Richa & Co., New Delhi V. ACIT, New Delhi

ITA 1733/DEL/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3798 (ITAT-DELHI)
• Duration Of Justice: 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 16-06-2010
• Assessment Year: 2007-2008
• Appeal Filed On: 16-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DR S NARAYANAN
• Keywords: Business income

Judgement Text

ITA NO. 1733/DEL/2010 A.Y. 2007-08 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 1733/DEL/2010 A.Y. : 2007-08 M/S RICHA AND CO. , VS. ACIT, CIRCLE-27(1), 2/2, W.H.S., KIRTI NAGAR, NEW DELHI NEW DELHI 110 015 (PAN: AAAFR0114L) [APPELLANT] (RESPONDENT) ASSESSEE BY : DR. S. NARAYANAN, AR DEPARTMENT BY : SHRI HK LAL, SR. DR PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONERS OF INCOME TAX (APPEALS) DATED 08.2.20 10 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE GROUND RAISED READS AS UNDER:- THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS GROSSLY ERRED IN MAINTAINI NG ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT SCARP/WASTAGE SALE TO THE TRADING RESULTS AMOUNTING TO RS. 31,61,782/- WHICH IS MADE ON ARBIT RARY BASIS, UNJUSTIFIED AND AGAINST LAW. 3. THE ASSESSEE IN THIS CASE DERIVED INCOME FROM THE BUSINESS OF MANUFACTURING AND EXPORT OF READY-MADE GARMENTS. A SSESSING OFFICER IN THIS CASE NOTED THAT ASSESSEE HAD MADE TOTAL SALES OF RS. 2,6 9,89,19,937/-. THE TOTAL RAW MATERIAL CONSUMED DURING THE YEAR WAS RS. 1,19,59,2 9,863/- HOWEVER ONLY RS. ITA NO. 1733/DEL/2010 A.Y. 2007-08 2 15,36,057/- WAS SHOWN AS WASTAGE/SCRAP SALES. ASSE SSING OFFICER ENQUIRED ABOUT THE REASON FOR LOW SALE OF SCRAP REFLECTED BY THE ASSESSEE. ASSESSEE SUBMITTED AS UNDER:- WHILE MANUFACTURING THE GARMENTS SOME SMALL SCARP AND CUTTINGS ARE GENERATED BY WAY OF WASTAGE IN THE MANUFACTURIN G PROCESS AND THE SAME HAS NEGLIGIBLE VALUE AND IS NORMALLY DESTR OYED BY US TO KEEP AND MAINTAIN SECRECY AND TO AVOID THE LEAKAGE OF QUALITY AND DESIGNS OF THE FABRICS SO USED IN THE GARMENT AND H ENCE WE HAVE NOT MAINTAINED MONTH WISE RECORD OF WASTAGE AND IT IS P RUDENT TO WASTE TIME FOR KEEPING THE RECORD OF WASTAGE. HOWEVER, DU RING THIS YEAR THE SCRAP SALE IS AFFECTED BY THE FIRM AT RS. 15,36 ,057.85 WHICH IS CREDITED IN P&L A/C UNDER THE HEAD DOMESTIC SALES . 3.1 HOWEVER, ASSESSING OFFICER WAS NOT SATISFIED. HE OPINED THAT SALE OF SCRAP/WASTAGE RAW MATERIAL SHOWN BY THE ASSESSEE WAS QUITE LOW. HE HELD AS UNDER:- HONBLE ITAT DELHI IN THE CASE OF M/S KRISHNA KUMA R AGGARWAL VS. ACIT IN ITA NO. 1187 AND 3992/2006 HAS AFFIRMED ITS DECISION IN THAT PARTICULAR CASE FOR THE IMMEDIATE PRECEDING YEAR W HEREIN IT WAS HELD THAT ESTIMATION IN THIS KIND OF TRADE CAN REASONABL Y MADE AT 0.2% OF THE TURNOVER. KEEPING IN MIND THE SIMILARITY OF T HE ASSESSEES CASE WITH THE ABOVE JUDGEMENT AND FOLLOWING THE GUIDELINE S LAID DOWN BY THE HONBLE ITAT DELHI, INCOME FROM SCRAP SALE OF T HE ASSESSEE IS ESTIMATED AT 0.2% OF THE TURNOVER I.E. RS. 53,97,83 9/-. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCO ME TAX (APPEALS) HELD AS UNDER:- THE APPELLANT IS NOT MAINTAINING THE QUANTITATIVE DETAILS OF WASTAGE PER LOT ON DAY TO DAY BASIS. IT IS AN ADMITTED FAC T THAT THE WASTAGE IS NOT VERIFIABLE. THE DISPUTE THEREFORE, IS ONLY IN RESPECT OF QUANTUM OF WASTAGE. THE ANNEXURE I AND J TO THE AUDITOR R EPORT CONTAIN THE SUMMARY QUANTITATIVE DETAILS OF RAW MATERIAL AND F INISHED GOODS. ITA NO. 1733/DEL/2010 A.Y. 2007-08 3 THE STOCK REGISTER MAINTAINED BY THE APPELLANT IS N OT IN SUCH A WAY, WHICH MAY HELP IN WORKING THE OUT THE QUANTUM OF WA STAGE ON LOT TO LOT/DAY TO DAY. THE HONBLE ITAT IN VARIOUS CASES HAS DEALT WITH THE ISSUE ELABORATELY. FOR EXAMPLE, THE HONBLE ITAT DE LHI, HAS, IN ITS ORDER DATED 28.3.2008 IN THE CASE OF M/S KRISHNA K UMAR AGGARWAL VS. ACIT IN ITA NO. 1187 AND 2992/2006; HAS AFFIRME D ITS DECISION IN THAT PARTICULAR CASE FOR THE IMMEDIATE PRECEDING Y EAR WHEREIN IT WAS HELD THAT ESTIMATION OF SCRAP IN THIS KIND OF T RADE CAN REASONABLY BE MADE AT 0.2% OF THE TURNOVER. THE ARS ADMITTED THAT THE APPELLANT HAS NOT MAINTAINED ANY RECORD WHICH MAY CONCLUSIVELY PROVED THE QUANTUM OF WASTAGE. ISSUE OF RAW MATERI ALS VIS--VIS RECEIPT OF FINISHED GOODS IN QUANTITATIVE TERMS N EVER TALLIED WITH THE MEASUREMENTS, WHEN SPECIFICALLY ASKED. DEFINITELY, THERE SHOULD BE SOME FEEDBACK MECHANISM TO HAVE CONTROL OVER THE QUANTITATIVE DETAILS OF FINISHED PRODUCTS. BUT SIMILAR MECHANI SM HAS BEEN DENIED IN PRACTICE FOR WASTAGE. THIS ADMITTANCE IS AGAINS T THE APPELLANTS VERSION BECAUSE IT REQUIRES STRICT MECHANISM TO CO NTROL THE QUANTUM OF WASTAGE, SO THAT THEIR DESIGN MAY NOT LEAK. THE APPELLANT FAILED TO CONCLUSIVELY PROVE THE QUANTUM OF WASTAGE GENERATED ON LOT TO LOT BASIS WITH CONCRETE EVIDENCE. THE VERIFIABLE PURCHA SES AND SALES AND STOCK REGISTER, IN THE CASE OF THE APPELLANT CAN NO T DETERMINE THE QUANTUM OF WASTAGE. THUS IN PRACTICAL, THE FACTS OF THE CASE DO NOT DIFFER A LOT FROM THE CASE OF M/S KRISHNA KUMAR AG GARWAL. TAKING CARE OF THE STAND OF THE HONBLE TRIBUNAL ON THIS I SSUE, THE ESTIMATION MADE BY THE ASSESSING OFFICER IS QUITE REASONABLE . THE APPELLANT HAS NOT MADE OUT A CASE THAT IT WAS MAINTAINING ANY RECORD OF WASTAGE OR PERCENTAGE YIELD IN MANUFACTURING ACTIVI TY ON DAY TO DAY / LOT TO LOT/ MONTH TO MONTH/ VARIETY TO VARIETY. I N VIEW OF THE FOREGOING DISCUSSION AND FOR THE REASONS GIVEN BY T HE LEARNED ASSESSING OFFICER, THE FINDING OF THE ASSESSING OFF ICER IS HELD JUSTIFIED ON FACTS. THEREFORE, THE ADDITION OF RS. 31,61,78 2/- IS HEREBY CONFIRMED. 5. AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL BEF ORE US. ITA NO. 1733/DEL/2010 A.Y. 2007-08 4 6. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT IN AS SESSEES OWN CASE FOR A.Y. 2004-05 TO 2006-07, THIS TRIBUNAL HAD CONSIDERED TH E IDENTICAL ISSUE AND DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. 6.1 LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. WE FIND THAT ASSESSING OFFICER IN THIS CASE HAS NOT FOUND ANY DEFECT W HATSOEVER IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. THERE IS ALS O NO MENTION THAT PROFIT RATIO AS DISCLOSED IS IN ANY WAY NOT COMPARABLE WITH EARL IER YEARS. UNDER THE CIRCUMSTANCES, REJECTION OF ASSESSES CLAIM AND SUB STITUTING THE SAME ON ESTIMATE BASIS IS NOT JUSTIFIED. AS REGARDS THE D ECISION OF THE ITAT IN THE CASE OF KRISHNA KUMAR AGGARWAL REFERRED BY THE AUTHORITIE S BELOW, WE FIND THAT THE SAID DECISION CANNOT SAID TO BE LAYING DOWN ANY RATIO F OR WHAT COULD BE THE PERCENTAGE OF WASTAGE IN A PARTICULAR TRADE. THE S AID DECISION WAS RENDERED ON THE FACTS OF THE PARTICULAR CASE ONLY. HOWEVER, IN THE PRESENT CASE, WE FIND THAT IN ASSESSEES OWN CASE IN EARLIER YEARS I.E. 2004-05, 2005-06 AND 2006-07 THE TRIBUNAL HAS DELETED THE ADDITIONS TO WHICH ONE OF US ACCOUNTANT MEMBER WAS A PARTY. THE TRIBUNAL HAD ADJUDICATED THE ISSUE AS U NDER:- 7. WE HAVE HEARD BOTH THE PARTIES AND WE HAVE EXAM INED MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER IN THE THREE YEARS HAS NOT FOUND ANY DEFECT IN THE BOOKS OF ACCOUNT. IT HAS NO T WORKED OUT OR MADE ANY BASIS TO HOLD THAT GENERATION OF SCRAP AND ITS SALE IS NOT CORRECTLY AND PROPERLY REFLECTED IN THE BOOKS OF A CCOUNTS. THERE IS NO FINDING THAT ASSESSEE SUPPRESSED PRODUCTION BY SHOW ING EXCESSIVE WASTAGE OR EXCESSIVE GENERATION OF SCRAP. MANUFACTU RING, PRODUCTION AND TRADING ACCOUNTS HAVE BEEN DULY ACCEPTED. EVE N THEN ADHOC ITA NO. 1733/DEL/2010 A.Y. 2007-08 5 ADDITION HAS BEEN MADE IN THE THREE YEARS WITHOUT ANY LEGAL BASIS. THERE IS NO RULE THAT GENERATION OF SCARP SHOULD B E 0.2% OF THE TURNOVER AS LD. COMMISSIONER OF INCOME TAX (APPEAL S) TRIED TO MAKE OUT IN ITS ORDER FOR ASSESSMENT YEAR 2006-07. ON F ACTS, WE DO NOT SEE ANY GOOD GROUND TO SUSTAIN ADDITION MADE FOR SALE OF SCRAP. IT HAS RIGHTLY BEEN DELETED BY THE LD. COMMISSIONER OF IN COME TAX (APPEALS) IN ASSESSMENT YEARS 2004-05 AND 2005-06 A ND ERRONEOUSLY SUSTAINED IN ASSESSMENT YEAR 2006-07. IT IS DIREC TED TO BE DELETED IN ALL THE THREE YEARS BEFORE US. 7.1 THE FACTS IN THE PRESENT CASE ARE QUITE IDENT ICAL. THERE IS NO FINDING THAT ASSESSEE HAS SUPPRESSED PRODUCTION BY SHOWING EXCE SSIVE WASTAGE OR EXCESSIVE GENERATION OF SCRAP. MANUFACTURING, PRODUCTION & TR ADING ACCOUNTS HAVE BEEN DULY ACCEPTED. MOREOVER, THE ABOVE DECISION IN ASSE SSEES OWN CASE WAS RENDERED AFTER DULY CONSIDERING THAT DECISION IN THE CASE OF KRISHNA KUMAR AGGARWAL REFERRED BY THE REVENUE AUTHORITIES. U NDER THE CIRCUMSTANCES, ADHERING TO THE DOCTRINE OF STAIRE DECISES, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION MADE IN T HIS REGARD. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16/06/2010 UP ON CONCLUSION OF HEARING. SD/- SD/- [A.D. JAIN] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE 16/06/2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR , ITAT BY ORDER, DEPUTY REGISTRAR,ITAT, DELHI BENCHES