T.N.Auto & General Engg Co.P.Ltd, Trichur V. DCIT, Trichur

CO 29/COCH/2013

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9262 (ITAT-COCHIN)
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 31-01-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 05-12-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 17-09-2013
• Court: TRIBUNAL
• Department Lawyers: K K JOHN
• Assessee Lawyers: S SIVARAMAKRISHNAN
• Keywords: Business income
• Section: 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NOS. 271-273/COCH/2012 & 469/COCH/2013 ASSESSMENT YEARS : 2006-07 TO 2009-10 THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, THRISSUR. VS. M/S. T.N. AUTO & GENERAL ENGG. CO. PVT. LTD., 11/256A, NEAR RAILWAY STATION ROAD, WADAKKANCHERRY, THRISSUR-680623. [PAN:AAACT 3423D] (REVENUE -APPELLANT) (ASSESSEE-RESPONDEN T) C.O. NO. 29/COCH/2013 (ARSG. OUT OF I.T.A. NO. 469/COCH/2013 ASSESSMENT YEAR : 2009-10 M/S. T.N. AUTO & GENERAL ENGG. CO. PVT. LTD., 11/256A, NEAR RAILWAY STATION ROAD, WADAKKANCHERRY, THRISSUR-680623. [PAN:AAACT 3423D] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, THRISSUR. (ASSESSEE-APPELLANT) (REVENUE-RESPONDENT ) REVENUE BY SHRI K.K. JOHN, SR. DR ASSESSEE BY SHRI S. SIVARAMAKRISHNAN, CA DATE OF HEARING 05/12/2013 DATE OF PRONOUNCEMENT 31/01/2014 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: ALL THE APPEALS FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A)-I, KOCHI. THE APPEALS FILED BY THE REVENUE RELATE TO THE ASSESSME NT YEARS 2006-07 TO 2009-10. I.T.A. NOS. 271-273/COCH/2012 & 469/COCH/2013 & C.O. NO.29/COCH/2013 2 THE CROSS OBJECTION FILE BY THE ASSESSEE IS RELATED TO THE ASSESSMENT YEAR 2009- 10. ALL THESE APPEALS AND THE CROSS OBJECTION WERE HEARD TOGETHER AND HENCE THEY ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 3. IN THE ASSESSMENT YEAR 2006-07 TO 2008-09, THE I SSUE URGED BEFORE US IS IDENTICAL IN NATURE, I.E., THE REVENUE IS ASSAILING THE DECISION OF THE LD. CIT(A) IN DELETING THE ADDITION RELATING TO SUPPRESSION OF IN COME. HENCE, WE PREFER TO ADJUDICATE THE ABOVE SAID THREE APPEALS TOGETHER. 4. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSEE-COMPANY WAS ORIGINALLY REGISTERED IN GOA IN THE YEAR 1987. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF STEEL RODS. IT WENT INTO LIQUI DATION. SUBSEQUENTLY THE COMPANY WAS PURCHASED BY SHRI K.P. YUSUF, THE PRESE NT MANAGING DIRECTOR AND HIS FAMILY MEMBER. THE DEPARTMENT CARRIED OUT SEAR CH AND SEIZURE OPERATIONS IN THE HANDS OF THE ASSESSEE ON 06-09-2007 AND ALSO AT THE RESIDENTIAL AND OTHER BUSINESS PREMISES OF THE MANAGING DIRECTOR, SHRI K. P. YUSUF. DURING THE COURSE OF SEARCH, THE DEPARTMENT RECOVERED MANY DOCUMENTS MARKED AS MM-1 & MM. THE NOTING FOUND IN PAGE NOS. 50 & 51 OF THE SEIZED DOCUMENT MM-1 REVEALED THAT THE PRODUCTION FOR THE PERIOD FROM APRIL, 2006 TO DECEMBER, 2006, I.E., FOR NINE MONTHS WAS 6304 TONS BUT THE ASSESSEE-COMPANY HAD ACCOUNTED ONLY 4620 TONS. A SWORN STATEMENT WAS RECORDED FROM ONE OF TH E DIRECTORS OF THE COMPANY, SHRI K.P. ALI, WHO WAS NEPHEW OF SHRI K.P. YUSUF, W HEREIN HE ADMITTED THAT THERE WAS SUPPRESSION OF PRODUCTION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO COLLECTED THE DETAILS OF NORMS OF PRODUCTION FOR STEEL COMPANIES FROM M/S KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION (KS IDC) AND NOTICED THAT FOR PRODUCING ONE METRIC TONNE OF STEEL RODS, 100 UNITS OF POWER IS REQUIRED. ON THE BASIS OF THE ABOVE SAID NORMS, THE ASSESSING OFFICE R COMPUTED THE PRODUCTION THAT SHOULD HAVE BEEN ACHIEVED BY THE ASSESSEE ON T HE QUANTITY OF POWER CONSUMED. THEN THE AO COMPARED THE SAME WITH THE A CTUAL PRODUCTION AND I.T.A. NOS. 271-273/COCH/2012 & 469/COCH/2013 & C.O. NO.29/COCH/2013 3 CAME TO THE CONCLUSION THAT THERE WAS SUPPRESSION O F PRODUCTION. THE WORKINGS GIVEN BY THE AO FOR ALL THE THREE YEARS ARE GIVEN B ELOW:- ASST YEAR POWER CONSUMPTION PRODUCTION AS PER NORMS (IN TONS) ACTUAL PRODUCTION PER RETURN DIFFERENCE (IN TONS) PERCENTAGE OF SUPPRESSION 2006-2007 1296715 12967 3022 9945 329 2007-2008 1582206 15822 5999 9823 163 2008-2009 1676988 16770 4965 11805 237 FURTHER THE AO ALSO CAME TO THE CONCLUSION THAT THE ACCOUNTS MAINTAINED BY THE ASSESSEE ARE FAULTY. THE AO PLACED RELIANCE ON THE DECISION RENDERED IN THE CASE OF ST. THERESAS OIL MILL VS. STATE OF KERALA (1970) (25 STC 497) AND ALSO ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF M/ S MELTON INDIA VS. COMMISSIONER OF TRADE TAX REPORTED IN (2007) (5 VST 613) TO CONCLUDE THAT THE PRODUCTION CAN BE ESTIMATED ON THE BASIS OF ELECTRI CITY CONSUMPTION. THE AO ALSO OBSERVED THAT THE STOCK VARIATION AND CLANDEST INE TRANSACTIONS DETECTED BY THE COMMERCIAL TAXES DEPARTMENT ALSO PROVE THE INCO RRECT NATURE OF ACCOUNTS. HOWEVER, IT IS PERTINENT TO NOTE THAT THE AO DID NO T BRING ON RECORD ANY MATERIAL TO SUBSTANTIATE THE ABOVE SAID OBSERVATION. THE AO ALSO TOOK SUPPORT OF MATERIALS UNEARTHED DURING THE COURSE OF SEARCH, VI Z., (A) PAGE NO.50 & 51 OF MM-I , WHEREIN THE SUPPRESSION OF PRODUCTION WAS NO TICED (B) EXCESS CASH OF RS.1,62,500/- FOUND DURING THE COURSE OF SEARCH AND (C) AUDITORS QUALIFICATION ON THE ACCOUNTING SYSTEM. ACCORDINGLY, THE AO REJECTE D THE BOOK RESULTS AND PROCEEDED TO ESTIMATE PROFIT ON THE SUPPRESSED TURN OVER ON THE BASIS OF POWER CONSUMPTION. IN THE TABLE EXTRACTED EARLIER, THE AO HAD COMPUTED THE SUPPRESSED PRODUCTION. THE WORKINGS GIVEN BY THE AO FOR COMPUTING THE SUPPRESSED SALES VALUE AND SUPPRESSED PROFIT ARE EX TRACTED BELOW:- I.T.A. NOS. 271-273/COCH/2012 & 469/COCH/2013 & C.O. NO.29/COCH/2013 4 ASST. YEAR SUPPRESSION OF TURNOVER RATE PER UNIT AS PER ASSESSEE (RS.) TOTAL VALUE OF SUPPRESSION OF TURNOVER (RS.) 2006-07 9445 25856 257137920 2007-08 9823 28875 283639123 2008-09 11805 37161 438685605 ASST. YEAR TOTAL VALUE OF SUPPRESSION OF TURNOVER (RS.) GP RATE DISCLOSED SUPPRESSION OF PROFIT (RS.) 2006-07 257137920 6.39% 1,64,31,113 2007-08 283639125 4.20% 1,19,12,843 2008-09 438685605 4.88% 2,14,07,857 THE AO ASSESSED THE PROFIT ESTIMATED BY HIM AS THE INCOME OF THE ASSESSEE IN THE RESPECTIVE ASSESSMENT YEARS. 5. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) CALLED FOR A REMAND REPORT FROM THE ASSESSING OFFICER. IN THE REMAND REPORT, THE ASSESSING OFFICER POINTED OUT THAT THE DIRECTOR OF THE ASSESSEE SHRI K.P.ALI HAS ACCEPTED NOTING FOUND IN PAGE NO.50 & 51 OF MM-I AND ALSO ACCEPTED THAT THER E WAS SUPPRESSION OF PRODUCTION. THE AO ALSO DEFENDED THE PROFIT ESTIMA TED BY HIM. HOWEVER, THE LD CIT(A) TOOK THE VIEW THAT THE ADDITION OF PROFIT IS NOT SUSTAINABLE ON THE FOLLOWING REASONS:- (A) THE AO SHOULD HAVE REQUESTED THE ASSESSEE TO E XPLAIN THE FACTS AND CIRCUMSTANCES ASSOCIATED WITH THE SEIZED MATERIALS AND THEN SHOULD HAVE EXAMINED THEIR RELEVANCY. THE AO HAS FAILED TO DO SO. THE SEARCH ACTION DID NOT REVEAL MAJOR VARIATION IN CASH BALANCE AND INVENTORIES. (B) THE ASSESSEE COMPANY IS SUBJECTED TO AUDIT BY VARIOUS AGENCIES LIKE CENTRAL EXCISE, COMMERCIAL TAX DEPARTMENT ETC. THE AO DID NOT BRING ANY INCRIMINATING MATERIALS ON RECORD FROM ANY OF THE A GENCIES. (C) THE ASSESSEE HAS RECONCILED THE STOCK POSITION WITH THE TAX AUDIT REPORTS. THE ASSESSEE HAS ALSO RECONCILED THE FIGU RES FOUND IN THE SEIZED MATERIALS PAGES 50 & 51 IN MM1 AND PROVED THAT WHAT IS SCRIBED THEREIN IS AN ESTIMATE. I.T.A. NOS. 271-273/COCH/2012 & 469/COCH/2013 & C.O. NO.29/COCH/2013 5 (D) THE NORMS GATHERED BY THE AO FROM KSIDC COULD NOT BE CONSIDERED AS A STANDARD AND SCIENTIFIC PRESCRIPTION TO BASE I T AS A REFERENCE MATERIAL TO ASCERTAIN EITHER PRODUCTION OR CONSUMPTION. (E) HENCE, THE PREMISES ON WHICH THE AO BUILT THE ASSESSMENTS WERE ABSOLUTELY BASELESS AND HENCE THE ADDITIONS DESERVE TO BE DELETED. ACCORDINGLY, THE LD CIT(A) DELETED THE ADDITION IN ALL THE THREE YEARS. AGGRIEVED BY THE SAID DECISION, THE REVENUE HAS FILED THESE A PPEALS BEFORE US. 6. THE LD D.R SUBMITTED THAT THE LD CIT(A) HAS IN PRINCIPLE FOLLOWED THE DECISION RENDERED BY THIS BENCH OF TRIBUNAL IN THE CASE OF M/S MALABAR STEELS AND ALLOYS (P) LTD (ITA NO. 197-202; 234-239/COCH/2011) IN DECIDING THE ISSUE. THE LD D.R SUBMITTED THAT THE FACTS PREVAILING IN THE I NSTANT CASE ARE TOTALLY DIFFERENT FROM THAT PREVAILING IN THE CASE OF M/S MALABAR STE ELS AND ALLOYS (P) LTD AND ACCORDINGLY CONTENDED THAT THE DECISION RENDERED IN THE ABOVE SAID CASE CANNOT APPLIED HERE. HE SUBMITTED THAT THE SEIZED MATERIA LS PG. 50 & 51 OF MM-I CLEARLY PROVE THAT THERE WAS SUPPRESSION OF PRODUCTION. FU RTHER THE FACT OF UNDER ACCOUNTING OF PRODUCTION HAS BEEN ACCEPTED BY ONE O F THE DIRECTORS OF THE COMPANY NAMED SHRI K.P. ALI AND THE ACCOUNTANT SHRI T.P. NARAYANAN. HENCE, THE AO WAS JUSTIFIED IN REJECTING THE BOOKS OF ACCO UNTS AND ALSO IN ESTIMATING THE PRODUCTION BY TAKING THE ELECTRICITY CONSUMPTION AS THE BASIS. THE PROCEDURE ADOPTED BY THE AO IS SUPPORTED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF M/S MELTON INDIA VS. COMMISSIONER OF TRADE TAX REPORTED IN (2007) 5 VST 613. THE LD D.R FURTHER SUBMITTED THAT THE ASS ESSING OFFICER HAS SUBSTANTIATED THE ESTIMATION OF PRODUCTION AND PROF IT IN A DETAILED MANNER IN THE REMAND REPORTS SUBMITTED TO LD CIT(A). 7. THE LD A.R, HOWEVER, SUBMITTED THAT THE ASSE SSING OFFICER WAS WRONG IN OBSERVING THAT THE ACCOUNTANT OF THE ASSESSEE SHRI T.P. NARAYANAN HAS ACCEPTED ABOUT SUPPRESSION OF PRODUCTION. HE SUBMITTED THAT THE SEARCH OFFICIALS DID NOT TAKE ANY SWORN STATEMENT FROM SHRI T.P. NARAYANAN D URING THE COURSE OF SEARCH. I.T.A. NOS. 271-273/COCH/2012 & 469/COCH/2013 & C.O. NO.29/COCH/2013 6 A STATEMENT WAS TAKEN FROM HIM ONLY DURING THE COUR SE OF REMAND PROCEEDINGS, WHEREIN HE HAD STATED THAT THE DOCUMENTS IN PG. 50 & 51 WERE PREPARED FOR BANK PURPOSES. THE LD COUNSEL SUBMITTED THAT THE A BOVE SAID DOCUMENTS PERTAIN TO A 9 MONTHS PERIOD FROM APRIL 2006 TO DEC . 2006. HE SUBMITTED THAT SHRI T.P. NARAYANAN, THE ACCOUNTANT OF THE ASSESSEE HAS CLARIFIED IN HIS SWORN STATEMENT THAT THE ABOVE SAID DOCUMENTS WERE PREPAR ED FOR BANK PURPOSES. ACCORDINGLY, HE SUBMITTED THAT THE AO WAS NOT JUSTI FIED IN PLACING RELIANCE ON THE ABOVE SAID STATEMENTS FOR REJECTING THE BOOK RESULT S. THE LD A.R FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS ADOPTED TH E ELECTRICITY CONSUMPTION AS THE BASIS FOR ESTIMATING THE PRODUCTION AND FOR THA T PURPOSE THE AO HAD FOLLOWED THE NORMS PRESCRIBED BY KSIDC. HE SUBMITTED THAT T HE DEPARTMENT HAD COMPUTED THE PRODUCTION IN AN IDENTICAL MANNER IN T HE CASE OF ANOTHER ASSESSEE NAMED M/S MALABAR STEELS & ALLOYS (P) LTD. HOWEVER , THE TRIBUNAL, VIDE ITS ORDER DATED 30-11-2012 IN ITA NOS. 197-202; 234-239/COCH/ 2011, HAS HELD THAT THE NORMS PRESCRIBED BY KSIDC CANNOT BE FOLLOWED. HE S UBMITTED THAT THE DEFECTS POINTED OUT BY THE AO WERE VERY MUCH INSIGNIFICANT AND HENCE THERE IS NO REASON FOR THE AO TO REJECT THE BOOK RESULTS AND TO RESORT TO ESTIMATE THE PRODUCTION AND PROFIT. 8. IN THE REJOINDER, THE LD D.R SUBMITTED THAT SHRI K.P. ALI, DIRECTOR OF THE ASSESSEE COMPANY HAD ACCEPTED THE FACT OF UNDER ACC OUNTING OF PRODUCTION IN HIS SWORN STATEMENT. IN THE REPLY GIVEN BY HIM WIT H REGARD TO THE PAGES 50 & 51 OF MM-I, SHRI K.P. ALI HAD STATED THAT HE IS GIVING REPLY AFTER CONSULTING SHRI T.P. NARAYANAN, THE ACCOUNTANT OF THE ASSESSEE. SHRI K. P. ALI HAS NOT SO FAR RETRACTED FROM THE STATEMENT GIVEN BY HIM. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. WE NOTICE THAT THE ORDER IN THE CASE OF M/S MALABAR ST EELS & ALLOYS PVT LTD WAS PRONOUNCED BY THE TRIBUNAL ON 30.11.2012. THE LD C IT(A) HAS PASSED THE IMPUGNED ORDERS ON 22.08.2012, I.E., PRIOR TO THE O RDER OF THE TRIBUNAL REFERRED I.T.A. NOS. 271-273/COCH/2012 & 469/COCH/2013 & C.O. NO.29/COCH/2013 7 ABOVE. HENCE THE GROUND NO.3 TAKEN BY THE REVENUE AS WELL AS THE SUBMISSIONS MADE BY LD D.R TO THE EFFECT THAT THE LD CIT(A) HAS FOLLOWED THE ORDER PASSED BY THE TRIBUNAL IN THE CASE OF M/S MALABAR STEELS & AL LOYS PVT LTD NEED TO BE DISMISSED IN VIEW OF THE FACTS DISCUSSED ABOVE. 10. WE NOTICE THAT THE ASSESSING OFFICER HAS EST IMATED THE PRODUCTION IN THE HANDS OF THE ASSESSEE BY FOLLOWING THE NORMS PRESCR IBED BY M/S KSIDC. IN THE CASE OF M/S MALABAR STEELS & ALLOYS PVT LTD (REFERR ED SUPRA), THE TRIBUNAL HAS MADE FOLLOWING OBSERVATIONS WITH REGARD TO THE ACTI ON OF THE AO IN FOLLOWING THE NORMS PRESCRIBED BY THE KSIDC, IN PARAGRAPH 19 OF T HE ORDER.:- THE AO ADOPTED THE BASIS OF POWER CONSUMPTION FAC TOR SUPPLIED BY THE KSIDC, WHICH PROVED TO BE UNRELIABLE. IT IS PERTIN ENT TO NOTE THAT THE KSIDC IS A FINANCIAL INSTITUTION AND IT PROCESSES T HE PROJECT REPORTS SUBMITTED BY THE PROSPECTIVE BORROWERS. THE POWER CONSUMPTION FACTOR SUBMITTED BY THE KSIDC IS BASED ON SUCH PROJECT REP ORTS. THE REPORT GIVEN BY KSIDC HAS GOT THE HEADING VIZ., NORMS AND ASSUMPTIONS UNDERLYING COST OF PRODUCTION. THE SAID HEADING IT SELF CLEARLY SHOWS THAT THE POWER CONSUMPTION FACTOR IS AN ASS UMPTION/NORM FIXED BY KSIDC FOR PROCESSING THE PROJECT REPORTS. THERE CANNOT BE ANY DISPUTE THAT THE KSIDC, BEING A FINANCIAL INSTITUTION, CANN OT BE CONSIDERED AS A TECHNICAL EXPERT AND HENCE RELIANCE PLACED BY THE A O ON THE SAID REPORT, IN OUR VIEW, IS TOTALLY WRONG. FURTHER IN PARAGRAPH 14 OF THE ORDER, THE TRIBUNAL HAS TAKEN NOTE OF THE CLARIFICATION LETTER DATED 20.11.2008 ISSUED BY THE KSIDC, WHEREIN IT WAS STATED THAT THE POWER FACTOR THAT WAS GIVEN IN THE APPRAIS AL REPORT IS PURELY THEORETICAL IN NATURE AND IT CANNOT BE TAKEN AS A BASIS FOR ASS ESSING SALES TAX. HENCE, IN OUR VIEW, THE AO WAS NOT CORRECT IN PLACING RELIANCE SO LELY ON THE REPORT OF KSIDC, WITHOUT BRINGING OR CONSIDERING ANY OTHER MATERIAL INDICATING SUPPRESSION OF PRODUCTION. IT IS PERTINENT TO NOTE HERE THAT THE TRIBUNAL, IN THE CASE OF M/S MALABAR STEELS & ALLOYS PVT LTD (SUPRA), HAS ALSO CONSIDERED A TEST REPORT GIVEN BY A TECHNICAL EXPERT ON ELECTRICAL INSTALLATIONS A ND ELECTRICITY CONSUMPTIONS AND NOTICED THAT THE POWER CONSUMPTION SHOWN BY THAT AS SESSEE WAS LESSER THAN THE AVERAGE CONSUMPTION ESTIMATED BY THE TECHNICAL EXPE RT. THE TRIBUNAL ALSO TOOK I.T.A. NOS. 271-273/COCH/2012 & 469/COCH/2013 & C.O. NO.29/COCH/2013 8 NOTE OF THE FACT THAT THERE WAS NO ABNORMAL OR ABRU PT FLUCTUATION IN AVERAGE POWER CONSUMPTION OVER THE YEARS. THE TRIBUNAL ALS O NOTICED THAT THE ASSESSEE HAD CARRIED OUT JOB WORKS IN CERTAIN PERIODS AND AC CORDINGLY THE ASSESSEE COULD EXPLAIN CONVINCINGLY ABOUT THE HIGHER RATE OF POWER CONSUMPTION. HENCE, ON CONSIDERING VARIOUS FACTS DISCUSSED ABOVE, THE TRIB UNAL HAS UPHELD THE ORDER OF LD CIT(A) IN REJECTING THE PRODUCTION QUANTITIES ES TIMATED BY THE AO ON THE BASIS OF POWER CONSUMPTION. THUS, IT CAN BE SEEN THAT TH E DECISION WAS RENDERED IN THE CASE OF M/S MALABAR STEELS & ALLOYS (P) LTD (SU PRA) BY CONSIDERING THE FACTS AND MATERIALS AVAILABLE IN THAT CASE. HENCE, IT MA Y NOT BE CORRECT TO CONTEND THAT THE TRIBUNAL HAS REJECTED AOS ESTIMATES, ONLY FOR THE REASON THAT THE AO HAS ESTIMATED THE PRODUCTION FIGURES ON THE BASIS O F THE REPORT OF KSIDC. HOWEVER, IN THE INSTANT CASE, THE ASSESSEE HAS NOT ALSO BROUGHT ANY MATERIAL TO SUBSTANTIATE THAT THE POWER CONSUMPTION DECLARED BY IT WAS AS PER INDUSTRY STANDARDS. HENCE, IN OUR VIEW, THE ASSESSEE COULD NOT FULLY DRAW SUPPORT FROM THE DECISION OF TRIBUNAL RENDERED IN THE CASE OF M/ S MALABAR STEELS & ALLOYS (P) LTD (SUPRA). 11. THE LD A.R CONTENDED THAT THE AO HAS REJECTED THE BOOK RESULTS BY PLACING RELIANCE ON THE SEIZED DOCUMENT PG. NO.50 & 51 OF M M-I. HOWEVER, THE FOLLOWING OBSERVATIONS MADE IN PARAGRAPH 11.3 OF TH E ORDER WOULD SHOW THAT THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACCOUNT EVEN BEFORE MAKING A REFERENCE TO THE SEIZED MATERIALS:- IN THIS CASE THERE ARE VARIOUS INSTANCES TO ESTABL ISH THE FACT THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE DEALER ARE NOT T RUE AND CORRECT WHICH LEAD TO IRREFUTABLE NON-ACCEPTANCE OF THE BOOKS OF ACCOUNTS FULLY AND ESTIMATION OF TURNOVER ON THE BASIS OF ELECTRICITY CONSUMPTION IS THUS JUSTIFIED. THE CASE LAWS SUCH AS ST THERESAS OIL M ILL VS. STATE OF KERALA (1970) 25 STC 497 (WHICH WAS IN FAVOUR OF THE ASSES SEE) JUSTIFY THE ESTIMATION OF PRODUCTION BASED ON ELECTRICITY CONSU MPTION IF THERE ARE SUBSTANTIAL DEFECTS IN ACCOUNTS. STOCK VARIATION A ND CLANDESTINE TRANSACTIONS DETECTED BY COMMERCIAL TAX DEPARTMENT ARE AMPLE PROOF OF THE INCORRECT NATURE OF THE BOOKS OF ACCOUNT MAINTA INED BY THE ASSESSEE AND SUPPRESSION OF MANUFACTURE. THE SEARCH CONDUCT ED BY THE I.T.A. NOS. 271-273/COCH/2012 & 469/COCH/2013 & C.O. NO.29/COCH/2013 9 DEPARTMENT ON 6/9/2007 AT THE BUSINESS PREMISES OF THE COMPANY ALSO REVEALED THE FOLLOWING INDICATIVE BUT SERIOUS DEFEC TS. (I) AS PER PAGE 50, 51 OF ANNEXURE MM-I SEIZED FR OM THE OFFICE OF T.N. AUTO & GENERAL ENGINEERING COMPANY PRIVATE LIMI TED DURING THE COURSE OF SEARCH & SEIZURE OPERATION IT WAS FOUND T HAT THE TOTAL PRODUCTION, DURING THE PERIOD FROM APRIL 2006 TO DE CEMBER 2006, I.E., FOR 9 MONTHS, WAS ACTUALLY 6304 METRIC TONS. HOWEVER, THE ASSESSEE HAD ACCOUNTED ONLY 4620 METRIC TONS IN THE ACCOUNTS. I T WAS DEPOSED BY SHRI T.P. NARAYANAN WHO MAKES THE ENTRIES REGARDING PROD UCTION THAT HIS WAS THE PRACTICE FOLLOWED IN THE COMPANY. (II) ON PHYSICAL VERIFICATION OF CASH AN EXCESS CA SH OF RS.1,62,500/- WAS FOUND AT THE OFFICE, OUT OF WHICH RS.1,50,000/- WAS SEIZED AS SHRI ALI, WHO WAS MANAGING THE CASH, COULD NOT SATISFACTORILY EXPLAIN THE SOURCE OF THE ABOVE AMOUNT. (III) ALTHOUGH YEAR AFTER YEAR THE STATUTORY AUDI TOR HAS QUALIFIED THE ACCOUNTING SYSTEM IN THE COMPANY WHICH INCLUDES THE FOLLOWING: (A) THE COMPANY IS YET TO MAINTAIN A FIXED ASSET REGISTER (B) THE COMPANY HAS NO INTERNAL AUDIT SYSTEM. A CAREFUL PERUSAL OF THE OBSERVATIONS MADE BY THE A O WOULD INDICATE THAT THE AO HAS DECIDED TO ESTIMATE THE PRODUCTION ON THE BASIS OF ELECTRICITY CONSUMPTION, EVEN BEFORE MAKING A REFERENCE TO THE SEIZED MATERI ALS. THE AO HAS ALSO TAKEN SUPPORT OF THE DEFECTS NOTICED DURING THE COURSE OF SEARCH TO SUBSTANTIATE HIS DECISION. HOWEVER, IT IS PERTINENT TO NOTE THAT TH E AO HAS MADE GENERAL OBSERVATIONS ONLY ABOUT THE INCONSISTENCIES IN ACCO UNTS, STOCK VARIATION, CLANDESTINE TRANSACTIONS DETECTED BY THE COMMERCIAL TAX DEPARTMENT, WITHOUT BRINGING THE RELEVANT MATERIALS ON RECORD AT THE AS SESSMENT STAGE. 12. BEFORE LD CIT(A), THE AO FURNISHED REMAND RE PORTS, WHEREIN HE CONTENDED THAT THE ENTRIES FOUND IN PG. 50 & 51 OF MM-I COULD NOT HAVE BEEN PREPARED FOR BANK PURPOSES. THE AO HAD SUBMITTED THAT A BUSINES SMAN, IN ORDER TO AVAIL BANK LOANS, WOULD NORMALLY BE BOOSTING THE FINANCIA L RESULTS IN ORDER TO SHOW HEALTHY FINANCIAL POSITION BEFORE THE BANKS. ACCOR DINGLY, THE AO SUBMITTED THAT THE ASSESSEE HEREIN HAS ACCOUNTED 4620 MT AS PRODUC TION AS AGAINST ACTUAL PRODUCTION OF 6304 MT, I.E., THE ASSESSEE HAS REDUC ED THE PRODUCTION QUANTITY, I.T.A. NOS. 271-273/COCH/2012 & 469/COCH/2013 & C.O. NO.29/COCH/2013 10 WHICH IS AGAINST THE USUAL PRACTICE FOLLOWED BY THE PARTIES FOR AVAILING BANK LOANS. THE AO ALSO STRONGLY SUPPORTED HIS ACTION I N ADOPTING THE KSIDC NORMS FOR ESTIMATING PRODUCTION ON THE BASIS OF ELECTRICI TY CONSUMPTION. THE AO ALSO POINTED OUT ABOUT THERE WAS STOCK VARIATION ON THE DATE OF SEARCH, I.E., AS AGAINST BOOK QUANTITY OF 446.698 MT OF FINISHED STO CK, THE PHYSICAL QUANTITY WAS ONLY 404 MT. SIMILARLY, AS AGAINST THE BOOK QUANTI TY OF 98.092 MT OF RAW MATERIALS, THE PHYSICAL QUANTITY WAS ONLY 96.5 MT. THE AO ALSO POINTED OUT THAT THE TWO KEY DIRECTORS OF THE ASSESSEE COMPANY NAMED SHRI K.P. YUSUF AND SMT. K.K. ASIS ARE HAVING TWO RETAIL OUTLETS NAMED K.P. STEELS AND KELATH METALS AND HENCE BOTH OF THEM WERE IN A POSITION TO HANDLE THE AFFAIRS OF THE ASSESSEE COMPANY RIGHT FROM PROCUREMENT OF RAW MATERIALS, PR OCESSING & PRODUCING FINISHED PRODUCTS AND SELLING THEM WITHOUT ANY OUTS IDE SUPPORT. THE AO FURNISHED ANOTHER REPORT DATED 23.02.2012 BEFORE LD CIT(A), WHEREIN THE AO HAS POINTED OUT SOME MORE DEFECTS. THE LD CIT(A) HAS E XTRACTED THE SAME IN PARA 6.6 OF HIS ORDER. FOR THE SAKE OF CONVENIENCE, WE ALSO EXTRACT THE SAME HERE UNDER:- 6.6 THE AO FURTHER SEND A REPORT DATED 23.02.12 W HICH IS EXTRACTED AS UNDER:- SUBSEQUENT TO THE REPORT DT. 17.10.2011 (UNDER-REF ERENCE) ASSESSEE WAS REQUESTED ON 17.11.2011 TO PRODUCE FRE SH EVIDENCE AND CLARIFICATIONS IN SUPPORT OF ITS CLAIM FOR CAPITAL/ LOAN INTRODUCED, WHICH IS ONE OF THE MAIN SOURCE OF ADDITIONS AND ALSO REQUES TED TO FILE DETAILS OF PROJECT REPORT AND DETAILS OF THE BANK BEFORE WHICH IT WAS PRESENTED OR OBTAINING LOAN AND THE UTILITY OF THE DATA AS PER SEIZED MATERIALS, WHICH IS SAID TO BE WRITTEN FOR PREPARING THE PROJECT REPORT AND ALSO TO CLARIFY THE ASSESSEES CLAIM THAT THERE IS NO DIFFERENCE BETWEE N THE STOCK FOUND ON PHYSICAL VERIFICATION AT THE TIME OF SEARCH AND STO CK AS PER BOOKS, AND ALSO REQUESTED TO FILE COPIES OF THE INSPECTION REPORTS ISSUED BY THE CENTRAL EXCISE DEPARTMENT, WHICH ACCORDING TO THE ASSESSEE, SUPPORTS ITS CLAIM THAT THERE WAS NO DIFFERENCE BETWEEN THE PHYSICAL S TOCK AND STOCK AS PER BOOKS, AND ALSO CERTAIN DETAILS TO VERIFY THE ASSES SEES SUBMISSION BEFORE THE CIT THAT THE MACHINERIES ARE AROUND 45 YEARS OL D, AND DUE TO WHICH THE PRODUCTION ESTIMATED IN THE ASSESSMENT ORDER IS HIGHLY EXCESS. I.T.A. NOS. 271-273/COCH/2012 & 469/COCH/2013 & C.O. NO.29/COCH/2013 11 IN REPLY TO THIS THE ASSESSEE STATED THAT THE PHYS ICAL STOCK ARRIVED AT THE TIME OF SEARCH I.E. ON 06.09.2007 IS ACTUALL Y THE STOCK AS ON 30.08.2007. IN SUPPORT OF THIS HE FILED COPY OF DAI LY STOCK ACCOUNT FOR AUGUST, 2007 (ANNEXURE-V), (A) & (B). BUT THIS STATEMENT IS CONTRA TO THE FACT AVAILABLE IN THE SEIZED MATERIAL PAGE 78 AND 79 OF MM-I-1 (COMPUTER PRINTOU T OF MONTHLY SUMMARY) WHERE IN IT IS CLEARLY SHOWN THAT THE STOC K IS AS ON 06.09.2007 AND FOR THE MONTH OF SEPTEMBER 2007 17.54 MT WAS SH OWN AS INWARD QUANTITY AND 26.19 MT AS OUTWARD QUANTITY. REGARDI NG THE COPIES OF THE INSPECTION REPORT ISSUED BY THE CENTRAL EXCISE DEPAR TMENT THE INSPECTION BY THE AUDIT TEAM IS WITH RESPECT TO RECORDS ONLY AND THE INSPECTION CONDUCTED BY THE PREVENTIVE WING WAS NOT MAINLY IN FOCUS WITH THE ASSESSEE COMPANY , BUT MAINLY TO ASCERTAIN CERTAIN DEALINGS OF THE ASSESSEE WITH ONE OF ITS CUSTOMERS, UNLIKE THE IT S EARCH CONDUCTED ON 06.09.2007. SINCE THE ASSESSEE FAILED TO FURNISH COMPLETE DETA ILS REGARDING THE DATA CONTAINED IN THIS SEIZED SLIP ABOUT PRODUCTION ETC. AND FULL PARTICULARS TO ARRIVE AT THE AGE OF MACHINERIES AGAIN A LETTER WAS ISSUED ON 23.11.2011 CALLING FOR THE ABOVE DETAILS IN ADDITIO N TO THE DETAILS OF ELECTRICITY CONSUMPTION, CHART FOR THE PERIOD MENTI ONED IN THE SEIZED SLIP. ASSESSEES REPLY DATED 02.12.2011 VAGUELY REPLIED T HAT THE AXIS BANK LIMITED HAD GRANTED THEM A LOAN FOR A SECOND TIME IN AUGUST,2007, WITHOUT QUOTING THE BRANCH OR THE AMOUNT OF THE LOA N SANCTIONED ETC. WITH THE RELEVANCE OF THE DATA FOUND IN THE SEIZED SLIP, U/S. 131 OF THE I.T. ACT, 1961 WHEREIN HE HAS STATED THAT THE ACTUAL PRODUCTI ON IS WORKED OUT @ 30 TONNES PER DAY FOR 300 DAYS (PLEASE SEE ANSWER TO Q .NO.6). WHEREAS IN THE COPY OF THE PROJECT REPORT FILED IN ANNEXURE I ALONG WITH THE LETTER FILED ON 02.12.201, IN PAGE 4 UNDER THE HEADING PRODUCTION/CAPACITY UTILIZATION , IT WAS GIVEN THAT FOR THE WORKING OF PROJECTIONS, WE HAVE CONSIDERED ONLY CAPACITY UTILI ZATION OF 96% I.E. THE PRODUCTION OF 96 MT PER DAY . FROM THE ABOVE IT CAN BE SEEN THAT THE DATA FOUND IN THE SEIZED SLIP WAS NOT AT ALL UTILIZED IN THE PROJECT REPORT. THE REFORE IT IS CRYSTAL CLEAR THAT ASSESSEES CONTENTION THAT THE SEIZED MATERIAL MARKED AS MM-I-1 (PAGE 50 & 51) CONTAINS THE DATA MEANT FOR PREPARIN G A PROJECT REPORT IS ABSOLUTELY FALSE AND ONLY AN AFTERTHOUGHT TO COVER OF THE SUPPRESSION OF PRODUCTION. ONE OF THE REASONS FOR THE ESTIMATION OF THE PRODU CTION BY THE ASSESSING OFFICER WAS DEFECTIVE ACCOUNTS MAINTAINED BY THE ASSESSEE. IT I.T.A. NOS. 271-273/COCH/2012 & 469/COCH/2013 & C.O. NO.29/COCH/2013 12 CAN BE SEEN THAT VIDE SERIAL NO. 26 OF PAGE 8 OF TH E HEAT REGISTER SEIZED AND MARKED AS MM-I-18 THE QUANTITY MANUFACTURED ON 26.07.2007 WAS 22.850 MT WHEREAS AS PER THE DAILY STOCK ACCOUNT SE IZED AND MARKED AS MM-I-9 (PAGE 4), THE ACCOUNTED QUANTITY OF PRODUCTI ON IS NIL . COMING TO THE MAINTENANCE OF SALES ACCOUNT IT IS FOUND THAT S ALES AS PER TOTAL SALES REGISTER SEIZED AND MARKED AS MM-I-21 ON 02.05.2007 IS 21.92MT BUT AS PER THE DAILY STOCK ACCOUNT (PAGE 2) SEIZED AND MAR KED AS MM-I-9, THE QUANTITY REMOVED FROM THE FACTORY IS ONLY 11.735 MT . DEFECTS OF THESE TYPES LEFT THE ASSESSING OFFICER WITH NO OTHER ALTE RNATIVE BUT TO RESORT TO ESTIMATION OF PRODUCTION WITH THE POWER CONSUMPTION AS A BASE FOR ESTIMATION. EVEN WHILE ESTIMATING THE PRODUCTION ON THIS BASIS HE WAS VERY LENIENT AND TO AVOID AN ACCUSATION OF ARBITRAR INESS HE HAS TAKEN THE NORMS OF PRODUCTION AS ATTESTED BY THE KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION WHICH IS THE APEX BODY IN P ROMOTING AND PATRONIZING THE INDUSTRIAL DEVELOPMENT IN KERALA ST ATE AND HENCE STATUTORILY AND LEGALLY COMPETENT TO ATTEST NORMS O F PRODUCTIONS. A VERIFICATION OF THE ELECTRICITY CONSUMPTION CHAR T (HEAT REGISTER FOR 01.04.2006 TO 31.12.2006) FURNISHED BY THE ASSESSEE WITH ITS LETTER DATED 02-12-2011 SHOWS AN AVERAGE CONSUMPTION BELOW 45 UN ITS PER MT I.E. FAR BELOW OF THE ESTIMATION OF HUNDRED UNITS BY THE ASS ESSING OFFICER . AS SUCH I AM OF THE OPINION THAT ADDITION MADE ON E STIMATION IS JUST AND LEGALLY VALID. 13. IN RESPONSE TO THE ABOVE REPORT, THE ASSES SEE RECONCILED THE STOCK POSITION AS ON 05.09.2007. FURTHER THE ASSESSEE HA S ALSO RECONCILED THE INFORMATION CONTAINED IN PAGE 51 OF MM-I OF THE SEI ZED MATERIALS BY COLLATING THE DETAILS FROM BOOKS OF ACCOUNTS. THE DETAILS OF REC ONCILIATION STATEMENTS SUBMITTED BY THE ASSESSEE HAVE BEEN EXTRACTED BY TH E LD CIT(A). FOR THE SAKE OF CONVENIENCE, WE ALSO EXTRACT THE SAME BELOW:- 2. EXPENSES SHOWN IN THE SLIP SEIZE BY THE DEPARTME NT (MM-1-1, PAGE 50 TO 55) ARE TAKEN FROM LEDGER FOR THE PERIOD 01.04.2 006 TO 31.12.2006 AND IN SAME CASES THE AMOUNTS HAVE BEEN ROUNDED OFF. D ETAILS ARE GIVEN BELOW: ACCOUNT HEAD AS PER SLIP AS PER LEDGER PURCHASE OF RAW MATERIAL 6,34,07,155 6,34,07,155 I.T.A. NOS. 271-273/COCH/2012 & 469/COCH/2013 & C.O. NO.29/COCH/2013 13 ELECTRICITY CHARGES 56,41,901 43,85,830 ADD FOR NOVEMBER-06 6,77,006 ADD FOR DECEMBER-06 5,79,065.00 56,41,901.00 PURCHASE OF COAL 29,00,000 29,01,91 1.00 LABOUR CHARGES 8,00,000 6,41,63 0.00 ADD FOR DECEMBER 06 38,065.00 .. 8,15,634.00 ROUNDOFF 8,00,000.00 ======= SALES 9,93,00,000 10,02,43,678.00 LESS SALE OF RAW MATERIAL 5,96,272.00 9,96,47,406.00 ========== PLA 10,94,000 10,85,000.00 THE DETAILS OF NOTING FOUND IN PAGE NO.51 OF MM-I A RE EXTRACTED BELOW:- APRIL 2006 TO DECEMBER 2006 TOTAL PRODUCTION ACT UAL ACCOUNTED 6304 4620 PURCHASE OF RAW MATERIAL 46 3407155/- INCLUDING DUTY QUANTITY 3175 MATERIAL CONSUMPTION 4885 PRODUCTION 4620 WASTAGE 5.42% I.T.A. NOS. 271-273/COCH/2012 & 469/COCH/2013 & C.O. NO.29/COCH/2013 14 ELECTRICITY RS. 5641901/- COAL RS. 2900000/- LABOUR RS. 800000/- SALE VALUE RS.99300000/- SALES QUANTITY 4140 BURNING LOSS : DUTY DIFF : PLA : 109400 0 S.T. DIFF : 1453000 UNIT INGOT PRICE SALE PRICE (ED-ST) (- ) E.D/ST FEB. 19839 23393 DEC 17855 22815 OCT 16987 20169 AUG 17318 20417 MAY 15871 20703 APR 18599 23310 AVERAGE 17745 (21407) 21802 (26302) DIFF 4057 4895 (THERE ARE SOME MORE ENTRIES, WHICH ARE NOT LEGIBL E IN THE COPY FILED BY THE ASSESSEE BEFORE US.) 14. IT IS PERTINENT TO NOTE THAT THE ASSESSEES CONTENTION ALL ALONG HAS BEEN THAT THE NOTING FOUND IN PAGE 50 & 51 OF MM-1 IS ON LY ESTIMATES/PROJECTIONS MADE FOR AVAILING BANK LOAN. HOWEVER, THE VERY FAC T THAT THE ASSESSEE IS ABLE TO RECONCILE ALL THE ITEMS, VIZ., PURCHASE OF RAW MATE RIALS, ELECTRICITY CHARGES, PURCHASE OF COAL, LABOUR CHARGES, SALES, PLA (EXCISE DUTY) FOUND IN PAGE NO.51 WITH HIS BOOKS OF ACCOUNTS ONLY SHOW THAT THEY REPR ESENT ACTUAL EXPENSES ACCOUNTED BY THE ASSESSEE IN THE BOOKS OF ACCOUNT, I.E., THE CLAIM OF THE ASSESSEE THAT THEY REPRESENT PROJECTED OR ESTIMATED FIGURES WORKED OUT FOR BANK I.T.A. NOS. 271-273/COCH/2012 & 469/COCH/2013 & C.O. NO.29/COCH/2013 15 PURPOSES IS PROVED TO BE WRONG. FURTHER THE AO HAS ALSO POINTED OUT THAT THE ASSESSEE HAS SHOWN ONLY 96 UNITS AS PRODUCTION/CAPA CITY UTILIZATION OF 96%, WHICH MEANS THAT THE ASSESSEE HAS TAKEN THE CAPACIT Y AS 100 UNITS PER DAY FOR THE PURPOSE OF PREPARATION OF PROJECT REPORT. IT I S PERTINENT TO NOTE THAT THE ACCOUNTANT OF THE ASSESSEE SHRI T.P. NARAYANAN HAS STATED IN THE SWORN STATEMENT TAKEN FROM HIM THAT THE CAPACITY WAS TAKE N AS 9000 UNITS, I.E., 30 UNITS PER DAY FOR 300 DAYS FOR THE PURPOSE OF PREPA RATION OF PROJECT REPORT. ACCORDINGLY, IT WAS SUBMITTED THAT THE ACTUAL QUANT ITY OF 6304 SHOWN IN PAGE NO.51 REPRESENTS 70% CAPACITY UTILIZATION. THE REPL Y SO GIVEN BY THE ACCOUNTANT IS ALSO PROVED TO BE WRONG, SINCE (A) THE ASSESSEE HAS TAKEN THE PRODUCTION CAP ACITY OF THE UNIT AT 100 MT PER DAY AS AGAINST 30 MT STATED BY THE ACCOUNTAN T. (B) THE ACTUAL QUANTITY IS TAKEN AS 6304, I .E. AN ODD FIGURE. 70% OF 9000 MT WORKS OUT TO 6300 MT, I.E., A ROUND FIGURE. IT IS IN THE COMMON KNOWLEDGE THAT, WHILE PREPARING PROJECT REPORTS, TH E FIGURES ARE NORMALLY ROUNDED OFF TO NEAREST THOUSAND. IN THE INSTANT CA SE, THE ASSESSEE CLAIMS TO HAVE ADOPTED 6304 MT IN THE PLACE OF 6300 MT , WHICH IS AGAINST THE PREVALENT PRACTICE. DURING THE COURSE OF HEARI NG ALSO, THE LD A.R COULD NOT CLARIFY AS TO WHY AN ODD FIGURE OF 6304 WAS NOTED IN PAGE 51 AS AGAINST THE ROUND FIGURE OF 6300 MT AS CLAIMED B Y THE ACCOUNTANT. 15. AT THIS STAGE, IT IS PERTINENT TO EXTRACT T HE FOLLOWING OBSERVATIONS MADE BY LD CIT(A) IN ARRIVING AT HIS DECISION, WHICH ARE FO UND TO BE CONTRARY TO THE FACTS AVAILABLE IN THIS CASE:- THE APPELLANT HAS RECONCILED THE FIGURES DISCOVERE D IN THE SEIZED MATERIALS IN PAGES 50 & 51 IN ANNEXURE MM1 AS EXTRA CTED IN PARA 6.8 SUPRA AND PROVED THAT WHAT IS SCRIBED THEREIN IS AN ESTIMATE. WHEN THE ASSESSEE IS ABLE TO RECONCILE THE FIGURES NOTED IN PAGE NO.51 WITH THE BOOKS OF ACCOUNT, THEN THEY CANNOT BE AN ESTIMATE, BUT CAN ONLY BE ACTUAL FIGURES, THAT TOO AS PER BOOKS OF ACCOUNT MAINTAINE D BY THE ASSESSEE. FURTHER, I.T.A. NOS. 271-273/COCH/2012 & 469/COCH/2013 & C.O. NO.29/COCH/2013 16 WE HAVE ALREADY NOTICED THAT THE LD CIT(A) HAS FOUN D FAULT WITH THE AO IN NOT QUESTIONING THE ASSESSEE ABOUT THE FACTS AND CIRCUM STANCES ASSOCIATED WITH THE SEIZED MATERIALS. HOWEVER, WE HAVE ALREADY NOTICED AND GIVEN A FINDING THAT THE CLAIM OF THE ASSESSEE THAT THE NOTING FOUND IN THE SEIZED MATERIALS ARE ONLY PROJECTIONS IS TOTALLY NOT CORRECT AND AGAINST THE FACTS. HENCE WE ARE UNABLE TO AGREE WITH THE OBSERVATIONS MADE BY THE LD CIT(A) A BOUT THE INACTION OF THE AO. IT IS RATHER THE BOUNDEN DUTY OF THE ASSESSEE TO EX PLAIN THE FACTS IN CORRECT PERSPECTIVE, WHICH THE ASSESSEE HAS FAILED TO DO IN THE INSTANT CASE. HENCE, IN OUR VIEW, THE LD CIT(A) HAS REACHED HIS CONCLUSIONS WITHOUT PROPERLY APPRECIATING THE MATERIALS AND ON WRONG PRESUMPTION S. HENCE WE ARE UNABLE TO AGREE WITH HIS CONCLUSIONS. 16. WE HAVE ALREADY NOTICED THAT THE NOTING FOUN D IN PAGE 51 OF MM1 REPRESENT ACTUAL EXPENSES, AS PER THE BOOKS OF ACCO UNTS MAINTAINED BY THE ASSESSEE. OUR VIEW IS FURTHER REINFORCED BY THE EN TRIES FOUND IN PAGE 50 OF MM1. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE N OTING FOUND IN PAGE NO.50 OF MM1. 6304 ===== ELECTRICITY 5642000 COAL 2900000 LABOUR 800000 9342000 / 46 20 = RS. 2022/- 1482 DUTY DIFF : 1094000 S.T. DIFF : 1453000 2547000 / 4140 = RS. 615/ - 615 RS.2637/- 2097 WASTAGE : 5.42% 6,34,00,000 = 19,968X5.42% = 1082 1082 3175 3719 3179 I.T.A. NOS. 271-273/COCH/2012 & 469/COCH/2013 & C.O. NO.29/COCH/2013 17 A CAREFUL PERUSAL OF THE ABOVE SAID ENTRIES, IN OUR VIEW, MAY GIVE FOLLOWING INTERPRETATION:- (A) THE ASSESSEE HAS AGGREGATED THE ELECTRICITY, C OAL AND LABOUR CHARGES AMOUNTS FOUND IN PAGE NO.51 OF MM1. THEN IT HAS CA LCULATED THE AVERAGE COST THEREOF BOTH FOR ACTUAL PRODUCTION AND ACCOUNTED PR ODUCTION, I.E., BOTH FOR 6304 MT AND 4620 MT. THE AVERAGE COST FOR 6304 MT WORKE D OUT TO RS.1,482 AND THE AVERAGE COST FOR 4620 MT WORKED OUT TO RS.2,022 /-. THE POSSIBLE INTERPRETATION OF THIS EXERCISE COULD BE THAT THE A SSESSEE HAS PRODUCED 6304 MT AND ALSO INCURRED EXPENSES FOR THAT QUANTITY. HOWE VER, IT HAS ACCOUNTED THE ENTIRE EXPENSES AS IF THEY WERE INCURRED FOR 4620 M T, I.E., THE ENTIRE EXPENSES HAVE BEEN TREATED AS HAVING BEEN INCURRED FOR THE A CCOUNTED PRODUCTION. (B) EXCISE DUTY AND SALES TAX HAVE BEEN ASCERTAIN ED FOR ACTUAL SALES QUANTITY OF 4140 MT, WHICH WORKED OUT TO RS.615/-. (C) A PERUSAL OF NOTING FOUND IN PAGE 51 WOULD SHOW THAT THE PERCENTAGE OF WASTAGE WAS TAKEN AT 5.42%. THE MATE RIAL CONSUMED WAS TAKEN AT 4885 MT AND AFTER DEDUCTING THE PERCENTAGE OF WA STAGE CITED ABOVE FROM THE ABOVE SAID QUANTITY, THE PRODUCTION HAS BEEN ARRIVE D AT 4620 MT. (D) THE ASSESSEE HAS PURCHASED 3175 MT OF RAW M ATERIALS AT A COST OF RS.634 LAKHS. THE AVERAGE COST OF PURCHASE OF THE SAME WORKS OUT TO RS.19,968/- AND HENCE THE WASTAGE COST WAS ARRIVED AT RS.1082/-, I.E., @ 5.42% OF THE AVERAGE COST OF PURCHASE OF RS.19,968/-. AC CORDINGLY THE COST OF PRODUCTION HAS BEEN WORKED OUT AS UNDER IN PAGE 51 OF MM1. ITEMS OF EXPENSES AMOUNT FOR 4620 MT FOR 6304 MT ELECTRICITY, COAL, LABOUR 93,42,000 RS. 2,022 RS.1,482 EXCISE DUTY, SALES TAX 25,47,000 615 615 WASTAGE 5.42% 1,082 1,082 ------------- ----------- 3,719 3,179 ======= ====== I.T.A. NOS. 271-273/COCH/2012 & 469/COCH/2013 & C.O. NO.29/COCH/2013 18 THE COMPARATIVE STATEMENT PREPARED BY THE ASSESSEE WOULD SHOW THAT THE ACTUAL COST OF PRODUCTION FOR THE ASSESSEE WAS RS.3,179/-, BUT THE ADJUSTMENTS MADE BY IT HAS RESULTED IN A COST OF RS.3,719, I.E., AN INC REASE OF RS.540/- PER MT. 17. THE POSSIBLE INTERPRETATION, AFTER CLOSE SC RUTINY OF THE NOTING FOUND IN PAGE NO.50 & 51 OF MMI MAY BE THAT THE ASSESSEE HAS BEEN ACCOUNTING FOR (A) THE COST OF RAW MATERIALS RELATABLE TO THE AC COUNTED PRODUCTION, AFTER TAKING THE WASTAGE FACTOR @ 5.42%. (B) THE EXPENSES INCURRED ON ELECTRICITY, COAL, LABOUR HAVE BEEN ACCOUNTED FULLY, THOUGH THEY ARE RELATED TO ACTUAL QUANTITY PRODUCED. (C) THE EXCISE DUTY AND SALES TAX HAVE BEEN PAID A S PER ACTUAL SALES QUANTITY. IN EFFECT, THE ASSESSEE MAY BE SUPPRESSING SALE PRO CEEDS OF FINISHED GOODS AND ALSO THE COST OF RAW MATERIAL RELATING TO SUCH SUPP RESSION. 18. WE MAY CAUTION HERE THAT THE TRIBUNAL IS ON LY DISCUSSING ABOUT THE POSSIBLE INTERPRETATION ON THE BASIS OF NOTING FOUN D IN PAGE NO.50 AND 51 OF MM1. HOWEVER, THE ASSESSEE HAS NOT BEEN CONFRONTED WITH THE ABOVE DISCUSSED INTERPRETATION. HENCE, THE CORRECTNESS OR OTHERWISE OF THE ABOVE SAID INTERPRETATION NEEDS TO BE EXAMINED ON THE BASIS OF BOOKS OF ACCOUNT AND ALSO AFTER CALLING FOR EXPLANATION FROM THE ASSESSEE. T HE NOTING FOUND IN PAGE NO.50 & 51 OF MM1 RELATED TO THE PERIOD FROM APRIL 2006 T O DECEMBER 2006. AS PER THE SAID NOTING, THE ACCOUNTED QUANTITY WAS SHOWN A S 4620 MT. HOWEVER, NO WHERE IT WAS BROUGHT ON RECORD THAT THE ASSESSEE HA S ACTUALLY ACCOUNTED FOR 4620 MT IN HIS BOOKS OF ACCOUNT INSTEAD OF 6304 MT, THOUGH THE ASSESSEE HAS RECONCILED ALL THE EXPENDITURE FIGURES VIS--VIS IT S BOOKS OF ACCOUNTS. HENCE, IN OUR VIEW, THE QUESTION OF SUPPRESSION OF SALES, RAW MATERIALS, INCOME ETC. NEEDS TO BE EXAMINED AFRESH AT THE END OF THE AO, AFTER C ARRYING OUT DUE EXAMINATION OF BOOKS OF ACCOUNTS, SEIZED MATERIALS AND ALSO THE EXPLANATION OF THE ASSESSEE I.T.A. NOS. 271-273/COCH/2012 & 469/COCH/2013 & C.O. NO.29/COCH/2013 19 AND ALSO BY CONSIDERING THE DISCUSSIONS MADE BY THE TRIBUNAL IN THE PRECEDING PARAGRAPH. WE MAY CAUTION HERE FOR ONE MORE TIME T HAT THE TRIBUNAL HAS NOT GIVEN ANY SPECIFIC FINDING WITH REGARD TO THE ENTRI ES NOTED IN PAGE NO.51. HENCE, IN THE SET ASIDE PROCEEDINGS, THE AO IS DIRECTED TO SEEK EXPLANATIONS FROM THE ASSESSEE AND ACCORDINGLY THE ASSESSING OFFICER HAS TO TAKE APPROPRIATE DECISION INDEPENDENTLY IN ACCORDANCE WITH THE LAW. 19. IN VIEW OF THE FOREGOING DISCUSSIONS, WE SE T ASIDE THE ORDER OF THE LD CIT(A) PASSED FOR ASSESSMENT YEARS 2006-07 TO 2008- 09 ON THE ISSUE OF SUPPRESSION OF PRODUCTION/INCOME AND RESTORE ALL TH E MATTERS RELATING TO THE SAME TO THE FILE OF THE ASSESSING OFFICER FOR EXAMI NING THE SAME AFRESH. 20. THE APPEAL FILED BY THE REVENUE AND THE CRO SS OBJECTION FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2009-10 RELATED TO THE SET OFF OF THE BROUGHT FORWARD LOSS OF RS.3,88,551/-. SINCE THE ASSESSING OFFICER MADE HUGE ADDITIONS IN ASSESSMENT YEAR 2007-08, THERE REMAINED NO LOSS TO CARRY FORWARD AND HENCE THE AO DENIED SET OFF OF LOSS REFERRED ABOVE. IN T HE APPELLATE PROCEEDINGS, THE LD CIT(A) DIRECTED THE AO TO ALLOW THE SET OFF, SIN CE THE FIRST APPELLATE AUTHORITY HAD DELETED THE ADDITIONS MADE IN ASSESSMENT YEAR 2 007-08. AGGRIEVED, THE REVENUE HAS FILED APPEAL BEFORE US AND THE ASSESSEE HAS FILED CROSS OBJECTION SUPPORTING THE ORDER OF LD CIT(A). 21. IN THE PRECEDING PARAGRAPHS, WE HAVE SET AS IDE THE MATTERS RELATING TO THE SUPPRESSION OF INCOME IN ASSESSMENT YEARS 2005-06 T O 2007-08. HENCE, THE RESULT OF SET ASIDE PROCEEDINGS WOULD DECIDE ABOUT THE ELIGIBILITY OF THE ASSESSEE TO CARRY FORWARD THE LOSS, IF ANY. ACCORDINGLY, WE FEEL THAT THIS ISSUE ALSO NEEDS FRESH CONSIDERATION AT THE END OF THE ASSESSING OFF ICER. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE TH E SAME TO THE FILE OF THE AO WITH THE DIRECTION TO DECIDE THE ISSUE OF SET OFF O F BROUGHT FORWARD LOSS IN ACCORDANCE WITH THE LAW AFTER FINALIZATION OF ASSES SMENT OF EARLIER YEARS, WHICH I.T.A. NOS. 271-273/COCH/2012 & 469/COCH/2013 & C.O. NO.29/COCH/2013 20 WERE SET ASIDE TO HIS FILE. SINCE THE CROSS OBJECT ION IS FILED BY THE ASSESSEE TO SUPPORT THE ORDER OF LD CIT(A) ON THIS ISSUE, IT DO ES NOT SURVIVE AND ACCORDINGLY WE DISMISS THE SAME. 22. IN THE RESULT, ALL THE APPEALS FILED BY THE REVENUE ARE TREATED AS ALLOWED. THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSED. PRONOUNCED ACCORDINGLY ON 31-01-2014. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 31ST JANUARY, 2014 GJ COPY TO: 1. M/S. T.N. AUTO & GENERAL ENGG. CO. PVT. LTD., 11/ 256A, NEAR RAILWAY STATION ROAD, WADAKKANCHERRY, THRISSUR-680623. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL C IRCLE. THRISSUR. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-I, KOCHI . 4. THE COMMISSIONER OF INCOME-TAX, CENTRAL, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN