The ACIT, 1(2), V. M/s BCPL Conductors Pvt. Ltd.,

ITA 792/IND/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2563 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 22-12-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 31-12-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K SINGH
• Assessee Lawyers: VINEET MATTHA

Judgement Text

PAGE 1 OF 8 I.T.A.NO. 792/IND/2007 BCPL CONDUCTORS PVT.LTD., MANDIDEEP IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI V.K. GUPTA, ACCOUNTANT MEMBER PAN NO. : AABCB4758Q I.T.A.NO.792/IND/2007 A.Y. : 2004-05 ACIT, B.C.P.L. CONDUCTORS PRIVATE LIMITED, 1(2), VS 46-48A, SECTOR-B INDUSTRIAL AREA, BHOPAL MANDIDEEP APPELLANT RESPONDENT APPELLANT BY : SHRI K.K.SINGH, CIT DR RESPONDENT BY : SHRI VINEET MATTHA, FCA DATE OF HEARING : 22/12/2009 O R D E R PER V.K. GUPTA, A.M. THIS APPEAL FILED BY THE REVENUE ARISES OUT OF ORDE R OF THE LD. CIT(A)-I DATED 27.09.2007, FOR THE ASSESSMENT YEAR 2004-05. 2. WE HAVE HEARD BOTH THE PARTIES AND HAVE ALSO PERUSE D THE MATERIAL AVAILABLE ON RECORD. 3. GROUND NO. 1 READS AS UNDER :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 42,83 ,559/- PAGE 2 OF 8 I.T.A.NO. 792/IND/2007 BCPL CONDUCTORS PVT.LTD., MANDIDEEP MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNACCOU NTED SALE OF SCRAP. 4. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS ENGAG ED IN THE ACTIVITIES OF DOING JOB WORK FOR VARIOUS COMPANY, W HEREIN IT PROCESSES THE COPPER RODS AND WIRES AND INSULATES SUCH RODS AND W IRES WITH THE HELP OF INSULATED PAPER. THE COPPER RODS AND WIRE RODS ARE GENERALLY SUPPLIED BY THE CUSTOMERS OF THE ASSESSEE COMPANY. THE A.O. EXA MINED THE QUANTITATIVE DETAILS OF INSULATED PAPERS USED, QUAN TITY OF COPPER RECEIPT, TOTAL COPPER RECEIVED AND BY APPLYING A RATIO OF 2 % FOR THE SCRAP GENERATION, HE WORKED OUT THE QUANTUM OF TOTAL SCRA P AND, ON THIS BASIS, HE HELD THAT THE ASSESSEE MADE UNACCOUNTED SALE OF SCRAP TO THE TUNE OF RS. 42,83,559/-. AGGRIEVED BY THIS, THE ASSESSEE CA RRIED THE MATTER INTO APPEAL BEFORE THE LD. CIT(A), WHEREIN THE ASSESSEE MADE DETAILED SUBMISSIONS TO SHOW THAT PROCESS LOSS COULD NOT BE STANDARDIZED AS SUCH LOSSES WERE DEPENDENT ON VARIOUS FACTORS LIKE QUALI TY OF COPPER, INSULATED PAPER, POWER SUPPLY, HANDLING OF RAW MATERIALS AND REJECTION DUE TO PROCESS FAULTS ETC. IT WAS ALSO SUBMITTED THAT RANG E OF SUCH LOSSES WAS 2 TO 5 % OF TOTAL INPUTS. THE ASSESSEE ALSO GAVE VARIOUS EXAMPLES TO SHOW THAT WORKING DONE BY THE ASSESSING OFFICER WAS NOT CORRE CT. THE ASSESSEE ALSO SUBMITTED THAT IF THE SCRAP WAS MORE THAN 2 %, THEN , WHY THE CUSTOMERS OF THE ASSESSEE COMPANY WOULD GIVE REDUCTION ONLY TO THE EXTENT OF 2% PAGE 3 OF 8 I.T.A.NO. 792/IND/2007 BCPL CONDUCTORS PVT.LTD., MANDIDEEP ONLY. THE ASSESSEE ALSO SUBMITTED THAT ASSESSEES R ECORDS WERE SUBJECT TO SUPERVISION BY EXCISE DEPARTMENT. HENCE, THE OBSERV ATIONS OF THE A.O. THAT SCRAP WAS NOT LIABLE TO SUPERVISION, WERE NOT CORRECT. IN THIS REGARD, HE ALSO SUBMITTED A COPY OF THE INVOICE IN RESPECT OF SALE OF COPPER SCRAP, WHICH WAS DULY STAMPED BY THE EXCISE DEPARTMENT. T HE ASSESSEE ALSO RELIED ON VARIOUS JUDICIAL DECISIONS TO CONTEND THA T THE ADDITION MADE WITHOUT ANY BASIS/ MATERIAL WAS LIABLE TO BE DELETE D. THE LD. CIT(A) AGREEING WITH THIS CONTENTION OF THE ASSESSEE DELET ED THE IMPUGNED ADDITION. THE RELEVANT FINDINGS OF THE LD. CIT(A) A RE AS UNDER :- I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LEARNED COUNSEL IN THIS REGARD. I HAVE ALSO PERUSED THE OBSERVATIONS AND FINDINGS OF THE ASSESSING OFFICER MENTIONED IN THE ASSESSMENT ORDER. AFTER DUE CONSIDERATION OF THE MATTER, I HOL D THAT ON THE FACTS OF THE APPELLANTS CASE, THE A.O. WAS NOT JUSTIFIED IN MAKING ADDITION OF RS. 42,83.559/-ON ACCOUNT OF UNACCOUNTED SALE OF SCRAP. I FIND THAT THE A.O. DID NOT PROPERLY UNDERSTAND THE BUSINESS PROCESS OF THE APPELLANT AND DREW INCORRECT CONCLUSIONS. THOUGH THE A.O. HAS MENTIONED EXISTENCE OF PROCESS LOSS BUT INTERPRETED IT AS A PROCESS GAIN TO THE APPELLANT. THE A.O. ALSO FAILED TO ACKNOWLEDGE THAT THE PAGE 4 OF 8 I.T.A.NO. 792/IND/2007 BCPL CONDUCTORS PVT.LTD., MANDIDEEP CONSUMPTION OF INSULATING PAPER WOULD ALSO INCLUDE PROCESS LOSSES. THE A.O MADE THE ADDITION ON UNACCOUNTED SCRAP SALE BY ADOPTING A SIMPLISTIC FLAT 2 % RATE OF PROCESS LOSSES THEREBY ARRIVING AT ERRONEOUS CONCLUSION THAT THE WEIGHT OF THE INSULATION IS ALSO AT LEAST 2 % OF THE GROSS WEIGHT OF COPPER PROCESSED. THE A.O. DID NOT BASE HIS DERIVATION AS PER THE EXCISE RECORDS MAINTAINED BY THE APPELLANT. I FIND FORCE IN THE WRITTEN SUBMISSIONS OF THE LD. A.R. EXPLAINING THE BUSINESS PROCESS THAT THE APPELLANT IS REQUIRED TO PROVIDE FINISHED GOODS TO ITS CUSTOMERS ON A WEIGHT TO WEIGHT BASIS AS PER THE CONTRACT WITH ITS CUSTOMERS . I FIND FROM THE FACTS OF THE APPELLANTS CASE THAT EXCISE RECORDS ARE REQUIRED TO BE MAINTAINED OF COPPER RECEIVED FROM CUSTOMERS, DISPATCHES MADE AS WELL AS FOR SALE OF COPPER SCRAP. THE SALE OF COPPER SCRAP DOES ATTRACT EXCISE DUTY. I ALSO FIND THAT THE ACCOUNTING POLICY OF NOT ACCOUNTING FOR COPPER SCRAP STOCK AT THE YEAR END BUT RECOGNIZING INCOME AT THE TIME OF SALE IS BEING FOLLOWED BY THE APPELLANT FOR LAST SEVERAL ASSESSMENT YEARS AND I DO NOT FIND ANY REASON TO DISTURB THE SAME. THE DECISIONS IN THE CASE OF AVON CYCLES PVT.LTD. VS. IAC REPORTED IN 47 ITD 23, BY THE HON'BLE PAGE 5 OF 8 I.T.A.NO. 792/IND/2007 BCPL CONDUCTORS PVT.LTD., MANDIDEEP CHANDIGARH BENCH AND IN THE CASE OF CIT VS. HAZARIBAGH COAL SYNDICATE PVT. REPORTED IN 177 ITR 135 BY THE HON'BLE CALCUTTA HIGH COURT ARE FAVOURABLY APPLICABLE TO THE FACTS IN THE APPELLANTS CASE. I FIND THAT THE BASIS OF COMPUTING THE DIFFERENTIAL QUANTITY OF SCRAP OF 36.388 M. T. AND DECLARING IT AS UNACCOUNTED SALE OF SCRAP BY THE A.O. WITHOUT TAKING COGNIZANCE OF THE MANDATORY EXCISE RECORDS MAINTAINED BY THE APPELLANT IS INCORRECT. THE ASSUMED VALUE OF SCRAP AMOUNTING TO RS. 42,83,559/- COMPUTED BY THE ASSESSING OFFICER IS CONTRARY TO THE FACTS OF THE CASE AND ADDITION MADE CANNOT BE SUSTAINED AND, ACCORDINGLY, IS DELETED IN FULL. THE GROUNDS NO. 1 AND 2 ARE DECIDED IN FAVOUR OF THE APPELLANT, AND THE APPELLANTS GROUNDS ARE ACCORDINGLY ALLOWED. 5. AGGRIEVED BY THIS, THE REVENUE IS IN APPEAL BEFO RE US. 6. THE LD. DEPARTMENTAL REPRESENTATIVE NARRATED THE FA CTS AND PLACED STRONG RELIANCE ON THE ORDER OF THE A.O. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, REITERATED THE SUB MISSIONS MADE BEFORE PAGE 6 OF 8 I.T.A.NO. 792/IND/2007 BCPL CONDUCTORS PVT.LTD., MANDIDEEP THE REVENUE AUTHORITIES AND ALSO PLACED STRONG RELI ANCE ON THE ORDER OF THE LD. CIT(A). 7. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 8. IT IS NOTED THAT THE A.O. HAS ERRONEOUSLY ANALYZED THE BUSINESS PROCESS OF THE ASSESSEE. IT IS FURTHER NOTED THAT T HE ASSESSEES OPERATIONS ARE GOVERNED BY THE AGREEMENT WITH ITS CUSTOMERS A ND ASSESSEES RECORDS ARE SUBJECT TO SUPERVISION OF THE EXCISE AUTHORITIE S. IT IS ALSO NOTED THAT THE ASSESSEE IS FOLLOWING AN ACCOUNTING POLICY OF R ECORDING INCOME FROM SCRAP SALE AT THE POINT OF SALE AND NOT TAKING COGN IZANCE OF COPPER SCRAP AT THE END OF THE YEAR AND THIS HAS BEEN ACCEPTED BY T HE DEPARTMENT. THUS, IN OUR OPINION, THE A.OS ACTION IS BASED ON INCORR ECT METHODOLOGY AND, THEREFORE, THE ADDITION SO MADE BY HIM HAS RIGHTLY BEEN DELETED BY THE CIT(A). THUS, THIS GROUND OF THE REVENUE IS DISMISS ED. 9. GROUND NO.2 READS AS UNDER :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1, 25,466/- DISALLOWED BY THE ASSESSING OFFICER ON ACCOUNT OF T RAVELLING, VEHICLE RUNNING AND MAINTENANCE EXPENSES, REPAIRS A ND MAINTENANCE OF PLANT AND MACHINERY, BUILDING ETC. EXPENSES. PAGE 7 OF 8 I.T.A.NO. 792/IND/2007 BCPL CONDUCTORS PVT.LTD., MANDIDEEP 10. THE FACTS, IN BRIEF, ARE THAT THE A.O. DISALLOWED 1 0% OF THE EXPENSES INCURRED ON TRAVELING, VEHICLE REPAIRS AND MAINTENANCE AND REPAIR AND MAINTENANCE FOR THE REASON THAT SUCH EXP ENSES INCURRED UNDER THESE HEADS WERE NOT COMPLETELY VERIFIABLE. AGGRIEV ED BY THIS, THE ASSESSEE CARRIED THE MATTER INTO APPEAL BEFORE THE LD. CIT(A), WHEREIN IT WAS SUBMITTED THAT THE A.O. HAD NOT POINTED OUT ANY SINGLE VOUCHERS/BILLS, WHICH WERE NOT VERIFIABLE. THE ASSESSEE ALSO CONTEN DED THAT THERE WAS EITHER NO INCREASE OR NOMINAL INCREASE IN THESE EXP ENSES FOR THE YEAR UNDER CONSIDERATION AS COMPARED TO EARLIER YEARS AN D OVER ALL NET PROFIT RATE, IN THIS YEAR, WAS ALSO HIGHER AS COMPARED TO THE NET PROFIT RATE OF EARLIER YEARS. THE LD. CIT(A) DELETED THE DISALLOWA NCE FOR THE REASON THAT A.OS ACTION WAS ARBITRARY AND WAS ALSO INCORRECT, IF THE INCREASE IN THE REVENUE WAS ALSO TAKEN INTO CONSIDERATION. AGGRIEVE D BY THIS, THE REVENUE IS IN APPEAL BEFORE US. 11. THE LD. DR NARRATED THE FACTS AND PLACED RELIANCE O N THE ORDER OF THE AO. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, PLACED STRONG RELIANCE ON THE ORDER OF THE LD. CIT(A). 12. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 13. IT IS NOTED THAT NET PROFIT SHOWN BY THE ASSESSEE, IN THE YEAR UNDER CONSIDERATION, IS HIGHER THAN THE NET PROFIT RATE OF EARLIER YEAR. PAGE 8 OF 8 I.T.A.NO. 792/IND/2007 BCPL CONDUCTORS PVT.LTD., MANDIDEEP THERE IS AN INCREASE IN THE TURNOVER ALSO AND THERE IS NOT SO MUCH INCREASE IN THE EXPENSES. WE FURTHER FIND THAT NO SPECIFIC D EFECTS HAVE BEEN POINTED OUT BY THE ASSESSING OFFICER. HENCE, WE HOL D THAT SUCH AD HOC DISALLOWANCE MADE BY THE ASSESSING OFFICER HAS RIGH TLY BEEN DELETED BY THE CIT(A).K THUS, THIS GROUND OF THE REVENUE IS AL SO DISMISSED. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 29 TH DECEMBER, 2009. SD/- SD/- (JOGINDER SINGH) (V. K. GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 29 TH DECEMBER, 2009. CPU* 222312