2015 (10) TMI 2303 - AT - Income Tax

GP rate @15% on the suppressed sales - additional income in the hands of assessee in the respective assessment years on account of admission of clandestine removal of goods without payment of Excise duty - Held that - The issue being identical to the issue before the Tribunal in set of Rolling Mill cases, we delete the additions made in the hands of assessee on account of suppressed production. However, following the parity of reasoning we direct the Assessing Officer to compute the addition on account of profits relating to the clandestine removal of goods without payment of Excise duty as admitted by the assessee before the Settlement Commission, CESTAT and / or Commissioner (Appeals) of Excise in the respective assessment years after verification, by applying GP rate of 4% or actual GP rate declared by the assessee, whichever is higher, if so declared by the respective assessees. The assessee has furnished the details of show cause notices issued by the Central Excise Authorities and the quantity involved of clandestine removal of goods and suppression of production in the respective years and also the final result / status of the petitions moved by the assessee either before the Settlement Commission / CESTAT or Commissioner (Appeals) of Excise. The said tabulated details are appended as Annexure to this order. We direct the Assessing Officer to verify the claim of assessee in this regard and include the profit on the suppressed production @ 4% or actual GP rate declared by the assessee, whichever is higher. The assessee is directed to file the requisite details of proceedings before the Excise authorities, before the Assessing Officer in order to compute the additional income in the hands of assessee in the respective years. The directors of the assessee company and their family members had offered additional income of ₹ 14 crores, which has been declared in the respective returns of income and has been assessed in the hands of respective individuals. The major portion of income was declared in assessment year 2010-11 amounting of ₹ 12 crores and the balance of ₹ 2.80 crores was declared in assessment years 2006-07 to 2008-09. No benefit of telescoping has been allowed by the CIT(A) in respect of said declaration in the hands of assessee and no ground of appeal has been raised against the said denial by the CIT(A). In the totality of the above said facts and circumstances, we find no merit in the grounds of appeal raised by the Revenue for estimation of GP @ 15% as the basis for applying GP has been deleted by the Tribunal in group of furnace cases decided earlier. Further, there is no merit in any addition on account of investment for the alleged production under section 69C of the Act. We allow the grounds of appeal raised by the assessee with the direction to the Assessing Officer to compute the additional income in the hands of assessee in the respective assessment years on account of admission of clandestine removal of goods without payment of Excise duty by the assessee before the Settlement Commission, Commissioner (Appeals) of Excise and CESTAT. No other addition is warranted in the hands of assessee. - Decided in favour of assessee.

Issues Involved:
1. Alleged suppression of sales based on electricity consumption.
2. Application of Gross Profit (GP) rate on suppressed sales.
3. Rejection of books of account under section 145(3) of the Income Tax Act.
4. Addition on account of undisclosed investment under Section 69C.
5. Validity of assessment under section 143(3) read with section 153A without incriminating material.
6. Reliance on orders passed by the Directorate General of Central Excise and Customs (DGCEI).

Detailed Analysis:

1. Alleged Suppression of Sales Based on Electricity Consumption:
The assessee challenged the addition made on account of alleged suppression of sales based on electricity consumption as per US standards and evasion of Excise duty. The Assessing Officer (AO) estimated the suppressed production based on electricity consumption at 188 units per MT, referencing the DGCEI's findings of clandestine removal of goods. The CIT(A) upheld the AO's decision, citing the investigation and enquiries by DGCEI and the assessee's admission before the Settlement Commission. However, the Tribunal noted that similar issues were adjudicated in the case of M/s. SRJ Peety Steels Pvt. Ltd., where it was held that no addition could be made solely based on electricity consumption without corroborative evidence. The Tribunal followed this precedent and deleted the addition, emphasizing that the AO's reliance on the US standards for electricity consumption was not applicable under Indian conditions.

2. Application of Gross Profit (GP) Rate on Suppressed Sales:
The CIT(A) applied a GP rate of 4% on the alleged suppressed sales. The Revenue contended that a higher GP rate of 15% should be applied, as admitted by the director in his statement. The Tribunal, referencing the decision in M/s. SRJ Peety Steels Pvt. Ltd., upheld the application of a 4% GP rate, noting that the CIT(A) had reasonably estimated the GP based on industry standards and previous Tribunal rulings. The Tribunal directed the AO to verify and apply the GP rate of 4% or the actual GP rate declared by the assessee, whichever is higher.

3. Rejection of Books of Account Under Section 145(3) of the Income Tax Act:
The AO rejected the assessee's books of account under section 145(3), citing discrepancies in electricity consumption and the findings of the DGCEI. The CIT(A) upheld this rejection. The Tribunal, however, found no merit in the rejection of books solely based on electricity consumption discrepancies, following the precedent set in M/s. SRJ Peety Steels Pvt. Ltd. The Tribunal emphasized that without corroborative evidence of suppressed production or sales, the rejection of books was not justified.

4. Addition on Account of Undisclosed Investment Under Section 69C:
The CIT(A) made an addition for undisclosed investment required for producing and selling goods outside the books of account. The Tribunal, referencing its decision in M/s. SRJ Peety Steels Pvt. Ltd., held that since the addition on account of suppressed production and sales was deleted, there was no basis for any addition under section 69C for undisclosed investment. The Tribunal deleted this addition as well.

5. Validity of Assessment Under Section 143(3) Read with Section 153A Without Incriminating Material:
The assessee argued that the assessment under section 143(3) read with section 153A was invalid as no incriminating material was found during the search. The CIT(A) upheld the assessment, citing the additional income declared by the Kalika group during the search. The Tribunal noted that the declaration of additional income by the directors did not justify the assessment under section 153A without incriminating material directly related to the assessee. Following the precedent in M/s. SRJ Peety Steels Pvt. Ltd., the Tribunal found the assessment under section 153A without incriminating material to be unjustified.

6. Reliance on Orders Passed by the Directorate General of Central Excise and Customs (DGCEI):
The AO and CIT(A) relied on the DGCEI's orders and findings of clandestine removal of goods to justify the addition. The Tribunal, however, noted that similar reliance on DGCEI orders was found to be insufficient in M/s. SRJ Peety Steels Pvt. Ltd. The Tribunal emphasized that without independent investigation or corroborative evidence, reliance on DGCEI orders alone could not justify the addition.

Conclusion:
The Tribunal, following the precedent set in M/s. SRJ Peety Steels Pvt. Ltd., deleted the additions made on account of alleged suppression of sales based on electricity consumption, rejection of books of account, and undisclosed investment under section 69C. The Tribunal directed the AO to verify and apply the GP rate of 4% or the actual GP rate declared by the assessee, whichever is higher, for the admitted clandestine removal of goods. The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's appeals.

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