The ACIT, Vapi Circle,, Vapi v. M/s. National Lamination Ind.,, Nani Daman

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE SHRI BHAVNESH SAINI J.M. AND SHRI A. N. PAHUJA A.M. ITA NO.129/AHD/2009 A. Y.:2005-06 M/S. NATIONAL LAMINATION INDUSTRIES PLOT NO.H/1-2 & G-3 MAHATMA GANDHI INDUSTRIAL ESTATE DABHEL DAMAN V/S THE A. C. I. T VAPI CIRCLE AAYAKAR BHAVAN VALSAD PA NO. AACFN 4402D (APPELLANT) (RESPONDENT) ITA NO. 16 /AHD/2009 A.Y.:2005-06 THE A. C. I. T VAPI CIRCLE AAYAKAR BHAVAN VALSAD V/S M/S. NATIONAL LAMINATION INDUSTRIES PLOT NO.H/1-2 & G-3 MAHATMA GANDHI INDUSTRIAL ESTATE DABHEL DAMAN PA NO. AACFN 4402D (APPELLANT) (RESPONDENT) FOR ASSESSEE: SHRI KESHAV PRASAD AND SMT. P. BANSAL AR FOR DEPARTMENT: SHRI RAJEEV AGRAWAL DR O R D E R PER SHRI BHAVNESH SAINI J.M.: THESE CROSS APPEALS BY ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) VALSAD DATED 22 ND OCTOBER 2008 FOR ASSESSMENT YEAR 2005-06. 2 2. WE HAVE HEARD LEARNED REPRESENTATIVES OF BOTH TH E PARTIES PERUSED THE FINDINGS OF AUTHORITIES BELOW AND CONSI DERED THE MATERIAL AVAILABLE ON RECORD. ITA NO.129/AHD/2009 (ASSESSEES APPEAL ) 3. GROUND NOS. 1 AND 2 OF THE APPEAL OF THE ASSESSE E READS AS UNDER: 1. THE LEARNED CIT (A) HAS GROSSLY ERRED IN LAW AN D ON FACTS IN CONFIRMING ACTION OF THE A O IN DISALLOWIN G RS.19 80 500/- CLAIMED AS BAD DEBTS WRITTEN OFF. BO TH THE LOWER AUTHORITIES HAVE NOT APPRECIATED THE FACT THAT THE APPELLANT HAS WRITTEN OFF THE AMOUNT AFTER MAKING EXTENSIVE EFFOR TS TO RECOVER THE SAME AND ULTIMATELY REALIZING THAT NO FURTHER R ECOVERY COULD BE MADE FROM THE PURCHASERS. UNDER THE FACTS AND TH E CIRCUMSTANCES OF THE CASE LD. CIT (A) OUGHT TO HAV E ALLOWED THE CLAIM OF THE BAD DEBTS MADE THAT WAS WRITTEN OF F IN THE BOOKS OF THE ACCOUNTS AS IRRECOVERABLE. 2. THE LEARNED CIT (A) HAS ERRED IN NOT ADJUDICATIN G THE ALTERNATE CLAIM OF THE APPELLANT TO ALLOW THE SUM O F RS.19 80 500/- AS BUSINESS LOSS U/S 28 OF THE ACT S INCE THE SAME HAS ARISEN IN THE DUE COURSE OF BUSINESS ACTIV ITY CARRIED OUT BY THE APPELLANT. LD. CIT (A) OUGHT TO HAVE ALT ERNATIVELY ALLOWED THE AMOUNT WRITTEN OFF AS A BUSINESS LOSS. 4. THE ASSESSEE HAS CLAIMED BAD DEBTS OF RS.19 80 5 00/- IN RESPECT OF TWO CUSTOMERS NAMELY TELSA TRANSFORMERS LTD. AND V.T. SWITCHGEARS. THE CLAIM OF THE ASSESSEE HAS HOWEVER BEEN REJECTED BY THE ASSESSING OFFICER ON THE REASONS THAT (1) TH E SALE ON WHICH THE DEBT IS CLAIMED WAS BOOKED IN EARLIER YEARS I.E . IN ASSESSMENT YEAR 2000-01 AND 2002-03 WHEREIN THE ASSESSEE WAS E NTITLED FOR DEDUCTION U/S 80 IB @100% ON PROFIT & GAINS OF INDU STRIAL UNDERTAKING AND NO TAX WAS PAID ON PROFIT ELEMENT O F SUCH SALE (2) THE YEAR UNDER CONSIDERATION IS THE 6 TH YEAR OF THE OPERATION OF THE UNDERTAKING AND HENCE THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80 IB @25%. THE ASSESSEE COULD HAVE CLAIMED THE BAD DE BTS IN EARLIER YEARS RATHER WAITING TILL 6 TH YEAR FORM WHICH IT IS ELIGIBLE FOR DEDUCTION 3 U/S 80IB OF THE ACT AND (3) THE PROFIT ON THE SALE (WHICH HAS BEEN CLAIMED AS BAD DEBTS DURING THE YEAR) HAS CLAIMED A S EXEMPT U/S 80 IB IN THE YEARS IN WHICH THE SALES WERE BOOKED I.E. IN THE ASSESSMENT YEAR 2000-01 AND 2002-03. HENCE ALLOWANCE OF DEDUCT ION OF AMOUNT OF BAD DEBTS ON THE SAME SALES DURING THE YEAR WOUL D AMOUNT TO DOUBLE DEDUCTION. THE ADDITION WAS CHALLENGED BEFO RE LEARNED CIT (A) AND IT WAS BRIEFLY SUBMITTED THAT A O HAS ACCEP TED THE CLAIM OF BAD DEBTS IN PRINCIPLE BUT CLAIM WAS NOT ALLOWED TH AT IT SHOULD BE MADE IN THE EARLIER ASSESSMENT YEAR AND NOT IN THE 6 TH YEAR I.E. THE YEAR UNDER APPEAL AND THAT SINCE ASSESSEE CLAIMED E XEMPTION U/S 80 IB OF THE IT ACT THEREFORE IT WOULD AMOUNT TO DOU BLE DEDUCTION. IT WAS FURTHER CLAIMED THAT IN RESPECT OF TESLA TRANSF ORMERS LTD. ASSESSEE MADE SALES DURING SEPTEMBER 2002 TO JUNE 2 003 AMOUNTING TO RS.11 81 050/- IN THE ASSESSMENT YEAR 2003-04 AND 2004-05. THE BUYER DISPUTED THE QUALITY OF THE GOOD S SUPPLIED TO THEM STATING THAT LOSSES WERE TOO MUCH. THE ASSESSE E MADE EFFORTS TO CONVINCE THE BUYER FOR RELEASE OF THE PAYMENT BU T ASSESSEE COULD NOT SUCCEED. SINCE THE ASSESSEE WAS NO LONGER ABLE TO RECOVER THE DUE AMOUNT THE ASSESSEE DECIDED TO WRITE OFF THE O UTSTANDING AMOUNT IN THE NAME OF THE ABOVE BUYER AS BAD DEBTS. IN THE CASE OF V. T. SWITCHGEARS THE ASSESSEE MADE SALES IN THE A SSESSMENT YEAR 2000-01 AMOUNTING TO RS.32 48 696/-. THE ASSESSEE W AS ABLE TO RECOVER THE PART AMOUNT BUT AS ON 31 ST MARCH 2003 THERE WAS OUTSTANDING BALANCE OF RS.10 00 000/-. DESPITE BEST EFFORTS BY THE ASSESSEE THE ASSESSEE COULD NOT RECOVER THE REMAIN ING AMOUNT. THE BALANCE AMOUNT WAS THEREFORE WRITTEN OFF AS BA D DEBTS IN THE ASSESSMENT YEAR UNDER APPEAL. IT WAS EXPLAINED THAT THE AMOUNT WAS NOT WRITTEN OFF IN THE BOOKS OF ACCOUNT IN EARL IER YEARS BECAUSE ASSESSEE WAS MAKING EFFORTS FOR RECOVERY OF THE OUT STANDING AMOUNT. WHEN THE ASSESSEE PRACTICALLY FAILED IN ITS EFFORTS AND IT WAS FINALLY REALISED THAT ASSESSEE WILL NO LONGER BE ABLE TO RE COVER THE OUTSTANDING AMOUNT FROM THE BUYER THE ASSESSEE WRI TTEN OFF THE 4 AMOUNT AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSE SSEE IN THE ASSESSMENT YEAR UNDER APPEAL. THE ASSESSEE IS THER EFORE ENTITLED FOR DEDUCTION ON ACCOUNT OF BAD DEBTS. IT WAS ALSO EXPLAINED THAT BAD DEBTS WOULD NOT BE DOUBLE DEDUCTION BECAUSE DEDUCTI ON U/S 80 IB IS ALLOWED FOR SETTING UP THE UNIT IN BACKWARD AREA AN D DEDUCTION OF BAD DEBT IS ALLOWABLE U/S 36 (1) (VII) OF THE IT ACT AN D THE CONDITIONS OF THE SAME ARE MATERIALLY DIFFERENT. SINCE THE CONDITIONS OF SECTION 36(1) (VII) ARE SATISFIED IN THE CASE OF THE ASSESSEE TH EREFORE ASSESSEE IS ENTITLED FOR DEDUCTION. IN ALTERNATE CONTENTION IT WAS CLAIMED AS BUSINESS LOSS. THE ASSESSEE RELIED UPON DECISION OF ITAT MUMBAI SPECIAL BENCH IN THE CASE OF DCIT VS OMAN INTERNATI ONAL BANK SAOG 100 ITD 285 (SB) IN WHICH IT WAS HELD THAT NOW COMING TO THE EXPRESSION BAD DEBT IN SECTION 36(1) (VII) I T MAY BE POINTED OUT THAT STRICT PROOF OF ESTABLISHING THE D EBT TO HAVE BECOME BAD IS NECESSARY IF WE WERE TO LOOK TO THE P LAIN MEANING OF THE TERM BAD DEBT. ACCORDING TO CHAMBERS 20 TH CENTURY DICTIONARY A BAD DEBT MEANS A DEBT THAT CANNOT BE RECOVERED. ACCORDING TO MITRAS LEGAL & COMMERCIAL DICTIONARY A DEBT BECOMES BAD WHEN THE CREDITOR HAS NO REASONABLE CHA NGE OF RECOVERING IT FROM THE DEBTOR. IN THE LAW LEXICON THE DEFINITION IS THAT A DEBT THAT IS NOT REASONABLY COLLECTED A DEBT ABOUT WHICH THERE IS NO REASONABLE EXPECTATION OF RECOVER Y A DEBT BELIEVED TO BE UNRECOVERABLE. IT IS WITHIN THE PERS ONAL KNOWLEDGE OF THE BUSINESSMAN WHETHER A DEBT HAS BEC OME BAD OR NOT. HIS DECISION AS LONG AS IT IS BONA FIDE CAN NOT BE DISPUTED BY DEMANDING FROM HIM A DEMONSTRATIVE PROOF TO ESTA BLISH THAT THE DEBT HAS ACTUALLY BECOME BAD. THE WRITE OFF OF A BAD DEBT ACCORDING TO US IS A PRIMA FACIE EVIDENCE ON THE PART OF THE ASSESSEE WITH WHOM THE INFORMATION RESTS AND IS A SUFFICIENT REQUIREMENT OF THE AMENDED PROVISION. IT WAS FURTHER SUBMITTED THAT NO PRUDENT BUSINESSMAN WOULD MANUFACTURE AND S ELL THE GOODS WITH AN INTENTION TO CLAIM DEDUCTION OF BAD DEBT. I T SHOULD BE 5 ACCEPTED THAT ACTION OF THE WRITING OFF DUES RECOVE RABLE FROM A BUYER WILL BE THE LAST STEP AND THE LAST OPTION. THEREFOR E IT SHOULD BE ALLOWED AS DEDUCTION IN THE YEAR IN WHICH THE BAD D EBT IS WRITTEN OFF. THE LEARNED CIT (A) HOWEVER DID NOT ACCEPT THE CLA IM OF THE ASSESSEE AND DISMISSED THE APPEAL OF THE ASSESSEE. HIS FINDINGS IN PARA 92 ARE REPRODUCED AS UNDER 92. I HAVE PERUSED THE FINDINGS OF THE ASSESSING O FFICER AND THE SUBMISSION MADE BEFORE ME BY THE APPELLANT. THE APPELLANTS BY MAKING ELABORATE SUBMISSIONS HAVE T RIED TO JUSTIFY THEIR CLAIM FOR BAD DEBTS WRITTEN OFF AND H AVE INTER ALIA STRESSED ON THE FACT THAT THE ASSESSING OFFICER IN PRINCIPLE HAS ACCEPTED THEIR CLAIM FOR BAD DEBTS. 92.1 IN THIS CONNECTION AFTER CONSIDERING THE FACT S OF THE CASE AND THE SUBMISSIONS MADE BY THE APPELLANTS I FIND THAT THE ENTIRE EFFORTS OF THE APPELLANTS ARE MISDIRECTED. T HE ISSUE RAISED IN THE ASSESSING ORDER WAS NOT WHETHER THE C LAIM FOR BAD DEBTS ARE ADMISSIBLE U/S 36 OF THE ACT. THE IS SUE FOR CONSIDERATION WAS WHETHER THE APPELLANTS WERE JUSTI FIED IN WRITING OFF THE BAD DEBTS IN THE PARTICULAR ASSESSM ENT YEAR UNDER CONSIDERATION. THEREFORE THE APPELLANTS ARG UMENTS ON THE ACCEPTANCE OF THEIR CLAIM FOR BAD DEBTS IN PRIN CIPLE ARE DEVOID OF ANY MERITS. 92.3 I FIND THAT NOWHERE THE APPELLANTS HAVE DISPUT ED THAT THE BAD DEBTS ACTUALLY PERTAINS TO THE EARLIER ASSESSME NT YEARS. WHEN THE BAD DEBTS WERE PERTAINING TO THE EARLIER A SSESSMENT YEARS I FAIL TO UNDERSTAND AS TO HOW AN ASSESSEE C AN CLAIM THE DEDUCTION OF THE SAME IN A YEAR AS CONVENIENT TO TH EM WITHOUT ANY PROPER JUSTIFICATION. THE APPELLANTS HAVE TRIED TO JUSTIFY WRITING OFF THE BAD DEBTS IN THE ASSESSMENT YEAR UN DER CONSIDERATION SUBMITTING THAT IN THE SAID YEAR THE Y FINALLY ARRIVED AT THE CONCLUSION THAT THEY WILL NOT BE ABL E TO RECOVER THE AMOUNT FROM THEIR BUYERS. HOWEVER I FIND THAT EXCEPT MERE STATEMENTS MADE BY THEM THEY HAVE NOT ADDUCED ANY EVIDENCES IN SUPPORT OF THEIR CLAIM THAT IN THE PAR TICULAR ASSESSMENT YEAR THEY REALIZED THAT THEY WILL NO LON GER BE ABLE TO RECOVER THE SAID AMOUNT FROM THEIR BUYERS. 92.4 THEREFORE I DO NOT FIND ANY REASON TO INTERFE RE WITH THE FINDINGS OF THE ASSESSING OFFICER IN THIS REGARD H OLDING THAT THE APPELLANTS OUGHT TO HAVE WRITTEN OFF THE BAD DEBTS IN THE EARLIER ASSESSMENT YEARS AND CLAIMED DEDUCTION AND CLAIMING OF 6 DEDUCTION IN THIS PARTICULAR YEAR IS NOT JUSTIFIED. THIS GROUND OF APPEAL IS ACCORDINGLY DISMISSED. 5. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSIONS MADE BEFORE THE AUTHORITIES AND REFERRE D TO ACCOUNT/LEDGER OF BOTH THE PARTIES COPIES OF THE S AME ARE FILED AT PB 87 TO 90. HE HAS SUBMITTED THAT WHEN THE ASSESSEE W RITTEN OFF THE AMOUNT IRRECOVERABLE IN THE ACCOUNTS AS PER SECTION 36(1) (VII) OF THE IT ACT THE DEDUCTION SHOULD BE ALLOWED ACCORDINGLY . ON THE OTHER HAND LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UP ON THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MAT ERIAL AVAILABLE ON RECORD. SECTION 36(1) (VII) OF THE IT ACT PROVIDES THAT THE DEDUCTION PROVIDED IN THIS CLAUSE SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 - SUBJECT TO THE PROVISIONS OF SUB-SECTI ON (2) THE AMOUNT OF ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN OF F AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. HONBLE SUPREME COURT IN THE RECENT DECISION IN THE CASE OF T. R. F . LTD. VS CIT CIVIL APPEAL NO.5293/2003 DATED 9-02-2010 CONSIDERING THE ABOVE PROVISIONS HAS HELD THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1 ST APRIL 1989 IT IS NOT NECESSARY FOR THE ASSESSEE T O ESTABLISH THAT THE DEBT IN FACT HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACC OUNTS OF THE ASSESSEE. HOWEVER IN THE PRESENT CASE THE ASSESSI NG OFFICER HAS NOT EXAMINED WHETHER THE DEBT HAS IN FACT BEE N WRITTEN OFF IN ACCOUNTS OF THE ASSESSEE. WHEN BAD DEBT OCCURS THE BAD DEBT ACCOUNT IS DEBITED AND THE CUSTOMERS ACCOUNT IS CREDITED THUS CLOSING THE ACCOUNT OF THE CUSTOMER. IN THE C ASE OF COMPANIES THE PROVISION IS DEDUCTED FROM SUNDRY DE BTORS. AS STATED ABOVE THE ASSESSING OFFICER HAS NOT EXAMINE D WHETHER IN FACT THE BAD DEBT OR PART THEREOF IS WRITTEN OF F IN THE ACCOUNTS 7 OF THE ASSESSEE. THIS EXERCISE HAS NOT BEEN UNDERTA KEN BY THE ASSESSING OFFICER. HENCE THE MATTER IS REMITTED TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE ABOVE- MENTIONED ASPECT ONLY AND THAT TOO ONLY TO THE EXTE NT OF THE WRITE OFF. 6.1 CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AS NOTED ABOVE IN THE LIGHT OF THE ABOVE PROVISIONS AND THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL AND THE HONBLE SUPRE ME COURT (SUPRA) IT IS CLEAR THAT THE ASSESSEE MADE CLAIM O F DEDUCTION IN ACCORDANCE WITH PROVISIONS OF SECTION 36(1) (VII) O F THE IT ACT. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS WRITTEN OFF THE AM OUNT OF BAD DEBT AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FO R THE PREVIOUS YEAR. THE ORDERS OF THE AUTHORITIES BELOW THUS CANN OT BE SUSTAINED IN LAW. WE MAY ALSO NOTE HERE THAT THE PROVISIONS OF S ECTION 36(1) (VII) OF THE IT ACT WOULD NOT BE DEPENDENT ON DEDUCTION U LTIMATELY ALLOWED U/S 80 IB OF THE IT ACT. THE BUSINESS PROFIT SHALL HAVE TO BE COMPUTED AS PER THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THE B AD DEBT IS TO BE TAKEN INTO CONSIDERATION WHILE PREPARING THE BOOK R ESULT OF THE ASSESSEE BY NOTIFYING THE SAME IN THE PROFIT & LOSS ACCOUNT. THE DEDUCTION U/S 80 IB OF THE IT ACT WOULD BE CONSIDER ED ON THE INCOME OF THE ASSESSEE AS PER PROFIT & LOSS ACCOUNT. THERE FORE IF THE DEDUCTION IS ALLOWED U/S 36(1) (VII) OF THE IT ACT IT WOULD NOT AMOUNT TO DOUBLE DEDUCTION AS OBSERVED BY THE AUTHORITIES BELOW. SINCE THE ASSESSEE WAS MAKING EFFORTS FOR RECOVERY OF THE OUT STANDING AMOUNT AFTER THE SALES MADE TO THE BUYER AND THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ASSESSMENT YEAR UNDER APPEAL NO FAULT WOULD BE FOUND WITH THE METHOD ADOPTED BY THE ASSESSEE. I N VIEW OF THE ABOVE DISCUSSIONS WE DO NOT FIND ANY JUSTIFICATION TO SUSTAIN THE ORDERS OF THE AUTHORITIES BELOW. WE ACCORDINGLY SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION . AS A RESULT THESE GROUNDS OF APPEAL OF THE ASSESSEE ARE ALLOWED. 8 7. GROUND NO.3 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: 3. THE LEARNED CIT (A) HAS ERRED IN LAW AND ON FAC TS OF THE CASE IN CONFIRMING ADDITION OF RS.9 20 02 49 5/- MADE BY THE A O ON ACCOUNT OF UNDERSTATING OF CLOSI NG STOCK . LD. CIT (A) HAS FURTHER ERRED IN CONFIRMING THE ADDITION WITHOUT INDEPENDENTLY EVALUATING AND APPRECIATING THE ISSUE AND CONFIRMING THE VIEW TAKE N BY A O. BOTH THE LOWER AUTHORITIES HAVE NOT FULLY APPRECIATED THE DOCUMENTARY EVIDENCE IN RESPECT OF QUANTITATIVE DETAILS VARIOUS SUBMISSIONS AND EXPLANATIONS FORWARDED BY THE APPELLANT. THE LD. CI T (A) OUGHT TO HAVE DELETED THE ADDITION MADE BY A O AND ACCEPTED THE VALUATION OF RAW MATERIALS IN CLOSING STOCK AS WORKED OUT BY THE APPELLANT. 8. THE ASSESSEE SUBMITTED BEFORE THE LEARNED CIT (A ) THAT THE ASSESSING OFFICER HAS WRONGLY MADE AN ADDITION OF R S.9 02 02 495/- ON ACCOUNT OF UNDERSTATING OF CLOSING STOCK VALUE. IT IS THEIR SUBMISSION THAT THE FIGURES OF THE QUANTITY REPRODU CED BY THE ASSESSING OFFICER ON PAGE NO.17 OF THE ASSESSMENT ORDER ARE NOT CORRECT. THE QUANTITY REPRODUCED BY THE ASSESSING O FFICER AND THE ACTUAL QUANTITY AS PER AUDIT REPORT ARE AS UNDER. RAW MATERIAL QUANTITY (IN KGS.) AS REPRODUCED IN A. O. ACTUAL AS PER AUDIT REPORT OPENING STOCK PURCHASES CONSUMPTION CLOSING STOCK 2 60 630 1 33 95 408 1 33 57 408 2 98 630 2 60 630 89 48 532 89 10 532 2 98 630 FINISHED GOODS (INCLUDING SCRAP) OPENING STOCK PURCHASE OF FINISHED GOODS MFG. DURING THE YEAR SALES DURING THE YEAR SHORTAGE CLOSING STOCK 41 66 246 NIL 1 33 57 408 90 45 952 4 02 657 41 86 246 NIL 89 10 532 90 45 952 3 80 002 36 70 824 BIFURCATION AS PER AUDIT REPORT A) FINISHED GOODS NOT TAKEN NOTE OF NOT TAKEN NOTE OF 39 494 36 31 330 9 B) SCRAP TOTAL OF A & B ___________ 36 70 824 =========== THE ASSESSEE SUBMITTED THAT FROM THE ABOVE COMPARAT IVE FIGURES OF THE QUANTITATIVE DETAILS IT IS CLEAR THAT THE ASSE SSING OFFICER HAS ERRED WHILE TAKING INTO CONSIDERATION THE FIGURES OF STOC K PURCHASE AND PRODUCTION THEREFORE THE CONCLUSION REACHED BASED ON THE SAME IS MISS-LEADING FACTUALLY WRONG AND ERRONEOUS. THE AS SESSING OFFICER HAS STATED THAT THE ASSESSEE HAS UNDERVALUED THE CL OSING STOCK AS ON 31.3.2005 BY 1 166 952 M. TONS AND APPLYING THE VALUATION RATE OF RAW MATERIAL AS VALUED BY THE ASSESSEE AS ON 31- 02-2005 OF RS.78 840 PER M.T. THE ASSESSING OFFICER HAS MADE A N ADDITION OF RS.9 20 02 495/-. THE ASSESSEE SUBMITTED THAT THE A BOVE QUANTITY OF 1166.952 M. T. IS ARRIVED BY THE ASSESSING OFFICER AS UNDER: QUANTITY AS PER A. O. GOODS PURCHASED/RECEIVED IN THE MONTH OF MARCH 2005 1498.695 GOODS SENT FOR PROCESSING BEFORE 01.03.2005 147.4 20 AND RECEIVED IN MARCH 2005 AFTER REPROCESSING --- ------------ 1646.115 LESS: FINISHED GOODS PRODUCED & SCRAP GENERATED IN MARCH 2005. FINISHED GOODS 363.279 387.904 751.183 894.932 ADD: GOODS SENT FOR PROCESSING & LYING WITH THIRD PARTY FOR JOB WORK AND RECEIVED AFTER 31.03.2005 570.380 ------------ TOTAL M. T. 1465.312 LESS : CLOSING STOCK OF RAW MATERIAL AS ON 31.03.2005 298.360 10 UNDERSTATED CLOSING STOCK OF RAW MATERIAL AS PER A. O. MTS 1166.952 ======= IN THIS REGARD THE ASSESSEE SUBMITTED THAT THE QUAN TITY OF RAW MATERIAL RECEIVED IN THE MONTH OF MARCH 2005 AS DE RIVED BY THE ASSESSING OFFICER IS 1498.695 M. T. THE BIFURCATION OF ABOVE QUANTITY IS AS UNDER:- ACTUAL PURCHASES FOR MARCH 2005 994.620 (AS SUBMITTED BY THE ASSESSEE TO A O) PURCHASE OF FEBRUARY 2005 CLAIMED FOR MODVAT IN EXCISE RECORD IN MARCH 2005 504.075 ------------ GOODS TAKEN AS PURCHASED/RECEIVED IN MARCH 2005 BY THE A. O. 1498.695 ======= THE ACTUAL QUANTITY RECEIVED IN FEBRUARY 2005 297 .035 A) COPY OF L. R. IS ENCLOSED B) THE MODVAT ON THE SAME HOWEVER IS CLAIMED IN MARCH 2005 207.040 ------------ TOTAL M. T. 504.075 ====== THUS IT IS SUBMITTED BY THE ASSESSEE THAT OUT OF T OTAL QUANTITY OF 504.075 M.T. 297.035 M. T. OF RAW MATERIAL WAS ACT UALLY RECEIVED AND AVAILABLE FOR PRODUCTION IN THE MONTH OF FEBRUA RY 2005 AND NOT IN MARCH AS ERRONEOUSLY ASSUMED AND WORKED OUT BY THE ASSESSING OFFICER. THE BALANCE QUANTITY OF 207.040 M. T. OF R AW MATERIAL THOUGH RECEIVED IN MARCH 2005 AND AVAILABLE FOR PRODUCTION IN MARCH 2005 DOES NOT ANY WAY AFFECT THE QUANTITY PRODUCED IN FE BRUARY AND MARCH 2005 OF THE GOODS ACTUALLY SOLD IN FEBRUARY A ND MARCH 2005. THE ASSESSEE ATTACHED A STATEMENT SHOWING ACTUAL RA W MATERIAL RECEIVED QUANTITY PRODUCED ACTUAL GOODS SOLD AND CLOSING SOCK OF THE MONTH OF FEBRUARY AND MARCH 2005. THE ASSESSEE SUBMITTED THAT THEIR CENTRAL EXCISE RECORDS WERE NOT AVAILABLE WIT H THE ASSESSEE 11 SINCE THE SAME WERE LYING WITH THE CENTRAL EXCISE D EPARTMENT. HOWEVER WHEN THE MONTH WISE QUANTITATIVE DETAILS P REPARED ON THE BASIS OF BOOK RECORDS MAINTAINED BY THE ASSESSEE T HE QUANTITY OF 207.040 M. T. PURCHASED IN FEBRUARY 2005 WAS SHOWN AS PRODUCED AND LYING AS CLOSING STOCK OF FINISHED GOODS IN FEB RUARY 2005 SINCE THE EXCISE RECORDS WERE NOT AVAILABLE AT THE TIME O F FURNISHING THE MONTH WISE QUANTITATIVE DETAILS TO THE ASSESSING OF FICER. SUBSEQUENTLY ON THE INSISTENCE OF THE ASSESSING OF FICER THE ASSESSEE PROCURED XEROX COPIES OF THE EXCISE RECORD S FROM THE EXCISE DEPARTMENT AND SUBMITTED THE SAME TO THE ASS ESSING OFFICER IN THE LAST WEEK OF DECEMBER 2007. HOWEVER AS IT APPEARS SINCE THE TIME AVAILABLE WITH THE ASSESSING OFFICER WAS SHORT HE DID NOT CALL FOR FURTHER CLARIFICATION AND PROCEEDED FURTHER WITH PA SSING OF THE ORDER WITH FACTUALLY WRONG FIGURES WITHOUT GIVING ANY OP PORTUNITY TO THE ASSESSEE TO CLARIFY THE ACTUAL POSITION WITH REFERE NCE TO THE FIGURES ARRIVED BY HIM. SINCE THE ASSESSING OFFICER DID NOT CALL FOR FURTHER CLARIFICATION AS THE CASE WAS TIME BARED SUCH ANOM ALIES REMAINED. THEREFORE IT WAS SUBMITTED BY THE ASSESSEE THAT IN THE LIGHT OF THE SUBMISSIONS MADE ABOVE THE QUANTITY OF 504.075 M.T . IS NOT LIABLE TO BE CONSIDERED FOR UNDERSTATEMENT OF CLOSING SOCK AS ON 31.03.2005. AS FAR AS THE OBSERVATIONS MADE BY THE ASSESSING OF FICER REGARDING THE BALANCE QUANTITY OF 570.380 M. T. OF GOODS SENT FOR PROCESSING BEFORE FEBRUARY 2005 BUT RECEIVED AFTER 31.03.2005 IS CONCERNED THE ASSESSEE SUBMITTED THAT THIS QUANTITY OF 570.38 0 M. T. WHICH WAS SENT FOR PROCESSING WAS WRONGLY PUNCHED BY THE ACCO UNTS DEPARTMENT IN THE COLUMN OF SCRAP INSTEAD OF RAW MA TERIAL LYING ON HAND. HENCE THIS QUANTITY OF 570.380 M. T. WHICH W AS SENT FOR PROCESSING WAS WRONGLY VALUED BY THE ASSESSEE AS SC RAP AT THE VALUE OF RS.10 000/ PER MT INSTEAD OF RAW MATERIAL LYING WITH THIRD PARTY FOR PROCESSING AS ON 31.03.2005 WHICH THE ASSESSING OFFICER HAS RIGHTLY VALUED IT AS RAW MATERIALS AT RS.78840 PER MT. HOWEVER THE VALUE OF QUANTITY OF 570.380 MT WRONGLY INCLUD ED IN SCRAP STOCK 12 AND VALUED AT RS.10 000/- PER MT BE REDUCED FROM R S.78 840 PER MT AND BE ACCORDINGLY VALUED AT RS.68 840 PER MT. H ENCE THE ASSESSEE REQUESTED TO TREAT ONLY THE QUANTITY OF 57 0.380 M. T. AS UNDER VALUATION OF RAW MATERIAL IN STOCK AND MAY BE VALUED AS UNDER: RS. AS VALUED BY ASSESSING OFFICER 78 840 PER MT AS VALUED AND WRONGLY SHOWN IN THE BOOKS BY THE ASSESSEE AS SCRAP STOCK 10 000 PER MT ------------------ HENCE QUANTITY OF 570.380 MY MAY BE VALUED AT 68 84 0 PMT ========== WHICH AMOUNTS TO RS.3 92 64 959/- 9. THAT THE LEARNED CIT (A) HOWEVER CONFIRMED THE ADDITION AND NOTED THAT THE REASONS PUT FORTH BY THE ASSESSEE IN ITS SUPPORT DOES NOT APPEAR TO HAVE BEEN ADVANCED BEFORE THE ASSESSI NG OFFICER. NO DOCUMENTARY EVIDENCE IS FILED IN SUPPORT OF THE SAM E. ADDITION WAS THEREFORE CONFIRMED. 10. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSION MADE BEFORE AUTHORITIES BELOW. HE HAS SUBMITTED THA T UNDER INCOME TAX ACT PURCHASE BILLS TO BE ENTERED WHEN PURCHASE BILLS ARE RECEIVED. IT IS ENTERED IN THE RECORDS OF EXCISE IN MARCH 2005 WHEREAS ENTRIES WERE MADE IN JANUARY/FEBRUARY 2005 IN THE BOOKS OF THE ASSESSEE. STATEMENT SHOWING QUANTITATIVE RAW MATERIAL PURCHASED BEFORE 01-03-2005 ARE FILED. PB 119 TO 125A ARE THE DETAILS OF PURCHASES MADE MONTH WISE WHICH ARE ALSO REFLECTED IN THE EXCISE REGISTERS. PB -94 ONWARD ARE THE AUDITED ACC OUNTS. PB -121 IS THE SYNOPSIS OF DETAILS SHOWING QUANTITY OF RAW MAT ERIAL PURCHASED BEFORE 01-03-2005 IN BOOKS BUT TAKEN IN THE EXCISE RECORD IN THE MONTH OF MARCH 2005 AND AS SUCH ASSESSING OFFICER HAS INADVERTENTLY TAKEN AS PURCHASE OF MARCH 2005. THE ASSESSEE BY MISTAKE HAS TAKEN RAW MATERIAL OF THE QUANTITY OF 5 70.380 MT AS SCRAP. THEREFORE THERE WAS SHORTAGE TO THAT EXTENT ONLY FOR WHICH ASSESSEE HAS ALREADY MADE A SURRENDER BEFORE LEARNE D 13 COMMISSIONER OF INCOME TAX (APPEALS) WHICH IS RECOR DED AT PAGE 94 OF THE ORDER IN PARA 93.10. EVERY PURCHASE PRODUC TION ARE RECORDED IN THE BOOKS AS WELL AS IN THE EXCISE RECORD. HE HA S SUBMITTED THAT PURCHASES ARE RECORDED IN THE BOOKS WHICH ARE VERIF IED AND LATER ON SAME ARE RECORDED IN THE EXCISE RECORD. THEREFORE BOTH REGISTER WOULD NOT TALLY BECAUSE ENTRIES ARE MADE AT THE REL EVANT TIME. PB - 122 IS THE RG-23 A REGISTER FOR THE MONTH OF MARCH 2005 RELIED UPON BY ASSESSING OFFICER. COPY OF RULE 57 OF EXCISE RUL ES IS FILED AT WS - 13. PURPOSE OF RG -23 A IS TO PAY THE DUTY AND GET THE MODVAT CREDIT. IN PB 122 THE ASSESSING OFFICER TOOK THE FIRST F IGURE OF 2 ND MARCH 2005 AS GOODS RECEIVED BUT FAILED TO NOTE 21 ST FEBRUARY 2005 AS B/E DATE. ASSESSING OFFICER OMITTED TO TAKE INTO CONSID ERATION THE SECOND DATE. PURCHASES MADE IN JANUARY AND FEBRUARY 2005 AVAILABLE TO THE ASSESSEE IN MARCH 2005 FOR PRODUCTION AND ACTU ALLY USED IN MARCH 2005. LEARNED COUNSEL FOR THE ASSESSEE ON TH E SAME CHART DEMONSTRATED ON SEVERAL BILLS OF PURCHASES THAT THE GOODS WERE AVAILABLE TO THE ASSESSEE PRIOR TO THE PRODUCTION. THESE ARE ALSO CLARIFIED IN CHART A AND B FILED IN WS. THE ABOVE D ETAILS ARE SUPPORTED BY PURCHASE BILLS CUSTOM RECEIPTS BILL OF CLEARING AGENT AND THE CHITS. PB 126 TO 140 ARE THE SUPPORTING D ETAILS OF PURCHASE REGISTER. AS PER THE ABOVE DETAILS ALL THE GOODS HA VE BEEN CONSUMED IN PRODUCTION SO NO GOODS WERE AVAILABLE IN EXCESS WITH THE ASSESSEE. HE HAS SUBMITTED THAT ALL ENTRIES IN THE BOOKS OF ACCOUNTS ARE MAINTAINED PROPERLY AND ACCOUNTS ARE AUDITED IN WHICH NO DEFECTS HAVE BEEN POINTED OUT BY THE ASSESSING OFFI CER. THE ASSESSING OFFICER DID NOT DISTURB THE QUANTITY OF C ONSUMPTION IN THE EARLIER MONTHS. THE ASSESSING OFFICER HAS IGNORED T HE OPENING BALANCE OF THE STOCK IN THE BEGINNING OF MARCH 200 5 AND ASSUMING IT TO BE NIL. THE DETAILS OF THE SAME ARE MENTIONED AT PAGE 5 OF THE WS TO EXPLAIN THAT THERE IS NO DIFFERENCE IN THE FI GURES OF THE PURCHASES/STOCK. HE HAS SUBMITTED THAT FIGURES GIVE N BY THE ASSESSING OFFICER ARE NOT CORRECT. THE LEARNED COUN SEL FOR THE 14 ASSESSEE IN THE WRITTEN SUBMISSION HAS EXPLAINED TH AT THE DIFFERENCES ARE DULY RECONCILED WITH THE ACCOUNTS BOOK MAINTAIN ED BY THE ASSESSEE CONSISTENTLY FROM YEAR TO YEAR. THE DIFFER ENCE AS EXPLAINED IS REPRODUCED AS UNDER: 1 THE FIRST DIFFERENCE 54.923 MT RELATES TO THE OP ENING STOCK AS ON 1.3.05. FROM THE RECONCILIATION AND THE STOCK AS WORKED OUT BY THE ASSESSEE IT IS APPARENT THAT THE ASSESSING OFFICER HAS NOT CONSIDERED THE OPENING STOCK AS ON 1 ST MARCH 2005 BUT ASSUMED IT TO BE NIL. THIS HAS TO BE ADJUS TED. 2. THE SECOND DIFFERENCE OF 504.075 MT RELATES TO T HE PURCHASE MADE IN JANUARY AND FEBRUARY 2005 ASSUMED BY THE ASSESSING OFFICER AS IF THESE PURCHASES RELATED TO MARCH 2005. THE ASSESSEE HAD SHOWN PURCHASES DURING THE M ONTH OF MARCH 2005 AT 994.620 MT (AS PER STOCK STATEMENT [ PAGE 119 OF PB] WHICH ALSO TALLIES WITH THE DETAILS PLACED A T PAGES 135 140 OF THE PB. AS AGAINST THE ABOVE PURCHASES TAKEN BY THE ASSESSEE FOR WORKING OUT CLOSING STOCK (PAGE 119 PB ) THE ASSESSING OFFICER HAS TAKEN THE FIGURES OF 1498.695 MT AS SHOWN RECEIPT IN EXCISE REGISTER FOR CLAIMING CENVA T/MODVAT UNDER RULE 57A (4) OF THE EXCISE RULES IN MARCH (PA GE 125 OF PB). THE ABOVE FIGURE OF 1498.695 MT ADOPTED BY THE ASSESSING OFFICER ALSO INCLUDES THE PURCHASES OF 50 4.075 MT WHICH WERE MADE PRIOR TO MARCH 2005 I.E. IN THE MO NTH OF JANUARY AND FEBRUARY 2005 AND HAD BEEN DULY ACCOUN TED FOR IN THE PURCHASE BOOK DURING THESE MONTHS AS IS APPA RENT FROM THE PURCHASE BOOK. THE COPY OF THE PURCHASE BOOK SH OWING THESE PURCHASES IS AVAILABLE AT PAGES 128 TO 135 OF THE PB. THESE PURCHASES CONSIST OF FOLLOWING TWO CATEGORIES OF ITEMS: A. ACTUAL QUANTITY PURCHASED IN IN FEBRUARY 2005 (MODVAT CLAIMED 15 IN MARCH 2005) (DETAILS PAGES 120/121 122 123 132 133 134 & 135 297.035 B. GOODS SHOWN PURCHASED IN JANUARY & FEBRUARY 2005 (BUT TAKEN IN EXCISE IN MARCH) (REF. PAGES- 120/121 READ WITH 128 133 134 123 124 & 125) 207.040 504.075 CHARTS MARKED AS A & B INDICATING SUCH PURCHASE S INTER ALIA DISCLOSING THE DATE OF PURCHASE MENTIONE D IN THE PURCHASE REGISTER WITH PAGES NO. OF PAPER BOOK CONT AINING THE COPY OF PURCHASE REGISTER AT PAGES 128 135 OF THE PB AND ALSO GIVING THE REFERENCE OF THE EXCISE REGISTER (P AGES 122 TO 125 OF THE PB CONTAINING COPY OF EXCISE REGISTER) I N RESPECT OF EACH OF THE PURCHASE BILL ALONG WITH THE BILL DATE BILL NO. NAME OF T HE PARTY AND QUANTITY ARE ENCLOSED HEREWITH AL ONG WITH THE SERIAL NO. MARKED AS 1 2 3 4 ..13 FOR YOUR CONVE NIENCE. FROM THIS IT WOULD BE CLEAR THAT PURCHASES WEIGHIN G 504.075 MT (PAGES 120/121) HAVE BEEN WRONGLY TREATED BY THE ASSESSING OFFICER AS PURCHASES IN THE MONTH OF MARC H 2005. WE ARE ENCLOSING HEREWITH THE COPY OF BILLS OF THES E PURCHASES TRANSPORT RECEIPT ETC. SUCH PURCHASES ARE ALREADY A CCOUNTED FOR BY THE ASSESSEE IN ITS TOTAL PURCHASES FOR THE MONTH OF FEBRUARY 2005 AND JANUARY 2005 (PAGES 128 135). IF THESE PURCHASES ALREADY ACCOUNTED FOR PRIOR TO MARCH ARE AGAIN TAKEN AS PURCHASES IN MARCH IT WOULD INCREASE THE FIGURES OF PURCHASES AND WILL CONSEQUENTLY INCREASE THE CLOSIN G STOCK AS PER THE FORMULA GIVEN HEREIN ABOVE. IF THE PURCHASE S OF MARCH ARE TO BE INCREASED CORRESPONDINGLY THE CONSUMPTIO N SHOULD BE INCREASED AS PER THE EXCISE REGISTER AS THESE AR E SHOWN ISSUED IN EXCISE REGISTER IN MARCH 2005. IT MAY FU RTHER BE SUBMITTED AT THE COST OF REPETITION THAT THE A O HA S ADOPTED FIGURES OF CONSUMPTION AS ADOPTED BY THE ASSESSEE W HICH HAS BEEN CERTIFIED BY THE AUDITORS. THUS ON ONE HAND H E IS 16 ADOPTING FIGURES OF PURCHASE ON BASIS OF RECEIPT SH OWN IN EXCISE REGISTER IN MARCH FOR CENVAT/MODVAT CREDIT. ON THE OTHER HAND HE IS ADOPTING THE FIGURES OF CONSUMPTI ON ON THE BASIS OF FIGURES ADOPTED BY ASSESSEE AS PER PAGE 12 0. MIXING OF FIGURES FROM TWO DIFFERENT REGISTERS MAINTAINED FOR DIFFERENT PURPOSES I.E. RECEIPT AS PURCHASES FROM EXCISE REGI STER AND CONSUMPTION FROM FINANCIAL BOOKS WILL THEREFORE E N OT GIVE THE CLEAR PICTURE OF STOCK OF RAW MATERIALS. THIS PICK AND CHOOSE APPROACH OF THE ASSESSING OFFICER IS TOTALLY WRONG AND CANNOT WORK OUT THE CORRECT STOCK. 3. THE THIRD MISTAKE COMMITTED BY THE A O DUE TO WH ICH DIFFERENCE HAS ARISEN RELATE TO 147.420 MT. IT IS E VIDENT FROM PAGE 19 OF HIS ORDER. AT ITEM 3 HE MENTIONS GOODS SENT FOR PROCESSING BEFORE 1 ST MARCH 2005 AND RECEIVED IN THE MONTH OF MARCH 2005 AFTER REPROCESSING 147.420 MT. THIS ITE M CANNOT BE THE STOCK OF RAW MATERIAL ONCE IT HAS BEEN RECEI VED AFTER REPROCESSING. IT WILL BECOME PART OF THE FINISHED G OODS AND NOT OF RAW MATERIALS. THIS FIGURE CANNOT BE ADDED AS IT IS INBUILT IN THE FINISHED GOODS PRODUCED IN THE MONTH OF MARCH A ND SCRAP. 4. THE FOURTH REASON FOR THE DIFFERENCE IS 570.380 MT. SO FAR AS 570.380 MT IS CONCERNED THE ASSESSEE HAS ALR EADY ACCEPTED THE MISTAKE THAT THIS BEING RAW MATERIAL S ENT FOR PROCESSING NOT RECEIVED TILL 31 ST MARCH WRONGLY ENTERED AS SCRAP AND HAS BEEN VALUED AT THE RATE OF SCRAP @ RS .10/- PER KG. INSTEAD OF @ RS.78.84 PER KG. ACCORDINGLY ASSES SEE REQUEST YOUR HONOUR TO DIRECT THE A O TO VALUE 570 .380 MT @ 78.84/- PER KG. AND ADDITION TO THAT EXTENT BE SUS TAINED WHICH WILL BE RS.32964959/- (570.380 X RS.68840/- PER MT) . 17 THE LEARNED COUNSEL FOR THE ASSESSEE BY REFERRING T O THE ABOVE SUBMITTED THAT THE FINDINGS OF THE AUTHORITIES BELO W ARE THEREFORE INCORRECT AND LIABLE TO BE SET ASIDE. 11. ON THE OTHER HAND LEARNED DEPARTMENTAL REPRESE NTATIVE RELIED UPON ORDERS OF AUTHORITIES BELOW. THE LEARNED DEPAR TMENTAL REPRESENTATIVE SUBMITTED THAT EXCISE RECORD IS CORR ECT. PB -122 IS THE COPY OF THE EXCISE RECORD. PRIOR TO THAT IT WAS NOT IN USE BECAUSE THIS PAPER SAYS ISSUED FOR USE OR IN RELATION TO THE MAN UFACTURE OF FINAL PRODUCT. BY REFERRING THE SAME PAPER LEARNED DEPAR TMENTAL REPRESENTATIVE SUBMITTED THAT FIRST DATE THEREIN IS 2 ND MARCH 2005 AND WAS AVAILABLE TO THE ASSESSEE BUT THE ASSESSEE PRODUCED THE EXCISE RECORD AT THE FAG END OF ASSESSMENT. THE EXC ISE RECORD WOULD NOT VERIFY PURCHASES UNLESS USED FOR PRODUCTION. EX CISE DO NOT VERIFY ABOUT PRODUCTION OF GOODS. THEY CHECK AN ENTRY TO B E MADE WHEN GOODS ARE MOVED OUT OF THE RELEVANT ZONE. HE HAS RE FERRED TO PAGE 18 OF THE ASSESSMENT ORDER AND SUBMITTED THAT THE F INDINGS OF THE ASSESSING OFFICER ARE CORRECT. PB 118 IS THE QUAN TITATIVE DETAILS OF CLOSING STOCK BY THE AUDITOR. BUT THE EXCISE DEPART MENT DID NOT VERIFY PURCHASES OF THE PRODUCTION. PB -120 IS THE QUANTIT ATIVE DETAILS OF CLOSING STOCK. BUT EXCISE DEPARTMENT DID NOT CHECK. HE HAS SUBMITTED THAT ASSESSING OFFICER HAS SPECIFICALLY N OTED THAT IN THE YEAR UNDER CONSIDERATION ASSESSEE HAS SHOWN GROSS P ROFIT MARGIN AT 6.8% AS COMPARED TO 14.7% WHICH WOULD SHOW THAT VAL UATION OF THE CLOSING STOCK WAS NOT CORRECT. IT WOULD ALSO SHOW P URCHASES CAME TO FACTORY OF THE ASSESSEE BUT SOLD OUTSIDE THE BOOKS OR USED SOMEWHERE. SOME PURCHASES OF MARCH 2005 NOT ENTER ED IN BUT RECEIVED IN APRIL 2005. RG -23A REGISTER WOULD SHOW GOODS ENTERED IN BONDED AREA BUT IT IS NOT CLEAR WHO WILL VERIFY THE SAME. THE CHIT WOULD PROVE THE CASE OF THE ASSESSING OFFICER. ASSE SSING OFFICER DID NOT DOUBT PURCHASES BUT AVAILABILITY OF THE RAW MAT ERIAL WAS SEEN FOR THE PURPOSE OF PRODUCTION. LEARNED DEPARTMENTAL REP RESENTATIVE 18 ALSO FILED WRITTEN SUBMISSION EXPLAINING THEREIN TH AT THE DEPARTMENTS CASE IS LARGELY DEPENDENT ON THE PROOF THAT CERTAIN MATERIAL WAS THERE IN STOCK AS PER EXCISE RECORD AFTER 01-03-2005. LEA RNED DEPARTMENTAL REPRESENTATIVE EXPLAINED THAT WHEN ASS ESSEE CLAIMED THAT RAW MATERIAL PURCHASED IN JANUARY AND FEBRUARY 2005 WERE UTILISED FOR PRODUCTION IS NOT POSSIBLE BECAUSE THE GOODS WERE ACTUALLY RECEIVED AT THE PORT AND CLEARED BY CUSTOM S IN MARCH 2005. THE ASSESSEE IS NOT CHALLENGING THE QUANTITY OF FIN ISHED GOODS AND SCRAP. NO BENEFIT OF ENHANCED CLOSING STOCK SHOULD BE GIVEN TO THE ASSESSEE IN THE NEXT YEAR. THE DIFFERENCE IN CLOSIN G STOCK AS PROVED BY THE ASSESSING OFFICER IS DUE TO QUANTITY OF RAW MATERIAL TAKEN LESS. THE PART DIFFERENCE ACCEPTED BY THE ASSESSING OFFIC ER WOULD PROVE THAT THERE WAS EXCESS RAW MATERIAL IN CLOSING STOCK OVER AND ABOVE WHAT WAS SHOWN BY THE ASSESSEE. LEARNED DEPARTMENTA L REPRESENTATIVE ACCORDINGLY SUBMITTED THAT APPEAL OF THE ASSESSEE MAY BE DISMISSED. 12. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD AND ALSO TAKEN INTO CONSIDERATIO N THE WRITTEN SUBMISSIONS FILED BY BOTH THE PARTIES. THE ASSESSIN G OFFICER MADE THE ADDITION BY RE-COMPUTING THE CLOSING STOCK OF R AW MATERIALS ON THE BASIS OF DETAILS FROM THE EXCISE REGISTER RG-23A FO R THE MONTH OF MARCH 2005. THE ASSESSING OFFICER DID NOT DISPUTE THE SIMILAR FIGURES NOTED BY THE ASSESSEE IN THE EARLIER 11 MON THS IN THE BOOKS OF ACCOUNT AND THE EXCISE RECORD. THE FIGURES ADOPT ED BY THE ASSESSING OFFICER READ IN THE FOLLOWING MANNER: 1. GOODS SENT FOR PROCESSING UP TO FEBRUARY 2005 BUT RECEIVED AFTER 31 ST MARCH 2005 (AS PER ANNEXURE IV OF EXCISE RECORDS) 570.380 TONS 2. GOODS PURCHASED/RECEIVED IN THE MONTH OF MARCH 2005 (AS PER EXCISE RECORD R.G.23-A(PART-I) 1 498.695 TONS 19 3. GOODS SENT FOR PROCESSING BEFORE 1 ST MARCH 2005 AND RECEIVED IN THE MONTH OF MARCH 2005 AFTER PROCESSING (AS PER ANNEXURE IV OF EXCISE RECORD) 147.4230 TONS TOTAL QUANTITATIVE AVAILABLE FOR PRODUCTION IN THE MONTH OF MARCH 2005 1646.115 TONS. LESS: FINISHED GOODS PRODUCED IN THE MONTH OF MARCH 2005 & SCRAP GENERATED IN THE MONTH OF MARCH 2005 (363.279 + 387.904 TONS) AS PER EXCISE RECORDS CLOSING STOCK AVAILABLE WITH ASSESSEE FIRM AS ON 31-03-05 751.183 TONS 894.932 TONS ADD: GOODS LYING WITH THE THIRD PARTIES FOR JOB WORK 570.380 TONS TOTAL 1465.312 TONS LESS: SHOWEN IN THE BOOKS OF ACCOUNTS AS ON 31-03-05 298.360 TONS UNDERSTATED CLOSING STOCK OF RAW MATERIAL AS ON 31-03-05 1166.952 TONS VALUE OF UNDERSTATED CLOSING STOCK (1166.952 @ 78 8 40 PER TON) RS.9 20 02 495.68. 12.1 WE MAY NOTE HERE THAT THE ASSESSEE HAS SUBMITT ED THE FOLLOWING RECONCILIATION OF THE STOCK OF THE RAW MA TERIALS: DIFFERENCE OF STOCK OF RAW MATERIAL AS TAKEN BY THE A O (PAGE 20 OF 1166.952 MT ASSESSMENT ORDER. ADD:- OPENING STOCK OF MARCH BEING CLOSING STOCK OF FEB. 05 PAGE PB-120 (TAKEN NIL BY A O) 54.923 MT 1221.875 MT 20 LESS: A. RAW MATERIAL OF 504.075 MT DOUBLE COUNTED BY A O ALTHOUGH ALREADY INCLUDED IN JANUARY AND FEBRUARY 2005 PURCHASED AS PER STATEMENT AT PAGE PB-121 READ WITH PAGES 128 TO 135 OF PB REPRESENTING COPY OF PURCHASE BOOK 504.075 MT B. GOODS SENT FOR PROCESSING BEFORE 1 ST MARCH 2005 RECEIVED IN MARCH ALREADY CONVERTED INTO FINISHED GOODS PART OF 751.183 MT (ASSESSMENT ORDER - PAGE 19) 147.420 MT C. MISTAKE OF SCRAP ACCEPTED BY THE ASSESSEE FOR RAW MATERIAL SENT FOR PROCESSING TO THIRD PARTIES BUT TAKEN AS SCRAP 570.380 MT 1221.875 MT DIFFERENCE NIL 12.2 THE ASSESSEE HAS FILED MONTH WISE QUANTITATIVE DETAILS OF CLOSING STOCK FOR THE YEAR ENDED 31 ST MARCH 2005 AT PAGE 120 OF THE PAPER BOOK SHOWING THE CLOSING STOCK AT 298630.00 ( 298.360 MT). FURTHER DETAILS IN THIS QUANTITATIVE DETAILS ARE NO TED AS UNDER: STOCK OF RAW MATERIAL AS ON 1-03-2005 54.923 MT (PB-120) ADD: PURCHASES MADE DURING MARCH 2005 AS PER PURCHASE BOOK (DETAILS PB -135 TO 140) 994. 620 MT (PB-120) TOTAL 1049.543 MT LESS: FINISHED GOODS INCLUDING SCRAP PRODUCED IN MARCH 2005 (363.279 PLUS 387.904) 751.183 M T (PB-120) CLOSING STOCK AS PER RECORD 298.360 MT CLOSING STOCK CERTIFIED BY AUDITOR(PB-118-119)298. 360 MT 21 12.3 PB-122 TO 125 IS RG-23A (PART-I) REGISTER FOR THE MONTH OF MARCH 2005 RELIED UPON BY THE ASSESSING OFFICER. P URPOSE OF RG- 23A REGISTER IS TO PAY THE DUTY AND GET MODVAT CRED IT. IN PB-122 IT IS CLARIFIED THAT ASSESSING OFFICER TOOK 2 ND MARCH 2005 BEING THE FIRST DATE OF ITEM NO.1 GOODS RECEIVED BUT FAILED TO NOTE 21-02-2005 AS B/E DATE. THE ASSESSING OFFICER OMITTED TO TAKEN IN TO CONSIDERATION THE SECOND DATE. PURCHASES MADE IN JANUARY AND FEBR UARY 2005 AVAILABLE IN MARCH 2005 FOR PRODUCTION AND USE IN MANUFACTURING OF FINAL PRODUCT IN MARCH 2005. THE LEARNED COUNSEL F OR THE ASSESSEE DEMONSTRATED DURING THE COURSE OF ARGUMENT THROUGH MATERIAL ON RECORD THAT ALL THE ENTRIES CONTAINED IN THE SAME R EGISTER ARE GENUINE AND CORRECT AND SUPPORTED BY BILLS CUSTOM CLEARANC E AND CHIT ETC. PB -126 TO 140 ARE THE DETAILS OF PURCHASE REGISTER. P B/WS -15 AND 16 ARE CHART A AND B WOULD PROVE THE ABOVE STATEMENTS REGARDING MATERIAL ENTERED IN PURCHASES BY THE ASSESSEE PRIOR TO MARCH BUT TAKEN IN EXCISE RECORD IN MARCH DUE TO MODVAT CANVE T. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO DEMONSTRATED THAT BIL LS CUSTOM CLEARANCE AND CHITS ON RECORD WOULD PROVE THE ABOVE FACTS AND ON VERIFICATION OF THE SAME WE FOUND THE ABOVE STATEME NTS TO BE CORRECT AND TALLY WITH THE STATEMENTS OF THE ASSESSEE FILED AT PB-121 WITH CHART A AND B ABOVE. IT WOULD PROVE THAT THE ASSESS EE PURCHASED GOODS IN ADVANCE AND WERE CONSUMED IN MARCH 2005 FO R MANUFACTURE OF FINAL PRODUCTS. THE LEARNED DEPARTME NTAL REPRESENTATIVE ALSO DID NOT DISPUTE THE EXCISE REC ORD AS IS ALSO NOT DISPUTED BY THE ASSESSING OFFICER. WE ACCORDINGLY NOTE THAT THE ASSESSING OFFICER WHILE RECASTING THE CLOSING STOCK OF THE RAW MATERIAL HAS TAKEN INTO CONSIDERATION THE RECEIPTS SHOWN BY THE ASSESSEE OF THE RAW MATERIALS IN THE MONTH OF MARCH 2005 IN EXCISE REGISTER TO BE THE PURCHASES OF RAW MATERIAL BY THE ASSESSEE DURING THE MONTH OF MARCH 2005 WHICH FACT IS INCORRECT. TH E ASSESSING OFFICER ACCORDINGLY INCREASED THE PURCHASES OF THE RAW MATERIAL OF MARCH 2005 BY 504.07 MT DESPITE THE FACT THE SAME PURCHASES 22 HAVE BEEN DULY ACCOUNTED FOR AS PURCHASES IN THE MO NTHS OF JANUARY AND FEBRUARY 2005 (PB-121). THE FIGURES GIVEN AT P B 118 AND 119 ARE OF OPENING STOCK PURCHASES CONSUMPTION SALES AND CLOSING STOCK CERTIFIED BY THE AUDITOR. PB -120 IS THE QUAN TITATIVE DETAILS MONTH WISE AS NOTED ABOVE AND PB-121 IS THE STATEME NT SHOWING QUANTITY OF RAW MATERIAL PURCHASED BEFORE 1 ST MARCH 2005 IN BOOKS BUT TAKEN IN EXCISE RECORD IN THE MONTH OF MARCH 20 05 AND AS SUCH THE ASSESSING OFFICER HAS INADVERTENTLY TAKEN AS PU RCHASES OF MARCH 2005. IN EXCISE REGISTER IT IS NOTED THAT RA W MATERIAL OF 504.075 MT WAS SHOWN AS RECEIPT IN THE MONTH OF MAR CH 2005 BUT IN THE PURCHASE REGISTER THE SAME MATERIAL IS SHOWN AS PURCHASED IN JANUARY AND FEBRUARY 2005. SAME MATERIAL IS CONSUM ED IN MARCH 2005 AS PER THE EXCISE REGISTER. IF THE ASSESSING O FFICER WANTED TO INCREASE THE PURCHASE FOR THE MONTH OF MARCH 2005 BY 504.075 MT HE SHOULD HAVE ALSO INCREASED THE CONSUMPTION FOR T HIS MONTH BY 504.075 MT. IF THE CONSUMPTION IS ALSO INCREASED TO THE ABOVE FIGURE THE EFFECT WILL BE THAT THE DIFFERENCE WORKED OUT B Y THE ASSESSING OFFICER SHOULD BE REDUCED. WE AGREE WITH SUBMISSION OF LEARNED COUNSEL FOR THE ASSESSEE THAT ACCORDING TO RULE 57 A (4) OF THE EXCISE RULES THE ASSESSEE HAS SHOWN THE RECEIPT OF RAW MATERIAL WHEN HE CLAIMED CREDIT OF MODVAT/CANVET I.E. ONLY A T THE TIME OF CONSUMPTION OF THE RAW MATERIAL. IT IS ALSO DONE SO THAT THE CONSUMPTION OF THE RAW MATERIAL MAY BE MATCHED WITH THE RECEIPT OF THE MATERIAL AND THE ASSESSEE MAY NOT BE ABLE TO CL AIM DOUBLE CREDIT UNDER THE EXCISE RULES. THE DIFFERENCE AS WORKED OU T BY THE ASSESSING OFFICER BY 504.075 MT IS THEREFORE STAND S EXPLAINED AND SHALL HAVE TO BE REDUCED. 12.4 WE MAY ALSO NOTE HERE THAT THE ASSESSING OFFIC ER HAS TAKEN THE OPENING STOCK FOR THE MONTH OF MARCH 2005 AS N IL WITHOUT ANY REASON DESPITE THE FACT THAT AT THE END OF FEBRUARY 2005 THE ASSESSEE WAS HAVING CLOSING STOCK OF 54.923 MT. THE DIFFERENCE 23 WOULD INCREASE BY THIS FIGURE. THE ASSESSING OFFICE R HAS INCREASED THE STOCK OF RAW MATERIAL BY 147.420 MT BY MENTIONI NG THAT GOODS SENT FOR PROCESSING BEFORE 1-03-2005 AND RECEIVED I N THE MONTH OF MARCH 2005. ONCE THE GOODS IS RECEIVED AFTER RE-PR OCESSING IT WILL NO MORE REMAIN RAW MATERIAL AND SHALL HAVE TO BE CONSI DERED PART OF THE FINISHED STOCK. THE ASSESSING OFFICER HAS ALREADY T AKEN THE FINISHED GOODS AS SCRAP IN THE MONTH OF MARCH 2005 AT 751.1 83 MT AND THIS STOCK HAS BEEN IMPLIEDLY INCLUDED IN THE FINISHED G OODS IN THE MONTH OF MARCH 2005 AS WELL AS SCRAP GENERATED. THEREFOR E IT CANNOT BE SEPARATELY ADDED SO AS TO INCREASE THE QUANTUM OF C LOSING STOCK OF THE RAW MATERIAL. THE FIGURES QUOTED BY THE ASSESSI NG OFFICER ARE THEREFORE NOT CORRECT. THE QUANTITY OF RAW MATERIA L AND FINISHED GOODS SHOWN BY THE ASSESSEE TALLIED WITH THE RECORD S MAINTAINED BY THE ASSESSEE AND AS PER EXCISE RECORDS WHICH IS NOT DISPUTED BY THE ASSESSING OFFICER (PB 118). IT IS ALSO RELEVANT T O NOTE THAT ON THE SAME SYSTEM OF ACCOUNTING DETAILS RECORDED BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS AND EXCISE RECORDS FOR THE REMAIN ING 11 MONTHS HAVE NOT BEEN DISPUTED BY THE ASSESSING OFFICER. NO SPECIFIC DEFECTS HAVE BEEN POINTED OUT IN THE MAINTENANCE OF BOOKS O F ACCOUNT BY THE ASSESSEE. EVIDENCES OF AVAILABILITY OF THE RAW MATE RIAL BEFORE CONSUMPTION ARE FILED ON RECORD. PB -121 ALSO SHOWS THAT SOME GOODS CLEARED BY CUSTOMS AUTHORITIES ON 9 TH AND 10 TH MARCH 2005 WOULD THUS BE AVAILABLE TO THE ASSESSEE FOR CONSUMP TION. THE ASSESSING OFFICER ON ASSUMPTION OF IRRELEVANT FACTS NOTED THAT ASSESSEE HAS SHOWN CLOSING STOCK AS ON MARCH 2005 SUBSTANTIALLY LOWER THAN IT SHOULD HAVE BEEN SINCE RAW MATERIAL CANNOT BE ISSUED FOR PRODUCTION WITHOUT ACTUAL RECEIPT OF THE RAW MA TERIAL. THE ASSESSEE HOWEVER HAS FURNISHED COMPLETE DETAILS PA RTY WISE OF PURCHASES WHICH WERE RECEIVED ON TIME AND ISSUED FO R PRODUCTION WHICH ARE SUPPORTED BY BILLS CUSTOM CLEARANCE AND CHITS ETC. AND DETAILS MENTIONED IN EXCISE REGISTER WHICH ARE ALSO VERIFIED BY THE EXCISE AUTHORITIES WITHOUT ANY OBJECTION. IT WOULD SHOW THE FINDINGS OF 24 AUTHORITIES BELOW ARE CLEARLY UNJUSTIFIED. ADDITION S ARE THEREFORE LIABLE TO BE DELETED BECAUSE THERE IS NO DIFFERENCE IN THE STOCK. WE ACCORDINGLY SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION ON ACCOUNT OF DIFFERENCE IN STOCK. 12.5 THE LAST ITEM RELATES TO QUANTITY OF 570.380 M T ON WHICH ASSESSEE AGREED BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THAT IT WAS A MISTAKE ACCEPTED BY THE AS SESSEE THAT THIS BEING RAW MATERIAL SENT FOR PROCESSING WRONGLY ENTE RED AS SCRAP AND HAS BEEN VALUED AT THE RATE OF SCRAP INSTEAD OF PU RCHASE VALUE. ASSESSEE AGREED FOR THE ADDITION TO THE EXTENT OF R S.3 92 64 959/- (PAGE 94 OF C IT (A) ORDER). LEARNED COUNSEL FOR TH E ASSESSEE DURING THE COURSE OF ARGUMENT ALSO AGREED TO THE ABOVE ADD ITION. WE ACCORDINGLY SUSTAIN THE ABOVE ADDITION. IT IS SETT LED LAW THAT CLOSING STOCK OF THE YEAR WILL BECOME OPENING STOCK IN THE NEXT YEAR. SINCE THE VALUE OF THE CLOSING STOCK OF THE RAW MATERIAL HAS TO BE INCREASED TO THE ABOVE EXTENT AS PART ADDITION ADMITTED BY T HE ASSESSEE THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO GIVE C ONSEQUENTIAL EFFECT IN RESPECT OF THE ADDITION MADE IN THE VALUE OF THE CLOSING STOCK OF THE RAW MATERIAL IN THE SUCCEEDING ASSESSMENT YEAR WHER E THE VALUE OF THE OPENING STOCK WILL ALSO BE INCREASED CORRESPOND INGLY. 12.6 IN VIEW OF THE ABOVE DISCUSSIONS AND FINDINGS GIVEN ABOVE ON GROUND NO.3 WE RESTRICT THE ADDITION ON THIS GROUN D TO RS.3 92 64 959/- AND DELETE THE REMAINING ADDITION. AS A RESULT GROUND NO.3 OF THE APPEAL OF THE ASSESSEE IS ALLOWE D PARTLY. 13. GROUND NO.4 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: 4. THE LEARNED CIT (A) HAS ERRED IN LAW AND ON FAC TS IN CONFIRMING ADDITION OF RS.3 55 21 139/- MADE BY A O BY TREATING THE QUANTITY OF SHORTAGE OF SCRAP SHOWN IN THE AUDITED ACCOUNTS AS SALES MADE OUTSIDE THE BOOK S OF ACCOUNTS. BOTH THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THE PECULIAR NATURE OF THE BUSINESS OF T HE 25 APPELLANT AND HAVE IGNORED THE EXPLANATIONS SUBMISSIONS AND EVIDENCE PRODUCED BY THE APPELLANT. THE LD. CIT (A) OUGHT TO HAVE DELETED THE ADDITION MADE BY A O ON ACCOUNT OF SUPPRESSED SALES AND OUGHT TO HAVE CONSIDERED THE ALTERNATIVE SUBMISSIONS OF THE APPELLANT THAT THE SHORTAGE OF SCRAP BE TREATED AS SALE OF SCRAP RATHER THAN THAT OF FINISHED GOODS. 14. THE FACTS AS REGARDS THE ADDITION REGARDING SUP PRESSED SALE THE ASSESSING OFFICER HAS MADE AN ADDITION OF RS.3 55 21 139/- ASSUMING THAT THE QUANTITY OF SHORTAGE OF SCRAP SHO WN IN THE ACCOUNTS AND AUDIT REPORT AMOUNTING TO 380.02 MT IS NOTHING BUT SALE OF FINISHED GOODS OUT OF BOOKS. IN THIS REGARD THE ASSESSEE HAS SUBMITTED THAT THE ASSESSING OFFICER HAS GROSSLY ER RED IN MAKING ADDITION OF THE SAID AMOUNT BASED ON ERRONEOUS ASSU MPTION AND THE ADDITION MADE IS FACTUALLY AND LEGALLY UNTENABLE. I N SUPPORT OF ITS CONTENTION THE ASSESSEE FURNISHED THE YEAR WISE DE TAILS OF FINISHED GOODS SCRAPS GENERATED AND CLOSING STOCK OF FINISH ED GOODS AND SCRAP AS PER THE CHART PRODUCED BELOW AS APPEARIN G IN THE FINAL ACCOUNTS AND ALSO REPORTED IN THE AUDIT REPORT BY A UDITOR: 31.03.2002 31.03.2003 31.03.2004 31.03.2005 FINISHED GOODS PRODUCED DURING THE YEAR 43 35 150 55 63 542 65 24 407 60 02 916 GENERATION OF TOTAL SCRAP DURING THE YEAR ENDED 22 58 004 12 49 322 36 26 060 29 07 616 CLOSING STOCK OF FINISHED GOODS 64 718 53 680 1 32 000 39 494 CLOSING STOCK OF SCRAP 26 41 774 22 41 026 40 54 246 36 31 330 THE ASSESSEE SUBMITTED THAT FROM THE ABOVE CHART IT IS QUITE EVIDENT THAT THE ASSESSEE WAS MAINTAINING HUGE QUANTITY OF SCRAP STOCK (ON AN AVERAGE OF 3142 M.T.) DUE TO VERY NATURE OF BEIN G BULKY IT IS PRACTICALLY NOT POSSIBLE TO ASCERTAIN THE ACTUAL WE IGHT OF THE SCRAP LYING IN STOCK AND THEREFORE NORMALLY AT THE END OF THE YEAR THE WEIGHT 26 OF SCRAP WAS ASCERTAINED ON THE BASIS OF BOOK RECOR DS. HOWEVER DURING THE FINANCIAL YEAR 2004-05 THE ASSESSEE HAD ASCERTAINED THE ACTUAL WEIGHT OF SCRAP. THE ASSESSEE SUBMITTED THAT WHEN THE ACTUAL PHYSICAL VERIFICATION OF CLOSING STOCK WAS TAKEN IN LAST WEEK OF OCTOBER 2004 IT WAS NOTICED THAT THERE WAS A SHOR TAGE OF 380.02 M.T. OF SCRAP STOCK AS COMPARED TO THE BOOK RECORDS . IN SPITE OF OVERALL CONTROL AND ADEQUATE SECURITY MEASURES THE SHORTAGE HAS OCCURRED. THIS SHORTAGE OF SCRAP MAY BE ATTRIBUTED TO THE FOLLOWING REASONS: 1) BEING OF BULKY NATURE PRACTICALLY IT WAS NOT PO SSIBLE TO PHYSICALLY WEIGH THE SCRAP AND THEREFORE THE SAME W AS CONSIDERED ON THE BASIS OF BOOK RECORDS. 2) THIS SHORTAGE MAY BE DUE TO SMALL THEFTS IN THE FACTORY OVER THE PERIOD OF TIME. 3) SHORTAGE MAY BE DUE TO OVERLOADING IN THE TRUCK BY THE SUBORDINATE STAFF WHEN SCRAP IS SOLD. 4) SALE OF SCRAP IS NOT MONITORED BY PARTNERS OR MA NAGER BUT USUALLY IT IS LEFT TO SUBORDINATE STAFF BECAUSE OF ITS BULKY NATURE AND VERY LOW IN VALUE AS COMPARED TO FINISHED GOODS. 5) DUE TO HEAVY QUANTITY OF SCRAP STOCK DURING THE LAST FEW YEARS. IT IS TRUE THAT THE ABOVE SHORTAGE WAS NEVER SHOWN IN THE PAST IN PREVIOUS FIVE YEARS. HOWEVER IT IS ALSO TRUE THAT THE SHORTAGE IS GENERATED NOT IN A DAY OR IN ONE YEAR ONLY BUT THE SAME IS SUM TOTAL OF DIFFERENCES OVER A PERIOD OF TIME AND IN SUCH CA SES THE SAME IS ACCOUNTED FOR AS AND WHEN THE SAME IS ACTUALLY ASCE RTAINED AND BECOME KNOWN. THE TABLE REPRODUCED HEREINABOVE MAKE S IT CLEAR THAT THE ASSESSEE WAS MAINTAINING HUGE STOCKS OF SC RAP FOR PAST FEW YEARS. IT IS BECAUSE OF THIS THAT THE ASSESSEE COUL D NOT DETECT THE PILFERAGES IN THE SCRAP STOCK. THE ASSESSEE SUBMITT ED THAT THE 27 AVERAGE SCRAP STOCK OVER THE PAST FEW YEARS WITH TH E ASSESSEE INCLUDING THE YEAR UNDER CONSIDERATION IS 3142.094 M.T. THUS IT IS SUBMITTED THAT THIS SHORTAGE OF 380.002 M.T. IS ONL Y 12% OF THE AVERAGE STOCK OF SCRAP MAINTAINED BY THE ASSESSEE. THE ASSESSEE ALSO SUBMITTED THAT THE ASSESSING OFFICER HAS ASSUM ED THAT THIS SHORTAGE SHOWN IN THE ACCOUNTS IS A SUPPRESSED SALE OF FINISHED GOODS. IT IS SUBMITTED THAT THE OBSERVATION BY THE ASSESSING OFFICER THAT THE SHORTAGE IS NOTHING BUT THE SALE OF FINISH ED GOODS OUT OF BOOKS IS OUT OF CONTEXT. SHORTAGE OF SCRAP STOCK HA S NOT OCCURRED IN ONE YEAR AND THE SAME IS CUMULATIVE EFFECT OF SHOR TAGE GENERATED IN THE LAST FEW YEARS PARTICULARLY ON ACCOUNT OF HUGE INVENTORY OF SCRAP ON HAND CARRIED ON BY THE ASSESSEE. ON PHYSICAL VER IFICATION OF STOCK WHEN THE FACT OF THE SHORTAGE WAS NOTED THE ASSESSE E ACCOUNTED FOR THE SAME AND IT IS SHOWN IN THE ACCOUNTS ACCORDINGL Y. THE ASSESSEE ALSO SUBMITTED THAT IN THE ABSENCE OF ANY EVIDENCES IN SUPPORT OF THE ALLEGATION IT IS NOT PROPER ON THE PART OF THE ASS ESSING OFFICER TO ALLEGE AND ARRIVE AT THE ASSUMPTION THAT THE SHORTA GE IN QUANTITY IS NOTHING BUT SALE OF FINISHED GOODS OUT OF BOOKS. TH E ASSESSING OFFICER HAS NO MATERIAL ON RECORDS TO COME TO A CON CLUSION THAT THE SHORTAGE OF GOODS WAS ONLY SHORTAGE OF FINISHED GOO DS AND THAT THEY HAVE ENGAGED IN UNACCOUNTED SALES. IN THIS REGARD T HE ASSESSEE STATED THAT THE GOODS MANUFACTURED BY THE ASSESSEE ARE EXCISABLE SINCE INCEPTION OF THE FIRM. THE SALES ARE EFFECTED ONLY TO REPUTED CUSTOMERS AND LIMITED COMPANIES AVAILING CENVAT CR EDIT. SALE OF FINISHED GOODS CAN NOT BE EFFECTED WITHOUT COVER OF CENTRAL EXCISE INVOICES. IN VIEW OF THE ABOVE FACTUAL POSITION PRA CTICALLY IT IS NEITHER POSSIBLE FOR THE ASSESSEE TO REMOVE THEIR FINISHED GOODS OUT OF BOOKS WITHOUT PREPARING INVOICES NOR THEIR BUYERS WILL E VEN THINK OF BUYING THE SAME WITHOUT PROPER CENTRAL EXCISE INVOICES. TH EREFORE THE QUESTION OF SALE OF ASSESSEES FINISHED GOODS OUT O F BOOKS IS TOTALLY RULED OUT. THE ASSESSEE REFERRED TO THE OBSERVATION S MADE BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS REDUCED TH E SHORTAGE 28 OCCURRED DURING THE YEAR FROM OPENING STOCK OF SCRA P. IT MEANS THAT THE ASSESSEE IS SHOWING THE BIFURCATION OF FINISHED GOODS AND SCRAP AS PER THEIR CONVENIENCE. IN THIS REGARD IT IS SUB MITTED THAT THE ASSESSEE HAD DISCLOSED THE QUANTITATIVE DETAILS OF STOCK OF RAW MATERIAL PURCHASED FINISHED GOODS AND SCRAP PRODUC ED AND SOLD SINCE ITS INCEPTION HENCE THE REMARKS OF THE ASSES SING OFFICER TO SAY THAT THE ASSESSEE IS SHOWING BIFURCATION OF FINISHE D GOODS AND SCRAP ACCORDING TO THEIR CONVENIENCE IS FACTUALLY INCORRE CT AND UNTENABLE. WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS THE ASS ESSEE SUBMITTED THAT AT THE MOST IT MAY BE ASSUMED THAT THIS SHORTA GE OF SCRAP SHOWN IN THE ACCOUNTS WAS SALE OF SCRAP BUT IN NO WAY IT CAN BE CONCLUDED THAT IT WAS A SALE OF FINISHED GOODS. IN THE LIGHT OF THE SUBMISSIONS MADE AS ABOVE THE ASSESSEE PRAYED THAT THE ADDITION MADE BY THE ASSESSING OFFICER IN THIS REGARD MAY ALSO BE DELETE D. 15. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HOWEVER DISMISSED THIS GROUND OF APPEAL BECAUSE NO CONVINCI NG REASONS ARE GIVEN. 16. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW. HE HAS SUBMITTED THA T THE ASSESSEE HAS SHOWN SHORTAGE OF SCRAP DURING THE YEAR ON THE BASIS OF PHYSICAL VERIFICATION OF THE STOCK CARRIED OUT ON 25-10-2004 (PB-143). THE NATURE OF THE GOODS PRODUCED BY THE ASSESSEE GENERA TES THE SCRAP. THE VERY NATURE OF THE SCRAP IS BULKY WHICH IS APPA RENT FROM PHOTOGRAPHS FILED AT PB-144 146. THE ACTUAL WEIGH T OF THE SCRAP IS NOT TAKEN AT THE END OF THE YEAR BUT ASCERTAINED ON THE BASIS OF BOOKS EACH YEAR. IN THE EARLIER YEAR ALSO SCRAP IS GENERA TED THE DETAILS OF WHICH ARE FILED AT PB 141 AND 142. DUE TO SHORTAG E OF SCRAP ASSESSEE WROTE OFF THE SAME IN THE BOOKS. THE ASSES SING OFFICER HAS HOWEVER TREATED THE SAME TO BE GOODS MANUFACTURED AND SOLD OUTSIDE THE BOOKS. THE GENERATION OF THE SCRAP VARY UP TO 31.72% AND SAME HAS BEEN ACCEPTED IN EARLIER YEAR ALSO. NO ADDITION SHALL 29 BE MADE ON ACCOUNT OF GENERATION OF SCRAP IN EARLIE R YEAR. THE AUDITOR HAS ALSO CLARIFIED THE SAME IN THE ACCOUNTS OF THE ASSESSEE (PB-118). THE SHORTAGE MAY BE DUE TO THEFT IN THE F ACTORY DUE TO OVERLOADING IN THE TRUCK BY THE SUBORDINATE STAFF W HEN SCRAP WAS SOLD. THE SALE OF SCRAP IS NOT MONITORED BY THE PAR TNER OF THE ASSESSEE. ON PHYSICAL VERIFICATION CARRIED OUT ALL ENTRIES WERE MADE IN THE ACCOUNTS WRITING OFF THE SAME SHORTAGE. THE FINISHED GOODS PRODUCED BY THE ASSESSEE ARE SUBJECTED TO CENTRAL E XCISE AND SALES TAX AND GOODS CANNOT BE MOVED OUTSIDE THE FACTORY W ITHOUT EXCISE AND SALES TAX SUPERVISION. THERE WAS NO OBJECTION F ROM THE EXCISE DEPARTMENT AND ALL FINISHED GOODS WERE SUPERVISED B Y THE EXCISE DEPARTMENT. NO EVIDENCE OF MANUFACTURING OF GOODS O R SALE HAS BEEN BROUGHT ON RECORD. SHORTAGE WAS ACCOUNTED IN THIS Y EAR ONLY. IT WAS THEREFORE SUSPICION OF THE ASSESSING OFFICER THAT SCRAP HAS PRODUCED THE GOODS WHICH IS SOLD OUTSIDE THE BOOKS. THE SUSP ICION CANNOT TAKE PLACE OF PROOF. THE NATURE OF THE SCRAP CANNOT EXCE ED TO MANUFACTURING OF THE GOODS. IF SCRAP IS STATED SALE OF FINISHED GOODS IT WOULD RAISE GROSS PROFIT ABNORMALLY. NO ADDITION COULD BE MADE ON ACCOUNT OF SALE OF FINISHED GOODS OUTSIDE THE BOOKS ON GENERATION AND SHORTAGE OF SCRAP. THE ASSESSEE RELIED UPON FOL LOWING DECISIONS: (1) MOTIPUR SUGAR FACTORY PVT. LTD. VS CIT 95 ITR 401( PAT) (2) CIT VS J.K.SYNTHETICS LTD. 296 ITR 501(ALL.) (3) M. D. UMAR VS CIT (1975) CTR (PAT) 13 (4) PONDY METAL & ROLLING MILLS VS DCIT 107 TTJ 336 (5) ITO VS HIMALAYA DRUG CO. 17 TTJ 9 (6) ACIT VS KAMBHATTA FAMILY TRUST 67 TTJ 411 (7) CHATISGARH STEEL CASTINGS PVT. LTD. VS ACIT 8 DTR(BILASPUR) 14 THE ASSESSEE IS A REGULAR ASSESSEE FOR THE SEVERAL YEARS AND NO ALLEGATIONS HAVE BEEN MADE IN EARLIER AND IN SUBSEQ UENT YEAR. IN EARLIER YEARS AND IN SUBSEQUENT YEAR ASSESSMENTS HA VE BEEN MADE 30 U/S 143(3) AND NO SIMILAR ADDITION HAS BEEN MADE. A DDITION IS THEREFORE WITHOUT ANY BASIS. IN THE ALTERNATE CONT ENTION LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IF THE ASSE SSING OFFICER IS NOT SATISFIED WITH THE SHORTAGE OF THE SCRAP WHICH IS ABOUT 11% OF THE AVERAGE STOCK OF THE SCRAP MAINTAINED BY THE ASSESS EE THE LIMITED ADDITION COULD BE MADE TO THE VALUE OF THE SALE OF SCRAP SUBJECT TO ALLOWABILITY OF THE DEDUCTION U/S 80IB OF THE IT AC T. 17. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON ORDERS OF AUTHORITIES BELOW. THE LEARNED DEPARTMENTAL REPR ESENTATIVE REFERRED TO PB -142 WHICH IS STATEMENT OF THE PRODU CTION AND SCRAP YEAR WISE AND SUBMITTED THAT GENERATION OF SCRAP IS HIGHER. HE HAS SUBMITTED THAT PURCHASES OF MARCH NOT ENTERED IN TH E BOOKS BUT TAKEN IN APRIL 2005 (PB-138). THE ASSESSEE DID NOT TAKE ANY ACTION FOR SHORTAGE OF THE SCRAP AND MADE ENTRY IN THE BOO KS WRITING OFF THE SCRAP THEREBY CLAIMING HUGE SCRAP LOSS. THE CONDUC T OF THE ASSESSEE IS ABNORMAL IN NOT TAKING ACTION IN THE MA TTER. LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON DECISIONS O F HONBLE SUPREME COURT IN THE CASES OF SUMATI DAYAL 214 ITR 801(SC) AND DURGA PRASHAD MORE 82 ITR 540(SC). NO BENEFIT CAN B E GIVEN IN THE NEXT YEAR. HE HAS REFERRED TO PB-80/81 TO SHOW THAT PHYSICAL VERIFICATION IS MADE IN THIS YEAR ONLY. LEARNED DEP ARTMENTAL REPRESENTATIVE SUBMITTED THAT NO FACT IS PROVED THA T THERE WAS ANY THEFT OR PILFERAGE IN THE FACTORY OF THE ASSESSEE. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT ASSESSE E IS IGNORING THE FACT THAT EXCISE DEPARTMENT IS ONLY CONCERNED A BOUT THE BONDED AREA I.E. PURCHASES WHICH ENTER THE AREA AFTER ENTR Y IN RG-23A REGISTER AND THE MATERIAL WHICH GO OUT AFTER ENTRY IN RG-1 REGISTER ETC. PB-142 SHOWS THAT YIELD WAS 67.37% AS AGAINST 81.66% FOR THE ASSESSMENT YEAR 2003-04. THEREFORE THERE IS A PROB ABILITY THAT ASSESSEE SHOWING SCRAP PRODUCED FINISHED GOODS. 31 18. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND MATERI AL ON RECORD. THE ASSESSEE HAS FILED DETAILS OF THE SCRAP GENERAT ED YEAR TO YEAR NOT ONLY IN THE ASSESSMENT YEAR IN QUESTION BUT IN EARLIER AND SUBSEQUENT YEAR ALSO. AS PER THE RECORDS OF THE ASS ESSEE ASSESSEE MAINTAINED HUGE QUANTITY OF SCRAP STOCK. THE DETAIL S NOTED AT EACH YEAR I. E IN EARLIER YEAR AND SUBSEQUENT YEAR HAS N OT BEEN DISPUTED. THE NATURE OF GOODS PRODUCED BY THE ASSESSEE ADMITT EDLY GENERATES SCRAPS. IN THE EARLIER YEAR ALSO SCRAP WAS GENERATE D DETAILS OF THE SAME ARE FILED AT PB -141 AND 142. NO ADDITION HAS BEEN MADE ON ACCOUNT OF GENERATION OF SCRAP IN EARLIER YEARS. IF THE SCRAP IS TREATED TO BE SALE OF FINISHED GOODS IT WOULD GIVE RISE TO GROSS PROFIT ABNORMALLY. THEREFORE THE CONTENTION OF THE ASSESS EE IS ACCEPTABLE THAT SHORTAGE IS NOT GENERATED IN A DAY OR IN ONE Y EAR BUT OVER A DIFFERENT PERIOD OF TIME. SINCE HUGE STOCK OF SCRAP WAS GENERATED THEREFORE PROBABLY THE ASSESSEE COULD NOT HAVE DET ECTED THE PILFERAGE OF THE SCRAP STOCK. THE DATA GIVEN BY THE ASSESSEE ABOUT GENERATION OF THE SCRAP IS NOT DISPUTED BY THE AUTH ORITIES BELOW. THE ASSUMPTION OF THE ASSESSING OFFICER THAT SHORTAGE O F SCRAP WAS SUPPRESSED SALE OF FINISHED GOODS IS WITHOUT ANY BA SIS. NO EVIDENCE OF MANUFACTURE OF GOODS OUT OF SCRAP AND SALES OUTS IDE THE BOOKS OF ACCOUNT HAS BEEN BROUGHT ON RECORD. THE PRODUCTION OF THE ASSESSEE IS SUBJECT TO EXCISE RULES AND THE SALES TAX RULES AND IT IS HIGHLY UNBELIEVABLE THAT THE SCRAP IS CONVERTED INTO FINIS HED GOODS AND SOLD OUTSIDE THE BOOKS OF ACCOUNT WITHOUT KNOWLEDGE OF T HE EXCISE AND SALES TAX DEPARTMENTS. THE INVENTORY AND ACCOUNTS P REPARED BY THE ASSESSEE HAVE NOT BEEN DISPUTED BY THE EXCISE AND S ALES TAX AUTHORITIES. IT IS ALSO UNBELIEVABLE THAT OUT OF TH E SCRAP ASSESSEE WOULD HAVE MANUFACTURED THE GOODS FOR SALE. IT IS N OT IN DISPUTE THAT SCRAP WAS GENERATED YEAR TO YEAR. IN THE ABSENCE OF MATERIAL EVIDENCE ON RECORD IT IS UNBELIEVABLE THAT THE ASS ESSEE MANUFACTURED THE GOODS OUT OF THE SCRAP. IT IS SETT LED LAW THAT THE SUSPICION HOWSOEVER MAY BE GRAVE CANNOT TAKE PLACE OF LEGAL PROOF. 32 EVEN SUCH AN ASSUMPTION OF THE ASSESSING OFFICER C OULD NOT BE TAKEN AS SUSPICION. THE CONCLUSION OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER THAT SHORTAGE OF THE SCRAP WAS ONL Y SHORTAGE OF THE FINISHED GOODS AND SALES OUTSIDE THE BOOKS IS MEREL Y BASED UPON SURMISES AND CONJECTURES. THEREFORE THE QUESTION O F THE FINISHED GOODS SOLD OUTSIDE THE BOOKS IS TOTALLY RULED OUT. IN THE CASE OF MOTIPUR SUGAR FACTORY PVT. LTD. (SUPRA) IT WAS HELD THAT THE TRIBUNAL AND ITO CANNOT DRAW AN ADVERSE INFERENCE AND REJECT THE BOOKS AS THE SAME IS SUBJECT TO SUPERVISION OF EXCISE AUTHOR ITIES. IN THE CASE OF J. K. SYNTHETICS LTD. (SUPRA) IT WAS HELD THAT THE ASSESSEE HAS DULY ACCOUNTED FOR WASTAGE BY WEIGHT IN ITS ACCOUNT BOOK S UNIT OF THE ASSESSEE WAS INSPECTED BY OFFICIALS OF EXCISE DEPAR TMENT THERE WAS NO MATERIAL ON RECORD JUSTIFYING REJECTION OF THE B OOKS RESULTS. IN THE CASE OF PONDY METAL & ROLLING MILLS PVT. LTD. (SUPR A) CONSIDERING THE BOARD CIRCULAR IT WAS HELD THAT REASONABLENESS OF THE EXPENDITURE HAS TO BE JUDGED HAVING REGARD TO THE FAIR MARKET V ALUE OF THE GOODS SERVICES OR FACILITIES FOR WHICH PAYMENT IS MADE T HE LEGITIMATE NEED OF BUSINESS AND PROFESSION AND THE BENEFIT DERIVED BY OR ACCRUING TO THE TAX PAYER FROM THE EXPENDITURE. THE FINDINGS OF THE AUTHORITIES BELOW ARE WITHOUT ANY BASIS AND ARE ACCORDINGLY SET ASIDE. THE ENTIRE ADDITION SO MADE BY ASSESSING OFFICER IS ACC ORDINGLY DELETED. 18.1 THE QUESTION NOW LEFT FOR CONSIDERATION IS AS TO WHAT REASONABLE ADDITION WOULD BE MADE ON ACCOUNT OF THE SCRAP CLAIMED TO BE SHORT. THE ASSESSEE FILED THE DETAILS OF THE SHORTAGE OF THE STOCK FOR THE ASSESSMENT YEAR IN QUESTION ALONG WIT H THE PRECEDING THREE ASSESSMENT YEARS. DETAILS ARE NOTED ABOVE AND THE SAME DETAILS ARE ALSO GIVEN AT PB 141 ALONG WITH NEXT ASSESSMENT YEARS. THE ASSESSEE CLAIMED THAT SCRAP WAS VALUED IN THE A SSESSMENT YEAR IN QUESTION ONLY. IT WOULD PROVE THAT ASSESSEE CLAI MED THE SHORTAGE OF THE SCRAP FOR THE FOUR YEARS I.E. ASSESSMENT YEA R IN QUESTION AND THE PRECEDING THREE ASSESSMENT YEARS. THE ASSESSEE DID NOT MADE 33 CLAIM OF THE SHORTAGE OF THE SCRAP IN THE PRECEDING THREE ASSESSMENT YEARS. THEREFORE SUCH A CLAIM CANNOT BE MADE IN TH E ASSESSMENT YEAR IN QUESTION. THE ASSESSING OFFICER NOTED THAT ASSESSEE FIRM HAS SHOWN SHORTAGE OF 380002 KGS OF SCRAP. THE DETAILS ARE MENTIONED AT PB 118 AND THE RATE OF THE SCRAP IS SHOWN AT RS.1 0/- (PB -119). THE DETAILS OF THE SHORTAGE OF SCRAP AND SALE VALUE AT RS.10/- HAS NOT BEEN DISPUTED BY THE ASSESSING OFFICER. IT WOULD TH EREFORE PROVE THAT ASSESSEE MADE CLAIM OF SHORTAGE OF THE SCRAP FOR TH E LAST THREE ASSESSMENT YEARS IN THE ASSESSMENT YEAR IN QUESTION WITHOUT DOING ACTUAL MEASUREMENT THEREFORE ON ESTIMATE BASIS 3 / 4 TH CLAIM OF THE ASSESSEE SHOULD HAVE BEEN DISALLOWED IN THE ASSESSM ENT YEAR IN QUESTION. HONBLE GUJARAT HIGH COURT IN THE CASE OF JYOTI LTD. 321 ITR 135(GUJ) HELD THAT SALE OF SCRAP OUTSIDE BOOKS ON E STIMATE BASIS IS JUSTIFIED. THE ASSESSING OFFICER THEREFORE SHALL D ISALLOW THE CLAIM OF SHORTAGE OF SCRAP OF THE ASSESSEE FOR THE PRECEDING THREE ASSESSMENT YEARS BY APPLYING THE RATE OF RS.10/- AS PER CLAIM OF THE ASSESSEE AND SHALL MADE THE REASONABLE ADDITION. HO WEVER THIS ADDITION WOULD ULTIMATELY ENHANCE THE PROFIT OF THE ASSESSEE ON ACCOUNT OF SALE OF THE SCRAP THEREFORE ASSESSEE W OULD BE ENTITLED TO DEDUCTION U/S 80IB OF THE IT ACT. WE ACCORDINGLY DI RECT THE ASSESSING OFFICER THAT IN THE EVENT OF REASONABLE ADDITION ON THIS ISSUE THE ASSESSEE MAY BE GRANTED BENEFIT U/S 80 IB OF THE IT ACT AS IS GRANTED IN THE CASE OF THE ASSESSEE IN EARLIER YEARS. THE D ETAILS OF THE ORDERS WOULD BE MENTIONED WHILE DECIDING THE DEPARTMENTAL APPEAL ON WHICH THE REVENUE RAISED THE IDENTICAL ISSUE ON ACC OUNT OF ALLOWING RELIEF ON SCRAP SALES. ASSESSING OFFICER IS ACCORDI NGLY DIRECTED TO DO THE NEEDFUL AS PER OBSERVATION GIVEN IN THIS ORDER BY GIVING REASONABLE SUFFICIENT OPPORTUNITY TO THE ASSESSEE. SUBJECT TO THE ABOVE OBSERVATIONS THIS GROUND OF APPEAL OF THE AS SESSEE IS ALLOWED. 19. GROUND NO.5 OF THE APPEAL OF T HE ASSESSEE READ S AS UNDER: 34 5. THE LEARNED CIT (A) HAS ERRED IN LAW AND ON FAC TS IN NOT ADMITTING ADDITIONAL GROUND RAISED BY THE AP PELLANT IN RESPECT OF DISALLOWANCE OF RS.54 43 852/- MADE B Y THE A O ON ACCOUNT OF LATE PAYMENT OF TDS BY OBSERVING THAT THE APPELLANT IS NOT ENTITLED TO RAISE THE SAM E AT A LATER STAGE WHEN IT WAS NOT RELATING TO THE GROUNDS ALREADY RAISED BY THE APPELLANT. LD. CIT (A) OUGHT TO HAVE ADMITTED THE ADDITIONAL GROUND SINCE THE RULES OF NATURAL JUSTICE ENTITLES THE APPELLANT TO RAISE CON TENTION AGAINST ANY PART OF THE ASSESSMENT ORDER AND THE APPELLATE AUTHORITY OUGHT TO ADJUDICATE ON THE SAME . 20. THE ASSESSEE RAISED THE ABOVE GROUND AS ADDITIO NAL GROUND OF APPEAL BEFORE LEARNED CIT (A). THE ASSESSEE REQUEST ED THAT SINCE IT IS LEGAL IN NATURE AND THE STATEMENT SHOWING THE PA YMENTS/CREDITS OF THE TAXES FOR THE MONTH OF MARCH 2005 THEREFORE A O MAY BE DIRECTED TO ALLOW THE EXPENSES RELATING TO THE MONT H OF MARCH 2005 IN VIEW OF AMENDMENT TO SECTION 40 (A) (IA) OF THE IT ACT. THE ASSESSING OFFICER HAS DISALLOWED CERTAIN EXPENDITUR ES ON ACCOUNT OF LATE PAYMENT OF TDS. THESE PAYMENTS PERTAIN TO THE MONTH OF JANUARY 2005 FEBRUARY 2005 AND MARCH 2005 THE TDS IN RESPECT OF WHICH IS PAID IN APRIL 2005. THE ASSESSEE SUBMIT TED THAT THERE IS AN AMENDMENT TO SECTION 40 (A) (IA) BY FINANCE ACT 2008 WITH RETROSPECTIVE EFFECT FROM A. Y. 2005-06 AS FOLLOWS: (IA) ANY INTEREST COMMISSION OR BROKERAGE . ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVI I-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCTI ON HAS NOT BEEN PAID - A) IN CASE WHERE THE TAX WAS DEDUCTIBLE AND WAS SO DEDUCTED DURING THE LAST MONTH OF THE PREVIOUS YEAR ON OR BEFORE THE DUE DATE SPECIFIED IN SUB- SECTION (1) OF SECTION 139; OR B) IN ANY OTHER CASE ON OR BEFORE THE LAST DAY OF PREVIOUS YEAR AS PER THIS AMENDMENT NO DISALLOWANCES SHOULD BE M ADE FOR ALL PAYMENTS PERTAINING TO MARCH IF THE TDS ON THE SAM E ARE PAID BEFORE THE DUE DATE OF FILING THE RETURNS. THE ASS ESSEE SUBMITTED A 35 STATEMENT SHOWING THE TOTAL DISALLOWANCES AND A STA TEMENT SHOWING THE PAYMENTS/CREDITS FOR THE MONTH OF MARCH 2005 WITH A PRAYER TO ISSUE DIRECTIONS TO THE ASSESSING OFFICER TO ALLOW THE EXPENSES RELATING TO THE MONTH OF MARCH 2005 IN VIEW OF THE AMENDMENT TO SECTION 40 (A) (IA). THE LEARNED CIT (A) HOWEVER D ID NOT ADMIT THE ABOVE ADDITIONAL GROUND FOR HEARING ON THE REASONS THAT IT WAS NOT CONTESTED BEFORE A O AND THAT ADDITIONAL GROUND CAN BE PERMITTED AT THE DISCRETION OF THE APPELLATE AUTHORITY. THE ASSE SSEE IS DELAYING THE APPEAL WHICH IS NOT PERMISSIBLE AND THAT NO JUSTIFI CATION OR COMPELLING REASONS ARE GIVEN FOR SEEKING SUCH PERMISSION. 21. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITY BELOW AND SUBMITTED THAT THE ASSESSMENT ORDER WAS PASSED ON 28-12-2007. THE AMENDMENT IN SE CTION 40(A) (IA) IS INTRODUCED BY FINANCE ACT 2008 WITH RETROSP ECTIVE EFFECT WITH EFFECT FROM 01-04-2005 THAT IS ASSESSMENT YEAR 2005 -06 WHICH IS UNDER APPEAL. HE HAS SUBMITTED THAT IT IS A LEGAL I SSUE AND ALL FACTS OF DATE OF PAYMENT DATE OF DEDUCTION OF TDS AND THE T DS PAID ARE AVAILABLE ON RECORD. THEREFORE IT BEING A LEGAL IS SUE RAISED AT THE EARLIEST OPPORTUNITY BEFORE THE LEARNED CIT (A) (PB -83 AND 84). THE PAYMENTS MADE BEFORE THE DUE DATE OF FILING OF THE RETURN IN APRIL 2005 HAVE TO BE ALLOWED AS DEDUCTION AND ASSESSEE W OULD GET BENEFIT OF RS.35 01 126/- ON WHICH TDS OF RS.77 470 /- IS PAID IN APRIL 2005. THE DETAILS OF SAME ARE ALSO FILED AT PB -150 AND 151. ON THE OTHER HAND LEARNED DEPARTMENTAL REPRESENTATIVE REL IED UPON ORDER OF THE LEARNED CIT (A). 22. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND MATERI AL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSMENT ORDER IS PASSED ON 28-12-2007. THE AMENDMENT IN SECTION 40 (A) (IA) OF THE IT ACT IS MADE BY SUBSTITUTING THE EARLIER CLAUSE BY FINANCE ACT 2008 WITH EFFECT FROM 01-04-2005. THE AMENDMENT AS NOTED ABOV E IS APPLICABLE TO THE ASSESSMENT YEAR UNDER APPEAL. AS PER EARLIER 36 PROVISIONS THE ASSESSEE WOULD NOT BE ENTITLED FOR R ELIEF BECAUSE THE TAXES WERE NOT PAID AS PER SECTION 200(1) OF THE IT ACT. HOWEVER BY RETROSPECTIVE AMENDMENT THE TAXES DEDUCTED DURING T HE LAST MONTH OF THE PREVIOUS YEAR IF PAID ON OR BEFORE DUE DATE SPECIFIED IN SUB- SECTION (1) OF SECTION 139 NO DISALLOWANCE COULD B E MADE. THE ASSESSEE FILED THE DETAILS AT PB -150 AND 151 TO SH OW THAT IN THE MONTH OF MARCH 2005 THE AMOUNT PAID TO VARIOUS CON TRACTORS WAS RS.35 01 126/- ON WHICH TDS OF RS.77 470/- WAS DEDU CTED AND PAID IN THE MONTH OF APRIL 2005. SINCE THE AMENDED PROV ISIONS WERE NOT THERE IN THE STATUTE WHEN THE ASSESSMENT ORDER WAS PASSED THERE WERE NO REASON FOR THE ASSESSEE TO MAKE ANY CLAIM O F THE ABOVE DEDUCTION. THE ASSESSEE RAISED THE ADDITIONAL GROUN D AT THE EARLIEST BEFORE LEARNED CIT (A) THEREFORE THERE WAS NO DEL AY. SINCE AMENDED PROVISIONS WERE NOT THERE AT THE TIME OF PA SSING OF THE ASSESSMENT ORDER THIS ITSELF WAS JUSTIFICATION AND COMPELLING REASONS FOR THE ASSESSEE TO RAISE THE ISSUE FOR THE FIRST T IME BEFORE THE LEARNED CIT (A). THE DETAILS GIVEN SHOW THAT ASSESSEE IS EN TITLED FOR DEDUCTION TO THE EXTENT THE AMOUNT OF TDS IS DEDUCT ED IN MARCH 2005 AND PAID IN APRIL 2005. HONBLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER COM. LTD. 229 ITR 383 HELD T HAT WHEN LEGAL PLEA IS RAISED IT SHOULD BE ALLOWED TO BE ADMITTED AS ADDITIONAL GROUND. POWER OF THE TRIBUNAL IS WIDEST. IT MAY PAS S ANY ORDER TO ASSESS THE TAXABLE CORRECT INCOME. IF FACTS SHOW TH OUGH NOT TAKEN BEFORE AUTHORITIES BELOW LEGAL PLEA IT COULD BE A DMITTED AND DECIDED BY THE TRIBUNAL. HONBLE GAUHATI HIGH COURT IN THE CASE OF ASSAM COMPANY (INDIA) LTD. 256 ITR 423 CONSIDERING POWER OF THE TRIBUNAL HELD THAT THE TRIBUNAL MAY CONSIDER ANY NEW GROUND IF FACTS ARE AVAILABLE ON RECORD. HONBLE DELHI HIGH COURT IN TH E CASE OF S. M. C. C. CONSTRUCTION (INDIA) CONSIDERING THE ABOVE PROVI SIONS HELD THAT DEDUCTION IS AVAILABLE IN THE YEAR IN WHICH TAX IS PAID. HONBLE M. P. HIGH COURT IN THE CASE OF TOLARAM HASSOMAL 298 ITR 22 HELD THAT IF ADDITIONAL GROUND IS ADMITTED IT SHOULD BE REMANDE D TO CIT (A) TO 37 PASS THE ORDER ON MERIT. CONSIDERING THE ABOVE DISC USSION WE ARE OF THE VIEW LEARNED CIT (A) WAS NOT JUSTIFIED IN REFUS ING TO ADMIT THE ADDITIONAL GROUND. IT WAS A LEGAL ISSUE AND FACTS W ERE AVAILABLE ON RECORD THEREFORE LEARNED CIT (A) CONSIDERING RETR OSPECTIVE AMENDMENT IN SECTION 40 (A) (IA) OF THE IT ACT SHOU LD HAVE ADMITTED THE ADDITIONAL GROUND FOR HEARING AND SHOULD HAVE D ECIDED THE SAME ON MERITS. WE ACCORDINGLY SET ASIDE THE ORDER OF T HE LEARNED CIT (A) ON THIS GROUND AND ADMIT THE ADDITIONAL GROUND OF A PPEAL FOR HEARING AND DIRECT THE LEARNED CIT (A) TO DECIDE THE ABOVE ADDITIONAL GROUND OF APPEAL ON MERIT BY GIVING REASONABLE SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. AS A RESULT THIS GROU ND OF APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 23. GROUND NO. 6 OF THE APPEAL READS AS UNDER: 6. THE LEARNED CIT (A) HAS ERRED IN LAW AND ON FAC TS IN CONFIRMING THE ACTION OF THE A O THAT INTEREST I NCOME OF RS.15 68 187/- BEING NOT ELIGIBLE FOR DEDUCTION U/S 80 IB OF THE ACT. THE LD CIT (A) HAS FURTHER ERRED IN NOT ALLOWING THE ALTERNATE PLEA OF THE APPELLANT TO ALL OW THE CLAIM OF DEDUCTION U/S 80IB ON NETTING OFF OF INTER EST INCOME. LD. CIT (A) OUGHT TO HAVE CONSIDERED THE VI EW TAKEN BY THE VARIOUS JUDICIAL AUTHORITIES REPLIED U PON BY THE APPELLANT AND ALLOWED THE CLAIM OF DEDUCTION U/S 80 IB ON THE INTEREST INCOME. 24. THE ABOVE GROUND WAS ALSO RAISED AS ADDITIONAL GROUND OF APPEAL BEFORE LEARNED CIT (A) CLAIMING DEDUCTION U/ S 80 IB ON THE INTEREST INCOME TO THE TUNE OF RS.15 68 187/-. IT W AS INTEREST INCOME ON DEPOSIT OF THE SECURITIES. THE ASSESSEE CLAIMED THAT THE INTEREST SHOULD NOT BE CONSTITUTED AS INCOME FROM OTHER SOUR CE. IN ALTERNATE CONTENTION IT WAS PRAYED THAT PRINCIPLE OF NETTING MAY BE APPLIED IN THIS CASE. THE LEARNED CIT (A) HELD THAT INTEREST I NCOME CANNOT BE SAID TO BE PROFIT OR GAINS DERIVED FROM INDUSTRIAL UNDERTAKING ACTIVITIES. CLAIM OF DEDUCTION U/S 80 IB CANNOT BE ALLOWED. AS FAR AS NETTING OF INTEREST IS CONCERNED THE LEARNED CIT (A) DECLINED THE CLAIM OF THE 38 ASSESSEE BY FOLLOWING ORDER OF ITAT AHMEDABAD BENCH IN THE CASE OF NEPTURE STEEL PROCESSOR AND AURO STAMPING PVT. L TD. THIS GROUND OF APPEAL WAS ACCORDINGLY DISMISSED. 25. LEARNED COUNSEL FOR THE ASSESSEE DID NOT DISPUT E FINDING OF THE LEARNED CIT (A) THAT INTEREST INCOME CANNOT BE TREATED AS PROFITS DERIVED FROM INDUSTRIAL ACTIVITIES. HOWEVER HE HAS SUBMITTED THAT NETTING OF THE INTEREST COULD BE CONSIDERED AS PER DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS SHRIRAM HOND A POWER EQUIP 289 ITR 475 (DEL) . HE HAS ALSO RELIED UPON SOME OT HER ORDERS OF ITAT IN THE CASE OF GUJARAT P. ENGINEERING CO. LTD. ON THE OTHER HAND LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UP ON THE ORDER OF THE LEARNED CIT (A). 26. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE AR E OF THE VIEW THAT THE MATTER REQUIRES RECONSIDERATION AT THE LEV EL OF LEARNED CIT (A) BECAUSE THE LEARNED CIT (A) DECIDED THE ISSUE A GAINST THE ASSESSEE BY FOLLOWING ORDER OF THE TRIBUNAL. HOWEVE R LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON DECISION OF HO NBLE DELHI HIGH COURT AS ABOVE AND ANOTHER ORDER OF THE TRIBUNAL IN HIS FAVOUR WHICH HAVE NOT BEEN TAKEN INTO CONSIDERATION BY THE LEARN ED CIT (A) WHILE DECIDING THE ISSUE OF NETTING OF INTEREST. CONSIDER ING THE ABOVE WE MAINTAIN THE FINDING OF THE LEARNED CIT (A) IN REFU SING TO GRANT DEDUCTION U/S 80 IB OF THE IT ACT. HOWEVER AS REGA RDS NETTING OF INTEREST WE SET ASIDE HIS ORDER PARTLY AND RESTORE THIS ISSUE TO HIS FILE WITH DIRECTION TO RE-DECIDE THIS ISSUE IN THE LIGHT OF THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE. LEARN ED CIT (A) MAY ALSO TAKEN INTO CONSIDERATIONS ANOTHER DECISIONS IF ANY ON THE ISSUE WHILE DECIDING THE ISSUE OF NETTING OF THE INTEREST . AS A RESULT THIS GROUND OF APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 27. AS A RESULT APPEAL OF THE ASSESSEE IS PARTLY A LLOWED. 39 ITA NO.16/AHD/2009 (DEPARTMENTAL APPEAL) 28. ON GROUND NOS. 1 TO 4 REVENUE CHALLENGED THE O RDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN DEL ETING THE DISALLOWANCE MADE OF RS.58 59 086/- BY DENYING THE DEDUCTION U/S 80 IB OF THE ACT. ON GROUND NO.5 ORDER OF THE LEAR NED COMMISSIONER OF INCOME TAX (APPEALS) IS CHALLENGED IN HOLDING TH AT THE INCOME FROM SCRAP SALES OF RS.29 50 530/- IS ELIGIBLE FOR DEDUCTION U/S 80 IB OF THE IT ACT. 29. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) CONSIDERING THE SUBMISSION OF THE ASSESSEE AND MATE RIAL ON RECORD GAVE A DETAILED FINDING IN THE IMPUGNED ORDER HOLDI NG THAT ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80 IB OF THE ACT ON B OTH THE ISSUES. 30. LEARNED COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITTED THAT ISSUE IS NOW COVERED BY THE DECISION OF ITAT AHMEDA BAD BENCH (T M) IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YE AR 2001-02 IN ITA NO.3372/AHD/2004 AND 3373/AHD/2004 DATED 15-06- 2007 IN WHICH IN PARA 54 THE TRIBUNAL HELD THAT THE ASSESS EE IS AN ELIGIBLE UNDERTAKING U/S 80 IB OF THE ACT. COPY OF THE ORDER IS FILED. HE HAS ALSO SUBMITTED THAT THE SAME ORDER IS FOLLOWED BY I TAT AHMEDABAD BENCH IN THE CASE OF THE SAME ASSESSEE FOR ASSESSME NT YEAR 2000- 01 2002-03 AND 2004-05 IN ITA NO.3098 3099 AND 31 00/AHD/2007 AND THE DEPARTMENTAL APPEALS HAVE BEEN DISMISSED VI DE ORDER DATED 28-09-2007. COPY OF THE ORDER FILED. AGAINST THE DE CISION OF THE TRIBUNAL FOR ASSESSMENT YEAR 2001-02 THE REVENUE W ENT IN APPEAL BEFORE THE HONBLE GUJARAT HIGH COURT IN TAX APPEAL NO.715/2008 AND THE HONBLE GUJARAT HIGH COURT VIDE ORDER DATED 30-03-2009 DISMISSED THE DEPARTMENTAL APPEAL. HE HAS FURTHER S UBMITTED THAT HONBLE SUPREME COURT DISMISSED THE SLP OF THE DEPA RTMENT VIDE ORDER DATED 6-01-2010. COPIES OF THE ORDERS ARE FIL ED ON RECORD. 40 LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THA T IN ASSESSMENT YEAR 2004-05 IN ITA NO.3100/AHD/2007 THE REVENUE H AS RAISED SIMILAR GROUNDS OF APPEAL AND THIS DEPARTMENTAL APP EAL HAS BEEN DISMISSED. COPIES OF THE GROUNDS OF APPEAL ARE ALSO FILED. HE HAS FURTHER SUBMITTED THAT HONBLE GUJARAT HIGH COURT I N THE CASE OF HARJIVANDAS JUTHABHAI ZAVERI 258 ITR 785 (GUJ) HELD THAT AMOUNT RECEIVED TOWARDS SALE OF EMPTY SODA ASH BARDANA EMPTY BARREL QUALIFY FOR DEDUCTION U/S 80 IA OF THE IT ACT. HE H AS ALSO RELIED UPON ORDER OF ITAT AHMEDABAD BENCH IN THE CASE OF AARTI INDUSTRIES 95 TTJ 14 IN WHICH IT WAS HELD THAT THE PROFIT ON SALE OF SCRAP IS ENTITLED FOR DEDUCTION U/S 80 I OF THE IT ACT. THE LEARNED C OUNSEL FOR THE ASSESSEE THEREFORE SUBMITTED THAT THE ISSUE IS CO VERED IN FAVOUR OF THE ASSESSEE. THE LEARNED DEPARTMENTAL REPRESENTATI VE CONCEDED THAT THE ISSUE IS NOW SETTLED IN FAVOUR OF THE ASSE SSEE BY THE ABOVE ORDERS IN THE CASE OF THE SAME ASSESSEE. 31. ON CONSIDERATION OF THE ABOVE FACTS WE ARE OF THE VIEW THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE O RDER OF THE TRIBUNAL IN THE CASE OF THE SAME ASSESSEE WHICH IS ULTIMATELY CONFIRMED BY THE HONBLE HIGH COURT AND THE HONBLE SUPREME COURT. THERE IS NO MERIT IN THE DEPARTMENTAL APPEAL . THE SAME IS ACCORDINGLY DISMISSED. 32. AS A RESULT DEPARTMENTAL APPEAL IS DISMISSED. 33. IN VIEW OF THE ABOVE FINDINGS APPEAL OF THE AS SESSEE IS PARTLY ALLOWED. DEPARTMENTAL APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21-05-2010. SD/- SD/- (A. N. PAHUJA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 21-05-2010 LAKSHMIKANT/- 41 COPY OF THE ORDER FORWARDED TO: 1. THE RESPONDENT 2. THE DCIT (APPELLANT). 3. THE CIT CONCERNED 4. THE CIT(A)-III AHMEDABAD. 5. THE DR ITAT 6. GUARD FILE BY ORDER //TRUE COPY// DY.R/AR ITAT AHMEDABAD