ACIT, Ludhiana V. M/s Happy Steels P. Ltd., Ludhiana

ITA 1025/CHANDI/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60909 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 02-07-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 04-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE SHRI H.L. KARWA, VP AND SHRI T.R. SOOD, AM ITA NO. 1025/CHD/2009 ASSESSMENT YEAR: 2006-07 A.C.I.T. CIRCLE-V V M/S HAPPY STEELS PVT LTD LUDHIANA KANGANWAL ROAD LUDHIANA (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI N.K. SAINI RESPONDENT BY: SHRI ASHWANI KUMAR DATE OF HEARING: 2.07.2012 DATE OF PRONOUNCEMENT: 5 .07.2012 ORDER PER T.R. SOOD, A.M IN THIS APPEAL THE REVENUE HAS RAISED THE VARIOUS GROUNDS OF APPEAL BUT AT THE TIME OF HEARING THE LD. COUNSEL OF THE ASSES SEE SUBMITTED THAT ONLY DISPUTE IS REGARDING DELETION OF ADDITION AMOUNTING TO RS. 8,53,974/- ON ACCOUNT OF EXCESS BURNING LOSS. 2. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE AS SESSEE WAS HAVING TWO CATEGORIES OF PRODUCTION ON THE BASIS OF DIA, THE LARGE ITEMS (58 65 MM) AND SMALL ITEM (32 56 MM) BY TAKING VISIBLE SCRAP OF 23.1% AND 35.98% RESPECTIVELY ON BOTH SIZES. DURING ASSESSMENT PROC EEDINGS THE ASSESSEE FILED FURTHER CHARTS FROM WHICH IT WAS OBSERVED THAT NO B URNING LOSS CAN POSSIBLY BE THERE ON FORGING SCRAP BECAUSE THE END OF BARS I.E. PHYSICAL FORGING SCRAP WILL NOT ENTER THE MANUFACTURING PROCESS. ACCORDINGLY HE WORKED OUT THE EXCESS BURNING LOSS AT 9MT. IN THIS REGARD FOLLOWING OBSE RVATIONS HAVE BEEN MADE BY THE ASSESSING OFFICER: DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSES SEE FILED FOLLOWING DETAILS WITH REFERENCE TO BURNING LOSS AND FORGING SCRAP VIS--VIS END CUTTINGS: TABLE-A DIA (IN MM) %AGE OF BURNING LOSS %AGE OF FORGING SCRAP TOTAL LO SS 2 INCLUDING END CUTTING 58-65 (LARGER ITEMS) 4.5% 4.5% 9% 32-56 (SMALLER ITEMS) 6.82% 4.5% 11.32% FORGING (SOLD WITHOUT MACHINING) 6% 4.5% 10.5% ON THE BASIS OF ABOVE DATA, FORGING WEIGHT HAS BEEN GIVEN BY ASSESSEE AS PER FOLLOWING FORMAT (TABLE B) DIA (MM) QUANTITY (IN MM) %AGE OF RAW MATERIAL RAW MATERIAL WEIGHT (IN MT) BURNING LOSS (IN MT) 58-65 (LLALRLGLER ITEMS) 1270.16 91% (100%-9%) 1395.78 62.81 32-56 (SMALLER ITEMS) 619.73 88.68% (100%- 11.32%) 698.84 47.66 FORGING (SOLD WITHOUT MACHINING) 580.16 89.50% (100% - 10.5%) 648.22 38.89 TOTAL 149.36 IN THE LIGHT OF ABOVE DATA, ISSUE HAS BEEN DISCUSSE D WITH THE REPRESENTATIVE OF THE ASSESSEE. IT IS GATHERED THA T WHILE ARRIVING AT THE FIGURES OF BURNING LOSS, ASSESSEE HAS TAKEN RAW MAT ERIAL (WITHOUT DEDUCTING THE FORGING SCRAP / END CUTTING WHICH NEV ER GOES IN ANY STAGE OF MANUFACTURING PROCESS). IT WAS IMPERATIVE ON TH E PART OF THE ASSESSEE TO HAVE REDUCED THE REQUISITE ELEMENT I.E. 4.5% AND THEN CALCULATE BURNING LOSS ON THE BALANCE 95.5% OF RAW MATERIAL Q UANTITY. KEEPING IN VIEW THE ABOVE OBSERVATIONS, ASSESSEE HA S BEEN CATEGORICALLY ASKED TO RECALCULATE QUANTUM OF BURNI NG LOSS AND IN THE FINAL ANALYSIS THE ABOVE TABLE IS RE-DRAFTED AS UND ER: DIA (MM) QUANTITY (IN MM) %AGE OF RAW MATERIAL RAW MATERIAL WEIGHT IN (MT) BURNING LOSS (IN MT) 58-65 (LARGER LITEMS) 1270.16 91% (100%- 9%) 1395.78 59.85 32-56 (SMALLER ITEMS) 619.73 88.68% (1000%- 11.32%) 698.84 45.35 FORGING (SOLD WITHOUT MACHINING) 580.16 89.50% (100%- 10.5%) 648.22 37.02 TOTAL 142.22 ON THE BASIS OF TABLE C, ASSESSEES BURNING LOSS CO MES TO 142.22 MT. ON THE CONTRARY, ASSESSEE HAS DECLARED BURNING LOSS OF 151 MT IN FINAL ACCOUNTS. THERE IS EXCESS CLAIM OF BURNING LOSS TO THE TUNE OF 9MT. THE 3 ONLY CONCLUSION THAT CAN BE DRAWN IS THAT EQUIVALEN T QUANTUM OF FINISHED GOODS HAVE BEEN SOLD BY ASSESSEE WITHOUT BOOKING TH E SAME IN THE SALES ACCOUNT IN ITS REGULAR BOOKS OF ACCOUNT. ON THE BASIS OF ABOVE THE ASSESSING OFFICER WAS OF THE VIEW THAT IN FACT THE ASSESSEE HAD ACTUAL HIGHER PRODUCTION AND THE SAME HAS BEEN CONCEALED BY SHOWING EXCESS BURNING LOSS AND THEREFORE, THE ASS ESSING OFFICER ASSESSED THE BURNING LOSS AT 9MT AS SALES MADE OUT OF THE BO OKS. ACCORDINGLY BY MULTIPLYING THE SAME RS. 92966 I.E. NORMAL SALE THE RATE OF THIS QUANTITY, THE SALE OUTSIDE THE BOOKS WERE CALCULATED AT RS. 8,35, 794/- WHICH WAS ADDED TO THE INCOME OF THE ASSESSEE. 3. ON APPEAL, IT WAS MAINLY SUBMITTED THAT THE ASSE SSING OFFICER HAS ACCEPTED THE BOOKS OF ACCOUNT AND NO ADVERSE COMMEN TS WERE GIVEN. THE BOOKS OF ACCOUNT WERE AUDITED. DURING INSPECTION U /S 133B FEW ITEMS WERE FORGED AND THE STATEMENTS WERE ALSO RECORDED BUT DU RING ASSESSMENT PROCEEDINGS NOTHING WAS CONFRONTED TO THE ASSESSEE. COMPARABLE CHART FOR BURNING WAS SUBMITTED THAT THE STATEMENTS IN ANNEXU RES 3 & 4 WERE PREPARED AT THE INSTANCE OF THE ASSESSING OFFICER. IN FACT BURN ING LOSS HAS BEEN GIVEN IN COMPARISON TO THE EARLIER ASSESSMENT YEARS. THEREF ORE, ADDITION WAS NOT JUSTIFIED. THE LD. CIT(A) AGREED WITH THE SUBMISSIO NS AND DELETED THE ADDITION. 4. BEFORE US, THE LD. DR FOR THE REVENUE CARRIED US TO THE VARIOUS OBSERVATIONS MADE BY THE ASSESSING OFFICER AND EMPH ASIZED THAT AS PER ASSESSEES OWN CHART THE FORGING MATERIAL CANNOT PO SSIBLY GO INTO THE MANUFACTURING PROCESS AND THEREFORE, WOULD NOT SUFF ER ANY BURNING LOSS. IN FACT THE ASSESSING OFFICER HAS ACCEPTED THE BURNING LOSS AS SHOWN BY THE ASSESSEE. THEREFORE, THE ADDITION MADE BY THE ASSESSING OFF ICER WAS JUSTIFIED. 5. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE REITERATED THE SUBMISSIONS MADE BEFORE THE FIRST APPELLATE AUTHORI TY AND EMPHASIZED THAT THE BOOKS OF ACCOUNT WHICH ARE AUDITED, HAVE NOT BEEN R EJECTED BY THE ASSESSING OFFICER. FURTHER THE CHARTS SHOWING BURNING LOSS I N THE COMPARABLE EARLIER YEARS, WAS FURNISHED WHICH CLEARLY SHOWS THAT BURNI NG LOSS WAS LOWER BECAUSE OF THE INSTALLATION OF NEW PLANT AND MACHINERY. IN FACT IT DEPENDS ON THE METHOD 4 OF ACCOUNTING. THE TOTAL BURNING LOSS CAN BE ON TH E TOTAL MATERIAL PURCHASED, OR CAN BE CALCULATED ON THE BASIS OF TOTAL MATERIAL MI NUS SCRAP. ACTUAL BURNING LOSS WOULD BE SAME. HOWEVER, OF COURSE THE SAME WO ULD INCREASE STATISTICALLY IF IT IS CALCULATED ON THE BASIS OF RAW MATERIAL MI NUS SCRAP. THIS CALCULATION WAS MADE AT THE INSTANCE OF THE ASSESSING OFFICER BUT T HIS DOES NOT MEAN THAT ACTUAL BURNING LOSS IS LESS THAN SHOWN BY THE ASSES SEE. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY AN D AGREE WITH THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. THE BURNING LOSS CAN BE CALCULATED ON THE BASIS OF TOTAL RAW MATERIAL PURC HASED THEN ACTUAL BURNING LOSS WILL BE LITTLE LOWER THAN IF CALCULATED ON THE TOTA L PURCHASE MINUS SCRAP MATERIAL WHICH HAS NOT ENTERED INTO THE PRODUCTION. SINCE S UCH LOSSES HAVE BEEN CALCULATED AT THE INSTANCE OF THE ASSESSING OFFICER THE BURNING LOSS METHOD ADOPTED BY THE ASSESSING OFFICER, CANNOT PROVE THAT THE ACTUAL BURNING LOSS WAS EXCESSIVE LOSS. THE LD. CIT(A) HAS REPRODUCED THE FOLLOWING CHART FOR LAST FIVE YEARS: DETAIL OF RAW MATERIAL CONSUMED & BURNING LOSS QTY (IN MT) YEAR TOTAL RAW MATERIAL CONSUMED BURNING LOSS BURNING LOSS (IN %AGE) A B B/A*100 2004-05 2835.327 160.440 5.66 2005-06 2715.029 151.150 5.57 2006-07 3094.728 160.640 5.19 2007-08 2779.011 `148.604 5.35 2008-09 3029.444 140.625 4.64 THE ABOVE CLEARLY SHOWS THAT DURING THE YEAR BURNIN G LOSS IS ACTUALLY LOWER THAN THE EARLIER YEARS. THE ASSESSING OFFICER HAS NOT B ROUGHT ANY MATERIAL TO SHOW THAT THE ASSESSEE HAS ACTUALLY PRODUCED MORE FINISH ED PRODUCTS WHICH HAS BEEN SOLD OUTSIDE THE BOOKS. THEREFORE, IN OUR OP INION, THE LD. CIT(A) HAS CORRECTLY ADJUDICATED THE ISSUE AND ACCORDINGLY WE CONFIRM HIS ORDER. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED ON 5 .07.2012 SD/- SD/- (H.L. KARWA) (T.R. SOOD) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 05.07.2012 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/ THE DR 5