in paragraph 13(ii) of his own that the assessee could not produce the books of account of the goods carriers through which these tins are received and returned. He does not deny the filing of the extracts from the cash book of Sonal Enterprises regarding the transport charges. The photostat copies of the entries from the cash book of Sonal Enterprises can be seen at pages 68 and 69 of the paper book. Further, when the Assessing Officer disbelieved the assessee's explanation and held that the assessee had purchased and sold 600 tins of oil outside its books of account, he cannot add the entire purchase price of Rs. 1,25,300. At best he can only add the net profit on the same. As rightly noticed by the learned Judicial Member, the Assessing Officer has not collected any evidence to prove that the assessee made payment to United Brothers for the impugned purchase bills during the relevant previous year. The purchase bills seized by the Department are only credit bills. Since there is no payment/investment in the purchase of 600 oil tins, the Assessing Officer cannot make any addition under Section 69 of the Income-tax Act, 1961. The Assessing Officer in paragraph 13 (ix) referred to the Income-tax Officer, Bhavnagar's letter dated March 16, 1984 (given at pages 10 and 11 of the paper book filed by the Department), wherein it was stated that the Ward Inspector was deputed to make further enquiries at Mahuva but no such oil mill is stated to be there. A copy of the Ward Inspector's report dated March 8, 1984, is enclosed herewith. The Ward Inspector's report dated March 8, 1984, is given in page 9 of the paper book filed by the Department. In the said report, the Inspector mentioned that "on enquiry from local oil mills, sales tax office, civil supply department, i.e., Mamlatdar's office, it is found that there is no such mill named. Shree Shakti Oil Industries at Mahuva". Herein, it may be noted that the Inspector made enquiries after two years. The transactions have taken place in April, 1982, while the enquiry was done in March, 1984. There are a variety of reasons why the Inspector could not find the said firm after two years. The said firm may have closed its business or may have changed its trade name, etc. The learned Judicial Member has also noticed that United Brothers declared a sum of Rs. 1,28,100, in respect of the alleged purchases made by them, under the amnesty scheme and the assessment thereon. The copy of the statement of income filed under the amnesty scheme by United Brothers can be seen at pages 52 and 53 of the paper book filed by the assessee. It was filed along with the revised return on March 31, 1986. The assessment order in the case of United Brothers dated March 31, 1986, for the assessment year 1983-84 accepting the amount offered by United Brothers can be seen at pages 58 to 60 of the paper book. The learned Judicial Member has correctly summed up that the impugned addition of Rs. 1,28,100 was made on mere suspicion and conjectures and surmises and not on the basis of positive evidence about payment by the assessee to United Brothers. The learned Accountant Member has not appreciated the facts in their correct perspective. He commented that if the assessee had really returned the goods to United Brothers, it does not appeal to common sense as to why the assessee should preserve the bills dated April 10, 1982, and April 13, 1982. When the goods are returned, it is not necessary to return the bills to the seller of the goods. He turns a blind eye to the entries made by United Brothers in its books of account, viz., cash book, for the return of goods by the assessee. He heavily relies on the report of the Income-tax Officer, Bhavnagar, that there was no oil industry in the name of Shree Shakti Oil Industries in Mahuva. From a close examination of the Inspector's report dated March 8, 1984, it will be seen that the Inspector has not stated that Shree Shakti Oil Industries did not exist in April, 1982. He simply stated that there is no such oil mill as on March 7, 1984, the date of his visit and March 8, 1984, the date of his report. The learned Accountant Member relied on the case of Durga Prasad More [1971] 82 ITR 540 (SC) that the taxation authorities were entitled to look into the surrounding circumstances to find out the reality. In fact, the surrounding circumstances in the present assessee's case are in favour of the assessee only. He has not appreciated the entries in the cash book of United Brothers and the entries in the books of Messrs. Sonal Enterprises, transporters. They amply prove the return of the goods by the assessee. In these circumstances, the order of the learned Accountant Member should be discarded and the order of the learned Judicial Member should be upheld.
34. The Departmental Representative filed a paper book of 50 pages and urged to the following effect : Xerox copies of bills dated April 10, 1982, and April 13, 1982, issued by United Brothers to the assessee are given at pages 1 and 2 of the paper book filed by the Department. These two bills are direct evidence. The addition is not based on surmises. The sale by United Brothers is admitted by them (United Brothers). Unless delivery is taken actually, the quality of the goods cannot be found out and judged. The evidence in respect of transport charges should have been produced before the Assessing Officer. Purchases by United Brothers from Shree Shakti Oil Industries were not proved. Since the Shree Shakti Oil Industries was not found in existence as per enquiries of the income-tax authorities, the contention of the assessee, i.e., purchases from United Brothers and return to Shree Shakti Oil Industries cannot be accepted. When transactions are unrecorded, there is no question of recording the payment. It is not for the Department to prove that the payments were made in the relevant previous year itself. Payment could be made later. No prudent businessman records the payment for unrecorded purchases. It is against common sense. Rubbing of entries shows that the purchases made by United Brothers from Shree Shakti Oil Industries were not genuine. There is sufficient evidence as stated by the learned Accountant Member. As laid down by the Supreme Court in the case of CIT v. Durga Prasad More [1971] 82 ITR 540, the courts and the Tribunals have to judge the evidence before them by applying the test of human probabilities. The probability is that the goods were purchased from United Brothers, sister concern, in the ordinary course of business. The next probability is that of no return of goods by the assessee either to United Brothers or Shree Shakti Oil Industries. Had there been return of goods, the bills would have been returned.
35. As laid down by the Assam High Court in the case of Mangalchand Gobardhan Das v. CIT [1954] 26 ITR 706, material or evidence on which the taxing authorities may rely under the Income-tax Act is not confined to direct testimony in the shape of statements made by witnesses. All relevant circumstances which have a bearing on the issue which are revealed during the course of the assessment would be covered by the expression "material or evidence on which the Income-tax Officer could rely". As per the commentary of Chaturvedi and Pithisaria's Income Tax Law given at page 3382 (Vol. III, Fourth edition), in case the explanation given by the assessee is not accepted, or in case the assessee cannot give any explanation, the Revenue authorities are entitled to draw an adverse inference from such materials (M L. Tewary v. CIT [1955] 27 ITR 630 (Patna). The disclosure by United Brothers in its case has got nothing to do here in the present assessee's case. The United Brothers could not prove the purchases from Shree Shakti Oil Industries. Hence their disclosure. The purchases made by the present assessee are totally different and they are to be explained by the assessee and his sources. Even though Section 69 was not specifically referred to by the Assessing Officer, that is the rule of evidence and it can be invoked.
36. In reply, the assessee's counsel submitted to the following effect : Section 69 speaks of deemed income and not actual income. If Section 69 is not invoked by the Assessing Officer in the present case, he should have brought on record how the actual income arose and how investment in alleged purchases have been made, For Section 69, prima facie evidence is required and not circumstantial evidence. In the present case, there is no prima facie evidence and hence no prima facie case. Even though clinching evidence in the form of return of goods is reflected in the books of account of United Brothers and the transporter, Sonal Enterprises, it is not properly appreciated. Rejection of the same by the Departmental authorities is not justified. United Brothers originally filed its return of income for the assessment year 1983-84 on August 30, 1983, declaring an income of Rs. 72,400. The search on the assessee was made on January 20, 1984. So there cannot be any manipulation of entries in the books of account of United Brothers. There is no bar in filing the evidence--entries from the books of Sonal Enterprises--before the Commissioner of Income-tax (Appeals). In fact, it was filed before the Assessing Officer. The assessee made a prima facie inspection of the goods sent by United Brothers. Being dissatisfied with their quality, the assessee returned the goods. Addition cannot be made in the assessee's hands on the ground of non-existence of Shree Shakti Oil Industries in the year 1984 when the Inspector of Income-tax made his enquiries.
37. The Departmental Representative commented that there was no proof for the alleged prima facie inspection of the oil sent by United Brothers to the assessee, vide bills dated April 10, 1982, and April 13, 1982.
38. I have considered the rival submissions and perused the papers filed before me. The Assessing Officer took into consideration the bills dated April 10, 1982, and April 13, 1982, of United Brothers and inferred that the assessee purchased 600 tins from undisclosed sources and sold them outside the books of account. Reference can be made to paragraph 13(i) of the assessment order dated January 6, 1986. Admittedly, these are credit bills. The Assessing Officer has not brought any material on record to show that the assessee had paid Rs. 1,14,950 on April 10, 1982, and Rs. 10,350 on April 13, 1982, or at any time within the previous year ending on November 15, 1982, relevant to the assessment year 1983-84. The Assessing Officer has not brought any material on record to substantiate his allegation that these 600 tins of oil were sold outside the books of account. These purchase bills were entered in the cash book of United Brothers on April 10, 1982, and April 13, 1982. They were shown as credit sales. The return of the goods is also recorded in the books of account of United Brothers. These facts are admitted by the Income-tax Officer, Bhavnagar, in his letter dated December 5, 1985, which can be seen from pages 12 and 13 of the paper book filed by the Revenue. The stock register of United Brothers also showed inward and outward entries for 600 tins of oil. The said Income-tax Officer, Bhavnagar, mentioned that the stock register was having a seal of Mamlatdar of Bhavnagar. His only comment was that it was not signed by any officer/Inspector of the Income-tax Department. These entries in the cash book, etc., were in the books of United Brothers and United Brothers filed its return on August 30, 1983, declaring an income of Rs. 72,400. This can be seen from page 58 of the assessee's paper book, wherein the copy of the assessment order dated March 31, 1986, of United Brothers for the assessment year 1983-84 is filed. The said return was accepted under Section 143(1), vide assessment order dated October 25, 1983. These events have taken place long before the search under Section 132 carried out on January 20, 1984, on the assessee and its partners and so it cannot be simply brushed aside by the Assessing Officer stating that passing of entries in the cash book, regarding receipt of oil tins and other incidental expenses of United Brothers is nothing but a futile exercise to show the colour of genuineness to these transactions, and this could possibly be done by United Brothers even after the seizure of the bills at Surat (paragraph 13(vi) in the assessment order dated January 6, 1986).
39. This inference of the Assessing Officer is to be held as a figment of imagination and his suspicion. The assessee filed copies of entries in the cash book of Sonal Enterprises, transport contractor, which confirmed that the goods were returned to Mahuva by trucks Nos. GTS-7772 and GTS-6595. These were not properly taken into consideration and appreciated by the Assessing Officer. The Assessing Officer simply ignored the copies of entries from the cash book of Sonal Enterprises by simply mentioning that the assessee could not produce the books of account of the goods carrier through which these tins were received and returned. He also held that in the absence of such verification it can easily be held that these tins are never returned by the assessee and these tins were sold by the assessee outside the books of account. If the Assessing Officer was not satisfied with the filing of copies of entries from the cash book of Sonal Enterprises by the assessee, he could have very well summoned Sonal Enterprises to produce their books of account and examined them. He has not done so. The assessee in the statement of facts filed before the Commissioner of Income-tax (Appeals) along with the memorandum of appeal in Form No. 35 mentioned in paragraph 7 as under :
"Further, United Brothers has paid truck charges of Rs. 2,255 for hire charges of 550 tins from Mahuva to Surat and Surat to Mahuva which is debited in cash book on April 12, 1982, and similarly, Rs. 150 for charges in respect of 50 tins debited on April 15, 1982. Xerox copy of cash book of United Brothers from April 10, 1982, to April 15, 1982, has already been filed with the Income-tax Officer. Similarly, Sonal Enterprises, a transport contractor through which the abovesaid two 550 tins and 50 tins were received have also entered in their cash book, transport charges received by them. The truck numbers are also mentioned."
40. This assertion was simply brushed aside by the Commissioner of Income-tax (Appeals) that "the claim that the goods returned to Shree Shakti Mills, therefore, could not be substantiated". Further, the Assessing Officer mentioned in paragraph 13(ix) of his assessment order that "as intimated by the Income-tax Officer, Bhavnagar, after making a spot enquiry, there is no oil mill in the name of Shree Shakti Oil Industries at Mahuva and as such the statement of Shri Jayant Kumar Parekh of United Brothers to the effect that the goods returned by Prabhat Oil Traders of Surat were directly sent to Shree Shakti Oil Industries is obviously false". The Income-tax Officer, Bhavnagar's letter dated March 16, 1984, and the enquiry report of the Inspector, Bhavnagar, Mr. M. L. Khavadia, dated March 8, 1984, can be seen at pages 9, 10 and 11 of the paper book filed by the Department. A careful perusal of the Inspector's report shows the hollowness of the stand of the Department that there is no oil mill in the name of Shree Shakti Oil Industries at Mahuva. This is because the transactions took place in April, 1982, while the Inspector conducted the enquiry in March, 1984. The Inspector simply reported that there is no such oil mill named Shree Shakti Oil Industries at Mahuva. He did not say that in April, 1982, Shree Shakti Oil Industries did not exist. From the seized credit bills dated April 10, 1982, and April 13, 1982, issued by United Brothers, it cannot be inferred that the assessee had invested Rs. 1,25,300 in the purchase of 600 tins of oil and that it sold the said tins outside the books of. account. The findings of the Assessing Officer that the assessee purchased 600 tins from undisclosed sources and sold them outside the books of account are based on surmises and conjectures without there being any evidence or material in support thereon. Accordingly, I hold that the additions of Rs. 1,25,300 towards purchases and Rs. 2,800 towards profit are not at all justified. In coming to this conclusion, I derive support from the judgment of the Allahabad High Court in the case of Ashok Kwnar Rastogi v. CIT [1991] 55 Taxman 433 also. I, therefore, agree with the direction of the learned Judicial Member in directing the Assessing Officer to delete the entire addition of Rs. 1,28,100.
41. The matter should go before the regular Bench and they should decide according to the majority opinion.
ORDER Jordan Kachchap (Judicial Member)
42. In accordance with the order passed by the Third Member dated August 31, 1995, and in conformity with the majority view this appeal is partly allowed.