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Income Tax Appellate Tribunal, “SMC” BENCH CUTTACK
Before: SHRI GEORGE MATHAN
O R D E R This is an appeal filed by the assessee against the order of the ld CIT(A), for the assessment years 2009-2010 & 2012-2013.
2. Both the appeals of the assessee are delayed by 9 days each for which the assessee has filed necessary with affidavits for condonation of delay. In view of the reasons mentioned in the affidavit for delay and as the ld. Sr. DR has not raised any serious objections, the delay of 9 days each in the present appeals are condoned and both the appeals are disposed off on merits.
It was submitted by the ld. AR that there was a search in the premises of the assessee by the Director General of Central Excise Intelligence, Regional Unit, Rourkela on 03.08.2012. In the course of search, one laptop and four pen drives were found. It was submitted that on the basis of the said laptop and four pen drives, certain additions had been proposed and made by the Central Excise Department. It was the 2 submission that consequently, the AO in the case of the assessee issued notice u/s.148 of the Act and has completed the assessment u/s.143(3) r.w.s.147 of the Act for both the assessment years by bringing to tax the alleged undisclosed sales. It was the submission that for the assessment year 2009-2010, the AO treated the undisclosed sales turnover as quantified by the Central Excise Department at Rs.4,94,886/- and brought to tax @8% of the same as the undisclosed profits. For the assessment year 2012-2013, the AO brought to tax the profit on the undisclosed turnover of Rs.3,41,31,829/- @3.30%. It was the submission that the reopening of assessment itself is invalid for both the assessment years insofar as the very information on the basis of which the reopening has been done, stood quashed by the Customs, Excise and Service Tax Appellate Tribunal (in short the “CESTAT”) wherein it has been held as follows :- 7. We also find from the case records that the printouts from the Pen drives are neither co-relatable with the central excise invoices raised by the Appellant during the relevant period nor corroborated by any independent evidence establishing clandestine manufacture or clearance. No efforts have been made by the investigating agencies to establish the existence of any unaccounted manufacturing activity in the form of unaccounted raw material, shortage of stock, shortage of raw material/finished goods, excess consumption of electricity, unaccounted labour payments, interrogation of buyers/transporters or any incriminating record/document to suggest any flow back of cash etc. The revenue authorities in this case have failed to discharge the burden of proving the serious charge of clandestine clearance or undervaluation with cogent and clinching evidence. It has been consistently held that no demand' of clandestine manufacture and clearance can be confirmed purely on assumptions and presumptions and the same is required to be proved by the revenue by direct, affirmative and incontrovertible evidence, in the following cases: • Bihar Foundary & Castings Ltd. vs. CCE, Ranchi [2019 (8) TMI 527 - CESTAT Kolkata] - Para 18 3 • Continental Cement Company vs Union of India [2014 (309) E.L.T. 411 (Ali.)] - para 12; • Balashree Metals Pvt. Ltd. vs. UOI [2017 (345) ELT 187 (Jhar.)] - Para 5 vi • CCE., Meerut-I vs R.A. Castings Pvt. Ltd. [2012 (26) S.T.R. 262 (All.)] - para M/s Popular Paints and Chemicals vs CCE.,& Customs Raipur [2018 (8) TMI 473 (Tri. -- Delhi)] -- pal-a 17; • M/s AmitMetalik5 Ltd. vs CCE. & ST., Durgapur [2019 (4) TMI 638 (Tri. - Kolkata)] - para 11; • Principal Commissioner of CGST & Central Excise vs. Shah Foils Ltd. [2020 (372) ELT 632 (Guj.)] - para 8 The learned Commissioner has asserted in the impugned order that the demand based on Pen drive data is sustainable and that the department is not required to find further details about production, clearance, cash flow back, transportation or purchase of unaccounted raw material at para 4.9 of the 'O-I-O' which is clearly contrary to the decision of the Hon'ble Gujarat High Court in Shah Foils case (supra) and the other judicial precedents cited supra.
By respectfully following the ratio of the above decisions, we are inclined to take a view that the charge of clandestine removal/undervaluation cannot sustain on the basis of the Pen drive data alone more so when the printouts have not been obtained in compliance with the mandatory conditions of Section 36(2) & (4) of the Central Excise Act”
It was the submission that consequently the assessments are liable to be annulled. Ld. AR has filed written submissions for both the appeals as follows :- Written submission filed in ITA No.107/CTK/2023: 1.1. In the instant Appeal the Appellant has challenged the First Appellate Order dated 06-12-2022 passed by the Ld.CIT (Appeals) U/s 250 of the Income Tax Act, 1961. '1.2. By the impugned Order the Ld.CIT (Appeals) has dismissed the Appeal filed by the Appellant against the Assessment Order dater' 19-12-2016 passed by the Ld. ITO U/s 143(3)/Sec.147 of the Act. By the said Assessment Order, the Ld. ITO has assessed the total income at Rs.39,590/- and raised the demand of R5.23,580/-.
