2023 (6) TMI 1022 - AT - Income Tax

Unaccounted sale of Gajjak, Makhane and Namkeen - rejection of books of accounts - Whether there is any single evidence on record to prove that the assessee has made any sale out of books? - HELD THAT - 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. Shortage has been equated with undisclosed sales basely solely on yield ratio. In our view, no doubt yield ratio is one of the guiding factors which needs to be considered for determining appropriate level of production but at the same time, to equate production with sales, there has to be something more in terms of positive evidence in form of unrecorded sales realization which has not been entered in the regular books of accounts which is apparently absent and not available on record. Alternatively, the explanation of the assessee that being food items, it is inherent that there would be pilferage, wastages and more importantly, there is a expiry date of three months under FSSAI Act beyond which these foods items are not worthy of human consumption and have to be taken off the shelves needs to be rebutted which has again not happened in the instant case. There is no justifiable basis for making the addition and the same is hereby directed to be deleted. Addition on account of excess consumption of Diesel - HELD THAT - As assessee started production of Gajjak during the year and for the purposes, has used diesel bhatties and therefore, comparison of diesel consumption via-a-vis last year is not correct in absence of suitable adjustments which has not happened in the instant case. Assessee has produced the invoices for diesel purchase in respect of which the payments have been made through the banking channel. There is thus complete documentation in support of diesel consumption which is placed on record and no defect has been pointed out by the AO. In any case, where the overall books of accounts have been rejected, there is no basis for making the individual addition relying on the same books of accounts and all the AO is required to do is estimate appropriate level of profit based on some rational basis and which has not happened in the instant case. Addition is hereby directed to be deleted. Assessee appeal allowed.

Summary

Issues Involved:
1. Addition on account of unaccounted sale of Gajjak, Makhane, and Namkeen.
2. Addition on account of excess consumption of Diesel.

Summary:

Issue 1: Addition on Account of Unaccounted Sale of Gajjak, Makhane, and Namkeen
The Assessee appealed against the order of the Ld. CIT(A) confirming the additions of Rs. 2,62,906/- and Rs. 7,95,750/- for unaccounted sales. The AO had rejected the books of accounts under section 145(3) of the Act, alleging that 0.63% of total sales were unrecorded. The Assessee argued that the AO's findings were based on assumptions without documentary evidence and that the input-output ratio varies due to factors like quality of raw materials, skill of labor, and weather conditions. The Tribunal observed that the AO's determination was based solely on the yield ratio without any corroborative evidence of unrecorded sales. The Tribunal noted the inherent pilferage, wastage, and expiry concerns for food items like Gajjak and Namkeen, which were not rebutted by the AO. Consequently, the Tribunal directed the deletion of the additions of Rs. 2,62,906/- and Rs. 7,95,750/-.

Issue 2: Addition on Account of Excess Consumption of Diesel
The Assessee contested the addition of Rs. 5,57,350/- for excess diesel consumption. The AO had compared diesel consumption with the previous year without considering the introduction of Gajjak production, which consumes more diesel. The Assessee provided invoices for diesel purchases, all paid through banking channels. The Tribunal found that the AO did not point out any defects in the documentation. It was also noted that once the books of accounts are rejected, individual additions relying on the same books are not justified. The Tribunal directed the deletion of the addition of Rs. 5,57,350/-.

Conclusion:
The Tribunal allowed the appeal of the Assessee, directing the deletion of the additions on account of unaccounted sales and excess diesel consumption. The other contentions related to the rejection of books of accounts were dismissed as infructuous.