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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
              DELHI BENCHES : G : NEW DELHI


                       ITA No.5613/Del/2012
                     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.

                                     PAN: AAEPC2965J

  (Appellant)                           (Respondent)

           Assessee By          : Shri Satish Chandra, the
           Department By        : Smt. Shalini Verma, Sr.DR



     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.
                                                    ITA No.5613/Del/2012

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

                                                   ITA No.5613/Del/2012

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

of addition.

                                                     ITA No.5613/Del/2012

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
                                                      ITA No.5613/Del/2012

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

                                                           ITA No.5613/Del/2012

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.

               Sd/-                                         Sd/-

       [C.M. GARG]                                      [R.S. SYAL]
     JUDICIAL MEMBER                                ACCOUNTANT MEMBER

Dated, 20th June, 2014.


Copy forwarded to:

     1.   Appellant
     2.   Respondent
     3.   CIT
     4.   CIT (A)
     5.   DR, ITAT
                                                    AR, ITAT, NEW DELHI.*

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