M/s Rex Sewing Machines (P) Ltd., Ludhiana V. DCIT, Ludhiana

ITA 946/CHANDI/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1593 (ITAT-CHANDIGARH)
• Duration Of Justice: 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-08-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 03-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Corroborative evidences
• Section: 263

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 946/CHD/2014 ASSESSMENT YEAR: 2006-07 M/S REX SEWING MACHINES (P) LTD., VS. THE DCIT, CI RCLE VII, LUDHIANA LUDHIANA PAN NO. AACR7846Q (APPELLANT) (RESPONDENT) APPELLANT BY : SH. ASHWANI KUMAR RESPONDENT BY : SHRI MANJIT SINGH DATE OF HEARING : 26.08.2015 DATE OF PRONOUNCEMENT : 01.09.2015 ORDER PER RANO JAIN, A.M. THE APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 29.08.2014 PASSED BY THE CIT(A)-II, LUDHIANA. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL:- THAT ORDER PASSED U/S 250(6) OF THE INCOME-TAX ACT, 1961 BY THE LD. CIT(A) IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH HE WAS NOT JUSTIFIED TO ARBITRA RILY UPHOLD THE ADDITION OF RS. 3,41,744/- ON ACCOUNT OF ALLEGED SALES OUTSIDE THE BOOKS OF ACCOUNTS OF 424 PIECES OF KHOTS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS DERIVING INCOME FROM BUSINESS OF MANUFACTURING / TRADING AND EXPORT OF SEWING MACHINES AND CYCLE PARTS. DURING THE RELEVANT ASSESSMENT YEA R IT FILED RETURN DECLARING INCOME OF RS. 16,06,806/-. HOWEVER, THE O RDER OF THE ASSESSING 2 OFFICER WAS SET ASIDE U/S 263 BY THE CIT. DURING T HE COURSE OF FRESH ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER EXAMIN ED THE QUANTITATIVE RECORD AND TRADING RESULTS OF THE ASSESSEE. THE AS SESSING OFFICER ASKED THE ASSESSEE TO GIVE THE DETAILS OF CONSUMPTION OF PRINCIPAL ITEMS, YIELD OF FINISHED GOODS AND PERCENTAGE OF FINISHED AND BYE P RODUCTS. FROM THE DETAILS FILED BY THE ASSESSEE, THE ASSESSING OFFICE R MADE THE FOLLOWING ANALYSIS. SR NO . RAW MATERIAL (KHOLE) FINISHED GOODS (SEWING MACHINES) 1 OPENING STOCK 6665 PCS . OPENING STOCK 8780 PCS . 2. PURCHASE DURING THE YEAR 73204 PCS . PURCHASE DURING THE YEAR 936 PCS . 3. TOTAL 79869 PCS . MANUFACTURING DURING THE YEAR 74878 PCS . 4. USED FOR PRODUCTION 75302 PCS . SALE DURING THE YEAR 77092 PCS . 5. CLOSING STOCK 4567 PCS . CLOSING STOCK 7502 PCS . FROM THE ABOVE ANALYSIS, THE ASSESSING OFFICER OBSE RVED THAT AS AGAINST RS. 75302/- KHOLES ISSUED; ONLY 74878 MACHINES WERE MANUFACTURED. THUS, THERE WAS A VARIATION OF 424 KHOLES. ACCORDING TO A SSESSING OFFICER, SINCE THE KHOLES WERE MADE OF CAST IRON, THUS CANNOT BE C LAIMED AS BREAKAGE. ACCORDINGLY, TAKING THE SALE PRICE OF EACH MACHINE AT RS. 806/-, THE ASSESSING OFFICER HELD THE UNACCOUNTED SALES AS RS. 3,41,744/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 4. THE ASSESSEE WENT INTO APPEAL BEFORE THE CIT(A) AND SUBMITTED THAT IN MANUFACTURING AND ASSEMBLING A SEWING MACHINE, T HERE ARE MORE THAN 80 PARTS WHICH ARE TO BE FITTED AND ASSEMBLED TO MA KE AS COMPLETE SET OF MACHINES. ALL THE PARTS ARE MADE OF IRON, MILD STE EL AND M.S. STEEL. IT CANNOT BE RULED OUT THAT ON THE FITTING PARTS BOTH INSIDE AND OUTSIDE THE KHOL, POSSIBILITY OF MIS-FITTING IS THERE WHICH ULT IMATELY CAUSES CRACKS, DEFACE THE PARTICULAR PART OF THE KHOL AND BECOME U NUSABLE WHICH CAN BE 3 SAID TO BE A SCRAP AND NOTHING MORE THAN THAT. THE WASTAGE OF KHOL SHOWN IS VERY NOMINAL I.E. 0.56% OF THE TOTAL CONSUMPTION . IT WAS FURTHER SUBMITTED THAT WITHOUT POINTING OUT ANY DEFECT IN T HE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE AND WITHOUT PINPOINTING ANY INSTANCE OF UNACCOUNTED SALES, THE ASSESSING OFFICER HAD ARBITR ARY RESORTED TO MAKE THE ADDITION OF RS. 3,41,744/- REPRESENTING THE SAL ES OF 424 PIECES OF MACHINES MANUFACTURED OUT OF ALLEGED EXCESS CONSUMP TION OF KHOLS. IN VIEW OF THIS IT WAS PRAYED BEFORE THE CIT(A) TO DEL ETE THE ADDITION. THE ASSESSEE WAS ASKED BY THE CIT(A) TO FURNISH EVIDEN CE OF PRODUCTION OF SCRAP IN THE FORM OF SALE BILLS ON THE NEXT DATE OF HEARING. HOWEVER, ASSESSEE DID NOT FILE ANY WRITTEN SUBMISSIONS. IN V IEW OF THIS, THE CIT(A) UPHELD THE ADDITION SO MADE BY THE ASSESSING OFFICE R AND DISMISSED THE APPEAL OF THE ASSESSEE. 5. NOW THE ASSESSEE HAS COME IN APPEAL BEFORE US A GAINST THE SAID ORDER OF CIT(A). 6. THE LD. COUNSEL FOR THE ASSESSEE APPEARING BEFOR E US REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. THE MAIN CONTENTION OF HIS ARGUMENTS WERE THAT IT CAN NEVER BE DENIED THAT IN THIS LINE OF MANUFACTURING, THE BREAKAGE OF KHOLS MAY OCCUR. O NCE THE KHOLS ARE CRACKED / DEFACED, THESE CANNOT BE USED ANY MORE. AT MOST IT MAY BE TREATED AS SCRAP. IN VIEW OF THIS AT WAS PRAYED TH AT SINCE THE ASSESSING OFFICER HAS MADE THE ADDITION ARBITRARILY, THE SAME MAY BE DELETED 7. THE LD. DR RELIED ON THE ORDER OF ASSESSING OFFI CER AS WELL AS CIT(A). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY AN D PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ONLY ISSUE BEF ORE US IS REGARDING THE EXCESS CONSUMPTION OF KHOLS BEING 424 IN NUMBERS. T HE ASSESSEE HAS NOWHERE DENIED THE QUANTITATIVE ANALYSIS SO MADE BY THE ASSESSING 4 OFFICER. ADMITTEDLY, THERE IS A DISCREPANCY OF 424 KHOLS AS PER THE BOOKS OF THE ASSESSEE. THESE 424 KHOLS HAVE NOT BEEN RECO RDED IN THE BOOKS OF THE ASSESSEE. NOW, THE QUESTION BEFORE US IS THAT W HERE THESE 424 KHOLS HAVE GONE. THE ONLY ARGUMENT OF THE ASSESSEE IN THI S REGARD HAVING BEEN MADE CONSISTENTLY IS THAT IN THE ASSESSEES LINE OF TRADE THESE KHOLS HAVING BEING MADE OF CAST IRON ARE PRONE TO BREAKAGE / MIS FITTING ETC. BECAUSE OF WHICH THESE ARE TO BE DISCARDED. AS PER THE COUNSEL OF THE ASSESSEE, THESE DAMAGED OR BROKEN KHOLS ARE JUST SCRAP AND NOTHING ELSE. IF THIS ARGUMENT OF THE ASSESSEE IS ACCEPTED, WE ARE INCLINED TO ACC EPT THE FINDING GIVEN BY THE CIT(A) THAT THE SCRAP SO GENERATED BY BREAKAGE OR MIS-FITTING NOT BEING REFLECTED IN THE BOOKS OF THE ASSESSEE, THE C ONTENTION OF THE ASSESSEE THAT THE EXCESS CONSUMPTION WAS SCRAP CANNOT BE ACC EPTED THE CIT(A) HAS RECORDED HIS FINDINGS ON PAGE 5 AT PARA 3.5 ONWARDS OF THIS ORDER, WHICH READS AS UNDER:- 3.5 I HAVE CAREFULLY CONSIDERED THE APPELLANTS SUBMISSIONS. IT IS APPARENT FROM THE FACTS DISCUSSE D THAT THERE WAS A DIFFERENCE OF 424 KHOLES BETWEEN T HE CONSUMPTION AND PRODUCTION. THE APPELLANTS CONTENTION THAT THE EXCESS CONSUMPTION WAS JUST SCR AP IS ONLY AS MERE SELF SERVING STATEMENT WITHOUT ANY SUPPORTING EVIDENCE. THIS IS EVIDENT FROM THE FACT S THAT IN SPITE OF THE SPECIFIC QUERY IN THIS REGARD DURIN G THE APPELLATE PROCEEDINGS, THE APPELLANT FAILED TO FURN ISH ANY EVIDENCE WITH REGARD TO THE PRODUCTION OF SCRAP AS CONTENDED BY HIM. IN FACT, THE APPELLANT ADMITTED T HAT THERE WAS NO SCRAP SALE IMPLYING THEREBY THAT NO SC RAP WAS GENERATED. THE APPELLANT HAS THUS FAILED TO RECONCILE THE DIFFERENCE IN KHOLES. THE ASSESSING OFFICER WAS THEREFORE FULLY JUSTIFIED IN HOLDING TH AT THE APPELLANT HAD SOLD 424 MACHINES OUTSIDE THE BOOKS O F ACCOUNTS. THE ADDITION MADE BY THE ASSESSING OFFICE R IS CONFIRMED. THIS GROUND OF APPEAL IS DISMISSED. 5 9. WE ARE NOT INCLINED TO DIFFER FROM THE VIEW TAKE N BY THE CIT(A) AND, AS SUCH, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A). 10. IN VIEW OF THE ABOVE THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01.09.2015 SD/- SD/- (BHAVNESH SAINI) (RANO JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : IST SEPT., 2015 RKK COPY TO: THE APPELLANT THE RESPONDENT THE CIT THE CIT(A) THE DR