Sunvik Steels Pvt. Ltd., V. DCIT,

ITA 725/BANG/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89970 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 04-06-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 20-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 145

Judgement Text

ITA.725/BANG/2013 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'A', BANGALORE BEFORE ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI. VIJAYPAL RAO, JUDICIAL MEMBER I.T.A NO.725/BANG/2013 (ASSESSMENT YEAR : 2006-07) SUNVIK STEELS P. LTD., G-1/11, PLATINUM CITY, HMT MAIN ROAD, YESHWANTPURA, BANGALORE 560 022 .. APPELLANT PAN : AAHCS6266N V. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE -12(3), BANGALORE .. RESPONDENT ASSESSEE BY : SMT. SHEETAL, ADVOCATE REVENUE BY : SHRI. P. DHIVAHAR, JCIT HEARD ON : 04.06.2015 PRONOUNCED ON : 22.06.2015 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY ASSESSEE, IT IS AGGRIEVED T HAT THE BOOKS OF ACCOUNT WERE REJECTED BY THE AO AND AN ADDITION MADE FOR SU PPRESSION OF TURNOVER WAS CONFIRMED BY THE CIT (A), ALBEIT WITH SOME REDUCTIO N, VIDE ORDER DT.25.03.2013, FOR THE ASSESSMENT YEAR 2006-07. 02. FACTS APROPOS ARE THAT ASSESSEE, A MANUFACTURE R OF SPONGE IRON HAD FILED ITS RETURN OF INCOME DECLARING NIL INCOME. ASSESSE E HAD SALES TURNOVER OF RS.24,35,82,639/- AGAINST WHICH NET PROFIT AS PER P ROFIT AND LOSS ACCOUNT CAME TO ITA.725/BANG/2013 PAGE - 2 RS.11,23,887/-. AO MADE AN ANALYSIS OF THE TURNOVE R AND PROFITS FOR SUBSEQUENT ASSESSMENT YEARS NAMELY 2007-08 AND 2008-09 AND WAS OF THE OPINION THAT FOR THE IMPUGNED ASSESSMENT YEAR THE PROFIT RATE WAS AB YSMALLY LOW. ACCORDING TO HIM, FOR A. Y. 2007-08, AGAINST TURNOVER OF RS.59,8 0,01,471/-, ASSESSEE HAD NET PROFIT OF RS.3,78,34,910/- AND FOR A. Y. 2008-09 AG AINST TURNOVER OF RS.109,46,99,293/-, ASSESSEE HAD NET PROFIT OF RS.8 ,17,33,948/-, WHICH TRANSLATED TO MARGINS OF 6.32% AND 7.47% RESPECTIV ELY. AS AGAINST THIS, ITS PROFIT MARGINS FOR THE IMPUGNED ASSESSMENT YEAR WAS ONLY 0.46%. 03. IN VIEW OF THE ABOVE DIFFERENCE IN PROFIT RATES , AO MADE A VERIFICATION OF THE BOOKS OF ACCOUNT. ACCORDING TO HIM, ASSESSEE H AD CONSUMED 32,008.50 MT OF IRON ORE AND HAD USED 34,897.800 MT OF COAL TO P RODUCE 29082 MT OF SPONGE IRON DURING THE RELEVANT PREVIOUS YEAR. ACCO RDING TO HIM, CONSUMPTION OF COAL WAS MORE THAN IRON ORE WHICH WAS VERY UNLIK ELY BECAUSE INDUSTRIAL NORMS STATED THAT FOR ONE MT OF SPONGE IRON ONLY 1 TO 1.1 MT OF COAL AND 1.3 TO 1.4 MT OF IRON ORE WERE REQUIRED TO BE USED. FURTH ER AS PER THE AO, ASSESSEE WAS HAVING INSTALLED CAPACITY OF 60,000 MT AGAINST WHICH PRODUCTION WAS ONLY 29,082 MT. WHEN THIS WAS BROUGHT TO ITS NOTICE, AS SESSEES REPLY WAS THAT IT HAD DURING THE RELEVANT PREVIOUS YEAR INSTALLED A N EW KILN WICH STARTED FUNCTIONING ONLY IN JANUARY, 2006. THUS AS PER THE ASSESSEE, ONLY HALF OF THE COAL CAPACITY OF 60000 MTS WERE AVAILABLE DURING T HE RELEVANT PREVIOUS YEAR. WITH REGARD TO EXCESS CONSUMPTION OF COAL AND IRON ORE, REPLY OF THE ASSESSEE WAS THAT IT WAS DUE TO THE TRIAL RUN AND EXPERIMENT ATION DONE IN THE NEW KILN. ITA.725/BANG/2013 PAGE - 3 04. ON RECEIVING THE ABOVE REPLY, AO MADE A STUDY O F THE PURCHASE OF COAL DURING THE VARIOUS MONTHS OF THE RELEVANT PREVIOUS YEAR. HE FOUND THAT ASSESSEE HAD PURCHASED 16,544 MT AND 10,016 MT OF COAL IN TH E MONTHS OF OCTOBER AND NOVEMBER, 2005 RESPECTIVELY, WHEREAS THE PURCHASE OF IRON ORE WAS ONLY 2559 MT AND 2045 MT DURING THESE MONTHS. AO ALSO NOTED THAT US PATENT 5637133 ON IRON ORE PROCESSING WENT TO SHOW THAT ASSESSEE W AS EXAGGERATING THE FIGURES OF CONSUMPTION. AO ALSO NOTED THAT MAJOR PART OF T HE PRODUCTION OF 21562 MTS OF SPONGE IRON CAME DURING THE MONTH OF APRIL T O DECEMBER 2005, WHEREAS ITS PRODUCTION DURING JANUARY TO MARCH, 200 6 WAS ONLY 7520 MT. AO ALSO MADE AN ANALYSIS OF THE RATIO OF CONSUMPTION O F IRON ORE/ COAL / DIESEL / POWER AND FOUND THAT DURING THE MONTHS OF OCTOBER T O DECEMBER 2005, PRODUCTION IN MT OF IRON ORE DID NOT SHOW A RATIONA L RATIO, VIS-A-VIS, THE CONSUMPTION OF COAL AND POWER. 05. AO WAS ALSO IN POSSESSION OF CERTAIN INFORMATIO N FROM THE JOINT DIRECTOR, DIRECTORATE GENERAL OF CENTRAL EXCISE INTELLIGENCE (DGCEI) IN WHICH IT WAS STATED AS UNDER: THE ASSESSEE MANUFACTURES SPONGE IRON ETC., SEARCH ES WERE CONDUCTED AT THE OFFICE, FACTORY AND RESIDENTIAL PR EMISES OF THE INDIVIDUALS CONCERNED ON THE RECEIPT OF INFORMATION THAT THE ASSESSEE WAS INDULGING IN CLANDESTINE CLEARANCE OF GOODS. ON THE BASIS OF SEIZED RECORDS IT WAS ESTABLISHED THAT THE ASSESSEE WAS SUPPRESSING ACTUAL PRODUCTION DETAILS. WHEN CONFRO NTED WITH EVIDENCE THE ASSESSEE PAID AN AMOUNT OF RS.25 LAKHS AGAINST DUTY. FURTHER INVESTIGATIONS ARE IN PROGRESS. ITA.725/BANG/2013 PAGE - 4 THOUGH THE AO PURSUED WITH THE MATTER WHICH DGCEI, HE COULD NOT GET ANY FURTHER MATERIALS FROM THE SAID AUTHORITY. ACCORDI NG TO THE AO, DURING THE MONTHS OF APRIL, JULY, AUGUST AND OCTOBER 2005 AND FEBRUARY 2006, THERE WAS NO CONSUMPTION OF IRON ORE, BUT THERE WAS PRODUCTIO N OF IRON ORE AS PER THE STOCK REGISTER PRODUCED. THERE WAS NO CORRESPONDING REDU CTION IN FUEL AND POWER. FURTHER AS PER THE AO, ASSESSEE WAS MAINTAINING IRO N ORE STOCK IN THE VICINITY OF 37,000 MTS ALL THROUGH THE ENTIRE YEAR, WHEN THE TO TAL CONSUMPTION OF IRON ORE FOR THE ENTIRE YEAR WAS ONLY 32,000 MT. IN OTHER W ORDS, ACCORDING TO HIM THERE WAS DISPROPORTIONATE MAINTENANCE IN STOCK. 06. BASED ON THE ABOVE GROUNDS, AO CAME TO A CONCLU SION THAT ASSESSEE HAD SHOWN MORE CONSUMPTION OF COAL AND IRON ORE BUT HAD SHOWN LESS PRODUCTION OF SPONGE IRON AND THE PARAMETERS ADOPTED BY THE ASSES SEE FOR WORKING OUT THE PRODUCTION WERE INCORRECT. ACCORDING TO HIM, THERE WAS SUPPRESSION OF SALES AND EXCESS PRODUCTION WHICH WERE NOT ACCOUNTED BY T HE ASSESSEE. SUCH SUPPRESSION WAS WORKED OUT AS UNDER : CONSUMPTION OF COAL .. 34897.800 MT CONSUMPTION OF IRON ORE .. 32008.500 MT IN THE RATIO OF 1.1 : 1 FOR PRODUCTION OF 1 MT OF SPONGE IRON, ACTUAL PRODUCTION OF SPONGE IRON .. 31,725 MT PRODUCTION SHOWN BY ASSESSEE .. 29,082 MT SUPPRESSED PRODUCTION .. 2643 MT AVERAGE SELLING PRICE OF SPONGE IRON PER TON ADOPTED BY ASSESSEE .. RS.8450/- SUPPRESSED SALE (2,643 MT X RS.8,450) .. RS.2,2 3,33,350/- ITA.725/BANG/2013 PAGE - 5 HE MADE AN ADDITION OF RS.2,23,33,350/- WITHOUT ALL OWING ANY REDUCTION FOR EXPENDITURE. ACCORDING TO HIM, ALL EXPENDITURE FOR SUCH INCREASED PRODUCTION AND SUPPRESSED SALES WERE ALREADY CHARGED TO THE PR OFIT AND LOSS ACCOUNT. 07. AN ADDITION WAS ALSO MADE FOR SHORTAGE OF STOCK OF 205.6 MT WHICH AS PER THE AO WAS NOT PROPERLY EXPLAINED BY THE ASSESS EE. THOUGH THE ASSESSEE MENTIONED THAT THERE COULD BE + / - 5% VARIATION IN STOCK DUE TO TRANSIT LOSS, MOISTURE LOSS, WEIGHBRIDGE DIFFERENCES ETC., THIS WAS NOT ACCEPTED. HE WORKED OUT THE ADDITION FOR SUCH SHORTAGE AT THE RATE OF R S.3,141/- PER TONNE FOR 205.6 MT AT RS.6,45,790/-. 08. ASSESSMENT WAS COMPLETED BY MAKING THE ABOVE ME NTIONED ADDITIONS. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE THE CIT (A). 09. ARGUMENT OF THE ASSESSEE BEFORE THE CIT (A) WAS THAT THERE WAS NO DEFECT IN THE BOOKS OF ACCOUNT AND ADDITIONS WERE BASED ON ASSUMPTIONS AND SURMISES. ACCORDING TO ASSESSEE, RETURNS WERE FILED AFTER CON DUCTING TAX AUDIT PRESCRIBED U/S.44AB OF THE ACT AND THERE WAS NO DEFECT IN THE BOOKS OF ACCOUNT POINTED OUT EITHER BY THE TAX AUDITOR OR THE AO. ASSESSEE SUBM ITTED THAT REJECTION OF BOOKS OF ACCOUNT RELYING ON SECTION 145 OF THE ACT, WAS P URELY ON SURMISES. AS PER THE ASSESSEE, IT WAS IN THE SECOND YEAR OF ITS OPER ATION AND THEREFORE,ITS RESULTS COULD NOT BE COMPARED WITH ESTABLISHED CONCERNS WHI CH HAD REACHED OPTIMUM LEVEL OF OPERATIONS. ASSESSEE POINTED OUT THAT THE RE WAS LOSS BY WAY OF EXCESS CONSUMPTION OF COAL AND ELECTRICITY DURING THE TRIA L RUN OF SECOND KILN, ADDED IN JANUARY, 2006. THEREFORE, VARIATION IN THE MONTHLY CONSUMPTION OF ELECTRICITY ITA.725/BANG/2013 PAGE - 6 AND COAL STOOD EXPLAINED. SO FAR AS THE LETTER FRO M DGCEI WAS CONCERNED, SUBMISSION OF THE ASSESSEE WAS THAT SURVEY BY THE C ENTRAL EXCISE DEPARTMENT WAS CONDUCTED IN FINANCIAL YEAR 2007-08 AND THEREFO RE THE DISCREPANCY, IF ANY, POINTED OUT BY THE CENTRAL EXCISE AUTHORITIES PERTA INED TO THE SUBSEQUENT YEAR AND NOT THE RELEVANT PREVIOUS YEAR. EVEN OTHERWISE , THERE WAS NO DETERMINATION OF THE MAGNITUDE ESTIMATED BY AO, BY ANY OF THESE A UTHORITIES. ASSESSEE ALSO POINTED OUT THAT EVEN REPUTED COMPANIES LIKE SPONGE IRON INDIA LTD, AND JINDAL STEEL LTD, HAD COAL CONSUMPTION OF 1.32 TO 1.587 M T FOR PRODUCTION OF 1 MT OF SPONGE IRON. ASSESSEE ALSO PRODUCED BILL FOR PROCU REMENT OF MACHINERY FROM DURGA METAL PROFILES, USED FOR WASHING IRON ORE, S INCE ONLY CLEANED IRON ORE WERE USED DURING EXPERIMENTAL PRODUCTION SO AS TO A VOID CONTAMINATION OF THE NEW KILN. FOR INCREASED POWER CONSUMPTION DURING T HE PERIOD FROM OCTOBER TO DECEMBER 2005, SUBMISSION OF THE ASSESSEE WAS THAT TRIAL RUN FOR THE SECOND KILN WAS GOING ON. IN SO FAR AS EXCESS STOCK OF IRON OR E BEING MAINTAINED, SUBMISSION OF THE ASSESSEE WAS THAT PROCUREMENT OF IRON ORE HAD TO BE DONE WHEN IT WAS AVAILABLE AND ACCORDING TO THE MARKET S ITUATION AND IT WAS ALWAYS THE ENDEAVOUR OF THE ASSESSEE TO HAVE ADEQUATE CUSH IONING SO AS TO ENSURE UNINTERRUPTED PRODUCTION. 09. HOWEVER, CIT (A) WAS NOT IMPRESSED BY THE ABOVE ARGUMENTS. ACCORDING TO HIM, ASSESSEE HAD FAILED TO GIVE A SE PARATE BREAK-UP OF EXPENDITURE ON COAL AND ELECTRICITY CONSUMPTION FOR TESTING AND STABILISATION OF THE NEW KILN. AS PER THE CIT (A), ASSESSEE HAD MOR E PRODUCTION FROM ONE KILN ITA.725/BANG/2013 PAGE - 7 THAN WITH TWO KILNS. ASSESSEE COULD NOT EXPLAIN TH E DISCREPANCIES POINTED OUT BY THE AO. AS PER THE CIT (A), EVEN IF EXTRA CONSU MPTION OF COAL AND ELECTRICITY WERE CONSIDERED TO BE TRUE, ASSESSEE OU GHT TO HAVE CAPITALISED SUCH EXPENDITURE SINCE THE NEW KILN WAS YET TO START PRO DUCTION. HE THEREFORE HELD THAT AO WAS JUSTIFIED IN INVOKING THE SECTION 145(3 ) OF THE ACT, AND REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE. HOWEVER, ACC ORDING TO THE CIT (A), INSTEAD OF MAKING AN ADDITION OF RS.2,23,33,350/- F OR SUPPRESSED TURNOVER, IT WOULD BE BETTER TO APPLY PROFIT RATE OF 6.90% ON TH E TOTAL TURNOVER FOR THE IMPUGNED ASSESSMENT YEAR FOR ASCERTAINING THE CORRE CT PROFIT. THE RATE OF 6.90% WAS ARRIVED AT BY THE CIT (A) BY AVERAGING THE NET PROFIT MARGIN FOR A. YS. 2007-08 AND 2008-09. THUS, HE BROUGHT DOWN THE ADD ITION TO RS.1,68,07,200/-. SINCE THE PROFIT WAS ESTIMATED ON TURNOVER, CIT (A) SEEMS DID NOT ADJUDICATE ON THE OTHER DISALLOWANCE. 10. NOW BEFORE US, LD. AR STRONGLY ASSAILING THE OR DER OF AO, SUBMITTED THAT THE SALES-TAX ASSESSMENT ORDERS, DT25.03.2010, FOR THE RELEVANT PREVIOUS YEAR, PLACED ON RECORD AT PAPER BOOK PAGES 82 TO 85, CLEA RLY MENTIONED THAT BOOKS OF ACCOUNT WERE MAINTAINED IN USUAL COURSE, WERE VERIF IED, AND NO DISCREPANCIES FOUND. ACCORDING TO THE LD. AR, BOOKS OF ACCOUNT H AD NO DEFECTS WHATSOEVER POINTED OUT IN THE TAX AUDIT REPORT ALSO. EVEN THE AO WAS NOT ABLE TO SHOW ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNT. VARIATION IN CONSUMPTION OF ELECTRICITY, OR CONSUMPTION OF RAW MATERIAL IN A FEW MONTHS ITSE LF WOULD NOT BE A REASON TO REJECT THE BOOKS OF ACCOUNT. AS PER THE LD. AR, AS SESSEE HAD PRODUCED ITA.725/BANG/2013 PAGE - 8 SUFFICIENT EVIDENCE TO SHOW THAT A NEW KILN WAS BEI NG OPERATIONALISED DURING THE PREVIOUS YEAR ENTAILING HIGH CONSUMPTION OF ELECTRI CITY AS WELL AS COAL. IN ANY CASE, AS PER THE LD. AR, THE CONSUMPTION STANDARDS TAKEN BY THE AO AS INDUSTRIALLY ACCEPTED NORMS, FOR PRODUCING ONE MT OF SPONGE IRON WERE NOT SCIENTIFIC. IN OTHER WORDS, ACCORDING TO HIM, THER E COULD NOT BE A STRAIGHT JACKET FORMULA FOR ATTEMPTING REVERSE WORKING OF PRODUCTIO N FROM CONSUMPTION. THE FIGURES TAKEN BY THE AO WERE ALL FROM THE RECORDS P RODUCED BY THE ASSESSEE AND THE VARIATIONS WERE PROPERLY EXPLAINED. IT WAS A P RESUMPTION TAKEN BY THE AO THAT TWO KILNS SHOULD HAVE GIVEN MORE PRODUCTION WH EN ONE KILN WAS BEING NEWLY OPERATIONALISED AND ENTIRE ERRORTS OF THE ASS ESSEE WERE FOCUSSED ON OPERATIONALISING THE SECOND KILN. IN ANY CASE, AS PER THE LD. AR, CONSUMPTION OF HIGHER COAL AND IRON ORE COULD NOT BE TRANSLATED TO EXCESS PRODUCTION AND EXCESS SALE. RELIANCE WAS PLACED ON THE DECISION O F THE DELHI BENCH OF THE ITAT IN ITO V. JAINTEX APPARELS (P) LTD [(2014) 49 TAXMANN.COM.169] AND RAJKOT BENCH IN M/S. RAGHUVIR COTTON GINNING & PRES SING PVT. LTD V. DCIT [ITA.571/RJT/2012, DT 07.03.2014]. RELIANCE WAS AL SO PLACED ON THE JUDGMENT OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT V. SUBHASH CHAND (273 ITR 216). 11. PER CONTRA, LD. DR SUBMITTED THAT THE AO HAD NO T SOLELY GONE BY THE LETTER OF THE EXCISE AUTHORITIES. THE RATIO OF UTI LISATION OF RAW MATERIAL TO PRODUCTION WAS ABNORMALLY HIGH WHICH INDICATED SUPP RESSED PRODUCTION. THE STOCK MAINTAINED WAS 30000 MT OF IRON ORE, ALL THRO UGH, WHEREAS THE ITA.725/BANG/2013 PAGE - 9 CONSUMPTION FOR THE WHOLE YEAR WAS ONLY ABOUT 32000 MTS. PRODUCTION DURING THE PERIOD APRIL TO DECEMBER 2005, WAS MUCH HIGHER TO THAT IN JANUARY TO MARCH 2006, WHEN TWO KILNS WERE WORKING. AS PER L D. DR, CIT (A) HAD GIVEN CONSIDERABLE RELIEF TO THE ASSESSEE BY APPLYING THE AVERAGE PROFIT RATE ON THE TURNOVER AND SUSTAINING THE ADDITION ONLY TO THIS E XTENT. ACCORDING TO HIM, THE ORDER OF CIT(A) WAS FAIR AND OUGHT NOT TO BE DISTUR BED. 12. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. WHAT WE NOTE IS THAT AO ALL THROUGH THE ASSESSMENT ORDER HA S NOT BROUGHT OUT ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNT PRODUCED BY THE ASSESSEE. NO DOUBT HE MENTIONED THAT ASSESSEE HAD CONSUMED 34897.80 MT OF COAL AND 32008.50 MT OF IRON ORE BUT HAD GIVEN PRODUCTION OF ONLY 29082 MT OF SPONGE IRON. IT IS NOT KNOWN FROM WHERE THE AO FOUND THE NORM THAT 1 TO 1 .1 MT OF COAL AND 1.3 TO 1.4 MT OF IRON ORE WAS THE STANDARD REQUIREMENT FO R PRODUCING 1 MT OF SPONGE IRON. ASSESSEE HAD STATED THAT CONSUMPTION OF THES E RAW MATERIAL WAS DEPENDENT ON THE MOISTURE AND DUST CONTENT, OPERAT IONAL ENVIRONMENT AND PLANT TECHNOLOGY USED. ASSESSEE HAD ALSO STATED THAT IT WAS OPERATIONALISING A SECOND KILN AND THIS FACT WAS NOT DISPUTED BY THE LOWER AU THORITIES. WHEN A NEW KILN IS BEING OPERATIONALISED FOR WHICH THE ASSESSEE HAD PR ODUCED INVOICES IN SUPPORT OF PROCUREMENT OF MACHINERY AND ALSO POINTED OUT TH E REQUIREMENT OF INJECTING WASHED IRON ORE FOR THE NEW KILN, AND POINTED OUT THESE TO BE THE REASON WHY THERE WERE EXCESS CONSUMPTION OF COAL AND ELECTRICI TY DURING THE MONTHS OF OCTOBER TO DECEMBER 2005, THESE SHOULD NOT HAVE BEE N BRUSHED ASIDE LIGHTLY BY ITA.725/BANG/2013 PAGE - 10 THE LOWER AUTHORITIES. THE MONTHWISE PRODUCTION AN D CONSUMPTION OF COAL, DIESEL AND POWER GIVEN AT PAGE 7 OF THE ASSESSMENT ORDER IS REPRODUCED HEREUNDER : MONTH PRODUCT- ION IN MT IRON ORE CONSUM PTION IN MT RATIO (%) COAL CONSUM PTION IN MT RATIO (%) POWER IN LACS RATIO (%) DIESEL IN LACS RATIO (%) APR05 2448 2696 110 2937 120 0 - 21.82 0.89 MAY05 4385 4827 110 5262 120 4.02 0.16 18.19 0.40 JUNE05 3253 3581 110 3903 119.90 8.49 0.19 3.55 0. 10 JULY05 1576 1732 109.80 1891 119.90 10.29 0.60 3.8 1 0.24 AUG05 2210 2432 110 2652 120 13.38 0.60 3.96 0.17 SEPT05 3125 3439 110 3750 120 14.40 0.46 4.24 0.13 OCT05 1040 1144 110 1248 120 13.27 1.20 4.24 0.40 NOV05 1540 1695 110 1848 120 14.40 0.90 4.24 0.27 DEC05 1985 2190 110 2382 120 13.87 0.60 8.48 0.40 JAN06 2760 3036 110 3312 120 10.41 0.30 8.48 0.30 FEB06 2170 2387 110 2604 120 13.01 0.50 8.48 0.39 MAR06 2590 2849 110 3108 120 16.04 0.6 - - TOTAL 29082 32008 34897 13. THE RATIO OF CONSUMPTION OF 0.90% AND 0.60% FO R THE MONTHS OF NOVEMBER AND DECEMBER 2005, CANNOT BE TERMED AS EXC ESSIVE WHEN COMPARED TO THE RATIOS FOR THE OTHER MONTHS, WHEN THE NEW KI LN WAS BEING OPERATIONALISED. THE CONSUMPTION OF OCTOBER 2005 ALONE WAS HIGHER, B UT THIS ALONE IN OUR OPINION, COULD NOT BE A GOOD ENOUGH REASON TO REJEC T THE BOOKS OF ACCOUNTS. ADMITTEDLY, THIS WAS THE PERIOD WHEN THE SECOND KIL N WAS BEING SET-UP. STATISTICAL DATA BY ITSELF CANNOT BE USED AS A REAS ON FOR REJECTING THE BOOKS OF ITA.725/BANG/2013 PAGE - 11 ACCOUNT UNLESS SUCH STATISTICAL DATA ARE STRIKING E NOUGH TO SHOW THAT THE BOOK RESULTS HAVE BEEN EXAGGERATED AND NO MAN WITH COMMO N PRUDENCE WILL ACCEPT SUCH BOOK RESULTS. ASSESSEE NO DOUBT HAD PURCHASED LARGE QUANTITY OF COAL DURING THE MONTHS OF OCTOBER AND NOVEMBER, 2005, BU T IN THE SAME TWO MONTHS, THE PURCHASE OF IRON ORE WAS MUCH LOWER. P URCHASE OF LARGE QUANTITY OF COAL AND MAINTENANCE OF IRON ORE STOCK CANNOT BE TE RMED AS DEFECT IN ACCOUNTS WHEN THE PURCHASES WERE DULY REFLECTED IN THE BOOKS AND THE STOCK REGISTER. AS TO THE LETTER RECEIVED BY THE AO FROM DGCEI IT IS N OT DISPUTED THAT THE SURVEY DONE BY THE CENTRAL EXCISE WERE AFTER THE RELEVANT PREVIOUS YEAR. ASSESSEE CANNOT BE SADDLED WITH ANY ADDITION FOR SUPPRESSED SALE BASED ON A SURVEY CONDUCTED IN A SUCCEEDING YEAR WHEN THE EXCESS STOC K FOUND AT THE TIME OF SURVEY IS NOT COLLATED WITH THE PRODUCTION DATA FOR THE PRECEDING YEAR. IN ANY CASE, THE SALES-TAX ASSESSMENT ORDER FOR THE RELEVA NT PREVIOUS YEAR PLACED AT PAPER BOOK PAGES 82 TO 85 SHOW THAT BOOKS OF ACCOUN T OF THE ASSESSEE WERE MAINTAINED IN THE USUAL COURSE OF BUSINESS, WERE VE RIFIED, AND NO DEFECTS WERE FOUND. RELEVANT PARAS OF THE ORDER DT.25.03.2010 I S REPRODUCED HEREUNDER : THE DEALER IS A MANUFACTURER OF SPONGE IRON, STEEL INGOTS & TMT BARS. FOR THE PROCESS OF MANUFACTURE, THE MAIN RAW MATERIALS ARE IRON ORE WHICH IS PURCHASED LOCALLY FROM LOCAL REGISTERE D DEALERS. THE OTHER RAW MATERIALS ARE COAL WHICH IS PURCHASED FRO M LOCAL REGISTERED DEALERS, INTERSTATE AND BY WAY OF HIGH SEA SALE. TH E LIME STONE WHICH IS ONE OF THE OTHER RAW MATERIALS IS PURCHASED FROM INTERSTATE DEALERS. ALL THESE RAW MATERIALS ARE HEATED IN THE KILN AND AFTER SUITABLE PROCESSING SPONGE IRON IS OBTAINED AND THE SAME IS GOT CONVERTED TO INGOTS AND TMT BARS BY USING SUITABLE PROCESS. AS R EGARDS THE MANUFACTURE OF INGOTS THE DEALER HAS PURCHASED SCRA P WHICH GO INTO THE PROCESS OF MANUFACTURE AND THE SAME IS PURCHASE D FROM LOCAL REGISTERED DEALERS AND BY WAY OF IMPORT. THE DEALER HAS ALSO EFFECTED ITA.725/BANG/2013 PAGE - 12 PURCHASES OF PIG IRON FROM LOCAL REGISTERED DEALERS AND INTERSTATE DEALERS. HOWEVER THE SPONGE IRON USED IN THE MANUFA CTURE OF INGOTS IS MANUFACTURED BY THE DEALER. AS REGARDS THE MANUFACT URE OF TMT BARS, THE MS INGOTS MANUFACTURED BY THE DEALER ARE USED A PART FROM PURCHASES FROM LOCAL REGISTERED DEALERS. FOR THE PR OCESS OF MANUFACTURE OF TMT BARS, THE DEALER HAS ALSO EFFECT ED PURCHASES OF MS BILLETS FROM LOCAL REGISTERED DEALERS. THE DEALE R HAS ALSO EFFECTED PURCHASES OF CONSUMABLES LIKE SILICO MANGANESE, FER RO MANGANESE, MOULDS FROM LOCAL REGISTERED DEALERS AND INTERSTATE DEALERS, AND PURCHASE OF BP SETS (BRICKS) AND RUNNING MASS FROM LOCAL REGISTERED DEALERS. THE DEALER HAS ALSO EFFECTED PURCHASES OF CAPITAL GOODS LIKE MACHINERY AND THEIR SPARES. AS REGARDS ALL LOCAL RE GISTERED DEALER PURCHASES INPUT TAX DEDUCTION AT 4 AND 12.5% AS APP LICABLE TO THE COMMODITY IS CLAIMED. THE DEALER HAS ALSO EFFECTED PURCHASES OF GOODS NOT USED FOR MANUFACTURE OR TRADING. HOWEVER THESE GOODS ARE CLASSIFIED UNDER THE CATEGORY OF EXEMPT GOODS AND N O INPUT TAX DEDUCTION IS CLAIMED. FOR ALL THE PROCESS OF MANUFACTURE, THE DEALER HAS USED ELECTRICITY, COAL AND DIESEL. THE ELECTRICITY USED FOR HEATING THE FURNACE, COAL IS USED FOR RE-ROLLING PLANT AS FUEL & AS RAW MATERIAL FOR MANUFACTURE OF SPONGE IRON. THE DIESEL IS USED FOR D.G. SETS FOR GENERATION OF POWER. HOWEVER NO INPUT TAX DEDUCTION IS CLAIMED AS REGARDS PURCHASE OF DIESEL. THE DEALER HAS EFFECTED SALES OF SPONGE IRON, INGOT S AND TMT BARS. THE DEALER HAS EFFECTED LOCAL AND INTERSTATE SALES OF SPONGE IRON, LOCAL SALE OF INGOTS AND LOCAL INTERSTATE SALES OF TMT BARS. ON ALL THE LOCAL SALES OF DEALER, VAT IS CHARGED AND COLLECTED AT 4% ON SALE OF SPONGE IRON, MS INGOTS, TMT BARS ETC. THE DEALER HA S ALSO EFFECTED INTERSTATE SALES AND HAS CHARGED AND COLLECTED CST AT 4% AGAINST C FORMS. THE BOOKS OF ACCOUNTS OF THE DEALER ARE MAINTAINED IN THE USUAL COURSE OF BUSINESS AND IN A VERIFIABLE MANNER. NO D ISCREPANCIES ARE NOTICED EXCEPT FOR THE BELOW MENTIONED ANOMALY. 14. READING OF THE ABOVE ORDER ALSO GO TO SHOW THAT ASSESSEE WAS NOT A SIMPLE PRODUCER OF SPONGE IRON BUT THEY WERE DOING MANY OT HER ACTIVITIES AND THERE WAS NO DEFECTS OR LACUNA NOTED BY THE SALES-TAX AUTHORI TIES. HONBLE ALLAHABAD HIGH COURT IN CIT V. SUBHASH CHAND (SUPRA) HAS CLEARLY H ELD THAT THE RECORDS OF THE ITA.725/BANG/2013 PAGE - 13 ASSESSEE ONCE ACCEPTED BY THE SALES-TAX AUTHORITIES , COULD NOT BE GIVEN A GO-BY BY THE INCOME-TAX AUTHORITIES. REJECTION OF THE BO OKS OF ACCOUNT U/S.145(3) OF THE ACT HAS GOT VERY SERIOUS CONSEQUENCE ON AN ASSE SSEE AND CANNOT BE DONE IN A LIGHT HEARTED MANNER UNLESS SUCH DEFECTS ARE MANI FESTED IN THE BOOKS OF ACCOUNT AND CAN BE POINTED OUT WITH CERTAINTY. WE ARE OF THE OPINION THAT THERE WAS NO OCCASION OR INSTANCES OF THIS NATURE POINTED OUT BY THE AO IN THE ASSESSMENT ORDER, EXCEPT FOR GENERALISATIONS BASED ON HYPOTHETICAL STANDARDS, THE SOURCE OF WHICH WAS NEVER AUTHENTICATED. THE AD DITIONS, IN OUR OPINION, HAD NO LEGS TO STAND. SUCH ADDITIONS STAND DELETED. 15. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. SD/- SD/- 22/06/2015 (VIJAYPAL RAO) (ABRAH AM P GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER