Income Tax Appellate Tribunal - Chandigarh
Lakshmi Dhatu Udyog (P.) Ltd. vs Assistant Commissioner Of Income-Tax on 30 June, 1998
Equivalent citations: [1998]67ITD61(CHD)
ORDER
Bali, A.M.
1. These two cross appeals - one by the assessee and the other by the revenue, relating to assessment year 1991-92, are taken up together and disposed of by a common order for the sake of convenience.
2. ITA Appeal No. 719/Chandi/95 is the appeal by the assessee wherein the following disputes have been projected in the grounds of appeal by the assessee :-
1. Application of the provisions of section 145(1) for rejecting the accounts.
2. The action of the CIT (A) in sustaining an addition of Rs. 49,660 out of the total addition of Rs. 2,88,137 made by the AO in the trading account by adopting a GP rate of 8% as against 7.58% declared by the assessee and 10% adopted by the AO.
3. Action of the CIT (A) in sustaining an addition of Rs. 4,24,240 out of the addition of Rs. 4,54,176 made by the AO on account of alleged sale of unaccounted stock outside the books of account.
4. Action of CIT (A) in sustaining a disallowance of Rs. 25,116 made by the AO u/s 40A(3).
5. Disallowance of Rs. 2,000 out of telephone expenses.
6. Against the action of the departmental authorities in making and sustaining addition of estimated business income for the period 1-4-1990 to 17-5-1990 when the assessee voluntarily declared Rs. 1 lakh as income for the said period.
7. Against the charging of interest u/s 234A and u/s 234B by the departmental authorities.
3. In ITA No. 75/Chandi/95, the grounds taken by the revenue are as under :-
1. The CIT (A) has erred in law and on facts in allowing a relief of Rs. 2,38,477 by restricting the GP rate from 10% to 8%.
2. in allowing relief of Rs. 29,936 made on account of unaccounted stock on the date of search.
3. In setting aside the issue of addition of Rs. 64,44,880 on the basis of notings in the seized documents.
4. In allowing relief of Rs. 1 lakh on account of surrendered amount.
4. The assessee-firm is engaged in the business of manufacture and sale of brass sheets and it also derives income from purchase and resale of scrap. In the trading account, the assessee has disclosed GP of Rs. 9,04,246 on total sales of Rs. 1,19,23,831 for the period 17-5-1990 to 31-3-1991 giving a GP rate of 7.58% as against 7.06% shown by the assessee during the assessment year 1989-90. The GP declared was considered low by the AO in view of another comparable case of M/s. Sohan Lal Sikander Singh, Jagadhri wherein GP rate of 10% was declared by that assessee.
Accordingly, the AO required the assessee to explain the reasons for low GP rate and after considering the explanation of the assessee, the AO made an addition of Rs. 2,88,137 by applying a GP rate of 10% on sales as against the declared GP rate of 7.8% on sales of more than a crore of rupees. The assessee appealed and the ld. CIT (A) upheld the application of proviso to section 145(1) to the facts of the case but reduced the GP rate adopted by the AO at 10% to 8% thereby sustaining an addition of Rs. 49,660 and allowed relief of Rs. 2,38,467. The assessee is in second appeal before us against the action of the ld. first appellate authority in sustaining the addition of Rs. 49,660 whereas the revenue is aggrieved with the relief of Rs. 2,38,467 allowed by the ld. CIT (A).
5. Shri P. C. Jain, Chartered Accountant, the learned representative of the assessee, submitted that the assessee is engaged in the business of manufacture of brass sheets of different gauges of different length and breadth, which are meant for industrial use in the manufacture of pressure cooker, electric items. The brass sheets are drawn out of virgin brass scrap and also by using copper scrap and zinc, as brass is an alloy of copper and zinc. It was submitted that about ten processes are involved right from purchasing of brass scrap, then sorting out into different sizes, then melting the same, making of billets, putting the billets into Bhatti, making circles, cutting in sheets, cutting of uneven edges, acid cleaning, polishing etc. and there are wastages and shortages in various manufacturing processes stages. It was submitted that the assessee maintained quantitative statement in respect of raw-material, finished goods and also excise records. It was explained that all the items of purchase and sales are fully vouched and accounts are audited and quantitative statements are given in respect of various processes and raw-materials used are mainly imported which are directly imported by the assessee or purchased from the Central Government agencies, namely, MMTC. It was further submitted that at the time of placing the order for purchase of raw-material, import duty on brass scrap was 30%, whereas when the goods were actually received, import duty was enhanced to 50% which resulted in increase in the cost of raw-material and consequential fall in gross profit. It was further submitted that the scrap price in the international market keeps on varying whereas price of finished goods does not increase in accordance with the increase in the international price. It was submitted that the method of accounting is the same as in earlier years and the AO has not found any specific defects in the books maintained by the assessee. It was submitted that the AO as well as the CIT (A) have upheld the rejection of accounts only on the ground that the stock actually found at the time of search on 15-5-1990 was 28,160 kgs. whereas in accordance with the books of account maintained by the assessee, the derived stock ought to be 34,468 kgs. and thus there was a difference of unaccounted stock weighing 6308 kgs. It was submitted that in fact there was no shortage because stock of 1005.50 kgs. were lying with Shri Mohinder Singh S/o Shri Jagir Singh of Jagadhri and the balance 5303 kgs. represented shortage in the manufacturing process. Accordingly, it was submitted that the rejection of accounts on this basis alone was not justified. Shri P. C. Jain has submitted a chart at page 2 of the paper-book giving the shortage declared in the various assessment years indicating that the shortage in the manufacturing process was 6.4% in 1989-90, 5% in 1990-91 and 4.8% in 1991-92. Shri Jain further referred to page 20 of the paper-book wherein written submission filed before the CIT (A) has been reproduced indicating eight cases of Jagadhri where GP rate varying from 2.6% to 4.5% was declared by industrial units manufacturing brass sheets. It was submitted that in the case of M/s. Gupta Metal Industries, Jagadhri, a sister concern of the assessee, the Tribunal has accepted a GP rate of 4.5% as reasonable in ITA Nos. 718/Chandi/95 and 754/Chandi/95 vide order dated 16-1-1997. It was further submitted that out of the total sales of Rs. 1,19,23,831 sale of brass scrap and copper scrap amounted to Rs. 33,36,153 over which the GP rate is comparatively much less and ranges from 1.9% to 2.5%. If a GP rate of 2.5% is assumed on the sale of scrap, these the percentage of GP on manufactured goods comes to 9.5%. Accordingly, it was submitted that the ld. CIT (A) was not justified even in sustaining the addition of Rs. 49,660. Reliance was placed on the decision of I.T.A.T., Chandigarh Bench in the case of ITO v. Janta Pharmacy [1996] 84 Taxman 38 (Tax-Mag.) the decision of Hon'ble Jammu & Kashmir High Court in the case of International Forest Co. v. CIT [1975] 101 ITR 721, decision of Hon'ble Punjab High Court in the case of Pandit Bros. v. CIT [1954] 26 ITR 159 and Hon'ble Punjab & Haryana High Court decision in the case of Jhandu Mal Tara Chand Rice Mills v. CIT [1969] 73 ITR 192, (Punj. & Har.).
6. Shri Rajender Singh, the ld. Departmental Representative, relied on the order of the AO and submitted further that since at the time of search, stock found physically at the premises was only 28160 kgs. whereas as per the books, it ought to be 34467.30 kgs., the AO was justified in rejecting the books of account. It was submitted that the ld. CIT (A) was wrong even allowing part relief to the assessee and the addition made by the AO by applying the GP rate of 10% should be maintained because the assessee was not maintaining any day-to-day record of consumption of raw-material and production of finished goods. It was submitted that no physical verification of the closing stock at the end of the year was carried out and the books were adjusted only by taking estimated value of closing stock to arrive at the GP rate of 7.58% declared by the assessee. Reliance was placed on the decisions reported as Punjab Trading Co. Ltd. v. CIT [1964] 53 ITR 335 (Punjab), Chhabildas Tribhuvandas Shah v. CIT [1966] 59 ITR 733 (SC), Kishinchand Chellaram v. CIT [1978] 114 ITR 671 (Bom.), Bastiram Narayandas Maheshri v. CIT [1994] 210 ITR 438/74 Taxman 454 (Bom.) and Dhandia Jewellers v. CIT [1995] 214 ITR 712/80 Taxman 322 (Raj.).
7. In the rejoinder, Shri Jain submitted that in view of the established history of the case and no defects having been found by the AO, no other comparable case needs be referred when the assessee's own case is available to be relied upon. It was pleaded that the decision relied upon by the revenue are distinguishable on facts. He accordingly submitted that proviso to section 145(1) is not at all applicable and the book results ought to have been accepted.
8. We have considered the rival submissions and have gone through the material available on record and also furnished to us in the form of paper-book by the assessee running into 144 pages. The undisputed facts are that there was a search on the premises of the assessee on 15-5-90. The stock actually found at the time of search was 28160 kgs. whereas on the basis of the books of account maintained by the assessee, it ought to be 34467.30 kgs. as per the working given at page 5 of the paper-book, as under :-
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Stock as per books Stock as per
physical
verification
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34468 kgs. 34468 kgs. 28160 kgs.
The details are given below.
Opening stock as on 1-4-89 18684.600
Add : Purchases 170571.590
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189256.190
Less : Sales 155400.910
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33855.280
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Stock as on 1-4-90 33855.280
Add : Purchases upto 14-5-90 8791.220
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42646.500
Less : Sales upto 14-5-90 8178.770
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34467.730 kgs.
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From the working reproduced above, it is clear that the stock as on 15-5-1990 was arrived at without taking into consideration shortage involved in various manufacturing processes. According to the assessee, difference of stock actually found and as derived by the AO, on the basis of above working, is clearly explainable because stock weighing 1005.50 kgs. was lying with Shri Mohinder Singh s/o Jagir Singh of Jagadhri, which was sent there on 14-5-90 for conversion into rods and necessary confirmations was filed before the ld. CIT (A) and the balance 5303 Kg. was explainable on account of normal shortages in the manufacturing process. Besides the above so-called discrepancy, the AO has not found any defect in the accounts maintained by the assessee, namely, over-invoicing the imports or under-invoicing the sales and the reason for the so-called lesser GP is on account of increase in custom duty on import of brass scrap from 30% to 50%. In this view of the matter, we are of the opinion that the departmental authorities were not justified in making any addition on account of alleged low gross profit rate. Accordingly, the addition of Rs. 49,660 sustained by the CIT (A) is directed to be deleted. This disposes of grounds of appeal Nos. 1 and 2 in the assessee's appeal and ground No. 1 in the revenue's appeal.
9. Ground of appeal No. 3 in the assessee's appeal relates to the addition of Rs. 4,54,176 made by the AO on account of unaccounted stock found on the date of search. The AO has discussed this issue in para 5 of the assessment order and has made an addition of Rs. 4,54,176 representing the sale value of unaccounted stock of 6308 kgs. which, according to the AO, was sold by the assessee outside the books of account because stock on physical verification as on 15-5-1990 was only 28160 kgs. whereas it ought to be 34467.730 kgs. as per working on the basis of books of account. The assessee appealed and the ld. CIT (A) for the reasons given in para 3.3 of the impugned order allowed partial relief of Rs. 29,976 and sustained the addition of Rs. 4,54,176. The assessee is aggrieved with the retention of addition of Rs. 4,24,240, whereas the revenue has challenged the relief allowed at Rs. 29,936 by the CIT (A), in its ground No. 2.
10. After hearing both the parties, we are of the opinion that if the question of melting shortage and that of stock weighing 1005.50 kgs. lying with Shri Mohinder Singh s/o Shri Jagir Singh of Jagadhri, had been taken into consideration there would have been no difference or discrepancy in the physical stock as alleged. It is also an admitted position that the seized record lying in the income-tax office was burnt in fire during anti-Mondal agitation while in the custody of the Income-tax Department and as such exact reconciliation could not be furnished by the assessee before the revenue authorities. However, taking into consideration that in the earlier years, shortage in the manufacturing process was duly claimed and allowed by the departmental authorities, we are of the opinion that no addition at all is justified on account of alleged sale of unaccounted stock as the difference between the stock actually found and as derived from the books is clearly explainable on account of normal shortages of about 5% in the manufacturing process. The addition of Rs. 4,24,240 sustained by the ld. CIT (A) is accordingly directed to be deleted. We may point out that the Tribunal in another case of the same group, namely Gupta Metal Industries [IT Appeal Nos. 718 and 754 (Chd.) of 1995 dated 16-1-1997], has approved a shortage of 5% in the manufacturing process. This disposes of ground No. 3 in assessee's appeal and ground No. 2 in revenue's appeal.
11. Coming to ground of appeal No. 4 in assessee's appeal, the dispute is with regard to the action of the CIT (A) in sustaining the addition of Rs. 25,116 made by the AO by invoking the provisions of section 40A (3). It was submitted by Shri P. C. Jain, the ld. representative of the assessee, that the payment of Rs. 25,116 was made in cash by the assessee on account of purchase of light diesel oil. It was submitted that as LDO was immediately required and there was shortage of LDO in the market and the party from whom the same was available was not ready to supply unless the payment was made in cash, the assessee had to make the payment in cash and the departmental authorities were not justified in making the disallowance. Shri Jain submitted that the Tribunal in the case of M/s. Gupta Metal Industries has allowed similar payment made by the assessee on account of purchase of LDO from Delhi as the assessee was not having a bank account at Delhi and the payment made was covered within the exceptions envisaged in rule 6DD(j) read with Board's Circular No. 220 dated 31-5-77. The ld. D.R. supported the order of the AO as well as CIT (A).
12. We have heard the rival submissions and have gone through the orders passed by the AO as well as the CIT (A). There is absolutely no doubt about the genuineness of the expenses and the identity of the parties. The payments have been made at Delhi where the assessee was not having its bank account and as such we are of the opinion that the ld. CIT (A) was not justified in sustaining the addition of Rs. 25,116 which is directed to be deleted.
13. Ground of appeal No. 5 in assessee's appeal is with regard to the disallowance of Rs. 2000 out of telephone expenses. Shri Jain did not press this ground at the time of hearing which is accordingly dismissed as not pressed.
14. Ground of appeal No. 6 in assessee's appeal and ground of appeal No. 4 in revenue's appeal related to the action of the departmental authorities in estimating the income for the period from 1-4-1990 to 15-5-1990 about which there are no books of account available as the same were destroyed while in the custody of the Department on account of anti-Mondal agitation. The AO while framing the assessment estimated the income for this period at 1/7th of the total income as against the voluntarily disclosed/declared at Rs. 1 lakh. The CIT (A) upheld the action of the AO that the income may be estimated at 1/7th of the total income after allowing necessary relief in the order. In the allied case of M/s. Gupta Metal Industries, the Tribunal has directed that in the absence of any record and the fact that the profits in an enterprise do not accrue or arise from, day-to-day basis and these are to be computed or estimated only at the end of the accounting year, considered it fair and reasonable if the net profit for the period is estimated at 1.5% of the sales from 1-4-1990 to 17-5-1990. We direct accordingly with the proviso that if the profit so estimated is less than Rs. 1 lakh, then the figure of Rs. 1 lakh as declared by the assessee should be adopted.
15. Ground No. 7 in assessee's appeal is with regard to charging/sustaining the interest under sections 234A and 234B of the Act. Shri Jain, the ld. representative of the assessee, has disputed the very levy of the interest and submitted that the department should have proved that the interest is leviable and since no speaking order was passed, the levy of interest is not justified. Reliance was placed on the decisions reported as CIT v. Bharat Machinery & Hardware Mart [1982] 136 ITR 875/[1981] 7 Taxman 309 (Guj.) and Patel Aluminium (P.) Ltd. v. Miss K. M. Tawadia, ITO [1987] 165 ITR 99/[1986] 25 Taxman 248 (Bom.). The ld. D.R., on the other hand submitted that the charging of interest under sections 234A and 234B is mandatory and it is of compensatory nature. After hearing the parties to the dispute, we are of the view that the cases relied upon by ld. representative of the assessee relate to the interest chargeable u/ss 215/217, whereas the levy of interest u/ss 234A and 234B under dispute is mandatory. Accordingly, we will uphold the orders of the departmental authorities in charging interest u/ss 234A and 234B. We, however, direct that the interest should be charged after taking into consideration total income of the assessee after giving appeal effect, and consequential relief be allowed.
16. This leaves us with ground No. 3 in revenue's appeal regarding action of the CIT (A) in setting aside the issue of addition of Rs. 64,44,880 made by the AO on account of certain alleged notings in the seized documents. The learned first appellate authority has discussed this issue in para 4.1 of the impugned order wherein a reference has been made to the case of Shiv Metal & Engg. Works. We have already upheld the action of the CIT (A) in restoring the question of addition of Rs. 64,44,880 (sic) to the file of the AO in the case of Shiv Metal & Engg. Works v. Asstt. CIT [IT appeal Nos. 717 and 753 (Chd.) of 1995], assessment year 1991-92, because the addition made by the AO was on account of certain notings in the seized documents which has since been destroyed and could not be confronted to the assessee. However, the fact remains that even if the seized documents were destroyed, the AO ought to have confronted the assessee with the contents of the appraisal report by the ADI and then make the addition only after confronting the assessee with the findings contained in the appraisal report which was not done by the AO. Even otherwise, if there is any unaccounted sales of manufactured goods or scrap, the addition can be made only of the gross profit earned in respect of the unaccounted sales and the entire amount of unaccounted sales can never be considered as profit of the assessee. Accordingly, we will uphold the action of the CIT (A) in restoring the question of addition of Rs. 64,44,880 to the file of the AO for fresh adjudication in the light of our above observations as well as the observations recorded in the case of Shiv Metal & Engg. Works (supra) relating to assessment year 1991-92. This ground of the revenue is, therefore, dismissed.
17. In the result, whereas the appeal filed by the assessee is partly allowed, the appeal filed by the revenue is dismissed.
Bedi, J.M.
1. I have carefully read the proposed order of my ld. brother and am unable to persuade myself to agree with the findings and conclusions arrived at by him and record my dissent on the following grounds :
Ground No. 2 of assessee's appeal and Ground No. 1 of revenue's appeal :
2. Facts with regard to these grounds have been recorded in para 4 and for arguments of assessee's ld. representative and ld. D.R., paras 5, 7 and 6 respctively are worth consideration. Having considered the facts and circumstances of the case, I am unable to accept the contention of the assessee either with regard to shortage as claimed or stock lying with outside party. Neither any material nor any evidence in the shape of any comparable case or expert's opinion has been brought on record to refute the charge of the Assessing Officer. Thus the shortage as claimed is not allowable. It is also unbelievable that when import duty on import of brass scrap increased from 30% to 50%, corresponding increase in the sale price has not been made. Increase in inputs does affect the cost structure and corresponding increase in the sale price also but assessee has emphasised on increase of import duty from 30% to 50% without showing any material or evidence as to whether the sale price remained constant in spite of increase in the import duty. The plea of the assessee that stock was lying with outside party appears to be an afterthought as at the relevant time such plea was not taken. The day-to-day consumption of raw-material and production of finished goods was not maintained and it appears that closing stock at the end of the year was not valued after physical verification and estimate value appears to have been taken. So, the AO was very much justified in rejecting the book result and invoking the provisions of section 145(1) and rate applied at 10% appears to be justified in view of the facts and circumstances of the case. Similarly, shortage as claimed is also not supportive of any evidential material and likewise shortage of stock at the time of search also supports the case of the revenue. Therefore, after having considered the submissions of both the parties, perusing the record and considering the case law cited by both the parties, I am of the considered view that order of CIT (A) deserves to be reversed and that of the Assessing Officer merits restoration. I hold and direct accordingly. It will be pertinent to mention that without discussing the details and facts referred to by the assessee's ld. representative which has been decided by this Bench, no comments can be given because every case has got its own facts and same yardstick cannot be applied in each and every case. So while accepting ground No. 1 of revenue's appeal, ground No. 2 of the assessee's appeal gets dismissed.
3. Ground No. 3 of assessees appeal and Ground No. 2 of revenue's appeal :
Facts are as per para 9 of the proposed order and on the same basis as given above, I restore the order of the AO and set aside the order of the CIT (A). Resultantly, ground No. 2 of revenue's appeal gets accepted and ground No. 3 of assessee's appeal gets dismissed.
4. Ground No. 4 of assessee's appeal :
Ground No. 4 of assessee's appeal is against sustenance of addition of Rs. 25,116 u/s 40A(3). Facts in this regard have been incorporated in para 11 of the proposed order which need not be repeated. "After considering the facts and circumstances of the case and arguments of both the parties, I am of the view that nothing was adduced to come to the conclusion that assessee's case in this regard is covered by exceptions as envisaged in Rule 6DD(j) read with Boards' circular." Accordingly, I confirm the addition made on this count. Assessee's ground No. 4 stands dismissed.
5. Ground of appeal No. 5 of assessee's appeal has been dismissed by my ld. brother as withdrawn. I agree.
6. Ground No. 6 of assessee's appeal and ground No. 4 of revenue's appeal :
Facts are incorporated in para 14 of the proposed order and need not be repeated here. In view of facts and circumstances, I uphold the order of ld. CIT (A) and dismiss the appeal of the revenue as well as of the assessee.
7. Assessee's ground No. 7 :
Facts with regard to ground No. 7 have been recorded in para 15 of the proposed order. For the same reasons as recorded by my ld. brother, I agree with his findings and this ground of the assessee gets dismissed.
8. Ground No. 3 of revenue's appeal :
Details are well recorded in para 16 of the proposed order. In view of facts and circumstances of the case and on the basis and reasoning as recorded by the ld. CIT (A), I simply uphold the action of the ld. first appellate authority. This ground of the revenue gets dismissed.
ORDER U/S 255(4) OF THE INCOME-TAX ACT, 1961 On a difference of opinion between the Members who heard these appeals, the following points of difference are referred to the Hon'ble president for the opinion of the third Member :-
(1) Whether, on the facts and in the circumstances of the case, the Accountant Member is justified in deleting the addition of Rs. 49,660 sustained by the CIT (A) out of addition of Rs. 2,88,137 or the view of the Judicial Member that the order of the CIT (A) should be vacated and that of the AO in making the addition of Rs. 2,88,137 be restored, is correct ?
(2) Whether, on the facts and in the circumstances of the case, the view of the Accountant Member in deleting the addition of Rs. 4,24,240 sustained by the CIT (A) out of the addition of Rs. 4,54,176 is correct or the view of the Judicial Member that the order of the CIT (A) be set aside and that of the AO in making the addition of Rs. 4,54,176 be restored, is justified ?
(3) Whether on the facts and in the circumstances of the case, the addition of Rs. 25,116 made u/s 40A (3) should be deleted as held by the Accountant Member or should be confirmed as held by the Judicial Member ?
(4) Whether, on the facts and in the circumstances of the case, the Accountant Member is justified in modifying the order of the CIT (A) in estimating the profit for the period from 1-4-1990 to 17-5-1990 or the order of the CIT (A) should be upheld as held by the Judicial Member ?
THIRD MEMBER ORDER
1. On a difference of opinion between the ld. Members who constituted the Division Bench, the following points of difference were referred to me as a Third Member by the Hon'ble President u/s 255(4) of the Income-tax Act, 1961 :-
1. Whether, on the facts and in the circumstances of the case, the Accountant Member is justified in deleting the addition of Rs. 49,660 sustained by the CIT (A) out of addition of Rs. 2,88,137 or the view of the Judicial Member that the order of the CIT (A) should be vacated and that of the AO in making the addition of Rs. 2,88,137 be restored, is correct ?
2. Whether, on the facts and in the circumstances of the case, the view of the Accountant Member in deleting the addition of Rs. 4,24,240 sustained by the CIT (A) out of the addition of Rs. 4,54,176 is correct or the view of the Judicial Member that the order of the CIT (A) be set aside and that of the AO in making the addition of Rs. 4,54,176 be restored, is justified ?
3. Whether on the facts and in the circumstances of the case, the addition of Rs. 25,116 made u/s 40A (3) should be deleted as held by the Accountant Member or should be confirmed as held by the Judicial Member ?
4. Whether, on the facts and in the circumstances of the case, the Accountant Member is justified in modifying the order of the CIT (A) in estimating the profit for the period from 1-4-1990 to 17-5-1990 or the order of the CIT (A) should be upheld as held by the Judicial Member ?
2. I have heard both the parties at length and also perused the orders passed by the tax authorities. The separate orders passed by the ld. Accountant Member and ld. Judicial Member have also been minutely looked into. There is apparently no dispute between the ld. Members about the facts as the ld. Judicial Member in his dissenting order has not expressed any dissent thereof. However, for purposes of deciding the questions, I propose to summarise the facts of each of the issues before me.
3. As regards question No. 1, the brief facts are to the effect that the assessee-firm is engaged in the business of manufacture and sale of brass sheets and also derives income from purchase and resale of scrap. On total sales of Rs. 1,19,23,831 for the period 17-5-90 to 31-3-91, the assessee disclosed a GP rate of 7.58% as against 7.06% shown during the assessment year 1989-90. The AO considered the GP rate declared to be low with reference to the case of one M/s. Sohan Lal Sikander Singh, Jagadhri, wherein GP rate of 10% was declared by the assessee. The AO required the assessee to explain the low GP rate disclosed and after considering the explanations tendered, he made an addition of Rs. 2,88,137 by applying a GP rate of 10%. Being aggrieved, the assessee filed an appeal to the CIT (A) who while upholding application of proviso to section 145(1) reduced the GP rate from 10% to 8% sustaining an addition of Rs. 49,660 allowing a relief of Rs. 2,38,477. Both the parties preferred appeals before the Tribunal - the assessee questioning the sustenance of addition of Rs. 49,660 and the revenue being aggrieved with the relief allowed.
4. During the course of hearing before the Division Bench, both the parties advanced detailed arguments with reference to the material on record and for purposes of the present order these are summarised as under, firstly on behalf of the assessee by his ld. counsel :-
1. The assessee was engaged in the business of manufacture of brass sheets of different specifications and these were drawn out of virgin brass scrap as also by using copper scrap and zinc. That about ten processes were involved beginning with the purchase of brass scrap, sorting out into different sizes, melting the same, making of billets, putting the billets into Bhatti, making circles, cutting into sheets, cutting of uneven edges, acid cleaning, polishing etc. and there were wastages and shortages at every stage.
2. That the assessee maintained quantitative statement in respect of raw-material, finished goods as also excise records.
3. That all purchases and sales were fully vouched and the accounts audited and quantitative statements furnished in respect of various processes and raw-materials which were mainly imported by the assessee or purchased from MMTC.
4. At the time of placing the order for purchase of raw-material, import duty on brass scrap was 30% whereas the same was enhanced to 50% when the goods were actually received and this resulted in increase in the cost of raw-material and consequential fall in GP.
5. The price of brass scrap varied in the international market whereas the price of finished goods did not increase correspondingly.
6. The method of accounting followed was the same as in the earlier years and the AO had not noted any specific defects in the books maintained by the assessee.
7. The books had been rejected only on the ground that stock actually found at the time of search on 15-5-90 was 28160 kgs. whereas in accordance with the books of account maintained by the assessee the stock ought to have been 34468 kgs. there being a difference of 6308 kgs. In fact there was no shortage because stock of 1005.50 kgs. was lying with one Shri Mohinder Singh S/o Shri Jagir Singh of Jagadhri and the balance 5303 kgs. represented shortage in the manufacturing process.
In support of the aforesaid submissions the assessee's counsel filed a chart indicating the shortage declared in the various assessment years stressing that the same was 6.4% in asstt. year 1989-90 5% in asstt. year 1990-91 and 4.8% in asstt. year 1991-92. The ld. counsel also referred to the written submissions filed before the CIT (A) giving details of 8 cases of Jagadhri where GP rate varied from 2.6% to 4.5%. Attention was also invited to the decision of the Tribunal in the case of a sister concern, namely Gupta Metal Industries' case (supra) in support of the submissions. The further argument was to the effect that out of total sales of Rs. 1.19 crore and odd, sales of brass scrap and copper scrap amounted to Rs. 33.36 lakhs in which the GP rate was comparatively much less and ranged from 1.9% to 2.5%. On this factual submission it was urged that the percentage of GP on manufactured goods would come to 9.5%. In concluding the ld. counsel urged that even the addition of Rs. 49,660 sustained by the CIT (A) was not justified. In support of the arguments advanced, reliance was placed on the judgments in Jhandu Mal Tara Chand Rice Mills' case (supra), Pandit Bros. case (supra), International Forest Co.'s case (supra) and a Judgment of the Chandigarh Bench of the Tribunal in Janta Pharmacy's case (supra).
5. The ld. D.R. in reply supported the order of the AO laying stress on the alleged shortage in the stock found at the time of search as compared to the figure reflected in the books of account. It was the argument that the CIT (A) had erred in allowing relief and the addition made by the AO applying a GP rate of 10% was required to be maintained since assessee was not maintaining day-to-day record of consumption of raw-material and production of finished goods. The further argument was to the effect that there was no physical verification of closing stock at the end of the year. In support of revenue's case, the ld. D.R. placed reliance on the decisions in Punjab Trading Co. Ltd.'s case (supra), Chhabildas Tribhuvandas Shah's case (supra), Kishin Chand Chellaram's case (supra), Bastiram Narayan Das Maheshri's case (supra) and Dhandia Jewellers' case (supra).
6. In the rejoinder, the ld. counsel submitted that since there was an established history of the case, no other comparable case was required to be looked into and further no defects had been found by the AO. The decisions relied upon by the revenue were sought to be distinguished and the application of proviso to section 145(1) was assailed.
7. The ld. Accountant Member who wrote the initial order accepted the viewpoint canvassed on behalf of the assessee by the ld. counsel and by means of a chart in para 8 of his order demonstrated that the stock as on the date of search i.e., 15-5-90 was arrived at without taking into consideration the shortages involved in various manufacturing processes as also ignoring the fact that stock weighing 1005.50 kgs. was lying with Shri Mohinder Singh of Jagadhri having been sent to him on 14-5-90 for conversion into rods for which necessary confirmation was filed before the first appellate authority. According to the ld. Accountant Member, the AO had not found any defect other than aforesaid "so-called discrepancy". The ld. Accountant Member also recorded a finding of fact to the effect that there was no overinvoicing of imports or underinvoicing of sales and the reason for the so-called "lesser GP" was attributable to the increase in the excise duty on import of brass scrap from 30% to 50%. In the final analysis the ld. Accountant Member deleted the addition of Rs. 49,660 sustained by the CIT (A). As against this, the ld. Judicial Member without contradicting any of the findings of fact recorded by the ld. Accountant Member proceeded to restore the addition of Rs. 2,88,137 made by the AO. According to him, no material or evidence had been placed on record "in the shape of any comparable case or expert's opinion to refute the charge of the AO" either with regard to shortage or the stock lying with the outside party. The ld. Judicial Member also found it "unbelievable" that no corresponding increase in the sale price had been effected consequent to the increase in the import duty on brass scrap from 30% to 50%. It was also observed by the ld. Judicial Member that the plea of the stock lying with an outside party was an afterthought and further day-to-day consumption of raw-material and production of finished goods was not maintained. In concluding, he upheld the application of proviso to section 145(1) as also application of rate at 10%. As regards the decision of the Tribunal in the case of sister concern, i.e. Gupta Metal Industries (supra) relied upon by the assessee's counsel, the ld. Judicial Member observed that no comments could be given "without discussing the details and facts ....".
8. I have heard both the parties at length and also perused the material on record to which my attention was invited during the course of the hearing. The ld. counsel for the assessee vehemently supported the view taken by the ld. Accountant Member whereas the ld. D.R. contended that the view taken by the ld. Judicial Member was the correct one on the facts and circumstances of the case and required to be approved. I may mention at this stage that as a Third Member I heard a number of other references u/s 255(4) on quite identical facts and to mention two of these, namely, Laxmi Metal Works v. Asstt. CIT [IT Appeal Nos. 716 and 752 (Chd.) of 1995] (cross appeals) and Shiv Metal & Engg. Works' case (supra) (cross appeals). I have taken a view in the aforesaid cases that the history in the assessee's own case is the best indicator and decisions of the Tribunal in other cases are required to be considered by the Tribunal itself and not brushed aside on the ground that the facts in no two cases can be identical. In my opinion, it is incumbent on the part of the Tribunal to give due consideration to any judgment cited before it including those of the Tribunal in assessee's own case, in cases of sister concerns and in cases of assessees who do not fall under the aforesaid two categories. The ld. Accountant Member in the present case has recorded various findings of fact which include the type of business which the assessee carries on, its manufacturing process, the records and books of account which it maintains as also the question of shortages at each stage of processing as well as the increase in the import duty of brass scrap during the previous year under consideration which to some extent resulted in a fall in the GP rate and there being no corresponding increase in the price of finished products. The ld. Accountant Member also recorded a finding to the effect that a part of the stock not found at the time of search was lying with a party of Jagadhri. This is not challenged before me by revenue. The ld. Accountant Member also referred to the GP rate shown in the preceding assessment years and duly took into account the order of the Tribunal in the case of Gupta Metal Industries (supra) Numerous decisions cited before the Tribunal, i.e. those of the Hon'ble High Courts and Tribunal were duly considered by the ld. Accountant Member. As already noted by me, not only in the present reference but also in the Third Member decisions pertaining to Shiv Metal & Engg. Works's case (supra) and Laxmi Metal Works' case (supra) the dissenting order by the ld. Judicial Member is only on general grounds without disputing the factual aspects of the case as noted by the ld. Accountant Member and without taking into account the decisions cited. As I have already had the benefit of the two decisions cited aforesaid, I need not further detain myself and dispose of the present reference vis-a-vis the first point of difference by stating that the reasons recorded by me as a Third Member in the earlier two orders aforesaid would squarely apply to the present case as well. In the final analysis, I approve of the view of the ld. Accountant Member insofar as first question is concerned.
9. Coming to the question No. 2, the brief facts are to the effect that the AO made an addition of Rs. 4,54,176 representing the sale value of "unaccounted stock" of 6308 kgs. which according to him had been sold by the assessee outside the books of account since stock on physical verification as on 15-5-1990 was found at 28160 kgs. whereas it should have been 34467.730 kgs. as per the books of account. On further appeal the CIT (A) allowed minor relief of Rs. 29,936 sustaining addition of Rs. 4,24,240. Both the parties came up in appeal before the Tribunal - the assessee on the retention of the major part of the addition and the revenue challenging the relief given.
10. The ld. Accountant Member after hearing the parties and considering the material on record opined that there was no discrepancy or difference in the physical stock as alleged in case the question of melting shortage was taken into account as also the further fact that the stock weighing 1005.50 kgs. was lying with one Shri Mohinder Singh s/o Shri Jagir Singh of Jagadhri. He also noted as a fact that the seized record of the assessee lying in the income-tax office was burnt in a fire during the anti Mondal riots and as such exact reconciliation could not be furnished by the assessee before the tax authorities. He also noted the shortage shown by the assessee in the earlier assessment years in the manufacturing process and which was allowed by the tax authorities. On the basis of the aforesaid facts he ultimately concluded that the addition on account of "alleged sale of unaccounted stock" was not at all justified as the difference was clearly explainable. He accordingly directed deletion of the addition of Rs. 4,24,240 sustained by the CIT (A) noting in the process that in another case of the same group, namely, Gupta Metal Industries (supra) the shortage of 5% in the manufacturing process had been approved by the Tribunal. As against this the ld. Judicial Member reversed the order of the CIT (A) and restored the entire addition of Rs. 4,54,176. A perusal of the dissenting order of the ld. Judicial Member shows that his views are contained in para 3 as under :-
"Facts are as per para 9 of the proposed order and on the same basis as given above, I restore the order of the AO and set aside the order of the CIT (A). Resultantly, ground No. 2 of revenue's appeal gets accepted and ground No. 3 of assessee's appeal gets dismissed."
It is apparent that the ld. Judicial Member has followed the same line of reasoning as he has done in respect of the first point of difference already considered and decided by me above. On the same line of reasoning as in question No. 1, I uphold the view of the ld. Accountant Member reiterating that the ld. Judicial Member has not given any plausible reason for differing with the view taken by the ld. Accountant Member whose order takes into account all the facts, submissions of the parties, past history of the case as also the decisions cited at the Bar.
11. As regards the third point of difference, the facts are in short compass since addition of Rs. 25,116 was made by the AO by invoking the provisions of section 40A(3) and which in turn was confirmed by the CIT (A). Before the Tribunal the assessee's counsel stated that payment had to be made in cash as the purchase was of light diesel oil which was in short supply in the market and there was immediate requirement for assessee's manufacturing operations. It was also the submission that the party from whom the purchase had been made was not ready to supply unless the payment was made in cash. In support of the arguments, reliance was placed on the decision of the Tribunal in the case of Gupta Metal Industries (supra) where similar claim had been allowed on account of purchase of diesel from Delhi where the assessee was not having a bank account and the case was covered by the exceptions envisaged in Rule 6DD(j) read with CBDT Circular No. 220 dated 31-5-77. The ld. D.R. supported the order of the AO as also of the CIT (A). The ld. Accountant Member accepted the arguments advanced on behalf of the assessee observing in the process as under :-
1. The genuineness of the expenses and the identity of the parties were not in doubt.
2. The payments were made at Delhi where the assessee was not having its bank account.
The ld. Judicial Member, on the other hand, confirmed the addition observing as follows :-
"... After considering the facts and circumstances of the case and arguments of both the parties, I am of the view that nothing was adduced to come to the conclusion that assessee's case in this regard is covered by exceptions as envisaged in Rule 6DD(j) read with Board's circular."
12. After hearing both the parties, I am of the view that the order of the ld. Accountant Member merits approval as he has clearly recorded a finding to the effect that the case is covered by the exceptions provided by rule 6DD(j) read with CBDT circular No. 220 dated 31-5-77. He has noted as a fact that the payment was made to a party at Delhi where the assessee did not have a bank a/c. I really do not understand as to what further evidence the assessee is required to adduce to convince the Tribunal that its case in fact is covered by the exceptions provided in relevant rule and also stands covered by the relevant CBDT circular. The dissent, in my opinion, was not at all justified on the facts of the case and has been recorded in a casual manner. In the final analysis, I uphold the view taken by the ld. Accountant Member in respect of the third point of difference as well.
13. As regards the fourth and the last point of difference, the facts are absolutely identical as considered by me in the cases of Shiv Metal & Engg. Works (supra) and Laxmi Metal Works (supra). The question was one of estimating the assessee's income for the period from 1-4-90 to 15-5-90 when the books of account which were lying with the department were destroyed on account of anti-Mondal agitation. The AO while framing the assessment estimated the income for this period at 1/7th of the total income as against the income declared/disclosed at Rs. 1 lakh. The CIT (A) upheld the action of the AO to the effect that the income be estimated at 1/7th of the total income after considering the necessary relief in the order. The ld. Accountant Member considering the Tribunal's decision in the case of Gupta Metal Industries (supra) opined that the profits do not accrue or arise from day-to-day and these were to be computed or estimated only at the end of the accounting year. Taking into account the view already expressed in the connected case, the ld. Accountant Member took the view that net profit for the period 1-4-90 to 17-5-90 was to be estimated at 1.5% of the sales. He, however, observed that if the profit so estimated was less than Rs. 1 lakh, then the figure of Rs. 1 lakh as declared by the assessee be adopted. The ld. Judicial Member in his dissenting order confirmed the decision of the CIT (A) "in view of facts and circumstances." He did not rebut the facts recorded by the ld. Accountant Member in his order.
14. Here also, it is quite apparent that no reasons have been recorded by the ld. Judicial Member in expressing the dissent. I, in the ultimate analysis, agree with the view expressed by the ld. Accountant Member following in this connection the view expressed by me to the same effect in the two cases already referred to by me in the earlier part of the present order while dealing with the earlier points of difference.
15. The matters shall now go back before the Division Bench for passing an order in accordance with the majority opinion.