Zirconia Cera Tech Glazes Vs DCIT (ITAT Ahmedabad)
ITAT find that in this case the basis of addition is contents of show-cause notice issued by the Excise Department. An investigation was carried out by DGCEI at assessee premises, wherein it was alleged by the Excise Department that assessee has not declared actual assessable value of goods manufactured and cleared from factory. Based on the same DGCEI issued show-cause notice, Excise department concluded that assessee was engaged in under valuation of sales and clandestine removal of goods. Only on the basis of same Assessing officer reopened assessee’s income tax assessment for the years under consideration and made addition of estimated Gross Profit on under valuation sales and clandestine removal of goods.
The Revenue has brought nothing on record that it has applied it’s mind over and above the contents of show-cause notice in question thus there is lack of independent application of mind on behalf of revenue in these matters.
We also find that in Excise proceedings, concerned authorities passed order against assessee and matter was carried up to concerned Hon’ble CESTAT. Hon’ble CESTAT passed an order dated 12/05/2015 as discussed above, has decided the issue in favour of the assessee holding that Excise Department could not estimate value of alleged suppression of sales as well as clandestine removal of goods merely on the basis of assumption and surmises. The CESTAT having considered the relevant facts of the case and statement recorded by the Excise Department has decided the matter in favour of the assessee as discussed in the order of the CESTAT. In our considered opinion and in the facts and circumstances of the case ld. CIT(A) was not justified in observing that relief granted by Hon’ble CESTAT was highly technical.
It is pertinent to mention here that in connected matter we also find that Excise Department carried matter before Hon’ble Supreme Court wherein same was dismissed as withdrawn. Nothing contrary was brought to our knowledge on behalf of Revenue in this regard.
We also find in connected matter that Tax Appeal being Tax Appeal No.733 and 734 of 2016 preferred by the Ld. Excise Department before Hon’ble Gujarat High Court came to be dismissed vide order dated 07/12/2016 as discussed earlier. Again nothing contrary was brought to our knowledge on behalf of Revenue in this regard as well.
In this background, in our considered opinion orders passed by the Hon’ble CESTAT in these years have achieved finality against the revenue. As we have observed earlier that only Excise Department action was basis of additions in all the three years which does not survive for the reasons stated therein, so the basis of additions made by the Revenue does not survive.
In view of the above observation, addition made by the revenue has alleged undervaluation sales and Clandestine removal of goods do not survive and same are directed to be deleted in all the three years. Therefore, All the three appeals are allowed.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
These five appeals are by the assessee against the separate orders of the Commissioner of Income Tax(Appeals)-Gandhinagar, Ahmedabad. Two appeals in case of Zirconia Cera Tech Glazes vide order dated 22/01/2016 for Asst. Year 2007-08 anddated 22/01/2016 for Asst. Year 2008-09. Three appeals in case of Growmore Ceramics Pvt. Ltd. vide orders dated 11/03/2016for Asst. Year 2006-07, 14/03/2016 for Asst. Year 2007-08 and 15/03/2016 for Asst. Year 2008-09.Since issues are common in both these groups and same were heard together so they are being disposed off by way of a common order for sake of convenience.
2. First we take up the appeals of M/s. Zirconia Cera Tech Giazes in ITA No.376 & 377/Ahd/2016 for Asst. Years 2007-08 & 2008-09. Assessee has taken following Grounds:
2.1 For Asst. Year 2007-08:
1. The learned C.I.T.(A) has erred in law and on facts in holding that the reasons recorded by the Assessing Officer are proper and that the proceedings u/s.147 of the Act are valid and thereby rejecting the appellant’s ground against the reassessment proceedings.
2. The learned C.I.T.(A) has further erred in law and on facts in upholding the addition of Rs.88,03,348/- on the ground of alleged undervaluation of sale and of Rs.2,08,00,924/- being the estimated G.P. on alleged clandestine removal of goods.
3. On the facts and in the circumstances of the case and in law the learned C.I.T.(A) ought to have quashed the proceedings u/s.147 of the Act being invalid and ought to have annulled the assessment made in pursuance of invalid proceedings, and ought to have deleted the addition of Rs.88,03,348/- and 2,08,00,924/-.
4. It is therefore prayed that the proceedings u/s.147 may be quashed being assessment made in pursuance thereof may be annulled and the addition of Rs. 88,03,348/- and Rs. 2,08,00,924/- may be deleted.
5. Your appellant craves leave to add, alter or amend any ground of hearing.
2.2 For Asst. Year 2008-09:
1. The learned C.I.T.(A) has erred in law and on facts in holding that the reasons recorded by the Assessing Officer are proper and that the proceedings u/s.147 of the Act are valid and thereby rejecting the appellant’s ground against the reassessment proceedings.
2. The learned C.I.T.(A) has further erred in law and on facts in upholding the addition of Rs.93,30,925/- on the ground of alleged undervaluation of sale and of Rs.2,53,46,163/- being the estimated G.P. on alleged clandestine removal of goods, and withdrawal of set off of loss of Rs.8,57,147/-.
3. On the facts and in the circumstances of the case and in law the learned C.I.T.(A) ought to have quashed the proceedings u/s.147 of the Act being invalid and ought to have annulled the assessment made in pursuance of invalid proceedings, and ought to have deleted the addition of Rs.92,30,925/- and 2,53,46,163/-and allowed set off of loss of Rs.8,57,147/-.
4. It is therefore prayed that the proceedings u/s.147 may be quashed being invalid and the assessment made in pursuance thereof may be annulled and the addition of Rs.92,30,925/- and of Rs.2,53,46,163/- may be deleted.
5. Your appellant craves leave to add, alter or amend any ground of hearing.
3. Brief facts of the case are that assessee is engaged in business of ceramic tiles etc. Assessee has filed return of income on 30/01/2007 declaring total income at NIL. Assessment u/s.143(3) of the Act was made on return income so filed, on 25/05/2009 determining total income at NIL.
4. Assessing Officer stated that he received letter dtd.14/02/2013 from Dy. Director of Income Tax(Inv.), Unit-II, Ahmedabad forwarding the show-cause notice issued by the Directorate General of Central Excise Intelligence, Ahmedabad(here-in-after called in short DGCEI).
5. The Assessing Officer noticed from show-cause notice regardingunder valuation resulting the escapement of income for the year under consideration. Assessing Officer has mentioned that based on show-cause notice hereinafter called (SCN), issued by DGCEI. The assessment was reopened u/s.147 of the Act and notice u/s.148 was issued on 21/03/2013. Assessee challenged the reopening and assessment thereof but same was not accepted by the Assessing Officer. Same was upheld by the CIT(A). At the outset of hearing ld.Authorised Representative did not press issue of re-opening. So same is dismissed us as not pressed.
6. Coming to the facts of the case on merit, we find that assessing officer referred to the allegations contained in show-cause notice issued by DGCEI and called upon assessee to explain as to why alleged under valuation of sales and alleged value of clandestine production should not be considered for addition in computation of income for year under consideration. For the sake of convenience the contents of said notice are reproduced as under:
1. “An investigation has been carried out by DGCEI, Zonal Unit, Ahmedabad in respect of under-valuation and clandestine manufacture/clearance of Ceramic Glaze Mixture(Frit) by Manufactures of Frit in Gujarat. The show-cause notice (SCN) issued by the office of the DGCEI has been obtained in the case of M/s. Zirconia Cera Tech Glazes. As per the SCN issued by the DGCEI, the assesseei.e M/s. Zirconia Cera Tech Glazes had Glazes had evaded Central Excise duty during the period from 01/04/2006 to 31/03/2007 by way of following activities.
a. Undervaluation (i.e. not declaring the actual assessable value of excisable goods manufactured) and
b. Clandestine removal i.e. removing the Frit Manufactured clandestinely without payment of excise duty, under parallel invoices.
The value of clandestinely cleared Frit as well as the differential value of undervalued Frits, over and above the value declared in the invoices, was collect by M/s. Zirconia Cera Tech Glazes from its buyers (dealers) in cash. As per the SCN, the total amount of central excise duty evaded by M/s. Zirconia Cera Tech Glazes during the F.Y. 2006-07 towards undervaluation and clandestine removal, as calculated in the Annexure C.1 and C.2 of SCN, is worked out at Rs.5,79,93,067/-.
2. On verification of the above details it is found that the Amount of Rs.5,79,93,067/- is the difference of total assessable value of Rs.3,60,10,500/- as shown by the assessee and the assessable value of Rs.9,49,75,427/- as per actual rate as worked out by Excise Authority. Vide this office letter dated 11/12/2013 you had been show-caused as why amount of Rs.5,79,93,067/- should not be added to your total income treating the same as income from undisclosed sources.
3. You are once again requested to show cause as to why amount of Rs.5,79,93,067/- should not be added to your total income.
4. You are requested to submit your explanation and attend the office of the undersigned on 21/02/2014 at 11:00 AM. If no reply is furnished or reply furnished is found unsatisfactory/unacceptable necessary adjustment/addition will be made with the material record available to this office and issue will be decided on merits.”
7. The said show-cause notice was replied by the Assessee as under:
“With reference to the above mention subject we beg to state that the Show Cause Notice issued by the DGCEI is merely based on assumptions only and they are not holding any documentary evidences to support the demand raised in SCN. We have briefly summarized the facts / contentions as shown below:
i. The DGCEI in the course of its investigation at the company’s premises could not find any material/documents showing clandestine receipt of raw material or production or removal of frit.
ii. The DGCEI got hold of 12 customers/buyers of ‘frit’ and their statements to the effect that they paid something over and above the invoice price for the purchase so as to use these statements to allege suppression of sales price in our case. The fact of the matter is that such statements are recorded at the instance of the officers and are not free and fair in nature. Such oral statements have no evidentiary value, as the same are not corroborated by any independent material particulars. We rely on the judgment of Madras High Court in case of Commissioner of Income Tax vs. VigneshkumarJewellers.
iii. The statements of buyers would also reveal that they are also almost same word to word. Further the name of any representative, who collected cash amount, has not been revealed, it is unimaginable that such huge amount of cash could be paid to an unknown person.
iv. The DGCEI during the course of framing SCN however ignored these facts and proceeded to use the statements, and estimated the alleged assessable value of the entire production of ‘frit’ of the whole year working out the huge difference of Rs.5,79,93,067/- treated as suppression of sales for the F.Y.2006-07 relatable to A.Y. 2007-08. Further in SCN the DGCEI has estimated the entire sale at flat rate without considering the fact that sale rate to different parties may differ at different times.
v. It was also pointed out that out of the 12 parties, three parties namely Anmol Ceramics, Leo Ceramics &Omson Ceramics had not made any transaction at all with us during the year under consideration. Accordingly it was shown that the working of difference relatable to the other parties (other than 9 parties) is based on no material, rather entirely based on surmises and conjectures.
vi. Without prejudice to the above stated it may also be submitted that if addition ought to be made then also it should be restricted to the element of Gross Profit thereon. G.P. ratio in our product ranges from 6% to 7%. In this regard we rely on judgement of Hon’ble Gujarat High court reported in 258 ITR 654 and 326 1TR 410.
vii. We further would like to draw your attention to the matter that we do not agree with the contentions raised by DGCEI in SCN and the said matter is still subjudice. We therefore state that such huge addition should not be made merely on the basis of show-cause notice of DGCEI. We request you to drop re-open proceedings u/s.148 of the Income tax Act.”
8. The assessee also made various submissions in response to relevant quarries raised by the assessing officer, however assessing officer rejecting the contention of the assessee made addition of Rs.88,03,348/- on account of alleged under valuation of sales and Rs.2,08,00,924/- on account of alleged clandestine removal of goods was made for Asst. Year 2007-08. Similar additions of Rs.92,30,925/- on account of alleged under valuation of sales and Rs.2,53,46,163/- on account of alleged clandestine removal of goods was made for Asst. Year 2008-09.
9. Matter was carried out before the first appellate authority, wherein ld.Authorised Representativefor assessee retreated submission as raised before the assessing officerand submitted that assessing officer has not considered the fact that in case of M/s. Zirconia Cera Tech Glazes, 3rd Party statement obtained in coercive manner by the DGCEI were retracted at relevant point of time. Therefore allegations contained in Show-cause notice were not sound basis of making additions in question. However rejecting the contention on behalf of the assessee, ld. CIT(A)confirmed the order of the ld. Assessing Officer on merit as well. The operative portion of CIT(A) order is reproduced as under :
“5.6 I have considered the facts of the case, assessment order, submission made by the appellant, remand report and rejoinder filed by the appellant.
From the assessment order it is perused that appellant had filed return of income on 30/10/2007 declaring total income at NIL which was finalized u/s.143(3) and order was passed on 25/03/2009 determining total income at NIL/-. Thereafter, a letter was received from the Deputy Director of Income-tax (Inv.), Unit-II, Ahmedabad along with Show Cause Notice issued to the appellant by Directorate General of Central Excise Intelligence, Ahmedabad (DGCEI). From the show cause notice, it was noticed that appellant was engaged in various types of modes & methods of tax evasion which resulted into escapement of huge tax for the year under consideration. In such facts, case of the appellant for the year under appeal was reopened u/s.147 of the IT Act. After recording the reasons for reopening, notice u/s. 148 of the Act was issued on 21/03/2013. In response to the notice issued appellant requested to treat the original return filed on 30/10/2007 as return filed in response to notice u/s.148. Further, statutory notices u/s.143(2) and u/s.142(1) were issued and served to the appellant. To elaborate the matter, it is perused that in this case on the basis of intelligence gathered by DGCEI as well asthe documentary evidences recovered from the premises, a searchoperation was conducted at the premises of the appellant on 28/08/2008.Investigation conducted by DGCEI against the appellant revealed thatthey had not declared the actual assessable value of goods manufacturedand cleared from their registered factory premises. The documentary aswell as oral evidences collected by DGCEI from various buyers clearlyindicated that appellant was declaring in their central excise invoices onlya part of the actual transaction value manufactured and cleared fromtheir factory. Differential value of 1 frit, over and above the valuedeclared in the invoices, was collected by them from their buyers in cash.The observation and finding given in Show cause notice was on the basisof investigations and evidences gathered by the officials of ExciseDepartment which clearly proved that appellant had suppressed the salevalue byway of undervaluation of invoices as well as clandestine removalof goods from their premises. The suppression was revealed on the basisof finding during the course of investigations by the DGCEI and asmentioned in detail in the Show Cause Notice contained in letter F. No.DGCEI/AZU/36(4) 130/2008-09/1836 to 1842 dated 19.04.2010. It was revealed from the Show Cause Notice of the DGCEI that appellant wasshowing sale value of Frit at Rs 10/- per kg whereas the actual price wasat Ks.20/- to 30/- per kg. The amount shown in the invoices were beingcollected through cheques whereas the remaining amount was beingcollected by cash. Further it was also found that appellant was declaringless production than the actual production. The company was showing consumption of 2414.14 SCM of natural gas for manufacturing of 1 MT offrit whereas on verification based on the figures of average Gasconsumption against one MT of frit manufactured during the period fromApril’2008 to December, 2009; when appellant had shown-higherproduction, and also in view of the statement of Sh. Pravinbhai N. Patel, Partner and Production In-charge, it was found that 400-500 SCM of natural gas was consumed for manufacturing of 1 MT of frit, It was proved beyond doubt that appellant was involved in undervaluation of sale invoices, thereby suppressing the sales and also had understated the production and its unaccounted sale of such clandestine production, For the year under appeal, the amount of under valuation has been worked out at Rs.5,79,93,067/- [as mentioned in Annexure C-1 (Sr. No. 1 to 124) of SCN issued by DGCEI and the amount of Clandestine removal goods has been worked out at Rs.13,70,28,488/- as mentioned in Annexure C2 (Apr-06 to Mar-07) of SCN issued by DGCEI. AO has concluded that appellant had shown G.P. at a rate of 15.18% for the year under appeal hence, for the purpose, 15.18% G.P rate adopted at 15.18%. Accordingly, 15.18% of total undervalued sales is worked out at Rs.88,03,348/- (15.18% of Rs.5,79,93,067/-) is added to the Total income of the appellant. Similarly 15.18% of the value of clandestine removal goods for the year under consideration is worked out at Rs.2,08,00,924/- (15.18% of Rs.13,70,28,488/-) and is added to total income of the appellant.
Appellant before me contended that AO in making addition of Rs.88,03,348/- being element of profit on the alleged undervalued sales of Rs.5,79,93,067/-and of Rs.2,08,00,924/- being element of profit on the alleged value of aalleged clandestine removal of goods of Rs.13,70,28,488/- has entirely relied upon the Show Cause Notice issued by the DGCEI for proposing the additions in his show cause notice dtd. 10/03/2014 reproduced in paragraph 4 (pages 3 & 4) of the order under appeal and also in making the impugned additions. Further, appellant has also contended that AO has not dealt with the contentions made in the written submissions dated dt.23/12/2013, 20/02/2014 and reply dated 18/03/2014 to the show cause notice of the AO and AO had proceeded extensively reproduce the paragraphs from the SCN issued by the DGCEI and relying upon the same has proceeded to make the additions referred to above. Further, it is contended that Excise Department had passed the adjudication order on Die basis of the SCN of the DGCEI determining the additional excise duty payable on the values as determined and had been subject matter of appeal before the Hon. Central Excise &. Service Tax Tribunal, WZB, Ahmedabad. It is stated that the Hon’ble CESTAT has decided the said appeals in favour of the appellants by a common appellate order dtd. 12/05/2015. The Hon. CESTAT has held that no case of undervaluation of sales or of clandestine removal of frit has been made out and accordingly quashed the adjudication orders passed by the Central Excise authorities on the basis of the Show Cause Notice of the DGCEI. It is also stated by the appellant that the proceedings under VAT Act were also initiated based on the Show Cause Notice of the DGCEI, which were quashed and set aside by the Hon’ble Gujarat High Court by its by judgment dated 13/11/2013. Further vide letter dated 23/07/2015, appellant has contended and relied on the decision of the Hon’ble ITAT Bench decision in the case of Prima Ceramics Pvt. Ltd, involving facts similar to the appellant’s case that the appeal should be decided in the light of the order of the Excise and Custom Tribunal. It is contended that Hon’ble ITAT had followed the above referred order in another case involving identical facts, M/s. Welsuit Glass & Ceramics Pvt. Ltd. while deciding cross appeals by the Department vide order dated 20/06/2014.
Having considered the facts of the case and submissions made and report submitted by the AO. It is seen from the common order passed by CESTAT, it is highly technical and relief is given to the appellant and other 22 appellants on the basis of technical grounds like-
