TaxTMI 
TaxTMI 
2013 (7) TMI 513
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....chase price paid to its sister concern M/s.Aarti Industries for purchase of scrap. 3. The learned CIT(A) erred in overlooking the fact that the addition made by the Assessing Officer was based on detailed verification of seized documents as well as books of accounts of the assessee and also that of its sister concern M/s.Aarti Steel Industries. 4. The learned CIT(A) erred in overlooking the fact that the assessee had failed to furnish any explanation or evidence with regard to discrepancy noticed by the Assessing Officer in the accounts furnished by the assessee along with the return of income in its own case and also that of the accounts furnished alongwith the return of income of its sister concern M/s.Aarti Steel Industries. 2. ....
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.... Steel Industries. The Assessing Officer noticed that the assessee has made purchase of scrap from its sister concern M/s.Aarti Steel Industries. On verification of the record of M/s.Aarti Steel Industries and other relevant details, the Assessing Officer concluded that purchases made from said sister concern were unreasonable and inflated and made addition of Rs.12,58,064/- under the provisions of section 40A(2) on this account. The relevant portion of the assessment order is extracted below:- "As per books of accounts produced for verification for the year under consideration, it is seen that the assessee has made following purchases of scrap from its sister concern Aarti Steel Industries, Nashik. Purchase L.F 1 Date Amt. 1....
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.... view of the provision of Sec. 40A(2). A show cause notice was issued to the assessee on 08.10.2007 asking his explanation as to why the purchases expenses should not be disallowed. In response to the show cause notice the assessee submitted vide letter dated 24.10.2007 the following explanation. "As regard excessive purchase expenses u/s.40A(2) as mention on page no.2, vide letter date 08.10.2007 for A.Y.2006-07 clarification is as follows. The figure mention by your dose not appear in our Excise register (RG-1). The Exact scrap account details as per our Excise register (RG-1). Opening Stock 05.200 M.T. Generation 58.980 M.T. Total 64.180 M.T. Less: Sale of Sister Concern 52.465 M.T. Closing stock ....
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....the assessee has failed to explain the above discrepancy. It is therefore, a case of disallowance of excessive expenditure in the case of the assessee. The amount of Rs.1255064/- is added to the total income u/s.40A(2). I am satisfied that this is a fit case for initiation of penalty proceedings under sec.271(l)(c)." 4. Matter was carried before the first appellate authority wherein Ld. Authorised Representative made submissions before the CIT(A), which are reproduced as under:- "In our submission we have already given quantitative details from Excise Register (R.G.-l) of M/s Aarti Steel Industries as to the Opening Stock, Generation during the year, Transferred to sister concern (Sale) & closing stock of scrap. In the Assessment O....
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.... On detailed verification of all purchase bills it seems that the rate per K.G. and /or Per M.T. is approximately more or less same to the rate at which the scrap is purchase from M/s Aarti Steel Industries. How the rate per M.T. (Rs.1317.35) as determine by Learned A.O. is wrong we are herewith also given table showing the Rate of purchases from Aarti Steel & from other parties. Name of supplied Date of bill & Invoice Number Type of material Unit as measurement Qty. Rate per unit before duties, taxes & transp charges Appr. Trans. Cost per tonne Rate per unit before duties & taxes (incl. Transp. Cost per kg.) Axis Electrical Inds. Daman 12/08/05 Bill No.235 Waste & scrap of steel KG. 16140 12.0....
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....tion, sales and the closing stock. While doing so, the Assessing Officer adopted the opening stock of scrap at 117.985 MT and arrived at the closing stock at 124.50 MT. However, from the record, the opening stock should have been 5.2 MT as against 117.985 MT adopted by the Assessing Officer. In case correct opening balance is adopted, the closing stock would have been worked out to 11.715 MT. The same closing stock was found to be accepted in M/s.Aarti Steel Industries for A.Y. 2006-07. 6. In view of the above mistake by the Assessing Officer, the cost of purchases worked out to be very high and the Assessing Officer presumed that the assessee paid excessive and unreasonable price to M/s.Aarti Steel Industries. The Assessing Officer's co....