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TMI Blog2018 (9) TMI 1537X X X X Extracts X X X X X X X X Extracts X X X X ..... acts in upholding the initiation of proceedings under section 147 of the Act and, completion of assessment under section 147/143(3) of the Act without appreciating that the same were without jurisdiction and hence deserved to be quashed as such. 2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the reasons recorded were mechanically recorded without application of mind and were borrowed inferences from report of the Investigation Wing without appreciating that such report could not ipso facto without any independent examination and verification by the Assessing Officer be made a basis to form a reason to believe that income of the assessee has escaped assessment. 3 That the learned Commissioner of Income Tax (Appeals) has also failed to appreciate that once it is an admitted position on record that Hon'ble Central Excise and Service Tax Appellate Tribunal vide order dated 29.10.2015 had set aside a show cause notice issued by the Central Excise Department, it ought to have been held that since the edifice on which proceedings had been initiated had ceased to exist, there could not be a reason to believe that income of the assessee has esc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as observed that the assessee had sold aluminum dross in the guise of "ash & residue". The Ld. CIT(A) upheld the action under section 148 of the Act but deleted the addition on merits vide his order dated 30.6.2017 and partly allowed the appeal of the assessee. Against the impugned order, the Revenue is in appeal before the Tribunal. 5 However, in Cross objection the assessee has challenged the validity of notice issued under section 148 and re-assessment proceedings completed under section 147 vide order dated 20.12.2016. According to the assessee, reasons recorded are contained in the 7 pages, and from the same, it can be noted that, on six pages of the reasons recorded, the AO has reproduced the contents of Investigation Report received from the ADIT. It was contended that the said Investigation report is verbatim copy of show cause notice issued by excise department to the assessee. The AO has reopened the case of the assessee only on the basis of the show cause notice issued by the excise department and since adjudication order passed by Commissioner of Central Excise in respect of the said notice has been already set aside by the Hon'ble CESTAT, notice issued u/s 148 must b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntral Excise which had been completely set aside by Central Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi by its order dated 29.10.2015. The AO however in the order disposing off objection held since the matter is open until the department accepts the order of an appellate authority and therefore action u/s 147 is valid. Infact in the order of assessment the AO has observed as under: "The contention of the assessee was considered but not acceptable. CESTAT is not the final appellate authority to adjudication any matter. The matter is yet to achieve finality till the revenue accepts an order or it sis settled by the Hon'ble Apex Court. The order of the CESTAT has not been accepted by the Excise Department. From the information received in this office, the Excise Department has already started the process of filing the appeal against the CESTAT order. This information was also shared with the assessee on 15.12.2016. Thus the contention of the assessee that the CESTAT order has achieved finality and therefore the proceedings u/s 148 stands deleted is not correct. Rather, it points out that the information won the basis of which enquiry was done by AO, before reopenin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l High Court in the case of Pr. CIT vs M/s N.C. Cables Ltd. ITA No. 335/2015 has held as under: 11. Section 151 of the Act clearly stipulates that the CIT (A), who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The mere appending of the expression 'approved' says nothing. It is not as if the CIT (A) has to record elaborate reasons for agreeing with the noting put up. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. In the present case, the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking officer. For these reasons, the Court is satisfied that the findings by the ITAT cannot be disturbed." 12 The Ld. CIT(DR) has relied on various judicial pronouncements to submit that since action was based on fresh information from the Excise authorities a prima facie opinion was formed that income of the assessee had escaped assessment. It was contended that neither the sufficiency nor the correctness or material is to be considered at the stage of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder has alleged that the appellant has suppressed the value of its sales of aluminum dross (high value by-product) by reporting the same as sale of ash and residue (low cost by product) generated during the course of its manufacturing process of its final product 'Aluminum Ingot'. 5.2.5 All the allegations of the AO are based on two grounds: (a) Statement of some of the job workers recorded by the Excise Department during the course of investigation against the appellant, wherein they have admitted to have purchased aluminum dross from the appellant for which invoices of ash and residue were issued by the appellant. (b) Excel Sheets recovered from the pen drive seized from the premises of the appellant by the Excise Department, wherein the reported quantity of the aluminum dross was stated to be matching with the quantity of sale of ash and residue reported in the Excise return (ER 1). 5.2.6 Based on the above two grounds, the AO has recorded his finding that the appellant has sold processed aluminum dross valued at Rs. 13,19,00,275/- during the financial year 2008-09 fraudulently by issuing sale invoices of ash and residue to suppress the actual value of sales. 5.2.7 Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated the thereby sale of ash & residue reported in the ER-1 return as sale of aluminum dross and calculated the value of under reported sales. 5.2.10 The appellant in this regard has submitted that it has not sold any aluminum dross in the year under consideration. The aluminum dross generated during the process of melting of aluminum scrap has been subject to re-melting to extract aluminum metal out of the same. As regards the quantity of aluminum dross mentioned in the excel sheet extracted from the seized pen drive, the directors of the appellant company have stated that the same does not represent the sale of aluminum dross. Rather the same is being used for the purpose of costing of the final product. 5.2.11 In this regard, the appellant has drawn attention to the fact that out of total raw material charged in the furnace in the production of aluminum alloy ingots, 15.6 per cent of aluminum dross is generated. This dross is further processed and about 40 to 45 per cent of aluminum is further extracted from the same. The balance quantity that remains is termed as ash and residue which is saleable in the market. In other words, ash and residue forms 8 to 10 per cent of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidue for the corresponding months. Observing all these facts, it is noticed that the AO has made a chain of presumptions while making addition in the hands of the appellant. 5.2.15 Firstly, it was presumed that the quantity of dross mentioned in the excel sheet for the month of April, 2007 has been sold by the appellant in the guise of ash and residue as the same was matching with the invoiced quantity of ash and residue for that month. Secondly, it was presumed that even if the data for the other months was not matching, then took the appellant must have sold dross in the guise of ash and residue in all months. And thirdly, in the period after the date of search i.e. June, 2008 to March, 2009, for which there was no data on the excel sheet, the appellant must have also sold dross in the guise of ash and residue. There is no evidence whatsoever brought on record to support these presumptions. Even, for the period after the date of search, when the investigation was already initiated against the appellant, the AO has filed to bring out any evidence to show as to how the appellant was able to all the aluminum dross without issuing any invoice or by issuing invoice of ash and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y relying on the data received and not on the statements, meaning thereby, that these statements have not been treated by the AO as evidence against the appellant. 5.2.18 However, since the statement s find mentioned in the assessment order, it is relevant to deal with the same. The AO in the assessment order has mentioned about the statements of five persons recorded at the time of search at their premises by the Excise Department. The appellant has rebutted the statements one by one in its reply dated 01/12/2016 before the AO. As regards, the statements of Ratan Lal and Babu Lal of M/s. B.S.Metal, the appellant pointed out that it has supplied aluminium dross on job work out of which some of the quantity was processed and aluminium ingots were supplied back to the appellant and the remaining quantity of dross was found lying at its premises by the Excise Department at the time of search. 5.2.19. As regards the statement of Shri Dharambir, Prop D.B.Enterprise, he has retracted from his original statement the very next day vide his letter dated 12/12/2009 wherein he has mentioned to have given statement under duress. Further the appellant has not sold even a single kilo of ash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uise of ash and residue. In this regard, CESTAT has recorded the finding that the Revenue has failed to bring out any corroborative evidences in the form of any cash transaction or other evidences to support its finding. The CESTAT further held that if sale of ash and residue is assumed to be sale of aluminium dross then the department has failed to explain as to how aluminium dross was removed from the factory premises and sold in the market and further how the assessee has disposed of the ash and residue generated during the manufacturing process. 5.2.24 In view of the above, I am of the considered view that the appellant has not sold dross in the year under consideration as there is no concrete evidence available on record to show that the appellate has underreported its sale. Further, the AO has not doubted the books of accounts and the operating results shown by the appellant. Accordingly, the addition made by the AO of Rs. 13,19,00,275/- is liable to deleted. Grounds nos.9 to 11 of the appeal are allowed. 16 The ld. DR has relied upon the judgment of Apex Court in the case of ITO v. Pirai Choori 334 ITR 262 wherein it has held that absence of cross examination cannot be ..... 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