2010 (6) TMI 837 - AT - Income Tax

Summary

Issues Involved:
The judgment involves the assessment of addition made by the Assessing Officer on account of scrap/wastage sale to the trading results, the estimation of income from scrap sale, and the maintenance of records for wastage in the business of manufacturing and export of ready-made garments.

Assessment of Addition on Account of Scrap/Wastage Sale:
The Assessing Officer noted a significant difference between the total raw material consumed and the scrap/wastage sales shown by the assessee. The assessee explained that the low sale of scrap was due to maintaining secrecy and avoiding leakage of quality and designs. However, the Assessing Officer estimated the income from scrap sale at 0.2% of the turnover, relying on a previous decision by the ITAT Delhi. The Ld. Commissioner of Income Tax (Appeals) upheld the addition, stating that the appellant failed to conclusively prove the quantum of wastage generated and did not maintain records to determine the wastage accurately. The Tribunal, after considering the submissions, found that the rejection of the assessee's claim and the substitution on an estimate basis was not justified. It was noted that in earlier years, the Tribunal had deleted similar additions, and there was no finding of excessive wastage or suppression of production. Therefore, the Tribunal set aside the orders of the authorities below and deleted the addition made on account of scrap/wastage sale.

Estimation of Income from Scrap Sale:
The Assessing Officer estimated the income from scrap sale at 0.2% of the turnover based on a previous decision by the ITAT Delhi. The Ld. Commissioner of Income Tax (Appeals) considered the lack of quantitative details of wastage per lot and the absence of verifiable records. The Ld. Commissioner upheld the estimation made by the Assessing Officer as reasonable, given the appellant's failure to maintain records conclusively proving the quantum of wastage. However, the Tribunal found that the decision of the ITAT in the case referred to did not lay down a ratio for the percentage of wastage in a particular trade. The Tribunal, considering the previous decisions in the assessee's own case, deleted the addition made for the income from scrap sale, as there was no evidence of excessive wastage or suppression of production.

Maintenance of Records for Wastage:
The Ld. Commissioner of Income Tax (Appeals) highlighted that the appellant did not maintain quantitative details of wastage per lot on a day-to-day basis and that the wastage was not verifiable. The Ld. Commissioner noted that the stock register did not help in determining the quantum of wastage accurately. The Tribunal, after examining the material on record, found that there was no defect in the books of accounts maintained by the assessee. It was observed that there was no finding of suppression of production or incorrect reflection of scrap generation in the accounts. The Tribunal, following the doctrine of staire decises, set aside the orders of the authorities below and deleted the addition made, emphasizing that the production and trading accounts were duly accepted.