TMI Blog2023 (6) TMI 1022X X X X Extracts X X X X X X X X Extracts X X X X ..... ms, it is inherent that there would be pilferage, wastages and more importantly, there is a expiry date of three months under FSSAI Act beyond which these foods items are not worthy of human consumption and have to be taken off the shelves needs to be rebutted which has again not happened in the instant case. There is no justifiable basis for making the addition and the same is hereby directed to be deleted. Addition on account of excess consumption of Diesel - HELD THAT:- As assessee started production of Gajjak during the year and for the purposes, has used diesel bhatties and therefore, comparison of diesel consumption via-a-vis last year is not correct in absence of suitable adjustments which has not happened in the instant case. Assessee has produced the invoices for diesel purchase in respect of which the payments have been made through the banking channel. There is thus complete documentation in support of diesel consumption which is placed on record and no defect has been pointed out by the AO. In any case, where the overall books of accounts have been rejected, there is no basis for making the individual addition relying on the same books of accounts and all the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been consistently followed by the assessee for the current year as well as preceding and subsequent financial year and the same has been accepted by the AO. It was submitted that in the assessment order, the AO has held that the entire sale has not been recorded in the books of accounts and partial sale amounting to Rs. 10,58,656/- out of total sales of Rs. 16,81,55,562/- has not been recorded in the books of accounts. It was submitted that the unrecorded sales as alleged by the Ld. AO is only 0.63% of the total sales which implies that 99.37% books are accurate. 4.1. It was further submitted that findings of the Ld. AO are based on his own assumption and presumptions and are not based on any documentary evidence. It was submitted that the reasons for rejecting the books of accounts are highly unjustified and devoid of merits. The powers of the Ld. AO under section 145(3) are not arbitrary and there must be used judicially and the assessment must be completed based on judicial considerations in light of relevant material on record. 4.2. It was further submitted that by estimating standard wastage / shortage across all the items, the Ld. AO has taken the output ratio as 95% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three months. Sometimes incentives like free issues are given to clear the inventory likely to expire shortly. Pilferage and wastage in packing and handling is also there. As we have billed 99.40%, the difference in quantitative terms is only 0.60% which is negligible for item like Gazak. 4.4. Similarly, the AO has applied the yard stick of input output ratio of 95% on the manufacturing of Namkeens and as per the AO, the sale of namkeen should have been 1874592 kgs being 95%of the inputs, after adjustment of opening and closing stocks whereas it is 1862900 kgs as per books of accounts of the assessee, which is 99.38%. Thus, a difference of 0.62% in quantitative terms which is negligible considering that it is food item. Even if the production is 95%, the billing cannot be 100% of production because of consumption of namkeen by handlers, pilferage, wastages and expiry date of three months under FSSAI Act. The learned AO has added Rs 795750/- as unrecorded sale in the income. It was submitted that the learned AO has simply tried to jackup the GP rate to 5% and have added the income without any justification. 4.5. The learned AO has rejected the books of accounts u/s 145(3) citi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dict the materials upon which the AO wants to basis his estimates. Reliance is also placed on Hon'ble Karnataka High Court decision in the case of Karnataka State Forest Industries Corporation Ltd vs. CST (1983) 201 ITR 674. 4.8. It was submitted that the Hon'ble Supreme Court and various High Courts in number of cases have held that before invoking the provision of sec 145(3), the AO has to bring an record material on the basis of which he has arrived at the conclusion with regard to correctness or completeness of the accounts of assessee or the method of accounting employed by it. The rejection of books of accounts cannot be sustained merely on the facts that the GP Rate of the assessee is low during the relevant period as compared to book results of earlier years. 4.9. It was submitted that the rate of GP in a particular year depends on many factors like rise or fall in prices of raw materials, finished product, Input output ratios of various products like namkeens, gajak etc. The AO cannot proceed to make an arbitrary addition and base his conclusion on guess work. The Courts have held that if the profit shown by the assessee in his return is not accepted, it is f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in assessment proceedings, worked out the excess wastage declared by appellant which amounts to undisclosed production of goods and their undisclosed sale which was added to the income of appellant after rejecting its books of account u/s 143(3) of the Act. The AO gave consideration to other factors like additional loss in quantity or raw material due to leakage of oil and moisture loss in pulses and adopted the output ratio of 95% as against 95.6% for Namkeens as provided by appellant itself in its submissions. Further the AO has, by detailed workings, computed excess expenditure claimed by appellant on diesel expenditure and after considering various factors explained by appellant for increase in diesel consumption during the year e.g. introduction of Rewari and Gajjak in production, seasonal variation, labour skills etc. he further gave an allowance of half of the excess consumption worked out and only considered the balance half of Rs. 10,965/- litres as excessive consumption shown and made addition to income of appellant on this account. Thus, I find that the AO has taken into account the various factors affecting production cost which were submitted by the appellant and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een drawn by the AO based solely on yield ratio. Further, in para 4.5 of the impugned order where our reference was drawn by the ld Sr DR, we find that the ld CIT(A) has confirmed the findings of the AO stating that the AO has taken into account the various factors affecting production cost which were submitted by the appellant and adopted a logical and reasonable method in computing the excess shortage/undisclosed sales of appellant and we thus find that the excess shortage and undisclosed sales have been used inter- changeably. We therefore find that the shortage has been equated with undisclosed sales basely solely on yield ratio. In our view, no doubt yield ratio is one of the guiding factors which needs to be considered for determining appropriate level of production but at the same time, to equate production with sales, there has to be something more in terms of positive evidence in form of unrecorded sales realization which has not been entered in the regular books of accounts which is apparently absent and not available on record. Alternatively, the explanation of the assessee that being food items, it is inherent that there would be pilferage, wastages and more important ..... X X X X Extracts X X X X X X X X Extracts X X X X
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