Amita Batra, v. ITO Ward-22 (4),

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A : NEW DELHI BEFORE SHRI R.P.TOLANI AND SHRI A.K.GARODIA ITA NO.2101/DEL/2008 ASSESSMENT YEAR : 1995-96 MS. AMITA BATRA C-680 NEW FRIENDS COLONY NEW DELHI-65. VS. INCOME TAX OFFICER WARD-22(4) NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO.2119/DEL/2008 ASSESSMENT YEAR : 1995-96 INCOME TAX OFFICER WARD-22(4) NEW DELHI. VS. MS. AMITA BATRA C-680 NEW FRIENDS COLONY NEW DELHI-65. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI M.P.RASTOGI ADVOCATE DEPARTMENT BY : MS. PRATIMA KAUSHIK SR. D.R. ORDER PER A.K.GARODIA AM: THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND T HE REVENUE AND ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A)-XIII NEW DELHI DATED 23/5/2008 FOR ASSESSMENT YEAR 1995-96. SINCE CONNECTED ISSUE IS I NVOLVED BOTH THESE APPEALS ARE DISPOSED OF BY THIS COMMON ORDER FOR TH E SAKE OF CONVENIENCE. 2. THE ONLY GRIEVANCE OF THE ASSESSEE IS THAT THE S CRAP SALE OF RS.1 25 98 723/- SHOULD BE CONSIDERED AS BUSINESS T URNOVER AND SHOULD NOT 2 BE CONSIDERED AS MISCELLANEOUS INCOME WHILE COMPUTI NG DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 80HHC. WHEREAS THE GR IEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN DIRECTI NG THE ASSESSING OFFICER TO CONSIDER THE AVERAGE PERCENTAGE OF SALE OF THE SCRA P WITH REFERENCE TO ITS SALES TURNOVER FOR THE LAST THREE YEARS AND APPLYIN G THE SAME FOR THIS YEAR. IN ADDITION TO THIS IT IS ALSO THE GRIEVANCE OF THE A SSESSEE THAT INTEREST U/S 234A 220(2) AND 234C ARE NOT CHARGEABLE IN THIS CASE. 3. BRIEF FACTS ARE THAT AS PER THE ORIGINAL ASSESSM ENT ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) DATED 27/3/1998 IT WA S HELD BY THE ASSESSING OFFICER THAT SCRAP SALES OF RS.1 25 98 723/- HAS TO BE ASSESSED AS MISCELLANEOUS INCOME AND CANNOT FORM PART OF TOTAL TURNOVER OF THE ASSESSEE AND ON THIS BASIS HE COMPUTED THE DEDUCTION ALLOWA BLE TO THE ASSESSEE U/S 80HHC. 4. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE THE LD. CIT(A) WHO DECIDED THIS ISSUE IN FAVOUR OF THE ASSE SSEE. AGAINST THIS ORDER OF THE LD. CIT(A) DATED 20/10/1998 THE REVENUE WAS IN APPEAL BEFORE THE TRIBUNAL AND IN ITA NO.185/DEL/1999 AS PER ORDER DA TED 29/4/2005 THE TRIBUNAL HAS RESTORED BACK THIS ISSUE TO THE FILE O F THE ASSESSING OFFICER FOR A FRESH DECISION IN THE LIGHT OF THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT RENDERED IN THE CASE OF SUNDARAM INDUSTRIES AS REPO RTED IN 253 ITR 396 (MADRAS). IT IS ALSO NOTED BY THE TRIBUNAL IN THIS ORDER THAT IN ASSESSMENT YEAR 1994-95 ALSO SIMILAR ISSUE HAS BEEN RESTORED BACK BY THE TRIBUNAL TO THE FILE OF THE ASSESSING OFFICER FOR A FRESH DECIS ION AS PER ORDER DATED 25/2/2004. AS PER THE DIRECTION OF THE TRIBUNAL TH E ASSESSING OFFICER IN THE PRESENT YEAR ISSUED NOTICE TO THE ASSESSEE U/S 143( 2) ON 28/7/2006 FIXING THE CASE FOR 08/8/2006. THEREAFTER ASSESSING OFFICER A GAIN ISSUED A NOTICE AGAIN 3 U/S 143(2) AND 142(1) ALONGWITH THE QUESTIONNAIRE D ATED 16/11/2006 FIXING THE CASE FOR 22/11/2006. THE ASSESSEE WAS ASKED BY THE ASSESSING OFFICER TO FILE DETAILS OF SCRAP WHICH WAS SOLD AND EARNED THE MISCELLANEOUS INCOME OF RS.125.98 LACS WITH EVIDENCE WHICH COULD PROVE THE SALE OF SCRAP ALONGWITH BOOKS OF ACCOUNT STOCK REGISTER SALE BILLS AND OT HER RELEVANT DOCUMENTS TO PROVE THE CLAIM OF THE ASSESSEE. IT IS OBSERVED BY THE ASSESSING OFFICER THAT THE LD. A.R. OF THE ASSESSEE VIDE ITS LETTER DATED 09/10/2006 FILED ON THE DAK COUNTER ENCLOSING THEREWITH THE DETAILS OF SALES OF SCRAP COPY OF JUDGMENT OF THE HONBLE MADRAS HIGH COURT RENDERED IN THE CASE OF SUNDERAM INDUSTRIES (SUPRA) AND FEW CASH MEMOS ISSUED IN LIEU OF SALE O F SCRAP. IT IS FURTHER NOTED BY THE ASSESSING OFFICER THAT VIDE ORDER SHEET ENTR Y DATED 04/12/2006 THE LD. A.R. OF THE ASSESSEE WAS ASKED TO PRODUCE STOCK REG ISTER NAME AND ADDRESS OF THE PARTIES TO WHOM THE SCRAP WAS SOLD OUT AND T O FILE THE QUANTITATIVE DETAILS OF STOCK AND BASIS OF GENERATION OF SCRAP A ND THE CASE WAS ADJOURNED TO 08/12/2006. IT IS NOTED BY THE ASSESSING OFFICER THAT ON THIS DATE NONE APPEARED ON BEHALF OF THE ASSESSEE AND THERE IS NO APPLICATION FOR ADJOURNMENT. IT IS FURTHER NOTED BY THE ASSESSING O FFICER THAT ON 30/12/2006 THE LD. A.R. OF THE ASSESSEE FILED A LETTER ENCLOSI NG THEREWITH THE EXTRACT OF ISSUES/SALE OF SCRAP MATERIAL REGISTER AND THE STO CK REGISTER WHICH STARTS FROM 22/4/1992 UPTO 31/3/1995. IT IS NOTED BY THE ASSESS ING OFFICER THAT ACCORDING TO THIS EXTRACT GOODS WORTH RS.5 11 383/ - HAD BEEN ISSUED. IT WAS FURTHER STATED THAT SINCE THE SCRAP MATERIAL WAS SO LD TO SCRAP DEALERS IN CASH ON VARIOUS DATES THE QUESTION OF ADDRESS OF THE PU RCHASERS DOES NOT ARISE. IT WAS ALSO SUBMITTED THAT THE FACT REGARDING GENERATI ON AND SALE OF THE SCRAP ARE BORNE OUT FROM THE FINANCIAL STATEMENT OF ACCOU NTS FILED ALONGWITH THE RETURN OF INCOME WHICH WERE DULY AUDITED BY AN INDE PENDENT CHARTERED ACCOUNTANT. IT IS NOTED BY THE ASSESSING OFFICER TH AT THE ASSESSEE NEITHER FILED DETAILS OF PARTIES WITH THEIR NAMES AND ADDRESSES T O WHOM SCRAP WAS SOLD OUT 4 NOR FILED THE BASIS OF GENERATION OF SCRAP DURING T HE COURSE OF MANUFACTURING PROCESS. IT IS ALSO NOTED THAT THE ASSESSEE HAS NOT PRODUCED THE STOCK REGISTER OF THE SCRAP. IT IS FURTHER NOTED BY THE ASSESSING OFFICER THAT THE VERIFICATION CANNOT BE MADE AS TO WHETHER SCRAP WAS GENERATED OU T OF MANUFACTURING PROCESS OF THE ASSESSEES BUSINESS OR IT WAS PURCHA SED FROM THE LOCAL MARKET AND SAME WAS SOLD OUT IN THE OPEN MARKET AGAIN AND HENCE IT IS TREATED AS MISCELLANEOUS INCOME AND NOT AS BUSINESS INCOME AS CLAIMED BY THE ASSESSEE. REGARDING THE JUDGMENT OF HONBLE MADRAS HIGH COURT RENDERED IN THE CASE OF SUNDERAM INDUSTRIES (SUPRA) IT IS STATED BY THE ASSESSING OFFICER THAT THE JUDGMENT IS NOT APPLICABLE IN THE PRESENT CASE BECAUSE THE FACTS ARE DIFFERENT. IN THIS ASSESSMENT ORDER DATED 18/12/2006 ALSO THE ASSESSING OFFICER HAS TREATED THE AMOUNT OF SALE OF SCRAP OF RS.125.98LACS AS MISCELLANEOUS INCOME. AGAINST THIS ORDER OF THE ASS ESSING OFFICER THE ASSESSEE AGAIN CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS DECIDED THAT THE ENTIRE SCRAP SALE CANNOT BE CONSID ERED AS GENERATION OF SCRAP OUT OF MANUFACTURING PROCESS. HE DIRECTED THE ASSES SING OFFICER THAT HE SHOULD TAKE THE AVERAGE PERCENTAGE OF SALE OF SCRAP WITH REFERENCE TO ITS SALES TURNOVER FOR THE LAST THREE YEARS AND THE SAME RATI O SHOULD BE APPLIED IN THE PRESENT YEAR ALSO. IT IS ALSO HELD BY HIM THAT QUAN TUM SO WORKED OUT IS DIRECTED TO BE CONSIDERED AS A BUSINESS RECEIPT AND NOT AS A BUSINESS PROFIT FOR THE PURPOSE OF DEDUCTION U/S 80HHC. IT IS ALSO HELD BY HIM THAT BALANCE SALE VALUE OF THE SCRAP SHOULD BE CONSIDERED AS MIS CELLANEOUS INCOME WHICH IS NOT ELIGIBLE FOR DEDUCTION U/S 80HHC. AGAINST TH IS ORDER OF THE LD. CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US CONTENDING THAT THE ENTIRE SALE PROCEEDS OF SCRAP SHOULD BE CONSIDERED AS BUSINESS PROFIT BY HO LDING THAT THE SCRAP WAS GENERATED FROM MANUFACTURING PROCESS AND NO PART OF THIS SHOULD BE CONSIDERED AS MISCELLANEOUS INCOME WHEREAS THE REVE NUE IS IN APPEAL BEFORE US CONTENDING THAT NO PART OF SALE OF SCRAP SHOULD BE CONSIDERED AS 5 BUSINESS RECEIPT BECAUSE THE ASSESSEE COULD NOT SHO W ANY BASIS REGARDING GENERATION OF SCRAP FROM MANUFACTURING PROCESS AND HENCE THE ENTIRE SCRAP SALE SHOULD BE CONSIDERED AS MISCELLANEOUS INCOME O NLY. 5. IT IS SUBMITTED BY THE LD. A.R. OF THE ASSESSEE THAT MAINTAINING OF DAY- TO-DAY ITEMWISE STOCK REGISTER IS NOT PRACTICABLE I N THE PRESENT CASE. OUR ATTENTION WAS DRAWN TO PAGE NO.26 OF THE PAPER BOOK AND IT IS POINTED OUT THAT ON PAGES 26 TO 30 OF THE PAPER BOOK ARE THE DE TAILS OF SALE OF SCRAP MATERIAL ON VARIOUS DATES. IT IS ALSO POINTED OUT T HAT MOST OF THE ITEMS ARE NON-MOVING STOCK AND NOT SCRAP AND HENCE THE SAME SHOULD BE CONSIDERED AS BUSINESS RECEIPT ONLY. RELIANCE WAS AGAIN PLACED ON THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. SUN DERAM INDUSTRIES LTD. (SUPRA) IN SUPPORT OF THIS CONTENTION THAT PROFIT F ROM SALE OF SCRAP MATERIAL IS ELIGIBLE FOR THE PURPOSE OF DEDUCTION U/S 80HH AS W ELL AS U/S 80HHC. IT WAS ALSO HIS SUBMISSION THAT IN CASE OF CASH SALES ADDR ESS OF BUYERS CANNOT BE PROVIDED BY THE ASSESSEE AND IN SUPPORT OF THIS CON TENTION ALSO RELIANCE WAS PLACED ON TWO JUDGMENTS I.E. R.B.JESSARAM FATEHCHAN D (SUGAR DEPT.) V. CIT AS REPORTED IN 75 ITR 33 (BOM.) AND M.DURAI RAJ V. CIT (KER.) AS REPORTED IN 83 ITR 484 (KER.). 6. AS AGAINST THIS THE LD. D.R. OF THE REVENUE SUP PORTED THE ASSESSMENT ORDER AND IT WAS HIS SUBMISSION THAT IN THE ABSENCE OF ANY EVIDENCE PRODUCED BY THE ASSESSEE REGARDING GENERATION OF SCRAP FROM MANUFACTURING PROCESS NO PART OF SCRAP SALE CAN BE CONSIDERED AS BUSINESS RECEIPT AND THE ENTIRE SALE PROCEEDS OF THE SCRAP SHOULD BE CONSIDERED AS MISCE LLANEOUS INCOME AS HAS BEEN DONE BY THE ASSESSING OFFICER. 6 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. IN THE PRESENT CASE WE FIND THAT NO EVIDENCE HAS BEEN PRO DUCED BY THE ASSESSEE REGARDING THE QUANTUM OF GENERATION OF SCRAP IN THE MANUFACTURING PROCESS. THE LD. CIT(A) HAS DECIDED THIS ISSUE ON THE BASIS THAT ALTHOUGH NO EVIDENCE HAS BEEN PRODUCED REGARDING GENERATION OF SCRAP BUT STILL IT IS ALSO A FACT THAT THE GENERATION OF SCRAP OUT OF MANUFACTURING ACTIVI TY IS A NECESSARY INGREDIENT AND CANNOT BE DENIED EVEN IF RELEVANT BO OKS OF ACCOUNT COULD NOT BE PRODUCED. ON THIS LOGIC IT WAS HELD BY THE LD. CIT(A) THAT EVEN IN THE ABSENCE OF EVIDENCE IT HAS TO BE ACCEPTED THAT THE RE WAS SOME GENERATION OF SCRAP IN MANUFACTURING PROCESS AND WE ARE IN AGREEM ENT WITH THE LD. CIT(A) ON THIS ASPECT. REGARDING THE QUANTUM OF SUCH GENER ATIONS OF SCRAP IN MANUFACTURING PROCESS IT WAS HELD BY THE LD. CIT(A ) THAT THE PERCENTAGE OF SCRAP SALES TO TOTAL SALES OF THE ASSESSEE FOR THE LAST THREE YEARS SHOULD BE CONSIDERED IN THE PRESENT YEAR ALSO. WITH THIS DIRE CTION OF THE LD. CIT(A) ALSO WE ARE IN AGREEMENT BECAUSE IN THE ABSENCE OF ANY EVIDENCE REGARDING QUANTUM OF SCRAP GENERATED IN MANUFACTURING PROCESS THIS BASIS IS A REASONABLE BASIS TO DETERMINE THE GENERATION OF SCR AP IN MANUFACTURING PROCESS DURING THE PRESENT YEAR BECAUSE THE LD. CIT (A) HAS DIRECTED THE ASSESSING OFFICER TO CONSIDER THE AVERAGE PERCENTAG E OF SUCH SCRAP SALE TO TOTAL SALE IN THE PRECEDING THREE YEARS OF THIS VER Y ASSESSEE. WE ARE OF THE CONSIDERED OPINION THAT THIS DIRECTION OF THE LD. C IT(A) IS ALSO REASONABLE DIRECTION IN THE FACTS AND CIRCUMSTANCES OF THE PRE SENT CASE. REGARDING THE JUDGMENT OF HONBLE MADRAS HIGH COURT RENDERED IN T HE CASE OF SUNDERAM INDUSTRIES (SUPRA) WE FIND THAT IT WAS HELD IN THI S CASE THAT THOSE SCRAP MATERIALS WHICH WERE A BY-PRODUCT OF THE MANUFACTUR E OF OTHER RUBBER ARTICLES WHEN SOLD AND RESULTED IN AN INCOME TO THE ASSESSEE HAD A DIRECT NEXUS WITH THE INDUSTRIAL UNDERTAKING AND THE PROFI T FROM THE SALE OF SUCH 7 SCRAP MATERIAL WAS ELIGIBLE FOR DEDUCTION U/S 80HH OF THE I.T.ACT. AS PER THIS JUDGMENT OF THE HONBLE MADRAS HIGH COURT IT HAS TO BE SEEN THAT WHAT IS THE QUANTUM OF SCRAP GENERATED IN MANUFACTURING PROCESS AND ANY INCOME ARISING ON ACCOUNT OF SALE OF SUCH SCRAP HAS TO BE CONSIDERED AS BUSINESS RECEIPT. IT IS NOT THE CASE OF THE ASSESSEE THAT TH ERE IS CHANGE IN THE ITEMS OF GOODS BEING MANUFACTURED BY THE ASSESSEE IN THE PRE SENT YEAR AND IN THE PRECEDING THREE YEARS. WHEN THE ASSESSEES BUSINESS IS SAME IN THE PRESENT YEAR AND IN THE PRECEDING THREE YEARS THEN THERE IS NO REASON AS TO WHY THE QUANTITY OF SCRAP GENERATED IN MANUFACTURING PROCES S IN THE PRESENT YEAR WILL BE HIGHER THAN THE AVERAGE GENERATION OF SCRAP IN T HE PRECEDING THREE YEARS. SINCE THE LD. CIT(A) HAS ALREADY DIRECTED THE ASSES SING OFFICER TO CONSIDER THE AVERAGE PERCENTAGE OF SCRAP GENERATED IN THE PR ECEDING THREE YEARS IN RELATION TO TOTAL TURNOVER OF THE ASSESSEE WE ARE OF THE CONSIDERED OPINION THAT THE AMOUNT OF SALE ON ACCOUNT OF SCRAP GENERAT ED IN THE MANUFACTURING PROCESS WILL STAND CONSIDERED AS BUSINESS TURNOVER AND HENCE THERE SHOULD NOT BE ANY GRIEVANCE OF THE ASSESSEE AGAINST THIS D IRECTION OF THE LD. CIT(A). AS PER THIS JUDGMENT OF THE HONBLE MADRAS HIGH COU RT PROFIT FROM SALE OF SCRAP MATERIALS WAS HELD TO BE ELIGIBLE FOR DEDUCTI ON U/S 80HH OF THE I.T.ACT AND HENCE THIS DIRECTION OF THE LD. CIT(A) IS ALSO CORRECT THAT THE ENTIRE AMOUNT OF SALE PROCEEDS OF SCRAP CANNOT BE CONSIDER ED AS BUSINESS PROFIT AND IT HAS TO BE CONSIDERED AS BUSINESS RECEIPT ONLY TO THE EXTENT SUCH SCRAP IS FOUND TO BE GENERATED FROM MANUFACTURING PROCESS TO THE EXTENT OF AVERAGE PERCENTAGE OF SUCH SCRAP SALE OF TOTAL TURNOVER IN THE PRECEDING THREE YEARS. CONSIDERING ALL THESE FACTS AND LEGAL POSITION WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND HENCE WE CONFIRM THE SAME AND THE GROUNDS RAISED BY THE ASSESSEE AS WELL AS BY THE RE VENUE ARE REJECTED. 8 8. REGARDING THE GROUND RAISED BY THE ASSESSEE IN C ONNECTION WITH INTEREST U/S 234A 220(2) AND 234C WE ARE IN AGREE MENT WITH THE LD. CIT(A) THAT CHARGEABILITY OF INTEREST IS MANDATORY AND CON SEQUENTIAL PROVISION. WE HOLD ACCORDINGLY. REGARDING GROUND NO.1 OF THE ASS ESSEE WE FIND THAT NO ARGUMENT WAS ADVANCED BY THE LD. A.R. OF THE ASSES SEE AND HENCE THE SAME IS REJECTED AS NOT PRESSED. 9. IN THE RESULT THE APPEAL OF THE ASSESSEE AS WEL L AS OF THE REVENUE ARE DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 8TH JANUA RY 2010 SD/- SD/- (R.P.TOLANI) (A.K.GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 08.01.2010 PSP COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT DEPUTY REGISTRAR