TMI Blog2015 (7) TMI 847X X X X Extracts X X X X X X X X Extracts X X X X ..... r dated 17.12.2009 had provided a copy of the printed chart for leading dyeing house i.e. Creative Dyeing & Printing Mills (P) Ltd. to compare the wastage claimed by the assessee. From the perusal of the said schedule of that company, the rate of shrinkage is much higher than the rate which was claimed by the assessee. The ld. AR pointed out that each processing unit has its own percentage of shrinkage but comparable costs can be considered to evaluate this fact. We find that without any basis, the AO has made the disallowance of 50% and he has not brought any kind of comparables to substantiate his disallowance whereas we find assessee has brought in similar company whose claim of shrinkage has been much higher. In the absence of any evidence to the contrary, the order of the AO to reject the claim of the shrinkage of the assessee amounts to arbitrariness. Therefore, we are of the considered view that the ld. CIT (A) erred in confirming the said disallowance without assigning any reason and it has to be deleted and we order accordingly - Decided in favour of assessee. Disallowance u/s 40A(3) - CIT(a) deleted the addition - Held that:- AO has made addition of ₹ 49,566/- on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mathew.Without contradicting the evidence adduced by the assessee, the AO cannot disbelieve the facts stated by the assessee without assigning any reasons. The observation of the AO in this regard are purely based on surmises and conjecture and stems from the letters answered by the supplier to the effect informing ignorance of the date of supply and who installed the machine. Thereafter, we find that the supplier has come forward with certain documents in their possession to correct themselves and bring evidence to prove the fact in issue and these evidences are on record. - Decided in favour of assessee. Disallowance on account of rent, invoking the provisions of section 40(a)(ia) - non deduction of TDS - Held that:- Both AO and CIT(A) have ignored the fact that the liability to deduct TDS on payment of rent on machinery has been introduced by the Taxation Law Amendment Act, 2006 w.e.f. 13.7.2006 as is evident from the Circular No. 1/2007 dated 27.4.2007 issued by the Central Board of Direct Taxes. The payment of this rent by the assessee was for the period from 1st April, 2006 to 30th June, 2006 as is evident from the confirmation of the party filed with the AO placed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 11,00,000/- - Decided in favour of assessee. Disallowance of deduction under section 80IB - Held that:- assessee in this regard has filed evidences before the AO in the form of Certificate of registration with the SSI to satisfy that the unit has started production before 31.03.2002. It also filed letter in December 2009 for claiming this deduction u/s 80IB along with various documents and registration certificate. The AO has not adjudicated this issue and the ld. CIT (A) has not allowed the deduction claimed u/s 80IB during appellate proceedings by stating that the claim was submitted before the AO at the fag end of the assessment proceedings. The assessee having made the claim has to prove that it is eligible as per section 80IB. There is no reason why the same has not been adjudicated and if the assessee fulfills all the conditions necessary to qualify for the claim prescribed u/s 80IB then the deduction needs to be allowed, so in view of the aforesaid facts and circumstances, it would be ideal if the issue is remitted back to the file of AO to examine the claim of the assessee afresh - Decided in favour of assessee for statistical purposes. Disallowance of cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in not allowing the deduction under section 80IB of the Act, despite the assessee being eligible for the same. 6. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming addition of ₹ 74,500/- made by AO on account of fabric shrinkage, despite fact that the AO has made the additions arbitrarily in adhoc manner. 7. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition of ₹ 6,098/- made by AO. on account of difference in accounts of the appellant and the supplier, M/s. Tulsi Ram Ghanshyam Dass. 8. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in not allowing the credit of TDS claimed by the assessee with the return of income. 9. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the interest levied by AO. under section 234B and 234C of the Act. 10. That the appellant craves leave to add, amend or alter any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nues to derive income from dyeing of textiles as job work charges. During the year under consideration, total job work receipts have been disclosed at ₹ 4,12,29,930/- and gross profit thereon at ₹ 58,74,129/-. The assessee was asked by AO to furnish details of job work showing date of receipt of material, processing done and goods returned back after processing. In compliance thereto, the assessee admitted that the job work details are kept only in the form of bills issued at the time of dispatch and whatsoever details regarding movement of goods for job work and processing is not being maintained. Further, it was also noticed by the AO that the assessee has also executed some work done by outsourcing the same to other concerns on job work sub-contract basis and for this purposes expense of ₹ 97,34,241/- has been debited in the P L account as against earlier years expenses of ₹ 31,18,647/-. Thus, according to AO, there is increase of job work expenses of about 212%. The AO observed that the assessee has not maintained any record for the goods sent for outsourced job work and received after the job-work executed from the outsourced concerns. The AO observed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an addition of ₹ 3,13,379/- by applying an estimated profit rate of 15% on estimated receipt of ₹ 12,50,000/- after rejecting the books of account of the assessee as against profit of 14.25% in the year under consideration of actual receipt of ₹ 12,29,930/- as compared to profit rate of 12.03% in the preceding assessment year 2006-07 and 17.95% for assessment year 2005-06.. We further find that the learned CIT(A) has dealt with this issue elaborately in para 6.2 starting from page 38 to 42. The CIT(A) on page 40 has recorded a finding of fact as below (i) It may be seen that the rejection was done without any finding on the correctness or completeness of the books of account. The AO has not disputed the method of accounting followed by the assessee and the compliance of the accounting standards. The assessee has furnished explanation regarding the reasons of not maintaining the stock record. The assessee has furnished explanation regarding the gross profit rate. The AO has not been able to point out any transaction which has been left out between entries in the books of account or that the appellant has sold some of the items at a price what has been discl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the absence of any allegation that any receipts have been suppressed or there is any error in the profit rate declared by the assessee. In view of the above, the deletion of the addition made by the CIT(A) is correct and justified. So we do not find any infirmity in the order of the Ld. CIT(A), hence, we uphold the same on this issue and decide the ground no.1 against the Revenue accordingly. 6. The next ground is about restricting the addition of ₹ 2,36,009/- on account of undisclosed closing stock. We find that this ground is common in Revenue s Appeal being Ground No. 2 as well as in Assessee s Appeal being Ground No.6, so we are going to decide this issue together. The ld DR contended that the assessee in his trading account has failed to disclose closing stock of fabric and the AO has pointed out that in the case of purchases from Tulshi Ram Ghanshyam Dass for ₹ 1,61,509/- on 10.02.2007 as one such omission to prove that assessee did not disclose any stock of material, in his trading account. The assessee even failed to disclose this amount in purchase as evident from the purchases account reproduced at Pg. 5 of the assessment order. So the ld DR contented that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e which happens in this trade. He submitted that as per their standard shrinkage pattern, the claim of assessee was quite lower and reasonable and each unit claimed its own percentages but comparable cases could be considered to evaluate the claim of the assessee. He further submitted that in the aforesaid letter, it was requested by the assessee that if the AO had any other rate of shrinkage, which could be used in this case, the same may be provided to allow the assessee to rebut the same. Ld. Counsel submitted that the aforesaid letter clearly showed that the shrinkage in case of fabric of client belongs to the parties who brought the job work and the assessee has no responsibility and so not claimed. But in this year, as stated above, where the assessee purchased the fabric and dyed and these were sold as a product, for which only shrinkage was claimed. It was pointed out by the ld. Counsel that there was no trading of fabric in past/last year and it is a single transaction. According to him, the rate of shrinkage is quite normal and without anything contrary to the suggest otherwise, it needed to be accepted by the AO. The ld. AR submitted that on going through the order of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO erred in assuming the debited bill of ₹ 1,61,509/- as separate purchase and so the ld. CIT(A) was justified in deleting the addition of ₹ 1,61,509/- made by the AO which we find to be correct and so we concur with the ld. CIT (A) and this ground of Revenue is dismissed. 