The DCIT, Circle-5,, Ahmedabad v. Reclamation Welding Pvt. Ltd.,, Ahmedabad

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' BEFORE SHRI T K SHARMA JM & SHRI A N PAHUJA AM ITA NO.1428/AHD/2008 (ASSESSMENT YEAR:-2005-06) DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-5 2 ND FLOOR CU SHAH BUILDING ASHRAM ROAD AHMEDABAD V/S M/S RECLAMATION WELDING PVT. LTD. 129/129A GVMM ESTATE ODHAV AHMEDABAD PAN: AAACR 7383 J [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI ANIL KUMAR DR ASSESSEE BY:- SHRI TUSHAR P HEMANI AR O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 15- 02-2008 OF THE LD. CIT(APPEALS)-XI AHMEDABAD FOR T HE ASSESSMENT YEAR (AY) 2005-06 RAISES THE FOLLOWING GROUNDS:- 1. THE LD. COMMISSIONER OF INCOME TAX (A)-XI AHMEDABA D HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE O F RS.33 95 839/-ON ACCOUNT OF DISALLOWANCE OF FREIGHT OCTROI AND CART AGE EXPENSES. 2. THE LD. COMMISSIONER OF INCOME TAX (A)-XI AHMED ABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE O F RS.1 51 94 017/- BEING THE SUPPRESSED CONVERSION CHARGES ON ACCOUNT OF CLA IMING EXCESS BURNING LOSS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. COMMISSIONER OF INCOME TAX (A)-XI AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 4. IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A)-XI AHMEDABAD MAY BE SET ASIDE AND T HAT OF THE ASSESSING OFFICER BE RESTORED. 2 ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL FAC TS IN BRIEF AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INC OME OF RS.2 36 64 330/- FILED ON 27-10-2005 BY THE ASSESS EE MANUFACTURING ALLOYS AND STEEL CASTING AFTER BEING PROCESSED U/S 143(1) OF THE INCOME-TAX ACT 1961 [HEREINAFTER REF ERRED TO AS THE ITA N O.1428/AHD/2008 2 ACT] WAS SELECTED FOR SCRUTINY WITH THE SERVICE O F A NOTICE U/S 143(2) OF THE ACT ON 17-10-2006.DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER[AO IN SHORT] NOT ICED THAT THE ASSESSEE DEBITED THE FOLLOWING EXPENSES IN THE P&L ACCOUNT- FREIGHT INWARD & OCTROI RS.20 38 633/- FREIGHT OUTWARD RS. 1 87 046/- CARTAGE OUTWARD RS.11 70 160/- ----------------- RS.33 95 829/- 2.1 ON PERUSAL OF A COPY OF AGREEMENT DATED 2-5-2 000 ENTERED INTO BY THE ASSESSEE WITH THEIR HOLDING COMPANY M/SAIA E NGG. LTD. THE FOLLOWING TERMS AND CONDITIONS APPEARING IN CLAUSE THE 10 & 11 WERE NOTICED BY THE AO: INCOMING RAW MATERIAL FREIGHT AND OCTROI WILL BE PAID BY AIAE. FREIGHT ON FINAL DISPATCH OF CASTING WILL BE BORNE BY AIAE THEREFORE VIDE SHOW CAUSE NOTICE DATED 20-12-2007 THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY THE SAID CLAIM OF RS.33 95 839/- SHOULD NOT BE DISALLOWED. IN RESPONSE THE ASSESSEE VIDE LETTER DATED 24-12-2007 CONTENDED THAT THE ENTIRE EXPENDI TURE OF RS.33 95 839/- WAS INCURRED SOLELY FOR ITS BUSINESS PURPOSE AND ON ITS ACCOUNT ONLY. IN SUPPORT OF ITS CLAIM THE ASSE SSEE SUBMITTED THAT THE FREIGHT IN RESPECT OF RAW MATERIAL AND FINISHED GOODS WAS BORNE BY THE PRINCIPAL ALONE WHILE THE FREIGHT AND OCTROI IN RESPECT OF INWARD STORES FREIGHT OUTWARD FOR CASTINGS JOB WO RK AND LOADING AND UNLOADING OF CASTINGS WITHIN THE FACTORY HAD TO BE BORNE BY THE ASSESSEE. THE ASSESSEE ALSO SUBMITTED THE BREAK UP OF THE EXPENSES AS UNDER: FREIGHT INWARD AND OCTROI 20 38 633 FREIGHT OUTWARD 1 87 046 CARTAGE OUTWARD 11 70 160 ITA N O.1428/AHD/2008 3 TOTAL 33 95 839 FURTHER BREAK UP OF FREIGHT INWARD & OCTROI WAS GIV EN AS UNDER: FREIGHT INWARD 471572 OCTROI 410960 LOADING UNLOADING & WEIGHMENT CHARGES 1156101 TOTAL: 2038633 2.2 THE ASSESSEE STATED THAT THE AFORESAID AMOU NT OF FREIGHT DID NOT INCLUDE FREIGHT INWARD IN RESPECT OF THE RAW MA TERIAL BUT PERTAINED ONLY TO THE STORES AND CONSUMABLES. LIKEW ISE OCTROI OF RS.410960/- WAS ALSO PAID ON THE STORES AND CONSUMA BLES PURCHASED DURING THE YEAR. THE THIRD ITEM INCLUDED IN FREIGHT INWARD WAS 'LOADING UNLOADING AND WEIGHMENT CHARGES' INC URRED FOR THE PURPOSE OF: - MOVEMENT OF CASTINGS UNDER PROCESS WITHIN THE FAC TORY PREMISES OF THE APPELLANT. - LOADING AND UNLOADING OF CASTINGS UNDER PROCESS F OR MOVEMENT THEREOF. - WEIGHMENT OF CASTINGS AT VARIOUS STAGES. - WEIGHMENT OF SCRAP AND ALLOYS BEFORE CHARGING THE M TO FURNACE. 2.3. IT WAS FURTHER EXPLAINED THAT FREIGHT OUTWARD - RS. 1 87 046/- WAS INCURRED FOR LOADING UNLOADING AND FREIGHT FOR MOVING THE USED MOULDING SAND AND OTHER SCRAP MATERIALS OUT OF FACT ORY PREMISES TO BE TAKEN TO A REMOTE PLACE FOR DISPOSAL. SIMILARLY CARTAGE OUTWARD- RS.11 70 160 WAS INCURRED FOR LOADING UNLOADING AN D FREIGHT FOR ITA N O.1428/AHD/2008 4 MOVING THE CASTINGS FOR JOB WORK OUTSIDE THE FACTOR Y PREMISES AND BRINGING IT BACK TO THE FACTORY. ACCORDINGLY THE A SSESSEE SOUGHT DEDUCTION FOR THE EXPENDITURE OF RS.33 95 839/-. 3. HOWEVER THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE WHILE RELYING UPON HIS OWN FINDINGS IN THE AY 2004- 05 AND CONSEQUENTLY DISALLOWED THE AMOUNT OF RS.33 95 8 39/- 4 ON APPEAL THE LEARNED CIT(A) DELETED THE DISALLO WANCE WHILE RELYING UPON HIS OWN ORDERS FOR THE AYS 2002-03 TO 2004-05. 5. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASS ESSEE SUPPORTED THE FINDINGS OF THE LEARNED CIT(A) IN THE LIGHT OF DECISION DATED 31- 12-2009 FOR THE AY 2003-04 IN ITA NO.2954/AHD/2006 AND DECISION DATED 19-11-2010 OF THE ITAT IN THE ASSESSEES OWN CASE FOR THE AYS 2002-03 AND 2004-05 IN ITA NOS.1807 & 1808/AHD/ 2007 . 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT WHILE ADJUDICATING A SIMILAR ISSUE IN THE ASSESSEES OWN CASE FOR THE AY 2003-04 IN ITA NO.29 54/AHD/2006 THE TRIBUNAL IN THEIR ORDER DATED 31-12-2009 CONCL UDED AS UNDER:- 5 THE SECOND GROUND RELATES TO DISALLOWANCE OUT OF FREIGHT AND OCTROI EXPENSES. THE AO EXAMINED THE AGREEMENT DATED 2/5/2 000 OF THE ASSESSEE WITH THE HOLDING COMPANY AIA ENGINEERING L IMITED AND NOTICED THAT AIA ENGINEERING LIMITED WOULD PAY FREIGHT AND OCTROI IN RESPECT OF INCOMING RAW MATERIAL AND ALSO IN RESPECT OF FINAL DISPATCH OF CASTINGS BUT THE ASSESSEE CLAIMED A SUM OF RS.19 45 247/- AS FRE IGHT AND CARTAGE EXPENSES. IT WAS EXPLAINED THAT THE EXPENDITURE WAS INCURRED FOR BUSINESS PURPOSE BUT RELYING ON THE STIPULATION IN THE AGREE MENT THE AO DISALLOWED THE CLAIM AND MADE THE ADDITION. 6 THE LEARNED CIT(A) NOTICED THAT THE ASSESSEE HAS NEITHER CLAIMED FREIGHT ON RAW MATERIAL BROUGHT INTO THE FACTORY NO R ON FINISHED GOODS SENT TO THE PRINCIPAL. THE EXPENDITURE SO CLAIMED IS WIT H REGARD TO STORES MATERIALS AND CONSUMABLES WHILE MANUFACTURING CASTI NGS. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE PURCHASED STORES AND CONSUMABLES AT ITA N O.1428/AHD/2008 5 RS.59 46 629/-WHICH INCLUDED MATERIALS LIKE REFECTO RIES RAMMING MASS ETC. WHICH INVOLVED HIGHER FREIGHT. THE ASSESSEE WA S ALSO REQUIRED TO PAY OCTROI ON SUCH PURCHASES. SINCE THE ADDITION MADE B Y THE AO WAS WITHOUT POINTING OUT AS TO IN RESPECT OF WHICH RAW MATERIAL OR FINISHED GOODS THE ASSESSEE HAS INCURRED FREIGHT AND OCTROI EXPENSES THE LEARNED CIT(A) DELETED THE ADDITION. 7 WE HAVE HEARD THE LEARNED DR AND THE LEARNED AR. THE LEARNED DR BASICALLY RELIED ON THE ORDER OF THE AO AND THE LEARNED AR RELIED ON THE ORDER OF THE LEARNED CIT(A). AFTER HEARING THE PART IES WE DECLINE TO INTERFERE IN THE ORDER OF LEARNED CIT(A). IT IS NOT POINTED OUT BY THE DEPARTMENT AS TO WHETHER FREIGHT AND OCTROI HAVE BE EN PAID IN RESPECT OF RAW MATERIALS BROUGHT FROM THE PRINCIPAL OR FINISHE D GOODS SUPPLIED BACK TO THE PRINCIPAL. UNDER THESE CIRCUMSTANCES THE FINDI NGS GIVEN BY THE ID. CIT(A) THAT THE FREIGHT AND OCTROI EXPENDITURE CLAI MED BY THE ASSESSEE WERE INCURRED ON PURCHASE OF CONSUMABLES AND STORES MATERIALS CANNOT BE DISTURBED. AS A RESULT THIS GROUND OF REVENUE IS R EJECTED. 6.1 SIMILARLY IN AYS 2002-03 AND 2004-05 IN ITA N OS.1807 AND 1808/AHD/2007 THE TRIBUNAL IN THEIR ORDER DATED 1 9-11-2010 ALLOWED A SIMILAR CLAIM WHILE FOLLOWING THE AFORESA ID ORDER DATED 31.12.2009 OF THE ITAT/ 7. INDISPUTABLY SINCE THE FACTS OBTAINING IN THE YEAR UNDER CONSIDERATION ARE SIMILAR TO THOSE AS IN THE EARLIE R AYS 2002-03 TO 2004-05 IN THE LIGHT OF VIEW TAKEN BY THE ITAT IN THEIR AFORESAID DECISIONS WE HAVE NO ALTERNATIVE BUT TO UPHOLD TH E FINDINGS OF THE LD. CIT(A).THEREFORE GROUND NO.1 IN THE APPEAL IS DISMISSED. 8 GROUND NO.2 IN THE APPEAL RELATES TO ADDITION O F RS.1 51 94 017/- ON ACCOUNT OF CONVERSION CHARGES. ON VERIFICATION OF MANUFACTURING ACCOUNT THE AO NOTICED THAT THE ASSESSEE CLAIMED SHORTAGE ON ACCOUNT OF BURNING LOSS/ PROCES S LOSS @ 10.84%. IN THE LIGHT OF HIS FINDINGS IN THE AY 2004 -05 WHEREIN DURING THE SURVEY THE MELTING ENGINEER AND PRODUCTI ON MANAGER OF THE COMPANY STATED THAT THE AVERAGE MELTING LOSS WA S NOT MORE THAN 5% AND THE ASSESSEE HAVING NOT MAINTAINED PROPER R ECORDS AND REGISTERS FOR DAY TO DAY MANUFACTURING ACTIVITIES O R FOR RAW MATERIAL ITA N O.1428/AHD/2008 6 THE AO REJECTED THE BOOK RESULTS HAVING RECOURSE T O THE PROVISIONS OF SECTION 145 OF THE ACT AND ADDED AN AMOUNT OF RS .1 51 94 017/-. 9. ON APPEAL THE LEARNED CIT(A) DELETED THE ADDITI ON IN THE LIGHT OF HIS FINDINGS FOR THE AYS 2002-03TO 2004-05. 10. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE AS SESSEE RELIED UPON THE DECISION DATED 31-12-2009 FOR THE AY 200 3-04 IN ITA NO.2954/AHD/2006 AND DECISION DATED 19-11-2010 OF T HE ITAT IN THE ASSESSEES OWN CASE FOR THE AYS 2002-03 AND 2004-05 IN ITA NOS.1807 & 1808/AHD/2007. 11. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISIONS OF THE ITA T. WE FIND THAT THE TRIBUNAL IN THEIR ORDER DATED 31-12-2009 IN ITA NO.2954/AHD/2006 WHILE ADJUDICATING A SIMILAR ISSUE CONCLUDED AS UNDER: 11 THE FOURTH GROUND RELATES TO UNDISCLOSED CONVERS ION CHARGES ON ACCOUNT OF EXCESS BURNING LOSS. THE AO NOTICED THAT THE BURNING LOSS CLAIMED THIS YEAR IS 10.96% WHICH IS HIGHER CONSIDE RING THE TYPE OF FURNACE USED BY THE ASSESSEE I.E. ELECTRIC FIRED FURNACE WH ICH YIELD HIGHER PRODUCTION COMPARED TO COAL-FIRED FURNACE OR OIL-FI RED FURNACE. A SURVEY U/S 133A WAS CARRIED OUT BY THE DEPARTMENT STATEME NTS OF PRODUCTION MANAGER / MELTING MANAGER WERE RECORDED U/S 131. FR OM THIS IT WAS INFERRED THAT AVERAGE MELTING LOSS IS NOT MORE THAN 5%. HE ACCORDINGLY ALLOWED THE CLAIM OF LOSS AT 5% WORKED OUT THE ADD ITION BY DISALLOWING THE CLAIM OF LOSS AT 5.96%. THIS RESULTED IN AN ADDITIO N OF RS.90 92 5807-. 12 THE CIT(A) NOTICED THAT THE SURVEY INFORMATIONS PERTAINED TO SUBSEQUENT YEAR AND INFORMATIONS SO COLLECTED DURIN G THE SURVEY DID NOT PERTAIN TO THE ENTIRE PROCESS. FURTHER THE OFFICER S WHOSE STATEMENTS WERE RECORDED ARE NOT AWARE OF ENTIRE PROCESS OF JOB WOR KS. THEREFORE THEIR SWORN STATEMENTS CAN NOT BECOME THE BASIS FOR DECID ING THE AMOUNT OF CONVERSION CHARGES. THE CIT(A) ACCORDINGLY DELETED THE ADDITION. ITA N O.1428/AHD/2008 7 13 WE HAVE HEARD THE LEARNED DR AND THE LEARNED AR. IN OUR CONSIDERED VIEW THE ISSUE CAN NOT DECIDED WITHOUT COMPLETE DA TA. THE PARTIES HAVE NOT FURNISHED THE INDUSTRY-WISE LOSS OR THE HISTORY OF THE LOSS IN THE CASE OF THE ASSESSEE FOR LAST 4/5 YEARS THE LOSS INCURRED DURING VARIOUS PROCESS UNDERTAKEN BY THE ASSESSEE PERCENTAGE OF LOSS IN E ACH PROCESS UNDERTAKEN BY THE ASSESSEE COMPARISON OF SUCH LOSS IN DIFFERENT PROCESSES INDUSTRY-WISE AND VARIOUS ASSESSMENT YEAR -WISE IN CASE OF THE ASSESSEE OTHER COMPARATIVE INSTANCES THE REASONS FOR INCURRING LOSS AND OTHER FACTORS SUCH AS TYPE OF MACHINERY USED CLAIM OF MANUFACTURER OF MACHINES AS TO THE AMOUNT OF LOSS LIKELY TO OCCUR W HEN WORK IS DONE ON THEIR MACHINES. ACCORDINGLY WE RESTORE THIS ISSUE TO THE FILE OF THE AO FOR EXAMINING IT AFRESH. AS A RESULT THIS GROUND OF RE VENUE IS ALLOWED BUT FOR STATISTICAL PURPOSE. 12. SIMILARLY IN THEIR ORDER DATED 19-11-2010 IN I TA NOS.1807 & 1808/AHD/2007 FOR THE AYS 2002-03 & 2004-05 THE TR IBUNAL RESTORED THE MATTER TO THE FILE OF THE AO FOR FRESH ADJUDICA TION. 13 INDISPUTABLY SINCE THE FACTS& CIRCUMSTANCES OB TAINING IN THE YEAR UNDER CONSIDERATION ARE SIMILAR TO THOSE AS I N THE EARLIER ASSESSMENT YEARS I.E. AYS 2002-03 TO 2004-05 FOLL OWING THE VIEW TAKEN BY THE ITAT IN THEIR AFORESAID DECISIONS OF T HE TRIBUNAL WE CONSIDER IT FAIR AND APPROPRIATE TO RESTORE THE MAT TER TO THE FILE OF THE AO FOR READJUDICATION IN THE LIGHT OF SIMILAR DIREC TIONS AS HAVE BEEN ISSUED IN THE PRECEDING YEARS. WITH THESE DIRECTION S GROUND NO.2 IN THE APPEAL IS DISPOSED OF. 14. GROUND NOS. 3 & 4 BEING MERE PRAYER DO NOT RE QUIRE ANY SEPARATE ADJUDICATION AND ARE THEREFORE DISMISSED . 15 IN THE RESULT APPEAL IS PARTY ALLOWED FOR STATI STICAL PURPOSES. ORDER PRONOUNCED IN THE COURT TODAY ON 28-02-2011 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 28 -02-2011 ITA N O.1428/AHD/2008 8 COPY OF THE ORDER FORWARDED TO: 1. RECLAMATION WELDING PVT. LTD. 129/129A GVMM ES TATE ODHAV AHMEDABAD 2. DCIT CIRCLE-5 AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XI AHMEDABAD 5. DR ITAT AHMEDABAD BENCH-D AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD