Reclamation Welding Pvt. Ltd.,, ... vs Department Of Income Tax

IN THE INCOME TAX APPELLATE TRIBUNAL " C " BENCH, AHMEDABAD (BEFORE SHRI MUKUL Kr. SHRAWAT, J.M. & SHRI ANIL CHATURVEDI, A.M.)

I.T. A. No.1188/AHD/2011 (Assessment Year: 2008-09)

The Dy. CIT, Circle-5, V/S Reclamation Welding Ltd. Ahmedabad 129/129-A, GVMM Estate, Odhav Ahmedabad

(Appellant) (Respondent)

PAN: AAACR 7383J

Appellant by : Shri M.K. Singh, Sr. D.R. Respondent by : Shri Tushar. P. Hemani, A.R.

(आदे श)/ORDER

Date of hearing : 11-03-2015 Date of Pronouncement : 20 -03-2015

PER SHRI ANIL CHATURVEDI,A.M.

1. This appeal filed by the Revenue is against the order of CIT(A)-XI, Ahmedabad dated 25.02.2011 for A.Y. 2008-09.

2. The relevant facts as culled out from the material on record are as under.

3. Assessee is a company stated to be engaged in the business of manufacturing of alloys and steel casting on job work basis. Assessee filed its return of income for A.Y. 2008-09 on 27.09.2008 declaring total loss of Rs. 2,12,36,146/-. The case was selected for scrutiny and thereafter the 2 ITA No 1188/AHD/2011 . A.Y. 2008-09 assessment was framed under section 143(3) vide order dated 12.11.2010 and the total income was determined at Rs.3,94,20,720/-. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who vide order dated 25.02.2011 granted substantial relief to the Assessee. Aggrieved by the aforesaid order of ld. CIT(A), Revenue is now in appeal before us and has raised the following grounds;-

1. The Ld. Commissioner of Income tax (A) has erred in law and on facts in deleting the disallowance of freight inward, freight outward and octroi expenses of Rs. 48,63,066/-.

2. The Ld. Commissioner of Income tax [A] has erred in law and on facts in deleting the addition made on account of suppressed conversation charges of Rs. 1,33,21,509/-.

3. On the facts and circumstances of the case, the Ld. Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer.

4. It is, therefore , prayed that the order of the Ld. Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored.

Ground no. 1 is with respect to deleting the disallowance of freight and octroi expenses.

4. On perusing the Profit and Loss account, A.O noticed that Assessee had debited freight and coolie and cartage expenses to the Profit and Loss account. He also noticed that Assessee was working only for AIA Engineering Ltd its holding company and was doing the job work for it. On perusing the agreement dated 02.05.2000 entered by the Assessee with the holding company, he noticed that one of the terms and conditions stated that freight and octroi will be paid by AIA Engineering Ltd. The A.O therefore asked the Assessee as to why the claim of expenses not be disallowed to which Assessee interalia submitted that the expenditure incurred was not in respect of raw materials but pertains to the stores and consumables and further submitted that freight inward was towards loading and unloading and weighment charges and was to be borne by the Assessee. The submissions of the Assessee was not found acceptable to the A.O. He also noticed that 3 ITA No 1188/AHD/2011 . A.Y. 2008-09 similar disallowances were made in A.Y. 2002-03, 2005-06 & 2006-07 and in A.Y. 2002-03, the Hon'ble Tribunal had decided the issue in favour of the Assessee but Revenue has preferred an appeal before Hon'ble Gujarat High Court. He therefore disallowed the aggregate amount of Rs. 48,63,066/- and added to the income. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A). CIT(A) while granting the relief noted that the issue in the year under consideration is similar to that of earlier years and in A.Y. 2007-08 his predecessor had decided the issue in favour of the Assessee. He thus following the order of his predecessor for A.Y. 2007-08 deleted the addition by holding as under:-

2.2. I have considered the submissions made by the A. R. of the appellant and the observations of the assessing officer in the assessment order. Similar issue arose in the appellant's own case for earlier assessment years. The ClT(A)-XVI, Ahmedabad, vide his order in appeal No. ClT(A)- XVI/DCIT.Cir.5/898/09-10 dated 01-09-2010 for A.Y. 2007-08 held as under :-

" 3.3. I have considered the submission made by the appellant and observation of the A.O. As stated by the A.O. and the appellant and as it is clear from the decision of Honorable ITAT for assessment year 2003-04, it is clear that the facts are same in the current year. As in that year, the honorable ITAT observed that the department has not pointed out as to whether this freight and octroi was paid in respect of raw materials brought from the principal or finished goods supplied back to the principal. Under the circumstances, the finding of the CIT(A) that the freight and ocotroi expenditure claimed by the assessee has incurred on purchase of consumables and stole materials, cannot be disturbed. The honorable ITAT deleted this disallowance. Since the facts in the current year are same as in the assessment year 2003-04, the disallowance made by the A.O. is deleted respectfully following the decision of honorable ITAT for assessment year 2003-04. This ground of appeal is therefore, allowed.

2.2.1 Since the issue for the assessment year under consideration is similar to that of earlier years, assessing officer is directed to delete the disallowance made by him of Rs. 48,63,066/-. This ground of appeal is allowed.

5. Aggrieved by the aforesaid order of ld. CIT(A), Revenue is now in appeal before us.

6. Before us, ld. D.R. supported the order of A.O. On the other hand, ld. A.R. submitted that on identical facts for A.Y. 2006-07 Revenue had preferred appeal before Hon'ble Tribunal and the appeal was dismissed by order dated 12.10.2012 in ITA No. 1851/AHD/2009. He also placed on record the copy of the aforesaid order. He therefore submitted that since the facts of the case

4 ITA No 1188/AHD/2011 . A.Y. 2008-09 in the year under appeal are identical to that of earlier years, the order of CIT(A) be upheld.

7. We have heard the rival submissions and perused the material on record. We find that ld. CIT(A) while granting the relief had noted that the facts of the case in the year under appeal are identical to that of earlier years and he following the decision of his predecessor decided the issue in favour of the Assessee. We find that the co-ordinate Bench of Tribunal while deciding the appeal for A.Y. 2006-07 had decided the issue in favour of the Assessee by holding as under:-

8. We have heard the rival submissions and perused the material on record. We find that before the Coordinate Bench for assessment year 2002-03 one of the ground of appeal of the revenue was "the learned CIT(A) has erred in law and on facts in deleting the addition made of Rs.20,84,412/- on account of disallowance of freight and expenses. The Tribunal has upheld the order of the learned CIT(A) in deleting the addition by holding as under:

"7. Apropos ground No.2, the observation of the Assessing Officer was that in terms of an agreement with the holding company, AIA Engineering Ltd. the freight in respect of incoming raw-material and dispatch of the goods was to be borne by the said holding company, then the assessee has wrongly debited the freight in Profit & Loss account. When the matter had gone before the first appellate authority, the Learned CIT(Appeals) examined each head of the expenditure in respect of which freight and octroi, etc. were claimed. The learned CIT(Appeals) has distinguished the nature of expenditure with the nature of expenditure which was covered by the said agreement. On that basis, he has held that the disallowance was unfounded. With this brief background, now before us, an order of the Tribunal ITAT Ahmedabad "D"

Bench for assessment year 2003-04 passed in ITA No.2954/Ahd/2006 dated 31/12/2009 is placed before us, wherein vide Para-7 it was held as under:-

"7. We have heard the learned DR and the learned AR. The learned DR basically relied on the order of the AO and the learned AR relied on the order of the learned CIT(A). After hearing the parties, we decline to interfere in the order of learned. It is not pointed out by the Department as to whether freight and octroi have been paid in respect of raw materials brought from the principal or finished goods supplied back to the principal. Under these circumstances, the findings given by the Id. CIT(A) that the freight and octroi expenditure claimed by the assessee were incurred on purchase of consumables and stores materials cannot be disturbed. As a result, this ground of Revenue is rejected."

7.1 Once on identical facts a view has already been taken in favour of the assessee in respect of fright and octroi, therefore on the same lines for the year under consideration we hereby affirm the finding on facts of Learned CIT(Appeals). Revenue's ground is dismissed." 9.1. In the appeal before us, the issue is with respect of disallowance of freight and octroi charges. Since, the facts of the case in the present appeal are similar to that of assessment year 2002-03 and 2004-05, which has been accepted by the learned AR and the learned DR and since on identical facts the Coordinate Bench of the Tribunal has already decided the issue in earlier years in favour of the assessee, we, following the decision of the Co-ordinate Bench cited supra dismiss this ground of appeal of the revenue.

5 ITA No 1188/AHD/2011 . A.Y. 2008-09

9. Before us, ld. D.R. could not point any distinguishing feature of the case with that of A.Y. 2006-07. We therefore respectfully following the order of co-ordinate Bench of Tribunal for A.Y. 06-07 find no reason to interfere with the order of ld. CIT(A) and thus this ground of Revenue is dismissed.

Ground no. 2 is with respect to deletion made on account of suppressed conversion charges.

10. During the course of assessment proceedings, A.O noticed that Assessee has claimed shortage on account of burning loss/process loss @ 10.78%. On perusing the agreement entered by the Assessee with AIA Engineering Ltd, the holding company, for which it was doing the job work, he noticed that raw material and store shortage on account of burning loss in conversion was to be borne by AIA Engineering Ltd. The Assessee was therefore asked to justify the claim of burning loss claimed by it. The Assessee interalia submitted that the actual process loss incurred by the Assessee ranged between 10 to 12% and was dependent on the composition of raw materials, the quality of scraps and several other factors. It was further submitted that the "melting loss" has been mistakenly compared with "process loss" and similar addition made in earlier years have been deleted by Tribunal. The submission of the Assessee was not found acceptable to the A.O. He was of the view that since Assessee has not produced any internal records or reconciliation regarding day to day manufacturing activity and quantification of loss in support of its claim of shortage/burning loss, the loss claimed by the Assessee cannot be accepted. He also concluded that Assessee did not maintain proper records and register for day to day manufacturing activities and complete details of raw material consumed in production on day to day 6 ITA No 1188/AHD/2011 . A.Y. 2008-09 and shortage loss occurring at each stage of manufacturing process. He therefore concluded that the books of accounts are not reliable and do not show correct profit of the Assessee and therefore he rejected the book result by invoking the provision of Section 145 of the Act. He thereafter considered the shortage on account of burning/process loss at 5.78% and thereafter worked out the suppressed conversion charges at Rs. 1,33,21,509/- and added to the income. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A). CIT(A) noted that the facts of the case in the year under consideration are similar to that of earlier years and he thereafter following the order of his predecessor for A.Y. 2007-08 deleted the addition by holding as under:-

3.2 I have considered the submissions made by the A. R. of the appellant and the observations of the assessing officer in the assessment order. Similar issue arose in the appellant's own case for earlier assessment years. The CIT(A)-XVI, Ahmedabad, vide his order in appeal No. CIT(A)- XVI/DCIT.Cir.5/898/09-10 dated 01- 09-2010 for A.Y. 2007-08 held as under :-

"4.3. I have considered the submission made by the appellant and observation of the A.O. From the assessment order as well as the appellate order of the CIT(A) for A.Y.2006-07 and A.Y. 2003- 04, it is seen that on this issue the addition has been deleted. Since the facts in the current year are same as in the last year, the addition made by the AO is deleted, following the decision of CIT(A) in the earlier year on this issue. This ground of appeal is therefore allowed. Since the issue for the assessment year under consideration is similar to that of earlier years assessing officer is directed to delete the addition made by him of Rs. 1,33,21,509/-. This ground of appeal is allowed.

11. Aggrieved by the aforesaid order of ld. CIT(A), Revenue is now in appeal before us.

12. Before us, ld. D.R. supported the order of A.O. On the other hand ld. A.R. submitted that similar issue came up before the Tribunal in earlier years for A.Y. 2006-07, the Hon'ble Tribunal by following its earlier orders restored the matter to the file of A.O. He therefore fairly submitted that since the facts of the case in the year under appeal are identical to that of earlier years,

7 ITA No 1188/AHD/2011 . A.Y. 2008-09 the matter with similar directions may be restored to A.O. He also placed n record the copy of the aforesaid order.

13. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to addition on account of burning loss. We find that an addition on account of burning loss was carried before the Tribunal by the department in A.Y. 2006-07 and while deciding the appeal for A.Y. 2006-07 in ITA No. 1851/AHD/2009 the issue was decided by the co-ordinate Bench by holding as under:-

13. We have heard the rival submissions and perused the material on record. We find that in the assessment year 2003-04 there was a similar issue before the Coordinate Bench. The issue was undisclosed conversion charges on account of claiming excess burning loss. The Coordinate Bench vide order dated 31-12-2009 in ITA No.2954/Ahd/2006 held as under:

"13. We have heard the learned DP and the learned AR. In our considered view, the issue cannot be decided without complete data. The parties have not furnished the industry-wise loss or the history of the loss in the case of the assessee for last 4/5 years, the loss incurred during various process undertaken by the assessee, percentage of loss in each process under taken by the assessee, comparison of such loss in difference processes industry-wise and various assessment year-wise in case of the assessee, other comparative instances, the reasons for incurring loss and other factors such as type of machinery used, claim of manufacturer of machines as to the amount of loss likely to occur when work is done on their machines. Accordingly, we restore this issue to the file of the AO for examining it afresh. As a result, this ground of Revenue is allowed but for statistical purpose."

13.1 For assessment year 2002-03 and 2004-05 on identical issue, the Coordinate Bench vide order dated 19-11-2010 in ITA No.1807 and 1808/Ahd/2007 held as under:

"11. Apropos ground No.4, the observation of the Assessing Officer was that the average burning loss during the year was 10.92%, which according to him was higher considering the type of furnace, i.e. electric fire furnish used by the assessee. As per Assessing Officer, the burning loss should be only 5%, hence, accordingly the addition was made.

12. When the matter had gone before the first appellate authority, the Learned CIT(Appeals) has reversed the finding of the Assessing Officer and allowed the claim. Now before us, it was stated that for Assessment Year 2003-04, IT AT Ahmedabad Bench vide order dated 31/12/2009, vide Para -13, the matter was restored back for a fresh adjudication; reproduced below:

"13. We have heard the learned DR and the learned AR. In our considered view, the issue cannot be decided without complete data. The parties have not furnished the industry-wise loss or the history of the loss in the case of the assessee for last 4/5 years, the loss incurred during various process undertaken by the assessee, percentage of loss in each process under taken by the assessee, comparison of such loss in difference processes industry-wise and various assessment year-wise in case of the assessee, other comparative instances, the reasons for incurring loss and other factors such as type of machinery used, claim of manufacturer of machines as to the amount of loss likely to occur when work is done on their machines. Accordingly, we restore this issue to the file of the AO for examining it afresh. As a result, this ground of Revenue is allowed but for statistical purpose."

13. Since the Respected Co-ordinate Bench has taken a view and there upon restored the matter to affirm the correctness of the claim of burning-loss for re-adjudication by the Assessing Officer as per the directions, therefore, for the year under consideration on identical facts the matter is hereby restored to be decided de novo, needless to say after providing an adequate opportunity of hearing to the assessee."

8 ITA No 1188/AHD/2011 . A.Y. 2008-09

13.2 We find that in the earlier years, the Coordinate Bench had taken a view and thereupon restored the matter to the file of the Assessing Officer to affirm the correctness of the assessee's claim of loss. We, thus, following the decision of the Coordinate Bench in the earlier years, restore the matter to the file of the Assessing Officer for examining it afresh after giving reasonable opportunity of hearing to the assessee. Thus, this ground of appeal of the revenue is allowed for statistical purposes.

14. Since it is an undisputed fact that the facts of the case in the year under appeal are identical to that of earlier years, we respectfully following the order of the co-ordinate Bench of the Tribunal for A.Y. 06-07 and with similar directions restore the matter to the file of A.O to decide the issue afresh and in accordance with law and after giving reasonable opportunity of hearing to the Assessee. In the result, this ground of Revenue is allowed for statistical purposes.

15. In the result, the appeal of Revenue is partly allowed for statistical purposes.

Order pronounced in Open Court on 20 - 03 - 2015.

Sd/- Sd/- (MUKUL Kr. SHRAWAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad. TRUE COPY Rajesh

Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) - 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER

Deputy/Asstt.Registrar ITAT,Ahmedabad