TMI Blog2015 (10) TMI 2302X X X X Extracts X X X X X X X X Extracts X X X X ..... emoval 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. The directors of the assessee company and their family members had offered additional income of ₹ 14 crores, which has been declared in the respective returns of income and has been assessed in the hands of respective individuals. The major portion of income was declared in assessment year 2010-11 amounting of ₹ 12 crores and the balance of ₹ 2.80 crores was declared in assessment years 2006-07 to 2008-09. No benefit of telescoping has been allowed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ₹ 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 (Appeals) further erred in confirming the alleged suppression of production on the grounds of monthly variation in consumption of electricity vis a vis production. 5. The learned Commissioner of Income Tax (Appeals) further erred in confirming the action of the Assessing Officer in holding that the books of accounts of the appellant company are correctly rejected u/s. 145 of the Income Tax Act without any evidence or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 assessee company on 16.06.2009. During the course of search, statement of director Mr.Ghanshyam Goyal was recorded under section 132(4) of the Act and an offer of additional income of ₹ 14,30,95,471/- was made in the hands of director of assessee company. The Assessing Officer thereafter, issued notice under section 153A of the Act for assessment years 2004-05 to 2009-10. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and show caused the assessee as to why the book results should not be rejected. After considering the reply of the assessee, the Assessing Officer observed vide para 34 of the assessment order that the reliance on the decision of SRJ Peety Steel Pvt. Ltd. and Shri Om Rolling Pvt. Ltd. and the ratio laid down by the Pune Bench of Tribunal having not been accepted by the Depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee. Since the book results were rejected in view of admitted clandestine removal of goods and unaccounted purchase of raw materials and sale of finished goods admitted by the assessee, the GP on undisclosed sales was to be reasonably estimated. The CIT(A) estimated the GP on suppressed production sold @ 4%, which was almost double of GP applied in the case of SRJ Peety St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidence 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 ₹ 14 crores in various group cases and profit of ₹ 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 enquiries, the CIT(A) upheld the order of Assessing Officer in assessing the income under section 143(3) r.w.s. 153A of the Act. 9. The assessee is in appeal against the confirmation of alleged suppressed sales on the basis of order passed by the CCE, Aurangabad and on the basis of evasion of Excise duty found by the DGCEI. The assessee is also aggrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 ₹ 12.08 crores and the balance of ₹ 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, which was similar to the order passed in other furnace cases. The learned Authorized Representative for the assessee pointed out that the said addition of suppressed production in the case of furnace cases was deleted by the Third Member of CESTAT. Further, it was pointed out by him that verification of electricity consumption at the factory premise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 GP rate of 35% as admitted by the director in the statement recorded under section 131 of the Act on 17.08.2009 should be applied. The learned Departmental Representative for the Revenue thus, stressed that in case GP rate is to be applied, then the same should be applied @ 35% since the assessee by clandestine removal of goods has evaded the paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 14 cores in the hands of directors of four groups of shareholders and their family members. Further, statement under section 131 of the Act was recorde d on 17.08.2009, in which bifurcation of declaration of ₹ 14 crores was given. Admittedly, the said declaration of ₹ 14 crores has been offered to tax by the respective persons in their individual returns of income filed pursuant to the said declaration. The income has been taxed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 identical to the issue raised in earlier bunch of appeals wherein addition was made on account of erratic consumption of electricity and various show cause notices issued by DGCEI, we hold that earlier ratio laid down by the Tribunal is squarely applicable. The relevant findings of the Tribunal in Bhagyalaxmi Steel Alloys Pvt. Ltd., (supra) are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el 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 08.05.2015, on calling of the matters, we find that the Ld. Special AR is not present in the Court room and there is no intimation about his absence in the bunch of matters, which are listed for hearing. The CIT-DR was present and was asked to explain his absence. In reply she stated that she had no intimation. In view of continued def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 section 147 of the Act. However, in some cases, the assessment has been completed under section 143(3) of the Act and there are no issues against re-opening of the assessment. The Ld. Authorized Representative for the assessee in the present bunch of appeals relating to Bhagyalaxmi Steel Alloys Pvt. Ltd. at the outset stated that the grounds o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 petition before Settlement Commission in respect of clandestine removal of material without payment of Excise duty, was also considered by the Tribunal and in the absence of any inquiry / investigation or material collected by the Assessing Officer, the Tribunal held t hat there was no merit in any addition in the hands of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 u/s. 147 of the Act. In reasons recorded by the Assessing Officer while issuing the notice to the assessee company u/s. 147 for A.Y. 2007 -08 the Assessing Officer gave reference of the communication and order of the CCE Aurangabad received from the Central Excise office at Aurangabad. 14. The Assessing Officer has also referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 by them and they used to get the commission of ₹ 100/- per MT. The Assessing Officer has discussed the information gathered by the DGCEI, Zonal Unit, Mumbai in Para Nos. 2.1, 2.2, 2.3, 2.4, 2.5, 2.6 2.7 of the assessment order. So far as action against the brokers and sub-brokers are concerned the Central Excise Authority issued show ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer 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). 17. The Assessing Officer also rejected the books of account of the assessee u/s. 145(3) of the Income-tax Act by giving the reason that the assessee has not given the true and correct picture. The Assessing Officer adopted the suppression of production determined by the CCE, Aurangabad as per his adjudication order and held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 observed that as per the said Technical Opinion Report the consumption of electricity for manufacture of one metric ton of steel ingo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence 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 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 squarel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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). 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 go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat- 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 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 onu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 800 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 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 subsequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erely 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. Special AR that even the minority decision of Ld. Technical Member of CESTAT was a legal order. This plea of the Ld. Special AR was rejected by the Tribunal in view of the decision of Third Member of the CESTAT. 32. Another objection raised by the Ld. Special AR was with reference to the order of Settlement Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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 the present assessee no independent investigation is made by the Revenue but the entire assessments are framed on the basis of the information received from the Central Excise Department as well as the adjudication order passed by the Ld. Commissioner of Central Excise, Aurangabad. Moreover, as observed above the adjudication Orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial which is the major input, voltage of the supply, power interruptions, mechanical and electrical breakdowns and the chemical composition of the liquid metal which has 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The additions, therefore, were not corresponding to the seized material during the course of search. The relevant income tax returns, in normal course, are disclosing 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 mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidence on record to show that the authorities intervened lawfully recording the output in the presence of witness. The Customs, Excise Service Tax 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) in both the assessment years based on the order passed by the CCE, Aurangabad as well as on the basis of consumption of the electricity 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, Aura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eded 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. 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, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ety Steels Pvt. Ltd. (supra) after considering the submissions of both the Authorized Representatives. We have by an order of even date held 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad adopted another methodology of suppression, the addition in the hands of the assessee could be sustained on the basis of extrapolation of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestigation or inquiry was made by the Assessing Officer, as stated earlier. In the absence of any evidence collected against the assessee, merely 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. Spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty admitted before the DGCEI and offered by way of petition before the Settlement Commission. No statement of Directors of the assessee company was recorded 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Settlement Commission and income on that account was declared by the assessee. The Tribunal held that no further addition could be made in the hands 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 rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court in CIT Vs. Anand Kumar Deepak Kumar (supra). The Ld. Special AR had placed reliance on the decision of Hon ble Bombay High Court in CIT Vs. Dr.M.K.E. 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 Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teels Pvt. Ltd. (supra) and the same had been considered by the Tribunal. During the course of hearing, the Ld. Special AR relied on series of other decisions, 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n account of alleged investment in purchases under section 69C of the Act. 61. One issue remaining to be adjudicated is non issue of notice under section 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 bunc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Duty amount and penalty Details of experiment 1. E/86268/201 SRJ Peety Steel Pvt. Ltd. January 2008 to March 2009 Rs.12,41,64,392 equal penalty Specific verification of electricity consumption 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 usi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sponge Iron. 10. E/86349/2014 Om Sairam Steel Alloys Pvt. Ltd. April 2008 to March 2009 Rs.3,90,21,947/- equal penalty Specific verification of electricity consumption was done on 25.3.2009; however copy thereof was not give to appellant. 11. E/86331/2014 Saptashrungi Alloys (P) Ltd. April 2008 to March 2009 Rs.1,61,53,031/- equal penalty No verification of electricity consumption was done during the relevant period. 10. The Division Bench of CESTAT had set -aside the order of the CCE, Aurangabad on account of additions made in the hands of the assessee because of erratic consumption of electricity. The relevant finding of the order of CESTAT reads as under : - In the impugned order the adjudicating authority has not considered the specific verification conducted by the departmental officers, who ascertained the actual consumption of electricity to manufacture of 1MT of MS Ingots is more than 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collected by way specific verification, we hold that impugned orders are not legal and proper whereas during the impugned period, the physical verification was conducted and the electricity consumption for manufacture of 1MT of MS Ingots was found to be more than 1026 units of electricity. 8. In these circumstances, we set aside the impugned orders and allow the appeals with consequential relief and stay applications are also disposed of in the above terms. 11. The addition on account of suppressed production made in the hands of the assessee was deleted by the Division Bench of CESTAT vide or der dated 22.10.2014, wherein on specific inspection / experiments by the authorities, conducted to ascertain the electricity consumption to manufacture one MT found that the consumption of electricity was more than 1026 units per MT. The case of the Excise Department was that 1026 units per MT were required to manufacture one MT of MS ingots / billets and the assessee was issued show cause notice in this regard. However, since the physical verification conducted by the Excise Department reflected higher consumption of electricity, the Tribunal came to a finding that in view of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd we reverse the order of CIT(A). We find no merit in the addition made in the hands of the assessee on account of suppressed production consequent to erratic consumption of electricity. 15. The appeals of the Revenue against the adoption of GP rate of 4% and the deletion of working capital required for investment in suppressed production is also deleted by us by following order in the case of assessee and others in earlier years and following the same parity of reasoning, we dismiss the grounds of appeal raised by the Revenue. 20. In the totality of the above said facts and circumstances and in view of the issue being identical to the issue before the Tribunal in set of furnace cases, we delete the additions made in the hands of assessee on account of suppressed production. However, following the parity of reasoning as in the earlier order of Tribunal as directed by us in paras hereinabove, we direct the Assessing Officer to compute the addition on account of profits relating to the clandestine removal of goods without payment of Excise duty as admitted by the assessee before the Settlement Commission and / or Commissioner (Appeals) of Excise in the respective assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been allowed by the CIT(A) in respect of said declaration in the hands of assessee and no ground of appeal has been raised against the said denial by the CIT(A). In the totality of the above said facts and circumstances, we find no merit in the grounds of appeal raised by the Revenue for estimation of GP @ 15% as the basis for applying GP has been deleted by the Tribunal in group of furnace cases decided earlier. Further, there is no merit in any addition on account of investment for the alleged production under section 69C of the Act. Following the same line of reasoning as in the earlier order of the Tribunal dated 15.07.2015, we allow the grounds of appeal raised by the assessee with the direction to the Assessing Officer to compute the additional income in the hands of assessee in the respective assessment years on account of admission of clandestine removal of goods without payment of Excise duty by the assessee before the Settlement Commission, Commissioner (Appeals) of Excise and CESTAT . No other addition is warranted in the hands of assessee. Consequently, grounds of appeal in this regard are allowed as indicated above. The grounds of appeal raised by the Revenue are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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