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2022 (10) TMI 947 - AT - Income TaxAddition on account of unaccounted production and stock - AO rejected the books of accounts of the assessee and estimated the wastage in production in both the units of the assessee - C.I.T. (A) holding that 'the action of the A.O. of rejecting the books of account without taking into consideration all the facts and figures is not correct" - AO find various discrepancies with regard to consumption of raw material used for production of tiles and noted that the assessee has not shown the correct figure in its books of account and assessee has not made available the correct data of production of tiles - AO rejected the books of accounts of assessee by taking view that assessee failed to show actual per square meter consumption of raw material and failed to disclose actual per square meter consumption of raw material in its account, therefore, correct profit cannot be deduced from the books of account - HELD THAT:- AO estimated average wastage @ 3% and 2% of gross consumption of raw material for Dora unit and Hoskote unit respectively. Assessing officer adopted average wastage on ad hoc basis without any justification nor any comparable stances was brought on record to adopt such wastage. The Assessing Officer failed to provide any material supporting the working of average rate for both the units. Further, we find that the Assessing officer made addition by computing the revised production by adopting lowest value of consumption ratio as based so as to arrive at a greater production quantity and on such basis worked out the suppressed production of 3348104 square meters from the books of account. AO applied average rate of closing stock of Rs. 138.10 square meter and computed value of suppressed production of Rs.46,23,73,162/-. We also noted that suppressed production computed by Assessing Officer is without any basis as he adopted ad hoc wastage rate to compute net consumption as against the wastage rate of 4.54% and 4.48% shown by the assessee. And further in order to maximise the value of revised production, the assessing officer arbitrarily adopted the lowest consumption ratio of January, 2009 for Dora unit and February 2009 for Hoskote unit. Assessing Officer has failed to bring any material to support his working that ratio of waste material, adopted by him is appropriate for taking such base. Thus, working adopted by the Assessing Officer is not only erroneous being not based on scientific basis as he had adopted lowest consumption ratio for the purpose of making addition. We find merit in the submissions of assessee that even if slight changes in the consumption ratio is made, the entire addition made by AO would be nil as per the working given - We are also in agreement with the submissions of assessee that if the average consumption of all the months is taken and substitute the figures in the working of the AO accepting the wastage ratio used by the AO, the entire addition would be deleted. In such circumstances, we find merit in the submissions of assessee that the method adopted by assessee is more scientific as it takes into consideration all the factors affecting the consumption in a year. Further by taking yearly average, the fact of fluctuation is diluted and it gives a more scientific picture of state of affairs. The Assessing officer adopted only onemonth average, which does not represent a proper sample for working out of consumption for whole year. We do not find any merits in the grounds of appeal raised by the revenue, and thus, we affirm the order of ld CIT(A), with our additional findings. Grounds of appeals raised by the revenue is dismissed.
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