TMI Blog2018 (5) TMI 1589X X X X Extracts X X X X X X X X Extracts X X X X ..... claim is denied - Decided against the assessee Additions u/s 41(1) - balances lying with the sundry creditors - Held that:- assessee is directed to file the required evidences to demonstrate the credit balances of the sundry creditors - AO shall grant reasonable opportunity of being heard to the assessee in accordance with set principles of natural justice - allowed for statistical purposes. - ITA No. 949/PUN/2016, ITA No.995/PUN/2016, ITA No.996/PUN/2016, C.O.No.09/PUN/2018 - - - Dated:- 23-5-2018 - SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM Assessee by : Shri Abhay Avchat Revenue by : Shri Mukesh Jha, JCIT ORDER Per D. Karunakara Rao, AM There are three appeals and one Cross Objection under consideration. The appeals ITA No.995 and 996/PUN/2016 are filed by the assessee involving A.Yrs. 2008-09 and 2010-11. The appeal ITA No.949/PUN/2016 is filed by the Revenue against the order of CIT(A)-I, Aurangabad, dated 25-02-2016. Assessee has also filed C.O.No.09/PUN/2018 against the said appeal of the Revenue. Considering the commonality of the issues in these appeals, we proceed to adjudicate these appeals in this composite order. We shall firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax. In view of the above facts, I hold that the AO was right in levying penalty u/s.271(1)(c) of the I.T. Act in respect of excessive claim u/s.10B on income from other sources. However, the minimum penalty @100% of tax sought to be evaded with reference to false claim of ₹ 16,63,780/- u/s.10B works out to ₹ 5,65,685/-. I therefore direct the AO to reduce the quantum of penalty from ₹ 17,23,306/- to ₹ 5,65,685/- . The first and third grounds of appeal are therefore partly allowed. The third ground of appeal pertaining to violation of principles of natural justice does not appear to be of any consequence as the appellant has been provided sufficient opportunity by the CIT(A) and Hon ble Pune Tribunal. This ground of appeal is accordingly dismissed. 5. Aggrieved with the order of CIT(A) the assessee is in appeal before the Tribunal with the aforesaid grounds. 6. Before us, on the issue of recording of satisfaction by the AO, Ld. Counsel for the assessee raised an oral ground (legal issue) and submitted that the AO initiated the penalty proceedings on one limb and levied the penalty on another limb of section 271(1)(c) of the Act. Ld. Counsel submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sachin Manohar Deshmukh Vs. ACIT ITA No.3767/Mum/2016, dated 23-03-2018 has dealt with an identical issue and quashed the penalty order of the AO. The operational para No.12 of the order of the Tribunal is extracted here as under : 12. We have given a thoughtful consideration to the issue before us, and after deliberating on the facts are of the considered view that now when the A.O after recording his satisfaction had initiated the penalty proceedings in the body of the assessment order for furnishing inaccurate particulars and concealment of income, therefore, putting the assessee to notice and calling upon him to explain as to why penalty may not be imposed on him under Sec. 271(1)(c) for concealment of income or furnishing of inaccurate particulars of income, followed by imposing of penalty under Sec. 271(1)(c) in his hands for furnishing of inaccurate particulars of income‟, can in no way be construed as having fairly put the assessee to notice as regards the default/defaults for which penalty was sought to be imposed in his hands. We are of the considered view that a failure on the part of the A.O to clearly put the assessee to notice as regards the default/defau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,05,18,770/- made on account of additional production allowing deviation from consumption of raw material upto 20% from minimum raw material consumed in production. 2. On the facts and in the circumstances of the case, the Ld.CIT(A), Aurangabad has erred in stating that the AO has rejected the book results u/s.145(3) of the I.T. Act without pointing out any material discrepancy in the books of account or in the purchases and sales recorded by the assessee or brought any evidence on record to suggest that the assessee was actually indulging in suppressed sales, even though when the assessee has not submitted any details to explain the excess electricity consumption. 14. Assessee raised the following grounds and the same are extracted here as under : On facts and circumstances of the case and in law 1. The Ld. AO has erred in making and the Ld.CIT(A)-1, Aurangabad has erred is upholding the disallowance of exemption/deduction u/s.10B of the Act with respect to certain business income. 2. The Ld. AO has erred in making and the Ld.CIT(A)-1, Aurangabad has erred in upholding the addition u/s.41(1) of the Act of ₹ 18,20,051/- under the pretext of non-genui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur attention to the tables mentioned by the AO in the assessment order and submitted for confirming the order of CIT(A). He also read out the relevant lines from the contents of Para No.5 of the CIT(A) to demonstrate that it is a case of mere estimations having no evidence whatsoever to demonstrate the allegation of unaccounted production/sales outside the books of account. 19. Further, Ld. Counsel for the assessee filed the written submissions on this issue and the same are extracted here as under for the sake of completeness : (i) There is nominal variation in consumption of raw material used in production of finished goods. The Assessee Company has consumed entire raw material in production of finished goods and has accounted for whole of the goods produced either as sale or finished goods. (ii) Further the assessee respectfully submits that it is a multinational company of good repute and all the transactions are recorded in books of accounts are genuine and supported with documentary evidences. The Company had carried the documents asked for verification during the course of scrutiny. The Company has consumed all the material in production and the same is recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Similarly no assessee can be expected to maintain the day to day electricity consumption register, day to day raw material consumption register and day to day production records. The AO has worked out additional production in Metric Tonnes as evident from page 4 of the assessment order whereas the appellant company had given the figures of consumption as well as production in numbers. By no stretch of imagination, the flow-meters and related accessories could have been measured in Metric Tonnes as done by the AO. The appellant company is manufacturing the flow meters as per the requirement of the customers. Thus the finished products of the appellant company are customized or tailor made. The various raw materials consumed by the appellant company include covers, flowtubes, housing, housing post, meter body, sensors and power supply. Similarly the finished products are also of different types namely Promag, Promass, Prowirl and Pro sonic. Since the finished products are tailor-made, the consumption of raw materials like covers, flowtubes, sensors etc. will vary for each product. There cannot be fixed consumption of flowtubes, sensors, covers for various type of flowmeters. For ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were at ₹ 30,68,24,440/-. The counsel of appellant has also furnished copies of orders passed by the Deputy Commissioner, Aurangabad dated 27.06.2014 wherein the sales duly returned by the appellant had been accepted and refund of ₹ 1.64 crores was granted to it. This being the case, the other Government Authorities namely VAT officer had not found any discrepancy in the sales recorded by the appellant company. The AO on the other hand, has worked out suppressed sale on the basis of month wise comparison of raw material consumption and then applied a mathematical formula to work out additional production. Even the higher consumption of electricity could not be a basis for working out the suppressed production. It was held by the Hon'ble Pone Tribunal in the case of ITO Vs. Balaji Seeds Processing Pvt. Ltd. in ITA No.1182/PN/2010 dated 26.04.2012 that for suppression of sales, there should be something on record to suggest that the assessee had received any extra money over and above what had been shown in the audited books of account. In the cited case, the AO had noted that the units of electricity consumed per ton of Copra were comparatively higher than that of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nth in which electricity consumption was minimum. The method of computing the so-called suppressed production was not justified in absence of sound basis for same. The consumption of the electricity for the manufacturing of mild steel ingots/billets depended on various factors like quality of raw material which was the major input, voltage of the supply, power interruptions, mechanical and electrical breakdowns and the chemical composition of the liquid metal which had to be finally cast into ingots/billets. The AO failed to appreciate these facts and did not attempt to establish a direct nexus between the production and electricity consumed for the manufacture of round/TMT bars and arrived at a conclusion that there was an excess consumption of electricity resulting in suppressed production and alleging that the assessee company had indulged in unaccounted production. It was finally held that each year of the assessment was independent and evidences found relating to assessment year 2006-07 could not have an adverse impact on the assessments of the assessee company from the assessment years 2000-01 to 2005-06. Therefore, rejection of books for these years purely on the ground that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n : Sr. No. Particulars Amount Rs. 1 Interest on Bank deposits 9,70,026 2 Interest on other deposits 1,46,862 3 Sale of scrap 9,03,823 4 Miscellaneous Business income 33,148 Total 20,53,859 The last two items of receipts are from business hence considered by CIT Appeal however the first two being interest on deposits were not considered. To that extent deduction u/s.10B was recomputed and not allowed. The assessee in earlier two years, i.e. A.Y. 2007-08 and 2008- 09 has not contesting/not pressed the same. 26. After hearing both the sides and perusing the order of CIT(A) on this issue, we find the order of CIT(A) is fair and reasonable and does not call for any interference. Accordingly, Ground No.1 raised by the assessee is dismissed. 27. Ground No.2 relates to addition of ₹ 18,20,051/- ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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