Bell ceramics (Orient Bell Limited) – Part 2
Case: Bell ceramics (Orient Bell Limited) – Part 2, ITAT Surat
Issue: If the raw material is measured in weight and the finished product is measured in volume, can the AO convert the product metric from volume to weight to check for excess usage of raw material?
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The quantity of raw materials for the production of floor tiles and wall tiles were procured and measured in MT. The finished goods manufactured by the Assessee being Tiles were measured in sq. meters and reported accordingly in the accounts. The Assessing Officer required the Assessee to convert the production of finished goods into MT from sq meters so as to enable the Assessing Officer to compute the consumption ratio. It was stated that the conversion of the quantity maintained in sq. meters into weight is not a correct method and could not be reconciled with the quantities of raw material consumed. Even if the conversion is done, the same would be academic and cannot be compared with the actual consumption.
The assessee was required to provide the details of the raw materials in a format prescribed by Assessing Officer vide notice u/s. 142(1) and reconcile the same with the quantities mentioned in the Tax Audit Report. However, ongoing through the workings of the assessee, a discrepancy was found in the calculations as the stock was maintained in sq meters and calculated in kgs. Thus, the addition of excess consumption was made.
ITAT Surat held that addition is based on arithmetic calculation and conversion of stock maintained in sq meters into kgs. Therefore, merely arithmetic calculation made is not sufficient for making an addition.
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Written by CA Bhavin Marfatia, Partner | Direct Tax, KC Mehta & Co.