DCIT Circle I, V. Doaba Rolling Mill (P) Ltd,

ITA 3287/DEL/2006

• Counselvise Citation: 328720114 RSA 2006
• Duration Of Justice: 8 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 23-09-2014
• Assessment Year: 2001-2002
• Appeal Filed On: 13-10-2006
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: J P CHANDRAKER
• Keywords: Business income; Question of law
• Section: 142(1); 115JB; 133(6); 145; 12; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE S H .G.D.AGARWAL, VICE PRESIDENT AND SMT DIVA SINGH, JUDICIAL MEMBER I.T.A .NO. - 3286/ DEL/20 06 (ASSESSMENT YEAR - 2001 - 02 ) DCIT, CIRCLE - 1, MUZAFFARNAGAR (APPELLANT) VS M/S RANA CASTINGS (P.) LTD., MEERUT ROAD, MUZAFFARNAGAR. (RESPONDENT) I.T.A .NO. - 3287/ DEL/20 06 (ASSESSMENT YEAR - 2001 - 02 ) DCIT, CIRCLE - 1, MUZAFFARNAGAR (APPELLANT) VS M/S DOABA ROLLING MILL (P.) LTD., MEER UT ROAD, MUZAFFARNAGAR. (RESPONDENT) APPELLANT BY SH. ANKIT GUPTA, ADV. RESPONDENT BY SH. J.P.CHANDRAKER, SR. DR ORDER PER DIVA SINGH, JM BOTH T H E S E APPEAL S FILED BY THE REVENUE ARE BEING DECIDED TOGETHER FOR THE SAKE OF CONVENIENCE AS BOTH OF THEM WERE HEARD TOGETHER. THE DEPARTMENTAL APPEALS A GAINST THE SEPARATE ORDER S DATED 04 . 0 7 .20 06 OF CIT(A), MUZAFFARNAGAR HAVE BEEN FILED FOR 200 1 - 0 2 ASSESSMENT YEAR S IN THE CASE OF TWO DIF FERENT ASSESSEES ON THE FOLLOWING GROUNDS: - I.T.A .NO. - 3286/DEL/2006 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.93,59,942/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF LOW YIELD. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO ASSESS THE COMMISSION INCOME OF RS.3,43,56,800/ - UNDER THE HEAD INCOME FROM BUSINESS AS AGAINST INCOME FROM OTHER SOURCES ASSES SED BY THE ASSESSING OFFICER. 2 I. T.A .NO S . - 3286 & 3287 /DEL/20 06 3. THAT THE ORDER OF LD. CIT(A) BE SET ASIDE AND THAT OF A.O. BE RESTORED. I.T.A .NO. - 3287/DEL/2006 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.10,19,255/ - MA DE BY THE ASSESSING OFFICER ON ACCOUNT OF LOW YIELD. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO ASSESS THE COMMISSION INCOME OF RS.2,05,34,037/ - UNDER THE HEAD INCOME FROM BUSINESS A S AGAINST INCOME FROM OTHER SOURCES ASSESSED BY THE ASSESSING OFFICER. 3. THAT THE ORDER OF LD. CIT(A) BE SET ASIDE AND THAT OF A.O. BE RESTORED. I.T.A .NO. - 3286/DEL/2006 2. THE RELEVANT FACTS AS ARE EMANATING FROM THE ASSESSMENT ORDER IN T H E CASE OF M/S RANA CASTING ARE THAT THE ASSESSEE VIDE RETURN DT. 31.10.2001 RETURNED A LOSS OF RS.1,16,13,290/ - AND COMPUTED PROFIT U/S 115JB OF RS.851536/ - . THE SAID RETURN WAS SUBJECTED TO SCRUTINY AFTER ISSUANCE OF NOTICE U/S 143(2) & 142(1) ALONGWIT H QUESTIONNAIRE ETC. THE AO REFERRING TO SCHEDULE - 16 OF THE AUDIT REPORT TOOK NOTE OF THE FACT THAT THE ASSESSEE HAD SHOWN AN INCOME OF RS.3,46,85,515/ - WHICH CONSISTED OF THE FOLLOWING INCOME: - 1. INTT. RECEIVED ON UPSEB SECURITY 99609/ - 2. INTT. RECEIVE D ON FDR 224755/ - 3. COMMISSION & SHARE INCOME 34356800/ - 4. PROFIT (LOSS) ON SALE OF VEHICLE 4351/ - 34685515/ - 2.1 . AFTER SHOW - CAUSING THE ASSESSEE AND CONSIDERING THE REPLY, COMMISSION INCOME WAS TREATED AS INCOME FROM OTHER SOURCES AND ADDITION ON ACCOUNT OF LOW YIELD WAS MADE BY THE AO IN THE FOLLOWING MANNER : - TO PROVE THE SERVICES RENDERED TO EARN THE COMMISSION OF RS.34356800/ - , ONLY DETAILS OF NATURE OF WORK HAS BEEN SUBMITTED. GENUINENESS OF SERVICES RENDERED NOT ESTABLISHED. THEREFORE, COMMISSION INCOME OF RS.34356800/ - IS TREATED AS INCOME FROM OTHER SOURCES. THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTURI NG OF M.S.INGOTS ETC. RAW MATERIAL USED IS SPONGE IRON AND M.S.SCRAP. DURING THE YEAR UNDER CONSIDERATION, THE PRODUCTION OF FINISHED GOODS HAS BEEN SHOWN TO BE 7916.736 MT OUT OF TOTAL CONSUMPTION OF RAW MATERIAL AT 9499.202 MT, GIVING YIELD RATE AT 83. 34% AND BURNING SLAG AT 16.66%. 3 I. T.A .NO S . - 3286 & 3287 /DEL/20 06 IN THE CASE OF M/.S VEHELNA STEELS LTD., FACTORY LOCATED IN THE SAME AREA, YIELD HAS BEEN SHOWN AT 94.23% AND IN COMPARISON TO THAT, THIS COMPANY IS SHOWING A MUCH LOWER RATE OF YIELD. M/S VEHELNA STEEL USED SPONGE IRON OF 1708.670 MT I.E 41.43% WHERE AS THE ASSESSEE USED 68% SPONGE IRON. SO CONSIDERING THE RATIO OFF USE OF SPONGE IRON THE YIELD IS ADOPTED AT 90%. IN VIEW OF THE ABOVE FACTS, I HOLD THAT TH E MANUFACTURING RECORDS MAINTAINED BY THE ASSESSEE, DO NOT REFLECT TH E TRUE PICTURE OF THE MANUFACTURING RESULTS. THEREFORE, I REJECT THE BOOKS OF THE ASSESSEE. THEREFORE, APPLYING RATE OF 90% OF THE TOTAL YIELD OF TOTAL FINISHED GOODS IS WORKED OUT AT 8549.282 MT. AS PER THE ASSESSEE, THE VALUE OF FINISHED GOODS IS WORKE D OUT AS 7916.730 MT HAS BEEN SHOWN TO BE RS.117139095/ - WHICH GIVES RATE OF RS.14 796.40 PER MT. SUPPRESSED PRODUCTION AS CALCULATED ABOVE IS WORKED OUT TO BE 632.552 MT. THE COST OF 632.552 MT, SUPPRESSED PRODUCTION THUS COMES TO 632.552 * 14796.40 =935 9492/ - . THE AMOUNT OF RS.9359492/ - ON ACCOUNT OF LOW YIELD IS ADDED TO THE INCOME OF THE ASSESSEE. 3 . AGGRIEVED BY THIS THE ASSESSEE CAME IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4 . THE CIT(A) CONSIDERING THE SUBMISSIONS DATED 07.06.2006 WHICH HAVE BEEN EXTRACTED IN THE IMPUGNED ORDER DECIDED THE ISSUE IN ASSESSEE S FAOVUR HOLDING AS UNDER : - THAT THE ASSESSEE IS A PRIV ATE LIMITED COMPANY CARRYING ON BUSINESS OF MANUFACTURING AND TRADING OF MILD STEEL INGOTS, ROUNDS ETC. IN A INDUCTION FINANCE M ILL. THE APPELLANT CO. HAS MAINTAINED REGULAR AND PROPER BOOKS OF ACCOUNTS, ALONG WITH MANUFACTURING RECORDS, AS REQUIRED UNDER EXCISE RULES, STOCK REGISTERS, SALES AND PURCHASE BILLS AND VOUCHERS AND THE SAME HAVE BEEN PRODUCED BEFORE THE ASSESSING OFFIC ER TIME TO TIME, AS AND WHEN REQUIRED. THE RAW - MATERIAL OF THE ASSESSEE APPELLANT COMPANY IS IRON SCRAP & SPONGE IRONORE IS ALSO EXCISABLE, AS WELL AS THE FINISHED GOODS ARE ALSO EXCISABLE. THE ASSESSING OFFICER HAS MADE THE FOLLOWING ADDITIONS TO THE IN COME OF THE ASSESSEE WHILE COMPLETING THE ASSESSMENT U/S 143(3): - 1. ESTIMATED AD - HOC ADDITION ON ACCOUNT OF LOW YIELD. RS.10,19,255=00 2. THE A.O HAS ALSO OBSERVED THAT THE COMMISSION INCOME RECEIVED BY THE APPELLANT CO. IS ACTUALLY INCOME FROM OTHER SOURCES AN D NOT INCOME FROM BUSINESS AS DECLARED BY THE ASSESSEE APPELLANT. 1) REGARDING ESTIMATED ADHOC ADDITION ON ACCOUNT OF LOW YIELD - RS.10,19,255=00: - THE ASSESSING OFFICER HAS MADE ESTIMATED ADDITION OF RS.10,19,255=00 TO THE INCOME OF THE ASSESSEE WITH THE MAINTA INED THE REGULAR AND PROPER LEAKAGES. THE ASSESSEE COMPANY HAS MAINTAINED THE REGULAR AND PROPER BOOKS OF ACCOUNT AND MANUFACTURING RECORDS. IN A MANUFACTURING PROCESS WHEN THE ENTIRE SALES AND PURCHASES OF THE COMPANY HAVE BEEN ACCEPTED, NO ADDITION ON ACCOUNT OF LOW YIELD SHOULD HAVE BEEN MADE PURELY ON ESTIMATED BASIS. THE YIELD DEPENDS ON SO MANY FACTORS LIKE 4 I. T.A .NO S . - 3286 & 3287 /DEL/20 06 QUALITY OF THE RAW - MATERIAL. QUALITY OF THE FINISHED GOODS PRODUCED. ROLL OF SKILLED AND UNSKILLED LABOR IN THE MANUFACTURING PROCESS. IN TH E YEAR UNDER CONSIDERATION, THE SALES OF THE COMPANY WERE RS.3.61 CRORES AND GOODS PRODUCED BY THE COMPANY HAVE BEEN ACCEPTED IN THE MARKET AS BRANDED GOODS. THE CASE, AS CITED BY THE ASSESSING OFFICER ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE ASSESSE E S CASE, NO SUCH ADDITION HAS BEEN MADE IN THE PAST AS WELL AS IN FUTURE . SIMILAR TYPE OF ADDITIONS HAVE ALSO BEEN MADE IN THE CASE OF M/S PAWAN ALLOYS & CASTINGS LTD. IN ASSESSMENT YEARS 89 - 90 AND 90 - 91. THE LEARNED C.I.T.