1 IN INCOME TAX APPELLATE TRIBUNAL, A-BENCH, AHMEDABAD. Before: Shri T.K. SHARMA, Judicial Member, and Shri D.C. AGRAWAL, Accountant Member. ITA No.3841/Ahd/2002 Assessment Year : 1995-1996 Vaibhav Alloys Ltd. Income Tax Officer, C/o. Abhay Kumar Thirani, Ward 8(4), 4th Fl. Wing, 161/1, M.G.Road, Versus Upon Oswal Hotel, Ashram Room No.61, Road, Kolkata- 700 007 Ahmedabad. (Appellant) (Respondent) PAN: AAACO 3186 G For appellant: G.S.Patel For Shri. Vinod Tanwari, Sr.DR respondent ORDER Per T K Sharma (Judicial Member): This appeal by assessee is against order dated 19-09-2002, passed by Ld. Commissioner of Income Tax(Appeals)-XIV, Ahmedabad, for Assessment Year 1995- 96. 2. facts in brief in case are that assessee is company engaged in business of manufacturing of steel Ignots. assessee purchased scrap from market and same is used for manufacturing of steel ignots. books of account of assessee are audited under section 44-AB of Income Tax Act, 1961. auditor in his statutory report vide note number (i and vi) page 4 has certified that all records with regard to quantity and manufacturing are maintained. assessee company s products are liable to excise duty for which it maintained statutory excise register and day to day quality wise stock register of raw material finished produces, wastage recovered and stores used in production. This is first year of production. 2 ITA No.3841/Ahd/2004 3. For Assessment Year under appeal, assessee company filed return of income declaring loss of Rs.9,15,600/-. Assessing Officer framed assessment under section 143(3) of Act, wherein he made addition on three counts: (i) Rs.76,152/- on ground that assessee should have offered credit balance in Modvat account as income or should have included excise duty payable on runner riser (Scrap generated in course of running of Machine which is reused for finished production) while valuing closing stock. (ii) Assessing Officer felt that closing stock declared to bank was higher and there was different in stock of stores amounting to Rs.7,57,040/-. As per Assessing Officer difference in store s was substantial and hence added back amount of Rs.7,57,040/- as undisclosed stock. (iii) Assessing Officer found that assessee has shown closing stock of runner riser at 90.659 MT whereas closing stock should have been 84.258 MT and further wastage was 9.30% which was excessive hence he added back Rs.1 lakh for same. 4. On appeal, in impugned order, Learned Commissioner of Income Tax (Appeals) confirmed action of first issue and allow relief of Rs.25,000/- on third issue. Against, order of Learned Commissioner of Income Tax (Appeals), assessee before us, raising various grounds which are as under: 1. For that order of Learned Commissioner of Income Tax (Appeals) is arbitrary and unjustified. 2. For that Learned Commissioner of Income Tax (Appeals) erred in confirming addition of Rs.76,152/- for valuation of clothing stock of runner riser when closing stock was properly and correctly valued and duly explained to him. 3. For that Learned Commissioner of Income Tax (Appeals) erred in confirming addition of Rs.7,57,040/- on A/c of excess valuation of stock shown to banker 3 ITA No.3841/Ahd/2004 when there was no difference in quantity as per stock and as per bank records moulds were specifically mentioned in Bank statement cost of which was over 22 lakhs and even otherwise excess value shown to banker without any difference in quantity cannot call for any addition. 4. For that Learned Commissioner of Income Tax (Appeals) erred in retaining addition of Rs.75,000/- for excess wastage when wastage was quite normal in this line of business. 5. At time of hearing, on 14.12.2009 learned Counsel on behalf of assessee Shri Abhay kumar Thisani, Director of assessee company appeared and filed written submission. This written submission was handed over to learned Departmental Representative for his comments and case was adjourned to 15.12.2009. On 15.12.2009, both sides were heard. Ground no.1 is general in nature, hence needs no adjudication. 6. In written submission with regard to ground no.2, it was submitted that Modvat credit available to be adjusted in future as on 31.03.1995 was Rs.2,06,233/-. unadjusted Modvat credit cannot be treated as income. With regard to non inclusion of excise duty in valuation of runner riser. It is submitted that average price of runner riser (scrap) purchased from market inclusive of excise duty. Closing stock of scrap of I83.460 MT at rate Rs.5,600/- per MT valued which is accepted by Assessing Officer. However, assessee valued closing stock of runner riser at Rs.7,800/- per MT which is at higher side. Therefore, even if for sake of arguments excise duty is taken into account which was 15% then even Rs.840/- can be added and total of two is much less than Rs.7,800/- per MT. Further, excise duty can be considered only on clearance of goods whereas this scrap for and in fact was own generated scrap kept for recycled and used in own manufacturing process on which excise duty will come into effect after final product is manufactured. Further, 4 ITA No.3841/Ahd/2004 since sufficient Modvat credit is available and no excise duty was at all payable. Further, if manufacturing expenses are added while valuing scrap and then scrap is again used for manufacture of final product then cost shall be doubly included in so far as finished product which will be manufactured from scrap. Once with scrap and again fresh manufacturing expenses. As against this, learned Departmental Representative contended that addition of Rs.76,152/- was rightly made by Assessing Officer as per provisions contained in section 145A of Income Tax Act, 1961. Therefore, addition made by Assessing Officer and sustained by Learned Commissioner of Income Tax (Appeals) in impugned order, be upheld. 