Pushp Enterprises , Jaipur vs Department Of Income Tax

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA No. 659/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2009-10

The A.C.I.T. cuke M/s Pushp Enterprises, Circle-4, Jaipur. Vs. H-780-A, Road No. 13, VKI Area, Jaipur.

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABFP 2279 F vihykFkhZ@Appellant izR;FkhZ@Respondent

jktLo dh vksj ls@ Revenue by : Smt. Rolee Agarwal (CIT D.R.) fu/kZkfjrh dh vksj ls@ Assessee by : Shri S.L. Poddar (Advocate)

lquokbZ dh rkjh[k@ Date of Hearing : 17/11/2014 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 13/02/2015

vkns'k@ ORDER

PER: R.P. TOLANI, J.M.

This is an appeal filed by the revenue against the order dated

25/04/2012 by the learned CIT(A)-II, Jaipur for A.Y. 2009-10.

Respective grounds of appeal are as under:

2 ITA 659/JP/2012_ ACIT Vs. M/s Pushp Enterprises

"On the facts and in the circumstances of the case and in law, the learned CIT(Appeals), has erred in:-

(i) deleting the addition of Rs. 1,35,56,787/-made by A.O. on account of concealed sales of scrap without appreciating the fact that the assessee could not give evidence regarding non return of the scrap by the vendors/sub-

vendors doing job work for it and it is most unlikely that assessee will allow vendors/sub-vendors to keep scrap with them, on which it is paying excise duty itself.

(ii) deleting the addition of Rs. 2,33,96,017/- made by A.O. on account of concealed sales without appreciating the facts and circumstances of the case.

(iii) deleting the addition of Rs. 19,13,583/- on account of excise duty on sale of scrap paid by the assessee without appreciating the fact that sale of such scrap was not declared by the assessee in its P&L account."

2. Brief facts of the case are that the assessee is a partnership firm

deriving income from manufacturing and job work of Ball Bearings

which are mainly sold to SKF India Ltd. During the course of

assessment proceedings, the Assessing Officer observed that though

the assessee has claimed excise duty payable qua the scrape generated

no corresponding income from sale of scrape was shown by the

assessee. Assessee in this behalf replied that the major work is carried

out by the assessee through job workers/ sub vendors including the 3 ITA 659/JP/2012_ ACIT Vs. M/s Pushp Enterprises

associate concern M/s Noble Industries. As per prevalent trade practice

the scrape generated at their premises is retained by them and not

returned to the assessee. The job work charges are fixed keeping in

view the benefit of scrape value availed by such job workers. Since

assessee did not sale any scrape in this year no proceeds were shown.

Confirmations from job workers were also produced.

2.1 Apropos excise duty paid qua scrape value it was contended that

as per excise rules the assessee was liable to pay excise duty on

notional % of scrape which is generated during the process carried out

by the vendors also. This is a statutory liability which is to be borne by

the assessee, same being a business liability was to be allowed.

2.2 A.O. further required the assessee to file copies of excise returns

i.e. ER-1 monthly form submitted before 10th day of ensuing month in

relation to maintenance of the record for production and removal of

goods and CENVAT credit. From the figures of valuation of excisable

sales mentioned in form ER-1 and sale value shown in assessee's

manufacturing/trading account, a difference of Rs. 2,69,37,325/-was

seen, which the ld. AO asked the assessee to reconcile.

2.3 The assessee in reply contended that the value shown in form

ER-1 was for calculation of ad valorem excise duty of transaction, it 4 ITA 659/JP/2012_ ACIT Vs. M/s Pushp Enterprises

represented excise assessable value of manufactured ball bearings. The

assessee filed the reconciliation in this behalf, which is as under:-

Domestic Scrap Total Sales as per Tax Audit 312374005.80 1313524.50 313687530.30 Report Add: Sales return and 13823864.56 0.00 13823864.56 short receipt adjusted with sales account now shown in ER-1 returns Add: Sales of insert net 21677.00 0.00 21677.00 of P&L A/c Add: Value of non 0.00 13556787.50 13556787.50 returnable scrap from sub vendor Less: Non excisable 465000.00 0.00 465000.00 goods sold not shown in ER-1 Sales as per ER-1 325754547.36 14870312.00 340624859.36

The Assessing Officer, however, did not accept the assessee's

explanation and made the addition by following observations:-

"The submissions of the assessee have been considered but not found tenable reasons as under:-

i) The assessee have paid the job work amounting to Rs.

3,55,96,219/- to M/s Nobel Industries, which is the entity covered U/s 40A(2)(b) and it is pertinent to note that the firm is closely related to the partner of the firm. For argument if it may be presumed that the scrap will be remained with the vendors then it is clear that the firm has 5 ITA 659/JP/2012_ ACIT Vs. M/s Pushp Enterprises

transferred his profit to the relative of the partners of the firm and it is not admissible.

ii) the assessee has not produced any persons or any evidence which shows that the vendor have declared the income for sale of the said scrap. Moreover, on examination of the assessment record of the M/s Nobel Industries, he has not received any receipt of account of the sale of the scrap which was generated from the job work of M/s Pushp Enterprises.

iii) It is unreasonable and not admissible when the assessee himself declared the sale of the scrap in ER-1 and make the payment of excise duty thereon, how a prudent person would give the scrap amounting to Rs. 1,35,56,787/- to the other persons without any benefits.

iv) The assessee has also declared receipts from job work amounting to Rs. 2,05,87,743/- and against that job, the assessee has not declared any sales of scrap.

In these circumstances, it is clear that the explanation of the assessee is nothing but cooked story which is not admissible therefore, as show cause given to the assessee a sum of Rs. 1,35,56,787/- is added back in the income of the assessee treating the same as concealed sale of the scrap."

2.2 Apropos the other issue in second ground i.e. addition on account

of concealed sales, brief facts of the case are that the main customer 6 ITA 659/JP/2012_ ACIT Vs. M/s Pushp Enterprises

for purchase of bearings manufactured by the assessee is SKF India

Ltd.. The assessee raised bills according to agreed price, on receipt

some of the goods are found defective or inferior in quality and are

rejected by SKF India Ltd. Which are subjected to negotiations. Qua

the goods rejected, the assessee has to adjust various debit notes/sales

return/rate difference/short receipts, consequently the invoices are

subject to settlement in this behalf. The difference in sale value in the

books of assessee and SKF was attributable to such settlements,

detailed reply along with SKF's confirmation was filed. Assessing Officer

however, did not accept and made the addition. The total addition came

to Rs. 2,33,96,107/-, which includes the addition of Rs. 1,35,56,787/-.

2.3 Qua third ground, as already mentioned brief facts are that the

Assessing Officer found that assessee had claimed an amount of Rs.

19,13,583/- on account of excise and sales on scrap (non-refundable).

Since no sale of scrap was shown by the, the Assessing Officer required

the assessee to show cause as to why this excise amount should not be

disallowed. The assessee categorically replied that it has to pay excise

duty on scrap generated in its factory as well as scrap generated at

vendors/ job workers premises on a notional basis. This excise duty is 7 ITA 659/JP/2012_ ACIT Vs. M/s Pushp Enterprises

to be paid by the assessee irrespective of sale on a notional % of

generation of scrap. The Assessing Officer, however, did not accept the

assessee's explanation and made the addition in this behalf.

3. Aggrieved, the assessee preferred first appeal before the learned

CIT(A), who had deleted the additions by holding that:

(i) The form ER-1 was maintained by the assessee for the

assessable value of the goods for excise duty purposes as per the

statutory requirement. The figure mentioned therein was not the sale

figure and was maintained only for ascertainment of assessee's excise

duty liability on ad valorem basis. The actual sale figure between

assessee and SKF are reflected in assessee's trading/manufacturing

account which is duly audited. The assessee has properly explained the

alleged difference and reconciled the same. While referring the CANVAT

credit on inputs, the learned CIT(A) further observed that prior to

01/4/2000 that material sent for job workers was to be received by the

assessee back within 180 days and the manufacturer was liable to pay

amount equivalent to CENVAT credit. After 01/4/2000, the rules were

amended and there was no provision under CENVAT credit rules that

the waste and scrap generated during the processing was to be

returned to the manufacturer. There was no material available on 8 ITA 659/JP/2012_ ACIT Vs. M/s Pushp Enterprises

record to suggest that any scrap or wastage was received back by the

assessee and was sold by it and the absence of any evidence of either

the receipt of scrap or the sale of scrap, the addition cannot be made

on assumption by the Assessing Officer. Reliance was placed on the

decision in the case of CIT Vs. Shoorji Vallabhdas and Co. 46 ITR 144

and in the case of State Bank of Travancore Vs. CIT 158 ITR 102. The

assessee provided complete names and addresses of the job

workers/sub-vendors along with their PAN numbers on which the

remand report was called. On examination of M/s Noble Industries, it

was found that no scrap was returned to the assessee. Consequently,

the addition of Rs. 1,33,56,787/- was deleted.

