The Addl. CIT, Range-1, Baroda V. Camphor & Allied Products Ltd., Baroda

ITA 2332/AHD/2015

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 6093 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2021
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 30-09-2019
• Assessment Year: 2011-2012
• Appeal Filed On: 06-08-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KARUN K ANT OJHA
• Assessee Lawyers: K P SINGH
• Keywords: Bogus purchase; Business income; Principle of natural justice; Additional evidence; Corroborative evidences; Set aside
• Section: 205; 201; 44AB; 73; 13; 145(3); 22; 131

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL , D BENCH, AHMEDABAD (CONDUCTED THROUGH VIRTUAL COURT AT AHMEDABAD) BEFORE SHRI RAJPAL YADAV , VICE PRESIDENT AND SHRI WASEEM AHMED , ACCOUNTANT MEMBER ./ ITA NO. 2332/AHD/2015 / ASSTT. YEAR: 2011 - 2012 D.C.I.T., CIRCLE - 1(1)(1), VADODARA. VS. M/S CAMPHOR & ALLIED PRODUCTS LIMITED, PLOT NO.3, GIDC INDUSTRIAL, NANDESARI, BARODA - 391340. PAN : AAACC9211C (APPLICANT) ( RESPON D ENT ) REVENUE BY : SHRI KARUN K ANT OJHA, CIT, D.R ASSESSEE BY : SHRI K.P. SINGH, A.R / DATE OF HEARING : 27 / 10 / 2020 / DATE OF PRONOUNCEMENT: 08 / 01/2021 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIO NED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE A GAINST THE ORDER OF THE LEARNED COMM ISSIONER OF INCOME TAX (APPEALS) - 1 , VADODARA , DATED 19/05/2015 ( IN SHORT LD. CIT (A) ) ARISING IN THE MATTER OF ASSESSMENT ORDER DATED 13/03/2014 PASSED UNDER S.1 43(3) OF THE INCOME TAX ACT, 1961 ( HERE - IN - AFTER REFERRED TO AS 'THE ACT') RELEVANT TO THE ASSESSMENT YEAR 2011 - 20 12 . ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 2 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APP EALS) ERRED IN BY DELETING THE ADDITION MADE BY AO ON EXPENSES OUT OF POWER AND FUEL AMOUNTING TO RS.47153581/ - . THE CIT(A) HAS ACCEPTED SUBMISSION PROVIDED BY THE ASSESSEE 7 WITH DIFFERENT FIGURES AND PATTERN OF CONSUMPTION WHICH WAS NOT PRODUCED BEFORE THE AO AND NOT EVEN ACCORDED OPPORTUNITY BY CALLING FOR REMAND REPORT FROM AO WHILE ACCEPTING FRESH EVIDENCES AND ARGUMENTS MADE BEFORE HIM? 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEALS) ERRED BY DELETING ADDITION ON ACCO UNT OF EXCESS CONSUMPTION OF RAW MATERIAL AMOUNTING TO RS.2.2841828/ - AND ALSO FAILED TO APPRECIATE THAT THE DISALLOWANCE WAS MADE TAKING FOR AS REASONABLE IN THE LIGHT OF DISCREPANCIES FOUND IN THE CONSUMPTION OF RAW MATERIAL DURING THE COURSE OF PHYSICAL VERIFICATION BY THE INSPECTORS AND WHEN THE DISCREPANCIES WERE FOUND IN PHYSICAL VERIFICATION IT WAS THE RESPONSIBILITY OF THE ASSESSEE TO FURNISH PROPER EXPLANATION TO EXPLAIN THE REASONS FOR SUCH DISCREPANCIES? 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEALS) ERRED BY DELETING ADDITION OF RS.3677078/ - AND RS.9266496/ - ON ACCOUNT OF SUPPRESSION OF SALE OF BAREILLY AND NANDESARI PLANTS IGNORING THE FINDINGS OF THE AO AND ACCEPTED ASSESSEE EXPLANATION WITHOUT ANY VERIFICAT ION ? 4. THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT BOOKS OF ACCOUNT OF THE ASSESSEE. WERE REJECTED BY THE AO U/S. 145(3) IN VIEW OF GLARING DISCREPANCIES FOUND FROM THE SUBMISSIONS OF THE ASSESSEE AND ALSO DURING THE ENQUIRY CONDUCTED BY THE INSPECTORS BY WAY OF PHYSICAL VERIFICATIONS BUT BY REJECTING THE AO DECISION BY ADMITTING ADDITIONAL EVIDENCE BEHIND THE BACK OF THE AO IS THE ORDER PASSED IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE? 5. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR ALTER THE ABOV E GROUNDS AS MAY BE DEEMED NECESSARY. RELIEF CLAIMED IN APPEAL IT IS PRAYED THAT THE ORDER OF THE CIT (APPEALS) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE FIRST ISSUE RAISED BY THE REVENUE IS THAT THE LEARNED CIT (A) ERRED IN DELE TING THE ADDITION MADE BY THE AO AMOUNTING TO RS. 4,71,53,581/ - ON ACCOUNT OF THE EXPENSES CLAIMED UNDER THE HEAD POWER AND FUEL. 4. BRIEF FACT OF THE CASE ON HAND IS THAT THE ASSESSEE IS A PUBLIC COMPANY AND ENGAGED IN THE BUSINESS OF MANUFACTURING OF F INE CHEMICALS. DURING THE ASSESSMENT PROCEEDINGS CERTAIN DISCREPANCIES IN BOOKS OF ACCOUNT OF THE ASSESSEE WERE NOTICED BY THE AO WHICH ARE ELABORATED IN THE FOLLOWING PARAGRAPH. ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 3 4.1 THE AO OBSERVED THAT THE ASSESSEE DURING THE YEAR HAS CLAIMED POWER & FUEL EXPENSES OF RS. 1721.22 LAKH AS COMPARED TO RS. 1372.59 LAKH CLAIMED IN IMMEDIATE PRECEDING ASSESSMENT YEAR ON THE SIMILAR AMOUNT OF CONSUMPTION OF RAW MATERIAL I.E. 12200.01 MT IN THE YEAR UNDER CONSIDERATION AND 12898.6 MT IN THE IMMEDIATE PRECEDIN G ASSESSMENT YEAR. 4.2 THE AO FURTHER FOUND THAT THE ASSESSEE HAS SHOWN ELECTRICITY EXPENSES AT THE RATE OF 10.89/ UNIT IN THE ANNUAL REPORTS AGAINST ACTUAL RATE OF RS. 5.54/ UNIT. 4.3 IN VIEW OF THE ABOVE DISCREPANCY, THE AO SOUGHT CLARIFICATION FROM THE ASSESSEE VIDE LETTER DATED 6 - 1 - 2014 AND FURTHER REQUESTED TO FURNISH THE DETAILS OF POWER & FUEL CONSUMED IN THE YEAR UNDER CONSIDERATION VIZ A VIZ IN THE IMMEDIATE PRECEDING AY IN THE SPECIFIC FORMAT I.E. UNIT WISE AND PRODUCT WISE. 4.4 THE ASSESSEE IN RESPONSE TO SUCH SHOW CAUSE NOTICE SUBMITTED THE REQUISITE DETAILS VIDE LETTER DATED 16 JANUARY 2014 IN THE FORMAT AS DESIRED BY THE AO VIDE ANNEXURE A . T HE ASSESSEE ALSO SUBMITTED THAT THE DETAILS OF POWER IN ANNEXURE A IS RELATED TO THE POWER AND FUEL CONSUMED IN THE PROCESS OF PRODUCTION. AS SUCH THE POWER WAS ALSO CONSUMED IN UTILITIES, WORKSHOP, ADMINISTRATIVE AND PLANT OFFICE, LABORATORY, EFFLUENT TREATMENT PLANT WHICH HAS NOT BEEN PROVIDED IN SUCH ANNEXURE. 4.5 THE AO, ON THE BASIS OF THE D ETAILS FURNISHED BY THE ASSESSEE IN ANNEXURE A PREPARED A CHART CONTAINING THE DETAILS OF UNIT WISE AND PRODUCT WISE WHICH WAS SHOWING THE CONSUMPTION OF ACTUAL UNITS WITH RESPECT TO FURNACE OIL, WOOD, HIGH SPEED OIL AND ELECTRICITY IN THE PROCESS OF PRO DUCTION. THIS CHART WAS COMPARED WITH THE DETAILS FURNISHED BY THE ASSESSEE IN THE ANNUAL REPORT WHEREIN CERTAIN DISCREPANCIES WERE FOUND. THE DISCREPANCIES OBSERVED BY THE AO STAND AS UNDER: 5.4 AS MAY BE SEEN FROM THE CHART ABOVE, THERE IS HUGE DIFFERE NCE IN QUANTITATIVE CONSUMPTION OF POWER AND FUEL AS PER THE ANNUAL REPORT IN COMPARISON TO THE CHART PREPARED FROM THE DATA SUBMITTED BY THE ASSESSEE, THE DIFFERENCE IN THE PARTICULARS OF THE POWER AND FUEL IN WORKED AS UNDER; ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 4 S.NO. PARTICULARS UNITS CONS UMED AS PER ANNUAL REPORT UNITS CONSUMED AS PER THE CHART PREPARED FROM THE DATE SUBMITTED BY THE ASSESSEE DIFFERENCE VALUE OF THE DIFFERENCE * * (RS.) 1. FURNACE OIL 272980 KGMS 250761 KGMS 22219 KGMS 617688 2. WOOD 20477710 19631875 KGMS 845835 KGMS 2 495213 3. HIGH SPEED OIL 155460 KGMS 33471 KGMS 121989 KGMS 323270 4. ELECTRICITY 12125240 2881451 KWH 9243789 KWH 51210591 ** THE VALUE OF THE DIFFERENCE IS CALCULATED BY MULTIPLYING DIFFERENCE IN CONSUMPTION WITH THE VALUE OF PARTICULARS PER UNIT AS PER BOOKS WHICH ARE AS UNDER: S.NO. PARTICULARS RATE (APPRX.) IN RS. 1. FURNANCE OIL 27.779 2. WOOD 2.949 3. HIGH SPEED OIL 2.649 4. ELECTRICITY 5.539 4.6 ON QUESTION BY THE AO ABOUT THE ABOVE STATED DISCREPANCY, THE ASSESSEE VIDE LETTER DATED 28 FEBRUARY 2014 SUBMITTED AS UNDER: 1. DISCREPANCY IN CONSUMPTION OF FURNACE OIL OF RS.617688/ - THE DIFFERENCE IS DUE TO THE FACT THAT YOU HAVE CONSIDERED TOTAL UNIT OF FURNACE OIL OF 250761 KGS. CONSUMED FOR PRODUCTION OF ALL UNITS WHEREAS IN ANNUAL REPO RT TOTAL FURNACE OIL CONSUMED IS 272980 KGS. THE DIFFERENCE OF 22219 KGS. IS BECAUSE OF ITEMS SHOWN IN ANNEXURE 'E' WHICH ARE PRODUCED DURING THE YEAR. HOWEVER, CONSUMPTION OF FURNACE OIL PER UNIT CANNOT BE IDENTIFIED SEPARATELY FOR THE LISTED PRODUCTS. TH E STORE LEDGER OF FURNACE OIL SHOWING CONSUMPTION OF 272980 KGS. AS PER ANNUAL REPORT IS FILED. 2. DISCREPANCY IN CONSUMPTION OF WOOD OF RS. 2495213/ - THE DIFFERENCE IS BECAUSE OF ITEMS SHOWN IN ANNEXURE 'F' WHICH ARE PRODUCED DURING THE YEAR HOWEVER THE C ONSUMPTION OF WOOD PER UNIT CANNOT BE IDENTIFIED SEPARATELY FOR THE SAME. THAT IS WHY PER KG. RATE IN RESPECT OF THOSE ITEMS CANNOT BE ASCERTAINED. HOWEVER, WOOD IS USED IN - PRODUCTION OF SUCH ITEMS. COPIES OF THE LEDGER ACCOUNTS SHOWING CONSUMPTION OF 2047 7710 KGS. IS ATTACHED HEREWITH VIDE ANNEXURE 'FL'. 3. DISCREPANCY IN CONSUMPTION OF HSD OF RS. 323 270/ - THE HSD IS ONLY UTILIZED IN GENERATING POWER THROUGH D.G. SET. AND OUR EXPLANATION IS SAME AS EXPLAINED IN POINT NO. 7. STORE LEDGER ACCOUNTS SHOWING CO NSUMPTION OF 155460 KGS. OF HSD IS ATTACHED HEREWITH AS PER ANNEXURE 'G'. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXX NOW WE WOULD LIKE TO RECONCILE THE DIFFERENCE AS UNDER: PARTICULARS UNITS IN KWH ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 5 TOTAL UNIT OF POWER CONSUMED FOR PR ODUCTION OF ALL PRODUCTS IN KWH AS PER YOU LETTER DATED 18.02.2014 2881451 ADD: CONSUMED IN UTILITY AS STATED ABOVE (BAREILLY & NANDESAI)SUCH AS BOILER, THERMIC FLUID HEATER(HTO), NITROGEN GAS, COMPRESSED AIR, COOLING WATER, REFRIGERATION ETC. 7533786 AD D: UNITS CONSUMED IN ADMIN BUILDING, LABORATORY, WORKSHOP, EFFLUENT TREATMENT PLANT, STORES ETC. 1928812 ADD: POWER GENERATED THROUGH HSD CONSUMED IN PROCESS PLANT 123739 TOTAL 12467788 LESS: POWER CONSUMED AS PER ANNUAL REPORT 12107050 DIFFERENCE 36 0 738 THE ABOVE DIFFERENCE OF 360738 KWH IS EXPLAINED AS UNDER: THE POWER CONSUMPTION AS TAKEN BY THE DEPARTMENT IS AS UNDER: NAME OF PRODUCT PRODUCTION (MT) UNIT OF POWER P.U. (IN KWH) TOTAL POWER CONSUMED (IN KWH) ASTROLIDE (PURE/DEP/IPM/BB/DPG 658 179 7.07 1182472 THE POWER CONSUMPTION SHOULD BE TAKEN NAME OF PRODUCT PRODUCTION (MT) UNIT OF POWER P.U. (IN KWH) TOTAL POWER CONSUMED (IN KWH) ASTROLIDEPURE 457 1797.07 821775 THE DIFFERENCE IS AS UNDER NAME OF PRODUCT PRODUCTION (MT) TOTAL POWER CONSUME D (IN KWH) ASTROLIDE (PURE/DEP/IPM/BB/DPG) 201 360697 THIS DIFFERENCE IS DUE TO VARIATION IN PRODUCTION QUANTITY AS TAKEN BY THE DEPARTMENT AND WHICH IS ACTUALLY TAKEN FOR CHARGING THE SAME TO THE PRODUCT. ASTROLIDE SEP/IPM/BB/DPG ARE FORMULATIONS WHICH ARE MADE FROM ASTROLIDE PURE AND SO FOR CALCULATING POWER CONSUMPTION THE TOTAL PRODUCTION OF ASTROLIDE PURE IS CONSIDERED I.E (105425 KGS. SOLD AS SUCH AS AND 351862 KGS WHICH IS USED FOR PRODUCTION OF FORMULATIONS WHICH IS SHOWN IN INTERMEDIATES). ATTAC HING THE PROCESS FLOW FOR YOUR REFERENCE VIDE ANNEXURE H 4.7 THE ASSESSEE FURTHER CONTENDED THAT I. T HE POWER CONSUMED IN THE UTILITIES AND OTHER NON - PRODUCTIVE UNITS SHOULD ALSO BE TAKEN INTO CONSIDERATION FOR MAKING THE COMPARISON WITH THE PAST RECORDS. II. A Q UALIFIED ENGINEER CAN ALSO BE APPOINTED BY THE DEPARTMENT TO VERIFY THE CONSUMPTION OF THE POWER AND FUEL IN DIFFERENT UNITS AS IT IS A HIGHLY ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 6 TECHNICAL MATTER AND THEREFORE AN OPINION OF AN EXPERT CAN HELP IN DECIDING THE ISSUE. III. THE POWER CANNOT BE TAKEN OUT FROM THE FACTORY PREMISES AND THEREFORE THERE CANNOT BE ANY DOUBT FOR THE DIVERSION OF SUCH POWER EITHER FOR PERSONAL USE OR ANY OTHER PURPOSE NOT CONNECTED WITH THE BUSINESS. 4.8 HOWEVER, THE AO DISAGREED WITH THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT THE REPLY AND NEW DETAILS SUBMITTED BY THE ASSESSEE IN THIS REGARD ARE GENERAL AND THAT TOO WITHOUT BEING SUPPORTED BY DOCUMENTARY EVIDENCE. 4.9 THE AO REGARDING THE ELECTRICITY CONSUMPTION HELD THAT IT HAS BEEN SEEN THAT POWER FOR PRODUCTI ON HAS BEEN USED FOR 24% ONLY WHEREAS ON THE OTHER HAND THE BALANCE POWER I.E. 76% HAS BEEN CONSUMED FOR OTHER ACTIVITIES SUCH AS RESEARCH AND DEVELOPMENT, STAFF COLONIES, STREETLIGHTS AND STORES WHICH IS NOT ACCEPTABLE FOR THE SIMPLE REASON THAT MANUFACTU RING ACTIVITY IS THE MAIN BUSINESS OF ASSESSEE WHERE ELECTRICITY SHOULD HAVE BEEN USED MORE. THE AO, SIMILARLY HELD THAT THE FURNACE OIL, WOOD AND HIGH - SPEED DIESEL CANNOT BE USED OTHER THAN THE PRODUCTION PROCESS. ACCORDINGLY THE AO DISALLOWED AN EXPENSE OF RS. 4,71,53,581/ - IN THE MANNER AS REPRODUCED BELOW: 5.7 CONSIDERING THE VARIOUS FACTS BROUGHT ON RECORD AND VARIOUS SUBMISSIONS OF THE ASSESSEE, VARIATION IN CONSUMPTION IN TOTALITY ON ACCOUNT OF POWER & FUEL TO SOME EXTENT CANNOT BE DENIED. THEREFO RE, VARIATION IN CONSUMPTION IN ELECTRICITY MAY BE TAKEN IN THE RANGE BETWEEN 10% TO 20%. THUS, MAXIMUM BENEFIT OF 20% OF THE VARIATION IS ALLOWED TO THE ASSESSEE UNDER THIS HEAD. FURTHER AS EVIDENT THAT THE USE OF FURNACE OIL, WOOD, HIGH SPEED OIL CAN ONL Y BE USED FOR PRODUCTION ACTIVITIES AND HENCE, THE ENTIRE AMOUNT OF DISCREPANCIES FOUND IN RESPECT OF THESE TERMS ARE LIABLE TO DISALLOWED. IN VIEW OF THESE OBSERVATIONS, OUT OF TOTAL DIFFERENCE WORKED OUT AS PER THE CHART IN PARA 5.4 ABOVE, DISALLOWANCE U NDER THIS HEAD IS WORKED OUT AS UNDER: S.NO. PARTICULARS VALUE OF THE DIFFERENCE (RS.) AMOUNT OF DISALLOWANCE (RS.) REMARKS 1 FURNACE OIL 617688 617688 100% OF THE DIFFERENCE 2 WOOD 2495213 2495213 100% OF THE DIFFERENCE 3 HIGH SPEED OIL 323270 323270 1 00% OF THE DIFFERENCE 4 ELECTRICITY 51210591 43717410 80% OF THE DIFFERENCE TOTAL 54646762 4,71,53,581 ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 7 TOTAL EXPENSES OF RS.4,71,53,581/ - OUT OF THE POWER AND FUEL IS DISALLOWED ON ACCOUNT OF INFLATION OF EXPENDITURE AND ADDED BACK TO THE TOTAL INCO ME OF THE ASSESSEE 5 . AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED CIT (A). 5 .1 THE ASSESSEE BEFORE LEARNED CIT (A) BESIDES REITERATING ITS SUBMISSION BEFORE THE AO, CONTENDED THAT IT HAS BEEN MAINTAINING PROPER BOOKS OF ACCOUNT FOR PAST SEVER AL YEARS WHICH ARE SUBJECT TO VARIOUS TYPE OF AUDIT. SIMILARLY, THERE HAS NOT BEEN POINTED OUT ANY DISCREPANCIES IN THE BOOKS OF ACCOUNTS MAINTAINED BY IT. FURTHER THE ASSESSEE EXPLAINED THAT ALL THE QUERIES RAISED DURING THE ASSESSMENT PROCEEDING WERE DUL Y ANSWERED AND ALL THE EXPENSES WERE SUPPORTED BY THE BILL AND VOUCHER. 6 . THE LEARNED CIT (A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND OTHER FACT S DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER : SURPRISINGLY THE AO IN T HE ASSES SMENT ORDER HAS MENT IONED THAT THE DETAILS/EXPLANATION AS FILED BY THE APPELLANT DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE ITS ABOVE LETTER DATED 16/01/2014 AND 28/02/2014 WERE OF GENERAL NATURE AND WERE NOT SUPPORTED BY ANY EVIDENCES. IN MY OPINIO N THE DETAILS AND FACTS AND FIGURES AS SUBMITTED BY. THE APPELLANT VIDE ITS LETTER DATED 16/01/2014 AND LETTER DATED 28/02/2014 TO THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS WERE VERY SPECIFIC AND THE SAME WERE BASED ON THE AUDITED BOOKS OF ACCOUNT S. BUT THE AO HAS NOT POINTED OUT ANY MISTAKE IN THE SUBMISSIONS DATED 16/01/2014 AND 28/02/2014 VIS - A - VIS BOOKS OF ACCOUNTS OF THE APPELLANT IN HIS ASSESSMENT ORDER. THE AO HAS MADE THE ADDITION OF RS. 4,71,53,581/ - SOLELY ON THE BASIS OF CHART WHICH WAS PREPARED BY HIM ON THE BASIS OF DETAILS OF CONSUMPTION OF POWER & FUEL IN THE PROCESS UNIT. IN OTHER WORDS, THE AO CONSIDERED THE CONSUMPTION OF POWER AND FUEL ONLY IN RESPECT OF PRODUCTION OF THE ITEMS AND HE DID NOT CONSIDER THE CONSUMPTION OF POWER A ND FUEL IN UTILITIES, WORKSHOP, ADMINISTRATION, PLANT OFFICE, LABORATORY AND EFFLUENT TREATMENT PLANT ETC. IN ADDITION, POWER WAS ALSO CONSUMED IN RESEARCH & DEVELOPMENT DIVISION, STAFF COLONIES, STREET LIGHTS AND STORES. THESE FACTS WERE BROUGHT TO THE NOTICE OF THE AO BY THE APPELLANT DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE LETTER DATED* 16/01/2014 AND 28/02/2014; HOWEVER, THE AO HAS NOT BEEN ABLE TO POINT OUT ANY MISTAKE IN THE BOOKS OF ACCOUNT AND IN THE BILLS AND VOUCHERS SO FAR AS SUBMI SSIONS OF THE APPELLANT AS MADE VIDE THESE TWO LETTERS ARE CONCERNED. THE FACT IS THAT THE BOOKS OF ACCOUNT OF THE APPELLANT HAVE BEEN AUDITED U/S 44AB ETC. BY THE STATUTORY AUDITORS AND APPROVED BY THE COMPANY IN GENERAL MEETING AND THEREAFTER THE SAME AR E FILED BEFORE THE REGISTRAR OF THE COMPANIES WHO HAS EXAMINED THE SAME AND SATISFIED THAT THE ACCOUNTS ARE MAINTAINED IN ACCORDANCE WITH THE REQUIREMENT OF THE COMPANIES ACT. THE AO HAS NOT POINTED OUT ANY MISTAKE IN THE FACTS AND FIGURES PROVIDED BY THE APPELLANT IN RESPECT OF CONSUMPTION OF POWER, FURNACE OIL, WOOD AND HSD VIDE HIS SUBMISSION DATED 28/02/2014 IN RELATION TO THE BOOKS OF ACCOUNTS. AGAIN, AO COULD HAVE FOUND OUT EASILY THE ELECTRICITY RATE PER UNIT BY DIVIDING THE TOTAL VALUE WITH TOTAL UN IT PURCHASED TO FIND OUT AS TO WHETHER THE RATE OF RS. 10.89 PER UNIT AS SHOWN BY THE APPELLANT IS CORRECT OR NOT. HOWEVER, THE AO WHILE ARRIVING AT ANY CONCLUSION FOR ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 8 REJECTION OF BOOKS OF ACCOUNT OF THE APPELLANT HAS NOT DONE THIS EXERCISE ALSO. CONSIDER ING ALL THESE FACTS, IT IS HELD THAT THE AO IS NOT CORRECT IN WORKING OUT DIFFERENCES OF CONSUMMATION OF POWER AND FUEL MERELY AS PER HIS CHART WHICH WAS PREPARED BY HIM ON THE BASIS OF SOME OF THE SUBMISSIONS OF THE APPELLANT AS SUCH SUBMISSIONS WERE MADE BY THE APPELLANT TO THE AO IN RESPECT OF PRODUCTION OF THE ITEMS AND BY IGNORING CONSUMPTION OF OTHER POWER AND FUEL IN UTILITIES, WORKSHOP, ADMINISTRATION/ PLANT OFFICE, LABORATORY, EFFLUENT TREATMENT PLANT, RESEARCH & DEVELOPMENT DIVISION, STAFF COLONIE S, STREET LIGHTS AND STORES. NOWHERE IN THE ASSESSMENT ORDER, THE AO BY POINTING OUT ANY MISTAKES IN THE AUDITED BOOKS OF ACCOUNTS AND BILLS AND VOUCHERS HAS ESTABLISHED THAT THE DETAILS AND FIGURES GIVEN BY THE APPELLANT AS PER ITS SUBMISSION DATED 16/01/ 2014 AND DATED 28/02/2014 WERE WRONG. IN VIEW OF THIS, THE ADDITION OF RS. 4,71,53,581/ - AS MADE BY THE AO AFTER REJECTING THE BOOKS OF ACCOUNT OF THE APPELLANT IS NOT SUSTAINABLE AND THEREFORE THE SAME IS DELETED. 7 . BEING AGGRIEVED BY THE ORDER OF THE L EARNED CIT (A) THE REVENUE IS IN APPEAL BEFORE US. 8 . THE LEARNED DR BEFORE US VEHEMENTLY SUPPORTED THE ORDER OF THE AO WHEREAS THE LEARNED AR BEFORE US FILED A PAPER BOOK RUNNING FROM PAGES 1 TO 280 AND SUBMITTED AS UNDER: EXPENSES OUT OF POWER & F UEL THE ASSESSING VIDE LETTER DATED 06.01.2014 CALLED UPON THE ASSESSEE TO FURNISH UNIT WISE, PRODUCT WISE POWER AND FUEL CONSUMED FOR A.Y. 2010 - 11 AND 2011 - 12 IN A PRESCRIBED FORMAT. THE ASSESSEE VIDE LETTER DATED 16.01.2014 SUBMITTED THE REPLY. IT WAS FURTHER SUBMITTED BY THE ASSESSEE THAT THE UNITS OF POWER CONSUMED IN THE ATTACHED ANNEXURE ARE THE POWER DIRECTLY CONSUMED DURING THE PROCESS OF PRODUCTION. BESIDES THIS THE POWER IS ALSO CONSUMED IN UTILITIES, WORKSHOPS, ADMINISTRATIVE AND PLANT OFFICE, LABORATORY AND IN EFFLUENT TREATMENT PLANT ETC. THE AO HAS WORKED OUT THE DIFFERENCE OF CONSUMPTION OF FURNACE OIL, WOOD, HIGH SPEED OIL, ELECTRICITY AS UNDER: SR. NO. PARTICULARS UNITS CONSUMED AS PER ANNUAL REPORT (A) UNITS CONSUMED AS PER THE CHART PREPARED FRO M THE DATA SUBMITTED BY THE ASSESSEE (B) DIFFERENCE (C) RATES PER UNIT AS PER ANNUAL REPORT V ALUE OF THE DIFFERENCE (RS.)* (D) 1 2 3 4 5 6 7 1. FURNACE OIL 272980 KGMS 250761 22219 27. 779 617688 2. WOOD 20477710 19631875 845835 2.949 2495213 3. HIGH SPEED OIL 155460 KGMS 33471 KGMS 121 989 KGMS 2.649 323270 ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 9 4. ELECTRICITY 12125240 KWH 2881451 KWH 9243789 KWH 5.539 51210591 THE APPELLANT SUBMITTED ITS REPLY DATED 28.02.2014 EXPLAINING THE DIFFERENCE AS NOTED BY THE AO. HERE THE COLUMN ADDED BY THE AO IN ABOVE TABLE IS 'UNIT CONSUMED AS PER THE CHART PREPARED FROM THE DATA SUBMITTED BY THE ASSESSEE ON 16.01.2014'. THE RELATED SUBMISSION PROVIDED BY THE ASSESSEE WAS ONLY FOR THE PROCESS PLANT WHICH IS CLEARLY MENTIONED BY THE ASSESSEE IN HIS SUBMISSION DATED 16/01/2014 AND 28/02/2014. (PAGE 287 AND 357 OF PAPER BOOKJBUT THE AO HAS CONSIDERED IT AS THE TOTAL POWER CONSUMED BY THE COMPANY. HE HAS WORKED OUT THE DIFFERENCE OF CONSUMPTION IN COLUMN NO.5 AND THEN MULTIPLIED THE RATE PER UNIT CONSUMPTION TO DERIVE THE DIFFERENCE IN VALUE AS MENTIONED IN COLUMN 6. VIDE SHOW CAUSE NOTICE DATED 18/02/2014, THE ASSESSEE WAS ASKED TO EXPLAI N WHY SHOULD THE ABOVE DIFFERENCE IN VALUE NOT BE ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE HAS SUBMITTED ITS REPLY VIDE LETTER DATED 28/02/2014 (PAGE 355 TO 360 OF PAPER BOOK) WHICH EXPLAINS THE DIFFERENCE FOUND OUT BY THE AO. BUT THE AO HAS NOT CONSIDERED THE EXPLANATION.THE AO HAS OBSERVED THAT THE RATE PER UNIT OF ELECTRICITY IS SHOWN AT RS.10.89/ - IN THE ANNUAL AUDIT REPORT, WHEREAS THE ACTUAL AMOUNT COMES TO RS.5.54/ - PER U NIT. WHILE REVIEWING THE ANNEXURE A, PAGE 12 OF DIRECTOR REPORT (PAGE 90 OF PAPER BOOK), THE AO FOUND THE ELECTRICITY RATE PER UNIT IS RS. 10.89/ - BUT IF WE LOOK THE REPORT AGAIN AND DIVIDE THE TOTAL VALUE WITH TOTAL UNIT PURCHASE IT WILL COME TO RS. 5.5S9/ - ONLY. IT CLEARLY SHOWS THAT THERE WAS ONLY A CLERICAL MISTAKE WHICH WAS DONE AT THE TIME OF PREPARING ANNUAL REPORT. THE AO REJECTED THE CONTENTION OF THE ASSESSEE AND MADE ADDITION OF RS.4,37,17,410/ - SIR, IT IS SUBMITTED THAT THE ASSESSEE HAS GIVEN ALL THE REQUISITE DETAILS REGARDING THE USAGE OF POWER AND FUEL BY THE COMPANY, BUT THE AO SIMPLY BY TAKING THE USAGE OF PROCESS PLANT MADE AN ADDITION OF THE DIFFERENTIAL AMOUNT AFTER GIVING THE BENEFIT 20% IN ELECTRICITY. SIR, THE MAJOR ADDITION MADE BY THE AO IS BY DISALLOWING THE ELECTRICITY COST. IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAD REQUESTED TO COMPARE THE CURRENT YEAR USAGE WITH LAST YEAR. ON DOING SO IT CAN BE NOTED THAT THE ELECTRICITY COST FOR LAST YEAR WAS OF RS.547.59 LAKHS AS COMPARED TO CURRENT YEAR OF RS. 641.08 LAKHS (REFER PAGE 90 OF PAPER BOOK), THUS THERE IS AN INCREASE OF RS.931ACS IN THE TOTAL COST OF ELECTRICITY. IT IS IMPORTANT TO MENTION HERE THAT THE AO HAS DISALLOWED THE ELECTRICITY EXPENSE TO THE TUNE OF RS. 4.37 CRORE. NOW, IF THE PRODUCTION OF THE ASSESSEE COMPANY IS COMPARED THE PRODUCTION OF F.Y. 2009 - 10 AND F.Y.2010 - 11 (REFER PAGE 265 OF PAPER BOOK) IS AS UNDER PARTICULARS A.Y. 2010 - 11 2011 - 12 PRODUCTION IN MT BAREILLY UNIT 10548 9655 NANDESARI UNIT 5665 6950 TOTAL 16213 16605 THUS, PRODUCTION IS MORE PARTICULARLY AT NANDESARI UNIT WHERE REFRIGERATION PROCESS CONSUMES MORE ELECTRI CITY. PRODUCTION AT NANDESARI UNIT IS ALMOST MORE BY 22% WHICH HAS REQUIRED MORE CONSUMPTION OF ELECTRICITY. IN PRECEDING YEAR CONSUMPTION OF ELECTRICITY WAS RS. 547.59 LAKHS. BUT THIS YEAR THE AO WANTS THE ASSESSEE TO CONSUME ELECTRICITY OF RS. 204.08 LAK HS ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 10 ONLY I.E TOTAL COST 647.08 LESS DISALLOWANCES OF RS. 437 LAKHS MADE BY AO. THIS IS NOT POSSIBLE. IT IS VERY WELL CLEAR THAT THE AO HAS NOT CONSIDERED THE CONSUMPTION OF POWER IN UTILITIES, WORKSHOPS, ADMINISTRATION IN PLANT OFFICE, LABORATORY AND IN EFFL UENT TREATMENT PLANT ETC. FURTHER, IT IS ALSO SUBMITTED THAT, FROM DAY ONE, THE ASSESSEE IS STATING THAT THE CHEMICAL PROCESSES AT BAREILLY PLANT ARE MOSTLY THE HOT PROCESSES (+4O DEGREE TO +185 DEGREE) WHERE THE HEAT REQUIREMENT (STREAM/HOT OIL) IS HIGH H ENCE THE WOOD CONSUMPTION & FO CONSUMPTION IS VERY HIGH AND REFRIGERATION UNIT (WHERE POWER CONSUMPTION IS HIGH) REQUIREMENT IS LOW, HENCE THE POWER CONSUMPTION/TON IS VERY LOW AS COMPARED TO BARODA. THE PRODUCTS BEING MANUFACTURED AT BARODA MOSTLY HAVING COLD TO VERY COLD PROCESSES W HERE HIGH TR (TONNES OF REFRIGERATION) & LOW TEMPERATURE (AS LOW AS - 40 DEGREE C) REFRIGERATION UNITS ARE REQUIRED TO CARRY OUT HIGHLY EXOTHERMIC REACTIONS AT VERY LOW T EMPERATURES (AS LOW AS - 20 DEGREE C) WHERE THE POWER CONSUMPTION IS VERY HIGH, HENCE THE POWER CONSUMPTION IS HIGH AT BARODA AS COMPARED TO BAREILLY. IF WE COMPARE UNIT WISE ELECTRICITY CONSUMPTION AT BAREILLY AND NANDESARI, WE CAN OBSERVE THAT THE PRODUC TION IN NANDESARI IS INCREASED BY 22% VIS - A - VIS INCREASE IN THE COST OF POWER CONSUMPTION BY 22%. THEREFORE, IT CAN BE INTERPRETED THAT THE COSTS INCREASE IS AT PAR WITH THE INCREASE IN PRODUCTION AND THEREFORE, THE ALLEGATION OF THE AO THAT THE APPELLANT COMPANY HAS CONSUMED POWER IN EXCESS, IN COMPARISON WITH PRECEDING YEAR IS NOT CORRECT. FURTHERMORE, IF WE COMPARE THE UTILIZATION AND COST OF POWER OF BAREILLY UNIT WITH PRECEDING YEAR, IT CAN BE SEEN THAT THE OVERALL COST OF POWER WAS REDUCED BY 1% INSPI TE OF THE FACT THE ELECTRICITY RATE HAS INCREASED AS COMPARED TO PRECEDING YEAR. THE SAID COMPARISON IS ATTACHED FOR YOUR REFERENCE AT ANNEXURE: A. (PAGE 265) FROM ABOVE FACTS, IT CAN BE INTERPRETED THAT AO MADE THE ADDITION ONLY ON THE BASIS OF PRODUCTION OF THE ITEMS IN PROCESS PLANT. AS FAR AS ELECTRICITY IS CONCERNED, THE ASSESSEE GETS IT FROM ELECTRICITY COMPANIES AND IT IS SUPPORTED BY PROPER BILLS. AT THE TIME OF VISIT BY I.T.O. AND INCOME TAX INSPECTORS, ALL THE ELECTRICITY BILLS ALONG WITH THE BOOK S, INCLUDING R G 1 REGISTER WHICH COULD HAVE GIVEN PROPER STATE OF THE ACCOUNTS, WERE AVAILABLE AT THE PLANT. WE ALSO DRAW YOUR KIND ATTENTION TO OUR REPLY DATED 28.02.2014 WHICH IS REPRODUCED BY THE A.O. ON PAGE NO. 13,14,15,16 OF THE ORDER WHICH CLEARLY E XPLAINS THE QUERY OF THE AO. MOREOVER, IN ALL PAST ASSESSMENTS, THIS FACT OF UTILIZATION OF POWER CONSUMPTION IN UTILITIES AND NON PRODUCTIVE DIVISIONS IS ACCEPTED. FINDINGS OF THE CIT(A): THE ASSESSEE HAS PRODUCED THE DETAILS ALONG WITH FIGURES WHICH WERE VERY SPECIFIC AND BASED ON THE AUDITED BOOKS OF ACCOUNTS. THE AO HAS NOT POINTED OUT ANY MISTAKE IN THE SUBMISSIONS OF THE ASSESSEE VIS - A - VIS BOOKS OF THE ACCOUNTS OF THE ASSESSEE. THE ADDITION WAS MADE BY AO SOLELY ON THE BASIS OF CHART PREPARED BY HIM ON THE BASIS OF DETAILS OF CONSUMPTION OF POWER & FUEL IN THE PROCESS UNIT. THE AO DID NOT CONSIDER THE CONSUMPTION OF POWER & FUEL IN UTILITIES, WORKSHOP, ADMINISTRATION, PLANT OFFICE, LABORATORY AND EFFLUENT TREATMENT PLANT. IN FACT, POWER WAS ALSO CONSU MED IN RESEARCH & DEVELOPMENT DIVISION, STAFF COLONIES, STREET LIGHTS AND STORES. THESE FACTS WERE BROUGHT TO THE NOTICE OF THE AO BY THE APPELLANT. HOWEVER, THE AO COULD NOT PINPOINT ANY MISTAKE IN THE AUDITED BOOKS OF ACCOUNT. THE AO WHILE ARRIVING AT AN Y CONCLUSION FOR REJECTION OF BOOKS OF ACCOUNT OF THE APPELLANT HAS NOT DONE THIS EXERCISE ALSO. AO IS NOT CORRECT IN WORKING OUT DIFFERENCE OF CONSUMPTION OF POWER AND FUEL MERELY AS PER CHART PREPARED BY HIM. I ALSO RELY ON THE FOLLOWING CASE LAWS: 1. N RAJA PULLAIAH V. DEPUTY COMMERCIAL TAX OFFICER [1969] 73 ITR 224(AP) ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 11 2. INCOME TAX OFFICER V. PRAGATI FASHIONS [2012] 18 TAXMANN.COM 269 (AHMEDABAD) 3. ST. TERESA'S OIL MILLS V. STATE OF KERALA [1970] 76 ITR 365(KERALA) 4. ASSISTANT COMMISSIONER OF INC OME TAX, CIRCLE, SANGRUR V. MAGHAN PAPER MILLS (P.) LTD. [2018]97 TAXMANN.COM 281 (CHANDIGARH - TRIB.) 5. COMMISSIONER OF INCOME TAX V. SULABH MARBLES (P) LTD. (2006) 205 CTR RAJ 464 9 . THE LEARNED AR BEFORE US VEHEMENTLY SUPPORT ED THE ORDER OF THE LEARNED CIT (A). 10 . WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE PRECEDING DISCUSSION, WE NOTE THAT THE AO HAS MADE THE DISALLOWANCE OF THE EXPENSES CLAIMED BY THE ASSESSEE UNDER THE HEAD POWER AND FUEL TO THE TUNE OF RS. 4,71,53,581/ - ON THE GROUND THAT THE SE EXPENSES WERE INFLATED IN COMPARISON TO THE IMMEDIATE PRECEDING ASSESSMENT YEAR. BESIDES THIS, THE AO ALSO OBSERVED CERTAIN DISCREPANCY IN THE DETAIL SUBMITTED IN THE ASSESSMENT PROCEEDINGS VIZ A VIZ THE INFORMATION FURNISHED IN THE ANNUAL REPORT WITH RESPECT TO POWER AND FUEL EXPENSES. HOWEVER, THE LEARNED CIT (A) WAS PLEASED TO DELETE THE ADDITION MAD E BY THE AO BY OBSERVING THAT THE AO WAS WRONG IN MAKING ADDITION MERELY ON NOTICING SOME DIFFERENCE IN THE CHART PREPARED BY THE ASSESSEE VIZ - A - VIZ DETAILS FURNISHED BY THE ASSESSEE IN THE ANNUAL REPORT WHILE IGNORING THE OTHER FACTS THAT THE POWER WAS AL SO USED IN OTHER UNITS. 10 .1 FIRST OF ALL, WE NOTE THAT THE GENUINENESS OF THE EXPENSES HAS NOT BEEN DOUBTED BY THE AO. ADMITTEDLY, THE DIFFERENCE WERE FOUND BY THE AO IN THE DETAIL SUBMITTED BY THE ASSESSEE VIZ A VIZ INFORMATION FURNISHED IN THE ANNUA L REPORT. THE QUESTION ARISES WHETHER THE INFORMATION FURNISHED IN THE ANNUAL REPORT CAN BE BASIS FOR MAKING THE DISALLOWANCE. IN OUR CONSIDERED VIEW THE ANSWER STANDS IN NEGATIVE. IT IS BECAUSE TO MAKE THE DISALLOWANCE OF THE EXPENSES, THE AO HAS TO ESTAB LISH THE FACT THAT THE EXPENSES WERE BOGUS OR WERE NOT INCURRED IN CONNECTION WITH THE BUSINESS . BUT THE AO HAS NOT BROUGHT ANYTHING ON RECORD SUGGESTING THAT THE EXPENSES WERE BOGUS OR THESE EXPENSES WERE NOT INCURRED IN THE COURSE OF THE BUSINESS. ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 12 10 .2 EVEN FOR THE SAKE OF UNDERSTANDING , WE ASSUME THAT THE ASSESSEE HAS INCURRED MORE EXPENSES UNDER THE HEAD POWER AND FUEL AS DISCUSSED ABOVE IN COMPARISON TO THE IMMEDIATE PRECEDING ASSESSMENT YEAR WHICH RESULTED THE HIGH COST OF PRODUCTION TO THE ASSESSEE BUT THE SAME CANNOT BE DISALLOWED ON THE REASONING THAT THE ASSESSEE HAS INCURRED MORE EXPENSES THAN THE IMMEDIATE PRECEDING ASSESSMENT YEAR. IT IS BECAUSE THE TEST WHICH HAS BEEN PROVIDED UNDER 37 OF THE ACT IS THAT ANY EXPENSE WHICH IS NOT CAPITAL IN NA TURE/ PERSONAL IN NATURE INCURRED IN COURSE OF THE BUSINESS HAS TO BE ALLOWED WHILE COMPUTING INCOME UNDER THE HEAD BUSINESS & PROFESSION. INDEED, THE COST INCURRED BY THE ASSESSEE UNDER THE HEAD POWER AND FUEL IS NOT CAPITAL IN NATURE AND THERE WAS NO ALL EGATION BY THE AO THAT SUCH EXPENDITURE WAS NOT INCURRED IN THE COURSE OF THE BUSINESS. AS SUCH, THE AO CANNOT DECIDE TO ALLOW OR DISALLOW THE EXPENSES ON NOTICING DIFFERENCE BETWEEN THE ANNUAL REPORT AND THE DETAILS SUBMITTED BY THE ASSESSEE DURING THE AS SESSMENT PROCEEDINGS UNTIL AND UNLESS THERE ARE SUPPORTING EVIDENCES. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT (A). HENCE THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 11 . THE 2 ND ISSUE RAISED BY THE REVENUE IS THAT THE LEARNED CIT (A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS. 2,28,41,828/ - ON ACCOUNT OF EXCESS CONSUMPTION OF RAW MATERIAL. 12 . IT WAS ALSO OBSERVED BY THE AO THAT THE ASSESSEE IN ITS ANNUAL REPORT HAS SHOWN RAW MATERIAL CONSUMPTION FOR ITS NANDESARI PLANT AT RS. 41,46,35,061/ - ONLY . HOWEVER THE DOCUMENT/ DATA COLLECTED BY THE AO IN PURSUANCE TO SUMMON ISSUED UNDER SECTION 131 (TABULATED AT PAGE 19 OF THE AO ORDER) OF THE ACT FROM THE FACTORY CUM REGISTERED OFFICE OF NANDESARI PLANT REVE ALED THAT THE VALUE OF ACTUAL RAW MATERIAL CONSUMED BY THE ASSESSEE ARE OF RS. 39,17,93,233/ - ONLY. THUS SUCH DIFFERENCE IS LEADING TO EXCESS CLAIM OF RS. 2,28,42,828/ - ONLY . ON QUESTION THE ASSESSEE VIDE LETTER DATED 28 - 02 - 2014 CLAIMED THAT AT THE TIME OF SURVEY UNDER SECTION 131(1) OF THE ACT ONLY MAJOR ITEMS WERE CONSIDERED RATHER THAN ALL MATERIAL MOVEMENT. AS SUCH THERE IS NO DIFFERENCE IF ALL MATERIAL CONSUMPTION ARE CONSIDERED. ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 13 THE ASSESSEE IN ITS SUPPORT SUBMITTED NEW RAW MATERIAL CONSUMPTION DETA IL NAMELY ANNEXURE - D WHICH IS REPRODUCED AT PAGE 19 AND 20 OF THE AO ORDER. FURTHER THE ASSESSEE REQUESTED TO THE AO THAT IF THERE REMAIN ANY AMBIGUITY THEN DEPARTMENT MAY DE PUTE INSPECTOR IN THIS REGARD. 12 .1 HOWEVER THE AO AFTER COMPARING THE DATA SU BMITTED BY THE ASSESSEE VIDE LETTER DATED 28 - 02 - 2014 WITH THE EVIDENCES COLLECTED BY THE DEPARTMENT IN PURSUANCE TO SUMMON UNDER SECTION 131(1) FOUND THAT THERE ARE STILL DIFFERENCE FOR RS. 48,50,505/ - AS DETAILED AND TABULATED AT PAGE 20 OF THE ORDER. THE AO FURTHER FOUND THAT NEW ANNEXURE - D WAS NOT SUPPORTED BY THE DOCUMENTARY EVIDENCES. ACCORDINGLY THE AO CONCLUDE D THAT THE ASSESSEE MANIPULATED IT ACCOUNTS TO REDUCE TAXABLE INCOME. THUS THE AO REJECTED THE CONTENTION OF THE ASSESSEE AND DISALLOWED THE EX CESS CLAIM OF RAW MATERIAL CONSUMED FOR RS. 2,28,41,828 AND ADDED THE SAME TO TOTAL INCOME OF THE ASSESSEE. 13 . AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE CIT (A). 13 .1 THE ASSESSEE BEFORE THE LEARNED CIT (A) CLAIMED THAT CONSUMPTION OF RAW MATERIAL AT ITS NANDESARI PLANT IS CORRECT. THE DIFFERENCES AS POINTED BY THE AO WAS DUE TO THE FACT THAT AT TIME OF SURVEY UNDER SECTION 131(1) OF THE ACT THE INCOME TAX INSPECTOR COLLECTED DATA WITH RESPECT TO 11 MAJOR ITEM OF RAW MATERIAL ONLY WHEREAS IT IS CO NSUMING 68 TYPE RAW MATERIAL. THE AO MADE COMPARISON OF ENTIRE CONSUMPTION WITH THE DETAIL S OF ONLY 11 MAJOR ITEM OF RAW MATERIAL AND PROCEED ED TO MAKE ADDITION WHICH IS WRONG AND NEEDS TO BE DELETED. 14 . THE LEARNED CIT(A) AFTER CONSIDERING THE FINDING O F THE AO AND ASSESSEE S SUBMISSION DELETED THE ADDITION BY OBSERVING AS UNDER: 2.2.6 HOWEVER, THE AO WAS NOT SATISFIED WITH THE ABOVE REPLY AND DETAILS AS FILED BY THE APPELLANT VIDE ITS LETTER DATED 28/02/2014. AS PER THE AO THE EXPLANATION OF THE APPELL ANT WAS NOT FOUND TO BE SATISFACTORY BECAUSE THIS DISCREPANCY OF RS. 48,_50,505/ - WAS STILL PERSISTED AND APPELLANT FAILED TO EXPLAIN THE SAID DISCREPANCY. IN MY OPINION, IF DISCREPANCY OF RS. 48,50,505/ - WAS STILL PERSISTING AS MENTIONED BY THE AO IN THE ASSESSMENT ORDER, THEN IT IS NOT UNDERSTANDABLE AS TO HOW THE ADDITION OF RS. 2,28,41,828/ - CAN BE MADE. IF AT ALL THERE WAS DISCREPANCY TO THE EXTENT OF RS. 48,50,505/ - ONLY, THEN IT MEANS THAT THERE WAS ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 14 NO DISCREPANCY IN RESPECT OF REMAINING AMOUNT OF RS . 1,79,91,323/ - (I.E. RS. 2,28,41,828 - RS. 48,50,505/ - ) AND THEREFORE IF AT ALL ANY ADDITION WAS REQUIRED TO BE MADE AS PER THE STAND OF THE AO THAT SHOULD HAVE BEEN MADE OF RS. 48,50,505/ - . BUT THE AO HAS MADE THE ADDITION OF RS. 2,28,41,828/ - DESPITE TH E FACT THAT AS PER HIS OWN STAND DISCREPANCY OF ONLY RS. 48,50,505/ - WAS PERSISTING. THE AO IN THE ASSESSMENT ORDER HAS MENTIONED THAT THE APPELLANT AFTER RECEIVING THE SHOW - CAUSE NOTICE HAD MANIPULATED THE FIGURES OF RAW MATERIAL CONSUMED TO ITS CONVENIEN CE WHICH WAS ALSO WITHOUT ANY SUPPORTING EVIDENCES. THE AO HAS FURTHER MENTIONED THAT THE ABOVE FACT PROVED THAT THE APPELLANT HAD MANIPULATED ITS BOOKS OF ACCOUNT IN SUCH A MANNER SO THAT PROFITABILITY MAY BE REDUCED. BUT THE AO HAS NOT GIVEN ANY BASIS FO R ARRIVING AT SUCH CONCLUSION. IT IS NOT EXPLAINED IN THE ASSESSMENT ORDER AS TO HOW THE BOOKS OF ACCOUNT OF THE APPELLANT WAS MANIPULATED SO FAR AS CONSUMPTION OF RAW MATERIAL IS CONCERNED. THE AO HAS NOT POINTED OUT ANY MISTAKE IN THE BOOKS OF ACCOUNT AN D IN THE BILLS AND VOUCHERS OF THE APPELLANT. THE VERY BASI S OF ADDITION OF RS. 2,28,41,828 / - OF THE AO IS THE INFORMATION WHICH WAS COLLECT ED BY THE INSPECTORS U/S 131 AS P ER VERIFICATION MADE ON 07/02/2014 AT NANDESARI PLANT. HOWEVER, THE INFORMATION GA THERED BY THE AO THROUGH INSPECTOR HAS BEEN REBUTTED BY THE APPELLANT VIDE ITS LETTER DATED 28/02/2014 AND IT WAS CLEARLY SUBMITTED BY THE APPELLANT THAT THE INSPECTORS HAD CO NSIDERED ONLY MAJOR ITEMS OF RAW MATERIALS ISSUED FROM STORE TO PLANT. THE APPELL ANT SUBMITTED TO THE AO THAT AS PER ACCOUNTING PRACTICE, THE MOVEMENT OF ALL RAW MATERIALS AT STORES AND PLANT SHOULD HAVE BEEN CONSIDERED AND TOTAL CONSUMPTION OF RAW MATERIALS SHOULD HAVE BEEN ASCERTAINED. THE APPELLANT ALSO FURNISHED TO THE AO THE DETAI LS OF OPENING STOCK OF RAW MATERIALS, RAW MATERIALS PURCHASED DURING THE YEAR, RAW MATERIAL CONSUMED, INTER UNIT TRANSFER OF RAW MATERIAL AND CLOSING STOCK OF RAW MATERIALS AS PER ANNEXURE 'D'. THESE DETAILS AS FURNISHED AS PER ANNEXURE 'D' WAS SUBMITTED B Y THE APPELLANT TO THE AD VIDE ITS ABOVE LETTER DATED 28/02/2014. BUT THE AO HAS NOT CONSIDERED THIS SUBMISSION AS WELL AS DETAILS OF OPENING STOCK OF RAW MATERIALS, RAW MATERIALS PURCHASED DURING THE YEAR, RAW MATERIAL CONSUMED, INTER UNIT TRANSFER OF RAW MATERIAL AND CLOSING STOCK OF RAW MATERIALS AS FURNISHED AS PER ANNEXURE X D' ENCLOSED WITH THE SUBMISSION DATED 28/02/2014. THE APPELLANT ALSO REQUESTED THE AO VIDE ITS LETTER DATED 28/02/2014 TO DEPUTE ANY INSPECTOR FOR FURTHER VERIFICATION OF ITS ABOVE DETAILS AND SUBMISSION AS FILED AS PER LETTER DATED 28/02/2014. HOWEVER, THE AO HAD CHOSEN NOT TO MAKE ANY VERIFICATION OF THE DETAILS AND SUBMISSION OF THE APPELLANT AS FILED AS PER LETTER DATED 28/02/2014 AND HE MADE THE ADDITION ONLY AFTER RELYING THE I NFORMATION WHICH WAS EARLIER GATHERED BY THE INSPECTOR ON 07/02/2014. IT IS MENTIONED THAT THE DISCREPANCY OF RS. 48,50,505/ - HAS BEEN WORKED OUT BY THE AO AFTER CONSIDERING THE EVIDENCES COLLECTED BY THE INSPECTORS AS A RESULT OF SPOT VERIFICATION IN RESP ECT OF CONSUMPTION OF RAW MATERIAL AND AS PER SUBMISSION DATED 28/02/2014 OF THE APPELLANT. THE AO HAS WORKED OUT THE DIFFERENCES AS PER THESE TWO (I.E. EVIDENCES COLLECTED BY THE INSPECTORS AS A RESULT OF SPOT VERIFICATION IN RESPECT OF CONSUMPTION OF RAW MATERIAL AND AS PER SUBMISSION DATED 28/02/2014 OF THE APPELLANT) IN RESPECT OF FOUR RAW* MATERIALS AND IN THIS REGARD THE WORKING IS GIVEN BY THE AO ON PAGE NO. 20 OF THE ASSESSMENT ORDER. BUT WHILE WORKING OUT THE DIFFERENCES, THE AO HAS RELIED ON THE I NFORMATION/EVIDENCES COLLECTED BY THE INSPECTORS AS A RESULT OF SPOT VERIFICATION AND THE MOVEMENTS OF ALL RAW MATERIALS AT STORES AND PLANT HAVE NOT BEEN CONSIDERED. THE AO HAS NOT ESTABLISHED THAT THE DETAILS PROVIDED BY THE APPELLANT VIDE ITS LETTER DAT ED 28/02/2014 IN RESPECT OF FOUR RAW MATERIALS (I.E. ACETIC ACID, ALPHA METHYL STYRENE, TOLUENE AND PROPYLENE OXIDE) WERE INCORRECT BY VERIFYING THE RELEVANT BOOKS OF ACCOUNT AND BILTE AND VOUCHERS AND BY POINTING OUT ANY MISTAKES IN THE S AME. IT MAY BE MENTIONED THAT BOOKS OF ACCOUNTS OF THE APPELLANT ARE AUDITED BY STATUTORY AUDITORS, TAX AUDITORS, COST AUDITORS AND NONE HAD REPORTED ANY DISCREPANCY AND SINCE THE APPELLANT IS ENGAGED IN MANUFACTURING ACTIVITIES AND THEREFORE EVERY MATERIA L PRODUCED IS RECORDED IN EXCISE REGISTER I.E. RG - 1 AND DISPATCHES MADE ARE ALSO RECORDED IN THE SAID REGISTER RG - 1* HOWEVER, THE AUDITORS AT NO ANY PLACE HAVE POINTED OUT ANY SUCH DISCREPANCY AS IS NOTICED BY THE AO. THE REFERENCE IS DRA WN TO THE ANNUAL REPORT IN THE CASE OF APPELLANT FOR THE YEAR UNDER CONSIDERATION WHEREIN IN NOTES TO THE ACCOUNT, THE DETAILS OF ACTUAL PRODUCTION, THE DETAILS OF STOCK OF FINISHED GOODS, THE DETAILS OF RAW MATERIALS CONSUMED ETC. ARE GIVEN. FURTHER, IN THE SCHEDULE FORMING PART OF ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 15 PROFIT & LOSS ACCOUNT OF ANNUAL REPORT THE COST OF RAW MATERIAL HAS BEEN SHOWN AT RS. 17489.09 LACS. THE AO HAS NOT BEEN ABLE TO BRING ON RECORD ANY MATERIALS TO SHOW THAT THIS REPORTED FIGURES OF COST OF RAW MATERIALS OF RS. 1 7489.09 LACS WAS NOT CORRECT. IN THIS REGARD NO DEFECTS EITHER IN THE BOOKS OF ACCOUNTS OR IN BILLS AND VOUCHERS ARE POINTED OUT BY THE AO. THE AO HAS NOT ESTABLISHED THAT THIS REPORTED FIGURE OF RS. 17489.09 LACS IN THE ANNUAL AUDIT REPORT IS 1 FALSE./THE AO HAS ONLY RELIED UPON THE INFORMATION COLLECTED BY THE INSPECTORS AS A RESULT OF SPOT VERIFICATION AT NANDESARI PLANT AND BASED ON THAT HE HAS ARRIVED AT CONCLUSION THAT APPELLANT HAS CONSUMED RAW MATERIALS OF RS.39,17,93,233/ - ONLY AND AFTER COMPARING THIS FIGURE WITH THE REPORTED FIGURE OF RS.41,46,35,061/ - IN THE AUDIT REPORT HE HAS WORKED THE . DISCREPANCY OF RS. 2,28,41,828/ - . HOWEV ER, THE DETAILS COLLECTED BY THE INSPECTORS WERE NOT COMPLETE AS DISCUS SED IN EARLIER PARAGRAPH AND THE SAME C ANNOT BE COMPARED WITH THE FIGURE GI VEN IN THE AUDIT REPORT. THE AO AFTER MAKING VERIFICATION OF BOOKS OF ACCOUNTS AND BILLS AND VOUCHERS HAS; NOT ESTABLISHED THAT FACTS AND FIGURES AND SUBMISSION OF THE APPELLANT AS MADE VIDE ITS LETTER DATED 28/02/2014 I N RESPONSE TO THE SHOW CAUSE NOTICE WERE INCORRECT AND FALSE. CONSIDERING ALL THESE FACTS, IN MY OPINION, THE ADDITION OF RS. 2,28,41,828 / - AS MADE BY THE AO ON ACCOUNT OF EXCESS CLAIM OF CONSUMPTION OF RAW MATERIAL IS NOT SUSTAINABLE AND THEREFORE THE SAM E IS DELETED. 15 . BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 1 6 . THE LEARNED DR B EFORE US VEHEMENTLY SUPPORTED THE ORDER OF THE AO BY REITERATING THE FINDINGS CONTAINED THEREIN. 1 7 . ON THE OTHER HAND, T HE LE ANED AR BEFORE US SUBMITTED A S UNDER: REGARDING AD DITION OF RS. 2,28,41,828/ - WITH REGARDS TO THE DIFFERENCE IN CONSUMPTION OF RAW MATERIAL OF NANDESARI UNIT OF RS.2,28,41,828/ - , WE HAVE TO STATE THAT AT THE TIME OF SURVEY UNDER SECTION 131(1) DATED 07.0 2.2014, THE AO HAS GATHERED ONLY MAJOR ITEMS OF RAW MATERIAL FIGURE ISSUED FROM STORES TO PLANT. HOWEVER, AS PER ACCOUNTING PRACTICE, THE MOVEMENT OF ALL RAW MATERIALS AT ITS STORES AND PLANTS BOTH SHOULD BE CONSIDERED AND TOTAL CONSUMPTION OF RAW MATERIAL SHOULD BE ACCORDINGLY ASCERTAINED. THE RAW MATERIAL OF ITEMS PRESENT AT PLANT WAS NOT CONSIDERED BY THE A.O. VIDE ANNEXURE D (PAGE NO 367 OF PAPER BOOK) OF SUBMISSION DATED 28.02.2014, THE ASSESSEE HAD FURNISHED THE DETAILS OF ALL RAW MATERIAL CONSUMED IN THE PRODUCTION PROCESS AT NANDESARI. THE SAME PROVES THAT THE TOTAL CONSUMPTION AS DEBITED IN THE BOOKS OF ACCOUNTS IS CORRECT. AS CAN BE SEEN FROM THE CHART GIVEN BY THE AO (PAGE. 483 & 485 OF PAPER BOOK), HE HAS TAKEN THE CONSUMPTION OF RAW MATERIAL OF 11 ITEMS ONLY BUT THERE ARE MANY MORE OTHER ITEMS WHICH ARE CONSUMED IN THE PROCESS. IN FACT THE INSPECTORS OF THE DEPARTMENT HAD COLLECTED DETAILS OF CONSUMPTION OF 11 MAJOR RAW MATERIALS ONLY AND THAT TOO FROM THE STORES ONLY .THE TOTAL OF 11 MAJOR RAW M ATERIALS COMES TO RS.39,17,93,233/ - WHERE AS TOTAL NUMBER OF RAW MATERIALS CONSUMED WERE 68 IN NUMBERS AGGREGATING TO RS.41,46,35,061/ - .FURTHERMORE, IN ACCORDANCE WITH THE RECONCILIATION (PAGE NO 356 OF PAPER BOOK) SUBMITTED BY APPELLANT DATED 28.02.2014, IT IS EVIDENT THAT THERE WERE NO DISCREPANCY AT ALL IN CONSUMPTION OF RAW MATERIAL. THE CONSUMPTION WAS ALSO IN AGREEMENT WITH THE AUDITED BOOKS OF ACCOUNTS. THE AO HAS COMMENTED ON PAGE NO. 20 OF THE ASSESSMENT ORDER THAT AFTER RECEIVING SHOW CAUSE NO TICE THE ASSESSEE HAS MANIPULATED THE FIGURES OF RAW MATERIAL CONSUMPTION AT ITS ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 16 CONVENIENCE.LT IS WORTH NOTING THAT THE INFORMATION I WAS GATHERED BY DEPARTMENT FROM THE FACTORY ON 07.02.2014, HOWEVER, THE BOOKS \ OF ACCOUNTS WERE ALREADY FINALIZED AND AUDITED BY THE AUDITORS ON 05.08.2011. THIS SHOWS THAT THERE WERENO PROBABILITIES OF MANIPULATING THE BOOKS OF ACCOUNTS. THE AO, MERELY FOR REJECTING THE BOOKS OF ACCOUNTS, HAD PRESUMED ANYTHING WITHOUT JUDICIOUS APPLICATION OF MIND. ALL THE ABOVE DETAI LS WERE PRODUCED BEFORE THE A.O., BUT THE SAME WAS NOT CONSIDERED BY HIM. FOR REJECTING THE CONTENTION OF THE ASSESSEE, THE A.O. VIDE PARA NO. 6.3 OF THE ASSESSMENT OF ORDER ( PAGE NO. 20) HAD IDENTIFIED THE DISCREPANCIES IN FOUR ITEMS OF RAW MATERIAL AGGR EGATING TO RS. 48,50,505/ - COMPARING THE CONSUMPTION AS PER THE EVIDENCE U/S.!31(L) OF THE ACT AND SUBMISSION DATED 28.02.2014THE DETAILS ARE TABULATED AS UNDER: SR. PARTICULAR CONSUMPTION AS CONSUMPTION DIFFERENCE NO. PER THE E VIDENCE AS PER THE U/S. 131(1) OF THE SUBMISSION ACT DATED 28.02.2014. 1 ACETIC ACID 1 2,21,14,873 2,23,66,961 2,52,088 2 ALPHA METHYL STYRENE 3,58,34,270 4,03,15,661 4 4,81,391 3 TOLUENE 52,96,257 53,34,998 38,741 4 PROPYLENE OXIDE 1,49,17,381 1,49,95,666 78,285 TOTAL 48,50,505 ACETIC ACID THE AO HAS TAKEN INCORRECT VALUE OF RS. 2,21,14,873/ - AS PER THE EVIDENCE U/S. 131(1) OF THE ACT, IN FACT, THE VALUE OF THE MATERIAL SHOULD BE 2,23,41,254/ - . THE SAME SHOULD BE COMPARED WITH THE CONSUMPTION VALUE OF RS. 2,23,66,961/ - , AS PER SUBMISSION DATED 28.02.2014 AND THE DIFFERENCE WOULD BE ONLY RS. 25,707/ - . ALPHA METHYL STYRENE FOR ALPHA METHYL STYRENE, T HE AO HAS TAKEN THE FIGURE OF RS.4,03,15,661/ - FROM THE ASSESSEE SUBMISSION DATED 28.02.2014. AS PER ANNEXURE D OF THE SAID SUBMISSION THE ASSESSEE HAD CONSUMED 3,98,216 KGS OF INDIGENOUS ALPHA METHYL STYRENE AND 60,575 KGS OF IMPORTED ALPHA METHYL STYRENE (REFER PAGE 367 AND 368 OF THE PAPER BOOK). THE TOTAL CONSUMPTION IN VALUE WAS AGGREGATING TO RS.4,03,15,661/ - ( RS. 3,47,26,716/ - +RS. 55,88,945/ - ) HOWEVER,FOR THE VALUE OF RS. 3,58,34,270/ - , THE AO HAS CONSIDERED THE PURCHASED QUANTITY OF INDIGENOUS MATE RIAL (4,10,940 KGS) INSTEAD OF CONSUMED MATERIAL (3,98,216 KGS.). FURTHERMORE, THE AO HAS NOT CONSIDERED IMPORTED MATERIAL (60,575 KGS) OF ALPHA METHYL STYRENE WHICH SHOWS GROSS NEGLIGENCE OF THE INSPECTORS WHILE GATHERING THE INFORMATION. IT ALSO SHOWS TH AT THE A.O. HAS INCORRECTLY IDENTIFIED THE MAJOR DIFFERENCE OF RS.44,81,391 / - . TOLUENE THE AO HAS CONSIDERED THE PURCHASED VALUE OF RS. 52,96,257/ - INSTEAD OF VALUE OF CONSUMPTION OF RS, 53,34,998/ - AND INCORRECTLY IDENTIFIED THE DIFFERENCE OF RS. 38,741 / - WHICH IS NOT CORRECT. THE ACTION OF THE AO APPARENTLY SEEMS TO BE ERRONEOUS. ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 17 PROPYLENE OXIDE THE AO HAS TAKEN INCORRECT VALUE OF RS. 1,49,17,381/ - AS PER THE EVIDENCE U/S.131(1) OF THE ACT, IN FACT, THE VALUE OF THE MATERIAL SHOULD BE 1,49,96,373/ - . TH E SAME SHOULD BE COMPARED WITH THE CONSUMPTION VALUE OF RS. 1,49,95,666/ - , AS PER SUBMISSION DATED 28.02.2014 AND THE DIFFERENCE WOULD BE ONLY RS. 707/ - . FI NDINGS OF CIT (A) THE CIT (A) HAS CONSIDERED THE SUBMISSION MADE BY THE ASSESSEE AND HAD DRAWN FOLL OWING CONCLUSION: NO DEFECTS EITHER IN THE BOOKS OF ACCOUNTS OR IN THE BILLS AND VOUCHERS WERE POINTED OUT BY THE A O. THE AO HAS NOT ESTABLISHED T HAT THE REPORTED FIGURES OF RAW MATERIAL CONSUMPTIONS IN THE ANNUAL AUDIT REPORT ARE FALSE. THE AO HAS ONLY RELIED UPON THE INFORMATION COLLECTED BY THE INSPECTOR AS A RESULT OF SPOT VERIFICATION AT NANDESARI PLANT AND BASED ON THAT THE AO AS ARRIVED AT CONCLUSION THAT THE APPELLANT HAS CONSUMED RAW MATERIAL OF RS.39,17,93,233/ - ONLY, INSTEAD OF RS.41,46,35,061/ - , THE A.O ACCORDINGLY WORKED OUT THE DISCREPANCIES OF RS. 2,28,41,828/ - . THE DETAILS COLLECTED BY THE INSPECTORS WERE NO COMPLETE AND THE SAME CANNOT BE COMPARED WITH THE FIGURES IN THE AUDIT REPORT. 17 .1 THE LD. AR BEFORE US VEHEMENTLY SUPPORTED THE ORD ER OF THE LD. CIT - A. 18 . WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE BEFORE US. FROM THE PRECEDING DISCUSSION, WE NOTE THE AO HAS POINTED OUT DIFFERENCE IN THE VALUE OF CONSUMPTION SHOWN BY THE ASSESSEE IN IT S ANNUAL REPORT VIZ A VIZ THE INFORMATION COLLECTED BY THE INSPECTOR OF INCOME TAX UNDER SECTION 131 OF THE ACT. THE DIFFERENCE WAS POINTED OUT AT RS. 2,28,41,828/ - WHICH WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. HOWEVER THE LEARNED CIT (A) WAS PLEASE D TO DELETE THE ADDITION MADE BY THE AO BY OBSERVING THAT THE INSPECTOR OF INCOME TAX HAS COLLECTED THE DETAILS OF THE CONSUMPTION OF RAW MATERIAL WITH RESPECT TO 11 ITEMS ONLY WHEREAS THE NUMBER OF ITEMS CONSUMED BY THE ASSESSEE IN THE YEAR UNDER CONSIDER ATION ARE 68 IN NUMBERS. FURTHERMORE, THE LEARNED CIT (A) ALSO FOUND THAT THE ASSESSING OFFICER HIMSELF HAS MENTIONED DIFFERENCE TO THE TUNE OF RS. 48,50,505/ - BUT HE HAS MADE THE DISALLOWANCE OF 2,28,41,828/ - WITHOUT BRINGING ANY MATERIAL ON RECORD. 18 .1 ADMITTEDLY, THE INSPECTOR OF INCOME TAX ACT, COLLECTED THE DETAILS AT THE TIME OF VISIT IN THE FACTORY PREMISES OF THE ASSESSEE WITH RESPECT TO THE 11 ITEMS WHEREAS THE ASSESSEE HAS ISSUED 68 ITEMS TO ITS FACTORY. THUS WHAT IS REFERRED IS THAT THE ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 18 ENTIR E BASIS OF DISALLOWANCE MADE BY THE AO IS NOT SUSTAINABLE FOR THE SIMPLE REASON THAT THE AO SHOULD HAVE MADE COMPARISON OF ALL THE ITEMS WHICH WERE ISSUED TO THE FACTORY. IT IS ALSO PERTINENT TO NOTE THAT THERE WAS NO DOUBT RAISED BY THE AO ON THE GENUINEN ESS OF THE PURCHASES CLAIMED BY THE ASSESSEE AS WELL AS THE STOCK STATEMENT MAINTAINED AT THE FACTORY. IN OTHER WORDS, THERE CANNOT BE ANY ADDITION MERELY ON THE BASIS OF DIFFERENCE NOTICED BY THE AO IN CONSUMPTION OF RAW MATERIAL BETWEEN THE DETAILS COLLE CTED BY THE INSPECTOR AND THE INFORMATION FURNISHED BY THE ASSESSEE IN ITS FINANCIAL STATEMENT UNTIL AND UNLESS IT IS BROUGHT ON RECORD THAT THE ASSESSEE HAS MADE BOGUS PURCHASES. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN ORDER OF LEARNED CIT (A). HENCE THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 19 . THE 3 RD ISSUE RAISED BY THE REVENUE IS THAT THE LEARNED CIT (A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS. 36,77,078/ - AND RS. 92,66,496 ON ACCOUNT OF SUPPRESSION OF SALE AT BAREILLY AND NA NDESARI PLANT RESPECTIVELY. 19 .1 FOR THE SAKE O F BREVITY WE HAVE DECIDED TO AD JUDICATE THE ISSUE OF BOTH THE UNIT S NAMELY BAREILLY AND NANDESARI SEPARATELY. HENCE WE FIRST TAKE UP THE ISSUE OF BAREILLY UNIT AND PROCEED TO ADJUDICATE THE SAME . SUP PRESSION OF SALES (BAREILLY) 20 . THE FACT IS THAT THE AO DURING ASSESSMENT PROCEEDING OBSERVED THAT THERE IS DIFFERENCE IN AMOUNT OF SALE OF PRODUCT NAMELY CAMPHOR/ISOBORLEON AS COMPARED TO THE AMOUNT DECLARED IN BOOKS OF ACCOUNT VIZ - A - VIZ SALES DETAIL SU BMITTED BY THE ASSESSEE DURING THE PROCEEDINGS VIDE LETTER DATED 12 - 02 - 2014. AS SUCH SALES AMOUNT OF CAMPHOR/ISOBORLEON DECLARED AT RS. 91,34,34,000/ - ONLY. H OWEVER SUCH AMOUNT FOUND AT RS. 91,71,11,078/ - IN DETAIL SUBMITTED BY THE ASSESSEE AS MENTIONED AB OVE. THUS THE DETAILS WERE LEADING TO A DIFFERENCE OF RS. 36,77,078/ - ONLY ON ACCOUNT OF SUPPRESSION OF SALES . ACCORDINGLY THE AO WAS OF OPINION THAT THE ASSESSEE HAS SUPPRESSED SALE TO THE EXTENT AND SHOW CAUSED TO THE ASSESSEE. ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 19 20 .1 THE ASSESSEE IN REP LY SUBMITTED AN ANNEXURE NAMELY ANNEXURE - C AND CLAIMED THAT THE SAME IS SELF - EXPLANATORY WHICH IS REPRODUCED AS UNDER: REPLY TO POINT NO.2 DISCREPANCY IN THE VALUE OF SALE OF CAMPHOR/ISOBORNEOL RS. IN LACS TOTAL STOCK TRANSFER DURING THE YEAR ( INCLUDED IN SALES OF FCP SALES AND BAREILLY SALES) 2893.64 LESS: STOCK SOLD DURING THE YEAR FROM BHIWANDI GODOWN 2856.87 REDUCED FROM THE SALES OF CAMPHOR/ISOBORNEOL 36.77 RS.4.28 LACS ADDED AS THE PROFIT ELEMENT OF STOCK SOLD FROM BHIWANDI RS .41.05 REDUCED AS THE SAME WAS STOCK IN HAND AT BHIWANDI GODOWN. 20 .2 HOWEVER THE AO REJECTED THE SUBMISSION OF THE ASSESSEE BY OBSERVING AS UNDER: THE ARGUMENT OF THE ASSESSEE IS NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCES. THE ASSESSEE FAILED RECONCI LE THIS DISCREPANCY. AS PER THE ASSESSEE S SUBMISSION, CAMPHOR/ISOBORNEOL AMOUNTING TO RS.36.77 LACS WAS TRANSFERRED FROM BAREILLY TO BHIWANDI GODOWN. HOWEVER, THE ASSESSEE IN ITS ANNUAL REPORT/AUDIT REPORT HAS NOT REPORTED ABOUT ANY SUCH GODOWN OR TRANSFE R OF ANY PRODUCT FROM MANUFACTURING UNIT TO A GODOWN. FURTHER, THE ASSESSEE IN ITS ANNUAL REPORT SCHEDULE 18(G) WHERE DETAILS OF INVENTORIES HAVE DESCRIBED HAS ALSO NOT REPORTED ANY SUCH TRANSFER OF FINISHED GOODS FROM BAREILLY TO BHIWANDI. THEREFORE, REPL Y OF THE ASSESSEE IS FOUND UNACCEPTABLE AND DIFFERENCE IN AMOUNT OF RS.36,77,078/ - IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT SUPPRESSED SALES. 21 . AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE THE LEARNED CIT (A) 21 .1 THE ASSESSEE BEFO RE THE LEARNED CIT (A) CLAIMED THAT THE AO NOWHERE ASKED TO SUBMIT ANY SUPPORTING EVIDENCE . A S SUCH THE AO ONLY ASK ED FOR THE REASON OF DIFFERENCE WHICH WERE EXPLAINED THROUGH ANNEXURE - C. THE ASSESSEE FURTHER CLAIMED THAT IT IS NOT REQUIRED UNDER STATUTE T O REPORT EVERY DETAIL OF ACCOUNTING IN ANNUAL REPORT. THE ASSESSEE FURTHER CLAIMED THAT THE IMPUGNED SALES WAS STOCK TRANSFER FROM BARREILLY TO BHIWANDI BRANCH. THE ASSESSEE CLAIMED IT IS THEIR GENERAL PRACTICE THAT AFTER MANUFACTURING GOODS , THESE ARE TR ANSFER RED FROM PLANT TO G O - DOWN AT BHIWANDI. AT THE TIME OF TRANSFER , THE VALUE OF THE GOOD S ARE DEDUCTED FROM PLANT AND AT THE TIME OF SALE OF SUCH GOODS FROM GODOWN , THE ACTUAL AMOUNT IS ADDED TO ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 20 THE HO ACCOUNT. IN THE CASE ON HAND ALSO STOCK W AS TRANSFE RRED AT RS. 91,71.11 LAKH HOWEVER THE VALUE OF ACTUAL GOODS SOLD WAS OF RS. 9130.06 LAKH MEANING THEREBY GOODS REMAIN AT G O - DOWN FOR RS. 41.05 LAKH. THE ACTUAL SALE WAS MADE AT PROFIT OF RS. 4.28 LAKH THUS SALES AMOUNT DECLARED IN ANNUAL REPORT WAS OF RS. 9134.34 (9130.06 + 4.28). HENCE THERE IS NO T ANY DISCREPANCIES IN BOOKS AS ALLEGED BY THE AO. 22 . THE LEARNED CIT (A) AFTER CONSIDERING THE FACT IN TOTALITY WAS PLEASED TO DELETE THE ADDITION BY OBSERVING AS UNDER: 2.3.4 THE ABOVE SUBMISSION OF THE AR I S FOUND TO BE TENABLE. THE FACT IS THAT THE APPELLANT VIDE ITS LETTER DATED 28/02/2014 FILED ANNEXURE 'C' WHEREIN THE DISCREPANCY OF RS. 36,77,078/ - IN VALUE OF SALE OF BAREILLY UNITL WAS EXPLAINED. HOWEVER, THE AO HAS NOT CROSS VERIFIED THE SUBMISSION OF; THE APPELLANT WITH THE RELEVANT BOOKS OF ACCOUNT. THE STOCK OF RS. 9171.11 J LACS WAS TRANSFERRED FROM BAREILLY UNIT TO GODOWN AT BHIWANDI. OUT OF THIS STOCK OF RS. 9171.11 LACS, SALES OF RS. 2856.87 LACS, WAS MADE FROM GODOWN AT BHIWANDI AND AS A RESUL T OF WHICH THERE WAS PROFIT OF RS. 4.28 LACS AND CLOSING STOCK OF RS. 36.77 LACS TOTAL OF WHICH COMES TO RS. 41.05 LACS. THIS AMOUNT OF RS. 41.05 LACS WAS REDUCED FROM RS. 9171.11 LACS LEAVING THE BALANCE OF RS. 9130.06 LACS. AGAIN, THIS PROFIT COMPONENT O F RS. 4.28 LACS WAS ADDED BACK TO THE BALANCE STOCK OF RS. 9130.06 LACS AND AS A, RESULT OF WHICH THERE WAS TOTAL SALES OF RS. 9134.34 LACS AND THIS SALES OF RS. 9134.34 LACS HAS BEEN SHOWN IN THE AUDIT REPORT OF THE APPELLANT. THESE FACTS HAVE NOT BEEN PR OVED BY THE AO TO BE WRONG. THE AO HAS NOT ESTABLISHED THAT THE FIGURES EXPLANING THE DISCREPANCY OF SALE OF RS.36,77,078/ - IS HEREBY DELETED. 23 . BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A), THE REVENUE IS IN APPEAL BEFORE US. 24 . THE LEARNED DR BEFORE US VEHEMENTLY SUPPORTED THE ORDER OF THE AO BY REITERATING THE FINDINGS CONTAINED THEREIN. 25 . ON THE CONTRARY, T HE LEARNED AR BEFORE US SUBMITTED AS UNDER: IT WAS EXPLAINED THAT THE STOCK OF RS.36.77 LACS WERE LYING IN STOCK AT BHIWANDI. IN F ACT, THE APPELLANT COMPANY TRANSFERS THE GOODS FROM FACTORY TO BHIWANDI GODOWN. HOWEVER, WHILE CONSOLIDATING THE BOOKS OF ALL THE UNITS, STOCK TRANSFERS TO GODOWN ARE DEDUCTED AND THE ACTUAL SALES MADE FROM GODOWN ARE ADDED AND SHOWN UNDER THE TOTAL SALES. EXPLANATION IN TABULAR FORM: PARTICULARS AMOUNT (RS. IN LAKHS) TOTAL DISPATCHES MADE OF CAMPHOR/ISOBORLEON 9171.11 LESS: STOCK LYING AT GODOWN AS ON 31.03.2011 41.05 ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 21 ADD: SALES MADE FROM GODOWN AT PROFIT 4.28 TOTAL SALES OF CAMPHOR/ISOBORLEAON 9134.3 4 IN BRIEF, THE ADDITION WAS MADE WITHOUT CROSS VERIFYING THE SUBMISSION OF THE APPELLANT WITH RELEVANT BOOKS OF ACCOUNTS. THE EXPLANATION FURNISHED BY THE APPELLANT HAVE NOT BEEN PROVED BY THE AO TO BE WRONG AND THE AO HAS NOT ESTABLISHED THAT THE FIGUR ES EXPLAINING THE DISCREPANCY OF SALE OF RS.36,77,078/ - WAS INCORRECT. 2 6 . THE LD. AR VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT - A. 27 . WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE PRECEDING DISCUSSION WE NOTE THAT, IT WAS CONTENDED BY THE ASSESSEE BEFORE THE AO THAT IT HAS TRANSFERRED THE GOODS FROM BAREILLY UNIT TO BHIWANDI AT RS. 9171.11/ - LAKH WHICH IS NOT A SALE. AS SUCH, THE AMOUNT OF RS. 9171.11 LAKH WAS REPRESENTING THE TRANS FER OF GOODS AT COST. OUT OF SUCH COST, THE GOODS COSTING AT RS. 9130.06 LAKH WERE SOLD AT A PROFIT OF 4.28 LAKH. IN OTHER WORDS THERE WAS CLOSING STOCK OF THE GOOD WORTH OF RS. 41.05 LAKH WHICH WAS SHOWN IN THE BALANCE SHEET. AS SUCH THE AO MISUNDERSTOOD THE TRANSFER OF GOODS FROM BAREILLY UNIT TO BHIWANDI UNIT AS SALES ON WRONG ASSUMPTION OF FACTS. THE AO HAS NOT POINTED OUT ANY DEFECT IN THE SUBMISSION OF THE ASSESSEE. AFTER CONSIDERING THE FACTS IN TOTALITY, WE CONCUR WITH THE FINDING OF THE LEARNED CIT (A) AND THUS DECLINE TO INTERFERE IN HIS ORDER. HENCE THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. COMING TO SUPPRESSION OF SALE (NANDESARI) 2 7 . 1 THE ASSESSEE DURING THE PROCEEDINGS SUBMITTED THAT IT HAS PRODUCED GOODS DURING THE YEAR WEIGHING 16605MT AT ITS UNIT AT NANDESARI (6950 MT) AND BAREILLY (9655 MT). O N THE OTHER HAND THE ASSESSEE IN ITS ANNUAL REPORT HAS REPORTED OPENING STOCK WEIGHING 857.75 MT, CLOSING STOCK AT 717.41 MT AND SOLD GOODS OF 7422.4 MT. ACCORDINGLY, T HE AO ON PERUSAL OF THE DET AILS AS DISCUSSED ABOVE OBSERVED THAT THERE WAS A DIFFERENCE OF 9322.94 MT WHICH IS DETAILED AS UNDER: 1. TOTAL PRODUCTION 16605MT. AS PER SUBMISSION DATED 31 - 12 - 2013 ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 22 2. OPENING STOCK ON FINISHED GOODS 857.75 MT AS PER ANNUAL REPORT FOR AY 2011 - 12 PAGE 40 3. SALES DURING THE YEAR 7422.4 MT AS PER ANNUAL REPORT FOR AY 2011 - 12 PAGE 30 4. CLOSING STOCK (1+2+3) 10040.35 MT 5. CLOSING STOCK AS PER ANNUAL REPORT 717.41MT AS PER ANNUAL REPORT FOR AY 2011 - 12 PAGE 40. 6. DIFFERENCE [4 - (5+6)] 9322.94 MT 27 . 2 THE AO DURING THE ASSESSMENT PROCEEDINGS DEPUTED THE INSPECTOR OF INCOME TAX AT THE FACTORY PREMISES OF THE ASSESSEE LOCATED AT NANDESARI - WHO HAS SUBMITTED THE DETAILS OF THE SALES MADE BY THE ASSESSEE OF VARIOUS PRODUCTS. 27 . 3 THE AO SUBSEQUENTLY COMPARED T HE DETAILS COLLECTED UNDER SECTION 131 OF THE ACT WITH THE DETAILS OF THE SALES SUBMITTED BY THE ASSESSEE. ACCORDINGLY THE AO NOTICED CERTAIN DIFFERENCES IN THE QUANTITY OF THE GOODS SOLD AND SHOWN BY THE ASSESSEE VIZ A VIZ THE DETAILS COLLECTED UNDER SECT ION 131 OF THE ACT WHICH WAS LEADING TO THE SUPPRESSED SALE OF RS. 92,68,443/ - ONLY . 27 . 4 ON QUESTION BY THE AO ABOUT SUCH DIFFERENCE, THE ASSESSEE CLAIMED THAT THERE WERE CERTAIN MISTAKES COMMITTED IN THE DETAIL PROVIDED ON EARLIER OCCASION AND ACCORDINGLY F ILED A REVISED STATEMENT VIDE LETTER DATED 28 - 02 - 2014 RECONCILING ITS SALES QUANTITY AND THE VALUE WITH THE SALES QUANTITY AND THE VALUE OBTAINED UNDER SECTION 131 OF THE ACT AFTER MAKING NECESSARY ADJUSTMENTS IN THE VALUE OF THE SALES. 27 . 5 HOWEVER THE AO DI SAGREED WITH THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT THE ASSESSEE HAS FILED THE REVISED STATEMENT JUST TO MATCH THE FIGURES OF THE SALES OBSERVED BY THE INSPECTOR OF INCOME TAX UNDER SECTION 131 OF THE ACT AFTER ALTERING THE SALES FIGURE OF THOSE ITEMS WHERE NO DISCREPANCIES WERE FOUND. ACCORDINGLY, THE AO TREATED THE DIFFERENCE IN THE AMOUNT AS SUPPRESSED SALES AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE BY OBSERVING AS UNDER: 8.8 THE ABOVE DESCRIBED ISSUE IS SUMMARIZED AS UNDER: ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 23 A. TOTAL SALE OF NANDESARI UNIT AS PER ASSESSEE SUBMISSION DATED 5 - 2 - 2014 6312726 KGS. B. TOTAL SALE AS PER EVIDENCE FOUND U/S.131(1) OF THE ACT 7396644 KGS. C. DIFFERENCE IN SALES (B - C) 1083918 KGS. THE ABOVE QUANTITY OF PRODUCT HAS BEEN SOLD OUTSIDE THE BOOKS BY THE ASSESSEE. D. THE VALUE OF DIFFERENCE IN SALE (SUPPRESSED SALES) IS WORKED OUT AT RS.92,68,444/ - WHICH IS AS UNDER: DISCREPANCY IN THE VALUE OF SALE (NANDESARI) E) THE ASSES SEE WAS CONFRONTED REGARDING THIS DIFFERENCE /SUPPRESSED SALE. IN REPLY, THE ASSESSEE HAS TAKEN THE FIGURES OF SALE AS PER EVIDENCE FOUND U/S.131(1) AGAINST THE SALE FIGURE OF SUBMISSION DATED 5 - 2 - 2014. F) ON VERIFICATION OF REPLY SUBMITTED ON 18/2/201 4 &. 28/2/2014, THERE IS A DIFFERENCE IN AVERAGE PRICE OF PRODUCTS ON WHICH DISCREPANCY WERE POINTED OUT AND THE AVERAGE PRICE OF PRODUCTS WHERE NO DISCREPANCY WAS POINTED OUT REMAINED SAME. G) AS MENTION ABOVE EVIDENCES WERE COLLECTED U/S 131(1) OF THE A CT FOR NANDESARI UNIT ONLY. THEREFORE, TO MATCH TOTAL SALES SHOWN IN AUDITED ACCOUNT, ASSESSEE HAS MANIPULATED SALES OF BAREILLY UNIT AND NANDESARI UNIT IN SUCH A MANNER SO THAT TOTAL SALES CAN B E RECONCILED WHICH HAD NO BASIS. 8.8.1 FOR CREMATE SOLUTION SALE QUANTITY AS PER SUBMISSION EFT.5 - 2 - 2024 IS ACTUALLY SHOWN BY THE ASSESSEE AT 198933KGS. INSTEAD OF THIS QUANTITY, IN THE SHOW CAUSE NOTICE, 4105KGS HAD BEEN INCORRECTLY MENTIONED. NOW, DIFFERENCE IN SALES VALUE WILL BECOME NIL. DIFFERENCE IS WORKED OU T TO RS.9266496/ - . THUS, ADDITION OF RS 92,664,96/ - IS MADE INSTEAD OF RS.92,68,444/ - BECAUSE THE QUANTITY FIGURE FOR CHRORNATE SOLUTION WAS WRONGLY TAKEN AS DIFFERENCE IN VALUE OF SALE (NANDESARI): SR. NO NAME SALE QUANTITY AS PER SUBMISSION DATED 5 - 2 - 2014 (KG) SALE QUANTITY A S OER DATA FOUND DURING 131(1) (KG) AVERAGE PRICE OF PRODUCT AS PER THE DOCUMENT FOUND DURING 131(1) (KG) TOTAL VALUE OF SALE AS PER 131(1) DATA (RS.) TOTAL VALUE OF SALE AS PER SUBMISSION DATED 5 - 2 - 2014 (RS.) DIFFERENCE IN VALUE OF SALE (RS.) 1. ASTROLI DE IPM 173750 180550 297.54 53720847 51697575 2023272 2. TURPENEOL 6060 7805 307.85 2402769.25 1865571 537198.25 3. PITCH 222588 285130 10.63 3030931.9 2366110.44 664821.46 4. SAS 2238050 3168000 3.25 10296000 7273662.5 3022337.7 5. DT 205790 276740 40 .95 11332503 8427100.5 2905402.5 6. SPENT PHOSPERIC ACID 32009 43940 9.51 417869.4 304405.59 113463.81 7 CROMATE SOLUTION 4105 198933 0.01 1989.33 41.05 1948.28 9268443.8 R/O TO 9268444 ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 24 4105 KGS INSTEAD OF 198933 KGS. THUS ADDITION ON TOTAL SUPPRESSION SALE IS REDUCED BY RS.1948/ - . 8.9 THEREFORE, THE REPLY OF THE ASSESSEE ON THE ISSUE SUBMITTED IS NOT ACCEPTED AND DIFFERENCE IN SALE OF RS.92,664,96/ - IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF SUPPRESSED SALES OF NANDESARI UNIT. 28. AGGRIEVED ASSESSEE PREFERRED AN A PPEAL TO THE LEARNED CIT (A) WHO WAS PLEASED TO DELETE THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: VIDE IT SUBMISSION DATED 28/02/2014, THE APPELLANT SUBMITTED TO THE AO THAT HE HAD TAKEN THE FIGURED OF SALE QUANTITY AS PER DATA SUBMITTED DURING SUR VEY U/S.131(1) AND HE HAS COMPARED THE SAME WITH THE SALES QUANTITY AS PER SUBMISSION DATED 05/02/2014. THE APPELLANT VIDE THIS LETTER DATED 28/02/2014 CLARIFIED THAT IN THE DATA AS SUBMITTED TO HIM BY IT AS PER LETTER DATED 05/02/2014, THERE WERE CERTAIN MISTAKES IN QUANTITY OF SALE IN SOME OF THE ITEMS WHICH IT HAS RECTIFIED WHILE SUBMITTING DATA ON 14/02/2014. THE APPELLANT GAVE THE SUMMARY OF TOTAL SALES TO THE AO AS PER ANNUAL REPORT FOR THE YEAR 2010 - 11 WHICH IS AS UNDER 'NET SALES RS. 21663.63 LACS AS PER AUDITED ACCOUNTS SHOWN ON PAGE NO. 25. THE BREAKUP OF THE SAME IS AS UNDER: PARTICULARS STOCK TRANSFER ADJUSTMENT BARODA FCP BAREILLY TOTAL S SALES - 36.77 6125.93 17275.75 23364.88 LESS: EXCISE DUTY 0.00 191.91 1509.32 1701.25 NET SALES - 36.77 5934.02 15766.39 21663.63 THE DETAILS OF SALES SUMMARY OF BARODA DIVISION OF RS. 6125.93 LACS IS SUBMITTED SHOWING CORRECT QUANTITY OF NANDESARI DIVISION VIDE ANNEXURE 'A' TALLYING QUANTITY AS WELL AS VALUE. THE QUANTITY AS PE R SALES DETAILS OF NANDESARI BRANCH AS SUBMITTED ON 14/02/2014 AND NOW AS SHOWN IN NOTICE DATED 18/02/2014 OF 11812 KGS IS EXPLAINED IN THE SHEET ATTACHED VIDE ANNEXURE 'B'. THE REASON FOR THE DIFFERENCE BEING YOU HAVE NOT INCLUDED CERTAIN ITEMS AS SHOWN IN ANNEXURE 'B' IN YOUR NOTICE DATED 18/02/2014. THIS CAN BE VERIFIED BY DEPUTING YOUR INSPECTOR TO OUR PREMISES FOR FURTHER VERIFICATION.' 2.4.7 THE AO HAS NOT ESTABLISHED THAT THE DOCUMENTS FURNISHED VIDE LETTER DATED 14/08/2014 AND ABOVE SUMMARY OF TOTAL SALES AS PER ANNUAL AUDIT REPORT WERE NOT CORRECT. THE AO HAS NOT POINTED OUT ANY MISTAKE IN THE BOOKS OF ACCOUNT AND IN THE BILLS AND VOUCHERS ETC. WITH REGARD TO THE ABOVE DETAILS/ FIGURES OF SALES OF NANDESSARI AND BAREILLY UNITS. THE AO HAS RELI ED UPON THE INFORMATION WHICH WERE GATHERED BY THE INSPECTORS ON THE 'BASIS OF SPORT VERIFICATION AND SUCH INFORMATION AS GATHERED U/S 131 HAVE BEEN COMPARED BY THE AO WITH THE EARLIER SUBMISSIONS OF THE APPELLANT FOR WORKING OUT THE DIFFERENCES IN SALE VA LUE. IT ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 25 WAS CLARIFIED BY THE APPELLANT THAT THE INFORMATION GATHERED BY THE INSPECTOR WERE NOT COMPLETE AND THEREFORE THE AO WAS REQUIRED TO FIND OUT CORRECT POSITION OF SALE ON THE BASIS OF VERIFICATION OF AUDITED BOOKS OF ACCOUNTS AND BILLS AND VOUCHERS OF THE APPELLANT. THERE ARE SEVEN PRODUCTS IN WHICH THE LD. AO HAS FOUND THE DIFFERENCE IN SALES FIGURE AND HAS MADE THE ADDITION AND AS PER THE AR WHILE MAKING SUCH ADDITION HE HAS NOT CONSIDERED APPELLANT'S SUBMISSION DATED 14/02/2Q14. THE APPELLANT IN S UBMISSION DATED NIL AS REPRODUCED IN EARLIER PARAGRAPHS OF THIS APPEAL ORDER HAS GIVEN THE BRIEF SUBMISSION AND THE RELEVANT PAGE OF RG - 1 REGISTER TO RECONCILE THE FIGURES. IT MAY BE AGAIN MENTIONED THAT BOOKS OF ACCOUNTS OF THE APPELLANT ARE AUDITED BY ST ATUTORY AUDITORS, TAX AUDITORS, COST AUDITORS AND NONE HAD REPORTED ANY DISCREPANCY AND SINCE THE APPELLANT IS ENGAGED IN MANUFACTURING ACTIVITIES AND THEREFORE EVERY MATERIAL PRODUCED IS RECORDED IN EXCISE REGISTER I.E. RG - 1 AND DISPATCHES MADE ARE ALSO R ECORDED IN THE SAID REGISTER RG - 1. HOWEVER, THE AUDITORS AT NO ANY PLACE HAVE POINTED OUT ANY SUCH DISCREPANCY AS IS NOTICED BY THE AO. CONSIDERING ALL THESE FACTS, IT IS HELD THAT THE AO IS NOT CORRECT IN MAKING ADDITION OF RS. 92,68,443/ - AND THEREFORE T HE SAME IS/I DELETED. 29. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US. 30. THE LD . DR VEHEMENTLY SUPPORTED THE ORDER OF THE AO. 31. ON THE OTHER HA ND THE LD. AR SUBMITTED THAT THE ADDITION HAS BEEN MADE BY THE AO WITHO UT CONSIDERING THE SUBMISSION FILED BY THE ASSESSEE DATED 14 - 2 - 2014. THE LD. AR VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT - A. 32. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN T HE CASE ON HAND , T HE DISCREPANCIES WERE FOUND BY THE AO IN THE AMOUNT OF SALES AND THE QUANTITY OF THE GOODS SOLD AMOUNTING TO RS. 92,68,443/ - W HICH WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. HOWEVER, THE LEARNED CIT (A) DELETED THE ADDITION MADE BY THE AO BY OBSERVING THE AO HAS NOT POINTED ANY MISTAKES IN THE BOOKS OF ACCOUNTS AND IN THE BILLS & VOUCHERS AND ONLY RELIED UPON THE DATA COLLECTED BY INSPECTOR IN PURSUANCE TO SECTION 131 OF THE ACT. 32.1 THE PRIMARY ONUS LIES UPON THE ASSESSEE TO RECONCILE THE DIFFERENCE IN T HE AMOUNT OF SALES SHOWN IN THE BOOKS OF ACCOUNTS VIZ A VIZ THE SALES AMOUNT OBTAINED DURING THE SURVEY UNDER SECTION 131 OF THE ACT. IN FACT THE ASSESSEE HAS MADE SUBMISSIONS TO MATCH THE FIGURES OF SALES QUANTITY AS RECORDED BY THE INSPECTOR OF ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 26 INCOME TA X WITHOUT BRINGING ANY MATERIAL ON RECORD. THUS WE ARE OF THE VIEW THAT THE ASSESSEE HAS FAILED TO DISCHARGE THE ONUS IMPOSED UPON IT. 32.2 HOWEVER, THE ENTIRE AMOUNT OF SUPPRESSED SALE CANNOT BE TREATED AS INCOME OF THE ASSESSEE. IT IS BECAUSE THERE WAS NO E VIDENCE AVAILABLE WITH THE AO THAT THE ASSESSEE HAS MADE ANY INVESTMENT IN SUCH SUPPRESSED SALE. IN THE ABSENCE OF DOCUMENTARY EVIDENCE, WE ARE OF THE VIEW THAT THE AMOUNT OF GROSS PROFIT WILL ONLY BE SUBJECT MATTER OF ADDITION WITH RESPECT TO SUCH UNACCOU NTED TRANSACTION. IT IS UNDOUBTEDLY A BUSINESS TRANSACTION. IN SUCH FACTS AND CIRCUMSTANCES THE HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. PRESIDENT INDUSTRIES REPORTED IN 258 ITR 654 HAS DIRECTED TO MAKE THE ADDITION ONLY TO THE EXTENT OF GROSS PRO FIT. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: THE AMOUNT OF SALES BY ITSELF CANNOT REPRESENT THE INCOME OF THE ASSESSEE WHO HAS NOT DISCLOSED THE SALES. THE SALES ONLY REPRESENT THE PRICE RECEIVED BY THE SELLER OF THE GOODS FOR THE ACQUI SITION OF WHICH IT HAS ALREADY INCURRED THE COST. IT IS THE REALISATION OF EXCESS OVER THE COST INCURRED THAT ONLY FORMS PART OF THE PROFIT INCLUDED IN THE CONSIDERATION OF SALES. THEREFORE, UNLESS THERE IS A FINDING TO THE EFFECT THAT THE INVESTMENT BY WA Y OF INCURRING COST IN ACQUIRING GOODS WHICH HAVE BEEN SOLD HAS BEEN MADE BY THE ASSESSEE AND THAT HAS ALSO NOT BEEN DISCLOSED, THE QUESTION WHETHER ENTIRE SUM OF UNDISCLOSED SALES PROCEEDS CAN BE TREATED AS INCOME, ANSWERS BY ITSELF IN THE NEGATIVE. 32.3 IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT THE ADDITION OF THE GROSS PROFIT TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF SUCH PURCHASES WILL MEET THE END OF JUSTICE. IN VIEW OF THE ABOVE, WE DIRECT THE AO TO MAKE THE ADDITION TO THE EXTENT OF THE AMOU NT OF THE GROSS PROFIT EMBEDDED IN SUCH SUPPRESSED SALE. HENCE THE GROUND OF APPEAL OF THE REVENUE IS PARTLY ALLOWED. 33 . THE NEXT ISSUE RAISED BY THE REVENUE IS THAT THE LEARNED CIT - A HAS ACCEPTED THE ADDITIONAL EVIDENCES IN VIOLATION OF THE PROVISIONS OF RULE 46A OF INCOME TAX RULES. 34 . AT THE TIME OF HEARING, THE LEARNED DR HAS NOT BROUGHT ANYTHING ON RECORD SUGGESTING THAT THE LEARNED CIT (A) HAS ADMITTED THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE WITHOUT PROVIDING AN OPPORTUNITY TO THE AO. ACCORDINGL Y WE HOLD THAT THERE WAS NO VIOLATION OF RULE 46A OF INCOME TAX RULE AS ALLEGED BY THE REVENUE IN ITA NO.2332/AHD/2015 ASSTT. YEAR 2011 - 12 27 THE GROUNDS OF APPEAL. CONSEQUENTLY, GROUND OF APPEAL RAISED BY THE REVENUE IS DISMISSED. 35 . IN THE RESULT, THE APPEAL FILED BY THE R EVENUE IS PARTLY ALLOWED. O RDER PRONOUNCED IN THE COURT ON 08 /01 / 2021 AT AHMEDABAD. SD/ - SD/ - (RAJPAL YADAV ) (WASEEM AHMED) VICE PRESIDENT ACCOUNTANT MEMBER (TRUE COPY) A HMEDABAD; DATED 08 / 01/2021 MANISH