TMI Blog2018 (2) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... ly made the impugned addition after holding that the assessee had sold oil in ship’s engines after they were taken to its ship breaking yard - Held that:- We find at this stage that neither the assessee has discharged its onus that none of the ships concerned had oil in its fuel tank nor Revenue has proved the exact quantity thereof since the Assessing Officer chose to make the impugned addition on estimation basis. We accordingly see no reason to interfere with learned CIT(A)’s conclusion restricting the impugned addition to a lump sum amount of ₹ 1lac only. - ITA No. 2102/Ahd/2014, ITA No. 2276/Ahd/2014 - - - Dated:- 31-1-2018 - Shri N. K. Billaiya, Accountant Member And Shri S. S. Godara, Judicial Member By Assessee : Shri T. P. Hemani, A.R. By Revenue : Shri Prasoon Kabra, Sr. D.R ORDER Per S. S. Godara, Judicial Member The assessee and Revenue have filed their instant cross appeals for assessment year 2010-2011 against the CIT(A)-XX, Ahmedabad s order dated 02.05.2014, in case no. CIT(A) -XX/47/13-14, in proceedings u/s. 143(3) of the Income Tax Act, 1961; in short the Act . Heard both sides. Case files perused. 2. We come to assessee s ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of Section 145(1) of I.T. Act by observing that the appellant has not maintained the accounts which may show the correct position of consumption of the raw material and production of finished goods. Further no details of the day-to-day consumption of the raw material and production of goods have been maintained. No day-to-day details of the shortage occurred in production has been maintained. Further, the production of the finished goods is only disclosed in the accounts when it was sold. The shortage is taken as balancing figure. The stock of remaining raw material i.e. un-cut ship piece is shown on estimate basis etc. 4.4. While the appellant has submitted that it is engaged in ship breaking industry whereby old and used vessels are cut into the plates/scrap etc. The old ships are purchased only for dismantling them. Ships are purchased on weight basis which was taken always at the time of the manufacturing and subsequently changes made therein. These records are maintained in the trim and stability book of the vessel. Though the ships are purchased on original weight basis but it is not possible to weigh the ships before or while taking the delivery thereof. After be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to day stock register does not form a valid ground to rejection of books of accounts. His case therefore is that the assessee had not been maintaining all the relevant details. Mr. Hemani seeks to justify the fall in assessee s NP @ 2.65% in the relevant previous year from preceding assessment year NP rate of 5.8% involving corresponding sales figures of ₹ 28,80,68,611/- ₹ 3,33,60,971/-; respectively. Learned counsel however fails to rebut both the lower authorities multiple reasoning supporting rejection of assessee s books u/s.145 of the Act after quoting various shortages forming hallmark of ship breaking business. We therefore see no reason to accept assessee s instant substantive grievance that both the lower authorities have erred in law as well as on facts in rejecting its books. The assessee s instant first substantive ground is therefore declined. 7. We now proceed to unaccounted sales of machineries/DG sets, engines addition issue amounting to ₹ 55lacs made in assessment order as restricted to ₹ 10lacs only in course of the lower appellate proceedings as follows: 5.6. I have carefully considered the facts on record and the arguments of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch ship for dismantling and the figure of tonnage shown in such registered document is not actually relevant with the actual weight of the ship. It is a matter of common knowledge that during the operational life of 3 to 4 decades, there would be huge corrosion of the outer surface of the ship and therefore the actual weight of the ship, after such long period, would be less. The Appellant has pointed out that a detailed study was made by group of Metallurgical and Engineering Consultants formed by the Ferrous Scrap Committee of Ministry of Steels, Government of India. The report of the consultants known as MECON Report is available on the net. In Para 2.4 of the said report, range of shortage in respect of different types of ships coming for breaking is mentioned. The same is as under: Table 2.4: Percentage of items obtained on breaking different types of ships: Sl. No. Type of vessel Weight Loss (%) 1. General Cargo 9-15 2. Bulk carriers 10-16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it and net profit of the assessee was considerably lower as compared to earlier years. It has been noticed that the appellant has shown the G.P. rate of 5.95% on total sales of ₹ 28,80,68,611/- in the year under consideration as against the G.P. rate of 24.18% on total sales of ₹ 3,33,60,971/- in the immediately preceding year. Similarly the N.P. rate shown in the year under consideration was at 2.65% as against the N.P. rate of 5.82% in the immediately preceding year. So there was fall in the G.P. rate as well as in the N.P. rate in the year under consideration. 5.12. The appellant submitted that there was substantial increase in the turnover during the year under consideration which was about 8.63 times as compared to the immediately preceding year.' The appellant further submitted in the assessment proceedings and also in the appellate proceedings that there was in total 1150 MT permanent ballast of which 460 MT was cement concrete. The cement concrete does not fetch a penny and huge amount of cost is involved in removing and disposing the same which has adversely impacted the G.P. and N.P. rates. It was further submitted that the G.P. rate in the ship break ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Burning Loss 9.00 13.42 ALANG SHIP BREAKING CORP. A.Y. 2008-09 2009-10 2010-11 G.P No business 7.52 6.28 N.P 2.18 2.77 Burning Loss 9.00 12.11 MAHADEVSHIP BREAKING CO. A.Y. 2008-09 2009-10 2010-11 G.P No business 1.24 1.07 N.P 0.81 2.56 Burning Loss 9.25 10.00 It has been contended that there were some ship breakers who incurred heavy losses in the year under consideration and also in other cases the G.P. rate ranged between 1% to 14%. 5.13. Further, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as shown in the inventory made by the customs authorities and presuming GP of 20% worked out the sales of such movables at ₹ 10,40,322/-. 21. By the impugned order, the CIT(A) deleted the addition by observing as under: There is no denying the fact that the items such as furniture and appliances have outlived their utility period. At the time of taking inventory, the items are valued as per their identity i.e. air- conditioner, washing machine, etc., and not as per their actual condition. Under the circumstances it is rightly pointed out by the AR that the valuation shown in the inventory cannot be an indicator to the amount to be realized on sales of these items. I ' am, therefore, in agreement with the decision taken in the above referred appellate order. Considering, therefore the totality of the facts, the Assessing Officer is directed to delete the addition. 22. We have considered rival contentions and find from the records that the firm's business of ship breaking and its sales are mostly of iron and steel scraps. Only items found in fact and in good condition are sold in their own identity. It is practically impossible to co-relate the sales w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation was within the parameter generally accepted in the industry, that there was no material available on the record to show that appellant had diverted any part of the recovery of non ferrous metal outside the books of accounts. Finally, he directed the AO to delete the entire addition amounting to ₹ 1.75 Crores. 3.2.a.Before us, DR supported the order of the AO and AR relied upon the order of the FAA. We have heard the rival submissions and perused the material before us. We find that FAA has, while deciding the issue, taken into consideration the findings of High Power Committee on ship breaking industry established by Government of India as well as report of leading international surveyors. He has also considered the order of the Tribunal in the case of Haryana Steel Company (supra). We find that AO has not taken into consideration sale of 81.925 MT non ferrous metal which was sold by the assessee company and that finds place in Annexure- 2 prepared by the AO himself. We find that AO has not brought anything on record to prove that recovery of non ferrous metal by the assessee was more than shown in the books of accounts. Therefore, we are of the opinion that such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have considered the rival contentions, gone through the orders of authorities below and found from the record that the AO has not found any item being sold out of books of account. He has just assumed that these items are generally found at the ship, which was just based on estimation. Keeping in view the totality of the facts and circumstances of the case, we direct the AO to retain the addition of ₹ 50,000/- in place of addition of ₹ 1.50 lakhs retained by the CIT(A). 5.17. I have carefully considered the facts on record and the submissions of the assessee made before the AO as well as before me and I am not fully convinced with the same. While, on one hand, the sale bills appended with the assessment order do not contain any details, in the same way, the purported sale of spare parts from alleged dismantled ships by the appellant also does not contain any specific detail. In this background of what is discussed above, when engine / DG set of ship finally broken was in working condition, though may be very old, it does not make any commercial sense to dismantle such engine and sell the same by weight as scrap. The details furnished also do not indicate the natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in this backdrop that a co-ordinate bench order in M/s. Madhav Steels vs JCIT ITA Nos. 1963 2274/Ahd/2014 has restricted an identical disallowance of unaccounted sales of machinery/engine sets to the extent of profit element embedded therein only than the entire amount. We accordingly support there from to reject Revenue s grievance in supporting Assessing Officer s action adding the entire sum of estimate sale price. Mr. Hemani highlights assessee s NP in the impugned assessment year @2.65% only. We find no substance in the instant appeal for the reason that profit element in account and unaccounted sales figures may not be uniform on presumption basis. We therefore direct the Assessing Officer to compute the impugned addition by taking NP @4.5% qua the addition amount of ₹ 55lacs. The assessee gets part relief in its second substantive ground. 11. This leaves us with the last common issue of unaccounted sales of oil addition of ₹ 10,57,240/- made in course of assessment as affirmed to the extent of ₹ 1lac only in CIT(A) detailed findings reading as under: 6.3. I have considered the facts of the case and submission made by the appellant. I have consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he technical report when ship is at anchorage it may consume fuel oil of between 2 to 6 Tons per day and considering the delay in beaching because of the wait of the beaching permission, it has consumed approximately 25 tone of the fuel oil for the delay of 5 to 7 days and the consumption of the 2 to 3 tons of oil per day which is a genuine reason for shortage in the actual availability of oil on the ship. Further there was no adverse view on the output of the oil from the VAT department, as no discrepancy about such unaccounted sales as alleged by the A.O has been pointed out by them. 6.4. It has been contended by the appellant that the AO has proceeded on the assumption that actual quantity of oil in tank of vessels was as mentioned in the bunker report. While preparing the bunker report at the anchorage point, quantity of oil in tank is measured through a measuring rode by taking depth on estimated basis and there is always variation in quantity actually found. When the measurement is taken through measuring rode there is scope for variation in quantity of actual stock available in the bank. Besides while taking measurement by a measuring rode quantity of frozen waste at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of 43,530 ltrs. Oil at ₹ 1,7,602/- and added the same to the income declared by the assessee. The assessee at the time of assessment proceedings had given detailed reply substantiating the actual availability of oil in the ships and emphasizing the act that the figures arrived at by the Assessing Officer for availability of oil at the time of purchase of the ships in question was subject to various conditions and was therefore, not the actual figure of oil available in the ships purchased. 16. By the impugned order, the CIT(A) deleted the addition by observing that consumption rate of oil and frozen waste was reasonable and the Assessing Officer has no material for coming to the conclusion that the assessee has undertaken any sale without receding sale in its books of account. 17. We have considered rival contentions and find from the records that the addition was made by the Assessing Officer on certain assumptions which is not fully supported by facts and figures. The oil available in the three ships was 106,343 Itrs. And not 149,673 liters as computed by the Assessing officer. We also found that the basis of alleged consumption of oil adopted by the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to interfere with the order of the CIT(A) in deleting the impugned addition of ₹ 1,77,602/- made on account of oil. - In the case of Aapee Ship Breakers Pvt. Ltd. Mumbia Vs. CIT(Central)-XXVII and DCIT, Cir.3(1) in ITA No.7522/Mumbai/2007 dtd. 7,8.2013 has observed as under:- 2.1 The first ground of appeal is about addition made on account of suppressed sale of oil. As per the AO from the bills of entry prepared by the custom authorities, the ships were having 301 MT oil and same was valued at ₹ 39,73,120/-.As per the AO no sale of oil was shown by the assessee. Therefore, he held that assessee has suppressed sale value of the oil and he added ₹ 43.7 lakhs to the income of the assessee, as stated earlier. 2.2. Assessee preferred an appeal before the First Appellate Authority(FAA).After considering the submissions of the assessee, he held that there an apparent mistake was committed by the AO while giving narration of the items sold, that while accounting for sale of oil (per barrel) AO mentioned the narration furniture instead of furnace oil, that oil was also required for operating equipments like cranes, that home consumption by the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re indicative-based upon the survey report determined on the tank calculation book available on the board and not physically verified. The ship breakers do not dispute such figures to avoid delay in beaching of the ship. The oil available includes various impurities accumulated over a period of time. The appellant is not in the trade of sale of oil and is only a scrap dealer. Customs duty levies it at international price of pure oil, whereas these are used or contaminated oil with impurities. The details show that grease is worth only ₹ 21,463/- from 2 ships and nothing from the third ship. This grease if recovered is used in own process of cutting in machinery employed such as which, cranes or generator. Regarding lubricating oil, these are sold as lube oil and included in total sale of oil-copies of sale bills are duly entered. Regarding paint, thinol and chemicals-they are not recoverable and they either get destroyed in the dismantling process qr used for cleaning purposes. Thus, the above addition deserves to be deleted, in view of the decision of the Hon'ble IT AT 'H' Bench Mumbai in the case of M/s. Anupama Steel Ltd, A.Y. 1998-99. 4.2. After consideri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and keeping in view the detailed submission of the Appellant, the AO's observation about the suppression of oil in production/output of fuel oil, MGO and Lubricant oil and consequently to arrive at the suppression of sales is not a reasonable view for various reasons discussed above. The type of the three ships, their year of manufacturing were different to each other and hence their consumption of oil during the period from the date of survey to the date of bleaching is obviously different. Thus the formula of consumption of oil of a particular ship cannot be applied to arrive at the consumption of oil of the another ships. It has been an undisputed fact that the quantity shown in ship records as per the survey report cannot be the actual quantity of the oil available in the ship. Further, there is sludge deposited in the bottom of the oil tank which could never been estimated and the same reduces the actual quantity of oil. So considering various factors, the actual availability of oil in the tank is impossible to be measured. Further, no evidences/ details in respect of any unaccounted sales of the oil by the appellant have been brought on record by the A.O. Merely having t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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