M/s. Lamina Associates, Meerut V. Addl.CIT, Meerut

ITA 4097/DEL/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 98180 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 21-07-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHEODAN SINGH BHADDORIA
• Assessee Lawyers: VINOD K GOEL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH ES, NEW DELHI (CIRCUIT BENCH AT MEERUT) BEFORE : SHRI I.C. SUDHIR , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI , ACCOUNTANT MEMBER ITA NO. 4097/DEL./2014 ASSTT. YEAR: 2009 - 10 LAMINA ASSOCIATES, VS. ADDL. C.I.T., RANGE - 2, C/O VINOD KUMAR GOEL, MEERUT. BOUNDARY ROAD, CIVIL LINES, MEERUT [ PAN: AAAFL3974A] (APPELLANT) (RESPONDENT) APPELLANT BY : SH. VINOD K. GOEL, ADVOCATE RESPONDENT BY : SH. SHEODAN SINGH BHADDORIA, SR DR DATE OF HEARI NG : 14.12.2015 DATE OF PRONOUNCEMENT : 22 .12.2015 ORDER PER PRASHANT MAHARISHI , ACCOUNTANT MEMBER: 01 . THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A), MEERUT DATED 11.03.2014 CONTESTING THE CONFIRMATION OF FOLLOWING ADDITIONS IN THE HANDS OF THE ASSESSEE: A . ADDITION OF RS.12,01,479/ - ON ACCOUNT OF SALE OF WASTAGE B . DISALLOWANCE OF RS.2,00,000/ - ON ACCOUNT OF GENERATOR EXPENSES, PRINTING EXPENSES, ESTABLISHMENT EXPENSES ETC. ITA NO. 4097/DEL./2014 2 02 . GROUND NO. 1 OF APPEAL IS GENERAL IN NATURE AND NO ARGUMENT S WERE ADVANCED, THEREFORE, DISMISSED. 03 . TH E ASSESSEE IS ENGAGED IN TRADING AND MANUFACTURING OF HDPE AND PP GRANULES ETC. THE RETURN OF INCOME WAS FILED ON 26.09.2009 DECLARING INCOME OF RS.6,55,498/ - . DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER ENQUIRED ABOUT COMPARATIVE GROSS PROFIT AND NET PROFIT RATES FOR LAST TWO YEARS AND FOUND THAT THE NET PROFIT AND GROSS PROFIT OF THE ASSESSEE IN THIS ASSESSMENT YEAR HAS COME DOWN FROM 1.33% TO 1.27 % FROM 8.09% TO 7.68 % RESPECTIVELY . THE AO ASKED FO R THE REASON FOR DECREASE IN NET PROFIT AND IT WAS FOUND THAT THE ASSESSEE HAS SHOWN WASTAGE OF MORE THAN 3% AND DID NOT SHOW ANYSALE OF SUCH WASTAGE IN THE PROFIT AND LOSS ACCOUNT. THE WEIGHT OF WASTAGE DETERMINED BY THE ASSESSING OFFICER WAS 12781.70 KGS . OF PLASTIC GRANULES DURING THE YEAR. THE AO ASKED FOR THE EXPLANATION OF SUCH HIGH WASTAGE. IN RESPONSE , ASSESSEE S UBMITTED THAT WASTAGE GENERATED IN THE PRODUCT ION CYCLE OF THE ASSESSEE IS VERY NOMINAL AND IT DOES NOT HAVE ANY SALE VALUE AND, THEREFORE, IT IS NOT SOLD. REGARDING REALIZATION PRICE, IT WAS SUBMITTED THAT AS A NUMBER OF RECYCLING OF RAW MATERIAL IS UNDERTAKEN, THE RESULTANT WASTAGE IS PURE GARBAGE AND THERE IS MINIMAL SELLING PRICE THEREOF. THE ASSESSING OFFICER DID NOT AGREE WITH THE ITA NO. 4097/DEL./2014 3 SUBMISSION OF THE ASSESSEE AND THE ASSESSING OFFIC ER WORKED OUT RS.94/ - PER KG. BEING THE PRICE OF SUCH WASTAGE AND CONSEQUENTLY MADE THE ADDITION OF RS. 12,01,479/ - IN THE HANDS OF THE ASSESSEE ON ACCOUNT OF SALES OF WASTAGE . FOR THE JUSTIFICATION OF TAKING SUCH RATE OF WASTAGE AT RS.94/ - , IT WAS STA TED THAT THIS PRICE IS PURCHASE PRICE OF RAW MATERIAL VIDE PURCHASE BILL DATED 29.05.2008 WHERE 9000 KGS WERE PURCHASED AT RS.8,46,050/ - GIVING AVERAGE RATE OF THE RAW MATERIAL AT RS.94/ - PER KG. IN NUTSHELL, THE ASSESSING OFFICER HAS TAKEN PURCHASE PRICE OF RAW MATERIAL FOR THE PURPOSE OF MAKING ADDITION ON ACCOUNT OF SALE OF WASTAGE. THE ASSESSEE, BEING AGGRIEVED WITH THAT, PREFERRED APPEAL BEFORE THE CIT(A) WHO CONFIRMED THE ADDITION OF RS.12,01,479/ - HOLDING THAT THERE IS NO BASIS AND EVIDENCE SUBMITTED BY THE ASSESSEE REGARDING ANY PRICE OF WASTAGE AND THEREFORE, AO HAS CORRECTLY TAKEN THE RATE @ RS 94 / - PER KG. THE ASSESSEE BEING AGGRIEVED AGAINST THE ORDER OF CIT ( A) IS IN APPEAL BEFORE US IN GROUND NO. 2 OF APPEAL. 04 . THE LEARNED AR OF THE APPELLANT S UBMITTED THAT THE ACCOUNTS OF THE ASSESSEE ARE AUDITED AND THERE IS ONLY MINIMUM DOWNFALL IN THE NET PROFIT RATIO OF THE ASSESSEE. HE SUBMITTED THAT IN A.Y. 2008 - 09, THE ASSESSEE H A S SHOWN NET PROFIT OF 1.33% AND GROSS PROFIT AT 8.09% ITA NO. 4097/DEL./2014 4 COMPARED TO GROSS PRO FIT OF 7.68% AND NET PROFIT OF 1.27%. HE FURTHER SUBMITTED THAT FULL QUANTITATIVE DETAILS ARE MAINTAINED BY THE ASSESSEE . HE SUBMITTED THAT THERE IS NO SALE OF WASTAGE OUTSIDE THE BOOKS OF ACCOUNT. HE FURTHER SUBMITTED THAT IN ANY EVENT, THE RATE OF RS 94 / - PER KG. FOR THE SALE OF WASTAGE TAKEN BY THE AO IS QUITE HIGH AND IMAGINARY. FOR THIS, HE SUBMITTED THAT THE AVERAGE PURCHASE PRICE OF THE RAW MATERIAL IS APPROXIMATELY RS 80 / - PER KG. A GAINST THAT , THE AO HAS TAKEN ONE BILL AS A BASIS. HE FURTHER SUBMI TTED THAT IN ANY CASE EVEN IF IT IS HELD THAT THE ASSESSEE HAS SOLD WASTAGE OUTSIDE THE BOOKS OF ACCOUNT, THE PRICE OF SUCH WASTE MATERIAL CANNOT EXCEED RS 10 / - PER KG. 05 . THE LEARNED DR RELIED ON THE ORDER OF THE ASSESSING OFFICER AS WELL AS CIT(A) AND VEHEM ENTLY ARGUED THAT AS THE ASSESSEE HAS ALREADY ADMITTED ABOUT THE QUANTITY OF 12781.70 KG, THE ONLY DISPUTE REMAINS IS REGARDING THE PRICE OF SUCH WASTAGE. HE FURTHER SUBMITTED THAT THE WASTAGE ALSO CONTAINS THE RAW MATERIAL AND THEREFORE, THE A O AND THE CI T(A) HAVE RIGHTLY CONFIRMED THE ADDITION. 06 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AS WELL AS THE REASONS GIVEN BY THE AO AND THE CIT ( A) ON THIS ISSUE . THERE IS NO DISPUTE ABOUT THE QUANTITY OF WASTAGE DETERMINED BY AO. HOWEVER ASSESSEE IS AGGRIEVED BY THE RATE OF RS 94 / - PER KG ADOPTED BY AO FOR ITA NO. 4097/DEL./2014 5 DETERMINING THE INCOME OF THE ASSESSEE ON ACCOUNT OF SALE OF WASTAGE ON THE BASIS OF ONE BILL OF RAW MATERIAL. WE FULLY AGREE WITH THE CONTENTION OF THE AR THAT THE PRICE OF WASTAGE CANNOT BE EQUAL TO THE PRICE OF RAW MATERIAL FROM WHICH THE WASTAGE IS GENERATED. FURTHERMORE, AS THE RAW MATERIAL GOES INTO VARIOUS NUMBER OF RECYCLING, THE VALUE OF SUCH WASTAGE HAS TO BE VERY LOW. THEREFORE THE RATES ADOPTED BY AO IS ARBITRARY AND HIGHLY UNREASONABLE. SUBMISSION OF AR OF THE APPELLANT THAT THE PRICE OF SUCH WASTAGE CAN BE VERY MINIMAL IS ACCEPTABLE BUT RATES MENTIONED BY HIM OF APPROXIMATELY RS 10 / - PER KG., NO EVIDE NCE TOSUBSTANTIATE IS LAID BEFORE US OR BEFORE THE LOWER AUTHORITIES, HENCE, STATEMENT MADE ABOUT TH IS PRICE CANNOT BE ACCEPTED. THEREFORE, WE NEITHER ACCEPT THE PRICE DETERMINED BY THE AO AND CONFIRMED BY CIT (A ) NOR AS SUGGESTED BY THE AR. THEREFORE IN TH E INTEREST OF JUSTICE, WE SE T ASIDE THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO DETERMINE THE ACTUAL PRICE OF SUCH WASTAGE WHICH MAY BE DERIVED FROM EITHER THE PAST HISTORY OF THE BUSINESS OF ASSESSEE OR PREVAILING MARKET RATE OF SUCH WASTAGE GAT HERED FROM COMPARATIVE QUOTATION OF SUCH WASTAGE . HENCE , THE AO IS DIRECTED TO ESTIMATE RATE OFWASTAGE AFTER GIVING ADEQUATE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE THE PRICE OF WASTAGE BY PRODUCING RELEVANT EVIDENCE IN ITA NO. 4097/DEL./2014 6 THE FORM OF COMPARABLE SALES PRICES OR THE QUOTE FROM THE MARKET ABOUT PREVAILING RATES OF SUCH WASTAGE. IN THE RESULT GROUND NO. 2 OF THE APPEAL IS ALLOWED WITH THE ABOVE DIRECTIONS. 07 . GROUND NO. 3 IS AGAINST DISALLOWANCE OF RS.2,00,000/ - MADE BY THE ASS ESSING OFFICER OUT OF VARIOUS EXPENSES OF RS.31,25,031/ - . AO , CONSIDERING THE NATURE OF EXPENSES AND DOCUMENTS PRODUCED WHICH ARE NOT VERIFIABLE INDEPENDENTLY, DISALLOWED THIS AMOUNT TO PLUG POSSIBLE LEAKAGE OF REVENUE . ON APPEAL BEFORE THE LD. CIT(A), HE CONFIRMED DISALLOWANCE STATING THAT THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH WHETHER THEEXPENSES ARE WHOLLY AND EXCLUSIVELY INCURRED TOWARDS THE PURPOSE OF BUSINESS. HE FURTHER HELD THAT SUCH EXPENSES ARE ALSO NOT AMENABLE TO VERIFICATION AND DISALLOWAN CE IS NOMINAL . AGGRIEVED BY THIS, THE ASSESSEE IS IN APPEAL AGAINST THIS DISALLOWANCE VIDE GROUND NO. 3 OF APPEAL. 08 . BEFORE US, IT WAS SUBMITTED BY THE AR OF THE APPELLANT THAT THE ASSESSEE HAS PRODUCED BOOKS OF ACCOUNT, BILLS AND VOUCHERS DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON EXAMINATION OF THAT, NO DEFECTS HAVE BEEN POINTED OUT IN ANY OF THE VOUCHERS. DESPITE THIS, DISALLOWANCE OF RS.2,00,000/ - HAS BEEN MADE ON ADHOC BASIS. THEREFORE, THE SAME MAY BE DELETED. ITA NO. 4097/DEL./2014 7 09 . THE LD. DR RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 10 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. IT IS APPARENT THAT TOTAL EXPENSES OF RS.31,25,031/ - ARE GENERATOR EXPENSES, PRINTING EXPENSES, TELEPHONE EXPENSES, VEHICLE RUNNING EXPENSES, PACKING EXPENSES AND POWER & FUEL EXPENSES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS PRODUCED THE BOOKS OF ACCOUNTS WHICH ARE AUDITED U/S. 44AB OF THE INCOME - TAX ACT. WHILE MAKING ADHOC DISALLOWANCE, THE AO HAS NOT POINTED OUT A SINGLE INSTANCE OF EXPENSES WHICH ARE N OT WHOLLY AND EXCLUSIVELY INCURRED BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS. FURTHER, WE CANNOT SUBSCRIBE TO THE VIEW OF MAKING ADHOC DISALLOWANCE WITHOUT ANY INSTANCE WHICH PROVES ANY LEAKAGE OF REVENUE. THE CIT ( A) HAS ALSO CONFIRMED THE DISALLOWANCE WITHOUT GIVING ANY COGENT REASON AS THE DISALLOWANCE IS NOMINAL. ANY DISALLOWANCE OF EXPENDITURE H A S TO BE STRICTLY IN ACCORDANCE WITH THE PROVISIONS OF THE I NCOME TAX ACT BACKED BY PROPER AND ADEQUATE EVIDENCE AND CONFRONTING ASSESSEE ON THE SAME . INCOME - TAX ACT DOES NOT PRESCRIBE FOR ANY DISALLOWANCE IN ADHOC MANNER. THEREFORE, WE DELETE THE DISALLOWANCE OF RS.2,00,000/ - MADE ON LUMP SUM BASIS BY ITA NO. 4097/DEL./2014 8 THEAO AND REVERSE THE ORDER OF CIT(A) CONFIRMING SUCH ADDITION. IN THE RESULT, GROUND NO. 3 OF APPEAL IS ALLOWED. 11 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22.12.2015 . - SD/ - - SD/ - ( I.C. SUDHIR ) ( PRASHANT MAHARISHI ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 22.12.2015 *AKS/ - COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT ( A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT. REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI