ACIT, Circle 35 (1), Room No.D-4, Vikas Bhawan, New Delhi. Vs. Satish Chandra, 16, Friends Colony, Lane-2, GT Road, Shahdara, Delhi.
June, 23rd 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : G : NEW DELHI
BEFORE SHRI R.S. SYAL, AM AND SHRI C.M. GARG, JM
Assessment Year : 2009-10
ACIT, Vs. Satish Chandra,
Circle 35 (1), Room No.D-4, 16, Friends Colony,
Vikas Bhawan, Lane-2, GT Road, Shahdara,
New Delhi. Delhi.
Assessee By : Shri Satish Chandra, the
Department By : Smt. Shalini Verma, Sr.DR
PER R.S. SYAL, AM:
This appeal by the Revenue arises out of the order passed by
the CIT(A) on 22.08.2012 in relation to the assessment year 2009-
10. Seven grounds have been raised in this appeal against the
deletion of addition made by the AO.
2. Briefly stated, the facts of the case are that the assessee is
engaged in the business of manufacturing of electrical goods viz.,
lamination and stampings. The assessee declared a turnover of `
42.64 crore with gross profit rate of 4.35%. The AO observed that
the net profit rate shown by the assessee at 1.04% for this year
was less than 1.96% of net profit rate shown for the earlier year.
During the course of assessment proceedings, it was observed
that the assessee consumed raw material weighing 78,83,357
Kgs. and produced lamination and stamping weighing 25,30,856
Kgs which was about 32.1% of the raw material. The AO noticed
that thus the scrap was produced @ 67.93% of the raw material
consumed. On being called upon to justify such higher
percentage of generation of scrap, the assessee filed reply which
has been taken note of by the AO. Then, the AO observed that
there was variation in the production done vis-a-vis power
consumed on month to month basis. This issue has also been
discussed at length on certain pages of the assessment order. At
page 8 of the assessment order, the AO observed that the
assessee had sold steel scrap weighing 51,84,336 Kgs. for ` 2.92
crore giving the average rate of sale of ` 5.65 per Kg. Since the
scrap was sold in cash and the sale bill did not carry any name,
the AO opined that the scrap sale was unverifiable. From the
market survey and records available with the Department, the AO
observed that the iron scrap was sold in the range of ` 16.10 to `
30/- per Kg. which was substantially higher than the sale price
shown by the assessee. The AO further noticed that the average
sale price of scrap shown by M/s PVR Ship Breaking Co. during the
year was ` 29.24 per Kg. and that shown by M/s Haryana Steel
Co. was also ` 21 per Kg. The AO also took note of the rate of
scrap sold by M/s Makino Auto Industries. Considering all the
above referred facts, the AO rejected the books of account.
Thereafter, considering that the minimum market rate of scrap
during the year was ` 16 per Kg. and the assessee has sold its
scrap weighing 5184336 Kgs. @ ` 5.65 per Kg., the AO held that
the differential rate was liable to be considered as part of scrap
sales. That is how, the AO made an addition of `5,36,76,680/- on
account of extra sale proceeds of the scrap to the total income
returned by the assessee. The ld. CIT(A) ordered for the deletion
3. We have heard the rival submissions and perused the
relevant material on record. From the assessment order, it is
apparent that the AO has simply proceeded to make a specific
addition of ` 5.36 crore on account of extra sale proceeds of
scrap. There is no other addition made by him. This addition has
also been made by considering the total income declared in the
return at ` 35,50,870/- and, thereafter, total income was
determined at ` 5.72 crore by adding such addition to the
declared income. This shows that though the AO rejected the
books of account in the body of the assessment order, but
eventually, went by a specific addition. In such view of the
matter, the grounds raised by the Revenue against the rejection
of books by the AO no more stand for adjudication.
4. Now, we espouse the addition of ` 5.36 crore which was
made by the AO on account of `Extra sale proceeds of the scrap'.
At this juncture, it is relevant to mention that the assessee sold
steel scrap weighing 51,84,336 Kgs. for ` 2.92 crore giving per Kg.
average rate of ` 5.65 per Kg. The AO has not disputed the
quantitative aspect of the scrap sold. What he did was to simply
apply the rate of ` 16 per Kg. on the total scrap weighing
51,84,336 Kgs. As such, we are confined to considering as to
whether the rate applied by the AO was correct. In this regard, it
is relevant to note the observations made by the ld. CIT(A) to the
effect that two specific instances mentioned by the AO in this
regard, namely, M/s Makino Auto Industries and M/s PVR Ship
Breaking Company were not comparable. The ld. CIT(A) has
observed that M/s Makino Auto Industries has described the scrap
sold as `Iron scrap' (Branded goods). In so far as M/s PVR Ship
Breaking Company is concerned, the scrap in that case resulting
from ship breaking was qualitatively different. In comparison with
these two cases, the assessee generated scrap from very thin iron
sheets of .27 mm to .50 mm thickness. Nothing has been brought
on record to controvert these findings recorded by the ld. CIT(A).
Even from the assessment order, we are unable to find out as to
whether these two so-called comparable cases were confronted to
the assessee before applying their rate of scrap sale. Be that as it
may, it is seen that the assessee sold scrap during the year at `
5.65 per Kg. which is better than the rate of sale of scrap at ` 5.05
per Kg. and ` 5 per Kg. in the immediately preceding two years.
The assessments for such years were completed u/s 143(3) and
no adverse inference was drawn on the rate of scrap sold. As the
rate at which the assessee sold scrap for the current year is
better than that of the preceding years and the further fact that
the gross profit declared by the assessee for the current year is
marginally higher than that of the preceding year, we are of the
considered opinion that no fault can be found with the ld. CIT(A)
in deleting this addition. We, therefore, uphold the impugned
order to this extent.
5. In the result, the appeal is dismissed.
The order pronounced in the open court on 20.06.2014.
[C.M. GARG] [R.S. SYAL]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated, 20th June, 2014.
Copy forwarded to:
4. CIT (A)
5. DR, ITAT
AR, ITAT, NEW DELHI.*