4 1.3. The Appellant is engaged in the manufacture of Tractor Trolley Spring Leaf. The Appellant is a SSI Unit. 1.4. The instant proceeding is initiated U/s f 4l for the AY 2009-10 vide Notice dated 12-08-2015 on the basis of one purported Show Cause Notice dated 10-10-2013 issued by the Ld. Addl. Director General of Central Excise Intelligence and also as per purported report of Ld.DCIT (Inv.), Rourkela. 1.5. The assessment Order dated 19-12-2016 passed the Ld.ITO without considering any of the contention of the Appellant, assessed the total income of the Appellant Rs.39,590/-. 1.6. The Appellant being aggrieved filed Appeal dated 16-01-2017, before the Ld.CIT(Appeals), Sambalpur. 1.7. The Appellant further filed a Written Submission dated 14-11- 2022 before the Ld. CIT(Appeal). 1.11 However, by the impugned order dated 06-12-2022, the Ld.CIT (Appeals) without considering any of the contentions of the Appellant, arbitrarily confirmed the demand as stated above. 1.12 Being aggrieved, the Appellant has filed the instant appeal.
2. CONTENTIONS OF THE APPELLANT 2.1 The re-assessment proceeding is initiated by the Ld. Assessing Officer without the existence of "reasons to believe" under Section 147 of the Act. The reasons to believe is based on borrowed satisfaction and are conclusions and not reasons. The Appellant relies on the following judgments decisions- (i) PCIT Vs. Meenakshi Overseas Pvt. Ltd. reported in (2017) 395 ITR 677 (Del.); (ii) PCIT Vs Surat Me/ton Pvt. Ltd. reported in 2022 (9) TMI 38 (Guj.); (iii) Alumeco India Extrusion Ltd. Vs CTO reported In (2022) 27 VST 419 (AP); (iv) PCIT Vs Vrundavan Ceramics (P) Ltd. reported in (2018) 265 Taxman 383 (Guj); (v) CIT Vs Vignesh Kumar Jewellers reported in (2009) 180 Taxman 18 (Mad.); (vi) PCIT Vs Manzil Dineshkumer Shah reported in (2018) 406 ITR 326 (Guj.) upheld by the Hon'ble Supreme Court in (2019) 261 Taxman 1 (SC); 5 (vii) PCIT Vs Sunhill Ceramics P. Ltd. reported in 2018 (9) TMI 1563 (Guj.); (viii) PCIT Vs Shapoorji Pallonji and Co. Ltd. Reported in (2020) 423 ITR 220 (Bom.); (ix) Zirconia Cera Tech Glazes Vs DCIT reported in (2019) 178 ITO 526 (Tri.-Ahmd.) = (2019) 109 taxmann.com 73 (Tri.-Ahmd.); 3. The sanction have been granted under Section 151 in a mechanical manner and without existence of the jurisdictional facts. The Appellant relies on the judgment of the Hon'ble Supreme Court in the case of Sri Krishna Pvt. Ltd. Vs ITO reported in (1996) 221 ITR 538 (Se). The relevant portion of the said judgment is set out below:- 'The Income-tax Officer can issue notice under section 148 of the Income-tax Act, 1961, proposing to reopen an assessment only where he has reason to believe that on account of either the omission or failure on the part of the assessee to file the return or on account of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year, income has escaped assessment. The existence of the reason(s) to believe is intended to be a check, a limitation, upon his power to reopen the assessment. Section 148(2) imposes a further check upon the said power, viz., the requirement of recording of reasons for such reopening by the Income-tax Officer. Section 151 imposes yet another check upon the said power, viz., the Commissioner or the Board, as the case may be, has to be satisfied, on the basis of the reasons recorded by the Income-tax Officer, that it is a fit case for issuance of such a notice. The power conferred upon the Income-tax Officer by sections 147 and 148 is thus not an unbridled one. It is hedged in with several safeguards conceived in the interest of eliminating room for abuse of this power by the Assessing Officers. The idea was to save the assessees from harassment resulting from mechanical reopening of assessments but this protection avails only to those assessees who disclose all material facts truly and fully ..... (emphasis added) 2.2 The initiation of the proceedings under Section 147 read with Section 148 is barred by limitation. 3 In the above background of the case it is prayed that the impugned Order be set-aside and the instant appeal filed by the Appellant may kindly be allowed with consequential relief(s) to the Appellant. Written submission filed in 1.1. In the instant Appeal the Appellant has challenged the first Appellate Order dated 31-01-2023 passed by the Ld. CIT (Appeals)" U/s 250 of the Income Tax Act, 1961.
6 1.2. By the impugned Order the Ld.CIT (Appeals) has arbitrarily rejected the Appeal filed by the Appellant- against the Assessment Order dated 30- 12-2019 passed by Ld.ITO U/s 147/Section 143/Section 263 of the said Act. 1.3. The Appellant is engaged in the manufacture of Tractor Trolley Spring Leaf. The Appellant is an SSI Unit. 1.4. The Ld.AO vide Notice dated 12-08-2015 U/s 148 re-opened the assessment for the A.Y. 2012-13 on the basis of a Show Cause Notice dated 10-10-2013 issued by the Ld. Add/. Director General of Central Excise Intelligence and also as per the report of Ld. DClT (Inv.), Rourkela under the Central Excise Act, 1994. 1.5. The Ld.AO passed the Assessment Order on dated 19-12-2016 U/s 147 determining total income of on Rs.4,09,5801- undisclosed sales of Rs.3,41 ,31 ,829/- (Rs. 7,76,11,938/- minus Rs.4,34,80,109/-) adopting the Gross Profit Ratio of 1.2% instead of the Appellant's disclosed G.P. ratio of 0.68%. 1.6. The Ld. PCIT vide Revision Order dated 29-03-2019 set aside the said Assessment Order dated 19-12-2016 u/S 263 directing the Ld. ITO to pass a fresh Assessment Order considering just and comparable cases of other firms engaged into similar business. 1.7. The Ld. ITO thereupon issued a Show Cause Notice dated 17- 12-2019 proposing determination of total income of Rs.11 ,26,350/- adopting average Net Profit at the rate of 3.30% on the undisclosed sales/turnover of Rs.3,41 ,31 ,829/-. 1.8. The Appellant vide its Written Submission dated 20-12-2019 objected to the arbitrary additions. It is submitted that the comparable cases referred in the said notice are giant companies with ISO/ISI standards having very high turnover whereas the Appellant is a SSI unit with very low turnover. 1.9. It is stated that a 2nd Show Cause Notice dated 27-12-2019 was issued by the Ld. Assessing Officer arbitrarily rejecting the contentions of the Appellant and confirming the demand at Rs.11,26,350/-. 1.10. The Ld. ITO passed instant Assessment Order dated 30-12- 2019 U/s 143(3)/Sec.147/Sec.263 of the Act determining total income of Rs.11,26,350/- on the basis of incomparable turnover of the giant companies in a perfunctory and ad hoc manner. The Ld. AO also initiated penalty proceeding under Section 271 (1 )(c) of the Act. 1.11. The Assessment Order dated 30-12-2019 passed by Ld .ITO was carried the matter before Ld. CIT(Appeals) by the Appellant contending inter alia that:
7 (i) There is no material to form a reasonable belief. Entire proceeding initiated is based on borrowed satisfaction i.e. on the basis of show cause notice by Central Excise authorities; (ii) in the Revision Order dated 29-03-2019 passed by the Ld. PCIT under Section 263, the Ld. ITO was directed to locate comparable cases in the same line of business in Rourkela which is not complied with by the Ld. ITO. (iii) submitted actual/correct net profit rates of comparable/identical case of M/s Modi Springs P. Ltd. and further submitted correct net profit, turnover etc. of purported four comparable cases referred to by Ld. Pr.CIT in the revision Order dated 29-03-2019; (iv) the Ld. ITO failed to appreciate that the said purported comparable cases are not similarly situated and are not identical to the case of the Appellant on the basis of scale economy, regional disparity and cost of production; (v) The Appellant is a SSI whereas the four companies are large scale industries. The turnover of Appellant is Rs.1.90 Cr whereas the turnover of said companies are Rs.125.15 Cr i.e. 66 time more; (vi) M/s Modi Springs P. Ltd. in the same line of business and is similarly situated and similarly circumstanced. (vii) in the worst case scenario, the Ld. ITO could not have adopted the average net profit/turnover ratio of 3.30% as the said ratio does not relate to any of the comparable cases. The impugned order is contrary to the mandates of Section 263,147 and 143(3). 1.11 However, by the impugned order dated 31-01-2023, the Ld.CIT (Appeals) without considering any of the contention~ of the Appellant, arbitrarily confirmed the demand as stated above. 1.12 Being aggrieved, the Appellant has filed the instant appeal.
CONTENTIONS OF THE APPELLANT 2.1 Section 147 - The jurisdictional facts for re-opening assessment under Section 147 does not exist in the instant case. The Re- assessment proceeding in the instant case is initiated by the Ld. ITO without existence of "Reasons to believe" by independent application of mind and enquiry. The reasons to belief is formed on "borrowed satisfaction" of Central Excise Authorities/OOIT(lnv). There is no tangible material to form a reasonable belief. The ingredients of Section 147/Section 148 do not exist in the instant case. The purported reasons recorded by the Ld. ITO are "conclusions" and not "reasons". The Appellant relies on the following judgments/decisions- 8 (i) PCIT Vs. Meenakshi Overseas Pvt. Ltd. reported in (2017) 395 ITR 677 (Oel.),· (ii) PCIT Vs Surat Melton Pvt. Ltd. reported in 2022 (9) TMI 38 (Guj.), ( iii) Alumeco India Extrusion Ltd. Vs CTO reported in (2022) 27 VST 419 (AP),' (iv) PCIT Vs Vrundavan Ceramics (P) Ltd. reported in (2018) 265 Taxman 383 (Guj); (v) CIT Vs Vignesh Kumar Jewellers reported in (2009) 180 Taxman 18 (Mad.)," (vi) PCIT Vs Manzil Oineshkumar Shah reported in (2018) 406 ITR 326 (Guj.) upheld by the Hon 'ble Supreme Court in (2019) 261 Taxman 1 (SC)," (vii) PCIT Vs Sunhill Ceramics P. Ltd. reported in 2018 (9) TMI 1563 (Guj.); (viii) PCIT Vs Shapoorji Pallonji and Co. Ltd. Reported in (2020) 423 ITR 220 (Bom.),· (ix) Zirconia Cera Tech Glazes Vs DCIT reported in (2019) (x) 178 ITD 526 (Tri.-Ahmd.) = (2019) 109 taxmann.com 73 (Tri.-Ahmd.); 3. Section 151 - The sanction is accorded U/s 151 mechanically. The Appellant most humbly submits that the sanction U/s 151 is granted mechanically without independent application of mind and further the sanction is not granted by competent authority. The Appellant relies on the judgment of the Hon'ble Supreme Court in the case of Sri Krishna Pvt. Ltd. Vs ITO reported in (1996) 221 ITR 538 (Se). The relevant portion of the said judgment is set out below:- "The Income-tax Officer can issue notice under section 148 of the Income-tax Act, 1961, proposing to reopen an assessment only where he has reason to believe that on account of either the omission or failure on the part of the assessee to file the return or on account of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year, income has escaped assessment. The existence of the reason(s) to believe is intended to be a check, a limitation, upon his power to reopen the assessment. Section 148(2) imposes a further check upon the said power, viz., the requirement of recording of reasons for such reopening by the Income-tax Officer. Section 151 imposes yet another check upon the said power, viz., the Commissioner or the Board, as the case 9 may be, has to be satisfied, on the basis of the reasons recorded by the Income-tax Officer, that it is a fit case for issuance of such a notice. The power conferred upon the Income-tax Officer by sections 147 and 148 is thus not an unbridled one. It is hedged in with several safeguards conceived in the interest of eliminating room for abuse of this power by the Assessing Officers. The idea was to save the assessees from harassment resulting from mechanical reopening of assessments but this protection avails only to those assessees who disclose all material facts truly and fully .....
4. Sec.143(3)/Sec.147- The additional is illegal as the proceeding under the Central Excise Act, 1944 is quashed and set aside by Tribunal. It is submitted that when the very basis of addition of Rs.3,41 ,31 ,829/- i.e. Central Excise proceeding, is quashed and set aside by the Ld.Customs, Excise & Service Tax Appellate Tribunal vide Final Order dated 19-01-2021 in Appeal No. E/76782/2016, the present addition cannot be sustained. Copy of the order dated 19-01-2021 passed by Ld.Customs, Excise & Service Tax Appellate Tribunal is annexed hereto and marked as Annexure-"A".
Section 143(3)/Section 147- The estimation of net profit by Ld.ITO is illegal and arbitrary. The Ld.ITO without locating any comparable/identical cases in the same region, arbitrary adopted the Prowess data. The "Prowess" data is an irrelevant material for levy of taxes under the Act. The said data base is maintained for limited purposes and use by academician and not for levy of taxes. ln respect of data etc. comparable cases of M/s Modi Springs Pvt. Ltd. submitted by the Appellant, no enquiry was carried out under Section 136(6) nor the data of said assessee is adopted. The Appellant relies on Rajaram Rajendra Bhandari Vs. CIT reported in [2016]388 ITR 259 (Raj.) upheld by the Hon'ble Supreme Court in the case of reported in [2018} 97 taxmann.com 348 (Se).
Section 29/Section 145-When the books of accounts are not rejected, the net profitlloss ratio of the Appellant has to be accepted. The books of accounts of the Appellant are not rejected, hence, the assessing authority is bound to determine the net profit/loss in accordance with Section 29 read with Section 145 of the Act i.e. the books of accounts of the assessee.
7. Section 143(3)/Section 147 - The entire proceedings is carried out in gross violation of principle of natural justice. The entire proceeding is carried out is in gross violation of principles of judicial discipline and natural justice. The adverse materials are not supplied to the Appellant and also the witnesses whose statements are relied upon are not allowed to be cross examined.
8. Section 2348- Levy of Interest is illegal. The Appellant most humbly submits that levying of interest of Rs.3,23,6401- U/s 2348 of the Act is illegal, arbitrary and without authority of law.
In the above background of the case it is prayed that the impugned Order be set-aside and the instant appeal filed by the Appellant may kindly be allowed with consequential relief(s) to the Appellant. 5. Ld. AR has also filed a paper book containing 11 case laws, which read as under :-
1.
PCIT Vs. Meenakshi Overseas Pvt. Ltd. [(2017) 395 1- 11 ITR 677 ,(Del.)] 2. PCIT Vs Surat Melton Pvt-Ltd. [2022 (9) T~l 38 (Guj.)] 3. Alumeco India Extrusion Ltd. Vs CTa [(2022) 27 VST 419 (AP) 4. PClT Vs Vrundavan Ceramics (P) Ltd. [(2018). 265 Taxman.383 (Guj)] 5. CIT Vs Vignesh Kumar Jewellers [(2009) 180 Taxman 18 (Mad.)] 6 PCIT Vs Manzil Dineshkumar Shah [(2018) 406 ITR 326 (Guj.)] upheld by the Hon'ble Apex Court in (2019) 261 Taxman 1 (SC)] .' 7. PClT Vs Sunhill Ceramics P. Ltd. [2018 (9) TMI 1563 (Guj.)] 8. PClT Vs Shapoorji Pallonji and Co. Ltd .. [(2020) 423 ITR 220 (Born.)] 9. Sri Krishna Pvt. Ltd. Vs ITO [(1996)221 ITR 538 (SC)] 10 Rajararn Rajendra Bhandari Vs. CIT [2016J 388 ITR 259 (Raj.) upheld by the Hon'ble Apex Court in [2018] 97 taxmann.corn 348 (SC).
11. Zirconia Cera Tech Glazes Vs DClT [(2019) 178 ITD 6. In reply, ld. Sr. DR submitted that in view of the decision of the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs. ITO, reported in [2002] 125 Taxman 963/[2003] 259 ITR 19 (SC), liberty was available to the assessee to request for the reasons recorded and file its objections thereon. It was the submission that the assessee has not requested for the reasons recorded nor has raised any objection for reasons recorded. It was the submission that on earlier occasions on the request of the ld. DR, the assessee was directed to file the paper book along with all the evidences, which have not been filed by the assessee. It was the submission that when the reasons were recorded, it is a prima 11 facie reason that is to be looked into and it is not the final position of the reasons that is to be recorded in the reasons. It was further submitted that in the course of search, the statement of the Managing Partner had been recorded and the Managing Partner had also discussed about the said pen drives and laptop. It was the submission that sanction for the reasons recorded for reopening has also been granted by the competent authority being the Pr.CIT. It was the submission that the assessment has been validly done and the same is liable to be upheld. It was further submission of the ld. Sr. DR that in view of the provisions of Section 124(3) of the Act, it was incumbent upon the assessee to file its objections, if any, within one month from the date of issue of the notice u/s.148 of the Act.
I have considered the rival submissions. At the outset, the submissions of the ld. Sr. DR that the provisions of Section 124(3) of the Act would apply, would not hold water, insofar as the provisions of Section 124(3) of the Act is in regard to the challenge to the jurisdiction. It is not in regard to the challenge to the reopening. The issue of reopening can be challenged at any point of time as it is purely a legal issue. It is worthwhile to specifically mention here that when the appeal came up for hearing on the last occasion i.e. on 15.11.2023, the assessee was requested to produce the reasons recorded as is available with him because he has challenged the reopening. Unfortunately, the ld. AR has chosen in his wisdom not to produce the copy of reasons recorded. In the absence of the reasons recorded having been produced, obviously the question of reopening cannot be adjudicated. Further, admittedly, a perusal of the