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2015 (9) TMI 910 - ITAT MUMBAI

2015 (9) TMI 910 - ITAT MUMBAI - TMI - Sale of scrap - CIT(A) valuing the scrap at estimated market rate and confirming the addition of notional imaginary income - Held that:- With regard to valuation made by the chartered engineer,we are of the opinion that the FAA had correctly held that the certificate of the engineer was of no help as it was prepared after a long time of generation of scrap - FAA had correctly held that the certificate of the engineer was of no help as it was prepared after .....

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ssee. After considering the peculiar facts and circumstances of the case,we are of the opinion that to meet the end of justice the estimated addition should be restricted to ₹ 50,00,000/in place of ₹ 83,15,244/. - Decided partly in favour of assessee. - ITA No.2924/Mum/2013 - Dated:- 31-8-2015 - Sh. A.D. Jain and Rajendra, JJ. For The Assessee : Shri Satish R. Mody For The Revenue : Shri S.S. Rana-DR ORDER PER RAJENDRA, AM Challengingthe order dated 09.01.2012of the CIT(A)24, Mumbai, .....

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perations in Naxalite Hilly areas, non availibity of transports , excise issues and other environmental factors. 2 The Learned CIT(A) erred in taxing the estimated income of scrap which had not accrued to the appellant and thereby brushing aside the concept of real income. 3 The learned CIT(A) 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 hi .....

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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 any new gr .....

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at it debited an amount of ₹ 7.36 crores under the head repairs to machinery, that it had purchased 1225 tons of steel parts and 2 tons of bronze parts for undertaking the repairs to the cranes.He observed that the material purchased had not been increasing tonnage capacity and boom length capacity,that the expenses were incurred for only to make the cranes fit for use,that the expenditure incurred had been on revenue account and not Capital account, that only replacement of old parts had .....

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llans and/or Weigh Bridge slips.He held that the purchase of material (1225 tons of steel) for repairs was not be acceptable, that the debit of amount under repairs to machinery was not reasonable and excessive. Accordin gly, the accounts of the assessee,to that limited extent,were rejected.But,no specific addition was made towards the scrap generation.The AO also held that expenditure worked out to 51.85% of the revenue generated,that it was is not in tune with the standards of other persons en .....

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rgued 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 w .....

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as per profit and loss account,that the AO had failed to consider the above factors which explained as to why the realisation value was ₹ 6,88,756/only, that he had also considered the steel scrap realization value @ ₹ 18,000 to ₹ 20,000 per ton without appreciating the quality of scrap due to environmental and operational usage,that he had not considered the important factor being huge transport costs for loading and unloading of scrap and bring it to nearby cities for dispos .....

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s not sufficiently detailed and it only gave information about brief description quantity rate etc,that the assessee had been dealing with the above parties since last 10 years,that because of long association the quality style, grade and specifications of materials required by the assessee were well known to them,that the assessee would place verbal orders as per their requirements,that the owners were themselves operating the cranes at various sites across the country,that preparing and submit .....

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by KB and CJSC along with confirmation of accounts.With regard to the weigh bridge slips it was stated that there was no reliable weight bridge in Kalamboli area,that the weighment shown in the purchases of KB was taken to be correct since it was made at the manufacturing unit of M/s. Uttam Galva or M/s.Jindal Steel or their distributors,that similar was the case CJSC,that a statement on oath of one of the partners confirming the above was recorded by the AO on 16/ 12/2011.Sample copies of invoi .....

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a 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 th .....

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es and material used for repairs to the cranes,he laid emphasis on delivery challans and weigh bridge slips,that he had not gone in to the details of analysis of stock,receipt of material,mode of payment etc.,that the assessee had submitted supporting evidence by giving copy of the returns of the suppliers, that affidavits of KB and CJSC and sworn statement by the partners were not considered,that AO s observation in that regard was not correct,that the generation of scrap of ₹ 6.88 lakhs .....

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ot be taken into cognigance,that the observation of the AO with respect to low generation of scrap was appeared to be correct. However,the FAA was of the opinion that the conclusion drawn by the AO in estimating 35% of the revenue generated as expenditure incurred for repairs to machinery was not acceptable.He held that the conclusion of the AO was not supported by any corroborative evidence nor was supported by any comparable cases in similar business activity, that the correct method of arrivi .....

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items and labour costs for repairs,that the quantity of scrap generated and the net realizable value of the scrap could be worked out by taking a reason able percentage 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 .....

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ems was reasonable.He estimated that the assessee must have realised ₹ 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 ₹ 90,04,000/it worked out to 12.2%of expenditure in question.He directed the AO to add ₹ 83,15,244/on account of income from Sale of scrap instead of ₹ 2,39,29,400/. 4.Before us,the Authorised Representative (AR)stat .....

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crores, that copy of affidavit and printout from salestaxwebsite in case of CJSC and KB were filed before the AO.He referred to page No.41,42,37,35 of the PB and stated that while completing the assessment for the AY.200405 the AO had made no addition in that regard.Alternatively it was argued that the addition confirmed by the FAA was on the higher side.Departmental Representative supported the order of the AO.He contended that the assessee had claimed 51% of the gross receipts towards repairin .....

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