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TMI Blog2016 (5) TMI 409X X X X Extracts X X X X X X X X Extracts X X X X ..... ether and are being disposed of by this consolidated order for the sake of convenience. 3. The assessee has raised similar grounds of appeal in all the years on merits except the issue raised by the assessee against invoking of the jurisdiction under section 147/148 of the Act in assessment year 2007-08. Since the facts in all the appeals are identical, we proceed to decide the present appeal referring to the facts in assessment year 2007-08. 4. The assessee in ITA No.121/PN/2012 has raised the following grounds of appeal :- "1. The reassessment order passed U/S 143(3) RWS 147 is bad in law and the same may please be cancelled. 2. The learned CIT(A) erred in not quashing assessment order passed u/s 143(3) RWS 147 of income Tax Act. It may please be held that assessment order (in absence of notice u/s 143(2) after filing Return in response to notice u/s 148) is void ab initio and the same may please be annulled. 3. The learned CIT (A) erred in not quashing notice u/s 148 issued by Assessing Officer. It may please be held that notice issued u/s 148 is bad in law and the same may please be quashed. 4. As the Assessment framed by Assessing Officer is also not on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The order of the AO be restored and that of the CIT(A) be vacated. 5. The appellant craves leave to add, amend or alter any grounds of appeal." 6. The Ld. Authorized Representative for the assessee pointed out that the issue raised in the present set of cross appeals is squarely covered by the order of the Tribunal in the case of Shree Om Rolling Mills Pvt. Ltd. vs. Addl.CIT in ITA Nos.125 & 127/PN/2012 relating to assessment years 2007-08 & 2008-09 vide order dated 15.07.2015. The said decision of the Tribunal was in a Group of Steel Re-Rolling Mills at Jalna. 7. The Ld. Authorized Representative for the assessee, further, pointed out that in assessment year 2007-08 the first issue is with regard to the re-assessment proceedings initiated against the assessee under section 147/148 of the Act and in absence of any notice being issued under section 143(2) of the Act, the said reassessment proceedings were void. In this regard, elaborate submissions were made by the Ld. Authorized Representative for the assessee which we shall refer to while deciding the issue raised in the present cross appeal. 8. Briefly, in the facts of the case, the assessee had filed return of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(2), both dated 16.08.2010 were issued to the assessee along with questionnaire. In response to the various notices issued, the Counsel for the assessee attended but no books of accounts with any circumstantial evidences, purchase & sale, bills including documents were produced for verification. The assessee was requested number of times for production of various details and other incomes shown in the books of accounts. But the assessee did not do so. Thereafter, the Karta of HUF of the assessee was issued summons on 02.12.2010 requiring attendance on 09.12.2010 and was specifically asked to produce the books of accounts, purchase & sale, bills, vouchers, etc. for assessment years 2005-06 to 2007-08 and 2008-09. In response to the same, adjournment was sought on the plea that he was to go to Tirupati and the Directors were coming back on 16.12.2010. Accordingly, the assessee was granted time to appear on 18.12.2010. Since, it was time barring matter, the hearing was fixed on holiday also. On the said date, none attended nor any written communication was made. However, on 20.12.2010 the assessee had submitted a letter objecting to the issuance of notice under section 148 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d clandestine removal of goods by manufacturers of TMT bars by manufacturers located at Jalna. The Assessing Officer also referred to the admission of Shri Umesh Modi before the Central Excise Authorities that he had acted as a sub-broker for Shri Anil D Lingade, Proprietor of Anil Traders, Jalna and Shri Mukesh Gupta, Proprietor of R.J. Steel Traders, Navi Mumbai, while sourcing TMT bars. As noted by the Assessing Officer the said Shri Anil D. Lingade admitted that he acted as a broker for the nine manufacturers from Jalna which details are given in Para No. 2.2 of the assessment order. Then the Assessing Officer has discussed the modus operandi adopted by Shri Anil Lingade in Para No. 2.3 of the assessment order but as the name of the assessee is not there in nine listed parties, hence, we do not consider it necessary to go in the details of the same. The Assessing Officer has also referred to action taken by the Central Excise Authorities against one Shri Faruk Shaikh, who was also a broker from whom the name of the another broker Shri Pawan Garg of Jalna was revealed. 4.2 In sum and substance all the above referred information was on the basis of the investigation carried ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pts on sale of finished products i.e. 288.50 MT of billets/Ingots, too were also in cash and not accounted for." 10. The DGCEI had gathered the information vis-à-vis quantity of TMT Bars in the hands of various re-rolling mills, which was confronted to the manufacturers of TMT bars, who in turn admitted that they had supplied TMT bars to the brokers without paying Excise duty and they also confirmed the modus operandi revealed by the brokers. The assessee before us i.e. Sanjaykumar Ramkishan Mantri (HUF), Jalna admitted to the manufacture of 748.620 MT of TMT bars, which were clandestinely removed without payment of Excise duty. The statement of Sanjaykumar Ramkishan Mantri (HUF) proprietor of DRL was recorded by DGCEI on 08.01.2007, in which he admitted that he was responsible for entire state of affairs of DRL and Nilesh Steel and Alloys Pvt. Ltd. He further admitted that DRL was engaged in the manufacture of TMT bars of various sizes from Billets. He also admitted the unaccounted clearance of TMT bars, for which no records were maintained and the payments were also received through cash. He further admitted to have cleared 730.035 MT through Shri Pawan Garg and 18.585 M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge minimum consumption in the peer group during the three years was 191 KWh/MT. Therefore, he adopted the electricity consumption in steel bar rolling mill at 188KWh/MT or the consumption of the assessee, if lower. As per the Assessing Officer, the adoption of the said rates became important in view of evasion of Excise duty by TMT bar manufacturers in Jalna cluster found by the DGCEI, which in turn, had been accepted by the manufacturers. 12. The Assessing Officer noted that the assessee had disclosed gross loss of Rs. 27,84,177/- from operations and profit before tax of Rs. 51,71,231/-. However, the assessee had also commission income of Rs. 1,43,91,499/-, profits from trading in MCX and NCDEX of Rs. 50,11,097/-, profits from commodity trading of Rs. 51,14,324/-, etc. aggregating to Rs. 1,95,05,413/-. In case these extraordinary item were removed, the Assessing Officer noted that there was a loss of Rs. 1,43,34,182/-. In other words the assessee was running the mill at a loss of Rs. 905/- for every MT of production. In view of the same, the Assessing Officer was of the view that it was necessary to adopt a fair value of electricity consumption in KWh/Mt and compute the suppresse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tricity consumption required for producing TMT bars, at 188 electricity units per Metric Ton. The A.O. has reasonably considered the 25% allowance in respect of technology and machinery used in India by the appellant. (4) The A.O. has also pointed out that there is substantial variation in various months and in respect of various manufacturers of TMT bars in electricity consumption required for the quantum of goods produced, which is abnormal. (5) The decision in the case of ACIT Vs, SRJ Peety Steels Pvt.Ltd. / Shree Om Rolling Mills Pvt. Ltd. (2011) 137 TTJ 627 (Pune) has been relied on by the appellant. The facts before the Hon'ble ITAT while deciding the said cases were different to some extent. In the said cases, clandestine removal of goods by the appellant and the admission of the appellant about the said fact of unaccounted transactions was not before the Hon'ble ITAT. Further, the detailed order of the Commissioner of Excise and the other facts brought on record by the A.O. in the assessment order was not before the Hon'ble ITAT, Pune while deciding the above referred cases. Further in the said cases action u/s 132 was conducted and the appellant was asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directions to that effect were given to the Assessing Officer. The CIT(A) further estimated the undisclosed investment in respect of undisclosed turnover and worked out the addition at Rs. 24,64,802/-. However, no addition was made in the hands of the assessee because of the addition on account of estimated GP rate in the preceding year i.e. assessment year 2006-07. The CIT(A) upheld the rejection of books of account under section 145 of the Act. The CIT(A) similarly upheld the addition on account of undisclosed investment in respect of undisclosed turnover to the extent of Rs. 9,06,132/-. 15. The next issue decided by the CIT(A) was the reopening of the assessment under section 147/148 of the Act. The CIT(A) vide para 10.2 - 10.3 held as under :- "10.2 I have carefully considered the facts of the case and rival contentions. The A.O., has received information from the Office of the Commissioner of Central Excise & Customs, Aurangabad vide letter dated 29th March, 2010 that the appellant had indulged in manufacturing of finished goods and clandestine removal thereof without paying Excise Duty. The A .O. has also noticed that the said clandestine removal of finished products and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sdiction under section 147/148 of the Act. The relevant facts relating to the same are that the assessment in the hands of the assessee was completed under section 143(1) of the Act. Thereafter, the Assessing Officer received information of clandestine removal of TMT bars and evasion of excise duty and also unaccounted purchases of raw material and also sale of TMT bars as per the investigation and enquiries made by the DGCEI. The assessee had admitted to the said clandestine removal of goods in the statement recorded during investigation by DGCEI and also before the Settlement Commission of Customs and Excise Department and had paid the excise duty and the Settlement Commission had levied penalty in respect of the said clandestine sale out of books of account. The Assessing Officer, in such circumstances, was of the view that the income of the assessee had escaped assessment and consequentially reasons were recorded and notice under section 148 of the Act was issued on 30.03.2010. The assessee failed to furnish any return of income in response to notice under section 148 of the Act. The copy of notice issued under section 148 of the Act in the name of proprietary concern of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eflect that on 25.11.2010 the Counsel for the assessee attended and he was required to furnish the books of accounts and evidences in support thereof. On the next date of hearing i.e. 09.12.2010, the case was adjourned at the request of the assessee and final opportunity was given to the assessee on 28.12.2010 for 30.12.2010, on which date the Ld. Authorized Representative for the assessee attended and filed copy of Audit Report and Balance Sheet but no books of account were produced and the case was heard. The perusal of the assessment order reflects that the assessee failed to appear on various dates before the Assessing Officer and even summons were issued to the Karta of HUF for attendance on 09.12.2010 and he did not appear thereof. The matter was adjourned to 18.12.2010 but as late on as 20.12.2010, the assessee submitted the letter objecting to the issuance of notice under section 148 of the Act. The Assessing Officer has disposed off the objection raised by the assessee vide office speaking order dated 23.12.2010. Thereafter, on 28.12.2010, the assessee claims that both the directors had attended the office but the Assessing Officer was not there, which was replied by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 30 days from the date of service of the notice. The assessee omitted on its part to furnish any return of income in response to the said notice within a period of 30 days or thereafter. In response to the notice under section 142(1) and 143(2) of the Act dated 16.08.2010, the assessee participated in the scrutiny assessment and filed the requisite details. At a very belated stage of proceedings on 10.11.2010, for the first time the assessee filed a simple letter stating that the original return of income filed by it should be treated as filed in response to notice under section 148 of the Act. The assessee has now raised a technical objection that after 10.11.2010 since no notice was issued under section 143(2) of the Act, the assessment framed by the Assessing Officer is bad in law. The objection of the assessee is required to be addressed keeping in mind the scheme of the Act. It would be pertinent to note that to give effect to the notice under section 148 of the Act and carry out assessment, mechanism provisions viz. 143(2), 142(1), 131, 133A, etc. of the Act come into play. These provisions are required to be interpreted in a manner to make machinery workable. It is not the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, we hold that the reassessment completed in the case is valid and under the provisions of the Act. The Assessing Officer had issued requisite notices of hearing to the assessee and the assessee having participated in the said proceedings, cannot be aggrieved at this stage by the fact that no notices under section 143(2) of the Act was issued after alleged filing of the return of income belatedly. We have already held in the paras hereinabove that the said return of income filed by the assessee is invalid and nonest and hence, no requirement to issue notice under section 143(2) of the Act. 21. We find similar issue has been adjudicated by us in Chawara Educational Trust vs. ITO in ITA No.849/PN/2014, order dated 20.01.2016 wherein it was held as under :- "7. Since the assessee has questioned the legality of the assessment order itself which affects the jurisdiction and goes to the root of the matter, we consider it necessary to adjudicate the Grounds No.1 and 2 concerning this basic issue first. To begin with, the short question before us is whether non-issuance of notice under section 143(2) will invalidate the re-assessment order framed under section 143(3) r.w.s. 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139 :]" [ [underlined for emphasis by us] 7.3 On a combined reading of these aforesaid two provisions, we observe that when the Assessing Officer serves notice under S. 148 of the Act, the Assessee is required to file return in response thereto. The provisions of S. 148 seeks to treat the return filed in response to notice served under S. 148 as return filed under S. 139 of the Act. This is followed by notice under machinery provisions of S. 143(2) and S. 142(1) to enable the Assessing Officer to complete the assessment. We find that neither any return was filed under 148 of the Act nor any formal request was made to treat the earlier return filed after lapse of statutory time as return in response to such notice. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts the Hon'ble Courts have held that issuance of notice u/s 143(2) is mandatory and cannot be disregarded and bypassed. 7.7 In the present case, as noted earlier, law itself does not oblige the Assessing Officer to issue notice u/s 143(2) in the absence of return u/s 139 or u/s 142(1). Concurrently, we notice that the impugned assessment was framed after proper opportunity were afforded to the Assessee by issuing notice under section 142(1) in sync with principles of natural justice. Therefore, we do not find any force in the contention of the Ld. Authorized Representative for the assessee that non issuance of notice under section 143(2) is fatal and has vitiated the re-assessment order and rendered it bad in law. To reiterate, we take note of the fact that the assessee has appeared before the Assessing Officer and was in acquiescence and privy to the re-assessment proceedings. Thus, interest of the Assessee is not jeopardized in any manner. Omission to serve or any defect in the service of the notice not statutorily required in the facts of the case will not, in our view, impinge upon the legality of impugned re-assessment order." 22. We are in agreement with the proposition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Revenue & other appeals, considered the issue at length vide order dated 15.07.2015 (supra) and held as under:- "54. The next issue is the working of the suppressed production and the application of GP rate of 4% on such suppressed production and third is the working capital required for investment in such suppressed production. We find that similar issue of addition on account suppressed production on account of erratic consumption of electricity arose before the Tribunal in the case of SRJ Peety Steel Pvt. Ltd. (supra). Though both the parties have raised their arguments in favour of/against the order of the Tribunal in SRJ Peety Steel Pvt. Ltd. (supra), we first refer to the decision of the Tribunal and then meet with the respective objections of both the authorized representatives. 55. While arguing the appeals in the lead case of Shree Om Rolling Mills Pvt. Ltd. on 05.05.2015, the Ld. Special AR filed written Note and made elaborate submissions and took us through the page to page of Note and also relied on series of case laws. He continued his arguments in the pre-lunch hour on 07.05.2015. On the perusal of the written Note filed by the Ld. Special AR and on compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... data collected 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. 56. 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 fo r 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 that there was no merit in any addition in the hands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Asse ssing 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 one mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst 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 Rs. 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 cause to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 that the assessee has s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 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 ingots varies between 555 to 1026 electricity units depending upon the thermal efficiency, electricity efficiency and nature of mix of raw material. As observed by the Ld. CCE in the case of the assessee as per their electricity bills, the average consumption of electricity f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision 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 finding of the Hon'ble Vice-President that the order passed by Ld. Commissioner of Central Excise and Custom, Aurangabad was not sustainable and has to be cancelled. The operative part of the order of the Third Member is as under: "20. It is also seen that the Hon'ble Vice President correctly opined that the judgment in R.A. Casting (supra) is squarely applicable in the facts of the instant appeals. In R.A, Casting the electricity consumption was 2072 to 2443 units per MT, which is higher than the average electricity consumption in the instant appeals. 20.1 The Commissioner in the orders impugned in the instant appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rriving 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 goods is to be proved by tangible, direct, affirmative and incontrovertible evidences relating to- (i). Receipt of raw material inside the factory premises, and non-accounting thereof in the statutory records; (ii). Utilization of such raw material for clandestine manufacture of finished goods; ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent 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 onus, the impugned order cannot be sustained." 20.8 In the present appeals, none of the so called other evidences referred in the impugned Orders prove clandestine clearance. The primary evidence of department is admittedly excess electricity consumption based on benchmark adopted allegedly-'from report of Dr. Batra, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 subsequent assessment years 2001-02 and 2002-03.This was followed by the Sales Tax Tribunal in the order cited by Revenue. In the case of Rajmoti Industries, facts of the case are that for the assessment year 2005-06, the Assessing Officer rejected the books of accounts of the assessee and made various additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities 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." 59. The Tribunal thereafter, dealt wi th 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. 60. Another objection raised by the Ld. Special AR was with reference to the order of Settlement Commission passed in the case of set of companies. The Tribunal noted that the CCE, Aurangabad in its order had taken into consideration the said material while determining the value of alleged suppressed production and had made observations vide para 19. The relevant observations of the Tribunal in M/s. SRJ Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also before the CESTAT a nd 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 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 production which was computed on the basis of consumption of the electricity. The Assessing Officer devised a formula on the basis of electricity consumption and the same was applied uniformly in order to work out certain alleged suppressed production and resultant concealed income in the case of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 not be disturbed on this ground. 33. In view of above factual and legal position we find that the additions in question in asst. yrs. 2000-01 to 2005-06 are not corresponding to the seized material found during the course of search. The relevant IT returns for said years were filed prior to the search in normal course disclosing the particulars of subject-matters were already on record. The returns have already been accepted and no assessment as such could be said to be pending on the date of initiation of search and abated in light of the provisions of s. 153A. 34. Without prejudice to above, with regard to invoking the provisions of s. 145 of the Act, according to which in case the AO is not satisfied about the correctness or completeness of accounts of the assessee or where no method of accounting provided in sub-s. (1) or accounting standards as notified under sub-s. (2), have not been r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 asst. yrs. 2000-01 to 2005-06 in both the cases. 23. It is clear from the order of the Tribunal in assessee's own case in the search and seizure matter as it is held that the consumption of electricity for the manufacturing of mild steel ingots/billets depends on various factors and there was no justification to charge the assessee that the assessee has suppressed the production and indulged into unaccounted production. The order of the Tribunal was challenged by the Department before the Hon'ble High Court of Bombay Bench at Aurangabad by filing the appeal u/s. 260A of the Income-tax Act, being Tax Appeal No. 30 of 2011. The Revenue's appeal was dismissed vide common Judgment dated 10-02-2014, in the case of the assessee and other companies by the Hon'ble High Court and there are categorical observations of their Lordships on the estimation of the production based on the consumption of the electrici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 make out a case against the assessee for alleged suppression of production or sales. It is also to be taken note of the fact that in A.Ys. 2007-08 and 2008-09, no investigation has been done by the Revenue which are immediate next assessment years after the search and seizure operation against the assessee company and hence, in our opinion above findings and observation of the Tribunal as well as the Hon'ble High Court are also important to decide the present appeals more particularly on the additions based on consumption of electricity." 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 suppress ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the Revenue was dismissed by the Hon'ble Apex Court as reported in 2011 (269) ELT A -108 (SC). The basis for the addition in the present case was the investigation report of the Central Excise Department and the suppression in production calculated by the said Investigating Team. The Assessing Officer had completely 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 Cus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks 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, Aurangabad as well as the consumption of the electricity used in the manufacturing of the Ingots/Billets relying on the technical opinion of Dr. Batra, IIT, Kanpur. No other reasons are given by the Assessing Officer. We have already held that the Assessing Offic er was not justified in making the additions towards alleged 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f process of law, wherein the submissions made before the Tribunal in M/s. SRJ Peety Steels Pvt. Ltd. (supra) have been verbatim repeated in the appeal filed against the assessee before us i.e. Shree Om Rolling Mills Pvt. Ltd. 69. We find that the Assessing Officer in the present case before us had made the addition on account of erratic consumption of electricity based on the consumption of electricity as per US standards. The Assessing Officer had not adopted the US standards in entirety, but had allowed a credit of 25% and work the addition. The addition 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 afo resaid 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 Assessing Officer worked out the addition on the basis of erratic consumption of electricity vis-à-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 me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made by the Assessing Officer is on pure estimates, conjuncture and surmises and the same cannot be accepted. We hereby delete the same. 72. 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of Excise duty and suppression of income. 73. 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmissions 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 79. 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. 80. Now, we come to the reliance placed upon by both the Authorized Representatives in support of individual proposition vis-à-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 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 seizu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 88. 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 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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion @ 4% or actual GP rate declared by the assessee whichever was higher. In view thereof, we pass this corrigendum order and the para 88 i.e. from line 17 to 22 would now be substituted by following para. "88. ...... 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 the assessee either before the Settlement Commission or before the Excise authorities, in the hands of the assessee. Accordingly, we direct the Assessing Officer to verify from the records for the respective years and include in the hands of assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of assessee in para 8.6 at page 13 of the appellate order in this regard, wherein it was claimed that the purchase of raw material and sale of finished goods were both on credit and after receipt of sale proceeds, this payment was made to the suppliers of raw material and hence, no addition should be made on this account. The CIT(A) noted that the contention of assessee that after receipt of proceeds of sale, the suppliers of raw material were paid were not supported by evidence. Further, it was held that for producing the goods, other manufacturing expenses in addition to raw material were also required to be incurred. In view thereof, the said undisclosed investment in respect of undisclosed turnover was estimated at average undisclosed turnover of half week of earliest year under appeal. The undisclosed sale for the earliest year under appeal was Rs. 9,42,37,718/- and the investment required for the production out of books worked out to Rss.9,06,132/-, which was added in the hands of assessee. 27. In the totality of the above said facts and circumstances of the case and keeping in mind the admission of assessee before the Excise authorities that it had made purchases to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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