ACIT, SANGRUR vs. M/S S.S. SPINTEX LTD., SAMANA

Per Sanjay Garg, Judicial Member:

The captioned appeal has been preferred by the Revenue

against the order dated 06.03.2017 of the Commissioner of

Income Tax (Appeal), Patiala [hereinafter referred to as

‘CIT(A)’].

“1. Whether in the facts and circumstances of the case, the Ld. CIT(A), Patiala has erred in deleting the addition of Rs. 29,44,917/- made on account of GP af ter rejecting the books of accounts by applying the rate of 8.5% instead of 7.90% as shown by the assessee.

3 It is prayed that the order of Ld. CIT(A) be set aside and that of the Assessing off icer restored.

4 Them appellant craves leave to add or amend any grounds of appeal before the appeal is heard and f inally disposed of.”

the CIT(A) in deleting the additions made by the Assessing

officer on estimated GP rate after rejecting the books of

account of the assessee. The Assessing officer had also made

additions on account of estimated unaccounted production and

also on account of estimated unaccounted working capital

consumed in relation to the unaccounted production.

attention to the impugned order of the CIT(A) and has

submitted that each and every issue has been thoroughly and

properly dealt with and discussed by the CIT(A) in his

impugned order to arrive at a conclusion that the aforesaid

additions made by the Assessing officer were not sustainable.

He, has submitted that the Assessing officer in this case had

rejected the books of account pointing out the discrepancies

such as non-maintenance of stock register, non-maintenance of

day to day record of consumption of consumable stores, non-

maintenance of record of consumption of packing material,

inconsistency in the consumption of electricity units vis-a-vis production of the finished goods, variation in the sale rates of

finished goods and cotton wastage, variation in the yield from

time to time and failure of the assessee to explain regarding

the fall in the GP rate as compared to earlier assessment years.

has discussed the above issue in the impugned order. The Ld.

CIT(A) after going through the record has observed that the

assessee company had been maintaining the stock register

which contained the weight of raw materials purchased, weight

thereof issued for production in different types of cotton yarns,

the production details containing different counts of threads

achieved during period of 24 hours starting from 8 AM in the

morning to 8 AM of the next morning. The Ld. CIT(A) has also

made observation that the said register also contained the

details of goods sold on day to day basis. He also observed that

the register contained the details of inward and outward of the

materials on day to day basis in respect of all the items

received / consumed and dispatched by the assessee. He,

therefore, held that the observation of the Assessing officer

that the assessee had not been maintaining stock register was

contrary to the facts on record. Regarding the non-

maintenance of the record of the consumables, it was

submitted before the Ld. CIT(A) that there were no

consumables except spare parts which were meant for repair

and maintenance only and not for production. Therefore, the

assessee was not supposed to maintain the register with regard

to the consumables. However, the copies of invoices of the

consumables on account of repair and maintenance expenses had been furnished to the Assessing officer which was also

examined by him. So far as the non-maintenances of record of

some of the packing material was concerned, it was explained

to the CIT(A) that the packing material comprised of number of

items like paper tubes, polythene, jute etc. and that the

purchase of these items was supported by purchase invoices

had been duly recorded in the books of account. That it was

not practically feasible to maintain day to day quantitative

consumption details of the various items of packing materials.

Even many items like paper cones / tubes being very fragile got

wasted in handling.

that the Assessing officer had not pointed out any specific

discrepancy in the purchase of packing material and sale of

furnished goods. He further observed that complete production

records were also maintained by the assessee.

waste, it was explained before the CIT(A) that the sale rate of

cotton yarn vary daily and was market-driven. It was also

explained that the cotton waste as obtained at different points

of manufacturing process, it had different quality and that the

price of the waste was dependable on the quantity and quality

of the wastage. So far as the declining in yield as compared to

earlier years was concerned, it was explained that the same

had been recorded on actual basis, which was dependent on

the quality of the raw material, proportion of the different

types of raw cotton used and further it was explained that as

the machine get older, the quality and quantity of the cotton yarn produced in the units go on declining year after year. The

further factors for low GP rate was also explained that the

machinery installed in the assessee factory was old machinery,

whereas, the other units in the line of business had installed

high-tech manufacturing machinery which produces high

quality of yarn and fetches more price as compared to the

quality of yard produced by the assessee. It was also explained

that the GP rate was actual and was as per the audited books

of account. So far as the variation in the power consumption

vis-à-vis production of finished goods was concerned, it was

explained that the power consumption on a day would not

mandatory result into production of furnished goods. The

electricity may be consumed for so many other purposes,

besides it was not necessary that the finished goods would

come into existence on the same date. That there was so many

electric cuts during the year which created variation in

consumption of the electricity. That the estimation of the

production on the basis of electricity consumption, by the

Assessing officer, was not proper and justified. It was also

explained before the CIT(A) that the allegation of the

Assessing officer that there was unaccounted production of

cotton yarn and cotton waste was not based on any evidence.

The above allegations were based on assumption and

presumption and on account of inconsistency in power

consumption on day to day basis. However, no other evidence

was available with the Assessing officer to form an opinion that

the assessee was indulged in unaccounted production. Neither

there was any evidence of purchase of any unaccounted raw

material nor there was any evidence of sale of finished goods or waste thereof. The Ld. CIT(A) considering the facts and

circumstances of the case observed that the assessee had

explained the reasons of variation in electricity consumption

and that the addition on this account was purely on estimation

basis was not justified. He also got satisfied with the

explanation of the assessee on other issues also as discussed

above. He according deleted the additions so made by the

Assessing officer.

our view, the Ld. CIT(A) has discussed each and every issue in

detail and found that the action of the Assessing officer in

rejecting the books of account of the assessee and estimation

of the income of the assessee on estimated GP rate and further

assuming unaccounted production and unaccounted working

capital would not be justified. We do not find any infirmity in

the order of the CIT(A) and the same is therefore, upheld.

In the result, the appeal of the Revenue is hereby

dismissed.

Order pronounced in the Open Court on 09.07.2018

Sd/- Sd/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 09.07.2018

Ganesh Kumar/rkk

Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR