TaxTMI 
TaxTMI 
2018 (12) TMI 982
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....r the provisions of section 145 of the Act despite the fact that the AO has given elaborate details and basis as to why the books of a/c of the assessee did not give the correct picture of its financial affairs." 3. This appeal is filed by the Deputy Commissioner Of Income Tax, Circle, 19 (1), New Delhi (the learned AO) against the order of The Commissioner Of Income Tax (Appeals) - 7, New Delhi (the learned CIT - A) dated 3/3/2015 for assessment year 2010 - 11 wherein the learned AO has raised following grounds of appeal:- a. on the facts and in the circumstances of the case, the learned CIT (A) has erred in deleting the disallowance of INR 3 5188221/- made by the AO in respect of expenses incurred out of books by rejecting the books of account by giving a clear finding of facts that the assessee company had suppressed its promotion expenses to inflate the claim of deduction under section 80 IC of the Income Tax Act, 1961. b. On the facts and in the circumstances of the case, the learned CIT (A) has erred in holding that the books of accounts was not properly rejected as per the provisions of section 145 of the act. Despite the fact that the AO has given elabo....
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....total raw material required for manufacturing a fan. In compliance relevant portion of which is reproduced as under thereto, the assessee did not furnish any detail and simply stated as under vide reply dated 25.2.2013:- "2.The unit is manufacturing electrical items like ceiling fans, water heater, mixer grinders, fresh air fans etc. and is using hundreds of components for its manufacturing. Some of the parts are manufactured inside the premises, some are procured on job work basis from the vendors and some are bought from the open market. These are then assembled to manufacture the finished product." 3.3 From the facts noted above, it is clear that the assessee did not want to disclose as to how much raw material is required for manufacturing a fan. It is a very strange case wherein the Chartered Accountant of the firm certified consumption of various items at the time of audit but the same were changed during the course of assessment proceedings and after issue of questionnaire by this office. Both the charts filed at the time of filing of return and filed during the assessment proceedings on 25.2.2013 are reproduced hereunder:- Chart furnished at the time of filin....
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....2,028 44,607 39,442 7,203 3.4 From the perusal of both the charts it is noticed that the assessee suppressed production expenses just to inflate profit for claiming deduction u/s 80IC. The details of production expenses suppressed are calculated as under:- S.No. Item Consumption disclosed Minimum Consumption required 1 Ball bearing for 639232 fans 6201 609496 639232 2 Ball bearing 6202 598914 639232 3 Blade 1576907 1917696 4 Shaft 559110 639232 5 Shakle Assly 566200 639232 6 Starter 547214 639232 7 Down Rod 634830 639232 8 Body for water heaters(42082) 37951 42082 Total 5130622 5795170 3.5 From perusal of above it is clear that in terms of percentage, the assessee has disclosed manufacturing expenses at 46.9% (5130622/ 10925792 X 100) as against consumption comes on the basis of quantity produced at 54.9%(5795170 10925792 X 100). The total production expenses of the assessee are Rs. 43,98,52,763/- and accordingly the 8% suppression of production expenses by the assessee comes at Rs. 3,51,88,221/ - and accordingly the gross profit of the asses....
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.... 634830 was not used while furnishing reply during the assessment proceedings. Further, the assessee company vide their reply has also changed quantity of closing stock e.g. ball bearings in closing stock was shown at 101697 and later on the same was reduced to 31228. In this exercise, the assessee company inflated number of blades in closing stock from 34726 to 100932. The assessee company tried its best to match quantitative figures in total but value thereof is not verifiable from the records maintained. In the above noted chart filed on 25.2.2013, the AR of the assessee did not furnish any details either for consumption or closing stock of starter whereas as per copy of bills for the month of March revealed that the assessee company purchased starters detailed below:- SI. No. Bill / Invoice No. Date No. of starter Amount 1 0130 3.3.2010 732 1,13,460 2 0131 4.3.2010 456 70,680 3 1696 5.3.2010 1230 2,06,640 4 0134 5.3.2010 660 1,02,300 5 0135 6.3.2010 624 96,720 6 0136 7.3.2010 600 93,000 7 0137 8.3.2010 582 90.210 8 1713 8.3.2010 1020 17136....
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....of accounts, the profit of the assessee has to be estimated on the basis of material available on record. In the instant case the assessee company has suppressed its expenses about 8% and thereby claimed enhanced deduction u/s 80IC. It appears that the assessee company has incurred expenses from undisclosed sources without recording the same in the books of accounts therefore, the expenses incurred out of books of accounts is estimated to the extent of Rs. 3,51,88,221/-. Accordingly, the deduction claimed u/s 80IC at Rs. 1,85,76,062/- is hereby disallowed and expenses incurred to that extent without recording the same in the books of accounts is hereby added to the total income of the assessee company u/s 69C of the I.T. Act, 1961. 'The addition of Rs. 3,51,88,221/- includes disallowance of deduction of Rs. 1,86,76,62/- which means that the addition of Rs. 3,51,88,221/- is added to the total income declared by the assessee." 5. Assessee preferred an appeal before the learned Commissioner of income tax appeals who deleted the addition while para number 6 of his order as under:- "6. Ground No. 5, 6, 7, 8, 9,10, 11 A 12 are in respect of addition of Rs. 3,51,88,221/- r....
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....ts and the correct income can be deduced there from. While 145 enables the AO not to accept the method of accounting of the appellant if he is of the opinion that the method employed is such that income cannot be properly deduced, there is no power with the AO to impose his own method upon the appellant. 6.8. If the appellant's method of accounts has been accepted regularly for a number of years as his basis for assessment, the AO shall not be justified if for any particular year, he refuses such method as the basis for assessment for that year. Only on conjectures books of account cannot be rejected. 6.9. If there is a system whereby profits can properly be deduced, even by appropriate adjustments, the AO is bound to accept such profits [CIT v Krishnasanim Hudafiar 53 ITR 122,128,129 (SC). 6.10. What is to be determined by the AO in exercise of his power is a question of fact is whether or not income chargeable under the Act can be properly deduced from the books of account and he must decide the others, with reference to the relevant material and in accordance with correct principles [British Paints India Ltd 188 ITR 44,49 (SC)]. 6.11. Acco....
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....ntained by the assessee were defective and/or incomplete, or not, was a question of fact. Neither the CIT(A) nor the Tribunal found the accounts to be defective or incomplete. Both, CIT(A) as well as the Tribunal were satisfied with the stock register maintained by the assessee and appreciated the fact the raw material, i.e., the fabric purchased by the assessee was to be measured in metres, whereas the finished products were to be counted in numbers, NO reasonable ground has been made out for this Court to go in to this question and revisit the finding returned by the CIT(A) and the Tribunal. The question as to whether the assessee had duly explained the drop in the GP ratio or not was a question of fact. It is not as if the assessee did not give any plausible explanation for the. fall in GP during year in question. He gave a number of reasons in this regard and the explanation given by the assessee having been accepted by the CIT(A) as well as by the Tribunal, it is not for this Court to go into such a question of fact. " 6.16. The most important fact is that sufficient opportunity has not been given to the appellant before invoking 145. The appellant is the business for....
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....audited under the companies act, under the income tax act and the complete details were filed before the learned assessing officer. He submitted that the details of sundry creditors and details of finished also submitted which is also placed at page number 45 - 52 of the paper book. He extensively read the note on claim of deduction under section 80 IC placed before the learned assessing officer as well as documentary evidences for changing address of registered office and confirmation for sanction of loan. He further referred to the letter dated 18/2/2013 submitted before the assessing officer where the assessee has briefly explained the manufacturing process as well as produces the copy of purchase bills and the details of picking material along with job work charges. He further stated that the details of all the expenses were submitted before the assessing officer. In the end, he submitted and extensively referred to the reply filed by the assessee on 25/2/2013 showing the correct quantitative details certified by a chartered accountant and referred to his submission dated 27/2/2013. In the end, he stated that the addition made by the learned assessing officer is not sustainable....
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....arned AO has not controverted the corrected quantitative details, which are certified by the chartered accountant furnished by the assessee. Furthermore, the learned AO could not find out any other discrepancy in the books of accounts. It was claimed by the assessee that the books of accounts are duly covered under the supervision is of the Excise authority and sales tax authorities, no infirmity has been pointed out by them. According to us, the assessing officer has merely calculated the suppression of the production expenses based on arithmetic calculations and could not find out any evidence to support his finding. In the audit report submitted by the assessee, the physical verification of the goods has been referred to in the audit report in para number (ii) has also not been rebutted by the learned assessing officer. During the course of assessment proceedings, the assessee has explained the manufacturing process and according to that, the assessee has submitted the complete details with respect to the quantitative details. Further, no infirmity is have been pointed out by the learned departmental representative in para number 6 of the order of the learned Commissioner ....