2015 (3) TMI 1019 - AT - Income Tax

Concealed sales of scrap - assessee could not give evidence regarding non return of the scrap by the vendors/subvendors doing job work for and it is most unlikely that assessee will allow vendors/sub-vendors to keep scrap with them, on which it is paying excise duty itself. - CIT(A) deleted the addition - Held that - No infirmity in the order of the learned CIT(A) inasmuch as nothing has been brought on record by learned Assessing Officer that the assessee's job workers returned any scrap to assessee. Nothing has also been brought on record to demonstrate in any way that assessee indulged in any sale of scrap outside the books of account. This is further indicated by new Cenvat Credit Rules, which holds that the scrap was not required to be returned to the assessee. The same is referred to by the judgment in the case of M/s Rocket Engineering Corporation Vs. CCE (2005 (6) TMI 184 - CESTAT, MUMBAI). The assessee further provided evidence from M/s Noble Industries, which has done a job work of 3.56 crores and has shown the income attributable to sales of scrape of ₹ 747109/-, in its books. These facts and observations demonstrate that the assessee did not receive any scrap back from job workers. There being no evidence whatsoever suggesting any unaccounted sales by the assessee, the order of learned CIT(A) on these issues is upheld. - Decided in favour of assessee. Unaccounted sale of scrap - the balance amount to difference shown by the assessee as receivable from SKF and the payable amount in the books of SKF - CIT(A) deleted the addition - Held that - The assessee has demonstrated that the difference was due to the disputes pertaining to defective and inferior quality of goods. The assessee used to account for the actual invoice value whereas the purchases were accounted by SKF not on the basis of the sales bills but on the basis of settled amounts qua these invoices. All these issues have been discussed in details by the learned CIT(A) as mentioned above. In view thereof, we see no infirmity in the order of the learned CIT(A) on this issue also, which is upheld. - Decided in favour of assessee. Excise duty on sale of scrap paid by the assessee - CIT(A) deleted the addition - Held that - the assessee demonstrated that as per Rule 4(6) of the Central Excise Rules, the assessee was liable for excise duty on the notional value of nonreturnable scrap. Thus, the assessee has to face the situation where the scrape was not returnable to it and on top of that the excise duty on such scrape was also payable by the assessee as per excise rules. In view thereof, the excise duty in respect of unreturned scrap becomes a statutory/legal liability of the assessee, which is allowable business expenditure. The learned CIT(A) has considered the issue in right perspective and we see no infirmity in its order on this ground, the same is upheld.- Decided in favour of assessee.

Summary

Issues Involved:
1. Addition on account of concealed sales of scrap.
2. Addition on account of concealed sales.
3. Addition on account of excise duty on sale of scrap.

Detailed Analysis:

1. Addition on Account of Concealed Sales of Scrap:
The Assessing Officer (AO) added Rs. 1,35,56,787 to the assessee's income, alleging concealed sales of scrap. The AO observed that the assessee paid excise duty on scrap but did not show corresponding income from its sale. The assessee argued that the scrap generated by job workers was retained by them as per trade practice, which was reflected in job work charges. The AO did not accept this explanation, citing lack of evidence and potential profit transfer to related parties. The CIT(A) deleted the addition, noting that the ER-1 form was for excise duty purposes and not actual sales. The CIT(A) also observed that there was no requirement for scrap to be returned to the manufacturer post-01/04/2000 as per CENVAT rules. The Tribunal upheld the CIT(A)'s decision, finding no evidence of unaccounted sales or scrap being returned to the assessee.

2. Addition on Account of Concealed Sales:
The AO added Rs. 2,33,96,017, including the Rs. 1,35,56,787 for scrap, alleging understated sales. The main customer, SKF India Ltd., often rejected goods leading to adjustments in invoices. The assessee provided detailed reconciliations and confirmations from SKF, which the AO ignored. The CIT(A) found that the AO made a double addition by including the scrap amount twice and accepted the assessee's reconciliation, reducing the addition to Rs. 1,76,179 for a claim from the previous year. The Tribunal upheld the CIT(A)'s decision, agreeing that the differences were due to genuine business adjustments and supported by documentary evidence.

3. Addition on Account of Excise Duty on Sale of Scrap:
The AO disallowed Rs. 19,13,583 claimed by the assessee for excise duty on non-returnable scrap, arguing that no scrap sales were shown. The assessee contended that excise duty was payable on scrap generated at both its and job workers' premises, even if not sold. The CIT(A) allowed the claim, citing Rule 4(6) of the Central Excise Rules, which mandated excise duty on notional scrap value. The Tribunal upheld this decision, recognizing the statutory nature of the liability and its allowance as a business expense.

In conclusion, the Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s deletions of the additions on all three grounds. The judgments emphasized the statutory requirements, trade practices, and lack of evidence for the AO's claims.