9911796707
TMI Blog2022 (2) TMI 337X X X X Extracts X X X X X X X X Extracts X X X X ..... same as suppressed income from production @ 2% amounting to Rs. 2,02,64,920/-. 3. The learned CIT (A) erred in law as well as on facts in deletion the addition made towards the claim of Rs. 4,22,800/- on account of stamp duty paid. 4. The learned CIT(A) erred in law as well as on facts in deletion the addition made towards the claim of Rs. 32,60,146/- u/s 40(a)(ia). 5. The learned CIT(A) erred in law as well as on facts in deletion the addition made towards the claim of Rs. 15,08,905/- on account of abnormal increase of store and spares expenses. 6. The learned CIT(A) erred in law as well as on facts in deletion the addition made towards the claim of Rs. 36,715/- on account of payment made u/s 36(l)(va). 7. On the basis of the facts and circumstances of the case, the learned CIT(A) ought to have upheld the order of the Assessing Officer. 8. That the revenue craves leaves to add, amend, alter or withdraw any ground of appeal. 9. It is therefore prayed that the order of the CIT(A), Jamnagar may kindly be set aside I and that of Assessing Officer be restored. 3. The first ground of appeal is against the disallowance of loss incurred by the assessee on hedging o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the assessment order's page 8 "....In the case under consideration the assessee failed to discharge the onus cast upon him to prove that it has indulged in forward trading only for guarding against the loss. several other case law as well as notification cited by the assessee do not relate to the case of the assessee. The assesses's main commodity is Brass whereas he has never traded in forward in the basic commodity. Considering this fact the assessee's claim required to be rejected and the amount of Rs. 1,52,76,370/- being forward loss is liable for disallowance. The contentions of the assessee have been deliberated at length and are not found to be acceptable. As per provision of section 43(5) of the Income Tax Act, any 'eligible transaction' in respect of trading in derivatives referred to in clause [(ac)] of section 2 of the Securities Contratct (Regulations) Act, 1956 (42 of 1956 ) carried out in a recognised stock exchange. Therefore, the provision of section 43(5) of the Act are clearly attracted and these transactions clearly fall within the ambit of the definition of speculative transactions thereby rendering itself ineligible for deduction under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A)" and their contention against the Revenue's appeal. The Ld. Counsel for the assessee has relied on the written submission, synopsis and reasoning given by the "Ld.CIT(A)" Jamnagar. The written submission filed by the assessee are extracted below: a) Section 43(5) of the Income Tax Act, defines the transactions which are periodically or ultimately settled otherwise than by actual delivery as speculative transaction. However, there are some exceptions given in the section as under: Clause Exception Applicability (a) Contract in respect of raw material or merchandise entered in the course of manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contract for actual delivery of goods manufactured or merchandise sold The assessee is a company engaged in business of manufacturing of non-ferrous extrusion of Brass rods, Brass components, brass profiles, Job work, and trading of Brass scrap. Brass is the derivative of Copper and Zinc. The company has executed these transactions in the copper which is connected commodity through MCX stock exchange. (b) Contract in respect of stocks and shares entered into by a dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basic raw material of the assessee and the transactions are not carried out in recognized stock exchange. d) Ld. AO has ignored the facts that Brass is the derivative of Copper and Zinc and not a separate metal in itself. Hence, Brass and Copper can be said as connected commodities and falls under clause (a) of section 43(5). Reliance is placed on Circular no. 23D dated 12/09/1960 (page no. 247 of paper book) which excludes hedging transactions in connected commodities from the purview of speculative transactions. e) Further, assessee has never hedged the goods of brass and copper more than its holding, Job work material and pending orders from import. Full quantity records were also produced before AO which showing that there is not a single instance where the import or stock of the material is less than the quantity hedged. In fact it is not at all a cases that assessee has entered in to contract without having goods with him. Moreover, the Hon'ble CIT(A) has also noted the facts at page no. 15 of the appellate order that the assessee has always stock on hand which was shown in below mentioned table: Sr. No. Commodity Expiry Date Total Qty (in MT) Stock in hand ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce the Ld. DR has not contracted any of the facts placed before us and before the "Ld. CIT(A)". Therefore, we are inclined to agree with the views of "Ld CIT(A)" and based on the above finding the ground of Revenue that appellant is not eligible to set off the hedging loss of Rs. 1,52,76,370/- having no merits and same is dismissed. 4. Now we take ground no. 2 of the Revenue which is against disallowance of the raw material consumption, treating the same as suppressed income from production @ 2 % amounting to Rs. 2,02,64,920/-. 4.1 The assessing officer in his order observed "Drastic fall in the yield of finished goods" as evident from page 8 of his order. The relevant extract is reproduced below: Further on verification of the quantitative details of the consumption of raw materials and production of finished goods, it is revealed that the assessee produced finished goods weighing 32,25,537 Kgs. as against consumption of raw materials weighing 38,97,135 Kgs. In the preceding year, the assessee manufactured finished goods weighing 2916253 Kgs. as against consumption of raw material weighing 3204652 Kgs. As such, the percentage yield of finished products, during the year, comes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the assessee has gone down. f) The contention that it maintained day to day stock register and production records is also not acceptable as mere maintenance of these records does not certify the genuineness of such incredible fall. g) The burning loss is claimed at 5.79 % as against 6.89 % for F.Y. 2010-11. h) Increase / decrease of WIP is 0.28 % theses year as against 2.12 %. i) The assessee has furnished various reasons for extreme and steep down in the yield and has presented various permutation and combination of statistics so as to justify the abnormal result of the manufacturing process. 4.5 Finally the AO made the addition by holding as under: "....[ line 2 on page 16 ] Accordingly it is concluded without any alternative option that the assessee company has manipulated its production result and made accounting jugglery to minimize the legitimate tax burden on the true and correct income earned by it by way of suppressing the production of finished goods and claiming impossibly high slag generation. The standard bye product generation in brass industry is 4 %. The assessee has no way to substantiate its claim of meager 83 % yield of finished goods, rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... astic and are subject to difference type of quality and by melting this goods are manufactured and therefore, since recycled goods are used as raw material yield cannot be kept at same in each year and each year the assessee maintained the required records showing full quantitative details which has not been subjected to defect in the assessment proceedings by the department. h) The Department has carried out survey proceeding at the premises of the assessee and, in the survey, proceeding no incrementing documents found or any difference in quantitative records of inventory maintained viz-a-viz physical stock verification were observed. i) The assessing officer has not rejected the books of account. 4.7 In view of the above summarized points, discussed at length in para 6 of his order the ld. CIT(A) has given the finding that the reasons given by the AO for making an addition of Rs. 2,02,64,920/- on account of low yields was incorrect. Thus, ld. CIT(A) deleted the said addition by holding the that without finding any defects in the books of accounts, quantity records and in absence of any adverse material found in survey proceedings, the addition cannot be sustained. 4.8 Bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation regarding mark to market hedging loss of Rs. 1,52,76,730/- on account of copper hedging Submission - 7 (Page no. 355-356 of paperbook) 27/03/2014 Monthwise qunaity details of generated scrap out of the manufacturing process, its stock, production, consumption, sales and closing stock Submission - 8 (Page no. 357-370 of paperbook) 28/03/2014 Monthwise inward and outward movement of inventory in the form of consumption of material and production of finished goods, other materials and burning loss Submission - 9 (Page no. 371-416 of paperbook) 29/03/2014 Submission regarding decrease in yield of finished goods and increase of other materials along with day to day production reports for the full year 2. Addition by Assessing Officer and assessee's contention: * The Assessing Officer vide Assessment Order u/s 143(3) dated 30.03.2014 gave the following reasons for addition. Assessee's contention is as under: Sr. No Para & Page Reference Reasons for addition by A.O. Contention of the assessee 1. Page no. 13 Ld A.O. has contended that there has been an abnormal increase in by-product yield & drastic fall in finished goods yield. There is no ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to minimize the tax burden. No opportunity is provided to assessee to know the details of those companies/ firms. They are engaged in mere extrusion business at a very small scale and do not become comparable with the assessee at all as they do not manufacture components. 4. Page no. 16 Ld A.O. has further contended that the standard by-product generation in brass industry is around 4% & relying on the same base, the A.O. has disallowed the claim of 2% out of 6.10% claimed by the assessee, which amounts to Rs. 2,02,64,920/- From the reasons furnished by the A.O., it seems as if the Ld A.O. has concentrated merely on figurative details & not on the facts provided by the assessee and has not provided any such 'reasonable cause' to reject the claim. Ld A.O has treated the same as unaccounted income of the assessee from suppression of production to that extent & rejected the excessive claim of 2%. Mere variations i.e. increase or decrease in the slag yield doesn't provide a strong base to the A.O. for the assessee being indulged in any manipulative tactic to misdirect or misguide the A.O. Further, there are no provisions referred in the IT Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trusion (i) Copper Extrusion 1 57 969.54 8 02 15 525.43 2 02 380.50 7 42 55 432.20 Less: Sale Return 1 295.30 5 46 012.21 4 397.55 14 50 104.26 Net Sales 1 56 674.24 7 96 69 513.22 1 97 982.95 7 28 05 327.94 (ii) Copper Extrusion (Against CT-3) 12 594.25 60 12 211.25 8 157.75 34 75 576.99 1 69 268.49 8 56 81 724.47 2 06 140.70 7 62 80 904.93 (E) Others (i) Brass Billets 1 24 057.85 3 94 82 330.60 68 984.70 1 91 72 502.55 Less: Sale Return 1 940.40 6 95 730.10 0.00 0.00 Net Sales 1 22 117.45 3 87 86 600.50 68 984.70 1 91 72 502.55 (ii) Brass EDM Wires 8 060.55 30 15 823.64 1 005.47 3 77 086.25 Less: Sale Return 0.00 0.00 6.81 2 728.75 Net Sales 8 060.55 30 15 823.64 998.66 3 74 357.50 (iii) Other Articles of Brass 8 949.70 30 56 832.25 11 312.85 32 22 723.35 1 39 127.70 4 48 59 256.39 81 303.02 2 27 69 583.40 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 59,15,424 Copper Zirconium 45.00 27,000 - - Chromium Metal 290.00 1,16,580 - - Bismuth 45.00 39,825 - - Lead - - 38.80 2,720 Zinc 32,174.05 35,88,694 9,366.40 7,59,615 Manganese 153.90 21,084 1,093.00 1,78,520 Copper Phosphorus 617.80 2,12,999 467.00 2,58,844 Copper Tellurium 59.00 3,53,091 62.00 3,71,045 Tin 1,579.20 12,11,120 834.95 5,84,991 Nickle 377.00 3,43,070 5.00 3,129 Cadmium 70.00 15,960 70.00 15,960 Sillicon 807.65 75,111 1,534.00 1,48,430 Magnesium 16.00 2,688 - - Generated Scrap 13,428.00 28,04,169 3,936.91 8,06,911 sub-total 1,55,403.70 308,93,305 46,269.42 90,45,589 (B) Add: Purchase - Brass Scrap High Seas 10,02,590.00 2226,43,801 4,43,670.00 885,07,375 Brass Scrap Imported 10,71,718.00 2629,49,810 3,74,767.00 958,16,600 Brass Copper - Domestic 11,65,885.04 3668,32,401 17,4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13,42,085 6,394.60 12,41,964 (F) Less: Purchase Rate Difference - 5,88,906 - 8,70,337 (G) Less: Purchase Return (Semi Finished Goods) 370.70 1,37,831 1,979.45 7,02,705 Raw Material Consumed (a+b+c-d-e-f-g) 38,97,134.54 9611,59,273 31,52,582.86 6584,53,605 5. Comparison of Gross Profit: * There is improvement in Gross Profit. Assessee can carry on the business, which is most profitable to him. If in decreased yield of one product it gets higher realization and earn higher profit, AO does not have any power to not to allow the business modus operandi of product mix. Comparison of Gross Profit Ratio with the earlier year is as under: Gross Profit Working G.P. 31st March 2011 31st March 2010 Gross Profit Ratio Sales 105 41 47 754 76 80 50 774 Direct Income (Job-Work) 2 63 30 513 1 93 78 724 Turnover 108 04 78 267 78 74 29 498 Raw Material Consumed Opening stock 3 08 93 304 90 45 589 Add: purchase 94 05 22 997 67 90 72 137 E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates high prices. Due to this R & D work there is lot of recycling of material to suit the needs of the customers, it has generated lower yield. AO has not at all discussed this aspect in the order. 7. Hike in comparative sales price: * Comparative selling price of the company on average basis itself suggest that there is steep price hike due to the quality product of the company for which it need high level of precision and high level of efficiency. We submit a sample chart below: * Ld AO has brushed aside these facts and has not commented on this but has just compared the percentage of the production whereas the submission of assessee was on prices/ sales realization. * The statement of AO that components do not alter the losses/ inferior material is not an argument, which has any base. In facts, components go many cycles of burning/ turning/ machining compared to the rods. Therefore statement of AO is incorrect to disregard it. Price of component is more than 150/- per Kg compared to rods. Therefore the statement of AO is incorrect. Sr No Product Selling rate in F Y 10-11 In Rs. Selling rate in F Y 09- 10 in Rs. 1 Brass Extrusion rods 306.93 248.70 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rat) (Page no. 422-423 of paper book) Where assessee's method of extracting yield of oil from groundnut seeds was consistently accepted in past, in absence of bringing on record any cogent reasons for rejecting same, addition made by Assessing Officer merely on basis of its own estimation of production, was not sustainable * B. F. Varghese (No.2) vs. State of Kerala (1969) 72 ITR 726 (Kerala) (Page no. 424-425 of paper book) The fact that the yield disclosed by the books of accounts does not satisfactorily compare with the yield as estimated by the assessing authority for the previous year is no ground for rejecting the accounts of an assessee as the yield would vary from year to year to a large extent, depending on several factors and the yield obtained in one year would not furnish any guidance for estimating the yield for any subsequent year. It was further held in this case that in the absence of any omission, irregularity or other defect in the method of maintaining the accounts or positive evidence to show that the accounts did not disclose the whole income of the assessee, his books of accounts cannot be rejected. Therefore similarly we request you to not to mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods, raw materials etc. in the manner alleged by the AO. * Assessee submits that on 7-11-2012 AO himself lead the team of survey and carried out detailed examination of books of the accounts of the company and other relevant records for almost three days. After full verification carried out by AO, your Honour will appreciate that there was no discrepancy in the accounts as well as the stock records as well as the production process and maintenance of records there in. Therefore, there was no disclosure in the survey proceedings. * IT team did not find any improper functioning, no papers, which are unrelated or suggesting. Based on the above survey findings of the Income tax department last year assessment was made where the assessee submits exhaustive details including the day to day production sheet and summaries running in more than 1000 pages which were verified in great detail by AO painstakingly and accepted them in AY 2010-11 as perfect. Assessee submitted the full quantity details for the burning loss and full production data of the year. Ld AO has not discussed at all these aspects in the order. * Further AO did not have any idea about the manufacturing process of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be the basis for the reason of making such additions. In view of the above submission, it is submitted that the addition of Rs. 2,02,64,920/ on account of low yield should not be made. 4.11 We heard both the parties, perused the material available on record and duly considered their points of arguments in respect of the issue of raw material consumption treating the same as suppressed income from production @ 2% amounting to Rs. 2,02,64,920/-. We find force in the arguments of the assessee and reasoning of the finding of the "Ld CIT(A)". There is no abnormal increase in byproduct yield and drastic fall in finished goods but the same is due to change in the product mix, development of new product, import of material which contains higher impurities. The Ld. AO has provided the assessee with unjustifiable or invalid reasons without any basis by considering the excessive claim of 2% on generation of by-product during the manufacturing process as 'unaccounted income from suppression of production. The Ld A.O. has compared the yield figures of F.Y. 2010- 11 & F.Y. 2009-10 and considered the decrease in yield as manipulative tactic of the assessee to avoid taxes. In our cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed at page 16 of assessment order, wherein the observation of the assessing officer reads as under: "On verification of P & L account, it is noticed that the assessee claimed legal and professional fees of Rs. 4,43,560/-. The details have been called for. it is submitted by the assessee that it includes stamp duty expenses of Rs. 4,22,800/-. Any such stamp duty which are not in the revenue nature has to be disallowed. Accordingly, the said amount of Rs. 4,22,800/- is disallowed and added to the income declared by the assessee company." 5.2 The AO on page 16 of assessment order observed that the assessee has claimed stamp dusty expenses of Rs. 4,22,800/- under the head legal and professional fee which is not revenue in nature. Thus the AO disallowed the same. 5.3 Aggrieved, assessee preferred an appeal before the ld. CIT-A, who deleted the addition made by the AO. 5.4 Being aggrieved, the Revenue is in appeal before us. 5.5 During the course of hearing the ld. Departmental Representative heavily relied upon the contention of the Assessing Officer. 5.6 on the other hand ld. AR before us made written submission which is extracted below: 1. During the year under considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder has not added this sum to the total income of the assessee. Before us, this fact has not been objected by the either party and therefore, we proceed to adjudicate this issue on merits. 5.9 The AO even though the details were placed before him, without giving any reasons, simply added the sum by stating that the stamp duty is not of a revenue expenditure. Whereas, the ld. AR before us argued that the CIT(A) has rightly deleted the addition made the AO by observing that the expenses are not related to purchase of assets, it does not create any enduring benefit and expenditure were incurred wholly and exclusively for the purposes of the business and same is allowable. In our considered view the finding of ld. CIT (A) is correct and department has not objected to any of the arguments on facts. Therefore, this ground of appeal of the Revenue is dismissed. 6. The next ground no. 4 is against the disallowance of Rs. 32,60,146/- made u/s. 40(a)(ia) on account of non-deduction of tax at source on payments made to clearing and forwarding agent. 6.1 In respect of this addition the observation of the assessing officer is at page 17 and the same is reproduced under the contention of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed addition his arguments or submission before us are reproduced as under: 1. During the year under consideration the assessee has made payment to Clearing & Forwarding agency for their services as service charges & has made TDS u/s 194C on the same amount. 2. The C&F has made payments to the transporters on behalf of the assessee amounting to Rs. 32,60,146/- , for which the assessee had made reimbursement for the same. 3. Ld AO contended that as per Circular No. 715 dated. 08/08/1995, any sum paid or payable as a reimbursement is liable for TDS. 4. We submit that Circular No. 715 dated. 08/08/1995 of the IT Act, 1961 is as follows: I. The Clearing & Forwarding agents act as independent contractors. II. Any payment made to them would, hence, be liable for deduction of tax at source. III. The agents would be liable to deduct tax at source while making payments to the carrier of goods, provided the same amount is reimbursed by the principal to them. 5. We submit that Tax is deductible at source only in respect of payment of income or other sum comprising an element of income. Reimbursement of expenses does not partake the nature of income, in the hands of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Considering the aforesaid facts and circumstances of the case, when the learned tribunal has confirmed the order passed by the CIT(A) quashing and setting aside the order passed by the Assessing Officer in deleting the disallowance of Rs. 6,93,372/-and Rs. 76,00,509/- claimed by the assessee under Section 40(a)(ia) of the Income Tax Act, we see no reason to interfere with the same. No error has been committed by the learned tribunal in confirming the order passed by the CIT(A). No question of law, much less substantial question of law, arises in the present appeal. Hence, the present appeal deserves to be dismissed and is accordingly dismissed." b) PCIT vs. Dishman Pharmaceuticals & Chemicals Ltd [2019] 112 taxmann.com 91 (Gujarat) (Page no. 498-510 of paper book) Payment towards reimbursement of expenses by assessee to a nonresident did not involve any income element, therefore, no TDS was required to be deducted on such payment Hence, we submit that amount of reimbursement paid to C&F agent are not liable for deduction of tax at source as it does not involve any profit element and disallowance u/s. 40(a)(ia) should not be made. 6.6 We have heard the rival contentions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue is against deletion of addition made towards the claim of Rs. 15,08,905/- on account of abnormal increase of store and spare expenses. 7.1 In the assessment proceeding it is observed by the AO that there is an abnormal increase in stores consumption as compared to last year. As such the store consumption expenses for the year have been at Rs. 1,50,89,056/- as against last year 84,42,935/-. He further observes that coal consumption has increased 250 % whereas production has been increased by @ 15 % only. Similarly, there is increase in packing material also. The detail breakup of these expenses for both the year stand as under: PARTICULAR AY 11-12 AY 10-11 Electricals 89,742 3,09,557 Crucible 2,99,338 56,812 Coal 26,81,097 10,78,444 Consumables 77,88,307 41,95,318 Packing Material 42,30,570 28,02,804 Total 1,50,89,056 84,42,935 7.2 Considering the above observation, the AO made adhoc addition of Rs. 15,08,905/- being the 10 % of total expenses claimed by the assessee. 7.3 Aggrieved assessee preferred an appeal before the ld. CIT-A, who deleted the addition made by the AO. 7.4 Being aggrieved by the order of the ld. CIT-A, the Revenue is in appeal befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gins have been improved, export have been increased compared to last year, the expenditure incurred is backed by proper evidence and justification given. The finding of the CIT(A) is purely on merits which has not been contravened by the learned DR. considering the facts in totality we find more force in arguments and supporting explanation placed on record by the ld. AR and we are inclined to agree with the finding of "Ld. CIT(A)" and thus, in the absence of department bring a single new argument or evidence for sustaining this addition we concur the view of the CIT(A) and dismissed this ground of the Revenue. 8. The ground no. 6 of the revenue is against the disallowance addition of Rs. 36,715/- on account late deposit of employee's contribution toward P. F. 8.1 The AO from tax audit report in form 3CD found that a sum of Rs. 36,715/- being employee contribution to PF was required to be paid on 15-06-2010 but same was paid on 19-06-2010. Thus the AO added the same to the total income of the assessee. 8.2 Aggrieved assessee preferred to appeal before ld. CIT(A). 8.3 The assessee before the ld. CIT (A) contented that the same has been paid within 5 days' of grace period as allo ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
