Principal Commissioner Of Income Tax, Jaipur-2, Jaipur v. M/S Pushp Forgings Pvt. Ltd., F-393-A, Road

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 273 / 2017 Principal Commissioner of Income Tax, Jaipur-2, Jaipur. ----Appellant Versus M/s Pushp Forgings Pvt. Ltd., F-393-A, Road No.9, F-2,VKI Area, Jaipur. ----Respondent and D.B. Income Tax Appeal No. 110 / 2015 Principal Commissioner of Income Tax, Jaipur-2, Jaipur ----Appellant Versus M/s Pushp Enterprises, H-780-A, Road No. 13, VKI Area, JaipurPan-AABFP2279F ----Respondent Connected With D.B. Income Tax Appeal No. 193 / 2015 Pr. Commissioner of Income Tax, Jaipur-II, Jaipur ----Appellant Versus M/s. Agrasen Engineering Industries Ltd. G-515-518, Road No. 9A,V.K.I. Area, Jaipur PAN: ----Respondent D.B. Income Tax Appeal No. 12 / 2017 Principal Commissioner of Income Tax, Jaipur-2, Jaipur. ----Appellant Versus M/s. Pushp Enterprises, H-780-A, Road No. 13, VKI Area, Jaipur. PAN - ----Respondent _____________________________________________________ For Appellant(s) : Mr. K.D. Mathur for Mr. R.B. Mathur For Respondent(s) : Mr. N.L. Agarwal Mr. Siddharth Ranka _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYASJUDGMENT 12/10/2017 1.Since all these appeals arise out of same judgment andorder, they are being decided by this common order. 2.By way of these appeals, the appellant has challengedthe judgment and order of the Tribunal whereby the Tribunal hasdismissed the appeals of the revenue. 3.Income Tax Appeal No.273/2017 is admitted for hearing on the following substantial questions of law:- “1.Whether in the facts and circumstances of thecase, the ITAT was justified in law and has not actedperversely in confirming the order of CIT(A) deletingadditions of Rs.11049086/- which was made onaccount of suppression of scrap sales. 2.Whether in the facts and circumstances of thecase, the Tribunal was justified in law in deleting theaddition of Rs.11049086/- on account of concealedsale of scrap without appreciating the fact that theassessee could not give any evidence regarding nonreturn of the scrap by the vendors doing job work itand it is mot unlikely that the assessee will allowvendors to keep scrap with them, on which itspaying excise duty itself.” 4. This court while admitting the ITA No.110/2015 on 18.05.2016, framed following substantial questions of law:- “ (I) Whether in the facts and circumstances of thecase, the ITAT was justified in law and has not actedperversely in confirming the order of CIT(A) deletingadditions of Rs.1,35,56,787/- on account of concealed sale of scrap despite of the fact that theassessee failed to submit any evidence regardingnon-return of such scrap by the vendors/sub-vendors engaged in job work? (ii)Whether in the fact and circumstances of thecase, the Tribunal and CIT(A) were justified in lawand has not acted perversely in deleting the additionof Rs.2,33,96,017/- made by AO on account ofconcealed sales without appreciating the facts andcircumstances of the case?” 5.This court while admitting the ITA No.193/2015 on 02.08.2017, framed following substantial questions of law:- “i) Whether on the facts and circumstances of thecase and in law the ITAT was justified in deleting thetrading addition of Rs.9394856/- made by theAssessing Officer after rejection of books of accountsunder Section 143(3) without appreciating the factsof the case. ii)Whether on the facts and circumstances of thecase and in law the ITAT was justified in deleting theaddition of Rs.1277984/- made by the AssessingOfficer on account of undisclosed sale despite thefacts that assessee could not prove that scrap wasretained by the job workers.” 6.This court while admitting the ITA No.12/2017 on 17.01.2017, framed following substantial questions of law:- 02.08.2017, framed following substantial questions of law:- “i) Whether on the facts and circumstances of thecase and in law the ITAT was justified in deleting thetrading addition of Rs.9394856/- made by theAssessing Officer after rejection of books of accountsunder Section 143(3) without appreciating the factsof the case. ii)Whether on the facts and circumstances of thecase and in law the ITAT was justified in deleting theaddition of Rs.1277984/- made by the AssessingOfficer on account of undisclosed sale despite thefacts that assessee could not prove that scrap wasretained by the job workers.” 