TaxTMI 
TaxTMI 
2023 (6) TMI 1022
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....se of the assessee was selected for scrutiny and after issuance of notice and calling for information/documentation from time to time and taking into consideration the submissions filed by the assessee, the books of account maintained by the assessee were rejected by the AO by invoking the provisions of section 145(3) of the Act and thereafter, has made an addition of Rs. 2,62,906/- in respect of unaccounted income on production and sale of Gazak, Revari, Makhana and Rs 7,95,750/- in respect of unaccounted income on production and sale of Namkeen. Further, an addition of Rs. 5,57,350/- was made on account of excess consumption of diesel and assessment proceedings were completed vide order passed under section 143(3) dt. 28/12/2016. 3. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) who has since sustained the said additions and against the said findings and directions of the Ld. CIT(A), the assessee is in appeal before us. 4. During the course of hearing, the Ld. AR submitted that the AO has grossly erred in rejecting the books of accounts under section 145(3) of the Act. It was submitted that the system of accounting has been consistently fol....
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....s accordingly submitted that the AO has failed to take into consideration these important facts and have gone ahead and made the impugned addition and which have been sustained by the Ld. CIT(A). 4.3. It was further submitted that the learned AO has held that the production of Gajak should have been 697646 kg i.e. 95% of inputs of 734365 kg whereas the assessee has sold 693260 kgs which is 99.4% of 734365 kg and thus has not recorded the sale of 4406 Kg ( In fact it is 4386 kg, there is a calculation mistake in the order) valued at Rs 262906/-. Even if the production is 95%, the billing cannot be of full production. There is bound to be gap between the production and billing because Gazak is a ready to eat food item, it is sweet and is produced and consumed only in winters. It gives instant energy and warmth to body to bear the harshness of winters. The entire manufacturing, packing and handling process is manual and not mechanised. Therefore, every person be it worker, packer, transporter, whosoever handles it, has a tendency to consume some portion of Gazak. Moreover, it is regulated under Food Safety and Standard Act( FSSAI). It carries expiry date of three months. Sometimes ....
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....is first step, the fact that the gross profit is low cannot by itself be a ground for taking a view that it is open to Assessing officer to make good the alleged deficiency in gross profit. There should be sufficient reason to hold that books of accounts maintained by the assessee are unreliable, incorrect or incomplete but no such reason has been recorded by the Assessing officer in our case. 4.7. It was submitted that the reason to believe that the case demands a best judgement assessment u/s 144 have to be in writing and based on facts. Sec 144 also requires an opportunity of being heard to the assessee before proceeding with the assessment to the best of his own judgement. No such opportunity was provided to the assessee. Moreover, the learned AO has acted arbitrarily and capriciously. The Hon'ble Allahabad HC has held in the case of CIT vs. Surjeet Singh Mahesh Kumar (1994) 210 ITR 83 that best judgement assessment must proceed judiciously in the light of relevant material on record and discretion in that behalf has not been exercised arbitrarily and capriciously. Further, the Assessing officer has to give an opportunity to the assessee to contradict the materials upon ....
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.... quite large numbers of power cuts and breakdowns as compare to the previous year which has resulted in increase usage of generating set and consequent consumption of diesel. It was further submitted that the invoices towards purchase of diesel have been duly submitted before the AO which he has not rejected and all the payments have been made through banking channel and therefore the disallowance of Rs. 557,350/- deserves to be deleted. 5. Per contra, the Ld. Sr. DR relied on the order and the findings of the AO as well as the Ld. CIT(A) and taken up through findings of the Ld. CIT(A) which are contained at para 4.5 of the impugned order which read as under: "4.5 I have gone through the facts of the case and the written submissions filed by the appellant. It is noted that the AO considered that during the relevant year, the appellant disclosed lower profits compared to last year by 1% even though the quantity of sale has increased and appellant took up production and sale of items like Gajjak and Revari too besides Namkeen Dals in earlier year. Accordingly, the AO adopting the output ratio for Namkeens and Gajjak, as furnished by the appellant itself in assessment proc....
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....lves. In other words, it has been submitted that even where the production is determined at 95% of raw material and other input cost, it cannot be expected that whole of the production has been sold and the assessee has derived income outside of the books of accounts. We find that in the instant case, the AO basis the yield working of raw material and other input cost has determined the expected level of production of finished goods and comparing the said figure and figures of sales shown by the assessee has held that the differential is nothing but sales which has been effected by the assessee outside the books of accounts. Besides the said yield working, there is no other direct or corroborative evidence on record that the assessee has carried out sales outside the books of accounts. Even the ld CIT(A) has returned a finding in para 4.2 of the impugned order that the AO has inferred that difference in quantity of Gajjak which is undisclosed production was sold by the assessee but the sale proceeds based on average sale price were not entered in the books of accounts and similar finding has been recorded in respect of Namkeen. There is thus an inference which has been drawn by the....