Ita/49/2013 Of Commissioner Of Income Tax Jalndhar Ii v. M/S Lagger Industries Ltd

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No.49 of 2013 (O&M)Date of decision: 15.10.2015 The Commissioner of Income Tax, Jalandhar I, Jalandhar .....- Appe M/s Laggar Industries Limited, Jalandhar ....mesponden CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTALHON’ BLE MR. JUSTICE RAMENDRA JAIN 1. Whether Reporters of local papers may be allowed to see the judgment?2. To be referred to the Reporters or not? 3. Whether the judgment should be reported 1n the Digest? Present: Mr. Vivek Sethi, Advocate, Advocate for the appellant-TEVENUE. Mr. Salil Kapoor, Mr. Saurabh Kapoor, Mr.Sumit Lalchandaniand Mr. Anil Miglani, Advocates for the respondent. Ajay Kumar Mittal,J, 1]This order shall dispose of ITA Nos.49 and 50 of 2013 as according to the learned counsel for the parties, the issue involved in both the appeals 1s identical. However, the facts are being extracted from ITANo.49 of 2013. ).ITA No. 49 of 2013 has been filed by the revenue under Section 260A of the Income Tax Act, 1961 (in short, “‘the Act’) against the ordedated 20.11.2012, Annexure P.3 passed by the Income Tax AppellateTribunal, Amritsar Bench Amritsar in ITA No.9I(ASR)/2011, for theassessment year 2007-08, claiming following substantial questions of law:- “'1) Whether on the facts and circumstances of the case and i law, the Hon'ble ITAT was justified in allowing the appeal ofthe assessee by deleting the addition of|5,59,50,097/- madeby the AO and sustained by learned CIT(A) on account ofsuppression of sales and after rejecting the books of accountunder section 145(3) of the IT Act, 1961 ignoring the fact thatthe AO has rightly made the addition by thoroughly examiningassessee's trading/manutacturing account and_ elaborateldiscussing each and every relevant aspect and found thatunaccounted production and sale had taken place throughoutthe year which fact has also been confirmed by the learned CIT(A)? 11) Whether on the facts and circumstances of the case and inlaw the Hon'ble ITAT has failed to appreciate that the CIT(A)had confirmed the addition of Li5,59,50,097/- which alsoincluded the unexplained investment relating to unaccountedsales?” In ITA No.50 of 2013, the following question has been claimed by theTEVENUC.- “Whether on the facts and circumstances of the case and 1n lawthe Hon'ble ITAT was justified in dismissing the appeal of therevenue by confirming the order of learned CIT(A) who deletedthe addition of L11,72,09,656/- made by the AO on account ofsuppression of sales and after rejecting the books of accountunder section 145(3) of the IT Act, 1961 ignoring the fact thatthe AO has rightly made the addition by thoroughly examiningassessee's trading/manufacturing account and_ elaborateldiscussing each and every relevant aspect and found thatunaccounted production and sale had taken place throughoutthe year which fact has also been confirmed by the learned CIT(A)?” 3]A few facts relevant for the decision of the controversy,involved as narrated in ITA No.49 of 2013 may be noticed. The assessee ITA No.49 of 2013 (O&M) 3]A few facts relevant for the decision of the controversy,involved as narrated in ITA No.49 of 2013 may be noticed. The assessee ITA No.49 of 2013 (O&M) filed its return of income on 30.10.2007 declaring total income of —L9,29,133/-. During the assessment proceedings, the Assessing Officer madeaddition on the basis of the data submitted by the assessee (Chart A) inwhich details of monthwise consumption of various raw material,production of finished goods, scrap generated etc. were given. TheAssessing Officer issued show cause notice to the assessee on 18.12.2009pointing out that the said chart revealed unbelievable variation in the ratiosof production to raw material consumptions, of scrap generation, ofinvisible loss and even negative losses in two months. The scrap generationwas shown at 5,182.994 MTS on raw material consumption of 10,820.442MTS which was a very high ratio as compared to the percentage of scrapgenerated by standard mills using induction furnaces or rotary furnaces,The Assessing Officer asked the assessee to show cause as to why theproduction should not be worked out on the basis of normal ratios ofproduction by other mills. The assessee submitted that there were mistakesin the figures submitted before the Assessing Officer by its accountant. Theassessee submitted a fresh chart showing the consumption of raw material,production of finished goods and scrap, invisible loss etc. The AssessingOfficer did not accept the revised chart on the ground that such a mistakecould not have been committed by the accountant since it was the assesseewho was maintaining excise records of purchase and sales. The AssessingOfficer rejected the book results under section 145(3) of the Act. TheAssessing Officer prepared another data Chart 'D' for the consumption ofraw material using the information on material. The assessee had valued itsclosing stock of angle at a rate of 11.89% higher rate than the average sale ITA No.49 of 2013 (O&M) rate of Angles and closing stock of rods was valued at rates 52.52% higherthan the average sale rate of rods. The closing stock of scrap was valued atrates 95.92" higher than its average sale rate. He valued the sale rate of theproduction of 10117.48 MTS of finished goods of angle and rod and 432.83MTS of scrap at the rate taken in closing stock for valuing them to arrive atthe difference in sale consideration of =a16,53,07,623/- to which GP at therate of 4.75% of cost price was added to arrive at the addition of=17,31,59,753/-. Aggrieved by the order, the assessee filed appeal before theCommissioner of Income Tax (Appeals) |[CIT(A)]. Vide order dated31.12.2010, Annexure P.2, the CIT(A) allowed relief ofTL11,72,09,656/-.Both the assessee and the revenue filed appeals before the Tribunal. Videorder dated 20.11.2012, Annexure P.3, the Tribunal allowed the appeal ofthe assessee and dismissed that of the revenue by deleting the addition of45,59,50,097/- made on account of suppression of sales which was sustained by the CIT(A). Hence the instant appeals by the revenue. 4 We have heard learned counsel for the parties.4 A perusal of the orders passed by the authorities below showsthat the assessment order was passed by the Assessing Officer on the groundthat there was variation in the ratios of production to raw materialconsumptions, of scrap generation, of invisible loss and even negativelosses in two months. The assessee was asked to show cause as to why theproduction should not be worked out on the basis of normal ratios ofproduction by other mills. The assessee submitted that there were mistakesin the figures committed by its accountant. The assessee submitted a freshchart giving revised figures. The Assessing Officer did not accept the same. ITA No.49 of 2013 (O&M) by the CIT(A). Hence the instant appeals by the revenue. 4 We have heard learned counsel for the parties.4 A perusal of the orders passed by the authorities below showsthat the assessment order was passed by the Assessing Officer on the groundthat there was variation in the ratios of production to raw materialconsumptions, of scrap generation, of invisible loss and even negativelosses in two months. The assessee was asked to show cause as to why theproduction should not be worked out on the basis of normal ratios ofproduction by other mills. The assessee submitted that there were mistakesin the figures committed by its accountant. The assessee submitted a freshchart giving revised figures. The Assessing Officer did not accept the same. ITA No.49 of 2013 (O&M) It was noticed that such mistake could not have been committed by theaccountant since the assessee was maintaining excise records of purchaseand sales. The source of the revised figures of raw material consumptionwas not entered into the stock register produced by the assessee before him.Further it was held that the revised figures were manipulated and theassessee's books were not reliable and the same were rejected. On appeal bythe assessee, the CIT(A) recorded that the Assessing Officer was notJustified in taking the rate of goods in the closing stock as the rate of sale ofgoods for estimating the unaccounted sales since the sale rates may varyduring the year and the closing stock rates are only the rates at the end ofthe year. When the unaccounted production and sales had taken placethroughout the year, application of the average rate of sales during the yearshould give a better picture of the unaccounted sales. Since the entire cost ofraw material and manufacturing cost had been debited to the profit and lossaccount by the assessee and the addition was only on account of suppressionof sales,no further deduction of expenditure against the aforesaid computedsuppressed sales was allowed. Hence addition ofLv5,59,50,097/- wassustained out the addition of=a17,31,59,753/- made by the AssessingOfficer. Both the assessee and the revenue filed appeals before the Tribunal,The Tribunal after considering the matter allowed the appeal filed by theassessee and dismissed that of the revenue holding that the revised figuressubmitted by the assessee having not been considered, the books of accountcould not be rejected and no addition on that account could be made. Thus,the Tribunal deleted the additions. The relevant finding recorded by theTribunal reads thus:- “13.2 As a matter of fact, controversy has arisen only for nonconsideration of the revised chart, which has been submittedand of course perused by both the authorities below but notconsidered for the reasons best known to them, though therevised figures were found to be correct but the same havingnot been considered, the books of account cannot be rejectedand no addition on this account can be made. Therefore, thelearned CIT(A) 1s not justified in confirming the action of theAO with regard to reyection of books of account and sustainingthe additions accordingly.” 6]From the perusal of the order passed by the Tribunal, we findthat the Tribunal being a final fact finding authority has not examined thematerial and evidence on record. Detailed reasons have not been given fordeleting the additions. Consequently, the impugned order is set aside andthe matter 1s remanded to the Tribunal to decide it afresh after hearinglearned counsel for the parties in accordance with law and giving detailedand cogent reasons. The appeals stand disposed of. (Ajay Kumar Mittal)Judge October 15, 2015gs" (Ramendra Jain) Judge