AI Drafter 
TaxTMI 
TaxTMI 
2012 (5) TMI 841
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....land as no basic operations were carried out for cultivation of land. Further the decision of the Hon'ble ITAT in assessee's case has not been accepted by the Department and appeal U/S.260A of the I.T. Act has already been filed." 2.1 Both the sides agreed that this issue is identical to ground No.1(a) of the revenue in assessment year 2006-07 and 2007-08 in I.T.A.No. 129 and 1856/Ahd/2010 and in the present year also, this issue may be decided on similar lines. In those two years, this issue has been decided by the tribunal as per order dated 11.05.2012 in favour of the assessee as per para 12.2, which is reproduced below: "12.2 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below and the tribunal decision cited by the Ld. A.R. We find that the decision of Ld. CIT(A) is by following tribunal order in assessee's own case for the assessment year 2002-03, 2003-04 & 2004-05 and the Ld. D.R. could not show us as to how this tribunal decision is not applicable in the present year by pointing out any difference in facts and hence, under these facts, we do not find any reason to interfere in the ....
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....he amendment of Section 41(1) by way of insertion of Explanation (1), to this extent, these two judgements of Hon'ble Apex Court will not be applicable where the assessee has written back the liability but where assessee has not written back the liability in the books, Section 41(1) cannot be invoked as per these two judgments of Hon'ble Apex Court even after the insertion of Explanation (1) in Section 41(1). These two judgements of Hon'ble Apex Court will not be applicable where the assessee has written back the liability but where assessee has not written back the liability in the books, Section 41(1) cannot be invoked as per these two judgments of Hon'ble Apex Court even after the insertion of Explanation (1) to Section 41(1) of the Act. Since in the present case, assessee has not written back the liability in question, provisions of Section 41(1) cannot be invoked and hence, we decline to interfere in the order of Ld. CIT(A) on this issue. Ground No.1(d) of the assessment year 2006-07 and ground No.1(c) for assessment year 2007-08 are rejected." 2.2.2 Since no difference in the facts could be pointed out buy the Ld. D.R., this issue is decided in favour of the assessee in th....
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....ribunal order reproduced above. This ground of the revenue is allowed for statistical purposes. 2.4 Ground No.4 is as under: "[4] On the facts and circumstances of the case and in law, the Ld. CIT(A)-I, Surat has erred in deleting the addition of Rs. 4,95,000/- made on account of unexplained creditors without appreciating the fact the assessee failed to discharge the onus cast upon it to prove the genuineness of the creditors." 2.4.1 Regarding his issue, it was agreed by both the side that similar issue was raised by the revenue in earlier two years i.e. assessment year 2006-07 and 2007-08 as per ground 1(d) and 1(c) respectively and therefore, in the present year also, this issue may be decided on similar lines. In those two years, this issue was decided by the tribunal in favour of assessee as per para 15.2 of the tribunal order of earlier two years which is reproduced below: "15.2 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that this is an admitted fact in both these years that in the books of the assessee, the amount in question is shown as liability and it was no....
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....-06 and directed to delete the addition of Rs. 38,29,300/- made on account of Syndicate Fees, which was treated as differed revenue expenditure, without appreciating the fact that the expenses incurred were for enduring benefits and can not be claimed in a single year. Further, the Ld. CIT(A) has not appreciated the fact that decision of Hon'ble ITAT is not accepted by the Department and appeal U/S.260A of the I.T. Act is filed." 2.5.1 It was submitted by the Ld. D.R. that this is new issue in the present year. He supported the assessment order whereas Ld. A.R. of the assessee supported the order of Ld. CIT(A). He further submitted that Ld. CIT(A) has followed the tribunal order in assessee's own case for the assessment year 2005-06. Relevant para of the tribunal order was reproduced by Ld. CIT(A) in his order. 2.5.2 We have considered the rival submission, perused the material on record and have gone through the orders of authorities below. We find that this issue was decided by Ld. CIT(A) by following the tribunal order in assessee's own case for the assessment year 2005-06. No difference in the facts in the present year could be pointed out by Ld. D.R. and hence, we do....
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....s. 3. Now, we take up the assessee's appeal in I.T.A.No. 2262/Ahd/2011. Grounds No.2, 3, 4 & 5 are as under: "On the facts and in the circumstances of the case and in law, Commissioner of Income Tax (Appeals)-1 Surat erred in :- 2.0 Upholding the disallowance of Rs. 315000 and in not appreciating that the said expenditure was incurred wholly and exclusively for the purposes of business and that these were not related to agricultural activities. 3.0 Upholding the disallowance of Rs. 1613897 without appreciating that the said expenditure was fully allowable in the year under consideration. 4.0 Upholding an addition of Rs. 1296788 by making reference to Sec.145A and in not appreciating that the figure of Rs. 33375312 since represents Excise Duty on closing stock of raw materials the same is not comparable with Rs. 34672100 which represents the closing balance of Modvat Recoverable and that in view of appellants facts / ICWA's guidance Note, Sec.145A has no impact on the profit as shown in the Profit & Loss Account 5.0 Without prejudice to Ground No.4.0 above, and the fact that Rs. 1296788 addition has been confirmed by CIT(A), being ....
