M/s.CCL Products [India] Limited vs The Commissioner of Income Tax-I

ITA No. 360 of 2011 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 360 of 2011 (O&M) Date of Decision: 21.07.2014 Commissioner of Income Tax-I, Ludhiana ....Appellant. Versus M/s Arora Alloys Ltd., Ludhiana ...Respondent. CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. HON'BLE MR. JUSTICE JASPAL SINGH. PRESENT: Mr. Rajesh Katoch, Advocate for the appellant. AJAY KUMAR MITTAL, J. 1. This order shall dispose of a bunch of seven appeals bearing ITA Nos. 360, 362 of 2011, 167, 246, 299, 300 and 301 of 2012 as according to the learned counsel for the appellant, similar issue arises in these appeals. For brevity, the facts are being taken from ITA No. 360 of 2011. 2. This appeal has been filed by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 24.6.2011 (Annexure A-IV) passed by the Income Tax Appellate Tribunal, Chandigarh Bench “A”, Chandigarh (hereinafter referred to as “the Tribunal”) in ITA No. 1048/CHANDI/2008 for the assessment year 2005-06 claiming the following substantial questions of law:- GURBACHAN SINGH 2014.09.04 10:50 I attest to the accuracy and integrity of this document High Court Chandigarh

ITA No. 360 of 2011 -2- “(i) Whether on the facts and circumstances of the case, the Hon'ble ITAT has erred in law in cancelling the order dated 20.11.2008 of CIT-I, Ludhiana passed u/s 263 of the I.T. Act, 1961, which was solidly based on the information received from Central Excise Authorities as well as the facts and circumstances narrated in detail in paragraphs 3 and 4 of the impugned order? (ii) Whether on the facts and circumstances of the case, the Hon'ble ITAT has erred in law in cancelling the order u/s 263 ignoring its own opinion expressed in this combined order related to the ITA No. 319/Chandi/2008: A.Y. 2004-05 in paragraph 18, “As held by the Hon'ble High Court (reproduced supra), proceedings under the Central Excise Act have relevance only for formation of opinion of escapement of income and thereafter the income-tax authorities have to independently finalise the re-assessment irrespective of the final view in excise proceedings” when such is the legal position then, why his considered opinion about an order being 'erroneous and in so far as prejudicial to the interest of revenue' has been given no weightage in the impugned order?” GURBACHAN SINGH 2014.09.04 10:50 I attest to the accuracy and integrity of this document High Court Chandigarh

ITA No. 360 of 2011 -3- 3. Put shortly, the facts necessary for adjudication of the instant appeal as narrated therein are that the assessee is engaged in the business of manufacturing of Non-Alloys Steel Ingots, trading in scrap etc. and filed its return on 24.10.2005 for the assessment year 2005-06 declaring nil income. The assessment was framed under Section 143(3) of the Act vide order dated 31.12.2007 (Annexure A-I) at an income of ` 60,410/-. On 25.3.2004, an inspection was conducted by the team of Central Excise Department in the business premises of the assessee. On the basis of the information received from the Central Excise Department, Commissioner of Income Tax (CIT) vide order dated 20.11.2008 (Annexure A-II) passed under Section 263 of the Act held the order of the Assessing Officer to be erroneous and prejudicial to the interest of the revenue. The CIT set aside the assessment order to be framed de novo on the issue of the installed capacity of the furnace, unrecorded purchase of raw material, production of ingots and sale of the same out of books of account. The assessment de novo was to be framed after taking into consideration the statement of Shri Harmesh Arora, Director before the Central Excise Authorities who admitted the capacity of furnace to be 5MT instead of 4MT per heat vide which it was concluded that the assessee had produced 624 MT of non-alloys ingots from December 2003 to 24.3.2004 on the basis of the capacity of furnace but not recorded in the books of account. In compliance with the order dated 20.11.2008 (Annexure A-II), the Assessing Officer vide order dated 31.12.2009 (Annexure A-III) assessed the income of the assessee at ` 5,27,74,260/- and made additions of ` 1,77,48,529/- on account of unexplained sales and ` 3,49,65,324/- on account of unexplained purchases. Feeling aggrieved against the order of CIT under Section GURBACHAN SINGH 2014.09.04 10:50 I attest to the accuracy and integrity of this document High Court Chandigarh

ITA No. 360 of 2011 -4- 263 of the Act, the assessee filed an appeal before the Tribunal. The Tribunal vide order dated 24.6.2011 (Annexure A-IV) allowed the appeal and cancelled the order passed by the CIT under Section 263 of the Act. In view of cancellation of order of CIT under Section 263 of the Act by the Tribunal, the appeal of the assessee against the assessment order was allowed by CIT(A) which was upheld by the Tribunal. Hence, the present appeals by the revenue. ITA No. 360 of 2011 raises issue relating to validity of proceedings initiated under Section 263 of the Act whereas ITA No. 246 of 2012 is regarding assessment order passed in pursuance to order under Section 263 of the Act for assessment year 2005-06. ITA No. 362 of 2011, ITA No. 299 of 2012, ITA No. 300 of 2012, ITA No. 167 of 2012 and ITA No. 301 of 2012 concern assessment years 2004-05, 2006-07, 2007-08, 2008-09 and 2009-10 respectively. 4. In ITA No. 246 of 2012, the following substantial questions of law have been claimed:- (i) Whether on the facts and in law, the Hon'ble Income Tax Appellate Tribunal was justified in deleting the additions made by the A.O. of Rs.1,77,48,529/- and Rs.3,49,65,394/- on account of unexplained sales and unexplained purchases without deciding the issue on merits of the case? (ii) Whether, on the facts and circumstances of the case, the Hon'ble ITAT was justified in dismissing the appeal of Revenue merely relying upon the submission of assessee's AR that order passed by the CIT-I, u/s 263 has GURBACHAN SINGH 2014.09.04 10:50 I attest to the accuracy and integrity of this document High Court Chandigarh

ITA No. 360 of 2011 -5- been cancelled by the Hon'ble ITAT whereas decision of Hon'ble ITAT has not been accepted by the Revenue and has filed appeal before Hon'ble Punjab & Haryana High Court against the cancellation of order u/s 263? 5. Learned counsel for the appellant submitted that there was concealment of income inasmuch as the assessee had utilized the capacity of 5MT instead of 4MT per hour and, therefore, the Tribunal was in error in cancelling the order under Section 263 of the Act and also in deleting the additions made by the Assessing Officer. 6. After hearing learned counsel for the revenue, we do not find any merit in the appeal. 7. The following issues arise in the appeals for consideration of this Court:- (a) Whether the revenue was justified in making an addition on account of unexplained sales and unexplained purchases in the facts and circumstances of the present case? (b) Whether the action of the Commissioner of Income Tax (CIT) under Section 263 of the Act was valid as the assessment order passed was erroneous and prejudicial to the interest of the revenue? 8. The Tribunal had accepted that there was no unexplained income on account of either sales or purchases. The addition was sought to be made by the Income Tax Department on the basis of statement made by Shri Harmesh Arora before the Central Excise GURBACHAN SINGH 2014.09.04 10:50 I attest to the accuracy and integrity of this document High Court Chandigarh

ITA No. 360 of 2011 -6- Authorities in the context of levy of excise duty on unaccounted production. It was not disputed by the learned counsel for the revenue that the Commissioner (Appeals), Central Excise Department, had deleted the addition of excise duty levied which has been upheld by the Customs, Excise and Service Tax Appellate Tribunal, New Delhi (in short “CESTAT”). A copy of order dated 28.4.2014 passed by CESTAT has been produced by learned counsel for the revenue wherein it has been held that there was no evidence to show that there was clandestine manufacture and clearance of the ingots in question. The Income Tax Department had not collected any independent material to arrive at the conclusion that there was unexplained sales or purchases made by the assessee. It was only on the basis of the statement of Shri Harmesh Arora before the excise authorities in which the Tribunal had noticed various contradictions and gaps. In the facts and circumstances, on the basis of the statement made by Shri Harmesh Arora alone before the excise authorities which did not find corroboration from any other material, no addition could have been validly made. 9. The Tribunal had noticed as under:- “There is no universal rule that an admission or confession is never decisive unless it is corroborated. Similarly there is no universal rule that an admission/ confession is always decisive in all cases. The answer to the question as to whether a statement containing admission/confession is decisive in a given case depends upon the nature of admission, contents of admission, and several other relevant factors.” Further, it would be apposite to reproduce the findings of the Tribunal GURBACHAN SINGH 2014.09.04 10:50 I attest to the accuracy and integrity of this document High Court Chandigarh

ITA No. 360 of 2011 -7- which are as under:- “18. Applying the aforesaid principles, we shall now examine as to whether the statement made by Shri Harmesh Arora before the Central Excise authorities in the context of levy of excise duty on unaccounted production can form the sole basis for making the impugned additions by the AO. First and most important aspect is that the said statement was not recorded by the income- tax authorities but by the Central Excise authorities. As held by the Hon'ble High Court (reproduced supra), proceedings under the Central Excise Act have relevance only for formation of opinion of escapement of income and thereafter the income-tax authorities have to independently finalize the re-assessment irrespective of the final view in excise proceedings. We find that the AO has reassessed the income by him from the Central Excise Department without bringing any material on record to justify or support the additions. The impugned additions are liable to be cancelled on this ground alone and are accordingly cancelled. 19. Without prejudice to the aforesaid materials available on record do not establish that the melting capacity of the furnace was 5MT or GURBACHAN SINGH 2014.09.04 10:50 I attest to the accuracy and integrity of this document High Court Chandigarh

ITA No. 360 of 2011 -8- increased to 5 MT from 4 MT. After careful consideration of the materials available on record, the ld. CIT(A) has held as under:- “... Further, as brought out above on a subsequent surprise inspection by the Excise authorities, the capacity of the appellant's unit has been found to be of 4 MTs only. Therefore, the same department is certifying that the installed capacity of the furnace is of 4 MTs only. Further as already mentioned this is not possible that the appellant had installed a 5 MT furnace during the previous year relevant to assessment year under consideration and that, however, furnace of 4 MT had been installed before and after that period. Also there is nothing on record that the appellant incurred any expenses for removal and installation of the furnace as above and that the sanctioned load during the relevant period was more than 2250 KW which is a must for using 5 MT furnace....” 20. In our view, the view taken by the ld. CIT(A) is reasonable on the facts of the case. Entire addition has been made on the basis of the statement of Shri Harmesh Arora as recorded GURBACHAN SINGH 2014.09.04 10:50 I attest to the accuracy and integrity of this document High Court Chandigarh

ITA No. 360 of 2011 -9- by the Central Excise authorities in which he stated that the capacity of furnace was increased from 4 MT to 5 MT in December 2003. Capacity of furnace is not a matter within the domain of personal knowledge of the assessee; rather it is an objective fact which is capable of verification and proof by direct evidence. Following facts available on record establish that the capacity of furnace was not 5MT but 4 MT:- (i) Perusal of the materials placed on record (pp. 187-189 of the paper book I for AY 2005- 06) shows that the assessee had addressed letters dated 14.8.2002, 16.8.2002 and 21.8.2002 to the Superintendent, Central Excise, Rante I, Division II, Ludhiana conveying replacement of the then existing furnace of 3 Ton with new furnace of 4 Ton. In its last letter dated 21.8.2002 addressed to the Superintendent, Central Excise, the assessee- company informed that it had commenced production on new furnace on 21.8.2002 at 08:00 hours. It is quite unlikely that an assessee would change the furnace almost in a year (i.e., in December 2003) from 4 ton to 5 ton. Besides, there is no evidence before us to show that the furnace of 4 ton, which was GURBACHAN SINGH 2014.09.04 10:50 I attest to the accuracy and integrity of this document High Court Chandigarh

ITA No. 360 of 2011 -10- procured in 2002, was actually replaced by a furnace of 5 ton in December 2003. (ii) Each furnace has technical specifications which are available within the unit as also in the invoices. These specifications contain various details, e.g., the identity number of the furnace and its maker/manufacturer, its capacity, wattage, etc. No detail has been placed before us to show that the technical specifications of the furnace found at the time of visit by the Central Excise authorities on 25.3.2004 were different from the one procured by the assessee in 2002. Neither the AO made the inquiry in this behalf at the assessment stage nor preferred to do so when he was given the opportunity by the CIT(A) to do so. (iii) Report dated 2.5.2007 given by Er. J.S. Oberoi, Chartered Engineer/valuer shows that he visited the factory of the assessee and found that the furnace of 4 ton, which was procured in 2002, was being used by the assessee. After noting the technical specifications of the furnace, the weight of the ingots produced, the electricity load sanctioned, he opined that the average melting capacity of furnace was 4 MT. No material has been placed before us to rebut the facts reported or GURBACHAN SINGH 2014.09.04 10:50 I attest to the accuracy and integrity of this document High Court Chandigarh

ITA No. 360 of 2011 -11- the opinion expressed by the Chartered Engineer. (iv) Suppressed or unaccounted production was worked out by the Central Excise authorities for the period December 2003 to 25.3.2004 on the basis that the melting capacity of furnace was 5 MT during that period. The capacity of furnace being 4 MT after 25.3.2004 was not even doubted as the suppressed production was worked out till 25.3.2004 which means that it was accepted thereafter, i.e., after 25.3.2004, that the melting capacity of the furnace was 4 MT. This sounds quite illogical. (v) Field inspection was carried out by the Central Excise authorities on 25.11.2005 and a report to that effect has been recorded in the Daily Stock Account. It is stated in the said report that 'the unit has installed 4 MT Furnace'. No material has been placed before us to rebut the aforesaid report. (vi) Though the inspection was carried out by the Central Excise authorities on 25.3.2004 also at the premises of the assessee, there is nothing in the assessment order to show that the inspection report prepared, if any, by the Central Excise authorities was at all considered GURBACHAN SINGH 2014.09.04 10:50 I attest to the accuracy and integrity of this document High Court Chandigarh

ITA No. 360 of 2011 -12- by the AO. It has also not been placed before us either. There is absolutely no material before us to show that the Central Excise authorities had at all made any attempt to verify the melting capacity of the furnace during the course of their inspection on 25.3.2004. (vii) The AO has placed no material on record to show that the assessee had made any investment towards acquisition of furnace of 5 MT or that the AO has allowed depreciation thereon, i.e., furnace of 5 MT. There is no material on record to hold that the claim of depreciation made by the assessee on the furnace of 4 MT was rejected by the AO. 21. Besides, the statement of Shri Harmesh Arora has several gaps on material issues. For example, the statement of Shri Harmesh Arora is completely silent as to (i) when was furnace of 5 MT was procured and from whom it was procured; (ii) any of the parties from whom raw materials was purchased for generating unaccounted production; (iii) any of the parties to whom unaccounted production was sold. 22. In view of the foregoing, the statement of Shri Harmesh Arora cannot by itself form the basis for making the impugned additions. The AO has given no other basis to support the GURBACHAN SINGH 2014.09.04 10:50 I attest to the accuracy and integrity of this document High Court Chandigarh

ITA No. 360 of 2011 -13- additions made by him. In this view of the matter, the order passed by the CIT(A) in this behalf is confirmed. Ground No.2 is dismissed.” 10. In view of the above, the Tribunal had rightly come to the conclusion that there was no unexplained income on account of sales or purchases of material. Issue (a) is, thus, decided in favour of the assessee. 11. In the light of issue (a) having been adjudicated in favour of the assessee on merits, issue (b) regarding initiation of proceedings under Section 263 of the Act has been rendered academic. 12. Consequently, finding that no substantial question of law arises, all the appeals are hereby dismissed. (AJAY KUMAR MITTAL) JUDGE July 21, 2014