Aroma High-Tech Limited, Palanpur V. The ACIT, B.K.Circle, Palanpur

CO 20/AHD/2015

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2054 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 4 month(s) 16 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 19-06-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 02-02-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: S N DIVETIA
• Keywords: Gross profit estimation; Rejection of books of accounts; Business income; Wrong claim; Revenue expenditure
• Section: 143(2); 145

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD - BENCH B BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ ITA NO.3340/AHD/2014 WITH CO NO.20/AHD/2015 / ASSTT. YEAR: 2010-2011 ACIT, B.K. CIRCLE PALANPUR. VS. M/S.AROMA HIGHTECH LTD. C/O. ARIHANT PUMPS P.LTD. DEESA HIGHWAY PALANPUR PAN : AABCA 2943 G. / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI ALOK SINGH, CIT-DR ASSESSEE BY : SHRI S.N. DIVETIA, AR ! / DATE OF HEARING : 18/06/2019 '#$ ! / DATE OF PRONOUNCEMENT: 19/06/2019 %& / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST OR DER OF THE LD.CIT(A)-XX, AHMEDABAD DATED 9.9.2014 PASSED FOR T HE ASSTT.YEAR 2010-11. ON RECEIPT OF NOTICE IN REVENUES APPEAL, THE ASSESSEE HAS FILED CO BEARING NO.20/AHD/2015. 2. AT THE TIME OF HEARING, LD.COUNSEL FOR THE ASSES SEE DID NOT PRESS CO, HENCE, CO FILED BY THE ASSESSEE IS DISMISSED. ITA NO.3340/AHD/2014 WITH CO 2 3. REVENUE IN ITS APPEAL HAS TAKEN FOUR GROUNDS OF APPEAL. OUT OF THAT GROUND NO.3 AND 4 ARE GENERAL GROUNDS OF APPEA L, WHICH DO NOT CALL FOR RECORDING ANY SPECIFIC FINDING. IN GROUND NO.1 , REVENUE HAS PLEADED THAT THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITI ON OF RS.2,98,78,393/- WHICH WAS ADDED BY THE AO ON ACCOUNT OF LOW GP SHOW N BY THE ASSESSEE. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 15,19,2919 DECLARING TOTAL LOSS AT RS.4,9 3,03,952/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSE SSMENT AND NOTICE UNDER SECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE. AT THE RELEVANT TIME ASSESSEE WAS MANUFACTURING AND TRADIN G IN SUBMERSIBLE AND OTHER PUMPS. THE LD.AO HAS OBSERVED THAT THE A SSESSEE HAS ACHIEVED TOTAL SALES AT RS.37,96,30,697/-. CONSUMP TION OF RAW- MATERIAL WAS HAVING VALUE OF RS.32,88,66,469/-. TH IS CONSUMPTION IN TERMS OF RATIO TO SALES COMES TO 0.866. THE LD.AO HAS OBSERVED THAT RATIO OF CONSUMPTION IN COMPARISON TO SALES IN THE IMMEDIATELY PRECEDING YEAR WAS 0.801. HE OBSERVED THAT THERE I S A SLIGHT INCREASE IN MATERIAL CONSUMPTION RATIO BY 1.3% . THE LD.AO CALCULATED THE SALES WHICH OUGHT TO HAVE BEEN ACHIEVED BY THE ASSESSEE, IF CONSUMPTION OF RAW-MATERIAL IN TERMS OF PERCENTAGE BEING TAKEN EQU IVALENT TO THE IMMEDIATELY PRECEDING YEAR. ON THE BASIS OF THIS C ALCULATION, HE WORKED OUT THE ESTIMATED SALES AT RS.41,01,09,077/- AND CO MPARED IT WITH SALES SHOWN BY THE ASSESSEE AT RS.37,96,30,697/-. THE DIFFERENCE OF RS.3,04,78,393/- WAS TREATED AS SALES OUTSIDE THE B OOKS OF ACCOUNTS. ON THIS EXERCISE, THE LD.AO HAS MADE AN ADDITION OF RS.3,04,78,393/-. 