2014 (12) TMI 1402 - AT - Income Tax

Claim for conversion / manufacturing loss - appellant's claim for conversion / manufacturing loss to the extent of 5 per cent only - HELD THAT - We find that it is not in dispute that the trading result disclosed by the assessee is fully supported by the books of accounts and stock register. No defect in the regularly maintained books of accounts of the assessee could be pointed out by the Revenue. The quantum of weight loss in manufacturing by itself even when the same is more than others does not empower the Revenue to make addition unless some defect in the books of accounts of the assessee is found. The excess loss suffered by the assessee may provide a ground to the Revenue to investigate the fact properly but that by itself does not empower to disallow genuine loss when no defect in the books of accounts is found. Thus, in our considered opinion, the addition confirmed by the CIT(A) is not sustainable on the facts of the instant case. We, therefore, delete the addition and allow this ground of appeal of the assessee.

Summary

Issues:
Appeal against the order of the Commissioner of Income-tax(Appeals) regarding conversion/manufacturing loss disallowance.

Detailed Analysis:

1. Ground of Appeal - Conversion/Manufacturing Loss Disallowance:
- The assessee appealed against the CIT(A)'s order for Assessment Year 2006-07, focusing on the disallowance of a portion of the conversion/manufacturing loss claim.
- The appellant argued that the CIT(A) erred in allowing only 5% of the claim and confirming the disallowance of Rs.2,12,953 out of the total ad-hoc disallowance of Rs.6,08,913 made by the assessing officer.
- The appellant contended that the claim was genuine, supported by government directions allowing 9% wastage in studded jewelry, and comprised losses at various stages of manufacturing.

2. Assessee's Submissions and CIT(A) Decision:
- The assessee, engaged in diamond and jewelry manufacturing, explained the detailed process of conversion/manufacturing loss during assessment proceedings.
- The CIT(A) allowed the claim for 5% loss but upheld the disallowance of Rs.2,12,953, without specifying reasons for not deleting the entire disallowance despite uncontested submissions.

3. Quantitative Details and Assessing Officer's Addition:
- The Assessing Officer observed weight loss claimed by the assessee and added Rs.6,08,913 to income based on a 1% normal loss rate.
- On appeal, the CIT(A) considered the normal loss in the jewelry business to be 5%, reducing the addition to Rs.2,12,953.

4. Tribunal's Decision and Rationale:
- The Tribunal found the assessee's trading results supported by maintained books of accounts, with no defects pointed out by the Revenue.
- Emphasizing that excess loss does not warrant disallowance without defects in accounts, the Tribunal deleted the Rs.2,12,953 addition, ruling it as unsustainable.

5. Conclusion:
- The Tribunal allowed the assessee's appeal, overturning the CIT(A)'s decision on the conversion/manufacturing loss disallowance for Assessment Year 2006-07.

This detailed analysis highlights the key arguments, decisions, and rationale behind the Tribunal's judgment in favor of the assessee regarding the conversion/manufacturing loss disallowance issue.