2006 (7) TMI 202 - HC - Income Tax

Rejection of books of accounts estimation of income basis held that - The fact that the assessee used a bulk out of the carried forward stock of reusable scrap in the following year is well document, and it also explains the high yield of 92.75 per cent. in that year. The gross profit ratio at 14.84 per cent. during the year is comparable to the ratio of 15.48 per cent. in the preceding year. If the addition made by the Assessing Officer is sustained, it will reflect non-existent production and unearned profit in the abnormally high gross profit of 26.33 per cent. - The changed situation also explains that the assessee was always valuing its stock of scrap at ₹ 7 per kg. as it contained only non-reusable scrap. - This year, it was valued at ₹ 27 per kg. because for the first lime the closing stock also included the reusable scrap. Thus, considering all the facts and circumstances of the case, we see no justification at all to sustain the addition.

Summary

Issues:
1. Appeal under section 260A of the Income-tax Act, 1961 against the order passed by the Income-tax Appellate Tribunal regarding assessment year 2000-01.
2. Addition of Rs. 30,83,659 made by the Assessing Officer and confirmed by the Commissioner of Income-tax (Appeals) based on scrap generation discrepancies.
3. Discrepancy in scrap generation figures and its impact on the assessment of unaccounted sales of finished goods.
4. Whether the Tribunal's decision to reverse the orders of the Assessing Officer and the Commissioner of Income-tax (Appeals) was correct.

Analysis:
The High Court of Delhi heard an appeal under section 260A of the Income-tax Act, 1961, filed by the Revenue against the order of the Income-tax Appellate Tribunal concerning the assessment year 2000-01. The Tribunal had partly allowed the appeal by the respondent/assessee, leading to the deletion of additions totaling Rs. 30,83,659 made by the Assessing Officer and confirmed by the Commissioner of Income-tax (Appeals). The dispute arose from discrepancies in scrap generation figures reported by the assessee, impacting the assessment of unaccounted sales of finished goods. The Assessing Officer issued show-cause notices based on these discrepancies, leading to the addition of Rs. 30,83,659. The assessee explained that the change in reporting was due to ISO certification requirements, which necessitated the inclusion of reusable scrap in the books. The Tribunal found that the auditors had certified the results correctly, considering the change in reporting due to ISO certification. The Court agreed with the Tribunal's analysis, emphasizing that the addition by the Assessing Officer would reflect non-existent production and unearned profit, given the change in reporting practices. The Court highlighted several admitted facts, including the ISO certification requirement, utilization of reusable scrap in finished products, and the absence of evidence of sales outside the books. Ultimately, the Court dismissed the appeal, stating that no substantial question of law arose in the case.