ACIT, Ludhiana V. Smt. Pritam Kaur Kahlon, Ludhiana

ITA 195/CHANDI/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4532 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 25-11-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 16-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: GURPREET SINGH SON OF MRS PR
• Keywords: Business income; Additional evidence
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 195/CHD/2010 ASSESSMENT YEAR : 2005-06 A.C.I.T. C-1, LUDHIANA VS. SMT. PRITAM KAUR KAHLON PROP. KAHLON INTERNATIONAL, C-127, FOCAL POINT, LUDHIANA ADDPK 7556 M ITA NO. 215/CHD/2010 ASSESSMENT YEAR : 2005-06 SMT. PRITAM KAUR KAHLON VS. ITO, WARD1(2), PROP. KAHLON INTERNATIONAL LUDHIANA C-127, FOCAL POINT LUDHIANA ADDPK 7556 M (APPELLANT) (RESPONDENT) (APPELLANT) DEPARTMENT BY SHRI MANJIT SINGH ASSESSEE BY: SHRI SUDHIR SEHGAL AND SHRI GURPREET SINGH SON OF MRS. PRITAM KAUR KAHLON DATE OF HEARING 25.11.2013 DATE OF PRONOUNCEMENT 31 /12/2013 O R D E R PER T.R.SOOD, A.M THESE ARE CROSS APPEALS BY THE ASSESSEE AND THE RE VENUE AND ARE DIRECTED AGAINST THE ORDER DATED 16.11.2009 OF LD. CIT(A), JALANDHAR. SINCE THE ISSUES ARE COMMON IN BOTH THES E APPEALS, SO BOTH THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER. 2 IN ITA NO. 195/CHD/2010 THE REVENUE HAS RAISED TH E FOLLOWING GROUNDS: 2 1. THAT THE LD. CIT(A) ERRED IN LAW AND FACTS IN D ELETING THE ADDITION OF RS. 9,09,421/- MADE U/S 40(A)(IA) OF THE INCOME TAX ACT , 1961. 2. THAT THE LD. CIT(A) ERRED IN LAW AND FACTS IN DE LETING THE ADDITION OF RS. 2,79,398/- MADE BY THE ASSESSING OFFICER AS PER PAR A 3.2.3. OF THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 . 3. THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AN D THAT OF THE A.O. BE RESTORED. 3 IN ITA NO. 215/CHD/2010 THE ASSESSEE HAS RAISED T HE FOLLOWING GROUNDS: 1. THAT THE LEARNED CIT(A), JALANDHAR HAS ERRED IN CONFIRMINT THE ADDITION OF RS. 19,89,240/- MADE BY THE ASSESSING OFFICER AS PER PA RA 3.3.3 OF THE ORDER ON ACCOUNT OF INVISIBLE LOSS. 2. THAT THE LEARNED CIT(A), JALANDHAR HAS ERRED IN CONFIRMING THE ADDITION OF RS. 12,05,600/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF EXCESSIVE CONSUMPTION AS PER PARA 3.4.3 OF THE ORDER 3. THAT THE LEARNED CIT(A), JALANDHAR HAS ALSO ERRE D IN NOT CONSIDERING AND REJECTING THE NORMS OF MATERIAL CONSUMPTION AS PER STANDARD INPUT/OUTPUT NORMS, MINISTRY OF COMMERCE, GOVERNMENT OF INDIA IN A SUMM ARY MANNER AND WITHOUT ANY JUSTIFICATION. 4. THAT WHILE DISMISSING THE AFORESAID GROUNDS OF A PPEAL, THE LEARNED CIT(A), JALANDHAR HAS ERRED IN NOT ADMITTING ADDITIONAL EVI DENCE IN THE SHAPE OF REPORT OF THE CHARTERED ENGINEER AS PER PARA 7.8 OF THE ORDER AND FINDING OF THE CIT(A), JALANDHAR IN THIS REGARD IS CONTRADICTORY AND NOT TENABLE. 5. THAT NOTWITHSTANDING THE ABOVE SAID GROUND OF AP PEAL, THE CIT(A), JALANDHAR BY CONFIRMING THE ADDITION OF RS. 19,89,240/- AND RS. 12,05,600/- HAS, IN FACT, MADE A DOUBLE ADDITION AND WHICH IS NOT JUSTIFIED. 6. THAT WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF A PPEAL, ALTERNATIVELY IT IS SUBMITTED THAT ALL THE PURCHASES FROM THE PARTIES A RE IDENTIFICABLE, PAYMENTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUES AND AS SUCH DISA LLOWANCE OF PURCHASES, AS CONFIRMED BY CIT(A), JALANDHAR IS NOT SUSTAINABLE A ND, IF ANY ADDITION COULD BE MADE, AT ALL, THAT COULD BE ONLY OF THE SCRAP AND NOT OF THE GENUINE PURCHASES MADE BY THE APPELLANT. 4. FIRST GROUND OF REVENUES APPEAL IS REGARDING DE LETION OF DISALLOWANCE AMOUNTING TO RS. 9,09,421/-. 5 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURIN G ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS D EDUCTED TDS FROM VARIOUS CONTRACTORS BUT DEPOSITED THE SAME INT O THE CREDIT OF CENTRAL GOVERNMENT ACCOUNT ON 8.7.2005 I.E. AFTER T HE DUE DATE PRESCRIBED U/S 200 THEREFORE, HE DISALLOWED A SUM OF RS.9,09,421/-. 6 BEFORE THE LD. CIT(A), IT WAS SUBMITTED AS UNDER: (B) THE BRIEF FACTS ARE THAT THE ASSESSEE IS AN IND IVIDUAL AND DUE TO INADVERTENT MISTAKE AND OVER CAUTIOUS ATTITUDE, THE ASSESSEE DEDUCTED TDS ON THE PAYMENTS MADE TO THE SHIPPING AGENT, NAMELY M/S GLOBAL SHIPPING LOGISTIC AND FREIGHT SYSTEMS INDIA PVT. LTD., FOR OCEAN FREI GHT IN RESPECT OF THE GOODS EXPORTED OUTSIDE INDIA. THE TOTAL DEDUCTION OF TDS MADE IN RESPECT OF THE ABOVE SAID PARTIES IS TO THE TUNE OF RS. 18,379/- A GAINST THE TOTAL PAYMENT OF 3 RS. 9,09,421/- AND THIS TDS HAD BEEN DEPOSITED IN T HE GOVERNMENT ACCOUNT BY THE ASSESSEE TO THE TUNE OF RS. 19,708/- ON 8.07.20 05 BY INCLUDING THE INTEREST AMOUNT ALSO. THE ASSESSEE HAD ALSO ISSUED FORM NO. 16A TO THE PARTIES CONCERNED AS WELL. [DETAIL ENCLOSED ON PAGES 1 TO 6 ] (C) IT WAS SUBMITTED TO THE ASSESSING OFFICER BY WA Y OF REPLY DATED 26.12.2007 THAT THIS SECTION 40(A)(IA) IS NOT APPLI CABLE DURING THE YEAR UNDER CONSIDERATION, AND , AS SUCH, THE ASSESSEE WAS NOT LIABLE TO DEDUCT THE TDS, SINCE THESE PROVISIONS WITH REGARD TO THE APPLICABI LITY ON THE ASSESSEE BECAME APPLICABLE FROM THE NEXT YEAR. THE ASSESSING OFFICE R HAS ALSO CONCURRED WITH THE CONTENTION OF THE ASSESSEE THAT ASSESSEE WAS NO T OBLIGED TO DEDUCT TDS DURING THE YEAR BUT STILL HAS DISALLOWED THE EXPENS ES. IN THIS REGARD, IT IS SUBMITTED THAT SINCE THE AMOUNT OF RS. 18379/- ALON G WITH INTEREST STANDS DEPOSITED ON 08.07.2005 AND AS PER THE ASSESSING OF FICER HIMSELF, SINCE THESE PROVISION ARE NOT APPLICABLE, HE IS PRECLUDED FROM MAKING ANY DISALLOWANCE OF EXPENSE FOR LATE DEPOSIT OF TDS.THE CONTENTION OF T HE ASSESSING OFFICER THAT THE CLAIM OF EXPENSES IS NOT PROPER IS, THEREFORE, A WRONG FINDING AND DESERVES TO BE QUASHED. THE ASSESSING OFFICER HAS NOT DOUBTE D THE CLAIM OF THE EXPENSES AND, THUS, IT IS PRAYED THAT THE ADDITION AS MADE BE DELETED. THE LD. CIT(A) CALLED FOR THE REMAND REPORT AND THE REMAND REPORT WAS FURNISHED BY THE ASSESSING OFFICER VIDE LETTER DATED 5.1.2009 AND READS AS UNDER: (1) THAT GROUNDS NO. 2 AND 3 OF THE APPEAL ARE AGA INST DISALLOWANCE OF RS. 9,09,421/- MADE U/S 40(A)(IA) FOR NON-DEPOSIT OF TA X DEDUCTED AT SOURCE INTO GOVERNMENT ACCOUNT FROM PAYMENTS TO CONTRACTORS U/S 194C. THIS IS THE CASE OF AN INDIVIDUAL ASSESSEE WITH TOTAL SALES EXCEEDING A SUM OF RS. 40 LACS ATTRACTING THE PROVISION OF SECTION 44AB. THE APPEL LANTS CONTENTION THAT SHE WAS NOT LEGALLY REQUIRED TO DEDUCT SUCH TAX AT SOUR CE DURING THE ASSESSMENT YEAR 2005-2006 BUT STILL IT WAS DEDUCTED BUT WAS PA ID INTO GOVERNMENT ACCOUNT AFTER THE EXPIRY OF THE RELEVANT PREVIOUS YEAR. AS A PERUSAL OF THE RELEVANT ASSESSMENT ORDER REVEALS, THE APPELLANTS CONTENTIO N THAT SHE WAS NOT LEGALLY REQUIRED TO DEDUCT SUCH TAX AT SOURCE, APPEARS TO B E CORRECT IN VIEW OF THE PROVISION OF SECTION 194C(1) AS IT EXISTED BEFORE I TS AMENDMENT W.E.F. 1.6.2007 BY THE FINANCE ACT 2007 ACCORDING TO WHICH CLAUSE ( K) RELATING TO DEDUCTION OF TAX AT SOURCE BY AN INDIVIDUAL ASSESSEE WITH TOTAL SALES EXCEEDING RS. 40 LACS U/S 44AB WAS BROUGHT INTO BEING. SIMPLY THAT THE AP PELLANT PAID LATE THE TAX DEDUCTED AT SOURCE THOUGH SHE WAS NOT LEGALLY BOUND TO DEDUCT THE SAME IN VIEW OF THE PROVISION OF SECTION 194C(1), THERE APP EARS TO BE SUBSTANCE IN HER PLEA THAT NO SUCH DISALLOWANCE U/S 40(A)(IA) WAS CA LLED FOR. SINCE THE ASSESSING OFFICER ACCEPTED THAT CONTENTIO N OF THE ASSESSEE IS CORRECT, THE LD. CIT(A) DELETED THE ADD ITION. 7 BEFORE US, THE LD. DR FOR THE REVENUE STRONGLY SU PPORTED THE ORDER OF THE ASSESSING OFFICER. 8 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE SUBMITTED THAT THE ASSESSING OFFICER HAS HIMSELF ACCEPTED THE CONTENTION OF THE ASSESSEE WAS CORRECT, THEREFORE, IMPUGNED WAS JUSTIFIED. 9 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY AN D FIND THAT THE LD. CIT(A) ADJUDICATED THIS ISSUE VIDE PARA 1.5 WHICH IS AS UNDER: I HAVE CONSIDERED THE SUBMISSION CAREFULLY. SECTION 40(A)(IA) PROVIDES THAT IF ANY INTEREST, COMMISSION, BROKERAGE, FEES FOR PROFE SSIONAL SERVICES OR AMOUNT 4 IS PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR FOR CA RRYING OUT ANY WORK ON WHICH TAX IS DEDUCTIBLE AT SOURCE AND THE TAX IS NOT PAID WITHIN THE PRESCRIBED PERIOD, THE AMOUNT IN RESPECT OF WHICH THE TAX WAS SO DEDUC TIBLE WOULD NOT BE ALLOWED AS DEDUCTION IN COMPUTING THE INCOME. THE USE OF TH E WORD AND IN SECTION 40(A)(IA) SHOWS THAT BOTH THE CONDITIONS, I.E. TAX SHOULD BE DEDUCTIBLE AND IT SHOULD NOT HAVE BEEN PAID BEFORE THE PRESCRIBED DAT E, SHOULD BE SATISFIED FOR THE CORRESPONDING AMOUNT TO BE NOT ALLOWED AS A DED UCTION. AS POINTED OUT BY THE APPELLANT AND ACCEPTED BY THE AO IN THE REMAND REPORT, INDIVIDUALS WERE NOT REQUIRED TO DEDUCT TAX U/S 194C PRIOR TO 1-6-20 07. HENCE, SINCE TAX WAS NOT DEDUCTIBLE BY THE ASSESSEE, NO DISALLOWANCES CAN BE MADE U/S 40(A)(IA) FOR THE PRESENT ASSESSMENT YEAR EVEN THOUGH THE TAX DEDUCTE D WAS PAID BEYOND THE DATE PROVIDED IN SECTION 200(1). I ACCEPT THE SUBM ISSION OF THE APPELLANT, WHICH HAS BEEN ENDORSED BY THE AO IN THE REMAND REP ORT, THAT SINCE TAX WAS NOT DEDUCTIBLE U/S 194C, NO DISALLOWANCE COULD BE MADE U/S 40(A)(IA). THE DISALLOWANCE OF RS. 9,09,421/- MADE BY THE AO IS, T HEREFORE, DELETED. GROUND NOS. 2 AND 3 ARE ALLOWED. GROUND NO. 1 IS GENERAL I N NATURE. WE FIND THAT THE ASSESSING OFFICER HAS ALSO ACCEPTE D IN HIS REMAND REPORT THIS POSITION, THEREFORE, THERE IS NOTHING WRONG IN THE ORDER OF THE LD. CIT(A) AND WE CONFIRM THE SAME. 10 GROUND NO. 2 OF REVENUES APPEAL AND VARIOUS GRO UNDS OF ASSESSEES APPEAL RELATE TO ONLY ONE ISSUE I.E. VAR IOUS ADDITIONS ON ACCOUNT OF EXCESSIVE CONSUMPTION, INVISIBLE LOSS S HOWN BY THE ASSESSEE. 11 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE WAS E NGAGED IN THE BUSINESS OF MANUFACTURING WHEEL NUTS ETC. RAW MATE RIAL WAS PURCHASED IN TERMS OF KILOGRAM WHEREAS THE SALES WE RE CONDUCTED IN PIECES. THE ASSESSEE WAS EXPORTING MAJOR AMOUNT OF MANUFACTURED PRODUCTS. TO ASSESS THE REASONABLENESS OF THE PURC HASE OF RAW MATERIAL THE ASSESSEE WAS ASKED TO FURNISH THE QUAN TITATIVE DETAILS IN KILOGRAM. THE ASSESSEE SUBMITTED THE DETAIL VI DE LETTER DATED 13.11.2007 WHICH IS AS UNDER: OPENING BALANCE ROUND STEEL AS ON 31.03.2004 73.00 M.T. PURCHASED APRIL 2004 TO 31.03.2005 790.00 M.T. TOTAL 863.00 M.T. LESS SALE : EXPORT SALE 292.00 M.T. IND. SALE, C.S.T., R/D SALE 240.00 M.T. SCRAP 117.00 M.T. 649.00 M.T. IR-RECOVERABLE SCRAP: BURNING LOSS, HEAT TREATMENT, DE-SCALING, INVISIBLE LOSS, (GRINDING, CUTTING)WEIGHT VARIATION IN CARTONS WEIGHT, ETC. 93.00 M.T. TOTAL: 742.00 M.T. 742.00 M.T. BALANCE: 121.00 M.T. BREAK UP: 121.00 M.T. FINISHED GOODS 44.00 M.T. SEMI FINISHED 37.00 M.T. ROUND STEEL 30.00 M.T. 5 AS ON 31.03.2005 SCRAP AS ON 31.03.2005 10.00 M.T. TOTAL: 121.00 M.T. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE AB OVE DETAILS SO THEREFORE, HE AGAIN REQUESTED THE ASSESSEE VIDE OR DER SHEET ENTRY DATED 6.12.2007 TO FURNISH THE DETAILS SUPPORTED BY THE BILLS ETC. ON 10.12.2007 FOLLOWING DETAILS WERE FURNISHED: DESCRIPTION AMOUNT QUANTITY I) EXPORT SALE 2,03,00,248/- 297 M.T. II) INDIRECT EXPORT SALE 96,62,654/- 158.484 M.T. III) R.D. SALE 16,39,475/- 65 M.T. IV) CENTRAL SALE 4,07,113/- 16 M.T. V) SCRAP SALE 16,22,937/- 117.660 M.T. AND MADE VARIOUS ANALYSIS AND WORKED OUT VARIOUS AD DITIONS ON ACCOUNT OF INVISIBLE LOSS AND WASTAGE ETC WHICH AR E INCORPORATED IN PAGE 3 TO 10 OF HIS ORDER WHICH ARE AS UNDER: AGAIN A DETAILED SHOW CAUSE NOTICE IN THIS REGARD WAS ISSUED TO THE ASSESSEE IN THE 'FOLLOWING TERMS: 'AS PER DETAILS OF RCNV MATERIAL AND CONSUMPTION TH EREOF FILED ON 13.11.2007 AND 10.12.2007FOLLOWING DISCREPANCIES HAVE BEEN NOTICED: A) PURCHASE OFRAV, 1 MATERIAL HAS BEEN SHOWN AT 790 MT WHEREAS AS PER VOUCHERS OF RAW MATERIAL PURCHASED IMPOUNDED ON 23.11.2007 RAW MATERIAL WEIGHING 802.825 MT HAS BEEN PURCHASED WHICH GIVES RISE TO DIFFERENCE OF 12.825 MT (AS PER ANNEXURE 'A' (4 PAG ES). HENCE SHOW CAUSE WHY PURCHASES OF 12.825 MT SHOULD NOT BE DISALLOWED AT AVERAGE RATE OFRS. 2 4,803/- PER MT. B) FURTHER PERUSAL TO EXPORT INVOICE NO.EXP/T 001 DAT ED 25.03.2005 TO M/S T.S. PANESAR, AUSTRALIA HOUSEHOLD GOODS WEIGHING 8000 KG I.E. 8 MT HAVE BEEN SOLD WHICH HAV E NOT BEEN OBVIOUSLY INCLUDED IN THE PURCHASE OF RAW MATE RIAL. THEREFORE, EQUIVALENT PURCHASE OF SMT AT AVERAGE RA TE OF 24,803/-PER MT ISPROPOSED TO BE DISALLOWED. C) YOUR ATTENTION IS INVITED TO THE FOLLOWING FACTS & FIGURES: DESCRIPTION ,!_ AMOUNT QUANTITY IN MT AVERAGE RATE PER MT R.D. SALES 16,39,475/ - 65 25,2237 - CENT RAL SALES 4,07, 11 3/ - 16 25,4457 - EXPORT SALES (DIRECT) 2,03,00,248/ - 297 68,3 5 1/ - EXPORT SALES (INDIRECT) 96,84,01 3/ - 158.484 61.104/ - AS FAR AS SALES ON ACCOUNT OFR.D. SALES & CENTRAL S ALES ARE CONCERNED, SINCE SIMILAR ITEMS MANUFACTURED HAS BEE N SOLD AT A TOO LOW AVERAGE RATE WHICH IS JUST NEAR TO THE PURCHASE RATE OF RAW MATERIAL. IT APPEARS THAT THE QUANTITY IN KG HAS NOT BEEN FURNISHED ACCURATELY. NO DOCUMENTARY EVIDE NCE I.E. COPY OF GRS ETC. HAVE BEEN FILED IN THIS REGAR D. 6 THEREFORE, QUANTITY (IN KGS) IS PROPOSED TO BE CALC ULATED ON THE BASIS OF RATE OF61,J04/- I.E. AVERAGE RATE ON I NDIRECT EXPORT SALES AND ACCORDINGLY QUANTITY OF 33.5 MT CA N BE SAID TO HAVE BEEN INVOLVED IN THESE SALES AND THE B ALANCE QUANTITY OF PURCHASES OF 47.5 MT IS PROPOSED TO BE DISALLOWED AT THE AVERAGE RATE 24.803/-. D) AS PER DETAIL OF RAW MATERIAL PURCHASED, CONSUM ED AND IN STOCK DURING THE YEAR UNDER CONSIDERATION YOU SAY T O HAVE PURCHASED 790 MT AND OUT OF-WHICH 649 MT IS SAID TO BE SOLD AND FURTHER 93 MT IS STATED TO BE IRRECOVERABL E LOSS WHEREBY GIVING TOTAL CONSUMPTION OF 742 MT AND A BA LANCE 121 MT IN THE CLOSING STOCK BUT AS PER DIFFERENT PU RCHASE ACCOUNT FOLLOWING PURCHASES HAVE BEEN MADE : I) PURCHASE OF'RAW MATERIAL RS.1,98,65,206/- 802.825MT II) PURCHASE OF GOODS RS.5,29,789/- (QUANTITY NOT F URNISHED) III)PURCHASE SEMIFINISHED GOODS RS. 54,65,891/- (Q UANTITY NOT FURNISHED) IN VIEW OF THIS PURCHASE OF RAW MATERIAL OF 790 MT SUBJECT TO PARA (A), (B) & (C) ABOVE IS ONLY JUSTIFIED. THE BALANCEPURCHASES OF'GOODS' AT RS.5,29,789/-AND 'SEMIFINISHED GOODS' OFRS.54,65,891/- ARE PROPOSED TO BE DISALLOWED . ' IN RESPONSE TO THIS NOTICE, ON 26.12.2007 ASSESSEE HAS AGAIN GIVEN REVISED FIGURES OF PURCHASE OF RAW MATERIAL, CONSUMPTION AND SALE/UTILISATION AS FOLLOWS: OPENING STOCK AMOUNT PRODUCED (INPUT) (WEIGHT) OPENING BALANCE AS ON 31.03.2004 73.00 M.T. - - RAW MATERIAL PURCHASED 798.00 M.T. FINISHED + UNFINISHED PURCHASED 60.00 M,T. TOTAL: 931.00 M.T. UTILIZATION DETAIL (OUTPUT) (A) SALE EXPORTSALE 292.00 MT INDIRECTEXPORT 159.00 MT R/DSALE 27.00 MT CENTRALSALE 16.00 MT SCRAP 117.00 MT TOTAL :611.00 MT (B) IR-RECOVERABLE INVISIBLELOSS: BURNING LOSS, INVISIBLE LOSS, 93.00 MT HEAT TREATMENT DE-SCALING, GRINDING, CUTTING 66.0 0 MT WEIGHT VARIATION DURING EXPORT SALE IN CARTONS 40. 00 MT 199.00 MT (C) CLOSING STOCK: 121.00 MT G. TOTAL: 931 MT 931.00 MT CLOSING STOCK DETAILS: FINISHED GOODS 44.00 MT SEMI FINISHED 37.00 MT ROUND STEEL AS ON 31.03.2005 30.00 MT SCRAP AS ON 31.03.2005 10.00 MT TOTAL: 121.00 MT COMPARISON OF THE DETAILS FILED ON 26.12.2007 AND E ARLIER FILED ON 13.11.2007 AND ON PERUSAL TO OTHER DETAILS/DOCUMENT S FOLLOWING ISSUES ARISE: 7 I) QUANTITY OF 16 TON IN RESPECT OF CENTRAL SALE II) IRRECOVERABLE & INVISIBLE LOSS OF 66 M.T. ON A CCOUNT OF HEAT TREATMENT, DESCALING, GRINDING, CUTTING ETC. III) WEIGHT VARIATION OF 40 MT DURING EXPORT SALE I N CARTONS. THESE ISSUES ARE DISCUSSED IN DETAIL IN FORTHCOMING PARAS: 3.2.1 ASSESSEE STATES TO HAVE SOLD 16 M.T. QUANTI TY INVOLVED IN ON ACCOUNT OF CENTRAL SALE. IN THIS REGARD FOLLOWING COMPARATIVE FIGURES ARE WORTH MENTIONING: DESCRIPTION QUANTITY IN KGS. AMOUNT AVERAGE SALE PRICE PER KG. (I) EXPORT(DIRECT) SALE 297000 RS.2,03,00,248/ - RS.68.35 (II) EXPORT (INDIRECT) SALE 158484 RS.96,62,654/ - RS.60.97 (III) R.D. SALE 27105 RS. 1 6,39,4757 - RS.60.49 (IV) CENTRAL SALE 16000 RS.4,07,113/ - ' RS.25.44 IN VIEW OF THE FACT THAT THE SALE IN OTHER THREE HE ADS AS DETAILED ABOVE WORKED OUT TO BE AT THE RATE OF MORE THAN RS.60.49 PER KG. WHEREAS IN RESPECT OF CENTRAL SALES QUANTITY OF 16 TON IS STATED TO BE SOLD AT THE AVERAGE RATE OF RS.25.4 4. THEREFORE, VIDE SHOW CAUSE NOTICE DATED 20.12.2007 ASSESSEE WAS ASKED TO EXPLAIN WHY THE QUANTITY INVOLVED IN SUCH SALES SHOULD NOT BE WORKED OUT AT THE AVERAGE RATE OF SALES WORKED O UT IN CASE OF INDIRECT EXPORT SALES, 3.2.2 THOUGH ASSESSEE HAS NOT SPECIFICALLY EXPLAINED THIS ISSUE, HOWEVER, ONE PARA IN HER REPLY DATED 26.12.2007 SEEMS TO BE ADDRESSING THE I SSUE. THE SAME IS REPRODUCED AS UNDER: 'EXPORT SALES WERE MADE UNDER MY OWN TRADE MARK AFT ER THE INSPECTION & CLEARANCE OF GOODS AS GRADED GOODS AS PER ISO STANDARDS, GOODS WHICH FAIL ED TO PASS THE REQUIRED STANDARD AT LABORATORY- WERE SOLD AS CENTRAL SALES AFTER RUBBIN G OUR TRADE MARK AT VERY VERY LOW RATE AS THESE GOODS PREPARED AS PER SPECIAL SPECIFICATION W ERE NOT EASILY SALEABLE AND HENCE THESE WERE SOLD AT APPROX. RS.25/- PER/KG INSTEAD O F SELLING THOSE AS SCRAP @ RS. 13/50 PER/KG.' 3.2.3 THE REPLY OF THE ASSESSEE HAS BEEN CAREFULLY CONSID ERED AND FOUND TO BE UNACCEPTABLE IN THE LIGHT OF FOLLOWING:- I) ALL THE CENTRAL SALES ARE MADE TO THREE P ARTIES NAMELY: A) M/S MANN AUTOMOTIVE (P) LTD. B) M/S NAVYUG ENTERPRISES C) M/S PARDEEP & CO. THE DESCRIPTION OF GOODS AS PER IMPOUNDED SALE INVO ICES ARE AS FOLLOWS: I) WHEEL NUT M22 X 1.5 A/F 32 L31 19006 II) TAPER WHEEL NUT M16 X 1 5175 III) REAR/FRONT H/B TATRA WHEEL NUT 1488 IV) VOLVO WHEEL NUT 784 V) TAPER NUT 16X1.5 9771 VI) CASTER NUT 12 X 1.75 11184 VII) BOLT M24X 1.5 AV 2648 PERUSAL TO THE SALE INVOICES SHOWS THAT ITEMS OF TH ESE SPECIFICATIONS HAVE NOT BEEN SOLD TO ANY OTHER PART Y BY THE ASSESSEE DURING THE ASSESSMENT YEAR. THEN IT IS NOT CORRECT TO SAY THAT THESE WERE GOODS WHICH FAILED TO PASS THE REQUIRED STANDA RD AT LABORATORY. SECONDLY, THIS SALE INVOLVED 50056 PIECES GIVEN THE QUANTITY OF 16 TON AVERAGE WEIGHT PER PIECE WORKS OUT TO 320 GR AMS. IT IS IMPOSSIBLE AND BEYOND ANY IMAGINATION THAT WHEEL NU T WITH SPECIFICATIONS OF 22 X 1.5 OF A/F 32 31MM LENGTH WO ULD WEIGH 320 GRAMS GIVEN 7.8GMS FOR 1 CUBIC CENTIMETER VOLUME OF STEEL. IN THIS REGARD REFERENCE IS MADE TO THE FOLLOWING: 8 BIBLIOGRAPHIC ENTRY RESU (W/SURROUNDING TEXT) STANDARDIZED RESULT TOPIC 3.5B STRESS PROBS 2 (DETERMINATE). UNIVERSITY OF WISCONSIN- STOUT PHYSICS DEPARTMENT, 20 JANUARY 1998. THE DENSITY OF STEEL IS 490 POUNDS PER CUBIC FOOT. 7.85 G/CM 3 ALCIR GROHMANN. POLYSTYRENE CUTTER. ASK A SCIENTIST. ARGONNE NATIONAL LABORATORY. TO KNOW THE AREA: YOU COULD WEIGHT[SIC] THE WIRE AND CONSIDERING THAT THE DENSITY OF STEEL IS APPROXIMATELY 7.85 G/CM 3 HAVING THE LENGTH YOU CAN ESTIMATE THE AREA [SIC]. 7.8 G/CM 3 MATERIALS SORTED BY CATEGORY THEN DENSITY. MARCUS MATERIALS [SEE TABLE 1] 7.47 - 8.03 G/CM 3 CRC HANDBOOK OF CHEMISTRY AND PHYSICS. 75 TH EDITION. FLORIDA: CHEMICAL RUBBER CO, 1994. [SEE TALBE 2] 7.86 - 7.9 G/CM 3 SCOTT HAWKINS. RE: WHAT IS THE DENSITY OF STEEL ? MADSCI NETWORK. 11 SEPTEMBER 1997. THE SHORT ANSWER TO YOUR QUESTION IS THAT THE DENSITY OF PLAIN MILD STEEL IS 7.85. THE LONG ANSWER IS THAT DEPENDING ON WHERE YOU LOOK, OR THE GRADE OF STEEL THAT YOU ARE TAKING ABOUT CAN CHANGE THIS VALUE. A DENSITY OF 7.88 IS OFTEN QUOTED FOR MILD STEEL AS WELL. IF YOU ADD ALLOYING ELEMENTS SUCH AS TUNGSTEN, CHROME OR MANGANESE TO IMPROVE THE STEEL, THE DENSITY WILL CHANGE. SO THE LONG ANSWER IS THAT THE DENSITY OF STEEL CAN VARY BETWEEN 7.75 AND 8.05. 7.75 8.05 G/CM 3 MOST OF THE OTHER ITEMS SOLD UNDER THE HEAD CENTRAL SALE ARE SMALLER IN SIZE. THIRDLY, LEAVING ONE CONSIGNMENT VIDE BILL NO.73 TH E REST OF THE CONSIGNMENTS HAVE BEEN SENT IN 122 WOODEN BOXES AS DESCRIBAD ON EACH SALE INVOICE. IF THE QUANTITY OF 16 TON IS SAI D TO BE SENT IN THESE BOXES, EACH BOX WILL WEIGH APPROXIMATELY 131 KG. NO OTHER CONSIGNMENT BY THE ASSESSEE MATCHS THIS PARAMETER. NORMALLY WOODEN BOX WEIGHING LESS THAN 20 KG. HAVE BEEN SENT AS IS EVIDENT FROM BILLS OF LADING IN RESPECT OF DIRECT AND INDIR ECT EXPORT SALES. AS PER DESCRIPTION AVAILABLE ON SALE INVOICES, MOST OF THESE ITEMS HAVE BEEN DESPATCHED THROUGH M/S S.K. GOLDEN TRANSPORT. HOWEVER, THOUGH THE ASSESSEE WAS SPECIFICALLY ASKED TO FILE EVIDENCE IN RESPECT OF WEIGHT OF SUCH ITEMS WITH RE FERENCE TO GRS ETC. BUT ASSESSEE PERHAPS KNOWINGLY HAVE NOT FILED SUCH DETAILS. IN VIEW OF THESE FACTS, THE WEIGHT OF 16 M.T. SAID TO BE SOLD ON ACCOUNT OF CENTRAL SALES IS HEREBY HELD TO BE NOT C ORRECT AND THE QUANTITY IN KGS. IS RECOMPUTED ON THE AVERAGE SALE RATE OF RS,60.49 9 AS IN RESPECT OF R.D. SALE AND IT IS HELD THAT ONLY QUANTITY OF 6730 KG. IS INVOLVED IN THESE SALES AND THE BALANCE QUAN TITY OF 9.270 M.T. IS HELD TO BE OVER STATED EQUIVALENT PURCHASE/CONSU MPTION AT THE AVERAGE RATE OF RS.30,140/- (WORKED OUT) AS UNDER I S HEREBY DISALLOWED READ WITH DISCUSSION IN FORTHCOMING PARA S: DESCRIPTION OF GOODS AMOUNT WEIGHT I) PURCHASE RAW MATERIAL RS. 1,98,65,206/- 798 MT II) PURCHASE GOODS RS. 529789/- PURCHASE SEMI RS. 5465891/- 60 MT FINISHED GOODS TOTAL: RS. 25860886/- 8858 MT AVERAGE RATE, THEREFORE, COMES TO RS.30,140/- PER M .T. THIS WOULD RESULT IN ADDITION OF RS.2,79,398/- ON THIS A CCOUNT. SINCE ASSESSEE HAS KNOWINGLY CONCEALED PARTICULARS OF HER INCOME IN THIS RESPECT, PENALTY PROCEEDINGS U/S 271(L)(C) ARE HERE BY INITIATED. 3.3.1 NEXT COMES THE ISSUE OF IRRECOVERABLE AND INVISIBLE LOSS OF 66 M.T. ON ACCOUNT OF HEAT TREATMENT DE-SCALING, GRIND ING, CUTTING ETC. IN THIS REGARD WHILE PREPARING CHART FURNISHED ON 1 3.11.2007 PURCHASES & CONSUMPTION OF RAW MATERIAL THE ASSESSE E HAS NOT REFERRED TO ANY SUCH LOSS. RATHER SUCH LOSS WAS STATED TO BE COVERE D BY THE QUANTITY OF 93 M.T. HOWEVER, WHEN CONFRONTED WITH QUANTITIES OF PURCHASE AND SALES VIDE LETTER DATED 20/12/2007 ASSESSEE HAS COME UP WITH AN EXPLANATION THAT FURTHER 66 M.T. OF RAW MATERIAL HAS BEEN LOST ON ACCOUNT OF HEAT TREATMENT DE-SCALING, GRINDING, CUT TING ETC. 3.3.2 AS REGARDS THE JUSTIFICATION OF SUCH LOSS THE RELE VANT PORTION OF THE ASSESSEE'S REPLY FILED VIDE LETTER DATED 26,12. 2007 IS REPRODUCED HEREUNDER. 'DETAILS & JUSTIFICATION OF INVISIBLE/IRRECOVERABLE LOSS IS ENCLOSED AS PER ANNEXURE-III. FURTHER, THIS IS TO INFORM YOUR H ONOUR THAT AS PER STANDARD INPUT-OUTPUT NORMS OF THE MINISTRY OF COMM ERCE & INDUSTRY, DEPTT. OF COMMERCE, GOVT. OF INDIA MORE THAN 40% AVERAGE W ASTAGE (INVISIBLE AND SCRAP) IS APPROVED IN OUR BUSINESS AS PER ANEXURE-IV ENCLO SED. WHEREAS IN MY CASE INVISIBLE LOSS PLUS SCRAP SALE IS NOT MORE THA N 40%. AS ALREADY INTIMATED TO YOUR HONOUR, I HAVE NOT MAI NTAINED DAY TO DAY MANUFACTURING/STOCK REGISTER, CLOSING STOCK AS ON 3 1.03.2005 WAS PHYSICALLY COUNTED & VALUED. QUANTITATIVE DETAILS GIVEN BY ME EARLIER WERE TENTATIVE ONLY AS MY SALES WERE BY PIECES AND NOT BY WEIGHT. REVISED TENTATIVE QUANTITATIVE DETAILS ENCLOSED, HERE HAVE BEEN PREPARED NOW KEEPING IN VI EW TENTATIVE WEIGHT GIVEN IN B/L, ARE1 AND KEEPING IN VIEW THE Q UALITY OF THE GOODS SOLD. OPENING STOCK+PURCHASES INVISIBLE LOSS+ SALE+CLOSI NG STOCK HENCE THE REVISED QUANTITATIVE DETAILS IN THE ABSEN CE OF DAY TO DAY MFG./STOCK REGISTER & WEIGHT ON SALE BILLS HAVE BEEN PREPARED TO THE BEST OF MY KNOWLEDGE & ESTIMATE AND DIFFERENCE IF ANY PERTAINS TO INVISIBL E LOSS ONLY.' 10 3.3.3 THE REPLY OF THE ASSESSEE HAS BEEN PERUSED AN D ISSUE IS DISCUSSED AS UNDER: AT THE FIRST INSTANCE VIDE HER REPLY DATED 13.11.20 07 ENTRY IN THIS REGARD READ AS FOLLOWS: 'IR-RECOVERABLE SCRAP:' BURNING LOSS, HEAT TREATMENT, DE-SCALING, INVISIBLE LOSS, (GRINDING, CUTTING) WEIGHT VARIATION IN CARTO NS WEIGHT, ETC. RS. 93.00 MT THE ENTRY IN THIS RESPECT MADE VIDE REPLY FILED ON 26.12.2007 READ AS FOLLOWS: 'IR-RECOVERABLE INVISIBLE LOSS: BURNING LOSS, INVISIBLE LOSS, 93.00 M. T. HEAT TREATMENT DE-SCALING, GRINDING, CUTTING 66.00 M.T.' FROM THESE REPLIES IT IS VERY CLEAR THAT AT THE FIR ST INSTANCE TOTAL IRRECOVERABLE LOSS OF 93 M.T. WAS STATED TO BE INCL USIVE OF EVERYTHING I.E. BURNING LOSS, HEAT TREATMENT, DE-SC ALING, INVISIBLE LOSS, (GRINDING, CUTTING) WEIGHT VARIATION IN CARTO NS ETC. BUT WHEN CONFRONTED WITH THE ACTUAL QUANTITIES OF PURCHASES AND SALES IN ORDER TO JUSTIFY THE SAME, THE ASSESSEE HAS ADDED F URTHER LOSS OF 66M.T. ON ACCOUNT OF HEAT TREATMENT DE-SCALING, GRI NDING, CUTTING ETC, AND LOSS OF 40 M.T. ON ACCOUNT OF WEIGHT VARIA TION DURING EXPORT SALES IN CARTONS. THE ISSUE OF WEIGHT VARIAT ION OF 40 M.T. DURING EXPORT SALES IN CARTONS WILL BE DISCUSSED IN FORTHCOMING PARAS. THIS KIND OF JUSTIFICATION IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE CANNOT BE HELD VALID. * SECONDLY, ASSESSEE HAS TAKEN RECOURSE TO THE STANDA RD INPUT & OUTPUT LAID DOWN BY THE MINISTRY OF COMMERCE & IN DUSTRIES IN CONNECTION WITH DUTY EXEMPTION SCHEME AND ASSESSEE HAS PRODUCED PERMISSIBLE WASTAGE AS FOLLOWS: ITEM RAW MATERIAL OF WEIGHT FINISHED GOODS WEIGHT WASTAGE WEIGHT (%) 1. NYLOC SELF LOCKING NUTS, STEEL LOCKING NUTS, WHEEL NUTS MADE FROM STEEL (ITEM S.NO.C - 739 PAGE NO.646) 1.939MT 1MT 48.42 % OFRM 2. BOLTS, NUTS SLEEVE FOR WHEEL ASSEMBLY ITEM NO.C - 1305, PAGE NO. 758 2. 120 KG IKG. 52.83 % OFR.M 3. STEEL HUB BOLTS (ITEM NO. 1047 PAGE 705 66 - 162 DGFT/2002) 1.300 KG. IKG. 23% OFRM 4. CARBIN STEEL/NON - ALLOY STEEL/ALL OY STEEL (FORGING MACHINED) UP TO 10 KG. P.C. (ITEM NO. C- 36D PAGE NO. 556) 1.00 KG. IKG. 41.17% OFRM \ ...... J IT HAS TRANSPIRED DURING THE COURSE OF DISCUSSION T HAT THE ASSESSEE IS MAINLY A MANUFACTURER OF STEEL HUB BOLT S & NUTS. THE SAME FACT CAN BE MADE OUT FROM THE ASSESSE'S SALE I NVOICES LYINGLN~!RIEUL!OOTTHE A.O. FROM THE ABOVE IT ,CAN BE SAFELY SAID 11 THAT THE NORMS LAID DOWN AS PER ITEM NO. 1047 AT PA GE 705 66-162 DGFT/2002 ARE APPLICABLE. ACCORDINGLY, ONE KG OF FI NISHED GOODS PERMISSIBLE RAW MATERIAL WEIGHT OF 1.3 KG HAS BEEN HELD TO BE PERMISSIBLE. THE ASSESSEE'S IRRECOVERABLE LOSS OF 6 6 M.T. READ WITH VISIBLE/SALEABLE SCRAP OF 117 M.T. AND IRRECOV ERABLE LOSS OF 93 MT WOULD BE FAR BEYOND THE NORMS STATE IN THIS R ESPECT. FOR THE SAKE OF CONVENIENCE REFERENCE IS AGAIN INVITED TO T HE FOLLOWING FACTS AND FIGURES: QUANTITY OF RAW MATERIAL INCLUDING OPENING BALANCE AND FINISHED & SEMI FINISHED PURCHASES. 931 MT LESS: MATERIAL IN CLOSING STOCK AS ON 31.03.2005 121 MT BALANCE QUANTITY AVAILABLE FOR MANUFACTURING: 810 M T AGAINST WHICH FOLLOWING GOODS HAVE BEEN SOLD EXPORT SALES AS STATED BY THE ASSESSEE 292 MT INDIRECT EXPORT SALE AS STATED BY THE ASSESSEE 159 MT R.D. SALE AS STATED BY THE ASSESSEE 27 MT CENTRAL SALE AS DISCUSSED IN PARA 3.2.3 ABOVE 7.73 MT TOTAL 484.73 MT GIVEN THE ABOVE NORMS 1.3 KG OF RAW MATERIAL AGAINS T 1 KG OF FINISHED GOODS PURCHASE OF 629 MT ARE ONLY JUSTIFIE D I.E. BALANCE OF 629-484=145 MT SHOULD TAKE CARE OF VISISBLE AND INVISIBLE WASTAGE. AS PER PARA 28(A) OF AUDIT REPORT IN FORM NO. 3 CD THE AUDITOR HAS MADE FOLLOWING REMARKS: DETAILED QUANTITATIVE RECORDS ARE NOT BEING MAINT AINED AS SUCH REQUIRED PARTICULARS CANNOT BE GIVEN. THOUGH THE ASSESSEE IS MAINTAINING REGISTER OF RAW MATERIAL AND FINISHED GOODS AND IS ASSESSED TO CUSTOMS & EXCISE DEPARTMENT SINCE ITEMS MANUFACTURED BY HER ARE CHARGEABLE TO E XCISE AND SHE HAS TO CLAIM EXCISE EXEMPTION IN RESPECT OF EXPORT SALES SUCH A STATEMENT OF THE AUDITOR SUPPORTS THE VIEW THAT QUA NTITATIVE DETAILS HAVE BEEN CONCEALED. DURING THE MONTH OF MARCH 2005 ALONE ASSESSEE HAS P URCHASED 221.52 MT OF RAW MATERIAL DETAILED AS PER ANNEXURE A TO THIS ORDER. GIVEN THE AVERAGE OF CONSUMPTION OF RAW MATERIAL PE R DAY CALCULATED AS UNDER CONSUMPTION IN MARCH SHOULD BE ABOUT 69 MT . 12 AVERAGE CONSUMPTION PER DAY = TOTAL CONSUMPTION AS CLAIMED 31/365 I.E. 810 31/365 = 365 = 69 MT. GIVEN THE PURCHASE OF 221.52 MT CLOSING STOCK OF RA W MATERIAL AT 30MT AND CONSUMPTION OF 69 MT THE PURCHASE OF 122.5 2 MT ARE UNEXPLAINED IN THE MOST FAVOURABLE CONDITION TO THE ASSESSEE THAT ON IST MARCH 2005 ASSESSEE HAD NO RAW MATERIAL IN S TOCK. IT IS THIS AMOUNT WHICH IS TRIED TO BE EXPLAINED BY THE ASSESS EE BY OVERSTATEMENT OF CENTRE SALES TO THE TUNE OF 9.23 M T IRRECOVERABLE LOSS OF 66MT ON ACCOUNT OF DESCALING HEAT TREATMEN T, GRINDING CUTTING ETC. AND FURTHER LOSS OF 40MT ON ACCOUNT OF VARIATION IN WEIGHT IN CARTONS. IN VIEW OF THESE FACTS DECLARATION OF INVISIBLE LO SS OF 66 MT IS TOTALLY UNJUSTIFIED AND EQUIVALENT PURCHASE/CONSUMP TION AMOUNTING TO RS. 19,89,240/0 AT THE AVERAGE RATE OF RS. 30,14 0/- WORKED OUT AS ABOVE IN PARA 3.2.3 IS HEREBY DISALLOWED. SINCE BY DEBIT OF EXCESSIVE PURCHASED ASSESSEE HAS CONCEALED PARTICUL ARS OF HER INCOME, PENALTY PROCEEDINGS U/S 271(1) ARE BEING I NITIAITED ON THIS ACCOUNT. 3.4.1 IN HER REPLY DATED 26.12.2004 ASSESSEE HAS CL AIMED LOSS OF 40MT ON ACCOUNT OF WEIGHT VARIATION DURING EXPORT SALE IN CARTONS. IN HER FIRST COMPUTATION OF CONSUMPTION OF RAW MATE RIAL FURNISHED ON 13.11.2007 THIS VARIATION WAS STATED TO BE COVERED BY THE IRRECOVERABLE LOSS OF 93 MT. HOWEVER, WHEN ASSESSE E WAS CONFRONTED WITH ACTUAL QUANTITATIVE PURCHASED AND S ALES ON 20.11.2007 ASSESSEE HAS COME UP WITH THE ADDITIONAL FIGURE OF 40 MT TO BE LOST ON THIS ACCOUNT. 3.4.2 ASSESSEE HAS NEITHER FURNISHED ANY DOCUMENTAR Y EVIDENCE IN SUPPORT OF HER CONTENTION NOR GIVEN ANY REASON/JUST IFICATION THEREOF. 3.4.3 IN VIEW OF THESE FACTS, THE MATERIAL AVAILABL E ON RECORD IS HEREBY DISCUSSED UNDER: IN RESPECT OF EXPORT (DIRECT) SALES, EXPORT (INDI RECT) SALES AND RD SALES DETAILS OF NET WEIGHT & GROSS WEIGHT ARE A VAILABLE IN ARE-1 AS WELL AS BILL OF LADING AND OTHER DOCUMENTS OF EX PORT. THESE DOCUMENTS CLEARLY PROVE THAT GOODS STATED THEREIN H AVE BEEN 13 EXPORTED/SOLD ONLY. ASSESSEES ARGUMENT THAT THE Q UANTITIES ARE NORMALLY UNDER STATED TO AVOID ANY CONFRONTATION WI TH CUSTOM DEPARTMENT CANNOT BE HELD TO BE VALID BECAUSE IN TH AT CASE THE SHIPPING COMPANY WOULD NOT ACCEPT UNDER STATED QUAN TITY OF GOODS. MOREOVER, EVEN IF FOR THE SAKE OF ARGUMENT LOSS OF 40 M.T. IS ACCEPTED THAT WOULD TRANSLATE INTO WEIGHT VARIATION OF 1 KG. FOR EACH BOX OF ABOUT 15 KG WHICH IS BEYOND IMAGINATION, HEN CE IN VIEW OF FOREGOING DISCUSSION READ WITH DISCUSSION IN PARA 3 .3.3 ABOVE PURCHASE/CONSUMPTION OF 40 M.T. OF RS. 12,05,600/- AT THE AVERAGE RATE OF RS.30,140/- IS HEREBY DISALLOWED. SINCE THE ASSESSEE HAS CLAIMED THE EXCESS CONSUMPTION AND PURCHASES CONTRA RY TO EVIDENCE, SHE HAS CONCEALED PARTICULARS OF HER INCO ME, PENALTY PROCEEDINGS U/S 271(L)(C) ARE BEING INITIATED SEPAR ATELY. 4. AS REGARDS THE ADDITION ON ACCOUNT OF DISALLOWAN CE OF PURCHASES, ONE ARGUMENT CAN BE GIVEN THAT THE PURCHASES ARE GE NUINE. THERE ARE BILLS WITH THE ASSESSEE AND PAYMENTS HAVE BEEN MADE THROUGH BANK OR SO ON. IN THAT CASE IT IS HELD THAT IN VIEW OF THE FOREGOING DISCUSSION THEN EXCESSIVE PURCHASES SHOULD BE PART OF THE CLOSING STOCK WHICH IS NOT A FACT. ASSESSEE HAS CLOSING STO CK OF 121MT AND THE SAME HAS BEEN EVALUATED BY HERSELF AS UNDER: CLOSING STOCK DETAILS: DESCRIPTION QUANT ITY QUANTITY IN AMOUNT NUTS 12762 28 (INCLUDES BOLTS) 444,000 BOLTS 249764 - 14,92,000 WASHER 200000 2 100,000 S - CAM 2000 14 420,000 SEMI FINISHED - 37 962,000 ROUND STEEL - 30 690,000 SCRAP - 14 140,0 00 OIL&LUB. OIL 4620 ITS - 92,000 PACKING AND OTHER - 51.000 TOTAL 121 43,87,400/- SINCE PURCHASE OF 115.23MTDO NOT FIND ANY PLACE IN CLOSING STOCK THESE ARE EITHER BOGUS OR SOLD OUT OF BOOKS OF ACCO UNT. EVEN IN THE ALTERNATIVE EQUIVALENT ADDITION WOULD RESULT ON ACC OUNT OF UNDER VALUATION OF CLOSING STOCK. WITH THESE REMARKS INCOME OF THE ASSESSEE IS RECOMP UTED AS UNDER: INCOME RETURNED. RS. 4,70,945/- ADD: I) ADDITION ON A/C DISALLOWANCE OF EXPENSES DISCUSSED IN PARA 2,3.2 ABOVE. RS.9,09,421/- II) ADDITION AS DISCUSSED IN PARA 3.2.3. ABOVE, RS.2,79,398/ III) ADDITION AS DISCUSSED IN PARA 3.3.3 ABOVE, RS.19,89,240/- IV) ADDITION AS DISCUSSED IN PARA 3.4.3 RS.12,0 5,600/- TOTAL INCOME; RS. 48,54,604/-. SAY : RS.48,54,600/- 14 12 BEFORE THE LD. CIT(A) FOLLOWING SUBMISSIONS WERE MADE: IN SUPPORT OF ABOVE GROUNDS, THE ID. AR FOR THE AS SESSEE FILED WRITTEN SUBMISSIONS MENTIONING THEREIN AS UNDER: 'GROUND N0.4, 5 AND 6 THIS GROUND OF APPEAL RELATES TO THE ADDITION OF RS .2,79,398/- AS MADE BY THE ASSESSING OFFICER AT PAGE 7 OF THE ORDER, WHEREIN HE HAS DISALLOWED PURC HASES OF RAW MATERIAL AND OTHERS HAVING A VALUE OF RS.2,79,398/-. THE BRIEF FACTS OF THIS ADD ITION ARE: THAT AS ALREADY STATED THAT ASSESSEE IS MAINLY AN E XPORTER AND THE MANUFACTURING IS BEING CARRIED OUT ON THE BASIS OF SPECIFIC ORDERS ONLY AN D DURING THE YEAR UNDER CONSIDERATION, WE HAD EXPORT ORDERS WITH REGARD TO THE WHEEL NUT AND BOLT S AND THAT ORDER, HOWEVER, DID NOT MATERIALIZE, BECAUSE THE GOODS COULD NOT BE MADE AS PER SPECIFICATION OF THE PARTY AND, THEREFORE, WE WERE FORCED TO SELL THE SAME IN INDIA AT A VERY LESSER RATE AND THESE SALES WERE MADE TO THE THREE PARTIES AS PER PARA 3.2.3 OF THE ORDER OF THE ASSESSING OFFICER. THE PAYMENTS FROM THESE THREE PARTIES WERE RECEIVED THROUGH NORM AL BANKING CHANNEL AND CST @ 4% WAS ALSO CHARGED ON SUCH SALES. THUS, THERE IS N O DOUBT ABOUT THE IDENTITY AND GENUINENESS OF THE PARTY. II THE ASSESSING OFFICER HAS STATED AT PAGE 6 OF TH E ORDER THAT THE WEIGHT OF 16 TONS MENTIONED IN RESPECT OF THE TOTAL NUMBER OF PIECES TO THE TUNE O F 50056 PIECES IS NOT CORRECT AND ACCORDING TO THE ASSESSING OFFICER THE WEIGHT SHOULD BE 6730 KG. AS PER PAGE 7 OF HIS ORDER. THIS, HE HAS CALCULATED BY MAKING REVERSE CALCULATION BY TAKING INTO CONSIDERATION THE AVERAGE SALE RATE OF 60.49 IN RESPECT OF R.D SALE (INDIRECT EXPORT) MADE TO CE RTAIN OTHER PARTIES WITH REGARD TO CERTAIN ITEMS OF AUTO PARTS AND THEN HAS DISALLOWED THE EXCESSIVE PURCHASE/ CONSUMPTION TO THE TUNE OF RS.2,79,398/-. THIS CONTENTION OF THE ASSESSING OFF ICER IS DEVOID OF ANY VALID REASONING BECAUSE OF THE FOLLOWING FACTS AND CIRCUMSTANCES: A. THE ASSESSING OFFICER HAS WITHOUT EXAMINING THE SPECIFIC PARTS OR WITHOUT ANY BASIS HAS MERELY ON THE BASIS OF CERT AIN THEORETICAL DISCUSSION STATED THAT THE AVERAGE WEIGHT PER PIECE OF ALL THE ITEMS CANNOT WORK OUT TO 320 CMS. IN THIS REGARD, IT IS SUBMITTED THAT WE HAVE THE DRAWING OF THAT PIECE AVAILABLE WITH US AN D THIS DRAWING HAS BEEN APPROVED BY THE CHARTERED ENGINEER BY TAKING I NTO CONSIDERATION THE SAME PIECE AS TAKEN BY THE ASSESSING OFFICER, T HE WEIGHT COMES TO 350 GMS TO 370 GMS PER PIECE AND HOW THE ASSESSING OFFICER IS STATING THAT THE WEIGHT SHOULD BE FAR LESS IS NOT UNDERSTANDABLE MERELY ON THE BASIS OF CERTAIN T HEORETICAL WORKING. B. THE ASSESSING OFFICER THOUGH HAS REPRODUCED CERT AIN SO CALLED STANDARD RESULTS ON THE BASIS OF THEORETICAL WORKING BUT NO WEIGHT PER PIECE HAS BEEN CALCULATED AND NEITHER ANY TECHNICAL REPORT WA S CALLED FROM THE ASSESSEE AND, THUS, THE RELIANCE ON SUCH THEORETICA L BASIS IS NOT IN ORDER. BESIDES, THE ASSESSING OFFICER HAS TAKEN INTO CONSI DERATION, PERHAPS, THE SIZE OF FRONT PORTION WITHOUT THE BACK PORTION AND STEEL WASHER, WHICH IS PART OF THE PIECE. SOME SAMPLES OF DRAWING CERTIFIED BY C HARTERED ENGINEER, WHICH CLEARLY SHOWS WEIGHT OF ITEMS IS BEING PRODUCED HEREWITH ALONG WITH SAMPLE PIECES EXPORTED. [PAGES 9 AND 10]. C. THE 2 ND BASIS OF ADOPTION OF THE LESSER WEIGHT IN RESPECT OF THE ABOVE SAID SALES BY THE ASSESSING OFFICER HAS BEEN THAT H E HAS STATED THAT IF THE QUANTITY OF 16 TONS IS TO BE SENT THEN EACH BOX WIL L WEIGH APPROXIMATELY 131 KGS. AND THIS HE HAS STATED TO BE A DECIDING FA CTOR IN HIS FAVOUR SINCE ACCORDING TO HIM MAINLY WOODEN BOXES WEIGHING LESS THAN 20 KGS. HAS BEEN SENT AS PER BILL OF LADING IN RESPECT OF DIRECT AND INDI RECT EXPORTS. 15 D. THIS CONTENTION IS AGAIN INCORRECT IN THE SENSE, THAT, FIRSTLY NO WOODEN CASE OF 20 KGS., WEIGHT HAS BEEN USED FOR THE PURPO SE OF EXPORT AND RATHER AS IS APPARENT FROM THE BILL OF LADING, THE WEIGHT OF 20 KGS., IS MADE OF PAPER AND CARDBOARD BOXES ONLY. WE HAVE E XPORTED SOME GOODS IN WOODEN BOXES HAVING WEIGHT OF 50 KGS. TO 8 00 KGS., WHICH IS APPARENT FROM THE FOLLOWING INVOICES: 1. EXP/92-93-ARE-1 NO.3631.03.2005 2. EXP/36-37-ARE-1 N0.1615.10.2004 THE COPIES OF THE INVOICES AND ARE-1 APPROVED AND V ERIFIED BY CENTRAL EXCISE AND CUSTOM DEPARTMENT ARE ENCLOSED HEREWITH. [PAGES 20 TO 23]. E. WE HAVE MADE LOCAL SALES IN BULK AND THESE WERE SUPPLIED IN WOODEN CASES AND, THUS, THE VERY BASIS OF ALLEGATION MADE BY THE ASSESSING OFFICER IS TOTALLY INCORRECT. AS REGARDS, THE SALE RATE IS CONCERNED, IT MAY BE STAT ED THAT IN RESPECT OF EXPORTABLE GOODS, THE SALE RATE OF 60.49 HAVE BEEN CHARGED AND, WHEREAS, IN RE SPECT OF THESE CONSIGNMENTS, SINCE THERE WERE EXPORT REJECTIONS AND WERE NOT SAL ABLE AT NORMAL RATES IN INDIA BECAUSE OF DIFFERENT DIMENSIONS/SIZES, WE HAD NO OPTION BUT TO SELL THE SAME EITHER AS SCRAP BY WHICH WE COULD HAVE GOT A RATE OF RS.13.50 PER KG. BUT WE HAVE BEEN RATHER SUCCESSFUL IN SELLING THE SAME AT AN AVERAGE RATE OF RS.25 PER KG., AND, THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING ASSUMPTIONS AFTER ASSUMPTIONS AND TRYING TO DRAW THE CONCLUSION, WHICH IS FAR FROM REALITY. THE BASIS OF THE ADOPTION OF WEIGHT AND RA TES THUS DO NOT SURVIVES. D. THE ASSESSING OFFICER HAVE DISALLOWED THE AMOUNT FROM PURCHASES BY ADOPTING THE AVERAGE RATE OF PURCHASES AND IN THIS REGARD, IT IS SUBMITT ED THAT ALL THE PURCHASES ARE FROM IDENTIFIABLE PARTIES AND THE PAYMENTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUES AND AS SUCH AGAINST THIS BACKGROUND THE DISALLOWANCE OF PURCHAS ES ON THE ASSUMPTIONS OF OVER INVOICING IS NOT JUSTIFIED AND DESERVES TO BE DELETED.' 3.1 THE ID. AR FOR THE APPELLANT ALSO FURNISHED A N APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCE IN SUPPORT OF HIS SUBMISSIONS AS UNDER: 1. WE HAVE TO VERY HUMBLY SUBMIT IN THE ABOVE SAID CASE THAT WE ARE FILING THE SEPARATE SUBMISSION AND PAPER BOOKS WHICH ARE S UPPORTING OF OUR ARGUMENTS. IT MAY BE STATED THAT ISSUE IN THE ABOVE APPEAL MAINLY RELATE S TO THE WASTAGE GENERATED FROM THE MANUFACTURING ACTIVITY IN RESPECT OF DIFFE RENT AUTO PARTS MANUFACTURED BY US AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS, WE HAD GIVEN QUANTITATIVE DETAILS IN WEIGHT GIVING THE FIGURES OF IRRECOVERABLE WASTAGE FROM THE MANUFACTU RING ACTIVITY. 2 HOWEVER, THERE HAVE BEEN CERTAIN CALCULATIONS MI STAKES BOTH BY THE ASSESSING OFFICER AND THE ASSESSEE AND WE HAVE AMENDED THE FIGURES OF WASTAGE BY TAKING CORRECT FIGURES AND WHICH WERE SLIGHTLY DIFFERENT ON THE BASIS OF WHICH ADDIT ION HAVE BEEN MADE BY THE ASSESSING OFFICER. IN ORDER TO FURTHER DISPEL OF ANY DOUBTS, WE HAVE E NCLOSED IN THE PAPER BOOK REPORT OF THE CHARTERED ENGINEER IN RESPECT OF DIFFERENT AUTO PAR TS MANUFACTURED DURING THE YEAR AND THIS REPORT OF THE CHARTERED ENGINEER ARE VERY MUCH NECE SSARY TO DECIDE THE ISSUE IN HAND IN ORDER TO DETERMINE THE WASTAGE. THEN, AGAIN THE ASSESSING OFFICER HAS RELIED UPON THE STANDARD INPUT AND OUTPUT NORMS AS LAID DOWN BY THE MINISTRY OF COMMERCE AND INDUSTRY AND THEREFORE, TO DETERMINE THE WASTAGE, THE REPORT OF THE CHARTERED ENGINEER IS VERY MUCH NECESSARY TO DETERMINE THE ISSUE IN HAND AND T HEREFORE; SUCH REPORT OF THE CHARTERED ENGINEER MAY, PLEASE, BE ADMITTED. 3. ALSO, IN THE PAPER BOOK, WE ARE ENCLOSING HEREW ITH CERTAIN REVISED CHART SHOWING THE OVER ALL WASTAGE. WE HAVE BEEN MANUFACT URING NOT ONLY STEEL HUBS BOLTS, BUT ALSO STEEL NUT AND OTHERS ASSEMBLED ITEMS AND THAT CHART HAS BEEN DRAWN FROM THE BOOKS OF ACCOUNT ITSELF WHICH ARE LYING IN THE CUSTODY OF THE DEPARTMENT. THESE CHARTS ARE NECESSARY IN ORDER TO BRING THE CLEAR FACTS BEFORE YOUR HONOUR. 4. BESIDES, THAT COPY OF BILLS IN RESPECT OF COPY O F ARE-I AND IN RESPECT OF TWO BILLS ARE 16 ALSO BEING ENCLOSED HEREWITH ALONG WITH RELEVANT DOCUMENTS AND THIS INFORMATION HAS ALREADY THERE WITH THE ASSESSING OFFICER WHO HAS VE RIFIED THE SAME FROM EXCISE AND CUSTOM DEPARTMENT. THE ABOVE D OCUMENTS ARE NECESSARY FOR DECIDING THE ISSUE IN HAND AND IT IS A SETTLED LAW THAT IN C ASE THE ADDITIONAL EVIDENCE GOES TO THE ROOT OF THE MATTER TO BE DECIDED THEN FOR THE PURPOSES O F EQUITY & JUSTICE SUCH EVIDENCE SHOULD BE ADMITTED. 5. RELIANCE IS PLACED ON THE FOLLOWING JUDGMENTS: (A) CIT VS GANI BHAI WAHAB BHAL; 232 ITR 900 (MP) (B) ELECTRO (JAIPUR) PVT. LTD. VS IAC (DELHI); 263 ITD 236 (C) PARAS RICE MILLS VS ACIT (CHD BENCH); 90 TTJ 78 9 (D) SHAHRUKH KHAN VS DCIT; 13 SOT 61 (ITAT MUMBAI B ENCH) (E) UOP LIC V/S ADDL. DIRECTOR OF INCOME TAX, NEW DELHI (2007) 108 ITD 186 (DEL) IN VIEW OF THE ABOVE SAID FACTS, IT IS PRAYED BEFOR E YOUR HONOUR THAT OUR REQUEST FOR ADDITIONAL EVIDENCE MAY BE ACCEPTED UNDER RULE - 46A, SINCE AL L THE DOCUMENTS ARE RELEVANT TO THE ISSUE IN HAND AND ALSO THAT MOST OF THE PAPERS ARE FIGURES IN THE CHART ARE ALREADY ON THE FILE OF THE ASSESSING OFFICER.' . THE ABOVE SUBMISSIONS WERE REFERRED BY THE LD. CIT( A) TO THE ASSESSING OFFICER FOR REMAND REPORT AND IN TURN THE REMAND REPORT WAS CONFRONTED TO THE ASSESSEE. 13 AFTER CONSIDERING THE RIVAL SUBMISSIONS, REMAND REPORT AND REJOINDER, THE LD. CIT(A) DELETED THE ADDITION OF R S. 2,79,398/- AND CONFIRMED ADDITION OF RS. 19,89,240/- AND RS. 12,05 ,600/-. 14 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE MAINL Y SUBMITTED THAT THE ASSESSEE WAS MAINTAINING EXCISE RECORD WHI CH HAS BEEN ACCEPTED BY THE EXCISE AUTHORITIES. IT WAS FURTHER STATED THAT THE ASSESSEE WAS MANUFACTURING SPECIFIC AUTO PARTS FOR EXPORT PURPOSES AND WAS TRYING TO MAINTAIN GOOD QUALITY SO THAT ULT IMATE BRAND NAME CAN BE BUILT UP AND INITIAL EFFORTS HAVE BROUGHT DI VIDEND IN THE LATTER YEARS WHERE ASSESSEES BRAND HAS GOT WIDER APPROVAL . FURTHER SON OF THE ASSESSEE, SHRI GURPREET SINGH WAS ALSO PRESE NT IN THE COURT AND HE ALONG WITH THE LD. COUNSEL OF THE ASSESSEE D EMONSTRATED VARIOUS PARTS MANUFACTURED BY THE ASSESSEE AND TRIE D TO EXPLAIN HOW THE WASTAGE AND INVISIBLE LOSSES WERE HIGHER BUT ST ILL WITHIN THE NORMS PRESCRIBED BY THE GOVERNMENT BODY. IT WAS FUR THER EXPLAINED THAT ONE OF THE REASON THE ASSESSING OFFICER HAS NO T BEEN ABLE TO APPRECIATE ACTUAL WASTAGE WAS BECAUSE RAW MATERIAL WAS BEING PURCHASED IN TERMS OF WEIGHT BUT THE FINAL PRODUCT WAS SOLD IN TERMS OF PIECES. HE REFERRED TO GOVERNMENT NORMS WHICH WE RE GIVEN BEFORE THE LOWER AUTHORITIES ALSO AND TRIED TO JUSTIFY THE WASTAGES. 17 15 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE S UBMITTED THAT FIRST OF ALL THE ASSESSEE HAS HERSELF CHANGED THE F IGURES MANY TIMES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ITSELF SHOWS THAT THE ASSESSEE WAS TRYING TO HIDE SOMETHING. HE THEN STR ONGLY SUPPORTED THE ORDER OF ASSESSING OFFICER AND REFEREED TO VARI OUS PARAGRAPHS OF THE SAME. 16 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. WE WERE IMPRESSED BY THE DEMONSTRATION SHOWN BEFORE US THAT HOW PARTICULAR NUT WAS CARVED OUT OF A SOLID PIECE AND OF BALANCE SOLID MATERIAL CAN BE USED ONLY AS A SCRAP. THERE IS A FURTHER ARGUME NT THAT WHEN RECORDS OF THE ASSESSEE HAVE BEEN ACCEPTED BY THE EXCISE AUTHORITIES THEN HOW SAME CAN BE DOUBTED BY THE INC OME TAX AUTHORITIES. HOWEVER, AT THE SAME TIME IT IS ALSO A FACT THAT THE ASSESSEE HAS CHANGED CERTAIN FIGURES TWICE THOUGH T HE LD. COUNSEL OF THE ASSESSEE TRIED TO JUSTIFY THE SAME. WE DO N OT FIND MUCH FORCE IN THEM. HOWEVER, AT THE SAME TIME IT CAN NOT BE D ENIED THAT THE ASSESSEE HAS SUFFERED EXCESSIVE SHORTAGE BECAUSE OF SOPHISTICATED NATURE OF PRODUCTS AND SAME WAS WITHIN THE NORMS GI VEN BY VARIOUS GOVERNMENT AGENCIES. THEREFORE, IN OUR OPINION, I N THIS CASE ULTIMATELY THE WASTAGE HAS TO BE ESTIMATED ON REASO NABLE BASIS. CONSIDERING OVERALL FACTS OF THE CASE, WE ARE OF TH E OPINION THAT THE ENDS OF JUSTICE WOULD BE MET IF AN ADDITION OF RS. 10 LAKHS IS MADE ON ACCOUNT OF EXCESSIVE WASTAGE / INVISIBLE LOSS. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO MAKE TOTAL ADDITION OF RS. 10 LAKHS ON ACCOUNT OF WASTAGE AND INVISIBLE LOSS ETC. INSTEAD OF THREE ADDITIONS OF RS. 9,09,421/-, 2,79,398/- AND 19,89,240/-. THIS POSITION WASS ACCEPTED BYTHE LD. COUNSEL OF THE ASSESSEE AS WELL AS THE SON OF THE ASSESSEE. 17 IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO. 195/CHD/2010 IS DISMISSED AND THAT OF THE ASSESSEE IN ITA NO. 215/ CHD/2010 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31/12/2013. SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 31 ST DECEMBER 2013 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR