Income Tax Appellate Tribunal - Mumbai
Galbro Ispat Galvanizers P. Ltd, Mumbai vs Department Of Income Tax on 19 November, 2014
आयकर अपीलीय अिधकरण "G" Ûयायपीठ मुंबई मɅ।
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "G", MUMBAI
ौी आर.
आर. सी.
सी. षमा[, लेखा सदःय एवं ौी ǒववेक वमा[, Ûयाियक सदःय के सम¢ ।
BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER
AND SHRI VIVEK VARMA, JUDICIAL MEMBER
आयकर अपील सं. : 1232/
1232/मुम/2011, िनधा[रणवष[ 2008-09
ITA No. : 1232/Mum/2011, AY 2008-09
Galbro Ispat Galvansers Pvt Ltd, Vs ITO -Wd-9(1)(4),
Jenco Compound, Devrukhkar Wadi, Aayakar Bhavan,
Link Road, Behind Shakti Textiles. New Marine Lines,
Chincholi Bunder, Malad (West), M K Road,
Mumbai 400 064 Mumbai -400 020
ःथयी लेखा सं.:PAN: AACCG 3423 C
अपीलाथȸ(Appellant) ू×यथȸ(Respondent)
आयकर अपील सं. : 1263/
1263/मुम/2011, िनधा[रणवष[ 2007-08
ITA No. : 1263/Mum/2011, AY 2007-08
ITO -Wd-9(1)(4), Vs Galbro Ispat Galvansers Pvt Ltd,
Room No.224, Aayakar Bhavan, Malad (West),
Mumbai -400 020 Mumbai 400 064
ःथयी लेखा सं.:PAN: AACCG 3423 C
अपीलाथȸ(Appellant) ू×यथȸ(Respondent)
Cross Objection 170/Mum/2013
Arising out of आयकर अपील सं. : 1263/
1263/मुम/2011, िनधा[रणवष[ 2007-08
ITA No. : 1263/Mum/2011, AY 2007-08
Galbro Ispat Galvansers Pvt Ltd, Vs ITO -Wd-9(1)(4),
Malad (West), Room No.224, Aayakar Bhavan,
Mumbai 400 064 Mumbai -400 020
ःथयी लेखा सं.:PAN: AACCG 3423 C
अपीलाथȸ(Appellant)Cross Objector ू×यथȸ(Respondent)
Appellant-Cross Objector by : Shri Umesh Kolapkar
Respondent-Revenue by : Shri R N D'souza
सुनवाईकȧतारȣख /Date of Hearing : 11-11-2014
घोषणाकȧतारȣख/Date of Pronouncement : 19-11-2014
आ दे श
ORDER
ौी ǒववे
ǒववेक वमा[, Ûया.
Ûया. स.
PER VIVEK VARMA, J.M.:
Cross appeals and Cross Objection by the assessee filed against the appeal filed by the department, arise out of the order of CIT(A) 19, Mumbai, dated 30.11.2010.
2 Galbro Ispat Galvansers Pvt Ltd ITAs No. 1232/Mum/2011 ITA 1263/Mum/2011 CO 170/Mum/2013
2. The facts are that the assessee is engaged in the business of galvanizing and trading of ferrous and non-ferrous metals. Galvanizing is a chemical process by which the ferrous metal is made rust proof by applying thick layer of zinc, from its unit in Wada, Dist Thane. The assessee also perform job work for others on its own and for its sister concern.
3. While examining the results of the Profit & Loss account of job work and business modus. The AO found that the concessions given by it to its sister concern varies from 23% to 168%. According to the AO, the job work component comes to 30.25% of the total turnover, therefore, accordingly the expenses debited to the P&L account would get inflated to that extent. He, therefore, considering the entire aspect and on a reasonable basis disallowed expenses to the extent of 10%, which were debited to the P&L Account at Rs. 1,66,95,148/-. He, therefore, disallowed 16,69,514/- and added it back.
4. The assessee approached the CIT(A), before whom, the assessee reiterated its submission made before the AO and further submitted, "7.2 The appellant disputes the said findings of the AO. At the very outset, it is not justifiable to compare rates, since, the rates charged differ from job to job depending upon the consumption of zinc. The appellant explains that Galvanizing is not a fixed rate job. The rates are comparatively higher when zinc consumption is higher and low when zinc consumption is less. It is also stated that being a sister concerns it results in continuous business and moreover no value added services are provided to sister concerns such as providing storing and wharehousing facility, pick-up and drop service, availing octroi clearance services which are provided to outside parties and as such the outside parties have been charged rates, which include charges for the said services. The appellant company has also furnished a chart showing comparison of the invoices selected by the AO, showing details of job done, thickness of material, burning charges etc to prove its point that the said factors also affect rates, which is an extracted below. It is also brought to notice that no such additions were made in earlier years and subsequent years and that the sister concern Jenco Galvanizing is assessed in the highest tax bracket and there is no impact on the tax liability.
3 Galbro Ispat Galvansers Pvt Ltd
ITAs No. 1232/Mum/2011
ITA 1263/Mum/2011
CO 170/Mum/2013
Sr Bill Client Qty in Product Thick- Labour Burni- Remarks
.N No. Kgs Ness charges ng
charg-
es
1 843 West Coast 5420 MS 1.6MM 3.50 As the
Eng. Inds. Cable thickness
Tray of
material
is less the
consumpt
ion of zinc
is more
therefore
the rate
charges is
more
2 845 Jenco 420 MS 2.0MM 2.85 As the
Galvanising Pvt Cable thickness
Ltd Tray of
material
is more
the
consumpt
ion of zinc
is less so
the labour
charge is
less
3 852 Bharat 1100 MS 1" & ½" 3.00 As the
Enterprises Pipes 1 thickness
& 1½ of
material
is less the
consumpt
ion of zinc
is more so
the rate
charged
is more
Rate
includes
burning
charges
also
4 833 Jenco 132 MS 4" & 5% 4.50 As the
Galvanising Pvt Pipes thickness
Ltd 4" & &
Diameter
5" of the
pipe is
more &
consumpt
ion of zinc
is less so
the rate
charges is
less
5 951 West Cost Eng. 360 MS 2 MM 4.50 As the
Inds. Clamp thickness
of
material
is less the
consumpt
ion of zinc
is more
therefore
the rate
charges is
more
6 1002 Jenco 95 MS 5 MM 2.85 As the
Galvanising Pvt Clamp thickness
Ltd of
material
is more
the
consumpt
4 Galbro Ispat Galvansers Pvt Ltd
ITAs No. 1232/Mum/2011
ITA 1263/Mum/2011
CO 170/Mum/2013
ion of zinc
is less so
the rate
charges is
less
7 963 West Cpst Eng. 9670 MS 5MM 3.00 As the
Inds. Gratin thickness
gs of
material
is less the
consumpt
ion of zinc
is more
therefore
the rate
charged
is more
8 861 Jenco 740 MS 8 MM 1.90 As the
Galvanising Pvt Gratin thickness
Ltd gs of
material
is more
the
consumpt
ion of zinc
is less so
the rate
charges is
less
9 847 Riddhi 4980 MS 5/6 5.09 3.00 Material
Engineers Beam MM galvanize
Chann (D.Dip) d in
double
el dip
process &
burning
charges
added so
the rate
charges is
more.
"
5. The CIT(A), after taking into consideration the submissions made before him, the CIT(A), held, "Galvanizing refers to the process of coating iron, steel or aluminum with a thin zinc layer by passing the metal though a molten bath of zinc at temperature of around 460 degree centigrade. It is basically coating of zinc on steel or iron or iron to prevent from corrosion. The usual criterion for determining the expected life of zinc coating is thickness, the thicker the coating the longer the service life. There are different methods of zinc coating which include Electrogalvanizing, Zinc plating, mechanic plating, Hot-dip galvanizing and zinc painting. The selection of method is dependent upon the intended application, whether interior, exterior, hard ware, automobile body etc. Thus, vide range of coatings are available and selection of a method will depend upon suitability of coating for intended use. Certain coatings are labour intensive such as metal spraying and painting. Thus the labour charge determined is depended upon factors such as intended application, the expected life of the coating, whether labour intensive or not, and may be also other hidden factors such as the value added services whether provided or not".
5 Galbro Ispat Galvansers Pvt Ltd ITAs No. 1232/Mum/2011 ITA 1263/Mum/2011 CO 170/Mum/2013
6. The CIT(A), therefore, restricted the disallowance at 5%, as against 10% made by the AO.
7. Against this order of the CIT(A), Cross appeals have been filed by the department as well as by the assessee. The assessee has also filed CO against the appeal filed by the department.
8. Against this order of the CIT(A), Cross appeals have been filed by the department as well as by the assessee. The assessee has also filed CO against the appeal filed by the department.
9. In all these impugned appeals, the common issue involved is whether on the facts and circumstances, any disallowance is called for by the revenue authorities.
10. The CIT(A) came to the above findings, after going through the evidences, which indicate the process of galvanizing and also business done with and on behalf of its sister concern. At the time of hearing before us, the AR supported his case by filing certificate/inference set out by Bureau of Indian Standards (BIS), pertaining to Hot Dip Zink Coatings on Structural Steels And other Allied Products - Specifications, wherein the BIS has laid down certain parameters with regard to Mass Zinc Coatings & gives minimum value or Average Mass of coatings.
11. Keeping this analysis issued by BIS, we are satisfied that consumption of zinc and galvanizing process cannot remain uniform, even on customers to customer basis also to arrive at any standard input. But the assessee has accommodated and has given concessions to its sister concern, which is its business associate. These being the 6 Galbro Ispat Galvansers Pvt Ltd ITAs No. 1232/Mum/2011 ITA 1263/Mum/2011 CO 170/Mum/2013 facts, a certain disallowance is called for, to give a quitus to the affairs, which according to us shall be at 2% of Rs. 1,66,95,148/-.
12. Accordingly, the AO is directed to restrict the disallowance at 2% and delete the remaining disallowance.
13. The appeal of the assessee is partly allowed.
14. In the result, since all three appeals are on one issue, all the three appeals are treated as partly allowed. Order pronounced in the open Court on 19th November, 2014.
Sd/- Sd/-
(आर. सी. षमा[)
आर. सी. (ǒववे
ǒववेक वमा[)
लेखा सदःय Ûयाईक सदःय
(R.C. SHARMA) (VIVEK VARMA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Date: 19th November, 2014 ूित/Copy to:-
1) अपीलाथȸ/The Appellant.
2) ू×यथȸ/The Respondent.
3) The CIT (A)-19, Mumbai.
4) आयकरआयुƠ -9,, Mumbai/The CIT - 9,Mumbai.
5) ǒवभागीयूितिनिध "G", आयकरअपीलीयअिधकरण,मुंबई The D.R. "G" Bench, Mumbai.
6) गाड[ फाईल Copy to Guard File.
आदे शानुसार/By Order / / True Copy / / [ उप/सहायकपंजीकार आयकरअपीलीयअिधकरण,मुंबई Dy./Asstt. Registrar I.T.A.T., Mumbai *चåहानव.िन.स