ACIT CIR 4(2), MUMBAI V. LEEBO METALS P. LTD, MUMBAI

ITA 1638/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92683 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 01-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 28-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN
• Assessee Lawyers: R C JAIN
• Section: 143(3); 37(1); 28

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI A BENCH , , BEFORE S/SH. I P BANSAL,JUDICIAL ME MBER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 1638 /MUM/2013, / ASSESSMENT YEAR - 200 9 - 10 ACIT - CENTRAL CIRCLE - 4( 2 ) ROOM NO. 642 , 6TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD MUMBAI - 400 020. VS M/S. LEEBO METALS PVT. LTD. 177/179, LAXMI HOUSE 4 TH FLOOR, NEAR COTTON EXCHANGE, KALBADEVI ROAD MUMBAI - 400 002. PAN: AAACL 3901 C ( / APPELLANT ) ( / RESPONDENT ) /ASSESSEE BY : SHRI R.C. JAIN / REVENUE BY :SHRI ASGHAR ZAIN - DR / DATE OF HEARING : 01 - 0 6 - 2015 / DATE OF PRONOUNCEMENT : 01 - 0 6 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 13/12/2012 OF CIT (A) - 8, MUMBAI THE ASSESSING OFFIC ER (AO) HAS RAISED THE FOLLOWING GROUND OF APPEAL: - 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN DELETING THE DISALLOWANCE MADE U/S. 40A(2)(B) AMOUNTING TO RS.75,18,936/ WITHOUT CONS IDERING THE FACT THAT THE YIELD OF THE ASSESSEE IS FALLING CONTINUOUSLY AS A RESULT OF INCREASING BURNING AND PROCESS LOSS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE IMPUGNED ORDER OF THE LD.CIT(A) IS CONTRARY TO LAW AND CONSEQUENTLY MERITS TO BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ASSESSEE - COMPANY, ENGAGED IN THE BUSINESS OF MANUFACTURING OF COPPER WIRE AND TRADING O F FERROUS AND NON - FERROUS METAL, FILED ITS RETURN OF INCOME ON 24/9/2009 DECLARED TOTAL INCOME OF RS. ( - ) 1, 45,44,973/ - .THE AO COMPLETED THE ASSESSMENT,UNDER SECTION 143(3) OF THE ACT, ON 23/12/ 2011 DETERMINING THE INCOME OF THE ASSESSEE AT RS. ( - ) 70,26,037/ - . 2. E FFECTIVE GROUND OF APPEA L IS ABOUT DISALLOWANCE OF RS. 75,18,936/ - BY APPLYING PROVISIONS OF S ECTION 40A(2)(B). DUR ING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD CLAIMED BURNING LOSS AND PROCESS LOSS @ 0.1% AND 2.33% RESPECTIVELY AND THE QUANTITY INVOLVED IN KGS . OF PROCESS LOSS AND BURNING LOSS WAS 1464 KGS AND 35032 KGS RESPECTIVELY. HE DIRECTED THE AO TO JUSTIFY ITS CLAIM ALONG WITH EVIDENCE. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE ITA/ 1638 /MU M/2013,AY. 0 9 - 10 , L MPL. 2 DATED 25/8/2011, THE AO HELD THAT THE ASSES SEE HAD GIVEN COMPARATIVE DATA OF YIELD FOR THE ASSESSMENT YEAR 2005 - 06 TO 2009 - 10, THAT THERE WAS A VARIATION OF YIELD FROM 98.83% TO 97.05%, THAT THERE WAS A VARIATION OF 1.33%, THAT EVERY YEAR YIELD WAS FALLING, THAT THE COMPARISON OF PROCESS LOSS WAS AL SO SHOWN, THAT THERE WAS A VARIATION OF MONTHLY PROCESS LOSS FROM 0.8% TO 2.88%, THAT THE ASSESSEE HAD GOT THE JOB WORK DONE FRO M SISTER CONCERN, THAT IT HAD FAILED TO PROVE THE REASONABLENESS OF PROCESS LOSS. INVOKING PROVISIONS OF S.40A(2)(B), HE HELD T HAT THE PROCESS LOSS AND BURNING LOSS OF 2.43% IN THE YEAR UNDER APPEAL APPEARED TO BE UNREASONABLE, THAT NO EVIDENCE HAD BEEN BROUGHT ON RECORD TO SHOW THAT THERE WAS ANY CHANGE IN QUALITY/MATERIAL OR MANUFACTURING PROCESS WHICH RESULTED IN INCREASE IN PR OCESS AND BURNING LOSS. FINALLY, HE MADE A DISALLOWANCE OF RS.75. 1 8 LACS , AS STATED EARLIER. 3. AG GRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE US. BEFORE HIM , IT WAS STATED THAT THE ASSESSEE HAD SUBMITTED DETAILS GIVING THE BREAKUP O F BURNING LOSS, THAT IT DID NOT OWN ANY FURNACE OF ITS OWN, THAT PROCESS LOSS OCCURRED IN ITS FACTORY FOR FINAL PRODUCT, THAT THE AO HAD REJECTED THE LOSS WITHOUT BRINGING ANY MATERIAL ON RECORD, THAT HE MADE THE ADDITION ON ESTIMATE BASIS. THE FAA REFERRED TO THE DECISION OF THE TRIBUNAL (ITA NO.3327/MUM/2011 DT.24.2.2012 FOR ASSESSMENT YEAR 2007 - 08) THAT WAS DELIVERED IN ASSESSEES OWN CASE. HE ALLOWED THE APPEAL FILED BY THE ASSESSEE BY THE ASSESSEE . 4. DURING THE COURSE OF HEARING BEFORE US, REPRESENTAT IVE OF BOTH SIDES AGREED THAT THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNALS ABOVE REFERRED JUDGMENT. WE WOULD LIKE TO REPRODUCE THE RELEVANT PORTION OF THE TRIBUNALS ORDER : 5. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE FACTS AVAILA BLE ON RECORD INCLUDING THE DETAILS PLACED IN THE PAPER BOOK FROM PAGE 1 TO 126 WHICH WERE ALSO PLACED B EFORE THE REVENUE. AUTHORITIES. THERE IS NO DISPUTE WITH REFERENCE TO THE PROCESS LOSS AND BURNING LOSS IN THE ASSESSEE'S BUSINESS OF MANUFACTURING OF VARIOUS ITEMS BY PROCESSING THE RAW MATERIAL. WHEREAS THE ASSESSEE'S OWN PROCESS LOSS IS CONSTANT AT 0.1 %, THE BURNING LOSS OVER THE RAW MATERIALS OUTSOURCED FOR MELTING TO SISTER CONCERN M/S. OMEGA ROLLING MILLS PVT. LTD VARIED FROM 1.5% TO 4% DURIN G THE YEAR. THE AVERAGE BURNING LOSS WAS 2.15%. AFTER EXAMINING THESE DETAILS PLACED ON RECORD, WE ARE OF THE OPINION THAT THE REVENUE HAS NOT MADE OUT ANY CASE FOR MAKING THE ADDITION BY RESTRICTING THE BURNING LOSS. THE ASSESSING OFFICER SHOULD HAVE EXAMINED THE PAST RECORDS OR SIMILAR ASSESSEE CASES TO COMPARE WHETHER THE BURNING LOSS IS REASONABLE OR NOT. IN FACT, THE BURNING LOSS DID NOT OCCUR FROM THE ACTIVITY OF THE ASSESSEE, BUT BURNING LOSS WAS REPORTED BY THE MELTING UNIT I.E. SISTER CONCE RN ACTIVITY WHICH WAS DULY SUPPORTED BY VARIOUS INVOICES AND A LSO EXCISE RECORDS. THEREFORE, THE BURNING LOSS REPORTED BY SISTER CONCERN M/ S OMEGA ROLLING MILLS PVT. LTD IN THE PROCESS OF MELTING THE RAW MATERIALS TO SEMIFINISHED PRODUCTS FOR THE ASSESSE E SHOULD HAVE BEEN EXAMINED IN THE HANDS OF THE SISTER CONCERN, BUT NO SUCH ADDITION CAN BE MADE IN THE HANDS OF THE ASSESSEE WHEN THE ASSESSING OFFICER ACCEPTED THE BOOK RESULTS OF PURCHASES AND SALES AND OTHER ASPECTS OF THE ASSESSEE BUSINESS. SINCE THE BURNING LOSS WAS NOT IN THE PROCESS UNDERTAKEN BY THE ASSESSEE, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER MADE A MISTAKE IN MAKING THE ADDITION BY WAY OF RESTRICTING THE BURNING LOSS. THE ASSESSING OFF ICER ALSO DID NOT MAKE OUT ANY CASE FOR INVOK ING THE PROVISIONS OF SECTION 40A(2)(B) WHEN THE ASSESSEE SUBMITTED THE ITA/ 1638 /MU M/2013,AY. 0 9 - 10 , L MPL. 3 DETAILS THAT THE BURNING LOSS REPORTED BY THE SISTER CONCERN IS COMPARABLE WITH THE BURNING LOSS REPORTED IN 3RD PARTY CASES UNDERTAKEN BY THE SISTER CONCERN. THEREFORE, AS RIGHTLY CO NSIDERED BY THE CIT (A) INVOKING THE PROVISIONS OF SECTION 40A (2)(B) DOES NOT ARISE ON THE FACTS OF THE CASE. HOWEVER, WHILE HOLDING THE ABOVE, IN OUR VIEW THE CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE INVOKING THE PROVISIONS OF SECTION 37(1). IT IS NOT AN EXPENDITURE CLAIMED BY THE ASSESSEE BY DEBITING TO THE PROFIT & LOSS A/C SO AS TO CONSIDER THE PROVISIONS OF SECTION 37(1). IF ANY PROCESS LOSS/BURNING LOSS COMES WITHIN THE ACTIVITY OF BUSINESS I.E. THE CLAIM WHICH AFFECTS THE PROFIT AND L OSS OF THE ASSESSEE'S BUSINESS ACTIVITY THE PROVISIONS OF SECTION 28 ARE APPLICABLE BUT NOT PROVISIONS OF SECTION 37(1) WHICH APPLIES TO ANY EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. SINCE IT IS NOT AN EXPENDITURE CLAI M, WE ARE UNABLE TO UNDERSTAND HOW THE C IT (A) COULD CONFIRM THE SAME INVOKING THE PROVISIONS OF SECTION 37(1). MOREOVER THE ASSESSING OFFICER MADE AN ADDITION OF THE AMOUNT, WHEREAS THE C I T (A) CONSIDERED IT AS DISALLOWANCE. SINCE THE ORDER OF THE C I T (A) IS NOT ACCORDING TO THE PROVISIONS OF LAW, WE ARE UNABLE TO UPHOLD THE SAME.FURTHER, THERE IS NOTHING ON RECORD TO CONTRAVENE THE EVIDENCE/ SUBMISSIONS OF THE ASSESSEE ABOUT THE BURNING LOSS OR PROCESS LOSS INCURRED BY THE ASSESSEE IN ITS BUSINES S. THE ADDITION WAS MADE BY THE ASSESSING OFFICER PURELY ON THE GUESS WORK/ ESTIMATE BASIS, WITHOUT EVEN REFERRING TO ANY COMPARABLE CASE OR PAST RECORDS. THERE IS A VALID ARGUMENT IN THE ASSESSEE'S SUBMISSIONS THAT THE BURNING LOSS DEPENDS ON THE QUALI TY OF THE RAW MATERIAL WHICH ASPECT WAS NEVER LOOKED INTO BY ASSESSING OFFICER. THE PURCHASE AND SALES HAVING BEEN ACCEPTED BY THE ASSESSING OFFICER, WE ARE OF THE VIEW THAT THE ADDITIONS CANNOT BE MADE BY RESTRICTING THE BURNING LOSS. IN VIEW OF THESE FACTS, WE SET ASIDE THE ORDER OF THE C IT (A) AND UPHOLD THE GROUNDS RAISED BY ASSESSEE. THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION SO MADE. RESPECTFULLY, FOLLOWING THE ABOVE, THE EFFECTIVE GROUND OF A PPEAL IS DECIDED AGAINST THE AO,AS THE FACTS FOR THE YEAR UNDER APPEAL ARE IDENTICAL TO THE FACTS OF THE CASE RELIED UPON BY THE FAA. AS A RESULT APPEAL FILED BY THE AO STANDS DISMISSED. . ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST , JUNE ,2015. 1, , 2015 SD/ - SD/ - ( /I P BANSAL) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 01 .06 . 2015 . . . JV . SR.PS. ITA/ 1638 /MU M/2013,AY. 0 9 - 10 , L MPL. 4 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.