ACIT Cir.-6, Pune V. Rajkumar Forge Ltd., Pune

ITA 974/PUN/2007

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7544 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2002-2003
• Appeal Filed On: 23-07-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARESHWAR SHARMA
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI I.C. SUDHIR AND SHRI D. KARUNAKARA RAO ITA NO. 974/PN/07 (ASSTT. YEAR 2002-03) ACIT, CIRCLE-6, PUNE .... APPELLANT VS. RAJKUMAR FORGE LTD. 18, SHIVAJI HOUSING SOCIETY, PUNE-53 PAN NO.AAACR450J . RESPONDENT APPELLANT BY : SHRI HARESHWAR SHARMA RESPONDENT BY : SHRI SUNIL PATHAK ORDER PER D. KARUNAKARA RAO AM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A)-II, PUNE DATED 08-03-2007 FOR THE A.Y 2002-03. IT IS INF ORMED THAT THERE ARE TWO ISSUES FOR ADJUDICATION BEFORE US 1) RELATING TO ADDI TION OF RS. 15,48,000/-ON ACCOUNT OF CLOSING STOCK TO THE TUNE OF 20 TONNES; AND 2) THE ISSUE OF RESTRICTING THE DISALLOWANCE MADE BY THE A.O ON ACCOUNT OF HEAT LOSS AND MACHINERY LOSS. THE ISSUE WISE ADJUDICATION IS GIVEN AS UNDER- 2. GROUND NO. 2 IS AS FOLLOWS:- 2) THE LEARNED CIT(APPEALS) GROSSLY ERRED IN DELET ING THE ADDITION OF RS. 15,48,000/- MADE IN THE ASSESSMENT ON ACCOUNT OF SUPPRESSION OF CLOSING STOCK BY ACCEPTIN G THE ASSESSEES PLEA OF TYPOGRAPHICAL ERROR AND WITHOUT APPRECIATING THAT IN THE AUDIT REPORT FURNISHED BY THE STATUTORY AUDITOR SALES HAD BEEN SHOWN AT 885 MET. TONNES AS AGAINST PRODUCTION OF 905 MET. TONES AND THE STA TUTORY AUDITOR DID NOT REVISE THE ABOVE SALES FIGURE. RELEVANT FACTS AND THE DECISION OF THE CIT(A) ON TH IS ISSUE IS NARRATED IN PARA 3.6(II) OF THE ORDER OF THE CIT(A) AND THE SAME READS AS UNDER:- ITA NO.974/PN/07 A.Y 2002-03 PAGE 2 OF 6 3.6(II) REGARDING ADDITION OF RS. 15,48,000/- ON ACCOUNT OF SUPPRESSION OF CLOSING STOCK OF 20 TONNES, THE PROD UCTION WAS SHOWN AT 905 TONNES WHILE THE SALES WERE SHOWN AT 885 TONNES . THE CLOSING STOCK WAS SHOWN AT ZERO. IT WAS STATED BY THE APPELLANT T HAT IT WAS A TYPOGRAPHICAL MISTAKE. THE DETAILS OF EXCISE RECORD S SHOWING SALE OF 904.465 TONNES WAS FILED IN THE APPELLATE PROCEEDIN GS. AS THE ASSESSING OFFICER HAD NOT CONFRONTED THE AP PELLANT BEFORE MAKING THE ADDITION THE DETAILED SUBMISSIONS MADE BY THE A PPELLANT ALONG WITH THE ADDITIONAL EVIDENCE WAS SENT TO THE ASSESSING OFFICER. THE ASSESSING OFFICER IN HIS REMAND REPORT STATED THAT THE ISSUE WAS DISCUSSED ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. THE CONTENTI ON OF THE APPELLANT THAT THERE WAS A TYPOGRAPHICAL MISTAKE IN THE AUDIT REPO RT AND THE DETAILS OF SALES MADE ALONG WITH THE AMOUNT WHICH SHOWS SALE O F RS. 904.465 TONNES MADE TO DIFFERENT PARTIES WAS NOT CONTROVERT ED BY THE ASSESSING OFFICER. ON THE BASIS OF THE EXCISE RECORD SHOWING THE QUANTITY MANUFACTURED, SALES MADE, DETAILS OF SALES TO DIFFE RENT PARTIES AND THE REMAND REPORT OF THE ASSESSING OFFICER, IT IS CLEAR THAT THE ENTRIES PRODUCTIZING HAD BEEN SOLD DURING THE YEAR AND, THE REFORE, THERE WAS NO CLOSING STOCK LEFT. THERE APPEARED TO BE A TYPOGRAP HICAL MISTAKE IN SHOWING THE SALE AT 885 TONNES INSTEAD OF 905 TONNE S. THE ADDITION OF RS. 15,48,000/- IS, THEREFORE, DELETED. 3. FROM THE ABOVE, IT IS EVIDENT THAT THE CIT(A) SAT ISFIED ABOUT THE TYPOGRAPHICAL NATURE OF THE MISTAKE AFTER COMPARING TH IS AUDIT REPORT WITH THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE AND AL SO THE EXISTING RECORDS CONTAINING QUANTITATIVE PARTICULARS IN THIS REGARD. CO NSIDERING THE FACTS OF THIS ISSUE WE ARE OF THE OPINION THAT ORDER OF THE CIT(A) D OES NOT CALL FOR ANY INTERFERENCE. THEREFORE ISSUE NO. 1 HAS TO BE DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ACCORDINGLY, GROUND NO. 2 O F THE APPEAL IS DISMISSED. 4. GROUND NO. 3 IS AS FOLLOWS:- 3) THE LEARNED CIT(APPEALS) GROSSLY ERRED IN RESTR ICTING THE DISALLOWANCE MADE IN THE ASSESSMENT ON ACCOUNT OF E XCESS HEAT LOSS (RS. 1,00,58,818/-) AND EXCESS MACHINING LOSS (RS. 32,41,821/-) TO AN OVERALL SUM OF RS. 10,58,47 1/- ONLY MERELY BY TAKING NOTE OF THE FACT THE ASSESSEE HAD AGREED TO DISALLOWANCE OF 5% OF BOTH THE LOSSES AND WITHOU T EXAMINING THE ADEQUACY OF THE DISALLOWANCE AT THE A BOVE AGREED PERCENTAGE. RELEVANT FACTS OF THIS ISSUE ARE DISCUSSED IN PARA 4 OF THE IMPUGNED ORDER. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE COULD NOT JUSTIFY THE HEAT LOSS AS WELL AS MACHINING LOSS WITH THE SUPPORTING EVIDEN CES. A.O PROCEED TO MAKE ADDITIONS ON ACCOUNT OF HEAT LOSS TO THE TUNE OF RS . 1,00,58,818/- RELEVANT PARA 4.1 OF THE A.O IS AS UNDER:- ITA NO.974/PN/07 A.Y 2002-03 PAGE 3 OF 6 4.1 HEAT LOSS THE HEATING LOSS HAS BEEN CLAIMED AT 207.763 (11.4% OF 1817.223), IT IS PROPOSED THAT ONLY 5% OF THE HEA TING LOSS IS ALLOWED, WHICH COMES OUT TO BE 90.8 TONS. IT MEANS THAT BY S HOWING HIGHER HEAT LOSS THE ASSESSEE HAS SUPPRESSED THE PRODUCTION BY 11 6.963 TONS (207.763-90.8). THE ADDITION OF RS. 1,00,58,818 (11 6.963 X 86,000) IS MADE ON THIS ACCOUNT. 5. FURTHER, A.O MADE AN ADDITION OF RS. 32,41,821/- O N ACCOUNT OF EXCESS MACHINING LOSS AND THE RELEVANT DETAILS ARE MENTIONED IN PARA 4.3 OF THE A.O WHICH READS AS FOLLOWS:- 4.3 MACHINING LOSS THE ASSESSEE-COMPANY HAS CLAIMED LOSS OF 21% MOUNTI NG TO 381.885 TONS AS MACHINING LOSS. AS DISCUSSED ABOVE, THE MACHINING PROCESS RESULTS INTO PRODUCTION OF STEEL DUST, THE MA RKET RATE OF WHICH WAS AROUND 7-10 PER/KG (7000 TO 10000 PER TON). THE ADDIT ION IS MADE TAKING AVERAGE PRICE OF STEEL DUST AND THE SCRAP AT RS. 8489 TONS. THE ADDITION OF RS. 32,41,821 (381.885 X 8480) 6. IN THE PROCESS, A.O REJECTED THE OFFER OF 5% MADE B Y THE LD. COUNSEL SHRI A.N. BAPAT ON ORDER SHEET DT. 12/01/2005. DURING THE A SSESSMENT PROCEEDINGS RELEVANT NOTINGS ARE REPRODUCED AS UNDER:- ATTENDED SHRI A.N. BAPAT, C.A., A/R OF THE ASSESSEE AND PRODUCED STOCK REGISTER FOR QUANTITY TALLY OF STOCK. IT IS SEEN TH AT BURNING LOSS HAS BEEN CLAIMED @ 12% AND CONCERSION LOSS @ MACHINE STAGE 2 2%. THE ASSESSEE HAS NOTHING TO SUBSTANTIATE THE SAME; ON DISCUSSION WITH A/R 5% LOSS IS DISALLOWED AND ADDED TO THE TOTAL INCOME TO WHICH H E HAS AGREED. 7. DURING THE FIRST APPELLATE PROCEEDINGS ASSESSEE FIL ED VARIOUS ADDITIONAL EVIDENCES GIVING THE PARTICULARS AND DETAILS NECESSARY FOR JUSTIFYING THE HEAT AND MACHINING LOSSES. THESE ADDITIONAL EVIDENCES WERE REM ANDED TO THE FILES OF THE A.O. THE AO SENT A REMAND REPORT DATED 09/08/2006 WHIC H IS PLACED AT PAGE 104 OF THE PAPER BOOK. THE PARA 2 OF THE REMAND REPORT IS RELEVANT IN THIS REGARD AND THE SAME READS AS UNDER:- 2. THE 3 RD AND 4 TH GROUND OF ADDITION WERE ON ACCOUNT OF EXCESS HEAR LOSS, CONVERSION LOSS AND MACHINING LOS S. THE ASSESSEE HAS FURNISHED ADDITIONAL EVIDENCE TO SUBST ANTIATE THAT THE MACHINING LOSS AND HEAT LOSS IS NOT FIXED AND M UCH MORE THAN DECIDED BY THE ASSESSING OFFICER. THE ASSESSEE HAS ALSO GIVEN AN APPLICATION UNDER RULE 46A FOR PRODUCTION OF ADDITI ONAL EVIDENCE. THE CLAIM OF MACHINING AND HEAT LOSS OF THE ASSESSE E, REQUIRES RECONSIDERATION IN THE LIGHT OF FRESH SUBMISSIONS M ADE BY THE ASSESSEE. THIS MAY KINDLY BE TAKEN AS ADDITIONAL EV IDENCE WHILE DISPOSING OFF THE APPEAL OF THE ASSESSEE. 8. AT THE END OF THE FIRST APPELLATE PROCEEDINGS CIT (A) ACCEPTED THE CLAIMS OF THE ASSESSEE HOWEVER, HE CONFIRMED THE ADDITION TO TH E EXTENT OF 5% OF THE HEAT ITA NO.974/PN/07 A.Y 2002-03 PAGE 4 OF 6 LOSS WHICH AMOUNTS TO RS. 10,55,471/-. RELEVANT DIS CUSSIONS ARE AVAILABLE IN PARA 3.6(V) OF THE IMPUGNED ORDER. 3.6(V) REGARDING THE ADDITION OF RS. 32,41,821/- O N ACCOUNT OF PRODUCTION AND SALE OF SCRAP IT WAS NOTED BY THE AS SESSING OFFICER THAT THE TOTAL VALUE OF THE SCRAP SOLD DURING THE YEAR WAS R S. 18,67,768/-. IT WAS PRESUMED BY THE ASSESSING OFFICER THAT ASSESSEE COM PANY HAD SOLD STEEL SCRAP AND THE STEEL DUST TOGETHER AT THIS PRICE. TH E COMPANY HAD CLAIMED LOSS OF 21% BEING 382 TONNES AS MACHINING LOSS. AS THE MACHINING PROCESS RESULTED INTO PRODUCTION OF STEEL DUST TAKI NG THE AVERAGE STEEL PRICE OF STEEL DUST AND STEEL SCRAP AS SHOWN BY THE APPELLANT AT RS. 8,489/- PER TON, ADDITION OF RS. 32,41,821/- WAS MA DE. THE APPELLANT STATED THAT THE COMPANY DID NOT HAVE MACHINING FACI LITY AND MACHINING OF FORGING IS SUB-CONTRACTED TO OTHER PARTIES AND SCRA P WAS GENERATED AT THEIR PLACE WHICH REMAINED WITH THEM. THE DRAWING SHOWING WEIGHT AFTER MACHINING AND BEFORE MACHINING OF THE FORGED JOBS W ERE FILED SHOWING LOSS OF APPROXIMATELY 22%. LETTERS FROM FOUR MAJOR MACHINING SUB- CONTRACTORS WERE ALSO FILED TO EXPLAIN THE MACHININ G LOSS AT SUB CONTRACTORS PLACE ALONG WITH PHOTOGRAPHERS OF PROD UCTION PROCESS OF OPEN DIE FORGINGS. ALL THESE DETAILS WERE SENT TO T HE ASSESSING OFFICER FOR HIS COMMENTS. IN THE REMAND PROCEEDINGS, IT WAS STA TED THAT THE ADDITIONAL EVIDENCE NOW FILED TO SUBSTANTIATE THE M ACHINING LOSS REQUIRED RECONSIDERATION IN THE LIGHT OF FRESH SUBMISSIONS M ADE BY THE APPELLANT. IT IS THE CLAIM OF THE APPELLANT THAT IT DID NOT HAVE MACHINING FACILITY AND MACHINING OF FORGINGS WAS SUB-CONTRACTED TO OTHER P ARTIES WHO KEPT THE SCRAP AND DUST WITH THEM HAS NOT BEEN REBUTTED IN T HE REMAND PROCEEDINGS. 9. AGGRIEVED WITH THE ABOVE RELIEF GIVEN BY THE CIT(A ), REVENUE FILED THE PRESENT APPEAL. DURING THE PROCEEDINGS LD. DR FOR THE R EVENUE READ OUT THE RELEVANT FACTS OF THE ISSUE AND STATED THAT THE ASSE SSEE FAILED TO FURNISH RELEVANT INFORMATION WHICH RESULTED IN THE MAKING OF ADDITIONS . FURTHER BEING CRITICAL OF THE ORDER OF THE CIT(A) LD. DR MENTIONED THAT THE SAM E IS NOT A SPEAKING ORDER AS IT HAS NOT GONE INTO THE MERITS OF THE EVENTS AND THE LOGIC TO BE FORWARDED BY THE A.O. 10. ON THE OTHER HAND LD. AR FOR THE ASSESSEE MADE VA RIOUS ARGUMENTS SOME OF THE IMPORTANT ARGUMENTS ARE AS FOLLOWS:- 1) ALL THE REQUISITE EVIDENCES FURNISHED TO THE REVEN UE AUTHORITIES BEFORE CIT(A) DECIDED THE ISSUE IN HIS FAVOUR. IN THI S REGARD HE HAS TAKEN US THROUGH PAGE 73,74,75 AND OTHERS OF THE PAPE R BOOK TO SUBSTANTIATE THE SAME. 2) THE EXPERTS OPINION I.E., DNV SUPPORTS THE CLAIMS OF THE ASSESSEE. 3) THE RELIANCE PLACED IN THE PAPER BOOK PAGE 79 ONWA RDS REVEALS THAT THE SCRAP GENERATED DURING THE MACHINING WAS RETAI NED BY THE RESPECTIVE CONTRACTORS, THEREFORE ASSESSEE IS NOT THE O WNER OF SUCH ITA NO.974/PN/07 A.Y 2002-03 PAGE 5 OF 6 SCRAP. THEREFORE MAKING THE ADDITION IN THIS REGARD IN T HE HANDS OF THE ASSESSEE IS NOT LEGAL. 4) AS PER HIM IN ALL PROPORTION THESE SUB-CONTRACTORS M UST SHALL OFFER RELEVANT INCOME IF ANY IN THEIR HANDS. IN ANY CASE A. O HAS NOT BROUGHT OUT ANY EVIDENCES THAT SUCH SCRAP BELONGS TO THE ASSESSEE. THE TREATMENT OF THE REVENUE AUTHORITIES TO THIS ISSU E IN RESPECT OF THE OTHER ASSESSMENT YEAR LD. COUNSEL TOOK US THROUGH VARIOUS ASSESSMENT ORDERS PLACED ON PAGE 131 TO 132 OF THE PA PER BOOK AND STATED THAT THE CLAIMS OF THE ASSESSEE WERE ACCE PTED BY THE DIFFERENT A.O WITHOUT ANY DISTURBANCE, IT IS ONLY IN THIS A.Y I.E., 2002-03 SUCH ADDITIONS CROPPED UP. 5) RELYING ON VARIOUS DECISIONS LD. COUNSEL ARGUED TH AT THE BOOKS OF ACCOUNTS THAT TOO A PUBLIC SECTOR COMPANY SHOULD NOT BE REJECTED FOR WHIMSICAL REASONS WHEN THERE ARE NO SPECIFIC DEFEC TS IDENTIFIED IN THE BOOKS. 11. WE HAVE HEARD BOTH THE PARTIES PERUSED THE ORDERS OF THE REVENUE AND THE REVISED PAPER BOOK FILED BEFORE US. WE HAVE ALSO G ONE THROUGH THE PARA 3.6(V) OF THE ORDER OF THE CIT(A) WHICH IS REPRODUCED ABOVE. ON EXAMINATION OF THE SAME WE FIND THAT THE ALLEGATION OF ASSESSEES FAILURE TO PRODUCE REQUISITE DOCUMENT IN SUPPORT OF THE LOSSES HAS BEEN TAKEN INT O ACCOUNT BY THE CIT(A) AND THE REASONS MADE OUT BY THE CIT(A) APPEARS RELEVEN T. IT IS ALSO NOTED THAT THE CIT(A) HAS FAIRLY TAKEN INTO ACCOUNT THE ASSESSE ES ADMISSION FOR DISALLOWANCE OF 5%. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT, THE ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. 12. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED ORDER PRONOUNCED ON 21 ST FEBRUARY, 2011. SD/- SD/- (I.C. SUDHIR) (D.KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBE R PUNE DATED THE 21 ST FEBRUARY, 2011 R ITA NO.974/PN/07 A.Y 2002-03 PAGE 6 OF 6 COPY OF THE ORDER IS FORWARDED TO : 1. ACIT, CIRCLE-6, PUNE 2. ASSESSEE 3. CIT(A)-II, PUNE 4. CIT-III, PUNE 5. DR ITAT A BENCH, PUNE BY ORDER ASSISTANT REGISTRAR I.T.A.T PUNE