ACIT, Central Circle-4, Hyderabad V. M/s.Sunder Ispat Ltd, Secunderabad

ITA 801/HYD/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5594 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 22-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: B SAI PRASAD
• Keywords: Income from undisclosed sources
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 718/HYD/2012 ASSESSMENT YEAR 2005-06 M/S. SUNDER ISPAT LTD. SECUNDERABAD PAN: AACCS8073G VS. THE DEPUTY CIT CENTRAL CIRCLE-4 HYDERABAD [APPELLANT] [RESPONDENT] ITA NO. 801/HYD/2012 ASSESSMENT YEAR 2005-06 THE ASST. CIT CENTRAL CIRCLE-4 HYDERABAD VS. M/S. SUNDER ISPAT LTD. SECUNDERABAD PAN: AACCS8073G [APPELLANT] [RESPONDENT] ASSESSEE BY: SRI B. SAI PRASAD REVENUE BY: SRI P. SOMA SEKHAR REDDY DATE OF HEARING: 19.02.2014 DATE OF PRONOUNCEMENT: 19.02.2014 ORDER PER CHANDRA POOJARI, AM: THESE ARE CROSS APPEALS DIRECTED AGAINST THE ORDER OF THE CIT(A)-VII, HYDERABAD DATED 29.2.2012 FOR ASSES SMENT YEAR 2005-06. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS: (1) THE ORDER OF THE CIT(A)-VII, HYDERABAD INSOFAR AS I T WENT AGAINST THE APPELLANT IS ERRONEOUS BOTH ON FACTS AD IN LAW. (2) THE CIT(A) OUGHT TO HAVE DELETED THE ADDITION OF RS . 37,92,633/- MADE TOWARDS UNDISCLOSED TURNOVER. ITA NO. 718/HYD/2012 M/S. SUNDER ISPAT LTD. =================== 2 (3) THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE CORRE CT FIGURE OF TURNOVER AS PER THE RECORDS OF THE CENTRA L EXCISE AUTHORITIES WAS RS. 33,37,425/- ONLY AND NOT RS. 37 ,92,633/- WHICH WAS CONSIDERED BY THE AO AS THE UNDISCLOSED TURNOVER. (4) WITHOUT PREJUDICE TO THE ABOVE CONTENTION, THE CIT( A) OUGHT TO HAVE CONSIDERED ADDITION OF ESTIMATED REAS ONABLE PROFIT ON THE TURNOVER BUT NOT THE ENTIRE AMOUNT. 3. THE REVENUE RAISED THE FOLLOWING GROUNDS: (1) THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS BOTH O N FACTS AND IN LAW. (2) THE LEARNED CIT(A) OUGHT TO HAVE SUSTAINED THE ADDI TION IN RESPECT OF INCREASE IN THE VALUE OF CLOSING STOCK O F FINISHED GOODS IN RESPECT OF EXCISE DUTY WAS RIGHTLY MADE. (3) THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE TR EATING OF THE MODVAT CREDIT AVAILABLE TO THE ASSESSEE AS I NCOME OF THE ASSESSEE U/S. 28(IV) OF THE IT ACT. 4. FIRSTLY, WE WILL TAKE UP ASSESSEE'S APPEAL. BRIEF FACTS OF THE GROUNDS RAISED IN THE ASSESSEE APPEAL ARE THAT WHILE COMPLETING THE ASSESSMENT AND COMPUTING THE TAXABLE INCOME OF THE ASSESSEE COMPANY, THE ASSESSING OFFIC ER HAS MADE AN ADDITION OF RS. 37,92,633 BY TREATING THE A MOUNT AS UNACCOUNTED TURNOVER RELATED TO THE ASSESSMENT YEAR 2005-06 BASED ON THE INFORMATION FROM THE ORDER PASSED BY T HE COMMISSIONER OF CUSTOMS & CENTRAL EXCISE DT. 31.1.2 007, IN THE CASE OF THE ASSESSEE. WHILE MAKING THE SAID ADD ITION, IT HAS BEEN OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS NOT MAINTAINED THE ACCOUNTS PROPERLY WITH REFER ENCE TO HANDLING OF STOCK AND PRODUCTION OF FINISHED GOODS AND SUCH ITA NO. 718/HYD/2012 M/S. SUNDER ISPAT LTD. =================== 3 IMPROPER MAINTENANCE OF RECORDS HAS BEEN ESTABLISHE D BY THE INCRIMINATING MATERIAL FOUND BY THE CENTRAL EXCISE AUTHORITIES DURING THEIR SEARCH OPERATIONS CONDUCTE D IN THE ASSESSEE'S CASE. WHILE COMPUTING THE TAXABLE INCOME OF THE ASSESSEE, THE ASSESSING OFFICER HAS REJECTED THE SU BMISSION OF THE ASSESSEE THAT THE INFORMATION AS REGARDS TO THE QUANTITY PARTICULARS COULD NOT BE FURNISHED SINCE T HE RECORDS WERE SHOWN TO HAVE BEEN SEIZED BY THE EXCISE DEPART MENT ALONG WITH THE OTHER SUBMISSION OF THE ASSESSEE THA T EXCISE DUTY TO BE REDUCED FROM THE SUPPRESSED TURNOVER FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME. THE ASSESSI NG OFFICER ALSO REJECTED THE PLEA OF THE ASSESSEE THAT A REASONABLE PROFIT IS TO BE ESTIMATED ON THE UNACCOU NTED TURNOVER OBSERVING THAT ALL THE MANUFACTURING EXPEN SES HAVE ALREADY BEEN DEBITED TO PROFIT & LOSS ACCOUNT. 5. ON APPEAL, THE CIT(A) OBSERVED THAT THERE WAS A SEA RCH OPERATION BY THE CENTRAL EXCISE DEPARTMENT IN THE C ASE OF APPELLANT ON 20.08.2004 IN WHICH CERTAIN DOCUMENTS OF THE ASSESSEE WERE SEIZED. AS PER THE ORDER OF THE CENTR AL EXCISE AUTHORITIES, ORIGINALLY THE SUPPRESSION OF TURNOVER WAS QUANTIFIED AT RS. 1,59,70,287 WHICH HAS BEEN SUBSEQ UENTLY REDUCED TO RS. 36,43,743 AS PER THE ORDER OF COMMIS SIONER (CUSTOMS & CENTRAL EXCISE) DT. 31.01.2007 AS AGAINS T WHICH ITA NO. 718/HYD/2012 M/S. SUNDER ISPAT LTD. =================== 4 THE ASSESSING OFFICER HAS WORKED OUT THE SUPPRESSED TURNOVER AT RS. 37,92,633. WHILE QUANTIFYING THE S UPPRESSED TURNOVER, THE ASSESSING OFFICER HAS TAKEN THE FIGUR E OF THE UNACCOUNTED TURNOVER AT RS. 9,16,643 AS PER ANNEXUR E D-1 AS PER ORDER OF COMMISSIONER (CUSTOMS & CENTRAL EXCISE ) DT. 31.01.2007 AND RS. 28,75,990 RELATED TO ANNEXURE D- 2. THE REDUCTION IN TURNOVER IS SHOWN TO BE ON ACCOUNT OF THE RELIEF GRANTED BY THE ORDER OF THE COMMISSIONER (CENTRAL E XCISE) AND SUCH REDUCTIONS ARE MOSTLY RELATED TO THE ANNEX URE D-3 TO D-5. 