Shri Ramalinga Mills Limited,, Aruppukottai v. DCIT,, Virudhunagar

CO 102/CHNY/2012 | 1999-2000
Pronouncement Date: 31-07-2012

Appeal Details

RSA Number 10221723 RSA 2012
Assessee PAN AADCS8769A
Bench Chennai
Appeal Number CO 102/CHNY/2012
Duration Of Justice 1 month(s) 15 day(s)
Appellant Shri Ramalinga Mills Limited,, Aruppukottai
Respondent DCIT,, Virudhunagar
Appeal Type Cross Objection
Pronouncement Date 31-07-2012
Appeal Filed By Assessee
Bench Allotted C
Tribunal Order Date 31-07-2012
Assessment Year 1999-2000
Appeal Filed On 15-06-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH CHENNAI BEFORE SHRI ABRAHAM P. GEORGE ACCOUNTANT MEMBER AND SHRI S.S. GODARA JUDICIAL MEMBER I.T.A. NOS. 1048 1049 & 1050/MDS/2012 (ASSESSMENT YEARS : 1999-2000 2000-01 & 2001-02) THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE I VIRUDHUNAGAR. (APPELLANT) V. M/S RAMALINGA MILLS LIMITED 212 RAMASAMY NAGAR ARUPPUKOTTAI 626 159. PAN : AADCS8769A (RESPONDENT) C.O. NOS. 102 103 & 104/MDS/2012 (IN I.T.A. NOS. 1048 1049 & 1050/MDS/2012) (ASSESSMENT YEARS : 1999-2000 2000-01 & 2001-02) M/S RAMALINGA MILLS LIMITED 212 RAMASAMY NAGAR ARUPPUKOTTAI 626 159. (CROSS OBJECTOR) V. THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE I VIRUDHUNAGAR. (RESPONDENT) REVENUE BY : SHRI S. DASGUPTA JCIT ASSESSEE BY : NONE DATE OF HEARING : 31.07.2012 DATE OF PRONOUNCEMENT : 31.07.2012 O R D E R PER ABRAHAM P. GEORGE ACCOUNTANT MEMBER : THESE ARE APPEALS AND CROSS-OBJECTIONS FILED BY T HE REVENUE AND ASSESSEE RESPECTIVELY DIRECTED AGAINST A CONSO LIDATED ORDER DATED 29.2.2012 OF COMMISSIONER OF INCOME TAX (APPE ALS)-II MADURAI FOR IMPUGNED ASSESSMENT YEARS. I.T.A. NO. 1048 TO 1050/MDS/12 C.O. NOS. 102 TO 104/MDS/12 2 2. APPEALS OF THE REVENUE ARE TAKEN UP FIRST FOR DI SPOSAL. 3. REVENUE HAS TAKEN A COMMON GRIEVANCE IN ALL THES E APPEALS WHICH ASSAILS THE RESTRICTION OF INVISIBLE LOSS MAD E BY THE ASSESSING OFFICER. AS PER THE REVENUE THE TRIBUNAL HAD EARL IER OBSERVED THAT 1.5% WOULD BE THE INVISIBLE LOSS FOR RAW MATERIALS CONSUMED BASED ON AN ARTICLE PUBLISHED BY SOUTH INDIAN TEXTILE RES EARCH ASSOCIATION (SITRA) IN ASIAN TEXTILE JOURNAL IN JULY 2005. AG AIN AS PER THE REVENUE NO EXPLANATION WAS GIVEN BY THE ASSESSEE W ITH REGARD TO THE INVISIBLE LOSS CLAIMED BY IT IN EXCESS OF 1.5%. 