TMI Blog2011 (6) TMI 683X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Raw Material u/s 69C - AO estimated unexplained expenditure towards purchase of raw materials on the ground that it must have been utilised in producing 624 mts. of unaccounted goods - HELD THAT:- The Assessing Officer has made the impugned additions under section 69C. We have already deleted the addition made by the Assessing Officer with reference to unaccounted production and sale of 624 mts of steel ingots, In this view of the matter, the impugned additions cannot be sustained. The order of the Commissioner of Income-tax (Appeals) deleting the impugned addition is therefore confirmed. Revisional Power of Commissioner u/s 263 - AO made the additions in the AY 2004-05 on the basis of the statement of director so as to maintain consistency in the stand of the Department in both assessment years - HELD THAT:- Pre-requisite to the exercise of jurisdiction by the learned Commissioner of Income-tax suo motu u/s 263 is that the order of the AO is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of both the conditions. It has been held in MALABAR INDUSTRIAL CO. LTD. VERSUS COMMISSIONER OF INCOME-TAX [ 2000 (2) TM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on July 11, 2008 by which the Issues raised in appeal were restored to the file of the Assessing Officer for fresh decision after the final outcome of the proceedings initiated by the Customs and Excise Department. The aforesaid order passed by this Tribunal was challenged before the hon'ble High Court upon which the said order passed by this Tribunal was set aide by the hon'ble court vide its order dated October 23, 2009 in I. T. A. No. 461/2009 and the appeal restored to this Tribunal, with the following directions: 4. Learned counsel for the Revenue submits that the judgment of this court in CIT v. K. S. Bhatia [2002] 257 ITR 614 (P H), relied upon by the Tribunal was not applicable, as in that case the finding which was relied upon, as information for the reassessment, had been set aside by the higher authority. The assessing authority could not be required to wait till decision of the Excise Tribunal, by which time proceedings may become time barred. Proceedings under the Central Excise Act had relevance only for formation of opinion of escapement of income and thereafter, the authorities had to independently finalise reassessment irrespective of final view in ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the visit, I was present in the factory premises. On being asked, I state that there was no production during the intervening night of March 24, 2004 and March 25, 2004 due to fault in the furnace and the furnace was restarted in the morning at 0550 hrs and by the time of visit only one heat was tapped on 8.20 hrs. On demand, I produced all the Central excise records before the Central excise staff, which was written up to date. On being asked I state that we are engaged in the manufacture of non-alloys steel ingots and are registered with Central excise Department vide Registration No. AABCA5309CSM001. The staff thereafter verified the last heat tapped on 8.20 hrs. and found that there were 45 ingots, however in the log sheet we have shown the production of only 37 ingots weighing 3.920 mts. The staff, thereafter, physically verified the weight with the help of our truck No. PB-10-K-9666 and same came to 4.770 mts. And the runner and rises comes to 145 kgs. I am fully satisfied with the manner of physical verification, which has been done in my presence. Ihave signed the physical verification chart and weighment slips in token of its correctness and acceptance. When asked, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slips in token of its correctness and acceptance. The staff got the excess scrap entered in the form IV register. This is my true and correct statement, which I have tendered voluntarily without any fear of pressure. This statement of mine has been typed by Shri Kishori Lai, accountant of our factory on the computer installed in my factory and I have read the same and have put my dated signatures on the same. I have retained a copy of my statement. The aforesaid statement recorded by the Central excise authorities formed the basis for coming to the conclusion that the assessee had produced and cleared 624 mts of non-alloy ingots from December 2003 to March 24, 2004 on the basis of the fact that the capacity of the furnace was increased in December 2003 from 4 mts per heat to 5 mts per heat and consequently 624 mts were tapped without recording the same in the books. On the basis of the aforesaid information, the Assessing Officer initiated the proceedings under section 147/148 of the Income-tax Act and accordingly reopened the assessment. The assessment under section 147/148 was completed on November 30, 2006 assessing the total income of the assessee at ₹ 93,88 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % of yield of raw material 94.14% Consumption of raw material 624 94.14% 662.84 mts. Cost of raw material per mt 98081418 9341.690 ₹ 10499.32 per mt. Cost of raw