TMI Blog1992 (2) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... e calendar year ending 31-12-1983. The assessee-company also had a unit at Sidhpur in Gujarat where blended yarn and cloth were manufactured. The previous year in this case also ended on 31-12-1983. In addition, a new unit was started at Patalganga from 1-11-1982. The previous year for the new unit was 1-11-1982 to 31-10-1983. At the Patalganga Unit, the assessee-company manufactured Polyester Fibre Yarn and also had a separate trading department. The dispute before us relates to the manufacture of Polyester Fibre Yam at the Patalganga Unit. 3. In the course of assessment proceedings, the Assessing Officer found that the Assistant Collector of Central Excise had issued a show-cause notice to the assessee on 28-10-1985 alleging suppression of production of Partially Oriented Yam (hereinafter called 'POY'). The suppression was worked out in two ways. Firstly, a chemical formula for the ideal yield of polymer per unit of DMT or TPA introduced as raw material was worked out. The ideal percentage of yield was applied to the consumption of raw material and the yield, according to the formula, was worked out as 'X'. The actual yield shown by the assessee was 'X-1'. The difference betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording to him, the difference in yield when DMT was used as raw material instead of TPA was not substantial. He referred to absence of day-to-day record of wastage in RG-1 register and, came to the conclusion that the books of accounts had not been properly maintained with reference to the production and the correct profits could not be computed from the assessee's books. He, therefore, held that the wastage to the extent it was excessive represented unaccounted production and the same had been sold by the assessee at the average selling price of the year outside the books. He worked out the average rate of wastage at 3.65 per cent, which was acceptable and, on that basis, the quantity of POY short-accounted by inflating the wastage came to 1370 MT from October 1982 to December 1983. The proportionate quantity from October 1982 to October 1983 came to 1174.29 MT. This quantity was treated as unaccounted production sold by the assessee outside the books at the average selling price and the addition thus made was Rs. 15,80,94,850. 7. The Assessing Officer also mentioned in the assessment order that the assessee had filed a writ petition before the Bombay High Court against the show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer did not raise any objection to the admission of the supporting evidence contained in the paper book. 10. The paper book contained a copy of the cross-examination before the Central Excise authorities of Sri Sasidharan, Deputy Collector of Audit, who was instrumental in the preparation of the show-cause notice. It was revealed during the cross-examination that the officer did not remember the book from which the formula mentioned in the show-cause notice was taken out. The assessee was not confronted with the formula prior to the issue of the show-cause notice. The officer had no experience of the working of DMT or TPA waste polyester plant. He could not answer whether a new plant would take six to eight months to stabilise. He was not aware of the quantity of waste arising during the formation of polymer as well as during the subsequent stage. He could not say whether there was material difference in wastage when TPA was used as raw material instead of DMT. No enquiry was made from the assessee's staff regarding the actual difficulties faced. 11. The paper book also contained a copy of examination of Sri B. Prasad, Chief Chemist of the Central Excise Department, who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). There were date-wise details giving quantity of waste lifted on the basis of which transportation had been charged and on which tax had been deducted at source. The assessee had also filed quarterly return before the Income-tax Department regarding the tax deducted at source. 15. It was next submitted that the chemical formula could be applied only to ideal working but not to practical working where the conditions were less than ideal. 16. It was next submitted that it was an admitted fact that there was difference between the norm of production per unit of DMT and TPA. In case of DMT, the production was 99 per cent and in case of TPA it was 115 per cent. Even according to the theoretical formula of the Excise department, the conversion factors were 99.29 per cent for DMT and 116.036 per cent for TPA. This accounted for the difference in wastage to a substantial degree. 17. It was next submitted that it was not a fact that there was no power failure, as stated in the show-cause notice issued by the Central Excise Department. There were 37 major events of power failure apart from minor events and, a day-to-day account had been kept in a log book. The own captive power plant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... document or to cross-examine the witness produced by the appellant, or (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant. " 23. We have heard the rival submissions and, we would like to observe that Sri Sasidharan and Sri B. Prasad were not produced by the assessee before the CIT(Appeals) at all. Their examination and cross-examination were done in the course of hearing before the Collector of Central Excise and only copies of their statements were produced by the assessee in the paper book submitted to the CIT(Appeals). It is recorded in para 11 of the order of the CIT(Appeals) that the assessee gave a detailed paper book which was examined and shown to the Assessing Officer as well for his comments. However, the Assessing Officer did not raise any objection. In the circumstances, we hold that the CIT(Appeals) allowed a reasonable opportunity to the Assessing Officer as contemplated in clause (3), of Rule 46A of the Income-tax Rules, 1962. The preliminary objection is, therefore, without any merit, and it is, accordingly, rejected. 24. We now come to the main dispute regarding the addition on account of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, in assessee's case, it was submitted, no such norm had been fixed under Rule 173E of the said Rules and, therefore, the very basis for the show-cause notice was invalid. 27. The learned counsel also invited our attention to the stock taking done on 3-1-1984, for the waste, which was duly attested by the Inspector, Central Excise Department. He also referred to a detailed record or power failure available on page 238 of the paper book. He also invited our attention to a copy of the lease deed, where it was laid out that in employing skilled and unskilled labour, the lessee shall give first preference to the persons who are able-bodied and whose lands are acquired for the purpose of industrial area. 28. The learned counsel for the assessee, thereafter, invited our attention to case law on the subject. The decision of the Bombay High Court in the case of R. B. Bansilal Abirchand Spg. Wvg. Mills v. CIT [1970] 75 ITR 260 was cited first, wherein it was held that the Officer's right under proviso to section 13 of the Indian Income-tax Act, 1922 (corresponding to proviso to section 145(1) of the Income-tax Act, 1961) arises only after a finding is recorded as to the unacce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal working conditions. It cannot be applied to a situation where the production has just started and there are teething troubles along with compulsory employment of unskilled labour and power break-downs. The cross-examination of Sri B. Prasad, Chief Chemist, also shows that he had borrowed the formula from an encyclopaedia and he was not conversant with actual functioning of a plant. The chemical formula cannot be properly applied to the facts and circumstances of the present case. However, comparison with the assessee's own results in subsequent years would be a valid comparison in a normal situation, but the situation was not normal in the assessment year under consideration. It is not in dispute that the production was commenced at the Patalganga unit only in this year. Some teething troubles in the beginning are inevitable, particularly during the trial run during the startup of production. The assessee has produced sufficient evidence to show that it was obliged to employ unskilled labour from the nearby villages, as per the terms of the lease deed. According to the show-cause notice issued by the Central Excise Department, the assessee had a captive power generator and did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim of the assessee fully that the extent of wastage was as claimed in the books. There is also evidence of sale of the above waste to parties who were not related to the assessee-company and excise duty was also paid on the clearance of the above-mentioned waste for sale. The authenticity of this sale has not been challenged by the revenue. All that has been done is to ignore this evidence altogether, which is certainly not fair. This evidence, in our opinion, is overwhelmingly in favour of the assessee. When physical existence of waste is established in this manner, we are unable to see how an inference can be drawn that the waste was really finished goods and, to go even a step further, i.e., suppressed production was sold. We may observe that, on the other hand, the revenue has not been able to produce any evidence of physical sale of any suppressed production. 36. We now come to the law applicable to the issue before us. It is laid down in section 145(1) of the Income-tax Act, 1961, that the income chargeable under the head " Profits and gains of business or profession " shall be computed in accordance with the method of accounting regularly employed by the assessee. Two exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein it was held that the mere fact that the percentage of dead loss of cotton was high in a particular year cannot lead to an inference that thereby there has been suppression of production in a spinning mill. The assessee has also rightly relied on the decision of the Jammu Kashmir High Court in the case of International Forest Co. wherein it was held that in the case of forest coupe, mere low yield of out-turn compared to earlier years was not sufficient to make an addition. We need not go into the third case cited by the assessee in the case of CAIT v. M. J. Cherian since we are considering the provisions of section 145 of the Income-tax Act, 1961 and not the provisions of Agricultural Income-tax Act. 38. For the above reasons, we are satisfied that the order of the CIT(Appeals) is fair and reasonable and hereby confirm the same. The appeal filed by the revenue in the first ground before us is rejected. 39. The second ground raised by the revenue is reproduced below : " On the facts and in the circumstances of the case and in law, the learned CIT(Appeals) erred in directing the IAC (Assessment) to work out the disallowance from salary and perquisites of employee-directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure of Rs. 1,23,202 incurred on stamp duty in connection with the sale of property by the assessee-company as a revenue expenditure. " 46. The Assessing Officer noticed that the assessee had paid Rs. 1,23,202 as stamp duty and registration charges and legal fees for the conveyance deed executed for transfer of immovable property on 2-8-1983. The property was purchased in the joint names of Sri V. R. Ambani, R. H. Ambani HUF and Smt. Padma Ambani and sold during the assessment year 1979-80 when the profit on sale of assets was shown. The stamp duty was paid during the year under consideration and it was claimed out of the income of this year. The Assessing Officer held that since the amount pertained to immovable property. it was capital expenditure and disallowed the same. 47. It was explained before the CIT(Appeals) that the expenditure was in respect of sale of property and not purchase of property and, therefore, it could not be taken as capital. Further, the property was a business asset and the surplus was taxed under section 41(2) of the Act in the assessment year 1979-80, on the basis of agreement for sale. The conveyance deed was executed in this year and, ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
