Assistant Commissioner of Income-tax, V. M/s. Mauli Steel Pvt. Ltd., Jalna

ITA 1346/PUN/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1865 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 03-04-2019
• Assessment Year: 2011-2012
• Appeal Filed On: 17-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHABANA PARVEEN
• Keywords: Bogus purchase; Rejection of books of accounts; Unexplained investment; Depreciation; Opportunity of being heard; Set aside
• Section: 40A(3); 143(3); 153A; 133(6); 144

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKARA RAO, AM . / ITA NO.1346/PUN/2016 / ASSESSMENT YEARS : 2011-12 ACIT, JALNA CIRCLE, JALNA. . /APPELLANT VS. M/S. MAULI STEEL PVT. LTD., C-15, ADDITIONAL MIDC, AURANGABAD ROAD, JALNA-431213. PAN : AABCM6718R . / RESPONDENT . / ITA NO.1356/PUN/2016 / ASSESSMENT YEARS : 2011-12 M/S. MAULI STEEL PVT. LTD., C-15, ADDITIONAL MIDC, AURANGABAD ROAD, JALNA-431213. PAN : AABCM6718R . /APPELLANT VS. ITO, WARD-1(3), JALNA. . / RESPONDENT ASSESSEE BY : NONE REVENUE BY : MS. SHABANA PARVEEN / DATE OF HEARING : 03.04.2019 / DATE OF PRONOUNCEMENT: 20.06.2019 / ORDER PER D. KARUNAKARA RAO, AM : THESE ARE THE CROSS APPEALS FILED BY THE REVENUE AND THE ASSESSEE AGAINST THE ORDER OF CIT(A)-1, AURANGABAD DATED 14.03.2016 FOR THE ASSESSMENT YEAR 2011-12. 2. THERE WAS NONE TO REPRESENT THE ASSESSEE BEFORE US. THE NOTICE WAS FINALLY SERVED ON THE ASSESSEE AS PER THE COMMUNICATION RECEIVED BY US FROM THE ASSESSING OFFICER OF THE ASSESSEE VIDE LETTER DATED 28.02.2019 ITA NO.1346/PUN/2016 ITA NO.1356/PUN/2016 2 CONTAINING ENCLOSURE OF ACKNOWLEDGEMENT EVIDENCING SERVICE OF NOTICE ON 28.02.2019 FOR ATTENDING TO THE HEARING SCHEDULED FOR 03.04.2019. THE COPY OF LETTER AND ACKNOWLEDGEMENT ARE PLACED IN THE FILE. THE COMMON ISSUE INVOLVED IN BOTH THE APPEALS OF THE ASSESSEE AND REVENUE RELATES TO THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF BOGUS PURCHASES . THIS ISSUE IS BEING ADJUDICATED BY THIS BENCH IN NUMBER OF CASES AND, THEREFORE, THE SAME NOW STANDS SETTLED. THEREFORE, CONSIDERING THE REPEATED NATURE OF SUCH ISSUES, THE APPEAL OF THE ASSESSEE IS BEING DECIDED ON THE BASIS OF MATERIAL AVAILABLE ON RECORD AND AFTER HEARING THE LD. DR FOR THE REVENUE. 3. THE RESPECTIVE GROUNDS RAISED BY THE ASSESSEE AND THE REVENUE ARE AS UNDER :- ITA NO.1356/PUN/2016 (BY ASSESSEE ) : 1. CIT(A) HAS ERRED IN CONFIRMING THE ADHOC ADDITION OF RS.25000/- ALLEGING BOGUS PURCHASES (OUT OF RS.53,81,819/-). APPELLANT PRAYS TO DELETE THE SAME. 2. CIT(A) HAS ERRED IN CONFIRMING ADDITION OF RS.2000509/- ALLEGED AND ADDED BY THE ASSESSING OFFICER CASH PAYMENT U/S 40A(3) APPELLANT PRAYS TO DELETE THE SAME. 3. IN DISALLOWING DEPRECIATION CLAIM OF RS.2,00,000/- SAME PLEASE BE ALLOWED. 4. CIT(A) HAS ERRED IN ADDING RS.80510 AS PER SHORTAGE OF CASH. 5. CIT(A) HAS ERRED IN CONFIRMING ADDITION OF RS.4,30,321/- SAME MAY PLEASE BE DELETED. 6. APPELLANT PRAYS FOR CANCELLATION OF INTEREST CHARGED U/S 234B. 7. APPELLANT PRAYS TO ADD, ALTER, AMEND, MODIFY AND/ OR WITHDRAW THE GROUND DURING THE APPELLATE PROCEEDINGS. ITA NO.1346/PUN/2016 (BY REVENUE ) : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS CORRECT IN DELETING THE ADDITION OF RS.19,93,989/- MADE BY THE AO AS SUPPRESSED PRODUCTION, WHEREAS ADDITION WAS BASED ON DOCUMENTARY/CIRCUMSTANTIAL EVIDENCES. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS CORRECT IN DELETING THE ADDITION OF RS.51,31,819/- MADE ON ACCOUNT OF BOGUS PURCHASES , WHEREAS THE ASSESSEE COULD NOT PRODUCE CONFIRMATION LETTER FROM THE PARTY FROM WHOM PURCHASES WERE MADE AND ALSO NOT PRODUCE DOCUMENTARY EVIDENCES TO SUBSTANTIATE HIS CLAIM THAT THE PURCHASES WERE GENUINE ONE. 3. THE ORDER OF THE AO BE RESTORED AND THAT OF THE CIT(A) BE VACATED. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY GROUNDS OF APPEAL. ITA NO.1346/PUN/2016 ITA NO.1356/PUN/2016 3 4. FIRST, WE SHALL TAKE THE APPEAL OF THE ASSESSEE IN ITA NO.1356/PUN/2016 FOR ADJUDICATING THE ISSUE. ITA NO.1356/PUN/2016 BY ASSESSEE 5. BRIEFLY STATED THE RELEVANT FACTS COMMON TO BOTH THE APPEALS INCLUDE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF MS INGOTS/BILLETS MAINLY USED BY RE-ROLLING MILLS FOR MANUFACTURING OF MS BARS. THE ASSESSEE FILED THE RETURN OF INCOME DECLARING TOTAL INCOME AT RS.NIL. IT IS SEEN THAT THIS IS THE CASE WHERE THE ASSESSEE CLAIMED THE PURCHASING OF MATERIAL WORTH RS.53,81,819/- FROM THE SUPPLIER AND THEIR NAMES APPEARED IN THE WEBSITE MAINTAINED BY THE SALES TAX DEPARTMENT, MAHARASHTRA GOVERNMENT. IN THE ASSESSMENT, THE ASSESSING OFFICER MADE ADDITION OF RS.53,81,819/- I.E. 100% OF SUCH BOGUS PURCHASES FROM ADILAXMI TRADING COMPANY, SAKLECHA NAGAR, JALNA. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S 143(3) R.W.S. 147 OF THE ACT AND MADE THE ADDITION OF RS.53,81,819/- ON ACCOUNT OF BOGUS PURCHASES IN THE ASSESSMENT. 6. DURING THE FIRST APPELLATE PROCEEDINGS, THE CIT(A) WAS NOT FULLY SATISFIED WITH THE EXPLANATION FURNISHED BY THE ASSESSEE REGARDING GENUINENESS OF THE SAID PURCHASES. AT THE END OF THE PROCEEDINGS, THE CIT(A) RESTRICTED THE ADDITION TO THE EXTENT OF RS.2,50,000/- (APPROX 5% OF THE ADDITION OF RS.53,81,819/-) MADE BY THE ASSESSING OFFICER. 7. AGGRIEVED WITH THE ABOVE DECISION OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL WITH THE ABOVE EXTRACTED GROUNDS. FURTHER, ITA NO.1346/PUN/2016 ITA NO.1356/PUN/2016 4 AGGRIEVED WITH THE RELIEF GRANTED BY THE CIT(A), REVENUE FILED THE CROSS APPEAL. 8. THERE IS NONE TO REPRESENT THE ASSESSEE DESPITE THE SERVICE OF THE NOTICE. ACKNOWLEDGEMENT IS PLACED IN THE FILE. 9. PER CONTRA , THE LD. DR FOR THE REVENUE RELIED HEAVILY ON THE ORDER OF THE ASSESSING OFFICER. FURTHER, LD. DR REFERRED THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S. CHHABI ELECTRICALS PVT. LTD. AND OTHERS VS. DCIT IN ITA NO.795/PUN/2014, RELATING TO ASSESSMENT YEAR 2010-11 DATED 28-04-2017. 10. THE ADDITION ON ACCOUNT OF BOGUS PURCHASES IS THE CORE ISSUE. THE FIRST APPELLATE AUTHORITY RESTRICTED THE ADDITION TO MERELY 5% OF THE SAID BOGUS PURCHASES. THE UNDISPUTED FACTS INCLUDE THAT THE TRAIL OF GOODS IS DEMONSTRATED AND THE PAYMENTS ARE MADE THROUGH THE BANKING CHANNELS ONLY. HOWEVER, THE SUPPLIER IS NOT FOUND TO BE A GENUINE ONE AS HIS NAME APPEARED IN THE WEBSITE MAINTAINED BY THE MAHARASHTRA GOVERNMENT. 11. ON HEARING THE LD. DR FOR THE REVENUE AND ON PERUSING THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THAT THIS IS A CASE OF BOGUS PURCHASES WHERE THE TRAILS OF GOODS, PAYMENT THROUGH BANKING CHANNELS ETC WERE DEMONSTRATED. CONSIDERING THESE FACTS OF THE CASE AND FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. CHHABI ELECTRICALS PVT. LTD. AND OTHERS (SUPRA), WE ARE OF THE OPINION THAT THE CIT(A) IS NOT RIGHT IN RESTRICTING THE ADDITION TO 5% OF THE PURCHASES ONLY. IN THE CASE OF M/S. CHHABI ELECTRICALS PVT. LTD. AND OTHERS VS. DCIT IN ITA NO.795/PUN/2014, ITA NO.1346/PUN/2016 ITA NO.1356/PUN/2016 5 RELATING TO ASSESSMENT YEAR 2010-11 DATED 28-04-2017, THE TRIBUNAL ANALYSED VARIOUS BENEFICIARIES OF SUCH BOGUS ENTRY OPERATORS/SUPPLIERS OF GOODS ETC. AND IDENTIFIED 4 TYPES OF CATEGORIES OF TRANSACTIONS. FOR THE SAKE OF COMPLETENESS, WE PROCEED TO EXTRACT THE SAID PARAGRAPHS FROM THE ORDER OF THE TRIBUNAL (SUPRA) AND THE SAME READ AS UNDER :- 40. IN VIEW OF THE ABOVE SAID RATIOS, THE PRESENT ISSUE OF BOGUS PURCHASES IS TO BE DECIDED ON THE BASIS OF FACTS OF EACH CASE. THE FIRST ASPECT IS THE INFORMATION RECEIVED BY THE ASSESSING OFFICER FROM THE SALES TAX DEPARTMENT IN RESPECT OF ALLEGED HAWALA DEALERS. IN MANY CASES, THE ASSESSING OFFICER HAS NOT EVEN RECEIVED THE COPY OF STATEMENT RECORDED OR ANY OTHER EVIDENCE FROM THE SALES TAX DEPARTMENT, EXCEPT THE LIST OF HAWALA DEALERS AND ON THE BASIS OF THE SAID LIST, THE ASSESSMENT PROCEEDINGS HAVE BEEN COMPLETED IN THE HANDS OF ASSESSEE, WHO HAD MADE THE PURCHASES FROM THE SAID PARTIES. IN CASE, NO SUCH EVIDENCE HAS BEEN RECEIVED BY THE ASSESSING OFFICER BEFORE MAKING ADDITION, THEN THERE IS NO WARRANT IN MAKING AFORESAID ADDITION IN THE HANDS OF ASSESSEE MERELY ON THE BASIS OF SO CALLED LIST OF HAWALA DEALERS. THERE ARE OTHER CASES, WHERE THE ASSESSING OFFICER HAD RECEIVED THE STATEMENT OF THE PERSONS WHO WERE HAWALA DEALERS AND WHO HAD ADMITTED TO HAVE JUST ISSUED BILLS OF SALE WITHOUT DELIVERY OF GOODS. IN SUCH CIRCUMSTANCES, THERE IS EVIDENCE AGAINST THE RESPECTIVE ASSESSEE THAT WHERE THE SELLER OF THE GOODS, HAS ADMITTED NOT TO HAVE ENTERED INTO REAL TRANSACTION OF SALE OF GOODS. AGAINST SUCH NON-TRANSACTION, THERE CAN BE NO DELIVERY OF GOODS, THEN IT IS CASE OF PASSING OF BILLS OF SALE AND PURCHASES, AGAINST WHICH NO VAT HAS BEEN PAID. SUCH BOGUS PURCHASES ARE THEN TO BE ADDED IN THE HANDS OF ASSESSEE. WHERE THE ASSESSING OFFICER HAD CONFRONTED THE ASSESSEE WITH THE INFORMATION RECEIVED, SUPPLIED COPIES OF STATEMENTS AND WHERE THE PERSONS HAVE NOT BEEN TRACED AND NO CONFIRMATION HAS BEEN FILED BY THE ASSESSEE IN THIS REGARD, THEN THE ADDITION IS TO BE MADE IN THE HANDS OF ASSESSEE ON ACCOUNT OF SUCH BOGUS PURCHASES. IN THE FACTS AND CIRCUMSTANCES OF SOME CASES, THE GOODS HAVE BEEN TRANSFERRED BY SUCH HAWALA DEALERS TO THE RESPECTIVE PURCHASERS, AGAINST WHICH THE ASSESSEE HAS TO DISCHARGE ONUS OF ESTABLISHING THE TRAIL OF GOODS WHICH ARE TRANSFERRED AND FURTHER SOLD BY THEM. WHERE THE ASSESSEE IS ABLE TO PRODUCE EVIDENCE OF PURCHASE OF GOODS BY WAY OF WEIGHMENT BRIDGE RECEIPTS, TRANSPORTATION DOCUMENTS, PAYMENT OF OCTROI AND SUBSEQUENT SALE OF GOODS TO THE RESPECTIVE PARTIES AND / OR WHERE THE ASSESSEE HAS MAINTAINED COMPLETE QUANTITATIVE DETAILS OF PURCHASE AND SALE OF GOODS, THEN TOTAL BOGUS PURCHASES CANNOT BE ADDED IN THE HANDS OF ASSESSEE, BUT GP RATE OF 10% IS TO BE APPLIED ON BOGUS PURCHASES. WHERE THE ASSESSEE DOES NOT ESTABLISH ITS CASE, THEN THE COMPLETE BOGUS PURCHASES ARE TO BE ADDED AS HAWALA PURCHASES. FURTHER, IN CASES, WHERE THE STATEMENTS ARE RECORDED AND COPIES OF WHICH HAVE BEEN SUPPLIED TO THE ASSESSEE AND ASSESSEE ESTABLISHED THE CASE OF RECEIPT OF GOODS AND ITS ONWARD TRANSMISSION BY WAY OF SALE BILLS, THEN THE FACTUM OF PURCHASES BY THE ASSESSEE STANDS ESTABLISHED IN SUCH CIRCUMSTANCES. HOWEVER, THE BENEFIT OF PURCHASES BEING MADE FROM GREY MARKET, NEEDS ESTIMATION IN THE HANDS OF ASSESSEE. THE TRIBUNAL HAS ALREADY HELD THAT THE ADDITION BE MADE BY ESTIMATING THE SAME @ 10% OF THE ALLEGED HAWALA PURCHASES. ACCORDINGLY, IT IS SO HELD. IN VIEW THEREOF, THE ISSUES WHICH EMERGE ARE AS UNDER:- ITA NO.1346/PUN/2016 ITA NO.1356/PUN/2016 6 I. IN CASE NO INFORMATION IS RECEIVED BY THE ASSESSING OFFICER FROM THE SALE TAX DEPARTMENT AND NO COPY OF STATEMENT RECORDED OR ANY OTHER EVIDENCE IS RECEIVED FROM THE SALES TAX DEPARTMENT, THEN NO ADDITION IS TO BE MADE ON THE BASIS OF NAME OF HAWALA DEALER IN THE LIST PREPARED BY THE SALES TAX DEPARTMENT, WHERE THE ASSESSEE HAD ASKED FOR THE SAID INFORMATION DURING ASSESSMENT PROCEEDINGS. II. WHERE THE ASSESSING OFFICER HAD RECEIVED THE STATEMENTS OF PERSONS WHO HAD ADMITTED TO HAVE JUST ISSUED BILLS OF SALE WITHOUT ANY DELIVERY OF GOODS. IN VIEW OF SUCH EVIDENCE, WHERE THE ASSESSEE HAD NOT ENTERED INTO REAL TRANSACTION OF PURCHASE OF GOODS AND IN THE ABSENCE OF ANY DELIVERY OF GOODS, THE SALES ARE BOGUS AND THE ENTIRE SALES ARE TO BE ADDED IN THE HANDS OF ASSESSEE. ADMITTEDLY, THE DEALER HAD NOT EVEN PAID VAT AGAINST SUCH PASSING OF GOODS. III. THE CASE WHERE THE ASSESSING OFFICER HAD CONFRONTED THE INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT AND HAD SUPPLIED COPIES OF STATEMENTS RECORDED AND HAD ALSO ISSUED NOTICE UNDER SECTION 133(6) OF THE ACT, WHERE HAWALA DEALER WAS NOT TRACEABLE AND IN THE ABSENCE OF THE ASSESSEE FAILING TO FILE ANY DOCUMENTARY EVIDENCE OF DELIVERY OF GOODS, ADDITION IS TO BE UPHELD IN THE HANDS OF ASSESSEE ON ACCOUNT OF SUCH BOGUS PURCHASES. IV. THE NEXT INSTANCE IS THE CASE OF GOODS WHICH HAVE BEEN ADMITTEDLY SOLD BY THE HAWALA DEALER AND HAS BEEN RECEIVED BY THE ASSESSEE, WHO IN TURN HAD MAINTAINED QUANTITATIVE DETAILS AND ALSO EVIDENCE OF ITS MOVEMENT I.E. TRANSPORTATION DETAILS AND QUALITY CONTROL DETAILS OF CONSUMPTION OF THE SAID MATERIAL OR EXACT DETAILS OF SALE OF THE SAME CONSIGNMENT THROUGH SAME TRANSPORTER DIRECTLY TO THE PARTY, THEN THE TOTAL PURCHASES CANNOT BE ADDED IN THE HANDS OF ASSESSEE. HOWEVER, SINCE THE PURCHASES ARE MADE FROM THE GREY MARKET, SOME ESTIMATION NEEDS TO BE MADE IN THE HANDS OF ASSESSEE. THE TRIBUNAL IN M/S. CHETAN ENTERPRISES VS. ACIT (SUPRA) HAS ALREADY HELD THAT THE ADDITION BE MADE BY ESTIMATING THE SAME @ 10% OF THE ALLEGED HAWALA PURCHASES, OVER AND ABOVE THE GP SHOWN BY THE RESPECTIVE ASSESSEE. V. ANOTHER SET OF CASES WHERE THE STATEMENTS RECORDED BY THE SALES TAX DEPARTMENT HAVE BEEN HANDED OVER TO THE ASSESSEE AND THE COPIES OF SAME HAVE BEEN SUPPLIED TO THE ASSESSEE, THEN WHERE THE ASSESSEE ESTABLISHED THE CASE OF RECEIPT OF GOODS AND ITS ONWARD TRANSMISSION, THEN THE FACTUM OF PURCHASES BY THE ASSESSEE STANDS ESTABLISHED IN SUCH CIRCUMSTANCES. HOWEVER, ESTIMATION IS TO BE MADE IN THE HANDS OF ASSESSEE BECAUSE OF PURCHASES FROM THE GREY MARKET AND FOLLOWING THE ABOVE SAID RATIO, ADDITION IS TO BE MADE BY ESTIMATING THE SAME @ 10% OF THE ALLEGED HAWALA PURCHASES, OVER AND ABOVE THE NET PROFIT SHOWN BY THE ASSESSEE. 41. NOW, COMING TO THE FACTUAL ASPECTS OF EACH OF THE APPEAL, WHICH HAVE ALREADY BEEN REFERRED TO BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AND ALSO REFER TO THE ORDERS OF AUTHORITIES BELOW, WHERE NONE HAS APPEARED ON BEHALF OF THE ASSESSEE. 42. THE LEAD CASE IS IN THE CASE OF M/S. CHHABI ELECTRICALS PVT. LTD., WHERE THE GRIEVANCE OF THE ASSESSEE IS THAT THE ASSESSING OFFICER BEFORE MAKING THE ADDITION HAS NOT EVEN SUPPLIED THE COPY OF STATEMENT OR ANY OTHER EVIDENCE ITA NO.1346/PUN/2016 ITA NO.1356/PUN/2016 7 RECORDED BY THE SALES TAX DEPARTMENT TO ESTABLISH THAT THE PURCHASES MADE BY THE ASSESSEE WERE BOGUS. I HAVE ALREADY DECIDED THIS ISSUE IN M/S. CHETAN ENTERPRISES VS. ACIT (SUPRA) AND HELD THAT IN CASES WHERE THE ASSESSING OFFICER HAS FAILED TO SUPPLY SUCH STATEMENT RECORDED BY THE SALES TAX DEPARTMENT OR ANY OTHER EVIDENCE JUSTIFYING THE ADDITION, NO ADDITION IS TO BE MADE IN THE HANDS OF ASSESSEE. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS FURTHER REFERRED TO VARIOUS DOCUMENTS I.E. GATE PASS, GRN AND ISSUE PASS ESTABLISH ITS CASE OF DELIVERY OF GOODS I.E. PURCHASE FROM HAWALA DEALER AND ITS ONWARDS CONSUMPTION IN THE MANUFACTURING PROCESS OF THE ASSESSEE. IN SUCH CIRCUMSTANCES, WHERE THE ASSESSEE HAS ESTABLISHED THE TRAIL OF GOODS PURCHASED TO THE FINAL CONSUMPTION, THEN THERE IS NO MERIT IN THE ADDITION MADE BY THE ASSESSING OFFICER. THUS, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE ALLOWED AND APPEAL OF THE ASSESSEE IS ALLOWED. 12. THUS, RELEVANT TO THE FACTS OF THE PRESENT CASE, RESTRICTING THE DISALLOWANCE TO 10% OF SUCH BOGUS PURCHASES IS IN TUNE WITH THE SAID ORDER OF THE TRIBUNAL (SUPRA). THIS IS OVER AND ABOVE THE NET PROFIT SHOWN BY THE ASSESSEE IN THIS ASSESSMENT YEAR. THEREFORE, WITH THE CHANGES DISCUSSED ABOVE, WE UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE. ACCORDINGLY, THE GROUND NO.1 RAISED BY THE ASSESSEE IS PARTLY ALLOWED. 13. GROUNDS NO.2 AND 3 RELATE TO THE CONFIRMING OF ADDITION OF RS.20,00,509/- ON ACCOUNT OF CASH PAYMENT ATTRACTING THE PROVISION OF SECTION 40A(3) OF THE ACT AND DISALLOWING OF CLAIM OF DEPRECIATION OF RS.2,00,000/- RESPECTIVELY. 14. AFTER CONSIDERING THE MATERIAL AVAILABLE ON RECORD, WE FIND THE CIT(A) RIGHTLY CONFIRMED THE ADDITION OF RS.20,00,509/- ON ACCOUNT OF CASH PAYMENT ATTRACTING THE PROVISION OF SECTION 40A(3) OF THE ACT AND ALSO THE DISALLOWANCE OF CLAIM OF DEPRECIATION OF RS.2,00,000/- RESPECTIVELY AND THE DISCUSSION GIVEN IN PARA 9 AND 13 OF HIS ORDER ARE RELEVANT. FOR THE SAKE OF ITA NO.1346/PUN/2016 ITA NO.1356/PUN/2016 8 COMPLETENESS, THE SAID PARA 9 AND 13 OF THE ORDER OF THE CIT(A) ARE EXTRACTED HEREUNDER :- 9. I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPELLANT. THE BRIEF FACTS OF THE CASE ARE THAT THE AO NOTICED THAT THE ASSESSEE FIRM HAD CLAIMED SUBSTANTIAL EXPENDITURE ON ACCOUNT OF INWARD FREIGHT. THE AO EXAMINED THE TRANSPORT BILLS WITH REFERENCE TO THE BOOKS OF ACCOUNT AND FOUND OUT THAT THE ASSESSEE FIRM HAD MADE PAYMENT OF RS.38,440/- IN CASH ON 25.09.2010 TO ONE TRUCK OWNER WHICH EXCEEDED THE STATUTORY LIMIT OF RS.35,000/- AS PER THE PROVISIONS OF SECTION 40A(3) OF THE INCOME TAX ACT. THE AO ALSO NOTICED THAT CASH PAYMENTS OF RS.23,000/- AND RS.15,440/- TO THE OWNER OF THE TRUCK BEARING NO.CG-07-C-6699. THE AO COMPILED THE DETAILS OF ALL SUCH PAYMENTS WHERE THERE WAS VIOLATION OF THE PROVISIONS OF SECTION 40A(3) OF THE INCOME TAX ACT AND SAME WAS ENCLOSED WITH THE ASSESSMENT ORDER AS ANNEXURE-C. SINCE THE ASSESSEE FIRM FAILED TO SUBMIT ANY EXPLANATION, THE AO PROCEEDED TO MAKE AN ADDITION OF RS.20,00,509/- U/S 40A(3) OF THE INCOME TAX ACT. DURING THE COURSE OF PRESENT APPELLATE PROCEEDINGS, THE COUNSEL OF APPELLANT HAS ARGUED THAT AS PER CASH BOOK MAINTAINED BY THE ASSESSEE FIRM, NO SINGLE PAYMENT MADE TO THE TRUCK OWNER HAD EXCEEDED RS.35,000/- ON A DAY. IT WAS ARGUED THAT AS PER TRANSPORT BILL (BUILTY) DATED 28.09.2010, AN AMOUNT OF RS.39,490/- WAS TO BE PAID TO THE OWNER OF TRUCK BEARING NO.CG-07-C-4396. THIS AMOUNT WAS PAID TO HIM ON DIFFERENT DATES I.E. RS.24,000/- ON 06.10.2010 & RS.15,490/- ON 09.10.2010 AS PER THE ENTRIES IN THE CASH BOOK. SIMILARLY AS PER TRANSPORT BILL (BUILTY) DATED 28.09.2010, AN AMOUNT OF RS.38,520/- WAS TO BE PAID TO THE OWNER OF TRUCK BEARING NO.CG-07-C-7555. THIS AMOUNT WAS PAID TO HIM ON DIFFERENT DATES I.E. RS.15,520/- ON 02.10.2010 & RS.23,000/- ON 07.10.2010 AS PER THE ENTRIES IN THE CASH BOOK. HOWEVER THE COUNSEL OF THE APPELLANT CONCEDED THAT AN AMOUNT OF RS.2,63,187/- WAS LIABLE TO BE DISALLOWED U/S 40A(3) SINCE THE AGGREGATE PAYMENT TO A TRUCK OWNER ON A SINGLE DAY HAD EXCEEDED RS.35,000/- ON CERTAIN OCCASIONS. ON THE OTHER HAND, THE AO HAD MADE THE IMPUGNED DISALLOWANCE AT RS.20,00,509/- WHICH WAS ALLEGED TO BE UNJUSTIFIED AND BAD IN LAW. 9.1 THOUGH IN THIS CASE, THE AO WAS PROVIDED AN OPPORTUNITY TO EXAMINE THE CASH BOOK/FREIGHT BUILTY YET HE REFRAINED FROM MAKING ANY COMMENTS IN HIS REMAND REPORT DATED 08.03.2016 IN RELATION TO THE DISALLOWANCE U/S 40A(3) MADE BY HIM. THEREFORE THE UNDERSIGNED DIRECTED THE COUNSEL OF THE APPELLANT TO SUBMIT THE TRANSPORT BILLS/FREIGHT BUILTY AND CASH BOOK . DURING THE EXAMINATION OF THESE DOCUMENTS/BOOKS OF ACCOUNT, THE FOLLOWING DISCREPANCIES WERE NOTICED. (I) FOR THE CONSIGNOR NAMELY M/S. AARTI SPONGE & POWER LTD., THE GOODS WERE SENT TO THE APPELLANT FIRM THROUGH THE TRANSPORTER I.E. NEW SHRI BALAJI ROADWAYS VIDE TRUCK BEARING NO.CG-07-C-4396. THE TRUCK HAD STARTED FROM RAIPUR ON 28.09.2010 AND IT MUST HAVE REACHED JALNA WITHIN 6 DAYS I.E. 04.10.2010. SINCE MINIMUM OF 2 DAYS WERE REQUIRED FOR UNLOADING, THE GOODS WOULD HAVE BEEN UNLOADED BY 06.10.2010 AT THE PREMISES OF THE APPELLANT FIRM. AS PER THE CASH BOOK, CASH PAYMENT OF RS.24,000/- WAS MADE TO THE TRUCK DRIVER ON 06.10.2010. HOWEVER IT WAS BAFFLING TO NOTE THAT CASH PAYMENT OF RS.15,490/- WAS AGAIN SHOWN TO HAVE BEEN MADE TO HIM ON 09.10.2010. IT WOULD IMPLY THAT HE WAS WAITING AT JALNA FOR ALMOST 3 DAYS TO RECEIVE THE BALANCE PAYMENT. ON THE CONTRARY, HE WOULD HAVE LEFT JALNA ITSELF ON THE SAME DAY I.E. 06.10.2010 FOR RAIPUR AS NO TRUCK OWNER WOULD LIKE HIS TRUCK TO BE IDLE FOR 3 DAYS. SIMILAR TYPE OF DISCREPANCY WAS NOTICED IN RESPECT OF OTHER FREIGHT PAYMENTS. ITA NO.1346/PUN/2016 ITA NO.1356/PUN/2016 9 (II) FOR ONE TRUCK, THERE SHOULD HAVE BEEN ONE BUILTY ONLY. HOWEVER THE APPELLANT HAD RECEIVED TWO BUILTY FOR THE SAME TRUCK ON SAME DAY WHICH WAS NOT POSSIBLE. FOR EXAMPLE FOR THE CONSIGNOR NAMELY M/S. AARTI SPONGE & POWER LTD., THE GOODS WERE SENT TO THE APPELLANT FIRM THROUGH THE TRANSPORTER I.E. NEW SHRI BALAJI ROADWAYS VIDE TRUCK BEARING NO.CG-07-C-6699 ON 25.09.2010. FOR THE SAME TRUCK, TWO BUILTIES FOR AMOUNTS OF RS.23,000/- AND RS.15,440/- WERE MADE THOUGH THE LOOSE SPONGE IRON WEIGHING 38.440 MT COULD HAVE BEEN LOADED IN ONE TRUCK ONLY. THE DATE OF THE BUILTY AND TRUCK NUMBER WAS SAME. FROM THESE FACTS, IT WAS CLEAR THAT THE APPELLANT FIRM HAD BEEN MANIPULATING ITS ACCOUNTS IN GROSS VIOLATION OF PROVISIONS OF SECTION 40A(3). THE COPIES OF THESE BUILTIES ARE ENCLOSED WITH THIS APPELLATE ORDER AS ANNEXURE-I (PAGES 1 TO 4). SIMILAR TYPE OF DISCREPANCY WAS NOTICED IN THE OTHER FREIGHT PAYMENTS. (III) IT WAS FURTHER NOTICED THAT THE BUILTY DATED 28.09.2010 WAS MADE FOR TRUCK NO.CG-07-C-7555 TO DELIVER LOOSE SPONGE IRON FROM RAIPUR TO JALNA FOR FREIGHT PAYMENT OF RS.38,520/-. IF THE TRUCK HAD STARTED ON 28.09.2010 THEN IT COULD NOT HAVE COME BACK TO RAIPUR BEFORE 12 DAYS. HOWEVER FOR THE SAME TRUCK, BUILTY DATED 29.09.2010 I.E. IMMEDIATELY NEXT DAY, HAD BEEN MADE SHOWING FREIGHT PAYMENT OF RS.37,620/-. THIS SHOWED THE APPELLANT FIRM HAD BEEN MANIPULATING ITS ACCOUNTS IN GROSS VIOLATION OF PROVISIONS OF SECTION 40A(3). IN VIEW OF ABOVE FACTS , IT IS DEAR THAT ENTRIES IN THE CASH BOOK AND TRANSPORT BILLS/FREIGHT BUILTY HAVE BEEN MANIPULATED SO AS TO ESCAPE THE PROVISIONS OF SECTION 40A(3) OF THE ACT. WHEN THE ENTIRE RAW MATERIAL COULD HAVE BEEN LOADED IN A SINGLE TRUCK ON A PARTICULAR DAY, TWO BUILTIES WERE MADE TO ALLEGEDLY SHOW THAT SAME QUANTITY OF RAW MATERIAL HAD BEEN LOADED IN TWO TRUCKS. HOWEVER THE TRUCK NUMBER HAD REMAINED SAME. IN THESE FACTS & CIRCUMSTANCES, THE ADDITION MADE BY THE AO HAS TO BE SUSTAINED AND CAN'T BE DISTURBED. THE ADDITION OF RS.20,00,509/. MADE BY THE AO IS CONFIRMED. THIS GROUND OF APPEAL IS ACCORDINGLY DISMISSED. 14.A ON THE ISSUE RELATING TO THE CLAIM OF DEPRECIATION , THE FINDING OF THE CIT(A) IS GIVEN AS UNDER :- 13. I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPELLANT. I HAVE PERUSED THE LEDGER EXTRACT OF FACTORY BUILDING ACCOUNT SUBMITTED BY THE COUNSEL OF THE APPELLANT. THE ASSERTION OF THE APPELLANT THAT THE AO HAD TAKEN A FIGURE OF RS.20 LACS WITHOUT ANY BASIS, IS NOTHING MORE THAN A SELF SERVING STATEMENT. THE AO HAD ALLOWED DEPRECIATION ON THE FACTORY BUILDING TO THE APPELLANT FIRM EXCEPT FOR ADDITION OF RS.21,60,000/- ON ACCOUNT OF BILL RAISED BY MR. C. ANTONY JOHN DATED 13.03.2011. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE AO HAS BROUGHT TO MY NOTICE THAT MR. C. ANTHONY JOHN WAS A ROLLING MILL CONTRACTOR. HE WAS AN ENGINEER DEALING IN ERECTION OF MACHINES AND CRANES. HE WAS NOT A CIVIL CONTRACTOR CONSTRUCTING RCC WATER TANKS OR WALLS WITH PLASTER AS EVIDENT FROM THE BILL OF RS.21,60,000/-. IN RESPONSE, THE COUNSEL OF THE APPELLANT COULD NOT REBUT THE SAME BY BRINGING COGENT MATERIAL ON RECORD. THE MODE OF PAYMENT IN RESPECT OF SUCH BILL HAS NOT BEEN EXPLAINED BY THE APPELLANT FIRM. IT IS ALSO NOTICED THAT MR. C. ANTHONY JOHN HAD CHARGED SERVICE TAX OF RS.2,22,480/- IN HIS BILL HOWEVER THE APPELLANT FIRM HAS SHOWN NET AMOUNT OF RS.21,60,000/- EXCLUDING THE SERVICE TAX IN ITS BOOKS OF ACCOUNT. IT CANNOT BE THE INTENTION OF THE LEGISLATURE TO ACCEPT WHATEVER THE ASSESSEE SAYS WITHOUT PROPER EVIDENCE IN SUPPORT OF THAT CLAIM. IF THERE IS A MERE CLAIM WITHOUT BEING SUPPORTED BY ITA NO.1346/PUN/2016 ITA NO.1356/PUN/2016 10 THE DOCUMENTS IN FAVOUR OF THAT CLAIM, THE ASSESSING OFFICER HAS NO POWER TO ALLOW THE DEDUCTION UNDER THE ACT. THE HONBLE SUPREME COURT IN THE CASE OF DIRECTOR OF INCOME TAX VS BHARAT DIAMOND BOURSE (259 ITR 280) HAS STRESSED THE FACT THAT ANY FACILE EXPLANATION GIVEN BY THE ASSESSEE, PERHAPS MANUFACTURED POST FACTO THE ASSESSMENT ORDER, WITHOUT CRITICAL APPRAISAL SHOULD NOT BE ACCEPTED. IN FACT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HONBLE SUPREME COURT OBSERVED THAT THE STORY DID NOT RING TRUE AND COULD NOT HAVE BEEN ACCEPTED BY ANY REASONABLE PERSON, INSTRUCTED IN LAW. THESE OBSERVATIONS OF THE HONBLE SUPREME COURT ARE EQUALLY APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE HONBLE SUPREME COURT FURTHER STRESSED THE POINT THAT THE EXPLANATION OF THE ASSESSEE SHOULD NOT BE UN-DISCERNINGLY ACCEPTED ESPECIALLY WHEN IT WAS TEEMING WITH IMPROBABILITIES AND STRENUOUS ON CREDULITY. IN THESE FACTS & CIRCUMSTANCES, THE DISALLOWANCE OF DEPRECIATION MADE BY THE AO HAS TO BE SUSTAINED. THE ADDITION OF RS.2,00,000/- MADE BY THE AO IS ACCORDINGLY CONFIRMED. THIS GROUND OF APPEAL IS DISMISSED. 15. FROM THE ABOVE, WE FIND THERE IS FAILURE ON THE PART OF THE ASSESSEE IN NOT SUBSTANTIATING THE CLAIMS OF THE ASSESSEE. IT IS EVIDENT THAT THE ORDER OF THE CIT(A) THAT THE ASSESSEE COULD NOT IMPROVE HIS CASE. THERE IS NONE TO REPRESENT THE ASSESSEE BEFORE US. HENCE, IN OUR OPINION, THE CIT(A) ORDER SHOULD BE CONSIDERED FAIR AND REASONABLE ON THESE ISSUES AND IT DOES NOT CALL FOR ANY INTERFERENCE. WE HOLD SO. THUS, THE GROUNDS NO.2 AND 3 RAISED BY THE ASSESSEE ARE DISMISSED. 16. GROUNDS NO.4 AND 5 RELATE TO THE ADDITION OF RS.80,510/- AND RS.4,30,321/- ON ACCOUNT OF SHORTAGE OF CASH RESPECTIVELY. WE FIND THE ORDER PASSED BY THE CIT(A) ON THIS ACCOUNT IS NOT A SPEAKING ORDER AND IT NEEDS TO BE REMANDED BACK TO THE FILE OF THE CIT(A) FOR FRESH ADJUDICATION. THEREFORE, WE REMIT THE SAID GROUNDS TO THE FILE OF THE CIT(A) FOR FRESH ADJUDICATION. THE CIT(A) SHALL DECIDE THE ISSUE AFRESH AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THUS, THE GROUND NO.4 AND 5 ARE ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1346/PUN/2016 ITA NO.1356/PUN/2016 11 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1346/PUN/2016 BY REVENUE 18. NOW, WE SHALL TAKE UP THE APPEAL OF THE REVENUE IN ITA NO.1346/PUN/2016 FOR ADJUDICATION. 19. GROUND NO.1 RELATES TO THE DELETING OF ADDITION OF RS.19,93,989/- ON ACCOUNT OF SUPPRESSED PRODUCTION AND THE ADDITION WAS BASED ON DOCUMENTARY/CIRCUMSTANTIAL EVIDENCES. SIMILAR ADDITIONS WERE MADE IN EARLIER ASSESSMENT YEARS AND THE SAME STANDS DELETED BY THE TRIBUNAL. 20. AFTER CONSIDERING THE MATERIAL AVAILABLE ON RECORD, WE FIND THE CIT(A) RIGHTLY DELETED THE ADDITION OF RS.19,93,989/- ON ACCOUNT OF SUPPRESSED PRODUCTION, WHEREAS ADDITION WAS BASED ON DOCUMENTARY/CIRCUMSTANTIAL EVIDENCES AS PER THE DISCUSSION GIVEN IN PARA 5 AND 5.1 OF HIS ORDER. FOR THE SAKE OF COMPLETENESS, THE SAID PARA 5 AND 5.1 OF THE ORDER OF THE CIT(A) ARE EXTRACTED HEREUNDER :- 5. I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPELLANT. IT IS NOTICED THAT SIMILAR ADDITIONS ON ACCOUNT OF SUPPRESSED PRODUCTION ON THE BASIS OF VARIATION IN THE CONSUMPTION OF ELECTRICITY UNITS WERE MADE BY THE AO IN AY 2004-05 AND 2009-10 IN THIS CASE. THE APPEAL HAD BEEN ALLOWED IN THE FAVOUR OF THE ASSESSEE FOR THAT YEAR BY THE HON'BLE ITAT, PUNE VIDE ITS ORDER ITA NO. 1432 & 1433/PN/2012 AND 1632 & 1633/PN/2012 DATED 15.07.2015. THE HONBLE ITAT PUNE HAD ALSO ALLOWED RELIEF TO THE APPELLANT AGAINST THE ORDER OF CIT(APPEALS) ON ACCOUNT OF ESTIMATION OF GP ON SUPPRESSED PRODUCTION. THE TRIBUNAL FOLLOWED ITS OWN DECISION IN THE CASE OF SRJ PEETY STEEL PVT. LTD. (137 TTJ 627) FOR AY 2000-01 TO AY 2006-07 . THE UNEXPLAINED INVESTMENT/WORKING CAPITAL REQUIREMENT IN UNACCOUNTED PURCHASES WHICH STOOD DELETED BY THE ORDER OF CIT(APPEALS) WAS ALSO NOT SUSTAINED BY THE HONBLE TRIBUNAL. THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE ASSESSMENT YEAR UNDER REFERENCE AS COMPARED TO AY 2004-05 & AY 2009-10. SIMILAR ADDITIONS WERE MADE IN THE CASE OF ASSESSEE FIRM FOR AY 2006-07 TO AY 2008-09 AND HON'BLE ITAT PUNE, VIDE ITS ORDER ITA NOS.224 TO 226/PN/2012 DATED 05.08.2015 HAS ALLOWED THE ITA NO.1346/PUN/2016 ITA NO.1356/PUN/2016 12 APPEAL IN FAVOUR OF THE ASSESSEE. IN THE CASE OF SRJ PEETY STEEL PVT. LTD. (133 TTJ 627), ONE OF THE REASONS FOR REJECTING THE BOOKS OF ACCOUNT BY THE AO WAS INCONSISTENT ELECTRICITY CONSUMPTION. IN THIS REGARD, THE STAND OF THE ASSESSEE COMPANY WAS THAT THE AO HAD SIMPLY TAKEN THE LOWEST ELECTRICITY CONSUMPTION FOR A MONTH IN THE WHOLE YEAR AND TREATED THE PRODUCTION IN THAT MONTH AS THE CORRECT PRODUCTION AND THEN PROCEEDED TO ARRIVE AT THE PRODUCTION FIGURE BY MULTIPLYING THE PRODUCTION IN THE BOOKS BY THE RATIO OF PRODUCTION TO THE ELECTRICITY CONSUMPTION FOR THE MONTH IN WHICH ELECTRICITY CONSUMPTION WAS MINIMUM. HOWEVER THE METHOD OF COMPUTING THE SO-CALLED SUPPRESSED PRODUCTION WAS NOT BASED ON COGENT REASONS. THE AO HAD GONE BY SUPPOSITION BUT NOT BY ACTUAL DETECTION WHICH WAS NOT JUSTIFIED. THE ENTIRE METHOD IN THIS REGARD WAS BASED ON PRE-SUPPOSITION AND LACKED SCIENTIFIC BASIS. THE AO HAD FAILED TO EXAMINE THE ENTIRE MANUFACTURING PROCESS CARRIED OUT BY THE ASSESSEE COMPANY. HE HAD NOT GONE INTO THE QUALITY OF RAW MATERIALS, NOR HAD HE BOTHERED TO TAKE THE TYPE OF TECHNOLOGY USED BY THE ASSESSEE COMPANY. THE AO HAD ALSO NOT TAKEN STRENGTH FROM COMPARABLE CASE OF SIMILARLY PLACED SITUATION. THE FACTORS RESPONSIBLE FOR VARIATION IN ELECTRICITY CONSUMPTION HAD BEEN EXPLAINED BY THE ASSESSEE COMPANY IN HIS DETAILED WRITTEN SUBMISSIONS DATED 22ND OCTOBER, 2007 WHEREIN IT WAS EMPHASIZED THAT IMPROPER SUPPLY BY MSEB, WHICH DEFICITED THE MELTING EFFICIENCY, LOWER THE VOLTAGE SUPPLY LEVEL, HIGHER THE CONSUMPTION OF ELECTRICITY. NOTABLY, VOLTAGE SUPPLY VARIED ON A DAILY BASIS WHICH WOULD AT ONCE BE CLEAR IF SOME COMPARABLE CASES HAD BEEN STUDIED BY THE AO BEFORE JUMPING TO THE CONCLUSION. REHEATING OF THE MATERIAL DUE TO THE INTERRUPTIONS IN SUPPLY, WHEN THE HEAT WAS IN PROCESS AND THERE WAS AN INTERRUPTION IN SUPPLY, THE RAW MATERIAL HAD TO BE HEATED AGAIN USING ELECTRICITY THOUGH THE SAME WAS USED EARLIER, WITHOUT GIVING THE FINAL PRODUCT. NOTABLY SUPPLY WAS NOTORIOUSLY ERRATIC IN A PLACE LIKE JALNA, WHICH WOULD AT ONCE HAVE BEEN CLEAR IF SOME COMPARABLE CASES HAD BEEN STUDIED BY THE AO BEFORE JUMPING TO HYPOTHESES AND CONCLUSIONS. REHEATING OF THE MATERIAL DUE TO THE BREAKDOWN IN EQUIPMENT OR MACHINERY WAS ALSO QUITE USUAL IN A MANUFACTURING PROCESS. TO MANUFACTURE THE FINAL PRODUCT, NUMBER OF MACHINES HAD TO BE USED AND UNEXPECTED BREAKDOWN OF ANY ONE MACHINE CONSUMED ELECTRICITY AGAIN. THE AO REJECTED THE SUBMISSIONS BY SAYING THAT THERE WOULD BE EQUAL PROBABILITY OF THE ABOVE FACTORS IN EVERY MONTH. THIS WAS DIFFICULT TO UNDERSTAND. HAD THE AO GONE INTO THE REASONABLENESS OF THE EXPLANATION AND TECHNICAL DETAILS ADDUCED BY THE ASSESSEE INSTEAD OF MERELY EVALUATING THE TECHNICAL ISSUES IN A CASUAL AND ISOLATED MANNER WITH A CURSORY LOOK INTO MONTHLY ELECTRICITY CONSUMPTION WITHOUT ANY SUPPORT FROM OTHER COMPARABLE CASES, HIS CONCLUSIONS WOULD HAVE BEEN SIGNIFICANTLY DIFFERENT. THE AO HAD HIMSELF AGREED THAT THERE MIGHT BE FACTORS OUTSIDE THE CONTROL OF ASSESSEE WHICH MIGHT AFFECT ELECTRICITY CONSUMPTION. HOWEVER, HE MADE AN ALLOWANCE OF 10 PER CENT OVER AND ABOVE THE LOWEST MONTHLY CONSUMPTION IN THE YEAR. THE BASIS OF ALLOWING THIS OVER THE LOWEST MONTHLY CONSUMPTION IN THE YEAR WAS NOT SCIENTIFIC AND THEREFORE ARBITRARY. FURTHER, EVEN THE BASIS OF ARRIVING AT THIS 10 PER CENT HAD NOT BEEN SPELT OUT BY THE AO. IT WAS ARGUED THAT NO FIXED PARAMETERS AND STATISTICAL FORMULA ON THE BASIS OF BURNING LOSS AND ELECTRICITY CONSUMPTION, IN ISOLATION, COULD BE APPLIED FOR WORKING OUT SUPPRESSED PRODUCTION, THAT TOO, IN TOTAL DISREGARD OF THE BOOKS OF ACCOUNTS WHICH, IN THE FACTS OF THE CASE, DID NOT WARRANT REJECTION. IT WAS HELD BY HON'BLE ITAT, PUNE THAT HAVING REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE COMPANY FOR ALL THE YEARS UNDER CONSIDERATION, THE AO DEVISED A STATISTICAL FORMULA ON THE BASIS OF ELECTRICITY CONSUMPTION THAT WAS APPLIED UNIFORMLY IN ORDER TO WORK OUT CERTAIN PRODUCTION AND RESULTANT CONCEALED INCOME FOR EACH YEAR UNDER CONSIDERATION. THE AO COULD NOT SUBSTITUTE THE SAME BY COGENT REASONING. HE ITA NO.1346/PUN/2016 ITA NO.1356/PUN/2016 13 HAD IMPLY TAKEN THE LOWEST ELECTRICITY CONSUMPTION FOR A MONTH IN THE WHOLE YEAR AND RATED THE PRODUCTION IN THAT MONTH AS THE CORRECT PRODUCTION AND THEN PROCEEDED TO ARRIVE AT HIS PRODUCTION FIGURE BY MULTIPLYING THE PRODUCTION IN THE BOOKS BY THE RATIO OF PRODUCTION TO THE ELECTRICITY CONSUMPTION FOR THE MONTH IN WHICH ELECTRICITY CONSUMPTION WAS MINIMUM. THE METHOD OF COMPUTING THE SO- CALLED SUPPRESSED PRODUCTION WAS NOT JUSTIFIED IN ABSENCE OF SOUND BASIS FOR SAME. THE CONSUMPTION OF THE ELECTRICITY FOR THE MANUFACTURING OF MILD STEEL INGOTS/BILLETS DEPENDED ON VARIOUS FACTORS LIKE QUALITY OF RAW MATERIAL WHICH WAS THE MAJOR INPUT, VOLTAGE OF THE SUPPLY, POWER INTERRUPTIONS, MECHANICAL AND ELECTRICAL BREAKDOWNS AND THE CHEMICAL COMPOSITION OF THE LIQUID METAL WHICH HAD TO BE FINALLY CAST INTO INGOTS/BILLETS. THE AO FAILED TO APPRECIATE THESE FACTS AND DID NOT ATTEMPT TO ESTABLISH A DIRECT NEXUS BETWEEN THE PRODUCTION AND ELECTRICITY CONSUMED FOR THE MANUFACTURE OF ROUND/TMT BARS AND ARRIVED AT A CONCLUSION THAT THERE WAS AN EXCESS CONSUMPTION OF ELECTRICITY RESULTING IN SUPPRESSED PRODUCTION AND ALLEGING THAT THE ASSESSEE COMPANY HAD INDULGED IN UNACCOUNTED PRODUCTION. IT WAS FINALLY HELD THAT EACH YEAR OF THE ASSESSMENT WAS INDEPENDENT AND EVIDENCES FOUND RELATING TO ASSESSMENT YEAR 2006-07 COULD NOT HAVE AN ADVERSE IMPACT ON THE ASSESSMENTS OF THE ASSESSEE COMPANY FROM THE ASSESSMENT YEARS 2000-01 TO 2005-06. THEREFORE, REJECTION OF BOOKS FOR THESE YEARS PURELY ON THE GROUND THAT THERE HAD BEEN DIVERGENCE IN THE CONSUMPTION OF ELECTRICITY AND APPLICATION OF SECTION 144 WAS NOT AT ALL JUSTIFIED. ACCORDINGLY THE IMPUGNED ADDITIONS WERE DELETED. 5.1 THE AFORESAID ISSUE WAS THE SUBJECT MATTER BEFORE THE HONBLE PUNE ITAT IN THE CASE OF ACIT VS. M/S. NILESH STEEL & ALLOYS PVT. LTD. IN ITA NOS. 1636 & 1637 AND 1589 & 1590 OF 2012, DATED 30.11.2015, WHEREIN THE ASSESSEE WAS A PRIVATE LIMITED COMPANY ENGAGED IN THE MANUFACTURING OF MS INGOTS/BILLETS. THE ASSESSEE COMPANY HAD FURNISHED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.32,14,410/- ON 24.09.2009. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) WAS ISSUED TO THE ASSESSEE COMPANY. FURTHER, THE CASE WAS REFERRED SEEKING DIRECTIONS UNDER SECTION 144A AND IN RESPONSE TO WHICH, THE JCIT ISSUED SPECIFIC WRITTEN DIRECTIONS. THE ASSESSING OFFICER RECEIVED INFORMATION FROM THE OFFICE OF THE COMMISSIONER OF CENTRAL EXCISE AND CUSTOMS THAT THE ASSESSEE COMPANY HAD INDULGED IN SUPPRESSION OF PRODUCTION AND CLANDESTINE REMOVAL OF FINISHED PRODUCTS WITHOUT PAYMENT OF EXCISE DUTY. THE ADJUDICATION ORDER OF CCE QUANTIFYING THE VALUE OF SUPPRESSED PRODUCTION WAS ALSO MADE AVAILABLE TO THE ASSESSING OFFICER. IN VIEW THEREOF, THE ASSESSEE COMPANY WAS SHOW CAUSED AS TO WHY THE AMOUNT OF INCOME ESCAPING ASSESSMENT SHOULD NOT BE ADDED IN THE HANDS OF THE ASSESSEE COMPANY. THE ASSESSING OFFICER CONSIDERED THE MANUFACTURING PROCESS OF THE ASSESSEE COMPANY IN DETAILED MANNER AND NOTICED THAT THE ELECTRICITY WAS ONE OF THE MAJOR COST INPUT IN THE MANUFACTURING OF INGOTS/BILLETS AND ALSO ACCOUNTED FOR MAJOR SHARE OF EXPENDITURE. AS PER THE ASSESSING OFFICER, THERE WAS DEVIATION IN ELECTRICITY UNIT CONSUMPTION PER MT I.E. 287 UNITS WHICH WAS UNREASONABLE AND UNACCEPTABLE. BECAUSE OF THE HUGE DEVIATION IN THE ELECTRICITY CONSUMPTION, THE PRESUMPTION OF THE ASSESSING OFFICER WAS THAT THE PRODUCTION DISCLOSED IN THE BOOKS WAS SUBSTANTIALLY SUPPRESSED. THE ASSESSING OFFICER ACCORDINGLY, COMPUTED THE ADDITION IN THE HANDS OF THE ASSESSEE ON ACCOUNT OF SUPPRESSED PRODUCTION AT RS.4,64,65,600/- AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE COMPANY. FURTHER, AN ADDITION OF RS.58,12,720/- WAS MADE ON ACCOUNT OF WORKING CAPITAL REQUIRED FOR THE UNRECORDED PRODUCTION. ON APPEAL, THE CIT(APPEALS) HELD THAT THE APPELLANT COMPANY HAD CLANDESTINELY REMOVED MS INGOTS/BILLETS AND EVADED EXCISE DUTY AND HAD NOT ACCOUNTED FOR THE SAID SALE OF MS INGOTS/BILLETS AS EVIDENT FROM THE INVESTIGATION AND ENQUIRIES ITA NO.1346/PUN/2016 ITA NO.1356/PUN/2016 14 MADE BY DIRECTOR GENERAL OF CENTRAL EXCISE INTELLIGENCE (DGCEI). THE APPELLANT HAD ALSO ADMITTED THE SAID CLANDESTINE REMOVAL OF GOODS IN THE STATEMENT RECORDED IN INVESTIGATION BY DGCEI AND ALSO BEFORE THE SETTLEMENT COMMISSION OF CUSTOMS AND EXCISE DEPARTMENT AND PAID EXCISE DUTY. THE SETTLEMENT COMMISSION HAD LEVIED TOKEN PENALTY IN RESPECT OF THE SAID CLANDESTINE SALE OUT OF THE BOOKS. THE COMMISSIONER OF EXCISE IN HIS ORDER AND THE AO HAD REASONABLY ESTIMATED, AFTER CONSIDERING VARIOUS REPORTS AND STUDIES IN RESPECT OF ELECTRICITY CONSUMPTION REQUIRED FOR PRODUCING MS INGOTS/BILLETS. FURTHER IT WAS HELD THAT THE CONTENTION OF THE APPELLANT THAT THE BOOKS OF ACCOUNTS WERE REGULARLY MAINTAINED AND AUDITED ACCOUNTS COULD NOT BE ACCEPTED IN VIEW OF THE CLANDESTINE REMOVAL OF GOODS AND THE UNACCOUNTED PURCHASES AND SALES ADMITTED BY THE APPELLANT AND ALSO IN VIEW OF VARIOUS REASONS MENTIONED BY THE A.O. IN THE ASSESSMENT ORDER. THE APPELLANT HAD NOT MAINTAINED INFORMATION IN FORM NO.G-7, WHICH WAS COMPULSORY, SHOWING DAILY CONSUMPTION OF POWER IN UNITS. THE DECISIONS RELIED ON BY THE APPELLANT IN SUPPORT OF THE CONTENTION THAT NO ADDITION COULD BE MADE ON THE BASIS OF ELECTRICITY CONSUMPTION WERE DISTINGUISHABLE ON FACTS OF THE CASE OF THE APPELLANT AND THE FACTS IN THE SAID DECISIONS. THE HONBLE ITAT PUNE HOWEVER HELD THAT THE CONSUMPTION OF THE ELECTRICITY FOR THE MANUFACTURING OF MILD STEEL INGOTS/BILLETS DEPENDED ON VARIOUS FACTORS LIKE QUALITY OF RAW MATERIAL WHICH WAS THE MAJOR INPUT, VOLTAGE OF THE SUPPLY, POWER INTERRUPTIONS, MECHANICAL AND ELECTRICAL BREAKDOWNS AND THE CHEMICAL COMPOSITION OF THE LIQUID METAL WHICH HAD TO BE FINALLY CAST INTO INGOTS/BILLETS. THE AO FAILED TO APPRECIATE THESE FACTS AND DID NOT ATTEMPT TO ESTABLISH A DIRECT NEXUS BETWEEN THE PRODUCTION AND ELECTRICITY CONSUMED FOR THE MANUFACTURING OF ROUND TMT BARS AND ARRIVED AT A CONCLUSION THAT THERE WAS AN EXCESS CONSUMPTION OF ELECTRICITY RESULTING IN SUPPRESSED PRODUCTION AND ALLEGED THAT THE ASSESSEE COMPANY HAD INDULGED IN UNACCOUNTED PRODUCTION. IT WAS HELD BY THE HON'BLE ITAT PUNE THAT THE ISSUE STOOD DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE TRIBUNAL IN THE CASE OF BHAGYALAXMI STEEL ALLOYS PVT. LTD. ITA NOS.1292/PN/2012 AND OTHER CONNECTED APPEALS. IN THIS CASE, IT WAS DECIDED THAT ON PERUSAL OF THE ASSESSMENT ORDER, IT WAS CLEAR THAT IT WAS MERELY BASED ON THE ALLEGED SUPPRESSION OF THE PRODUCTION BY ESTIMATING CERTAIN CONSUMPTION OF ELECTRICITY I.E. 1026 UNITS FOR MANUFACTURING OF 1 MT OF INGOTS AND BILLETS. MOREOVER, IN THE AY 2008-09, THE ASSESSING OFFICER HAD OBSERVED THAT THE INFORMATION RECEIVED FROM THE CENTRAL EXCISE AUTHORITIES HAD NO BEARING IN THE SAID ASSESSMENT BUT ON THE PERUSAL OF THE SAID ORDER, IT WAS SEEN THAT ENTIRE ASSESSMENT ORDER WAS THE COPY OF ORDER PASSED FOR THE AY 2007-08. AS THE VERY BASIS OF THE ASSESSMENT ORDER I.E. THE ORDER OF THE COMMISSIONER OF CENTRAL EXCISE (CCE), AURANGABAD HAD BEEN SET ASIDE AND CANCELLED BY THE CESTAT, THEREFORE THE ASSESSMENT ORDERS PASSED BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A) APPROVING THE ESTIMATED ALLEGED SUPPRESSION OF THE PRODUCTION/SALES HAD NO LEGAL LEGS TO STAND. IT WAS FURTHER HELD THAT NO INDEPENDENT INVESTIGATION WAS MADE BY THE REVENUE BUT THE ENTIRE ASSESSMENT WAS FRAMED ON THE BASIS OF INFORMATION RECEIVED FROM THE CENTRAL EXCISE DEPARTMENT AS WELL AS THE ADJUDICATION ORDER PASSED BY THE CCE, AURANGABAD, WHICH IN TURN, HAD BEEN CANCELLED BY THE THIRD MEMBER OF CESTAT. THE TRIBUNAL THUS, HELD THAT THE FOUNDATION FOR THE ALLEGED ASSESSMENT DID NOT EXIST. IT WAS ALSO NOTICED BY THE TRIBUNAL IN PARA 21 THAT THE INVESTIGATION BY THE DGCEI AND PROCEEDINGS BEFORE THE SETTLEMENT COMMISSION WERE CONSIDERED BY THE CCE IN ITS ADJUDICATION ORDER, WHICH IN TURN, WAS THE SUBJECT MATTER OF CESTAT AND THE SAID ORDER HAD BEEN SET ASIDE, HENCE, IT WAS NOT NECESSARY TO DEAL WITH THE DECISIONS RELIED UPON BY THE LD. SPECIAL AR, WHICH WERE IN THE CONTEXT OF ADMISSION OF THE DIRECTORS IN THE COURSE OF INVESTIGATION MADE BY THE DGCEI. ON THE ISSUE OF FORM NO. G-7 ITA NO.1346/PUN/2016 ITA NO.1356/PUN/2016 15 IN RESPECT OF ELECTRICITY CONSUMPTION, WHICH WAS ALSO BEFORE THE CESTAT, THE TRIBUNAL OVERRULED THE ARGUMENTS OF THE LD. SPECIAL AR AND UPHELD THE ARGUMENTS OF LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE ORDER OF CESTAT HAD TO BE APPLIED. IT WAS HELD THAT CESTAT WAS AN APPELLATE FORUM UNDER THE CUSTOMS ACT, 1962 AND CENTRAL EXCISE ACT, 1954 AND THE INCOME TAX TRIBUNAL COULD NOT ACT AS REVISIONARY AUTHORITY OR MAKE ANY OBSERVATION WHETHER THAT ORDER WAS RIGHT OR WRONG. ON THE MATTER OF FLUCTUATING CONSUMPTION OF ELECTRICITY, IT WAS HELD THAT FLUCTUATING CONSUMPTION OF ELECTRICITY COULD BY NO MEANS BE SAID TO BE A FINDING OF SEARCH SINCE ALL DETAILS REGARDING ELECTRICITY VIS-A-VIS PRODUCTION WERE BEFORE THE DEPARTMENT. IF THE DEPARTMENT HAD ANY DOUBTS REGARDING THE SAME, IT COULD HAVE RAISED DURING THE REGULAR ASSESSMENTS AND NOT IN THE ASSESSMENT PROCEEDINGS UNDER SECTION 153A OF THE ACT. WHEN NOTHING INCRIMINATING WAS FOUND IN THE COURSE OF SEARCH RELATING TO ANY OF THESE ASSESSMENT YEARS, THE ASSESSMENTS FOR SUCH YEARS COULD NOT BE DISTURBED ON THIS GROUND. SINCE THE FACTS OF THE PRESENT CASE WERE IDENTICAL TO THE FACTS OF THE CASE DECIDED BY THE TRIBUNAL, THEREFORE, FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF BHAGYALAXMI STEEL ALLOYS PVT. LTD. ITA NOS.1292/PN/2012 AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO ITS NOTICE, THE GROUNDS RAISED BY THE REVENUE WERE DISMISSED BY THE ITAT, PUNE AND THE ADDITION SUSTAINED BY THE CIT (A) WAS ALSO DELETED. ACCORDINGLY THE APPEAL OF THE REVENUE WAS DISMISSED. THUS IT IS CLEAR THAT NO ADDITION COULD BE MADE MERELY ON BASIS OF TECHNICAL REASONS I.E. ELECTRICITY CONSUMPTION FORMULA. THIS VIEW WAS ALSO SUPPORTED BY THE DECISIONS OF VARIOUS TRIBUNALS SUCH AS JANTA TILES VS. ACIT (66 TTJ 695) (JURISDICTIONAL PUNE BENCH); DCIT KOLAPUR VS. J. D. THOTE DAIRIES (JURISDICTIONAL PUNE BENCH IN ITA NO 115/PN/2000 DECISION DATED 31/05/2011); ROOP NIKETAN VS. ACIT (90 TTJ 1097) (MUMBAI BENCH) AND ITO VS. GURUBACHANSINGH JUNEJA (55 ITD 75). RESPECTFULLY FOLLOWING THE ABOVE DECISIONS AND THE PRECEDENT IN THE APPELLANTS OWN CASE, I DIRECT THE AO TO DELETE THE ADDITION OF RS.19,93,989/- MADE BY HIM . THIS GROUND OF APPEAL IS ACCORDINGLY ALLOWED. 21. FROM THE ABOVE, IT IS EVIDENT THAT THE CIT(A) DELETED THE ADDITION AND ALLOWED THE GROUNDS OF THE ASSESSEE. THEREFORE, IN OUR OPINION, SUCH ORDER OF THE CIT(A) IS FAIR AND REASONABLE ON THIS ISSUE AND IT DOES NOT CALL FOR ANY INTERFERENCE. WE HOLD SO. THUS, THE GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. 22. GROUND NO.2 RELATES TO THE ADDITION OF RS.51,31,819/- ON ACCOUNT OF BOGUS PURCHASES . WHILE CONFIRMING THE GP ADDITION ON THE SAID BOGUS PURCHASES, THE CIT(A) GRANTED PART RELIEF TO THE ASSESSEE. AGGRIEVED WITH THE SAID RELIEF, THE REVENUE IS IN APPEAL BEFORE US. THIS ISSUE OF ADDITION ON ITA NO.1346/PUN/2016 ITA NO.1356/PUN/2016 16 ACCOUNT OF BOGUS PURCHASES HAS ALREADY DECIDED BY US AND DIRECTED THE ASSESSING OFFICER TO RESTRICT THE ADDITION TO 10% OF THE BOGUS PURCHASES AND KEPT OUR RELIANCE ON THE CO-ORDINATE BENCH DECISION IN THE CASE OF M/S. CHHABI ELECTRICALS PVT. LTD. (SUPRA). OUR ADJUDICATION VIDE GROUND NO.1 OF THE ASSESSEES APPEAL IS RELEVANT. THEREFORE, THE GROUND NO.2 STANDS DISMISSED. THUS, THE GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. 23. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. 24. RESULTANTLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 20 TH DAY OF JUNE, 2019. SD/- SD/- (SUSHMA CHOWLA) (D. KARUNAKARA RAO ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; DATED : 20 TH JUNE, 2019. SUJEET / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-1, AURANGABAD; 4. THE PR.CIT-1, AURANGABAD; 5. , , / DR A, ITAT, PUNE; 6. / GUARD FILE. / BY ORDER, //TRUE COPY// SENIOR PRIVATE SECRETARY , / ITAT, PUNE