Sumilon Industries Limited, Surat V. The ACIT, Circle-4, Surat

ITA 2372/AHD/2015

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 2258 (ITAT-SURAT)
• Duration Of Justice: 2 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 10-08-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R P RASTOGI
• Assessee Lawyers: SANJAY KAPADIA
• Keywords: Unexplained expenditure; Business expenditure
• Section: 37; 69C; 250

Judgement Text

SUMILON INDUSTRIES LTD. V. DCIT-4-SURAT/ITA.NO.2618/AHD/2014, 2372/AHD/2015 & 2156/AHD/2016/AY:10-11 TO 12-13 PAGE 1 OF 17 , , IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT . . , . . , BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER . . ./ I.T.A NO.2618/AHD/2014/SRT I.T.A.NO. 2372/AHD/2015/SRT & I.T.A.NO. 2156/AHD/2016/SRT / A.Y.:2010-11, A.Y. 2011-12, & A.Y. 2012-13 M/S. SUMILON INDUSTRIES LTD. 6/121/A, VAIRAGINI WADI, DELHI GATE, SURAT - 395003. [PAN: AADCS 3567 L] V S . DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE -4 , SURAT APPELLANT /RESPONDENT /ASSESSEE BY SHRI SANJAY KAPADIA, CA /REVENUE BY SHRI R. P. RASTOGI, SR. D.R. / DATE OF HEARING: 03.08.2018 /PRONOUNCEMENT ON 30 . 08.2018 /O R D E R PER O. P. MEENA, ACCOUTANT MEMBER: 1. THESE ARE THREE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE SEPARATE ORDERS OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, SURAT (IN SHORT THE CIT (A)) DATED 17.07.2014, 06.06.2015, AND 02.07.2016 PERTAINING TO ASSESSMENT YEARS 2010- 11, 2011-12 AND 2012-13 RESPECTIVELY. SUMILON INDUSTRIES LTD. V. DCIT-4-SURAT/ITA.NO.2618/AHD/2014, 2372/AHD/2015 & 2156/AHD/2016/AY:10-11 TO 12-13 PAGE 2 OF 17 2. THESE APPEAL WERE HEARD TOGETHER HENCE, BEING DISPOSED-OFF BY THIS COMMON ORDER. I.T.A.NO. 2618/AHD/2014/SRT; A.Y. 2010-11 3. GROUND NO. 1 STATES THAT LD. CIT (A) HAS ERRED IN SUSTAINING THE ADDITION OF RS.31,37,478/- AS MADE BY THE AO CONSIDERING THE DIRECTORS STUDY EXPENSES AS NON- ALLOWABLE EXPENSES UNDER SECTION 37 OF THE ACT. 4. BRIEF FACTS ARE THAT THE ASSESSEE HAS DEBITED IN PROFIT & LOSS ACCOUNT EXPENSES OF RS.4,65,118/- ON SHRI JIGNESH M JARIWALA, SON OF SHRI MAHESH JARIWALA , CHAIRMAN OF THE ASSESSEE COMPANY, AND RS.26,72,360/- ON SHRI ASHOK J. JARIWALA SON OF SHRI JITENDRA JARIWALA, DIRECTOR OF THE COMPANY ON THEIR FOREIGN STUDY. IT WAS CONTENDED THAT BOTH THE DIRECTORS HAVE JOINED THE ASSESSEE COMPANY AFTER COMPLETING THEIR COURSES AND HAVE CONTRIBUTED IN INCREASING THE TURNOVER AND MARGINS OF THE ASSESSEE COMPANY. THE ASSESSEE ALSO QUOTED DECISION IN THE CASE OF JHALANI HOLDING PVT. LTD. V. ITO [1992] 42 TTJ(DEL)116 ETC. HOWEVER, THE AO HAS RELIED IN THE CASE OF CIT V. HINDUSTAN HOSIERY INDUSTRIES [1994] 209 ITR 383 ((BOMBAY) WHEREIN IT WAS HELD THAT EXPENSES INCURRED ON HIGHER STUDIES ONE OF PARTNERS OF THE FIRM FOR DEGREE IN BUSINESS MANAGEMENT CANNOT BE SAID TO HAVE BEEN INCURRED IN RELATION TO SUMILON INDUSTRIES LTD. V. DCIT-4-SURAT/ITA.NO.2618/AHD/2014, 2372/AHD/2015 & 2156/AHD/2016/AY:10-11 TO 12-13 PAGE 3 OF 17 THE BUSINESS OF THE ASSESSEE FIRM AND IT HAS NO NEXUS WITH BUSINESS OF THE ASSESSEE. THE AO FURTHER PLACED RELIANCE IN THE CASE OF M.S. SUBRAMANIAM BROS. V. CIT [2001] 250 ITR 769(MAD) /119 TAXMAN 600 (MAD) WHEREIN THE HIGH COURT HAS HELD THAT THE FACT THAT ONE OF THE SONS V WAS SENT ABROAD FOR FURTHER STUDY, COULD NOT BE REGARDED AS A DEPUTATION MADE BY THE FIRM OF ONE OF ITS PARTNERS IN CONNECTION WITH THE BUSINESS OF THE FIRM. IT WAS IN SUBSTANCE, ONLY A STEP TAKEN BY THE FATHER WHO WAS NATURALLY INTERESTED IN GIVING THE BEST POSSIBLE EDUCATION TO HIS SON, AND HAD SENT HIM ABROAD TO GET A HIGHER DEGREE AFTER HE COMPLETED HIS B.COM. AND M. COM.IN INDIA. IN THE CASE OF R.K.K.R. STEELS (P) LTD. [2002] 258 ITR 306 (MAD) 131 TAXMAN 830 (MAD) HELD THAT THE EXPENDITURE ON FOREIGN EDUCATION OF THE SON OF A DIRECTOR OF THE ASSESSEE COMPANY INCURRED ON THE EDUCATION OF THE SON OF THE DIRECTOR ABROAD COULD NOT BE REGARDED AS BUSINESS EXPENDITURE MERELY BECAUSE THE SON SUBSEQUENTLY BECOME A DIRECTOR AND TOOK PART IN THE BUSINESS. FURTHERMORE, THE AO OBSERVED THAT A SIMILAR DISALLOWANCE OF STUDY EXPENSES OF SON OF THE DIRECTORS WAS DISALLOWED BY THE SETTLEMENT COMMISSION IN ITS ORDER UNDER SECTION 245D (4)OF THE ACT DATED 29.03.2012 IN THE ASSESSEE`S OWN CASE FOR THE A.Y. 2007-08 AND SUMILON INDUSTRIES LTD. V. DCIT-4-SURAT/ITA.NO.2618/AHD/2014, 2372/AHD/2015 & 2156/AHD/2016/AY:10-11 TO 12-13 PAGE 4 OF 17 A.Y. 2008-09. ACCORDINGLY, THE AO MADE DISALLOWANCE OF RS.31,37,478/- UNDER SECTION 37 OF THE ACT. 5. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT (A). THE CIT (A) OBSERVED THAT IT IS NOT THE POLICY OF COMPANY TO SEND EMPLOYEES FOR FURTHER STUDY AND NO OTHER EMPLOYEES HAS EVER BEEN SENT ABROAD. IT IS FURTHER NOTED THAT THERE IS NO APPRECIABLE CHANGE IN THE TURNOVER OF THE COMPANY ON JOINING OF COMPANY ON RETURN OF THE DIRECTORS AND ON JOINING THE COMPANY AFTER RETURN FROM FOREIGN STUDY. THE TURNOVER IN FACT DECLINED IN FINANCIAL YEAR 2011-12. CONSIDERING, THESE FACTS, THIS GROUND OF APPEAL WAS DISMISSED. 6. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LD. A.R. FILED COPIES OF FORM NO. 32 (PB 1-8) AND SUBMITTED THAT BOTH SHRI JIGNESH AND SHRI ALOK WERE DIRECTORS IN THE COMPANY FROM 2004 AND 2007 RESPECTIVELY. THEREFORE, THE EXPENDITURE INCURRED ON FOREIGN STUDY OF DIRECTORS IS ALLOWABLE AS DEDUCTION UNDER SECTION 37 OF THE ACT. THE LD. A.R. PLACE RELIANCE IN THE CASE OF CIT V. NATWARLAL TRIBHOVANDAS [1973] 87 ITR 703 (GUJARAT) AND KOSTUB INVESTMENT LTD. V. CIT [2014] 45 TAXMANN.COM 123 (DELHI) IN WHICH IT WAS HELD THAT WHERE SUMILON INDUSTRIES LTD. V. DCIT-4-SURAT/ITA.NO.2618/AHD/2014, 2372/AHD/2015 & 2156/AHD/2016/AY:10-11 TO 12-13 PAGE 5 OF 17 EXPENDITURE ON HIGHER EDUCATION OF EMPLOYEES HAD AN INTIMATE AND DIRECT CONNECTION WITH THE ASSESSEE `S BUSINESS, IT WOULD BE APPROPRIATELY DEDUCTIBLE, EVEN THOUGH SUCH AN EMPLOYEE WAS SON OF A DIRECTOR. 7. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE, RELIED ON THE ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE HAS NOT BROUGHT ON RECORD ANY MATERIAL BY WHICH IT CAN BE ESTABLISHED THAT EXPENDITURE YIELDED ANY GAINS TO THE ASSESSEE COMPANY AND IT WAS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT DECISION IN NATWALAL`S CASE (SUPRA) RELIED BY THE LEARNED A. R. WAS ON DIFFERENT ISSUE WHEREIN THE FIRM HAD SENT A PARTNER ABROAD FOR HIGHER EDUCATION AND THE ISSUE WAS AS TO WHETHER HE CAN BE SAID TO BE, ACTIVELY ENGAGED IN THE CONDUCT OF THE BUSINESS OF OCCURRING IN SECTION 2 (7) (III) (B) OF FINANCE ACT NO.2 OF 1962. ON THE OTHER HAND, THE JUDGEMENTS RELIED BY THE AO AND CIT(A) ARE DIRECTLY ON THE ISSUE INVOLVED IN THE PRESENT CASE. IN THE CASE OF CIT V. HINDUSTAN HOSIERY INDUSTRIES [1994] 209 ITR 383 ((BOMBAY) IT WAS HELD THAT SUMILON INDUSTRIES LTD. V. DCIT-4-SURAT/ITA.NO.2618/AHD/2014, 2372/AHD/2015 & 2156/AHD/2016/AY:10-11 TO 12-13 PAGE 6 OF 17 EXPENSES INCURRED ON HIGHER STUDIES ONE OF PARTNERS OF THE FIRM FOR DEGREE IN BUSINESS MANAGEMENT CANNOT BE SAID TO HAVE BEEN INCURRED IN RELATION TO THE BUSINESS OF THE ASSESSEE FIRM AND IT HAS NO NEXUS WITH BUSINESS OF THE ASSESSEE. SIMILARLY, THE ISSUE INVOLVED IN THE CASE OF SUBRAMANIAN BROS(SUPRA), IN WHICH SON OF A PARTNER WAS SENT ABROAD FOR EDUCATION AND THE COURT HAD HELD THAT THE SAME IS NOT ALLOWABLE DEDUCTION. IN THE CASE OF R.K.K.R. STEELS (P) LTD. [2002] 258 ITR 306 (MAD) 131 TAXMAN 830 (MAD) IT WAS HELD THAT THE EXPENDITURE ON FOREIGN EDUCATION OF THE SON OF A DIRECTOR OF THE ASSESSEE COMPANY INCURRED ON THE EDUCATION OF THE SON OF THE DIRECTOR ABROAD COULD NOT BE REGARDED AS BUSINESS EXPENDITURE MERELY BECAUSE THE SON SUBSEQUENTLY BECOME A DIRECTOR AND TOOK PART IN THE BUSINESS. WE FURTHER FIND THAT THE SETTLEMENT COMMISSION VIDE ITS ORDER UNDER SECTION 245D (4) IN PARA 14.1, HAS OBSERVED THAT WE ARE OF THE OPINION THAT THE EXPENDITURE CLAIMED BY THE APPLICANT FOR THE EDUCATION OF SHRI JIGNESH AND SHRI ALOK IN ASSESSMENT YEAR 2007-08 AND 2008-09 CANNOT BE ALLOWED AS BUSINESS EXPENDITURE. AS THE CASES RELIED UPON BY THE DEPARTMENT DIRECTLY COVER THE ISSUE ITS FAVOUR. WE FURTHER FIND THAT IT IS NOT THE CASE OF THE ASSESSEE, WHERE THE ASSESSEE HAD A SCHEME OF SENDING PEOPLE ABROAD FOR TRAINING WITH SUMILON INDUSTRIES LTD. V. DCIT-4-SURAT/ITA.NO.2618/AHD/2014, 2372/AHD/2015 & 2156/AHD/2016/AY:10-11 TO 12-13 PAGE 7 OF 17 THE STIPULATION THAT AFTER RECEIVING THE BENEFIT OF TRAINING, THEY WOULD WORK FOR THE COMPANY. WE FURTHER FIND THAT CIT(A) HAS NOTED THAT AFTER JOINING BY THESE DIRECTORS TO THE COMPANY, THERE WAS DECLINE IN THE TURNOVER OF THE COMPANY RATHER TO INCREASE IN THE TURNOVER OF THE COMPANY. THEREFORE, EXPENDITURE IS NOT INCURRED FOR THE PURPOSE OF BUSINESS. HENCE, WE DO NOT FIND ANY FAULT WITH THE ORDER OF AUTHORITIES BELOW. FURTHERMORE, THE HONOURABLE HIGH COURT IN THE CASE OF ASSESSEE IN PARA 26 OF ITS ORDER IN THE CASE OF SUMILON INDUSTRIES LTD. V. INCOME TAX SETTLEMENT COMMISSION [SPECIAL CIVIL APPLICATION NO. 13218 OF 2013 DATED 05.07.2017] HAS OBSERVED AS THE THIRD AND LAST ISSUE PERTAINS TO THE EXPENDITURE OF RS.39.20 LACS TOWARDS HIGHER STUDIES EXPENSES OF THE DIRECTORS OF THE COMPANY. SECTION 37 GRANTS DEDUCTION OF ANY EXPENDITURE EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE HIGHER EDUCATION OF THE PARTNER OF A FIRM OR DIRECTOR OF THE COMPANY MAY HAVE DIFFERENT PARAMETERS AND RAMIFICATION. IN A CASE IF IT IS AIMED AT IMPROVING THE EFFICIENCY OF THE FIRM FOR THE PERSON CONCERNED IS EXPECTED TO CONTRIBUTE BETTER WITH THE ACQUISITION FURTHER KNOWLEDGE, IT MAY BE OPEN FOR THE ASSESSEE TO CLAIM THE DEDUCTION. HOWEVER, SIMPLY BECAUSE A DIRECTOR IS SENT ABROAD FOR SUMILON INDUSTRIES LTD. V. DCIT-4-SURAT/ITA.NO.2618/AHD/2014, 2372/AHD/2015 & 2156/AHD/2016/AY:10-11 TO 12-13 PAGE 8 OF 17 FURTHER EDUCATION, BY ITSELF WOULD NOT SUFFICIENT TO ESTABLISH SUCH A CLAIM, WITHOUT ESTABLISHING OTHER RELEVANT FACTS AND CIRCUMSTANCES. THE ENTIRE ISSUE IS FACTUAL IN NATURE. SINCE NO PERVERSITY IS ESTABLISHED WE REFUSE TO INTERFERE. IN VIEW OF THIS CLEAR FINDING OF THE HONOURABLE HIGH COURT IN ASSESSEES OWN CASE AGAINST THE ORDER OF SETTLEMENT COMMISSION, WE ARE OF THE VIEW THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF HONOURABLE HIGH COURT IN THE CASE OF THE ASSESSEE. HENCE, RESPECTFULLY FOLLOWING THE SAME, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). ACCORDINGLY, SAME IS UPHELD, THEREFORE, GROUND NO. 1 OF APPEAL IS DISMISSED. 9. GROUND NO. 2 RELATES TO SUSTAINING OF THE ADDITION MADE BY THE AO UNDER SECTION 69C OF THE ACT OF RS.18,05,471/- TOWARDS UNEXPLAINED EXPENDITURE ON PRODUCTION OF S.O. DYES. 10. FACTS APROPOS OF THIS GROUND ARE THAT THE ASSESSEE IS ENGAGED IN THE PRODUCTION OF SYNTHETIC ORGANIC DYES OF VARIOUS COLOURS AT ITS FACTORY, LOCATED AT THE GIDC SACHIN, SURAT. THE S.O. DYES ARE CONSUMED IN HOUSE AS RAW MATERIAL BY THE ASSESSEE`S IN MANUFACTURING UNITS AT THE KIM AND KUTCH FOR THE MANUFACTURE OF METALLIC YARN AND JARI KASAB. THE INFORMATION WAS RECEIVED FROM SUMILON INDUSTRIES LTD. V. DCIT-4-SURAT/ITA.NO.2618/AHD/2014, 2372/AHD/2015 & 2156/AHD/2016/AY:10-11 TO 12-13 PAGE 9 OF 17 THE CENTRAL EXCISE AND CUSTOM DEPARTMENT THAT THEY HAD CONDUCTED SEARCH ON 13.11.2009 AT THE ASSESSEE`S UNIT AT SACHIN AND HAD ISSUED A SHOW CAUSE NOTICE DATED 07. 02.2012 TO THE ASSESSEE SEEKING EXPLANATION ON THE EVASION OF CENTRAL EXCISE DUTY ON EXCISABLE GOODS DELIVERED FROM THEIR FACTORY OF 9170 KG VALUED AT RS.50,43,500/-. HOWEVER, THE ASSESSEE HAS EXPLICITLY EXPRESSED ITS INABILITY TO PROVIDE THE DATA PERTAINING TO THE RATIO OF THE VARIOUS MATERIALS USED TO MANUFACTURE 1 KG OF S.O .DYES, THE ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE TO PRODUCE 9170 KG OF S.O. DYES CANNOT BE EXACTLY COMPUTED. THEREFORE, THE EXTENT OF UNEXPLAINED EXPENDITURE IS DERIVED BY REDUCING THE GROSS PROFIT MARGIN FROM THE MARKET VALUE OF S.O. DYES. THE GROSS PROFIT OF 25% HAS BEEN SHOWN BY THE ASSESSEE IN ITS REGULAR BOOKS. THEREFORE, BY REDUCING THE GROSS PROFIT MARGIN OF 25% OF THE MARKET VALUE OF 9170 KG OF S.O. DYES VALUING AT RS. 50, 43, 500. THE COST PRICE OF 9170 KG OF S.O. DYES COMES TO RS.37,82,625. THUS, THE ASSESSEE WAS ASKED TO SHOW CAUSE BY THE AO TO EXPLAIN THE SUM OF RS.37,82,625/- SHOULD NOT BE TREATED AS ITS UNEXPLAINED EXPENDITURE UNDER SECTION 609C OF THE ACT. THE AO NOTED THAT THE ASSESSEE HAS INCURRED UNLESS PRONOUNCEMENT ON THE PRODUCTION OF 4376. 90 KGS OF S.O. DYES DURING THE YEAR. THE MARKET RATE OF 4376. SUMILON INDUSTRIES LTD. V. DCIT-4-SURAT/ITA.NO.2618/AHD/2014, 2372/AHD/2015 & 2156/AHD/2016/AY:10-11 TO 12-13 PAGE 10 OF 17 90 KG OF S.O. DYES CALCULATED AT THE RATE OF RS. 550 PER KG COMES TO RS.24,07,295/-. AND THE COST OF PRODUCTION OF THE SAME AFTER REDUCING 25% OF THE GROSS PROFIT MARGIN COMES TO RS.18,05,471/-. SINCE, THE ASSESSEE HAS FAILED TO PROVIDE EVIDENCE FOR COMPUTATION OF UNEXPLAINED EXPENDITURE DURING THE COURSE OF ASSESSMENT PROCEEDING, HENCE, EXPENDITURE OF RS.18,05,471/- INCURRED ON THE PRODUCTION OF 4376.90 KGS OF S.O. DYES WAS TREATED AS UN- EXPENDITURE UNDER SECTION 69C OF THE ACT. 11. IN APPEAL BEFORE THE CIT(A), IT WAS CLAIMED THAT THE SO-CALLED SHOW CAUSE NOTICE ISSUED BY THE CENTRAL EXCISE AUTHORITIES BY WHICH VARIOUS ADDITIONS WERE MADE, WERE DELETED BY CENTRAL EXCISE, ADJUDICATING AUTHORITY I.E. CIT(A). THEREFORE, IN PRESENT APPEAL ADDITION BASED ON SHOW-CAUSE NOTICE ISSUED BY CENTRAL EXCISE AUTHORITIES SHOULD BE DELETED. HOWEVER, THE CIT(A) REFERRING PARA 22(A) OF THE ORDER CIT-(APPEALS), CENTRAL EXCISE, OBSERVED THAT BY SAID ORDER THE GOODS I.E. S.O. DYES WERE NOT TREATED AS MARKETABLE AND LIABLE FOR CENTRAL EXCISE DUTY IN ABSENCE OF EVIDENCE OF MARKETABILITY, THE GOODS CANNOT BE SAID TO BE LIABLE FOR EXCISE DUTY. HOWEVER, THE ISSUE INVOLVED IN INCOME-TAX PROCEEDING IS UNACCOUNTED PRODUCTION OF WHICH DETAILS WERE NOT FURNISHED BY THE ASSESSEE HENCE, THE AO WAS JUSTIFIED IN ESTIMATING SUMILON INDUSTRIES LTD. V. DCIT-4-SURAT/ITA.NO.2618/AHD/2014, 2372/AHD/2015 & 2156/AHD/2016/AY:10-11 TO 12-13 PAGE 11 OF 17 UNACCOUNTED PRODUCTION BASED ON NOTE BOOK FOUND DURING CENTRAL EXCISE SURVEY AND ADMISSION OF ONE OF THE KEY EMPLOYEE OF THE ASSESSEE THAT THE ASSESSEE WAS INVOLVED IN MAKING UNACCOUNTED PRODUCTION. SINCE THE APPELLANT DURING THE ASSESSMENT PROCEEDINGS DID NOT FURNISH THE DETAILS OF COST INCURRED IN THE UNACCOUNTED PRODUCTION. THEREFORE, THE ASSESSING OFFICER WAS JUSTIFIED IN ESTIMATION OF THE COST OF PRODUCTION BY APPLYING GROSS PROFIT RATE AFTER CONSIDERING THE SALE VALUE ON THE BASIS OF DATA AS AVAILABLE. IT WAS FURTHER SEEN FROM THE FINDING OF SETTLEMENT COMMISSION, IT IS SEEN THAT THE APPELLANT HAS BEEN INDULGING IN THE UNACCOUNTED PRODUCTION. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, THE ADDITION WAS CONFIRMED BY CIT (A). 12. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LD. A.R. SUBMITTED THAT THE ADDITION WAS MADE ON ESTIMATION BASIS JUST BY RELYING ON THE FINDINGS OF CENTRAL EXCISE DEPARTMENT WITHOUT MAKING ANY INDEPENDENT INQUIRY. IT WAS SUBMITTED THAT FINDINGS OF EXCISE DEPARTMENT HAS BEEN QUASHED BY THE COMMISSIONER (A) CENTRAL EXCISE VIDE ORDER DATED DTD. 07.11.2013 AND HENCE, THE BASIS OF ADDITION NONEST AS ON DATE. THE ADDITION IS BASED ON A SEIZED MATERIAL WHICH CONTAINED PRODUCTION AND CLEARANCE OF S.O. DYES FOR THE PERIOD FROM 01.04.2009 TO SUMILON INDUSTRIES LTD. V. DCIT-4-SURAT/ITA.NO.2618/AHD/2014, 2372/AHD/2015 & 2156/AHD/2016/AY:10-11 TO 12-13 PAGE 12 OF 17 12.11.2009. ON COMPARISON OF THE SAME WITH RG-1 REGISTER, [DAILY STOCK REGISTER] FOR YEAR 2009-10 THE PRODUCTION AND CLEARANCE SHOWN IN RG-1 REGISTER WERE LESS AS COMPARE TO NOTEBOOK SEIZED BY EXCISE AUTHORITIES. IT WAS EXPLAINED THAT ACTUALLY 125 BAGS WERE FOUND OF WHICH AVERAGE WEIGHT @ 45KG IS CONSIDERED THEM TOTAL WEIGHT WORKED OUT TO 5265 KGS, WHICH ALMOST TALLIES WITH CLOSING STOCK MENTIONED IN RG-1 REGISTER. THE DIFFERENCE OF 4793 KGS WORKED OUT BY AO, DOES NOT INCLUDE DATA OF POST-PRODUCTION PROCESS, DRYING AND GRINDING PROCESS, WHICH WOULD RESULT IN WASTAGE GENERATION AND REDUCTION IN QUANTITY OF FINISHED PRODUCTS. THE ASSESSEE HAS NOT MADE OUTSIDE AND SALES AND SALES HAVE BEEN MADE FOR INTER DIVISION FOR SELF-CONSUMPTION, HENCE, THERE IS NO EFFECT ON REVENUE AT LARGE. THE AR ALSO SUPPORTED HIS VIEW BY PLACING RELIANCE IN THE CASE OF A.K.ALLOYS PVT. LTD. IN ITA NO.557/ACH/2008, ANMAN STEEL ALLIED INDUSTRIES, ITA NO.2057/MDS/2010, CIT VS. VIGNESH KUMA JEWELLERS 222 CTR 79 (MAD), YADI HARI DALMIA VS. CIT (1980) 17 CTR 234 (DEL) THAT WHEN VERY BASIS OF SHOW-CAUSE NOTICE OF EXCISE HAS BEEN QUASHED, NO ADDITION BASED ON SUCH SHOW-CAUSE, NOTICE CAN BE MADE. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THE AO HAS MADE ADDITION SUMILON INDUSTRIES LTD. V. DCIT-4-SURAT/ITA.NO.2618/AHD/2014, 2372/AHD/2015 & 2156/AHD/2016/AY:10-11 TO 12-13 PAGE 13 OF 17 SOLELY BY RELYING ON THE SHOW CAUSE NOTICE OF EXCISE DEPARTMENT AND WITHOUT MAKING ANY ROVING ENQUIRY HIMSELF BEFORE MAKING THE IMPUGNED ADDITION. THE VERY BASIS OF THE ADDITION AS MADE BY THE AO IS THE FINDINGS OF EXCISE DEPARTMENT OF SHORT QUANTITY OF GOODS FOUND DURING THE SURVEY, HAS BEEN QUASHED EVENTUALLY IN THE ORDER PASSED BY THE COMMISSIONER(A) CENTRAL EXCISE AND CUSTOMS SERVICE TAX-1 SURAT. THE LEARNED CIT (A) OBSERVED THAT THE FINDINGS OF CENTRAL EXCISE DO NOT APPLY IN IN INCOME TAX PROCEEDINGS WHERE THE ISSUE INVOLVED IS UNACCOUNTED PRODUCTION AND COST INCURRED THEREIN. HOWEVER, WE FIND THAT THE CIT (A) HAS FAILED TO CONSIDER THE FINDINGS AND NOTICE OF THE COMMISSIONER CENTRAL EXCISE, WHEREIN IN PARA OF 5.2 OF THE ORDER IT IS CLEARLY MENTIONED THAT ON ACCOUNT OF SEVERAL MISSING LINKS, AND INCONSISTENCE IN THE IMPUGNED ORDER, THIS ENQUIRY HAD BEEN CONDUCTED UNDER SECTION 35A OF THE CENTRAL EXCISE ACT, 1944 TO FACILITATE AND PASSING OF JUST AND FAIR ORDER IN SUBJECT APPEAL. WE FURTHER FIND THAT THE CENTRAL EXCISE COMMISSIONER, HAS ALSO IN PARA 8 OF ORDER HAD DISCUSSED THE MANUFACTURING / PRODUCTION PROCESS AND HAS CLEARLY STATED THAT EVERYWHERE THE DEPARTMENT HAS CONSIDERED AND RELIED AT THIS STAGE AS FINAL PRODUCT BUT IN FACT IT IS ONLY INTER MEDIATE STAGE WHILE DEPARTMENT HAS MADE COMPARISON AND CALCULATIONS SUMILON INDUSTRIES LTD. V. DCIT-4-SURAT/ITA.NO.2618/AHD/2014, 2372/AHD/2015 & 2156/AHD/2016/AY:10-11 TO 12-13 PAGE 14 OF 17 QUANTIFICATION FINAL WEIGHMENT WITH ESTIMATION WITH CORRESPONDING IT RECORDS AND DUTY INVOLVED IN CONSIDERING THIS AS A BASE WHICH IS GIVEN CONTEXT IS ABSOLUTELY INCORRECT. THUS, IT IS CLEAR THAT PRODUCTION WHICH THE IT DEPARTMENT IS CONSIDERING UNACCOUNTED WAS OF SEMI FURNISHED GOODS WHICH WHEN CONVERTED IN FURNISHED GOODS ARE ALREADY OFFERED FOR TAX. FURTHER, THERE IS NO SALE OF PRODUCTION AS IT IS INTER DIVISION TRANSFER FOR FINISH PRODUCTION. THEREFORE, IN SUCH A VIEW WE FIND THAT THE AO WAS NOT JUSTIFIED IN MAKING ADDITION ON THIS ACCOUNT. WE FURTHER OBSERVE THAT THE ASSESSEE WAS NOT REQUIRED TO PRODUCE UNACCOUNTED PRODUCTION AS EXCISE DUTY ON SEMI PRODUCTION WAS MORE THAN THE FURNISHED PRODUCTION ON WHICH CENVAT CREDIT WAS ALSO AVAILABLE TO THE ASSESSEE. THE LD. A.R. RELIED IN THE CASE OF ACIT V. A K ALLOYS (P) LTD. [2012] 27 TAXMANN.COM 120 (CHD) WHEREIN IT WAS HELD THAT HELD THAT THE ASSESSING OFFICER HAD COMPLETELY BASED ADDITION ON THE REPORT OF THE INVESTIGATING TEAM AND HAD ALSO SHOW CAUSED THE ASSESSEE TO ESTABLISH ITS POINT IN VIEW OF THE SAID REPORT OF THE INVESTIGATING TEAM. THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL (SUPRA) IN THE APPEAL FILED BY THE ASSESSEE AND ITS DIRECTOR HAD CATEGORICALLY HELD THAT NO COGENT EVIDENCE HAD BEEN BROUGHT ON RECORD TO PROVE THAT THE OUTPUT HAD BEEN CLEARED CLANDESTINELY. SUMILON INDUSTRIES LTD. V. DCIT-4-SURAT/ITA.NO.2618/AHD/2014, 2372/AHD/2015 & 2156/AHD/2016/AY:10-11 TO 12-13 PAGE 15 OF 17 FURTHER, IT HAD BEEN HELD THAT THERE WAS NO COGENT EVIDENCE TO SHOW EITHER SUPPRESSION OF PURCHASE OF INPUT OR REMOVAL OF GOODS. IN VIEW OF THE AFORESAID FINDINGS OF THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL IN THE ASSESSEE'S OWN CASE, THERE WAS NO MERIT IN ANY ADDITION BEING MADE IN THE HANDS OF THE ASSESSEE ON ACCOUNT OF THE ALLEGED SUPPRESSION IN PRODUCTION AND ALSO ALLEGED INVESTMENT IN PURCHASE OF RAW MATERIAL. THE FACTS OF THE ASSESSEE CASE ARE SIMILAR HENCE, RELYING ON THIS DECISION WE FIND THAT ADDITION MADE BY THE AO IS NOT TENABLE IN LAW. SIMILARLY THE CO- ORDINATE BENCH OF MADRAS IN THE CASE OF AMAN STEEL & ALLIED INDUSTRIES IN I.T.A.NO. 2057/MDS/2010 HAS OBSERVED THAT HON`BLE MADRAS HIGH COURT IN THE CASE OF CIT V. VIGNESH KUMAR JEWELLERS 222 CTR 79 HAS HELD THAT THE FINDING OF ANOTHER DEPARTMENT CANNOT BE SIMPLY INCORPORATED IN ASSESSMENT WITHOUT ANY INDEPENDENT INQUIRY HAVING BEEN MADE. IN THIS CASE ALSO NO ENQUIRY WAS MADE INDEPENDENTLY BY THE AO. HENCE, WE ARE OF THE CONSIDERED VIEW THAT THE ADDITION MADE BY THE AO IS NOT TENABLE IN LAW. WE FIND THAT VERY BASIS OF ADDITION BEING SHOW CAUSE OF CENTRAL EXCISE IS QUASHED BY THE CENTRAL EXCISE AUTHORITIES HENCE, THE ADDITION MADE BASED ON SAME IS ALSO TO BE DELETED. CONSIDERING THESE VIEW, WE DELETE THE ADDITION OF RS.18,05,471/- MADE AS UNEXPLAINED SUMILON INDUSTRIES LTD. V. DCIT-4-SURAT/ITA.NO.2618/AHD/2014, 2372/AHD/2015 & 2156/AHD/2016/AY:10-11 TO 12-13 PAGE 16 OF 17 EXPENDITURE UNDER SECTION 69C OF THE ACT. THIS GROUND IS THEREFORE, ALLOWED IN FAVOUR OF THE ASSESSEE. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2010-11 IN I.T.A.NO. 2618/AHD/2014 IS PARTLY ALLOWED. I.T.A.NO. 2372/AHD/2015/SRT; A.Y. 2011-12 15. THE SOLE GROUND RELATES TO SUSTAINING ADDITION OF RS.27,25,317/- EXPENSES INCURRED ON SON`S OF DIRECTORS FOR STUDY ABROAD DISALLOWED UNDER SECTION 37 OF THE ACT. SINCE THIS GROUND OF APPEAL IS IDENTICAL TO GROUND NO. 1 FOR THE ASSESSMENT YEAR 2010- 11 EXCEPT QUANTUM OF EXPENDITURE, WHICH WE HAVE DISMISSED IN A.Y. 2010-11, IN THIS APPEAL ORDER, HENCE, FOR THE REASONS AND FINDINGS AS GIVEN THEREIN, THIS GROUND OF APPEAL IS DISMISSED. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED FOR THE ASSESSMENT YEAR 2011-12. I.T.A.NO. 2156/AHD/2016/SRT; A.Y. 2012-13 17. THE SOLE GROUND RELATES TO SUSTAINING ADDITION OF RS. 26,35,311 BEING EXPENSES INCURRED ON SON`S OF DIRECTORS FOR STUDY ABROAD WHICH WERE DISALLOWED UNDER SECTION 37 OF THE ACT. SINCE THIS GROUND OF APPEAL IS IDENTICAL TO GROUND NO. 1 FOR THE ASSESSMENT YEAR 2010-11 EXCEPT QUANTUM OF EXPENDITURE, WHICH WE HAVE DISMISSED IN A.Y. 2010-11, IN THIS APPEAL ORDER, HENCE, FOR SUMILON INDUSTRIES LTD. V. DCIT-4-SURAT/ITA.NO.2618/AHD/2014, 2372/AHD/2015 & 2156/AHD/2016/AY:10-11 TO 12-13 PAGE 17 OF 17 THE FINDINGS AND REASONS GIVEN THEREIN, THIS GROUND OF APPEAL IS ACCORDINGLY DISMISSED. 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED FOR THE ASSESSMENT YEAR 2012-13. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR THE ASSESSMENT YEAR 2010-11 IN I.T.A.NO. 2618/AHD/2014 AND DISMISSED FOR A.Y. 2011-12 IN I.T.A.NO. 2372/AHD/2015 AND A.Y. 2012-13 IN I.T.A.NO. 2156/AHD/2016 RESPECTIVELY. 20. ORDER PRONOUNCED IN THE OPEN COURT ON 30-08-2018. SD/- SD/- ( . . /C.M. GARG) ( . . / O.P.MEENA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER / SURAT, DATED : 30 TH AUG , 2018/OPM COPY OF ORDER SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A)/ ITAT (DR)/GUARD FILE OF ITAT. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT