INCOME-TAX APPELLATE TRIBUNAL - HYDERABAD "B" BENCH

I. T. A. Nos. 290 and 284/Hyd/2013 (assessment years 2004-05 and 2009-10).

B. RAMAKOTAIAH (Accountant Member) and SAKTIJIT DEY (Judicial Member)

Rajiv Benjwal, for the appellant.
B. Satyanarayana Murthy, for the respondent.

The order of the Bench was delivered by

1 SAKTIJIT DEY (Judicial Member).-Both these appeals filed by the Department are directed against separate orders of the Commissioner of Income-tax (Appeals)-VI, Hyderabad and they pertain to the assessment years 2004-05 and 2009-10. Since the assessee is common, grounds involved in these appeals are identical, these two appeals are taken up together and disposed of by this combined order for the sake of conveni­ence.

2 The only effective ground in appeal No. 280/Hyd/13 pertaining to the assessment year 2004-05 which is also one of the effective grounds raised in appeal No. 284/Hyd113 relating to the assessment year 2009-10 is with regard to disallowance made by the Assessing Officer on the claim of wastage.

3'\ Briefly the facts are the assessee a private limited company is engaged in ~e business of manufacture and sale of studded gold and silver jewellery and trading in bullion. In the course of assessment proceedings, the Assessing Officer while examining the audited accounts of the assessee noticed that 'the assessee has claimed loss of gold and silver in the form of wastage in the process of manufacturing of jewellery. The Assessing Officer when proposed to disallow the claim of wastage in the absence of supporting evidence, the assessee subtriitted its reply stating therein that it had incurred wastage in gold and silver which was quantified on the basis of the operational sheets for issue and receipt of material from karigars and on . the basis of physical stock taken every month for the in-house production. The Assessing Officer also recorded a statement of the managing director of the company in this regard. Ultimately, however the Assessing' Officer rejected . the contention of the assessee and disallowed the claim of loss on wastage. Being aggrieved of the disallowance made by the Assessing Officer, the assessee went in appeal before the Commis­sioner of Income-tax (Appeals).

During the course of hearing before the Commissioner of Income-tax (Appeals) the assessee apart from reiterating the stand taken before the Assessing Officer also brought to the notice of the Commissioner of Income-tax (Appeals) the order passed by the Income-tax Appellate Tribunal on similar issue relating to the assessment year 2008-09 wherein the Income-tax Appellate Tribunal had allowed the wastage of 5 per cent. The Commissioner of Income-tax (Appeals) following the order of the Income-tax Appellate Tribunal passed for the assessment year 2008-09 deleted the additions made by the Assessing Officer and allowed the claim of the assessee.

We have heard the contentions of the parties and perused the material on record. The Assessing Officer had disallowed the assessee's claim of loss of gold and silver due to wastage of an amount of Rs. 36,22,990 and  3,75,96,000 for the assessment years 2004-05 and 2009-10 respectively. As it appears from records, similar disallowance was also made by the sessing Officer in the assessment completed for the assessment year 2008-09 in case of the assessee. The assessee challenged the same before the Commissioner of Income-tax (Appeals) and being unsuccessful before the first appellate authority, carried the matter in appeal before the Income-tax Appellate Tribunal, Hyderabad Bench in I. T. A. No. 1326/Hyd/ 2011. A co-ordinate bench of this Tribunal disposed of the appeal vide order dated December 26,2011 by allowing the claim of the assessee. The Income-tax Appellate Tribunal held as under:

"We have heard both the parties and also perused the material available on record. In this case, the Assessing Officer made disal­lowance towards wastage on the reason that the assessee did not maintain day to day account of wastage. According to the Assessing Officer the assessee is making entries regarding wastage as per his convenience and no contemporaneous records have been maintained regarding quantification. But the Assessing Officer lost sight of the fact that there is wastage while manufacturing gold jewellery and the wastage claimed by the assessee has to be allowed and. it should be on reasonable basis. As seen from the net profit declared by the assessee, the net profit for the present assessment year is at 1.92 per cent. However, the same is 2.25 for the .assessment year 2010-11. Further wastage claimed by the assessee, for the assessment year 2008-09 is 5.4 per cent. However, the same for assessment year 2009-0 is 4.36 per cent. and the wastage claimed by, the assessee is follows.

The average wastage works out at 4.71 per cent. Considering the rate of net profit at 1.92 per cent. for the present assessment year which is higher than all earlier years giving weightage towards this, we make wastage at a round figure of 5 per cent. considering the facts and circumstances of the case. Further, we make it ,clear that our observation is only to the present year under consideration and this finding shall not prejudice the Assessing Officer while completing the assessment for any other assessment year. This ground of the assessee is partly allowed."

6 As is evident from the aforesaid order of the co-ordinate Bench, the Tribunal had allowed wastage of 5 per cent. It appears from records that the wastage for the assessment year 2004-05 works out to 2.82 per cent. and that for the assessment year 2009-10 is 4.01 per cent. Thus, the wastage claimed by the assessee is within the permissible limit.

7 The learned Departmental representative was also not able to bring any material to controvert the aforesaid factual position. In these facts and circumstances, we find no infirmity in the order of the Commissioner of Income-tax (Appeals) in deleting the addition made by the Assessing Officer by following the order of the Income-tax Appellate Tribunal for the assessment year 2008-09. Accordingly, we uphold the order of the Commissioner of Income-tax (Appeals) on this issue and dismiss the ground raised by the Department.

The only other surviving issue in I. T. A. No. 284/Hyd/13 is with regard to the Commissioner of Income-tax (Appeals) allowing depreciation at the rate of 50 per cent. on motor car. During the assessment proceedings, from the depreciation statement filed by the assessee, the Assessing Officer noticed that the assessee had claimed depreciation at the rate of 50 per cent. on vehicles amounting to Rs. 3,32,125. The Assessing Officer being of the opinion that the assessee is entitled to depreciation on vehicles at the rate of 15 per cent. disallowed an amount of Rs. 2,32,488. The assessee being aggrieved of the disallowance made by the Assessing Officer preferred an appeal before the Commissioner of Income-tax (Appeals).

On appeal, the Commissioner of Income-tax (Appeals) accepted the claim of the assessee by allowing deprecation at the rate of 50 per cent.

We have considered the submissions of the parties and perused the material on record. It is the contention of the learned authorised repre­sentative that the vehicle purchased is a commercial vehicle and hence the • assessee is entitled for depreciation at the rate of 50 per cent. as per clause (via) forming part of new Appendix I to the Income-tax Rules, 1962 . . However, the learned Departmental representative contended that the assessee is entitled for depreciation at the rate of 15 per cent. on motor car as per schedule.

On perusal of the assessment order, it appears that the Assessing Officer has given no reason as to why the assessee's claim of depreciation at the rate of 50 per cent. is not allowable. Since the disallowance of depreciation claimed is not supported by any reason, the disallowance so made, cannot be sustained. However, it is seen from the order of the Commissioner of Income-tax (Appeals) that the assessee has purchased the motor car on February 26, 2009 which in other words mean that the asset has been used for less than 180 days and as such the assessee is not entitled for full depre­ciation but for 50 per cent. of the amount computed. We therefore direct the Assessing Officer to compute depreciation on motor car accordingly. The order of the Commissioner of Income-tax (Appeals) is modified to the extent indicated above. Hence, the ground raised by the Revenue is allowed in part.

In the result, I. T. A. No. 280/Hyd/13 is dismissed and I. T. A. No. 284/ Hyd/13 is allowed in part.