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....loan payable by the assessee and such write off cannot be regard as income in the hands of the assessee u/s 28(iv) of the Income tax Act, 1961. In support of this contention, reliance was placed on the following decisions: (a) CIT Vs Chetan Chemicals (P) Ltd. 267 ITR 770 (Guj.) (b) Logitronics P. Ltd. Vs CIT 333 ITR 386 (Del.) (c) Iskraemeco Regent Ltd. Vs CIT 331 ITR 317 (Mad.) 3.3.2 He further submitted that even if loan was obtained by the assessee for purchase of fixed assets, waiver of this loan cannot result into reduction in the book value of the fixed assets because cost of fixed assets once determined in accordance with law, cannot undergo a change mainly because of loan borrowed for this purpose is partly waived off by the lender. In support of this contention, reliance was placed on the following three judgements: (a) CIT Vs Tata Iron and Steel co. Ltd. 231 ITR 285 (S.C.) (b) CIT Vs Cochin Co.(P) Ltd. 184 ITR 230 (Ker.) (c) Steelco Gujarat Ltd. Vs ACIT 33 SOT 437 (Ahd.) 3.3.3 He further submitted that the amount of waiver of loan, in relation to working capital loan cannot be regarded as income and in support of....
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....esent case, remission is not allowed by the supplier of the machinery but remission is on loan obtained by the assessee from the lender and hence, the facts in the present case are different and, therefore this tribunal decision is not directly applicable in the present case. 3.3.5 Now, we consider the applicability of various judgements cited by the Ld. A.R. with regard to reduction of waiver of loan amount form the cost of fixed assets. The main judgment cited by the Ld. A.R. is the judgement of Hon'ble apex Court rendered in the case of Tata Iron & Steel Co. (supra). In that case, the issue before the Hon'ble Apex Court was as to whether the gain in respect of fluctuation in the rates of foreign exchange while repaying the installments of foreign loan will reduce the actual cost of asset for the purpose of computation of depreciation and similarly whether the loss from the fluctuation in the rates of foreign exchange after excluding the payment attributable to the interest will go to increase the actual cost of depreciable asset. Under these facts, it was held by the Hon'ble Apex Court that it is difficult to understand as to how, the manner of repayment of loan can eff....
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....n currency. 3.3.7 Now, the 2nd aspect of the matter is as to whether this rebate allowed by the lender can be assessed as income u/s 28(iv) or u/s 41(1) of the Income tax Act, 1961. Regarding Section 41(1), we would like to observe that only this portion of rebate allowed by the lender can be brought to tax in the year when liability ceases to exist which was earlier allowed by the A.O. as a deduction while computing taxable income of the assessee. In respect of this, no finding is given by the A.O. that any portion of waiver allowed by the lender is in respect of interest portion on such loan. He has proceeded to make the addition on this basis that the loan in question was used by the assessee for purchasing the fixed assets and on such fixed assets, assessee claimed deduction in the form of depreciation and, therefore, this waiver by the lender can be indirectly treated as trading liability and accordingly, it can be taxed u/s 41(1) of the Income tax Act, 1961.We do not find any merit in this contention of the A.O. because depreciation was allowed on the cost of the fixed asset and as per the judgment of Hon'ble Apex Court rendered in the case of Tata Iron & Steel Co. (supra)....
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....it is apparent that before the section can be invoked, it is necessary that an allowance or a deduction has been granted during the course of assessment for any year in respect of loss, expenditure or trading liability which is incurred by the assessee, and subsequently during any previous year the assessee obtains, whether in cash or in any other manner, any amount in respect of such trading liability by way of remission or cessation of such liability. In that case, either the amount obtained by the assessee or the value of the benefit accruing to the assessee can be deemed to be the profits and gains of business or profession and can be brought to tax as income of the previous year in which such amount or benefit is obtained. In the facts of the case on hand, without entering into the aspect as to whether the liability to repay the loans would be a trading liability or not, it is an admitted position that there had been no allowance or deduction in any of the preceding years and, hence, there is no question of applying the provision as such. Section 28 of the Act deals with profits and gains of business or profession and clause (iv) thereof says that the value of any ben....
