TMI Blog2014 (4) TMI 359X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - ITA No. 684/Hyd/2011, ITA No. 983/Hyd/2011 - - - Dated:- 28-3-2014 - S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls of consumption of iron ore and production of sponge iron filed by the assessee during the assessment proceedings, the AO noticed that productivity of sponge iron in January, 2006 was 758 MT and the yield when compared with consumption of iron ore shown, was 66%. Comparing the production of sponge iron in the months of February and March, 2006 shown at 1880 MT, with the consumption of iron ore claimed for those two months at 6750 MT, he noticed that the yield was 27.8%, which was very low. Further, comparing such production with the consumption of lime stone, another raw material used for production of sponge iron, he noted that, based on consumption of lime stone shown at 50.89 MT in the month of January 2006, the yield of sponge iron during that month comes to 14.9% and based on such consumption of lime stone for February and March 2006 shown at 331.11 MT, the yield of sponge iron during those months was 5.54%. He noted that such yield at 5.54% was very low, when compared to the yield of 14.9% shown for January, 2006. 5. The AO further noted that Silicomanganese is an important raw material for production of ingots, runners and raisers in the case of the assessee. He found t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 45,93,63,272/- during the current previous year, with the corresponding figures shown in the preceding previous year, the AO noted that the assessee has claimed higher expenditure in the current year. He further noted that during previous year under consideration, there was utilization of ingots and runners at 404.20 MT and 220.21 MT. However, since the assessee has not treated the same as part of sales, he was of the view that selling price of the same should be added to the total income of the assessee. Referring to above issues, the AO has issued a show cause letter dated 19.12.2008 during the assessment proceedings, in response to which, the assessee has furnished explanation vide letter dated 26.12.2008. 7. In that letter the assessee has submitted that raw materials are received first, at their factory premises along with delivery challans from their suppliers and after some time gap, the bills for the same are received at their corporate office located elsewhere. It was claimed that the goods are received in the factory premises earlier and after some time, corresponding bills are received at their corporate office. However, at the end of the year, for the year as a who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ron, which is a substitute of meting scrap. In this regard the assessee furnished month wise consumption of melting scrap, CI moulds, sponge iron and silico-manganes and production of final products during different months from April 2005 to March 2006, in a separate statement, which is referred to by the AO at page-12 of the assessment order. 10. With reference to observation of the AO regarding higher claim of expenditure during the previous year, the assessee has submitted that the same is not correct. It was stated that all the purchases and expenses are fully vouched. It has furnished a comparative chart of various expenditure under different heads during both the years. Clarifying the reasons for the variation in the net profit rate during the previous year, the assessee has submitted that there was increase in salaries and wages, rates and taxes, administration and selling expenses and interest on finance charges etc. during the current year. Such statement furnished by the assessee, is referred to by the AO at page-14 of the assessment order. 11. However, the AO was not convinced with such explanation furnished by the assessee. Based on yield of sponge iron, taking in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s filed details relating to consumption of various raw materials and production of finished goods during different months of the previous year and also closing stock of goods at the end of the year. It was stated that the details furnished are as per their records/registers maintained at the factory. On forwarding such details filed by the assessee, the AO has furnished a remand report. With regard to the addition made in the assessment, towards non accounting of internal consumption of the said 402.20 MT of CI Ingots Moulds, the assessee has submitted that credits at an amount of Rs. 20,10,975/- has already been effected for the same in the rejected moulds, under stores consumption. It was stated that since credit entry for the same has already been made in their books, no further addition on same account is called for. It is stated that the same would amount to double addition in this case. After considering such submissions of the assessee and the findings given by the present AO in para-7 to 7.1 of his Remand Report, the said addition of Rs. 20,10,975/- made in the assessment is deleted by the CIT(A). 14. Further, the CIT(A) observed with regards to the second addition of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that statement, which is as per their books, how can he say so i.e., there was excess production in the case of the assessee. Further, when he has accepted such submission of the assessee regarding such stock details as per their excise records and also their contention regarding acceptance of such excise records by the concerned authorities, how can he say that there was unaccounted production and consequently sale of the same, outside books in this case. He observed that no addition can be made on basis of such suggestion made by the AO in para 5.8 of his remand report. Further, as the present AO has accepted the stock statement given by the assessee at page 185 of paper book, which is as per their books maintained for this assessment year, the said addition of Rs. 4,16,98,511/- made in the assessment in this case is not sustainable. Hence, he deleted the same. 16. The CIT(A) observed that in para 3.6 of his remand report, the AO has pointed out about low yield of 33% under production of sponge iron shown by the assessee in this case. During the remand proceedings, he has carried out necessary verification through his Inspector from tile factory of the assessee. During such en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be any unaccounted production or sales. After holding so, the CIT(A) deleted the addition of Rs. 4,16,98,511 made towards suppression of production of sponge iron. However, without stopping here, the CIT(A) continued to give finding that the main raw material for production of sponge iron is iron ore. Average wastage is to be worked out at 45% and the net yield of sponge iron should be 55% of raw material consumed. Since the assessee has shown yield at 33% thereby the assessee has claimed excessive consumption of raw material at 22% of iron ore, he directed the AO to compute the quantity of excessive consumption of iron ore. This finding of the CIT(A) is unwarranted. As argued by the learned AR, the assessee has maintained quantitative records and registers for goods manufactured by it and also as required by the Central Excise Act. There is no allegation by the CIT(A) that the assessee has not maintained records for all goods manufactured and also for all stock and consumption of materials. 18. It is also brought on record by the assessee that month to month basis quantitative details are tallied with the books of account. It is also brought on record by the assessee that c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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