AI Drafter 
TaxTMI 
TaxTMI 
2015 (3) TMI 1115
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....e learned Commissioner of Income Tax (Appeal) failed 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....
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....the assessee at the outset pointed out that the issue raised in the present appeals is squarely covered by the 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 ....
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....he assessee @ 4% and vide ground of appeal No.3 against the rejection of books of account and reliance was placed on the 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 o....
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....assessee was found to be liable to pay duty as demanded along with interest and was also found to be liable to levy of penalty for its acts, omissions and commissions. 13. The Assessing Officer on the basis of 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 ....
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.... 5,92,677 -- 31,10,083 2006-07 29,58,155 4,49,978 -- 34,08,133 2007-08 38,58,404 -- -- 38,58,404 2008-09 43,48,665 -- -- 43,48,665 16. Further, the Assessing Officer had also made addition on account of working capital 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 adde....
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....he 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 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 ca....
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....he 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 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 P....
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....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). 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 u....
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.... 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 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 inadmi....
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....asting (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 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 ....
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.... 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. 20. Now, let us deal with the argument of Ld. Spl. AR 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....
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....of law. In the case of the assessee company entire matter of alleged suppression of production was referred to the Ld. Third Member of the CESTAT and not only any specific point and this position is clear from the questions or points referred to Ld. Third Member. We, therefore, reject the argument of the Ld. Spl. AR for the Revenue that we have to also consider the minority order of the Ld. Technical Member of the CESTAT. 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 appr....
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.... of the CESTAT, Mumbai Bench, Mumbai is not correct. The CESTAT is a higher appellate forum under the Custom Act 1962 and Central Excise Act 1944 and we cannot sit as revisionary authority or make any observation whether that order is right or wrong. 22. We have already mentioned here-in-above that in the case of the assessee, the search and seizure operation was carried out u/s. 132(1) of the Income-tax Act on 17-03-2006 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 pro....
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.... 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 followed by the assessee, the AO may make an assessment in the manner provided in s. 144. Sec. 145 gives the p....
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....ears 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 is held that the consumption of electricity for the manufacturing of mild steel ingots/billets depends on various factors and there was no justification to charge the assessee that the assessee has suppressed the production 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 Commis....
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.... 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, no investigation has been done by the Revenue which are immediate next assessment years after the search and seizure operation against the assessee company and hence, in our opinion above findings and observation of the Tribunal 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 Appe....
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....stigating Team. The Customs, Excise & Service Tax Appellate Tribunal (supra) in the appeal filed by the assessee and its Director has categorically held that no cogent evidence has been brought on record to prove that the output had been cleared clandestinely. Further it has been held that there was no cogent evidence to show either suppression of purchase of input or removal of goods. In view of the aforesaid findings of the Customs, Excise & Service Tax Appellate Tribunal in assessee's own case there is no merit in any addition being made in the hands of the assessee on account of the alleged 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....
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....ntire addition made by the Assessing Officer was deleted. Simultaneously, the grounds of appeal raised by the Revenue against the estimation of gross profit made by the CIT(A) were also dismissed by the Tribunal. The relevant findings of the Tribunal are as under:- "28. The next issue is the percentage of the gross profit estimated by the Ld. CIT(A) on the alleged suppressed sales and said issue arises from Ground No. 9 in the A.Y. 2007-08 and Ground No. 7 in the A.Y. 2008-09 are on. As the assessee has succeeded on the main grounds as entire additions made by the Assessing Officer are deleted, the Ground No. 9 in 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 t....