DCIT, New Delhi v. M/s. Info Alusys Industries Ltd., New Delhi

ITA 5635/DEL/2012 | 2007-2008
Pronouncement Date: 28-11-2014 | Result: Dismissed

Appeal Details

RSA Number 563520114 RSA 2012
Assessee PAN AAACM5489L
Bench Delhi
Appeal Number ITA 5635/DEL/2012
Duration Of Justice 2 year(s) 20 day(s)
Appellant DCIT, New Delhi
Respondent M/s. Info Alusys Industries Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 28-11-2014
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 28-11-2014
Date Of Final Hearing 20-10-2014
Next Hearing Date 20-10-2014
Assessment Year 2007-2008
Appeal Filed On 07-11-2012
Judgment Text
INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C : NEW DELHI BEFORE SHRI G. D. AGARWAL HONBLE VICE PRESIDENT AND SHRI A. T. VARKEY JUDICIAL MEMBER ITA NO. 5635/DEL/2012 (ASSESSMENT YEAR 2007 - 08) ITA NO. 44/DEL/2013 (ASSESSMENT YEAR 2008 - 09) ITA NO. 4954/DEL/2013 (ASSESSMENT YEAR 2009 - 10) DCIT CIRCLE - 11(1) ROOM NO.312 C.R.BUILDING NEW DELHI VS. INFO ALUSYS INDUSTRIES LTD 606 TOLSTOY HOUSE TOLSTOY MARG NEW DELHI PAN:AAACM5489L (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. PAMINDER KAUR SR. DR RESPONDENT BY : SHRI SATISH AGARWAL CA. SHRI DHARENDER KUMAR CA O R D E R PER A. T. VARKEY JUDICIAL MEMBER THESE DEPARTMENTAL APPEAL S RELATING TO ASSESSMENT YEAR 2007 - 08 TO 2009 - 10 INVOLVING CONSIDERATION OF COMMON ISSUES HAVE BEEN HEARD TOGETHER AND THEREFORE DECIDED BY THIS CONSOLIDATED ORDER. 2. TAKING UP ITA NO .5635/DEL/2012 FOR ASSESSMENT YEAR 2007 - 08. 3. THIS APPEAL ARISES FROM AN ORDER DATED 09 TH AUGUST 2012 PASSED BY THE LD CIT(A) - XXX NEW DELHI. 4. GROUND NO.1 RELATES TO ADDITION OF RS.79 88 032/ - ON ACCOUNT OF BURNING LOSS. 5. BRIEFLY STATED THE FACTS AR E THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF ALUMINIUM PRODUCTS. DURING THE INSTANT YEAR THE ASSESSEE DECLARED BURNING LOSS OF RS.6.09% OF THE TOTAL RAW MATERIAL CONSUMED AS COMPARED TO 4.05% IN ASSESSMENT YEAR 2006 - 07 AND 2.24% IN ASSESSMEN T YEAR 2005 - 06. THE AO OBSERVED ON THE BASIS OF COST - AUDIT REPORT BURNING LOSS SHOULD COME TO 5.5%. ACCORDINGLY AFTER CONSIDERING THE EXPLANATION FURNISHED BY THE ASSESSEE HE HELD THAT DIFFERENCE IN BURNING LOSS ON ACCOUNT OF USAGE OF ALUMINIUM SCRAP AS RAW MATERIAL IS 0.95% WHEREAS THE OVERALL BURNING LOSS DIFFERENCE IS 2.1%. HOWEVER HE ADOPTED THE DIFFERENCE BETWEEN THE ACTUAL BURNING LOSS AND THE STANDARD BURNING LOSS AT 1%. ACCORDINGLY MADE THE ADDITION BY COMPUTING THE EXCESS BURNING LOSS AS UNDE R: - CALCULATION OF ADDITION ON THIS ACCOUNT IS GIVEN HERE UNDER: TOTAL RAW MATERIALS USED 6489MT EXCESS BURNING LOSS IN PERCENTAGE AS DISALLOWED 1% EXCESS BURNING LOSS IN ABSOLUTE TERMS 64MT TOTAL VALUE OF RAW MATERIAL CONSUMED AS PER P&L A/C RS. 80 99 12 000/ - COST PER M.T . OF RAW MATERIAL (809912000 / 6489) RS. 1 24 813 - PER MT VALUE OF EXCESS BURNING LOSS TO BE DISALLOWED (124813 X 64) RS.79 88 032/ - 6. THE LD CIT(A) AFTER ADMITTING THE ADDITIONAL EVIDENCE AND AFTER OBTAINING THE R EMAND REPORT DELETED THE ADDITION BY OBSERVING AS UNDER: - I HAVE GONE THROUGH THE ASSESSMENT ORDER THE REMAND REPORT SENT BY THE ASSESSING OFFICER WRITTEN SUBMISSIONS FILED BY THE APPELLANT REJOINDER TO REMAND REPORT AND PAPER BOOK OF ADDITIONAL EVIDEN CE TILED BY THE APPELLANT AND ORAL ARGUMENTS MADE BY THE APPELLANT. I HAVE EXAMINED THE MANUAL RECORD OF EXCISE MAINTAINED BY THE ASSESSEE DURING THE COURSE OF PROCEEDINGS. THE CLAIM OF THE APPELLANT WITH RESPECT TO ALLOWANCE OF BURNING LOSS HAS TO BE EXAMINED WITH REFERENCE TO THE FACT THAT THE APPELLANT'S BOOKS OF ACCOUNTS HAVE BEEN AUDITED THERE IS NO FINDING OF THE ASSESSING OFFICER OF ANY OUT OF BOOKS TRANSACTIONS OF SA LES OR UNRECORDED EXPENDITURE. THE ASSESSEE HAS FURNISHED A CLARIFICATION FROM THE COST AUDITOR DATED 08/0112011 WHEREIN THE COST AUDITOR HAS CLARIFIED THAT THE STANDARD BURNING LOSS OF 5.2% WHICH HAS BEEN MADE THE BASIS OF ADDITION BY THE ASSESSING 'OFF ICER WAS POSSIBLE ON CONSUMPTION OF STANDARD RAW MATERIAL INPUT MIX. THE ASSESSING OFFICER WAS SENT A COPY OF COMMUNICATION ALONGWITH THE SUBMISSION FILED BY THE ASSESSEE AND A REMAND REPORT FROM THE ASSESSING OFFICER DATED 01/08/2012 HAS BEEN RECEIVED IN WHICH THE ASSESSING OFFICER HAS NOT POINTED OUT ANYTHING ADVERSE TO THE CONTENTION OF THE APPELLANT THAT THE STANDARD BURNING LOSS COULD BE ACHIEVED ONLY ON CONSUMPTION OF STANDARD RAW MATERIAL INPUT MIX. THE APPELLANT HAS FURNISHED YEAR WISE CHART OF RAW MATERIAL INPUT MIX WHICH IS REPRODUCED AS UNDER TO CLARIFY THAT THE BURNING LOSS VARIED AND INCREASED IN ASSESSMENT YEAR 2007 - 08 IN COMPARISON TO THAT OF THE PRECEDING ASSESSMENT YEARS DUE TO INCREASE IN P ERCENTAGE WISE USE OF SCRAP AS COMPARED TO USE OF BILLETS AND INGOTS IN THE EARLIER ASSESSMENT YEARS. ASSESSMENT YEAR 2007 - 08 2006 - 07 2005 - 06 2004 - 05 RAW MATERIAL CONSUMED % QUANTITY (MT) % QUANTITY (MT) % QUANTITY (MT) % QUANTITY (MT) ALUMINIUM BILLETS 9.48 577.508 43.34 2882.345 59 2906.509 31.69 1311.877 ALUMINIUM INGOTS 53.85 3281.912 33.25 2211.499 37.18 1831.529 69.87 2892.583 ALUMINIUM SCRAP 43.15 2629.688 27.64 1838.199 6.11 301.1408 1.72 71.2733 BURNING LOSS 6.19 4.19 2.25 3.17 I FIND THAT THE ASSESSING OFFICER HAS MADE THE ADDITION ON THE BASIS OF COST AUDIT REPORT AND WITHOUT BRINGING ON RECORD ANY EVIDENCE TO JUSTIFY THE ADDITION. THE ASSESSING OFFICER HAS ALSO QUESTIONED THE WISDOM OF THE APPELLANT FOR USING HIGHER PE RCENTAGE FOR USING HIGHER PERCENTAGE OF SCRAP INPUT IN CONSUMPTION. THE APPELLANT HAS FURNISHED THE COMPARATIVE FIGURES OF GROSS PROFIT AND POINTED OUT THAT IN SPITE OF THE INCREASE IN PERCENTAGE TERMS OF USE OF SCRAP IN RAW MATERIAL INPUT MIX IT HAD ACHIEVED BETTER RESULTS IN THE ASSESSMENT YEAR 2007 - 08 AND ITS GP RATE WAS 8.9% AS COMPARED TO ASSESSMENT YEAR 2005 - 06 OF 7.18% AND 8.77 FOR THE ASSESSMENT YEAR 2006 - 07. THE APPELLANT HAS ALSO SUBMITTED THAT IT EMPLOYS APPROXIMATELY 300 WORKERS AND THE ASS ESSEE COMPANY HAS TURNED AROUND AND COME INTO PROFITABILITY AFTER HAVING IMPLEMENTED THE REHABILITATION SCHEME APPROVED BY BOARD OF INDUSTRIAL FINANCE RECONSTRUCTION (BIFR). IN VIEW OF THE FACT THAT THE BOOKS OF ACCOUNTS OF THE APPELLANT ARE AUDITED AND T HE APPELLANT HAS FURNISHED EXTRACTS OF EXCISE STATEMENT TO THE ASSESSING OFFICER IN REMAND PROCEEDINGS IN WHICH SHE HAS NOT FOUND ANYTHING ADVERSE AND THE VERIFICATION OF EXCISE RECORD BY ME I DELETE THE ADDITION. 7. LD DR RELIED UPON THE ORDER OF THE AO AND THE LD AR RELIED UPON THE ORDER OF THE LD CIT(A). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. IN THE INSTANT CASE THE AO COMPUTED THE DISALLOWANCE ON THE BASIS OF COST - AUDITORS REPORT WHEREIN THE STANDARD BURNI NG LOSS WAS STATED TO BE 5.2%. DURING THE APPELLATE PROCEEDINGS THE COST - AUDITOR VIDE COMMUNICATION DATED 8 TH JANUARY 2011 CLARIFIED THAT FOR PRODUCTION OF 1 M.T. OF ALUMINIUM EXTRUSIONS AND OTHER ALUMINIUM PRODUCTS STANDARD CONSUMPTION OF 1.055 MT OF INP UT MATERIAL AS MENTIONED IN ITEM 5(B) OF THE REPORT MEANS BELOW MENTIONED STANDARD RAW MATERIAL INPUT MIX. NAME OF RAW MATERIAL QUANTITY IN MT I. ALUMINIUM INGOT 0.350 II. ALUMINIUM BILLETS 0.350 III. ALUMINIUM SCRAP 0.350 IV. SILICON METAL 0.005 1.055 9. HE ALSO CLARIFIED THAT THE STANDARD CONSUMPTION OF RAW MATERIAL REFERRED TO IN THE COST AUDIT REPORT HAS NO BEARING ON THE ACTUAL PRODUCTION MADE BY THE COMPANY AS ACTUAL RAW MATERIAL MIX IS DIFFERENT FROM STANDARD RAW MATERIAL INPUT MIX AND THAT FIGURES OF CONSUMPTION AND PRODUCTION AS PER THE AUDITED BALANCE SHEET WERE AUTHENTICATED AND CERTIFIED BY THEM. 10. THIS CLARIFICATION WAS FORWARDED TO THE AO AND REMAND REPORT WAS OBTAINED. THE LD CIT( A) AFTER CONSIDERING THE REMAND REPORT AND THE REJOINDER FILED BY THE ASSESSEE COMPANY HELD THAT THE STANDARD BURNING LOSS COULD BE OBTAINED ONLY ON THE BASIS OF STANDARD RAW MATERIAL INPUT MIX OF THE ASSESSEE OF THE RAW - MATERIAL WAS NOT STANDARD INPUT MI X. THUS WE ARE IN AGREEMENT WITH THE FINDING OF THE LD CIT(A) THAT THE COST - AUDITORS REPORT CANNOT SOLELY MADE THE BASIS TO DISALLOW THE BURNING LOSS. PARTICULARLY WHEN GP RATE HAS IMPROVED IN THE INSTANT YEAR FROM 7.18% IN ASSESSMENT YEAR 2005 - 06 AND 8 .77% IN ASSESSMENT YEAR 2006 - 07 TO 8.99% IN THE INSTANT YEAR. THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ARE AUDITED AND HAVE BEEN ACCEPTED BY THE AO. IN SUCH CIRCUMSTANCES DEVIATION IN RATIOS BASED ON STANDARDS ADOPTED BY THE COST - AUDITOR CANNOT B E THE SOLE GROUND TO DISALLOW THE BURNING LOSS INC URRED IN THE COURSE OF BUSINESS AND SO WE CONFIRM THE DECISION OF THE LD CIT(A) ON THIS GROUND. 11. IN THE RESULT THE GROUND RAISED BY THE REVENUE IS DISMISSED. 12. THE NEXT ISSUE RELATED TO ADDITION OF R S.28 49 171/ - ON ACCOUNT OF LOSS ON HEDGING TRANSACTION. 13. BRIEF FACTS ARE THAT THE ASSESSEE CLAIMED A N EXPENDITURE OF RS.28 49 171/ - ON ACCOUNT OF SETTLEMENT OF HEDGING CONTRACTS. IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE AO THAT THE ASSESSEE COMPANY DEALS IN ALUMINIUM PRODUCTS AND THE PRICE OF ALUMINIUM RAW MATERIAL ARE SUBJECT TO WIDE FLUCTUATIONS. SO WHENEVER THE ASSESSEE GETS ANY LONG TERM SALES CONTRACT THE ASSESSEE TAKES HEDGING CONTRACT SO AS TO ABLE TO PROCURE THE RAW MATERIAL COMPRISING ALU MINIUM INGOTS AT A PRICE NEAR TO WHAT IT HAS QUOTED FOR THE ULTIMATE SALES CONTRACTS. AND THE HEDGING CONTRACTS WERE SETTLED AND LOSS INCURRED OF RS.28 49 171/ - WAS DUE TO FLUCTUATION IN THE ALUMINIUM PRICES. 14. THE AO REJECTED THE CLAIM BY OBSERVING AS UNDER: - IT IS WORTHWHILE TO MENTION THAT IN BOTH THE ABOVE SUBMISSIONS THE ASSESSEE HAS NOT GIVEN THE COPY OF ACCOUNT OF HEDGING TRANSACTION ENTERED INTO COPY OF CONTRACTS NOTES AND OTHER DETAILS THROUGH WHICH THE GENUINENESS OF THESE TRANSACTIONS COULD BE VERIFI ED. IN SUBMISSION DT.14/12/2009 THE ASSESSEE'S A/R DOES MENTION THAT - THE ASSESSEE COMPANY HAS ALSO EARNED A PROFIT OF USD 3678 ON SETTLEMENT AS PER COPY OF CONTRACT NOTE ATTACHED. BUT NO SUCH CONTRACT NOTE HAS BEEN ENCLOSED WITH THE SUBMISSION. IT SEEMS THAT THE ASSESSEE IS DELIBERATELY AVOIDING TO FURNISH THE DETAILS AND DOCUMENTS AS ASKED FOR. ONLY THE NATURE OF TRANSACTIONS HAS BEEN EXPLAINED BUT NO SUPPORTING DOCUMENTS /ACCOUNTS/ CONFIRMATIONS ETC. HAVE BEEN PRODUCED / ENCLOSED. AS SUCH THE GENUINENES S OF THE HEDGING TRANSACTION IS UN - VERIFIABLE. THEREFORE THE CLAIM OF LOSS ON HEDGING TRANSACTIONS OF RS. 28 49 171/ - IS DISALLOWED WITHOUT GOING INTO THE MERITS OF IT BEING A BUSINESS LOSS OR A SPECULATION LOSS. AN ADDITION OF RS. 28 49 171/ - IS THUS MAD E TO THE TOTAL INCOME. 15. DURING THE APPELLATE PROCEEDINGS THE ASSESSEE REPRESENTED THAT THE HEDGING TRANSACTIONS WERE TO SAFEGUARD THE COMPANY FROM FLUCTUATION IN RAW - MATERIAL PRICES. A CHART WAS FILED GIVING SETTLEMENT OF HEDGING CONTRACTS. FURTHER CON TRACT NOTES BANK STATEMENTS WERE PLACED ON RECORD WHICH WERE ALSO FORWARDED TO THE AO FOR VERIFICATION AS PER THE ORDER OF THE LD CIT(A) WHO HAS THEREAFTER HELD AS UNDER: - THE APPELLANT HAS SUBMITTED BEFORE ME THAT CONTRACT NOTES BANK STATEMENT AND DA TE - WISE DETAIL OF SALES PURCHASE SETTLED OTHERWISE THAN BY DELIVERY AT LONDON METAL EXCHANGE ETC WERE PRODUCED BEFORE THE ASSESSING OFFICER ALONG WITH THE EXCISE RECORD THE PURCHASE BILLS AND PURCHASE REGISTER DURING THE COURSE OF REMAND PROCEEDINGS FOR VERIFICATION. THE ASSESSING OFFICER HAS NOT MADE ANY ADVERSE COMMENT ON THE CLAIM OF THE APPELLANT FOR TREATING IT TO BE A HEDGING LOSS. I FIND THAT THE ASSESSEE IS ENGAGED IN MANUFACTURE OF ALUMINIUM RELATED PRODUCTS AND IT HAS ENTERED INTO A FORWARD CON TRACT AT LONDON METAL EXCHANGE WHICH IS A PREMIER METAL EXCHANGE THROUGH A BANK IN WHICH IT HAS NO INTEREST OR CONCERN. THE ASSESSEE HAS ALSO BROUGHT TO MY NOTICE THE FACT THAT THE LOSS WAS ON ACCOUNT OF ITS ENDEAVOUR TO SAFEGUARD ITSELF FROM FLUCTUATION IN ALUMINIUM PRICES AND HAS DIRECT NEXUS WITH THE BUSINESS OF THE COMPANY. IT HAS CITED A NUMBER OF DECISION IN ITS FAVOUR AND A BOARD CIRCULAR ALSO ON THE ISSUE. I FIND THAT THE ASSESSING OFFICER HAD MADE THE ADDITION WITHOUT GOING INTO MERITS OF THE CLA IM. I HAVE PERUSED THE STATEMENT OF SALE PURCHASE OF ALUMINIUM MADE AT LONDON METAL EXCHANGE AND DETAIL OF WORKS CONTRACTS WHICH WERE PENDING DURING THE FINANCIAL YEAR IN VIEW OF WHICH THE CLAIM OF THE ASSESSEE DESERVES TO BE ACCEPTED. THE ADDITION OF RS .28 49 171/ - MADE BY THE ASSESSING OFFICER BY TREATING IT HAS SPECULATIVE LOSS IS DELETED AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE SAME AS NORMAL BUSINESS LOSS. 16. LD DR RELIED UPON THE ORDER OF THE AO AND LD AR RELIED UPON THE ORDER OF THE L D CIT(A). 17. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION. WE FIND DURING THE COURSE OF ASSESSMENT PROCEEDING THE ASSESSEE FILED A REPLY 14 TH DECEMBER 2009 IN SUPPORT OF THE LOSS CLAIMED WHEREIN IT WAS STATED THAT IN VIEW OF THE LONG - TERM CONTRACTS AND FLUCTUATION IN PRICES OF MAJOR RAW - MATERIALS I.E. ALUMINIUM INGOTS THE ASSESSEE ENTERED INTO HEDGING CONTRACTS SO AS TO ENSURE THE PROCUREMEN T OF RAW MATERIALS AT A PRICE NEAR TO WHAT HAS BEEN QUOTED FOR ULTIMATE SALE. ALONG WITH THE SAID REPLY NO CONTRACT NOTES SUPPORTING THE LOSS CLAIM WERE FURNISHED OTHER THAN A CONTRACT NOTE FOR PROFIT. IT APPEARS THAT SUCH CONTRACT NOTES WERE FILED BEFORE THE LD CIT(A) WHO HAS STATED THAT AO HAS NOT MADE ANY ADVERSE COMMENTS ON THE CLAIM OF THE ASSESSEE. LD DR HAS NOT ASSAILED THE SAID POSITION OF FACT BY LEADING ANY MATERIAL TO THE CONTRARY. THUS WE FIND THE VERY BASIS ON WHICH THE ADDITION WAS MADE DOES NOT SURVIVE AS PER THE UN - REBUTTED FACTUAL FINDING OF THE LD CIT(A). WE THEREFORE DECLINE TO INTERFERE WITH THE ORDER OF THE LD CIT(A). 18. IN THE RESULT THE GROUND OF APPEAL IS DISMISSED. 19. NOW TAKING UP ITA NO.44/DEL/2013 AND 4954/DEL/2013 FOR ASSE SSMENT YEAR 2008 - 09 AND 2009 - 10 WHERE THE SOLITARY ISSUE IS DISALLOWANCE OF BURNING LOSS. 20. IN BOTH THE YEARS THE DISALLOWANCE WAS MADE IN THE SAME MANNER AS IN THE ASSESSMENT YEAR 2007 - 08 WHICH HAS NOT BEEN ACCEPTED BY THE LD CIT(A). IN FACT IN THE OR DER FOR ASSESSMENT YEAR 2008 - 09 HE HAS HELD AS UNDER: - 8. IN VIEW OF THE ABOVE I THEREFORE HOLD THAT THE A.O. HAS NEITHER FOLLOWED THE LAW NOR ADHERED TO THE PRUDENCE WHILE MAKING ADDITION OF RS. 1.20 CRORES ON THE BASIS OF A FAULTY PRECEDENCE BY HIMS ELF IN THE CASE OF APPELLANT FOR THE AY 2007 - 08. KEEPING IN VIEW THE FAILURE ON THE PART OF THE AD TO MEET THE STATUTORY REQUIREMENTS BEFORE REJECTING THE BOOKS UNDER SECTION 145(3) I HOLD THAT THE AD WAS UNREASONABLE IN SUBSTITUTING THE BOOK RESULTS OF T HE APPELLANT BY MAKING AN ESTIMATED ADDITION BASED ON THE COST AUDITOR'S REPORT ALONE BY IGNORING THE DETAILED ARGUMENTS OF THE APPELLANT SUMMARILY AND WITHOUT ANY COGENT REASONS. IN VIEW OF THE SAME AND ALSO FOLLOWING THE DECISION OF MY LEARNED COLLEAGUE THE CIT (A) - XXX NEW DELHI IN THE CASE OF THE APPELLANT FOR THE A.Y. 2007 - 08 WHICH IS ON SAME GROUNDS I DELETE THE ADDITION MADE BY THE LD. A.O. STATISTICALLY THE APPEAL STANDS ALLOWED. 21. SINCE THE ISSUE INVOLVED IS IDENTICAL AND PARI - MATERIA FOR ASSESSMENT YEAR 2007 - 08 FOR THE REASONS STATED ABOVE IN DISPOSING OF GROUND NO.1 IN ITA NO.5635 / DEL/2012 FOR ASSESSMENT YEAR 2007 - 08 THE GROUND RAISED BY THE REVENUE IS REJECTED. 22. IN THE RESULT THE APPEAL ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 . 11. 2014. - SD/ - - SD/ - ( G. D. AGARWAL) (A. T. VARKEY) VICE PRESIDENT JUDICIAL MEMBER DATED : 28 / 11 / 2014 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT NEW DELHI