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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 ..... d 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 Suppressed Production and Sales. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self 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 temperature of about 800 C Temperatures, the raw mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 shortage. This is because there is both, the shortag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27,600 Indigenous 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n suspicion and conjecture. In this regard the learned Counsel for the assessee pleaded reliance on the following decisions: (a) Books of Accounts regularly maintained in the course of business have to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable. The department has to prove satisfactorily that account books are unreliable, incorrect or incomplete before it can be rejected. This can be done by showing important Purchases/Sales are omitted there from or proper particulars or vouchers are not forthcoming or accounts do not include entries relating to particular class of business. Rejection of Account should not be done light heartedly as has been done by the Ld. AO. (b) Hon'ble 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be made for low yield. Besides, AO should have compared the results of current year with that of immediate past year. However, assessee cannot be expected to declare the results with arithmetical accuracy in comparison to the past years . In the same case it has also been held that, assessee was using rice husk in its own factory and not selling the same, no addition on account of husk could be made . (g) As held by Hon'ble ITAT, Ahmedabad 'D' Bench in ITA No.96/Ahd/2001 in Surat District Co-Operative milk Producers Union Ltd. Vs. Commissioner Of Income Tax [(2006) 99 TTJ 390] Wherein it has been held that, AO having not pointed out any specific defect in the books of account regularly maintained by the assessee which are 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 con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oling and from there it is taken to mill. After the said process the particles are crushed and taken to cyclone, taken to plant on sleeves (charnas) for grading as per the requirement of the customer. At this stage waste particles are separated in bag house called Trap. Some of the raw material which does not into the production process also eliminated and remain in Trap. There is loss of raw material to some extent in the process of heating and cooling. During the relevant period the Trap generated by the appellant was at 14663 kg. 6.15 Similarly, the wastage generated subsequent to Trap stage is called bag house which is sold by the appellant under the name as standard quality. 6.16 The aforesaid would show that there are various process involved in the manufacturing 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, the learned Counsel for the assessee reiterated the submissions made before the authorities below and referred to PB-33 which is the assessment order u/s 143 (3) of the IT Act in the case of the same assessee for assessment year 2006-07 in which the AO on the same facts did not make any addition and accepted the similar book results of the assessee. 6. We have considered the rival submissions and material on record and do not find any justification to interfere with the order of the learned CIT(A). The learned CIT(A) has considered the entire manufacturing and production activity of the assessee in detail and came to the just finding that the substantial wastage actually pertains to transit loss which occurs due to transportation from various destinations to the factory premises. In earlier 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22,500 3. 2.10.2004 Kaushali International 45,000 4. 14.10.2004 United Arab Shipping Services (I) Pvt. Ltd. 2,67,720 5. 14.10.2004. Transworld Shipping services (l) Pvt. Ltd. 1,40,460 6. 31.01.2005 APL (India) Pvt. Ltd. 32,780 7. 17.03.2005 Kausali International 46,150 Total 7,82,665 The earned Counsel for the assessee further stated that, out of the above payments of ₹ 7,82,665/-disallowed by the AO, the assessee company made total payments of ₹ 6,36,235/- as under to the NRI Shipping Companies or their agents to which the provisions of Sec. 195 or any other TDS provisions do not apply. Sr.No. Date of Payment Name of Party Amount (Rs.) 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payments of ₹ 1,40,460/- made to Trans world Shipping Services (India) Pvt. Ltd. an agent of NRI Shipping Company namely, United Arab Shipping Co.(S.A.G.), the learned Counsel for the assessee drawn attention of the learned CIT(A) to the copy of account of the said agent of NRI shipping company from the books of the assessee company, copy of Bill of Lading and debit note and stated that, the said documents/supporting clearly shows that the payment have been made to the said agent of NRI Shipping Company for the charges to which the Circular No.723 dated 19-10-1995 applies and no TDS is required to be made on the said payment. 8. The learned CIT(A) considering the submissions of the assessee deleted the part of the addition of ₹ 6,36,235/-. His findings in Para 8.6 in the impugned order are reproduced as under: 8.6 I have considered the facts of the case and the submission of the Ld. A.R. carefully. I have gone through the CBDT Circular No.723 dated 19.10.1995. I have perused the bills and documents produced and referred to the A.O. as well as the Ld. AR for the appellant. It is seen that the appellant has made the payments of ₹ 2,28,055/- to Green way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with shipping business of non residents which provides for mode of levy and recovery of taxes in case of any ship belonging to or chartered by a non-resident, which carries passengers, live-stock, mail or goods shipped at a port in India. It is also clarified that provisions of section 172 of the IT Act are to apply, notwithstanding anything contained in any other provisions of the Act. Therefore, in such cases, the provisions of section 194C and 195 of the IT Act relating to tax deduction at source are not applicable. The recovery of tax is to be regulated under the provisions of section 172 of the IT Act. It was also clarified that there are some cases where payments are made to shipping agents of non-resident shipping companies or charters etc. shipped at a port in India. Since the agent acts on behalf of the non-resident shipping companies or charters, he steps into the shoes of the principal. Accordingly provisions of section 172 of the IT Act shall apply and thus provisions of section 194C and 195 of the IT Act will not apply. Considering the facts of the case in the light of the findings of the learned CIT(A), we are of the view that payments are made to NRI shipping compani ..... X X X X Extracts X X X X X X X X Extracts X X X X
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