M/S. GANESH AGRO STEEL INDUSTRIES,,NASHIK vs. ASSISTANT COMMISSIONER OF INCOME TAX,, NASHIK

आदेश / ORDER

PER SUSHMA CHOWLA, JM

The appeal filed by the assessee is against the order of the Commissioner of Income Tax (Appeal)-1, Nashik dated 28.11.2016 relating to assessment year 2011-12 against order passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 ( in short ‘the Act’).

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“On facts and in law, 1. The learned CIT(A) erred in confirming the addition of Rs.1,67,43,878/- made by the A.O. by holding that the entire undisclosed sales made by the assessee were to be treated as undisclosed income of the assessee. 2. The learned CIT(A) failed to appreciate that the entire undisclosed sales declared by the assessee before the Excise Dept. did not constitute income of the assessee and only the gross profit on such undisclosed sales should have taxed as income of the assessee. 3. The learned CIT(A) erred in not appreciating that in the revised return of income filed for this year, the assessee had already offered additional income of Rs.33,85,985/- on account of gross profit @17.58% on the total undisclosed sales of Rs.2,01,29,863/- and hence, there was no reason to make further addition of Rs.1,67,43,878/- by treating the entire amount of sales as undisclosed income of the assessee. 4. The learned CIT(A) ought to have appreciated that similar contention has been accepted by the Dept. in the case of one of the sister concerns of the assessee wherein only the Gross Profit on undisclosed sales has been taxed by the A.O. in the asst. completed in that case and hence, there was no reason to take a different view in the instant when the facts involved were similar. 5. Without prejudice to the above grounds, the assessee submits that if at all, the entire amount of undisclosed sales of Rs.2,01,29,863/- is to be treated as undisclosed income of the assessee, then the additional income of Rs.2,00,000/- offered by the assessee in the revised return towards initial investment made in cost of goods sold clandestinely may be reduced from reduced while computing the total income of the assessee. 6. The learned CIT(A) further erred in making enhancement of Rs.37,49,307/- to the assessed income of the assessee without appreciating that the said enhancement was not warranted on facts of the case. 7. The learned CIT(A) erred in holding that the undisclosed income of Rs.37,49,307/- in respect of excess stock and excess cash found in the course of survey action conducted on 05.12.2012 i.e. during A.Y.2013 -14 was to be treated as undisclosed income of the assessee for this year i.e. A.Y.2011-12 and thereby enhancing the income of the assessee for A.Y.2011 - 12 to that extent. 8. The learned CIT(A) erred in not appreciating that the excess stock and excess cash was found in the survey conducted during A.Y.2013-14 and hence, even if it is assumed that the same constituted undisclosed income of the assessee, the said income could not have been taxed in A.Y.2011-12 and therefore, the enhancement made in this year may be deleted. 9. The learned CIT(A) ought to have appreciated that the assessee had declared undisclosed income in respect of G.P. on unaccounted sales in the revised return filed for A.Y.2011-12 and the source of the excess stock and excess cash found in the survey conducted on 05.12.2012 was explained to be out of the said undisclosed income of the assessee and the claim of telescoping benefit in respect of the above undisclosed income and undisclosed investment was accepted by the A.O. in the course of the asst. proceedings and hence, there was no reason to make any enhancement by rejecting the said claim of the assessee.

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profit on undisclosed sales and also simultaneously making additions by treating the

entire amount of undisclosed sales as undisclosed income of the assessee. The

assessee has raised various linked grounds of appeal in this regard. Other issues have

also been raised by the assessee.

declaring total income of Rs.6,87,949/-. Thereafter, revised return of income was filed

by assessee declaring total income of Rs.42,73,934/-. Survey action on the premises

of the assessee was carried out on 05.12.2012 and certain documents were

impounded by survey party from the premises of assessee. As per annexure-1, it was

observed that investigation carried out by the Central Excise department where the

assessee had cleared 631.78 MTS of TMT Bars/MS ingots during the period from

August 2010 to October 2010 valued at Rs.2,01,29,863/- without accounting for in their

books of accounts and without payment of excise duty. The Assessing Officer, thus,

recorded reasons for reopening of assessment under section 147 of the Act and notice

under section 148 of the Act was issued. In response thereto, assessee submitted that

the revised return of income filed on 18.12.2012 may be treated as return of income in

response to the notice issued under section 148 of the Act, wherein the assessee had

offered additional income of Rs.35,85,985/-. The Assessing Officer noted that

assessee was manufacturer of ingots/Billets. In the case of the assessee, the Director

General of Central Excise Intelligence (DGCEI), Mumbai carried out search on

26.11.2010 & 27.11.2010 in the premises of Kharbanda Parks, 22-23, Dwarka Circle,

Nashik Poona Road, Nashik. During investigation, the assessee was found to have

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cleared a total quantity of 38.110 MTS of TMT Bars/MS Bars, valued at Rs.12,06,537/-,

through M/s. PE, during the period from 08.08.2010 to 05.10.10, without payment of

Central Excise duty amounting to Rs.1,24,273/-. In addition to the above, assessee

had received a total quantity of 695.635 MTS of MS Re Rolling Scrap, through M/s.PE

during the period from 18.07.2010 to 14.10.2010, which were not accounted for in the

books of account of assessee and out of such unaccounted purchases, assessee had

manufactured 660.853 MT of TMT Bars/ MS Round Bars and 13.93 MT of scrap and

removed the resultant manufactured goods without payment of Central Excise duty.

The DGCEI gave show cause notice to the assessee for manufacturing and clearing

total quantity of 660.853 MT of TMT Bars/MS Bars and 13.913 MT of M.S. Scrap,

cumulative valued at Rs.2,01,29, 863/-, without payment of Central Excise duty

amounting to Rs.20,73,376/- liable thereon. The Assessing Officer on receipts of

information and after survey, issued notice to the assessee as to why the total

unrecorded sales of Rs.2,01,29,863/- not be disallowed and added to the total income.

The assessee in reply, stated that it had declared additional income of Rs.35,85,985/-

in the revised return of income in respect of gross profit on the removal of goods worth

Rs.2,01,29,863/-. It was also explained that the said additional income included initial

investment of Rs.2,00,000/- and gross profit of Rs.33,85,985/-. The Assessing Officer

rejecting the plea of assessee observed that the entire sales which were unrecorded to

the tune of Rs.2,01,29,863/- and additional income declared by the assessee to the tune of Rs.33,85,985/-, hence, the difference amount of Rs.1,67,43,878/- was to be

included in the hands of assessee.

of the value of goods clandestinely removed without payment of excise duty. The

CIT(A) also issued enhancement notice to the assessee. He noted that at the time of

survey under section 133A of the Act on 15.12.2012, excess stock of raw material of

121.220 MT was found, the value of which was worked out to Rs.35,23,790/- and

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excess cash of Rs.5,54,214/- was found. The assessee admitted the difference and

declared additional income of Rs.40,78,004/- for assessment year 2013-14. The

CIT(A) verified records for assessment year 2013-14 and noted contents of the

assessment order under section 143(3) of the Act dated 23.12.2015 in which out of

total income declared during survey action, income to the extent of Rs.37,49,307/-

pertains to assessment year 2011-12 and the balance income of Rs.3,28,697/- was

declared for assessment year 2013-14. The assessee had furnished revised return of

income for assessment year 2011-12 and paid taxes thereon. The CIT(A) also made

reference to the submission of assessee before Assessing Officer during assessment

proceedings pertaining to assessment year 2013-14 and copy of the letter dated

02.12.2015 filed by assessee is scanned and reproduced in Para 7.2 at pages 17 and

18 of the appellate order. The CIT(A) observed as under:

“7.3 On perusal of return of income of A.Y. 2011-12, it is observed that the declaration made was on account of unaccounted sales of Rs.2,01,29,863/- detected by the DGCEI and not on account of admitted income of Rs.40,78,004/- for A.Y.2013-14 unearthed during survey u/s. 133A of the Act conducted by Income Tax Department and admitted by assessee as income for A.Y.2013-14. There was no retraction to the declaration made by the assessee……….”

to why income should not be enhanced to the tune of Rs.33,85,985/-. The assessee

explained that revised return of income was filed included and additional income of

Rs.33,85,985/-, in which assessee had declared initial capital of Rs. 2,00,000/-, had

offered GP @17.58% on the alleged undisclosed sales of Rs.2,01,29,863/- at

Rs.33,85,985/-. The CIT(A) issued second enhancement notice to the assessee that

the admission of the assessee of Rs.37,49,307/- against excess stock of raw material

and cash being not reflected in the revised return of income filed for assessment year

2011-12, why the same be not added. The assessee in reply reiterated its earlier

submissions and pointed out that the income offered to tax for assessment year 2011-

12 was to be telescoped against excess stock and excess cash found on the date of

