A.D. Jain, J.M. :

1. The assessee is a partnership firm carrying on the business of trading in Stainless Steel Pattas (‘SS Pattas’, for short). For asst. yr. 1993-94, the assessee filed a return of income, declaring an income of Rs. 66,826. TheAssessing Officer found the assessee to have made its entire purchases of Rs. 4.42 crores from three concerns of Jodhpur. These three firms carried on the business of rerolling SS Pattas. The partners of the assessee-firm, alongwith their other family members, owned them. The assessee’s purchase prices for SS Pattas of various sizes and gauges ranged from Rs. 32 per kg. to Rs. 47 per kg. On total sales of Rs. 4.66 crores, the assessee had declared a gross profit margin of around one per cent. TheAssessing Officer observed that the assessee’s purchase documents stated lot number, challan number, size, gauge, number of Pattas, number of bundles and total weight, etc., whereas the assessee’s sales bills and challans did not contain these details. They mentioned only total weight sold and rate per kg. On query, the partner of the assessee firm, in his statement recorded under s. 131 of the IT Act, showed his inability to correlate, from the purchases and sales bills, as to which item purchased at what price, had been sold at what price.

2. The assessee maintained one godown at Bhayander and another at C.P. Tank, Bhuleshwar, Bombay. Out of a total purchase of 10,38,949 kg of SS Pattas, the assessee was found to have received 1,08,311 kg in Bombay. The balance 9,30,637 kg was received at Bhayander. It was further found that the assessee’s entire octroi payments were only for receipt of these goods at Bombay and Bhayander.

3. The partner submitted in his statement that on sale, the transport costs, etc., were to be borne by the purchaser. Vide Chartered Accountant’s letter dt. 3rd Jan., 1996 to theAssessing Officer , it was stated that delivery was always given ex-godown.

4. As per theAssessing Officer , since 90 per cent of the goods purchased were received at Bhayander, the assessee’s major portion of sales should have been beyond Bombay Municipal limits. However, from the assessee’s sales bills, the assessee was found to have made sales of only Rs. 20.74 lakhs (48,479.150 kg) in areas outside Bombay. Sale of Rs. 4.46 crores (9,95,276.140 kg), i.e., the major portion of the sales, was found made to Bombay parties. TheAssessing Officer issued summons to some Bombay parties, whose sales were more than of Rs. 3 lakhs, in order to investigate the genuineness of the assessee’s sales. The parties were required to furnish the details of:

(a)place of delivery;

(b)transportation costs and by whom incurred;

(c)octroi duty payments and by whom made;

(d)prices at which they further sold the goods; and

(e)their IT Nos.

5. The response has been classified by theAssessing Officer as under :

(A)Parties not traced at addresses given by the assessee;

(B)Parties served but avoided furnishing details;

(C)Parties who furnished incomplete details.

6. The assessee was asked to produce the A and B category parties, lest sales to them be treated as hawala transactions. Vide letter-dated 3rd Jan., 1996, the assessee replied that it would amount to breach of trust upon the honest assessee, because the customers were not available after two years in a city like Bombay. TheAssessing Officer was of the opinion that it was highly improbable that such a large number of parties (20 in all) became untraceable within a short period of two years. The burden to produce them was stated to be on the assessee, which it failed to discharge.

7. The first three of the Category ‘C’ parties confirmed having received delivery of 1,55,985 kg SS Pattas in Bombay. They stated that they had not paid any transportation cost or octroi for bringing the goods to Bombay.

8. TheAssessing Officer noted that in its Bombay godown, the assessee had only 1,10,322 kg of material for sale during the entire year. So, the assessee could not sell and deliver 1,55,985 kg material in Bombay without bringing material from outside Bombay. It was, therefore, concluded that the assessee had sold its entire Bhayander goods in cash to numerous small manufacturers of Thane, Vasai and Bhayander and then, the assessee had sold the sales bills to hawala operators in Bombay. The cash generated at Bhayander was used to square off the cheques received from the hawala operators, after deducting a certain percentage as hawala commission for providing bogus hawala entries.

9. As per theAssessing Officer , the income-tax files of the Category ‘A’ and Category ‘B’ parties confirmed that they were merely paper companies. They were in the business of providing hawala entries. So, they fought shy of revealing their sales prices. Their trading accounts showed abnormal percentages of profit, running into lakhs of rupees, from sales of computer hardware, shawls, carpets, etc. These profits were found set off against abnormal percentages of losses from alleged trading in SS Pattas. This left the companies with meagre profits of a few thousand rupees on turnovers of crores of rupees. TheAssessing Officer observed that one of the beneficiaries of these hawala companies was Magnum Films, owned by TADA detainees in the Bombay Bomb Blast Case, Samir Hingora and Hanif Kadawalla.

10. As such, theAssessing Officer treated only the sales of 1,10,322 kg in Bombay as genuine. The remaining sales of 8,84,958 kg allegedly made to Bombay parties, were held to be hawala sales. Out of total sales of Rs. 4,45,89,192 stated to be made to Bombay parties, a sum of Rs. 49,42,426 was reduced, to work out the quantum of hawala bills issued, at Rs. 3,96,46,766. The percentage of hawala commission was estimated at 5 per cent, amounting to Rs. 19,82,338. The total taxable income of the assessee was, hence worked out at Rs. 20,49,160.

11. In appeal, the assessee contended before the learned CIT(A), that it had produced before theAssessing Officer , complete quantitative details of purchases and sales, including quantitative stock records, invoices, octroi receipts, lorry receipts, bank statements, challans, stock registers, purchase bills, etc. TheAssessing Officer did not find any discrepancies in the books of account of the assessee. Account-payee cheques made payments for purchases of material. The payments received by the assessee were also by account-payee cheques. Octroi payment towards purchases for receiving the goods in the godowns was confirmed by theAssessing Officer . Details of sales tax returns were filed before him. The observation that the Bhayander goods were sold in cash was incorrect and without basis. The customers while taking delivery ex-godown gave the addresses given in the sales bills. Various customers were Private Limited Companies and were regular customers. As per theAssessing Officer himself, the Category ‘C’ parties furnished incomplete information. Regarding the category ‘B’ parties, theAssessing Officer stated that many Chartered Accountants attended without vakalatnama. That could have been so, only if parties were available. The assessee had not done any hawala business. The addition of Rs. 19,82,338 was made without following the principles of natural justice, merely on presumptions. The estimation was done without giving any comParative case. Interest under ss. 234A, 234B and 234C was wrongly levied.

12. Vide letter/written submissions dt. 20th Feb., 1997 (pages 67 and 68 of the assessee’s paper book), the assessee submitted to the learned CIT(A), inter alia, that the facts regarding the genuineness of the assessee’s business had already been verified in the course of reassessment proceedings for asst. yr. 1992-93, vide assessment order dt. 17th Oct., 1996, that the assessee firm’s business was discontinued in May, 1993 due to low margin of profit and disagreement amongst parties, and that no returns were filed after asst. yr. 1993-94.

13. Vide letter dt. 28th Feb., 1997 (page 69 of the assessee’s paper book), the learned CIT(A) asked theAssessing Officer to verify the assessee’s contentions from the assessment records, which, alongwith the aforesaid written submissions, were enclosed. TheAssessing Officer was asked to furnished his comments before 12th March, 1997.

13A. Vide letter dt. 11th March, 1997 (page 71 of the assessee’s paper book), theAssessing Officer submitted that the assessee was not available at its Girgaum address; that summons could not be served on the assessee at its ‘care of’ address, since the Ward Inspector was ill; and that further time of about a month be granted, to enable verification of the genuineness of the assessee’s transactions with various purchasers.

14. However, ex parte order dt. 18th March, 1997 (pages 10-15 of the assessee’s paper book) was passed by the learned CIT(A), confirming the assessment order.

15. TheAssessing Officer submitted Remand Report dt. 10th June, 1997 (pages 72 to 88 of the assessee’s paper book), including copies of the confirmation of parties. The following parties were stated examined :

(1)M/s. Bhavani Industries

(2)M/s. Poonam Industries

(3)M/s. Shantilal Amratlal and Co.

(4)M/s. Ketan Corporation

(5)M/s. Jain Enterprises

(6)M/s. Sea Gull Exports

(7)M/s. Pragati Metal Corporation

(8)M/s. Maamal Associates

(9)M/s. Mukesh Traders

(10)M/s. Manoj Mittal Industries

(11)M/s. Niket Metal Corporation

It was stated found that sales appeared to be genuine as per their books of account; that the various bank accounts were also verified; and that these parties confirmed that they had taken the deliveries of SS Pattas ex-godown of the assessee.

16. The Tribunal, vide order dt. 17th June, 1998 (pages 7-9 of the assessee’s paper book), restored the matter to the file of the learned CIT(A), for passing a fresh order in accordance with law after examining the report of theAssessing Officer and other material available on record. The assessee was also to be afforded a reasonable opportunity of being heard.

17. The CIT(A) issued remand order dt. 26th Nov., 1998 (pages 16-17 of the assessee’s paper book). It was observed that as per letter dt. 18th Nov., 1998, theAssessing Officer confirmed that no report dt. 10th June, 1997 was sent to the CIT(A)’s office. TheAssessing Officer , however, did not furnish any comment on the specific issues. The learned CIT(A) spelt out the following specific issues requiring verification by theAssessing Officer :

(i)Sales above Rs. 10 lakhs were made to three companies who could not be traced, namely, M/s. Jai Ambe Organic Export (P.) Ltd., M/s. Ashpon Impex (P.) Ltd. and M/s. Pinky Trading (P.) Ltd. Were these companies registered with the registrar of companies What happened to their income-tax assessments Any tangible evidence of hawala commission paid by them or any other party to the assessee

(ii)TheAssessing Officer ’s view as per the assessment order seems to be that the assessee had sold its goods in cash to different small scale manufacturers but obtained hawala entries to show the sales made to paper companies through cheque transactions. If the assessee was in need of hawala entries, presumably, he would be required to pay the commission to the party who might agree to provide the suitable hawala entries through cheque payment. Even so, theAssessing Officer held that the assessee had "earned" hawala, commission at 5 per cent of such hawala bills. What is the basis or evidence for the view taken by theAssessing Officer

(iii)Is there any evidence to determine at what rate the cash sales were supposedly make at Bhayander

(iv)Is there any evidence of higher GP rate shown by some other assessee engaged in the same trade

18. TheAssessing Officer was directed to make independent enquiries from the registrar of companies and theAssessing Officer (s) dealing with the concerned companies’ cases and other relevant sources in relation to the above points.

19. TheAssessing Officer submitted Remand Report dt. 24th Feb., 1999 (pages 18-19 of the assessee’s paper book). He stated as follows :

"The point-wise comments are as under :

(i )The inspector was deputed to enquire with the Registrar of Companies about three companies’ registration. He has also visited the concerned IT officer to verify in whose jurisdiction the companies are assessed. He collected information, which is given as under :

Name of the company

Registration

No./date with

Registrar of

Companies

Income-tax jurisdiction

(a) M/s. Jay Organic Export

(P.) Ltd., 128/131, Kazi

Sayed St. Raj Bahadur

Marg, Mumbai.

No. 55221 on

25th Jan., 1990

The case is assessed with ACS(3) at GIR No. 282-J but the returns are not filed since last 6 years.

(b) M/s. Ashpon Impex

(P.) Ltd. 43/45, 1st

Pathan St, 1st fl. Office

No. 9, Mumbai.

No such Co. is

registered

As per jurisdiction case should be with ITO Wd. 5(1) but no such Co. appears in the blue book.

(c) M/s. Pinky Trading

(P.) Ltd. J.V. Soc. M.G.

Road, Kandivili (E).

No. 62217 on

25th June, 1991

As per jurisdiction the case should be with ITO, Wd. 6(1). But no such Co. appears in the blue book.

(ii)As regards point (ii), theAssessing Officer in his assessment order at Para 9 on page 7 has mentioned that ‘from the above it is clear that the assessee after having sold the goods in cash at Bhayander has sold his bills to the hawala operators in Bombay. The cash generated at Bhayander has then been used to square off the cheques received from these hawala operators, after deducting a certain percentage as what is known in the market as hawala commission for providing a bogus ‘entry’ (i.e. hawala)’. This shows that the assessee is earning commission on providing entries to others, as he was not in need of hawala entries and as such he would not be required to pay commission to others. Thus, the view taken by theAssessing Officer is correct and as stated by theAssessing Officer in his assessment order, the estimation may not be 100 per cent correct. TheAssessing Officer ’s estimation @ 5 per cent seems to be reasonable.

(iii)TheAssessing Officer has arrived at the conclusion that sale of goods from Mumbai is much more than the stock available in its godown. At the same time a low sale was declared from Bhayander godown, compared to the huge stock at Bhayander. TheAssessing Officer has discussed this point at length in the assessment order and arrived at the conclusion that the assessee has sold the entire goods stored in Bhayander godown in cash to the hundreds of small manufacturers operating in the industrial belt of Thane, Vasai and Bhayander and then sold the sales bills to hawala operators in Mumbai. Therefore, it is not possible to show that there is any evidence to determine at what rate the cash sales were supposedly made at Bhayander.

(iv)As regards point (iv), though theAssessing Officer has not made any addition on account of low GP it is seen that theAssessing Officer had made general enquiries regarding GP rates from the assessees engaged in the same trade."

20. By virtue of the impugned order dt. 3rd June, 1999, the learned CIT(A) deleted the addition made by theAssessing Officer . It was held that theAssessing Officer had not pointed out any defect or discrepancy in the regular accounts maintained by the assessee; that theAssessing Officer had also not disputed that the entire purchases and sales of the assessee were fully vouched and all the payments received against the sale bills were through account payee cheques only; that the adverse evidence found by theAssessing Officer pertained to the sales made to several parties who appeared to be not doing any genuine business, but were merely acting as name lenders or hawala operators; that theAssessing Officer referred to the assessment records of three such companies, which depicted abnormal profits shown by these companies from various traders being set off against losses claimed in the trading of SS Pattas; that theAssessing Officer ’s inference that such name-lenders were merely paper companies and could be doing hawala business, appeared to be plausible; that however, the moot point was as to whether the assessee was also doing hawala business and earning the so-called hawala commission income.

21. The learned CIT(A) observed that in the remand order, theAssessing Officer was specifically asked to point out the basis or evidence to support the assessment of hawala commission income in the hands of the assessee; that theAssessing Officer , in the remand report dt. 24th Feb., 1999, merely reiterated Para 9 of the assessment order and stated that the observation in the assessment order that it was clear that the assessee, after having sold the goods in cash at Bhayander, has sold his bills to the hawala operators in Bombay and that the cash generated at Bhayander has then been used to square off the cheques received from these hawala operators, after deducting a certain percentage as what is known in the market as hawala commission for providing a bogus entry, i.e. hawala entry, showed that the assessee was earning commission on providing entries to others, as he was not in need of hawala entries and as such, he would not be required to pay commission to others and that thus, the view taken in the assessment order was correct and reasonable in making estimation at the rate of five per cent.

22. From the above position, the learned CIT(A) observed that there was no tangible evidence to prove that the assessee has actually received hawala commission in connection with any sale transaction; that so, theAssessing Officer ’s view that the assessee earned hawala commission, and that too, over and above the profits of genuine trading in the same commodity, was based mostly on conjectures and surmises.

23. The learned CIT(A) noted the contention on behalf of the assessee, that a contrary more plausible inference was possible in this case. Assuming that in a competitive market, the assessee had to sell its goods to small scale manufacturers of stainless steel utensils, who were doing unaccounted business in the industrial belt outside Bombay and were buying their raw material, i.e., SS Patta, in cash, either without bills or against bogus bills, and if such sales were made by the assessee without bills, as a logical consequence, the assessee itself would have no alternative, but to seek the help of hawala dealers to obtain accommodation entries for regularizing its own sales account. In such a situation, the assessee would most likely end up paying hawala commission to parties who might oblige him by making cheque payments against corresponding sale bills.

24. It was observed by the learned CIT(A) that it was evident from these contrary inferences possible, that no definite conclusion could be reached merely on conjectures and surmises coupled with the lone fact that certain parties, who make purchases from the assessee, were found to be hawala dealers.

25. The CIT(A) based his this view on the decision of the Hon’ble Supreme Court in the case of CIT vs. Daulatram Rawatmal 1972 CTR (SC) 411 : (1973) 87 ITR 349 (SC), wherein, it was held that there should be some direct nexus between the conclusion of fact arrived at by the authority concerned and the primary facts upon which that conclusion is based; and that the use of extraneous and irrelevant material in arriving at the conclusion would vitiate the conclusion of fact.

26. The CIT(A) further observed that the assessment order did not raise any issue of suppression of sales by the assessee. TheAssessing Officer who submitted the Remand Report also had not furnished any specific evidence on the point, despite queries raised in the remand order to show whether the assessee had declared its sales at rates lower than the prevailing market rates. The mere fact that the office addresses of most of the purchasing parties were of Mumbai does not lead to the inference that they or their assignees could have taken delivery of the goods from the assessee’s Bhayander Godown, particularly when, in all probability, the ultimate buyers were small scale utensils manufacturers situated in the same area.

27. It was held by the learned CIT(A), that in these circumstances, there was no valid reason to assume that the assessee might have kept any undisclosed excess stock of goods which it might have sold to various parties having addresses of Mumbai, as per the sale bills issued by the assessee. Such assumption was ruled out by theAssessing Officer himself, when he held that only the sales of 1,10,322 kg i.e., the goods available in the Bombay Godown, were held to have been genuinely made to Bombay Parties and the remaining sales of 8,84,958 kg to Bombay parties were held as hawala sales.

28. It was also held that the view taken by the CIT(A) in the case of M/s. Sarvottam Metals was applicable, more so, because unlike in that case, in the present assessee’s case, there was no purchasing party who had admitted his purchases from the assessee to be sham or bogus. The assessee’s case was also held be covered by the decision of the Hon’ble Bombay High Court in the case of R.B. Jessaram Fatehchand (Sugar Dept.) vs. CIT (1970) 75 ITR 33 (Bom) [LQ/BomHC/1969/53] .