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....8.61% in the immediately preceding year on taking the consumption figures of both the years on Net (i.e. Without Moisture) basis being the correct way of comparing the figures of 2 years. c) Proceeding to enhance appellant income by Rs. 44,95,37,000 and in ignoring appellant's submission read with Statutory Auditors clarification / figures recorded in Certificate dtd.30.06.2011, making wrong observations inter-alia relating to account maintenance, back dating of records, month-wise figures and Gross Profit figures & Ratios." 3.4.1 Brief facts of the case are that it is noted by Ld. CIT(A) in para 15 of his order that on going through the records of the assessee company during appellate proceedings, it was noted that there was fall in GP in the present year for which no proper explanation was furnished by the assessee. Ld. CIT(A) issued letter dated 11.03.2011 to the assessee asking the assessee to furnish year-wise yield and weight showing consumption of raw material in quantity and production of finished goods in quantity for all the three units. Assessee was also asked to furnish the number of units of electricity consumed. He also asked the assessee to indicate t....
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....gross weight basis. Thereafter, Ld. CIT(A) has issued a show cause notice pointing out that as per the audit report, consumption is of 100135 MT and not 87218 MT as shown in the chart dated 28.06.2011 in respect of JKPM unit. In reply to this show cause notice, assessee furnished a certificate form the auditor M/s. Lodha & Co. Chartered Accountants, in which they have certified that if the yield % is computed for JKPM unit on net weight basis by excluding moisture content, as per the record available and explanation made, the figures would have been 87218 ADMT. Ld. CIT(A) observed that the auditor's certificate is not reliable because it is based on the explanation given by the management and they do not mention to have fully checked the primary records. Ld. CIT(A) rejected the books of account and increased the GP percentage by 5% by adopting average GP for the last 5 years. In this manner, he made addition of Rs. 4495.37 lacs as against originally proposed by him of Rs. 139 crores. Now, the assessee is in appeal before us. 3.4.3 Regarding ground no.1 challenging jurisdiction of Ld. CIT(A), it was submitted by the Ld. A.R. that enhancement notice given by Ld. CIT(A) is not with....
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....are on cash or credit basis and if on cash basis, the source of money invested in the purchase and if on credit basis, why the books of account were not maintained and if maintained, why they were not produced. Under these facts, it was held by Hon'ble Delhi High Court that this action of Ld. A.R. is of taxability of income for a new source of income and it has not been considered by the A.O. and so, the jurisdiction to decide with the same in appropriate case may be dealt with u/s147/148 of the Income tax Act, 1961 or under Section 263 of the Income tax Act, 1961 if requisite conditions are fulfilled. It was also held that in the presence of such specific provision, a similar power is not available to the 1st appellate authority. In the present case, no new source of income is being examined by Ld. CIT(A) as in that case, when he wanted to examine the source of finance for making purchases, which was never subject matter before the A.O. Hence, this judgement of Hon'ble Delhi High Court is not applicable in the facts of the present case. 3.4.6 Now, we examine the judgement of Hon'ble Apex Court cited by Ld. D.R. having been rendered in the case of Nirbheyram Daluram (supra). In ....
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....about the submission of Ld. D.R. were submitted in writing by the Ld. A.R. on 04.05.2012 and the same are reproduced here as under: "IN RELATION TO GROUND NO.1.1 - ENHANCEMENT OF INCOME BY Rs. 44,95.37.000 ASSESSEE'S APPEAL - ITA NO.2262 / Ahd-2011 ASSESSMENT YEAR 2008-09 The ground under appeal arises from CIT(A)'s order dtd.08.07.2011 and the relevant observations / findings etc starts from Para 15 at Page 31 and ends at Page 44(Second Para). In the hearing before the Hon'ble Tribunal on 27.04.2012 assessee's counsel had made detailed submissions to substantiate for allowing relief which was objected by Ld.Sr.DR in the submissions made at the time of hearing. The submissions made by Ld.Sr.DR stands included in the written submissions (WS) filed and the Hon'ble Tribunal agreed to assessee's counsel prayer for filing a rejoinder to the points made by Ld.Sr.DR. It is in this background that this note has been made and before making further submissions the following needs to be highlighted:- 1. CIT(A)'s relevant paras which deals with this issue have been typed below in this font 2. Assessee's observations / comments / ....