3.1 Apropos the second ground, the learned CIT(A) deleted the

addition by following observations:-

"I have duly considered the submissions of the appellant. As per excise return ER-1, the assessee had reduced the sales return/rate difference/short receipts and other debit notes which were adjusted against the sales from the total turnover. The assessee filed reconciliation statement for the same but the AO brushed aside the same allegedly on the ground that the amount of rate difference could not be deducted from the sales declared in ER-1 return because the sales declared in ER-1 return was on the basis of the quantity 9 ITA 659/JP/2012_ ACIT Vs. M/s Pushp Enterprises

and the original bills and it could not have included the invoices through supplementary invoices and rates had already been considered as genuine by the purchaser i.e. SKF India Ltd. However it was factually incorrect since rate difference and rejection had been rightly reduced from the figures of sales submitted to the Excise department. On careful consideration of facts, I find that the AO has brought to tax the amount of Rs. 1,35,56,787/- twice i.e. first on account of concealed sale of scrap and subsequently as understated sales which tantamounts to double addition. The appellant had claimed an amount of Rs.29,50,662/- on account of rate difference from SKF India Ltd. The AO has not allowed the rate difference simply on the ground that the amount was raised through supplementary invoices. On the other hand, the appellant has filed sufficient documentary evidence in form of correspondence with SKF India Ltd. to show that the rate difference of Rs 31,26,856/- was not allowed by its principal M/s SKF India Ltd. The appellant had rightly reduced the same from the total turnover in the ER-1 return filed with the Excise Department. The appellant had further claimed an amount of Rs 98,39,230/- on account of raw material rate difference between HSS material and raw material as per contract. The AO has not allowed the rate difference simply on the ground that the amount was raised through supplementary invoices. However on perusal of the various documents filed by the appellant, the rate difference 10 ITA 659/JP/2012_ ACIT Vs. M/s Pushp Enterprises

of Rs 98,39,230/- is found to be in order. The appellant had raised the invoice No. 1528 dated 20.09.2008 for an amount of Rs 25,93,355/- to M/s SKF India Ltd., however M/s SKF India Ltd. paid an amount of Rs. 12,34,549/- against this invoice and therefore there were short receipts to the extent of Rs 13,58,806/-. The appellant had raised the invoice No. 1539 dated 22.09.2008 for an amount of Rs. 33,96,275/- to M/s SKF India Ltd., however M/s SKF India Ltd. paid an amount of Rs. 22,27,394/- against this invoice and therefore there were short receipts to the extent of Rs. 11,68,881/-. The appellant had raised the invoice No. 1540 dated 22.09.2008 for an amount of Rs 56,07,531/- to M/s SKF India Ltd., however M/s SKF India Ltd paid an amount of Rs 31,45,428/- against this invoice and therefore there were short receipts to the extent of Rs 24,62,103/-. The appellant has filed complete details containing description of raw material for rate difference along with copies of invoices. The appellant has also filed copies of invoices for rate difference of Rs. 42,07,979/-, Rs. 3,54,904/- and Rs. 2,86,557/- on account of HSS raw material rate difference. The principal M/s SKF India Ltd. vide their letter dated 19.03.2009 had informed the appellant that the rate difference raised through supplementary invoices No. 1959, 1960 and 1961 was not acceptable to them. The appellant had rightly reduced the same from the total turnover in the ER-1 return filed with the Excise Department. Further the appellant had raised the 11 ITA 659/JP/2012_ ACIT Vs. M/s Pushp Enterprises

invoices bearing No. 1523 to 1527 dated 20.09.2008 for Rs 65,91,015/- however M/s SKF India Ltd had paid an amount of Rs. 36,40,336/-. Thus there were short receipts of Rs. 29,50,682/- which were reduced by the appellant from the total turnover in the ER-1 return. Though the AO had disallowed the rate difference of Rs 31,26,865/-, yet the amount was inadvertently taken at Rs. 1,35, 56,787/- while making the addition on account of understated sales on page 8 of the assessment order. Since the rate difference of Rs. 31,26,865/- and Rs. 98,39,230/- is supported by the necessary documentary evidence, the addition made by the AO has no legs to stand and cannot be sustained. However I find that M/s SKF India Ltd. had rejected the material sent through invoices bearing No. 276 dated 25.01.2008 and 281 dated 28.01.2008 amounting to Rs 1,76,179/-. The material was rejected in AY 2008-09 itself and was allowable in that year only. However the appellant has claimed the same in the current year by passing journal entry on 07.02.2009. However such a claim is not allowable in the year under reference. I therefore direct the AO to restrict the addition to Rs. 1,76,179/- instead of Rs.2,33,96,017/- made by him. This ground of appeal is partly allowed."

3.2 Apropos the third ground, the learned CIT(A) deleted the addition

by following observations:-

12 ITA 659/JP/2012_ ACIT Vs. M/s Pushp Enterprises

"I have duly considered the submissions of the appellant. It is not in dispute that the assessee had paid the excise duty of Rs 19,13,583/- on non returnable scrap and it was the liability of the assessee as per rule 4(6) of the Central Excise Rule 2002 read with para 3.18 of chapter V of supplementary manual of instruction. Though the AO had treated the non returnable scrap as concealed sales yet on the other hand, the payment of Excise duty on the same had not been allowed to the appellant. The liability of Excise duty was of the principal manufacturer and vendors had no liability fastened to him. The ledger account of Excise duty pertaining to the year under reference was also submitted. It is not in dispute that the appellant had paid the excise duty of Rs 19,13,583/- on various dates and same is allowable as an expenditure. I therefore direct the AO to delete the addition of Rs. 19,13,583/- made by him. This ground of appeal is allowed."

5. Aggrieved, the revenue is in appeal before us.

6. Apropos the first ground of appeal, the ld. CIT D.R. contends that

in this business, the scrap is necessarily generated and the assessee

has not been able to demonstrate the alleged business practice to the

effect that the scrap generated by the job workers is retained by them.

In absence of any such practice, the Assessing Officer was justified in 13 ITA 659/JP/2012_ ACIT Vs. M/s Pushp Enterprises

holding that the scrap was received back by the assessee and sold

outside the books. Therefore, the addition in this behalf is fully justified.

6.1 Apropos the second ground, it is contended that the difference in

the figures value of the goods manufactured and sold by the assessee

in excise register ER-1 and books of account is significant and the same

has not been properly answered by the assessee. The learned CIT(A)

on assumption has held that ER-1 register refers to the excisable value,

which is different than the actual value. Similarly, in respect of the

difference attributable to the difference of account of assessee and SKF

India Ltd., proper reconciliation has not been provided.

6.2 Apropos the third ground, it is contended that when the assessee

is not showing any sale of scrap then there is no justification in allowing

the excise duty payable by the assessee in this behalf.

7. Learned counsel for the assessee contends that in earlier years

and in subsequent years, the assessments have been made on the clear

understanding that the job work scrape is retained by the job workers.

It has been wrongly held by the Assessing Officer that the assessee did

not produce any evidence in this behalf. The assessee adduced the

evidence of M/s Noble Industries from whom the job work of about

3.56 crores were done, which has made a sale of scrap of Rs.

14 ITA 659/JP/2012_ ACIT Vs. M/s Pushp Enterprises

7,47,109/- and offered in its income, which is part of paper book. Ld.

CIT(A) has referred to the case of M/s Rocket Engineering Corporation

Vs. CCE 2006(193) ELT 33 (CESTAT), where it was held that the scrape

was not required to be returned to principal vendor. Further the

assessee required to pay and duty on the scrape generated at the

premises of job workers since Cenvat Credit Rules after 01/04/2000

made such provision. This view was confirmed in CCE Vs Rocket

Engineering Corporation (2008) 223 ELT 347 (Bombay High Court DB)

and it was followed in Emco Ltd. Vs. CCE (2008) 223 ELT 613

(CESTAT). The learned Assessing Officer has brought nothing on record

to indicate that the assessee in any manner indulged in any out of

books sale of scrape. The assessee's premises are excise bound and

any incoming material will be entered into the corresponding register.

Thus, nothing has been brought on record by Assessing Officer to hold

an adverse view that any scrap was received back or sold outside the

books of account.

7.1 Apropos second ground, the learned counsel for the assessee

contends that it is a common knowledge that the duty of excise is on

the basis of ad valorem, which is a fixed excisable value of the goods

stipulated by the Central Excise Rules, thus it is a statutory value on 15 ITA 659/JP/2012_ ACIT Vs. M/s Pushp Enterprises

which excise is levied and ER-1 is maintained to fulfill that statutory

requirement. This is not and cannot be compared with the actual sale

price realized between two business entities. The duty of excise does

not depend on the actual sale value i.e. even if the assessee has

incurred a loss the duty is payable ad valorem, thus on removal of

goods from excisable premises assessee has to pay the excise duty on

the stipulated excisable value. The learned Assessing Officer has

adopted the figures of two different types of values, which are

fundamentally uncomparable. The excise record of the assessee has

been accepted, in view thereof, there is no justification in holding that

there is a difference in excisable value and sale transaction. The learned

CIT(A) has duly appreciated all the aspects of the matter and by

detailed findings has held that no such alleged difference exists.

7.3 Apropos the third ground, it is contended that the excise duty is

statutory liability and once this being so, the amount is eligible, the

learned CIT(A) has referred to relevant amendment in Rule 4(6) of

Central Excise Rules, 2002 in this behalf, which notionally prescribes

percentage of excise duty liability even if the scrap is not received back

by the assessee. The liability is created by a statute, the payment 16 ITA 659/JP/2012_ ACIT Vs. M/s Pushp Enterprises

thereof is allowable business expenditure. The order of the learned

CIT(A) may be confirmed.

8. We have heard the rival contentions of both the parties and

perused the material available on the record. Apropos the first ground

i.e. the addition on account of alleged sale of scrap, we find no infirmity

in the order of the learned CIT(A) inasmuch as nothing has been

brought on record by learned Assessing Officer that the assessee's job

workers returned any scrap to assessee. Nothing has also been brought

on record to demonstrate in any way that assessee indulged in any sale

of scrap outside the books of account. This is further indicated by new

Cenvat Credit Rules, which holds that the scrap was not required to be

returned to the assessee. The same is referred to by the judgment in

the case of M/s Rocket Engineering Corporation Vs. CCE (supra). The

assessee further provided evidence from M/s Noble Industries, which

has done a job work of 3.56 crores and has shown the income

attributable to sales of scrape of Rs. 747109/-, in its books. These facts

and observations demonstrate that the assessee did not receive any

scrap back from job workers. There being no evidence whatsoever

suggesting any unaccounted sales by the assessee, the order of learned 17 ITA 659/JP/2012_ ACIT Vs. M/s Pushp Enterprises

CIT(A) on these issues is upheld. This ground of revenue's appeal is

dismissed.

8.1 Apropos the second ground, which includes the addition amount

of Rs. 1,35,56,787/- relating to concealed sale of scrap, the balance

amount to difference shown by the assessee as receivable from SKF

and the payable amount in the books of SKF, the assessee has

demonstrated that the difference was due to the disputes pertaining to

defective and inferior quality of goods. The assessee used to account

for the actual invoice value whereas the purchases were accounted by

SKF not on the basis of the sales bills but on the basis of settled

amounts qua these invoices. All these issues have been discussed in

details by the learned CIT(A) as mentioned above. In view thereof, we

see no infirmity in the order of the learned CIT(A) on this issue also,

which is upheld. The second ground of revenue appeal is dismissed.

8.2 Apropos the third ground the assessee demonstrated that as per

Rule 4(6) of the Central Excise Rules, the assessee was liable for excise

duty on the notional value of nonreturnable scrap. Thus, the assessee

has to face the situation where the scrape was not returnable to it and

on top of that the excise duty on such scrape was also payable by the

assessee as per excise rules. In view thereof, the excise duty in respect 18 ITA 659/JP/2012_ ACIT Vs. M/s Pushp Enterprises

of unreturned scrap becomes a statutory/legal liability of the assessee,

which is allowable business expenditure. The learned CIT(A) has

considered the issue in right perspective and we see no infirmity in its

order on this ground, the same is upheld.

9. In the result, revenue's appeal is dismissed.

Order pronounced in the open court on 13/02/2015.

Sd/- Sd/- ¼Vh-vkj-ehuk½ ¼vkj-ih-rksykuh½ (T.R. Meena) (R.P.Tolani) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member

Tk;iqj@Jaipur fnukad@Dated:- 13th February, 2015

*Ranjan

vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- The A.C.I.T., Circle-4, Jaipur..

2. izR;FkhZ@ The Respondent- M/s Pushp Enterprises, Jaipur.

3. vk;dj vk;qDr¼vihy½@The CIT(A)-II,Jaipur.

4. vk;dj vk;qDr@ CIT, Jaipur

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No. 659/JP/2012)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar