THE ACIT, CEN-CIRCLE, ERNAKULAM, ERNAKULAM vs. M/S.PRINCE TMT STEELS P. LTD, PALAKKAD

Per CHANDRA POOJARI, AM:

These appeals filed by the Revenue and the Cross Objections filed by the

assessee are directed against the common order of the CIT(A)-III, Kochi dated

17/01/2018 and pertain to the assessment years 2011-12 to 2014-15.

1) The Commissioner of Income Tax (Appeals) erred in determining concealed profit @ just 8% of the concealed turnover.

2) The Commissioner of Income Tax(Appeals) has not appreciated that suppression of income is not just on account of trade suppression (in which case profit % would be lower) but also on account of concealed manufacturing.

3) The Commissioner of Income Tax(Appeals) overlooked that Prince TMT Steels (P) Ltd and Prince Ingots(P) Ltd and Prince Rolling (P) Ltd ( all three being sister concerns) worked in close association. This association is clearly established by seized material marked CHN / 13-14/11/BMV/A 1 to 7, 15 to 17 and 21.

4) The Commissioner of Income Tax(Appeals) has not appreciated that the actual gross profit of the business could be worked out by taking the combined opening and closing stock of raw materials and finished goods of the three companies coming in the manufacturing line, the purchase of raw materials and sale of finished goods by the three companies except purchase of steel ingots from PAPL and PRPL by PTSL and closing stock of the manufactured goods of the three companies have to be taken together.

5) The Commissioner of Income Tax(Appeals) has overlooked that in assessment order for each of the years, the method of arriving at GP is clearly worked out. In contrast the method adopted by the C1T(A) is arbitrary and lacks logic.

1.The order of the CIT(A) in not considering the plea of the appellant in its entirety was most inappropriate.

3. The argument of the department that the gross profit that was worked out by taking combined details of all the three companies involved in the line of business is devoid of any merit and is against the facts and circumstances of the case.

turnover as trading transactions, i.e., items brought from outside and sold both

unaccounted which was not accepted by the Assessing Officer. The Assessing

Officer noticed that the seized material identified as CHN/13-14/11/BMV-A(7) and

VSV/B-(18) from the premises of the assessee evidenced that the turnover was out

of manufacturing activity only. Hence, the Assessing Officer was of the view that

the GP rate cannot be applied on these transactions at 2% as claimed by the

assessee. The Assessing Officer calculated the GP rate as follows:

Manufacturing P&L account Opening Stock Sales Raw material + finished goods 364614300 (Manufacturing 162,83,77,805 Purchase Goods) Used for manufacturing 1273062827 (ingots, furnace oil, stores & spares Closing Stock 42,37,27,731 (Manufacturing stock) Gross profit 41,44,28,409 2,05,21,05,536 2,05,21,05,536

4.1 According to the Assessing Officer, the above figures comprised of production

details of M/s. Prince Alloys Pvt. Ltd. and M/s. Prince Rolling Pvt. Ltd. and of the

assessee combined and worked out the GP as follows:

414428409 25.45% 1628377805 = Roughly 25%

4.2 The Assessing Officer included the savings on account of VAT and Excise duty

on this sales for computation of the assessee’s income. The Assessing Officer

accepted the contention of the assessee that the sale value include VAT and excise

duty components while working GP rate and inclusion of VAT and excise duty on the

same is double taxation. The Assessing Officer found that Material No. 8 of

CHN/13-14/11/BMV/A related to the proceedings in connection with the central

excise department’s search on the assessee on 02/02/2011, wherein non excise

goods of the assessee were found in the possession of the dealers of the assessee.

an amount of Rs.77 lakhs was levied on the assessee and an equal sum was levied

as penalty. According to the Assessing Officer, the dealers had also admitted the

possession of unexcised and unbilled items of the assessee with them and though

they retracted later, it was not credible that around 15 deals had given admissions

on coercion.

4.3 According to the Assessing Officer, the basic value of TMT steels was

Rs.36670125/- and accordingly, included this value for the computation of

unaccounted production of the assessee for the relevant assessment year. The

Assessing Officer considered the request of the assessee to exclude VAT and Central 4

excise duty on the unaccounted sale. The assessee requested that since the

assessee had admitted additional income on unaccounted trading turnover at 2%,

the same may be set off which was accepted by the Assessing Officer. Considering

the above facts, the Assessing Officer estimated the income of the assessee at 25%

of the GP rate. Thereafter, the Assessing Officer added savings on excise duty and

savings on VAT and deducted the additional income already admitted by the

assessee and arrived at the gross income of the assessee.

observed that the assessee was not able to produce any evidence in support of the

claim that suppressed turnover was relating to trading sales and not manufacturing

sales and the assessee was mainly a manufacturer who purchased steel ingots and

manufactured TMT steel bars out of them. In view of these facts, the CIT(A)

dismissed the ground relating to this issue.

5.1 The CIT(A) found that the Assessing Officer had separately added VAT and

excise duty while calculating total income on notional savings. The assessee was

having unaccounted sales and on such unaccounted sales, the assessee was not

paying any excise duty or VAT. According to the CIT(A), during the search at the

premises of the assessee, no documents were found which indicated that the

assessee earned anything on account of savings of excise duty and VAT.

Therefore, the CIT(A) directed the Assessing Officer to delete the addition made on

account of savings from non payment of excise duty and VAT. 5 5.2 Regarding application of gross profit rate at 25% of the suppressed turnover,

the CIT(A) found from the working given by the assessee that the Assessing Officer

had inadvertently omitted to consider direct expenses incurred in manufacturing

unaccounted steel TMT bars. Before the CIT(A), the assessee submitted that the

correct amount of GP was 3.69% and the same is to be adopted instead of 25%

applied by the Assessing Officer. The CIT(A) was of the opinio0n that GP of 25%

was excessive. According to the CIT(A), during the course of search, the assessee

had offered GP at 2% on unaccounted sales which was lower than assessee’s own

calculation of 3.69%. Considering that complete details cannot be found in the

cases of unaccounted, out of book sales, the CIT(A) made a fair and reasonable

estimate of gross profit earned by the assessee. Therefore, on presumptive basis,

the CIT(A) estimated the GP rate at 8% of the suppressed turnover.

The Ld. DR submitted that the CIT(A) estimated the GP at 8% and thereby given

relief to the as swhich is incorrect.

wrong and the Assessing Officer clubbed the results of the three companies, namely

Prince TMT Steels (P) Ltd., Prince Alloys Ltd. and Prince Rolling Pvt. Ltd. According

to him, only the results of the assessee is to be considered and while working out

the GP, he has to consider the direct expenses like power and fuel, production 6

charges, repairs and maintenance of machinery and depreciation on productive

assets. Otherwise, it would give a distorted picture of the assessee.

the direct expenses are to be considered except depreciation on productive assets

which should be charged to the P&L account and not to the manufacture and

trading account. To that extent, we agree with the arguments of the Ld. AR.

Accordingly, the Assessing Officer is to take into consideration the opening stock,

closing stock, purchase and sales of the assessee only and should not club these

items belonging to other assesses while arriving at the G.P. rate of the assessee.

With these observations, we remit this issue to the file of the Assessing Officer to

arrive at the current GP rate and thereafter determine the income of the assessee.

However, other findings of the CIT(A) are confirmed. Hence, this ground of appeals

of the Revenue is partly allowed for statistical purposes.

9. Since we have disposed of the appeals of the Revenue by remitting the issue to

the file of the Assessing Officer for fresh consideration, the Cross Objections filed by

the assessee are also remitted to the file of the Assessing Officer for fresh

consideration in the light of our findings in Revenue’s appeals.

filed by the assessee are partly allowed for statistical purposes. Order pronounced in the open Court on this 11th March, 2019

sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: Kochi Dated: 11th March, 2019 GJ Copy to: 1. M/s. Prince TMT Steels (P) Ltd., 6/439, Anappuramkadu, Kinassery P.O., Palakkad-678 707. 2. The Deputy Commissioner of Income-tax, Central Circle, Kochi. 3. The Commissioner of Income-tax(Appeals)-III, Kochi. 4. The Commissioner of Income-tax (Central), Kochi. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin