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2015 (9) TMI 322 - ITAT JAIPUR

2015 (9) TMI 322 - ITAT JAIPUR - TMI - Rejection of books of accounts - trading addition - CIT(A) deleted the addition - CIT(A) deleting the addition made by the AO on account of undisclosed sale - whether assessee could not prove that the scrap was retained by the job workers? - Held that:- The assessee's regular books of account cannot be rejected on the basis of the issues like stock of oil and lubricants and consumables stores which constitutes day to day purchases and the stock is comparati .....

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de. The books of account were upheld in earlier years.

AO rejected the books of account in AY 2006-2007 ITAT found that these defects are not major and the books of account of the assessee cannot be rejected on ipse dixit.

Apropos scrap generation, there is no evidence at all to show that vendors or sub-vendors returned the scrap which was sold by the appellant outside the books of account. As evident, the job workers had not returned the scrap to the appellant, sub vendors .....

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Consequently there was no justification in the rejection of books of the assessee, therefore no estimation of GP can be resorted to in the given facts and circumstances. The AO's allegation that the job charges paid to sister concerns is in violation of Section 40A(2)(b) was not established by citing any projection of unreasonableness or comparative cases. Similarly, non-returned of scrap by sister concerns is comparable with unrelated concerns and held to be a customary practice in this trade. .....

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ss profit is as long as 14.54%. Therefore, the current year gross profit rate cannot be held to be low. See ACIT vs. M/s. Pushp Enterprises [2015 (3) TMI 1019 - ITAT JAIPUR] - Decided in favour of assessee. - ITA No. 758/JP/2012 - Dated:- 26-6-2015 - R. P. Tolani , JM And T. R. Menna, AM, JJ. For the Petitioner : Shri D C Sharma, Addl CIT-DR For the Respondent : Shri Vijay Goyal, CA ORDER Per R. P. Tolani, JM. This is an appeal filed by the Revenue against the order of the ld. ld. CIT(A)-II, Jai .....

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crap was retained by the job workers.." 2.1 Brief facts of the case are that the assessee is a public limited company engaged in the business of manufacturing and job work of bearing races and bush. The books of account are regularly maintained and audited as per Companies Act and Income-tax Act which was claimed to be supported by bills and vouchers. The assessee's industrial activity of manufacturing of ball bearings is liable for levy under Central Excise Act. During the course of as .....

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fiable. Repairs and machinery expenses were based on self made vouchers also were not verifiable. Assessee filed detailed reply contending that the assessee's method of accounting, record keeping and excise compliance was same as in earlier years. Similarly the issues about stock register of consumables and stores; separate trading and manufacturing recorded and job charges were same as in earlier years. Ld. AO however rejected the books of account and above additions was made. It may be men .....

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ny case if any stock in this behalf is found to be undervalued it will only result into increase in closing stock and corresponding increase in the opening stock of next year. This exercise will be revenue neutral or merely notional postponement of stock valuation. The assessee maintains regular ER-1 register under Excise Rules. The rate of job work paid to associated and non associated concerns were fully comparable with, earlier years, other job workers and comparable cases. As a market practi .....

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No case of applicability of Section 40A(2)(b) of the Act has been made out as neither comparable cases have been cited by ld. AO nor any comparison with earlier years have been made. 2.3 Apropos allegations about day to day consumption and production record not maintained, assessee contended that: The assessee is properly maintaining the consumption and production records and the same were produced before AO during the course of assessment proceedings which emerge from the following facts:- (i) .....

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AO. (v) The statutory auditors, without any qualification have certified in their reports that the assessee is maintaining proper records of inventory. Consequently ld. AO erred in rejecting the books of accounts and resorting to estimation of GP and sales. 2.4 The detailed submissions and paper book was supported before the ld. CIT(A), based thereon ld. CIT(A) and in consideration of various case laws and the submissions, observed that:- (i) The assessee having books of account cannot be reject .....

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6-2007 also. But the Hon'ble ITAT found that these are not major defect; hence the books of account of the assessee cannot be rejected. 2.5 Apropos, alleged discrepancies in respect of scrap generation, the ld. CIT(A) held that :- "3.3 (Page 7) ….. In the present case, there is no evidence that vendors or sub-vendors had returned the scrap to the appellant and same was sold by the appellant outside the books of account. In the case of State Bank of Travancore vs. CIT (158 ITR 102 .....

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ent case, no real income accrued to the appellant or was received by it during the year under reference simply because it did not recover or realize the same. As evident, the job workers had not returned the scrap to the appellant. On the contract undertaken by it, M/s. Alankar Automobiles (P) Ltd. had shown the sale of scrap of ₹ 3,30,000/- in its books of account. There was no evidence on the record to suggest that these sub-vendors had ever returned the scrap to the alleged vendor or th .....

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" 2.6 Apropos trading addition, the ld. CIT(A) observed that: (i) During the course of assessment proceedings, the assessee had furnished quantitative details of raw materials consumed, finished goods produced, scrap generated and burning loss. Consequently there was no justification in the rejection of books of the assessee. (ii) The AO's allegation that the job charges paid to sister concerns were in violation of Section 40A(2)(b) was not established by the AO by citing any unreasonab .....

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revenue appeal, in assessee's own case upheld the gross profit rate at declared GP of 14.54%. Thus the assessee gross profit is as long as 14.54%. Therefore, the current year gross profit rate at 26.07% cannot be held to be low. 2.7 Aggrieved, Revenue is before us. Ld. DR supported the order of ld. AO on the issues of discrepancies in books of accounts, scrape generation and sale figures and GP addition. 2.8 Ld. Counsel for the assessee contends that: (i) Stock details of oils & lubrican .....

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ory auditors in their audit report. Without prejudice to above this is to submit that even if stock register is not maintained the books of accounts cannot be rejected on this ground. Reliance is place on following decisions:- Ashok Refractories Pvt Ltd Vs CIT (2005) 279 ITR 475 (cal) - Avdesh Pratap Singh v CIT 210 ITR 406 (All) - CIT Vs Jas Jack Elegance Exports 324 ITR 95 (Delhi High Court) - CIT Vs Om Overseas 315 ITR 185 (Punjab & Haryana High Court) - Haridas Parikh Vs ITO 113 TTJ 274 .....

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les of MS scrap as per books of account of assessee was ₹ 65,07,100/- while as per ER-1 the "quantity cleared" is of ₹ 77,85,084/-. The reason of difference of ₹ 12,77,984/- is that the assessee was sending goods for Job work also and the scrap generated during production by job worker remains with job worker and the job worker were the beneficial owner of that scrap and it is a part of job cost to the assessee. Since assessee is liable for notional ad volarem excise .....

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ufacturing facility for goods manufactured for trading purpose and goods received for job work. Since books of accounts are and expenditure are inseparable and common, it is not practically possible to prepare the separate trading and profit & loss a/c of job work and manufacturing goods cannot be prepared. This is a regularly and consistently accounting practice by the assessee. Assessee maintains regular register with relevant entries of goods for job work and return after job work, suppor .....

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y unreasonable. v) Apropos scrap remaining with the Job workers, this trade practice is accepted by the department in previous assessments (Scrutiny assessment for AY 2005-06 and AY 2006-07 & AY 2012-13. Therefore there is no justification in AO allegation that sister concerns have been benefited in terms of sec. 40A 2(b). The assessee has neither received scarp from the sister concern nor from the other parties. During the course of assessment proceedings assessee submitted bills of Job cha .....

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issued for production and finished goods & scrap produced. The qty. detail of raw material, finished goods and scrap were submitted before AO similarly it maintains proper records for goods issued for job work and received from job work which is also mandatory in Central Excise rules. Despite copious evidence and compliance ld. AO erred in holding that the assessee is not maintaining challans. The photocopy of the inward and outward challans are placed on paper book. vii) Scrap generation a .....

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any objective manner. Ld. AO thus erred in holding that yield rate and scrap generation not verifiable from books of accounts. viii) Alleged concealment of sales The assessee books of accounts including stock records, sales bills, challans and sales have not been found defective based any instance of unrecorded/concealed sales. Therefore, the finding of concealed sales is grossly wrong and based on assumption and presumption. The difference in amount of MS scrap in ER-1 shown as qty. cleared an .....

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assessee in books of account. Therefore, the assessee's GP is not lower to the past history of the assessee. The past history does not mean immediate preceding year only but the AO should look into the history of the assessee in past few years. Reliance is placed on: Hon'ble Rajasthan High Court in the case of Malani Ramjivan Jagannath Vs. Assistant Commissioner Of Income Tax (2009) 316 ITR 120 has held as under:- "10. In the face of these undisputed facts and circumstances, the Tr .....

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rrive at different result. So far as closing stock is concerned, inventories of existing stock were not found to be incorrect by the AO i.e. that position of stock as shown in the account books was not incorrect. There being no dispute about the sales and purchases, nonmaintenance of stock register lost its significance so far as arriving at GP is concerned. Therefore, the CIT(A) was right in his reasoning about admitted state of affairs. Resorting to estimate of GP rate was founded on no materi .....

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ield a fair result. Mere deviation in GP rate cannot be a ground for rejecting books of account and entering realm of estimate and guesswork. Lower GP rate shown in the books of account during current year and fall in GP rate was justified and also admitted by the AO as well as CIT(A) as well as the Tribunal. Therefore, fall in GP rate lost its significance. Having accepted the reason for fall in GP rate, namely, stiff competition in market and also that huge loss caused in particular transactio .....

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other result except what has been shown by the assessee in the books of account. We are, therefore, unable to sustain the order of the Tribunal." It is submitted that assessee's books of accounts and trading results being completely verifiable, ld. AO wrongly rejected the books of accounts, ld CIT(A) after appreciation of all the relevant facts, record, submissions and law, has rightly upheld the books deleted the additions, his order is relied on. 2.9 We have heard the rival contentio .....

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of manufacturing and job work also cannot be a reason to reject the books of account inasmuch as they are interconnected. Assessee deals in manufacturing and job working for self and others. (iii) The books of account are maintained on consistent accounting practices in earlier years and no such rejection has been made. The books of account were upheld in earlier years. (iv) AO rejected the books of account in AY 2006-2007 ITAT found that these defects are not major and the books of account of .....

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ndors had ever returned the scrap to assessee, no adverse inference can be drawn against the appellant merely on surmise and conjectures. (vi) Apropos trading additions, assessee had furnished quantitative details of raw materials consumed, finished goods produced, scrap generated and burning loss. Consequently there was no justification in the rejection of books of the assessee, therefore no estimation of GP can be resorted to in the given facts and circumstances. (vii) The AO's allegation .....

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re upheld, there is no question of applying the estimation of gross profit. Besides, assessee's GP is better than assessment year 2006-07 and 2007-08. In assessment year 2006-07, ITAT dismissing revenue appeal, in assessee's own case upheld the gross profit rate at declared GP of 14.54%. Thus the assessee gross profit is as long as 14.54%. Therefore, the current year gross profit rate cannot be held to be low. 2.10 In similar type of case, ITAT on same facts and circumstances in the reve .....

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n record by learned Assessing Officer that the assessee's job workers returned any scrap to assessee. Nothinghas also been brought on record to demonstrate in any way that assessee indulged in any sale of scrap outside the books of account. This is further indicated by new Cenvat Credit Rules, which holds that the scrap was not required to be returned to the assessee. The same is referred to by the judgment in the case of M/s Rocket Engineering Corporation Vs. CCE (supra). The assessee furth .....

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