29. Feeling aggrieved of the aforesaid order of the learned CIT(A), the Department has filed the present appeal before us. The following effective ground of appeal has been raised : "Whether on the facts and in the circumstances of the case and in the law, the learned CIT(A) erred in deleting the addition of Rs. 19,82,338 made by theAssessing Officer on account of hawala commission "

30. The learned Departmental Representative, Sh. Sanjay Rai, has pleaded that the CIT(A) has gone wrong in observing that in the assessment order, theAssessing Officer did not point out any defect or discrepancy in the regular accounts maintained by the assessee. The learned Departmental Representative pointed out that theAssessing Officer observed that whereas the purchase documents of the assessee showed all details like Lot Number, Challan Number, Size, Gauge, Number of Pattas, Number of Bundles, and Total Weight, etc. its sales bills and challans mentioned only total weight sold and the rate per kilogram. The partner of the assessee could not co-relate, from the purchase and sales bills, the items, the purchase price and the sale price thereof, respectively. These observations of theAssessing Officer were not taken into account by the learned CIT(A).

31. The learned Departmental Representative further contended that theAssessing Officer found that the assessee could not offer any proper explanation with regard to the sales made. There was a difference in the stocks available in Bombay and the sales made there. The burden was on the assessee to prove stock movement from Bhayander to Bombay. This burden was not discharged. So, the Commissioner (Appeals) wrongly held that delivery of goods could have been taken at Bhayander.

32. The CIT(A) has taken note of the assessee’s submission that mere non-availability of some of the purchasers or non-compliance of the summons issued by theAssessing Officer to certain purchasers cannot lead to the conclusion that the assessee had issued bogus sale bills and had thereby earned income through hawala commission. The learned Departmental Representative states that even though time of six months was given for the purpose, the assessee could not produce even a single party who could have vouched for the sales.

33. It was next averred by the learned Departmental Representative that only the financial transactions of the assessee are documented. The learned CIT(A) erred in simply accepting the alleged correctness of the banking transactions, even in the absence of material transactions having been proved.

34. The decision of the Hon’ble Bombay High Court in the case of R.B. Jessaram Fatehchand (Sugar Department) (supra ) is stated to be not applicable to the case of the assessee, since there, the transactions were found to be genuine, which is not so in the case of the present assessee.

35. The judgment of the Hon’ble Supreme Court in the case of Daulatram Rawatmull (supra) is stated to be favouring the Department rather than the assessee.

36. It is refuted that theAssessing Officer has not raised any dispute on the selling rates, as observed by the learned CIT(A). It is contended that theAssessing Officer did point out the defects in the regular accounts of the assessee. It is submitted that there is a difference of Rs. 10 in the rate, on the same date. So, the rates are incomParable. Thus, the books of the assessee were rightly rejected by theAssessing Officer . No transport documents regarding movement of goods from Bhayander to Bombay are available. The delivery challans do not give details of delivery, registration numbers of trucks, quality of product sold or stock, etc. This suggests that physical delivery of goods is doubtful. Month-wise details are no indicator of cash sales. Attention is drawn to the Summary of Stock Movement of Bombay Godown for the period 1st April, 1992 to 31st March, 1993 (page 52 of the assessee’s paper-book, ‘APB’, for short). It is submitted that curiously, no SS Patta was available, as on 31st March, 1993.

37. Next, it is argued that the sales vouchers are not fully supported by delivery challans. Sale consideration received by cheque only proves financial movement and not actual movement of goods. Nowhere in hawala transactions, cash is given. Moreover, the rates, as pointed out, are fluctuating. The rates charged from the parties were not the prevailing market rates. The Sales comparison of the assessee for the accounting year ended 31st March, 1993 (APB, page 46) does not give details of parties to whom sales were made at different rates. So, this document is not reliable.

38. Drawing attention to the Order passed under s. 33(3) of the Bombay Sales Tax Act (APB, page 95), the learned Departmental Representative submits that this is just a summary order. It does not indicate any verification having been made at the hands of the Sales Tax Officer, from an independent party. Also, there is no indication if octroi was paid regarding the sales.

39. Coming to the Remand Order (APB, pages 16-17), the learned Departmental Representative contends that in his reply (APB pages 18-19), theAssessing Officer had given the information that the Companies Ashpon Impex and Pinky Trading did not appear in the Blue Book, whereas Jay Organic had not filed any return since the last six years. The Departmental Representative points out that the details of Ashpon Impex are at page 60 of the APB. As per these details, the amount of Rs. 1,50,000 was received by the assessee on 23rd June, 1992, whereas the sale was made on 26th June, 1992. So, the payment was received by the assessee prior to the sale having been made. This, as per the learned Departmental Representative, happens only in hawala transactions.

40. The details regarding Jay Ambe (APB, page 62) and those of Swati (APB, page 63) have also been pointed out to us by the learned Departmental Representative. It has been averred that in these cases also, the payments were received by the assessee before the sales having been made to the parties. So, no verification was carried out by the learned Commissioner (Appeals). Out of total sales of Rs. 4 crores, sales of Rs. 2.74 crores remained unverified. This amounts to 70 per cent of the total sales. Importantly, these sales were made to parties categorized as A, B and C category parties. The verification done by theAssessing Officer was illegal, as not having been done in accordance with the specific directions given by the learned Commissioner (Appeals). Moreover, none of the parties, barring one, id est, Ketan, appeared before theAssessing Officer in the assessment proceedings.

41. Pointing to page 88 of the APB, the learned Departmental Representative has argued that sales of Rs. 39,930.64 have been confirmed by M/s. Choudhary Metal Industries. There is no such confirmation from any of the other parties, other than from Ketan, which party has been referred to in the assessment order. So, sales of Rs. 4 crores cannot be said to have been confirmed. The letter dt. 18th Oct., 1995 (APB, page 48) from the Chartered Accountant of the assessee to theAssessing Officer talks of ‘stiff competition’. However, the picture appears to be otherwise, from the ledger accounts of the assessee. Out of the sales of Rs. 4.45 crores, theAssessing Officer treated transactions of Rs. 49.42 lakhs as genuine transactions. So, theAssessing Officer established a profit margin at the rate of five per cent. He computed Rs. 19 lakhs as the income of the assessee.

42. It has further been pleaded that the Sales Tax Order relied upon by the assessee is of no consequence whatsoever. It is, in fact, just a summary order like one passed under s. 143(1)(a) of the Income-tax Act.

43. Also, it has been alleged that the sales the parties have verified and confirmed amount only to Rs. 39,930.

44. The learned Departmental Representative has stated that it is strange that the assessee has been receiving money in advance, whereas the supplies have made later on.

45. With regard to the Remand Order, it has been submitted that no direction had been given to issue summons.

46. The learned Departmental Representative contends that it is also conspicuous that there is no lorry receipt certifying transport or movement of material from Bhayander to Bombay.

47. Then, it has been alleged that there is found to exist a difference in the rates of sale. It is quite impossible that the same material is sold on the same date at different rates of Rs. 43 and Rs. 53.

48. Discrepancies have also been pointed out in respect of the stock concerning three parties of category ‘C’, in the assessment order, amounting to a difference of 155980 kilograms.

49. It has then been asserted that not even as much as a single kilogram of stock of material, i.e., SS Patta was available with the assessee at its Bombay Godown, at the end of March, 1993.

50. Mention has also been made of the general trend in the market, as to how material is sold. It is alleged that the practice contended to be followed by the assessee, that is, of taking the payment before the delivery of the goods, is not in conformity with the general business practice of first giving the delivery of the material and thereafter getting receipt of the payments with regard thereto.

51. It is, in this manner, stated that in fact, merely accommodation entries were given by the assessee. In the case of purchases, all quantitative details are available. But in the case of sales, it is not so. Most of the dealings were made in cash. There was more quantity of purchase in the Bhayander Godown and very less quantity in the Bombay Godown. There is wide discrepancy in the stocks available and the sales made. The assessee never produced any of the parties, who are merely paper Companies. They are not dealing in SS Patta, but are, in fact, dealing in computer hardware, carpets, etc. A difference was noted in the stock of SS Patta available in the Bombay Godown. No stock movement is proved to have taken place from the Bhayander Godown of the assessee to its Bombay Godown. This is a clear pointer to carrying on of hawala transactions by the assessee. The beneficiary of the hawala transactions was Magnum Films, owned by detainees under the Terrorist and Disruptive Activities Act (TADA), namely Samir Hingora and Hanif Kadawala. The selling rates were not comParable. The learned Commissioner (Appeals) did not take cognizance of the summons issued and he ordered the deletion of the addition made by theAssessing Officer on mere presumptions, which is not sustainable.

52. On the other hand, the Learned Counsel for the assessee, Sh. Shivram, has submitted before us that the impugned order passed by the learned Commissioner (Appeals) is well founded. It does not call for any interference at our hands. So far as regards the objection that there were defects in the books of account of the assessee, in the Statement of Facts filed before the learned CIT(A), and in the appeal proceedings, each and every observation of theAssessing Officer was replied to and proofs were furnished in support of such replies. Para-wise reply was filed to show as to how the observations recorded by theAssessing Officer were wrong.

53. Regarding the allegation that no detailed description of goods was contained in the sales bills, the Learned Counsel asserted that against all parties, delivery challans were made. The assessee deals only in one type of goods, id est, selling of SS Patta. All details as required by law are contained in the sales bills and challans. So, there has been no infraction of law by the assessee, so far as regards mentioning of details in the sales bills and delivery challans.

54. Apropos the assertion of the learned Departmental Representative that the assessee was unable to offer any proper explanation about the sales made, the stand of the Learned Counsel on behalf of the assessee is that all the details of party-wise sales were furnished, including comParative sales chart and rates. Also, the aforementioned Sales Tax order was furnished.

55. Coming to the objection put forward by the Revenue that merely accommodation entries were in fact given by the assessee to suit its purpose, the Learned Counsel has stated that all the sales realisations were bank transactions. All the sales, without exception, were made through bank transactions. The stock tally of the assessee was found to be correct. A total of twelve parties appeared before theAssessing Officer in response to the summons issued to them. All of them confirmed the transactions. It was the burden of the Department to prove the allegation that the assessee had merely given accommodation entries. However, it has miserably failed to discharge the said burden. As for theAssessing Officer , he, in the Remand Report, has categorically observed that the sales stood duly verified, and that they were genuine sale transactions, which could not be doubted.

56. Turning to the submission on behalf of the Department that in the case of purchases made by the assessee, all quantitative details were available, whereas it was not so with regard to the sales transacted by it, the Learned Counsel for the assessee has to contend that the purchases are made in bulk. On the other hand, the sales are made in small quantities. In all the sales bills issued by the assessee, the weight of the commodity sold and the rate at which it is sold, are explicitly mentioned. The assessee duly maintains day to day stock registers and kilogram to kilogram stock registers. These were duly furnished in the assessment proceedings by the assessee. Thus, the assessee cannot be faulted on this score and it cannot, by any stretch of imagination, be held that any details required as per law were missing in the sales bills issued by the assessee.

57. Addressing the objection that there was more sale of goods, i.e., SS Patta, at Bhayander compared to that in the Bombay Godown, the Learned Counsel for the assessee has submitted that bills were raised by the assessee in Bombay, because the parties were having their offices in Bombay only, whereas the delivery was taken by them ex-Bhayander Godown. The basis of the working of 1,55,980 kilograms of goods has not been furnished. There are, in fact, no discrepancies at all. Even in the remand report, theAssessing Officer has stated that there is no evidence against the assessee in this regard. The details of movement of stock have also been duly furnished.

58. Replying to the averment that the assessee never availed the opportunity offered to it to produce the parties, the Learned Counsel for the assessee has submitted that in response to the summons issued, as many as twelve parties appeared before theAssessing Officer and confirmed the transactions.

59. Next, responding to the contention that there are discrepancies in the stocks and the sales, the Learned Counsel has denied the existence of any such discrepancy. Mention has been made of the Summary of Stock Movement for the period 1st April, 1992 to 31st March, 1993, from the assessee’s Bombay Godown and its Bhayander Godown. This summary is stated to have been filed both before theAssessing Officer as well as the Commissioner (Appeals).

60. Then, coming to the allegation that the parties concerned were merely paper Companies, who were not dealing in the goods in question, that is, SS Patta, but were, in fact, dealing in computer hardware and carpets, etc., the Learned Counsel states that it is totally wrong to allege that these parties were mere paper Companies. In response to the summons issued, they had attended before theAssessing Officer . They had confirmed the transactions, by virtue of which confirmation, the transactions stood proved to be genuine transactions. The assessee had duly paid sales tax, octroi and other expenses amounting to Rs. 21,14,477.77. The parties who are dealing in computer hardware and carpets, etc., are also dealing in SS Pattas and they have purchased SS Patta from the assessee. TheAssessing Officer , in the assessment order, had stated that the parties were not traceable. M/s. Ketan Corporation, in remand proceedings, had admitted, in no uncertain terms, that the parties were genuine.

61. With regard to the next contention of the learned Departmental Representative that there was no direct nexus proved and that a difference was noted in the SS Patta stock in the assessee’s Bombay Godown, the Learned Counsel for the assessee has asserted that there is no such difference in the stock. Our attention in this regard is again drawn to the Summary of Movement of Stock in the Bombay and Bhayander Godowns of the assessee, for the period 1st April, 1992 to 31st March, 1993. It is submitted that the details of stock tally and movement of stock were furnished by the assessee before the Authorities.

62. The Departmental Representative has also averred that no stock movement took place from the Bhayander Godown of the assessee to its Bombay Godown and that this clearly indicates that the transactions entered into by the assessee were nothing but hawala transactions. To this averment, the response of the Learned Counsel for the assessee before us has been that a day to day and kilogram to kilogram stock tally is meticulously maintained by the assessee, with regard to its goods. The stock register was duly produced before the Authorities. The billing is generally done in Bombay, but the deliveries are taken by the parties ex-Bhayander Godown of the assessee. In these facts, it cannot at all be said that the transactions entered into by the assessee were hawala transactions.

63. Speaking of the assertion that not even a single party was produced before theAssessing Officer by the assessee, the Learned Counsel for the assessee would contend that this assertion is baseless. In fact, a perusal of the record would show that as many as twelve parties responded to the summons issued to them by theAssessing Officer and they duly appeared before him. All of them confirmed the impugned transactions entered into by the assessee. The said transactions, therefore, stood proved to be genuine transactions.

64. Apropos the contention of the Revenue that the beneficiary of those hawala transactions was Magnum Films, which was owned by detenues under the Terrorist and Disruptive Activities Act, namely, Samir Hingora and Hanif Kadawala, the Learned Counsel for the assessee has responded by stating that the assessee does not have anything to do with any such detenues. It has no connection with them, nor any knowledge about them. The charge has been wrongly levied sans any iota of proof.

65. Regarding the charge that the selling rates of the impugned transactions are not comParable, the Learned Counsel for the assessee has replied that the comParative sales rates were produced by the assessee before both, theAssessing Officer and the learned Commissioner (Appeals), and that the rates are evidently comParable. In the Sales Tax order (mentioned above), the Sales Tax Authorities accepted the figures of sales to be correct.

66. The learned Departmental Representative has also put forward the contention that the learned Commissioner (Appeals) did not take cogni-zance of the summons issued by theAssessing Officer and that he deleted the addition merely on the basis of presumptions. To this, the Learned Counsel for the assessee has to submit that this averment is wholly misplaced. In fact, the learned Commissioner (Appeals) has duly taken cognizance of the summons and the deletion has been ordered in full awareness thereof. The learned CIT(A) called for two remand reports. He verified the books of the assessee and the orders of the earlier year. It was only when theAssessing Officer was found to have categorically stated in his remand report that there was no evidence against the assessee, that the learned Commissioner (Appeals) ordered the deletion of the additions. The learned Commissioner (Appeals) also noted that for the asst. yr. 1992-93, the matter had been re-opened and that subsequently, theAssessing Officer had himself accepted the sales made by the assessee to be entirely genuine. The Learned Counsel for the assessee has also filed on record before us copies of the said order.

67. Then, replying to the argument of the learned Departmental Representative, that the learned Commissioner (Appeals) has gone wrong in placing reliance on the order of the learned CIT(A) in the case of Sarvottam Metals, to hold in favour of the assessee, the Learned Counsel for the assessee has submitted that in that case, the Tribunal, vide their order dt. 24th April, 2002, in ITA Nos. 1962 and 1063/Mum./95, for asst. yrs. 1988-89 and 1990-91, has decided in favour of the assessee.

68. Regarding the assertion that there is no mention of any details in the delivery challans issued by the assessee, the response of the Learned Counsel of the assessee is that the said challans clearly mention all the requisite details. They duly show as to from where the delivery was taken by the purchaser parties, the description of the material delivered, its weighted, the rates thereof and the serial number. Since all the deliveries were taken by the customers ex-godown of the assessee, there arises no question of the lorry receipts or the dates pertaining thereto having been mentioned in the said delivery challans. Besides, all the sales bills are pointed out to have been serially numbered and it has also been stated that all the sales bills contain reference of all the respective delivery challans. The Learned Counsel for the assessee has further submitted in this regard that the assessee meticulously maintained duly audited books of account and all relevant details, as required under both the Income-tax Act and the Rules framed thereunder.

69. In response to the next averment made by the learned Departmental Representative, to the effect that the Sales Tax order which stands relied upon by the assessee, is a summary order, similar to an order passed under s. 143(1)(a) of the Income-tax Act, the Learned Counsel for the assessee has submitted before us that a scrutiny order passed under s. 33(3) of the Sales Tax Act, is not at all an order akin to an order passed under s. 143(1)(a) of the Income-tax Act, as wrongly alleged. In fact, it is a scrutiny order, as the name thereof suggests, which is passed by the Sales Tax Officer after due detailed verification of the books and account maintained by an assessee. This was so done in the case of the present assessee before the said order was passed.

