TaxTMI 
TaxTMI 
2012 (3) TMI 338
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.... is uncalled for in the facts and circumstances of the case. 3. The learned Commissioner of Income-tax (Appeals) has erred both on facts and law in confirming the rejection of accounts books under section 145(3) on the ground that no stock registers were maintained. 4. The learned Commissioner of Income-tax (Appeals) has erred in confirming addition of Rs. 74,62,190 on account of unaccounted production and sale when there is not a single instance of unaccounted purchase or sale. The addition is based on surmises and conjectures only. 5. The learned Commissioner of Income-tax (Appeals) has erred in confirming addition of Rs. 12,34,686 on account of alleged capital employed in unaccounted production. 6. The learned Commissioner of Income-tax (Appeals) has erred both in law and facts in not allowing deduction under section 80-IB on total assessed income when the entire assessed income is undisputedly derived from industrial undertaking. 7. The learned Commissioner of Income-tax (Appeals) has erred both in law and facts in confirming addition of Rs. 45,22,937 on the ground that out of expenses debited in 'repair and maintenance account' expenses worth Rs. 45,22,937 were ....
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....n the financial year 2005-06. No explanation was filed by the assessee in the matter. Further, the Assessing Officer pointed out that the assessee failed to maintain record of month wise consumption of chemicals or consumables which made it difficult for the Assessing Officer to verify the manufacturing results. No stock register was maintained for phuk which was main input for generating steam in the boiler. The Assessing Officer, further, noticed that total production of paper for the financial year 2005-06 was 7794.22 MT against which total electric units consumed were 4506677 units. Thus, average production per unit worked out to 0.172 and the average consumption per MT was 638.9 units. Apart from total production in the current financial year, i.e., 2006-07 was 13948.58 MT for which the total of electricity units consumed were 11203170 units. This gave average production unit of 0.124 and average consumption of electricity per MT of 803.02 units. The Assessing Officer, further, observed that no proper production record had been maintained, in the regular course of business and the figures appeared to be doctored. The Assessing Officer held that 10 to 20 per cent. variation can....
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....books of account being in such a state the Assessing Officer was within his rights not to accept the figures returned. In all the factors and circumstances that have been mentioned by the Assessing Officer, it is clear that all was not well with the books of account. In view of all these variations, discrepancies pointed out by the Assessing Officer and the rival contention of counsel for the appellant I find that the Assessing Officer has drawn a very reasonable inference that the higher consumption of electricity has gone towards unaccounted production which has not been fully reflected in the books of account. He has gathered sufficient material to make the impugned addition. Learned counsel himself admits in reply that there has been higher consumption of electricity, but he does not admit to the unaccounted production. In view of these facts and findings it can be safely held that the Assessing Officer has rightly rejected the books of account maintained by the appellant on the ground that these are false, cooked up and he has rightly done the calculation for arriving at the impugned addition on the basis of records made available by the appellant." The assessee justified t....
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....ong with relevant annexures, wherever, required in order to prove the case of the assessee that the additions as made by the Assessing Officer were not justified. The observation of the Commissioner of Income-tax (Appeals) are really painful and, therefore, it is prayed that such observations as made by the Commissioner of Income-tax (Appeals) be ignored, since it is against the factual facts and circumstances and even not borne out from the records. We are filing separately the details of order sheet entries of the Commissioner of Income-tax (Appeals) to prove that there was no delay from the side of counsel to submit the replies or to represent before the Commissioner of Income-tax (Appeals). (ii) The sequence of events described by the Commissioner of Income-tax (Appeals) in his order in paragraph 2 clearly clinches the issue in favour of the counsel of the assessee that no time was taken to reply to the remand reports or other evidences, which were filed before the worthy Commissioner of Income-tax (Appeals). Ground No. 3 : for rejection of books of account under section 145(3) i. The Assessing Officer's paragraph 1 pages 2 to 5, submissions of the assessee have record....
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.... to use during the year. Refer to page 269 of the paper book. The electric motor and equipment worth Rs.1.55 crores installed and put to use during the year. Page 269 of paper book. Boiler under fabrication/installation valuing to the tune of Rs. 2,28,90,151 shown at page 284 of the paper book and for which electricity had been used. The machinery and other equipment required installation for which usage of electricity is required to a substantial extent which led to increase in consumption of the electricity units without any increase in the production. Construction of sheds was made during the year to the tune of Rs. 60.21 lakhs which required welding, etc., shown in page 269 of the paper book. The peak load exemption charges, which were earlier to the tune of 3,65,000 units, increased to 4,85,800 units, meaning thereby that minimum charges increased as compared to last year. The Assessing Officer has simply discarded the explanation of the assessee even with reference to incorrect figures adopted by him in the month of July 2006 and October, 2....
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....he Assessing Officer/learned Commissioner of Income-tax (Appeals). 2. Non-maintenance of stock regis-ter for steam, chemicals and consumables There are no consumables at all and only chemicals are there. The steam is being purchased from M/s. Vishal Cotton Ltd. and no doubt has cast upon that by the Assessing Officer and such purchases have been made from sister concern. It is practically impossible to maintain stock register of steam used for drying of the paper. The same is fed through the pipes only. The steam does not increase the weight of finished products. For chemicals, all the purchases are fully vouched for and each type of chemical numbering more than 50 of small quantities are being used in the manufacturing process and therefore it is not practically possible to maintain the stock register. It has also been pointed out that consumption of chemicals is less as compared to the earlier year as per chart at paper book page 61. There is no other consumable except steam and chemicals. The finding of the Commissioner of Income-tax and the Assessing Officer about the use of phuk is only a f....
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....(Patna), wherein the facts are absolutely different in the sense, that no purchase detail were there and no stock register was maintained. In our case, day to day stock register of waste paper is maintained and opening and closing stock details are there and no defects were pointed out therein. We rely upon the following judgment that rejection of books cannot be made in the circumstances as mentioned in our cases, besides the judgment enclosed in the paper book from pages 69 to 132 : a. Pyarelal Mittal v. Asst. CIT [2007] 291 ITR 214 (Gauhati) b. ITO v. Girish M. Mehta [2005] 296 ITR (AT) 125 (Rajkot) c. International Forest Co. v. CIT [1975] 101 ITR 721 (J&K) d. CIT v. Om Overseas [2009] 315 ITR 185 (P&H) e. CIT v. R. K. Rice Mills [2009] 319 ITR 173 (P&H) f. The judgment of the jurisdictional Bench of the Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh in the case of Babu Jewellers Bearing I. T. A. No. 126/Chd/2011 for the assessment year 2007-08. g. Shiva Exports v. ITO [2009] 28 SOT 5....
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....ges 1 to 13 of the paper book. 6 Ground No. 6, deduction under section 80-IB 1. The Assessing Officer has allowed the deduction under section 80-IB on the book profit but in the addition made by him, which has been assessed as business income. It has been stated that he should have allowed the deduction on that. According to us, since no addition is called for this ground of appeal dependent on the addition, if any remains. Our submissions are contained in paragraph 6 page 14 and our contention is that the deduction under section 80-IB has not been disputed and it is allowable on the income finally determined. Reliance is being placed on the judgment in CIT v. Allied Industries reported in [2009] 31 DTR 323 (HP). This issue is otherwise covered if the hon'ble Bench deletes the addition as made by the Assessing Officer. 2. The Commissioner of Income-tax has discussed this issue in paragraphs 7.1 to 7.3.1. 7 Ground No. 7 The Assessing Officer has discussed this issue at pages 25 to 38 of the order with regard to the capital nature of expenses. The learned Commissioner of Income-tax (Appeals) has discusse....
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.... dealt with at page 41 of the paper book. It is an undisputed fact that no specific loan has been raised for purchase of machinery and at page 280, there are no secured loans of MTL and reliance is being placed on the judgment as cited before the learned Commissioner of Income-tax (Appeals) and the judgment of the Income-tax Appellate Tribunal, Chandigarh Bench in the case of Upper India Steel Manufacturing Co. Ltd. in I. T. A. No. 920/Chd/2009. Ground No. 2 Ground No. 2 deals with the appeal by the Assessing Officer against part relief given by the learned Commissioner of Income-tax (Appeals) from the head "Machinery repair and maintenance" and this ground is common with our ground of appeal No. 7. Ground No. 3 This ground is with regard to section 40(a)(ia) This issue has been discussed at pages 44 to 55 by the Assessing Officer at pages 44 to 55 and the learned Commissioner of Income-tax (Appeals) has discussed the issue at page 22 of the order in paragraph 10 to paragraph 10.7. Our written submissions are at pages 42 to 48 of the paper book. The Assessing Off....
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....has been held that no excessive production can be estimated, on the basis of higher electric consumption. It was, argued that no case is made out by the Central Excise Department, for higher production, in respect of alleged excessive consumption of electricity. It was, further, argued that even no such case was made out by the Sales Tax Department that any sales was effected outside the regular books of account. It was also contended that the assessee had installed new machinery during the year and also undertook some trial runs which led to increase in consumption of electricity. Further, the learned Commissioner of Income-tax (Appeals) ignored such material and relevant facts in the matter. It was, further, argued by the learned authorised representative for the assessee that there are no consumables at all and only chemicals are there. The steam is being purchased from Vishal Cotton Ltd. and no doubt has been cast upon by the Assessing Officer that such purchases have been made from sister concern. It is practically, impossible to maintain stock register of steam used for drying of the paper by transmitting the same through the pipes only. It was argued by the learned authori....
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....cted assessee's books of account and made addition by applying GP rate of 27 per cent. as against 25.38 per cent. shown by the assessee-Commissioner of Income-tax (Appeals) has given a finding of fact that the addition was made by the Assessing Officer without pointing out any specific defect in the books of account-Same upheld by the Tribunal-Departmental representative unable to point out any illegality or perversity in the said finding of fact-Addition rightly deleted-No substantial question of law arises for determination. (e) CIT v. R. K. Rice Mills [2009] 319 ITR 173 (P&H) Income from undisclosed sources-Addition on account of suppression of yield-No material to show suppressed sales or inflated purchase-No mistakes found in books of account maintained by assesse Tribunal deleting addition-Findings of Fact-Income-tax Act, 1961. Accounts-Rejection of books of account-Rejection made by the Assessing Officer on the ground that the assessee had not maintained separate details of yield of rice in respect of paddy milled owned by it and the yield of paddy milled belonging to FCI and PUNSUP-Addition made on account of low yield of rice and other by-products from paddy as co....
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....production would be reduced to Rs. 74,62,119. Addition to this extent only needs to be sustained and balance relief allowed to the appellant." We have considered the rival submissions, facts of the case and relevant record. The learned Commissioner of Income-tax (Appeals) had adjudicated ground No. 4 of the present appeal, in paragraph 5.7 of his order, as reproduced above. The Assessing Officer worked out suppression of actual production by the assessee-appellant, on the ground of consumption of abnormally high electricity. The Assessing Officer has taken 492 electricity units, in the months of July 2006, and further allowance of 15-20 per cent., on account of variation was allowed. The Assessing Officer adopted the average consumption of electricity units, to produce 1 MT paper at 591 units. Having regard to the units consumed during the financial year, the actual production was worked by the Assessing Officer at 18956 MT by applying the gross profit at 12.5 per cent. average of two years. The Assessing Officer computed addition at Rs. 1,40,16,140. The learned Commissioner of Income-tax (Appeals), upheld such addition, as is evident from reproduction of his findings vide parag....
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....hat only gross profit on the said amount can be brought to tax, does not call for any interference. The decision of the hon'ble Supreme Court, in the case of CST v. H. M. Esufali Abdulali [1973] 90 ITR 271 (SC), is relevant in the instant case. In this case, there was detection of sales for 19 days not entered in the books of account. Therefore, the hon'ble apex court held that estimate of unaccounted sales can be made on such basis. However, the hon'ble apex court gave this finding on the specific fact that the assessee had dealing outside the books of account, in respect of the value of Rs. 31,171.28 for 19 days. Therefore, it was open to the Assessing Officer, to infer that the assesse had large scale dealing outside the books of account. In such a situation, it was not possible, for the Assessing Officer, to find out precisely the turnover suppressed and he could only make an estimate of the suppressed turnover, on the basis of the material before him. In this regard, the hon'ble Supreme Court specifically held that such estimate should not be arbitrary and must have reasonable nexus with the facts and material discovered. If the ratio of this decision of the hon'ble Supr....
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....side the books of account allegedly produced by way of higher consumption of electricity. In the real manufacturing world, there is hardly any direct and uniform correlation with consumption of electricity and production of manufactured goods. Having regard to the above legal and factual discussions, we do not find any substance and merit, in the findings of the learned Commissioner of Income-tax (Appeals). Therefore, such findings cannot be sustained. Consequently, this ground of appeal of the assessee-appellant is allowed. In ground No. 5, the assessee contended that the learned Commissioner of Income-tax (Appeals) erred in confirming the addition of Rs. 12,34,686, on account of alleged capital employed in the unaccounted production. The brief facts of the case are that the Assessing Officer after rejection of books of account, worked out unaccounted production on the basis of higher consumption of electricity. The Assessing Officer, further, concluded that unexplained investment had been made by the assessee, for funding such unaccounted production. The Assessing Officer computed the working capital at Rs. 2,94,91,430, for earlier year's production of 13948.6 MT of paper. For....
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....d in ground No. 4. This ground of appeal is directly an off-shoot of the addition made by the Assessing Officer and upheld by the learned Commissioner of Income-tax (Appeals) in respect of unaccounted production. Therefore, such addition made by the Assessing Officer and sustained by the learned Commissioner of Income-tax (Appeals) of Rs. 12,43,686, on account of alleged capital employed, in such unaccounted production, cannot be upheld. The core issue in the present ground of appeal is that in the absence of unaccounted production, there cannot be a case for employment of unaccounted capital. Therefore, we do not find any substance and merit in addition made by the Assessing Officer. Hence, the findings of the learned Commissioner of Income-tax (Appeals) cannot be upheld. Therefore, this ground of appeal of the appellant is allowed. In ground No. 6, the assessee contended that the learned Commissioner of Income-tax (Appeals) erred both in law and facts in not allowing deduction under section 80-IB on total assessed income when the entire assessed income is derived from industrial undertaking. The learned Commissioner of Income-tax (Appeals), has recorded a finding in paragra....
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....the ground that out of the expenses debited under the head "Repair and maintenance account" expenses worth Rs. 45,22,937 were of capital nature. The issue in question is that the Assessing Officer disallowed certain expenses incurred on repair and maintenance as capital in nature. The assessee contended that having regard to the integrated manufacturing process, expenses incurred, on repair and maintenance of machinery are patently in the nature of revenue expenses which are admissible under section 31(1) of the Act. The learned Commissioner of Income-tax (Appeals) after detailed discussions of the fact-situation of the present case and various items of repair and maintenance gave a finding, in paragraph 9.10 of his order whereby items listed in paragraph 9.11 of his order amounting to Rs. 49,77,172 were allowed as revenue expenses and the balance expenses were treated as capital in nature. The assessee contended that the detailed submissions was filed before the learned Commissioner of Income-tax (Appeals) which is annexed at pages 26 to 30 of the paper book read with pages 156 to 160 along with annexure from pages 161 to 179, with the chart of each and every item at pages 172 and....
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.... book. It was, further, argued by the learned authorised representative for the assessee that it is undisputed fact that no specific loan has been raised, for the purchase of machinery, as is evident from page 280 of the paper book. The assessee placed reliance on the decision of the Chandigarh Tribunal in the case of Upper India Steel Manufacturing Co. Ltd. in I. T. A. No. 920/Chd/2009. The brief facts of the case are that the Assessing Officer in his assessment order has mentioned that the appellant in his balance-sheet has shown secured loans of Rs. 2,64,14,278 and unsecured loans of Rs.6,55,87,263 respectively. Correspondingly, he debited Rs. 80,89,966 as bank interest, (financial charges) in the profit and loss account. The appellant had shown addition to capital assets of Rs. 10,80,48,935. For this addition the appellant had borrowed funds to acquire the capital assets. The Assessing Officer was of the opinion that the interest of Rs. 80,89,966 charged on borrowed funds utilised for the acquisition of the capital assets needed to be treated as capital expenditure. He gave a show cause notice to the appellant for his proposal to make such an addition. The appellant replied ....
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.... Rubber Industries P. Ltd. [1999] 236 ITR 471 (SC) which relates to period prior to the insertion of the proviso to section 36(1)(iii) of the Act. We are dealing with the assessment year 2007-08 which falls under the proviso to section 36(1)(iii). In this context, the hon'ble Supreme Court pointed out in a batch of cases in Asst. CIT v. Arvind Polycot Ltd. [2008] 299 ITR 12 (SC), Joint CIT v. United Phosphorous Ltd. [2008] 299 ITR 9 (SC) and Deputy CIT v. Gujarat Alkalies and Chemicals Ltd. [2008] 299 ITR 85 (SC), holding that its earlier decision in Deputy CIT v. Core Health Care Ltd. [2008] 298 ITR 194 (SC) continue to have application, for pre-amended period, for the assessment year before the assessment year2004-05. Similarly, the decisions relied upon by the learned Commissioner of Income-tax (Appeals) are applicable to the pre-amended era. In view of this, the findings of the learned Commissioner of Income-tax (Appeals) are contrary to the provisions of section 36(1)(iii) and proviso thereunder, in the light of these, the latest decisions of the hon'ble Supreme Court. Having regard to the facts of the case and relevant provisions of the Act, as discussed above as also decisio....
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....e case and the rival contentions. The main question in dispute in this case is whether the supply of packing material with pre-printed labels to the appellant is a simple case of 'contract for sale of goods' or 'work contract'. The party named by the Assessing Officer in his order is an independent manufacturer of different printed and packing material. It is supplying this material to the appellant as per its specifications. All the work of manufacturing, the packing material and the printing work of this packing material was being done in the premises of the other party. Before taking a decision on the applicability of TDS under section 194C on a contract, it is necessary for the Assessing Officer to examine whether the contract in question is a 'contract for work' or 'contract for sale' and TDS can only be applicable where there is a 'contract for work'. As held in the case of BDA Ltd. v. ITO (TDS) [2006] 281 ITR 99 (Bom) the hon'ble High Court considered the issue with regard to the supply of wrappers, labels for bottles containing liquor sold by the assessee. It was found that the work was done in the premises of the assessee and he incurred the cost of labels. The number of l....