DCIT, New Delhi V. M/s. Indraprastha Gas Ltd., New Delhi

ITA 5324/DEL/2011

• Counselvise Citation: 532420114 RSA 2011
• Duration Of Justice: 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 31-01-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 29-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RIS GILL
• Assessee Lawyers: H P AGGARWAL
• Keywords: Reasonable cause

Judgement Text

ITA NO. 5324 & 5325/D/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI A.D. JAIN, JUDICIAL MEMBER ITA NO.5324/DEL/2011 ASSTT. YEAR: 2002-03 ITA NO.5325/DEL/2011 ASSTT. YEAR: 2003-04 DY.COMMISSIONER OF INCOME TAX, VS M/S INDRAPRAS THA GAS LTD., CIRCLE-11(1), NEW DELHI. PL OT NO.4, COMMUNITY CENTRE, R.K. PURAM, SECTOR-9, NEW DELHI-110022 (PAN NO. AAAC15076R) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI R.I.S. GILL, CIT(DR) RESPONDENT BY: SHRI H.P. AGGARWA L O R D E R PER G.D. AGRAWAL, VICE PRESIDENT ITA NO. 5324/D/2011 THE ONLY GROUND RAISED IN THIS APPEAL BY THE ASSES SEE READS AS UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.2,37,66,448/- MADE BY THE AO ON ACCOUNT OF RECONCILIATION DIFFERENCE IN THE CLOSING STOCK OF N ATURAL GAS. ITA NO. 5324 & 5325/D/2011 2 2. AT THE OUTSET, IT WAS POINTED OUT BY THE LD. COU NSEL THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE ITAT IN ASSESSEES OWN CASE FOR AY 2005-06. HE POINTED OUT THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF DISTRIBUTION OF NATURAL GAS AS FUEL. THAT FOR THE YEAR UNDER CONSIDERATION, IN THE ORIGI NAL ASSESSMENT ORDER, THE AO HAD MADE THE ADDITION OF RS. 2,37,66,448/- ON AC COUNT OF RECONCILIATION DIFFERENCE IN THE CLOSING STOCK OF GAS. ON APPEAL BEFORE THE ITAT, IT WAS EXPLAINED BY THE ASSESSEE THAT THE REASON FOR UNREC ONCILED DIFFERENCE IS ON ACCOUNT OF SHORTAGE/LOSS OF NATURAL GAS FOR WHICH THE ASSESSEE HAD EXPLAINED THE FOLLOWING REASONS:- A) NATURAL GAS IS PURCHASED IN VOLUME-METRIC UNIT, HOWEVER, 97% OF IGLS SALES IS CNG I.E. SOLD BY WEI GHT. THEREFORE, ANY DIFFERENCE IN THE CONVERSION FACTOR FROM VOLUME TO WEIGHT WOULD HAVE A DIRECT IMPACT ON THE RECONCILIATION DIFFERENCE. IGL RECEIVES NATURAL GAS FROM GAIL, WHICH IS EITHER EX- LPG PLANT, VIJAYPUR OR EX-LPG AND C2C3 RECOVERY PLA NT PATA, U.P. THE COMPOSITION OF NATURAL GAS IS CHANG ING CONTINUOUSLY THOUGH NOT SIGNIFICANTLY. THEREFORE, THE SPECIFIC GRAVITY OF THE GAS AND THE CONVERSION FACT OR IS ALSO CONTINUOUSLY CHANGING. HOWEVER, THE GAS ANALY SIS IS CARRIED OUT BY GAIL ONLY ON HOURLY BASIS AND AN AVERAGE VALUE IS TAKEN. IGL ALSO WORKS OUT THE CONVERSION FACTOR BASED ON THE AVERAGE DAILY VALUES AND FINALLY ON A MONTHLY BASIS. B) WHENEVER A NEW EQUIPMENT (COMPRESSOR OR DISPENSER) IS COMMISSIONED, SOME QUANTITY OF GAS IS CONSUMED DURING REPETITIVE START/STOP OPERATION AND ALSO ITA NO. 5324 & 5325/D/2011 3 IN VENTING DURING SUCH OPERATIONS. SIMILARLY, WHEN EVER A SEGMENT OF PIPELINE IS COMMISSIONED