2015 (12) TMI 988 - 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. 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. 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. See Bhagyalaxmi Steel Alloys Pvt. Ltd. vs. Addl.CIT 2015 (11) TMI 14 - ITAT PUNE - Decided in favour of assessee.

Issues Involved:
1. Quantification of suppressed production.
2. Rejection of books of accounts.
3. Addition on account of working capital required for unrecorded production.
4. Legality of reassessment proceedings.
5. Non-issuance of notice under section 143(2) after reopening the assessment under section 147.
6. Interest liability under section 234 ABC of the Income Tax Act.

Detailed Analysis:

1. Quantification of Suppressed Production:
The CIT(A) had quantified the suppressed production at 4%, even after accepting that the assessee indulged in clandestine removal of goods without payment of taxes. The Tribunal, however, found that the issue was covered by the decision in the case of Bhagyalaxmi Steel Alloys Pvt. Ltd., where it was held that no addition could be made based on erratic electricity consumption. The Tribunal noted that the CESTAT had set aside the order of the CCE, Aurangabad, which was the basis for the addition. Therefore, the Tribunal deleted the addition sustained by the CIT(A).

2. Rejection of Books of Accounts:
The lower authorities had rejected the books of accounts maintained by the assessee on the grounds of alleged suppression of production based on electricity consumption. The Tribunal found that the Assessing Officer had not conducted any independent investigation or inquiry and had solely relied on the information received from the Central Excise Department. The Tribunal held that the rejection of books of accounts was not justified and allowed the assessee's grounds.

3. Addition on Account of Working Capital Required for Unrecorded Production:
The Assessing Officer had made an addition on account of the working capital required for unrecorded production. The Tribunal, following the decision in the case of Bhagyalaxmi Steel Alloys Pvt. Ltd., held that since the addition on account of suppressed production was deleted, there was no merit in the addition on account of working capital required for unrecorded production.

4. Legality of Reassessment Proceedings:
The assessee had challenged the reassessment proceedings on the grounds that the directions issued under section 144A by the Joint Commissioner of Income Tax were bad in law as no opportunity of being heard was given to the assessee. The Tribunal did not press for these grounds as the main issue of addition on account of suppressed production was decided in favor of the assessee.

5. Non-Issuance of Notice Under Section 143(2) After Reopening the Assessment Under Section 147:
The Tribunal noted that since the addition on account of suppressed production was deleted, the issue of non-issuance of notice under section 143(2) after reopening the assessment under section 147 was dismissed as academic.

6. Interest Liability Under Section 234 ABC of the Income Tax Act:
The assessee denied its liability of interest under section 234 ABC of the Income Tax Act. The Tribunal did not specifically address this issue as the main grounds of addition were decided in favor of the assessee.

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue and partly allowed the appeals filed by the assessee. The Tribunal held that no addition could be made on the basis of erratic electricity consumption and deleted the additions sustained by the CIT(A). The rejection of books of accounts and the addition on account of working capital required for unrecorded production were also held to be unjustified. The reassessment proceedings and the issue of non-issuance of notice under section 143(2) were dismissed as academic.

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