2016 (11) TMI 1742 - AT - Income Tax

Determination of quantum of suppressed production / sale of TMT bars - estimating gross profit @ 4% on suppressed sale - HELD THAT - As in the absence of any evidence collected by the AO of alleged removal of goods without payment of Excise duty, merely on the basis of estimation of alleged suppressed production in earlier years, there is no merit in making any addition in the hands of assessee. We delete addition made in the hands of assessee by the CIT(A) to the extent of 4% of the said alleged production. Accordingly, ground of appeal raised by the assessee against confirming the addition made on account of suppression of production by applying GP rate of 4% on the alleged production of sale are allowed. Further, the ground of appeal raised by the Revenue against the order of CIT(A) in quantifying the suppressed production @ 4% and deleting the addition of working capital is dismissed. Whether any further expenses on account of manufacturing and administration are to be allowed against unaccounted production worked out? - There is no merit in the ground of appeal raised by the Revenue in this regard as no addition on estimate basis is upheld in the hands of assessee. The ground of appeal No.2 raised by the Revenue is thus, rejected.

Summary

Issues Involved:
1. Determination of suppressed production/sale of TMT bars based on electricity consumption.
2. Addition of profit on sale of suppressed production.
3. Estimation of gross profit on suppressed sales.
4. Quantification of suppressed production at 4%.
5. Consideration of manufacturing and administrative expenses on unaccounted production.
6. Requirement of working capital for raw material purchase and day-to-day activities.

Detailed Analysis:

1. Determination of Suppressed Production/Sale of TMT Bars Based on Electricity Consumption:
The assessee contested the CIT(A)'s confirmation of suppressed production/sale of TMT bars based solely on electricity consumption. The Tribunal noted that no physical verification or investigation by the Excise or Income Tax Department had been conducted to substantiate the suppressed production based on electricity consumption. The Tribunal referred to previous rulings, including Shree Om Rolling Mills Pvt. Ltd. Vs. Addl. CIT, where it was established that no addition could be made solely based on erratic electricity consumption without concrete evidence of suppressed production.

2. Addition of Profit on Sale of Suppressed Production:
The assessee challenged the addition of Rs. 1,31,03,660 on account of profit from suppressed production. The Tribunal reiterated that in the absence of any investigation or evidence of clandestine removal of goods without payment of Excise duty, such additions were not justified. The Tribunal emphasized that no demand had been raised by the CCE or any petition filed before the Settlement Commission, thus, the addition lacked merit.

3. Estimation of Gross Profit on Suppressed Sales:
The CIT(A) had estimated gross profit at 4% on suppressed sales. The Tribunal found this estimation to be arbitrary and unsupported by evidence. It referred to previous cases where similar additions were deleted, stating that without concrete evidence of suppressed production or sales, such estimations were not sustainable.

4. Quantification of Suppressed Production at 4%:
The Revenue appealed against the CIT(A)'s quantification of suppressed production at 4%. The Tribunal upheld its previous decisions, noting that no evidence or investigation supported the alleged suppressed production. It reiterated that no addition could be made based on estimations from earlier years without current year evidence.

5. Consideration of Manufacturing and Administrative Expenses on Unaccounted Production:
The Revenue argued that manufacturing and administrative expenses for unaccounted production had already been borne by the accounted production. The Tribunal dismissed this argument, stating that no addition on an estimate basis was upheld, and thus, no further expenses were to be allowed against unaccounted production.

6. Requirement of Working Capital for Raw Material Purchase and Day-to-Day Activities:
The Revenue contended that working capital was necessary for raw material purchases and daily production activities. The Tribunal found no merit in this argument, as no addition for alleged suppressed production was upheld. It emphasized that without evidence of suppressed production, the requirement of working capital for unaccounted production was irrelevant.

Conclusion:
The Tribunal allowed the assessee's appeal, deleting the additions made on account of suppressed production and profit estimation. It dismissed the Revenue's appeals, upholding the CIT(A)'s decision to not make arbitrary additions based on electricity consumption or previous years' estimations without current evidence. The Tribunal emphasized the need for concrete evidence and investigation to substantiate claims of suppressed production and sales.