BOON INDUSTRIES, MUMBAI V. CIT XVII, MUMBAI

ITA 4059/MUM/2009

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8530 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2000-2001
• Appeal Filed On: 01-07-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIPH
• Keywords: Reopening of assessment; Depreciation
• Section: 143(3); 142(1); 260A; 133(6); 148; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI BEFORE SHRI JOGINDER SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 4059/MUM/2009 ASSESSMENT YEAR: 2000-01 ITA NO. 4060/MUM/2009 ASSESSMENT YEAR: 2001-02 ITA NO. 4061/MUM/2009 ASSESSMENT YEAR: 2002-03 ITA NO. 4062/MUM/2009 ASSESSMENT YEAR: 2003-04 & ITA NO. 4063/MUM/2009 ASSESSMENT YEAR: 2004-05 M/S. BOON INDUSTRIES, VS. ITO, WARD 17(1)(3) 12A, AMYNABAD BUILDING, 2 ND FLOOR, PIRAMAL CHAMBER, LALBAUG, NASBIT ROAD, AGA HALT, MAZGAON, MUMBAI MUMBAI 400 010 PAN: AACFB6885A (APPELLANT) (RESPONDENT) APPELLANT BY : MR. PRAKASH G. JHUNJHUNWALA, AR REVENUE BY : MR. NEIL PHIL IPH, DR DATE OF HEARING : 10/1 1/2016 DATE OF PRONOUNCEMENT: 07/02/2017 ORDER PER N.K. PRADHAN, AM THE CAPTIONED APPEALS ARE FILED BY THE ASSESSEE. TH E APPEALS ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER (APP EALS) XVII, ITA NO. 4059 TO 4063/MUM/2009 2 MUMBAI AND ARISE OUT OF THE ORDER UNDER SECTION 144 R.W.S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE REOPENING OF ASSESSME NT ON ISSUING THE NOTICE U/S 148 WITHOUT HAVING A BELIEVE THAT INCOME HAD ESC APED ASSESSMENT; 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 15,21,4 35/- (A.Y. 2000-01); RS. 6,02,514/- (A.Y. 2001-02); RS. 6,77,213/- (A.Y. 200 2-03); RS. 8,04,875/- (A.Y. 2003-04) AND RS. 10,95,369/- (A.Y. 2004-05) ON ASSUM ING THE SUPPRESSION OF PRODUCTION, SALES AND INCOME ON IGNORING THE VITAL FA CT THAT ELECTRIC CONSUMPTION IS NOT A SOLE DETERMINING FACTOR TO ESTI MATE THE PRODUCTION OF GOODS WHEN THERE IS NO UNACCOUNTED PURCHASE, SALES, L ABOUR DETECTED IN ASSESSMENT; 3. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) ERRED IN ESTIMATING THE PRODUCTION YIELD OF 1.75 KG PER POWER UNIT AS AGAINST 1.00 KG PER POWER UNIT REPORTED BY THE APPELLANT; 3.1 THE LD. CIT(A) WHILE ESTIMATING THE PRODUCTION YI ELD OF 1.75 KG PER ELECTRIC UNIT, INCORRECTLY COMPARED THE PRODUCTION RESULT OF O THER MACHINE MANUFACTURER ON IGNORING THE FACT THAT THERE IS SUB STANTIAL VARIATION TO BOTH MACHINES; 3.2 THE LD. CIT(A) ERRED IN NOT ACCEPTING THE REPORT OF A GOVERNMENT APPROVED CHARTERED ENGINEER CERTIFYING THE APPELLANTS PRODUC TION YIELD AT 1.00 KG PER ELECTRIC UNIT; 4. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) ERRED IN ESTIMATING A GROSS PROFIT RATE OF 27.70% ON SALES ( A.Y. 2000-01); 29.50% A.Y. (2001-02); 32.94% (A.Y. 2002-03); 30.11% (A.Y. 2003 -04) AND 29.65% (A.Y. 2004-05) AS AGAINST 10% NET-PROFIT ESTIMATED APPELLA NTS ASSOCIATE CONCERNS CASE. 3. WE BEGIN WITH THE BACKGROUND OF THE PRESENT APPE AL. THE REVENUE HAD FILED MISCELLANEOUS APPLICATIONS NO. 33 7 TO 341/MUM/2014 SEEKING RECALL OF THE COMMON ORDER DAT ED 15.07.2010 PASSED BY THE B BENCH, MUMBAI IN THE CASE OF THE ASSESSEE IN ITA NO. 4059 TO 4063/MUM/2009 RELATING TO THE ASSESSMENT YEARS 2000-01 TO 2004-05 AGAINST THE APP EALS FILED BY THE ITA NO. 4059 TO 4063/MUM/2009 3 ASSESSEE. THE ASSESSEE HAD FILED APPEALS CHALLENGIN G THE ORDERS PASSED BY THE LEARNED CIT(A) FOR THE SAID YEARS, WH EREIN HE HAD CONFIRMED THE VALIDITY OF REOPENING OF ASSESSMENTS AND GRANTED PARTIAL RELIEF IN RESPECT OF ADDITIONS OF GROSS PRO FIT MADE BY THE ASSESSING OFFICER (AO) TOWARDS SUPPRESSED SALES. TH E TRIBUNAL CONFIRMED THE ORDER OF THE LEARNED CIT(A) IN UPHOLD ING THE VALIDITY OF REOPENING OF THE ASSESSMENTS. HOWEVER, THE TRIBUNAL DELETED THE ADDITION OF GROSS PROFIT MADE TOWARDS SUPPRESSION O F SALES IN ALL THE YEARS REFERRED ABOVE. THE ASSESSEE SUBMITS BEFORE T HE TRIBUNAL THAT THE REVENUE HAS ALREADY PREFERRED APPEAL BEFORE THE HON'BLE HIGH COURT OF BOMBAY CHALLENGING THE ORDERS PASSED BY TH E TRIBUNAL. IT IS SUBMITTED BY HIM THAT THE PRESENT MISCELLANEOUS APP LICATIONS ARE INVALID, SINCE THE APPEALS FILED BY THE REVENUE AGA INST THE ORDER OF THE TRIBUNAL HAVE SINCE BEEN ADMITTED BY THE HON'BLE HI GH COURT. THE TRIBUNAL FOLLOWED THE ORDER DATED 08.04.2015 OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF M/S. R.W. PROMOTIONS (P) LTD. IN W.P. NO. 2238 OF 2014 WHEREIN IT HAS BEEN HELD THAT THE POWE R GIVEN TO THE TRIBUNAL U/S 254(2) CAN BE EXERCISED BY IT, EVEN IF THE ORDER PASSED BY IT U/S 254(1) HAS BEEN CHALLENGED U/S 260A OF THE A CT BEFORE THE HIGH COURT. THE TRIBUNAL THUS HELD AS UNDER: HENCE, WE FIND MERIT IN THE MISCELLANEOUS APPLICAT IONS FILED BY THE REVENUE. ACCORDINGLY, WE RECALL ALL THE GROUNDS RELATING TO T HE ADDITION OF GROSS PROFIT MADE ON ACCOUNT OF SUPPRESSION OF PRODUCTION/SALES. IN THE MISCELLANEOUS PETITIONS, THE REVENUE HAS NOT POINTED OUT ANY MISTA KE ON THE DECISION RENDERED ON THE ISSUES RELATING TO VALIDITY OF REOPENI NG OF ASSESSMENTS. HENCE THE GROUNDS RELATING TO VALIDITY OF REOPENING OF ASS ESSMENTS NEED NOT BE RECALLED. THE REGISTRY IS DIRECTED TO POST THESE APPEA LS FOR HEARING IN THE NORMAL COURSE. 4. THE RELEVANT FACTS ARE NOT IN DISPUTE AND CAN BE SHORTLY STATED. WE BEGIN WITH THE A.Y. 2000-01. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE SAID YEAR ON 17.10.2000 DECLARING TO TAL INCOME OF RS. ITA NO. 4059 TO 4063/MUM/2009 4 NIL , CLAIMING DEDUCTION U/S 80IA OF RS. 1,48,062/-. TH E ASSESSEE WAS HAVING A STEEL WOOL MANUFACTURING UNIT. IT WAS INVE STIGATED BY THE MSEB AUTHORITIES FOR POWER THEFTS. THE SAID AUTHORI TIES REQUESTED THE INCOME TAX DEPARTMENT TO CONDUCT INVESTIGATION FROM THE INCOME TAX ANGLE. 4.1 THE AO MENTIONS IN HIS ASSESSMENT ORDER DATED 2 8.12.2006 THAT THE FOLLOWING INFORMATION WAS RECEIVED FROM THE MSE B AUTHORITIES BY THE INCOME TAX DEPARTMENT: I. LETTER NO. DVS/ENF/3449 DATED 21/08/2004 FROM DIRE CTOR, VIGILANCE MSEB [ANNEX 2 HERETO], ALONG WITH MONTHLY BILLING STATEM ENT FROM 01/04/1997 TO 31/03/2004 ANNEXURE 2AHERETO. II. LETTER NO. VS./ENF/04216 DATED 10/11/2005 [ANNEX 3 HERETO] FROM THE EXECUTIVE ENGINEER, MSEDCL ALONG WITH RECTIFIED BILL ING STATEMENT. THIS LETTER STATED THAT THE EARLIER BILLING STATEMENT SENT WITH LETTER DATED 21/08/2004 WAS INCORRECT AND HENCE THE RECTIFIED BILLING STATEMENT WAS SENT, A NNEXURE 3AHERETO. III COPY OF ELECTRICITY THEFT INSPECTION REPORT SHE ET NO. C FOR THEFT OF 115999 UNITS OF ENERGY AMOUNTING TO RS. 2,78,398/-. ANNEX URE 4HERETO. IV. LETTER NO. V&S/ENF/0355 DATED 31/01/2006 RECEIVED FROM THE EXECUTIVE ENGINEER, MSEDCL. ANNEXURE 5HERETO. V. COPY OF ASSESSMENT SHEET DATED 09.02.2004. ANNEXU RE 6 HERETO. VI. LETTER NO VS./ENF/0875 DATED 18/03/2006 FROM THE EXECUTIVE ENGINEER ENFORCEMENT, MSEDCL. ANNEXURE 7HERETO. 4.2 THE AO HAD SENT A COPY OF THE ABOVE DOCUMENTS TO TH E ASSESSEE ON 28.11.2006 ASKING FOR COMMENTS/OBJECTIONS. AS PE R THE INFORMATION RECEIVED BY THE AO, THE ELECTRICITY BIL LS FOR THE RELEVANT PERIOD OF THE ASSESSEE WAS RS. 4,99,363/-. IN THE P ROFIT & LOSS ACCOUNT FOR THE RELEVANT PERIOD, THE ASSESSEE HAS SHOWN ELE CTRICITY CHARGES AT RS. 50,000/-. 4.3 THE AO THEN SENT LETTERS TO THE MANUFACTURERS O F THE MACHINERY USED BY THE ASSESSEE REQUESTING THEM TO FURNISH DET AILS OF THE ITA NO. 4059 TO 4063/MUM/2009 5 CAPACITY OF THE MACHINES. IN REPLY, THE AO RECEIVED CATALOGUES/PAMPHLETS FROM MACHINOTHERM ENGINEERS AN D S.S. MACHINE MFG. CO. AS PER THE DETAILS FURNISHED BY TH E MSEB AUTHORITIES, THE MACHINE OF MACHINOTHERM ENGINEERS WOULD PRODUCE 140-160 KG/29.84 UNITS = 3.75 TO 4.2 KG PER UNIT OF ENERGY AND THE MACHINE OF S.S. MACHINE MFG. CO. WOULD PRODUCE 75 TO 80 KG/29. 84 UNITS = 2.51 TO 2.68 KG OF STEEL WOOL PER UNIT OF ELECTRICITY. T HE MINIMUM PRODUCTION THUS WORKS OUT TO 2.5 KG OF STEEL WOOL P ER UNIT OF ENERGY CONSUMPTION. 4.4 FOR THE RELEVANT PERIOD, THE ASSESSEES CONSUMP TION IS 127631 UNITS OF ENERGY. OUT OF THIS 80% IS ATTRIBUTABLE TO THE MANUFACTURING PROCESS. THE AO CALCULATED 80% OF 127631 AT 102104 UNITS. AT 2.5 KG OUTPUT PER UNIT, THE SAME COMES TO 255262 KG OF STE EL WOOL IN THE YEAR. THE ASSESSEE DID NOT FURNISH BEFORE THE AO TH E UNIT SELLING PRICE. THE AO FOUND FROM ENQUIRIES THAT FOR A.Y. 1998-99 A ND 1999-2000, THE SISTER CONCERN OF THE ASSESSEE I.E. M/S. ASHISH INDUSTRIES HAD STATED THEIR SELLING PRICE TO BE RS. 40 PER KG. SIN CE THE SELLING PRICE FOR A.Y. 2000-01 COULD NOT BE LESS THAN THAT OF A.Y. 19 98-99 AND 1999- 2000, THE A.O. ADOPTED THE SELLING PRICE AT RS. 40 PER KG AND ESTIMATED THE SALES AT 2,55,262 KG X RS. 40 = RS. 1,02,10,48 0/-. 4.5 IT IS MENTIONED BY THE AO THAT THE ASSESSEE DID NOT APPEAR BEFORE HIM TO REPLY FULLY TO THE QUERIES IN THE QUE STIONNAIRE ISSUED BY HIM. 4.6 AS MENTIONED HERE-IN-ABOVE, THE AO ESTIMATED TH E SALES OF THE ASSESSEE AT RS. 1,02,10,480/-. THE ASSESSEE HAS SHO WN SALES OF RS. ITA NO. 4059 TO 4063/MUM/2009 6 21,31,500/- ONLY. THE ASSESSEE HAS SHOWN GP RATIO A T 30.58%. ACCORDINGLY THE AO DETERMINED THE GP AT RS. 31,22,3 64/-. THE AO THEN OBSERVES THAT THE EXPENSES CHARGED TO PROFIT AND LOSS ACCOUNT ARE OF SUCH A NATURE VIZ; BANK CHARGES, BANK INTEREST, CON VEYANCE, INSURANCE AND MISCELLANEOUS EXPENSES THAT THEY WILL NOT VARY WITH THE INCREASE IN SALES EXCEPTING ELECTRICITY CHARGES. THEY ARE TO THE TUNE OF RS. 4,53,965/-. DEDUCTING THIS AMOUNT FROM THE GP I.E. (RS. 31,22,364 RS. 4 ,53,965) = RS. 26,68,399/-. THE ASSESSEE HAS CLAIMED ELECTRICITY EXPENDITURE OF RS. 50,000/-. THIS LEAVES A BALANCE OF RS. 26,18,399/- . ITS ACTUAL ELECTRICITY EXPENSE S AS ESTABLISHED BY MSEB AUTHORITIES WERE RS. 4,49,363/- NOT SHOWN BY IT IN ITS PROFIT AND LOSS ACCOUNT IS ALLOWED TO IT. HENCE, THE NET PROFIT IS ESTABLISHED AT RS. 26,18,399 RS. 4,49,363 = RS. 21,69,036/-. 4.7 TO SUM UP, THE A.O. HAS COMPUTED THE INCOME OF THE ASSESSEE FOR THE DIFFERENT ASSESSMENT YEARS IN THE FOLLOWING MANNER: A.Y. ESTIMATED SALES (RS.) GP (%) ESTIMATED INCOME (RS.) 2000-01 1,02,10,480/- 30.58 21,69,036/- 2001-02 73,79,200/- 35.58 18,29,223/- 2002-03 1,01,51,880/- 35.58 29,04,341/- 2003-04 1,01,51,880/- 35.58 28,78,820/- 2004-05 99,13,600/- 29.87 22,57,310/- 5. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LEARNED CIT(A). IN HIS APPELLATE ORDER DATED 27.04.2009, THE LEARNED C IT(A) HAS HELD AS UNDER: CONSIDERING THE ENTIRE FACTS I AM OF THE OPINION T HAT SUBSTANTIAL PARTS OF THE ADDITIONS, MADE BY THE ASSESSING OFFICER, ARE ON STRON G GROUNDS AND HAVE TO BE CONFIRMED. THE ONLY ISSUE IS THAT THE MACHINE USED BY THE APPELLANT IS ADMITTEDLY OF LESSER HP THAT IS 40 HP. HENCE THE PRODU CTION CAPACITY SHOULD BE DOWN SIZED BY AT LEAST 20%. IT HAS BEEN ALSO ARGUED TH AT SINCE THE MACHINE IS OF 1999 THE PRODUCTIVITY CANNOT BE COMPARED WITH THAT OF DATA RELATING TO 2006. I FIND THAT IN THE CASE OF ASHISH INDUSTRIES TH E AO STARTED WITH SHOW CAUSE NOTICE TO ESTIMATE THE PRODUCTION AT THE RATE OF 2 KG PER UNIT ALTHOUGH ADDED AT THE RATE OF 2.5 KG AT THE END. THE AO HAS ALS O ALLOWED EXTRA DEDUCTION ITA NO. 4059 TO 4063/MUM/2009 7 OF INDIRECT EXPENSES IN THAT CASE AND CIT(A) HAS CONF IRMED NET PROFIT OF 10% OF THE TOTAL UNACCOUNTED SALE. WITHOUT GETTING INTO THA T MECHANISM I AM OF THE VIEW THAT PRODUCTION CAN BE ESTIMATED AT 1.75 KG PER UNIT INSTEAD OF 2.5 KG AS DONE BY AO FOR REASONS OF LOWER HORSE POWER CAPACITY AND THE DEPRECIATION OF THE MACHINERY. EVERY OTHER ESTIMATION DONE BY THE AO WILL REMAIN UNCHANGED AND IS CONFIRMED IN VIEW OF THE REASONING GIVEN BY TH E AO IN THE ASSESSMENT ORDER AND THE REMAND REPORT. NO FURTHER DEDUCTION OF AN Y OTHER INDIRECT EXPENSES WILL BE GIVEN EXCEPT THE ALLOWED INDIRECT EX PENSES, AS PER THE ORIGINAL ASSESSMENT ORDER. THEY ARE TO BE REDUCED. ACC ORDINGLY OUT OF THE ADDITION MADE BY THE ASSESSING OFFICER ADDITION AT RATE OF 1.75 KG PER UNIT OF POWER IS CONFIRMED AND THE BALANCE ADDITION IS DELETED. T HE A.O. IS DIRECTED TO MODIFY THE PRODUCTION ESTIMATED ACCORDINGLY. THE APPELLANT HAS CLAIMED THAT THE ASSESSING OFFICER HAS TAKEN GP RATE OF 30.58%. THE APPELLANT HAS ARGUED THAT THE ASSESSING OFFICER SHOULD HAVE TAKEN THE NORMAL GP OF 8-10% PREVALENT IN THE INDUST RY INSTEAD OF THE HIGH PERCENTAGE ADOPTED. I AM NOT IN AGREEMENT WITH THE A RGUMENTS OF THE AUTHORISED REPRESENTATIVE. I FIND THAT AS PER THE BOO KS OF THE APPELLANT FOR THE YEAR UNDER CONSIDERATION THE DISCLOSED GP WAS 27.70%. IT IS FAIR TO ADOPT THE SAME GP RATE FOR THE PURPOSE OF THE UNACCOUNTED SALE S ALSO. THE AO IS THEREFORE DIRECTED TO ADOPT THE GP RATE OF 27.70% FOR ARRIVING AT THE TAXABLE INCOME FROM THESE OPERATIONS. FROM THE PROFIT SO DE RIVED THE AO IS DIRECTED TO ALLOW ONLY THE EXPENSES ALLOWED AS PER THE ORIGINAL ASSESSMENT. THIS IS RS. 9,53,328 FOR THE YEAR. ON THIS BASIS THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE NET INCOME AND TAX ACCORDINGLY. THIS GR OUND OF APPEAL IS ALLOWED PARTLY. 5.1 THE LEARNED CIT(A) AFTER GOING THROUGH THE DISC LOSED GP OF THE ASSESSEE HAS DIRECTED THE AO TO ADOPT 29.50% (A.Y. 2001-02); 32.94% (A.Y. 2002-03); 30.11% (A.Y. 2003-04) AND 29.65% (A .Y. 2004-05). 6. BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE FILE S A WRITTEN SUBMISSION AND STATES THAT (I) THE AO HAS ADOPTED C OMPLEX METHODOLOGY TO ARRIVE AT THE NUMBER OF UNITS CONSUM ED IN PRODUCTION ACTIVITY, (II) THE AO HAS ASSUMED THAT THE ASSESSEE S MANUFACTURING ITA NO. 4059 TO 4063/MUM/2009 8 UNIT IS RUN ON 3 SHIFTS WHEREAS THE INCOME TAX INSP ECTOR REPORTED THAT THE ASSESSEES FACTORY HAD OPERATED IN 1 SHIFT ; (III) THERE IS NO EVIDENCE OF SUPPRESSED SALES OF FINISHED GOODS OR U NACCOUNTED PURCHASE OF RAW MATERIAL AND (IV) THE POWER CONSUMP TION IS ESTIMATED ON CONSIDERING 50HP MOTOR CAPACITY WHEREA S THE ASSESSEES MACHINE IS OF 40HP. 6.1 THE LEARNED COUNSEL FURTHER SUBMITS THAT THE AO EST IMATED THE PRODUCTION YIELD OF 2.50 KGS PER UNIT WHICH HAS BEE N REDUCED AT 1.75 KGS PER UNIT BY CIT(A) AND THE SAME IS INCORRECT BE CAUSE (I) THE CHARTERED ENGINEERS REPORT CERTIFYING THE PRODUCTI ON YIELD OF 0.90 TO 1.00 KG PER UNIT SHOULD BE GIVEN PREFERENCE, (II) T HE ASSESSEES MACHINE IS ASSEMBLED WHEREAS THE COMPARED MACHINE I S BRANDED ONE AND (III) THE ASSESSEES MACHINE IS OF 40HP WHEREAS COMPARED MACHINE IS OF 50HP. 6.2 IT IS SUBMITTED BY HIM THAT THE ADDITIONAL SESSION COURT JUDGE, PALGHAR HAD ACQUITTED THE ASSESSEE ON GIVING THE FI NDING THAT THERE IS NO PILFERAGE OF ELECTRICITY. 6.3 THE LEARNED COUNSEL FURTHER SUBMITS THAT THE MERE DISPARITY IN CONSUMPTION OF ELECTRICITY CANNOT BE A REASON FOR E STIMATING THE TURNOVER SINCE PRODUCTION DEPENDS UPON VARIOUS FACT ORS AND ADDITION MADE ON ESTIMATING THE SUPPRESSED SALES ON THE BASI S OF CONSUMPTION OF ELECTRICITY DESERVES TO BE DELETED SINCE IT HAS NO SCIENTIFIC BASIS. AS PER HIM, THE MSEB VIDE LETTER DATED 10.11.2005 ESTI MATED THE POWER ELECTRICITY CONSUMPTION WHICH COMPRISES OF UNDERSTA TED DEFECTS :- ITA NO. 4059 TO 4063/MUM/2009 9 PARAMATER AS PER MSEB AS PER APPELLANT LOAD 50 HP 40 HP NO OF SHIFTS 3 SHIFTS 1 SHIFTS IT IS CLARIFIED BY HIM THAT THE MSEB STATED THAT I TS EARLIER LETTER DATED 21.08.2004 WAS MISLEADING. THE MSEB VIDE LETT ER DATED 31.01.2006 INFORMED THE BASIS OF CONSUMPTION OF ELE CTRICITY ALSO WHICH COMPRISED OF UNDERSTATED DEFECTS :- PARAMATER AS PER MSEB AS PER APPELLANT CONNECTEDLOAD 45 HP 40 HP HOURS 21 HOURS (3 SHIFTS) 8 HOURS (1 SHIFTS) IT IS STATED BY HIM THAT MSEB ALLOWED 60% DISCOUNT FACTOR, HOWEVER DID NOT PROVIDE THE REVISED STATEMENT OF EL ECTRICITY CONSUMED DUE TO WHICH LEARNED CIT(A) ERRONEOUSLY CO NSIDERED THE INCORRECT STATEMENT PROVIDED BY MSEB VIDE EARLIER L ETTER DATED 10.11.2005. THE MSEB VIDE LETTER DATED 18.03.2006 I NTIMATED THE AO OF ITS EARLIER ERROR AND ADMITTED THAT THE ASSESSEE S MACHINE IS OF 40 HP, THUS PROVIDED THE BASIS OF RE-WORKING OF THE PO WER CONSUMPTION. HOWEVER, MSEB DID NOT PROVIDE THE REVISED STATEMENT OF ELECTRICITY CONSUMED DUE TO WHICH LEARNED CIT(A) ERRONEOUSLY CO NSIDERED THE INCORRECT STATEMENT PROVIDED BY MSEB VIDE EARLIER L ETTER DATED 10.11.2005. 6.4 THE LEARNED COUNSEL THUS SUBMITS THAT THE PRODUCTIO N UNIT DETERMINED BY THE AO AT 2.50 KGS PER UNIT AND RE-ES TIMATED BY LEARNED CIT(A) AT 1.75 KGS PER UNIT IS ERRONEOUS SI NCE THE MACHINE COMPARED BY AO IS DIFFERENT FROM THE ASSESSEES MAC HINE IN UNDERSTATED MANNER:- ITA NO. 4059 TO 4063/MUM/2009 10 PARAMATER APPELLANTS MACHINE S.S. MFG. CO. MACHINE MOTOR CAPACITY 40 HP 50 HP MAKE LOCALLY ASSEMBLED BRANDED MACHINE LENGTH OF MACHINE 12 METERS 198 METERS COST OF MACHINE RS. 9-10 LAKHS RS. 44 LAKHS YEAR OF MANUFACTURING 1998 2006 6.5 IT IS FURTHER SUBMITTED BY HIM THAT THE LEARNED CIT(A) ESTIMATED THE AVERAGE SALE PRICE OF RS. 40/- PER KG ON CONSID ERING THE FACTS OF ASSOCIATE CONCERN M/S. ASHISH INDUSTRIES IN WHICH C ASE, THE TOTAL INCOME WAS ESTIMATED @ 10% ON SALES. HOWEVER, IN IM PUGNED CASE, LEARNED CIT(A) SUSTAINED THE ADDITION ON RE-WORKING THE GROSS PROFIT @ 27.70% ON SALES. 7. PER CONTRA THE LEARNED DR FILES A WRITTEN SUBMISSIO N AND STATES IN RESPECT OF GROUND NO 2 OF THE APPEAL FILED BY TH E ASSESSEE THAT THE PAID BILLS OF THE ASSESSEE (DISTINCT FROM THEFT) WE RE NOT SHOWN IN THE P&L ACCOUNT I.E. THE ASSESSEE HAD BEEN MAKING ELECT RICITY PAYMENTS OUTSIDE THE BOOKS. THE DETAILS ARE AS UNDER: A.Y. UNITS CONSUMED & AMOUNTS PAID AS PER MSEBS LETTER & STATEMENT ENCLOSED THEREWITH EXPENSES OF ELECTRICITY AS PER P&L ACCOUNT 2000-01 127631 UNITS / RS. 4,99,363/- RS. 50,000/- 2001-02 84674 UNITS / RS. 3,13,259/- RS. 1,05,760/- 2002-03 75076 UNITS / RS. 2,78,162/- RS. 75,125/- 2003-04 91220 UNITS / RS. 3,17,632/- RS. 99,610/- 2004-05 108363 UNITS / RS. 3,75,225/- RS. 1,44,380/- THE BANK STATEMENTS REFLECT THESE PAYMENTS AND THE ELECTRICITY AUTHORITIES HAVE CERTIFIED THAT THE ASSESSEE HAD PA ID ALL ITS BILLS ITA NO. 4059 TO 4063/MUM/2009 11 WITHOUT DISPUTE. IT IS STATED THAT IN THE P&L ACCOU NT FOR THE A.Y. 2000- 01, ONLY RS. 50,000/- HAS BEEN DEBITED TOWARDS ELEC TRICITY EXPENSES AND NO OUTSTANDING ELECTRICITY EXPENSES WERE SHOWN IN THE BALANCE SHEET, CLEARLY INDICATING PAYMENT OUTSIDE THE BOOKS . IT IS STATED THAT THE ASSESSEE DID NOT PRODUCE THE WAGE REGISTER DESPITE OPPORTUNITY PROVIDED TO IT. THEREFORE, THIS IS NOT A CASE WHERE NO UNACCOUNTED LABOUR HAS BEEN DETECTED IN THE ASSE SSMENT CONTRARY TO THE GROUND RAISED BY THE ASSESSEE. 7.1 IN RESPECT OF GROUND NO 3 OF THE APPEAL, IT IS SUB MITTED THAT THE LEARNED CIT(A) HAS TAKEN THE YIELD AT 1.75 KG TAKIN G INTO CONSIDERATION THE LOWER HP AND THE DEPRECIATION OF THE MACHINERY. IT IS FURTHER SUBMITTED THAT INFORMATION HAD BEEN CALL ED U/S 133(6) OF THE ACT FROM M/S. MACHINOTHERM ENGINEERS AND M/S. S .S. MACHINE MFG. CO. (BOTH CALCUTTA BASED MANUFACTURERS OF STEE L WOOL MAKING MACHINERY). BOTH HAD SENT PAMPHLETS DETAILING THE D IMENSIONS, PARAMETERS AND PRODUCTION CAPACITY OF THEIR MACHINE S. BEFORE THE LEARNED CIT(A), THE ASSESSEE HAD PRODUCED REPORT OF A CHARTERED ENGINEER, MR. S.P. MARULKAR. THIS REPORT ALSO MENTI ONS THE DIMENSIONS AND PARAMETERS OF THE ASSESSEES MACHINES. THESE AR E SUMMARISED AS UNDER: SL. NO NAME OF MACHINERY MANUFACTURER TYPE OF MACHINE TYPE OF MOTOR TYPE OF RAW MATERIAL USED NO OF BLADE OUTPUT / HOUR 1 MACHINOTHERM ENGINEERS DOUBLE- BED 75 HP (RPM NO MENTIONED) STEEL WIRE 3.1 MM DIAMETER 72 140-160 KGS 2 S.S. MACHINE MFG. CO. DOUBLE- BED 50 HP (1450 RPM) STEEL WIRE 3.1 MM DIAMETER 48 75-80 KGS ITA NO. 4059 TO 4063/MUM/2009 12 3 ASSESSEES MACHINE AS PER THE CHARTERED ENGINEERS REPORT DOUBLE- BED 40 HP (1450 RPM) STEEL WIRE 3.1 MM DIAMETER 58 20KGS IT IS THUS SUBMITTED BY HIM THAT THERE IS A DIRECT CORRELATION BETWEEN HP / SPEED OF THE MACHINE AND THE NUMBER OF BLADES USED TO THE OUTPUT. THE MORE THE HP / SPEED AND THE NUMBER OF BLADES THE HIGHER IS THE OUTPUT. 7.2 IT IS STATED BY HIM THAT THE CHARTERED ENGINEERS R EPORT OUGHT TO BE REJECTED AS HE HIMSELF HAS ADMITTED IN HIS REPOR T THAT WHEN HE WENT FOR INSPECTION, THE MACHINE WAS NO LONGER THER E AND IT HAD BEEN SOLD. IT IS THE ADMITTED POSITION THAT HE INSPECTED THE MACHINE OF M/S. ASHISH INDUSTRIES WHILE CERTIFYING THE PRODUCTION C APACITY OF THE PRESENT ASSESSEE. FURTHER THE CHARTERED ENGINEER HA S HIMSELF MENTIONED IN HIS REPORT THAT THE TEST WAS CARRIED O UT USING RE-RUN I.E. USED WIRE (RAW MATERIAL) WHOSE THICKNESS HAD BEEN R EDUCED INSTEAD OF BRAND NEW WIRE. DURING HIS EXAMINATION ON OATH, THE CHARTERED ENGINEER HAD ADMITTED THAT HE HAD NOT GIVEN ANY TEC HNICAL EXPLANATION IN SUPPORT OF HIS CONCLUSION THAT THE A SSESSEES MACHINE COULD PRODUCE ONLY 20 KG PER HOUR. THE ASSESSEES S ISTER CONCERN M/S. ASHISH INDUSTRIES HAD A BRAND NEW STEEL WOOL MACHIN E, SPECIFICALLY MANUFACTURED FOR THEM BY M/S. MTR PVT. LTD., A MANU FACTURER OF STEEL WOOL MAKING MACHINERY. THE PRO-FORMA INVOICE CLEARL Y INDICATES THIS. HENCE IT WAS NOT LOCALLY ASSEMBLED AS CLAIMED BY THE ASSESSEE / CHARTERED ENGINEER. THE CHARTERED ENGINEER HAS STAT ED IN HIS REPORT THAT HE HAD INSPECTED THE MACHINE OF THE ASSESSEES SISTER CONCERN VIZ M/S. ASHISH INDUSTRIES, WHOSE MACHINE WAS IDENT ICAL TO THAT OF THE PRESENT ASSESSEE. THE CHARTERED ENGINEER HAS CERTIF IED THAT THE ITA NO. 4059 TO 4063/MUM/2009 13 MACHINE OF THE ASSESSEE AND M/S. ASHISH INDUSTRIES ARE IDENTICAL. IT FOLLOWS THAT THE MACHINE OF THE ASSESSEE AND THAT O F M./S. S.S. MACHINE MFG. CO. WILL HAVE VIRTUALLY THE SAME PARAMETERS. H ENCE, THE OUTPUT WILL ALSO BE SIMILAR. AN EXAMINATION OF QUESTION NO 4 & 28 PUT TO THE CHARTERED ENGINEER DURING HIS STATEMENT ON OATH AND HIS ANSWERS THERETO CLEARLY SHOWS THAT THE MACHINE WAS NOT SELF -FABRICATED OR LOCALLY ASSEMBLED BUT WAS SPECIALLY MANUFACTURED FO R THE PURCHASER (M/S. ASHISH INDUSTRIES). HENCE, THE ASSESSEES CON TENTION THAT ITS MACHINE BEING LOCALLY ASSEMBLED, CAN NEVER HAVE THE CAPACITY OF A BRANDED MACHINE HAS NO SUBSTANCE. 7.3 IN RESPECT OF GROUND NO 4 OF THE APPEAL, IT IS SUBM ITTED THAT BEFORE THE LEARNED CIT(A) THE ASSESSEE WORKED OUT T HE GP RATIO. THE SAME WAS ACCEPTED BY THE LEARNED CIT(A) AND HE DIRE CTED THE AO TO ADOPT THE SAID RATIO. HENCE, THE ASSESSEE SHOULD NO T HAVE ANY GRIEVANCE ON THIS GROUND. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ITAT IN ITS ORDER DATED 15. 07.2010 IN THE CASE OF THE ASSESSEE FOR THE A.Y. 2000-01 (ITA NO. 4059/ MUM/2009); A.Y. 2001-02 (ITA NO. 4060/MUM/2009); A.Y. 2002-03 (ITA NO. 4061/MUM/2009); A.Y. 2003-04 (ITA NO. 4062/MUM/2009 ) AND A.Y. 2004-05 (ITA NO. 4063/MUM/2009) HAS HELD THAT THE R E-OPENING OF ASSESSMENT IS IN ACCORDANCE WITH LAW. FURTHER THE I TAT IN ITS ORDER DATED 08.07.2015 [MISC. APPLICATION NO. 337TO 341/M UM/2014 ARISING OUT OF ITA NO. 4059 TO 4063/MUM/2009 FOR AS SESSMENT YEARS 2000-01 TO 2004-05] HAS HELD THAT THE GROUNDS RELAT ING TO VALIDITY OF ITA NO. 4059 TO 4063/MUM/2009 14 THE OPENING OF ASSESSMENTS NEED NOT BE RECALLED. HE NCE GROUND NO 1 OF THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. 8.1 IN RESPECT OF THE REMAINING GROUNDS OF APPEAL, WE B EGIN WITH THE ASSESSMENT ORDER FOR THE A.Y. 2000-01 DATED 28. 12.2006 PASSED BY THE AO U/S 144 R.W.S. 143(3) OF THE ACT. THE AO HAD ISSUED NOTICES U/S 142(1) TO THE ASSESSEE ON THE FOLLOWING DATES: 1 NOTICE U/S 142(1) DATED 27/06/2005 HEARING FIXED ON 11 /07/2005 2 NOTICE U/S 143(2) DATED 27/06/2005 HEARING FIXED ON 11 /07/2005 3 NOTICE U/S 142(1) DATED 17/08/2005 HEARING FIXED ON 24 /08/2005 4 NOTICE U/S 142(1) DATED 29/08/2005 HEARING FIXED ON 05 /09/2005 5 NOTICE U/S 142(1) DATED 20/09/2005 HEARING FIXED ON 26 /09/2005 6 QUESTIONNAIRE ISSUED DATED 11/07/2006 HEARING FIXED ON 03/08/2006 7 SHOW CAUSE LETTER DATED 17/10/2006 HEARING FIXED ON 26 /10/2006 8 LETTER DATED 28/11/2006 ENCLOSING INFORMATION RECEIVED FROM MSEB AND MACHINERY MANUFACTURERS AND ASKING FOR COMMENTS 9 LETTER DATED 01/12/2006 GIVING FINAL CHANCE TO ASSESSEE 8.2 THE AO HAS MENTIONED IN THE ASSESSMENT ORDER (PAGE 10) THAT TILL 28.12.2006 THE ASSESSEE DID NOT APPEAR BEFORE HIM TO CONCLUSIVELY REPLY TO THE QUERIES IN THE QUESTIONNAIRES. WE FIND THAT THIS IS EVIDENT FROM THE ASSESSMENT ORDER (PAGE 6 & 7). SIMILAR IS THE SITUATION FOR REMAINING ASSESSMENT YEARS. THE CONTENTIOUS ISSUES DELINEATED AT PARA 6 TO 6.5 BY THE LEARNED COUNSEL OF THE ASSESSE E AND AT PARA 7 TO 7.3 BY THE LEARNED DR HERE-IN-ABOVE WHICH FALL IN T HE PROVINCE OF FACTS CAN BE RESOLVED ONLY ON PROPER APPRECIATION OF THE DOCUMENTS, ANALYSIS OF FACTS AND CONCLUSION THEREON. THE CLAIM SHOULD BE BASED ON CREDIBLE EVIDENCE. THE AO COULD NOT DO IT AS THE ASSESSEE FAILED TO FILE THE COMPLETE DETAILS OF THE TRANSACTIONS BEFOR E HIM. A PERUSAL OF THE DETAILS FILED BY THE ASSESSEE IN RESPONSE TO TH E QUESTIONNAIRE ISSUED BY THE AO ALONG WITH NOTICE U/S 142(1) OF TH E ACT AMPLY ITA NO. 4059 TO 4063/MUM/2009 15 INDICATES IT. THE ISSUES STILL REMAIN UNRESOLVED BY THE ORDER OF THE LEARNED CIT(A). FILING OF COMPLETE DETAILS BY THE A SSESSEE BEFORE THE AO WOULD RESOLVE THE CONTENTIOUS ISSUES DELINEATED HERE-IN-ABOVE. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER OF THE LE ARNED CIT(A) ON ISSUES RELATING TO GROUND NO 2, 3 & 4 OF THE APPEAL FILED BY THE ASSESSEE AND RESTORE IT BACK TO THE FILE OF THE AO TO MAKE A FRESH ASSESSMENT AS PER THE PROVISIONS OF THE ACT KEEPING IN MIND THE ISSUES RAISED BY THE LEARNED COUNSEL OF THE ASSESSEE AT PA RA 6 TO 6.5 AND THE LEARNED DR AT PARA 7 TO 7.3 HERE-IN-ABOVE. NEEDLESS TO SAY, THE AO IS DIRECTED TO GIVE REASONABLE OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE BEFORE FINALISING THE ASSESSMENT ORDER. THE ASSESSE E IS DIRECTED TO FILE BEFORE THE AO THE COMPLETE DETAILS ON THE ABOVE. 9. IN THE RESULT, THE APPEALS ARE PARTLY ALLOWED FOR S TATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 07/02/2017 SD/- SD/- (JOGINDER SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTAN T MEMBER MUMBAI; DATED: 07/02/2017 BISWAJIT, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI