TaxTMI 
TaxTMI 
2010 (11) TMI 649
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....y. 2. Before we proceed to deal with the dispute involved in each appeal, it would be appropriate to briefly touch upon the background of the captioned dispute. Both the captioned assessees are private limited companies incorporated under the provisions of the Companies Act, 1956 and are inter alia engaged in the business of ingots/billets etc. In this case, a search action under s. 132 of the Act was carried out by the Department at the business and residential premises of the directors of the assessee companies on 17th March, 2006. As a consequence of such search action, the AO has framed the impugned assessment in terms of s. 153A of the Act (hereinafter referred to "Act" in short) for the captioned seven assessment years. The returns of income filed by two assessees in response to notices issued under s. 153A of the Act were subjected to scrutiny assessment under s. 143(3)/144 of the Act wherein the total income was determined at a higher figure than those returned. Against the additions made, the assessees carried the matter in appeal before the CIT(A). The CIT(A) allowed full relief in relation to asst. yrs. 2000-01 to 2005-06 and allowed partial relief in asst. yr.....
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.... role in any production unit, and that are subject to variation due to some inherent and some extraneous factors as well? 3. Whether inference and conclusions drawn by the AO about suppressed production of the company draw support from/get substantiated by any other corroborative evidence, such as unexplained assets or expenditure, investment, etc.? 4. Whether, in the instant case, framing and passing of assessment orders under s. 144 of the Act are correct and justified?" 6. The AO observed that the assessee has consistently incurred business losses in spite of increase in turnover. Hence, the books of accounts submitted by the assessee and those seized on CD format were examined. The stand of the assessee was that the books of accounts of the assessee for all these years are statutorily audited under the Companies Act, 1956 and IT Act, 1961. The records of the company are audited under the Companies Act, 1956 and IT Act 1961. The cost records of the company are audited under s. 234B of the Companies Act, 1956. The excise records are audited at regular intervals by the personnel of the Central Excise Department. On-the-spot verification of stocks is carried ....
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.... 2006 as per the stock register was 84,780 MT and that found was also 84,780 MT. There was no difference in the raw material i.e., iron ore also which was 51,581.700 MT as per the stock registers maintained. Practically speaking the weighment of the said stock of iron ore by us also would have taken more than 15 days as the same should have been loaded in trucks, weighed and then the weighed truck unloaded and loaded again for weighing the same." 9. In this background, the stand of the assessee is that the authorized officers present in the premises of Dhanlakshmi Sponge Iron were reluctant to go through the laborious and time consuming process involved in a systematic stock checking; they persuaded the managing director for a handsome declaration on account of stocks. Accordingly, an amount of Rs. 27 lakhs was offered for taxation on account of 3,525.690 MT iron ore and Rs. .4 lakhs approximately on other accounts. The declaration should be judged from the following angles:- "(i) There was a departure from the set procedure for stock valuation which is normally carried out in the course of survey and search to find out unaccounted stock. There was no stocktakin....
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....ses of the companies were searched, not an iota of evidence regarding unaccounted production was found to indicate that the bars and ingots represent unaccounted production of the assessee M/s SRJ Peety Steels (P) Ltd., which is a separate assessable entity, whose accounts are statutorily audited by various authorities. As the notings on the said papers were accepted by Sri Surendra the income from the same was returned by him in his return of income for the asst. yr. 2006-07 filed in compliance to the notice under s. 153A and the tax due on the same was also paid. Without prejudice to the above, the stand of the assessee was that in asst. yr. 2006-07 the assessee was entitled to carry on trading of those commodities and the business was in nascent stage when the search took place. Consequent to search, there was total disruption of the business and the same could not take off as the suppliers as well as the customers were not interested in co-operating with Sri Surendra and hence the business was discontinued. The assessee could not confirm the transaction as the parties with whom he had dealings were reluctant to come forward after search. In this background, the stand of the ass....
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....hmi Sponge Iron. As stated earlier, the inception of Dhanlakshmi Sponge Iron was during asst. yr. 2005-06 and its production had begun from 30th June, 2005. The AO was not justified in rejecting the books of accounts for asst. yrs. 2000-01 to 2005-06 on the basis of events occurred during asst. yr. 2006-07. The AO failed to consider the submissions of the assessee dt. 28th Dec., 2007 as mentioned as above that the payments made on account of consultancy fees to various persons on which no tax was deducted at source, has been added back in the computation of income for the asst. yr. 2006-07 and the same has been claimed as an expenditure in the year during which the said tax was duly paid. It has no sound basis for rejection of books of account. The stand of the assessee was that for computation of income there are separate provisions in the statute without any overlapping. Therefore, the provisions of s. 145 cannot be imported for any infringement of another section on a different context. 14. Another ground for rejection of books of accounts was the excessive claim of burning loss. In this background, it was submitted that the assessee failed to consider the detailed rep....
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....ar and treated the production in that month as the correct production and then proceeded to arrive at the production figure by multiplying the production in the books by the ratio of production to the electricity consumption for the month in which electricity consumption was minimum. The method of computing the so-called suppressed production is not based on cogent reasons. The AO has gone by supposition but not by actual detection which is not justified. The entire method in this regard is based on pre-supposition and lacks scientific basis. The AO has failed to examine the entire manufacturing process carried out by the assessee. He has not gone into the quality of raw materials, nor has he bothered to take the type of technology used by the assessee. The AO has also not taken strength from comparable case of similarly placed situation. The factors responsible for variation in electricity consumption have been explained by the assessee in his detailed written submissions dt. 22nd Oct., 2007 where the main points of the same are reproduced as under:- "Improper supply by MSEB, which deficits the melting efficiency, lower the voltage supply level, higher the consumption of....
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....bsp; 17. In this background, the CIT(A) called for a remand report and the AO has submitted his remand report inter alia in his remand report has justified the reasons for rejection of books of accounts on the ground of:- (a) unreliable books of accounts; (b) unaccounted production and sale; (c) inconsistency in the electricity consumption; (d) furnishing of wrong/incorrect particulars and misrepresentation of facts during assessment proceedings; (e) unaccounted purchases of stores and spares; and (f) inconsistent burning loss. After rejecting the books of accounts, the AO determined the suppressed production. Since the electricity was the major raw material outside the control of the assessee, it was considered the basis for determining the suppressed production as mentioned in the following chart:- Month Production (MT) Electricity consumption Units/MT Difference in electricity consumption per MT of TMT bar production (taking lowest PMT consumption) Expected production Suppressed production April, 2005 2687.32 5921960 2203.63 515.21 3506.35 820.04 May, 2005....
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.... extrapolating a single evidence. After considering the reply of the assessee the CIT(A) concluded as under:- "(A) The AO has resorted to a presumptive assessment in the case of appellant for all the years under consideration which is held wrong and unreasonable as the appellant has maintained regular books of accounts and excise records for all the years that have not been faulted by the AO. (B) Records are maintained by the appellant as required by the Companies Act, IT Act, Excise Department, and year-end bank audit and CERA as well as other routine inspections are carried out by these agencies in appellant's case and no adverse finding whatsoever from these agencies has been brought to my knowledge by the AO, in spite of giving him a fresh opportunity in this regard during the appellate proceedings. (C) Nor could the AO justify and substantiate his comments in the impugned orders, especially for asst. yrs. 2000-01 to 2005-06, that major irregularities were found in the books of account. Hence his apprehensions and suspicion on this count are treated as misplaced. (D) Rejection of books of accounts is not held valid and justified, especial....
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....; Appellant's request for intervention at the stage of initiation of penalty under s. 271(1)(c) is dismissed for all the years under consideration." 21. The Revenue has opposed the relief granted by the CIT(A) while the learned Authorised Representative opposed the sustenance of addition made by the AO. The learned Departmental Representative made detailed submissions in this regard and he took us through various details of the paper book to strongly support the order of the AO. On the other hand, the learned Authorised Representative contended that the AO was not justified in rejecting the books of account on various counts. He drew our attention to every point of rejection of books of account and also opposed the addition made by the AO as discussed above and practically supported the order to the extent the relief granted by the CIT(A) and opposed the order of the CIT(A) to the extent additions are sustained by him. 22. After going through the rival submissions and material on record, we find that the assessee is a private limited company incorporated under the Companies Act and is engaged in the business of ingots and billets used for production of MS bar....
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....w and not disputed by the learned Departmental Representative. 24. As discussed above, a search was conducted in the residential and business premises of SRJ Peety Group, Jalna on 17th March, 2006. Consequently notices under s. 153A were issued for all the years under consideration and the returns of income were filed on 29th Aug., 2006 declaring nil income for each year. 25. As stated above, certain papers were found at the residence of Shri Shantilal J. Peety inventoried as Annex. A-1 which contained the details of sale of TMT bars of different dimensions and ingots on 15th and 16th March, 2006. Shri Surendra S. Peety stated that these papers belong to trading transaction in TMT bars and ingots in his individual account. The income from the same was returned by him in his return of income for asst. yr. 2006-07 filed in compliance to the notice under s. 153A and the tax due on the same was also paid. 26. The AO mainly relying on the events occurring in asst. yr. 2006-07 in case of Dhanlakshmi Sponge Iron and considered it the base for rejecting the books of accounts of SRJ Peety Steels (P) Ltd. for asst. yrs. 2000-01 to 2005-06. All along the stand of....
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....the supply of electricity while the above raw material is already in the furnace, the consumption will automatically increase because same raw material would be heated twice for making the finished products by consumption of electricity. This aspect of the excess consumption in the abovesaid manner in the business of steel manufacturing has not been duly considered by the AO. As discussed above, vide order under s. 144 r/w s. 143(3) of the Act on 31st Dec., 2007 for asst. yr. 2006-07 inter alia the AO made an addition of Rs. 3,60,57,000 on account of suppressed profits. For the asst. yrs. 2000-01 to 2005-06 the assessment was made under s. 153A r/w s. 144 of the Act making the following additions:- Asst. yr. Amount of addition 2000-01 3,41,37,454 2001-02 65,25,000 2002-03 2,10,90,000 2003-04 4,09,63,500 2004-05 4,68,32.500 2005-06 5,59,97,500 28. The CIT(A) has allowed the appeal of the assessee for asst. yrs. 2000-01 to 2005-06 by holding that the rejection of books of account for these years is not justified. The CIT(A) rightly observed that simply because there are variations in monthly consumption of electricity the AO was not....
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....nder s. 132A, as the case may be, shall abate. It is clarified that the appeal, revision or rectification proceedings pending on the date of initiation of search under s. 132 or requisition shall not abate. Save as otherwise provided in the proposed s. 153A, s. 153B and s. 153C, all other provisions of this Act shall apply to the assessment or reassessment made under s. 153A. It is also clarified that assessment or reassessment made under s. 153A shall be subject to interest, penalty and prosecution, if applicable. In the assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year. 65.6. The new s. 153B provides for the time-limit for completion of search assessments. It provides that the AO shall make an order of assessment or reassessment in respect of each assessment year, falling within six assessment years under s. 153A within a period of two years from the end of the financial year in which the last of the authorizations for search under s. 132 or for requisition under s. 132A was executed. 65.9. The new s. 153C provides that where an AO is satis....
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....e, it could have been raised during the regular assessments and not in the assessment proceedings under s. 153A of the Act. When nothing incriminating was found in the course of search relating to any of these assessment years, the assessments for such years could not be disturbed on this ground. 33. In view of above factual and legal position we find that the additions in question in asst. yrs. 2000-01 to 2005-06 are not corresponding to the seized material found during the course of search. The relevant IT returns for said years were filed prior to the search in normal course disclosing the particulars of subject-matters were already on record. The returns have already been accepted and no assessment as such could be said to be pending on the date of initiation of search and abated in light of the provisions of s. 153A. 34. Without prejudice to above, with regard to invoking the provisions of s. 145 of the Act, according to which in case the AO is not satisfied about the correctness or completeness of accounts of the assessee or where no method of accounting provided in sub-s. (1) or accounting standards as notified under sub-s. (2), have not been regularly fo....
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....sessments of the assessee company from the asst. yrs. 2000-01 to 2005-06. Therefore, rejection of books for these years purely on the ground that there has been divergence in the consumption of electricity and application of s. 144 is not at all justified. Accordingly additions have rightly been deleted in asst. yrs. 2000-01 to 2005-06 in both the cases. 38. Appeals of the assessees for asst. yr. 2006-07:- During the course of search at the residential and business premises of SRJ Peety Group, Jalna on 17th March, 2006, and on the basis of certain papers found at the residence of Shri Shantilal J. Peety (where all the members of the Peety Group reside) inventoried as Annex. A-I pertaining to the trading business of Sri Surendra S. Peety, it was observed that the assessee company indulges in unaccounted production and sales of TMT bars and ingots outside its books of accounts. List of the inventory of papers found in the residential premises of Peety Group marked as Annex. 1 on the basis of which sales figures were extrapolated are attached as pp. 724-796 of the paper book. 39. The addition was calculated at Rs. 75,05,160 for the asst. yr. 2006-07, bein....
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.... the same was also paid. The trading income as per the quantity summed from loose sheets offered in case of Shri Surendra Peety for asst. yr. 2006-07 is as follows:- Product Quantity Rate Amount Purchase Net Ingot/billets 119.07 20,300 24,171 2,33,377 Bars 313.31 23,889 74,848 7,42,824 Coal 9.94 3,800 37,772 36,778 Total 99,397 9,79,879 1,41,001 42. These loose sheets primarily contain the weighment slips of goods, copies of the sales register, some notings about incomings and report print. The AO has taken the total quantity and multiplied it with the average rate to arrive at a decision that there have been suppressed sales of goods worth Rs. 98 lakhs. In appeal, the CIT(A) with regard to suppressed production in case of assessee for asst. yr. 2006-07 observed that in earlier years i.e. asst. yrs. 2000-01 to 2005-06 a statistical formula based on electricity consumption cannot be adopted as it gives unscientific result that is far from reality on the ground level. The CIT(A) already observed that resorting to such a formula has resulted in abnorma....
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....laration by Surendra Peety on the basis of seized documents Rs. 51,52,257 Total The assessee's stand was that whatever stores and material were surrendered by the assessee on the day of search have been taken into books of accounts and they form part of the manufacturing and trading account of the assessee. Therefore, only gross profit should be worked out on the amount of undisclosed production (supra) and the surrenders made on account of above items should be telescoped into. In the light of the above mentioned surrender and proposal for addition on account of suppressed production on the basis of A/1, the CIT(A) observed that the funds are available from intangible additions (suppressed production) made in its case by the AO were sustained in the appeal. In view of disclosure in the hands of the company/individual same has to be taken for telescoping with regards to other additions or surrender that are otherwise called for on the basis of seized material. The CIT(A) was therefore of the view that the intangible addition on account of suppressed production made in the case of assessee was available in the form of fund to the assessee for rotating the same in incurring ....