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TMI Blog2021 (3) TMI 588X X X X Extracts X X X X X X X X Extracts X X X X ..... n rejecting the books of accounts of the assessee and proceeding ahead to estimate the net profit rate. - ITA.No.820/Ind/2018, ITA.No.876/Ind/2018 - - - Dated:- 10-3-2021 - Hon ble Kul Bharat, Judicial Member And Hon ble Manish Borad, Accountant Member For the Assessee : Shri S.N. Agrawal, CA For the Revenue : Shri S.S. Mantri, CIT ORDER PER MANISH BORAD, A.M The above captioned cross appeals filed at the instances of the assessee and revenue pertaining to Assessment Year 2013-14 are directed against the orders of Ld. Commissioner of Income Tax-III (in short Ld. CIT], Indore dated 31.08.2018 which is arising out of the order u/s 143(3) of the Income Tax Act 1961(In short the Act ) dated 29.003.2016 framed by DCIT-1(1), Indore. 2. Assessee has raised following grounds of appeal:- 1.1 That on the facts and in the circumstances of the case the Ld CIT[A[ erred in assessing net profit of the assessee company at ₹ 1,45,33,103/- as against loss of ₹ 3,62,89,590/- as declared in the books of account. 1.2[ That on the facts and in the circumstances of the case the Ld CIT[A[ erred in rejecting the ground of appeal wherein it was claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee filed its e- return of total income for the Assessment Year 2013- 14 on 29-09-2013 declaring total loss of ₹ 3,23,10,986/-. Case selected for scrutiny and after considering the submissions of the assessee, assessment completed U/s 143(3) of the Act assessing total income at ₹ 9,59,44,715/- by the Ld. A.O after making following additions: - S.No. Nature of addition Amount (Rs.) 1 Addition on account of estimating Net Profit @5% of declared turnover 10,16,87,108 2 Addition under section 40(a)(ia) of the Act 1,04,019 3 Addition on account of Capital Expenditure 53,500 Total addition 10,18,44,627 5. The assessee preferred an appeal before the Ld CIT(A). The Learned CIT(A) following the order as passed for the Assessment Year 2012- 13 restricted the amount of Net profit at 2.30% of total sales at ₹ 1,45,33,103/- as against loss of ₹ 3,62,89,590/- shown by the appellant. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has not furnished any justification for the same. 7. The amount of excise duty was not included in the figure of closing stock as per provision of section 145A of the Act. 8. Sundry creditor shown outstanding for last two to three years old. 9. The assessee has claimed burning loss at 12.48% and shown yield at 87.51%. However, in the case of iron industries the percentage of burning loss was hardly 4 to 5%. 10. The assessee has received shown cause notice from the excise department wherein total turnover of ₹ 94.79 crores were noticed during the Asst Years 2010-11 to 2012-13. 11. Turnover of the assessee company reduced from ₹ 91.10 crores to ₹ 63.18 crores. 12. Based on the above information Ld. A.O estimated the Profit at 5% as against the negative profit of (-) 5.74% shown by the assessee. When the assessee approached Ld. CIT(A) the action of the Ld. A.O rejecting the book results u/s 145(3) of the Act was held to be correct, however Ld. CIT(A) partly deleted by addition by estimating the profit at 2.3%. So the question before us is that whether the Ld. A.O was justified in rejecting the book of accounts of the assessee u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was noticed that the assessee company shown to purchase huge scrap from M/s Anant Trading Company. On further verification it was noticed that the scrap coming from Bhavnagar or other station and directly delivered to assessee. The assessee claimed freight expenses in its books of accounts whereas the purchase claimed to shown from M/s Anant Trading Company. There is no justifiable reason filed by assessee as to why the freight expense not booked by M/s Anant Trading Company and directly claimed by assessee. 16.3 Submission made by Ld. Counsel for the assessee: Anant Trading company was not an independent assessee but a trading division of the assessee company. That scrap from Bhavnagar (Gujarat] purchased through M/s Anant Trading Company. The scrap used for manufacturing transferred from Trading division [ Anant Trading Company ] to the manufacturing division. The amount of freight paid by the assessee company and also by M/s Anant Trading Company 16.4 Our finding We find that Ld. A.O was not aware of the fact that M/s Anant Trading Company is a unit/trading Division of the assessee company namely M/s Anant Steel Pvt. Ltd. The observation of the Ld. A.O that purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Excise record of the assessee. The assessee company has also consumed scrap quantity for the purpose of its manufacturing. Hence, there was no reason to disbelieve on the purchases as shown by the assessee 3. 18.3 Our finding The concern of the Ld. A.O is only with regard to hand written vouchers in support of the scrap purchased from unregistered dealers. We observe that such type of purchase of scrap from unregistered dealers is a part of regular business affair being carried out by the assessee since last many years. Assessee is registered with Central Excise Department and the inward and outward of all materials are under watch and duly recorded in the excise records. No such discrepancy has been observed by the Ld. A.O in this regard that such type of scrap purchased through hand written bills are not entered in the excise records. Since the quantitative details are not in dispute and the alleged purchases are duly accounted for in the regular books, in our view Ld. A.O was not correct in raising the doubt about the genuineness of the scrap purchased. Thus we find no merit in this defect observed by Ld. A.O. 19. Freight amount increased from ₹ 1,92,59,26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As submitted by Ld. Counsel for the assessee trucks coming from outstation stays for couple of days for unloading and then taking new assignment. This seems to be a reason for making few of payments after one or two days to the truck drivers. One more important fact brought to our notice and not opposed by the revenue authorities that the quantity of scrap purchased from outside Madhya Pradesh has increased from 14031.868 MT to 14147.220 MT and also the average amount of rate per MT have increased from ₹ 1372 per MT to ₹ 1491/- per MT. Increase in fuel prices is also a reason. All these facts indicates that there is no discrepancy in the freight expenses paid by the assessee during the year and the observation of the Ld. A.O raising concern and doubting the correctness of the facts on this point is not found to be correct. 20. The amount of wages increased from ₹ 40,30,663/- to ₹ 52,81,000/- and no register were maintained by the assessee. 20.1 Observation of Ld. A.O (v) The assessee company has claimed wages allowance of ₹ 52 ,81,000/- during the year whereas in last financial year the same was claimed of ₹ 40,30,663/-. In spite of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reas the same was claimed in last year of ₹ 4,03,19,812/-. There is no justification of increase in this expense was found acceptable while the turnover was decreased. 21.2 Submission made by Ld. Counsel for the assessee: The Gas Fuels received from GAlL, a government undertaking. The amount of Gas Fuel was increased in this year as compared the same with the last year, since, the rate of GA was increased in this year and minimum supply guaranteed by the assessee company. 21.3 Our findings The assessing officer in this case observed that the amount of Gas Fuel increased from ₹ 4,03,19,812/- to ₹ 5,78,69,121/- . We observe that the Gas to the Plant is supplied by Gas Authority of India Limited (In short GAIL) through pipe line Complete details of Gas supplied and corresponding bills were produced before the Ld. Assessing Officer. The same is also placed before us. The amount of GAS Fuel expenses have increased due to hike in the price of GAS in this year. Copy of account of Gas Fuel in the books of account of the assessee with corresponding bills are placed before us. Month-wise Gas Fuel consumed by the assessee and corresponding amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o approved by the Hon'ble Apex Court In the case of CIT vs M/s Dynavision Limited [ Appeal No 197 of 2005] as reported in 82 CCH 0211(ISCC) , copy enclosed. 22.3 Our findings The assessing officer observed that the assessee has valued its stock following the exclusion method. It was explained that in both the method the amount of freight remains same. Since, in the inclusive method the amount of taxes paid at the time of purchase of raw material needs to be included in the figure of closing stock and at the same time the amount of taxes included in the figure of closing stock requires to be debited in the Profit Loss account under the head of Taxes on closing stock. Thus, on one hand the amount is shown on debit side of the Profit Loss account for the amount of Taxes paid on closing stock and at the same time the valuation of the closing stock is also increased by the same amount. Hence, effectively there is no change in the overall profitability of the assessee company. Further such treatment is as per principle laid down by the Hon'ble Apex Court in the case of CIT vs M/s Dynavision Limited 1 Appeal No 197 of 20051 as reported in 82 CCH 0211(ISCC]. Therefore the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vation of Ld. A.O On perusal of production outcome shown by the company it was noticed that the company has shown burning loss @12.48% and yield @87.51% . In the manufacturing of iron industries the burning loss comes hardly 4 to 5%. Therefore it is clear that Assessee Company has not shown actual production result. 24.2 Submission made by Ld. Counsel for the assessee: That in Iron industries scrap/burning losses may be varies between 4 to 5% but in case of rolling mills. the percentage of scrap/ burning losses incurred at two stages. One, at the stage of consumption of scrap to MS Ingots and second from MS Ingot to Steel Bar. The percentage of burning loss during the process from MS Scrap to MS Ingot varies between to 5 to 7% and also from Ingot to Steel Bar the percentage of burning loss was around 6%. Hence, in one stage the percentage of burning loss was around 6% only. The scrap and burning losses as shown by the appellant was duly accepted by the Excise department. 24.3 Our findings The assessing officer observed that the assessee has claimed burning loss at 12.48 and shown yield at 87.51% and further claimed that in iron industries the percentage of burning lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Central Excise Department has worked the unaccounted production for AY 2010-11, AY 2011- 12 and 2012-13. On the basis of information received from Commissioner of Central Excise it was found that the Commissioner of Central Excise has prepared annexure A to worked out assessable value (turnover) for different years. The same is reproduced below :- AY Assessable value (turnover) 2010-11 ₹ 2,11,34,335/- 2011-12 ₹ 15,26,18,611/- 2012-13 ₹ 77,41,64,850/- Total ₹ 94,79,17,806/- The above unaccounted turnover is found by the Excise Department during search. This is clear evidence that Assessee Company has not shown actual turnover and suppressed its income on regular basis. 25.2 Submission made by Ld. Counsel for the assessee: Show cause notice from excise department was issued on the basis of loose papers and also on the basis of presumption which was not accepted by the assessee but challenged before the appropriate forum in excise department. Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company has not disclosed actual turnover but huge expenses. The comparative chart of expenses is reproduced below :- Particulars AY 2013-14 AY 2012-13 Turnover 631874061 911020141 Freight inward 21099914 19259266 Wages allowances 5281000 4030633 Power charge 198691991 175422274 The turnover of the company has decreased but various expenses related with manufacturing of goods has been increased. In the above context, the book result shown by the assessee firm is found not acceptable. The Gross Profit and Net Profit shown by the assessee firm are appeared very tow and deliberately. Hence, books of account of the assessee firm deserves to be rejected sx] s 145(3) of the Income tax Act, 1961 and gross. profit of the firm is being calculated as per business trend of this field. Vide order sheet entry dated 22.03.2016 the AR of assessee was show caused as to why the books of accounts should not be rejected u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % of margin 34.83% 32.18% In view of the above, the assessee earned higher rate of profit on sales made by it. But, due to heavy direct expenses the amount of losses was incurred in this year as compared the same with the last year. Comparative chart of Direct expenses incurred by the assessee vis-a-vis the sales is shown below:- S.No. Particulars 31.03.2013 31.03.2012 1.1 Gross Sales 71,01,76,685 91,10,20,141 1.2 Less Excise duty 7,84,34,016 8,53,32,420 Net sales(Net of excise duty) 63,17,42,669 82,56,87,721 2.1 Opening stock of finished goods 9,50,09,003 7,04,04,995 2.2 Raw material consumed 42,69,63,302 58,35,25,790 2.3 Traded Goods purchased 12,58,499 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,16,792 1,01,053 8 Water charges 2,05,274 2,43,020 9 Municipal taxes 7,42,004 NIL 10 Electricity expenses 4,95,565 29,02,91,777 26,31,42,343 That on perusal of the above, we find that major expenses have increased in this year as compared to last year. The sales in the case of the assessee was duly accepted by the sales tax department, copy of sales tax order passed along with reconciliation statement is placed before us. We observe that the assessee has written off the amount not payable on account of Freight and sundry creditors and shown the same as its other income. Since, the said amount is directly related to the purchase and freight both the amount relates to the direct expenses. Hence, the amount though credited in the Profit Loss account directly relates to the trading activities of the assessee company and rightly considered for calculating the gross p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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