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2016 (3) TMI 1445 - AT - Income TaxRevision u/s 263 by CIT - Excess manufacturing cost claimed by the assessee - HELD THAT:- We find that no adverse inference with regard to melting loss of 72 kgs. can be drawn. Hence, this issue cannot be subject matter of revision proceedings u/s 263 of the Act. We further observed that the manufacturing costs, i.e wages, packing material and testing, refining charges & melting loss were genuine and incurred for business purposes. It is not the case of CIT that any of these expenses were found by to be bogus or sham. The only observation in this regard is that the expenses were excessive. In the earlier paragraphs we have already explained that the manufacturing costs were not excessive. Rather the costs incurred compared favourable with the ‘making charges’ recovered from related party. We have thus fully substantiated the genuineness and reasonableness of manufacturing costs incurred by the assessee. The direct costs and making charges incurred by the assessee were reasonable and even the prices charged from the related party were commensurate with the costs incurred by the assessee. Hence, the direction given by CIT for making addition on account of excess manufacturing cost is therefore vacated. Sales made to related parties at lower prices - Addition u/s 40A(a)(2) - Similar disallowance was deleted by the Gujarat High Court in the case of CIT v. Indu Nissan Oxo Chemical Industries Ltd. [2015 (2) TMI 818 - GUJARAT HIGH COURT] .wherein the disallowance made u/s. 40A(2)B) in respect of payments made to the directors were deleted by the High Court, observing that the recipient of payments was taxed at maximum rate and therefore there was no avoidance or evasion of taxes as envisaged u/s 40A(20(b) of the Act. In view of the above, we are of the view that CIT was wrong in invoking provisions of Sec. 40A(a)(2) and doubting the sales made by the assessee to its sister concern, M/s Anjali Jewellers. Hence, on this issue revision cannot be made by CIT u/s 263 of the Act. Loss of gold incurred by the company in the course of manufacture of jewellery - After considering the details & documents for AYs 2011-12 & 2012-13, more specifically the quantitative details of gold and jewellery manufactured, the AO accepted the reasonableness of melting loss of 5.28% and 4.81% in AYs 2011-12 & 2012-13 and no adverse inference was drawn. Even, the melting loss of 4.81% incurred in AY 2012-13 was not disputed by the Assessing Officer. The above facts show that the Department while framing the assessments u/s. 143(3) of the Act for the immediately preceding AY 2009-10 and subsequent AYs 2011-12 & 2012-13 accepted the melting loss of 5% in the assessee’s line of business. In the circumstances, we are of the view that CIT’s observations with regard to the melting loss of gold of 72 kgs. being excessive in AY 2010-11 and the directions given to examine the same is unjustified and contrary to the jurisdictional facts of the case. Hence, the same are quashed. Certain bills held to be bogus - It shall be appreciated that M/s Anjali Estate & Developers had credited contractual income and offered profit to tax at normal tax rates. These jurisdictional facts further prove that there was no tax avoidance arrangement or siphoning of profits. Both the assessee and M/s Anjali Estate & Developers were taxed at normal tax rates. Moreover, the assessee did not claim deduction of the impugned bill bearing number 006aEd/0-11 in the relevant FY 2009-10 but had deferred it and carried forward to the next year. On the other hand, M/s Anjali Estate 7 Developers had accounted the bill as contractual income of FY 2009-10 and paid tax at normal tax rates on its annual income. It is therefore not a case where the assessee had booked higher repairs & maintenance costs to avoid taxes and/or siphoned off profits to sister concern. The revision order of CIT that repairs & maintenance charges were being paid in order to avoid tax was factually incorrect, and without any cogent basis or material. Accordingly, we cancel the directions of CIT in this regard. Hence, this issues of assessee is allowed.
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