Income Tax Appellate Tribunal - Chandigarh
M/S Dev Alloys Pvt. Ltd., Khanna vs Ito, W-4, Khanna on 31 May, 2019
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ "एकल सद यीय', च डीगढ़
IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH
'SMC' CHANDIGARH
ीमती दवा संह, या#यक सद य
BEFORE: SMT. DIVA SINGH, JM
आयकर अपील सं./ ITA No. 1582/CHD/2017
#नधा'रण वष' / Assessment Year : 2012-13
M/s Dev Alloys Private बनाम The ITO,
Limited., VS Ward - 4,
Opp Power House, G.T.Road, Khanna
Khanna.
थायी लेखा सं./PAN No: AAACD6223F
अपीलाथ /Appellant यथ /Respondent
नधा रती क ओर से/Assessee by : Shri Ashwani Kumar
राज व क ओर से/ Revenue by : Shri A.K.Dhir, Sr.DR
सन
ु वाई क तार#ख/Date of Hearing : 13.05.2019
उदघोषणा क तार#ख/Date of Pronouncement : 31.05.2019
आदे श/ORDER
The present appeal has been filed by the assessee assailing the correctness of the order dated 11.09.2017 of CIT(A)-2, Ludhiana pertaining to 2012-13 assessment year on the following grounds :
1. That the order of the Ld. CIT(A) is against the facts of the case and is bad in law.
2. That the Ld. CIT(A) has erred in confirming the action of the Ld. A.O. for rejection of books of accounts by drawing adverse inference from variation in Power Consumption.
3. That the Ld. CIT(A) has erred in confirming the addition of Rs. 23,30,046/- on account of G.P. rate on the declared turnover of the assessee as per books of accounts.
4. That the Ld. CIT(A) has erred in not adjudicating Ground No. 4 of the assessee's appeal which was without prejudice to the above grounds for applying the enhanced G.P. rate on entire Turnover i.e. inclusive of Excise Duty, whereas, there can be no Profit on Excise Duty.
5. That the appellant craves leave to add, amend or delete any of the grounds of appeal before the same is finally heard & disposed off.
2. The ld. AR addressing ground Nos. 1 to 3 invited attention to assessment order page 2 para 2 so as to submit that books of account were produced, examined and test-checked. In view of the fact that the assessee expressed his ITA-1582/CHD/2017 A.Y. 2012-13 Page 2 of 7 inability to produce Daily Production Register, electricity bills etc. On 12.02.2015 it was submitted the GP rate of the assessee has been tinkered with. Inviting attention to the un-numbered page 3 of the assessment order, it was his submission that the assessee admittedly gave specific reasons why on the said date supporting documents for 2012-13 assessment year could not be produced. For ready reference, said reply is extracted from the record hereunder :
"The assessee has already closed its business from during 2012 onwards. The account of the assessee has become NPA. The unit is under the possession of Punjab & Sind Bank, Kukar majra , Mandi Gobindgarh. The assessee has no access to the unit as the same is under lock and key of the bank. In support of the same copy of possession notice issued by bank is enclosed. Moreover, the electric connection has also been discontinued.
In view of the above facts, we are unable to provide the daily stock registers, cenvat records & Electric Bills as required."
2.1 It was also his submission that the said position on facts was also confirmed by the Assessing Officer from the Manager, Punjab & Sind Bank to the AO. This fact, it was submitted, is evident from para 4 of the assessment order itself. For ready reference, the relevant extract from the order is reproduced hereunder :
"4. In response to assessee's submission a letter has been written to the Manager, Punjab & Sind Bank u/s 133(6) of the Act regarding office records of the assessee. In response to which reply has been received as under:
" With regard to the production register for this year maintained by the party, we have to submit that we have not dealt with any office records of the party during the process of the physical possession of the unit."
2.2 Addressing the manner in which the addition has been made by the AO and confirmed by the CIT(A), ld. AR invited attention to the un-numbered page 18 of the assessment order (para 16) to show that ignoring the facts as set out in the order itself and ignoring the explanation given which had also been extracted in the order itself, the addition has been made without addressing either the facts or the explanation. Relying upon the explanation offered before the AO for the drop in the GP rate in the year under consideration which has also been extracted at page 13 to page 16 in para 19 in the order it was argued that G.P. can never be static. The reasons have been given. These have not been assailed. The addition made in the circumstances was stated to ITA-1582/CHD/2017 A.Y. 2012-13 Page 3 of 7 be arbitrary. Accordingly, it was his submission that in the peculiar facts and circumstances apart from suspicion, there is nothing else on record. It was argued that it is an accepted fact that the GP rate is a result of many factors and merely because there is variation therein, it cannot necessarily lead to the conclusion that the accounts of the assessee are not reliable.
2.3 In the facts of the present case, it was argued the assessee has given an explanation as to why the specific details called for could not be placed before the AO. These facts it was submitted, are not rebutted. At the cost of reiteration, it was submitted that right from the assessment stage, the assessee has been pleading that its business was declared as a non- performing asset, the factory premises were under lock and key of the bank and the electricity connection also stood discontinued; the fact that in the identical business in Gobind Garh area all similar businesses were facing the situation of dis-connected electricity connection due to business failures which were common facts argued before the AO and well known to the said authority which have been ignored for reasons, best known to the department.
2.4 Inviting attention to the burning loss of the assessee, it was submitted that it was argued and demonstrated to be reasonably compared to the standard burning loss in the industry. The detailed explanation on record, it was submitted, remains uncontested.
2.5 In the said background, it was argued, once the books of account have been audited, explanation why they cannot be produced is verified by the AO himself, these estimated additions cannot be resorted. The department has to being on record some justifiable reason to vary the result unless there is some reason on record to vary the GP. The book results cannot be tinkered with arbitrarily purely on suspicions.
3. The ld. Sr.DR relies upon para 'B' page 9 to 12 of the un-numbered assessment order. The fact that the assessee had stopped its business due to problems amongst the Directors in 2012 itself and the fact that the assessee had become a non-performing asset and the factory premises itself remained under the lock and key of the Punjab & Sind Bank at the relevant point of ITA-1582/CHD/2017 A.Y. 2012-13 Page 4 of 7 time and that the assessee faced disconnection of electricity etc. were not disputed by the ld. Sr.DR. Similarly, the claim of comparative GP ratio over the years and the details as made available in the yield chart, burning loss etc. remained unrebutted. However reliance was placed upon the orders of the authorities below.
4. Both the parties submitted that the facts as available in the assessment order were addressed as the reasons for making the addition are set out in detail in the said order and the CIT(A) has only confirmed the finding without giving any specific independent finding. In view of this the findings and explanations available in the said order have been referred to.
5. I have heard the rival submissions and perused the material available on record. It is seen that admittedly the assessee in the year under consideration had become a non paying asset and the unit had come under the possession of Punjab & Sind Bank, Kukar Majra, Mandi Gobindgarh. As a result of these events, the assessee admittedly claimed that it had no access to the unit since it was under lock and key of the bank. The said position of fact as per record has been confirmed by the responsible person of the Bank on query raised by the AO himself. No rebuttal on facts is made available by the Revenue. The reason for not providing stock registers, cenvet record and electric bills consequently I find stand addressed by a plausible and cogent explanation which has not been upset by the Revenue. It is seen that the AO before making the addition, referred to the facts on record taken into consideration by him which have been heavily relied upon by ld. Sr.DR. For ready reference, these are extracted hereunder :
B. The production of steel ingots worked out by you cannot be accepted because as per information collected by this office from the Punjab State Power Corporation Limited regarding date-wise consumption of electricity units though electricity has been consumed on various dates but less production has been shown on these dates as per the production details obtained from Central Excise, Range VI, Mandi Gobindgarh by you.
Further, there is no consistency in the consumption of electricity units vis-a-vis steel ingots production. The details of production have been tabulated monthwise As per Table below. The Consumption of Electricity in units PMT varies lot.
Month Consumption of electricity Production of Steel Ingots Prod. Of steel ingots
units as per data supplied as per Central Excise per unit
by the PSEB Sirhind record (MT)
April,2011 1263300 1173 1076.982
ITA-1582/CHD/2017
A.Y. 2012-13
Page 5 of 7
May,2011 1023090 727 1407.276
June,2011 1001880 578 1733.356
July,2011 913440 1053 867.464
August,2011 1070070 1245 859.493
Sept.,2011 1121250 1191 941.435
Oct.,2011 897720 935 960.128
Nov.,2011 1156470 1252 923.698
Dec.2011 1033320 948 1090.000
Jan.,2012 959760 1079 889.490
Feb.,2011 633120 993 637.583
March,2012 312840 694 450.778
Total 11386260 11868 959.408
From the above chart, it is amply clear that there is huge variation in all the consumption of Electricity units and production as per central excise record obtained by this office. Electricity is the main input in production of steel ingots.
Further, in your case for the A.Y. 2012-13, a comparative chart of the GP/NP has been submitted by you vide your reply dated 02.02.2015. It has been observed that there is sharp decline in the gross profit rate declared by your concern for the year under consideration when compared with the gross profit rates declared by your concern for the immediate preceding year. For the year under consideration, the gross profit rate declared by your concern is 1.98% on the total sales aggregating to Rs.44.80 crores as against 2.89% on total sales of Rs.35.39 crores for the A.Y. 2011-12. It has also been observed that in identical manufacturing concerns in the area e.g. M/s Nidhi Steel Industries, Bhadla Road, Vill Alour, Khanna it is about 4% to 5% during the assessment year under consideration. Further, the wastage claimed by you is 8.31% which is also on higher side as compared to your own case for the preceding assessment year 2011-12 it was at 7.76%. Please explain/justify the same.
Therefore, it is gathered that there are whooping variations in your book results. Keeping in view the G.P. in comparable cases as mentioned above please show cause why the G.P. declared by you at 1.98% may not be increased to atleast 3-50%. Your reply should reach this office on or before 23.03.2015 failing which the case will be decided on merits as per material available on record."
5.1. The assessee's explanation extracted in pages 13 to 16 of the assessment order which is heavily relied upon by the ld. AR is also necessary to be referred to for the sake of completeness:
9. In response to this show cause, the assessee has submitted as " We have already submitted that the unit of the assessee was not running in smooth condition due to dispute amongst the directors and paucity of funds. The unit was ultimately closed down during the last phase of 2012. The bank account of the assessee became NPA and the bank i.e. Punjab & Sind Bank, KukarMajra took prossession of the assessee's unit.
In view of the above facts, the assessee is unable to provide the complete details as called for by your honur. However, the assessee has already provided the necessary information required by your honour during the assessment proceedings. Had the unit been working properly in a profit making way, there would have been no reason to close the unit. Your honour, is very much aware of the adverse market conditions in the Iron & Steel Industry at Mandi Gobindgarh. Already about 40% of the Industry had closed down its business and the electric connections have been disconnected.
Further regarding number of points mentioned by your honour for rejection of books of accounts, it is submitted that the assessee has maintained complete records including daily ITA-1582/CHD/2017 A.Y. 2012-13 Page 6 of 7 stock records as prescribed under the Central Excise Rules. Regarding the G.R'S. in respect of Inward & Outward freight, it is submitted that the Inward freight is on account of Scrap purchased by the assessee and is duly supported by G.R'S. Regarding outward Freight, it is submitted that as per practice at Mandi Gobindgarh the ingots are sold on FOR basis by all the units. Thus the outward freight is in respect of sales made by the assessee.
The yield of Finished goods is at 91.68%. The resultant figure is not the wastage only but also consists of Runner & Risers which is a bye products and is recycled in manufacturing process. The yield chart is as under:-
(i)Finished Goods 91.68%
(ii) Runner&Risers 389%
(iii) Burning Loss 4.42%
The burning loss at 4.42% is very much reasonable in this line of manufacturing and is very much comparable with other units.
Further, the electric consumption supplied by your honour also appears to be wrong as the assessee was also buying electricity from private parties. The same appears to be not have been included in the data supplied by your honour giving a distorted picture of average units consumed.
The assessee has already filed reply in respect of decrease in gross profit ration vide letter dated 02.02.2015, which may kindly be considered. The wastage is not at 8.31% as already explained above.
It is further submitted that the G.P. ratio given by the assessee as per chart already filed is by taking the gross sales i.e inclusive of excise duty, whereas there could be no profit on excise duty. Thus the G.P. rate for the year under consideration by taking the sales net of excise will come at 2.18% against 1.98% as per previous chart. The G.P. after considering the sales net of Excise for the year under consideration as well as for last year as under:
A.Y. Turnover Gross profit G.P. ratio
Net of Excise
2011-12 322489716 10221236 3.17%
2012-13 406752133 8886298 2.18%
In view of above, the G.P.rate be kindly considered @ 2.18% on the sales net of excise as there cannot be any profit on Excise Duty. It is prayed that the trading results be kindly accepted."
5.2. Considering the same, I am of the view that in the peculiar facts and circumstances of the case wherein admittedly the assessee before the AO produced the audited books of account. As per record, in the last phase of 2012, the business was stopped on account of some dispute amongst the Directors, which is cited as one of the reasons for the decline of the business and ultimately the bank took possession of the business. It is further seen that when para 'B' relied upon by the ld. Sr.DR is considered alongwith the above explanation extracted also from the assessment order, it is seen that the conclusions referred to by the AO qua electricity bills are de-horse the explanation offered namely that over and above the electricity utilized from the electric company, electricity was stated to have been purchased from the ITA-1582/CHD/2017 A.Y. 2012-13 Page 7 of 7 private parties. No rebuttal or contrary fact has been referred to either by the AO or the CIT(A). Similarly, it is seen that yield of the finished goods claimed at 91.68% is on record which also has not been rebutted by the Revenue or the CIT(A). Accordingly, in the peculiar facts and circumstances of the present case, I find that consistently the assessee has given cogent explanation for the fall in G.P. as well as non-production of supporting documents. In the absence of any rebuttal or attempt by the Revenue to seek the relevant documents from the Bank, I find that estimated addition by resorting to tinkering with the G.P. rate on facts was not warranted in the peculiar facts of the present case. The addition made is, accordingly, directed to be deleted.
6. Ground No. 4 raised by the assessee is without prejudice ground, accordingly, since the prayer made in ground Nos. 1 to 3 is allowed, the parties were not heard on ground No. 4.
7. In the result, appeal of the assessee is allowed.
Order pronounced in the Open Court on 31.05. 2019.
Sd/-
( दवा संह ) (DIVA SINGH) या#यक सद य/Judicial Member