By TIOL News Service

AHEMDABAD, JUNE 30, 2017: THE ISSUE BEFORE THE COURT IS - Whether addition made during search operation on the basis of loose papers / statement of a person who did not appear during cross examination, is no valid addition. YES is the verdict.

Facts of the case:

The assessee is a partnership firm and at the relevant time was in the business of dealing in plastic materials and was a distributor of Indian Petrochemicals Corporation Ltd. The assessee's premises were subjected to search operation principally at the office situated at Vanijya Bhavan, Vadodara. Several documents and papers were seized. Some of these documents were typed, giving details of outstanding amounts payable to M/s.J.K.Enterprises i.e. assessee by the purchasers. On these typed documents, Mr.Jagdish Mehta, 50% partner of the firm, had in his own handwriting had made some remarks. The revenue noticed that on the total outstanding amount of Rs.27.69 Lacs calculated by the assessee, the interest of 6.5 Lacs came to 27.5% thereof. The AO noticed that J.L.Mehta in his handwriting had made entries of various amounts against outstanding amount dues of the purchasers. The AO was of the opinion that it was this amount of Rs.6.65 Lacs when divided by two would come to Rs.3.32 Lacs, the share of J.L.Mehta in the partnership, which according to the notings was to be paid to him. The AO verified whether the sales worth Rs.27.69 Lacs were reflected in the accounts of the purchasers or not. The AO issued summons to four of them and verified their books of accounts. The AO found that in case of none of these parties the sales were appearing in the books of accounts. The AO also noted that the assessee had showed sales to one M/s.Jhaveri Polymers Pvt. Ltd. of Baroda. During the search and seizure operation in case of M/s.Jhaveri Polymers, it was found that the said sales were not reflected in its books of account. The AO further noticed that during search at the office premises of Shri J.L.Mehta, a partner of the firm, pay-inslips of bank account of Union Bank of India, Alkapuri Branch, Baroda, which was in the name of M/s.Devidayal Plastic Industries of Bombay were found and seized. The AO noted that cash deposits of Rs.99.90 Lacs spread over three financial years i.e. 1990-1991 to 1992-93 were made in the said accounts. It was found that such cash was deposited by Janak Shah, Accounts Clerk of the assessee firm. Janak Shah, in his statement, recorded on oath admitted that he had deposited cash in the bank account.

On appeal, the HC held that,

++ the AO made the additions believing that the amounts in question reflected premium charged by the assessee in cash, computed at the rate of 27.5%, has reflected sale price. This view was also confirmed by the Tribunal giving slightly different reasons. Court did not find that the Tribunal committed any error. The entire issue was based on appreciation of evidence on record. Though the AO had proceeded on the basis of certain statements made by Balkrishna Devidayal, who had not appeared for crossexamination, the Tribunal noted that subsequently crossexamination was offered and carried out, but no contrary evidence came on record. This is, therefore, not a case where the additions are made on the basis of mere loose papers seized during search. It is a case where the documents seized during search contained entries made by the partner of the firm admittedly in his own handwriting and contained reference to the cash receipts. His explanation was simply either non-existent or not acceptable.

(See 2017-TIOL-1222-HC-AHM-IT)