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....aken for the so called fall in yield by 7.92% i.e. from 38.61% to 30.69%. The subsequent paragraphs would show that in fact the yield in this year is better than last year and CIT(A) has ignored the facts of the case] Looking to the decline in yield of JKPM Unit, (In fact there is no decline and there is an improvement by 0.42% as would be seen in following paras) The appellant was asked to explain the reasons for decline. In response to above query, a letter dated 23.06.2011 was filed which is reproduced hereafter-Further to the discussion we had with you on last date of hearing, information / documents asked are being submitted as under:- 1. Chart(s) giving figures of Raw Materials consumed, Finished Goods Produced & Yield in respect of each of our unit named Central Pulp Mills (CPM) and JK Paper Mills (JKPM) for the relevant years (Year wise & Month wise) is enclosed (Annex A-1 & B-1). In these Chart(s) it would be observed that our CPM unit, there is no decline in Yield. However, in JKPM unit, the yield for Asstt. Year 2008- 09 is lower than yield for Asstt. Year 2007-08. The reasons for decline in yield are broadly due to following:- (i) More Moistur....
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....63 30.69 [Admittedly the figures in the above chart were given by the appellant as Annex.A-1 attached to letter dtd.23.6.2011 and do form part of the accounts signed by the Statutory Auditors but CIT(A) ignored the fact that Asstt Year 2008-09 figures of 100135 MT being gross weight (With Moisture) of Bamboo is not comparable with 77255MT since this figure is not Net basis (Without Moisture). This aspect stands duly explained in the Auditors Certificate (dt.30.06.2011)also which has been referred by CIT(A) in the subsequent Par as. In view of this the above referred chart (Yield column excluded) has to be read as under:- Asstt Year Gross /Net Raw Material Consumed Finished goods Paper & Board production Bamboo Hardwoo d Pulp & Others Total 2004-05 Qty/MT Qty/MT Qty/MT Qty/MT Qty/MT Qty/MT MT (Gross) 78693 337326 653 416672 109838 2005-06 MT (Gross) 81596 320888 61 402545 123683 2006-07 ADMT(Net) 60045 233365 - 293410 112803 2007-08 ADMT(Net) 77255 239325 - 316580 122240 2008-09 MT(Gross) 100135 295282 12 395429 121363 At this st....
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....ent / richness of milk and this is measured with a simple instrument called lactometer. Lactometer is dipped in milk and the float level gives the fat content. However, since the appellants raw-material is wood/bamboo it has to undergo moisture analysis in appellants own lab since large quantities of such material are received on continuous basis. (4) As per Annex B-1 the appellant company has given month wise consumption of bamboo of 100135 MT tones. [Monthwise figures was computed / apportioned on the basis of yearly yield. Further, Since addition has been made comparing annual yield of 2 years, month wise figures not reproduced here] (5) As per Annex F the appellant has given gross profit ratio of JKPM unit for the last three years as under:- SN Particulars Assessment Year 2006-07 2007-08 2008-09 A. Sale Lac/Rs. Lac/Rs. Lac/Rs. 56987.96 65604.25 66554.94 B. 1. Other Direct Expenses (299.80) 464.06 62.72 2. Stock Variation Manufacturing Expenses 33399.69 39377.32 40697.28 Total ( 1 to 2) 33099.89 39841.38 40760.00 C. Gross Profit (A-B) 23888.07 25762.87 25794.94 ....
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....the weight in Gross basis is always higher than weight after Dry. 1.4 With our letter dated 23.06.2011, a chart was submitted giving figures of Raw Materials consumed in respect of our unit named JK Paper Mills (JKPM) for the Asstt. Year 2008-09 (Year wise & Month wise) which was measured on Gross basis (M.T) whereas for immediately preceding year i.e. in Assessment Year 2007-08, the same was measured and submitted on ADMT basis i.e Net basis. [This is a factual observation which has been ignored by CIT(A) in his order] 1.5 If we recompute, the yield of Asstt. Year 2008-09 on ADMT basis, it would be observed that yield was 39.03% as compared to 38.61% of immediately preceding Asstt. Year i.e Asstt. Year 2007-08 . [This is also a factual observation which has been ignored by CIT(A) in his order] 1.6 On the basis of above, we are enclosing a chart showing calculation of yearly and month-wise yield (Annex A-1 & Annex. A-2). [This statement clearly records "The month-wise consumption of raw material, production of finished goods and yield has been computed / apportioned on the basis of yearly yield". In view of this note, comparison of an....
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.... at the time of making submissions before the Hon'ble Bench wrongly understood that the figures in the last column of the above chart represents yield or for that matter the moisture content in the rawmaterial. This is to highlight that the figures appearing in column 2 & 3 in the above chart represents the raw-material consumption (Month wise) which before CIT(A) was highlighted that this is on a proportionate and that the annual consumption and finished goods production have been proportioned on month wise basis and the same was duly mentioned in the Chart dtd.28.06.2011. Besides the fact that Ld.Sr.DR was wrong in indicating that the figures are of yield / moisture level there is no justification for drawing any adverse inference in view of the submissions made above.] On comparing the above figure, it is seen that the figure of consumption filed with letter dates 23.06.2011 the total consumption of bamboo is shown at Rs. 100135 MT which tallies with the figures given by the statutory auditor in the audit report. Figures of consumption as given in the audit report and vide letter dated 2:3.06.2011 and 28.06.2011 differs as shown in the following chart:- Asstt Year A....
