Cost of materials consumed and purchases are higher than closing stock in case metals

Materials which are not consumed during the year should be shown under closing stock it cannot be shown as scrap. Materials which are in metal form should be shown as closing stock of Finished goods or closing stock of Raw materials as applicable.
Stealing Income tax by showing less profit is a fraud intentionally in financial statements as this will lead to tax evasion. Auditor should take care his due diligence and professional skills and should told the management the query as this will cause material misstatements in financial statements which could lead to demand under IT ACT in future by Authority

Your auditor is correct. WIP is consumption of resources like material, labor and overheads. 

You need to understand two things waste & scrap

waste- is included into the finished goods and not downgraded

scrap- has a recovery value and can be measured. Here, once scrap is resold, it is credited to WIP (debit expenses). Cost principle also prescribes that, for unrealised scrap (no resale) it must be expensed. However, I will treat it as waste and include it in total cost per unit. 

Finally, nothing mentioned about income tax in Indian tax act from my googling. COS is general operating expenditure. While calculating current tax, tax department prescribed a list of deductible and non deductible expenses to derive trading income. Nothing is exempt from it and can’t cheat the system. You seem to have 1000₹ as waste. If u include it in Cos, gross profit will increase and once you expense that waste pbt will decrease. 

You have not understood my query .

Problem is they have shown material consumed means disappeared. How can steel materials can be shown as consumed. 

Business is renting out the steel Products for reuse and not sales.

Please revisit

Yes correct.

Please send the reference of documents to prove this as wrong .so that I can take up with Auditors 

Sry for your loss. Actually your version is more convincing that there is a mistake. The only flaw in auditing is not following the AS. You don’t need special documents because by statute, an auditor should follow local standards. You seem smart as you already know your maths, investigate at the warehouse and log in fraud or what ever necessary actions you want to like. Fortunately AS 240 doesn’t need any endorsed documents from the tax authorities to conduct an investigation. https://cleartax.in/s/standard-on-auditing-sa-240-the-auditors-responsibility-relating-to-fraud-in-an-audit-of-financial-statements#documentation

Here, the documents YOU need are evidences like bills, vouchers, expenses etc., e-mail communications and auditors rectification. All the best.