TaxTMI 
TaxTMI 
2021 (3) TMI 551
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....essee7with 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 account 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 verification ? 4. The Ld. CIT(A) has failed to appreciate that....
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....trative and plant office, laboratory, effluent treatment plant which has not been provided in such annexure. 4.5 The AO, on the basis of the details 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 production. 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 difference 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; S.No. Particulars Units consumed 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 196318....
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....c Fluid Heater(HTO), Nitrogen GAS, Compressed Air, Cooling Water, Refrigeration etc. 7533786 Add: 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 360738 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 1797.07 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 consumed (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. ....
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....il can only 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 under 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 100% of the difference 4 Electricity 51210591 43717410 80% of the difference Total 54646762 4,71,53,581 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 income 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 several years which are subject to various type of audit. Similar....
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....he 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 unit 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 rejection of books of account of the appellant has not done this exercise also. Considering 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 colonies, street lights and stores. Nowhere in the assessment order, the AO by pointi....
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....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 explain 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 unit. 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 r....
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....ld to very cold processes where 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 temperatures (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 production 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% inspite 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 a....
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....d 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 these 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 made 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 also 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 furnis....
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....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. The assessee in its support submitted new raw material consumption detail 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 depute inspector in this regard. 12.1 However the AO after comparing the data submitted 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 concluded that the assessee manipulated it accounts to reduce taxable income. Thus the AO rejected the contention of the assessee and disallowed the ex....
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....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 and in the bills and vouchers of the appellant. The very basis of addition of Rs. 2,28,41,828/- of the AO is the information which was collected by the Inspectors u/s 131 as per verification made on 07/02/2014 at Nandesari Plant. However, the information gathered 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 considered only major items of raw materials issued from Store to Plant. The appellant 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 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 per annexure 'D'. These details as furnished as per annexure 'D' was s....
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....id 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 drawn 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 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. 17489.09 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 is1 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 o....
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.... 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 notice the assessee has manipulated the figures of raw material consumption at its convenience. It 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 were no 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 details 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 aggregating to Rs. 48,50,505/-comp....
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....ubmission dated 28.02.2014 and the difference would be only Rs. 707/-. Findings of CIT (A) The CIT (A) has considered the submission made by the assessee and had drawn following conclusion: No defects either in the books of accounts or in the bills and vouchers were pointed out by the AO. The AO has not established that 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 order 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 s....
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....e 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 submitted 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. However such amount found at Rs. 91,71,11,078/- in detail submitted by the assessee as mentioned above. 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. 20.1 The Assessee in reply 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  ....
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....t in totality was pleased to delete the addition by observing as under: 2.3.4 The above submission of the AR is 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 result 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 of 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 proved by the AO to be wrong. The AO has not establis....
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....is dismissed. • Coming to Suppression of sale (Nandesari) 27.1 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). On 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, the AO on perusal of the details 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 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 detail....
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.... 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 Discrepancy in the value of Sale (Nandesari) e) The assessee 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 18/2/2014 &. 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 Act for Nandesari unit only. Therefore, to match total sales shown in Audited account, assessee has manipulated sales....
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....plained 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 relied 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 value. It 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. Th....
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....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 evidence 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 unaccounted 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 profit. 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 acquisition 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 investm....