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TMI Blog2015 (3) TMI 889X X X X Extracts X X X X X X X X Extracts X X X X ..... ration shown before us that how particular nut was carved out of a solid piece and of balance solid material can be used only as a scrap. There is a further argument that when records of the assessee have been accepted by the excise authorities then how same can be doubted by the Income-tax authorities. However, at the same time it is also a fact that the assessee has changed certain figures twice though learned counsel for the assessee tried to justify the same. We do not find much force in them. However, at the same time it cannot be denied that the assessee has suffered excessive shortage because of sophisticated nature of products and same was within the norms given by various Government agencies. Therefore, in our opinion, in this case ultimately the wastage has to be estimated on reasonable basis. Considering overall facts of the case, we are of the opinion that the ends of justice would be met if an addition of ₹ 10 lakhs is made on account of excessive wastage/invisible loss. Therefore, we set aside the order of the learned Commissioner of Income-tax (Appeals) and direct the Assessing Officer to make total addition of ₹ 10 lakhs on account of wastage and invisib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation. 4. That while dismissing the aforesaid grounds of appeal, the learned Commissioner of Income-tax (Appeals), Jalandhar has erred in not admitting additional evidence in the shape of report of the chartered engineer as per paragraph 7.8 of the order and finding of the Commissioner of Income-tax (Appeals), Jalandhar in this regard is contradictory and not tenable. 5. That notwithstanding the above said ground of appeal, the Commissioner of Income-tax (Appeals), Jalandhar by confirming the addition of ₹ 19,89,240 and ₹ 12,05,600 has, in fact, made a double addition and which is not justified. 6. That without prejudice to the above grounds of appeal, alter natively it is submitted that all the purchases from the parties are identifiable, payments have been made by account payee cheques and as such disallowance of purchases, as confirmed by the Commissioner of Income-tax (Appeals), Jalandhar is not sustainable and, if any addition could be made, at all, that could be only of the scrap and not of the genuine purchases made by the appellant. 4. The first ground of the Revenue's appeal is regarding deletion of disallowance amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the remand report and the remand report was furnished by the Assessing Officer vide letter dated January 5, 2009 and reads as under : (1) That grounds Nos. 2 and 3 of the appeal are against dis allowance of ₹ 9,09,421 made under section 40(a)(ia) for non- deposit of tax deducted at source into Government account from payments to contractors under section 194C. This is the case of an individual assessee with total sales exceeding a sum of ₹ 40 lakhs attracting the provision of section 44AB. The appellant's contention that she was not legally required to deduct such tax at source during the assessment year 2005-06 but still it was deducted but was paid into Government account after the expiry of the relevant previous year. As a perusal of the relevant assessment order reveals, the appellant's contention that she was not legally required to deduct such tax at source, appears to be correct in view of the provision of section 194C(1) as it existed before its amendment with effect from June 1, 2007, by the Finance Act, 2007 according to which clause (k) relating to deduction of tax at source by an individual assessee with total sales exceeding S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leted. Ground Nos. 2 and 3 are allowed. Ground No. 1 is general in nature. We find that the Assessing Officer has also accepted in his remand report this position, therefore, there is nothing wrong in the order of the learned Commissioner of Income-tax (Appeals) and we confirm the same. 10. Ground No. 2 of the Revenue's appeal and various grounds of the assessee's appeal relate to only one issue, i.e., various additions on account of excessive consumption, invisible loss shown by the assessee. 11. After hearing both parties we find that during assessment proceedings the Assessing Officer noticed that the assessee was engaged in the business of manufacturing wheel nuts, etc. Raw material was purchased in terms of kilogram whereas the sales were conducted in pieces. The assessee exported a major amount of manufactured products. To assess the reasonableness of the purchase of raw material the assessee was asked to furnish the quantitative details in kilogram. The assessee submitted the detail vide letter dated November 13, 2007, which is as under : Opening balance round steel as on 31-3-2004 73.00 M.T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16,22,937 117.660 M.T. and made various analysis and worked out various additions on account of invisible loss and wastage, etc. which are incorporated in pages 3 to 10 of his order which are as under : Again a detailed show-cause notice in this regard was issued to the assessee in the following terms : 'As per details of raw material and consumption thereof filed on November 13, 2007 and December 10, 2007, following discrepancies have been noticed : (a) Purchase of raw material has been shown at 790 M.T. whereas as per vouchers of raw material purchased impounded on November 23, 2007, raw material weighing 802.825 M.T. has been purchased which gives rise to difference of 12.825 M.T. (as per annexure A (4 pages)). Hence show cause why purchases of 12.825 M.T. should not be disallowed at average rate of ₹ 24,803 per M.T. (b) Further perusal to export invoice No. EXP/T 001 dated March 25, 2005 to M/s. T. S. Panesar, Australia household goods weighing 8000 kg, i.e., 8 M.T. have been sold which have not been obviously included in the purchase of raw material. Therefore, equivalent purchase of SMT at average rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Opening stock amount produced (input) (weight) Opening balance as on 31-3-2004 73.00 M.T. Raw material purchased 798.00 M.T. Finished + unfinished purchased 60.00 M.T. Total: 931.00 M.T. Utilisation detail (output) (A) Sale Export sale 292.00 M.T. Indirect export 159.00 M.T. R/D sale 27.00 M.T. Central sale 16.00 M.T. Scrap 117.00 M.T. Total 611 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 158484 96,62,654 60.97 (iii) R.D. sale 27105 1,63,94,757 60.49 (iv) Central sale 16000 4,07,113 25.44 In view of the fact that the sale in other three heads as detailed above worked out to be at the rate of more than ₹ 60.49 per kg. whereas in respect of central sales quantity of 16 ton is stated to be sold at the average rate of ₹ 25.44. Therefore, vide show-cause notice dated December 20, 2007, the assessee was asked to explain why the quantity involved in such sales should not be worked out at the average rate of sales worked out in case of indirect export sales. 3.2.2 Though the assessee has not specifically explained this issue, however, one paragraph in her reply dated December 26, 2007 seems to be addressing the issue. The same is reproduced as under : 'Export sales were made under my own trade mark after the inspection and clearance of goods as graded goods as per ISO stand ards, goods which failed to pass the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... To know the area : you could weight (sic) the wire and considering that the density of steel is approximately 7.85 g/cm3 having the length you can estimate the area (sic). 7.8 g/cm Materials sorted by category then density. Marcus materials (see table 1) 7.47 8.03 g/cm CRC handbook of chemistry and physics. 75th edition. Florida : Chemical Rubber Co, 1994. (see table 2) 7.86 7.9 g/cm Scott Hawkins. Re : What is the density of steel ? MadSci Network. 11 September 1997. The short answer to your question is that the density of plain mild steel is 7.85. The long answer is that depending on where you look, or the grade of steel that you are taking about can change this value. A density of 7.88 is often quoted for mild steel as well. If you add alloying elements such as 7.75 8.05 g/cm tungsten, chrome or manganese to improve the steel, the density will change. So the long answer is that the density of steel can vary between 7.75 and 8.05. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.3.1 Next comes the issue of irrecoverable and invisible loss of 66 M.T. on account of heat treatment de-scaling, grinding, cutting, etc. In this regard while preparing chart furnished on November 13, 2007 purchases and consumption of raw material the assessee has not referred to any such loss. Rather such loss was stated to be covered by the quantity of 93 M.T. However, when confronted with quantities of purchase and sales vide letter dated December 20, 2007, the assessee has come up with an explanation that further 66 M.T. of raw material has been lost on account of heat treatment de-scaling, grinding, cutting, etc. 3.3.2. As regards the justification of such loss the relevant portion of the assessee's reply filed vide letter dated December 26, 2007, is reproduced hereunder : Details and justification of invisible/irrecoverable loss is enclosed as per annexure-III. Further, this is to inform your honour that as per standard input-output norms of the Ministry of Commerce and Industry, Department of Commerce, Government of India more than 40 per cent. average wastage (invisible and scrap) is approved in our business as per annexure-IV enclosed. Whereas in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istry of Commerce and Industries in connection with duty exemption scheme and the assessee has produced permissible wastage as follows : Item Raw material of weight Finished goods Wastage weight 1. Nyloc self locking nuts, steel locking nuts, wheel nuts made from steel (item S.No. C-739 page 1.939 M.T. 1 M.T. 48.42 % of RM 2. Bolts, nuts sleeve for wheel assembly ^item No. C-1305, page No. 2. 120 Kg. 1Kg. 52.83 % of RM 3. Steel hub bolts (item No. 1047 page 705 66-162 1.300 Kg. 1Kg. 23 % of RM 4. Carbin steel/non-alloy steel/alloy steel (forging machined) up to 10 kg. P.C. (item No. C-36D page 1.^00 Kg. 1Kg. 41.17 % of RM It has transpired during the course of discussion that the assessee is mainly a manufacturer of steel hub bolts and nuts. The same fact can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erage of consumption of raw material per day calculated as under consumption in March should be about 69 M.T. Average consumption per day = total consumption as claimed 31/365, i.e., 810 31/365 = 365 = 69 M.T. Given the purchase of 221.52 M.T. closing stock of raw material at 30 M.T. and consumption of 69 M.T. the purchase of 122.52 M.T. are unexplained in the most favourable condition to the assessee that on March 1, 2005, the assessee had no raw material in stock. It is this amount which is tried to be explained by the assessee by overstatement of central sales to the tune of 9.23 M.T. irrecoverable loss of 66 M.T. on account of descaling heat treatment, grinding cutting, etc., and further loss of 40 M.T. on account of variation in weight in cartons. In view of these facts declaration of invisible loss of 66 M.T. is totally unjustified and equivalent purchase/consumption amounting to ₹ 19,89,240 at the average rate of ₹ 30,140 worked out as above in paragraph 3.2.3 is hereby disallowed. Since by debit of excessive purchased the assessee has concealed particulars of her income, penalty proceedings under section 271(1)(c) are being initiated on this account. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntity in Amount Nuts 12762 28 (includes bolts) 444.000 Bolts 249764 - 14.92.000 Washer 200000 2 100.000 S-cam 2000 14 420.000 Semi-finished - 37 962.000 Round steel - 30 690.000 Scrap - 14 140.000 Oil and lub. oil packing and other 4620 lts - 92.000 - 51.000 Total 121 43,87,400 Since purchase of 115.23 M.T. do not find any place in closing stock these are either bogus or sold out of books of account. Even in the alternative equivalent addition would result on account of un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56 pieces is not correct and according to the Assessing Officer the weight should be 6730 kg. as per page 7 of his order. This, he has calculated by making reverse calculation by taking into consideration the average sale rate of 60.49 in respect of R.D sale (indirect export) made to certain other parties with regard to certain items of auto parts and then has disallowed the excessive purchase/ consumption to the tune of ₹ 2,79,398. This contention of the Assessing Officer is devoid of any valid reasoning because of the fol lowing facts and circumstances : a. The Assessing Officer has without examining the specific parts or without any basis has merely on the basis of certain theoretical discussion stated that the average weight per piece of all the items cannot work out to 320 cms. In this regard, it is submitted that we have the drawing of that piece available with us and this drawing has been approved by the chartered engineer by taking into consi deration the same piece as taken by the Assessing Officer, the weight comes to 350 gms to 370 gms per piece and how the Assessing Officer is stating that the weight should be far less is not understand able merely on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 25 per kg., and, therefore, the Assessing Officer was not justified in making assumptions after assumptions and trying to draw the conclusion, which is far from reality. The basis of the adoption of weight and rates thus do not survives. d. The Assessing Officer have disallowed the amount from purchases by adopting the average rate of purchases and in this regard, it is submitted that all the purchases are from identifiable parties and the payments have been made by account payee cheques and as such against this background the disallowance of purchases on the assumptions of over-invoicing is not justified and deserves to be deleted. 3.1 The learned authorised representative for the appellant also furnished an application for admission of additional evidence in sup port of his submissions as under : 1. We have to very humbly submit in the above said case that we are filing the separate submission and paper books which are sup porting of our arguments. It may be stated that issue in the above appeal mainly relates to the wastage generated from the manufacturing activity in respect of different auto parts manufactured by us and during the course of assessment proceedings, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi). In view of the above said facts, it is prayed before your honour that our request for additional evidence may be accepted under rule 46A, since all the documents are relevant to the issue in hand and also that most of the papers are figures in the chart are already on the file of the Assessing Officer. The above submissions were referred to by the learned Commissioner of Income-tax (Appeals) to the Assessing Officer for remand report and in turn the remand report was confronted to the assessee. 13. After considering the rival submissions, remand report and rejoinder, the learned Commissioner of Income-tax (Appeals) deleted the addition of ₹ 2,79,398 and confirmed addition of ₹ 19,89,240 and ₹ 12,05,600. 14. Before us, learned counsel for the assessee mainly submitted that the assessee was maintaining excise record which has been accepted by the excise authorities. It was further stated that the assessee was manufacturing specific auto parts for export purposes and was trying to maintain good quality so that ultimate brand name can be built up and initial efforts have brought dividend in the latter years where the assessee's brand has got wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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