Per Shri A. Kalyanasundharam, Accountant Member - These are cross-appeals by the assessee and the department and both of them are aggrieved by the Commissioner (Appeals) order by which the entire assessment made by the ITO has been set aside.
2. The department carried out search and seizure operations on all the transport operators at Jodhpur in or around April 1979. One such transport operator was Nakoda Transporters. On examination of various transport bills, the department came across certain bills relating to transportation of titanium dioxide and caustic soda. The recipients of the goods relating to these bills were only one party - Anubhav Traders, 119, Jodhpur Spectrum Comm.Centre Relief Road, Ahmedabad Anubhav Traders, 119, Jodhpur Spectrum Comm.Centre, Relief Road, Ahmedabad Anubhav Traders, 119, Jodhpur Spectrum Comm.Centre, Relief Road, Ahmedabad Anubhav Traders, 119, Jodhpur Spectrum Comm.Centre, Relief Road, Ahmedabad Anubhav Traders, 119, Jodhpur Spectrum 3,804.40 Comm. Centre, Relief Road, Ahmedabad The recipient was contacted through the department at Ahmedabad who vide his letter to ADI dated 8-5-1979 had accepted of having received the titanium dioxide of four consignments only relating to Bill Nos.
419,420, 421 and 543. They further mentioned in the letter that the three parties had dealing with them only 1978-79 and they did not deal with them either in 1977-78 or 1979-80. They also mentioned in the said letter of having sold caustic soda to Gulabdas Jagannath & Associates in the year. In the letter the party mentioned that Ram Lal Garg was personally known to them and that Ram Lal Garg used to represent Sunder & Co. In the letter it was further mentioned that the representative of Industrial Chemicals accompanied Ram Lal Garg for booking orders. The orders for Amarchand Agarwal & Co. were booked by Ram Lal Garg (Letter dated 8-5-1979 at pages 93-95).
2.1 On 9-4-1979 and on 10-5-1979, the department had taken the statement of Madan Raj Mehta, partner of Nakoda Transporters which are at pages 17 to 21. In this statement of 9-4-1979, Madan Raj Mehta had stated that he had transported titanium dioxide to Ahmedabad for only three parties, viz., Sunder & Co., Industrial Chemicals and Amarchand Agarwal & Co. In this statement Madan Raj Mehta had stated that he does not know the sender or the person who had brought but knew the recipient who was Anubhav Trader as all the charges were to be paid by them. In the second statement Madan Raj Mehta stated that Ratan Lal was the proprietor of Anubhav Traders to whom the goods were sent. He also stated that the weight of each consignment duly packed used to be 24 kg. A third statement was taken from Madan Raj Mehta on 29-12-1980 wherein the details of bills of goods as reproduced above was given. In this statement Madan Raj Mehta again reiterated that he had known only Anubhav Traders and not the three parties. He further state that goods duly packed were accompanied by proper bills which is the usual practice, as such, no examination was ever done and further the bills were always made to pay, i.e., to be paid by the receiver. Regarding the genuineness of the parties sending the goods, it was stated that the transporter acts as a postman who knows to whom the letter must be delivered. To a query as to why the three firms could not be treated as belonging to him and the profit that arose from the transaction taxed in his hands, the reply given was that he does not carry out any trade relating to titanium dioxide or caustic soda but only transports goods belonging to others. In case evidence is gathered or available which leads to conclude that the business or transaction was done by them, then necessary action may be taken including prosecution. Another query was that certain goods which are said to have been delivered to Anubhav Trader, according to them they have not received the same, therefore, why not the selling price of Bill Nos. 1681, 754, 513, 860 and 1600 be added to your income. The reply given was that the goods were delivered to Anubhav Traders and payment was duly received from them and has been so entered in the books. The photocopy of receipts issued was also taken by the department. This statement was later followed by an affidavit dated 1-1-1981.
2.2 From 23-8-1979 to 29-8-1979 the department conducted the survey of the premises of Gulabdas Jagannath & Associates, Gulabdas Jagannath and also the premises of their partners. The assessee is a partner in his individual capacity in Gulabdas Jagannath & Associates. Gulabdas Jagannath deals with soap, soda urea, BHC powder and other chemicals and Gulabdas Jagannath & Associates deals in the titanium dioxide. In the raid, the department seized the following documents : (a) a visiting card bearing the name Industrial Chemicals, Nakoda Bhawan Chopasini Road, Jodhpur, telex and telephone of the assessee-firm; (b) Correspondence between Industrial Chemicals, Guj., Chem.
Distilleries India Ltd., Billimora, Gujarat and Chemical & Ancillaries Services for the period February and March 1977 (Pages 2 to 5 of paper book).
