ASHTA LINERS PVT. LTD. vs. ADDITIONAL COMMISSIONER OF INCOME-TAX,,

The notice of appeal was sent to the assessee on 18-04-2018 through RPAD at the address given in Form No. 36. The acknowledgment card available on record indicates that the notice was duly served on the assessee on 23-04-2018. Despite service of notice none has appeared on behalf of the assessee. It appears that the assessee is not keen to pursue his appeal. Accordingly, we proceed to decide the appeal with the assistance of ld. DR and on the basis of material available on record.

The brief facts of the case as emanating from records are: The assessee is engaged in manufacturing of C.I. Castings and Auto Components. The assessee filed its return of income for the assessment year 2010-11 on 15-10-2010 declaring total income of Rs.4,46,00,530/- and deemed income u/s. 115JB of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) as Rs.4,72,21,571/-. The case of the assessee was selected for scrutiny under CASS and accordingly, statutory notice u/s. 143(2) of the Act was issued to the assessee on 29-08-2011. In scrutiny assessment proceedings, the Assessing Officer made following additions/disallowances : i. Disallowance of machinery maintenance expenses Rs.7,55,009/- ii. Disallowance of capital expenditure claimed as Revenue Rs.2,69,409/- iii. Disallowance of proportionate interest expenses of work in progress of plant and machinery and factory building Rs.1,07,581/- iv. Disallowance of miscellaneous expenditure on telephone and car maintenance etc. Rs.42,121/-

Shri Aseem Sharma representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of assessee. The ld. DR submitted that the assessee has purchased spares to replace the old worn-out parts. In the case of assessee’s sister concern E D Steels Pvt. Ltd., the company has shown sale of discarded spares under the head “Sale of scrap”. Whereas, no such income from sale of scrap has been disclosed by the assessee. Since, the activities of the assessee are similar to the sister concern the Commissioner of Income Tax (Appeals) has rightly upheld addition on account of sale of scrap. The ld. DR further submitted that the Assessing Officer made addition on account of sale of scrap by applying the rate of 15.27% of the new material consumed. The Commissioner of Income Tax (Appeals) restricted the same to 10% of the new material. The ld. DR contended that the Commissioner of Income Tax (Appeals) was quite considerate in confirming the addition.

We have heard the submissions made by ld. DR and have perused the orders available on record. The ground Nos. 1 to 3 raised in the appeal are directed against the addition of Rs.4,94,439/- on account of sale of scrap on estimation basis. The authorities below have presumed that on replacement of spares some scrap must have been generated and the assessee must have earned some income from the sale of such scrap. The authorities below have drawn presumption on sale of scrap from the audit accounts of sister concern E D Steels Pvt. Ltd. The authorities below have erred in not considering the submissions of the assessee. The nature of activity carried out by the assessee and E D Steels Pvt. Ltd. are different. The scrap generated in the case of assessee is reused as input by melting the iron scrap for producing cast iron products. We are of considered view that the authorities below have erred in out rightly rejecting the explanation furnished by the assessee. The addition has been made merely on the basis of presumption without properly understanding the nature of activity carried out by the assessee and E D Steels Pvt. Ltd. In our considered view addition made on mere presumptions and surmises without there being any material whatsoever on record is unsustainable. Accordingly, the addition on account of income from sale of scrap is deleted. In the result, the ground Nos. 1 and 2 raised in the appeal is allowed.

In ground No. 3, the assessee has raised an alternate plea without prejudice to the ground Nos. 1 and 2, to reduce the addition. Since, the main prayer of the assessee to delete the addition has been allowed, the alternate prayer made by the assessee in ground No. 3 has become infructuous. Accordingly, ground No. 3 is dismissed as infructuous.

In ground No. 4 of the appeal the assessee has assailed disallowance of Rs.4,66,286/- as revenue expenditure under machinery maintenance expenses. During the assessment proceedings, the Assessing Officer observed that apart from other items the assessee has purchased following equipment / machinery. Bill No. Date Name of Supplier Description of Amount Machinery Rs. 34 dt. Micro Tech, Tarabai (i) Delta make VFD 75 4,14,476/- 14/06/2009 Park, Kkolhapur KW VE Series 3 ph, 415 volt, Model – VFD 750 V3C 2 – two nos. and (ii) Delta make breaking Unit for 75 KW VFD, Model VFDB4045 Add : VAT @ 12.5% 51,810 Total 4,66,286

The contention of the assessee before the Commissioner of Income Tax (Appeals) is that the above machinery is used on daily basis for running existing plant and machinery. Hence, the expenditure on acquiring such machinery is revenue in nature. The assessee has not controverted the fact that the above mentioned item is a new machinery / equipment. It is not the case of assessee that the item in question is part of existing machinery or plant which has been replaced with new one. Thus, on the basis of facts culled out from the impugned order, we do not find any merit in ground No. 4 raised in the appeal by the assessee. In any

In the result, the appeal of assessee is partly allowed in the terms aforesaid.