5. DISSATISFIED WITH THE ADDITION, THE ASSESSEE CAR RIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). THE LD.CIT(A) HAS RE- APPRECIATED THE FACTS AND DELETED THE ADDITION BY RECORDING THE FOLLOWING FINDING: ITA NO.3340/AHD/2014 WITH CO 3 3.3. I HAVE CONSIDERED THE FACTS OF THE CASE AND S UBMISSION MADE BY THE APPELLANT. THE AO HAS MADE THE ADDITION OF RS.3,04,78,393/- BY ESTIMATING THE SALES SUPPRESSIO N. IT HAS BEEN OBSERVED THAT THE APPELLANT HAD THE CONSUMPTION OF MATERIAL OF RS.32,88,66,469/- AS AGAINST THE SALES OF RS.37,96, 30,697/- AND THE MATERIAL CONSUMPTION TO SALES RATIO CALCULATED AT 0.866 IN THE YEAR UNDER CONSIDERATION. WHILE THE MATERIAL CONSUM PTION TO SALE RATIO WAS AT 0.802.IN THE IMMEDIATELY PRECEDING YEA R. THUS THE AO CONCLUDED THAT THE MATERIAL CONSUMPTION TO SALE RATIO WAS HIGHER IN THE YEAR UNDER CONSIDERATION AND THUS THE APPELLANT HAS MADE THE SALES OUT OF BOOKS OF ACCOUNTS. CONSIDERIN G THE MATERIAL CONSUMPTION RATIO OF THE IMMEDIATELY PRECEDING YEAR AT 0.102 AND APPLYING THE SAME, THE TOTAL SALES FOR THE YEAR UND ER CONSIDERATION WAS WORKED OUT AT RS.41.01,09,077/- A S AGAINST THE SALES OF RS.37,96,30,697/- AND THEREBY THE DIFFEREN CE OF SALES AT RS.3,04,78,393/- WAS TREATED AS SALES OUTSIDE THE B OOKS OF ACCOUNTS. THE AO CONCLUDED THAT THE INCREASE IN MAT ERIAL CONSUMPTION RATIO AS COMPARED TO LAST YEAR WAS SIGN IFICANTLY HIGHER LOOKING AT THE TURNOVER OF THE ASSESSEE. THE AO DID NOT CONSIDER THE APPELLANT'S CONTENTION THAT THERE WAS FALL IN THE SALES OF SUBMERSIBLE PUMPS BY 6.1% WHICH WAS THEIR MAIN R EVENUE YIELDING PRODUCT AND BECAUSE OF THAT REASON THERE W AS FALL IN G.P. SO AO CONCLUDED THAT IF THE SALES IS REDUCED BY 6.1 % THEN HOW THE MATERIAL CONSUMPTION RATIO COULD NOT HAVE BEEN INCREASED BY 8.031%. 3.4. ON THE OTHER SIDE THE APPELLANT CONTENDED THAT THE BOOKS OF ACCOUNTS OF THE APPELLANT COMPANY WERE SUBJECTED TO STATUTORY AS WELL AS TAX AUDIT AND THE SAME HAVE NOT BEEN REJECT ED BY THE A.O. INVOKING THE PROVISIONS OF SECTION 145(3) OF I.T. A CT BY SPECIFYING THE DEFECTS THEREIN. IT WAS ALSO CONTENDED THAT THE AO HAS NOT FOUND OUT ANY INDEPENDENT EVIDENCE OR INFORMATION T O PROVE SUCH AN ALLEGATION THAT THE APPELLANT HAS MADE THE SALES OUTSIDE THE BOOKS OF ACCOUNTS. IT WAS ALSO PLEADED THAT THE APP ELLANT VIDE ITS REPLY DTD.19.3.2013 HAS GIVEN THE DETAILED EXPLANAT ION AND REASONS FOR FALL IN G.P. MARGINALLY AND INCREASE IN THE CONSUMPTION OF RAW MATERIAL RATIO WHICH HAS BEEN COMPLETELY IGN ORED BY THE A.O. IT HAS ALSO BEEN ARGUED THAT BEFORE THE A.O. T HAT THE APPELLANT HAD BECOME A SICK UNIT FACING ACUTE SHORT AGE OF FUNDS AND ITS LOAN ACCOUNTS WITH CONSORTIUM OF BANKERS AL SO BECAME NPA AND THE BANKERS HAVE FILED RECOVERY SUIT IN DRT AND THEY