The assessee was asked to explain the above but no satisfactory explanation was given. Later the assessee vide letter dated 12-9-1979 in section 132(5) of the Income-tax Act, 1961 (the Act) proceedings (pages 23-26) submitted the particulars of all related concerns of the assessee. In this letter the assessee had submitted that the products of Cellulose Product of Indian Ltd. yielded a goods margin and there arose a desire to get the agency and the agency under the name of Industrial Chemicals was sought. The correspondence dated February and March 1977 that were seized on 23-8-1979 were in that connection only.
The agency was not granted and, therefore, the Industrial Chemicals was shelved. It was further stated that no business was ever done under the banner Industrial Chemicals.
2.3 The department carried on investigation further. Praveen Kumar an employee of Nakoda Transport Co. (who became a partner of that firm later) wrote a letter to the ITO, Jodhpur dated 30-1-1981, followed by an affidavit dated 18-2-1982 and examination and cross-examination by assessee on 18-2-1982. Praveen Kumar stated in his letter dated 30-1-1981 that the goods of the threes firms were given by Shyam Sunder Dhoot of Gulabdas Jagannath & Associates to be sent to Ahmedabad. Even the bills were given personally by Shyam Sunder Dhoot. He further stated the goods were delivered to Anubhav Traders of Ahmedabad. This statement was confirmed by an affidavit dated 18-2-1981. Praveen Kumar was cross-examined by assessees counsel Mr. Mertia on 18-2-1981. the counsel put a specific questions which reads as : Answer : On receipt of a notice from Income-tax Department in connection with my firms case, I had given the affidavit.
Answer : The notice required me to give information regarding transportation of titanium dioxide and caustic soda which I had given as was existing in my firms books and to the best of my knowledge and belief and out of my own freewill.
Question 20 & 22 : Can you show the notice after obtaining it from your counsel Question 24 : You had mentioned in your affidavit that for transportation of these goods, Shyam Sunder Dhoot had contacted you, kindly tell me how did he contact you Question 27 : Kindly mention the names of other partners of your firm who had given statements in this case Question 28 : Did he also stated that Shyam Sunder Dhoot sent the goods Question 29 : Did you prepare the various bills as has been mentioned in your affidavit Question 37 & 38 : Kindly tell as to when Shyam Sunder Dhoot contacted you in connection with the consignment transported Answer : He came to our Jodhpur officer personally about 3-4 days prior to the first consignment and also spoke over the phone about two hours prior to the dispatch of goods.
Question 40 & 41 : Kindly give the name of the office of Shyam Sunder Dhoot Answer : The only office name I had known was Gulabdas Jagannath & Associates.
Question 47 : Did you discuss about transportation request made by Shyam Sunder Dhoot with Madan Raj Mehta, your partner Question 51 : What is the connection between the three firms and Gulabdas Jagannath & Associates with Shyam Sunder Dhoot Answer : There is connection between the three firms and Shyam Sunder Dhoot as it was he who had contacted me for transportation of goods of these three firms, both personally as well as over the phone.
Question 52 : Did the Shyam Sunder Dhoot, while taking to you mention the names of the three firms or did he send the bills only later Answer : While talking to me he did not mention the names of the three firms. He only mentioned that lot of titanium dioxide and caustic soda have to be transported and asked for the charges which was given to him and I also gave him the addresses of our office at Narul and Ahmedabad.
The bills were sent by him through a messenger along with the goods. In our business we had come across instances where there are a number of relate concerns of the one and the same person. Shyam Sunder Dhoot never mentioned the names of the three firms but since the very same goods which Shyam Sunder Dhoot wanted to be transported had been received I concluded that the three firms belonged to him only.
Question 53 : Did Shyam Sunder Dhoot had a talk with you in connection with all the bills Answer : No. He spoke to me for 4-5 bills only and as for the rest he spoke to Sharma my employee. At the start for transportation, it was Shyam Sunder Dhoot who talked to me.
Question 54 : Kindly tell the nature of during and responsibilities of Sharma.
Answer : Mr. Sharma was our administrative officer and at present he is no more in our service and it is over one year since he had left us.
When he was leaving us, he mentioned that he was going to Bombay but did not leave any address.
Question 55 : When Shyam Sunder Dhoot talked to you, was Mr. Sharma present at that time 2.4 An order under section 132(5) was passed by which an amount of Rs. 5 lakhs aggregate of the bills was treated as income of the assessee.
Assessee had moved an application under section 132 (1) (ii) to the Commissioner which is still pending.
