Assistant Commissioner of Income Tax-1(2), RAIPUR (CG) V. C.G.Jute Udyog Limited, RAIPUR

ITA 181/BIL/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2428 (ITAT-RAIPUR)
• Duration Of Justice: 4 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 16-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K MISHRA
• Assessee Lawyers: R B DOSHI
• Keywords: Valuation report

Judgement Text

, RA IPUR IN THE INCOME TA X A PPELLA TE TRIBUNA L, RA IPUR BEFORE S/SHRI MUKUL SHRAW AT ( JM) SHAMIM YAH Y A (AM) , , ./ I.T.A. NO. 181/BLPR/2011 ( / ASSESSMENT YEAR : 2008 - 2009 ) ACIT, - 1(2), RAIPUR / VS. CHHATTISGARH JUTE UDYOG LTD., 54, INDUSTRIAL AREA,BHANPURI, RAIPUR ./ ./ PAN/GIR NO. : AAACC 1754 A ( / AP PELLANT ) .. ( / RESP ONDENT ) / APPELLANT BY : SHRI P.K.MISHRA, CIT / RESPONDENT BY : SHRI R.B.DOSHI / DATE OF HEARING : 1 1 - 02 - 2016 / DATE OF PRONOUNCEMENT : 19 - 02 - 2016 / O R D E R PER MUKUL SHRAWAT, JM THIS IS AN APPEAL FILED BY THE REVENUE EMANATING FROM AN ORDER OF THE LD CIT(A), RAIPUR DATED 29.4.2011, FOR THE ASSESSMENT YEAR 2008 - 2009. T HE GROUNDS RAISED BY THE REVENUE ARE DECIDED AS FOLLOWS : 2. GROUND NO.1 IS AS UNDER: W HETHER IN LAW AND ON FACTS & CIRCUMSTANCES OF THE CASE, LD CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.3,71,21,054/ - MADE BY THE AO ON ACCOUNT OF LOW YIELD. 2 I.T.A. NO.181/BLPR/2011 ASSESSMENT YEAR :2008 - 2009 3. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSES SMENT ORDER PASSED BY THE ASSESSING OFFICER U/S.143(3) OF THE I.T.ACT, 1961 DATED 19.9.2010 WERE THAT THE ASSESSEE , IN THE RELEVANT ASSESSMENT YEAR, WAS IN THE BUSINESS OF MANUFACTURING OF JUTE YARN, CLOTH & BAGS, ETC. T HE ASSESSING OFFICER HAS NOTED IN T HE ASSESSMENT ORDER THE DETAILED COMPARATIVE CHART OF GROSS RECEIPTS, GROSS PROFIT, ITS RATES, NET PROFIT AND RATE FOR THE IMPUGNED ASSESSMENT YEAR AS WELL AS PRECEDING TWO ASSESSMENT YEARS AS UNDER: PARTICULARS F.Y. 2007 - 08 F.Y. 2006 - 07 F.Y. 2005 - 06 GROS S TURNOVER 4,86,89,453 6,92,42,127 7,30,15,943 OTHER INCOME 1,21,942 3,37,475 25,35,299 TOTAL 4,88,11,395 6,95,79,602 7,55,51,242 GROSS PROFIT - 70,90,345 70,24,515 NET PROFIT/LOSS NEGATIVE 10.19% 9.62% NET PROFIT % (4,85,78,2550 6,99,147 10 ,32,14 NET PROFIT % NEGATIVE 1.00% 1.37% 3.1 THE ASSESSING OFFICER ASKED THE ASSESSEE TO JUSTIFY THE RAW MATERIAL CONSUMPTION WITH REFERENCE TO PRODUCTION AND SALES FIGURES. A FTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER ADDE D AN AMOUNT OF RS.3,71,21,054/ - TO THE TOTAL INCOME OF THE ASSESSEE, OBSERVING AS UNDER: THE CONTENTION OF THE ASSESSEE CANNOT BE CONSIDER ED LOOKING TO THE FACTS OF THE CASE FOR A.Y . 2007 - 08, THE ASSESSEE HAD S HOWN YIELD AT 92.54% FOR FINISHED GOODS AS CO MPARED TO 93.23% OF THE PRECEDING 3 I.T.A. NO.181/BLPR/2011 ASSESSMENT YEAR :2008 - 2009 PREVIOUS YEAR. A ND IN FY UNDER CONSIDERATION, IT IS SHOWN AT ABNORMALLY LOW RATE OF 39.386%. 8.2 THE ASSESSEE HAS SHOWN OPENING STOCK OF RAW MATERIAL OF 28180.150 QTL. THE PURCHASES WERE 28419.6 QTL AD THE ENTIRE QUANTITY WAS SHOWN AS CONSUMED. THE CLOSING STOCK IS NIL. THE ASSESSEE HAS BOOKED LOSS BY SHOWING EXCESSIVE CONSUMPTION OF RAW MATERIAL. THERE IS NOT MUCH SALE IN THE CREDIT SIDE OF THE P&L A/C BUT THERE IS EXCESSIVE ENTRY OF 'RAW MATERIAL CONSUMED' ON THE DEBIT S IDE, RESULTING IN SUBSTANTIAL LOSS. IF THERE IS MATERIAL CONSUMED, THERE HAS TO BE CORRESPONDING PRODUCTION & SALE OR CLOSING STOCK. BUT THE PRODUCTION & SALE IS VERY LOW & THE CLOSING STOCK IS 'NIL. THIS CANNOT BE ACCEPTED. THE WRITING OFF OF SUCH HUGE AM OUNTS AS CONSUMPTION INDICATES THE SALE OF THE RAW MATERIAL OUTSIDE BOOKS OF A/C. THE SAME IS BEING TREATED AS UNDISCLOSED INCOME. NO EXPENDITURE IS ALLOWABLE OUT OF THE SAME. THE ASSESSEE HAS FILED A VALUATION REPORT THAT THE JUTE YARN WAS DAMAGED AND COU LD BE WRITTEN OFF. HOWEVER THERE IS NO MENTION OF THE REPORT IN THE FORM NO. 3CD OR THE NOTES ON ACCOUNTS OF THE AUDIT REPORT. THE ASSESSEE HAS RELIED ON CASE OF KOPRAN DRUGS LTD. V. ACIT, BY IT AT MUMBAI OF 2003. BUT THE FACTS OF THE CASE ARE DISTINGUISHA BLE. THE CASE PERTAINS TO WRITING OFF OF DRUGS COMPONENTS AFTER THEIR EXPIRY PERIOD, BEING CHEMICALS, THAT COULD NOT BE USED FURTHER FOR PREPARATION OF DRUGS, WHILE IN THE CASE OF THE ASSESSEE THE MATERIAL IS JUTE YARN, WHICH WAS NEVER WRITTEN OFF IN EARLI ER YEARS. SINCE THE ASSESSEE WAS CLOSING DOWN THE BUSINESS, THE SAME MIGHT HAVE BEEN SOLD OFF. 8.3 CONSIDERING THE FACT THAT THE UNIT WAS BEING CLOSED DOWN IN VIEW OF IT BEING NON VIABLE IN THE STATE OF CHHATTISGARH, IT CAN BE CONSIDERED THAT THE YIE LD MIGHT HAVE D ECREASED. FOR AY 2007 - 08, THE ASSESSEE HAD SHOWN YIELD AT 92.54% FOR FINISHED GOODS AS COMPARED TO 93.23% OF THE PRECEDING PREVIOUS YE AR IT WOULD BE FAIR T O ROUND OFF THE YIELD TO 90%. BUT THE BALANCE 90 - 39.386 =50.614 IS TO BE CONSIDERED AS ABNORMAL SHORTAGE. THE SAME IS BEING TREATED AS UNDISCLOSED INCOME. N O EXPENDITURE IS ALLOWABLE OUT OF THE SAME 50.614% OF 73999390/ - , WHICH COMES TO RS.3,71,21,054/ - IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE.: 4. WH EN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, LD CIT(A), AFTER ASSIGNING THE FOLLOWING REASONS, ALLOWED THE APPEAL OF THE ASSESSEE: NO EVIDENCE WHATSOEVER WAS BROUGHT ON R ECORD NOR COMMUNICATED TO THE APPELLANT TO JUSTIFY THE YIELD ESTIMATED BY THE AO. RELIANCE FOR THIS / PROPOSITION IS PLACED ON THE DECISIONS IN CIT V POPULAR ELECTRIC CO. (P) 4 I.T.A. NO.181/BLPR/2011 ASSESSMENT YEAR :2008 - 2009 LTD. (1993) 203 ITR 630 (CAL.) AND GANGA PRASAD SHARMA V CIT (1981) 127 ITR 27 (MP.) AND VARIOUS OTHER DECISIONS MENTIONED IN CHHATTISGARH STEEL CASTING PVT. LTD. V ACIT (200 9) 12 ITJ 741 (ITAT - BILASPUR BENCH) WHEREIN IT WAS HELD BY THE JURISDICTIONAL BENCH OF THE ITAT THAT ASSESSMENT OF INCOME HAS TO BE MADE ON AVAILABLE EVIDENCES AS PER SECTION 143(3)(II), WHICH EMPOWERS THE AO TO GO THROUGH THE EVIDENCES FOR FRAMING SCRUTIN Y ASSESSMENT ORDER VIZ., (A) EVIDENCE PRODUCED BY THE ASSESSEE (B) EVIDENCE REQUIRED FROM THE AO TO BE PRODUCED AND (C) AFTER TAKING INTO ACCOUNT ALL RELEVANT MATERIAL GATHERED BY THE AO. IT IS, THEREFORE, CLEAR FROM PLAIN READING OF SECTION 143 (3) THAT A SSESSMENT OF THE INCOME SHOULD BE BASED ON RELEVANT AND GATHERED MATERIAL AND NOT BEYOND THAT. IT WAS FURTHER HELD BY THE ITAT THAT ADDITIONS TO THE BOOK RESULTS BASED ON HYPOTHETICAL CALCULATION OF TURNOVER AND ESTIMATION OF PROFIT RATE MERELY ON PRESUMPT IONS AND SURMISES, ARE OT SUSTAINABLE. NO EVIDENCE WHATSOEVER WAS BROUGHT BY THE AO ON RECORD TO SUBSTANTIATE THE IMPUGNED ESTIMATED ADDITION MADE BY HIM. THIS ESTIMATE WAS BASED ONLY ON HIS IMAGINATIONS AND OPPOSED TO THE SETTLED LEGAL POSITION THAT THE PROFIT IS TO BE ESTIMATED ON THE BASIS OF PROPER MATERIAL AVAILABLE WITH THE AO AS HELD IN DABROS INDUSTRIAL CO. (P) LTD. V CIT (1977) 108 ITR 424 (CAL.). MAKING ARBITRARY AND UNREASONABLE ESTIMATE IS NOT PERMISSIBLE IN LAW AS HELD IN SANGRUR VANSSPATI MIL LS LTD. V ACIT (2003) 133 TAXMAN 37 (CHD.)(MAG.). THE IMPUGNED ESTIMATION OF YIELD DID NOT HAVE NEXUS WITH THE MATERIAL ON RECORD. THE AO IS REQUIRED TO GIVE REASON FOR A RRIVING AT A PARTICULAR FIGURE OF THE ESTIMATE AS HELD IN CIT V RANICHERRA TEA CO. LTD . (1994( 207 ITR 979,983 (CAL.) AND TO GIVE BASIS FOR FIXING HIS ESTIMATE, BY AFFORDING OPPORTUNITY TO THE APPELLANT, TO REBUT THE SAME. THIS WAS NOT DONE. IN THE ASSESSMENT PROCEEDINGS, THE APPELLANT WAS NEVER CONFRONTED WITH THE INTENTION OF THE AO THAT H E WANTED TO ESTIMATE THE YIELD AT 90%. THUS, THERE WAS VIOLATION OF MANDATORY CONDITION OF LAW. IN N. RAJA PULAIAH V DCTO (1969) 73 ITR 224 (AP) & RATANLAL OMPRAKASH V CIT (1984) 17 TAXMAN 201(ORR.) IT WAS HELD THAT WHERE THE ESTIMATE WAS MADE BY THE AO WI THOUT GIVING THE BASIS OF ITS FIXATION, THE ASSESSMENT WAS BAD. THE PRESENT CASE IS COVERED BY THE RATIO LAID IN THE AFORESAID CASES. 1.13 AS ALREADY STATED, THE BOOK VERSION IN SO FAR AS IT RELATED TO THE CORRECTNESS OF THE OPENING STOCK, PURCHASES, C ONSUMPTION OF RAW - MATERIAL, SALES AND CLOSING STOCK AND OTHER EXP. RECORDED THEREIN, HAD BEEN VIRTUALLY ACCEPTED WITHOUT ANY DISPUTE. THE AO HAD NOT BROUGHT ANY EVIDENCE ON RECORD TO PROVE THE CASE AGAINST THE ASSESSEE. IT IS SETTLED POSITION OF LAW THAT, UNLESS THERE IS SOME EVIDENCE TO PROVE THE CONTRARY, ESTIMATED ADDITION ON PRESUMPTIONS, IS UNSUSTAINABLE ON FACTS AND IN LAW PARTICULARLY WHEN THE IMPUGNED ASSESSMENT WAS CLAIMED TO HAVE BEEN MADE AS A SCRUTINY ASSESSMENT. THE LAW DOES NOT OBLIGE A TRADE R TO MAKE THE MAXIMUM/ PROFIT THAT HE CAN OUT OF HIS TRADING TRANSACTIONS. INCOME WHICH 5 I.T.A. NO.181/BLPR/2011 ASSESSMENT YEAR :2008 - 2009 ACCRUES TO A TRADER IS TAXABLE IN HIS HANDS, INCOME WHICH HE COULD HAVE, BUT HAS NOT EARNED, IS NOT \ MADE TAXABLE AS INCOME ACCRUED TO HIM (CIT V A. RAMAN & CO. (1968) 67 ITR PAGE 11 - 17 (SC). 1.14 FOR THE REASONS EXTENSIVELY AFOREMENTIONED, THE IMPUGNED ADDITION MADE BY THE AO UNSUBSTANTIATED ON THE STRENGTH OF CORROBORATIVE EVIDENCE BROUGHT ON RECORD, IN MY CONSIDERED VIEW, IS UNSUSTAINABLE. THE SAME IS THEREFORE, DEL ETED. T HE APPELLANT ACCORDINGLY GETS RELIEF OF R.S.3,71,21,054. 5. AGGRIEVED BY THE RELIEF SO GRANTED BY THE LD CIT (A), THE REVENUE HAS FILED APPEAL BEFORE US. 6. FROM THE SIDE OF THE REVENUE, S HRI P.K.MISHRA, LD D.R. APPEARED AND SUPPORTED THE ACTIO N OF THE ASSESSING OFFICER. LD D.R. HAS PLEADED THAT A HYPOTHETICAL SITUATION WAS CREATED BY THE ASSESSEE AND THE IMPUGNED LOSS WAS CLAIMED BUT IT WAS NOTHING BUT AN AFTERTHOUGHT. H E HAS INFORMED THAT IN A SITUATION WHEN THERE WAS NO SUBSTANTIAL DECLINE I N THE YIELD THEN REST OF THE BOOK RESULTS SHOULD HAVE BEEN CONSIDERED ACCORDINGLY. L D D.R. HAS ALSO OBJECTED THE MANNER IN WHICH THE AUDITORS CERTIFICATE WAS OBTAINED AND PLACED BEFORE THE AO, ESPECIALLY WHEN THERE WAS NO SPECIFIC MENTION OF THE SAID VAL UATION REPORT IN THE CASE OF THE ASSESSEE. H E HAS THEREFORE, PLEADED THAT THE VIEW TAKEN BY THE LD CIT(A) SHOULD BE REVERSED. 7. ON THE OTHER HAND, FROM THE SIDE OF THE ASSESSEE, SHRI R.B.,DOSHI, LD A.R. SUPPORTED THE ACTION OF THE LD CIT(A). H E SUBMITT ED THAT THE ASSESSMENT YEAR UNDER CONSIDERATION IS THE LAST YEAR OF PRODUCTION AND THE UNIT WAS CLOSED DOWN DUE TO WHICH OLD, OBSOLETE , WASTE STOCK WAS, WRITTEN OFF AS IT HAD NO SALABLE 6 I.T.A. NO.181/BLPR/2011 ASSESSMENT YEAR :2008 - 2009 MARK ET VALUE, AND, THEREFORE, SUCH LOW YIELD WAS OBTAINED DURING PREVI OUS YEAR UNDER ASSESSMENT. LD A.R. RELIED ON THE FOLLOWING CASE LAWS: I) KOPRAN DRUGS LTD VS ACIT, 35 DTR 380 (MUM) II) DHAKESWARI COTTON MILLS LTD VS CIT< 26 ITR 775 (SC) III) RAJ KUMAR JAIAN VS ACIT, 50 ITD 1 (ALL) 8 . HAVING HEARD THE RIVAL SUBMISSIONS, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. AS IS APPARENT FR OM THE FINDINGS OF THE AO, THE ONLY REASON GIVEN IN THE ASSESSMENT ORDER FOR AFORESAID A DDITION IS THAT THE ASSESSEE HAS BOOKED L OSS BY SHOWING EX CESSIVE CONSUMPTION OF RAW MATERIAL AND THERE IS NOT MUCH SALE IN CREDIT SIDE BUT THERE IS EXCESSIVE ENTRY OF RAW MATERIAL CONSUMED ON THE DEBIT SIDE. T HE AO HAS TAKEN INTO ACCOUNT THE PERCENTAGE OF YIELD IN THE YEAR UNDER CONSIDERATION VIS - A - VIS YIELD OF PRECEDING YEAR. THE LD. CIT(A),ON THE OTHER HAND, CONCLUDED THAT THE AO HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO PROVE THE CASE AGAINST THE ASSESSEE AND MADE THE ADDITION ON PRESUMPTIONS WITHOUT POINTING OUT ANY D EFECTS IN THE BOOKS OF ACCOUNTS. THE REVENUE HAS NOT PLACED BEFORE US ANY MATERIAL, CONTROVERTING THESE FINDINGS OF FACTS RECORDED BY THE LD. CIT(A). IN THE ABSENCE OF ANY DEFECTS IN THE BOOKS OF ACCOUNTS, AUDITED RESULTS COULD NOT BE REJECTED. THE MERE FACT THAT THE PERCENTAGE OF LOSS OR GROSS PROFIT IS HIGH OR LOW IN A PARTICULAR YEAR DOES NOT NECESSARILY LEAD TO INFERENCE THAT THERE HAS BEEN SUPPRESSION. LOW PROFIT OR LOWER YIELD IS NEITHER A CIRCUMSTANCE OR MATERIAL TO JUSTIFY ADDITION OF PROFITS. WE 7 I.T.A. NO.181/BLPR/2011 ASSESSMENT YEAR :2008 - 2009 HAVE NOTED THAT THE LD CIT(A) HAS REFERRED VARIOUS CASE LAWS IN DELETING THE ADDITION. THERE ARE FEW POINTS WHICH HAVE BEEN VEHEMENTLY BROUGHT TO OUR NOTICE. THE FIRST POINT WAS THAT THE VALUATION REPORT FOR JUTE TECHNOLOGY WAS VERY MUCH FILED BEFORE THE AO VIDE LETTER DATED 2 5.8.2010. IN SUPPORT OF THIS CLAIM THAT THE INFORMATION WAS BEFORE THE AO, OUR ATTENTION WAS DRAWN ON 10 TH LINE OF PARA - 8.1 (RELEVANT PORTION ALREADY REPRODUCED) (SUPRA), WHEREIN, THE AO HAS ACKNOWLEDGED THAT THE ASSESSEE HAD FILED VALUATION REPORT THAT T HE JUTE YARD WAS DAMAGED, HENCE, COULD BE WRITTEN OFF. D UE TO THIS REASON, WE HEREBY EXPRESS THAT THE ASSESSEE HAS RAISED THIS PLEA SINCE INCEPTION THAT THE STOCK HAD DECAYED. THE NEXT POINT IS THAT THE JUTE EXPERT HAS PHYSICALLY VERIFIED THE STOCK AND GI VEN A FINDING THAT THE STOCK WAS NOT SERVICEABLE. ACCORDING TO THE ASSESSEE, THE SAID REPORT WAS VERY MUCH IN THE KNOWLEDGE OF THE AO BUT IT WAS NOT DISCUSSED IN THE ASSESSMENT ORDER. T HE NEXT POINT IS THAT WHILE FINALIZING THE BOOKS OF ACCOUNT , T HIS FACT WAS VERY MUCH REF LECTED IN THE ACCOUNTS WHERE THE DETAILS OF CONSUMPTION OF RAW MATERIAL WAS SPECIFIED. T HERE WAS COMPARISON OF THE CONSUMPTION OF RAW MATERIAL WHICH WAS VERY HIGH THAN THE PREVIOUS YEAR. THE AUDITOR HAS THEREFORE NOTICED THE INCREASE IN THE CONSUMPTION OF RAW MATERIALS FOR THE YEAR UNDER CONSIDERATION. D UE TO THIS REASON, THE AUDITOR HAD PREPARED SCHEDULE - E, WHEREIN , CERTIFYING THAT DURING THE YEAR UNDER CONSIDERATION, THE RAW JUTE FINISHED JUTE, STOCK IN PROGRESS, ETC, WERE DISCARDED, THEREFORE, HAVING NIL VALUE. I N ONE OF THE ANNEXURES OF THE AUDIT REPORT, VIDE CLAUSE - 10(I)THE AUDITOR HAS SPECIFIED THAT DURING THE YEAR COMPANY HAD SUFFERED CASH LOSS. T HEREFORE, IT IS NOT A CASE THAT THE LOSS WAS HIDDEN FROM THE EYES OF 8 I.T.A. NO.181/BLPR/2011 ASSESSMENT YEAR :2008 - 2009 THE AUDITORS OR NOT RE FL ECTED IN THE BOOKS OF ACCOUNT. HENCE, PLEADED THAT IT WAS NOT A CASE OF AN AFTERTHOUGHT AS ALLEGED BY THE REVENUE DEPARTMENT. FACTS AND CIRCUMSTANCE S HAVE N OWHERE DEMONSTRATED SUCH ALLEGATION. T HE NEXT POINT WHICH IS PLEADED BEFORE US IS TH AT THE ASSESSEE WAS HAVING THE OLDEST UNIT OF JUTE INDUSTRY IN THE STATE AND AL THOUGH RUNNING UNDER ADVERSE CONDITION OF MANUFACTURING. THE ASSESSEE WAS HAVI NG LABOUR PROBLEM AS WELL . IN THIS REGARD, IT HAS ALSO BEEN PLEADED THAT THE MACHINERIES BEING VE RY OLD WERE NOT GIVEN SUFFICIENT PRODUCTION. A LL THESE PROBLEMS HAVE THEREFORE FORCED THE ASSESSEE TO CLOSE THE UNIT, PLEADED BEFORE US. H ENCE, THE NEXT POINT WHICH WAS PLEADED BEFORE US WAS THAT THE ENTIRE ASSETS WERE SOLD DUE TO WHICH ACTUALLY THE DISC ARDED VALUE WAS RECORDED IN THE BOOKS OF ACCOUNT. C ONSIDERING ALL THESE ADVERSE CIRCUMSTANCES SPECIALLY THE CERTIFICATE OF THE AUDITOR, WHICH WAS PLACED BEFORE THE AO, WE HEREBY HOLD THAT THE CIT(A) WAS FACTUALLY CORRECT IN GRANTING THE CLAIM OF LOSS TO T HE ASSESSEE. T HIS GROUND OF THE REVENUE IS, ACCORDINGLY, DISMISSED. 9 . GROUND NO.2 IS AS UNDER: W HETHER IN LAW AND ON FACTS & CIRCUMSTANCES OF THE CASE, THE LD CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.26,59,090/ - ON ACCOUNT OF DISALLOWANCE OUT OF EXPENSES ON STORES/SPARES., 9. THE OBSERVATION OF THE ASSESSING OFFICER WAS THAT THERE WAS EXCESSIVE ENTRY O F STORE AND SPARES CONSUMED. I N HIS OPINION, THE WRITE OFF OF WAS NOT A 9 I.T.A. NO.181/BLPR/2011 ASSESSMENT YEAR :2008 - 2009 CONSUMPTION BUT SALE OUTSIDE BOOKS OF ACCOUNT. T HE DISALLOWANCE WAS MADE IN THE FOLLOWING MANNER: SIMILARLY, THERE IS EXCESSIVE ENTRY OF STORES AND SPARES CONSUMED ON THE DEBIT SIDE, RESULTING IN SUBSTANTIAL LOSS. I F THERE IS STORES AND SPARES CONSUMED, THERE HAS TO BE CORRESPONDING PRODUCTION & SALE, REPAIRS OR CLOSI NG STOCK. B UT THE PRODUCTION & SALE IS VERY LOW & THE CLOSING STOCK IS NIL. T HIS CANNOT BE ACCEPTED. T HE WRITING OFF OF SUCH HUGE AMOUNTS AS CONSUMPTION INDICATES ITS SALE OUTSIDE BOOKS OF ACCOUNT. T HE SAME IS BEING TREATED AS UNDISCLOSED INCOME. N O E XPENDITURE IS ALLOWABLE OUT OF THE SAME. C ONSIDERING THE FACT THAT THE UNIT WAS BEING CLOSED DOWN IN VIEW OF IT BEING NON VIABLE IN THE STATE OF CHHATTISGARH, IT CAN BE CONSIDERED THAT THE REPAIRS MIGHT HAVE INCREASED AND SO ALSO CONSUMPTION OF STORES AND SPARES. F OR A .Y. 2007 - 08, THE ASSESSEE HAD SHOWN CONSUMPTION AT 10% AS COMPARED TO 12% OF THE PRECEDING PREVIOUS YEAR, IT WOULD BE FAIR TO ROUND OFF THE CONSUMPTION TO 5% CONSIDERING THAT THE UNIT WAS BEING CLOSED DOWN IN VIEW OF IT BEING NON V IABLE IN THE STATE OF CHHATTISGARH. B UT THE BALANCE 5% IS TO BE CONSIDERED AS ABNORMAL SHORTAGE. T HE SAME IS BEING TREATED AS UNDISCLOSED INCOME. N O EXPENDITURE IS ALLOWABLE OUT OF THE SAME. 5% OF 5318180 WHICH COMES TO RS.26,59,090/ - IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE AND PENALTY U/S.271(1)(C) IS INITIATED SEPARATELY FOR THE SAID AMOUNT. 10. WH EN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, LD CIT(A) HAS HELD AS UNDER: THIS GROUND IS DIRECTED AGAINST DISALLOWANCE OF RS. 26,59,09 0/ - MADE BY THE AO IN STORES/SPARES CONSUMED FOR THE PRESUMED ABNORMAL SHORTAGE. ACCORDING TO THE AO, THERE WAS EXCESSIVE ENTRY OF STORES AND SPARES CONSUMED ON THE DEBIT SIDE, RESULTING IN SUBSTANTIAL LOSS. SHE OPINED THAT IF THERE IS STORES AND SPARES CO NSUMED, THERE HAS TO BE CORRESPONDING PRODUCTION & SALE, REPAIRS OR CLOSING STOCK, BUT THE PRODUCTION AND SALE WAS VERY LOW AND THE CLOSING STOCK WAS SHOWN AT NOL. THIS, ACCORDING TO THE AO, COULD NOT BE ACCEPTED. THE EXCESSIVE CONSUMPTION OF RAW - MATERIAL, BY ESTIMATING YIELD PERCENTAGE OF 90%), WAS ALREADY HELD BY THE AO AS SALES KEPT OUTSIDE THE BOOKS OF ACCOUNT. BASED ON THIS VERY PRESUMPTION, THE AO PRESUMED THAT THE EXPENDITURE UNDER THE HEAD REPAIRS MIGHT HAVE INCREASED AND SO ALSO CONSUMPTION OF STOR ES AND SPARES. FOR AY. 2007 - 08, THE APPELLANT HAD SHOWN CONSUMPTION AT 10%) AND ON THIS BASIS THE AO PRESUMED THAT THE BALANCE OF 5% WA S TO BE CONSIDERED AS ABNORMAL SHORTAGE AND SUCH HYPOTHETICAL ESTIMATIONS OF THE AO, RESULTED IN THE IMPUGNED DISALLOWANC E OF RS. 26, .59.090' - . FOR THE 10 I.T.A. NO.181/BLPR/2011 ASSESSMENT YEAR :2008 - 2009 REASONS EXTENSIVELY ENUMERATED ABOVE, WHILE DEALING GROUND NO .1, THE IMPUGNED DISALLOWANCE MADE BY THE AO ON PRESUMPTIONS AND SURMISES UNSUBSTANTIATED, ON THE STRENGTH OF CORROBORATIVE EVIDENCE, IN MY CONSIDERED VIEW, IS UNSUS TAINABLE ON FACTS AND IN LAW AND HENCE THE SAME IS DELETED. T HIS IS MORE SO BECAUSE THE ACTUAL EXPENDITURE INCURRED ON REPAIRS AND MAINTENANCE OF MACHINERY AND ON CONSUMPTION OF STORES AND SPARES, FLOWN FR OM THE AUDITED BOOKS OF ACCOUNT, WHICH WAS FULLY VOUCHED AND VERIFIABLE, AND THE AO HAD NOT DISPUTED THIS FACT. I N THE PRESENCE OF THIS ACCEPTED POSITION OF FACTS, IT WAS NOT PERMISSIBLE FOR THE AO TO HAVE RESORTED TO SUCH WILD BASEL3ESS ESTIMATION. F OR THE REASONS AFOREMENTIONED THE IMPUGNED DISALLOWA NCE IS DELETED. T HE APPELLANT ACCORDINGLY GETS RELIEF OF RS.26,59,,090/ - . 10. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE SIDES AND CONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, ESPECIALLY WHEN THE UNIT IN QUESTION WAS SOLD BY THE A SSESSEE IN THE SUBSEQUENT PERIOD, WE HEREBY HOLD THAT THE AO HAS MERELY PRESUMED THAT THERE COULD BE A POSSIBILITY OF SALES OUTSIDE BOOKS OF ACCOUNT. E VEN THERE WAS NO BASIS SHOWN IN THE ASSESSMENT ORDER TO DEMONSTRATE THAT WHY ONLY 5% WAS CONSIDERED AS A BNORMAL SHORTAGE. W E, THEREFORE, HOLD THAT THE ADDITION BEING BASED UPON A GUESS WORK, HENCE NOT SUSTAINABLE IN THE EYES OF LAW. HENCE, WE CONFIRM THE FINDINGS OF THE LD CIT(A) IN DELETING THE ADDITION. GROUND NO.2 IS REJECTED. 11. IN THE RESULT, APPE AL FILED BY THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 /02/2016 . SD/ - SD/ - ( , ) ( , ) SHAMIM Y AHY A , ACCOUNT ANT MEMBER MUKUL SHRA WA T , JUD ICIAL M EM BER RAIPUR , DATED 19 / 02 /20 1 6 11 I.T.A. NO.181/BLPR/2011 ASSESSMENT YEAR :2008 - 2009 . . ./ PARIDA , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT : ACIT, - 1(2), RAIPUR 2. / THE RESPONDENT : CHHATTISGARH JUTE UDYOG LTD., 54, INDUSTRIAL AREA,BHANPURI, RAIPUR 3. ( ) / THE CIT(A) - RAIPUR 4. / CIT , RAIPUR 5. , , / DR, ITAT , RAIPUR 6. / GUARD FILE. / BY ORDER, //TRUE COPY// S R. PS, ITAT, CAMP: RAIPUR