THE DCIT, CIRCLE-1,, BHAVNAGAR vs. M/S. SHREE ELECTROMELTS LTD.,, BHAVNAGAR

This appeal filed by the Revenue is directed against the order of the Ld. CIT(A)-6, Ahmedabad dated 30.01.2018 pertaining to A.Y. 2014-15 and following grounds have been taken:

Facts of the case are that the assessee is in the business of manufacturing of coke and steel Ingots.

During the year under consideration the assessee company was involved in the manufacturing of MS steel ingots and coke through its two different manufacturing units. The assessee company was earning huge profit from coke unit while having huge losses from the steel unit. The assessee company is having same situation since last four assessment year. By this way, the assessee company was continuously setting-off the taxable income of one unit from the losses of the other unit ( i.e Steel unit). This is surprising and. raised suspicion, that the assessee company has continuously incurred heavy losses in a particular unit and that too since last four assessment years.

Therefore, in order to investigate the actual reasons behind the continuous losses from a particular unit, the books of accounts was thoroughly analyzed. During the course of the analysis of the books of accounts it is found that in the MS steel ingots manufacturing division, the pattern of power consumption viz-a-vis per MT production varies beyond reasonable limits. For sake of convenience the same is being re- produced as hereunder: Month Production Power Consumption % variation consumption unit per MT from minimum.

From the above table it can be observed that the power consumption for per Ml' MS steel production varies from minimum 539.43 Unit/MT to 669.36Unit/MT/ thus in this unit there was an enormous fluctuation in the power consumption viz-a-vis production. Again, if we observe in terms of the %age variation then the range of variation goes till 0-24%. There may be some fluctuation in the consumption of the power on the day to basis within a reasonable limit but herein the instant case the fluctuation in the steel division varies upto 24%, which is beyond the acceptable limits and looks irrational.

Here it is also necessary to mention that the process of the MS ingots manufacturing was remain unchanged and the product range was also same and does not changed on monthly basis. Again, the machineries used are also same.

Further, when the assessee was asked to justify the fluctuation then no satisfactory explanation for such wide fluctuations was offered by the assessee. Here it is also necessary to mention that the process of manufacturing MS Ingots is simple and involved only one stage. In this process MS Scrap of predetermined composition is melted in Induction furnace and liquid hot metal is transferred in pouring ladle. From pouring ladle the liquid metal is transferred into ingot moulds, hence, final product i.e MS ingot is ready. From the above mentioned, process it can be observed that the power consumption is directly proportional to the production, and if , there is variation in power consumption then definitely it should also be reflected in the production. If not so, then there is something wrong, this has what happened in the instant case.

Thus, from the above, it became crystal clear that the production recorded by the assessee company in its books of accounts is completely inconsistent viz-a- vis power consumption. It means the books of accounts of the assessee company are not correct and complete. Therefore, on the basis of defective accounts, it is not possible to assess correct income of the assessee company.

Hence, the WIP will be of Rs. 49,26,560/- [(410*average rate of the per MT raw material)+(410* average rate of the carbonization charges per MT)] i.e [(410*11125)+ (410*891)]. Since the assessee has not shown the closing stock of WIP and profit to that extent is suppressed, it is necessary to add the work- in-progress to arrive at the correct profit of the business of the assessee. Therefore, the closing stock of work-in-progress of Rs. 49,26,560/~ as worked out above is added to the total income of the assessee.

And ld. A.O. after rejecting the books of accounts made the addition of Rs. 2, 04,84,813/- on account of gross profit at the differential rate and also made an addition of Rs. 49,26,560/- on account of irregularity in the stock work in progress.

Thereafter assessee preferred first statutory appeal before the ld. CIT(A) who granted relief to the assessee.

Now Revenue has come before us.

We have gone through the relevant record and impugned order. The assessing officer has carried on gross profit rates declared by entities which are in the same line of business as follows: SN Name of Company Gross Profit margin % Turnover (In crores)

The A.O. has computed average GP of all the above concerns and arrived at figure of 3.425%. Further, for computing gross profit of the assessee, the A.O. has applied GP rate of 4.295% which is the difference in GP as per books.

It is seen from the above table that turnover of Appolo Concast at 46.76 crores is comparable to the turnover of assessee at 47.69 crores . Appolo Concast has declared in GP at 2.19% and same is in the case of remaining above said companies.

It is seen that A.O. has worked out the closing work in progress at the end of the year and added Rs. 49,26,560/- on this account. However, assessing officer has not given any credit for opening work in progress which would come from closing work in progress as on 31.03.2013 i.e. immediately preceding year. It is well settled law that value of closing stock cannot be disturbed without disturbing the value of opening stock.

In our considered opinion, ld. CIT(A) has passed detailed and reasoned order and same does not required any kind of interference at our end.

In the result, appeal filed by the Revenue is dismissed.