6.This court while admitting the ITA No.12/2017 on 17.01.2017, framed following substantial questions of law:- “(1)Whether in the facts and circumstances of thecase, the ITAT was justified in law and has not actedperversely in confirming the order of CIT(A) deletingadditions of Rs.6382690/- which was made onaccount of suppression of scrap sales. (2)Whether in the facts and circumstances of thecase, the Tribunal and CIT(A) were justified in lawand has not acted perversely in deleting the additionof Rs.3881736/- on account of excise duty paid onun-returnable scrap.” 7.Counsel for the appellant contended that the AO whileconsidering the matter has taken into consideration the scrap onwhich the excise duty was paid, was not reflected in the return.Therefore, while considering the matter the AO has assessed theincome, observing as under:- "A. Scrap Sale “In response to above said show cause notice, theassessee vide their letter dated 22.12.11 submittedthat the ER-1 is return of the excise filed by theassessee for the excise duty liability ascertained by himfor a particular period. The figures shown in ER-1 is notsales but the value of the transaction liable for exciseduty. In business of the manufacturing of bearingsthere are certain percentage of wastage which iscalculated on engineering standards and parametersand excise duty also chargeable on such scrap.Whether any amount is realized or not realized forscrap or wastage material. In our case we sublet someof our manufacturing process to sub-vendors and inthat cases the wastage material/scrap is not returnableby them but as per norms and provisions of the CentralExcise Act we have to calculate the excise duty on suchkind of the wastage/scrap on the basis of standardparameters and also to pay the excise department. Thistype of excise duty is payable by the manufacturers ofhis pocket. The submissions of the assessee have been consideredbut not found tenable reasons as under:-- i) The assessee have paid the job work amounting toRs. 3,55,96,219/- to M/s. Nobel Industries, which is theentity covered U/s. 40A(2)(b) and it is pertinent to notethat the firm is closely related to the partner of thefirm. For argument if it may be presumed that the scrapwill be remained with the vendors then it is clear thatthe firm has transferred his profit to the relative of thepartners of the firm and it is not admissible. ii) the assessee has not produced any persons or anyevidence which shows that the vendor have declaredthe income for sale of the said scrap. Moreover, onexamination of the assessment record of the M/s. NobelIndustries, he has not received any receipt of accountof the sale of the scrap which was generated from the jobworkofM/s.PushpEnterprises. iii) It is unreasonable and not admissible when theassessee himself declared the sale of the scrap in ER-1and make the payment of excise duty thereon, how aprudent person would give the scrap amounting to Rs.1,35,56,787/- to the other persons without anybenefits. iv) The assessee has also declared receipts from jobwork amounting to Rs. 2,05,87,743/- and against thatjob, the assessee has not declared any sales of scrap. ii) the assessee has not produced any persons or anyevidence which shows that the vendor have declaredthe income for sale of the said scrap. Moreover, onexamination of the assessment record of the M/s. NobelIndustries, he has not received any receipt of accountof the sale of the scrap which was generated from the jobworkofM/s.PushpEnterprises. iii) It is unreasonable and not admissible when theassessee himself declared the sale of the scrap in ER-1and make the payment of excise duty thereon, how aprudent person would give the scrap amounting to Rs.1,35,56,787/- to the other persons without anybenefits. iv) The assessee has also declared receipts from jobwork amounting to Rs. 2,05,87,743/- and against thatjob, the assessee has not declared any sales of scrap. In these circumstances, it is clear that the explanationof the assessee is nothing but cooked story which is notadmissible therefore, as show cause given to theassessee a sum of Rs. 1,35,56,787/- is added back inthe income of the assessee treating the same asconcealed sale of the scrap." Penalty u/s 271(1) (c) for concealment of income andfor filing of inaccurate particulars is being separatelyinitiated.” 8.However CIT(A) while considering the same has observed as under:- “3.2 The Ao had alleged that the assessee had paidthe job work of Rs. 3,55,96,219/- its sister concernnamely M/s Noble Industries and through thisarrangement, the assessee has transferred its profitto the sister concern. The counsel of the appellanthas argued that M/s Noble Industries was the sisterconcern and assessed to tax independently and itwas regularly filing its return of income. Further M/sNoble Industries had also passed on the job work in-turn to the other vendors and out of total contractreceipts of Rs. 3.88 crores, it had subcontracted thecontract work of Rs. 3.10 crores to other job workers.Inspite of this fact, M/s Noble Industries had shownthe sales of the scrap of Rs. 7,47,109/- in its booksof account. In support of the same, copies of invoicesfor sale of scrap to M/s Santosh Steel Corporationand Shree Shyam Steel Corporation by M/s NobleIndustries were also filed. The matter was remandedto the AO for examination of M/s Noble Industries along with its books of account vide my letter dated28.03.2012. During the remand proceedings, booksof account of M/s Noble Industries were producedbefore the AO and it was also confirmed that it hadnot returned any scrap to the assessee. Further partof job work was sub-contracted and it had notreceived any scrap from the sub-vendors. The AO hasmade sweeping allegations against the assessee thatsince the vendor namely M/s Noble Industries was anassociate concern therefore by letting it retain thescrap, the profits of the assessee firm had beentransferred to the said concern. However there is nomaterial brought on record by the AO to substantiatehis claim. Even during the remand proceedings, M/sNoble Industries has categorically stated that it hadnot returned any scrap to the assessee firm. Further80% of the job work was sub-contracted and noscrap was ever returned by the sub-vendors to M/sNoble Industries. The appellant on the contrary hadworked out percentage of wastage on the basis ofengineering standards and parameters for paymentof excise duty. However no amount was eitherrealized or recovered on sale of wastage or scrap. 3.3 As per the earlier provisions, the Cenvat Creditattributable to the inputs contained in such waste andscrap which had not been received from job workers,was allowed to the assessee. Rule 57F provided thatthe materials cleared to the job workers was to bereceived back to the factory within 180 days and incase the processed inputs were not received backwithin 180 days, the manufacturer was liable to paythe amount equivalent to the Cenvat Credit. Howeverafter 01.04.2000, there was no provision under theCenvat Credit Rules which provided that waste andscrap generated during the processing was to bereturned to the manufacturer. New Cenvat CreditRules made no such provision. In the case of RocketEngineering Corporation Vs CCE 2006 (193) ELT 33(CESTAT), it was held that the scrap was not requiredto be returned to raw material supplier. Further theraw material supplier was not required to pay anyduty on the scrap since Cenvat Credit Rules after 1-4-2000 did not make any such provision. This viewwas confirmed in CCE Vs. Rocket EngineeringCorporation (2008) 223 ELT 347 (Bombay High CourtDB) and it was followed in Emco Ltd. Vs CCE (2008)223 ELT 613 (CESTAT). On the contrary, the appellant in the present case had paid the excise duty by wayof abundant precaution in view of Rule 4 (6) of theCentral Excise Rules and para 3.18 of chapter V ofsupplementary manual of CBEC’s instruction. TheCentral Excise Commissionerate, Jaipur-1 had issuedshow cause notice to M/s National EngineeringIndustries Ltd, Khatipura Road, Jaipur as to whyexcise as to why excise duty of Rs. 85,52,326/- alongwith interest should not be recovered from it as ithad failed to pay excise duty on the scrap generatedat the premises of job workers which was retained bythem. Considering the provisions of Rule 4(6) of theCentral Excise Rules 2006 read with supplementaryinstruction, the appellant paid excise duty on thenotional value of scrap. However in the present case,it is not material whether the appellant had paid anyexcise duty or not on the scrap retained by thevendors since it is not the subject matter here. Themoot point is whether any scrap/wastage was sold bythe appellant or it was not recorded in the books ofaccount. There is no evidence that the appellant hadreceived wastage/scrap from its vendors. There is noevidence that the appellant had sold the scrapoutside the books of account. The AO has proceededon the presumption that as the appellant had paidthe excise duty on the sale of scrap/wastage, suchincome had accrued or received by it. In reality, theexcise duty was paid on notional value and no incomehad accrued to or received by the appellant. Further,on the basis of legal principle that no notionalincome, which should have been earned and is notearned, can be brought to tax. In the case of CIT VsShoorji Vallabhdas and Co. (46 ITR 144), the Hon’bleSupreme Court held that no doubt income-tax was alevy on income and the Income-tax Act took intoaccounts two points of time at which the liablity totax was attracted viz., the accrual of income or itsreceipts, yet the substance of the matter was theincome and if the income did not result at all, therecould not be a tax. It was also held that where theincome could be said not to have resulted at all,there was obviously neither accrual nor receipt ofincome. In the said case before the Hon’ble SupremeCourt, the reduction in commission was a part of theagreement entered into by the assessee to secure along time managing agency arrangement for the twocompanies which it had floated and since the saidagreement entered into within the relevant previousyear had replaced the earlier agreements and had altered the rate resulting in reduction of commissionincome, it was held by the Hon’ble Apex Court thatthe amount of commission income to the extent ofsuch reduction could not be said to be accrued to theassessee. In the present case, there is no evidencethat the vendors or sub vendors had returned thescrap to the appellant and same was sold by theappellant outside the books of account. In the case ofState Bank of Tranvancore Vs CIT(158 ITR), it washeld by the Hon’ble Supreme Court that the conceptof reality of the income and the actuality of thesituation were relevant factors which went to themaking up of the accrual of income. It was also heldthat what had really accrued to the assessee, had tobe found out first and what had accrue must beconsidered form the point of view of real incometaking the probability or improbability of realization ina realistic manner and dovetailing of these factorstogether. In the present case, no real income accruedto the appellant or was received by it during the yearunder reference4 simple because it did not recover orrealize the same. As evident from the examination ofthe vendor M/s Noble Industries by the AO duringremand proceedings, it had not returned the scrap tothe appellant. On the contract undertaken by it, M/sNoble Industries had shown the sale of Scrap of Rs.7,47,109/- in its books of account. The contract ofRs. 3,10,51,125/- was sub-contracted to sub vendorsand there was no evidence on the record to suggestthat these sub-vendors had ever returned the scrapto the alleged vendor or the appellant itself. Theappellant had provided complete names & addressesof these sub-vendors along with their PANs to the AO.Accordingly no adverse inference could have drawnagainst the appellant merely on surmises. There wasno real income which could be brought to tax in thehands of the appellant on accrual basis or receiptbasis. In view of above facts, I direct the AO todelete the addition of Rs. 1,35,56,787/- made byhim. This ground of appeal is allowed. 4.In the second ground of appeal, the appellant haschallenged the addition of Rs. 2,33,96,017/- onaccount of concealed sales which also included theamount of Rs. 1,35,56,787/- added on account ofconcealed sale of scrap. Before me, the counsel ofthe appellant has argued that during the course ofassessment proceedings, the assessee had filedreconciliation statement wherein as per excise returnfollowing sales return/rate difference/short/receipts and other debit notes were adjusted. The assesseefiled complete documentary evidences in this regardbut the AO had out rightly rejected the claim of theassessee without mentioning anything in this regard.The AO had simply mentioned that the amount ofrate difference could not be deduced from the salesdeclared in ER-1 return because the sales declared ininclude the increased value of invoiced throughsupplementary invoice value and rates had alreadybeen considered as genuine by the purchaser i.e. SKFIndia Ltd. Hence the submissions of the assesseewere rejected. 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 same whichwere subsequently no reverted. The assessee alsosubmitted complete evidences in this regard in theform of debit notes/rejection/short receipt advices.So there was no reason to reject the claim of theassessee without any ground. In view of above facts,it was prayed to delete the impugned addition of Rs.2,33,96,017/- made by the AO. 4.1 I have duly considered the submissions of theappellant. As per excise return ER-1, the assesseehad reduced the sales return/rate difference/shortreceipts and other debit notes which were adjustedagainst the sales from the total turnover. Theassessee filed reconciliation statement for the samebut the AO brushed aside the same allegedly on theground that the amount of rate difference could notbe deducted from the sales declared in ER-1 returnbecause the sales declared in ER-1 return was on thebasis of the quantity and the original bills and it couldnot have included the invoices throughsupplementary invoices and rates had already beenconsidered as genuine by the purchaser i.e. SKFIndia Ltd. However it was factually incorrect sincerate difference and rejection had been rightly reducedfrom the figures of sales submitted to the Excisedepartment. On careful consideration of facts, I findthat the AO has brought to tax the amount of Rs.1,35,56,787/- twice ie. first on account of concealedsale of scrap and subsequently as understated saleswhich tantamounts to double addition. The appellanthad claimed an amount of Rs. 29,50,662/- onaccount of rate difference from SKF India Ltd. The AOhas not allowed the rate difference simply on theground that the amount was raised throughsupplementary invoices. On the other hand, the appellant has filed sufficient documentary evidence inform of correspondence with SKF India Ltd to showthat the rate difference of Rs. 31,26,856/- was notallowed by its principal M/s SKF India Ltd. Theappellant had rightly reduced the same from the totalturnover in the ER-1 return filed with the ExciseDepartment. The appellant had further claimed anamount of Rs. 98,39,230/- on account of rawmaterial rate difference between HSS material andraw material as per contract. The AO has not allowedthe rate difference simply on the ground that theamount was raised through supplementary invoices.However on perusal of the various document filed bythe appellant, the rate difference of Rs. 98,39,230/-is found to be in order. The appellant had raised theinvoice No. 1528 dated 20.09.2008 for an amount ofRs. 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 were shortreceipts to the extent of Rs. 13,58,806/-. Theappellant had raised the invoice No. 1539 dated22.09.2008 for an amount of Rs. 33,96,275/- to M/sSKF India Ltd however M/s SKF India Ltd paid anamount of Rs. 22,27,394/- against the invoice andtherefore there were short receipts to the extent ofRs. 11,68,881/-. The appellant had raised the invoiceNo. 1540 dated 22.09.2008 for an amount of Rs.56,07,531/- to M/s SKF India Ltd however M/s SKFIndia Ltd paid an amount of Rs. 31,45,428/- againstthis invoice and therefore there were short receipts tothe extent of Rs. 24,62,103/-. The appellant has filedcomplete details containing description of rawmaterial for rate difference along with copies ofinvoices. The appellant has also filed copies ofinvoices for rate difference of Rs. 42,07,979/-, Rs.3,54,904/- and Rs. 2,86,557/- on account of HSS rawmaterial rate difference. The principal M/s SKF IndiaLtd vide their letter dated 19.03.2009 had informedthe appellant that the rate difference raised throughsupplementary invoices No. 1959, 1960 and 1961was not acceptable to them. The appellant had rightlyreduced the same from the total turnover in the ER-1return filed with the Excise Department. Further theappellant had raised the invoices bearing No. 1523 to1527 dated 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 of Rs.29,50,682/- which were reduced by the appellantform the total turnover in the ER-1 return. Though the AO had disallowed the rate difference of Rs.31,26,865/-, yet the amount was inadvertently takenat Rs. 1,35,56,787/- while making the addition onaccount of understated sales on page 3 of theassessment order. Since the rate difference of Rs.31,26,865/- and Rs. 98,39,230/- is supported by thenecessary documentary evidence the addition madeby the AO has no legs to stand and cannot besustained. However, I find that M/s SKF India Ltdhad rejected the material sent through invoicesbearing No. 276 dated 25.01.2008 and 281 dated28.01.2008 amounting to Rs. 1,76,179/-. Thematerial was rejected in AY 2008-09 itself and wasallowable in that year only. However the appellanthas claimed the same in the current year by passingjournal entry on 07.02.2009. However such a claim isnot allowable 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.” 9.The same was confirmed by the Tribunal. 10.Taking into consideration, the observations made byboth the authorities, the issues are answered in favour of assessee against the department. 11.All the appeals are dismissed. (VIJAY KUMAR VYAS)J. (K.S.JHAVERI)J.