TaxTMI 
TaxTMI 
2014 (12) TMI 1353
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..... ingots, filed its return of income on 29. 10. 2007 declaring nil income. The AO finalised the assessment u/s. 14(3)of the Act, on 29. 12. 2009. 2. First ground deals with addition of Rs. 7,27,874/- made by the AO presuming the same to be GP on the suppressed sales. According to the AO, the assessee's turnover during the relevant previous year was Rs. 36. 52 crores and for achieving that it had sold 17721. 075 tons of MS Ingots and 13858. 335 tons of re-rolled products. It was noted by the AO that the assessee had suppressed production of 1448. 28 tonns of MS Ingots on the basis of variation in power consumption. When confronted by the AO to explain justification, it was submitted that the ratio proportion of scrap, sponge iron and carbon additives veried, that it depended on market availability, that operation of an Induction Furnace of smaller size based on the sponge iron melting was mainly operated on human skill, workers' experience and workers operational efficiency, that it was very difficult to get consistent and reliable quality of raw material for various reasons which are also not within the control of many sponge iron manufacturers, that sponge iron quality was not ....
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....was variation in consumption of electricity, that the findings of the AO in this regard are absolutely incorrect and baseless. The FAA relied upon the case of AC Steels Pvt. Ltd. (ITA No. 344 /Nag, /2008-AY 2003-04-order dt. 14. 09. 2009) wherein it has been held that addition cannot be made on the ground of variation in consumption of electricity. Finally, he held that no evidence whatsoever was brought on record by the AO to substantiate the impugned adhoc addition, that the impugned addition were made without bringing corroborative evidence on record and were unsustainable on facts and in law. He deleted the addition made by the AO. 2. 2. During the course of hearing before us, the Departmental Representative (DR) supported the order of the AO and stated that as per two earlier years, there was variation in consumption of power, that the assessee had not explained the reason behind the higher power consumption and lower production noticed by the AO in the year under consideration. The Authorised Representative (AR) stated that the production of finished goods depended on various factors, that no universal formula could be adopted for production, that the finished goods were s....
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....s taken by us. In these circumstances, we are of the opinion that the order of the FAA does not suffer from any legal infirmity. Upholding his order, we decide first ground of appeal against the AO. 3. Next ground is about disallowance of Rs. 3, 55, 999/- made by the AO u/s. 40A(2)(b) of the Act. According to the AO, the assessee purchased goods from sister concern viz. M/s G. R. Sponge & Power Ltd. at higher price than the average market price. When confronted by the AO to explain as to why the price paid to the sister concern, over and above the average market rate, should not be disallowed u/s. 40A(2)(b) of the Act, it submitted that in steel trade the rate of various products like Sponge iron, Ingot, Billet, Rolled products varied on day to day basis and many times it varied substantially on same day also, that the rate varied due to various factors prevailing in the market, that rates also varied due to quality of products, payment terms, strength (credibility) of the party, rates prevailing on commodity stock exchange, that the overall purchase of material i. e. sponge iron from GR. Sponge & Power Ltd. was cheaper by Rs. 45/- per ton during the year under review which prov....
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.... average market price, that the AO has rightly invoked the provisions of section 40A (2)(b) of the Act. The AR referred to page No. 103 of the paper book. He argued that the assessee had credit purchase from the sister concern, that the credit purchases were always costlier than the cash purchases, that the AO has not considered the rate for all the 12 months, that there was fluctuation in the market rate that in the steel market, rate of material depend on quantity, quality, payment terms etc. , that assessee had purchased the goods from sister concern at lower rate as compared to outside parties during some of the months of the year under consideration. He relied upon following cases : (i). CIT vs. Jain Cables (P) Ltd. (168 CTR (Raj. ) 471 (ii). CIT vs. Padmini Packaging (P) Ltd. , (155 Taxman 268(Del). (iii). CIT vs. Northern India Iron & Steel Co. Ltd. (179 ITR 599) (iv). CIT vs. T. T. Krishnamachary & Co. (256 ITR 82) (v). Upper India Publishing House (P) Ltd. vs. CIT (117 ITR 569) 3. 3. We have heard the rival submissions and perused the material before us. We find that the assessee had purchased raw material from its sister con....