The judgment of the court was delivered by
Ajay Kumar Mittal J.- This order shall dispose of a bunch of seven appeals bearing I. T. A. 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 I. T. A. 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 June 24, 2011 (annexure A-IV), passed by the Income-tax Appellate Tribunal, Chandigarh Bench "A", Chandigarh (hereinafter referred to as "the Tribunal"), in I. T. A. No. 1048/Chandi/2008 (ITO v. Arora Alloys Ltd. [2011] 12 ITR (Trib) 263 (Chandigarh)) for the assessment year 2005-06 claiming the following substantial questions of law :
"(i) Whether, on the facts and in the circumstances of the case, the hon'ble Income-tax Appellate Tribunal has erred in law in cancelling the order dated November 20, 2008, of the Commissioner of Income- tax-I, Ludhiana, passed under section 263 of the Income-tax Act, 1961, which was solidly based on the information received from the 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 in the circumstances of the case, the hon'ble Income-tax Appellate Tribunal has erred in law in cancelling the order under section 263 ignoring its own opinion expressed in this combined order related to I. T. A. No. 319/Chandi/2008 : assessment year 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 reassessment 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 interests of the Revenue' has been given no weightage in the impugned order ?"
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 October 24, 2005, for the assessment year 2005-06 declaring nil income. The assessment was framed under section 143(3) of the Act, vide order dated December 31, 2007 (annexure A-I) at an income of Rs. 60,410. On March 25, 2004, an inspection was conducted by the team of the Central Excise Department in the business premises of the assessee. On the basis of the information received from the Central Excise Department, the Commissioner of Income-tax ("the CIT"), vide order dated November 20, 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 interests of the Revenue. The Commissioner of Income-tax 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 5 metric tonnes instead of 4 metric tonnes per heat vide which it was concluded that the assessee had produced 624 metric tonnes of non-alloys ingots from December, 2003, to March 24, 2004, on the basis of the capacity of furnace but not recorded in the books of account. In compliance with the order dated November 20, 2008 (annexure A-II), the Assessing Officer, vide order dated December 31, 2009 (annexure A-III) assessed the income of the assessee at Rs. 5,27,74,260 and made additions of Rs. 1,77,48,529 on account of unexplained sales and Rs. 3,49,65,324 on account of unexplained purchases. Feeling aggrieved against the order of the Commissioner of Income-tax under section 263 of the Act, the assessee filed an appeal before the Tribunal. The Tribunal, vide order dated June 24, 2011 (annexure A-IV) allowed the appeal and cancelled the order passed by the Commissioner of Income-tax under section 263 of the Act. In view of cancellation of order of the Commissioner of Income-tax under section 263 of the Act by the Tribunal, the appeal of the assessee against the assessment order was allowed by the Commissioner of Income-tax (Appeals) which was upheld by the Tribunal. Hence, the present appeals by the Revenue. I. T. A. No. 360 of 2011 raises issue relating to validity of proceedings initiated under section 263 of the Act whereas I. T. A. No. 246 of 2012 is regarding assessment order passed in pursuance of the order under section 263 of the Act for the assessment year 2005-06. I. T. A. No. 362 of 2011, I. T. A. No. 299 of 2012, I. T. A. No. 300 of 2012, I. T. A. No. 167 of 2012 and I. T. A. No. 301 of 2012 concern assessment years 2004-05, 2006-07, 2007-08, 2008-09 and 2009-10, respectively.
4. In I. T. A. 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 Assessing Officer 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 the merits of the case ?
(ii) Whether, on the facts and in the circumstances of the case, the hon'ble Income-tax Appellate Tribunal was justified in dismissing the appeal of the Revenue merely relying upon the submission of the assessee's authorised representative that the order passed by the Commissioner of Income-tax-I, under section 263 has been cancelled by the hon'ble Income-tax Appellate Tribunal whereas the decision of the hon'ble Income-tax Appellate Tribunal has not been accepted by the Revenue and has filed an appeal before the hon'ble Punjab and Haryana High Court against the cancellation of the order under sec tion 263 ?"
5. Learned counsel for the appellant submitted that there was concealment of income inasmuch as the assessee had utilised the capacity of 5 metric tonnes instead of 4 metric tonnes 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 in the circumstances of the present case ?
(b) Whether the action of the Commissioner of Income-tax ('the CIT') under section 263 of the Act was valid as the assessment order passed was erroneous and prejudicial to the interests 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 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 of Income-tax (Appeals), the 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 "the CESTAT"). A copy of order dated April 28, 2014, passed by the 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 (page 278 of 12 ITR (Trib)) :
"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 which are as under (page 279 of 12 ITR (Trib)) :
"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 Assessing Officer. The 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 finalise the reassessment irrespective of the final view in the excise proceedings. We find that the Assessing Officer has reassessed the income and made the impugned additions solely on the basis of the information received 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 5 metric tonnes or increased to 5 metric tonnes from 4 metric tonnes. After careful consideration of the materials available on record, the learned Commissioner of Income-tax (Appeals) 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 stated to be of 4 metric tonnes only. Therefore, the same Department is certifying that the installed capacity of the furnace is of 4 metric tonnes only. Further, as already mentioned, this is not possible that the appellant had installed a 5 metric tonnes furnace during the previous year relevant to the assessment year under consideration and that, however, furnace of 4 metric tonnes 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 2,250 KW which is a must for using 5 metric tonnes furnace . . .'
20. In our view, the view taken by the learned Commissioner of Income-tax (Appeals) is reasonable on the facts of the case. The entire addition has been made on the basis of the statement of Shri Harmesh Arora as recorded by the Central excise authorities in which he stated that the capacity of furnace was increased from 4 metric tonnes to 5 metric tonnes in December, 2003. The capacity of furnace is not a matter within the domain of personal knowledge of the asses see ; rather it is an objective fact which is capable of verification and proof by direct evidence. The following facts available on record establish that the capacity of furnace was not 5 metric tonnes but 4 metric tonnes :
(i) Perusal of the materials placed on record (pages 187-189 of the paper book I for the assessment year 2005-06) shows that the asses see had addressed letters dated August 14, 2002, August 16, 2002, and August 21, 2002, to the Superintendent, Central Excise, Range I, Division II, Ludhiana, conveying replacement of the then existing furnace of 3 tonnes with a new furnace of 4 tonnes. In its last letter dated August 21, 2002, addressed to the Superintendent, Central Excise, the assessee-company informed that it had commenced production on new furnace on August 21, 2002, at 8 hours. It is quite unlikely that an assessee would change the furnace almost in a year (i.e., in December, 2003) from 4 tonnes to 5 tonnes. Besides, there is no evidence before us to show that the furnace of 4 tonnes, which was procured in 2002, was actually replaced by a furnace of 5 tonnes 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 March 25, 2004, were different from the one procured by the assessee in 2002. Neither the Assessing Officer made the inquiry in this behalf at the assessment stage nor preferred to do so when he was given the opportunity by the Commissioner of Income-tax (Appeals) to do so.
(iii) Report dated May 2, 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 tonnes, 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 the furnace was 4 metric tonnes. No material has been placed before us to rebut the facts reported or 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 March 25, 2004, on the basis that the melting capacity of furnace was 5 metric tonnes during that period. The capacity of furnace being 4 metric tonnes after March 25, 2004, was not even doubted as the sup pressed production was worked out till March 25, 2004, which means that it was accepted thereafter, i.e., after March 25, 2004, that the melting capacity of the furnace was 4 metric tonnes. This sounds quite illogical.
(v) Field inspection was carried out by the Central excise authorities on November 25, 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 metric tonnes 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 March 25, 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 by the Assessing Officer. 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 March 25, 2004.
(vii) The Assessing Officer has placed no material on record to show that the assessee had made any investment towards acquisition of furnace of 5 metric tonnes or that the Assessing Officer has allowed depreciation thereon, i.e., furnace of 5 metric tonnes. There is no material on record to hold that the claim of depreciation made by the assessee on the furnace of 4 metric tonnes was rejected by the Assessing Officer.
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 metric tonnes 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 Assessing Officer has given no other basis to support the addi tions made by him. In this view of the matter, the order passed by the Commissioner of Income-tax (Appeals) 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 the 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.