The Jt.CIT.,(OSD)Circle-5, Ahmedabad V. Reclamation Welding Pvt. Ltd., Ahmedabad

ITA 3204/AHD/2011

• Counselvise Citation: 320420514 RSA 2011
• Duration Of Justice: 1 year(s) 11 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 13-11-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 20-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J P JHANGID

Judgement Text

, , , , C, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, C BENCH . .. . . . . . , , , , ! ! ! ! ' #$ ' #$ ' #$ ' #$ , , , , % % % % BEFORE S/SHRI N.S. SAINI, ACCOUNTANT MEMBER AND KUL BHARAT, JUDICIAL MEMBER) ITA NO.3204/AHD/2011 [ASSTT.YEAR : 2005-2006] JCIT (OSD) CIR.5, AHMEDABAD. /VS. RECLAMATION WELDING LTD. 129/129-A, G.V.M.M. ESTATE ODHAV ROAD, ODHAV AHMEDABAD 382 415. PAN : AAACR 7383 J ( (( ('( '( '( '( / APPELLANT) ( (( ()*'( )*'( )*'( )*'( / RESPONDENT) + , - / REVENUE BY : SHRI J.P. JHANGID, SR.DR /$ , - / ASSESSEE BY : SHRI TUSHAR HEMANI '0 , $1/ DATE OF HEARING : 13 TH NOVEMBER, 2013 234 , $1/ DATE OF PRONOUNCEMENT : 22-11-2013 5 / O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER : THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A )-XI, AHMEDABAD DATED 7.10.2011. 2. THE SOLE ISSUE INVOLVED IN THIS APPEAL OF THE RE VENUE IS THAT THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN DEL ETING THE ITA NO.3204/AHD/2011 -2- DISALLOWANCE OF ` 1,23,03,129/- BEING THE EXPENDITURE INCURRED ON STORES PURCHASE. 3. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON REC ORD. IN THE INSTANT CASE, THE AO FOUND THAT THE ASSESSEE WAS DO ING JOB WORK FOR AIA ENGINEERING LTD. AND AS PER THE AGREEMENT D ATED 2.5.2000 ENTERED INTO BETWEEN THE ASSESSEE AND THE PRINCIPAL COMPANY, AIA ENGG. LTD. ,RAW-MATERIALS WERE TO BE S UPPLIED BY THE PRINCIPAL COMPANY. HE OBSERVED THAT THE ASSESSE E HAS DEBITED A SUM OF ` 1,23,03,129/- IN ITS PROFIT & LOSS ACCOUNT FOR STOR ES PURCHASED, AND DISALLOWED THE SAME FOR THE REASON T HAT ENTIRE RAW-MATERIAL WAS SUPPLIED BY THE PRINCIPAL COMPANY, AND THUS, THE ASSESSEE WAS NOT REQUIRED TO INCUR ANY EXPENDIT URE ON ACCOUNT OF STORES AND CONSUMABLES. 4. BEFORE THE LEARNED CIT(A), THE ASSESSEE SUBMITTE D THAT AS IN THE EARLIER YEARS, THE ASSESSEE DURING THE YEAR UND ER CONSIDERATION, HAD NOT UNDERTAKEN ANY MANUFACTURING ACTIVITY ON ITS OWN ACCOUNT. THE ENTIRE MANUFACTURING FACILITY OF THE ASSESSEE WAS UTILIZED FOR MANUFACTURING GOODS ON JO B WORK FOR ITS PRINCIPAL. AS PER THE ARRANGEMENT WITH THE PRINCI PAL, IT SUPPLIED ENTIRE RAW MATERIAL AND FOUNDRY MATERIALS TO THE AS SESSEE AND THE ASSESSEE RETURNED ENTIRE GOODS MANUFACTURED OUT OF THE SAME TO THEM. IT WAS SUBMITTED THAT IN VIEW OF THE SAME, T HE ENTIRE PURCHASE DEBITED TO THE PROFIT & LOSS ACCOUNT INCLU DED ONLY ON ACCOUNT OF STORES AND CONSUMABLES AND NOT ON ACCOUN T OF RAW- ITA NO.3204/AHD/2011 -3- MATERIAL OR FOUNDRY BEING SUPPLIED TO IT BY THE PRI NCIPAL. IT WAS ALSO SUBMITTED THAT DISALLOWANCE HAS BEEN MADE BY T HE AO ON THE PRESUMPTION THAT PURCHASE OF STORES AND CONSUMABLES DEBITED IN THE PROFIT & LOSS ACCOUNT WERE TO BE SUPPLIED BY TH E PRINCIPAL. REFERRING TO THE RELEVANT EXTRACT OF THE JOB WORK A GREEMENT BETWEEN AIA ENGG. LTD. AND THE ASSESSEE, IT WAS POI NTED OUT THAT THE ASSESSEE WAS SUPPOSED TO PROVIDE VARIOUS GOODS AND CONSUMABLES FOR THE PURPOSE OF JOB WORK. 5. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMISS IONS OF THE ASSESSEE VACATED THE DISALLOWANCE BY OBSERVING AS UNDER: 2.2 I HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSIONS OF THE APPELLANT. IT IS MENTIONED BY TH E A.O. THAT APPELLANT IS CARRYING JOB WORK/CONVERSION WORK FOR ITS HOLDING COMPANY, VIZ. M/S.AIA ENGINEERING LTD. ALL THE RAW MATERIALS ARE SUPPLIED BY M/S.AIA ENGINEERING L TD. & ALL THE MANUFACTURED PRODUCTS ARE BEING PURCHASED B Y M/S.AIA ENGINEERING LTD. THE A.O. HAS RELIED ON THE DECLARATION OF M/S.AIA ENGINEERING LTD. MADE ON 18- 12- 2007 THAT THE ITEMS OF RAW MATERIALS AND STORES AS PER ANNEXURE OF THIS DECLARATION WHICH WERE LYING AT TH E PREMISES OF RECLAMATION HOLDING LTD. ON 12-10-2004 BELONGS TO M/S. AIA ENGINEERING LTD. UNAMBIGUOUS READING OF THIS LETTER ISSUED BY AIA ENGINEERING LT D. SHOWS THAT OWNERSHIP OF THE STORES LYING AT THE PREMISES OF THE APPELLANT IS QUALIFIED. M/S.AIA ENGINEERING LTD. IS NOT OWNING ALL THE STORES LYING AT THE PREMISES OF THE APPELLANT BUT THEY ARE OWNING RAW MATERIALS AND STORES AS PER ANNEXURE TO THE DECLARATION DT.18-12-2007. THIS WAY , THE BASIC PREMISE ON WHICH ADDITION IS MADE WILL NOT SU RVIVE. SECONDLY, TERMS AND CONDITIONS OF OPERATIONAL PART OF JOB AGREEMENT DT. 25-3-2003 BETWEEN APPELLANT AND M/S.A IA ENGINEERING LTD. READS AS UNDER: ITA NO.3204/AHD/2011 -4- '1. AIA ENGINEERING COVENANTS THAT:- (A) IT SHALL SUPPLY NECESSARY RAW MATERIALS AS WELL AS FOUNDRY MATERIALS TO RECLAMATION WELDING PVT.LTD. FOR MANUFACTURING OF ALL KIND AND TYPES OF CASTINGS AS PER THE LIST ATTACHED TO THIS AGREEMENT OR SUCH OTHER PRODUCTS AS MAY BE ORDERED BY AIA ENGINEERING FROM TIME TO TIME. 2. RECLAMATION WELDING PVT. LTD. COVENANTS AS UNDER: ( A) RECLAMATION WELDING PVT. LTD. SHALL MAINTAIN PROPER MACHINERY AND OTHER EQUIPMENTS, WORK STAFF AND OTHER INFRASTRUCTURE FACILITIES NECESSARY FOR THE PURPOSE OF CARRYING OUT THE PRODUCTION WORK SATISFACTORILY.' 2.3 A PLAIN READING OF THE JOB AGREEMENT REVEALS TH AT PRINCIPAL VIZ. AIA ENGINEERING LTD. IS LIABLE TO SU PPLY RAW MATERIAL AND FOUNDRY MATERIALS TO THE APPELLANT COM PANY. THESE RAW MATERIALS AND FOUNDRY MATERIALS HAVE BEEN SUPPLIED BY PRINCIPAL VIZ. AIA ENGINEERING LTD. AND THE STOCKS OF THESE MATERIALS WERE LYING WITH THE APPEL LANT COMPANY ON 12-10-2004 WAS OWNED BY M/S.AIA ENGINEERING LTD. THIRDLY, PERUSAL OF THE ITEMS OWNE D BY M/S.AIA ENGINEERING LTD. AND THE PURCHASES DEBITED BY APPELLANT COMPANY ARE MUTUALLY EXCLUSIVE. THE STOCK S OWNED BY M/S.AIA ENGINEERING LTD. ARE RAW MATERIAL OR FOUNDRY MATERIALS. THE STORES PURCHASED BY THE APPE LLANT COMPANY ARE IN THE NATURE OF STORES AND CONSUMABLES WHICH ARE REQUIRED TO MAINTAIN AND RUN THE MACHINER Y OF THE APPELLANT COMPANY. FOURTHLY, THE STORES ARE BEI NG REGULARLY PURCHASED BY THE APPELLANT COMPANY IN THE EARLIER YEARS ALSO, THE SAME WERE ALLOWED AS DEDUCT ION. PERUSAL OF CONSUMPTION OF STORES REVEALS THAT / CONSUMPTION OF STORES HAD INCREASED AS ALSO RECEIPT S OF CONVERSION CHARGES INCREASED. IN VIEW OF THE ABOVE FACTS, I ITA NO.3204/AHD/2011 -5- AM OF THE FIRM VIEW THAT EXPENSES CLAIMED BY THE AP PELLANT TOWARDS PURCHASE OF STORES, WHICH ARE REQUIRED TO R UN APPELLANT'S MACHINERY NEEDS TO BE ALLOWED. ACCORDI NGLY, AO IS ORDERED TO DELETE THE ADDITION OF ` 1,23,03,1 29/-. THIS GROUND OF APPEAL IS ALLOWED. 6. THE LEARNED DR RELIED ON THE ORDER OF THE AO, WH EREAS THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDE R OF THE LEARNED CIT(A) AND SUBMITTED THAT THE TRIBUNAL IN T HE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2004-2005 IN ITA NO.1826/AHD/2008 ORDER DATED 19.01.2012 ALLOWED THE CLAIM FOR DEDUCTION FOR FREIGHT AND OCTROI EXPENDITURE CLAIME D BY THE ASSESSEE ON PURCHASE OF CONSUMABLES AND STORES TO T HE ASSESSEE BY FOLLOWING THE ORDER FOR THE ASSESSMENT YEAR 2003 -2004 IN ITA NO.2954/AHD/2006 DATED 31.12.2009 WHEREIN THE TRIBU NAL HELD AS UNDER: 7. WE HAVE HEARD THE LEARNED DR AND THE LEARNED AR. THE LEARNED DR BASICALLY RELIED ON THE ORDER OF THE AO AND THE LEARNED AR RELIED ON THE ORDER OF THE LEARNED C IT(A). AFTER HEARING THE PARTIES, WE DECLINE TO INTERFERE IN THE ORDER OF LEARNED CIT(A). IT IS NOT POINTED OUT BY T HE DEPARTMENT AS TO WHETHER FREIGHT AND OCTROI HAVE BE EN PAID IN RESPECT OF RAW MATERIALS BROUGHT FROM THE P RINCIPAL OR FINISHED GOODS SUPPLIED BACK TO THE PRINCIPAL. U NDER THESE CIRCUMSTANCES, THE FINDINGS GIVEN BY THE ID. CIT(A) THAT THE FREIGHT AND OCTROI EXPENDITURE CLAIMED BY THE ASSESSEE WERE INCURRED ON PURCHASE OF CONSUMABLES A ND STORES MATERIALS CANNOT BE DISTURBED. AS A RESULT, THIS GROUND OF REVENUE IS REJECTED. ITA NO.3204/AHD/2011 -6- 7. THUS, IT WAS SUBMITTED THAT PURCHASE OF STORES A ND CONSUMABLES BY THE ASSESSEE FOR JOB WORK WAS ACCEPT ED BY THE TRIBUNAL IN THE EARLIER YEARS FOR DOING THE JOB WOR K FROM THE SAME PARTY. HENCE, IT WAS SUBMITTED THAT THE ISSUE IS C OVERED BY THE ORDERS OF THE TRIBUNAL IN EARLIER YEARS. 8. WE FIND THAT NO SPECIFIC ERROR IN THE FINDINGS O F THE LEARNED CIT(A) THAT THE PRINCIPAL, AIA ENGINEERING LTD. SUP PLIED THE RAW MATERIAL AND FOUNDRY MATERIALS TO THE ASSESSEE AND THAT PURCHASES DEBITED BY THE ASSESSEE-COMPANY AND THE MATERIALS S UPPLIED BY THE PRINCIPAL, AIA ENGINEERING LTD. ARE MUTUALLY EX CLUSIVE AND THAT THE STORES WERE BEING REGULARLY PURCHASED BY T HE ASSESSEE- COMPANY IN THE EARLIER YEARS ALSO, AND WERE ALLOWED AS DEDUCTION TO THE ASSESSEE. FURTHER, WE FIND THAT LIST OF ITE MS WHICH WERE PURCHASED UNDER THE HEAD CONSUMABLES AND STORES BY THE ASSESSEE ARE LISTED OUT AT PAGES NO.18 TO 20 OF THE PAPER BO OK, WHICH INCLUDES ITEMS LIKE CPC, MS FORMER 1500 KGS., CAPAC ITY, TEMP. TIPS 13% - SMD TYPE-CB TUBE TYPE, MUSH (GRAPHITE), MS SPECTRO SAMPLES TESTING DIE ETC. IT IS OBSERVED TH AT IT IS NOT THE CASE OF THE REVENUE THAT THESE CONSUMABLES WERE NOT REQUIRED FOR THE PURPOSE OF BUSINESS OF JOB WORK OF THE ASSESSEE . FURTHER, WE FIND THAT NO MATERIAL HAVE BEEN BROUGHT ON RECORD B Y THE REVENUE TO SHOW THAT THESE ITEMS WERE ACTUALLY SUPPLIED BY THE PRINCIPAL, AIA ENGINEERING LTD. IN THE ABSENCE OF ANY MATERIA L BEING BROUGHT ON RECORD TO CONTROVERT THE FINDINGS OF THE LEARNED CIT(A), WE FIND NO GOOD REASONS TO INTERFERE WITH T HE ORDER OF THE ITA NO.3204/AHD/2011 -7- LEARNED CIT(A) ON THIS ISSUE, WHICH IS HEREBY CONFI RMED AND THE GROUND OF THE APPEAL OF THE REVENUE IS DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( ' #$ ' #$ ' #$ ' #$ /KUL BHARAT /JUDICIAL MEMBER . .. . . . . . /N.S. SAINI /ACCOUNTANT MEMBER C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD