TMI Blog2005 (9) TMI 224X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst 50 per cent allowed by the AO. The learned CIT(A) failed to appreciate that the installation of boiler continued even after 30th Sept., 1997, and as such could not be put to use in the first half of the year, especially when the expenditure on fuel remained the same as per last year and the rice husk which is used as fuel in agro-based boiler started purchasing in November, 1997." 3. The facts of the case relating to first two grounds are that during the course of assessment proceedings, the AO observed that there was steep fall in GP from 31.93 per cent to 25.6 per cent for asst. yrs. 1996-97 and 1997-98, respectively to 20.79 per cent for assessment year under reference on turnover of Rs. 10.50 crores. The AO also called for the details of comparative increase in the cost of production and comparative increase in the sale price and observed that while the cost of inputs marginally increased, there was substantial increase in the sale price and, therefore, there was no justification of substantial fall in GP rate. He also noticed that in the statutory audit report, auditors had referred to the books of account, examined the cash book, ledger, bank book, journal, sale book, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnished and was already existing when the return of income was filed. It was also stated that the assessee had maintained day-to-day purchase and sale registers and monthly figures were prepared from these registers and were incorporated in the production and stock registers. It was submitted that the nature of business of the assessee was such that the processing of raw materials was a continuous process and the figures are worked out by physical verification at the end of every month. It was submitted that on the basis of same facts and books of account maintained, the AO had accepted the book results for the asst. yrs. 1995-96, 1996-97, 1997-98 and 1999-2000 where GP rate of 25.29 per cent, 31.93 per cent, 25.60 per cent and 12.13 per cent was accepted. It was also argued that the process loss is a normal feature of assessee's business and it was not only in the assessment year under reference that such loss had been shown. It was submitted that process loss for the assessment year under reference worked out to 40 per cent as compared to such loss at 38 per cent of the asst. yr. 1997-98, 43 per cent for the asst. yr. 1995-96 and 42 per cent of the succeeding asst. yr. 1999-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the relevant column of audit report is meaningless when the complete quantitative tally was made part of the audited financial statements. Therefore, I find merits in the submissions of learned Authorised Representative that results of the year were supported with stock tally based on production details. AO has further mentioned that the process loss of 1853.675 MT which in percentage terms stands at 40 per cent of the consumption of raw material, was detected and when the total wastage was shown at 100.260 MT there was no reason as to why process loss as high as 1853.675 MT was not reflected in the stock details. AO did not accept that 1853.675 MT of raw material was lost in the manufacturing process. The process loss was not the unique phenomenon of the year, rather it was a result of manufacturing activities carried out by the appellant and it occurred not only in the relevant assessment year but also in other years. It was seen that the process loss varied from 38 to 43 per cent and except in the year under consideration the process loss was accepted in other years. The process loss of 43 per cent was accepted in asst. yr. 1995-96 and 42 per cent in asst. yr. 1999-2000. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pheld the addition. 6. The learned Authorised Representative, on the other hand, heavily relied on the order of the CIT(A) and reiterated the submissions, which were made before the authorities below. He also drew our attention to written submissions filed before the Tribunal. He submitted that during the asst. yrs. 1995-96 to 1997-98, the GP rate varied from 25.29 per cent to 31.93 per cent and in the asst. yr. 1999-2000 GP rate was 12.13 per cent, which was accepted by the AO while completing the assessment under s. 143(3). He submitted that even for the assessment year under reference, the assessee had given valid reasons for fall in GP rate which was mainly on account of substantial increase in the cost of production. He submitted that the AO was not justified in excluding the cost of packing and cartage expenses aggregating to Rs. 15.99 lakhs while working out the sale rate. He drew our attention to pp. 20A to 20F, which are the quantitative details of the working of the cost of production of various items and the value of closing stock shown by the assessee. He submitted that the AO has not pointed out any defects in the working of the cost. He further drew our attention to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce stock register and the assessee failed to produce the same. On the contrary, statements placed at pp. 20A to 20F clearly show that quantitative details, the working of the cost, valuation of closing stock were furnished before the AO and were part of the return itself. However, no defects therein have been pointed out by the Revenue. Besides, the method of valuation of closing stock has not been doubted by the Revenue. As regards the fall in the GP rate, the assessee has given proper explanation. Besides, the facts placed on record do show that GP rate were 25.29 per cent, 31.93 per cent and 25.60 per cent for the preceding asst. yrs. 1995-96, 1996-97 and 1997-98, respectively. This again shows variation in the GP rate. For the immediately succeeding asst. yr. 1999-2000, the GP rate shown was 12.13 per cent which was lower than the GP rate of the assessment year under reference at 20.79 per cent and the assessments for all the assessment years were completed under s. 143(3). Neither book results were rejected nor any trading addition was made. This fact is very important because in the subsequent assessment year i.e. 1999-2000, the fall in the GP rate was more than 8 per cent an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Department has not made any addition for any of the assessment years; even though GP rate was low and process loss was higher in respect of many other assessment years as compared to the assessment year under reference. Therefore, there is no justification for taking a different view for the assessment year under reference. Taking into account these facts and circumstances of the case and the legal position discussed above, we are of the considered opinion that the CIT(A) was justified in holding that provisions of s. 145(3) were not applicable and consequently the trading addition has been rightly deleted. We confirm his order and reject both the grounds of appeal of the Revenue. 8. The next ground of appeal relates to allowing depreciation on boiler @ 100 per cent as against 50 per cent allowed by the AO. The facts of the case are that the assessee had claimed depreciation @ 100 per cent on a new industrial hybrid agro-waste fired boiler installed in the assessment year under consideration. The AO observed that the said boiler was run on rice husk. The assessee purchased the rice husk in November, 1997, which showed that the said boiler was not used prior to November, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of the Director of Boilers, Punjab, who inspected the boiler on 26th Sept., 1997, and found the same functioning satisfactory. He submitted that prior to November, 1997, the boiler was run on coal for which the assessee had sufficient stock. 8.4 We have heard both the parties and carefully considered the rival contentions with reference to facts, evidence and material on record. From the facts discussed above, it is obvious that the claim of the assessee that boiler started functioning in September, 1997, is supported by certificate of the Director of Boilers, Punjab, who inspected the same on 26th Sept., 1997 and found the working as satisfactory. No material has been placed by the Department to controvert the findings of the CIT(A). As regards the details of rice husk purchased in November, 1997, the learned CIT(A) observed that the boiler could be run both on coal and rice husk and prior to November, 1997, the same was run on coal for which adequate quantity of stock was available. These findings had not been challenged by the Department. No evidence/material has been placed before us to show that the boiler could run only on rice husk. As regards the other observations tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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