2005 (6) TMI 204 - AT - Income Tax

Unaccounted sales of milk and addition made on account of other milk products - audit report furnished u/s 44AB - HELD THAT - We find that the AO has not pointed out any specific defects in the books of account maintained by the assessee whereas, the assessee maintained regular books of account which are subject to tax audit u/s 44AB. We find that the case under consideration does not fall in any category of circumstances under which the AO can acquire the power u/s 145. The AO has made the addition merely on the presumption/assumption as the assessee failed to explain a peculiar type of query of AO regarding consumption. It has also been noticed that the AO did not find any material or evidence that the assessee had made sale out of the books of account. It is settled position of law that on the basis of conjectures, surmises and pure guesswork the addition is not sustainable. On the contrary we find that the assessee has maintained regular books of account and net gain or shortage in process shown by the assessee in other years has been accepted by the Department as evident from the chart, reproduced. Thus, we are of the considered view that the AO is not justified in making impugned additions. We accordingly delete the addition made on account of unaccounted sales of milk and addition made on account of other milk products. In the result, the appeal is partly allowed.

Summary

Issues:
1. Addition on account of alleged unaccounted sales in milk.
2. Addition on account of alleged shortage on account of ghee, shreekhand, butter, milk.
3. Disallowance of presentation of articles.
4. Disallowance of entertainment expenses under s. 37(2) of the Act.
5. Disallowance of depreciation on godown.

1. Unaccounted Sales in Milk:
The AO made additions for unaccounted sales in milk and other milk products based on discrepancies in the quantity details maintained by the assessee. The AO observed a shortage of ghee and milk, adding the value of the alleged missing quantity to the total income of the assessee. However, the Authorized Representative argued that the books of account were maintained following accepted accounting principles and were subject to tax audit under s. 44AB. The Tribunal noted that the AO did not identify any defects in the books of account and made additions based on assumptions. Considering the assessee's consistent maintenance of regular books of account and accepted net gain/shortage in previous years, the Tribunal held the additions unjustified and deleted the amounts added for unaccounted sales in milk and other milk products.

2. Disallowance of Presentation of Articles and Entertainment Expenses:
The Tribunal dismissed the disallowance of presentation of articles and entertainment expenses under s. 37(2) of the Act as the Authorized Representative did not press these grounds, indicating that necessary relief had already been granted by the Department. Therefore, these grounds were not further considered.

3. Disallowance of Depreciation on Godown:
The Tribunal did not address the disallowance of depreciation on the godown as the Authorized Representative did not press this ground, and relief had already been granted by the Department. Consequently, this ground was dismissed as not pressed.

In conclusion, the Tribunal partially allowed the appeal, deleting the additions made on account of unaccounted sales in milk and other milk products. The Tribunal emphasized the importance of adherence to accounting principles and the necessity for the AO to establish specific defects before making additions based on assumptions. The decision highlights the significance of maintaining regular books of account and the requirement for justifiable explanations for any discrepancies noted during assessments.