INCOME TAX ACT, 1961

Section 143(3)

Assessment - Additions to income - Allegation of unaccounted sale of scrap - Scrap retained by job workers as a part of job work charges

Assessee company was engaged in manufacturing and job work of automobile components including ball bearings. AO noticed that as per RG-1 stock register, assessee had shown the sale of scrap at Rs. 3,31,02,840 whereas assessee in its books of account has shown sale of scrap at Rs. 1,64,84,200. Assessee explained reason of the said difference of Rs. 1,66,18,640 that scrap generated during production by the job workers remained with the job workers who are beneficial of the said scrap and it was a part of job cost to the assessee. Excise Department collected the duty on such scrap from assessee which remained with job workers, therefore, assessee had to show value of scrap which remained with job workers in RG-1 register. AO not being satisfied with explanation of assessee made addition on account of sale of scrap outside the books. Held: Assessee had produced confirmations as well as affidavits of sub-workers wherein they had accepted retention of scrap generated during the course of job work and sale of scrap by them and not by assessee. Thus, it was an arrangement between parties regarding job work wherein job work charges also included the scrap generated during the job work. Further, AO had not disputed the fact that assessee itself had generated scrap in the job work done for outside parties and also showed sale of scrap in books of account. Once this practice of retaining scrap by job workers was accepted in case of assessee, then scrap generated by job workers who had done job work for assessee and retained same, could not not be denied. Therefore, addition made by AO on account of unaccounted scrap sale was deleted.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2013-14

INCOME TAX ACT, 1961

Section 14A

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