IN THE INCOME TAX APPELLATE TRIBUNAL
LUCKNOW BENCH “B”, LUCKNOW
BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER
AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER

ITA No.362/LKW/2014
Assessment year:2009-10

A.C.I.T. Circle-3, Lucknow (Appellant)  vs.  M/s Green Gas Limited, Lucknow (Respondent)

ORDER

PER A. K. GARODIA, A.M.
This is Revenue’s appeal directed against the order passed by learned CIT(A)-I, Lucknow dated 26/02/2014 for the assessment year 2009-2010.

2. In this appeal the Revenue has raised the following grounds:

“1. The Ld. CIT(A) has erred in law and on facts of the case in deleting the addition of Rs.64,75,202/- without appreciating the fact that the assessee has not claimed any loss under the head in the years after the AY under consideration. If the process of conversion of NG to CNG is same in all the years, the loss should have been claimed in the following years also.

2. The Ld. CIT(A) has failed to appreciate the fact that if the net profit is continuously growing then it shows that the quantum of production has been increasing and accordingly loss should also be claimed in increasing trend. No loss has been shown under the head after the AY 2009-10 which shows that losses so claimed in the AY under consideration were hypothetical and are liable to be disallowed.”

3. Learned D. R. of the Revenue supported the assessment order whereas learned A. R. of the assessee supported the order of learned CIT(A). He also drawn our attention to pages 507 to 512 of the paper book and pointed out that as per certificate issued by Fluid Control Research Institute, the loss of 1.5% is reasonable distribution loss of gases. He also submitted a copy of chart in respect of financial year 2007-2008, 2009-2010 and 2010-2011 showing loss of 2.10% in financial year 2007-08, 3% in assessment year 2009-2010 and 3.84% in assessment year 2010- 2011. He submitted that in view of these figures, the ground raised by the Revenue is not proper that there is no loss in succeeding year.

4. We have considered the rival submissions. We find that as per the facts in the present case, the assessee is engaged in the business of manufacturing and marketing of Compressed Natural Gas (CNG). The Assessing Officer has noted in the assessment order that the loss shown by the assessee in the present year is around 2.71% amounting to Rs.1.47 crores and as per the auditors, this loss is abnormal loss. The Assessing Officer has held that loss to the extent of 1.5% is allowable and loss claimed in excess of that have been disallowed by the Assessing Officer and such disallowance was worked out at Rs.64,75,202/-. When the assessee carried the matter in appeal before the CIT(A), it has allowed full relief by making various observations in para 5 of his order, which is reproduced

below for the sake of ready reference:-

“5. I have considered the matter. The AO made the addition for the reasons that the quantum of loss was computed by the Auditor on the basis of submissions of the management, it is not based on any documentary evidence, since the leakage could be traced only after it has occurred the loss cannot be estimated and the performance test report also did not mention actual quantum of gasses leaked. The AO also observed that the loss was not reported to any authority and no certificate was obtained from them. However, the AO failed to bring any evidence whatsoever on record to show that the appellant company made sales outside the books of account. It is also noted that the AO made addition on the basis of irrelevant facts which were point wise rebutted by the appellant as under:

(a) The appellant is neither required to report any leakage nor to take certificate of the same until and unless loss of human life occurs due to such leakage.

(b) Performance test is test of performance at any particular point of time and it gives a snap shot view of the situation and therefore performance test cannot quantify total loss.

(c) By its inherent nature the leakage could only be traced after it starts leaking not before that.

(d) That CNG is not carcinogenic and that claim of loss could not be denied merely because CNG is inflammable item.

(e) That quantum of loss was computed on the basis of purchase invoices, reading of flow meters and quantum of gas sold.

(f) The AO, without any evidence, mentioned that the losses of earlier years were much lower. In fact, the appellant incurred considerable loss in the earlier years.

I am of the considered view that any failure on the part of the appellant company to take proper safety and security measures or steps to reduce the loss does not prove the fact that the abnormal losses did not take place and the sales were made outside the books of account that too when the figures of sales have been accepted by the Excise Authorities and Trade-tax Department. I have also gone through the relevant records and find that proper records have been maintained by the appellant to monitor the natural gas consumed and sales of CNG made. During the appellate proceedings the AR of the appellant admitted that the figure of loss of six lakh kgs reported in the notes to accounts by the Auditor was not correct. The actual loss was 9,44,705 kgs which included both compression as well dispensing loss. The AR of the appellant also admitted that there was abnormal loss to the extent of 1.52% of production. But there is no doubt that proper records have been maintained by the appellant company to ascertain the said quantum of loss. I have also gone through the large number of documents furnished by the AR of the appellant company and find considerable force in his argument that abnormal loss can be assigned to failure of performance test by the plants/compressors installed by M/s. Dresser Rand. There are number of documents on record which prove that the operation and maintenance of the compressors were not carried out properly by M/s. Dresser Rand causing loss of revenue to the appellant company. It is also noted that amount of Rs. 1.75 crore payable to M/s. Dresser Rand as per the schedule of rates was not acknowledged as debt by the appellant and not paid by it on account of poor operation and maintenance. During the remand proceedings also the AO examined all the documents furnished by the appellant which included daily operation report register showing production and sale of CNG on daily basis. The AO also verified the figures of production as per flow meter reading on random check basis. But she, without any basis concluded that the loss of CNG cannot be ascertained from the documents and register. Also acceptance of addition on the issue by the appellant in AY 2007-08 cannot be made basis to make the addition during the impugned year. During AY 2007-08 the appellant did not file any appeal because the quantum of addition involved and its tax effect was very low. In view of the discussions made above it is held that addition of Rs.64,75,202/- made by the AO has no basis and it cannot be sustained. Addition of Rs.64,75,202/- made by the AO is, therefore, deleted.”

4.1 From the above para from the order of learned CIT(A), it is seen that his decision is on the basis that failure on the part of the assessee to take proper safety and security measures or steps to reduce the loss does not prove the fact that the abnormal losses did not take place and the sales were made outside the books of account that too when the figures of sales have been accepted by the Excise Authorities and Trade-tax Department. This categorical finding of CIT(A) could not be controverted by Learned D.R. of the Revenue. We also find that in Para 4 of his order, learned CIT(A) has reproduced the submissions made by the assessee before him and as per the same, it was submitted by the assessee that the assessee has engaged M/s Dresser Rand India P. Ltd. for maintenance of the plant and an amount of Rs.3.22 crores was payable to them on account of such maintenance but because of this loss, the assessee has made payment of only Rs.1.47 crore to them and balance amount of Rs.1.75 crores was withheld. It was also submitted that the auditor reported in the notes of accounts that Rs.1.75 crore to M/s Dresser Rand India P. Ltd. has not been acknowledged as debts which shall start from the date on which the field performance test is cleared. These facts are also not disputed by Learned D.R. of the Revenue before us. Accordingly, it comes out that even for the loss suffered by the assessee, the assessee has compensated this by making lesser payment of Rs.1.75 crore to M/s Dresser Rand India P. Ltd. and withholding the balance amount payable to them on account of maintenance contract and the same was not claimed as deduction in the present year on the basis of accrual because the assessee is following mercantile system of accounting. Considering all these facts, we do not find any infirmity in the order of CIT(A) because the extra loss is also in normal course of business and efforts are being made by the assessee to minimize the loss by withholding the payments of service provider and no evidence brought on record by the revenue to show that the loss claimed is not real and the gas was sold outside books. Therefore, we decline to interfere in his order.

5. In the result, the appeal of the Revenue stands dismissed.

(Order was pronounced in the open court on the date mentioned on the caption page)

Sd/.                                                      Sd/.
(SUNIL KUMAR YADAV)      ( A. K. GARODIA )
Judicial Member                     Accountant Member
Dated : 07/07/2015