Income Tax Appellate Tribunal - Chandigarh
Acit, Mandi Gobindgarh vs M/S Prs Rolling Mills Pvt. Ltd., Mandi ... on 30 August, 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. 844/Chd/2016
Assessment Year: 2010-11
M/s RPS Rolling Mills Pvt.Ltd. Vs. The JCI T
Gau Shala Road, Rajpura Range, Mandi Gobindgarh
PAN No. AABCP7828F
ITA No. 115/Chd/2016
Assessment Year: 2010-11
The ACI T Vs. M/s RPS Rolling Mills Pvt.Ltd.
Circle, Mandi Gobindgarh Gau Shala Road, Rajpura
(Appellant) (Respondent)
Assessee By : Sh. Rajiv Datta
Revenue By : Sh. Ravi Sarangal
Date of hearing : 27/07/2017
Date of Pronouncement : 30/08/2017
ORDER
PER BENCH Both these appeal has been filed by the Assessee and the Revenue against the common order of Ld. CIT(A), Patiala dt. 30/12/2015.
2. The Assessee has raised the following grounds of appeal:
1. That the order of the Ld. 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 Ld. AO in rejecting the books of accounts.
2. That the Ld. CIT(A) has erred in upholding the specific consumption of Power applicable to the entire period by considering the uniform production conditions over the periods, whereas the assessee was not running an automatic production unit.
3. That the learned CIT(A) was not justified to arbitrarily uphold the addition of Rs.
150,04,760/- as against the total addition of Rs. 150,04,760/- as against the total addition of Rs. 3,41,63,820/- on account of alleged Investment required for alleged unaccounted production by applying the specific power consumption at 134.42 units PMT of Production against 131.81 units applied by Ld. A.O.
4. That the Ld. CIT(A) was not justified to uphold the addition of Rs. 95,32,540/-
against Rs. 97,25,413/- made by learned AO on account of alleged unaccounted profit on alleged unaccounted sale of 6514.70 M.T.
5. Without prejudice to ground No. 3 & 4 above, the Ld. CIT(A) has erred in not telescoping the addition on account of G.P. while confirming the addition of Investment in unaccounted production
6. That the Ld. CIT(A) was not justified in confirming the disallowance of Rs. 4,77,648/-
on account deferred expenses.
27. That the Ld. CIT(A) was not justified in confirming the disallowance out of interest at 14,06,717/- on account for Investment in Plant & Machinery, whereas, the assessee has not raised loan for making the Investment.
8. That the Ld. CIT(A) was not justified in upholding the disallowance of depreciation on Vehicle amounting to Rs. 1,05,075/-.
3. The Revenue has raised the following grounds:
1. In the facts and circumstances of the case and in law, the ld. CIT(A) has erred in restricting the addition of Rs. 3,41,63,820/- to the extent of Rs. 1,50,04,760/- made on account of unaccounted investment in unaccounted production.
2. In the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in estimating without any basis the total undisclosed investment in respect of unaccounted production to half of that estimated by the AO on considerations like credit purchase / sale, which are not relevant for addition u/s 69/69B, ignoring the fact based computation of reasonable holding period computed by the AO in the assessment order.
3. It is prayed that the order of Ld. CIT(A) be set aside and that of the AO restored.
4. Firstly we shall deal with the appeal of the assessee in I TA No844/CHD/2016 for Assessment Year 2010-11
5. The brief facts relating to the issues under consideration are that the assessee company is a steel Re-Rolling Mill engaged in manufacturing of iron and Steel Pr oducts 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 dir ectly related to the production of fi nished goods . In 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 El ectricity Board. The Assessing officer analyzed the cons umption 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 pmt 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 s ome days though there was electricity consumption yet no pr oduction was shown.
He further noted that other wise 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 3 correct and, hence, not reliable. He observed that the data relating to the daily producti on had been mai ntained as per actual production. When confr onted in this respect, the assessee explained that the consumption of el ectricity was dependent on various factors 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 ultimately held that the assessee company was involved in unaccounted production of finished goods which resulted 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 rejected the books of account of the ass essee by invoking the provisions of section 145(3) of the Income-tax Act, 1961 (i n short 'the Act') and proceeded to frame the assessment in the manner as provided u/s 144 of the Act. He thereafter estimated the inc ome of the asses see 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 estimated the unacc ounted 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 wor ked out. Secondly, the peak unaccounted production for the relevant month was determined and by multiplying the average sale rate of finished goods, the unaccounted investment was worked out. The Assess ing officer in this way wor ked out the total unaccounted investment of the assessee in the unaccounted production at Rs . 3,41,63,820/- and Rs. 97,25,613/- on account of profit out of unaccounted production and added back the same to the income of the assessee.
6. 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 submi ssions of the assessee held that an amount of Rs. 150,04,760/- may b e treated as unaccounted investments .
7. The Revenue filed appeal before us for the amount of relief of Rs. 1,91,59,060/- granted by the CI T(A) and the assessee filed ppeal for the amount of Rs. 150,04,760/- confirmed by the CI T(A) on account of alleged production outside the books of account and for Rs. 95,32,540/- by applying GP ratio @6.49% on the sale outside books of account.
8. We have heard Ld. Representatives of both the parties.
49. I t was also brought to the notice that subsequent to the passing of the above stated 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 e xperts from the NI SST (National I nstitute of the Secondary Steel Technology) and also the industr y 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 b ook results should be accepted.
10. Ld. Counsel for the Assessee, relying upon the report of the Committee constituted by the Princ ipal Commissioner of I ncome Tax, Patiala argued that he was covered on the issue of production as decided by the Committee. The ass essee 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 b y the different ass esses. The Ld. AR has submitted the chart of per metric ton electric unit consumpti on which is mentioned here under:
(i ) Pr od u ct ma n ufa ct u r ed- Fl at s of di ff er en t si z e s & Sect i on s .
(i i ) Y earl y av era ge as p er An n ex u re ' A; t o t h e As s es s men t o rde r . 17 8 .7 4 (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 20 5 .5 5
M i n i m um 15 2 .0 0
(i v ) M a xi m u m av era ge i n b l ock o f 30 da y s as p e r An n e x ur e 'E ' t o t h e Ast t .
Or der f r om 1 5 .05 .2 00 9 t o 2 5 .06 .2 00 9 28 0 .3 0
(v ) M i n i m um a ve rag e i n b l ock o f 3 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 6 .02 .2 01 0 t o 1 4 /0 3/ 20 10 . 13 3 .8 1
(v i ) Re ma rk s - N o d a y w i se e l ect ri c co n s u mp t i on av ai l ab l e f or 1 1 da ys i n t h e b l oc k o f h i gh er c on s u mp t i on . Th e n e xt h i gh e r c on s ump t i on i s at 21 1 .84 , w h i c h gi ve s v ari at i on of a b o ut 1 8% t o t h e av era ge . Th e min i m um vari at i on i s ab o ut 25 % t o t h e av er ag e con s u mp t i on . Th e un i t o f t h e as s e ss ee di d n ot run con t i n u o u sl y a n d t h i s af fect e d t h e d a y t o da y p ow e r c on s u mp t i on .
11. This Tribunal vide its common order dated 14.2.2017, p assed 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 constituted b y the Principal Commissioner of I ncome Tax, Patiala certain 5 internal guidelines regarding acceptability of variation upto 15% have been issued and further that no additions have been made on similar issue in subsequent years by the As sessing officer, has remanded the matter to the Asses sing officer with a direction 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.
12. In our view this matter needs to be restored to the Asses sing Officer in the present appeals, as the Ld. CI T(A) didn't have the benefit of committee repor t while deciding the above appeals as in other similar cases where in the internal guidelines of the committee constituted by the Principal Commissioner of I ncome Tax, Patiala were followed. The Committee so cons tituted was a Broad based Multi Member body having Addi tional 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 nstitute of the Secondary Steel Technology (NI SST) and the I ndustry r epresentatives. The department has accepted the variation of 15% in consumption of electricity per metric ton of finished goods as per the repor t of the Commi ttee.
13. Considering the above facts and circumstances and since the facts 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. RI ETA 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.
14. We therefore, set aside the action of the Assessing officer in rejecting the books of account and with directions to follow the guidelines formulated by the commi ttee consti tuted b y 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 Ass essing Officer for completion of the assessment in accordance with law.
15. In the result, cross appeals are hereby allowed for statistical purposes.
16. Ground No. 6 s tands withdrawn.
17. During the assess ment proceedings the assessee has claimed deferred expenses of Rs . 4,77,648/- in the P&L Account pertaining to advertisement, commission and interest 6
18. Ground No. 7 is that the Ld. CI T(A) was not justified to uphold the addition of Rs. 14,06,717/- under section 36(1)(iii) on account of Interest on Capital work in Progress.
19. 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 1,06,83,272/-. The Assessing Officer has disallowed interest on the capital work in progress to the tune of Rs. 14,06,717/- 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).
20. 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).
21. Ld. DR relied on the order of the CI T(A) , while Ld. DR relied on the submissions taken before the CIT(A).
22. We have heard Ld. Representatives of both the parties and perused the material available on record.
23. Before us, the Ld. AR submitted that work in progress for Plant & Machinery was Rs. 2,33,81,230/-. The accumulative profits were to the tune of 2,05,36,384/- and the capital was Rs. 2,14,98,00/- whereas the unsecured loans were to the tune of 2.86 crores. This proves that the assessee has got sufficient own funds available for utilization for capital expenditure. 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 that no disallowance of interest is called for where the assessee has got sufficient own funds. The assessee succeeds on this ground.
24. Ground No. 8 relates to upholding of disallowance of depreciation on Vehicle amounting to Rs. 1,05,075/-. The depreciation was disallowed as the assessee company failed to furnish the evidence of ownership of vehicles. The Assessing Officer is 7 directed to allow the depreciation on production of relevant documents pertaining to ownership of the vehicles by the assessee.
25. In the resul t both the appeals are allowed for statistical purposes.
Order pronounced in the Open Court on 30/08/2017.
Sd/- Sd/- (DIVA SINGH) (B.R.R.KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 30/08/2017 AG
Copy to: The Appellant, The Respondent, The CIT, The CIT(A), The DR