Sh. Pawan Kumar Kansal, New Delhi V. ACIT, New Delhi

CO 233/DEL/2013

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 0515 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 4 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 13-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 08-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 09-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKRAM SAHAY
• Assessee Lawyers: V MOHAN C AS; S SH VED JAIN RANO JAIN

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : F : NEW DELHI BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO . 3640 /DEL/ 2013 ASSESSMENT YEAR: 2009 - 10 ASSISTANT COMMISSIONER OF VS. SH. PAWAN KUMAR KANSAL, INCOME TAX, CIRCLE - 21(1), PROP. M/S JAGDAMBA EXPORT, NEW DELHI A - 7, ANTRIKSH APARTMENT , PLOT NO. D - 3, SEC. - 14, ROHINI, NEW DELHI (PAN: AHEPK0574C ) (APPELLANT) (RESPONDENT) AND C.O. NO . 233/DEL/2013 (IN ITA NO. 3640/DEL /2013) ASSESSMENT YEAR: 2009 - 10 SH. PAWAN KUMAR KANSAL, VS. ASSISTANT COMMISSIONER OF PROP. M/S JAGDAMBA EXPORT, INCOME TAX, CIRCLE - 21(1), A - 7, ANTRIKSH A PARTMENT, NEW DELHI PLOT NO. D - 3, SEC. - 14, ROHINI, NEW DELHI (PAN: AHEPK0574C) (APPELLANT) (RESPONDENT) DEPARTMENT BY : SH. VIKRAM SAHAY, SR. DR ASSESSEE BY : S /SH . VED JAIN, RANO JAIN & V. MOHAN, CAS DATE OF HEARING: 08.04.2015 DATE OF PRONOUNCEMENT: 13.05.2015 ORDER PER INTURI RAMA RAO, A.M. : THESE ARE THE CROSS APPEALS FOR THE ASSESSMENT YEAR 2009 - 10 IMPUGNING THE ORDER OF LEARNED CIT(A) - XXII, NEW DELHI, DATED 30.03.2013 . THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL: 2 ITA NO. 3640/DEL/2013 & C.O. NO. 233/DEL/2013 AY : 2009 - 10 I. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNTS IN VIEW OF THE FAILURE OF THE ASSESSEE IN PRODUCING REQUISIT E DETAILS AND DOCUMENTS BEFORE THE THEN ASSESSING OFFICER TO ENABLE HIM TO DEDUCE THE PROPER INCOME OF THE ASSESSEE. II. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN ALLOWING THE 49% SCRAP. AS CLAIMED BY THE ASSESSEE , AND DELETING THE TOTAL ADDITION OF RS. 3,98,16,047/ - ON ACCOUNT OF EXCESS SCRAP ALLEGEDLY GENERATED BY THE ASSESSEE BEYOND 41.17% AS FIXED BY THE EXCISE AUTHORITIES, BUT TREATED AS SALES OUTSIDE THE BOOKS OF ACCOUNTS BY THE ASSESSING OFFICER, BY IGNORING THE FACTS AND EARLIER FINANCIAL RESULTS OF THE ASSESSEE, PARTICULARLY IN VIEW OF SCRAP PERCENTAGE AND GROSS PROFIT DECLARED BY THE ASSESEE IN THE EARLIER YEARS WHEREIN THE ASSESSEE HAS CLAIMED AND RECEIVED BACK REFUND OF EXCISE - DUTY. III. THE APPELLANT CRAVE S LEAVE TO AMEND OR ALTER ALL OR ANY OF THE AFORESAID GROUNDS OF APPEAL AND AMEND, ALTER OR ADD ANY OTHER GROUND OF APPEAL. 2. THE ASSESSEE HAS RAISED THE FOLLOWING CROSS OBJECTION S : I. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER O F INCOME TAX(APPEALS) [CIT(A)] HAS ERRED, BOTH ON FACTS IN LAW, IN CONFIRMING ADDITION OF RS. 99,54,630/ - AND FURTHER ENHANCING ADDITION BY RS. 23,67,470/ - IN RESPECT OF VALUATION OF THE CLOSING STOCK OF THE FINISHED GOODS. II. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW, IN TAKING GROSS PROFITS RATE AT THE RATE OF 4.63% WHILE VALUING THE COST OF THE FINISHED GOODS IGNORING THE FACT BY ABOVE SAID ADDITION OF RS. 1,23,22,100/ - THE GROSS PROFIT WILL GET INCR EASED TO RS. 2,79,56,800/ - AND CONSEQUENTLY THE G.P. RATE WILL BE 8.28% NOT 4.63% APPLIED BY THE CIT(A). III. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW, IN NOT ALLOWING ADJUSTMENT IN THE OPENING STOCK OF RS. 60,81,102/ - BEING THE ADDITION MADE BY THE A.O. IN THE CLOSING STOCK IN THE PRECEDING ASSESSMENT YEAR AND OUT OF WHICH ADDITION OF RS. 15,49,576/ - WAS CONFIRMED BY THE CIT(A). 3 ITA NO. 3640/DEL/2013 & C.O. NO. 233/DEL/2013 AY : 2009 - 10 IV. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY OF THE GROUN DS OF CROSS OBJECTION ITA NO. 3640/DEL /2013 FOR A . Y . 2009 - 10 : 3. THE FACTS OF THE CASE IN BRIEF ARE THAT THE RESPONDENT ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF STAINLESS STEEL, CUTLERY AND UTENSILS IN THE NAME OF M/S JAGDAMBA EXPORTS. FOR THE ASSESSMENT YEAR 2009 - 10, RETURN OF INCOME WAS FILED ON 30 TH SEPTEMBER, 2009, DECLARING INCOME OF RS. 1,17,54,720/ - . THE CASE WAS SELECTED FOR SCRUTINY A FTER ISSUANCE OF NOTICE UNDER SECTION 143(2) OF THE INCOME - TAX ACT, 1961 (FOR SHORT THE ACT ) . F INALLY , THE ASSESSMENT W AS COMPLETED UNDER SECTION 143(3 ) OF THE ACT VIDE ORDER DATED 27.12.2011 AT A TOTAL INCOME OF RS. 6,15,91,000/ - AFTER MAKING THE ADDITION S OF RS. 3,98,16,047/ - ON ACCOUNT OF SALE OUTSIDE BOOKS OF ACCOUNT , RS. 99,54,630/ - ON ACCOUNT OF VALUATION OF CLOSING STOCK AND RS. 65,600/ - ON ACCOUNT OF INCOME FROM UN - DISCLOSED SOURCES. BEING AGGRIEVED BY THIS ORDER, AN APPEAL WAS PREFERRED BEFORE THE LEARNED CIT(A), WHO VIDE IMPUGNED ORDER DATED 30.03.2013 , DELETED THE A DDITION MADE ON ACCOUNT OF GENERATION OF SCRAP . HOWEVER, ON THE ADDITION OF VALUATION OF CLOSING STOCK , ADDITION WAS ENHANCED BY RS. 23,67,470/ - . THE ALLEGED NON - GENUINE CREDITORS OF RS. 65,600/ - WERE DELETED BY LEARNED CIT(A). AGGRIEVED BY THIS ORDER, THE REVENU E HAS FILED THE PRESENT APPEAL AND THE RESPONDENT ASSESSEE FI LED THE CROSS OBJECTION IMPUGNING THAT PART OF THE CIT(A) S ORDER WHEREBY THE ADDITION ON ACCOUNT OF CLOSING STOCK 4 ITA NO. 3640/DEL/2013 & C.O. NO. 233/DEL/2013 AY : 2009 - 10 WAS ENHANCED BY 23,67,470/ - . NOW, WE SHALL DEAL WITH THE APPEAL FILED BY T HE REVENUE. 4. LEARNED DR ARGUED THAT THE BOOKS OF ACCOUNT ARE D EFECTIVE AND THE LEARNED CIT(A) SHOULD NOT HAVE ACCEPTED THE BOOK RESULTS. A S REGARDS THE ADDITION ON ACCOUNT OF GENERATION OF SCRAP , IT WAS SUBMITTED THAT THE FINDINGS OF THE ASSESSING OFFI CER SHOULD BE CONFIRMED , INASMUCH AS THEY ARE IN CONFORMITY WITH THE NORMS PRESCRIBED BY THE CENTRAL EXCISE AUTHORITIES. 5. ON THE OTHER HAND, THE LEARNED AUTHORIZED REPRESENTATIVE HAS QU O TED AND RELIED UPON THE ORDER OF THE CIT( A) INSOFAR AS IT RELATES TO ADDITION ON ACCOUNT OF GENERATION OF SCRAP AND ALSO ON THE DECISION OF THIS TRIBUNAL IN THE ASSESSEE S OWN CASE FOR THE PRECEDING ASSESSMENT YEAR I.E. 2008 - 09 . 6. WE HAVE HEARD THE RIVAL PARTIES AND PERUSED THE MATERIAL ON RECORD. THE FIRST GROUND OF APPEAL RELATES TO THE REJECTION OF BOOK RESULTS. WE OBSERVE FROM THE ASSESSMENT ORDER THAT IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE RESPONDENT ASSESSEE FAIL ED TO PRODUCE THE INFORMATION CALLED FOR, NOR IS IT THE CASE THAT THE BOOKS OF ACCOUNT ARE DEFECTIVE. THE ASSESSING OFFICER FAILED TO GIVE ANY SPECIFIC REASON FOR REJECTION OF BOOK RESULTS. IT APPEARS THAT THE SOLE BASIS FOR REJECTION OF BOOK RESULTS IS TH E ASSESSMENT ORDER OF THE IMMEDIATE PRECEDING YEAR I.E. 2008 - 09 IN WHICH THE BOOKS OF ACCOUNT HAVE BEEN REJECTED BY THE ASSESSING OFFICER. THIS TRIBUNAL IN THE ASSESSEE S OWN CASE IN ITA NO. 1454/DEL/2012, 5 ITA NO. 3640/DEL/2013 & C.O. NO. 233/DEL/2013 AY : 2009 - 10 VIDE ORDER DATED 29.10.2014 PASSED FOR THE ASSESSM ENT YEAR 2008 - 09 , REJECTED THIS GROUND OF APPEAL RAISED BY THE REVENUE, WHICH READS AS UNDER: - 5. IN THE REMAND REPORT THE CONTENTIONS OF THE ASSESSEE THAT THE AO WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNTS WAS ACCEPTED BY THE A.O. THE A.O. ALSO ACCEPTED THE CONTENTION THAT HE HAS NOT BEEN ABLE TO POINT OUT ANY DISCREPANCY IN THE BOOKS OF ACCOUNT AND STOCK RECORD PRODUCED BY THE ASSESSEE BEFORE HIM. THUS, IN OUR VIEW, THE FIRST APPELLANT AUTHORITY HAD NO OTHER OPTION BUT TO REJECT THE ACTION OF A O IN REJECTING THE BOOKS OF ACCOUNTS. HENCE, GROUND NO. 1 OF THE REVENUE IS DISMISSED. 7. FOLLOWING THE ABOVE DECISION, THIS GROUND OF APPEAL FILED BY REVENUE IS DISMISSED . 8 . THE SECOND GROUND OF APPEAL RELATES TO THE DELETION OF ADDITION ON ACCOUNT OF GENER ATION OF SCRAP. THE LEARNED CIT(A) HAS PASSED A VERY REASONED ORDER WHILE DELETING THE ADDITION VIDE PARA S 8 .10 TO 8.15 OF HIS ORDER, WHICH READ S AS UNDER: 8.10 THE NEXT GROUND ON THE BASI S OF WHICH THE BOOKS OF ACCOUNT HAS BEEN REJECTED AND THE ADDITION FOR SALE OUTSIDE BOOKS OF ACCOUNT HAS BEEN MADE IS THE REPORT OF THE INSPECTOR WHO WENT ON AN ONSITE VISIT AND INSPECTION OF THE ASSESSEE'S PREM ISES, WHICH IS MENTIONED ABOVE IN PARA 8.3 OF THIS ORDER AS POINT (B). PERUSAL OF THE ASSESSMENT ORDER PARA 3 SHOWS THAT A COMPARISON FOR THE SCRAP GENERATED FOR 5 ITEMS MANUFACTURED BY THE ASSESSEE HAS BEEN MADE BY THE LD. ASSESSING OFFICER ON THE BASIS OF THE INSPECTOR'S REPORT. THE CHART COMPARING THE SCRAP GENERATED FOR THESE 5 ITEMS HAS BEEN GIVEN IN PARA 3 OF THE ASSESSMENT ORDER AND IS ALSO REPRODUCED BELOW: S. NO. NAME OF THE ITEM % OF GENERATION OF SCRAP AS PER THE DEPARTMENT % OF GENERATION OF SCRAP AS PER THE ASSESSEE. 1. TABLE SPOON 42. 39% 47.99% 2. SERVING SPOON 43.15% 48.00% 3. TABLE FORK 51.93% 54.99% 4. KNIFE 60.59% 59.00% 5. PASTA/NOODLE - SM 56.42% 51.99% 6 ITA NO. 3640/DEL/2013 & C.O. NO. 233/DEL/2013 AY : 2009 - 10 8.11 PERUSAL OF THE ABOVE CHART SHOWS THAT OUT OF THESE 5 ITEMS, THE PERCENTAGE OF S CRAP GENERATED MENTIONED AS THE PERCENTAGE AS PER THE DEPARTMENT, WH IC H ARE OBVIOUSLY THE FIGURES AS PER THE INSPECTOR'S REPORT, IS HIGHER IN CASE O F 2 OF THE ITEMS AND IS LOWER IN CASE OF 3 OF THE ITEMS. IT IS SEEN THAT THE AS SESSEE MAKES MORE THAN 50 ITEMS, AND THOUGH ANALYSING THE PRO DUCTION AND SCRAP GENERATION IN THE CASE OF 5 ITEMS ON A SAMPLE BASIS CANNOT BE REJECTE D AS SUCH, BUT THIS SAMPLE OF 5 ITEMS DOES NOT GIVE ANY CLEAR EVIDENCE THAT TH E ASSESSEE IS INFLATING THE CLAIMED SCRAP GENERATION. IT IS SEEN THAT OUT OF THE 5 ITEMS, T HE DEPARTMENTAL FIGURES FOR SCRAP GENERATION ARE MUCH LOWE R THAN THE CLAIM OF THE ASSESSEE FOR 3 ITEMS, BUT FOR 2 OF THE ITEMS, I .E. 'KNIFE' AND 'PASTA/ NOODLE - SM', MENTIONED AT S. NO. 4 AND 5 OF THE CHART MADE BY TH E ASSESSING OFFICER, IT IS SEEN THAT THE DEPARTMENTAL FIGURES FOR SCRA P GENERA TION WERE MUCH HIGHER AS COMPARED TO THE FIGURES SHOWN FOR THE ASSESSEE. IF IN CASE OF 2 OF THE 5 ITEMS ANALYSED, THE SCRAP GENERATED AS PER THE DEPARTM ENT IS MUCH HIGHER THAN THAT STATED TO BE CLAIMED BY THE ASSESSEE, THEN I T CANNOT AT ALL BE SAID, MERELY ON THIS BASIS THAT THE ASSESSEE HAS INFLATED TH E CLAIM OF SCRAP. IF THE ASSESSEE WAS INFLATING THE CLAIM OF SCRAP, THEN EITH ER THE SCRAP GENERATED AS PER THE DEPARTMENT WOULD HAVE BEEN LOWER IN ALL THE 5 CASES, OR IN C ASE THE APPELLANT WAS RESORTING TO SUCH TACTICS FOR ONLY SOME ITEMS, THEN THE DEPARTMENTAL FIGURES WOULD HAVE BEEN EQUAL TO THE AS SESSEE'S CLAIMS FOR SOME ITEMS AND LOWER FOR OTHER ITEMS. HOWEVER, THE A BOVE CHART DOES NOT SHOW ANY SUCH TREND, AND OUT OF 5 ITEMS, THE DEPARTMENT AL FIGURES ARE SIGNIFICANTLY LOWER IN 3 CASES, BUT SIGNIFICANTLY HIGHER IN 2 CASES AND THUS MERELY ON THE BASIS OF THIS STUDY IT CANNOT BE CONCLUDED THAT THE APPELLANT WAS INFLATING THE CLAIMED GENERATION OF SCRAP. 8.12 IT HAS B EE N CLAIMED BY THE APPELLANT IN PARA 9 OF HIS WRITT EN SUBMISSIONS D ATED 22.01.2013, REPRODUCED ABOVE IN PARA 7.1, THAT THE FIGURES OF GENE RATION OF SCRAP MENTIONED IN THE ASSESSMENT ORDER TO BE THAT AS PER THE ASSE SSEE'S RECORD ARE INCORRECT. THE SAME CLAIM HAS BEEN MADE IN PARA 19.3 TO 19 .5 OF HIS WRITTEN SUBMISSIONS DATED 22.01.13 AND IT HAS BEEN CLAIMED IN PAR A 19.4 THAT THE AO HAS PICKED UP AND QUOTED SOME INDIVIDUAL FIGURES RATHER T HAN TAKING THE FIGURE FOR THE WHOLE OF THE YE AR AND HAS IN PARA 19.4 SUBM ITTE D THE FOLLOWING CHART : - S.NO. NAME OF THE ITEM % OF GENERATION OF SCRAP AS PER THE DEPARTMENT % OF GENERATION OF SCRAP AS PER THE ASSESSEE. CORRECT FIGURES AS PER THE BOOKS. 1. TABLE SPOON 42.39% 47.99% 43.126 2. SERVING SPOON 43.15% 48.00% 52.232 3. TABLE FORK 51.93% 54.99% 49.576 4. KNIFE 60.59% 59.00% 57.452 7 ITA NO. 3640/DEL/2013 & C.O. NO. 233/DEL/2013 AY : 2009 - 10 5. PASTA/NOODLE - SM 56.42% 51.99% 53.409 8.13 PERUSAL OF THE ABOVE CHART SHOWS THAT THE CLAIM FOR GENERATION OF SCRAP AS PER THE BOOKS OF ACCOUNT IS SIGNIFICANTLY LOWER, NOT JUST FOR ITEMS AT S. NO. 4 AND 5 I .E. 'KNIFE' AND 'PASTA/ NOODLE - SM', AS MENTIONED IN PARA 8.10 ABOVE, BUT ALSO IN CASE OF THE ITEM AT S. NO. 3, I . E. 'TABLE FORK', FOR WHICH THE ASSESSEE CLAIMS THAT THE ACTUAL FIGURE OF GENERATION OF SCRAP AS PER BOOKS WAS 49.57 6% AND NOT 54.99% AS SHOWN THE ASSESSMENT ORDER, AS AGAINST THE DEPARTMENTAL FIGURE OF SCRAP GENERATION OF 51.93%. IN SUCH A SITUATION, IT IS SEEN THAT THE DEPARTMENTAL FIGURE FOR SCRAP GENERATION WOULD BE SIGNIFICANTLY HIGHER THAN THE ASSESSEE'S CLAIM FOR 3 ITEMS AND LOWER FOR 2 ITEMS. IN ANY CASE, NO CONCLUSION CAN BE DRAWN FROM THE INSPECTOR'S REPORT REGARDING INFLATION OF CLAIMED SCRAP GENERATION AS NO TREND FOR INFLATION OF SCRAP IS SEEN FROM THE INSPECTOR'S REPORT AND THOUGH THERE ARE VARIATIONS BETWE EN THE INSPECTOR'S REPORT AND THE CLAIM OF THE ASSESSEE B UT NO DEFINITE CONCLUSION OF INFLATION OR SUPPRESSION CAN BE SUPPRESSION CAN BE DRAWN WHEN FOR 3 ITEMS A DIFFERENT TREND IS SEEN AND FOR THE OTHER 2 ITEMS A DIFFERENT TREND IS SEEN. 8.14 IT IS FURTHER SEEN THAT THE APPELLANT IN HIS WRITTEN SUBMISSIONS DATED 22.01.2013 IN PARA 19.2 HAS CLAIMED THAT THE BASIS ON WHICH THE PERCENTAGE AS PER THE INSPECTOR'S REPORT WAS COMPUTED HAS NOT BE SPECIFIED, AND ALSO THAT THE INSPECTOR'S REPORT WAS NEVE R CONFRONTED TO THE ASSESSEE. IF THE INSPECTOR'S REPORT WAS BEING USED AGAINST THE ASSESSEE, THEN THE ASSESSEE SHOULD HAVE BEEN CONFRONTED WITH THE REPORT AND THE EXPLANATION IF ANY OFFERED BY THE ASSESSEE ON THE REPORT SHOULD HAVE BEEN DISCUSSED, AND IN C ASE NO EXPLANATION WAS OFFERED THEN THAT FACT SHOULD ALSO HAVE BEEN MENTIONED IN THE ASSESSMENT ORDER. HOWEVER, IT IS SEEN THAT THE ASSESSMENT ORDER IS SILENT ON THIS ASPECT, AS TO WHETHER THE INSPECTOR'S REPORT W AS CONFRONTED TO THE APPELLANT OR NOT AND W HAT WAS HIS RESPONSE, IF ANY. IN THE ABSENCE OF ANY SUCH MENTION IN THE AS SESSMENT ORDER OF THE INSPECTOR S REPORT BEING CONFRONTED TO THE ASSESSEE, THE ASSESSEE'S CLAIM THAT THE BASIS ON WHICH THE PERCENTAGES AS PER THE INSPECTOR'S REPORT WERE COMPUTED WA S NOT SPECIFIED AND ALSO THAT HE WAS NEVER CONFRONTED WITH THE INSPECTOR'S REPORT CANNOT BE BRUSHED ASIDE. 8.15 IN ANY CASE, IT IS SEEN THAT THE INSPECTOR'S REPORT CANNOT LEAD TO ANY CONCLUSION THAT THE GENERATION OF SCRAP WAS SHOWN BY THE ASSESSEE AT AN Y INFLATED FIGURES AND HENCE THE GROUND (B) MENTIONED IN PARA 8.3 ABOVE, ON WHICH THE BOOKS OF ACCOUNT WERE REJECTED AND ADDITION FOR SALE OUTSIDE OF BOOKS OF ACCOUNT WAS MADE AL SO FAILS, AND IS HEREBY REJECTED. 8 ITA NO. 3640/DEL/2013 & C.O. NO. 233/DEL/2013 AY : 2009 - 10 9 . MOREOVER, SIMILA R ISSUE HAS BEEN DEALT BY THIS TRIBUNAL IN THE ASSESSEE S OWN CASE PASSED FOR ASSESSMENT YEAR 2008 - 09 IN ITA NO. 1454/DEL/2012 WHEREIN THE TRIBUNAL VIDE ORDER DATED 29.10.2014, REJECTED THE GROUND RAISED BY THE REVENUE, WHICH READS AS UNDER: 7. GROUND NO. 3 IS AGAINST THE FI NDING OF THE LEARNED CIT(A), WHEREIN HE ALLOWED 48.93% SCRAP, AS CLAIMED BY THE ASSESSEE. IN THE REMAND REPORT THE A.O. HAS, ON THE ISSUE OF GENERATION OF SCRAP, ACCEPTED THE FACT THAT THE ASSESSEE HAS PRODUCED COMPLETE DETAILS OF THE SCRAP GENERATED AND SCRAP SOLD. THE A.O. ALSO OBTAINED NECESSARY CONFIRMATION S FROM THE PARTIES TO WHOM THE SCRAP WAS SOL D . THE A.O. ALSO ACCEPTED THE FACT THAT THE PERCENTAGE OF SCRAP FIXED BY THE EXCISE AUTHORITIES W AS ONLY, FOR THE PURPOSES OF GIVING INCENTIVES TO THE ASSESSEE AND HAS NO EFFECT ON THE ACTUAL FACTS OF THE CASE. THE ASSESSEE HAD SUBMITTED VARIOUS LETTERS TO THE EXCISE AUTHORITIES FOR REVISION OF THE NORMS OF SCRAP FIXED BY THEM. IN VIEW OF THE ABOVE OB SERVATIONS BY THE AO IN THE REMAND REPORT, WE FIND NO INFIRMITY IN THE ORDER OF THE FIRST APPELLANT AUTHORITY AND HENCE WE DISMI SS GROUND NO. 3 OF THE REVENUE. 10 . IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE CONSIDERED OPINION THAT T HE ORDER OF LEARNE D CIT(A) IS WELL REASONED AND WE DO NOT INTEND TO INTERFERE. ACCORDINGLY, TH IS GROUND OF APPEAL FILED BY THE REVENUE IS DISMISSED. C.O. NO. 233/DEL/2013 (IN ITA NO. 3640/DEL /2013) 11 . NOW, WE SHALL DEAL WITH THE CROSS OBJECTIONS. 12 . THE CROSS OBJECT IONS FILED BY THE RESPONDENT ASSESSEE RELATES TO THE ADDITION ON ACCOUNT OF CLOSING STOCK OF RS. 99,54,630/ - CONFIRMED AND FURTHER ENHANCED BY RS. 23,67,470/ - BY THE LEARNED CIT(A). THE ASSESSING OFFICER MADE THE ADDITION IN RESPECT OF CLOSING STOCK BY DEDUCTING THE G.P. FROM THE SALE PRICE , WORKS OUT TO RS. 226 / - PER KG. WHEREAS ON APPEAL , THE LEARNED CIT(A) FINALLY HELD VIDE PARAS 9.8, 9.9, 9.10 AND 9.11, APART FROM CONFIRMING THE 9 ITA NO. 3640/DEL/2013 & C.O. NO. 233/DEL/2013 AY : 2009 - 10 ADDITION MADE FURTHER ENHANCEMENT OF RS. 23,67,470/ - , WHICH ARE REPRODUC ED BELOW: 9.8 AFTER EXAMINING THE ENTIRE FACTS OF THE CASE AND RELEVANT DOCUMENTS IT WAS FOUND THAT THERE WAS A VERY HEAVY UNDERVALUATION OF THE CLOSING STOCK OF FINISHED GOODS AND THOUGH THE LD. ASSESSING OFFICER HAD MADE AN ADDITION TOWARDS THE UNDERVA LUATION OF FINISHED GOODS BUT THAT ADDITION WAS INADEQUATE TO COVER THE ENTIRE UNDERVALUATION OF THE CLOSING STOCK OF FINISHED GOODS. IT WAS SEEN THAT NOT ONLY THE PACKING COST WHICH HAD BEEN CLAIMED BY THE APPELLANT AT RS.19/ - WAS WORKED OUT TO RS.16.74 P ER KG., BUT ALSO THAT THE LD. ASSESSING OFFICER HAD TAKEN THE GROSS PROFIT RATE AT 14.93% WHICH WAS ALLOWED AS A REDUCTION FROM THE AVERAGE SALE PRICE TO WORK OUT THE COST OF THE FINISHED GOODS IN THE CLOSING STOCK, BUT ACTUALLY THE GROSS PROFIT RATE HAD B EEN DISCLOSED @ 4.63% AS PER COLUMN 32(A) OF THE FORM NO. 3CD FOR THE RELEVANT YEAR I . E. A.Y. 2009 - 10. ACCORDINGLY, VIDE ORDER SHEET ENTRY DATED 13.03.2013 THE APPELLANT WAS REQUIRED TO EXPLAIN WHY AN ENHANCEMENT OF THE ADDITION ON ACCOUNT OF VALUATION OF CLOSING STOCK OF FINISHED GOODS SHOULD NOT BE MADE AS PER THE PROVISIONS OF SECTION 251 (2) OF THE INCOME TAX ACT, 1961. THE RELEVANT PART OF THE ORDE SHEET ENTRY DATED 13.03.13 IS REPRODUCED BELOW : - 'IT WAS POINTED OUT TO THE LD. COUNSEL THAT THE GRO SS PROFIT WAS 4.63% AS PER COLUMN 32(A) OF FORM NO. 3CD FOR A.Y. 2009 - 10 AS PER PAGE 26 OF PAPER BOOK I FILED BY APPELLANT. PLEASE EXPLAIN WHY THIS FIGURE SHOULD NOT BE TAKEN AS THE BASE TO WORK OUT THE RATE PER KG. FOR FINISHED GOODS, RATHER THAN 14.93% TAKEN AS GROSS PROFIT RATE BY THE ASSESSING OFFICER. REDUCING THE G.P. RATE OF 4.63% FROM AVERAGE RATE OF SALE AND EVEN AFTER REDUCING PACKING COST, THE VALUATION OF CLOSING STOCK OF FINISHED GOODS WOULD BE MUCH MORE THAN THAT DETERMINED BY THE A.O. AT RS.226/ - PER KG. PLEASE EXPLAIN WHY THE CLOSING STOCK MAY NOT BE VALUED AS ABOVE WHICH WILL RESULT IN AN ENHANCEMENT IN THE VALUATION OF CLOSING STOCK. THIS MAY BE TREATED AS AN OPPORTUNITY U/S 251(2) OF THE I. T. ACT, 1961.' 9.9 SUBSEQUENTLY SH. HIMANSHU GOYAL, CA AND SH. NIKHIL KABRA, CA THE LD. COUNSELS OF THE APPELLANT APPEARED, BUT COULD NOT EXPLAIN WHY THE PROPOSED ENHANCEMENT SHOULD NOT BE MADE. WRITTEN SUBMISSIONS DATED 28.03.2013 WERE FILED REGARDING THE ORDER SHEET ENTRY DATED 13.03.2013 REGARDING VALUATION OF 10 ITA NO. 3640/DEL/2013 & C.O. NO. 233/DEL/2013 AY : 2009 - 10 CLOSING STOCK, WHICH ARE REPRODUCED ABOVE IN PARA 7.4 OF THIS ORDER. IN THIS REPLY IT HAS BASICALLY BEEN CLAIMED THAT THE VALUE ADOPTED BY THE AO FOR VALUATION OF CLOSING STOCK HAS BEEN REACHED BY MAKING REVERSE CALCULATION WHICH IS BASED ON ESTIMATE. IT HAS ALSO BEEN CLAIMED THAT THE ASSESSEE HAS VALUED ITS STOCK AT COST PRICE AND THAT ANY RATE OTHER THAN THAT TAKEN BY THE ASSESSEE FOR VALUATION OF CLOSING STOCK SHOULD NOT BE ADOPTED. HOWEVER, IT IS NOTEWORTHY THAT THE ASSESSEE DID N OT GIVE EXACT AND SPECIFIC REPLY TO EACH OF THE QUERIES RAISED VIDE NOTICE DATED 22.02.2013, WHICH IS REPRODUCED ABOVE IN PARA 9.4. FURTHER, THE DETAILED VALUATION FOR EACH SPECIFIC ITEM OF FINISHED GOODS INCLUDED IN CLOSING STOCK WAS NOT GIVEN. IN SUCH A SITUATION, A REASONABLE AND LOGICAL ESTIMATE HAS TO BE MADE FOR WHICH REVERSE CALCULATION OR ANY TYPE OF CALCULATION CAN BE USED PROVIDED IT IS REASONABLE AND LOGICAL. ACCORDINGLY IT IS HELD THAT THE APPELLANT COULD NOT EXPLAIN WHY THE ENHANCEMENT IN THE V ALUATION OF CLOSING STOCK OF FINISHED GOODS SHOULD NOT BE MADE. 9.10 THERE IS NO DISPUTE REGARDING THE AVERAGE SALE PRICE BEING RS.266/ - PER KG. THE GROSS PROFIT RATE OF 4.63% WHICH WAS PROPOSED TO BE USED FOR VALUATION OF THE CLOSING STOCK OF FINISHED G OODS WAS TAKEN FROM THE AUDITED FORM NO. 3 CD FOR A.Y. 2009 - 10, A COPY OF WHICH WAS FILED BY THE APPELLANT IN THE PAPER BOOK SUBMITTED BY HIM ALONGWITH WRITTEN SUBMISSIONS DATED 22.02.13. FURTHER, THE PACKING COST OF RS.16.74 PER KG. WAS ADMITTED BY THE AP PELLANT AND IS OBVIOUS FROM THE CALCULATION GIVEN IN PARA 9.6 ABOVE, WHOSE DETAILS WERE GIVEN BY THE APPELLANT HIMSELF. IN SUCH A SITUATION THERE IS NO DISPUTE REGARDING THE FIGURES INVOLVED AND THE CALCULATION OF THE RATE TO BE ADOPTED FOR THE VALUATION O F THE CLOSING STOCK OF FINISHED GOODS IS AS UNDER : - S. NO. PARTICULARS AMOUNT 1. AVERAGE SALE PRICE OF FINISHED GOODS RS. 266.00 PER KG. 2. LESS GROSS PROFIT @ 4.63% RS. 12.32 3. LESS PACKING CHARGES RS. 16.74 4. VALUATION OF FINISHED GOODS IN CLOSING STOCK RS. 236.94 PER KG. 9.11 THE VALUE TO BE ADOPTED FOR VALUATION OF FINISHED GOODS IN CLOSING STOCK IS RS.236.94 PER KG. AS AGAINST ONLY RS.180/ - PER KG. ADOPTED BY THE ASSESSEE AND RS.226/ - PER KG. TAKEN BY THE ASSESSING OFFICER. THUS THE UNDER VALUATION IN THE FINISHED GOODS IN THE CLOSING STOCK IS OF RS.56.94 PER KG. (RS.236.94 MINUS RS.L80/ - ). THE CLOSING STOCK OF FINISHED GOODS IS OF 2,16,405 KG. AS ON 31.03.2009 AS PER THE ASSESSEE. THE UNDER VALUATION OF THE FINISHED GOODS AMOUNTING TO RS.56.94 PER KG. WOULD RESULT IN AN ADDITION OF RS.1,23,22,100/ - TO THE VALUE OF CLOSING STOCK (56.94 PER KG. X 2,16,405 KG.). ACCORDINGLY IT IS HELD THAT THE VALUE OF CLOSING STOCK OF FINISHED GOODS IS TO BE ENHANCE D BY 11 ITA NO. 3640/DEL/2013 & C.O. NO. 233/DEL/2013 AY : 2009 - 10 RS.23,67,4701 - AS THE LD. ASSESSING OFFICER HAD MADE AN ADDITION OF ONLY RS.99,54,630/ - TOWARDS UNDER VALUATION OF CLOSING STOCK OF FINISHED GOODS WHICH IS HEREBY CONFIRMED AND A FURTHER ENHANCEMENT OF RS.23,67,470/ - IS MADE TO THE VALUE OF CLOSING STOCK AND TO THE INCOME. (CONFI RMED: RS.99,54,630/ - ) (ENHANCED : RS. 23,67,470/ - ) 13. IT WAS SUBMITTED THAT THE ASSESSEE HAS INCURRED AN EXPENDITURE OF RS. 1,84,00,220/ - ON PACKING. THE TOTAL PRODUCTION DURING THE YEAR WAS 11,84,481 KGS. OUT OF WHICH QUANTITY IN STOCK WAS 2,16,405 KG S . THUS, THE PACKING OF QUANTITY OF 9,68,076 KG. , AN EXPENDITURE OF RS. 1,84,00,220/ - WAS INCURRED GIVING AN EXPENDITURE OF RS. 19/ - PER KG. ON ACCOUNT OF PACKING. THE ASSESSEE HAS VALUED THE STOCK ON THE BASIS OF ACTUAL STOCK INCLUDING FRESH AS WELL AS OL D ITEMS. THE ASSESSEE IS IN CUTLERY BUSINESS WHERE ITEMS OF NON MOVING NATURE ARE NOT VALUED AS FRESH PRODUCTS. IT WAS FURTHER SUBMITTED THAT T HE ASSESSING OFFICER AS WELL AS THE LEARNED CIT(A) APPLIED THE G.P. RATE WHICH IS NOT JUSTIFIED AS THE SAME IS MA DE IGNORING THE VALUATION OF STOCK, WHICH IS TO BE DONE AT COST OF MARKET PRICE WHICHEVER IS LESS. 14. IT WAS FURTHER ARGUED THAT THE G.P. APPLIED BY LEARNED CIT(A) @ 4.63% IS NOT CORRECT, AS THE SAME HAS TO BE TAKEN CONSIDERING THE SALE OF SCRAP ALSO, WHILE VALUING THE FINISHED GOODS. AS THE SALE OF SCRAP GOES TO REDUCE THE COST OF PRODUCTION, SCRAP CANNOT BE TAKEN AS SALE. ACCORDINGLY, THE G.P. WAS WORKED OUT . THE LEARNED CIT(A) HAS TAKEN G.P. RATE AT 4.63% WHILE VALUING THE COST OF THE FINISHED GOODS. THE LEARNED CIT(A) IGNORED THE FACT THAT BY THE ADDITION OF 12 ITA NO. 3640/DEL/2013 & C.O. NO. 233/DEL/2013 AY : 2009 - 10 RS. 1,23,22,100/ - THE GROSS PROFIT INCREASES TO RS. 2,79,56,800/ - AND CONSEQUENTLY THE G.P. RATE WILL BE 8.28% NOT 4.63% APPLIED BY HIM. THE ASSESSEE HAS DISCLOSED THE G.P. RATE AT 14.93%. 15 . W E HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. IT IS SETTLED PRINCIPLE OF LAW THAT THE CLOSING STOCK SHOULD BE VALUED AT LOWER COST OF SALE PRICE. AS SUBMITTED BY THE RESPONDENT ASSESSEE, THE COST SHOULD BE ARRIVED AT AFTE R DELETION OF ADDITION MADE IN RESPECT OF SALE OF SCRAP. ACCORDINGLY, THE CROSS OBJECTIONS ARE ALLOWED. 1 6 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE CR OSS O BJECTION FILED BY THE ASSESSEE IS ALLOWED . THE DECISION IS PRONOUNCED IN THE OPEN COURT ON 1 3 T H MAY , 2015. S D / - S D / - (G.C. GUPTA) (INTURI RAMA RAO) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 1 3 T H MAY , 2015. RK/ - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI