TMI Blog2012 (5) TMI 318X X X X Extracts X X X X X X X X Extracts X X X X ..... es evident that the shortage of 2.93% has been accepted by the Revenue for the assessment year 2004-05. In that view of the matter, there is no reason to reject lower net shortage of 2.17% for the current year. In view of the foregoing reasons, we are of the considered opinion that the authorities below were not justified in making and sustaining the addition of Rs. 29.22 lakhs on this count, which is hereby ordered to be deleted. These grounds are, therefore, allowed. - IT Appeal NO.1323 (MUM.) of 2012 - - - Dated:- 16-5-2012 - R.S. SYAL, VIVEK VARMA, JJ. ORDER R.S. Syal, Accountant Member This appeal by the assessee arises out of the order passed by the CIT(A)-9, Mumbai, on 16-01-2012 in relation to assessment year 2007-08. 2. The first two grounds are against confirmation of disallowance of interest of Rs. 6,57,820/-. 3. Briefly stated, the facts of these grounds are that the assessee incurred total interest expenditure of Rs. 52.69 lakhs. The AO observed that the assessee had taken secured loans, the balance of which was Rs. 4.88 crore. In the Schedule of fixed assets, the assessee had shown 'Capital work in progress' amounting to Rs. 1,59,53,085/-, bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the capital was borrowed for acquisition of the asset till the date on which the assessee was first put to use. From the prescription of the above proviso, it is amply borne out that any such interest paid cannot be allowed which is incurred on capital borrowed for acquisition of an asset for extension of existing business. The expression " extension of existing business " has nowhere been defined for the purpose of this provision. What is relevant to consider in this provision is that the reference is first to the existing business and then to its extension. It does not refer to setting up an altogether different or new business. So long as the there is extension of the 'existing business', the interest incurred in such circumstance will suffer disallowance. In the absence of any specific statutory meaning to the expression 'extension of existing business', we will have to go by its meaning as understood in common parlance. Thus seen, it is manifest that the case before us is of "extension of existing business" and not that of setting up of a new business, inasmuch as the assessee was earlier doing the same business from some rented premises and in the current year it acquired it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction of interest amounting to Rs. 6.57 lakhs is not allowed, then such amount should be allowed to be capitalized to the cost of office/godown and depreciation may be allowed on the same. We accept this ground partly to the extent of allowing capitalization of this amount of interest to the cost of office/godown. However, we are not inclined to grant any depreciation on it for the reason that the said office and godown have not admittedly been put to use for the current year. This additional ground is, therefore, partly allowed. 10. Ground nos. 3 to 6 are against confirmation of addition of Rs. 29,22,082/- on account of unaccounted sales. 11. Briefly stated, the facts of these grounds are that the assessee, at the material time, was engaged in the business of manufacturing of furnishing cloth on labour job basis and also trading on semi-whole basis. Value of closing stock was declared at Rs.4.11 crore. The AO observed that the assessee had shown production shrinkage of 12.62% in manufacturing from yarn. It was observed that the assessee, apart from its own manufacturing, had also undertaken purchase of finished goods. The assessee had shown shortage of 3.35% in finished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fference between 3.35%, being shortage in finished goods for the current year and 2.09%, being shortage in the finished goods for the preceding year, which has been taken note of by the AO while making the addition, which is subject matter of appeal through the present grounds. Page no. 78 onwards of the paper book is detail of shortage on micro level on bill to bill basis. This tabular statement indicates the Date, Name of the processor, Challan number, Quality, Design number, Pieces and Meters of cloth further divided into three categories. Then, this tabular statement contains percentage of shortage. To illustrate, the first item on page 78 is receipt of 216 meters from the processor. This has been sorted into 'A' quality marked as 'Fresh' product at 216 meters. There is neither any 'B' quality marked as 'S.L.' nor 'C' quality marked as 'Second' from this batch. Thus, production has been depicted at 100%. On the same date, there is another item of receipt of 71.30 meters out of which 'A' quality is 71.00 meters and the percentage of production has been shown at 99.58%, thereby leaving shortage at 0.42%. On 14-06-2006, there is receipt of 1003.60 meters out of which 'A' quality f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tage, in fact, represents the goods actually manufactured but sold by the assessee outside the books of account? In our considered opinion, the answer to such question can be given only in negative. There may be several reasons for increase or decrease in the percentage of output and the resultant shortage. Various factors such as the quality of raw material purchased, the quality of output required, other relevant market conditions, cause direct impact on shortage. When an assessee maintains bill-wise quantity with the output and also the percentage, the AO cannot simply brush aside such results for reaching a presumption that the assessee had manufactured and sold the finished goods outside the books of account. In such circumstances, the onus is firstly upon the AO to show as to how such quantitative details of are incorrect. We are reminded of the Special Bench order passed by the Amritsar Bench of the Tribunal in the case of Shankar Rice Co. v. ITO [2000] 72 ITD 139 (Amritsar) (SB). In this case, almost similar question was raised whereby the A.O. rejected the books of account on the basis of lower yield. The Hon'ble Special Bench has held that the books of account cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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