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Assistant Commissioner of Income Tax Circle-21 (1) New Delhi Versus Sh. Pawan Kumar Kansal, , Prop. M/s Jagdamba Export

2015 (5) TMI 721 - ITAT DELHI

Rejection of books of accounts - Held that:- As from the assessment order that it is not the case of the Assessing Officer that the respondent assessee failed to produce the information called for, nor is it the case that the books of account are defective. The Assessing Officer failed to give any specific reason for rejection of book results. It appears that the sole basis for rejection of book results is the assessment order of the immediate preceding year i.e. 2008-09 in which the books of ac .....

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fore him. Thus, in our view, the First Appellant Authority had no other option but to reject the action of AO in rejecting the books of accounts. Decided against revenue.

Addition on account of generation of scrap - CIT(A) deleted the addition - Held that:- the claim for generation of Scrap as per the Books of Account is significantly lower, not just for items at S. No. 4 and 5 i.e. 'Knife' and 'Pasta/Noodle-SM', as mentioned in Para 8.10 above, but also in case of the item at S. No. .....

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laimed Scrap generation as no trend for inflation of Scrap is seen from the Inspector's Report and though there are variations between the Inspector's Report and the claim of the Assessee but no definite conclusion of inflation or suppression can be suppression can be drawn when for 3 items a different trend is seen and for the other 2 items a different trend is seen.In any case, it is seen that the Inspector's Report cannot lead to any conclusion that the generation of Scrap was shown by the As .....

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d principle of law that the closing stock should be valued at lower cost of sale price. As submitted by the respondent assessee, the cost should be arrived at after deletion of addition made in respect of sale of scrap. Accordingly, the cross objections are allowed.- Decided in favour of assesse. - ITA No. 3640/Del/2013 C.O. No. 233/Del/2013 - Dated:- 13-5-2015 - SHRI G.C. GUPTA AND SHRI INTURI RAMA RAO, JJ. For the Appellant : Sh. Vikram Sahay, Sr. DR For the Respondent : S/sh. Ved Jain, Rano J .....

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re the then assessing officer to enable him to deduce the proper income of the assessee. ii. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing the 49% scrap. As claimed by the assessee, and deleting the total addition of ₹ 3,98,16,047/- on account of excess scrap allegedly generated by the assessee beyond 41.17% as fixed by the Excise authorities, but treated as sales outside the books of accounts by the Assessing Officer, by ignoring the facts .....

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ner of Income Tax(Appeals) [CIT(A)] has erred, both on facts in law, in confirming addition of ₹ 99,54,630/- and further enhancing addition by ₹ 23,67,470/- in respect of valuation of the closing stock of the finished goods. ii. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in taking gross profits rate at the rate of 4.63% while valuing the cost of the finished goods ignoring the fact by above said addition of ₹ 1,23,22,100/ .....

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pellant craves leave to add, amend or alter any of the grounds of cross objection ITA No. 3640/Del /2013 for A.Y. 2009-10: 3. The facts of the case in brief are that the respondent assessee is an individual engaged in the business of manufacturing and sale of stainless steel, cutlery and utensils in the name of M/s Jagdamba Exports. For the assessment year 2009-10, return of income was filed on 30th September, 2009, declaring income of ₹ 1,17,54,720/-. The case was selected for scrutiny af .....

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al was preferred before the learned CIT(A), who vide impugned order dated 30.03.2013, deleted the addition made on account of generation of scrap. However, on the addition of valuation of closing stock, addition was enhanced by ₹ 23,67,470/-.The alleged non-genuine creditors of ₹ 65,600/- were deleted by learned CIT(A). Aggrieved by this order, the Revenue has filed the present appeal and the respondent assessee filed the cross objection impugning that part of the CIT(A) s order wher .....

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the other hand, the learned Authorized Representative has quoted and relied upon the order of the CIT(A) insofar as it relates to addition on account of generation of scrap and also on the decision of this Tribunal in the assessee s own case for the preceding assessment year i.e. 2008-09. 6. We have heard the rival parties and perused the material on record. The first ground of appeal relates to the rejection of book results. We observe from the assessment order that it is not the case of the As .....

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/Del/2012, vide order dated 29.10.2014 passed for the assessment year 2008-09, rejected this ground of appeal raised by the Revenue, which reads as under:- 5. In the Remand Report the contentions of the assessee that the AO was not justified in rejecting the books of accounts was accepted by the A.O. The A.O. also accepted the contention that he has not been able to point out any discrepancy in the books of account and stock record produced by the assessee before him. Thus, in our view, the Firs .....

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ground on the basis of which the Books of Account has been rejected and the addition for sale outside Books of Account has been made is the Report of the Inspector who went on an onsite visit and inspection of the Assessee's premises, which is mentioned above in Para 8.3 of this order as point (B). Perusal of the Assessment Order Para 3 shows that a comparison for the Scrap generated for 5 items manufactured by the Assessee has been made by the Ld. Assessing Officer on the basis of the Inspe .....

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crap generated mentioned as the percentage as per the Department, which are obviously the figures as per the Inspector's Report, is higher in case of 2 of the items and is lower in case of 3 of the items. It is seen that the Assessee makes more than 50 items, and though analysing the production and Scrap generation in the case of 5 items on a sample basis cannot be rejected as such, but this sample of 5 items does not give any clear evidence that the Assessee is inflating the claimed Scrap g .....

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e Department is much higher than that stated to be claimed by the Assessee, then it cannot at all be said, merely on this basis that the Assessee has inflated the claim of Scrap. If the Assessee was inflating the claim of Scrap, then either the Scrap generated as per the Department would have been lower in all the 5 cases, or in case the Appellant was resorting to such tactics for only some items, then the Departmental figures would have been equal to the Assessee's claims for some items and .....

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oned in the Assessment Order to be that as per the Assessee's record are incorrect. The same claim has been made in Para 19.3 to 19.5 of his written Submissions dated 22.01.13 and it has been claimed in Para 19.4 that the AO has picked up and quoted some individual figures rather than taking the figure for the whole of the year and has in Para 19.4 submitted the following chart :- S. No Name of the Item % of generation of scrap as per the Department % of generation of scrap as per the Assess .....

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S. No. 3, i.e. 'Table Fork', for which the Assessee claims that the actual figure of generation of Scrap as per Books was 49.576% and not 54.99% as shown the Assessment Order, as against the Departmental figure of Scrap generation of 51.93%. In such a situation, it is seen that the Departmental figure for Scrap generation would be significantly higher than the Assessee's claim for 3 items and lower for 2 items. In any case, no conclusion can be drawn from the Inspector's Report r .....

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2 has claimed that the basis on which the percentage as per the Inspector's Report was computed has not be specified, and also that the Inspector's Report was never confronted to the Assessee. If the Inspector's Report was being used against the Assessee, then the Assessee should have been confronted with the Report and the explanation if any offered by the Assessee on the Report should have been discussed, and in case no explanation was offered then that fact should also have been m .....

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nfronted with the Inspector's Report cannot be brushed aside. 8.15 In any case, it is seen that the Inspector's Report cannot lead to any conclusion that the generation of Scrap was shown by the Assessee at any inflated figures and hence the ground (B) mentioned in Para 8.3 above, on which the Books of Account were rejected and addition for sale outside of Books of Account was made also fails, and is hereby rejected. 9. Moreover, similar issue has been dealt by this Tribunal in the asses .....

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lso obtained necessary confirmations from the parties to whom the scrap was sold. The A.O. also accepted the fact that the percentage of scrap fixed by the excise authorities was only, for the purposes of giving incentives to the assessee and has no effect on the actual facts of the case. The assessee had submitted various letters to the excise authorities for revision of the norms of scrap fixed by them. In view of the above observations by the AO in the remand report, we find no infirmity in t .....

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n account of closing stock of ₹ 99,54,630/- confirmed and further enhanced by ₹ 23,67,470/- by the learned CIT(A). The Assessing Officer made the addition in respect of closing stock by deducting the G.P. from the sale price, works out to ₹ 226/- per kg. Whereas on appeal, the learned CIT(A) finally held vide paras 9.8, 9.9, 9.10 and 9.11, apart from confirming the addition made further enhancement of ₹ 23,67,470/-, which are reproduced below: 9.8 After examining the enti .....

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hat the Ld. Assessing Officer had taken the Gross Profit Rate at 14.93% which was allowed as a reduction from the average sale price to work out the cost of the Finished Goods in the Closing Stock, but actually the Gross Profit rate had been disclosed @ 4.63% as per column 32(a) of the Form No. 3CD for the relevant year i.e. A.Y. 2009-10. Accordingly, vide Order Sheet entry dated 13.03.2013 the Appellant was required to explain why an enhancement of the addition on account of valuation of Closin .....

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4.93% taken as Gross Profit Rate by the Assessing Officer. Reducing the G.P. Rate of 4.63% from Average Rate of Sale and even after reducing Packing Cost, the Valuation of Closing Stock of Finished Goods would be much more than that determined by the A.O. at ₹ 226/- per kg. Please explain why the Closing Stock may not be Valued as above which will result in an enhancement in the Valuation of Closing Stock. This may be treated as an Opportunity u/s 251(2) of the I.T. Act, 1961." 9.9 Su .....

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verse calculation which is based on estimate. It has also been claimed that the Assessee has valued its Stock at cost price and that any rate other than that taken by the Assessee for valuation of Closing Stock should not be adopted. However, it is noteworthy that the Assessee did not give exact and specific reply to each of the queries raised vide notice dated 22.02.2013, which is reproduced above in Para 9.4. Further, the detailed valuation for each specific item of Finished Goods included in .....

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used for valuation of the Closing Stock of Finished Goods was taken from the Audited Form No. 3 CD for A.Y. 2009-10, a copy of which was filed by the Appellant in the Paper Book submitted by him alongwith written submissions dated 22.02.13. Further, the packing cost of ₹ 16.74 per kg. was admitted by the Appellant and is obvious from the calculation given in Para 9.6 above, whose details were given by the Appellant himself. In such a situation there is no dispute regarding the figures inv .....

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er kg. adopted by the Assessee and ₹ 226/- per kg. taken by the Assessing Officer. Thus the under valuation in the Finished Goods in the Closing Stock is of ₹ 56.94 per kg. (Rs.236.94 minus Rs.l80/-). The Closing Stock of Finished Goods is of 2,16,405 kg. as on 31.03.2009 as per the Assessee. The under valuation of the Finished Goods amounting to ₹ 56.94 per kg. would result in an addition of ₹ 1,23,22,100/- to the value of Closing Stock (56.94 per kg. x 2,16,405 kg.). Ac .....

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n expenditure of ₹ 1,84,00,220/- on packing. The total production during the year was 11,84,481 kgs. out of which quantity in stock was 2,16,405 kgs. Thus, the packing of quantity of 9,68,076 kg., an expenditure of ₹ 1,84,00,220/- was incurred giving an expenditure of ₹ 19/- per kg. on account of packing. The assessee has valued the stock on the basis of actual stock including fresh as well as old items. The assessee is in cutlery business where items of non moving nature are n .....

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