2015 (11) TMI 14 - AT - Income Tax

Addition made on account of alleged suppression of sales - addition based on consumption of electricity as per US standards and evasion of Excise duty by the manufacturers of TMT bars in Jalna cluster found by Director General of Central Excise and Customs - working out the addition by applying GP rate of 4% on the alleged suppression of sales, after rejecting the books of account under section 145 - Held that - No extrapolation of sales for 300 days can be made in the hands of the assessee on the basis of the evidence found for clandestine removal of material without payment of Excise duty for few days, which in turn, has been admitted by the assessee by way of filing petition before the Settlement Commission, which in turn, has also been accepted by the Settlement Commission. Merely because the Settlement Commission accepted the claim of the assessee of additional Excise duty payable on the said clandestine removal of material without payment of Excise duty does not establish the case of the Revenue that the said figures of additional production should be utilized for extrapolating the sales in the hands of the assessee for the entire year. Admittedly, the assessee had offered additional income on the said clandestine removal of material without payment of Excise duty, which is to be added as income in the hands of the assessee. The learned Authorized Representative for the assessee fairly admitted that in case the said additional income has not been added while computing the income in the hands of the assessee for the respective years, the same may be directed to be added in the hands of the respective assessee in respective years. Accordingly, we direct the Assessing Officer to verify from the records for the respective years and include the additional income on account of such admitted clandestine removal of material without payment of Excise duty, by the assessee either before the Settlement Commission or before the Excise authorities, in the hands of the assessee. We have heard bunch of appeals and in some years, there is no admission of clandestine removal of material without payment of Excise duty and in those years in the absence of any evidence and / or any investigation or inquiry made by the Assessing Officer and where the Assessing Officer has failed to collect additional evidence, no addition can be made in the hands of the assessee, by way of extrapolation of sales for 300 days on account of any evidence found in any preceding or succeeding years. Further, no addition can be made in the hands of the assessee, where no petition has been filed by the assessee before the Settlement Commission in any of the respective years or before the Excise authorities. In the case of Bhagyalaxmi Steel Alloys Pvt. Ltd., there is no investigation by DGCEI and hence, no addition on account of extrapolation can be made, in the absence of any evidence found against the assessee. Since we have deleted the addition in the hands of assessee on both accounts i.e. addition made on account of erratic consumption of electricity and addition proposed on the basis of evidence found for the part of the year of clandestine removal of material without payment of Excise duty, next addition made in the hands of the assessee i.e. alleged investment in the purchases for effecting such sales which goods have been clandestinely removed, is not sustainable. Accordingly, we hold that no addition can be made in the hands of the assessee on account of alleged investment in purchases under section 69C of the Act. Issue remaining to be adjudicated is non issue of notice under section 143(2) after issue of notice under section 148 of the Act. In view of our order in deleting the addition on account of suppressed production/sales, the said issue is dismissed as academic. In view of our deleting the addition in the hands of the assessee the grounds of appeal raised by the Revenue i.e. against application of GP rate and allowance of expenses are also dismissed. - Decided in favour of assessee.

Issues Involved:
1. Reopening of assessment under section 147.
2. Non-supply of reasons for reopening the assessment.
3. Non-issue of notice under section 143(2) after reopening.
4. Alleged suppression of sales based on consumption of electricity.
5. Addition on account of investment in purchases relating to suppression of sales.
6. Quantification of suppressed production and application of GP rate.
7. Allowability of manufacturing and administrative expenses on unaccounted production.

Detailed Analysis:

1. Reopening of Assessment under Section 147:
The assessee challenged the reopening of assessment under section 147 of the Income Tax Act, 1961, arguing that the reasons for reopening were not supplied. The Tribunal noted that the assessee had received the reasons during the appellate proceedings before the CIT(A) and hence, did not press this ground further. Therefore, the Tribunal dismissed the grounds related to reopening as not pressed.

2. Non-Supply of Reasons for Reopening:
The Tribunal observed that the reasons for reopening were provided to the assessee during the appellate proceedings. Consequently, the Tribunal did not find merit in this ground and dismissed it as not pressed.

3. Non-Issue of Notice under Section 143(2) after Reopening:
The assessee contended that no notice under section 143(2) was issued after reopening the assessment under section 147. The Tribunal noted that the Special AR for the Revenue claimed that such notice was issued but failed to provide evidence. Given the lack of evidence, the Tribunal did not address this issue substantively as the primary grounds for addition were already dismissed.

4. Alleged Suppression of Sales Based on Consumption of Electricity:
The core issue revolved around the alleged suppression of sales based on erratic electricity consumption. The Tribunal referred to the case of SRJ Peety Steels Pvt. Ltd., where a similar issue was adjudicated. The Tribunal held that the addition based on the report of Dr. Batra and the order of the CCE, Aurangabad, was not sustainable, as the CESTAT had overruled the CCE's order. The Tribunal emphasized that no independent investigation was conducted by the Assessing Officer, and the addition was solely based on the CCE's order, which had been set aside. Therefore, the Tribunal deleted the addition on account of alleged suppression of sales.

5. Addition on Account of Investment in Purchases Relating to Suppression of Sales:
The Tribunal noted that since the primary addition on account of suppressed production/sales was deleted, the consequent addition on account of investment in purchases could not be sustained. The Tribunal held that no addition could be made under section 69C of the Act when the primary addition itself was deleted.

6. Quantification of Suppressed Production and Application of GP Rate:
The Revenue challenged the CIT(A)'s decision to quantify suppressed production at a GP rate of 4%. The Tribunal, having deleted the primary addition on account of suppressed production/sales, found no merit in the Revenue's appeal against the application of the GP rate. The Tribunal upheld the CIT(A)'s decision and dismissed the Revenue's appeal.

7. Allowability of Manufacturing and Administrative Expenses on Unaccounted Production:
The Tribunal addressed the Revenue's contention regarding the allowability of manufacturing and administrative expenses on unaccounted production. Given that the primary addition was deleted, the Tribunal found no merit in the Revenue's appeal on this ground and dismissed it.

Conclusion:
The Tribunal comprehensively addressed all the issues raised by both the assessee and the Revenue. It dismissed the grounds related to reopening and non-supply of reasons as not pressed. The Tribunal deleted the addition on account of alleged suppression of sales based on erratic electricity consumption, holding that the basis for such addition was not sustainable. Consequently, the Tribunal also deleted the addition on account of investment in purchases and dismissed the Revenue's appeal regarding the quantification of suppressed production and the allowability of expenses.

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