Income Tax Appellate Tribunal - Ahmedabad
Fine Cast (Guj.) Pvt. Ltd.,, Anand vs Assessee on 22 August, 2007
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., Vs The A. C. I. T.
133/134, GIDC, Anand Circle,
Vithal Udyognagar, Anand
PA No. AAACF 3335L
(Appellant) (Respondent)
Appellant by Smt. Urvashi Shodhan, AR
Respondent by Shri Sandip Garg, DR
ORDER
PER BHAVNESH SAINI: This appeal by the assessee is directed against order of the learned CIT(A)-IV, Baroda dated 22-08-2007 for assessment year 2004-05.
2. We have heard learned representatives of both the parties, perused the findings of the authorities below and considered 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 dismissed being not argued and not pressed.
4. On ground No.1, the assessee challenged the addition of Rs.1,87,595/- on account of excess melting loss. The AO made lump sum addition of Rs.10,50,000/- on account of low gross profit and excess melting loss. The assessee is a company which carried on business of manufacturing of CI casting (cast iron casting) from 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 verified the purchase and ITA No.4134/Ahd/2007 2 Fine Cast (Guj.) Pvt. Ltd. Vs ACIT, Anand sale bills and also considered the melting loss. The AO checked the pattern of consumption of pig iron and scrap iron in different months of the year and concluded that it did not reflect matching figures or decrease in the melting loss percentage. The AO, therefore, held that melting loss during the year cannot be more than 13%. Linking the increase in melting loss with the fall in gross profit, 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 CIT(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 should 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% and hard coke by 22.19%. In comparison, the sale price has gone up by 41.27% only. These facts were brought to the notice of the AO but he did not point out any discrepancy in the audited accounts of the assessee. The assessee maintained quantitative details of the raw materials and consumption of raw materials and goods produced. Since the assessee company was subjected to excise duty. Therefore, addition is unjustified.
6. The learned CIT(A) considering the explanation of the assessee restricted the addition to Rs.1,87,595/- and deleted the remaining addition. His findings in Para 3.2 to 3.4 are reproduced as under:
"3.2 I have carefully gone through the assessment order and the submissions made by the Authorized Representative of the appellant company. The Assessing Officer has examined the books of accounts, and all details with regard o increase in cost of raw materials have been placed before the Assessing Officer. He has not pointed out any discrepancy in the method of accounting followed, nor has he brought on record any material to doubt the books of accounts. The only issue ITA No.4134/Ahd/2007 3 Fine Cast (Guj.) Pvt. Ltd. Vs ACIT, Anand discussed at length by the Assessing Officer has been the claim of melting loss. There is merit in his conclusion 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 consumption pattern as submitted by the appellant did not reflect this. The Assessing Officer therefore, concluded that there does 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 Officer's conclusion of estimating the melting loss @ 13% can be accepted. The difference between the current years claim of melting loss i.e. 13.74% and the estimation by the Assessing Officer is .74%. This difference in rupees terms is calculated as under:-
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.1,87,595/-. As a result, the assessee gets relief of Rs.8,62,405/-". ITA No.4134/Ahd/2007 4
Fine Cast (Guj.) Pvt. Ltd. Vs ACIT, Anand
7. The learned Counsel for the assessee reiterated the submissions made before the authorities below and submitted that ultimately the addition on account of gross profit has been deleted and the AO has not pointed out any specific defects in the maintenance of the books of accounts, therefore, entire addition should have been deleted.
8. On the other hand, the learned DR relied upon the order of the AO and submitted that rejection of book results would not be relevant because no addition is sustained on account of excess 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 assessee produced complete books of accounts before the AO and query of the AO was also replied. The learned CIT(A) specifically noted in his findings that books of accounts have been examined by the AO along with all the details with regard to increase in cost of raw materials. The learned 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 AO with regard to application of higher gross profit rate which would, therefore, show that the AO has not pointed out any discrepancy in the maintenance 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 assessee also explained that the purchase price of raw materials has increased as compared to the sale price. The assessee maintained quantitative details of the raw material consumed and was also subjected excise duty. The AO and the learned CIT(A) have not pointed out any discrepancy in the audited ITA No.4134/Ahd/2007 5 Fine Cast (Guj.) Pvt. Ltd. Vs ACIT, Anand accounts of the assessee. Therefore, there was no reason 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 well as in the assessment year under appeal and the quantity manufactured. In the assessment year 2002-03, the quantity manufactured by the assessee was 87.28% and in the assessment year 2003-04 quantity manufactured was 86.85% and in the assessment year under consideration it was 86.26%. Thus, the melting loss in the assessment year under appeal was 13.74% as against the melting loss of 13.15% in the immediately preceding assessment year. The assessee gave the reasons 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 materials each month in order to make the addition. Since no specific defect has been pointed out in the maintenance of the books of account by the assessee and book results have not been rejected and that there is a slight increase in melting loss, would not give rise to sustain even of 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 assessee 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 before the learned CIT(A) that cash payments were made to different parties, mainly lorry drivers who was dealing with the company for the first time. Payments ITA No.4134/Ahd/2007 6 Fine Cast (Guj.) Pvt. Ltd. Vs ACIT, Anand were made due to financial stringency and the AO has 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 that the assessee made payments in exceptional circumstances to the lorry drivers. Therefore, the case would not fall within the ambit of guidelines laid down in Rule 6 DD of the IT Rules. The learned Counsel for the assessee also referred to the statements of facts filed before the learned CIT(A) copy of which is filed in the appeal papers at page A- 11 to show that the amounts in question were debited towards freight inward for supply of hard coke to Anand from Dhanbad. The learned Counsel for the assessee, therefore, submitted that payments made to the lorry divers for 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 that provisions of Rule 6 DD prior to amendment would apply in the case of the assessee. On the other hand, the learned DR relied upon the orders of the authorities below.
13. We have considered the rival submissions and material on record. The learned CIT(A) specifically noted that there was nothing on record to show that these lorry drivers were dealing with the assessee company for the first time nor any other exceptional circumstances existed which necessitated that the payment should be made in cash. Though the learned Counsel for the assessee referred to the explanation filed at page A- 11 of the appeal papers as referred to above, but no evidence or material is filed in support of the contentions so raised therein. Unless the facts ITA No.4134/Ahd/2007 7 Fine Cast (Guj.) Pvt. Ltd. Vs ACIT, Anand contained in the explanation of the assessee are supported by any material on record, the learned CIT(A) was justified in confirming the addition. We, therefore, do not find any justification to interfere with the order of the learned CIT(A). We confirm the same and dismiss this ground of appeal of the assessee.
14. In the result, this ground of appeal of the assessee is dismissed.
15. No other point is argued or pressed.
16. As a result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on 30-09-2010 Sd/- Sd/-
(A. N. PAHUJA) (BHAVNESH SAINI)
ACCOUNTANT MEMBER 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, ITAT, Ahmedabad