9911796707
TMI Blog2024 (11) TMI 1264X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence and material justifying such additions?" 2. The assessment year involved in the present case is 1983-84. The facts of the case regarding addition of Rs. 34,28,414/- as noted by the A.O. during the course of framing of assessment order are that the A.O observed that assessee had shown wastage of 76,336 Kgs. on consumption of 5,85,295 Kgs. which worked out to 13.04% as against wastage shown @ 8.66% of last year on spinning of worsted yarn. When the assessee was confronted with such abnormal increase in wastage, the assessee explained the variation due to product mix manufactured by the assessee during this year as compared to last assessment year. It was submitted that in the last assessment year, the assessee in its worsted Division spin yarn for Angola and Serge Battle Dress for defence requirements weighing 95,540 Kgs representing 55.4% of production and it did not involve re-combing while during the year under consideration, only 44,391 Kgs of yarn was spun for this purpose which accounted for only 8.77% of total production. The assessee also pointed out that besides, bulk production in single shade and larger lot was made, that due to shortage and dearth of Govt. busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that though there is a wastage of 13.04% shown in the worsted yarn spinning as against 8.66% of last year, the assessee has recovered more visible waste than the last year. It has also been submitted that last year out of 8.06% of wastage, 7.49% was visible wastage and 1.17% was invisible wastage and against this during the accounting period under consideration, the assessee has recovered 12.19% visible waste and the invisible wastage is 0.86%. This argument is entirely contradictory to the argument earlier given by the assessee i.e. excess wastage is because of the manufacture of finer variety of yarn this year as compared to the last year. It is pointed out here, the more the finer variety is, the more will be the invisible wastage. Since the assessee has shown less invisible wastage, it proves that the assessee's earlier claim of manufacture of finer quality of worsted yarn is not correct. As has already been discussed above, since the assessee has manufactured majority of synthetic blended yarn during the account period under consideration, as compared to the last year, the shortage this year should have been far less than the last year. Keeping in view the above discussion, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was high in the market. The A.O, therefore, held that assessee had estimated the discarded value of the copper wire and accordingly worked out the profit under Section 41(2) of the Act as under:- Rate of copper wire in 50's was near About Rs. 7-8 per Kg. Therefore, the Cost of PVC wire was about Rs. 15- 2024:PHHC:041731-DB 16 per Kg. i.e. 5-6 yards. On a liberal Estimate the value is taken at Rs. 20/- Per Kg. Thus, the total quantity in Terms of Kg. comes to 12,274 Kgs (245558-20) 12,274 Kgs. Less 60% of its as copper wire scrap out of 7384 Kgs 2/3 is considered as reasonable 7,384 Kgs. Balance recovernable 4,623 Kgs. The scrap value is taken @ Rs. 50/- Per Kg. Thus, the value of 4623 Kgs Comes to Rs.2,31,150/- Less Value of scrap sold down Profit U/s 41(2) Rs. 16,000/- Rs.2,15,150/- Accordingly, the A.O made the addition as the assessee failed to show the value of copper wire. 4. In appeal, the CIT(A) taking into consideration all aspects deleted the addition of Rs. 34,28,414/- made by the A.O on account of excessive wastage and confirmed the addition of Rs. 2,15,150/- made by the A.O on a/c of scrap value of discarded cost. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on register of the assessee or in the method of accounting regularly appointed by the assessee and thus the addition was made without resorting to the proviso to Section 145 of the Income Tax, 1961 and contrary to the assessment orders passed for AY 1975-76 onwards, wherein higher wastage was accepted. Apart from it, during the AY under consideration, the assessee has also discarded copper wire worth Rs. 2,46,553/- and this amount has been claimed under the head 'Assets Discarded During the year'. It was submitted by the assessee that the discarded copper wire has been taken to the old store account and whenever there is any sale, it is shown in the profit and loss account. It was further submitted by the assessee vide its letter dated 20.01.1986 that after the underground wire loses its utility, it is not normally recovered as the cost of labour charges for recovering underground wire is much higher than the value of scrap besides causing damage to building and flooring. It was further submitted that scraps sold include copper wire also. It was further submitted that the sale includes all types of stores and copper wire also. However, the AO without appreciating any of the expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was completely unsustainable. iv) It was further submitted by the learned Sr. counsel that the only reason for addition of Rs. 2,15,150/- made under Section 41(2) of the IT Act appeared to be the desire of the Assessing Officer that the company ought to have dug out undergrounds cables even at the cost of damaging building, converting cables to copper and then selling copper. No defect in the books of account maintained regularly had been found and yet it was alleged that the copper must have been sold as the value of copper was very high in the market. However, the CIT(A), without appreciating any of the arguments upheld the addition made by the AO under the head of profit u/s 41(2). v) Learned Sr. counsel further contends that aggrieved by the order of CIT (A), the revenue filed an appeal before the ITAT, Amritsar on the ground that the percentage of wastage was excessive as compared to earlier two immediately preceding assessment years. It was submitted by the assessee before the ITAT, that the assessee company has been claiming wastage since 1974-75 and the highest wastage claimed by the assessee was 16.43% and the department had never doubted the rate of wastage claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax (1961) 42 ITR 237, to submit that once the Assessing Officer has accepted the books of accounts of the assessee including the rate on which the clothing stock has been valued, a presumption cannot be drawn of wastage of 22.199 Kgs @ Rs. 154.44 per kg. Relevant para Siddheshwari Cotton Mills (P) Limited's case (supra) is extracted below:- "18. We do not accept the contentions of Mr. Sengupta that the ITO must have disbelieved the books of the assessee. In the assessment order the ITO has not adverted to the books of the assessee at all and to assume that he had considered and rejected the books would be a speculative assumption. 19. We also do not accept his further contentions that the question referred does not arise from the order of the Tribunal inasmuch as the Tribunal has only decided that the wastage claimed by the assessee has not been proved. The Tribunal has restored the order of the ITO and, therefore, must be held to have sustained the addition of Rs. 34,000. The matter having been dealt with by the Tribunal the question clearly arises out of the order. The question of the said addition, whether specifically raised or not, was in fact before the Tribunal a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecting the books of a/cs. for the assessment year in appeal it was the duty of the Assessing Officer to prove to the hilt that the quality of the accounts or production records maintained by the appellant had so deteriorated during the assessment year in appeal that a trading addition was called for by invoking the provisions section 145(2). (D) The wastage percentage accepted by the department varied from year to year because it depended not only on the quality of the machinery installed but also the quality of raw-material used, quality of production and the quality of the labour and other variables. In this connection it was specifically pointed out in the assessment year 1977-78 that wastage of 16.43% was accepted while in the assessment year 1982-83, where production records for 3 months have 8.66% was accepted. In fact, if the years 1981-82 and 1982-83 are ignored, wastage accepted by the department was always more than 13%. (E) The Excise Authorities were having a tight control over the production and production records were also maintained in accordance with the instructions of the Excise Department and without the permission of the Excise Authorities not a single yard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold for Rs. 4,29,754/-. It was further claimed that the sale included all type of stores including copper wire also. Further scrutiny of the annexure revealed to the Assessing officer that the old stores had been shown at Rs. 1,55,821/- but no details had been given. In order to verify the sale of copper wire and the stocks discarded, the Assessing Officer personally visited the factory premises of the appellant-company along with Sh. S.K.Gupta, Inspector on 20.03.1986. The Assessing Officer directed Sh. Gupta, to see the stores to find out if there was any stock of copper wire. He reported that there was no stock of copper wire at that time. Sh. R.C.Mehta, Secretary of the Appellant Company was then requested to produce the sale bill of copper wire. He produced a sale bill for the sale of copper wire worth Rs. 16,000/-. It was also pointed out by the store-keeper of the company that no sale of copper wire was made during the period 1981-82 to date except the above-mentioned sale. While challenging the addition made by the Assessing Officer under this head, the learned counsel has not denied the contention of the Assessing Officer that the appellant company had actually purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee, shown in the tabular form for the various assessment years from 1975-76 upto 1983-84, we find that the wastage percentage was varying from 13.64% and increased upto 16.43% and decreased to 8.66% only for a period of three months in the year 1982-83, while in the year 1983-84 remained consistent to 13.04%. Thus, it cannot be said that the wastage has been shown on the higher side for the year 1983-84. Moreover, this Court find that the Income Tax Authorities had accepted the earlier wastage percentage without any demur. 12. This Court, however, is also satisfied and accept the contention of the assessee that since the stock production and consumption records were maintained under the supervision of the Excise Authorities and there is no objection raised with regard to the said stock. The Assessing Officer has not objected to the total stock maintained, it could not have proceeded on a presumption alleging higher wastage shown by the assessee. 13. The relevant provision as applicable to the case of the assessee at the time of assessment year 1983-84 is reproduced as under:- "Section 145 of the Income Tax Act:- Method of accounting :- 145. (1) Income chargeable under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) of the Income Tax Act without recording any finding as to whether the case of the petitioner falls under proviso to Section 145(1) or sub-Section (2) of Section 145 of the Act. If the case of the petitioner fall under the proviso to Section 145, then the Income Tax Officer had to first reject the whole books of account of the assessee before adding any amount to the income of the assessee. The closing stock is valued as per the computation by the assessee regarding the profits and losses and if the books of account of the assessee including rate at which closing stock had been valued are accepted by the Assessing Officer, the addition to the net profit could not be made without recomputing the trading result of the assessee and if as per Section 145(1) of the Act, the trading account of the assessee are accepted to be correct and complete, the Assessing Officer without re-computing cannot make additions to the net profit. Thus, the addition of Rs. 34,28,414/- on account of excessive shortage is held to be not sustainable in the eyes of law. 17. So far as addition of profit under Section 41(2) on the sale of copper wire to the tune of Rs. 2,15,150/- is concerned, it is observed ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
