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2018 (3) TMI 472 - AT - Income TaxExcess production of sponge iron - clandestine removal of excessively produced sponge iron - Held that - In the facts and circumstances of the case, we note that other than some documents the AO had no other evidence/material to suggest that the assessee s Karakolha in Orissa steel plant was using iron ore which had Fe content more than 65%, without doing so, the allegation of suppression of production of sponge iron is merely on the basis of suspicion, surmises and conjectures which cannot stand scrutiny in the eyes of law, when the assessee was able to place on record the Laboratory Report which certified that the assessee s plant at Karakolha, Orissa used iron ore which had Fe content between 62.79% to 63.23%. The veracity of the Laboratory Report have not been challenged or found to be invalid by the Department. In such a scenario, without finding defect in the books of account or without finding fault with the Laboratory Report that certified the Fe content of the iron ore used by the assessee at Karakolha, Orissa for production of the sponge iron, the allegation of suppression of production of sponge iron cannot stand. There can be no universal and uniformly acceptable standard for consumption of iron ore for production of sponge iron. It has to be appreciated that the various other factors like quality, composition of raw materials, operating conditions etc which contribute to the yield ratio. From the discussions stated above, we note that the yield ratio can vary from plant to plant and even differ from year to year based on the capacity of the plant, the efficiency of the staff, maintenance of the plant, electricity consumption etc. Nothing has been brought on record by the AO directly/indirectly to show that there was clandestine removal of excessively produced sponge iron from its plant. We note that the AO has not found any defect in respect to the quantitative details furnished by the assessee which tallied with the books of account maintained by the assessee in its regular course of its business and without rejecting the books of account and that too as stipulated u/s. 145(3) of the Act, the AO ought not to have estimated the excess production of sponge iron. - Decided against revenue
Issues Involved:
1. Deletion of addition on account of alleged suppression of production of sponge iron and sales. 2. Acceptance of additional evidence and documents by the CIT(A) without giving the AO an opportunity to examine the same. 3. Application of Rule 46A of the Income Tax Rules, 1962. 4. Reliance on Sales Tax Orders and technical opinions. Detailed Analysis: Issue 1: Deletion of Addition on Account of Alleged Suppression of Production of Sponge Iron and Sales The main issue raised by the revenue was the deletion by the CIT(A) of the addition made by the AO on account of alleged suppression of production of sponge iron and sales. The AO based the addition on a Sales Tax order and a technical opinion from the Dean of NIT, Rourkela, which suggested that 1.5 MT of iron ore is required to produce 1 MT of sponge iron if the Fe content is 65% or more. The AO concluded that the assessee had understated production and sales based on this ratio. However, the CIT(A) found that the AO had not pointed out any defects in the books of account or other documents produced by the assessee. The AO had also not rejected the books of account. The CIT(A) noted that the AO's reliance on the Sales Tax order and the technical opinion was misplaced as the Fe content in the iron ore used by the assessee was below 65%, as evidenced by laboratory reports. The CIT(A) also highlighted that the AO had not found any material evidence during the search to support the alleged suppression of production and sales. Issue 2: Acceptance of Additional Evidence and Documents by the CIT(A) without Giving the AO an Opportunity to Examine the Same The revenue contended that the CIT(A) erred in accepting additional evidence and documents without giving the AO an opportunity to examine them, thereby violating Rule 46A of the Income Tax Rules, 1962. The CIT(A) had relied on various documents, including annual reports of other companies and guidelines from government institutions, to conclude that there is no universal standard for the yield ratio in sponge iron production. The CIT(A) noted that these documents were in the public domain and were used to provide context and comparison. The CIT(A) also observed that the AO had not disputed the laboratory reports produced by the assessee, which showed the Fe content of the iron ore used in the Karakolha plant was between 62.79% and 63.23%. Issue 3: Application of Rule 46A of the Income Tax Rules, 1962 The revenue argued that the CIT(A) violated Rule 46A by not giving the AO an opportunity to rebut the additional evidence. However, the CIT(A) clarified that the relief was given primarily based on the examination of material already available on the record of the AO, including the Sales Tax assessment order, appellate order, and the report of NIT. The additional documents referred to by the CIT(A) were from government organizations and listed companies, which are publicly available and clarificatory in nature. Issue 4: Reliance on Sales Tax Orders and Technical Opinions The AO had relied heavily on the Sales Tax order and the technical opinion from the Dean of NIT, Rourkela. The CIT(A) found that the AO had not independently verified the Fe content of the iron ore used by the assessee. The CIT(A) noted that the Sales Tax order had acknowledged the laboratory reports submitted by the assessee, which showed the Fe content was below 65%. The CIT(A) also highlighted that the technical opinion from the Dean of NIT was general and not specific to the assessee's plant. The CIT(A) further observed that similar additions made by Sales Tax Officers in other cases had been reversed by the Sales Tax Tribunal. The CIT(A) concluded that the AO's estimation of production based on the yield ratio suggested by the Dean of NIT was not justified without verifying the actual Fe content and other relevant factors. Conclusion: The Tribunal upheld the CIT(A)'s order, noting that the AO had not rejected the books of account and had relied on irrelevant material. The Tribunal agreed with the CIT(A) that there is no universal standard for the yield ratio in sponge iron production and that the AO's estimation was based on suspicion and conjecture. The Tribunal dismissed all the appeals of the revenue.
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