TMI Blog2015 (10) TMI 2303X X X X Extracts X X X X X X X X Extracts X X X X ..... removal of goods and suppression of production in the respective years and also the final result / status of the petitions moved by the assessee either before the Settlement Commission / CESTAT or Commissioner (Appeals) of Excise. The said tabulated details are appended as Annexure to this order. We direct the Assessing Officer to verify the claim of assessee in this regard and include the profit on the suppressed production @ 4% or actual GP rate declared by the assessee, whichever is higher. The assessee is directed to file the requisite details of proceedings before the Excise authorities, before the Assessing Officer in order to compute the additional income in the hands of assessee in the respective years. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bars manufacturers in Jalna cluster found by Director General of Central Excise and Customs. 3. The learned Commissioner of Income Tax (Appeals) further erred in confirming the alleged suppression of production on the grounds of monthly variation in consumption pattern of electricity vis a vis production. 4. 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 finding as to how the provisions of Section 145(3) are satisfied. 5. The learned Commissioner of Income Tax (Appeals) further erred in confirming the action of the Assessing Officer in making an addition on account of alleged suppression of sales without giving sufficient opportunity to the appellant company to explain the facts in response to the show cause notice issued on 23-12-2011 when the assessment order was passed on 30-12-2011, which is against the rules of natural justice. 6. The learned Commissioner of Income Tax (Appeals) further erred in confirming the addition on account of Gross Profit @ 4% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee was engaged in the business of manufacturing of TMT Bars from MS Ingots / billets. 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. The assessee in compliance thereto, filed returns of income and also filed the return of income under section 139(1) of the Act relating to assessment year 2010-11. The Assessing Officer during the course of assessment proceedings, noted that the assessee was engaged in the business of TMT Bars from MS Ingots / billets. All ingots and billet manufacturers in Jalna produce mild steel from which TMT bars were produced. The Assessing Officer elaborately noted the manufacturing activity of the assessee and the modus operandi of the business of assessee. The Assessing Officer further noted that ele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the reasons for variation in electricity consumption were not justified as claimed by the assessee. The Assessing Officer in view thereof, estimated the suppressed production in the hands of assessee on the basis of data relied upon by the Central Excise Commissioner (CEC), Aurangabad and rejected the books of account of the assessee under section 145(1) of the Act. The Assessing Officer thereafter, computed the production in the hands of the assessee on the basis of production shown as per Excise records and electricity consumption @ 188 units per MT and income was estimated in the hands of the assessee from year to year. 7. The CIT(A) in the consolidated order passed in the case of assessee after considering orders of Assessing Officer and the submissions of the assessee against each aspect of the assessment order, called for remand report and held that there was suppression of sales and profits in the years under appeal. In view of the investigation and enquiries made by the DGCEI, there was clandestine removal of TMT bars and evasion of Excise duty, which has been admitted by the assessee before the Settlement Commission and Customs Excise Department and on which, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 crores. The claim of the assessee before the CIT(A) was that since it had offered to tax the above additional income in the statement recorded under section 132(4) of the Act and also in the returns of income on account of undisclosed profit, which was to be telescoped against the addition on account of profit on alleged suppressed production sold. The CIT(A) noted that the said income was offered to tax in the hands of directors / individuals out of undisclosed income earned by the flagship companies including the assessee company. From the details of income offered to tax by Kalika group, the CIT(A) further noted that no income was offered to tax in the hands of the assessee company. Therefore, the CIT(A) held that no telescoping was to be allowed in the hands of the assessee. Hence, contention of the assessee about telescoping of the income offered to tax in individual capacity against the income taxed in the hands of the assessee company, was rejected. 8. The second aspect considered by the CIT(A) was the funds / capital required for producing and selling the goods outside the books of account. The CIT(A) held that the said undisclosed investment in respect of undisclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal No.8, the assessee has challenged the passing of order under section 143(3) r.w.s. 153A of the Act , even though no incriminating material or evidence was found during the course of search. This ground of appeal raised by the assessee is not pressed. Vide ground of appeal No.9, the issue is against 5/6 show cause notices issued by the DGCEI discussed by the Assessing Officer in the assessment order, wherein two show cause notices were settled before the Settlement Commission and two show cause notices were decided before the CESTAT and one show cause notice was accepted and another show cause notice was accepted on the basis of order passed by the Commissioner (Appeals) of Excise. Though the assessee has raised similar grounds of appeal, but in some of the appeals, the reference to numbers of grounds of appeal raised are at variance. However, the issues raised are similar. The first issue being addition made on account of alleged suppression of production and sales based on the consumption of electricity. The second objection is against the application of GP rate of 4%. The third being the addition made under section 69C of the Act on account of the investment required for co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MT. In respect of six show cause notices issued by the Excise authorities, the assessee in the written submissions filed, explained as under:- 8. We have now filed a complete statement showing the final result of the SCNs at Page No.1 from which your honour will find as under:- 1. The SCN at S.No.1 is settled before the Settlement Commission together with other parties and the order of Settlement petition is given at Page No.855 860 of Paper Book Volume 5. The GP @ 4% on the quantity involving total sale value of ₹ 1,32,25331/- comes to ₹ 5,29,013/- which is to be now included in the income of the assessee for assessment year 2007-08. 2. The SCN at S.No.2 is settled before the settlement commission together with other parties and the order of the settlement petition is given at Page No.855 860 of Paper Book Volume 5. 3. The SCN at S.No.3 is pending before the CESTAT of Ex cise and the appeal filed before CESTAT is at Page No.530 of Paper Book Volume 5 . 4. The SCN at S.No.4 which is at Page No.556 of Paper Book Volume 4 wherein Balaji Steel Traders was not in a position to produce the bills of purchases and the department forced the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Departmental Representative for the Revenue pointed out that vide ground of appeal No.3, the Department has challenged that GP rate of 15% 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 @ 15% since the assessee by clandestine removal of goods has evaded the payment of Excise duty and hence, the margins of profits were higher in the hands of assessee. 16. The learned Authorized Representative for the assessee in reply, pointed out that there was no merit in the grounds of appeal raised by the Revenue, in view of deletion of addition made by the Tribunal in the case of Shree Om Rolling Mills Pvt. Ltd. (supra). Further, the learned Authorized Representative for the assessee pointed out that director of assessee company though had stated that it would be reasonable to compute the GP rate @ 35% in case of furnace cases and 15% in case of Rolling Mills, but in the said statement itself, it was mentioned that the declaration was made to buy peace of mind and in principl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d sales could be added in the hands of assessee. The learned Authorized Representative for the assessee fairly admitted that the profit on the clandestine removal of goods as admitted by the assessee before the Excise authorities by way of Settlement Commission or otherwise, is to be added in the hands of assessee as directed by the Tribunal in appeals in group of furnace cases. 17. We have heard the rival contentions and perused the record. The issues arising in the present cross appeals filed by the assessee and the Revenue are against the addition made on account of suppressed production worked out on the basis of electricity consumption at 188 units per MT as per the report of Dr. Batra. The Excise authorities had issued various show cause notices to the assessee for the respective assessment years and on the basis of the allegation of Excise authorities, vide said show cause notices, the Assessing Officer made additions in the hands of assessee on account of clandestine removal of goods without payment of Excise duty. The basis for the issue of show cause notices was the variation in electricity consumption and also and / or on account of the evidence of clandestine removal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch it had admitted to clandestine removal of certain goods without payment of Excise duty. The assessee admittedly, had not offered the profit on such clandestine removal of goods in its returns of income and the Tribunal had directed the Assessing Officer to add the aforesaid profits in the hands of assessee in the respective years by applying GP rate of 4% and where GP rate shown was more than such GP