DCIT, Ludhiana V. M/s Munish Forge (P) Ltd., Ludhiana

ITA 86/CHANDI/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6149 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 04-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJINDER SINGH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 86/CHD/2013 ASSESSMENT YEARS : 2009-10 D.C.I.T. CENTRAL CIRCLE 1 VS. M/S MUNISH FORGE (P) LTD LUDHIANA C-128, PHASE V FOCAL POINT LUDHIANA AABCM 2155Q CROSS OBJECTIONS NO. 10/CHD/20113 ARISING OUT OF ITA NO. 86/CHD/2013 ASSESSMENT YEARS : 2009-10 M/S MUNISH FORGE (P) LTD VS. D.C.I.T. CENTRAL CIRC LE 1 LUDHIANA LUDHIANA (APPELLANT) (RESPONDENT) REVENUE BY: SHRI RAJINDER SINGH ASSESSEE BY: SHRI ASH WANI KUMAR DATE OF HEARING 15.5.2014 DATE OF PRONOUNCEMENT 9.6.2014 O R D E R PER T.R. SOOD, A.M THE APPEAL IS DIRECTED AGAINST THE ORDER DATED 1.11 .2012 OF THE LD CIT(A)-I, LUDHIANA AND THE ASSESSEE HAS FILED CR OSS OBJECTIONS AGAINST THE ORDER OF LD. CIT(A). ITA NO. 86/CHD/2013 REVENUES APPEAL 2. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS: 1 THAT THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 5107303/- MADE BY THE ASSESSING OFF ICER ON ACCOUNT OF ADVANCE TO SISTER CONCERN FREE OF INTEREST AGAINST A SALE AGREEMENT DATED 28.3.2008 FOR PURCHASE OF LAND FOR NON BUSINESS PUR POSES KEEPING IN VIEW THE SPECIFIC FINDINGS GIVEN IN THE ASSESSMENT ORDER . 2 THAT THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FACTS BY NOT APPRECIATING THE FACTS THAT THE ASSESSEE-COMPANY IS NOT ENGAGED IN REGULAR 2 BUSINESS OF SALE PURCHASE OF LAND AND THE DEAL UNDE R CONSIDERATION CANNOT BE TERMED FOR BUSINESS PURPOSES. 3 THAT THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FACTS IN NOT APPRECIATING THE FACTS THAT THE AGREEMENT OF PROPER TY DID NOT MATERIALIZE AND MOREOVER AS PER SETTLED LAW, EACH YEAR IS A SEPARAT E INDEPENDENT YEAR AND INCOME OF THE ASSESSEE IS TO BE WORKED OUT ON THE B ASIS OF FACTS PERTAINING TO THE YEAR UNDER CONSIDERATION. 4 THAT THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 3068600/- MADE BY THE ASSESSING OFF ICER ON ACCOUNT OF SUPPRESSION OF PRODUCTION OF FLANGES BY 1.85% IN TH E GUISE OF SCRAP HOLDING THAT THERE IS NO FALL IN GROSS PROFIT RATE AND THE HIGHER GENERATION OF SCRAP CAN ONLY BE ATTRIBUTABLE TO THE INEFFICIENCY OF PRO DUCTION PROCESS KEEPING IN VIEW THE SPECIFIC FINDINGS GIVEN IN THE ASSESSMENT ORDER. 5 THAT THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FACTS BY NOT APPRECIATING THE FACTS THAT THE ADDITION CAN BE MAD E ON ACCOUNT OF DIFFERENCE IN PRODUCTION UNDER INCOME TAX ACT IN RE SPECT OF ITEMS WHICH ARE SUBJECT TO EXAMINATION BY THE EXCISE AUTHORITIES. 6 THAT THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FACTS BY NOT APPRECIATING THE FACTS THAT NEITHER THE QUANTITATIV E DETAILS OF CONSUMPTION OF RAW MATERIAL NOR THE PRODUCTION OF ITEMWISE FINISHE D GOODS WAS FURNISHED DURING THE ASSESSMENT PROCEEDINGS. AS SUCH TRUE MA NUFACTURING RESULTS WERE NOT VERIFIABLE. 3 GROUNDS NO. 1 TO 3 - AFTER HEARING BOTH THE PARTI ES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT T HE ASSESSEE HAS GIVEN AN ADVANCE OF RS. 42560857/- TO ITS SISTER CO NCERN I.E. M/S MUNISH PROMOTERS AND DEVELOPERS PVT LTD. LUDHIANA. IT WAS FURTHER NOTED THAT THIS ADVANCE WAS PAID FOR PURCHASE OF LA ND BUT NO LAND WAS PURCHASED DURING THE YEAR. ON ENQUIRY IT WAS EXPLA INED THAT THE ASSESSEE HAS GIVEN THIS ADVANCE FOR PURCHASE OF LAN D BUT SINCE THE DEAL COULD NOT MATURE AND SAME WAS CANCELLED AND ON CANCELLATION OF THE SAME RS. 50 LAKHS WAS RECEIVED IN NEXT YEAR WHI CH HAS ALREADY BEEN DECLARED AS PROFIT. THE ASSESSING OFFICER OBS ERVED THAT EACH YEAR IS SEPARATE AND INDIVIDUAL AND THEREFORE ADVANCE HA S TO BE TREATED AS INTEREST FREE ADVANCE AND ACCORDINGLY INTEREST @ 12 % AMOUNTING TO RS. 5107303/- WAS DISALLOWED. 4 ON APPEAL THE SUBMISSIONS MADE BEFORE THE ASSESSI NG OFFICER WERE REITERATED. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAD 3 INTEREST FREE FUNDS ALSO. IN ANY CASE THE DISALLOW ANCE OF INTEREST WAS NOT CORRECTLY CALCULATED BECAUSE INTEREST ON DISALL OWANCE SHOULD HAVE BEEN CALCULATED ON THE BASIS OF DAYS ON WHICH THE A DVANCE WAS GIVEN 5 THE LD. CIT(A) FOUND FORCE IN THE SUBMISSIONS AND OBSERVED THAT SINCE ADVANCE WAS GIVEN FOR BUSINESS PURPOSES THER EFORE NO DISALLOWANCE WAS MAINTAINABLE AND ACCORDINGLY DELET ED THE ADDITION. 6 BEFORE US. THE LD. D.R. FOR THE REVENUE SUBMITTED THAT THERE WAS NO BUSINESS PURPOSES IN PURCHASING THE LAND AND THE REFORE DISALLOWANCE WAS JUSTIFIED. 7 ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A). HE ALS O REFERRED TO THE COPY OF AGREEMENT ENTERED WITH THE SISTER CONCERN F OR PURCHASE OF LAND. IT WAS CLEARLY PROVIDED IN THE SAID AGREEMENT THAT IN CASE DEAL DID NOT MATURE THEN M/S MUNISH PROMOTERS AND DEVELOPERS PVT LTD, LUDHIANA, WAS LIABLE TO PAY A SUM OF RS. 50 LAKHS. SINCE THE DEAL DID NOT MATURE A SUM OF RS. 50 LAKHS WAS RECEIVED FROM SISTER CONC ERN WHICH WAS SHOWN AS INCOME WHICH BECOMES CLEAR FROM COPY OF BA LANCE SHEET FOR NEXT YEAR WHICH IS FIELD AT PAGE 3 TO 6 OF PAPER BO OK. 8 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND T HAT THIS ISSUE WAS ADJUDICATED BY THE LD. CIT(A) VIDE PARA 7 WHICH REA DS AS UNDER: I HAVE CONSIDERED THE BASIS OF ADDITION MADE BY TH E ASSESSING OFFICER AND THE ARGUMENTS OF THE A.R ON THE ISSUE. THE ASSESSI NG OFFICER HAS MADE THE DISALLOWANCE ON THE GROUND THAT THE ASSESSEE HAD GI VEN INTEREST FREE ADVANCE TO ITS CONCERN WITHOUT ANY BUSINESS PURPOSE BUT HAS NOT BEEN ABLE TO SHOW AS TO HOW THE ADVANCE GIVEN IN PURSUANCE OF A WRITTEN AGREEMENT TO PURCHASE A PROPERTY COULD BE TERMED AS FOR NON BUSI NESS PURPOSE. IT IS ALSO TO BE NOTED THAT THE AGREEMENT POSTULATED A COMPENS ATION OF RS. 50 LAKHS IN CASE OF NON EXECUTION OF THE AGREEMENT AND THE ASSE SSEE-COMPANY HAD RECEIVED THE SAID COMPENSATION IN THE NEXT FINANCIA L YEAR WHICH HAS BEEN SHOWN AS MISCELLANEOUS INCOME AS WELL. IN THE GIVE N FACTUAL MATRIX IT IS NOT UNDERSTOOD HOW THE SAID ADVANCE COULD BE TREATED AS FOR NON BUSINESS PURPOSES ESPECIALLY WHEN THE ASSESSEE HAS BEEN COMP ENSATED TO THE EXTENT OF RS. 50 LAKHS EVEN THOUGH THE AMOUNT ADVANCED WAS FOR NOT FULL YEAR AND AS PER CALCULATION SUBMITTED ABOVE AMOUNTED TO ONLY RS. 2235143/-. IN THE CIRCUMSTANCES IT BECOMES APPARENT THAT THE FACTS OF THE CASE ARE COVERED BY 4 THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF M/S S.A. BUILDERS VCIT, 206 CTR 631 AS THE AMOUNT ADVANCED FREE OF IN TEREST IS CLEARLY FOR THE PURPOSE OF BUSINESS AND NOTHING HAS BEEN BROUGH T ON RECORD TO SHOW IT OTHERWISE. THEREFORE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS DIRECTED TO BE DELETED. THE LD. CIT(A) HAS CORRECTLY DELETED THE ADDITION B ECAUSE THE ADVANCE WAS PAID NOT AS INTEREST FREE ADVANCE BUT FOR PURCH ASE OF LAND. SUCH LAND COULD HAVE BEEN USED FOR THE ASSESSEE FOR ANY PURPOSE AND IT CANNOT BE SAID THAT THE ADVANCE WAS WITHOUT ANY BUS INESS PURPOSES. IN ANY CASE THE ASSESSEE HAS RECEIVED A SUM OF RS. 50 LAKHS ON CANCELLATION OF THIS CONTRACT WHICH HAS ALREADY BEE N DULY DISCLOSED AS INCOME IN THE NEXT YEAR THEREFORE WE FIND NOTHING W RONG WITH THE ORDER OF THE LD. CIT(A) AND CONFIRM THE SAME. 9 GROUNDS NO. 4 TO 6 - AFTER HEARING BOTH THE PARTI ES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE WAS MANUFACTURING ITEMS LIKE FLANGES, COU P LOCK, FENCE, M LOCK, PC AND DC ETC. FOR MANUFACTURING OF THESE IT EMS THE ASSESSEE WAS USING RAW MATERIAL SUCH AS ROUNDS, STRIPS, BILL ETS, PIPES, WIRE RODS ETC. WHICH WERE BEING PURCHASED BY WEIGHT WHEREAS F INISHED GOODS WERE BEING COUNTED IN NUMBERS AND THEREFORE NO QUA NTITATIVE DETAILS WERE GIVEN IN AUDIT REPORT. HE FURTHER NOTED THAT WASTAGE IN THIS YEAR WAS 36% WHEREAS IN THE EARLIER YEAR WASTAGE WAS 23. 44%. THE ASSESSING OFFICER DIRECTED THE ASSESSEE TO EXPLAIN THE HIGHER WASTAGE. IN RESPONSE TO WHICH IT WAS STATED VIDE LETTER DATE D 2.12.2011 AND 23.12.2011 AS UNDER: LETTER DATED 2.12.2011 RECEIVED ON 5.12.2011 REGARDING PERCENTAGE OF SCRAP GENERATION WHICH IS 3 6% FOR THE YEAR UNDER CONSIDERATION AS COMPARE TO 23.44% OF PREVIOUS YEAR ., IT IS SUBMITTED THAT THE PERCENTAGE OF SCRAP GENERATION IS CUMULATIVE FI GURE COMPRISE OF SCRAP GENERATED AGAINST FLANGES, COUP LOCK, FENCE, M LOCK , PUT LOCK COUPLER ETC. DUE TO LOWER SCRAP GENERATION AGAINST M. LOCK PRODUCTION AND HIGHER AMOUNT OF CONSUMPTION OF RAW MATERIAL THE AVERAGE F IGURE OF SCRAP GENERATION HAS BEEN DRASTICALLY CAME DOWN IN THE FI NANCIAL YEAR 2007-08. IF WE ARE EXCLUDING THE CONSUMPTION OF RAW MATERIAL AGAINST PRODUCTS HAVING LOWER GENERATION OF SCRAP THAN THE MAIN RAW MATERIA L FOR FLANGE PRODUCTION IS REDUCED. AFTER EXCLUDING THIS FIGURE THE SCRAP GENERATION THE FLANGES IS 33.94% FOR THE FINANCIAL YEAR 2007-08 AS COMPARED T O 35.79% FOR THE FINANCIAL YEAR 2008-09. THE INCREASE OF 1.85% OF S CRAP GENERATION AGAINST 5 THE PRODUCTION OF FLANGES IS ON ACCOUNT OF DIFFEREN T SIZE AND DESIGN OF FLANGES PRODUCED. LETTER DATED NIL RECEIVED ON 23.12.2011 REGARDING VARIATION IN SCRAP GENERATION WHICH IS 3 6% FOR THE YEAR UNDER CONSIDERATION AS COMPARED TO 23.44% OF IMMEDIATELY PRECEDING YEAR. VIDE LETTER DATED 2.12.2011 WE HAVE EXPLAINED THE REASON OF VARIATION IN SCRAP GENERATION. IN THIS REGARD WE FURTHER SUBMIT THAT THE PERCENTAGE OF SCRAP GENERATION IS CALCULATED AS UNDER: F.Y 2007-08 F.Y 2008-09 (IN TONS) (IN TONS) PRODUCTION RAW MATERIAL SCRAP %AGE PRODUCTION RAW MATERIAL SCRAP %AGE FLANGE 4517 1533 33.94% FLANGE 5873 2102 35.79% COUP LOCK 1125 11 1% COUP LOCK 57 0.60 1% FENCE 613 6 1% FENCE 140 1.40 1% M-LOCK 2853 28 1% M-LOCK 264 0.64 1% PC & GC 1244 206 20% PC & GC 39 7 20% SUB TOTAL 10352 1784 SUB TOTAL 6373 2164.64 OTHERS 3116 1373 44% OTHERS 2334 1023 43.65% TOTAL 13468 3157 23.44% TOTAL 8707 3134.64 36% A PERUSAL OF ABOVE DETAILS CLEARLY INDICATES THAT A GAINST THE PRODUCTION OF FLANGES THERE IS INCREASE OF 1.85% SCRAP GENERATION . FLANGES ARE BEING MANUFACTURED ON BOTH MANUALLY OPERATED MACHINE AS W ELL AS CNC MACHINE. THE COMPANY IS EXPORTING THE FLANGES IN VARIOUS COU NTRIES WHERE QUALITY OF PRODUCT IS VERY VERY IMPORTANT. DURING THE COURSE OF PRODUCTION SOME TIMES QUALITY GOODS ARE PRODUCED THEREFORE TREATED AS THE PRODUCT AS SCRAP. THIS IS ALSO ONE OF THE FACTORS FOR GENERATING HIGHER PE RCENTAGE OF SCRAP. SINCE THE COMPANY IS PRODUCING EXCISABLE RECORDS WHERE FO LLOWING REGISTER IS BEING MAINTAINED MANDATORY AS PRESCRIBED BY EXCISE LAW: A RG 23-A PART I THIS REGISTER IS RECORD OF RAW MAT ERIAL RECEIVED AND ISSUED FOR PRODUCTION. THIS REGISTER IS MAINTAINED ON DAILY TRANSACTION BASIS. B RG-1 THIS REGISTER IS RECORD OF DAY TO DAY PRODUC TION AND SALE. C RG-1 THIS REGISTER IS RECORD OF SCRAP GENERATED A ND SALE. THIS IS RECORDED ON DAILY BASIS. AS THESE REGISTERS ARE PRESCRIBED RECORDS AND TIME TO TIME SIGNED BY THE INSPECTOR OF AUDIT PARTY OF EXCISE DEPARTMENT. I A M ENCLOSING THE PHOTOCOPY OF THE PAGE WHERE AUDIT PARTY HAS GIVEN H IS COMMENTS ON THE REGISTER. WE ARE ALSO ENCLOSING THE PHOTO COPY OF THE RECORDS SHOWING DAY TO DAY GENERATION. SINCE THE SCRAP GENERATION HAS B EEN RECORDED ON DAY TO DAY BASIS AND ALSO THE SAME HAS BEEN INSPECTED AND AUDITED BY THE AUDIT PARTY OF THE EXCISE DEPARTMENT HENCE NO AMBIGUITY C OULD BE DRAWN AS TO THE AUTHENTICITY OF SCRAP GENERATION. THE COMPANY HAS M ANUFACTURING FACILITIES OF VARIOUS PRODUCTS HAVING BEEN OPERATED BOTH BY SK ILLED AND UNSKILLED LABOUR AND THAT TO UNDER STRICT SUPERVISION OF EXCI SE DEPARTMENT HENCE OF ANY MANIPULATION OF SCRAP GENERATION IS NOT ARISES. VARIATION OF 1.85% SCRAP GENERATION IS NOT VERY ALARMING KEEPING IN VI EW THE SIZE OF OPERATION OF THE COMPANY, UNSKILLED WORKER INVOLVED IN MANUFA CTURING PROCESS AND MORE IMPORTANTLY SCRAP GENERATION RECORDED ON THE D AY TO DAY BASIS IN THE PRESCRIBED AND AUTHENTICATED BOOKS. IT IS THEREFOR E REQUESTED THAT KINDLY DONT DRAW ANY ADVERSE VIEW. 6 AFTER CONSIDERING ABOVE EXPLANATION THE ASSESSING O FFICER NOTED THAT THE ASSESSEE ACCEPTED EXCESS SCRAP GENERATION BY 1. 85% VIDE LETTER DATED 2.12.2011. HE FURTHER NOTED THAT THOUGH THE ASSESSEE HAS GIVEN QUANTITATIVE DETAIL OF CONSUMPTION OF RAW MATERIAL IN MANUFACTURING DIFFERENT ITEMS BY WEIGHT BUT THE ASSESSEE SKIPPED TO FURNISH THE DETAILS OF PARTICULAR ITEMS MANUFACTURED OUT OF SU CH RAW MATERIAL, THEREFORE GENUINENESS OF HIGHER WASTAGE WAS NOT VE RIFIABLE. NO FORCE WAS FOUND IN THE ARGUMENT THAT THE ASSESSEE HAS INS TALLED CNC MACHINES. IN THIS BACKGROUND THE ASSESSING OFFICER MADE DISALLOWANCE OF EXCESS WASTAGE WHICH HAS BEEN COMPUTED AT PARA 4 .5 WHICH IS AS UNDER: IN VIEW OF THE ABOVE FACTS, THERE IS NO MERIT IN T HE CONTENTION OF THE ASSESSEE AND HENCE, THE SAME IS LIABLE TO BE REJECT ED. IT APPEARS THAT THE ASSESSEE HAS SUPPRESSED THE PRODUCTION OF FLANGES BY 1.85% IN THE GUISE OF SCRAP AND AS SUCH, THE DIFFERENCE B ETWEEN THE VALUE OF FINISHED GOODS OF FLANGES AND THE S CRAP VALUE IS T O BE ADDED TO THE INCOME RETURNED. AS PER THE FACTS ON RECORD, THE AS SESSEE HAS DECLARED THE GENERATION OF SCRAP AT 2102 METRIC TON S, OUT OF THE CONSUMPTION OF RAW MATERIAL OF 5873 METRIC TONS. T HUS, @ 1.85% THE ASSESSEE HAS DECLARED EXCESS SCRAP OF 108.700 METRI C TONS. THE AVERAGE RATE OF RAW MATERIAL IS RS. 37143/- PER MET RIC TON. THE SALE PRICE OF FINISHED GOODS BY APPLYING THE GROSS PROFI T RATE OF 17.53% AS DECLARED, WORKS OUT TO IS 43.66 PER KG. THE VALUE O F S CRAP HAS BEEN SHOWN AT RS. 15.43 PER KG. THUS THE DIFFERENCE BET WEEN THE PRICE OF FINISHED GOODS AND SCRAP COME TO BE RS. 28.23 PER K G. THEREFORE THE VALUE OF 108.700 METRIC TON, WHICH HAS BEEN SUPPRES SED, WORKS OUT TO RS. 3068600/-. 10 ON APPEAL THE SUBMISSIONS MADE BEFORE THE ASSESS ING OFFICER WERE REITERATED. FURTHER DETAILS REGARDING SCRAP G ENERATION WERE FILED WHICH ARE AS UNDER: F.Y 2007-08 F.Y 2008-09 PRODUCTION RAW MATERIAL SCRAP %AGE PRODUCTION RAW MATERIAL SCRAP %AGE FLANGE 4517 1533 33.94% FLANGE 5873 2102 35.79% COUP LOCK 1125 11 1% COUP LOCK 57 0.60 1% FENCE 613 6 1% FENCE 140 1.40 1% M-LOCK 2853 28 1% M-LOCK 264 0.64 1% PC & GC 1244 206 20% PC & GC 39 7 20% SUB TOTAL 10352 1784 SUB TOTAL 6373 2164.64 OTHERS 3116 1373 44% OTHERS 2334 1023 43.65% TOTAL 13468 3157 23.44% TOTAL 8707 3134.64 36% 7 THE LD. CIT(A) FOUND FORCE IN THE SUBMISSIONS AND D ELETED THE ADDITION. 11 BEFORE US. THE LD. D.R. FOR THE REVENUE STRONGLY SUPPORTED THE ORDER OF ASSESSING OFFICER. 12 ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE SUPPORTED THE IMPUGNED ORDER AND FURTHER SUBMITTED THAT THE A SSESSING OFFICER HAS ACCEPTED THE BOOKS OF ACCOUNTS THEREFORE PURCHASE A ND SALE WAS NOT DOUBTED THEN THERE WAS NO REASON FOR MAKING FURTHE R ADDITION ON ACCOUNT OF EXCESS SCRAP WITHOUT FINDING ANY FAULT W ITH THE PURCHASE AND SALE. FURTHER THE LD. CIT(A) HAS ALLOWED RELIEF BY NOT ONLY COMPARING THE WASTAGE GENERATION BUT ALSO THE GROSS PROFIT AN D THEREFORE APPELLATE ORDER IS JUSTIFIED. 13 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THE LD. CIT(A) ADJUDICATED THIS ISSUE VIDE PARA 10 WHICH IS AS UND ER: I HAVE CONSIDERED THE BASIS OF ADDITION MADE BY TH E ASSESSING OFFICER AND THE ARGUMENTS OF THE A.R ON THE ISSUE. IT IS A MATT ER OF FACT THAT ASSESSEE HAS BEEN MAINTAINING QUANTITATIVE RECORDS OF RAW MA TERIAL, PRODUCTION AND GENERATION OF SCRAP AS PRESCRIBED BY EXCISE RULES A ND THE SAID RECORDS ARE SUBJECT TO EXAMINATION BY THE EXCISE AUTHORITIES FR OM TIME TO TIME. IT IS ALSO A MATTER OF FACT THAT SUCH RECORDS A RE MAINTAINED ON DAILY BASIS AND THE FINANCIAL RESULTS IN THE FORM OF PROFIT AND LOSS AC COUNT AND BALANCE SHEET HAVE BEEN AUDITED AS PRESCRIBED UNDER THE IT ACT AN D NO MISTAKE IN THE SAME HAS BEEN POINTED OUT BY THE ASSESSING OFFICER. THE BOOKS OF ACCOUNT AND THE RESULTS THEREOF HAVE BEEN TAKEN AS THE BASI S TO WORK OUT THE EXCESS GENERATION OF SCRAP TO THE TUNE OF 1.85% IN COMPARI SON TO LAST YEAR. THE ACTION OF THE ASSESSING OFFICER IN CHALLENGING THE OUT PUT WITHOUT CHALLENGING THE INPUT ONLY MEANS THAT THE EXERCISE AND THE CONCLUSION THEREOF IS BASED UPON PURE THEORETICAL ANALYSIS. F URTHER IT IS SEEN THAT THE ASSESSEES COMPARATIVE CHART OF GROSS PROFIT FOR T HE LAST THREE YEARS IS AS UNDER: PARTICULARS 2007 2008 2009 SALE 480931560 660198740 531467118 INCREASE IN STOCK 14061874 2176005 2821-43 TOTAL (A) 494993434 662374745 534288161 DECREASE IN STOCK 0 0 0 RAW MATERIAL CONSUMED 286658724 397820232 331517009 MANUFACTURING EXPENSES 130969689 156211790 115904735 TOTAL (B) 417628413 554032022 447421744 GROSS PROFIT (A-B) 77365021 108342723 86866417 GROSS PROFIT RATE 16.09 16.41 16.35 8 THE PERUSAL OF THIS CHART REVEALS THAT THERE IS NO APPRECIABLE FALL IN THE GROSS PROFIT RATE. IT MEANS THAT NEITHER THERE IS ANY REASON TO REJECT THE BOOKS OF ACCOUNTS NOR THERE IS FALL IN THE GROSS PR OFIT RATE AND IN THE CIRCUMSTANCES COMPARATIVELY HIGHER GENERATION OF SC RAP CAN ONLY BE ATTRIBUTED TO THE INEFFICIENCY OF PRODUCTION PROCES S. THE CONCLUSION OF THE ASSESSING OFFICER THAT EXCESS GENERATION OF SCRAP I S A DISGUISE TO SELL FINISH GOODS IS NOT BACKED BY ANY DOCUMENTARY EVIDENCE. I T WOULD BE RELEVANT TO REFER TO THE JUDGMENT OF HON ITAT, CHANDIGARH BENCH IN THE CASE OF ACIT VS. A.K. ALLOYS (P) LTD. 148 TTJ 1. THE TRIBUNAL H ELD THAT THERE HAS TO BE INDEPENDENT EVIDENCE ON RECORD TO HOLD THAT ASSESSE E HAD SUPPRESSED ITS PRODUCTION AND MADE SALES OF UNACCOUNTED PRODUCTION OUT SIDE THE BOOKS OF ACCOUNTS. IN THE CIRCUMSTANCES THE ADDITION MADE B Y THE ASSESSING OFFICER IS DIRECTED TO BE DELETED. WE ARE SATISFIED WITH THE REASONS GIVEN BY THE LD. CIT(A) BECAUSE THE ASSESSING OFFICER HAS SIMPLY CALCULATED THE WASTAG E THEORETICALLY. THE ASSESSING OFFICER HAS ACCEPTED THE BOOKS OF ACCOUNT S WHICH MEANS THAT THE PURCHASE AND SALE WAS ACCEPTED. SINCE OVERALL G ROSS PROFIT IS TOTALLY COMPARABLE IT CANNOT BE SAID THAT THE ASSES SEE HAD GENERATED EXCESS WASTAGE. THEREFORE WE FIND NOTHING WRONG WI TH THE ORDER OF THE LD. CIT(A) AND CONFIRM THE SAME. 14 IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. 15 CROSS OBJECTIONS NO. 10/CHD/2013 THE LD. COUNSEL FOR THE ASSESSEE SOUGHT TO WITHDRA W THE CROSS OBJECTIONS AND HAS MADE AN ENDORSEMENT ON THE MEMOR ANDUM OF CROSS OBJECTIONS. THE LD. D.R. FOR THE REVENUE HAD NO OBJ ECTION. THEREFORE THE CROSS OBJECTIONS ARE DISMISSED AS WITHDRAWN 16 IN THE RESULT APPEAL OF THE REVENUE AND THE CROS S OBJECTIONS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 09.06.2014. SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 09 TH JUNE 2014 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR