2014 (4) TMI 359 - AT - Income Tax

Suppressed production of sponge iron Unaccounted sales Held that - Month to month basis quantitative details are tallied with the books of account - consumption iron ore on day to day basis is entered in the Central Excise Records - The assessee has declared yield at 33% on average basis - This is supported by the survey report of Joint Plant Committee. As per their report 2.5 MT of iron ore lump is required for production of 1 MTA of calibrated lump ore and producing 1 MT of sponge iron, 1.4 MT of calibrated lump ore is required - CIT(A) was of the view that once the authorities accepted the quantitative details furnished by the assessee which tallied with the books of account the same cannot be rejected unless there is conclusive evidence to suggest that the assessee made any unaccounted sales. The lower authorities accepted that purchases are supported by bills and also it is in conformity with the Excise records - Sales also tallied with the books of account and purchases and sales are fully vouched and furnished for verification - The assessee has been following the same method of accounting consistently - There is no variation of in accounting of any expenses or receipts - Unless and until the books of account of the assessee are impeached by any authority, it is incumbent upon the authorities to accept the books of account as it reflects true and correct profit of the assessee - There may be deficiency in closing stock - The reason for deficiency in closing stock is that sponge iron used for manufacturing MS Ingots and AO assumed that only MS scrap is used for manufacturing sponge iron and took the percentage based on previous six months consumption - If both MS scrap and sponge iron consumption are taken together no variation will be there in determining production of sponge iron - Thus, there will be no variation in the closing stock. The AO having got verified from the Inspector regarding consumption of sponge iron/ melting scrap, he cannot reject the same as the Inspector s report is in favour of the assessee - the addition made by the AO towards suppressed production of sponge iron cannot be sustained Decided in favour of Assessee.

Summary

Issues Involved:
1. Excess consumption of iron ore and its valuation.
2. Suppression of closing stock of silico-manganese.
3. Suppression of closing stock of melting scrap.
4. Higher expenditure claims.
5. Non-accounting of rejected CI moulds.

Detailed Analysis:

1. Excess Consumption of Iron Ore and Its Valuation:
The assessee contended that there was no excessive consumption of iron ore, supported by statistical data. However, the AO observed discrepancies in the yield of sponge iron, noting a significant drop from 66% in January 2006 to 27.8% in February and March 2006. The CIT(A) directed the AO to compute the excessive consumption of iron ore at a rate of 22%, based on an average wastage of 45% and a yield of 55% for sponge iron. The Tribunal found this finding unwarranted as the assessee maintained quantitative records and registers for goods manufactured, which were in conformity with the Central Excise Records. The Tribunal concluded that the addition made by the AO towards suppressed production of sponge iron cannot be sustained.

2. Suppression of Closing Stock of Silico-Manganese:
The AO noted a discrepancy in the closing stock of silico-manganese, finding a suppression of 21.13 MT. The assessee argued that there was no variation in the availability of stock during each month. The CIT(A) did not specifically address this issue in the remand report, leading to the Tribunal not making a separate ruling on this point.

3. Suppression of Closing Stock of Melting Scrap:
The AO found that the total consumption of melting scrap during the previous year was 10,117 MT, leading to a suppression of 5,080 MT in the closing stock. The assessee explained that the production process used a combination of materials, including sponge iron as a substitute for melting scrap. The CIT(A) accepted the stock details relating to the consumption of various raw materials and production of finished goods, as per the records maintained by the assessee. The Tribunal upheld this view, noting that the records tallied with the Excise records and were accepted by the concerned authorities.

4. Higher Expenditure Claims:
The AO observed a higher expenditure claim during the previous year, suspecting it to be inflated. The assessee provided a comparative chart of various expenditures and clarified the reasons for the variation. The CIT(A) found the explanation satisfactory, and the Tribunal agreed, noting that the purchases and expenses were fully vouched and in conformity with the Excise records.

5. Non-Accounting of Rejected CI Moulds:
The AO added Rs. 20,10,975/- to the income of the assessee for not considering the value of rejected CI moulds. The assessee argued that credits for the same had already been effected under stores consumption. The CIT(A) deleted this addition, and the Tribunal upheld this decision, noting that no further addition on the same account was called for.

Conclusion:
The Tribunal allowed the appeal by the assessee and dismissed the appeal by the Revenue, concluding that the additions made by the AO towards suppressed production of sponge iron and other discrepancies were not sustainable. The Tribunal emphasized the conformity of the assessee's records with the Excise records and the lack of conclusive evidence to suggest unaccounted sales. The order was pronounced in the open Court on 28th March, 2014.