What did the Tribunal hold?

The Tribunal found that additions were made on mere estimations without cogent material. While acknowledging the possibility of varied scrap nature, it directed the lower authorities to value the scrap at Rs. 5 per Kg and restrict the addition to the differential amount.

The assessee, engaged in manufacturing motor vehicle parts, had scrap sales of Rs. 4.60 Lacs. The Assessing Officer (AO) made an addition of Rs. 16.67 Lacs on account of unaccounted scrap sales, estimating the scrap value at Rs. 19 per Kg, significantly higher than the assessee's sale rate.

What were the issues?

The primary issue was the valuation of scrap generated during the manufacturing process and whether the assessee's explanation for the lower sale price was acceptable.

Automatic Engineering Works vs JCIT | ITAT Mumbai 2019

Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI

Before: HON’BLE SHRI MAHAVIR SINGH, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM

For Appellant: Shri V.C. Shah-Ld. AR

For Respondent: Shri Akhtar H. Ansari-Ld.DR, Shri V.C. Shah-Ld. AR

आदेश / O R D E R

Per Bench: - 1. Aforesaid appeal by assessee for Assessment Year [in short referred to as AY] 2013-14 contest the order of Ld. Commissioner of Income-Tax (Appeals)-36, Mumbai, [in short referred to as CIT(A)], Appeal No. CIT(A)-

Automatic Engineering Works Assessment Year 2013-14 36/IT-453/JCIT-24(1)/2015-16 dated 05/04/2018 on following grounds of appeal: - On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) erred in sustaining the addition to total income at Rs.4,29,387/- which has been done by not considering the facts, circumstances and evidence put on record and by not considering the fact that the appellant's explanation was accepted in prior year by the Excise Department and by ignoring the typical facts about the scrap generated, quality and the same is done by comparing the incomparable circumstances of other traders not dealing in similar scrap generated and sold by your appellant.”

2. Facts on record would reveal that the assessee being resident firm stated to be engaged in manufacturing of Motor Vehicle Parts was assessed u/s 143(3) of Income Tax Act, 1961 on 21/01/2016 wherein the assessee was saddled with additions of Rs.16.67 Lacs on account of unaccounted scrap sales. The perusal of Profit & Loss Account revealed that the assessee reflected scarp sales of Rs.4.60 Lacs which included scrap sale of Rs.3.78 Lacs stated to be generated during manufacturing process. The perusal of quantitative details revealed that the assessee generated scrap of 107667 Kg which was sold at an average rate of Rs.3.51 per Kg. The market inquiries revealed that scrap generated by other units was being sold at an average price of Rs.22.50 per Kg. The assessee defended the same by submitting that the scrap generated during manufacturing process was not pure and clean scrap but contaminated with foreign items and would not have ready market and therefore, would not fetch fair market price of pure and clean scrap. However, Ld. AO opined that the scrap generated in any manufacturing process would be contaminated. Finally, the price of the scrap was estimated at Rs.19/- per Automatic Engineering Works Assessment Year 2013-14 Kg and the differential amount of Rs.16.67 Lacs was added to the income of the assessee.

The learned first appellate authority, inter-alia, after considering the price range and margins etc. made the estimation @Rs.7.50 per Kg. Still aggrieved, the assessee is under appeal before us.

We have heard and considered the rival submissions.

4. Upon due consideration, we find that additions have been made as well sustained on mere estimations without there being any cogent supportive material. The Ld. AO has opined that the scrap would fetch more market value without considering the fact that the scrap may be of varied nature keeping in view the nature of manufacturing process. Nevertheless, to put an end to litigation, we direct the lower authorities to value the scrap at Rs.5/- per Kg and restrict the addition to the differential amount i.e. Rs.1,60,219/- (107667x5=Rs.538335/- - Rs.378116/-). The balance addition stands deleted.

The appeal stands partly allowed.

Order pronounced in the open court on 17th September, 2019.

AUTOMATIC ENGINEERING WORKS,MUMBAI vs. JCIT 24 (1), MUMBAI

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