2.5 During the proceedings the ITO keeping the various facts gathered as above in mind, examined Ratan Lal of Anubhav Traders on 6-3-1982. On this day he had asked Shyam Sunder Dhoot to be present while adjourning the case on 27-2-1982 without mentioning that he had called Mr. Ratan Lal for examination. On 6-3-1982 Shyam Sunder Dhoot called Mr. Ratan Lal for examination. On 6-3-1982 Shyam Sunder Dhoot did not attend as he was away to Gujarat Alkalies & Chemicals Ltd. Mr. Ratan Lals statement was recorded in the presence of Mr. Mertia, the assessees counsel. Mr. Mertia was asked to cross-examine him who refused to do so on the plea that his client away and that it is he who would like to cross-examine Ratan Lal. The statement of Mr. Ratan Lal is at page 65 of the paper book.
Question 1 : Did you on behalf of Anubhav Traders purchased titanium dioxide and caustic soda from Sunder & Co., Amarchand Agarwal & Co. and Industrial Chemicals Answer : The person who contacted me mentioned his name as Ram Lal Garg.
Question 6 : Is the photograph that is shown to you is that of Ram Lal Garg Question 7 : Kindly examine the photograph carefully and then put your signature on the back of it The counsel for the assessee was alleged to be present at the time of recording this statement but refused to cross-examine Ratan Lal on the plea that his client would do the same.
2.6 The ITO was thus convinced that the three firms Sunder & Co., Amarchand Agarwal & Co. and Industrial Chemicals belonged to the assessee for the following observations : (a) Seizure of visiting card of Industrial Chemicals and Correspondence from Industrial Chemicals; (c) Assessee stating on 23-8-1979 that he did not know any thing about the seized document and stating that he did not know any concern by the name Industrial Chemicals; (d) Assessees letter of 12-9-1979 about the correspondence as was done in 1977 only and that no business was ever done is only an afterthought and is quite contrary to what he had stated on 23-8-1979; (e) Statement of Praveen Kumar which was found to be iron clad against the assessee; (f) Ratan Lals statement combined with his recognising Ram Lal Garg from a photograph which was the photograph of Shri Shyam Sunder Dhoot; and (g) Assessees refusal to cross-examine Ratan Lal on 6-3-1982 and assessees action of absenting from appearance on 6-3-1982 was out of fear of being recognised as Ram Lal Garg.
The ITO, thus, very much convinced that it was the assessee who represented himself as Ram Lal Garg had carried on transaction which were not accounted for, proceeded ahead to make the assessment on him.
He considered serial numbers of the bills and then observed as under : "The details mentioned above suggests that the bills were issued in the regular course of business and the sequence in which the bills have been issued clearly shows that all the bills from serial No. 1 to 3314 in the name of Sunder & Co., from serial No. 1 to 1839 in the name of Amarchand Agarwal & Co., and serial No. 1 to 2525 in the name of Industrial Chemicals were issued and the goods sent to various places.
The department has been able to locate 13 bills/bilty only but sequence in which bills have been issued suggests that each and every bill was issued. The 13 despatches located by the department were sent against the rest of the bills were sent to the other places which are known only to the assessees. Therefore, for the purpose of computation of concealed income the inclusion of rest of the bills is justified. In this connection copies of some of the bills but covering all the three firms were given to the assessee asking him why not the rest of the bills should also be taken into consideration for the purpose of computation of income. The learned authorised representative through one of his messengers sent a letter the substance of which is that only the material on record could be relied upon, if at all the addition is made on account of business carried on by the fictitious concerns which the assessee which the assessee disowns, the argument of the assessee is not convincing in the light of the above discussion and also for the reason taking that the authorised representative has not given any argument for not fictitious concerns. The assessee has not co-operated with Income-tax Department, and also as the assessee has failed to disclose fully and truly all material facts of his income, I have no alternative but to estimate the income from the material available on record with the department.
From the above details I find that the bills against bilty Nos. 860, 864 and 1600 are on higher side. Therefore, I am leaving excess over the average of these bills for separate consideration. The average of rest of 10 bills comes out to Rs. 23,223. For the sake of more reasonable estimate, I further restrict this average to Rs. 15,000 per bill which is about 2/3rd of the above amount.
But keeping in view the various contingencies of business, which might have occurred, I take total number of effective bills at 5,000.
Thus, sales through 5,000 bills on the estimate average of Rs. 15,000 per bill comes out to Rs. 7,50,00,000 and to this figure I add again on estimate basis Rs. 5 lakhs on account of bills which have been issued for higher amount. Looking to the facts and circumstances of the case, it apply a gross profit rate of 4 per cent which gives a total gross profit of Rs. 30,20,000. Out of this, a deduction of the extent of 25 per cent is allowed to the assessee for the items of profit and loss account. Thus, the net profit earned through these concerns is taken at Rs. 22,65,000.
It may also be mentioned that he source of investment in purchase and sale of the goods is also not known and, therefore, on estimate basis I take the initial investment for carrying on the business through the above concerns at Rs. 1,50,000. Therefore, the total concealed income on account of business carried on in the name of fictitious concerns comes to Rs. 22,65,000 plus Rs. 1,50,000 (under section 69) = Rs. 24,15,000.
The assessee has not produced any proper books of account and the sale and purchases of the assessees goods sent on behalf of the 3 concerns has not been recorded in the books of account and, therefore, the provisions of section 3 in respect of sale through bogus concerns are applicable in this case. Therefore, the bills issued by these three concerns up to 31st March 1979 have been taken into consideration in the assessment year 1979-80 as the transaction made in the financial year 1978-79 are to be considered in the assessment year 1979-80 itself under aforesaid provisions of the Income-tax Act, 1961. The approval of the learned IAC (Assessment) to this addition is contained in the following words : (vi) The argument of the assessee is that sales cannot be estimated on assumptions. I am afraid, it is precisely the thing, the department can do when the men making the bills fails to tell the truth to the revenue. If the arguments like the one given in paragraph 2 of the objection letter, are acceded to, then it will amount to a premium on dishonest and will encourage the assessee to indulge in illegal activities with impunity. I have already given the details of method adopted by the ITO to estimate the income from these concerns on the basis of the available bills of these concerns. As the man in charge of business failed to say more, then the ITO was justified in estimating the gross turnover of the assessee. The indirect suggestion of the assessee that the department should find the other bills, i.e., produce them and only then estimate the income is unheard of the not as (sic) per the requirement of any civilised law. It is well known that businessmen always issue bills in serial numbers. The highest number of bills issued by various concerns and available with the department have been made in the basis for estimation by the ITO. He has not increased the number of bill. I do not find any fault in his working. Estimation of the assessees income from these concerns is approved.
(vii) The authorised representative of the assessee vide his letter dated 4-8-1982 brought on record 12 letters of transporters of Jodhpur to show that no goods of these concerns were transported by them. For the reasons mentioned in (vi) above, the evidence is rejected as irrelevant. I wish the assessee and his authorised representative had taken equal trouble in giving the true particulars to the department, so that the facts in the matter could have been easily established without the botheration of their estimation.
(viii) The ITOs estimation of initial investment in the business of three concerns Rs. 1,50,000 is very reasonable and, therefore, no interference in the matter is being made." 3. Aggrieved by this order the assessee preferred appeals to Commissioner (Appeals). The observation of the Commissioner (Appeals) was : (a) Regarding seizure of visiting cards and correspondence of Industrial Chemicals, assessee stating that he does not know anything about them, later correcting it by a letter and the address in the bills which were found to be bogus, adverse inference could be taken against the assessee : (b) The ITO should have given the assessee another opportunity to cross-examine Ratan Lal of Anubhav Traders; (c) Though all goods have been sent to Anubhav Traders only the following were found entered in the books of Anubhav Traders : Apart from these, there were certain credits favouring Sunder & Co. and Industrial Chemicals which the ITO has not examined.
(d) Anubhav Traders have sold goods to Gulabdas Jagannath and Gulabdas Jagannath & Associates and, thus, Ratan Lal would have known Mr. Shyam Sunder Dhoot earlier. ITO should have asked Ratan Lal to whether Shyam Sunder Dhoot and Ram Lal Garg are one and the same person or not; (e) Books of Anubhav Traders must be examined thoroughly regarding all transactions with the assessee; He, therefore, set aside the order of the ITO to re-examine the issue afresh.
4. Aggrieved both assessee and the department have come up before us.
Mr. G. D. Gargieya, the learned counsel for the assessees argument was that the seized documents clearly established the fact that assessee had nothing to do with the three concerns at all as alleged by the department. According to him, the correspondence clearly indicated that assessee did not have anything to do with Industrial Chemicals after March 1977 when the agency was refused. The department had not found any evidence which establishes that assessee had carried on any business in the name and style of Industrial Chemicals from 1977 onwards.
4.1 The next argument was that the setting up of Industrial Chemicals in 1977 was for the dealing in industrial spares while the concern having a similar name did trading of titanium dioxide.
