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TMI Blog2019 (9) TMI 1055X X X X Extracts X X X X X X X X Extracts X X X X ..... re that the assessee has filed its return of income on 15,19,2919 declaring total loss at Rs. 4,93,03,952/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. At the relevant time assessee was manufacturing and trading in submersible and other pumps. The ld.AO has observed that the assessee has achieved total sales at Rs. 37,96,30,697/-. Consumption of rawmaterial was having value of Rs. 32,88,66,469/-. This consumption in terms of ratio to sales comes to 0.866. The ld.AO has observed that ratio of consumption in comparison to sales in the immediately preceding year was 0.801. He observed that there is a slight increase in material consumption ratio by 1.3%. The ld.AO calculated the sales which ought to have been achieved by the assessee, if consumption of raw-material in terms of percentage being taken equivalent to the immediately preceding year. On the basis of this calculation, he worked out the estimated sales at Rs. 41,01,09,077/- and compared it with sales shown by the assessee at Rs. 37,96,30,697/-. The difference of Rs. 3,04,78,393/- was treated as sales outside the books of accounts. On t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in G.P. marginally and increase in the consumption of raw material ratio which has been completely ignored by the A.O. It has also been argued that before the A.O. that the appellant had become a sick unit facing acute shortage of funds and its loan accounts with consortium of bankers also became NPA and the bankers have filed recovery suit in DRT and they have also signed the debt of the company in favour of asset reconstruction company namely ARSEC India Ltd. So in such situation when the company itself was struggling hard for its survival the marginal fall in G.P. or marginal increase in raw material consumption was natural and of which reasons have been fully explained to the A.O. By ignoring the same the A.O. has applied mathematical formula and passed the order in wrong and unlawful belief that the trading result should be the same over the years and there was no scope for any variation which could happen due to various reasons beyond the control. It was also submitted that even the working of the material consumption ratio made by the A.O. for both the years was highly vague/incorrect as the AO has completely ignored the fact that raw material consumption also include the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee was that the books of accounts should have been found to be unreliable or otherwise not capable of proving the assesses income. Without this first step the fact that gross profit is low cannot by itself be a ground for taking a view that it is open to the AO to make good the alleged deficiency in gross profit. Further he has relied upon the judgment of Hon'ble Delhi High Court in the case of GIT Vs. Paradise Holidays (2010) 325 ITR 13 whereby it has been held that if accounts which are regularly maintained in the course of business and are duly omitted free from any clarification by the auditors should normally be taken as correct unless there are adequate reasons to indicate that they are incorrect or unreliable. Thus onus is upon the revenue to show that either the books of accounts maintained by the assessee were incorrect or incomplete or that the method of accounting adopted by him was such that true profits of the assessee cannot be deduced therefrom. Further Hon'ble ITAT, Ahmedabad Bench in the case of Siddhi Enterprises Vs. Department of Income-tax in ITA No.l431/Ahd/2012 has held that it is a settled proposition of law that for rejection of books o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed." 6. The ld.DR relied upon the order of the ld.AO, whereas the ld.counsel for the assessee relied upon order of the CIT(A) as well as submissions made before the ld.CIT(A) which have been reproduced by the ld.CIT(A) in para-3.2 of the impugned order. 7. We have duly considered rival submissions and gone through the record carefully. It is trite to say that the sales could be estimated if the books of accounts of the assessee are rejected. In this connection we would like to make reference to section 145(3) of the Income Tax Act, 1961, which reads as under: "145. (1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time [accounting standards] to be followed by any class of assessees or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the debt of the company in favour of the Asset Reconstruction Company i.e. Asrec India Ltd. The AO has only compared certain figures of raw-material vis-à-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. We uphold the order of the ld.CIT(A) on this issue, and ground of appeal of the Revenue is rejected. 8. In the next ground of appeal, grievance of the Revenue is that the ld.CIT(A) has erred in deleting the addition of Rs. 23,76,828/-. 9. The above disallowance was made by the AO out power and fuel expenses of Rs. 73,44,543/- simply on the ground that the assessee was not following proper method of accounting and claiming the expenses as per its benefits. This disallowance challenged by the assessee before the ld.First Appellate Authority, who after considering the submissions by the assessee, which was r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance of Power & Fuel Exp. We have given the full details of the Power & Fuel Exp. and stated that in FY 2008-09, the appellant has spend total Rs. 1201 585 3/- towards Power & Fuel and Stores & Spares Exp. and in FY 2009-10, the said exp. was Rs. 1,06,88,775/-. In F.Y.2008-09, out of total exp.Rs. 12015853/-, the appellant company has transferred Rs. 2994274/- in Other Consumable Stores ( R.& D.) Exp. *which was capitalized and therefore exp. actually debited to P.&.L.A/c was Rs. 9021579/- [ 12015853-2994274]. Thus, there was a reduction in overall exp. but the AO has not considered the fact in a positive manner and simply disallowed the actual amount spent on Gas & other fuel of Rs. 23,76,828/- without any base or proof to show that the said expenses were not spent for the business of the appellant. The appellant strongly object the method in which the AO has completed the wrong assessment which is far from the law and solely finalised on the wrong belief and estimation of AO. The details of the said exp.forF.Y.2009-10 & 2008-09 is enclosed in EXHIBIT-2. In view of above facts of the case it is humbly preyed that the entire addition of Rs. 23,76,828/- made by AO be deleted. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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