TMI Blog2018 (12) TMI 982X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, take the amount of profits as may be reasonably deemed to have been derived there from. On careful reading of the order of the learned assessing officer, we do not find that how the assessing officer has come to a conclusion that assessee is showing more than ordinary profits in its books of accounts. According to us, Such analysis has to be with respect to the profits of the comparable units. No such comparable units were examined by the learned assessing officer for holding that assessee has suppressed the contention of the raw material by 8%. AO has not traced that if the material consumption has been under booked by the assessee, whether the assessee is holding excess stock in the books of accounts then what assessee actually physically hold. Naturally when the assessee as under booked the consumption and in real sense has consumed the material higher than what is recorded in the books of accounts then such closing stock itself is inflated of the raw material to the extent of under booking of the raw material consumption. If the consumption of INR 80 is to be replaced by the consumption of rupees hundred then correspondingly the stock, which is overstated by INR 20 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (the learned AO) against the order of The Commissioner Of Income Tax (Appeals) 7, New Delhi (the learned CIT A) dated 3/3/2015 for assessment year 2010 11 wherein the learned AO has raised following grounds of appeal:- a. on the facts and in the circumstances of the case, the learned CIT (A) has erred in deleting the disallowance of INR 3 5188221/ made by the AO in respect of expenses incurred out of books by rejecting the books of account by giving a clear finding of facts that the assessee company had suppressed its promotion expenses to inflate the claim of deduction under section 80 IC of the Income Tax Act, 1961. b. On the facts and in the circumstances of the case, the learned CIT (A) has erred in holding that the books of accounts was not properly rejected as per the provisions of section 145 of the act. Despite the fact that the AO has given elaborate details and basis as to why the books of accounts of the assessee did not give the correct picture of its financial affair. 4. The broad facts culled out from the orders of the lower authorities. Shows that assessee is a company engaged in the assembling of ceiling fans, water heaters at Haridwar. The fans asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fresh air fans etc. and is using hundreds of components for its manufacturing. Some of the parts are manufactured inside the premises, some are procured on job work basis from the vendors and some are bought from the open market. These are then assembled to manufacture the finished product. 3.3 From the facts noted above, it is clear that the assessee did not want to disclose as to how much raw material is required for manufacturing a fan. It is a very strange case wherein the Chartered Accountant of the firm certified consumption of various items at the time of audit but the same were changed during the course of assessment proceedings and after issue of questionnaire by this office. Both the charts filed at the time of filing of return and filed during the assessment proceedings on 25.2.2013 are reproduced hereunder:- Chart furnished at the time of filing of return of income Quantitative details in respect of goods manufactured Description Unit Opening Balance Purchase Manufactured Sale Closing Balance Ceiling Fan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37951 22524 Value of Raw Materials and Components consumed PARTICULARS CURRENT YEAR PREVIOUS YEAR % OF TOTAL CONSUMPTION Imported Nil 5.78 Indigenous 4287.49 2744.29 100% Total 4287.49 2750.06 Chart submitted on 25.2.2013 SI. No. Items Units Current Year Opening Qty. Receipt Qty. Consumption Qty. Closing Qty. 1 Ball Bearing 6201 Nos. 41,193 6,46,000 6,55,965 31,228 2 Ball Bearing 6202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30 639232 8 Body for water heaters(42082) 37951 42082 Total 5130622 5795170 3.5 From perusal of above it is clear that in terms of percentage, the assessee has disclosed manufacturing expenses at 46.9% (5130622/ 10925792 X 100) as against consumption comes on the basis of quantity produced at 54.9%(5795170 10925792 X 100). The total production expenses of the assessee are ₹ 43,98,52,763/- and accordingly the 8% suppression of production expenses by the assessee comes at ₹ 3,51,88,221/ - and accordingly the gross profit of the assessee is ₹ 10,68,437/- against ₹ 3,99,52,596/- as disclosed by the assessee which means the assessee company is not earning any profit from this business but enhanced its profit by suppressing production expenses just to claim deduction u/s 80IC. The assessee was confronted on this point and in compliance thereto the AR of the assessee furnished written reply dated 25.2.2013 as under:- This is to certify that we have audited and signed the Balance sheet and Prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur knowledge and belief there is no financial impact on the balance sheet and Profit and Loss Account of the company due to said error in reporting of quantitative details. The above certificate has been issued at the request of the assessee. 3.6 The contention of the assessee regarding wrong quantitative details and correct details furnished were examined and found that while furnishing details of consumption during the assessment proceedings, the assessee did not disclose use of starter for manufacturing of fans which is shown as consumed at 5472 14. Similarly, the down rod used at 634830 was not used while furnishing reply during the assessment proceedings. Further, the assessee company vide their reply has also changed quantity of closing stock e.g. ball bearings in closing stock was shown at 101697 and later on the same was reduced to 31228. In this exercise, the assessee company inflated number of blades in closing stock from 34726 to 100932. The assessee company tried its best to match quantitative figures in total but value thereof is not verifiable from the records maintained. In the above noted chart filed on 25.2.2013, the AR of the assessee did not furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15.3.2010 1092 1,74,720 20 0156 16.3.2010 726 1,19,790 21 0155 16.3.2010 834 1,37,610 22 0157 17.3.2010 630 1,03,950 23 0158 17.3.2010 720 1,18,800 24 1780 17.3.2010 1050 1,77,480 25 1785 18.3.2010 540 91,680 26 0159 18.3.2010 582 96,030 27 0160 18.3.2010 756 1,24,740 28 1815 22.3.2010 1170 1,98,300 29 0170 23.3.2010 648 1,02,384 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stimated on the basis of material available on record. In the instant case the assessee company has suppressed its expenses about 8% and thereby claimed enhanced deduction u/s 80IC. It appears that the assessee company has incurred expenses from undisclosed sources without recording the same in the books of accounts therefore, the expenses incurred out of books of accounts is estimated to the extent of ₹ 3,51,88,221/-. Accordingly, the deduction claimed u/s 80IC at ₹ 1,85,76,062/- is hereby disallowed and expenses incurred to that extent without recording the same in the books of accounts is hereby added to the total income of the assessee company u/s 69C of the I.T. Act, 1961. 