4.2 The argument of authorised representative Mr. G. D. Gargieya was that Mr. Shyam Sunder Dhoot never did independent business either in earlier years or in the year or subsequently which fact is not disputed by the department. Whatever business he had done was all through and on behalf of the firm only. Reference was invited to the statement of Madan Raj Mehta partner of Nakoda Transport Co. (pages 17-21). He then referred to the statement of Ratan Lal of Anubhav Traders (pages 93-95) where he had stated of having sold goods to the firm Gulabdas Jagannath & Associates on 19-10-1978 which establishes the fact that Shyam Sunder Dhoot was known to Ratan Lal. In this letter to ADI, Ratan Lal had stated that Ram Lal Garg represented only Sunder & Co. whom he had known personally, if Ram Lal Garg was in fact Shyam Sunder Dhoot he would have stated so. Mr. G. D. Gargieya further submitted that some photograph purported to be of Ram Lal Garg was shown to Ratan Lal which he had recognised but he was made to sign on the back of photograph of Shyam Sunder Dhoot. It is assessees misfortune that he had to go to Ahmedabad on 6-3-1982, as otherwise on that day itself Ratan Lal would have clarified that Ram Lal Garg and Shyam Sunder Dhoot are two different persons. He made a reference to page 102 where the affidavit of the Branch Manager at Jodhpur Office of Anubhav Traders is provided wherein he has stated that Ratan Lal had known Shyam Sunder Dhoot for quite sometime as Shyam Sunder Dhoot used to come to their office. ITO waited almost over 20 days before he had made the assessment. He could have easily afforded another opportunity to the assessee. Even the IAC refused the opportunity to the assessee.
4.3 Mr. G. D. Gargieya then submitted out of 13 bills, the department had provided only six bills. He then by referring to the serial numbers of the bills submitted that Sunder & Co. issued bill No. 1048 on 30-9-1978 and is said to have issued bill No. 1013 on 26-10-1978 which bill number is very much earlier. Similarly, in the case of Industrial Chemicals bill No. 1875 is dated 9-11-1978 while bill No. 1539 is dated 7-2-1979.
4.4 Mr. G. D. Gargieya submitted that ITO made a very detailed examination of all the transaction with Anubhav Traders of earlier years and found to his satisfaction that all such transactions carried out by the firms Gulabdas Jagannath and Gulabdas Jagannath & Associates were all genuine. In the year the sales tax authorities have confirmed that the three concerns were fake while Anubhav Traders have allegedly issued C Forms to them. Mr. G. D. Gargieya laid emphasis on this point to the effect that Anubhav Traders the three firms had been carrying on certain clandestine dealings and to cover up the same being dug is trying to make the assessee a scape goat. This further establishes his grievance, he submitted about opportunity not being given to the assessee to cross-examine Ratan Lal.
4.5 Mr. G. D. Gargieya pleaded strongly that department has assumed motives that assessee was trying to evade the issue by not presenting himself on 6-3-1982 when the fact is that he was away in connection with a sales conference (pages 59-64). He made a reference to the letter dated 12-5-1983 from the ITO to the Commissioner (Appeals) which clearly indicates that everything is being assumed and adverse inference drawn on no basis.
4.6 Mr. G. D. Gargieya then referred to the assessees affidavit as also the statement of Madan Raj Mehta as also his affidavit (pages 71-72, 40-45) to the point that Madan Raj Mehta clearly stated that he did not know the sender or the three firms while Praveen Kumars answers to questions 7, 8, 11, 18 and 24 clearly indicate that he was tutored to say so and he had said to riggle out his firm from the clutches of the department. Mr. G. D. Gargieya submitted that ever Praveen Kumars statement clearly goes to establish that Praveen Kumar only assumed that Shyam Sunder Dhoot to be the owner of the three firms as identical products was dealt in by the assessee and since according to him, Shyam Sunder Dhoot talked to him about the transportation charges and after some time the goods have come to his office, he had thought that the goods were sent by Shyam Sunder Dhoot. This by itself a feeling of a person but not a finding of fact and from this any adverse inference as is drawn is totally incorrect. According to Mr. G. D. Gargieya the department has no positive evidence and let alone any circumstantial evidence at all against the assessee. He then referred to pages 81-92 where the statement of various transporters are attached none of them had transported any goods of the three firms in the year under consideration. This point was made in connection with the observation of the ITO in estimating the sales at Rs. 7.5 crores. The department had carried out the search for over six days and could not point out any defect with the books of the firms of the assessee nor they had found any unaccounted stocks or any other evidence which could lead to the conclusion that assessee had done any dealings outside the books.
Further, he submitted by reference to the copy of balance sheet of Travancore Titanium Product Ltd., a Government of India Enterprise (page 137), the only concern in India manufacturing the products titanium dioxide, its total sales all over India is about Rs. 8 crores, the estimates of ITO that the assessee had dealt in goods of a value of over Rs. 7.5 crores in thus clearly established to be totally baseless.
Apart from the assessee the concern had dealers and consumers in Rajasthan (page 121).
4.7 Mr. G. D. Gargieya further submitted that the department have failed to establish by any cogent evidence that assessee had to do anything with the fake firms as they have not found any cash or investment in firms or bullion or jewellery which the assessee had failed to explain. In case any person who does business which are not recorded at all, the same would be found in the shape of some unexplained cash or/other equivalent which is not the case at all here.
Even the alleged initial investment of Rs. 1.50 lakhs is pure imagination which is added under section 69A of the Act which addition could have been sustained only when such investment is established. Mr.
G. D. Gargieya, therefore, pleaded that the entire addition is mere surmise of the ITO and needed only to be deleted. He relied on J. K.Synthetics Ltd. v. O. S. Bajpai, ITO  105 ITR 864 (All.), State of Kerala v. K. T. Shaduli Grocery Dealer 1977 Tax LR 2031 (SC) at page 2033, Ganga Prasad Sharma v. CIT  127 ITR 27 (MP), Kishinchand Chellaram v. CIT  123 ITR 713 (SC), CIT v. Simon Carves Ltd.  105 ITR 212 (SC), Raj Mohan Saha v. CIT  52 231 (Assam), Roshan Di Hatti v. CIT  107 ITR 938 (SC), Bhimraj Pannalal v. CIT  412 ITR 221 (SC), T. C. N. Menon v. ITO 1973 Tax LR 1476 (Ker.) and Mehta Parikh & Co. v. CIT  30 ITR 181 (SC).
5. Mr. S. S. Ruhela, the learned departmental representative submitted that the observations by the ITO are absolutely on evidence which only needed to be upheld. The ITO had clearly made an observation that assessees letter of 12-9-1979 is only an afterthought as initially he pleaded ignorance about the seized documents. The assessee had not be able to shake Praveen Kumars statement which directly point out the double game played by the assessee. Statement of Madan Raj Mehta is not reliable ass it is too general and not specific. Ratan Lal clearly recognised the photograph of Shyam Sunder Dhoot to be Ram Lal Garg.
Shyam Sunder Dhoots affidavit is a self-serving statement which is no evidence. He placed reliance on CIT v. Durga Prasad More  82 ITR 540 (SC), Bhagatpura Motor Transport Co-operative Society Ltd. v. K. S.Jhala AIR 1965 Raj. 149 and Shyamsingh v. Dy. Inspector General of Police AIR 1965 Raj. 140. According to Mr. S. S. Ruhela Commissioner (Appeals) contradicting his views (sic). In paragraphs 18 to 21 he had found that the assessee has impersonated as Ram Lal Garg but wants ITO to examine the issue and again in paragraph 22 he mentions that the statement of Praveen Kumar clearly establishes that it was Shyam Sunder Dhoot who had sent the goods to Ahmedabad. But with all that he sets aside the orders of ITO. He, therefore, pleaded that order of ITO needed to be restored.
6. We have heard the parties and considered all the materials that have on the assessee on the basis of information collected at the time of similar operations on transport operators. From Nakoda Transport Co.
the department had collected information that the three firms Sunder & Co., Amarchand Agarwal & Co., and Industrial Chemicals had sent goods vide 13 bills through them to Anubhav Traders, Ahmedabad. Anubhav Traders, accepted having received some goods through Nakoda Transport Co. from the three parties. Nowhere they had mentioned how and to whom the payment was made, i.e., by cash, cheque or bankers draft while they had mentioned that for the sales made to Gulabdas Jagannath on 19-10-1978, the price wax paid by bankers draft. The department clearly failed to examine this part and had they done this exercise they would have established a valid case against tax evader. Apart from this in the survey they seized a visiting card bearing the name of Industrial Chemicals and some correspondence of February and March 1977 which indicates that the assessee desired to have the agency of industrial spares which project dieds very soon even before its birth. The only coincidence is that name Industrial Chemicals which has purported to have sold goods to Anubhav Traders. There is no denial that the documents do raise a doubt in view of identical names, but that by itself would mean nothing unless by cogent evidence it is established that assessee had done some clandestine sales. This could have been established if department had found cash, investment, jewellery, etc., at this time of search which the assessee failed to explain. In the instant case, the undisputed fact that remains is that no such unexplained cash, etc., have been detected or found by the department.
6.1 The other issue made by the department is that on 23-8-1979, i.e., on the date of survey assessee denied flatly to have known the firm Industrial Chemicals at all, which was later contradicted by a letter dated 12-9-1979 where assessee state4d that he had desired to start a firm by name of Industrial Chemicals in 1977 and could not do so as agency was refused and the conclusion was drawn by the department that assessee is only trying to cover up. We are unable to accept this so-called natural conclusion drawn by the department for the reason that what the assessee stated was at the particular period of time and from 1977 he did not carry on any business by name of Industrial Chemicals. This he had clarified by the letter dated 12-9-1979. The sheer fact that the correspondence ended in March 1977 goes to indicate that there was nothing contradictory in what assessee stated on 23-8-1979 and on 12-9-1979. Merely for the reason that Industrial Chemicals and assessee deals in similar goods conclusion drawn by the ITO in our opinion is invalid as assessee has shown from the letter of the manufacturer of titanium dioxide that apart from assessee, goods were sold by them to three parties that too only at Jodhpur.
6.2 Much reliance has been on the statement of Praveen Kumar. Praveen Kumars statement clearly indicates that he only presumed that the same person had sent the goods who enquired of him about the transportation charges and this presumption he had based on the basis of time, i.e., within about two hours of the enquiry goods came to him for despatches.
The presumption is also based in the similar nature of goods. Praveen Kumar admits that Shyam Sunder Dhoot never mentioned the names of the three firms but he concluded it to be belonging to him as the said firms dealt with similar goods whose goods were transported by his trucks. Another reason given by him for his conclusion that Shyam Sunder Dhoot was the owner of the three firms was that he was aware of a number of sister concerns of one firm. The department on the basis of this statement which is entirely a presumption and opinion or feeling of a person had held the assessee to be the owner of the three firms.
Praveen Kumars statement clearly reveals that his conclusions are not based on any facts or evidence and the department have not placed any evidence to lead us to conclusion that the statement is reliable to sustain any addition on the assessee.
6.3 Ratan Lals statement on 6-3-1982 again cannot be held against the assessee. The reason being he had earlier on 8-5-1979 had given the sales tax numbers of the three firms and also admitted to have received some of the consignments. He had apparently issued the C Forms which a dealer is required to provide to another dealer as a dealer is not required to pay sales tax when he purchased from another dealer. He is totally silent about the manner of payment of these consignments.
Further the records of Nakoda Transport Co., shows that all the 13 consignments were sent to Anubhav Traders while Anubhav Traders acknowledges only a part as having sold goods to Gulabdas Jagannath & Associates on 19-10-1978 for which payment was duly received by bankers draft but very carefully omitted about the goods purchased by it from the three firms or to even to provide any explanation about the part of the consignment which was sent to them but not shown as received. All this only lead us to conclude that the statement of 6-3-1982 by Ratan Lal was premediated one and given to escape out from the department.
6.4 The department had kept the assessee in dark by not informing about the proposed examination of Ratan Lal on 6-3-1982, perhaps on the genuine belief that Shyam Sunder Dhoot and Ram Lal Garg were one and the same person and by informing of such examination assessee might not turn up at all. When assessee did not present himself, the department concluded that assessee had avoided being recognised and concluded that doubt has been proved to be correct. This made them to refuse another opportunity to the assessee to cross-examined Ratan Lal. When we consider the fact of letter dated 8-5-1979 from Ratan Lal as also the statement of the Branch Manager at Jodhpur of Anubhav Traders, it only establishes that Shyam Sunder Dhoot and Ratan Lal had known each other as traders in the same line of business and, therefore, Shyam Sunder Dhoot and Ram Lal Garg are two different persons. Therefore, the statement of 6-3-1982 is unreliable as an evidence against the assessee.
6.5 As already mentioned earlier, the department seized only a visiting card and the correspondence of 1977 between Industrial Chemicals and Gujarat Chemicals Distillers. The bills of the three firms were not found in the premises of the assessee. Except for the letter pads, nothing else was found. No books of account of three firms were found in the assessees premises. No cash or other investment has been found.
The only two aspects that are existing are : the similarity of name Industrial Chemicals and similar type of goods traded in. Are these sufficient to indict a person In our opinion, these are clearly not at all sufficient.
6.6 The department provided the assessee copies of only six bills out of the total 13. Even here, by referring to the serial numbers of these bills we find as pointed out by the assessees counsel that in the case of Sunder & Co. bill No. 1048 is dated 30-9-1978 while bill No. 1013 is dated 26-10-1978 and similar is the case with bills of Industrial Chemicals. Bill No. 1875 is dated 19-11-1978 while bill No. 1539 is dated 7-2-1979. Latter serial number of bills appears as issued earlier, while earlier serial numbers of bills are issued subsequently.
When taking action under section 132, the ITO has a right to make all kinds of presumptions but while making an assessment additions, if any, or best judgment must be based on some reasonable evidence. As already pointed out, the department has not found any cash or investment of whatever sort which the assessee could not explain, but on the other hand, the ITO was thoroughly satisfied with the books results of the firms after a detailed checking. The only addition which was made was the so-called unaccounted for sales by the assessee and the alleged initial investment of Rs. 1.50 lakhs. There has been no withdrawal from anywhere to the extent. Even the addition of Rs. 1.50 lakhs which was made under section 69A is again totally imaginary. For making any addition under section 69A, the department must have detected some actual investment which the assessee had failed to explain. The reading of the section indicates that for making an addition, the investment must have been established and no addition can be made on what is called investment would or should have been made. The department believing what they had collected as sufficient material against the assessee and on the basis of bill numbers concluded that total number of bills not accounted for was over 7,000 and arrived at a total sale of Rs. 7.50 crores. The department had known that Travancore Titanium Products Ltd. were the only manufacturer in India of titanium dioxide whose products the assessee used to deal in through his firms. At best the department could have possibly enquired of the total quantity manufactured by them and sold by them in Jodhpur. As per the manufacturers balance sheet they had produced a total quantity of 8362 M. tons in the year which yielded them a turnover of around Rs. 8 crores. This manufacture is Government of India enterprise and has supplied vide letter dated 6-11-1979 the list of the parties other than Gulabdas Jagannath & Associates which does not include the names of the three firms. Therefore, this clearly established that assessee would not have purchased whole of the goods manufactured and, therefore, the sales estimated is purely imaginary which under no circumstances can be said to be the best judgment of the ITO. Times and again, the Courts have repeatedly had reality. The Madhya Pradesh High Court in the case of Ganga Prasad Sharma (supra) have held that while making a best judgment assessment though there must necessarily be guesswork in the matter it must not be arbitrary. The Gauhati High Court in the case of Raj Mohan Saha (supra) have observed that the ITO is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment. They have further observed if the ITOs findings were based on mere guess and could not be supported, the same cannot be said to be material to sustain the findings.
6.7 The Supreme Court in the case of Kishinchand Chellaram (supra) have observed making an addition based on hearsay is not permitted. In that case there were telegraphic transfer by the employee of the assessee from one office to another. The ITO wrote two letters to the manager of the bank. The said letters were not provided to the assessee. The manager confirmed that the telegraphic transfer sent from Madras was received by Bombay office and the amount was paid to the employee of the assessee on the same date at Bombay. On the basis of the letters the Tribunal concluded that the amounts were transferred by the assessee and, therefore, was undisclosed income of the assessee. The Supreme Court observed that the two letters from the bank manager do not constitute any material evidence which the Tribunal could take into account for the purpose of arriving at the finding that the sum was remitted by the assessee and if these two letters were eliminated there was no material evidence at all the which could support its finding.
The statement of the manager in those two letters were based on hearsay.
6.8 The Supreme Court in Roshan Di Hattis case (supra) made an observation that the onus of providing the cause of a sum of money found to have been received by an assessee is on him. If he disputes the liability for tax, it is for him to show either that the receipt was not income or that if it was exempted from taxation under the provisions of the Act. They have made further observation that answer to certain formal questions given by the assessee could not be the basis for coming to the conclusion that the assessee has no explanation or evidence to support it.
6.9 In the famous case of Supreme Court Mehta Parikh & Co. (supra) their Lordships held that the Court would be entitled to intervene if it appears that the fact finding authority has acted without any evidence or upon a view of facts which would not reasonably be entertained or the facts are such that no person acting judicially and properly as to the relevant law would have come to the determination in question. In that case the department was questioning about 61 high denomination notes which were encashed by the assessee. For about 30 such notes the explanation of the assessee was rejected purely on surmises and there was no justification for having accepted explanation for part of the amount and not applying the same for the balance.
6.10 In the instant case, the department had proceeded right from the start that the assessee was the owner of the three firms, i.e., from section 132 proceedings which according to them become iron clad by the statement of Praveen Kumar. The entire presumption that assessee was the owner according to the department was established by the seizure of the visiting card and the correspondence of 1977. The department had no other evidence apart from the visiting card and the correspondence of 1977. As already observed no cash or investment, etc., have been found and, in our opinion there can be said to be no material on record let alone any positive evidence which could lead us to conclude that the action of the ITO was justified at all. Even the assessee dealt vide order dated 30-3-1984 made under section 16 (viii) of the Act by the same office goes further to establish that addition were not at all warranted. We are, therefore, of the view that the action of the department was wholly unwarranted and no addition could be made on the assessee at all. We, therefore, delete the entire addition of Rs. 24.15 lakhs.
7. In the assessees appeal ground No. 10 is in respect of Commissioner (Appeals) not deciding the issue in respect of other grounds taken by the assessee before him. In view of the fact that we have held that the Rs. 24.15 lakhs cannot be assessed as income of the assessee, we direct the Commissioner (Appeals) to hear the matters relating to ground No.10 taken before us and dispose of the matter.
8. In the result, the departmental appeal is dismissed and the appeal of the assessee is partly allowed.