THE ACIT, CIRCLE-1,, JAMNAGAR vs. M/S. SENOR METALS PVT. LTD., JAMNAGAR

आदेश/O R D E R

PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Revenue against the order of the Learned Commissioner of Income Tax, (Appeals), Jamnagar, dated 23/03/2015 (in short “Ld.CIT(A)”) arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2011-2012.

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3.1 The facts in brief are that the assessee in the present case is a private limited company and engaged in business of manufacturing of copper and copper alloys extrusions of rods, components and profiles job work. The return of income for the year under consideration was filed by the assessee on 30-08-2011 declaring an income of Rs. 2,80,77,060/- only. The assessee has entered into forward sales contract with a view to guarding against the risk of Copper scrap purchased, work in progress in stock falling in value. The company has executed these transactions in the copper commodity through MCX stock exchange through its broker Jhaveri Credits and Capital Limited. In these transactions appellant suffered loss of Rs. 1,52,76,370/- and claimed such as normal business loss eligible for set off in normal

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business. The details of the loss claimed by the assessee company summarized here in below:

Sr. Commo Expiry date Total Stock in Forward Sate Forward Profit No. dity qty ( In hand ( amount Purchase (Loss) fit) in Mt) Amount: A Copper 30-]un-10 130 212.71 4,59,80,663 4,04,77,490 55,03,173 B Copper 31-Aug-10 255 388.80 7,91,69,191 8,57,65,028 (65,95,837) c Copper 30-Nov-10 195 239.19 6,72,73,511 7,43,67,554 (70,94,043) D Copper 28-Feb-11 195 309.69 7,50,58,176 8.19,79,890 (69,21,714) E Zinc 30-Jun-11 5 25.47 21,54,750 22,93,250 (1,38,500) TOTAL 26,96,36,291 28,43,83,211 (1,52,46,920)

3.2 During the assessment proceeding the main point of arguments of the assessee were as under: a) The loss is incurred on account of the derivative transaction entered into to safeguard the business of the assessee. b) The loss is allowable as business expenditure considering the CBDT circular dated 8-9-1954 and out of the speculative transaction. c) The transaction entered is duly supported by copies of bills of Jhaveri Capital and Credits Limited. Ledger account of the Jhaveri Capital and Credits Limited. Month wise details of the stock on hand by the company. d) The transaction entered into does not attract section 43(5) of the Act.

3.3 The assessing officer mainly contended on following aspects while making addition is reproduced from the assessment order’s page 8 “….In the case under consideration the assessee failed to discharge the onus cast upon him to prove that it has indulged in forward trading only for guarding against the loss. several other case law as well as notification cited by the assessee do not relate to the case of the assessee. The assesses's main commodity is Brass whereas he has never traded in forward in the basic commodity. Considering this fact the assessee's claim required to be rejected and the amount of Rs. 1,52,76,370/- being forward loss is liable for disallowance. The contentions of the assessee have been deliberated at length and are not found to be acceptable. As per provision of section 43(5) of the Income Tax Act, any 'eligible transaction' in respect of trading in derivatives referred to in clause [(ac)] of section 2 of the Securities Contratct (Regulations) Act, 1956 (42 of 1956 ) carried out in a recognised stock exchange. Therefore, the provision of section 43(5) of the Act are clearly attracted and these transactions clearly fall within the ambit of the definition of speculative transactions thereby

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rendering itself ineligible for deduction under the Act. Accordingly, the assessee’s claim of Forward Contract Expenses of Rs. 1,52,76,370/- is disallowed and added to the total income of the assessee. “ 3.4 Aggrieved assessee preferred an appeal before the ld. CIT-A, who deleted the addition made by the AO. The “Ld. CIT(A)” has given his detailed finding on page 11 to 16 and the summary of his findings are as under:

a) Though, the assessee has entered into transactions in which the contract for purchases and sales of copper scrap and zinc scrap is ultimately settled otherwise then by actual delivery of the goods is speculative transactions but falls within the exceptions as provided in sub clause (a) to (e) of the sub section of section 43(5) and the assessee fulfills that condition prescribed under the section and thus, the transaction is not speculative transactions. b) The brass is a metallurgic combination copper and zinc and thus, the dealing of copper and zinc for safeguarding against loss which may arise due to future price fluctuations and thus loss is related to the stock of assessee’s business. c) The spirit of the circular cited says that if the appellant has entered in to genuine hedging activities, then AO should not be too concerned about the quantity, timing and connected commodity issues. d) As regards the contention of the AO that the transaction is not entered into the recognized stock exchange, as the transaction entered is covered by clause (a) of exception and the subsequent condition as prescribed in clause (d) is irrelevant considering the facts of the case. e) The AO has not pointed any single defects in the records of the assessee produced before him and has not rejected the books of accounts which are audited by an independent Chartered Accountant.

3.5 The “Ld.CIT(A)” has given a clear and concluding finding citing above points and various judicial decisions and has deleted the addition of Rs. 1,52,76,370/- .

3.6 Being aggrieved by the order of the ld. CIT-A, the Revenue is in appeal before us:

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3.7 During the course of hearing the Departmental Representative heavily relied upon the contention of the Assessing Officer.

3.8 On the other hand, the ld. AR has filed a paper book running from pages 1 to 1 to 586 and evidences and decisions relied upon. The ld. AR has also filed a written submission as well as synopsis citing the contention of the AO, reasoning of the “Ld.CIT(A)” and their contention against the Revenue’s appeal. The Ld. Counsel for the assessee has relied on the written submission, synopsis and reasoning given by the “Ld.CIT(A)” Jamnagar. The written submission filed by the assessee are extracted below: a) Section 43(5) of the Income Tax Act, defines the transactions which are periodically or ultimately settled otherwise than by actual delivery as speculative transaction. However, there are some exceptions given in the section as under: Clause Exception Applicability (a) Contract in respect of raw material The assessee is a company engaged in or merchandise entered in the business of manufacturing of non-ferrous course of manufacturing or extrusion of Brass rods, Brass merchanting business to guard components, brass profiles, Job work, against loss through future price and trading of Brass scrap. Brass is the fluctuations in respect of his derivative of Copper and Zinc. contract for actual delivery of goods The company has executed these manufactured or merchandise sold transactions in the copper which is connected commodity through MCX stock exchange. (b) Contract in respect of stocks and Assessee has not entered into transaction shares entered into by a dealer or in shares and stocks as dealer or investor investor therein to guard against loss in his holdings of stocks and shares through price fluctuations (c) A contract entered into by a Assessee has not entered into any member of a forward market or a transaction in the nature of jobbing or stock exchange in the course of any arbitrage transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member (d) An eligible transaction in respect of Transactions carried out by assessee trading in derivatives referred to in does not fall in under the purview of clause [(ac)] of section 2 of the clause [(ac)] of section 2 of the Securities Securities Contract (Regulation) Contract (Regulation) Act, 1956 (42 of Act, 1956 (42 of 1956) carried out 1956) in a recognized stock exchange (e) An eligible transaction in respect of Assessee has entered into transaction trading on commodity derivatives through the recognized association i.e. carried out in a recognized MCX which was notified later on

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association [which is chargeable to 29/11/2013. We rely on the following commodities transaction tax under decisions wherein it was held that chapter VII of the Finance Act, 2013 Procedural delay in recognition of stock (17 of 2013)]] exchange would not lead a derivative transaction to be categorized as speculative one: k) ACIT vs. Mr. Arnav Akshay Mehta – Appeal No. ITA 2742/Mum./2011 (Mumbai Tribunal) (page no. 274-277 of paper book) l) Vimal Oil & Foods Ltd vs. ACIT [2015] 54 taxmann.com 107 (Ahmedabad Tribunal) (page no. 278- 280 of paper book)

b) Assessee has claimed such loss as normal business loss eligible for set off in normal business considering as directly spring from the business of the assessee. The commodities hedged are raw material of the assessee. Hence, the same is considered by assessee u/s. 43(5)(a) of the Act. c) During the course of assessment proceedings, assessee has explained vide submission no. 6 dated 24/03/2014 as to why the amount being Mark to Market losses incurred by the company should not be disallowed (submission attached at page no. 66-246 of paper book). However, Ld AO has treated the loss as speculative loss contending that hedging transactions have been entered into by assessee in Copper which is not basic raw material of the assessee and the transactions are not carried out in recognized stock exchange. d) Ld. AO has ignored the facts that Brass is the derivative of Copper and Zinc and not a separate metal in itself. Hence, Brass and Copper can be said as connected commodities and falls under clause (a) of section 43(5). Reliance is placed on Circular no. 23D dated 12/09/1960 (page no. 247 of paper book) which excludes hedging transactions in connected commodities from the purview of speculative transactions. e) Further, assessee has never hedged the goods of brass and copper more than its holding, Job work material and pending orders from import. Full quantity records were also produced before AO which showing that there is not a single instance where the import or stock of the material is less than the quantity hedged. In fact it is not at all a cases that assessee has entered in to contract without having goods with him. Moreover, the Hon’ble CIT(A) has also noted the facts at page no. 15 of the appellate order that the assessee has always stock on hand which was shown in below mentioned table:

Sr. No. Commodity Expiry Date Total Qty Stock in hand (in MT) (in MT) A Copper 30/06/2010 130 212.71 B Copper 31/08/2010 255 388.8 C Copper 30/11/2010 195 239.19 D Copper 28/02/2011 195 309.69 E Zinc 30/06/2010 5 25.47 f) In A.Y. 2010-11 on identical issue the AO has made the disallowance that has been deleted by the Hon’ble CIT(A), Jamnagar (copy of order attached at page no. 248-273 of paper book). g) The assessee has also relied upon various decisions the same is not reproduced from the paper

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3.9 We have heard the rival contentions of both the parties and perused the materials available on record. We have persuaded the contention of the assessing officer, the contentions placed on record by both the side and after hearing the rival contention and arguments placed on record. It is not disputed by the ld. DR that the brass is a metallurgic combination of copper and zinc, and the assessee and company is engaged in the business of brass. The hedging transaction done as tabulated at para 7 are of Copper and Zinc and thus the finding of the AO that this hedging is not for safeguarding the raw material brass does not seem to be correct and there are no other contrary arguments placed before us. The DR vehemently relied upon the finding of the AO before us. The commodity hedged being Copper and Zinc are raw material of the assessee and is considered for the purpose of business of the assessee. As regards the recognition of the exchange we have relied upon the argument of assessee that the transaction of the assessee does not fall in to clause (d) of section 43(5). It is immaterial whether transaction is carried out at the recognized stock exchange or not. Even the circular of CBDT cited in the assessment order states that once it is established that the assessee has entered in the transaction of the commodity that they deal the other technical details have no material impact. Hence, this reasoning of the assessing officer also fails. Thus, we believe that the assessee by filling the bills, quantitative information, the same is in accordance with the audited books and there is not adverse remark on it. The fact that they are using brass as their raw material which is metallurgic combination of copper and zinc and they have hedge that copper and zinc. We do not find any fault in the finding of the “Ld. CIT(A)” in allowing this loss against the income of the assessee, since the Ld. DR has not contracted any of the facts placed before us and before the “Ld. CIT(A)”. Therefore, we are inclined to agree with the views of “Ld CIT(A)” and based on the above finding the ground of Revenue that appellant is not eligible to set off the hedging loss of Rs. 1,52,76,370/- having no merits and same is dismissed.

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4.1 The assessing officer in his order observed “Drastic fall in the yield of finished goods” as evident from page 8 of his order. The relevant extract is reproduced below: Further on verification of the quantitative details of the consumption of raw materials and production of finished goods, it is revealed that the assessee produced finished goods weighing 32,25,537 Kgs. as against consumption of raw materials weighing 38,97,135 Kgs. In the preceding year, the assessee manufactured finished goods weighing 2916253 Kgs. as against consumption of raw material weighing 3204652 Kgs. As such, the percentage yield of finished products, during the year, comes to 82.77 % of raw materials consumed as against 91 % in the immediately preceding year. Thus, there appeared an abnormal decrease in the yield of finished products during the year under consideration for no apparent reason. Therefore, the assessee was requested to explain the reasons for such a substantial decrease in yield as compared to immediately preceding year with documentary evidences.” 4.2 Against the observation of the AO the assesse furnished its explanation which is discussed in Para 3.6 of the assessment order and same is extracted below:

“ The assessee contended that in the tax audit report, the increase /decrease in work in progress had been shown as manufacturing of goods and that he production of finished goods and consumption of scrap was taken inclusive of sales return in the immediately previous year. It is further contended that during the last year, the assessee used more copper mix scrap than the brass mix scrap and that the assessee produced high precision goods to penetrate into the international market as can be seen from the increased export turnover and higher gross profit. The assessee ultimately contended that it maintained day to day stock register and production records.”

4.3 The AO rejected the explanation of the assessee on the basis of reasoning given in para 2 of page 11 of his order. The relevant observation of the AO is extracted below:

a) The auditor for both the year same how the representation in the ratio will change. b) The said change is for no apparent reasons, but to present a deceiving picture by adjusting WIP & Sales return figures even after such statistical jugglery there is substantial decrease in the yield at 83 % during the year from 88.91 % in the immediately preceding year. c) As regards the contention that the assessee used more copper mix scrap than the brass scrap, the assessee has not furnished any reasons for such deviation.

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d) In fact this the contention that the assessee produced high precision goods to penetrate into the international market as it is universally accepted fact that for high precision goods, the copper content in the brass alloy should be higher as compared to other brass components. e) The contention of the assessee that it produced high precision components which resulted into higher gross profit margin earning also should follow as the net profit ratio in the case of the assessee has gone down. f) The contention that it maintained day to day stock register and production records is also not acceptable as mere maintenance of these records does not certify the genuineness of such incredible fall. g) The burning loss is claimed at 5.79 % as against 6.89 % for F.Y. 2010-11. h) Increase / decrease of WIP is 0.28 % theses year as against 2.12 %. i) The assessee has furnished various reasons for extreme and steep down in the yield and has presented various permutation and combination of statistics so as to justify the abnormal result of the manufacturing process. 4.5 Finally the AO made the addition by holding as under: “….[ line 2 on page 16 ] Accordingly it is concluded without any alternative option that the assessee company has manipulated its production result and made accounting jugglery to minimize the legitimate tax burden on the true and correct income earned by it by way of suppressing the production of finished goods and claiming impossibly high slag generation. The standard bye product generation in brass industry is 4 %. The assessee has no way to substantiate its claim of meager 83 % yield of finished goods, rather abnormal generation of 6.10 slag. Accordingly, the claim of 6.10 % is rejected and after allowing 4.10 % slag production which is also on higher sided compared to other cases of the same business slag generation the excess claim of 2 % slag generation the excess claim of 2 % slag generation which is a unsubstantiated claim, is treated as suppressed production not accounted for in the books of account of the assessee. Accordingly, the two percentage of total consumption of 3897134 kg. works out to Rs. 77942 kg of raw material consumption. In money terms the suppression is worked out at Rs. 2,02,64,920/- at an average rate of purchase of brass/copper scrap of Rs. 260 per kg. in the assessee own case. Thus, this amount of Rs. 2,02,64,920/- is treated as un accounted income of the assessee from suppression of production to that extent.”

4.6 Aggrieved, assessee preferred an appeal before the ld. CIT-A, who deleted the addition made by the AO. The observation of the ld. CIT(A) is summarized as under: a) The fall in the yield is an established fact. But the fall is on account of the various reasons, such as the combination of the copper and zinc, both the material melt at different level of heat, therefore in the process of melting and heat the yield may reduce on account of higher heat if given.

b) Assessee has carried out R & D activities for the needs of innovations and that can be fall on this point also.

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c) The Unit of the assessee is subject to various exercisable quantitative records, therefore suppressed sale cannot be made merely on the basis of the fall in yield. d) The assessee is subject to inspection of Excise and VAT department for their dispatch of goods and the records were kept and maintained as per that law. And in those record no specific defects were pointed out. e) Not a single defect has been pointed by the assessing officer in the assessment proceedings with respect to the quantitative records maintained by the assessee and produced during the proceeding. f) The profit margin of the assessee company has improved even though there was a fall in the yield, it is because of better margin on other goods and the fact that the gross profit ratio increased is also not disputed by the assessing officer. g) The goods are imported in scrap condition and all the goods so imported have different type of attachment like rubber, iron plastic and are subject to difference type of quality and by melting this goods are manufactured and therefore, since recycled goods are used as raw material yield cannot be kept at same in each year and each year the assessee maintained the required records showing full quantitative details which has not been subjected to defect in the assessment proceedings by the department. h) The Department has carried out survey proceeding at the premises of the assessee and, in the survey, proceeding no incrementing documents found or any difference in quantitative records of inventory maintained viz-a-viz physical stock verification were observed. i) The assessing officer has not rejected the books of account.

4.7 In view of the above summarized points, discussed at length in para 6 of his order the ld. CIT(A) has given the finding that the reasons given by the AO for making an addition of Rs. 2,02,64,920/- on account of low yields was incorrect. Thus, ld. CIT(A) deleted the said addition by holding the that without finding any defects in the books of accounts, quantity records and in absence of any adverse material found in survey proceedings, the addition cannot be sustained.

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4.8 Being aggrieved by the order of the ld. CIT-A, the Revenue is in appeal before us.

4.9 In the course of hearing, the ld. DR, vehemently supported the order of the AO. 4.10 On the other hand, the learned counsel of the assessee has filed a synopsis of the argument made and in respect of the impugned addition, his arguments or submission before us are reproduced as under:

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Submission – 8 28/03/2014 Monthwise inward and outward movement of inventory in (Page no. 357-370 the form of consumption of material and production of of paperbook) finished goods, other materials and burning loss Submission – 9 29/03/2014 Submission regarding decrease in yield of finished goods (Page no. 371-416 and increase of other materials along with day to day of paperbook) production reports for the full year 2. Addition by Assessing Officer and assessee’s contention:  The Assessing Officer vide Assessment Order u/s 143(3) dated 30.03.2014 gave the following reasons for addition. Assessee’s contention is as under: Sr. Para & Page Reasons for addition by Contention of the assessee No Reference A.O. 1. Page no. 13 Ld A.O. has contended that There is no abnormal increase in by there has been an abnormal product yield and drastic fall in increase in by-product yield & finished goods but the same is due drastic fall in finished goods to change in the product mix, yield. development of new product, import of material which contains higher impurities. 2. Page no. 14 Ld A.O. has further contended Ld AO has provided the assessee with that such fall in yield of unjustifiable or invalid reasons finished goods is on account of without any basis by considering abnormal loss of slag & not on the excessive claim of 2% on the high precision components generation of by-product during manufacturing or increase in the manufacturing process as exports by 8 times. 'unaccounted income from suppression of production'. Ld A.O. has, by comparing the Ld A.O. has compared the yield yield figures of F.Y. 2010-11 & figures of F.Y. 2010-11 & F.Y. 2009- F.Y. 2011-12 stated that such 10 and considered the same as abnormal loss w.r.t. manipulative tactic of the assessee. manufacture of materials was Mere arithmetical comparison of a manipulative tactic deployed figures doesn't lead to any sort by the assessee to misguide & of manipulative tactic of the misdirect the A.O. assessee to mislead or misguide the A.O. particularly when the assessee has maintained the stock records which are audited by Statutory auditor, VAT auditor, Excise authorities. Moreover, there cannot be comparison with earlier years where there is constant change in technology, product mix, upgradation of machineries, demand and supply of products and economic conditions prevalent in particular year. 3. Page no. 15 & 16 Ld A.O. has also given Learned A.O. has also made reference of the case of M/s reference to M/s Shri Bhavani Shri Bhavani Extrusion, Extrusion, Jamnagar (Manufacturing Jamnagar (Manufacturing Brass rods) & compared the same,

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brass rods) & made stating that assessee co. is comparison with the same, manipulating the production results stating that the assessee co. to reduce the tax-burden. has manipulated its production By comparing the figures of one result & made accounting firm with the assessee co., does jugglery to minimize the tax- not serve as an important base burden on the true & correct for proving that the assessee has income earned by it by way of done any sort of manipulation or any suppressing the production of accounting jugglery to minimize the finished goods & claiming tax burden. No opportunity is impossibly high slag provided to assessee to know generation. the details of those companies/ firms. They are engaged in mere extrusion business at a very small scale and do not become comparable with the assessee at all as they do not manufacture components. 4. Page no. 16 Ld A.O. has further contended From the reasons furnished by the that the standard by-product A.O., it seems as if the Ld A.O. has generation in brass industry is concentrated merely on around 4% & relying on the figurative details & not on the same base, the A.O. has facts provided by the assessee disallowed the claim of 2% out and has not provided any such of 6.10% claimed by the 'reasonable cause' to reject the assessee, which amounts to claim. Rs. 2,02,64,920/-

Ld A.O has treated the same as Mere variations i.e. increase or unaccounted income of the decrease in the slag yield doesn’t assessee from suppression of provide a strong base to the A.O. production to that extent & for the assessee being indulged in rejected the excessive claim of any manipulative tactic to misdirect 2%. or misguide the A.O. Further, there are no provisions referred in the IT Act, 1961 that increase in slag yield leads to accounting jugglery to evade taxes. Further justification: 3. Sales Profile of assessee:

