TaxTMI 
TaxTMI 
2018 (6) TMI 1841
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce expenses of lacs as against 20% made by the AO. b) Rs.1,45,000 Ad-hoc 10% out of building repair expenses of Rs. 14.47 against 20% made by the AO. c) Rs. 30,000 Ad-hoc 10% out of general expenses of Rs.3.05 Lacs as against 20% made by the AO. Rs.8,62,000 Total Without prejudice to above, the disallowances as sustained are very excessive. 2. That the Ld. CIT(A) has erred on facts and under the law in confirming ad-hoc 10% disallowance of Rs. 17,33,000/- as made by the AO out of total expenditure of Rs.173.30 lacs under the head 'Discount and Rebates'. 2. We first propose to address the issue raised in Revenue's appeal. The relevant facts of the case are that the assessee who was engaged in the business of manufacturing and marketing of spring and spring leaves returned a loss income. The AO in the course of the assessment proceedings made an addition of Rs. 25,60,84,653/- on account of the following facts and reasons set out in the assessment order : "5 A chart comparing scrap generated as %age of finished goods produced in the year under assessment with earlier 3 years has been....
X X X X Extracts X X X X
X X X X Extracts X X X X
....been worked out by the assessee, the average scrap generated during the earlier 3 years working out to 6.8%. This means that the assessee has produced 0.4% more scrap during the year underassessment. This excess scrap translates into production of Rs 4000.806 MTs of finished goods (i.e. 68011.619*04/6.8). On these facts and circumstances, 4000.806 Mts of finished goods is considered to have been produced but not accounted for in the books of account. Thus the sale prices is taken as average sale price Rs. 64008.26 per M.T. the working of the sale price is Rs. 256084653/- is as detailed below:- Total sale consideration declared in the printed booklet exclusive of excise duty 45245.30000 less sales to the subsidiary company SFG 171224220 Sale of finished goods 4353305780 Quantity of finished goods 68011.619 Average sale prize 64008.26 per M.T Since the finished good have been produced out of the books. The sale thereof also to be considered out of the books & the expenses relating thereto considered already debited to the Trading, P& L account. Whole of the sale value of Rs. 256084653/- is deemed the income. 3. The assessee carried the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sed upon any concrete evidence regarding unaccounted scraps and secondly marginal variations in scrap generation cannot be rejected unless there is specific and concrete evidence to do so .In the present case, no concrete evidence has been pointed out by the AO even in the Remand Report. c) It is important to observe that the AO has assumed that there was unexplained scrap available with the appellant and has worked back the corresponding quantity of goods manufactured, though there is no evidence of actual production of corresponding finished goods. The AO has further concluded that all these unaccounted manufactured goods have also been sold in an unaccounted fashion by the appellant. These observations of the AO are not based on any material evidence indicating manufacturing of such additional quantity of finished goods and more importantly there is no evidence to show that there was unaccounted sale of these finished goods made by the appellant during the relevant A.Y. d) The AR of the appellant has very strongly argued that the appellant was a reputed listed company with al statutory books of accounts, supporting bills and vouchers and the AO has neither reje....
X X X X Extracts X X X X
X X X X Extracts X X X X
....consideration was exclusive of the semi-finished goods sold, was heavily relied upon. It was submitted that the AO noticed that percentage of scrap generated during the year was 7.2% and not 6.8% as has been submitted by the assessee. It was submitted that the AO noticed that the average scrap generated during the earlier 3 years was 6.8%. On the basis of which it was concluded that the assessee had produced 0.4% more scrap during the year under consideration. On account of this the addition on account of excess scrap, has been made. 6. The ld. AR heavily relying upon the impugned order and the written submissions filed before ITAT and also extracted in the impugned order submitted that there is no justification whatsoever to make this adhoc addition. Similarly, there is no valid reason given why the semi finished goods should not be included. It was his submission that the CIT(A) has passed a reasoned speaking order which on facts has not been assailed by the Revenue. Accordingly, it was his submission that the impugned order may be upheld. 7. We have heard the rival submissions and perused the material on record. On going through the peculiar facts and circumstances as have....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of facts and circumstances, the impugned order on these issues is set aside back to the file of the AO with direction to pass a speaking order in accordance with law. The assessee is directed to ensure that all bills and vouchers are produced before the AO for his verification. 12. Addressing the next issue agitated by the assessee in the present proceedings which is addressed vide ground No. 2, the ld. AR apart from relying upon the precedent available in its own case submitted that herein also an adhoc identical disallowance was made by the AO on suspicions. The reasoning and circumstances, it was stated, was identical to what has been done in the immediately preceding assessment year. For ready reference, the relevant extract from the impugned order is reproduced hereunder : 4 (i)........ ii) During the consideration, while verifying the details of Expenses debited under the head "Discount and Rebates" the Assessee has debited amount Rs 173.30 Lacs under the head "Discounts" given to various parties. The assessee's gross turnover during the year decreased to Rs.51378.17 Lacs from Rs. 54119.34 Lacs shown in the immediate preceding year. Considering the de....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "11. Before us Ld. AR argued that in applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purpose of business, reasonableness of the expenditure has to be judged from the point of view of the businessman and not of the Revenue. It is not for the Revenue Authorities to dictate to the Assessee as to how he should conduct his business and it is not for them to tell the Assessee as to what expenditure the assessee can incur. He relied on the following judgments: * 345 ITR 241, CIT Vs. EKL Appliances Ltd. (Delhi High Court), copy attached as Annexure-I which relied on the following judgments (kindly refer to pages 20-25 of such judgment): * 20 ITR 1, Eastern Investment Ltd. Vs. CIT (Supreme Court) * 65 ITR 381, CIT Vs. Walchand & Co. etc. (Supreme Court) * 115 ITR 519, CIT Vs. Rajendra Prasad Moody (Supreme Court) 12. The Ld. DR argued that while the turnover is increased by 67% the rebates and discounts have increased by 330% hence the disallowance which is in excess to the turnover needs to be disallowed. 13. We have gone through the record placed be....