TMI Blog2010 (10) TMI 1101X X X X Extracts X X X X X X X X Extracts X X X X ..... This evidence showed that the assessee- company had suppressed the production and consequent sales of steel rods of bars and thus avoiding Excise Duty by under-invoicing sales. The assessee, in response to Central Excise proceedings approached to the Settlement Commission of the Excise Department and as per the order of the Commission dated 31.8.2006, the assessee agreed to pay additional excise duty, in addition to already paid for the goods manufactured and cleared as per books, to the tune of ₹ 6.27 crores for the period relevant to assessment years 2002-03 to 2004-05. On the basis of the findings of the Central Excise Department, the Assessing Officer worked out the suppression of sales after reopening the already completed assessment orders u/s 143(3) of the Act for assessment years 2002-03 to 2004-05 by issuance of notice u/s 148 on the basis of the fact finding made by the Central Excise Department. Consequently, the Assessing Officer worked out the suppression of sales at ₹ 1,06,82,296/-, ₹ 1,13,80,000/- and ₹ 1,35,40,000/- and added to the gross profit declared in the above assessment years respectively. The assessee had shown royalty payment for as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company accepted before the Central Excise Settlement Commission that it resorted to unaccounted clearance of goods and under invoicing of goods and byproducts and evaded payment of excise duty. It accepted liability of additional excise duty (in addition 10 excise duty paid for goods manufactured and cleared as per books) to the tune of ₹ 6.27 crores as under: A.Y 2002-03 Rs.4,52,57,936/- for unaccounted production/under invoiced Sales/unaccounted sale of by-products A.Y 2003-04 ₹ 1,56,79,450/- -do- A.Y 2004-05 Rs.18,51,087/- -do- The excise duty is chargeable @ 16% of the assessable value. Consequently, the value of unaccounted goods cleared, the assessable value of goods cleared, gross profit on the assessable value of unaccounted goods cleared [calculated at the rate of 15% as worked out by CIT(Appeals)] are as under: Asst. Year in which Assessable Additional excise duty paid @ 16% of the assessable Value (1) Assessabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the addition made by disallowance u/s 40A(3) amounting to ₹ 1,15,97,014/-, ₹ 1,09,23,993/- and ₹ 21,76,574/- for the A.Y.s.2002-03, 2003-04 and 2004-05 respectively by holding that where gross profit had been estimated no disallowance u/s 40A(3) is called for by following the decision of the Madras High Court in the case of ClT vs. Mohammed Dhurabudeen 4 DTR 218. The C.I.T.(Appeals) failed to notice that ratio of Mohammed Dhurabudeen was not applicable to the present case. The Gujarat High Court's decision in the case of ClT vs. Hynoup Food and Oil Industries P. Ltd., (2007) 290 ITR 702 (Guj) in which the Court upheld disallowance made u/s 40A(3) for cash purchases in unaccounted business of the assessee. The ratio of the Hynoup Food decision is applicable to the present case and not that of Mohammed Dhurabudeen. 6. The ClT(Appeals) erred in deleting the additions made u/s 69 of the Act amounting to ₹ 57,98,507/-, ₹ 54,61,996/- and ₹ 14,20,000/- for the A.Ys. 2002-03, 2003-04 and 2004-05 respectively by holding that no unaccounted investment had been found. He failed to appreciate the undisputed admitted fact which emerged from the sear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit in relation to the additions made on the basis of search conducted by the Central Excise Department. From the point of view of the Assessing Officer, the facts can be narrated like that the manufacturing process adopted by the assessee is that it uses iron billets or ingots which are made out of iron scrap which is also a by-product of making bars and rods. As per the findings of the Excise Department, the assessee has suppressed sales of bars and rods during these years and so also the by-products, hence, the Excise Department has estimated the suppressed sales which are based on estimated input and output method. The ratio between the quantum of raw material and the end- product including the by-products is called percentage yield, which the Excise Department has arrived at 92% from scraps to billets and 95% from billets to rods and bars. Based on this estimation, the Excise Department has estimated the suppression of bars and rods and by- products. The Income-tax Department invited the attention of the assessee towards the findings given by the Central excise Department and sought explanation thereof. The assessee replied to the query raised by the Assessing Officer and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use all the sale proceeds of unaccounted sales have to be flown back into the company in the form of aqua receipts. The assessee further explained the exact position in the following words: The assessee has stated that as per estimation made by the Central Excise Department 19,595 MT of billets required to produce 18615.660 MT of end products and it has used the book stock available at 1730MT. Further, the assessee has produced 9045 tonnes of billets by using the book stock of scrap available with it and made an unaccounted purchase of scrap to the tune of 10373 MT. Out of the 28.25 crores of unaccounted sales, the assessee has brought back 15.44 crores of aqua receipts in the assessment year in question and ₹ 4,34,83,908 as on account of bogus sale of scrap and accounted in Assessment year 2003-04. It has again stated that in the original computation it has disallowed 20% of the purchases for non existing aquaculture business and now everyone knows that no such business exists the disallowance made in the original computation needs to be reversed. It was again contended that there is no need for the company to conceal income as it is a BIFR company and have huge accumula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rative evidences to prove the claim except the preponderance of probabilities. 6. The excise records speak at length about the unaccounted purchase and sale of goods. The sales Department also rejected the books and determined sales on estimate basis based on the In put and Out put norms. 7. The GP ratio shown by the assessee is low in comparison to the other assesses in the similar line of business. The GP ratio indicated by the assessee the 3CD report is 3.49 and there is an arithmetical error in the calculation of the ratio. The actual GP ratio is about 14% (6881.90-5925.41=956.4 956.49/6881. 90* 100=13.8) . 8. The Central Excise Department has rejected the books of accounts of the assessee and calculated the actual sales based on the material gathered during inspection and mainly on the basis of consumption of Power and Furnace Oil and there fore the method adopted for estimation of sales is scientific and as per sales are concerned I believe that there is no an iota of doubt that sales determined by the Excise Department lack any practicality. Therefore I take the same sales for making this assessment. 9. I doubt the purchases and the assessee has made an unaccount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition u/s 69 was purely based on conjectures and surmises. Regarding royalty, it was stated that the same had been paid for right to use a process and not for the process itself and such payment only constitute revenue expenditure. It was argued that in earlier year, similar claim of royalty was allowed by the Tribunal as revenue expenditure. The ld. CIT(A) has agreed witht the assessee on these points and has allowed its claim to a greater extent. In relation to addition made on account of proceedings before the Central Excise Department, where, according to the ld.DR, the assessee admitted suppression of sales outside the books, which, according to various decisions [as narrated in Ground No.2 of the appeal] have a binding effect although it may not be taken as conclusive proof but it carries great weight. 7. We have gone through all these decisions which are clearly mentioned in ground No.2 of the appeals. All these decisions are distinguishable on facts as well as on law because all these decisions give a ratio that any settlement made voluntarily by the assessee would form the basis of assessment. But all these decisions ostensibly were rendered in the context of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer has not even discussed these important aspects of this matter and has made adhoc estimation without any basis. On the contrary, the ld. CIT(A) has adopted the rate of gross profit of 15% of the sales on the basis of results of similar companies and by doing so he has arrived at additional gross profit for all years as under: Assessment year Sales ( Rs.in lakhs) Cost of sales ( Rs.in lakhs) Gross profit returned ( Rs. in lakhs) Gross Profit now determined ( Rs. in lakhs) Addition sustained ( Rs.in lakhs) 2002-03 6881.90 5925.41 956.49 1032.29 75.80 2003-04 5446.14 4698.17 747.97 816.92 68.95 2004-05 4983.45 4240.24 743.21 747.52 4.32 9. It is well settled law that after estimation is done no separate addition u/s 40A(3) of the Act can be made. Even the Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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