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TMI Blog2012 (3) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 267/Chd/2011 respectively are directed against the order of the learned Commissioner of Income-tax (Appeals), Patiala, dated January 24, 2011, passed under section 250(6) of the Income-tax Act, 1961 (hereinafter referred to, in short as "the Act"). In its appeal, the assessee has raised the following grounds : "1. The observation of the learned Commissioner of Income-tax (Appeals) that Shri Yash Paul Goyal has persistently elongated the proceedings by seeking numerous opportunities is against facts and law. 2. The observation of the learned Commissioner of Income-tax (Appeals) that the appellant throughout the appellate proceedings resorted to 'running with the hare and hunting with the hounds' is uncalled for in the facts and circumstances of the case. 3. The learned Commissioner of Income-tax (Appeals) has erred both on facts and law in confirming the rejection of accounts books under section 145(3) on the ground that no stock registers were maintained. 4. The learned Commissioner of Income-tax (Appeals) has erred in confirming addition of Rs. 74,62,190 on account of unaccounted production and sale when there is not a single instance of unaccounted purchase or sale. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax (Appeals), in his order, in paragraph 5.1. In sum and substance these discrepancies pertain to uneven consumption of electricity, in the production of paper. The Assessing Officer observed that the assessee had shown per metric consumption of electricity, for the financial year 2005-06, at 638.9 units while in the financial year 2006-07, the per MT consumption of electricity was 803.2 units. The Assessing Officer also noticed that the nature, quality and material used during the year under consideration, was the same as that of the last year. The Assessing Officer also observed steep rise in consumption of electricity per MT, in the financial year 2006-07 vis-a-vis shown by the assessee in the financial year 2005-06. No explanation was filed by the assessee in the matter. Further, the Assessing Officer pointed out that the assessee failed to maintain record of month wise consumption of chemicals or consumables which made it difficult for the Assessing Officer to verify the manufacturing results. No stock register was maintained for phuk which was main input for generating steam in the boiler. The Assessing Officer, further, noticed that total production of paper for the finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. He has admitted that no stock register was maintained for many of the consumables. The presence or absence of stock register is one of the relevant aspects to be taken into account in considering the acceptability of the book results as held in CIT v. Pareck Brothers [1987] 167 ITR 344 (Patna). Further the absence of stock register is one of the material grounds for rejection of the books as held in CIT v. British Paints India Ltd. [1999] 188 ITR 44 (SC). It is correct to say that it was not possible for the Assessing Officer to deduce the true profits of the business and profession carried on by the appellant from the state of affairs prevailing and that too without a stock register. The books of account being in such a state the Assessing Officer was within his rights not to accept the figures returned. In all the factors and circumstances that have been mentioned by the Assessing Officer, it is clear that all was not well with the books of account. In view of all these variations, discrepancies pointed out by the Assessing Officer and the rival contention of counsel for the appellant I find that the Assessing Officer has drawn a very reasonable inference that the higher consu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the basis of grounds of appeal taken before the worthy Commissioner of Income-tax (Appeals) as under: (i) Regarding first two grounds of appeal, which relate to the observation made by the Commissioner of Income-tax (Appeals) in paragraph 3 of the order, we have given our comments at pages 1 and 2 of our submissions and briefly, it is stated there was never any chance, where the counsel of the assessee had tried to delay the proceedings by taking dates and the order of the Commissioner of Income-tax (Appeals) itself speaks about the fact that besides, the written submissions made by counsel of the appellant, there were two remand reports for which further replies were given along with relevant annexures, wherever, required in order to prove the case of the assessee that the additions as made by the Assessing Officer were not justified. The observation of the Commissioner of Income-tax (Appeals) are really painful and, therefore, it is prayed that such observations as made by the Commissioner of Income-tax (Appeals) be ignored, since it is against the factual facts and circumstances and even not borne out from the records. We are filing separately the details of order sheet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or increase in the electricity units was explained to the Assessing Officer as per letter, dated December 28, 2009 placed at paper book pages 56 to 58 read with reply dated December 30, 2009 placed at paper book pages 50 to 55. Our load had increased from 990 KWs to 2450 KWs on April 19, 2006 (immediately at the beginning of the year) as placed at pages 184A of the paper book. The production capacity had increased from 7300 MT to 18250 MT as placed at paper book page 66 and in this year the total production was 13948.5820 MT giving an increase by 78.96 per cent. New plant and machinery worth Rs. 2.61 crores installed and put to use during the year. Refer to page 269 of the paper book. The electric motor and equipment worth Rs.1.55 crores installed and put to use during the year. Page 269 of paper book. Boiler under fabrication/installation valuing to the tune of Rs. 2,28,90,151 shown at page 284 of the paper book and for which electricity had been used. The machinery and other equipment required installation for which usage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court in large number of cases wherein it has been held that no excessive production can be estimated on the basis of higher electricity consumption. Copy enclosed in the judgment set. No case is made out by the Central Excise Department for higher production in respect of alleged excessive consumption of electricity. Even no case is made out by the Sales Tax Department for any sales outside the books and the Central excise audit also completed for the year under consideration and no adverse view was taken. Since, we had installed the new machinery during the year, some trial runs had to be made and which had led to increase in the consumption of electricity has totally been ignored by the Assessing Officer/learned Commissioner of Income-tax (Appeals). 2. Non-maintenance of stock regis-ter for steam, chemicals and consumables There are no consumables at all and only chemicals are there. The steam is being purchased from M/s. Vishal Cotton Ltd. and no doubt has cast upon that by the Assessing Officer and such purchases have been made from sister concern. It is practically impossible to maintain stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been disputed by the Assessing Officer and the learned Commissioner of Income-tax (Appeals) either in the (sic) 4 Reference and our comment on the judgment by the learned Commissioner of Income-tax (Appeals) and our reliance on judgments Reliance by the Commissioner of Income-tax on certain case laws of British Paints India Ltd. reported in [1999] 188 ITR 44 (SC) and on the judgment of Patna High Court in the case of CIT v. Pareck Brothers reported in [1987] 167 ITR 344 (Patna). The reliance by the learned Commissioner of Income-tax (Appeals) is totally improper. The judgment of British Paints India Ltd. [1999] 188 ITR 44 (SC) deals with method of accounting and the judgment as reported in Pareck Brothers [1987] 167 ITR 344 (Patna), wherein the facts are absolutely different in the sense, that no purchase detail were there and no stock register was maintained. In our case, day to day stock register of waste paper is maintained and opening and closing stock details are there and no defects were pointed out therein. We rely upon the following judgment that rejection of books cannot be made in the circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Our explanation of increase in the electricity units has not been proved to be wrong either by the Assessing Officer or the Commissioner of Income-tax. The increase in the electricity units are supported by facts and figures and charts, and thus there cannot be any wild guess for assuming the unaccounted production and there cannot be any, alleged capital investment on such unaccounted production. Reliance on the judgment of the Rajasthan High Court in the case of CIT v. Dr. A. P. Bahal reported in [2010] 322 ITR 71 (Raj) (copy enclosed in the judgment set). Reliance on the judgment of the Gujarat High Court as reported in CIT v. Gurubachhan Singh J. Juneja [2008] 302 ITR 63 (Guj) on this issue. Page 185 of the paper book. Reliance on the written submissions placed at pages 1 to 13 of the paper book. 6 Ground No. 6, deduction under section 80-IB 1. The Assessing Officer has allowed the deduction under section 80-IB on the book profit but in the addition made by him, which has been assessed as business income. It has been stated that he should have allowed the deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance by the Assessing Officer on the judgment of the hon ble Supreme Court has been distinguished at pages 27 to 29 and other judgment applicable to the facts of our case have been dealt at pages 30 and 31 of the paper book. In fact, submissions for case law have again been supported at pages 31, 42, 43 and 44. Departmental appeal The ground No. 1 is with regard to the deduction of interest under section 36(1)(iii) on borrowed capital used to acquire new assets. The Assessing Officer has discussed this issue at pages 39 to 44 of the order and the learned Commissioner of Income-tax (Appeals) has deleted the addition and he has discussed this issue in paragraphs 8.1 and 8.2 and finding has been given in paragraphs 8.6 and 8.7. Our submissions are at pages 39 to 41. Even the Assessing Officer has adopted the incorrect figures which had been dealt with at page 41 of the paper book. It is an undisputed fact that no specific loan has been raised for purchase of machinery and at page 280, there are no secured loans of MTL and reliance is being placed on the judgment as cited before the learned Commissioner of Income-tax (Appeals) and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from the electricity department placed at page 300 of the paper book. It was, further, pointed out that the boiler under fabrication of Rs. 2,28,90,151 (paper book page 124) was installed, which led to increase in electricity consumption. The learned authorised representative for the assessee, further pointed out that the findings of the learned Commissioner of Income tax (Appeals), in paragraph 5.6 does not dispute the explanation given by the assessee, in the matter. However, the observations of the learned Commissioner of Income-tax (Appeals), are purely general in nature and no co-relation had been established between electricity consumption and production of the goods. Therefore, the findings of the learned Commissioner of Income-tax (Appeals), are not in consonance with the factual position of the case. The assessee placed reliance on the decision of the hon'ble Supreme Court, wherein it has been held that no excessive production can be estimated, on the basis of higher electric consumption. It was, argued that no case is made out by the Central Excise Department, for higher production, in respect of alleged excessive consumption of electricity. It was, further, argued that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income-tax Act and free from any qualification by the auditors, should be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable-For rejecting the books of account, it is the Revenue's onus to prove that either the books of account maintained by the assessee are not correct and complete or the method of accounting adopted is such that true profit cannot be deducted therefrom. (c) International Forest Co. v. CIT [1975] 101 ITR 721 (J K) Accounts-Rejection-Omission of sale in books of account-Estimated addition by ITO-In absence of any omission, irregularity or other defect in method of accounting or positive evidence to show that accounts did not disclose the whole income of assessee, account books cannot be rejected. (d) CIT v. Om Overseas [2009] 315 ITR 185 (P H) Accounts-Rejection-Absence of specific defect-Assessing Officer rejected assessee's books of account and made addition by applying GP rate of 27 per cent. as against 25.38 per cent. shown by the assessee-Commissioner of Income-tax (Appeals) has given a finding of fact that the addition was made by the Assessing Officer without pointing out any specific defect in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ragraph 5.7 are reproduced hereunder:- "5.7 As stated earlier the Assessing Officer in his latest remand report dated January 17, 2011 has afresh determined the unaccounted production for 3047 MT instead of 5008 MT taken earlier on the basis of July and October, 2006 figures of electricity consumption. These figures are as per latest confirmations made from PSEB authorities. He has also stated that the sale rate of Rs. 22,390 per MT be taken to calculate the unaccounted production. During discussions with him he accepts that there is an element of excise duty included in the sale rate. In case the benefit of excluding this excise duty element in the sale price is given then the sale price would be Rs. 20,223 per MT. After applying the correct GP rate of 12.11 per cent. (against 12.5 per cent. taken by the Assessing Officer in his assessment order) the value of unaccounted production would be reduced to Rs. 74,62,119. Addition to this extent only needs to be sustained and balance relief allowed to the appellant." We have considered the rival submissions, facts of the case and relevant record. The learned Commissioner of Income-tax (Appeals) had adjudicated ground No. 4 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Dr. A. P. Bahal [2010] 322 ITR 71 (Raj) the hon'ble Rajasthan High Court held that the question that the Assessing Officer rejected books of account of the assessee and main judgment under section 145 of the Act making certain additions under different heads. The Commissioner deleted certain additions. The Tribunal upheld the order of the learned Commissioner of Income-tax (Appeals). The Tribunal upheld the order passed by the Commissioner (Appeals) and the Tribunal's findings were questions of fact and would not tantamount to any substantial question of law. The hon'ble Gujarat High Court in the case of CIT v. Gurubachhan Singh J. Juneja [2008] 302 ITR 63 (Guj) held that in the absence of any material on record, to show that there was any unexplained investment made by the assessee which was reflected by the alleged unaccounted sales, the finding of the Tribunal that only gross profit on the said amount can be brought to tax, does not call for any interference. The decision of the hon'ble Supreme Court, in the case of CST v. H. M. Esufali Abdulali [1973] 90 ITR 271 (SC), is relevant in the instant case. In this case, there was detection of sales for 19 days not entered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .Velukutty [1966] 60 ITR 239 (SC) held that it is necessary for existence of reasonable nexus to the available material, for making best judgment assessment. The Assessing Officer cannot make estimate without any support of any foundational facts. In the present case, the learned Commissioner of Income-tax (Appeals) presumed that consumption of higher electricity would directly and invariably lead to the higher production, not accounted for by the assessee in his books of account. There is fundamental fallacy in the conclusions and findings of the learned Commissioner of Income-tax (Appeals) in attributing unaccounted production, to such sole factor. The learned Commissioner of Income-tax (Appeals), failed to bring on record, to demonstrate that the assessee indulged in the purchases of raw material outside the books of account and sales of the manufactured goods outside the books of account allegedly produced by way of higher consumption of electricity. In the real manufacturing world, there is hardly any direct and uniform correlation with consumption of electricity and production of manufactured goods. Having regard to the above legal and factual discussions, we do not find an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner of Income-tax (Appeals) sustained addition to the extent of Rs. 12,43,686. We have carefully perused the rival submissions, facts of the case and relevant records. In this context, the findings given by us on ground No. 4, pertaining to the addition made by the Assessing Officer and upheld by the learned Commissioner of Income-tax (Appeals), in respect of unaccounted production are relevant and applicable, to this ground of appeal, being directly linked to each other. We have deleted the addition made by the learned Commissioner of Income-tax (Appeals), in the context of unaccounted production, based on higher consumption of electricity on the ground of non-existence of corroborative and cogent evidence and other factors as recorded in our above findings in respect of ground No. 4. The issue raised in ground No. 5 is directly linked to the issue raised in ground No. 4. This ground of appeal is directly an off-shoot of the addition made by the Assessing Officer and upheld by the learned Commissioner of Income-tax (Appeals) in respect of unaccounted production. Therefore, such addition made by the Assessing Officer and sustained by the learned Commissioner of Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits and gains of business. Since, the entire profits of the business are entitled for 100 per cent. deduction, the addition on account of such discrepancy will only result in the enhancement of income of the business and would be entitle for such deduction. In the present case, the assessee is eligible for deduc- tion under section 80-IB of the Act. Therefore, any addition to the income of the present appellant would entitle him enhanced deduction. Both the Assessing Officer and the learned Commissioner of Income-tax (Appeals) misconceived the issue in question. In view of this, the findings of the learned Commissioner of Income-tax (Appeals) cannot be held. This ground of appeal of the appellant is allowed. In ground No. 7, the assessee contended that the learned Commissioner of Income-tax (Appeals), erred in confirming the addition of Rs. 45,22,937, on the ground that out of the expenses debited under the head "Repair and maintenance account" expenses worth Rs. 45,22,937 were of capital nature. The issue in question is that the Assessing Officer disallowed certain expenses incurred on repair and maintenance as capital in nature. The assessee contended that having regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te adjudication, hence, the same is dismissed. In the result, appeal of the assessee is partly allowed. I. T. A. No. 267/Chd/2011-Revenue's Appeal In ground No. 1, the Revenue contended that the learned Commissioner of Income-tax (Appeals) erred in deleting the addition of Rs. 15,61,828, made by the Assessing Officer, on account of disallowance of interest under section 36(1)(iii) of the Act, on borrowed capital without appreciating the fact that the same asset was not put to use. We have perused the rival submissions, facts of the case, relevant record and the paper book. The learned Departmental representative for the Revenue placed reliance on the order of the Assessing Officer. The learned authorised representative for the assessee contended that the Assessing Officer adopted incorrect figures which have been dealt with at page 41 of the paper book. It was, further, argued by the learned authorised representative for the assessee that it is undisputed fact that no specific loan has been raised, for the purchase of machinery, as is evident from page 280 of the paper book. The assessee placed reliance on the decision of the Chandigarh Tribunal in the case of Upper India S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business CIT v. Associated Fibre and Rubber Industries P. Ltd. [1999] 236 ITR 471 (SC). In view of this discussion made the addition made by the Assessing Officer needs to be deleted". This is undisputed fact that the interest has been paid by the assessee, as is evident from perusal of the profit and loss account, as mentioned by the Assessing Officer. It is also undisputed fact that the assessee had purchased assets. Therefore, the provisions of section 36(1)(iii) and proviso thereunder, which is inserted with effect from April 1, 2004 vide Finance Act, 2003 are applicable. It is evident that the interest on borrowed capital cannot be allowed unless such asset was first put to use. In the present case, the learned Commissioner of Income-tax (Appeals), has placed reliance on the decision of the hon'ble Supreme Court in the case of Associated Fibre and Rubber Industries P. Ltd. [1999] 236 ITR 471 (SC) which relates to period prior to the insertion of the proviso to section 36(1)(iii) of the Act. We are dealing with the assessment year 2007-08 which falls under the proviso to section 36(1)(iii). In this context, the hon'ble Supreme Court pointed out in a batch of cases in Asst. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the assessment order whereas the learned authorised representative for the assessee contended that there is neither contract nor the assessee supplied any material, to the persons from whom the material is being purchased. It is simply a case of purchases from other parties and all the invoices are raised as per Punjab VAT Act. There is no job work involved. The assessee placed reliance on the decision of the hon'ble jurisdictional High Court reported in Deputy Chief Accounts Officer, Markfed, Khanna [2008] 304 ITR 17 (P H). The assessee, further, relied on the written submissions made before the learned Commissioner of Income-tax (Appeals) as per pages 42 to 48 of the paper book. The findings of the learned Commissioner of Income-tax (Appeals) as contained in paragraph 10.5 are reproduced hereunder : "10.5 I have considered the facts of the case and the rival contentions. The main question in dispute in this case is whether the supply of packing material with pre-printed labels to the appellant is a simple case of 'contract for sale of goods' or 'work contract'. The party named by the Assessing Officer in his order is an independent manufacturer of different printed and pac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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