TaxTMI 
TaxTMI 
2011 (1) TMI 573
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....ified decision. (iii) . Whether on the facts and findings and in view of decision of Ld. Judicial Member at para 25 of the order to restore the issue to Ld. CIT (Appeals) and at para 30 to allow the same ground No. 4 in appeal by Revenue, is it proper to uphold her both these decisions or that the decision taken by the Ld. Accountant Member to reject ground No. 4 in appeal by Revenue to work out separate profit on sale of scrap for assessment as income is a correct and justified decision? (iv) . Whether on the facts & findings and in law, the decision to restore the matter to the Ld. CIT(Appeals) to work out afresh the claim and addition of excessive wastage which are deemed as sales with reference to limited directions or that no such separate addition on trading account can be made for alleged excessive consumption/wastage that are deemed as sales and only profit thereon can be added as directed by the Learned Accountant Member. (v) . Whether on the facts and in law, the Ld. Judicial Member is justified in directing to apply a net profit rate on the basis of immediately preceding year on the sales estimated or that there is no justification under the peculiar facts to apply ne....
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....wastage was shown at 454.155 M.T. which gives the percentage of wastage at 14.20% while normal wastage in this line of business is between 7% and 10% mainly due to burning loss. Due to these discrepancies, the Assessing Officer rejected the books of account of the assessee u/s. 145(3). The assessee has declared the sales at Rs. 4,51,76,535 which were estimated by the Assessing Officer at Rs. 5,00,00,000, as in the immediately preceding year, the assessee made sales at Rs. 5,77,78,286. The assessing Officer also noted that the assessee has shown loss at Rs. 9,24,763 while in the preceding year he has shown G.P. @ 1.69% and the assessee could not prove the fall in G.P. The Assessing Officer, after noting that the assessee has shown net profit in the preceding year @ 0.43%, applied the same net profit rate to the estimated sales of Rs. 5,00,00,000 and worked out net profit at Rs. 2,15,000. Separate addition in respect of investment in unaccounted stock were made u/s. 69 of the Act for Rs. 30,00,357 alongwith other disallowances and additions in respect of excessive wastage etc. 4. The question No. 1 relates to the valuation of unaccounted stock of scrap found at the time of survey. T....
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.... the scrap from 01.04.2000 to 25.09.2000. The average rate of the scrap vary from Rs. 4337.46 per M.T. to Rs. 7,000 per M.T. The average of all the purchases comes to Rs.4593.55 per M.T. The learned Accountant Member, in my opinion, has correctly observed that the learned CIT(A) did not record reasons for reaching a conclusion that the valuation of excess stock as show by the assessee in return at Rs. 22,00,000, was not justified. This is the fact that the assessee has placed sufficient material for working out the average rate of excess stock of scrap at Rs. 4593 per M.T. The learned CIT(A) has also called for the remand report from the Assessing Officer on such evidences. These evidences were not produced by the assessee before the Assessing Officer. The assessing officer supported the rate of Rs. 7000 per M.T., but did not make any adverse comment on the evidences filed by the assessee before the CIT(A). The survey team has also worked out the value of the excessive stock of scrap @ Rs. 5000 per M.T. after having physical verification. The assessing Officer, in my opinion, could not have valued the unaccounted scrap @ Rs. 7000per M.T. merely on the basis of one purchase of 2.00 ....
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....k as his business and therefore, did not find any factual or legal infirmity in the decision of the CIT(A) in this regard. His reasoning for arriving at this finding is that the assessee admitted the excess stock found at the time of survey and surrendered the same as income from business. He observed that the Assessing Officer has admitted that the excess stock of 250 M.T. represents the excess production/sale which has not been accounted for by the assessee in the books and, therefore, the assessee was justified in telescoping the amount against the surrendered income of Rs. 22,00,000 as his business income and factually this represents the secrete profits of the business of the assessee. The assessee in his opinion explained the nature and source of undisclosed stock as his business income and, therefore, the CIT(A) after appreciation of facts took the view that this income has to be assessed under the head "income from business". The learned Judicial Member, on the other hand, was of the view that the unaccounted stock surrendered by the assessee was not in his books of account. The assessee was not maintaining the regular books of account. The income so surrendered cannot be t....
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.... and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions of the Act. However, when these provisions apply because no source is disclosed at all on the basis of which the income can be classified under one of the heads of income under s. 14 of the Act, it would not be possible to classify such deemed income under any of these heads including income from "other sources" which have to be sources known or explained. When the income cannot be so classified under anyone of the heads of income under s. 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. If it is possible to peg the income under anyone of those heads by virtue of a satisfactory explanation being given, then these provisions of sections 69, 69A, 69B and 69C will not apply, in which event, the provisions regarding deductions, etc. applicable to the relevant head of income under which such income falls will automatically be attracted. 6.2. The opening words of section 14 "Save as otherwise provided by this Act" clearly leave scope for "deemed income" of the nature....
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.... "income from business or profession". While computing the total income, this income has to be separately added in the total income and cannot be shown by crediting in the profit and loss account. To that extent, I agree with the view taken by the learned Judicial Member. This answers the question No. (ii) referred to me. 12. The question No. 3 referred to me arise out of the ground No.4 taken by the Revenue in its appeal claiming that separate profit on sale of scrap be worked out and added to the income of the assessee instead of working out the composite income from both the manufacturing of the goods and sale of scrap as business profit. The ld. Judicial Member allowed the ground of appeal of the Revenue under para 30 of his order while the learned Accountant Member dismissed the ground taken by the Revenue. 13. I heard the rival submissions and carefully considered the same alongwith the orders of the authorities below as well as that of the learned Judicial Member and learned Accountant Member. I noted from the assessment order that the Assessing Officer has not made any separate addition estimated as profit on the sale of excess stock of the scrap found during the course o....
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....the order of CIT(A). 14. Question No. 4 as well as 5 referred to me have arisen out of ground Nos. 3 to 6 of assessee's appeal and ground Nos. 8 & 9 of Revenue's appeal. Ground Nos. 3 to 6 of assessee's appeal relate to the wastage due to melting loss while ground Nos. 8 & 9 of Revenue's appeal relate to the estimation of the gross profit rate on the estimated sales after accepting the additional power charges incurred by the assessee during the year to the extent of Rs. 11,00,000. The learned Judicial Member and learned Accountant Member have restored the issue to the file of the CIT(A). While restoring the issue to the file of the CIT(A), the learned Accountant Member gave certain directions. The learned Judicial Member also directed with regard to the net profit rate on the trading result to apply the same rate as has been worked out in the immediately preceding year in the peculiar facts and circumstances of the case while the learned Accountant Member directed the quantum of the sale to be estimated afresh by considering the melting loss and oxidation factors etc. in the right perspective. He further directed that the CIT(A) will consider the impact of the surrendered busines....
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.... AO also. This being the position, to this extent, the appellant's explanation regarding lower gross profit rate /gross loss deserves to be accepted. However, after giving credit of Rs. 11 lacs there is still a gap of Rs. 21 lacs for the enhanced power charges and consequently the gross loss of Rs. 22,54,763 [Rs. 33.54.73(-) Rs. 11,00,000]. For this increase in power charges and consequently the gross loss the appellant could not give any satisfactory reply nor could it produce any evidence in support of the claim. The only explanation given by the AR was that the same was on account of lower production. In my opinion, this explanation cannot be accepted. Even if there was lower production, the same would not justify the enhanced power charges of about Rs. 22 lacs nor does it justify the gross loss of more than Rs. 22 lacs. It is not that in past, the production has not varied. It has not been shown by the appellant that in past also on account of lower production, the assessee had 10 incur gross loss. It is rather seen that in assessment year 1999-2000 also, the assessee had shown the production at 2772 MT as against 2530 MT in this year and had still shown gross profit rate of 2.....
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....r under reference has used 54% of pig iron/iron scrap and 46% of sponge iron meaning thereby both the items have been used almost in the same proportion. This being the position, taking a liberal view the average wastage of 13% seems to be reasonable in the appellant's case in this year. As in the preceding year, the case was not scrutinized and the wastage was not examined by the department, the same cannot be taken as precedence or an accepted position by the department. Thus, if the average wastage of 13% is accepted then on the total consumption of 3200 MT the wastage comes to 416 MTR as against 669.710 MT claimed by the assessee. The excess wastage claimed by the assessee comes to about 254 MT. As rightly stated by the AO in the remand report dated 1.12.2004, this excess wastage of 254 MT represents the excess production/sale which has not been accounted for by the assessee in the books. It is seen that the average selling rate of finished goods comes to Rs. 11,500 PMT as can be seen from Schedule "H" to the balance sheet. If this rate is applied (excluding excise duty) on the excess production of 254 MT then the unrecorded sales come to Rs. 29,21,000. In my opinion, this amou....
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....n of rates and the loss claimed by it, it is seen that the assessee had given up the arguments of the increase in cost of raw material and change in product mix and has confined his arguments to the increase in power expenses. In view of the fact that the assessee has claimed higher wastage and in view of ground Nos.4, 7, 8 and 9 of the Revenue we consider it appropriate in the peculiar facts and circumstances of the case where the books of account cannot be relied upon in regard to the amount of wastage and finished products sold since the consumption of electricity is one of the direct costs which would impact the production we consider it appropriate to restore this issue back to the file of the CIT(A) who shall examine the issue in the light of the past history in regard to electrical consumption and also give a specific finding as to the specific increase in electric tariff rate which may have a bearing on this issue also as such by this the amount of wastage and the utilisation of the same for producing finished goods and the addition in the trading result which may so warrant would be accordingly so considered on which aspect both the assessee and the department are aggrieve....
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....Member also restored the issue to the file of the CIT(A) with the following directions: "15. After hearing the parties and careful perusal of material on record, it is found that the action to reject accounts by invoking provisions of section 145 of the Act stands confirmed. Having rejected the accounts, sub-section (3) of section 145 of the Act requires an Assessing Officer to make an assessment in the manner provided under section 144 of the Act. The procedure prescribed u/s. 144 of the Act is that the Assessing Officer, after taking into account all relevant material which has been gathered and after giving assessee an opportunity of being heard shall make the assessment of total income or loss to best of his judgment and determine the sum payable by the assessee on the basis of such assessment. In the present case in appeal, if the assessee had objected to the additions made and assessment of income, the Ld. CIT(Appeals) ought to have corrected that by making a reasoned order on the points or basis what he honestly believed to be a fair estimate of income of the assessee after taking into consideration the relevant material that had come on his record. The ld. CIT(Appeals) , h....
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.... restored back to the file of Ld. CIT(Appeals) so that when the matter goes back to him, he only adopts reasonable amount of sales as against the estimates of Rs. 5,00,00,000 made by the Assessing Officer. Needless to add the quantum of sales estimated on account of excess claim of wastage shall have to be worked out afresh by considering the melting loss and oxidation factor etc. in the right perspective. He shall also consider the impact of surrendered business income on the net profit that may be worked out by appraising facts of the year under consideration such as increase in power tariff, fixed wage bill, higher expenditure on power and electricity, rise in cost of production and other selling administration and finance expenses and not to apply the net profit rate of earlier year as the same could not form a basis under the fact-situation of the year under consideration. The parties shall be afforded a reasonable and effective opportunity of being heard so that reliable evidence in support of their claim is adduced by them before he takes decision in accordance with law for estimating total income or loss of the year under consideration with reference to relevant material on....
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....returns by and assessments of the assessee and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work. There is nothing in section 144 for holding an assessment made by an officer u/s. 144 without conducting a local enquiry and without recording the details and results of that enquiry cannot have been made to the best of his judgment within the meaning of that section. The best judgment is to be based on a fair and proper estimate of assessee's income and the inference to be drawn from the available material should be properly inferable inference. The assessment is to be based on material to the extent to which the materials are discovered. This clearly supposes the Assessing Officer should make an intelligent well-grounded estimate. Such estimate must be based on adequate and relevant material. What is irrelevant material depends on the facts and circumstances of the case. In my opinion, the earlier years' results of assessee's business are the relevant material until and unless it is proved otherwise. If the nature of the business of the assessee is sa....