1. This is an appeal filed by the assessee-firm against the order of the CIT (Appeals), Hyderabad, dated 28-2-86 and it relates to asst.
year 1980-81 for which the previous year is the calendar year of 1979.
The assessee-firm carried on business of purchasing cotton from ryots, ginning it in factories belonging to others and selling products obtained viz., lint and cotton seeds. On 12-10-1979 there was a raid on the business premises of the assessee-firm, as well as, on the houses of the partners and also on the pressing factory in Amravati Road in which the assessee-firm carried on the business in 1976-77. During the course of search several documents were found out which disclosed inter alia, that the assessee carried on business with unaccounted money. As far as the present assessment year is concerned the relevant out of the seized material is marked as A-3/63, A-3/65 to A-3/73, A-3/122 and A-3/119 to 121, A-3/106 and A-3/123. In this appeal we are concerned with the addition of Rs. 25,000 made on account of understatement of yield of cotton and an addition of Rs. 14,560, Rs. 96,207, Rs. 1,00,698, Rs. 71,693 and Rs. 10,832 which were added to the income of the assessee-firm under Section 69 of the I.T. Act. So let us deal with those additions one after another.
2. First let us take up the sustainability of the addition of Rs. 25,000 on account of understatement of yield of cotton. During the year of account the assessee-worked out Rs. 4,61,060 kgs. of cotton kappas and disclosed 1,44,064.05 kgs. of lint (31.25%) and 3,07,575 kgs. of cotton seed (66.71%). It had shown a loss of 9,421.05 kgs. which worked out the shortage of 2.04%. The Income-tax Officer states that the assessee did not maintain regular stock accounts, inasmuch as the account kept by the assessee do not reflect either quantitative or qualitative particulars. The Income-tax Officer slates that the stock accounts kept by the, assessee are designed to its taste and at no point of time the stock accounts would give the correct picture of stock available with the assessee. Consequently, the assessee is not in a position to ascertain the correct business particulars on any particular day. The percentage of yield of lint derived by the assessee over the last three years was tabulated by the assessee along with the shortage:Lint 33.14% 35.70% 31.25%Seed 65.27% 63.67% 66.71%Shortage 1.58% 0.63% 2.04% The Income-tax Officer states that in comparable cases the yield of lint obtained was 32.5% and seed at 66.5% whereas, the shortage was 1% during the asst. year 1980-81. When compared with similar cases the shortage of lint found with the assessee was more by 1.2% than in comparable cases. The Income-tax Officer felt that had the assessee maintained correct particulars of stock, the correct results would have been ascertained and in the absence of the correct stock account he felt that there is every possibility for the assessee to suppress the yield and sell away the lint outside its books. Before making the addition, the assessee's explanation is sought for shortage of lint than in comparable cases. The assessee comes forth with the explanation that it had purchased maximum kappas in the early harvest season viz., November and December 1979 when the kappas would be available for purchase with full of moisture content and due to this, there is every possibility to have more wastage on account of driage. The Income-tax Officer observes that no doubt the purchase season starts with November, December and it is common with all the dealers in this line.
The ITO went through the particulars of purchases made by the assessee month-wise and found that the assessee's contention that it had made maximum purchases in December is correct. However, he held that the average yield of lint and seed were found to have obtained, in comparable cases, irrespective of the fact that they had purchased the kappas in any month of the accounting year. The ITO observed that the cotton seed yield disclosed by the assessee was much more than the normal yield disclosed in comparable cases. In comparable cases the yield disclosed was 66.5%, whereas, the assessee disclosed 66.71%.
Therefore, the ITO concluded that the excess shortage of 1.4% over and above the shortage found in comparable cases, should relate only to the lint shortage. He worked out the lint shortage at 4,795 kgs.
multiplying it with the average price of Rs. 1,222 he had arrived at the addition of Rs. 58,595.
2A. When the matter came up in appeal before the learned ClT(A)it was contended on behalf of the assessee-firm that out of the total purchases of 5.25 lakh kgs., 3.25 lakh kgs. had been purchased in the months of November and December 1979. Out of the total cotton worked out the quantity of 76,261 kgs. represents Varalaxmi variety of cotton, where the yield of lint would normally be less than 30%.The above two factors must have contributed to; the 'reduced yield of lint. The Warned' CIT (Appeals) accepted the contentions of the assessed to certain extent He held that Ms not correct to estimate at the earlier; years' figures merely because the assessee was able to show higher yields for the earlier years. In comparable cases yield per MOU 5 variety is taken at 31.5% and Varalaxmi Cotton at 30%. Considering these factors he retained a round sum addition of Rs. 25,000 and deleted an amount of Rs. 33,595.
3. Further aggrieved about the retained addition the assessee is now before us. It is contended by Shri A. Satyanarayana learned Advocate that during the accounting year in question the assessee had no ginning mill. It got ginned the cotton purchased by it by a sister concern viz., No. 2 firm. The receipt given by No. 2 firm would not disclose the quantity that was given for ginning. It only disclosed the lint and cotton seed obtained and the charges therefor. It is not possible according to him to find out the total quantity of cotton or kappas given for ginning from out of the bunch of receipts given by No. 2 firm, as and when, the cotton of No. 1 firm was ginned. The other arguments which are already advanced before the CIT (Appeals) were repeated before us also. The learned CIT (Appeals), in our opinion, did not give due credit to the fact that the yield of cotton seed disclosed was over and above the average yield disclosed in comparable cases for this asst. year. We are also of the opinion that the factors obtaining in the assessee's case to probablise the low yield of lint was not adequately taken into consideration and hence in our opinion the retention of Rs. 25,000 by the learned CIT (Appeals) is on a bit high side. Having regard to the fact that a considerable quantity of Varalaxmi variety of cotton was purchased by the assessee in the early harvesting season of cotton viz., November and December 1979 and having regard to the fact that out of the total purchases of 5.25 lakhs the purchases made during those two months were 3.2 lakh kgs. and having regard to the fact that out of the total cotton worked out a quantity of 76,261 kgs. of kappas were of Varalaxmi variety of cotton, in which case the yield would not usually exceed 30% admittedly, and having regard to the fact that the assessee was able to disclose 31.25% of lint, we are of the opinion that a normal addition of Rs. 5,000 would adequately take care of the shortage if any in the lint yield disclosed by the assessee. Thus on the first ground the assessee gets a relief of Rs. 20,000.
4. Grounds 2 to 4 filed before this Tribunal deals with an addition of Rs. 14,560 under Section 69 of the I.T. Act. This addition is made on the basis of seized material which is marked as A-3/62. The seized material is an internal cash voucher obtained by the assessee-firm from T. Jaganmohan Rao, Guntur, for Rs. 14,560. This amount purports to represent the price of 400 bags of cement sold at Rs. 33.90 per bag and also an amount of Rs. 1,000 previously due from the assessee-firm to Sri T. Jaganmohan Rao. The voucher is dated 30-5-79 and it was signed by Sri T. Jaganmohan Rao. The voucher was executed on a printed voucher form maintained by the assessee-firm. Neither the purchase of cement, nor the payment towards its price, nor the amount said to have been due to Sri Jaganmohan Rao were reflected in the account books of the assessee-firm. The ITO ascertained the address of Sri T. Jaganmohan Rao and his address was given as A.T. Agraharam Guntur and on enquiry he is found not traceable. The ITO felt that the contents of the voucher, which is the seized material, are true and that the said voucher should be taken to bear the signature of Sri T. Jaganmohan Rao. Therefore, he made an addition of Rs. 14,560 under Section 69 of the IT Act. Before the learned CIT(A) the assessee was not able to explain why the cement was purchased and where it was debited in the account and under the circumstances he found that the ITO was justified to make an addition of Rs. 14,560 under Section 69 of the IT Act. In the appeal before us the learned Advocate for the assessee sought to argue that there was no need for the assessee-firm to purchase cement bags and the transaction evidenced by the said voucher does not relate to the assessee-firm or its business and hence the addition should be deleted. We are not impressed with these arguments. There is another seized document marked as A-3/63. We shall come to consider the same elaborately in a short while from now. However, suffice for our purpose to say that it relates to the assessee-firm inasmuch as some of the expenditure said to have been incurred as per the said paper (top sheet) was in fact incurred by the assessee-firm and necessary entries of the expenditure noted therein, were also found noted in the account books of the assessee-firm. On the reverse of the said paper (A-3/63), while arriving at the particulars of cash still available was as Rs. 36,673.11ps, the following working is given:Date Credit Debit Rs. Rs.Debts due from the 43,766.89 43,766.89Company --------- In view of the fact that a mention is made about the cement purchase of Rs. 14,560 even in another seized material viz,, A-3/63 this argument of the learned counsel for the assessee, that the assessee-firm has nothing to do with the cement purchase and it is altogether a different transaction, cannot be accepted. Section 132(4A) which is brought into statute books under the Taxation Laws (Amendment) Act, 1975 with effect from 1-10-75 is as follows: 132(4A) where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed- (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of account and other documents are true; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person are in that person's handwriting and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.
According to the said sub-section any document seized in search operations conducted under Section 132 should be deemed to belong to the person whose premises was searched and the contents of the said document are true and that the signature on the document should be purported to be in the handwriting of the person assumed to have signed that document. No doubt it is a rebuttable presumption, however, this presumption is not rebutted in this case either by any oral or documentary evidence. It is highly unlikely that the voucher would have been obtained in the printed form of the assessee-firm by Sri T.Jaganmohan Rao had this transaction not related to the assessee-firm.
It is also mentioned in the grounds that the assessee was not having any construction work on hand on the material dates in order to require 400 bags of cement and therefore, it should be presumed that the transaction relates to another party. It is not acceptable to us. It is not the duty of the revenue to prove how the material purchased by the assessee-firm was spent or laid out. Nothing prevents the assessee-firm to deal in cement. Even the partnership deed of the assessee-firm is not produced before us to show that the assessee-firm is prevented from dealing in other material than cotton purchase and sale. Further, it is the contention of the assessee that this transaction represents a transaction outside the books of account of the assessee-firm. In such a case, in our opinion, the revenue is not under a duty to prove for what purpose this 400 bags of cement must have been purchased by the assessee-firm. In our opinion, the addition of Rs. 14,560 was correctly made under Section 69 of the I.T. Act.
5. Grounds 5 to 8 of the grounds of appeal before us deal with an addition of Rs. 96,207 made under Section 69 of the IT Act. This addition is based upon the seized material marked as A-3/63. Copy of the said seized document is furnished at page 131 of the paper book No.1 filed before this Tribunal. This represents a sheet of calculation made on 30-5-1979. On both the sides of the paper there are calculations. It discloses that from six parties of Yeddanapudi and one party of Ananthavaram, purchases of cotton were made. The value of the cotton purchase made from each of those parties was also noted against each of their names. The coolie expenditure of Rs. 273 and the purchase of 157 borams (gunny cloth material) of Rs. 313 incurred at Yeddanapudi, the coolie charges for arranging the cotton in 130 borams of Rs. 195 incurred at Ananthavaram, the amount paid to Sri Nelakurti Chowdaraiah (Rs. 187-50 ps), one of the Mutah coolies of the assessee-firm which were found noted on this sheet of paper were all admittedly debited in the accounts of the assessee-firm. However, it is the contention of the assessee-firm that the amounts noted against each of the parties from whom the cotton was purchased were not paid to them on the same day and they were all credit purchases which were subsequently discharged. Admittedly all the seven parties executed vouchers of having received the respective amounts shown against each of their names in A-3/63 on 30-5-1979. Out of the six parties belonging to Yeddanapudi two parties viz., Gottipati Seshagiri Rao and Poda Achaiah were examined by the ITO. So also the single party belonging to Ananthavaram viz., K. Seetharamaiah was also examined by the ITO. The particulars of the examination of Sri Gottipati Seshagiri Rao was given at page 108. The particulars of the statement given by Poda Achaiah was given at page 111 of paper book No. 1. The particulars of the examination of Sri K. Seetharamaiah was given at page 114 of the paper book No. I. Sri Gottipati Seshagiri Rao stated that in May, 1979, 53 borams belonging to him were sold to M/s. Kollipara Subba Rao, Guntur and Pathipadu at the rate of Rs. 503 per quintal. The cotton was of Varalaxmi variety. Sri K. Appa Rao and a broker came to their house at the time of purchase. They have not paid the cash on that day but on the next day an undated voucher was issued by him to the broker to collect the cash. The voucher was submitted to the assessee-firm by the broker and the assessee-firm's people said to have told that the Managing Partner Sri Kollipara Subba Rao was admitted in the hospital and giving cash under the voucher takes some time. Now and then he insisted the broker to get the money. Ultimately they paid the money in December 1979. So according to the witness he delivered the cotton produce in May 1979 whereas, the price of it was given to him only in December 1979. A photostat copy of the alleged undated voucher signed by this witness was provided at page 110 of paper book No. 1. So also, another voucher executed by this witness on 15-12-1979 was provided at page 109 of paper book No. 1. It may here itself be stated that the alleged undated voucher was in fact dated 30-5-1979. We find that it is not an undated voucher but it is a voucher dated 30-5-1979. The signature of this witness Sri G. Seshagiri Rao was found on & stamped receipt of 0.20 ps denomination. The said voucher was found to be filled up in a printed form of voucher maintained by the assessee-firm.
The recital of the voucher clearly states that an amount of Rs. 29,802.75 was given in full discharge of the 'paid' amount representing the purchase of cotton and the payment was made in cash. Similarly Sri Poda Achaiah stated that in 1979 he might have sold about 40 borams of cotton at the price of Rs. 25,000 to the assessee-firm. He states that the cost of the l/3rd stocks purchased was paid to him in May, 1979.
Had it been a fact that only l/3rd of the price of cotton purchased from this witness was given on 30-5-1979, he would have given receipt only for the amount paid by the assessee-firm to him and not for any higher amount. The total amount due to him was Rs. 24,513.51. As per the voucher dated 30-5-1979, a photostat copy of which is found at page 113 of paper book No. 1, on the date of purchase a 'patti' was executed by the assessee-firm in favour of the witness stating particulars of the purchase etc. and rate as well as the total amount due etc. In full discharge of that patti amount an amount of Rs. 24,513.51 was stated to have been paid in cash and in 'acknowledgement of the receipt whereof this witness had executed the voucher after affixing 0.20 ps. stamp thereon. As in the other case it was a printed voucher maintained by the assessee-firm. In the evidence given by Sri K. Seetharamaiah he states that one Shri K. Appa Rao from the assessee-firm came and purchased 10 quintals of cotton. He remembered to have sold 24 borams of MOU-5 cotton to the assessee-firm in May 1975 of about Rs. 10,000 and odd. Originally he gave a voucher signed by him for payment stating that the cash will be paid immediately. Later on it is found that the Managing Partner Shri K. Subba Rao was admitted in Madras Hospital and therefore, there was delay in payment and that the actual payment of the price of cotton was made to him in December 1979. At that time he executed duplicate voucher on the reverse of which the circumstances in which the original voucher was handed over to the assessee-firm were mentioned. As in other cases the voucher given by this witness to the assessee-firm was found to be in the printed voucher form of the assessee-firm columns of which were all filled up. It was dated 30-5-1979 and it is found written in the blank columns that the amount of Rs. 10,161.20 was paid in cash in full discharge of the price of cotton, the particulars of which were noted in a 'patti' given to him.
The signature was obtaining on 0.20 ps. revenue stamp affixed to the voucher. So according to the assessee the amounts were not paid to these parties on 30-5-1979 and the amounts noted against their names in the seized material A-3/63 represent only credit sales which were later paid in December, 1979. The delay was caused in payment of the price due to the fact that the Managing Partner Sri K. Subba Rao was admitted in Madras Hospital for different ailments. Whereas the case of the revenue is that the internal evidence of the seized material A-3/63 as well as the vouchers secured from the parties which would corroborate the internal evidence of the seized material, would clearly show that they were paid cash and the amount paid thus, in cash on that day, was more than Rs. 96,207, which was added by the Income-tax Officer under Section 69 of the IT Act. We have to decide which version is true, correct, more probable and acceptable. The whole of the calculation sheet marked as A-3/63 is in the handwriting of the Accountant of the assessee-firm viz., Shri Radhakrishnamur-thy. It is stated by the learned CIT(A) that he is a partner in No. 2 firm besides being an accountant in the assessee-firm. Admittedly he has been attending the proceedings of the assessee before the ITO, CIT (Appeals), as well as this Tribunal. However, till date he had not come out with any proper explanation regarding the circumstances under which the calculation sheet representing the seized material A-3/63 came to be prepared. An adverse inference can be drawn by his conduct. The internal evidence of this document itself would clearly prove the case in favour of the revenue. It is clearly stated that on 30-5-1979 an amount of Rs. 1,05,000 was received from the house of Sri K. Subbarao through Sri Satyanarayana and it is duly credited on the credit side of the calculation sheet (A-3/63). An extract of the purchases, the quantities purchased in borams as well as in Kgs. and their value were all given at the end of the calculation sheet (A-3/63). As can be seen from that extract from Anantavaram 110 borams weighing 14,056 Kgs. of the value of Rs. 71,685-60 the amount was not given and as against this entry it is clearly stated "..." which means that the amount under the patties worth Rs. 71,685-60 is yet to be paid, whereas in Yeddanapudi Varalaxmi variety of cotton in 109 borams weighing 12,358 Kgs. of the value of Rs. 62,160-74 was stated to have been paid. An arrow mark is given against the amount of Rs. 62,160-74 and it is stated in very small letters in Telugu "... ." Thus it is seen that for the purchases of Varalaxmi cotton in Anantavaram the payment was not made, whereas for purchases of Varalaxmi cotton in Yeddanapudi payment was made. Again in Anantavaram MOU-5 variety of cotton of 20 borams weighing 2,365 Kgs. of the value of Rs. 10,161-20 and another 48 borams of Varalaxmi variety of cotton weighing 6,229 Kgs. worth Rs. 26,184-20 at Yeddan-apudi both totalling together in an amount of Rs. 36,346-40 were bracketed together and it was marked that the amount was paid. The word used in Telugu was "...". The average rate per quintal was worked out at Rs. 423. Thus it can be seen that from out of the total purchases of cotton made only Varalaxmi variety was purchased from Yeddanapudi ryots and they were fully paid. So also, in Anantavaram both Varalaxmi variety as well as MOU-5 variety of cotton was purchased and for MOU-5 variety of cotton purchased from Anantavaram the amount due to the ryots was fully paid. The total amount paid to the ryots appear as under:Yeddanapudi - Varalaxmi 12358 62,160-74Yeddanapudi - Varalaxmi 6229 26,185-20Anantavaram - MOU-5 2365 10,161-20 The total which appeared to have been paid on 30-5-1979 to the ryots is Rs. 98,506. Out of the credit balance of Rs. 1,05,000 an amount of Rs. 99,682-04 was subtracted. The difference between Rs. 98,506 and Rs. 99,682-04 represent the expenditure incurred by the assessee-firm over Mutah Coolies for arranging the borams, for loading and unloading and for purchase of borams etc. Thus there is unimpeachable internal evidence to the effect that on 30-5-1979 an amount of Rs. 1,05,000 was received from Sri K. Subbarao's house and out of it, Rs. 99,682-04 was incurred as expenditure either for purchase of cotton or for connected expenditure. Still an amount of Rs. 5,317-96 was shown to be outstanding balance on the credit side of the calculation sheet. In the light of this internal evidence the vouchers executed by the parties are to be appreciated. The parties noted at serial Nos. 1 to 6 of the seized paper all belonged to Yeddanapudi. As can be seen from the extract given at the bottom of the seized paper only Varalaxmi variety of cotton was purchased from Yeddanapudi ryots and all of them were paid in cash. Therefore it is evident that the vouchers executed by them which constitute seized material A-3/65 to A-3/73 disclosed that the value of the correct cotton purchase from each of them was paid as per the patties given to them and the patties in their favour were wholly discharged. In view of the internal evidence the recitals in these vouchers seemed to be believable and in conformity with the internal evidence of the seized material A-3/65. As regards Sri K.Seetharamaiah who is noted as serial No. 7 (A-3/63) he belongs to Anantavaram and the amount of cotton purchased from him was Rs. 10,161-20 and the same amount was stated to have been discharged on the same day as per the recital given in the extract given at the bottom of page A-3/63. If oral evidence of these parties was to be believed as against documentary evidence, Sri G. Seshagiri Rao says that he had executed an undated voucher which is not true. His voucher is clearly dated 30-5-1979. Sri Poda Achaiah states that he received only l/3rd of the amount due to him on 30-5-1979. His evidence goes against the assessee's version', according to which nothing is paid to him and the amount due for the total quantity purchased from him is a credit purchase. It is significant that the quantity off none of these parties' purchases, the variety purchased and the amounts due to them were produced at the time of their examination. They would have revealed as to whether the payment was made or not. Further in the voucher executed by each of them on 30-5-79, it is stated that the amount was paid in cash in full discharge of the patti which disclose cotton purchases from each of them. After all they are all ryots and throughout the year they might have spent their sweat and labour for realising cotton from the land. They have to obtain their living only by sale of produce of their agricultural properties. In such circumstances it is quite unlikely that they would give an outright discharge voucher of having received the full amount for their produce without receiving the cash. Their admissions and the very fact that they have rightly obliged for executing a duplicate voucher on the mere representation of the assessee-firm that the previous vouchers which they have executed were seized by the IT department show that they were very obliging parties who can give any sort of voucher in favour of the assessee-firm, so long as it does not touch their pocket. Having received the amount due to each of them on 30-5-1979 itself it is not very difficult for them to oblige and give a duplicate set of vouchers.
This circumstance only shows their interestedness rather than their disinterestedness. There is trite saying in law that men may lie but circumstances would not. Therefore, we are not prepared to accept the Oral evidence of these witnesses as against the preponderant documentary evidence which tilt the balance in favour of the Department. Under the circumstances we hold that the seven parties listed out in this seized document A-3/63 were already paid as against the discharged vouchers, on 30-5-1975 itself, and by the date of their duplicate vouchers nothing was due from the assessee-firm. Therefore, in our opinion the addition of Rs. 96,207 was correctly made under Section 69 of the IT Act. Thus we dispose of grounds 5 to 8 before us.
6. Grounds 9 to 11 deal with the addition of Rs. 1,00,698 on the basis of seized material marked as A-3/122. A photostat copy of the seized material A-3/122 is given at page 133 of the paper compilation filed before us. This is again a calculation sheet said to be in the handwriting of Kollipara Apparao S/o K. Subbarao. It has got credit as well as debit side. It is dated 17-4-1979. It is stated that an amount of Rs. 1,02,500 was obtained from Sri Kollipara Subbarao as a credit.
The document states that Varalaxmi variety of cotton was purchased from one Sri Popuri Laxminarayana of Anantavaram. Cotton worth Rs. 30,027-60 was said to be purchased from him. The name of the second party from whom cotton was purchased was stated to be Murikonda Hanumantharao. It is stated that an amount of Rs. 37,354-60 was paid under the patti disclosing the cotton purchase. The third party from whom cotton was stated to have been purchased was one Sri Gurijala Ramarao and the value of the cotton purchased from him was stated to be Rs. 33,315-65.145 borams were stated to have been transported through lorry and an amount of Rs. 202-50 ps. was incurred towards lorry transport charges and Rs.217-50 was incurred to wards loading charges as well as khata cooly. On 17-4-1979 the amounts are the lorry transport charges as well as the loading and unloading charges and also khata cooly were debited in the account books of the assessee-firm. It is also the case of the assessee-firm that no doubt cotton was purchased from the above three parties but it was only on credit and no cash was paid to them on 17-4-1979. However, the debit side account totalled upto Rs. 1,01,117-85. It was subtracted from Rs. l,02,500 which is the credit side amount and the outstanding balance was stated to be Rs. 1,382-15 ps. This document has two papers. In the second paper this amount of Rs. 13,082-15 was brought over. It is stated that an amount of Rs. 2,500 was realised from Srinivasa Cotton Traders Co., Perecherla through one Sri Pothuri Venkataratnam and the available total cash was stated to be Rs. 3,882-15. The denomination of notes representing Rs. 3,882-15 ps. were also disclosed in the second sheet of seized material i.e. A-3/122. Out of the three ryots two were examined by the Income-tax Officer long after the search and seizure. Sri Pokuri Laxminarayana was examined and the particulars of the examinations were provided at page 123. He states that for purchase of cotton Sri Kollipara Apparao son of Sri K. Subbarao had come. He further states that payment of cash for cotton purchased in this line of business is very rare. They pay the amount of a future date. Immediately after the said date they approached the assessee-firm and requested for payment.
The firm people replied that the main partner viz., Kollipara Subbarao was admitted in the hospital at Madras and hence payment could not be made early for the cotton sold in April 1979 the payment was made in January, 1980. The voucher executed by this party is in the printed form maintained by the assessee-firm. The columns were filled up by the Accountant Sri Radhakrishnamurthy. No doubt the voucher is kept undated but in the recitals, it is stated that an amount of Rs. 30,027-60 ps.
was paid towards full discharge of the patti disclosing the cotton purchase made from this party. So also Sri Murukonda Seshaiah was examined. He is no other than the father of Sri Hanumantha Rao who had given the voucher for Rs. 37,354-60 ps. He said that he sold cotton to the assessee-firm, the quantity sold was about 60 quintals, the sale was effected through broker Sri Kollipara Seetharamaiah who belongs to their village, Anantavaram. When a question is asked whether he had received the price he stated as follows:- A. No. Sri K. Seetharamaiah is from our village, we trusted him, and sold at site after issuing a signed receipt with an intention to have the payment through him in a week further in after 15days. When we insisted for the payment they replied that one of the partners was bedridden and admitted in Madras Hospital and hence prolonged the payment. Ultimately paid the amount after 7 to 8 months to my son Sri Hanumantharao. They insisted for the signature of my son at the time of payment saying that the original receipt asked was held up with the IT Department for record purpose. Thus he has signed and issued a same voucher giving the circumstances what has happened in its reverse side.
Thus it can be seen that the sale was said to be made by the son, whereas the statement was given by the father. So also the voucher which was filled up by Sri Radhakrishna, the accountant of the firm and the partner of No. 2 firm was executed by the son Sri Murikonda Hanumantha Rao. In fact, he is the proper person to explain whether payment was made or not for the sale. However, he was not examined. The seized material itself shows that the payment was already made under the patti issued to this party and the amount paid was Rs. 37,354-60 ps. Therefore, there is no reason why we have to doubt the correctness of the original voucher executed by Sri Murikonda Hanumantha Rao of having received Rs. 37,354-60 ps. So long as the payment is received, a ryot who had received the payment would not mind giving the voucher without date. He is not concerned about the date of the voucher very much. Therefore, no importance need be attached for the fact that it is undated. Merely because the voucher was undated it does not give an inference that the amount was not paid. Further the 'patti' which was executed by the assessee-firm in respect of the ryot was never produced. Without payment it is quite unlikely that the party would subscribe his signature on a stamped voucher. It is quite unlikely that he would deliver the goods as well as sign a voucher of having received value and submit it to the purchaser placing himself at the mercy of the purchaser whether to pay or not to pay. Further the amount is not a meagre amount. It is a substantial sum of Rs. 37,354-60 ps. Having received the amount even on 17-4-1979 it would be easy to execute another voucher on 9-1-1980, so long as it does not damage his position anywhere. The very fact that he had executed a duplicate voucher in favour of the assessee-firm would clearly show his interest in the firm, instead of showing his disinterestedness. Knowing fully well that he has already executed a stamped paper in favour of the assessee-firm and knowing fully well that it was seized by the Income-tax Deptt. and it was in its custody, no ordinary prudent man will execute a duplicate voucher as the original voucher was not lost but it was very much in existence and in the safe custody of the Department. The very fact that the party executed the duplicate receipt would thus show his interestedness. Further the internal evidence of the very document itself would show that not only the payment to three parties but also to transport charges for the lorry and the loading and unloading charges as well as khata cooly totalling to Rs. 1,01,117-85 was paid on 17-4-1979 from out of Rs. 1,02,550 which was received as credit from Sri K. Subbarao. The recitals in the seized document A-3/122 constitute an admission on the part of the assessee and the recitals therein should be presumed to be true, unless proved otherwise. The presumption which could be raised Under Section 132(4 A) of the IT Act is not at all rebutted by the assessee-firm. The oral evidence of the witnesses examined cannot be preferred over the recitals made in unimpeachable, contemporaneous documents executed on 17-4-1979 itself. The non-examination of Sri K. Appa Rao s/o Kollipara Subbarao, as well as one of the partners of the assessee-firm, so also, Shri Radhakrishnamurthy, Accountant, and partner in No. 2 firm who also represented the IT proceedings of the assessee-firm from ITO stage to the stage of Tribunal lead us to draw an adverse inference. They were the best persons who could explain the circumstances under which the recital in seized documents were made. However, none of them were either examined or gave affidavits explaining the circumstances under which certain entries were made in this document. Therefore, it is a fit case where an adverse inference can be drawn. On a construction of the documentary as well as oral evidence on record, we are of the opinion that the preponderance of probabilities, as well as the unimpeachable documentary evidence on record, would disclose that the payment was made on 17-4-1979 itself. Ultimately we hold that the addition of Rs. 1,00,698 was correctly made Under Section 69 of the IT Act, 1961. Thus we dispose of the grounds 9 to 11 filed before us.
7. The next ground is against the addition of Rs. 71,693 and it is based upon another seized document which is marked as A-3/106, photostat copy of which is furnished at page 132 of paper book No. 1 filed before us. It is again a calculation sheet. On the credit side there was Rs. 72,805. On the debit side there was Rs. 72,804-25 ps.
Ultimately, the balance was struck at 0-75 ps. This discloses purchases from two parties and a payment of Rs. 2,700-40 ps. towards difference in price paid to a third party, and also certain expenses incurred for arranging the cotton in 64 borams and other expenses including payment of Rs. 542.50 to the welfare committee of the village. It is admitted that the last four items were duly entered in the account books of the assessee-firm. It was stated that the total of the first three items amounting to Rs. 71,693 was not paid to the parties and it relates to the credits purchases made on 6-6-1979. It is in the handwriting of Sri Radhakrishnamurthy the Accountant of the firm. In view of the fact that the attendant expenditure incurred in purchase of cotton was duly entered in the account books of the firm, the seized paper A-3/106 should be held as belonging to the assessee-firm. Sri Bollu Seetharamaiah on behalf of his father-in-law Shri Koritala Narayanaand Sri Kondisetty Seetharamaiah were examined. Koritala Narayana had given a voucher of having received Rs. 42,095-40 ps. on 6-6-79 itself. The voucher was also in the handwriting of Sri Radhakrishnamurthy, the accountant of the assessee-firm. It recites that the amount was paid in full discharge of patti disclosing the cotton purchased from him. He had subscribed his L.T.I, on the revenue stamp of 0-25 ps. affixed on the voucher. The voucher was in a printed form maintained by the assessee-firm. The blanks in the voucher were filled by Sri Radhakrishnamurthy. Sri Bollu Seetharamaiah, claimed to be illatom son-in-law of Koritala Narayana of Anatavaram states in his examination that he knows the assessee-firm since 1969. One Sri Kollipara Apparao came to their village in May, 1979 for purchase of cotton through a broker of their village by name Sri Kollipara Seetharamaiah to whom they sold cotton. He sold his father-in-law's cotton of about 82 quintals of Varalaxmi variety at Rs. 510 per quintal. It is no doubt true that in the original voucher, as well as in the duplicate voucher Shri B. Seetharamaiah appeared as witness but is not known why Sri Koritala Narayana himself did not come forth to depose the truth of the transactions allegedly taken place. Further, it is significant that Sri Radhakrishnamurthy though he, as mainly taken interest in IT proceedings right from ITO stage to the Tribunal stage, did not come forth either to give evidence or to file an affidavit explaining the true nature of the transaction which took place on 6-6-1979. He did not also explain as to from which source this amount of Rs. 72,805 was received on 6-6-1979 as noted in the seized document A-3/106.
Therefore, we give preference to the internal evidence and to the very recitals made in the seized document A-3/106 than to the oral evidence of the witnesses. The original vouchers executed by the parties would clearly show that the amount was already paid on 6-6-1979 and they would agree with the entries made in A-3/106. Thus a complete chain of evidence was established between A-3/106 and A-3/103, 104 & 105. The evidence of Sri Kondisetty Seetharamaiah is on the same lines as that of the evidence of Sri Bollu Seetharamaiah. The oral evidence of these witnesses cannot be given credence to, when in fact their version comes in coflict with the entries made in the unimpeachable documentary evidence available on record viz. A-3/106, A-3/103, 104 & 105.
Therefore, we reject the evidence of Bollu Seetharamaiah and Sri Kondisetty Seetharamaiah as their versions appeared to be not believable or highly improbable. At the same time we expect internal evidence of that seized top sheet as well as the vouchers. We also draw adverse inference from the fact that the author of the top sheet as well as vouchers viz. Sri Radhakrishnamurthy, Accountant of the firm did not come forth with any explanation whatsoever about the transaction. Therefore, we hold that the addition of Rs. 71,693 was correctly made Under Section 69 of the IT Act. Thus we dispose of grounds 12,13,14 and 15.
8. Now let us take up the gounds 16,17,18 and 19 of the grounds of appeal. The addition made was Rs. 10,832 which was the subject matter of these grounds. The addition was made on the basis of seized material A-3/123. Copy of A-3/123 was not furnished to us by the assessee-firm.
However, we secure a true copy of it from the seized material. It is dated 16-4-79. It represents a credit of Rs. 31,260 from out of which 8 borams weighing 811 kgs. of MOU-5 lint was purchased for Rs. 10,832-50 from one Sri Y. Venkateswara Reddy of Mallayapalem. Mutah cooly of Rs. 50 also was incurred from that It is the case of the assessee that this amount of Rs. 10,832-50 was not given to the ryot Sri Y. Venkateswara Reddy in cash on 6-4-1979 but it was only a credit purchase.
Alternatively it was contended that even if it is considered to be a cash payment made on that day viz., 16-4-1979 it should be held that the cash had come from some of the debts due and as such the source of payment was explained and hence no addition should be made Under Section 69 of the IT Act.
9. Sri Y. Venkateswara Reddy was examined by the Department. He says that he belongs to Mallayapalem of Guntur district. In 1979 he kept the cotton seed for his cattle and sold about 8 quintals of lint to the assessee-firm probably in April, '1979. He had not paid any ginning charges. The price of the lint sold to the asesessee firm was actually paid in December, 1979. It is usual practice with the assessee firm to obtain undated vouchers duly signed by the agriculturists for making the payment. Time of 15 days will generally be given for payment. But in this case the time sought was long over and when the payment was demanded, it was stated that the Managing Partner was admitted in the hospital and therefore, there was delay. In December, 1979 payment was made. A duplicate voucher was given by him stating that the original was held up with the ITO for record purposes. Afterwards he did not sell any cotton to the assessee-firm. The evidence of this witness is against the recitals of the original voucher executed by him on 16-4-1979 and also against the entries found made in the seized material A-3/123. When such unimpeachable documentary evidence is before this Tribunal it is highly difficult to believe the oral evidence of this witness. In the original voucher it was stated the amount was paid in full discharge of the 'patti' amount for disclosing purchase of cotton. There was a difference between the other additions and this addition. In this case, A-3/123 discloses that an amount of Rs. 24,227-50 ps. was received from Krishna Rice Mill, Warangal and Rs. 7,033 was received from Chidambara Gayitri. It is strongly urged on behalf of the assessee that these two parties are debtors of No. 2 firm and from out of the debts due by them to No. 2 firm the amounts of Rs. 24,220-75 and Rs. 7,033 respectively were paid by them and even assuming that the amount of Rs. 10,832was paid in cash to the party Shri Y. Venkateswara Reddy, still it can be seen that the amount was paid from out of credit balance of Rs. 31,260-50. Now the truth of this argument cannot out rightly be dismissed. According to the assessee the source for the payment of the amount was sufficiently disclosed and so no addition can be made Under Section 69 of the IT Act. In our opinion, this allegation is to be investigated into. It should first be found out whether Krishna Rice Mill, Warangal and Chidambara Gay it is were debtors of No. 2 firm, if so, whether Rs. 24,227-50 and Rs. 7,033 were credited by them in their accounts to No. 2 firm on or immediately before 16-4-1979. In order to form the nature and source of the payment of Rs. 10,832-50 to Y.Venkateswara Reddy of Mallayapalem or not. We reject the plea that Rs. 10,832-50 ps. reflects the credit purchase.
However, in order to verify whether the payment of Rs. 10,832-50 ps.
was paid from out of Rs. 31,260-50 said to have been realised from the two parties named above, who are said to be the debtors of No. 2 firm and in order to verify the correctness, nature and source of the amount from which the payment of Rs. 10,832-50 was said to have been paid, we set aside the impugned order and direct the matter again to the CIT (Appeals) to verify the facts and decide the matter afresh and according to law. Under the circumstances the appeal is partly allowed.