6.3 However, the ld. CIT(A) has confirmed an addition of ₹ 74,500/- made by the AO on account of shrinkage which is ground of appeal 6 in assessee s appeal. The ld. AR submitted that on going through the order of the ld. CIT (A) on page 42 in para 6.3, it can be noted that the ld. CIT (A) has not given any reason for confirming this addition. Ld. AR further submitted that the ld. CIT (A) in the last para at page 24 has also stated that assessee vide letter dated 17.12.2009 (pages 7 to 15 of the paper book) has explained the shrinkage and has also filed schedule of the shrinkage which is the normal shrinkage in the trade (page 221 of the paper book). The ld. Counsel also submitted that it had explained the rate of shrinkage which was less than the normal shrinkage. He contended that disallowance made at the rate of 50% of the shrinkage by the AO was arbitrary based on surmises and conjecture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn percentage of shrinkage but comparable costs can be considered to evaluate this fact. We find that without any basis, the AO has made the disallowance of 50% and he has not brought any kind of comparables to substantiate his disallowance whereas we find assessee has brought in similar company whose claim of shrinkage has been much higher. In the absence of any evidence to the contrary, the order of the AO to reject the claim of the shrinkage of the assessee amounts to arbitrariness. Therefore, we are of the considered view that the ld. CIT (A) erred in confirming the said disallowance without assigning any reason and it has to be deleted and we order accordingly. Thus, this ground of assessee (ground no.6 of assessee s appeal) is allowed and ground no.2 of revenue s appeal is dismissed. 7. The next ground is regarding deletion incurred as purchases exceeding ₹ 20,000/- and addition of ₹ 49,566/- made by the assessing officer on account of expenditure u/s 40A(3) of the Act. 7.1 The ld DR contended that the assessee had made purchases from M/s. Jubaid Enterprises and Ravi Textiles, so the AO called for information u/s 133(6) of the Act, however the notice returne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A), hence, we uphold the same on this issue and decide the ground no. 3 against the Revenue. 8. The next grounds is regarding deletion of addition of ₹ 5,51,580/- made by the AO on account of income from other sources as receipts from insurance company. 8.1 The ld DR contended that the assessee has claimed loss from fire in the premises on 17.04.2006 of ₹ 1,29,513/-. So the assessee was asked by the AO to furnish details of loss by fire and in compliance thereof, the assessee filed details of loss by fire for ₹ 6,80,513/-. The AO took note of the fact that out of ₹ 5,51,580/- has been received from the insurance company and so the balance amount was debited in P L A/c. According to Ld DR, since the fire incident was on 17.04.2006, the assessee was required to prove availability of stock as on that date which it claims to have been destroyed in the fire. The assessee filed copy of bill of M/s National Processors dated 17.04.2006 showing purchases of cotton crop for ₹ 42,058/- and a letter dated 10.06.2006 from Sumit Textiles for ₹ 4,44,373/-showing that this amount has been debited on account of goods burned in the factory. The ld DR pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) took note that the assessee was not the owner of the fabric but the goods were received in the factory and all relevant documents such as challans and sales bills were produced before the AO to substantiate its claim. The CIT(A) also took note of the fact that the AO failed to bring any evidence to support his basis of the addition. The CIT (A) has taken note that the AO has gone wrong in assuming that the assessee s claim was not genuine and the ld. CIT (A) appreciated that the case of the assessee was that it received the goods for job work and that is why the assessee was entitled and has rightly claimed the insurance claim which has been also appraised and approved by the insurance company. Documents in the paper book are placed in paper book page 415 to 453 which are intimation to the Fire Department, copy of the insurance policy, report of the surveyor, correspondence with the insurance company, ledger account of the parties whose goods were destroyed in the fire. In the absence of any proof being adduced or basis to prove that the fire incident was fabricated to claim insurance, the ld. CIT (A), after taking note of the evidences produced by the assessee to establish the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... phasized that there is nothing before the AO to disallow the claim and his conclusion on imagination is factually incorrect. When the machinery supplier as well as machinery purchaser both are confirming the fact, since there being no other evidence to contradict the same before AO, such an act of disallowance of the normal depreciation claimed of Rs.l,36,578/- is not justified. And, according to him, the Ld. CIT(A) has simply confirmed the decision of AO without giving any reason, which is not valid and legal, so the claim of the assessee be allowed. 10.1 On the other hand, the ld DR supported the order of the authorities below and does not want to us interfere in the same. 10.2 We have heard both the parties and have perused the records, we find that the assessee has claimed depreciation of ₹ 1,36,578/- in respect of addition of plant and machinery of ₹ 18,21,040/- during the year. The AO disallowed the same on the ground that the assessee has failed to furnish any proof for use of the machine during the year under reference. The CIT(A) has confirmed the above action ignoring the evidences adduced by the assessee before the AO. We find that the findings recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom 01.04.06 to 30.06.06 was paid to M/s. Indra Textile Inds. (P) Ltd., amounting to ₹ 1,90,000/-. According to him, the provision of sec 194-1, being TDS on rent of plant and machinery, came into force after 30.06.06 and was not there in statute for the period to which this claim of rent pertains. So, according to him, no TDS was due nor it was deducted. According to the ld. AR, the TDS provisions are immediately applicable when the entry for credit or payment which was earlier done in the accounts books. The entire rent was accounted for and pertaining to the period before 30.06.06 and since no TDS on rent provision was in force on that date, TDS was rightly not deducted. The ld. AR submitted that out of the total sum payable, ₹ 1,00,000/- was paid before 30.06.06 (Rs.50,000/- was paid vide cheque no. 034051 on 28.04.06 and ₹ 50,000/- was paid vide cheque no. 034097 on 06.05.06). Balance amounting to ₹ 90,000/- was also paid by cheque on 09.03.07. The ld. AR pointed out that even the said payment of ₹ 90,000/- do not attract TDS as minimum limit for attracting TDS, for the A.Y was ₹ 1,20,000/- per annum. In order to substantiate the said claims ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,90,000/- and accordingly it was liable for TDS. We find that both AO and CIT(A) have ignored the fact that the liability to deduct TDS on payment of rent on machinery has been introduced by the Taxation Law Amendment Act, 2006 w.e.f. 13.7.2006 as is evident from the Circular No. 1/2007 dated 27.4.2007 issued by the Central Board of Direct Taxes. The payment of this rent by the assessee was for the period from 1st April, 2006 to 30th June, 2006 as is evident from the confirmation of the party filed with the AO placed in the paper book page no.24; and ₹ 90,000/- paid by cheque on 09.03.2007 also does not attract TDS because it did not cross the monetary limit of ₹ 1,20,000/- for the year under consideration, so the addition made by the AO and confirmed by the CIT (A) is not as per law. In view of the above, we set aside the impugned order and delete the addition of ₹ 1,90,000/- and accordingly decide the ground no. 2 in favor of the Assessee. 12. The ground no. 3 is about not allowing additional depreciation of ₹ 9,96,715/- on account of new machinery purchased by the AO and confirmed by the Ld. CIT(A). 12.1 Ld. AR submitted that as per Section 32(1)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as (2010) 320 ITR 546. 12.5 The term 'manufacture' implies a change, but every change is not a manufacture, despite the fact that every change in an article is the result of a treatment of labour and manipulation. However, this test of manufacture needs to be seen in the context of the above process. If an operation/process renders a commodity or article fit for use for which it is otherwise not fit, the operation/process falls within the meaning of the word 'manufacture'. 12.6 Following this view, the Supreme Court again in the case of CIT vs. Emptee Poly-Yam (P) Ltd. - (2010) 320 ITR 665 in which it was held that the structure, the character, the use and the name of the product are indicia to be taken into account while deciding the question whether the process is a manufacture or not. 12.7 Citing the aforesaid decisions, the ld. AR submitted that it is quite clear that the work of the appellant is also manufacturing. The assessee, according to him, converts grey fabric into dyed fabric. The process of conversion is quite complicated, mechanized and special in character. After dyeing and furnishing the character, use, name and structure of fabric change ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on work done on material (supplied by the customers is profits derived from industrial undertaking to be eligible for deduction under s. 80-IB of the IT Act? 12.11 Thus, in view of above case laws, we find that the activity of processing done by the assessee was manufacturing . It was immaterial that the assessee was doing the job of processing also for outside customers too and was charging them on job work basis or on the basis of labour charges. We hold that it will still be qualified as carrying eligible business under s.32(1)(iia) of the Act. The ratio of the decisions in the cases of (i) CIT vs. Metalman Auto(P)m Ltd. ( 011) 52 DTR (P H) 385; (ii) CIT vs. Vallabh Yams (P) Ltd. (2011) 51 DTR (P H) 236; (iii) CIT vs. Impel Forge Allied Industries Ltd. (2010) 326 ITR 27 (P H); (iv) CIT vs. Rane (Madras) Ltd. (1998) 148 CTR (Mad) 404 : (1999) 238 ITR 377 (Mad) and (v) Dy, CIT vs. Harjivandas Juthabhai Zaveri Anr . (2002) 258 ITR 785 (Guj.) strengthens our aforesaid view. In view of the above detailed discussions and precedents, we hold that assessee is a manufacturer and eligible for deduction u/s 32(1)(iia) of the Act and so we allow the additional depreciation @20% o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR, submitted that to prove (a) Identity- the assessee furnished PAN No, I.T. asstt. orders, affidavit and personal appearance of Sh. Om Prakash Gupta before the AO, proves beyond doubt his identity. And it has not been doubted by the AO. And in order to prove the (b) Genuineness of Transaction, i.e. that the transaction must have taken place for proving that the money has flown in reality, it was brought to the notice of the AO that the firm has received cheques from Mr. Pankaj Gupta, partner and Mr. Pankaj Gupta by account payee cheques from his father Sh. Om Prakash Gupta. Both bank pass book of the assessee/appellant firm, Pankaj Gupta, Shri Om Prakash Gupta were there before the AO on his file and each entry flow is linked, so according to the Ld AR the genuineness of transaction has been proved. The AO, according to Ld AR, has mixed the credit worthiness of lender in to genuineness of the transaction and so got confused. And in order to prove (c) Credit worthiness of lender the Ld AR explained that the lender as far as the firm is concerned is its partner Sh. Pankaj Gupta. He is a separate income tax payee (PAN NO. AAFPGI280R) and relied on CIT Vis Sh. Shakti Timbers (1998) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO made an addition of ₹ 11,00,000/- on account of addition to the capital of the Partner, Shri Pankaj Gupta. The reason given by the AO is that the genuineness and credit worthiness of the credit in the partner's account has not been proved. The CIT(A) has confirmed the same by observing I observe that there exists every chance that the income from the undisclosed source was returned through his father and appellant failed to prove all these improbabilities . We find that the finding of the AO on this issue and the observation of the CIT(A) on the same are both legally as well as factually wrong. It is a case of the partnership firm and Mr. Pankaj Gupta is one of the Partner. Mr. Pankaj Gupta is being assessed individually and the firm has received the amount from its partner. The partner has confirmed the amount and has also given the source of the said amount and corroborated the same. Thus there is no reason for making an addition in the hands of the firm as held in CIT vs Rameshwar Aass Suresh Pal Cheeka 208 CTR 459 (P H); CIT vs Jaiswal Motor Finance 141 ITR 706 (All) and Metal Metal of India 208 CTR 457 (P H). 13.8 We find that before the AO, Mr. Pankaj G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn of income and has not furnished any reason for this omission. c) The assessee filed the return of income on 29.10.2007, notice u/s. 143(2) was issued on 24.9.2008. The assessee has not submitted any reasonable and sufficient cause for the reason why he claimed for deduction only on 17.12.2009, i.e. at the fag end of the assessment proceedings. The AO was not having sufficient time to verify the claim made by the assessee. 14.1 Before the assessment proceedings concluded, the assessee claimed that it is eligible for deduction under section 80IB since it is a small scale industrial undertaking manufacturing fabric. We find that the assessee in this regard has filed evidences before the AO in the form of Certificate of registration with the SSI to satisfy that the unit has started production before 31.03.2002. It also filed letter in December 2009 for claiming this deduction u/s 80IB along with various documents and registration certificate. The AO has not adjudicated this issue and the ld. CIT (A) has not allowed the deduction claimed u/s 80IB during appellate proceedings by stating that the claim was submitted before the AO at the fag end of the assessment proceedings. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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