9911796707
TMI Blog2007 (1) TMI 386X X X X Extracts X X X X X X X X Extracts X X X X ..... he next issue regarding sustaining an addition of Rs. 59,29,708. The relevant material facts of the case are that the assessee filed return declaring income of Rs. 42,21,930 on 31-10-2001. This return was accompanied by P&L a/c, audit report in Form 3CA and 3CD along with the balance sheet and other related accounts. The case was processed under section 143(1) and thereafter picked up for scrutiny. The assessee was engaged in the business of manufacture of steel ingots from the scrap, etc. and job work. The assessee had shown net profit (in short, 'NP') of Rs. 19.54,845 on total sales of Rs. 32,58,95,895 which worked out to 0.60 per cent as against NP rate of 2.16 per cent on sales of Rs. 29,62,06,466 shown in the last year. Thus, the Assessing Officer observed that there was a substantial fall in NP rate as compared to earlier assessment year. The Assessing Officer also observed that there was substantial fall in GP rate of 4.20 per cent of the last year to 0.21 per cent of the assessment year under consideration. When confronted, the assessee submitted that the fall in OP rate was due to decrease in the sale price of the finished goods and increase in the cost of raw material dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equested the learned CIT(A) for admission of additional evidence in the form of monthly/daily consumption of raw material, production and sale returns filed with Central Excise Department and certificate from the Central Excise Department regarding the raw material : consumed and the finished goods produced. The learned CIT(A) admitted such evidence. The same was forwarded to the Assessing Officer and his remand report was obtained. It was submitted before the CIT(A) that the action of the Assessing Officer for restricting wastage to 5 per cent was neither factually correct nor justified. It was submitted that the contention of the Assessing Officer that use of mixed scrap and wastage were not authenticated with any documentary evidence such as day-to-day working or monthly working of production and consumption was not correct as the assessee had already produced excise records, day-to-day production registers and other books of account from where it was clear that such information was being maintained. It was also argued that the contention of the Assessing Officer that no wastage results in consumption of imported scrap were contradictory because the Assessing Officer had himself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itative details relating to purchases of raw materials, issued for consumption on daily basis, production of finished goods, wastage, yield, etc. were not given in spite of the fact that assessee was asked to furnish these details during appeal proceedings. He also observed that though assessee claimed to have enclosed these details along with the reply yet these were never furnished. He also observed that even the quantitative statements filed during the appeal proceedings were incomplete as the same did not contain the complete information in the form of opening stock of raw material, purchases made, raw material issued for production, consumption of raw material and finished products, etc. Only the part information regarding consumption of scrap and production of finished products has been shown in the chart filed during the appeal proceedings. He, therefore, observed that the additional evidence furnished during the course of appeal proceedings does not help the assessee because such information was neither verifiable from the books of account nor the same was complete because neither the opening stock nor the purchases, raw material issued, etc. are indicated in the chart. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase price of raw material. Thus, he rejected the assessee's contention that fall in GP rate was due to increase in cost of raw material and fall in sale price of finished goods. Taking notice of all these facts, the learned CIT(A) observed that the books of account, stock and manufacturing records maintained by the assessee were not reliable. Accordingly, he upheld the action of the Assessing Officer for rejection of book result. He also relied on the judgment of Bombay Court in the case of Kishinchand Chellaram v. CIT [1978] [1978] 114 ITR 671 , the judgment of Hon'ble Punjab & Haryana High Court in the case of Punjab Trading Co. v. CIT [1964] 53 ITR 335 and the judgment of Hon'ble Orissa High Court in the case of Ratanlal Omprakash v. CIT [1981] 132 ITR 640 (Ori.) He also relied on the judgment of Hon'ble High Court in the case of Raza Textiles Ltd. v. CIT [1972] 86 ITR 673 (All.). The learned CIT(A) further added that the assessee failed to produce any stock register and day-to-day production register containing complete details in the original form before him in spite of the fact that such registers were required to be produced during the appellate proceedings. Thus, the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and wastage were also filed before the CIT(A) and these details were referred to the Assessing Officer for remand report. However, he submitted that some of these details were not filed before, the Assessing Officer during the course of assessment proceedings. But, the learned CIT(A) admitted such evidence and referred the same to the Assessing Officer. The appeal was decided after obtaining remand report of the Assessing Officer. He submitted that the authorities below have referred to contradictory figures given by the assessee in respect of wastage. He submitted this happened because in the quantitative chart enclosed with the return of income, wastage was wrongly arrived at.on the percentage of production/quantity manufactured at 7.24 per cent whereas the same was required to be arrived at on the basis of total raw material consumed. However, this mistake was corrected before the Assessing Officer and correct wastage at 6.75 per cent was shown. He submitted that book results have been rejected on the basis that the assessee had not maintained the stock tally, wastage shown was excessive and GP rate was low. He also drew our attention to p. 7 of the paper book which contains yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer is duty-bound to make fair and reasonable estimate based on the past history of the case. In this regard, he relied on the decision of Tribunal, Amritsar Bench, in the case of New Kashmir Steel Rolling Mills v. Asstt. CIT [IT Appeal No. 22 (Asr.) of 2005 , 2001-02] (a copy is placed at pp 558 to 581 of the paper book). He specifically drew our attention to para 11 of the aforesaid order, where these aspects have been discussed by the Tribunal. He submitted that since the past history of the case was accepted, no trading addition was called for. He further stated that while, contesting the above appeal, the Tribunal also referred to the expert report of John M. Smith and the decision of Tribunal, Allahabad Bench in the case of Asstt. CIT v. Mohan Steel Ltd. [IT Appeal Nos. 1961 and 1962 (All.) of 1992] for the assessment years 1888-899 and 1989-90 and it was held that since the business of the assessee was not the same, no addition could be made in the case of the assessee by comparing the burning loss of the assessee with that of Mohan Steel Ltd.'s case (supra). Thus, he concluded his arguments by saying that no trading addition was called for in the present ease. 6. The lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it was necessary to examine the production process and come to a conclusion about the yield difference as per material consumed. However, the assessee never furnished such information. He further stated that the assessee had been giving different picture about the burning loss. At one point, the assessee claimed the burning loss at 7.24 per cent and at other place, the assessee stated the same was 6.75 per cent and still it was stated that the burning loss was 10.42 per cent. He particularly drew our attention to tax audit report (copy placed at pp. 152 to 156 of the paper book). Drawing our attention to items at Col. 28A(iii), (vi), (vii ), (viii), 28A(i ) to (iii) and 28A(vi), the learned Departmental Representative submitted that auditors had conveniently omitted to furnish details like yield of finished products percentage of yield, shortage/excess, if any, and similar details in respect of item (B) were not furnished.- Regarding para B of Col. 8, the learned Departmental Representative submitted that auditors had mentioned the figures of production at 25,615.385 MT of steel ingots. He then referred to p. 517 of the paper book where in addition to steel ingots weighing 25,615 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat only 4.24 per cent of sponge iron out of total scrap for manufacturing was used. The majority of the scrap melted was imported where the wastage was much less. He further submitted whatever information was supplied during the appellate proceedings before the CIT(A), the same was also incomplete and non-verifiable from the books. This finding h?;s been clearly recorded by the CIT(A) in the impugned order. He further stated that the contention of the assessee that it had produced two stock registers before the CIT(A) was factually false because the learned CTT(A) at p. 10 of the impugned order has recorded a categorical finding that no such details were filed. Thus, in the tight of these facts of the case, the learned Departmental Representative submitted that the Assessing Officer had no option but-to-reject the book results and estimate the income by applying wastage of 5 per cent. He submitted that in fte case of sister-concern, namely, New Kashmir Steel Rolling Mills, where the wastage was shown at 5.59 per cent. the Assessing Officer accepted the wastage to 5 per cent and made the addition, accordiegiy. Relying. on the decision of Tribunal, Amritsar Bench, in the case of New ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled for. 8. We have heard both the parties at some length and given our thoughtful consideration to the rival contentions, gone through the facts, evidence and material placed on record as well as the orders of the authorities below. The assessee has filed a comprehensive paper book running into more than 600 pages. However, during the course of arguments of the case only few pages not more than 50 to 60 were referred to. We have taken into account relevant pages of the paper book to which our attention has been drawn. Now, the first issue which requires to be decided by this Bench is whether the Assessing Officer was justified in rejecting the book results. It is no doubt true that the accounts of the assessee were audited which were accompanied with the tax audit report in Form No. 3CD filed along with the return. Copy of the audit report is at pp. 151 to 156 of the paper book. Column(A) of para 28 required auditors to give information about the opening stock, purchases during the previous year, consumption during the previous year and closing stock. These details have been given. However, the auditors have conveniently omitted to furnish information about the yield of finished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned any day-to-day stock register containing complete information of the nature required to be maintained in such register. Coupled with the facts is that the assessee has been reporting different figures of burning loss and wastage i.e. 7.24 per cent and subsequently 6.75 per cent. Further, on the basis of the figures of consumption of raw material and production reported by the auditors in the audit report, wastage/loss worked out to 10.42 per cent. It is also a fact that there was a substantial fall in GP rate from 4.20 per cent of the last year to 0.21 per cent of the assessment year under consideration and steep fall in NP rate from 2.16 per cent of the last year to 0.60 per cent of the assessment year under consideration. Thus, taking into account the totality of the facts and circumstances of the case, it could be sold that the Assessing Officer was justified in rejecting the book results. Similar issue was considered by the Tribunal, Amritsar Bench, in the case of assessee's sister-concern, namely, New Kashmir Steel Rolling Mills where the action of the Assessing Officer for rejection of book results was upheld by recording following findings in paras 9 and 10 of its order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... items had not been filed and only a chart showing valuation of closing stock as on 31-3-2001 had been filed. The chart placed on p. 74 of the paper book does not contain information in the manner required in col. 28 of the audit report. Besides, there is also a grave doubt whether day-to-day details of the quantity of raw material available, consumed, production obtained in terms of units and die burning loss, etc. were maintained. Thus, the absence of such details coupled with low percentage of GP and higher percentage of burning loss enabled the authorities below to come to a conclusion that book results were not reliable. The learned CIT(A) has relied on the judgment of jurisdictional High Court of Punjab & Haryana in the case of Punjab Trading Co. (supra), where it was held that omission to maintain day-to-day production register coupled with low yield justified rejection of book results. The learned CIT(A) has also relied on the judgment of Bombay High Court in the case of Dhondiram Dallichand v. CIT (supra). Further, the learned Departmental Representative has also relied on the judgment of Punjab & Haryana High Ccurt in the case of Harcharan Dass Textiles Mills (supra), whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in default as regards supplying information. He must not act dishonestly or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment and for this purpose he must be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by, and assessments of, the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guesswork in the matter, it must be honest guesswork. In that sense too, the assessment must be, to some extent, arbitrary. The section places the officer in the position of a person whose decision as to amount in final and subject to no appeal, but whose decision, if it can be shown to have been arrived at without any honest exercise of judgment, may be revised or reviewed by the CIT under the powers conferred upon that official by section 33." Now, for the purpose of estimating income, the Assessing Officer can refer to the past history of the case which acts as a good guide for determinat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the out of runners and risers manufactured in the assessment year under consideration weighing 881.125 MT, the assessee had sold 766.355 MT for an amount of Rs. 32,18,900 and was left with a closing stock of 15.775 MT. If the contention of the Revenue that these were manipulated figures of runners and risers as the same were nothing but scrap recycled into production was accepted then the question is wherefrom the assessee had made sales of Rs. 32,18,900 of runners and risers. Similar sales worth Rs. 33,15,285 had been made in the immediately preceding assessment year relevant to the assessment year 2000-01. The figures of sales formed part of audited account filed along with the return. Thus, we are unable to accept the submissions of the Reamed Departmental Representative that the runners and risers were nothing but part the scrap and the assessee had only manipulated the figures. 10. The other item which was omitted by the auditors from production was steel skull weighing 172.115 MT. No sales of the same have been shown at p. 167 of the paper book. Page 171 of the paper book shows closing stock of skull at 1.720 MT which means that the remaining quantity of 170.395 MT was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeds. That being so, the GP rate would be higher than the earlier assessment year because excise duty paid is debited to P&L a/c and not to-manufacturing account. Similarly, the excise duty collected from the customers and paid by the assessee would not make any difference so far as NP rate is concerned. But, at the same time, the assessee had taken, plea that there was an increase in the cost of raw material as compared to earlier assessment years. The Revenue could have verified this fact by calling for specific details of invoices of last year and comparing the same with purchase and sale rates of the assessment year under reference. The assessee has submitted a copy of order sheet notings made by the Assessing Officer during the course of assessment proceedings at pp. 460 to 461 of the paper book. The same shows that the assessee had not only produced books of account consisting of ledgers, cash books but also invoices for purchases which were also test checked. There is nothing in the order sheet that the assessee was asked to produce comparative purchase/sale rate of the two assessment years and the assessee failed to furnish the same. In fact, hearing of the case starte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as mentioned that enquiries were got made with other mill-owners who had shown lower rate of wastage. Neither the name of any mill owner nor the wastage shown by such mill owner has been mentioned in the assessment order. No such enquiry report has been confronted to the assessee. Therefore, any evidence or material collected at the back of the assessee without confronting the same cannot be used against the assessee. The case of sister-concern viz., M/s. New Kashmir Steel Rolling Mills is not comparable to this case because the item being manufactured by that unit is different from the case of assessee. On the contrary, the past history of the case shows acceptance of higher percentage of wastage. In fact p.7 of the details, placed before us shows that the percentage of wastage for the assessment year under consideration at 6.75 per cent was the lowest as compared to the assessment years from 1995-96 to 2000-01. Thus, we do net find any justification for the authorities below in making/sustaining an addition on account of excessive wastage. We may further add that on identical facts in the case of New Kashmir Steel Rolling Mills (supra), addition made by the Assessing Officer was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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