(APPEALS) HAVE DELETED THE AD - HOC ESTIMATED ADDITIONS OF RS.20,80,000=00 AND RS.750000=00 RESPECTIVELY AS HAVE BEEN MADE ON THE ISSUE OF YIELD ONLY. THE ORDERS OF THE LEARNED C.I.T(APPEALS) HAVE ALSO BEEN CONFIRMED BY THE HON BLE ITAT WITH THE OBSERVATION THAT THE ADDITIONS ARE NOT S USTAINABLE BECAUSE HAVE BEEN MADE ON ESTIMATED BASIS AND MOREOVER, THE PURCHASE AND SALES OF THE COMPANY ARE VERIFIABLE BECAUSE WELL RECORDED IN THE BOOKS OF ACCOUNTS AND THE ASSESSING OFFICER WAS TOTALLY FAILURE IN BRINGING OUT ANY STRONG REASON FOR SUCH ADDITION. THE SITUATION IS ABSOLUTELY SIMILAR AS OF THE ASSESSEE APPELLANT BEFORE YOUR GOOD SELF. THE COPIES OF THE ORDERS, AS STATED ABOVE, ARE BEING ENCLOSED FOR YOUR READY REFERENCE. THE CASE OF M/S VAHELANA STEELS IS NOT APPLICABLE AS NO DATA OF THE SAID CO. HAS BEEN COMPARED WITH THE ASSESSEE APPELLANT CO. THE RAW MATERIAL AS WELL AS FINISHED GOODS OF THE ASSESSEE APPELLANT CO. ARE EXCISABLE AND NO ADVERSE FACT IS ON RECORDS. IN THE SIMILAR CIRCUMSTANCES YOUR HONOR WAS PLEASED TO DELETE THE ADDITI ON IN THE CASE OF M/S BARNALA STEELS LTD. IN ASSESSMENT YEAR 2001 - 02 COPY OF APPEAL ORDER ENCLOSED. THE ADDITION BEING PURELY ON ESTIMATED BASIS IS UNCALLED FOR AND, THEREFORE, MAY PLEASE BE DELETED. KINDLY ALLOW RELIEF OF RS.10,19,255=00 ACCORDINGLY. 2) C ONSIDERATION OF ADDITION ON ACCOUNT OF OTHE R INCOME: - THAT THE SIMILAR TYP E OF OBSERVATIONS HAVE BEEN MADE BY THE ASSESSING OFFICER IN THE SIMILAR CASE IN ASSESSMENT YEAR 1995 - 96. ON APPEAL THE LEARNED CIT (APPEALS) HAS ACCEPTED THE APPE A L OF THE ASSESSEE AND HAS ALLOWED THE ISSUE IN FAVOUR OF THE ASSESSEE THAT THE INCOME FROM COMMISSION IS TO BE ASSESSED AS INCOME FROM BUSINESS AS DISCLOSED BY THE ASSESSEE. TH E DEPTT. HAS GONE IN APPEAL BEFORE HON BLE ITAT. HON BLE ITAT HAS DISCUSSED THE APPEAL OF DEPTT. AND HAS CONFIRMED THE ORDER OF LEARNED CIT (APPEALS) IN ITA NO.2101/DEL/00 VIDE ORDER DATED 31.03.2006 (COPY ENCLOSED ) FOR YOUR READY - REFERENCE. THAT THE ASSESSING OFFICER HAS MADE THE OBSERVATION ABOUT THE OTHER INCOME AS DISCLOSED BY THE ASSESSEE - APPELLANT COMPANY FROM DIFFERENT PARTIES. THE ASSESSING OFFICER HAS ACCEPTED THIS INCOME AS INCOME FROM OTHER SOURCES, WHILE THE INCOME, AS EARNED BY T HE APPELLANT COMPANY, ACTUALLY THE INCOME FROM BUSINESS AND THE SIMILAR INCOME HAS BEEN ACCEPTED AS INCOME FROM BUSINESS IN THE PAST AS WELL AS IN FUTURE, THE COPIES OF THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE COMPANY IS BEING ENCLOSED FOR YOUR READY REFE RENCE. THE ASSESSING OFFICER HAS CALLED THE DETAILS DIRECTLY FROM THE PARTIES THROUGH WHOM THE ASSESSEE APPELLANT COMPANY HAS EARNED SHARE BUSINESS. INCOME WHO HAVE ALSO CONFIRMED THE SAME. THERE WAS NO REASON WITH THE ASSESSING OFFICER WHY AND WHAT CIR CUMSTANCES, HE HAS ESTABLISHED THIS INCOME AS INCOME FROM OTHER SOURCES AND NOT AS BUSINESS INCOME, AS SHOWN BY THE ASSESSEE COMPANY. 5 I. T.A .NO S . - 3286 & 3287 /DEL/20 06 IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE INCOME MAY PLEASE BE ACCEPTED AS INCOME FROM BUSINESS AS ACCEPTED IN THE PAST. KINDLY ALLOW THE APPEAL AND OBLIGE . 5 . THE REVENUE IS AGGRIEVED BY THE SAID ORDER. I.T.A .NO. - 3287/DEL/2006 6 . THE FACTS IN THE CASE OF DOABA ROLLING MILL (P.) LTD. ARE THAT THE ASSESSEE BY WAY OF A RETURN FILED DECLARED A LOSS OF RS.66,94,720/ - AND INCOME U/S 115JB WAS COMPUTED AT RS. 3,91,510/ - . THE RETURN WAS PROCESSED U/S 143(1) AND SUBSEQUENTLY SELECTED FOR SCRUTINY AFTER ISSUANCE OF SECTION 143(2) & 142(1) ALONGWITH QUESTIONNAIRE ETC. THE A O ON A PERUSAL OF SCHED ULE - 13 OF THE AUDIT REPORT NOTED THE FOLLOWING INCOME : - 1. COMMISSIONER RECEIVED 2,05,34,037/ - 2. INTEREST ON SECURITY 29,275/ - 3. INTEREST ON FDR 65,291/ - 6.1. CONSIDERING THE DETAILS GIVEN IN SCHEDULE 13 OF THE AUDIT REPORT, HE ISSUED A SHOW - CAUSE NOTICE TO THE ASSESSEE TO JUSTIFY THE CLAIM OF COMMISSION RECEIVED WITH CONFIRMATION AND PROOF OF SERVICES RENDERED BY THE ASSESSEE. THE ASSESSEE IS FOUND TO HAVE GIVEN THE FOLLOWING INFORMATION WHICH IS EXTRACTED FROM THE ASSESSMENT ORDER: - M/S KCS FINANCIAL SERVICES LTD. 436463/ - M/S M.V.MARKETING (P.) LTD. 281587/ - M/S M.V.MARKETING (P.) LTD. 1440680/ - M/S M.V.MARKETING (P.) LTD. 242928/ - M/S M.V.MARKETING (P.) LTD. 2940000/ - M/S ADHUNIK SALES INDIA 1300000/ - M/S KYLSAN S FINANCE PVT. LTD. 1173967/ - M/S SAAR ENTERPRISES PVT. LTD. 623982/ - M/S SAAR ENTERPRISES PVT. LTD. 1089567/ - M/S M.V.MARKETING PVT. LTD. 578000/ - M/S CHURUWALA EXPORTS (P.) LTD. 10400000/ - M/S A N KUR CULTIVATORS (P.) LTD. 682500/ - 6 I. T.A .NO S . - 3286 & 3287 /DEL/20 06 6.2. THE AO FU RTHER SOUGHT INFORMATION U/S 133(6) FROM THE ABOVE PARTIES AND CONSIDERING THE REPLIES PROCEED ED TO TREAT THE COMMISSION RECEIVED AS INCOME FROM OTHER SOURCES IN THE FOLLOWING MANNER: - INFORMATION U/S 133(6) WAS SOUGHT FROM ALL THE ABOVE PARTIES REQUIR ING THEM TO FURNISH THE (1) NAME & ADDRESS OF THE PERSON WHO BOOKED THE SHARES (2) WHO HELD THE SHARES BEFORE AND AFTER THE SALE OF SHARES (3) HOW THE TRANSACTION WAS BOOKED (4) TO SEND THE COPY OF PRIMARY RECORDS SHOWING ORDERS OF PURCHASES & SALE (5) NO OF SHARE PURCHASED AND SOLD THROUGH THEM WITH DISTINCTIVE NUMBERS AND DATE OF PURCHASE AND SALE OF SHARES AND NAME OF COMPANIES (6) TOTAL AMOUNT PAID BY THE COMPANY (ASSESSEE) FOR PURCHASE OF SHARE AND MODE OF PAYMENT (7) AMOUNT OF PROFIT REMITTED TO THE COMPANY AND MODE OF PAYMENT OF PROFIT (8) RATES OF SHARES (9) WHETHER ANY TAX PAID BY THE COMPANY ON SHARE PROFIT (10) AMOUNT OF COMMISSION PAID BY TE COMPANY WITH COPY OF BANK ACCOUNT. FOR PAYMENT OF COMMISSION, THE PARTIES WERE ASKED TO FURNISH COPY OF A GREEMENT FOR COMMISSION, COPY OF BANK A/C SHOWING PAYMENT OF COMMISSION, EVIDENCES OF SERVICES AND NAME AND ADDRESS OF THEIR ASSESSING OFFICERS. LETTER HAVE BEEN RECEIVED UNSERVED IN THE CASE OF CASES OF KCS FINANCIAL SERVICES M.V. MARKETING (P.) LTD, ADHU NIK SALES INDIA, CH URUWALA EXPORTS (P.) LTD. AND ANK UR CULTIVATORS (P.) LTD. HAVE BEEN RECEIVED BACK UNSERVED. ALSO IN OTHER CASE, NO REPLIES HAVE BEEN RECEIVED. TO PROVE THE SERVICES RENDERED TO EARN THE COMMISSION/SHARE PROFIT OF RS.20534037/ - , ONLY NATURE OF WORK DONE HAVE BEEN SUBMITTED. GENUINENESS OF SERVICES RENDERED NOT ESTABLISHED. THEREFORE, THE INCOME OF RS.20534037/ - IS TREATED AS INCOME FROM OTHER SOURCES . 6.3. CONSIDERING THE FACTS OF ASSESSEE WITH A SIMILARLY SITUATED CONCERN M/S V EHELNA STEEL , HE A L S O MADE THE ADDITION OF RS.10,19,255/ - IN THE FOLLOWING MANNER: - THE ASSESSEE IS ENGAGED IN THE MANUFACTURING AND SALE OF M.S.INGOTS RAW MATERIAL USED ARE M.S.SCRAP AND SPONGE IRON AND FERRO ALLOYS. THE DURING THE ASSESSEE HAS SHOWN THE YIE LD AT THE RATE OF 87.94%. IN THE SIMILAR CASE OF SAME LOCALITY, I.E. M/S VEHELNA STEELS THE USE OF RAW MATERIAL AND PRODUCTION IS COMPARABLE AS UNDER: - RAW MATERIAL M/S VEHELNA STEELS DOABA ROLLING MILLS SPONGE IRON 1708.670 MT 3472.460 MT IRON SCRAP 2387.558 MT 627.040 MT FERRO ALLOYS 28.008 MT -- PRODUCTION OF FURNISHED GOODS: - M.S.INGOT/R.R. 3886.240 MT 3605.780 MT SLAG/BURNING LOSS 237.996 MT 494.320 MT FROM THE ABOVE CHART, IT IS UNDERSTOOD THAT THE PERCENTAGE OF SPONGE IRON USED IN RAW MATERIAL IS 84.69% IN THE CASE OF ASSESSEE AND 41.43% IN THE 7 I. T.A .NO S . - 3286 & 3287 /DEL/20 06 CASE OF VEHELNA STEELS. IN THE CASE OF VEHELNA STEELS THE YIELD HAS BEEN SHOWN AT 94.23%. THE ASSESSEE WAS ASKED TO JUSTIFY THE BURNING LOSS SHOWN AT 12.06% VIDE ORDER SHEET ENTRY DT. 23.02.2004. THE ASSESSEE HAS FAILED TO JUSTIFY THE SAME AND RESULT SHOWN ARE VERY LOW AND ARE NOT JUSTIFIED. THEREFORE, I HOLD THAT THE MANUFACTURING RECORDS MAINTAINED BY THE A SSESSEE, DO NOT REFLECT THE TRUE PICTURE OF THE MANUFACTURING RESULTS. THEREFORE, I REJECT THE BOOKS OF THE ASSESSEE U/S 145 OF INCOME TAX. ACCORDINGLY, CONSIDERING THE RATIO OF THE SPONGE IRON AT 84.69% AT 3472.460, THE PERCENTAGE OF YIELD IS ADOPTED AT 89%. BY APPLYING THE RATE OF 89% TOTAL PRODUCTION THUS COMES TO 3490.009 MT. TOTAL SUPPRESSED PRODUCTION THUS COMES TO 84.229 MT. BY APPLYING THE RATE OF RS.12101/ - PER MT, AS SHOWN IN THE RETURN OF INCOME, THE VALUE OF SUPPRESSED PRODUCTION IS CALCULAT ED TO BE RS.1019255/ - WHICH IS ADDED TO THE INCOME. (ADDITION RS.1019255/ - ) 7 . THE SAID ADDITION W AS CHALLENGED IN APPEAL BEFORE THE CIT(A) WHO CONSIDERING THE WRITTEN SUBMISSIONS OF THE ASSESSEE DATED 07.06.2006 EXTRACTED IN THE IMPUGNED ORDER HELD THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY VIRTUE OF THE ORDER OF THE ITAT. FOR READY - REFERENCE, THE SAME IS EXTRACTED HEREUNDER FOR READY - REFERENCE : - WITH REFERENCE TO THE ABOVE, IT IS MOST RESPECTFULLY SUBMITTED AS UNDER: - THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY CARRYING ON BUSINESS OF MANUFACTURING AND TRADING OF MILD STEEL INGOTS, ROUNDS ETC. IN A INDUCTION FINANCE MILL. THE APPELLANT CO. HAS MAINTAINED REGULAR AND PROPER BOOKS OF ACCOUNTS, ALONG WITH MANUFACTURING RECORDS, AS REQU IRED UNDER EXCISE RULES, STOCK REGISTERS, SALES AND PURCHASE BILLS AND VOUCHERS AND THE SAME HAVE BEEN PRODUCED BEFORE THE ASSESSING OFFICER TIME TO TIME, AS AND WHEN REQUIRED. THE RAW - MATERIAL OF THE ASSESSEE APPELLANT COMPANY IS IRON SCRAP & SPONGE IRON ORE IS ALSO EXCISABLE, AS WELL AS THE FINISHED GOODS ARE ALSO EXCISABLE. THE ASSESSING OFFICER HAS MADE THE FOLLOWING ADDITIONS TO THE INCOME OF THE ASSESSEE WHILE COMPLETING THE ASSESSMENT U/S 143(3): - 1. ESTIMATED AD - HOC ADDITION ON ACCOUNT OF LOW YIELD. RS.10,19,255=00 2. THE A.O HAS ALSO OBSERVED THAT THE COMMISSION INCOME RECEIVED BY THE APPELLANT CO. IS ACTUALLY INCOME FROM OTHER SOURCES AND NOT INCOME FROM BUSINESS AS DECLARED BY THE ASSESSEE APPELLANT. 1) REGARDING ESTIMATED ADHOC ADDITION ON ACCOUNT OF LOW YIELD - RS.10,19,255=00: - THE ASSESSING OFFICER HAS MADE ESTIMATED ADDITION OF RS.10,19,255=00 TO THE INCOME OF THE ASSESSEE WITH THE OBSERVATION TO COVER UP THE POSSIBLE LEAKAGES . THE ASSESSEE COMPANY HAS MAINTAINED THE REGULAR AND PROPER BOOKS OF ACCOUNT AND MANUFACTURING RECORDS. IN A MANUFACTURING PROCESS WHEN THE ENTIRE SALES AND PURCHASES OF THE COMPANY HAVE BEEN ACCEPTED, NO ADDITION ON ACCOUNT OF LOW YIELD SHOULD HAVE BEEN MADE PURELY ON ESTIMATED BASIS. THE YIELD DEPENDS ON SO MANY FACTORS LIKE QUALITY OF THE RAW - MATERIAL. QUALITY OF THE FINISHED GOODS PRODUCED. ROLL OF 8 I. T.A .NO S . - 3286 & 3287 /DEL/20 06 SKILLED AND UNSKILLED LABOR IN THE MANUFACTURING PROCESS. IN THE YEAR UNDER CONSIDERATION, THE SALES OF THE COMPANY WERE RS.3. 61 CRORES AND GOODS PRODUCED BY THE COMPANY HAVE BEEN ACCEPTED IN THE MARKET AS BRANDED GOODS. THE CASE, AS CITED BY THE ASSESSING OFFICER ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE ASSESSEE S CASE, NO SUCH ADDITION HAS BEEN MADE IN THE PAST AS WELL AS IN FUTURE . SIMILAR TYPE OF ADDITIONS HAVE ALSO BEEN MADE IN THE CASE OF M/S PAWAN ALLOYS & CASTINGS LTD. IN ASSESSMENT YEARS 89 - 90 AND 90 - 91. THE LEARNED C.I.T.(APPEALS) HAVE DELETED THE AD - HOC ESTIMATED ADDITIONS OF RS.20,80,000=00 AND RS.750000=00 RE SPECTIVELY AS HAVE BEEN MADE ON THE ISSUE OF YIELD ONLY. THE ORDERS OF THE LEARNED C.I.T(APPEALS) HAVE ALSO BEEN CONFIRMED BY THE HON BLE ITAT WITH THE O BSERVATION THAT THE ADDITIONS ARE NOT SUSTAINABLE BECAUSE HAVE BEEN MADE ON ESTIMATED BASIS AND MOREOV ER, THE PURCHASE AND SALES OF THE COMPANY ARE VERIFIABLE BECAUSE WELL RECORDED IN THE BOOKS OF ACCOUNTS AND THE ASSESSING OFFICER WAS TOTALLY FAILURE IN BRINGING OUT ANY STRONG REASON FOR SUCH ADDITION. THE SITUATION IS ABSOLUTELY SIMILAR AS OF THE ASSES SEE APPELLANT BEFORE YOUR GOOD SELF. THE COPIES OF THE ORDERS, AS STATED ABOVE, ARE BEING ENCLOSED FOR YOUR READY REFERENCE. THE CASE OF M/S VAHELANA STEELS IS NOT APPLICABLE AS NO DATA OF THE SAID CO. HAS BEEN COMPARED WITH THE ASSESSEE APPELLANT CO. TH E RAW MATERIAL AS WELL AS FINISHED GOODS OF THE ASSESSEE APPELLANT CO. ARE EXCISABLE AND NO ADVERSE FACT IS ON RECORDS. IN THE SIMILAR CIRCUMSTANCES YOUR HONOR WAS PLEASED TO DELETE THE ADDITION IN THE CASE OF M/S BARNALA STEELS LTD. IN ASSESSMENT YEAR 20 01 - 02 COPY OF APPEAL ORDER ENCLOSED. THE ADDITION BEING PURELY ON ESTIMATED BASIS IS UNCALLED FOR AND, THEREFORE, MAY PLEASE BE DELETED. KINDLY ALLOW RELIEF OF RS.10,19,255=00 ACCORDINGLY. 2) CONSIDERATION OF ADDITION ON ACCOUNT OF OTHER INCOME: - THAT THE SIMILAR TYPE OF OBSERVATIONS HAVE BEEN MADE BY THE ASSESSING OFFICER IN THE SIMILAR CASE IN ASSESSMENT YEAR 1995 - 96. ON APPEAL THE LEARNED CIT (APPEALS) HAS ACCEPTED THE APPEAL OF THE ASSESSEE AND HAS ALLOWED THE ISSUE IN FAVOUR OF THE ASSESSEE THAT THE I NCOME FROM COMMISSION IS TO BE ASSESSED AS INCOME FROM BUSINESS AS DISCLOSED BY THE ASSESSEE. T HE DEPTT. HAS GONE IN APPEAL BEFORE HON BLE ITAT. HON BLE ITAT HAS DISCUSSED THE APPEAL OF DEPTT. AND HAS CONFIRMED THE ORDER OF LEARNED CIT (APPEALS) IN ITA N O.2101/DEL/00 VIDE ORDER DATED 31.03.2006 (COPY ENCLOSED) FOR YOUR READY - REFERENCE. THAT THE ASSESSING OFFICER HAS MADE THE OBSERVATION ABOUT THE OTHER INCOME AS DISCLOSED BY THE ASSESSEE - APPELLANT COMPANY FROM DIFFERENT PARTIES. THE ASSESSING OFFICER HAS ACCEPTED THIS INCOME AS INCOME FROM OTHER SOURCES, WHILE THE INCOME, AS EARNED BY THE APPELLANT COMPANY, ACTUALLY THE INCOME FROM BUSINESS AND THE SIMILAR INCOME HAS BEEN ACCEPTED AS INCOME FROM BUSINESS IN THE PAST AS WELL AS IN FUTURE, THE COPIES OF THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE COMPANY IS BEING ENCLOSED FOR YOUR READY REFERENCE. THE ASSESSING OFFICER HAS CALLED THE DETAILS DIRECTLY FROM THE PARTIES THROUGH WHOM THE ASSESSEE APPELLANT COMPANY HAS EARNED SHARE BUSINESS. INCOME WHO HAVE ALSO CONFIRMED THE SAME. THERE WAS NO REASON WITH THE ASSESSING OFFICER WHY AND WHAT CIRCUMSTANCES, HE HAS ESTABLISHED THIS INCOME AS INCOME FROM OTHER SOURCES AND NOT AS BUSINESS INCOME, AS SHOWN BY THE ASSESSEE COMPANY. 9 I. T.A .NO S . - 3286 & 3287 /DEL/20 06 IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE INCOME MAY PLEASE BE ACCEPTED AS INCOME FROM BUSINESS AS ACCEPTED IN THE PAST. KINDLY ALLOW THE APPEAL AND OBLIGE . 8 . AGGRIEVED BY THIS, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 9. RIGHT AT THE OUTSET THE LD. AR HAD OPENED HIS ARGUMENT S CONTENDING THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE IN BOTH THE APPEALS QUA GROUND NO.2 BY VIRTUE OF THE JUDGEMENT OF THE HON BLE HIGH COURT IN THE CASE OF M/S DOABA ROLLING MILLS PVT. LTD., MEERUT. IT WAS HIS SUBMISSION THAT THE TWO CASES AR E CO NNECTED CASES INASMUCH THAT ADDITIONS WERE MADE AND DELETED BY THE AO AND THE CIT(A) ON SIMILAR REASONING. T HE DECISION DATED 20.02.2013 IN ITA NO. - 115/2011 BY THE HON BLE HIGH COURT (COPY PLACED ON RECORD) FOLLOWING THE ORDER OF THE TRIBUNAL IN 2005 - 06 AND 2006 - 07 ASSESSMENT YEARS, C ONSIDERING THE ORDER OF THE D BENCH OF THE TRIBUNAL IN ITA NO. - 642/DEL/2010 DISMISSED THE DEPARTMENTAL APPEAL WITH COSTS. FOR READY - REFERENCE, WE REPRODUCE THE SAME FROM THE COPY OF THE JUDGEMENT FILED: - IN THE MEMO O F APPEAL, THE FOLLOWING SUBSTANTIAL QUESTION OF LAW HAS BEEN PROPOSED: - (1) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL IS JUSTIFIED IN LAW IN COMING TO THE CONCLUSION THAT COMMISSION INCOME FROM TRADING IN SHARES IS TO BE ASSESSED UNDER THE HEAD PROFIT & GAIN OF BUSINESS OR PROFESSION INSTEAD OF ASSESSING THE SAME UNDER THE HEAD INCOME FROM OTHER SOURCES ? THE TRIBUNAL HAS NOTICED THAT FOR THE ASSESSMENT YEAR 2005 - 06, THAT COMMISSION INCOME WAS HELD TO BE BUSINESS INCOME AND NOT INCOME FROM OTHER SOURCES INTER PARTIES BY THE HIGH COURT. THE ORDER FURTHER RECORDS THAT THE DEPARTMENTAL REPRESENTATIVE FAIRLY CONCEDED THAT THE ISSUE IS WELL SETTLED. IN VIEW OF THE FINDINGS RECORDED BY THE TRIBUNAL IN PARA - 2.1 BY ITS ORDER, WE FAIL TO UNDERSTAND THE NECESSITY OF FILING OF THE APPEAL. COMMISSIONER OF INCOME TAX SHOULD NOT HAVE FILED THE APPEAL AND WE DEPRECATE THE FILING OF FRIVOLOUS APPEAL BY THE DEPARTMENT. THE APPEAL IS DISMISSED SUMMARILY WITH COST OF RS.2000/ - . 9. 1. APART FROM RELYING UPON THE DECISION OF THE HON BLE HIGH COURT, RELIANCE WAS PLACED ON THE FINDINGS ARRIVED AT IN THE IMPUGNED ORDER FOR BOTH THE ASSESSMENT YEARS, IT WAS ALSO HIS SUBMISSION THAT AGAIN IN THE CASE OF M/S DOABA ROLLING MILLS 10 I. T.A .NO S . - 3286 & 3287 /DEL/20 06 PVT. LTD. ORDER DATED 31.03.2006 IN ITA NO. - 2101/DEL/2000 PERTAINING TO 1995 - 96, THE DEPARTMENTAL GROUND HAD BEEN DISMISSED. INV ITING FURTHER ATTENTION TO THE IMPUGNED ORDER REFERRING TO THE FACTS RECORDED IN THE ASSESSMENT ORDER IN THE CASE OF RANA CASTINGS PVT. LTD.. IT WAS HIS SUBMISSION THAT FIRSTLY THE FACTS PERTAINING TO M/S VEHELNA STEEL LTD. WERE NEVER CONFRONTED TO THE AS SESSEE. MOREOVER THE FACT THAT THE SAID CONCERN AS PER THE INFORMATION RECORDED IN THE ASSESSMENT ORDER ITSELF WAS USING SPONGE IRON ONLY TO THE EXTENT 41.43% AS AGAINST THE 68 % UTILIZED BY THE ASSESSEE. THE YIELD CONSEQUENTLY WAS BOUND TO BE HIGHER IN THE CASE OF M/S VEHELNA STEEL LTD. WHO USED HIGHER PERCENTAGE OF IRON INGOTS AS RAW MATERIAL AND THIS FACT ALONG CANNOT LEAD TO THE CONCLUSION THAT THE RECORDS MAINTAINED BY THE ASSESSEE DID NOT REFLECT THE TRUE PICTURE. REFERRING TO THE ORDER IT WAS HIS SUBMISSION HAT NO SPECIFIC DEFECTS HAVE BEEN POINTED OUT AND AN ADHOC ADDITION ON THIS GROUND ACCORDINGLY WAS NOT MAINTAINABLE. FOR SIMILAR REASONS, THE ADDITIONS HAVE BEEN MADE IN THE CASE OF M/S DOABA ROLLING MILLS PVT. LTD. ACCORDINGLY HEAVY RELIANCE WAS PLACED UPON THE IMPUGNED ORDER. 1 0 . THE LD. SR. DR IN THE FACE OF THE DECISION OF THE HON BLE HIGH COURT ON THE GROUND NO.2 IN THE CASE OF M/S DOABA ROLLING MILLS PVT. LTD. AND THE ORDER OF THE ITAT RELIED UPON BY THE ASSESSEE. MERELY PLACED RELIANCE UPON THE ASSESSMENT ORDER FOR BOTH THE CONCERNS . Q UA THE SECOND ISSUE ADDRESSED BY GROUND NO.1 WHEREIN THE COMPARISON HAS BEEN MADE WITH THE POSITION FOR M/S VEHELNA STEEL LTD., HE PLACED RELIANCE ON THE ASSESSMENT ORDER FOR BOTH THE APPEALS . 1 1 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS SEEN THAT QUA THE FIRST ISSUE IN THE CASE OF BOTH THE ASSESSEES THE FINDING OF THE CIT(A) IN DELETING THE ADDITION ON THE REASONING THAT NO DEFECTS WERE POINTED OUT IN THE BOO KS OF ACCOUNTS OF THE ASSESSEE IS JUSTIFIED ON FACTS. IT IS SEEN THAT THE AO IN THE CASE OF BOTH THE CONCERNS PROCEEDED ON THE FOOTING THAT THE FACTS PERTAINING TO THE CASE OF M/S VEHELNA STEEL LTD. SITUATED IN THE SAME AREA WERE IDENTICAL. THE SAID PRES UMPTION IS NOT BORNE OUT FROM THE RECORD AS THE RECORDING OF 11 I. T.A .NO S . - 3286 & 3287 /DEL/20 06 FACTS IN THE TWO ASSESSMENT ORDERS ITSELF DEMONSTRATES THAT AS OPPOSED TO SPONGE IRON USED BY M/S VEHELNA STEEL LTD . O F O N L Y 4 1 . 4 3 % , T HE ASSESSEE HAD USED SPONGE IRON AS A RAW MATERIAL TO THE EXTRACT OF 68% AND 84.69% RESPECTIVELY. CONSEQUENTLY THE YIELD WAS BOUND TO BE H I G H E R IN THE CASE OF M/S VEHELNA STEELS AS COMPARATIVELY HIGHER PERCENTAGE OF RAW MATERIAL CONSISTED OF IRON INGOTS. IN THE CIRCUMSTANCES THE ASSESSEE IN THE FACTS OF THE PRESENT CASE COULD NOT BE CONSIDERED TO BE COMPARABLE TO M/S VEHELNA STEELS. IT IS FURTHER SEEN THAT NO DEFECTS HAVE BEEN POINTED OUT BY THE AO APART FROM THE ABOVE. WE ARE OF THE CONSIDERED VIEW THAT AT BEST LOW YIELD COULD HAVE TRIGGERED AN ENQUIR Y HOWEVER THEREAFTER IT IS NECESSARY FOR THE AO TO POINT OUT SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THE SAID EXERCISE IT IS SEEN HAS NOT BEEN DONE AND EVEN OTHERWISE WE HAVE ALREADY HELD THAT THE FACTS OF THE TWO CONCERNS WERE NOT COMP ARABLE WITH M/S VEHELNA STEEL LTD. THE COMPARISON IS INCORRECTLY MADE. IT IS FURTHER SEEN THAT CIT(A) HAS PLACED RELIANCE UPON IDENTICAL ISSUES CONSIDERING IN THE CASE OF M/S PAWAN ALLOYS & CASTINGS LTD. IN 1989 - 90 & 1990 - 91 ASSESSMENT YEARS WHICH ORDER OF THE CIT(A) HAS BEEN UPHELD BY THE ITAT. FINDING TO THIS EFFECT HAS BEEN GIVEN IN THE IMPUGNED ORDER WHICH HAS NOT BEEN ASSAILED BY THE REVENUE. ACCORDINGLY BEING SATISFIED WITH THE REASONING AND FINDING , GROUND NO.1 IN BOTH THE APPEALS RAISED BY THE REVENUE IS DISMISSED. 1 1.1 . QUA GROUND NO.2, IT IS SEEN THAT THE CIT(A) HAS RELIED UPON THE ORDER OF THE ITAT IN ASSESSEE S OWN CASE IN 1995 - 96 ASSESSMENT YEAR WHICH FINDING HAS BEEN CONSISTENTLY FOLLOWED IN THE SUBSEQUENT YEARS. IT IS SEEN THAT BEFORE U S RELIANCE HAS BEEN PLACED UPON THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT WHEREIN ON ACCOUNT OF RAISING THE SAME ISSUE, THE HON BLE COURT WAS PLEASED TO DISMISS THE REVENUE S APPEAL BY IMPOSING C OSTS . IN THE AFORE - MENTIONED PECULIAR FACTS AND CIRCUM STANCES, WE FIND NO MERIT IN THE DEPARTMENTAL APPEAL IN BOTH THE CASES QUA GROUND NO. - 2. IN THE RESULT THE ORDERS OF THE CIT(A) IN BOTH THE APPEALS ARE CONFIRMED AND THE DEPARTMENTAL APPEALS ARE DISMISSED. 12 I. T.A .NO S . - 3286 & 3287 /DEL/20 06 1 2 . IN THE RESULT THE APPEAL S OF THE REVENUE IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 1 4 T H OF NOVEMBER 2014. S D / - S D / - ( G.D.AGARWAL ) (DIVA SINGH) VICE PRESIDENT JUDICIAL MEMBER DATED: 1 4 / 1 1 /2014 *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 13 I. T.A .NO S . - 3286 & 3287 /DEL/20 06 THE AO FURTHER CONSIDERING THE FACT THAT THE ASSESSEE WAS ENGAGED IN THE MANUFACTURING AND SALE OF M/S INGOTS RAW MATERIAL USING M.S. SCRAP AND SPONGE IRON AND FERRO ALLOYS AS RAW MATERIAL DISCLOSED THE YIELD AT THE RATE OF 87.94%. THE AO CONSIDERING THAT M/S VEHELNA STEELS IN SIMILAR LOCALITY WAS UTILIZING SPON GE IRON AS A RAW MATERIAL AMOUNTING TO RS. 84.69% AS COMPARED TO 41.43% IN THE CASE OF VEHELNA STEELS WHOSE YIELD WAS 94.23% AS AGAINST 87,94% OF THE ASSESSEE. IN THESE CIRCUMSTANCES HE REQUIRED THE ASSESSEE TO JUSTIFY THE BURNING LOSS OF 12.06% IN VIEW THEREOF THE BOOKS OF ACCOUNT OF THE ASSESSEE WAS REJECTED AND THE RATIO OF THE SPONGE IRON WAS 84.69% AT 3472.460, THE PERCENTAGE OF YIELD WAS ADOPTED AT 89%. ACCORDING AN ADDITION OF RS.10,19,255/ - WAS MADE HOLDING AS UNDER: - BY APPLYING THE RATE OF 89 % TOTAL PRODUCTION THUS COMES TO 3490.009 MT. TOTAL SUPPRESSED PRODUCTION THUS COMES TO 84.229 MT. BY APPLYING THE RATE OF RS.12101/ - PER MT, AS SHOWN IN THE RETURN OF INCOME, THE VALUE OF SUPPRESSED PRODUCTION IS CALCULATED TO BE RS.1019255/ - WHICH IS A DDED TO THE INCOME. (ADDITION RS.1019255/ - )