TaxTMI 
TaxTMI 
1996 (8) TMI 143
X X X X Extracts X X X X
X X X X Extracts X X X X
....f production. It was stated by the assessee that trial production started in January, 1987 and the commercial production with effect from11-3-1987. In order to appreciate the veracity of the aforesaid statement the Assessing Officer examined in detail the books of accounts and other connected records of the assessee. This examination dealt with the production of tyres and tubes during the period January, 1987 to September, 1987, the assessee's previous year ending on 30th September, 1987, the installed capacity of the assessee, the correspondence exchanged between the company and the financial institutions, such as IDBI, the audited accounts of the company, the entries in the excise records viz., R.G. register, the relevant dates on which certain items of plant and machinery which were relevant for the manufacturing process had been purchased as also the consumption of diesel, power and raw-material. The Assessing Officer also perused the reports sent to the financial institutions and also recorded the statement of a senior official of the company, namely, Shri R.U. Dubey, the Dy. General Manager (Projects). After examining the aforesaid aspects of the matter the Assessing Officer ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....record indicated the purchase of a D.G. set as also an engine forming part of the same set which as per the assertion of Shri R.U. Dubey, a senior official of the company became operational in September, 1987 only whereas consumption of diesel for running the said D.G. set was shown in the account books from February, 1987 onwards. That the said D.G. set was shown to have operated even on National Holidays such as 15th August and there were "over-writings" in the log-book and which had in fact been written in the same hand for the entire year; (vii) That power consumption was at the same level in November and December, 1986 as compared to January, 1987 and was in fact higher than the power consumption in April, 1987 whereas production was at the reverse being higher in April, 1987 as compared to January, 1987. Further no production had been shown in November and December, 1986 although the consumption of power was higher than the consumption shown in April, 1987; (viii) That as per the quarterly reports submitted to the financial institutions the annual installed capacity of the assessee was higher than the figure stated in the audited accounts and the same inference could be....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the date of commercial production as per the assessee's version. The aggregate of the expenditure "de-capitalised" viz. Rs. 14,61,182 was allowed as a deduction while computing the assessable income/loss. 6. Being aggrieved with the action on the part of the Assessing Officer vis-a-vis the two issues discussed aforesaid the assessee came up in appeal before the Commissioner of Income-tax (Appeals). At this stage detailed arguments were advanced with reference to the material on record and these being more or less identical to those tendered before the Assessing Officer. We, however, proceed to summarise the main arguments advanced by the assessee's counsel as follows : (i) That complete books of accounts and other records including those pertaining to raw material purchased, issued and consumed as also the finished goods had been maintained including statutory registers prescribed by the Central Excise Deptt.; (ii) The accounts of the company were audited by qualified Chartered Accountants; (iii) There were as many as 60 items of raw material which went into the production of tyres and tubes and as the assessee was entitled to claim Modvat from the Excise Deptt. in res....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of installation of the generator during the period 12th March, 1987 to 30th September, 1987 and had deposed in his statement recorded after 4 years that it had become operational from September, 1987 without verifying the facts and only on the basis of his memory. That the statement of the aforesaid person was contradictory to the evidence on record namely, the log-book which proved the day-to-day working of the generator; (xii) That the statement of Shri R.U. Dubey with respect to the Bladder Machine was based on his memory without verification of the records which clearly proved the stand taken on behalf of the assessee the exact date of purchase of the said machine and its operation; (xiii) That power consumption in a particular month or quarter could not be made the basis of ascertaining the production in a manufacturing unit since the electricity department issued bills on ad hoc basis as and when the meter went out of order or when the meter showed consumption below the minimum. A reference was made to January, 1987 for the first and to March, 1987 for the latter; (xiv) That there was regular disruption in the supply of electricity and the production could not be c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction registers under the supervision of the Central Excise Department and further the G.P. rate declared was quite good and compared favourably with the G.P. rate declared by the sister-concerns. 7. On the basis of the aforesaid submissions, it was contended before the Commissioner of Income-tax (Appeals) that provisions of section 145(2) were not applicable. 8. The Commissioner of Income-tax (A) considered the aforesaid submissions with reference to the material on record and proceeded to record the following findings :--- (i) It was not disputed that the tyres and tubes manufactured by the assessee were under the direct supervision and physical control of the Central Excise Department, whose staff was posted in the factory premises itself; (ii) That the account books and other records maintained by the assessee were produced before the Assessing Officer and these having been duly examined in the course of the assessment proceedings; (iii) That the assessee was maintaining all statutory registers and other records prescribed by the Central Excise authorities and these had been duly examined and signed by their officers and also produced before the Assessing Officer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r was meant only for securing loans from IDBI and mentioning of actual dates not being very material. Further the dates had been given only from memory without reference to the actual records; (ix) The installed capacity of the plant during the year under appeal was 5 lakhs each in respect of tyres and tubes, but this did not mean that the assessee could not produce more than 41,666 tyres tubes each per month and on the same analogy if in the months of August and September, the production was more than the aforesaid average it did not mean that the installed capacity was more than the one which had been sanctioned viz., 5 lakhs per item. That the installed capacity had been increased to 10 lakhs per item vide letter dated21-10-1987issued by the Government of India; (x) That the correspondence exchanged between Shri S.K. Verma and the financial institution once again for purposes of obtaining loans did not justify any adverse inference being drawn as a perusal of the said documents clearly revealed that the figures were provisional; (xi) The material facts which were required to be examined were the actual production carried out by the assessee and its marketing and there b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ry had been brought on record by the Assessing Officer. The Commissioner of Income-tax (Appeals) also dealt with the other allegations made by the Assessing Officer the functioning of the generator on 15th August that being a National Holiday as also the log-book being written in one hand-writing and there being certain overwritings. In concluding his opinion on the question of generator set he held that production could not have been done in the absence of the said generating set and the plea of the assessee vis-a-vis the date of operation, i.e., 6-3-1987 was required to be accepted; (xiv) That the consumption of electricity could not be made the basis for rejecting the assessee's books of accounts and estimating the production since some of the bills had been raised by the Electricity Department on estimate basis, i.e., when the consumption shown in the meter was Nil or the consumption shown was below the minimum. Further the assessee's manufacturing process was a continuous one which required regular supply of electricity and on its disruption the use of a generator set was absolutely necessary to maintain not only the production, but ensure that the tyres and tubes could be ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he very first year of its business was low or unacceptable. 9. On the basis of the aforesaid findings of fact and relying on the various reported decisions cited on behalf of the assessee by the learned counsel and these having been dealt with at appropriate places in the appellate order the Commissioner of Income-tax (Appeals) proceeded to delete the addition made by the Assessing Officer specifically observing in the process that provisions of section 145(2) were not attracted. 10. As a consequence of his decision to hold that the commercial production started with effect from March, 1987 the Commissioner of Income-tax (Appeals) set aside the order of the Assessing Officer in respect of the expenditure of Rs. 14,61,182 deduction thereof having been allowed by the said Assessing Officer and directed him to capitalise the same and allow depreciation thereon. 11. We have heard both the parties at considerable length in respect of the two grounds raised in the Revenue's appeal. We have also perused the material on record to which our attention was invited during the course of the hearing and a compilation thereof having been filed before us. The decisions cited at the bar ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Excise staff posted in the factory promises itself. The CIT (Appeals) also perused the statutory registers prescribed by the Excise authorities to arrive at a conclusion about the commercial production as also the use of various items of the machinery and other connected issues. Then again, the first appellate authority chose to summon Shri Dubey and ascertain for himself the fact that the statement made by Shri Dubey before the Assessing Officer was based on his memory and recorded after a gap of four years and that also without reference to the record. The Commissioner of Income-tax (Appeals) also took pains to understand the manufacturing process from the Executive Director of the assessee company and thereafter draw his own conclusions about the use of the generator set as also the consumption of electricity etc. No doubt the learned Departmental Representative made a valiant attempt to support the order of the Assessing Officer, but he could not place any material on record to counter the various findings of fact recorded by the Commissioner of Income-tax (Appeals) and these having been done with reference to the material on record which included the statutory registers prescr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....checking of the Excise staff posted at the factory, there was no basis to reject the accounts and make an addition. The other observations recorded by the Commissioner of Income-tax (Appeals) in assessment year 1988-89 were quite identical to those as discussed in the earlier appellate order. 18. After hearing both the parties, we decline to interfere with the decision taken by the Commissioner of Income-tax (Appeals) to delete the addition especially when the learned counsel for the assessee has categorically stated before us that the facts in the assessment year under appeal are identical to those considered in the immediately preceding assessment year and no material to the contrary has been brought on record by the learned Departmental Representative. The first ground in the appeal accordingly stands rejected. 19. As regards the second ground, the Assessing Officer made the impugned addition with reference to the amount of interest payable to the financial institutions outstanding as on31-3-1989as also the un-discharged liability on account of Sales-tax. This he did on the ground that proof of payment had not been filed along with the return of income although the stand t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er with great respect to my learned Brother, I have not been able to persuade myself to agree with him in rejecting the Revenue's appeals. These appeals are required to be restored to the file of the first appellate authority for fresh decision after affording due opportunity of being heard to the Revenue for the reasons stated hereinafter. 24. The Assessing Officer had made an addition of Rs. 2,10,53,195 in the trading result and a further addition of Rs. 1,76,426 on account of unexplained investment in plant and machinery for the assessment year 1988-89 and a trading addition of Rs. 3,08,20,184 in the assessment year 1989-90. These additions were made by the Assessing Officer by rejecting the books of account under section 145(2) of the Income-tax Act, 1961. The books of account were rejected after disbelieving the date of commercial production w.e.f. 11-3-1987 and taking into consideration (i) the production figures of tyres and tubes for the period January 1987 to September 1987, (ii) letter dated 19-4-1987, written by Shri S.K. Verma, Industrial Consultant, and later Director to IDBI stating the date of commercial production as February 1987, (iii) Statement of Shri R.U. Du....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n this ground alone, the impugned order deserves to be quashed. 29. Rule 46A of the Income-tax Rules, 1962 deals with the production of additional evidence. The rule provides certain conditions to be satisfied before receiving additional evidence and in case the first appellate authority admits additional evidence after recording reasons in writing, the said evidence cannot be taken into account unless the Assessing Officer has been allowed a reasonable opportunity to examine the evidence or documents or to cross-examine the witness produced by the appellant. The learned CIT (Appeals) has neither satisfied the conditions specified in the Rule nor has given the opportunity of being heard to the Assessing Officer as enjoined upon by the said Rule. The additional evidence has been taken into consideration by the first appellate authority and has gone into the decision making while deleting the addition made by the Assessing Officer. The impugned order, therefore, is legally vitiated for non-compliance of rule 46A. 30. As regards the contention of the Revenue that no opportunity was given to the Assessing Officer at the time of hearing the appeal, section 250 of the Income-tax Ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Income-tax (Appeals) to have summoned the Assessing Officer at the time of hearing of the appeals but on a query from the Bench as to whether he was disputing the issue of a notice by the Commissioner of Income-tax (Appeals) to the Assessing Officer informing him about the hearing the Departmental Representative had no comments to offer and the impression which I at least gathered was that he was not at all serious about the submission made and did not find it necessary to advert to it in my order; (iii) On the assumption that the ground was raised and an argument was advanced the same had to be supported with material on record and which in the present case the Departmental Representative was supposed to produce and which he did not although the records of the Commissioner of Income-tax (Appeals) are in possession and under the control of the Department. The orders of the Commissioner of Income-tax (Appeals) cannot be set aside on the basis of "bald statements" of any party unsupported by material and evidence; (iv) The Commissioner of Income-tax (Appeals) under the law performs dual functions one of an appellate authority to set right the wrong committed by the Assessing Of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n record noted by the Commissioner of Income-tax (Appeals) was sufficient for him to accept the stand taken by the assessee about the date of commencement of commercial production and the various findings of fact recorded by the CIT (Appeals) with reference to the said material and evidence not having been challenged before the Tribunal by the revenue by raising any specific grounds or even advancing any arguments during the hearing of the appeals?" Per R.K. Gupta, JM : 2. In my opinion, the following questions arise out of my proposed dissenting order dated22-11-1994: (i) Whether, on the facts and in the circumstances of the case, the additional evidence received by the first appellate authority is in violation of the provisions of Rule 46A of the Income-tax Rules, 1962, and, if so, what is its effect ? (ii) Whether, on the facts and in the circumstances of the case, there has been a non-compliance of the mandatory provisions of section 250 and as such the impugned order deserves to be quashed on this ground ? (iii) Whether, on the facts and in the circumstances of the case, Ground No. 1 taken by the Revenue in the grounds of appeal is so comprehensive as to encompa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hed on this ground? 3. Whether, on the facts and in the circumstances of the case, Ground No. 1 taken by the Revenue in the grounds of appeal is so comprehensive as to encompass the contentions raised by the Revenue, covered in question Nos. 1 & 2 above? 4. Whether, on the facts and in the circumstances of the case, the proposed order of the Judicial Member accepting the Revenue's appeals and quashing the impugned orders and restoring the cases to the first appellate authority for fresh decision after affording sufficient opportunity of being heard to the Revenue is justified or the proposed order of the Accountant Member rejecting the Revenue's appeals, is the legally correct approach?" 4. But the Hon'ble President Shri T.V. Rajagopala Rao found out the following points of difference existing between the aforesaid Members and referred the same for my opinion : "1. Whether, sufficient opportunity to the Assessing Officer was not given before the CIT (Appeals) within the meaning of section 250 of the Income-tax Act when the appeal was heard by him; if so, whether the impugned order of the CIT (Appeals) is vitiated for the said reason? 2. Whether Rule 46A, Income-tax R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing the D.G. set from February, 1987 onwards. Vide order sheet entry dated21-2-1991, the assessee was required to explain how the consumption of diesel was being shown from February, 1987 when the generator became operational only in September, 1987. The assessee replied vide letter dated5-3-1991that 380 KVA generator was functioning from6-3-1987onwards and not from August/September, 1987 as stated by Shri R.U. Dubey. It was explained that Shri Dubey had given the information out of memory and not after verifying the books of account. The Assessing Officer held that the plea of the assessee that the information earlier given by Shri Dubey was out of memory only was not at all acceptable. The Assessing Officer took into consideration power consumption monthwise vis-a-vis production of tyres and tubes, quarterly reports submitted by the assessee to the financial institutions and consumption of raw materials. Ultimately he held that the trial production had commenced from October, 1986 and commercial production from January, 1987. The Assessing Officer estimated the production of tyres and tubes on the basis of power consumption level from month to month basis. He estimated the excess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nager Projects had stated that the said D.G. Set was installed during the period 12-3-1987 to 30-9-1987 and then in a statement recorded on 12-2-1991 he had stated that it was installed in August/September, 1987 and became operational in September, 1987; but the same in my opinion has to be ignored because Sh. Dubey was not concerned with the production and his statement was recorded after four years of the event i.e. start of Generator set which according to the appellant became operational on 5-3-1987. Shri Dubey was also produced before me and on interrogation by me he explained that whatever he had stated in his statement after four years was based on his memory and he actually got confused because at that time more than one Generator set had been installed in the factory and in the course of statement the Assessing Officer had not put to him the log book as maintained and produced by the appellant to show that the Generator had become operational w.e.f. 6-3-1987." 9. The CIT (Appeals) held that stock, consumption and production registers were maintained by the assessee as prescribed by the Central Excise Department and were duly signed by their Officers. He further observed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eld to be excessive in the last year. The addition of Rs. 3,08,20,184 was made on the ground of unaccounted production and its sales. 12. Aggrieved by the same, the assessee carried the matter in appeal before the CIT (Appeals). The CIT(Appeals), for the detailed reasons given by him in the assessee's case for the assessment year 1988-89 held that section 145(2) was not applicable for assessment year 1989-90. He deleted the addition of Rs. 3,08,20,184. Revenue is aggrieved over this. It filed an appeal before the Tribunal. The main ground was about the deletion of the addition of Rs. 3,08,20,184 made in the trading results. 13. The learned Accountant Member Shri R.M. Mehta upheld the findings of the CIT (Appeals) that provisions of section 145(2) were not attracted and that no addition whatsoever was called for to the results disclosed by the assessee. Accordingly he confirmed the deletion of the impugned additions towards the trading results for both the assessment years. 14. However, the learned Judicial Member Shri R.K. Gupta held that "These appeals are required to be restored to the file of the first appellate authority for fresh decision, after affording due opportun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o offer and the impression which I at least gathered was that he was not at all serious about the submission made and did not find it necessary to advert to it in my order." He also observed that "The notice to the Assessing Officer was there all along and if he so desired, he could have availed of the opportunity but which he did not". In that view of the matter, he reiterated the views expressed by him in his earlier order. 16. The arguments of the Departmental Representative were to the following effect : --- In the assessment order for the assessment year 1988-89, in paragraph (b) in page 4, the Assessing Officer stated that in the certificate dated 11-3-1987 given by Shri R.U. Dubey, Project Manager, the installation of the bladder curing press which was required for the production of bladders was not appearing at all. In another certificate dated30-9-1989, given by Shri Dubey the installation of the bladder curing press was shown during the period from12-3-1987to30-9-1987. Shri Dubey was examined by the Assessing Officer under section 131 on12-2-1991. In the paper book filed by the assessee for the assessment year 1988-89 at page 30 the assessee has included a certifica....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er as well and drawn certain conclusions therefrom and that the notice to the Assessing Officer was there all along and if he so desired, he could have availed of the opportunity but which he did not. As held by the Gujarat High Court in the case of CIT v. Valimohmed Ahmedbhai [1982] 134 ITR 214, notice of appeal cannot be equated with notice of a future application to lead additional evidence which no one could have anticipated or reasonably foreseen. 17. The arguments of the assessee's counsel were to the following effect : Admittedly notice of hearing was given by the CIT (Appeals) both to the assessee and the Assessing Officer as laid down in section 250(1) of the Income-tax Act, 1961. The said section does not say "sufficient opportunity". It only says "shall give notice". From the tenor of question No. 1, referred to the Third Member by the Hon'ble President, it is clear that opportunity was given to the Assessing Officer. Even assuming that Sh. Dubey was not allowed to be interrogated by the Assessing Officer during the hearing of appeal by the CIT (Appeals), the order of the CIT (Appeals) will have to be upheld because of other reasons, based on documentary evidence, giv....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... case. 19. Shri R.U. Dubey, was examined by the Assessing Officer and a statement was recorded by him under section 131 on12-2-1991. In the said statement in answer to question No. 22, Shri Dubey stated that 380 KVA Generator was installed in August/September, 1987 and became operational in September, 1987. The assessee was confronted with this vide order sheet entry dated 21-2-1991 and was required to explain how the consumption of diesel was being shown from February, 1987 when the Generator actually became operational only in September, 1987. The assessee replied vide letter dated5-3-1991stating that 380KVA Generator was functioning from6-3-1987onwards and not from August/September, 1987 as stated by Shri R.U. Dubey. It was also explained by the assessee that Shri Dubey had given the information out of memory and not after verifying the books of account. 20. During the course of the appeal before the C.I.T. (Appeals), Shri Dubey was produced before the C.I.T. (Appeals). On interrogation by the C.I.T. (Appeals) Shri Dubey explained that whatever he had stated in his statement after four years was based on his memory and that he actually got confused because at that time mor....