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....t.04.07.2011] . The auditors (G-23) have recognized the figure of consumption at 100135 MT [Yes, it is a fact but this figures is on gross basis as duly certified by the Auditors] in audited accounts and not at 87218MT [This figure is on Net basis as duly certified by the Auditors] as shown in chart dated 28.06.2011 in respect of JKPM unit. If you have to say anything in this regard please say so by 4.7.2011. [Though there were only three working days but still in spite of the short time allowed the appellant said whatever was to be said to support that the yield in the year under appeal is higher than the yield in the immediately preceding year] The lower yield have affected the overall GP [The yield is not lower and therefore, the observation that it has effected GP is not correct]. It is seen that the average GP. Of Co of last 5 years is 42.39% as against 37.43% [This comparison i.e. current years GP ratio with the average of last 5 years average is not correct. In such cases the variation would keep on changing once the number of years change. This is to reiterate that the appellants case the GP ratio of JKPM Unit in A.Y. 2008-09 was as high as 38.76% (W....
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.... the issue regarding low yield of JKPM unit may be treated as explained. However, auditor's Certificate is of no help in the matter [Auditors Certificate is very relevant since it clearly certifies that 100135 tons of Bamboo consumption is on gross weight basis and further certifies that incase reporting would have been on Net basis, as per the records available and explanations made the figure would have been 87128 ADMT i.e. Net after excluding moisture weight This certificate is relevant for comparing like to like figures for the year under appeal and immediately preceding year. It would give absured results if last year's yield figures are compared with the figures of year under appeal by taking last year's consumption figure which are on Net basis and this year's figures which are on gross basis. If comparison is made on net to net basis, which is the correct method, the yield in A.Y.2008-09 is better than immediately preceding year's yield] Auditor says in his Certificate that reporting of consumption of bamboo in F.Y.2006-07 is on net basis, but the fact is to the contrary (it is not contrary)]. In F.Y. 2007-08, the gross bamboo consumption ....
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....s any observation /finding both by CIT(A) and Sr.DR.] (13) On 29.6.2011, it was required of appellant, to bring all primary records if auditor's Certificate is being furnished. The appellant was asked to show the primary records of gross and net weight. The appellant produced a register for August 2007, where gross and net weight is entered. However, it is seen that the record is not maintained on real time basis [CIT(A) has not correctly appreciated the facts and whatever might be the basis,, the fact is that the records mentions the facts]. For example, in respect of Truck loads of raw-materials arrived on 31.08.2007, (about 100 Trucks), the Moisture content report is entered on the date of 31.08.2007 itself whereas the moisture testing report is available only after 48 hrs. Thus, it is clear that the entries are i being back dated . [It is totally incorrect to make this observation. It has not been appreciated that the records clearly shows the date on which raw-material arrives in the factory and once it is so recorded it is against same date that the information of the Testing Report is plotted even though the same is available after 48 hours of the said materi....
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....r the current year as compared to 38.61% of A.Y. 2007-08 and 38.45% for A.Y.2006-07, it was proposed to estimate the production and find out the correct income of the appellant on the basis of the yield rate of earlier years for which show cause notice was issued to appellant on 23.06.2011. Thereafter, the appellant has given submissions dated 28th June 2011 claiming that raw material being both bamboo and hardwood is purchased on gross basis which includes moisture around 35% and after purchase, all such materials are converted into ADMT (After dry metric ton) wherein moisture is reduced to 10% level and such material is used in manufacturing process. It was further explained that in A.Y.2007-08 in the Audit Report, the net figure of consumption of bamboo i.e. ADMT was reflected whereas in the Audit Report for the present year the gross figure was reflected which has resulted into reduction in yield ratio given in submission dated 23.06.2011. It was also explained that if moisture is reduced to 10%, then the yield on ADMT basis works out to 39.03% for this year as compared to 38.61%. In support this in the appellant's submission; they have also produced monthly consumption on ....
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....tors] Along with the said letter dated 23rd June 2011, the appellant has given details of raw material consumption and yield which also accepts the reduction in yield. However, it was claimed that the GP of the Unit does not vary. It was only on getting the notice for adopting the yield ratio of 38.61 as per last year, the appellant has now come up with the story [It is not a story but facts which have been listed showing that actual yield in the year under appeal was 39.03%] that for determining the plant efficiency the material are to be converted into common determinant which is called by them as ADMT and for that purpose they have claimed adjustments upto 10% in moisture level from the gross value of quantum of material consumed. It is also claimed that the figure given by Auditors for the current year are on gross basis. Thus, this explanation is an after-thought and cannot be accepted, it being contradictory to the earlier explanation. [Needs to be accepted this being a fact that the yield is higher than last year] The appellant in its second letter dated 28th June 2011 has stated that yield, if adopted on ADMT basis, shows better yield though vide its le....
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....ect has been noted since there is none] Reduction in yield has resulted into reduction in gross profit at 37.43% as against average gross profit of last five years being 42.39%. Considering the above position, coupled with the facts that quantity details are not produced for verification & no proper explanation regarding reduction in yield is submitted by appellant do not who true & fair picture of income and is therefore rejected u/s 145 of the Act. On careful consideration of all the details submitted by appellant from time to time, current year gross profit is estimated @ 42% (last 5 years average GP is 42.39%) as against 37.43% shown in books of account which will result into enhancement of income in case of appellant by Rs. 44,95,37,000/-. Thus, appellant's income gets enhanced by a sum of Rs. 44,95,37,000/-. To recapitulate, the crux of the matter is that appellant has shown lower yield by 8% [Yield is higher by 0,42%] as compared to last year in respect of JKPM unit. A detailed show cause was issued to appellant as to why Rs. 139 crore be not added to its income on the ground of low yield. This show cause was given after the explanation rendered by the appellant in....
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.... there is no reduction in yield, the vary basis for enhancing the appellants income falls.] After rejection of books of account, GP is enhanced by 5% resulting into addition of Rs. 44,95,37,000. Here, it is pertinent to note that originally a show cause was given for enhancing the income by Rs. 139 crore. However, after considering the facts and circumstances of the case, a GP addition of Rs. 44,95,37,000/- is being made after giving a specific show cause for GP addition and on finding that there is no force in appellant's arguments against GP addition. Thus, the proposed addition of Rs. 139 crore has been restricted to Rs. 449537000/-." 3.5.1 Similarly, Ld. D.R. has also furnished written submission on this aspect of the matter which are reproduced here in below: "The issue of rejection of books of accounts and estimation of GP Rate: 1.11 This issue has been discussed by the C1T(A) in para 15(page 31) of his order. The CIT(A) found that in respect of CPM unit the yield in the current year was 36.71 % as compared to 38.41 % in the last year and 37.68 % in A.Y. 2006-07. He further found that in respect of JKPM unit the yield in the current year was 30.69 % as compare....
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.... February and March, 2007. However, the appellant did not produce the same. The appellant could not explain whether gross and net weight were entered in stock register or it remained only on stray working sheet. The C1T(A) therefore stated that the hypothesis of gross and net weight has been given to cover up the low yield without giving any evidence. 2. The other explanation given for fall in G.P. is that the price of raw material and all direct cost have increased. However, inspite of specific requirement to produce quantity accounts, the appellant did not produce any quantity record of consumption of raw material para 14 page 40). In these circumstances, the assessee was unable to explain a substantial fall in the yield from 38.61 % in A.Y. 2007-08 and 38.45 % for A.Y. 2006-07 to 30.69 % in the current year for JKPM unit. 3. The appellant admitted on page 1 of the letter dated 28.06.2008 that raw material being bamboo and hard work was purchased on gross basis which including moisture around 35 % and after purchase, all such materials converted into ADMT (after dry M.T.) wherein moisture is reduced to 10 % level and such material used in manufacturing process. The C1....
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....on it is clear that this explanation is only an afterthought explanation. The stand of the assessee has therefore changed from the letter dated 23.06.2011 to the stand taken in the letter dated 23.06.2011. The shift in stand has how been supported by the documentary supporting evidence as discussed above. The CIT(A) has stated on page 42 that the assessee company in a telephonic conversation has explained that when truck comes gross weight of bamboo is taken, afterwards 4-5 bamboos are picked up on sample basis and test is carried out to ascertain the moisture content and on such test basis net weight bamboo is considered. However, in the letter dated 28.06.2011, only one day before, it was explained that all raw material are converted into a common determinate (to 10% moisture) by a process and therefore the statement are contradictory. 5. The CIT(A) further stated in the last para of page 42 that during the course of examination of primary records pertaining to gross weight and net weight on 04.07.2011 it is observed that the appellant does not maintain such records on real time basis and vital entries are back dated as discussed above. This fatal lapse, including other defect....
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....ncome-tax assessment for the year 1943-44. The reference application was rejected by the Tribunal as well as by the High Court. On appeal to the Supreme Court: HELD The power to compute profits under the proviso to section 13 arises only where no method of accounting has been regularly employed by the assesses and where the method employed is such that the income, profits and gains cannot properly be deduced therefrom. It means that the method adopted by the assessee must prima facie prevail where it is regularly employed, though the ITO can resort to the proviso if the method is such that true profits cannot be correctly determined therefrom. In other words, even if the assessee has regularly employed a method of accounting it can be discarded under the proviso if the method does not show correct profits of the year. In the instant case the Tribunal held that correct profits could not be deduced from the books produced by the assessee and therefore the proviso to section 13 of 1922 Act applied. The reasons it save were (1) that vouchers for several purchases made in Colombo had not been produced and for purchases no vouchers were forthcoming and without the vouchers, t....
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..... If, after taking into account all the materials including the want of a stock register, it was found that from the method of accounting the correct profits of the business were not deducible, the operation of the proviso to section 13 would be attracted. Even if the ITO accepted (lie assessee's method of accounting, was not bound by the figure of profits shown in the accounts. It was for the authorities to consider the material which was placed before them and, If, after taking it account in any case the absence of a stock register coupled with other materials they were of the opinion that correct profits and gains could not be deduced, then they would be justified in applying the proviso to section 13. Therefore, when the Tribunal applied the proviso to section 13 because of (lie various blemishes which were pointed out by the ITO and accepted by the Tribunal, it could not be said that there was any error in the order of the Tribunal justifying the interference by the Supreme Court under article 136. The appeals were dismissed accordingly. Note : The case was decided in favour of the revenue. (2) Chhabildas Tribhuvandas Shah [19661 59 ITR 733 (SO - In this case the ....
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....were not at all verifiable. No vouchers for the expenses and the cash memos were kept. No stock register was maintained. The assessee could not furnish the periodical retail sale price of the liquor. On enquiries, the Assessing Officer was informed by the District Excise Officer that the liquor contractors were free to fix the sale price of liquor and there was no control over the selling price. A clear finding was recorded that the profit and loss account furnished by the assessee did not depict correct and real profit earned during the year. On these findings the Assessing Officer rejected the account books invoking the provisions of section 145(2) and proceeded to make assessment on best judgment. On appeal, the Commissioner (Appeals) affirmed the action of the Assessing Officer. On second appeal, the Tribunal also upheld the action by dismissing the second appeal filed by the assessee. On an application for reference under section 256(2): HELD In the instant case, the account books were rejected because admittedly no stock register was maintained nor the sales were found verifiable in absence of the cash memos. The vouchers of expenses were also not forthcoming and the....
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....ction 144 and estimated the gross profit rate at 40 per cent. The Assessing Officer, further held that the assessee had shown bogus purchases for reducing the gross profits. On appeal, the Commissioner (Appeals), though reduced the quantum of the gross profit, estimated by the Assessing Officer, vet upheld most of his impugned findings. On further appeal, the Tribunal had also given further relief to the assessee, On appeal to the Supreme Court: HELD Whether there were bogus purchases or not was a finding of fact and there was no need to interfere with the same in the instant appeal. As regards the rejection of the books of account, cogent reasons had been given by the income-tax authorities for doing so, and there was no reason to take a different view. (Para 101 It is well-settled that in a best judgment assessment, there is always a certain degree of guess work. No doubt, the authorities concerned should try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitrarily, but there is necessarily some amount of guess work involved in a best judgment assessment, and it is the assessee himself who is to blame as....
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....n to have fully checked the primary records. When we go through the auditor's certificate, which is reproduced by Ld. CIT(A) also, we find that it is stated by the auditors in that certificate that the same is as per the records available and explanation given by the management. Therefore it cannot be said that the auditor's certificate is merely on the basis of explanation given by the assessee/management. It is specifically stated by the auditors that this is as per records available. Before Ld. CIT(A) also, the assessee produced register of August 2007 where the gross and net weight is entered and in the said register, no error or defect is pointed out by Ld. CIT(A) and he has merely stated that this register is not maintained on real time basis. This allegation of Ld. CIT(A) is on this basis that after the receipt of material in the factory, the testing report is obtained within 48 hours and then on the basis of this testing report, the net weight on ADMT is worked out and, therefore, this record maintained by the assessee is not on real time basis. We do not find any merit in this objection of Ld. CIT(A) because, if a truck load of raw material is received at the factory and e....
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..... CIT(A) has proceeded to make the addition on the basis of average GP percentage of last five years and thereby making an addition of Rs. 44.95 crores as against addition proposed by him of Rs. 139 crores on the basis of fall in yield percentage of JKPM unit. This goes to show that Ld. CIT(A) himself was also satisfied about the explanation of the assessee for the fall in yield percentage of JKPM unit and hence, he did not make this addition of Rs. 139 crores. Once, Ld. CIT(A) is satisfied about the fall in yield percentage of JKPM unit, no basis remains for rejection of books of account u/s 145(3) of the Act. Rejection of books of account merely on the basis of slight fall in GP percentage is not permissible particularly when in the preceding year, the GP rate declared by the assessee of 39.27% for JKPM unit as against 41.92% for the same unit in assessment year 2006-07 and similarly, GP rate reported in respect of CPM unit in the preceding year @ 37.44% as against GP rate of the same unit in assessment year 2006-07 @ 39.20% was accepted by the A.O. in the course of scrutiny assessment and there is no enhancement by Ld. CIT(A) in that year and there is no reopening u/s 147 for th....
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....ld. CIT(A) also and he also could not point out any defect in this record of August 2007 except alleging that such record is not maintained by the assessee on real time basis and we have seen that this objection of Ld. CIT(A) is not valid because in the facts and circumstances of the present case, it has not been established that such quantitative records are not maintained by the assessee on real time basis because the gross weight is entered on the date of receipt of raw material and the net weight column is filled up within reasonable time after receipt of testing report and such time is reported to be 48 hours on average. Ld. CIT(A) has also made telephonic discussion with the General Manage of JKPM unit Shri Vishvajeet Deb in the presence of Shri Marwah, Chief of the Taxation of the assessee company on 29.06.2011. It was explained by Shri Vishvajeet Deb that when a truck of bamboos comes, gross weight is taken and thereafter, 4-5 bamboos are picked up for sample and the test is carried out to ascertain the moisture content and this test takes two days and when the result comes, the gross weight is converted into net weight on the basis of percentage of moisture content in the ....
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....n by him u/s 147 or by Ld. CIT u/s 263 of the Act and no enhancement was made by Ld. CIT(A) in the earlier year. Therefore, slight fall in GP percentage as compared to earlier year, may be on account of various reasons and having accepted similar fall in GP in earlier years and also in the subsequent year, addition cannot be made in the present year on the basis of slight fall in GP percentage when no specific defect is pointed out except the allegation of fall in yield percentage of one unit i.e. JKPM unit which is also not being reflected in fall of GP percentage. 3.5.4 There is one more aspect of the matter that fall in yield may have impact on G.P. in three situations. Either the assessee has booked bogus purchases or the assessee has sold material outside books or the assessee has reported lesser quantity of closing stock. This is not the allegation of Ld. CIT(A) that assessee has booked any bogus purchases. This is also not an allegation of Ld. CIT(A) that assessee has resorted to any sale outside books. In this situation, the only basis of low yield having impact on G.P. can be that the assessee has reported lesser quantity of closing stock and in that situation, addition....
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....ce of gross weight and net weight of raw material consumption in different months, no adverse inference can be drawn because the net weight is not dependent upon moisture lost during the month of consumption. It is based on the moisture contents at the time of receipt of particular lot of wood and the corresponding net weight by adopting 10% moisture content. If the average moisture content of a particular lot is 55% then the difference between gross weight and net weight of this particular lot will be around 45% if it is converted into raw material having 10% moisture content and if this lot is consumed in the month of Feb and in the month of March different lot is consumed which was not having any moisture content then the net weight will be more than gross weight by minimum 10%. Although the figure of (+) 12.49% does not appear to be convincing because even if the gross weight was not having any moisture content then also net weight will be only (+) 10% as compared to gross weight but this small difference of 2.49% in a particular month may be because of some calculation mistake and this alone cannot be the basis of rejection of entire explanation of the assessee. Further, this ....
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....Chabildas Tribhuvan Das Shah as reported in 59 ITR 733 (S.C.). In that case also, it was the finding of the tribunal that the profit and gains could not properly be deduced from the method of accounting employed by the assessee. Hence, for the same reasons given regarding the 1st judgement, this judgment is also not applicable in the present case. - The 3rd judgement cited by him is the judgment of Hon'ble Allahabad High Court rendered in the case of Avdhesh Pratap Singh Abdul Rehman as reported in 210 ITR 406 (All.). In that case, the accounts books were rejected because admittedly, no stock register was maintained nor the sales were found verifiable in the absence of cash memos and expenses vouchers were not forthcoming and the income returned was ridiculously low. In the present case, the stock register was duly maintained and it is not the case of revenue that the sales are not verifiable. It is also not the case of the revenue that vouchers of expense are not forthcoming and, therefore, this judgment of Hon'ble Allahabad High Court is also not applicable in the present case. - The next judgment cited by the Ld. D.R. is the judgement of Hon'ble Apex Court rendered in the ....