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TMI Blog2018 (1) TMI 887X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1961. 2. Whether in law and on facts and circumstances of the case, the CIT(A) has erred in deleting the addition of ₹ 18,86,815/- made by the AO on account of indirect expenses by invoking provisions of section 145(3) of the I.T.Act, 1961. 3. Whether in law and on facts and circumstances of the case, the CIT(A) has erred in deleting the disallowance of ₹ 3,69,635/- made by the AO on account of depreciation on crane. 3. At the outset, ld A.R. of the assessee contended that the CIT(A) has not upheld the action of the Assessing Officer in rejecting books of account u/sx.145(3) of the Act on the ground that merely because the quantity of raw material consumed and finished goods produced have been quantified with some degree of estimation, the books of account cannot be said to be unreliable or prone to rejection. Against the above findings of the CITA), the department has come up in appeal. He submitted that when the CIT(A) has considered that the books of account of the assessee is correct, there should not be any estimation to the income is not tenable by the Assessing Officer. He submitted that the CIT(A) has properly appreciated the facts and delet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the earlier years, there was no justification on part of AO to reject book results of assessee and make addition on account of low net profit, hi the case of CIT vs. Smt Poonam Rani (2010) 41 DTR (Del) 194 ; (2010) 326 1TR 223 : (2010) 192 Taxman 167, it was held that the AO has not pointed out any particular defect or discrepancy in the books of account maintained by the assessee CIT(A) was satisfied that the appellant had furnished complete details, including quantitative data in respect of purchase of raw material, manufacture of copper wire and sale of finished products. Thus, the accounts maintained by the assessee cannot be said to be incomplete or inaccurate. 6.1 It is a matter on record that the appellant has maintained quantitative records of raw material consumed and finished product produced. The books of accounts were subject to tax audit which was produced before the A.O. together with bills and vouchers and the same was examined by test check. The A.O. has not come across any material defect in account so as to hold that any profit has been suppressed. The appellant has satisfactorily explained that there was no decline in GP rate as alleged by the A.O and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n what was declared in the account books. From the Tax Audit Report, it is discernible that the appellant did maintain stock records and the A.O has not pointed out any incorrectness in the same, I am of the considered opinion that merely because the quantity of raw material consumed and finished goods produced have been quantified with some degree of estimation the books of account cannot be said to be unreliable or prone to rejection. 6.4 As assessment has to be completed on the basis of records and material available before the AO and personal knowledge and excitement on events and extraneous facts should not lead the AO to a State of affairs where the salient/primary/direct evidences are overlooked and should not influence the AO for resorting to adhoc additions/disallowances. 6.5 In a case where the transactions of the appellant have been accounted, documented and supported by the material evidences for deriving logical conclusions, without proving falsity of the same, adhoc additions/disallowances should not be made by the AO in a routine manner merely on presumption, probabilities, suspicion and surmises since the same action of the AO degenerates the spirit for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejection of books of account merely because appellant has not maintained stock register, without pointing out any specific defects in books of account of any nature whatsoever, could not be said to be justified. Such adhoc addition is also unsustainable in view of the decision of the Hon'ble High Court of Gujarat in CIT Vs. Sanjay OH Cake Industries (2005) 197 CTR (Guj) 520 wherein it was held that the A.O having not pointed out any specific omission or suppression in the assessee's books of account nor the excise or sales tax authorities having found any discrepancy or irregularity in the maintenance of stock and records, addition made on account of suppressed production and sales could not be sustained. 6.11 It is gathered that the disallowance out of direct expense i.e., raw materials and manufacturing expense was made by the AO considering it excessive in comparison to the sales. The very basis of disallowance is incorrect. As rightly contended by the appellant, the raw material and manufacturing expenses is related to production and not with sale. The production has increase from 43309 MT to 46058 MT whereas the expenses on account of raw materials and manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on expenses were disproportionately increased. The AO has not come across any single instance where the expenditure claimed in cash is unverifiable or overstated. It is a prevailing practice in the business to make payment in cash on account of various expenses of petty amount. In my considered view, payment of cash for business expenditure and disproportionate increase in expenses cannot be the ground in itself for making disallowances. Increase in salary or commission also cannot be a ground for its disallowance, unless it is proved that those expenses were not for the purpose of the business. The increase in expenses may provoke enquiries but cannot be a reason for disallowance. In the case of Susee Auto Plaza Pvt. Ltd. vs. Addl. CIT (2010) 3 ITR (Trib.) 166 (Chennai), it was held that disallowance of administrative expenses based on working of percentage and comparison with other assessment years, was not a valid method for making disallowance without seeking any farther enquiry. In the case of Assistant Commissioner of Income Tax vs. Rama Kishan Verma (2012) 147 TTJ (Jp)(UO) 1, it was held that disallowance cannot be made on the ground that payments were made in cash. No evide ..... X X X X Extracts X X X X X X X X Extracts X X X X
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