* HON BLE SRI JUSTICE L.NARASIMHA REDDY AND HON BLE SRI JUSTICE CHALLA KODANDA RAM + I.T.T.A.Nos.145 and 230 of 2003 %Date:29.10.2014 #Commissioner of Income Tax appellant. and $M/s. Shri Girija Smelters (P) Ltd., Raipur. Respondent. ! Counsel for appellant: Sri S.R. Ashok ^ Counsel for Respondent : Sri Y.Ratnakar < GIST: > HEAD NOTE: ? Cases referred HON BLE SRI JUSTICE L.NARASIMHA REDDY AND HON BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A.Nos.145 and 230 of 2003 COMMON JUDGMENT: (Per Hon ble Sri Justice L.Narasimha Reddy) These two appeals arise out of order, dated 21.05.2002, passed by Visakhapatnam Bench of Income Tax Appellate Tribunal (for short Tribunal ) in I.T.(SS) A. No.8/Vizag/1998. While I.T.T.A.No.145 of 2003 is filed by assessee, I.T.T.A.No.230 of 2003 is filed by Department. For sake of convenience, parties are referred to as Revenue and Assessee . assessee is Company undertaking activity of manufacture of Alloy Metals. It has also sister concern, by name, M/s. Srinivasa Ferro Alloys Limited (SFAL). Each company is independent assessee. search was conducted in premises of SFAL, on 27.09.1996. Managing Director for both companies is said to be same individual. During course of search, his statement was recorded. According to Revenue, discrepancy between undisclosed income and unexplained one, to extent of Rs.1.03 crores, was noticed. Proceedings were initiated under Chapter XIVB of Income Tax Act, 1961 (for short Act ), and notice under Section 158BD of Act, was issued on 03.03.1997. sum of about Rs.16.00 lakhs was collected as income tax. M/s. SFAL submitted return on 22.09.1997, disclosing NIL income. In addition to that, it has claimed refund of Rs.16.00 lakhs, collected from it during course of search. order of block assessment was passed in relation to M/s. SFAL, for assessment years 1988-89 to 1997-98. On basis of material gathered during course of search, in premises of SFAL, show cause notice was issued to assessee herein, i.e. M/s. Girija Smelters (P) Limited, Raipur, on 20.08.1997, requiring it to explain discrepancies. Ultimately, order of assessment was passed on 30.03.1998 to effect that assessee has undisclosed income of Rs.1.78 crores, in form of suppression of production of material. assessee filed appeal before Tribunal. It was pleaded that most of figures were arrived at by Assessing Officer, on basis of surmises and imaginations, and for all practical purposes, Assessing Officer acted as though he is authority under Central Excise Act. Revenue opposed appeal and supported order of assessment. Tribunal partly allowed appeal, deleting sum of Rs.89,45,465/-, being cost of alleged stock of finished products, noticed through discrepancies, and sum of Rs.23,80,000/- representing alleged unexplained share capital. order of assessment in respect of other items was upheld. While department felt aggrieved by said deletion, assessee is of view that order of assessment ought to have been set aside, in its entirety. Sri S.R.Ashok, learned Senior Counsel for Revenue, submits that search of premises of said concern has yielded valuable information, and on basis of same, block assessment order was passed, duly giving opportunity to assessee. He contends that findings arrived at by Assessing Officer were based on material that was seized in course of search and on comparison of same with RG-I register maintained under Central Excise Act and Rules made thereunder. He submits that Managing Director of assessee has accepted in his statement, that there existed discrepancies, but in explanation, he has come forward with different version. Learned Senior Counsel contends that there was no basis for Tribunal to delete substantial amounts from order of assessment. Sri Y.Ratnakar, learned counsel for assessee, on other hand, submits that search did not result in any discovery of incriminating entries or undisclosed wealth, but Assessing Officer has taken upon himself, task of undertaking comparison and verification, which cannot be expected even from authorities under Central Excise Act. He contends that several phenomena, such as, burning losses, or marketability of waste that emerges in course of manufacturing of finished products, were not only taken note of, but also were treated as undisputed facts and huge financial liability was fastened upon assessee. He submits that Tribunal ought to have set aside order of assessment, in its entirety, since it is based upon totally untenable exercise. For most of it, Revenue relies upon facts and figures furnished in returns, or those mentioned in books of accounts. However, when serious suspicion arises as to accuracy of facts and figures so furnished, search is conducted under Section 132 of Act. If, in course of search, any incriminating material or unexplained wealth or bullion, is discovered, Act provides for passing of order of block assessment, covering period of 10 years, preceding date of search. manner in which assessment must be made in such cases, is provided for in Chapter XIVB of Act. statement recorded under Section 132(4) of Act also assumes significance in this behalf. In instant case, assessee is manufacturer of Manganese Alloys. Several registers are maintained and typical procedure is followed for manufacture of alloys of relevant description. finished product is subject to levy of excise duty. For all industries, that undertake activity of processing or manufacturing metals, Central Excise Department, insists on maintenance of registers, to monitor activity of manufacture and removal of finished products. This is obviously because, they cannot be expected to remain in premises of factory throughout. One such register is RG-I. Even where authorities of Central Excise Department doubt accuracy of figures mentioned in registers, or if they find it difficult to understand complexity of manufacturing process, they seek help of experts. Sometimes experts are on rolls of department itself, and on other occasions, service of experts outside department are availed. Assessing Officer under Act can certainly look into various records of assessee, to satisfy himself about correctness of facts and figures, or to come to his own conclusions about income of assessee. If it is case of mere verification of books of account, or registers that reflect sale of any product, Income Tax Officer can undertake exercise by himself. Where, however, he entertains doubt about correctness of facts and figures that are mentioned in registers, which are required to be maintained under Central Excise Act or Rules made thereunder, proper course for him would be to take assistance of concerned authority under Central Excise Act. Howsoever anxious or willing he may be to verify registers, by himself, outcome of exercise may not be accurate. Just Superintendent of Central Excise Department, cannot be expected to verify correctness of income tax returns, submitted by manufacturer, it is not at all safe for any Income Tax Officer to undertake verification of records referable to department of Central Excise. Unfortunately, this is what exactly has happened in instant case. perusal of order of assessment discloses that Assessing Officer did not feel any inhibition to express his views on matter, which does not genuinely fall in his purview. In way, he has undertaken certain activity, which Superintendent of Excise Department would have hesitated. For instance, in para 3.7 of order, following discussion was undertaken: 3.7 During course of search, evidence was seized in for of register A3/24 in case of M/s. Srinivasa Ferro Alloys Ltd., - sister company of assessee Company which indicated that assessee claimed higher burning loss in respect of Manganese ore. burning loss as per register A3/24, (the detailed working of which has been elaborately discussed in Asst. Order dt.30.09.97 in case of M/s. SFAL) came to 56.33%. When returns of income of assessee company are verified, it is found that assessee has claimed burning loss at 61.72% for IF.Y.94-95 and 60.03% for F.Y.95-96 which are quite on higher side as seen from following table: 94-95 95-96 Burning loss as per return 61.72% 60.03% Burning loss accepted 56.33% 56.33% Excess burning loss claimed 5.39% 3.70% assessee has been given opportunity vide this office letter dt.20.08.97 to furnish full details of burning loss. During course of hearing, assessee was also given opportunity to explain why production suppression should not be estimated because higher burning loss was claimed in return of income. In its reply dt. 27.02.98, assessee made similar submissions as in case of M/s. Srinivasa Ferro Alloys Ltd. assessee claimed that burning losses was within reasonable limits. It may be mentioned here that burning loss of 56.33% A3/24 register. production processes for production of manganese based alloys are same in case of assessee company and M/s.SFAL. therefore, there is no reason why burning loss should be higher in case of assessee. Therefore, objection of assessee for adoption of same standard of burning loss as in case of its sister company does not hold good. higher claim of burning loss is on account of fact that assessee has carried out unaccounted production which is also evidenced by existence of excess stocks of finished products as discussed above. In background of above discussion, unaccounted production owing to higher claim of burning loss of manganese ore is arrived at in same method as was adopted in case of M/s. Srinivasa Ferro Alloys Ltd. F.Y. Manga- Pro- Recovery Excess burning Suppres- Value Total Value nese ore duction (%) loss sion of Per M.T. consu- (II/IX production med 100) (V & IV) I II III IV V VI(Rs.) VII VIII (Rs.) 94-95 6454 2470 38.27% 5.39 347.87 123.5 15272 20,33,159 95-96 9289 3712 39.96% 3.70 343.69 185.6 20000 27,46,794 Total 47,79,953 All said and done, occasion to levy income tax would arise, only when product in question was found or alleged to have been sold, and sale proceeds, constituting income were not reflected in returns. It was not even alleged that product shown in form of discrepancies, was sold at all. We are sure that when faced with situation of that nature, even Superintendent of Central Excise would not have ventured to record his own findings about maters like burning losses or other relevant issues and would have chosen to avail services of Metallurgical Expert. What we have extracted above is just sample. whole order is full of such discussions and instances. It is on basis of such exercise, that Assessing Officer arrived at conclusions that undisclosed income on account of improper disclosure, or suppression of production for various assessment years is Rs.1,22,86,712/-. Even expenditure incurred for purchase of raw materials became subject-matter of extensive discussion, without indicating as to how purchase of raw material can have any impact upon income of assessee, that too, of manufacturing company. In order of assessment, which runs into 31 closely typed pages, such instances are galore. Obviously, to analyse and understand approach of Assessing Officer, Tribunal discussed matter at length. order passed by it runs into 48 pages. At more places than one, it was pointed out that stock available on ground, cannot be compared or verified with reference to RG-I register. It was also pointed out that by-products or waste materials, such as slag, was treated by Assessing Officer as main product or income yielding material and conclusions were arrived at, only on basis of assumptions. We agree with findings recorded and view expressed by Tribunal. Income Tax Officer cannot carry out functions of authority under Central Excise Act and arrogate to himself power to determine quantity of production, or to utter final word on intricacies of manufacturing process, that too, without referring to any reliable material. Assessing Officer, in instant case, was totally unsuited for undertaking activity of determining exact production of material, which itself involves very complicated procedures. In appeal of assessee also, we do not find any substance. amounts that were untouched by Tribunal represent value of land that was purchased during block period. relevant facts and figures were taken into account and proper conclusion was arrived at. We do not find any basis to interfere with same. Hence, both appeals are dismissed. There shall be no order as to costs. miscellaneous petition filed in this appeal shall also stand disposed of. ____________________ L.NARASIMHA REDDY, J. _____________________ CHALLA KODANDA RAM, J. Date:29.10.2014 L.R. copy to be marked. GJ Shri Girija Smelters (P) Ltd. v. Commissioner of Income-tax