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TMI Blog2018 (6) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... s profit. 3. The Ld. CIT(A) has erred in law and on facts by not appreciating the material facts brought on record by the AO in the assessment order. 4. On the facts and circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the AO. 5. It is therefore, prayed that the order of the Ld. CIT(A) may be set-aside and that of the AO be restored." 3. The issues raised by the Revenue are inter-connected to each other therefore we have clubbed all of them for the purpose of adjudication and brevity. 4. The Revenue in this appeal has challenged the deletion of the addition made by the AO on account of suppression of production leading to the suppression of sale as well as determination of gross profit on estimated basis. 5. Briefly stated facts are that the assessee in the present case is a Private Limited Company and engaged in the manufacturing business of S. S. Cold Rolled Coils/Strips and Generation of Power. There was a survey at the factory premises of the assessee located at 245-246, Village Sari, Ahmedabad Bawla-Highway, Ahmedabad dated 21-01-2015. During the survey proceedings, the statement of production manager Shri N. Anantha Padmanabhan was recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed all the expenses against the suppressed sale which is leading to fall in the GP ratio. Thus, the AO further observed that the financial statements are not reflecting the true and correct income of the assessee. Accordingly as per the AO the books of accounts of the assessee are liable for rejection u/s 145(3) of the Act. Finally, the AO after rejecting the books of accounts held that the gross profit of the assessee should have been enhanced by Rs. 3,81,75,944/- (3,26,29,01,170 x 1.170%). However, the AO further observed that the amount of addition on account of suppressed production/sales is greater than the amount of enhanced gross profit determined by 1.17% of the turnover. Accordingly, the higher amount of disallowance of Rs. 4,57,82,539/- was treated as suppressed sale/ income and added to the total income of the assessee. Aggrieved assessee preferred an appeal to Ld. CIT(A). The submission of the assessee can be categorized as under : 6. Submission of the assessee regarding suppression of sales of Rs. 4,57,82,539/- : (i) The suppression of production has been worked out by AO without considering the increase closing stock in the work in progress. There was net increas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are duly furnished to excise department on monthly basis but no defect whatsoever was recorded by such excise department. 7. The submission of the assessee for the rejection of the books of accounts: (i) Once books of accounts of the assessee have been rejected then the AO was required make the assessment u/s 144 of the Act but the assessment has been framed u/s 143(3) of the Act. (ii) There was no defect pointed out by the AO in the books of accounts of the assessee during the assessment proceedings. (iii) All the books of accounts were duly audited under excise, income tax, VAT and companies Act but no defect in the same was mentioned. The learned CIT (A) after hearing the contention of the assessee deleted the addition made by the AO by observing as under : Finding of the Ld.CIT(A) regarding the addition of Rs. 4,57,82,539/- as under: "6.6 From perusal of the order of assessment and the submissions of the appellant summarized above it is evident that AO has not considered/discussed the effect of increase in the Work In Progress for the determination of the alleged unaccounted production Nowhere in the order of assessment has the AO considered the closing stock openi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chineries or making modifications in the existing ores Further during the course of survey no evidence of any unaccounted sales was found nor has any person at the factory confirmed of there being any accounted production/sales. 6.7 In light of the circumstances and facts mentioned above, 1 am of the considered opinion that the appellant has not suppressed its production by 4,45,355 kgs the average sale value of which comes to Rs. 4,57,82,539/-. Therefore AO is directed to delete the addition of Rs. 4,57,82,539/- Thus this ground of appeal 3(a) is allowed." Findings of the Ld. CIT(A) regarding the rejection of the books of accounts. 7.2 I have carefully considered the rival contention as well as the observation of the A.O The assessing Officer has determined addition of Rs. 3,81,75,944/- on account of reduction in the Gross profit out no separate addition has been trade, as addition on account of suppressed production and unaccounted sale has been made in this regard it has been observed by the AO that there is decrease in average gross profit by 1.17% and therefore AO estimated Gross profit of 9.31% (8 14+1 17) and addition of Rs. 3,81,75,944/- has been made. The AO has poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld, the Assessing Officer was not justified in rejecting book results and enhancing gross profit rate. (AY.2005-06)". 7.5 In view of above facts circumstances, the decision taken with respect the ground no 3(a) and in view the case law mentioned above, I am of the considered opinion that the action of the AO in rejecting books of accounts and estimating profit is not justified and no addition on this count is required to be mace. Therefore, addition in the gross profit of Rs. 3,81,75,944/- is also not required Thus this ground of appeal 3(b) is allowed." Being aggrieved by the order of Ld. CIT(A) Revenue is in second appeal before us. The Ld. DR before us vehemently supported the order of the AO. On the other hand, Ld.AR before us submitted as under: "Ground No.1 Addition of Rs. 4,57,82,539/- on account of alleged suppressed sales on account of alleged unaccounted production 1. The statement recorded on oath during the course of proceeding under section 133 A of the Act does not have evidentiary value in the assessment- (a) C1T Vs S. Khader Khan (300 ITR 1 57)(Mad). Said Judgment has been confirmed by the Hon'ble Apex Court. Refer ITR 352 1TR 480(2013) (b) Hon'ble Apex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, in absence of any evidences of its sales or unaccounted of lying in stock. 9. In view of the above facts and submission, reliance is placed on the order of the ld. CIT(A) and therefore ground of the revenue is required to be dismissed. Ground No.2 1. That the said addition has been made without issuing any show cause notice. 2. In view of the above submission, no defect in the books of accounts have been found and therefore, the book result cannot be rejected under section 145 of the Act. 3. The reduction of the gross net profit cannot be ground for the rejection of the books of account under section 145 of the Act. 4. In view of the above facts and submission, reliance is placed on the order of the ld. CIT(A) and therefore ground of the revenue is required to be dismissed. Your honor is requested to consider the above submission while deciding the appeals and oblige" 8. We have heard the rival contention and perused the materials available on record. The addition for the suppression of production / sales was made by the AO on account of statement recorded u/s 133A of the Act. In the statement, it was accepted that the process of loss comes to 5.6% of the total ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ials available on record. In the instant case, the assessee is a Private Limited Company engaged in the business of manufacture of M. S and CTD Bars. The Learned Assessing Officer observed that there was huge variation between the production shown by the assessee and the units of electricity consumed in each month during the year held that the books of accounts are not reliable and rejected the same by invoking section 145 of the Income Tax Act, 1961. He thereafter, observed that in the month of May 2004, the assessee has shown production of 133MT against consumption of 82847 units of power. Thus, he held that for 1 MT of production, 622.9 units of power consumption has been declared by the assessee. He noted that 14,15,899 units of power was consumed by the assessee in the entire year and by taking the production rate as 1 MT against consumption of 622.9 units of power arrived at total production of 2329.264 MT. as against 1736.535 MT. and by adopting the average sale price of 22436.88 MT. shown by the assessee arrived at the value of suppressed production of 592.729 MT. at Rs. 1,33,04,916/-. After allowing rebate for all adverse eventualities in the production process with refere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee are audited under the Companies Act and the Income Tax Act, 1961 and no adverse comments were made by the auditors on the accounts of the assessee. Further, the Hon'ble Delhi Bench of the Tribunal in the case of Pondy Metal and Rolling Mills P. Ltd, (Supra) has held that where assessee is maintaining regular books of accounts and all the purchase and sales are duly vouched and supported by raw material register, production register and finished good register which were subject to check by excise authorities no addition can be made on account of alleged suppression of production simply on the basis of consumption of electricity. We also find that the contention of the assessee that the variation in consumption of electricity may be caused due to various reasons such as break down of machinery, quality of raw materials, thickness of finished goods and frequency of power failure, etc. could not be controverted by the Learned Assessing Officer. Rather it is observed that the above argument of the assessee was accepted by the Learned Assessing Officer to the extent of 30% for which no basis could be cited. No material was brought on record to show that it was scientific to arr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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