Iapl/307/2015 Of M/S Rimjhim Ispat Ltd v. Commissioner Of Income Tax And Another

Reserved Case :- INCOME TAX APPEAL No. - 307 of 2015 Appellant :- M/S Rimjhim Ispat Ltd. Respondent :- Commissioner Of Income Tax And Another Counsel for Appellant :- Suyash AgarwalCounsel for Respondent :- Krishna Agrawal Hon'ble Bharati Sapru,J. Hon'ble Dinesh Kumar Singh,J. (Per Hon'ble Dinesh Kumar Singh,J.) 1. The present Income Tax Appeal has been filed by the assesseeunder Section 260-A of the Income Tax Act, 1961 (hereinafter referredto as 'the Act') against the order dated 30.7.2015 passed by the IncomeTax Appellate Tribunal, Lucknow Bench 'B' Lucknow in ITA No.443/LKW/2013 in respect of the Assessment Year 2001-02. 2.The following questions of law have been formulated forconsideration and decision by this Court:- “(I) Whether the ITAT was legally justified in making adhoc disallowanceto consumable stores being part of manufacturing while accepting themanufacturing and trading results when there is no such provision in lawunder the Income Tax Act, 1961 to make partial disallowance on ad-hocbasis without rejecting books of accounts? (II) Whether the ITAT was correct in law in confirming the ad-hocdisallowance solely by taking percentage basis of consumption storesconsumed in succeeding year ignoring the facts that the assessee isregistered with the excise department maintaining proper recordsprescribed under the excise law and availing MODVAT on consumption ofstores has not been doubted by Excise Department?” 3. The assessee, a company registered under the Companies Act, 1956carries on the business of manufacturing and trading of iron and steelitems such as MS and SS Scrap, Shape and Section etc. The assesseefiled its return of income disclosing loss of Rs.7,52,01,250/- on31.10.2001 for Assessment Year 2001-02. The case was selected forscrutiny and a notice under Section 143(2) of the Act dated 30.10.2002was issued. Thereafter, notice under Section 142(1) of the Act wasissued on 15.11.2002. From examination of the books of account the assessing officer noticed that in the Profit and Loss account theassessee had claimed an expenditure amounting to Rs.13,16,00,830/-under the head ''Consumable Stores'' as against Rs. 5,79,67,751/-claimed in the immediate preceding year. However, the activities ofthe assessee remained the same as was in the immediate precedingyear. No supporting evidence for claiming this amount towards“consumable stores” was produced by the assessee before the AO. TheAO also recorded a finding of the fact that the expenses claimed underthis head were also incurred in cash. In absence of evidence toestablish the claim of “Consumable Stores”, 10% of the expensesclaimed under this head was disallowed and thus, Rs.1,31,60,083/-was disallowed by the AO inter alia other disallowances which werenot questioned by the assessee. 4.Aggrieved by the aforesaid assessment order dated 31.03.2004passed by the AO under Section 143(3) of the Act, the assessee filedan appeal before the CIT(Appeals)-I, Kanpur. The CIT(A) vide hisorder dated 28.03.2013 held that bills and vouchers were neitherproduced before the AO nor before the Commissioner himself. Nostock register for such consumables was maintained. The CIT(A) alsoheld that the assessee had failed to offer any plausible explanation inrespect of disproportionate rise in the expenditure incurred onconsumables as compared to the increase in sales/production. TheCIT(A) was of the view that merely because most of the paymentswere made by the cheque (as claimed by the assessee) the same wouldnot itself prove the case of the assessee. The CIT(A) held that in thenext year i.e. for Assessment Year 2002-03, the total turn over wasincreased to Rs. 92.93 crores as against current years' turn over(including trading) Rs. 57.00 crores; whereas the consumables hadincreased to only Rs. 14.86 crores in the Assessment Year 2002-03from 13.16 crores in the current year. The CIT(A) did not believe theexplanation for claim regarding “Consumable Stores”. 5. The CIT(A) also noticed that production of Iron and Steel products had only a minor increase from 23,500 M.T. in the Assessment Year2000-01 to 26,587 M.T. in the current assessment year, whereas theconsumables had increased by more than 100% and same could not beexplained by the assessee. The CIT(A) was of the view that the AOhad been quite generous in disallowing 10% of assessee's claim ofRs.13.16 crores in respect of “Consumable Stores”. The CIT(A)dismissed the appeal and confirmed disallowanace. 6. Aggrieved by the aforesaid order of the CIT(A), the assessee filedthe second appeal before the Income Tax Appellate Tribunal. TheTribunal also after examining and comparing the consumables andproductions, came to the conclusion that increase in consumables fromthe Assessment Years 2000-01 to 2001-02 was around 127% whereasthe increase in the turn over was merely 15%. Vide the impugnedorder the Tribunal had dismissed the appeal and affirmed the orderspassed by the authorities below. 7. Heard Sri Suyash Agrawal, learned counsel for the assessee and SriKrishna Agrawal, learned counsel for the Revenue. 8. The appellant-assessee in support of its claim in respect ofconsumable stores did not produce any supporting evidence eitherbefore the AO or before the CIT(A) or before the Tribunal. All threeauthorities including ITAT, which is the last fact finding authorityunder the Act have concurrently held that the appellant-assessee couldnot substantiate its claim for such a high rise in the expenditure on thisaccount if it was considered with the expenditure on this head incurredin the immediate preceding financial year. The learned CIT(A) as wellas the learned Tribunal have made comparative study of theexpenditure incurred on “consumable stores” and turn over of theassessee for preceding and subsequent assessment years with theassessment year involved in the present appeal i.e. 2001-02. Theauthorities have found that more 100% increase of expenditure on thisaccount was not justified whereas the turn over was increasedmarginally. 9. We find that the issues raised in the appeal are only questions of factand no question of law is involved. All three authorities haveconcurrently held after examining the facts, evidence and material onrecord that the assessee was unable to substantiate its claim forexponentially increase in the expenditure on consumables. It waspermissible for the AO to reject the books of account under Section145 of the Act and pass assessment order under Section 144 of the Act.Instead, the AO had disallowed the claim of expenditure on“Consumable Stores” only 10%. The assessee is not prejudiced in anymanner in not resorting to the best judgment assessment by the AO.When the assessee had failed to substantiate its claim for more than100% rise in expenditure on “Consumable Stores” if compared withthe immediate preceding year whereas the production was increasedmarginally, the AO taking a liberal view of the matter had disallowedonly 10% of the expenditure on “Consumable Stores”. We therefore,do not find anything illegal or incorrect in the orders passed by the AOand affirmed by the CIT(A) and ITAT. 10.We thus, uphold the order passed by the ITAT and dismiss thisappeal. The questions of law as framed are answered against theassessee and in favour of the Revenue.Order Date :- 14.08.2018 sushama