TMI Blog2018 (6) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... -5-2018 - Shri Rajpal Yadav, Judicial Member And Shri Waseem Ahmed, Accountant Member Appellant by : Shri Saurabh Singh, Sr. D.R. Respondent by : Shri P. D. Shah, A.R. ORDER Per Waseem Ahmed, Accountant Member The captioned appeal has been filed at the instance of the Revenue against the appellate order of the Commissioner of Income Tax(Appeals)-9, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)- 9/650/DCIT-cir-3(1)(2)/14-15 dated 15/06/2016 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) dated 27/03/2015 relevant to Assessment Year (AY) 2012-13. 2. The grounds raised by the Revenue per its appeal are as under: 1. The Ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 4,57,82,539/- made on account of suppression of production and sale out of books. 2. The Ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 3,81,75,044/- made on account of estimation of gross profit. 3. The Ld. CIT(A) has erred in law and on facts by not appreciating the material facts brought on record by the AO in the assessment order. 4. On th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year under consideration. Thus, the AO was of the view that the assessee has claimed excess loss by 1.3% (6.90%-5.60%) of the total material consumed. Accordingly, the AO treated the excess loss shown by the assessee as suppressed production which worked out at 445355 kgs (1.3% of total consumption 3,42,58,111 kgs). Thus the excess loss/suppressed production was treated as undisclosed sale made by the assessee outside the books of accounts. Accordingly the value of such undisclosed was determined by multiplying by the average sale price of ₹ 102.80/kg to determine the amount of sale made by the assessee outside the books of accounts which worked out to ₹ 4,57,82,539/- only. Thus, the said amount was treated as suppressed sale of the assessee. In addition to the above, the AO also observed that the gross profit as well as net profit declared by the assessee is reducing consistently. The relevant details of the turnover, gross profit, net profit vis- -vis gross profit ratio and net profit ratio stand as under: A.Y. Turnover (Rs. lakhs) Gross Profit (Rs. lakhs) GP Ratio (1%) Net Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not have any evidentiary value as the same is also not supported with any corroborative evidences. The assessee in support of his claim relied on the judgment of Hon ble Apex Court in the case of P. R. Metrani vs. CIT reported in 287 ITR 209. (iii) The books of accounts were subject to audit under the companies Act, income tax Act, VAT and excise departments. There was no allegation in any of the audit report regarding the suppression of production as alleged by the AO. (iv) There was no evidence brought on record by the AO suggesting that the assessee has made any sales outside the books of accounts. (v) The statement of the production manager was taken u/s133A of the Act on 21-01-2015 and therefore, the same cannot be used against the assessee for the earlier years i.e. AY 2012-13. There was various modification / up gradation and changes in the type of raw material used for the production processed between the A.Y.2012- 13 and the date on which statement u/s 133A of the Act was obtained. Therefore, no reference of the statement recorded u/s 133A of the Act can be made to the proceedings for the A.Y. 2012-13 which is under consideration. (vi) The statement given b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titative analysis. Whereas the AO has calculated suppressed production of 4,45,355 Kgs. Further, it is apparent that the year of survey and the year of assessment are different and during the said period the appellant has made investment in assets in order to improve the efficiency of production. There has been addition of ₹ 13.97 crores to the Plant machinery in the FY 2011-12 of ₹ 13.35 crs in FY 2012-13 and of ₹ 5.82 crs n FY 2013-14. These are significant changes in the production process. The appellant had made a change m the Air Quench section in the furnace. The length of acid tans in HRAP section was increased to enable process at higher speed. On going through Annexure 2 of Form 3CD it is observed that the appellant has made huge investment in Annealing Furnace (BA Line) (2 Nos.), Modification in HRAP Lines, Modification in AP lines etc The said additions into fixed assets of the company have been certified by the Tax auditor The quality of raw material purchased during the AY under consideration is different from the quality of raw material purchased at the time of survey. Appellant has started purchasing HRAP (non-black) coils from Jindal Stainless L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrect In view of the said facts and circumstances, the assessing Officer has observed that the books of accounts are not showing true and correct e of the assessee company and has concluded that bock result of the assessee is liable to be rejected as per provision of section 145 of the Income Tax Act. 7.3 During the course of appellate proceedings, the appellant has submitted that as per section 145 of the Act, the AO can reject the result of bock of accounts only if conditions of said section are satisfied and since in its case, no dissatisfaction about the correctness or completeness of the accounts have been found results of the books cannot be rejected. It is also submitted by the appellant that there is no evidence/admission of suppression of the sales or claim of excess invisible toss for the assessment year under consideration has been found during proceedings under section 133A of the Act With regard to quantitative analysis of suppression of production by 1.3% undertaken by the AO. I have already allowed the ground no 3(a) of the appellant and deleted the addition made on account of said unaccounted suppressed production. 7.4 The appellant has further submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputing the alleged suppressed production the learned AO has not given effect of increase to the closing stock of Work in Progress of 4,66,497 Kgs (Closing W1P of 18,57,428 kgs Less Opening WIP of 13,90,931 kgs.). The said relevant fact was brought to the notice of ld. AO vide our letter dated 16/3/2016. Refer marked Para 4.2(iv) on page no.4 of the assessment order The said issue has not been discussed by the learned AO and accordingly the entire addition is against the fact of the case itself. In this regard relevant page of 3CD report for F.Y. 2010-11 to 2013-14 (Giving details of raw material and finished goods only) along with the working of effect of Increase in Work In Progress on the production was submitted to the ld. CIT(A) as Page No H/1 to H/6 of paper Book. 4. During the course of proceedings under section 133A of the Act, no evidence of unaccounted production and sales thereof for the year under consideration has been found nor any person in their statement accepted suppression of production or sales thereof and therefore the entire addition is on presumption and surmise basis. 5. The books of accounts are subject to audit under the Companies Act Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 4,57,82,539/- outside the books of accounts. Accordingly, the addition was made by the AO. Similarly, the AO rejected the books of accounts of the assessee on the ground that the financial statements prepared by it are not showing true and correct income. Therefore, the AO enhanced the gross profit @1.3% of the total sales declared by the assessee. However, the gross profit estimated by the assessee was less than the amount of suppressed sale therefore the addition on account of suppressed sale was made by the AO. However, the Ld. CIT(A) deleted the additions made by the AO by observing that no defect whatsoever was pointed out by the AO in the books of accounts of the assessee. As per the Ld. CIT(A), the addition was based merely on the statement obtained under section 133A of the Act during survey proceedings without any corroborative evidences and he was of the view that the addition cannot be held as sustainable. Now the issue before us arises so as whether the deletion made by the Ld. CIT(A) is correct and in accordance with the provisions of law. In this regard, we note that there was no whisper highlighting the any defect in the books of accounts of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the assessee. In appeal, the Learned Commissioner of Income Tax(Appeals) held that rejection of book result was not justified by the Learned Assessing Officer for the reason that the assessee maintained books of account which were audited under the companies act and also under section 44AB of the Income Tax Act and the Learned Assessing Officer has brought no material to show that they are not maintained as per provisions of the Income Tax Act, 1961. Further, the Learned Commissioner of Income Tax(Appeals) observed that the Learned Assessing Officer has not brought on record any material evidences which indicates that the assessee was indulging in unaccounted manufacturing and sales and made unaccounted purchases of raw materials to manufacture unaccounted products. The Learned Commissioner of Income Tax(Appeals) has also observed that the excise authorities have verified the production records of the assessee and has found no discrepancies in them. He also observed that in the similar facts and circumstances, the Delhi Bench of the Tribunal in the case of Pondy Metal and Rolling Mills P. Ltd. (Supra) deleted the addition made on account of suppressed production and deleted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engaged in producing finished goods outside the goods of account. Keeping in view the above facts and circumstances of the case, we do not find any good reason to interfere with the order of the Learned Commissioner of Income Tax(Appeals). It is confirmed and the ground of appeal of the revenue is dismissed. The addition was solely made on the basis of the statement furnished by the production manager of the assessee at the time of survey. The lower authorities have not brought any iota of evidence suggesting that the assessee has suppressed the production leading to suppressed sale out the books. Here it is pertinent to note that the CBDT has discouraged to its officers to make the addition on the basis of the statements and without bringing any tangible materials for any addition/disallowance. The relevant extract of CBDT instructions issued vide F. No. 286/98/2013- IT(Inv.II) dated 18th of December 2014 reads as under:- Instances/complaints of undue influence/coercion have come to notice of the CBDT that some assessees were coerced to admit undisclosed income during Searches/Surveys conducted by the Department. It is also seen that many such admissions are retracted in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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