9911796707
TMI Blog2006 (1) TMI 611X X X X Extracts X X X X X X X X Extracts X X X X ..... ut prejudice to Ground No.1, that the Ld. Commissioner of Income-tax (Appeals) is not justified in confirming the action of Ld. A.O. in making addition of entire concealed sales amount outside books of accounts estimated by him on account of excess Scrap generation, without giving allowance to any expenses or considering Gross Profit rate declared by the appellant and accepted by him, which is based on surmises and conjecture, contrary to facts and provisions of law, hence the addition of entire amount of sale be restricted to Gross Profit on same. 3. That on the facts and in the circumstances of the case Ld. Commissioner of Income-tax (Appeals) is not justified in confirming addition of ₹ 13,15,362/- i.e., 15% out of total Polishing Expenses claimed by the appellant which is based on surmises and conjecture and contrary to facts and provisions of law and the addition so made needs to be deleted. 4. That on the facts and in the circumstances of the case Ld. Commissioner of Income-tax (Appeals) is not justified in confirming disallowance of Membership fees of ₹ 25,000/- and further denying claim of appellant U/Sec 80G of the Income Tax Act, 1961 on the said payment ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t furnished to the authorities below as mentioned in the application and, thus, it was contended that those documents should be admitted as additional evidence. ITA No.1412/Del/2006 3. First, reference has been made in that application that a paper book vide letter dated 15th October, 2000 has been submitted before the Tribunal which contains assessment record in the case of the assessee for subsequent assessment years i.e., for assessment years 2003-04 onwards. It is contended that the said paper book contains the details which are germane for determining the issues under controversy for the assessment year under consideration. It is mentioned that since these documents were not existing when assessment order took place and the order of the CIT (A) took place, therefore, these documents should be admitted. 4. It is further mentioned that the documents marked as 'Annexure-A' relates to photographs showing how the manufacturing process takes place in the case of the assessee and these documents are necessary in order to depict the process that has been described by the Ld. CIT (A) at page 3 of his order. 5. Further reference is made to 'Annexure-B' which is a cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber, 2006 which is marked as 'Annexure-C' It was contended that the assessee has not mentioned that what was the reason for non-production of this certificate either before the Assessing Officer or before the CIT (A). It was submitted that Delhi Stainless Steel Trade Federation was existing much prior to the date of assessment order. Therefore, there is no reason for the assessee to now produce the said certificate to support his case. Thus, it was submitted that the evidences sought to be produced by the assessee should not be admitted as no cause has been shown as to why the assessee was prevented from producing these documents before the Assessing Officer or CIT (A). ITA No.1412/Del/2006 10. have heard both the parties on this issue. So as it relates to 'Annexure - A' i.e., the photograph showing the manufacturing process, it starts from S.S. Flat which is converted to S.S. coil and then S.S. Patti after hot rolling and cold rolling and, thereafter, the same is cut and pressed, it is trimmed and then black utensils are produced and, thereafter, finished utensils are produced after polishing. This is a simple process shown by the assessee of the manufacturing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing process of the exporters in Wazirpur Industrial Area. For DELHI STAINLESS STEEL TRADE FEDERATION." 15 The above mentioned certificate was annexed to the following letter in respect of Assessment Year 2003-04:- "16.1.2007 To The Commissioner of Income Tax Appeals-XXVII, New Delhi. ITA No.1412/Del/2006 Sub : Proceedings in the appeal matter of M/s Stainlay India, Appeal no. for the Assessment Year 2003-04. Respected Sir, We beg to submit that in the captioned matter listed for hearing today, the Hn. CIT (A)-XXII in his order dated 20.01.2006 had adjudicated upon the matter of reasonable scrap generation rate @ 30% basing his estimate on the certificate issued by Delhi Stainless Steel Trade Federation dated 16.03.2002. However, the copy of said certificate was not made available to us. Hence, you are requested to provide us a copy of the said certificate from the file of Assessment Year 2002-03. Further, a copy of certificate issued by Delhi Stainless Steel Trade Federation dated 07.12.2006 is enclosed for your record and ready reference. In view of the foregoing your honour is requested to kindly do the needful and oblige. For Dass Gupta & Associates Char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn the generation of scrap in the manufacturing process which was shown @ 40% for the year under consideration. While comparing the same with the immediate preceding year it was found that the same was to the tune of 41.42%. The assessee was required to justify its claim. Vide letter dated 15th March, 2005 it was submitted that when the utensils are prepared from Patti after cutting circles therefrom, .the patti used in rectangular shape and edges are not parallel, when a circle is taken from it, ITA No.1412/Del/2006 the scrap comes to 20 to 40% and, then, while pressing the circles into press machine also sometimes the circles are broken and that results into scrap. After the preparation of edges, wastage remains 2 to 5 % and similarly, wastage is 1% at the time of polishing. It was submitted that generation of scrap depend upon the quality of the flat and patti used and it also depends on quantity and size manufactured. It was submitted that the assessee maintains quality to meet the requirements of foreign buyers. It was submitted that Central Excise Department has given an input/output ratio by which it has been mentioned that if utensils are prepared from S.S. Patta the output ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Ld. Assessing Officer did not cite or give any name of the case to compare the case of assessee with that case. 22. It was submitted that most of the exporters who have shown scrap generation of 25% had manufactured their utensils from the raw material in the form of S.S. Flats and S.S. Patta. It was submitted that so as it relates to reliance of the Assessing Officer on the new Import-Export Policy and the Handbook of Procedures, no book was provided to the assessee and it was not brought to the notice of the assessee to controvert the same. So as it relates to the observations of Assessing Officer regarding order of the CIT (A) in one case where generation of scrap was held to be proper at 25%, it was submitted that no copy of such order was ever provided to the assessee. It was submitted that non-confronting the assessee with the evidence which was relied upon by the Assessing Officer to hold that generation of scrap was justified only to the extent of 25%, is against the principles of natural justice and for contending that such evidence could not be used against the assessee unless the same was confronted, reliance was placed on the following decisions:- i) Suraj Mal Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submission of the assessee in para 7.3, the CIT (A) has also found that the case relied upon by the Assessing Officer of CIT (A) wherein 25% scrap generation was held proper, was also examined and the observations of CIT (A) in that order has been reproduced in para 7.4 of the impugned order which is reproduced below:- "The Export-Import policy document of the Government of India can still form a good basis for forming the estimate. It prescribes the following percentage of shortage:- 1. Stainless steel utensils manufactured from stainless 25% steel sheets and circles 2. Stainless steel utensils manufactured from stainless 39% steel coil 3. Stainless steel cutlery manufactured from stainless 35% steel sheets. A list of 30 articles has been given under item number 2 above. There is no proof that the appellant as manufactured these items from stainless steel coils. It has been emphasized before me by the appellant that the appellant has made extensive use of indigenous steel sheets, therefore, the percentage of 39% is not to be considered for estimate purposes. Further, as item wise record has not been kept, the ratio of cutlery to utensils cannot be found out. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Stainless Steel Trade Federation from Wazirpur Industrial Area, Ld. CIT (A) has allowed the generation of scrap to the extent of 30% and he directed the Assessing Officer to give the proper relief to the assessee by taking the sale price at ₹ 91.58 per Kg., and the grounds of appeal was partly allowed by the CIT (A). The assessee in its appeal is aggrieved by the sustained part of the addition and revenue in its appeal is aggrieved by the deleted portion of addition. ITA No.1412/Del/2006 27. It was submitted by Ld. AR that the Assessing Officer has erred in applying 25% rate of generation of scrap. It was contended that while doing so, the Ld. Assessing Officer has relied upon Appendix-41. The reliance placed by Assessing Officer on Appendix-41 is wrong as the item against which the norms of 25% generation of scrap is described is an item relating to stainless steel utensils made from stainless steel sheets and circles. It was contended that as against that as mentioned in Item No.76 if the stainless steel utensils are made out of stainless steel coil, then, the percentage of wastage attributable to generation of scrap will be 39%. It was submitted that to support such con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also accepted that the assessee has been maintaining proper records with respect to its manufacturing activities and no defect whatsoever has been pointed out by the Assessing Officer to show that there was any discrepancy in those records. Thus, it was pleaded that so as it relates to addition sustained by the CIT (A) on account of excess generation of scrap and resultant sales made outside the books of account should be deleted. It was pleaded that in the absence of any evidence existing on record to prove that any outside sale was made by the assessee, such addition will be based only on the basis of presumption and surmises. 29. So as it relates to departmental appeal in which the deletion of addition to the extent of generation of scrap from 25% to 30% has been agitated, it was submitted by Ld. AR that this ground of the Department deserves to be dismissed for the simple reason that the basis adopted by the Assessing Officer for making the additions were not correct as the decision relied upon by him of the CIT (A) was distinguishable on facts. Similarly, reliance of Assessing Officer on Appendix-41 has also been wrongly placed as the stainless steel utensils were never pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingle instance as been quoted or substantiated by the Assessing Officer in ITA No.1412/Del/2006 his findings recorded in the assessment order. However, the CIT (A) relying on the certificate of Stainless Steel Trade Federation of Wazirpur Industrial Area, has applied the rate of 30% by giving the part relief to the assessee. Here, it will also be important to note that the Appendix-1, the reliance of which has been placed by the Assessing Officer in Item No.1 itself, state in Item No.76 that if stainless steel utensils are made from stainless steel coil, the generation of scrap will be around 39%. A full copy of Appendix-41 has been placed on record by the Ld. AR of the assessee. Appendix-41 is "norms of scrap/waste material for an export project under export-oriented units and units in export processing zones." Therefore, the authenticity of the said Appendix cannot be denied. It describes percentage of scrap/waste material for manufacture of various items which are intended to be exported. The certificate which was relied upon by the CIT (A), according to the assessee was not confronted. As against that a certificate dated 7th December, 2006 in respect of another year w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of generation of scrap is comparable with the immediate preceding year and the generation of scrap is in the near vicinity of norms prescribed in Appendix-41, we find no merit in the sustenance of part addition which is deleted. 32. Keeping in view the above discussion, we are of the opinion that no addition could have been made in respect of generation of excess scrap. Therefore, ground raised by the revenue is dismissed and ground raised by the assessee is allowed. 33. Ground No.3 of assessee's appeal and ground No.1 of departmental appeal raise common issue i.e., disallowance made on account of polishing expenses. This issue has been discussed by the Assessing Officer in para 5. It was noted that polishing expenses were claimed to the extent of ₹ 87,69,077/- and the partywise details was as under:- S.No. Name of the party Amount (Rs.) Remarks 1. Haider Polisher 659,207 2. Sudhir Polishwala 687,242 3. Javed Polisher 756,710 4. Ahmed Bright Polisher 769,646 5. Sarif Polisher 667,446 6. Bhardwaj steel polish work 13,55,579 7. Hussain polisher 590,462 8. Raja Ram Polishing work 602,875 9. Amin Polisher 10,63,221 10. Sanjay Polisher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposited ld. Assessing Officer observed that assessee did not prove that these expenses were incurred for the purpose of business. The Assessing Officer further observed that the returns of those parties are filed by the assessee only on 24th March, 2005. The assessee was required to produce these people for verification when they were not produced. Simply filing the return of income does not prove the identity of these persons because returns of these parties were filed only on the last date of hearing i.e., 24th March, 2005. It is in this manner the Assessing Officer made the disallowance of polish expenses in its entirety as a sum of ₹ 87,02,407/-. The addition was challenged before the CIT (A) and this issue has been discussed by the CIT (A) in the impugned order in para 5 to 5.10. Before the CIT (A) it was submitted that the assessee is maintaining a complete record consisting of production/stock register which contains the following quantity details and information: (a) Purchase of raw material (b) Raw material issued from stores for manufacturing (c) Quantity of black utensils manufactured (d) Quantity of scrap generated ITA No.1412/Del/2006 (e) Black utensils is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tered in day-to-day stock register are false or not received back. (h) That the payments for polishing charges either not made or not made through proper banking channels. (i) That the TDS required not deducted or deposited or not properly reflected in TDS return filed by the appellant firm. (j) That the identity of contractors i.e., names and addresses of contractors were not disclosed and genuine. (k) That the accounts are not audited u/s 44AB or there is any adverse comment in the audit report. (l) The appellant has any other arrangement of polishing or has claimed any other expenses on this account. (m) That appellant has not exported polished and finished utensils. (n) The appellant has claimed any expenditure on account of consumable store required to do polishing of black utensils. 36. In the alternative it was submitted that the Assessing Officer was wrong in making disallowance of expenses in their entirety and to support such contention it was submitted that during the year under consideration expenses on this account are incurred only to the extent @ 8.90% of the total value of export in comparison to 9.64% in the immediate preceding year. 37. Ld. CIT (A) after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1412/Del/2006 40. e have carefully considered the rival contentions in the light of the material placed before us. Polishing expenses have been claimed by the assessee to the extent of ₹ 87,69,077/- which are claimed to be paid to 12 parties as detailed in para 33 of this order. The letters addressed by the Assessing Officer to those parties were received back and similar was the fate of Inspector's report. However, as noted in para 34 of this order that vide letter dated 23rd March, 2005 it was submitted by the assessee that after making efforts, the assessee has located all the polishers. It was also submitted that those parties had changed their address due to government restrictions because of their unauthorized use of premises. It was also submitted that TDS was deducted @ 21% and it was also deposited in time. Therefore, it is undisputed that from all these parties, TDS was deducted at source by the assessee and tax was also deposited in time. It has been stated in the letter filed by the assessee before the Assessing Officer that after hard efforts the assessee has been able to locate all the polishers and it is also stated that as the polishwallas was illiterate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be said that parties were unidentifiable or no work was done by them. Therefore, we do not find any substance in sustenance of part addition. In this view of the situation, after hearing both the parties, we delete the disallowance sustained by the CIT (A). Therefore, ground No.1 of the revenue is dismissed and ground No.3 of the assessee is allowed. 41. Apropos ground No.2 of departmental appeal, the Assessing Officer noticed that packing expenses in respect of three following parties were claimed by the assessee :- 1. Giriraj Plastics Payment of ₹ 596,661 2. JSM Pack Rs.757,072 3. Kapson Packing Industries. ₹ 413,315 Total ₹ 17,67,048/- 42. To verify the genuineness of these expenses, the Assessing Officer issued notices u/s 133(6) of the Act. Those notices were received back with the ITA No.1412/Del/2006 remarks 'no such firm' and 'incomplete address." The assessee was required to explain and the assessee was also asked to produce the parties along with their books of account and their income-tax particulars such as PAN, proof of filing the return of income, etc. To give the details of mode of payments to those parties, such as account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls will show that there is a complete record of all packing material purchased and all the purchases made are genuine business expenditure duly supported by invoices and all these payments are made through account payee cheques. The copy of official certificates showing all the payments made to them through cheques were also submitted. It was submitted that out of three suppliers two suppliers appeared and one could not appear, but the said party is regularly assessed to income-tax. It was submitted that two types of packing material was purchased; one is Polythene bags and the other is corrugated bags. Both these packing material are essential part of packing particularly when the goods are exported out of India. The CIT (A) after considering these submissions has observed that the identity of the supplies stands established in terms of bank account of the suppliers since the payments are made to them by payees account cheques. The cheques have gone to their bank account. The identity of supplier is exposed to their bankers and the persons who introduced their accounts. Therefore, the CIT (A) observed that purchase cannot be held to be bogus simply on the ground that they did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Manmohan Kapur on 18th March, 2005 who admitted to have supplied material to the assessee and in the case of Kapsons Packing Industries a confirmation in the shape of copy of account was filed. According to the Assessing Officer, in the case of M/s JSM Pack .though the person was produced, but no bill/voucher for expenditure and purchase and regular books of account of supplier was produced. In the case of Kapsons Packing Industries, PAN was not given. In respect of disallowance it was submitted by the assessee before the CIT (A) that packing was a foremost requirement of the assessee's business as utensils could not be exported without packing. Detailed information was submitted to Assessing Officer which was in the form of name and address of the supplier, nature of goods purchased, invoice number, date of invoice, invoice amount, amount paid, mode of payment, nature of packing material purchased, its quantity and value. It was submitted that purchases were on regular basis which can be verified from the accounts. The persons from whom these purchases have been made are regular suppliers who had made the supplies in the preceding and succeeding years. It was submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt having received by them, it cannot be said that the disallowance deleted by the CIT (A) was unjustified. No material whatsoever has been brought on record by the Assessing Officer to suggest that any of the expenditure claimed by the assessee were bogus. In this view of the situation, we find no infirmity in the disallowance being deleted by the CIT (A). We decline to interfere and this ground of the revenue is dismissed. 47. Ground No.5 of the assessee's appeal is regarding disallowance of claim u/s 80-G amounting to ₹ 25,000/.- The Assessing Officer has discussed this issue in para 2. The Assessing Officer observed that the assessee had claimed expenses of ₹ 48,151/- on account of subscription and membership fee. Vide reply dated 2nd March, 2005 it was submitted that the payment was made to some educational society. As the assessee did not file proof of such payment, the Assessing Officer disallowed the same. Ld. CIT (A) has discussed this issue in para 10 to 10.4 Before the Ld. CIT (A) it was submitted that the said amount ITA No.1412/Del/2006 of ₹ 25,000/- was paid to school namely Adarsh Shiksha Sansthan, Ashok Vihar in the vicinity of the business p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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