2012 (9) TMI 65 - HC - Income Tax

Addition income from sale of scarp on ship breaking - revenue appeal against ITAT as ships broken by the assessee justified the generation of scrap at 0.81% only? - Held that - 0.81 % of the total recovery being attributed to non ferrous scrap generated during the course of ship breaking by the respondent assessee was correct as the respondent assessee had maintained excise record and its books were audited and the department does not challenge the purchases and sales reflected in the respondent s books of accounts - as between 0.90% to 1.40% of non ferrous scrap being generated out of the total scrap on the activity of ship breaking has been accepted by the department upto the Assessment Year 1990- 91. Appeal of revenue is also cannot be accepted as the tax effect in the present appeal would be only Rs.5.69 lacs & the Revenue cannot to file appeals under Section 260A in cases where the tax effect is less than Rs.10/- lacs - in favour of assessee.

Summary

Issues:
1. Challenge to the ITAT order regarding deletion of addition of Rs.21,08,457/- based on scrap generation in ship breaking business.
2. Justification for deleting the addition by ITAT without documentary evidence.
3. Assessment of non ferrous scrap generation and acceptance by the department.
4. Consideration of tax effect in the appeal.

Analysis:
1. The appeal before the High Court challenged the ITAT order related to the addition of Rs.21,08,457/- in the Assessment Year 1986-87 concerning the scrap generated in the ship breaking business. The Assessing Officer had added this amount to the respondent's income as undisclosed income based on the percentage of non ferrous metal generated and sold by the respondent. The ITAT, however, allowed the respondent's appeal, emphasizing that there is no standard measure for scrap generation in ship breaking as it varies based on the type of vessel broken. The ITAT also noted that reliance on other ship breakers' cases by the Assessing Officer was not appropriate as it was not presented to the respondent for clarification.

2. The ITAT's decision to delete the addition without concrete documentary evidence was based on the understanding that scrap generation is subjective and depends on the specific vessel being broken. The ITAT found the percentage of 0.81% attributed to non ferrous scrap generation by the respondent to be accurate. It highlighted that the respondent's excise records and audited books were in order, and the department had accepted similar percentages of non ferrous scrap generation in previous assessment years, reinforcing the validity of the respondent's claims.

3. The assessment of non ferrous scrap generation was a crucial aspect of the case. The ITAT's factual finding regarding the 0.81% non ferrous scrap generation by the respondent was deemed reasonable and not perverse. The department's historical acceptance of similar percentages further supported the respondent's position. The court emphasized that no substantial question of law arose from the ITAT's decision, indicating a lack of legal grounds for challenging the assessment.

4. Additionally, the High Court considered the tax effect in the appeal, noting that the appeal was not entertainable due to the low tax impact of Rs.5.69 lacs, falling below the threshold set by a CBDT circular. The court cited a previous judgment regarding the retrospective application of the circular, which directed the Revenue not to file appeals in cases with tax effects less than Rs.10/- lacs. Consequently, the appeal was dismissed on both merit and procedural grounds, with no costs awarded.

In conclusion, the High Court upheld the ITAT's decision to delete the addition of Rs.21,08,457/- in the respondent's income, emphasizing the subjective nature of scrap generation in ship breaking and the lack of substantial legal issues warranting a challenge. The court also considered the tax effect in the appeal, leading to the dismissal of the appeal on procedural grounds.