rate. Under the third show cause notice issued to the assessee and also against the fifth show cause notice issued to the assessee, matter is pending before the CESTAT and as per the admission of the learned Authorized Representative for the assessee in case, the CESTAT decide s the issue against the assessee, then the profits on such alleged excessive production can be added in the hands of assessee by applying GP rate of 4%. The fourth show cause notice issued to the assessee was relating to the sales made to M/s. Balaji Steel Traders in assessment year 2008-09 and the learned Authorized Representative for the assessee as pointed out that the alleged sales have been accepted to be not accounted for in the books of account and consequently, addition is to be made in the hands of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f account under section 145 of the Act. d) Addition made on account of investment in purchases relating to suppression of sale. 51. The Revenue on the other hand, is in appeal against the order of CIT(A) on the following grounds:- a) In quantifying the suppressed production @ 4% as against the addition made by the Assessing Officer on account of the total suppressed production, where the assessee was found to be indulging in clandestine removal of goods without payment of Excise duty; and b) Allowability of manufacturing and administrative expenses on the unaccounted production worked out by the Assessing Officer. 52. The steel group of cases were heard from day-to-day on various dates and the arguments of both the learned Authorized Representative for the assessee and the Ld. special AR were heard along with written submissions, Notes filed by them and the compilation of case laws relied upon by the respective Authorized Representatives. It may be put on record that the issues raised by the different assessees before us are relatable to the addition made on account of alleged suppression of production and evasion of duty on account of erratic consumption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. SRJ Peety Steels Pvt. Ltd. (supra) and found that the arguments raised by the Ld. Special AR in the case of the present assessee before us were repeated by the Ld. Special AR. Though the case of the learned Authorized Representative for the assessee was that the issue raised in the present appeal was identical to the issue before the Tribunal in M/s. SRJ Peety Steels Pvt. Ltd. (supra). However, the Ld. Special AR stressed that the issue was at variance and made elaborate submissions. It may be put on record that M/s. SRJ Peety Steels Pvt. Ltd. (supra) is a case of furnace, which is engaged in the manufacture of ingots / billets, whereas manufacturing of TMT bars is carried out by Shree Om Rolling Mills Pvt. Ltd. by using ingots / billets. In the case of M/s. SRJ Peety Steels Pvt. Ltd. (supra), there was an order of Central Excise Commissioner, Aurangabad in relation to suppression of production on account of erratic consumption of electricity. The assessee filed an appeal against the said order of CCE, Aurangabad before the CESTAT and the Third Member of CESTAT deleted the addition made in the hands of respective furnace cases. However, in the case of the assessee before us, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer or any other evidence being brought on record, the Tribunal held that no addition is warranted in the hands of the assessee. The issue before the Tribunal in M/s. SRJ Peety Steels Pvt. Ltd. Was summarized under para 9, which reads as under:- 9. At this stage we are not considering the appeals filed by the Revenue for the reason that those appeals are against the finding of the Ld. CIT(A) that the entire value of alleged suppressed production/sales of Ingots and Billets cannot be treated as income of the assessee and some reasonable percentage of the gross profit is to be estimated. Ld. CIT(A), accordingly, directed the Assessing Officer to adopt gross profit @ 4% on the value of alleged suppressed production/sales and accordingly, partly sustained the additions. Now, we first decide the core issue in this case (i) On the facts and circumstances of this case whether the Assessing Officer was justified in making the addition of ₹ 39,20,36,546/- in the A.Y. 2007-08 and ₹ 40,75,72,486/- in the A.Y. 2008 -09 on alleged suppression of production/sales and; (ii) Whether the Assessing Officer was justified in holding that the books of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Custom Settlement Commission, Mumbai Bench, Mumbai for waiver of penalty, interest and for getting immunity from a prosecution. The Assessing Officer proceeded to decide the alleged suppression of production by the assessee admittedly which was based on the information received from Central Excise Authority as well as the adjudication Order of the CCE, Aurangabad. It is pertinent to note here that in this case that there was a search and seizure action against the assessee and its group companies by the Income-tax Dept. on 17-03-2006 and in consequence of the search and seizure action u/s. 132(1) the assessments of the assessee have been framed u/s. 153A r.w.s. 143(3) for the A.Ys. 2000-01 to 2006-07. It is also pertinent to note that during the course of search and seizure operation no incriminating evidence was found suggesting that the assessee has suppressed the production as compared to the consumption of the electricity. No excess stock of finished goods was also found. We also put on record that the assessment framed by the Assessing Officer in consequence of search and seizure action against the assessee u/s. 153A r.w.s. 143(3) have reached the Hon ble jurisdictional H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral Excise Authorities, the assessee who is manufacturing of Ingots/Billets supplied 288.500 MT. to Shri Om Rolling Mills Pvt. Ltd. which is engaged in the manufacturing of TMT Bars. The Assessing Officer also referred to a statement of Shri Surendra S. Peety, Managing Director of the assessee recorded on 12-01-2007, by the DGCEI who allegedly admitted that the goods supplied to Shri Om Rolling Mills Pvt. Ltd. i.e. Ingots/ Billets, were removed clandestinely without payment of excise duty and the said material was to extent of 275 MTs. The sale price was received in cash from Shri Om Rolling Mills Pvt. Ltd. and hence, there was no accounting. The assessee admitted the said charge of the Central Excise Authorities i.e. DGCEI and approached the Settlement Commission and paid the excise duty to the extent of ₹ 7,79,313/- for clearing the goods without payment of excise duty. The declaration filed by the assessee was accepted without any further addition or objection filed by the Central Excise Authorities. The Settlement Commission levied the penalty of ₹ 8,000/-. 16. The Assessing Officer also has in detail discussed the process involved in the manufacturing of Ing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Suppressed Production Rs. 2007-08 20,751 18,892 39,20,37,546 2008-09 29,276 21,444 40,75,72,486 18. In the A.Y. 2007 -08, the Assessing Officer gave the set off of ₹ 8,44,01,504/- which was in respect of the addition made by the Assessing Officer while completing the assessment u/s. 143(3) of the Act in the order dated 31-12-2008 and made the net addition of ₹ 30,76,35,042/-. So far as A.Y. 2008 -09 is concerned no adjustment was made in the A.Y. 2008-09 as it was the regular assessment u/s. 143(3) of the Act. Even though in the A.Y. 2008 -09, the Assessing Officer has observed that the information received from the Central Excise Authority is not relevant, but finally the assessment order is framed on the basis of the order passed by the Commissioner of Central Excise and Custom, Aurangabad as per the value determined in the adjudication order for the purpose of levy of excise duty adopting statistic of power consumption. In the computation for the A.Y. 2008-09 the Assessing Officer m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacture of 1 MT of MS Ingots varies from 1454 to 1856 units. 19.1 He relying on the Technical report of IIT, Kanpur the Ld. Commissioner observed that on calculating the production of M.S. Ingot/Billets on the basis of consumption of 1026 units (Maximum Limit) of electricity for per MT of MS Ingots produced, it is noticed that there is a huge difference in the actual/normal production and the recorded figures in the assessee s records. The Ld. CCE accordingly, observed that the assessee has willfully suppressed the figures of production of Billets/MS Ingots in their records with an intent to evade payment of Central Excise Duty and, have involved themselves in the clandestine removal of final products. He also referred to the show cause notice issued by the DGCEI to the assessee which matter was ultimately settled by the assessee company in the Settlement Commission. The Ld. Commissioner also referred to nonmaintenance of the proper electricity consumption record more particularly in Form G-7. The Ld. Commissioner also gave the data of production from April, 2003 to March, 2008 in his order. He has also recorded the objections of the assessee company. It appears that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was having the following reports and clarifications for his consideration- (i). 555 to 1046 units PMT as per Dr. Batra s report; (ii). 1800 units PMT as per the report by Joint Plant Committee constituted by the Ministry of Steel, Government of India; (iii). 1427 units per MT as per the report of NISST, Mandi, Gobindgarh given in June-July, 2006; (iv). 650 to 820 units/MT as per Article of the Executive Director, All India Induction Furnace Association, New Delhi (Mr. Varshney); (v). 1000 to 1800 units per Ton or even higher, as per Letters dated 18.3.2008 and 25.4.2008 of same Mr. R.P. Varshney [All India Induction Furnaces Association] informing that his Article prepared in 1989-90 was for Concast Steel making [thus not for Induction Furnace], (vi). 620 to 690 units/MT as per Letter dated 22,6.2008 from Electrotherm, (vii). Letter dated 9.8.2008 of Electrotherm to a client suggesting reasons which lead to high power- consumption, and another Letter dated 5.4.2008 of Electrotherm agreeing-., with .the views of Induction Furnace Association and informing that it is very difficult to define any range of power consumption. 20.2 As against t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acture of finished goods; (iii). Manufacture of finished goods with reference to installed capacity, consumption of electricity, labour employed and payment made to them, packing material used, records of security officers, .discrepancy in the stock of raw materials and final products; (iv). Clandestine removal of goods with reference to entry of vehicle/truck in the factory premises, loading of goods therein, security gate records, transporters documents, such as L.Rs, statements of lorry drivers, entries at different check posts, forms of the Commercial Tax Department and the receipt by the consignees; (v). Amount received from the consignees, statement of the consignees, receipts of sale proceeds by the consignor and its disposal, 20.5 However, since no such evidences were brought on record, the Appeal of R.A. Casting was allowed for want of evidence relating to the above points, with further finding that the Revenue, not having conducted any experiment whatsoever, cannot be permitted to justify the demands .raised. Similar is the fact situation in the instant appeals, 20.6 The evidence as per Revenue in the instant appeals are a). High electricity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rk adopted allegedly- from report of Dr. Batra, which was already held to be arbitrary by Hon ble Tribunal in RA casting (supra). Thus, in my opinion the primary evidence relied in the impugned Order is itself inadmissible, and no other evidence in the instant case proves clandestine production and clearance to sustain, the demand, It is contended by Revenue that furnaces installed in the factory of present appellants were in sound condition as compared to R.A. Casting (supra), however I neither could find any material in support of this argument, nor any such finding in the Orders impugned in the appeals. The Revenue sought to rely on an order passed by Tribunal in GuIabchand Silk Mills Pvt. Ltd., V/s. CCE, Hyderabad-II, 2005 (184) ELT 263, however the same was also considered in R.A. Casting (supra). It has been contention of the department that the Department is not required to prove its case to its mathematical precision, by relying on judgment of the Hon ble Supreme Court in the case of D. Bhoormull - 1983 (13) ELT 1546 (SC), relied upon by the Commissioner as well as the Hon ble Member (Technical). It is seen that even this judgment was considered in R.A. Casting (supra), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see and made various additions, not only for the reason of unexplained wide fluctuations in the productivity as compared to that in A.Y. 2004 -05, but also because the assessee therein had not recorded the work-inprogress in the books of accounts. I am therefore of the opinion that these cases, apart from being under Statutes other than Central Excise Act, do not any manner help in sustaining the findings recorded in the impugned Order. In none of these cases any theoretical repot was relied for arriving at deemed production. 24. Further, in Sarvana Alloys Steels Pvt Ltd, 2011- (274) ELT 248 (Tri-Bang.) similar order based on power consumption was held unsustainable and the appeal was allowed after considering inter alia the judgments in D. Bhoormull (supar), Gulabchand Silk Mills (supra), as also Hans Casting (supra). In A.K. Alloys, 2012 (275) E.L.T. 232 (Tri. - Del.) the Tribunal followed the decision of R.A. Casting (supra) and allowed the appeal, as the demand was based mainly on the evidence of power consumption without any evidence of clandestine removal. 25. I therefore concur with the findings of the Hon ble Vice President and in my opinion, the judgment in R.A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of the Tribunal in M/s. SRJ Peety Steels Pvt. Ltd. (supra) were as under:- 20.1 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 sub-brokers dealing in the Ingots/Billets and TMT Bars show cause notice was issued to the assessee company and matter was settled. Ld. CCE, Aurangabad in his order has taken in to consideration said matter while determining the value of the alleged suppressed production and has observed as under: 19. There are other instances of central excise violations detected by other agencies where the assessee was found to be involved. In one instance that assessee had approached the Settlement Commission, admitted the evasion offence of an identical nature and had obtained immunity from criminal proceedings. The assessee has however argued that each case has to be treated as a separate case based on its own merit and dealt with accordingly. The argument of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower authority before the higher appellate authority then the entire order gets merged with the order of the higher appellate forum which in the present case is CESTAT. Moreover, investigation by DGCEI and proceeding before the Settlement Commission has also been considered by the CCE, Aurangabad in his adjudication order. The said order was subject matter before the CESTAT and said order has been set aside. Hence, we do not consider it necessary to deal with decisions relied on by Ld. Spl AR of the Revenue which are in context of admission of the Director of the assessee in the course of investigation made by DGCEI more particularly under the Indian Evidence Act as those decisions are not relevant now though good for academic discussion. So far as maintaining of Form G-7 in respect of the electricity consumption, the said issue was also before the CESTAT while deciding the fate of order of the Ld. CCE, Aurangabad. Ld. AR vehemently argued to point out how the order 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed income in the case of the assessee. The Assessing Officer took 1,600 Units as consumption per MT which was a lowest as shown by the assessee. The Assessing Officer, accordingly, worked out the alleged suppressed production and made the addition in all the years while completing the assessments. In sum and substance the Assessing Officer had simply taken the lowest electricity consumption for a month in a whole year and accordingly worked out the total production as per his formula and on the basis of the formula he worked out the alleged concealed income. There are certain important observations and findings of the Tribunal which are as under: 31. In the present case, the search was initiated on 17th March, 2006 in the residential and business premises of SRJ Peety Group, Jalna covering the premises of the assessee company as well. Prior to the search, the returns of income for the asst. yrs. 2000-01 to 2005-06 had already been filed under s. 139(1) of the Act accompanied by all requisite documents and proceeding under s. 143(1) of the Act stood completed. During the course of search no incriminating materials were found relating to aforesaid years which could have been add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 power to AO to reject the books in certain circumstances after considering the following aspects: (a) Whether the assessee has regularly employed a method of accounting? (b) Whether the annual profits can be properly deduced from the method employed? (c) Whether the accounts maintained are correct and complete? 35. Without prejudice to above, we find that having rejected the books of accounts of the assessee company for all the years under consideration, the AO devis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arge 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 Commissioner of Income Tax (Appeals) have concurrently found that the search was initiated on 17/03/2006 in the residential and business premises of SRJ Peety Steels Pvt. Ltd. Prior to the search, the returns of the income for the assessment year 2000-01 to 2005-06 had already been filed u/s. 139(1) of the Act, accompanies by all requisite documents and proceedings. The scrutiny was thus completed. During the course of search, no incriminating material was found relating to the said years, which could have been added in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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. 65. The Tribunal vide para 24 took note of the fact that in assessment years 2007-08 and 2008-09, no investigation was done by the Revenue after the search and seizure operations in the immediately preceding year, wherein during the course of search, certain loose sheets were found in the residence of the Director to make out case against the assessee for alleged suppression of production / sales. The Tribunal while deciding the appeal in M/s. SRJ Peety Steels Pvt. Ltd, in turn, relying on the ratio laid down by coordinate Bench of the Tribunal, deleted the addition made on account of alleged suppression of production / sales in entirety. The relevant observations of the Tribunal are as under:- 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 rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly based its addition on the aforesaid report of the Investigating Team and had also show caused the assessee to establish its point in view of the said report of the Investigating 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eged suppression of production/sales. We, therefore, hold that the rejection of the books of account on above reason cannot be upheld. We, accordingly, allow Ground No. 7 in the A.Y. 2007 -08 and Ground No. 5 in the A.Y. 2008 -09. 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. 29. In Ground No. 10, the assessee has raised the objection for making the addition of ₹ 37,69,582/-. The said addition is made by the Ld. CIT(A). He has observed that there is an element of the undisclosed investment in respect of the undisclosed turnover which is estimated as an average undisclosed turnover of the half period of the earlier year under appeal. The Ld. CIT(A) has observed that the undisclosed sale for the earliest year under appeal are of ₹ 39,20,36,546/- and the said investment required for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the hands of sister concern M/s. SRJ Peety Steels Pvt. Ltd. was made on the basis of the report of one Dr. Batra with regard to electric consumption and the Third Member of CESTAT had deleted the aforesaid addition made under the Excise law. However, in the case of assessee before us, there is no order of CCE, Aurangabad or of CESTAT and the Assessi ng Officer worked out the addition on the basis of erratic consumption of electricity vis- -vis the consumption as per US standards after giving benefit of 25%. Following the same line of reasoning as in the order of M/s. SRJ Peety Steels Pvt. Ltd. (supra), we find no merit in the addition made in the hands of the assessee on surmises. Both the learned Authorized Representative for the assessee and Ld. Special AR by way of written submissions has raised identical arguments as in M/s. SRJ Peety Steels Pvt. Ltd. (supra) and since the Tribunal has already decided the issue in M/s. SRJ Peety Steels Pvt. Ltd. (supra), the ratio of the said decision is applicable to the facts of the present case. 70. Another objection raised by the Ld. Special AR before us during the course of hearing of the bunch of appeals was that it had moved Mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee s own case relating to assessment year 2006-07. The case of the Revenue before us was that where the assessee had admitted to clandestine removal of material without payment of Excise duty before the Settlement Commission for part of the period, then in view of the order of the Settlement Commission and also since the assessee had admitted to additional income on such account before the Assessing Officer, the sales for the entire year should be extrapolated. The basis for declaration of clandestine removal of material without payment of Excise duty was on account of search and seizure proceedings conducted by DGCEI on certain brokers and sub-brokers. Consequent thereto, Shri SRJ Peety, person in-charge of Shree Om Rolling Mills Pvt. Ltd. admitted to the said clandestine removal of material without payment of Excise duty and approached the Settlement Commission for payment of Excise duty on the said amount. The Settlement Commission accepted the petition of the assessee, but also levied penalty of ₹ 9,000/-. The assessee before the Assessing Officer admitted that the additional income in respect of the said clandestine removal of material without payment of Excise dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation was to buy peace of mind, but we find no merit in the same, since the object of moving petition before the Settlement Commission is to settle the dispute. In cases where any settlement petition is moved by the claimants, the authorities have the power to re-visit the offer made by the claimant and where any adverse material is available against the person making the offer, then the figures of settlement can be increased. However, in the case of the assessee, offer of the assessee has been accepted for the financial year and the same cannot be said to be restricted to the number of days for which it was offered. The basis of any settlement is the offer made by the claimant and/or the evidence found against the person offering the settlement and where the evidence has been found for part of the year, such settlement being accepted is relatable to the year under consideration. In cases where the petition is accepted in the hands of the assessee by the Settlement Commission, then no further addition can be made in the hands of the assessee on account of alleged clandestine removal of material without payment of Excise duty or suppressed sales for the balance period, in the absenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion made by the assessee before the Settlement Commission pursuant to search conducted by the DGCEI and also the other basis i.e. erratic consumption of electricity, were before the Assessing Officer. However, the Assessing Officer adopted the second issue in the hands of the assessee and made the aforesaid addition, which we in the paras hereinabove had already deleted. The Ld. Special AR pointed out that the said action of the Assessing Officer was one of the methodologies for working out the additional income of the assessee. We find no merit in the stand of the Ld. Special AR since no investigation or inquiry was carried out by the Assessing Officer and merely on the basis of petition filed before the Settlement Commission, which in turn has been accepted, no further addition can be made in the hands of the assessee in the absence of any incriminating material found for the balance period. 76. Reliance in this regard is placed upon the ratio laid down in Ravi Foods Pvt. Ltd. Vs. CCE, Hyderabad (supra). In the facts of the said case, certain documents were found by the Income-tax Department pursuant to search and seizure action, which indicated clearance in sales, on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 80. Now, we come to the reliance placed upon by both the Authorized Representatives in support of individual proposition vis- -vis the addition on account of extrapolation of sales for the period of 300 days. 81. The Ld. Special AR further relied on series of decisions under the Excise authorities for the proposition that the confessional statement before the Excise Department was an important piece of evidence. We are in agreement with the said proposition laid down by the Hon ble Supreme Court in Pullangode Rubber Produce Co. Ltd. Vs. State of Kerala and another (supra), but the statement made before any of the authorities is limited to the amounts surrendered vide the said settlement and no inference could be drawn against the assessee for extrapolating the same for full year and for the balance year an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities. Such addition based on hypothetical calculation of turnover and estimation of GP on presumption and surmises were not sustainable. The Tribunal distinguished the ratio laid down in CST Vs. H.M. Esufali H.M. Abdulali (supra). The Ld. Special AR relied on the said decision and in view of the decision of coordinate Bench on similar issue as before us, we find no merit in the reliance placed upon by the Ld. Special AR. 85. The Ld. Special AR during the course of arguments before the Tribunal in Miscellaneous Application filed in M/s. SRJ Peety Steels Pvt. Ltd. vide MA No.17/PN/2015 had raised the issue of extrapolation of sales for 300 days in view of the assessee having admitted to clandestine removal of material without payment of Excise duty and thereafter, filing a petition before the Settlement Commission. 86. The plea of the Revenue raised in the Miscellaneous Application was rejected as no such plea was taken by the Department during the appellate proceedings before the Tribunal and was raised for the first time in the Miscellaneous Application. However, in the interest of justice, the said issue of extrapolation of suppressed sales was adjudicated by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had to assess only the undisclosed income. However, the Hon ble Bombay High Court further held that under Chapter XIV-B, the Assessing Officer cannot estimate the undisclosed income on an arbitrary basis. We find no merit in the plea raised by the Ld. Special AR in this regard as the facts of the said case are different from the facts of the present case. 42. Even on merits, the Revenue has no case against the assessee. The reliance placed upon by the Ld. Special AR on the ratio laid down in assessee s own case relating to assessment year 2006-07 is misplaced as the addition in the hands of the assessee in that year was made on account of search and seizure operations carried out by the Income-tax Department, wherein sales outside books were found for few days. However, no independent investigation / inquiry by the Income-tax Department has been made before completing assessment proceedings against the assessee. Another aspect of the issue is that the petition before the Settlement Commission has been made by the assessee in assessment year 2007-08 only and no such petition for clandestine removal of material without payment of Excise duty has been made for assessment year 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the Settlement Commission, which in turn, has also been accepted by the Settlement Commission. Merely because the Settlement Commission accepted the claim of the assessee of additional Excise duty payable on the said clandestine removal of material without payment of Excise duty does not establish the case of the Revenue that the said figures of additional production should be utilized for extrapolating the sales in the hands of the assessee for the entire year. Admittedly, the assessee had offered additional income on the said clandestine removal of material without payment of Excise duty, which is to be added as income in the hands of the assessee. The learned Authorized Representative for the assessee fairly admitted that in case the said additional income has not been added while computing the income in the hands of the assessee for the respective years, the same may be directed to be added in the hands of the respective assessee in respective years. Accordingly, we direct the Assessing Officer to verify from the records for the respective years and include the additional income on account of such admitted clandestine removal of material without payment of Excise duty, by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the clandestine removal of goods without payment of Excise duty as admitted by the assessee before the Settlement Commission, CESTAT and / or Commissioner (Appeals) of Excise in the respective assessment years after verification, by applying GP rate of 4% or actual GP rate declared by the assessee, whichever is higher, if so declared by the respective assessees. The assessee has furnished the details of show cause notices issued by the Central Excise Authorities and the quantity involved of clandestine removal of goods and suppression of production in the respective years and also the final result / status of the petitions moved by the assessee either before the Settlement Commission / CESTAT or Comm issioner (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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