6. THE CIT(A) OBSERVED THAT SINCE THE INFORMATION AS REGARDS TO THE QUANTUM OF THE SUPPRESSED TURNOVER A ND STOCK DETAILS WERE NOT FURNISHED BEFORE THE ASSESSING OFF ICER ON ACCOUNT OF THE SEIZURE OF THE BOOKS/DOCUMENTS BY THE CENTRAL EXCISE AUTHORITIES, NO FURTHER ENQUIRIES CO ULD BE CARRIED OUT IN THIS REGARD. AS IT HAS BEEN INDICAT ED, THE APPEAL RELATED TO THE SAID MATTER STILL SHOWN PENDI NG BEFORE THE CUSTOMS, CENTRAL EXCISE & SERVICE TAX TRIBUNAL AND FOR THE SAME REASONS, IT IS DIFFICULT TO GO INTO THE DE TAILS REGARDING THE SAID TRANSACTIONS. AS REGARDS TO THE QUANTIFICATION OF THE INCOME ON WHOLE OF THE UNACCO UNTED TURNOVER, IT MAY BE RELEVANT TO CONFIRM THE FINDING S OF THE ASSESSING OFFICER THAT THE TOTAL TURNOVER REPRESENT S THE ITA NO. 718/HYD/2012 M/S. SUNDER ISPAT LTD. =================== 5 INCOME SINCE THE OTHER RELATED MANUFACTURING EXPEND ITURE ARE ALREADY CLAIMED IN THE BOOKS OF ACCOUNTS THAT HAVE BEEN DEBITED TO PROFIT & LOSS ACCOUNT. HENCE, IT IS NOT A CORRECT PROPOSITION TO ESTIMATE THE GROSS PROFIT ON SUCH TU RNOVER, WHOSE FULL DETAILS ARE NOT READILY AVAILABLE ON THE RECORDS. FURTHER, WHERE THE UNACCOUNTED PURCHASES ARE NOT TR ACED, WHOLE OF SUCH SALES MAY BE TREATED AS PROFIT. REGA RDING THE QUANTIFICATION OF THE SUPPRESSED TURNOVERS, THE ASS ESSEE HAS SHOWN CERTAIN FINDINGS AS ATTRIBUTABLE TO THE ORDER OF THE COMMISSIONER, CUSTOMS & CENTRAL EXCISE BUT COULD NO T BE SUBSTANTIATED WITH ANY RECORD THAT HAVE BEEN MAINTA INED OR SUBMITTED BY THE ASSESSEE. UNDER THE CIRCUMSTANCES, THE ADDITION MADE BY THE ASSESSING OFFICER TO THE TUNE OF RS. 37,92,633 TREATING THE SUPPRESSED TURNOVER AS QUANT IFIED BY THE EXCISE AUTHORITIES AS UNACCOUNTED INCOME, WAS C ONFIRMED BY THE CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE ADDITION IS MADE TOWARDS SUPPRESSION OF SALES ON THE BASIS OF INFORMATION PA SSED TO THE AO BY THE COMMISSIONER OF CUSTOMS AND CENTRAL E XCISE. BEFORE US, THE LEARNED AR SUBMITTED THAT THIS ISSUE IS SUBJECT MATTER OF APPEAL BEFORE THE CUSTOMS AUTHORITIES AND IT IS PENDING FOR ADJUDICATION. AS THE ADDITION IS SOLEL Y MADE ON ITA NO. 718/HYD/2012 M/S. SUNDER ISPAT LTD. =================== 6 THE BASIS OF INFORMATION PASSED ON BY THE COMMISSIO NER OF CUSTOMS AND CENTRAL EXCISE AND IT IS NOT SUBSTANTIA TED BY ANY INDEPENDENT MATERIAL FROM THE END OF THE AO, IN OUR OPINION, IT IS APPROPRIATE TO REMIT THE ISSUE BACK TO THE FI LE OF THE AO TO DECIDE THE ISSUE ON THE OUTCOME OF PENDING LITIG ATION WITH THE CUSTOMS, CENTRAL EXCISE AND SERVICE TAX TRIBUNA L. THE ASSESSEE IS DIRECTED TO PRODUCE A COPY OF THE ORDER ON RECEIPT FROM CUSTOMS, CENTRAL EXCISE AND SERVICE TAX TRIBUN AL TO THE AO AND THEREAFTER THE AO WILL PASS THE CONSEQUENTIA L ORDER IN ACCORDANCE WITH THAT ORDER. ACCORDINGLY, THE GROUN DS TAKEN BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSE S. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSES. 9. NOW WE TAKE UP THE REVENUE APPEAL IN ITA NO. 801/HYD/2012. THE REVENUE RAISED THE GROUND THAT THE LEARNED CIT(A) OUGHT TO HAVE SUSTAINED THE ADDITION IN RESPECT OF INCREASE IN THE VALUE OF CLOSING STOCK O F FINISHED GOODS IN RESPECT OF EXCISE DUTY WAS RIGHTLY MADE. 10. BRIEF FACTS OF THE ISSUE ARE THAT WHILE COMPUTING T HE TAXABLE INCOME OF THE ASSESSEE, AN AMOUNT OF RS. 5, 22,939 WAS ADDED TO THE TOTAL INCOME BEING THE VALUE OF TH E CLOSING STOCK OF FINISHED GOODS AS INCREASED BY THE EXCISE DUTY ON ITA NO. 718/HYD/2012 M/S. SUNDER ISPAT LTD. =================== 7 SUCH GOODS @ 8% OF THE VALUE OF THE STOCK OF FINISH ED GOODS. WHILE MAKING THE ADDITION, THE ASSESSING OFFICER HA S OBSERVED THAT AS PER THE INVENTORIES UNDER SCHEDULE VI, THE CLOSING STOCK OF FINISHED GOODS VALUED AT NET REALI ZABLE VALUE AND WAS SHOWN AT RS. 65,36,743. SINCE THIS DOES NO T INCLUDE THE EXCISE DUTY PAYABLE, THE SAME IS ESTIMATED AT 8 % OF THE VALUE ADMITTED AND ADDED TO THE INCOME RETURNED. 11. THE LEARNED DR RELIED ON THE ORDER OF THE AO. 12. THE LEARNED AR SUPPORTED THE ORDER OF THE CIT(A). THE AR RELIED ON THE JUDGEMENT OF MADRAS HIGH COURT IN THE CASE OF CIT VS. PARRY CONFECTIONARY LTD. (299 ITR 321) W HEREIN IT WAS HELD THAT EXCISE DUTY ON THE CLOSING STOCK NOT CLEARED FROM THE FACTORY SHOULD NOT BE INCLUDED WHILE VALUI NG THE CLOSING STOCK. THE AR ALSO RELIED ON THE JUDGEMENT OF MADRAS HIGH COURT IN THE CASE OF CIT VS. LAKSHMI MILLS CO. LTD. (158 TAXMAN 420) WHEREIN IT WAS HELD THAT EXCISE DUTY ON RAW MATERIALS USED IN THE CLOSING STOCK AS WELL AS ON T HE FINISHED GOODS WILL NOT FORM PART OF THE VALUE OF THE CLOSIN G STOCK. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IT IS WELL ESTABLISHED PRINCIP LE THAT EXCISE DUTY FORMS PART OF THE CLOSING STOCK IF IT IS INCLU DED IN THE VALUE OF OPENING STOCK OF RAW MATERIAL AND PURCHASE S AND IN ITA NO. 718/HYD/2012 M/S. SUNDER ISPAT LTD. =================== 8 THAT EVENT THERE WOULD BE NO DIFFERENCE IN THE RESU LT OF VALUE OPENING STOCK AND CLOSING STOCK. IN OTHER WORDS, C USTOMS AND EXCISE DUTY ACTUALLY PAID BY THE ASSESSEE ON TH E RAW MATERIAL AND THE FINISHED GOODS, RESPECTIVELY, FORM PART OF THE COST OF SUCH MATERIAL OR PRODUCTS AND THE SAME COULD NOT BE EXCLUDED FROM THE VALUATION OF CLOSING STOCK OF RAW MATERIALS AND FINISHED GOODS. ACCORDINGLY, THE AO IS DIRECTED TO ENSURE AND PASS CONSEQUENTIAL ORDER. THIS GROUN D OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 14. THE REVENUE RAISED THE NEXT GROUND THAT THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE TREATING OF TH E MODVAT CREDIT AVAILABLE TO THE ASSESSEE AS INCOME OF THE A SSESSEE U/S. 28(IV) OF THE IT ACT. BRIEF FACTS OF THE ISSUE ARE THAT WHILE COMPUTING THE TAXABLE INCOME, THE ASSESSING OFFICER MADE AN ADDITION OF RS. 52,93,722 TO THE TOTAL INCOME TREAT ING THE MODVAT CREDIT AVAILABLE TO THE ASSESSEE AS INCOME U /S 28(IV) OF THE IT ACT, 1961. WHILE TREATING THE MODVAT CRE DIT AS INCOME OF THE ASSESSEE, THE ASSESSING OFFICER HAS O BSERVED AS UNDER: 'AS CAN BE SEEN FROM THE DETAILS GIVEN AGAINST ITEM NO. 22(A) OF THE 3CD REPORT U/S 44AB, THE CLOSING BALANCE OF MODVAT CREDIT AVAILABLE WAS SHOWN AT RS. 52,93,772. SINCE THE AMOUNT OF RS. 52,93,772 IS AVAILABLE WITH THE ASSESSEE AS AN ENTITLEMENT AT THE END OF THE YEAR, IT FALLS UNDER ITEM (IV) OF SECTION 28 AND ASSESSABLE AS SUCH.' ITA NO. 718/HYD/2012 M/S. SUNDER ISPAT LTD. =================== 9 15. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE CIT(A) FOLLOWED THE JUDGEM ENT OF SUPREME COURT IN THE CASE OF INDO NIPPON CHEMICALS CO. LTD. VS. CIT (261 ITR 275) WHEREIN IT IS HELD THAT THE V ALUE OF THE UNCONSUMED RAW MATERIAL AND WORK-IN-PROGRESS AT THE END OF THE YEAR AT NET METHOD WOULD BE CONSISTENT WITH THE PRINCIPLES OF ACCOUNTANCY. ADOPTING THE GROSS METH OD FOR PURCHASES AND NET METHOD FOR UNSOLD STOCKS AT THE E ND OF THE YEAR IS NOT CONSISTENT AND IS NOT PERMISSIBLE. AGA INST THIS THE REVENUE IS IN APPEAL BEFORE US. 16. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE DO NOT FIND ANY INFIRMITY I N THE ORDER OF THE CIT(A). THE CIT(A) FOLLOWED THE JUDGEMENT OF SUPREME COURT IN THE CASE OF INDO NIPPON CHEMICALS CO. LTD. (SUPRA) WHICH IS IN FAVOUR OF THE ASSESSEE. THIS GROUND OF THE REVENUE IS DISMISSED. 17. IN THE RESULT, REVENUE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH FEBRUARY, 2014. SD/- (SAKTIJIT DEY) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 19 TH FEBRUARY, 2014 TPRAO ITA NO. 718/HYD/2012 M/S. SUNDER ISPAT LTD. =================== 10 COPY FORWARDED TO: 1. M/S. SUNDER ISPAT LTD., 21-1-41, TOBACCO BAZAAR, SECUNDERABAD. 2. THE DEPUTY CIT, CENTRAL CIRCLE-4, HYDERABAD. 3. THE ASST. CIT, CENTRAL CIRCLE-4, 8 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD-500 004. 4. THE CIT(A)-VII, HYDERABAD. 5. THE CIT (CENTRAL), HYDERABAD 6. THE DR BENCH 'A', ITAT, HYDERABAD