TMI Blog2010 (4) TMI 1137X X X X Extracts X X X X X X X X Extracts X X X X ..... 00/- for sale of scrap in assessment year 2004-05 with the following observations: During the year assessee has made sales of ₹ 80,28,82,276/- towards exports and the sum of ₹ 18,78,980/- towards domestic sales. Total raw material consumed during the year was of ₹ 40,29,95,556/- but only ₹ 1,17,250/- was shown as wastage/scrap sales included in the domestic sales. Considering the nature of manufacturing activity of the assessee and practice prevalent with exporters in similar business and looking to the size of turnover generation of scrap must be substantial. The sale of scrap/wastage material shown by assessee is quite low hence a lump sum of ₹ 6,50,000/- is being added on ad hoc basis to the income of the assessee for the year under consideration. 3.1 In assessment year 2005-06, Assessing Officer made addition of ₹ 6,63,832/- for alleged sale of scrap, after rejecting assessee s explanation dated 22.11.2007 and with the following observations: While manufacturing the garments it is true that some small scrap and cuttings are generated and the same has negligible value and is normally destroyed by us to keep and maintain secrecy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t.28.3.2008 in the case of M/s Krishna Kumar Aggarwal vs. ACIT in ITA No. 1187 3992/2006; has affirmed its decision in that particular case for the immediate preceding year wherein it was held that estimation of scrap in this kind of trade can reasonably be made at 0.2% of the turnover. However, the AO has estimated the value of scrap generated at 11,00,000/- only. The assessee has booked a sales turnover of more than ₹ 148 crores. By the methodology found acceptable by the Hon ble ITAT, the generation of scrap comes to almost ₹ 30 lakh. However, the AO has estimated the same at 11 lakhs. Taking care of the stand of the Hon ble Tribunal on this issue, the estimation made by the AO is quite reasonable and very humble at best. The appellant has not made out a case that it was maintaining any record of wastage or percentage yield in manufacturing activity. The AO has quite reasonably estimated the sale of scrap at 11,00,000/- which is about 0.06% i.e. 1/3rd of the quantum of scrap accepted as reasonable by the Hon ble ITAT in this line of trade. 6. The assessee is in appeal challenging additions sustained by the learned CIT (Appeals). 7. We have heard both the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the foreign companies. He accordingly concluded that no evidence was available for explaining visit to Dubai, Hongkong and Singapore and to show that these visits were for purposes of business. The Assessing Officer also rejected the claim of the assessee that partners of the assessee had visited Hongkong and Singapore for import of accessories. This rejection of claim was made as no evidence of work done by partners with regard to such import was available. The Assessing Officer also remarked that assessee had failed to produce any tour report or correspondence with buyers relating to visits to Hongkong, Singapore and Dubai. It was held that expenses of ₹ 22,37,578/- in the foreign travel account were not incurred for purposes of business. 8.2 In the assessment year 2005-06, the Assessing Officer disallowed ₹ 11,14,390/- i.e. 20% of expenses as utilization of foreign exchange was not found to be supported by relevant bills and vouchers. This action was justified on the basis of decision of Hon ble Madras High Court in the case of Seshasayee Brothers Ltd. Vs. CIT 42 ITR 568 and of Hon ble Bombay High Court in the case of Cooper Engineering Ltd. Vs. CIT 135 ITR 597 (B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of ITAT F Bench in the case of Richa Knitwear (sister concern) wherein similar disallowance was made but on appeal, it was deleted. Having regard to material before him, the CIT (Appeals) held that expenses claimed by the assessee were quite reasonable and it was not shown that foreign exchange was utilized for personal purposes. The disallowance made was accordingly deleted. 11. In order for assessment year 2005-06, the learned CIT (Appeals) noted utilization of foreign exchange by the assessee as furnished to the Assessing Officer in letters dated 9.4.2007, 19.10.2007, 01.11.2007 and 15.11.2007 and detail furnished therewith. The CIT (Appeals) also examined purpose of visit of partners and employees to different places. He also noted that foreign traveling in the assessment year were only 1.33% of the total turnover which was less than 1.34% of last year. The CIT (Appeals) also noted that ITAT in the case of Richa Knitwear (sister concern), F Bench and in the case of Continental Carriers Pvt. Ltd. vs. ACIT ITA No. 5320/Del/04 dealt with the similar issue and allowed similar expenses. In the ultimate analysis, the learned CIT (Appeals) observed as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to the turnover and income shown by the assessee, we do not see any justification for disallowing the amounts in question out of the telephone expenses claimed. Deletion of disallowance on facts is held to be fully justified. This ground of appeal of the Revenue is rejected. 14. The next ground of appeal relates to deletion of addition of ₹ 1,97,773/- out of job work income. At the time of hearing, both the parties accepted that this ground of appeal does not arise in the assessment year 2004-05. In assessment year 2005-06, the Assessing Officer found that TDS Certificate showed that assessee had carried job work of value of ₹ 4,17,888/-. However, in the return for the relevant year it had shown receipt of ₹ 2,20,115/- only. Accordingly ₹ 1,97,773/- was added in the income of the assessee for assessment year 2005-06. 15. On appeal, the assessee explained to the CIT (Appeals) that job work receipt of ₹ 1,97,773/- pertained to assessment year 2004-05 and was duly accounted for in that assessment year. The Assessing Officer examined relevant evidence and found contention of the assessee to be correct. The learned CIT (Appeals) further record ..... X X X X Extracts X X X X X X X X Extracts X X X X
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