HAVE ALSO SIGNED THE DEBT OF THE COMPANY IN FAVOUR OF ASSET RECONSTRUCTION COMPANY NAMELY ARSEC INDIA LTD. SO I N SUCH SITUATION WHEN THE COMPANY ITSELF WAS STRUGGLING HA RD FOR ITS SURVIVAL THE MARGINAL FALL IN G.P. OR MARGINAL INCR EASE IN RAW MATERIAL CONSUMPTION WAS NATURAL AND OF WHICH REASO NS HAVE BEEN FULLY EXPLAINED TO THE A.O. BY IGNORING THE SA ME THE A.O. ITA NO.3340/AHD/2014 WITH CO 4 HAS APPLIED MATHEMATICAL FORMULA AND PASSED THE ORD ER IN WRONG AND UNLAWFUL BELIEF THAT THE TRADING RESULT SHOULD BE THE SAME OVER THE YEARS AND THERE WAS NO SCOPE FOR ANY VARIA TION WHICH COULD HAPPEN DUE TO VARIOUS REASONS BEYOND THE CONT ROL. IT WAS ALSO SUBMITTED THAT EVEN THE WORKING OF THE MATERIA L CONSUMPTION RATIO MADE BY THE A.O. FOR BOTH THE YEARS WAS HIGHL Y VAGUE/INCORRECT AS THE AO HAS COMPLETELY IGNORED TH E FACT THAT RAW MATERIAL CONSUMPTION ALSO INCLUDE THE CONSUMPTI ON MADE FOR WORK-IN-PROGRESS AND FINISHED GOODS CLOSING STOCK. THE AO TOTALLY ASSUMED THAT WHATEVER CONSUMPTION WAS SHOWN WAS FOR SALES ONLY AND HE HAS IGNORED THE INCREASE/DECREASE IN TH E CLOSING STOCK OF SEMI-FINISHED AND FINISHED-GOODS WHILE ARRIVING AT THE MATERIAL CONSUMPTION RATIO. SO THE WORKING ITSELF WAS COM PLETELY WRONG. HE HAS WORKED OUT THE MATERIAL CONSUMPTION RATIO FO R THE YEAR UNDER CONSIDERATION AT 0.848 FOR THE YEAR UNDER CON SIDERATION AS AGAINST THE SAME RATIO IN THE IMMEDIATELY PRECEDING YEAR AT 0.835. THUS, THERE WAS THE SLIGHT INCREASE IN THE M ATERIAL CONSUMPTION RATIO BY 1.3% (0.848 - 0.835) IN THE YE AR UNDER CONSIDERATION OF WHICH DETAILED WORKING IS AS UNDER :- FY 2009-10 FY 2008- 2009 SALES [ A ] 379630697 538085372 MATERIAL CONSUMED [ B ] 328866469 431515961 CHANGES IN OP. & CL. STOCK OF SEMI FINISHED & FINISHED GOODS [ C ] -6968084 17747909 MATERIAL CONSUMED FOR SALES [ D ] [ B - C ] 321898385 449263870 MATERIAL CONSUMPTION OVER SALES RATIO [D / A ] 0.84792506 0.83493046 FURTHER THE APPELLANT HAS ALSO GIVEN THE WORKING OF G.P. TO SALES WHICH IS ALSO AS UNDER:- PARTICULAR F.Y. 2008-09 F.Y. 2009-10 SALES 538085372 379630697 GROSS PROFIT 88786504 57732312 G.P% TO SALES 16.50 15.20% THUS THE G.P. IN THE YEAR UNDER CONSIDERATION WAS 1 5.20% AS AGAINST THE 16.50% IN THE IMMEDIATELY PRECEDING YEA R. THUS, THERE WAS SUBSTANTIAL FALL I.E. 30% IN THE TURNOVER IN THE YEAR ITA NO.3340/AHD/2014 WITH CO 5 UNDER CONSIDERATION AS IT WAS RS.37.96 CRORES IN TH E YEAR UNDER CONSIDERATION AS AGAINST THE SALES IN THE IMMEDIATE LY PRECEDING YEAR AT RS.53.80 CRORES. THE REASONS FOR SUCH FALLS ON BOTH THE ITEMS HAVE BEEN SUBMITTED TO THE A.O. BUT THE SAME HAVE BEEN IGNORED BY THE A.O. AND ADDITION WAS MADE WITHOUT A NY BASE. IT HAS ALSO BEEN ALLEGED THAT THE SAME A.O. HAS TAK EN DIFFERENT STAND WHILE ASSESSING THE INCOME OF THE O THER GROUP COMPANY NAMELY M/S.ARIHANT PUMPS PVT. LTD. ON THE S IMILAR FACTS WHEREIN THE ADDITION HAS BEEN MADE ON ESTIMATION OF THE G.P. AND NOT