TaxTMI 
TaxTMI 
2015 (10) TMI 2302
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....60/PN/2012 relating to assessment year 2004-05. 3. In ITA No. 1258/PN/2012, the assessee has raised the following grounds of appeal:- 1. The learned Commissioner of Income Tax (Appeals) erred in confirming the alleged suppression of sales of Rs. 3,89,11,352/-. 2. The learned Commissioner of Income Tax (Appeals) further erred in confirming the alleged suppression of sales merely on the basis of the order passed by the Commissioner of Central Excise and Customs, Aurangabad and on the basis of evasion of excise duty by steel manufacturers in Jalna cluster found by the Directorate General of Central Excise and Customs (DGCEI). 3. The learned Commissioner of Income Tax (Appeals) further erred in confirming the suppression of sales of Rs. 3,89,11,352/- on the basis of the order of the Commissioner of Central Excise and Customs, Aurangabad wherein they have relied on the consumption of electricity vis-a-vis production on the basis of an article written by Dr. N. K. Batra, Professor of IIT, Kanpur i.e. on presumption and assumption and without any evidence of purchase of raw material or sales of finished products out of books. 4. The learned Commissioner of Income Tax (Ap....
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.... has erred in deleting the addition of Rs. 1,75,73,238/- by estimating GP at lower rate than adopted by the Assessing Officer at the time of assessment. 2. On the facts and in the circumstances of the case, the learned CIT(A) has erred in adopting GP @ 4% arbitrarily without any basis ignoring the factual position on record, thus rendering his decision perverse. 3. On the facts and in the circumstances of the case, the learned CIT(A) failed to appreciate that the actual GP is 35% as admitted by the director in his statement recorded u/s.131 of the Act on 17-08-2009, thus rendering his decision perverse on facts. 4. On the facts and in the circumstances of the case, the learned CIT(A) has erred in lowering the GP addition ignoring the fact that, imaginary unaccounted manufacturing expenses cannot be allowed as deduction as per the provisions of section 69C of the Act. 5. Any other ground that may be urged at the time of hearing. 5. Briefly, in the facts of the present case, the assessee was engaged in the business of manufacturing of MS Ingots. Search and seizure action under section 132(1) of the Act was conducted in the case of Kalika group of Jalna including the as....
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.... by the assessee. After considering the process of mining of iron ore to its final destination i.e. utilized in the construction activity, the Assessing Officer was of the view that the assessee was generating huge unaccounted profits, which in turn was introduced in the business in the guise of commission, commodity property, etc. In order to verify the genuineness of the income declared, certain verification exercise was carried out by the Assessing Officer in respect of commission income declared by the assessee. 6. The Assessing Officer further referred to the action of the Director General of Central Excise Intelligence (DGCEI), who had conducted actions on many steel and TMT bar manufacturers of Jalna including the assessee at different times. The DGCEI had been able to substantiate the clandestine removal of goods manufactured by the assessee. The Assessing Officer made reference to various orders passed by the DGCEI, under which duty, penalty and even personal penalties on directors of the assessee company, were levied. The Assessing Officer made reference to the orders passed by the DGCEI against the assessee during the financial years 2004-05 to 2010-11, under para 28 ....
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....in the case of assessee and others and hence, the profit declared by the assessee could not be accepted without making further addition on account of profit on suppressed sales. The CIT(A) upheld the order of Assessing Officer in arriving at the suppressed production / sales of MS ingots / billets on the basis of electricity unit consumption. The second aspect considered by the CIT(A) was whether Gross Profit was to be taxed in respect of said alleged undisclosed sales and at what percentage of GP or the total amount of consideration towards alleged suppressed production sold after reducing cost of raw material, was to be taxed. The CIT(A) noted that the Assessing Officer had estimated the electricity consumption for one MT production of MS ingots on 1026 electricity units as estimated by the Excise Department and as considered by the Income-tax Department in preceding years. Reference was made to the decision of Pune Bench of Tribunal in SRJ Peety Steels Pvt. Ltd. and Shri Om Rolling Pvt. Ltd. and the appeals pending before the Hon'ble Bombay High Court, Aurangabad Bench. The CIT(A) held that GP in respect of undisclosed production sold could only be taxed in the hands of the asse....
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....turnover is to be estimated and an addition of Rs. 3,74,147/- was proposed in this case. The CIT(A) also upheld the rejection of books of account under section 145(3) of the Act. The CIT(A) also considered the objections raised by the assessee that the assessment framed under section 143(3) r.w.s. 153A of the Act was bad in law, as no incriminating material or evidence was found during the course of search. The CIT(A) observed that during the course of search and statement recorded under section 132(4) of the Act, Kalika group had declared additional income of more than Rs. 14 crores in various group cases and profit of Rs. 2.80 crores, which has been earned on account of profit on suppressed production sold by the flagship companies of Kalika group including assessee company, had been declared in the statement recorded under section 132(4) of the Act and also in the returns of income filed in the hands of directors / persons, who were beneficiaries of the said income. Therefore, it could not be said that no incriminating material was found in course of search. Further, the fact of action by DGCEI and the clandestine removal of goods noted during the course of search / post search ....
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.... placed in the Paper Book. As per the statement recorded under section 132(4) of the Act, the director had declared Rs. 14 crores in the hands of directors of four groups of shareholders and their family members. Further, in the statement recorded under section 131 of the Act, the director had given complete bifurcation of the declaration of Rs. 14 crores and also details bifurcation of income declared in the hands of individuals in respective years. The major portion of income was declared in assessment year 2010-11 amounting to Rs. 12.08 crores and the balance of Rs. 2.80 crores was declared in assessment years 2006-07 to 2008-09. However, in the hands of the group company i.e. the assessee and also sister concern Kalika Steel Jalna Pvt. Ltd., no declaration of income was made. 13. The learned Authorized Representative for the assessee further pointed out that during the course of search, the details of show cause notices issued by the Excise Department were found and the Assessing Officer had show caused the assessee to explain the same. The Assessing Officer had made the addition on account of suppressed production and sale on the basis of orders of Excise Commissioner, whic....
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.... Representative for the assessee further pointed out that the earlier decision of Tribunal in the case of SRJ Peety Steels Pvt. Ltd., was against the order passed under section 153A of the Act, which has been confirmed by the Hon'ble Bombay High Court, Aurangabad Bench, relating to assessment years 2000-01 to 2006-07. 15. The learned Departmental Representative for the Revenue in reply, in turn, relied on the order of CIT(A) and also pointed out that the assessee in its statement recorded under section 131 of the Act had admitted to the clandestine removal of goods and had also admitted to the additional income being offered in the hands of its directors. The learned Departmental Representative for the Revenue stressed that the said addition is to be made in the hands of assessee. 16. Coming to the appeals filed by the Revenue, the learned Departmental Representative for the Revenue pointed out that vide grounds of appeal No.1 and 2, the issue was against the addition restricted by the CIT(A) by applying GP rate of 4% on the suppressed sales. The learned Departmental Representative for the Revenue pointed out that vide ground of appeal No.3, the Department has challenged that....
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....n worked out on the basis of electricity consumption as per the report of Dr. Batra. The Excise authorities had issued various show cause notices to the assessee for the respective assessment years and on the basis of the allegation of Excise authorities, vide said show cause notices, the Assessing Officer made additions in the hands of assessee on account of clandestine removal of goods without payment of Excise duty. The basis for the issue of show cause notices was the variation in electricity consumption and also and / or on account of the evidence of clandestine removal of goods having been found against the assessee by way of search at the premises of group cases of assessee by the Excise authorities. The present cross appeals filed by the assessee and the Revenue are pursuant to search and seizure operations carried out against the assessee on 08.07.2009. During the course of search by the Income-tax Department on the assessee, statement of director of assessee company was recorded under section 132(4) of the Act on 08.07.2009, in which he declared undisclosed income of Rs. 14 cores in the hands of directors of four groups of shareholders and their family members. Further, s....
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.... CESTAT, had deleted the addition in the hands of assessee. The third show cause notice issued to the assessee was relating to assessment year 2009-10, which was also considered by the Tribunal in another set of appeals relating to assessment year 2009-10 and after considering the cancellation order passed by the CESTAT (Division Bench) and also the verification exercise carried out at the premises of the assessee, wherein the consumption of electricity was found to be far in excess of the allegation of the Excise Department on the basis of the report of Dr. Batra, no addition on account of excessive production was made in the hands of assessee. Before us, there is fourth show cause notices issued by the Excise Department, which have been cancelled on 25.05.2009 by Commissioner (Appeals) of Excise and the said order is placed on record at pages 50 to 56 of the Paper Book. The Revenue has not filed any appeal against the order of Commissioner (Appeals) of Excise, Aurangabad before CESTAT. The learned Departmental Representative for the Revenue has failed to bring on record any evidence that the said order has been challenged before CESTAT. In view thereof, where the issue is identic....
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....he nature and contents of the petition contemplated was not made known. The Special AR for the Revenue was asked to continue his arguments by the Bench, but he referred to his adjournment letter. 19. The Counsel for the assessee started his argument. However, the Special AR for the Revenue walked off from the Court Room. The Counsel for the assessee also furnished written rejoinder in reply to the submissions filed by the Special AR for the Revenue, parawise which were gone into at length. Though, in the course of hearing, the Special AR for the Revenue left the Court proceedings, on the other hand, Smt. M.S. Verma, Ld. CIT-DR and Shri Rajesh Damor, Ld. Addl.CIT-DR were present in the Court. Thereafter, other cases which were to be argued by the Ld. CIT-DR and Ld. Addl.CIT-DR were taken up for hearing and the matters in ITA Nos.125, 127, 430 & 431/PN/2012 along with ITA No.1525/PN/2012, ITA No.1476/PN/2012, ITA Nos.179 t o 182/PN/2012, ITA Nos.656 to 659/PN/2012, ITA No.1084/PN/2012, ITA No.1468/PN/2012, ITA No.1558/PN/2012, ITA No.1629/PN/2012, ITA No.1516/PN/2012 and ITA No.1638/PN/2012 were heard. All the other appeals are adjourned to 08.05.2015 as part heard. 20. On 08.0....
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....oods without payment of Excise duty; and b) Allowability of manufacturing and administrative expenses on the un-accounted production worked out by the Assessing Officer. 24. The steel group of cases were heard from day-to-day on various dates and the arguments of both the learned Authorized Representative for the assessee and the Ld. special AR were heard along with written submissions, Notes filed by them and the compilation of case laws relied upon by the respective Authorized Representatives. It may be put on record that the issues raised by the different assessees before us are relatable to the addition made on account of alleged suppression of production and evasion of duty on account of erratic consumption of electricity. 25. Now, we are coming to the merits of the issue raised before us. We have heard this bunch of appeals where different issues are raised i.e. in some cases where the assessment is completed under section 143(3) r.w.s. 148 of the Act, the assessee has raised the issue against re-opening of assessment, non-supply of reasons for re-opening under section 147 and also non-service of notice under section 143(2) after recording of reasons under sect....
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....fered additional production, which was accepted by the Settlement Commission in entirety. The Assessing Officer observed that there was suppression of production by the furnace companies in Jalna cluster on the ground of variance in consumption of electricity versus production. The Assessing Officer also referred to the data collected in the cases of furnace owners i.e. M/s. SRJ Peety Steels Pvt. Ltd. and others and relying on the addition made in the hands of M/s. SRJ Peety Steels Pvt. Ltd. (supra), in turn, on the basis of the order of CCE, Aurangabad, made additions in the hands of present set of assesses before us. 28. The Tribunal had elaborately considered all the aspects of addition in the hands of the furnace owners i.e. M/s. SRJ Peety Steels Pvt. Ltd., on the basis of erratic consumption of electricity, which in turn, was the basis for making the additions in the hands of the assessee therein by CCE, Aurangabad and vide order dated 16.01.2015 held that since the order of the CCE, Aurangabad has been overruled by the Third Member of CESTAT, there was no basis for addition in the hands of the assessee. The other aspects of the issue that the assessee therein had made the ....
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....Ld. Spl. AR for the Revenue also has filed notes of his argument on 05-11-2014 which are placed on record. We have also considered all the precedents and decisions relied on by both the Parties. The assessee is manufacturer of Ingots/Billets. So far as A.Y. 2007 -08 is concerned the original assessment of the assessee was completed u/s. 143(3) of the Act on 31-12-2009. While completing the assessment u/s. 143(3) of the Act, in the opinion of the Assessing Officer the electricity consumption shown by the assessee was at higher side as compared to the quantum of production declared by the assessee. The Assessing Officer, therefore, made the addition on the basis of the alleged suppression of the production/sales by the assessee as in his opinion the assessee should have declared or shown more production of the Ingot/Billets. Subsequently, on the basis of the information received from the office of the CCE, Aurangabad vide their letter dated 29-03-2010 as well as adjudication order of CCE quantifying the value of alleged suppressed production and alleged evasion of excise duty, the Assessing Officer initiated the re-assessment proceedings for A.Y. 2007 -08 against the assessee company....
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.... Officer or any other Income Tax Authorities. In the assessment order the Assessing Officer has placed his reliance only on the information received from the Central Excise Authorities and the proceeding before the Settlement Commission of Central Excise & Custom, Mumbai. The investigation was carried out by Central Excise Authorities i.e. DGCEI, against few brokers/sub-brokers and those brokers gave the names of many companies who are in the manufacturing of Ingot/Billets and TMT Bars. As per the statement given before the Central Excise Authorities by those brokers as well as sub-brokers namely Shri Umesh Modi, Mumbai, Shri Anil D Lingade, Shri Mukesh Gupta it was admitted that they were involved in clearing the consignments from the factory on weighment slips only and no excise duty was paid and they were involved in providing fake trading bills and challans which accompanied the vehicles carrying those consignments. As per the modus operandi adopted by the brokers they used to recover the said fake trading bills and challans after the goods reached their destination. As noted by the Assessing Officer those brokers/sub-brokers also admitted that the entire evidence was destroyed....
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.... Induction Furnaces Association, New Delhi on "Electric Steel Making technology in the 21st Century" which is available on the internet which is on the Electric Induction Furnace and as per the said article the power consumption in Induction Furnace is between 650 to 820 units per MT depending upon the input charge used. The Assessing Officer also referred to the Technical report of the IIT, which states that electricity requirement for manufacturing 1 MT of M.S. Ingots where melting scrap is used as an input, varies from 555 to 754 units and where "Sponge Iron" is used as an input, the electricity requirement varies from 815 to 1046 units. The Assessing Officer, therefore, came to the conclusion that the assessment framed by the Commissioner of Central Excise and Custom, Aurangabad in respect of the alleged suppression of production after considering the electricity consumption declared by the assessee and the production rate of units of electricity per metric ton adopted by the CCE, Aurangabad are very much reasonable, fair and justified and he adopted the same for the purpose of calculation of alleged unaccounted production of finished goods (Para No. 4.3 of the assessment order....
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....t finding of the Tribunal in turn, incorporating the order of Third Member of CESTAT in paras 19 to 19.4, which read as under: - "19. In sum and substance in both the assessment years the Assessing Officer has determined alleged suppression of the production/sales as determined the Commissioner of Central Excise and Custom, Aurangabad on the basis of power consumption. The copy of the adjudication order passed by the Commissioner of Central Excise and Custom and Service Tax, Aurangabad dated 28 -08-2009 (in short referred to as the "CCE") in the case of the assessee is placed at Page Nos. 122 to 174 of the P/B-I. The CCE, Aurangabad has observed that during the scrutiny of electricity bills, it was noticed that the substantial amount of expenditure has incurred by the assessee towards the cost of power consumption (Primary input). He has further observed that from the scrutiny of the various records, the cost of production is much more than cost of sale value, leaving no room for other major expenses like stores, wages, salaries, cost of maintenance etc. The Ld. Commissioner has referred to the study conducted by the Indian Institute of Technology (IIT), Kanpur and has obs....
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....he Ld. Commissioner was challenged before the CESTAT by filing the appeal u/s. 35B(a) of the Central Excise Act, 1944. There was a difference of the opinion between the Ld. Members of the CESTAT, i.e. L d. Vice-President and Ld. Technical Member and the matter was referred to the Ld. Third Member to resolve the following differences: a. Whether in view of the discussion in Para 1 to 31 and in view of the decision of the Tribunal in the case of R.A. Castings Pvt. Ltd. (supra) the impugned orders are to be set aside and the appeal allowed. b. Whether in view of the discussion in Para 32 to 68 above and in view of the Hon'ble Supreme Court's judgment in the case of Triveni Rubber & Plastics (supra) and this Tribunal's decision in the case of Rattan Steels Works (supra), Nagpal Steel (supra) and Hans Castings Pvt. Ltd. (supra), the impugned order are to be upheld and all the appeals dismissed. 19.3 The Ld. Third Member of the CESTAT concurred with the fi nding of the Hon'ble Vice-President that the order passed by Ld. Commissioner of Central Excise and Custom, Aurangabad was not sustainable and has to be cancelled. The operative part of the order of the Third....
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.... 20.3 After perusal of these reports, Tribunal opined that wide variations in the consumption electricity have been reported for the manufacture of one MT of steel ingot&, and that this renders the norm of 1046 units adopted by the Revenue as arbitrary. After this finding, which is upheld by the Hon'ble Allahabad High Court and even SLP has been dismissed, there was no reason for the Commissioner in the instant cases to consider the norm of 1026 units allegedly as per report of Dr. Batra, for arriving at deemed production. Moreover, the trial run conducted by the department had proved that at that time power consumption was actually higher than that reported in Dr. Batra's report. 20.4 It is also seen that the allegations levelled in R,A, Casting (supra) were mainly- (i). Inordinately high electricity consumption without any explanation, (ii). Sale of Ingots at a huge loss over last 4-5 years, which was economically and commercially not possible, (iii). generation of fictitious profits in the balance sheets by depositing huge amount of cash with the stock brokers and receiving cheques of profits against the cash so deposited, (iv).....
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.... Casting (supra) that it would be appropriate on the part of the Revenue to conduct experiments in the factory of the appellants and others and that too on different dates to adoptthe test results as the basis to arrive at a norm, which can be adopted for future. It was further held that- "23. The Tribunal has consistently taken the view that wherever electricity consumption alone is adopted as the basis to raise demands, the order of the lower authorities have been held to be unsustainable in law and set aside* and the Revenue had been directed to carry out experiments in different factories on different dates to arrive at the average to be adopted as a norm, which can be followed thereafter and the Revenue in the present case not having conducted any experiment whatsoever cannot be permitted to justify the demands raised. It will be appropriate on the part of the Revenue to conduct experiments in the factory of the appellants and others and that too on different dates to adopt the test results as the basis to arrive at a norm, which can be adopted for future. The impugned demand based merely on assumptions and presumptions cannot, therefore, be sustained nor could be jus....
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....during the subsequent period. I also agree with the finding of the Hon'ble Vice President that in. any event, this additional material is also only of power consumption. 22. In written submissions of Revenue, it has also been contended that Report of JPC suggesting electricity consumption upto 1800 its PMT was for electric arc furnace and not induction- furnace. However, the appellant has contended that productivity in. electric arc furnace is higher than induction furnace. In any event, in the Impugned Orders, there is no such reason to discard the report and in any event the letter of Mr. R.P. Varshney suggesting that electric consumption in induction furnace can be upto 1800 units per MT is also on record. Since, varying reports are on record, the ratio of R.A. Casting (sura) is squarely applicable. 23. Revenue, also relied On the judgment of the Hon'ble Supreme Court in the case of Melton India V/s. The Commissioner Trade Tax, U.P, - 2007-TIOL-14-SC-CT, the judgment of the Hon'ble Gujarat High Court in the case of Rajmoti Industries V/s. Joint Commissioner of Income Tax, 2014-TIOL-203-HC-AHM-IT, and an unreported order dtd. 28/9/2010 of Andhra Pradesh Sales Ta....
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....mpanies came forward before the Settlement Commission and paid the excise duty. Hence, the investigation of the DGCEI made against the brokers and subbrokers referred by the Assessing Officer was also before the Ld. Commissioner, Aurangabad. On perusal of the assessment orders it is clear that both the assessments are merely based on the alleged suppression of the production by estimating certain consumption of electricity i.e. 1026 Units for manufacturing of 1 MT of Ingots and Billets. Moreover, even if in the A.Y. 2008 -09, the Assessing Officer has observed that the information received from the Central Excise Authorities has no bearing in the said order but on the perusal of the said order, it is seen that entire order is copy of order passed for the A.Y. 2007-08. As vary basis of the assessment order i.e. the order of the Commissioner of Central Excise (CCE), Aurangabad has been set aside and cancelled by the CESTAT, in our opinion the assessment orders passed by the Assessing Officer and confirmed by the Ld. CIT(A) approving the estimated alleged suppression of the production/sales have no legal legs to stand." 31. The Tribunal thereafter, dealt with the arguments of Ld. S....
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.... Tribunal thus, held that the foundation for assessment does not exist. It was also noted by the Tribunal in para 21 that the investigation by the DGCEI and proceedings before the Settlement Commission were considered by the CCE in its adjudication order, which in turn, was the subject matter of CESTAT and the said order has been set - aside, hence, it was not necessary to deal with the decisions relied upon by the Ld. Special AR, which are in the context of admission of the Director in the course of investigation made by the DGCEI. 34. The second issue of maintaining of Form No.G-7 in respect of electricity consumption, was also before the CESTAT and the Tribunal overruled the arguments of the Ld. Special AR and upheld the arguments of learned Authorized Representative for the assessee that the order of CESTAT had to be applied. The relevant para of the Tribunal order reads as under:- "21. Though the Ld. Spl. AR has referred to and relied on the different judgments of the Hon'ble Supreme Court more particularly on the binding nature of the 'admission' of any person-Sec. 17, Sec. 106 and Sec. 115 of the Indian Evidence Act etc. but the fact remains that in the case of t....
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.... before the Tribunal and the order of the Tribunal is reported in 137 TTJ (Pune) 627. The Tribunal in M/s. SRJ Peety Steels Pvt. Ltd. (supra) referred to the observations of Tribunal in earlier proceedings relating to assessment years 2000-01 to 2006-07 under section 153A r.w.s 143(3) of the Act and held that in the said case of search and seizure, it was also held that the consumption of electricity for the manufacture of mild steel, ingots / billets depending on various factors and there was no justification to charge the assessee that it had suppressed the production and indulged into unaccounted production. The order of the Tribunal was challenged by the Department before the Hon'ble Bombay High Court and the Revenue's appeal was dismissed by common order dated 10.02.2014 in the case of assessee and other companies by the Hon'ble Bombay High Court and there were observations on the estimation of production based on the consumption of electricity. The Tribunal while deciding the appeal of M/s. SRJ Peety Steels Pvt. Ltd. in this regard observed as under:- "22. We have already mentioned here-in-above that in the case of the assesse, the search and seizure operation was ca....
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....es below along with the returns for each year: Asst. yr. Electricity consumption Production (MT) Yearly average consumption (units) 2000-01 24331059 18,524.239 1313 2001-02 25528565 17,010.558 1501 2002-03 31404354 19,709.654 1593 2003-04 31623843 20,396.313 1550 2004-05 43123824 23,240.189 1856 2005-06 62650888 29,582.434 2118 2006-07 70440580 36,017.983 1956 32.The matter of fluctuating consumption of electricity can by no means be said to be a finding of search since all details regarding electricity vis-a-vis production were before the Department. If the Department had any doubts regarding the same, 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 ma....
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....s to be finally cast into ingots/billets. The AO failed to appreciate these facts and did not attempt to establish a direct nexus between the production and electricity consumed for the manufacture of round/TMT bars and arrived at a conclusion that there is an excess consumption of electricity resulting in suppressed production and alleging that the assessee company has indulged in unaccounted production. 37. None of the evidence collected as a result of search or detected during the course of assessment pertains to the asst. yrs. 2000-01 to 2005-06. It is an accepted fact that each year of the assessment is independent and evidences found relating to asst. yr. 2006-07 cannot have an adverse impact on the assessments 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. 23. It is clear from the order of the Tribunal in assessee's own case in the search and seizure matter as it....
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....sclosing the particulars. They were already on record. The returns have been accepted. In such circumstances, the Tribunal, as also, the Commissioner of Income Tax (Appeals) have in their orders, held that there are several factors which have to be taken into consideration and while arriving at a conclusion with regard to the alleged production calculated on the basis of electricity consumption. Rejection of books for these years only on the ground that there has been divergence in the consumption of electricity, therefore, was held not justified." 24. Ld. Spl. AR for the Revenue argues that the said observations are made in the context of the assessment framed in consequence of search and seizure operation. We are not inclined to accept the argument of the Ld. Spl AR for the reason that even if the assessments are framed in consequence of the search and seizure operation but the important fact remains that nothing was found during the course of search except few loose sheets found in the residence of the Director to make out a case against the assessee for alleged suppression of production or sales. It is also to be taken note of the fact that in A.Ys. 2007-08 and 2008-09....
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.... Appellate Tribunal held that therefore, a hypothetical case appears to have been made by Revenue in excessive exercise of its jurisdiction to the detriment of justice. The Customs, Excise & Service Tax Appellate Tribunal further considered the retraction statement of the Director of the assessee company and vide para 6 held as under: "6. We would have certainly come to the rescue of Revenue had the statement been recorded in a manner known to law and cogent evidence had been brought to record to prove output cleared clandestinely. No cogent evidence is on record to show either suppression of purchase of input or clandestine removal of goods in fool proof manner known to law for which, it can be painfully said that the adjudication has no legs to stand. Both the appeals are therefore, allowed with consequential relief, if any." 11. The Customs, Excise & Service Tax Appellate Tribunal categorically held that the electricity consumption could not be criteria to determine the output laid down in R.A. Castings, where the appeal of the Revenue was dismissed by the Hon'ble Apex Court as reported in 2011 (269) ELT A -108 (SC). The basis for the addition in the present ca....
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....ricity used in manufacturing of Ingots/Billets are not sustainable. We, accordingly, delete the additions made towards the alleged suppression of production and sales at entirety and allow the Ground Nos. 3, 4, 5, 6 & 8 in the A.Y. 2007 -08 and Ground Nos. 2,3,4 & 6 in the A.Y. 2008 -09." 38. The Tribunal thereafter, held that there was no merit in the rejection of books of account and application of gross profit to determine the income in the hands of the assessee. The Tribunal also gave a finding that since the additions made in the hands of the assessee have been deleted, there was no merit in any addition on account of undisclosed investment in respect of the undisclosed turnover. The Tribunal vide paras 27 to 29 held as under:- "27. The next issue is the rejection of books of account by the Assessing Officer in both the assessment years. We find that the only reason for rejection of the books of account was the alleged suppression of production/sales and which was determined on the basis of the adjudication order passed by the CCE, Aurangabad as well as the consumption of the electricity used in the manufacturing of the Ingots/Billets relying on the technical opini....
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....nt years by allowing the grounds taken by the assessee. Accordingly, all the grounds of the Revenue in both appeals are dismissed." 40. The plea of the learned Authorized Representative for the assessee before us was that the issue raised in the present appeals is squarely covered by the ratio laid down in M/s. SRJ Peety Steels Pvt. Ltd. (supra). It was further pointed out by him that in the case of Bhagyalaxmi Steel Alloys Pvt. Ltd., there was no investigation by the DGCEI and further there was no order of Settlement Commission. However, the CCE, Aurangabad had passed an order against the assessee, but there was no case of clandestine removal of materials without payment of Excise duty against the assessee. The Ld. Special AR admitted that there was no evidence with the Excise Department or the Income-tax Department regarding clandestine removal of materials without payment of Excise duty. However, because of huge fluctuation in electricity consumption and production of ingots / billets, addition was made in the hands of the assessee. However, in Omsairam Steel & Alloys Pvt. Ltd., it was fairly admitted by the learned Authorized Representative for the assessee that there was in....
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....d that there is no merit in the said Miscellaneous Application filed by the Revenue and no remedy is available to the Revenue under section 254(2) of the Act. In view thereof, the next objection of the Ld. Special AR for not relying on the order of M/s. SRJ Peety Steels Pvt. Ltd. (supra) also stands dismissed. 43. Another aspect of the issue in relation to the addition on account of suppressed production, raised before us is that where the Assessing Officer had evidence of clandestine removal of material without payment of Excise duty, the addition could be upheld in the hands of the assessee by extrapolating the sales for period of 300 days. The Ld. Special AR for the said proposition relied on the decision of the Tribunal in assessee's own case relating to assessment year 2006-07. The case of the Revenue before us was that where the assessee had admitted to clandestine removal of material without payment of Excise duty before the Settlement Commission for part of the period, then in view of the order of the Settlement Commission and also since the assessee had admitted to additional income on such account before the Assessing Officer, the sales for the entire year should be ex....
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....sales for 300 days, in view of the admission of the assessee of clandestine removal of material without payment of Excise duty and suppression of income. 44. The evidence of clandestine removal of material without payment of Excise duty was detected by the Excise authorities during the course of search and seizure operation on certain brokers, however, no search and seizure operation was carried out against the assessee. In order to buy peace of mind, the assessee declared the said amount vide petition before the Settlement Commission, which has been accepted by the Settlement Commission in toto. The Ld. Special AR objected to the plea of assessee that declaration was to buy peace of mind, but we find no merit in the same, since the object of moving petition before the Settlement Commission is to settle the dispute. In cases where any settlement petition is moved by the claimants, the authorities have the power to re-visit the offer made by the claimant and where any adverse material is available against the person making the offer, then the figures of settlement can be increased. However, in the case of the assessee, offer of the assessee has been accepted for the financial yea....
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.... because the addition was made in the hands of the assessee in a preceding year, we find no merit in the submissions of the assessee that following the same ratio, extrapolation of sales for the assessment year 2007-08 should be made in the hands of the assessee, in view of the settlement petition by the assessee before the Settlement Commission. The perusal of the assessment order and the order of CIT(A) reflects no such basis was adopted for making the addition in the hands of the assessee. The sole basis on which the addition in the hands of the assessee made was on account of erratic consumption of electricity. Undoubtedly, both the aspects i.e. the petition made by the assessee before the Settlement Commission pursuant to search conducted by the DGCEI and also the other basis i.e. erratic consumption of electricity, were before the Assessing Officer. However, the Assessing Officer adopted the second issue in the hands of the assessee and made the aforesaid addition, which we in the paras hereinabove had already deleted. The Ld. Special AR pointed out that the said action of the Assessing Officer was one of the methodologies for working out the additional income of the assessee....
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....corded either by Assessing Officer or CIT(A) during the course of assessment proceeding. Accordingly, we find no merit in the reliance placed upon by the Ld. Special AR in this regard. The addition at best is to be restricted to the additional income offered by the assessee. 50. In our considered opinion, the issue in hand is to be decided on the basis of findings of the Assessing Officer and CIT(A) and the Tribunal cannot traverse beyond the orders of Assessing Officer and CIT(A). Admittedly, the parties can raise an additional plea before the Tribunal justifying the addition. However, the said plea has to be decided keeping in mind the facts of the case. Though both the Assessing Officer and CIT(A) had not made the addition in the hands of the assessee on the basis of petition filed before the Settlement Commission, but had adopted the erratic consumption of electricity as basis to make the addition, we have adjudicated the alternate plea raised by the Ld. Special AR in this regard and dismissed the same. 51. Now, we come to the reliance placed upon by both the Authorized Representatives in support of individual proposition vis-à-vis the addition on account of extrap....
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....s of the assessee for the balance period. The Tribunal further held that hypothetical calculation of turnover and estimation of gross profit merely on guess work and presumption was not sustainable in law. No details were available to the Assessing Officer to arrive at such figure or had there been any concealed sales for 9 months, it could have been detected by the Central Excise authority during their search operations. Therefore, the addition made by the Assessing Officer is purely based on guess work, presumption and surmises and not on the basis of any material found during the course of search operation carried out by the Central Excise authorities. Such addition based on hypothetical calculation of turnover and estimation of GP on presumption and surmises were not sustainable. The Tribunal distinguished the ratio laid down in CST Vs. H.M. Esufali H.M. Abdulali (supra). The Ld. Special AR relied on the said decision and in view of the decision of coordinate Bench on similar issue as before us, we find no merit in the reliance placed upon by the Ld. Special AR. 56. The Ld. Special AR during the course of arguments before the Tribunal in Miscellaneous Application filed in M/....
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....Memon (supra) while arguing the issue No.2 i.e. estimation of suppressed production is mis-placed. The Hon'ble Bombay High Court in the said decision considered the scope of assessment under Chapter XIV-B and held that what is to be assessed under the said Chapter is undisclosed income of the block period and not the total income or loss of the previous year required to be assessed under regular assessment under section 143(3) of the Act. The Hon'ble Bombay High Court held that such regular assessment stands on a different footing in contrast to the exercise undertaken by the Assessing Officer under Chapter XIV-B, where the Assessing Officer had to assess only the undisclosed income. However, the Hon'ble Bombay High Court further held that under Chapter XIV-B, the Assessing Officer cannot estimate the undisclosed income on an arbitrary basis. We find no merit in the plea raised by the Ld. Special AR in this regard as the facts of the said case are different from the facts of the present case. 42. Even on merits, the Revenue has no case against the assessee. The reliance placed upon by the Ld. Special AR on the ratio laid down in assessee's own case relating to assessment y....
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....ecisions, but the ratios laid down by the said judgments are distinguishable and not applicable to the facts of the present case. It may be put on record that all these decisions were relied upon by the Ld. Special AR in M/s. SRJ Peety Steels Pvt. Ltd. (supra) and same have already been considered. 59. In the entirety of the above said facts and circumstances, we hold that no extrapolation of sales for 300 days can be made in the hands of the assessee on the basis of the evidence found for clandestine removal of material without payment of Excise duty for few days, which in turn, has been admitted by the assessee by way of filing petition before the Settlement Commission, which in turn, has also been accepted by the Settlement Commission. Merely because the Settlement Commission accepted the claim of the assessee of additional Excise duty payable on the said clandestine removal of material without payment of Excise duty does not establish the case of the Revenue that the said figures of additional production should be utilized for extrapolating the sales in the hands of the assessee for the entire year. Admittedly, the assessee had offered additional income on the said clandesti....
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....on 143(2) after issue of notice under section 148 of the Act. In view of our order in deleting the addition on account of suppressed production/sales, the said issue is dismissed as academic. 62. In view of our deleting the addition in the hands of the assessee the grounds of appeal raised by the Revenue i.e. against application of GP rate and allowance of expenses are also dismissed." 19. In respect of assessment year 2009-10, the Tribunal has passed separate order, in which they had considered the verification exercise carried out by the Excise Authorities and deleted the addition by holding as under:- "9. We have heard the rival contentions and perused the record. The issue arising in the cross appeals filed by the assessee and the Revenue are against the addition made on account of extrapolation of sales. The issue arising in the present appeal i.e. whether any extrapolation of sales for the balance year on the basis of evidence found for the part of the year is justified or not, arose before the Tribunal in bunch of appeals with lead order in Bhagyalaxmi Steel Alloys Pvt. Ltd. in ITA No.1292/PN/2012 & 1478/PN/2012, relating to assessment year 2009-10 along with other ....
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....on on 4.3.2009 showed electricity consumption of 1496 units per MT using mix input of scrap and sponge Iron. 2. E/86151/2014 Bhagyalaxmi Steel Alloys Pvt. Ltd. April 2008 to March 2009 Rs.5,91,23,193 & equal penalty Specific verification of electricity consumption on 25.2.2009 showed electricity consumption of 1503.5 units per MT using mix input of scrap and sponge Iron. 3. E/86275/2014 Mahaveer Steel Re-Rolling Mills April 2008 - March 2009 Rs.79,74,603/- & equal penalty Specific verification of electricity consumption on 22.3.2009 showed electricity consumption of 1209 units per MT using mix input of scrap and sponge Iron. 4. E/86152/2014 Regent Steel Pvt. Ltd. February 2008 to March 2009 Rs.96,27,516/- & equal penalty Specific verification of electricity consumption on 19.3.2009 showed electricity consumption of 1199 units per MT using mix input of scrap and sponge Iron. 5. E/86348/2014 Jailaxmi Casting & Alloys Pvt. Ltd. 2008-09, 2009-10 (up to July 2009) Rs.1,92,94,575/- & equal penalty Specific verification of electricity consumption on 18.3.2009 showed electricity consumptio....
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....icity consumption to manufacture 1MT of MS Ingots is vital evidence, which has not been considered by the adjudicating authority. If the physical verification report conducted by the Revenue would have been taken into consideration by the adjudicating authority, then the adjudicating authority was not required to consider the other evidences. Moreover, all the evidences relied upon by the Ld. Adjudicating authority are theoretical and have been considered by this Tribunal in appellant's own cases for the earlier period; wherein this Tribunal relied on the decision of R.A. Casting Pvt. Ltd. vs. CCE, Meerut reported in 2009 (273) ELT 674 and held that on the basis of study report of Dr. N.K. Batra, the electricity consumption can't be the basis for demands. The order of this Tribunal was challenged by the Revenue before the Hon'ble High Court and the Hon'ble High Court of Allahabad vide order dt. 9.9.2010 in appeal No.67/2009 dismissed the appeal filed by the Revenue, and against the decision of the Hon'ble High Court, the Revenue filed SLP before the Hon'ble Apex Court and the Hon'ble Supreme Court also dismissed the SLP vide order dt. 31.3.2011. Thereafter, the Revenue sought to fi....
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....o basis for making any addition in the hands of the assessee. The Tribunal also referred to its earlier order in the case of different assessee's, where similar addition was deleted. 12. The Tribunal in bunch of appeals with lead order in ITA Nos.284 to 286/PN/2012 relating to assessment years 2006-07 to 2008-09 in the case of Bhagyalaxmi Steel Alloys Pvt. Ltd. vs. Addl.CIT and cross appeal filed by the Revenue in ITA Nos.437 to 439/PN/2012 relating to assessment years 2006-07 to 2008-09 along with other connected appeals while deciding the issue of addition on account of suppressed production because of erratic consumption of electricity, held as under :- "12.....Relevant para has already been reproduced hereinabove" 13. The Ld. Special AR for the Revenue before us pointed out that another aspect of the addition is extrapolation of sales to be made in the hands of the assessee for the entire year on the basis information received for part of the year. It may be put on record that in assessment year 2009-10 in the hands of various furnace companies no such investigation was made by DGCEI. In the absence of any information gathered by the Excise Authority of cla....
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.... has furnished the details of show cause notices issued by the Central Excise Authorities and the quantity involved of clandestine removal of goods and suppression of production in the respective years and also the final result / status of the petitions moved by the assessee either before the Settlement Commission / CESTAT or Commissioner (Appeals) of Excise. The said tabulated details are appended as Annexure to this order. We direct the Assessing Officer to verify the claim of assessee in this regard and include the profit on the suppressed production @ 4% or actual GP rate declared by the assessee, whichever is higher. The assessee is directed to file the requisite details of proceedings before the Excise authorities, before the Assessing Officer in order to compute the additional income in the hands of assessee in the respective years. 21. The Assessing Officer while completing assessment in the hands of the assessee had not relied on the ratio laid down by the Tribunal in the case of SRJ Peety Steel Pvt. Ltd. and Shri Om Rolling Pvt. Ltd. (supra) on the ground that the appeal filed by the Department is pending before the Hon'ble Bombay High Court. The learned Authorized Rep....