TaxTMI 
TaxTMI 
2021 (10) TMI 449
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....s.143(3) r.w.s. 153A of the Act on 27.12.2007 determining total income of Rs. 71,08,78,468/-. The assessee carried the matter in appeal before the first appellate authority but could not succeed. The ld.CIT(A) vide his order dated 31.12.2010 dismissed the appeal filed by the assessee. The assessee carried the matter in further appeal before the Tribunal. The ITAT, Chennai Benches in ITA Nos. 161 & 162/CHNY/2011 for assessment years 2005- 06 & 2006-07 has set aside the appeals to the file of the AO and directed him to reconsider the issue involved in appeals de-novo, commensurate with the decision taken in the assessment year 2004-05. Pursuant to the directions of the Tribunal, the AO has completed assessment u/s.143(3) r.w.s. 153A r.w.s. 254 of the Act on 22.03.2013 and determined total income at Rs. 71,72,12,693/- by making addition towards suppression of production for Rs. 55,32,10,232/-, disallowance of advertisement expenditure of Rs. 11,02,000/- and disallowance of marketing expenditure of Rs. 39,41,100/-. On appeal, the ld.CIT(A) vide his order dated 27.08.2018 deleted additions made by the AO towards addition on account of suppression of production and disallowance of market....
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....there is a difference between the number of caps issued for production and number of bottles produced for the period and thus, opined that the assessee has suppressed production of final product. The AO has discussed the issue at length in light of various documents seized during the course of search in the form of loose sheets which contains details of purchase and consumption of empty bottles, caps and labels and arrived at an unaccounted production of Rs. 55,32,10,232/-. According to the AO, the assessee has not satisfactorily explained the difference in quantity of caps issued for production and production of number of bottles with the help of necessary records. The AO further was of the opinion that although the assessee claims that investigation team has not considered return of unused caps to stores and wastage of caps in the process of manufacture, but the claim of the assessee that it had returned unused caps to stores is not supported with any evidence. He, further observed that on verification of stock register produced by the assessee for maintaining purchase and consumption of caps, there is no column in the stock register to account for return of caps from production ....
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....s under: 1. Godown No.1 - 31,225 cases 2. Godown No.2 - 8,214 cases Total - 39,439 cases As per the records, the position of finished goods is as under : 1. Opening stock as on 18.01.2006 - 25,024 cases 2. Production on 18.01.2006 - 16,251 cases Total - 41,275 cases The difference between the stock as per Books and as per Physical verification was 1,836 cases (41275 minus 39439). During the course of search a statement was recorded from Shri K. Ganapathi Subramaniam, who is the Senior Manager (Operations) of Mls. Midas Golden Distilleries (P) Ltd.in response to the question NO.23 vide statement dated 18.01.2006, he replied that there were certain mistakes in inventorying the stock by the officials and that certain items were wrongly taken. As per his statement discrepancy noticed was 1,759 cases. He therefore, stated that the correct deficiency is only 77 cases and not 1,836 cases. However, no reconciliation as claimed by him was furnished to the search team. Even if we take into account the statement of the Manager to be correct, still there are 77 cases for which no expla....
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....ml 550 2,856 17 Vintage 1000 ml 238 5,500 18 8PM 750 ml 275 2,000 19 RRG 750 ml 100 720 20 BDG 750 ml 40 38,400 21 OCR 375 ml 1,200 9,600 22 JDI 375 ml 400 9,600 23 MRW 750 ml 600 5,400 12,66,801 Accordingly to the assessee, on an average 17000 to 19000 cases are only produced. This is as per the statement given by Shri Ganapathy Subramaniam, Sr.Manager (Operations) vide answer to question NO.10. Even if we take that all the cases that are produced consist of 48 bottles, being the maximum number of bottles, a case can contain, the total number of bottles that would be required on an average per day would be only 9,12,000 bottles. As already stated, 80% of the bottles used are only old bottles for which the assessee does not maintain stock. Therefore, on an average the number of new bottles that would be required will be 1,82,400. Whereas, as detailed above, on the date of search more than 12,66,801 new bottles were found. It is not known as to why such huge number of bottles should be kept. The availability of the n....
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....ticed. The assessee could not furnish any satisfactory explanation for the discrepancy noticed. This clearly proves that there is excess production than what is recorded in the books. The huge difference between the number of caps issued and the bottles produced which is tabulated as under, clearly prove the above point that there is suppression of production. The monitory value of excess production, on the basis of this table has been adopted as per the value determined by the TASMAC. In this context, as per the seized material in Annexure in Ann/DV/B&D dated 18.01.2006, it is noticed that the price structure with effect from 11.12.2004 has been determined by the TASMAC. The price determined includes the cost of production as well as the manufacturer's margin of profit. As per the price structure, the price for different quantity of each product has been fixed and the price is determined per case. Therefore, this price is converted into price per bottle by adopting the number of bottles for each case as per the quantity. As the assessee company has not accounted for the entire production and also of the following amount, the entire amount is treated as undisclosed income ....
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....512 19,82,585 3,60,416 24.65 8884254 CRV Q10054 x 12 1,20,648 1,40,746 20,098 40.5 813969 P4930 x 24 1,18,320 2,03,659 85,339 20.83 1777611 N24259 x 48 11,64,432 15,19,175 3,54,743 10.83 3841867 JFB Q1406 x 12 16,872 20,471 3,599 77.7 279642 P1251 x 24 30,024 36,292 6,268 39.73 249028 N7705 x 48 3,69,840 5,80,355 2,10,515 19.94 4197669 MRW Q495 x 12 5,940 8,442 2,502 77.70 194405 P1023 x 24 24,552 42,357 17,805 39.73 707393 N4338 x 48 2,08,224 2,76,717 68,493 19.94 1365750 OCW Q377 x 12 4,524 7,040 2,516 37.14 93444 P2249 x 24 53,976 1,16,579 62,603 19.79 1238913 N35100 x 48 16,84,800 19,02,380 2,17,580 10.09 2195382 OCB Q1911 x 12 22,932 49,338 26,406 34.4 908366 P64883 x 24 15,57,192 21,23,436 5,66,244 18.14 10271666 N2687744x48 1,28,99,712 1,54,66,207 25,66,495 9.57 24561357 OAB Q292....
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.... of basic raw materials to dispatch of final products, the activity is fully under the control of State Excise Authorities and thus, there is no basis for the AO to assume suppression of production on the basis of consumption of secondary raw materials like caps, empty bottles, etc. 4.1 The ld.CIT(A) after considering relevant submissions of the assessee and also taken various facts including the fact that the product manufactured by the assessee is under strict control of State Excise Authorities, deleted additions made by the AO by holding that the AO has gone on the basis of purchase and consumption of caps and empty bottles to arrive at a conclusion that there is unaccounted production, while doing so, he has forgotten to verify the fact that corresponding utilization of rectified spirit is also needed for alleged unaccounted production. The ld.CIT(A) further noted that the estimation made by the AO towards unaccounted production is purely on suspicion and surmises basis without there being any evidence like discrepancy in basic raw material consumption like rectified spirit and neutral spirit. The CIT(A) has also discussed the issue in light of the fact that procurement of ....
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....the stock position which was taken during the course of s arch by a crude method. In that, a rod was dipped into the storage tank and the stock was estimated accordingly. This is rather a rough method and this cannot be a guiding factor for arriving at the stock position. It is seen that the fact of huge difference between the quantity of (bottle) caps purchased and the quantity used in production has made the AO to come to the conclusion that there was unaccounted production. While doing so, he has forgotten to verify the fact that corresponding utilization of rectified spirit is also needed for the alleged unaccounted production. Further the explanations and submissions offered by the AR with regard to the fact that rectified spirit which is one of the major ingredients in the production of liquor, can be purchased only against the issuance of permit by the Prohibition & Excise Authorities. Inasmuch as the AO has not found any omission in purchases nor has there been any allegation that the appellant had contravened the regulations and purchased rectified spirit, the conclusion that there was unaccounted production, has been, so to say, built on wrong premises. ....
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....2 of the sworn statement that no day to day tanker stock register was maintained and in the absence of stock register, the appellant's contention that there could not be any excess production is untenable. In this regard, he relied upon the decision of Hon'ble Supreme Court in the case of CIT vs. Durga Prasad More, (1971) 82 ITR 540 and Sumathi Dayal vs. CIT, (1995) 214 ITR 801. 6. The ld.AR for the assessee on the other hand strongly supporting order of the ld.CIT(A) submitted that the CIT(A) has rightly appraised the facts in light of various evidences filed by the assessee including reconciliation of purchase and consumption of secondary raw materials like empty bottles, caps, labels, as per which there is no difference in purchase and consumption of raw materials. The AO has computed difference in purchase and consumption of caps mainly on the basis of certain loose sheets found during the course of search, as per which the assessee has made certain calculations for requirement of caps and empty bottles for the required period but in factual, the purchase and consumption of raw materials and production of finished goods was completely recorded in stock books maintained for t....
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....rguments made by the ld.AR for the assessee. The basic point triggered for estimation of suppressed turnover is, certain loose sheets found during the course of search in the business premises of the assessee, as per which there is discrepancy in purchase and consumption of secondary raw materials like caps, bottles and labels. The AO has determined suppression of production by taking into account difference in purchase and consumption of caps on the basis of production reports submitted by the assessee for the month of April, 2005. As per statement furnished by the assessee, the assessee has produced 3,33,013 cases of IMFL. The AO has converted number of cases in terms of number of bottles, as per which, the total number of 3,33,013 cases is converted into 1,46,13,594 bottles. The AO further compared the number of bottles issued for production to total number of bottles produced for the month and arrived at a difference of 5,33,830 bottles. Therefore, he opined that there is mismatch between number of empty bottles and caps issued for production and number of bottles produced for the month and thus, opined that there is huge difference between purchase and consumption of bottles a....
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....iquor. As we understood by the explanation of the assessee, the stores department issues the bottles, caps and labels for filling the bottle with liquor and the same is sent to the bottling area in the plant. In the process, there is a loss of these stocks due to breakage of these bottles and wastage of caps due to damage because the bottles are manufactured mostly by items of glass which are mostly prone to breakages and further, caps are mainly made up with paper, plastic and iron and which is also small and delicate in nature, easily accessible for wastages. Therefore, in our considered view it is every possibility that a good number of bottles / caps become wastage due to damage in the processing of capping and for other reasons. The AO while determining the difference in purchase and consumption of caps and bottles has not been taken into account wastage claimed by the assessee. Further, the AO had also not considered return of unused caps from bottling area back to stores to arrive at a difference. The AO has assumed that every cap issued has been utilized in filling of the bottles, without considering the explanation of the assessee that in the process 5 to 6% bottles and ca....
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.... as per books of accounts of the assessee was at 1,04,000 bulk litres. The difference in stock of rectified spirit is only 222 bulk litres, which is 0.29% of total stock found during the course of search. Similarly, the physical stock of neutral spirit as on the date of search was 76,796 bulk litres, whereas stock as per books of accounts of the assessee is 76,933 bulk litres and once again the difference is 222 litres, which is 0.23% of total stock. Likewise, the difference in blended stock when compared to book stock was at 424 bulk litres, which is once again 0.41% of total stock. From the above, it is very clear that when you compare the nature of materials stored by the assessee to the percentage of difference in physical stock and book stock, the difference is negligible because, the raw materials like rectified spirit and neutral spirit are highly evaporable and further these raw materials are stored in wooden racks and measured in dips, which is not accurate. Therefore, the difference arrived at by the AO on the basis of physical stock taken during the course of search cannot support the case of the AO that there is discrepancy in stock of primary raw materials correspondin....
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....ed by the assessee are fully controlled and monitored by State Government Authorities and there is no evidence of any wrong doing by the assessee, the AO cannot estimate suppression of production only on the basis of his own mathematical calculations by extrapolating certain figures that to without understanding the process of manufacture involved in production of IMFL products. Therefore, we are of the considered view that the AO was completely erred in estimation of suppression of production on the basis of suspicion and surmises without any cogent reasons to support his findings. The CIT(A) after considering relevant facts, has rightly deleted addition made by the AO. Hence, we are inclined to uphold the findings of ld.CIT(A) and dismiss the appeal filed by the Revenue for assessment year 2006-07. ITA No.3369/CHNY/2018 8. The first issue that came up for our consideration from Ground No.2 for assessment year 2007-08 is addition towards excess production of Rs. 1,23,73,800/- for the year under consideration. 8.1 The AO has made addition of Rs. 1,23,73,800/- towards excess production on the basis of conversion of rectified spirit into IMFL by allowing permissible deductio....
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.... production loss as per said Excise Rules. Therefore, we are of the considered view that the AO was completely erred in determining excess production by applying his own arithmetic calculation without understanding the facts that there is no discrepancy in stock details submitted by the assessee to the State Excise Authorities and further there is no action from the authorities for violation of any of the conditions prescribed under State Excise Rules, 1981. The CIT(A) after considering relevant facts has rightly deleted additions made by the AO and hence, we are inclined to uphold the findings of ld.CIT(A) and reject ground taken by the Revenue. 9. The next issue that came up for our consideration from Ground No.3 of Revenue appeal is deletion of addition made towards disallowance of landscaping charges of Rs. 14,83,950/-. 9.1 The AO has made addition of Rs. 14,83,950/- towards landscaping charges on the ground that amount incurred towards landscaping charges is in the nature of capital expenditure, which gives enduring benefit to the assessee and hence, cannot be allowed as deduction. It was the explanation of the assessee before the AO that landscaping charges incurred tow....
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.... purchase of bottles from M/s. Basheer Ahmed & Co., and opined that there is a difference of 21.35% in price paid to M/s. Sri Renga Enterprises and hence, made addition of Rs. 1,03,19,742/- towards purchase of new bottles. 11.2 It was the claim of the assessee before the ld.CIT(A) that the AO has made additions on suspicion and surmises grounds without bringing on record any evidence to prove that the assessee has paid excessive price for purchase of old bottles as well as new bottles, without appreciating the fact that although the size of the bottles remains same, but type and pattern of bottles differs from once supplier to another supplier. The assessee further claimed that it is difficult to compare the price of bottle only on the basis of size because quality of bottles may be different from one manufacturer to other manufacturer as well as cost of bottle is purely dependent upon the pattern and type of bottle. As regards, addition made towards difference in price paid for old bottles, it was submitted that the assessee has purchased 90% of its bottle requirement from M/s. Sri Renga Enterprises and the supplier has undertaken to deliver old bottles at the factory gate and ....
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....ase, the assessee has proved with necessary evidences that it has paid to suppliers against purchases through account payee cheques. The AO has not brought on record any evidences to prove that the assessee has paid amount by cheques and get back money in cash. Therefore, we are of the considered view that the AO was erred in making addition towards inflation of cost of purchase of old bottles and new bottles only on the basis of price paid by the assessee to two different suppliers without bringing on record any cogent reasons to justify his action. The CIT(A) after considering relevant facts has rightly deleted additions made by the AO towards inflation of cost of purchase for old and new bottles. Hence, we are inclined to uphold the findings of the ld.CIT(A) and reject ground taken by the Revenue for both assessment years. 12. In the result, the appeals filed by the Revenue for assessment years 2008-09 & 2009-10 are dismissed. ITA No.3372/Chny/2018 13. The first issue that came up for our consideration from Ground No.2 of Revenue appeal is deletion of addition made towards disallowance of finance charges of Rs. 18,00,000/- 13.1 The fact with regard to the impugned di....
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.... furnished the same before the AO but the assessee could not do so. Therefore, he opined that discount allowed on sales and debited to selling expenses cannot be allowed as deduction. 14.2 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. Admittedly, the Tamil Nadu State Marketing Corporation Ltd., a Government of Tamil Nadu undertaking, is sole distributor of IMFL and liquor products in the State of Tamil Nadu. In terms of State Excise Policy, the assessee should sell its products only to TASMAC. As per the terms and conditions for supply of IMFL, the TASMAC has charged cash discount of 2.18% on the basic price after trade discount and also additional cash discount of Rs. 3.28 per case supplied. This cash discount is in addition to the trade discount of 0.55% allowed on basic price. This fact has been confirmed by TASMAC vide its letter dated 12.03.2014, where it has been stated that cash discount has been charged on all the suppliers including the assessee company. From the above, it is very clear that the assessee does not have any say in allowing cash discount on sales but it is solely on the discretion of....