TaxTMI 
TaxTMI 
2004 (3) TMI 313
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....he only issue in this appeal is regarding the addition of Rs. 2,27,832 being the value of scrap sold outside the books of account. The AO considered the shortage in copper, lead, M.G. Silicon at 0.5 per cent as reasonable and made the additions as under: Type of scrap Actual shortage Shortage allowed Excess % Qty. Price Rs. Value Rs. Copper 1.38 0.50 0.88 1833 58.7 1,07,597 Lead 1.26 0.50 0.76 151 17.5 2,642 MG Silicon 5.13 0.50 4.63 3402 31.5 1,06,482 Tin Anode -- -- -- 41 271.0 11,111 Total 2,27,832 He made the additions on the ground that in the case of the assesses for asst. yr. 1989-90 the shortage in copper was allowed to the extent of 0.5 per cent only by the CIT(A) and therefore, for this year the same should be considered as reasonable not only for copper but also for other items. He also held that the assessee has sold the excess shortage claimed outside the books of accounts and by taking average sale price of the different items arrived at the total value as under: Rs. Copper ....
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.... exact chemical composition has a bigger say in shortage especially when the goods are received in the form of scraps, flakes, lumps, etc. (f) In the case silicon, the supply is received in the form of one like cooking coal and sizes are uneven and without any uniform chemical composition. This form of materials certainly leads to shortage due to friction of one piece to the other due to the formation of "powder" in the course of loading/unloading, handling and transportation. (g) In the case of imported tin ingots and nickel, the assessee did not claim any shortage as such material is received in prime form which involves either any proceedings or any sorting as such. No shortage by way of unwanted foreign elements like mud, dust, etc. (h) As regards tin anode, it was only 41 kgs., which was mixed up with other items and therefore, could not be separated and sold. It was for this reason there was no separate sale of tin anode during the year. (i) The calculation of shortage criteria should be based on purchases and not on sale and the adoption of shortage with reference to the sale is erroneous. (j) In the case of lead scrap/the goods will always have attachments li....
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....e, brass and silicon and after observing those samples, the CIT(A) was in agreement that there is presence of moisturised content in the form of mud and plastic coating which need to be removed to make them acceptable in the market through the process of burning and subsequently made to coal by pouring water whereby material is subject to oxidisation. It was also found correct that this has to be followed by cleaning, sorting, handling manually by labourers. He observed that they are in uneven sizes as claimed and its physical properties will not have uniform quality standards. Moreover, it is also subject to oxidisation whereby the flakes are formed into powder. From the samples of lead scrap, it is found that the goods will have attachment like coal tar, greasy paper coating used on iron strapped copper cable consumed by electricity board and the impurities could be separated only through the process of burning and manually cleaning process. Ultimately the CIT(A) agreed with the assessee that calculation of shortage criteria should be based on purchases and not on sales. Considering these relevant facts and evidences produced before the CIT(A), the CIT(A) was of the view that the....
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.... involvement of small amount of additions and to avoid prolonged litigation. The learned Authorised Representative also reiterated that the shortage should be calculated on the basis of purchase and not on sales. 3.7 After going through the rival submissions and material on record, we are not inclined to interfere with the findings of the CIT(A) as the very basis for additions is shortage of 0.5 per cent in asst. yr. 1989-90. It is pertinent to mention that in asst. yr. 1989-90 the assessee was dealing only in copper while in assessment year before us the items are in addition to copper. In case the assesses has accepted certain shortage in asst. yr. 1989-90 it will not act as res judicata against him because the facts and circumstances vary. Without being prejudiced to our observations, at the most 0.5 per cent can be taken in copper, but in the year under consideration the assessee is dealing in lead, MG silicon and tin anode, in addition to copper. The shortage in all these non-ferrous, metals will vary depending on physical and chemical composition of each item. We are in agreement with the CIT(A) who has deleted the additions on account of shortage by observing that the sho....
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.... IMPA as mentioned above. The learned Authorised Representative submitted list of places visited by the assessee's director along with business deals. It was submitted that on the basis of business trip in the year, zinc was traded in the next year. The assessee filed the details in this regard, which were not disputed by the learned Departmental Representative. In the facts and circumstances of the case, we are of the view that the CIT(A) has granted relief in respect of cost of ticket of the assessee's director, who has contacted various parties abroad including IMPA with whom the assessee had business dealings in subsequent years. This justify the visit of the director as business trip. Even if the items are not traded in the year of business of visit, it makes no difference. But, in the instant case, the deals were finalised and business transactions took in subsequent years. So we do not find any infirmity in the order of the CIT(A) in relation to this ground and same is upheld. 5. The next issue is regarding the addition of Rs. 8,40,646 as excess wastage claimed and considered as sold outside the books of accounts. We have dealt with this issue in asst. yr. 1990-91. The AO....
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.... with the findings of the CIT(A) in relation to this ground and same is upheld. 6. The next two grounds in this appeal relate to addition of Rs. 1,59,033 on account of excess stork treated as purchase out of unaccounted money and addition of Rs. 2,22,618 on account of deficit stock found during the course of search treated as sold outside the books of accounts. The AO has taken the excess stock found during the course of search at Rs. 4,59,033 in various items of scrap as purchases made by the assessee out of unaccounted income and after deduction of the amount of Rs. 3 lakhs which is disclosed and shown in the return of income added the balance of Rs. 1,59,033 as sold by holding that the excess stock of Rs. 4,59,033 found during the search was purchased by the assessee out of its unaccounted income and accordingly it was added in the total income of the assessee. Similarly addition of Rs. 2,22,618 was made on account of deficit stock found during the of course of search, treated as sold outside the books of accounts. 6.1 Both the issues were taken before the first appellate authority. Regarding the first issue, the learned first appellate authority after considering the s....
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....IT(A) has rightly deleted the additions because assessee was keeping the stock of all non-ferrous metal together, so there are chances of inter-mixing resulting into deficit in certain and also excess in other items. We are of the view practically it is difficult to maintain details of each item with their identity. After taking into consideration all facts and circumstances we uphold the order of CIT(A) on both the issues. 7. The next 2 grounds relate to addition of Rs. 4,19,497 for excess stock of copper found at Bombay acquired out of unaccounted income and Rs. 18,89,985, the deficit stock found at Bombay treated as sold outside the books of accounts. The AO found from the stock register that on the date of survey on 28th Nov., 1990 the following stock should have existed at Bombay: Tin 3,000.0 Kgs. Silicon 25,611.4 Kgs. Nickel 2,500.0 Kgs. As against this the stock found at Bombay godown was as fellows: Copper 54,390 Kgs. Silicon 714 Kgs. Nickel 1,927 Kgs. The AO accordingly held that at Bombay there was excess of copper by 54,390 Kgs. and shortage of tin by 3,000 Kgs., nickel by 573 Kgs. and silicon by 24,897 Kgs. ....
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....re is no evidence in support that 5,498 Kgs. of copper is the excess stock of the appellant purchased out of his unaccounted income. In view of this the addition made of Rs. 4,19,497 as the appellant's unaccounted income is untenable and unjustifiable. The addition, therefore, does not sustain. I accordingly delete the addition of Rs. 4,19,497. 14.4 As regards the addition of Rs. 18,89,855 relating to the deficit stock the counsel for the appellant submitted that the stock of nickel, silicon and tin found during the course of search was inventorised as appearing on pp. 41 and 42 of the paper book submitted during the course of appeal hearing. As per the stock register of the appellant, the stock of tin, silicon and nickel was as under: Tin 3,000.0 Kgs. Silicon 25,611.4 Kgs. Nickel 2,500.0 Kgs. As against this stock of silicon and nickel weighing 714 Kgs. and 1,927 Kgs. is considered to be belonging to Madhav Metals Distributors. Accordingly, this was not found during the course of search/survey. During the course of the assessment proceedings, the appellant vide letter dt. 21st Jan., 1994, and 8th Feb., 1994, informed the AO that the above mentioned....
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.... of the facts and evidences produced during the course of the assessment proceedings and in the absence of any material brought on record it was incorrect on the part of the AO to assume that the appellant has sold stock valued at Rs. 18,89,885 outside the books of accounts and that he has replaced the stock from which subsequent sales and balance shown in the closing stock. On the facts and evidences produced of the sale and stock shown there is no deficit as assumed and the sale of the same outside the books of accounts. In the circumstances, the addition made of Rs. 18,89,885 does not sustain and I accordingly delete the same." 7.2 Before us, regarding the addition of Rs. 4,12,497 on account of unaccounted excess stock of copper considered as purchases out of the books, the learned Departmental Representative mainly relied on the order of the AO and to strengthen the same our attention was drawn to assessee's paper book p. 80 which contains legible copy of statement of Shri Vijayraj N. Maheshwari-an employee of the assessee to show the discrepancy in copper stock of the assessee. Our attention was also drawn towards pp. 73 and 74 of the paper book to justify the reasoning for....
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....t will be wrong to assume that the stock of assessee was also included in the stock of copper brass mentioned in the inventory. Our attention was drawn towards letter dt. 31st March, 1994 addressed to principal officer, M/s Mercury Metals (P) Ltd. from Shri Sunil Mathur, Asstt. CIT, Central Circle 1(1), Ahmedabad, which is placed at p. 68 of the paper book. The said Shri Sunil Mathur, Asstt. CIT makes it clear that the assessee was maintaining separate stock register for Bombay and Ahmedabad. The learned Authorised Representative submitted that the addition made by the AO was on the basis of presumptions and contrary to the evidence available. He accordingly supported the order of the CIT(A). 7.4 After going through the rival submissions and material on record, we are not inclined to interfere in the findings of the CIT(A). The addition has mainly been made on account of discrepancy in the case of Madhav Metals Distributors. In case Madhav Metals Distributors has not explained its excess stock, it should not be presumed to be belonging to the assessee. The Revenue authorities have not brought anything on record to justify the addition in the hands of the assessee. The addition h....
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.... stock shown in balance sheet includes this stock found during the course of survey. According to learned Authorised Representative there is nothing on record to suggest from statement of said Vijay Maheshwari as no question was put across as regards to stock lying at some other godown. Accordingly it was submitted that the addition of Rs. 18,89,885 as deficit stock sold outside the books by the appellant is not justified and same be deleted. 8. After considering the rival submissions and going through the material on record, we find that addition of Rs. 18,89,885 has been made for unaccounted proceeds of deficit stocks as mentioned above. AO has made estimation without support of cogent evidences and firm foundation. Revenue has not been able to bring on record even after the search that there is sale outside books of accounts. The theory of sale that the assessee had purchased fresh stock and sold the same and shown in the balance sheet is based on surmises and conjectures. On the basis of facts and evidence produced during the course of assessment proceedings and in absence of any material on record, it is not justified on the part of Revenue to assume that the assessee has s....