TaxTMI 
TaxTMI 
2018 (3) TMI 472
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....153A read with Sec. 143(3) of the Act were concluded by the AO. Appeals before the Tribunal have been filed by the revenue for the AYs 2007-08 to 2010-11. Basic issue raised by the revenue relates to the addition made by the AO on account of alleged suppression of production of sponge iron and sales which has been deleted by the Ld. CIT(A). In the memorandum of appeal for the AY 2007-08 the following grounds were raised by the department. "i) In the facts and circumstances of the case, Ld. CIT(A) is erred in deleting the addition of Rs. 6,14,07,072/- on the basis of additional evidence & documents etc. without giving opportunity to the AO to examine the same. ii) In the facts and circumstances of the case, the CIT(A) is erred in accepting fresh evidence and documents violating the provision under Rule 46A of the I. T. Rules, 1962. For the rest of the three years, the revenue has submitted revised grounds of appeal. 3. During hearing both the parties had agreed that the issues raised by the revenue in all the four years are same. The revised grounds of appeal for the rest of the three years are exactly the same except variance in figure under challenge. Revised grounds for AY ....
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....lants gets support from Page no. 1 to 159 of MKJ-113 containing the sample analysis of incoming iron ore to Chaliama Steel plant and of iron ore of Ghatkuri Mines which shows that the Fe content of these iron ore were more than 63% in most of the samples. Page no. 1 of MKJ-113 even shows the Fe content upto 66.8%. Similar analysis of raw materials have been made and kept in CSP-61, CSP-56, CSP-67, CSP-32 etc which show that the sponge iron plants were consuming high grade of iron ore the average of which is more than 63%. 8.2 To arrive at a conclusion regarding production of sponge iron from these high grade iron ore, the Deputy Commissioner of Sales Tax consulted the Dean (sponsored research, industrial consultancy and continuing education) of NIT, Rourkela who communicated that 1.5 MT of iron ore is required for production of 1.000 MT of sponge iron. On the basis of this report, the Deputy Commissioner of Sales Tax in his order of assessment concluded the suppression of production of sponge iron ore to the extent of 12,897.640 MT for Rs. 15,47,71,776 for the entire period of 01.04.2006 to 31.07.2009 after taking the ratio that 1.59 MT of iron ore is required to produce 1.000 MT....
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....missioner of Sales Tax (Central Zone). It is fact that the assessee has further agitated the matter at a higher forum but the matter is pending there. As such, simply because of the fact that the assessee has agitated the matter at a higher forum assessee's cause cannot be helped. 8.5 In view of the above discussion, I am of the firm opinion that the production of the sponge iron in the sponge iron factory of the assessee at Karakolha, Barbil has been understated. However the logic of the Sales Tax authority behind adopting that 1.59 MT of iron ore is required to produce 1.000 MT of sponge iron is not very clear when a technical expert has already quantified that 1.5 MT of iron ore is required for production of 1.000 MT of sponge iron. The ratio quantified by the technical expert is therefore adopted in the case as per calculation below: The average sale price of sponge iron for each of the Financial years is tabulated as per figures of audited Balance Sheet of Rungta Mines Ltd. Karakolha Plant: Financial Year Sales Amount Quantity Sold Average sale price (Rs. Per MT) 2006-07 586762275.00 66481 8826.00 2007-08 909728123.00 75878 11989.00 2008-09 1196....
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....ving as under: "I have perused the impugned order. I have also considered the arguments of the Ld AR and the material placed by him on record. I find from the impugned order that the AO has pointed out no defect or mistake in the books of account or other relevant documents that were produced before him in course of the assessment proceedings. The AO has not even rejected the books of the assessee. I therefore find merit in the contention that the AO under the circumstances was not authorised to disturb the book results and assume imaginary production that too without there being any positive material on record to support his allegations. The AO has certainly erred in law as well as on facts in resorting to estimation by applying yield ratio when he had found no defect in the books of account and when there was no material or evidence to support his allegations. I also find substance in the argument that no universal and uniformly acceptable standard for consumption of iron ore can be prescribed without appreciating the various other factors such as the quality and composition of raw materials and operating conditions which also contribute to the yield ratio. The material placed ....
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....essment order. I find that the seized documents MKJ-113 contained records of iron ore received in the sponge iron factory at Chaliama (Jharkhand) and sample analysis of iron ore extracted from the Ghatkuri Mines (Jharkhand). But then, iron ore received in the sponge iron factory at Chaliama (Jharkhand) has no relevance to the composition of iron ore utilised in the sponge iron facto at Karakolha (Orissa). Similarly, the documents marked CSP-32, 56, 61 & 7 were seized from the office of Chaliama Steel Plant at Chaibasa (Jharkhand) which pertain to the sponge iron factory at Chaliama and therefore has no relevance in so far as the composition of iron ore utilised in the sponge iron factory at Karakolha (Orissa) was concerned. I have perused the seized documents MKJ -85 & 88 which were gate receipt registers of the factory at Karakolha containing all relevant details such as date of entry & exit, vehicle number, weight & specification of raw material and also the source of raw material. The gate receipt registers clearly show that the iron ore utilised in the sponge iron factory at Karakolha (Orissa) came from the mines in Orissa. I also find from the copy of Form E & J containing acc....
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....e than 1.5 ton if the Fe content in the iron ore was less than 65%. I find merit and substance in the contention of the Ld AR that the assumed imaginary production of sponge iron and its clandestine removal and subsequent sale is not backed by any positive material evidence found in the search. For, the AO has discussed no seized material in the impugned order that even remotely supported his allegations of excess production or its subsequent sale. I also find merit in the argument that there was no recovery of evidence or document suggesting commensurate investment in undisclosed assets or unaccounted expenses which could corroborate the assumption of undisclosed profits to the tune of Rs. 34.86 crores as alleged by the AO in his assessment orders for the financial years 2006-07 to 2009-10. 21. I find from the impugned order that the AO has religiously relied on the technical opinion of the Dean of NIT, Rourkela to estimate the production of sponge iron in the financial years 2006-07 to 2009-10. The Ld AR has in course of the appellate proceedings placed on record copy of the letter dated 01-09-2004 addressed to the Commercial Tax Officer, Circle-II, Panposh, Rourkela whereby th....
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....n for the input-output ratio. I also note that the yield ratio of 1.5 as suggested by the Dean was based on his personal knowledge 'and his discussions with some producers and so such yield ratio could not be universally applied to all sponge iron factories. The AO was therefore not justified in mechanically applying the yield ratio of 1.5 to the sponge iron factory of the assessee. The Dean had also clarified that the yield ratio will vary from plant to plant depending on the composition and quality of raw material and the operating conditions. The AO however failed to consider such factors as the composition and quality of raw material and also the operating conditions before applying the yield ratio of 1.5 in the case of the assessee. The Dean had opined that the consumption of iron ore per ton of sponge iron would be 1.5 ton provided the Fe content in the iron ore was 65%. He had also clarified that the consumption of iron ore per ton of sponge iron will be more than 1.5 ton if the Fe content in the iron ore was less than 65%. I find that the AO has blundered on this front as well. The AO has in para 8 of the impugned order placed the Fe content of iron ore utilised in asse....
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.... the Fe content in the iron ore was less than 65%. The AO thus has erred on facts in applying the yield ratio of 1.5 without even verifying the basic requirement that the iron ore utilised in the sponge iron factory should have Fe content of 65%. The Dean in his technical opinion has also stated that the yield ratio will depend on the operating conditions but no such analysis seems to have been undertaken by the AO. I find that the AO has not even considered in the impugned order the operating conditions of the sponge iron factory as a factor before applying the yield ratio of 1.5. Under the circumstances, I am of the considered view that no standard formula can be prescribed for the yield ratio as it was depended on various factors such as the composition and quality of raw material and the operating conditions and therefore the AO was not justified in mechanically applying the yield ratio of 1.5 in the case of the assessee. But even otherwise, the AO has also erred on facts in not verifying the basic requirements and also ignoring the various factors as suggested in the technical opinion." 6. Thereafter, the Ld. CIT(A) concluded by observing as under: "In view of the ratio lai....
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....ommercial on application of SION, the production was understated by 12897.640 MT since the same should have been at 264346.298 MT out of iron ore of 420310.615 MT instead of disclosed at 251448.650 MT, thereby sales suppression of Rs. 15,47,71,776/-. 9. It was also contended by the Ld. DR that from a perusal of page 7 of the sales tax assessment order that as per the report of Vigilance Wing of Balasore division by the STO in course of inspection at the Jagang mines and office Barbil, they seized certain written slips, documents, registers, challans, tax invoices etc. concerning their business transactions for the period 2008-09 to 2009-10. According to AO (Sales Tax) all the seized documents were subsequently cross verified with the books of account produced by the assessee which resulted in the reported suppression of Rs. 465,73,19,882/- which emanated out of cross verification of the two seized monthly performance reports for the months July, 2008 and July, 2009 with the mining returns, submitted by the assessee company to the office of the Deputy Director of Mines, Joda for the period April, 2008 to July, 2008 and April, 2009 to July, 2009. 10. The Ld. DR submitted that on pe....
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....eport seized by the sales tax authorities on their surprise visit to mines and related office premises. It was pointed out by the Ld. AR that this addition has nothing to do with the impugned addition made by the AO which is relating to the alleged suppression of sales of sponge iron emanating from alleged understatement of production in the sponge iron plant. It was brought to our notice that the addition made by the AO (Income-tax) relates to the addition on account of alleged suppression of sales of sponge iron ore on estimate basis based on some standard input output norms (SION). Even otherwise the Ld. AR contended that the additions made by the Sales Tax Authorities on account of sales of sized iron ore and iron ore fines has been substantially reduced by their First Appellate Authority as is apparent from pages 11 and 12 of the appellate order passed by the Additional Commissioner of Sales Tax. The Ld. AR submitted that the submission of the Ld. DR that sales tax authority has arrived at the alleged suppression of sales of sponge iron on the basis of cogent material is without any basis. It was pointed out by the Ld. AR that the two types of additions made by the sales tax a....
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....ron ore from the mines situated in Orissa which was evident from the very same seized documents MKJ 85 and MKJ 88 which were gate receipt registers of the factory at Karakolha containing all the relevant details such as date of entry and exit, vehicle number, weight and specification of raw materials and also the source of raw materials. The Ld. AR also brought to our notice that the assessee had produced before the AO copy of form E & J containing account of procurement and transportation of minerals/ores as per the Orissa Minerals (Prevention of theft, smuggling and illegal mining and regulation of possession, storage, trading and transportation) Rules 2007 in support of its contention. The Ld. AR contended that the sponge iron factory at Karakolha utilized iron ore having Fe content around 63%. The Ld. AR pointed out that the AO relied on the assessment order of the Deputy Commissioner of Sales Tax and the investigation report of the State Commercial Tax Wing of Orissa but both accepted the Fe content at around 63%. It was pointed out by the Ld. AR that the laboratory reports regarding sample analysis of iron ore utilized in sponge iron factory at Karakolha as submitted the Sale....
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....hose of the assessee in the FYs 2006-07 to 2009-10 may be summarized as under: Financial Year Tata Sponge Iron Ltd. Orissa Sponge Iron & Steel Ltd. MSP Steel & Power Ltd. Rungta Mines Ltd. (Assessee) 2006-07 1.59 1.51 2.09 1.65 2007-08 1.68 1.55 2.04 1.69 2008-09 1.63 1.61 2.45 1.67 2009-10 1.59 1.79 1.93 1.65 14. Drawing our attention to the yield ratio shown by the aforesaid company it was submitted by the Ld. AR that there can be no universal and uniformal accepted standard for the yield ratio which was depending on various factors and consequently the same was variable from one plant to another and also from year to year. According to Ld. AR, the assessee has shown yield ratio which was not only consistent but also competitive with the cited comparable cases. It was submitted before us that as per standard input output norms for sponge iron as prescribed by the Directorate General of Foreign Trade has yield ratio of 1.60 to 1.75, that also when the FE content is high as 67%. The Ld. AR contended that the DGFT guidelines which was submitted before the Ld. CIT(A) were placed....
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....cess production clandestinely from its factory, for its subsequent sale in the market. We note that there was a search at the factory premises of sponge iron division at Karakolha, Barbil, Orissa on 18.08.2009 by the Sales Tax Authorities from where they had made seizure of one express duplicate book which led them to make an assessment of suppression of sales of 2796.18 MT iron ore fines thereby made an addition of Rs. 55,92,360/- which has been later deleted by the First Appellate Authority, Additional Commissioner of Sales Tax, Central Zone. The Sales Tax Authorities have seized two monthly performance reports for the month of July, 2008 and after comparing with the mining returns submitted by the assessee made an addition or suppression in sales to the tune of Rs. 465,73,19,882/- which has been reduced by the First Appellate Authority to the tune of Rs. 45,09,67,300/-. We note that for suppression of production of 12897.640 MT of sponge iron and sale of it was pegged to Rs. 15,47,71,775/- which has been sustained by the First Appellate Authority and which is the subject matter of assessment in which the AO (Income Tax) in the impugned proceedings have made an addition of Rs. 6,....
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.... facts, the AO acknowledges that the assessee has brought to the notice of the AO that the AO's reliance on page nos. 1 to 159 of MKJ 113 was misplaced because it contains the sample analysis of incoming iron ore to Chaliama Steel Plant and iron ore of Ghatkuri mines which shows the Fe content of the iron ore more than 63% and even up to 66.8% are of iron ore of Ghatkuri mines which are situated in the State of Jharkhand; and the assessee's plant in question are in State of Orissa and that the iron ore from those mines situated at Jharkhand has never been transported to its sponge iron factory at Karakolha, Barbil which is situated in the State of Orissa; and, therefore, the results of incoming iron ore for Chaliama Steel Plant and iron ore excavated from Ghatkuri mines cannot be relied on when production of sponge iron at the factory of the assessee situated at Orissa is being carried out. For supporting their contention the assessee relied on the seized papers which were marked as MKJ 85 and 88 which are gate receipt registers of iron ore of Karakolha plant of the assessee situated at Orissa wherein the weight, specification of the raw material, vehicle no., date of entry and exi....
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....essee over and above the expenses debited in the P&L Account. Therefore, the AO concluded that the entire suppressed sale of Rs. 6,14,07,072/- for the year needs to be added back to the total income of the assessee and he made an addition of the said amount, which was challenged by the assessee before the Ld. CIT(A), who was pleased to delete the addition. The revenue is challenging the action of the Ld. CIT(A) by preferring this appeal. 18. We note that during the appellate proceedings, the Ld. CIT(A) took note of the fact that the AO has not pointed out any defect or mistake in the books of account maintained by the assessee in the course of its business or other relevant documents that were produced before him in the course of assessment proceedings. The Ld. CIT(A) took note of the fact that the AO has not even rejected the books of account of the assessee before venturing into the estimation of the suppressed production and sales thereafter of the suppressed sponge iron. We concur with the finding of the Ld. CIT(A) on this finding which is correct and is as per law, since the AO has not rejected the mandatory/statutorily required books of account maintained by the assessee in ....
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....kept in computer discs seized which are marked as CSP 61, CSP 56, CSP 67, CSP 32 etc. which according to AO, goes on to show that the sponge iron plant at Karakolha, Barbil (Orissa) were consuming high grade of iron ore and the average of Fe content of the iron ore is more than 63%. These aforesaid adverse facts were communicated to the assessee, to elicit the assessee's version in respect to the contents of the seized documents pursuant to which the AO formed the opinion that the Fe content of iron ore consumed by the assessee at its Karakolha Plant was more than 63%. The assessee pursuant to the notice, replied to the AO and drew his attention to the fact that the Chaliama Steel Plant was situated in the State of Jharkhand and the Gatkuri mines is also situated in the State of Jharkhand. So, therefore, according to assessee, the contents of page nos. 1 to 159 of MKJ 113 relied on by the AO containing sample analysis of incoming iron ore from Gatkuri mines to Chaliama Steel Plant are events taking place in State of Jharkhand and nothing to do with activities in State of Orissa. The assessee also drew the attention of AO to the seized documents MKJ 85 and 82 which are the gate pass....
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....he mines situated in Orissa only has been used as evident from statutorily mandated Form 'E' & 'J' of mining Rules and seized gate passes/register MKJ 85 & 88. We note that the AO has heavily relied on the Investigation report of the Enforcement Officials of the State Commercial Tax Wing of Orissa and assessment order of the Deputy Commissioner of Sales Tax to form an opinion that the Fe content of iron ore used at the steel plant at Karakolha is of higher grade i.e. more than 63% Fe content. We have gone though the order of assessment passed by the Deputy Commissioner of Sales Tax, Jaipur Range which is placed at pages 39 to 52 (PB)and the First Appellate order passed by the Additional Commissioner of Sales Tax, Central Zone which is placed at pages 53 and 64 (PB). We note that the Sales Tax AO on the issue in hand has discussed about the suppression of production and the sale of 12897.640 MT of sponge iron costing of Rs. 15,47,71,776/- at pages 42 to 45 and 51(P.B.). We note from the same that the Sales Tax AO had made the allegation of suppression in production of sponge iron on the basis of input and output ratio. According to him, 1.590 MT iron ore is to be consumed for manufa....
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.... the assessee albeit before Sales Tax Authorities, when the main issue before him was the question of fact as to what was the Fe content of iron ore used in the Karakolha sponge iron factory? So, the most important question before him (i.e. AO) was whether the assessee's sponge iron plant at Karkolha consumed iron ore which had Fe content more than 65%? The non-consideration of this important piece of evidence which has been recorded by AO, Sales Tax in his order, ought not to have been ignored, when adjudicating the issue of Fe content which also makes the order of AO a quasi judicial authority fragile in the eyes of law. It should be remembered that justice should not only be done, but should be seemed to be done. When the AO having heavily relied on the Sales Tax Authority's order to fasten the liability on the assessee, in all fairness should have considered all materials adverse as well as in favour of the assessee and should have arrived at a fair, reasonable and just conclusion after weighing the materials on both the sides, which he failed to do and the Ld. CIT(A) has correctly taken note of relevant materials to give relief to the assessee, which action of ld. CIT(A) in th....
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.... data is available in any reference book. He also acknowledges the fact that the yield ratio vary from plant to plant depending on (i) composition, (ii) quality of raw material and (iii) the operating conditions. An analysis of the aforesaid letter/technical opinion of the Dean of NIT goes on to support the contention of the assessee. The main question of fact that had to be brought on record by the AO was to be find out as a matter of fact the Fe content of the iron ore used in the sponge iron factory at Karakolha, Barbil, which he has not done. No attempts or endeavour was made by the Sales Tax Authorities or the Income Tax AO to collect the samples of the iron ore from iron ore used at Karakolha and sent to renowned institute in the country for finding out the Fe content of ore used for production of sponge iron which admittedly they have not done. The AO has blindly taken the technical view/opinion of the Dean NIT, Rourkella which is a general letter/opinion which comes with a caveat that if the Fe content is 65% or more, then a ton of sponge iron will be produced from 1.5 MT of iron ore. So, it goes without saying that when Fe content of iron ore is less than 65% more then mor....
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....or the month of May 2009 & June 2009 at this forum, it is found that all the entries in the seized register showing transportation of iron ore fines to the Railway siding have been duly reflected in the return in Form E submitted to DDM, Joda Circle, Odisha. Further, on verification of the copies of transit pass issued by the mining authorities it is found that iron ore fines have been transported from Karakohla Sponge Iron plant to Railway siding between 22.5.09 to 1.6.09 and the seal & signature of the mining authorities have been put on the back of transit pass. The quantum of iron ore fines transported date wise as written in page 1 & page 2 of the seized register tallied with the quantum of iron ore fines transported from Karakohla Sponge Iron Plant to Railway siding on the strength of transit pass issued by the mining authorities from 22.5.09 to 1.6.09. As the dealer appellant produced true & satisfactory records in support of transportation of the exact quantum of iron ore fines from Karakohla Sponge Iron Plant to Railway siding from 22.5.09 to 1.6.09 as was reflected in the seized register, the allegation of sale suppression of 2796.18 MT of iron ore fines made by the inves....
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....ribute to the yield ratio. The material placed on record also suggests that the yield ratio can vary from plant to plant and even from year to year for the same plant. I have perused the relevant pages of the annual reports of Tata Sponge Iron Ltd, Orissa Sponge Iron & Steel Ltd and MSP Steel & Power Ltd which are also engaged in production of sponge iron in the state of Orissa. I find that the yield ratio has not only differed for the 3 companies but it has also varied in different years for the same company. The Directorate General of Foreign Trade has in its standard input output norms for sponge iron suggested yield ratio of 1.5 when the Fe content in the iron ore is 67% or more. The Andhra Pradesh Pollution control Board has in its information bulletin suggested the yield ration of 1.60 to 1.75. Thus, it appears that even the various government institutions are not unanimous in their opinion on the issue of yield ratio in sponge iron factories. I therefore find merit in the argument that there can be no universal and uniformly acceptable standard for the yield ratio that also depends on various factors such as composition and quality of raw materials and operating conditions. ....
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....(Assessee) 2006-07 1.59 1.51 2.09 1.65 2007-08 1.68 1.55 2.04 1.69 2008-09 1.63 1.61 2.45 1.67 2009-10 1.59 1.79 1.93 1.65 26. The aforesaid chart was drawn by the Ld. CIT(A) after perusal of the annual report of the aforesaid companies which are in public domain and cannot be termed as additional evidence. The Ld. CIT(A) who is discharging the appellate jurisdiction over the decision of a quasi judicial authority i.e. AO and who enjoys plenary & co-terminus powers are entitled to take judicial notice of events relevant to issue for adjudication and in this case has taken note of the annual report of these three companies to form an opinion on the issue in question cannot be faulted. After comparing the results of consumption of iron ore by similar companies engaged in same business in State of Orissa, the ld CIT(A) came to the conclusion that it is not possible that Fe content of iron ore can be universally held as more than 65%, which is evident from a glance over the results given in the chart supra. Further the Ld. CIT(A) referred to information bulletin issued by Andhra Pradesh Pollution Control Board which suggested yield ratio of 1.60....
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....e assessment vis-a-vis the grounds of appeal. As it appears the appellant State has harped upon the ratio of sponge iron and iron ore as finished product and raw material respectively to be 1: 1.6 as observed by the professor of the NIT, Rourkela and basing on which the learned STO re-determined the final production of sponge iron by rejecting the respondent's ratio of 1 : 1.65. On going through order of assessment we do not find any other grounds for rejection of the respondent's books of account. Nothing has come out from the order regarding quality of iron ore used, the Fe content of the iron ore, any excess found in the finished product stock because of more receipts and less reflection in accounts. The ratio of 1 : 1.6 can work well with standard raw material having Fe content of 65% or more. Hence, the ratio prescribed cannot be taken as to have been etched in stone with no flexibility. A specialist's view is of immense help only when proper ground work is done to form a pyramid and the specialist's view is put at the top as a top-up. This has not been done. In the considered opinion of the Tribunal, the learned ACST rightly deleted the demand on this point. ....
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....as come up with a written submission that he purchased iron ore from open market having a Fe contents of 62% or less whereas the Central Excise Department's circular to be the ratio of 1.500 : 1.000 MT with categorical mention that aforesaid ratio is achievable if the Fe content of iron ore is 67% or more. The expert view of the scientist working with NIT, Rourkela expressed in his letter dt.29- 09-2004 that no direct data is available to input and output ratio in sponge iron industry in any book and it differs plant to plant depending on consumption and quality of raw materials and the operational condition. The ratio of raw materials and finished products would be at 1.500 : 1.000 MT if the Fe content in iron ore is 65% or more and if the Fe content is less the consumption will be more. As it appears the learned STO has neither accepted the version of the appellant nor the version of the Excise Department and the experts found out a mid way of 1.650 : 1.00 MT. Such an action is not tenable in the law being not supported with due analysis and proper reasonings. This has to be set-aside and therefore set-aside. The appeal succeeds on this point." 28. The revised grounds of app....
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....o so) and sent it for examination at a laboratory to find out the Fe content of the iron ore utilized at its Karakolha plant at Orissa, thus making the estimation of excess production based on imaginary figures without any scientific base. The AO in this case has blindly based his estimation on the opinion of the Dean of NIT. As stated earlier, the Fe content of iron ore is a scientific fact which can be determined by a Lab Report which has not been conducted by the AO before imagining the Fe content of the iron ore utilized in the Karakolha plant as more than 65%. Further, the AO failed to conduct any experiment at the sponge iron factory of assessee to test as to the capacity of the plant at Karakolha, the consumption of iron ore for producing the 1 MT of sponge iron which could have thrown light into the veracity of the claim of the assessee as well as that of the allegation made by the Sales Tax Authority. We note that no independent study has been made by the AO at its Karakolha Plant in Orissa to find out the actual consumption of iron ore to produce sponge iron when the AO had doubts about the consumption of iron ore as claimed by the assessee. The AO has not rejected the bo....