Pr. Commissioner Of Income Tax, Jaipur-Ii, Jaipur v. M/S Supersonic Turner Pvt. Ltd., F-393-A, Road

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 51 / 2016 Pr. Commissioner of Income Tax, Jaipur-II, Jaipur. ----Appellant Versus M/s Supersonic Turner Pvt. Ltd., F-393-A, Road No. 9F-2, V.K.I. Area, Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr. K.D. Mathur for Mr. R.B. MathurFor Respondent(s) : Mr. Sanjay Gangwar _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment 24/10/2017 1.By way of this appeal, the appellant has assailed thejudgment and order of the Tribunal whereby the Tribunal haspartly allowed the appeal of the revenue as well as cross objectionof the assessee. 2.This court while admitting the matter framed the followingquestions of law:- “i) Whether on the facts and circumstances ofthe case and in law the ITAT was justified indeleting the addition of Rs. 11559814/- madeby the Assessing Officer on account ofconcealed sale of scrap ignoring the facts thathe Assessing Officer made addition consideringthe fact that the job work payment were madeto the persons covered u/s 40A(2)(b). ii) Whether on the facts and circumstances ofthe case in law the ITAT as well as CIT(A) haserred in holding that employee’s contribution toPF & ESI are governed by the provision of 3.On the first issue, now the issue is covered by the decision ofthis Court in Tax Appeal No. 110/2015 (CIT, Jaipur-2, Jaipur vs.M/s Pushp Enterprises) decided on 12[th] October, 2017 wherein ithas been has held as under:- “However CIT(A) while considering the same hasobserved as under:- “3.2 The Ao had alleged that the assessee hadpaid the job work of Rs. 3,55,96,219/- its sisterconcern namely M/s Noble Industries andthrough this arrangement, the assessee hastransferred its profit to the sister concern. Thecounsel of the appellant has argued that M/sNoble Industries was the sister concern andassessed to tax independently and it wasregularly filing its return of income. Further M/sNoble Industries had also passed on the job workin-turn to the other vendors and out of totalcontract receipts of Rs. 3.88 crores, it hadsubcontracted the contract work of Rs. 3.10crores to other job workers. Inspite of this fact,M/s Noble Industries had shown the sales of thescrap of Rs. 7,47,109/- in its books of account.In support of the same, copies of invoices forsale of scrap to M/s Santosh Steel Corporationand Shree Shyam Steel Corporation by M/s NobleIndustries were also filed. The matter wasremanded to the AO for examination of M/sNoble Industries along with its books of accountvide my letter dated 28.03.2012. During theremand proceedings, books of account of M/sNoble Industries were produced before the AOand it was also confirmed that it had not returnedany scrap to the assessee. Further part of jobwork was sub-contracted and it had not receivedany scrap from the sub-vendors. The AO hasmade sweeping allegations against the assesseethat since the vendor namely M/s NobleIndustries was an associate concern therefore byletting it retain the scrap, the profits of theassessee firm had been transferred to the said concern. However there is no material broughton record by the AO to substantiate his claim.Even during the remand proceedings, M/s NobleIndustries has categorically stated that it had notreturned any scrap to the assessee firm. Further80% of the job work was sub-contracted and noscrap was ever returned by the sub-vendors toM/s Noble Industries. The appellant on thecontrary had worked out percentage of wastageon the basis of engineering standards andparameters for payment of excise duty. Howeverno amount was either realized or recovered onsale of wastage or scrap. concern. However there is no material broughton record by the AO to substantiate his claim.Even during the remand proceedings, M/s NobleIndustries has categorically stated that it had notreturned any scrap to the assessee firm. Further80% of the job work was sub-contracted and noscrap was ever returned by the sub-vendors toM/s Noble Industries. The appellant on thecontrary had worked out percentage of wastageon the basis of engineering standards andparameters for payment of excise duty. Howeverno amount was either realized or recovered onsale of wastage or scrap. 3.3 As per the earlier provisions, the CenvatCredit attributable to the inputs contained in suchwaste and scrap which had not been receivedfrom job workers, was allowed to the assessee.Rule 57F provided that the materials cleared tothe job workers was to be received back to thefactory within 180 days and in case theprocessed inputs were not received back within180 days, the manufacturer was liable to pay theamount equivalent to the Cenvat Credit. Howeverafter 01.04.2000, there was no provision underthe Cenvat Credit Rules which provided thatwaste and scrap generated during the processingwas to be returned to the manufacturer. NewCenvat Credit Rules made no such provision. Inthe case of Rocket Engineering Corporation VsCCE 2006 (193) ELT 33 (CESTAT), it was heldthat the scrap was not required to be returned toraw material supplier. Further the raw materialsupplier was not required to pay any duty on thescrap since Cenvat Credit Rules after 1-4-2000did not make any such provision. This view wasconfirmed in CCE Vs. Rocket EngineeringCorporation (2008) 223 ELT 347 (Bombay HighCourt DB) and it was followed in Emco Ltd. VsCCE (2008) 223 ELT 613 (CESTAT). On thecontrary, the appellant in the present case hadpaid the excise duty by way of abundantprecaution in view of Rule 4 (6) of the CentralExcise Rules and para 3.18 of chapter V ofsupplementary manual of CBEC’s instruction. TheCentral Excise Commissionerate, Jaipur-1 hadissued show cause notice to M/s National Engineering Industries Ltd, Khatipura Road,Jaipur as to why excise as to why excise duty ofRs. 85,52,326/- along with interest should not berecovered from it as it had failed to pay exciseduty on the scrap generated at the premises ofjob workers which was retained by them.Considering the provisions of Rule 4(6) of theCentral Excise Rules 2006 read withsupplementary instruction, the appellant paidexcise duty on the notional value of scrap.However in the present case, it is not materialwhether the appellant had paid any excise dutyor not on the scrap retained by the vendors sinceit is not the subject matter here. The moot pointis whether any scrap/wastage was sold by theappellant or it was not recorded in the books ofaccount. There is no evidence that the appellanthad received wastage/scrap from its vendors.There is no evidence that the appellant had soldthe scrap outside the books of account. The AOhas proceeded on the presumption that as theappellant had paid the excise duty on the sale ofscrap/wastage, such income had accrued orreceived by it. In reality, the excise duty was paidon notional value and no income had accrued toor received by the appellant. Further, on thebasis of legal principle that no notional income,which should have been earned and is notearned, can be brought to tax. In the case of CITVs Shoorji Vallabhdas and Co. (46 ITR 144), theHon’ble Supreme Court held that no doubtincome-tax was a levy on income and theIncome-tax Act took into accounts two points oftime at which the liablity to tax was attractedviz., the accrual of income or its receipts, yet thesubstance of the matter was the income and ifthe income did not result at all, there could notbe a tax. It was also held that where the incomecould be said not to have resulted at all, therewas obviously neither accrual nor receipt ofincome. In the said case before the Hon’bleSupreme Court, the reduction in commission wasa part of the agreement entered into by theassessee to secure a long time managing agencyarrangement for the two companies which it hadfloated and since the said agreement enteredinto within the relevant previous year had replaced the earlier agreements and had alteredthe rate resulting in reduction of commissionincome, it was held by the Hon’ble Apex Courtthat the amount of commission income to theextent of such reduction could not be said to beaccrued to the assessee. In the present case,there is no evidence that the vendors or subvendors had returned the scrap to the appellantand same was sold by the appellant outside thebooks of account. In the case of State Bank ofTranvancore Vs CIT(158 ITR), it was held by theHon’ble Supreme Court that the concept ofreality of the income and the actuality of thesituation were relevant factors which went to themaking up of the accrual of income. It was alsoheld that what had really accrued to theassessee, had to be found out first and what hadaccrue must be considered form the point of viewof real income taking the probability orimprobability of realization in a realistic mannerand dovetailing of these factors together. In thepresent case, no real income accrued to theappellant or was received by it during the yearunder reference4 simple because it did notrecover or realize the same. As evident from theexamination of the vendor M/s Noble Industriesby the AO during remand proceedings, it had notreturned the scrap to the appellant. On thecontract undertaken by it, M/s Noble Industrieshad shown the sale of Scrap of Rs. 7,47,109/- inits books of account. The contract of Rs.3,10,51,125/- was sub-contracted to sub vendorsand there was no evidence on the record tosuggest that these sub-vendors had everreturned the scrap to the alleged vendor or theappellant itself. The appellant had providedcomplete names & addresses of these sub-vendors along with their PANs to the AO.Accordingly no adverse inference could havedrawn against the appellant merely on surmises.There was no real income which could be broughtto tax in the hands of the appellant on accrualbasis or receipt basis. In view of above facts, Idirect the AO to delete the addition of Rs.1,35,56,787/- made by him. This ground ofappeal is allowed. 4.In the second ground of appeal, the appellanthas challenged the addition of Rs. 2,33,96,017/-on account of concealed sales which also includedthe amount of Rs. 1,35,56,787/- added onaccount of concealed sale of scrap. Before me,the counsel of the appellant has argued thatduring the course of assessment proceedings, theassessee had filed reconciliation statementwherein as per excise return following salesreturn/rate difference/short/receipts and otherdebit notes were adjusted. The assessee filedcomplete documentary evidences in this regardbut the AO had out rightly rejected the claim ofthe assessee without mentioning anything in thisregard. The AO had simply mentioned that theamount of rate difference could not be deducedfrom the sales declared in ER-1 return becausethe sales declared in include the increased valueof invoiced through supplementary invoice valueand rates had already been considered asgenuine by the purchaser i.e. SKF India Ltd.Hence the submissions of the assessee wererejected. This observation of the AO was wrongbecause the assessee had included the ratedifference bill in his ER-1 submitted to the ExciseDepartment and paid excise duty on the samewhich were subsequently no reverted. Theassessee also submitted complete evidences inthis regard in the form of debitnotes/rejection/short receipt advices. So therewas no reason to reject the claim of the assesseewithout any ground. In view of above facts, itwas prayed to delete the impugned addition ofRs. 2,33,96,017/- made by the AO. 4.1 I have duly considered the submissions of theappellant. As per excise return ER-1, theassessee had reduced the sales return/ratedifference/short receipts and other debit noteswhich were adjusted against the sales from thetotal turnover. The assessee filed reconciliationstatement for the same but the AO brushed asidethe same allegedly on the ground that theamount of rate difference could not be deductedfrom the sales declared in ER-1 return becausethe sales declared in ER-1 return was on thebasis of the quantity and the original bills and it could not have included the invoices throughsupplementary invoices and rates had alreadybeen considered as genuine by the purchaser i.e.SKF India Ltd. However it was factually incorrectsince rate difference and rejection had beenrightly reduced from the figures of salessubmitted to the Excise department. On carefulconsideration of facts, I find that the AO hasbrought to tax the amount of Rs. 1,35,56,787/-twice ie. first on account of concealed sale ofscrap and subsequently as understated saleswhich tantamounts to double addition. Theappellant had claimed an amount of Rs.29,50,662/- on account of rate difference fromSKF India Ltd. The AO has not allowed the ratedifference simply on the ground that the amountwas raised through supplementary invoices. Onthe other hand, the appellant has filed sufficientdocumentary evidence in form of correspondencewith SKF India Ltd to show that the ratedifference of Rs. 31,26,856/- was not allowed byits principal M/s SKF India Ltd. The appellant hadrightly reduced the same from the total turnoverin the ER-1 return filed with the ExciseDepartment. The appellant had further claimedan amount of Rs. 98,39,230/- on account of rawmaterial rate difference between HSS materialand raw material as per contract. The AO has notallowed the rate difference simply on the groundthat the amount was raised throughsupplementary invoices. However on perusal ofthe various document filed by the appellant, therate difference of Rs. 98,39,230/- is found to bein order. The appellant had raised the invoice No.1528 dated 20.09.2008 for an amount of Rs.25,93,355/- to M/s SKF India Ltd however M/sSKF India Ltd paid an amount of Rs. 12,34,549/-against this invoice and therefore there wereshort receipts to the extent of Rs. 13,58,806/-.The appellant had raised the invoice No. 1539dated 22.09.2008 for an amount of Rs.33,96,275/- to M/s SKF India Ltd however M/sSKF India Ltd paid an amount of Rs. 22,27,394/-against the invoice and therefore there wereshort receipts to the extent of Rs. 11,68,881/-.The appellant had raised the invoice No. 1540dated 22.09.2008 for an amount of Rs. 56,07,531/- to M/s SKF India Ltd however M/sSKF India Ltd paid an amount of Rs. 31,45,428/-against this invoice and therefore there wereshort receipts to the extent of Rs. 24,62,103/-.The appellant has filed complete detailscontaining description of raw material for ratedifference along with copies of invoices. Theappellant has also filed copies of invoices for ratedifference of Rs. 42,07,979/-, Rs. 3,54,904/- andRs. 2,86,557/- on account of HSS raw materialrate difference. The principal M/s SKF India Ltdvide their letter dated 19.03.2009 had informedthe appellant that the rate difference raisedthrough supplementary invoices No. 1959, 1960and 1961 was not acceptable to them. Theappellant had rightly reduced the same from thetotal turnover in the ER-1 return filed with theExcise Department. Further the appellant hadraised the invoices bearing No. 1523 to 1527dated 20.09.2008 for Rs. 65,91,015/- howeverM/s SKF India Ltd had paid an amount of Rs.36,40,336/-. Thus there were short receipts ofRs. 29,50,682/- which were reduced by theappellant form the total turnover in the ER-1return. Though the AO had disallowed the ratedifference of Rs. 31,26,865/-, yet the amountwas inadvertently taken at Rs. 1,35,56,787/-while making the addition on account ofunderstated sales on page 3 of the assessmentorder. Since the rate difference of Rs.31,26,865/- and Rs. 98,39,230/- is supported bythe necessary documentary evidence the additionmade by the AO has no legs to stand and cannotbe sustained. However, I find that M/s SKF IndiaLtd had rejected the material sent throughinvoices bearing No. 276 dated 25.01.2008 and281 dated 28.01.2008 amounting to Rs.1,76,179/-. The material was rejected in AY2008-09 itself and was allowable in that yearonly. However the appellant has claimed thesame in the current year by passing journal entryon 07.02.2009. However such a claim is notallowable in the year under reference. I thereforedirect the AO to restrict the addition to Rs.1,76,179/- instead of Rs. 2,33,96,017/- made byhim. This ground of appeal is partly allowed.” 4.On the second issue, in view of the decision of this Court inthe case of CIT vs. State of Bikaner & Jaipur (2014) 43taxmann.com 411 (Raj.) the same will be governed subject to SLP. 5.Hence, both the issues are answered in favour of theassessee and against the department. 6.The appeal stands dismissed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. A.Sharma/28