Mahashakti Engineering Co., Ghaziabad V. DCIT, New Delhi

ITA 1940/DEL/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7831 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2009-2010
• Appeal Filed On: 11-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Keywords: Rejection of books of accounts; Competent authority; Set aside
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.1940/DEL/2016 ASSESSMENT YEAR: 2009-10 MAHASHAKTI ENGINEERING CO., C/O AKHILESH KUMAR, ADVOCATE, CHAMBER NO.206-07, ANSAL SATYAM, RDC RAJ NAGAR, GHAZIABAD. PAN: AAOFM9129J VS DCIT, CIRCLE-21(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AKHILESH KUMAR, ADVOCATE REVENUE BY : MS ASHIMA NEB, SR. DR DATE OF HEARING : 15.07.2019 DATE OF PRONOUNCEMENT : 22.07.2019 ORDER PER R.K. PANDA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 20 TH MARCH, 2015 OF THE CIT(A)-13, NEW DELHI RELATING TO ASSESS MENT YEAR 2009-10. 2. THE GROUNDS OF APPEAL NO.1 AND 2 RAISED BY THE A SSESSEE READ AS UNDER:- 1. BECAUSE LD. CIT(A) ERRED IN SUSTAINING THE ADDI TION OF RS. 74,90,738/- (69,01,453+91,963+4,97,322) , ON A/C OF UNDER VALUATION OF CLOSING STOCK, ITA NO.1940/DEL/2016 2 A) MERELY BECAUSE INVOICES OF RAW MATERIAL ETC. OF RS. 69,01,453/- ARE BOOKED IN THE END OF YEAR AGAINST THE MATERIAL RECD , EARLIER DESPITE VERIFYING ALL THE EVIDENCES AS PER DETAILED ENQUIRIES BY HIM ON T HE CLAIM AND RECORDED WRONG FINDINGS IN STATING THAT CLAIM IS NOT SUBSTANTIATED AND PURCHASES ARE UNACCOUNTED ETC. B) WITHOUT APPRECIATING THE FACTS ON RECORD ADDITI ON OF RS. 4,97,322/- ON A/C OF ESTIMATION OF SCRAP AND OF RS. 91963/- ON A/C OF VALUATION OF FINISHED GOODS. 2. BECAUSE LD. CIT(A) FURTHER FAILED IN APPRECIATIN G THAT NO DEFECT IN STOCK RECORDS/BOOK OF ACCOUNTS WAS FOUND BY HIM BES IDE THE ACCOUNTS ARE NOT REJECTED BY AO AND STOCK RECORDS WERE UNDER THE CON TROL/INSPECTION OF EXCISE AUTHORITIES WHICH ARE ALSO ACCEPTED BY VAT AUTHORIT IES WITH DECLARED CLOSING STOCK AND ORDER IS PERVERSE. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING OF SUGAR MILL MACHINE RY AND ITS PARTS. THE MANUFACTURING PROCESS OF THESE MACHINERY ITEMS AND PARTS INVOLVES CUTTING OF MS SHEET, ANGLE, CHANNEL ETC., AND WELDING/FABRICATION /ASSEMBLING OF VARIOUS ITEMS AS PER SPECIFICATION AND DESIGN OF THE CUSTOMERS, WHICH TA KES APPROXIMATELY ONE TO SIX MONTHS TO MANUFACTURE CERTAIN ITEMS. IT FILED ITS RETURN OF INCOME ON 30 TH SEPTEMBER, 2009 DECLARING AN INCOME OF RS.15,67,050/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED FROM TH E PURCHASE AND SALE REGISTER THAT THE CLOSING STOCK WAS UNDERVALUED BY THE ASSESSEE. HE NOTED THAT THE LAST SALE WAS DONE BY THE ASSESSEE ON 25 TH MARCH, 2009 AND PURCHASES MADE BY THE ASSESSEE ON OR AFTER 25 TH MARCH, 2009 WAS OF RS.1,00,49,794/- FROM DIFFERENT VENDORS WHILE THE VALUE OF CLOSING STOCK OF RAW MATERIAL, WORK-IN-PROGRESS AND CONSUMABLES DECLARED BY THE ASSESSEE WAS ONLY RS.31,48,341/-. ACCORDING TO THE ASSESSING OFFICER, ALL THE PURCHASES MADE AFTER THE LAST SALE MUST BE INCLUDED IN THE CLOSING STOCK. HE, THEREFORE, ITA NO.1940/DEL/2016 3 ASKED THE ASSESSEE TO PRODUCE THE RAW MATERIAL/REGI STER AND REASON FOR THE ABOVE DIFFERENCE. IT WAS STATED BY THE ASSESSEE THAT IT HAS PURCHASED THE GOODS THROUGH CHALLANS AND BILLS WERE RECEIVED AFTERWARDS. SINCE THE ASSESSEE FAILED TO PRODUCE THE CHALLANS AND NO STOCK RECORDS WERE MAINTAINED BY TH E ASSESSEE, THE ASSESSING OFFICER HELD THAT ALL THE PURCHASES MADE AFTER 25 TH MARCH, 2009 ARE AVAILABLE WITH THE ASSESSEE AND HAS TO BE INCLUDED IN THE CLOSING STOCK. HE, T HEREFORE, MADE ADDITION OF RS.69,01,453/- ON ACCOUNT OF UNDERVALUATION OF CLOS ING STOCK. SIMILARLY, THE ASSESSING OFFICER MADE ADDITION OF RS.91,963/- ON ACCOUNT OF VALUATION OF CLOSING STOCK OF FINISHED GOODS. 4. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASS ESSEE HAS SHOWN 47365 KGS. OF CLOSING STOCK OF SCRAP VALUED @ RS.16 PER KG. (PLUS 8.24% ED). THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN THE REASON AS TO WHY HUGE QUANTITY OF SCRAP HAS BEEN ACCUMULATED AND NO SALE OF SCRAP HAS BEEN MADE DURING THE YEAR. IT WAS EXPLAINED BY THE ASSESSEE THAT THE TOTAL SCRAP SHOW N IN THE BOOKS IS NOT TOTALLY SCRAP AND STILL USABLE IN THE MANUFACTURING PROCESS. THE SCRAP DECLARED IS ACTUALLY THE SMALL CUT-PIECE OF IRON SHEETS WHICH ARE GENERATED DURING THE MANUFACTURING PROCESS AND IS USED AS AND WHEN REQUIRED FOR MAKING THE SMALL PART S. THEREFORE, THE SCRAP IS NOT SOLD AND ACCUMULATED FOR FUTURE USE. THE ASSESSEE ALSO PRODUCED THE STOCK REGISTER OF SCRAP ONLY FOR THE LAST YEAR AS AGAINST THREE YEARS ASKE D BY THE ASSESSING OFFICER. THE ASSESSING OFFICER, THEREFORE, REJECTED THE VALUATIO N OF SCRAP BY THE ASSESSEE AND HELD THAT OUT OF THE TOTAL SCRAP DECLARED BY THE ASSESSE E, 70% OF THE SCRAP WHICH COMES TO ITA NO.1940/DEL/2016 4 35,523 KGS. IS RAW MATERIAL AND VALUED THE SAME @ R S.30 PER KG AND MADE ADDITION OF RS.4,97,322/-. THUS, THE ASSESSING OFFICER MADE AD DITION OF RS.74,90,738/- TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF VALUATIO N OF CLOSING STOCK OF RAW MATERIAL, FINISHED GOODS AND SCRAP. 5. IN APPEAL, THE LD.CIT(A) UPHELD THE ACTION OF TH E ASSESSING OFFICER BY OBSERVING AS UNDER:- 4.3. THE REASONS RECORDED BY AO, SUBMISSION OF THE APPELLANT AND THE FACTS ON RECORD ARE CONSIDERED. THE APPELLANT ATTEMPTED T O GIVE VARIOUS EXPLANATION REGARDING PURCHASES MADE ON OR AFTER THE SALE FOR T HE RELEVANT ACCOUNTING YEAR IS CLOSED. HOWEVER, THE THEORY OF PURCHASES MADE AFTER 25.03.2009 IS NOT SUBSTANTIATED BY ANY DOCUMENTARY EVIDENCE. THE EXPL ANATION REGARDING CONTROL OF CENTRAL EXCISE AUTHORITIES AND MAINTENANCE OF RG - 1 IS NOT ADEQUATE TO NEGATE THE FACT THAT THERE IS UNACCOUNTED PURCHASE AND UND ERVALUATION OF STOCK. THE LD. AO VERIFIED ALL THE BOOKS OF ACCOUNTS INCLUDING THE RG-1 AND CAME TO THE CONCLUSION THAT THE PURCHASES MADE ON OR AFTER 25.0 3.2009 SHOULD HAVE BEEN REFLECTED IN THE CLOSING STOCK. THE APPELLANT ALSO FAILED TO EXPLAIN THE ACCOUNTING ENTRIES TO SHOW HOW THE PURCHASE MADE DURING THE YE AR ARE REFLECTED IN THE BOOKS OF ACCOUNTS WHICH ARE AGAIN INCLUDED IN THE PURCHAS ES MADE ON OR AFTER 25.03.2009. REGARDING VALUATION OF FINISHED GOODS, THE ONUS IS ON THE APPELLANT TO PRODUCE NECESSARY DOCUMENTARY EVIDENCE REGARDING COST OF THE PRODUCT WHICH WAS NOT DISCHARGED. UNDERVALUATION OF CLOSING STOCK AS INCLUDED IN THE SCRAP IS BASED ON THE EXPLANATION GIVEN BY THE APPELLANT. AS PER THE EXPLANATION OF THE APPELLANT, THE QUANTITY OF SCRAP IS VERY HIGH AS SO ME OF THE SCRAP IS REUSABLE AND ACCUMULATED FOR FUTURE USE. IN THAT CASE THE ESTIMA TION OF VALUE OF CLOSING STOCK ON THE BASIS OF PURCHASE OF RAW MATERIAL IS JUSTIFI ED. IN THESE FACTS AND CIRCUMSTANCES, THE ADDITION MADE FOR THE UNDERVALUA TION OF STOCK IS CONFIRMED AND THE GROUNDS OF APPEAL ARE DISMISSED. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASS ESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 7. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALLE NGED THE ORDER OF THE CIT(A) IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFIC ER ON ACCOUNT OF VALUATION OF CLOSING STOCK OF RAW MATERIAL, FINISHED GOODS AND S CRAP. HE SUBMITTED THAT THE ITA NO.1940/DEL/2016 5 ASSESSEE MAINTAINED EXCISE REGISTER FOR PURCHASE AN D SALE. THE BOOKS OF ACCOUNT ARE NOT REJECTED AND ACCEPTED BY THE ASSESSING OFFICER AS WELL AS THE CIT(A). THE VAT AUTHORITIES HAVE ASSESSED THE ASSESSEE WITHOUT ANY DEFECT EITHER IN THE BOOKS OF ACCOUNT OR ON ACCOUNT OF PURCHASE OR SALES ETC. REFERRING TO VARIOUS PAGES OF THE PAPER BOOK, THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE PURCHASES WHICH WERE RECEIVED EARLIER THROUGH CHALLANS, BUT, WERE E NTERED SUBSEQUENTLY IN THE BOOKS OF ACCOUNT. HE SUBMITTED THAT ALTHOUGH THE CHALLANS W ERE PRODUCED BEFORE THE ASSESSING OFFICER AS WELL AS THE CIT(A), HOWEVER, THEY HAVE N OT ADDRESSED THIS ISSUE AND THE ASSESSING OFFICER HAS ERRONEOUSLY ALLEGED THAT THE CHALLANS WERE NOT PRODUCED . SO FAR AS THE OBSERVATION OF THE CIT(A) THAT THE PURCHASES MADE AFTER 25 TH MARCH, 2009 ARE NOT SUPPORTED BY ANY BILLS AND VOUCHERS IS CONCERNE D, HE SUBMITTED THAT THE SAME IS ALSO ERRONEOUS SINCE THE PURCHASES WERE NEVER DOUBT ED BY ANYBODY AND THEIR DOUBT IS ONLY ABOUT THE RECEIPT OF MATERIAL AGAINST SUCH PUR CHASES THROUGH CHALLANS. HE SUBMITTED THAT ALTHOUGH THE LD.CIT(A) HAS THOROUGHL Y EXAMINED THE BOOKS OF ACCOUNT WHICH WERE PRODUCED BEFORE HIM ALONG WITH THE INVOI CES ETC., HOWEVER, HE HAS NOT APPRECIATED THE FACTS PROPERLY. FURTHER, IF THE VE RSION OF THE ASSESSING OFFICER AND CIT(A) ARE ACCEPTED, THEN, 20% OF THE MATERIAL WERE PURCHASED IN THE LAST FIVE DAYS AS AGAINST 80% MATERIAL PURCHASED IN THE WHOLE OF THE YEAR IS NEITHER PRACTICABLE NOR POSSIBLE. REFERRING TO PAPER BOOK 186, HE SUBMITTE D THAT TRADING RESULTS/CLOSING STOCK WAS ALWAYS ACCEPTED SINCE INCEPTION AND THE CURRENT YEAR GP IS HIGHER THAN THE PRECEDING YEARS. HE SUBMITTED THAT NET PROFIT OF T HIS YEAR I.E., 2009-10 IS 2.43% AS AGAINST 0.84% FOR ASSESSMENT YEAR 2008-09, 1.27% FO R ASSESSMENT YEAR 2007-08, ITA NO.1940/DEL/2016 6 1.84% FOR ASSESSMENT YEAR 2006-07 AND 1.94% FOR ASS ESSMENT YEAR 2005-06. FURTHER, THE CURRENT YEAR CLOSING STOCK SHOULD BE THE OPENIN G STOCK OF THE SUBSEQUENT YEAR AND THE CLOSING STOCK OF THE CURRENT YEAR HAS BEEN ACCE PTED AS THE OPENING STOCK OF SUBSEQUENT YEAR AS DECLARED. FURTHER, ALTHOUGH THE CASE FOR ASSESSMENT YEAR 2012-13 WAS UNDER SCRUTINY, HOWEVER, NO ADDITION HAS BEEN M ADE ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK. HE FURTHER SUBMITTED THAT THE AS SESSEE HAD NO ADVANTAGE BY SHOWING LESSER CLOSING STOCK IN CURRENT YEAR AS IN THE SUBS EQUENT YEARS THE ASSESSEE HAS DECLARED MORE PROFITS. 8. SO FAR AS ADDITION OF RS.91,965/- ON ACCOUNT OF UNDERVALUATION OF FINISHED GOODS AND RS.4,97,322/- ON ACCOUNT OF UNDER VALUATION OF SCRAP IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S MAHASHAKTI MACHINES PVT. LTD., SISTER CONCERN O F THE ASSESSEE, VIDE ITA NO.2823/DEL/2010, ORDER DATED 29 TH APRIL, 2011 , WHEREIN UNDER IDENTICAL CIRCUMSTANCES, THE ADDITION MADE ON ACCOUNT OF VALU ATION OF SCRAP BY THE ASSESSING OFFICER WHICH WAS UPHELD BY THE CIT(A) HAS BEEN DEL ETED BY THE TRIBUNAL. SO FAR AS THE ADDITION OF RS.91,965/- ON ACCOUNT OF VALUATION OF FINISHED GOODS IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE STRONGLY OPPOSED THE O RDER OF THE ASSESSING OFFICER AND CIT(A). RELYING ON VARIOUS DECISIONS, THE LD. COUN SEL FOR THE ASSESSEE SUBMITTED THAT NO ADDITION CAN BE MADE TO CLOSING STOCK WITHOUT MA KING ADJUSTMENT TO OPENING STOCK. REFERRING TO THE DECISION OF THE HON'BLE SUPREME CO URT IN THE CASE OF CIT VS. DYNAVISION LTD. (2012) 348 ITR 380 (SC), HE SUBMITTED THAT THE HON'BLE SUPREME ITA NO.1940/DEL/2016 7 COURT IN THE SAID DECISION HAS HELD THAT WHERE THE ASSESSEE HAD BEEN CONSISTENTLY FOLLOWING THE METHOD OF VALUATION OF CLOSING STOCK AND THE ASSESSING OFFICER REVALUED THE CLOSING STOCK WITHOUT MAKING ANY ADJUSTMENT TO OPENING STOCK, ANY ADDITION ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK WAS UNJ USTIFIED. REFERRING TO THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SMT. SAKUNTALA DEVI KHETAN (2013) 352 ITR 484 (MAD) , HE SUBMITTED THAT THE HON'BLE HIGH COURT IN THE S AID DECISION HAS HELD THAT UNLESS AND UNTIL THE COMPETE NT AUTHORITY UNDER SALES TAX ACT DIFFERS OR VARIES WITH CLOSING STOCK OF ASSESSEE, R ETURN ACCEPTED BY SAID AUTHORITY IS BINDING ON INCOME-TAX AUTHORITIES AND THE ASSESSING OFFICER, IN SUCH A CASE, HAS NO POWER TO SCRUTINIZE RETURN SUBMITTED BY ASSESSEE. SIMILAR VIEW HAS BEEN EXPRESSED BY THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. ANANDHA METAL CORPN. (2005) 273 ITR 262. REFERRING TO THE DECISION OF THE HON'BLE DELHI HI GH COURT IN THE CASE OF CIT VS. SUPERIOR CRAFTS (2013) 353 ITR 101 (DEL), HE SUBMITTED THAT THE HON'BLE DELHI HIGH COURT IN THE SAID DECISION HAS HELD THAT NO A DDITION ON ACCOUNT OF CLOSING STOCK OR TRADING RESULTS IS POSSIBLE IF THE BOOKS OF ACCO UNT ARE NOT REJECTED AND WHEN THE GP IS HIGHER. HE ALSO RELIED ON THE FOLLOWING DECISIO NS FOR THE ABOVE PROPOSITION:- (I) CIT VS. PASHUPATI NATH AGRO FOOD PRODUCTS, ITA NO.1 65/2010, ORDER DATED 04.05.2017 (ALL); AND (II) CIT VS. SHAKTI IND. (2013) 36 TAXMANN.COM 16 (GUJ) . ITA NO.1940/DEL/2016 8 9. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE C IT(A) IN SUSTAINING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF VALUATI ON OF CLOSING STOCK OF RAW MATERIAL, FINISHED GOODS AND SCRAP IS UNCALLED FOR. 10. THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED O N THE ORDER OF THE ASSESSING OFFICER AND CIT(A). SHE SUBMITTED THAT ACCEPTANCE OF PURCHASE AND SALE AND CLOSING STOCK BY THE VAT AUTHORITIES IS NOT SUFFICIENT FOR ACCEPTING THE VALUATION OF CLOSING STOCK FOR INCOME-TAX AUTHORITIES. SHE SUBMITTED TH AT THE ASSESSEE IS NOT MAINTAINING ANY COST RECORDS AND NO DOCUMENTS WERE PRODUCED BEF ORE THE ASSESSING OFFICER OR CIT(A) TO THEIR SATISFACTION TO SUBSTANTIATE THE VA LUATION. THEREFORE, EITHER THE ORDER OF THE CIT(A) BE UPHELD OR THE MATER MAY BE RESTORED T O THE FILE OF THE CIT(A) OR ASSESSING OFFICER AS THE CASE MAY BE. 11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BE FORE US. WE FIND THE ASSESSING OFFICER MADE AN ADDITION OF RS.69,01,453/- TO THE T OTAL INCOME OF THE ASSESSEE ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK ON THE G ROUND THAT THE ASSESSEE HAS NOT ACCOUNTED FOR THE PURCHASES MADE AFTER THE LAST DAT E OF SALE OF 25 TH MARCH, 2009. SINCE, ACCORDING TO THE ASSESSING OFFICER, THE PURCHASES M ADE FROM DIFFERENT VENDORS AFTER THE 25 TH MARCH, 2009 WAS RS.1,00,49,794/- AND THE ASSESSEE HAS DECLARED THE CLOSING STOCK OF RAW MATERIAL, WIP AND CONSUMABLES AT RS.31 ,48,341/-, THEREFORE, THE ASSESSING OFFICER MADE ADDITION OF RS.69,01,453/- W HICH HAS BEEN UPHELD BY THE ITA NO.1940/DEL/2016 9 CIT(A). IT IS THE SUBMISSION OF THE LD. COUNSEL FO R THE ASSESSEE THAT THE PRODUCTS ARE EXCISABLE ITEMS AND THE ASSESSEE IS MAINTAINING THE PURCHASE AND SALES REGISTER I.E., RG-23, PART I, RG-1 ETC., AND THE BOOKS OF ACCOUNTS WERE AUDITED AND NO MISTAKE HAS BEEN POINTED BY THE AUDITORS OR THE VAT AUTHORITIES WHO HAVE ASSESSED THE ASSESSEE AND SINCE THE ACCOUNTS WERE NEVER REJECTED BY THE L OWER AUTHORITIES, THEREFORE, NO ADDITION CAN BE MADE ON ACCOUNT OF UNDERVALUATION O F CLOSING STOCK. IT IS ALSO THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT IN SUBSEQUENT YEAR THE ASSESSEE HAS DECLARED HIGHER INCOME AND WILL NOT GET ANY BENEFIT BY UNDERVALUING ITS CLOSING STOCK WHICH BECOMES THE OPENING STOCK OF THE SUBSEQUENT Y EAR. IT IS ALSO HIS SUBMISSION THAT WHEN THE BOOKS OF ACCOUNT ARE NOT REJECTED AND NO A DDITION HAS BEEN MADE ON ACCOUNT OF VALUATION OF CLOSING STOCK IN ASSESSMENT YEAR 20 12-13 IN THE ORDER PASSED U/S 143(3) AND NET PROFIT RATE DECLARED BY THE ASSESSEE DURING THE YEAR IS HIGHER THAN THE LAST FOUR YEARS, THEREFORE, NO ADDITION IS CALLED FOR ON THIS ACCOUNT. 11.1 WE FIND SOME FORCE IN THE ABOVE ARGUMENTS OF T HE LD. COUNSEL FOR THE ASSESSEE. ADMITTEDLY, NO DEFECT HAS BEEN POINTED OUT BY THE A SSESSING OFFICER IN THE BOOKS OF ACCOUNT EXCEPT DOUBTING THE VALUATION OF CLOSING ST OCK. WE FIND THE VAT AUTHORITIES HAVE SCRUTINIZED THE RECORDS AND HAVE ACCEPTED THE PURCHASE, SALES AND CLOSING STOCK WITHOUT ANY MISTAKE. THE RATE OF NET PROFIT DECLAR ED BY THE ASSESSEE AT 2.43% FOR THE IMPUGNED ASSESSMENT YEAR IS HIGHER THAN THE RATE OF NET PROFIT DECLARED IN THE IMMEDIATELY PRECEDING FOUR YEARS. FURTHER, THE LD. COUNSEL FOR THE ASSESSEE DURING THE COURSE OF HEARING HAD DEMONSTRATED BEFORE US THAT T HE GOODS WERE RECEIVED THROUGH ITA NO.1940/DEL/2016 10 CHALLANS EARLIER WHEREAS THE INVOICES WERE RAISED L ATER AND WERE ENTERED IN THE BOOKS OF ACCOUNT. SINCE THE ASSESSING OFFICER IN THE INSTAN T CASE HAS NOT MADE ANY ADJUSTMENT TO THE OPENING STOCK OF THE SUBSEQUENT YEAR AND FOR ASSESSMENT YEAR 2012-13, NO ADDITION HAS BEEN MADE IN THE ORDER PASSED U/S 143( 3) AND THE BOOKS OF ACCOUNT WERE NEVER REJECTED, THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT THE IMPUGNED ADDITION SHOULD NOT HAVE BEEN MADE ON ACCOUNT OF VALUATION O F CLOSING STOCK. WE FURTHER FIND MERIT IN THE ARGUMENT OF THE LD. COUNSEL THAT WHEN THE PROFIT OF THE SUBSEQUENT YEAR IS HIGHER THAN THE PROFIT OF THE CURRENT YEAR, THERE W AS NO POINT ON THE PART OF THE ASSESSEE TO SUPPRESS ITS VALUATION OF CLOSING STOCK WHICH WO ULD HAVE BECOME OPENING STOCK OF THE SUBSEQUENT YEAR. 11.2 THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SHAKTI INDUSTRIES (SUPRA) HAS HELD THAT WHERE THE BOOKS OF ACCOUNTS WERE NOT REJECTED, ADDITION OF AMOUNTS SHOWN IN THE AUDITED ACCOUNTS IS NOT SUSTAINABLE. THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SMT. SAKUNTALA DEVI KHETAN (SUP RA) HAS HELD THAT UNLESS AND UNTIL THE COMPETENT AUTHORITY UNDER SALES TAX ACT DIFFERS OR VARIES WITH CLOSING STOCK OF ASSESSEE, RETURN ACCEPTED BY SAID AUTHORITY IS BIND ING ON INCOME-TAX AUTHORITIES AND THE ASSESSING OFFICER, IN SUCH A CASE, HAS NO POWER TO SCRUTINIZE RETURN SUBMITTED BY THE ASSESSEE. THE RELEVANT OBSERVATION OF THE HON'BLE H IGH COURT AT PARA 7 AND 8 OF THE ORDER READS AS UNDER:- 7. THIS COURT IN THE ABOVE SAID DECISION HAD FOUND THAT UNLESS AND UNTIL THE COMPETENT AUTHORITY UNDER THE SALES TAX ACT DIFFERS OR VARIES WITH THE CLOSING STOCK OF THE ASSESSEE, THE RETURN ACCEPTED BY THE C OMMERCIAL TAX DEPARTMENT UNDER THE TNGST ACT IS BINDING ON THE INCOME TAX AU THORITIES AND THE ITA NO.1940/DEL/2016 11 ASSESSING OFFICER, THEREFORE, HAS NO POWER TO SCRUT INISE THE RETURN SUBMITTED BY THE ASSESSEE TO THE COMMERCIAL TAX DEPARTMENT AND A CCEPTED BY THE SAID AUTHORITIES. FURTHER, IT IS OBSERVED THEREIN THAT T HE ASSESSING OFFICER HAS NO JURISDICTION TO GO BEYOND THE VALUE OF THE CLOSING STOCK DECLARED BY THE ASSESSEE AND ACCEPTED BY THE COMMERCIAL TAX DEPARTMENT. IN T HIS CASE, ADMITTEDLY, THE ASSESSEE HAD PLACED THE SALES TAX RETURN BEFORE THE ASSESSING OFFICER IN RESPECT OF THE ASSESSMENT YEARS 1998-99 TO 2001-02. THEREFORE, SUFFICIENT MATERIALS ARE PLACED BEFORE THE ASSESSING OFFICER IN RESPECT OF T HOSE ASSESSMENT YEARS VIZ., THE SALES TAX RETURNS FILED BY THE ASSESSEE AND ACCEPTE D BY THE AUTHORITIES. 8. THE TRIBUNAL, THEREFORE, RIGHTLY FOUND THAT THE DEPARTMENT COULD NOT HAVE MADE THE ADDITION MERELY ON THE BASIS OF THE STATEM ENT OF THIRD PARTIES. CONSEQUENTLY, THE TRIBUNAL SET ASIDE THE ORDER OF T HE FIRST APPELLATE AUTHORITY AND DIRECTED THE ASSESSING OFFICER TO ADOPT THE FIGURES OF TURNOVER FINALLY ASESSED BY THE SALES TAX AUTHORITIES AND APPLY THE G.P. RATE A CCORDINGLY. WE FIND THAT THE ORDER PASSED BY THE TRIBUNAL FOLLOWING THE ORDER PA SSED BY THIS COURT IN ANANDHA METAL CORPORATION CASE IS PERFECTLY IN ORDER AND DO ES NOT WARRANT ANY INTERFERENCE. 12. WE ALSO FIND MERIT IN THE ARGUMENT OF THE LD. C OUNSEL THAT CONSIDERING THE SIZE OF BUSINESS OF THE ASSESSEE IT IS NOT POSSIBLE TO RECE IVE 20% OF THE MATERIAL IN FIVE DAYS AS AGAINST 80% OF MATERIAL IN THE WHOLE YEAR. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE CONSIDERED OPINION THAT THE LD.CIT(A) IS NOT JU STIFIED IN SUSTAINING THE ADDITION OF RS.69,01,453/- ON ACCOUNT OF UNDERVALUATION OF CLOS ING STOCK. FOLLOWING THE SAME REASONING, THE ADDITION OF RS.91,963/- ON ACCOUNT O F FINISHED STOCK IS ALSO DELETED. 12.1 SO FAR AS THE ADDITION OF RS.4,97,322/- ON ACC OUNT OF VALUATION OF SCRAP IS CONCERNED, WE FIND IDENTICAL ISSUE HAD COME UP BEFO RE THE TRIBUNAL IN THE CASE OF SISTER CONCERN OF THE ASSESSEE, NAMELY, M/S MAHASHAKTI MAC HINES PVT. LTD. (SUPRA), WHEREIN THE TRIBUNAL DELETED THE ADDITION MADE BY THE ASSES SING OFFICER AND SUSTAINED BY THE CIT(A) BY OBSERVING AS UNDER:- 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. WE FIND SUBSTANCE IN THE SUBMISSION OF LEARNED AR ITA NO.1940/DEL/2016 12 THAT THERE WAS NO MATERIAL TO COME TO A FINDING THA T ANY EXCESS SCRAP WAS GENERATED DURING THE YEAR UNDER CONSIDERATION. IT W AS ONLY AN INFERENCE DRAWN BY THE ASSESSING OFFICER ON THE BASIS OF SCRAP GENERAT ION FIGURES OF SUBSEQUENT YEARS. IN OUR OPINION, THAT COULD GIVE RISE TO A SU SPICION, BUT IN THE ABSENCE OF ANY MATERIAL TO SHOW THAT ANY EXCESS SCRAP WAS GENERATE D DURING THE YEAR UNDER CONSIDERATION, IT CANNOT BE SAID THAT ANY ADDITION WAS CALLED FOR PARTICULARLY IN THE FACTS OF THE CASE WHEN IT IS THE CASE OF THE ASSESS EE THAT IT HAS BEEN MAINTAINING STOCK REGISTER WITH RESPECT TO MANUFACTURING AND AL SO FOR GENERATION OF SCRAP. IT IS OBSERVED THAT THE TRADING RESULT OF THE ASSESSEE HAVE BEEN ACCEPTED BY THE ASSESSING OFFICER AND NO ADDITION WHATSOEVER HAS BE EN MADE ON THAT ACCOUNT, IN THE ABSENCE OF ANY MATERIAL TO SUGGEST THAT ANY EXC ESS SCRAP EITHER WAS GENERATED DURING THE YEAR UNDER CONSIDERATION OR ANY EXCESS S CRAP WAS SOLD BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, WE FIND NO JUS TIFICATION IN THE UPHOLDING OF THE ADDITION BY THE CIT(A). FINDING SUBSTANCE IN T HE SUBMISSION OF LEARNED AR, WE DELETE THE ADDITION IN ITS ENTIRETY. 13. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL IN THE CASE OF SISTER CONCERN OF THE ASSESSEE, WE DELETE THE ADDITION ON ACCOUNT OF VALUATION OF SCRAP. GROUNDS OF APPEAL NO.1 AND 2 OF THE ASSESSEE ARE ACCORDINGLY A LLOWED. 14. GROUND NO.3 RAISED BY THE ASSESSEE READS AS UND ER:- 3. BECAUSE LD. CIT(A) ERRED IN SUSTAINING THE LUMP SUM ADDITIONS OF RS. 2,29,551/-, OUT OF VARIOUS HEADS WHICH WERE MADE WI TH GENERAL REMARKS WITHOUT A SINGLE INSTANCE OF ANY SPECIFIC EXP. EVEN AFTER DET AILED EXAMINATION BY BOTH THE LD. LOWER AUTHORITIES. 15. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS MADE ADDITION OF RS.2,29,551 /- OUT OF VARIOUS EXPENSES INCURRED BY THE ASSESSEE SUCH AS CAR RUNNING AND MA INTENANCE EXPENSES, TOUR AND TRAVEL, MISCELLANEOUS EXPENSES, FOOD AND TEA EXPENS ES, REPAIR AND MAINTENANCE EXPENSES, CARTAGE AND FREIGHT EXPENSES ETC., ON EST IMATE BASIS ON THE GROUND THAT VOUCHERS FOR THE EXPENSES WERE NOT PROPERLY MAINTAI NED. ITA NO.1940/DEL/2016 13 16. IN APPEAL, THE LD.CIT(A) UPHELD THE ACTION OF T HE ASSESSING OFFICER BY OBSERVING AS UNDER:- 6.3 THE REASON GIVEN BY AO, SUBMISSION OF THE AP PELLANT AND THE FACTS ON RECORD ARE CONSIDERED. THE AO DISALLOWED THE AMOUNT AS THE APPELLANT FAILED TO PRODUCE PROPER VOUCHERS FOR THESE EXPENSES. THUS, T HERE IS AN ELEMENT OF PERSONAL USE IN THESE EXPENSES WHICH IS NOT IN THE NATURE OF BUSINESS. AGAINST THIS, THE SUBMISSION OF THE APPELLANT DOES NOT HAVE ANY MERIT. TO DISALLOW SUCH EXPENDITURE OF PERSONAL IN NATURE, THE AO NEED NOT GO TO THE REJECTION OF BOOKS OF ACCOUNTS WHICH REQUIRES HIGHER DEGREE OF INFIRMITIE S IN MAINTAINING ACCOUNTS. AT THE SAME TIME, THE NATURE OF EXPENSES DISALLOWED BY AO CANNOT BE CLAIMED TO HAVE INCURRED WHOLLY FOR THE PURPOSE OF BUSINESS. I N VIEW OF THIS, THE ESTIMATION OF THE AO IS FOUND TO BE JUSTIFIABLE HENCE CONFIRME D. THE GROUND OF APPEAL IS DISMISSED. 17. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE AS SESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 18. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT FULL DETAILS WERE GIVEN BEFORE THE ASSESSING OFFICER ALONG WITH BILLS, VOUCHERS ETC. NOT A SINGLE DEFECT WAS POINTED OUT BY HIM. THEREFORE, IN ABSENCE OF ANY SPECIFIC MIST AKE OR DEFECT POINTED OUT BY THE ASSESSING OFFICER OR CIT(A), THE ADDITION IS UNCALL ED FOR. 19. THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED O N THE ASSESSING OFFICER AND THE CIT(A). 20. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THE ASSESSIN G OFFICER DISALLOWED AN AMOUNT OF RS.2,29,551/- OUT OF VARIOUS EXPENSES ON AD HOC BAS IS ON THE GROUND THAT SOME OF THE VOUCHERS ARE IMPROPER AND SOME OF THE EXPENSES ARE UNVOUCHED. WE FIND THE LD.CIT(A) SUSTAINED THE ADDITION THE REASONS FOR WH ICH HAVE ALREADY BEEN REPRODUCED ITA NO.1940/DEL/2016 14 IN THE PRECEDING PARAS. IT IS AN ADMITTED FACT THA T THE ACCOUNTS OF THE ASSESSEE ARE AUDITED AND NO DEFECTS ARE POINTED OUT EITHER BY TH E AUDITORS OR THE REVENUE. WE FIND THE ASSESSING OFFICER DISALLOWED THE AMOUNT ON ESTI MATE BASIS ON THE GROUND THAT THE VOUCHERS ARE IMPROPER OR UNVOUCHED. WHEN THE VOUCH ERS ARE EITHER NOT AVAILABLE OR IMPROPER, THE EXPENSES CANNOT BE ALLOWED. IT IS TH E SETTLED PROPOSITION OF LAW THAT FOR ALLOWING ANY EXPENDITURE THE ONUS IS ALWAYS ON THE ASSESSEE TO SUBSTANTIATE WITH EVIDENCE TO THE SATISFACTION OF THE ASSESSING OFFIC ER REGARDING THE ALLOWABILITY OF SUCH EXPENDITURE. SINCE, IN THE INSTANT CASE, THE ASSES SEE FAILED TO SATISFY THE ASSESSING OFFICER WITH PROPER VOUCHERS, THEREFORE, DISALLOWAN CE OF EXPENSES ON ESTIMATE BASIS IS JUSTIFIED. HOWEVER, THE DISALLOWANCE APPEARS TO BE ON THE HIGHER SIDE. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE, WE ARE OF TH E CONSIDERED OPINION THAT AN ADDITION OF RS.50,000/- ON AD HOC BASIS UNDER THE FACTS AND CIRCUMSTANCES OF THE CAS E WILL MEET THE ENDS OF JUSTICE. WE HOLD AND DIRECT ACCORDINGL Y. THE ASSESSING OFFICER IS DIRECTED TO RESTRICT THE ADDITION TO RS.50,000/-. THE GROUN D RAISED BY THE ASSESSEE IS PARTLY ALLOWED. 21. IN THE RESULT, THE APPEAL FILED BY THE AS SESSEES IS PARTLY ALLOWED. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 2 2.07.2019. SD/- SD/- (KULDIP SINGH) (R.K. PANDA) JUDICIAL MEMBER ACCO UNTANT MEMFBER DATED: 22 ND JULY, 2019 DK ITA NO.1940/DEL/2016 15 COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI