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TMI Blog2011 (5) TMI 947X X X X Extracts X X X X X X X X Extracts X X X X ..... rial used for production. He noted that by assessee's own claim and confession the total raw material used for production as per information supplied by the assessee and reproduced in table is 559169 Kg. As claimed by the assessee concession of 1.25% shortage comes to 6990 kg. hence the net production should be 5,52,179 Kgs. (559169 - 6990). As against this the assessee company has shown production of 5,12,318 Kg. He accordingly concluded that the assessee suppressed the production of 39,861 Kg. Adopting the average rate of sale i.e. 72,17,988 (62,62,867 + 9,55,121) for 5,05,154 Kg. (4,49,954 + 55,200) comes to ₹ 14,28 per Kg. He worked out value of suppressed production of 39,861 Kgs. at ₹ 5,69,561/- by the applying the rate of ₹ 14.28 per kg. He rejected the books of account and added the sum of ₹ 5,69,561/-in the income of the assessee. During the course of appellate proceedings before the learned CIT(A), the learned Counsel for the assessee objected to the A.O's action and submitted that, the A.O. has not appreciated the facts of the assessee' case in proper perspective and made huge addition by disallowing ₹ 5,69,561/- on account of Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered and concluded as Production loss itself as before making of final Product, raw material passes through various processes of heating, Cooling, Milling & cycling and sieving various grades of finished goods and loss arising thereon is referred as process loss. The AO has incorrectly interpreted transit loss as the process loss and has thereby committed a serious error in making a addition of ₹ 5,69,561/-. It was contended by the learned Counsel for the assessee that the AO in Para 2 & 3 of assessment order reproduced detailed note on Nature of Business and Manufacturing process as explained by assessee during the course of hearing. The AO has taken note of the entire process in assessment order himself but failed to appreciate the loss arising in the course of process and arrived at conclusion that "the manufacturing process prescribed is very simple where the chances of loss or shortage are quite remote." Before the learned CIT(A), a detailed note explaining the manufacturing Process was also submitted. Accordingly, firstly raw material Perlite Ore is taken to various buckets and lifted in the buckets above the vertical furnace. Then after reaching required t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ively Control and manage shortage loss but AO simply narrating and concluding that production process is so simple and shortage can never be more than 1.25% of the Quantity of total raw material used for production and thereby rejecting books of account without giving proper opportunity for justification to assessee Company to justify/establish its case is not tenable in law. He further argued that, the AO could not appreciate the difference between shortage and the yield. Yield of raw material is arrived and worked out of finished product after the raw material reaches the final product level. It appears that, the AO has improperly equated the difference in weight of raw material and final product as shortage. In fact, the difference is called as yield of Raw Material to Finished product and not shortage. The difference generated during the process of manufacturing is referred to as yield which can not be equated with the shortage. This is clear from the clause 28 (A) of Form 3CD, itself wherein the requirement is to report yield and shortage separately for the assessees who are the manufacturing concerns whereas in the case of trading concerns the requirement is of reporting only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raw material 6,670 Shortage in transit of imported raw material 4,728 Bag house (byproduct which have been sold separately. 55 Thread (this is not a raw material but a packing material item) 5,59,168 Total Kg." The learned Counsel for the assessee pointed out that from the above it is clear that the raw material consumed was only 5,47,775 Kg. (5,20,115 + 27,600 Kg.) and not 5,59,168 Kg. as adopted by the Ld. AO. From the above, the learned Counsel for the assessee stated that the details given in the tabular form by the AO itself is misleading in as much as he has included the quantity of bag house 4728 kg., trap 55 kg and shortage 6670 kg in the raw material consumed. Accordingly, total raw material consumed was taken by the AO as 559169 Kg. instead of 547715 kg. (5,59,169 Kg Less:11,453 Kg.(4,728kg. + 55Kg. + 6670Kg). Against this, the actual production works out at 517046 kg. (5,12,318 Kg. + bag house 4728Kg). If this is considered the yield works out at 94.40% (517046/547751). This yield is comparable with that of the technical data sheet furnished herewith and referred to herein above which says that, the yield can be up to 93.05% (100% Raw material Less: 6.95% (0.7% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le High Gujarat High Court in case of GIT V. Amitbhai Gunwantbhai (1981) 129 ITR 573,580 (Guj) categorically laid down the principle that, if there is no challenge to the transactions represented by entries or to the genuineness of the entries, then it is not open for revenue or other side to contend that what is shown by entries is not the real state of affairs. (c) Even in case of Vadayattu Jewellery V. State of Kerala (1997) 104 STC 121,126 (Ker), court categorically stated that Rejection of Books of Account are not justified where the defects pointed out in the books of account were of general or technical nature, objection of the assessee were not considered, books produced were not verified or no suppression of sales and purchase was established. (d) Merely because Books of Accounts are rejected as unreliable, it could not be said that the turnover returned by the assessee must necessarily be rejected and that turnover should be estimated at a higher figure than returned by the assessee. Even on rejection, whether the turnover returned by assessee should be accepted or whether a higher turnover should be estimated must depend on facts and circumstance of the