TMI Blog2012 (11) TMI 232X X X X Extracts X X X X X X X X Extracts X X X X ..... ial on record - decided against revenue. Addition on freight and octroi charges - CIT(A) deleted the addition - Held that:- As decided in assessee's own case wherein CIT(A) has distinguished the nature of expenditure with the nature of expenditure which was covered by the agreement with the holding company & the findings given by the CIT(A) that the freight and octroi expenditure claimed by the assessee were incurred on purchase of consumables and stores materials cannot be disturbed - in favour of assessee. Suppressed conversion charges - CIT(A) deleted the addition - Held that:- The issue cannot be decided without complete data as the parties have not furnished the industry-wise loss or the history of the loss for last 4/5 years, the loss incurred during various process, percentage of loss in each process, comparison of such loss in difference processes industrywise and various assessment year-wise & other comparative instances and factors like type of machinery used, claim of manufacturer of machines as to the amount of loss likely to occur when work is done on their machines - restored the matter to the file of the Assessing Officer to affirm the correctness of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit of the assessee was around 26%. The submissions of the assessee were not found acceptable by the Assessing Officer for the reason that the assessee was not maintaining stock register for raw materials due to which the valuation of stock in terms of quantitative and value terms was not verifiable and further the burning loss of 10.78% claimed by the assessee appeared to him to be abnormal. He thus, following the decision of the Hon ble Apex Court in the case of CIT Vs S. N. Namasivayam Chettiar 38 ITR 578 rejected the books of account u/s 145 (3) of the Act and thereafter applying the gross profit @ 30.28% (as declared in the immediately preceding year) worked out the gross profit of the year under appeal at ₹ 5,35,15,847/-. Since the assessee had already declared gross profit of ₹ 4,75,88,572/-, he added the shortfall in gross profit of ₹ 59,27,275/- (Rs.5,35,15,847/- minus ₹ 4,75,88,572/-) to the total income of the assessee. Aggrieved by the action of the Assessing Officer, the assessee carried the matter before the learned CIT(A). After considering the details submissions made by the assessee, the learned CIT(A) deleted the addition by holding as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant is not justified. Therefore, the A. O. is directed to delete the addition of ₹ 59,27,275/-. Therefore, this ground of appeal is allowed. 5. Aggrieved with the decision of the learned CIT(A), the revenue is now in appeal before us. Before us, the learned DR relied on the order of the Assessing Officer. On the other hand, the learned AR submitted that as the assessee does the entire manufacturing process on job work basis for its principal, there was no need to ascertain closing stock. As per the understanding entered between the assessee and its principal, the raw material is to be supplied by the principal to the assessee for conversion into finished goods. The burning loss is, therefore, to the account of the principal. The learned AR further submitted that the assessee was maintaining daily stock register in respect of raw materials received from the principal and the finished stock. The assessee placed on record the statement of comparative gross profit and placed it on page 16 of the paper book. From the statement, he pointed out that the gross profit of the assessee in assessment year 2005-06 was on account of a particular item having highe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted against deletion of addition of ₹ 45,69,801/- on account of freight and octroi charges. The Assessing Officer observed that the assessee had debited aggregate amount of ₹ 45,69,801/- to its profit and loss a account and it comprised of freight inward and octroi, freight outward and cartage expenses. The assessee vide its written explanation submitted that the aforesaid expenditure represents the expenditure with respect to stores materials and consumables which are consumed during the course of production and it not at all connected with respect to raw materials. It was further submitted that freight outward expenses was in connection with the freight incurred for moving the castings in process for job work outside the factory premises for job work and bringing it back to the factory. The Assessing Officer did not agree with the contentions and explanation of the assessee. He was of the view that since the assessee was working exclusively for AIA Engineering Ltd., its holding company, and as per the agreement entered into between the assessee and its holding company, the freight and octroi for incoming raw material and freight on final dispatch of castings was to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the disallowance was unfounded. With this brief background, now before us, an order of the Tribunal ITAT Ahmedabad D Bench for assessment year 2003-04 passed in ITA No.2954/Ahd/2006 dated 31/12/2009 is placed before us, wherein vide Para-7 it was held as under:- 7. We have heard the learned DR and the learned AR. The learned DR basically relied on the order of the AO and the learned AR relied on the order of the learned CIT(A). After hearing the parties, we decline to interfere in the order of learned. It is not pointed out by the Department as to whether freight and octroi have been paid in respect of raw materials brought from the principal or finished goods supplied back to the principal. Under these circumstances, the findings given by the ld. CIT(A) that the freight and octroi expenditure claimed by the assessee were incurred on purchase of consumables and stores materials cannot be disturbed. As a result, this ground of Revenue is rejected. 7.1 Once on identical facts a view has already been taken in favour of the assessee in respect of fright and octroi, therefore on the same lines for the year under consideration we hereby affirm the finding on facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot claim the loss. The Assessing Officer further observed that similar issue was raised in earlier year and the reply of the assessee was not accepted. He was of the view that since the assessee did not produce any internal records or reconciliation regarding day to day manufacturing activity and any evidence in support of its higher claim of loss, he concluded that the assessee did not maintain complete quantitative details of raw materials consumed in the production and therefore rejected the book results and invoked the provisions of section 145 of the Act. Thereupon he considered the burning loss to be at 5% and accordingly worked out the excess conversion charges on account of excess shortage as under: Total production 10326.412 MT Additional production corresponding to 5.78% of burning loss (A) 668.980 MT Total conversion charges Rs.176722657 Average conversion charges (B) Rs.17113/MT Suppressed conversion charges (A x B) Rs.114848255 He accordingly adde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r with similar directions. 13. We have heard the rival submissions and perused the material on record. We find that in the assessment year 2003-04 there was a similar issue before the Coordinate Bench. The issue was undisclosed conversion charges on account of claiming excess burning loss. The Coordinate Bench vide order dated 31-12-2009 in ITA No.2954/Ahd/2006 held as under: 13. We have heard the learned DR and the learned AR. In our considered view, the issue cannot be decided without complete data. The parties have not furnished the industry-wise loss or the history of the loss in the case of the assessee for last 4/5 years, the loss incurred during various process undertaken by the assessee, percentage of loss in each process under taken by the assessee, comparison of such loss in difference processes industry-wise and various assessment year-wise in case of the assessee, other comparative instances, the reasons for incurring loss and other factors such as type of machinery used, claim of manufacturer of machines as to the amount of loss likely to occur when work is done on their machines. Accordingly, we restore this issue to the file of the AO for examining it afresh. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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