SUPPRESSION OF THE SALES. IN VIEW OF THE ABOV E, THE APPELLANT CONTENDED THAT THE AO HAS NOT ACTED IN A LAWFUL AND JUDICIOUS MANNER BY MAKING SUCH A BIG ASSESSMENT. HE HAS RELI ED UPON THE DECISION OF HON'BLE ITAT, RAJKOT BENCH IN THE CASE OF ITO VS. GIRISH M. MEHTA (2008) 296 ITR (AT) 125 WHEREBY IT HAS BEEN POINTED OUT THAT PRE- CONDITIONS FOR ESTIMATING BUS INESS INCOME OF THE ASSESSEE WAS THAT THE BOOKS OF ACCOUNTS SHOULD HAVE BEEN FOUND TO BE UNRELIABLE OR OTHERWISE NOT CAPABLE OF PROVING THE ASSESSES INCOME. WITHOUT THIS FIRST STEP THE FACT T HAT GROSS PROFIT IS LOW CANNOT BY ITSELF BE A GROUND FOR TAKING A VI EW THAT IT IS OPEN TO THE AO TO MAKE GOOD THE ALLEGED DEFICIENCY IN GR OSS PROFIT. FURTHER HE HAS RELIED UPON THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF GIT VS. PARADISE HOLIDAYS (201 0) 325 ITR 13 WHEREBY IT HAS BEEN HELD THAT IF ACCOUNTS WHICH ARE REGULARLY MAINTAINED IN THE COURSE OF BUSINESS AND ARE DULY O MITTED FREE FROM ANY CLARIFICATION BY THE AUDITORS SHOULD NORMA LLY BE TAKEN AS CORRECT UNLESS THERE ARE ADEQUATE REASONS TO INDICA TE THAT THEY ARE INCORRECT OR UNRELIABLE. THUS ONUS IS UPON THE REVENUE TO SHOW THAT EITHER THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE WERE INCORRECT OR INCOMPLETE OR THAT THE METHOD OF ACCOUNTING ADOPTED BY HIM WAS SUCH THAT TRUE PROFITS OF THE AS SESSEE CANNOT BE DEDUCED THEREFROM. FURTHER HON'BLE ITAT, AHMEDAB AD BENCH IN THE CASE OF SIDDHI ENTERPRISES VS. DEPARTMENT OF INCOME-TAX IN ITA NO.L431/AHD/2012 HAS HELD THAT IT IS A SETTLED PROPOSITION OF LAW THAT FOR REJECTION OF BOOKS OF ACCOUNTS THE AO IS REQUIRED TO DEMONSTRATE SPECIFIC DEFECTS IN THE BOOKS OF ACCOUN TS PRODUCED BY THE ASSESSEE AND ALSO HOW THE BOOKS OF ACCOUNTS PRO DUCED BY THE ASSESSEE IS NOT GIVING CLEAR PICTURE OF THE PROFITS EARNED FROM THE BUSINESS ACTIVITY. IN THE ABSENCE OF SUCH FINDING T HE BOOKS OF ACCOUNTS COULD NOT BE REJECTED AND THE ADDITION CAN NOT BE SUSTAINED ON THE BASIS OF SUCH REJECTION OF BOOKS O F ACCOUNTS. 3.5. IN VIEW OF THE AFORESAID DISCUSSION, IT IS APP ARENT THAT FIRSTLY THE AO HAS NOT CORRECTLY WORKED OUT THE MATERIAL CO NSUMPTION RATIO FOR BOTH THE ASSESSMENT YEARS BY MAKING A MIS TAKE THAT THE SAME WAS WORKED OUT WITHOUT GIVING EFFECT TO THE OP ENING AND CLOSING STOCK OF SEMI FINISHED GOODS AND FINISHED G OODS WHICH HAS ITA NO.3340/AHD/2014 WITH CO 6 NOT GIVEN THE CORRECT ABOUT THE CONSUMPTION RATIO. HOWEVER, AFTER CONSIDERING THE SAME THE APPELLANT HAS WORKED OUT T HE MATERIAL CONSUMPTION RATIO AT 0.848 AS AGAINST THE 0.835 IN THE IMMEDIATELY PRECEDING YEAR. SO THERE WAS AN INCREAS E IN THE RATIO IN THE YEAR UNDER CONSIDERATION BY 0.0130 I.E. 1.30 %. LIKEWISE IN THE G.P. RATE THERE WAS FALL OF 1.30% WITH THE FALL IN SALES AT 30% IN THE YEAR UNDER CONSIDERATION. MOREOVER, BECAUSE OF THE SICK UNIT AND DUE TO SHORTAGE OF FUNDS THE APPELLANT HAD TO MAKE THE PURCHASES AT HIGHER RATES TO GET THE CREDIT FROM TH E SUPPLIERS. THEREFORE, THIS HAS ALSO RESULTED INTO THE FALL IN THE GROSS MARGIN. THE AO HAS NOT POINTED OUT ANY SIMILAR INSTANCE SAY ING THE UNACCOUNTED PURCHASES OR UNCOMPLETED SALES EFFECTED BY THE APPELLANT. EVEN IT HAS NOT POINTED OUT ANY DEFECTS IN THE BOOKS OF ACCOUNTS AND THAT IS WHY THE BOOK RESULTS HAVE BEEN ACCEPTED AND NO REJECTION OF BOOKS OF ACCOUNTS U/S.145 HAS B EEN MADE. HOWEVER, THE APPELLANT HAS NOT MAINTAINED THE STOCK REGISTER FOR EACH OF THE ITEMS CONSUMED AND PURCHASED AND THEREF ORE POSSIBILITIES OF LEAKAGE OF REVENUE CANNOT BE RULED OUT MORE PARTICULARLY DUE TO THE FALL IN G.P. RATE. THEREFOR E IT WOULD BE REASONABLE TO MAKE A LUMPSUM DISALLOWANCE OF RS.6,0 0,000/- AS AGAINST THE ADDITION OF THE SUPPRESSED SALES MADE B Y THE A.O BY REJECTING THE BOOKS OF ACCOUNTS AS THE CONSUMPTION OF RAW- MATERIAL AND PRODUCTION OF FINISHED GOODS AND WIP A RE NOT OPEN FOR VERIFICATION DUE TO MAN MAINTENANCE OF DAILY ST OCK REGISTERS. THUS THE ADDITION TO THE EXTENT OF RS.6,00,000/- IS CONFIRMED. THUS THE APPELLANT GETS THE PART RELIEF ON THIS ISS UE. GROUND OF APPELLANT IS PARTLY ALLOWED. 6. THE LD.DR RELIED UPON THE ORDER OF THE LD.AO, WH EREAS THE LD.COUNSEL FOR THE ASSESSEE RELIED UPON ORDER OF TH E CIT(A) AS WELL AS SUBMISSIONS MADE BEFORE THE LD.CIT(A) WHICH HAVE BE EN REPRODUCED BY THE LD.CIT(A) IN PARA-3.2 OF THE IMPUGNED ORDER. 7. WE HAVE DULY CONSIDERED RIVAL SUBMISSIONS AND GO NE THROUGH THE RECORD CAREFULLY. IT IS TRITE TO SAY THAT THE SALE S COULD BE ESTIMATED IF THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE REJECTED. IN THIS CONNECTION WE WOULD LIKE TO MAKE REFERENCE TO SECTION 145(3) O F THE INCOME TAX ACT, 1961, WHICH READS AS UNDER: 145. (1) INCOME CHARGEABLE UNDER THE HEAD 'PROFIT S AND GAINS OF BUSINESS OR PROFESSION' OR 'INCOME FROM OTHER SOURC ES' SHALL, SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), BE CO MPUTED IN ITA NO.3340/AHD/2014 WITH CO 7 ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME [ACCOUNTING STANDARDS] T O BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLAS S OF INCOME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECT ION (1) [OR ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE], THE ASSES SING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SE CTION 144.] 8. A BARE READING OF SECTION 145 WOULD REVEAL THAT IT PROVIDE THE MECHANISM HOW TO COMPUTE THE INCOME OF THE ASSESSEE . ACCORDING TO SUB-SECTION 1, THE INCOME CHARGEABLE UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURCE SHALL BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTANCY EMPLOY ED BY AN ASSESSEE REGULARLY, SUBJECT TO SUB-SECTION 2 OF SEC TION 145 OF THE ACT. SUB-SECTION 2 PROVIDES THAT THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICIAL GAZETTE FROM TIME TO TIME, THE ACCOUNTING STANDARD REQUIRED TO BE FOLLOWED BY ANY CLASS OF ASSESSEE IN RESPECT OF ANY CLASS