TMI Blog2014 (10) TMI 697X X X X Extracts X X X X X X X X Extracts X X X X ..... uperfine choker/bran which had been sold for ₹ 6,03,38,004/- during the year - the assessee has processed 1,86,207.04 quintals of choker for production of superfine choker/bran which process also uses diesel - The AO has not considered the consumption of diesel for the purpose of manufacturing of superfine choker/bran by processing of 1.86 lakh quintals of choker - as per expert advice for production of better quality of choker etc., the assessee needed load of 625 KVA against existing load of 385 KVA but despite application and efforts by the assessee, load was not increased during the year - the assessee got connection of 625 KVA on 26.05.2009 beyond the period of financial year under consideration. The assessee maintains proper records to show the purchase and consumption of diesel for its business purpose which justifies the increase of consumption of diesel during the year – the AO has formed opinion for disallowance on incorrect and incomplete facts and also by ignoring and not considering other important evidence submitted by the assessee to support its claim - CIT(A) has granted relief for the assessee but the findings are not based on cogent and justified reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arily accepting arguments of the assessee without giving any reason. 4. Whether in the facts and circumstances of the case, the Ld. C.I.T. (Appeals) was justified in granting relief without appreciating the comparative figures supplied by the assessee itself of earlier years where the consumption of Power and fuel was 4.02%, and 7.92% in assessment years 2005-06 and 2006-07 respectively and 74.97% for assessment year under consideration. 5. In the facts and circumstances of the case, the order of the Ld. Commissioner of Income Tax (Appeals) may be set-aside and that of the A.O. restored. 3. Brief facts giving rise to this appeal are that the assessee filed its return through e-filing declaring an income of ₹ 13,58,626 and the case was selected for scrutiny. Consequently, a notice u/s 143(2) of the Income Tax Act, 1961 (for short the Act) and another notice u/s 142(1) of the Act were duly served on the assessee. During the assessment proceedings, from the comparative charts of sales and gross profit with manufacturing details furnished by the assessee, it was found that there was a noticeable sharp increase in the consumption of power and fuel, mainly diesel as compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 60 Ltrs per hour respectively. One boiler to produce to steam for washing of wheat was also installed on 17.01.2006 wherein diesel was the consumed separately. The consumption of HSD also increased due to interruption of Electric supply. To summarize the capacity of generators their fuel consumption in generators and boilers are as under:- Generators Capacity Consumption of HSD per hour in Ltrs Normal Days Normal working hours Normal Consumption of Diesel (Ltrs) (i) 380 KVA 105 Ltrs 300 24 756000 (ii) 160 KVA 60 Ltrs 300 24 432000 (iii)125 KVA 40 Ltrs 300 24 288000 (iv) 2 Boilers 61 Ltrs 300 24 439200 Total 1915200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer gave a finding that the assessee has claimed excess consumption of diesel to the tune of 12,17,340 ltrs valuing ₹ 3,59,35,876/- and the Assessing Officer disallowed and added the same amount to the total income of the assessee. The above submissions and explanation of the assessee was rejected by the Assessing Officer with following observations and findings:- The explanation furnished by the Ld. C.A. of the assessee is not digestible due to following reasons: Depreciation chart furnished by the assessee shows that following additions were made during the year: i) A mobile phone was purchased after 30.09.2006 for ₹ 17,735/-. ii) Addition in plant machinery for ₹ 32,170/-. iii) Addition in generator for ₹ 1 ,97,500/-. Photocopy of the generators purchased has been furnished which is hand written having no complete address of the seller is placed on records. Further there is no evidence as to how much diesel may be consumed in these generator's or boilers. The theory has been generated that this year superfine bran has been produced out of the general bran and further claimed that 66,207.04 Quintals of superfine bran was sold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrives at 23.62+120.32+1777.72 divided by 3= 640.55%. then for crushing wheat weighing 107049.45Quintals quantity of diesel at the percentage of 640.55% required would be 6,85,705.25Ltrs, while the assessee has shown consumption of 19,03,045Ltrs of diesel. 4. While working the quantum of diesel consumed, this fact cannot be ignored that the above flour mill has also consumed electricity worth ₹ 14,17,7301-. Information was obtained from the electricity department who informed that the above flour mill has been sanctioned 210KVA of electricity. Because the flour mill has consumed both electricity and diesel it would be fair and just to take consumption of diesel to be 6,85,705.25Ltrs in view of the fact, that assessee has claimed, this year he has also made superfine bran to earn more profit and steam washing of the wheat was also done. The assessee has shown 19,03,045Ltrs consumption of diesel while the consumption of diesel above has been worked out to be 6,85,705.25Ltrs to be fair and just and hence 12,17,340Ltrs of excess diesel shown to have been consumed. Just one cannot digest someone saying that he has prepared one kg of pudding by using 100kgs of sugar or 100kgs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irected to make enquiries on the fresh arguments raised. Facts on record suggest that the change in the manufacturing process and details regarding the opening stock, purchases and sales were duly explained during the assessment proceedings by the appellant. A copy of expert's opinion and the Sales-tax order were furnished during appellate proceedings only to explain the case more clearly. The AO examined the entire books of accounts during the assessment proceedings. The copy of expert's opinion and the Sales-tax order only further substantiate those facts emanating from the books of accounts. These do not change the facts of the case in material terms. Application of Rule 46A, therefore, loses meaning in view of the overriding powers conferred upon the CIT(A) by virtue of section 250(4) of the Income-tax Act, 1961. On a perusal of the totality of facts, certain undisputed and certain disputed points emerge which could be summarized as under: 6.7.1. Undisputed points: i. That the assessee has maintained complete book of account including bills, vouchers, stock register and log book and Wages Register and produced before the A.O. ii. That the A.O. has given prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actors and trolley to shift the goods from one place to another. The AO, however, did not consider the extra consumption of diesel for other purposes. 4. That as per assessee the G.P. rate shot from 2.28% to 3.03% due to the new production procedure and the advice of expert. On the other hand, the order of the A.O. does not say anything on this point and in the remand report also the A.O. has not made any comment on this. 5. That as per AO, expert's report and Sale-tax Order have no evidentiary value. On the other hand, the assessee strongly relies upon the expert's report and in support of his claim the assessee has filed the paper by which, the assessee has applied for increase in load which was sanctioned after two years. According to AR, the A.O. cannot ignore the expert's report and the Sales-tax Order which only substantiate with finality the state of affairs reflected by the books of accounts. 6. That the assessee has cited a number of cases in support of his claim. However, the A.O. has not made any comments on the case-laws referred to by the assessee. From the disputed facts, it is clear that the central dispute relates to the excess consumption of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KV A which was not possible upto the F. Y. 2006-07. Hence, total production was made by the assessee by using generator set. The submissions of the assessee have substance because by following the expert's opinion, the G.P. rate shot up from 2.28% to 3.03%. The assessee also submitted in his written submission that the Sales-tax authorities, after examining the books of account were fully satisfied with the trading results including sales, purchases, manufacturing account, opening closing stock. Therefore, results as per books of account are true and correct. Hence, A.O. cannot disturb the results of Trading and Profit Loss A/c. The A.O. even in his assessment order as well as remand report, clearly stated that the diesel was actually consumed but in comparison to earlier year it was on higher side. Hence, he disallowed part of consumed diesel. The assessee has produced photocopy of the bills of M/s Bharat Petroleum Corp. Ltd., carrying Invoice No.1100 dated 20.07.2006. The bills clearly show that purchase of diesel undergoes supervision of various petroleum authorities and the supply is made to the assessee's tanker under the earth. Therefore, there is zero ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the rival parties. We are the view that the impugned enhancement by the Ld. CIT(A) has no leg to stand. The enhancement was made purely on hypothesis and conjecture in complete disregard of the facts recorded in the books of account. No material had been brought on record by the Ld. CIT(A) to prove that the consumption of diesel and LDO as recorded in the books of account were wrong and false. It was wrong on the part of the Ld. CIT(A) to work out excessive consumption of diesel and LDO on the basis of the running of the generator for number of hours per day and number of the days per month on his own hypothesis disregarding the actual running and recording in the books of account. The enhancement was totally unwarranted and uncalled for. In the above view of the matter we delete the addition of ₹ 3,73,403. This case-law also fully supports the submissions of the assessee. Similarly, the assessee also relied on following I.T.A.T. Judgments: (i) CIT Vs. Girnar Construction Co. [2003] 129-Taxman-691 (Raj.) (ii) Rakesh Kumar Jayanti Lal Gupta Vs. Assistant Commissioner of Income-tax, 55-ITD-97 The AR also relied on I.T.A.T. order in ITA No. 835/Del/09 for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ator along with consumption the fuel. According to which, consumption of diesel for various generators used by the assessee, were as under : (i) Generator of 380 K.V.A. 95 Ltrs/Hour (ii) Generator of 160 K.V.A. 40 Ltrs/Hour (iii) Generator of 140-150 K.V.A. 38 Ltrs./Hour Therefore, the average consumption of the diesel per day comes to 173 Ltrs/Hour X 20 = 3460 Ltrs/day. 3. The A.O. has estimated the working day only 300 days in a year and working hours of only 8 hour/day. However, assessee's working days were 357-days and working hours 18-23 hours/day. Therefore, calculation of the A.O. is erroneous. 4. The A.O. ignored the facts that the sale purchase and stock of the business was also examined by Trade-tax Authority and stock of diesel was examined by the District Authority who put signatures and stamp on the stock register. Therefore, consumption of the diesel cannot be said to be beyond the log book. Copies of Log book and Trade-tax order of the year were produced. 5. The case-laws cited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Income Tax(A) are not applicable to the facts of the present case and Commissioner of Income Tax(A) did not consider the comparative analysis of diesel consumed and output of production made during the year and Commissioner of Income Tax(A) did not apply any test check for buying of inferior quality of inputs and superior quality of output made with regard to purchase and sale bill. 11. The DR finally submitted that the assessee has not been able to prove that the excess consumption of diesel was wholly and exclusively for the purpose of business and at least major part of diesel consumption has been held to be not for the business purpose and use. The DR submitted that there was no corresponding increase in the purchase or consumption of raw material, wages and labour charges to support assessee s claim that the mill was run on extra shift and the evidence pertaining to purchase of generator was also not reliable. Therefore, impugned order deserves to be set aside and disallowance made by the Assessing Officer may be confirmed. 12. Replying to the above, the assessee s ld. counsel submitted that the assessee explained excessive consumption of diesel with cogent and reliabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son to immediate preceding year to the assessment year in question; ii) the assessee has maintained complete books of accounts including stock register, bills, vouchers, log book and wages payment register which were also produced before the Assessing Officer; iii) the assessee made purchase of diesel from Indian Oil Corporation and Bharat Petroleum Corporation amounting to ₹ 5,68,58,808; iv) the total sale of manufacturing goods during the year was amounting to ₹ 36.70 lakh and the Assessing Officer has not made any dispute about the sale, purchase, opening stock and closing stock shown by the assessee and assessee also produced high or superfine quality of choker during the year; v) the assessee made application to enhance the electricity load from 380 KVA to 625 KVA as per expert s opinion and the Assessing Officer has not given any negative remarks on the expert s report and assessee could not get higher 625 KVA connection during the year; and vi) the Assessing Officer has not made any remark or comment on the log book of consumption of diesel submitted by the assessee and which was also checked by District Authority. 15. As per submissions and con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these documents and evidence submitted by the assessee to support its claim of excessive diesel consumption. 17. From a careful perusal of the assessment order, we observe that as per Assessing Officer, the consumption of diesel was excessively high in comparison to the earlier years. On page 3 of the assessment order, the Assessing Officer has furnished a chart showing consumption of diesel which gives figures in respect of consumption of diesel (in litres) and raw material consumed (in quintals). The Assessing Officer has held that the consumption of diesel was quite high during the year under consideration. The Assessing Officer has calculated the average consumption of three years as 640.55 Ltrs per quintal of raw material consumed and held the same to be cogent and reasonable. On the basis of this analogy, the Assessing Officer calculated the total allowable consumption at 6,85,705.25 Ltrs and remaining balance of 12,17,340 Ltrs of claimed consumption of diesel had been held as excess diesel consumed. The Assessing Officer, therefore, took the cost of diesel at ₹ 29.52 per Ltr and, hence, ₹ 3,59,35,876 has been disallowed out of diesel expenses claimed by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e were put to use and the Assessing Officer has also allowed depreciation thereon, therefore, we clearly observe that the old generators were purchased during the year and these were put to use during the year for manufacturing of high quality products. The Assessing Officer has also ignored the fact that these generators being old ones, consume more diesel in comparison to new generators. 20. From the orders of the authorities below, we also observe that during the year under consideration, the assessee also purchased boiler for steaming process, for improving the quality of product which also consume substantial quantity of diesel and which also contributed to increase in consumption of diesel. From the facts and figures submitted before us on record, we also observe that the quantity and outcome of the sales were better during the year in comparison to immediately preceding year which resulted in improvement in the GP rate of the assessee in comparison to the immediately preceding years. Besides the above factual matrix, we also observe that the purchase of diesel has been shown from IOC and BPCL which was supported by proper purchase invoices issued by IOC and BPCL and the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esel consumption log book, purchase of generators, boilers and six body chakki installed during the year for production of better quality products. The Assessing Officer also ignored a very important fact that besides production of atta, suji and maida, the assessee also started production of high quality choker/bran during the year for which the assessee required increased load of electricity and power which the assessee could not get during the year and maximum use of power was based on generators. The Assessing Officer also ignored another important fact that there was load shedding during the year and on the other hand, the assessee was compelled to install generators, boilers and other equipments to meet the decreased supply of electricity and increased use of power during the year. 22. As we have mentioned hereinabove, the assessee has furnished certain documentary evidence and comparative chart pertaining to the consumption of raw material such as wheat and choker with regard to consumption of electricity, power and use of generator which is a substantial evidence to support the claim of the assessee pertaining to excessive consumption of diesel. During the arguments, bot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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