material of 662.84 mts ₹ 69,59,370 Accordingly this amount of ₹ 69,59,370 is added to the income of the assessee as unexplained expenditure incurred in the purchase of raw material under section 69C of the Income-tax Act. Penalty proceedings under section 271(1)(c) for concealment of income are being initiated separately. The assessee has purchased raw material in cash, converted it in to finished goods and has sold the finished products in cash. All other expenses of manufacturing have already been claimed by the assessee in the profit and loss account. In all this affair, it has earned profit of ₹ 32,59,650 (Rs. 1,02,19,021 _ ₹ 69,59,370). This amount of profit earned by the assessee is added to its income is undisclosed inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer to decide the matter afresh in the light of the final outcome in the Central excise proceedings. As already stated earlier, the aforesaid order passed by this Tribunal, on appeal by the Department, has been set aside by the hon'ble High Court and the matter restored to the Tribunal for a decision on merits. Pursuant to the aforesaid directions, the appeal filed by the Department was restored and the matter was accordingly heard afresh. In support of the appeal, the learned Departmental representative relied upon the order passed by the Assessing Officer. He submitted that the submissions of Shri Harmesh Arora, director in the assessee-company, as recorded by the Central excise authorities was a strong piece of evidence and therefore the Assessing Officer was justified in making the impugned additions solely on the basis of statement of Shri Harmesh Arora. In reply, learned counsel for the assessee supported the order passed by the learned Commissioner of Income-tax (Appeals) as also the materials referred to therein. In brief, his submissions were that the statement of Shri Harmesh Arora as recorded by the Central excise authorities was not corroborate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he audited accounts for the assessment year 2004-05. 3. Paper book-II : assessment year 2004-05 (31 pages) containing (i)copy of reply to the Assessing Officer's letter, dated August 3, 2007 as filed before the Commissioner of Income-tax (Appeals) ; (ii) copy of circular, dated March 10, 2003 issued by the Central Board of Direct Taxes ; (iii)copies of judgment/orders in CIT v. S. Khader Khan Son [2008] 300 ITR 147 (Mad) ; 214 CTR (Mad) 589 ; CIT v. Vimal Moulders (India) Ltd. judgment dated January 14, 2010 in I. T. A. No. 1418 of 2009 [2011] 330 ITR 214 (Delhi) ; CIT v. Vignesh Kumar Jewellers [2011] 330 ITR 209 (Mad); [2008] 12 DTR (Mad) 293, CIT v. Somani Pilkingtons's Ltd. [2004] 266 ITR 388 (P H), CIT v. Sulabh Marbles P. Ltd., ITO v. Dinesh Kumar [2005] 98 TTJ (Jodh) 695 ; CIT v. K. S. Bhatia [2002] 257 ITR 614 (P H). 4. Written submissions filed on November 9, 2010 (assessment year 2005-06) containing 8 pages. 5. Paper book-I : assessment year 2005-06 (225 pages). 6. Paper book-II : assessment year 2005-06 (62 pages) containing brief synopsis of the case ; summary of the findings given by the Commissioner in his orders under section 263 ; copy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir statutory records as per the actual production of steel ingots. They explained that the balance 8 ingots pertained to the previous days' heats and were rejected/defective ingots lying there for remelting. This explanation appeared to have been accepted by the central excise officers as otherwise they would have seized these 8 ingots allegedly not entered in the log sheet. Since no action had been taken in respect of these 8 ingots by the central excise officers, it can be concluded that the appellants had been operating induction furnace with production capacity of 4 mts per heat only. I fully agree with this contention of the appellants and find force in the appellants' contention. If the central excise officers were so sure that the appellants had been operating induction furnace with production capacity of 5 mts per heat instead of 4 mts per heat and that the appellants had actually produced 45 steel ingots instead of 37 ingots in last heat tapped at 0820 hrs. on March 25, 2004, then the central excise officers would have seized 8 steel ingots alleged lying there having not been entered in the log sheet of the appellants. Since no seizure of 8 steel ingots had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 (Trib) ; (d) Rajasthan Foils P. Ltd. v. CCE reported as (69) RLT 131 (CESTAT-Delhi) ; and (e) Rama Shyama Papers Ltd. v. CCE 2004 (168) ELT 494 (Delhi). Wherein it has been held that in the absence of any independent unimpeachable evidence, such as, any material/evidence showing purchase of raw materials/excess consumption of electricity/transport and delivery of goods, to consignees/payment for the goods, etc., the charges of clandestine manufacture and removal are not proved and demand for duty is not sustainable. In the present case also I find that the alleged allegations of clandestine manufacture and removal of steel ingots have remained uncorroborated by any independent unimpeachable evidence such as purchase of raw materials/consumption of electricity/purchase of steel ingots by buyers/enquiry from the transport regarding the transportation of raw materials/steel ingots/ flow back of money, etc. In view of these facts and circumstances, the department has completely failed in proving the allegation of clandestine manufacture and clearance of steel ingots by the appellants. Taking into consideration all the facts and circumstances of the matter, also the fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ully withdrawn or proved erroneous. The legal position that emerges from catena of authorities on the subject is that the proposition that an admission is decisive of the matter is subject to four qualifications, namely, (1) the admission must have been voluntarily made ; an admission cannot be acted upon unless the facts available on record show that it was voluntarily made ; (2) the admission must be clear and unequivocal ; (3) an admission cannot be acted upon if it is proved by the person making it that it is incorrect or erroneous ; and (4) an admission cannot be acted upon if it is inconsistent with the materials available on record. Unless an admission falls under any of the aforesaid four situations, an admission is decisive of the matter. The question as to whether an admission, which is not corroborated by independent materials, can form the sole basis for decision can better be answered with reference to the facts of the case. There is no universal rule that an admission or confession is never decisive unless it is corroborated. Similarly there is no universal rule that an admission/confession is always decisive in all cases. The answer to the question as to whether a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our view, the view taken by the learned Commissioner of Income-tax (Appeals) is reasonable on the facts of the case. The entire addition has been made on the basis of the statement of Shri Harmesh Arora as recorded by the Central excise authorities in which he stated that the capacity of furnace was increased from 4 mts to 5 mts in December 2003. Capacity of furnace is not a matter within the domain of personal knowledge of the assessee ; rather it is an objective fact which is capable of verification and proof by direct evidence. Following facts available on record establish that the capacity of furnace was not 5 mts. but 4 mts. (i) Perusal of the materials placed on record (pages 187-189 of the paper book I for the assessment year 2005-06) shows that the assessee had addressed letters dated August 14, 2002, August 16, 2002, and August 21, 2002 to the Superintendent, Central excise, Range I, Division-II, Ludhiana, conveying replacement of the then existing furnace of 3 ton with new furnace of 4 ton. In its last letter dated August 21, 2002 addressed to the Superintendent, Central excise, the assessee-company informed that it had commenced production on new furnace on August 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was carried out by the Central excise authorities on March 25, 2004 also at the premises of the assessee, there is nothing in the assessment order to show that the inspection report prepared, if any, by the Central excise authorities was at all considered by the Assessing Officer. It has also not been placed before us either. There is absolutely no material before us to show that the Central excise authorities had at all made any attempt to verify the melting capacity of the furnace during the course of their inspection on March 25, 2004. (vii) The Assessing Officer has placed no material on record to show that the assessee had made any investment towards acquisition of furnace of 5 mts or that the Assessing Officer has allowed depreciation thereon, i.e., furnace of 5 mts. There is no material on record to hold that the claim of depreciation made by the assessee on the furnace of 4 mts was rejected by the Assessing Officer. Besides, the statement of Shri Harmesh Arora has several gaps on material issues. For example, the statement of Shri Harmesh Arora is completely silent as to (i) when was furnace of 5 mts was procured and from whom it was procured ; (ii) any of the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals) in this behalf is confirmed. Ground No. 3 taken by the Department is dismissed. Apropos Ground No. 4, the order of the Commissioner of Income-tax (Appeals) on the first three grounds of appeal has already been confirmed by us and hence the order of the Assessing Officer cannot be restored by us. Ground No. 4 is dismissed. In view of the foregoing, the appeal filed by the Department is dismissed. I. T. A. No. 1048/Chandi/2008 : assessment year 2005-06 : As stated earlier, the appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income-tax on November 20, 2008, on the following grounds : 1. That the learned Commissioner of Income-tax -I, Ludhiana has erred in issuing notice and passing the order under section 263 of the Income-tax Act, on the plea that the order passed under section 143(3) by the Assessing Officer appeared to be erroneous and prejudicial to the interests of the Revenue. 2. That the learned Commissioner of Income-tax-I has not considered the fact that the order under section 143(3) was passed after thorough examination and application of mind and during the course of assessment proceedings, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous and prejudicial to the interests of the Revenue which in our case considering the above said grounds of appeal, condition to work only section 263, not satisfied. Briefly stated, the facts of the case are that the assessee filed its return of income on October 24, 2005 returning nil income. After processing the return under section 143(1), assessment under section 143(3) was completed on December 31, 2007 in which addition of ₹ 50,000 was made on agreed basis on account of unvouched expenses. The assessment order passed by the Assessing Officer on December 31, 2007 reads as under : The assessee filed its return of income for the assessment year 2005-06 on October 24, 2005 declaring nil income, which was processed under section 143(1) on February 14, 2006. The case was selected for scrutiny and accordingly notice under section 143(2) was issued on October 30, 2006 and served upon the assessee. Statutory notices were issued and compiled with Shri Sudhir Sehgal, advocate attended the assessment proceedings from time to time and filed the information/documents as called for. The books of account were produced and test checked. 2. The assessee-company is engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material change in factual position while passing the order for the assessment year 2005-06 the installed capacity has been accepted at 4 mts. (c) That the said decision not being based on new material evidence on record is erroneous. Moreover since the issue has been decided without adducing evidence as discussed in paragraph 3.3 above, the same is held to be not based on material on record. (d) That the said adjudication without raising evidence, tough it was imperative to decide the issue to its finality and ignoring the material evidence on record, left the order of assessment erroneous. (e) That since the issue, i.e., unrecorded purchase of raw material, its production and sale out of books of account, has its bearing on taxable income of the assessee-company the same is prejudicial to the interests of the Revenue. 5. In view of the above facts the order of the Assessing Officer dated December 31, 2007 is erroneous and prejudicial to the interests of the Revenue and is, therefore, set aside to be framed de novo on the issue of installed capacity of the furnace, unrecorded purchase of raw material, production of ingots and sale of the same out of books is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onomical to run on alternate power sources like generator, etc., is never possible. This position further gets worsened by the fact that in States like Punjab where power cuts are a common phenomena, the capacity utilisation is even much lower than the utilisation in normal circumstances. 5. The issue with Central excise authorities has been decided in favour of assessee by the first appellate authority for the financial year 2003-04 and the same department has certified the capacity of the assessee's furnace at four ton only during the financial year 2004-05. In totality of the facts in this case, I am of the opinion that the addition purposed in the assessment year 2005-06 on the basis of capacity utilisation and statement of the assessee recorded by the excise department relevant for the assessment year 2004-05 will be highly unjustified and without any evidence on record. This will lead to raising of demand without any valid evidence, which will lead to unwarranted litigation and harassment for the assessee. Therefore, you are directed under section 144A not to make any addition on account of this issue in the assessment year 2005-06. The files for the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. [1993] 203 ITR 108 (Bom). In reply the learned Departmental representative supported the order passed by the learned Commissioner of Income-tax. We have heard both parties and carefully considered their submissions. Bare reading of section 263 makes it clear that pre-requisite to the exercise of jurisdiction by the learned Commissioner of Income-tax suo motu under it is that the order of the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of the conditions, namely, (1) the order of the Assessing Officer sought to be revised is erroneous ; and (2) it is prejudicial to the interests of the Revenue. It has been held in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC) that section 263 cannot be invoked to correct each and every type of error committed by the Assessing Officer. It is only when an order is erroneous in so far as it is prejudicial to the interests of the Revenue that section 263 will be attracted. An incorrect assumption of facts or incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without apply ..... 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