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2018 (12) TMI 1260 - AT - Income TaxAddition on account of suppression of production - AO has made comparison of net profit ratio shown during the year under consideration at 1.64% with the net profit ratio of 1.77% shown in the immediate preceding year - Held that - There cannot be a standardizations or uniformity of sugar consumption in these nature of products, and therefore method adopted by the AO to club all the products together and standarise consumption of sugar at a particular quantity is not correct method. The ld.CIT(A) has dealt with both the aspects viz. consumption of papaiya and sugar for different products manufactured by the assessee and arrived at a just conclusion that the approach of the AO in estimating the production was not correct. CIT(A) has recorded a finding that consumption of raw material varies from product to product, which passes through different stages. For determination of total production, all products and raw-material cannot be clubbed together to arrive at standard or a uniform quantity, because the assessee is manufacturing different products having different recipe with common raw-material. The ld.CIT(A) has appreciated the facts in right perspective and restricted the addition to ₹ 10,00,000/-. We do not find any infirmity in the order of the ld.CIT(A), which we confirm and reject the grounds of appeal of the Revenue.
Issues Involved:
1. Whether the CIT(A) erred in restricting the addition for suppression of production from ?1,47,96,500/- to ?10,00,000/-. 2. Whether the rejection of the assessee's book results under section 145(2) of the Income Tax Act was justified. 3. Whether the CIT(A) correctly admitted additional evidence without adhering to Rule 46A(1) of the Income Tax Rules. Issue-Wise Detailed Analysis: 1. Restriction of Addition for Suppression of Production: The Revenue contended that the CIT(A) erred in reducing the addition for suppression of production from ?1,47,96,500/- to ?10,00,000/-. The AO had determined the suppression based on a comparison of production and consumption ratios of raw materials (papaiya and sugar) between the financial years 2010-11 and 2011-12. The AO noted discrepancies in the production figures, leading to an estimated suppression of 1,47,965 kg of products, valued at ?100 per kg, totaling ?1,47,96,500/-. The CIT(A), however, found the AO's methodology flawed, noting that the quality and yield of raw materials like papaiya and sugar vary significantly, and thus, a standardized comparison was inappropriate. The CIT(A) highlighted that the assessee produced different food products with varying recipes, which affected raw material consumption differently. The CIT(A) upheld the rejection of books under section 145(2) but reduced the addition to ?10,00,000/- based on a more reasonable estimation of discrepancies in sugar consumption. 2. Rejection of Book Results: The AO rejected the assessee’s book results under section 145(2) due to inconsistencies in production and consumption figures and the failure to maintain detailed records for raw material usage per product. The CIT(A) upheld this rejection, agreeing that the assessee did not maintain verifiable records for raw material issuance and consumption for different products. This lack of detailed records justified the AO's decision to reject the books. 3. Admission of Additional Evidence by CIT(A): The Revenue argued that the CIT(A) improperly admitted additional evidence without adhering to Rule 46A(1) of the Income Tax Rules. The CIT(A) considered additional details provided by the assessee regarding the purchase and consumption of raw materials, which the AO had overlooked. The CIT(A) justified this by stating that the AO ignored the variations in raw material quality and the different stages of production, which were crucial for a fair assessment. Conclusion: The Tribunal, after considering the submissions and reviewing the records, agreed with the CIT(A)’s findings. It noted that the gross profit for the year under consideration was higher than the previous year, and the AO’s method of estimating suppressed production was not appropriate due to the varying nature of the products and raw materials used. The Tribunal upheld the CIT(A)’s decision to restrict the addition to ?10,00,000/- and confirmed the rejection of the book results under section 145(2). The appeal by the Revenue and the cross objection by the assessee were both dismissed. Order Pronouncement: The order was pronounced in the Court on 20th December 2018.
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