'The addition of ₹ 3,51,88,221/- includes disallowance of deduction of ₹ 1,86,76,62/- which means that the addition of ₹ 3,51,88,221/- is added to the total income declared by the assessee. 5. Assessee preferred an appeal before the learned Commissioner of income tax appeals who deleted the addition while para number 6 of his order as under:- 6. Ground No. 5, 6, 7, 8, 9,10, 11 A 12 are in respect of addition of ₹ 3,51,88,221/- respect of expenses incurred out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es the AO not to accept the method of accounting of the appellant if he is of the opinion that the method employed is such that income cannot be properly deduced, there is no power with the AO to impose his own method upon the appellant. 6.8. If the appellant's method of accounts has been accepted regularly for a number of years as his basis for assessment, the AO shall not be justified if for any particular year, he refuses such method as the basis for assessment for that year. Only on conjectures books of account cannot be rejected. 6.9. If there is a system whereby profits can properly be deduced, even by appropriate adjustments, the AO is bound to accept such profits [CIT v Krishnasanim Hudafiar 53 ITR 122,128,129 (SC). 6.10. What is to be determined by the AO in exercise of his power is a question of fact is whether or not income chargeable under the Act can be properly deduced from the books of account and he must decide the others, with reference to the relevant material and in accordance with correct principles [British Paints India Ltd 188 ITR 44,49 (SC)]. 6.11. Accounts regularly maintained in the course of business have to be taken as correct unle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal found the accounts to be defective or incomplete. Both, CIT(A) as well as the Tribunal were satisfied with the stock register maintained by the assessee and appreciated the fact the raw material, i.e., the fabric purchased by the assessee was to be measured in metres, whereas the finished products were to be counted in numbers, NO reasonable ground has been made out for this Court to go in to this question and revisit the finding returned by the CIT(A) and the Tribunal. The question as to whether the assessee had duly explained the drop in the GP ratio or not was a question of fact. It is not as if the assessee did not give any plausible explanation for the. fall in GP during year in question. He gave a number of reasons in this regard and the explanation given by the assessee having been accepted by the CIT(A) as well as by the Tribunal, it is not for this Court to go into such a question of fact. 6.16. The most important fact is that sufficient opportunity has not been given to the appellant before invoking 145. The appellant is the business for long and has been consistently filing its return of income on the basis of audited accounts. The AO has not given s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing officer. He submitted that the details of sundry creditors and details of finished also submitted which is also placed at page number 45 52 of the paper book. He extensively read the note on claim of deduction under section 80 IC placed before the learned assessing officer as well as documentary evidences for changing address of registered office and confirmation for sanction of loan. He further referred to the letter dated 18/2/2013 submitted before the assessing officer where the assessee has briefly explained the manufacturing process as well as produces the copy of purchase bills and the details of picking material along with job work charges. He further stated that the details of all the expenses were submitted before the assessing officer. In the end, he submitted and extensively referred to the reply filed by the assessee on 25/2/2013 showing the correct quantitative details certified by a chartered accountant and referred to his submission dated 27/2/2013. In the end, he stated that the addition made by the learned assessing officer is not sustainable and to support this, he extensively read his submissions made before the learned Commissioner of income tax appeals as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed by the assessee. Furthermore, the learned AO could not find out any other discrepancy in the books of accounts. It was claimed by the assessee that the books of accounts are duly covered under the supervision is of the Excise authority and sales tax authorities, no infirmity has been pointed out by them. According to us, the assessing officer has merely calculated the suppression of the production expenses based on arithmetic calculations and could not find out any evidence to support his finding. In the audit report submitted by the assessee, the physical verification of the goods has been referred to in the audit report in para number (ii) has also not been rebutted by the learned assessing officer. During the course of assessment proceedings, the assessee has explained the manufacturing process and according to that, the assessee has submitted the complete details with respect to the quantitative details. Further, no infirmity is have been pointed out by the learned departmental representative in para number 6 of the order of the learned Commissioner of income tax appeals in deleting the above addition. 9. Further on careful reading of the provisions of section 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which are also subject to excise of the closing stock is incorrect. In that particular sense the whole exercise carried out by the assessing officer is devoid of any merit. 11. The allegation of the learned assessing officer is that assessee has shown the higher profit in the books of accounts to claim the excess deduction under section 80 IC of the income tax act. To show the higher profit the assessee either might have inflated the assets or have understated certain liabilities, in absence of this, the profitability cannot be shown at higher figure. The corresponding effect of the higher profit has not been identified by the learned assessing officer. No indication has also been drawn by the assessing officer that how the assessee has inflated its profit and correspondingly inflated its assets or deflated its liabilities. According to us. This is the simple accounting concept which should have been followed by the learned assessing officer before making the addition. 12. In view of this, we find no merit in ground number 1 and 2 of the appeal of the revenue and hence it is dismissed. 13. In the result, appeal filed by the revenue is dismissed. Order pronounced in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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