TMI Blog2015 (10) TMI 734X X X X Extracts X X X X X X X X Extracts X X X X ..... consumption of coal and electricity during the months of October to December 2005, these should not have been brushed aside lightly by the lower authorities. Purchase of large quantity of coal and maintenance of iron ore stock cannot be termed as defect in accounts when the purchases were duly reflected in the books and the stock register. As to the letter received by the AO from DGCEI it is not disputed that the survey done by the Central Excise were after the relevant previous year. Assessee cannot be saddled with any addition for suppressed sale based on a survey conducted in a succeeding year when the excess stock found at the time of survey is not collated with the production data for the preceding year Asssessee was not a simple producer of sponge iron but they were doing many other activities and there was no defects or lacuna noted by the sales-tax authorities. Hon'ble Allahabad High Court in CIT v. Subhash Chand (2004 (8) TMI 27 - ALLAHABAD High Court) has clearly held that the records of the assessee once accepted by the sales-tax authorities, could not be given a go-by by the Income-tax authorities. Rejection of the books of account u/s.145(3) of the Act has got ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther as per the AO, assessee was having installed capacity of 60,000 MT against which production was only 29,082 MT. When this was brought to its notice, assessee's reply was that it had during the relevant previous year installed a new kiln wich started functioning only in January, 2006. Thus as per the assessee, only half of the coal capacity of 60000 MTs were available during the relevant previous year. With regard to excess consumption of coal and iron ore, reply of the assessee was that it was due to the trial run and experimentation done in the new kiln. 4. On receiving the above reply, AO made a study of the purchase of coal during the various months of the relevant previous year. He found that assessee had purchased 16,544 MT and 10,016 MT of coal in the months of October and November, 2005 respectively, whereas the purchase of iron ore was only 2559 MT and 2045 MT during these months. AO also noted that US Patent 5637133 on iron ore processing went to show that assessee was exaggerating the figures of consumption. AO also noted that major part of the production of 21562 MTs of sponge iron came during the month of April to December 2005, whereas its production during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29,082 MT Suppressed production.. 2643 MT Average selling price of sponge iron per ton adopted by assessee.. Rs.8450/- Suppressed sale (2,643 MT x ₹ 8,450).. Rs.2,23,33,350/- He made an addition of ₹ 2,23,33,350/- without allowing any reduction for expenditure. According to him, all expenditure for such increased production and suppressed sales were already charged to the profit and loss account. 7. An addition was also made for shortage of stock of 205.6 MT which as per the AO was not properly explained by the assessee. Though the assessee mentioned that there could be + / - 5% variation in stock due to transit loss, moisture loss, weighbridge differences etc., this was not accepted. He worked out the addition for such shortage at the rate of ₹ 3,141/- per tonne for 205.6 MT at ₹ 6,45,790/-. 8. Assessment was completed by making the above mentioned additions. Aggrieved, assessee moved in appeal before the CIT (A). 9. Argument of the assessee before the CIT (A) was that there was no defect in the books of account a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kilns. Assessee could not explain the discrepancies pointed out by the AO. As per the CIT (A), even if extra consumption of coal and electricity were considered to be true, assessee ought to have capitalised such expenditure since the new kiln was yet to start production. He therefore held that AO was justified in invoking the Section 145(3) of the Act, and rejecting the books of account of the assessee. However, according to the CIT (A), instead of making an addition of ₹ 2,23,33,350/- for suppressed turnover, it would be better to apply profit rate of 6.90% on the total turnover for the impugned assessment year for ascertaining the correct profit. The rate of 6.90% was arrived at by the CIT (A) by averaging the net profit margin for A. Ys. 2007-08 and 2008-09. Thus, he brought down the addition to ₹ 1,68,07,200/-. Since the profit was estimated on turnover, CIT (A) seems did not adjudicate on the other disallowance. 10. Now before us, Ld. AR strongly assailing the order of AO, submitted that the sales-tax assessment orders, dt25.03.2010, for the relevant previous year, placed on record at paper book pages 82 to 85, clearly mentioned that books of account were main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. According to him, the order of CIT(A) was fair and ought not to be disturbed. 12. We have perused the orders and heard the rival contentions. What we note is that AO all through the assessment order has not brought out any specific defect in the books of account produced by the assessee. No doubt he mentioned that assessee had consumed 34897.80 MT of coal and 32008.50 MT of iron ore but had given production of only 29082 MT of sponge iron. It is not known from where the AO found the norm that 1 to 1.1 MT of coal and 1.3 to 1.4 MT of iron ore was the standard requirement for producing 1 MT of sponge iron. Assessee had stated that consumption of these raw material was dependent on the moisture and dust content, operational environment and plant technology used. Assessee had also stated that it was operationalising a second kiln and this fact was not disputed by the lower authorities. When a new kiln is being operationalised for which the assessee had produced invoices in support of procurement of machinery and also pointed out the requirement of injecting washed iron ore for the new kiln, and pointed out these to be the reason why there were excess consumption of coal and elect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 13.87 0.60 8.48 0.40 Jan'06 2760 3036 110 3312 120 10.41 0.30 8.48 0.30 Feb'06 2170 2387 110 2604 120 13.01 0.50 8.48 0.39 Mar'06 2590 2849 110 3108 120 16.04 0.6 - - Total 29082 32008 34897 13. The ratio of consumption of 0.90% and 0.60% for the months of November and December 2005, cannot be termed as excessive when compared to the ratios for the other months, when the new kiln was being operationalised. The consumption of October 2005 alone was higher, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acture of ingots is manufactured by the dealer. As regards the manufacture of TMT bars, the MS ingots manufactured by the dealer are used apart from purchases from local registered dealers. For the process of manufacture of TMT bars, the dealer has also effected purchases of MS billets from local registered dealers. The dealer has also effected purchases of consumables like silico manganese, ferro manganese, moulds from local registered dealers and interstate dealers, and purchase of BP sets (bricks) and running mass from local registered dealers. The dealer has also effected purchases of capital goods like machinery and their spares. As regards all local registered dealer purchases input tax deduction at 4 and 12.5% as applicable to the commodity is claimed. The dealer has also effected purchases of goods not used for manufacture or trading. However these goods are classified under the category of exempt goods and no input tax deduction is claimed. For all the process of manufacture, the dealer has used electricity, coal and diesel. The electricity used for heating the furnace, coal is used for re-rolling plant as fuel as raw material for manufacture of sponge iron. The die ..... X X X X Extracts X X X X X X X X Extracts X X X X
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