2011 (5) TMI 1003

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....AO, on perusal of inventory of closing stock, noticed that the assessee has not shown any work-in-progress. The AO also observed that the processing done by the assessee has five day cycle and, therefore, the fabric under process bears expenses incurred on account of colour, chemicals, wages, power, fuel, etc. for these five days. Therefore, the fabric lying on the machine as on 31.03.2005 carries expenditure which has been debited to the Profit & Loss Account but in respect of which no income has been shown. The A.O. therefore, asked the assessee as to why work-in-progress should not be made. In reply to the above, the assessee stated that the ownership of basic raw material, i.e. grey cloth was always pertain to other parties because the ....

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....pugned order, the ld. CIT(A) upheld the action of the AO following the decision of Hon'ble Supreme Court in the case of British Paints India Ltd. (supra). Aggrieved with the order of the ld. CIT(A), the assessee is in appeal before the Tribunal. 4. At the time of hearing before us, none appeared on behalf of the assessee. Only the written submissions were filed on behalf of the assessee wherein the assessee pointed out that the assessee is doing processing on job work basis. The assessee also submitted the paper book containing (1) written submission, (2) copy of letter dated 18.07.07 submitted to the CIT(A), (3) Copies of judgments of Hon'ble ITAT, Ahmedabad in case of (i) Rishabh Dyeing & Printing Mills Pvt. Ltd., (ii) Vardhaman Fabrics ....

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....aiya Processors Private Ltd. (supra) observed that the AO could not be able to appreciate the true nature of the business of a processing house. He undertook the job work. The fabric does not belong to the assessee. There is difference in raw material and the consumables. Raw material once consumed does not lose its identity, it only gets its utility transferred. While the consumables, once consumed, cannot be separately identified and it loses its identity. When the assessee has been engaged in the business of dyeing and printing of art-silk cloth on job work basis, the raw material does not belong to the assessee. The assessee has simply to incur the expenditure on colour, chemical, wages, power and fuel. Colour and chemicals are consumab....