IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: `F ' :NEW DELHI
BEFORE SHRI G.C. GUPTA, VICE PRESIDENT
AND
SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER
ITA No. 3640/Del/2013
Assessment Year: 2009-10
Assistant Commissioner of Vs. Sh. Pawan Kumar Kansal,
Income Tax, Circle-21(1), Prop. M/s Jagdamba Export,
New Delhi A-7, Antriksh Apartment,
Plot No. D-3, Sec.-14,
Rohini, New Delhi
(PAN: AHEPK0574C)
(Appellant) (Respondent)
And
C.O. No. 233/Del/2013
(In ITA No. 3640/Del /2013)
Assessment Year: 2009-10
Sh. Pawan Kumar Kansal, Vs. Assistant Commissioner of
Prop. M/s Jagdamba Export, Income Tax, Circle-21(1),
A-7, Antriksh Apartment, New Delhi
Plot No. D-3, Sec.-14,
Rohini, New Delhi
(PAN: AHEPK0574C)
(Appellant) (Respondent)
Department by : Sh. Vikram Sahay, Sr. DR
Assessee by : S/sh. Ved Jain, Rano Jain & V. Mohan, CAs
Date of hearing: 08.04.2015
Date of pronouncement: 13.05.2015
ORDER
PER INTURI RAMA RAO, A.M.:
These are the cross appeals for the assessment year 2009-10 impugning
the order of learned CIT(A)-XXII, New Delhi, dated 30.03.2013. The Revenue
raised the following grounds of appeal:
2
ITA No. 3640/Del/2013
& C.O. No. 233/Del/2013
AY: 2009-10
i. Whether on the facts and in the circumstances of the case, the Ld. CIT(A)
has erred in deleting the action of the Assessing Officer in rejecting the
books of accounts in view of the failure of the assessee in producing
requisite details and documents before the then assessing officer to enable
him to deduce the proper income of the assessee.
ii. Whether on the facts and in the circumstances of the case, the Ld. CIT(A)
has erred in allowing the 49% scrap. As claimed by the assessee, and
deleting the total addition of Rs. 3,98,16,047/- on account of excess scrap
allegedly generated by the assessee beyond 41.17% as fixed by the Excise
authorities, but treated as sales outside the books of accounts by the
Assessing Officer, by ignoring the facts and earlier financial results of the
assessee, particularly in view of scrap percentage and gross profit
declared by the assesee in the earlier years wherein the assessee has
claimed and received back Refund of Excise-duty.
iii. The appellant craves leave to amend or alter all or any of the aforesaid
grounds of appeal and amend, alter or add any other ground of appeal.
2. The assessee has raised the following cross objections:
i. On the facts and circumstances of the case, the learned Commissioner of
Income Tax(Appeals) [CIT(A)] has erred, both on facts in law, in
confirming addition of Rs. 99,54,630/- and further enhancing addition by
Rs. 23,67,470/- in respect of valuation of the closing stock of the finished
goods.
ii. On the facts and circumstances of the case, the learned CIT(A) has erred,
both on facts and in law, in taking gross profits rate at the rate of 4.63%
while valuing the cost of the finished goods ignoring the fact by above
said addition of Rs. 1,23,22,100/- the gross profit will get increased to Rs.
2,79,56,800/- and consequently the G.P. Rate will be 8.28% not 4.63%
applied by the CIT(A).
iii. On the facts and circumstances of the case, the learned CIT(A) has erred,
both on facts and in law, in not allowing adjustment in the opening stock
of Rs. 60,81,102/- being the addition made by the A.O. in the closing
stock in the preceding assessment year and out of which addition of Rs.
15,49,576/- was confirmed by the CIT(A).
3
ITA No. 3640/Del/2013
& C.O. No. 233/Del/2013
AY: 2009-10
iv. That the appellant craves leave to add, amend or alter any of the grounds
of cross objection
ITA No. 3640/Del /2013 for A.Y. 2009-10:
3. The facts of the case in brief are that the respondent assessee is an
individual engaged in the business of manufacturing and sale of stainless steel,
cutlery and utensils in the name of M/s Jagdamba Exports. For the assessment
year 2009-10, return of income was filed on 30th September, 2009, declaring
income of Rs. 1,17,54,720/-. The case was selected for scrutiny after issuance of
notice under Section 143(2) of the Income-tax Act, 1961 (for short "the Act").
Finally, the assessment was completed under Section 143(3) of the Act vide
order dated 27.12.2011 at a total income of Rs. 6,15,91,000/- after making the
additions of Rs. 3,98,16,047/- on account of sale outside books of account, Rs.
99,54,630/- on account of valuation of closing stock and Rs. 65,600/- on account
of income from un-disclosed sources. Being aggrieved by this order, an appeal
was preferred before the learned CIT(A), who vide impugned order dated
30.03.2013, deleted the addition made on account of generation of scrap.
However, on the addition of valuation of closing stock, addition was enhanced
by Rs. 23,67,470/-.The alleged non-genuine creditors of Rs. 65,600/- were
deleted by learned CIT(A). Aggrieved by this order, the Revenue has filed the
present appeal and the respondent assessee filed the cross objection impugning
that part of the CIT(A)'s order whereby the addition on account of closing stock
4
ITA No. 3640/Del/2013
& C.O. No. 233/Del/2013
AY: 2009-10
was enhanced by 23,67,470/-. Now, we shall deal with the appeal filed by the
Revenue.
4. Learned DR argued that the books of account are defective and the
learned CIT(A) should not have accepted the book results. As regards the
addition on account of generation of scrap, it was submitted that the findings of
the Assessing Officer should be confirmed, inasmuch as they are in conformity
with the norms prescribed by the Central Excise Authorities.
5. On the other hand, the learned Authorized Representative has quoted and
relied upon the order of the CIT(A) insofar as it relates to addition on account of
generation of scrap and also on the decision of this Tribunal in the assessee's
own case for the preceding assessment year i.e. 2008-09.
6. We have heard the rival parties and perused the material on record. The
first ground of appeal relates to the rejection of book results. We observe from
the assessment order that it is not the case of the Assessing Officer that the
respondent assessee failed to produce the information called for, nor is it the
case that the books of account are defective. The Assessing Officer failed to give
any specific reason for rejection of book results. It appears that the sole basis for
rejection of book results is the assessment order of the immediate preceding year
i.e. 2008-09 in which the books of account have been rejected by the Assessing
Officer. This Tribunal in the assessee's own case in ITA No. 1454/Del/2012,
5
ITA No. 3640/Del/2013
& C.O. No. 233/Del/2013
AY: 2009-10
vide order dated 29.10.2014 passed for the assessment year 2008-09, rejected
this ground of appeal raised by the Revenue, which reads as under:-
"5. In the Remand Report the contentions of the assessee that the AO was not
justified in rejecting the books of accounts was accepted by the A.O. The A.O.
also accepted the contention that he has not been able to point out any
discrepancy in the books of account and stock record produced by the assessee
before him. Thus, in our view, the First Appellant Authority had no other option
but to reject the action of AO in rejecting the books of accounts. Hence, ground
no. 1 of the Revenue is dismissed."
7. Following the above decision, this ground of appeal filed by Revenue is
dismissed.
8. The second ground of appeal relates to the deletion of addition on account
of generation of scrap. The learned CIT(A) has passed a very reasoned order
while deleting the addition vide paras 8.10 to 8.15 of his order, which reads as
under:
"8.10 The next ground on the basis of which the Books of Account has been
rejected and the addition for sale outside Books of Account has been made is the
Report of the Inspector who went on an onsite visit and inspection of the
Assessee's premises, which is mentioned above in Para 8.3 of this order as point
(B). Perusal of the Assessment Order Para 3 shows that a comparison for the
Scrap generated for 5 items manufactured by the Assessee has been made by the
Ld. Assessing Officer on the basis of the Inspector's Report. The chart
comparing the Scrap generated for these 5 items has been given in Para 3 of the
Assessment Order and is also reproduced below:
S. No. Name of the Item % of generation of % of generation of
scrap as per the scrap as per the
Department Assessee.
1. Table spoon 42.39% 47.99%
2. Serving Spoon 43.15% 48.00%
3. Table Fork 51.93% 54.99%
4. Knife 60.59% 59.00%
5. Pasta/Noodle-SM 56.42% 51.99%
6
ITA No. 3640/Del/2013
& C.O. No. 233/Del/2013
AY: 2009-10
8.11 Perusal of the above chart shows that out of these 5 items, the percentage
of scrap generated mentioned as the percentage as per the Department, which are
obviously the figures as per the Inspector's Report, is higher in case of 2 of the
items and is lower in case of 3 of the items. It is seen that the Assessee makes
more than 50 items, and though analysing the production and Scrap generation
in the case of 5 items on a sample basis cannot be rejected as such, but this
sample of 5 items does not give any clear evidence that the Assessee is inflating
the claimed Scrap generation. It is seen that out of the 5 items, the Departmental
figures for Scrap generation are much lower than the claim of the Assessee for 3
items, but for 2 of the items, i.e. 'Knife' and 'Pasta/Noodle-SM', mentioned at S.
No. 4 and 5 of the chart made by the Assessing Officer, it is seen that the
Departmental figures for Scrap generation were much higher as compared to the
figures shown for the Assessee. If in case of 2 of the 5 items analysed, the Scrap
generated as per the Department is much higher than that stated to be claimed by
the Assessee, then it cannot at all be said, merely on this basis that the Assessee
has inflated the claim of Scrap. If the Assessee was inflating the claim of Scrap,
then either the Scrap generated as per the Department would have been lower in
all the 5 cases, or in case the Appellant was resorting to such tactics for only
some items, then the Departmental figures would have been equal to the
Assessee's claims for some items and lower for other items. However, the above
chart does not show any such trend, and out of 5 items, the Departmental figures
are significantly lower in 3 cases, but significantly higher in 2 cases and thus
merely on the basis of this study it cannot be concluded that the Appellant was
inflating the claimed generation of Scrap.
8.12 It has been claimed by the Appellant in Para 9 of his written Submissions
dated 22.01.2013, reproduced above in Para 7.1, that the figures of generation of
Scrap mentioned in the Assessment Order to be that as per the Assessee's record
are incorrect. The same claim has been made in Para 19.3 to 19.5 of his written
Submissions dated 22.01.13 and it has been claimed in Para 19.4 that the AO
has picked up and quoted some individual figures rather than taking the figure
for the whole of the year and has in Para 19.4 submitted the following chart :-
S.No. Name of the Item % of generation of % of generation Correct
scrap as per the of scrap as per figures as
Department the Assessee. per the
books.
1. Table Spoon 42.39% 47.99% 43.126
2. Serving spoon 43.15% 48.00% 52.232
3. Table Fork 51.93% 54.99% 49.576
4. Knife 60.59% 59.00% 57.452
7
ITA No. 3640/Del/2013
& C.O. No. 233/Del/2013
AY: 2009-10
5. Pasta/Noodle-SM 56.42% 51.99% 53.409
8.13 Perusal of the above chart shows that the claim for generation of Scrap as
per the Books of Account is significantly lower, not just for items at S. No. 4
and 5 i.e. 'Knife' and 'Pasta/Noodle-SM', as mentioned in Para 8.10 above, but
also in case of the item at S. No. 3, i.e. 'Table Fork', for which the Assessee
claims that the actual figure of generation of Scrap as per Books was 49.576%
and not 54.99% as shown the Assessment Order, as against the Departmental
figure of Scrap generation of 51.93%. In such a situation, it is seen that the
Departmental figure for Scrap generation would be significantly higher than the
Assessee's claim for 3 items and lower for 2 items. In any case, no conclusion
can be drawn from the Inspector's Report regarding inflation of claimed Scrap
generation as no trend for inflation of Scrap is seen from the Inspector's Report
and though there are variations between the Inspector's Report and the claim of
the Assessee but no definite conclusion of inflation or suppression can be
suppression can be drawn when for 3 items a different trend is seen and for the
other 2 items a different trend is seen.
8.14 It is further seen that the Appellant in his written Submissions dated
22.01.2013 in Para 19.2 has claimed that the basis on which the percentage as
per the Inspector's Report was computed has not be specified, and also that the
Inspector's Report was never confronted to the Assessee. If the Inspector's
Report was being used against the Assessee, then the Assessee should have been
confronted with the Report and the explanation if any offered by the Assessee on
the Report should have been discussed, and in case no explanation was offered
then that fact should also have been mentioned in the Assessment Order.
However, it is seen that the Assessment Order is silent on this aspect, as to
whether the Inspector's Report was confronted to the Appellant or not and what
was his response, if any. In the absence of any such mention in the Assessment
Order of the Inspector's Report being confronted to the Assessee, the Assessee's
claim that the basis on which the percentages as per the Inspector's Report were
computed was not specified and also that he was never confronted with the
Inspector's Report cannot be brushed aside.
8.15 In any case, it is seen that the Inspector's Report cannot lead to any
conclusion that the generation of Scrap was shown by the Assessee at any
inflated figures and hence the ground (B) mentioned in Para 8.3 above, on which
the Books of Account were rejected and addition for sale outside of Books of
Account was made also fails, and is hereby rejected."
8
ITA No. 3640/Del/2013
& C.O. No. 233/Del/2013
AY: 2009-10
9. Moreover, similar issue has been dealt by this Tribunal in the assessee's
own case passed for assessment year 2008-09 in ITA No. 1454/Del/2012
wherein the Tribunal vide order dated 29.10.2014, rejected the ground raised by
the Revenue, which reads as under:
"7. Ground no. 3 is against the finding of the learned CIT(A), wherein he
allowed 48.93% scrap, as claimed by the assessee. In the remand report the
A.O. has, on the issue of generation of scrap, accepted the fact that the assessee
has produced complete details of the scrap generated and scrap sold. The A.O.
also obtained necessary confirmations from the parties to whom the scrap was
sold. The A.O. also accepted the fact that the percentage of scrap fixed by the
excise authorities was only, for the purposes of giving incentives to the assessee
and has no effect on the actual facts of the case. The assessee had submitted
various letters to the excise authorities for revision of the norms of scrap fixed
by them. In view of the above observations by the AO in the remand report, we
find no infirmity in the order of the First Appellant Authority and hence we
dismiss ground no. 3 of the Revenue."
10. In view of the above discussion, we are of the considered opinion that the
order of learned CIT(A) is well reasoned and we do not intend to interfere.
Accordingly, this ground of appeal filed by the Revenue is dismissed.
C.O. No. 233/Del/2013 (In ITA No. 3640/Del /2013)
11. Now, we shall deal with the cross objections.
12. The cross objections filed by the respondent assessee relates to the
addition on account of closing stock of Rs. 99,54,630/- confirmed and further
enhanced by Rs. 23,67,470/- by the learned CIT(A). The Assessing Officer
made the addition in respect of closing stock by deducting the G.P. from the sale
price, works out to Rs. 226/- per kg. Whereas on appeal, the learned CIT(A)
finally held vide paras 9.8, 9.9, 9.10 and 9.11, apart from confirming the
9
ITA No. 3640/Del/2013
& C.O. No. 233/Del/2013
AY: 2009-10
addition made further enhancement of Rs. 23,67,470/-, which are reproduced
below:
"9.8 After examining the entire facts of the case and relevant documents it was
found that there was a very heavy undervaluation of the Closing Stock of
Finished Goods and though the Ld. Assessing Officer had made an addition
towards the undervaluation of Finished Goods but that addition was inadequate
to cover the entire undervaluation of the Closing Stock of Finished Goods. It
was seen that not only the packing cost which had been claimed by the
Appellant at Rs.19/- was worked out to Rs.16.74 per kg., but also that the Ld.
Assessing Officer had taken the Gross Profit Rate at 14.93% which was allowed
as a reduction from the average sale price to work out the cost of the Finished
Goods in the Closing Stock, but actually the Gross Profit rate had been disclosed
@ 4.63% as per column 32(a) of the Form No. 3CD for the relevant year i.e.
A.Y. 2009-10. Accordingly, vide Order Sheet entry dated 13.03.2013 the
Appellant was required to explain why an enhancement of the addition on
account of valuation of Closing Stock of Finished Goods should not be made as
per the provisions of Section 251 (2) of the Income Tax Act, 1961. The relevant
part of the Orde Sheet entry dated 13.03.13 is reproduced below :-
"It was pointed out to the Ld. Counsel that the Gross Profit was 4.63% as
per Column 32(a) of Form No. 3CD for A.Y. 2009-10 as per page 26 of
Paper Book I filed by Appellant.
Please explain why this figure should not be taken as the base to work out
the Rate per Kg. for Finished Goods, rather than 14.93% taken as Gross
Profit Rate by the Assessing Officer.
Reducing the G.P. Rate of 4.63% from Average Rate of Sale and even
after reducing Packing Cost, the Valuation of Closing Stock of Finished
Goods would be much more than that determined by the A.O. at Rs.226/-
per kg.
Please explain why the Closing Stock may not be Valued as above which
will result in an enhancement in the Valuation of Closing Stock. This may
be treated as an Opportunity u/s 251(2) of the I.T. Act, 1961."
9.9 Subsequently Sh. Himanshu Goyal, CA and Sh. Nikhil Kabra, CA the
Ld. Counsels of the Appellant appeared, but could not explain why the proposed
enhancement should not be made. Written Submissions dated 28.03.2013 were
filed regarding the Order sheet entry dated 13.03.2013 regarding Valuation of
10
ITA No. 3640/Del/2013
& C.O. No. 233/Del/2013
AY: 2009-10
Closing Stock, which are reproduced above in Para 7.4 of this Order. In this
reply it has basically been claimed that the value adopted by the AO for
Valuation of Closing Stock has been reached by making reverse calculation
which is based on estimate. It has also been claimed that the Assessee has
valued its Stock at cost price and that any rate other than that taken by the
Assessee for valuation of Closing Stock should not be adopted. However, it is
noteworthy that the Assessee did not give exact and specific reply to each of the
queries raised vide notice dated 22.02.2013, which is reproduced above in Para
9.4. Further, the detailed valuation for each specific item of Finished Goods
included in Closing Stock was not given. In such a situation, a reasonable and
logical estimate has to be made for which reverse calculation or any type of
calculation can be used provided it is reasonable and logical. Accordingly it is
held that the Appellant could not explain why the enhancement in the Valuation
of Closing Stock of Finished Goods should not be made.
9.10 There is no dispute regarding the average Sale Price being Rs.266/- per kg.
The Gross Profit rate of 4.63% which was proposed to be used for valuation of
the Closing Stock of Finished Goods was taken from the Audited Form No. 3
CD for A.Y. 2009-10, a copy of which was filed by the Appellant in the Paper
Book submitted by him alongwith written submissions dated 22.02.13. Further,
the packing cost of Rs.16.74 per kg. was admitted by the Appellant and is
obvious from the calculation given in Para 9.6 above, whose details were given
by the Appellant himself. In such a situation there is no dispute regarding the
figures involved and the calculation of the rate to be adopted for the valuation of
the Closing Stock of Finished Goods is as under :-
S. No. Particulars Amount
1. Average Sale Price of Finished Goods Rs. 266.00 per kg.
2. Less Gross Profit @ 4.63% Rs. 12.32
3. Less Packing Charges Rs. 16.74
4. Valuation of Finished Goods in Closing Rs. 236.94 per kg.
Stock
9.11 The value to be adopted for Valuation of Finished Goods in Closing Stock
is Rs.236.94 per kg. as against only Rs.180/- per kg. adopted by the Assessee
and Rs.226/- per kg. taken by the Assessing Officer. Thus the under valuation in
the Finished Goods in the Closing Stock is of Rs.56.94 per kg. (Rs.236.94 minus
Rs.l80/-). The Closing Stock of Finished Goods is of 2,16,405 kg. as on
31.03.2009 as per the Assessee. The under valuation of the Finished Goods
amounting to Rs.56.94 per kg. would result in an addition of Rs.1,23,22,100/- to
the value of Closing Stock (56.94 per kg. x 2,16,405 kg.). Accordingly it is held
that the value of Closing Stock of Finished Goods is to be enhanced by
11
ITA No. 3640/Del/2013
& C.O. No. 233/Del/2013
AY: 2009-10
Rs.23,67,4701- as the Ld. Assessing Officer had made an addition of only
Rs.99,54,630/- towards under valuation of Closing Stock of Finished Goods
which is hereby confirmed and a further enhancement of Rs.23,67,470/- is made
to the value of Closing Stock and to the Income.
(Confirmed: Rs.99,54,630/-)
(Enhanced : Rs. 23,67,470/-)"
13. It was submitted that the assessee has incurred an expenditure of Rs.
1,84,00,220/- on packing. The total production during the year was 11,84,481
kgs. out of which quantity in stock was 2,16,405 kgs. Thus, the packing of
quantity of 9,68,076 kg., an expenditure of Rs. 1,84,00,220/- was incurred
giving an expenditure of Rs. 19/- per kg. on account of packing. The assessee
has valued the stock on the basis of actual stock including fresh as well as old
items. The assessee is in cutlery business where items of non moving nature are
not valued as fresh products. It was further submitted that the Assessing Officer
as well as the learned CIT(A) applied the G.P. rate which is not justified as the
same is made ignoring the valuation of stock, which is to be done at cost of
market price whichever is less.
14. It was further argued that the G.P. applied by learned CIT(A) @ 4.63% is
not correct, as the same has to be taken considering the sale of scrap also, while
valuing the finished goods. As the sale of scrap goes to reduce the cost of
production, scrap cannot be taken as sale. Accordingly, the G.P. was worked
out. The learned CIT(A) has taken G.P. rate at 4.63% while valuing the cost of
the finished goods. The learned CIT(A) ignored the fact that by the addition of
12
ITA No. 3640/Del/2013
& C.O. No. 233/Del/2013
AY: 2009-10
Rs. 1,23,22,100/- the gross profit increases to Rs. 2,79,56,800/- and
consequently the G.P. rate will be 8.28% not 4.63% applied by him. The
assessee has disclosed the G.P. rate at 14.93%.
15. We have heard the rival submissions and perused the material available
on record. It is settled principle of law that the closing stock should be valued at
lower cost of sale price. As submitted by the respondent assessee, the cost
should be arrived at after deletion of addition made in respect of sale of scrap.
Accordingly, the cross objections are allowed.
16. In the result, the appeal filed by the Revenue is dismissed and the Cross
Objection filed by the assessee is allowed.
The decision is pronounced in the open court on 13th May, 2015.
Sd/- Sd/-
(G.C. GUPTA) (INTURI RAMA RAO)
VICE PRESIDENT ACCOUNTANT MEMBER
Dated: 13th May, 2015.
RK/-
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar, ITAT, New Delhi
|
