Fine Cast (Guj.) Pvt. Ltd., Anand V. The ACIT., Anand Circle, Anand

ITA 4134/AHD/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9824 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 22-09-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 19-11-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANDIP GARG
• Keywords: Set aside
• Section: 40A(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND A. N. PAHUJA, AM) ITA NO.4134/AHD/2007 A. Y.: 2004-05 FINE CAST (GUJ.) PVT. LTD., 133/134, GIDC, VITHAL UDYOGNAGAR, VS THE A. C. I. T. ANAND CIRCLE, ANAND PA NO. AAACF 3335L (APPELLANT) (RESPONDENT) APPELLANT BY SMT. URVASHI SHODHAN, AR RESPONDENT BY SHRI SANDIP GARG, DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER OF THE LEARNED CIT(A)-IV, BARODA DATE D 22-08-2007 FOR ASSESSMENT YEAR 2004-05. 2. WE HAVE HEARD LEARNED REPRESENTATIVES OF BOTH TH E PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERE D THE MATERIAL ON RECORD. 3. THE LEARNED COUNSEL FOR THE ASSESSEE ONLY ARGUED ON GROUNDS NO.1 AND 3 OF THE APPEAL. REST OF THE GROUNDS ARE DISMIS SED BEING NOT ARGUED AND NOT PRESSED. 4. ON GROUND NO.1, THE ASSESSEE CHALLENGED THE ADD ITION OF RS.1,87,595/- ON ACCOUNT OF EXCESS MELTING LOSS. TH E AO MADE LUMP SUM ADDITION OF RS.10,50,000/- ON ACCOUNT OF LOW GR OSS PROFIT AND EXCESS MELTING LOSS. THE ASSESSEE IS A COMPANY WHICH CARRI ED ON BUSINESS OF MANUFACTURING OF CI CASTING (CAST IRON CASTING) FRO M SCRAP AND PIG IRON. THE ASSESSEE DISCLOSED TOTAL INCOME OF RS.15,62,270 /-. THE AO NOTED THAT GROSS PROFIT IN COMPARISON TO EARLIER YEAR HAS FALLEN BY 2.48% AND MELTING LOSS HAS INCREASED TO 13.74%. THE AO VERIFI ED THE PURCHASE AND ITA NO.4134/AHD/2007 FINE CAST (GUJ.) PVT. LTD. VS ACIT, ANAND 2 SALE BILLS AND ALSO CONSIDERED THE MELTING LOSS. TH E AO CHECKED THE PATTERN OF CONSUMPTION OF PIG IRON AND SCRAP IRON I N DIFFERENT MONTHS OF THE YEAR AND CONCLUDED THAT IT DID NOT REFLECT MATC HING FIGURES OR DECREASE IN THE MELTING LOSS PERCENTAGE. THE AO, TH EREFORE, HELD THAT MELTING LOSS DURING THE YEAR CANNOT BE MORE THAN 13 %. LINKING THE INCREASE IN MELTING LOSS WITH THE FALL IN GROSS PRO FIT, THE AO MADE LUMP SUM ADDITION OF RS.10,50,000/- TO THE GROSS PROFIT DECLARED, SO AS TO BRING THE GROSS PROFIT APPROXIMATELY AT 17%. 5. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED C IT(A) AND SAME SUBMISSIONS WERE REITERATED WHICH WAS RAISED BEFORE THE AO AND IT WAS ALSO EXPLAINED THAT ADDITION IS UNJUSTIFIED BECAUSE THE BOOKS OF ACCOUNT HAVE NOT BEEN REJECTED. THEREFORE, BOOK RESULT SHOU LD BE ACCEPTED. THE PURCHASE PRICE OF RAW MATERIAL CONSUMPTION HAS GONE UP I.E. COST OF THE PIG IRON HAS GONE UP TO 82.61% , SCRAP BY 73.93% AN D HARD COKE BY 22.19%. IN COMPARISON, THE SALE PRICE HAS GONE UP B Y 41.27% ONLY. THESE FACTS WERE BROUGHT TO THE NOTICE OF THE AO BU T HE DID NOT POINT OUT ANY DISCREPANCY IN THE AUDITED ACCOUNTS OF THE ASSE SSEE. THE ASSESSEE MAINTAINED QUANTITATIVE DETAILS OF THE RAW MATERIAL S AND CONSUMPTION OF RAW MATERIALS AND GOODS PRODUCED. SINCE THE ASSESSE E COMPANY WAS SUBJECTED TO EXCISE DUTY. THEREFORE, ADDITION IS UN JUSTIFIED. 6. THE LEARNED CIT(A) CONSIDERING THE EXPLANATION O F THE ASSESSEE RESTRICTED THE ADDITION TO RS.1,87,595/- AND DELETE D THE REMAINING ADDITION. HIS FINDINGS IN PARA 3.2 TO 3.4 ARE REPRO DUCED AS UNDER: 3.2 I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT O RDER AND THE SUBMISSIONS MADE BY THE AUTHORIZED REPRESENTATI VE OF THE APPELLANT COMPANY. THE ASSESSING OFFICER HAS EXAMIN ED THE BOOKS OF ACCOUNTS, AND ALL DETAILS WITH REGARD O IN CREASE IN COST OF RAW MATERIALS HAVE BEEN PLACED BEFORE THE A SSESSING OFFICER. HE HAS NOT POINTED OUT ANY DISCREPANCY IN THE METHOD OF ACCOUNTING FOLLOWED, NOR HAS HE BROUGHT ON RECOR D ANY MATERIAL TO DOUBT THE BOOKS OF ACCOUNTS. THE ONLY I SSUE ITA NO.4134/AHD/2007 FINE CAST (GUJ.) PVT. LTD. VS ACIT, ANAND 3 DISCUSSED AT LENGTH BY THE ASSESSING OFFICER HAS BE EN THE CLAIM OF MELTING LOSS. THERE IS MERIT IN HIS CONCLU SION THAT THERE MUST BE SOME RELATIONSHIP BETWEEN THE PATTERN OF THE RATIO OF PIG IRON AND SCRAP USED BY THE APPELLANT. THE HIGHER AMOUNT OF PIG IRON USED IN COMPARISON TO THE SCRAP, HIGHER SHOULD THE YIELD AND VICE VERSA. BUT THE CONSUMPTIO N PATTERN AS SUBMITTED BY THE APPELLANT DID NOT REFLECT THIS. THE ASSESSING OFFICER THEREFORE, CONCLUDED THAT THERE D OES NOT APPEAR TO BE ANY JUSTIFICATION OF THE RISE IN CLAIM OF MELTING LOSS. 3.3 DURING THE COURSE OF APPELLATE PROCEEDINGS, THE AUTHORIZED REPRESENTATIVE COULD NOT SHED ANY LIGHT WITH REGARD TO INCREASE IN MELTING LOSS CLAIMED BY HIM. THE AVERAGE MELTING LOSS FOR A. Y. 2002-03 AND 2003-04 IS 12.94 % APPROXIMATELY. THEREFORE, THE ASSESSING OFFICERS C ONCLUSION OF ESTIMATING THE MELTING LOSS @ 13% CAN BE ACCEPTED. THE DIFFERENCE BETWEEN THE CURRENT YEARS CLAIM OF MELTI NG LOSS I.E. 13.74% AND THE ESTIMATION BY THE ASSESSING OFFICER IS .74%. THIS DIFFERENCE IN RUPEES TERMS IS CALCULATED AS UN DER:- MATERIAL INPUT CONSUMED : (A) PIG IRON 796486 KG. X @ .74% .. 5894 KG. AVERAGE RATE OF MATERIAL INPUT .. RS.15.80 NET AMOUNT .. RS. 93,125/- (B) SCRAP USED 1000489 KG. @ .74 .. 5403KG. AVERAGE RATE OF MATERIAL X INPUT COST OF PURCHASE RS.12.76 .. 12.76 I.E. RS. 94,470/- ======= SUMMARY: AGGREGATE (A) RS.93,125 (B) RS.94,470 I.E. EXCESS MELTING LOSS IN TERMS OF QUANTUM IN PRICE .. RS.1,87,595/- ========== 3.4 IN VIEW OF ABOVE, THE ADDITION MADE BY THE ASSESSING OFFICER IS UPHELD TO THE EXTENT OF RS.1,8 7,595/-. AS A RESULT, THE ASSESSEE GETS RELIEF OF RS.8,62,405/- . ITA NO.4134/AHD/2007 FINE CAST (GUJ.) PVT. LTD. VS ACIT, ANAND 4 7. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THA T ULTIMATELY THE ADDITION ON ACCOUNT OF GROSS PROFIT HAS BEEN DELETE D AND THE AO HAS NOT POINTED OUT ANY SPECIFIC DEFECTS IN THE MAINTENANCE OF THE BOOKS OF ACCOUNTS, THEREFORE, ENTIRE ADDITION SHOULD HAVE BE EN DELETED. 8. ON THE OTHER HAND, THE LEARNED DR RELIED UPON TH E ORDER OF THE AO AND SUBMITTED THAT REJECTION OF BOOK RESULTS WOULD NOT BE RELEVANT BECAUSE NO ADDITION IS SUSTAINED ON ACCOUNT OF EXCE SS MELTING LOSS AS NOTED BY THE LEARNED CIT(A). 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD. IT IS ADMITTED FACT THAT THE A SSESSEE PRODUCED COMPLETE BOOKS OF ACCOUNTS BEFORE THE AO AND QUERY OF THE AO WAS ALSO REPLIED. THE LEARNED CIT(A) SPECIFICALLY NOTED IN H IS FINDINGS THAT BOOKS OF ACCOUNTS HAVE BEEN EXAMINED BY THE AO ALONG WITH AL L THE DETAILS WITH REGARD TO INCREASE IN COST OF RAW MATERIALS. THE LE ARNED CIT(A) ALSO NOTED IN HIS FINDINGS THAT THE AO HAS NOT POINTED OUT ANY DISCREPANCY IN THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE, NOR HE HAS BROUGHT ON RECORD ANY MATERIAL TO DOUBT THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THE ABOVE FINDINGS OF THE LEARNED CIT(A) HAVE NOT BEEN CHALLENGED BY THE REVENUE THROUGH ANY CROSS APPEAL OR CROSS OBJECTION . ULTIMATELY, THE LEARNED CIT(A) DID NOT APPROVE THE FINDING OF THE A O WITH REGARD TO APPLICATION OF HIGHER GROSS PROFIT RATE WHICH WOULD , THEREFORE, SHOW THAT THE AO HAS NOT POINTED OUT ANY DISCREPANCY IN THE M AINTENANCE OF THE BOOKS OF ACCOUNTS BY THE ASSESSEE. THE BOOK RESULTS OF THE ASSESSEE HAVE NOT BEEN REJECTED U/S 145 OF THE IT ACT. THE ASSESS EE ALSO EXPLAINED THAT THE PURCHASE PRICE OF RAW MATERIALS HAS INCREASED A S COMPARED TO THE SALE PRICE. THE ASSESSEE MAINTAINED QUANTITATIVE DE TAILS OF THE RAW MATERIAL CONSUMED AND WAS ALSO SUBJECTED EXCISE DUT Y. THE AO AND THE LEARNED CIT(A) HAVE NOT POINTED OUT ANY DISCREPANCY IN THE AUDITED ITA NO.4134/AHD/2007 FINE CAST (GUJ.) PVT. LTD. VS ACIT, ANAND 5 ACCOUNTS OF THE ASSESSEE. THEREFORE, THERE WAS NO R EASON TO SUSTAIN EVEN PART ADDITION ON THIS ISSUE. WE MAY ALSO NOTE THAT THE LEARNED CIT(A) NOTED AVERAGE MELTING LOSS FOR ASSESSMENT YEAR 2002 -03 AND 2003-04 AT 12.94% AND THEREFORE, SUSTAINED ADDITION ON ACCOUNT OF MELTING LOSS BY 0.74%. THE AO HAS GIVEN A CHART OF THE MELTING LOSS AND THE RAW MATERIAL CONSUMPTION IN THE PRECEDING ASSESSMENT YEAR AS WEL L AS IN THE ASSESSMENT YEAR UNDER APPEAL AND THE QUANTITY MANUF ACTURED. IN THE ASSESSMENT YEAR 2002-03, THE QUANTITY MANUFACTURED BY THE ASSESSEE WAS 87.28% AND IN THE ASSESSMENT YEAR 2003-04 QUANT ITY MANUFACTURED WAS 86.85% AND IN THE ASSESSMENT YEAR UNDER CONSIDE RATION IT WAS 86.26%. THUS, THE MELTING LOSS IN THE ASSESSMENT YE AR UNDER APPEAL WAS 13.74% AS AGAINST THE MELTING LOSS OF 13.15% IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. THE ASSESSEE GAVE THE RE ASONS FOR CONSUMPTION OF RAW MATERIALS AND SLIGHT INCREASE IN THE MELTING LOSS ON WHICH NO ADVERSE FINDING HAS BEEN GIVEN BY THE AO. THE AO HAS ONLY CONSIDERED THE PATTERN OF CONSUMPTION OF RAW MATERI ALS EACH MONTH IN ORDER TO MAKE THE ADDITION. SINCE NO SPECIFIC DEFEC T HAS BEEN POINTED OUT IN THE MAINTENANCE OF THE BOOKS OF ACCOUNT BY THE A SSESSEE AND BOOK RESULTS HAVE NOT BEEN REJECTED AND THAT THERE IS A SLIGHT INCREASE IN MELTING LOSS, WOULD NOT GIVE RISE TO SUSTAIN EVEN O F PART ADDITION ON THIS ISSUE. WE ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. 10. IN THE RESULT, THIS GROUND OF APPEAL OF THE ASS ESSEE IS ALLOWED. 11. ON GROUND NO.3 OF THE APPEAL, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF RS.42,734/- BEING CASH PAYMENT U/S 40A(3) OF THE IT ACT. THE ASSESSEE MADE CASH PAYMENT OF RS.2,13,669/ -. THE AO DISALLOWED 20% OUT OF THE SAME. IT WAS EXPLAINED BE FORE THE LEARNED CIT(A) THAT CASH PAYMENTS WERE MADE TO DIFFERENT PA RTIES, MAINLY LORRY DRIVERS WHO WAS DEALING WITH THE COMPANY FOR THE FI RST TIME. PAYMENTS ITA NO.4134/AHD/2007 FINE CAST (GUJ.) PVT. LTD. VS ACIT, ANAND 6 WERE MADE DUE TO FINANCIAL STRINGENCY AND THE AO HA S NOT DOUBTED THE GENUINENESS OF THE SAME AND THEREFORE, THE ADDITION SHOULD BE DELETED. THE LEARNED CIT(A) HOWEVER, CONFIRMED THE ADDITION AND OBSERVED THAT THERE IS NOTHING ON RECORD THAT THESE LORRY DRIVERS WERE DEALING WITH THE ASSESSEE COMPANY FOR THE FIRST TIME. 12. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THA T THE ASSESSEE MADE PAYMENTS IN EXCEPTIONAL CIRCUMSTANCES TO THE LORRY DRIVERS. THEREFORE, THE CASE WOULD NOT FALL WITHIN THE AMBIT OF GUIDELI NES LAID DOWN IN RULE 6 DD OF THE IT RULES. THE LEARNED COUNSEL FOR THE ASS ESSEE ALSO REFERRED TO THE STATEMENTS OF FACTS FILED BEFORE THE LEARNED CI T(A) COPY OF WHICH IS FILED IN THE APPEAL PAPERS AT PAGE A- 11 TO SHOW T HAT THE AMOUNTS IN QUESTION WERE DEBITED TOWARDS FREIGHT INWARD FOR SU PPLY OF HARD COKE TO ANAND FROM DHANBAD. THE LEARNED COUNSEL FOR THE ASS ESSEE, THEREFORE, SUBMITTED THAT PAYMENTS MADE TO THE LORRY DIVERS FO R THE FIRST TIME BECAUSE THEY WERE ILLITERATE AND COMING FROM OTHER STATE AND THE ASSESSEE HAS NO RELATION. THEREFORE, THEY INSISTED FOR CASH PAYMENT. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THA T PROVISIONS OF RULE 6 DD PRIOR TO AMENDMENT WOULD APPLY IN THE CASE OF TH E ASSESSEE. ON THE OTHER HAND, THE LEARNED DR RELIED UPON THE ORDERS O F THE AUTHORITIES BELOW. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MA TERIAL ON RECORD. THE LEARNED CIT(A) SPECIFICALLY NOTED THAT THERE WA S NOTHING ON RECORD TO SHOW THAT THESE LORRY DRIVERS WERE DEALING WITH THE ASSESSEE COMPANY FOR THE FIRST TIME NOR ANY OTHER EXCEPTIONAL CIRCUMSTAN CES EXISTED WHICH NECESSITATED THAT THE PAYMENT SHOULD BE MADE IN CAS H. THOUGH THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO THE EX PLANATION FILED AT PAGE A- 11 OF THE APPEAL PAPERS AS REFERRED TO ABOVE, BUT N O EVIDENCE OR MATERIAL IS FILED IN SUPPORT OF THE CONTENTIONS SO RAISED TH EREIN. UNLESS THE FACTS ITA NO.4134/AHD/2007 FINE CAST (GUJ.) PVT. LTD. VS ACIT, ANAND 7 CONTAINED IN THE EXPLANATION OF THE ASSESSEE ARE SU PPORTED BY ANY MATERIAL ON RECORD, THE LEARNED CIT(A) WAS JUSTIFIE D IN CONFIRMING THE ADDITION. WE, THEREFORE, DO NOT FIND ANY JUSTIFICAT ION TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A). WE CONFIRM THE SAME AN D DISMISS THIS GROUND OF APPEAL OF THE ASSESSEE. 14. IN THE RESULT, THIS GROUND OF APPEAL OF THE ASS ESSEE IS DISMISSED. 15. NO OTHER POINT IS ARGUED OR PRESSED. 16. AS A RESULT, THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30-09-2010 SD/- SD/- (A. N. PAHUJA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 30-09-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITA T, AHMEDABAD