TMI Blog2015 (1) TMI 863X X X X Extracts X X X X X X X X Extracts X X X X ..... h. The appellant's cases for the A.Y. 2006-07 and six years prior to that were completed after thorough scrutiny but no such additions of suppressed production and sales outside the books were stated to be made and if there were any, the same were not brought on record by the Assessing Officer. It is surprising that the books of accounts were accepted for seven continuous years on the basis of same accounting system by the Assessing Officer whereas the accounting system for the eighth year is being found faulty. The addition was made only on possibilities and probabilities which cannot be approved in absence of evidence and without any material on record. No specific error in the findings of the CIT(A) could be pointed out by the Departmental Representative. We also observed from the order of the CIT(A) that the Gross Profit shown by the assessee during the year is 23.63% which compares favourably with the Gross Profit of 21.38% shown in the immediately preceding assessment year. - Decided against revenue. Disallowance towards additional depreciation on plant and machinery - CIT(A) confirmed disallowance on the ground that the conditions required for claiming such depreciati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... astage in Kg. Once again a notice u/s 142(1) of the IT Act dated 18.11.2009 was issued to the assessee requiring him to furnish the details as stated above. However no such details were filed. In view of non production of details and Basic Records such a bill, voucher etc. a notice u/s 142(1) dated 24.11.2009 was served and requiring him to produce the books and account, bill, voucher and the details as required in the earlier notices. However the situation remains same and assessee fails to produce the require details on stipulated date. Subsequently a show cause notice u/s 271(1)(b) of the IT Act was issued on 02.12.2009 for non compliances made by the assessee for the notices issued on 08.10.2009 and 18.11.2009. In response to this show cause notice assessee has filed his reply on 04.12.2009 and stated that considerable information has been filed and also contended that the company and the C.A have got other assignment also and therefore the show cause notice may kindly be withdrawn. However, the assessee has not offered any comment in respect of the non furnishing of information and non production of basic records which were required in the notice. It is important to note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt or not. It means that the assessee is not showing true yield and thereby the book result is not reliable and same is required to be rejected u/s 145 (3) of the I T Act and income is to be estimated. Please offer your explanation. In response to this notice the assessee has filed the reply on 24.12.2009 which is reproduced as under : In your above letter you have stated that the yield of finished products is low and that the by-product sodium chloride is not stated in stock. In reply to this we would like to state that we have submitted the quantity details in our previous submission dated 23.12.2009 which is duly verified by your office in the excise quantity registers (RG-1 and RG 23A Part-I) produced for verification in which no discrepancies were found. Also in Annexure-I to that letter, we have shown the approximate percentages of concentration of various raw materials and finished goods and have also stated that by-product sodium chloride is produced which is waste and disposed off in waste dump as it is not fit for consumption and hence it is not included in the excise records as there is no commercial value. The reply of the assessee is carefully considered in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56 to 48.86, then where the rest of weight i.e nearly 50% has gone . The assessee has not offered any explanation on this issue which was specifically asked in the show cause notice. The assessee has also not quantify the production of Sodium Chloride (common Salt) in the excise Register in the pretext that there is no commercial value of the same and also not maintaining any kind of proof in respect of the quantification of the Sodium Chloride . Therefore the quantity of the Sodium Chloride produced during the year and its commercial value is highly suspicious. In view of the above, the quantitative ratio of raw material vis-avis final product is analyzed from the records of the assessee. It noticed that there are two processes to obtain Potassium Nitrate, the final product ; A. Weak Nitric Acid + Soda ash - Sodium Nitrate - Sodium Nitrate + Potassium Chloride Potassium Nitrate +Sodium Chloride B. Sodium Nitrate Solution - Sodium Nitrate Soln. + Potassium Chloride Potassium Nitrate +Sodium Chloride During the year the assessee has applied both the methods simultaneously. The ratio of the raw material in which they are mixed are derived from the data of earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve table is 0.54 % and the material which is left is only having ratio of 0.17% and this ratio could not yield the finished goods as shown in the books of the assessee. Therefore, the yield shown by the assessee is not true. If it is presumed that the all of the Potassium Chloride i.e 570MT is consumed in the same ratio as arrived in above stated chart then it would requires 1054 MT ratio is 0.54) Sodium Nitrate and after reaction of the both chemicals, Potassium Nitrate of 812MT ( 50% yield* of the weight of both the material) would be produced. If this quantity is merged with the quantity of Potassium Nitrate which was already been produced through procedure A the total weight of the Potassium Nitrate (final product) arrived at 2321MT (1509MT+812MT) which is much higher than 2175MT as shown in the books i.e This indicates that the purchases are not genuine. This also confirms that the books of accounts are not showing true result of the production. More importantly these conclusion is arrived under two constraints firstly the ratio of concentration is taken as per the assessee submission which is highly suspicious as discussed above and secondly the yield is considered as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant are subject to audit as per Company Law and as per Income-tax Act by the qualified Chartered Accountants. The auditors in both of the audits had not quantified any defect or deficiency in maintenance of books of account and other records. The assessee's records are also subject to audit by the Central Excise authorities and the Assessing Officer had not brought on record any irregularity or deficiency noticed in such audit by the Central Excise authorities. 2.3 The Ld. Counsel has brought on record that in the chemical process industry, various processes and compositions are always tried with an intent to improve the profitability. In the process, the change in mix of composition of input materials is effected at times. It happens that the change in input composition may result in lower yield with lower cost of production and improved profitability/gross profit, the achievement of which is the intention of every business entity. He further submitted that there are two methods of procuring Sodium Nitrate, which is again mixed with Potassium Chloride to give the final product i.e. Potassium Nitrate. Either one can opt for combining Weak Nitric Acid and Soda Ash to get ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by which 812 MT of Potassium Nitrate was to be produced. The total production thus in his view was to be 2321 MT (1509 MT by first process + 812 MT by second process) which was much higher than the production of 2175 MT shown in the books of account. If, it is admitted for the sake of convenience, it goes to say that the appellant had purchased the excess Sodium Nitrate and not recorded in the books of account. First of all, there is no evidence on record of such unaccounted purchase of Sodium Nitrate and secondly, why the appellant will like to purchase the raw material out of books where it is the expenditure for it. It is also against the stand of the Assessing Officer wherein at other place at page-8.of the assessment order, he had observed that the purchases are not genuine. I agree with the contention of the Ld. Counsel that the decline in the weight is partly attributable to burning loss and partly due to the fact that when the final product viz., Potassium Nitrate is produced, Sodium Chloride is simultaneously produced that is in watery form. This explains the weight loss. It is to be seen that the Chemistry is not mathematics where it can be calculated in a simple method. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppressed production and sales outside the books were stated to be made and if there were any, the same were not brought on record by the Assessing Officer. It is surprising that the books of accounts were accepted for seven continuous years on the basis of same accounting system by the Assessing Officer whereas the accounting system for the eighth year is being found faulty. The addition was made only on possibilities and probabilities which cannot be approved in absence of evidence and without any material on record. 2.7 Considering the above discussion, it is held that the Assessing Officer was not justified in rejecting the books of account without bringing on record even a single instance of inflation or suppressing of purchases or sales outside the books of account. He had not brought any evidence on record to justify the suppression of purchases of Sodium Nitrate not so recorded in the books of account. The books of account cannot be rejected only on the ground that the appellant had not maintained the stock register of consumable raw materials. It is pertinent to mention here that by changing the process of production, the appellant had substantially reduced the cost of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. 8. The Assessing Officer has held as under:- 5. Disallowance of additional depreciation of ₹ 90,908/-. On verification of the ledger it is noticed that the assessee has claimed additional depreciation on addition to plant and machinery account during the year. A show cause notice dated 10.12.2009 was issued and required to furnish explanation as to why the said depreciation should not be disallowed as no new machinery is purchased during the year. The assessee in his reply has stated that: Assessee has undertaken some extension and for which new machinery were installed which is part of the present machinery and has helped to have better production. Thus the parts used have been capitalized and for which additional depreciation is claimed. As per the provisions of the IT Act the essential criteria for claiming additional depreciation is to acquired and installed new machinery and plant, however in this case majority of expense is made towards up keeping and running of old plant and machinery. The intention of the legislature behind allowing additional depreciation is to give incentive for purchasing of new plant and machinery for more production. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dd: Additional Depreciation on new purchases 90,908 32,44,941 The ld. A.O on the basis of above particulars allowed the normal depreciation and disallowed the additional, depreciation on the reason that the addition to plant machinery is for upkeep of existing machinery and it does not add to any further production. Copy of ledger account of Plant Machinery is attached vide page no.45 46 of the paper book. It is with respect submitted that the provisions relating to allowance of additional depreciation are governed by sec. 32(1)(iia) and when same is perused, it is evident that a further sum equal to 20% of the actual cost of plant machinery is to be allowed as deduction under clause (ii) which deals with allowance of normal depreciation. There is no reference to creation of any additional capacity etc. as it existed up to the assessment year 2005-06. In the case of the appellant, where the ld. A.O. himself considers the addition to the plant machinery during the year as new for the purposes of allowance of normal depreciation, there is no justification in his taking a different stand in the allowance of additional depreciation which is prescribed at 20% of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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