Income Tax Appellate Tribunal - Chandigarh
M/S Dashmesh Casting (P) Ltd, Mandi ... vs Joint Commissioner Of Income Tax, on 7 September, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND
Dr.B.R.R. KUMAR, ACCOUNTANT MEMBER
ITA No. 35/Chd/2016
Assessment Year: 2010-11
M/s Dashmesh Castings (P) Ltd. Vs. JCI T, Range
Amloh Road Mandi Gobindgarh
Mandi Gobindgarh
PAN No. AABCD2963K
(Appellant) (Respondent)
Assessee By : Sh. Rajiv Datta
Revenue By : Sh. Ravi Sarangal
Date of hearing : 27/07/2017
Date of Pronouncement : 07/09/2017
ORDER
PER DR. B.R.R. KUMAR, A.M:
The present appeal has been filed by the Assessee against the order of Ld. CIT(A), Patiala dt. 17/11/2015.
2. The assessee has raised the following grounds:
1. That the order passed by learned CIT(A) is against law and facts of the case in as much as the learned CIT(A) was not justified to uphold the action of the learned A.O. in rejecting the books of accounts.
2. That the learned CIT(A) has erred in upholding the specific consumption of Power applicable to the entire period by considering the uniform production conditions over the period, whereas the assessee is not running an automatic production unit.
3. That the learned CIT(A) was not justified to arbitrarily uphold the addition of Rs. 14,42,246/- as against the total addition of Rs. 40,79,930/- on account of alleged Investment required for alleged unaccounted production.
4. That the learned CIT(A)was not justified to uphold the addition of Rs.
12,51,228/- on account of alleged unaccounted profit on alleged unaccounted sale of 1305.540 M.T.
5. That the learned CIT(A) was not justified to uphold the addition of Rs. 1,01,978/- under section 36(1)(iii) on account of disallowance of Interest on Capital work in Progress.
6. That on the facts & circumstances of the case, the Ld. CIT(A) was not justified to uphold the addition / disallowance of Interest amounting to Rs. 1664/-.
7. That on the facts & circumstances of the case, the Ld. CIT(A) was not justified to uphold the addition of Rs. 77,48,355/- (Mentioned by Ld. CIT(A) at Rs. 82,58,130/-) under section 2(22)(e) of the Income Tax Act, 1961.
8. Without prejudice to ground No. 3 & 4 of appeal, the learned CIT(A) has erred in not telescoping the addition on account of G.P. while confirming the addition of Investment in unaccounted production.
23. The brief fac ts relating to the issues under consideration are that the assessee company is a steel Re-Rolling Mill engaged in manufacturing of iron and Steel Products viz Structural Steel like angles, channels, flats, joists, beams etc. During the assessment proceedings, the Assessing officer asked the assessee to furnish details of daily production of finished goods as well as the details of the manufacturing process involved. The Assessing officer further observed that the amount of electricity consumed was directly related to the production of finished goods. I n order to co-relate the consumption of electricity vis-à-vis production shown, the Assessing officer gathered information regarding the consumption of electricity from the Electricity Board. The Assessing officer analyzed the consumption data of electricity vis-a vis the production of finished goods and observed that there were wide variation in ratio of electricity units consumed to per metric tons of finished goods produced during the year. He observed that the electricity consumption pm t of finished goods varies from 64.32 units to 114.06 units while the average for the entire year is 84.16 units. He further observed that on some days, electric units consumed were very low whereas finished goods produced were very high giving a very low value of electric units consumed to per ton of finished goods, whereas on some other days, electric units consumed were very high whereas the finished goods produced were very less giving a very high value of electric units consumed per metric unit of finished goods. He further observed that even on some days though there was electricity consumption yet no production was shown. He further noted that otherwise on other days, there was also a balance and consistency in consumption of electric units vis-a-vis production of finished goods. He, therefore, observed that it indicated that the daily production recorded by the assessee of the finished goods was not correct and, hence, not reliable. He observed that the data relating to the daily production had been maintained as per actual production. When confronted in this respec t, the assessee explained that the consumption of electricity was dependent on various fac tors as detailed in his reply which has been reproduced by the Assessing officer in the assessment order. The Assessing officer, however, was not satisfied with the above reply of the assessee. He 3 ul timately held that the assessee company was involved in unaccounted production of finished goods which resul ted in unaccounted sales and purchases. He, therefore, held that the sale and purchase figures in the books of account of the assessee were not correct and he accordingly rejec ted the books of account of the assessee by invoking the provisions of sec tion 145(3) of the Income-tax Act, 1961 (in short 'the Act') and proceeded to frame the assessment in the manner as provided u/s 144 of the Ac t. He thereafter estimated the income of the assessee on the basis of electric units consumed for 12 months as per chart reproduced in the assessment order. He compared the same with that shown in the books of account of the assessee and es timated the unaccounted production for each month. Thereafter, on the basis of average sales rate, the value of total unaccounted production was estimated in monetary terms and then adopting the gross profit rate shown by the assessee, the unaccounted profit out of the unaccounted production was worked out. Secondly, the peak unaccounted production for the relevant m onth was determined and by multiplying the average sale rate of finished goods, the unaccounted investment was worked out. The Assessing officer in this way worked out the total unaccounted investment of the assessee in the unaccounted production at Rs. 39,57,297/- and Rs. 994486/- being unaccounted profit out of unaccounted production and added back the same to the total income of the assessee.
4. Being aggrieved from the above order of the Assessing officer the assessee preferred appeal before the CI T(A). The Ld. CI T(A) after going through the submissions of the assessee held that an amount of Rs. 14,42,246/- may be treated as unaccounted investments. Ld. CI T(A) also confirmed the amount of Rs. 12,51,228/- on account of unaccounted profit on unaccounted sale.
5. We have heard Ld. Representatives of both the parties.
6. I t was also brought to the notice that subsequent to the passing of the above s tated impugned assessment order, a detailed study was carried out by a Committee headed by the Additional Commissioner of Income Tax, Range, Mandi, Gobindgarh having all the Assessing officers of the Range as its members. The committee was assisted by the experts from the NI SST (National I nstitute of the 4 Secondary Steel Technology) and also the industry representatives. On the basis of the report of the committee, it was decided that if the variation in the consumption of the electricity is within the range of 15% of the yearly average consumption of power, the book resul ts should be accepted.
7. Ld. Counsel for the Assessee, relying upon the report of the Committee constitu ted by the Principal Commissioner of I ncome Tax, Patiala argued that he was covered on the issue of production as decided by the Committee. The assessee was entitled to benefit of 15% variation in consumption of electricity per metric ton of finished goods produced from the average worked out on yearly basis and the variation up to 15% would not warrant any adverse cognizance. He accordingly argued that since pursuant to the report of the committee, the Assessing officers have been already following these norms while making the assessment in similar cases and in same set of circumstances and has accepted the books results shown by the different assesses. The Ld. AR has submitted the chart of per metric ton electric unit consumption which is mentioned here under:
(i ) Pr od u ct ma n ufa ct u r ed- St e el I n g ot s (I n d uct i on F ur n ac e ) .
(i i ) Y earl y av era ge as p er An n ex u re ' A' t o t h e
As s e ss men t o rd er . 98 8 .2 4 3
(i i i ) 15 % va ri at i on a s al l o w ed b y t h e dep art m en t i n s ub seq u en t y e ars M a xi m u m 11 36 .4 7 M i n i m um 84 0 .0 0 (i v ) M a xi m u m av era ge i n b l ock o f 10 da y s as p e r An n e x ur e 'E ' t o t h e Ast t .
Or der fr o m 28 /0 9 /0 9 t o 11 / 10 /0 9 . 11 75 .6 9
(v ) M i n i m um a ve rag e i n b l ock o f 1 0 da y s a s p e r An n e x ur e 'E ' t o t h e As st t .
Or der f r om 0 2/ 03 / 10 t o 1 1 /0 3/ 1 0 . 89 6 .0 1
(v i ) Re ma rk s - On l y on e b l oc k f r om 28 .0 9 .20 0 9 t o 1 1 .10 .2 00 9 i s o u t of va ri at i on
b y ab o ut 4 0 u n i t s i .e ; ab o ut 1 9 .00 % .
8. This Tribunal vide its common order dated 14.2.2017, passed in the case of M/s Modi Oil & General Mill, Mandi Gobindgrh and Others in I TA No. 149/Chd/2016 and in I TA No. 662/Chd/2016in the case of M/s.Unipearl Alloys, observing that consequent to the report of the Committee constitu ted by the Principal Commissioner of Income Tax, Patiala certain internal guidelines regarding acceptability of variation upto 15% have been issued and further that no additions have been made on similar issue in subsequent 5 years by the Assessing officer, has remanded the matter to the Assessing officer with a direc tion to decide the issue afresh in accordance with law in the light of the internal guidelines issued by the Principal Commissioner of I ncome Tax, Patiala.
9. In our view this matter needs to be res tored to the Assessing Officer in the present appeals, as the Ld. CI T(A) didn't have the benefit of committee report while deciding the above appeals as in other similar cases where in the internal guidelines of the committee cons tituted by the Principal Commissioner of I ncome Tax, Patiala were followed. The Committee so cons tituted was a Broad based Multi Member body having Additional Commissioner of income Tax, Mandi Gobindgarh as its Head and all the Assessing officers of the Range as its Members. I t was also assisted by the experts of the National I nstitu te of the Secondary Steel Technology (NI SST) and the Industry representatives. The department has accepted the variation of 15% in consumption of electricity per metric ton of finished goods as per the report of the Committee.
10. Considering the above fac ts and circumstances and since the fac ts and issue involved in all the other captioned appeals are identical, and in view of our findings given above, following the principle of consistency laid down by the Hon'ble Punjab & Haryana High Court in the case of CI T Vs. RIETA Biscuits Co. (P) Ltd [2009] 309 I TR 154 (P&H)where in it was held that the book results shown by the assessee company for the year under consideration need to be accepted, as well.
11. We therefore, set aside the action of the Assessing officer in rejecting the books of account and with direc tions to follow the guidelines formulated by the committee constituted by the Pr.
CI T(A), Patiala and the internal guidelines issued regarding acceptability of variation upto 15%. The Assessing Officer shall give reasonable, sufficient opportunity of being heard to the assessee and assesses shall be at liberty to raise any contention before Assessing Officer for completion of the assessment in accordance with law.
12. In the result, appeal of the assessee on the ground nos. 1,2,3 & 4 are allowed for statistical purposes.
613. Ground No. 5 is that the Ld. CI T(A) was not justified to uphold the addition of Rs. 1,01,978/- under sec tion 36(1)(iii) on account of Interest on Capital work in Progress.
14. The Assessing Officer observed that there is Capital Work in Progress relating to Building and Shed under construction, Plant & Machinery under installation. The assessee has claimed interest expenditure of Rs. 7,02,841/-. The Assessing Officer has disallowed interest on the capital work in progress to the tune of Rs. 1,01,978/- on account of interest following the order of Hon'ble Punjab & Haryana High Court in case of M/s Abhishek I ndustries Ltd. Vs. CI T (286 I TR 1).
15. The Ld. CI T(A) upheld the addition on the grounds that the appellant has mixed type of funds and could not give necessary evidence regarding the interest bearing and non interest bearing fund vis-à-vis application of the same and held that interes t pertaining to capital work in progress was not capitalized as per explanation 8 of Section 43 (i) proviso to Section 36(1)(iii).
16. Ld. DR relied on the order of the CI T(A) , while Ld. AR relied on the submissions taken before the CIT(A).
17. We have heard Ld. Representatives of both the parties and perused the material available on record.
18. Before us, the Ld. AR submitted that the assessee has not borrowed any funds for raising the capital assets pertaining to work in progress. I t is also to be noted that the Finance Act 2003 has amended Section 36(1)(iii) by inserting a proviso to the existing provision w.e.f 01.04.2004 relevant to assessment year 2004-05. The proviso inserted to the existing provision of section 36(1)(iii) is reproduced as under:
" Pr o vi ded t h at an y am o un t of t h e i n t ere st p ai d, i n resp ect of cap i t al b or ro we d f or acq ui si ti on of an a s s et f or ext en si on of ex i sti n g b u si n es s or p r of es si o n ( wh et h er c ap i t al i zed i n t h e b o ok s of a cco u n t or n ot ); f or an y p e ri od b egi n n i n g f rom t h e dat e on wh i ch t h e cap i t al wa s b o rr o we d f or acq ui si ti on of t h e a s set t i l l t h e da t e on wh i ch su ch a s s et wa s f i rst p ut t o u se, sh al l n ot b e al l o wed a s ded u ct i on ."
The judgment of various Courts in the case of Hero Cycles (P) Ltd . Vs. CI T, Ludhiana C.A. No. 514 of 2008 dt. 05/11/2015, Bright Enterprises Pvt. Ltd. Vs. CI T, Jalandhar (2016) 381 I TR 107 (P&H) held 7 that no disallowance of interes t is called for where the assessee has got sufficient own funds. The Assessing Officer is directed to go through the fund position namely capital and interest free advances, reserves and surplus to determine whether any borrowed funds have been utilized more than available own funds and take a decision keeping in view the decisions rendered above. I f sufficient own funds are available, no disallowance is called for. This ground may be treated as set aside to the file of Assessing Officer.
19. This ground is allowed for statis tical purposes.
20. Regarding the ground no. 6 pertaining to disallowance of interest of Rs. 1664/-. The assessee has submitted that the cheques were issued on 31/03/2010 and were cleared on 19/04/2010. Since the amounts were not pertaining to the assessment year in ques tion no disallowance can be made. The matter is remand back to the file of the Assessing Officer for verification. The assessee is directed to submit the relevant evidences before the Assessing Officer.
21. This ground of appeal is allowed for statistical purposes.
22. As regards ground no.7 the Assessing Officer made addition of Rs. 77,48,355/- under section 2(22)(e) of the Income Tax Act, 1961.
23. The Ld. CIT(A) has confirmed the addition on the grounds that the payment squarely falls under the provision of Section 2(22)(e) as the loan has been received from one M/s Shiva Castings Pvt. Ltd. Shri. Anil Kumar Jindal (HUF) is holding 25% equity in the assessee company is also holding 10.8% in M/s Shiva Castings Pvt. Ltd.
24. We have heard the Ld. Representatives of both the parties and perused the material available on record.
25. The Ld. AR argued that they are in the nature of inter corporate deposits and hence no addition is called for. He has submitted copy of account for the AY in question where the ledger account reveals the continuous transactions between the two parties which do not give rise to any advances.
26. Ld. DR strongly supported the order of the Assessing Officer.
27. Various Courts have dealt the issue of deemed dividend under section 2(22)(e) of the Act, a snapshot of judgments is mentioned below:
1. Kolkata ITAT Bench in case of IFB Agro Industries Ltd. vs. JCIT ITA No. 1721/Kol/2012 [2013-ITRV-ITAT-KOL-172] has held interest on Inter Corporate 8 Deposits is not an interest on loan or advance and would be not includible in the chargeable interest under the interest tax act. So Intercorporate deposits cannot be treated as a loan falling within the preview of section 2(22)(e).
2. Bombay ITAT in Bombay Oil Industries Ltd Vs. DCIT 2009-TIOL -297-ITAT-
MUM; (2009) 28 SOT 383 (Mum) has held that Inter-corporate deposits are not deemed dividend under section 2(22)(e) of the Income Tax Act; It is clear thereis distinction between deposits vis-à-vis loans/advances.
NOT TO SHAREHOLDER Deemed dividend is assessable interest the hands of the shareholder in the hands of the shareholder only. Few judicial pronouncement on the same are as under:
1. Bombay High Court in case of CIT vs. Jignesh P. Shah ITA No. 197/2013 [2015-ITR V-High Court-MUM-108] 372 ITR 392 has held that the provision of section 2(22)(e) cannot be invoked unless the asessee itself is the shareholder of the company, who was lending money to him.
2. Delhi High Court in CIT vs. Ankitech P. Ltd. [2011-ITRV-High Court-DEL-109] 340 ITR 14 has held that S. 2(22)(e) "deemed dividend" not assessable if recipient is not shareholder.
Since the assessee's case is covered by the above judgments, it is hereby held that no deemed dividend is chargeable in the hands of the assessee.
28. In the result this ground of appeal is allowed.
29. In the resul t appeal is allowed for statis tical purposes.
Order pronounced in the Open Court on ____________ Sd/- Sd/-
(DIVA SINGH) (B.R.R.KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : AG
Copy to: The Appellant, The Respondent, The CIT, The CIT(A), The DR