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2020 (5) TMI 575 - AT - Income TaxRejection of books of accounts - Suppressed production - determination of quantum of clay which can be extracted/produced from mines - HELD THAT:- AO has proceeded ahead and basis his own investigation and understanding of the mining process involved, and basis his own calculation and understanding of variables has worked out the quantum of clay which could be extracted from one of the mines owned by the assessee without referring the matter to the domain experts in the field of mining such as geologists and mining engineers. AO in the instant case, was totally unsuited for undertaking the activity of determining the exact production of the material, which itself involves very complicated procedures.” Such calculation AO has determined the shortfall or suppression in the clay production vis-à-vis production disclosed by the assessee in respect of one of the mines. Using the same percentage of suppressed production, he has proceeded ahead and worked out proportionate suppression of production in the other two mines without getting into specific of functioning of such mines which again cannot be accepted. Without getting into the merits of the formula so arrived by the AO as we find ourself not competent enough to comment upon, we find that effectively, the AO has tried to determine the quantum of clay which could potentially be extracted from the mines and that’s where whole case of the Revenue rest. The question for consideration here is not the potential extraction of clay rather the actual clay which has been extracted from the mines and which has been sold/dispatched during the year under consideration and which has not been disclosed in the return of income and what credible material is available on record in support of such findings. There is no material on record and no finding recorded by the AO that quantum of clay so determined by him as part of suppressed production has been actually dispatched and sold and more so, when the assessee’s activities comes under the jurisdiction of State Mining Department and both its production and dispatches are closely monitored by the Mining Department As held in case of CIT vs. Shri Girija Smelters (P) Ltd [2014 (10) TMI 890 - TELANGANA AND ANDHRA PRADESH HIGH COURT] the occasion to levy income tax would arise, only when the product in question was found or alleged to have been sold, and the sale proceeds, constituting income were not reflected in the returns. Not even alleged that the product shown in the form of discrepancies, was sold at all. Royalty assessments were carried out by the Mining Department without any adverse findings and copy of royalty assessment orders, copy of monthly returns, details of production at mines and dispatches from the mines and reconciliation thereof were admittedly furnished before the lower authorities and even acknowledged by the CIT(A) and no discrepancy has been highlighted therein either by the AO or by the ld CIT(A) and there is no material on record which highlight dispatches from the mines without paying the requisite royalty.There is no basis for alleging suppression of production by the assessee and the findings of the lower authorities are hereby set-aside. - Decided in favour of assessee.
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