9911796707
TMI Blog2019 (11) TMI 922X X X X Extracts X X X X X X X X Extracts X X X X ..... ith judicial principle as herein above enshrined in the various judicial pronouncements. We have also observed in the case of ACIT-1(1) Raipur Vs. Ramesh Steel Industries [ 2014 (12) TMI 1353 - ITAT RAIPUR] the AO made addition as he noted that in the year under appeal, the assessee had consumed more units of power as compared to the last two assessment years. The Tribunal observed that consumption of power in itself is not an evidence to prove or disprove the production of finished goods. We further observe that in the case Sulabh Marbles (P.) Ltd. [ 2006 (7) TMI 653 - HIGH COURT OF RAJASTHAN] has held that disparity in electricity consumption cannot be the criteria for rejection of accounts and for making ad-hoc additions. The assessee had maintained regular books of account and the AO had not come across any unaccounted purchase or suppressed sale. In these circumstances, only on the basis of power consumption, no addition could be or sustained. It is apparent from the records that the Assessing Officer has not brought on record any evidence stating lower or suppression of sales by the assessee. He tried to support his case by showing deficiency in power consumption by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny is engaged in the manufacturing of rerolled products such as heavy steel structural, joist, girder. It has two divisions namely Steel Melting Shop (SMS) and Rolling Mill Division (RMD). SMS division uses sponge iron, pig iron and melting scrap as raw material to manufacture billets and blooms and RMD uses these billets and blooms to produce further re-rolled products such as heavy steel, structural etc. It is the case of the Assessing Officer that at times billets and blooms produced by the assessee are also sold in open market. The Assessing Officer noticed that evidences of unaccounted production by the assessee company by suppressing its yield were found during search. Elaborating further, the Assessing Officer stated in his order various mathematical calculation trying to bring forth suppression of yield by the assessee. The Assessing Officer also noted in his order identifying the usage of power an furnace oil consumption vis-à-vis the yield of the assessee and has held that there is wide variation in consumption of electricity, furnace oil vis-à-vis production of finished goods in different months of the year. The Assessing Officer while recording his finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O. The AO has merely stated that the SMS division shows yield in the vicinity of 84% which is quite low as compared to the yield being shown by other manufacturers of CG, however, wherefrom the AO derived this figure of 89% is best known to the AO only. The undersigned made an attempt to work out the average yield in the industry based on data available from the Department itself. 7.3 The appellant has submitted that despite repeated requests made before the AO, the basis of adopting yield in the case of SMS Division at 89% was not provided. With a view to make the comparison of yield declared by other assesses engaged in similar line of business, information regarding yield was sought from the office of DCIT-1(2), Raipur vide letter dated 22.04.2014. The information was received from the office of DCIT-1(2)- Raipur vide letter dated 25.04.2014." 5.1 The yield declared by the assessee and information regarding yield declared by other assesses, as received from the DCIT-1(2), Raipur was compared with reference to the uniform and standard yield adopted by the Assessing Officer and the result of the comparison so made are on record. As per comparison to the table which is on record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave carefully compared the financial results of the appellant company with the financial results of other comparable cases as received from DCIT-1(2), Raipur. As is self-explanatory from the details tabulated above, in my considered view, the financial results declared by the appellant are found to be better in comparison to most of the comparable instances in terms of GP rate as well as NP rate and even in terms of yield. It is also observed that there is no direct co-relation between GP rate and yield, for instance, the yield declared by Super Iron and Steel Private Limited in financial year 2008-09 is 84.65% which is marginally higher than the yield declared by the appellant at 84.01% however, the GP rate and NP rate of the appellant are found to be much better i.e. 6.85% and 3.21% respectively in comparison to 1.98% and 1.42% respectively declared by Super Iron and Steel Private Limited. Similarly it is observed that the GP rate declared by Southern Ispat & Energy Limited was 25.36% ( barring the fact that the said company is engaged in the business of manufacturing of Ingots, Runner riser, trading of goods and commission) as against 5.80% declared by the appellant company, how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d carefully analyzed various columns and details furnished by the appellant on monthly basis to the Central Excise Department. It is gathered that in Form ER-1, the appellant has given the details on monthly basis viz. Chapter heading, Description of goods, Units of quantity, Opening balance, quantity manufactured, quantity cleared, closing stock, Assessable value, Type of clearance, Excise duty payable etc. In Form ER-6, the appellant furnished the details on monthly basis viz. Description of principal inputs, Quantity code, Opening Balance, Receipt, taken for use in the manufacture of dutiable and exempted finished goods, removed as such for export or for home consumption, closing balance, finished goods manufactured out of input, quantity code of finished goods quantity of finished goods manufactured. 7.10. It is seen that the excise returns in Form ER-1 and ER-6 filed by the appellant on monthly basis are duly acknowledged and bears the seal and signature of the central Excise Authority. The appellant was asked to produce the excise records maintained on daily basis. The appellant did produce the excise records in Form-IV and RG-1 for raw material and finished goods respectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nformation with reference to weighted installed capacity based on actual number of days during which the production process is going on. On the matter of capacity utilization, I do find that the assumption of the AO that the factory will remain in operation for 365 days is quite hypothetical as the AO has completely ignored the fact that there would be weekly offs/holidays apart from national holidays and routine maintenance. I am convinced with the explanation tendered by the appellant regarding capacity utilization and in view thereof, I am of the considered opinion that the capacity utilization cannot be said to be lower as presumed by the AO on the basis of incorrect interpretation of facts. (3) Regarding uniform methodology for measurement inputs, in my considered view the same is not fatal and that per se is not sufficient to reject the books of accounts and this fact cannot be given undue significance in isolation while ignoring the yield, GP and NP rate declared by the appellant based on audited account. This issue regarding "estimation" has been discussed in detail in the subsequent paras. (4) Regarding variation in consumption of sponge iron, power in the SMS Division ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The AO has laid too much emphasis on statistics, those statistics which cannot be said to have been gathered as a result of search only. The statistics relied upon by the AO are those which are quite routinely called for even during the regular assessment proceedings u/s.143(3). The AO has not stated what according to him should have been the average consumption of power, sponge iron etc. Another fact noticed is that the case of the appellant was under scrutiny assessment for three consecutive years i.e. in AY.2006-07, 2007-08 and 2008-09 where regular assessments were made under scrutiny and the yield was shown by the appellant was not disputed. I find that the same AO had completed the assessment u/s. 143(3) in the case of Satguru Ispat Private Limited for assessment year 2008-09 vide order dated 28.12.2010. According to the information received from DCIT-1(2), Raipur, the said assessee company namely Satguru Ispat Private Limited had declared/achieved yield of 77.01% and the said company is engaged in the business of manufacturing of Ingots. The said yield percentage was cross checked with reference to the Tax Audit Report and financial statements of the said assessee company. E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order, the AO has reproduced the extract of the statement recorded during the course of search of the following persons: (a) Shri Murari Singh (b) Shri Anil Singh (c) Shri D Satyanarayan From the aforesaid statements, the AO has made an attempt to emphasize that there is absence of uniform/scientific methodology for measurement of input of raw material. 7.19 I have carefully perused the statement of Shri Murari Singh, General Manager ( Steel Melting Shop) recorded during the course of proceedings u/s.132 on 22.06.2011. In the said statement, in answer of question No.3, Mr. Murari Singyh had categorically stated that the actual average production in SMS Division varies from 350MT to 380 MT although installed capacity is 480 MT per day. I find that the AO has in page No.4 of the assessment order stated that total production from four furnaces will be 480 MT per day and after multiplying the same with 365 days, the AO has stated that the total production will be 1,75,200 MT. In my considered view, the AO ought to have taken in to consideration the said assertion of Mr. Murari Singh, General Manager. It is also seen that Mr. Murari Singh had stated about the composition of ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -à-vis production quantity entered in the regular books of accounts of the appellant company in the computer system. It is also seen that in response to Question No.10, the said Senior Manager has elaborately given statement on the system followed by the appellant company on receipt of any sales order. In response to question No.15, the said Senior Manager has categorically stated that the production team of the appellant company carried out physical inspection/verification of stock for determining the yield and burning loss, he has also stated that the production team carried out physical inspection every 1 to 2 months and based on the report of the production team, yield and burning loss is adjusted. In my considered view, though the appellant company is initially recording the quantity issued for consumption and finished goods produced on estimate basis, however, the fact that the appellant company has computerized weigh bridge and computerized system in place for recording the inward and outward of raw material and finished goods respectively and also the fact that production team of the appellant company carried out physical verification/inspection and based on that yie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. (supra), the Jurisdictional Bench Hon‟ble ITAT had an occasion to decide identical issue and the Hon‟ble Tribunal has observed as under: " ……….We find the assessee in his submissions before the AO had explained the reasons for variation in the yield. However, the AO has not considered the same and merely mentioned that the explanation given by the assessee is not found to be acceptable. We find merit in the submission of the ld. Counsel for the assessee that when the production results are closely monitored by the Excise Department who had accepted the same and when the Department has no other material to prove that the assessee during the impugned assessment year has indulged in unaccounted sales and since the assessee has already disclosed an amount of ₹ 396.60 lacs on account of stock and debtors for the assessment year 2008-09, therefore, in view of the office note by the AO reproduced earlier, no addition, in our opinion is called for." In the instant case, the assessment year involved was 2005-06 and the assessee had offered additional income in assessment year 2008-09. However, ratio of the principle decided that when the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome of the assessee cannot be deduced from the accounts maintained by it and consequently, could not have been a ground to reject the accounts invoking section 145(3) of the Act. The variation in yield and consumption of power etc. could be for various reasons. There is no finding by the Assessing Officer that actual quantity of finished goods sold by the assessee was more than what it was shown in the accounts books on the strength of documentary evidence. 7.24 It is seen that the AO has not pointed out any suppression of production based on any cogent and incriminating material against the assessee. Material showing financial nexus can only be a valid basis for holding suspicion or making the addition. Unfortunately, not a single document showing any financial dealing by the assessee has been referred to either in the assessment order or even during the course of hearing, despite the liberty granted vide this office letter on 28.04.2014 and 16.05.2014. The facts and circumstances of the present case reveal that the Assessing Officer just brushed aside the objections/submissions and contentions raised by the assessee and evidences placed on record. The Assessing Officer made m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner of Income Tax (2006) 100 TTJ (Del) 665 : (2006) 99 ITD 177 ( Del) by the Hon‟ble ITAT, Delhi A Bench as circumstantial evidence. 7.29. The Hon‟ble Supreme Court had put an embargo on the leeway i.e. flexibility of Assessing Officers in Dhakeswari Cotton Mills Ltd. Vs. Commissioner of Income Tax (1954) 26 ITR 775 (SC). The significance of considering the evidences in favour and against the assessee was emphasized by the Hon‟ble Supreme Court in Omar Salay Mohamed Sait Vs. Commissioner of Income Tax (1959) 37 ITR 151 (SC) 7.30 Undisputedly the appellant did furnish explanation on all the documents seized during the course of search, the explanation of the appellant was test checked with reference to the seized material, books of accounts , bills/invoices and other evidences placed on record and the explanation was found to be satisfactory and it is also a matter on record that the AO has also not pointed out any infirmity in the explanation of the appellant nor did the AO bring on record any documentary evidence or reasoning to negate the submissions/explanation of the appellant. It is also an undisputed fact that in the case of the appellant neither any d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stons & Rings Ltd. vide order dated 16th February 2012 (2012) 80 CCH 055 Del HC. 7.34 It is settled principle of law that the A.O has to bring on record specific defect in the books of accounts of the appellant as a result of which reasonable profits cannot be deduced. The A.O examined the audited books of account but had not pointed out any specific discrepancy nor has he detected any suppression in sales or inflation in purchases/expenses. No evidence whatsoever was brought on record to prove that, the appellant, in fact, earned more than that returned as per the books of account kept in the regular course of business. The assessment order is evidence to the fact that there was no specific finding given by the A.O to tile effect that the method employed by the appellant was such that correct profits could not be deduced there from. The AO has not come across any material defected in accounts so as to hold that any profit has been suppressed. It is also not the case of the AO that the appellant has not followed the mercantile systems of accounting. It is also not the case of the AO that the appellant has not followed any particular accounting standard which are notified by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case, the AO estimated the unaccounted production and sales based on benchmark yield of 89% in case of SMS Division . The entire estimated suppressed sale has been treated as profit. I am convinced that the determination of undisclosed income in this case is merely on the basis of presumptions and on an estimate basis. Search assessment has to be framed on the basis of some material, which in this case is raw material consumed in SMS division for manufacturing of blooms and billets in furnace. No other materials or asset details were found during the course of search. 7.37 The question of best judgment is ruled out and therefore the application of any formula for estimating income does not arise. In the instant case, search had undertaken from 21st June, 2011 to 22nd June, 2011. The statements of various persons associated with the appellant company and Mahamaya Group were recorded and in those statements, no incriminating material was there which could be termed as evidence on the basis of which the undisclosed income could be computed. Certain documents were seized, but there was nothing in those materials relating to sales which could establish that appellant had undisclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details of production. These copious evidences were wrongly ignored by the AO. Commissioner of Income Tax Vs. Hindustan Tin Works Ltd. (2007) 291 ITR 290 (Del) : (2007) 164 TAXMAN 529. 7.41. A careful reading of the decision in Commissioner of Income Tax Vs. R.K. Rice Mills (2009) 319 ITR 173 : (2009) 185 TAXMAN 107 (P&H) the Hon‟ble High Court had upheld the deletion of addition and it leads to an irresistible conclusion that there cannot be any rejection of books of accounts merely because the yield declared by the assessee is lower in comparison to other assessees engaged in similar line of business. 7.42 The notoriety that appellant suppressed the yield would be merely a background of suspicion and the appellant should not be held to have indulged in such illegal practices without any evidence. The mere possibility of the appellant getting higher yield would be matter of pure conjecture. Commissioner of Agricultural Income Tax Vs. M.J. Cherian (1979) 117 ITR 371 (KER). 7.43 I find no merit in the action of the A.O in rejecting the books of accounts merely due to the reason that the yield achieved by the appellant is less than the yield percentage i.e. 89% which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction." 7.48 In the instant case also, the ultimate addition has been made on the basis of alleged suppression of yield / unaccounted production. Except making comparison of yield achieved by the appellant with A.O‟s own standardized yield percentage of 89%, the A.O has not brought on record any evidence, given the fact that the present proceedings are culminating from the search proceedings, as a matter of fact the search team could not come across even a single document which even indicates of appellant‟s indulgence into any such suppression of yield or unaccounted sales. It is not the case of the A.O that the buyers of alleged unaccounted sales have given the statements against the appellant, nor any employee uttered any such thing. 7.49 Whether mere variation in yield can even be a ground for rejection of books of accounts was decided by the Hon‟ble High Court of Jammu & Kashmir in International Forest Co. Vs. COMMISSIONER OF INCOME-TAX 1975 CTR (J&K) 88 : (1975) 101 ITR 721 (J&K). Where A.O had failed to bring on record any cogent material to show quantum of sales of assessee out of books of accounts, then addition made by revenue on estimated basis was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-Tax (2008) 9 DTR (Raj) 163. 7.53 I find that no margin for estimation of suppressed sales and income has been allowed even in those cases where instances of suppression of sales has been found on the basis of incriminating material except for the period for which suppression has been unearthed based on cogent and documentary evidence, undisputedly, in the case of the appellant, nothing incriminating has been found, therefore, as held in Deputy Commissioner of Income Tax Vs. Royal Marwar Tobacco Product (P) Ltd. (2009) 120 TTJ (Ahd) 387 : (2008) 16 DTR 129. 7.54 Mere variation in Power cannot be a ground for holding adversity was held in Income Tax Officer Vs. Pragati Fashions vide order dated 12th February 2010 (2011) 12 ITR 444 (Ahd) (Trib). 7.55 Under similar facts, the Hon‟ble ITAT CHANDIGARH BENCH in Assistant Commissioner of Income Tax Vs. A.K. Alloys P. Ltd. vide order dated 29th February 2012 (2012) 17 ITR (Trib) 424 (Chandigarh) has decided in favour of assessee. The extrapolation of figures for estimation of income has been held to be unsustainable in Evergreen Bar & Restaurant Vs. Additional Commissioner of Income Tax (2008) 6 DTR (Mumbai) (Trib) 56. 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t "The mere fact that the material placed by the assessee before the assessing authority is unreliable does not empower those authorities to make an arbitrary order. The power of levy assessment on the basis of best judgment is not an arbitrary power; it is an assessment on the basis of best judgment. In other words, that assessment must be based on some relevant material. It is not a power that can be exercised under the sweet will and pleasure of concerned authorities. The basis of estimate or the basis of computation should be disclosed by the assessing authority, or otherwise the best judgment assessment may be quashed. In Anand Rice & Oil Mills vs. CIT (1977) 108 ITR 372 (Cal) : TC11R.254 huge additions were made by the ITO on the ground that the assessee had inflated the purchase prices of goods and a major portion of the addition was sustained by the Tribunal without furnishing any basis of its own estimate. The Calcutta High Court held that the order of the Tribunal being arbitrary, the same could not be sustained. In Ganga Prasad Sharma vs CIT (1981) 132 ITR 87 (MP) TC 11R. 285 the Madhya Pradesh high court emphasized that while making a best judgment assessment, the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mills Trading Co. Ltd. Vs. CIT ( 1968) 70 ITR 407 (Cal.). The mere existence of reasons for suspicion would not tantamount to evidence ( Cal. HC in Narayan Chandra Baidya Vs. CIT (1951) 20 ITR 287 (Cal.) 7.58. It is indeed a case of frivolous addition with facts identical to the facts in the case of Bharti Airtel Limited Vs. ACIT (ITAT Delhi). Looking to the facts and circumstances of the case as also decisions cited above, the addition made by the AO is held to be baseless and without any evidence., hence the rejection of books of accounts is held to be invalid and addition made by the AO on account of alleged suppression of yield is deleted." , 6. At the time of hearing, the Ld. DR relied heavily on the findings of the Assessing Officer. 7. Per contra, the Ld. AR of the assessee explained the factual matrix of the entire business set up of the assessee wherein furnace/SMS division which are manufacturing billets and blooms, they are raw materials for Rolling Mill Division which is ultimately manufacturing finished goods i.e. structural items. Many a times raw materials are required for the Rolling Mill Division i.e. blooms and billets as manufactured by the SMS division of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord. The Assessing Officer made mechanical addition of the difference between the unaccounted production/sales worked out on the basis of 89% yield suspected by the Assessing Officer that must been achieved by the assessee. 7.3 The Ld. AR further referred to the Para 7.48 of the Ld. CIT(A)'s order wherein the Ld. CIT(A) observed that the ultimate addition has been made on the basis of alleged suppression of yield/ unaccounted production. Except making comparison of yield achieved by the assessee with the Assessing Officer's own standardized yield percentage of 89%, the Assessing Officer has not brought on record any evidence given the fact that the present proceedings are culminating from the search proceedings. As a matter of fact the search team could not come across even a single document which even indicates of assessee's indulgence into any such suppression of yield or unaccounted sales. It is not the case of the Assessing Officer that the buyers of alleged unaccounted sales have given the statements against the assessee, nor any employee uttered any such thing. The Ld. AR further relied on the various binding judicial pronouncements of the Higher Forum. 8. We have perused ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e jurisdiction of the Assessing Officer arises if he was not satisfied about the correctness of the accounts of the assessee. However, the Assessing Officer should give specific reasons for rejecting books of accounts." 10. In the instant case, the Assessing Officer calculated yield of 89% and has also calculated consumption of power and difference thereto pertaining to production and has held that the books of accounts are therefore not reliable and rejected the books of account while resorting to Section 145(3) of the Act. As per the legal principles laid down by the Hon'ble Chhattisgarh High Court (supra.) that this power is not unfettered and it has to be used judicially by giving specific reasons which in the instant case, the Assessing Officer has not complied with. 11. In the case of ACIT-1(1), Raipur Vs. Siyaram Rice Mill in ITA No.59/BLPR/2011, the Raipur Bench of the Tribunal has observed that " in a case where the Assessing Officer had applied a mathematical formula and made addition but however, rejected all the submissions of the assessee without passing speaking or reasoned order". The Raipur Bench of the Tribunal further held that regarding mathematical calculation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amination of facts and judicial pronouncements, we find the order of the Ld. CIT(A) is absolutely correct and therefore, the same does not call for any interference. Thus, ground relating to "issue of the lower yield declared by the assessee" in all the appeals for all the assessment years are therefore dismissed. 15. The next issue is there only in the assessment year 2012-13. Ground Nos. 3 and 4 of the appeal Memo filed by the Revenue for the assessment year 2012-13 pertains to "giving credit of cash of ₹ 13,00,000/- seized during the course of search operation u/s.132 of the Income Tax Act, 1961 (hereinafter referred to as "the Act‟) as prepaid taxes while computing tax liability of the assessee." 16. At the time of hearing before the Ld. CIT(A), the assessee had submitted that the Assessing Officer was not justified in not allowing credit for cash seized during the course of search as prepaid tax despite specific request having been made by the assessee in this regard. The Ld. CIT(A) relied on the decision of the Mumbai Bench of the Tribunal in the case of Vipul D. Doshi Vs. CIT (2001) 118 Taxman 30 (Mum.) and directed the Assessing Officer to give credit and reco ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