70. With regard to the assertion of the Revenue that the total sales verified and confirmed by the purchaser parties amounted to a total of only Rs. 39,939, the Learned Counsel has referred to the transaction of the assessee with M/s. Ketan Corporation. It has been pointed out that this was a transaction of Rs. 8,07,888. As per the assessment order, from the inception, this firm was not available or traceable. However, they put in an appearance before theAssessing Officer in the remand proceedings. Along with the said firm, eleven parties attended the remand proceedings before theAssessing Officer and confirmed the transactions entered into by the assessee. It has been stressed that the details of the parties from whom the sales transactions were confirmed in favour of the assessee by theAssessing Officer , amounted to a sum of two crore and forty seven lakh rupees. A list in this regard has been enclosed by the assessee at page 72 of the assessee’s paper-book.

71. The learned Departmental Representative has also alleged that it is not palatable that the assessee received payment in advance, whereas the material was supplied to the customers by the assessee subsequently. To this, the Learned Counsel for the assessee has to submit that as a prudent businessman, it insisted on advance on account payment of the sales proceeds from its purchaser parties and that it was only after the cheques got cleared by the banks that the material was allowed to be lifted by the said purchasers from the godown of the assessee. That since the money was received in advance, id est, before the handing over of the delivery of the material by the assessee to its customers, the profit margin earned by the assessee was very low goes miles to prove that such was the method of doing business adopted by the present assessee. It is stressed that the Department has miserably failed to establish that there was any illegality in the assessee having chosen to adopt such a course of transacting its business. An assessee is free to follow any methodology of carrying on its business, as long as it remains within the Parameters of transacting business not prohibited by the law of the land for the time being in force. It is entirely the decision of a businessman as to how he or it chooses to do business. There is no illegality involved in the said mode of the business of the assessee. The fact of the matter is that had the assessee not collected its payments in advance, it would have been well nigh impossible for it to recover the said payments, were the delivery of the material handed over to the purchaser parties first and the parties left with a free hand to make over the payments to the assessee thereafter. Rather, the assessee would have been saddled with numerous bad debts, which it would never have been able to recover, had it gone along with the course suggested by the Revenue.

72. Regarding the objection that the remand order did not contain any direction that summons be issued, the Learned Counsel contends that this is not true. A direction had been issued to verify the genuineness of the transactions in question. Such verification can only be done by way of securing the presence of the purchaser parties by through issuance of summons and thereupon verifying the records of the purchasers. It was this course which was carried out by theAssessing Officer in the remand proceedings. That theAssessing Officer chose to issue summons to only twelve purchaser parties does not, in any manner whatsoever, cast any aspersion on the assessee. The assessee was in no position or authority to question this conscious volitional decision taken by theAssessing Officer independently. Once in the Remand Report, theAssessing Officer arrived at a reasoned conclusion regarding the sales transactions entered into by the assessee being genuine, the earlier observation in the original assessment order lost any significance which it would otherwise have had. It was no longer valid in the light of the said conclusion contained in the superceding Remand Order, and it could not be taken cognizance of any longer.

73. Replying to the argument of the learned Departmental Representative that absence of any lorry receipt proving transportation of SS Patta from the Bhayander Godown of the assessee to its Bombay Godown, speaks against the assessee, the Learned Counsel for the assessee has said that all purchases made by the assessee from Jodhpur for its Bombay Godown are supported duly by octroi payment receipts along with Forms B, which Forms are proof that material had, in fact, come to Bombay, as also the reference of the transporter who transported the material in question to Bombay. Further, it has been stated that all the purchases made by the assessee from Jodhpur for its Bhayander Godown stand duly supported by Mira Bhayander Nagar Parishad receipts with regard to entry tax, along with the reference of the transporter having made the transport to Bhayander from Jodhpur. It has been submitted that the assessee has not transferred the material either from Bhayander to Bombay, or from Bombay to Bhayander. In accordance with the terms of the contract, specific goods were to be delivered at Bhayander and specific goods were to be delivered in Bombay. It was so done. No evidence to the contrary has been produced by the Department. Just wild allegations sans any evidentiary support of any sort, documentary or otherwise, have been cast.

74. The next contention of the Revenue has been that it is not possible to sell the same commodity on the same date at Rs. 43 on the one hand and at the rate of Rs. 53 on the other. In response, it has been canvassed on behalf of the assessee that in Bombay, purchases were made at the rate of Rs. 42 per kilogram and the same lot had been sold at the rate of Rs. 43.50 per kilogram, whereas at Bhayander, the material was purchased at the rate of Rs. 50 per kilogram and sold for Rs. 53 per kilogram, on the same date. Since there was a difference in the quality of the material sold, the rates were obviously different.

75. The learned Departmental Representative has also pointed out that there were discrepancies in respect of the stock regarding three category ‘C’ parties, in the assessment order. It has been submitted that a difference of 1,55,980 kilograms was found to be existing. The assessee has taken the stance that the sales were made to these parties by the assessee and the deliveries were taken by these purchaser parties from the Bhayander and Bombay Godowns of the assessee. The assessee is in possession of all the delivery challans, which are duly serially numbered, seParately with regard to each godown. In these respective challans, Bombay stands referred to as ‘B.M.’, whereas Bhayander has been mentioned as ‘BHY’. The Department has failed to prove otherwise. Before theAssessing Officer , all these three purchaser parties confirmed in no uncertain terms that the deliveries had been taken by them from the Bhayander and Bombay Godowns of the assessee, by way of the purchaser parties having counter signed all the respective delivery challans. Besides, as agreed inter seller and purchaser, all deliveries were taken by the purchaser parties ex-godown of the assessee. Not only this, all sales invoices issued by the assessee to these three purchaser parties contain due mention of the delivery challans. The assessee could do no more in order to establish a clean and bona fide business practice. It is well evident from the details and movement of stock to these three purchaser parties that a total quantity of 14,323.55 kilograms of material was delivered from Bombay, whereas a total quantity of 1,41,663.83 kilograms of goods was delivered from Bhayander. A list has been enclosed, for verification, if required. It has been contended that this assertion may well be verified bill-wise and challan-wise, as per the stock register produced by the assessee. It is pleaded that there exists a difference of not even a kilogram and thus, the observation of theAssessing Officer in the assessment order has been made without as much as verifying the records of the assessee, baselessly, merely on presumptions and assumptions. This has rightly been rectified by the learned Commissioner (Appeals).

75A. With regard to the argument on behalf of the Department that the assessee was not in possession of even a single kilogram of stock in Bombay, at the end of the month of March, 1993, the Learned Counsel for the assessee has submitted that the last lot of material was received by the assessee in Bombay in the month of March, 1993. This material was sold before the end of March. It was therefore, that the assessee was left with no stock of material at the end of the month of March, 1993, in its Bombay Godown. Later, the assessee decided to close down its business. This came about in the Month of June, 1993. Thus, it stands amply and cogently proved that this was the reason why the assessee did not keep any further stock of SS Patta in its Bombay Godown. After 31st March, 1993, no transaction relating to the material was entered into by the assessee.

76. Lastly, with regard to the allegation that the general trend in the market was that of first making over the delivery of the goods to the purchasers and thereafter the making of the payment of the sale proceeds relating thereto by the purchasers, as opposed to the reverse trend canvassed to be followed by the present assessee, the Learned Counsel for the assessee has to state that the practice followed by it is true and correct. The assessee has been duly maintaining all the records which the law requires it to do. So far as regards this, the Department has been unable to prove the stance taken by the assessee to be false or untrue or even doubtful. It has not been disproved that in the absence of following the practice of receiving advance payment, the assessee would have found itself in doldrums.

77. It is contended by the Learned Counsel that theAssessing Officer has failed to produce even a single piece of evidence, either direct or indirect, to prove that the assessee received any hawala commission. All purchases stored by the assessee in its Bombay and Bhayander Godowns were fully supported by bills, delivery challans and transport documents. All details of month-wise purchases and sales, as well as details of stock movement from both the godowns of the assessee were duly furnished. The entire sales and purchases were fully vouched and the sales proceeds were received by the assessee in cheques. The rates charged by the assessee from the parties were the same as the ones at that time prevailing in the market. A comparison of the sales was also made available before the Authorities. TheAssessing Officer did not raise any dispute with regard to the rates of the sales. Details of the month-wise purchases and sales were submitted by the assessee. The sales reflected by the assessee were, without any hitch, accepted by the Sales Tax Authorities, as is evident from the order of the Sales Tax Officer. Octroi charges, sales tax and other expenses were paid, amounting to a total sum of Rs. 21,14,477.77. Parties appeared before theAssessing Officer in the remand proceedings and confirmed the transactions. It was only, therefore, that theAssessing Officer returned a finding regarding these transactions being genuine. M/s. Choudhary Industries filed their confirmation letter with regard to the genuineness of the transactions, vide their letter dt. 18th June, 1997. It was only because theAssessing Officer did not find any defects in the books of account maintained by the assessee, that the books were not rejected. It was the burden of the Revenue to prove that the transactions entered into by the assessee were hawala transactions. However, the Revenue utterly failed to do so. No addition can be made just on the basis of presumptions. In the face of quantitative tally having been furnished, even if the purchaser parties are not traceable, no addition can legally be made. At that, the Learned Counsel for the assessee has pleaded for the order of the learned Commissioner (Appeals) to be upheld.

78. We have heard the parties and have perused the material on record. The issue to be adjudicated upon here is as to whether the assessee earned hawala commission.

79. Of the parties categorized by theAssessing Officer as ‘A’, ‘B’ and ‘C’ category parties, the first three of the ‘C’ category parties confirmed having received 1,55,985 kilograms of SS Patta from the assessee in Bombay. They submitted that they had not paid any transportation cost or octroi for bringing the goods to Bombay. The assessee, however, was not able to produce any of the other parties before theAssessing Officer . TheAssessing Officer , noted that only 1,10,322 kilograms of material was available with the assessee in its Bombay Godwon, and so, it could not have sold 1,55,985 kilograms of material from Bombay, without having brought material from outside Bombay. So, a conclusion was arrived at that the entire material available with the assessee at Bhayander had been sold off by the assessee in cash to small manufacturers of Bhayander, Thane and Vasai. Thereafter, the assessee had sold the sales bills with regard to the said alleged cash sales to hawala operators in Bombay. TheAssessing Officer was of the view that the cash generated at Bhayander was used to square off the cheques received from hawala operators after deducting a certain percentage as hawala commission for providing bogus hawala entries.

80. To support the above findings, it has been asserted by the Department that there were specific defects in the books of account maintained by the assessee, which were categorically pointed out by theAssessing Officer . The assessee, in his letter dt. 12th March, 1999, addressed to the learned Commissioner (Appeals), stated that as per the Remand Report, dt. 24th Feb., 1999, of theAssessing Officer , there was no tangible evidence of any hawala commission having been received by the assessee. A specific question had been put to him while asking for the Remand Report, to ascertain as to whether there was in existence any tangible evidence of the assessee having received any such hawala commission. However, theAssessing Officer merely deputed his inspector and relayed the information collected by such inspector, to the learned Commissioner (Appeals). The aforesaid basic question was not replied to by theAssessing Officer , because he did not find any incriminating evidence or information against the assessee to prove that the assessee was in receipt of any hawala commission. TheAssessing Officer observed in his Remand Report that M/s. Ashpon Impex (P.) Ltd. did not stand registered with the Bombay Office of the Registrar of Companies. The response of the assessee to this was that it was possible that this company was having a Branch Purchase Office in Bombay and a Registered Office at some other place, as is the case with many Companies. This, as per the assessee, did not, as of necessity lead to the conclusion that M/s. Ashpon Impex (P.) Ltd. was not registered as a company at all, throughout India. In any case, non-availability of the said company does not lead to an invariable conclusion against the veracity of the stand taken by the assessee. The assessee also made mention of its letter dt. 12th Aug., 1998 (APB, pages 26 to 31), addressed to the learned Commissioner (Appeals), wherein the assessee had asserted that all the payments had been received by it through ‘Account Payee’ cheques only. In that letter, the assessee stated that it makes sales only against payments by Account Payee cheques; during the financial year 1992-93, sales had been made by the assessee to one hundred and ninety-eight parties; the only way the assessee could ascertain the creditworthiness of the parties was by ensuring that the delivery of the material was given to them only when the cheques had been cleared; in this manner, even if the cheques had not been cleared by the banks, the assessee had the protection of the Negotiable Instruments Act in his Assessment Order dt. 28th March, 1993, theAssessing Officer had not been able to find any evidence against the customers of the assessee, to the effect that they were bogus parties; as held repeatedly by courts, an assessee is only reasonably required to verify the genuineness of its customers and if payments are received by such assessee through Account Payee cheques, the assessee is taken to have acted with due diligence and honesty; if the customers are not traceable after a lapse of a period of three years from the transactions, the assessee could not be found fault with; non-availability of customers cannot be taken to be a circumstance working against the assessee, so as to bring its legitimate income to tax. With the said letter dt. 12th March, 1999, the assessee, in support of its claim, attached Photostat copies of pay-in slips and bank statements. The Commissioner (Appeals) was beseeched to verify from the said documents that the assessee had received payments from M/s. Ashpon Impex (P.) Ltd. only through Account Payee cheques. The copy of the accounts of M/s. Ashpon Impex (P.) Ltd., their pay-in slips and Bank Clearance Statement were highlighted. A ComParative Chart of the sales rates charged to M/s. Ashpon Impex (P.) Ltd. and those charged to other parties was enclosed. Further, it was asserted by the assessee in the aforementioned letter that theAssessing Officer , in his Remand Report, was unable to provide any ground for the baseless assumption that the assessee had fetched hawala commission at the rate of five per cent. TheAssessing Officer merely endorsed the view expressed in the assessment order in this regard. As per the assessee, it was impossible for a reasonably sensible person to imagine that if somebody required merely cheques against cash, the person giving the cheques would offer commission also. It was also asserted that the cheques received by the assessee were so received in consideration for taxable material and not against tax-free goods, like cloth. In the case of taxable items, sales tax needs to be paid at the time the purchases are made and sales tax is to be again paid if such material is used for manufacture or processing. It was pointed out that the assessee was in possession of ample evidence in the shape of octroi duty receipts and lorry transport receipts, etc., regarding twenty-one lakh rupees having been paid by the assessee. Also, it was urged by the assessee, that the ITO had found as per his Report dt. 10th June, 1997, that the business of the assessee had been found to be a genuine one. The assessee further stated in respect of theAssessing Officer having mentioned in his Remand Report regarding the quantitative movement of stock, repeating the observations contained in the assessment order, that he was totally wrong. It was stressed that the stock tally of the assessee was entirely correct and that there was no discrepancy in the Bombay and Bhayander Godowns of the assessee. The assessee pointed out that theAssessing Officer had himself admitted that there was no evidence concerning any rate of cash sales presumably having been made by the assessee. It was also submitted that in the order seeking Remand Report, the learned Commissioner (Appeals) had asked for any evidence, if available, regarding gross profit earned at a higher rate by other assessees. However, theAssessing Officer had not given any such instance of any gross profit having been earned at a higher rate by any other assessee. In fact, theAssessing Officer had pointed out that no addition had been made on account of gross profit ratio. The assessee pleaded that when as such, all the evidences of business, regarding purchases having been made, octroi duty having been paid, lorry freights, sales tax having been paid and assessments were available in plenty, and once all the payments towards

the sales made to the parties by the assessee had been received by the assessee solely through Account Payee cheques, if customers were found to be not available, merely this circumstance could, by no means, be made the basis for considering the legitimate business carried on by the assessee as giving of hawala entries.

81. The Revenue has not been able to successfully controvert the above-said assertions of the assessee. No palpable tangible evidence has been brought on the record of the case by the Department to the effect that the sales proceeds received by the assessee for the sale of SS Patta by the assessee to its customers was, in fact, hawala commission fetched by it, camouflaged as such sale consideration. The Department has failed to make out any case of subterfuge or colourable device having been adopted at the hands of the assessee. TheAssessing Officer , in his Remand Report, just reflected the observations contained in the assessment order, bereft of any supporting evidence, direct or circumstantial. The information collected by the inspector deputed for the purpose was not analyzed. It was just put across in its raw form, while simply endorsing the uncorroborated views expressed in the assessment order. Evidently, this resulted for the reasons that factually there was no solid evidence to support the bald and bland allegation that the assessee had actually been handing out hawala entries and earning hawala commission for doing so. That the Companies did not stand registered as such with the Registrar of Companies does not cast any aspersion on or lead to any adverse inference against the assessee. It is quite possible, as contended on behalf of the assessee, that the Companies had their Branch Purchase Offices in Bombay and their Registered Offices elsewhere. Such situations are not uncommon, much less entirely unheard of. At any rate, no cogent evidence forthcoming, it would be wholly unjustifiable to brand the business of the assessee to be hawala business for this reason alone.

82. Moreover, it has not been disputed that the assessee received its entire payments from its purchaser parties only and only by way of Account Payee cheques. This manner of transacting business is but in consonance with general prudent business acumen. This mode ensures to the assessee protection under the law, id est, under the Negotiable Instruments Act. In case a cheque bounces, the payee is liable under the said Act and the business interest of the assessee stands duly protected. Too, this medium of payment is adopted since through it, the assessee can well ascertain the creditworthiness of the purchaser. Delivery of the material is only given once the payment through Account Payee cheque is cleared by the bank. In fact, there is no other effective way to ensure that the purchasing party is solvent or creditworthy. Also, no other evidence has been brought to suggest that the purchasing parties of the assessee were bogus or non-existent parties. So far as regards the onus on the assessee, it is but an onus and not a burden, in the sense that the assessee is required to reason-nably verify the genuineness of its purchaser parties, which onus stands duly discharged by showing that all its payments were received through Account Payee cheques. The assessee even produced the pay-in-slips and bank statements including clearance statements. A comParative rate chart was also produced. Still further, the alleged five per cent rate of hawala commission was not proved to have been earned by the assessee. It was the burden of the Department to have done so. Such rate is, thus, just a figment of imagination, in the absence of any material to buttress it. The assessee is further correct in asserting that the person giving a cheque would not also give commission to one requiring merely cheques against cash. Too, undisputedly, SS Patta is a commodity exigible to sales tax. The cheques received by the assessee were received for payment in consideration of sale of this commodity. This further lends credence to the case of the assessee. That apart, the assessee is found to be in possession of cogent documentary proof by way of octroi duty receipts and lorry transport receipts, etc., to support the contention that the assessee had expended not less than twenty-one lakh rupees. TheAssessing Officer had found, vide his report dt. 10th June, 1997, the business of the assessee to be genuine. TheAssessing Officer also himself admitted that he could not gather any evidence with regard to rate of the alleged cash sales. The stock tally of the assessee at both its godowns was also given. There was no discrepancy either at the Bhayander Godown, or at the Bombay one. With reference to the higher gross profit rate, if any, earned by any other assessee, no evidence could again be brought on the file. Rather, theAssessing Officer himself noted that the addition had not been made on account of gross profit ratio. So, merely for the reason that the purchaser parties were not traceable, the assessee could not be penalized.

83. In the sales documents, the assessee has made available all necessary details, i.e., the total weight sold as well as the rate per kilogram. Undisputedly, the assessee has maintained complete books of account alongwith day to day and kilogram to kilogram stock register (APB, pages 127 to 130). These were produced before theAssessing Officer by the assessee. The assessee also submitted stock tally sheet alongwith the audited accounts. The Audit Report of the assessee (APB, page 105) also bears ample testimony in favour of the assessee. The factum of the assessee having maintained stock register and quantitative details has been mentioned by theAssessing Officer in the assessment order. No mistakes were pointed out by theAssessing Officer in these records maintained by the assessee. It is on record that the business of the assessee is dealing in SS Patta. This Patta is of the same gauge. It is not acquired by the assessee as per the requirements of the customers. It is sold as per the stock available with the assessee. It has also come on record that the purchaser parties take the delivery of the material themselves from the godown of the assessee. The Patta is stored in the godowns as and when it is acquired and is mixed with the existing stock. The delivery challans (copies at pages 41 and 42 of the APB) mention as to from where the delivery was taken, the description of the material, the weight of the goods delivered, the rates and the serial No. At the top of each Challan, ‘Despatch through—Direct’ is mentioned. Since all the deliveries were taken ex-godown, neither lorry receipt, nor date thereof has been shown. Further, all the sales bills are serially numbered. They contain the reference of all the respective delivery challans. In case the books maintained by the assessee had been found to be not in order, there was no stopping theAssessing Officer to question this. However, such a supposed irregularity cannot, of itself, lead to an adverse inference against the assessee. In these facts, obviously, the details contained in the sales documents of the assessee are appropriate. It is for this reason also that one to one correlation of the purchases and sales could not be proved. So, we do not agree with the contentions of the learned Departmental Representative on this score.

84. With regard to the assertion that the assessee did not offer any proper explanation concerning the sales made and that there was a difference in the stocks available with the assessee in Bombay and the sales made there, the learned Commissioner (Appeals) has correctly held that the delivery of goods could have been taken by the purchaser parties at Bhayander.

85. So far as regards the allegation that no proper explanation was offered by the assessee with regard to the sales made, that details of party-wise sales have been furnished by the assessee before both the taxing authorities, as certified. These are the contentions at pages 31 to 39 of the assessee’s paper book. Also, the sales comparison for the accounting year ended on 31st March, 1993 (APB pages 46-47 of the paper book) has also been filed. Besides, there is an order of assessment tax under s. 33/35 of the Bombay Sales Tax Act, 1959 (supra), at pages 92 to 95 of the APB.

86. The comParative analysis of rates at which sales were made to M/s. Ashpon Impex Private Limited, vis-a-vis other parties, contains the following Note :

"Note : Rate is calculated here by dividing the gross amount of bill by the quantity of goods. This rate is exclusive of sales tax. Here the rate is given in paise and odd figures. Actually, the rate is not in fraction like Rs. 42.42 paise including one per cent sales tax. Actually the rate is Rs. 42 per Kg. But due to one per cent sales tax 42 paise is sales tax amount".

87. On perusal of the said comParative analysis, the comParative sales chart shows that the sales made by the assessee to M/s. Ashpon Impex Private Limited, are comParable to the other parties, like M/s. Mukesh Sales Traders, M/s. Maamal Associates, M/s. Poonam Industries, M/s. Niket Metal Corporation, M/s. Shantilal Amritlal Co., M/s. Sea Guall Exports and M/s. Ketan Corporation. The details of the sales party-wise show details, i.e., name of the party, ledger folio of the said party in the assessee’s account and the amount. These are the details of 198 parties, as alleged. The impugned order was passed after having taken into consideration all the aforesaid details. So, it cannot be said that there was no proper explanation regarding the sales made by the assessee. Rather, as observed above, the transactions were admitted as genuine and were found to be so.

88. Coming to the assertion that merely accommodation entries were given by the assessee, the stand of the learned Departmental Representative has been that the learned CIT(A) has merely taken into consideration the financial transactions of the assessee without there finding any support from evidence in the shape of material transaction having been proved to have been actually gone into by the assessee. However, the department, as observed, has not been able to prove the fact that the payment for the sales made by the assessee had been received only by way of Account Payee cheques, and through no other mode. That this process is the accepted method of transacting business, has not been challenged. No mala fide have been alleged against the assessee in this regard. The allegation that in fact, cash sales were made, remains what it is just a bald allegation, unsubstantiated by any material on record, in the assessment order, or in the remand report. Also, the stock movement has been laid bare by the assessee before the taxing authorities. That being so, it cannot be said that the learned CIT(A) blindly decided in favour of the assessee by taking into account merely the financial transactions, while overlooking that there was nothing to prove the material transactions. All the sales realization has been made through bank channels. The stock tally was found to be correct. As many as 12 parties appeared in response to summons issued to them. They confirmed the transactions. The assessee cannot be put to prove a negative. It was for the Department to substantiate and prove the allegation being levelled by it. This, however, has not been done. Even in the remand report, theAssessing Officer has stated that the sales were duly verified and found to be genuine. Since the purchases have been held to be genuine, the corresponding sales cannot, by any stretch of imagination, be termed as hawala transaction. So, this allegation of the Department also falls flat.

89. Apropos the suspicion aired by the revenue that mere quantity of purchase came from the Bhayander Godown of the assessee as compared to that in its Bombay Godown, the stand of the assessee although, has been that although the bills were raised at Bombay, because the parties had offices at Mumbai, however, delivery was taken by the parties themselves ex-Bhayander Godown. Mumbai being the financial capital of the country, cost of real estate is high, due to which, mostly, the sales or administrative offices are located in Bombay, whereas the factories or actual place of work are located outside Bombay. Consumption of SS Pattas is mostly by the utensils industries. Utensils factories are located in the Thane District, whereas their administrative offices are in Bombay. It is thus, that the billing was done at the address of the Bombay offices of the parties. Besides, it is convenient for the parties to take delivery of the goods mostly from the Bhayander Godown of the assessee. It is due to this fact, that most of the sales of the assessee are from its Bhayander Godown. In the remand report dt. 24th Feb., 1999, the ITO has admitted that there is no evidence in this regard against the assessee. Further, the summary of all stock movement of the assessee, for its Bombay Godown and that for its Bhayander Godown for the period from 1st April, 1992 to 31st March, 1993, was produced before theAssessing Officer as well as CIT(A). They are also before us, at pages 52 to 54 of the APB. These details have not been disputed. Therefore, the movement of stock, as pleaded by the assessee, stand proved. Still further, the factual situation explained by the assessee, has not been controverted. As such, there is no force in the argument that there is more quantity of purchase from the Bhayander Godown of the assessee as compared to that made from the Bombay Godown and it cannot be said that the allegation incriminates the assessee.

90. Regarding the allegation that the assessee was not able to produce any purchaser party could have testified the veracity of the sales made by the assessee, even though a long span of six months was afforded to the assessee for the purpose and that it was wrong to conclude as has been done by the learned CIT(A) that, mere non-availability of some of the purchasers or non-compliance of the summons issued by theAssessing Officer to certain purchasers, cannot lead, to the result that the assessee had issued bogus bills, proving that the assessee had earned income through hawala commission. It is on record that not less than 12 parties put in appearance before theAssessing Officer in response to the summons issued to them. These parties affirmed the sale transactions entered into by the assessee. These confirmations were rightly taken into consideration by the learned CIT(A) while passing order in favour of the assessee. This evidence does not deserve to be brushed aside lightly as is proposed to be done by the department. No attempt has been made to disprove the forceful evidence led by the parties, replete with documentary evidence buttress their stand.

91. It is not the correct appreciation of the facts, when it is alleged on behalf of the Department that only financial transactions and not material transactions of the assessee are documented. The assessee has produced on record cogent material documentary evidence in support of the sales made by it. These are in the shape of bills, and delivery challans etc. These documents contain the requisite details as per law. Moreover, all financial transactions of the assessee are not merely financial transactions. These are proof of the facts that the assessee while carrying on its business adopted the method whereby the payments were received through account payee cheques only. If the case as tried to be made out by the Department is taken as correct, the assessee would not have accepted the payment of its sale proceeds through account payee cheques as this itself would directly incriminate it. The learned CIT(A) has applied judicial and judicious mind on this aspect of the matter while accepting the plea of the assessee and it cannot be said that he has plainly accepted the correctness of the banking transactions. In fact, these banking transactions have not been disproved by the department.

92. The Department has objected that the decision of the Hon’ble Bombay High Court in the case of R.B. Jessaram Fatehchand (Sugar Dept.) (supra), is not applicable to the assessee, since in that case, the transactions were found to be genuine. But the same is the case in the case of the present assessee also. The transactions entered into by the assessee have been found to be genuine. That being so, R.B. Jessaram Fatehchand (Sugar Dept.) (supra), is applicable. So far regards, the alleged difference between the rates of sale of the some commodity on the same date, the Department has not refuted the fact that the difference in rates exists because the locus of the two instances was distinct. One sale was in Bombay, whereas the other was at Bhayander. So, the alleged difference in the rates of sales is a difference between equals and un-equals. The said differences have not been validly explained by the department. We do not agree with the Department on this issue also.

92A. Coming to the sales tax order passed under s. 33(3) of the Bombay Sales Tax Act, the Department has not been able to show any parity between such order and one passed under s. 143(1)(a) of the IT Act. A perusal of this order reveals that the books of account were seen by the Sales Tax Officer. This order has been passed under s. 33(3) of the Bombay Sales Tax Act, 1959. The said section reads as follows :

"S.33 Assessment of taxes (3).—If the Commissioner is not satisfied that the returns furnished in respect of any period are correct and complete, and he thinks it, necessary to require the presence of the dealer of the productions of further evidence, he shall serve on such dealer in the prescribed manner a notice requiring him on a date and at a place specified therein, either to attend and produce or cause to be produced all evidence on which such dealer relies in support of his returns, or to produce such evidence as is specified in the notice.

On the date specified in the notice, or as soon as may be thereafter the Commissioner shall, after considering all the evidence which may be produced, assess the amount of tax due from the dealer."

92B. It is, therefore, evident that the said sales tax order is not a summary order. It is a scrutiny order, as the language of s. 33(3) of Bombay Sales Tax Act, 1959 explicitly suggests.

93. The allegations of the Department that despite the remand order containing no direction to issue summons, theAssessing Officer chose to do so. The assessee is not blame-worthy on this count also. Firstly, in order to make the verification ordered, theAssessing Officer was right in issuing summons, as he did. In absence of this, no verification could have been done. Therefore, it can well be said that the summons issued were in accordance with the directions contained in the remand order. The procedure is well stated in the Act and theAssessing Officer was competent to issue summons.

94. The next allegation of the Department is that there is no lorry receipt certifying the transfer or movement of material from Bhayander to Bombay. The assessee has produced on record the day to day and kilogram to kilogram stock tally maintained by it. The assessee does its billing in Bombay, but the deliveries are taken by the parties themselves ex-godown, i.e., Bhayander godown. This explains the alleged non-movement of stock from Bhayander to Bombay, further supporting the case of the assessee that the sales transactions of the assessee were genuine sales transactions and were not hawala transactions. Obviously, therefore, there were no lorry receipts supporting in transfer of material from Bhayander to Bombay. It has not been refuted that all purchases made by the assessee for its Bhayander Godown are duly supported by Mira Bhayander Nagar Palika receipts concerning, entry tax, alongwith the reference of the transporter regarding transfer of material from Jodhpur (place of original purchase of material) to Bhayander. No material was transferred from Bhayander to Bombay or vice versa. Referring to discrepancy in the stock of the assessee concerning three category "C" parties, the Department has alleged a difference of 1,55,980 kg of stock. The delivery challans with regard to the sales are with the assessee. All the three "C" category parties confirmed before theAssessing Officer that they had though taken delivery of stock from the Bhayander and Bombay Godowns of the assessee, this was done, they stated, by way of all having countersigned the respective delivery challans. All deliveries, without exception, were taken by the purchasers ex-godown of the assessee, as agreed between the assessee and the parties. Moreover, all the sales invoices issued by the assessee to these purchaser parties contained the mention of the delivery challans. So, the alleged difference was imaginary and was lawfully declined by the learned CIT(A).

95. Non-availability of any stock with the assessee in its Bombay Godown, at the end of March 1993 is also of no avail to the department. The last lot of stock had been sold off. Thereafter, no stock was stored, since the assessee contemplated shutting down of its business, which finally came about in the month of June 1993.

96. So far as the alleged general market trend of carrying on business, as discussed, the Department cannot dictate as to how an assessee is to carry on its business. This, entirely, is the prerogative of the assessee. The Department cannot infringe into the exclusive realm of a businessman.

97. Moreover, such method of carrying on of business by accepting advance payment with regard to sale of material, has not been shown to be, in any way, illegal.

As far the assessee, it appeals to reason that by following this method, the assessee, as a prudent businessman, would insure itself against non- payment from the purchaser.

98. It is well-settled by judicial precedent that additions cannot be made merely on assumptions or presumptions or surmises or conjectures. It is the burden of the Department to prove the correctness of such additions. In the following cases, the ratios are to the same effect :

(i) K.P. Varghese vs. ITO & Anr. (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC);

(ii) CIT vs. A. Raman & Co. (1968) 67 ITR 11 (SC);

(iii) CIT vs. Calcutta Discount Co. Ltd. 1973 CTR (SC) 425 : (1973) 91 ITR 8 (SC);

(iv) Umacharan Shaw & Bros. vs. CIT (1959) 37 ITR 271 (SC).

99. It is also well-settled that when, in such like cases, a quantitative tally is furnished, even if purchasers are not available, no addition is called for. The following decisions are some cases on the issue :

(i) Balaji Textile Industries (P) Ltd. vs. ITO (1994) 49 ITD 177 (Bom)

(ii) Dy. CIT vs. Adinath Industries (2001) 170 CTR (Guj) 262 [LQ/GujHC/1999/690] : (2001) 252 ITR 476 (Guj)

(iii) CIT vs. M.K. Bros. (1986) 52 CTR (Guj) 228 [LQ/GujHC/1985/321] : (1987) 163 ITR 249 (Guj)

(iv) Dy. CIT vs. Adinath Industries (2001) 247 ITR (St) 35—

(Special Leave Petition has been dismissed)

99.1 Further, the decision of the Mumbai Tribunal in the case of "ITO vs. M/s. Shreshtha Metals Mumbai", for asst. yrs. 1988-89 to 1990-91, co-authored by the Judicial Member, vide order dt. 12th Dec., 2001 (APB 118-121), has been cited on behalf of the assessee. However, the learned Departmental Representative, also seeks to draw support from this decision, inasmuch as in that case, the assessee had acknowledged lorry receipts for sale of material and evidence had been furnished that the sale transactions were at comParable prices. However, we do not agree with this stand. An order or judgment has to be considered in its entirety. In that case, after taking into consideration all the circumstances, the Tribunal decided in favour of the assessee. There also, it was held that if the revenue had doubts about the correctness of the sales effected by the assessee, it could have verified the delivery challans and could have come to the conclusion that the delivery challans were not genuine. It was also held that the assessee had produced enough evidence to establish that the sales were genuine. In the case before us also, in our view, the assessee has produced enough evidence to establish that the sales were genuine. Therefore, this order furthers the case of the assessee.

99.2 Similarly, the decision of the Mumbai Tribunal in the case of M/s. Sunder Steel Industries, in ITA No. 471/B/94, for asst. yr. 1990-91 vide order dt. 18th Aug., 2003, copies whereof have been filed on record, is in favour of the assessee.

100. Further, the assessment order for the asst. yr. 1992-93, i.e., the immediately preceding assessment year, has also been placed on record. This order finds mention that the goods which were received by the assessee from Jodhpur were supported by lorry receipt and octroi paid challans. The assessee was also paying sales tax of Rs. 1,51,672. The assessee also produced books of account, comprising cash books, ledger and sales and purchase registers, which were duly verified. Notices to the purchasers, i.e., M/s. Mukesh Traders, Rajendra and M/s. Sea Gull Exports, M/s. Poonam Industries, M/s. Shantilal Amritlal and Co. were issued. The genuineness of the transactions was verified from the books of account, i.e., bank books and ledger. In these circumstances, no addition like the one under consideration before us, was made.

101. The order dt. 17th Oct., 1996, under s. 158 of the Act, for the asst. yr. 1992-93, is also on record. As per this order, the genuineness of the firm during the relevant period was established and the registration was granted to it.

102. Therefore, the case looked at from any angle, we find no infirmity whatsoever with the order of the learned CIT(A). The assessee is not found to be guilty of any such shenanigans, as tried to be made out by the Department. The impugned order is well reasoned, and is hereby confirmed.

103. Resultantly, the appeal of the Department stands dismissed.