TMI Blog2021 (10) TMI 1245X X X X Extracts X X X X X X X X Extracts X X X X ..... squarely covered by the decision of the co-ordinate bench in assessee's own case for AYs. 2009-10 to 2012-13 wherein also the appeal of the Revenue was dismissed after elaborate discussion on factual and legal matrix.Revenue's appeal towards alleged lower yield of production is dismissed. Addition u/s 14A r.w.r. 8D - CIT-A deleted the addition - HELD THAT:- As the assessee has not derived any exempt income per se. It is well settled that in the absence of any exempt income, no disallowance under s. 14A of the Act is permissible in view of the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Corrtech Energy P. Ltd. [ 2014 (3) TMI 856 - GUJARAT HIGH COURT] . Alo the assessee has demonstrated sufficient net worth from which a presumption would naturally arise that investment for the purposes of earning exempt income is out of such own interest free funds available at the disposal of the assessee. A reference in this regard has been made on behalf of the assessee to the several judicial precedents including CIT vs. HDFC Bank Ltd. . [ 2014 (8) TMI 119 - BOMBAY HIGH COURT] and SUZLON ENERGY LTD. [ 2013 (7) TMI 697 - GUJARAT HIGH COURT] - Decided in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustrial average. 4. Briefly stated, the assessee is engaged in the manufacturing of re-rolled products such as heavy steel structures, joist, ingots, girders etc. It has two divisions namely Furnace division which is also known as Steel Melting Shop (SMS) and Rolling Mill Division (RMD). Furnace/SMS division uses sponge iron, pig iron, scrap and end cutting (end cutting is basically output of RMD) as raw material to manufacture billets and blooms and the RMD Divisions uses these billets and blooms as raw material to produce further re-rolled products such as heavy steel structural etc. 4.1. A search operation was carried out in the case of assessee on 17.10.2011 at the main office and the factory premises of the assessee company. Consequently, the assessment of A.Y. 2012-13 and preceding six years were subjected to search assessment proceedings. In the search assessment, the AO rejected the books of accounts of the assessee and alleged that the assessee company has suppressed its yield of SMS/Furnace division. The AO assumed the average yield of the industry at 89% in the SMS/Furnace division and consequently, the difference between actual yield shown by the assessee vis- - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee itself and thereafter the AO calculated the amount of suppression in production and sales by taking the yield of 89% and worked out the amount of suppression in sales and income and made an addition of ₹ 15,94,08,394/-. The AO further stated that for the better comparison across parties dealing with the same manufacturing business, enquiries were done in the yield percentage being offered by other assessees being assessed during the same year, on perusal of Audit Reports and Balance sheets of various other parties in the same business, it was seen that yield percentage of as high as 97% has been furnished for manufacturing of MS Ingot/Billets. 10.1 In its submission and against the views of the AO, the appellant stated that the AO has only provided figures of yield declared by another party but the AO has not provided the complete details relating to comparable instance, even the AO has not provided the name of the party whose figures have been mentioned in the assessment order and benchmarked against him. It was stated the AO has adopted higher yield i.e. yield of 89%, on the basis of certain unknown and unspecified comparable cases, without confronting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n comparison to the FY 2014-15 and in the case of rolling mill division it has increased by nearly 15.08%. My attention was also invited to the decrease in the selling rate of output of SMS and rolling mill division. It was submitted that the selling rate in SMS division has decreased by nearly 24.29% in comparison to the FY 2013-14 and in the case of rolling mill division it had decreased by nearly 28.82% in comparison to immediately preceding year. My attention was also drawn to the increase in cost on account of salary expenses. 10.3 I observe that the AO has made addition by estimating the yield at 89% of the total raw material consumed in the SMS division after rejecting the books of accounts of the appellant. The only reason for rejection of books of accounts adduced by the AO is that the appellant had declared yield in SMS division less than 89%. In the opinion of the AO as can be seen the yield of the appellant company should have been same in all the years as the nature of the business is the same as it was during the period covered under the search proceedings. In the assessment order the AO has not brought on record any irregularity or defect in the books of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .e. AY 2006-7 to 2012-13. Importantly even in the assessment order pertaining to search period there is no reference of any seized material or any other documentary evidences to establish that the appellant had indulged in unaccounted production and unaccounted sales, not any kind of justification have been made in adoption of 89% yield. The additions were made mainly on the pretext that the average yield in the industry is nearly 89% and the yield declared by the appellant is low as compared to the yield shown by other manufacturers of Chhattisgarh. There could be several reasons for variation of GP and NP but the variation per se is not sufficient to draw an inference that the books of accounts are liable to be rejected u/s. 145 until and unless specific defect or irregularity are pointed out and brought on record pertaining to the books of accounts of the appellant. Even in the assessment order for the year under consideration it appears that the extracts have been reproduced without mentioning the sources thereof, and moreover the AO has not confronted the same to the appellant for its rebuttal. The yield percentage of 97% referred by the AO in the assessment order with which c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which in this case is raw material consumed in SMS Division for manufacturing of blooms and billets in furnace. No other material or assets details were found during the course of search. On the contrary, the appellant had provided all the requisite details regarding its production activity. The items of raw material purchased are excisable products, the quantity of raw material purchase as mentioned in Excisable and Commercial Invoice was test checked with the entries in the Excise Record for raw material i.e. RG-1 and the same was found to be in order. The quantity appearing in the excise registers was cross checked with the entries in the excise returns and the same was found to be in order and tallying with excise record. The inventory appearing in the excise records and excise returns was found to be the same as in financial records i.e. the books of accounts and Audited financial statements. Undisputedly, the production was meticulously routed through the appellant's daily production register/Excise records. The entries therein were definitely co-relatable to the entries in the stock register, enabling an easy stock tally, if one was so required. However, the AO did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aipur, Tax case (ITA) No. 48 of 2015 wherein the Hon'ble High Court has inter alia held that power consumption in an industry may vary for various reasons, the appellant also relied upon the decision of the jurisdictional ITAT Raipur Bench in ACIT-1(2), Raipur vs Balajee Structural (India) Pvt. Ltd., Raipur wherein following facts were noted: The appellant has maintained quantitative details as per required under excise rules. Monthly returns are also submitted to the Excise Authorities and no discrepancy was noticed so as to establish that the yield shown by the appellant is unreasonable or on lower side in comparison to yield prevailing in this line of industry. The yield shown by the appellant in respect of furnace division is 81% as against 76% of the immediately preceding year and in respect of rolling mill division it is 93% which is at par with that of immediately preceding year. In the immediately preceding year, in scrutiny assessment, the department has accepted the books of accounts on the basis of yield of furnace division at 76% and 93% of Rolling Mill Division. 10.9 In the appellant's own case for AY. 2013-14 in Appeal No CIT(A) -11/RPR/A. No. 104/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as raw material whereas billets are finished products of SMS division. It appears that AO has proceeded on misconception of facts. Thus, on this point too, the action of the AO is not justifiable. In consonance with the view taken in the matter, we see no merit in the appeal of the Revenue. The relevant operative para of the order of the ITAT is reproduced here for ready reference: 8. We have perused the case records and heard the rival contentions. We have also analyzed the judicial pronouncements placed before us. The facts on records clearly demonstrates that the Assessing Officer has failed to bring any cogent reasons/evidences for making addition in the case of the assessee. He has arrived at various mathematical calculations and has derived the yield at 89%. All these were done by the Assessing Officer without bringing on record any single document which indicates that the assessee has suppressed its yield or has indulged in any unaccounted sales. It is also on record that though the Assessing Officer has estimated production at 89% in SMS division and had made various mathematical calculations at Pages 7 to 11 of the assessment order regarding Rolling Mill Division, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t complied with. 11. In the case of ACIT-1(1), Raipur Vs. Siyaram Rice Mill in ITA No. 59/BLPR/2011, the Raipur Bench of the Tribunal has observed that in a case where the Assessing Officer had applied a mathematical formula and made addition but however, rejected all the submissions of the assessee without passing speaking or reasoned order . The Raipur Bench of the Tribunal further held that regarding mathematical calculation, the Assessing Officer has not referred to any comparable cases that could prove that the stand taken by him was based on scientific and logical basis. That further a reasoned order cannot be passed without considering the reply of the assessee filed by the assessee and without giving reasons as to why the reply was not acceptable. 12. In the instant case, the Ld. CIT(A) had made exercise to bring out the percentage of yield declared by the other assessee engaged in similar line of business and nowhere the yield was 89%. The Assessing Officer also gave no basis for its calculation of the yield at 89%. There was no scientific or logical basis in the exercise conducted by the Assessing Officer. The submissions made by the assessee, were also summa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bring any cogent reason to take a departure from the earlier view. Thus, in consonance with the view expressed earlier, we do not see any merit in the plea of the Revenue for restoration of the additions deleted by the CIT(A) on this score. 10. In the result, Ground Nos. 1 to 3 of the Revenue's appeal towards alleged lower yield of production is dismissed. 11. Ground Nos. 4 5 concern disallowance under s. 14A of the Act. The additions made by resorting to Section 14A of the Act were deleted by the CIT(A) on the following reasonings: 15 I have considered the grounds of appeal, perused to the assessment order and gone through the submissions of the appellant. I observe that the appellant has claimed that no expenditure was incurred in relation to exempt income and that the investments were made in the preceding years and not during the year under consideration except investment of ₹ 14.41 crores. The AO has noted that no exempt income has been earned by the assessee during the year under consideration from investments in shares. The appellant has claimed that the cash profits earned by the appellant in the year in which the investments were made in the shares o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1645 . 00 0 . 00 0 . 00 0 . 00 Total Non Interest bearing Funds 5000 . 87 10303 . 33 14521 . 07 14664 . 29 13755 . 38 12477 . 25 Table Showing Proportion of Investment to Cash Profit earned by the assessee during the F. Y in which investments were made F. Y Investment ( Rs. in Lacs) Net- worth ( Rs. in Lacs) Investment to Net- worth Ratio (%) Total Non- interest bearing funds ( Rs. i n Lacs) Investment t o Non- interest bearing funds Ratio (%) 2005 - 06 30 . 01 2915 . 31 1 . 03 5000 . 87 0 . 60 2008 - 09 200 . 00 7949 . 91 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Energy P. Ltd. 372 ITR 97 (Guj.). In another judgment in the case of CIT vs. Vision Finstock Ltd. Tax Appeal No. 486 of 2017 dated 31.07.2017 the Hon'ble Gujarat High Court has once again expressed the similar view and held that disallowance of expenditure in terms of Section 14A r.w. Rule 8D cannot exceed the exempt income itself. It is noticed that SLP(Civil) [Diary No. 13152/2018] filed by the Revenue against the judgment of the Hon'ble Gujarat High Court in Vision Finstock Ltd. (supra) has been dismissed on merits by the Hon'ble Supreme Court vide order dated 07.05.2018. The reference is also made to the decision of Hon'ble Supreme Court of India in CIT vs. Chettinad Logistics (P.) Ltd. (2018) 95 taxmann.com 250 (SC). 12.1. Secondly, the assessee has demonstrated sufficient net worth from which a presumption would naturally arise that investment for the purposes of earning exempt income is out of such own interest free funds available at the disposal of the assessee. A reference in this regard has been made on behalf of the assessee to the several judicial precedents including CIT vs. HDFC Bank Ltd. (2014) 89 CCH 0185 (Bombay High Court); CIT vs. Suzlon Ene ..... X X X X Extracts X X X X X X X X Extracts X X X X
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