TMI Blog2005 (3) TMI 385X X X X Extracts X X X X X X X X Extracts X X X X ..... explain, the assessee submitted its reply stating that the underground wire was normally not recovered as the cost of recovery of the same is much higher than the value of scrap. Besides, it might cause damage to building and flooring. However, while examining the details of old stores sold for Rs. 1,55,821, the AO observed that only sale of copper wire worth Rs. 16,000 was shown. The AO also visited factory and found that the remaining quantity of copper wire was not shown in the stock. The AO observed that the copper wire being precious item, the assessee could not have thrown away the same. Accordingly, the AO estimated the total quantity of copper wire at 12,274 kg. and reduced therefrom 60 per cent of the same as irrecoverable, i.e., 7,384 kg. The AO estimated the value of the scrap at Rs. 50 per kg. for the remaining wire weighing 4,623 kgs. which worked out to Rs. 2,31,150. He reduced therefrom a sum of Rs. 16,000 being sale proceeds of the copper wire and made net addition of Rs. 2,15,150 (Rs. 2,31,150-16,000). 3.1 Further, the AO noticed from Annex.-8 wastage of 76,336 kg. on consumption of 5,85,294 kgs. which worked out to 13.04 per cent as against 8.66 per cent shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the CIT(A) and restored that of the AO on the ground that higher wastage accepted by the Department for the earlier years could not be a ground for not making an addition for the assessment year under consideration, moreso, when the assessee could not satisfactorily explain the same. The Tribunal also observed that the fact that GP rate for the assessment year under reference was higher as compared to earlier years was irrelevant because this issue had not been discussed in appeal by any authority. The Tribunal also observed that mere fact that the AO had not specifically mentioned about rejection of book results and invoking of provisions of s. 145(2) was not important because the questions raised by the AO remained unexplained and the assessee failed to explain before the AO about the reasons for increase in wastage. Thus, the Tribunal upheld both the additions. 6. Thereafter, the AO took up the penalty proceedings under s. 271(1)(c). It was submitted before the AO that the additions made by the AO had been deleted by the CIT(A) and appeal filed by the Revenue against the order of the CIT(A) was still pending with the Tribunal. It was, therefore, requested that the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discharge initial burden. It was also contended that both the additions in regard to excessive wastage shown and profits under s. 41(2) were made by rejecting assessee's explanation and on estimate basis, no penalty for such estimated additions could be levied. Accepting the contentions of the assessee, the learned CIT(A) cancelled the impugned penalty by recording following finding : "08. I have considered the above facts and arguments. As is apparent from the above discussion, both the additions have been confirmed only as a result of rejection of the explanation of the appellant. The CIT(A) (para 4.4 above) has rejected the explanation on grounds of probability and the Tribunal have confirmed the same as far as addition under s. 41(2) is concerned. The explanation regarding wastage is, on an even weaker footing. The CIT(A) has accepted the explanation of the appellant but the Tribunal has rejected the same. A perusal of the findings of the Tribunal (para 05. above) indicates that the Tribunal have merely declined to accept the explanation given. 09. In the case of CIT vs. Devi Dayal Aluminium Industries (1988) 72 CTR (All) 7 : (1987) 171 ITR 683 (All), the ITO did not acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the appellant and the above discussion, the penalty order dt. 28th July, 1998, is without any justification and is cancelled." 8. The learned Departmental Representative heavily relied on the order of the AO. He submitted that during the course of assessment proceedings, the AO examined in detail about the old items discarded during the year and found that the assessee had not properly accounted for old copper wire purchased during the years 1955 to 1965. The assessee had accounted for only sale of scrap and copper wire to the extent of Rs. 16,000. He submitted that the addition made in this regard was finally upheld by the Tribunal. He further submitted that the assessee had shown excessive wastage in the worsted yarn division which was 13.16 per cent as against last years wastage of 8 per cent. He submitted that during the course of assessment proceedings, the assessee submitted an explanation which was examined by the AO and rejected. Therefore, the addition was made and the same was also upheld in appeal. The assessee failed to substantiate the explanation and, therefore, penalty under s. 271(1)(c) read with explanation thereto was rightly imposed by the AO. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation of the assessee does not mean that the assessee had either concealed or furnished inaccurate particulars of its income. 9.1. As regards, the second addition of Rs. 34,28,414 on account of excessive wastage, the learned counsel drew our attention to p. 25 of the paper book which is a copy of the assessment order where again the AO has mentioned that keeping in view the past history of the case, visible wastage was estimated at 8 per cent and invisible wastage at 1.26 per cent. Here also, the AO made the addition purely on the basis of assumptions and presumptions and on estimate basis. There is no evidence or material available with the Department that the assessee had indeed suppressed production and sold the same in the open market. He drew our attention to p. 14 of the paper book which shows comparative position of wastage in woollen and worsted division. He submitted that for the asst. yr. 1981-82, the wastage of woollen and worsted division was 9.08 per cent and the same was at 22.51 per cent for woollen division. Similarly for the asst. yr. 1982-83, the wastage in worsted division was 8.66 per cent and in the woollen division was 22.76 per cent. As against the same, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compared to earlier years. He drew our attention to p. 15 of the paper book where it was mentioned that the assessee had manufactured Angola and Serge Battle Dress for defence requirements in the earlier assessment years representing 55.4 per cent of production whereas in the assessment year under reference, the assessee had manufactured only 44,391 kgs. which accounted for only 8.77 per cent of the total production. Since such quality is rough, it did not require excessive combing and recombing which results in higher wastage. It was also submitted that the assessee had maintained complete quantitative details both lotwise and overall quantitywise. It was also submitted that the item manufactured by the assessee was subjected to detailed examination by the excise authorities and no item could be removed without payment of excise duty. Thus, there was no possibility of there being any extra production, sale thereof without being detected by the excise authorities. The mere fact that the additions have been made by rejecting the assessee's explanation did not mean that the assessee was guilty of concealment of income or furnishing inaccurate particulars thereof. 10. Proceeding f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d facts of the case are that the AO made an addition of Rs. 2,15,150 under s. 41(2) in respect of sale of copper wire and Rs. 34,28,414, being a trading addition made on account of excessive wastage in worsted division. It is also a fact that both the additions were deleted by the CIT(A) and restored by the Tribunal. There is also no dispute about the fact that the assessee had maintained complete books of account duly supported by bills and vouchers and were subjected to audit also. There is also no doubt about the fact that the assessee had offered explanation in regard to both the additions. It is also a fact that both the additions have been made on estimate basis on the assumption that the assessee had not properly accounted for copper wire and wastage shown in worsted division was higher as compared to earlier assessment year. Nevertheless, the fact remains that the GP rate shown by the assessee was much higher as compared to earlier assessment years and besides even the wastage shown by the assessee in the worsted division for the assessment year under reference was lower than some of the earlier assessment years. Besides, it is also a fact that the wastage shown in the wool ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been made on estimate basis only, by assuming the quantity of wire, quantity of irrecoverable wire or the quantity realised by the assessee. There is no definite information with the AO that actually old wire sold was more than worth Rs. 16,000. 11.3 Similar is the position with regard to wastage shown in the worsted division. There is no denying the fact that the assessee had maintained complete quantitative details indicating the consumption and yield of the same. It is also a fact that the wastage shown in the woollen division was much less as compared to worsted division in comparison to earlier assessment years. If the assessee had intention of manipulating trading results, it could have easily done in the woollen division also. Further, addition was made purely on estimate basis as discussed in the preceding paragraphs and the addition has been made on the ground that the explanation of the assessee is not found to be satisfactory. But this does not automatically lead to the conclusion that the assessee had concealed the income with a view of evade tax or conduct of the assessee was mala fide. Thus, here also, penalty under s. 271(1)(c) could not be levied merely becau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld the order of CIT(A). The AO levied penalty under s. 271(1)(c) on the ground that the estimated addition made on account of low yield of phak and chhilka was upheld in appeal. On further appeal before the CIT(A), the penalty levied was cancelled on the ground that there was no proof that the assessee had concealed the income. This order was upheld by the Tribunal on the ground that additions have been made on estimated basis. On a reference, the order of Tribunal for cancelling the penalty was upheld by the Hon'ble High Court. (viii) CIT vs. Bharat Rice Mills (2001) 169 CTR (P H) 455 : (2001) 250 ITR 584 (P H) In this case, the AO made the addition on the ground that the yield of rice and phak shown by the assessee was lower. On appeal, the learned CIT(A) upheld the addition. On appeal, against the order of the CIT(A), the Tribunal deleted the addition on the ground that the yield shown by the assessee was fair and reasonable. Thus, even addition made on account of low yield was deleted and such order was upheld by Hon'ble Punjab and Haryana High Court. (ix) ITO vs. Nandi Steel Works (P) Ltd. (1997) 63 ITD 364 (Bang). In this case, the AO made additions on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as income from undisclosed sources and later imposed a penalty under s. 271(1)(c). On appeal, the Tribunal found that assessee had produced books of account to show that goods had been purchased on credit and all payments made after disposing of the same. The Tribunal cancelled the penalty on the ground that explanation given by the assessee was plausible. On a reference, the Hon'ble Punjab Haryana High Court upheld the order of the Tribunal for the reason that the burden of proof placed on it by explanation to s. 271(1)(c) stood discharged. This judgment is equally applicable to the facts of the present case. Here also, the assessee has discharged the onus by offering a plausible explanation. Moreover, where complete books of account are maintained by assessee which are duly audited, all purchases and sales are duly supported by bills and vouchers, all expenses are vouched, no defects in the books or specific instance in regard to suppression of purchases and sales have been pointed out by the AO, it could not be said that assessee failed to substantiate the explanation and on these facts, it could not also be said that the explanation of the assessee was not bona fide and mater ..... X X X X Extracts X X X X X X X X Extracts X X X X
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