7. We have carefully gone through orders of lower authorities. As per provision contained in 145A, assessee was required to value closing stock on price inclusive of excise duty. addition of Rs.76,152/- made by Assessing Officer is in conformity with provisions contained under section 145A of Income Tax Act, 1961. We therefore, declined to interfere ground no.2 as rejected. 8. With regard to addition of Rs.7,57,040/- contested in ground no.3, in written submission, it was contended that detail of stock given to bank for overdraft facilities deferred from stock shown in books of accounts and on being asked, assessee stated that Accountant made mistake in submitting statement to bank. In written submission, it was further submitted that there is no difference in stock of raw materials, mild steel scrap and runner riser. assessee declared store of Rs.11,74,332/- to bank whereas as per books of account also stores declared was more or less same. assessee has declared mould Rs.7,34,400/- to Bank whereas mould as per balance sheet were of Rs.19,83,908/-. 5 ITA No.3841/Ahd/2004 Therefore, declaration given to bank with regard to mould cannot be treated as undisclosed. It was further submitted that assessee maintained day to day stock register of all items including that of stores. complete record of consumption is also maintained for showing mould stock of store to bank. Therefore, no addition can be made. For this reliance was placed on decision of Hon'ble Kolkata Bench of ITAT in case of C.M.Roy and Sons Vs. ITO in ITA No.1503/Kol/2008 in Assessment Year 2005-06 order dated 13.02.2009, wherein after considering catena of judgement, it was also held that when purchase and sale are fully vouched no discrepancy is found in day to day stock register, no addition can be made even if some higher stock is shown in bank statements furnished to Bank. It was also submitted that in next year, on same basis, addition of Rs.7,57,040/- was made which is deleted by Learned Commissioner of Income Tax (Appeals). On other hand, Mr.Anand Mohan learned Departmental Representative appeared for revenue supported order of authority below. 9. We have carefully gone through orders of lower authorities. It is pertaining to note that no discrepancy whatsoever is found in regular books of account, stock register maintained by assessee. decision of Hon'ble ITAT Bench of Kolkata in ITA No.1503/Kol/2008 in Assessment Year 2005-06 order dated 13.02.2009 is squarely covered on facts of assessee s case. Apart from this, it appears that assessee has transferred dyes and mould of Rs.16,38,793/- in fixed assets scheduled as addition during year. In view of this, in our opinion, no addition is cared for. addition of Rs.7,57,040/- is accordingly, deleted. This ground of appeal is allowed. 10. With regard to last ground on behalf of assessee, it was submitted that wastage claimed in this year is less then wastage 6 ITA No.3841/Ahd/2004 claimed and allowed in immediately next year under section 143(3). In next year, wastage were 11.9% whereas this year it was 9.36%. In view of this addition to extent of 75,000/- sustained by Learned Commissioner of Income Tax (Appeals) to be deleted. 11. Shri Anand Mohan learned Departmental Representative supported order of Learned Commissioner of Income Tax (Appeals). 12. We have carefully gone through order of authority below. Assessing Officer made addition of Rs.1,00,000/-. In impugned order, Learned Commissioner of Income Tax (Appeals) restricted same to Rs.75,000/-. In impugned order, Learned Commissioner of Income Tax (Appeals) has stated that difference in wastage and difference in value of quantity of runner and riser is not satisfactorily explained. In impugned order, Learned Commissioner of Income Tax (Appeals) has mentioned that claim of percentage of wastage of 9.32% is on higher side in this line of business as compared to similar other manufacturing concerned. In view of this, we inclined to uphold order of Learned Commissioner of Income Tax (Appeals). This ground of appeal is rejected. 13. In result, appeal of assessee is partly allowed. This order is pronounced in open Court on Dated 23rd December, 2009. Sd/- Sd/- (D.C. AGRAWAL) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated: 23/12/2009 Paras# 7 ITA No.3841/Ahd/2004 Copy of Order forwarded to: 1. Appellant 2. Respondent 3. CIT(A) Concerned 4. CIT, 5. DR, Ahmedabad Bench 6. Guard File. BY ORDER, //True Copy// ASSTT. REGISTRAR/ DEPUTY REGISTRAR ITAT, Ahmedabad Benches, AHMEDABAD. Vaibhav Alloys Ltd. v. Income Tax Officer- Ward-8(4)