GALBRO ISPAT GALVANISERS P.LTD, MUMBAI V. ITO 9(1)(4), MUMBAI

CO 170/MUM/2013

• Counselvise Citation: [2014] 123 COUNSELVISE.COM (IT) 0059 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 19 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 19-11-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 09-06-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 31-07-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: UMESH KOLAPKAR

Judgement Text

G IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI . . . . . . . . , ! ! ! ! '!! '!! '!! '!! ! ! ! ! , # # # # BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER . : . : . : . : 1232 1232 1232 1232/ // / / // / 2011, ) ! 2008-09 ITA NO. : 1232/MUM/2011 , AY 2008-09 GALBRO ISPAT GALVANSERS PVT LTD, JENCO COMPOUND, DEVRUKHKAR WADI, LINK ROAD, BEHIND SHAKTI TEXTILES. CHINCHOLI BUNDER, MALAD (WEST), MUMBAI 400 064 . .: PAN: AACCG 3423 C VS ITO WD-9(1)(4), AAYAKAR BHAVAN, NEW MARINE LINES, M K ROAD, MUMBAI -400 020 ./ (APPELLANT) 01./ (RESPONDENT) . : . : . : . : 1263 1263 1263 1263/ // / / // / 2011, ) ! 2007-08 ITA NO. : 1263/MUM/2011 , AY 2007-08 ITO WD-9(1)(4), ROOM NO.224, AAYAKAR BHAVAN, MUMBAI -400 020 VS GALBRO ISPAT GALVANSERS PVT LTD, MALAD (WEST), MUMBAI 400 064 . .: PAN: AACCG 3423 C ./ (APPELLANT) 01./ (RESPONDENT) CROSS OBJECTION 170/MUM/2013 ARISING OUT OF . : . :. : . : 1263 1263 1263 1263/ // / / // / 2011 , ) ! 2007-08 ITA NO. : 1263/MUM/2011, AY 2007-08 GALBRO ISPAT GALVANSERS PVT LTD, MALAD (WEST), MUMBAI 400 064 . .: PAN: AACCG 3423 C VS ITO WD-9(1)(4), ROOM NO.224, AAYAKAR BHAVAN, MUMBAI -400 020 ./ (APPELLANT)CROSS OBJECTOR 01./ (RESPONDENT) APPELLANT-CROSS OBJECTOR BY : SHRI UMESH KOLAPKAR RESPONDENT-REVENUE BY : SHRI R N DSOUZA )! 45 6 /DATE OF HEARING : 11-11-2014 78 45 6/ DATE OF PRONOUNCEMENT : 19-11-2014 9 9 9 9 O R D E R '! '!'! '!! !! ! ! ! ! ! , . . . . . .. . PER VIVEK VARMA, J.M. : CROSS APPEALS AND CROSS OBJECTION BY THE ASSESSEE F ILED AGAINST THE APPEAL FILED BY THE DEPARTMENT, ARISE OUT OF TH E ORDER OF CIT(A) 19, MUMBAI, DATED 30.11.2010. GALBRO ISPAT GALVANSERS PVT LTD ITAS NO. 1232/MUM/2011 ITA 1263/MUM/2011 CO 170/MUM/2013 2 2. THE FACTS ARE THAT THE ASSESSEE IS ENGAGED IN TH E BUSINESS OF GALVANIZING AND TRADING OF FERROUS AND NON-FERROUS METALS. GALVANIZING IS A CHEMICAL PROCESS BY WHICH THE FERROUS METAL IS MADE RUST PROOF BY APPLYING THICK LAYER OF ZINC, FROM ITS UNIT IN WADA , DIST THANE. THE ASSESSEE ALSO PERFORM JOB WORK FOR OTHERS ON ITS OW N AND FOR ITS SISTER CONCERN. 3. WHILE EXAMINING THE RESULTS OF THE PROFIT & LOSS ACCOUNT OF JOB WORK AND BUSINESS MODUS. THE AO FOUND THAT THE CONC ESSIONS GIVEN BY IT TO ITS SISTER CONCERN VARIES FROM 23% TO 168% . ACCORDING TO THE AO, THE JOB WORK COMPONENT COMES TO 30.25% OF THE T OTAL TURNOVER, THEREFORE, ACCORDINGLY THE EXPENSES DEBITED TO THE P&L ACCOUNT WOULD GET INFLATED TO THAT EXTENT. HE, THEREFORE, CONSIDE RING THE ENTIRE ASPECT AND ON A REASONABLE BASIS DISALLOWED EXPENSES TO TH E EXTENT OF 10%, WHICH WERE DEBITED TO THE P&L ACCOUNT AT RS. 1,66,9 5,148/-. HE, THEREFORE, DISALLOWED 16,69,514/- AND ADDED IT BACK . 4. THE ASSESSEE APPROACHED THE CIT(A), BEFORE WHOM, THE ASSESSEE REITERATED ITS SUBMISSION MADE BEFORE THE AO AND FU RTHER SUBMITTED, 7.2 THE APPELLANT DISPUTES THE SAID FINDINGS OF TH E AO. AT THE VERY OUTSET, IT IS NOT JUSTIFIABLE TO COMPARE RATES, SIN CE, THE RATES CHARGED DIFFER FROM JOB TO JOB DEPENDING UPON THE CONSUMPTI ON OF ZINC. THE APPELLANT EXPLAINS THAT GALVANIZING IS NOT A FIXED RATE JOB. THE RATES ARE COMPARATIVELY HIGHER WHEN ZINC CONSUMPTION IS HIGHE R AND LOW WHEN ZINC CONSUMPTION IS LESS. IT IS ALSO STATED THAT BE ING A SISTER CONCERNS IT RESULTS IN CONTINUOUS BUSINESS AND MOREOVER NO VALU E ADDED SERVICES ARE PROVIDED TO SISTER CONCERNS SUCH AS PROVIDING S TORING AND WHAREHOUSING FACILITY, PICK-UP AND DROP SERVICE, AV AILING OCTROI CLEARANCE SERVICES WHICH ARE PROVIDED TO OUTSIDE PA RTIES AND AS SUCH THE OUTSIDE PARTIES HAVE BEEN CHARGED RATES, WHICH INCLUDE CHARGES FOR THE SAID SERVICES. THE APPELLANT COMPANY HAS ALSO F URNISHED A CHART SHOWING COMPARISON OF THE INVOICES SELECTED BY THE AO, SHOWING DETAILS OF JOB DONE, THICKNESS OF MATERIAL, BURNING CHARGES ETC TO PROVE ITS POINT THAT THE SAID FACTORS ALSO AFFECT RATES, WHICH IS A N EXTRACTED BELOW. IT IS ALSO BROUGHT TO NOTICE THAT NO SUCH ADDITIONS WERE MADE IN EARLIER YEARS AND SUBSEQUENT YEARS AND THAT THE SISTER CONCERN JE NCO GALVANIZING IS ASSESSED IN THE HIGHEST TAX BRACKET AND THERE IS NO IMPACT ON THE TAX LIABILITY. GALBRO ISPAT GALVANSERS PVT LTD ITAS NO. 1232/MUM/2011 ITA 1263/MUM/2011 CO 170/MUM/2013 3 SR .N BILL NO. CLIENT QTY IN KGS PRODUCT THICK- NESS LABOUR CHARGES BURNI- NG CHARG- ES REMARKS 1 843 WEST COAST ENG. INDS. 5420 MS CABLE TRAY 1.6MM 3.50 AS THE THICKNESS OF MATERIAL IS LESS THE CONSUMPT ION OF ZINC IS MORE THEREFORE THE RATE CHARGES IS MORE 2 845 JENCO GALVANISING PVT LTD 420 MS CABLE TRAY 2.0MM 2.85 AS THE THICKNESS OF MATERIAL IS MORE THE CONSUMPT ION OF ZINC IS LESS SO THE LABOUR CHARGE IS LESS 3 852 BHARAT ENTERPRISES 1100 MS PIPES 1 & 1 1 & 3.00 AS THE THICKNESS OF MATERIAL IS LESS THE CONSUMPT ION OF ZINC IS MORE SO THE RATE CHARGED IS MORE RATE INCLUDES BURNING CHARGES ALSO 4 833 JENCO GALVANISING PVT LTD 132 MS PIPES 4 & 5 4 & 5% 4.50 AS THE THICKNESS & DIAMETER OF THE PIPE IS MORE & CONSUMPT ION OF ZINC IS LESS SO THE RATE CHARGES IS LESS 5 951 WEST COST ENG. INDS. 360 MS CLAMP 2 MM 4.50 AS THE THICKNESS OF MATERIAL IS LESS THE CONSUMPT ION OF ZINC IS MORE THEREFORE THE RATE CHARGES IS MORE 6 1002 JENCO GALVANISING PVT LTD 95 MS CLAMP 5 MM 2.85 AS THE THICKNESS OF MATERIAL IS MORE THE CONSUMPT GALBRO ISPAT GALVANSERS PVT LTD ITAS NO. 1232/MUM/2011 ITA 1263/MUM/2011 CO 170/MUM/2013 4 ION OF ZINC IS LESS SO THE RATE CHARGES IS LESS 7 963 WEST CPST ENG. INDS. 9670 MS GRATIN GS 5MM 3.00 AS THE THICKNESS OF MATERIAL IS LESS THE CONSUMPT ION OF ZINC IS MORE THEREFORE THE RATE CHARGED IS MORE 8 861 JENCO GALVANISING PVT LTD 740 MS GRATIN GS 8 MM 1.90 AS THE THICKNESS OF MATERIAL IS MORE THE CONSUMPT ION OF ZINC IS LESS SO THE RATE CHARGES IS LESS 9 847 RIDDHI ENGINEERS 4980 MS BEAM CHANN EL 5/6 MM (D.DIP) 5.09 3.00 MATERIAL GALVANIZE D IN DOUBLE DIP PROCESS & BURNING CHARGES ADDED SO THE RATE CHARGES IS MORE. 5. THE CIT(A), AFTER TAKING INTO CONSIDERATION THE SUBMISSIONS MADE BEFORE HIM, THE CIT(A), HELD, GALVANIZING REFERS TO THE PROCESS OF COATING IRON, STEEL OR ALUMINUM WITH A THIN ZINC LAYER BY PASSING THE METAL THOUGH A MOLTEN BATH OF ZINC AT TEMPERATURE OF AROUND 460 DEGREE CENTIGRADE. IT IS BASICALLY COATING OF ZINC ON STEEL OR IRON OR IRON TO PREVENT FROM CO RROSION. THE USUAL CRITERION FOR DETERMINING THE EXPECTED LIFE OF ZINC COATING IS THICKNESS, THE THICKER THE COATING THE LONGER THE SERVICE LIFE . THERE ARE DIFFERENT METHODS OF ZINC COATING WHICH INCLUDE ELECTROGALVAN IZING, ZINC PLATING, MECHANIC PLATING, HOT-DIP GALVANIZING AND ZINC PAIN TING. THE SELECTION OF METHOD IS DEPENDENT UPON THE INTENDED APPLICATIO N, WHETHER INTERIOR, EXTERIOR, HARD WARE, AUTOMOBILE BODY ETC. THUS, VID E RANGE OF COATINGS ARE AVAILABLE AND SELECTION OF A METHOD WILL DEPEND UPON SUITABILITY OF COATING FOR INTENDED USE. CERTAIN COATINGS ARE LABO UR INTENSIVE SUCH AS METAL SPRAYING AND PAINTING. THUS THE LABOUR CHARGE DETERMINED IS DEPENDED UPON FACTORS SUCH AS INTENDED APPLICATION, THE EXPECTED LIFE OF THE COATING, WHETHER LABOUR INTENSIVE OR NOT, AN D MAY BE ALSO OTHER HIDDEN FACTORS SUCH AS THE VALUE ADDED SERVICES WHE THER PROVIDED OR NOT. GALBRO ISPAT GALVANSERS PVT LTD ITAS NO. 1232/MUM/2011 ITA 1263/MUM/2011 CO 170/MUM/2013 5 6. THE CIT(A), THEREFORE, RESTRICTED THE DISALLOWA NCE AT 5%, AS AGAINST 10% MADE BY THE AO. 7. AGAINST THIS ORDER OF THE CIT(A), CROSS APPEALS HAVE BEEN FILED BY THE DEPARTMENT AS WELL AS BY THE ASSESSEE. THE ASSE SSEE HAS ALSO FILED CO AGAINST THE APPEAL FILED BY THE DEPARTMENT. 8. AGAINST THIS ORDER OF THE CIT(A), CROSS APPEALS HAVE BEEN FILED BY THE DEPARTMENT AS WELL AS BY THE ASSESSEE. THE ASSE SSEE HAS ALSO FILED CO AGAINST THE APPEAL FILED BY THE DEPARTMENT. 9. IN ALL THESE IMPUGNED APPEALS, THE COMMON ISSUE INVOLVED IS WHETHER ON THE FACTS AND CIRCUMSTANCES, ANY DISALLO WANCE IS CALLED FOR BY THE REVENUE AUTHORITIES. 10. THE CIT(A) CAME TO THE ABOVE FINDINGS, AFTER GO ING THROUGH THE EVIDENCES, WHICH INDICATE THE PROCESS OF GALVANIZIN G AND ALSO BUSINESS DONE WITH AND ON BEHALF OF ITS SISTER CONCERN. AT T HE TIME OF HEARING BEFORE US, THE AR SUPPORTED HIS CASE BY FILING CERT IFICATE/INFERENCE SET OUT BY BUREAU OF INDIAN STANDARDS (BIS), PERTAINING TO HOT DIP ZINK COATINGS ON STRUCTURAL STEELS AND OTHER ALLIED PROD UCTS SPECIFICATIONS, WHEREIN THE BIS HAS LAID DOWN CERTA IN PARAMETERS WITH REGARD TO MASS ZINC COATINGS & GIVES MINIMUM VALUE OR AVERAGE MASS OF COATINGS. 11. KEEPING THIS ANALYSIS ISSUED BY BIS, WE ARE SAT ISFIED THAT CONSUMPTION OF ZINC AND GALVANIZING PROCESS CANNOT REMAIN UNIFORM, EVEN ON CUSTOMERS TO CUSTOMER BASIS ALSO TO ARRIVE AT ANY STANDARD INPUT. BUT THE ASSESSEE HAS ACCOMMODATED AND HAS GI VEN CONCESSIONS TO ITS SISTER CONCERN, WHICH IS ITS BUSINESS ASSOCI ATE. THESE BEING THE GALBRO ISPAT GALVANSERS PVT LTD ITAS NO. 1232/MUM/2011 ITA 1263/MUM/2011 CO 170/MUM/2013 6 FACTS, A CERTAIN DISALLOWANCE IS CALLED FOR, TO GIV E A QUITUS TO THE AFFAIRS, WHICH ACCORDING TO US SHALL BE AT 2% OF RS. 1,66,95 ,148/-. 12. ACCORDINGLY, THE AO IS DIRECTED TO RESTRICT THE DISALLOWANCE AT 2% AND DELETE THE REMAINING DISALLOWANCE. 13. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 14. IN THE RESULT, SINCE ALL THREE APPEALS ARE ON O NE ISSUE, ALL THE THREE APPEALS ARE TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH NOVEMBER, 2014. SD/- SD/- ( . . . . . . . . ) ('!! ! '!! ! '!! ! '!! ! ) (R.C. SHARMA) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 19 TH NOVEMBER, 2014 05/ COPY TO:- 1) .// THE APPELLANT. 2) 01.// THE RESPONDENT. 3) THE CIT (A)-19, MUMBAI. 4) < 9, , MUMBAI / THE CIT 9 ,MUMBAI. 5) '!= >05) G, , THE D.R. G BENCH, MUMBAI. 6) > ?@ COPY TO GUARD FILE. 9 ) / BY ORDER / / TRUE COPY / / [ A/B C , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *EFB ) !.).