Income Tax Appellate Tribunal - Panji
Acit, Kota vs Prem Jain Ispat Udhyog Pvt. Ltd., Kota on 31 July, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 839/JP/2016
fu/kZkj.k o"kZ@Assessment Year :2013-14
Assistant Commissioner cuke M/s Prem Jain Ispat Udhyog Pvt.
of Income Tax, Vs. Ltd., Bajaj Palace, Near Paliwal
Circle-02 Compound, Chhawani,
Kota Kota
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAECP6241P
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 887/JP/2016
fu/kZkj.k o"kZ@Assessment Year :2013-14
M/s Prem Jain Ispat cuke Assistant Commissioner of Income
Udhyog Pvt. Ltd., Bajaj Vs. Tax,
Palace, Near Paliwal Circle-02
Compound, Chhawani, Kota
Kota
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAECP6241P
vihykFkhZ@Appellant izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by : Shri S.L.Chandel (Addl. CIT)
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s Assessee by : Shri P.C. Parwal (C.A.)
lquokbZ dh rkjh[k@ Date of Hearing : 26/07/2017
mn?kks"k.kk dh rkjh[k@Date of Pronouncement: /07/2017
vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M. 2 ITA No. 839 & 887/JP/2016 ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota These are two cross appeals filed by the Revenue and the assessee against the order of Ld. CIT (A), Kota dated 12.07.2016 for A.Y. 2013-14 wherein the respective grounds of the appeal are as under:-
ITA No. 839/JP/16 (Ground of Revenue's appeal):-"1. On the facts and the circumstances of the case the ld. CIT(A) has erred in deleting the addition of Rs. 2,23,33,467/- out of the total addition of Rs. 2,42,83,459/-."ITA No. 887/JP/16 (Ground of Assessee's appeal):-
"1. The Ld. CIT(A) has erred on facts and in law in confirming the findings of AO that the amount shown in paper/documents found in search conducted by the excise authorities represents the unrecorded sales of the assessee.
1.1 The Ld. CIT(A) has further erred on facts and in law in confirming the addition of Rs. 19,49,962/- by applying the g.p rate of 8.03% on the alleged unrecorded sales of Rs. 2,42,83,459/- (correct amount as per the papers/documents is Rs. 2,34,75,870/-). He has further erred in applying the g.p rate of 8.03% as against g.p. rate of 6.03% as per the books of accounts."
2. Firstly, regarding ground No. 1 of the revenue and the ground No. 1 and 1.1 taken by the assessee, brief facts of the case are that the assessee is engaged in the business of manufacturing of iron and steel tors/saria and ingots. The excise department conducted a search and seizure operation on 06.07.2012 at the factory premises of the assessee. In search, 32 slips indicating the dispatch of goods (473 MT) were found from the office premises and one slip no. 33 (665 MT) indicating the quantity of stock on 04.03.2012 was found from the 3 ITA No. 839 & 887/JP/2016 ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota possession of General Manager of the company Shri J.D. Pant. According to these papers, the quantity involved is 1138.304 MT. Further, the total quantity of stock was inventorised at 379.00 MT against the book stock of 467.209 MT and thus stock was determined short by 88.209 MT. Accordingly, the Commissioner Excise issued show cause notice alleging that assessee has sold goods of Rs. 4,92,99,999/- (Rs. 4,57,61,333/- + Rs. 34,88,666/-) without payment of excise duty and thus evaded the payment of excise duty of Rs. 60,87,300/-.
2.1 On the representation made by the assessee before the Commissioner Excise, he accepted that out of 32 slips, the dispatch of goods with reference to 25 slips involving a quantity of 390MT is recorded in the books of accounts. However, he did not accept the claim of the assessee that in respect of 7 slips involving 83 MT, the orders were cancelled and therefore the goods were not dispatched. In respect of slip No. 33 found from the possession of the GM, he accepted that the quantity as per this slip is 412 MT and not 665 MT but he did not accept the claim of the assessee that it is only a dumb paper on the ground that assessee has not furnished the availability of stock with it as on 04.03.2012. He also did not accept the claim of the assessee that there is no shortage of stock of 88.209 MT. Accordingly, he determined the evasion of duty of Rs. 30,01,451/- of which the corresponding value of goods is worked out at Rs.2,42,83,584/-.
2.2 On the basis of the above information received from the Excise authorities, the AO issued a show cause notice dated 02.02.2016 which is reproduced at pages 1-16 of the assessment order. Thereafter, from pages 17 to 22 of the order, he extracted certain findings from the 4 ITA No. 839 & 887/JP/2016 ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota order of the Excise Commissioner and issued show cause notice as to why books of accounts should not be rejected u/s 145(3). The assessee filed its explanation stating the reasons for decline in g.p. rate as also explanation in respect of the papers which has been considered by the excise authorities as removal of goods without payment of excise duty. However, the AO rejected the same and held that as per the papers found in search by the excise authorities, assessee has sold goods out of books of Rs.2,42,83,459/-. He further held that cost and expenses against such sales is already debited in the regular books of accounts and therefore the alleged sale of Rs. 2,42,83,459/- was added to the income. This addition was further justified by holding that after including this amount in the sale and the profit, the g.p. rate works out at 8.01% as compared to 8.03% declared in the last year.
2.3 The Ld. CIT(A) upheld the rejection of books of accounts u/s 145(3) by holding that the books of accounts are incomplete, false and unreliable. Thereafter, he applied GP rate of 8.03% on the alleged suppressed turnover of Rs. 2,42,82,459/-, thereby confirming trading addition of Rs.19,49,962/- as against addition of Rs. 2,42,82,459/- made by the AO. The relevant findings of the ld CIT(A) which are under challenge by both the parties are as under:
"As regards Ground No. 2, in the present case, it is seen that as per the original Customs and Excise Department (CED) report, the total value of goods cleared from the assessee's factory without payment of Excise Duty was 1138.64 MT valued at 4,57,61,333 & Excise Duty evaded @ 12.6% was 56,56,101/- Differential stock of furnished goods valued at 88,209 MT invoking value of Rs. 34,88,666/- & ED evasion of 4,31,999/-5 ITA No. 839 & 887/JP/2016
ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota was accepted by the assessee in CED search operation and Tax payment of Rs. 40 lakhs was made & Rs. 20.87 lakhs debited through RG-23 A part II.
Out of the above, the CCE-I Jaipur assessed goods sold & suppressed sale at Rs. 37,75,173+1,66,10,450/- & stock at Rs. 34,88,606/-, thus totaling the uncleared slips found for clandestine sales without paying excise duty to Rs. 2,38,74,289/- instead of Rs. 4,57,61,333/-.
It was a never a case of excise department that there was no cost to those goods. It is the duty evasion on the sale value that they were considering.
Naturally, if the sale value would be 'y' amount, the manufacturing cost would be some 'x' amount also. This has not seen worked out anywhere. Under the circumstances, the A.O., during the course of Income Tax proceedings should have tried to work out a costing based on the normal process to see what 1 MT of the product costs & should then have multiplied it with the unrecorded sale quantity to get its cost & comparative profit, even if he did not allow any other overhead or administrative costs, it would have been acceptable.
However, what he has done is that he has taken the entire sale value as profit. In the scenario here that the product made by the assessee is a high value one and the turnover is more than 110 crores, the unrecorded sales even if taxed fully would not give an exorbitant profit rate (which in this case he has worked out @ 8% G.P.) But the assessee has been showing a margin of 1 to 1.17% as Net Profit on the sales consistently. For a profit of 2.38 crores to be included 6 ITA No. 839 & 887/JP/2016 ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota in the sales turnover, the sales would have to increase by approximately another 25-30 Crores, which evidence has not been brought on record anywhere, so the entire theory of the assessing officer appears to be not logically supported by evidences. He has only caught the figure from the Central Excise Department order and added it at both the places namely Turnover as well as Profits.
He initially gave a show cause for rejection of books and estimation of G.P. @ 7.19% and subsequently he mentioned that in view of the suppressed turnover detected, the unrecorded sales and stock figures should be substituted and did not reject the books but added the above amount in the profits.
Thus the A.O resorted to best judgment without rejecting the books and adding the detected amounts finalized in the CED assessment order, without any independent application of mind or procedure prescribed u/s 145 (3). He has not brought on record if he has carried out any independent enquiries based on which he has reached the conclusion that the sales were unrecorded. His only reliance appears to be on the Excise Department findings and general discussion on G.P. It was noticed that in the case of Mittal Pigments Pvt. Ltd., Kota (PAN AABCM1418N) for A.Y 2011-12, the Central Excise department had carried out a similar action of search and the ACIT Circle 1, Kota, had based on that adjudication order of Commissioner Central Excise, Jaipur-1, passed an assessment order taking assessee company's own G.P. rate on the undisclosed sales estimated to have been produced from raw material found short in that case.7 ITA No. 839 & 887/JP/2016
ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota Thus, I am not in agreement with the addition made by the A.O of the entire unrecorded sale and stock related working of Rs. 2,42,83,459/- assessed as the Profit as well as added to the turnover (though in the Excise working the same was Rs. 2,38,74,289/-).
While the said amount of Rs. 2,42,83,459/- needed to be added to the turnover, but like in the case of the rest of the sales, the A.O needed (without giving any relief on account other administrative expenses on this amount), to make the addition to the total income of the assessee by adopting profit at the rate he chose fit on these undeclared sales etc. in addition to the regular profit with due finding on the basis for the same.
In a totality of circumstances, since these are suppressed sales already concluded and no profit working is available for them, I feel it reasonable to restrict the addition on this suppressed turnover detected @8.03% which was the accepted G.P rate in the immediately preceding year in the assessee's onw case. The G.P sustained will be 19,49,962/- in addition to the returned profit on which all expenses, costs etc, would be deemed to have been allowed.
This balance addition of Rs. 2,23,33,497/- is directed to be deleted."
3. During the course of hearing, the ld. AR submitted that the entire addition made by the AO is with reference to the following papers/documents found in search conducted by the excise authorities:-
(a) 7 slips related to dispatch of goods Rs. 33,75,860/-
(b) Slip found from Shri J.D. Pant Rs. 1,66,11,350/-8 ITA No. 839 & 887/JP/2016
ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota
(c) Short stock found Rs. 34,88,660/-
Total Rs. 2,34,75,870/-
On the basis of above papers and other papers, the Excise authorities made out a case of duty evasion of Rs.60,87,300/- which is reduced to Rs.30,01,541/- by the Commissioner of Central Excise. Against this order, both the parties filed appeal to the CESTAT. The Hon'ble CESTAT vide order dt. 30.06.2017 deleted the entire duty levied by the Excise authorities. Thus, when the CESTAT has accepted that there is no case of clandestine removal of the goods or any stock found short, the trading addition made by the AO and partly confirmed by the Ld. CIT(A) do not survive and therefore, the entire trading addition made by the AO be directed to be deleted.
3.1 On merit, the ld AR in respect of each of the above issues, submitted as under:-
(a) 7 slips related to dispatch of goods (84.44 MT)- Rs. 33,75,860/-
(i) In search, Anti Evasion Wing of the Excise Department found 32 slips relating to dispatch of goods. The total quantity involved in these slips is 473.304 MT. Copy of these slips are at PB 34-39. A perusal of these slips would show that it indicate the name of the party, the vehicle no., the size of goods, no. of bundles and weight. In proceedings before the excise authorities, the assessee got verified 25 slips involving quantity of 388.864 MT from its books of accounts which is accepted by them. In respect of the remaining 7 slips numbering 3, 11, 17, 22, 24, 27 & 31 involving quantity of 84.44 MT, it is explained that the same were cancelled. The 9 ITA No. 839 & 887/JP/2016 ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota details of these slips along with the explanation given in respect of cancellation of these slips is as under PB 41-59:-
S. Slip Quantity Name of Name of Amount Remarks No. (in MT) party distributor No. (in Rs.) 1 3 16.01 Ramu Prem Ji 6,44,656/- The distributor placed Iron order for supply of material on 23.06.2012. However, the vehicle could not be arranged and when it was arranged on the next date & goods loaded in the truck, on communication with the distributor, he informed that due to delay in supply of goods the party has cancelled the order.
The confirmation of the Ganpati Steel Corporation whose proprietor is Prem Agarwal is filed.
2 11 10.92 Jain Iron Shyam Ji 4,46,486/- The distributor sold the
above goods on
advance payment
condition. But due to
non payment of
advance against
goods, the distributor
cancelled the order.
The confirmation of
distributor Shri Shyam
10 ITA No. 839 & 887/JP/2016
ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota Ji Steels is at PB 45.
3 17 19.88 S. N. Ghanshyam 8,03,543/- The distributor placed
Steel Ji the order for supply of
material to S. N. Steel
on 11.05.2012 but as
the vehicle was not
available on that day,
the goods were loaded
in the truck on next
day. Thereafter, when
the distributor was
contacted, he
cancelled the order for
not maintaining the
delivery schedule. The
confirmation of the
distributor, Shri
Vinayak Enterprises is
at PB 48.
4 22 11.05 Bundi 4,56,483/- Due to delay in supply
of goods, the
distributor M/s
Bagherwal Traders
cancelled the order as
per the confirmation
placed at PB 51.
5 24 9.91 Bhawani 4,00,942/- Due to technical
Mandi problem in vehicle and
non supply of material
on time, the distributor
M/s Bagherwal Traders
cancelled the order as
per the confirmation
placed at PB 54.
6 27 0.6 Local Local Buyer 27,491/- Due to non payment
Buyer by the local buyer, the
11 ITA No. 839 & 887/JP/2016
ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota consignment which was loaded to the truck was not dispatched and the order was cancelled by the assessee.
7 31 15.97 Jagdamb 5,99,259/- The dealer refused to
a Iron take the delivery of
goods and cancelled
the order due to over
charged freight.
Total 84.44 33,75,860
(ii) This was explained to the AO but the AO without assigning any reason has not accepted the same. It may also be noted that this explanation was also furnished before the Commissioner Excise but he has also not accepted the explanation on the ground that at the time of search Shri Prem Chand Jain, Director and Shri J.D. Pant, GM have admitted that these goods were sold out of books. The Commissioner Excise also observed that cancellation letters have not been submitted by the consignees, in some cancellation letters no date is mentioned, in one cancellation letter date mentioned is 11.12.2013 and that when the orders have been procured on verbal communication the cancellation letter received in writing creates the doubt. In holding so, he ignored that in the statement Shri Prem Chand Jain and Shri J.D. Pant admitted that quantity stated in all the 32 slips pertains to clearance of finished goods without payment of duty and without cover of invoices whereas the fact remains is that out of these 32 slips, the Commissioner Excise himself accepted that in respect of 25 slips 12 ITA No. 839 & 887/JP/2016 ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota the sale of goods are duly recorded in the books and excise duty has been paid. Therefore, such statement which is given under stress cannot be a basis to hold that in respect of 7 slips where the orders were cancelled and goods were not dispatched and for which confirmations have been filed is sale out of books. So far as the cancellation letters are concerned, the same were obtained by the assessee in course of the proceedings before the Excise Commissioner except one cancellation letter from Shri Shyam Ji Steel which was already with the assessee and therefore in these cancellation letter either the date is not mentioned or in one such letter the date mentioned is 11.12.2013. In any case, the alleged discrepancies are immaterial particularly when the confirmation of the order cancellation giving the complete name and address has been furnished and the AO has not found these confirmations as non genuine.
(iii) The above explanation given by the assessee has been accepted by the Hon'ble CESTAT.
In view of above discussions, no sales on the basis of these 7 slips can be considered as unrecorded sales of the assessee.
(b) Slip found from Shri J.D. Pant (412 MT) - Rs.1,66,11,350/-
(i) Copy of the slip is at PB 60. From the slip it can be noted that it is dated 04.03.2012 which falls in AY 2012-13 and not in the year under consideration. On this slip the word 'stock' is mentioned giving the size of the item and the weight of these items. The slip does not contain name of any party or any 13 ITA No. 839 & 887/JP/2016 ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota vehicle number. Therefore, on the basis of this slip no unrecorded sales can be assumed.
(ii) The Commissioner Excise has not accepted the claim of the assessee for the reason that assessee has not produced the copy of daily stock account register, i.e. RG1 register to ascertain whether the said quantity of stock was available in the books or not and that Shri J.D. Pant in his statement has accepted that it also pertain to clearance of goods without payment of duty and without covers of invoices. It is submitted that as on 04.03.2012 the assessee has 1232 MT as opening stock and 1295 MT as closing stock which is much more than the quantity mentioned on the slip PB 62-63. The size wise details of such stock maintained in ISI register is placed at PB 64 from which it is verifiable that assessee has stock of much more quantity that that mentioned on the slip. So far as statement of Shri. J.D. Pant is concerned, this statement was given along with the papers at S. No. 1 to 32 and as explained above, such statement given under stress cannot be a basis for making the addition more particularly when similar statement given in respect of 25 slips has been accepted has having been recorded in the books of accounts.
(iii) It is also submitted that in course of assessment proceedings, assessee has filed affidavit (PB 61) of the Director Shri Prem Chand Jain where he has stated that this slip was prepared for the anticipated sale of finished stock to two parties. The AO has not controverted this affidavit and therefore also on 14 ITA No. 839 & 887/JP/2016 ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota the basis of this slip it cannot be presumed that assessee has sold goods out of books more particularly when slip do not relate to the year under consideration.
(iv) The above explanation given by the assessee has been accepted by the Hon'ble CESTAT and therefore, on the basis of such paper, no adverse inference can be drawn against the assessee.
(c) Short stock found (88.209 MT) - Rs. 34,88,660/-
(i) Copy of the physical verification report on the basis of which short stock of 88.209MT is determined is placed at PB 65. From the same it can be noted that the physical stock is stated at 379 MT as against the books stock of 467.209 MT. From the look of this sheet it is evident that there is no break up of how 379 MT is measured. The stock is placed in bundles ranging from 90 to 110 kgs per bundle of different-different sizes spread over the entire factory yard. Therefore, in the absence of any break-up of the bundles and size which totalled to 379 MT, it is evident that the physical stock has been mentioned only on estimate basis.
(ii) This fact was also explained before the Commissioner Excise but he has not accepted the contention of assessee only for the reason that the inventory was taken before two independent witnesses and Shri Prem Chand Jain and Shri J.D. Pant in the statement dt. 06.07.2012/29.10.2012 (PB 66-74) agreed that there is a short stock of 88.209MT.As 15 ITA No. 839 & 887/JP/2016 ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota explained above these statements were under stress and coercion and therefore cannot be a basis for assuming that stock is found short and the same is shown out of books.
(iii) The above explanation given by the assessee has been accepted by the Hon'ble CESTAT and therefore, on the basis of such paper, no adverse inference can be drawn against the assessee.
In view of above discussion and material available on record it can be noted that assessee has not sold any goods outside the books of accounts.
3.2 The above position was explained before the Ld. CIT(A). The Ld. CIT(A) has not found any defect / discrepancy in the explanation so furnished but still without any evidence he held that the assessee has sold goods out of books of Rs. 2,42,83,459/- on which after applying G.P rate of 8.03% he confirmed addition of Rs. 19,49,962/-. However, the Hon'ble CESTAT has held that there is no clandestine clearance of goods. Thus, the order of the Excise authorities which is the basis for alleging that assessee has sold out of books do not survive, the addition confirmed by the Ld. CIT(A) is unwarranted and unjustified.
3.3 It is also submitted that on the basis of the above action of the excise authorities, the commercial taxes department also raised demand of VAT on the assessee. However, in appeals, the same was deleted by the Ld. CIT(A) by holding that the entire demand is raised on the basis of the action taken by the Excise Authorities without bringing any 16 ITA No. 839 & 887/JP/2016 ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota evidence of sale of goods out of books. The copy of the order is at PB 76-79. Thus, when the Commissioner of Commercial taxes Department has deleted the demand raised on account of alleged sale of goods out of books, there is no reason to make any addition on account of alleged suppressed sale of goods.
5. The ld. D/R supported the order of the Assessing officer.
6. We now refer to the order of the Customs Excise & Service Tax Appellate Tribunal dated 30.06.2017 in the case of M/s Prem Jain Ispat Udyog Pvt. Ltd. Vs. CC (Prev.) Jaipur (Excise Appeal Nos. 54511, 54512 & 54835 of 2014 and 54784 of 2014) wherein the relevant findings are as under:
"(5) With the above background, we have heard both the sides. The assessee were represented by Sh. Arunabh Dey, ld. Consultant and Sh.
R.K. Mishra, ld. AR for the Revenue.
(6) Revenue has challenged the dropping of demand to the extent of Rs. 30.85 lakhs. The demand of about Rs. 60 lakhs was proposed in the show cause notice on the basis of the quantification relying on 32 kachha parchis recovered during search proceedings. The assessee contended during the course of adjudication that out of 32 slips, 25 slips of various dates were of different dispatches, which correlate and reconcile with the excise invoices issued to the respective parties. They have further claimed that all the clearances were duty paid and there was no clandestine clearance. The adjudicating authority has carefully gone through the said 25 slips along with the connected invoices and other documents submitted by the assessee and has given detailed 17 ITA No. 839 & 887/JP/2016 ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota discussions in para 36 of the impugned order. With reference to each kachha parchi and the relevant invoice, he has recorded that the quantity, size, truck No. name of consignee mentioned in the invoice are completely matching with the details so given in the recovered kachha parchi. Further, he has recorded that the subject invoices have been duly entered in RG-1 register as well as the ledger account. In the light of the above, he has concluded that the subject consignee were cleared on payment of Central Excise duty.
We have gone through the records of the case as well as the findings of the adjudicating authority in this regard. We are of the view that since the adjudicating authority has given detailed findings that all the goods covered by 25 kachha parchis have been cleared on payment of duty, we find no reason to take a different view. Consequently, we uphold the dropping of demand of Rs. 30,85,849/- and reject the Revenue's appeal.
(7) The adjudicating authority has confirmed the demand amounting to about Rs. 30 lakhs on the basis of seven kachha parchis in respect of which the assessee was not in a position to submit proof for clearance of goods under invoices without payment of duty. He has further recorded that both Sh. J.D. Pant, General Manager as well as Sh. P.C. Jain, Director have given inculpatory statements under section 14 of the Central Excise Act to the effect that goods covered by kachha parchis were clandestinely cleared without payment of duty. Further, the assessee has also paid the duty for the goods covered by 32 slips.
These findings of the adjudicating authority have been challenged by the assessee in the present appeals. It is their submission that the 18 ITA No. 839 & 887/JP/2016 ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota goods covered by these seven slips were never dispatched from the factory for various reasons. It is their submission that the kachha parchis were initially made for internal use indicating the quantity of material, name of the party, place to which goods to be dispatched and other details. Later on, the relevant quantum of goods are identified from the stockyard and loaded into the dispatch truck whose number is also included in the kachha parchi. In respect of these seven kachha parchis, the orders placed by the customers have got cancelled and hence no goods were dispatch to the parties indicated in the kachha parchi.
(8) On going through the impugned order, we note that the adjudicating authority has not given due consideration to the submissions made by the appellant. The allegation of clandestine removal has been upheld in respect of goods mentioned in the seven parchis only on the basis of inculpatory statements given by Sh. J.D. Patn, General Manager and Sh. P.C. Jain, Director. We find from the record that Revenue has not undertaken any verification either with the buyers or even with the transporters. No investigation appeared to have been carried out to prove that such goods were manufactured in the factory but not accounted for.
(9) Clandestine clearance is a serious allegation and needs to be established on the basis of tangible evidence. It is well established fact that only on the basis of the inculpatory statement, the charges of clandestine clearance cannot be upheld. The inculpatory statements given by the General Manager and Director also do not specifically cover the seven parchis. In the absence of any corroborative evidence to indicate that the goods covered by seven parchis were cleared by the 19 ITA No. 839 & 887/JP/2016 ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota appellant, we are of the view that the charge of clandestine clearance and demand of duty cannot be sustained. The assessee has cited a large number of decisions to support the contention that clandestine clearance cannot be upheld without tangible evidence.
(10) In view of the above discussions, the appeals field by the appellant-assessee and their General Manager and Director are allowed. The appeal filed by the Revenue is rejected."
7. We have heard rival submissions and perused the material available on record. The whole case of the Revenue rests on search and seizure operations carried out by the excise authorities on 6.7.2012 and there is no independent verification and examination carried out by the tax authorities to determine out of books sales and shortage of stock. A fact also confirmed by the ld CIT(A) and which ld DR fairly conceded during the course of hearing. Subsequently, against the order of the Commissioner, Central Excise, on appeal by both the parties, CESTAT has passed on order dated 30.06.2017 allowing the appeal of the assessee company and dismissing the revenue's appeal. Apparently, the CESTAT order dated 30.06.2017 has been pronounced post passing of order by the ld CIT(A) on 12.07.2016 and the latter was not having the benefit of taking the same into consideration.
8. On perusal of the above order and findings of the CESTAT vide its order dated 30.06.2017, it is observed that it has upheld the dropping of demand in respect of 25 Kacha parchis and rejected the revenue's appeal. Thereafter, in respect of 7 kacha parchis, it further held that "In the absence of any corroborative evidence to indicate that the 20 ITA No. 839 & 887/JP/2016 ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota goods covered by seven parchis were cleared by the appellant, we are of the view that the charge of clandestine clearance and demand of duty cannot be sustained. The assessee has cited a large number of decisions to support the contention that clandestine clearance cannot be upheld without tangible evidence." Now, in respect of Slip No. 33 found from Shri J.D. Pant (412 MT) valuing the goods removed at Rs.1,66,11,350/- and shortage of stock (88.209MT) valuing at Rs 34,88,660, the matter was specifically enquired during the course of hearing. In response, the ld AR submitted that the assessee had filed an appeal against the whole of the additions sustained by Commissioner of Central Excise including these two matters as well and CESTAT has accepted the assessee's explanation in respect of these two matters as well and vide its order dt. 30.06.2017 has directed to delete the entire duty levied by the Excise authorities. In this regard, the ld AR drawn our reference to para 3 and 4 of CESTAT order which details the outstanding demand of Rs 30,01,451 which includes demand in respect of slip no. 33 and shortage of stock, and the fact that the appeal has been filed against the whole of the addition including these two matters. Further, our reference was drawn to para 9 of the CESTAT order where the CESTAT has ruled against the allegation of clandestine removal of goods in absence of tangible evidence. The ld AR submitted that when the CESTAT has accepted that there is no case of clandestine removal of the goods or any stock found short, the trading addition made by the AO and partly confirmed by the Ld. CIT(A) do not survive. We find that CESTAT has finally allowed the appeal of the assessee and thus prima facie find force in the contentions of the ld AR that the whole of the demand amounting to Rs 30,01,451 under excise law has been directed to be deleted. We are accordingly setting aside the 21 ITA No. 839 & 887/JP/2016 ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota matter to the file of the AO for the limited purpose of verifying with the excise authorities the impact of CESTAT order on the demand so raised on the assessee company and where the whole of the demand is found to be deleted by the excise authorities following the order of CESTAT, the AO is directed to give a consequential effect in the present proceedings. The grounds of appeal raised by the assessee and the revenue are disposed off accordingly.
7. As regards Ground No. 2 of the assessee's appeal, the brief facts of the case are that the AO noted that the assessee has debited the following expenses in the Profit & Loss Account:-
Sr. No. Particulars Amount
1. Medical expenses Rs. 1,56,180/-
2. Other expenses Rs. 45,436/-
3. Petrol and Diesel Rs. 2,60,021/-
4. Telephone Rs. 1,46,772/-
5. Staff Welfare Rs. 25,552/-
6. Carriage outward Rs. 1,56,180/-
Total Rs. 7,90,141/-
He observed that the vouchers of expenses are defective and therefore, expenses claimed are treated as excessive. He further assumed personal expenses of Directors in Telephone expenses and Vehicle Petrol expenses. Accordingly, 20% of the above expenses were disallowed.
22 ITA No. 839 & 887/JP/2016ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota
8. The Ld. CIT(A) confirmed disallowance made by the AO by observing as under :-
"Looking to the nature of the above expenses and the fact that several defects have been pointed out in the maintenance of supporting evidences in these as well as the finding that there is all probability in the absence of properly maintained records in support that these expenses were not incurred wholly and exclusively only for business purposes, I find the action of the A.O in partially disallowing expenses on account of medical, office, petrol, telephone, welfare & carriage outward as proper. "
9. During the course of hearing, the ld. AR submitted that the disallowance is made on adhoc basis without specifying any specific defect in the voucher and without bringing any material on record to assume that the expenses claimed are excessive. Further, it is a case of a limited company where no disallowance on account of personal user of telephone / petrol expenses by the Directors can be made. Hence the disallowance made by the AO and confirmed by the Ld. CIT(A) is unjustified. Reliance in this connection is placed on following cases:-
- Frigoglass India Pvt. Ltd. vs. DCIT (2016) 140 DTR 35 (Delhi) (Trib)
- Seasons Catering Services (P) Ltd. vs. DCIT (2010) 43 DTR 397 (Del) (Trib).
- ACIT vs. Ganpati Enterprises Ltd. (2013) 142 ITD 118 (Delhi)(Trib.)
- Surya Credits Ltd. vs DCIT 22 Tax World 90 (Jaipur) (Trib)
- Metallizing Equipment Co. (P.) Ltd. vs. DCIT 70 TTJ 358 (Jodh.)
- CIT vs. Dinesh Mills Ltd. 148 Taxman 76 (Guj.) (HC)
- Banco Products (India) Ltd. vs DCIT 63 ITD 370 (Ahd.) (Trib.) 23 ITA No. 839 & 887/JP/2016 ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota
10. On the contrary the ld. D/R supported the order of the lower authorities.
11. We have heard rival submissions and perused the material available on record. The AO has stated that the vouchers for claim of expenses are defective and the assessee has not offered proper explanation and thereafter, has gone ahead and disallowed 20% of the whole of the subject expenses. If the AO was not satisfied with the explanation and basis of claim of the expense, the question is why he has disallowed only 20% of the expenses effectively stating that the balance 80% of the expense originating from the same vouchers are allowed. In our view, there is inherent contradiction in the stand of the Revenue and it is clearly a case of adhoc disallowance which cannot be sustained in the eye of law. In the result, adhoc disallowance of expenses are hereby deleted. In the result, ground no. 2 of the assessee's appeal is allowed.
12. As regards ground no. 3 of the assessee's appeal, the brief facts of the case are that during the year, the assessee paid fees to the Registrar of Companies of Rs. 3 lakhs for increasing its Authorised Capital from Rs. 15 crores to Rs 18 crores. The same was claimed by the assessee in the profit and loss Account as revenue expenditure. The AO, however, allowed 1/5th of such expenses u/s 35D(2)(c)(iv) i.e., Rs. 60,000/- and disallowed the balance amount of Rs.2,40,000/-.
13. The ld. CIT(A) confirmed the disallowance by relying on the decision of the Hon'ble Supreme Court in case of Brooke Bond India Ltd. vs. CIT 91 Taxmann 26. The observations of the ld. CIT (A) are as under :-
24 ITA No. 839 & 887/JP/2016ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota "As regards the ROC related expenses, of Rs. 3,00,000/- for increasing the share capital, SUPREME COURT OF INDIA in Brooke Bond India Ltd. v. Commissioner of Income-tax 91 Taxman 26 (SC) held-
On the facts that during the assessment year 1969-70, the assessee-company issued share to increase its share capital and claimed deduction of expenditure incurred in connection therewith as revenue expenditure but the same was disallowed as capital expenditure by all the lower authorities.
Held-Though the increase in the capital results in expansion of the capital base of the company and incidentally that would help in the business of the company and may also held in the profit making, the expenses incurred in that connection still retains the character of a capital expenditure since the expenditure is directly related to the expansion of the capital base of the company. Hence, expenditure incurred by the assessee was capital expenditure.
In view of the above, the stand taken by the A.O of allowing these expenses being Capital in nature, @ 1/5 each for 5 years is correct and not required to be interfered with.
The disallowance of Rs. 2,40,000/- is confirmed."
14. The ld DR is heard who has relied upon the order of the lower authorities.
15. The ld AR submitted that any fund generated from share capital which utilized in running of business or to promotion of business is 25 ITA No. 839 & 887/JP/2016 ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota similar to bank loan and its expenses is similar to interest expenses and interest expenses is a revenue expenditure and allowable in Profit & Loss account as business expenses. Reliance in this connection is placed on the following cases:-
Navi Mumbai Sez (P.) Ltd vs. ACIT (2015) 152 ITD 828 (Mumbai) (Trib) Lakshmi Auto Companies Ltd. vs. DCIT (2006) 101 ITD 209 (TM) (Chennai) (Trib)
16. We have heard the rival contentions and pursued the material available on record. In light of Supreme Court decision in case of Brooke Bond India (Supra), we see no reason to interfere with the order of the ld CIT(A). Hence, ground no. 3 of assessee's appeal is dismissed.
In the result, the appeal of the assessee and revenue are disposed off with above directions.
Order pronounced in the open court on /07/2017
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(Kul Bharat) (Vikram Singh Yadav)
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*Ganesh Kr.
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- A.C.I.T, Kota 26 ITA No. 839 & 887/JP/2016 ACIT, Kota vs. M/s Prem Jain Inspat Udhyog Pvt. Ltd.,Kota
2. izR;FkhZ@ The Respondent- M/s Prem Jain Ispat Udhyog Pvt. Ltd., Bajaj Palance, Near Paliwal Compound, Chhawani, Kota
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur.
6. xkMZ QkbZy@ Guard File {ITA No. 839 & 887/JP/2016} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar