ACIT, Trichy v. M/s. Trichy Steel Rolling Mills Pvt. Ltd., Trichy

ITA 646/CHNY/2010 | 2004-2005
Pronouncement Date: 29-10-2010 | Result: Dismissed

Appeal Details

RSA Number 64621714 RSA 2010
Assessee PAN AAACT3362K
Bench Chennai
Appeal Number ITA 646/CHNY/2010
Duration Of Justice 5 month(s) 23 day(s)
Appellant ACIT, Trichy
Respondent M/s. Trichy Steel Rolling Mills Pvt. Ltd., Trichy
Appeal Type Income Tax Appeal
Pronouncement Date 29-10-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 29-10-2010
Date Of Final Hearing 06-10-2010
Next Hearing Date 06-10-2010
Assessment Year 2004-2005
Appeal Filed On 06-05-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH D : CHENNAI [BEFORE SHRI HARI OM MARATHA JUDICIAL MEMBER AND SHRI ABRAHAM P GEORGE ACCOUNTANT MEMBER] I.T.A.NOS.644 TO 647/MDS/2010 ASSESSMENT YEARS : 2002-03 TO 2005-06 THE ACIT COMPANY CIRCLE I TRICHY VS M/S TRICHY STEEL ROLLING MILLS PVT.LTD P.B.603 SENTHANNIRPURAM TRICHY [PAN AAACT3362K] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.E.B RENGARAJAN RESPONDENT BY : SHRI S.SRIVATSAM O R D E R PER HARI OM MARATHA JM: THESE FOUR APPEALS BY THE REVENUE PERTAIN ING TO ASSESSMENT YEARS 2002-03 TO 2005-06 ARE DIRECTED AGAINST THE COMMON ORDER OF THE LD. CIT(A) TIRUCHIRAPPALLI DATED 09.02.2010. IN ALL THESE APPEALS ALMOST IDENTICAL ISSUES ARE INVOLVED WHICH ARISE OUT OF COMMON FACTS THEREFORE FOR THE SAKE OF CONVENIENC E AND BREVITY WE PROCEED TO DECIDE THEM BY A COMMON ORDER. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT T HE ASSESSEE- COMPANY M/S TRICHY STEEL ROLLING MILLS PVT LTD IS A MANUFACTURER OF ITA 644 TO 647/10 :- 2 -: STEEL RODS AND BARS FOR USE BY THE CONSTRUCTION IND USTRY. DURING THE PREVIOUS YEARS RELEVANT TO ASSESSMENT YEARS 2002-03 TO 2005-06 THE PREMISES OF THE ASSESSEE WAS SEARCHED BY THE CENTRA L EXCISE DEPARTMENT ON 8.5.2003 AND FOUND SOME EVIDENCE WIT H REGARD TO EVASION OF EXCISE DUTY. THIS EVIDENCE SHOWED THAT THE ASSESSEE- COMPANY HAD SUPPRESSED THE PRODUCTION AND CONSEQUEN T SALES OF STEEL RODS OF BARS AND THUS AVOIDING EXCISE DUTY BY UNDER -INVOICING SALES. THE ASSESSEE IN RESPONSE TO CENTRAL EXCISE PROCEED INGS APPROACHED TO THE SETTLEMENT COMMISSION OF THE EXCISE DEPARTMENT AND AS PER THE ORDER OF THE COMMISSION DATED 31.8.2006 THE ASSESS EE AGREED TO PAY ADDITIONAL EXCISE DUTY IN ADDITION TO ALREADY PAID FOR THE GOODS MANUFACTURED AND CLEARED AS PER BOOKS TO THE TUNE OF ` 6.27 CRORES FOR THE PERIOD RELEVANT TO ASSESSMENT YEARS 2002-03 TO 2004-05. ON HE BASIS OF THE FINDINGS OF THE CENTRAL EXCISE DEPA RTMENT THE ASSESSING OFFICER WORKED OUT THE SUPPRESSION OF S ALES AFTER REOPENING THE ALREADY COMPLETED ASSESSMENT ORDERS U/S 143(3) OF THE ACT FOR ASSESSMENT YEARS 2002-03 TO 2004-05 BY ISSUANCE OF NOTICE U/S 148 ON THE BASIS OF THE FACT FINDING MADE BY THE CENTRA L EXCISE DEPARTMENT. CONSEQUENTLY THE ASSESSING OFFICER WO RKED OUT THE SUPPRESSION OF SALES AT ` 1 06 82 296/- ` 1 13 80 000/- AND ` 1 35 40 000/- AND ADDED TO THE GROSS PROFIT DECLARE D IN THE ABOVE ITA 644 TO 647/10 :- 3 -: ASSESSMENT YEARS RESPECTIVELY. THE ASSESSEE HAD SH OWN ROYALTY PAYMENT FOR ASSESSMENT YEARS 2002-03 TO 2005-06 WHI CH THE ASSESSING OFFICER HAS TREATED AS A CAPITAL EXPENDIT URE INSTEAD OF REVENUE EXPENDITURE AS HAS BEEN CLAIMED BY THE ASSE SSEE AND CONSEQUENTLY HAS MADE ADDITIONS OF ` 3 51 104/- ` 3 52 084/- ` 2 72 196/- AND ` 1 99 973/- FOR ALL THESE ASSESSMENT YEARS RESPECTIV ELY. BESIDES THE ABOVE ADDITIONS OTHER ADDITIONS ON A CCOUNT OF CASH PURCHASES AND UNACCOUNTED PURCHASES OUTSIDE THE BOO KS WERE ALSO MADE. BEING AGGRIEVED THE ASSESSEE FILED APPEAL B EFORE THE LD. CIT(A) WHO VIDE HIS COMMON ORDER DATED 9..2010 HAS RESTRICTED THE ADDITIONS MADE TO THE GROSS PROFIT AND AS A RESULT HAS ESTIMATED THE GROSS PROFIT @ 15%. HE HAS ALSO DISALLOWED 20% OF THE UNACCOUNTED CASH PURCHASES U/S 40A(3) OF THE ACT MADE BY THE A SSESSING OFFICER SO ALSO HAS DELETED THE ADDITIONS MADE U/S 69 OF TH E ACT. WITH REGARD TO PAYMENT OF ROYALTY HE HAS TAKEN A VIEW THAT IT IS A REVENUE EXPENDITURE. NOW THE REVENUE IS AGGRIEVED. THE G ROUNDS RAISED IN ASSESSMENT YEAR 2002-03 ARE REPRODUCED HEREIN-BELO W WHICH WOULD GIVE A PROFILE OF THE GROUNDS RAISED IN ALL THE Y EARS WHICH ARE ALMOST IDENTICAL. ITA 644 TO 647/10 :- 4 -: GROUNDS OF APPEAL FOR A.Y 2002-03: 1. THE ORDER OF THE CIT (APPEALS) IS ERRONEOUS ON F ACTS AND AGAINST THE LAW. 2. THE CLT(APPEALS) FAILED TO APPRECIATE THE FACT T HAT ADMISSION MADE VOLUNTARILY BY THE ASSESSEE COMPANY (WHICH IS NOT R ETRACTED SUBSEQUENTLY) IS BINDING EVIDENCE. THE SETTLED PROPOSITION OF LAW WH ICH EMERGES FROM THE RATIO OF VARIOUS DECISIONS [DR.S.CGUPTA VS CIT 248 ITR 78 2 (AIL) P.GOVINDASAMY VS CIT 244 ITR 510 (MAD) . V.KUNHIKANNAN AND SONS V S CIT 219 ITR 235 (KER) S.S.RATANCHAND BHOLANATH V. CIT(1994) 210 IT R 682 (MP) HIRA SINGH AND CO. V CIT (1998) 230 ITR 791 (HP) BOMBAY GAS C OMPANY LTD. VS ITS WORKMEN 1961 SC 1165 CLT. VS DURGAPRASAD MORE (82 ITR 540 SC) HOTEL KIRAN VS ACIT (77 TTJ 87 (PUNE). SURJEET SINGH CHHA BRA VS UNION OF INDIA AND OTHERS (1996) 135 TAXATION 711 (SC) THIMMA VS T HE STATE OF MYSORE (1971) BLR LXXIII 59 (SC) PATTULAL VS STATE OF PUN JAB JT 1996(3) SC 96SURJEET SINGH CHHABRA VS UOI AND OTHERS (1996) 13 5 TAXATION 711(SC) AN ADMISSION IS AN EXTREMELY IMPORTANT PIECE OF EVIDEN CE THOUGH IT IS NOT CONCLUSIVE AND ADMITTED FACTS NEED NOT BE PROVED BY THE DEPARTMENT. ANY ADDITION MADE ON THE BASIS OF SUCH ADMISSION IS BIN DING ON THE ASSESSEE. THE C.I.T.(APPEALS) FAILED TO APPRECIATE THE FACT T HAT THE ASSESSEE COMPANY ACCEPTED BEFORE THE CENTRAL EXCISE SETTLEMENT COMMI SSION THAT IT RESORTED TO UNACCOUNTED CLEARANCE OF GOODS AND UNDER INVOICING OF GOODS AND BY- PRODUCTS AND EVADED PAYMENT OF EXCISE DUTY. IT ACCE PTED LIABILITY OF ADDITIONAL EXCISE DUTY (IN ADDITION 10 EXCISE DUTY PAID FOR GOODS MANUFACTURED AND CLEARED AS PER BOOKS) TO THE TUNE OF RS.6.27 CRORES AS UNDER: A.Y 2002-03 ` 4 52 57 936/- FOR UNACCOUNTED PRODUCTION/UNDER INV OICED SALES/UNACCOUNTED SALE OF BY-PRODUCTS A.Y 2003-04 ` 1 56 79 450/- -DO- A.Y 2004-05 ` 18 51 087/- -DO- THE EXCISE DUTY IS CHARGEABLE @ 16% OF THE ASSESSAB LE VALUE. CONSEQUENTLY THE VALUE OF UNACCOUNTED GOODS CLEARE D THE ASSESSABLE VALUE OF GOODS CLEARED GROSS PROFIT ON THE ASSESSABLE VA LUE OF UNACCOUNTED GOODS CLEARED [CALCULATED AT THE RATE OF 15% AS WORKED OU T BY CIT(APPEALS)] ARE AS UNDER: ASST. YEAR IN ADDITIONAL ASSESSABLE VALUE VALUE OF GROSS PROFIT @ WHICH EXCISE DUTY OF UNACCOUNTED UNACCOUNTED 15% ON ASSESSABLE PAID @ 16% OF GOODS CLEARED GOODS CLEARED UNACCOUNTED THE ASSESSABLE (WITHOUT (I + 2) VALUE OF GOODS VALUE. C.E.DUTY) CLEARED(3) (1) (2) (3) (4) 2002 - 03 4 52 57 936 28 28 62 100 32 81 20 0 36 4 92 18 005 2003-04 1 56 79 450 9 79 96 562 11 36 76 012 1 70 51 402 2004 - 05 18 51 087 1 15 69 292 1 34 20 381 20 13 057 ITA 644 TO 647/10 :- 5 -: BASED ON THE ADMISSION OF SUPPRESSION OF PRODUCTION UNDER INVOICING OF SALES SALE OF UNACCOUNTED PRODUCTS AN D BY-PRODUCTS BEFORE THE SETTLEMENT COMMISSION THE CIT(APPEALS) AT THE LEAS T OUGHT TO HAVE CONFIRMED THE ADDITIONS MADE BY THE ASSESSING 'OFF ICER TOWARDS GROSS PROFIT AMOUNTING TO RS.I 06 82 296/- AND RS.1 13 80 000/- FOR THE ASST. YEARS 2002- 03 2003-04 AND 20 13 057 RESPECTIVELY EVEN THOUGH THESE ARE MUCH LESS THAN THE FIGURES WORKED OUT BASED ON THE ADMITTED F ACTS AS PER THE FIGURE WORKED OUT IN THE TABLE ABOVE. 2. THE CIT(APPEALS) ERRED IN ITS WORKING OF GROSS P ROFIT ADDITION. WHILE HOLDING THAT THE BOOKS OF ACCOUNT HAVE TO BE REJECT ED AS THESE ARE INCORRECT AND INCOMPLETE THE C.1.T.(APPEALS) ESTIMATED THE G ROSS PROFIT @ 15%. HOWEVER NO BASIS HAS BEEN GIVEN FOR ADOPTING THIS PERCENTAGE. AS WOULD BE EVIDENT FROM TABLE BELOW THAT C.I.T.(APPEALS) ADOPT ED THE FIGURES OF SALE WHICH AM LESS THAN THE FIGURE SHOWN BY ASSESSEE AS PER BO OKS. IT IS ALSO APPARENT THAT CIT(APPEALS) FAILED TO TAKE INTO ACCOUNT THE F IGURES OF UNACCOUNTED CLEARANCES / UNDER INVOICED SALES AS ADMITTED BY TH E ASSESSEE BEFORE THE CENTRAL EXCISE SETTLEMENT COMMISSION. ASST. YEAR SALES (IN LAKHS) SALES REPORTED IN VALUE OF GOODS ADOPTED BY C.I .T.(A) ANNUAL REPORT CLEARED (IN LAKHS) 2002-03 6881.90 6881.90 32 81 20 036 2003-04 5446.14 6144.38 11 36 76 012 2004-05 4983.45 5677.96 1 34 20 381 5. THE CIT(APPEALS) ERRED IN DELETING THE ADDITIO N MADE BY DISALLOWANCE U/S 40A(3) AMOUNTING TO RS.1 15 97 014/- RS.1 09 23 99 3/- AND RS.21 76 574/- FOR THE A.Y.S.2002-03 2003-04 AND 2004-05 RESPECTIVELY BY HOLDING THAT WHERE GROSS PROFIT HAD BEEN ESTIMATED NO DISALLOWANCE U/S 40A(3) IS CALLED FOR BY FOLLOWING THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CLT VS. MOHAMMED DHURABUDEEN 4 DTR 218. THE C.I.T.(APPEALS) FAILED TO NOTICE THAT RATIO OF MOHAMMED DHURABUDEEN WAS NOT APPLICABLE TO THE PRESENT CASE. THE GUJARAT HIGH COURT'S DECISION IN THE CASE OF CLT VS . HYNOUP FOOD AND OIL INDUSTRIES P. LTD. (2007) 290 ITR 702 (GUJ) IN WHICH THE COURT UPHELD DISALLOWANCE MADE U/S 40A(3) FOR CASH PURCHASES IN UNACCOUNTED BUSINESS OF THE ASSESSEE. THE RATIO OF THE HYNOUP FOOD DECISION IS APPLICABLE TO THE PRESENT CASE AND NOT THAT OF MOHAMMED DHURABUDEEN. 6 . THE CLT(APPEALS) ERRED IN DELETING THE ADDITIONS MA DE U/S 69 OF THE ACT AMOUNTING TO RS.57 98 507/- RS.54 61 996/- AND RS. 14 20 000/- FOR THE A.YS. 2002-03 2003-04 AND 2004-05 RESPECTIVELY BY HOLDIN G THAT NO UNACCOUNTED INVESTMENT HAD BEEN FOUND. HE FAILED TO APPRECIATE THE UNDISPUTED ADMITTED FACT WHICH EMERGED FROM THE SEARCH MADE BY CENTRAL EXCISE AUTHORITIES THAT THE ASSESSEE HAD MADE UNACCOUNTED PRODUCTION OF STE EL RODS AND BARS AND FOR ITA 644 TO 647/10 :- 6 -: THIS UNACCOUNTED PRODUCTION MADE UNACCOUNTED PURCHA SES. IT IS THESE UNACCOUNTED PURCHASES WHICH OUGHT TO HAVE BEEN CONF IRMED AS UNACCOUNTED INVESTMENT. THE ASSESSING OFFICER TREATED 10% TO 13 % OF THE UNACCOUNTED TURNOVER AS UNEXPLAINED INVESTMENT. IN COLUMN 32(C) OF THE FORM NO.3CD FILED WITH THE RETURN ASSESSEE COMPANY DECLARED THE RATI O OF STOCK IN TRADE TO TURNOVER AS 12.51 % 7.84% AND 7.69% FOR THE A.YS. 2002-03 2003-04 AND 2004-05 RESPECTIVELY. THE CIT(APPEALS) OUGHT TO CON FIRM THE ADDITIONS FOR UNACCOUNTED INVESTMENT AT LEAST TO THE EXTENT OF RA TIO OF STOCK IN TRADE TO TURNOVER. 7. THE CIT(A) ERRED IN ALLOWING THE CLAIM OF ROYALT Y PAYMENT FOR THE A.YS.2002- 03 TO 2005-06. THE DECISION OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE PREVIOUS ASSESSMENT YEARS WHICH FORMED THE BASIS FO R RELIEF HAS NOT BEEN ACCEPTED BY THE DEPARTMENT ON MERIT. AN APPEAL WAS PREFERRED BY THE DEPARTMENT AGAINST THE ORDER OF THE TRIBUNAL BEFORE THE HIGH COURT WHICH WAS DISMISSED BY THE HIGH COURT. HOWEVER NO SLP WAS FI LED IN VIEW OF LOW TAX EFFECT. THE C.I.T.(APPEALS) OUGHT TO HAVE FULLY APP RECIATED THE FACTS THAT THE ASSESSEE COMPANY PAID TO THE LICENSOR COMPANY FEE F OR PROVIDING ALL THE NECESSARY TECHNICAL INFORMATION SPECIFICATIONS AND DIRECTIONS REQUIRED FOR MANUFACTURING AND QUALITY CONTROL OF THE GOODS SOLD UNDER THE TRADE MARK OF 'TOR'. THIS PAYMENT IS FOR GETTING TECHNICAL KNOW-H OW COVERED U/S 35AB OF THE ACT BEING CAPITAL IN NATURE. THE EXPENDITURE THEREF ORE IS NOT ALLOWABLE AS REVENUE EXPENDITURE. 8 . THE CIT(APPEALS) ERRED IN RESTRICTING THE ADDITION MADE TOWARDS BELATED PAYMENT OF ESI AND PF FOR THE A. Y .2005-06 TO THE EXTENT OF THE EMPLOYEES CONTRIBUTION. AS PER SECTION 43B OF THE ACT ANY SU M PAYABLE BY THE ASSESSEE AS AN EMPLOYER TO ANY FUND FOR THE 'WELFARE OF EMPL OYEES SHALL BE ALLOWED ONLY ON ACTUAL PAYMENT WITHIN THE DUE DATE. THE CIT(APPE ALS) FAILED TO NOTE THIS VITAL ASPECT AND ERRED IN RESTRICTING DISALLOWANCE TO THE EXTENT OF EMPLOYEES CONTRIBUTION. 9 . ANY OTHER GROUNDS THAT MAY BE ADDUCED SUBSEQUENTL Y AND AT THE TIME OF HEARING. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CAREFU LLY GONE THROUGH THE AVAILABLE MATERIAL ON RECORD. THE FIRS T COMMON ISSUE INVOLVED IN THESE APPEALS IS REGARDING ESTIMATION O F PROFIT IN RELATION TO THE ADDITIONS MADE ON THE BASIS OF SEARCH CONDUCTED BY THE CENTRAL EXCISE DEPARTMENT. FROM THE POINT OF VIEW OF THE A SSESSING OFFICER THE FACTS CAN BE NARRATED LIKE THAT THE MANUFACTURI NG PROCESS ADOPTED ITA 644 TO 647/10 :- 7 -: BY THE ASSESSEE IS THAT IT USES IRON BILLETS OR ING OTS WHICH ARE MADE OUT OF IRON SCRAP WHICH IS ALSO A BY-PRODUCT OF MAKING BARS AND RODS. AS PER THE FINDINGS OF THE EXCISE DEPARTMENT THE ASSE SSEE HAS SUPPRESSED SALES OF BARS AND RODS DURING THESE YEAR S AND SO ALSO THE BY-PRODUCTS HENCE THE EXCISE DEPARTMENT HAS ESTIM ATED THE SUPPRESSED SALES WHICH ARE BASED ON ESTIMATED INPUT AND OUTPUT METHOD. THE RATIO BETWEEN THE QUANTUM OF RAW MATER IAL AND THE END- PRODUCT INCLUDING THE BY-PRODUCTS IS CALLED PERCENT AGE YIELD WHICH THE EXCISE DEPARTMENT HAS ARRIVED AT 92% FROM SCRAPS TO BILLETS AND 95% FROM BILLETS TO RODS AND BARS. BASED ON THIS ESTIM ATION THE EXCISE DEPARTMENT HAS ESTIMATED THE SUPPRESSION OF BARS AN D RODS AND BY- PRODUCTS. THE INCOME-TAX DEPARTMENT INVITED THE AT TENTION OF THE ASSESSEE TOWARDS THE FINDINGS GIVEN BY THE CENTRAL EXCISE DEPARTMENT AND SOUGHT EXPLANATION THEREOF. THE ASSESSEE REPLI ED TO THE QUERY RAISED BY THE ASSESSING OFFICER AND THE REPLY GIVE N IN ASSESSMENT YEAR 2002-03 WHICH IS THE BASE YEAR IS AS UNDER: THE ABOVE ASSESSMENT YEARS FOR WHICH NOTICES AND S EC.147 HAVE BEEN ISSUED I WISH TO BRING TO YOUR KIND NOTICE THE FOL LOWING: SRI D.K.AUDIKESAVULU TOOK OVER THE CONCERN IN 1991. AS HE WAS ENGAGED IN VARIOUS BUSINESS ACTIVITIES HE COULD NOT DEVOTE FUL L ATTENTION TO THIS COMPANY. WITH THE RESULT THE COMPANY WAS INCURRING LOSSES YEAR AFTER YEAR AND BECAME BIFR COMPANY. WITH THE VIEW TO COME OUT OF THE BIFR BESIDES INCRE ASING THE SHARE CAPITAL OF THE COMPANY HE ENTRUSTED DAY TO DAY WORKING OF T HE COMPANY TO SRI SRINIVASULU REDDY AND HIS ASSOCIATES WITH EFFECT FR OM 1999 FOR A PERIOD OF 3 YEARS AND WITH UNDERSTANDING THAT THE SHARES HELD I N THE COMPANY TO BE ITA 644 TO 647/10 :- 8 -: TRANSFERRED TO THEM AFTER THE COMPANY COMES OUT OF BIFR. IT IS STATED THAT IN ORDER TO SHOW PROFIT IN THE BO OKS OF ACCOUNTS THEY HAD STARTED TO SUPPRESS THE SALES AND BRING THE SAME IN TO THE ACCOUNT AS AQUA INCOME THEREBY EVADING EXCISE DUTY. SINCE THE COMPANY WAS GOING TO BE MANAGED BY THE AF ORESAID SRINIVASULU REDDY GROUP SRI AUDIKESAVULU AND HIS ASSOCIATES WH O ARE BULK SHARE HOLDERS OF THE COMPANY DID NOT TAKE THIS EVASION SE RIOUSLY AS THE UNACCOUNTED SALES HAVE BEEN BROUGHT INTO ACCOUNTS B Y SOME OTHER NAME. AT THE END OF THREE YEARS SINCE SRI AUDIKESAVULU DI D NOT LIKE THE METHOD OF WORKING AND ACCOUNTING WAS NOT IN THE INTEREST OF T HE COMPANY HE TERMINATED THEM FROM THE MANAGING THE AFFAIRS OF TH E COMPANY AND THEREAFTER SRI K.PADMARAJAN WHO IS WELL CONVERSED I N ENGINEERING HAS BEEN ASKED TO SUGGEST WAYS TO BRING THE COMPANY FOR NORM AL CAPACITY OF PRODUCTION. IN THE MEANTIME THE EXCISE AUTHORITY CONDUCTED RAID OF THE COMPANY AND CONFISCATED VARIOUS RECORDS FROM THE COMPANY WHICH ULTIMATELY RESULTED IN FINDING THAT THERE WAS SALES OUTSIDE BOOKS OF ACCOU NT AND CLAIMED EVASION OF EXCISE DUTY TO EXTENT OF ` 10.18 CRORES. THE COMPANY WENT ON REVISION TO THE CENTRAL EXCISE SETTLEMENT COMMISSION AND THEY H AVE REDUCED THE DEMAND TO NEARLY ` 6.27 CRORES. ON THE BASIS OF THIS FINDING I AM E NCLOSING HEREWITH A WORKING SHEET SHOWING THE AMOUNT OF INCO ME CONCEALED FOR THE ASSESSMENT YEARS 2002-03 03-04 04-05. 4. IT WAS SUBMITTED THAT THERE WAS NO EFFECT EVEN IF T HE BARS/RODS OR BY-PRODUCTS WERE SOLD WITHOUT MAKING INVOICES IN SO FAR AS THE PROFITS TO BE DECLARED TO THE INCOME-TAX DEPARTMENT IS CONCERNED BECAUSE ALL THE SALE PROCEEDS OF UNACCOUNTED SALES HAVE TO BE FLOWN BACK INTO THE COMPANY IN THE FORM OF AQUA RECEIPTS. THE ASSESSEE FURTHER EXPLAINED THE EXACT POSITION IN THE FOLLOWI NG WORDS: THE ASSESSEE HAS STATED THAT AS PER ESTIMATION MAD E BY THE CENTRAL EXCISE DEPARTMENT 19 595 MT OF BILLETS REQUIRED TO PRODUCE 18615.660 MT OF END PRODUCTS AND IT HAS USED THE BO OK STOCK AVAILABLE AT 1730MT. FURTHER THE ASSESSEE HAS PROD UCED 9045 TONNES OF BILLETS BY USING THE BOOK STOCK OF SCRAP AVAILABLE WITH IT AND MADE AN UNACCOUNTED PURCHASE OF SCRAP TO THE TUNE O F 10373 MT. OUT OF THE 28.25 CRORES OF UNACCOUNTED SALES THE A SSESSEE HAS BROUGHT BACK 15.44 CRORES OF AQUA RECEIPTS IN THE A SSESSMENT YEAR IN ITA 644 TO 647/10 :- 9 -: QUESTION AND ` 4 34 83 908 AS ON ACCOUNT OF BOGUS SALE OF SCRAP A ND ACCOUNTED IN ASSESSMENT YEAR 2003-04. IT HAS AGAIN STATED THAT IN THE ORIGINAL COMPUTATION IT HAS DISALLOWED 20% OF THE P URCHASES FOR NON EXISTING AQUACULTURE BUSINESS AND NOW EVERYONE KNOW S THAT NO SUCH BUSINESS EXISTS THE DISALLOWANCE MADE IN THE ORIGIN AL COMPUTATION NEEDS TO BE REVERSED. IT WAS AGAIN CONTENDED THAT T HERE IS NO NEED FOR THE COMPANY TO CONCEAL INCOME AS IT IS A BIFR COMPA NY AND HAVE HUGE ACCUMULATED LOSSES OVER THE YEARS AND IN FACT MORE INCOME HAS BEEN SHOWN THAN REALITY IN ORDER TO COME OUT OF THE STATUS OF A SICK INDUSTRY AND THERE FORE REQUESTED THAT CASE NEED TO BE SEEN SYMPATHETICALLY AS THERE IS NO INTENTION OF EVASION OF TAX FOR THE REASONS MENTIONED ABOVE. 5. IT WAS FURTHER STATED THAT WITH A VIEW TO BRING THE COMPANY OUT OF BIFR THE ASSESSEE HAS BEEN SHOWING MORE INCOME THAN WHAT IT REALLY HAD AND THAT ALL THE SALE PROCEEDS OF STEEL WHICH WERE NOT INVOICED OR SOLD OUT OF THE BOOKS ARE BROUGHT IN AS EITHER INCOME FROM THE AQUACULTURE OR IN THE FORM OF SALE OF SCRAP. I T WAS STATED IN THE RECONCILIATION OF THE UNACCOUNTED TRANSACTIONS THAT THERE WAS NO EXPENDITURE INCURRED FOR EARNING AQUACULTURES INCOM E AS IT WAS NOT EXISTING AND THE DISALLOWANCE OF CLAIM MADE U/S 40A (3) NEED TO BE REVERSED. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE THE ASSESSING OFFICER HAS COLLECTED THE FOLLOWING POINT S: 1. IT HAS BEEN VERIFIED THAT THE ASSESSEE DOES NOT OWN ANY FARM LANDS OR AN' AGRICULTURAL LANDS OR ANY AQUA CULTURE PONDS AS PER ITS BALANCE SHEET. IN THE COMPUTATION STATEMENT WHICH WAS FILED ALONG WIT H THE ORIGINAL RETURN OF INCOME ITSELF SHOWS THAT THE ASSESSEE HAS BROUGHT B ACK MONEY AS AQUA CULTURE RECEIPTS. 2. THE ASSESSEE HAS MADE UNACCOUNTED PURCHASES OF SCRA P TO THE TUNE OF 10373 MT WHICH IS VALUED AT ` 5 79 85 070/-. THE MODE OF PAYMENT WAS IN CASH. 3. IT APPEARS THAT THERE IS SOME FORCE IN THE ARGU MENT OF THE ASSESSEE THAT IT IS A COMPANY UNDER BIFR AND HAS HUGE ACCUMULATED LO SSES UNDER ITS KITTY ITA 644 TO 647/10 :- 10 - : AND THERE FORE WHAT SO EVER REASON THERE IS NO NEED FOR CONCEAL INCOME. WE HAVE TO BELIEF THAT AT LEAST THAT THE BUSINESS OF A QUA CULTURE IS BOGUS. THEREFORE THE DISALLOWANCE MADE BY THE ASSESSEE U/S 40A(3) ON THE ALLEGED AQUA BUSINESS ON THE NON EXISTING PURCHASES OF ` . 2 36 83 482 UNDER ITS ORIGINAL COMPUTATION NEED TO BE REVERSED AND TO THI S EFFECT THE NET PROFIT SHOWN BY THE ASSESSEE WILL BE BECOME ` 1 79 28 697. 4. THE CLAIM OF THE ASSESSEE THAT IT HAS ACCOUNTE D ` 4 34 83 908 INCOME ON ACCOUNT OF FICTITIOUS SALE OF SCRAP PERTAINING T O THIS YEAR IN ASSESSMENT YEA 2003-04 IS NOT BELIEVED AND THERE FORE REJECTED FOR WANT OF PROOF AND SOLID EVIDENCE. 5. ALL SAID AND DONE IT IS VERY DIFFICULT TO BELIEVE THAT IT HAS BEEN DONE ALL THE ABOVE TO SHOW MORE PROFIT BY NOT PAYING EXCISE DUTY . THERE IS CORROBORATIVE EVIDENCES TO PROVE THE CLAIM EXCEPT THE PREPONDERAN CE OF PROBABILITIES. 6. THE EXCISE RECORDS SPEAK AT LENGTH ABOUT THE UN ACCOUNTED PURCHASE AND SALE OF GOODS. THE SALES DEPARTMENT ALSO REJECTED T HE BOOKS AND DETERMINED SALES ON ESTIMATE BASIS BASED ON THE IN PUT AND OUT PUT NORMS. 7. THE GP RATIO SHOWN BY THE ASSESSEE IS LOW IN COMPAR ISON TO THE OTHER ASSESSES IN THE SIMILAR LINE OF BUSINESS. THE GP RATIO INDICATE D BY THE ASSESSEE THE 3CD REPORT IS 3.49 AND THERE IS AN ARITHMETICAL ERROR IN THE CALC ULATION OF THE RATIO. THE ACTUAL GP RATIO IS ABOUT 14% (6881.90-5925.41=956.4 956.49/68 81. 90* 100=13.8) . 8. THE CENTRAL EXCISE DEPARTMENT HAS REJECTED THE BOO KS OF ACCOUNTS OF THE ASSESSEE AND CALCULATED THE ACTUAL SALES BASED ON THE MATERIAL GATHERED DURING INSPECTION AND MAINLY ON THE BASIS OF CONSUMPTION OF POWER AND FURNACE OIL AND THERE FORE THE METHOD ADO PTED FOR ESTIMATION OF SALES IS SCIENTIFIC AND AS PER SALES ARE CONCERNED I BELIEVE THAT THERE IS NO AN IOTA OF DOUBT THAT SALES DETERMINED BY THE EXCIS E DEPARTMENT LACK ANY PRACTICALITY. THEREFORE I TAKE THE SAME SALES FOR MAKING THIS ASS ESSMENT . 9. I DOUBT THE PURCHASES AND THE ASSESSEE HAS MADE AN UNACCOUNTED PURCHASES OF BILLETS AND MADE UN ACCOUNTED AND FICT ITIOUS SALES OF SCRAP ETC. THE QUANTITY AND VALUE OF PURCHASES SHOWN BY THE AS SESSEE ARE NOT CORRECT AND THEREFORE BOOK RESULT IS NOT CORRECT. THEREFO RE THE GP SHOWN BY THE ASSESSEE IS ALSO IS NOT GENUINE AND DIFFICULT TO BE LIEVE THAT IT IS THE REAL PROFIT. 10. I REJECT BOTH THE UNACCOUNTED SALES STATEMENT GIVEN BY THE ASSESSEE STATING THAT THE NET CONCEALMENT OF INCOME OF ` 29 67 316/- AND EXCESS INCOME OF ` (-) 40 20 893/- AS PER THE RECONCILIATION TO OLD STATEMENT. THE GROUND FOR REJECTION IS THAT NO CREDIBLE EVIDENCE E XISTS FOR THE CLAIMS. ITA 644 TO 647/10 :- 11 - : 6. THEREAFTER HE HAS CATEGORICALLY MENTIONED THAT THE BOOKS OF ACCOUNT ARE DEFECTIVE AND THEREFORE THE SAME WERE REJECTED. UNDER THESE CIRCUMSTANCES HE HAS PROCEEDED TO ESTIMATE T HE INCOME OF THE ASSESSEE. FINALLY THE DEPARTMENT HAS ACCEPTED THA T THERE WAS NO AQUA SALE AT ALL . THIS FACT WAS ALSO ADMITTED AND ACCEPTED BY THE LD.DR DURING THE HEARING BEFORE US. CONSEQUENTLY THE ASSESSING OFFICER HAS ESTIMATED ADDITION AND ADDED THE SAME T O THE GROSS PROFIT ALREADY SHOWN BY THE ASSESSEE. AGAINST THIS FINDIN G THE ASSESSEE ARGUED BEFORE THE LD. CIT(A) THAT THE ASSESSING OFF ICER HAS FAIRLY CONCEDED VIDE PARA 2.4.4 OF HIS ORDER THAT THE ASSE SSEE HAD BROUGHT THE PROCEEDS OF UNACCOUNTED SALES UNDER THE GUISE O F AQUA RECEIPTS AND HAVING DONE SO HE OUGHT NOT TO HAVE ESTIMATED THE PROFITS BECAUSE IT WOULD CAUSE DOUBLE JEOPARDY TO THE ASSES SEE. IT WAS VEHEMENTLY ARGUED THAT THERE IS NO BASIS WHICH CAN BE STATED TO HAVE BEEN VALIDLY ADOPTED BY THE ASSESSING OFFICER TO ES TIMATE THE ADDITIONAL GROSS PROFIT IN ALL THESE YEARS. IT WAS ALSO ARGUED THAT THE ASSESSING OFFICER HAS FOUND THE SALE FROM AQUACULTU RE TO TALLY WITH THE SUPPRESSION NOTICED BY THE CENTRAL EXCISE DEPARTMEN T WHICH OUGHT TO HAVE BEEN TELESCOPED AND OUGHT NOT TO HAVE BEEN ADD ED. ANOTHER VALID PLEA TAKEN BY THE ASSESSEE BEFORE THE LD. C IT(A) IS THAT THE OBSERVATION MADE BY THE CENTRAL EXCISE DEPARTMENT W ITHOUT THERE ITA 644 TO 647/10 :- 12 - : BEING ANY INDEPENDENT EVALUATION CANNOT BE MADE A BASIS FOR ADDITION IN INCOME-TAX IN VIEW OF THE DECISION IN THE CASE O F CIT VS VIJAYKUMAR ADUKIA 208 CTR 291 (JHAR). LIKEWISE ONCE THE PRO FITS ARE ESTIMATED NO SEPARATE ADDITION U/S 40A(32) OF THE ACT CAN BE MADE IN VIEW OF THE DECISION IN THE CASE OF CIT VS GIAN CHAND LABOU R CONTRACTOR 214 CTR 149. IT WAS ALSO ARGUED THAT THE ADDITION U/S 69 WAS PURELY BASED ON CONJECTURES AND SURMISES. REGARDING ROYAL TY IT WAS STATED THAT THE SAME HAD BEEN PAID FOR RIGHT TO USE A PRO CESS AND NOT FOR THE PROCESS ITSELF AND SUCH PAYMENT ONLY CONSTITUTE REV ENUE EXPENDITURE. IT WAS ARGUED THAT IN EARLIER YEAR SIMILAR CLAIM O F ROYALTY WAS ALLOWED BY THE TRIBUNAL AS REVENUE EXPENDITURE. THE LD. C IT(A) HAS AGREED WITHT THE ASSESSEE ON THESE POINTS AND HAS ALLOWED ITS CLAIM TO A GREATER EXTENT. IN RELATION TO ADDITION MADE ON AC COUNT OF PROCEEDINGS BEFORE THE CENTRAL EXCISE DEPARTMENT WHERE ACCORD ING TO THE LD.DR THE ASSESSEE ADMITTED SUPPRESSION OF SALES OUTSIDE THE BOOKS WHICH ACCORDING TO VARIOUS DECISIONS [AS NARRATED IN GROU ND NO.2 OF THE APPEAL] HAVE A BINDING EFFECT ALTHOUGH IT MAY NOT B E TAKEN AS CONCLUSIVE PROOF BUT IT CARRIES GREAT WEIGHT. 7. WE HAVE GONE THROUGH ALL THESE DECISIONS WHICH AR E CLEARLY MENTIONED IN GROUND NO.2 OF THE APPEALS. ALL THESE DECISIONS ARE DISTINGUISHABLE ON FACTS AS WELL AS ON LAW BECAUSE ALL THESE DECISIONS ITA 644 TO 647/10 :- 13 - : GIVE A RATIO THAT ANY SETTLEMENT MADE VOLUNTARIL Y BY THE ASSESSEE WOULD FORM THE BASIS OF ASSESSMENT. BUT ALL THESE DECISIONS OSTENSIBLY WERE RENDERED IN THE CONTEXT OF INCOME-TAX PROCEEDI NGS AND NOT IN ANY OTHER PROCEEDINGS CARRIED AGAINST THE ASSESSEE AND ABOVE ALL ALL THE DECISIONS LAY DOWN UNQUESTIONABLE PRINCIPLE THAT SU CH SETTLEMENTS ARE REBUTTABLE. THE ASSESSING OFFICER HAS NOT CONSIDER ED THE FACTS AND THE LAW IN ITS CORRECT PERSPECTIVE BUT HAS RATHER COME TO A CONCLUSIVE FINDING ON REBUTTABLE EVIDENCE THAT THE RECEIPTS SH OWN FROM NON- EXISTING AQUA BUSINESS AS FAR FROM CONTROVERSY AND IT LACKS CREDITBLE EVIDENCE AND HENCE HE HAS REJECTED THE BOOKS OF AC COUNT AND PROCEEDED TO ESTIMATE THE GROSS PROFIT OF THE ASSES SEE ON THE DISBELIEVED SALES. HE HAS ARRIVED AT ADDITIONAL GR OSS PROFIT FOR ALL THESE YEARS AS UNDER: ASSESSMENT YEAR GROSS PROFIT 2002-03 ` 1 06 82 296 2003-04 ` 1 13 80 000 2004-05 ` 1 35 40 000 2005-06 NNN NIL 8. THE ASSESSING OFFICER HAS CONSPICUOUSLY MENTIONED I N HIS ORDER THAT THE SALES UNEARTHED BY THE CENTRAL EXCISE DEPA RTMENT AND THE SALE ACCOUNTED FOR BY THE ASSESSEE AS AQUA CULTURE ALMOST AGREES WITH THE SALES ESTIMATED BY THE CENTRAL EXCISE DEPARTMEN T ON POWER AND ITA 644 TO 647/10 :- 14 - : FURNACE OIL CONSUMPTION BASIS. BUT HE HAS NOT GIVE N ANY BASIS LEAVE ASIDE ANY VALID BASIS FOR MAKING ESTIMATION OF GROS S PROFIT IN ALL THESE YEARS. THE LD. COUNSEL FOR THE ASSESSEE HAS OBJECT ED THE PROPOSED ESTIMATION EVEN DURING ASSESSMENT PROCEEDINGS ATTRA CTING THEM TO BE WITHOUT ANY BASIS. BUT HE HAS SIMPLY BYE-PASSED TH E SAME AND HAS NOT MENTIONED ANYTHING REGARDING THESE OBJECTIONS N OT TO SPEAK OF DECIDING THEM ON MERITS. THE CONTENTION OF THE ASS ESSEE THAT THE SALE OF BARS AND RODS HAD BEEN ACCOUNTED AS AQUA SALES WAS NOT PROVED TO BE TRUE OR FALSE OR MAKE BELIEF MODE EMPLOYED BY TH E ASSESSEE. RATHER HE HAS CONCEDED THAT THERE IS FORCE IN SUCH ARGUMENTS. AFTER REJECTION OF THE BOOKS OF ACCOUNT THE ONLY OPTION WHICH REMAINS WITH THE ASSESSING OFFICER IS TO ESTIMATE THE INCOME AND THIS ESTIMATION CAN BE DONE ONLY ON THE BASIS OF A VALID REASON. IT HA S BEEN ALMOST A SETTLED PRINCIPLE OF LAW LAID DOWN BY VARIOUS COURT S THAT IN SUCH CIRCUMSTANCES ESTIMATION CAN BE DONE ON THE BASIS O F EITHER THE PAST HISTORY OF THE ASSESSEE IF ANY OR ON THE BASIS O F THE HISTORY OF OTHER COMPARABLE CASES TO ARRIVE AT A CORRECT ESTIMATION. THE ASSESSING OFFICER HAS NOT EVEN DISCUSSED THESE IMPORTANT ASPE CTS OF THIS MATTER AND HAS MADE ADHOC ESTIMATION WITHOUT ANY BASIS. O N THE CONTRARY THE LD. CIT(A) HAS ADOPTED THE RATE OF GROSS PROFIT OF 15% OF THE SALES ITA 644 TO 647/10 :- 15 - : ON THE BASIS OF RESULTS OF SIMILAR COMPANIES AND BY DOING SO HE HAS ARRIVED AT ADDITIONAL GROSS PROFIT FOR ALL YEARS AS UNDER: ASSESSMENT YEAR SALES ( ` IN LAKHS) COST OF SALES ( ` IN LAKHS) GROSS PROFIT RETURNED ( ` IN LAKHS) GROSS PROFIT NOW DETERMINED ( ` IN LAKHS) ADDITION SUSTAINED ( ` IN LAKHS) 2002-03 6881.90 5925.41 956.49 1032.29 75.80 2003-04 5446.14 4698.17 747.97 816.92 68.95 2004-05 4983.45 4240.24 743.21 747.52 4.32 9. IT IS WELL SETTLED LAW THAT AFTER ESTIMATION IS DO NE NO SEPARATE ADDITION U/S 40A(3) OF THE ACT CAN BE MADE. EVEN T HE HON'BLE JURISDICTIONAL HIGH COURT IN THE CIT VS MOHAMMED DH URABUDEEN 4 DTR 218 INTER ALIA HAS HELD THAT WHERE GROSS PRO FIT HAS BEEN ESTIMATED NO DISALLOWANCE U/S 40A(3) IS CALLED FOR. THE ASSESSING OFFICER HAS MADE THE FOLLOWING ADDITIONS U/S 40A(3) IN THESE YEARS WHICH CANNOT BE SUSTAINED IN THE EYES OF LAW IN VIE W OF THE HON'BLE JURISDICTIONAL HIGH COURTS DECISION CITED SUPRA: ASSESSMENT YEAR 40A(3) 2002-03 ` 1 15 97 014 2003-04 ` 1 09 23 993 2004-05 ` 2 76 574 10. LIKEWISE THE UNEXPLAINED INVESTMENT ADDED U/S 68 H AVE BEEN CORRECTLY DELETED BY THE LD. CIT(A) BECAUSE NO INVE STMENT HAS BEEN FOUND. ALL THE ADDITION IN THIS ACCOUNT IS BASED S OLELY ON PURE GUESS WORK WITHOUT ANY IOTA OF EVIDENCE AVAILABLE ON RECO RD. ITA 644 TO 647/10 :- 16 - : 11. THE OTHER COMMON GROUND RAISED IN THESE APPEALS IS REGARDING PAYMENT OF ROYALTY FOR VARIOUS YEARS WHICH ARE DEPI CTED IN THE FOLLOWING TABLE: ASSESSMENT YEAR ROYALTY PAID 2002-03 ` 3 51 104 2003-04 ` 3 52 084 2004-05 ` 2 72 196 2005-06 ` 1 99 593 12. SIMILAR ROYALTY PAID IN EARLIER YEAR HAS BEEN ACCEP TED AS A REVENUE EXPENDITURE BY THIS BENCH OF THE ITAT IN A SSESSEES OWN CASE FOR THE EARLIER YEARS. A COPY OF THE TRIBUNAL ORDE R DATED 17.3.2006 FOR ASSESSMENT YEARS 1994-95 TO 1999-2000 HAS BEEN PLAC ED BEFORE US. BY RESPECTFULLY FOLLOWING THE TRIBUNAL ORDER (SUPRA ) WE CONFIRM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE WHEREIN HE HA S HELD THAT THE PAYMENT IS REVENUE IN NATURE. 13. THIS LAST ISSUE OF THIS APPEAL IS REGARDING PAYMENT TO ESI WHICH INCLUDE BOTH EMPLOYER AND EMPLOYEES CONTRIBUTION W HICH WERE PAID BEYOND THE DUE DATES SPECIFIED IN THE RELEVANT ACT. THE LD. CIT(A) HAS HELD THAT DISALLOWANCE IS CALLED FOR ONLY IN THE CA SE OF EMPLOYEES CONTRIBUTION RECOVERED FROM THEM AND NOT PAID IN TI ME. WE DO NOT FIND ANY INFIRMITY IN THIS FINDING OF THE LD. CIT(A ) AS WELL. ITA 644 TO 647/10 :- 17 - : 14. IN THE RESULT ALL THE APPEALS OF THE REVENUE STAN D DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 29.10.2010 SD/- SD/- (ABRAHAM P GEORGE) ACCOUNTANT MEMBER ( HARI OM MARATHA ) JUDICIAL MEMBER DATED: 29 TH OCTOBER 10 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR