The ACIT, 3(1), v. M/s Cristopia Energy Systems P. Ltd.,

ITA 384/IND/2007 | misc
Pronouncement Date: 24-05-2010 | Result: Dismissed

Appeal Details

RSA Number 38422714 RSA 2007
Assessee PAN AAACC6792J
Bench Indore
Appeal Number ITA 384/IND/2007
Duration Of Justice 2 year(s) 11 month(s) 13 day(s)
Appellant The ACIT, 3(1),
Respondent M/s Cristopia Energy Systems P. Ltd.,
Appeal Type Income Tax Appeal
Pronouncement Date 24-05-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 24-05-2010
Date Of Final Hearing 06-05-2010
Next Hearing Date 06-05-2010
Assessment Year misc
Appeal Filed On 11-06-2007
Judgment Text
PAGE 1 OF 9 - I.T.A.NO. 384/IND/2007 CRISTOPIA ENTERGY SYSTEMS PRIVATE LIMITED IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH JUDICIAL MEMBER AND SHRI V.K. GUPTA ACCOUNTANT MEMBER PAN NO. : AAACC6792J I.T.A.NO. 384/IND/2007 A.Y. : 2004-05 ACIT M/S.CRISTOPIA ENERGY SYSTEMS PVT.LTD. 3(1) VS 303 KOTHARI MANOR 10 DIAMOND COLONY INDORE. INDORE. APPELLANT RESPONDENT APPELLANT BY : SHRI K.K.SINGH CIT DR RESPONDENT BY : SHRI MANOJ PHADNIS C.A. DATE OF HEARING : 6.5.2010 O R D E R PER V.K. GUPTA A.M. THIS APPEAL FILED BY THE REVENUE ARISES OUT OF ORDE R OF THE LD. CIT(A) INDORE DATED 26.3.2007 FOR THE ASSESSMENT YEAR 2004-05. 2. WE HAVE HEARD BOTH THE PARTIES AND HAVE ALSO PERUSE D THE MATERIAL AVAILABLE ON RECORD. 3. IN THIS APPEAL THE REVENUE IS AGGRIEVED BY THE DEC ISION OF THE LD. CIT(A) IN DELETING THE ADDITION OF RS. 1 46 3 0 384/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF EXCESS CONSUMPTION OF RAW MATERIALS PAGE 2 OF 9 - I.T.A.NO. 384/IND/2007 CRISTOPIA ENTERGY SYSTEMS PRIVATE LIMITED WITHOUT GIVING ANY FINDING THAT EXCESS CONSUMPTION WAS ACTUALLY JUSTIFIED. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAG ED IN THE MANUFACTURING OF NODULES AND CHILLERS WHICH ARE US ED IN THE MANUFACTURING OF AIR CONDITIONERS. THE AO COMPARED THE DATA OF PRODUCTION AND CONSUMPTION OF RAW MATERIALS FROM TH E FIGURES OF SALES OF THE YEAR UNDER CONSIDERATION WITH THE SAME DATA OF PREVIOUS FINANCIAL YEAR AND FOUND THAT OVER ALL MATERIAL COST HAD GONE UP T O 71.80 % AS COMPARED TO 45.87 %. THE ASSESSEE GAVE THE BREAK UP OF PRODU CTS MANUFACTURED BY IT IN THESE TWO YEARS AND SUBMITTED THAT PERCENTAGE OF RAW MATERIAL CONSUMPTION WAS MORE OR LESS SAME IN RESPECT OF CHI LLERS/TRADING SALES. HOWEVER IN THE CASE OF NODULES COST OF RAW MATERI AL GOT SUBSTANTIALLY INCREASED BECAUSE OF USE OF TWO NEW TYPES OF RAW MA TERIALS I.E. MEG & KNO3 AND THE SALE PRICE OF THAT PRODUCT COULD NOT B E INCREASED AS THAT WAS NOT POSSIBLE HAVING REGARD TO MARKET CONDITIONS . THE ASSESSEE ALSO SUBMITTED THAT THERE WAS CONSUMPTION OF SILVER IODI DE ALSO AND THERE WAS ALSO INCREASE IN THE BASIC PRICE OF RAW MATERIALS A S COMPARED TO EARLIER YEARS. THE AO HELD THAT BY SHOWING INCREASED COST O F RAW MATERIALS OR EXCESS CONSUMPTION OF RAW MATERIALS THE ASSESSEE S HOWED LESSER PROFIT AS IT WAS NOT UNDERSTANDABLE AS TO HOW THE ASSESSEE CO ULD NOT INCREASE THE SALE PRICE INSPITE OF SELLING AN IMPROVED PRODUCT. ACCORDINGLY THE AO PAGE 3 OF 9 - I.T.A.NO. 384/IND/2007 CRISTOPIA ENTERGY SYSTEMS PRIVATE LIMITED ON THE BASIS OF PERCENTAGE OF CONSUMPTION OF RAW MA TERIAL IN THE EARLIER YEARS WORKED OUT THE COST OF CONSUMPTION AT RS. 2 6 0 78 498/- AS AGAINST RS. 4 07 08 882/- CLAIMED BY THE ASSESSEE AND MADE THE IMPUGNED ADDITION. AGGRIEVED BY THIS THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHEREIN THE ASSESSEE MADE DETAILED SUBM ISSIONS ALSO SUBMITTED COPY OF TECHNICAL AGREEMENT WITH THAT OF A FOREIGN COMPANY TO JUSTIFY ITS CLAIM. THE ASSESSEE ALSO SUBMITTED THAT PURCHASE OF MATERIAL HAS NOT BEEN DOUBTED AS THE MAIN REASON FOR THE DISALLO WANCE WAS THAT NO CORRESPONDING INCREASE WAS MADE BY THE ASSESSEE IN THE SALE PRICE. IT WAS ALSO CONTENDED THAT THE ASSESSEES PRODUCTS WERE US ED IN ACS AND WHICH WAS A COMPETITIVE MARKET. HENCE THE PRICE OF THE P RODUCT COULD NOT BE INCREASED. THE ASSESSEE SUBMITTED VARIOUS DOCUMENTA RY EVIDENCES TO SHOW THE MANUFACTURING PROCESS THE USE OF NEW MATE RIAL AS PER TECHNOLOGY TRANSFER AGREEMENT. THE LD. CIT(A) CALLE D REMAND REPORT FROM SUCH ADDITIONAL EVIDENCE FROM THE AO WHO MERELY ST ATED THAT THIS SHOULD NOT BE ACCEPTED AS THESE WERE UNNECESSARY DOCUMENT S. THE ASSESSEE THEREAFTER MADE POINT-WISE REPLY SO AS TO JUSTIFY THE NECESSITY OF SUCH EVIDENCE FOR A JUST DECISION. THE LD CIT(A) AFTER A DMITTING THE ADDITIONAL EVIDENCES EXAMINED THE MATTER IN DETAIL AND DELETED THE IMPUGNED ADDITION. THE RELEVANT FINDINGS OF THE LD. CIT(A) A RE AS UNDER :- PAGE 4 OF 9 - I.T.A.NO. 384/IND/2007 CRISTOPIA ENTERGY SYSTEMS PRIVATE LIMITED 4.2 THE AO HAS NOTED IN THE ASSESSMENT ORDER THAT B OOKS OF ACCOUNT BILLS AND VOUCHERS ETC. WERE PRODUCED A ND WERE EXAMINED ON TEST CHECK BASIS. THE AO APART FROM EST IMATED ADDITION ON EXCESS CONSUMPTION AT RS. 1 46 30 384/- HAS MADE ONLY OTHER ADDITION FOR DELAYED PAYMENT OF CONTRIBUTION TO PF AT RS. 68 024/-. IN THE ASSESSME NT ORDER THE AO HAS GIVEN HIS FINDINGS AND OBSERVATIONS ABOU T THE NATURE OF NODULES AND CHILLERS BEING MANUFACTUR ED BY THE APPELLANT. HE HAS FURTHER NOTED THAT THE APPELLANT HAS NOT FURNISHED ANY DOCUMENTS REGARDING CHANGE IN DESIGN SHAPE OR MODEL OF THE NODULES AND CHILLERS. IN VIEW OF THE SAME HE HAS NOT ACCEPTED THE APPELLANTS CONTENTION ABOU T THE USER OF NEW CHEMICALS BEING MRG & KNO3 IN THE PRODUCTION OF NODULES VIS--VIS THE RAW MATERIAL US ED IN EARLIER YEARS. THE AO HAS NOT DISPUTED THE APPELLAN TS CONTENTION AND BIFURCATION OF SALES IN 3 COMPONENTS BEING NODULES CHILLERS AND TRADING SALES. BUT THE AO FOR REASONS BEST KNOWN TO HIM HAS CHOSEN TO IGNORE THE OBVIOUS FACT THAT RAW MATERIAL CONSUMPTION RATIO OF NODULES AND CHILL ERS SO ALSO TRADING SALES VARIED VERY WIDELY NOT ONLY IN T HE YEAR UNDER CONSIDERATION BUT IN THE PRECEDING YEAR ALSO. THUS THE AO PROCEEDED TO EXAMINE THE OVERALL CONSUMPTION OF RAW MATERIAL ALSO IGNORING THE FACT THAT THERE WAS SUBS TANTIAL INCREASE INS ALES OF CHILLERS FORM RS. 203.77 LAKHS IN THE PRECEDING YEAR TO RS. 404.35 LAKHS IN THE YEAR UNDE R CONSIDERATION WHERE THE RAW MATERIAL CONSUMPTION R ATIO WAS 85.61 % IN THE EARLIER YEAR AND HAS IMPROVED TO 84% IN PAGE 5 OF 9 - I.T.A.NO. 384/IND/2007 CRISTOPIA ENTERGY SYSTEMS PRIVATE LIMITED THE YEAR UNDER CONSIDERATION. HE HAS ALSO IGNORED T HE FACT THAT THE SALES OF NODULES HAS COME DOWN IN THE YEAR UNDER CONSIDERATION FROM RS. 294.11 LAKHS TO RS. 138.46 L AKHS WHERE THE CONSUMPTION RATIO OF RAW MATERIAL HAS DOU BLED FROM 14.57 % TO 30 % IN THE YEAR UNDER CONSIDERATIO N. THE AO HAS NOWHERE RECORDED ANY FINDING OR EVEN RAISED ANY DOUBT ABOUT THE COMPLETENESS OR RELIABILITY OF BOOK S OF ACCOUNT BILLS AND VOUCHERS PRODUCED BY THE APPELLA NT. BUT HE HAS PROCEEDED TO ANALYZE THE DISPROPORTIONATE IN CREASE IN THE COMBINED CONSUMPTION OF RAW MATERIAL AGAIN IGNO RING THE VITAL FACT THAT THERE WAS NO INCREASE IN THE RA W MATERIAL CONSUMPTION RATIO IN CHILLERS WHICH CONSTITUTE THE BULK OF SALES AT RS. 404.35 LAKHS IN THE YEAR UNDER CONSIDE RATION AGAINST TOTAL SALES OF RS. 138.46LAKHS OF NODULES. HE HAS RAISED DOUBTS IN THE MATTER OF APPELLANTS INABILIT Y IN NOT INCREASING THE SELLING PRICE DESPITE INCREASE IN PR ICE OF RAW MATERIALS AS WELL AS IN THE IMPROVEMENT OF THE QUAL ITY. THUS REJECTING THE EXPLANATION OFFERED THE AO HAS PROCE EDED BY THUMB RULE AND APPLYING RAW MATERIAL CONSUMPTION RA TIO OF 3 DIFFERENT SALES COMPONENTS NODULES CHILLERS AND TRADING SALES HAVING SUCH VARYING RATIOS OF 30.06 %; 84.02 % AND ABOVE 100% IN CASE OF TRADING SALES ADOPTING COMBI NED CONSUMPTION RATIO OF 46 % AS BASE IGNORING AGAIN TH E VARYING QUANTUM OF SALES AND HAS MADE TOTALLY UNWAR RANTED AND UNCALLED FOR HUGE ADDITION OF RS. 1 46 30 384/- IN AN ARBITRARY MANNER. THAT IS WHY THE AO HAS APPARENTLY PAGE 6 OF 9 - I.T.A.NO. 384/IND/2007 CRISTOPIA ENTERGY SYSTEMS PRIVATE LIMITED AVOIDED GIVING COUNTER COMMENTS ON THE WRITTEN SUBM ISSIONS FILED BY THE APPELLANT. 4.3 EVEN WITHOUT CONSIDERING THE VARIOUS OTHER CONTENTIONS ADVANCED BY THE APPELLANT IT IS CLEARL Y EMERGES THAT THE AO HAS PROCEEDINGS TO MAKE SUCH ADDITION WITH A PREDETERMINED MIND. IN THIS PROCESS HE HAS LOST TRACK OF THE REASONING AND THUS HAS COMMIT TED A GROSS ERROR IN CONSIDERING VARYING RAW MATERIAL CONSUMPTION RATIO OF 3 DIFFERENT ITEMS TOGETHER. IN COURSE OF DISCUSSION IT WAS EXPLAINED THAT THOUGH THE AO HAS INCORPORATED THE WRITTEN SUBMISSION FILED IN THE ASSESSMENT ORDER BUT THE ANNEXURES FILED WITH S UCH WRITTEN SUBMISSION FILED IN THE ASSESSMENT ORDER BU T THE ANNEXURES FIELD WITH SUCH WRITTEN SUBMISSION IN THE MATTER OF MATERIAL CONSUMPTION IN THE MANUFACTURING OF NODULES AND DETAILED JUSTIFICATION SUBMITTED FOR USE OF NEW RAW MATERIAL MEG AND KNO3 IN MANUFACTURING OF NODULES HAVE BEEN BY AND LARGE IGNORED. IT WAS ALSO IMPRESSED THAT THE AO HA S LOST SIGHT OF THE MATERIAL FACT AS EXPLAINED TO HI M THAT NODULES WERE USED FOR SOUND REDUCTION AS WELL REDUCTION IN POWER CONSUMPTION AND THE APPELLANT WAS WORKING IN BUYER DRIVEN MARKET WHERE IT WAS NO T ALWAYS POSSIBLE TO INCREASE THE SELLING PRICE DESPI TE INCREASE IN COST OF RAW MATERIAL. IT WAS ALSO IMPRE SSED THAT ON ONE END THE AO HAS COMMITTED BLATANT MISTAK E IN CONSIDERING THE RAW MATERIAL CONSUMPTION OF PAGE 7 OF 9 - I.T.A.NO. 384/IND/2007 CRISTOPIA ENTERGY SYSTEMS PRIVATE LIMITED DIFFERENT ITEMS ALTOGETHER AND NOT ONLY THIS HE HA S IGNORED THE FACT THAT EVEN AFTER INCREASE IN THE CO ST OF RAW MATERIAL CONSUMPTION IN NODULES THERE WAS HEFT Y MARGIN OF 70 % AT GROSS LEVEL DESPITE INCREASE IN R AW MATERIAL COST. IT WAS ALSO EXPLAINED THAT RATIO OF TRADING SALES COULD NOT BE DIRECTLY WORKED OUT IN SO MUCH AS PART OF SUCH COMPONENTS WERE NOT SEPARATELY BILLED AND SUPPLIED WITH THE CHILLERS AND NODULES E TC. FOR THE PURPOSES OF INSTALLATION AND OTHER RELATED PURPOSES. THE MAIN THRUST OF THE AR OF THE APPELLAN T REMAINED THAT THE AO HAS COMMITTED DOUBLE FOLLY ON E IS COMBINING 3 DIFFERENT ITEMS TOGETHER AND SECONDL Y MAKING HUGE UNWARRANTED ADDITION WITHOUT FINDING ANY MISTAKE IN BOOKS OF ACCOUNT AND VOUCHERS PRODUCED BY THE APPELLANT COMPANY WHOSE ACCOUNTS WERE ALSO STATUTORILY AUDITED. 4.4 IN VIEW OF THE AFORESAID DISCUSSION IT HAS TO B E NECESSARILY CONCLUDED THAT THE NOT ONLY ADDITIONS MADE BY THE ASSESSING OFFICER IS TOTALLY UNWARRANTE D AND UNCALLED FOR IN THE FACT AND CIRCUMSTANCES OF T HE CASE BUT THE APPROACH IN CONSIDERING COMBINED RAW MATERIAL CONSUMPTION OF DIFFERENT PRODUCTS HAVING VARYING CONSUMPTION RATIO WAS NOT ONLY INJUDICIOUS BUT BLATANTLY ILLOGICAL. THE ENTIRE ADDITION FOR S O CALLED EXCESS CONSUMPTION OF RAW MATERIAL IS ACCORDINGLY DIRECTED TO BE DELETED. PAGE 8 OF 9 - I.T.A.NO. 384/IND/2007 CRISTOPIA ENTERGY SYSTEMS PRIVATE LIMITED 5. AGGRIEVED BY THIS THE REVENUE IS IN APPEAL BEFORE US. THE LD. CIT DR NARRATED THE FACTS AND TOOK US THROUGH THE A SSESSMENT ORDER ON VARIOUS ASPECTS OF THE ISSUE AS HIGHLIGHTED BY THE ASSESSING OFFICER. IN NUT-SHELL HE PLACED RELIANCE ON THE ORDER OF THE A O. 6. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT( A) AND ALSO PLACED STRONG RELIANCE ON THE ORDER OF THE LD. CIT(A). 7. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 8. IT IS NOTED THAT THE ASSESSEE IS MANUFACTURING CHIL LERS AND NODULES WHICH ARE USED IN THE MANUFACTURING OF AIR CONDITIONERS. THESE PRODUCTS ARE COMPLIMENTARY TO EACH OTHER. THE ASSES SEE IN THE YEAR UNDER CONSIDERATION HAS USED NEW CHEMICALS/MATERIALS TO PRODUCE NODULES WHICH HAS RESULTED INTO SUBSTANTIAL INCREASE IN THE COST OF RAW MATERIAL OF THIS ITEM AS WELL AS OVERALL COST OF RAW MATERIAL C ONSUMED BY THE ASSESSEE. WE FIND THAT THE AO HAS ADOPTED THE OVERA LL RAW MATERIAL CONSUMPTION RATIO OF THE EARLIER YEARS AS A BASIS T O GIVE DEDUCTION OF COST OF RAW MATERIAL CONSUMED WITHOUT TAKING THESE FACTS INTO CONSIDERATION. HENCE THE VERY BASIS OF AOS ORDER IS NOT CORRECT. WE FURTHER FIND THAT IT IS NOT A CASE OF EXCESS CONSUMPTION OF RAW MATERIAL S RATHER IT IS A CASE OF CHANGE IN THE COMPOSITION OF RAW MATERIALS CONSUMED BY THE ASSESSEE TO PAGE 9 OF 9 - I.T.A.NO. 384/IND/2007 CRISTOPIA ENTERGY SYSTEMS PRIVATE LIMITED MANUFACTURE THE PRODUCTS. HENCE THE GROUND RAISED BY THE REVENUE IS ALSO NOT CORRECT. WE FURTHER FIND THAT THE LD. CIT( A) HAS EXAMINED THIS ISSUE IN DETAIL AND WE ARE IN AGREEMENT WITH THE FI NDINGS OF THE LD. CIT(A) WHICH HAVE BEEN REPRODUCED HEREINABOVE. HEN CE FOR THE SAKE OF BREVITY WE REFRAIN OURSELVES FROM MAKING FURTHER O BSERVATIONS. THUS ALL THE GROUNDS OF THE REVENUE ARE DISMISSED. 9. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS D ISMISSED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 24 TH MAY 2010. SD/- SD/- (JOGINDER SINGH) (V. K. GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 24 TH MAY 2010. CPU* 7125