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survey. He also explained that the said amount of Rs.35,85,985/- was incorrectly

mentioned in the letter dated 02.12.2015 at Rs.37,49,307/-. The CIT(A) was of the view

that the assessee had willfully not admitted income at Rs.37,49,307/- neither in the

assessment year 2011-12 nor in the assessment year 2013-14. The gross profit

shown in revised return for assessment year 2011-12 was towards unaccounted sales

of Rs.2,01,29,863/- unearthed by DGCEI and not towards admitted income for

unaccounted stock of raw material and cash found during survey. The CIT(A)

enhanced the income of the assessee at Rs.37,49,307/-. The plea of telescoping was

dismissed by the CIT(A) being illogical. The CIT(A) further held as under:

“8.1 Reference is invited to the decision of M/s. Kim Pharma (P) Ltd. v/s. CIT, ITA No.106 of 2011 dated 27/04/2011, wherein, it is held that income surrendered during survey is to be taxed as deemed income and no set off of loss u/s. 70 and 71 is to be allowed. In Liberty Plywood Pvt. Ltd. ITA No. 727/Chd/2012 dated 01.05.2012, it has been held that surrendered income has to be assessed separately as deemed income without setting off of the losses u/s. 70 and 71. Therefore, no telescoping both on fact and law can be allowed against out of books sales. The argument of Ld. AR stands dismissed.”

income is to be assessed as deemed income of the assessee i.e. on account of

investment in excess stock and raw material and cash found during the course of

survey and held surrendered income is to be treated as deemed income without

setting off of the losses u/s. 70 and 71 of the Act.

against enhancement made by the CIT(A).

additions are on account of undisclosed sales declared before Excise Authority. The

Ld. AR for the assessee after taking us through the factual aspects of the case pointed

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out that Excise Authority had carried out investigation and had come to a findings that

the assessee had clandestinely removed goods without payment of excise duty. The

said document was found during course of survey on assessee and its sister concern.

The assessee claimed that after survey, it filed return of income under section 139(5)

of the Act declaring total income at Rs.35,85,985/- i.e. by applying GP @ 17.58% on

total unrecorded sales detected by Excise Authority and Rs.2,00,000/- being initial

working capital adjustment. The Ld. AR for the assessee pointed out that Assessing

Officer/ CIT(A) had added entire sales in the hands of the assessee. He further

referred to the bunch of appeals decided by Pune Bench of Tribunal on account of

such similar investigation done by Excise Authority wherein the Tribunal had directed

that GP @4% is to be applied over and above GP declared by the assessee on the

goods which were clandestinely removed by assessee without payment of excise duty.

suggested, no further addition is warranted once additional income has been offered by

the assessee.

Authorities below.

issue which arises in the grounds of appeal No. 1 to 5, the assessee was engaged in

the manufacturing of ingots/Billets. DGCEI carried out survey/ investigation and against

the assessee, it was found that the assessee had clandestinely removed goods without

payment of excise duty to the tune of Rs.2,01,29,863/-. The assessee before Excise

Authority had accepted sales of TMT Bars outside books of account. The assessee

after survey action on 05.12.2012 filed revised return of income on 18.12.2012 offering

addition income of Rs.35,85,985/-. The assessee offered Rs.2,00,000/- as initial

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investment in the goods and Income of Rs.33,85,985/- being GP @17.58% on value of

goods clandestinely removed without payment of excise duty to the tune of

Rs.2,01,29,863/-. The Authorities below have added the entire value of goods removed

clandestinely by assessee without payment of excise duty as undisclosed income and

addition to the tune of Rs.1,67,43,878/- has been made after giving credit to the

income offered by assessee in the revised return of income at Rs.33,85,985/-. We find

that the Tribunal in the case of ITO Vs. M/s. Mauli Steel Pvt. Ltd, ITA No.

2020/PN/2014 relating to assessment year 2005-06, and order dated 30.11.2016, the

identical issue had arisen in bunch of appeals which have been decided on various

dates. However, for adjudicating the issue, reference is made to the ratio laid down by

the Pune Bench of Tribunal in consolidated order with lead order in Shivshakti Re-

Rolling Mills Pvt. Ltd. Vs. ITO in ITA 1884/PN/2014, relating to assessment year 2010-

11, order dated 31.03.2016, wherein identical issue of estimation of income in the

hands of assessee on account of alleged suppression of production on account of

variation in consumption of electricity arose and relying on the order of the Tribunal in

the case of Re-Rolling Mills i.e. Shree Om Rolling Mills Pvt. Ltd. Vs. Addl. CIT in ITA

Nos.125 & 127/PN/2012 and cross appeals in ITA Nos.430 & 431/PN/2012, relating to

assessment years 2007-08 & 2008-09 vide order dated 15.07.2015 had considered the

issue at length vide paras 54 to 87 and vide paras 88 and 89, the Tribunal had deleted

the addition on both counts i.e. addition made on account of suppressed production

and alleged investment in purchases, which read as under:-

“88. In the entirety of the above said facts and circumstances, we hold that no extrapolation of sales for 300 days can be made in the hands of the assessee on the basis of the evidence found for clandestine removal of material without payment of Excise duty for few days, which in turn, has been admitted by the assessee by way of filing petition before the Settlement Commission, which in turn, has also been accepted by the Settlement Commission. Merely because the Settlement Commission accepted the claim of the assessee of additional Excise duty payable on the said clandestine removal of material without payment of Excise duty does not establish the case of the Revenue that the said figures of additional production should be utilized for extrapolating the sales in the hands of the assessee for the entire year. Admittedly, the assessee had offered additional income on the said clandestine removal of material without

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payment of Excise duty, which is to be added as income in the hands of the assessee. The learned Authorized Representative for the assessee fairly admitted that in case the said additional income has not been added while computing the income in the hands of the assessee for the respective years, the same may be directed to be added in the hands of the respective assessee in respective years. Accordingly, we direct the Assessing Officer to verify from the records for the respective years and include the additional income on account of such admitted clandestine removal of material without payment of Excise duty, by the assessee either before the Settlement Commission or before the Excise authorities, in the hands of the assessee. We have heard bunch of appeals and in some years, there is no admission of clandestine removal of material without payment of Excise duty and in those years in the absence of any evidence and / or any investigation or inquiry made by the Assessing Officer and where the Assessing Officer has failed to collect additional evidence, no addition can be made in the hands of the assessee, by way of extrapolation of sales for 300 days on account of any evidence found in any preceding or succeeding years. Further, no addition can be made in the hands of the assessee, where no petition has been filed by the assessee before the Settlement Commission in any of the respective years or before the Excise authorities.

Om Rolling Mills Pvt. Ltd. Vs. Addl. CIT (supra). In the facts of the present case

investigation was carried out by the DGCEI and suppressed production been detected

and admitted by the assessee to the extent of Rs. 2,01,29,863/-. In view thereof, we

direct the Assessing Officer to restrict the addition by applying GP rate @ 4% to the

value of goods which have been clandestinely removed, without payment of Excise

duty. The assessee had offered GP @ 17.58% on the value of goods removed

clandestinely without payment of excise duty. However, the Assessing Officer shall

apply GP @4% over and above the same to work out addition income in the hands of

the assessee. Further, the assessee has also offered Rs.2,00,000/- as its initial

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investment which is added in the hands of assessee. Hence, grounds of appeal No. 1

to 5 are partly allowed.

CIT(A), survey action under section 133A of the Act was carried out on 05.12.2012 and

at the time of survey under section 133A on 05.12.2012 excess stock of raw material of

121.220MT was found, the value of which was worked out to Rs.35,23,790/- and

excess cash of Rs.5,54,214/- was found. The assessee admitted the difference and

declared additional income of Rs.40,78,004/- for assessment year 2013-14. However,

during the course of assessment proceedings for assessment year 2013-14,

assessment order was passed under section 143(3) of the Act on 23.12.2015 wherein

submissions of the assessee was that out of total income declared, income to the

extent of Rs.37,49,307/- pertains to A.Y.2011-12 and the balance income of

Rs.3,28,697/- is declared for A.Y.2013-14. The CIT(A) in this regard had given

enhancement notice as to why additional income offered during course of survey on

account of excess stock and excess cash found, should not be added in the hands of

assessee. The assessee submitted that telescopic effect may be given of the

additional income assessed in the hands of assessee and also that additional income

so offered , declared in the revised return of income. There is no merit in the second

plea of the assessee that the additional income had been offered in the revised return

of income since the said additional income related to the GP on the goods

clandestinely removed without payment of excise duty and do not relate to excess

stock/cash found during the course of survey.

hands of the assessee and the said additional income is available for making

investment in excess stock of raw material/ cash has merit and accepting the same,

we direct the Assessing Officer to allow telescopic effect on additional income

assessed in the hands of assessee against value of excess stock/cash found during

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course of survey which relates to the assessment year under appeal. Hence grounds of appeal No. 6 to 10 are allowed as indicated above.

Order pronounced on this 05th day of June, 2018.

Sd/- Sd/- ( ANIL CHATURVEDI) (SUSHMA CHOWLA) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER

पुणे / Pune; �दनांक / Dated : 05th June, 2018 SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(Appeal)-1, Nashik. 4. The Pr. CIT-1, Nashik. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” ब�च, 5. पुणे / DR, ITAT, “B” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

// True Copy// आदेशानुसार / BY ORDER,

�नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.