The ITO, Ward-5(2), Ahmedabad V. Panchamrut Chemicals Pvt.Ltd., Ahmedabad

ITA 2100/AHD/2007

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1979 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-02-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 17-05-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K DHANESTA
• Assessee Lawyers: S N DIVATIA
• Keywords: Unexplained investment; Business income; Depreciation; Income from undisclosed sources; Principle of natural justice; Cost of acquisition; Retraction
• Section: 69C; 133(6); 147; 69; 145; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' BEFORE SHRI T K SHARMA,JM & SHRI A N PAHUJA,AM ITA NOS.2100 & 2422/AHD/2007 WITH CO NOS.202 & 203/AHD/2007 (ASSESSMENT YEARS:-2001-02 & 2002-03) INCOME-TAX OFFICER, WARD- 5(2), AHMEDABAD V/S PANCHAMRUT CHEMICALS PRIVATE LTD., 709-710, HARIKRUPA TOWER, NR. OLD SHARDA MANDIR CROSS LANE, ELLIS-BRIDGE, AHMEDABAD PAN: AABCP 1445 Q [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI R K DHANESTA, DR ASSESSEE BY:- SHRI S N DIVATIA, AR O R D E R A N PAHUJA: THESE TWO APPEALS BY THE REVENUE AND THE CORRESPONDING CROSS OBJECTIONS[CO] BY THE ASSESSEE AGAINST TWO SEPARATE ORDERS DATED 05-03-2007 FOR THE AY 2001-02 AND DATED 09- 04-2007 FOR THE AY 2002-03 OF THE LD. CIT(APPEALS)- XI, AHMEDABAD, RAISE THE FOLLOWING GROUNDS:- ITA NO.2100/AHD/2007[AY 2001-02] 1. THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHME DABAD HAS ERRED IN LAW AND ON FACTS IN REDUCING THE ADDITION M ADE ON ACCOUNT OF UNACCOUNTED PURCHASES OF RAW MATERIAL FOR MANUFA CTURING OF NITROBENZENE AND SPENT ACID FROM RS.40,32,436/- TO RS.5,68,420/- 2. THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMED ABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE O F RS.2,25,652 /-BEING THE VALUE OF SHORTAGE OF RAW MATERIAL / FINISHED GOODS NOTICED DURING THE EXCISE SURVEY. 3. THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMED ABAD HAS ERRED IN LAW AND ON FACTS IN REDUCING THE GROSS PROFIT AD DITION FROM RS.12,64,203/- TO RS.5,17,410/-. 4. THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMED ABAD HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ASSESSING O FFICER HAS ERRED IN ITA NOS.2100-2422/A/07 & CO NOS.202-203/A/07 2 TREATING THE BUSINESS INCOME AS INCOME FROM OTHER S OURCES AND IN DIRECTING TO ALLOW THE SET OFF OF BROUGHT FORWARD L OSSES AND DEPRECIATION. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 6. IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMEDABAD MAY BE SET ASIDE AND T HAT OF THE ASSESSING OFFICER BE RESTORED. ITA NO.2422/AHD/2007[AY 2002-03] 1. THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MAD E OF RS.2,25,652/- BEING THE VALUE OF SHORTAGE OF RAW MATERIAL / FINISHED GO ODS NOTICED DURING THE EXCISE SURVEY. 2. THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMED ABAD HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE AO HAS ERRE D IN TREATING THE BUSINESS INCOME AS INCOME FROM OTHER SOURCES AND IN DIRECTING TO ALLOW THE SET OFF OF BROUGHT FORWARD LOSSES AND DEPRECIAT ION. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 4. IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMEDABAD MAY BE SET ASIDE AND T HAT OF THE ASSESSING OFFICER BE RESTORED. C O NO.202/AHD/2007[AY 2001-02] 1.1 THE LD. CIT(A) HAS ERRED IN LAW AND / OR ON FA CTS IN CONFIRMING THE ADDITION OF RS.8,33,373/- ON ACCOUNT OF UNACCOUNTED PURCHASES IN RESPECT OF ALLEGED ILLICIT REMOVAL OF HB, THOUGH THE MAIN A DDITION WAS DELETED BY HIM. 1.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT WHEN NO SUCH CHEMICAL WAS PURCHASED OR MANUFACTURED, THERE COULD NOT BE SPENT ACID. 2.1 THE LD. CIT(A) HAS ERRED IN LAW AND / OR ON FA CTS IN CONFIRMING GP ADDITION TO THE EXTENT OF RS.5,17,410/- OUT OF THE TOTAL ADDITION OF RS.14,54,724/-. ITA NOS.2100-2422/A/07 & CO NOS.202-203/A/07 3 2.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) OUGHT NOT TO HAVE CONFIRMED THE REJECTION OF BOOK R ESULT. C O NO.203/AHD/2007[AY 2002-03] 1.1 THE LD. CIT(A) HAS ERRED IN LAW AND / OR ON FAC TS IN CONFIRMING THE ADDITION OF RS.1,50,500/- AS INFLATED PURCHASES FRO M SAI AMINIES P. LTD. AND M/S PREETHI CHEMICALS. 1.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) OUGHT NOT TO HAVE CONFIRMED THE ADDITION OF RS.1,50 ,500/-. 2 ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL OF T HE REVENUE FOR THE AY 2001-02, FACTS, IN BRIEF, AS PER RELEVANT OR DERS ARE THAT RETURN DECLARING LOSS OF RS.14,62,298/- FILED ON 31 -10-2001 BY THE ASSESSEE, MANUFACTURING INTERMEDIATES, WAS PROCESSE D U/S 143(1) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO A S THE ACT]. SUBSEQUENTLY, ON AN INFORMATION RECEIVED FROM CENTR AL EXCISE DEPARTMENT, THE ASSESSING OFFICER [AO] REOPENED THE ASSESSMENT U/S 147 OF THE ACT WITH THE SERVICE OF A NOTICE U/S 148 OF THE ACT ON 12-08-2005, AFTER RECORDING THE FOLLOWING REASONS:- AS PER THE EXCHANGE OF INFORMATION BETWEEN THE MEM BERS OF REIC SUPPLIED BY THE COMMISSIONER OF CENTRAL EXCISE AND CUSTOMS TO THE CIT, BARODA WHICH WAS ROUTED THROUGH ADDL. CIT, PANCHMAH AL RANGE, GODHRA, THE FOLLOWING FACTS ARE BROUGHT TO THE NOTICE OF TH E UNDERSIGNED: [1] ILLICIT REMOVAL OF FINISHED GOODS / RAW MATERI AL [2] NON-ACCOUNTING OF PRODUCTION IN THE DAILY STOCK REGISTER [3] AVAILMENT OF CENVAT CREDIT ON FORGES INVOICES THE INFORMATION ALSO SUGGESTS THAT ACTION CAN BE I NITIATED AGAINST THE INCOME EARNED THROUGH ILLICIT REMOVAL AND FORGED IN VOICES. CONSIDERING THE FACT THAT THE CENTRAL EXCISE AND C USTOMS DEPARTMENT HAS ALREADY RECOVERED DUTY OF RS.13,02,456/- I AM SATIS FIED THAT INCOME EXCEEDING RS.1 LAKH HAS ESCAPED ASSESSMENT. 2.1 DURING THE COURSE OF RE-ASSESSMENT PROCEEDING S, ON RECEIPT OF INFORMATION U/S 133(6) FROM SUPERINTENDENT (PREV.) CENTRAL EXCISE & CUSTOMS, VADODARA, THE AO FOUND THAT THE ASSESSEE: ITA NOS.2100-2422/A/07 & CO NOS.202-203/A/07 4 I. WAS ENGAGED IN THE ILLICIT MANUFACTURE AND REMOV AL OF EXCISABLE GOODS TO VARIOUS PARTIES WITHOUT PAYMENT OF APPROPR IATE CENTRAL EXCISE DUTY AND WITHOUT FOLLOWING ANY PROCEDURE PRESCRIBED UNDER THE CENTRAL EXCISE ACT, 1994 AND RULES MADE THEREUNDER; II. DID NOT ACCOUNT FOR PRODUCTION IN THE DAILY ST OCK REGISTER; AND III. AVAILED CENVAT CREDIT ON FORGED / FRAUDULENT INVOICES. 2.11 ON PERUSAL OF THE PANCHNAMA DRAWN BY THE E XCISE AUTHORITIES ON 15-10-2004 IT WAS REVEALED THAT THE ASSESSEE HAD REMOVED NITRO BENZENE AND SPENT ACID WITHOUT PAYMEN T OF EXCISE DUTY AS DETAILED HEREUNDER:- NITRO BENZENE SR. NO. MONTH PRODUCTION CLEARANCE VALUE DUTY 1 APR-00 33603 35145 556156 88985 2 MAY-00 35064 33190 491215 78594 3 JUNE-00 30681 29365 461854 73897 4 JULY-00 36525 40170 584531 93525 5 AUG-00 37986 40755 611325 97812 6 SEPT.-00 37986 30720 460800 73728 7 OCT.-00 32142 30200 453000 72480 8 NOV.-00 37986 41150 617250 98760 9 DEC. 00 4383 10500 157500 25200 10 JAN-01 0 0 0 0 11 FEB.-01 0 0 0 0 12 MAR-01 0 0 0 0 286356 291465 4393631 702981 SPENT ACID SR. NO. MONTH PRODUCTION CLEARANCE VALUE DUTY 1 APR-00 44484 44340 12264 1962 2 MAY-00 50550 51055 13326 2132 3 JUNE-00 40440 39510 10723 1716 4 JULY-00 52799 45115 12991 2079 5 AUG-00 50550 59015 12724 2036 6 SEPT.-00 52572 43060 8612 1378 7 OCT.-00 44484 44400 8880 1421 8 NOV.-00 52572 61580 12316 1971 ITA NOS.2100-2422/A/07 & CO NOS.202-203/A/07 5 9 DEC. 00 6066 0 0 0 10 JAN-01 0 0 0 0 11 FEB.-01 0 0 0 0 12 MAR-01 0 0 0 0 394517 388075 91836 14694 2.2 TO A QUERY BY THE AO VIDE SHOW CAUSE NOTICE DATED 16-11- 2006 AS TO WHY THE UNACCOUNTED INVESTMENT MADE IN P URCHASE OF RAW MATERIALS AND THE PROFIT ON SALE OF NITRO BENZE NE AND SPENT ACID BE NOT TAXED, THE ASSESSEE REPLIED THAT THE RAW MAT ERIAL FOR MANUFACTURING NITRO BENZENE WAS SOLD BY INDIAN OIL CORPORATION [IOC], BHARAT PETROLEUM CORPORATION LIMITED [BPCL], RELIANCE INDUSTRIES LIMITED [RIL] AND STEEL AUTHORITY OF IND IA LIMITED [SAIL]. SINCE THE ASSESSEE DID NOT PURCHASE ANY MATERIAL FR OM THE AFORESAID COMPANIES NOR PRODUCED ANY SPENT ACID, NO ADDITION COULD BE MADE. HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF T HE ASSESSEE ON THE GROUND THAT - I. THE ASSESSEE COMPANY HAD MANUFACTURED AND CLEARE D ILLICITLY AND CLANDESTINELY NITRO-BENZENE AS WELL AS SPENT ACID O N WHICH EXCISE DUTY LIABILITY HAD NOT DISCHARGED AS ADMITTED BY SHRI BA RIN M. SHAH, DIRECTOR OF THE ASSESSEE COMPANY IN HIS STATEMENT DATED 3/11/20 04 DURING THE COURSE OF INVESTIGATION BY THE EXCISE AUTHORITIES; II. NITRO-BENZENE AS WELL AS SPENT ACID ILLICITLY A ND CLANDESTINELY HAD NOT BEEN ACCOUNTED FOR IN R.G. 1 REGISTER/DAILY STO CK ACCOUNT REGISTER; III. THE EXCISE DUTY WORKED OUT ON THE AMOUNT OF I LLICIT CLEARANCE OF NITRO-BENZENE AS WELL AS SPENT ACID HAS BEEN PAID B Y THE ASSESSEE; IV. THE ASSESSEE DID NOT PRODUCE THE BOOKS OF ACCOU NTS, PURCHASE BILLS, SALE BILLS, DOCUMENTS, PAPERS AND EXCISE RECORDS FO R VERIFICATION DURING THE COURSE OF ASSESSMENT PROCEEDINGS DESPITE SUFFICIEN T OPPORTUNITY; V. THE ASSESSEE DID NOT FURNISH THE COMPLETE DETAIL S AS REQUIRED VIDE QUESTIONNAIRE DATED 23-08-2006; AND VI. BY DELIBERATELY NOT PRODUCING THE BOOKS OF ACCO UNTS, PURCHASE BILLS, SALE BILLS, DOCUMENTS, PAPERS AND EXCISE RECORDS FO R VERIFICATION AND BY NOT FURNISHING THE REQUIRED DETAILS, THE ASSESSEE PREV ENTED THE DEPARTMENT FROM CONDUCTING ENQUIRES AND INVESTIGATION LED TO T HE CONCLUSION THAT THE ITA NOS.2100-2422/A/07 & CO NOS.202-203/A/07 6 ASSESSEE INDULGED IN ILLICIT MANUFACTURE AND REMOV AL OF EXCISABLE GOODS TO VARIOUS PARTIES WITHOUT PAYMENT OF APPROPRIATE CENT RAL EXCISE DUTY AND WITHOUT FOLLOWING ANY PROCEDURE PRESCRIBED UNDER TH E CENTRAL EXCISE ACT, 1994 AND RULES MADE THERE-UNDER; 2.3 ACCORDINGLY WHILE RELYING ON THE FOLLOWING OBSERVATIONS IN THE DECISION IN CIT V. MOTOR GENERAL FINANCE LTD (2002) 254 ITR 449 (DELHI): 'WHEN THE ASSESSEE FAILS TO PRODUCE DOCUMENTS OR EV IDENCE IN CONNECTION WITH THE MATTER AT ISSUE, AND ADVERSE IN FERENCE, IN TERMS OF SECTION 114 OF THE EVIDENCE ACT, COULD BE DRAWN TO THE EFFECT THAT HAD THOSE DOCUMENTS BEEN PRODUCED, THESE WOULD HAVE GONE AGAINST THE INTEREST OF THE ASSESSEE.' THE AO, AFTER REDUCING THE GROSS PROFIT AT THE RAT E OF 10.10% FROM VALUE OF FINISHED GOODS ILLICITLY REMOVED FROM THE PREMISES, ADDED AN AMOUNT OF RS.40,32,436/- U/S 69C OF THE ACT ON ACCO UNT OF UNACCOUNTED INVESTMENT IN PURCHASE OF RAW MATERIAL. 3. ON APPEAL, THE LEARNED CIT(A) REDUCED THE ADDITI ON TO RS.5,68,420/- IN THE FOLLOWING TERMS:- 4.2.1. AFTER VERIFYING THE NECESSARY DETAILS OF T HE CASE, IT APPEARS TO ME THAT THERE IS A CONSIDERABLE FORCE IN AR'S SUBMI SSIONS. THE APPELLANT IS ALLEGED TO HAVE MANUFACTURED NITRO BENZENE AND SPEN T ACID AND CLEARED THE SAME WITHOUT APPROVAL OF CENTRAL EXCISE DEPARTM ENT. THE TOTAL VALUE OF THE SALE OF ALLEGED ILLICIT GOODS IS COMPUTED AT RS.44,85,468/- (RS.43,93,631 + RS.91,836). AFTER REDUCING THE G. P . AT 10% ON THE SAID VALUE, THE BA!ANCE VALUE OF RS.40,32,436/- IS TREAT ED AS PURCHASE VALUE AND THE SAME IS TREATED AS APPELLANTS UNACCOUNTED INVESTMENT. 4.2.2. IT MAY BE SEEN THAT THE APPELLANT IS SEEN TO HAVE PURCHASED RAW MATERIALS FOR MANUFACTURING OF NITRO BENZENE AND SP ENT ACID AND AFTER THE SALE OF THE SAME GOODS, THE SALE PROCEEDS ARE LIKEL Y TO HAVE BEEN REINVESTED FOR FURTHER PURCHASES. THEREFORE, THERE IS LIKELIHOOD OF RECYCLING THE VALUE OF THE INITIAL MONTH INVESTMENT DURING SUBSEQUENT MONTHS. 4.2.3. THEREFORE, IT CAN NOT BE SAID THAT THE APPEL LANT WOULD HAVE PAID ENTIRE PURCHASE COST AS AN INVESTMENT WHICH IN FACT GOT RECYCLED FOR SUBSEQUENT MONTHS. THEREFORE, I AM INCLINED TO TREA T APRIL MONTHS PURCHASES OF NITRO BENZENE AND SPENT ACID WHICH COM ES TO RS.5,68,420/- [RS.5,56,156 + RS.12,264] ONLY AS AN UNEXPLAINED IN VESTMENT IN PURCHASES AND, THEREFORE, THE BALANCE OF RS.34,64,0 16/- IS DELETED. THUS, THIS GROUND OF APPEAL IS PARTLY ALLOWED. ITA NOS.2100-2422/A/07 & CO NOS.202-203/A/07 7 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A) WHILE THE ASSESSEE H AS ACCEPTED THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE. THE LEARN ED DR WHILE CARRYING US THROUGH THE IMPUGNED ORDER CONTENDED TH AT THE CIT(A) HAS REDUCED THE ADDITION MERELY ON THE BASIS OF PRE SUMPTION THAT THE SALE PROCEEDS WERE LIKELY TO HAVE BEEN INVESTED FOR FURTHER PURCHASES AND THEREFORE, THERE WAS LIKELIHOOD OF RE CYCLING THE VALUE OF THE INITIAL MONTHS INVESTMENT DURING THE SUBSEQ UENT MONTHS. IT WAS CONTENDED THAT THE LD. CIT(A) DID NOT GIVE ANY OPPORTUNITY TO THE AO BEFORE ACCEPTING THE SUBMISSION OF THE ASSESSEE THAT ADDITION SHOULD BE RESTRICTED TO ONE MONTH PURCHASES. ON THE OTHER HAND, THE LEARNED AR ON BEHALF OF THE ASSESSEE SUPPORTED THE ORDER OF THE LD. CIT(A) ON THE GROUND THAT NEITHER RAW MATERIAL WAS PURCHASED FOR MANUFACTURING NITRO BENZENE NOR ANY SPENT ACID WAS PRODUCED. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. THOUGH THE LEARNED AR APPEARING BEFORE US CONTENDED THAT THEY DID NOT PURCHASE ANY RAW MATERIAL FOR MAN UFACTURING NITRO BENZENE NOR ANY BYE-PRODUCT WAS PRODUCED AND RELIED UPON CERTIFICATES OF AUDITORS AND AFFIDAVITS OF SHRI BM SHAH AND SHRI SATISH PATEL STATED TO HAVE BEEN EXECUTED ON 14.7.2 005, WE FIND THAT THE ASSESSEE HAS NOT DISPUTED THE ADDITION TO THE EXTENT SUSTAINED BY THE LD. CIT(A). A COPY OF THE ORDER D ATED 26-09-2007 OF THE SETTLEMENT COMMISSION, ADDITIONAL BENCH, CUS TOMS & CENTRAL EXCISE, MUMBAI FILED BY THE LD. AR REVEALS THAT TH E ASSESSEE HAD BEEN SHIFTING HIS STAND EVEN BEFORE THE EXCISE AUTH ORITIES AND ULTIMATELY ADMITTED BEFORE THE SETTLEMENT COMMISSI ON THE ENTIRE DUTY DEMAND OF RS.13,02,456/- FOR MANUFACTURING NIT RO BENZENE AND SPENT ACID ILLICITLY AND DEPOSITED THE AMOUNT. THE FACT THAT THE ASSESSEE COMPANY HAD MANUFACTURED AND CLEARED ILLICITLY AND CLANDESTINELY NITRO-BENZENE AS WELL AS SPENT ACID ON WHICH EXCISE DUTY LIABILIT Y HAD NOT BEEN DISCHARGED, WAS ADMITTED BY SHRI BARIN M. SHAH, DIRECTOR OF THE ASS ESSEE COMPANY IN HIS ITA NOS.2100-2422/A/07 & CO NOS.202-203/A/07 8 STATEMENT DATED 3/11/2004 DURING THE COURSE OF INVE STIGATION BY THE EXCISE AUTHORITIES. AS HELD BY THE HONBLE SUPREME COURT I N PULLANGODE RUBBER PRODUCE CO. LTD. V. STATE OF KERALA [1973] 91 ITR 1 8, AN ADMISSION IS AN EXTREMELY IMPORTANT PIECE OF EVIDENCE THOUGH IT IS NOT CONCLUSIVE. THEREFORE, A STATEMENT MADE VOLUNTARILY BY THE ASSESSEE COULD FR OM THE BASIS OF ASSESSMENT. THE MERE FACT THAT THE ASSESSEE RETRACTED THE STATE MENT COULD NOT MAKE THE STATEMENT UNACCEPTABLE. THE BURDEN LAY ON THE ASSES SEE TO ESTABLISH THAT THE ADMISSION MADE IN THE STATEMENT BY THE ASSESSEE WAS WRONG AND IN FACT THERE WAS NO ADDITIONAL INCOME. IT IS SETTLED LAW THAT AD MISSION BY A PERSON IS A GOOD PIECE OF EVIDENCE THOUGH NOT CONCLUSIVE AND THE SAM E CAN BE USED AGAINST A PERSON WHO MAKES IT. THE REASON BEHIND THIS IS, A P ERSON MAKING A STATEMENT STOPS THE OPPOSITE PARTY FROM MAKING FURTHER INVEST IGATION. IN THE INSTANT CASE, THE ASSESSEE, INDISPUTABLY, OBTAINED IMMUNITY FROM PENA LTY AND PROSECUTION UNDER THE CENTRAL EXCISE LAW BY ADMITTING BEFORE THE CONC ERNED AUTHORITIES PAYMENT OF FULL DUTY ON ACCOUNT OF MANUFACTURING AND CLEARING ILLICITLY AND CLANDESTINELY NITRO- BENZENE AS WELL AS SPENT ACID. THE BURDEN THAT THE SAID ADMISSION WAS WRONG HAS NO WHERE BEEN DISCHARGED NOR THE ASSESSEE PROD UCED THE BOOKS OF ACCOUNTS, PURCHASE BILLS, SALE BILLS, DOCUMENTS, PA PERS AND EXCISE RECORDS FOR VERIFICATION DURING THE COURSE OF ASSESSMENT PROCEE DINGS DESPITE SUFFICIENT OPPORTUNITY PROVIDE BY THE AO AND NOR EVEN DETAILS REQUIRED BY THE AO VIDE QUESTIONNAIRE DATED 23-08-2006 . IN THESE CIRCUMST ANCES, WHEN THE ASSESSEE FAILED TO DISCHARGE THE AFORESAID BURDEN BEFORE THE AO OR EVEN BEFORE THE LD. CIT(A) NOR PRODUCED THE RELEVANT DOCUMENTS/DETAILS, THE PLEA OF THE LEARNED AR THAT THERE WAS NO UNACCOUNTED PURCHASE OF RAW MA TERIAL OR UNACCOUNTED SALE OF NITRO BENZENE AND SPENT ACID, C AN NOT BE ACCEPTED. AS REGARDS FINDINGS OF THE LD. CIT(A) BA SED ON SUBMISSIONS ON BEHALF OF THE ASSESSEE THAT IT CAN NOT BE SAID THAT THE ASSESSEE WOULD HAVE PAID ENTIRE PURCHASE COST A S AN INVESTMENT, WHICH ,IN FACT GOT RECYCLED IN SUBSEQUE NT MONTHS, WE FIND THAT NO SUCH SUBMISSIONS APPEAR TO HAVE BEEN M ADE BEFORE THE AO NOR THE LD. CIT(A) GRANTED ANY OPPORTUNITY OF HE ARING TO THE CONCERNED AO, BEFORE HOLDING THAT ONLY APRIL MONTHS PURCHAS ES OF NITRO BENZENE AND SPENT ITA NOS.2100-2422/A/07 & CO NOS.202-203/A/07 9 ACID COULD BE TREATED AS UNEXPLAINED INVESTMENT. TH ERE IS NO MATERIAL BEFORE US AS TO WHETHER OR NOT THE WRITTEN SUBMISSIONS OR TH E DETAILS FILED BEFORE THE LD. CIT(A),WERE CONFRONTED TO THE AO. IN THESE CIRCUMST ANCES AND IN THE INTEREST OF NATURAL JUSTICE, ESPECIALLY WHEN THE LD . CIT(A) HAVE NOT ALLOWED SUFFICIENT OPPORTUNITY TO THE AO, AS ENSHRI NED IN THE RELEVANT PROVISIONS OF SEC. 250 OF THE ACT, BEFORE REDUCING THE QUANTUM OF ADDITION TOWARDS UNDISCLOSED INVESTMENT, WE HAVE NO ALTERNATIVE BUT TO VACATE THESE FINDINGS OF THE LD. CIT(A) AND RESTORE THE MATTER TO HIS FILE WITH THE DIRECTI ONS TO READJUDICATE THE ISSUE RELATING TO QUANTUM OF INVESTMENT IN ACCORDANCE WI TH LAW IN THE LIGHT OF OUR AFORESAID OBSERVATIONS AFTER ALLOWING SUFFICIENT OP PORTUNITY TO BOTH THE PARTIES. SUBJECT TO THESE DIRECTIONS, GROUND NO. 1 IN THE AP PEAL OF THE REVENUE FOR THE AY 2001-02 IS DISPOSED OF . 6. GROUND NO.2 IN THE APPEAL OF THE REVENUE FOR THE AY 2001-02 AND GROUND NO.1 IN THEIR APPEAL FOR THE AY 2002-03 RELATE TO THE ADDITION ON ACCOUNT SHORTAGE OF RAW MATERIAL / FINI SHED GOODS NOTICED DURING THE EXCISE SEARCH. AS PER ANNEXURE A -3 TO THE PANCHNAMA DRAWN BY THE EXCISE AUTHORITIES ON 15.10. 2004, SHORTAGE OF GOODS TO THE EXTENT OF RS.2,25,652/- WAS NOTICED AS DETAILED ON PAGE 11 OF THE ASSESSMENT ORDER FOR THE AY 2001-02 AND EXTRACTED HEREUNDER:- SR. NO. DESCRIPTION OF THE GOODS QUANTITY VALUE DUTY 1 SULPHOTOBIC ACID 664 34164 5466 2 ANILINE 2.5 DI SULPHURIC ACID 30 990 158 3 NADAPSA 956 47513 7602 4 DIRECT BLAC 22 1050 44100 7056 5 F C ACID 1175 52875 8460 6 NITRO BENZENE 6280 0 0** 7 SPENT ACID 3700 370 59 8 OLEUM 23% 10460 20920 3347 9 TOPBIC ACID 50 4000 640 10 OLEUM 65% 5920 20720 3315 11 METHANOL 11520 0 0** TOTAL 41805 225652 36104 ITA NOS.2100-2422/A/07 & CO NOS.202-203/A/07 10 USED IN MANUFACTURE OF HYDROZO BENZENE CLEARED ILL ICITLY FOR WHICH DUTY IS DEMANDED SEPARATELY. TO A QUERY BY THE AO, THE ASSESSEE REPLIED THAT THE GOODS WERE NOT SALEABLE, HAVING LOST THEIR CHEMICAL PROPERTY AND THUS, THERE WAS NO SHORTAGE AS ALLEGED BY THE CUSTOMS AND EXCISE DEPAR TMENT. HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF T HE ASSESSEE ON THE GROUND THAT - I. PHYSICAL VERIFICATION OF THE STOCK WAS DONE IN T HE PRESENCE OF SHRI SHYAMJI PATEL, CHEMIST OF THE ASSESSEE COMPANY AND PANCHAS AND THE QUANTITY, VALUE AND WEIGHT OF STOCK WAS CORRECTLY T AKEN; II. THE SHORTAGE OF FINISHED GOODS AND RAW MATERIAL S OF THE VALUE OF RS.2,25,652/- WAS ADMITTED BY THE SHRI BARIN M. SHA H, DIRECTOR OF THE ASSESSEE COMPANY IN HIS STATEMENT DATED 3/11/2004 D URING THE COURSE OF INVESTIGATION BY THE EXCISE AUTHORITIES; AND III.. THE REQUEST MADE BY THE ASSESSEE IN THE LAST PARA OF IT'S SUBMISSION WITH REFERENCE TO AUTHORIZATION FOR DISPOSAL OF GOO DS SPEAKS VOLUME ABOUT THEIR ATTITUDE. ACCORDINGLY, AN AMOUNT OF RS.2,25,652/- WAS ADDED A S UNACCOUNTED INCOME IN THE AY 2001-02 WHILE AN EQUIVALENT AMOUN T WAS ADDED IN THE AY 2002-03 ON PROTECTIVE BASIS. 7. ON APPEAL, THE LEARNED CIT(A) DELETED THE ADDITI ON IN THE FOLLOWING TERMS IN THE AY 2001-02:- 6.2.1 AS IT COULD BE SEEN FROM ABOVE THAT THE ALLE GED SHORTAGE OF RAW MATERIALS / FINISHED GOODS IS NOT ACTUALLY PERTAINS TO THE ASSESSMENT YEAR UNDER CONSIDERATION SINCE THE SURPRISE CHECK IS STA TED TO HAVE BEEN TAKEN PLACE ON 15-10-2004 WHEREAS THE ASSESSMENT IS FOR T HE PREVIOUS YEAR I.E. 1-4-2000 TO 31-3-2001. THEREFORE, THE ALLEGED SHORT AGE NOTICED BY THE CENTRAL EXCISE AUTHORITIES ON 15-10-2004 CANNOT BE RELATED TO PREVIOUS YEAR PERIODS OF THE RELEVANT ASSESSMENT YEAR. THERE FORE, THE ADDITION MADE ON THIS COUNT IS DELETED. 8. ON SIMILAR REASONING, THE PROTECTIVE ADDITION O F RS.2,25,652/- WAS DELETED IN AY 2002-03 ALSO. ITA NOS.2100-2422/A/07 & CO NOS.202-203/A/07 11 9. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE ORDERS OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASS ESSEE SUPPORTED THE FINDINGS OF THE LEARNED CIT(A). 10 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY, SEARCH WAS CONDUCTED IN THE PREMISES OF THE ASSESSEE BY THE EXCISE AUTHORITIES ON 15-10-2004 WH EN SHORTAGE OF RAW MATERIALS OF RS.2,25,652/- WAS NOTICED. SINCE T HERE IS NOTHING ON RECORD TO SUGGEST THAT THE SHORTAGE IN RAW MATER IAL RELATED TO THE PERIOD UNDER CONSIDERATION NOR THE LD. DR PLACED BE FORE US ANY SUCH MATERIAL, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LEARNED CIT(A). THEREFORE, GROUND NO.2 IN THE APPEA L OF THE REVENUE FOR THE AY 2001-02 AND GROUND NO.1 IN THEIR APPEAL FOR THE AY 2002- 03 ARE DISMISSED. 11 GROUND NO.3 IN THE APPEAL OF THE REVENUE FOR AY 2001-02 RELATES TO REDUCTION OF GROSS PROFIT ADDITION FROM RS.12,64,203/- TO RS.5,17,410/- WHILE GROUND NOS.2.1 & 2.2 IN THE COR RESPONDING CO FILED BY THE ASSESSEE, RELATES TO UPHOLDING THE ADD ITION TO THE EXTENT OF RS.5,17,410/- AND REJECTION OF BOOKS. SINCE ON T HE BASIS OF INFORMATION COLLECTED FROM THE EXCISE AUTHORITIES, THE AO ADDED UNACCOUNTED INVESTMENT IN PURCHASE OF RAW MATERIAL FOR MANUFACTURING NITRO BENZENE AND SPENT ACID AND AS A LREADY MENTIONED UNACCOUNTED PRODUCTION AND SALE THEREOF W AS ADMITTED BY THE ASSESSEE, THE AO REJECTED THE BOOK RESULTS U/S 145 OF THE ACT AND ADDED AN AMOUNT OF RS.5,75,492/- @ 10.80%(AS DE TERMINED IN PARA 11.1 OF THE ASSESSMENT ORDER) ON THE SALES OF RS.53,28,631/- OUTSIDE THE BOOKS BESIDES AN AMOUNT OF RS.6,88,711/ - ON SALES DISCLOSED IN THE BOOKS, EVEN WHEN THE ASSESSEE REFL ECTED GP @10.10% ON SUCH DISCLOSED SALES. ITA NOS.2100-2422/A/07 & CO NOS.202-203/A/07 12 12. ON APPEAL, THE LEARNED CIT(A) DECIDED THE ISSUE IN THE FOLLOWING TERMS:- 8.1.2 IN THE WRITTEN SUBMISSIONS, IT IS SUBMITTED BY THE A. R. OF THE APPELLANT AS UNDER:- 'THE APPELLANT BEGS TO SUBMIT THAT THE AO HAS MADE MULTIPLE ADDITION IN THIS GROUND OF APPEAL. FIRSTLY, THE AO HAS MADE THE ADDITION OF RS.5,75,492/- BY RECASTING TRADING ACCOUNT. THE AO HAS FAILED TO APPRECIATE THAT IN ORDER TO ARRIVE AT THE ALLEGED U NRECORDED PURCHASES, THE GP RATE OF 10.10% HAS BEEN APPLIED TO THE EXCISABLE VALUE OF THE GOODS IN QUESTION BUT IN ORDER TO MAKE GP ADDITION, AO HAS A PPLIED GP RATE OF 10.80%. THIS INCONSISTENCY HAS ALSO RESULTED INTO T HE GP ADDITION. SECONDLY, THE AO HAS ALSO APPLIED GP RATE OF 10.80% TO THE DECLARED SALES WHICH IS ALSO NOT JUSTIFIED WITHOUT ANY SUPPO RTING MATERIAL OR EVIDENCE. AS REGARD THE GP ADDITION OF RS.6,88,711/- THE APPE LLANT BEGS TO SUBMIT THAT IT IS A DUPLICATION INASMUCH AS THE RECASTED T RADING ACCOUNT ITSELF TAKES CARE OF THE GP RATE AT 10.80% AND HENCE AO OUGHT NO T TO HAVE ONCE AGAIN APPLIED THE SAME TO THE DECLARED SALES AND MADE THI S ADDITION. 8.2 THE SUBMISSIONS OF THE AR OF THE APPELLANT AN D THE OBSERVATIONS OF THE AO IN THE ASSESSMENT HAVE BEEN PERUSED. 8.2.1 IT IS SEEN THAT THE SALES ADMITTED BY THE A PPELLANT ARE RS.1,38,19,880/- AND UNRECORDED SALES AS COMPUTED B Y THE AO ARE AT RS.53,28,631/-. 8.2.2. AS IT COULD BE SEEN THAT THE AO HAS ALSO INC LUDED THE ALLEGED SHORTAGE OF STOCK AT RS.2,25,652/- FOR THE PURPOSE OF COMPUTING GROSS PROFIT. SINCE THE ALLEGED SHORTAGE OF STOCK CANNOT BE TAKEN FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AS DISCUSSED IN PRECEDING PARAS WHILE DELETING THE SAID CAPTIONED ADDITION, THE SAM E ALSO SHOULD NOT BE TAKEN FOR COMPUTATION OF GROSS PROFIT. THEREFORE, T HE AO IS DIRECTED TO COMPUTE G. P, AFTER EXCLUDING RS.2,25,652/- WHICH I S THE ALLEGED SHORTAGE OF STOCK. ACCORDINGLY, THIS STAND OF APPEAL IS PART LY ALLOWED. 13. THE REVENUE IS IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A) REDUCING THE ADDITIO N TO RS.5,17,410/- WHILE THE ASSESSEE IS IN CROSS OBJECTION FOR UPHOLD ING THE ADDITION TO THE EXTENT OF RS.5,17,410/- AND REJECTION OF BOOKS. THE LEARNED DR WHILE CARRYING US THROUGH THE IMPUGNED ORDER SUPPOR TED THE FINDINGS ITA NOS.2100-2422/A/07 & CO NOS.202-203/A/07 13 OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASS ESSEE CONTENDED THAT WITHOUT POINTING OUT ANY DEFECTS IN THE REGULA R BOOKS OF ACCOUNT, THE AO RECAST THE TRADING RESULTS IN PARA 11.1 OF H IS ORDER AND ACCORDINGLY, APPLIED THE ENHANCED GP RATE EVEN TO T HE DISCLOSED SALES. SINCE NO DEFECTS WERE POINTED OUT IN THE REG ULAR BOOKS OF ACCOUNTS, THE AO WAS NOT JUSTIFIED IN MAKING THE AD DITION VIS--VIS THE RESULTS DECLARED IN THE BOOKS AND IN THE TRADIN G ACCOUNT. 14. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. THE LEARNED DR DID NOT PLACE ANY MATERIAL BEFORE US POINTING OUT THE DEFECTS IN THE REGULAR BOOKS OF AC COUNT EXCEPT THE INFORMATION RECEIVED FROM THE EXCISE AUTHORITIES AN D ADMISSION OF THE ASSESSEE BEFORE THEM REGARDING THE UNACCOUNTED CLEARANCE OF NITRO BENZENE AND SPENT ACID. ACCORDINGLY, THE ADDI TION AT THE MOST COULD BE MADE ON ACCOUNT OF UNACCOUNTED INVESTMENT IN PURCHASE AND PROFIT ON SALE OF NITRO BENZENE AND SPENT ACID CLEARED BY THE ASSESSEE WITHOUT PAYMENT OF EXCISE DUTY. THIS IS PR ECISELY WHAT THE LEARNED CIT(A) HAS DONE. ADMITTEDLY, THE RELEVANT D ETAILS SOUGHT BY THE AO WERE NOT FURNISHED NOR THE ASSESSEE CARED TO PRODU CE THE RELEVANT BOOKS AND DOCUMENTS IN THE FACE OF INFORMATION RECEIVED FROM THE EXCISE AUTHORITIES. IN THE LIGHT OF ADMISSION BY THE ASSESSEE BEFORE THE EXCIS E AUTHORITIES IN RESPECT OF CLANDESTINE REMOVAL AND SALE OF NITRO BENZENE AND S PENT ACID AND CONSEQUENT PAYMENT OF EXCISE DUTY, THE LD. CIT(A) UPHELD THE F INDINGS OF THE AO IN REJECTING BOOK RESULTS AND ESTIMATION OF GROSS PROFITS. THE LD. AR ON BEHALF OF THE ASSESSEE DID NOT PLACE ANY MATERIAL BEFORE US ,DIS PUTING THE AFORESAID FINDINGS OF FACTS RECORDED BY THE LOWER AUTHORITIES. IN THESE C IRCUMSTANCES, WE ARE OF THE OPINION THAT ONCE THE ASSESSEE FAILED TO FURNISH TH E RELEVANT DETAILS AND SUBSTANTIATE THE TRADING RESULTS FOR THE RELEVANT PERIOD UNDER CONSIDERATION, IT WAS OPEN TO THE AO AND THE LD. CIT(A) TO REJECT THE BOO K RESULTS AND ESTIMATE THE GROSS PROFIT. IT IS NOT A CASE WHERE BOOKS OF ACCOU NT ARE PROPERLY MAINTAINED AND THE ASSESSING OFFICER HAS SUBSTITUTED HIS OWN ESTIM ATE IGNORING THE BOOKS OF ACCOUNT, WITHOUT GIVING ANY REASONS OR OPPORTUNITY. IT MAY BE OBSERVED UNDER THE ITA NOS.2100-2422/A/07 & CO NOS.202-203/A/07 14 CIRCUMSTANCES THAT IT IS DIFFICULT TO CATALOGUE VAR IOUS TYPES OF DEFECTS IN THE ACCOUNT BOOKS OF AN ASSESSEE WHICH MAY RENDER REJEC TION OF ACCOUNTS ON THE GROUND THAT ACCOUNTS ARE NOT COMPLETE AND FROM WHIC H THE CORRECT PROFIT CANNOT BE DEDUCED.. IN THE CASE UNDER CONSIDERATION, DESPI TE SUFFICIENT OPPORTUNITY ALLOWED BY THE AO, THE ASSESSEE DID NOT PRODUCE T HE RELEVANT BOOKS/DOCUMENTS SOUGHT BY THE AO. INDISPUTABLY, RECORDS/DETAILS SOU GHT BY THE AO WERE NOT PRODUCED. IN THESE CIRCUMSTANCES, ESPECIALLY WHEN THE ASSESSEE ADMITTED BEFORE THE EXCISE AUTHORITIES CLANDESTINE REMOVAL AND SALE OF NITRO BENZENE AND SPENT ACID AND CONSEQUENT PAYMENT OF EXCISE DUTY, W E HOLD THAT THE LD. CIT(A) IS QUITE JUSTIFIED IN UPHOLDING THE FINDINGS OF THE AO IN REJECTING THE BOOK RESULTS, HAVING RECOURSE TO PROVISIONS OF SEC.145(3) OF THE ACT THIS VIEW OF OURS IS ALSO FORTIFIED BY THE DECISION OF HONBLE ORISSA HIGH CO URT IN THE CASE OF RATANLAL OMPRAKASH VS. CIT,132 ITR 640(ORISSA), AWADHESH PRA TAPSINGH ABDUL RAHEMAN & BROS VS CIT (1994) 210 ITR406(ALL) AND DE CISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. KY PILLIAH AN D SONS, 63 ITR 411(SC). 14.1 AS REGARDS ESTIMATION OF PROFITS, NO DOUBT THE AO/CIT(A) SHOULD TRY TO MAKE AN HONEST AND FAIR ESTIMATE OF THE INCOME EVEN IN A BEST JUDGMENT ASSESSMENT AND SHOULD NOT ACT TOTALLY ARBITRARILY, BUT THERE IS NECESSARILY SOME AMOUNT OF GUESS WORK INVOLVED IN A BEST JUDGMENT AS SESSMENT, AND IT IS THE ASSESSEE HIMSELF WHO IS TO BLAME AS HE DID NOT SUBM IT PROPER ACCOUNTS AND DETAILS.[ KACHWALA GEMS VS JCIT, 288 ITR 10 (2007)( SC) ]. SINCE THE ASSESSEE DID NOT SUBSTANTIATE THE TRADING RESULTS WITH COG ENT EVIDENCE BEFORE THE AO OR THE LD. CIT(A) NOR EVEN ANY MATERIAL HAS BEEN PLAC ED BEFORE US SO AS TO TAKE A DIFFERENT VIEW IN THE MATTER, WE DO NOT FIND ANY IN FIRMITY IN THE FINDINGS OF THE LEARNED CIT(A) WHILE UPHOLDING REJECTION OF BOOK RE SULTS AND SUSTAINING THE ADDITION TO THE AFORESAID EXTENT ON UNDISCLOSED SAL ES . THEREFORE, GROUND NO.3 IN THE APPEAL OF THE REVENUE FOR AY 2001-02 AN D GROUND NOS.2.1 & 2.2 IN THE CO FILED BY THE ASSESSEE ARE REJECTED. 15. GROUND NO.4 IN THE APPEAL OF THE REVENUE FOR TH E AY 2001-02 AND GROUND NO.2 IN THE APPEAL FOR THE AY 2002-03 RE LATE TO ITA NOS.2100-2422/A/07 & CO NOS.202-203/A/07 15 ASSESSMENT OF INCOME UNDER THE HEAD BUSINESS INSTEA D OF OTHER SOURCES. AS A RESULT OF INFORMATION FROM THE EXCISE DEPARTMENT, THE AO ASSESSED THE ENTIRE INCOME UNDER SECTION 69 OF T HE ACT AND NOT UNDER THE HEAD BUSINESS OR PROFESSION. 16. ON APPEAL, THE LEARNED CIT(A) CONCLUDED THAT SI NCE THE INCOME ASSESSED RELATED TO THE BUSINESS OF THE ASSESSEE, THE AMOUNT HAD TO BE ASSESSED AS BUSINESS INCOME. 17. THOUGH THE REVENUE HAVE RAISED A GROUND IN THES E TWO ASSESSMENT YEARS, THE LEARNED DR DID NOT MAKE EVEN A WHISPER ON THE ISSUE RAISED IN THESE GROUNDS WHILE THE LD. AR SUPPORTED THE FINDINGS OF THE LD. CIT(A). SINCE THE REVENUE HAVE NOT PLACED ANY MATERIAL BEFORE US SO AS TO ENABLE US TO TAKE A DIF FERENT VIEW IN THE MATTER NOR EVEN PRESSED THE ISSUE BEFORE US, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LEARNED CIT(A). CONSEQUENTLY, GROUND NO.4 IN THE APPEAL OF THE REVENUE FOR THE A Y 2001-02 AND GROUND NO.2 IN THEIR APPEAL FOR THE AY 2002-03 ARE DISMISSED. 18. GROUND NO.1.1 IN THE CO OF THE ASSESSEE FOR THE AY 2001-02 RELATES TO THE ADDITION OF RS.8,33,373/-. AS PER AN NEXURE A-2 OF THE PANCHNAMA PREPARED BY THE EXCISE AUTHORITIES, THE A SSESSEE ILLEGALLY CLEARED HYDROZO BENZENE AS PER FOLLOWING DETAILS EXTRACTED FROM PARA 8.1 OF THE ASSESSMENT ORDER :- SR. NO. NAME OF THE INPUT QUANTITY / BATCH (KGS.) RATE/KG AS PER ASSESSEE (RS.) RATE/KG AS PER RECORDS (RS.) VALUE REMARKS 1 NITRO BENZENE 1250 16 16 2000 2 METHANOL 735 10 10 7350 3 CAUSTIC FLAKES 350 14 14 4900 4 DYUCLONE 10 105 105 1050 5 FORMALDEHYDE 2200 5 7.6 16720 AS PER INVOICES OF M/S EXPRESS ITA NOS.2100-2422/A/07 & CO NOS.202-203/A/07 16 CHEMICAL CORP., AHMEDABAD IN STATEMENT DATED 2-11- 2004 OF SHRI CHIRAG R SHAH 6 SALT 500 0.5 0.5 250 TOTAL 50270 (+) MANUFACTURING COST @ 15% 7541 TOTAL 57811 YIELD OF HYDROZO BENZENE COMES TO 0.45 OF NITRO BENZENE QUANTITY MANUFACTURED PER BATCH = 1250 X 0.45 I.E. 562.5 KGS TOTAL QUANTITY OF HYDROZO BENZENE MANUFACTURED = 56 2.5 X 16 9000 KGS TOTAL VALUE = 16875 X 103 RS.9,27,000.00 DUTY INVOLVED = RS.1,48,320.00 TO A QUERY BY THE AO, SEEKING TO ADD AN AMOUNT OF R S.9,27,000/- ON ACCOUNT OF UNACCOUNTED SALE OF HYDROZO BENZENE AND THE PROFIT THEREON, THE ASSESSEE REPLIED THAT SINCE HE HAD RET RACTED THE STATEMENT BEFORE THE EXCISE AUTHORITIES AND THE MAT TER WAS PENDING BEFORE THE JOINT COMMISSIONER, EXCISE & CUSTOMS NO ADDITION COULD BE MADE. HOWEVER, THE AO REJECTED THE CONTENTIONS O F THE ASSESSEE ON THE GROUND THAT - I. THE ASSESSEE COMPANY MANUFACTURED AND CLEARED I LLICITLY AND CLANDESTINELY HYDROZO BENZENE ON WHICH EXCISE DUTY LIABILITY HAD NOT DISCHARGED AS ADMITTED BY SHRI BARIN M. SHAH, DIREC TOR OF THE ASSESSEE COMPANY IN HIS STATEMENT DATED 3/11/2004 DURING THE COURSE OF INVESTIGATION BY THE EXCISE AUTHORITIES; ITA NOS.2100-2422/A/07 & CO NOS.202-203/A/07 17 II. HYDROZO BENZENE ILLICITLY AND CLANDESTINELY HAD NOT BEEN ACCOUNTED FOR IN R.G. 1 REGISTER/DAILY STOCK ACCOUNT REGISTER , III. THE EXCISE DUTY WORKED OUT ON THE AMOUNT OF I LLICIT CLEARANCE OF HYDROZO BENZENE HAS BEEN PAID BY THE ASSESSEE; IV. THE RETRACTION OF STATEMENT BEFORE THE JOINT CO MMISSIONER OF EXCISE AND CUSTOMS, AS CLAIMED BY THE ASSESSEE IN THE SUBM ISSIONS IS NOT CONSIDERED BECAUSE, THE ASSESSEE FAILED TO FURNISH ANY COGENT EVIDENCE CONTRARY TO THE FACTS ADMITTED IN THE STATEMENT BY MR. SHAH DURING THE ASSESSMENT PROCEEDINGS AND THUS, IT HAS FAILED TO D ISCHARGE ITS ONUS; V. THE ASSESSEE DID NOT PRODUCE THE BOOKS OF ACCOUN TS, PURCHASE BILLS, SALE BILLS, DOCUMENTS, PAPERS AND EXCISE RECORDS FO R VERIFICATION DURING THE COURSE OF ASSESSMENT PROCEEDINGS DESPITE SUFFICIEN T OPPORTUNITY; VI. THE ASSESSEE DID NOT FURNISH THE COMPLETE DETAILS AS REQUIRED VIDE QUESTIONNAIRE DATED 23-08-2006; AND VII. BY DELIBERATELY NOT PRODUCING THE BOOKS O F ACCOUNTS, PURCHASE BILLS, SALE BILLS, DOCUMENTS, PAPERS AND EXCISE RECORDS FOR VERIFICATION AND BY NOT FURNISHING THE REQUIRED DET AILS, THE ASSESSEE PREVENTED THE DEPARTMENT FROM CONDUCTING ENQUIRES A ND INVESTIGATION LEADING TO THE CONCLUSION THAT THAT THE ASSESSEE I NDULGED IN ILLICIT MANUFACTURE AND REMOVAL OF EXCISABLE GOODS TO VARIO US PARTIES WITHOUT PAYMENT OF APPROPRIATE CENTRAL EXCISE DUTY AND WITH OUT FOLLOWING ANY PROCEDURE PRESCRIBED UNDER THE CENTRAL EXCISE ACT, 1994 AND RULES MADE THERE-UNDER. 18.1 ACCORDINGLY, WHILE RELYING ON THE DECISIO NS IN CIT V. MOTOR GENERAL FINANCE LTD. (2002) 254 ITR 449 (DELHI), DR. S.C. G UPTA VS. CIT 248 ITR 782 (ALL.)AND HIRA SINGH AND CO. VS. CIT(1998)230 ITR 7 91(HP),THE AO ADDED AN AMOUNT OF RS.8,33,373/- ON ACCOUNT OF UNEXPLAINED I NVESTMENT IN PURCHASE OF RAW MATERIAL UTILIZED IN MANUFACTURE O F HYDROZO BENZENE. 19. ON APPEAL, THE LEARNED CIT(A) UPHELD THE ADDITI ON MERELY OBSERVING THAT THE APPELLANTS SUBMISSION IS NOT CONVINCING WITH REGARD TO ALLEGED PURCHASES. THE FINDINGS OF THE LD. CIT(A) READ AS UNDER:- ITA NOS.2100-2422/A/07 & CO NOS.202-203/A/07 18 5.2.1 HAVING PERUSED THE SUBMISSIONS OF THE AR AND ALSO THE OBSERVATIONS MADE BY THE AO, IT IS SEEN THAT THE AP PELLANTS SUBMISSION IS NOT CONVINCING WITH REGARD TO ALLEGED PURCHASES. TH EREFORE, THE ADDITION MADE BY THE AO IN THIS REGARD IS CONFIRMED. 20. THE ASSESSEE IN THEIR CROSS OBJECTION IS DISPUT ING THE AFORESAID FINDINGS OF THE LEARNED CIT(A) BEFORE US. THE LEARN ED AR ON BEHALF OF THE ASSESSEE CONTENDED THAT THE RAW MATERIAL FOR MANUFACTURING HYDROZO BENZENE WAS NITRO BENZENE AND EVEN IF ANY S UCH CHEMICAL WAS MANUFACTURED IT WAS UTILIZED BY THE ASSESSEE AN D NOT SOLD. ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE FINDIN GS OF THE LEARNED CIT(A). 21. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. AS IS APPARENT FROM THE IMPUGNED ORDER, T HE LD. CIT(A) WHILE UPHOLDING THE ADDITION, MERELY OBSERVED THAT THE ASSESSEES SUBMISSION IS NOT CONVINCING WITH REGARD TO ALLEGED PURCHASES. A MERE GLANCE AT THE IMPUGNED ORDER REVEALS THAT THE ORDER PASSED BY THE LD. CIT(A) IS CRYPTIC AND GROSSLY VIOLATIVE OF ONE OF THE FACETS OF THE RULES OF NATURAL JUSTICE, NAMELY, THAT EVERY JUDICIAL/QUASI- JUDICIAL BODY/AUTHORITY MUST PASS REASONED ORDER, WHICH SHOULD REFLECT APPLICATION OF MIND BY THE CONCERNED AUTHORITY TO THE ISSUES/POINTS RAISED BEFORE IT. TH E APPLICATION OF MIND TO THE MATERIAL FACTS AND THE ARGUMENTS SHOULD MANIFEST IT SELF IN THE ORDER. SECTION 250(6) OF THE INCOME TAX ACT ,1961 MANDATES THAT TH E ORDER OF THE CIT(A) WHILE DISPOSING OF THE APPEAL SHALL BE IN WRITING AND SHA LL STATE THE POINTS FOR DETERMINATION, THE DECISION THEREON AND THE REASON FOR THE DECISION. THE REQUIREMENT OF RECORDING OF REASONS AND COMMUNICATI ON THEREOF HAS BEEN READ AS AN INTEGRAL PART OF THE CONCEPT OF FAIR PROCEDUR E. THE REQUIREMENT OF RECORDING OF REASONS BY THE QUASI-JUDICIAL AUTHORITIES IS AN IMPORTANT SAFEGUARD TO ENSURE OBSERVANCE OF THE RULE OF LAW. IT INTRODUCES CLARIT Y, CHECKS THE INTRODUCTION OF EXTRANEOUS OR IRRELEVANT CONSIDERATIONS AND MINIMIZ ES ARBITRARINESS IN THE DECISION-MAKING PROCESS. WE MAY REITERATE THAT A D ECISION DOES NOT MERELY MEAN THE CONCLUSION. IT EMBRACES WITHIN ITS FOLD THE REASONS FORMING BASIS FOR ITA NOS.2100-2422/A/07 & CO NOS.202-203/A/07 19 THE CONCLUSION.[MUKHTIAR SINGH VS. STATE OF PUNJAB, (1995)1SCC 760(SC)]. AS IS APPARENT, THE IMPUGNED ORDER SUFFERS FROM LACK OF R EASONING AND IS NOT A SPEAKING ORDER. IN VIEW OF THE FOREGOING, ESPECIA LLY WHEN THE LD. CIT(A) HAS NOT PASSED A SPEAKING ORDER ON THE ISSUE RAISED IN TH IS CO, WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A ) AND RESTORE THE MATTER TO HIS FILE FOR DECIDING THE ISSUE RELATING TO ADDITION OF RS.8,33,373/- AFRESH IN ACCORDANCE WITH LAW, AFTER ALLOWING SUFFICIENT OPPO RTUNITY TO BOTH THE PARTIES. NEEDLESS TO SAY THAT WHILE REDECIDING THE APPEAL, T HE LEARNED CIT(A) SHALL PASS A SPEAKING ORDER, KEEPING IN MIND, INTER ALIA, THE MA NDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT. WITH THESE OBSERVATIONS, GROUND NO. 1.1 IN THE CO OF THE ASSESSEE FOR AY 2001-02 IS DISPOSED OF. 22. NEXT GROUND NOS.1.1 AND 1.2 IN THE CO FOR THE AY 2002-03 RELATE TO ADDITION OF RS.1,50,500/-.THE AO NOTICED DURING THE RE- ASSESSMENT PROCEEDINGS FROM ANNEXURE-B TO THE PANCH NAMA PREPARED BY THE EXCISE AUTHORITIES THAT THE ASSESSE E FORGED INVOICES ON WHICH CENVAT CREDIT WAS AVAILED BY THE ASSESSEE AS PER FOLLOWING DETAILS EXTRACTED IN PARA 9.1 OF THE ASSE SSMENT ORDER: SR. NO. INVOICE NO. DATE NAME OF THE PARTY DESCRIPTION OF GOODS QUANTITY VALUE DUTY 1 22 01-07-01 M/S SAI AMINES PVT. LTD. METANILIC ACID 1650 61875 9900 2 42 03-04-00 -DO- METANILIC ACID 900 33750 5400 3 48 05-07-01 -DO- METANILIC ACID 950 35625 5700 4 66 20-09-01 -DO- METANILIC ACID 550 19250 3080 4050 150500 24080 IN RESPONSE TO A SHOW CAUSE NOTICE DATED 16-11-2006 ISSUED BY THE AO, SEEKING TO ADD UNEXPLAINED INVESTMENT IN PURCHA SE OF MATERIAL ITA NOS.2100-2422/A/07 & CO NOS.202-203/A/07 20 FOR RS.1,50,500/-, THE ASSESSEE REPLIED THAT THE CH EMICALS WERE PURCHASED FROM M/S SAI AMINES P. LTD. SINCE THEIR B ILLS WERE RECORDED IN THE BOOKS AND PAYMENT WAS MADE BY ACCOU NT PAYEE CHEQUE, THERE WAS NO GROUND FOR MAKING THE ADDITION , THE REPRESENTATIVE OF ASSESSEE PLEADED. IT WAS POINTED OUT THAT THE SALES-TAX AUTHORITIES HAD ACCEPTED THE SALES AND PU RCHASES. HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF T HE ASSESSEE ON THE GROUND THAT THE ENQUIRIES MADE BY THE EXCISE DE PARTMENT REVEALED THAT M/S SAI AMINES PVT. LTD. DID NOT ISSU E ANY INVOICE NOR SOLD ANY GOODS TO THE ASSESSEE. ACCORDINGLY, THE AO CONCLUDED THAT THE ASSESSEE INFLATED THE PURCHASES TO REDUCE THE P ROFIT AND THEREFORE, ADDED THE AMOUNT OF RS.1,50,500/-. 23. ON APPEAL, THE LEARNED CIT(A) UPHELD THE FINDIN GS OF THE AO IN THE FOLLOWING TERMS:- 5.2.1 IT IS SEEN THAT THE SIMILAR ISSUE WAS ALSO I NVOLVED IN THE APPELLANTS OWN CASE FOR AY 2001-02. THEREFORE, IN VIEW OF THE FINDINGS GIVEN BY THE UNDERSIGNED IN THE APPELLANTS CASE FOR AY 2001-02, THE ADDITION MADE BY THE AO IS HEREBY CONFIRMED. THUS, THIS GROUND OF AP PEAL IS DISMISSED. 24. THE ASSESSEE IN THEIR CROSS OBJECTION IS NOW D ISPUTING THE AFORESAID FINDINGS OF THE LEARNED CIT(A) BEFORE US. THE LEARNED AR ON BEHALF OF THE ASSESSEE REITERATED THEIR SUBMISSI ONS BEFORE THE LEARNED CIT(A) WHILE THE LEARNED DR SUPPORTED THE F INDINGS OF THE LEARNED CIT(A). 25. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE. AS IS APPARENT FROM THE AFORESAID FINDING S, THE LD. CIT(A) MERELY FOLLOWED HIS DECISION FOR THE AY 2001-02. WH ILE UPHOLDING THE ADDITION TO THE EXTENT OF RS.14,54,724/- IN THE AY 2001-02, THE LD. CIT(A) FOUND THAT M/S SAI AMINES P LTD. DENIED TO HAVE ISSUED ANY INVOICE TO THE ASSESSEE WHILE M/S PRITI CHEMICALS W AS FOUND TO BE CLOSED SINCE DECEMBER,2000.SINCE THE ASSESSEE DID N OT PRODUCE ITA NOS.2100-2422/A/07 & CO NOS.202-203/A/07 21 ANY CORROBORATIVE EVIDENCE BEFORE THE LD. CIT(A) TH AT PURCHASES FROM THESE PARTIES WERE GENUINE OR EVEN RECORDED IN THE BOOKS, THE LD. CIT(A) UPHELD THE FINDINGS OF THE AO. SINCE THE ASSESSEE HAS NOT DISPUTED THESE FINDINGS OF THE LD. CIT(A) IN THE AY 2001-02 IN FURTHER APPEAL AND CONSEQUENTLY, THESE FINDINGS HAVING BECO ME FINAL WHILE THE ASSESSEE DID PRODUCE ANY MATERIAL BEFORE US I N THE YEAR UNDER CONSIDERATION SO AS TO ENABLE US TO TAKE A DIFFEREN T VIEW IN THE MATTER, WE ARE NOT INCLINED TO INTERFERE WITH THE F INDINGS OF THE LD. CIT(A) FOR THE YEAR UNDER CONSIDERATION. THEREFORE, GROUND NOS.1.1 AND 1.2 IN THE CO FOR THE AY 2002-03 ARE DISMISSED . 26. GROUND NOS.5 AND 6 IN THE APPEAL OF THE REVENUE FOR THE AY 2001-02 AND GROUND NOS.3 AND 4 IN THEIR APPEAL FOR THE AY 2002-03 BEING MERE PRAYER NOR ANY SUBMISSIONS HAVING BEEN M ADE, DO NOT REQUIRE ANY SEPARATE ADJUDICATION AND ARE, THEREFOR E DISMISSED. 27. IN THE RESULT, APPEAL FILED BY THE REVENUE FOR THE AY 2001-02 AND THE CORRESPONDING CO BY THE ASSESSEE, ARE PART LY ALLOWED FOR STATISTICAL PURPOSES WHILE APPEAL OF THE REVENUE F OR THE AY 2002-03 AND CORRESPONDING CO ARE DISMISSED . ORDER PRONOUNCED IN THE COURT TODAY ON 11-02-2011 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 11-02-2011 COPY OF THE ORDER FORWARDED TO: 1. PANCHAMRUT CHEMICALS PRIVATE LTD., 709-710, HAR IKRUPA TOWER, NR. OLD SHARDA MANDIR CROSS LANE, ELLIS-BRID GE, AHMEDABAD 2. ITO, WARD-5(2), AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XI, AHMEDABAD ITA NOS.2100-2422/A/07 & CO NOS.202-203/A/07 22 5. DR, ITAT, AHMEDABAD BENCH-A, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD