TaxTMI 
TaxTMI 
2005 (3) TMI 385
X X X X Extracts X X X X
X X X X Extracts X X X X
....arded copper wire cable worth Rs. 2,46,553 purchased during the period from 1955 to 1965. The AO observed that the assessee had not shown sale of copper wire in the P&L a/c. When the assessee was asked to explain, the assessee submitted its reply stating that the underground wire was normally not recovered as the cost of recovery of the same is much higher than the value of scrap. Besides, it might cause damage to building and flooring. However, while examining the details of old stores sold for Rs. 1,55,821, the AO observed that only sale of copper wire worth Rs. 16,000 was shown. The AO also visited factory and found that the remaining quantity of copper wire was not shown in the stock. The AO observed that the copper wire being precious item, the assessee could not have thrown away the same. Accordingly, the AO estimated the total quantity of copper wire at 12,274 kg. and reduced therefrom 60 per cent of the same as irrecoverable, i.e., 7,384 kg. The AO estimated the value of the scrap at Rs. 50 per kg. for the remaining wire weighing 4,623 kgs. which worked out to Rs. 2,31,150. He reduced therefrom a sum of Rs. 16,000 being sale proceeds of the copper wire and made net addition....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e could be extra stock of production worth Rs. 34,28,414 without payment of excise duty. 5. The Revenue filed an appeal against the order of CIT(A) before the Tribunal and the Tribunal reversed the order of the CIT(A) and restored that of the AO on the ground that higher wastage accepted by the Department for the earlier years could not be a ground for not making an addition for the assessment year under consideration, moreso, when the assessee could not satisfactorily explain the same. The Tribunal also observed that the fact that GP rate for the assessment year under reference was higher as compared to earlier years was irrelevant because this issue had not been discussed in appeal by any authority. The Tribunal also observed that mere fact that the AO had not specifically mentioned about rejection of book results and invoking of provisions of s. 145(2) was not important because the questions raised by the AO remained unexplained and the assessee failed to explain before the AO about the reasons for increase in wastage. Thus, the Tribunal upheld both the additions. 6. Thereafter, the AO took up the penalty proceedings under s. 271(1)(c). It was submitted before the AO th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... order are not conclusive so far as penalty proceedings are concerned. It was held that merely because the evidence was disbelieved in the assessment proceedings, it could not be said that the assessee failed to discharge initial burden. It was also contended that both the additions in regard to excessive wastage shown and profits under s. 41(2) were made by rejecting assessee's explanation and on estimate basis, no penalty for such estimated additions could be levied. Accepting the contentions of the assessee, the learned CIT(A) cancelled the impugned penalty by recording following finding : "08. I have considered the above facts and arguments. As is apparent from the above discussion, both the additions have been confirmed only as a result of rejection of the explanation of the appellant. The CIT(A) (para 4.4 above) has rejected the explanation on grounds of probability and the Tribunal have confirmed the same as far as addition under s. 41(2) is concerned. The explanation regarding wastage is, on an even weaker footing. The CIT(A) has accepted the explanation of the appellant but the Tribunal has rejected the same. A perusal of the findings of the Tribunal (para 05.....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., again is a case of rejection of an explanation without any finding that such explanation is false. 9.3 In view of the above, it is clear that no case for imposition of penalty under s. 271(1)(c) has been made out. Keeping in view the case law cited by the appellant and the above discussion, the penalty order dt. 28th July, 1998, is without any justification and is cancelled." 8. The learned Departmental Representative heavily relied on the order of the AO. He submitted that during the course of assessment proceedings, the AO examined in detail about the old items discarded during the year and found that the assessee had not properly accounted for old copper wire purchased during the years 1955 to 1965. The assessee had accounted for only sale of scrap and copper wire to the extent of Rs. 16,000. He submitted that the addition made in this regard was finally upheld by the Tribunal. He further submitted that the assessee had shown excessive wastage in the worsted yarn division which was 13.16 per cent as against last years wastage of 8 per cent. He submitted that during the course of assessment proceedings, the assessee submitted an explanation which was examined by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 100 of the paper book, he submitted that the sales of old stores/scraps were duly accounted for by the assessee at Rs. 4,29,754. Break up of the same was duly given at p. 101 of the paper book. Thus, mere fact that the addition was made by rejecting the explanation of the assessee does not mean that the assessee had either concealed or furnished inaccurate particulars of its income. 9.1. As regards, the second addition of Rs. 34,28,414 on account of excessive wastage, the learned counsel drew our attention to p. 25 of the paper book which is a copy of the assessment order where again the AO has mentioned that keeping in view the past history of the case, visible wastage was estimated at 8 per cent and invisible wastage at 1.26 per cent. Here also, the AO made the addition purely on the basis of assumptions and presumptions and on estimate basis. There is no evidence or material available with the Department that the assessee had indeed suppressed production and sold the same in the open market. He drew our attention to p. 14 of the paper book which shows comparative position of wastage in woollen and worsted division. He submitted that for the asst. yr. 1981-82, the wastage of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny. Even in regard to excessive wastage shown, the assessee had duly explained the reasons during the course of assessment proceedings. It was submitted that the wastage varied on account of different product-mix manufactured by the company during this year as compared to earlier years. He drew our attention to p. 15 of the paper book where it was mentioned that the assessee had manufactured Angola and Serge Battle Dress for defence requirements in the earlier assessment years representing 55.4 per cent of production whereas in the assessment year under reference, the assessee had manufactured only 44,391 kgs. which accounted for only 8.77 per cent of the total production. Since such quality is rough, it did not require excessive combing and recombing which results in higher wastage. It was also submitted that the assessee had maintained complete quantitative details both lotwise and overall quantitywise. It was also submitted that the item manufactured by the assessee was subjected to detailed examination by the excise authorities and no item could be removed without payment of excise duty. Thus, there was no possibility of there being any extra production, sale thereof without be....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... facts, evidence and material on record. We have also carefully gone through the orders of the authorities below, referred to the relevant pages of the paper book to which our attention had been drawn and referred to the judgments relied upon by the learned counsel. The undisputed facts of the case are that the AO made an addition of Rs. 2,15,150 under s. 41(2) in respect of sale of copper wire and Rs. 34,28,414, being a trading addition made on account of excessive wastage in worsted division. It is also a fact that both the additions were deleted by the CIT(A) and restored by the Tribunal. There is also no dispute about the fact that the assessee had maintained complete books of account duly supported by bills and vouchers and were subjected to audit also. There is also no doubt about the fact that the assessee had offered explanation in regard to both the additions. It is also a fact that both the additions have been made on estimate basis on the assumption that the assessee had not properly accounted for copper wire and wastage shown in worsted division was higher as compared to earlier assessment year. Nevertheless, the fact remains that the GP rate shown by the assessee was m....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... sold such copper wire at higher amount than what was reflected in the books of account. Therefore, in any case, the addition has been made because the explanation has not been found satisfactory. But such explanation could not be considered as false or mala fide. Moreover, addition has been made on estimate basis only, by assuming the quantity of wire, quantity of irrecoverable wire or the quantity realised by the assessee. There is no definite information with the AO that actually old wire sold was more than worth Rs. 16,000. 11.3 Similar is the position with regard to wastage shown in the worsted division. There is no denying the fact that the assessee had maintained complete quantitative details indicating the consumption and yield of the same. It is also a fact that the wastage shown in the woollen division was much less as compared to worsted division in comparison to earlier assessment years. If the assessee had intention of manipulating trading results, it could have easily done in the woollen division also. Further, addition was made purely on estimate basis as discussed in the preceding paragraphs and the addition has been made on the ground that the explanation of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... No penalty under s. 271(1)(c) read with Explanation could be levied. (vii) CIT vs. Dhillon Rice Mills (2002) 256 ITR 447 (P&H) In this case, the AO made an addition of Rs. 2,85,253 on estimate basis on account of low yield of phak and chilka. On appeal, the learned CIT(A) deleted the addition of Rs. 81,254. On further appeal, the Tribunal upheld the order of CIT(A). The AO levied penalty under s. 271(1)(c) on the ground that the estimated addition made on account of low yield of phak and chhilka was upheld in appeal. On further appeal before the CIT(A), the penalty levied was cancelled on the ground that there was no proof that the assessee had concealed the income. This order was upheld by the Tribunal on the ground that additions have been made on estimated basis. On a reference, the order of Tribunal for cancelling the penalty was upheld by the Hon'ble High Court. (viii) CIT vs. Bharat Rice Mills (2001) 169 CTR (P&H) 455 : (2001) 250 ITR 584 (P&H) In this case, the AO made the addition on the ground that the yield of rice and phak shown by the assessee was lower. On appeal, the learned CIT(A) upheld the addition. On appeal, against the o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 11.5 Moreover, in the case of CIT vs. Himmat Ram Laxmi Narain (1986) 54 CTR (P&H) 336 : (1986) 162 ITR 619 (P&H), the ITO had found during the course of the assessment proceedings that the assessee had been doing business outside its books and had invested an amount of Rs. 78,075. As the explanation furnished by the assessee was found to be unsatisfactory, the AO added this amount to the income of assessee as income from undisclosed sources and later imposed a penalty under s. 271(1)(c). On appeal, the Tribunal found that assessee had produced books of account to show that goods had been purchased on credit and all payments made after disposing of the same. The Tribunal cancelled the penalty on the ground that explanation given by the assessee was plausible. On a reference, the Hon'ble Punjab & Haryana High Court upheld the order of the Tribunal for the reason that the burden of proof placed on it by explanation to s. 271(1)(c) stood discharged. This judgment is equally applicable to the facts of the present case. Here also, the assessee has discharged the onus by offering a plausible explanation. Moreover, where complete books of account are maintained by assessee which are ....