MEGAWOOD DONGWON INDIA PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER

This is an appeal filed by the assessee directed against the

order dated 23.01.2013 of Ld. CIT(A)-IX, New Delhi for

Assessment Year 2003-04.

Joint Venture Company of Dongwon Metal Industries Co. Ltd.,

Korea (38%), Daewoo Motors India Ltd. (30%) and Megawood

Estates Ltd. (32%). It was engaged in the manufacture, assembly

and sale of automotive exhaust systems and accessories. Its main

supplies were originally to Daewoo Motors India Ltd., who had

introduced Cielo, Naxia and Matiz in India. It had also been

supplying exhaust systems to General Motors (Opel Astra and 1

I.T.A. 2509/Del/2013 Assessment Year: 2003-04 Corsa) and Hindustan Motors Ltd. It was submitted that the

business of Daewoo Motors suffered heavy losses and supplies to

Daewoo Motors were closed during the financial year 2002-03.

The business with Hindustan Motors and General Motors also

declined due to decline in the sale of Contessa and Opel

Astra/Corsa cars.

assessee is closed.

Rs.85,14,331/- vide order dated 30.12.2005. Subsequently, after

completion of the assessment, a query was raised by the Dy.

Commissioner of Income-tax, Circle 6(1), New Delhi regarding

variation in the raw-material and stores consumed as per Profit &

Loss A/c and details of raw material consumed as per Notes to

Accounts.

furnished revised details of consumption of raw material duly

corrected and verified by the Auditors. It was submitted that

there was an error in the Notes to Accounts. The assessee,

however, received a notice u/s 148 of the Income-tax Act, 1961

dated 11.10.2010 on the ground that consumption has been

I.T.A. 2509/Del/2013 Assessment Year: 2003-04 debited at Rs.45,92,797.68 to the Profit and Loss A/c whereas as

per Schedule 16-B(6), the consumption of raw material and stores

has been shown at Rs.38,06,000; Thus, there has been an excess

claim of expenditure to the tune of Rs.7,86,797/-. Subsequently,

the assessment was completed at a loss of Rs.77,25,534/- after

making an addition of Rs. 7,86,797/- on account of unexplained

cash credit.

the assessee is in appeal before us.

addition on account of unexplained cash credit of Rs.7,86,797/-.

It was submitted that it was only a factual mistake in the

Schedule of the raw-material consumed and, therefore, the

addition as unexplained cash credit was uncalled for. The Ld. AR

submitted that at the most, the Assessing Officer could have

increased the value of closing stock by Rs.7,86,797/-, as his

conclusion was that the raw-material consumed was

Rs.38,06,000/- and not Rs.45,92,797/-, as reflected in the Profit

& Loss A/c., which would mean that there was more closing

stock of raw material to that extent, in the absence of any other

evidence to make out a case of unexplained cash credit. Our

I.T.A. 2509/Del/2013 Assessment Year: 2003-04 attention was also drawn to the copy of statement of taxable

income for assessment year 2003-04, which shows losses and

depreciation (unabsorbed), which till date could not be absorbed

and most of the losses could not be set off, being barred by time.

In light of the financial statements and the income tax

computation statement, the Ld. AR reiterated that the raw-

material consumed shown as consumed in the Schedule at

Rs.38,06,000/- as against Rs.45,92,797/- was, in fact, a factual

error, and the assessee did not gain any material tax benefit on

account of any factual mistake in the figures. It was also

submitted that the mistake had occurred due to a typographical

error in the Notes to accounts and the correct details of

consumption, duly certified by the auditors, was also submitted

before the AO . A copy of the same is placed at pages 4 and 5 of

the Paper Book. He, accordingly, prayed for the deletion of the

addition.

stand regarding the discrepancy before the different authorities

and as such the explanations cannot be accepted on its face

value. He submitted that the addition has been rightly made and

that the order of the Ld. CIT (A) should be confirmed.

I.T.A. 2509/Del/2013 Assessment Year: 2003-04 9. We have heard the rival contentions and have perused the

records. It is seen that the AO had disallowed the expenditure on

raw material consumption to the tune of Rs. 7,86,797/- but has

added it back under unexplained cash credits. The Ld. CIT (A)

while upholding the addition has rejected the explanations offered

by the assessee in a summary manner by merely mentioning that

the same is baseless. The assessee’s objection to making the

addition under unexplained cash credits was also brushed aside

by the Ld. CIT (A) by a simple remark that the reference to cash

credits may be deleted. However, both the authorities have not

dealt the issue at hand i.e. the adjudication on the aspect of

mistake due to typographical error. We are of the opinion that the

AO was not justified in ignoring the evidences and explanations

with regard to the typing mistake in the audit report. The

Assessing Officer's invoking provisions of section 69 is also not in

accordance with law. It is also seen that the entire addition is

based on a typographical error that crept into while typing out

the consumption figures to which the assessee has offered an

explanation and which is duly supported by a certificate from the

auditors. Apart from this, the AO had no other evidence before

him which could justify the addition. It is clear that this case

I.T.A. 2509/Del/2013 Assessment Year: 2003-04 gives a strong indication that the error committed by the

assessee’s Chartered Accountants was genuine and bona fide.

The assessee's income was already in a loss even without

claiming excess consumption of raw material. Therefore, making

an excess claim was not at all advantageous to the assessee and

as such the excess claim was not a device, rather it was an

inadvertent error. In the light of these facts and circumstances,

we set aside the order of the Ld. CIT(A) and delete the addition.

Order pronounced in the Open Court on 14th March, 2016.

Sd/- Sd/ (J. SUDHAKAR REDDY) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: the 14th March, 2016 ‘GS’