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2020 (3) TMI 594 - AT - Income TaxUndisclosed production and sale - Addition based on search action carried out by DGCEI conducted at the assessee s factory premises wherein it was found that the assessee was involved in clandestine manufacture and clearance of finish goods - HELD THAT - Findings of CESTAT where the whole demand relating to clandestine manufacture and clearance of finished goods has been set-side, the findings of the AO which are solely based on the proceedings under Central Excise therefore doesn t survive and the consequential addition made by him are liable to be deleted. At the same time, the Revenue would be at liberty to take action as per law where the matter so decided by the CESTAT is appealed against by the Revenue and is decided in its favour by the Courts. As decided in case of M/s Natani Rolling Mills Pvt. Ltd. 2019 (9) TMI 1336 - ITAT JAIPUR whole case of the Revenue regarding undisclosed sales rest on the orders of the Central Excise authorities which has since been set-aside by the CESTAT vide its order dated 7.02.19. In view of the same, the additions so made by the Assessing officer towards gross profit on unrecorded sales and unaccounted purchases is directed to be deleted. At the same time, the Revenue would be at liberty to take action as per law where the matter so decided by the CESTAT is appealed against by the Revenue and is decided in its favour. - Decided in favour of assessee.
Issues Involved:
1. Legality of the order passed by the CIT(A). 2. Addition of ?20,10,567/- by AO based on alleged clandestine removal of goods. 3. Addition of ?75,64,761/- by AO based on estimated stock turnover ratio. 4. Adequacy of opportunity provided by CIT(A) to the appellant. 5. Error in charging interest under section 234B and 234D of the Act. 6. Initiation of penalty under section 271(1)(c) of the Act. Issue-wise Detailed Analysis: 1. Legality of the Order Passed by the CIT(A): The appellant contended that the order passed by the CIT(A) was erroneous both in law and on facts. The CIT(A) confirmed the additions made by the AO based on findings from the Excise Department, which were under challenge before the CESTAT, New Delhi. The CIT(A) did not consider the explanations and evidences brought on record by the assessee, nor did he consider the fact that the Excise Department’s findings were under appeal. 2. Addition of ?20,10,567/- by AO Based on Alleged Clandestine Removal of Goods: The AO made an addition of ?20,10,567/- by applying a gross profit rate of 1.60% on the alleged clandestine removal of goods worth ?12,56,60,484/-. The CIT(A) sustained this addition despite the appellant's challenge to the Excise Department’s findings. The appellant argued that the entire sales could not be treated as income and that the Excise Department’s action was biased and under appeal. The CESTAT later set aside the whole demand raised by the Excise Department, rendering the AO’s addition unsustainable. 3. Addition of ?75,64,761/- by AO Based on Estimated Stock Turnover Ratio: The AO applied an estimated stock turnover ratio of 6.02% on the total alleged clandestine removal of goods, resulting in an addition of ?75,64,761/- as undisclosed initial investment in stock/purchases. The CIT(A) sustained this addition, rejecting the explanations and evidences brought by the assessee. The CESTAT’s order, which set aside the Excise Department’s findings, invalidated the basis for the AO’s addition. 4. Adequacy of Opportunity Provided by CIT(A) to the Appellant: The appellant argued that the CIT(A) erred in passing the order without providing adequate opportunity, not considering the adjournment application filed, and not accepting the rejoinder to the remand report. The CIT(A) also refused to adjourn the case sine die pending the CESTAT’s decision. The appellant cited a Rajasthan High Court decision where proceedings were stayed pending a CESTAT order. 5. Error in Charging Interest Under Section 234B and 234D of the Act: The appellant contended that the CIT(A) erred in dismissing the ground for error made by the AO in charging interest under sections 234B and 234D of the Act. The CIT(A) upheld the AO’s decision without addressing the appellant’s specific arguments. 6. Initiation of Penalty Under Section 271(1)(c) of the Act: The appellant argued that the CIT(A) erred in dismissing the ground for initiation of penalty by the AO under section 271(1)(c) of the Act. The CIT(A) did not provide a detailed reasoning for upholding the AO’s initiation of penalty proceedings. Conclusion: The ITAT Jaipur set aside the additions made by the AO, which were based on the findings of the Excise Department, as the CESTAT had nullified the entire demand raised by the Excise Department. The ITAT emphasized that the AO’s additions were solely based on the Excise proceedings, and with the CESTAT’s order in favor of the assessee, the additions did not survive. The ITAT allowed the appeals filed by the assessee for both assessment years 2010-11 and 2011-12.
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