TaxTMI 
TaxTMI 
2006 (1) TMI 611
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.... so made needs to be deleted. 2. Without prejudice to Ground No.1, that the Ld. Commissioner of Income-tax (Appeals) is not justified in confirming the action of Ld. A.O. in making addition of entire concealed sales amount outside books of accounts estimated by him on account of excess Scrap generation, without giving allowance to any expenses or considering Gross Profit rate declared by the appellant and accepted by him, which is based on surmises and conjecture, contrary to facts and provisions of law, hence the addition of entire amount of sale be restricted to Gross Profit on same. 3. That on the facts and in the circumstances of the case Ld. Commissioner of Income-tax (Appeals) is not justified in confirming addition of Rs. 13,15,362/- i.e., 15% out of total Polishing Expenses claimed by the appellant which is based on surmises and conjecture and contrary to facts and provisions of law and the addition so made needs to be deleted. 4. That on the facts and in the circumstances of the case Ld. Commissioner of Income-tax (Appeals) is not justified in confirming disallowance of Membership fees of Rs. 25,000/- and further denying claim of appellant U/Sec 80G of the Inco....
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....o be placed on record which were earlier not furnished to the authorities below as mentioned in the application and, thus, it was contended that those documents should be admitted as additional evidence. ITA No.1412/Del/2006 3. First, reference has been made in that application that a paper book vide letter dated 15th October, 2000 has been submitted before the Tribunal which contains assessment record in the case of the assessee for subsequent assessment years i.e., for assessment years 2003-04 onwards. It is contended that the said paper book contains the details which are germane for determining the issues under controversy for the assessment year under consideration. It is mentioned that since these documents were not existing when assessment order took place and the order of the CIT (A) took place, therefore, these documents should be admitted. 4. It is further mentioned that the documents marked as 'Annexure-A' relates to photographs showing how the manufacturing process takes place in the case of the assessee and these documents are necessary in order to depict the process that has been described by the Ld. CIT (A) at page 3 of his order. 5. Further refer....
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....y Delhi Stainless Steel Trade Federation dated 7th December, 2006 which is marked as 'Annexure-C' It was contended that the assessee has not mentioned that what was the reason for non-production of this certificate either before the Assessing Officer or before the CIT (A). It was submitted that Delhi Stainless Steel Trade Federation was existing much prior to the date of assessment order. Therefore, there is no reason for the assessee to now produce the said certificate to support his case. Thus, it was submitted that the evidences sought to be produced by the assessee should not be admitted as no cause has been shown as to why the assessee was prevented from producing these documents before the Assessing Officer or CIT (A). ITA No.1412/Del/2006 10. have heard both the parties on this issue. So as it relates to 'Annexure - A' i.e., the photograph showing the manufacturing process, it starts from S.S. Flat which is converted to S.S. coil and then S.S. Patti after hot rolling and cold rolling and, thereafter, the same is cut and pressed, it is trimmed and then black utensils are produced and, thereafter, finished utensils are produced after polishing. This is a ....
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.... to 36% The scrap generation norms stated above is in line with that fixed by the Central Excise Department after physical verification of the manufacturing process of the exporters in Wazirpur Industrial Area. For DELHI STAINLESS STEEL TRADE FEDERATION." 15 The above mentioned certificate was annexed to the following letter in respect of Assessment Year 2003-04:- "16.1.2007 To The Commissioner of Income Tax Appeals-XXVII, New Delhi. ITA No.1412/Del/2006 Sub : Proceedings in the appeal matter of M/s Stainlay India, Appeal no. for the Assessment Year 2003-04. Respected Sir, We beg to submit that in the captioned matter listed for hearing today, the Hn. CIT (A)-XXII in his order dated 20.01.2006 had adjudicated upon the matter of reasonable scrap generation rate @ 30% basing his estimate on the certificate issued by Delhi Stainless Steel Trade Federation dated 16.03.2002. However, the copy of said certificate was not made available to us. Hence, you are requested to provide us a copy of the said certificate from the file of Assessment Year 2002-03. Further, a ....
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..... Ground No.1 and 2 of the assessee and Ground No.3 of the Department raise common issue which is regarding addition made on account of excess generation of scrap. The Assessing Officer has dealt with this issue as per para 3 of his order. It was noted by the Assessing Officer that the assessee had shown the generation of scrap in the manufacturing process which was shown @ 40% for the year under consideration. While comparing the same with the immediate preceding year it was found that the same was to the tune of 41.42%. The assessee was required to justify its claim. Vide letter dated 15th March, 2005 it was submitted that when the utensils are prepared from Patti after cutting circles therefrom, .the patti used in rectangular shape and edges are not parallel, when a circle is taken from it, ITA No.1412/Del/2006 the scrap comes to 20 to 40% and, then, while pressing the circles into press machine also sometimes the circles are broken and that results into scrap. After the preparation of edges, wastage remains 2 to 5 % and similarly, wastage is 1% at the time of polishing. It was submitted that generation of scrap depend upon the quality of the flat and patti used and it also depe....
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....pages 12 to 16 of the impugned order). The submission of the assessee before the CIT (A) was that the Assessing Officer while holding that the generation of scrap in the case of the assessee was excessive as compared to other stainless steel producers in Wazirpur Area is not supported by any fact as Ld. Assessing Officer did not cite or give any name of the case to compare the case of assessee with that case. 22. It was submitted that most of the exporters who have shown scrap generation of 25% had manufactured their utensils from the raw material in the form of S.S. Flats and S.S. Patta. It was submitted that so as it relates to reliance of the Assessing Officer on the new Import-Export Policy and the Handbook of Procedures, no book was provided to the assessee and it was not brought to the notice of the assessee to controvert the same. So as it relates to the observations of Assessing Officer regarding order of the CIT (A) in one case where generation of scrap was held to be proper at 25%, it was submitted that no copy of such order was ever provided to the assessee. It was submitted that non-confronting the assessee with the evidence which was relied upon by the Assessing Off....
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....e assessee are supported ITA No.1412/Del/2006 by the order under Sales-tax Act given by independent sales-tax Assessing Officer. It was submitted that Assessing Officer has not pointed out any defect in the audited books of account, therefore, no trading addition could be made when the GP rate was accepted and, thus, the action of Assessing Officer is self- contradictory. Apart from discussing the submission of the assessee in para 7.3, the CIT (A) has also found that the case relied upon by the Assessing Officer of CIT (A) wherein 25% scrap generation was held proper, was also examined and the observations of CIT (A) in that order has been reproduced in para 7.4 of the impugned order which is reproduced below:- "The Export-Import policy document of the Government of India can still form a good basis for forming the estimate. It prescribes the following percentage of shortage:- 1. Stainless steel utensils manufactured from stainless 25% steel sheets and circles 2. Stainless steel utensils manufactured from stainless 39% steel coil 3. Stainless steel cutlery manufactured from stainless 35% steel sheets. A list o....
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....om stainless steel sheets and circles, but the said percentage cannot be applied in the case of assessee because the steel utensils in the present case have been manufactured from flat/patta where the generation of scrap is more. The CIT (A) further observed that though the Assessing Officer has mentioned regarding the cases of exporters of Wazirpur Industrial Area, but he has not quoted a single instance and, thus, considering the certificate issued by Stainless Steel Trade Federation from Wazirpur Industrial Area, Ld. CIT (A) has allowed the generation of scrap to the extent of 30% and he directed the Assessing Officer to give the proper relief to the assessee by taking the sale price at Rs. 91.58 per Kg., and the grounds of appeal was partly allowed by the CIT (A). The assessee in its appeal is aggrieved by the sustained part of the addition and revenue in its appeal is aggrieved by the deleted portion of addition. ITA No.1412/Del/2006 27. It was submitted by Ld. AR that the Assessing Officer has erred in applying 25% rate of generation of scrap. It was contended that while doing so, the Ld. Assessing Officer has relied upon Appendix-41. The reliance placed by Assessing Of....
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....ubmitted that according to Appendix-41, the generation of scrap was permissible upto 39% and no reason whatsoever has been stated by the CIT (A) for not accepting the norms provided in Appendix-41 despite the finding given by him that the stainless steel utensils were produced by the assessee not from stainless steel sheets and circles for which the prescribed norms were only of generation of scrap to the extent of 25%. It was submitted that Ld. CIT (A) has also accepted that the assessee has been maintaining proper records with respect to its manufacturing activities and no defect whatsoever has been pointed out by the Assessing Officer to show that there was any discrepancy in those records. Thus, it was pleaded that so as it relates to addition sustained by the CIT (A) on account of excess generation of scrap and resultant sales made outside the books of account should be deleted. It was pleaded that in the absence of any evidence existing on record to prove that any outside sale was made by the assessee, such addition will be based only on the basis of presumption and surmises. 29. So as it relates to departmental appeal in which the deletion of addition to the extent of gen....
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....ision of CIT (A) [predecessor of CIT (A)] also was in respect of a case where stainless steel utensils manufacture by the assessee from coils in which the rate of generation of scrap was low. Therefore, the CIT (A) has observed that the said case was not applicable. Ld. CIT (A) has also observed that even though the Assessing Officer has mentioned that in most of the exporters cases in Wazirpur Industrial Area, the scrap percentage has been shown at 25%, but no single instance as been quoted or substantiated by the Assessing Officer in ITA No.1412/Del/2006 his findings recorded in the assessment order. However, the CIT (A) relying on the certificate of Stainless Steel Trade Federation of Wazirpur Industrial Area, has applied the rate of 30% by giving the part relief to the assessee. Here, it will also be important to note that the Appendix-1, the reliance of which has been placed by the Assessing Officer in Item No.1 itself, state in Item No.76 that if stainless steel utensils are made from stainless steel coil, the generation of scrap will be around 39%. A full copy of Appendix-41 has been placed on record by the Ld. AR of the assessee. Appendix-41 is "norms of scrap/waste materia....
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....e case of the assessee scrap is generated @ 40% as against scrap generated in immediate preceding year @ 41.42%. As no instance of sale or purchase, etc. out of books has been brought on record by the Assessing Officer, Ld. CIT (A) was wrong in sustaining the part addition by applying the rate of generation of scrap @ 30% for which there was no authentic evidence on record. As there is no defect whatsoever found in the sale and purchase of utensils and rate of generation of scrap is comparable with the immediate preceding year and the generation of scrap is in the near vicinity of norms prescribed in Appendix-41, we find no merit in the sustenance of part addition which is deleted. 32. Keeping in view the above discussion, we are of the opinion that no addition could have been made in respect of generation of excess scrap. Therefore, ground raised by the revenue is dismissed and ground raised by the assessee is allowed. 33. Ground No.3 of assessee's appeal and ground No.1 of departmental appeal raise common issue i.e., disallowance made on account of polishing expenses. This issue has been discussed by the Assessing Officer in para 5. It was noted that polishing expenses ....
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.... illiterate persons, therefore, they did not file the returns. Their returns for assessment year 2003-04 now have been filed and copies of these returns are filed. Copies of TDS challans, etc. were also filed. Considering all these evidences, Ld. Assessing Officer has observed that the reply given by the assessee is not found satisfactory. According to the Assessing Officer, it was necessary to prove that services were actually rendered by the persons to whom the payments have been made by the assessee and assessee has remained unable to prove their identity and also the genuineness of the transactions. So far as it relates to contention of the assessee that TDS was deposited ld. Assessing Officer observed that assessee did not prove that these expenses were incurred for the purpose of business. The Assessing Officer further observed that the returns of those parties are filed by the assessee only on 24th March, 2005. The assessee was required to produce these people for verification when they were not produced. Simply filing the return of income does not prove the identity of these persons because returns of these parties were filed only on the last date of hearing i.e., 24th Marc....
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....isher have filed their income tax returns and their Permanent Account Numbers are submitted. It was submitted that as against all these evidences no material whatsoever has been brought on record by the Assessing Officer to show the following:- (a) That the black utensils are not produced. ITA No.1412/Del/2006 (b) That the polishing process was not required on the black utensils before exporting. (c) That the black utensils were not sent to contractors for polishing or d) That the polishing was not done (e) That the appellant exported unpolished utensils. (f) That the appellant has his own inside arrangement for polishing. (g) That the polished utensils received back supported through challans and duly entered in day-to-day stock register are false or not received back. (h) That the payments for polishing charges either not made or not made through proper banking channels. (i) That the TDS required not deducted or deposited or not properly reflected in TDS return filed by the appellant ....
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....cturing process, the existence of which was not even denied by the CIT (A). Thus, it was pleaded that keeping in view the entirety of the submissions made before Assessing Officer and CIT (A), the disallowance sustained by CIT (A) was wrong and, therefore, the sustained addition should be deleted. 39. On the other hand, Ld. DR pleaded that the assessee could not support any of the expenditure incurred on account of polishing. It was submitted that the Assessing Officer made inquires by sending letters u/s 133 (6) and also by deputing the Inspector. The assessee could not support any of the expenditure and, therefore, the addition was rightly made by the Assessing Officer. It was submitted that the CIT (A) has allowed the relief to the assessee on the basis of presumptions and, therefore, the deletion made by the CIT (A) should be set aside and addition made by the Assessing Officer should upheld. ITA No.1412/Del/2006 40. e have carefully considered the rival contentions in the light of the material placed before us. Polishing expenses have been claimed by the assessee to the extent of Rs. 87,69,077/- which are claimed to be paid to 12 parties as detailed in para 33 of this....
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....only @ 8.90% that there is some decease in such expenditure. Thus, the expenditure are also comparable for the year under consideration. The CIT (A) has upheld the above addition for the reason that many parties were not available at the declared address. Therefore, workers were not traceable. However, accepting the fact that this type of expenditure was a necessary expenditure which has to be incurred for the purpose of business, the CIT (A) has sustained the addition to the extent of Rs. 13,15,362/-. In our opinion, such sustenance of part addition is not justified on the facts of the record. It has already been mentioned that all the new addresses were submitted to the Assessing Officer in the form of return of income filed for Assessment Year 2003-04. Unless a finding is given that those persons were not still available on the address given in the return of income for Assessment Year 2003-04, it cannot be said that parties were unidentifiable or no work was done by them. Therefore, we do not find any substance in sustenance of part addition. In this view of the situation, after hearing both the parties, we delete the disallowance sustained by the CIT (A). Therefore, ground No.1....
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....d that there was no response. The assessee did not provide new address of the party. The Inspector was also sent and as per his report the party does not exist at the new address. In the case of JSM Pack the assessee produced one Mr. Kapoor without any evidence. In case of Kapson Packing Industries, only confirmation was filed without PAN and no particulars was filed, so that genuineness of the transaction could be verified. It is in this manner the Assessing Officer has added the said amount of Rs. 17,67,848/- to the income of the assessee. The Ld. CIT (A) has discussed this issue at pages 8-12 of the impugned order. Before CIT (A) it was submitted that full payment of packing material procured from various suppliers inter alia containing the following information/particulars was submitted:- ITA No.1412/Del/2006 (a) Name & Address of supplier (b) Nature of Goods purchased (c) Invoice No. (d) Date of Invoice (e) Invoice Amount (f) Amount paid (g) Mode of payment (h) The nature of packing....
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....ance has been deleted by the CIT (A). 44. It was submitted by Ld. DR that the assessee could not support either the identity of the parties to whom the payments have been made or the genuineness of the transactions. Relying on the assessment order, it was pleaded by Ld. DR that disallowance was rightly made by the Assessing Officer and CIT (A) has wrongly deleted the same. 45. On the other hand, relying on the order of the CIT (A), it was submitted by Ld. AR that the assessee had made the payments to them by payees account cheques and packing material was purchased in the normal course of business and it was the main requirement of business. Without packing material the goods could not be exported. The necessary particulars were submitted in respect of each of the parties and after proper appreciation of the evidence and facts, the CIT (A) has rightly deleted the addition. Thus, it was pleaded that the order of the CIT (A) on this issue should be upheld. 46. We have carefully considered the rival contentions in the light of the material placed before us. The notices issued by the Assessing Officer to three parties listed in para 41 of this order came back with the remarks ....
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....ant and essential part of packing particularly in case of export. It was submitted that disallowance was upheld by the Assessing Officer on the wrong footing. It was ITA No.1412/Del/2006 submitted that as the payment made through payees account cheques, the identity of these parties could not be disputed. On these submissions, Ld. CIT (A) has given a categorical finding that all these three parties were regular supplier of packing material to the assessee in the immediate preceding year and were paid by cheques in normal course of the business. Accepting that sales-tax papers were filed in the case of Giriraj Plastics and persons appeared on behalf of the JSM Packs and confirmation was filed in respect of Kapson Packing Industries it is observe by the CIT (A) that these are sufficient to establish that the assessee had incurred these expenditure and the Assessing Officer was wrong in considering the evidence produced as insufficient. It is observed by the CIT (A) that identity could be verified with reference to the bankers where the payments given by the assessee were credited on bill to bill basis which were not even ad hoc. Thus, the CIT (A) has deleted the addition. The existen....