2011 (6) TMI 683 - AT - Income Tax

Re-opening of Assessment by AO - AO reopened the assessment proceedings solely on the basis of statement made by director before the Central excise authorities in the context of levy of excise duty on unaccounted production - HELD THAT - As held by the hon'ble High Court in the case of COMMISSIONER OF INCOME-TAX VERSUS KS BHATIA. 2001 (8) TMI 21 - PUNJAB AND HARYANA HIGH COURT , proceedings under the Central Excise Act have relevance only for formation of opinion of escapement of income and thereafter the income-tax authorities have to independently finalise the reassessment irrespective of the final view in excise proceedings. We find that the AO has reassessed the income and made the impugned additions solely on the basis of the information received by him from the Central Excise Department without bringing any material on record to justify or support the additions. Besides, the statement of said director has several gaps on material issues. Therefore, the impugned additions are liable to be cancelled and are accordingly cancelled. Unexplained Expenditure for Purchase of Raw Material u/s 69C - AO estimated unexplained expenditure towards purchase of raw materials on the ground that it must have been utilised in producing 624 mts. of unaccounted goods - HELD THAT - The Assessing Officer has made the impugned additions under section 69C. We have already deleted the addition made by the Assessing Officer with reference to unaccounted production and sale of 624 mts of steel ingots, In this view of the matter, the impugned additions cannot be sustained. The order of the Commissioner of Income-tax (Appeals) deleting the impugned addition is therefore confirmed. Revisional Power of Commissioner u/s 263 - AO made the additions in the AY 2004-05 on the basis of the statement of director so as to maintain consistency in the stand of the Department in both assessment years - HELD THAT - Pre-requisite to the exercise of jurisdiction by the learned Commissioner of Income-tax suo motu u/s 263 is that the order of the AO is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of both the conditions. It has been held in MALABAR INDUSTRIAL CO. LTD. VERSUS COMMISSIONER OF INCOME-TAX 2000 (2) TMI 10 - SUPREME COURT , that section 263 cannot be invoked to correct each and every type of error committed by the AO. It is only when an order is erroneous in so far as it is prejudicial to the interests of the Revenue that section 263 will be attracted. On the basis of facts of the case and on perusal of directions given by the Additional Commissioner of Income-tax shows that he has duly considered and dealt with all the relevant aspects of the case. In the directions issued by him. It cannot therefore be said that the directions given by the Additional Commissioner are without inquiries or application of mind. Thus, the order passed by the learned Commissioner of Income-tax under section 263 is cancelled.

Issues Involved:
1. Deletion of addition regarding unexplained expenditure under section 69C.
2. Deletion of addition regarding profit earned by the assessee.
3. Admission of additional evidence by the Commissioner of Income-tax (Appeals).
4. Restoration of the Assessing Officer's order.
5. Validity of the order under section 263 of the Income-tax Act.

Detailed Analysis:

Issue 1: Deletion of Addition Regarding Unexplained Expenditure under Section 69C
The Revenue contested the deletion of Rs. 69,59,370 made on account of unexplained expenditure for the purchase of raw material under section 69C. The Assessing Officer based the addition solely on the statement of Shri Harmesh Arora, director of the assessee-company, recorded by Central Excise authorities, which claimed the furnace capacity was increased to 5 mts per heat, leading to unaccounted production and sales. The Tribunal found no independent material evidence corroborating this statement and noted that the Central Excise authorities' decision was reversed by the Commissioner (Appeals), Customs and Central Excise. Thus, the Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision to delete the addition, emphasizing the lack of material evidence to support the Assessing Officer's claims.

Issue 2: Deletion of Addition Regarding Profit Earned by the Assessee
The Revenue also challenged the deletion of Rs. 32,59,650 added as profit earned by the assessee from unaccounted sales. The Assessing Officer calculated this based on the unaccounted production derived from the statement of Shri Harmesh Arora. The Tribunal noted that the statement lacked corroborative evidence and was inconsistent with other records, such as technical specifications and inspection reports, which indicated the furnace capacity was 4 mts. Consequently, the Tribunal confirmed the deletion of the addition by the Commissioner of Income-tax (Appeals).

Issue 3: Admission of Additional Evidence by the Commissioner of Income-tax (Appeals)
The Assessing Officer objected to the admission of additional evidence, including a certificate regarding the furnace capacity and the order from the Commissioner (Appeals), Customs and Central Excise. The Tribunal found that the additional evidence was rightly admitted by the Commissioner of Income-tax (Appeals) in the interest of justice, as it directly impacted the foundation of the Assessing Officer's additions. The Tribunal noted that the Assessing Officer had the opportunity to rebut the additional evidence but chose not to. Thus, the Tribunal upheld the admission of additional evidence.

Issue 4: Restoration of the Assessing Officer's Order
The Tribunal dismissed the Revenue's request to set aside the order of the Commissioner of Income-tax (Appeals) and restore the Assessing Officer's order. Since the Tribunal confirmed the deletion of the additions and the admission of additional evidence, there was no basis to restore the Assessing Officer's order.

Issue 5: Validity of the Order under Section 263 of the Income-tax Act
The assessee challenged the order under section 263, which set aside the assessment order for the assessment year 2005-06. The Commissioner of Income-tax invoked section 263, claiming the assessment order was erroneous and prejudicial to the interests of the Revenue. The Tribunal found that the assessment order was passed after thorough examination and application of mind, supported by directions from the Additional Commissioner of Income-tax under section 144A. The Tribunal noted that the Additional Commissioner had considered all relevant aspects and evidence before issuing directions. Therefore, the Tribunal concluded that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue and canceled the order under section 263.

Conclusion:
The Tribunal dismissed the Revenue's appeal and upheld the order of the Commissioner of Income-tax (Appeals), confirming the deletion of additions and the admission of additional evidence. The Tribunal also canceled the order under section 263, allowing the assessee's appeal.

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