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TMI Blog2022 (10) TMI 763X X X X Extracts X X X X X X X X Extracts X X X X ..... dian Bank Ltd. [ 2021 (9) TMI 566 - SUPREME COURT] Rejection of the books of accounts u/s.145(3) - GP estimation - CIT(Appeals) vacating the addition made by the A.O by substituting the yield of 85% in the SMS division of the assessee company, by that as was adopted by his predecessor i.e at 89% while framing the block assessment in the case of the assessee for A.Y. 2006- 07 to A.Y.2011-12 and A.Y.2012-13 - HELD THAT:- As held by the CIT(Appeals) and, rightly so, the books of account of the assessee could not have been validly rejected by the A.O u/s.145(3) of the Act for the reason that the profit of the assessee had witnessed a decline as in comparison to the preceding years - We concur with the view taken by the CIT(Appeals) that now when no irregularity or defect had been pointed out by the A.O in the books of account of the assessee, bills and vouchers and other documentary evidences pertaining to the year under consideration, therefore, there was no justification for him to have rejected its books of account u/s.145(3) of the Act, for the standalone reason that its GP rate had witnessed a decline as in comparison to the preceding years. Also, as observed by the CIT(Appeals) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seized during the course of search reflecting suppression of production yield. Therefore, when there is no change in the business and the modus operandi, the CIT(A) ought to have accepted 89% as the yield also." 3. "On the facts and in the circumstances of the case, the Ld. CIT(Appeals) erred in deleting the disallowance of Rs.10,44,025/- made by the AO u/s. 14A r. w. r. 8D without appreciating the fact that section 14A shall be worked out even if the assessee does not have any tax free income as clarified by the CBDT as per circular no.05 of 2014 dated 11th Feb. 2014 and that the assessee had made huge investments out of interest bearing funds." 4. "The appellant reserves his right to add, amend or alter the grounds of appeals on or before the date; the appeal is finally heard for disposal." 2. Succinctly stated, the assessee company which is engaged in the business of manufacturing of steel structural and M.S. Billets through its two divisions, viz. (i) Rolling Mill Division (RMD); and (ii) Steel Melting Shop (SMS) division had e-filed its return of income for the assessment year 2013- 14 on 24.09.2013, declaring an income of Rs. Nil. Subsequently, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entage of 85% in Steel Melting Shop (SMS)/Continuous Casting Machine (CCM) was lower than the average yield in the industry of 89% that was adopted by his predecessor while framing of the block assessment in its case for the last seven years, thus, called upon it to put forth an explanation as to why the same may not be adopted to work out its suppressed yield for the year under consideration, as under:- F.Y Total production (MT) (C.C.M Div.) Total Raw Material Consumed (C.C.M) (in MT) Yield (C.C.M) (In MT) Production with Yield of 89% (In MT) Difference in production (in MT) Difference in Production (in Rs.) 2012-13 24,815.70 29,195.50 85.00 25,983.995 1168.295 3,64,59,157 (@ Rs.31,207.15 PMT) The assessee objected to the rejection of its books of account by the A.O u/s. 145(3) of the Act. It was the claim of the assessee that as it had maintained regular books of account which were subjected to audit; all its purchases and sales along with the quantitative details were available for verification; requisite records prescribed under the excise rules as per the mandate of law were being maintained, and no discrepancy in its records had been pointed out, therefore, its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that the same shown during the year at 85% was lower than that as was adopted by his predecessor while framing the assessments in its case for the block period i.e A.Ys. 2006-07 to 2011- 12 and A.Y.2012-13, vide his order passed u/s.153A r.w.s. 143(3), dated 27.03.2014. It was further observed by the CIT(Appeals) that the books of account of the assessee were rejected by the A.O solely for the reason that its GP rate for the year under consideration had drastically fallen as in comparison to those of the preceding years. 9. The CIT(Appeals) observed that it was the claim of the assessee before him that the comparative fall in the GP rate was for multiple reasons, viz. (i) that as in comparison to the F.Y.2009-10 the cost of power in the case of Rolling Mill Division had increased by nearly 85%; (ii). that as in comparison to the F.Y.2009-10 the cost of power in the case of SMS division had increased by 85%; (iii). that there was also increase in the cost of raw material and inputs in the rolling mill division such as cost of blooms and billets; (iv) that there was increase in the cost of inputs of the SMS division; and (v) that during the year under consideration iron and steel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of M/s. Mahamaya Steel Industries Limited, a group company of the assessee which was also engaged in the same line of business. In reply, it was stated by the A.O that the same was on the basis of assessment which was framed in the case of the aforesaid group company, viz. M/s. Mahamaya Steel Industries Limited (supra) for the block period A.Y 2006-07 to A.Y 2012-13. It was observed by the CIT(Appeals) that the aforesaid addition in the case of M/s. Mahamaya Steel Industries Limited (supra), which in turn was based on adoption of the yield in the SMS division at 89% in the latters block assessment was on appeal vacated by his predecessor. It was observed by the CIT(Appeals) that the A.O had grossly erred in law and the facts of the case in concluding that the yield in SMS division of the assessee company ought to have been static as in comparison to the preceding years. It was further observed by the CIT(Appeals) that as the assessee was an excisable unit and was filing its excise and VAT returns, and had also got its books of account audited, therefore, the same could not have been rejected for the standalone reason that its yield of 85% in the SMS division during the year under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxmann 2(SC) and also those of the Hon'ble High Court of Delhi in the case of Cheminvest Limited Vs. CIT, (2015) 378 ITR 33 (Delhi) and CIT Vs. Holcim India P. Ltd. 57 Taxmann.com 28(2015). The ld. A.R submitted that as per the settled position of law in absence of any exempt income no disallowance u/s.14A could have even otherwise been made in the hands of the assessee. In the backdrop of the facts involved in the case before us r/w. the aforesaid settled position of law, we find substance in the claim of the Ld. AR that now when the assessee company had not received any exempt dividend income during the year under consideration, therefore, no disallowance u/s.14A of the Act was warranted in its case. Alternatively, there is substance in the claim of the Ld. AR that now when the interest free funds available with the assessee were in excess of the exempt income yielding investments, therefore, no disallowance of any part of the interest expenditure could have been made in its hands. Our aforesaid view that when interest free funds and interest-bearing funds are available, then, a presumption would arise that the interest free advances have been given out of interest free funds i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee had duly explained the multi-facet reasons which had resulted to a comparative decline in its GP rate for year under consideration, viz. (i) that as in comparison to the F.Y.2009-10 the cost of power in the case of Rolling Mill Division had increased by nearly 85%; (ii). that as in comparison to the F.Y.2009-10 the cost of power in the case of SMS division had increased by 85%; (iii). that there was also increase in the cost of raw material and inputs in the rolling mill division such as cost of blooms and billets; (iv) that there was increase in the cost of inputs in the SMS division; and (v) that during the year under consideration iron and steel sector had been going through a challenging phase owing to sluggish domestic demand and constraints placed on iron ore supply along with steep rise in iron ore prices. Also, we concur with the view taken by the CIT(Appeals) that now when no irregularity or defect had been pointed out by the A.O in the books of account of the assessee, bills and vouchers and other documentary evidences pertaining to the year under consideration, therefore, there was no justification for him to have rejected its books of account u/s.145(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... division at 89% by the A.O during the year under consideration i.e A.Y 2013-14 was in itself based on the view that was taken by his predecessor while framing the block assessment in its case vide order passed u/ss. 153A/143(3), dated 27.03.2014 for A.Y.2006-07 to A.Y.2011-12 and A.Y.2012-13, which had been vacated by the CIT(Appeals) vide his consolidated order dated 21.07.2014, and the same thereafter had been upheld by the Tribunal in ITA Nos. 250 to 255/RPR/2014, dated 25.10.2021, therefore, there remains no basis for sustaining the aforesaid view of the A.O during the year under consideration. For the sake of clarity the relevant observation of the Tribunal in ITA Nos. 250 to 255/RPR/2014 dated 25.10.2021 on the issue in question is culled out as under:- "27.5 The CIT(A) in our mind has analysed the factual matrix threadbare. Without repeating all the observations of the CIT(A), we find ourselves in complete agreement with the conclusion drawn by the CIT(A). The CIT(A) has objectively analyzed the factual situation and found complete absence of any adverse material against the assessee which can support the allegation of the AO towards unaccounted production presumed on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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