case. Here, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject to audit under S.44AB or detected any material or evidence indicating that the assessee had made sale out of the books of account, he was not justified in making additions on account of unaccounted sales merely on certain presumption/assumption. (h) As held by Hon'ble ITAT , Delhi 'B' Bench in ITA No. 5245/Del/1987 in ITO v. Vigyan Chemical Industries [(1991)40 TTJ 82], "The yield disclosed by the assessee conforms to the expected yield as indicted by an expert whose statement had been recorded by the AO. Moreover, it is well settled principle of law that yield of product may vary from concern to concern and year to year depending on various factors. Mere low yield does not warrant an addition in the trading account. The AO had made an addition on the basis of assumed yield on the basis of suppression of sales. In the case of suppression of sales strong burden lies on the Revenue. There is no material on record to justify the conclusion reached upon by the AO that the yield shown by the assessee was low. The assessee had maintained complete books of accounts though admittedly manufacturing account had not been maintained. Yield has been found to be in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of the appellant and wastage on different stages is bound to happen. Since, raw material is, a sand like particle, it is but natural that there will be some wastage in the transit itself. 6.17 The appellant's wastage disclosed a @ 1.25% basically pertains to transit loss which occurs due to the transportation from various destinations to factory premises. It is clear from the assessment order that the A.O. without appreciating the facts correctly sticked to the figure of 1.25% and rejected the appellant's claim for wastage which occurred during the manufacturing process subsequent to transit loss. There are various processes involved under which the raw material passes through. During these procedure, some wastage is required to occur due to heating etc. 6.18 The Ld. AR. has been able to show that the total consumption of the raw material by the appellant during the relevant period was at 547715 kg. as against 559169 kg adopted by the A.O. The A.O. while arriving at the quantum of raw material included the bag house production at 4728 kg, thread 55 kg and shortage in raw material 6670 kg. It is clear that the A.O. without appreciating the production process correctly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year also the assessee maintained all books of accounts on the same pattern in which no defect has been pointed out. In the subsequent assessment year 2006-07, the assessee maintained books of accounts on the same basis in which no specific defect was found by the AO and the claim of the assessee has been accepted in the assessment order u/s 143(3) of the IT Act (PB-33). The GP rate of the assessee is better as compared to earlier year. The sales and purchases shown by the assessee have not been disputed. Thus, the AO has not pointed out any specific defect in maintenance of the books of accounts by the assessee, therefore, the findings of the AO that there is a suppressed production/sale is purely on assumption and presumption without any basis. The AO has not pointed out any material or evidence to show that there was any suppressed sales. The AO has ignored that the main reason, apart from transport loss, was some loss in the production process. The factual findings given by the learned CIT(A) have not been rebutted through any evidence on record. The learned CIT(A) on proper appreciation of the facts and material on record rightly deleted the addition. Since the claim of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned Counsel for the assessee drawn attention of the learned CIT(A) to the copies of the bills referred to by the AO in his order, copies of Bill of Lading and copy of account of the said NRl shipping company from the books of the assessee company. The learned Counsel for the assessee further referred to a copy of a Certificate addressed to Evergreen Marine Corporation (Taiwan) Ltd. issued by the Asst. Director of Income Tax, (International Taxation-1 (2)), Mumbai clearly mentioning the CBDT Circular No. 723 dated 19-10-1995, the provisions of Sec. 195 of the Income Tax Act, 1961 for TDS are not applicable to payments made to foreign Shipping Companies. It was contended that a Certificate issued by the Greenways Shipping Agencies Pvt. Ltd. that they are the agent of said Evergreen Marine Corporation (Taiwan) Ltd. which is an NRI Shipping Company was also filed before the AO. Further, the copy of debit note issued by the said payee on behalf of their principal along with Bill of Lading amounting to ₹ 2,28,055/- was also produced before the AO. Therefore, it was contended that the payments made to Green way Shipping Agencies Pvt. Ltd., as an agent of NRI Shipping Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, under these circumstances, the appellant was not required to deduct tax at source on such payments during the relevant period. Consequently, these payments are not hit by the provisions of sec. 40(a)(ia) of the ct. In view of this, the disallowance made by the A.O. to the extent of ₹ 6,36,235/- is hereby deleted. As regards, expenses to the tune of ₹ 1,46,430/- including payments of ₹ 22,500/- to Shri Ambica Cargo Movers, ₹ 91,950/- + ₹ 46,150/-) paid to Kaushali International and ₹ 32,780/- to Aai Shree Khodiyar Roadlines amounting to ₹ 32,780/-. The Ld. A.R. has failed to establish that these payments were covered by the CBDT Circular No.723 as referred to above. Therefore, the disallowance to the tune of ₹ 1,46,430/- is hereby confirmed." 9. On consideration of the rival submissions, we do not find any merit in the departmental appeal. It is admitted fact that the assessee made payments to 3 NRI shipping companies or their agents. Copies of bills of lading, copy of the accounts of the said NRI shipping companies from the books of accounts of the assessee company were filed before the authorities below. Certificate issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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