THE ACIT, CIRCLE-1,, BHAVNAGAR vs. M/S. APOLLO VIKAS STEEL PVT.LTD.,, BHAVNAGAR

The appeal filed by the Revenue for A.Y. 2010-11, arise from order of the CIT(A)-XX, Ahmedabad dated 16.05.2014, in proceedings under section 143(3)of the Income Tax Act, 1961; in short “the Act”.

The fact in brief is that return of income declaring total income of Rs. 4,12,45,630/- was filed on 28.09.2010. Subsequently the case was selected under scrutiny by issuing notice u/s. 143(2) of the Act on 14.09.2011. The assessee was in the business of ship breaking and manufacturing of mild steel ingots. The further fact of the case are discussed while adjudicating the two grounds of appeal filed by the Revenue as under:-

During the course of assessment proceeding the AO noticed that during the year under consideration the assessee has disclosed total sale of Rs. 53,08,22,797/- with gross profit of Rs. 6,67,81,915/- @ 12.58%. The AO observed that the gross profit declared was on higher side as compared to last year but the shortage claimed in ship breaking business by the assessee during the year under consideration was 11.48% as compared to shortage of 7.35% claimed in the immediate preceding year. The assessee explained that during the year the percentage of shortage was 11.48% while in the past year i.e. in the assessment year 2009-10 and assessment year 2007-08 it was 9.37% and 10.34 % respectively. The assessee explained that the small difference in percentage of shortage was there because there was very small amount of production in the earlier three year of 3996.090 M.T, however, during the year under consideration there was tremendous increase in the production of the assessee company which was at 26933.958 M.T. In view of the above the assessee explained that there was six time increased in the production and also there was substantial increased in the yield and there was also decrease in the shortage in the case of furnish division. The relevant part of the submission of the assessee is reproduced as under:-

Aggrieved assessee filed before the Ld. CIT(A). The Ld. CIT(A) has restricted the addition stating that the AO has estimated the sale proceed without any basis therefore a lumpsum amount of Rs. 10,00,000/- was sustained by the Ld. CIT(A) considering the possible leakage of Revenue in respect of the item like engine, DG set, and other machinery etc.

During the course of assessment proceedings the assessee was required to give detail of sale of different types of oil as reported at Para No. 6 of the assessment order by the AO. The assessee was also asked to explain the reason for difference in quantity of oil found in the different ships. The assessee has explained that there was no much difference of total quantity of oil. Most of the quantity of oil sold was tallied with the survey report and there was some leakage shortage while unloading/handling and transferring oil from ship to floor and at the stage of transportation. The AO has not accepted the explanation of the assessee and worked out difference in sale and received of different type of oil as under:- “Fuel Oil 1482600 ltr. MGO 121530 ltr. Lub. Oil 53300 ltr. Sump Oil 34860 ltr. Thus there was difference in sale and receipt of different type of Oils as under- Fuel Oil 1524160 -1482600 = 41560 ltr. MGO 134080- 121530 =12550 ltr. Lub. Oil 96540-53300 =43240 ltr. 26400-34860 = - 8460 ltr.” Sump Oil

The assessee has filed before the Ld. CIT(A). The Ld. CIT(A) has partly allowed the appeal of the assessee and restricted the disallowance to the extent of Rs. 4,00,000/- in lumpsum on ad-hoc basis for want of verification to cover up the possible leakage.

During the course of appellate proceeding before us the Ld. DR has supported the order of AO.

On the other hand Ld. Counsel has furnished Paper Book comprising of various submission made before AO and CIT(A) during the course of assessment of appellate proceeding. The Ld. Counsel has contended that case of the assessee was covered by the order of ITAT Ahmedabad Co-ordinate Bench in the case of the assessee itself for assessment year 2010-11 and the case of Saibaba Ship Breaking Corporation in ITA No. 2152/Ahd/2014.

Regarding addition on account of unaccounted sales of oil it is noticed that AO has made computation on estimation basis. It is reported that the measurement of availability of oil was taken through measuring rod and the quantity of frozen waste at the ship was not considered which remained as a frozen waste at the bottom of tank. Further it was also reiterated that AO has not considered loss due to leakage and spillage. It is also stated that there was some consumption of oil when the ship was brought from high sea to the plot for breaking and when the ship was in the process of dismantling there was no guarantee that the assessee will get the same quantity of oil because there was not actual weighment done by the custom official while inspecting the ship. The survey was carried out in the presence of custom authorities which at about 12 kilometre away from beaching point. When the measurement was taken through measure rod there was scope for variation in quantity of actual stock available in the bank. In the light of the above facts and circumstances we observe that there was no accuracy in the estimation made by the AO in respect of unaccounted sale of oil therefore we consider that Ld. CIT(A) was justified in restricting the unaccounted sale to the extent of Rs. 4,00,000/- on lumpsum basis for want of verification and to cover up the possible leakage. Accordingly, this appeal of the Revenue is also dismissed.

In the result, the appeal of the Revenue is dismissed.