I.C Sudhir, J.M:— In these appeals, the Revenue has questioned common first appellate order on the ground that the Ld. CIT(A) has erred in granting relief Rs. 75,37,824/- in A.Y 2001-2002 and Rs. 20,24,613 in A.Y 2002-2003 in respect of addition made on account of melting loss being suppression of Gross Profit.
2. At the outset of hearing, the Ld. A.R pointed out that the issue raised in the Ground under almost similar facts and circumstances has been decided by the Tribunal in the A.Y 1998-1999 vide ITA No. 696.PN/2007 vide order dt. 15th July 2010. He furnished copy of the said order of the Tribunal before the Bench.
3. The Ld. D.R, on the other hand, tried to justfy the assessment order which we will discuss hereunder in succeeding paragraphs. Having gone through the orders of the authorities below and of the Tribunal for the A.Y 1998-1999 in view of the arguments advanced by the parties, we find that the assessee company is manufacturing Engineering goods as per the requirement of the customers. It deals in manufacturing of GI Castings, SGI Castings, Industrial Gate Wall, Earth Moving Equipments etc. Durng the A.Y 1998-1999, it claimed melting loss at 9.02%, in 2001-2002 at 9.68% and in 2002-2003 at 8.54%. The A.O disallowed the claimed loss in excess of 8% on the basis of a letter submitted by the Vice President, Technical, what assessee company replied the querry as to what is generally acceptable melting loss percentage. In this letter, the Vice President, Technical, replied that meltingloss for A.Y 1998-1999 worked out at 9.02%, however, it was mentioned further that the melting loss of 8% on an average is considered O.K The Ld. CIT(A) has observed that the said letter gives the reason that melting loss such as slag, impurities, excess weight, prescribed weight etc. There is nothing in this letter to show that a melting loss higher than 8% is not feasible. The Ld. CIT(A) also discussed the issue in detail and made several observations that there are no independently verifiable documents to substantiate the claim that casting used internally were not considered while working out the yield ratio. The Ld. CIT(A) also noted that there are large number of foundries in this jurisdiction. In the assessment of these other cases, wherein varying percentages of melting loss from 6.6% to 10% have been accepted in the assessment. The melting loss would depend on the volume of production, the age of equipment and the quality of the raw material, the skill of the labourers, management control etc., Thus when there are so many variables, a figure of melting loss declared by the an assessee cannot be rejected without proper evidence. The CIT(A) ultimately came to the conclusion that such additional cannot be made simply on the basis of letter of one of the employees of the company without any other evidence to substantiate the same. The Ld. CIT(A) also noted that if it is accepted that 8% is an acceptable figure, the figure of melting loss declared by the assessee is only little higher at arouond 9%. The Ld. CIT(A) has accordingly deleted additions made in this regard in all the three assessment years. In A.Y 1998-1999, the Tribunal has restored the assessment order on this basis that the Ld. CIT(A) was supposed to appreciate the report of the Vice President, Technical, inter allia melting loss at 8% in case of assessee's business.
4. There is no dispute that the melting loss depends on the volume of production, the age of equipment, quality of raw material, the skill of the labourers, management control etc. It is also an undisputed fact that such loss is bound to vary year to year. Under these circumstances, we are of the view that burning loss at 8.50% would be reasonable for these A.Ys under consideration. Since there is slight variation in the A.Y 2002-2003 wherein the assessee has claimed melting loss at 8.50%, there is no need to interfere therewith. In this regard, we uphold the first appellate order whereas in the A.Y 2001-2002, the assessee has claimed melting loss of 9.68%, we thus dsallow the claim in excess of 8.50%. The Ground for the A.Y 2001-2002 is thus partly allowed and for the A.Y 2002-2003 is rejected.
5. In result, ITA No. 697.PN/2007 is partly allowed and ITA No. 698.PN/2007 is dismissed.