KRISHI SEWA KENDRA, BHARATPUR V. ITO, BHARATPUR

ITA 147/JPR/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 47973 (ITAT-JAIPUR)
• Duration Of Justice: 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 23-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D K MEENA
• Section: 6

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO.107/ JP/2010 ASSESSMENT YEAR 2003-04 PAN: AABCM 6553 C M/S. MARUDHAR TEXPACK (P) LTD. VS. THE ACIT 4, RAJ BHAWAN MARG, CIRCLE- 2 CIVIL LINES, JAIPUR JAIPUR (APPELLANT ) (RESPONDENT) ASSESSEE BY : SHRI P.C. PARWAL DEPARTMENT BY : SHRI D.K. MEENA ORDER PER N.L. KALRA, AM:- THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A)-1, JAIPUR DATED 10-12-2010 FOR THE ASSESSMENT YEAR 20 03-04. 2.1 THE FIRST GROUND OF THE ASSESSEE IS THAT THE LD CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 17,23,260/- ON ACCOU NT OF ALLEGED UNRECORDED SALES OF 28,721 KG HDPE/PP WOVEN SACKS. 2.2 THE ASSESSEE IS ENGAGED IN MANUFACTURING AND TR ADING OF HDPE/PP FABRIC BAGS. THE BAGS ARE MANUFACTURED FROM THE CON SUMPTION OF HDPE/PP GRANULES THE AO NOTICED THAT THE ASSESSEE HAS SHOWN GENERATION OF SCRAP 36,451.70 KG WHICH CONSTITUTED 9.43% OF THE TOTAL C ONSUMPTION OF RAW 2 MATERIALS. THE CLAIM OF SCRAP ACCORDING TO THE AO W AS EXCESSIVE AND THEREFORE, THE AO REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THE CLAIM OF SCRAP BE NOT DISALLOWED. BEFORE THE AO, IT WAS SUBM ITTED THAT M/S. RELIANCE INDUSTRIES GIVES 10% WASTAGE FROM THE RAW MATERIAL WHEN THE WORK IS GOT DONE ON JOB WORK FROM THE PARTIES THE AO HAS CONSID ERED THIS EXPLANATION AND ACCORDING TO THE AO, THE ASSESSEE HAS NOT FILED ANY DOCUMENTARY EVIDENCE WITH REGARD TO THE CLAIM OF GENERAL LOSS I N THIS INDUSTRY. RELIANCE INDUSTRIES LTD. DOES NOT PRODUCE POLYTHENE BAGS OUT OF HDPE/PP GRANULES. THE BUSINESS OF THE ASSESSEE IS TO PREPARE THE POLY THENE SHEETS OUT OF HDPE/PP GRANULES AND FROM SUCH POLYTHENE SHEETS, TH E BAGS ARE MANUFACTURED. THE PROCESS OF CONVERTING THE GRANULE S TO THE POLYTHENE SHEET DOES NOT RESULT INTO PRODUCTION OF SCRAP. THERE MAY BE SOME WEIGHT LOSS ON ACCOUNT OF BURNING. THE BAGS ARE PREPARED OUT OF SA ID POLYTHENE SHEETS. SOME SCRAP IS GENERATED BY WAY OF CUTTINGS OF THE S IZE OF THE BAGS. HOWEVER, SUCH CUTTINGS ARE AGAIN RECYCLED IN THE PLANT TO PR ODUCE FURTHER SHEETS OF POLYTHENE. THE AO WENT THROUGH THE ASSESSMENT RECOR D OF M/S. BENGAL INDUSTRIES WHERE THAT CONCERN HAS CLAIMED BURNING L OSS OF 1.2% AND HAS NOT CLAIMED ANY WASTAGE ON ACCOUNT OF SCRAP. ACCORDING TO THE AO, THE ASSESSEE HAS SHOWN SALE OF SCRAP JUST TO CAMOUFLAGE THE ACTU AL SALES OF BAGS THE AO ACCORDINGLY MADE THE ADDITION OF RS. 17,23,260/-. 3 2.3 BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED A NOTE ON THE MANUFACTURING PROCESS AND ON THE BASIS OF SUCH NOTE , THE ASSESSEE CLAIMED THAT SCRAP GENERATED COULD BE UPTO 10% AND MORE. TH E ASSESSEE ALSO SOUGHT TO PRODUCE A CERTIFICATE FROM THE GENERAL SECRETARY , PLASTIC MANUFACTURER ASSOCIATION, RAJASTHAN TO SHOW THAT IN THE LINE OF BUSINESS OF THE ASSESSEE, THERE IS A SCRAP GENERATION OF AROUND 6% TO 7%. 2.4 THE LD. CIT(A) HAS OBSERVED THAT THE ASSESSEE H AS NOT FILED THE QUANTITATIVE DETAILS IN RESPECT OF THE MATERIALS CO NSUMED AT EACH AND OTHER STAGE OF PRODUCTION. THE ASSESSEE HAS NOT SUBSTANTI ATED THAT THERE IS SCRAP GENERATION ON EVERY STOPPAGE OF POWER SUPPLY . THE CERTIFICATE FROM THE GENERAL SECRETARY, PLASTIC MANUFACTURER ASSOCIATION IS A SELF SERVING CERTIFICATE ACCORDING TO THE LD. CIT(A), THE LD. AR HAS NOT CONTESTED THE FINDINGS OF THE AO THAT POLYTHENE BAGS MANUFACTURED BY THE ASSESSEE WERE SOLD OUTSIDE THE BOOKS OF ACCOUNT AND HENCE THE ADD ITION WAS CONFIRMED.. 2.5 BEFORE US, THE LD. AR HAS FILED THE FOLLOWING S UBMISSIONS. 1. THERE IS NO DISPUTE AS TO THE FACT THAT ASSESSEE HA S MAINTAINED COMPLETE STOCK RECORDS. IT IS SUBJECT TO EXCISE DUTY AND QUA NTITATIVE DETAILS OF CONSUMPTION OF PLASTIC GRANULES TO FINISHED PRODUCT IS SUBMITTED TO THE EXCISE DEPARTMENT. THE SCRAP GENERATION OF 36,451.7 0 KG HAS BEEN SOLD AND DULY ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS . THIS FACT WAS EXPLAINED TO THE AO VIDE LETTER DATED 29 TH DEC. 2005 AND ACCEPTED BY THE AO. THUS ONCE THE SALE OF SCRAP IS ACCEPTED, IT CANNOT BE PR ESUMED THAT ASSESSEE 4 SUPPRESS THE PRODUCTION AND SOLD IT OUTSIDE THE BOO KS OF ACCOUNTS. THEREFORE THE ADDITION MADE BY THE LOWER AUTHORITIE S IS TOTALLY UNJUSTIFIED. 2. THE ASSESSEE HAS EXPLAINED IN DETAIL THE MANUFACTUR ING PROCESS AS WELL AS THE REASON FOR GENERATION OF SCRAP . THIS HAS BEEN IGNORED BY THE LOWER AUTHORITIES. THE COMPARISON MADE WITH M/S BANSAL IN DUSTRIES IS INCORRECT SINCE IT IS ENGAGED ONLY IN ONE PROCESS OF MANUFACT URING OF PLASTIC SHEETS FROM GRANULES WHEREAS ASSESSEE IS ENGAGED IN THE CO MPLETE MANUFACTURING PROCESS WHERE WOOVEN SACKS IS MANUFAC TURED FROM THE PLASTIC GRANULES. THUS THE LOSS CLAIMED BY THE BANS AL INDUSTRIES CANNOT BE COMPARED WITH THAT OF THE ASSESSEE. 3. IT MAY BE NOTED THAT THE LOWER AUTHORITY HAVE NOT F OUND ANY DEFECTS IN THE BOOKS OF ACCOUNTS. THE SAME ARE NOT REJECTED. THEY ARE ONLY PRESUMING THAT SCRAP CLAIMED BY THE ASSESSEE IS ON HIGHER SID E AND THAT HAS BEEN UTILISED IN UNRECORDED PRODUCTION OF BAGS WHICH IS SOLD OUT OF BOOKS. HOWEVER IN MAKING SUCH PRESUMPTION IT IS IGNORED TH AT THE SALE OF SCRAP HAS BEEN ACCOUNTED FOR BY THE ASSESSEE HIMSELF AT R S. 2,21,638/- WHICH IS ACCEPTED. NO OTHER EVIDENCE OF UNRECORDED SALES WAS BROUGHT ON RECORD. THEREFORE SIMPLY ON PRESUMPTION ADDITION CANNOT BE SUSTAINED. 2.6 ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORD ERS OF THE LOWER AUTHORITIES. 2.7 WE HAVE HEARD BOTH THE PARTIES. IT IS TRUE THAT ASSESSEE INITIALLY MANUFACTURED PLASTIC SHEETS FROM THE GRANULES. FROM SUCH POLYTHENE SHEETS, 5 THE ASSESSEE IS PREPARING BAGS. THE BAGS ARE STITCH ED AND PRINTED. IN STITCHING AND PRINTING, SOME DEFECTS ARE NOTICED AND THEREFOR E, DEFECTED MATERIAL IS TO BE SOLD IN SCRAP. WE WERE ALSO INFORMED THAT THE AS SESSEE IS REGISTERED WITH CENTRAL EXCISE AND CUSTOMS DEPARTMENT AND THE ASSES SEE IS REQUIRED TO FILE THE MONTHLY AND QUARTERLY RETURNS TO THE EXCISE DEP ARTMENT TO SHOW THE USE OF PLASTIC GRANULES TO FINISHED PRODUCTS. EVEN ON T HE SCRAP SALE, THE ASSESSEE IS REQUIRED TO CHARGE THE BASIS EXCISE DUTY AND SAL ES TAX. IT IS NOT THE CASE OF THE REVENUE THAT SALES ARE NON-GENUINE. THE REVENUE HAS NOT COLLECTED ANY MATERIAL TO SUGGEST THAT PARTIES WHICH HAVE PURCHAS ED THE SCRAP FROM THE ASSESSEE HAVE ACTUALLY PURCHASED THE BAGS AND NOT S CRAP. IT MAY BE TRUE THAT THE ASSESSEE MAY NOT BE HAVING THE STOCK REGISTER O F CONSUMPTION FOR EACH PROCESS BUT THE AO HAS NOT MADE ANY EFFORT TO ASCER TAIN PRODUCTION IN EACH MONTH AND SCRAP GENERATION IN EACH MONTH IN CASE SU CH SCRAP GENERATION WIDELY VARIES IN DIFFERENT MONTHS THEN THE ONUS WAS ON THE ASSESSEE TO ESTABLISH SUCH VARIATION. WITHOUT POINTING OUT ANY SERIOUS DEFECTS IN THE ACCOUNTS OF THE ASSESSEE, THE AO SHOULD NOT HAVE MA DE THE ADDITION. THE PROCESS OF SCRAP GENERATED DURING THE YEAR IS COMPA RABLE WITH THAT OF THE IMMEDIATELY PRECEDING YEAR. HENCE, WE FEEL THAT THE ADDITION CANNOT BE MADE SIMPLY ON THE BASIS OF PRESUMPTION THAT THE AS SESSEE HAS SHOWN SALE OF SCRAP THOUGH ACTUALLY THE ASSESSEE HAS SOLD THE BAG S. WHEN THE 6 MANUFACTURING RECORDS OF THE ASSESSEE HAVE BEEN ACC EPTED BY THE EXCISE DEPARTMENT AND THE REVENUE HAS NOT COLLECTED ANY MA TERIAL TO REBUT THE DETAILS SHOWN IN THE MANUFACTURING THEN WE FEEL THA T THE AO WAS NOT JUSTIFIED IN MAKING THE ADDITION. HENCE, THE LD. CI T(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION. 3.1 DURING THE COURSE OF HEARING, THE LD. AR HAS NO T PRESSED THE GROUND NO. 2. HENCE, THE SAME IS DISMISSED BEING NOT PRESS ED. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 24-06 -2011. SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 24/06/2011 *MISHRA COPY FORWARDED TO :- 1. M/S. MARUDHAR TEXPACK (P) LTD. , JAIPUR 2. THE ACIT,CIRCLE- 2, JAIPUR 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.107/JP /11) A.R, ITAT, JAIPUR 7 8 9