Sanghi Jewellers Pvt.Ltd., Hyderabad V. DCIT, Circle-3(1), Hyderabad

ITA 676/HYD/2012

• Counselvise Citation: 67622514 RSA 2012
• Duration Of Justice: 2 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-11-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 03-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Keywords: Unexplained investment; Revision of order; Corroborative evidences; Assessment record
• Section: 263; 63; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 676/HYD/2012 ASSESSMENT YEAR : 2007-08 SANGHI JEWELLERS PVT. LTD., HYDERABAD PAN AAFCS5934D DY. COMMISSIONER OF INCOME- TAX, CIRCLE 3(1), HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI Y.RATNAKAR REVENUE BY SHRI D. SUDHAKAR RAO DATE OF HEARING 22-09-2014 DATE OF PRONOUNCEMENT 05-11-2014 O R D E R PER SAKTIJIT DEY, J.M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST OR DER DATED 28/03/12 PASSED BY THE COMMISSIONER OF INCOME-TAX- IV, HYDERABAD, U/S 263 OF THE ACT, FOR THE ASSESSMENT YEAR 2007-0 8. 2. BRIEFLY THE FACTS ARE, ASSESSEE A COMPANY IS ENG AGED IN THE BUSINESS OF MANUFACTURE AND SALE OF GOLD AND SILVER ORNAMENTS AND TRADING IN BULLION. FOR THE AY UNDER DISPUTE, ASSES SEE FILED ITS RETURN OF INCOME ON 28/10/07 DECLARING INCOME OF RS. 1,16, 35,128. ASSESSMENT IN CASE OF ASSESSEE WAS COMPLETED U/S 14 3(3) OF THE ACT VIDE ASSESSMENT ORDER DATED 30/11/2009 BY ACCEPTING THE INCOME DECLARED BY ASSESSEE. AFTER COMPLETION OF THE ASSES SMENT AS AFORESAID, CIT IN EXERCISE OF POWER CONFERRED U/S 2 63 OF THE ACT CALLED FOR THE ASSESSMENT RECORDS OF ASSESSEE RELAT ING TO THE 2 ITA NO 676/HYD/2012 SANGHI JEWELLERS P. LTD. AFORESAID AY AND AFTER PERUSING THE ASSESSMENT ORDE R AS WELL AS OTHER MATERIALS AVAILABLE ON RECORD WAS OF THE VIEW THAT THE ASSESSMENT ORDER PASSED IS ERRONEOUS AND PREJUDICIA L TO THE INTERESTS OF REVENUE DUE TO THE FOLLOWING REASONS: 1. ASSESSEE HAS CLAIMED WASTAGE IN RESPECT OF GOLD AND SILVER AT 7.53% AS AGAINST ACCEPTED STANDARD OF 2.5% TO 3% . AS THE AO HAS ACCEPTED THE CLAIM OF THE ASSESSEE EVEN IN A BSENCE OF ANY DOCUMENTARY EVIDENCE, ASSESSMENT ORDER IS ERRON EOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. 2. AO HAS FAILED TO BRING TO TAX THE DIFFERENCE BET WEEN STOCK AS PER THE BALANCE SHEET AND P&L A/C AS ON 31/03/07 AN D THE STOCK SHOWN TO THE BANK. 3. ANNEXURE-VIII AND SUB-LIST OF STOCK AS SUBMITTED ALONG WITH 3CD REPORT SHOWS THAT ASSESSEE HAS GIVEN JOB WORKS AS UNDER: S.NO. DESCRPTION UNIT QUANTITY 1 JOBWORK GOLD (GANJAM) GMS 88.370 2 JOBWORK GOLD (CHANDANA, VIZAG) GMS 2160.000 3 JOBWKR POLKI (MJP) CTS 59.750 4 JOBWORK STONES (CHAUHAN JEWELLERS) CTS 201.680 HOWEVER, CLOSING STOCK DETAILS AS PER ANNEXURE-VIII , OF THE AUDIT REPORT IN 3CD DO NOT SHOW ANY QUANTITATIVE DETAILS OF JOB WORKS GIVEN, HENCE, QUANTITY OF JOB WORK SHOULD HAVE BEEN ADDED TO THE CLOSING STOCK. 3. ON THE AFORESAID BASIS, CIT ISSUED A SHOW CAUSE NOTICE U/S 263 ON 13/09/11 DIRECTING ASSESSEE TO SHOW CAUSE WHY TH E ASSESSMENT SHALL NOT BE REVISED. IN RESPONSE TO THE SAID SHOW CAUSE NOTICE, ASSESSEE SUBMITTED HIS REPLY STATING THEREIN THAT E VERY MONTH STOCK TAKING IS DONE TO TAKE THE PRODUCTION LOSS. PHYSICA L STOCK PARTICULARS ARE TAKEN AND COMPARED WITH THE BOOK STOCK AS PER L EDGER IN THE USUAL COURSE OF MAINTENANCE OF ACCOUNTS. FURTHER, A SSESSEE COMPANY ROPED IN TWO COMPARABLE CASES I.E. M/S P. MANGATRAM JEWELLERS (P) 3 ITA NO 676/HYD/2012 SANGHI JEWELLERS P. LTD. LTD. & MURARI EXPORTS IN ORDER TO TAKE AN OBJECTIV E IDEA OF THE WASTAGE SUFFERED IN THIS LINE OF TRADE. IT WAS SUBM ITTED THAT ON COMPARATIVE ANALYSIS OF THE LOSS SUFFERED BY THE AF ORESAID TWO CONCERNS, IT WAS FOUND THAT THE LOSS SHOWN BY ASSES SEE IS WITHIN THE PERMISSIBLE LIMIT. SO FAR AS THE WASTAGE ON ACCOUNT OF BROKEN STONES, ASSESSEE SUBMITTED THAT WHILE REGULAR STONES ARE VA LUED AT RS. 52 PER CT. AND BROKEN STONES ARE VALUED AT RS. 25 PER CT., REJECTED AND BROKEN STONES CARRY NO VALUE. MOST OF THEM GO WASTE , HENCE, NO VALUE IS GIVEN TO BROKEN AND REJECTED STONES LYING IN STO CK. CIT, HOWEVER, DID NOT FIND MERIT IN THE AFORESAID SUBMISSIONS OF ASSESSEE. RELYING UPON THE NOTIFICATION ISSUED BY THE CENTRAL EXCISE DEPARTMENT VIDE NOTIFICATION NO. 146/89/CE, DATED 19/05/89, CIT CON CLUDED THAT WASTAGE OF GOLD AND SILVERY JEWELLERY THAT CAN REAS ONABLY BE ALLOWED IS @ 2.5% AND SIMILAR WASTAGE ON DIAMOND JEWELLERY IS ALSO TO BE ALLOWED AT 2.54% AND ACCORDINGLY DIRECTED AO TO RES TRICT THE WASTAGE LOSS TO THAT AMOUNT. 4. SO FAR AS DIFFERENCE IN VALUATION OF STOCK IS CO NCERNED, ASSESSEE SUBMITTED THAT THE STOCK AS ON 01/03/07 FU RNISHED TO THE BANK ARE AT THE MARKET VALUE AND NOT AT THE PURCHAS E PRICE AND THE MARKET VALUE WAS SHOWN AT COLUMN 5 OF THE SHOW CA USE NOTICE AS PURCHASE PRICE. IT WAS SUBMITTED, THE CLOSING STOCK AS ON 31/03/07 SHOWN AT RS. 9,78,65,066 IS AT THE MARKET PRICE AND THIS IS COMPARED WITH THE VALUE OF THE CLOSING STOCK AS ON 31/03/07 AT RS. 6,27,34,525 WHICH IS VALUED AT COST. ASSESSEE SUBMITTED THAT FO R THE PURPOSE OF ACCOUNT, THE STOCK VALUATION IS SHOWN AT COST WHERE AS FOR THE PURPOSE OF SUBMISSION OF STATEMENTS TO BANK FOR LOAN LIMIT THE VALUATION IS SHOWN AT MARKET VALUE AND NOT AT COST. FOR THIS REA SON THERE IS BOUND TO BE DIFFERENCE AND THIS DIFFERENCE CANNOT BE SUBS TITUTED FOR REWORKING OF THE TRADING ACCOUNT FOR THE SIMPLE REA SON THAT FOR THE PURPOSE OF ACCOUNTING OPENING STOCK AND CLOSING STO CK IS ALWAYS VALUED AT AVERAGE COST AND NOT AT MARKET VALUE. THE CIT, HOWEVER, WAS NOT CONVINCED WITH THE SUBMISSIONS OF ASSESSEE. RELYING UPON 4 ITA NO 676/HYD/2012 SANGHI JEWELLERS P. LTD. THE DISALLOWANCE MADE BY THE ITAT IN ASSESSEES OWN CASE FOR AY 2008-09, THE CIT DIRECTED THE AO TO BRING THE UNEXP LAINED STOCK TO TAX U/S 69B OF THE ACT. 5. SO FAR AS THE AMOUNT RECEIVED FROM JOB WORK, AS SESSEE SUBMITTED THAT STOCK DO NOT RELATE TO IT AND THEY BELONG TO FOUR DIFFERENT DEALERS WHOSE NAMES ARE ALSO MENTIONED. A SSESSEE STATED, DUE TO THIS REASON STOCKS RECEIVED FROM OUTSIDE DEA LERS FOR JOB WORK HAVE NOT BEEN INCLUDED IN THE CLOSING STOCK. IT WAS SUBMITTED THAT STOCK BELONGING TO THIRD PARTIES IS SHOWN AS RECEIP TS AND IN THE STOCK LEDGER THE GOLD RECEIVED EVEN FROM THE THIRD PARTIE S IS SHOWN AS RECEIPT BECAUSE THE STOCK LEDGER HAS TO SHOW ALL RE CEIPTS OF STOCK BUT FOR THE PURPOSE OF SHOWING CLOSING STOCK QUANTITY, THIS HAS BEEN REDUCED FROM THE STOCK OF GOLD. HOWEVER, THE CIT RE JECTED THE SUBMISSIONS OF ASSESSEE. HE OBSERVED THAT APART FRO M MAKING SOME BALD STATEMENTS THAT JOB WORK RECEIPTS ARE FROM OUT SIDE DEALERS ASSESSEE COULD NOT PRODUCE ANY EVIDENCE IN SUPPORT OF ITS CLAIM. HE FURTHER OBSERVED THAT IN THIS LINE OF BUSINESS, IT IS COMMON THAT ASSESSEES OWN GOLD IS GIVEN TO THE OUTSIDE WORKERS FOR MAKING ORNAMENTS. THE CIT MENTIONED THAT AS FOUND FROM P&L ACCOUNT, NO JOB WORK CHARGES ARE ADMITTED AS INCOME TO PROVE TH AT ASSESSEE REALLY UNDERTOOK JOB WORK FOR OTHERS. THEREFORE, AS SESSEES CONTENTION THAT JOB WORK RECEIPTS PERTAINED TO OUTSIDE DEALERS AND AS SUCH STOCK WAS NOT INCLUDED IN THE CLOSING STOCK FOR THE YEAR ENDING 31/03/07 IS NOT ACCEPTABLE IN ABSENCE OF SUPPORTING EVIDENCE. A CCORDINGLY, HE DIRECTED THE AO TO WORK OUT UNACCOUNTED JOB WORK RE CEIPTS AND BRING THEM TO TAX. 6. BEING AGGRIEVED OF THE AFORESAID ORDER, ASSESSEE IS BEFORE US RAISING AS MANY AS 15 GROUNDS BOTH ON LEGALITY OF E XERCISE OF JURISDICTION U/S 263 AS WELL AS ON MERITS OF THE DI RECTION GIVEN BY CIT IN RESPECT OF ADDITION/DISALLOWANCE. 5 ITA NO 676/HYD/2012 SANGHI JEWELLERS P. LTD. 7. GROUND NOS. 1 & 15 BEING GENERAL IN NATURE ARE N OT REQUIRED TO BE ADJUDICATED. IN THE WRITTEN SUBMISSION AS WELL A S AT THE TIME OF HEARING, LEARNED AR SUBMITTED THAT AS IN THE CONSEQ UENTIAL ORDER, AO HAS NOT MADE ANY ADDITION IN RESPECT OF STOCK RECEI VED ON JOB WORK, GROUND NOS. 10 & 11 HAVE BECOME REDUNDANT AND OF ME RE ACADEMIC NATURE. IN VIEW OF THIS GROUND NOS. 10 & 11 ARE DIS MISSED. GROUND NOS. 2 TO 5 ARE ON THE VALIDITY OF JURISDICTION IN EXERCISE OF POWER U/S 263 OF THE ACT. GROUND NOS. 6 TO 9 ARE IN RESPECT OF ADOPTION OF WASTAGE AT 2.5%. GROUND NOS. 12 & 13 ARE IN RESPECT OF ADDITION U/S 69B OF THE ACT. 8. THE LEARNED AR SUBMITTED BEFORE US THAT THE CIT CAN EXERCISE JURISDICTION U/S 263 ONLY IF THE ASSESSMENT ORDER P ASSED IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF REVENUE. HE SUBMITTED THAT IN COURSE OF THE ASSESSMENT PROCEEDING, AO HAS SPECIFICALLY ENQUIRED INTO THE WASTAGE IN PRODUCTION AND ONLY AF TER GETTING HIMSELF SATISFIED AFTER EXAMINING THE SUBMISSIONS OF ASSESS EE AND OTHER EVIDENCES BROUGHT ON RECORD ALLOWED ASSESSEES CLAI M. LEARNED AR, THEREFORE, SUBMITTED THAT AS AO HAS INQUIRED INTO T HE MATTER AND EXAMINED THE ISSUE OF WASTAGE IN PRODUCTION, JURISD ICTION U/S 263 CANNOT VEST WITH THE CIT EVEN IF THE ENQUIRY RELATI NG TO WASTAGE IS INADEQUATE. HE SUBMITTED THAT REVISIONARY POWER IS NOT AVAILABLE U/S 263 OF THE ACT FOR MAKING AN ESTIMATE OF WASTAGE IN PRODUCTION BASED ON SUBJECTIVE OPINION. LD. AR SUBMITTED THAT EVEN I N RESPECT OF DIFFERENCE BETWEEN THE STOCK STATEMENT SUBMITTED BE FORE THE BANK AUTHORITIES AND AS PER THE BOOKS OF ACCOUNT, ASSESS MENT ORDER CANNOT BE CONSIDERED TO BE ERRONEOUS AND PREJUDICIAL TO RE VENUE AS IT IS A DEBATABLE ISSUE ON WHICH THERE CAN BE TWO OPINIONS. FURTHER, ELABORATING HIS ARGUMENT, LEARNED AR SUBMITTED THAT IN RESPONSE TO A QUESTIONNAIRE ISSUED IN COURSE OF ASSESSMENT PROCEE DING, ASSESSEE SPECIFICALLY FURNISHING DETAILS OF WASTAGE IN MANUF ACTURING OF JEWELLERY. IN THIS CONTEXT, HE REFERRED TO THE QUES TIONNAIRE ISSUED BY AO, A COPY OF WHICH IS AT PAGE 22 OF PAPER BOOK AND ASSESSEES REPLY 6 ITA NO 676/HYD/2012 SANGHI JEWELLERS P. LTD. DATED 19/11/09 AT PAGE 23 OF THE PAPER BOOK. THUS, IT WAS SUBMITTED THAT AO HAVING CONDUCTED NECESSARY ENQUIRY WITH REG ARD TO WASTAGE IN MANUFACTURING AND HAS COMPLETED ASSESSMENT AFTER APPLYING HIS MIND TO THE FACTS AND MATERIALS ON RECORD, ASSESSME NT ORDER CANNOT BE CONSIDERED TO BE ERRONEOUS AND PREJUDICIAL TO TH E INTERESTS OF REVENUE ONLY BECAUSE THE ASSESSMENT ORDER DOES NOT REFER TO QUERY RAISED AND THE EXPLANATION FURNISHED. IN THIS CONTE XT, LEARNED AR SUBMITTED THAT EVEN ACCEPTING THAT IT IS A CASE OF INADEQUATE ENQUIRY ACCORDING TO CIT, BUT, STILL THEN THE PROVISION OF SECTION 263 CANNOT BE INVOKED. IN THIS CONTEXT, LEARNED AR RELIED UPON TH E FOLLOWING DECISIONS: 1. CIT VS. VIKAS POLYMER, 341 ITR 537 (DEL.) 2. CIT VS. SUNBEAM AUTO, 332 ITR 167 3. A.L.A. FARM VS. CIT, 189 ITR 285 (SC) 9. SO FAR AS INVOKING SECTION 263 ON THE GROUND OF NON CONSIDERATION OF THE ISSUE OF BRINGING TO TAX THE D IFFERENCE BETWEEN THE VALUE OF STOCK AS REPORTED TO THE BANK AND AS P ER THE BOOKS OF ACCOUNT, LEARNED AR SUBMITTED THAT PREPONDERANCE OF JUDICIAL OPINION IS THAT THE STOCK STATEMENTS SUBMITTED TO BANK ARE UNRELIABLE AS THE PURPOSE FOR FURNISHING SUCH STATEMENT IS DIFFERENT, HENCE, NO ADDITION CAN BE MADE ON THE BASIS OF THIS STATEMENT. LEARNED AR SUBMITTED THAT ONLY ON THE BASIS OF STOCK STATEMENT FURNISHED BEFORE THE BANK INFERENCE CANNOT BE DRAWN THAT THERE IS EXCESS STOC K. IN THIS CONTEXT, LEARNED AR RELIED ON THE FOLLOWING DECISIONS: 1. CIT VS. VEERDIP ROLLERS (P) LTD., 323 ITR 341 ( GUJ) 2. CIT VS. APCOM COMPUTERS (P) LTD., 292 ITR 744 ( GUJ) 3. CIT VS. RELAX FOOTWEAR, 259 ITR 744 (RAJ) 4. CIT VS. N. SWAMY, 241 ITR 363 (MAD.) 5. CIT VS. PADMAVATHI COTTON MILLS, 236 ITR 340 (M AD.) 6. CIT VS. ARROW EXIM (P) LTD., 230 CTR 292 (GUJ) 7. CIT VS. UDAIPUR CHEMICALS & FERTILIZERS (P) LTD. , 211 CTR 293 (GUJ.) 7 ITA NO 676/HYD/2012 SANGHI JEWELLERS P. LTD. 8. ASHOK KUMAR VS. ITO, 201 CTR 178 (J&K) 9. CIT VS. KHAN SIROHI STEEL ROLLING MILLS LTD., 20 0 CTR 595 (ALLAH.) 10. LEARNED AR FURTHER SUBMITTED THAT REVISIONARY P OWER U/S 263 DOES NOT LIE IN RESPECT OF MATTERS/ISSUES, WHICH AR E DEBATABLE IN NATURE AND ON WHICH THERE COULD BE DIFFERENT POINT OF VIEWS. IN THIS CONTEXT, LEARNED AR RELIED UPON THE FOLLOWING DECIS IONS: 1. CIT VS. MAX INDIA LTD., 295 ITR 282 (SC) 2. CIT VS. MUNJAL CASTINGS, 303 ITR 23 (P&H) 3. CIT VS. PANKAJ DHIRAJLAL DHRUVA, 305 ITR 332 (G UJ.) 4. SR KOSHTI VS. CIT, 276 ITR 165 (GUJ.) 5. CIT VS. ANSAL PROPERTIES & IND.(P) LTD., 315 IT R 225 (DEL.) 6. CIT VS. DLF LTD., 350 ITR 555 (DEL.) 7. CIT VS. GREENWORD CORPORATION, 314 ITR 81 (SC) THUS IT WAS SUBMITTED, EXERCISE OF POWER U/S 263 I S WITHOUT JURISDICTION AS THE ASSESSMENT ORDER CANNOT BE CONS IDERED TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE. 11. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED TH AT PERUSAL OF THE ASSESSMENT ORDER WOULD REVEAL THAT AO HAS NEITH ER MADE ANY ENQUIRY NOR APPLIED HIS MIND TO THE ISSUES RAISED B Y CIT IN THE ORDER PASSED U/S 263 OF THE ACT. HE SUBMITTED THAT ASSESS MENT ORDER IS CRYPTIC AND BEREFT OF REASONS. AS THE AO HAS FAILED TO CONSIDER THE ISSUES RAISED BY CIT IN THE ORDER PASSED U/S 263, A SSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE AND THE CIT IS JUSTIFIED IN REVISING THE SAME IN EXERCISE OF POWER U/S 263. 12. SO FAR AS THE MERITS OF THE ISSUE RELATING TO T HE DIRECTION OF CIT IN RESPECT OF QUANTIFYING WASTAGE AT 2.5% AND ALSO TREATING THE DIFFERENCE IN STOCK AS UNEXPLAINED INVESTMENT U/S 6 9B, LEARNED AR SUBMITTED THAT FOR THE AY 2007-08, ASSESSEE SUSTAIN ED PRODUCTION 8 ITA NO 676/HYD/2012 SANGHI JEWELLERS P. LTD. LOSS (WASTAGE OF GOLD IN MANUFACTURING OF STUDDED J EWELLERY AND ARTICLES) AGGREGATING TO 4645.70 GRAMS, WHICH WORKS OUT TO 6.504%. COMPUTATION OF WASTAGE MADE BY AO IS AS UNDER: OPENING STOCK 52,709.075 PURCHASES (LESS RETURNS) 7,26,790.815 7,79,499.890 ========== 1. SALES (LESS RETURNS) 663179.955 2. CONSUMED IN PLATING OF SILVER ITEMS 3970.620 3. CLOSING STOCK 65933.595 4. PRODUCTION LOSS (WASTAGE) 46415.720 779499.890 ========= PERCENTAGE OF LOSS (WASTAGE IN PRODUCTION) WASTAGE X 100 46415.720 X 100 ------------------ = -------------------- 6.504% PRODUCTION 713566.295 (7,79,499.890 GMS MINUS 65,933.595 GMS = 7,13,566.2 95) LEARNED AR SUBMITTED THAT WASTAGE IS NOT ONLY SUPPO RTED BY EVIDENCE BUT IS FULLY VERIFIABLE FROM THE DAY-TO-DAY STOCK R EGISTER MAINTAINED FOR RELEVANT FY WHERE MONTH-WISE PRODUCTION LOSS IN FIG URES IS RECORDED IN THE REGULAR COURSE OF BOOK KEEPING. IN THIS CONT EXT, LEARNED AR DREW OUR ATTENTION TO DAY-TO-DAY STOCK REGISTER FOR THE PERIOD 01/04/06 TO 31/03/07 AND MONTH-WISE PHYSICAL STOCK VERIFICAT ION SHEETS FROM APRIL, 06 TO MARCH, 07 SHOWING LOSS IN PRODUCTION. LEARNED AR SUBMITTED THAT WASTAGE NORMS PRESCRIBED IN FOREIGN TRADE POLICY FOR THE YEAR 2008-09 BY GOVERNMENT OF INDIA PRESCRIBES THE PERMISSIBLE WASTAGE FOR STUDDED JEWELLERY AND ARTICLES AT 9%. R EFERRING TO CUSTOMS NOTIFICATION NO. 177/94 DATED 21/10/94, LEA RNED AR SUBMITTED THAT AS PER THE SAID NOTIFICATION, THE PE RMITTED PERCENTAGE OF WASTAGE IN STUDDED JEWELLERY AND ARTICLES THEREO F IS 9%. HE ALSO REFERRED TO CUSTOMS NOTIFICATION NO. 277/1990 DATED 12/12/90 9 ITA NO 676/HYD/2012 SANGHI JEWELLERS P. LTD. SHOWING THE PERMITTED PERCENTAGE OF WASTAGE IN CASE OF STUDDED GOLD JEWELLERY AND ARTICLES THEREOF AT 9%. LEARNED AR SU BMITTED THAT CONSIDERING THE PERMITTED WASTAGE PERCENTAGE OF 9% AS FIXED BY CUSTOMS AUTHORITIES, THE ACTUAL WASTAGE OF ASSESSEE AT 6.504% IS WELL WITHIN THE ACCEPTED NORMS IN THE INDUSTRY. LEA RNED AR SUBMITTED FOR THE IMMEDIATELY SUCCEEDING YEAR I.E AY 2008-09, ITAT IN ASSESSEES OWN CASE HAS ACCEPTED WASTAGE AT 5% AS A GAINST ACTUAL WASTAGE OF 5.40%. LEARNED AR SUBMITTED THAT CIT WHI LE ESTIMATING WASTAGE AT 2.5% HAS RELIED UPON CENTRAL EXCISE DEPA RTMENTS CIRCULAR NO. 140/89-CE, DATED 19/05/89, WHICH NOT O NLY RUNS INCONSISTENT WITH THE SUBSEQUENT CIRCULARS ISSUED M UCH LATER, BUT, ALSO THE SAID CIRCULAR HAS BEEN RESCINDED LATER BY NOTIFICATION NO. NTF NO. 02/2007-CE, DATED 21/02/07 DUE TO ITS INCON SISTENCIES. HE, THEREFORE, SUBMITTED THAT THE CONCLUSION ARRIVED AT BY THE CIT BY RELYING UPON A RESCINDED NOTIFICATION CANNOT FORM B ASIS FOR ESTIMATING THE WASTAGE AT 2.5%. LEARNED AR SUBMITTED THAT THE DIRECTION OF CIT TO ESTIMATE WASTAGE AT 2.5% IS ARBITRARY AND UNJUST CONSIDERING THE FACT CENTRAL EXCISE DEPARTMENT ITSELF PRESCRIBES PE RMITTED WASTAGE LIMIT IN CASE OF STUDDED GOLD JEWELLERY AT 9%. HE, THEREFORE, SUBMITTED THAT DIRECTION OF CIT IS LEGALLY UNSUSTAINABLE. 13. AS FAR AS THE DIRECTION OF CIT TO ADD U/S 69B T HE DIFFERENCE IN STOCK BETWEEN THE STATEMENT FURNISHED TO THE BANK A ND AS PER BOOKS OF ACCOUNT, LEARNED AR SUBMITTED THAT DIRECTIONS IN THE ORDER PASSED U/S 263 IS TOTALLY DIFFERENT FROM THOSE MENTIONED I N THE SHOW CAUSE NOTICE. LEARNED AR SUBMITTED THAT REVISION ORDER U/ S 263 CANNOT TRAVERSE BEYOND THE ISSUES RAISED IN THE SHOW CAUSE NOTICE FOR WHICH EXPLANATION IS CALLED FOR. IT WAS SUBMITTED THAT SI NCE THE ORDER PASSED U/S 263 CONTAINS REASONS DIFFERENT FROM THOSE MENTI ONED IN THE SHOW CAUSE NOTICE FOR WHICH EXPLANATION WAS CALLED FOR, THE ENTIRE ORDER U/S 263 ON THIS ISSUE DESERVES TO BE ANNULLED. LEARNED AR SUBMITTED THAT THE FIGURES IN THE BOOKS OF ACCOUNT ARE CORRECT AS THEY ARE BASED ON PHYSICAL VERIFICATION AND ON ACTUAL BASIS WHEREAS T HE STATEMENT 10 ITA NO 676/HYD/2012 SANGHI JEWELLERS P. LTD. FURNISHED TO THE BANK CAN VARY AS THESE ARE ON THE BASIS OF ADHOC FIGURES. FURTHER EXPLAINING THE REASONS FOR SUCH VA RIATION, LEARNED AR STATED THAT REASONS FOR VARIATION ARE AS UNDER: A) EVERY MONTH STOCK STATEMENT HAS TO BE FILED BEFO RE 5 TH OF THE SUCCEEDING MONTH; B) THE TIME IS SO SHORT THAT THERE ARE BOUND TO BE SOME VARIATIONS IN THE QUANTITIES AND VALUATION DUE TO A RITHMETICAL AND CALCULATION ERRORS. C) THE STOCK FILED WITH THE BANK IS ACCEPTED EVEN I F THERE ARE ANY VARIATIONS AS LONG AS THEY ARE MARGINAL. D) THE ASSESSEE DOES NOT GO INTO PRECISE CALCULATIO NS WHILE PREPARING STOCK STATEMENT TO THE BANK E)MOSTLY QUANTITIES ARE ROUNDED OFF WHILE CALCULATI NG. F) EVERY EFFORT IS MADE TO RECTIFY ERROR IF ANY, WH ILE VALUING THE STOCKS FOR THE PURPOSE OF BOOKS. G) THE STOCK STATEMENTS FILED WITH THE BANKS ARE PR IMARILY MADE TO ASSURE THE BANK THAT THEIR LOANS ARE WELL SECURE D, AND THEREFORE, SMALL VARIATIONS ARE GENERALLY IGNORED F OR RECONCILIATION OF THE FIGURES STATED IN THE STATEME NT TO BANK WITH ACTUAL STOCKS. H) THE DIFFERENCE IN QUANTITY IS SO MINIMAL THAT IT CAN BE IGNORED AS OF NO CONSEQUENCE. 14. SO FAR AS THE REAL STONES ARE CONCERNED, LEARNE D AR SUBMITTED THAT THE DIFFERENCE WORKED OUT AT 46189 CT. IS COMP RISING OF REJECTED AND BROKEN STONES ONLY. LEARNED AR SUBMITTED THAT T HERE IS NO VALUE FOR REJECTED AND BROKEN STONES IN THE BOOKS OF ACCO UNT BECAUSE IT CARRIES NIL VALUE AND NO ONE BUYS THESE REJECTED AN D BROKEN STONES AS THEY ARE NOT FIT FOR ANY USE. IN THIS CONTEXT, I T WAS SUBMITTED THAT EVEN AO IN HIS CONSEQUENTIAL ORDER HAS TAKEN THE VA LUE OF REJECTED STONES AT RS. 43 PER CT. WHEREAS THE COST OF PURCHA SE IS ABOUT RS. 60 PER CT.. SIMILARLY, EXPLAINING THE DIFFERENCE IN S TOCK POSITION RELATING TO FLAT DIAMONDS, LEARNED AR SUBMITTED THAT THE QUA NTITY AS PER BOOKS IS CORRECT BECAUSE WHILE SUBMITTING STATEMENTS TO T HE BANK PRECISE QUANTITY OF STOCK TO THE LAST CT. IS NOT TALLIED DU E TO PAUCITY OF TIME AS THE STOCKS HAVE TO BE REPORTED BEFORE 5 TH OF EACH MONTH. THEREFORE, WHILE REPORTING THE STOCKS, QUANTITIES ARE ROUNDED OFF AND THE MANAGEMENT DOES NOT GO INTO VARIATIONS SO LONG AS THE TOTAL STOCK 11 ITA NO 676/HYD/2012 SANGHI JEWELLERS P. LTD. AVAILABLE IS MORE THAN ADEQUATE TO SAFEGUARD AS SEC URITY TO THE LOAN SANCTIONED TO IT BY THE BANK. 15. THE LEARNED DR, HOWEVER, JUSTIFIED THE DIRECTIO N OF CIT BOTH ON ESTIMATING WASTAGE AT 2.5% AS WELL AS DIRECTING AO TO ADD THE DIFFERENCE IN STOCK U/S 69B OF THE ACT. 16. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIAL ON RECORD AS WELL AS ORDERS OF REVENUE AUTHORITIES. WE HAVE ALSO CAREFULLY APPLIED OUR MIND TO THE DECISIO NS RELIED UPON BY THE PARTIES BEFORE US. AS FAR AS THE ISSUE OF REVIS ING THE ASSESSMENT ORDER ON ALLOWABILITY OF WASTAGE, WE ARE OF THE VIE W THAT THE CIT WAS NOT JUSTIFIED IN INVOKING HIS POWER U/S 263 OF THE ACT FOR THE REASONS STATED HEREINAFTER. AS CAN BE SEEN FROM THE QUESTI ONNAIRE ISSUED BY AO IN COURSE OF ASSESSMENT PROCEEDING, A COPY OF WH ICH IS AT PAGE 22 OF PAPER BOOK, AO IN QUESTION NO. 4 SPECIFICALLY ENQUIRED ABOUT THE WASTAGE IN MANUFACTURE OF GOLD AND SILVER JEWEL LERY. IN REPLY TO THE SAID QUESTIONNAIRE, ASSESSEE IN ITS REPLY DATED 10/11/09, A COPY OF WHICH IS AT PAGE 23 OF THE PAPER BOOK, EXPLAINED THE QUANTIFICATION OF WASTAGE/PRODUCTION LOSS. IN THAT VIEW OF THE MAT ER, AO HAVING ENQUIRED INTO THE ISSUE OF WASTAGE/MANUFACTURING LO SS AND HAVING PASSED THE ORDER AFTER APPLYING HIS MIND TO THE SUB MISSIONS OF ASSESSEE AS WELL AS OTHER FACTS BROUGHT ON RECORD C OMPLETED THE ASSESSMENT, ASSESSMENT ORDER CANNOT BE CONSIDERED T O BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE ONLY BE CAUSE THE CIT FEELS THAT THE WASTAGE CLAIMED BY ASSESSEE AT 6.504% IS O N THE HIGHER SIDE AND WASTAGE AT 2.5% IS TO BE ALLOWED. AS CAN BE SEE N FROM THE ORDER OF CIT, HE ACCEPTS THAT THERE IS WASTAGE/PRODUCTION LOSS IN MANUFACTURING OF GOLD AND SILVER JEWELLERY. HE ONL Y DISPUTES THE QUANTIFICATION OF SUCH WASTAGE BY ESTIMATING AT 2.5 %. IN OUR VIEW THAT CANNOT BE THE PURPOSE OF SECTION 263. AS ADEQUATELY EXPLAINED BY THE HONBLE SUPREME COURT IN CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CIT, 243 ITR 83 (SC). THIS IS MORE SO, CONSIDERING THE F ACT THAT THE 12 ITA NO 676/HYD/2012 SANGHI JEWELLERS P. LTD. NOTIFICATIONS ISSUED BY THE CENTRAL EXCISE DEPARTME NT ALSO PRESCRIBE WASTAGE LIMIT IN CASE OF STUDDED GOLD JEWLLERY AT 9 %. EVEN THE TRIBUNAL IN ASSESSEES OWN CASE IN AY 2008-09 HAS A CCEPTED THE WASTAGE AT 5%. IN THE AFORESAID VIEW OF THE MATTER, WHEN AO AFTER MAKING ENQUIRY AND APPLYING HIS MIND TO THE FACTS AND MATERIALS ON RECORD HAS ACCEPTED ASSESSEES CLAIM OF WASTAGE, IN VOKING OF POWER U/S 263 IS NOT VALID MERELY BECAUSE IN CITS VIEW, THE WASTAGE SHOULD BE ESTIMATED AT 2.5% INSTEAD OF 6.504% AS CLAIMED B Y ASSESSEE AND ACCEPTED BY AO. THOUGH, ACCEPTANCE OF ASSESSEES CL AIM MIGHT HAVE RESULTED IN SOME LOSS OF REVENUE, BUT EVERY LOSS OF REVENUE CANNOT MAKE THE ASSESSMENT ORDER ERRONEOUS. THEREFORE, AS ONE OF THE CONDITIONS OF SECTION 263 IS NOT SATISFIED INITIATI ON OF PROCEEDING U/S 263 ON THIS ISSUE IS NOT PROPER. 17. EVEN, SO FAR AS THE MERITS OF THE ISSUE IS CONC ERNED, AS CAN BE SEEN, ENTIRE BASIS OF ESTIMATING WASTAGE AT 2.5% IS RELYING UPON THE NOTIFICATION NO. 146/89-CE, DATED 19/05/89. HOWEVER , AS CAN BE SEEN FROM THE MATERIALS BROUGHT ON RECORD, THE AFORESAID NOTIFICATION WAS RESCINDED BY THE CENTRAL GOVT. VIDE NOTIFICATION NO . 02/07-CE DATED 21/02/07, A COPY OF WHICH IS AT PAGE 35 OF PAPER BO OK. THEREFORE, ESTIMATION OF WASTAGE AT 2.5% ON THE BASIS OF NOTIF ICATION, WHICH NO MORE SURVIVES, IN OUR VIEW, IS LEGALLY UNSUSTAINABL E. ACCORDINGLY, WE SET ASIDE THE DIRECTION OF CIT FOR ESTIMATING THE W ASTAGE AT 2.5% IN RESPECT OF GOLD, SILVER AND DIAMOND JEWELLERY WHILE RESTORING THE ORDER PASSED BY AO ON THIS ISSUE. HOWEVER, WE MAKE IT CLE AR THAT THIS ORDER CANNOT BE TAKEN AS A PRECEDENT FOR ALLOWING ASSESSE ES CLAIM OF WASTAGE IN ANY OTHER ASSESSMENT YEAR AS THE CLAIM O F WASTAGE IN EACH YEAR HAS TO BE CONSIDERED IN THE CONTEXT OF FA CTS AND MATERIALS INVOLVED IN THAT YEAR. 18. AS FAR AS THE DIRECTION OF CIT TO ADD THE DIFFE RENCE IN STOCK U/S 69B OF THE ACT, AFTER CONSIDERING THE SUBMISSIONS O F THE PARTIES AND EXAMINING THE FACTS AND MATERIALS ON RECORD, WE ARE OF THE VIEW THAT THE CIT WAS JUSTIFIED IN EXERCISING POWER U/S 263 O F THE ACT SO FAR AS 13 ITA NO 676/HYD/2012 SANGHI JEWELLERS P. LTD. THIS ISSUE IS CONCERNED. THERE IS NO DISPUTE TO THE FACT THAT THERE IS A DIFFERENCE BETWEEN STOCK AS PER THE STATEMENT FURNI SHED BEFORE THE BANK AND AS MENTIONED IN THE BOOKS OF ACCOUNT. THER EFORE, IT IS THE DUTY OF AO TO EXAMINE THIS ISSUE THOUGH IT MAY BE A FACT THAT THE DIFFERENCE IN STOCK FURNISHED BEFORE THE BANK AND A S MENTIONED IN THE BOOKS OF ACCOUNT BY ITSELF CANNOT BE TREATED AS UNE XPLAINED INVESTMENT AND SUBJECT MATTER FOR ADDITION, BUT, IT GOES WITHOUT SAYING THAT IT IS SUBJECT TO VERIFICATION BY AO AS THE AO SHOULD SATISFY HIMSELF THAT THE STOCK FIGURE MENTIONED IN THE BOOKS OF ACC OUNT IS CORRECT AND NOT WHAT IS STATED BEFORE THE BANK. ON A PERUSAL OF THE ASSESSMENT ORDER, IT IS VERY MUCH CLEAR THAT THE AO HAS NOT ME NTIONED ANYTHING ABOUT THE DIFFERENCE IN STOCK AS PER THE STATEMENT FURNISHED BEFORE THE BANK AND AS APPEARING IN THE BOOKS OF ACCOUNT. EVEN IN THE QUESTIONNAIRE ISSUED BY THE AO IN COURSE OF ASSESSM ENT PROCEEDING, THERE IS NO REFERENCE TO THIS ISSUE. THEREFORE, THE AO HAVING NOT MADE ANY ENQUIRY IN RESPECT OF DIFFERENCE BETWEEN STOCK AS PER THE BOOKS OF ACCOUNT AND AS SUBMITTED IN THE STATEMENT FURNIS HED BEFORE THE BANK, THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUD ICIAL TO THE INTERESTS OF REVENUE. AS NEITHER ASSESSMENT ORDER N OR ANY OTHER DOCUMENT SUBMITTED BEFORE US SHOWS ANY ENQUIRY MADE BY AO IN RESPECT OF DIFFERENCE BETWEEN THE STOCK SHOWN IN TH E STATEMENT FURNISHED BEFORE THE BANK AND AS MENTIONED IN THE B OOKS OF ACCOUNT, ASSESSMENT ORDER IS NOT ONLY ERRONEOUS BUT ALSO PRE JUDICIAL TO THE INTERESTS OF REVENUE. THEREFORE, TO THAT EXTENT, TH E CIT IS CORRECT IN INVOKING HIS POWERS U/S 263 OF THE ACT. HOWEVER, WE ARE OF THE VIEW THAT CIT IS NOT JUSTIFIED IN STRAIGHTAWAY DIRECTING THE AO TO ADD THE DIFFERENCE IN STOCK U/S 69B OF THE ACT WITHOUT PROP ERLY VERIFYING ASSESSEES CLAIM. THE CIT WOULD HAVE DONE WELL TO DIRECT THE AO TO EXAMINE THE ISSUE THEREBY GIVING OPPORTUNITY TO ASS ESSEE TO ESTABLISH THAT THE STOCK STATEMENT FURNISHED BEFORE THE BANK AUTHORITIES IS AS PER THE MARKET PRICE WHEREAS THE STOCK MENTIONED IN THE BOOKS OF ACCOUNT IS AS PER THE COST. IN VIEW OF THE AFORESA ID, WE ARE INCLINED TO SET ASIDE THE ORDER OF CIT ON THIS ISSUE BY DIRE CTING THE AO TO 14 ITA NO 676/HYD/2012 SANGHI JEWELLERS P. LTD. EXAMINE THE ISSUE AFRESH ON THE BASIS OF ASSESSEES EXPLANATION ON DIFFERENCE IN STOCK AS FURNISHED BEFORE THE BANK AN D AS REFLECTED IN THE BOOKS OF ACCOUNT. WHILE EXAMINING SUCH ISSUE, A O ALSO MUST KEEP IN VIEW THE RATIO LAID DOWN IN DECISIONS RELIED UPO N BY ASSESSEE TO THE EFFECT THAT STOCK STATEMENT FURNISHED BEFORE THE BA NK CANNOT BE CONSIDERED FOR MAKING ADDITION U/S 69B. IN VIEW OF THE AFORESAID, WE MODIFY THE IMPUGNED ORDER OF CIT BY DIRECTING THE A O TO RESTRICT HIMSELF TO THE ISSUE OF EXAMINING THE DIFFERENCE BE TWEEN THE STOCK FURNISHED IN THE STATEMENT BEFORE THE BANK AND AS M ENTIONED IN THE BOOKS OF ACCOUNT. 19. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 05/11/2014. SD/- SD/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JU DICIAL MEMBER HYDERABAD, DATED: 5 TH NOVEMBER, 2014 KV COPY TO:- 1) M/S SANGHI JEWELLERS PVT. LTD., 3060290/19, 1 ST FLOOR, SADHANA BUILDING, HYDERGUDA, HYDERABAD 2) DCIT, CIRCLE 3(1), HYDERABAD 3) CIT-III, HYDERABAD 4) ADDL.CITI, RANGE 3, HYDERABAD 5)THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDER ABAD. 15 ITA NO 676/HYD/2012 SANGHI JEWELLERS P. LTD. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S. 2. DRAFT PLACED BEFORE AUTHOR SR.P.S 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER VP 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S. 6. KEPT FOR PRONOUNCEMENT ON SR.P S. 7. FILE SENT TO THE BENCH CLERK SR.P.S. 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER