AI Drafter 
TaxTMI 
TaxTMI 
2014 (4) TMI 359
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....and that the appellant had demonstrated with statistical data compiled from the records to show that there was no excess consumption of raw material and therefore the CIT(A) erred in giving a direction assess the value of excess consumption of iron ore artificially determined at 22% by the CIT(A). 3. The Revenue raised the following grounds: 1. The learned CIT(A) erred both on facts and law. 2. The learned CIT(A) erred on facts and in law in holding that iron ore is the main raw material for production of sponge iron which is contrary to the records and relevant facts as submitted by the assessee which evidence the main raw materials to be melting scrap and sponge iron in terms of both quantity and value as per Annexures - I, II & III enclosed. 3. The learned CIT(A) erred in confining the excessive consumption determined b y him at 22% to only iron ore taking it as the main raw material while the excess consumption ought to have been taken with reference to the entire raw material and not iron ore alone. 4. Facts of the case, in brief, are that the assessee is a company which is engaged in manufacture of mild steel ingots, sponge iron, runner and raiser. For the Asst....
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....elting scrap is another raw material used for production of final product. Taking into account the opening stock, purchases made during the previous year and closing stock of the same as shown by the assessee, he noted that the total consumption of such item during the previous year was 10,117 MT for production of 22,814.8 MT of final products and the yield on that basis comes to 2.255 MT of final product per MT consumption of melting scrap. But, he noted that, if such rate of yield is adopted for each month, then same gives negative figure pertaining to stock availability/closing stock for different months. According to him, the yield percentage during the first six months of the previous year, when applied to the remaining six months, it would give correct picture of stock position of melting scrap. He noted that based on the yield of final products when taken on the basis of consumption of melting scrap during the first six months, it comes to 3.43 MT and applying such rate for the latter six months during the previous year, the closing stock of melting scrap at the end of March, 06 works out to 6531.92 MT. Such working made by him, is given in the table at page-6 of the assessm....
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....ement. After considering such submissions, the AO noted that the assessee has not furnished month wise consumption details of lime stone. He further noted that there is abnormal variation in consumption of this item since for production of 758 MT of sponge iron the assessee has shown utilisation of 50 MT of lime stone, whereas for production of 1880 MT of sponge iron, it has shown consumption of lime stone at 340 MT. He further noted that non disclosure of any closing stock of above item is unusual. With reference to consumption of silico- manganese, the assessee has submitted that there is no variation in the availability of stock during each month. It was stated that silico-manganes acts as purifying agent and there is no parameter for consumption of the same. 9. Referring to consumption of melting scrap, the assessee has submitted that in the process of production of ingots, runners and raisers etc. it has not exclusively used melting scrap, but by combination of the same with ether materials including sponge iron. It was stated that ratio of inputs of melting scrap, sponge iron and silico- manganes are done by their production department, considering the availability, market....
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....both the above figures i.e., at Rs. 4,16,98,511/-, to the income of the assessee. 12. Further, since the assessee has not considered the value of rejected CI mould, which have been utilized in production process, the AO after considering the value of the same at Rs. 20,10,975/-, added the said amount to the income of the assessee. Further, during the previous year the assessee has paid an amount of Rs. 5,500/- towards fees to Registrar of Companies. The same being in nature of capital expenditure, the AO disallowed the same and allowed deduction thereon u/s. 35D of the Act. With the above additions the AO completed the assessment on a total income of Rs. 2,89,04,818/- vide his order dated 29.12.2008 passed u/s 143(3) of the Act. 13. The assessee went in appeal before the CIT(A). After hearing the assessee and calling for a Remand Report from the AO, the CIT(A) observed that in the assessment order, additions have been made under two heads. The first addition of Rs. 4,16,98,511/- was made towards suppressed production of sponge iron and excess consumption of melting scrap. The second addition was for the reason, that the assessee has not accounted for the value of 402.20 MT of CI....
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....urther stated that, such working made by him is totally incorrect. It is stated that once the AO has accepted the stocks and finished goods details as per their records, he cannot suggest for such addition on ground of excessive consumption of raw material. 15. The CIT(A) after carefully going through the above remand report of the present AO, he observed that in para 5.7 of his remand report, the AO has accepted in principle the said stock details relating to consumption of various raw materials for production of finished goods and also different quantities of such finished goods produced during the current year, as per that statement at page 185 of paper book, the same stated to be as per their records/registers. However, in the next para i.e., 5.8, he has pointed out that as there was excessive consumption of raw materials, pointed out in the assessment order, there was excessive production of finished goods during the year. He has submitted so, referring to various discrepancies pointed out by his predecessor, in the assessment order. According to him, such discrepancies narrated in the assessment order cannot be ignored. However, it may be seen, he has not stated whether su....
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....B & C of his order. On basis of such remand report of the AO, taking the average wastage at 45%, the yield of sponge iron should be at 55% of such raw material consumed. Since the assessee has shown yield at 33%, it shows the assessee has claimed excessive consumption of such raw material i.e., iron ore at 22%. In this view of the matter, the CIT(A) directed the AO to compute the quantity of excessive consumption of iron ore at such rate and to make addition at the price/value of the such quantity of iron ore, while giving effect to this order. Aggrieved, both the assessee and the Revenue are in appeal before us. 17. We have heard both the parties and perused the material on record. In this case the main addition made by the AO is towards suppressed production of sponge iron at Rs. 4,16,98,511 which was deleted by the CIT(A) by observing that stock details relating to consumption of various raw materials for production of finished goods and also quantities of such finished goods produced during the assessment year is tallied with the records/registered maintained by the assessee. Being so, there is no reason to AO to observe that there was excessive consumption of raw material a....