The DCIT, Circle-5, Ahmedabad V. Reclamation Welding Pvt. Ltd., Ahmedabad

ITA 3091/AHD/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76715 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 27-03-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 18-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J P JHANGID
• Keywords: Gross profit estimation; Opportunity of being heard
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD , , , , BEFORE SHRI G.C.GUPTA , VICE PRESIDENT AND .., ! '# '# '# '# SHRI T.R. MEENA, ACCOUNTANT MEMBER $%.. , &' ( & ! ) & ! ) & ! ) & ! ) ITA NO. 2809/AHD/2010 ASSESSMENT YEARS : 2007-08 RECLAMATION WELDING LTD. 129 G.V.M.M. ESTATE, ODHAV ROAD, AHMEDABAD V/S . DY. COMMISSIONER OF INCOME TAX, CIRCLE-5, 2 ND FLOOR, C. U. SHAH CHAMBERS, NR. INCOME TAX, ASHRAM ROAD, AHMEDABAD PAN NO. A A ACR7383J (APPELLANT) .. (RESPONDENT) ITA NO. 3091/AHD/2010 ASSESSMENT YEARS : 2007-08 DY. COMMISSIONER OF INCOME TAX, CIRCLE-5, 2 ND FLOOR, C. U. SHAH CHAMBERS, NR. INCOME TAX, ASHRAM ROAD, AHMEDABAD V/S . RECLAMATION WELDING LTD. 129 G.V.M.M. ESTATE, ODHAV ROAD, AHMEDABAD (APPELLANT) .. (RESPONDENT) ( * + & / BY REVENUE SHRI J. P. JHANGID, SR. D.R. & * + & /BY ASSESSEE SHRI TUSHAR HEMANI, A.R. , * -%' /DATE OF HEARING 27.03.2014 ./0 * -%' /DATE OF PRONOUNCEMENT 16.05.2014 O R D E R PER : SHRI T.R.MEENA, ACCOUNTANT MEMBER THESE TWO APPEALS ARE CROSS APPEALS FILED BY THE AS SESSEE AS WELL AS REVENUE. THESE APPEALS ARE EMANATED FROM THE ORDER OF THE LD. CIT(APPEALS)- ITA NOS. 2809 & 3091/AHD/2010, A.Y. 07-08 RECLAMATION WELDING LTD. VS. DCIT PAGE 2 XVI, AHMEDABAD, ORDER DATED 01.09.2010 FOR A.Y. 200 7-08. BOTH APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WA Y OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. GROUNDS OF BOTH APPEA LS ARE AS UNDER: GROUND OF ASSESSEES APPEAL IN ITA NO. 2809/AHD/201 0 1. THE LD CIT(A) XIV HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.64,09,187 MADE BY THE LD ASSESSING O FFICER WHILE MAKING THE ASSESSMENT U/S 143(3), IN RESPECT OF THE GP DEC LARED BY THE APPELLANT. THE APPELLANT PRAYS THAT THE ORDER BEING BAD IN LAW AND ON FACTS MAY KINDLY BE QUASHED AND THE ADDITION MAY KINDLY BE DE LETED. ADDITIONAL GROUND OF ASSESSEES APPEAL 1. THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FAC TS OF THE CASE IN CONFIRMING THE ACTION OF AO IN REJECTING THE BOOKS OF ACCOUNT U/S 145 OF THE ACT. THE LD. CIT(A) OUGHT TO HAVE HELD THAT AO WAS NOT RIGHT IN REJECTING ASSESSEES BOOKS OF ACCOUNTS. GROUND OF REVENUES APPEAL IN ITA NO. 3091/AHD/2010 1. THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRE D IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.48,04,034/- MA DE ON ACCOUNT OF DISALLOWANCE OF FREIGHT INWARD, OUTWARD & OCTROI EX PENSE. 2. THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.1,10,27,492/- MADE ON ACCOUNT OF SUPPRESSED CONVERSION CHARGES. FIRST WE TAKE ITA NO. 2809/AHD/2010 (ASSESSEES APP EAL) 2. THE ASSESSEES SOLE GROUND OF APPEAL IS AGAINST CONFIRMING THE ADDITION OF RS.64,09,187/- MADE BY THE LD. A.O. U/S. 143(3). THE ASSESSEE COMPANY DERIVES INCOME FROM THE BUSINESS OF JOB WORK O F MANUFACTURING OF ALLOYS, STEEL CASTING AS IN PAST. THE ASSESSEE HAD DECLARE D GROSS PROFIT OF ITA NOS. 2809 & 3091/AHD/2010, A.Y. 07-08 RECLAMATION WELDING LTD. VS. DCIT PAGE 3 RS. 4,62,27,426/- ON SALE OF RS.19,69,19,616/- WHIC H WORKS OUT TO 22.57% AS AGAINST GROSS PROFIT OF RS.4,75,88,572/- ON SALES O F RS.17,67,36,617/- WHICH WORKS OUT TO 26.37% FOR THE PRECEDING YEAR. THE A. O. GAVE REASONABLE OPPORTUNITY OF BEING HEARD ON THIS ISSUE AS GP IS D ECLINED COMPARED TO PRECEDING YEAR. THE ASSESSEE REPLIED VIDE LETTER D ATED 10.11.2009. AFTER CONSIDERING ASSESSEES REPLY, THE A.O. OBSERVED AS UNDER: 1. THE ASSESSEE IS NOT MAINTAINING THE STOCK REGIS TER OF RAW MATERIALS REQUIRED FOR ITS MANUFACTURING ACTIVITIES. 2. DUE TO NON-MAINTENANCE OF STOCK REGISTER, THE VA LUATION OF CLOSING STOCK IS NOT VERIFIABLE IN QUANTUM AS WELL AS IN VA LUATION. 3. THE ASSESSEE HAS CLAIMED BURNING LOSS AT 10.78% WHICH OBVIOUSLY APPEARS TO BE ABNORMAL WHICH IS SUFFICIENT FOR DEFE CT IN BOOKS OF ACCOUNTS. 4. THE ASSESSEE HAS EXPLAINED THAT THE FALL IN GP A S COMPARED TO A.Y.2005-06 IS 7.71% WHEREAS COMPARED WITH A.Y. 200 6-07%, IT IS 4.16%. IT IS OBSERVED FROM RECORDS THAT THE ASSESSEE IS HA VING ENTIRE RECEIPTS FROM ITS ASSOCIATE ENTERPRISE NAMELY AIA E NGINEERING CO. THIS MEANS THAT THE RECEIPTS FALL IN CONTROLLED CATEGORY , WHICH CAN BE MANIPULATED BY BOTH THE COMPANY TO SUIT THEIR BUSIN ESS CONVENIENCE, WHEREAS THE EXPENSE PART IS BEYOND THE CONTROL OF A SSESSEE COMPANY. IT IS PERTINENT TO NOTE THAT COMMENSURATE INCREASE IN THE CONVERSION CHARGES CHARGED BY ASSESSEE TO AIA ENGINEERING CO. IS NOT M ADE SO AS TO COMPENSATE THE ASSESSEE FOR INCREASE IN INPUT COST OF THE PROCESSES. ON FURTHER ANALYSIS OF TRADING ACCOUNT, THE FOLLOWING COMPARISON IS MADE:- SR. NO NAME OF ITEM/EXPENSE A.Y.2006-07 (% OF CONVERSION RECEIPT/SALES) A.Y.2007-08 (% OF CONVERSION RECEIPT/SALES) 1 MATERIAL CONSUMPTION 9.41 10.676 2 POWER & FUEL 41.00 44.46 ITA NOS. 2809 & 3091/AHD/2010, A.Y. 07-08 RECLAMATION WELDING LTD. VS. DCIT PAGE 4 3 LABOUR CHARGES 11.23 12.63 4 EMPLOYEE'S REMUNERATION 7.15 7.97 THE ASSESSEE HAS NOT FURNISHED THE MONTH-WISE DETAI LS OF JOB WORK RATE. IT IS A FACT THAT ASSESSEE IS SUFFERING AT THE COST OF AIA ENGINEERING IN AS MUCH AS DESPITE INCREASE IN INPUT COST, COMMENSURAT E INCREASE IN JOB CHARGES RATE WAS NOT NEITHER ASKED FOR NOR NEGOTIAT ED NOR ENFORCED, SO AS TO HAVE BETTER TRADING RESULTS. ALL THESE WERE HAPP ENED BECAUSE OF PROXIMITY BETWEEN THE MANAGEMENT OF ASSESSEE COMPAN Y AND AIA ENGINEERING COMPANY. RELYING ON THE DECISION OF THE HON'BLE SUPREME COUR T IN THE CASE OF CIT V/S. S.N. NAMASIVAYAM CHETTIAR REPORTED AT 3 8 ITR 579, IN WHICH IT WAS HELD THAT IF THE ASSESSEE IS NOT MAINTAINING TH E STOCK REGISTER PROPERLY, THE APPLICATION OF SEC.145 IS ATTRACTED. AFTER APPL ICATION OF SEC.145(3), THE G.P. RATE IS APPLIED AT 26.73% (AS DECLARED BY THE ASSESSEE FOR THE PRECEDING YEAR) ON THE SALES OF RS.19,69,19,616/- F OR THE YEAR UNDER ASSESSMENT. THUS, THE GROSS PROFIT IS WORKED OUT AS UNDER :- SALES FOR THE YEAR DECLARED : RS.19,69,19,616 GP RATE APPLIED AS DISCUSSED ABOVE : 26.73% GP DECLARED : R S 4,62,27,426 GP WORKS OUT : R S 5,26,36,613 SHORT FALL IN GP DECLARED (I.E. 52636613-46227426) : RS 64,09,187 IN VIEW OF THE ABOVE DISCUSSION, THE TRADING ADDITI ON OF RS.64,09,187/- IS MADE ON ACCOUNT OF LOW GROSS PROFIT. 3. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE AS SESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHO HAD CONFIRMED THE ADDI TION BY OBSERVING AS UNDER: 2.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND OBSERVATION OF THE AO. DURING THE APPELLATE PROCEED ING, THE APPELLANT WAS ASKED TO FILE THE RATES OF CONVERSION CHARGES AND I TS INCREASE OVER THE LAST ITA NOS. 2809 & 3091/AHD/2010, A.Y. 07-08 RECLAMATION WELDING LTD. VS. DCIT PAGE 5 THREE OR FOUR YEARS. THE APPELLANT HAS FILED COPY O F THE AGREEMENT, AND IT IS SEEN THAT THE RATE OF CONVERSION OF THE JOB CHAR GES WERE FIXED ON FIRST OF APRIL 2003 AND THEY HAVE REMAINED THE SAME TILL DAT E. IT IS VERY INTERESTING THAT OVER THE LAST THREE YEARS THERE HAS BEEN NO CH ANGE OR REVISION IN THE JOB CHARGES OF THE RATE OF CONVERSION. THE APPELLAN T DOES NOT HAVE ANY ANSWER TO THIS INTERESTING FACT. THE PRINCIPAL IS N OTHING BUT SISTER CONCERN OF THE ASSESSEE. THE APPELLANT IS DOING JOB WORK MA INLY FOR ITS SISTER CONCERN. AS ADMITTED BY THE APPELLANT THE EXPENSES ON VARIOUS ITEMS LIKE POWER AND FUEL, LABOR CHARGES AND EMPLOYEE REMUNERA TION HAVE INCREASED CONTINUOUSLY, OVER THE LAST THREE YEARS. BUT STILL, THERE IS NO INCREASE IN THE JOB CHARGES RECEIVED BY THE ASSESSEE. FROM THIS IT IS CLEAR THAT THE ENTIRE RECEIPTS HAVE BEEN MANIPULATED TO SHOW LESS PROFIT OVER THE YEARS. THIS IS THE MAIN REASON WHY THE GP RATE HAS BEEN DECREASING CONTINUOUSLY, OVER THE LAST THREE YEARS. THE APPELLANT HAS NOT FILED A NY DOCUMENTARY EVIDENCE TO SHOW THAT EVEN SOME EFFORTS WERE MADE T O REVISE THE RATES. IN FACT, BOTH BEING SISTER CONCERN, THE APPELLANT NEVE R FELT THEY NEEDED TO DO SO. THE JOB RATE AGREEMENT DATED 25TH OF MARCH 2003 HAS A CLAUSE (10), ACCORDING TO WHICH, THE AGREEMENT CAME INTO EFFECT FROM 1ST OF APRIL 2003 AND SHALL REMAIN IN FORCE FOR A PERIOD OF ONE YEAR. HOWEVER, THE AGREEMENT MAY BE RENEWED ON THE SAME TERMS OR ON MO DIFIED TERMS AS MAY BE AGREED UPON BETWEEN THE PARTIES, IN WRITI NG, FOR A FURTHER PERIOD NOT EXCEEDING ONE YEAR AT ANY TIME. INTEREST INGLY, DESPITE THIS CLAUSE, THE APPELLANT COMPANY HAS RENEWED THE SAME JOB RATES YEAR AFTER YEAR, FOR THE LAST THREE YEARS AT THE SAME RA TE. THIS IS A FIT CASE FOR THE APPLICATION OF THE DECISION OF HONORABLE SU PREME COURT IN THE CASE OF MACDOWELL 158 ITR 148 WHEREIN THE HONORABLE SUPREME COURT STATED THAT CORPORATE VEIL NEEDS TO BE LIFTED IN APPROPRIATE CIRCUMSTANCES AND COLOURABLE DEVICE CANNOT BE PART OF LEGAL PLANNING. THIS IS A FIT CASE, WHERE THE APPELLANT H AS DECIDED TO FIX SALE PRICE, IN CONSULTATION WITH ITS SISTER CONCERN AND NOT WITH RESPECT TO THE MARKET RATE. IN FACT, IT IS NOT A SI MPLE SISTER CONCERN BUT A HOLDING COMPANY AS STATED BY THE AO. THE EXPE NSES HAVE INCREASED CONTINUOUSLY, DUE TO INCREASE IN THE MARK ET RATE BUT THE ITA NOS. 2809 & 3091/AHD/2010, A.Y. 07-08 RECLAMATION WELDING LTD. VS. DCIT PAGE 6 JOB CHARGES HAVE REMAINED FIXED FOR THE LAST THREE YEARS BECAUSE THE ASSESSEE COMPANY WANTED TO TRANSFER THE PROFITS TO ITS SISTER CONCERN. IN VIEW OF THIS REASON, THE ADDITION OF THE GROSS P ROFIT MADE BY THE AO IS CORRECT AND THIS GROUND OF APPEAL IS DISM ISSED. 4. NOW THE ASSESSEE IS BEFORE US. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SIMILAR ADDITIONS WERE MADE BY THE L D. A.O. IN A.Y. 03-04 & A.Y. 06-07 IN GROUND NOS. 2 & 3 AND REVENUES GROUN D OF APPEAL IN A.Y. 06- 07 ON IDENTICAL ISSUES, IN BOTH THE YEARS, THE CIT( A) DELETED THE ADDITION ON GP ADDITION, WHICH WERE CHALLENGED BY THE REVENUE B EFORE THE HONBLE ITAT, BUT REVENUES APPEAL IN BOTH YEARS HAVE BEEN DISMIS SED. THE LD. A.R. FURTHER SUBMITTED THAT ASSESSEES BOOKS OF ACCOUNT ARE AUDI TED WHICH HAD BEEN FURNISHED IN FORM NO. 10CCB ALONG WITH RETURN. THE LD. A.O. HAD WRONGLY REJECTED BOOKS OF ACCOUNT U/S. 145 OF THE ACT AS NO DEFECTS HAD BEEN POINTED OUT. THE A.O. REJECTED IN THE BOOKS RESULT U/S. 14 5 OF THE IT ACT ON ACCOUNT OF NON MAINTAINING THE STOCK REGISTER OF RAW MATERIAL AND CLOSING STOCK. THE ASSESSEE ALSO CLAIMED ABNORMAL BURNING LOSS DURING THE YEAR AND GP RATE ALSO HAVE FALLEN DOWN. THE STOCK REGISTER IMPOUNDE D BY THE A.O. AND WAS WITH HIM. ALL THE REQUIRED DETAILS WERE SUBMITTED BEFORE THE A.O. REASON OF DECLINED GP HAD BEEN EXPLAINING BEFORE BOTH THE AUT HORITIES. THE LD. A.O. SIMPLY COMPARED THE VARIOUS DATAS OF THE ASSESSEE A ND CAME TO CONCLUSION THAT ASSESSEE HAD SUPPRESSED THE INCOME. THUS, HE REQUESTED TO DELETE THE ADDITION MADE BY THE A.O. AND CONFIRMED BY THE CIT( A). AT THE OUTSET, LD. SR. D.R. SUPPORTED THE ORDER OF THE CIT(A). ITA NOS. 2809 & 3091/AHD/2010, A.Y. 07-08 RECLAMATION WELDING LTD. VS. DCIT PAGE 7 5. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED T HE MATERIAL ON RECORD. THERE WAS A DECLINE IN THE GP RATE COMPARED TO PREC EDING YEAR BUT CONVERGING CHARGES IN GROSS HAVE BEEN INCREASED SUB STANTIALLY. THE RAW MATERIAL IS SUPPLIED BY THE SISTER CONCERN WHICH HA S BEEN PROCESSED BY THE ASSESSEE ON JOB WORK BASIS ON BEHALF OF THE SISTER CONCERNED, NAMELY, AIA ENGINEERING CO. LTD. THE LD. A.O. HAD NOT BROUGHT ON RECORD THAT ASSESSEES JOB RECEIPT COMPARED TO OTHER PARTIES OF SIMILAR NA TURE OF WORK, WERE BOOKED ON LOWER RATES. THE A.O. HAD ADMITTED IN ASSESSMEN T AT PAGE NOS. 12 & 13 THAT THE ASSESSEE MAINTAINS STOCK REGISTER IN RESPE CT OF RAW MATERIAL AND PRODUCTION AS PRESCRIBED BY THE CENTRAL EXCISE DEPA RTMENT, WHEREIN DAY- TODAY RAW MATERIAL ISSUED AND FINISHED PRODUCT ARE ENTERED. AS ASSESSEES IDENTICAL ISSUE HAS BEEN DECIDED BY THE CO-ORDINATE BENCH IN ITA NO. 2954/AHD/2006 FOR A.Y. 03-04, WHEREIN IT WAS HELD O N BURNING LOSS AS UNDER: 13. WE HAVE HEARD THE LEARNED DR AND THE LEARNED A R. IN OUR CONSIDERED VIEWS THE ISSUE CAN NOT DECIDED WITHOUT COMPLETE DATA. THE PARTIES HAVE NOT FURNISHED THE INDUSTRY-WISE LOSS O R THE HISTORY OF THE LOSS IN THE CASE OF THE ASSESSEE FOR LAST 4/5 YEARS, THE LOSS INCURRED DURING VARIOUS PROCESS UNDERTAKEN BY THE ASSESSEE, PERCENT AGE OF LOSS IN EACH PROCESS UNDERTAKEN BY THE ASSESSEE, COMPARISON OF S UCH LOSS IN DIFFERENT PROCESSES INDUSTRY-WISE AND VARIOUS ASSESSMENT YEAR -WISE IN CASE OF THE ASSESSEE, OTHER COMPARATIVE INSTANCES, THE REASONS FOR INCURRING LOSS AND OTHER FACTORS SUCH AS TYPE OF MACHINERY USED, CLAIM OF MANUFACTURER OF MACHINES AS TO THE AMOUNT OF LOSS LIKELY TO OCCUR W HEN WORK IS DONE ON THEIR MACHINES. ACCORDINGLY, WE RESTORE THIS ISSUE TO THE FILE OF THE AO FOR EXAMINING IT AFRESH. AS A RESULT, THIS GROUND OF RE VENUE IS ALLOWED BUT FOR STATISTICAL PURPOSE. ITA NOS. 2809 & 3091/AHD/2010, A.Y. 07-08 RECLAMATION WELDING LTD. VS. DCIT PAGE 8 IN ITA NO. 1851/AHD/2009 FOR A.Y. 2006-07, ON LOW G P RATE HELD AS UNDER: 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE GROSS PRO FIT OF THE ASSESSEE IN LAST 5 YEARS WAS IN THE RANGE OF 25% TO 27% WITH THE EXC EPTION OF ASSESSMENT YEAR 2005-06 WHERE THE GROSS PROFIT WAS 30.28%. THE REASON FOR HIGHER GROSS PROFIT IN ASSESSMENT YEAR 2005-06 AS SUBMITTE D BY THE ASSESSEE WAS ON ACCOUNT OF ORDER OF A PARTICULAR ITEM WHICH HAD HIGHER MARGIN AND THE SAME WAS NOT REPEATED IN THE YEAR UNDER CONSIDE RATION. THIS FACTUAL ASPECT HAS NOT BEEN CONTROVERTED BY THE REVENUE BY BRINGING ANY CONTRARY MATERIAL ON RECORD. FURTHER, DURING THE YEAR UNDER CONSIDERATION, INCREASE IN DIESEL PRICE AND POWER ALSO CONTRIBUTED TO FALL IN GROSS PROFIT. THE LEARNED CIT(A) HAS GIVEN A FINDING THAT THE ASSESSE E HAS DECLARED PROCESS LOSS OF 10% TO 11% CONSISTENTLY. FURTHER, T HE ASSESSEE IS LIABLE TO EXCISE WHEREUPON THE ASSESSEE IS REQUIRED TO MAINTA IN DAY TO DAY STOCK REGISTER IN RG 23. DURING THE COURSE OF SURVEY PROC EEDINGS CARRIED OUT AT THE ASSESSEE'S PREMISES ON 12-10-2004, THE STOCK RE GISTER MAINTAINED WAS ALSO IMPOUNDED. IN VIEW OF THESE FACTS, THE LEA RNED CIT(A) HAS GIVEN A FINDING THAT THE ASSESSEE HAD MAINTAINED DAY TO D AY STOCK REGISTERS. THESE FACTUAL ASPECTS HAVE ALSO NOT BEEN CONTROVERT ED BY THE REVENUE BY BRINGING ANY CONTRARY MATERIAL ON RECORD. IN VIEW O F THE TOTALITY OF THE AFORESAID FACTS WE ARE OF THE VIEW THAT IN THE PRES ENT CASE, NO INTERFERENCE IS CALLED FOR TO THE ORDER OF THE LEARNED CIT(A). W E THUS CONFIRM THE FINDINGS OF THE LEARNED CIT(A) AND DISMISS THIS GRO UND OF APPEAL OF THE REVENUE. THE LD. A.O. HAS NOT CONTROVERTED THE FACT THAT ASS ESSEE IS ENGAGED IN THE JOB WORK AND NOT DOING ANY MANUFACTURING ACTIVITY FOR I TS OWN PURPOSES AND TRADING OF GOODS. THE ENTIRE REVENUE IS DEPENDENT UPON ITS PRINCIPAL WHO DECIDED THE RATE AT WHICH THE JOB HAD TO BE PERFORM ED. THE GP RATE IS DEPEND ON WHAT TYPE OF JOB WORK ASSIGNED BY THE PRINCIPAL. DURING THE YEAR, AVERAGE JOB WORK REALIZED HAS FALLEN COMPARED TO PRECEDING YEAR. THE ENTIRE JOB WORK ITA NOS. 2809 & 3091/AHD/2010, A.Y. 07-08 RECLAMATION WELDING LTD. VS. DCIT PAGE 9 ALSO SUBJECT TO TDS. THE STOCK REGISTER WAS IMPOUN DED BY THE DEPARTMENT AND WAS POSSESSION WITH THE DEPARTMENT WHICH COULD BE EXAMINED BY THE A.O. AT THE TIME OF ASSESSMENT. THE APPELLANT HAD MAINTAINED DAY-TO-DAY STOCK REGISTER. THE APPELLANT DOES NOT HAVE ANY ST OCK FOR ITS OWN. THE ENTIRE RAW MATERIAL WAS GIVEN BY THE PRINCIPAL WHICH AFTER MANUFACTURING RETURNED BACK THE SAME TO THE PRINCIPAL. THE ENTIRE BURNING LOSS BELONGED TO THE PRINCIPAL NOT THE APPELLANT. THE BURNING LOSS HAS NOT BEEN CLAIMED IN THE P&L ACCOUNT. THE APPELLANT WHOLLY DEPENDED ON THE JOB WORK OF THE PRINCIPAL. NO OUTSIDE JOB WORK WAS PERFORMED BY THE APPELLANT. T HEREFORE, WE DO NOT FIND ANY REASON TO CONFIRM THE ORDER OF CIT(A). ACCORDI NGLY, WE ALLOW THE ASSESSEES APPEAL. NOW WE TAKE ITA NO. 3091/AHD/2010 (REVENUES APPEAL ) 6. THE FIRST GROUND OF REVENUES APPEAL IS AGAINST DELETING THE ADDITION OF RS.48,04,034/- UNDER THE HEAD FREIGHT INWARD & OCT ROI, FREIGHT OUTWARD AND COOLIE/ CARTAGE. AS PER THE TERMS OF AGREEMENT DA TED 02.05.2000, INCOMING RAW MATERIAL, FREIGHT AND OCTROI WILL BE PAID BY AIAE. FREIGHT ON FINAL DISPATCH OF CASTING WILL BE BORNE BY AIAE. THE A.O. GAVE REASONABLE OPPORTUNITY OF BEING HEARD, WHICH WAS CONSIDERED BY HIM BUT NOT FOUND CONVINCING TO HIM ON THE GROUND THAT THE ASSESSEE W AS WORKING FOR AIAE LTD. ONLY, WHICH IS THE HOLDING COMPANY OF ASSESSEE. IT DID NOT HAVE ANY JOB WORK FOR OTHERS. SIMILAR ADDITIONS WERE MADE BY THE A.O . IN A.Y. 02-03, A.Y. 05-06 & A.Y. 06-07, WHICH WERE DELETED BY THE CIT(A) UNDE R THE SAME HEAD AS THIS EXPENDITURE WAS BORNE AIAE LTD. AS PER THE AGREEMEN T. ITA NOS. 2809 & 3091/AHD/2010, A.Y. 07-08 RECLAMATION WELDING LTD. VS. DCIT PAGE 10 7. THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A ) WHO HAD DELETED THE ADDITION BY OBSERVING AS UNDER: 3.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND OBSERVATION OF THE AO. AS STATED BY THE AO AND THE APPELLANT AND AS IT IS CLEAR FROM THE DECISION OF HONORABLE ITAT FOR ASSES SMENT YEAR 2003-04 IT IS CLEAR THAT THE FACTS ARE SAME IN THE CURRENT YEA R. AS IN THAT YEAR, THE HONORABLE ITAT OBSERVED THAT THE DEPARTMENT HAS NOT POINTED OUT AS TO WHETHER THIS FREIGHT AND OCTROI WAS PAID IN RESPECT OF RAW MATERIALS BROUGHT FROM THE PRINCIPAL OR FINISHED GOODS SUPPLIED BACK TO THE PRINCIPAL. UNDER THE CIRCUMSTANCES, THE FINDING OF THE CIT9A) THAT T HE FREIGHT AND OCTROI EXPENDITURE CLAIMED BY THE ASSESSEE HAS INCURRED ON PURCHASE OF CONSUMABLES AND STOLE MATERIALS, CANNOT BE DISTURBE D. THE HONORABLE ITAT DELETED THIS DISALLOWANCE. SINCE THE FACTS IN THE CURRENT YEAR ARE SAME AS IN ASSESSMENT YEAR 2003-04, THE DISALLOWANC E MADE BY THE AO IS DELETED RESPECTFULLY FOLLOWING THE DECISION OF H ONORABLE ITAT FOR ASSESSMENT YEAR 2003-04. THIS GROUND OF APPEAL IS THEREFORE, ALLOWED. 8. NOW THE REVENUE IS BEFORE US. LD. SR. D.R. HEAV ILY RELIED UPON THE ORDER OF THE A.O. AND PAST HISTORY OF THE CASE AND ARGUED THAT SIMILAR ADDITIONS WERE MADE IN EARLIER YEAR. THUS, ADDITIONS MADE BY THE A.O. SHOULD BE CONFIRMED. AT THE OUTSET, LD. A.R. ARGUED THAT CIT (A) WAS RIGHT IN DELETING THE ADDITION BY CONSIDERING THE PAST HISTORY OF THE CAS E AND FAVOURABLE DECISION BY THIS COURT IN A.Y. 02-03, 05-06 & 06-07. THE IDENT ICAL ADDITIONS WERE MADE DURING THE YEAR BY THE A.O. HE FURTHER RELIED UPON THE CO-ORDINATE BENCH DECISION FOR A.Y. 03-04 AND HAS DRAWN OUR ATTENTION ON GROUND NO.2, WHICH HAS BEEN DECIDED BY THE CO-ORDINATE BENCH BY OBSERV ING THAT IT WAS NOT CLEAR FROM THE ORDER OF THE LOWER AUTHORITIES THAT FREIGH T AND OCTROI HAD BEEN PAID IN RESPECT OF RAW MATERIAL BROUGHT FROM THE PRINCIPAL OR FINISH GOODS SUPPLIED ITA NOS. 2809 & 3091/AHD/2010, A.Y. 07-08 RECLAMATION WELDING LTD. VS. DCIT PAGE 11 BACK TO THE PRINCIPAL, WHEREAS, CIT(A) HELD THAT FR EIGHT AND OCTROI EXPENDITURE CLAIMED BY THE ASSESSEE ON PURCHASE OF CONSUMABLE A ND STORE MATERIALS. THUS, HE REQUESTED TO DELETE THE ADDITION. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE IDENTICAL ISSUE HAS BEEN DECIDED BY TH E CO-ORDINATE BENCH IN ASSESSEES OWN CASE AND FACTS ARE SAME IN THE CURRE NT YEAR. THE LD. CIT(A) HAD DELETED THE ADDITION ON THE BASIS OF CO-ORDINAT E BENCH DECISION BY OBSERVING THAT THE DEPARTMENT HAS NOT POINTED OUT A S TO WHETHER THIS FREIGHT AND OCTROI WAS PAID IN RESPECT OF RAW MATERIAL BROU GHT FROM THE PRINCIPAL OR FINISH GOODS SUPPLIED BACK TO THE PRINCIPAL, WHEREA S LD. CIT(A) HELD THAT FREIGHT AND OCTROI EXPENDITURE CLAIMED BY THE ASSESSEE HAS INCURRED ON PURCHASE OF CONSUMABLE AND STORE MATERIAL, CANNOT BE DISTURBED. THE LD. CIT(A) FOUND THE FACTS OF THE CURRENT YEAR ARE SAME AS IN A.Y. 03-04 . THE ASSESSEE SUBMITTED REPLY TO THE A.O. ON 10.11.2009 WHICH HAS BEEN REPR ODUCED BY THE A.O. AND THE APPELLANT HAD EXPLAINED ALL THE EXPENDITURES CL AIMED UNDER THE HEAD FREIGHT INWARD & OCTROI, FREIGHT OUTWARD AND COOLI E/ CARTAGE AND IT HAS BEEN SUBMITTED BEFORE THE A.O. THAT FREIGHT INWARD INCLU DES EXPENDITURE ONLY IN RESPECT OF STORE AND CONSUMABLE MATERIAL, WHICH WAS CONSUMED BY THE APPELLANT. FREIGHT INWARD DID NOT COMPRISE OF ANY FREIGHT PAID FOR RAW MATERIAL ON BEHALF OF THE PRINCIPAL. THE TOTAL CONSUMABLES PURCHASED DURING THE YEAR WAS RS.2.07 CRORE WHICH INCLUDES REFRACTORIES, RAMM ING MASS ETC. OCTROI OF RS. 7.02 LACS WAS PAID ON THE STORES AND CONSUMABLE S PURCHASED DURING THE YEAR. FREIGHT OUTWARD WAS INCURRED FOR LOADING, UN LOADING AND FREIGHT FOR ITA NOS. 2809 & 3091/AHD/2010, A.Y. 07-08 RECLAMATION WELDING LTD. VS. DCIT PAGE 12 MOVING THE USED MOULDING SAND AND OTHER SCRAP MATER IALS OUT OF FACTORY PREMISES TO BE TAKEN TO A REMOTE PLACE FOR DISPOSAL . COOLIE / CARTAGE WAS PAID FOR LOADING, UNLOADING AND FREIGHT FOR MOVING THE CASTINGS IN PROCESS FOR JOB WORK OUTSIDE OUR FACTORY PREMISES FOR SUCH JOB WORK AND BRINGING IT BACK TO THE FACTORY. THESE SUBMISSIONS HAD NOT BEEN CONTRO VERTED BY THE A.O. HE SIMPLY RELIED UPON THE AGREEMENT BETWEEN THE APPELL ANT AND PRINCIPAL. THE FREIGHT AND OCTROI EXPENDITURE SHOWN IN THE AGREEME NT WAS FOR INCOMING THE RAW MATERIAL AND ON SENDING BACK CASTING WAS BORNE BY THE PRINCIPAL. THUS, BOTH THE EXPENSES ARE DIFFERENT. THEREFORE, WE CON FIRM THE ORDER OF THE CIT(A). 10. GROUND NO.2 OF THE REVENUE IS AGAINST DELETING THE ADDITION OF RS.1,10,27,492/- MADE ON ACCOUNT OF SUPPRESSED CONV ERSION CHARGES. THE FACTS ARE THAT THE ASSESSEE HAD CLAIMED SHORTAGE ON ACCOUNT OF BURNING LOSS/ PROCESS LOSS @ 10.60%. THE A.O. GAVE REASONABLE OP PORTUNITY OF BEING HEARD ON THIS ISSUE AND PROPOSE TO ADD BACK EXCESS BURNING LOSS OF 5.6%, AMOUNTING TO RS.1,10,27,492/-, WHICH WAS WORKED OUT AS UNDER: TOTAL PRODUCTION 12180.578 MT ADDITIONAL PRODUCTION CORRESPONDING TO 5.60% OF BURNING LOSS (A) 682.112 MT TOTAL CONVERSION CHARGES RS. 19,69,19,616 AVERAGE CONVERSION CHARGES (B) RS.16166.69/PMT SUPPRESSED CONVERSION CHARGES (A X B) RS.1,10,27,492 THE ASSESSEE WAS OFFERED REASONABLE OPPORTUNITY VID E LETTER DTD. 10.10.2009. AFTER CONSIDERING THE ASSESSEES REPLY, LD. A.O. HE LD THAT AS PER AGREEMENT ITA NOS. 2809 & 3091/AHD/2010, A.Y. 07-08 RECLAMATION WELDING LTD. VS. DCIT PAGE 13 DATED 02.05.2000 WITH THE HOLDING COMPANY I.E. AIA ENGG. LTD., FOR WHOM ONLY, THE ASSESSEE MANUFACTURES ALLOYS ONE OF THE C ONDITIONS IS AS UNDER: RAW MATERIALS AND STORES SHORTAGE ON ACCOUNT BURNING LOSS IN CONVERSION IS TO BE BORNE BY AIAE LD. A.O. ANALYZED THE AUDIT REPORT OF PRINCIPAL I.E . AIA ENGINEERING LTD., WHEREIN THE BURNING LOSS HAS BEEN SHOWN. THE A.O. OPINED THAT NO PROCESS LOSS HAD BEEN DECLARED BY THE HOLDING COMPANY FOR W HOM ASSESSEE MANUFACTURES ALLOYS. WHATEVER QUANTITY PRODUCED IS FOR THE AIA ENGG. AND WHATEVER RAW MATERIAL SUPPLIED IS ALSO FOR THEM AND ACCORDINGLY WHATEVER LOSS/SHORTAGE SHOWN IS ALSO IN RESPECT OF THEM. TH EREFORE, THE TAX AUDITORS OF AIA ENGG. HAS CORRECTLY DECLARED IN THE SHORTAGE AS BURNING LOSS. THE BURNING LOSS ACCEPTED BY THE ASSESSEE @ 5% AS PER T HE ADMISSION OF PRODUCTION MANAGER AND MELTING ENGINEER IN LAST YEA R. THE ASSESSEE COULD NOT PRODUCE ANY INTERNAL RECORDS OR RECONCILIATION REGARDING DAY-TO-DAY MANUFACTURING ACTIVITY AND QUALIFICATION OF LOSS. DURING THE COURSE OF SURVEY PROCESSING U/S. 133A, BOOKS OF ACCOUNTS FOUND WERE IMPOUNDED. THE ASSESSEE MAINTAINED STOCK REGISTER IN RESPECT OF RA W MATERIALS AND PRODUCTION AS PRESCRIBED BY CENTRAL EXCISE DEPARTMENT WHEREIN DAY-TO-DAY RAW MATERIALS ISSUED AND FINISHED PRODUCTS ARE ENTERED. AFTER VE RIFICATION OF THESE REGISTERS, THE A.O. OBSERVED THAT THE ASSESSEE GOT PRODUCTION @ 92% AND SHORTAGE @ 8%, BUT THESE ENTRIES WERE MADE ON ESTIMATE BASIS A S HELD BY THE A.O. THE CONVERSION CHARGES DEPEND UPON THE PRODUCTION. THE A.O. HELD THAT ASSESSEE DID NOT MAINTAIN PROPER RECORD AND REGISTE R FOR DAY-TO-DAY ITA NOS. 2809 & 3091/AHD/2010, A.Y. 07-08 RECLAMATION WELDING LTD. VS. DCIT PAGE 14 MANUFACTURING ACTIVITIES. THE ASSESSEE HAD NOT MAI NTAINED THE COMPLETE QUALITATIVE DETAILS OF RAW MATERIALS CONSUMED IN PR ODUCTION DAY-TO-DAY AND SHORTAGES/LOSS OCCURRING A EACH STAGE OF MANUFACTUR ING PROCESS. THE SIMILAR ADDITIONS WERE MADE IN PRECEDING YEAR AND BOOKS OF ACCOUNT WERE REJECTED U/S. 145 OF THE IT ACT FOR THE YEAR UNDER CONSIDERA TION. THE ASSESSEE HAS CLAIMED SHORTAGE/LOSS ON ACCOUNT OF BURNING / PROCE SS LOSS @ 10.60% WAS FOUND ABNORMAL, WHICH WAS TAKEN @ 5% IN EARLIER YEA R. THUS, THE DIFFERENCE IS 5.60% WAS FOUND AN EXCESS CONVERSION CHARGES. H E MADE ADDITION OF RS.1,10,27,492/- IN THE TOTAL INCOME OF THE ASSESSE E UNDER THE HEAD SUPPRESSED CONVERSION CHARGES. 11. BEING AGGRIEVED BY THE ORDER OF A.O., THE ASSES SEE CARRIED THE MATTER BEFORE THE CIT(A) WHO HAD DELETED THE ADDITION BY C ONSIDERING THE PAST HISTORY OF THE CASE. THE OPERATIVE PORTION IS AS UNDER: 4.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND OBSERVATION OF THE AO. FROM THE ASSESSMENT ORDER A S WELL AS THE APPELLATE ORDER OF THE CIT(A) FOR AY 2006-07 AND A. Y. 2003-04, IT IS SEEN THAT ON THIS ISSUE THE ADDITION HAS BEEN DELETED. SINCE THE FACTS IN THE CURRENT YEAR ARE SAME AS IN THE LAST YEAR, THE ADDI TION MADE BY THE AO IS DELETED, FOLLOWING THE DECISION OF CIT(A) IN THE EA RLIER YEAR ON THIS ISSUE. THIS GROUND OF APPEAL IS THEREFORE ALLOWED. 12. NOW THE REVENUE IS BEFORE US. LD. SR. D.R. SUP PORTED THE ORDER OF A.O. AND ARGUED THAT AS PER THE AGREEMENT BETWEEN THE AS SESSEE AND ITS PRINCIPAL. THE RAW MATERIAL AND STORE SHORTAGE ON ACCOUNT OF B URNING LOSS IN CONVERSION IS TO BE BORNE BY THE PRINCIPAL AND NOT BY THE ASSE SSEE. THE LOSS IN CONVERSION IS BURNING LOSS AND NOT PROCESS LOSS. T HE PRODUCTION MANAGER ITA NOS. 2809 & 3091/AHD/2010, A.Y. 07-08 RECLAMATION WELDING LTD. VS. DCIT PAGE 15 AND THE MELTING ENGINEER HAD ADMITTED THAT THE BURN ING LOSS @ 5%. THUS, LD. A.O. WAS RIGHT IN ESTIMATING THE BURNING LOSS. ON THE OTHER HAND, LD. A.R. SUBMITTED THAT APPELLANT MANUFACTURES ALLOY STEEL C ASTINGS FROM VARIOUS TYPES OF SCRAP AND FERRO ALLOYS AND IT INVOLVES VARIOUS P ROCESSES LIKE MELTING, POURING, KNOCKOFF, SHOT BLASTING, FETTLING AND HEAR TREATMENT. THE DETAILS OF VARIOUS PROCESSES WERE PLACED AT PAGE 62, 63 AND 64 OF THE PAPER BOOK. HE SUBMITTED THAT AT EACH STAGE THERE IS LOSS OF WEIGH T. THE ACTUAL LOSS INCURRED DURING ALL THE PROCESSES RANGES BETWEEN 10% TO 12%. THE ADMISSION MADE BY THE EMPLOYEES OF THE COMPANY @ 5% WAS NOT CLEAR WHETHER IT WAS FOR BURNING LOSS OR PROCESS LOSS. FURTHER, THE ASSESSE E HAS NOT BEEN PROVIDED WITH THE COPY OF THE STATEMENT. HE FURTHER SUBMITTE D THAT IN THE EARLIER YEARS, ON IDENTICAL ISSUES THE ITAT AHMEDABAD 'D' BENCH HA S SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR RE-EXAMINATIO N. HE PLACED ON RECORD THE COPY OF THE DECISION IN ITA NO.2954/AHD/2006 DATED 31-12-2009 FOR ASSESSMENT YEAR 2003-04 AND ITA NO. 1807 AND 1808/A HD/2007 DATED 19-11- 2010 FOR ASSESSMENT YEAR 2002-03 AND 2004-05. HE, THEREFORE, SUBMITTED THAT SINCE THE FACTS IN THE CURRENT YEAR ARE IDENTI CAL TO THAT OF EARLIER YEAR, FOLLOWING THE DECISION OF THE TRIBUNAL OF EARLIER Y EARS, THE MATTER BE REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER WITH SIMI LAR DIRECTIONS. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND GONE THROUGH THE CO-ORDINATE BENCH DECIS ION FOR A.Y. 06-07 IN ITA NO.1851/AHD/2009, WHEREIN IDENTICAL ISSUE HAS BEEN SET ASIDE TO THE A.O. FOR RE-EXAMINATION. THE PRESENT FACTS OF THE ASSESSEE ARE PARI MATERIA WITH A.Y. ITA NOS. 2809 & 3091/AHD/2010, A.Y. 07-08 RECLAMATION WELDING LTD. VS. DCIT PAGE 16 06-07. THUS, WE ALSO SET ASIDE THIS ISSUE TO THE A .O. FOR DE NOVO . THE REVENUES APPEAL ON THIS GROUND IS ALLOWED FOR STAT ISTICAL PURPOSE. 14. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED AND THE REVENUES APPEAL IS PARTLY ALLOWED. THESE ORDERS PRONOUNCED IN OPEN COURT ON 16.05.2014 SD/- SD/- (G.C.GUPTA) (T.R. MEENA) VICE PRESIDENT ACCOUNTANT MEM BER TRUE COPY S.K.SINHA &1 &1 &1 &1 * ** * 2-3 2-3 2-3 2-3 4&30- 4&30- 4&30- 4&30- / COPY OF ORDER FORWARDED TO:- 1. (/ REVENUE 2. & / ASSESSEE 3. ## - 9 / CONCERNED CIT 4. 9- / CIT (A) 5. 3= 2- , , / DR, ITAT, AHMEDABAD 6. ? @A / GUARD FILE. BY ORDER/ &1 &, / # , )