TMI Blog2003 (7) TMI 271X X X X Extracts X X X X X X X X Extracts X X X X ..... addition of Rs. 60,000 made on account of disallowance of a part of advertisement and publicity expenses. 3. That the learned CIT(A), Patiala, has further wrongly and illegally deleted the addition of Rs. 22,72,920 made on account of suppression of yield. 4. While deleting the additions at Sr. Nos. 1, 2, 3 above, the learned CIT(A), Patiala, has simply gone by the assessee's contention in complete disregard of the facts and evidence available on record. 5. That the learned CIT(A), Patiala, has erred in law in ignoring the conduct of the assessee in the earlier assessment years and in the subsequent assessment year as discussed in details in the assessment year. That the past and subsequent history of the case is ignored by the learned CIT(A), Patiala." In the appeal filed by the Revenue for the asst. yr. 1992-93, it has raised the following grounds: "1. That the learned CIT(A), Patiala, has erred both in law and on facts in deleting the addition of Rs. 13,71,954 made by the AO on account of excessive consumption of nickel catalyst. 2. The learned CIT(A) further erred in law and on facts in deleting the addition of Rs. 6,73,326 made by the AO on account of suppress ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. That the learned appellate authority failed to consider the fact that the inspection/search by central enforcement wing of excise and taxation office, Patiala, and consequently seizure of alleged documents and books are illegal, invalid and incorrect in as much as neither the search warrant were issued or served nor punchnama was prepared or no statement was recorded and as such no legal or valid presumption of correctness of the alleged four invoices of Rs. 4,98,939 could be taken without any corroborative evidence particularly in view of total turnover of about Rs. 30 crores. 7. Without prejudice even the addition of Rs. 15,50,306 is highly excessive and arbitrary merely on the basis of alleged four invoices of Rs. 4,98,939 against the total turnover of Rs. 30 crores. 8. That the levy of interest under ss. 234B and 234C is wrong and illegal particularly when the delay of two years in finalising the assessment is not at all attributable to the appellant. 9. That the appellant craves permission to amend, alter, add or delete any ground of appeal at the time of hearing. It is, therefore, prayed that appeal may kindly be accepted and addition of Rs. 15,50,306 may wholly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectively, as against consumption of 270 units, 312 units and 388 units of electricity per MT of oil for the asst. yrs. 1986-87, 1987-88 and 1988-89, respectively. The AO also observed that a Government-owned company, namely, Markfed Vanaspati Allied Industries, Khanna, had shown average consumption of 350 units and 357 units of electricity per MT of oil consumed for the asst. yrs. 1990-91 and 1991-92, respectively. He further observed that such consumption of electricity was also very erratic in the various months for which no satisfactory explanation was submitted. (iii) The assessee had shown excessive consumption of nickel catelyst at 1.026 kg and 1.340 kg per MT of oil for the asst. yrs. 1990-91 and 1991-92 as against consumption of 0.442 kg of nickel catalyst per MT of oil for the asst. yr. 1986-87. The AO further observed that there was wide variation in the consumption of nickel catalyst in various months, which varied from 0.319 kg to 1.607 kg in the asst. yr. 1991-92 and 0.273 kg to 3.597 kg for the asst. yr. 1991-93. Thus, the AO concluded that the assessee had inflated the consumption of nickel catalyst for both the assessment years. (iv) The assessee has not mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the assessee had suppressed the yield of 78 MT of vanaspati (8455-8377) for the asst. yr. 1991-92. By taking the average rate at Rs. 29,140 per MT, the AO made an addition of Rs. 22,72,920 on account of suppression of yield for the asst. yr. 1991-92. The AO further observed that in this manner, the GP rate worked out to 6.15 per cent as against 6.11 per cent for asst. yr. 1990-91 and 7.17 per cent for the asst. yr. 1989-90, which, according to him, was fair and reasonable. 6. As regards asst. yr. 1992-93, the AO observed that documents found during the course of survey carried out by the central enforcement wing of excise taxation office, Patiala, clearly indicated suppression of sales of vanaspati to the extent of Rs. 5 lakhs, which was reflected in the sale vouchers found but not disclosed in the regular books of accounts. He further observed that documents found indicated 53 sale vouchers where original and duplicate copies were taken but after making the sales and only one copy out of the three kept blank was retained. Since no amount was mentioned in the third copy, the AO worked out the average sale per bill based on four bills indicating sales of Rs. 4,99,386. By ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nickel catalyst depended on several factors like quality of oil consumed, hydrogenation, reaction conditions, operational conditions, quality and concentration of nickel catalyst, human factors, etc. Evidence was also placed before CIT(A) to show that consumption of nickel catalyst varied from 1 kg to 1.5 kg per MT depending upon melting point of vanaspati and temperature condition, pressure and quality of nickel catalyst. It was also submitted that the quality varied in regard to nature of oil used i.e., rapeseed oil, sunflower, rice bran, cottonseed etc. It was submitted that earlier, the assessee used to get palm oil from the Government which was better in quality. However, the supply of the same was not made by the Government in the assessment years under reference. It was submitted that in the asst. y. 1987-88, the assessee had used cottonseed oil only to the extent of 35.12 per cent, in asst. yr. 1988-89 it was 12.48 per cent, in asst. yr. 1989-90 it was 45.02 per cent, in asst. yr. 1990-91 it was 56.18 per cent and in asst. yr. 1991-92 it was 60.19 per cent. The reasons for the variation in the consumption of electricity were also explained. As regards fall in GP rate, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintained complete books of accounts and even yield shown for the asst. yr. 1991-92 at 93.13 per cent was higher when compared with the yield of 92.78 per cent for asst. yr. 1990-91 and 93.04 per cent for asst. yr. 1989-90. The learned CIT(A) also relied on the decision of Tribunal Chandigarh Bench, in assessee's own case for the asst. yr. 1985-86 where the Tribunal has held that when yield of vanaspati ghee was higher than what was shown by the assessee and accepted by the Revenue in the immediately preceding year, no addition for alleged suppression of vanaspati ghee could be made. The Tribunal further held that when no defect at all had been pointed out in the books of accounts, no addition could be made even if the yield is slightly low. 9.3 As regards fall in GP, the assessee had duly explained the reasons to be due to increase in the input cost corresponding increase in the sale price. The AO has not controverted such reasons given by the assessee. 9.4 As regards asst. yr.1992-93, learned CIT(A) observed that the evidence found during the course of inspection by the Excise Taxation Department clearly indicated suppression of sales. Therefore, addition on this accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to the various reasons given by the AO in the assessment order for making the addition of Rs. 7,59,269. She submitted that not only the consumption of nickel catalyst was found much higher but also the same was highly erratic in various months. She drew our attention to para 3.2 of the assessment order, where the consumption of nickel catalyst for the month of February was shown at 0.319 kg. per MT and the same was shown at 1.607 kg for the month of June and 1.430 kg for the month of April. Thus, she submitted that there was huge variation in the consumption of nickel catalyst in various months. She further submitted that for the asst. yrs. 1991-92 and 1992-93, the assessee had also shown excessive consumption of electricity. She particularly referred to the figures of electricity consumption given by the AO in the assessment orders as compared to the units of electricity consumed in the earlier assessment years. Thus, she submitted that the AO was justified in making the addition of Rs. 7,59,269 on account of excessive consumption of nickel catalyst for the asst. yr. 1991-92. She drew our attention to para 3.2 of CIT(A)'s order where he has observed that in the asst. yr. 1990- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M.A. Rauf vs. CIT (1958) 33 ITR 843 (Pat) In this case, the assessee had not maintained accounts in the regular course of business. The AO rejected the book results and estimated the income by applying a flat rate of turnover to ascertain profit as in earlier year. Such action of the AO was upheld by the High Court with the observation that after rejecting the books of accounts, the AO can estimate the profit upon such basis and in such manner as he thinks proper and it was open to him in adopting flat rate of profit on the sales as adopted in the earlier year: (iii) Dwarka Prasad Bajaj vs. CIT (1989) 79 CTR (Cal) 59 : (1990) 181 ITR 277 (Cal) Where rejection of accounts was upheld on the ground that books of accounts were not reliable and there was no reason for steep fall in GP. estimation of income by applying flat rate was also confirmed. Relying on the judgment of Delhi High Court in the case of Sohan Singh vs. CIT (1985) 49 CTR (Del) 115 : (1986) 158 ITR 174 (Del), the learned Departmental Representative submitted that principle of estoppel does not apply to income-tax proceedings. Similar submissions were made for the asst. yr. 1992-93. 12. The learned counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 6 of the paper book. He further submitted that the consumption of nickel catalyst for asst. yr. 1991-92 was lower than the consumption of nickel catalyst for the asst. yr. 1990-91. He further submitted that earlier the assessee used to get palm oil from the Government which was of superior quality and consumed lesser quantity of nickel catalyst, but such supply was stopped by the Government and the assessee had to use cottonseed oil and other varieties of oil. He further submitted that additions on account of low yield and excessive consumption of nickel catalyst cannot be made. He submitted that comparison of assessee's case with that of Markfed Vanaspati Allied Industries, Khanna was not correct as the assessee was not confronted with the facts thereof. He relied on the following judgments (i) CIT vs. Eastern Commercial Enterprises (1995) 123 CTR (Cal) 217 : (1994) 210 ITR 103 (Cal). Where it has been held that oral evidence of witness relied on by the IT authorities without allowing an opportunity to the assessee to cross-examine the witness violated the principles of natural justice. Comparative instances of other assessees in the same business supplied by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no such judgment in this ITR). However, she submitted that s. 253(4) confers an independent right of appeal on the AO and, therefore, the objection raised by the learned counsel was not correct. She further submitted that principle of estoppel does not apply to income-tax proceedings. 15. We have heard both the parties and given our utmost consideration to the rival submissions. We have also examined the facts, evidence and material on record. We have also perused the orders of the authorities below and referred to the various judgments cited by both the parties at the Bar. As regards the first objection of the learned counsel about maintainability of cross-objection for the asst. yr. 1991-92, we do not find any substance in the submission of the learned counsel. The provisions of sub-s. (4) of s. 253 read as under : "(4) The AO or the assessee, as the case may be on receipt of notice that an appeal against the order of the Dy. CIT(A) or, as the case may be, the CIT(A) has been preferred under sub-s. (1) or sub-s. (2) by the other party, may, notwithstanding that he may not have appealed against such order or any part thereof, within thirty days of the receipt of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the AO in regard to low yield for the asst. yr. 1991-92, we find that the yield shown by the assessee for the asst. yr. 1991-92 was higher than the yield shown by the assessee for the asst. yr. 1990-91. The assessment for the asst. yr. 1990-91 had also been completed under s. 143(3). Therefore, the AO was in error in comparing the yield of the assessee for the asst. yr. 1991-92 with that of asst. yr. 1987-88. 17.1 As regards excessive consumption of nickel catalyst, the assessee had again explained the reasons for such variations depending upon type of oil, quality of oil and several other factors mentioned above. All the purchases of nickel catalyst were duly reflected in the books of accounts and vouched. No defect in the purchase vouchers has been pointed out. Further, the consumption of nickel catalyst for the asst. yr. 1991-92 was lower than the consumption of nickel catalyst for the asst. yr. 1990-91 for which the assessment had been completed by the AO under s. 143(3). Therefore, this could also not be the ground for rejecting the book results. 17.2 As regards fall in GP rate, the assessee had explained the reasons for the same. The assessee had stated that the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t need for referring to the past records would arise only if it is held that on the basis of facts and circumstances of the case, the books of accounts were liable to be rejected. In a case where it is held that books of accounts were not liable to be rejected, no estimate of income could be made by merely referring to the past records of the assessee. Thus, in the light of these facts and circumstances of the case and in the absence of specific defects having been pointed out in the books of accounts of the assessee, we are of the considered opinion that the CIT(A) was justified in holding that book results could not be rejected. As regards quantum of addition made on account of excessive consumption of nickel catalyst and low yield for the asst. yr. 1991-92, we have already pointed out that yield shown by the assessee for the assessment year under reference and consumption of nickel catalyst were favourable as compared to asst. yr. 1990-91 for which the assessment had been completed under s. 143(3). Thus, we do not find any merit in the additions made by the AO on account of excessive consumption of nickel catalyst and low yield of vanaspati. Learned CIT(A) has rightly deleted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for making the unaccounted sales. No doubt these four bills contained specific details of unaccounted sales aggregating to Rs. 4,99,386. No such specific details were found recorded in the remaining vouchers. Therefore, taking average of these four bills would not show the correct estimate of income. Learned CIT(A) has reduced the addition to Rs. 15,50,000 by taking the yield of vanaspati at the same rate as shown for the asst. yr. 1991-92. We have already upheld the order of the CIT(A) for the asst. yr. 1991-92. Thus, the yield shown by the assessee for the asst. yr. 1991-92 to 93.13 per cent stands accepted. Therefore, we are of the considered opinion that the basis adopted by the CIT(A) is fair and reasonable. Thus, he was justified in reducing the addition to Rs. 15,50,306 on account of suppression of sales. We may, however, mention that the learned counsel had argued that central excise authorities had accepted sales of Rs. 4,32,364 indicated by four bills referred to above. He vehemently argued that only such sales should be accepted as unaccounted. We are unable to accept such submission of the learned counsel. We find that in the same bill book, where three copies of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , however, add that even if books of accounts are rejected, the AO is dutybound to make a fair and reasonable estimate of income. Thus, we find that addition made by the AO on this account was not justified. We confirm the order of the CIT(A) and dismiss this ground of appeal of the Revenue. 21. The next ground of appeal of the Revenue for the asst. yr. 1992-93 relates to deletion of an addition of Rs. 6,73,326 made on account of suppression of sales of oxygen gas. The facts leading to such addition has already been discussed in the preceding paragraphs. In nutshell, the basis for addition is linkage of production of vanaspati with oxygen gas. This point has been elaborately dealt with by the learned CIT(A) where he has observed that production of oxygen gas is not relatable to the production of vanaspati ghee. He has given the following details of production of oxygen gas and vanaspati for the asst. yrs. 1987-88 to 1992-93: Asst. yr. Production of Vanaspati Production of oxygen gas 1987-88 10048.640 MT 6,365 cylinders 1988-89 10049.667 MT 4,759 cylinders 1989-90 634.495 MT 4,759 cylinders 1990- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sive or unreasonable. Accepting the contentions of the assessee, the CIT(A) deleted the disallowance. Revenue is aggrieved by the order of the CIT(A). 24. The learned Departmental Representative on the other hand, heavily relied on the order of the AO. She submitted that assessee had not maintained any details about the distribution of wall clocks in the accounting year under reference. Thus, she submitted that the disallowance could have been upheld. 25. The learned counsel for the assessee, on the other hand, relied on the order of the CIT(A). 26. We have heard both the parties and carefully considered the rival submissions. Considering the total turnover of the assessee of Rs. 30 crores, incurring of advertisement and publicity expenses to the tune of Rs. 2,56,642 appears to be normal and reasonable. We do not find any infirmity in the order of the CIT(A) in deleting the impugned disallowance. We confirm his order and dismiss this ground of the cross-objection filed for the asst. yr. 1991-92. 27. We now take up assessee's appeal for the asst. yr. 1991-92. At the outset, the learned counsel for the assessee submitted that the assessee does not want to press ground Nos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fully considered the rival submissions. From the facts discussed above, it is clear that the AO has not passed a specific order mentioning therein specific sections under which interest was chargeable. His directions are only for issue of demand notice and challan. Now the question is, whether in the absence of specific directions in the body of assessment order, interest under ss. 234B and 234C could be charged in the demand notice? This issue has been considered by the Hon'ble Supreme Court in the case of CIT vs. Ranchi Club Ltd. where the Hon'ble apex Court has held that specific directions with reference to particular section under which interest is chargeable is necessary in the assessment order and further that without recording such directions in the body of assessment order, interest under ss. 234A, 234B and 234C could not be charged. Further, in the case of Vinod Khurana vs. CIT, the Hon'ble Punjab Haryana High Court has held that a notice of demand is somewhat like a decree in a civil suit, which must follow the order. When a judgment does not specifically mention any amount to be charged under any particular section, the decree cannot contain any such amount. Similarly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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