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TMI Blog1989 (2) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... ich have been returned. After the tin sheets are received duly printed by the crowns, the assessee-company extracts the crowns from these tin sheets and correspondingly the tin sheets come out extracted with number of circular blocks being left behind which are called jalis . The crowns are then converted to caps with fixation of polythene insided before being despatched to various soft drinks manufacturer who happen to be mostly related concerns of the assessee-company. For the year under consideration, the assessee had claimed in its audited accounts that it had consumed tin sheets weighing 7,61,900 kgs. The audited statement of accounts also indicated that the number of crowns manufactured in the year was 10,07,133 gross. In the revised trading account that was filed, the assessee had indicated that scrap weighing 1,86,387 kgs. was sold and that the aggregate wastage percentage was 25.99. 3. The ITO finding the wastage percentage to be on the higher side called the assessee to provide explanations alongwith the manufacturer s records. The assessee had pleaded before the ITO that the manufacturing record had been destroyed when the mob ransacked the factory and burnt it in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly the despatch is being made at the time when no official of the excise Department is present. The ITO found as a matter of facts that there is no dispute in regard to the quantity of the tin sheets purchased. He was also told the normal size of tin sheet as 30" x 25" or 33-1/2" x 30", the former giving 342 crowns while the latter 450 crowns. The ITO found that wastage is occurred at the time of the sizing of the tin sheets, at the time when Jalis are obtained i.e. while extracting the crown from the tin sheets and also there is wastage on account of defective printing of crowns. However, the ITO found that there was no regular wastage register maintained indicating the scrap obtained. The scrap is sold on the basis of weight which is picked up by the scrap dealer who weighs it on a road-side weighment bridge and makes the payment as was fixed up by the Director incharge. The ITO desired for a record being maintained of scrap but the reply provided was that apart from the actual scrap that was sold which is treated as issued, no other separate records are maintained. 5. During the course of physical inspection the ITO found that the tin sheets made 1.065 to 1.15 kgs. average wei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of defective crown cannot be more than 10 per cent. The assessee pleaded that the excise records are authentic records and that excise authorities have not disputed the production shown by it. 8. The ITO was of the view that since the challans are prepared for despatch at the time when excise authorities are not available, the excise authorities not being present when the duly printed tin sheets are received, he concluded the challans of goods despatched in excess cannot be ruled out particularly the customers being those related to the Director. He accordingly came to the conclusion that the assessee had failed to link the quantity of tin sheets received, consumed with the actual production and work in progress, generation of scrap etc. He rejected the books of accounts and applied to proviso to s. 145(1). 9. Out of the total quantity of tin sheets consumed 7,16,900 he gave a deduction of 10 per cent for wastage on account of sizing of tin sheets and defective crowns and arrived at the tin sheets that are available for production by crown caps at 6,46,210. Applying the average weight of the tin sheets as shown by the assessee he arrived at the total crowns that should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17,76,300 i.e. No. of crown corks manufactured (in gross) 14,17,76,300/144 = 9,84,558 On this basis it was pleaded that the rejection of books of accounts was improper. It was also contended that the average weight of crown comes to 3.21 grams and in support of its claim certain sample crowns were provided to the CIT(A). It was also contended that even on this basis of figures as reflected in the annual balance-sheet is proper. It was also contended that in the earlier years the scrap was even higher and the same was accepted by the Revenue. It was also pleaded that in the year under review the gross profit was in the range of 9.23 per cent as against 7.6 per cent accepted by the Revenue for asst. yr. 1980-81. It was also further pleaded that the cost of tin sheets have gone up by 17 per cent while the selling price of crown had gone up only by 8 per cent, it was pleaded that the addition as has been proposed by the ITO, if to be treated as proper, it would generate a gross profit of 30 per cent a totally unthinkable proposition in the line of business of the assessee-company. 12. The CIT(A) observed that the order of the ITO suffered from certain defects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he recovery of tin sheets from M/s Printex Co. was 65.05 per cent in asst. yr. 1981-82 which has been accepted, 72.73 per cent in asst. yr. 1982-83, which was also accepted and 65.91 per cent for the year under review which is being disputed. He submitted that keeping any record in respect of scrap would mean unnecessary labour as the scraps are usually heaped in a particular place and on a regular basis it is being disposed of to a scrap dealer. Referring to the quantity manufactured as reflected in the accounts he submitted that but for the misfortune that had struck the assessee due to riots, there was no basis for rejecting the claim as made by the assessee. It was further pleaded that at the same time the contention of the Revenue that there should be more quantity of finished goods produced as well as more scrap should have been sold is without any basis, rather is based only on surmises, the addition has been made. It was further pleaded, the Department has nothing on record which could go to establish that the results shown by the assessee are very low or unacceptable. It was, therefore, pleaded that while arriving at the quantity to be produced on some average basis it c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted by the ITO that wastage on account of jalis as well as defective printing is in the range of 10 per cent. That means a further reduction of 47,253 Kgs. which would mean that only 4,25,278 Kgs. of tin sheets results in production of 10,07,133 gross crowns. As per the statement submitted to the CIT(A) which is reproduced while discussing the facts earlier, the assessee had submitted that 342 crowns were obtained per sheet and on that basis the number of crowns that would have been manufactured were 14,16,86,150 numbers that is giving a gross of 9,83,932 gross, while the actual production shown by the assessee was 10,07,133 gross. Even taking the average weight of each crown at the basis, the number of crowns in gross, that could be manufactured was arrived at 9,84,558 as against the actual production of 10,07,133. 16. As was rightly pointed out during the course of argument, ITO in his order in regard to generation of scrap observed as under: "Further consumption of 6,45,210 kgs. of sheets will produce scrap in the form of jalis and side strips to the extent of 23 per cent which comes to 1,48,398 kgs. This together with 10 per cent of scrap generated at the printing stag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crowns caps from other sources as well apart from the assessee. For these reasons as well we have only to come to the conclusion that the addition on account of the suppressed sales and suppressed scrap generation was uncalled for and accordingly we delete the addition. 17. The next ground regarding disallowance of sales promotion expenses, the plea of the assessee was that the details of the sales promotion expenses were provided to the ITO as well as to the CIT(A). The learned Senior Departmental Representative placed reliance on the orders of the authorities below. On this issue we find that at page 30 the assessee had provided the details of sales promotion expenses giving total of each month without specifying therein the nature of the expenses. This detail in our view does not bring out the requisite particulars and accordingly the observation of the CIT(A) that no details were filed before him cannot be said to be wrong in these circumstances and accordingly we confirm the disallowance. 18. In regard to the extra shift allowance on plant and machinery it was pleaded that the CIT(A) was wrong in his observation that no details were available. The learned senior Department ..... X X X X Extracts X X X X X X X X Extracts X X X X
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