M/s Arora Alloys Ltd., Ludhiana V. ITO, I(1), Ludhiana

ITA 1048/CHANDI/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5398 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 06-10-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 04-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained expenditure; Depreciation; Principle of natural justice; Additional evidence; Question of law; Assessment record; Onus to prove; Set aside
• Section: 271(1)(c); 69C; 143(3); 143(2); 263; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL: A BENCH: CH ANDIGARH BEFORE SHRI D K SRIVASTAVA, AM AND MS. SUSHMA CHOWL A, JM ITA NO. 319/CHANDI/2008 ASSESSMENT YEAR: 2004-05 I.T.O. 1(1), LUDHIANA V M/S ARORA ALLOYS LTD NEAR PH-VII, FOCAL POINT LUDHIANA PAN: AABCA 5309 C ITA NO. 1048/CHANDI/2008 ASSESSMENT YEAR: 2005-06 M/S ARORA ALLOYS LTD V I.T.O. 1(1), LUDHIANA ASSESSEE BY: SHRI SUDHIR SEHGAL, ADVOCATE DEPARTMENT BY: SHRI S.S. KHEMWAL, SR. DEPARTMENTAL REPRESENTATIVE ORDER D K SRIVASTAVA: APPEAL BEARING ITA NO.319/CHANDI/20 08 AY 2004-05 IS BEING DISPOSED OFF PURSUANT TO THE DIRECTIONS GIVEN BY THE HON'BLE HIGH COURT. APPEAL BEARING ITA NO.1048/CHANDI/2008 AY 2005-06 I S DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT, LUDHIANA ON 20 TH NOV 2008 U/S 263 OF THE INCOME-TAX ACT. FACTS IN BOTH THE APPEALS ARE BROADLY COMMON; THEY ARE THEREFORE BEING DISPOSED OFF BY A CONSOLIDATED ORDER. I.T.A NO. 319/CHANDI/2008: AY 2004-05 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF A PPEAL:- 1 THAT THE LD. CIT(A)-I HAS ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS. 69,59,370/- MADE ON ACCOUNT OF UNEX PLAINED EXPENDITURE INCURRED FOR PURCHASE OF RAW MATERIAL U/S 69C OF IN COME-TAX ACT. 2 THAT THE LD. CIT(A) HAS ERRED IN LAW AND FACTS I N DELETING THE ADDITION OF RS. 32,59,650/- MADE ON ACCOUNT OF PROFIT EARNED BY THE ASSESSEE. 3 THAT THE LD. CIT(A) HAS ERRED IN LAW AND FACT IN ALLOWING ADDITIONAL EVIDENCE (CERTIFICATE REGARDING CAPACITY OF FURNACE ) WHICH WAS OBJECTED BY THE AO BUT ADMITTED BY THE LD. CIT(A). 4 THAT THE ORDER OF THE LD. CIT(A) BE SET SIDE AND THAT OF THE AO BE RESTORED. 3. THE AFORESAID APPEAL WAS EARLIER DISPOSED OFF BY THIS TRIBUNAL ON 11 TH JULY 2008 BY WHICH THE ISSUES RAISED IN APPEAL WERE REST ORED TO THE FILE OF THE AO FOR FRESH DECISION AFTER THE FINAL OUTCOME OF THE PROCE EDINGS INITIATED BY THE CUSTOMS AND EXCISE DEPARTMENT. THE AFORESAID ORDER PASSED B Y THIS TRIBUNAL WAS CHALLENGED BEFORE THE HON'BLE HIGH COURT UPON WHICH SAID ORDER PASSED BY THIS TRIBUNAL WAS SET AIDE BY THE HONBLE COURT VIDE ITS ORDER DATED 23 RD OCT 2009 IN ITA NO.461/2009 AND THE APPEAL RESTORED TO THIS TRI BUNAL, WITH THE FOLLOWING DIRECTIONS: ARORA ALLOYS LTD. LUDHIANA 319,1048/CHANDI/2008 2 2 4 LD. COUNSEL FOR THE REVENUE SUBMITS THAT THE JUD GMENT OF THIS COURT IN K.S. BHATIA (SUPRA), RELIED UPON BY THE TRIBUNAL WAS NOT APPLICABLE, AS IN THAT CASE THE FINDING WHICH WAS RELIED UPON, AS INF ORMATION FOR RE- ASSESSMENT, HAD BEEN SET ASIDE BY THE HIGHER AUTHOR ITY. THE ASSESSING AUTHORITY COULD NOT BE REQUIRED TO WAIT TILL DECISI ON OF THE EXCISE TRIBUNAL, BY WHICH TIME PROCEEDINGS MAY BECOME TIME BARRED. PROCEEDINGS UNDER THE CENTRAL EXCISE ACT HAD RELEVANCE ONLY FOR FORMA TION OF OPINION OF ESCAPEMENT OF INCOME AND THEREAFTER, THE AUTHORI TIES HAD TO INDEPENDENTLY FINALISE RE-ASSESSMENT IRRESPECTIVE O F FINAL VIEW IN EXCISE PROCEEDINGS. LD. COUNSEL FOR THE ASSESSEE IS NOT ABLE TO REBUT THE SUBMISSION AND IN A WAY SUPPORTS THE VIEW THAT MATT ER SHOULD HAVE BEEN FINALISED ON MERITS. QUESTION OF LAW IS ANSWERED AC CORDINGLY BY HOLDING THAT THE TRIBUNAL WAS NOT JUSTIFIED IN DIRECTING THAT TH E MATTER BE KEPT PENDING TILL THE DECISION OF THE TRIBUNAL. 5 ACCORDINGLY, THIS APPEAL IS ALLOWED, IMPUGNED ORD ER OF THE TRIBUNAL IS SET ASIDE AND THE MATTER IS REMANDED TO THE TRIBUNA L FOR FRESH DECISION ON MERIT IN ACCORDANCE WITH LAW. 4. THIS ORDER IS THEREFORE BEING PASSED IN RESPECTF UL COMPLIANCE WITH THE AFORESAID DIRECTIONS OF THE HON'BLE HIGH COURT. BRI EFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPANY WAS ENGAGED IN THE MA NUFACTURE OF NON-ALLOY/ALLOY STEEL INGOTS IN THE YEARS UNDER APPEAL. ON 25.3.200 4, THE CENTRAL EXCISE AUTHORITIES VISITED THE PREMISES OF THE ASSESSEE AN D VERIFIED THE LAST HEAT TAPPED AT 08:20 HRS ON 25.3.2004, I.E., THE DATE OF THEIR VISIT. THEY ALSO FOUND 45 INGOTS LYING IN THE PREMISES AS AGAINST PRODUCTION OF ONLY 37 INGOTS WEIGHING 3.920 MTS SHOWN IN THE LOG SHEET ON 25.3.2004. DURING THE COU RSE OF INSPECTION, STATEMENT OF SHRI HARMESH ARORA, DIRECTOR IN THE ASSESSEE-COM PANY, WAS RECORDED. BASED ON HIS STATEMENT, CASE WAS MADE OUT BY THE CENTRAL EXC ISE DEPARTMENT THAT THE ASSESSEE HAD INCREASED THE CAPACITY OF ITS FURNACE IN DECEMBER 2003 FROM 4 MT PER HEAT TO 5 MT PER HEAT AND HAD CLANDESTINELY MAN UFACTURED AND CLEARED 624 MTS OF NON-ALLOY STEEL INGOTS FROM DECEMBER 2003 TO 24.3.2004 WITHOUT ACCOUNTING THEM IN THE RECORD AND WITHOUT PAYMENT O F CENTRAL EXCISE DUTY. ACCORDINGLY, CENTRAL EXCISE DUTY WAS IMPOSED ON 624 MTS. ALLEGEDLY PRODUCED FROM DEC 2003 TO 24.3.2004. 5. STATEMENT OF SHRI HARMESH ARORA, DIRECTOR IN THE ASSESSEE-COMPANY, AS RECORDED BY THE SUPERINTENDENT (PREVENTIVE), CENTRA L EXCISE COMMISSIONERATE, LUDHIANA, ON 25.3.2004 READS AS UNDER: BEFORE TENDERING THIS STATEMENT, I HAVE BEEN EXPLA INED THE PROVISIONS OF SECTION 14 OF THE CENTRAL EXCISE ACT, 1944 AND I UNDERSTAND THAT I HAVE TO TENDER A TRUE AND CORRECT STATEMENT AND THIS STATEMENT OF MINE CAN BE USED AGAINST ME, MY FIRM, ANY OTHER PER SON OR ANY OTHER FIRM IN ANY DEPARTMENTAL OR JUDICIAL PROCEEDINGS ANY WHE RE IN INDIA. ARORA ALLOYS LTD. LUDHIANA 319,1048/CHANDI/2008 3 3 TODAY, I.E. ON 25.3.2004, THE CENTRAL EXCISE STAFF VISITED OUR UNIT. AT THE TIME OF THE VISIT, I WAS PRESENT IN THE FACTORY PREMISES. ON BEING ASKED, I STATE THAT THERE WAS NO PRODUCTION DURING THE INT ERVENING NIGHT OF 24.3.2004 AND 25.3.2004 DUE TO FAULT IN THE FURNACE AND THE FURNACE WAS RESTARTED IN THE MORNING AT 0550 HRS AND BY THE TIM E OF VISIT ONLY ONE HEAT WAS TAPPED ON 8.20 HRS. ON DEMAND, I PRODUCED ALL T HE CENTRAL EXCISE RECORDS BEFORE THE CENTRAL EXCISE STAFF, WHICH WAS WRITTEN UPTO DATE. ON BEING ASKED I STATE THAT WE ARE ENGAGED IN THE MANU FACTURE OF NON-ALLOYS STEEL INGOTS AND ARE REGISTERED WITH CENTRAL EXCISE DEPARTMENT VIDE REGISTRATION NO. AABCA5309CSM001. THE STAFF THEREAF TER VERIFIED THE LAST HEAT TAPPED ON 8.20 HRS AND FOUND THAT THERE WERE 4 5 INGOTS, HOWEVER IN THE LOG SHEET WE HAVE SHOWN THE PRODUCTION OF ONLY 37 INGOTS WEIGHING 3.920 MTS. THE STAFF, THEREAFTER, PHYSICALLY VERIFI ED THE WEIGHT WITH THE HELP OF OUR TRUCK NO. PB-10-K-9666 AND SAME CAME TO 4.77 0 MTS. AND THE RUNNER AND RISES COMES TO 145 KGS. I AM FULLY SATIS FIED WITH THE MANNER OF PHYSICAL VERIFICATION, WHICH HAS BEEN DONE IN MY PR ESENCE. I HAVE SIGNED THE PHYSICAL VERIFICATION CHART AND WEIGHMENT SLIPS IN TOKEN OF ITS CORRECTNESS AND ACCEPTANCE. WHEN ASKED, I STATE THAT THE CAPACITY OF OUR FURNAC E IS 5 MTS. PER HEAT AND THE SAME WAS INCREASED IN 12/2003 FROM 4 M TS PER HEAT, HOWEVER WE CONTINUED TO RECORD THE PRODUCTION AS PER OUR EA RLIER CAPACITY OF 4 MTS PER HEAT. ON BEING ASKED I STATE THAT OVER SANCTION ED POWER LOAD IS 2250 KW AND WE ARE TAPPING HEAT WEIGHING 4.750 TO 5 MTS PER HEAT. ON SPECIFIC QUERY THAT WHETHER 5 MTS CAN ALSO BE TAPPED AND I S TATED THAT YES, THAT HEAT OF 5 MTS CAN ALSO BE TAPPED AND WE DO HAVE TAP PED THE HEATS OF 5 MTS. WHEN ASKED HOW THE EXCESS UN-ACCOUNTED PRODUCT ION IS SOLD I STATE THAT THE SAME IS SOLD IN THE OPEN MARKET ON CASH BA SIS WITHOUT ISSUANCE OF INVOICE AND WITHOUT PAYMENT OF DUTY. ON BEING ASKED I STATE THAT INGOTS MANUFACTURED IN EXCESS I.E. 1 MT PER HEAT ARE CLEAR ED ON DAILY BASIS IN THE EVENING. ON BEING ASKED ABOUT THE ACCOUNTAL OF SCRA P USED IN THE MANUFACTURING OF UN-ACCOUNTED EXCESS STEEL INGOTS B Y SHOWING THE CAPACITY AS 4 MT AGAINST THE ACTUAL CAPACITY OF 5 MTS, I STA TE THAT THE SCRAP IS ALSO PURCHASED ON CASH BASIS THROUGH BROKER AND THE SAME IS ALSO NOT ACCOUNTED FOR IN OUR RAW MATERIAL ACCOUNT. I ADMIT THAT THE CAPACITY OF OUR FURNACE IS 5 MTS AND WE ARE UTILIZING THE SAME TO F ULL CAPACITY. I FURTHER STATE THAT WE ARE PAYING DUTY @ 2 LACS THROUGH P & L ACCOUNT PER MT OF CAPACITY OF FURNACE PER MONTH AS PER TRADE PRACTICE AND WE ARE READY TO PAY THE DIFFERENTIAL DUTY OF 2 LACS PER MT OF CAPAC ITY PER MONTH FOR THE PERIOD OF 12/2003 TO 2/2004 WHICH COMES TO RS. 6 LA CS AND WE HAVE VOLUNTARILY DEBITED THE SAME VIDE P & L ACCOUNT ENT RY NO. 24 DATED 25.3.2004. ARORA ALLOYS LTD. LUDHIANA 319,1048/CHANDI/2008 4 4 THE STAFF THEREAFTER CONDUCTED PHYSICALLY VERIFICAT ION OF RAW MATERIAL AND FOUND THE EXCESS STOCK OF NON-DUTY PAID SCRAP B Y 5 MTS. ON BEING ASKED I STATE THAT THE STOCK OF EXCESS NON-DUTY PAI D SCRAP WAS NOT ACCOUNTED FOR IN OUR RECORDS AS THE SAME WAS TO BE USED IN THE MANUFACTURE OF INGOTS TO BE PRODUCED BEYOND OUR DEC LARED CAPACITY OF 4 MTS. ON BEING STATE THAT WE PURCHASE THE SCRAP TO B E USED IN THE EXCESS PRODUCTION ON DAILY BASIS. THE STOCK OF STEEL INGOT S WAS ALSO VERIFIED WHICH WAS FOUND TO BE TALLIED WITH THE RECORD BALANCE. I AM FULLY SATISFIED WITH THE MANNER OF PHYSICAL VERIFICATION, WHICH HAS BEEN DON E IN MY PRESENCE AND WITH THE HELP OF MY LABOUR, AND TRUCK NO. PB-10K-96 66. I HAVE SIGNED THE PHYSICAL VERIFICATION CHART AND WEIGHMENT SLIPS IN TOKEN OF ITS CORRECTNESS AND ACCEPTANCE. THE STAFF GOT THE EXCESS SCRAP ENTE RED IN THE FORM IV REGISTER. THIS IS MY TRUE AND CORRECT STATEMENT, WHICH I HAVE TENDERED VOLUNTARILY WITHOUT ANY FEAR OF PRESSURE. THIS STAT EMENT OF MINE HAS BEEN TYPED BY SHRI KISHORI LAL, ACCOUNTANT OF OUR FACTOR Y ON THE COMPUTER INSTALLED IN MY FACTORY AND I HAVE READ THE SAME AN D HAVE PUT MY DATED SIGNATURES ON THE SAME. I HAVE RETAINED A COPY OF M Y STATEMENT. 6. THE AFORESAID STATEMENT RECORDED BY THE CENTRAL EXCISE AUTHORITIES FORMED THE BASIS FOR COMING TO THE CONCLUSION THAT THE ASS ESSEE HAD PRODUCED AND CLEARED 624 MT OF NON-ALLOY INGOTS FROM DECEMBER 20 03 TO 24.3.2004 ON THE BASIS OF THE FACT THAT THE CAPACITY OF THE FURNACE WAS INCREASED IN DECEMBER 2003 FROM 4 MT PEER HEAT TO 5 MT PER HEAT AND CONSEQUENT LY 624 HEATS WERE TAPPED WITHOUT RECORDING THE SAME IN THE BOOKS. 7. ON THE BASIS OF THE AFORESAID INFORMATION, THE A O INITIATED THE PROCEEDINGS U/S 147/148 OF THE I-T ACT AND ACCORDINGLY REOPENED THE ASSESSMENT. ASSESSMENT U/S 147/148 WAS COMPLETED ON 30.11.2006 ASSESSING T HE TOTAL INCOME OF THE ASSESSEE AT RS.93,88,580/- WHICH COMPRISES OF TWO A DDITIONS, NAMELY, (1) ADDITION OF RS.32,59,650/- BEING GROSS PROFIT ON SALES OF 62 4 MTS. ( SALES BEING RS.10,02,19,021/-) OUTSIDE THE BOOKS; AND (2) ADDIT ION OF RS. 69,59,370/- U/S 69C BEING UNEXPLAINED EXPENDITURE IN PURCHASE OF RAW MA TERIAL UTILISED IN GENERATING UNACCOUNTED PRODUCTION AND SALE OF 624 MTS. 8. PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE A O HAS PASSED THE ORDER OF RE-ASSESSMENT MAKING IMPUGNED ADDITIONS SOLELY ON T HE BASIS OF STATEMENT OF SHRI HARMESH ARORA RECORDED BY THE CENTRAL EXCISE AUTHOR ITIES ON 25.3.2004. THE AO HAS BROUGHT NO OTHER MATERIAL ON RECORD TO SUPPORT THE IMPUGNED ADDITION, WHICH IS EVIDENT FROM THE FOLLOWING DISCUSSIONS IN THE AS SESSMENT ORDER: KEEPING IN VIEW THE ABOVE STATEMENT IT IS CLEAR TH AT THE CAPACITY OF THE FURNACE OF E ASSESSEE COMPANY HAS BEEN INCREASED W. E.F. DECEMBER 2003 FROM 4 MTS TO 5 MTS PER HEAT. THE ASSESSEE HAS NEVE R DISPUTED THIS FACT. HOWEVER FROM DECEMBER 2003 ASSESSMENT ORDER THE ASS ESSEE COMPANY ARORA ALLOYS LTD. LUDHIANA 319,1048/CHANDI/2008 5 5 CONTINUED TO RECORD THE PRODUCTION AS PER EARLIER C APACITY I.E. 4 MTS. INSTEAD OF ACTUAL PRODUCTION MADE AS PER THE INCREA SED CAPACITY I.E. 5 MTS PER HEAT. THE DIRECTOR OF THE COMPANY HAS DULY ADMI TTED THIS FACT. THE STATEMENT OF THE DIRECTOR IS OF HIGH EVIDENTIARY VA LUE. THIS STATEMENT WAS GIVEN VOLUNTARILY AND WITHOUT ANY PRESSURE. FURTHER AT THE TIME OF INSPECTION BY THE CENTRAL EXCISE AUTHORITIES, THE N UMBER OF INGOTS FOUND WAS 45, WHEREAS AS PER RECORD, THESE SHOULD HAVE BE EN 37. THIS DIFFERENCE REPRESENTED THE EXCESS PRODUCTION OF THE DAY WHICH HAD YET NOT BEEN SOLD. ALL THESE FACTS, CONSIDERED AS A WHOLE, LEAD TO INE SCAPABLE CONCLUSION THAT THE ASSESSEE WAS SHOWING LESS PRODUCTION AND HAS PU RCHASED THE RAW MATERIAL IN CASH AND SOLD THE FINISHED PRODUCTS TOO IN CASH, NOT RECORDED THESE IN ITS BOOKS OF ACCOUNT. THE QUANTITY OF FINI SHED PRODUCT SO PRODUCED AND SOLD IS 624 MTS THE SALE VALUE OF WHICH IS RS. 1,02,19,021/-. THE RAW MATERIAL FOR THIS WAS PURCHASED BY THE ASSESSEE OUT SIDE THE BOOKS OF ACCOUNT FROM SOURCES NOT DISCLOSED. ACCORDINGLY THA T CONSTITUTES UNEXPLAINED EXPENDITURE OF THE ASSESSEE. THE COT OF THIS RAW MATERIAL COMES TO RS. 69,59,370/- WHICH HAS BEEN CALCULATED AS BELOW: QUANTITY OF PRODUCTION 624 MTS % OF YIELD OF RAW MATERIAL 94.14% CONSUMPTION OF RAW MATERIAL 624 94.14% 662.84 MTS COST OF RAW MATERIAL PER MT 98081418 9341.690 RS. 10499.32 PER MT COST OF RAW MATERIAL OF 662.84 MTS RS. 69,59,370/- ACCORDINGLY THIS AMOUNT OF RS. 69,59,370/- IS ADDED TO THE INCOME OF THE ASSESSEE AS UNEXPLAINED EXPENDITURE INCURRED IN THE PURCHASE OF RAW- MATERIAL U/S 69C OF INCOME-TAX ACT. PENALTY PROCEED INGS U/S 271(1)(C) FOR CONCEALMENT OF INCOME ARE BEING INITIATED SEPARATEL Y. THE ASSESSEE HAS PURCHASED RAW MATERIAL IN CASH, CO NVERTED IT IN TO FINISHED GOODS AND HAS SOLD THE FINISHED PRODUCTS I N CASH. ALL OTHER EXPENSES OF MANUFACTURING HAVE ALREADY BEEN CLAIMED BY THE ASSESSEE IN THE P & L ACCOUNT. IN ALL THIS AFFAIR, IT HAS EARNE D PROFIT OF RS. 32,59,650/- (RS. 1,02,19,021 RS. 69,59,370/-). THIS AMOUNT OF PROFIT EARNED BY THE ASSESSEE IS ADDED TO ITS INCOME IS UN-DISCLOSED INC OME. PENALTY PROCEEDINGS U/S 271(1)(C) ARE BEING INITIATED SEPARATELY. 9. AGGRIEVED BY THE ADDITIONS MADE BY THE AO, THE A SSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE ASSESSEE SOUGHT TO FILE A FEW PIECES OF ADDITIONAL EVIDENCE BEFORE THE LD. CIT(A). THEY ARE, (1) THE O RDER DATED 21.4.2006 PASSED BY ARORA ALLOYS LTD. LUDHIANA 319,1048/CHANDI/2008 6 6 THE COMMISSIONER (APPEALS), CENTRAL EXCISE AND CUST OMS, CHANDIGARH BY WHICH HE CANCELLED THE DUTY AND PENALTY IMPOSED ON THE ASSES SEE-COMPANY ON EXCESS PRODUCTION OF 624 MTS; (2) CERTIFICATE FROM CHARTER ED ENGINEER TO THE EFFECT THAT THE CAPACITY OF FURNACE WAS 4 MT FOR WHICH THE ELEC TRICITY LOAD OF 2050 KW WAS REQUIRED; AND (3) COPY OF INSPECTION REPORT DATED 2 5.11.2005 RECORDED IN DAILY STOCK REGISTER ON THE BASIS OF INSPECTION CARRIED O UT BY THE CENTRAL EXCISE AUTHORITIES IN WHICH IT IS STATED THAT THE INSTALLE D CAPACITY OF THE FURNACE WAS 4 MT. AFTER GIVING OPPORTUNITY TO THE AO, THE LD. CIT (A) ADMITTED THE AFORESAID PIECES OF ADDITIONAL EVIDENCE. THE AO HOWEVER PREFE RRED TO STAND BY THE ASSESSMENT ORDER INSTEAD OF REBUTTING THE ADDITIONA L EVIDENCE. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE SUBMISSIONS MA DE BY THE AO AND THE MATERIALS AVAILABLE ON RECORD, THE LD. CIT(A) HELD THAT THE CIRCUMSTANCES SURROUNDING THE CASE SUPPORTED THE CLAIM OF THE ASS ESSEE THAT THE INSTALLED CAPACITY OF THE FURNACE WAS ONLY 4 MT AND NOT 5 MT. IN THIS VIEW OF THE MATTER, HE DELETED THE IMPUGNED ADDITION. 10 AGGRIEVED BY THE ORDER PASSED BY THE LD. CIT(A), THE DEPARTMENT FILED APPEAL BEFORE THIS TRIBUNAL. WHEN THE SAID APPEAL C AME UP FOR HEARING, IT WAS ARGUED BY THE DEPARTMENT THAT THE ORDER PASSED BY T HE COMMISSIONER (APPEALS) CUSTOMS AND CENTRAL EXCISE HAD NOT ATTAINED FINALIT Y AND THEREFORE THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE IMPUGNED ADDITION ON THE BASIS OF THE ORDER PASSED BY THE COMMISSIONER (APPEALS) CENTRAL EXCISE AND CUSTOMS. THE AFORESAID SUBMISSION WAS NOTED BY THIS TRIBUNAL IN PARAGRAPH 4 OF ITS ORDER DATED 11 TH JULY 2008. THIS TRIBUNAL SET ASIDE THE ORDER OF LD. CIT( A) AND RESTORED THE MATTER TO THE FILE OF AO TO DECIDE THE MATTER AFRESH IN THE L IGHT OF FINAL OUTCOME IN THE CENTRAL EXCISE PROCEEDINGS. AS ALREADY STATED EARLI ER, THE AFORESAID ORDER PASSED BY THIS TRIBUNAL, ON APPEAL BY THE DEPARTMENT, HAS BEEN SET ASIDE BY THE HON'BLE HIGH COURT AND THE MATTER RESTORED TO THE THIS TRIB UNAL FOR A DECISION ON MERITS. PURSUANT TO THE AFORESAID DIRECTIONS, THE APPEAL FI LED BY THE DEPARTMENT WAS RESTORED AND THE MATTER WAS ACCORDINGLY HEARD AFRES H. 11. IN SUPPORT OF APPEAL, THE LD. DR RELIED UPON TH E ORDER PASSED BY THE AO. HE SUBMITTED THAT THE SUBMISSIONS OF SHRI HARMESH AROR A, DIRECTOR IN THE ASSESSEE- COMPANY, AS RECORDED BY THE CENTRAL EXCISE AUTHORIT IES WAS A STRONG PIECE OF EVIDENCE AND THEREFORE THE AO WAS JUSTIFIED IN MAKI NG THE IMPUGNED ADDITIONS SOLELY ON THE BASIS OF STATEMENT OF SHRI HARMESH AR ORA. 12. IN REPLY, THE LD. COUNSEL FOR THE ASSESSEE SUPP ORTED THE ORDER PASSED BY THE LD. CIT(A) AS ALSO THE MATERIALS REFERRED TO THEREI N. IN BRIEF, HIS SUBMISSIONS WERE THAT THE STATEMENT OF SHRI HARMESH ARORA AS RECORDE D BY THE CENTRAL EXCISE AUTHORITIES WAS NOT CORROBORATED BY ANY EVIDENCE AN D HENCE THE SAME WAS RIGHTLY NOT ACTED UPON BY THE LD. CIT(A) AND SECONDLY THAT THE FACTS STATED IN THE SAID STATEMENT WERE COMPLETELY INCONSISTENT WITH THE MAT ERIALS AVAILABLE ON RECORD. IN THIS CONNECTION, HE REFERRED TO THE INSPECTION REPO RT DATED 25.11.2005 RECORDED BY ARORA ALLOYS LTD. LUDHIANA 319,1048/CHANDI/2008 7 7 THE CENTRAL EXCISE AUTHORITIES IN DAILY STOCK REGIS TER IN WHICH THE CAPACITY OF THE FURNACE WAS STATED TO BE 4 MT. ACCORDING TO HIM, EV EN TECHNICAL EXPERTS LIKE CHARTERED ENGINEER HAVE ALSO CERTIFIED THAT THE CAP ACITY OF FURNACE WAS ONLY 4 MT ON THE BASIS OF TECHNICAL SPECIFICATION OF THE FURN ACE. SUM AND SUBSTANCE OF HIS SUBMISSION WAS THAT THE CAPACITY OF FURNACE WAS ONL Y 4 MT AND NOT 5 MT AND THEREFORE THE CALCULATION OF UNACCOUNTED PRODUCTION AND ITS SALES AS PRESUMED BY THE AO WAS COMPLETELY MISPLACED. HE ALSO RELIED ON THE ORDER DATED 21.4.2006 PASSED BY THE COMMISSIONER (APPEALS) CUSTOMS AND CE NTRAL EXCISE IN THIS BEHALF. 13. AS REGARDS THE ADMISSION OF ADDITIONAL EVIDENCE BY THE LD. CIT(A), HE SUBMITTED THAT THE PIECES OF ADDITIONAL EVIDENCE WE RE RIGHTLY ADMITTED BY THE LD. CIT(A) IN THE INTEREST OF JUSTICE AS PIECES OF ADDI TIONAL EVIDENCE AFFECTED THE VERY FOUNDATION ON THE BASIS OF WHICH THE ADDITIONS WERE MADE BY THE AO. 14. IN SUPPORT OF HIS CASE, THE LD. COUNSEL FOR THE ASSESSEE FILED SEVERAL PAPER- BOOKS INCLUDING HIS WRITTEN SUBMISSIONS. THESE PAPE R-BOOKS/WRITTEN SUBMISSIONS RELATE TO BOTH THE ASSESSMENT YEARS UNDER APPEAL. P APER-BOOKS FILED FOR BOTH THE ASSESSMENT YEARS WERE REFERRED TO AT THE TIME OF HE ARING OF BOTH THE APPEALS. THEREFORE THE DETAILS OF PAPER-BOOKS FILED FOR BOTH THE ASSESSMENT YEARS ARE BEING GIVEN BELOW: 1. WRITTEN SUBMISSIONS FILED ON 9.11.2010 (AY 2004- 05) CONTAINING 6 PAGES 2. PAPER-BOOK: AY 2004-05 (92 PAGES) CONTAINING COP IES OF (I) WRITTEN SUBMISSIONS FILED BEFORE THE CIT(A); (II) REPLY FIL ED BY THE ASSESSEE BEFORE THE CIT(A) TO THE REMAND REPORT SUBMITTED BY THE AO ; (III) THE DIRECTIONS ISSUED BY THE ADDITIONAL COMMISSIONER OF INCOME-TAX U/S 144A IN AY 2005- 06; (IV) THE ORDER OF COMMISSIONER (APPEALS), CUSTO MS AND CENTRAL EXCISE; AND THE AUDITED ACCOUNTS FOR AY 2004-05. 3. PAPER-BOOK-II: A Y 2004-05 (31 PAGES) CONTAINING (I) COPY OF REPLY TO THE AOS LETTER DATED 3.8.2007 AS FILED BEFORE T HE CIT(A); (II) COPY OF CIRCULAR DATED 10.3.2003 ISSUED BY THE CBDT; (III) COPIES OF JUDGMENT/ORDERS IN CIT V. S KHADER KHAN SONS; 214 C TR (MAD.) 589; CIT V. VIMAL MOULDERS (INDIA) LTD., JUDGMENT DATED 14 TH JANUARY 2010 IN ITA NO. 1418/2009; CIT V. VIGNESH KUMAR JEWELLERS, (200 8) 12 DTR (MAD.) 293; CIT V. SOMANY PILKINGTONS LTD., (2004) 266 ITR 388 (P&H); CIT V. SULABH MARBLES (P) LTD., ITO V. DINESH KUMAR, 98 TT J 695; CIT V. KS BHATIA, 257 ITR 614 (P&H). 4. WRITTEN SUBMISSIONS FILED ON 9.11.2010 (AY 2005- 06) CONTAINING 8 PAGES. 5. PAPER-BOOK I: AY 2005-06 (225 PAGES). 6. PAPER-BOOK II: A Y 2005-06 (62 PAGES) CONTAINING BRIEF SYNOPSIS OF THE CASE; SUMMARY OF THE FINDINGS GIVEN BY THE COMM ISSIONER IN HIS ORDERS ARORA ALLOYS LTD. LUDHIANA 319,1048/CHANDI/2008 8 8 U/S 263; COPY OF CIRCULAR NO.286 DATED 10.3.2003 IS SUED BY THE CBDT; COPY OF LETTER OF THE AO REGARDING THE CAPACITY OF THE F URNACE AND COPIES OF CERTAIN DECISIONS. 7. TWO PAPER BOOKS: AY 2005-06 CONTAINING COPIES O F DECISIONS. 15. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CO NSIDERED THEIR SUBMISSIONS (INCLUDING THE WRITTEN SUBMISSIONS), MATERIALS PLAC ED BY THEM ON RECORD AND THE AUTHORITIES REFERRED TO BY THEM. WE HAVE ALREADY RE PRODUCED THE STATEMENT OF SHRI HARMESH ARORA, DIRECTOR IN THE ASSESSEE-COMPAN Y 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 DECE MBER 2003; (II) RAW MATERIALS USED TO BE PROCURED IN CASH THROUGH BROKERS FOR GEN ERATING UNACCOUNTED PRODUCTION; AND (III) GOODS PRODUCED OUTSIDE THE BO OKS USED TO BE SOLD IN CASH WITHOUT ISSUING INVOICE OR RECORDING THEM AND WITHO UT PAYING EXCISE DUTY THEREON. BASED SOLELY ON THE AFORESAID STATEMENT, THE CENTRA L EXCISE AUTHORITIES CONCLUDED THAT THE ASSESSEE HAD PRODUCED 624 MT OF NON-ALLOY STEEL INGOTS WITHOUT ACCOUNTING THEM IN THE RECORD AND WITHOUT PAYMENT O F CENTRAL EXCISE DUTY THEREON. THE ORDER PASSED AND SUBSEQUENTLY CONFIRME D BY THE ADJUDICATING AUTHORITY, CUSTOMS AND CENTRAL EXCISE IN THIS BEHAL F WAS, ON APPEAL, REVERSED BY THE COMMISSIONER (APPEALS), CUSTOMS AND CENTRAL EXC ISE. AT PP. 10-12 OF HIS APPELLATE ORDER, THE COMMISSIONER (APPEALS), CUSTOM S AND CENTRAL EXCISE HAS OBSERVED AS UNDER: THE APPELLANTS FURTHER SUBMITTED THAT THE ADJUDICA TING AUTHORITY IS NOT JUSTIFIED IN CONFIRMING THE DEMAND FOR DUTY ON THE ALLEGATION THAT THE CENTRAL EXCISE OFFICERS ON THEIR VISIT TO THE FACTO RY 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 FUR NACE WITH CAPACITY OF 5 MTS AS PER HEAT DURING THE PERIOD FROM DECEMBER 200 3 TO 24.3.2004. THEY SUBMITTED THAT THEY HAD ACTUALLY BEEN USING INDUCTI ON FURNACE WITH PRODUCTION CAPACITY OF 4 MTS PER HEAT ONLY AND HAD ACTUALLY PRODUCED 37 INGOTS IN LAST HEAT TAPPED AT 0820 HOURS ON 25.3.20 04 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 IN GOTS LYING THERE FOR RE- MELTING. THIS EXPLANATION APPEARED TO HAVE BEEN ACC EPTED 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 B EEN TAKEN IN RESPECT OF THESE 8 INGOTS BY THE CENTRAL EXCISE OFFICERS, IT C AN BE CONCLUDED THAT THE APPELLANTS HAD BEEN OPERATING INDUCTION FURNACE WIT H PRODUCTION CAPACITY OF 4 MTS PER HEAT ONLY. I FULLY AGREE WITH THIS CON TENTION OF THE APPELLANTS ARORA ALLOYS LTD. LUDHIANA 319,1048/CHANDI/2008 9 9 AND FIND FORCE IN THE APPELLANTS CONTENTION. IF TH E 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 INGOT S 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 THER E HAVING NOT BEEN ENTERED IN THE LOG SHEET OF THE APPELLANTS. SINCE N O SEIZURE OF 8 STEEL INGOTS HAD BEEN MADE, THE BENEFIT SHOULD GO TO THE APPELLA NTS AND ACCORDINGLY, I HOLD THAT THE APPELLANTS HAD BEEN OPERATING INDUCTI ON FURNACE WITH PRODUCTION CAPACITY OF 4 MTS PER HEAT ONLY DURING T HE MATERIAL PERIOD AND THERE COULD BE NO QUESTION OF CLANDESTINE MANUFACTU RE AND REMOVAL OF STEEL INGOTS. I ALSO AGREE WITH THE APPELLANTS THAT AT TH E 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. TH IS FACT ALSO STRENGTHENS MY EARLIER FINDING THAT THE STATEMENT OF SHRI HARME SH ARORA CANNOT BE TERMED TO BE AN INDEPENDENT AND VOLUNTARILY ONE AND CANNOT BE MADE THE BASIS FOR CONFIRMING THE DEMAND FOR DUTY. THE APPELLANTS FURTHER SUBMITTED THAT NEITHER ANY V ERIFICATION NOT ANY INVESTIGATION HAD BEEN MADE FROM THEM AS TO FROM WH ERE THEY HAD ACQUIRED/PURCHASED THE RAW MATERIALS FOR THE MANUFA CTURE OF INGOTS ALLEGEDLY CLEARED WITHOUT PAYMENT OF DUTY; TO WHOM THEY HAD SOLD THE SAID INGOTS AND TO VERIFY/INVESTIGATION FROM THE CONSIGN ORS-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 WHE THER 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 T O HOW THE PAYMENTS FOR THE INGOTS SOLD HAD BEEN RECEIVED AND ALSO AS T O WHETHER ANY ENQUIRY HAD BEEN MADE FROM THE TRUCK DRIVES AS TO WHETHER T HEY HAD TRANSPORTED THE GOODS, IN QUESTION. THE APPELLANTS SUBMITTED TH AT THERE IS NOTHING ON RECORD TO SHOW THAT ANY SUCH VERIFICATION/INVESTIGA TION HAD BEEN MADE BY THE DEPARTMENT AND AS SUCH THE DEPARTMENT HAS TOTAL LY FAILED TO DISCHARGE THE BURDEN OF PROOF REGARDING THE CLANDESTINE MANUF ACTURE AND REMOVAL OF STEEL INGOTS AND IN THE ABSENCE OF ANY SUCH INVESTI GATIONS 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 REPORT ED AS 2005 (186) ELT 465 (TRIBUNAL-DELHI) ARORA ALLOYS LTD. LUDHIANA 319,1048/CHANDI/2008 10 10 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/EVIDE NCE 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 F OR DUTY IS NOT SUSTAINABLE. IN THE PRESENT CASE ALSO I FIND THAT T HE ALLEGED ALLEGATIONS OF CLANDESTINE MANUFACTURE AND REMOVAL OF STEEL INGOTS HAVE REMAINED UNCORROBORATED BY ANY INDEPENDENT UNIMPEACHABLE EVI DENCE SUCH AS PURCHASE OF RAW MATERIALS/CONSUMPTION OF ELECTRICIT Y/PURCHASE OF STEEL INGOTS BY BUYERS/ENQUIRY FROM THE TRANSPORT REGARDI NG THE TRANSPORTATION OF RAW MATERIALS/STEEL INGOTS/FLOW BACK OF MONEY ETC. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, THE DEPARTMENT HAS COMPLETELY FA ILED 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 FR OM ANY PURCHASER OF THE ALLEGED CLANDESTINELY REMOVAL STEEL INGOTS WAS RECO RDED NOR THE STATEMENT OF ANY SELLER OF THE RAW MATERIALS WAS BROUGHT ON R ECORD NOR THE STATEMENT OF ANY TRANSPORTER WAS BROUGHT ON RECORD NOR ANY RE COVERY OF SALE PROCEEDS OF CLANDESTINELY REMOVED STEEL INGOTS WAS MADE, COU PLED WITH THE FACT THAT NEITHER THE STOCK OF FINISHED GOODS WAS FOUND IN EX CESS 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 CLEA RED STEEL INGOTS WITHOUT PAYMENT OF DUTY. AS SUCH, APPLYING THE RATI O 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 DETAILE D IN THE IMPUGNED ORDER, CANNOT BE SUSTAINED AND ARE, THEREFORE, SET ASIDE. 16. AT THE TIME OF HEARING BEFORE US, IT WAS SUBMIT TED BY BOTH THE PARTIES THAT THE ORDER DATED 21.4.2006 PASSED BY THE COMMISSIONE R (APPEALS), CUSTOMS AND CENTRAL EXCISE HAS NOT BEEN ACCEPTED BY THE DEPARTM ENT OF THE CUSTOMS AND CENTRAL EXCISE AND THAT APPEAL HAS BEEN FILED BEFOR E THE CENTRAL EXCISE AND SERVICE TAX APPELLATE TRIBUNAL WHICH IS STILL PENDI NG FOR DISPOSAL. ARORA ALLOYS LTD. LUDHIANA 319,1048/CHANDI/2008 11 11 17. PERUSAL OF THE ASSESSMENT ORDER PASSED BY THE A O SHOWS THAT THE AO WORKED OUT UNACCOUNTED SALES ON THE BASIS OF UNACCO UNTED PRODUCTION CALCULATED BY THE CENTRAL EXCISE AUTHORITIES SOLELY ON THE BAS IS 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 PRESUME D 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 BALAJI WALE V. GOPAL VINAYAK GOSAVI, AIR 1960 S.C 100,105 THAT AN ADMISSION IS T HE BEST EVIDENCE THAT AN OPPOSING PARTY CAN RELY UPON AND THOUGH NOT CONCLUS IVE, IS DECISIVE OF THE MATTER UNLESS SUCCESSFULLY WITHDRAWN OR PROVED ERRONEOUS. THE LEGAL POSITION THAT EMERGES FROM CATENA OF AUTHORITIES ON THE SUBJECT I S THAT THE PROPOSITION THAT AN ADMISSION IS DECISIVE OF THE MATTER IS SUBJECT TO F OUR QUALIFICATIONS, NAMELY, (1) THE ADMISSION MUST HAVE BEEN VOLUNTARILY MADE; AN A DMISSION 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 I T IS INCORRECT OR ERRONEOUS; AND (4) AN ADMISSION CANNOT BE ACTED UPON IF IT IS INCO NSISTENT WITH THE MATERIALS AVAILABLE ON RECORD. UNLESS AN ADMISSION FALLS UNDE R 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 REFE RENCE TO THE FACTS OF THE CASE. THERE IS NO UNIVERSAL RULE THAT AN ADMISSION OR CON FESSION 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 DECISI VE 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 CEN TRAL EXCISE AUTHORITIES IN THE CONTEXT OF LEVY OF EXCISE DUTY ON UNACCOUNTED P RODUCTION 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 T HE HONBLE HIGH COURT (REPRODUCED SUPRA), PROCEEDINGS UNDER THE CENTRAL E XCISE ACT HAVE RELEVANCE ONLY FOR FORMATION OF OPINION OF ESCAPEMENT OF INCOME AN D THEREAFTER THE INCOME-TAX AUTHORITIES HAVE TO INDEPENDENTLY FINALISE THE RE-A SSESSMENT 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 ARORA ALLOYS LTD. LUDHIANA 319,1048/CHANDI/2008 12 12 BY HIM FROM THE CENTRAL EXCISE DEPARTMENT WITHOUT B RINGING ANY MATERIAL ON RECORD TO JUSTIFY OR SUPPORT THE ADDITIONS. THE IMP UGNED ADDITIONS ARE LIABLE TO BE CANCELLED ON THIS GROUND ALONE AND ARE ACCORDINGLY CANCELLED. 19. WITHOUT PREJUDICE TO THE AFORESAID, MATERIALS A VAILABLE 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 MATER IALS AVAILABLE ON RECORD, THE LD. CIT(A) HAS HELD AS UNDER: ..FURTHER, AS BROUGHT OUT ABOVE ON A SUBSEQUEN T SURPRISE INSPECTION BY THE EXCISE AUTHORITIES, THE CAPACITY OF THE APPELLANTS UNIT HAS BEEN STEED TO BE OF 4 MTS ONLY. THEREFORE, THE SAME DEPARTMENT IS CERTIFYING THAT THE INSTALLED CAPACITY OF THE FURNA CE 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 A SSESSMENT YEAR UNDER CONSIDERATION AND THAT, HOWEVER, FURNACE OF 4 MT HA D BEEN INSTALLED BEFORE AND AFTER THAT PERIOD. ALSO THERE IS NOTHING ON REC ORD THAT THE APPELLANT INCURRED ANY EXPENSES FOR REMOVAL AND INSTALLATION OF THE FURNACE AS ABOVE AND THAT THE SANCTIONED LOAD DURING THE RELEVANT PE RIOD 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) I S REASONABLE ON THE FACTS OF THE CASE. ENTIRE ADDITION HAS BEEN MADE ON THE BASI S OF THE STATEMENT OF SHRI HARMESH ARORA AS RECORDED BY THE CENTRAL EXCISE AUT HORITIES IN WHICH HE STATED THAT THE CAPACITY OF FURNACE WAS INCREASED FROM 4 M T TO 5 MT IN DECEMBER 2003. CAPACITY OF FURNACE IS NOT A MATTER WITHIN THE DOMA IN 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.1 87-189 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 SU PERINTENDENT, CENTRAL EXCISE, RANGE I, DIVISIONII, LUDHIANA CONVEYING RE PLACEMENT 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 O N 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 DECEM BER 2003) FROM 4 TON TO 5 TON. BESIDES, THERE IS NO EVIDENCE BEFORE US TO S HOW THAT THE FURNACE OF 4 TON, WHICH WAS PROCURED IN 2002, WAS ACTUALLY REPLA CED BY A FURNACE OF 5 TON IN DECEMBER 2003. (II) EACH FURNACE HAS TECHNICAL SPECIFICATIONS WHI CH ARE AVAILABLE WITHIN THE UNIT AS ALSO IN THE INVOICE. THESE SPECIFICATIONS C ONTAIN VARIOUS DETAILS, E.G., THE IDENTITY NUMBER OF THE FURNACE AND ITS MAKER/MA NUFACTURER, ITS ARORA ALLOYS LTD. LUDHIANA 319,1048/CHANDI/2008 13 13 CAPACITY, WATTAGE, ETC. NO DETAIL HAS BEEN PLACED B EFORE US TO SHOW THAT THE TECHNICAL SPECIFICATIONS OF THE FURNACE FOUND A T THE TIME OF VISIT BY THE CENTRAL EXCISE AUTHORITIES ON 25.3.2004 WERE DIFFER ENT FROM THE ONE PROCURED BY THE ASSESSEE IN 2002. NEITHER THE AO MA DE 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 O F THE ASSESSEE AND FOUND THAT THE FURNACE OF 4 TON, WHICH WAS PROCURED IN 20 02, WAS BEING USED BY THE ASSESSEE. AFTER NOTING THE TECHNICAL SPECIFICAT IONS 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 O R THE OPINION EXPRESSED BY THE CHARTERED ENGINEER. (IV) SUPPRESSED OR UNACCOUNTED PRODUCTION WAS WORKE D 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 25.3.2 004, 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 REC ORDED 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 C ENTRAL EXCISE AUTHORITIES ON 25.3.2004 ALSO AT THE PREMISES OF TH E ASSESSEE, THERE IS NOTHING IN THE ASSESSMENT ORDER TO SHOW THAT THE IN SPECTION REPORT PREPARED, IF ANY, BY THE CENTRAL EXCISE AUTHORITIES WAS AT ALL CONSIDERED BY THE AO. IT HAS ALSO NOT BEEN PLACED BEFORE US EITHE R. 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 SH OW THAT THE ASSESSEE HAD MADE ANY INVESTMENT TOWARDS ACQUISITION OF FURN ACE OF 5 MT OR THAT THE AO HAS ALLOWED DEPRECIATION THEREON, I.E., FURN ACE OF 5 MT. THERE IS NO MATERIAL ON RECORD TO HOLD THAT THE CLAIM OF DEPREC IATION MADE BY THE ASSESSEE ON THE FURNACE OF 4 MT WAS REJECTED BY THE AO. ARORA ALLOYS LTD. LUDHIANA 319,1048/CHANDI/2008 14 14 21. BESDIES, THE STATEMENT OF SHRI HARMESH ARORA HA S 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 FR OM 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 ADDIT IONS. THE AO HAS GIVEN NO OTHER BASIS TO SUPPORT THE ADDITIONS MADE BY HIM. I N THIS VIEW OF THE MATTER, THE ORDER PASSED BY THE CIT(A) IN THIS BEHALF IS CONFIR MED. GROUND NO. 2 IS DISMISSED. 23. APROPOS GROUND NO.1, THE AO ESTIMATED UNEXPLAIN ED EXPENDITURE AMOUNTING TO RS.69,59,370/- TOWARDS PURCHASE OF RAW MATERIALS ON THE GROUND THAT IT MUST HAVE BEEN UTILIZED IN PRODUCING 624 MT S 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 UNACCOUNT ED 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. 24. APROPOS GROUND NO.3, THE AO SIMPLY OBJECTED TO THE ADMISSION OF ADDITIONAL EVIDENCE WHICH THE ASSESSEE SOUGHT TO FI LE BEFORE THE CIT(A). AFTER CONSIDERING THE OBJECTIONS OF THE AO, THE LD. CIT(A ) HOWEVER PREFERRED TO ADMIT ADDITIONAL EVIDENCE IN THE INTEREST OF JUSTICE AND FOR THE DETAILED REASONS GIVEN BY HIM IN THIS BEHALF IN HIS APPELLATE ORDER. CONSIDER ING THE NATURE OF EVIDENCE SOUGHT TO BE ADDUCED BY THE ASSESSEE BEFORE THE LD. CIT(A), THE LD. CIT(A) HAS RIGHTLY ADMITTED THE SAME SO AS TO ADVANCE THE CAUS E OF JUSTICE. OPPORTUNITY WAS GIVEN BY THE CIT(A) TO THE AO TO REBUT THE ADDITION AL EVIDENCE FILED BY THE ASSESSEE BEFORE THE LD. CIT(A). THE AO HOWEVER CHOS E NOT TO REBUT THEM. HE SIMPLY SOUGHT TO PLACE RELIANCE ON THE ASSESSMENT O RDER. THE LD. CIT(A) HAD NO OPTION EXCEPT TO ACT UPON THE ADDITIONAL EVIDENCE F ILED BY THE ASSESSEE. IN VIEW OF THE FOREGOING THE ORDER PASSED BY THE LD. CIT(A) IN THIS BEHALF IS CONFIRMED. GROUND NO.3 TAKEN BY THE DEPARTMENT IS DISMISSED. 25. APROPOS GROUND NO.4, THE ORDER OF THE CIT(A) ON FIRST THREE GROUNDS OF APPEAL HAS ALREADY BEEN CONFIRMED BY US AND HENCE T HE ORDER OF THE AO CANNOT BE RESTORED BY US. GROUND NO.4 IS DISMISSED. 26. IN VIEW OF THE FOREGOING, THE APPEAL FILED BY T HE DEPARTMENT IS DISMISSED. ITA NO.1048/CHANDI/2008: AY 2005-06 27. AS STATED EARLIER, THE APPEAL FILED BY THE ASSE SSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A) ON 20.11.2004, ON TH E FOLLOWING GROUNDS: 1 THAT THE LD. CIT I, LUDHIANA HAS ERRED IN ISSUI NG NOTICE AND PASSING THE ORDER U/S 263 OF THE INCOME-TAX ACT. ON THE PLE A THAT THE ORDER PASSED ARORA ALLOYS LTD. LUDHIANA 319,1048/CHANDI/2008 15 15 U/S 143(3) BY THE AO APPEARED TO BE ERRONEOUS AND P REJUDICIAL TO THE INTEREST OF REVENUE. 2 THAT LD. CIT-I HAS NOT CONSIDERED THE FACT THAT THE ORDER U/S 143 (3) WAS PASSED AFTER THOROUGH EXAMINATION AND APPLICATI ON OF MIND AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS, VOLUMINOUS IN FORMATION HAS BEEN FILED AND NO DEFECT HAS BEEN POINTED OUT AND ALSO I T WAS CLEARED VIDE OUR LETTER, DATED 26.12.2007 FILED TO THE AO WHEN WE HA D SUBMITTED ALL SUCH CONTENTIONS/EVIDENCES WITH REGARD TO THE INSTALLATI ON OF 4 MT FURNACE. 3 THAT THE LD. CIT-I, LUDHIANA HAS NOT CONSIDERED THE FACT THAT THE ORDER U/S 143(3) WAS PASSED AS PER DETAILED FINDING S AND DIRECTION OF ADDL COMMISSIONER OF INCOME TAX U/S 144A OF THE INCOME-T AX ACT WHICH HAVE BEEN GIVEN IN PARA 3.2 OF PAGE 2 & 3 OF THE ORDER. 4 THAT WITHOUT PREJUDICE TO THE ABOVE SAID GROUNDS OF APPEAL, THE LD. CIT-I HAS NOT CONSIDERED PROPERLY OUR DETAILED SUBM ISSIONS WHICH HAVE BEEN FILED IN RESPONSE TO NOTICE U/S 263 AS MENTION ED IN PAGE 5,6 & 7 OF THE ASSESSMENT ORDER ALONG WITH FOLLOWING ENCLOSURE S: I) COPY OF THE ORDERS OF CENTRAL EXCISE COMMISSIONE R. II) COPY OF THE REPORT OF THE CHARTERED ENGINEER. III) PROOF WITH REGARD TO INSTALLATION OF 4MT. FURN ACE FOR WHICH THE PERMISSION WAS SOUGHT FROM THE EXCISE DEPARTMENT AL ONG WITH EVIDENCES ON THE BASIS OF SUBSEQUENT EXCISE INSPECT ION THAT IT IS 1 4 MT FURNACE. AS SUCH, THE LD. CIT-I, LUDHIANA COULD HAVE APPLIED HIS MIND ON THE SAME IN STEAD OF SETTING ASIDE THE MATTER TO THE AO. 5 THAT THE LD. CIT-I HAS ERRED IN GIVING A FINDING IN PARA 3.1 THAT THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE YEAR UNDER CONSIDERATION AS COMPARED TO AY 2004-05 AND HAVE FA ILED TO CONSIDER THAT THE EXCISE AUTHORITIES HAVE LATER ON CERTIFIED THEM SELVES THAT IS A 4 MT FURNACE. 6 THAT THE LD. CITS FINDING IN PARA 3.5 WITH REGA RD TO UNRECORDED PRODUCTION AND PURCHASE OF RAW MATERIAL OUTSIDE THE BOOKS OF ACCOUNT AND PRODUCTION AND SWALE AS PER BOOKS OF ACCOUNT IS TOT ALLY UNCALLED FOR, BOTH ON FACTS AND ON LEGAL GROUND, SINCE THERE IS NO MEN TION OF THE SAME IN THE NOTICE ISSUED U/S 263 AND IT IS WRONG ONTEH PART OF THE LD. CIT TO STATE THAT THERE WAS AN ERROR OF EVALUATION OF EVIDENCE BY THE AO. 7 THAT FOR EXERCISING A JURISDICTION U/S 263, THE ASSESSMENT HAS TO BE BOTH ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF R EVENUE WHICH IN OUR CASE CONSIDERING THE ABOVE SAID GROUNDS OF APPEAL, CONDI TION TO WORK ONLY SEC 263, NOT SATISFIED. 28. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 24.10.2005 RETURNING NIL INCOME. AFTER PR OCESSING THE RETURN U/S ARORA ALLOYS LTD. LUDHIANA 319,1048/CHANDI/2008 16 16 143(1), ASSESSMENT U/S 143(3) WAS COMPLETED ON 31.1 2.2007 IN WHICH ADDITION OF RS.50,000/- WAS MADE ON AGREED BASIS ON ACCOUNT OF UN-VOUCHED EXPENSES. THE ASSESSMENT ORDER PASSED BY THE AO ON 31.12.2007 REA DS AS UNDER: THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE AY 2005-06 ON 24.10.2005 DECLARING NIL INCOME, WHICH WAS PROCESSED U/S 143(1 ) ON 14.2.2006. THE CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY NOTI CE U/S 143(2) WAS ISSUED ON 30.10.2006 AND SERVED UPON THE ASSESSEE. STATUTO RY NOTICES WERE ISSUED AND COMPILED WITH SHRI SUDHIR SEHGAL, ADVOCA TE ATTEND THE ASSESSMENT PROCEEDINGS FROM TIME TO TIME AND FILED THE INFORMATION/DOCUMENTS AS CALLED FOR. THE BOOKS OF A CCOUNT WERE PRODUCED AND TEST CHECKED. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF NON ALLOYS STEEL INGOTS, TRADING IN SCRAP ETC. T HE CASE WAS EXAMINED IN DETAILED DURING THE COURSE OF ASSESSMENT PROCEEDING S IT WAS FOUND THAT THERE WERE CERTAIN UNVOUCHED EXPENSES. AFTER DISCUS SION, THE ASSESSEE AGREED TO THE ADDITION OF RS. 50,000/- ON ACCOUNT O F THESE UNVOUCHED EXPENSES AND TO COVER UP ANY LEAKAGES IN REVENUE, S UBJECT TO NO PENAL ACTION. THUS THE INCOME OF THE ASSESSEE IS RECOMPUTED AS UN DER: RETURNED INCOME RS. 10,410/- ADD: UNVOUCHED EXPENSES AS DISCUSSED RS. 50,000/- TOTAL TAXABLE INCOME RS. 60,410/- ASSESSED CHARGE INTEREST AS PER LAW. ISSUE REQUISIT E DOCUMENTS. 29. IN EXERCISE OF HIS POWERS U/S 263, THE LD. CIT CALLED FOR THE RECORD OF THE CASE AND EXAMINED THE SAME. HE TOOK NOTE OF THE ASS ESSMENT ORDER PASSED BY THE AO FOR AY 2004-05 IN WHICH SUBSTANTIAL ADDITION S WERE MADE ON THE BASIS OF STATEMENT OF SHRI HARMESH ARORA RECORDED BY THE CEN TRAL EXCISE AUTHORITIES ON 25.3.2004. HE ALSO PERUSED THE ASSESSMENT RECORDS A ND FORMED PRIMA FACIE BELIEF THAT THE SAID ORDER PASSED BY THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE, THEREFORE, ISSUED A SHOW CAUSE NOTICE. AFTER HEARING THE ASSESSEE, HE PASSED THE IMPUGNED ORDER U/S 263 ON 2 0.11.2008 BY WHICH HE SET ASIDE THE ASSESSMENT ORDER DATED 31.12.2007 AND RES TORED THE MATTER TO THE FILE OF THE AO WITH THE DIRECTION TO PASS THE ASSESSMENT ORDER AFRESH AFTER RELEVANT INQUIRIES AND AFTER GIVING OPPORTUNITY OF HEARING T O THE ASSESSEE. OPERATIVE PART OF HIS ORDER IS CONTAINED IN PARA 4 AND 5 OF HIS ORDER WHICH READS AS UNDER:- 4. IN VIEW OF THE ABOVE DISCUSSION FOLLOWING FIND INGS OF FACT AND LAW DO EMERGE:- A) THAT IN AY 2004-05 THE AO HAS DECIDED THAT THE I NSTALLED CAPACITY OF THE FURNACE WAS 5MT ON THE BASIS OF STA TEMENT OF SHRI ARORA ALLOYS LTD. LUDHIANA 319,1048/CHANDI/2008 17 17 HARMESH ARORA AND VERIFICATION CHART OF INGOTS MANU FACTURED OUT OF HEAT AT 0820 HRS ON 25.3.2004. B) THAT IN THE ABSENCE OF ANY EVIDENCE TO THE CONTR ARY PRODUCED DURING THE ASSESSMENT PROCEEDINGS FOR AY 2005-06 AN D THOUGH THERE WAS BEING NO MATERIAL CHANGE IN FACTUAL POSITION WH ILE PASSING THE ORDER FOR AY 2005-06 THE INSTALLED CAPACITY HAS BEE N ACCEPTED AT 4 MT. C) THAT THE SAID DECISION NOT BEING BASED ON NEW MA TERIAL EVIDENCE ON RECORD IS ERRONEOUS. MOREOVER SINCE THE ISSUE HAS BEEN DECIDED WITHOUT ADDUCING EVIDENCE AS DISCUSSED IN P ARA 3.3 ABOVE, THE SAME IS HELD TO BE NOT BASED ON MATERIAL ON REC ORD. D) THAT THE SAID ADJUDICATION WITHOUT RAISING EVIDE NCE, TOUGH IT WAS IMPERATIVE TO DECIDE THE ISSUE TO ITS FINALITY AND IGNORING THE MATERIAL EVIDENCE ON RECORD, LEFT THE ORDER OF ASSE SSMENT ERRONEOUS. E) THAT SINCE THE ISSUE I.E. UNRECORDED PURCHASE OF RAW MATERIAL, ITS PRODUCTION AND SALE OUT OF BOOKS OF ACCOUNT, HA S ITS BEARING ON TAXABLE INCOME OF THE ASSESSEE-COMPANY THE SAME IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 5. IN VIEW OF THE ABOVE FACTS THE ORDER OF THE AO D ATED 31.12.2007 IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE AND IS, THEREFORE, SET ASIDE TO BE FRAMED DENOVO ON THE ISSUE OF INSTA LLED CAPACITY OF THE FURNACE, UNRECORDED PURCHASE OF RAW MATERIAL, PRODU CTION OF INGOTS AND SALE OF THE SAME OUT OF BOOKS IS CONCERNED IS SET-A SIDE AND RESTORED TO THE FILE OF AO WITH THE DIRECTION TO DECIDE THE SAME AF RESH AFTER ADDUCING NECESSARY EVIDENCE AND GIVING DUE OPPORTUNITY OF BE ING HEARD TO THE ASSESSEE COMPANY. 30. AGGRIEVED BY THE ORDER PASSED BY THE LD. CIT, T HE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. IN SUPPORT OF THE APPEAL, THE LD. COUNSEL FOR THE ASSESSEE HAS FILED WRITTEN SUBMISSIONS AND PAPER-BOOKS THE DETAI LS OF WHICH HAVE ALREADY GIVEN EARLIER IN THIS ORDER. HIS MAIN PLANK OF SUBMISSION WAS THAT THE ASSESSMENT ORDER WAS PASSED BY THE ASSESSING OFFICER AFTER NECESSARY INQUIRIES AND APPLICATION OF MIND AND THEREFORE IT WAS NEITHER ERRONEOUS NOR PRE JUDICIAL TO THE INTERESTS OF THE REVENUE. IN THIS CONNECTION, HE INVITED OUR ATTENTI ON TO THE DIRECTIONS ISSUED BY THE ADDITIONAL COMMISSIONER OF INCOME-TAX, VIDE HIS LETTER DATED 31.12.2007, U/S 144A OF INCOME-TAX ACT. HE REFERRED TO THE RELEVANT PORTION OF THE DIRECTIONS ISSUED BY HIM TO THE AO, WHICH READS AS UNDER:- I HAVE PERUSED THE RECORDS, DOCUMENTS FILED DURING THE ASSESSMENT PROCEEDINGS AND THE REPLY OF THE ASSESSEE. THE FOLL OWING FACTS EMERGE OUT OF IT. ARORA ALLOYS LTD. LUDHIANA 319,1048/CHANDI/2008 18 18 1 THE ADDITION IN AY 2004-05 WAS MADE ON THE BASIS OF CONFESSIONAL STATEMENT OF ASSESSEE BEFORE THE EXCISE AUTHORITIES WITHOUT ANY OTHER EVIDENCE RECORD REGARDING CAPACITY EXPANSION OF FUR NACE, UNACCOUNTED SALESL AND PURCHASE ETC. 2 THE ADDITION IN THE AY 2004-05 ON THE BASIS OF TH IS CONFESSIONAL STATEMENT WERE MADE ONLY UPTO THE DATE OF ACTION I. E. 25.3.2004 BY THE EXCISE DEPARTMENT AND NO ACTION FOR PART PERIOD OF THAT FINANCIAL YEAR WAS TAKEN EITHER BY EXCISE DEPARTMENT OR BY INCOME TAX DEPARTMENT. AND THE FACT IS THE POSITION IS SAME FROM 25.3.2004 TILL 31 .3.2005. 3 NO COGNIZANCE OF A CONFESSIONAL STATEMENT CAN BE STRETCHED TO SUBSEQUENT YEARS UNTIL UNLESS THERE IS SOME MATERIA L ON RECORD. 4 NO ADDITION IS SUSTAINABLE AND JUSTIFIED ON THE B ASIS OF INSTALLED CAPACITY OF A UNIT, PARTICULARLY WHEN IT IS AN EXCI SABLE UNIT MAINTAINING ALL DETAILS OF SALES AND PURCHASES, EXCEPT IN CASE OF A NY EVIDENCE ON RECORD REFLECTING UNACCOUNTED TRANSACTIONS FOR THAT FINANC IAL YEAR. FURTHER THE 100% CAPACITY UTILIZATION IN CONTINUOUS PROCESS IND USTRY, LIKE FURNACES WHICH ARE HIGHLY UNECONOMICAL TO RUN ON ALTERNATE P OWER SOURCES LIKE GENERATOR ETC., IS NEVER POSSIBLE. THIS POSITION FU RTHER GETS WORSENED BY THE FACT THAT IN STATES LIKE PUNJAB WHERE POWER CUTS AR E A COMMON PHENOMENA, THE CAPACITY UTILIZATION IS EVEN MUCH LOWER THAN TH E UTILISATION IN NORMAL CIRCUMSTANCES. 5 THE ISSUE WITH CENTRAL EXCISE AUTHORITIES HAS BEE N DECIDED IN FAVOUR OF ASSESSEE BY 1 ST APPELLATE AUTHORITY FOR FINANCIAL YEAR 2003-04 AND THE SAME DEPARTMENT HAS CERTIFIED THE CAPACITY OF THE A SSESSEES FURNACE AT FOUR TONE ONLY DURING FINANCIAL YEAR 2004-05. IN TOTALITY OF THE FACTS IN THIS CASE, I AM OF THE OPINION THAT, THE ADDITION PURPOSED IN AY 2005-06 ON THE BASIS OF CAP ACITY UTILISATION AND STATEMENT OF THE ASSESSEE RECORDED BY EXCISE DEPART MENT RELEVANT FOR AY 2004-05 WILL BE HIGHLY UNJUSTIFIED AND WITHOUT ANY EVIDENCE ON RECORD. THIS WILL LEAD TO RAISING AOF DEMAND WITHOUT ANY VALID E VIDENCE, WHICH WILL LEAD TO UNWARRANTED LITIGATION AND HARASSMENT FOR THE AS SESSEE. THEREFORE, YOU ARE DIRECTED U/S 144A NOT TO MAKE A NY ADDITION ON ACCOUNT OF THIS ISSUE IN AY 2005-06. THE FILES FOR AY 2004-05 AND 2005-06 ARE RETURNED HEREWITH. 31. HE SUBMITTED THAT THE AFORESAID DIRECTIONS WERE ISSUED BY THE ADDL. CIT AFTER MAKING DETAILED INQUIRIES INTO THE MATTER AND THEREFORE THE LD. CIT WAS NOT RIGHT IN SETTING ASIDE THE ASSESSMENT ORDER ONLY BE CAUSE THE ADDL. CIT HAD TAKEN CORRECT VIEW IN THE MATTER AFTER FULL APPRECIATION OF ALL THE ASPECTS OF THE MATTER. HE SUBMITTED THAT THE ORDERS PASSED AFTER NECESSARY INQUIRIES AND DUE APPLICATION OF MIND COULD NOT BE SAID TO BE ERRONEOUS AND PREJU DICIAL TO THE INTERESTS OF THE ARORA ALLOYS LTD. LUDHIANA 319,1048/CHANDI/2008 19 19 REVENUE. HE URGED THAT THE ORDER PASSED BY THE LD. CIT SHOULD THEREFORE BE CANCELLED. IN SUPPORT OF HIS SUBMISSIONS, THE LD. C OUNSEL FOR THE ASSESSEE RELIED UPON THE FOLLOWING DECISIONS/AUTHORITIES: 1. AMRIK SINGH V. ACIT (2010) 36 DTR 9 (CHANDIGARH ) (TRIB) 111 2. ADDL CIT, GZD V. SHIPRA ESTATE LTD (2010) 35 SO T 256 (DELHI) 3. CIT V. R.K. CONSTRUCTION CO. (2008) 12 DTR (GUJ ) 210 4. M/S LITTLE BEE IMPEX V. ADDL CIT, KHANNA IN ITA NO. 36 & 37/CHANDIGARH/2009 5. SMT. SAVITA GOYAL V. ITO IN ITA NO. 438/CHANDIGA RH/2007 FOR AY 2002-03. 6. CIRCULAR NO. 286/2/2009-IT(INV) DATED 10.3.2003 (CLARIFICATION) 7. CIT V. S. KHADER KHAN SONS (2008) 214 CTR (MAD) 589 8. CIT V. VIMAL MOULDERS (INDIA) LTD BY HON'BLE HI GH COURT DELHI 9. CIT V. VIGNESH KUMAR JEWELLERS (2008) 12 DTR (M AD) 293 10. CIT V. KELLVINATOR OF INDIA LTD, 320 ITR 561 ( S.C) 11. CIT V. DEVELOPMENT CREDIT BANK LTD, 323 ITR 20 6 (BOM) 12. CIT V. NAHAR EXPORTS LTD, 6 DTR (P & H) 44 13. CIT V. MAX INDIA LTD, 295 ITR 282 (S.C) 14. CIT V. DESIGN & AUTOMATION ENGINEERS (BOMBAY) P LTD, 323 ITR 632 (BOM) 15. CIT V. GANPAT RAM BISHNOI, 296 ITR 292 (RAJ) 16. GUJARAT GUARDIAN LTD. V. DCIT, 11 DTR (DEL-TRIB ) 370 17. JET ELECTRONICS V. ACIT 2 DTR 337 (AHD-TRIB) 18. PARGAT SINGH V. ITO, 95 TTJ (CHD-TRIB) 295 19. SMT. ANITA MALPOTRA V. ITO 109 TTJ (ASR-TRIB) 7 6 20. MRS. KHATIZA S. OOMERBHOY V. ITO, 100 ITD 173 ( MUM-TRIB) 21. SALORA INTERNATIONAL LTD. V. ADDL CIT, 2 SOT 70 5 (DEL-TRIB) 22. CIT V. GABRIAL INDIA LTD, 203 ITR 108 (BOM) 32. IN REPLY THE LD. DR SUPPORTED THE ORDER PASSED BY THE LD. CIT. 33. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CO NSIDERED THEIR SUBMISSIONS. BARE READING OF SECTION 263 MAKES IT CLEAR THAT PRE -REQUISITE TO THE EXERCISE OF JURISDICTION BY THE LD. CIT SUO-MOTO UNDER IT IS TH AT THE ORDER OF THE AO IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT EREST OF THE REVENUE. THE COMMISSIONER HAS TO BE SATISFIED OF THE CONDITIONS, NAMELY, (1) THE ORDER OF THE AO SOUGHT TO BE REVISED IS ERRONEOUS; AND (2) IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. IT HAS BEEN HELD IN MALABAR INDUSTRIAL COM PANY V. CIT, 243 ITR 83 (SC) THAT SECTION 263 CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF ERROR COMMITTED BY THE AO. IT IS ONLY WHEN AN ORDER IS ER RONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE THAT SE CTION 263 WILL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR INCORRECT APPLICAT ION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. IN THE SA ME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PRINCIPLE OF NATURAL JUSTICE O R WITHOUT APPLICATION OF MIND. ARORA ALLOYS LTD. LUDHIANA 319,1048/CHANDI/2008 20 20 34. AS HELD IN CIT V. SAROJ DEVI, 178 ITR 598, 600 (ALL), THE QUESTION WHETHER THE ASSESSMENT ORDER ON THE GIVEN FACTS OF A CASE I S ERRONEOUS OR NOT, IS ESSENTIALLY A QUESTION OF FACT. WE SHALL THEREFORE NOW TURN TO THE FACTS OF THE CASE. 35. THE REASON AS TO WHY THE COMMISSIONER HAS INVOK ED JURISDICTION U/S 263 IS THE ADDITIONS MADE BY THE AO IN AY 2004-05 ON THE B ASIS OF THE STATEMENT OF SHRI HARMESH ARORA SO AS TO MAINTAIN CONSISTENCY IN THE STAND OF THE DEPARTMENT IN BOTH THE ASSESSMENT YEARS. WE HAVE ALREADY DELETED ADDITIONS MADE BY THE AO ON THAT BASIS IN AY 2004-05. WITHOUT PREJUDICE TO THE AFORESAID, BARE PERUSAL OF THE ASSESSMENT ORDER DE-HORS THE DIRECTIONS ISSUED BY T HE ADDITIONAL COMMISSIONER OF INCOME-TAX U/S 144A GIVES AN IMPRESSION THAT THE AS SESSMENT HAS BEEN COMPLETED WITHOUT ANY INQUIRY OR APPLICATION OF MIN D. HOWEVER, THE INQUIRIES MADE AND DIRECTIONS GIVEN BY THE ADDITIONAL COMMISS IONER OF INCOME-TAX U/S 144A ARE PART OF ASSESSMENT PROCEEDINGS AND THEREFORE PA RT OF THE ASSESSMENT ORDER. THIS POSITION IS QUITE EVIDENT ON BARE PERUSAL OF S EC 144A. IT WOULD HAVE BEEN BETTER IF THE AO HAD REPRODUCED THE DIRECTIONS GIVE N BY THE ADDL. CIT IN THE ASSESSMENT ORDER. THE ASSESSEE HAS PLACED BEFORE US A LOAD OF PAPERS (PP. 1-195 OF PAPER-BOOK I) THAT WERE PLACED BEFORE THE AO/ADD ITIONAL COMMISSIONER OF INCOME-TAX AND CONSIDERED BY THE ADDITIONAL COMMISS IONER OF INCOME-TAX BEFORE DIRECTIONS U/S 144A WERE GIVEN BY HIM TO THE AO. PE RUSAL OF DIRECTIONS GIVEN BY THE ADDL. CIT SHOWS THAT HE HAS DULY CONSIDERED AND DEALT WITH ALL THE RELEVANT ASPECTS OF THE CASE IN THE DIRECTIONS ISSUED BY HIM . IT CANNOT THEREFORE BE SAID THAT THE DIRECTIONS GIVEN BY THE ADDITIONAL COMMISS IONER ARE WITHOUT INQUIRIES OR APPLICATION OF MIND. THE AUTHORITIES REFERRED TO BY THE LD. COUNSEL FOR THE ASSESSEE HAVE BEEN PERUSED. THEY ALSO SUPPORT THE CASE OF TH E ASSESSEE. 36. IN VIEW OF THE FOREGOING THE ORDER PASSED BY TH E LD. CIT U/S 263 IS CANCELLED. APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 24 JUNE 2011 SD/- SD/- (SUSHMA CHOWLA) (D K SRIVASTAVA) JUDICIAL MEMBER ACCOUNTANT MEM BER CHANDIGARH: THE 24 JUNE 2011 SURESH COPY TO: 1. THE APPELLANT, M/S ARORA ALLOYS, LUDHIANA 2. THE RESPONDENT, ITO 1 (1), LUDHIANA 3. THE CIT(A), LUDHIANA 4. THE LD. CIT, LUDHIANA 4. THE D.R, INCOME-TAX DEPARTMENT, CHANDIGARH ASSISTANT REGISTRAR, ITAT, CHANDIGARH