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TMI Blog2015 (9) TMI 910X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in brushing aside the prudent businessman methodology of bearing the brunt of excessive repairs of 30 years old model cranes and when the appellant considered all these hidden costs in quoting the hire charges of cranes and maintain the profitability over 2 decades . The appellant reserves the right to add, alter, amplify and delete any Grounds of appeal ITA 2924/Mum/2013 (Revenue's appeal): I (i) On the facts and in the circumstances of the case and in law, the ld. CIT (A) erred in restricting the disallowance to Rs. 83,15,244/- as against Rs. 2,39,29,400/- made by the AO out of Rapair to Machinery. (ii) While doing so, the ld. CIT(A) had failed to appreciate that the assessee had failed to substantiate the genuineness of the expenditure with concrete evidence. The conclusion of the AO gets credence from the fact that one of the major suppliers of the assessee viz. M/s. C. J. Steel Corporation had been listed as 'bogus supplier' by the Sales Tax Department. (2) The appellant prays that the order of CIT (A) on the above ground(s) be set aside and that of the Assessment Officer be restored. (3)The appellant craves leave to amend or alter any ground or add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee preferred an appeal before the First Appellate Authority(FAA).Before him,it was argued that the AO had wrongly stated there was not sufficient generation of scrap so as to warrant consumption of 1250 tons of material during the year,that 1250 tons of material would generate around 750 tons of disposable scrap. In that regard,a copy of certificate from Chartered Engineer was submitted before the FAA and it was stated that the certificate explained the quality, quantity and the realizable value of the scrap generated by the assessee,that the net realizable value of the scrap was Rs. 15,81,420/, that out of the aforesaid amount the assessee had been able to realize Rs. 6,88,750/only on account of various factors like exorbitant transport costs to bring the scrap to nearby cities for sale,naxalites preventing removal of scrap and in some cases the customers prohibiting removal of scrap due to excise complications.It was further stated that it was not the case of non generation of scrap, that the AO had merely considered the rupee equivalent of scrap realisation as per profit and loss account,that the AO had failed to consider the above factors which explained as to why the reali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced before the FAA.With regard to the excessiveness of the expenditure it was argued that the expenditure incurred by it wa as per the commercial expediency the reasonableness,that the expenditure had to be judged from the point of view of the businessman and not of the revenue,that the business model of the assessee was such that it would not purchase new cranes in order to save interest costs,that the area of operations of cranes was hilly and stony,that area of operations resulted in heavy wear and tear,that plying of cranes on roads was not permissible in India,that the cranes had to be frequently assembled and dismantled to move them from one site to another site,that all those factors resulted in heavy expenditure on repairs and maintenance of cranes,that the AO had disallowed 35% of the expenditure on ad hoc basis without assigning any valid reason. After considering the submissions made by the assessee and the assessment order,the FAA held that the assessee had been purchasing old cranes and repairing the same for sale,that the AO had treated the expenditure of capital nature,that the assessee had admitted income from scrap sales at Rs. 6,88,000/. As per the FAA,two questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercentage of average purchase price of the material,that in the manufacturing and production activities certain account of scrap was generated,that same is used in recycling,that Steel and Iron scrap were having high demand and fast moving material,that no prudent business man would abandon the scrap when it fetched considerable amount in the market,that it was proper and just to arrive at the value instead of estimating the value based on other facts, that out of 1225 tons of material purchased 750 tons of scrap was generated,that generation of scrap was more than 50% on items except in the case of bushes,that the scrap of Iron & Steel fetched 25 to 30% in the market.After considering various factors including the location of operation and difficulties of transportation,he held that 25% of the average purchase cost of the items was reasonable.He estimated that the assessee must have realised Rs. 90,04,000/from sale of scrap. He further mentioned that if the total expenditure incurred by the assesseei.e.7.39 crores,was compared with the estimated scarp the income from scrap sale of Rs. 90,04,000/it worked out to 12.2%of expenditure in question.He directed the AO to add Rs. 83,15,24 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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