SHREE VINAYAK JEWELLERS, MUMBAI v. DY.CI.T. CIRCLE 12(2), MUMBAI

ITA 6638/MUM/2008 | 2004-2005
Pronouncement Date: 31-01-2011 | Result: Allowed

Appeal Details

RSA Number 663819914 RSA 2008
Assessee PAN AALFS8729H
Bench Mumbai
Appeal Number ITA 6638/MUM/2008
Duration Of Justice 2 year(s) 2 month(s) 13 day(s)
Appellant SHREE VINAYAK JEWELLERS, MUMBAI
Respondent DY.CI.T. CIRCLE 12(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted E
Tribunal Order Date 31-01-2011
Date Of Final Hearing 03-01-2011
Next Hearing Date 03-01-2011
Assessment Year 2004-2005
Appeal Filed On 17-11-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI R.K. PANDA (AM) AND SMT ASHA VIJAYARAGH AVAN (JM) ITA NO.6638/MUM/2008 (ASSESSMENT YEAR-)-2004-05 M/S. SHREE VINAYAK JEWELLERS 7/23 GRANTS BUILDING ARTHUR BUNDER ROAD COLABA MUMBAI PAN NO: AALFS8729H VS. DY. CIT CIRCLE 12(2) AAYAKAR BHAVAN M.K. ROAD MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI ISHWAR RATHI RESPONDENT BY: SHRI D. SONGATE O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD. CIT(A)-XIII MUMBAI DATED 05.09.2008 FOR THE A.Y . 2004-05. 2. THE FIRST GROUND OF THE ASSESSEES APPEAL IS AGA INST THE CONFIRMATION BY THE CIT(A) OF THE ADDITION OF RS. 40 99 956/- ON ACCOUNT OF REJECTION OF THE ASSESSEES CONTENTION THAT 6958.227 GMS OF GOLD WAS LOST DUE TO PROCESS WASTAGE. THE AO HELD AS FOLLOWS: THE ASSESSEE WAS ALSO REQUESTED TO GIVE THE DETAI LS OF LABOUR CHARGES GIVEN TO THE KARIGARS (GOLDSMITH) FOR MAKIN G OF THE JEWELLERY /ORNAMENTS. FROM THE DETAILS OF LABOUR CHARGES PAYM ENT IT WAS GATHERED THAT THE ASSESSEE GETS THE JEWELLERY MANUF ACTURED FROM VARIOUS PARTIES AT DELHI KOLKATTA HYDERABAD. KARV AR ETC. WHILE EXPLAINING THE LABOUR CHARGES TO VARIOUS KARIGARS ( GOLDSMITH) AT DIFFERENT PLACES IT WAS EXPLAINED BY THE ASSESSEE T HAT THE KARIGARS (GOLDSMITH) ARE PAID MAKING CHARGES AT DIFFERENT RA TES DEPENDING ON THE DESIGN AND PROCESS INVOLVED. IT WAS FURTHER CLA IMED BY THE ASSESSEE THAT WHILE MAKING THE PAYMENT TO KARIGARS (GOLDSMIT H) IT IS ALSO TAKEN INTO ACCOUNT AS TO WHETHER THE PROCESS LOSS WILL BE BORNE BY THE KARIGARS (GOLDSMITH) OR THE SAME IS PASSED ON TO TH E ASSESSEE. WITH THIS BACKGROUND THE ASSESSEE EXPLAINED THAT THE KARIGARS (GOLDSMITH) AT DELHI HYDERABAD AND KARNATAKA ARE PAID AT HIGHER R ATE OF LABOUR ITA NO. 6638/MUM/2008 2 CHARGES WHEREAS THE KARIGARS (GOLDSMITH) AT KOLKATT A ARE AT THE RATE OF RS.5 PER GRAM AS AGAINST THE LABOUR CHARGES OF RS.1 6 TO RS.30 PER GRAM TO THE KARIGARS (GOLDSMITH) OTHER THAN AT KOLKATTA. THE ASSESSEE ALSO CLAIMED THAT IN THE CAUSE OF THE MANUFACTURING JEWE LLERY/ORNAMENTS DUE TO VARIOUS PROCESS INVOLVED THERE IS A LOSS OF GOLD. THIS LOSS IS ON ACCOUNT OF THE CUTTING MIXING OF CHEMICALS ETC. IN THE PROCESS THE LOSS OF PURE GOLD IT MAY BE IN THE FORM OF POWDER OF GOLD E TC. IS ALLOWED TO KOLKATTA LABOURERS. SO FAR AS THE OTHER KARIGARS (G OLDSMITH) AT DELHI AND KARNAR ETC. ARE CONCERNED SUCH LOSS IS NOT ALLOWED TO THEM AND THEREFORE THEY ARE PAID THE MAKING CHARGES AT HIGHE R RATE. AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSE SSEE SOME OF THE PARTIES I.E. KARIGARS (GOLDSMITH) AT KOLKATTA W ERE EXAMINED. ON PERUSAL OF THE EXAMINATION REPORT IN RESPECT OF THE SE PARTIES IT WAS SEEN THAT THEY ARE SHOWING THE PROCESS LOSS WHICH IS RAN GING FROM 1.5% TO 3.5%. THESE PARTIES HAD ALSO PRODUCED THE COPIES OF THEIR BALANCE SHEET PROFIT & LOSS A/C. ETC. IN SUPPORT OF HAVING EARNED THE LABOUR CHARGES FROM THE ASSESSEE. THE DETAILS FILED BY THESE PARTI ES WERE CONSIDERED AND IT WAS NOTICED THAT THE WASTAGE CLAIMED AS PROC ESSING LOSS WAS NOT SHOWN BY THESE PARTIES ON THE CREDIT SIDE OF THEIR PROFIT AND LOSS A/C. WHAT THEY HAD CREDITED TO THE PROFIT & LOSS A/C. WA S ONLY THE LABOUR CHARGES OR MAKING CHARGES TOWARDS GOLDSMITH JOB. AS PER THE STATEMENT MADE BY THE ASSESSEE THE WASTAGE CLAIMED TO BE PROC ESSING LOSS WAS THE PROPERTY OF THE KARIGARS (GOLDSMITH) AT KOLKATT A SINCE THEY WERE PAID AT LOW RATE OF MAKING CHARGES AS COMPARED TO OTHERS . THEREFORE THE ASSESSEE WAS GIVEN AN OPPORTUNITY T O EXPLAIN THE SAME. IN RESPONSE TO THIS SHRI KISHORE JETHWAS APPE ARED ON 28/12/06 AND FILED A LETTER OF EVEN DATE. IT WAS CLAIMED BY THE ASSESSEE THAT THE PAYMENTS TO THOSE PARTIES WAS PAID BY CHEQUE ONLY T O WHICH TAX WAS DEDUCTED. IT WAS FURTHER CLAIMED BY THE ASSESSEE TH AT THE LOSS INCURRED DUE TO PROCESSING HAS BEEN DULY CONFIRMED BY THESE PARTIES. THE ASSESSEE FURTHER CLAIMED THAT THE ASSESSEE IS NOT S UPPOSED TO KNOW THE ACCOUNTING TREATMENT GIVEN BY THE KARIGARS (GOLDSMI TH) IN THEIR BOOKS OF ACCOUNT OF WASTAGE. IT WAS FURTHER ARGUED BY THE AS SESSEE THAT SINCE THE ASSESSEE HAS ACTUALLY INCURRED THE GOLD LOSS (W ASTAGE) AND ALLOWED TO THE KARIGARS (GOLDSMITH) BY PAYING LOWER LABOUR CHARGES THE CLAIM MAY BE ALLOWED. THUS THE ASSESSEE WAS GIVEN AN OPPORTUNITY TO JUST IFY THE CLAIM OF LOSS WITH REFERENCE TO THE EXAMINATION OF KOLKAT TA PARTIES. IT MAY BE MENTIONED HERE THAT THE KARIGARS (GOLDSMITH) SITUAT ED AT KOLKATTA WERE EXAMINED THROUGH DIRECTORATE OF INCOME TAX (INVESTI GATION ) BY ISSUE OF COMMISSION. IN THE REPORT SUBMITTED BY THE D.D.I. UNIT II(4) KOLKATTA WHO HAS REPORTED THAT THOUGHT THE DETAILS SUBMITTED BY THEM ARE MATCHING WITH THE QUANTITATIVE DETAILS AS CLAIMED B Y THE ASSESSEE THE REASON BEHIND THIS WAS THAT NONE OF THESE KARIGARS (GOLDSMITH) MAINTAINED ANY SEPARATE STOCK REGISTER LEDGER OR A NY OTHER BOOKS REGARDING THEIR BUSINESS ACTIVITIES. THE DETAILS SU BMITTED BY THESE ITA NO. 6638/MUM/2008 3 PARTIES WERE COLLECTED BY THEM FROM THE BRANCH OFFI CE OF THE ASSESSEE SITUATED AT KOLKATTA. IT WAS ALSO NOTICED BY THE D. D.I.T. KOLKATTA THAT THE RETURNS OF INCOME OF THESE PARTIES WERE ALSO PR EPARED ON THE BASIS OF THE VOUCHERS AND PARTY LEDGERS GIVEN TO THEM BY THE ASSESSEE I.E. SHREE VINAYAK JEWELLERS KOLKATTA. THIS FACT HAS BE EN ACCEPTED BY THE PARITES I.E. KARIGARS (GOLDSMITH) IN THEIR SEPARATE LETTERS ADDRESSED TO THE D.D.I.T. KOLKATTA WHO CONDUCTED INQUIRIES IN THIS CONNECTION. IT WAS ALSO CONFIRMED BY THE D.D.I.T. KOLKATTA THAT ONLY ONE PARTY NAMELY MR. SANJAY BHUKTA WAS CONFIRMED THAT THE WASTAGE OF PUR E GOLD IS KEPT BY HIM. SO FAR AS OTHER PARTIES ARE CONCERNED NO AMOU NT OF RAW MATERIAL I.E. GOLD IS KEPT BY THE KARIGARS (GOLDSMITH). IN T HE REPORT DATED 20/12/06 SENT BY THE D.D.I.T. UNIT II(4) KOLKATTA ONCE AGAIN CONFIRMED THAT ALL THE DETAILS SUBMITTED BEFORE HIM BY THE KA RIGARS (GOLDSMITH) WERE COLLECTED BY THEM FROM THE BRANCH OFFICE OF TH E ASSESSEE AT KOLKATTA. WITH THIS BACKGROUND SIMPLY BECAUSE THE FIGURES SH OWN BY THESE PARTIES ARE MATCHING WITH THE RECORDS OF THE ASSESS EE IT CANNOT BE SAID THAT THE CLAIM IS CORRECT AND ACCEPTABLE ESPECIALLY FOR THE REASONS MENTIONED ABOVE. IT IS ALSO CLAIMED BY THE ASSESSEE THAT IT HAS NOTHING TO DO WITH THE TREATMENT GIVEN BY KARIGARS (GOLDSMI TH) IN THEIR ACCOUNTS REGARDING THE LOSS OF GOLD AND IS NOT SUPPOSED TO K NOW WHETHER THEY ARE SHOWING THESE RECEIPTS IN THEIR HANDS OR NOT. I N THIS CONNECTION THE REMARKS OF THE D.D.I.T. KOLKATTA ARE VERY MUCH RE LEVANT WHEREIN HE HAS REPORTED THAT THE WASTAGE AS SHOWN BY THE RESPE CTIVE PARTIES NO AMOUNT OF MATERIAL GOLD IS KEPT BY THE KARIGARS (GO LDSMITH). THUS THOUGH THE KARIGARS (GOLDSMITH) HAVE CONFIRMED THAT THERE IS A LOSS ON ACCOUNT OF PROCESS WHICH IS ACCOUNTED AS WASTAGE TH EY HAVE NOT CONFIRMED THAT THE SAID WASTAGE IS KEPT WITH THEM. THIS SHOWS THAT THE WASTAGE IS WITH THE ASSESSEE ONLY. THE ASSESSEE HAS CLAIMED THAT THE LOSS ON PROCESSI NG OF THE OGLD IS ONLY 1.5% ON THE TOTAL CONSUMPTION OF THE GOLD A S AGAINST EH EXIM POLICY NORMS WHERIN WASTAGE CLAIM IS ALLOWABLE TO T HE EXTENT OF 3.5%. THIS STATEMENT OF THE ASSESSEEE IS ALSO NOT CORRECT AS INT EH CASE OF THE ASSESSEE THE WORKING OF LOSS AT 1.5% IS BASED ON TH E ENTIRE AMOUNT OF THE CONSUMPTION OF GOLD WHICH WAS ISSUED TO VARIOUS KARIGARS (GOLDSMITH) AT DELHI HYDERABAD KARVAN AS WELL AS KOLKATTA. HOWEVER THE LOSS OF 6958.277 GRAMS IS RELATED ONLY TO THE G OLD ISSUED TO KARIGARS (GOLDSMITH) AT KOLKATTA. HOWEVER WHILE WORKING OUT THE PERCENTAGE OF LOSS THE ASSESSEE HAS TAKEN THE PROPORTION OF LOSS TO THE ENTIRE GOLD CONSUMPTION WHICH INCLUDES THE GOLD ISSUED TO KARIG ARDS (GOLDSMITH) AT DIFFERENT PLACES AT KOLKATTA. FROM THE RECORDS IT I S EVIDENT THAT THE GOLD ISSUED TO KOLKATTA PARTIES CONSTITUTE ALMOST 1/3 RD OF THE GOLD CONSUMPTION. LOOKING AT THIS THE LOSS WILL BE 4.5% IN RESPECT OF THE CONSUMPTION OF GOLD. THUS THE ASSESSEES CLAIM THA T THE TOTAL LOSS CLAIMED BY THEM IS MUCH BELOW THE PRESCRIBED LIMIT MADE BY THE EXPIRY POLICY IS NOT CORRECT. SINCE THE ASSESSEE IN THAT C ASE IS EXCEEDING THE LIMIT THE CLAIM CANNOT BE ENTERTAINED. ITA NO. 6638/MUM/2008 4 THUS FROM THE PRECEDING PARAS IT CAN BE SEEN THAT THE ASSESSEE COULD NOT FILE A CONCLUSIVE PROOF IN SUPPORT OF THE PROCESSING LOSS OF 6958.277 GRAMS OF THE GOLD. THEREFORE THE VALUE OF THIS GOLD AMOUNTING TO RS.40 99 956/- HOLDING THE RATE AT RS.589.22 PER GRAM. THE RATE OF VALUATION OF CLOSING STOCK AT RS.589.22 PER GRAM IS ADOPTED ON THE BASIS OF THE VALUE OF CLOSING STOCK SHOWN BY THE AS SESSEE WITH THE KOLKATTA BRANCH WHEREIN THE GOLD OF 16 053.207 GRAM S IS SHOWN AT KOLKATTA KARIGARS (GOLDSMITH) AMOUNTING TO RS.94 58 891/-. THIS AMOUNT IS THEREFORE BROUGHT TO TAX. THE PENALTY PR OCEEDINGS U/S.271(1) OF THE ACT ARE ALSO INITIATED. 3. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFOR E THE CIT(A) AND REITERATED THE SAME ARGUMENTS VIZ. THE GOLD REPRES ENTED PROCESS LOSS IN RESPECT OF GOLD GIVEN TO THE GOLDSMITHS AT KOLKOTTA FOR MAKING JEWELRY. FURTHER THE LOSS ON ACCOUNT OF PROCESS IN CASE OF W ORK GIVEN TO GOLDSMITHS IN KOLKOTTA WAS TO THE ACCOUNT OF THE APPELLANT. THE C IT(A) REJECTED THE ASSESSEES CONTENTION OBSERVING AS UNDER: LD. A.O. HAS DISCUSSED THE ENTIRE ISSUE OF EXCESSIV E WASTAGE OF GOLD IN PARA NO.4 APPEARING FROM PAGE NO.2 TO PAGE NO.5 OF THE IMPUGNED ASSESSMENT ORDER. HE THEREFORE ADDED THE VALUE OF GOLD @ 589.22 PER GRAM TO THE TOTAL INCOME. BEFORE ME LD. COUNSEL HAS STATED THAT THE APPELLAN T WAS A MANUFACTURER AND EXPORTER OF GOLD JEWELLERY. DURING THE COURSE OF MANUFACTURING OF GOLD JEWELLERY THERE WAS A MANUFAC TURING PROCESSED LOSS IN THE WEIGHT OF GOLD. THE FULL QUANTITY DETAI LS WERE FILED BEFORE THE A.O. THE BOOKS OF ACCOUNTS WERE AUDITED U/S.44AB OF THE I.T. ACT. THE APPELLANT PURCHASED 544000 GRAMS OF PURE GOLD AND O UT OF THAT 18000 GRAMS OF GOLD WERE SOLD. THE BALANCE QUANTITY OF 52 6000 GRAMS GOLD WAS ISSUED TO THE GOLDSMITHS AT DELHI HYDERABAD K OLKATTA ETC. HE ACCEPTED THAT THE APPELLANT HAD REPORTED WASTAGE OF 6958.277 GRAMS OF GOLD. LD. A.R. ARGUED THAT THE APPELLANT WAS NOT CONCERNE D WITH THE ACCOUNTING ENTRIES PASSED BY THE GOLDSMITHS AT KOKA TTA AND IF THE GOLDSMITHS AT KOLKATTA HAD NOT DISCLOSED THE WASTAG E OF GOLD KEPT BY THEM IN THEIR BOOKS OF ACCOUNTS NO ADDITIONS CAN B E MADE TO THE INCOME OF THE APPELLANT. HE HAS FURTHER ARGUED THAT SIMILA R LOSSES CLAIMED IN THE EARLIER YEARS WERE ACCEPTED BY THE A.O. ITA NO. 6638/MUM/2008 5 LD. A.R. HAS ALSO RELIED ON THE FOLLOWING CASES:- A. R.B. BANSIAL ABIRCHAND SPINNING & WEAVING MILLS VS CIT 75 ITR 260 (BOM) B. ACIT VS MODERN RICE MILLS 52 TTJ 581 (CH) C. DCIT VS. K.C. JHANWAR 53 IIJ 157 I HAVE CAREFULLY AND DISPASSIONATELY CONSIDERED THE FACTS OF THE CASE ASSESSMENT ORDER AND APPELLANTS SUBMISSION. THE UNDISPUTED FACTS ARE THAT THE APPELLANT HAD SHO WN GOLD LOSS OF 6958.277 GRAMS OF 0.995 PURITY. THE APPELLANT HA D TREATED GOLDSMITHS AT KOLKATTA ON A DIFFERENT FOOTING AND P AID THEM DIFFERENT RATE OF LABOUR CHARGES. THE GOLDSMITH AT THE REMAIN ING PLACES IN THE COUNTRY WERE GIVEN A DIFFERENT TREATMENT AND THEY W ERE PAID @ RS.16 TO RS.30 PER GRAM. WHERE AS THE GOLDSMITHS AT REST OF THE PLACES RETURN 100% GOLD TO THE APPELLANT AFTER DOING THEIR JOB WO RK AND THEY DO NOT CLAIM ANY GOLD LOSS IN THE MANUFACTURING DONE BY TH EM IT IS THE KOLKATTA TEAM OF GOLDSMITHS WHO WERE NOT RETURNING 100% GOLD TO THE APPELLANT AFTER THE MANUFACTURE OF GOLD JEWELLERY. THE APPELLANT HAS NOT SUCCESSFULLY EXPLAINED AS TO WHY TWO DIFFERENT TREA TMENTS WERE GIVEN TO THESE GOLDSMITHS. EVEN IF THE LABOUR CHARGES GIVEN TO GOLDSMITHS AT KOLKATTA WERE LITTLE LESS THERE WAS NO JUSTIFICATI ON FOR ALLOWING 6958.277 GRAMS OF GOLD TO BE RETAINED BY THE GOLDSM ITHS AT KOLKATTA. IT IS FURTHER OBSERVED THAT THE APPELLANT WAS HAVING A BRANCH OFFICE AT KOLKATTA AND THROUGH THE SAID BRANCH OFFICE THE AP PELLANT WAS GIVING GOLD TO KOLKATTA GOLDSMITHS. THE ENQUIRIES CONDUCTE D BY THE INVESTIGATION WING AT KOLKATTA AS DISCUSSED BY THE LD. A.O. IN HIS ASSESSMENT ORDER ARE VERY MUCH RELEVANT WHEREIN TH E DDIT(INV.) KOLKATTA HAD REPORTED THAT THE WASTAGE AS SHOWN IN THE NAME OF THE GOLDSMITHS AT KOLKATTA NO ACCOUNT OF GOLD WAS KEPT BY THE GOLDSMITHS AT KOLKATTA. IT IS FURTHER OBSERVED THAT THE APPELLANT HAS SHOWN GOLD LOSS AT 1.5% WHEREAS IN REALITY THE GOLD LOSS WAS @ 4.5% BE CAUSE THE ENTIRE LOSS OF GOLD WAS ATTRIBUTABLE TO THE MANUFACTURING OF GOLD JEWELLERY AT KOLKATTA. SUCH EXCESSIVE RATE OF GOLD LOSS WAS NOT PROPERLY EXPLAINED BEFORE ME. NO EVIDENCE OR MATERIAL WAS PLACED BEFOR E ME TO PROVE SATISFACTORILY THAT THE GOLD OF 6958.277 GRAMS WAS ACTUALLY RETURNED BY THE GOLDSMITHS AT KOLKATTA. AS FAR AS THE CASE LAWS CITED BY THE APPELLANT ARE CONCERNED THEY ARE DISTINGUISHABLE ON THE FACTS. IN THE CASE OF M/ S. R.B. BANSILAL ABIRCHAND SPINNING & WEAVING MILLS THERE WAS NO FI NDING RECORDED BY THE A.O. THAT IRREGULARITIES OF THE ACCOUNTS WERE K EPT BY THE TAX PAYER. IN THE ABSENCE OF SUCH A FINDING THE BOOK RESULT CO ULD NOT BE IGNORED. WHEREAS IN THE PRESENT CASE THERE IS A FINDING OF THE FACT THAT 6958.277 GRAMS OF GOLD WERE NOT RECOVERED FROM THE GOLDSMITH S AT KOLKATTA. THE ITA NO. 6638/MUM/2008 6 A.O. ENQUIRED INTO THE MATTER AND INVESTIGATION WIN G AT KOLKATTA ALSO CONDUCTED ENQUIRIES AND CAME TO THE CONCLUSION THAT NO SUCH GOLD WAS RETURNED BY THE GOLDSMITHS AT KOLKATTA. THEREFORE THE FACTS OF THE PRESENT CASE ARE QUITE DISTINGUISHABLE FROM THE FAC TS REPORTED IN 75 ITR 260 AS RELIED BY THE LD. A.R. SIMILARLY THE FACTS OF M/S. MODERN RICE MILLS (SUP RA) AND K.C. JHANWAR (SUPRA) ARE CLEARLY DISTINGUISHABLE FROM TH E FACTS OF THE PRESENT CASE. IN THE CASE OF MODERN RICE MILLS THE A.O. HAD NOT BROUGHT ON RECORD ANY EVIDENCE TO SHOW THAT THE SALES OF HUSK HAD IN ACT BEING MADE OUTSIDE THE BOOKS OF ACCOUNTS. IN THE CASE OF K.C. JHANWAR LD. CIT(A) HAD POINTED OUT THAT THE SHRINKAGE DID NOT E XCEED 4.9% AND THE A.O. HAD WRONGLY TAKEN SHRINKAGE AT 4.9%. A.O. IS THE ARBITER IN THE MATTER OF JUDGING WHETHE R OR NOT THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE CORREC TLY REFLECTS THE PROFITS ETC. IT HAS BEEN SO HELD UNDER THE PROVISIO TO SECTION 145(1) OF THE I.T. ACT {BOMBAY CYCLE STORES CO. LTD. VS. CIT (19 58) 33 ITR 13 (BOM)}. THE EXPRESSION IN THE OPINION OF THE A.O. IN THE 1 ST PROVISO OF SECTION 145(1) DOES NOT CONFIRM A MERE DISCRETIONARY POWER. IT IMPOSESE THE STATUTORY DUTY ON THE A.O. TO EXAMINE IN EVERY CASE THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE AND TO SEE WHET HER OR NOT IT HAS BEEN REGULARLY EMPLOYED AND TO DETERMINE WHETHER TH E INCOME PROFITS AND GAINS OF THE ASSESSEE COULD PROPERLY BE DEDUCED THERE FROM {CIT VS MACMINAL & CO. (1958) 33 ITR 182 (SC); CIT VS. A.K RISHNASWAMY MUDALIAR 53 ITR 122. IN VIJAY KUMAR MILLS LTD. VS. CIT 1992 194 ITR 197 213-15 (MAD.) THE ADDITION MADE ON ACCOUNT OF EXCESSIVE P ERCENTAGE OF WASTAGE AND THE INVISIBLE LOSS MADE BY THE ITO WAS SUSTAINED AS IN FACT THE QUANTITY OF COTTON SAID TO HAVE BEEN PURC HASED WAS NOT ACTUALLY PUT INTO USE IN THE MANUFACTURING PROCESS. IN JAGANATH SALES VS CIT (1995) 211 ITR 431 433 4 34 (ORISSA) THE TRIBUNAL WAS HELD JUSTIFIED IN SUSTAINING ADDIT ION OF RS.65 000/- MADE ON ACCOUNT OF EXCESS SHORTAGE SHOWN BY THE ASS ESSEE. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE THE ADDITION OF RS.94 58 891/- MADE BY THE A.O. ON ACCO UNT OF GOLD LOSS IS CONFIRMED. GROUND NO.2 THEREFORE FAILS. 4. AGGRIEVED THE ASSESSEE IS ON APPEAL. HEARD BOTH THE PARTIES. THE ISSUE IS APPEAL IS IN RESPECT OF CONVERSION JOB WORK GIVE N TO GOLDSMITHS. THE ITA NO. 6638/MUM/2008 7 CONVERSION OF GOLD INTO JEWELRY IS GIVEN TO GOLDSMI THS AT DELHI HYDERABAD KARNATAKA AND KOLKOTTA. THE ASSESSEE GIVES GOLD TO THE GOLDSMITHS AND RECEIVES BACK JEWELRY MADE FROM THAT GOLD. THE GOLD SMITHS AT DELHI KARNATAKA AND HYDERABAD ARE PAID MAKING CHARGES AT RS. 16 TO RS 30 PER GM. HOWEVER THE PROCESS WASTAGE IS TO BORNE BY THES E GOLDSMITHS. THAT IS TO SAY THE GOLDSMITHS RETURN THE FULL AMOUNT OF GOLD G IVEN BY THE ASSESSEE. BUT IN THE CASE OF GOLDSMITHS AT KOLKOTTA THEY ARE BEING PAID A LOWER MAKING CHARGES OF RS. 5 PER GM BUT THE PROCESS LOSS IS TO BE BORNE BY THE ASSESSEE. THAT IS TO SAY THE KOLKOTTA GOLDSMITHS WI LL RETURN ONLY THE NET GOLD AFTER REDUCING THE PROCESS WASTAGE BACK TO THE ASS ESSEE. ONE OF THE GOLDSMITHS IN KOLKOTTA CONFIRMED THE SAME BUT NOT T HE OTHERS. THE ASSESSING OFFICER HAD NOT GIVEN THE PARTICULARS OF THE OTHER GOLDSMITHS NOR GAVE THE ASSESSEE AN OPPORTUNITY TO REBUT THE SAME. 5. THE ASSESSEE HAS MAINTAINED PROPER BOOKS OF ACCO UNTS OF THE MOVEMENT OF THE GOLD AND THE AO HAS NOT BROUGHT OUT ANYTHING WHICH WOULD CONTRADICT THE ENTRIES IN THE ACCOUNTS. THE A SSESSEE HAS ACCOUNTED PROCESS LOSS OF 2.5% TO 3% IN THE EARLIER YEARS WHI CH HAS BEEN ACCEPTED. ONCE THE ACCOUNTS HAVE NOT BEEN REJECTED THE AO CA NNOT MAKE ADDITION ON ACCOUNT OF STOCK. FURTHER THE MAIN LOSS IS ON ACCO UNT OF GOLD SUPPLIED TO GOLDSMITHS AT KOLKOTTA. AS PER RECORDS THE RATES P AID BY THE ASSESSEE TO THE KOLKOTTA GOLDSMITHS WAS MUCH LOWER THAN THE RATES P AID TO OTHER JEWELERS. GOLDSMITHS IN OTHER STATES ARE PAID FROM RS. 16 TO 30 PER GM WHILE THE GOLDSMITHS AT KOLKOTTA ARE NOT PAID MORE THAN RS. 5 PER GM. THIS ITSELF WOULD INDICATE THE NATURE OF CONTRACTS. THE DEPARTM ENT HAS NOT DOUBTED AND HAS ACCEPTED THE DIFFERENCE IN RATES PAID THE GOLDS MITHS IN KOLKOTTA AS AGAINST OTHER GOLDSMITHS. THE DIFFERENCE OF RS. 25 PER GM (RS. 30 PAID TO OTHER GOLDSMITHS RS. 5 PAID TO KOLK0OTTA GOLDSMIT HS) WORKS OUT TO 4.24 % ON THE COST OF GOLD AT 589.22 PER GM AS ADOPTED BY THE ASSESSING OFFICER. THUS THE CONVERSION COST PAID TO THE KOLKOTTA GOLDS MITHS FACTORS IN A PROFIT TO THE GOLD SMITHS ON ACCOUNT OF PROCESS WASTAGE RE TAINED BY THEM. OTHERWISE THE GOLDSMIHS AT KOLKOTTA WOULD NOT HAVE ACCEPTED SUCH LOW CONVERSION CHARGES. IN THE CIRCUMSTANCES BASED ON THE FACTS AND EVIDENCES ITA NO. 6638/MUM/2008 8 ON RECORD WE HAVE NO HESITATION IN UPHOLDING THE C LAIM OF THE ASSESSEE DELETING THE ADDITION RS.40 99 956/- ON THE GROUND THAT THERE WAS SHORTAGE OF 6958.227 GMS OF GOLD ARISING OUT OF PROCESS WAST AGE OF GOLD IN THE COURSE OF CONVERSION OF GOLD INTO JEWELRY. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 6. THE NEXT ISSUE IS THE DISALLOWANCE OF RS. 5 00 0 00/- OUT OF TRAVELLING EXPENSES. THE CIT(A) HELD AS FOLLOWS: BRIEFLY STATED THE FACTS ARE THAT THE APPELLANT HA D DEBITED RS.44 67 270/- AS TRAVELING EXPENSES. THE APPELLANT WAS SPECIFICALLY ASKED BY THE LD. A.O. TO FURNISH THE DETAILS OF TRA VELING EXPENDITURE ON PER DAY PER EMPLOYEE BASIS. LD. A.O. NOTED THAT RS. 40 14 806/- WAS SPENT ON FOREIGN TRAVELING AND HENCE THE APPELLANT WAS REQUIRED TO FURNISH THE NAMES OF THE PERSONS WHO TRAVELED ABROA D DURATION PURPOSE PLACES VISITED AND BREAK UP OF EXPENDITURE ON TICKETING LODGING BOARDING AND MISCELLANEOUS EXPENSES IN ACC ORDANCE WITH RULE 6 D. THE COMPUTATION U/S.6D IS POSSIBLE ONLY ON PER DAY BASIS BECAUSE THE DEDUCTIBLE EXPENDITURE MIGHT VARY EVEN FOR DIF FERENT DAYS ON ONE JOURNEY OR TRIP. IN THE ABSENCE OF FULL DETAILS AND SUPPORTING DOCUMENTS TRAVELING EXPENDITURE WAS NOT ALLOWED FULLY A LUMP SUM DISALLOWANCE OF RS.5 LAKHS WERE MADE. BEFORE ME LD. A.R. HAS ARGUED THAT THE A.O. HAD AS KED FOR THE DETAILS AND THE SAME WERE SUBMITTED. HE ARGUED THAT EMPLOYEES OF THE APPELLANT TRAVELED ABROAD AND HENCE THE EXPENSES WE RE INCURRED FOR THE PURPOSE OF BUSINESS AND SHOULD BE ALLOWED FULLY. I HAVE CAREFULLY CONSIDERED THE FACTS AND CIRCUMSTA NCES OF THE CASE DISCUSSION MADE BY THE A.O. VIDE PARA 6 APPEA RING ON PAGES 6 AND 7 OF THE IMPUGNED ASSESSMENT ORDER AND THE WRIT TEN SUBMISSION MADE BY THE LD. A.R. HONBLE MUMBAI HIGH COURT IN T HE CASE OF CIT VS. ARROW INDIA LTD. (1998) 229 ITR 325 (BOM) HAS HELD THAT UNDER THE HEAD TRAVELING EXPENSES ALLOWANCE U/R.6D IS POSSI BLE ONLY WHEN THE COMPUTATION IS MADE ON PER DAY BASIS BECAUSE THE D EDUCTIBLE EXPENDITURE MIGHT VARY EVEN FOR DIFFERENT DAYS OF O NE JOURNEY OR TRIP. AGAIN HONBLE MUMBAI HIGH COURT IN THE CASE OF CIT VS. CHEMET (1999) 240 ITR 625 (BOM) HAS HELD THAT DISALLOWANCE U/R.6D HAS TO BE MADE BY EXCLUDING MISCELLANEOUS EXPENSES AND LOCAL AND O THER CONVEYANCE EXPENSES. IN THE PRESENT CASE THE APPELLANT HAS NO T FURNISHED PER EXPLOYEE PER DAY DETAILS OF TRAVELING. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN VIEW OF THE JURISDICTIONAL HIGH COURTS ORDERS IN T HE CASE OF ARROW INDIA ITA NO. 6638/MUM/2008 9 LTD. (SUPRA) THE DISALLOWANCE MADE BY THE A.O. IS FOUD REASONABLE AND IS ACCORDINGLY CONFIRMED. GROUND NO.7 IS ACCORDINGL Y DISMISSED. 7. AGGRIEVED THE ASSESSEE IS ON APPEAL BEFORE US. T HE ASSESSEE HAD FILED TRIPWISE DETAILS OF TRAVEL EXPENSES. AO DISALLOWED AN ADHOC AMOUNT OF RS. 5 00 000/- OUT OF THE TRAVEL EXPENSES ON THE GROUND THE SUPPORTING DOCUMENTS HAVE NOT BEEN FURNISHED. THE CIT(A) SUSTA INED ON THE GROUND THAT DISALLOWANCE UNDER RULE 6D CANNOT BE MADE UNLE SS TRIPWISE DETAILS ARE GIVEN. WE FIND THAT RULE 6D IS NOT APPLICABLE TO AS SESSMENT YEAR IN APPEAL. ASSESSEE HAS FURNISHED FULL DETAILS OF THE TRAVEL O F EMPLOYEES. WE FIND THERE IS NO REASON OR BASIS FOR MAKING AN ADHOC DISALLOWA NCE OUT OF THE TRAVEL EXPENSES. WE ALLOW THE CLAIM OF THE ASSESSEE AND DE LETE THE ADHOC DISALLOWANCE OF RS. 5 00 000/- OUT OF THE TRAVELLIN G EXPENSES. 8. IN THE RESULT THE ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED ON THIS 31 ST DAY OF JANUARY 2011 SD/- SD/- (R.K. PANDA) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI DATED 31 ST JANUARY 2011. RJ COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CENTRAL - I CONCERNED 5. THE DR I BENCH TRUE COPY BY ORDER ASST. REGISTRAR I.T.A.T MUMBAI ITA NO. 6638/MUM/2008 10 DATE INITIALS 1 DRAFT DICTATED ON: 17.01.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 17.01.2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: ______ 9 DATE ON WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER: ______