THAT PIPELINE S TORES A SIGNIFICANT QUANTITY OF THE GAS. IT IS NOT ALWAY S POSSIBLE TO ACCURATELY ESTIMATE THIS QUANTITY THAT IS CONSUM ED OR STORED. THIS, THEREFORE, CONTRIBUTES TO UNCERTAINT Y. C) ON ACCOUNT OF REASONS OF SAFETY, THERE ARE PRESS URE RELIEF VALVES WHICH ALLOW THE GAS TO GO OUT, MANY A TIMES; IT IS DIFFICULT TO ESTIMATE THIS QUANTITY. D) THE PRESSURE IN THE LINE KEEPS VARYING DEPENDING ON THE DRAWL RATE/INPUT FROM GAIL. THE VARIATION IN T HE LINE PRESSURE WOULD RESULT INTO INCREASE/DECREASE OF THE GAS IN THE PIPELINE. THIS CANNOT BE ESTIMATED ACCURATELY. E) THERE IS NO ALLOWABLE TOLERANCE IN THE ACCURACY OF THE METERS AND TO THE EXTENT OF THIS ALLOWABLE TOLERANC E, THERE CAN BE A SHORTAGE. 3. IT WAS EXPLAINED BY THE ASSESSEE THAT THE SHORTA GE IS APPROXIMATELY 4% ONLY AND MORE OR LESS SIMILAR SHORTAGE IS SHOWN IN THE PRECEDING AND SUBSEQUENT YEARS. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE ITAT SET ASIDE THE MATTER BACK TO THE FILE OF THE A O WITH THE FOLLOWING OBSERVATIONS:- WE ALSO FOUND THAT RECONCILIATION DIFFERENCE AS A PERCENTAGE OF PURCHASE VARIES BETWEEN 4.01% TO 4.47 % IN THE ASSESSMENT YEARS 2000-01 TO 2004-05, WHICH IS INFORMATION PLACED ON THE PUBLIC BALANCE SHEET OF T HE ASSESSEE. ACCORDINGLY, THE PERCENTAGE OF LOSS WHIC H WORKS OUT TO BE 4% OF THE PURCHASES DURING THE YEAR UNDER CONSIDERATION APPEARS TO BE REASONABLE, SUBJECT TO VERIFICATION. ITA NO. 5324 & 5325/D/2011 4 HOWEVER, AFTER THE SET ASIDE, THE AO AGAIN REPEATED THE SAME ADDITION. THAT IN AY 2005-06 ALSO, ORIGINALLY THE ITAT SET ASIDE T HE MATTER BACK TO THE FILE OF THE AO FOLLOWING ITS OWN ORDER FOR AY 2002-03. AGAIN, THE AO REPEATED THE SAME ADDITION AND THE MATTER AGAIN TRAVELED TO ITAT AND THE ITAT, VIDE ORDER DATED 23.8.2011 IN ITA NO. 3206/DEL/2011, DEL ETED THE ADDITION. HE STATED THAT THE FACTS OF THE YEAR UNDER CONSIDERATI ON ARE IDENTICAL TO THE FACTS FOR AY 2005-06. 4. LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE AO AND STATED THAT SINCE THERE WAS SUBSTANTIAL DIFFERENCE IN THE QUANTITY OF GAS, SHOWN IN THE CLOSING STOCK, AND THE ASSESSEE WAS UNABLE TO R ECONCILE THE DIFFERENCE, THE AO RIGHTLY MADE THE ADDITION. HE, THEREFORE, S UBMITTED THAT THE ORDER OF THE CIT(A) SHOULD BE REVERSED AND THAT OF THE AO SH OULD BE RESTORED. 5. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE FACTS O F THE YEAR UNDER CONSIDERATION ARE IDENTICAL TO THE FACTS IN AY 2005 -06. IN BOTH THE YEARS, ADDITION WAS MADE BY THE AO FOR RECONCILIATION DIFF ERENCE IN THE CLOSING STOCK OF GAS. AGAINST THE ORIGINAL ASSESSMENT ORDE R, THE MATTER TRAVELED UPTO THE ITAT. THE ITAT SET ASIDE THE MATTER BACK TO TH E FILE OF THE AO. THE AO REPEATED THE ADDITION MADE IN THE ORIGINAL ASSES SMENT. WHEN THE SECOND ROUND OF APPEAL REACHED ITAT IN AY 2005-06, THE ITA T CONSIDERED THE ITA NO. 5324 & 5325/D/2011 5 WHOLE ISSUE AND UPHELD THE ORDER OF THE CIT(A) WHER EIN HE HAS DELETED THE ADDITION. IN THIS YEAR ALSO, THE CIT(A), IN THE SE COND ROUND OF APPEAL, HAS DELETED THE ADDITION AND THE REVENUE IS IN APPEAL. THUS, THE FACTS OF THE YEAR UNDER CONSIDERATION ARE ABSOLUTELY IDENTICAL TO THE FACTS IN AY 2005-06 AND, THEREFORE, THE DECISION OF ITAT FOR AY 2005-06 WOUL D BE SQUARELY APPLICABLE. FOR THE SAKE OF READY REFERENCE, WE RE PRODUCE HEREIN BELOW THE ARGUMENTS OF PARTIES AND THE FINDING OF THE ITAT FO R AY 2005-06:- 2. BEFORE US, THE LD. DR REFERRED TO THE FINDING O F THE AO TO THE EFFECT THAT THE ASSESSEE HAS NOT FURNISHE D THE DETAILS OF QUANTITY OF GAS AVAILABLE IN THE PIPE LI NES AND VALUE THEREOF. THEREFORE, IT IS NOT FEASIBLE TO EST IMATE THE CLOSING STOCK IN SO FAR AS THE NATURAL GAS IN THE P IPE LINES IS CONCERNED. IN THE LIGHT OF THIS FACT HE DISALLOW ED THE RECONCILIATION DIFFERENCE IN COMPUTING THE TOTAL IN COME. HE HAS ALSO REFERRED TO THE ACCOUNTING STANDARDS-2, ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, ON VALUATION OF INVENTORY. IT IS MENTIONED THAT INV ENTORIES ARE ASSETS HELD FOR SALE IN THE ORDINARY COURSE OF BUSINESS; IN THE PROCESS OF PRODUCTION; OR IN THE F ORM OF MATERIALS AND SUPPLIES TO BE CONSUMED IN PRODUCTION PROCESS OR IN RENDERING OF SERVICES. ACCORDINGLY, T HE NATURAL GAS HELD IN PIPE LINES WOULD FORM PART OF T HE INVENTORY OF CLOSING STOCK, WHICH OUGHT TO HAVE BEE N TAKEN INTO ACCOUNT FOR THIS PURPOSE. ON THE BASIS O F THESE FINDINGS, IT IS ARGUED THAT SINCE THE ASSESSEE FAIL ED TO PROVIDE ANY INFORMATION IN THE MATTER, THE AO WAS JUSTIFIED IN DISALLOWING THE RECONCILIATION LOSS. T HE LD. CIT(APPEALS) MADE OBSERVATIONS ABOUT EXPERT OPINION , BUT THE SAME HAS NOT BEEN OBTAINED AND THE RELIEF H AS BEEN GIVEN ON THE BASIS OF OBSERVATION OF THE TRIBU NAL THAT THE LOSS OF 4% WAS REASONABLE AND THE LOSS IN THIS YEAR IS LOWER THAN THIS PERCENTAGE. HOWEVER, HE DID NOT CARRY THE MATTER FURTHER TO OBTAIN APPROPRIATE EXPE RT ITA NO. 5324 & 5325/D/2011 6 VIEW FROM THE OFFICIALS OF GAIL OR ONGC LTD. WITH A VIEW TO SETTLE THE ISSUE ONCE AND FOR ALL. THEREFOR E, SINCE THE ASSESSEE FAILED TO FURNISH THE DETAILS AS PER T HE ORDER OF THE TRIBUNAL, NAMELY, WHETHER THE PERCENTAGE OF LOSS AT ABOUT 3.46% OF PURCHASES HAD TO BE SUBJECTED TO VERIFICATION, AS REASONABLE LOSS. ACCORDINGLY, IT I S ARGUED THAT THE ADDITION MADE BY THE AO MAY BE RESTORED. 2.1 IN REPLY, THE LD. COUNSEL REFERRED TO THE FINDI NG OF THE TRIBUNAL IN ITS CASE FOR ASSESSMENT YEAR 2002-03. I N THIS ORDER, IT HAS BEEN MENTIONED THAT THE RECONCILIATIO N DIFFERENCE AS PERCENTAGE OF PURCHASES VARIES BETWEE N 4.01% TO 4.47% IN ASSESSMENT YEARS 2000-01 TO 2004- 05, WHICH IS AN INFORMATION BASED ON BALANCE-SHEET OF T HE ASSESSEE. THE PERCENTAGE OF LOSS WHICH WORKS OUT TO BE 4% OF THE PURCHASES DURING THE YEAR UNDER CONSIDERA TION APPEARS TO BE REASONABLE, SUBJECT TO VERIFICATION. THE INTENT OF THESE OBSERVATIONS WAS TO FIND OUT THE PERCENTAGE OF LOSS AND EVALUATE IT AGAINST ACCEPTAB LE LOSS OF 4%. THIS HAS NOT BEEN DONE. IN FACT, IN THIS YEA R THE LOSS IS ONLY 3.4%, WHICH IS LOWER THAN 4% AND, THER EFORE, THE AO SHOULD HAVE ACCEPTED THE LOSS. IN THESE CIRCUMSTANCES, THE LD. CIT(APPEALS) RIGHTLY DELETED THE ADDITION MADE BY THE AO NOTWITHSTANDING THE FACT TH AT EXPERT OPINION WAS NOT OBTAINED FROM GAIL OR ONGC ETC. 3. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. WE ARE OF THE VIEW THAT THE AO WAS BOUND TO FOLLOW THE DIRECTIONS OF THE TRIBUN AL FURNISHED FOR THIS YEAR IN DECISION DATED22.4.2009, IN WHICH IT IS MENTIONED THAT THE MATTER HAS ALREADY B EEN RESTORED TO THE FILE OF THE AO FOR ASSESSMENT YEARS 2002- 03 TO 2004-05. ACCORDINGLY, THE MATTER WAS ALSO RE STORED TO THE FILE OF THE AO FOR THIS YEAR. HOWEVER, IN TH E ORDER FOR ASSESSMENT YEAR 2002-03 DATED 25.07.2008, A CLE AR FINDING WAS GIVEN THAT LOSS OF ABOUT 4% OF PURCHASE S IS REASONABLE SUBJECT TO VERIFICATION. INSTEAD OF VERI FYING THE PERCENTAGE OF LOSS, THE AO REPRODUCED HIS EARLI ER ORDER. THE LOSS OF 3.4% IS BORNE OUT BY AUDITED ACC OUNTS, ITA NO. 5324 & 5325/D/2011 7 WHICH IS LOWER THAN THE AVERAGE LOSS OF ABOUT 4%. THEREFORE, THERE SEEMS TO BE NO REASONABLE CAUSE TO MAKE THE DISALLOWANCE OF RECONCILIATION LOSS BY STA TING THAT THE DETAILS OF STOCK LYING IN PIPE LINES WERE NOT FURNISHED IN QUALITATIVE OR QUANTITATIVE TERMS. WHA T HAD TO BE VERIFIED WAS WHETHER THE LOSS WAS IN THE VICI NITY OF 4%, WHICH HAS BEEN HELD TO BE REASONABLE BY THE TRIBUNAL. IN THESE CIRCUMSTANCES, WE DO NOT FIND AN Y ERROR IN THE ORDER OF THE LD. CIT(APPEALS) WHICH RE QUIRES CORRECTION FROM US. 6. SINCE THE FACTS OF THE YEAR UNDER CONSIDERATION ARE IDENTICAL AND THE SHORTAGE IN THE YEAR UNDER CONSIDERATION IS 4%, THE ABOVE DECISION OF THE ITAT WOULD BE SQUARELY APPLICABLE. RESPECTFULLY FO LLOWING THE SAME, WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE APPE AL FILED BY THE REVENUE. ITA NO. 5325/DEL/2011 7. IN THIS APPEAL BY THE REVENUE, FOLLOWING GROUND IS RAISED:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.3,09,79,347/- MADE ON ACCOUNT OF RECONCILIATION DIFFERENCE IN THE CLOSING STOCK. 8. BOTH THE PARTIES HAVE AGREED THAT THE FACTS OF T HE YEAR UNDER CONSIDERATION ARE IDENTICAL TO THE ASSESSMENT YEAR 2002-03. AS PER OUR DETAILED DISCUSSION IN PARA 2 TO PARA 6 IN THIS ORD ER, WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE APPEAL FILED BY THE REVE NUE. 9. IN THE RESULT, BOTH THE APPEALS FILED BY THE REV ENUE ARE DISMISSED. ITA NO. 5324 & 5325/D/2011 8 ORDER PRONOUNCED IN THE OPEN COURT DURING THE COUR SE OF HEARING ON 31.1.2012. SD/- SD/- ( A.D. JAIN ) ( G.D. AGRAWAL ) JUDICIAL MEMBER VICE PRESIDENT DT. 31ST JANUARY 2012 GS COPY FORWARDED TO:- 1. DCIT, CIRCLE 11(1) NEW DELHI. 2. INDRAPRASTHA GAS LIMITED, NEW DELHI 3. CIT(A) 4. CIT 5. DR BY ORDER ASSTT. REGISTRAR