TMI Blog2015 (3) TMI 1115X X X X Extracts X X X X X X X X Extracts X X X X ..... HRI R.K. PANDA, ACCOUNTANT MEMBER For the Appellant : Shri Nikhil Pathak For the Respondent : Shri Rajesh Damor ORDER PER SUSHMA CHOWLA, JM: All the cross appeals filed by the assessee and Revenue are against the consolidated order of CIT(A), Aurangabad, dated 30.04.2012, relating to assessment years 2004-05 to 2008-09 against orders passed under section 143(3) r.w.s. 147 144A of the Income Tax Act, 1961. 2. This bunch of appeals relating to the same assessee on similar issue, were heard together and are being disposed of by this consolidated order for the sake of convenience. However, reference is being made to the facts and issues in ITA No.1072/PN/2012 and ITA No.1446/PN/2012 to adjudicate the issues. 3. The assessee has raised the following grounds of appeal in ITA No.1072/PN/2012:- 1. The learned Commissioner of Income Tax (Appeal) failed to appreciate that the assessment order passed by the assessing officer is bad in law and the same may please be cancelled. 2. The learned CIT (A) has not appreciated that the notice issued by the learned Assessing Officer u/s 148 of the Income Tax Act, 1961 is bad in law and the same may please be q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase whether the CIT(A) was justified in not appreciating the fact that the working capital is required for purchase of raw material and day to day activities for production of goods every year 5. The order of the AO be restored and that of the CIT(A) be vacated. 6. The appellant craves leave to add, amend or alter any grounds of appeal. 5. The issue raised in the cross appeals filed by the assessee and the Revenue relating to assessment years 2004-05 and 2008-09 is against the estimation of gross profit on suppressed sales, which in turn, were calculated by estimating the production on the basis of alleged electricity consumption. Another issue raised by the assessee is against the re-opening of assessment under section 147/148 of the Act. 6. The learned Authorized Representative for the assessee at the outset pointed out that the issue raised in the present appeals is squarely covered by the order of Tribunal in related case of estimation of income based on the alleged consumption of electricity in the case of M/s. SRJ Peety Steels Pvt. Ltd. Vs. Addl.CIT in ITA Nos.123 124/PN/2012 and the appeals filed by the Revenue in ACIT Vs. M/s. SRJ Peety Steels Pvt. Ltd. in ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ggrieved by the application of rate of 4% and also against the deletion of working capital adjustment. The learned Authorized Representative for the assessee placed on record the copy of order of Customs, Excise Service Tax Appellate Tribunal (CESTAT) and pointed out that the assessee was one of the party before the CESTAT and as against M/s. SRJ Peety Steels Pvt. Ltd., there was no separate acceptance of suppressed production in the hands of the assessee. The learned Authorized Representative for the assessee further stated that ground of appeal No.1 was not pressed. 9. The learned Departmental Representative for the Revenue placed reliance on the order of CIT(A) and pointed out that vide grounds of appeal Nos.1 and 2, the issue was raised against the estimation of profits in the hands of the assessee @ 4% and vide ground of appeal No.3 against the rejection of books of account and reliance was placed on the ratio laid down by the Hon ble Madhya Pradesh High Court in Bhagwati Ispat Pvt. Ltd. Vs. CCA, Bhopal. The learned Departmental Representative for the Revenue further pointed out that the ground of appeal No.4 raised by the Revenue is against the deletion of addition made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48715 16421.750 12364.848 4056.902 76691666 8879511 2005-06 15395088 15004.959 10452.532 4552.427 77555147 12408824 2006-07 13521477 13178.827 10842.233 2336.594 42086740 6733878 2007-08 13305357 12968.184 10184.323 2783.861 63210353 10113656 12. In view of the evidence gathered against the assessee, show cause-cumdemand notice dated 07.05.2008 for the financial years 2003-04 to 2008-09 was served upon the assessee, which in turn, was contested before the Commissioner of Central Excise and Customs, Aurangabad. Vide order dated 26.08.2009, the Commissioner of Central Excise and Customs, Aurangabad held the assessee to have indulged in suppression of production and clearance of goods without payment of duty. The assessee was found to have willfully suppres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- was made on account of the suppressed production of ingots and further addition of ₹ 19,77,654/- was made on account of production of CTD Bars. The Assessing Officer also made addition on account of working capital required for carrying out unrecorded production at ₹ 85,01,949/-. 15. The CIT(A) upheld the order of Assessing Officer in rejecting the books of account and also upheld the order of Assessing Officer in working out estimated income and also upheld the order of Assessing Officer in holding that there was suppression of production / sales of MS ingots / billets and TMT Bars on the basis of electricity unit consumption. However, the CIT(A) observed that the Assessing Officer was not justified in treating the amount of sale consideration after reducing only the cost of raw material required for alleged suppressed production sold, as undisclosed income and applied gross profit rate at 4% to compute the profit on the alleged suppressed sale of TMT Bars and MS ingots. The CIT(A) for the captioned assessment years computed the addition year-wise as under:- A.Y. Profit on suppressed sale of TMT bars Rs. Profit on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made on account of profit arising on the suppressed sales worked out on the basis of electricity consumption, after rejection of books of account. 22. We find that similar issue of addition made in the hands of another concern i.e. M/s. SRJ Peety Steels Pvt. Ltd. on the basis of investigation carried out by the Central Excise and Customs Authorities that the person was involved in suppression of production on the basis of electricity consumption and removal of goods without payment of legitimate Excise duty. The Tribunal had elaborately considered the allegations of the Central Excise and Customs Authorities and the investigation carried out in the case of the assessee and had also considered the order of Third Member of CESTAT passed in bunch of cases dated 30.07.2014 and after considering the objections raised by the Special AR for the Revenue before them, had held that orders of Assessing Officer and CIT(A) based on the order passed by the Commissioner of Central Excise and Customs, Aurangabad as well as on the basis of consumption of electricity in the manufacturing of ingots / billets, were not sustainable. The addition made towards alleged suppressed production and sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee which matter was ultimately settled by the assessee company in the Settlement Commission. The Ld. Commissioner also referred to non-maintenance 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 assesse demanded the cross examination of Dr. N.K. Batra, Professor of IIT, Kanpur which opinion was heavily relied on by the CCE, Aurangabad. The Ld. Commissioner observed that the said Dr. N.K. Batra was no more and hence, his cross examination was not possible. He has also discussed and referred to the different decisions of the Tribunal. The Ld. Commissioner also relied on the investigation made by the DGCEI and show cause notice issued to the assessee and how the assessee approached the Settlement Commission and admitted the evasion and paid the excise duty and obtained immunity from criminal proceedings. The Ld. Commissioner confirmed the demand raised in the show cause notice and also levied the penalty to the extent of ₹ 33,07,22,069/-. 19.2 The said order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 this, in para 20 of the Order, the Tribunal in R.A. Casting (supra) considered different electricity consumption figures for production of 1 MT of MS Ingots, reported in following different reports- (i). 555 to 1046 (KWH/T) as per Dr. Batra's report; (ii). 1800 KWH/T as per the report by Joint Plant Committee constituted by the Ministry of Steel, Government of India; (iii). 1427 KWH/T as per the report of NISST, Mandi, Gobindgarh given in June-July, 2006; (iv). 650 units to 820 units/MT as per the Executive Director, All India Induction Furnace Association, New Delhi (Mr. Varshney); (v). 851 units/MT in the case of Nagpal Steel v. CCE, Chandigarh reported in 2000 (125) E.LT. 1147, 20.3 After perusal of these reports, Tribunal opined that wide variations in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 20.5 The evidence as per Revenue in the instant appeals area). High electricity consumption without any explanation, b). Sale of Ingots at loss, which was economically and commercially not possible, c). Discrepancies in financial accounts in some cases and/or any proceedings under Income Tax, d). Claim of higher Auxiliary load, e). Past case settled before Settlement Commission, 20.7 So far as the proceedings already settled are concerned, the Commissioner is hot relying on the same and the findings of the Commissioner, as recorded earlier, have not been challenged by the Revenue. All these other allegations were also levelled in R.A. Casting (supra). It was further observed in R.A, Casting (supra) that it would 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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), 21. There can be no dispute on the fact that in adjudication proceedings, the charge of clandestine removal is definitely to be established on the basis of preponderance of probabilities. However, it cannot be merely on the basis of presumptions and assumptions, Regarding the claim of the Revenue that subsequent to passing of impugned Orders the power consumption for manufacturing one MT of Ingots has reduced in factories of all the appellants, I am of the view that it cannot be-.a basis to sustain the findings in the impugned Orders by assuming that there could not be any reason for lower consumption of electricity during the subsequent period. I also agree with the finding of the Hon'ble Vice President that in. any event, this additional material is also only of power consumption. 22. In written submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Casting (supra) would be squarely applicable in the facts of the instant case in all the appeals. 19.4 The common order was passed by the CESTAT on 30-07-2006 as per the majority opinion allowing the appeals filed by the assessee and other appellant companies. The copy of the majority order is placed at Page Nos. 5 and 6 of the P/B VI. It is pertinent to note here that the Ld. Commissioner has also considered the investigation made by the DGCEI against some brokers and in consequence the show cause notices (SCN) were issued to the assessee and other companies and the assessee and other companies came forward before the Settlement Commission and paid the excise duty. Hence, the investigation of the DGCEI made against the brokers and sub-brokers referred by the Assessing Officer was also before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under section 125; or (b) in any disputed case, other than a case where the determination of any question having a relation to the rate of duty of customs or to the value of goods for purposes of assessment is in issue or is one of the points in issue, the difference in duty involved or the duty involved; or (c) the amount of fine or penalty involved, does not exceed ten lakhs rupees. (5) If the members of a Bench differ in opinion on any point, the point shall be decided according to the opinion of the majority, if there is a majority; but if the members are equally divided, they shall state the point or points on which they differ and make a reference to the President who shall either hear the point or points himself or refer the case for hearing on such point or points by one or more of the other members of the Appellate Tribunal and such point or points shall be decided according to the opinion of the majority of these members of the Appellate Tribunal who have heard the case, including those who first heard it. (6) Subject to the provisions of this Act, the Appellate Tribunal shall have power to regulate its own procedure and the procedure of the Benches thereo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme 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 Order passed by the CCE, Aurangabad has been cancelled by the CESTAT, Mumbai by majority opinion and hence, foundation of assessments for A. Yrs. 2007-08 2008-09 do not exist. The law is also well settled that when the assessee files an appeal challenging an order of the lower 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 asid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 added back in the proceedings under s. 153A. The details regarding the consumption of electricity for the production for each of the year under consideration was very well placed before the authorities below in the director s report of each year. The same has not been disputed by the Revenue. The tax audit report also contained the unit production of each year which were accepted year after year along with the returns and no query was ever raised by the Department. The following chart shows the year-wise production vis-a-vis electricity consumption which has been placed before the authorities below along with the returns for each year: Asst. yr. Electricity consumption Production (MT) Yearly average consumption (units) 2000-01 24331059 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits can be properly deduced from the method employed? (c) Whether the accounts maintained are correct and complete? 35. Without prejudice to above, we find that having rejected the books of accounts of the assessee company for all the years under consideration, the AO devised a statistical formula on the basis of electricity consumption that was applied uniformly in order to work out certain production and resultant concealed income for each year under consideration. The AO could not substitute the same by cogent reasoning. He has simply taken the lowest electricity consumption for a month in the whole year and treated the production in that month as the correct production and then proceeded to arrive at his production figure by multiplying the production in the books by the ratio of production to the electricity consumption for the month in which electricity consumption was minimum. The method of computing the so-called suppressed production is not justified in absence of sound basis for same. 36. The consumption of the electricity for the manufacture of mild steel ingots/billets depends on various factors like quality of raw material which is the major input, voltag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2000-01 to 2005-06 had already been filed u/s. 139(1) of the Act, accompanies by all requisite documents and proceedings. The scrutiny was thus completed. During the course of search, no incriminating material was found relating to the said years, which could have been added in the proceedings u/s. 153A. The details regarding the consumption of electricity for the production for each of the year under consideration was placed before the Authorities in the Director s Report of each year. The same has not been disputed by the Revenue. The Tax Audit Report also contains the unit production of each year, which was accepted year after year along with returns and no query was raised by the Revenue. The finding of fact dated 31/03/2008 in the order passed by the Income Tax Appellate Tribunal refers to a detailed chart. The matter of fluctuating electricity, therefore, was held to be one, and since details were made available to the Department, which could have been raised during the course of regular assessment and not u/s. 153A of the Act. The finding is that nothing incriminating was found in the course of search relating to these assessment years. The additions, therefore, were no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l after considering the factual aspects of the case, the quantum of production, the consumption of electricity observed that there is nothing on record to show that high power connection supported by evidence was made on a particular date and that resulted in higher amount of production. It was further observed by the Customs, Excise Service Tax Appellate Tribunal vide para 4.2 that So far as the production quantum is concerned, there is also no evidence 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 suppressio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o given by the Managing Director of the said company before the Central Excise Authorities. The Ld. CIT(A) allowed the assessee s appeal. The Revenue challenged the order of Ld. CIT(A) before the Tribunal. It was held that there was no justification to support the said addition and the Revenue s appeal was dismissed. In the light of our above discussion, we are of the opinion that the additions made by the Assessing Officer and confirmed by Ld. CIT(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. 23. The second issue considered by the Tribunal was against the rejection of books of account and the said ground of appeal was also allowed by the Tribunal holding 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition 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 production out of books, therefore, worked out ₹ 37,69,582/-. In fact, the said addition is made by the Ld. CIT(A) as he has confirmed the alleged suppression of production/sales as held by the Assessing Officer. As the assessee has succeeded in getting the relief by deleting the entire additions towards alleged suppression of production and sales, hence, this addition does not survive and said addition is also deleted. We, accordingly, allow the Ground No. 10 taken by the assessee. 26. In view of the order of the Tribunal in the case of M/s. SRJ Peety Steels Pvt. Ltd. Vs. Addl.CIT (supra) in the cross appeals filed by the assessee and the Revenue, we hold that there is no merit in the order of Assessing Officer in rejecting the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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