2014 (10) TMI 890 - HC - Income Tax

Undisclosed income on account of the improper disclosure or suppression of the production - Held that - Superintendent of a Central Excise would not have ventured to record his own findings about the matters like burning losses or other relevant issues and would have chosen to avail of the services of a metallurgical expert. What we have extracted above is just a sample. The whole order is full of such discussions and instances. It is on the basis of such an exercise that the Assessing Officer arrived at the conclusions that the undisclosed income on account of the improper disclosure or suppression of the production for various assessment years is 1, 22, 86, 712. Even the expenditure incurred for purchase of raw materials became the subject matter of extensive discussion without indicating as to how the purchase of raw material can have any impact upon the income of an assessee that too of a manufacturing company. In the order of assessment which runs into 31 closely typed pages such instances are galore. Obviously to analyse and understand the approach of the Assessing Officer the Tribunal discussed the matter at length. The order passed by it runs into 48 pages. At more places than one it was pointed out that the stock available on ground cannot be compared or verified with reference to the RG-I register. It was also pointed out that by-products or waste materials such as slag was treated by the Assessing Officer as the main product or an income yielding material and the conclusions were arrived at only on the basis of assumptions. We agree with the findings recorded and view expressed by the Tribunal. An Income-tax Officer cannot carry out the functions of an authority under the Central Excise Act and arrogate to himself the power to determine the quantity of production or to utter a final word on the intricacies of the manufacturing process that too without referring to any reliable material. The Assessing Officer in the instant case was totally unsuited for undertaking the activity of determining the exact production of the material which itself involves very complicated procedures. In the appeal of the assessee also we do not find any substance. The amounts that were untouched by the Tribunal represent the value of the land that was purchased during the block period. The relevant facts and figures were taken into account and a proper conclusion was arrived at. We do not find any basis to interfere with the same. - Decided in favour of assessee

Summary

Issues Involved:
1. Legitimacy of the block assessment order passed by the Assessing Officer based on the search conducted.
2. Validity of the discrepancies and undisclosed income determined by the Assessing Officer.
3. Appropriateness of the Tribunal's decision to delete certain amounts from the order of assessment.
4. Jurisdiction and capability of the Income-tax Officer in determining production discrepancies and burning losses.

Detailed Analysis:

Legitimacy of the Block Assessment Order:
The case revolves around the block assessment order passed by the Assessing Officer following a search at the premises of M/s. Srinivasa Ferro Alloys Ltd. (SFAL) on September 27, 1996. The search led to the discovery of discrepancies amounting to Rs. 1.03 crores. Proceedings were initiated under Chapter XIV-B of the Income-tax Act, 1961, and a notice under section 158BD was issued on March 3, 1997. The order of block assessment was passed for the assessment years 1988-89 to 1997-98, determining an undisclosed income of Rs. 1.78 crores for the assessee, M/s. Girija Smelters (P.) Ltd.

Validity of the Discrepancies and Undisclosed Income:
The Revenue argued that the search yielded valuable information and that the block assessment order was passed based on material seized during the search, including discrepancies in the RG-I register maintained under the Central Excise Act. The managing director's statement during the search was considered significant. However, the assessee contended that the search did not reveal any incriminating entries or undisclosed wealth and that the Assessing Officer's conclusions were based on assumptions and lacked proper verification.

Appropriateness of the Tribunal's Decision:
The Tribunal partly allowed the assessee's appeal, deleting Rs. 89,45,465, being the cost of the alleged stock of finished products, and Rs. 23,80,000 representing unexplained share capital. The Tribunal upheld the order of assessment for other items. The Revenue challenged the deletion, while the assessee argued that the entire order of assessment should have been set aside. The Tribunal's decision was based on the observation that the Assessing Officer's conclusions were not supported by reliable material and involved assumptions about the manufacturing process and burning losses.

Jurisdiction and Capability of the Income-tax Officer:
The judgment highlights that the Income-tax Officer overstepped his jurisdiction by delving into matters typically handled by the Central Excise Department. The Assessing Officer compared the burning losses reported by the assessee with those recorded in the RG-I register of SFAL and concluded that the assessee had unaccounted production. The judgment criticizes the Assessing Officer for undertaking a task beyond his expertise and without consulting metallurgical experts or relevant authorities. The court emphasized that an Income-tax Officer should not assume the role of a Central Excise authority, especially in complex manufacturing processes.

Conclusion:
The High Court dismissed both appeals, agreeing with the Tribunal's findings that the Assessing Officer's conclusions were based on assumptions and lacked proper verification. The court reiterated that the Income-tax Officer should not carry out functions beyond his jurisdiction and expertise. The amounts untouched by the Tribunal were deemed appropriately assessed, and no basis was found to interfere with the Tribunal's decision. Both appeals were dismissed, and there was no order as to costs.