DCIT, CHENNAI V. M/s O.P.Steels Ltd., CHENNAI

ITA 1545/CHNY/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4989 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 07-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 01-10-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P B SEKHARAN
• Assessee Lawyers: A K JAIN
• Keywords: Opportunity of being heard; Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI BEFORE SHRI U.B. BEDI, J.M. AND SHRI N.S. SAINI, AM .. I.T.A. NO. 1545/MDS/2009 ASSESSMENT YEARS 2004-05 THE DY.C.I.T COMPANY CIRCLE V(I) CHENNAI VS. M/S O.P. STEELS LTD 17, MOOKER NALLA MUTHU STREET CHENNAI 600 001. (PAN NO. AAACO 0705F) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI A.K. JAIN DEPARTMENT BY : SHRI P.B. SEKHARAN O R D E R PER N.S. SAINI, A.M :- THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER PASSED BY THE LD. CIT(A)-V, CHENNAI DATED 20.08.200 8 FOR ASSESSMENT YEAR 2004-05. PAGE 2 OF 9 I.T.A. NO.1545 /MDS/2009 2. GROUND NO. 1 IS GENERAL IN NATURE AND REQUIRED N O ADJUDICATION FROM OUR SIDE. 3. GROUND NO. 2 IS DIRECTED AGAINST THE ORDER OF TH E LD. CIT(A) HOLDING THAT THE ADDITION MADE BY THE ASSESSING OFF ICER TOWARDS EXCESS CLAIM OF WASTAGE WAS UNWARRANTED, THEREBY DE LETING THE ADDITION OF RS. 78,54,008/-. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY IS ENGAGED IN THE BUSINESS AND SALE OF MS INGOTS AND A LSO CTD BARS. THE ASSESSING OFFICER NOTICED THAT THE YIELD OF STE EL INGOTS FROM THE RAW MATERIALS CONSUMED DURING THE PERIOD UNDER CONS IDERATION SHOWED WASTAGE OF 37.50% WHEREAS, IN THE TWO PRECED ING YEARS, THE LOSS ON ACCOUNT OF WASTAGE HAD BEEN SHOWN AT 12.58% AND 15.93% RESPECTIVELY. THEREFORE, THE ASSESSING OFFICER EST IMATED THE WASTAGE AT 16% AS REASONABLE WASTAGE IN THE PRODUCT ION PROCESS AND THE BALANCE EXCESS WASTAGE WAS HELD BY THE ASSESSIN G OFFICER TO REPRESENT EXCESS STEEL INGOTS PRODUCED WHICH WERE F URTHER DEEMED TO HAVE BEEN SOLD FOR RS. 78,54,008/- AND MADE ADDI TION TO THE RETURNED INCOME OF THE ASSESSEE. PAGE 3 OF 9 I.T.A. NO.1545 /MDS/2009 4. IN APPEAL, THE LD. CIT(A) OBSERVED THAT IN THE E ARLIER YEARS THE ASSESSEE WAS UTILIZING MELTING SCRAP AS RAW MAT ERIAL FOR PRODUCTION OF MS INGOTS. SUCH MELTING SCRAP COSTED RS. 8,500 TO 9,500 PER METRIC TONNE. MELTING SCRAP AS RAW MATER IAL GAVE YIELD OF 85% TO 88% MS INGOTS. DURING THE YEAR UNDER CONSID ERATION, THE COMPANY STARTED USING SPONGE IRON AND LUMPS AS RAW MATERIAL FOR PRODUCTION OF MS INGOTS. SPONGE IRON WAS AVAILABLE @ RS. 4,150/- PER METRIC TONNE WHICH MEANT THAT THE PRODUCTION CO ST WAS HALF. HOWEVER, YIELD FROM USE OF SPONGE IRON WAS LOWER BE CAUSE THE METALLIC IRON COMPONENT OF SPONGE IRON WAS 59.04% A S PER THE REPORT OF GEO-CHEM LABORATORIES PVT. LTD, CHENNAI. RAW MATERIALS USED IN THE PRODUCTION PROCESS HAVING BEEN CHANGED DURING THE PERIOD UNDER CONSIDERATION, RELIANCE ON THE PERCENT AGE OF WASTAGE IN EARLIER YEARS WAS UNSUITABLE TO COMPUTE THE FINI SHED PRODUCT YIELD RATIO FOR THE PERIOD UNDER CONSIDERATION. 5. THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSION S OF THE LD. A.R. HELD THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE COMPANY WERE AUDITED AND THE ASSESSING OFFICER HAS NOT BROUGHT O N RECORD ANY MATERIAL TO SHOW THAT THE BOOKS OF ACCOUNT WERE NOT COMPLETE OR PAGE 4 OF 9 I.T.A. NO.1545 /MDS/2009 CORRECT. REJECTION OF BOOK RESULT BY THE ASSESSING OFFICER WAS, THEREFORE, NOT WARRANTED. LD. CIT(A) FURTHER OBSER VED THAT THE CENTRAL EXCISE AUTHORITIES REGULARLY CHECKED AND VE RIFIED AND ACCEPTED THE MONTHLY REPORT OF PRODUCTION AND SALES FILED WITH THEM. FURTHER, NO EVIDENCE OF ANY SALE OUTSIDE THE BOOKS WAS BROUGHT ON RECORD BY THE ASSESSING OFFICER. HE, TH EREFORE, DELETED THE ADDITION OBSERVING THAT THE ADDITION MADE TOWAR DS EXCESS CLAIM OF WASTAGE WAS UNWARRANTED. 6. THE LD. D.R. ARGUED THAT THE REPORT OF THE GEO C HEM LABORATORIES PRIVATE LIMITED, CHENNAI STATING THAT FROM THE USAGE OF SPONGE IRON YIELD WAS 59.04% WAS NOT FILED BEFORE T HE ASSESSING OFFICER. THIS WAS ADDITIONAL EVIDENCE RELIED UPON BY THE LD. CIT(A) FOR DELETING THE ADDITION. THE LD. CIT(A) HAD NOT CALLED FOR THE REMAND REPORT FROM THE ASSESSING OFFICER. HE PRAYE D THAT THE MATTER MAY BE REMANDED BACK TO THE FILE OF THE ASSE SSING OFFICER FOR ADJUDICATION AFRESH AFTER CONSIDERING THE REPOR T OF GEO CHEM LABORATORIES LIMITED, CHENNAI. PAGE 5 OF 9 I.T.A. NO.1545 /MDS/2009 7. THE LD. A.R. OF THE ASSESSEE ALSO AGREED TO THE SUBMISSIONS MADE BY THE LD. D.R. 8. SINCE BOTH THE PARTIES BEFORE US HAVE AGREED THA T THEY HAVE NO OBJECTION IF THE MATTER WAS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION OF THE ISS UE AFTER CONSIDERING THE REPORT OF GEO CHEM LABORATORIES LIM ITED, CHENNAI. WE, THEREFORE, SET ASIDE THE ORDERS OF THE LOWER AU THORITIES AND REMAND THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION OF THE ISSUE AFTER TAKING INTO CONSIDE RATION THE REPORT OF THE GEO CHEM LABORATORIES LIMITED AND AFTER ALLO WING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 9. GROUND NO. 3 OF THE APPEAL OF THE REVENUE IS DIR ECTED AGAINST THE ORDER OF THE LD. CIT(A) DELETING THE DISALLOWAN CE OF RS. 10,89,256/- ON ACCOUNT OF DISPUTED ADDITIONAL CONVE RSION CHARGES. 10. BRIEF FACTS ARE THAT THE ASSESSING OFFICER OBSE RVED THAT ADDITIONAL CONVERSION CHARGES AMOUNTING TO RS. 10, 89,256/- WAS PAID BY THE ASSESSEE COMPANY M/S TRIVENI ALLOYS P. LTD PERTAINING TO PAGE 6 OF 9 I.T.A. NO.1545 /MDS/2009 CONVERSION OF RAW MATERIALS DONE BY THAT CONCERN ON BEHALF OF THE ASSESSEE COMPANY DURING THE FINANCIAL YEAR 2002-03. THE ASSESSEE EXPLAINED BEFORE THE ASSESSING OFFICER THAT THE EXC ESS COST WAS PAID TO TRIVENI ALLOYS FOR INCREASE IN POWER SUPPLY RATE AND OTHER CONSUMABLES. THE ASSESSEE HAD NOT ACCEPTED THE CLA IM OF SUCH INCREASE IN PRODUCTION COST DURING THE PRECEDING FI NANCIAL YEAR 2002-03 WITH SUCH CLAIM OF EXCESS COST WAS MADE BY M/S TRIVENI ALLOYS BUT DURING THE YEAR UNDER CONSIDERATION, SUC H EXCESS COST OF PRODUCTION WAS ACCEPTED BY THE ASSESSEE COMPANY AND ADDITIONAL CONVERSION CHARGES TO THAT EXTENT WERE PAID TO TRIV ENI ALLOYS AND CLAIMED AS EXPENDITURE DURING THE YEAR UNDER CONSID ERATION. THE ASSESSING OFFICER DID NOT ACCEPT SUCH CLAIM ON THE GROUND THAT CONVERSION HAD TAKEN PLACE DURING THE PRECEDING YEA R RELEVANT TO ASSESSMENT YEAR 2003-04 AND DISALLOWED THE