THE PRINCIPAL COMMISSIONER OF INCOME TAX-3 vs. M/S VIJAY STEELS

Facts

The Principal Commissioner of Income Tax-3 (Revenue) filed an appeal before the Gujarat High Court against an order of the Income Tax Appellate Tribunal (Tribunal), dated January 23, 2019, for Assessment Year 2012-13. The appeal challenges the Tribunal's decision to uphold the Commissioner of Income Tax (Appeals) [CIT(A)] order, which deleted an addition of Rs. 1,79,12,777/- out of a total addition of Rs. 1,84,38,444/- made by the Assessing Officer (AO) on account of excess burning loss. The assessee, M/s Vijay Steels, is in the business of re-rolling steel, manufacturing various steel products using iron and steel plates from ship breaking as raw material. The Revenue contended that the burning loss shown by the assessee (7.64% to 10%) was excessive.

Held

The High Court held that the Tribunal had not committed any error of law or fact in passing its order. The Court found that the matter was substantially on facts, with little to no question of law involved. The Court noted that there were concurrent findings of fact recorded by two revenue authorities (CIT(A) and Tribunal) against the Revenue. Therefore, the High Court was not inclined to disturb these findings. The Tribunal, in its order, had considered the order passed by a Co-ordinate Bench in the assessee's own case for AY 2010-12. While the CIT(A) initially deleted the addition based on the principle of non-applicability of res-judicata, the Tribunal acknowledged the confirmation of that appellate order by a Co-ordinate Bench. The Tribunal also appreciated the CIT(A)'s rational method of using the GP ratio of the latest profitable year (AY 2014-15 at 4.65%) to compute the addition, which resulted in an addition of Rs. 5,25,667/- for AY 2012-13, thereby deleting the bulk of the AO's addition. The High Court dismissed the appeal.

Key Issues

1. Whether the Appellate Tribunal has erred in law and on facts in upholding the order of CIT(A) and not appreciating the findings of the Assessing Officer while estimating the burning loss @2% of the total input of the raw material? (Question of law and fact, concerning the estimation of burning loss). Assessee's contentions: The judgment does not record specific arguments made by the assessee before the High Court. However, the Tribunal's reasoning indicates that the CIT(A) had upheld the rejection of books of account under Section 145(3) but found the AO's addition to be unsustainable to the extent made. The CIT(A) adopted a rational method by taking the latest profitable Assessment Year 2014-15 (with a GP ratio of 4.65%) as the standard GP to compute the addition for AY 2012-13, resulting in an addition of Rs. 5,25,667/- and deletion of Rs. 1,79,12,777/-. Revenue's contentions: The Revenue argued that the burning loss shown by the assessee, ranging from 7.64% to 10%, was on the higher side, considering the nature of the business and electricity consumption. The Revenue preferred an appeal to the Tribunal against the CIT(A)'s order deleting the addition.