2023 (10) TMI 1143 - HC - Income Tax

Unaccounted sales - 4000.806 MTs of finished goods were the product of excess scrap - For the purpose of calculating the percentage (%) of scrap generated during the year, the assessment worked out to 7.2% and not 6.8% as had been worked out by the assessee - HELD THAT - The assessee has been selling semi-finished goods to its subsidiary entity since the assessment year 2009-2010 till 2014-2015. The additionwas made by the AO for the assessment year 2009-2010 and this was set aside by the CIT (Appeals). For the assessment years 2010-2011, 2011-2012, 2012-2013, 2013-2014 and 2014-2015, no addition was made qua the semi finished goods manufactured and sold outside the books of accounts. As per the stated chart, in all the subsequent years, assessment orders have been passed u/s 143 (3) - A perusal of the assessment orders shows that consistently the sales of semi finished goods made by the appellant to M/s Jai Suspension Systems as a sister concern have been accepted and account books to this extent have also been accepted by the Assessing Officer. Revenue has not been able to dispute the correctness of the aforesaid orders passed u/s 143 (3). After 2009- 2010, no addition has been made in the income of the appellant towards the sales of semi-finished goods to M/s Jai Suspension Systems. No substantial question of law arises

Summary

Issues involved:
The judgment involves the assessment of addition made on account of excess scrap in the manufacturing process by the Assessing Officer, the appeal filed by the respondent-assessee against the order of the Commission of Income Tax (Appeal), and the subsequent appeals filed by the Revenue challenging the decisions.

Assessment of Addition on Account of Excess Scrap:
The respondent-assessee, engaged in manufacturing Spring and Spring Leaves, faced an addition of Rs. 25,60,84,653/- by the Assessing Officer due to the production of finished goods from excess scrap. The dispute arose from the calculation of the percentage of scrap generated during the year, with the assessee's calculation at 6.8% differing from the assessment's 7.2%. The Assessing Officer deemed the entire sale value of Rs. 25,60,84,653/- as income, alleging that the finished goods were produced off the books. However, the CIT (Appeals) accepted the assessee's arguments, noting the absence of discrepancies in the books of accounts and directing the deletion of the addition.

Appeal and Tribunal Decision:
The Revenue appealed the CIT (Appeals) decision to the Tribunal, which upheld the earlier decision. The Tribunal criticized the Assessing Officer for not providing reasons for excluding the value of semi-finished goods sold to a sister concern in the production calculation. It was highlighted that there was no evidence of unaccounted manufacturing or sales, with the additions made solely on suspicion. The Tribunal dismissed the Revenue's appeal, affirming the CIT (Appeals) decision.

Subsequent Assessment Orders:
Following a directive to present assessment orders post-2010 regarding semi-finished goods, the respondent-assessee provided documents showing consistent acceptance of sales to a subsidiary entity in subsequent years. The assessment orders under Section 143 (3) after 2009-2010 did not include any additions related to the sales of semi-finished goods, indicating a pattern of acceptance by the Assessing Officer.

Conclusion:
The High Court found no grounds to interfere with the impugned order, stating that no substantial question of law arose for consideration. Consequently, the appeals (ITA No. 8531 of 2018 and ITA No. 8532 of 2018) were dismissed, affirming the decisions of the lower authorities.