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TMI Blog1982 (9) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... which acts as the solvent for the oil, is then circulated inside the extractors 4 to 6 times under a specified temperature and pressure. After heating the solvent gets evaporated and goes to the condensers where it is cooled and recycled for re-use. The oil gets dissolved in hexane. The solution of oil and haxane is called 'Miscella'. This Miscella, initially scored in Suction Catch. All is distilled by a process of fractional distillation whereby liquid hexane on account of its low boiling point, evaporated and oil is left for ultimate storage. This results in the separation of oil from hexane on account of its low boiling point, evaporated and oil is left for ultimate storage. This results in the separation of oil from hexane. The remaining Miscella from the distillation column is again distilled to further yield oil. Traces of hexane are removed by heating by vacuum distillation. The last traces of hexane are removed at the time of the delivery of the oil by pumping it in a vessel called "neutraliser". The deoiled cake which is left behind after the extraction of oil is also for the purpose of heating the extractor, the boiler is run of coal. There are number of tanks in plant w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition or Rs. 9 lakhs to the trading result. 5. The assessee thereupon came up in appeal before the CIT(A). The CIT(A) took the view that the accounts were maintained in such a manner that it was not possible to verify the trading results from day to day or from month. He, therefore, upheld the application of the proviso to s. 145(1). He, however, held that since the IAC had accepted the assessee's plea that there were no purchase on sales outside the books. The conclusion drawn by the ITO that extensive business was being carried on outside the books, was not correct. But held that the following three defects/factors had resulted in the understatement of income: 1. Consumption of 1,29,996 litres of hexane during the year as against 4,130 tonnes of oil cake consumed giving a consumption rate of 3% of hexane and loss of 30 litres of hexane which was high. 2. Certain amount of deoiled cake may be lying in the godown at the end of the year which was not bagged and hence not shown in the closing stock. 3. Certain oil may also be left in the miscella tank or pipes, etc., which may not be included in the closing stock of oil. On these accounts and due to the shortfall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as made and sustained by the ITO and the CIT(A) was not the same. The ITO did not rely upon the production registers and took the view that the assessee was carrying out the production of oil outside the books of account. On the other hand, the CIT(A) did not agree with the ITO the defects noticed by him existed and held that there was no production of oil outside the books of account. The view which he took was that the accounts were maintained in such a manner that it was not possible to verify the trading results from day to day or month to month. He maintained the addition to the extent of Rs. 75,000. In view of the three factors mentioned earlier in this order. We now proceed to examine these bases. In regard to defect No.1 the assessee had explained that it was a mistake which was rectified vide assessee's letter dt. 11th December, 1974 to the Excise authorities. It was explained that while giving the quantity of goods manufactured upto 30th November 1974 the quantity of 17.50 tonnes manufactured upto 6th December 1974 was also included by mistake. We agree with the CIT(A) that the mistake was bona fide which was corrected promptly and suo motu and it could not be treated as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orded is understandable. We agree with the CIT(A) that defect No. 6 could also not be relied upon by the ITO. The dip is taken in the mother tank where hexane is stored and where it goes after being recycled. But some hexane may remain in the condensers, pipelines and Miscella etc. and therefore, the consumption as recorded in the registers on the basis of the dip reading would not give the correct picture. But that does not imply that there was a defect. This only shows that the day to day or month to month keeping a records was by the very nature of things, incapable of representing the correct consumption production. Defect No. 7 as pointed out by the ITO was also, therefore, not a defect. 8. Thus, none of the factors relied upon by the ITO could be treated as defects, the addition made by the ITO was not sustainable. In our view the CIT(A) was not justified in still sustaining the addition of Rs. 75,000 on the basis of the three factors mentioned in his order. They are merely the peculiar features inherent in the process. His view that the consumption rate of 3% of hexane and loss of 30 litres was high is not supportable. It is clear from the certificate of Dr. A.K. Vashisht ..... X X X X Extracts X X X X X X X X Extracts X X X X
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