Income Tax Appellate Tribunal - Chandigarh
Arora Alloys Ltd., Ludhiana vs Department Of Income Tax on 1 March, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHES 'B' CHANDIGARH
BEFORE SHRI H.L.KARWA, HON'BLE, VICE PRESIDENT
AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER
ITA No. 78/Chd/2012
Assessment Year: 2008-09
The ITO, Vs M/s Arora Alloys Ltd.,
Ward-1(1), Ludhiana
Ludhiana
PAN No. AABCA5309C
(Appellant) (Respondent)
Appellant By : Smt. Jaishree Sharma
Respondent By : Shri Sudhir Sehgal
Date of hearing : 01.03.2012
Date of Pronouncement : 01.03.2012
ORDER
PER H.L.KARWA, VP This appeal filed by the Revenue is directed against the order of CIT(A)-1, Ludhiana dated 2.11.2011 relating to assessment year 2008-09.
2. Ground No.1 of the appeal reads as under:-
1. That the Ld. CIT(A) has erred in law in deleting the addition of Rs. 91,89,357/- made on account of unexplained s ales, whereas the same is sue is contested by the department before the Hon'ble High Court in assessee's own case for the assessment year 2004-05, the decision of which is still pending.
3. Briefly stated, the facts of the case are that the assessee derives income from manuf acturing of steel ingots and steel castings from its 2 furnace. On 25.3.2004, an inspection was carried out by the Excise Authorities at the premises of the assessee and during that Inspection, the concerned Revenue Department had noticed that sales had been suppressed by the assessee; being raw material purchased and finished goods sold in cash in open market, not accounted in the regular books of account of the assessee. For the year under consideration, the assessee filed its return declaring taxable income at Rs. 4,92,190/- on 17.9.2008, which was processed u/s 143(1) of the Income Tax Act, 1961 (in short 'the Act') at the same income. The case of the assessee for assessment year 2005-06 was made u/s 143(3) read with section 148 of the Act vide order dated 31.12.2009 and the additions exceeding Rs. 10 lakhs were made and hence the case of the assessee for the year under consideration was picked up for scrutiny by the Assessing Officer. The Assessing Officer made the addition of Rs. 91,89,357/- on account of profit on so called unexplained sales not reflected in the books of account as per details given in paras 4 to 12 of the assessment order.
4. On appeal, the CIT(A) deleted the addition for the reasons stated in paras 7, 8 & 9 of the impugned order. Paras 7 to 9 of the order of CIT(A) reads as under:-
"7. I have considered the basis of estimate of unaccounted production made by the Assessing Officer and the arguments of the AR on the issue. It is clear that the Assessing Officer apart form working out per unit electricity consumption to produce one metric ton of steel ingots has relied upon the assessment order framed in the case of the assessee for A.Y. 2005-06 which in turn was based upon the confessional statement of the Managing Director of the assessee company before 3 the Central Excise Authority on 25/3/2004. The addition made in the case of the assessee on the basis of information received from Excise Authorities for A.Y. 2004-05 and 2005-06 had been deleted by CIT(A)-I , Ludhiana and the order of the CIT(A)-I, has been confirmed by Hon'ble ITAT A Bench, Chandigarh vide their order dated 24/6/2011. The Hon'ble Tribunal has held that statement of Sh. Harmesh Arora before the Excise Authorities can not by itself form the basis for making the impugned additions and the AO had given no other basis to support the additions.
8. The Assessing Officer, for the year under consideration has worked out an additional basis to support the case made out for the A.Y. 2004-05 and 2005-06 by highlighting that the per unit consumption of electricity of the assessee company was excessive. The AR with reference to this basis taken by the AO has relied upon the order of Hon'ble Supreme Court of India dated 31/1/2011 in the case of Commissioner of Central Excise, Meerut Vs. R.A Casting (P) Ltd. wherein the Hon'ble Apex Court has upheld the order of Custom, Excise and Service Tax Appellate Tribunal and held that the findings of the Tribunal were based on material on record. The Hon'ble Apex Court recorded as under:-
"Being aggrieved by the impugned orders, the respondents filed appeals before the customs, Excise & Service Tax Appellate Tribunal, New Delhi . The Tribunal by the impugned orders allowed the appeals, The Tribunal observed that it is settled principle of law that the electricity consumption can not be the only factor or basis for determining the duty liability, that too on imaginary basis, especially when Rules 173E mandatory requires the Commissioner to prescribe/fix norm for electricity consumption first and notify the same to the manufactures and thereafter ascertain the reasons for deviations, if any, taking also into account the consumption of various inputs, requirements of labour, material, power supply and the conditions for runn ing the plant together with the attendant facts and circumstances. The Tribunal further observed that no experiments 4 have been conducted in the factories of the appellants for devising the consumption norms of electricity norms of electricity for producing one MT of steel ingots. Tribunal also observed that the electricity consumption varies from one units to another and from one date to another and even from one heat to another within the same date. Therefore, no universal and uniformly acceptable standard of electricity consumption can be adopted for determining the excise duly liability that too on the basis of imaginary production assumed by the ' Revenue with no other supporting record, evidence or document to justify its allegations. The Tribunal has also considered the report of Dr. Batra, which has been relied upon for making the allegations that there was higher electricity consumption. It appears that Dr. Batra in his report has observed that for the production of 1 MT of steel ingots, 1046 units electricity required."
9. The perusal of judgement of Hon'ble Apex Court as detailed above shows that electricity consumption can not be taken to be a reliable basis for estimating the production of a particular unit for the purposes of imposition of Excise Duty. The main reason for the same is that the consumption of electricity depends upon various factors like type quality of scrap used, number of break downs, quality of the labour / supervisory staff, diligence of the management etc. Therefore, the Assessing Officer's action in estimating Assessee company's production on the basis of alleged excessive consumption of electricity is erroneous and fallacious. The addition made is therefore, deleted.
5. Ground No. 2 of the appeal reads as under:-
2. That the Ld. CIT(A) has erred in law in deleting the addition of Rs. 25,70,931/- made on account of unexplained purchases, whereas the same issue is contested by the department before Hon'ble High Court in assessee's own case for the assessment year 2004-05, the decision of which is still pending.5
6. The Assessing Officer made the addition of Rs. 25,30,931/- on account of alleged investment out of unexplained sources of purchase of raw material outside the books of account u/s 69 of the Act as per para 13 of the assessment order.
7. On appeal, the CIT(A) deleted the addition observing as under:-
"10. The ground of appeal at Sr. No. 5 pertains to the claim of the AR that the that the AO has wrongly made and addition of Rs. 25,70,931/- on account of unex plained investment in the purchase of raw material. The addition made by the AO is deleted keeping into view the detailed judgement with reference to ground of appeal at Sr. No. 3 as above."
8. We will decide both the grounds in succeeding paragraphs.
9. We have heard the rival submissions and have also perused the materials available on record. We find that the issue raised vide ground No.1 of the appeal is covered in favour of the assessee and against the Revenue by the order of ITAT 'A' Bench, Chandigarh dated 24.6.2011 in assessee's case in ITA No. 319/Chd/2008 relating to assessment year 2004-05. The Tribunal decided similar issue, observing as under:-
"15. We have heard both the parties and carefully considered their submissions (including the written submissions), materials placed by them on record and the authorities referred to by them. We have already reproduced the statement of Shri Harmesh Arora, director in the assessee-company as recorded by the Central Excise authorities. In the aforesaid statement, it is admitted that the (i) capacity of the furnace was raised from 4 MT to 5 MT in December 2003; (ii) raw materials used to be procured in cash through brokers for generating unaccounted production; and (iii) goods produced outside the books used to be sold in cash without issuing invoice or recording them and without paying excise duty thereon. Based solely on the aforesaid statement, the Central Excise authorities concluded that the assessee had produced 624 MT of non-alloy steel ingots without accounting them in the record and without payment of central excise duty thereon. The 6 order passed and subsequently confirmed by the Adjudicating Authority, Customs and Central Excise in this behalf was, on appeal, reversed by the Commissioner (Appeals), Customs and Central Excise. At pp. 10-12 of his appellate order, the Commissioner (Appeals), Customs and Central Excise has observed as under:
"The appellants further submitted that the adjudicating authority is not justified in confirming the demand for duty on the allegation that the central excise officers on their visit to the factory premises on 25.3.2004, had verified the last heat tapped at 0820 hours on 25.3.2004 and found 45 ingots lying there instead of 37 ingots entered in the log sheet and thereby assuming that the appellants had been using the furnace with capacity of 5 MTs as per heat during the period from December 2003 to 24.3.2004. They submitted that they had actually been using induction furnace with production capacity of 4 MTs per heat only and had actually produced 37 ingots in last heat tapped at 0820 hours on 25.3.2004 and entered the production of 37 ingots only in their log sheet as they had been making entries of production in their statutory records as per the actual production of steel ingots. They explained that the balance 8 ingots pertained to the previous days' heats and were rejected/defective ingots lying there for re-melting. This explanation appeared to have been accepted by the central excise officers as otherwise they would have seized these 8 ingots allegedly not entered in the log sheet. Since no action had been taken in respect of these 8 ingots by the central excise officers, it can be concluded that the appellants had been operating induction furnace with production capacity of 4 MTs per heat only. I fully agree with this contention of the appellants and find force in the appellants' contention. If the central excise officers were so sure that the appellants had been operating induction furnace with production capacity of 5 MTs per heat instead of 4 MTs per heat and that the appellants had actually produced 45 steel ingots instead of 37 ingots in last heat tapped at 0820 hrs on 25.3.2004, then the central excise officers would have seized 8 steel ingots alleged lying there having not been entered in the log sheet of the appellants. Since no seizure of 8 steel ingots had been made, the benefit should go to the appellants and accordingly, I hold that the appellants had been operating induction furnace with production capacity of 4 MTs per heat only during the material period and there could be no question of clandestine manufacture and removal of steel ingots. I also agree with the appellants that at the material time, the excise duty was not leviable on the capacity of production but was leviable on the actual production and clearance of steel ingots. This fact also strengthens my earlier finding that the statement of Shri Harmesh Arora cannot be termed to be an independent and 7 voluntarily one and cannot be made the basis for confirming the demand for duty.
The appellants further submitted that neither any verification not any investigation had been made from them as to from where they had acquired/purchased the raw materials for the manufacture of ingots allegedly cleared without payment of duty; to whom they had sold the said ingots and to verify/investigation from the consignors-suppliers as to whether they had supplied the raw materials to M/s Arora Alloys Ltd.; Ludhiana or from the users of such ingots as to whether they had received any ingots from M/s Arora Alloys Ltd.; Ludhiana; as to how the payments for the scrap purchased had been made and also as to how the payments for the ingots sold had been received and also as to whether any enquiry had been made from the truck drives as to whether they had transported the goods, in question. The appellants submitted that there is nothing on record to show that any such verification/investigation had been made by the department and as such the department has totally failed to discharge the burden of proof regarding the clandestine manufacture and removal of steel ingots and in the absence of any such investigations and discharge of burden of proof, the charges against the appellants totally fail and the allegations of removal of goods without payment of duty do not sustain and the impugned order merits to be quashed out rightly. In support of this submission, the appellants placed reliance upon the following judgments of the Appellate Tribunal:-
a) Rawalwasia Ispat Udyog Ltd. v. CCE, Delhi reported as 2005 (186) ELT 465 (Tribunal-Delhi)
b) CCE, Jalandhar v. Harcharan Brothers reported as 2004 (168) ELT 454 (Tribunal-Delhi)
c) Ess Vee Polymers (P) Ltd & Others v. CCE, Jaipur reported as 2004 (165) ELT 291 (T)
d) Rajasthan Foils Pvt Ltd. & Others v. CCE, Jaipur reported as 2005 (69) RLT 131 (Cestat-Delhi)
e) Rama Shyama Papers Ltd. v. CCE reported as 2004 (168) ELT 494 (Tribunal-Delhi) Wherein it has been held that in the absence of any independent unimpeachable evidence, such as, any material/evidence showing purchase of raw materials/excess consumption of electricity/transport and delivery of goods to consignees/payment for the goods etc., the charges of clandestine manufacture and removal are not proved and demand for duty is not sustainable. In the present case also I find that the alleged allegations of clandestine manufacture and removal of steel ingots have remained uncorroborated by any 8 independent unimpeachable evidence such as purchase of raw materials/consumption of electricity/purchase of steel ingots by buyers/enquiry from the transport regarding the transportation of raw materials/steel ingots/flow back of money etc. In view of these facts and circumstances, the department has completely failed in proving the allegation of clandestine manufacture and clearance of steel ingots by the appellants. Taking into consideration all the facts and circumstances of the matter, also the fact that neither any statement from any purchaser of the alleged clandestinely removal steel ingots was recorded nor the statement of any seller of the raw materials was brought on record nor the statement of any transporter was brought on record nor any recovery of sale proceeds of clandestinely removed steel ingots was made, coupled with the fact that neither the stock of finished goods was found in excess at the time of surprise visit by the central excise officers, the department has not substantiated its case and it cannot be reasonably be said that the appellants have clandestinely manufactured and cleared steel ingots without payment of duty.
As such, applying the ratio of the principle laid down by the Appellate Tribunal in the cases, supra, the confirmation of demand for duty and imposition of penalties on the company - Appellant NO. 1 and its Director (Appellant No. 2) as detailed in the impugned order, cannot be sustained and are, therefore, set aside."
16. At the time of hearing before us, it was submitted by both the parties that the order dated 21.4.2006 passed by the Commissioner (Appeals), Customs and Central Excise has not been accepted by the Department of the Customs and Central Excise and that appeal has been filed before the Central Excise and Service Tax Appellate Tribunal which is still pending for disposal.
17. Perusal of the assessment order passed by the AO shows that the AO worked out unaccounted sales on the basis of unaccounted production calculated by the Central Excise authorities solely on the basis of statement of Shri Harmesh Arora as recorded by them on 25.3.2004. As regards the evidentiary value of a statement containing admission, it has been held in Thiru John v. Returning Officer, AIR 1977 SC 1724, 1726-7 that an admission, if clearly and equivocally made, is the best evidence against the party making it and, though not conclusive, shifts the onus on to the maker on the principle that "what a party himself admits to be true may reasonably be presumed to be so and until the presumption was rebutted the fact admitted must be taken to be established". It has been held in Narayana Bhagwantrao Gosavi Balajiwale v. Gopal Vinayak Gosavi, AIR 1960 S.C 100,105 that an admission is the best evidence that an opposing party can rely upon and though not conclusive, is decisive of the matter unless successfully withdrawn or proved erroneous. The legal position that emerges from 9 catena of authorities on the subject is that the proposition that an admission is decisive of the matter is subject to four qualifications, namely, (1) The admission must have been voluntarily made; an admission cannot be acted upon unless the facts available on record show that it was voluntarily made; (2) The admission must be clear and unequivocal; (3) An admission cannot be acted upon if it is proved by the person making it that it is incorrect or erroneous; and (4) An admission cannot be acted upon if it is inconsistent with the materials available on record. Unless an admission falls under any of the aforesaid four situations, an admission is decisive of the matter. The question as to whether an admission, which is not corroborated by independent materials, can form the sole basis for decision can better be answered with reference to the facts of the case. There is no universal rule that an admission or confession is never decisive unless it is corroborated. Similarly there is no universal rule that an admission/confession is always decisive in all cases. The answer to the question as to whether a statement containing admission/confession is decisive in a given case depends upon the nature of admission, contents of admission, and several other relevant factors.
18. Applying the aforesaid principles, we shall now examine as to whether the statement made by Shri Harmesh Arora before the Central Excise authorities in the context of levy of excise duty on unaccounted production can form the sole basis for making the impugned additions by the AO. First and most important aspect is that the said statement was not recorded by the income-tax authorities but by the Central Excise authorities. As held by the Hon'ble High Court (reproduced supra), proceedings under the Central Excise Act have relevance only for formation of opinion of escapement of income and thereafter the income-tax authorities have to independently finalise the re-assessment irrespective of the final view in excise proceedings. We find that the AO has reassessed the income and made the impugned additions solely on the basis of the information received by him from the Central Excise Department without bringing any material on record to justify or support the additions. The impugned additions are liable to be cancelled on this ground alone and are accordingly cancelled.
19. Without prejudice to the aforesaid, materials available on record do not establish that the melting capacity of the furnace was 5 MT or increased to 5 MT from 4 MT. After careful consideration of the materials available on record, the ld. CIT(A) has held as under:
"..............Further, as brought out above on a subsequent surprise inspection by the Excise authorities, the capacity of the appellant's Unit has been steed to be of 4 Mts only. Therefore, the same department is certifying that the installed capacity of the furnace is of 4 Mts only. Further as already mentioned this is not possible that the appellant had installed a 5 Mt furnace during the previous year relevant to assessment year under consideration and that, however, furnace of 4 Mt had been 10 installed before and after that period. Also there is nothing on record that the appellant incurred any expenses for removal and installation of the furnace as above and that the sanctioned load during the relevant period was more than 2250 KW which is a must for using 5 MT furnace......................."
20. In our view, the view taken by the ld. CIT(A) is reasonable on the facts of the case. Entire addition has been made on the basis of the statement of Shri Harmesh Arora as recorded by the Central Excise authorities in which he stated that the capacity of furnace was increased from 4 MT to 5 MT in December 2003. Capacity of furnace is not a matter within the domain of personal knowledge of the assessee; rather it is an objective fact which is capable of verification and proof by direct evidence. Following facts available on record establish that the capacity of furnace was not 5 MT but 4 MT.
(i) Perusal of the materials placed on record (pp.187-189 of the paper-book I for AY 2005-06) shows that the assessee had addressed letters dated 14.8.2002, 16.8.2002, and 21.8.2002 to the Superintendent, Central Excise, Range I, Division-II, Ludhiana conveying replacement of the then existing furnace of 3 Ton with new furnace of 4 Ton. In its last letter dated 21.8.2002 addressed to the Superintendent, Central Excise, the assessee- company informed that it had commenced production on new furnace on 21.8.2002 at 08:00 hours. It is quite unlikely that an assessee would change the furnace almost in a year (i.e., in December 2003) from 4 ton to 5 ton. Besides, there is no evidence before us to show that the furnace of 4 ton, which was procured in 2002, was actually replaced by a furnace of 5 ton in December 2003.
(ii) Each furnace has technical specifications which are available within the unit as also in the invoice. These specifications contain various details, e.g., the identity number of the furnace and its maker/manufacturer, its capacity, wattage, etc. No detail has been placed before us to show that the technical specifications of the furnace found at the time of visit by the Central Excise authorities on 25.3.2004 were different from the one procured by the assessee in 2002. Neither the AO made the inquiry in this behalf at the assessment stage nor preferred to do so when he was given the opportunity by the CIT(A) to do so.
(iii) Report dated 2.5.2007 given by Er. J S Oberoi, Chartered Engineer/valuer shows that he visited the factory of the assessee and found that the furnace of 4 ton, which was procured in 2002, was being used by the assessee. After noting the technical specifications of the furnace, the weight of the ingots produced, the electricity load sanctioned, he opined that the average melting capacity of furnace was 4 MT. No material has been placed before us to rebut the facts reported or the opinion expressed by the Chartered Engineer.
11(iv) Suppressed or unaccounted production was worked out by the Central Excise authorities for the period December 2003 to 25.3.2004 on the basis that the melting capacity of furnace was 5 MT during that period. The capacity of furnace being 4 MT after 25.3.2004 was not even doubted as the suppressed production was worked out till 25.3.2004 which means that it was accepted thereafter, i.e., after 25.3.2004, that the melting capacity of the furnace was 4 MT. This sounds quite illogical.
(v) Field inspection was carried out by the Central Excise authorities on 25.11.2005 and a report to that effect has been recorded in the Daily Stock Account. It is stated in the said report that the "the unit has installed 4 MT Furnace." No material has been placed before us to rebut the aforesaid report.
(vi) Though the inspection was carried out by the Central Excise authorities on 25.3.2004 also at the premises of the assessee, there is nothing in the assessment order to show that the inspection report prepared, if any, by the Central Excise authorities was at all considered by the AO. It has also not been placed before us either. There is absolutely no material before us to show that the Central Excise authorities had at all made any attempt to verify the melting capacity of the furnace during the course of their inspection on 25.3.2004.
(vii) The AO has placed no material on record to show that the assessee had made any investment towards acquisition of furnace of 5 MT or that the AO has allowed depreciation thereon, i.e., furnace of 5 MT. There is no material on record to hold that the claim of depreciation made by the assessee on the furnace of 4 MT was rejected by the AO.
21. Besdies, the statement of Shri Harmesh Arora has several gaps on material issues. For example, the statement of Shri Harmesh Arora is completely silent as to (i) when was furnace of 5 MT was procured and from whom it was procured; (ii) any of the parties from whom raw materials was purchased for generating unaccounted production; (iii) any of the parties to whom unaccounted production was sold.
22. In view of the foregoing, the statement of Shri Harmesh Arora cannot by itself form the basis for making the impugned additions. The AO has given no other basis to support the additions made by him. In 12 this view of the matter, the order passed by the CIT(A) in this behalf is confirmed. Ground No. 2 is dismissed.
10. The facts and circumstances of the present year are similar to that of assessment order 2004-05. Respectfully following the order of the Tribunal (supra) passed in ass essee's case for as sessment year 2004-05, we dismiss the ground No.1 of the appeal. It is relevant to observe here that in assessment year 2004-05, the Revenue agitated similar issue vide ground No.2 of the appeal.
11. The issue raised by the Revenue vide Ground No.2 of the appeal is also covered in favour of the assessee and against the Revenue by the decision of the ITAT 'A' Bench, Chandigarh, order dated 24.6.2011 in assessee's case in ITA No.319/Chd/2008 relating to assessment year 2004-05. Relevant findings of the Tribunal are as under:-
"23. Apropos Ground No.1, the AO estimated unexplained expenditure amounting to Rs.69,59,370/- towards purchase of raw materials on the ground that it must have been utilized in producing 624 MTs of unaccounted goods. The AO has made the impugned additions u/s 69C. We have already deleted the addition made by the AO with reference to unaccounted production and sale of 624 MTs of steel ingots. In this view of the matter, the impugned additions cannot be sustained. The order of the CIT(A) deleting the impugned addition is therefore confirmed. Ground No.1 is dismissed."
12. The facts and circumstances of the present year are similar to that of assessment order 2004-05. Respectfully following the order of the Tribunal (supra), we dismiss the ground No.2 of the appeal. It is relevant to observe 13 here that in assessment year 2004-05, the Revenue agitated s imilar issue vide ground No.1 of the appeal.
13. In the result, appeal of the Revenue is dismissed.
Order Pronounced in the Open Court on this Ist day of March, 2012 Sd/- Sd/-
(MEHAR SINGH) (H.L.KARWA)
ACCOUNTANT MEMBER VI CE PRESIDENT
Dated : Ist March, 2012
Rkk
Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR
True Copy
By Order
Assistant Registrar