TaxTMI 
TaxTMI 
2016 (10) TMI 705
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....Tax Act, 1961. The findings of the ld. CIT (Appeals) are based on erroneous understanding of the facts and records and the circumstances of the case deserve to be omitted. 4. On appreciation of the facts and circumstances of the case the ld. CIT (Appeals) ought not to have upheld the action of the ld. Assessing Officer in part of Trading Additions made. The ld. CIT (Appeals) has also erred in making addition of Rs. 30,42,043/- on account of Trade Additions by adopting the average rate of Gross Profit of A.Y. 2008-09 and A.Y. 2009-10. The action of the ld. CIT (Appeals) is based on surmises and presumptions and is contrary to the facts and circumstances of the case and law and deserves to be deleted. 5. The appellant craves leave to add, amend, modify or alter the above grounds of appeal at any stage of appellate proceedings. 2. Briefly stated the facts are that the case of the assessee was picked up for scrutiny assessment and assessment under section 143(3) of the I.T. Act, 1961 (hereinafter referred to as the Act) was framed vide order dated 28.12.2011. While framing the assessment, the AO rejected the books of accounts of the assessee on the basis that the assessee has not ta....
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....the total sales quantity during the year under consideration has dropped considerably and also the average selling price per kg has also dropped. It is submitted that the average selling price has dropped by over 6.20% over the last two years. This has squeezed the margin of the assessee company and has led to a sharp downfall in the GP. The ld. Counsel submitted that total production quantity during the year under appeal has dropped considerably and also the average cost of production per kg has also increased substantially. He submitted that when there is a drop in production quantity and increase in the cost, it resulted into sharp decline in gross profit. The ld. Counsel submitted that on the one hand average selling price has fallen during the year under consideration and at the same time the cost of production has increased during the year under consideration, leading to the sharp reduction in GP. The ld. Counsel submitted that 80% component of selling price consists of Copper and the prices of Copper are linked to prices determined at London Metal Exchange and Bombay Metal Exchange. The ld. Counsel drew our attention to historical price graph for copper for the financial yea....
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....been carrying on manufacturing activity and not Job Work. This itself shows that the AO has not appreciated the facts in right perspective. Ld. Counsel submitted that in the year under appeal the assessee has earned the best yield as there was minimum process loss. This fact is not considered by the AO. Another objection of the lower authorities was that the assessee has valued the scrap at just Rs. 200/- per kg. Ld. Counsel submitted that the appellant follows FIFO method of valuation of Stock and the closing stock is valued at Cost or market price whichever is lower. Ld. Counsel submitted that the scrap generated is not sold and is re-converted into Pipes. There cannot be any exact scientific basis for valuation of Scrap generated. However, the assessee has always linked it to the purchase cost of raw material i.e. Pipes and has valued accordingly. Ld. Counsel submitted that the assessee has valued it at reasonable rates and valuation of scrap is in fact at the highest rate during the year under consideration in comparison to last purchase price. Ld. Counsel submitted that valuation of closing finished goods, raw material, work-in-progress, consumables, aluminum scrap, aluminum p....
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....es before making the blind allegation against the assessee appellant. Ld. In this regard, ld. Counsel drew our attention to paper book page 16. He submitted that on perusal of the above manufacturing process, it can be observed that the processes as got done by the assessee company from sister concerns, for which the assessee has paid job charges to them and has also been paid in the past and in the future as well. The works i.e. drawing & intermediate annealing, final annealing, pre-final drawing and end forming were got done by the assessee. Ld. Counsel submitted that another objection of the lower authorities is that the purchases of Copper wire were not entered in the Stock Register. He submitted that the AO has alleged that Invoice No. 1022 dated 09.03.2009 of M/s. New India Extrusions Pvt. Ltd. Qty. 2576.800 kgs value Rs. 6,14,724/- was not entered in the books. Ld. Counsel submitted that the AO has failed to correctly understand the actual transaction and has totally misunderstood the fact that the invoice has not been taken into closing stock. Actually the material received under this invoice is against the copper scrap sent by the assessee for conversion into copper pipes ....
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....the Audit Report in Form 3 CD. Ld. Counsel has submitted that the AO has totally misunderstood the facts. The ld. Counsel submitted that the assessee appellant is registered under the provisions of Central Excise and it is maintaining detailed quantitative stock details as per the provisions of Central Excise. There is a regular audit of registers maintained by the assessee by the officials of the Central Excise Department and NO error whatsoever has been found by them. The records have been found to be satisfactory. The ld. Counsel drew our attention to Internal Audit Report of the assessee as prepared by the Excise Officials which is enclosed at paper book pages 119 to 123. Ld. Counsel submitted that the authorities below have failed to peruse the records and have made baseless allegations without any substance. The ld. Counsel submitted that another objection of the AO was that the complete details of purchases were not shown. Ld. Counsel submitted that the AO has mentioned that process loss has not been declared properly and is not verifiable. Ld. Counsel submitted that as per the AO, on perusal of Form No. 4 of the Raw material dated 31.03.2009 it has been seen that the assess....
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....g the stock register whether the production was made out of the raw materials purchased earlier and what was the sale price of such finished goods. We do not find from the record that this fact was verified by the authorities below. Another contention of the assessee is that it is amenable to Central Excise law, movements of raw material and manufactured products remains under control and supervision of the authorities under the Central Excise Act. It is stated that records related to raw material and manufactured products are subject to audit by the department of Central Excise. It is contended that the authorities under the Central Excise Act, in fact, audited the records of the assessee and our attention is drawn to the Audit Report of the Central Excise Authority. 3.5. The ld. Counsel for the assessee demonstrated from the records that discrepancies as noted by the AO in fact, does not exists. The AO has noted that Invoice No. 1022 dated 09.03.2009 of M/s. New India Extrusions Pvt. Ltd. Qty. 2576.800 kgs value Rs. 6,14,724/- was not entered. In this regard the ld. Counsel contended that the AO has failed to correctly understand the actual transaction and has totally misunderst....
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....r :- " The submission of the assessee are not tenable as in spite of the repeated opportunity the assessee has not submitted the books of A/c after the date 9.9.2011 on which the assessee was required to justify the defect as mentioned above to cross verify the contention of the assessee. As stated above the assessee has not absolutely justified the manufacturing loss and scrap generation and reasonability of the payment made to persons covered u/s 40A(2)(b). It is pertinent to note that conversion charges amounting to Rs. 69,29,015/- and 13,85,726/- was paid to sister concern M/s. Kwality Tube and Capillary and M/s. Sam Enterprises respectively therefore the total payment for conversion charges of Rs. 83,14,741/- was paid to sister concern out of the total charges of Rs. 92,86,773/- and the assessee neither justify the payment of job work nor the generation of scrap thereon even though he has not produced any record or challan for sending the raw material and receiving the finished goods from them. It may not be out of context to mention that the Proprietor of M/s. Kwality Tubes and Capillaries is Mr. Sandeep Papriwal the Director of the company and 75% of the job work of Rs. 69,....
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.... AO. It is stated that these objections of the AO that the difference could not be explained is contrary to the facts. It is further stated that books of accounts were duly submitted before the AO as the AO himself has noted in the assessment order that books of accounts, bills and vouchers etc. were examined on test check basis. We find that the AO has noted that in spite of repeated opportunity, the assessee has not submitted the books of account after the date 9.9.2011 on which the assessee was required to justify the defect as mentioned above to cross verify the contention of the assessee. We find force in the contention of the ld. Counsel for the assessee that assessee had submitted plausible explanation to the defects as pointed out by the AO. We also noticed that in the paper book the assessee has given certificate that except document at sl. No. 10, all other documents were part of the record of the lower authorities. Therefore, it can be inferred that these materials were available before the AO. The AO has not given any finding on this evidences, therefore, in our considered view, the AO was not justified in rejecting the books of account without properly examining the sa....