AI Drafter 
TaxTMI 
TaxTMI 
2018 (6) TMI 222
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....lding about the Appellant having incurred an additional expenditure of Rs. 5,00,000/- on marriage of Shri Akshay, his son (Rs.3,00,000/- for jewelry, Rs. 1,00,000/- for clothing and Rs. 1,00,000/- for other remaining expenses) in addition to the amount of Rs. 30,46,269/- very much debited to the capital account on this occasion (though telescoped against the addition of Rs. 38,00,000/-, which has been confirmed to the extent of Rs. 19,00,000/-, which is subject matter of Ground of Appeal No.2, so as not to result in a separate addition)." 3. In this case, return of income declaring income of Rs. 2,36,06340/- was filed on 10th September, 2010. Thereafter, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the act on 2nd September, 2011. The assessee is in the business of ship breaking and dealing in commodity and share transaction. During the course of assessment proceedings, the assessing officer has noticed that assessee has disclosed total sale of Rs. 55,82,92,204/- on which gross profit of Rs. 3,69,25,472/- @ 6.61% was declared. The net profit disclosed during the year was at 3.15% as against last year's net profit rate of 0.86%. The assessing officer ob....
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....e and submission made by the appellant. The AO has rejected the books of account for the reasons discussed in Para-4 & 5 of the assessment order and made addition of Rs. 38,00,000/- being unaccounted sales of 7 DG Sets after considering the fact that assessee himself has disclosed sale of one DG set on 14.4.2009 for Rs. 4 lakhs and for two set of other type of machineries of Rs. 10 lakhs, which have been added to the total income of the assessee. The AO has summarized the discrepancies found while verifying the books of accounts in the assessment proceedings as under:- " I. The assessee not maintaining accounts which may show the correct position of consumption of raw material / production of finished goods / remaining stock/ shortage. II. production of the finished goods is only disclosed in the accounts when it was sold III. No detail of day to day consumption of the raw material is maintained. IV. No detail of shortage is maintained. For a given day neither the consumption of the raw material can be ascertained nor the shortage occurred can be ascertained. V. The shortage is being taken as balancing figure. VI. Stock of remaining raw material i.e. uncut Ship is....
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....ght of the ship, after such long period, would be less. The Appellant has pointed out that a detailed study was made by group of Metallurgical and Engineering Consultants formed by the Ferrous Scrap Committee of Ministry of Steels, Government of India. The report of the consultants known as "MECON Report" is available on the net. In Para 2.4 of the said report, range of shortage in respect of different types of ships coming for breaking is mentioned. The same is as under: "Table 2.4: Percentage of items obtained on breaking different types of ships: SI. No. Type of vessel Weight Loss (%) 1. General Cargo 9-15 2. Bulk carriers 10-16 3. Ore carriers 10-15 4. Passenger ships 11-17 5. Oil Tankers 10-12 6. Ore Bulk Ore Carriers 10-13 7. Naval Ships 15-22 8. Container Vessels 10-13 9. Fishing Trawler/ Fish Factory 12-18 The values are approximate as the percentage varies with size of the ships. Of the weight loss shown above, it may be noted that the weight loss at yard is only 2-3%. The rest is the weight loss due to corrosion in 20-25 years of the ship's active life....
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....s of the case and submission made by the appellant. Vide this ground, the Appellant is challenging the AO's action regarding suppressed income of Rs. 38,00,000/- being alleged unrecorded sales of 7 D.G. Sets and other machineries. In other words, no sales/closing stock in respect of the DG sets and other machineries like motors, pumps etc. have been shown in the books of accounts. These are sold in the market on number basis. In absence of such recording the AO has estimated the addition of Rs. 38,00,000/- (Rs.28 lakhs for 7 DG Sets and Rs. 10 lakhs for other machineries). In support, certain bill copies of the other ship breakers showing the sales of the aforesaid items have been enclosed as part of the assessment order. In the course of the appellate proceedings, the Ld. AR has vehemently argued that the AO's observations have no valid basis and there is no material on record to show that the Appellant had sold these items and the sale proceeds were not recorded. It is argued that the whole exercise is based on mere conjectures and surmises. The Ld. AR has stated that in most of the ships coming for ship breaking, the engines have outlived their useful life and coupled wi....
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....I am not fully convinced with the same. While, on one hand, the sale bills appended with the assessment order do not contain any details, in the same way, the purported sale of spare parts from alleged dismantled ships by the assessee also does not contain any specific detail. In the above background of what is discussed above, when DG set of ship finally broken was in working condition, though may be very old, it does not make any commercial sense to dismantle such engine and sell the same by weight as scrap. In such circumstances, I am not inclined to accept the claim of the Ld. AR that the engines were also dismantled and sold as scrap. The sale price shown in the sale bills appended to the assessment order is not of any help because the name of ship from which it was retrieved is not even mentioned much less any technical details or at least the HP of such engine. 3.10. The appellant has relied upon earlier year's book results with the contention that no such addition have been made in the preceding years but it is to be mentioned that like for A.Y. 2008-09 and A.Y.2006-07 the shortage was only at 8.57% and 7.16% only which were much less than the claim of shortage at 10....
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....and a major portion of the another ship namely Howrah Bridge was also utilized for production. It is needless here to mention that every ship contains various types of machineries which mainly include one main engine, two D.G. sets, so many motors, panels, electronic items, compressors, hydrolic pump, fresh water equipment, work shop machineries and life boats etc. On specific requisition about sale of these items or lying closing stock at the year end the appellant submitted only details of sale of some machineries or its parts. It is seen that the assessee has disclosed sale of 1 D.G. set against 8 D.G. sets received by him. The D.G. sets sold on 14.4.2009 was not belonging to M.V. Erusaian Alliance and Crystal Lilly ships. No sale of electronic equipments, motors, compressors and other machineries have been disclosed. As per the A.O, at least 2 sets of these machineries must have recovered by the assessee from the opening partly cut-ship and from M.V. Eurasian Alliance and Crystal Lilly. The abnormal increase in the shortage in the year under consideration was only due to non-disclosure of the sale of these items and the same have been sold without entering into the books of acc....
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.... evidences. Every ship contains various types of machineries which mainly include one main engine, two D.G. sets, so many motors, panels, electronic items, compressors, hydrolic pump, fresh water equipment, work shop machineries and life boats etc. but in the case of the assessee the assessee has not disclosed the complete particulars of sale and accounting of these items in the books of accounts. The facts of the judicial pronouncement relied upon by the assessee are distinguishable from the facts of the case of the assessee. After considering the submission of the assessee that there are so many factors which affect the net production and shortage, non-excisable products, ferrous and non-ferrous scrap etc., the Ld. CIT(A) has provided adequate relief to the assessee by restricting the addition to the extent of Rs. 19 lac. However after taking in to consideration the contention of the assesse that the vessels are of different types with different types of machineries and the fact there was incomplete maintenance of records by the assessee, we considered it will be appropriate to restrict the disallowance to the extent of Rs. 16,00000/- as against disallowance of Rs. 19,00000/ made....