OF INCOME. THUS, IT INDICATES THAT INCOME HAS TO BE COMPUTED I N ACCORDANCE WITH THE METHOD OF ACCOUNTANCY FOLLOWED BY AN ASSESSEE I .E. CASH OR MERCANTILE, SUCH METHOD HAS TO BE FOLLOWED KEEPING IN VIEW THE ACCOUNTING STANDARD NOTIFIED BY THE CENTRAL GOVERNM ENT FROM TIME TO TIME. SUB CLAUSE 3 PROVIDES A SITUATION, THAT IS, I F THE ASSESSING OFFICER IS UNABLE TO DEDUCE THE TRUE INCOME. ON THE BASIS O F METHOD OF ACCOUNTANCY FOLLOWED BY AN ASSESSEE THAN HE CAN REJ ECT THE BOOK RESULT AND THE ASSESSEES INCOME ACCORDING TO HIS ESTIMATI ON OR ACCORDING TO HIS BEST JUDGMENT. THE ASSESSING OFFICER IN THAT CA SE IS REQUIRED TO POINT OUT THE DEFECTS IN THE ACCOUNTS OF ASSESSEE A ND REQUIRED TO SEEK EXPLANATION OF THE ASSESSEE QUA THOSE DEFECTS. IF T HE ASSESSEE FAILED TO ITA NO.3340/AHD/2014 WITH CO 8 EXPLAIN THE DEFECTS THAN ON THE BASIS OF THE BOOK R ESULT, INCOME CANNOT BE DETERMINED AND ASSESSING OFFICER WOULD COMPUTE T HE INCOME ACCORDING TO HIS ESTIMATION KEEPING IN VIEW THE GUI DING FACTOR FOR ESTIMATING SUCH INCOME. 9. IN THE LIGHT OF THE ABOVE, LET US EXAMINE THE FA CTS OF THE PRESENT CASE. THE ASSESSEE HAS POINTED OUT THAT ACCOUNTS O F THE ASSESSEE- COMPANY IS SUBJECT TO STATUTORY AS WELL AS TAX AUDI T, AND ITS BOOKS ARE DULY AUDITED AND THE AO HAS NOT REJECTED THE BOOKS OF ACCOUNTS. THE LD.AO HAS NOWHERE EXPRESSED HIS INABILITY TO DEDUCE TRUE INCOME FROM THE ACCOUNTS. THE ASSESSEE HAS ALSO PLEADED THAT I T IS A SICK COMPANY, FACING ACUTE SHORTAGE OF FUNDS AND ITS LOAN ACCOUNT WITH CONSORTIUM OF BANKERS ALSO BECAME NPA; BANKS HAVE FILED RECOVERY SUIT AND THEY HAVE ALSO ASSIGNED THE DEBT OF THE COMPANY IN FAVOUR OF THE ASSET RECONSTRUCTION COMPANY I.E. ASREC INDIA LTD. THE AO HAS ONLY COMPARED CERTAIN FIGURES OF RAW-MATERIAL VIS--VIS OUTPUT WITHOUT COMPREHENDING OTHER ASPECTS FOR CONSUMPTION OF OTHE R MATERIAL AS WELL AS ACHIEVEMENT OF SALES. SOME OF THE ITEM MAY BE L YING IN THE CLOSING STOCK OR IN SEMI-FINISHED PRODUCTS. ALL SORTS OF S UCH ASPECTS HAVE NOT BEEN CONSIDERED BY THE LD.AO WHILE ESTIMATING UNACC OUNTED SALES. ON THE OTHER HAND, THE LD.CIT(A) HAS APPRECIATED THE F ACTS IN RIGHT PERSPECTIVE AND NO ADDITION IS CALLED FOR ON THIS I SSUE. WE UPHOLD THE ORDER OF THE LD.CIT(A) ON THIS ISSUE, AND GROUND OF APPEAL OF THE REVENUE IS REJECTED. 8. IN THE NEXT GROUND OF APPEAL, GRIEVANCE OF THE R EVENUE IS THAT THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 23,76,828/-. 9. THE ABOVE DISALLOWANCE WAS MADE BY THE AO OUT PO WER AND FUEL EXPENSES OF RS.73,44,543/- SIMPLY ON THE GROUND TH AT THE ASSESSEE WAS NOT FOLLOWING PROPER METHOD OF ACCOUNTING AND C LAIMING THE EXPENSES AS PER ITS BENEFITS. THIS DISALLOWANCE CH ALLENGED BY THE ITA NO.3340/AHD/2014 WITH CO 9 ASSESSEE BEFORE THE LD.FIRST APPELLATE AUTHORITY, W HO AFTER CONSIDERING THE SUBMISSIONS BY THE ASSESSEE, WHICH WAS REPRODUC ED IN PARA 4.2 AND 4.3 OF THE IMPUGNED ORDER DELETED THE DISALLOWANCE. REVENUE IS NOW CONTESTING THIS DELETION BEFORE THE TRIBUNAL. 10. BEFORE US BOTH THE PARTIES SUPPORTED RESPECTIVE ORDERS OF THE REVENUE AUTHORITIES. 11. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. THE LD.CIT(A) HAS RE PRODUCED SUBMISSIONS MADE BY THE ASSESSEE ON THIS ISSUE IN THE IMPUGNED ORDER. THESE SUBMISSIONS AND THE FINDING OF THE LD.CIT(A) ARE WO RTH TO NOTE. THEY READ AS UNDER: 4.2. DURING THE COURSE OF APPELLATE PROCEEDINGS THE APPELLANT FILED WRITTEN SUBMISSION DTD. 20.6.2014 AS UNDER:- 4.0 DISALLOWANCE OF POWER & FUEL EXP.OF RS.23,76 ,828/- 4.1 THE NEXT GROUND OF APPEAL RELATES TO THE ADDITI ON TOTALING TO RS.23,76,828/-BY WAY OF DISALLOWANCE OF POWER & FUEL EXP. IT IS OBSERVED BY AO THAT ASSESSEE IS NOT FOLLOWING PROPER METHOD OF ACCOUNTING AND CLAIMING EXPENSES A S PER HIS BENEFIT AND HE HAS MADE THE ADDITION BY DISALLO WING THE GAS & OTHER FUEL EXP.OF RS.23,76,828/- OUT OF TOTAL POWER & FUEL EXP.OF RS.73,44,543/-. BUT THE AO HAS NOT SPEC IFICALLY STATED WHICH TYPE OF BENEFIT THE ASSESSEE HAS ENJOY ED IN ITS RETURN OF INCOME. THE APPELLANT IS UNABLE TO UNDERS TAND SUCH A VAGUE COMMENT BY A RESPONSIBLE AO. IN OUR DE TAILED SUBMISSION DT. 19-03-2013 [ EXHIBIT-1] , WE HAVE GI VEN THE FULL DETAILS OF THE POWER & FUEL EXP. AND STATE D THAT IN FY 2008-09, THE APPELLANT HAS SPEND TOTAL RS.120158 53/- TOWARDS POWER & FUEL AND STORES & SPARES EXP. AND I N FY 2009-10, THE SAID EXP. WAS RS.1,06,88,775/-. THUS, THERE WAS A REDUCTION IN OVERALL EXP. BUT THE AO HAS NOT CONSIDERED THE FACT IN A POSITIVE MANNER AND SIMPLY DISALLOWED THE ACTUAL AMOUNT SPENT ON GAS & OTHER F UEL OF RS.23,76,828/- WITHOUT ANY BASE OR PROOF TO SHOW TH AT THE SAID EXPENSES WERE NOT SPENT FOR THE BUSINESS OF TH E APPELLANT. THE APPELLANT STRONGLY OBJECT THE METHOD IN WHICH THE AO HAS COMPLETED THE WRONG ASSESSMENT WHI CH IS ITA NO.3340/AHD/2014 WITH CO 10 FAR FROM THE LAW AND SOLELY FINALISED ON THE WRONG BELIEF AND ESTIMATION OF AO. IN VIEW OF ABOVE FACTS OF THE CASE IT IS HUMBLY PRE YED THAT THE ENTIRE ADDITION OF RS.23,76,828/-MADE BY AO BE DELETED. 4.3. THE APPELLANT FILED FURTHER WRITTEN SUBMISSIO N DTD. 27.06.2013 AS UNDER:- 2.0 DISALLOWANCE OF POWER & FUEL EXP.OF RS.23, 7 6,828/- 2.1 THE NEXT GROUND OF APPEAL RELATES TO THE ADDITI ON TOTALING TO RS.23,75,525/-BY WAY OF DISALLOWANCE OF POWER & FUE L EXP. WE HAVE GIVEN THE FULL DETAILS OF THE POWER & FUEL EXP . AND STATED THAT IN FY 2008-09, THE APPELLANT HAS SPEND TOTAL R S. 1201 585 3/- TOWARDS POWER & FUEL AND STORES & SPARES EXP. A ND IN FY 2009-10, THE SAID EXP. WAS RS.1,06,88,775/-. IN F.Y .2008-09, OUT OF TOTAL EXP.RS.12015853/-, THE APPELLANT COMPANY H AS TRANSFERRED RS.2994274/- IN OTHER CONSUMABLE STORES ( R.& D.) EXP. WHICH WAS CAPITALIZED AND THEREFORE EXP. ACTU ALLY DEBITED TO P.&.L.A/C WAS RS.9021579/- [ 12015853-2994274]. THU S, THERE WAS A REDUCTION IN OVERALL EXP. BUT THE AO HAS NOT CONSIDERED THE FACT IN A POSITIVE MANNER AND SIMPLY DISALLOWED THE ACTUAL AMOUNT SPENT ON GAS & OTHER FUEL OF RS.23,76,828/- WITHOUT ANY BASE OR PROOF TO SHOW THAT THE SAID EXPENSES WERE NOT SPENT FOR THE BUSINESS OF THE APPELLANT. THE APPELLANT STRONGLY O BJECT THE METHOD IN WHICH THE AO HAS COMPLETED THE WRONG ASSE SSMENT WHICH IS FAR FROM THE LAW AND SOLELY FINALISED ON T HE WRONG BELIEF AND ESTIMATION OF AO. THE DETAILS OF THE SAID EXP.F ORF.Y.2009-10 & 2008-09 IS ENCLOSED IN EXHIBIT-2. IN VIEW OF ABOVE FACTS OF THE CASE IT IS HUMBLY PRE YED THAT THE ENTIRE ADDITION OF RS.23,76,828/- MADE BY AO BE DEL ETED. DECISION 4.4. I HAVE CONSIDERED THE FACTS OF THE CASE AND SU BMISSION MADE BY THE APPELLANT. THE AO HAS MADE THE DISALLOWANCE OF RS.23,76,828/- TOWARDS POWER, FUEL STORE ITEMS DEBI TED ALONG WITH THE POWER AND FUEL EXPENSES OF RS.73,44,543/-. IT WAS OBSERVED BY THE A.O. THAT THE ASSESSEE WAS NOT FOLL OWING PROPER METHOD OF ACCOUNTING AND CLAIMING EXPENSES FOR ITS BENEFITS. IT HAS BEEN OBSERVED THAT IN THE PRECEDING YEARS STORE S AND SPARES OF RS.29,94,274/- WAS TRANSFERRED TO CWIP - R & D E XPENSE. HOWEVER, THE AO HAS NOT GIVEN ANY REASONS FOR MAKIN G SUCH A ITA NO.3340/AHD/2014 WITH CO 11 HUGE DISALLOWANCE WITHOUT GOING INTO THE REASONS. N EITHER ANY BOGUS CLAIMS HAVE BEEN PROVED NOR IT WAS PROVED WHY THOSE STORE ITEMS WERE TO BE TRANSFERRED TO CWIP R & D EXPENSES AND THOSE WERE NOT THE REVENUE EXPENDITURES. MERELY SOME ITEM S IN THE PRECEDING YEAR WERE DEBITED TO THE CWIP - R & D EXP ENSES DO NOT INDICATE THAT THE SAME NATURE OF EXPENDITURES HAVE BEEN INCURRED IN THE YEAR UNDER CONSIDERATION ALSO. SINCE THERE W AS NO QUESTION ON THE GENUINENESS OF THE EXPENDITURES AND HENCE TH ERE ALLOWABILITY CANNOT BE DOUBTED. WHEN THE APPELLA NT HIMSELF BONAFIDELY TRANSFERRED SOME STORES AND SPARES EXPEN SES TO CWIP R & D IN THE PRECEDING YEAR THAN IN THE YEAR UNDER CONSIDERATION WITH THE SAME BONAFIDES HE HAS NOT TRANSFERRED THE SAME BECAUSE THOSE WERE NOT REQUIRED TO DO SO. IT WAS THE ONUS O N THE APPELLANT TO DISPROVE THE APPELLANT'S STAND WHICH HE HAS NOT DISCHARGED. FURTHER NEITHER THE AO HAS PROVED THAT THE EXPENDIT URES WERE NOT MADE FOR THE PURPOSE OF BUSINESS. IN VIEW OF THE AF ORESAID DISCUSSION, THE DISALLOWANCE MADE BY THE A.O. IS FO UND NOT JUSTIFIED AND HENCE SAME IS DELETED. THUS, THE GROU ND OF THE APPELLANT IS PARTLY ALLOWED. 12. AFTER PERUSAL OF THE ABOVE SUBMISSIONS OF THE A SSESSEE AND FINDING OF THE LD.CIT(A) WE DO NOT FIND ANY ERROR I N THE ORDER OF THE LD.CIT(A), BECAUSE THE AO HAS NOT REFERRED TO ANY M ATERIAL FOR ESTIMATING/CONSTRUING THE DISALLOWANCE OF THE ABOVE EXPENDITURE. 13. IN THE RESULT, THE APPEAL OF THE REVENUE AND CO OF THE ASSESSEE, BOTH ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 19 TH JUNE, 2019 AT AHMEDABAD. SD/- SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 20/06/2019 %& '() *%)$ / COPY OF THE ORDER FORWARDED TO :