TMI Blog2018 (5) TMI 436X X X X Extracts X X X X X X X X Extracts X X X X ..... followed [1991 (11) TMI 2 - SUPREME Court] There is no relevant material to justify the findings of the A.O. only for the present assessment year. The authority has accepted the per quintal rate of cost of production in respect of other assessment years as indicated above. Therefore, the demand and the assessment order in terms of Section 69(C) is not justified. It is an arbitrary determination based on irrelevant parameter and, therefore, on this issue we find that the Tribunal has proceeded on a wrong premise - Decided in favour of assessee. Packing material addition - cost of packing material with regard to the assessee Unit as well as two other Units i.e., M/S New Kashmir Rice Mills and M/s Kashmir Rice and Oil Mills differs - Held that:- Appellant’s claim is not supported by inventory details of the assessee-Unit to substantiate the plea that some of the bags were left out from paddy purchases and, therefore, the cost of packing material has come down - In the absence of material and a clear explanation from the assessee there cannot be two opinions that the cost of packing material should differ from one Unit and the other Unit, more so when it is dealing with the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Kashmir Rice Oil Mills (15 years old). The claim of the assessee under Section 80 IB of the Income Tax Act, 1961 is not in dispute and the A.O confirmed that the assessee fulfills the conditions for deduction under Section 80IB, subject to the other issues raised in the present case. The A.O. also states that purchases, sale and expenses debited to profit and loss account are duly vouched, meaning thereby records are in order. The books of accounts were also examined. There is no error apparent recorded. The manufacturing account and trading was also examined. 6. During the course of assessment proceedings, A.O. was of the view that the assessee-M/S Kashmir Super Rice Mills was showing abnormally low expenses in respect of labour and wages and also in respect of packing material. This according to the A.O was done by the assesse to take the benefit of deduction under Section 80IB, so that the profits can be shown at a higher level and at the same time showing expenses at a lower level which would otherwise tantamount to unaccounted money in terms of Section 69 (C) of the Income Tax Act, 1961. 7. To compete the assessment on this premises a show cause notice was issued to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sesse supported it by the documents submitted before the A.O. who has also stated that it is in order. 12. In addition to that it was pleaded by the assessee that the show cause notice of the A.O. is based on mere presumptions, surmises and conjectures and there is no material to support his doubt except referring to the cost of production of the other Units. Insofar as, the expenditure relating to packing material is concerned, the explanation of the assessee was that paddy is procured from farmers in bags and the old bags leftover are utilized for the Unit to pack the goods. The cost of packing material in M/S Kashmir Super Rice Mills is at ₹ 3,81,890/- on the sale of 28870 quintals of rice. The rate per quintal on packing material, therefore, was shown at ₹ 13.22 per quintal. Whereas, in M/S New Kashmir Rice Mills and M/s Kashmir Rice and Oil Mills the expenditure on packing material is at ₹ 2,26,371/- on the sale of 13551 quintals which works out to ₹ 16.95 per quintal in respect of packing material. 13. Both these contentions were considered by the A.O. and rejected in the following matter:- The reply of the assessee has been examined. The ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the A.O. passed an order determining additional sum of ₹ 8,18,551/- on account of the expenditure incurred on labour and wages and addition of ₹ 1,07,714/- made on account of the expenditure incurred outside the books of account on packing material, as unexplained expenditure treating it as income in terms of Section 69(C) of the Act and for consequential action. 15. Section 69(C) of the Income Tax, Act, 1961 reads as follows:- 69 C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the 3 Assessing] Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year.] Provided that notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assesse shall not be allowed as a deduction under any head of income. 16. An appeal was filed by the aggrieved assessee before the CIT (A) who vide order dated 16.07. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of labour and wages and also packing material so that he can claim higher deduction u/s 80IB. In our opinion, the matter has to be considered in the light of human probabilities. We are to go by surrounding circumstances and it could be inferred from the surrounding circumstances. When we infer from the surrounding circumstances, we are to agree with the findings of the lower authorities. The fact of incurring higher expenditure by M/s Kashmir Super Rice Mills cannot be ruled out and direct evidence for incurring such expenditure would not be available and inference about such expenditure has to be drawn on the basis of circumstances available on record. Having regard to the circumstances and facts recorded by the A.O., te inference could reasonable be drawn that the assesse had incurred the unaccounted expenditure in M/S Kashmir Super Rice Mills. The explanation offered by the assesse cannot be accepted and the addition, is to be confirmed. Accordingly, the finding of the CIT (A) on these grounds is confirmed. 6. However, the assessee s counsel submitted that in the assessment year 2004-05 and 200506, the same facts have been accepted on the same reasons. In our opini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he A.O is counterproductive because better performance and lower cost of production is faulted. If a contra view is taken then a question may also arise that the old Units are showing higher expenditure to avoid the payment of tax. Hence, the hypothetical measure of assessment cannot be accepted. 30. Therefore, the issue has to be considered on the basis of materials which are relevant to the determination of the cost of production of rice per quintal based on the type, age and quality of the machinery and its working capacity. This exercise has not been done. A mere comparison with old machinery or Unit will not justify the assessment. 31. The relevant documents which were produced by the assessee were found by the A.O to be in order and duly vouched. Meaning thereby, that there is no serious error in the records produced. The source of doubt appears to be on the basis of comparative of cost of production between new Unit with that of two older Units. This is deprecated. 32. The Commissioner of Income Tax (Appeals) has not dealt with the matter, except confirming the findings of the A.O. in a casual manner with no apparent discussion on merits. We do not see any reason to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lal Chand Ambica Ram Vs. Commissioner of Ibncome Tax, reported in (1959) 37 ITR 288 . The Hon ble Supreme Court in the said case held as under: .If the entries in the books of account in regard to the balance in Rokar and the balance in Almirah were held to be genuine, logically enough there was no escape from the conclusion that the appellant had offered reasonable explanation to the source of the 291 high denomination notes of ₹ 1,000 each which it encashed on 19th Jan., 1946. It was not open to the Tribunal to accept the genuineness of these books of account and accept the explanation of the appellant in part as to ₹ 1,50,000/- and reject the same in regard to the sum of ₹ 1,41,000. Consistently enough, the Tribunal ought to have accepted the explanation of the appellant in regard to the whole of the sum of ₹ 2,91,000 and held that the appellant had satisfactorily explained the encashment of the 291 high denomination note of ₹ 1,000 each on 19th Jan. 1946. 37. This decision is relied for emphasising that A.O has accepted the books of account. 38. The finding of the Tribunal in this case appears to be primarily based on human prob ..... X X X X Extracts X X X X X X X X Extracts X X X X
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