ACIT 20(1), MUMBAI vs. KING METAL WORKS, MUMBAI

The assessee firm assailing the aforesaid additions made by the A.O while framing the assessment; therein filed an appeal with the CIT(A), who finding favor with the contentions of the assessee, therein dealt with the same, as under 3 Addition on account of scrap sale Rs.41,08,936L The A.O had made the addition on account of sale of scrap in the hands of the assessee firm, by simply stating that the sale of aluminum scrap and stainless steel scrap of Rs. 11,94,911/- and Rs. 29,14,025/-,respectively, had not been accounted for by the assessee firm in its books of accounts' , and as such had made an aggregate addition of Rs. 41,08,936 /-. That during the course of the appellate proceedings, it was submitted by the assessee that it had during the year under consideration carried out scrap sale of Rs. 61,44,367 / -, which formed part of the total sales of Rs. 44,18,25,563/-', as stood reflected in its Books of accounts. It was further averred by the assessee that the bifurcated details of the aforesaid sales of Rs. 44,18,25,563 / - (supra) was furnished with the A.O during the course of the assessment proceedings, as well as copies of the TCS certificates of the parties to whom the scrap sales were made were also placed on the assessment record, which duly substantiated the fact that the aforesaid scrap sales of Rs. 61,44,367 /-(supra) formed part of the total sales of Rs. 44,18,25,563 /-(supra) carried out by the assessee firm during the year under consideration: The CIT(A) called for a remand report from the A.O, and after considering the rejoinder of the assessee to the same, therein observed that the bifurcated details of the sales figure of Rs. 44,18,25,563 /-(supra) furnished by the assessee revealed that the same comprised of the scrap sales aggregating to Rs: 60,82,840 /-, i.e. net of the scrap sales after deduction of the amount of the TCS [Scrap sales Rs. 61,44,367 / - (minus) TCS Rs. 61,527 /-]. The CIT(A) further observed that the assessee had substantiated the scrap sales of Rs: 61,44,367 / - (supra) by furnishing the breakup of the same during the year, specifying therein the sales made to six parties, of which receipts from three parties qualified for TCS, in support whereof the copies of the Form 27D as prescribed under Rule 37D, were also placed on record: The CIT(A) further perusing the copy of the 'Chart' which was furnished by the assessee during the course of the assessment proceedings, wherein the month wise breakup of the purchases and sales stood reflected, with a clear mention that the scrap sales were included in the sales figures, therein observed that it could not be held that the assessee had not furnished the details during the course of the assessment proceedings; and the same rather clearly did go to support its claim that the scrap sales of Rs. 61,44,367 / - (supra) stood duly included in the total sales of Rs. 44,18,25,563 /- (supra), as stood reflected in the books of accounts' of the assessee firm. The CIT(A) further observed that the quantity adopted by the A.O for the computation of scrap sale, i.e 177 kg and 347 kg of Aluminum scrap and Stainless steel scrap, respectively, pertained to the preceding assessment year, i.e. the year ending 31.03.2007 , which fact was clearly borne out from the audit report filed by the assessee firm for A.Y. 2008-09 & 2009-10. Thus the CIT(A) during the course of the appellate proceedings observed that the assessee firm had duly furnished requisite documentary 5 evidence during the course of the assessment proceedings, which therein did go to substantiate that the sale proceeds of Rs. 44,18,25,563 / - (supra) credited by the assessee firm in its P & Loss A/c' for the year under consideration, duly included the scrap sales of Rs. 61,44,367 /- (supra), as well as had duly placed on record the bifurcated details of the scrap sales which were made by the assessee firm to six parties, alongwith the details of the collection of tax at source 0n such scrap sales. The CIT(A) thus in the backdrop of the aforesaid observations, therein concluded that the AO had neither during the course of the assessment proceedings, nor in his 'remand report' placed on record any material which could go to demonstrate that the scrap sales shown by the assessee for the year under consideration was under stated in any way, and on the basis ogf his aforesaid observations deleted the addition of Rs. 41,08,936 / made by the A.O on account of unaccounted scrap sales in the hands of the assessee firm B) Addition on account of over statement of Op. Stock 35,90,963L-: Rs. i) The A.0 being of the view that the assessee firm had over stated both the quantity of the 'Op_ Stock , as well as its value, had therein made an addition of Rs. 35,90,963 / - on the said count in the hands of the assessee firm. The A.0 referring to the tax audit report; had therein observed that the assessee firm which should have valued the 'Op. Stock' of 10,392 kg of stainless steel finished goods Rs. 255/- per 5 kg, had however taken the 'Op. Stock' of traded goods at 23,666 kg and had valued the same at Rs. 60,34,923/-. The A.O thus on the basis of his aforesaid observations, being of the view that the assessee had over stated the 'Op: Stock' by an amount of Rs 35,90,960/-, thus on the said count made an addition of the said amount in the hands of the assessee firm That during the course of the appellate proceeding before the CIT(A); it was averred by the assessee that the assessment for the preceding year, i.e A.Y 2008-09, had been framed u/s 143(3), and as the assessee had adopted the 'Cl. Stock' as on 31.03.2008, as the 'Op: Stock' as On 01.04.2008, therefore there was no reason to disturb the same during the year under consideration: The assessee further submitted before the CIT(A) that the A.O while computing the impugned over statement of the 'Op: Stock' had adopted figures which did not pertained to the year under consideration: The CIT(A) called for a remand report from the A.O, and after perusing the same as well as the rejoinder filed by the assessee, in light of the material available on record, therein observed that as the assessee firm by way of a consistent practice had never maintained a stock register in the earlier years too, coupled with the fact that as and when in the preceding years the books of accounts had been rejected by the A.0 for the aforesaid reason, followed by a consequent estimation of gross profit, the same had been deleted by the CIT(A) as well as by the Tribunal: The CIT(A) in the said context referred to the order passed by the Tribunal for A.Y. 2008-09, in ITA No_ 318/Mum/2012, wherein the Tribunal relying on its earlier order passed in the case of the assessee firm for A.Y. 2007 - 08, had set aside the rejection of the books of accounts' and estimation of the gross profit by the A.O, and had upheld the order of the CIT(A): The CIT(A) further relying upon the judgment of the Hon'ble Supreme Court SO passed in the case of V.K.J. Builders and Contractors (P) Ltd: Vs. CIT (318 ITR 204) (SC); wherein the Honble Apex Court had observed that it is a fundamental principle of accountancy that the 'Cl Stock' of earlier year has to form the 'Op: Stock' of the next accounting year, therein observed that as the 'Op. Stock' for the year under consideration in the case of the present assessee firm, did not show any change as against the 'Cl. Stock' for the preceding year , which in either case stood reflected at Rs. 3,50,74,174/-,read in light of the fact that the Cl Stock of the preceding year, i.e. AY. 2008-09 had been upheld in appeal by the Tribunal (ITA No_ 318 /Mum/2012), as well as the fact that the A.O had neither pointed out any defect in the books of accounts' of the assessee, nor had brought any material on record which could g0 to show that the assessee in any manner had inflated the 'C1 Stock' for the said preceding year, therefore deleted the addition of Rs. 35,90,963/- made by the A.O in the hands of the assessee firm on account of alleged inflation of the value of the 'Op. Stock' . 8 Addition on account of revaluation of C1. Stock 54,72444L Rs. 1) The A.O during the course of the assessment proceedings therein observed that the assessee firm which had not maintained any stock register during the year under consideration, had valued most of the 'Cl Stock' items at an amount which was considerably lower than the 'Op: Stock value The A.o further observing that the assessee had not produced any supporting evidence which could go to substantiate its claim that the *Cl. Stock' was valued at "cost of market price, whichever was lower" = and rather holding a conviction that the market value of the Cl, Stock' could not be less than the cost of purchases, therefore concluded that the assessee had under valued the 'Cl. Stock' by an amount of Rs: 54,72,444/-, and therein made an addition of the said amount to the returned income of the assessee firm. That the assessee during the course of the appellate proceedings submitted before the CIT(A) that the A.O had erroneously adopted the valuation of the stock at the beginning of the financial year for the purpose of computing the valuation of the 'C1 Stock' , loosing sight of the Purchase bills' for the last few months which were placed on record by the assessee during the course of the scrutiny proceedings, and formed the basis of the valuation of the 'Cl Stock' by the assessee firm_ The CIT(A) therein called for a remand report from the A.O, and after considering the rejoinder filed by the assessee to the 9 same in the backdrop of the material available on record, therein observed that the assessee had consistently valued the stock based on "Cost or market value, whichever is lower" and the A.O had not brought anything on record which could go to contradict the said factual position. The CIT(A) further expressing his disagreement with the adverse inferences which were drawn by the A.0, for the reason that the assessee had not maintained any stock register, therein observed that as the assessee had never maintained a stock register, and no addition had been made in the hands of the assessee on the said ground, coupled with the fact that the non-maintenance of stock register had not been considered as a sufficient ground for rejection of the books of accounts' of the assessee firm in the preceding years, therefore observed that the aforesaid adverse inferences s0 drawn by the A.O did not hold any ground, and hence could not be sustained as such: The CIT(A) further adverting to the observation of the A.0 that there was unexplained variation in the value of the 'Op: Stock as against that of the 'C1. Stock , therein accepting the contention of the assessee that the prices of various items had fluctuated during the financial year, and the Cl. Stock' valuation had been done on the basis of the prices prevailing at the end of the year, as had been a consistent practice adopted by the assessee, therein found himself to be in agreement with the claim of the assessee that the rates in the sample bills pertaining to the period relatable to the end of the financial year, therein duly justified the 10 valuation of the 'Cl Stock' as had been so carried out by the assessee firm: The CIT(A) thus holding a conviction that the AO had failed to place on record any material which could go to prove that the valuation of the Cl. Stock so carried out by the assessee firm was incorrect, therein dislodged the adverse inferences as were SO drawn by the A.O0 as regards the valuation of the 'Cl Stock' . The CIT(A) finally expressing his inability to subscribe to and therein adopt the 'average sale value' as the basis for the valuation of the 'Cl: Stock' as had been SO carried out by the A.O, and further observing that after carrying out the enhancement of the 'C1, Stock' , no corresponding enhancement was carried out for the "'Op. Stock' for the immediately succeeding year, therein in light of the aforesaid observations, coupled with the fact that there had been no deviation in the method of accounting which was consistently being followed by the assessee firm, thus deleted the addition of Rs 54,72,444 / - so made by the A.O towards suppression of the value of the 'C1. Stock' in the hands of the assessee firm D) Disallowance of various expenses Rs. 11,86,611/-: i) The A.0 during the course of the assessment proceedings referring to certain expenses as had been debited by the assessee in its P & Loss A/c', as under Account Head Amount debited 11 Advertisement Expenses Rs. 3,16,033 / Motor Car Expenses Rs. 10,15,783/- Exhibition (foreign) Rs_ 12,73,443/- Sundry expenses Rs. 5,48,267 / - Travelling Rs. 15,92,913/ Total Rs. 47,46,444/- therein observed that though the assessee had during the course of the assessment proceedings produced the copy of the ledger accounts of the aforesaid respective expenses, but had not produced any bills' and vouchers" for necessary verification. The AO in the backdrop of his observation that as most of the payments were made by the assessee in cash, and some of such payments were supported by self made vouchers, thus concluded that the said expenses were not properly vouched, and on the said count carried out an ad- hoc disallowance of 25% of the aforesaid expenses; and as such made an addition/ disallowance of Rs: 11,86,611/- in the hands of the assessee firm That during the course of the appellate proceedings it was submitted by the assessee that the copies of all the vouchers in support of the correlating expenses as had been incurred by the assessee firm were produced before the A.O during the course of the assessment proceedings, and the A.O himself had noted that some of the 12 vouchers were self drawn, therefore in the backdrop of the aforesaid conceded factual position, the conclusion of the A.O that the vouchers were not produced during the course of the assessment proceedings was not tenable, and as such could not be sustained. It was further averred before the CIT(A) that the observation of the A.0 that most of the payments pertaining to the expenses under consideration were made in cash, was not true, for the very reason that an amount aggregating to Rs: 31,82,389 /- comprising payments on account of advertisement; foreign exhibition charges and travelling expenses had been made through cheques It was further submitted before the CIT(A) that an amount aggregating to Rs: 1,86,010/- pertaining to motor car expenses were also paid by the assessee by way of cheque: The CIT(A) in light of the aforesaid claim of the assessee, therein called for a remand report from the A.0, and after perusing the report of the A.O and the rejoinder filed by the assessee firm' as regards the same, therein referring to a comparative analysis of the expenses incurred by the assessee during the year under consideration, as against that incurred by him in the immediately preceding year, as under Nature of Expenses A.Y. 2008-09 A.Y. 2009-10 Advertisement Expenses Rs. 2,56,271/- Rs. 3,16,033/- 13 Exhibition Expenses Rs.5,12,022/- Rs. 12,73,443/- Motor Car Expenses Rs. 3,65,277 / - Rs. 4,71,261/- Sundry Expenses Rs. 7,04,295/- Rs. 5,48,267/ Travelling Expenses Rs. 13,43,473/- Rs. 15,92,913/ TURNOVER Rs. 40,45,40,335/- Rs. 44,18,25,563 / therein observed as under i) Advertisement expenses The CIT(A) observing that the advertisement expenses incurred by the assessee firm during the year under consideration at Rs. 3,16,033/-, as against an amount of Rs. 2,56,271 /- SO incurred in the immediately preceding year, i.e. A.Y. 2008-09, in the backdrop of the increase of turnover from Rs. 40,45,40,334/- in the preceding year, i.e A.Y. 2008-09 to Rs: 44,18,25,563/- during the year under consideration, could thus safely be characterized as a justified marginal increase. The CIT(A) further observing that from the ledger account of the 'Advertisement expenses A/c , the mention of the details of Cheque Nos. and/or bill nos. pertaining to different expenses which were clearly narrated therein could be gathered: The CIT(A) in light of the aforesaid observations, therein held that as the A.O had failed to point out any specific entry that had been identified as 14 not having been incurred for business purposes, Or was an inflated or bogus expense, the making of adhoc disallowance by the A.O wr:t: the aforesaid expenditure, which had merely shown a marginal increase in comparison to the preceding year as against the substantial increase in the turnover, therefore could not be sustained, and thus deleted the entire adhoc disallowance made by the A.O under the aforesaid head: i) Motor Car expenses The CIT(A) referring to the ledger account of the aforesaid expense, therein observed that the same therein revealed that payments of the aforesaid expenses had been made by the assessee firm through cheques. That as regards the cash expenses incurred by the assessee, it was observed by the CIT(A) that the same were towards petrol and diesel charges, labour charges, ol charges etc which are usually paid for in cash_ The CIT(A) further observed that the expenses under the aforesaid head, as had been incurred by the assessee firm during the year under consideration at Rs: 4,71,261/-, as against an amount of Rs. 3,65,277 / - SO incurred in the immediately preceding year, i.e. A.Y. 2008-09, in the backdrop of the substantial increase of turnover from Rs. 40,45,40,334 / - in the preceding year, i.e. A.Y. 2008-09 to Rs. 44,18,25,563/ - during the year under consideration, could thus safely be characterized 15 as a justified marginal increase _ The CIT(A) further observed that the A.O while adopting the motor car expenses incurred by the assessee during the year under consideration at Rs. 10,15,788 /-, had erred by failing to appreciate that the aforesaid amount included 'depreciation' of Rs. 5,44,527 / - The CIT(A) further observing that the assessee firm had meticulously and separately maintained the details of expenses as regards different vehicles owned by it, and the A.0 had not identified any specific entry pertaining to the aforesaid expenses which could be held to have been incurred for non-business purposes, or was found to be inflated or bogus, thus in light of the totality of the aforesaid observations: therein held that no adhoc disallowance was called for in the hands of the assessee firm under the aforesaid head, and as such deleted the adhoc disallowance of 25% of the motor car expenses SO carried out by the A.O in the hands of the assessee firm. iii) Exhibition expenses The CIT(A) therein observing that the exhibition expenses incurred by the assessee firm during the year under consideration at Rs: 12,73,443 / - (vis-a-vis turnover of Rs_ 44,18,25,563/-) was higher in comparison to the expenses under the aforesaid head for the preceding year at Rs. 5,12,022/- (vis-a-vis a turnover of Rs. 40,45,40,334/-), therein held that the 16 complete Invoices' and bank remittance details for all the aforesaid payments had duly been furnished by the assessee firm during the course of the assessment proceedings The CIT(A) further observed that the A.O had failed to place on record any material which could go to show that the aforesaid expenses were found to be inflated or bogus, in any manner, or that the assessee firm did not participate in the exhibitions, for which the aforesaid expenses had been incurred: The CIT(A) thus being of the view that the assessee firm had furnished sufficient details which did go to substantiate the incurring of the aforesaid expenses; and the A.O had carried out the disallowance without placing on record any material which could go to show that any item of the aforesaid expenditure was bogus or inflated, thus deleted the entire adhoc disallowance as was made by the A.0 in the hands of the assessee firm under the aforesaid head of expenses. iv) Sundty expenses The CIT(A) observed that the aforesaid expenses were for miscellaneous items such as tea, coffee, vim bar etc:= and in light of the very nature of the said expenses, the same were incurred in cash: It was further observed by the CIT(A) that the payments made to All India Stainless Steel Association and for items such as Diwali sweets etc. booked by the assessee under the aforesaid head of 17 expense, were made through cheques. The CIT(A) referring to the very fact that the expenses for the year under consideration at Rs. 5,48,267 /-, as against Rs. 7,04,295/- in the immediately preceding year, i.e. A.Y. 2008-09, despite substantial increase in turnover during the year under consideration; had shown a decline. The CIT(A) thus observing that the A.O had not pointed out any specific entry which had been identified by him to have been incurred by the assessee for a non- business purpose, or was found to be inflated or bogus, therefore no adverse inference as regards the aforesaid expenses which had rather shown a decline as in comparison to those of the preceding year, despite substantial increase in turnover, could therefore be sustained. The CIT(A) thus in light of the totality of his aforesaid observations, therein deleted the entire adhoc disallowance made by the A.O under the aforesaid head of expense. Foreign _travelling expenses The CIT(A) observed that the expenses incurred by the assessee firm under the aforesaid head of expense during the year under consideration at Rs 15,92,913/- (vis-a-vis turnover of Rs: 44, 18,25,563/-), in comparison to the expenses booked under the said head in the preceding year at Rs: 13,43,473 / - (vis-a-vis a turnover of Rs. 40,45,40,334/-), as such, had only 18 shown a marginal increase. The CIT(A) observed that except for an expense of an amount of Rs. 12,252/- all the remaining expenses booked under the aforesaid head of expense were paid by the assessee firm through cheques. It was observed by the CITIA) that the marginal increase in the aforesaid expense, as duly explained by the assessee, was for the reason that as it had participated in more exhibitions during the year under consideration; therefore it had to undertake more foreign travelling: The CIT(A) thus observed that the A.O had failed to place on record any material which could go to show that any part of the aforesaid expenses were incurred for any non-business purpose, or that any item of expenditure was inflated or bogus. The CIT(A) further observing that it was a matter of record that the expenses debited in the aforesaid ledger account had been largely met through cheque payments, therefore held that there was no ground for making of any adhoc disallowance under the aforesaid head of expense in the hands of the assessee firm: The CIT(A) thus in light of his aforesaid observations deleted the entire disallowance as was SO made by the A.O. under the aforesaid head of expense. 3 The revenue being aggrieved with the order of the CIT(A) had therein carried the matter in appeal before us. That during the course of the appellate proceedings the Ld: Departmental 19 representative (for short DR) supported the assessment order and therein averred that the A.O after duly appreciating the facts of the case had made additions towards Unaccounted scrap sales, Inflated value of Op: Stock, Undervalued Cl. Stock and adhoc disallowance of various expenses, which had wrongly been set aside by the CIT(A): That it was averred by the Ld: D.R that the order of the CIT(A) may thus be set aside, and the order of the A.O be restored: That on the other hand the Ld: Authorized representative (for short AR) for the assessee firm, strongly supported the order of the CIT(A) and therein submitted that the said first appellate authority after duly appreciating the facts of the case in light of the settled position of law had rightly deleted the additions made by the A.

It was averred by the Ld: A.R that the appeal filed by the revenue was devoid of any merit; and hence the same was liable to be dismissed: 4_ We have heard the Ld. Representatives, perused the orders of the lower authorities and the material produced before us. We are of the considered view that the CIT(A) while dealing with the various disallowances/additions as had been made by the A.O, had therein at length, as observed by us hereinabove, very fairly and in a judicious manner deliberated on the respective contentions of the assessee firm, in the backdrop of the observations and the findings recorded by the A.O in the body of the assessment order. We are of the considered view that the CIT(A) had passed a very well reasoned order after duly considering all the aspects emerging from the respective disallowances/ additions SO made by the A.O0 in the 20 hands of the assessee firm, in the backdrop of the contentions as were SO raised before him during the course of the appellate proceedings: We herein are persuaded to subscribe to the observations so recorded by the CIT(A), and in the absence of any material being placed on record by the Ld: D.R which could go to prove that any such finding of the CIT(A) is either incorrect or perverse , we find no reason Or occasion to hold a different view_ Thus in light of our aforesaid observations, we find ourselves to be in agreement with the aforesaid findings recorded by the CIT(A) in the body of his appellate order, and as such uphold the order of the CIT(A): Thus finding no force in the present appeal filed by the revenue before US, we herein dismiss the same.

That the appeal of the revenue is dismissed. CROSS OBJECTION NO_89/MUM/2015 1. That 'Cross objections' emerging from the aforesaid appeal of the revenue in ITA No: 1514/Mum/2014, had been filed before uS by the assessee firm. We find that the grounds of cross objections SO raised by the assessee firm are inextricably interlinked and rather interwoven with the grounds of appeal raised by the revenue in its appeal before US, and are found to be merely supportive of the order passed by the CIT(A): That as the appeal of the revenue had been dismissed by uS hereinabove, therefore the aforesaid Cross objections raised by the assessee firm are therein rendered infructuous: The Ld: A.R had duly conceded to our aforesaid observations: 21 2 The 'Cross objections' filed by the assessee firm are dismissed as having been rendered as infructous Order pronounced in the open court on 13/01/2017. / / (R.C. SHARMA) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER yaef Mumbai; fad Dated 13.01.2017 31ax &} wfafeify 3Afda/Copy of the Order forwarded to 1 adcileff The Appellant 2 ryeff The Respondent 3 314a5 argaa(3tld) The CIT(A) 4_ 3143< 31437 CIT concerned 5 fauniu wfu, a1ya3r &dlafly 3fedru, Hacf DR, ITAT, Mumbai 6 T W74 Guard File HarTJHR / BY ORDER, 34R14d5 tuia R (Dy-/Asstt. Registrar) 314ar adaity &fearu, yaf_ ITAT, Mumbai