2019 (9) TMI 1055 - AT - Income Tax

Addition on account of low GP shown by the assessee - Sales could be estimated if the books of accounts of the assessee are rejected - HELD THAT - The assessee has pointed out that accounts of the assessee-company is subject to statutory as well as tax audit, and its books are duly audited and the AO has not rejected the books of accounts. AO has nowhere expressed his inability to deduce true income from the accounts. The assessee has also pleaded that it is a sick company, facing acute shortage of funds and its loan account with consortium of bankers also became NPA; banks have filed recovery suit and they have also assigned the debt of the company in favour of the Asset Reconstruction Company i.e. Asrec India Ltd. AO has only compared certain figures of raw-material vis- -vis output without comprehending other aspects for consumption of other material as well as achievement of sales. Some of the item may be lying in the closing stock or in semi-finished products. All sorts of such aspects have not been considered by the ld.AO while estimating unaccounted sales. On the other hand, the ld.CIT(A) has appreciated the facts in right perspective and no addition is called for on this issue - Decided in favour of assessee. Addition of power and fuel expenses - assessee was not following proper method of accounting and claiming the expenses as per its benefits - HELD THAT - AO has not given any reasons for making such a huge disallowance without going into the reasons. Neither any bogus claims have been proved nor it was proved why those store items were to be transferred to CWIP R D expenses and those were not the revenue expenditures. Merely some items in the preceding year were debited to the CWIP - R D expenses do not indicate that the same nature of expenditures have been incurred in the year under consideration also. ' Since there was no question on the genuineness of the expenditures and hence there allowability cannot be doubted. When the appellant himself bonafidely transferred some stores and spares expenses to CWIP R D in the preceding year than in the year under consideration with the same bonafides he has not transferred the same because those were not required to do so. It was the onus on the appellant to disprove the appellant's stand which he has not discharged. Further neither the AO has proved that the expenditures were not made for the purpose of business. In view of the aforesaid discussion, the disallowance made by the A.O. is found not justified and hence same is deleted - Decided in favour of assessee.

Summary

Issues Involved:
1. Dismissal of Cross Objection (CO) filed by the assessee.
2. Deletion of addition of ?2,98,78,393/- on account of low Gross Profit (GP) shown by the assessee.
3. Deletion of addition of ?23,76,828/- towards power and fuel expenses.

Detailed Analysis:

1. Dismissal of Cross Objection (CO) filed by the assessee:
At the time of hearing, the counsel for the assessee did not press the CO, leading to its dismissal.

2. Deletion of addition of ?2,98,78,393/- on account of low Gross Profit (GP) shown by the assessee:
- Facts of the Case: The assessee filed a return declaring a total loss of ?4,93,03,952/-. The Assessing Officer (AO) observed that the assessee's material consumption ratio increased slightly compared to the previous year. Based on this, the AO estimated the sales that should have been achieved and treated the difference of ?3,04,78,393/- as sales outside the books of accounts, making an addition of the same amount.

- CIT(A) Findings: The CIT(A) re-appreciated the facts and found that the AO's calculation was flawed as it did not consider the opening and closing stock of semi-finished and finished goods. The CIT(A) noted that the AO did not reject the books of accounts under Section 145(3) of the Income Tax Act and did not provide any independent evidence of unaccounted sales. The CIT(A) partially allowed the ground by confirming a lumpsum disallowance of ?6,00,000/- instead of the entire addition made by the AO.

- Tribunal's Decision: The Tribunal upheld the CIT(A)'s order, stating that the AO did not reject the books of accounts nor did he express his inability to deduce true income from the accounts. The Tribunal emphasized that the AO's estimation was based on incomplete consideration of facts, such as the company's financial distress and the non-rejection of books of accounts. The Tribunal found no reason to interfere with the CIT(A)'s decision to delete the addition.

3. Deletion of addition of ?23,76,828/- towards power and fuel expenses:
- Facts of the Case: The AO disallowed ?23,76,828/- out of the total power and fuel expenses of ?73,44,543/- on the grounds that the assessee was not following a proper method of accounting and was claiming expenses for its benefit.

- CIT(A) Findings: The CIT(A) noted that the AO did not provide any specific reasons or evidence for the disallowance. The CIT(A) observed that the AO failed to prove that the expenses were not for business purposes or that they were bogus. The CIT(A) found the disallowance unjustified and deleted it.

- Tribunal's Decision: The Tribunal agreed with the CIT(A)'s findings, noting that the AO did not refer to any material evidence to justify the disallowance. The Tribunal found no error in the CIT(A)'s order and upheld the deletion of the disallowance.

Conclusion:
The Tribunal dismissed both the Revenue's appeal and the assessee's Cross Objection. The Tribunal upheld the CIT(A)'s decisions to delete the additions made by the AO on account of low GP and power and fuel expenses, finding the AO's actions unjustified and unsupported by adequate evidence. The Tribunal emphasized the importance of proper rejection of books under Section 145(3) before making estimations or disallowances.