2. FACTS APROPOS ARE THAT ASSESSEE A SPINNING MILL HAVING TWO UNITS HAD FILED ITS RETURN FOR THE IMPUGNED ASSESS MENT YEARS WHICH WERE INITIALLY SUBJECTED TO A SCRUTINY PROCEEDING. THE A.O. DURING SUCH PROCEEDINGS NOTED THAT ASSESSEE HAD MADE A CL AIM FOR STAKING LOSS IN THE PROCESS OF CONSUMPTION OF COTTON. THE A.O. WORKED OUT THE QUANTITY OF STAKING LOSS BASED ON THE OPENING S TOCK RAW MATERIAL PURCHASED AND CLOSING STOCK WHICH GAVE QUANTITY OF CONSUMPTION. ACCORDING TO A.O. SUCH DETAILS SHOWED THAT THERE W AS A CLAIM OF STAKING LOSS OF VARYING KILOGRAMS IN THE RESPECTIVE ASSESSMENTS. SIMILAR STAKING LOSS WAS WORKED OUT FOR FIBRE ALSO. A.O. ALSO NOTED THAT THERE WAS NO SIMILAR LOSS CLAIMED BY THE OTHER SPINNING MILLS I.T.A. NO. 1048 TO 1050/MDS/12 C.O. NOS. 102 TO 104/MDS/12 3 ASSESSED IN HIS CIRCLE AND HE ALSO CONCLUDED THAT T HE SUPPRESSED STOCK OF COTTON AND FIBRE WOULD HAVE BEEN SOLD BY T HE ASSESSEE. HE THEREFORE MADE THE ADDITION FOR THE LOSS IN THE RE SPECTIVE ASSESSMENT YEARS. THEREAFTER ASSESSEE MOVED IN APPEAL BEFORE THE CIT(APPEALS) AND THE CIT(APPEALS) HELD THAT THERE W ERE NO SUBSTANTIAL VARIATION BETWEEN THE QUANTUM AND QUALI TY OF PRODUCTION BETWEEN THE TWO UNITS OF THE ASSESSEE. ACCORDING T O HIM ASSESSING OFFICER HAD NOT FOUND ANY EVIDENCE REGARDING AN EXC ESSIVE CLAIM OF LOSS. FURTHER NO FLAW WAS NOTED IN THE QUANTITATIV E DETAILS OF PRODUCTION OR SALE OF MANUFACTURED ITEMS. CIT(APPE ALS) WAS OF THE OPINION THAT ENTIRE PRODUCTION OF THE ASSESSEE WAS CARRIED ON IN A FACTORY MANAGED BY ITS SUPERVISORS WORKING AT VARIO US LEVEL AND THERE BEING CONTINUOUS SCRUTINY BY CENTRAL EXCISE AUTHORI TIES THERE COULD BE NO EXCESSIVE CLAIM OF LOSS OF THE NATURE ALLEGE D BY THE ASSESSING OFFICER. HE THEREFORE DELETED THE ADDITION MADE BY THE ASSESSING OFFICER FOR STAKING LOSS FOR THE IMPUGNED ASSESSM ENT YEARS. HOWEVER CERTAIN OTHER ADDITIONS MADE BY THE A.O. W ERE SUSTAINED BY THE CIT(APPEALS). RESULTANTLY BOTH THE PARTIES MO VED IN APPEAL BEFORE THIS TRIBUNAL AND THIS TRIBUNAL VIDE ITS OR DER DATED 16 TH FEBRUARY 2007 IN I.T.A. NOS. 1609(MDS)/2003 3058 & 3051(MDS)/ I.T.A. NO. 1048 TO 1050/MDS/12 C.O. NOS. 102 TO 104/MDS/12 4 2004 HELD AS UNDER AT PARA 5 WITH REGARD TO THE I SSUE OF STAKING LOSS:- 5. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF ST AKING LOSS. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LEARNED D EPARTMENTAL REPRESENTATIVE SUBMITTED BEFORE US THAT THE ASSESSE E DID CLAIM THIS LOSS WITHOUT ANY BASIS. NO EVIDENCE IN THIS R EGARD WAS ADDUCED. NO SPINNING MILL IN THE ENTIRE VIRUDHUNAG AR CIRCLE HAS CLAIMED THIS STAKE LOSS INCLUDING THE ASSESSEE'S OW N B-UNIT WHICH WAS ENGAGED IN THE SAME BUSINESS. THE LEARNED COUN SEL FOR THE ASSESSEE SUBMITTED THAT SUCH INVISIBLE LOSS IN SPIN NING MILLS IS INEVITABLE. IT IS DUE TO A NUMBER OF REASONS LIKE SHORT FIBERS WEIGHING ERRORS EXCESS GIVE AWAY OF YARN DIFFEREN CE IN MOISTURE CONTENT BETWEEN COTTON AND YARN PILFERAGE INACCUR ACIES IN THE ESTIMATES OF STOCK HELD IN PROCESS IMPROPER ACCOUN T OF WASTES PRODUCED ETC. OUR ATTENTION WAS INVITED ON AN ART ICLE APPEARED IN ASIAN TEXTILE JOURNAL JULY-2005 AT PAGE 49. IN THIS ARTICLE NORMS FOR INVISIBLE LOSS WERE SET AS UNDER: GOOD-0 .5% AVERAGE- 1.0% POOR-1.5%. IN THE PRESENT CASE WE FIND THAT THE ASSESSEE DID CLAIM INVISIBLE LOSS AT 1.9%. WE FIND THAT THE RE IS NO ADEQUATE DISCUSSION IN THIS REGARD IN THE IMPUGNED ORDER. WE DO NOT KNOW HOW THE INVISIBLE LOSS WAS ASSESSED BY THE ASSESSEE. HOW THE ASSESSEE COMPLIED THE DATA? WHAT WAS THE M OISTURE CONTENT IN THE COTTON AT THE TIME OF PURCHASE? WHE THER ANY RECORD WAS KEPT FOR THAT? WHAT TECHNIQUE THE ASSES SEE DID APPLY TO FIND OUT THE QUANTUM OF INVISIBLE LOSS? W HAT PERCENTAGE OF LOSS WAS SHOWN IN THE PRECEDING YEARS? IS THERE ANY VARIATION IN THE PERCENTAGE CLAIMED IN THOSE YEARS AND WHAT W AS THE REASON FOR SUCH VARIATION? THESE ARE SOME OF THE ISSUES W HICH ARE TO BE LOOKED INTO BEFORE DETERMINING THE QUANTUM OF INVIS IBLE LOSS. NOTHING WAS DONE IN THIS REGARD. WE THEREFORE IN THE INTEREST OF JUSTICE SET ASIDE THE IMPUGNED ORDER AND RESTORE IT TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE IT DE NOVO IN ACCORDANCE WITH LAW AFTER PROVIDING ADEQUATE OPPORT UNITY TO THE ASSESSEE OF BEING HEARD. 3. PURSUANT TO SET ASIDE THE ASSESSING OFFICER ONC E AGAIN TOOK UP THE ISSUE REGARDING STAKING LOSS. ASSESSEE WAS REQ UIRED TO EXPLAIN I.T.A. NO. 1048 TO 1050/MDS/12 C.O. NOS. 102 TO 104/MDS/12 5 THE LOSS CLAIMED BY IT. SUBMISSION OF THE ASSESSEE WAS THAT IT HAD ADOPTED BALANCING METHOD TO ARRIVE AT LOSS AND THER E WAS NO MOISTURE CONTENT OF COTTON AT THE POINT OF PURCHASE . HOWEVER ASSESSING OFFICER WAS NOT IMPRESSED IN THE SECOND R OUND ALSO. ACCORDING TO HIM SUCH LOSS CLAIMED BY THE ASSESSEE IN THE EARLIER YEARS WERE ABOUT 2.50% ONLY WHEREAS FOR THE IMPUG NED ASSESSMENT YEARS IT WAS IN EXCESS OF 2.68%. ACCOR DING TO A.O. THIS TRIBUNAL HAD CLEARLY NOTED THAT INVISIBLE LOSS COUL D AT THE WORST BE ONLY 1.5% BASED ON SITRA ARTICLE PUBLISHED IN ASIA N TEXTILE JOURNAL JULY 2005 EDITION. AS PER THE A.O. LOSS WAS CLAI MED BY THE ASSESSEE IN THE EARLIER YEARS UNDER THE HEAD INVIS IBLE LOSS WHEREAS FOR THE IMPUGNED ASSESSMENT YEARS IT WAS CLAIMED UNDER TWO HEADS NAMELY INVISIBLE LOSS AND STAKING LO SS. HE THUS RESTRICTED THE LOSS TO 1.5% AND THE BALANCE WAS DIS ALLOWED. 4. ASSESSEE ONCE AGAIN MOVED IN APPEAL BEFORE THE CIT(APPEALS) FOR THE IMPUGNED ASSESSMENT YEARS AG AINST THE CURTAILMENT OF INVISIBLE AND STAKING LOSS CLAIMED B Y IT. ARGUMENT OF THE ASSESSEE WAS THAT THE TRIBUNAL HAD ONLY SET ASI DE THE ORDERS OF THE CIT(APPEALS) AND ASSESSING OFFICER FOR CONSIDER ATION AFRESH. ACCORDING TO IT INVISIBLE LOSS ON CONSUMPTION MATE RIAL COULD NOT BE EQUATED WITH CASH. FURTHER AS PER THE ASSESSEE I TS BOOKS WERE NOT I.T.A. NO. 1048 TO 1050/MDS/12 C.O. NOS. 102 TO 104/MDS/12 6 REJECTED AND THERE WAS NO MATERIAL FOR MAKING AN AD DITION AT ALL. AS FOR THE QUESTIONS RAISED BY THE TRIBUNAL REPLY OF THE ASSESSEE WAS THAT INVISIBLE LOSS WAS CONSIDERED BY BALANCING MET HOD AND DATA FOR THIS WAS COMPILED FROM COTTON STOCK REGISTER YARN PRODUCING REGISTER AND WASTE STOCK REGISTER. SINCE BALANCING METHOD W AS USED THERE WAS NO NEED FOR ANY SEPARATE TECHNIQUE FOR QUANTIFY ING THE LOSS. AS PER THE ASSESSEE THERE COULD BE VARIATION IN THE L OSS DUE TO QUALITY CHANGES MIX CHANGES AND CHANGES IN END PRODUCT MIX . 5. CIT(APPEALS) WAS APPRECIATIVE OF THESE CONTENTIO NS. ACCORDING TO HIM THERE WAS NO CLAIM OF ANY INVISIBLE LOSS MA DE BY THE ASSESSEE IN ITS PROFIT & LOSS ACCOUNT OR IN THE BALANCE SHEE T. THERE BEING NO CLAIM BY THE ASSESSEE AT ALL AS PER THE CIT(APPEAL S) THERE WAS NO QUESTION OF DISALLOWANCE OF LOSS. CIT(APPEALS) ALS O NOTED THAT THERE WAS NO EVIDENCE TO SHOW THAT ANY INFLATED CLAIM OF EXPENDITURE WAS MADE BY THE ASSESSEE. AT THE BEST ACCORDING TO HI M IT WAS ONLY A TEST OF EFFICIENCY AND COULD NOT BE A BASIS FOR MAK ING AN ADDITION. HE THUS DELETED THE ADDITIONS MADE BY THE ASSESSING OF FICER FOR ALL THESE ASSESSMENT YEARS. 6. NOW BEFORE US LEARNED D.R. STRONGLY ASSAILING THE ORDERS OF CIT(APPEALS) SUBMITTED THAT THE ASSESSING OFFICER WENT BY THE I.T.A. NO. 1048 TO 1050/MDS/12 C.O. NOS. 102 TO 104/MDS/12 7 DIRECTIONS OF THE TRIBUNAL WHILE CONSIDERING THE IS SUE AFRESH. ASSESSEE HAD NOT PROPERLY ANSWERED THE QUESTIONS RA ISED BY THE TRIBUNAL AND THERE WAS A CLEAR FINDING BY THE TRIBU NAL THAT 1.5% LOSS ALONE COULD BE CONSIDERED AND ANYTHING ABOVE THAT W OULD BE IN EXCESS OF A NORMAL PRODUCTION LOSS. ASSESSING OFFI CER ACCORDING TO HIM HAD MADE ONLY A DISALLOWANCE IN LOSS IN EXCESS OF 1.5% AND THEREFORE CIT(APPEALS) FELL IN ERROR IN DELETING S UCH ADDITION WHICH WAS MADE IN ADHERENCE TO THE TRIBUNAL DIRECTIONS. 7. THOUGH NOTICE FOR HEARING WAS SERVED ON THE CHIE F CASHIER OF ASSESSEE AS EARLY AS JUNE 2012 NOBODY APPEARED ON BEHALF OF ASSESSEE. 8. WE HAVE PERUSED THE ORDERS AND HEARD THE LEARNE D D.R. IN ASSESSEES CROSS-OBJECTIONS WHICH ARE ESSENTIALLY IN SUPPORT OF THE ORDERS OF CIT(APPEALS) IT HAS FILED COPIES OF PROF IT & LOSS ACCOUNT FOR THE IMPUGNED ASSESSMENT YEARS. AS NOTED BY CIT(APP EALS) NO LOSS BY THE NAME STAKING LOSS OR INVISIBLE LOSS IS APPEA RING IN ITS PROFIT & LOSS ACCOUNT OR BALANCE SHEET OF THESE YEARS. NO D OUBT ASSESSEE HAD WORKED OUT THE RAW MATERIAL CONSUMPTION BASED O N THE OPENING QUANTITIES PURCHASED QUANTITIES AND CLOSING QUANTI TIES. THIS CANNOT BE A REASON FOR ARRIVING AT A CONCLUSION THAT ASSES SEE HAD CLAIMED I.T.A. NO. 1048 TO 1050/MDS/12 C.O. NOS. 102 TO 104/MDS/12 8 ANY STAKING OR INVISIBLE LOSS. AS NOTED BY THE LD. CIT(APPEALS) LOSS OF QUANTITIES IN PRODUCTION PROCESS COULD VARY AND AT THE BEST THIS WOULD BE A MEASURE OF INEFFICIENCY OR EFFICIENCY OF A UNI T. NO DOUBT THIS TRIBUNAL IN ITS EARLIER ORDER DATED 16 TH FEBRUARY 2007 HELD THAT ASSESSEE HAD CLAIMED INVISIBLE LOSS AT 1.9% AGAINST NORMS APPEARING IN ASIAN TEXTILE JOURNAL WHICH GAVE SUCH PERCENTAG ES AS GOOD-0.5% AVERAGE-1.0% AND POOR-1.5%. ON THE QUESTIONS RAISE D BY THE TRIBUNAL AS TO HOW THE INVISIBLE LOSS WAS ASSESSED BY THE ASSESSEE AND HOW ASSESSEE COMPILED THE DATA ASSESSEE HAD GI VEN SPECIFIC REPLIES. ASSESSEE HAD STATED THAT IT HAD USED BALA NCING METHOD TO FIND OUT THE CONSUMPTION BASED ON STOCK RECORDS. A SSESSING OFFICER PURSUANT TO TRIBUNAL DIRECTIONS HAD MADE A WORK OU T CONSIDERING 1.5% AS THE STANDARD LOSS THAT COULD BE THERE IN PR OCESSING OF COTTON AND FIBRE. CIT(APPEALS) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER FOR LOSS IN EXCESS OF 1.5%. IN OUR OPINIO N THE WORK-OUT MADE BY THE ASSESSING OFFICER WAS NOT AT ALL SCIENTIFIC. FOR A SCIENTIFIC ANALYSIS OF LOSS IT WAS IMPERATIVE THAT THE WORK-O UT STARTED FROM THE QUANTITY OF OPENING STOCK. HE OUGHT HAVE THEN TAKE N THE QUANTITY OF PURCHASES AND QUANTITY OF CLOSING STOCK TO ARRIVE A T THE QUANTITY OF CONSUMPTION AND THEREAFTER COMPARED SUCH CONSUMPTIO N WITH NORMAL INDUSTRIAL STANDARDS FOR THE ACHIEVED PRODUCTION. EVEN AFTER SUCH I.T.A. NO. 1048 TO 1050/MDS/12 C.O. NOS. 102 TO 104/MDS/12 9 AN EXERCISE IF THE CONSUMPTION QUANTITY WAS FOUND TO BE EXCESS OF INDUSTRIAL AVERAGE STILL THE A.O. WOULD HAVE TO ES TABLISH THAT THERE WERE SOME DEFECTS IN THE BOOKS OF ACCOUNTS INCLUDI NG THE STOCK REGISTER TO COME TO A CONCLUSION THAT THERE WAS A C LAIM OF EXCESS CONSUMPTION ON ACCOUNT OF SOME INFLATION OF EXPENSE S. CONSUMPTION IN EXCESS OF INDUSTRIAL NORMS COULD BE DUE TO PRODU CTION EFFICIENCY OR INEFFICIENCY LEVELS OF THE UNITS. THERE IS NO RULE THAT EVERY UNIT MANUFACTURING COTTON YARN SHOULD HAVE SAME STANDARD OF PRODUCTION. NONE OF THESE FACTORS WERE CONSIDERED BY THE LOWER AUTHORITIES. IN SUCH A SITUATION WE ARE OF THE OPINION THAT THE AS SESSING OFFICER AS WELL AS CIT(APPEALS) FAILED TO CARRY OUT THE DIRECT ION OF THIS TRIBUNAL FOR WORKING OUT EXCESS LOSS IF ANY CLAIMED BY THE A SSESSEE BY WAY OF INCREASED CONSUMPTION OF RAW MATERIAL NAMELY COTT ON AND FIBRE. WE THEREFORE FEEL THAT THE MATTER HAS TO GO BACK TO THE A.O. FOR CONSIDERATION AFRESH AND HE HAS TO WORK-OUT THE CON SUMPTION COMPARE IT WITH INDUSTRIAL STANDARDS AND CORROBORAT E IT WITH FURTHER EVIDENCE IF AT ALL ANY ADVERSE CONCLUSION IS TO BE DRAWN ON THE CONSUMPTION OF MATERIAL CLAIMED BY THE ASSESSEE. W E THEREFORE SET ASIDE THE ORDERS OF LOWER AUTHORITIES AND REMIT THE MATTER BACK TO THE FILE OF THE A.O. FOR CONSIDERATION AFRESH IN ACCORD ANCE WITH THE I.T.A. NO. 1048 TO 1050/MDS/12 C.O. NOS. 102 TO 104/MDS/12 10 DIRECTION MENTIONED SUPRA AS ALSO DIRECTION GIVEN B Y THE TRIBUNAL IN ITS ORDER DATED 16 TH FEBRUARY 2007. 9. NOW COMING TO THE CROSS-OBJECTIONS RAISED BY THE ASSESSEE WHICH ARE IN SUPPORT OF THE ORDERS OF CIT(APPEALS) AS ALREADY MENTIONED BY US IF THE ASSESSEE IS ABLE TO SHOW TH AT THE CONSUMPTION WAS NOT ABNORMAL VIS--VIS INDUSTRIAL A VERAGES AND IF THE BOOKS ARE NOT HAVING ANY DEFECTS DISALLOWANCE FOR INVISIBLE OR STAKING LOSS CANNOT BE MADE. WITH THESE OBSERVATIONS CROS S-OBJECTIONS OF THE ASSESSEE ARE DISMISSED SINCE THE MATTER HAS BE EN REMITTED BACK TO A.O. FOR CONSIDERATION AFRESH. 10. IN THE RESULT APPEALS OF THE REVENUE ARE ALLOW ED FOR STATISTICAL PURPOSES WHEREAS CROSS-OBJECTIONS OF THE ASSESSEE ARE DISMISSED AS INFRUCTUOUS. ORDER WAS PRONOUNCED IN THE COURT ON TUESDAY THE 3 1 ST OF JULY 2012 AT CHENNAI. SD/- SD/- (S.S. GODARA) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI DATED THE 31 ST JULY 2012. KRI. COPY TO: ASSESSEE/ASSESSING OFFICER/CIT(A)-II MAD URAI/ CIT-II MADURAI/D.R./GUARD FILE