EXPENDIT URE. 11. ON APPEAL, THE LD. CIT(A) ALLOWED THE CLAIM FOR DEDUCTION ON THE GROUND THAT THE ASSESSEE COMPANY HAD DURING THE IMMEDIATELY PRECEDING YEAR RELEVANT TO ASSESSMENT YEAR 2003-04, WHEN THE ACTUAL CONVERSION TOOK PLACE HAD DISPUTED ITS LIABI LITY WITH REFERENCE TO THE ADDITIONAL CONVERSION CHARGES PAID TO TRIVENI ALLOYS PAGE 7 OF 9 I.T.A. NO.1545 /MDS/2009 P LTD ON ACCOUNT OF INCREASE IN POWER CHARGES AND INCREASED RATE OF OTHER CONSUMABLES. DISPUTE WAS RESOLVED DURING THE PERIOD UNDER CONSIDERATION AND ACCORDINGLY, ACCRUAL OF THO SE EXPENSES RELATING TO CONVERSION CHARGES HAD TAKEN PLACE DURI NG THE YEAR UNDER CONSIDERATION AND HENCE WAS ALLOWABLE DEDUCTI ON TO THE ASSESSEE. ACCORDINGLY, HE DELETED THE ADDITION MAD E BY THE ASSESSING OFFICER. 12. THE LD. D.R. SUPPORTED THE ORDER OF THE AO WHER EAS THE LD. A.R. SUPPORTED THE ORDER OF THE LD. CIT(A). 13. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND MAT ERIAL AVAILABLE ON RECORD, WE FIND THAT IN THE INSTANT CASE, THE AS SESSEE HAS PAID ADDITIONAL CONVERSION CHARGES AMOUNTING TO RS. 10,8 9,256/- TO M/S TRIVENI ALLOYS P. LTD ON ACCOUNT OF INCREASE IN RAT E OF POWER AND OTHER CONSUMABLE. CONVERSION OF MATERIAL WAS DONE BY M/S TRIVENI ALLOYS P. LTD IN THE PRECEDING ASSESSMENT YEAR 2003 -04 BUT THE ASSESSEE DISPUTED THE INCREASE IN POWER RATE AND OT HER CONSUMABLES. HOWEVER, DURING THE YEAR UNDER CONSID ERATION, THE ASSESSING OFFICER SETTLED THE DISPUTE WITH M/S TRIV ENI ALLOYS P. LTD PAGE 8 OF 9 I.T.A. NO.1545 /MDS/2009 AND MADE THE PAYMENT OF RS. 10,89,256/- AND CLAIME D EXPENSES DURING THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER DISALLOWED EXPENDITURE ONLY THE REASON THAT THE EXP ENDITURE PERTAINED TO THE EARLIER ASSESSMENT YEAR 2003-04. THE LD. CIT(A) DELETED THE DISALLOWANCE FOR THE REASON THAT THE DI SPUTE WAS RESOLVED DURING THE YEAR AND THEREFORE, THE EXPENDI TURE WAS ALLOWABLE DEDUCTION TO THE ASSESSEE. WE FIND THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PHALTON SU GAR WORKS LIMITED [162 ITR 622 RELYING ON THE DECISION OF HON 'BLE APEX COURT IN THE CASE OF SWADESHI COTTON MILL AND FLOOR MILLS P. LTD 53 ITR 134 ON SIMILAR ISSUE HELD AS UNDER: IN OUR VIEW WHERE LIABILITY ARISING OUT OF A CONTRA CTUAL OBLIGATION IS DISPUTED, THE ASSESSEE IS ENTITLED, IN THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHI CH THE DISPUTE IS FINALLY ADJUDICATED UPON OR SETTLED, THE C LAIM A DEDUCTION IN THAT BEHALF. 14. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF TH E HON'BLE BOMBAY HIGH COURT, WE HOLD THAT AS THE LIABILITY CR YSTALLIZED DURING THE YEAR BECAUSE THE DISPUTE WAS SETTLED DURING THE YEAR, PAGE 9 OF 9 I.T.A. NO.1545 /MDS/2009 THEREFORE, THE EXPENDITURE WAS ALLOWABLE DEDUCTION TO THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. WE, THEREFORE , CONFIRM THE ORDER OF THE LD. CIT(A) AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 15. IN THE RESULT, APPEAL FILED BY THE REVENUE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 7 TH JUNE 2011. SD/- SD/- (U.B.S BEDI ) (N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 7 TH JUNE, 2011. VL/- COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE