DCIT, JAIPUR vs. PREMIUM BARS (P) LTD, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh Hkkxpan] ys[kk lnL; ,oa Jh dqy Hkkjr] U;kf;d lnL; ds le{k BEFORE: SHRI BHAGCHAND, AM & SHRI KUL BHARAT, JM vk;dj vihy la-@ITA No. 143/JP/2017 fu/kZkj.k o"kZ@Assessment Year : 2010-11 cuke D.C.I.T., M/s Premium Bars (P) Ltd., Vs. Circle-2, 402, 37-38, Nidhi Kamal Jaipur. Tower, Ajmer Road, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AADCP 2240 B vihykFkhZ@Appellant izR;FkhZ@Respondent izR;k{ksi.k@C.O. No. 06/JP/2017 (Arising out of vk;dj vihy la-@ITA No. 143/JP/2017) fu/kZkj.k o"kZ@Assessment Year 2010-11 cuke M/s Premium Bars (P) Ltd., D.C.I.T., Vs. 402, 37-38, Nidhi Kamal Tower, Circle-2, Ajmer Road, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AADCP 2240 B izR;k{ksid@Objector izR;FkhZ@Respondent jktLo dh vksj ls@ Revenue by : Shri Jagdish Chand Kulhari (JCIT) fu/kZkfjrh dh vksj ls@ Assessee by : Shri Manish Agarwal (CA). lquokbZ dh rkjh[k@ Date of Hearing : 23/01/2018 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 24/01/2018 vkns'k@ ORDER PER: KUL BHARAT, J.M. The appeal by revenue and cross objection by assessee arise from the order dated 09/12/2016 of the Ld. CIT (A)-I, Jaipur pertaining to the

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assessment year 2010-11. Effective grounds of appeal as well as C.O. are

as under:-

Ground in Revenue Appeal. “(i) Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in restricting the trading addition of Rs. 52,35,630/- to Rs. 20,11,527/- while upholding rejection of books of account made by the A.O..” Ground in assessee’s Cross Objection “(i) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming trading addition to the tune of Rs. 20,11,527/- made by ld. A.O. Appellant prays addition confirmed by ld. CIT(A) may please be deleted.” 2. The revenue’s appeals and assessee’s C.O. are being heard together

and for the sake of convenience and brevity, a common order is being

passed.

carried out by the department of Central Excise at the factory premises of

the assessee on 23/12/2009. The Excise authorities found that TMT bars

valuing of Rs. 52,35,630/- was not recorded in the books of account. The

case of the assessee was reopened and assessment U/s 147/143(3) of the

Income Tax Act, 1961 (hereinafter referred as the Act) was framed vide

order dated 25/3/2013 thereby the Assessing Officer made addition of Rs.

52,35,630/- and added back in the income of the assessee.

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carried the matter before the ld. CIT(A), who after considering the

submissions, partly allowed the appeal. While partly allowing the appeal,

the ld. CIT(A) sustained the addition of 20,11,527/- against the addition of

Rs. 52,35,360/- made by the Assessing Officer.

before the ITAT.

In the assessee’s C.O. the issue involved is confirming the trading

addition of Rs. 20,11,527/-. While pleading on behalf of the assessee, the

ld AR of the assessee has reiterated the submissions as made in the

written submissions. He further submitted as under:

In departmental ground deletion of addition of Rs. 32,24,103/- given by Id. CIT(A) is challenged and in CO, the assessee has challenged the confirmation of addition of Rs. 20,11,527/- made by Id. CIT(A) by applying GP rate of 3.20% after upholding the application of provision of section 145(3) of the income Tax Act, 1961 which includes the addition of Rs. 10,74,819/- made by Id. CIT(A) (though no separate addition is made and telescoped the same against the trading addition).

As submitted above, a survey was conducted by DGCEI on 23.12.2009 during which statement of its authorized signatory Shri Arun Kumar Singh was recorded by adopting coercive measures and a panchnama was made, alleging shortage of “input” of 250.04 MT of M.S. Ingots and excess stock of

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202.995 MT of finished goods MS TMT bar valued at Rs. 52,35,630/- (APB 23) and the said quantity of good was confiscated by the DGCEI officials. Immediately on the very next date of survey, assessee vide letter dt. 24.12.2009 has made retraction (APB 25). Since no itemwise list of stock found was given a request was made by the assessee to the DGCEI officials to take the print outs of such lists from the weighing machine thus on 22/01/2010 data of the machine was retrieved in the presence of excise officials (APB 24) when it was found from the memory that item-wise actual physical weighment was not done as no such data is available in the machine. The assessee company immediately submitted these facts supported with documentary evidences to the concerned officials but the Additional Commissioner of the Central Excise Commissionerate -I passed the order by discarding the submissions and evidences filed by the assessee. Aggrieved with same the assessee company filed the appeal u/s 35 of the Central Excise Act on 12.10.2011 with Commissioner Customs and Central Excise (Appeals-1) who though upheld the duty on shortage and also on excess stock of finished goods but, accepted the explanation for cash found and seized at residence of the director of assessee and further held that ‘there was no sufficient material on record to establish clandestine removal and clearance by the appellant on this count’ and he declined to uphold the order to lower authorities on this issue (APB 149). The assessee company has further filed appeal with CESTAT, New Delhi and the same is pending for adjudication.

During the course of assessment proceedings u/s 147 / 143(3) of the Income Tax Act, 1961 the actual facts alongwith documentary evidences were brought to the knowledge of the Td. AO vide letter dt. 3.3.2015 (APB 31- 40) without appreciating the same had made the addition of Rs. 52,35,630/- by invoking the provision of section 145(3) alleging the same as excess stock. While making the addition Id. AO had also failed to appreciate the fact that stock of raw material of almost similar quantity was found short during the course of

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survey and simply proceeded on the information received from Central Excise Department and view taken by the Additional Commissioner of the Central Excise Commissionerate-I (ACCEC-I) that the assessee was involved in clandestine removal of goods from the factory without payment of excise duty. The Id. AO further did not at all appreciate the fact that allegation of the ACCEC-I, with respect to clandestine removal of goods was specifically decided by the Ld. Commissioner (Appeals)- Excise in favour of the assesee (APB 149)

It is submitted that the said shortage / excess of the goods was alleged without actual weighment of goods (APB 18-23) which is evident from the fact that each and every piece of MS ingot available carries same weight i.e. 115 Kg each and each piece of MS Billets carries weight of 1500 Kg (APB 23). The officers also seized the electronic weighing machine of the factory which was used to weigh the goods in the factory. The data of the said weighing machines was retrieved by the Central Excise officers on 22/01/2010 before the authorized representatives of the assessee company and no records of weighment of inputs and finished goods were found and consequently not made available to the assessee and as such the alleged shortage / excess of the input and finished goods as per Panchnama dated 23/12/2009 were not supported by actual weighment slips which further established that stock stated in the said Panchnama dated 23.12.2009 is not actual and correct. The survey officials supplied the copy of above Panchnama dated 23.12.2009 to the authorized signatory of the assessee but did not supply the copies of the WEIGHING SLIPS in support of their claim that both Input (MS Ingots) and finished goods (TMT) Bars were actually weighed in the factory premises before ascertaining shortage / excess of input and finished goods.

Very next day of seizure and confiscation of goods in the factory premises the Director of the assessee company Shri Arun Jain made a protest to the DGCEI

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office, Jaipur against the incorrect allegation of shortage of raw material and excess of finished goods observed on 23.12.2009 (APB 25).

In view of the above factual position stated in the foregoing paras it is humbly submitted that the findings of the adjudicating authority that Mr. Arun Kumar Singh (authorized signatory at the factory of the assessee) admitted the correctness of the Panchnama dated 23.12.2009 or Mr. Arun Jain, Director admitted the excess stock of 202.955 MT have no legs to stand. Further it is also important to note that the survey officers never provided the weighment slips in support of their claim that each and every piece was weighed and also the records of actual weighment was never found in the memory of weighing machine which was seized by them in the factory premises of the assessee company and as such these facts alone are sufficient to establish that allegation of shortage and excess of the stock as per Panchnama dated 23.12.2009 are not based upon any actual finding. Thus, if the facts mentioned in the Panchnama itself were not true, the same cannot be made true by obtaining the statement of Director or authorized signatory of the assessee company.

In view of above position that proper and actual weighment of goods was not done by the Central Excise staff and weight of various pieces / bundles of ingots and MS Bars was recorded merely on estimation and more particularly scrap was not at all weighed (though its weight so to be taken on mere estimated basis is highly subjected to variation) and therefore shortage of raw material so shown by excise authority is not at all reliable. Similar is the position of finished goods. In this regard it is to reiterate that immediate protest was made within 24 hours by the assessee company vide letters dated 24/12/2009 to the concerned authorities with regard to illegal/uncorroborated finding of shortage / excess of input / finished goods on 23.12.2009. In view of these facts the allegation of Id. AO of excess/

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shortage of stock is not based upon correct facts and not corroborated with any material or finding brought on record during the reassessment proceedings.

It is submitted that the survey officials had framed the charge that the shortage of 250.04 MT of raw material was on account of clandestine removal and clearance by the assessee company and the cash amount of Rs. 22.50 lacs seized from the residence of Shri Arun Jain was alleged as out of the sale proceeds of such clandestine removal of stock. This allegation was proved incorrect and the cash seized from the residence of the director was held fully explained by the Commissioner (A)- Excise as well as the Id. AO, who did not make any addition on this account. It is thus submitted that when the Commissioner, Customs and Central Excise (Appeals-I) has clearly mentioned in his order that there was no clandestine removal and clearance of stock by the assessee company, it means that the stock was either lying with the assessee company or used in the production of MS Bars. However, the Id. CIT(A) has held in the appellate order that assessee had sold 39.09 MT of stock at Rs. 10,74,819/- (page 16-17 para xi). Since the allegation of the Excise officials was that there was shortage of 250.04 MT of MS Ingots and 202.950MT excess stock of finished MS Bars, this difference in the weighment may be due to human error, impliedly the quantity of raw material issued for production was not reduced from the stocks of raw material and simultaneously the stock of finished goods was not increased by the same quantity. But in totality the stock of the assessee firm remains the same. Further we would like to submit that the nature of manufacturing process in which the assessee is involved is such which includes the movement of heavy raw material either in the form of Ingots or scrap material and it is practically not possible to weigh the exact quantity of raw material each time it is put in the furnace for production of rolls. Thus the excess finished MS Bars lying in stock of the assessee company was on account of conversion of raw material

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into finished goods. And further that after the survey the excess stock of finished goods was duly entered in the stock records (APB 10), the gross profit/loss earned by the assessee company had already been reflected in the audited books of accounts for the year under consideration and due income tax has been paid by the company on the same. Thus it is submitted that when the sales of 202.995 MT of MS Bars had already been included in the total sales in books and profit on such sale was also reflected and due tax on such profit has already been paid and moreover corresponding raw material used for this production (leading to the alleged shortage of raw material at the time of survey) has also been reduced in the books of accounts, there is no justification to sustain even part of the addition, as done by Ld. CIT(A) as it is leading to taxing the same receipt / income twice.

Without prejudice to above, it is also submitted that the Ld. CIT(A) has appreciated the fact that the shortage of raw material and simultaneous excess of finished goods at the time of survey would obviously be due to the fact that part of the raw material has been converted into finished goods and was about to be recorded, however in the meantime survey action of excise department took place. Now coming to the marginal difference between the alleged shortage of raw material and alleged excess of finished goods, it is submitted that upto the date of action conducted on 23.12.2009 by the officers of DGCEI, the actual production of MS Bars was 29668.220 MT, whereas consumption of MS Ingots was 31781.160 MT resulting into burning loss of 1015.810 MT (3.20%), scrap generation of 1018.865 MT (3.21%) and mis-roll of 78.265 MT (0.25%). The Ld. CIT(A) has partly accepted and partly rejected these facts and evidence available on record by observing that scrap so generated and mis-roll can be used again. It is submitted that though scrap and mis-roll can be used again, however the another important fact which has been not appreciated by Ld. CIT(A) is that in fact these scrap and mis-roll are the vary items which cannot be measured and their weight cannot be

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determined accurately unless weighed on the weighing scale. As already mentioned and being the undisputed that neither the raw material nor the finished goods had been actually weighed and their weight was taken on approximate basis. In this approximation, the most difficult part comes for estimating the weight of raw material of irregular shape and size. Accordingly the difference of weight is to be seen in this background that the exact weight of raw material has not been determined and it is being taken on estimated basis, then considering the total weight of raw material, there is only minor difference, which needs to be ignored on the facts and circumstances of the case. Accordingly the observation of Ld. CIT(A) that the appellant has produced 242.04 MT of finished goods as against 202.95 MT of the excess stock of finished goods so found during the course of survey, is without considering the reality and practicality of peculiar facts of this case where weight of raw material was not actually taken but was taken on estimated basis at the time of survey and without appreciating that in such a situation there is bound to be some minor differences, more particularly considering that actual weighment of scrap was not at all considered and in the instant case it has not been done. Accordingly finding of Ld. CIT(A) of balance shortage of raw material being converted into finished goods and sold is not tenable in view of aforesaid submissions and consequent direction for addition of Rs. 10,74.819/- (though not added finally) deserves to be removed / set aside.

It is submitted that books of accounts are duly audited. The auditor has not found any defects in the books of accounts. Moreover, the ld. AO has not pointed out specific defects in the books of accounts except the difference in the stock of raw material and finished goods at the time of survey of DGCEI, which has also been duly corrected by the appellant by passing the entry in the finished goods and raw material account. The Ld. CIT(A) has erred in upholding the rejection of books of accounts.

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The Ld. CIT(A) while upholding the invoking of provisions of sec 145(3) which was only on basis of information supplied by the Central Excise Department, estimated the GP @3.20% as against 3.03% declared by the assessee. The GP declared by the assessee for the preceding three years is as under: AY Turnover GP NP 2007-08 109 cr. 3.17% 0.96% 2008-09 135 cr. 3.06% 1.01% 2009-10 121 cr. 3.03% 1.14% The GP estimated by the Ld. CIT(A) is without any basis nor based on any comparative case. It is an established position backed with jurisdictional pronouncements, that if the provisions of sec 145(3) are invoked the best guide to estimate the GP / NP is the past performance of the assessee. The above table reveals that though there is a marginal fall in the GP rate by only 0.03%, however the N.P. rate has increased comparatively substantially by 0.13%. Thus the GP / NP as declared by the assessee ought not to be disturbed by Ld. CIT(A) and therefore the addition of Rs. 20,11,527/- sustained by the Ld. CIT(A) deserves to be deleted and the assessee prays accordingly. The Hon'ble Rajasthan High Court in the case of CIT V/s Gotan Lime Khanij Udhyog reported in 256 ITR 243 has held that in every case of rejection of books of accounts u/s 145(3), there is no need to make additions if the GP / NP results are satisfactory. This case of appellant is fully supported by the aforesaid decision of Hon’ble Rajasthan High Court, in as much as that NP rate so shown during the year under consideration is better than earlier years and thus does not call for any trading addition.

In the event, the Ld. CIT(A) was not satisfied with the GP / NP rate declared by the assessee for the year under consideration, then at best GP rate of last year (i.e. 3.06%) could have been considered by Ld. CIT(A) whereas the GP rate of 3.20% so taken by Ld. CIT(A) is without any basis, without any comparable case and without considering earlier year GP / NP vis-a-vis the GP / NP of the year under consideration of the appellant.

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the Assessing Officer and submitted that the ld. CIT(A) was not justified in

restricting the addition.

the material available on the record. The ld. CIT(A) has decided the issue

by holding as under:

(x) It is an undisputed fact that on the date of survey by DGCEI on 23/12/2009, there was shortage of raw material of 250.04 MT valued at Rs 54,50,562/- and excess stock of finished goods of 202.995 MT valued at Rs 62,40,494/-. It has increased the stock of finished goods by 202.995 MT and reduced the stock of raw material by 250.04 MT in its stock records before 31st March 2010. But the fact remains that there was shortage of raw material and excess of finished goods. There is no evidence on record that the appellant has sold its raw material outside its books of accounts. Thus, in view of these facts, the only conclusion which can be drawn is that the shortage of raw material explains the excess of the finished goods i.e. the shortage in raw material accounts for the excess of finished goods found on the date of survey.

(xi) During the appellate proceedings, the appellant has filed a chart showing details of MS Ingots consumption, production of MS Bars, scrap, burning loss and Mis Roll, which was also filed before the AO during assessment proceedings for the period 01.04.2009 to 22/12/2009. It is noted from the said chart that on consumption of 31781.160 MT of MS Ingots, there was burning loss of 1015.810 MT i.e. the burning loss account for 3.20% of the consumption of raw material. It may be mentioned here that no

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benefit can be given to the appellant on account of Mis Roll and scrap generated during the process of manufacturing of MS Bars as claimed by the appellant in its submissions as these are recycled for production of MS Ingots as the financial statements of the appellant show only very small amount on sale of scrap. If this burning loss of 3.20% is applied to 250.04 MT of raw material found short at the time of survey and contention of the appellant is accepted that the raw material is converted into finished goods, then the consumption of 250.04 MT of raw material should produce 242.04 MT of MS Bars whereas the excess stock of MS Bars found by the officers of DGCEI was to the tune of 202.95 MT. Thus, there is fallacy in the claim of the appellant company that it has taken into its stock register the shortages of raw material and the excess stock of finished stock. In fact, it has taken into account, the excess stock of 202.95 MT only whereas the actual production from 250.04 MT of raw material should be to the tune of 242.04 MT as computed above. Thus, it is crystal clear that the appellant has sold 39.09 MT of the finished goods outside its books of accounts. These facts, again support the rejection of books of accounts of the appellant company u/s 145(3) of the Act. It may be mentioned that as per the details of valuation of excess finished stock of 202.995 MT, it was noted that the said stock was valued at RS. 55,80,405/- i.e. @ Rs. 27,496/- per MT. Thus, the stock of 39.09 MT is valued at Rs. 27,496/- per MT and it is held that the appellant has sold 39.09 MT of finished stock valued at Rs.10,74,819/- out of its books of accounts.

(xii) I have already upheld the rejection of books of accounts of the appellant u/s 145(3) of the Act. It has been held in a number of judicial pronouncements that after rejecting the books of accounts, the past trading results are to be kept in view while applying the GP rate. It would

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be appropriate to reproduce hereunder the past trading results of the appellant company as under: FY Turnover Gross Profit G.P% Net Profit NP% (loss) 2007-08 105,62,17,373/- 3,35,50,742/- 3.17% 1,16,76,460/- 1.09% 2008-09 135,70,70,031/- 4,15,42,786/- 3.06% 1,29,95,367/- 0.96% 2009-10 121,80,17,2781- 3,69,65,026/- 3.03% 1,38,43,519/- 1.14%

(xiii) It is noted that on turnover of Rs. 105,62,17,373/- and Rs. 135,70,70,031/- the appellant has declared GP rate of 3.17% and 3.06% for the AY 2008-09 and 2009-10 respectively. However, for the year under consideration, the GP rate was 3.03% on turnover of Rs. 121,80,17,278/-. It has been held earlier in this order that the appellant has sold 39.09 MT of finished stock valued at Rs. 10,74,819/- out of its books of accounts, therefore, looking to the facts and circumstances of the case, I think it would be appropriate to apply a GP rate of 3.20% to the total turnover of Rs. 121,80,17,278/- which gives gross profit of Rs. 3,89,76,553/- against Rs. 3,69,65,026/- (3.03%) declared by the appellant resulting in trading addition of Rs. 20,11,527/-. It is clarified that this addition of Rs. 20,11,527/- includes sale amounting to Rs. 10,74,819/- which was held to be out of the books of accounts of the appellant.”

The basis of making addition by the Assessing Officer was that during the

survey operation, the Central Excise Department found there was excess

of raw material. It is the contention of the assessee that the ld. CIT(A) has

not taken into consideration the fact that some scrap was generated

during the manufacturing process, which gave difference between the raw

material and finished goods. Further the ld. Counsel for the assessee has

contended that the first appellate authority under the Central Excise Act

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i.e. Commissioner of Appeal-1, Central Excise vide order dated 02/1/2013

has given a finding that there was no sufficient material on record to

establish clandestine removal on clearance by the appellant. It is stated by

the assessee that on the date of survey, actual production of MS Bars was

29668.220 MT whereas consumption of MS Ingots was 31781.160 MT

resulting into burning loss of 1015.810 MT, scrap generation of 1018.865

MT and mis roll of 78.265 MT. We find that this fact is not considered by

the ld. CIT(A) while deciding this issue. Had the ld. CIT(A) taken into

account this fact that this addition would not have been sustained. This

fact is not rebutted by placing any contrary material by the revenue.

Therefore, we direct the Assessing Officer to delete the addition sustained

by the ld. CIT(A). Accordingly, ground raised in the C.O. is allowed.

In this appeal, the only issue involved is restricting the trading

addition to Rs. 20,11,527/- instead of Rs. 52,35,630/- made by the

Assessing Officer. The ld DR has vehemently supported the order of the

Assessing Officer. On the contrary, the ld AR has reiterated the

submissions as made in the written submissions.

perused the material available on the record. So far the action for

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CIT(A) has considered the facts and coupled with the facts that the first

appellate authority of the Central Excise Department has given some relief

to the assessee. Even the Assessing Officer has not carried out any

independent enquiry on the basis of the information received from the

Central Excise Department, therefore, the ground raised in the revenue’s

appeal is hereby dismissed.

objection of the assessee is allowed.

Order pronounced in the open court on 24/01/2018.

Sd/- Sd/- ¼Hkkxpan½ ¼ dqy Hkkjr ½ (BHAGCHAND) (Kul Bharat) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 24th January, 2018 *Ranjan आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- The D.C.I.T., Circle-2, Jaipur. 1. izR;FkhZ@ The Respondent- M/s Premium Bars (P) Ltd., Jaipur. 2. vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 143/JP/2017 & CO 06/JP/2017) 6. vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत