ACIT CIR-1, Jamshedpur V. M/s AutoProfile Ltd, Jamshedpur

ITA 174/RAN/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 9584 (ITAT-RANCHI)
• Duration Of Justice: 2 year(s) 10 month(s) 1 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 05-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 03-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K MONDAL J
• Keywords: Business income; Corroborative evidences
• Section: 143(3); 133(6); 145; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RANCHI BENCH, RANCHI BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. A.L. SAINI, ACCOUNTANT MEMBER ITA NO. 174 / RAN / 201 6 ASSESSMENT YEAR :2010-11 ASSISTANT CIT,CIRCLE-1 47, C.H. AREA, JAMSHEDPUR V/S . M/S AUTO PROFILE LTD., C-33, 34 & 35, PHASE IV, ADITYAPUR INDUSTRIAL AREA, GAMHARIA, JAMSHEDPUR-832108 [ PAN NO.AABCA 3931 A ] /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI P.K. MONDAL, JCIT-DR /BY RESPONDENT SHRI DEVESH PODDAR, ADVOCATE /DATE OF HEARING 09-01-2019 /DATE OF PRONOUNCEMENT 15-02-2019 / O R D E R PER BENCH:- THIS REVENUES APPEAL FOR ASSESSMENT YEAR 2010-11 ARISES AGAINST THE COMMISSIONER OF INCOME TAX (APPEALS)-JAMSHEDPURS O RDER DATED 28.03.2016 PASSED IN CASE NO.516/JSR/2012-13 INVOLV ING PROCEEDINGS U/S 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE A CT. HEARD BOTH THE PARTIES. CASE FILE PERUSED 2. THE REVENUES SOLE SUBSTANTIVE GRIEVANCE CANVASS IN THE INSTANT APPEAL CHALLENGES CORRECTNESS OF CIT(A)S ACTION R EVERSING ASSESSING ITA NO.174/RAN/2016 A.Y. 2010-11 ACIT, CIR-1 JSR VS. M/S AUTO PROFILE LTD. PAGE 2 OFFICERS DELETING THE ADDITION AMOUNT OF RS.2,5,86 ,538/- AS ESTIMATED INCOME ON SCRAP. THE LOWER APPELLATE DISCUSSION TO THIS EF FECT READS AS FOLLOWS:- 3. I HAVE EXAMINED SUBMISSIONS MADE BY THE ASSESSEE TO THE EFFECT MENTIONED AS ABOVE VIS--VIS FACTS OF THIS CASE DISCUSSED HEREIN ABOVE. ON EXAMINATION OF MATERIALS AVAILABLE ON RECORD, GATHERED FROM THIRD PARTIES U/S. 133(6) OF THE I.T ACT, 1961 VIS--VIS SUBMISSIONS MADE BY THE ASSESSEE, TH E FOLLOWING POSITIONS EMERGE. 3.1 THAT THE ASSESSEE HAS FAILED TO MAINTAIN DAY TO DAY STOCK OF SCRAPS, ALTHOUGH THE ASSESSEE HAS SHOWN GROSS RECEIPT FROM SALE OF SCRAP S AT RS.8,82,27,394/-- AGAINST TOTAL TURNOVER DISCLOSED AT RS.111.58 CRORE UNDER S UCH THE REALIZATION FROM SALE OF SCRAPS CONSTITUTES A SUBSTANTIAL PORTION OF THE TUR NOVER OF THE ASSESSEE. AS SUCH, THE ASSESSEE IS MANDATED TO MAINTAIN QUANTITATIVE DETAI LS OF SCRAPS PURSUANT TO PROVISIONS OF PARA-3 AND 4 OF PART-II OF SCHEDULE-6 OF THE COMPANIES ACT AND HENCE, THE BOOK RESULT OF THE ASSESSEE SHOWN AS PER AUDITE D ACCOUNT IS NOT A REFLECTIONS OF COMPLETE BUSINESS AFFAIRS TO BE DISCLOSED BY THE AS SESSEE . 3.2 THE ASSESSEE HAS NOT DISCLOSED ANY OPENING OR C LOSING STOCK OF SCRAPS DEEMING THEREOF CLEARLY THAT ALL GENERATE SCRAPS HAVE CLAIM ED TO BE SOLD BY THE ASSESSEE. 3.3 IT HAS ALREADY BEEN CLARIFIED IN PARA 2 AS ABOV E, THAT THE ASSESSEE HAS ONLY BEEN ENGAGED IN MANUFACTURING OF SPECIFIED AUTO COMPONEN TS OF M/S TATA MOTORS RESULTING IN GENERATION OF FIXED QUANTITY OF SCRAPS. HOWEVER, DURING THE COURSE OF EXAMINATION OF THIS CASE, THE FOLLOWING FACTS HAVE BEEN TRANSPI RED. V) THE MAIN RAW MATERIAL IN THE CASE OF THE ASSESSE E IS CR SHEETS & PLATES AND HR SHEETS & PLATES; VI) THE CONSUMPTION OF SUCH CONSUMABLES ARE A CONTI NUOUS PROCESS IN THE CASE OF THE ASSESSEE RESULTING IN GENERATION OF F IXED PERCENTAGES OF SCRAPS . VII) THE RESULTANT SCRAPS IS A FAST SELLING ITEM DU E TO AVAILABILITY OF SEVERAL CONSUMING MANUFACTURING UNITS IN THE DISTRICT OF JA MSHEDPUR ITSELF. 3.4 IN VIEW OF FACTS EMERGE IN PARA 3.3 AS ABOVE, T HE ASSESSEE WAS ASKED TO FURNISH UNIT-WISE DETAILS OF GENERATION OF SCRAPS VIDE THIS OFFICE SHOW CAUSE LETTER DATED 30 TH JANUARY, 2013 SEEKING COMPLIANCE ON 4 TH FEBRUARY, 20013 IN THE FOLLOWING FORMAT:- SL.NO. DATE OPENING BALANCE OF SCRAP CONSUMPTION OF RAW MATERIALS I.E. THE SHEET METAL SCRAP OBTAINED VALUE OF SCRAP SOLD VALUE OF SCRAP SOLD BALANCE SCRAP IN HAND 1 2 3 4 5 6 7 8 HOWEVER, THE ASSESSEE HAS NOT SUBMITTED ANY DETAILS AS ABOVE, ALTHOUGH, PROVIDED SUFFICIENT OPPORTUNITIES. IN FACT, THE ASSESSEE HAS ADMITTED VIDE PARA 1 OF ITS REPLY DATED 13/02/2013 REPRODUCED IN PARA 2.5 AS ABOVE; T HAT HE HAS NOT MAINTAINED ANY SUCH DETAILS AND HENCE, THE BOOK RESULT SHOWN BY TH E ASSESSEE TO THE EFFECT OF GENERATION OF SCRAPS AND ITS SALE CANNOT BE ACCEPTE D. 3.5 IN FACT, THE ASSESSEE HAS NOT DISCLOSED GENERATION OF ANY SCRAPS IN UNIT II OF ITS CONCERN FOR THE MONTH OF FEBRUARY AND MARCH 2010. HOWEVER, ON PERUSAL OF MONTHLY ER-1 RETURN SUBMITTED TO THE SUPERINTEND ENT CENTRAL EXCISE, ADITYAPUR, RANGE-3; IT HAS BEEN FOUND THAT THE ASSE SSEE HAS DISCLOSED MANUFACTURING AND SALE OF AUTO COMPONENTS AT 3581 K G. AND 677KG. FOR MANUFACTURING VALUE AT RS.3,23,144.15 AND RS.3,72,1 89.91 RESPECTIVELY. THE PRODUCTION OF SUCH AUTO COMPONENTS WOULD HAVE CERTA INLY ENTAIL GENERATION OF SCRAPS AS DISCUSSED IN PRECEDING PARAS; WHICH HAS N OT BEEN DISCLOSED BY THE ASSESSEE AND HENCE, IT IS EVIDENT THAT THE ASSESSEE HAS BEEN ENGAGED IN CONCEALED TRANSACTION OF SCRAPS . ITA NO.174/RAN/2016 A.Y. 2010-11 ACIT, CIR-1 JSR VS. M/S AUTO PROFILE LTD. PAGE 3 3.6 FURTHER, ON THE BASIS OF INFORMATIONS FURNISHE D BY THE ASSESSEE W.R.T MONTHLY CONSUMPTION OF RAW MATERIAL VIS-A-VIS GENERATION OF SCRAPS; THE FOLLOWING POSITIONS EMERGE:- SL.NO. NAME OF THE MONTH CR SHEETS AND PLATES HR SHEETS AND PLATES TOTAL WEIGHT OF THE SCRAP % OF COL. NO. 7 W.R.T. COL. NO.5 1 2 3 4 5 6 7 APRIL 09 456.444 1054.818 1511.262 305 20.18% MAY 09 481.465 984.078 1465.544 348.988 23.81% JUNE 09 398.102 1436.892 1834.994 494.209 26.93% JULY 09 493.447 1621.855 2115.298 580.517 27.44% AUG 09 673.305 1195.069 1868.374 438.540 223.47% SEP. 09 520.492 1075.932 1566.424 437.610 27.93% OCT. 09 576.060 1868.250 2384.31 607.400 25.47% NOV. 09 714.344 2136.034 2850.378 908.170 31.65% DEC. 09 574.996 1857.17 2432.160 792.635 32.59% JAN. 10 547.053 2420.2011 2967.254 644.638 21.72% FEB 10 707.996 2648.896 3356.892 744.630 22.18% MAR 10 639.509 3751.726 4391.235 971.945 22.13% 3.7. ON PERUSAL OF THE AFORESAID ANALYSIS, IT IS EVIDENT THAT THE PERCENTAGE OF YIELD OF SCRAPS AS DISCLOSED; ARE NOT UNIFORM WHERE AS, THE SAME SHOULD BE UNIFORM IN VIEW OF DISCUSSIONS HELD IN PRECEDING PA RAS. IT RANGES FROM 20.18% TO 32.59% I.E. FOR THE MONTH OF APRIL 2009 AND DECE MBER 200 RESPECTIVELY. SINCE, THE ASSESSEE HAS NEVER DISCLOSED ANY OPENING OR CLOSING MONTHLY BALANCE OF SCRAPS (AS IS EVIDENT FROM THE CHART FUR NISHED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT YEAR PROCEEDINGS AN NEXED HEREWITH VIDE ANNEXURE- A); IT BECOMES EVIDENT THAT SCRAPS ARE A FAST SELLING ITEM RESULTING IN DAY TO DAY DISPOSAL. THIS FACT ALSO FINDS SUPPOR T FORM DISCUSSION HELD IN PARA 3.3 AND 3.4 AS ABOVE. AS SUCH, IT IS INFERRED THAT THE PERCENTAGE OF GENERATION VIS-A-VIS SALE OF SCRAPS SHOULD BE UNIFO RM IN PERCENTAGE TERM . 3.8 FURTHER ON PERUSAL OF SALE INVOICES OF SCRAPS, IT HAS BEEN FOUND THAT IT HAS BEEN BILLED AROUND RS.10/- PER KG. ONLY. HOWEVER, FROM L OCAL ENQUIRIES, IT HAS BEEN GATHERED THAT THE RATE OF SCRAPS FOR THE RELEVANT P ERIOD RANGES FROM RS.20/- TO RS.25/- PER KG., IN THE GREY MARKET. AS SUCH, THE RATE OF S ALE DISCLOSED BY THE ASSESSEE AROUND RS.10/- W.E.F. 01/04/2009 TO 31/03/2010 IS N OT RELIABLE AND HENCE, IT APPEARS THAT THE ASSESSEE HAS ALSO BEEN ENGAGED IN UNDER-BILLING OF SALE OF SCRAPS . 3.9 IN VIEW OF FACTS DISCUSSED ELABORATELY AS ABOVE , I HEREBY REJECT BOOK RESULT OF THE ASSESSEE W.R.T. GENERATION CUM TRADING OF SCRAPS BY INVOKING THE PROVISO TO SECTION 145 OF THE I. T ACT, 1961 BY PLACING RELIANCE ON FO LLOWING DECISIONS:- I) S.N. NAMASIVAYAM CHETTIAR VS. CIT (SDC) 38 ITR 5 79 II) AWADHESH PRATAP SINGH ABDUL RAHMAN & BROS VS. C IT (ALL) 210 ITR 406 III)PUNJAB TRADING CO. LT. VS. CIT (PUNJ) 53 ITR 33 5 IV) RAM CHANDRA SINGH RAMNIK LAL VS. CIT (PAT) 42 I TR 780 V) BHAI SUNDER DAS SARKAR SINGH (P) LTD VS. CIT (DE L) 42 ITR 780 VI) ROYAL MEDICAL HALL VS. CIT (AP) 46 ITR 748 3.10 IT HAS BEEN HELD BY THE APEX COURT IN THE CASE OF CIT VS. BRITISH PAINTS LIMITED (SC) 188 ITR 44 THAT IF METHOD OF ACCOUNTING, EVEN THOUGH CONSISTENTLY FOLLOWED, DOES NOT DISCLOSE TRUE AND PROPER INCOME, IS ENTITL ED TO ADOPT APPROPRIATE COMPUTATION TO DETERMINE TRUE INCOME. SINCE, THE ASSESSEE HAS NOT ONLY BEEN ENGAGED IN CONCEALING GENERATION OF SCRAPS AS ESTAB LISHED IN PARA 3.5 SUPRA BUT IS ALSO ENGAGED IN UNDER BILLING W.R.T. SALE OF SCRAPS AS DISCUSSED IN PARA 3.8 AS ABOVE, I HEREBY ESTIMATE GENERATION OF SCRAPS AT 32.59% I. E. THE PEAK PERCENTAGE OF GENERATION OF SCRAPS DISCLOSED BY THE ASSESSEE FOR THE MONTH OF DECEMBER, 2009. ITA NO.174/RAN/2016 A.Y. 2010-11 ACIT, CIR-1 JSR VS. M/S AUTO PROFILE LTD. PAGE 4 THE CONCEALED INCOME OF THE ASSESSEE IS BEING ESTIM ATED ACCORDINGLY AS HERE BELOW:- I) TOTAL SALE OF SCRAPS DISCLOSED - 7268323 KG II) VALUE OF SALE DISCLOSED - 8,82,27,394.50 III) AVERAGE RATE OF SALE PER KG. - RS.12.14 IV) TOTAL CONSUMPTION OF CR SHEETS & PLATE AND HR SHEETS & PLATES - 2,87,44,125 KG V) 32.59% OF COL. IV AS ABOVE - 93,67,710 KG. VI) DIFFERENCE OF COL. (V) TO COL. (I) - 20,99,387 KG. VII) VALUE OF CONCEALED REALIZATION FROM SALE OF SCRAPS I.E. (VI) X (II) - RS.2,54,86,558/- THE SAID SUM OF RS.2,54,86,558/- IS ACCORDINGLY ADD ED BACK IN THE TOTAL INCOME OF THE ASSESSEE BEING TREATED AS CONCEALED INCOME OF THE A SSESSEE. 4.2 DURING THE COURSE OF APPELLATE PROCEEDINGS, THE APPELLANT CONTENTION IS REPRODUCED AS UNDER:- REF: APPEAL NO. 516/JSR/2013-14 A/Y 2010-11 IN THE MATTER OF M/S AUTO PROFILES LTD FACTS OF CASE 1. RETURN OF INCOME FOR THE ABOVE ASSESSMENT YEAR F ILED ON 23.09.2010 SHOWING TOTAL INCOME OF RS.11,53,10,890/- 2. APPLICANT COMPANY IS ENGAGE IN THE BUSINESS OF M ANUFACTURING AND SALE OF AUTO COMPONENTS. 3. THE LD. ASSESSING OFFICER HAS COMPLETED ASSESSME NT U./S 143(3) ON 15.03.2013 DETERMINING TOTAL INCOME AT RS.4,07,97,450/- BY ADD ING A SUM OF RS.2,54,86,558/- AS CONCEALMENT INCOME DERIVED FROM UNACCOUNTED SALE OF SCRAP. 4. THE LD. ASSESSING OFFICER REJECTED BOOK RESULT O F THE ASSESSEE W.R.T GENERATION CUM TRADING OF SCRAP BY INVOKING THE PROVISO TO SEC TION 145 OF THE I. TAX ACT, ON RELYING THE FOLLOWING DECISIONS S.N. NAMASIVAYAAM CHETTIAR VS CIT (SC) 38 ITR 579 AWADHESH PRATAP SINGH ABDUL RAHMAN & BROS VS. CIT ( ALL) 210 ITR 406 AND MANY OTHERS. 5. FOR ESTIMATING THE GENERATION OF SCRAP AT 32.59% I.E. PEAK PERCENTAGE OF GENERATION OF SCRAP, THE LD. ASSESSING OFFICER HAS RELIED ON THE JUDGEMENT OF APEX COURT IN THE CASE OF CIT VS. BRITISH PAINTS LI MITED (SSC) 188 ITR 44. ADDITION WAS MADE ON THE UNDER MENTIONED FINDINGS 1. THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTU RING OF CERTAIN AUTO COMPONENTS AS PER SPECIFICATION GIVEN BY M/S TATA M OTORS AND ALSO SUPPLYING THE SAME IN TOTALITY TO M/S TATA MOTORS AT JAMSHEDPUR. 2. ONE OF THE MAIN RAW MATERIALS OF THE ASSESSEE IS STEEL SHEET, WHICH ARE PURCHASED FROM M/S TSPDL, A TATA GROUP OF COMPANY. 3. AS PER PARA NO. 3.7 OF THE ASSESSMENT YEAR, MANU FACTURING OF STANDARDIZED AUTO COMPONENTS GENERATES FIXED PERCENTAGE OF SCRAP HAVI NG SUBSTANTIAL VALUE IN THE MARKET. 4. NON MAINTENANCE OF DAY TO DAY STOCK REGISTER, AS MANDATE BY THE COMPANIES ACT IN PURSUANT TO THE PROVISIONS OF PARA 3 & 4 OF PART II OF SCHEDULE VI. SUBMISSIONS: 1. THE ASSESSEE-COMPANY IS NOT ENGAGED IN MANUFACTU RING OF AUTO COMPONENTS FOR M/S TATA MOTORS ALONE. THE ASSESSEE COMPANY IS ALSO MANUFACTURING VARIOUS AUTO COMPONENTS OF DIFFERENT SPECIFICATION FOR SEVE RAL OTHER CUSTOMERS. CUSTOMER WISE DETAILS OF SALES, OUT OF THE TOTAL SALES OF RS .111.57 CRORES,RS.83.06 CRORES I.E 74.44% OF THE TOTAL SALES WAS MADE TO M/S TATA MOTO RS, JAMSHEDPUR AND REMAINING SALES, MORE THAN 25% ARE MADE TO OTHER PA RTIES AS PER THERE SPECIFICATION. 2. THE LD. ASSESSING OFFICER'S OBSERVATION THAT RAW MATERIALS ARE PURCHASED ONLY FROM A FIXED AND SINGLE SOURCE IS FACTUALLY INCORRE CT. IN FACT, THE RAW MATERIALS HAVE BEING PURCHASED FROM DIFFERENT SOURCES, DEPEND ING ON ITS AVAILABILITY AT THAT ITA NO.174/RAN/2016 A.Y. 2010-11 ACIT, CIR-1 JSR VS. M/S AUTO PROFILE LTD. PAGE 5 POINT OF TIME. PRIMARY RAW MATERIALS OF THE ASSESSE E IS STEEL SHEET AND THIS MATERIAL IS PURCHASED FROM M/S TATA IRON & STEEL CO LTD.,, M/S STEEL AUTHORITY OF INDIA, M/S TSPDL & OTHERS. ON PERUSAL OF ENCLOSED P URCHASE DETAILS, IT WILL BE EVIDENT THAT THE PURCHASE OF STEEL SHEET FROM M/S T ATA RYERSON PVT. LTD. AS ALLEGED BY THE LD. AO IS ONLY TO THE EXTENT OF RS.4 .77 CRORES AGAINST THE TOTAL PURCHASES OF RS.88.65 CRORES FOR ALL OF ITS UNITS. 3. SIMILARLY THE OBSERVATION OF THE LD. AO THAT THE MONTHLY GENERATION OF SCRAP SHALL BE OF FIXED PERCENTAGE TO CONSUMPTION OF RAW MATERI AL IS IN TOTALITY ERRONEOUS AND INCORRECT, SINCE THE PARTS MANUFACTURED THOUGH, ARE BASED ON SPECIFICATIONS AS PROVIDED BY THE BUYER ARE OF DIFFERENT SIZES AND QU ANTITY AND AT NO SIGHT OF IMAGINATION SHALL GENERATE A FIXED PERCENTAGE OF SC RAP. THE PRODUCT MIX FOR THE MONTH DEPENDS ON THE SUPPLY SCHEDULE AS PROVIDED BY THE CUSTOMERS WHICH VARIES IN QUANTITY AND QUALITY ON MONTH TO MONTH BA SIS. IN THIS REGARD ASSESSEES SUBMISSION (AS PER ANNEXURE 2 PAGE 9 TO 35) DATED 1 0.12.2013, THAT VARIOUS ITEMS AS MANUFACTURED BY ASSESSEE SHALL EFFECT THE GENERATION OF SCRAP WHICH WAS ALSO NOT NEGATED BY THE LD AO IN HIS REMAND REP ORT AO. THERE ARE PARTS, WHERE THE YIELD FROM A PLATE/SHEET CAN BE AS HIGH A S 90% AT THE SAME TIME THERE WOULD BE PARTS WHERE THE YIELD FROM SAME RAW MATERI AL COULD BE JUST 80%. HENCE THE OVERALL GENERATION OF SCRAP WOULD VARY DEPENDIN G ON THE QUANTUM, OF PARTS MANUFACTURED, AS WELL AS THE PRODUCT MIX, REQUIRED BY OUR CUSTOMERS WHICH VARIES TIME TO TIME AS PER THERE REQUIREMENTS. 3.1 WITH REGARD TO ABOVE, WE WOULD ALSO LIKE SUBMIT THAT THE GENERATION OF SCRAP FOR A PRODUCT, ALSO DEPENDS ON THE SIZES OF A VAILABLE RAW MATERIAL I.E. STEEL SHEETS AND PLATES, AT THE POINT OF TIME WHEN SUCH PRODUCTS ARE TO BE MANUFACTURED. FOR INSTANCE, WHEN WE PROCURE A ST EEL PLATE OF 1350 M WIDTH FROM M/S TATA STEEL, THE ACTUAL ROLLING WIDTH CAN GO UPTO 1360 TO 1365 MM WHEREAS IF THE SAME PLATES ARE PURCHASED FR OM M/S SAIL, THE WIDTH CAN GO UPTO 1380 MM SUCH VARIATIONS ARE CONSI DERED WITHIN THE ROLLING TOLERANCES. THIS VARIATION LEADS TO DIFFERE NCE IN GENERATION OF SCRAP DESPITE IT IS USED FOR MANUFACTURING OF SAME PARTS. MANY TIMES, ITS HAPPEN THAT THE SPECIFIED SIZE FO THE PLATE AS REQUIRED FO R MANUFACTURING A PART IS 1350 MM WIDTH, AND IF THIS SIZE IS NOT AVAILABLE IN THE MARKET, INSTEAD, PLATE OF WIDTH 1410 MM IS AVAILABLE, IN THIS CASE T HE ASSESSEE HAS NO ALTERNATIVE BUT TO COMPLY ITS SCHEDULE DELIVERY AND HAS TO PROCURE AND USE THE HIGHER WIDTH MATERIAL FOR MANUFACTURING THE SAM E PARTS, THIS TYPE OF INSTANCES ALSO LEADS TO INCREASE THE QUANTUM OF SCR AP GENERATION. IN ADDITION TO ABOVE, THE SCRAP IS ALSO GENERATED FROM REJECTIONS, WHILE MANUFACTURING PROCESS ARID ALSO MATERIAL RETURNED F ROM CUSTOMERS ON REJECTION. THE REJECTIONS BOTH WITHIN FACTORY PREMI SES AND ALSO BY CUSTOMERS PLAY A SIGNIFICANT ROLE IN GENERATION OF SCRAP AND IT IS KNOWN FACT THAT REJECTION CANNOT BE AT ALL AT A FIXED PER CENTAGE. IT IS THEREFORE REITERATED THAT AT NO SIGHT OF IMAGINATION THE GENE RATION OF SCRAP SHALL BE AT FIXED PERCENTAGE AS ALLEGED BY THE LD. AO. 3.2 FURTHER, IN A GOING CONCERN, SCRAP IS ALSO GENE RATED ON ANY FABRICATION AND ERECTION OF PLANT, EQUIPMENTS, BINS, PALLETS & SHEDS, AS WELL AS DISPOSAL OF ANY EXISTING SHED STRUCTURE ON BEING RE PLACED BY THE NEW SHED, ETC. INCREASED SALE OF SCRAP IN ANY MONTH IS INEVITABLE WHEN SUCH ACTIVITIES TOOK PLACE. DURING THE YEAR UNDER CONSID ERATION SOME UNITS OF THE ASSESSEES COMPANY ARE BEING IN MODE OF EXPANSI ON, THE OLD SHED & STRUCTURES STANDING THEREIN ARE ALSO SOLD AS SCRAP ON ITS REPLACEMENTS AND THE SAME PLAYS A VITAL ROLE IN INCREASE IN SALE FIG URES IN THE RESPECTIVE MONTH IN COMPARE TO OTHER MONTHS. 3.3 THEREFORE THE LD. AO CONTENTION THAT A FIXED PE RCENTAGE OF SCRAP IS GENERATED IN THE MANUFACTURING PROCESS IS TOTALLY E RRONEOUS AND BASELESS, ITA NO.174/RAN/2016 A.Y. 2010-11 ACIT, CIR-1 JSR VS. M/S AUTO PROFILE LTD. PAGE 6 WHEREAS, AS PER COMPANY POLICY, THE MATERIAL RECOGN IZED AS SCRAP ARE SOLD AND SAME IS DISCLOSED IN EXCISE RETURNS FILED BY THE COMPANY. 4. THE ASSESSEE WAS NOT MAINTAINING ANY STOCK REGI STER FOR SCRAP AND THE REASONS FOR SAME WERE DULY EXPLAINED DURING THE COURSE OF H EARING AND ALSO IN OUR EARLIER SUBMISSIONS MADE BEFORE YOUR GOODSELF. IT IS REITER ATE THAT SINCE THE ASSESSEE DOES NOT POSSESS ANY STOCK AS SCRAP THEREFORE COMPU TATION FOR MAINTENANCE OF STOCK REGISTER IS NOT AT ALL APPLICABLE. THE OBSERV ATION OF THE LEARNED .IN VARIOUS PARA IN ITS ASSESSMENT Y ORDER IS FACTUALLY INCORRE CT ON THE BASIS OF WRONG INTERPRETATION OF VARIOUS FACTS AND LAWS. SO FAR MA INTENANCE OF SCRAP STOCK REGISTER, OPENING STOCK AND CLOSING STOCK OF SCRAP IS CONCERNED, THE ASSESSEE ACCOUNTS FOR SCRAP IN THE BOOKS OF ACCOUNT ONLY AT THE TIME OF SALE THEREOF AND PRIOR TO THIS THE SAME IS ACCOUNTED FOR AS RAW MATE RIAL. THIS IS SO BECAUSE THE PRIME SHEETS AND PLATES USED FOR MANU9FACTURING OF A PARTICULAR TYPE OF COMPONENT COULD LEAD TO CERTAIN OFF CUTS WHICH CAN BE USED FOR MANUFACTURING CERTAIN OTHER COMPONENTS OF DIFFERENT SPECIFICATION S AND ALSO FOR DIFFERENT BUYERS. THIS IS THE REASON THAT THE SCRAP IS ACCOUNTED FOR IN THE BOOKS OF ACCOUNT ONLY AT THE TIME OF SALE THEREOF AND PRIOR TO THIS THE SAME IS CONTINUOUSLY TREATED AS RAW MATERIAL. 4.1 THE ALLEGATION OF THE LD. AO IN PARA 2.2 & 2.3 THAT THE ASSESSEE HAD FIRST TIME DISCLOSED THE VALUE OF SCRAP IS FACTUALLY INCO RRECT, IN FACT, THE FIGURES, AS APPEARING IN SCHEDULE 19 FORMING PART OF AUDIT ED FINANCIAL STATEMENT, AND ALSO NOTED BY THE LD. IN ITS ASSESSM ENT ORDER, OF RS.12,9553 CRORES AND RS.3,7375 CRORES FOR THE FINA NCIAL YEAR 2008- 2009 & 2009-2010 RESPECTIVELY, REPRESENTS 179470 NO S. OF OTHERS ITEMS SOLD DURING THE YEAR AND NOT THE SALE OF SCRA P AS CONSIDERED BY THE LD AO. THE INTERPRETATION, BY THE LD. AO THAT THE FIGURE OF 179470 UNDER THE HEAD OTHERS AS QUANTITY FOR SCRAP SOLD AND THAT TO ALSO IN KG S. IN FACT THE SAME REPRESENTS NUMBER OF OTHER PARTS MANU FACTURED BY THE ASSESSEE COMPANY WHICH RUNS OVER 400 TO 500 TYPES I N VARIETY AND HENCE CANNOT BE LISTED IN TOTALITY IN THE BALANCE SHEET. 4.2 AO OBSERVATION FOR MANDATE TO MAINTAIN THE QUA NTITY DETAILS OF SCRAP PURSUANT TO PROVISIONS OF PARA 3 & 4 OF PART II OF SCHEDULE VI OF THE COMPANIES ACT IS IN TOTALITY ERRONEOUS AND BAD IN L AW. THE RELEVANT EXTRACT OF STATUTE, AS APPLICABLE TO THE ASSESSEE C OMPANY BEING ENGAGED IN MANUFACTURING ACTIVITIES, AS PER PARA 3 & 4 OF P ART II OF SCHEDULE VI IS REPRODUCED AS UNDER PARA-3 THE PROFIT & LOSS ACCOUNT SHALL SET OUT THE VARIOUS ITEMS RELATING TO THE INCOME AND EXPENDITURE OF THE COMPANY ARRANGED UNDER THE MOST CONVENIENT HEADS AND IN PARTICULAR, SHALL DISCLOSED THE FOLLOWING INFORMATION IN RESPECT OF THE PERIOD COVERED BY THE ACCOUNTS. (I)(A) THE TURNOVER, THAT IS THE AGGREGATE AMOUNT F OR WHICH SALES ARE EFFECTED BY THE COMPANY GIVING THE AMOUNT OF SALE I N RESPECT OF EACH CLASS OF GOODS DEALT WITH BY THE COMPANY AND INDIC ATING THE QUANTITIES OF SUCH SALE FOR EACH CLASS SEPARATELY. (II)(A) IN THE CASE OF MANUFACTURING COMPANIES- (1) THE VALUE OF THE RAW MATERIALS CONSUMED, GIVIN G ITEM-WISE BREAK-UP AND INDICATING THE QUANTITIES THEREOF,. IN THIS BRE AK-UP, AS FAR AS POSSIBLE , ALL IMPORTANT BASIC RAW MATERIALS SHALALA BE SHOWN AS SEPARATE ITEMS. THE INTERMEDIATES OR COMPONENTS PRO CURED FROM THE OTHER MANUFACTURES MAY, IF THEIR LIST IS TOO LARGE TO BE INCLUDED IN THE BREAK-UP, BE GROUPED UNDER SUITABLE HEADINGS WITHOU T MENTIONING THE QUANTITIES, PROVIDED ALL THOSE ITEMS WHICH IN VALUE INDIVIDUALLY ACCOUNT FOR 10% OR MORE OF THE TOTAL VALUE OF THE RAW MATER IAL CONSUMED SHALL ITA NO.174/RAN/2016 A.Y. 2010-11 ACIT, CIR-1 JSR VS. M/S AUTO PROFILE LTD. PAGE 7 BE SHOWN AS SEPARATE DISTINCT ITEMS WITH QUANTITIES THEREOF IN THE BREAK-UP. (2) THE OPENING AND CLOSING STOCKS OF THE GOODS PRO DUCED , GIVING BREAK- UP IN RESPECT OF EACH CLASS OF GOODS AND INDICATING THE QUANTITIES THEREOF. PARA-4 THE PROFIT AND LOSS ACCOUNT SHALL ALSO CONT AIN OR GIVE BY WAY OF A NOTE DETAILED INFORMATION SHOWING SEPARATELY THE PA YMENTS PROVIDED TO MADE DURING THE FINANCIAL YEAR TO THE DIRECTORS (INCLUDING MANAGING DIRECTORS, THE MANAGING AGENT, SECRETARIES AND TREA SURES) OR MANAGER, IF ANY, BY THE COMPANY, THE SUBSIDIARIES OF THE COMPAN Y AND ANY OTHER PERSON:- SCHEDULE VI FO THE COMPANIES ACT, PRESCRIBES FORMAT AS WELL AS DISCLOSURE REQUIREMENTS IN THE FINANCIAL STATEMENTS PREPARED BY THE COMPANIES FOR SUBMISSION BEFORE VARIOUS AUTHORITIES INCLUDING ITS SHARE HOLDERS. FROM THE RELEVANT EXTRACT OF PARA 3 & 4 OF PART II OF SCHEDULE VI OF THE COMPANIES ACT, AS REPRODUCED ABLE IT WILL BE CLEARLY ENVISAGED THAT NONE OF THE QUOTED PARA, ON WHICH THE LEARNED . AO HAD RELIED UPON WHILE REJECTING THE BOOKS OF ACCOUNT, MANDATES ASSESSEE T O MAINTAIN DAY TO DAY STOCK REGISTER FOR SCRAP. 4.3 THE LD. AO HAS MISTAKENLY POINTED OUT IN PARA 3 .5 OF ITS ASSESSMENT ORDER THAT THE ASSESSEE COMPANY HAD NOT SHOWN SALE OF SCRAP IN THE MONTH OF FEBRUARY 2010 AND MARCH 2010 IN CASE OF UN IT II, WHEN 3581 KGS AND 677 KGS OF MANUFACTURING OF MV PARTS HAS BE EN SHOWN IN EXCISE RETURNS. WHILE WORKING OUT THE FIGURE OF 3581 KGS THE LD AO .ADDED SALE OF MS SCRAP OF 3060 KGS & MV PARTS MANUFACTURE D 521 KGS. IN FACT, THE ASSESSEE HAD SHOWN 521 NOS. OF MV PARTS MANUFAC TURED AND DISPATCHED DURING THE MONTH AND SHOWN 3060 KGS OF S ALE OF SCRAP IN THE MONTH UNDER CONSIDERATION. WE ARE ENCLOSING THE COR RESPONDING EXCISE DOCUMENT FOR THE MONTH OF FEBRUARY 2010 TO SUBSTANT IATE ASSESSEES CLAIM, REGARDING NOT SHOWING THE SALE OF SCRAP IN T HE MONTH OF MARCH, IN THE EXCISE DOCUMENT, THE ASSESSEE WOULD LIKE TO SUB MIT THAT THE SCRAP IS ACCOUNTED FOR IN THE BOOKS OF ACCOUNT ONLY AT THE T IME OF SALE THEREOF AND PRIOR TO THIS THE SAME IS BOOKED AS RAW MATERIAL. 4.4 ON THE BASIS OF REGARDING UNDER-BILLING OF SAL E OF SCRAP AS ALLEGED BY THE LD AO AT PARA 3.8 ON BASIS OF LOCAL ENQUIRIES WITH OUT ANY SUBSTANTIAL EVIDENCE. IN THE CASE OF ASSESSEE THERE IS ALWAYS D IFFERENCE BETWEEN SCRAP REALIZATION PRICE & MARKET PRICE. THE MARKET PRICE IS DETERMINED BY ADDING VARIOUS OTHER COSTS LIKE E.E. AT/CST, HANDLI NG AND TRANSPORTATION COST, PROFIT MARGIN OF THE SCRAP DEALER, ETC. MOREO VER, SCRAP FALL UNDER VARIOUS CATEGORIES LIKE LIGHT MELTING, HEAVY MELTIN G, ETC. WHOSE PRICES ARE DIFFERENT IN THE MARKET. THE CATEGORY OF SCRAP AS G ENERATED IN THE MANUFACTURING PROCESS OF THE AS FALLS IN THE LIGHT CATEGORY WHERE THE PRICE IS MUCH LOWER AS COMPARED TO HEAVY MELTING. F URTHER, THE SCRAP GENERATED FROM THE ASSESSEES MANUFACTURING UNITS, BESIDES BEING LIGHT, IS VOLUMINOUS IN NATURE, OCCUPYING MORE SPACE IN THE TRANSPORTA TION VEHICLES; THE TRANSPORTATION COST FOR THIS SCRAP IS MUCH HIGHER LEADING TO A LOWER EX-WORKS REALIZABLE PRICE. AS SUCH THE OBSERV ATION OF THE LD. AO IS ONLY A PRESUMPTION WITHOUT ANY SUBSTANTIATING MATER IALS OR EVIDENCES. 4.5 REGARDING INVOKING OF SECTION 145 OF THE INCOME TAX ACT 1961 AT PARA NO 3.9 BY PLACING RELIANCE ON THE VARIOUS DECISIONS, W E WOULD LIKE TO SUBMIT THAT ALL THE CITATION REFERRED BY THE LD. ASSESSING OFFICER ARE FOR REJECTION OF BOOKS OF ACCOUNT FOR NONE MAINTENANCE OF THE STO CK REGISTER AND OTHER RELEVANT DOCUMENTS FOR GENUINENESS OF STOCK. IN THE PRESENT CASE ASSESSEE HAS MAINTAINED AND ALSO ADDUCED THE BOOKS OF ACCOUNT AND ITA NO.174/RAN/2016 A.Y. 2010-11 ACIT, CIR-1 JSR VS. M/S AUTO PROFILE LTD. PAGE 8 OTHER RELEVANT DOCUMENTS INCLUDING QUANTITATIVE DET AILS OF STOCK BEFORE THE LD.AO DURING THE COURSE OF SCRUTINY, HOWEVER FOR TH E REASON AS EXPLAINED EARLIER THE STOCK REGISTER FOR THE SCRAP NOT MAINTA INED AND NOT PRODUCED AS THERE IS NO SUCH REQUIREMENT. THESE ARE THOROUGHLY EXAMINED AND VERIFIED, HOWEVER THE SAME WAS REJECT ON A FLIMSY G ROUND OF NON MAINTENANCE OF DAY TO DAY STOCK REGISTER OF SCRAP W HICH IS NOT REQUIRED IN OUR CASE. FURTHER AS PER PARA 3.10 OF THE ASSESSMENT ORDERS, WHEREIN THE LD. AO ON RELYING THE DECISION OF HON'BLE SUPREME COURT IN TH E CASE OF CIT VS. BRITISH PAINTS LIMITED (SC) 188 ITR 44 AND ALSO ON THE BASIS OF VARIOUS PRESUMPTIONS, ESTIMATED THE SCRAP GENERATION BY TAK ING PEAK PERCENTAGE OF 32.59% AS DISCLOSED BY THE ASSESSEE IN THE MONTH OF DECEMBER, 2009 AND ADDED RS.2.55 CRORES AS CONCEALED INCOME REALIZ ED FROM SALE OF SCRAPS. THE CASE LAW AS CITED AS WELL AS RELIED ON BY LD. AO IS THAT IF METHOD OF ACCOUNTING, EVEN THOUGH CONSISTENTLY FOLL OWED, DOES NOT DISCLOSED TRUE AND PROPER INCOME, IS ENTITLED TO AD OPT APPROPRIATE COMPUTATION TO DETE5ERMINE TRUE INCOME. WHEREAS IN THE ASSESSEES CASE ALL THE RELEVANT DETAILS AND DOCUMENTS ALONG W ITH BOOKS OF ACCOUNT, WHICH WERE NECESSARY TO COMPUTE TRUE AND FAIR INCOM E OF THE ASSESSEE, WERE ADDUCED BEFORE THE LD. AO AND THE SAME WAS DUL Y VERIFIED. FURTHER THE VARIOUS PRINCIPALS AS LAID DOWN IN THE CITED CA SE LAW ARE DISTINGUISHABLE. THE ASSESSEE COMPANY IS MAINTAININ G AL THE REQUISITE DETAILS AND DOCUMENTS AND ALSO FILING ALL ITS STATU TORY RETURNS WITH THE APPROPRIATE AUTHORITIES AS PRESCRIBED UNDER VARIOUS STATUTES. THE VARIOUS ALLEGATIONS AS NOTED IN VARIOUS PARAGRAPHS OF THE A SSESSMENT ORDER ARE MOSTLY BASED OR CERTAIN PRESUMPTIONS AND ESTIMATION S, WITHOUT ANY CORROBORATIVE EVIDENCES. WITHOUT PREJUDICE TO THE F ACTUAL MATRIX OF THE CASE AS STATED ABOVE AND ALSO IN OUR EARLIER SUBMIS SIONS, DULY FORWARDED TO THE LD AO FOR ITS COMMENTS, WHICH WAS ALSO SUMM ARILY REPLIED WITHOUT TAKING MUCH PAIN TO NEGATE THE VARIOUS SUBMISSION/D ETAILS FURNISHED BY THE ASSESSEE BEFORE YOUR GOODSELF ALSO DEMONSTRATE THAT THE LD. AO HAS NOTHING TO COUNTER ASSESSEES SUBMISSIONS. ANY ESTI MATED ADDITION OF A SPECIFIC ITEM BY INVOKING PROVISIONS OF SECTION 145 OF THE INCOME TAX ACT IS ALSO BAD IN LAW AND IT IS NOT AT ALL IN THE TRUE ESSENCE OF T HE INTENTION OF LAW MAKERS. SECTION 145(3) EMPOWERS ASSESSING OFFIC ER TO MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144 IF HE IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUN TS OF T HE ASSESSEE AND THEREFORE ONCE THE SECTION 145 COMES INTO PICTU RE THE BOOK RESULT OF THE ASSESSEE SHOULD BE REJECTED AND THE PROFIT FROM BUSINESS OR PROFESSION MAY BE ESTIMATED IN TOTALITY AND NOT ON THE BASIS OF CERTAIN SPECIFIC ITEM AS DONE BY THE LD. AO. IT IS THEREFORE, REQUESTED THAT THE ADDITION OF RS. 2,58,86,558/- ON ACCOUNT OF CONCEALED INCOME FROM SALE OF SCRAP BY INVOKING PROVISIONS OF SECTION 145 OF THE INCOME TAX ACT, 1961 DESERVED TO BE DELE TED. DURING THE COURSE OF APPELLATE PROCEEDING REMAND REPORT WERE ALSO CALLED FOR, THE DETAILS ARE BEING REPRODUCED BELOW: 2. PURSUANT TO ASKING FOR REMAND REPORT U/S.250(4) OF THE IT ACT, 1961, THE CASE HAS BEEN FIXED FOR HEARING ON 04.022014. HOWEV ER, THERE HAS BEEN NO COMPLIANCE. THE LD. AR OF THE ASSESSEE HAS ALSO BEEN CONTRACTED ON CELL PHONE AND IN REPLY, IT HAS BEEN STATED BY THE AR OF THE ASSESSEE THAT HE HAS NOTHING TO SAY FRESH OTHERWISE THAN WHATEVER THEY HAVE SUBMITTED UNDER GROUNDS OF APPEAL BEFORE THE LD . CIT(A). 2.1 IN VIEW OF ASSERTION MADE BY THE AR OF THE ASSE SSEE, I HAVE GONE THROUGH MINUTELY THE WRITTEN GROUNDS OF APPEAL TAKE N BEFORE YOU ALONG WITH FRESH EVIDENCES. IN THE BASIS OF SUCH EVIDENCE S, WRITTEN SUBMISSIONS ITA NO.174/RAN/2016 A.Y. 2010-11 ACIT, CIR-1 JSR VS. M/S AUTO PROFILE LTD. PAGE 9 MADE BY THE ASSESSEE BEFORE YOUR GOODSELF AND OTHER RELEVANT MATERIALS AVAILABLE ON THE RECORD, MY FINDINGS FIND PLACE IN SUBSEQUENT PARAS. 3.1 THE MAIN GROUNDS INVOLVED UNDER THE ASSESSMENT ORDER U/S. 143(3) OF THE IT ACT, 1961, DATED 15.03.2013 IS AS BELOW: I) INVOCATION OF PROVISO TO SECTION 145 OF THE IT A CT, 1961 W.R.T. THE TRADING RESULT SHOWN UNDER THE ITEM SCRAPS; II) ESTIMATION OF SALE PROCEED OF SCRAPS AND III) THE BASIS OF ESTIMATION FOR CONCEALED PROFIT O UT OF CONCEALED SALES OF SCRAPS 3.2 INVOCATION OF PROVISO TO SECTION 145 OF THE IT ACT, 1961 W.R.T THE TRADING RESULT SHOWN UNDER THE ITEM SCRAPS :- IT HAS ALREADY BEEN MENTIONED UNDER THE ASSESSMENT ORDER THAT THE ASSE SSEE HAS NEVER SHOWN ANY OPENING OR CLOSING BALANCE OF STOCK OF S CRAPS IN ITS TRADING ACCOUNT ALTHOUGH, THE ASSESSEE HAS BEEN RECEIVING S UBSTANTIAL AMOUNT FROM SALE OF SCRAPS. UNDER SUB-PARA 3.1 OF THE ASSE SSMENT ORDER, IT HAS ALREADY BEEN MENTIONED THAT THE ASSESSEE HAS SHOWN GROSS RECEIPT FROM SALE OF SCRAPS AT RS.8,82,27,394/- AS AGAINST TOTAL TURNOVER DISCLOSED AT RS.1211.58 CRORES I.E. 7.9% OF GROSS TURNOVER. SINC E, THE MANUFACTURING PROCESS OF THE ASSESSEE RESULTS IN SPECIFIED AUTO P ARTS ALONG WITH SCRAPS, THE ASSESSEE IS MANDATED TO MAINTAIN QUANTITATIVE D ETAILS OF SCRAPS PURSUANT TO PROVISIONS OF PARA-3 AND 4 OF PART-II O F SCHEDULE 6 OF THE COMPANIES ACT AND HENCE, THE BOOK RESULT OF THE ASS ESSEE SHOWN AS PER AUDITED ACCOUNT IS NOT A REFLECTION OF COMPLETE BUS INESS AFFAIRS TO BE DISCLOSED BY THE ASSESSEE . 3.3 DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN THIS CASE, THE AR OF THE ASSESSEE VIDE WRITTEN SUBMISSION DATED 13.02.20 13 HAS CATEGORICALLY ADMITTED THAT THEY HAVE NOT MAINTAINED ANY DAY-TO-D AY STOCK REGISTER. THIS FACT HAS ALSO BEEN MENTIONED IN THE ASSESSMENT ORDE R VIDE PARA 2.5 3.4 HOWEVER, IN THE WRITTEN GROUNDS OF APPEAL, IT H AS BEEN CLAIMED BY THE AR OF THE ASSESSEE THAT HT SCRAP IS BEING DEEMED AS RAW MATERIAL AND T HEY ACCOUNT FOR THE SAME AT THE TIME OF SALE ONLY. THIS ARGUMENT OF THE ASSESSEE CANNOT BE RELIED UPON, SINCE, THE REALIZAT ION FROM SALE OF SCRAPS ARE A CONTINUOUS PROCESS AS IS EVIDENT FROM MONTHLY CHART OF SALE OF SCRAP AS DISCLOSED BY THE ASSESSEE AND REPRODUCED UNDER P ARA 3.6 OF THE ASSESSMENT ORDER SINCE, THE GENERATION OF SCRAP IS A BY-PRODUCT OF MANUFACTURING PROCESS, SIT CAN NEVER BE DEEMED TO B E THE RAW MATERIAL OF THE ASSESSEE. EVEN IF, IT IS BEING DEEMED AS RAW MA TERIAL, THE ASSESSEE IS MANDATORILY REQUIRED TO MAINTAIN THE DAY-TO-DAY STO CK REGISTER; WHICH THE ASSESSEE HAS FAILED TO DO. 3.5 IN VIEW OF FACTS DISCUSSED FROM SUB-PARA 3.1 TO 3.4 AS ABOVE, PROVISO TO SECTION 145 OF THE IT ACT, 1961, HAS BEEN INVOKE D KEEPING IN RELIANCE (REFER TO PARA 3.9 OF THE ASSESSMENT ORDER) OF FOLL OWING DECISIONS:- I) S.N.NAMASIVAAUAM CHETIAR VS. CIT (SC) 38 ITR 579 II) AWADHESH PRATAP SINGH ABDUL RAHMAN & BROS VS. C IT (ALL) 210 ITR 406 HOWEVER, THE ASSESSEE HAS FAILED IN APPELLATE GROUN DS TO DISTINGUISH HIS CASE FROM FACTS AND CIRCUMSTANCES OF THE CASE CITED UNDER THE ASSESSMENT ORDER. 3.6 FURTHER, THE APEX COURT IN THE CASE OF CHHABILD AS TRIBHUBANDAS SHAHA & OTHERS VS. CIT (SO 59 ITR 733 ) HAS ALSO HELD THAT WHERE THERE IS NO DAY-TO-DAY STOCK ACCOUNT OR DAY-TO-DAY PURCHASE (TH E PRODUCTION OF SCRAP IN THIS CASE) OR SALES REJECTION OF ACCOUNTS ARE JUSTIFIED. 3.7 IN VIEW OF FACTS AS ABOVE, THE INVOCATION OF PR OVISO TO SECTION 145 OF THE IT ACT, 1961 SHALL BE SUSTAINED . ITA NO.174/RAN/2016 A.Y. 2010-11 ACIT, CIR-1 JSR VS. M/S AUTO PROFILE LTD. PAGE 10 4.1 ESTIMATION OF SALE PROCEED OF SCRAPS :- UNDER CIRCUMSTANCES DISCUSSED ELABORATELY IN THE PRECEDING SUB-PARAS AND THE ASSE SSMENT ORDERS; THE ESTIMATION OF THE SALE PROCEED IS ALSO JUSTIFIED IN VIEW OF THE DECISION OF THE APEX COURT IN THE CASE OF S.N. NAMASIVAYAM CHE TIAR VS. CIT (SC) 38 ITR 579 . UNDER THIS DECISION, THE APEX COURT HAS HELD AS UNDER: REJECTION OF BOOKS ABSENCE OF VOUCHERS / QUANTITATIVE TALLY OF STOCK CONSIDERED WITH OTHER CIRCUMSTANCES PROFIT CAN BE ESTIMATED BY ITO KEEPING OF STOCK REGISTER IS OF GREAT IMPORTANCE BECAUSE THAT IS A MEANS OF VERIFYING THE ASSESSEES ACCOUNTS BY HAVIN G A QUANTITATIVE TALLY . THE AFORESAID DECISION HAS ALSO BEEN RELIED UPON IN THE ASSESSMENT ORDER VIDE SUB-PARA 3.9. 4.2 THE ASSESSEE HAS FAILED TO PRODUCE ANY FRESH MA TERIAL UNDER THE GROUNDS OF APPEAL, WHICH MAY JUSTIFY THAT THE ESTIMATION OF SALE PROCEED OF SCRAP IS WRONG. 4.3 FURTHER, THE CLAIM OF THE ASSESSEE THAT THE ASS ESSING OFFICER DOES NOT POSSESS ANY MATERIAL EVIDENCE THAT THERE HAS BEEN S ALE OF SCRAP WHICH IS NOT DISCLOSED IN THE BOOKS OF ACCOUNT, IS TOTALLY BASEL ESS. IN FACT, THE ISSUE OF CONCEALED SALE OF SCRAPS HAVE BEEN ELABORATELY DEAL T UNDER PARA 3 AND ITS SUB-PARAS OF THE ASSESSMENT ORDER. 4.4 MOREOVESR, THE ASSESSEE HAS ALSO FAILED TO DIS TINGUISH HIS CASE FROM FACTS AND CIRCUMSTANCES OF THE CASE ADJUDICATED BY DIFFERENT COURTS AS MENTIONED ABOVE AND THE ASSESSMENT YEAR ORDER. 4.5 IN VIEW OF FACTS DISCUSSED ELABORATELY UNDER SU B PARA 4.1 TO 4.4 AS ABOVE, THE ESTIMATION OF PROFIT FROM SCRAP SALES SHOULD BE UPHELD. 5.1 THE BASIS OF ESTIMATION FOR CONCEALED PROFIT OU T OF CONCEALED SALES OF SCRAPS : THE BASIS FOR ESTIMATION OF PROFIT FOR SCRAP SAL ES HAS BEEN ELABORATELY DISCUSSED FROM PARA 3.6 TO 3.10 OF THE ASSESSMENT O RDER. UNDER GROUNDS OF APPEAL, THE ASSESSEE HAS TAKEN ONLY NARRATIVE ARGUM ENTS WITHOUT ANY CORROBORATIVE EVIDENCE. IN FACT, THE NARRATIVE ARGU MENTS REQUIRED TO BE CORROBORATED BY FOLLOWING EVIDENCES.:- I) QUANTIFICATION OF SCRAP GENERATED DUE TO MANUFAC TURING OF AUTO COMPONENTS OF DIFFERENT CUSTOMERS; II) THE EVIDENCE REGARDING THE ARGUMENT THAT THE GE NERATION OF SCRAP DUE TO SEPARATE PRODUCT IS DIFFERENT FROM ONE ANOTHER; III) THE EVIDENCE TO DENY THE FACTS MENTIONED UNDER SUB-PARA 3.5 OF THE ASSESSMENT ORDER, UNDER WHICH, CONCEALED SALES OF S CRAPS HAS BEEN ESTABLISHED IV) SINCE, THE ASSESSEE HAS NOT DISCLOSED EVEN MONT HLY OPENING OR CLOSING STOCK OF SCRAPS AS MENTIONED UNDER PARA 3.6 OF THE ASSESSMENT ORDER, THE ASSESSEE CANNOT DENY THAT SCRAPS ARE FAST SELLING I TEMS AND FETCHES SUBSTANTIAL PREMIUM IN THE GREY MARKET AND AS SUCH, THE GROUNDS OF APPEAL TAKEN ON THIS ACCOUNT IS ALSO NOT RELIABLE. 5.2 FURTHER, THE ASSESSEE HAS ALSO FAILED TO ADDUC E ANY EVIDENCE ALONGWITH ITS WRITTEN GROUNDS OF APPEAL TO CONTRADI CT THE BASIS OF ESTIMATION OF PROFIT BY TAKING INTO ACCOUNT OF ITS PEAK PERCENTAGE OF MONTHLY SALE DISCLOSED BY THEM AS WORKED OUT UNDER PARA 3.6 OF T HE ASSESSMENT ORDER. 5.3 IN VIEW OF FACTS MENTIONED UNDER PARA 5.1 TO 5. 2 AS ABOVE, THE BASIS OF ESTIMATION OF SCRAP SALES I.E. THE PEAK PERCENTAGE DISCLOSED BY THE ASSESSEE SHALL ALSO BE UPHELD. THE LD. COMMISSIONER OF INCOME TAX(APPEALS) HAS FORWARDED A COPY OF THE REMAND REP ORT OF THE LD. ASSESSING OFFICER ALONG WITH HIS LETTER F. NO. CIT(A)/JSR/201 4-15/257 DATED 08-05- 2014 ASKING THE ASSESSEE GIVE THE COUNTER COMMENTS. PERUSAL OF THE REMAND REPORT SHOWS THAT THE LD. AO WAS SWAYED WITH THE OBSERVATION IN THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSION OF THE ITA NO.174/RAN/2016 A.Y. 2010-11 ACIT, CIR-1 JSR VS. M/S AUTO PROFILE LTD. PAGE 11 ASSESSEE BEFORE THE LD. CIT(A) WAS NOT CONSIDERED I N RIGHT PERSPECTIVE. THE ENTIRE ESTIMATED ADDITION ON ACCOUNT OF SALE OF SC RAP AMOUNTING TO RS.2,58,86,558/- IS MADE BY APPLYING PROVISO TO SEC TION 145 HOLDING THAT THE ASSESSEE DOES NOT MAINTAIN DAY-TO-DAY STOCK REGISTE R FOR GENERATION OF SCRAP AND NO OPENING OR CLOSING STOCK OF SCRAP IS SHOWN I N THE BOOKS OF ACCOUNTS. THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEE DINGS AS ALSO IN THE WRITTEN SUBMISSION CLEARLY EXPLAINED THAT THE SCRAP GENERATED FROM PRODUCTION OF ONE TYPE OF COMPONENT USUALLY REMAINS RAW MATERI AL FOR PRODUCTION OF ANOTHER TYPE OF COMPONENT. THE SCRAP GENERATED FROM PRODUCTION OF A PARTICULAR ITEM REMAINS AS RAW MATERIALS, TO BE USE D FOR DIFFERENT COMPONENTS TILL THE SCRAP IS SOL. ARTICLES PRODUCED BY THE ASS ESSEE COMPANY ARE SUBJECT TO EXCISE DUTY. THERE IS CONTROL OF EXCISE DEPARTMENT WHERE STATEMENT OF PRODUCTION, CONSUMPTION AND STOCK OF RAW MATERIAL H AS TO BE FURNISHED REGULARLY. THE ASSESSEE DOES MAINTAIN STOCK REGISTE R IN RESPECT OF RAW MATERIAL PURCHASED, CONSUMED AND STOCK O RAW MATERI AL. SO LONG THE SCRAP IS NOT SOLD, IT IS ACCOUNTED FOR AS STOCK OF RAW MATER IAL. THIS SYSTEM IS CONSISTENTLY FOLLOWED BY THE ASSESSEE AND ACCEPTED BY THE DEPARTMENT. INVOCATION OF PROVISO TO SECTION 145 ONLY FOR NON-M AINTENANCE OF DAY-TO-DAY STOCK REGISTER FOR SCRAP WAS WHOLLY UNJUSTIFIED HAV ING REGARD TO THE FACT THAT TILL THE POINT OF SALE THE SCRAP IS ACCOUNTED FOR AS RAW MATERIAL FOR THE REASON MENTIONED HEREINABOVE. THE ASSESSEE, DURING THE COU RSE OF ASSESSMENT PROCEEDINGS, RIGHTLY ACCEPTED THAT NO DAY-TO-DAY ST OCK REGISTER FOR SCRAP IS MAINTAINED SEPARATELY AS THE SAME IS ACCOUNTED FOR AS STOCK OF RAW MATERIAL. THE ENTIRE EXERCISE OF ADDITION IS BASED ON THE ONL Y OBSERVATION OF THE LD. ASSESSING OFFICER. THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING OF SPECIFIED AUTO COMPONENTS OF M/S TATA MOTORS RESULT ING IN GENERATION OF FIXED QU9ANTITY9 OF SCRAP. THIS IS WHOLLY INCORRECT FOR W HICH DETAILED SUBMISSION HAS ALREADY BEEN MADE. THE ASSESSEE IS NOT ENGAGED FOR M/S TATA MOTORS ALONE. ITEM MANUFACTURED ARE ALSO OF DIFFERENT SIZES AND A S PER SPECIFICATION OF VARIOUS CUSTOMERS NOT NECESSARILY RESULTING IN GENE RATION OF FIXED QUANTITY OF SCRAP. THE ASSESSEE IN ITS WRITTEN SUBMISSION HAS G IVEN DETAILED PROCESS OF ENTIRE WORKING AND VARIOUS REASONS FOR THE DIFFEREN CE IN GENERATION OF SCRAP AS ALSO THE VALUE THEREOF WHICH HAS NOT BEEN FOUND TO BE INCORRECT. IN FACT THE REPORT OF THE LD. ASSESSING OFFICER, IN SUBSTANCE I S A PIECE OF PROSE REPEATING ALL THAT IS STATED IN THE ASSESSMENT ORDER. UNDER THE CIRCUMSTANCES THE BOOK RESULT DESERVES TO E ACCEPTED AND THERE IS NO SCOPE FOR APPLICATION OF PROVISO TO SECTION 145. NEEDLESS TO SAY THAT THERE ARE SEVERAL JUDICIAL PRONOUNCEMENT HOLDING THAT PRO VISO TO SECTION 145 CANNOT BE APPLIED ONLY FOR THE ABSENCE OF STOCK REGISTER W ITHOUT FURTHER SUPPORTING MATERIALS. FOR ARGUMENT SHAKE EVEN IN THE CASE OF ESTIMATE SO ME GUESSWORK MAYBE POSSIBLE BUT NOT AN ARBITRARY EXERCISE OF ASSESSMEN T POWERS AS DECIDED BY THE HON'BLE SUPREME COURT IN THE CASE OF KANCHWALA GEMS VS. JOINT CIT (2007) 288 ITR 10 (SC). IT IS THEREFORE, REQUESTED THAT THE ADDITION OF RS. 2,58,865.58/- MAY KINDLY BE DELETED. 4.3 I HAVE GONE THROUGH THE ORDER OF THE LEARNED A O AS WELL AS THE REMAND REPORT AND THE WRITTEN SUBMISSION MADE BY THE APPEL LANT. PARA 2 OF THE ORDER THE AO HAS OBSERVED THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING OF CERTAIN AUTO COMPONENTS AS PER SPECIFICATION GIVEN BY M/S TATA MOTORS AND SUPPLYING THE SAME IN TOTALITY TO M/S TATA MOTORS A T JAMSHEDPUR. WHEREAS THE ASSESSEE IN HIS SUBMISSION STATED THAT THE ASSESSEE IS NOT EXCLUSIVELY ENGAGED IN THE MANUFACTURE OF AUTO COMP ONENTS OF M/S TATA MOTORS BUT THE ASSESSEE IS ALSO PRODUCING COMPONENT S AS PER SPECIFICATION OF OTHER CUSTOMERS ALSO. ITA NO.174/RAN/2016 A.Y. 2010-11 ACIT, CIR-1 JSR VS. M/S AUTO PROFILE LTD. PAGE 12 THE AO WHILE ESTIMATING SCRAP @ 32.59% OF TOTAL C ONSUMPTION OF CR SHEETS 28744125 KG ESTIMATED SCRAP AT 93,67,710 KG. THIS E STIMATION IS BASED ON PEAK PERCENTAGE OF GENERATION OF SCRAP DISCLOSED BY THE ASSESSEE IN THE MONTH OF DECEMBER 2009. THE AO FURTHER OBSERVED THA T THE PERCENTAGE OF SCRAP SHOULD REMAIN SAME WHEREAS THE PERCENTAGE OF SCRAP FROM APRIL 2009 TO MARCH 2010 IS DIFFERENT IN EACH MONTH. THE ASSES SING OFFICER'S OBSERVATION AS SUCH S DUE TO HIS CONCLUSION THAT THE ASSESSEE I S MANUFACTURING AUTO COMPONENTS FOR TATA MOTORS EXCLUSIVELY. WHEREAS THE ASSESSEE COMPANY IS MANUFACTURING AUTO COMPONENTS FOR DIFFERENT COMPANY ALSO. THE ASSESSEE IN HIS SUBMISSION ENCLOSED ANNEXURE 1 WHICH SHOWS THE ASSESSEE HAS SEVERAL CUSTOMERS SUCH AS ALKRAFT THERMO TECHNOLOGY PVT. L EARNED . BANI ENTERPRISES, CAPARO ENGINEERING PVT. LTD. EXPLORERE AUTO ENTERPRISES PVT LTD. EAST COAST RAILWAY, JAGJEET COMPANY, K.S. INDU STRIES, OMEX AUTO LTD., TATA CUIMINS LTD., TATA GROWTH SHOP, TATA MOTORS LT D. LUCKNOW, PUNE, BANGALORE FARIDABAD, TATA TAYO LTD., TATA TAYO RADI ATOR LTD., WEST CENTRAL RAILWAY, BHOPAL. APART FROM TATA MOTORS LTD., THERE FORE THE AO OBSERVATION THAT THE ASSESSEE-COMPANY IS DOING EXCLUSIVE WORK F OR TATA MOTORS LTD., JAMSHEDPUR IS NOT CORRECT. I ALSO AGREE WITH THE AS SESSEE THAT THE GENERATION OF SCRAP IS OF FIXED QUANTITY IN EVERY MONTH IS AL SO NOT CORRECT AS THE SCRAP DEPENDS UPON THE QUANTITY AND SPECIFICATION OF ITEM S TO BE MANUFACTURED AS THE CUTTING OF DIFFERENT SIZES WILL BE DECIDING FAC TOR FOR GENERATION OF SCRAP. THE ASSESSEE HAS FURTHER STATED THAT THERE ARE PART S WHERE YIELD CAN BE UP TO 90% OF SHEETS USED AND AT THE SAME TIME THERE ARE P ARTS WHERE MATERIAL MANUFACTURED IS ONLY 80% RESULTING IN MORE SCRAP. I T S FURTHER STATED THAT THE GENERATION OF SCRAP ON THE SIZE OF AVAILABLE RAW MA TERIAL I.E STEEL SHEETS AND PLATES. ALSO I DO NOT FIND THAT THE METHOD ADOPTED BY THE AO IS OF ANY SCIENTIFIC OR MATHEMATICAL WHICH ENSURES SUPPRESSIO N OF SCRAP. THEREFORE I DO NOT FIND ANY MERIT IN ARRIVING AT SUPPRESSION OF SC RAP BY 2099387 KG BY THE ASSESSEE. THE NEXT ISSUE IS ADOPTION OF RATE. THE ASSESSEE HA S DISCLOSED SALES OF SCRAP @ 12.14/KG ON AN AVERAGE BASIS OF SALES OF SCRAP OF 72,68,323, OF SCRAP. THE AO IN HIS ORDER STATED AT PARA 3.6 THAT THE ASSESSE E HAS DISCLOSED RATE AROUND RS.10/KG WHICH IS ALSO NOT CORRECT AS THE AO HIMSELF FOUND IT @ 12.14/KG. SINCE THE SUPPRESSED SCRAP OF 2099387 KG HAS NOT BEEN ACCEPTED. THEREIN SUPRA, THE SALE OF THE SAME @ 12.14/KG IS A PRESUMPTION OF THE AO WHICH IS HEREBY DISMISSED. ACCORDINGLY THE ADDITION OF RS.2,54,86,538/- IS HEREBY DELETED. 3. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO RI VAL CONTENTIONS. A PERUSAL OF THE INSTANT CASE FILE REVEALS THAT ASSES SEE ON ITS OWN DECLARED PROFIT ON SCRAP SALES AMOUNTING TO RS.72,68,323/-.THE ASSE SSING OFFICER ENHANCED THE SAME ON THE PREMISE THAT THE SCRAP IN QUESTION WAS A HIGH QUALITY ONE FROM TATA MOTORS GROUP OF COMPANIES. THE ASSESSEE S UCCESSFULLY PROVED DURING REMAND PROCEEDINGS THAT THE SCRAP WAS IN FAC T PERTAINED TO MANY ENTITIES THAN ONLY M/S TATA MOTORS. THIS CLINCHING LOWER APPELLATE FINDING ON FACTS HAS GONE UNREBUTTED BEFORE US DURING THE COUR SE OF HEARING. WE ITA NO.174/RAN/2016 A.Y. 2010-11 ACIT, CIR-1 JSR VS. M/S AUTO PROFILE LTD. PAGE 13 THEREFORE AFFIRM THE CIT(A)S ABOVE EXTRACTED REASO NING DELETING THE ESTIMATED INCOME ADDITION OF SCRAP SALES IN ISSUE. 4. THIS REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN ACCORDANCE WITH RULE 34(4) OF THE ITAT RULES BY PUTTING ON NOTICE BOARD ON 15/02/2019 SD/- SD/- ( ) ('# ) (DR. A.L. SAINI) (S.S.GODARA) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) RANCHI, *DKP $- 15 / 02 /2019 RANCHI / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-ACIT, CIR-1, 47, C.H. AREA, JAMSHEDPUR 2. /RESPONDENT-M/S AUTO PROFILE LTD, C-33,34 & 35, PHA SE IV,. ADITYAPUR INDUSTRIAL AREA, GAMHARIA, JAMSHEDPUR-832108 3. 0 3 / CONCERNED CIT RANCHI 4. 3- / CIT (A) RANCHI 5. 6 ##0, 0, / DR, ITAT, RANCHI 6. < / GUARD FILE. BY ORDER/ , /TRUE COPY/ SR.PS, I TAT, RANCHI