Income Tax Appellate Tribunal - Mumbai
Goyal Traders , Mumbai vs Department Of Income Tax on 9 February, 2012
ITA No 4431 and CO 63 of 2011
Goyal Traders Mumbai
IN THE INCOME TAX APPELLATE TRIBUNAL
"G" Bench, Mumbai
Before Shri B. Ramakotaiah, Accountant Member
and Shri V. Durga Rao, Judicial Member
ITA No. 4431/Mum/2010
(Assessment Year: 2003-04)
Asstt.C.I.T. Circle-13(3) Goyal Traders
Room No.430, 4th Floor 212-A, Steel Chambers
Aayakar Bhavan, MK Road Carnac Bunder
New Marine Lines,Mumbai 400009 Vs Mumbai 400 009
PAN -AAAFG 2924 R
Appellant Respondent
C.O. No.63/Mum/2010
(Arising out of ITA No. 4431/Mum/2010)
(Assessment Year: 2007-08)
Goyal Traders Asstt.C.I.T. Circle-13(3)
212-A, Steel Chambers Room No.430, 4th Floor
Carnac Bunder Aayakar Bhavan, MK Road
Mumbai 400 009 Vs New Marine Lines, Mumbai
PAN No.AAAFG 2924 R 400009
Appellant Respondent
Assessee by: Shri Pavan Ved, DR
Revenue by: Shri Vijay Mehta, AR
Date of Hearing: 9-2-2012
Date of Pronouncement:15-2-2012
ORDER
Per B. Ramakotaiah, A.M.
This is a Revenue appeal against the orders of the CIT (A)-24 Mumbai dated 31.03.2010 and the Cross Objection by the assessee is in support of the order of the CIT (A). We have heard the learned Departmental Representative and the learned Counsel in this regard. The Revenue appeal is decided as under.
Ground No.1.
"The learned CIT (A), on the facts and circumstances of the case and in law, erred in deleting the addition of Page 1 of 10 ITA No 4431 and CO 63 of 2011 Goyal Traders Mumbai `10,48,68,269/- made out of books ignoring the fact pointed out by the Assessing Officer in response to assessee's submission forwarded by the learned CIT (A) that the difference between LDT and total weight of the ship was never brought on records"
2.1 The main issue in this ground involves determination of weight loss on dismantling of ships-whether the weight loss is in relation to the total weight of the ship or it is in relation to the light displacement tonnage weight of the ship (LDT).
2.2 The Assessing Officer for reasons mentioned in detail in the assessment order - particularly in Paras 6.1 to 6.23 has enumerated the factors on the basis of which he is of the opinion that the weight loss is always a measure of the total weight of the ship - and is normally 2% of the total weight of the ship and never at 12%-18% of the LDT as claimed by the assessee and on this basis the Assessing Officer has concluded in Para 6.23 of the assessment order that the assessee has claimed a higher weight loss/burning loss and thereby suppressed the sales of scrap to the extent of `.10,48,68,269/- which Assessing Officer has added back to the income of the assessee as unexplained sales.
2.3 The assessee has challenged the above finding of the Assessing Officer and stated that as in the past the weight loss/burning loss in relation to the ship breaking industry has always been measured and estimated with reference to the LDT and never to the total weight. It is for the first time that an attempt has been made to link the weight /burning loss to the total weight- and this is not based upon any concrete facts and findings of the shipping industry and is therefore not acceptable as it goes against the accepted norms of the industry.
2.4 It was further submitted before the CIT (A) that the issue of weight loss/burning loss varies from 12% to 20% of the LDT and in the present case the net loss claimed by the assessee is within the Page 2 of 10 ITA No 4431 and CO 63 of 2011 Goyal Traders Mumbai norms and that Assessing Officer has not followed the decisions of the CIT (A) in other cases and also of the ITAT on the same issue including that of reports of expert committees, representative of shipping scraps dealers and the norms prescribed by the CIT-7 Mumbai. The assessee also further submitted that the Assessing Officer has not rejected the books of account and for the first time brought out a concept of issue of total weight which was nowhere mentioned in any of the reports. Considering the assessee's submissions the CIT (A) deleted the addition by stating as under:
"2.6 I have considered the submissions of the learned Counsel, the reply filed by the Assessing Officer to these submissions and I am of the opinion that the decisions of learned CIT (A), Hon'ble ITAT and the directions of CIT- VIII Mumbai clearly establish the fact that the burning loss/weight loss and LDT have a direct nexus and the range is easily from 12 to 20% and there is no doubt as to the definition of the LDT in the order of learned CIT (A) in the case of SS Jain & Co.(Bom) dt. 23/6/1989 wherein in Para 2 it has been clearly described and then the conclusion has been drawn that the burning loss/weight loss is anywhere from 12 to 20% of the LDT. Hence, following the principles of Judicial consistency, reasoning and absence of any concrete evidence to the contrary to deviate from the above the addition made by the Assessing Officer on the basis of calculation in relation to total weight of `10,48,68,269/- is hereby deleted. It would be not out of place to mention that the objections of the Assessing Officer relating to the impossibility of such heavy loss due to corrosion and the fact that it would make the ship uneven etc. are probably not borne out by the concrete evidence on record in the form of earlier orders of learned CIT (A) stated above and Hon'ble ITAT stated above, clearly discussing this issue and audited books of account of the appellant under section 44AB in which no discrepancy has been found. Thus, the same is not accepted and the addition made is deleted as stated above".
2.5 Before us, the learned Departmental Representative referred to the order of the Assessing Officer and explained the concept of LDT, total weight and how the Assessing Officer arrived at the net Page 3 of 10 ITA No 4431 and CO 63 of 2011 Goyal Traders Mumbai scrap which the assessee should have got and how the Assessing Officer estimated the shortfall in yield of scrap. In reply, the learned Counsel submitted that all the reports relied on by the Assessing Officer as well as the experts reports submitted before the CIT (A) including that of the Ministry of Shipping, Customs authorities indicate the weight of the ship always on the concept of 'LDT' and not on total weight as was considered by the Assessing Officer. It was further submitted that the CIT-7 after the representation from the ship breaking industry placed the norms of burning loss/loss upto 20% and the Assessing Officer had ignored the existing guidelines on the subject. It was further submitted that without any basis or consideration the Assessing Officer arrived at 2% loss on the total weight. The ld. counsel explained the issue by giving this example:
Industry norms:
LDT- 100 tonnes,
Loss permitted( 15%) 15 tonnes
Net Realisable scrap= 85 tonnes
According to the Assessing Officer:
LDT 100 tonnes
add weight added later 15 tones
total weight 115 tonnes
- 2% loss = 3 tones (approx)
net weight= 112 tonnes.
Loss 12%. 12 tonnes. (approx)
Realisable scrap : 100 tones.
It was submitted that this methodology of the Assessing Officer was never adopted by any authority and referred to various reports and Page 4 of 10 ITA No 4431 and CO 63 of 2011 Goyal Traders Mumbai charts including that of Assessing Officer to submit that LDT is always considered the weight of the ship at the time of sale for breaking the ship and on that upto 20% loss is permitted depending on the nature of ship and in assessee's case it is actually 14.7% which is reasonable. He further submitted that the Assessing Officer never rejected the books of account and therefore the CIT(A) order is correct on the facts of the case.
2.6 We have examined the issue and considered the rival contentions. Even though the Assessing Officer tried to make out a case of light displacement tonnage (LDT) and total weight, we are unable to accept his methodology as the ship was sold always on the basis of LDT and that is the standard norm in the shipping industry which was adopted by every authority of Customs and Central Excise and also the Shipping Ministry. Even the expert committees who studied the business of ship breaking business and environment impact also accepts loss in ship breaking varying from 10 to 20%, the statement of which was extracted by the Assessing Officer in the assessment order itself in Para 5.10 in Page5. Therefore, the concept of total weight considered by the Assessing Officer cannot be accepted as it has no basis at all.
Therefore, we agree with CIT (A) findings in deleting the amount as it is in conformity with the orders on the issue of the ITAT as well. The ground is accordingly rejected.
Ground No.2 "The learned CIT (A), on the facts and circumstances of the case and in law, erred in deleting the addition of `.25 lakhs made on account of labour charges ignoring the fact pointed out by the Assessing Officer in response to assessee's submission forwarded by the learned CIT (A)".
3.1 After comparing the issue of labour charges claimed by the assessee with that of associated company, the Assessing Officer Page 5 of 10 ITA No 4431 and CO 63 of 2011 Goyal Traders Mumbai was of the opinion that the assessee has short charged labour charges to the extent of `.25 lakhs and brought the amount as income stating that the assessee could have spent this amount outside books of account. The CIT (A) deleted the addition by stating as under:
"I have considered the submissions of the learned Counsel and the Assessing Officer and I am of the opinion that as pointed out by the learned Counsel that in the case of the sister concern the total wages relating to the payment to labourers is only `.7,65,076/- and not `.38,45,350/- because a sum of `.30,80,274/- represents warehousing charges in Mumbai and further that the payments made to labourers have been duly recorded in the books and registers maintained and have not been disputed and therefore, on mere suspicion cannot be rejected and thus the addition of `.25 lakhs made by the Assessing Officer is based upon considerations which cannot be used to assail the records of the appellant when no specific defects has bee pointed out and thus the addition of `.25 lakhs is hereby deleted".
3.2 After considering the rival contentions, we are of the opinion that there is no need to consider the Revenue grounds as no basis was made for making the addition. As discussed by CIT(A) the figures were wrongly compared. On the one hand the Assessing Officer brought amount of scrap sale as mentioned in Ground No.1 without rejecting the books of account and further made an addition of `.25 lakhs stating that the assessee could have spent amounts outside the books of account without any evidence. We approve the order of the CIT (A) and reject the ground.
Ground No.3 "The learned CIT (A), on the facts and circumstances of the case and in law, erred in deleting the addition of `.10,35,095/- on sale of furnace and lubricant oils without appreciating the fact that the addition was made on the basis of authenticated documents like bill of entries etc.".
Page 6 of 10ITA No 4431 and CO 63 of 2011 Goyal Traders Mumbai 4.1 The Assessing Officer discussed the issue vide Para 8 of the order and came to conclusion that the assessee could have sold lubricant oil and furnace oil outside the books of account and made an addition of `.10,35,095/-calculated as per Para 8.4 of the order. It was submitted by the assessee before the CIT (A) that the above addition has been made without appreciating that whatever oil is recovered is sold and duly accounted for. Also the figures for grease, oil, thinner etc mentioned in the bill of entry are indicative-based upon the survey report determined on the tank calculation book available on the board and not physically verified. The ship breakers do not dispute such figures to avoid delay in beaching of the ship. The oil available includes various impurities accumulated over a period of time. The appellant is not in the trade of sale of oil and is only a scrap dealer. Customs duty levies it at international price of pure oil, whereas these are used or contaminated oil with impurities. The details show that grease is worth only `.21,463/- from 2 ships and nothing from the third ship. This grease if recovered is used in own process of cutting in machinery employed such as which, cranes or generator. Regarding lubricating oil, these are sold as lube oil and included in total sale of oil-copies of sale bills are duly entered. Regarding paint, thinol and chemicals-they are not recoverable and they either get destroyed in the dismantling process or used for cleaning purposes. Thus, the above addition deserves to be deleted, in view of the decision of the Hon'ble ITAT 'H' Bench Mumbai in the case of M/s Anupama Steel Ltd AY 1998- 99 (ITA No. 5136/Mum/2002, Para-6). 4.2 After considering the assessee's submissions, the CIT (A) deleted the addition by stating as under:
"4.2 I have considered the submissions of the learned Counsel and it is seen that the above addition has been made on the basis of certain calculations taken from the bill of entries and as held by the Hon'ble ITAT 'H' Page 7 of 10 ITA No 4431 and CO 63 of 2011 Goyal Traders Mumbai Bench Mumbai in the case of M/s Anupama Steel Ltd AY 1998-99 (ITA No. 5136/Mum/2002, the same cannot be added back merely on the basis of the bill of entries as it cannot be presumed that sale has also been made at higher price. Thus, this addition of `.10,35,095/- is hereby deleted".
4.3 After considering the rival submissions, we are of the opinion that there is no need to disturb the findings of the CIT (A) as there is no basis for making the addition by the Assessing Officer and further the CIT (A) followed the Coordinate Bench decision where similar issue was considered. Accordingly the ground is rejected.
Ground No.4 " (i)The learned CIT (A), on the facts and circumstances of the case and in law, erred in deleting the addition of `.40,41,847/- being a value of spare propeller not forming part of LDT without appreciating the fact that propeller installed in the ship forms part of LDT and not spare for contractual sale.
(ii) "The learned CIT (A), on the facts and circumstances of the case and in law, erred in deleting the addition of `.40,41,847/- as a value of spare propeller ignoring the fact that sale in subsequent year has not been incorporated in the closing stock of the year either as individual item or a part of total scrap".
5.1 The Assessing Officer while completing the assessment was of the opinion that there will be spare propellers which are not considered as LDT and arrived at total weight of the installed propeller and spare propeller vide Para 9.1 at 73.88 tones. Vide Para 9.5 he also accepted that the propeller of ship MT Avicena of about 27.24 tones was made out of ferrous metal like steel and has value of iron scrap. He accepted assessee's contention that this value has come within the ship scrap and the weight of the propeller was also accepted as three propellers are fitted at the time to the ship and their weight as per the parameters given by the Association and the Ship Surveyor represents the combined weight of the ship. However, Page 8 of 10 ITA No 4431 and CO 63 of 2011 Goyal Traders Mumbai he arrived at sale of propellers outside the books of account with reference to MT Avicena to the extent of 4.4 MT only and others making addition of 40.41 lakhs. Before the CIT (A) the assessee submitted that the appellant recovered the propellers from the Ship "Avicena" which are made of ferrous metal and sold as scrap under the classification of steel scraps and included in total sale. The propellers recovered from 'Castor' were two pieces-one working and one spare-as per MOA-the same have been accounted for because the two propellers have been sold on 5/6/2007-next accounting year and there is no sale which is not accounted for.
5.2 This matter was also remanded to the Assessing Officer and his report was obtained in which the Assessing Officer ignoring his own findings on MV Avicena reiterated the sale of scrap on propeller at 73.88 MT and requested the CIT (A) to consider it while considering on addition. The CIT (A) vide Para 5.3 deleted the addition stating as under:
"5.3 I have considered the submissions of the learned Counsel and the Assessing Officer - and I am of the opinion that as stated by the appellant that the same is not accounted for separately because the appellant being a scrap dealer accounts for the total scrap of the ship as such without separately classifying the same. Also, the fact of selling the propeller in the subsequent year is clear and undisputed - therefore, the addition of `.40,41,847/- is deleted".
5.3 After considering the rival submissions and examining the facts, we are of the opinion that the Revenue grounds are misplaced. First of all there is no basis for arriving at undisclosed sale of propellers when the assessee has accounted for all the propellers at the time of scrap and further there is no basis for observation, after the remand report regarding the additional propeller of MT Avicena as he himself accepted at Para 9.5 that the propeller were found as part of iron scrap. Therefore, the reply given Page 9 of 10 ITA No 4431 and CO 63 of 2011 Goyal Traders Mumbai to the CIT (A) in remand is not in conformity with his own findings in the assessment order. Moreover the assessee has explained that the propellers were sold in the subsequent year the fact of which was verified by the Assessing Officer and the CIT (A). The Revenue has raised Ground No.2 stating the same is not incorporated in the closing stock of the year ignoring the reason for making the addition by Assessing Officer itself that the propellers are outside the books of account. The grounds are not only inconsistent with the findings on record, but also different from the reasons for making addition and other facts on record. We have no hesitation in rejecting the ground.
2. In the result, the Revenue's appeal is dismissed. The cross objection is in support of the order of the CIT (A) which does not require any adjudication. Therefore, the CO is also treated as dismissed.
Order pronounced in the open court on 15th February, 2012.
Sd/- Sd/-
( V.Durga Rao) (B. Ramakotaiah)
Judicial Member Accountant Member
Mumbai, dated 15th February, 2012.
Vnodan/sps
Copy to:
1. The Appellant
2. The Respondent
3. The concerned CIT(A)
4. The concerned CIT
5. The DR, " G" Bench, ITAT, Mumbai
By Order
Assistant Registrar
Income Tax Appellate Tribunal,
Mumbai Benches, MUMBAI
Page 10 of 10