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 We would like to put before Your Honours the brief sales profile of the company as compared to the previous year: SN Particulars 2010-11 2009-10 Qty Amount Qty Amount (A) Brass Extrusion Rods (i) 23 17 763.18 71 16 71 298.47 22 97 046.23 57 12 43 Brass Extruded Rods 812.39 24 172.94 75 79 641.22 32 855.31 82 95 492.39 Less: Sale Return 22 93 590.24 70 40 91 657.25 22 64 190.92 56 29 48 Net Sales 320.00 (ii) Brass Extruded Rods 5 602.25 15 97 185.52 4 795.80 13 26 420.55 (Against CT-3) 22 99 70 56 88 842.77 22 68 986.72 56 42 74 192.49 740.55

(B) Brass Components (i) Brass Components 0.00 0.00 3 703.32 15 99 674.41 (Against CT-1) (ii) Brass Components 36 612.55 2 57 78 969.68 9 372.48 59 76 785.00 (Against CT-3) 715.00 4 70 498.60 456.50 2 62 000.78 Less: Sale Return 35 897.55 2 53 08 471.08 8 915.98 57 14 784.22 Net Sales (iii) Brass Components 2 42 427.49 10 68 09 370.14 1 93 215.80 6 98 57 (Excisable) 668.61 16 288.08 65 02 613.67 13 605.93 47 95 154.20 Less: Sale Return 2 26 139.41 10 03 06 756.47 1 79 609.87 6 50 62 Net Sales 514.41 2 62 036.96 12 56 15 227.55 1 92 229.17 7 23 76 973.04

( C) Copper Billets (i) 1 35 653.45 4 91 64 284.47 39 940.40 1 25 84 Copper Billets 991.25 0.00 0.00 747.30 1 91 308.80 Less: Sale Return 1 35 653.45 4 91 64 284.47 39 193.10 1 23 93 Net Sales 682.45 (ii) Copper Billets (Against 1 32 240.40 4 21 76 094.80 64 398.00 1 80 58 CT-3) 799.75 2 67 893.85 9 13 40 379.27 1 03 591.10 3 04 52 482.20

(D) Copper Extrusion (i) 1 57 969.54 8 02 15 525.43 2 02 380.50 7 42 55 Copper Extrusion 432.20 1 295.30 5 46 012.21 4 397.55 14 50 104.26 Less: Sale Return 1 56 674.24 7 96 69 513.22 1 97 982.95 7 28 05 Net Sales 327.94

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(ii) Copper Extrusion (Against 12 594.25 60 12 211.25 8 157.75 34 75 576.99 CT-3) 1 69 268.49 8 56 81 724.47 2 06 140.70 7 62 80 904.93

(E) Others (i) 1 24 057.85 3 94 82 330.60 68 984.70 1 91 72 Brass Billets 502.55 1 940.40 6 95 730.10 0.00 0.00 Less: Sale Return 1 22 117.45 3 87 86 600.50 68 984.70 1 91 72 Net Sales 502.55 (ii) 8 060.55 30 15 823.64 1 005.47 3 77 086.25 Brass EDM Wires 0.00 0.00 6.81 2 728.75 Less: Sale Return 8 060.55 30 15 823.64 998.66 3 74 357.50 Net Sales (iii) 8 949.70 30 56 832.25 11 312.85 32 22 723.35 Other Articles of Brass 1 39 127.70 4 48 59 256.39 81 303.02 2 27 69 583.40

(F) By-Products & Intermediary Products (i) 69 773.00 4 96 409.50 11 198.30 67 189.80 Iron Scrap (ii) 1 03 984.00 6 23 904.00 1 54 651.00 7 15 877.85 Ash 1 73 757.00 11 20 313.50 1 65 849.30 7 83 067.65

33 11 105 43 05 743.95 30 18 100.01 76 69 37 TOTAL SALES 276.49 751.77  On the basis of above table Your Honours will kindly notice that there is increase in exports form 27 lakhs to 248 lakhs almost 8 times. This requires a good quality product, which should have highest standard of quality, to manufacture the same it results in lower yield but higher value. 4. Purchase Profile of assessee:  We also draw your kind attention towards the purchase profile of the company as under :- SN Particulars 2010-11 2009-10 Qty Amount Qty Amount (A) Opening Stock Brass Scrap 1,05,741.10 220,81,913 28,861.36 59,15,424 Copper Zirconium 45.00 27,000 - - Chromium Metal 290.00 1,16,580 - - Bismuth 45.00 39,825 - - Lead - 38.80 2,720 - Zinc 32,174.05 35,88,694 9,366.40 7,59,615

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Manganese 21,084 1,093.00 1,78,520 153.90 Copper Phosphorus 2,12,999 467.00 2,58,844 617.80 Copper Tellurium 3,53,091 62.00 3,71,045 59.00 Tin 1,579.20 12,11,120 834.95 5,84,991 Nickle 3,43,070 3,129 377.00 5.00 Cadmium 15,960 70.00 15,960 70.00 Sillicon 75,111 1,534.00 1,48,430 807.65 Magnesium 2,688 - 16.00 - Generated Scrap 13,428.00 28,04,169 3,936.91 8,06,911 sub-total 1,55,403.70 308,93,305 46,269.42 90,45,589

(B) Add: Purchase Brass Scrap High 10,02,590.00 2226,43,801 4,43,670.00 885,07,375 Seas Brass Scrap Imported 10,71,718.00 2629,49,810 3,74,767.00 958,16,600 Brass Copper – 11,65,885.04 3668,32,401 17,44,496.44 4062,72,717 Domestic Bismuth - 50.00 44,250 - Copper Phosphorus 3,67,250 800.00 2,79,500 850.00 Chromium Metal - 875.00 3,61,750 - Dies 10,63,735 6,83,980 - - Semi-Finished Goods 75,826.80 302,52,849 85,650.39 285,57,737 Silicon 4,070.00 4,83,125 1,000.00 93,000 Manganese 7,200.00 10,83,488 6,600.00 9,00,853 Magnesium - 16.00 2,688 - Tin 2,326.50 30,82,876 1,661.00 12,61,012 Zinc Import 1,73,067.00 167,71,835 1,50,896.00 126,65,278 Zinc Domestic 3,03,216.30 345,35,794 4,58,409.35 439,78,937 Nickel 499.40 5,93,863 1,200.00 10,52,300 sub-total 38,07,249.04 9406,60,828 6804,77,979 32,70,091.18

( C) Add: Expenses Clearing & 38,20,677 13,10,783 Forwarding Expenses

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Freight Inward 22,84,998 13,27,565 Expenses sub-total 61,05,675 - 26,38,348 -

(D) Less: Closing Stock Brass Scrap 26,173.42 71,62,618 1,05,741.10 220,81,913 45.00 27,000 45.00 27,000 Copper Zirconium 145.00 58,290 290.00 1,16,580 Chromium Metal 36.00 31,860 45.00 39,825 Bismuth Zinc 11,965.85 14,75,629 32,174.05 35,88,694 Manganese 969.50 1,58,029 153.90 21,084 Copper Phosphorus 40,950 617.80 2,12,999 90.00 Copper Tellurium 38.40 2,22,720 59.00 3,53,091 Tin 191.00 3,22,791 1,579.20 12,11,120 Nickel 5,78,047 377.00 3,43,070 486.10 Cadmium 12,981 70.00 15,960 61.00 Silicon 89,566 807.65 75,111 690.30 Magnesium - 16.00 2,688 - Generated Scrap 15,534.73 42,51,233 13,428.00 28,04,169 sub-total 144,31,712 1,55,403.70 308,93,305 56,426.29

(E) Less: Raw Material Sold Zinc 4,200.80 5,10,361 1,000.00 94,650 Generated Brass 4,520.40 8,31,724 5,394.60 11,47,314 Scrap sub-total 13,42,085 12,41,964 8,721.20 6,394.60

(F) Less: Purchase Rate 5,88,906 8,70,337 Difference - -

(G) Less: Purchase 370.70 1,37,831 1,979.45 7,02,705 Return (Semi Finished Goods) Raw Material 38,97,134.54 9611,59,273 6584,53,605 Consumed 31,52,582.86 (a+b+c-d-e-f-g)

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 According to the above, Your Honour will kindly notice that during the year assessee imported raw material being brass and copper mix scrap of 25.09 crores compared to 8.32 crores last year. Therefore there is more than 4 times increase in imported scrap materials which has accepted level of higher quantum of plastic, dust caps, other materials etc. Generally, it is burnt without segregation and at that stage only it results in to at least 10 % of losses. Therefore the raw material consumption is higher but the higher value of material derived is less in this circumstances and results in to higher ash/ slag/ waste etc.  Similarly high seas purchases of imported mix brass scrap has gone up from 8.85 crore to 22.26 crores which has identical results as stated in para above.  The assessee had purchased both inferior and superior quality of raw material in the form of mix brass scrap mix copper scrap etc. This fact has been produced as an evidence in the form of details of purchases and detail of scrap stocks during assessment proceedings, and, therefore, it was not reasonable to expect the same yield in the case of the assessee as in previous years where the quality of material purchased was wholly superior and of better quality. Last year assessee has purchased 17.44 lakhs KG of copper scrap in the lesser turnover where as in the current year on the increased turnover it has purchased lower copper scrap of 11.65 lakh K G only which is almost 30.62 % in this year compared to 53.33 % of last year. Copper is the base metal, which is mixed with low quality lower rate zinc and gives the brass. Therefore, this year lesser purchase of Copper resulted in lower yield. 5. Comparison of Gross Profit:  There is improvement in Gross Profit. Assessee can carry on the business, which is most profitable to him. If in decreased yield of one product it gets higher realization and earn higher profit, AO does not have any power to not to allow the business modus operandi of product mix. Comparison of Gross Profit Ratio with the earlier year is as under:

31st March 31st March Gross Profit Working G.P. 2011 2010

Gross Profit Ratio 105 41 47 Sales 754 76 80 50 774 Direct Income (Job-Work) 2 63 30 513 1 93 78 724 108 04 78 Turnover 267 78 74 29 498

Raw Material Consumed Opening stock 3 08 93 304 90 45 589 Add: purchase 94 05 22 997 67 90 72 137 Expenses 61 05 675 26 38 348 Less: Sales 13 42 084 94 650 Less: Purchase rate difference 5 88 906 0 Closing stock 1 44 31 712 3 08 93 305 Total 96 11 59 274 65 97 68 119

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Manufacturing Expenses Payment to employee & labour cost 3 25 55 091 2 39 18 268 Contribution to pf and other fund 9 56 851 4 42 515 Stores consumed 1 50 89 056 84 78 312 Fuel consumed 45 27 354 37 81 664 Motive power( net generation income) 1 56 94 627 1 14 92 283 Repairs & maintenance 3 40 882 25 61 698 Other mfg. expenses 58 76 989 49 00 203 7 50 40 850 5 55 74 943

Credit of Wind farm on Units Generated 1 05 91 915 1 15 89 169 Depreciation Related to Mfg. 67 68 087 77 55 982 1 73 60 002 1 93 45 151

(Increase )/Decrease in stock Opening stock By product 1 28 206 2 86 589 Work in process 5 86 46 481 6 63 78 651 Finished goods 1 11 79 254 77 63 967 Total 6 99 53 941 7 44 29 207 Closing stock By product 1 90 383 1 28 207 Work in process 7 39 48 992 5 86 46 481 Finished goods 4 23 41 743 1 11 79 254 Total 11 64 81 118 6 99 53 942 Sub Total 4 65 27 177 - 44 75 265

100 70 32 Cost of Goods Sold 949 73 91 63 478

Gross Profit 7 34 45 318 4 82 66 020

Gross Profit Ratio 6.80% 6.13% 6. R & D Activities carried out for innovation:  The company has because of need of the innovation has started developing its own products. R&D activities that is carried on by the assessee in the year has given an edge to the assessee. Assessee has stated to be developed some of the

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products which are rare and needs huge amount of research and development and precessions. Some of these are for example: a. ERCuSi-A for car body building b. ERCUAl-A1 ship building c. CUCRZr car body building d. CUSN8 wire for Nuclear power corporation e. Aluminum bronze tubes for DRDO  We submit that such development activities consume huge raw material and needs higher amount of recycling compared to the other components or the other material of brass being manufactured in Jamnagar. This is resulting in producing high value quality product, which generates high prices. Due to this R & D work there is lot of recycling of material to suit the needs of the customers, it has generated lower yield. AO has not at all discussed this aspect in the order. 7. Hike in comparative sales price:  Comparative selling price of the company on average basis itself suggest that there is steep price hike due to the quality product of the company for which it need high level of precision and high level of efficiency. We submit a sample chart below: Sr No Product Selling rate Selling rate in F Y in F Y 10-11 09- In Rs. 10 in Rs. 1 Brass Extrusion 306.93 248.70 rods 2 Brass Components 479.38 376.51 3 Copper billets 340.96 293.97 4 Copper extrusion 506.19 370.04 5 Other item 322.43 280.06  Ld AO has brushed aside these facts and has not commented on this but has just compared the percentage of the production whereas the submission of assessee was on prices/ sales realization.  The statement of AO that components do not alter the losses/ inferior material is not an argument, which has any base. In facts, components go many cycles of burning/ turning/ machining compared to the rods. Therefore statement of AO is incorrect to disregard it. Price of component is more than 150/- per Kg compared to rods. Therefore the statement of AO is incorrect.

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but rejected the comparable given by the assessee of Shree Extrusion that is comparable and is in the same line of business.  AO has also not given any opportunity to co-operate the financials of that company with the assessee. Further assessee’s burning loss is almost the same as those comparable companies. Therefore, without giving any opportunity of rebutting material on which AO has relied addition cannot be made of this magnitude.  Further, it is also not clear how AO came in to possession of these companies comparable in absence of any 133(6) proceedings without which AO does not have power to use the comparable.  We submits that Ld AO has not provided the material relating to comparable selected by him such as Bhavani extrusion etc. This is fatal to the assessment. Assessee submits that using the material which is not provided to assessee and then making such a huge addition shows the callousness with which the addition is made by AO. Assessee relies on Hon'ble Gujarat High Court in case of CIT vs. Indrajit Singh Suri - [2013] 215 Taxman 581 (Gujrat) (Page no. 417-421 of paper book). 9. SION Norms issued by Government:  The Government of India has assigned SION norms for manufacturing from brass and copper products which are part of government orders. The manufacturing result of assessee is within four corners of orders issued by Government. It is submitted that SION norms are established by the highly technical team of the Government of India and it sets such norms based on containing so many inputs. AO was aware of such norms but he ignored them completely.

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statutory as well as tax audit and same were not rejected and, moreover, Assessing Officer had nowhere expressed his inability to deduce true income from said accounts, impugned addition made on estimate basis was to be set aside

 DCIT vs. Best Paper Mills Pvt Ltd – ITA No. 975/Mum/2017 (Mumbai –Trib.) (Page no. 430-446 of paper book) Assessee's yield compared with other entities without elaborating the technology being used by those concerns and the contents and quality of raw material etc. No conclusions could be derived merely on the basis of bald comparison. After additions in the Plant & Machinery there was improvement in the yield.  Jai Pulse Mills vs. ITO [2010] 39 SOT 312 (Ahmedabad – Trib.) (Page no. 447- 451 of paper book) In view of the facts of the instant case that the Assessing Officer had not rejected the book results of the assessee in all the seven assessment years and there were no defects pointed out by the Assessing Officer, the estimation made by the Assessing Officer and, consequently, enhancement made by the Commissioner (Appeals) in the four assessment years, was arbitrary and without any basis. Even otherwise, since the Tribunal in the similarly placed facts in another case, emanating out the same survey, confirmed the book results declared on account of wastage and percentage of yield, thus, it was to be opined that the additions made by the Assessing Officer in the seven assessment years, including the four assessment years where the Commissioner (Appeals) had confirmed enhancement, the assessment deserved to be deleted. 11. Assessment History of the assessee:  Ld. AO who himself conducted survey at the premises of the assessee in past and he was the officer who supervised the whole process of the manufacturing and was studied by him and he took the each burning and manufacturing process by actually firing of the materials. During the course of survey, not a single paper was found which even remotely suggested that assessee has mishandled any material i.e. finished goods, raw materials etc. in the manner alleged by the AO.  Assessee submits that on 7-11-2012 AO himself lead the team of survey and carried out detailed examination of books of the accounts of the company and other relevant records for almost three days. After full verification carried out by AO, your Honour will appreciate that there was no discrepancy in the accounts as well as the stock records as well as the production process and maintenance of records there in. Therefore, there was no disclosure in the survey proceedings.  IT team did not find any improper functioning, no papers, which are unrelated or suggesting. Based on the above survey findings of the Income tax department last year assessment was made where the assessee submits exhaustive details including the day to day production sheet and summaries running in more than 1000 pages which were verified in great detail by AO painstakingly and accepted them in AY 2010-11 as perfect. Assessee submitted the full quantity details for the burning loss and full production data of the year. Ld AO has not discussed at all these aspects in the order.  Further AO did not have any idea about the manufacturing process of brass components manufacturing, he could not point out single defect in the books, and without that he rejected the full production records and past history of assessment of assessee as well as his own assessment at the time of survey solely on the basis of conjectures and surmises.  Over and above this, In income tax, assessee is assessed for last several years u/s 143(3) of the act by the highest rank of assessing officers such as Addl CIT or JCIT and they have never stated any adverse remark in all the assessment that have been carried

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on by income tax department. This shows that our methodology is up to the acceptance of income tax department. There is no year where the books of accounts of the assessee have been found wanting or even a single paisa addition has been made on account of lower profits/ lower yield etc. Even in AY 2007-08 the same rank of officer has accepted the similar level of yield in the past.  Extensive submission have been made before AO during the year in assessment and also in the past assessment years there were not a single expenditure which was found unvouched, not a single sales bill which was found unentered / unaccounted, not a single purchases invoice which was found unaccounted / unvouched / not a single customers account was found out of order, in quantity details, there was not a single KG difference which was pointed out that same is not entering the quantity records and is not matching with the books of accounts. Not a kg of production was found which was not accounted for in the quantity register or in the sales entry. This is not only true for this year but also in the past year, which was deeply scrutinized by AO. 12. Other Submission:  Besides above, there are following facts which can be noted: There is increased price realization in finished goods. o There is no defect in the books of accounts as pointed out by any Excise / VAT o authorities nor by Statutory Auditor / Internal auditor. The accounts are audited for the purposes of companies act, for the Income tax act, o for the excise law and for the VAT act. All the audits are not having any adverse comments on assesses production, sales etc.  The income is taxed by AO as unaccounted, however only real income can be taxed. AO could not state that how the records produced by the Assessee is incorrect. Just mathematical calculations cannot be the basis for the reason of making such additions. In view of the above submission, it is submitted that the addition of Rs. 2,02,64,920/ on account of low yield should not be made. 4.11 We heard both the parties, perused the material available on record and duly considered their points of arguments in respect of the issue of raw material consumption treating the same as suppressed income from production @ 2% amounting to Rs. 2,02,64,920/-. We find force in the arguments of the assessee and reasoning of the finding of the “Ld CIT(A)”. There is no abnormal increase in byproduct yield and drastic fall in finished goods but the same is due to change in the product mix, development of new product, import of material which contains higher impurities. The Ld. AO has provided the assessee with unjustifiable or invalid reasons without any basis by considering the excessive claim of 2% on generation of by-product during the manufacturing process as 'unaccounted income from suppression of production. The Ld A.O. has compared the yield figures of F.Y. 2010- 11 & F.Y. 2009-10 and considered the decrease in yield as manipulative tactic of the assessee to avoid taxes. In our considered view mere arithmetical comparison

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of figures doesn't lead to any sort of manipulative tactic of the assessee to mislead or misguide the A.O. particularly when the assessee has maintained the stock records which are audited by Statutory auditor, VAT auditor, Excise authorities. Moreover, there cannot be comparison of current year data with the earlier years where there is constant change in technology, product mix, upgradation of machineries, demand and supply of products and economic conditions prevalent in particular year. The Ld. A.O. has also made reference to data of M/s Shri Bhavani Extrusion, Jamnagar (Manufacturing Brass rods) & compared the same with the assessee record, and held that assessee co. is manipulating the production results to reduce the tax-burden. Again in our considered opinion comparing the figures of one firm with the assessee co., does not serve as an important base for proving that the assessee has done any sort of manipulation or any accounting jugglery to minimize the tax burden without pointing any defect in record maintained by the assessee.

4.12 We further note that no opportunity was provided to assessee to cross verify the details of those companies/ firms. Moreover the Ld. AR before us submitted that that those firm/companies which figure were compared with assessee company were engaged in mere extrusion business at a very small scale, therefore same cannot be comparable with the assessee at all as they do not engaged in manufacture of components manufactured by the assessee. Further, there are no provisions referred in the Act, that increase in slag yield leads to accounting jugglery to evade taxes.

4.13 In view of the above discussion we are of the considered opinion that there is a force in the arguments of the assessee and we hold that the view of the Ld. CIT(A) in deleting are finding of facts and there is no error on the facts brought before us by the DR and the considering the detailed arguments and submission of the assessee we feel that this ground of the appeal has no force in the argument and therefore, this ground of appeal of the Revenue is hereby dismissed.

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5.1 On perusal of the assessment order, we find that this issue is discussed at page 16 of assessment order, wherein the observation of the assessing officer reads as under: “On verification of P & L account, it is noticed that the assessee claimed legal and professional fees of Rs. 4,43,560/-. The details have been called for. it is submitted by the assessee that it includes stamp duty expenses of Rs. 4,22,800/-. Any such stamp duty which are not in the revenue nature has to be disallowed. Accordingly, the said amount of Rs. 4,22,800/- is disallowed and added to the income declared by the assessee company.”

5.2 The AO on page 16 of assessment order observed that the assessee has claimed stamp dusty expenses of Rs. 4,22,800/- under the head legal and professional fee which is not revenue in nature. Thus the AO disallowed the same.

5.3 Aggrieved, assessee preferred an appeal before the ld. CIT-A, who deleted the addition made by the AO.

5.4 Being aggrieved, the Revenue is in appeal before us.

5.5 During the course of hearing the ld. Departmental Representative heavily relied upon the contention of the Assessing Officer.

5.6 on the other hand ld. AR before us made written submission which is extracted below: 1. During the year under consideration assessee has claimed Rs.4,43,560/- under the head ‘Legal & Professional fees’ in the Profit & Loss A/c which include Stamp Duty of Rs. 4,22,800/-. 2. Details of such stamp duty payments is as under: - Regarding payment of Rs. 4,22,800/-, it was paid for stamps affixed on documents relating to sanction/renewal of CC limits and charge creation. Details of the same are as under:

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Sr. Nature of Documents Amount (Rs.) No. 1 Arrangement Letter SME-01 100/- 2 Guarantee Agreement SME-03 200/- 3 Supplementary Agreement SME-04 2,11,200/- 4 CIBIL Annexure 150/- 5 CIBIL Annexure 150/- 6 Memorandum of Extension of charge SME 7A 2,11,000/- Total 4,22,800/- 3. Assessee has not at all got any new assets created or got any benefit of enduring nature. Therefore, this amount cannot be held to be in the nature of capital expenditure. The details of addition to fixed assets were also submitted with AO where he could have verified that there is no such addition which warrants the payments of stamp duty except renewal of loan. 4. Thus, above mentioned expense incurred in relation to the renewal existing loan of the assessee should be treated as revenue expenses in view of following: I. Expenses are not related with purchase of any fixed asset during the year II. It does not create any benefit of enduring nature to the assessee. III. It was incurred wholly and exclusively for the purpose of business. Hence, we submit that the Stamp duty expenses paid for renewal of loans / CC should be treated as revenue expenditure. 5.7 We heard the rival contention of both the parties and perused the material available on record. On perusal of assessment order we find that this issue has been discussed at page 16 of assessment order. The relevant finding of the AO reads as under: “On verification of P & L account, it is noticed that the assessee claimed legal and professional fees of Rs. 4,43,560/-. The details have been called for. it is submitted by the assessee that it includes stamp duty expenses of Rs. 4,22,800/-. Any such stamp duty which are not in the revenue nature has to be disallowed. Accordingly, the said amount of Rs. 4,22,800/- is disallowed and added to the income declared by the assessee company.”

5.8 However, we note that the the AO while computing the assessed income at page 24 of assessment order has not added this sum to the total income of the assessee. Before us, this fact has not been objected by the either party and therefore, we proceed to adjudicate this issue on merits.

5.9 The AO even though the details were placed before him, without giving any reasons, simply added the sum by stating that the stamp duty is not of a revenue expenditure. Whereas, the ld. AR before us argued that the CIT(A) has rightly deleted the addition made the AO by observing that the expenses are not related

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to purchase of assets, it does not create any enduring benefit and expenditure were incurred wholly and exclusively for the purposes of the business and same is allowable. In our considered view the finding of ld. CIT (A) is correct and department has not objected to any of the arguments on facts. Therefore, this ground of appeal of the Revenue is dismissed.

6.1 In respect of this addition the observation of the assessing officer is at page 17 and the same is reproduced under the contention of the AO: “ On verification of payment of clearing and forwarding exp it is noticed that the assessee had made TDS only on the amount of agency service charge and no TDS has been made on reimbursement. As per Circular No.715 dtd.08/08/1995 any sum paid or payable as a reimbursement is also liable for TDS. In this case the assessee has reimbursed several such expenses incurred by its C & F agent. On examination of such expenses it is noticed that this expense are such that if the assessee would have directly paid it he has to deduct the tax before payment of such expenses. Further the relation between the assessee and the C & F agent is of principal and its agent therefore also the assessee and the C & F agent is of principal and its agent therefore also the assessee is liable to make TDS u/s.194(c) of the IT act on any such payments which may or may not be reimbursements. Considering these facts the total disallowance u/s.40(a)(ia) on account of default in making TDS is worked out at Rs.32,60,146/- as per following chart.”

6.2 Aggrieved assessee preferred an appeal before the ld. CIT-A, who deleted the addition made by the AO by observing that the expenditure incurred and paid to C & F agent is pure reimbursement of expenses in nature and there is no element of profit in such reimbursement in the hand of payee. As such the payment is made on account of transportation expenses incurred by the C &F on behalf of the assessee. The circular referred by the AO, apply principal to principal agent and not principal to agent relationship between the assessee and C & F agent. This fact is very well explained by the Hon’ble Gujarat High court in case of Commissioner of Income Tax -III Vs. Gujarat Narmada Valley Fertilizers Private Limited reported in 35 taxmann.com 638 as relied upon by the assessee where in it was held that the no TDS is required to be made on the reimbursement of expenses incurred by the

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CHA agents which are in fact incurred on behalf of the appellant and there was no profit element in it and thereby disallowance u/s. 40(a)(ia) cannot be made.

6.3 Being aggrieved by the order of the ld. CIT-A, the revenue is in appeal before us:

6.4 In the course of hearing, the ld. DR, vehemently supported the order of the AO. 6.5 On the other hand, the learned counsel of the assessee has filed a synopsis of the various additions made and in respect of the impugned addition his arguments or submission before us are reproduced as under:

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above the appellant-revenue preferred appeal before the Income Tax Appellate Tribunal and by the impugned order the Income Tax Appellate Tribunal has confirmed the order passed by the CIT(A). It is required to be noted that while confirming the order passed by the CIT(A) and deleting the disallowance, it has been specifically observed by the tribunal that in fact the expenses were incurred by the agent on behalf of the assessee for transportation and other charges, which has been spelt out in the bill itself including the commission to the agent. The learned tribunal also observed that the relation between the assessee and the agent is principal and an agent. The learned tribunal also observed that so far as the obligation to deduct tax at source from the payment of transport charges and other charges is concerned, the same was complied with by the agent, who had made payment on its behalf. On the aforesaid facts the learned tribunal also observed that the circular relied upon by the revenue that it is the liability of the assessee as principal agent to deduct the TDS will not be applicable and the said circular would be applicable for payment made to principal to principal. Considering the aforesaid facts and circumstances of the case, when the learned tribunal has confirmed the order passed by the CIT(A) quashing and setting aside the order passed by the Assessing Officer in deleting the disallowance of Rs. 6,93,372/-and Rs. 76,00,509/- claimed by the assessee under Section 40(a)(ia) of the Income Tax Act, we see no reason to interfere with the same. No error has been committed by the learned tribunal in confirming the order passed by the CIT(A). No question of law, much less substantial question of law, arises in the present appeal. Hence, the present appeal deserves to be dismissed and is accordingly dismissed.” b) PCIT vs. Dishman Pharmaceuticals & Chemicals Ltd [2019] 112 taxmann.com 91 (Gujarat) (Page no. 498-510 of paper book) Payment towards reimbursement of expenses by assessee to a nonresident did not involve any income element, therefore, no TDS was required to be deducted on such payment Hence, we submit that amount of reimbursement paid to C&F agent are not liable for deduction of tax at source as it does not involve any profit element and disallowance u/s. 40(a)(ia) should not be made.

6.6 We have heard the rival contentions of both party and perused the material available on record. It is not under dispute that on the agency commission the tax at source has been deducted by the assessee. The only dispute is non deduction of tax on the reimbursement of expenses paid the C&F agent. On this issue we have persuaded the order of the assessing officer, submission of the assessee before the CIT(A) and the submission of the assessee before us. The issue being covered by the jurisdictional High court in the case of CIT vs. Gujarat Narmada Valley Fertilizers Co Ltd reported in 35 taxmann.com 638, where it was held as under: “It is required to be noted that while confirming the order passed by the CIT(A) and deleting the disallowance, it has been specifically observed by the tribunal that in fact the expenses were incurred by the agent on behalf of the assessee for transportation and other charges,

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which has been spelt out in the bill itself including the commission to the agent. The learned tribunal also observed that the relation between the assessee and the agent is principal and an agent. The learned tribunal also observed that so far as the obligation to deduct tax at source from the payment of transport charges and other charges is concerned, the same was complied with by the agent, who had made payment on its behalf. On the aforesaid facts the learned tribunal also observed that the circular relied upon by the revenue that it is the liability of the assessee as principal agent to deduct the TDS will not be applicable and the said circular would be applicable for payment made to principal to principal. Considering the aforesaid facts and circumstances of the case, when the learned tribunal has confirmed the order passed by the CIT(A) quashing and setting aside the order passed by the Assessing Officer in deleting the disallowance of Rs. 6,93,372/-and Rs. 76,00,509/- claimed by the assessee under Section 40(a)(ia) of the Income Tax Act, we see no reason to interfere with the same.”

6.7 In view of the above cited decision of the Hon’ble jurisdictional high court we find force in the argument of the Ld. AR and inclined to agree with the finding of the “Ld. CIT(A)”. Accordingly we hold that the ld. CIT(A) has rightly deleted the addition and we found no error of facts and in law and therefore, this ground of appeal of the Revenue is dismissed.

7.1 In the assessment proceeding it is observed by the AO that there is an abnormal increase in stores consumption as compared to last year. As such the store consumption expenses for the year have been at Rs. 1,50,89,056/- as against last year 84,42,935/-. He further observes that coal consumption has increased 250 % whereas production has been increased by @ 15 % only. Similarly, there is increase in packing material also. The detail breakup of these expenses for both the year stand as under: PARTICULAR AY 11-12 AY 10-11 Electricals 89,742 3,09,557 Crucible 2,99,338 56,812 Coal 26,81,097 10,78,444 Consumables 77,88,307 41,95,318 Packing Material 42,30,570 28,02,804 Total 1,50,89,056 84,42,935

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7.2 Considering the above observation, the AO made adhoc addition of Rs. 15,08,905/- being the 10 % of total expenses claimed by the assessee.

7.3 Aggrieved assessee preferred an appeal before the ld. CIT-A, who deleted the addition made by the AO.

7.4 Being aggrieved by the order of the ld. CIT-A, the Revenue is in appeal before us:

7.5 In the course of hearing, the ld. DR, vehemently supported the order of the AO.

7.6 On the other hand, the learned AR of the assessee has filed a synopsis of the various additions made and. From the argument and submission of the ld. AR in respect of the impugned addition following facts emerges:

a) The appellant is engaged in the business manufacturing of non ferrous extrusions roads for selling as well as on job work. b) The consumption of coal increased from 10.78 lacs to 26.81 lacs whereas the production of goods increased from 34.99 kgs to 40.63 kgs as an alternative foundry fuel from coal. Similarly, the power cost decreased by 13.89 % Thus, there is no much difference and it is because of the combination of fuel is used the increase in coal is appearing. c) The other packing material and consumables are used in packing of the finished goods and during the year the sales has increased to 74%. Thus same is justifiable d) There is increase in export and also increase in Gross profit margin.

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e) Each bill of consumption of store and purchase are supported by third party evidence. f) There is no expenses not supported by an evidence and since the books of accounts audited no ad hoc disallowance can be done in absence of the specific finding and rejection of the books of account of the assessee.

7.7 We have considered the rival submissions and perused the material available. The argument of the ld. DR which is repeated from the assessment order are general in nature. As such the ld. DR has not pointed any single defects in the books of account and the supporting evidence placed before the AO. Whereas the ld. AR brought our attention to paper books where all the details and evidences are placed and stated that the claim is supported by a third party bill and books of accounts are audited by independent auditor. As regards the use of coal as an alternate fuel and explaining the corresponding decrease in the electric expenses and in respect of packing charges the reasoning given is also supportive that the exports and its corresponding margin of the assessee is increased. The difference in claim of expenses has been explained before the AO as well as before CIT(A) and in the absence of any specific details the general and adhoc lumpsum disallowance is unwarranted and uncalled for.

7.8 The “Ld. CIT(A)” also observed that the profit margins have been improved, export have been increased compared to last year, the expenditure incurred is backed by proper evidence and justification given. The finding of the CIT(A) is purely on merits which has not been contravened by the learned DR. considering the facts in totality we find more force in arguments and supporting explanation placed on record by the ld. AR and we are inclined to agree with the finding of “Ld. CIT(A)” and thus, in the absence of department bring a single new argument or evidence for sustaining this addition we concur the view of the CIT(A) and dismissed this ground of the Revenue.

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8.1 The AO from tax audit report in form 3CD found that a sum of Rs. 36,715/- being employee contribution to PF was required to be paid on 15-06-2010 but same was paid on 19-06-2010. Thus the AO added the same to the total income of the assessee.

8.2 Aggrieved assessee preferred to appeal before ld. CIT(A).

8.3 The assessee before the ld. CIT (A) contented that the same has been paid within 5 days’ of grace period as allowed under the relevant Act. The assessee in its support placed reliance on the decision of Hon’ble Madras High court in case of CIT Vs. Salem Co-operative Spinning Mills Ltd. reported in 258 ITR 360.

8.4 The ld. CIT(A) after considering factual aspect, deleted the disallowance made by the AO.

8.5 Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us.

8.6 Bothe the learned DR and AR vehemently supported the order of the authority below as favorable to them.

8.7 We have heard the rival contentions of both the parties and perused the materials available on record. We find no mistake of facts and in law in the action of the “Ld. CIT(A)” in the ground taken by the revenue on this disallowance. The payment was made within the grace period. Accordingly, no interference in the order of the ld. CIT-A is required. Hence, the ground of appeal of the Revenue is dismissed.

ITA no.260/Rjt/2015 A.Y. 2011-12 34

Order pronounced in the Court on 01/02/2022 at Ahmedabad.

Sd/- Sd/- (SUCHITRA R. KAMBLE,) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER

(True Copy) Ahmedabad; Dated 01/02/2022 Manish