TaxTMI 
TaxTMI 
TaxTMI 
2015 (3) TMI 1115
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....d to appreciate that the assessment order passed by the assessing officer is bad in law and the same may please be cancelled. 2. The learned CIT (A) has not appreciated that the notice issued by the learned Assessing Officer u/s 148 of the Income Tax Act, 1961 is bad in law and the same may please be quashed and entire assessment order based on the said notice may please be quashed. 3. The learned Commissioner of Income Tax (Appeal) failed to appreciate that, the assessing officer erred in rejecting the books of accounts u/s 145(1) of the Income Tax Act, 1961 and it is prayed that profit arrived from Audited Books of Accounts may please be accepted. 4. The learned Commissioner of Income Tax (Appeal) erred in confirming the addition estimating 4% Gross Profit on the suppressed Sales estimated by the A.O. which is not based on the facts and he has purely estimated the Sales on assumption / presumption basis. Suppressed sales are calculated deciding quantum of production taking the base of electricity consumption. 5. Clandestine removal of finished product was established by the excise department in their search, no incrementing document or stock was found to the excise depart....
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....order of Tribunal in related case of estimation of income based on the alleged consumption of electricity in the case of M/s. SRJ Peety Steels Pvt. Ltd. Vs. Addl.CIT in ITA Nos.123 & 124/PN/2012 and the appeals filed by the Revenue in ACIT Vs. M/s. SRJ Peety Steels Pvt. Ltd. in ITA Nos.435 & 436/PN/2012 relating to assessment years 2007-08 and 2008-09, vide order dated 16.01.2015. The learned Authorized Representative for the assessee pointed out that the Assessing Officer on the basis of information received from the Central Excise & Customs Authorities and on the basis of consumption of electricity units observed that against 1026 units consumed, there was production of one ingot and applying the selling price for each year, the undisclosed sales were computed and the same were added as undisclosed income of the assessee. In addition the Assessing Officer also added the initial capital required in each year. The CIT(A) on the other hand, upheld the working of excess production as correct, but he held that only profit on the undisclosed sales was to be added as income of the assessee. Consequently, 4% on undisclosed turnover was added in the hands of the assessee. The CIT(A) also ....
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....e ratio laid down by the Hon'ble Madhya Pradesh High Court in Bhagwati Ispat Pvt. Ltd. Vs. CCA, Bhopal. The learned Departmental Representative for the Revenue further pointed out that the ground of appeal No.4 raised by the Revenue is against the deletion of addition made on account of working capital required for purchase of raw material and day-to-day production activities. 10. In rejoinder, the learned Authorized Representative for the assessee pointed out that the facts in Bhagwati Ispat Pvt. Ltd. Vs. CCA, Bhopal (supra) were different from the facts of the present case. Our attention was further drawn to the order of CESTAT, in which, in the case of assessee, the Third Member had stated that no addition has to be made in the hands of the assessee. 11. We have heard the rival contentions and perused the record. In the facts of the present case, the assessee was engaged in the business of manufacturing of M.S. Ingots, Runner and Rizers, Angles, CTD bars, Channels, etc. Information was received by the Assessing Officer from the office of the Commissioner of Central Excise and Customs, Aurangabad vide letter dated 01.04.2010 that on the basis of information of raw-material purc....
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....the said information received from the Central Excise and Customs Department, Aurangabad was of the view that the assessee had not disclosed sum of Rs. 4.72 crores in the return of income relating to assessment year 2004-05 and consequently, reasons were recorded for re-opening the assessment under section 147 of the Act and notice under section 148 of the Act was issued to the assessee. The Assessing Officer after elaborating upon the modus operandi of manufacturing of ingots / billets by the assessee and after taking note of the information received from the Central Excise & Customs Department, Aurangabad and also after considering the explanation filed by the assessee i.e. with regard to the unit consumption of electricity / MT ingots, issued further show cause notice to the assessee, under which it was alleged that the minimum electricity consumption for production of MS ingots / runner raisers comes to 1,106 units per M.T. and maximum electricity consumption comes to 1,414 units per M.T. Thus, there is a deviation in electricity unit consumption per MT i.e. upto 308 units which is unreasonable, hence unacceptable. It was further observed that therefore, please explain as to wh....
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....pital required for suppressed production, however, the CIT(A) reduced the addition made by the Assessing Officer after considering the facts and circumstances of the case in assessment year 2004-05. As against addition made by the Assessing Officer of Rs. 85,01,949/-, the addition to the extent of Rs. 4,76,562/- was confirmed and the additions made by the Assessing Officer in the subsequent years i.e. assessment years 2005-06 to 2008-09 were deleted. 17. The assessee is in appeal against the addition made on account of profit arising on suppressed sales on the alleged consumption of electricity. The assessee is also in appeal against the addition made on account of working capital required for the alleged production. 18. The Revenue on the other hand, is in appeal against the estimation of profit @ 4% to work out the addition in the hands of the assessee as against the total suppressed sales being added in the hands of the assessee by the Assessing Officer. The next issue raised by the Revenue is against the deletion of addition made on account of working capital required for the alleged production. 19. The ground of appeal No.1 raised by assessee is general. 20. The ground of....
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....r 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 observed that as per the said "Technical Opinion Report" the consumption of electricity for manufacture of one metric ton of steel ingots varies between 555 to 1026 electricity units depending upon the thermal efficiency, electricity efficiency and nature of mix of raw material. As observed by the Ld. CCE in the case of the assessee as per their electricity bills, the average consumption of electricity for manufacture of 1 MT of MS Ingots varies from 1454 to 1856 units. 19.1 He relying on the Technical report of IIT, Kanpur the Ld. Commissioner observed that on calculating the production of M.S. Ingot/Billets on the basis of consumption of 1026 units (Maximum Limit) of electricity for per MT of MS Ingots produced, it is noticed that there is a huge difference in the actual/normal production and the recorded figures in the assessee's records. The Ld. CCE ....
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....and all the appeals dismissed. 19.3 The Ld. Third Member of the CESTAT concurred with the finding 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 Member is as under: "20. It is also seen that the Hon'ble Vice President correctly opined that the judgment in R.A. Casting (supra) is squarely applicable in the facts of the instant appeals. In R.A, Casting the electricity consumption was 2072 to 2443 units per MT, which is higher than the average electricity consumption in the instant appeals. 20.1 The Commissioner in the orders impugned in the instant appeals was having the following reports and clarifications for his consideration- (i). 555 to 1046 units PMT as per Dr. Batra's report; (ii). 1800 units PMT as per the report by Joint Plant Committee constituted by the Ministry of Steel, Government of India; (iii). 1427 units per MT as per the report of NISST, Mandi, Gobindgarh given in June-July, 2006; (iv). 650 to 820 units/MT as per Article of the Executive Director, All India Induction Furnace Association, New De....
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....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). Claim of High Auxiliary load of about 35%, However the Tribunal in categorical terms held that no demand can be upheld based on electricity consumption as such because the clandestine manufacture and removal of excisable goods is to be proved by tangible, direct, affirmative and incontrovertible evidences relating to- (i). Receipt of raw material inside the factory premises, and non-accounting thereof in the statutory records; (ii). Utilization of such raw material for clandestine manufacture of finished goods; (iii). Manufacture of finished goods with reference to installed capacity, consumption of electricity, labour employed and payment made to them, packing material used, records of security officers, .discrepancy in the stock of raw materials and final products; (iv). Clandestine removal of goods with reference to entry of vehicle/truck in the factory premises, loading of goods therein, security gate records, transporters' documents, such as L.Rs, statements of lorry drivers, entries at different check posts, form....
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....herefore, be sustained nor could be justified both on facts and in law. 24. The law is well settled that in every case of alleged clandestine removal, the onus is on the Revenue to prove what it alleges with positive and concrete evidence. In the absence of any positive evidence brought by the Revenue to discharge its onus, the impugned order cannot be sustained." 20.8 In the present appeals, none of the so called other evidences referred in the impugned Orders prove clandestine clearance. The primary evidence of department is admittedly excess electricity consumption based on benchmark adopted allegedly-'from report of Dr. Batra, which was already held to be arbitrary by Hon'ble Tribunal in RA casting (supra). Thus, in my opinion the primary evidence relied in the impugned Order is itself inadmissible, and no other evidence in the instant case proves clandestine production and clearance to sustain, the demand, It is contended by Revenue that furnaces installed in the factory of present appellants were in sound condition as compared to R.A. Casting (supra), however I neither could find any material in support of this argument, nor any such finding in the Orders impugned i....
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....0 of Andhra Pradesh Sales Tax Tribunal (Visakhapatnam Bench) in the case of Venkata Raimana Stone Crushers Company V/s. State of Andhra Pradesh. In the case of Melton India (supra), for the norm, of power consumption, actual electricity consumption of the assessment year 2000-01 was taken as 'norm' and the same was applied in subsequent assessment years 2001-02 and 2002-03.This was followed by the Sales Tax Tribunal in the order cited by Revenue. In the case of Rajmoti Industries, facts of the case are that for the assessment year 2005-06, the Assessing Officer rejected the books of accounts of the assessee and made various additions, not only for the reason of unexplained wide fluctuations in the productivity as compared to that in A.Y. 2004-05, but also because the assessee therein had not recorded the work-in-progress in the books of accounts. I am therefore of the opinion that these cases, apart from being under Statutes other than Central Excise Act, do not any manner help in sustaining the findings recorded in the impugned Order. In none of these cases any theoretical repot was relied for arriving at deemed production. 24. Further, in Sarvana Alloys Steels Pvt Ltd, 2....
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....R for the revenue. According to him even the minority order of Ld. Technical Member of the CESTAT who has supported the order of Ld. Commissioner of Central Excise (CCE) is also legal order. Sec. 35D of the Central Excise Act, 1944 provides that the provisions of sub-sections (1), (2), (5) and (6) of section 129C of the Customs Act, 1962 (52 of 1962), shall apply to the Appellate Tribunal in the discharge of its functions under said Act as they apply to it in the discharge of its functions under the Customs Act, 1962. Hence, the procedure of the Appellate Tribunal i.e. CESTAT is regulated as provided in Sec. 129C of the Custom Act, 1962. The relevant provision of the Custom Act, 1962 reads as under: Sec. 129C. Procedure of Appellate Tribunal. - (1) The powers and functions of the Appellate Tribunal may be exercised and discharged by Benches constituted by the President from amongst the members thereof. (2) Subject to the provisions contained in sub-section (4), a Bench shall consist of one judicial member and one technical member. (3) Omitted (4) The President or any other member of the Appellate Tribunal authorized in this behalf by the President may, sitting singly, dispose o....
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....ESTAT. The Ld. Spl. AR for the Revenue also referred to the order of the Settlement Commission, Mumbai passed in the case of the assessee and other companies. It is true that the assessee approached the Settlement Commission when on the basis of investigation made by the DGCEI against some of the brokers and subbrokers dealing in the Ingots/Billets and TMT Bars show cause notice was issued to the assessee company and matter was settled. Ld. CCE, Aurangabad in his order has taken in to consideration said matter while determining the value of the alleged suppressed production and has observed as under: "19. There are other instances of central excise violations detected by other agencies where the assessee was found to be involved. In one instance that assessee had approached the Settlement Commission, admitted the evasion offence of an identical nature and had obtained immunity from criminal proceedings. The assessee has however argued that each case has to be treated as a separate case based on its own merit and dealt with accordingly. The argument of the assessee is accepted. No reliance has been placed on evidence relied upon in central excise proceedings. The findings in this c....
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....6 and accordingly the assessment orders for the A.Ys. 2000-01 to 2006-07 were framed u/s. 153A r.w.s. 143(3) of the Act. The Assessing Officer rejected the books of account of the assessee for the A.Ys. 2000-01 to 2006-07 and one of the reasons was that alleged suppressed production which was computed on the basis of consumption of the electricity. The Assessing Officer devised a formula on the basis of electricity consumption and the same was applied uniformly in order to work out certain alleged suppressed production and resultant concealed income in the case of the assessee. The Assessing Officer took 1,600 Units as consumption per MT which was a lowest as shown by the assessee. The Assessing Officer, accordingly, worked out the alleged suppressed production and made the addition in all the years while completing the assessments. In sum and substance the Assessing Officer had simply taken the lowest electricity consumption for a month in a whole year and accordingly worked out the total production as per his formula and on the basis of the formula he worked out the alleged concealed income. There are certain important observations and findings of the Tribunal which are as unde....
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....ubject-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 followed by the assessee, the AO may make an assessment in the manner provided in s. 144. Sec. 145 gives the power to AO to reject the books in certain circumstances after considering the following aspects: (a) Whether the assessee has regularly employed a method of accounting? (b) Whether the annual profits can be properly deduced from the method employed? (c) Whether the accounts maintained are correct and complete? 35. Without prejudice to above, we find that having rejected the books of accounts of the assessee company for all the years under consideration, the AO devised a statistical formula on the basis of electri....
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....duction and indulged into unaccounted production. The order of the Tribunal was challenged by the Department before the Hon'ble High Court of Bombay Bench at Aurangabad by filing the appeal u/s. 260A of the Income-tax Act, being Tax Appeal No. 30 of 2011. The Revenue's appeal was dismissed vide common Judgment dated 10-02-2014, in the case of the assessee and other companies by the Hon'ble High Court and there are categorical observations of their Lordships on the estimation of the production based on the consumption of the electricity which are as under: "4. In that regard, the Tribunal as also the Commissioner of Income Tax (Appeals) have concurrently found that the search was initiated on 17/03/2006 in the residential and business premises of SRJ Peety Steels Pvt. Ltd. Prior to the search, the returns of the income for the assessment year 2000-01 to 2005-06 had already been filed u/s. 139(1) of the Act, accompanies by all requisite documents and proceedings. The scrutiny was thus completed. During the course of search, no incriminating material was found relating to the said years, which could have been added in the proceedings u/s. 153A. The details regarding the cons....
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....ribunal as well as the Hon'ble High Court are also important to decide the present appeals more particularly on the additions based on consumption of electricity. 25. In the case of ACIT Vs. A.K. Alloys (P) Ltd. (supra) in which the additions were made by the A.O. for alleged suppression of production and investment in purchase of raw material relying on information received from Central Excise (Ludhiana) and when matter reached before the Tribunal and it is held as under: 10. The assessee had filed an appeal against the order of CIT Customs & Excise, before the Customs, Excise & Service Tax Appellate Tribunal with principal Bench at New Delhi (supra). The copy of the order of the Customs, Excise & Service Tax Appellate Tribunal is placed on record by the learned A.R. for the assessee. The Customs, Excise & Service Tax Appellate Tribunal after considering the factual aspects of the case, the quantum of production, the consumption of electricity observed that there is nothing on record to show that high power connection supported by evidence was made on a particular date and that resulted in higher amount of production. It was further observed by the Customs, Excise & Service....
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....suppression in production and also alleged investment in purchase of raw material. In view thereof, we hold that no addition on account of profit on the sale of unaccounted production or on account of unexplained investment merits to be made in the hands of the assessee. We are also in agreement with the observations of CIT (Appeals) in deleting the aforesaid addition as no independent evidence has been brought on record to establish that the assessee had, a) suppressed its production and; b) it made sale of its unaccounted production, outside the books of account. Upholding the order of the CIT (Appeals) we dismiss the ground Nos.1 and 2 raised by the Revenue." 26. In the case of ACIT Vs. Arora Alloys Ltd. (supra) the addition was made on the basis of electricity consumption to produce 1 MT of Ingots. The confessional statement was also given by the Managing Director of the said company before the Central Excise Authorities. The Ld. CIT(A) allowed the assessee's appeal. The Revenue challenged the order of Ld. CIT(A) before the Tribunal. It was held that there was no justification to support the said addition and the Revenue's appeal was dismissed. In the light of our above discu....
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....the A.Y. 2007-08 and Ground No. 7 in the A.Y. 2008-09 become infructuous. ....... 31. We have heard the parties. The main grievance of the Revenue is against the estimation of GP by Ld. CIT(A). We have already allowed the grounds taken by the assessee on the alleged suppression of the production/sales. As the assessee has succeeded on the basic additions, the grounds taken by the Revenue do not survive as the entire additions are deleted in both the assessment years by allowing the grounds taken by the assessee. Accordingly, all the grounds of the Revenue in both appeals are dismissed." 25. The Tribunal also deleted the addition made on account of working capital required for the alleged production vide para 29 of the order, which reads as under:- "29. In Ground No. 10, the assessee has raised the objection for making the addition of Rs. 37,69,582/-. The said addition is made by the Ld. CIT(A). He has observed that there is an element of the undisclosed investment in respect of the undisclosed turnover which is estimated as an average undisclosed turnover of the half period of the earlier year under appeal. The Ld. CIT(A) has observed that the undisclosed sale for the earlie....