TMI Blog2020 (5) TMI 575X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of such mines which again cannot be accepted. Without getting into the merits of the formula so arrived by the AO as we find ourself not competent enough to comment upon, we find that effectively, the AO has tried to determine the quantum of clay which could potentially be extracted from the mines and that s where whole case of the Revenue rest. The question for consideration here is not the potential extraction of clay rather the actual clay which has been extracted from the mines and which has been sold/dispatched during the year under consideration and which has not been disclosed in the return of income and what credible material is available on record in support of such findings. There is no material on record and no finding recorded by the AO that quantum of clay so determined by him as part of suppressed production has been actually dispatched and sold and more so, when the assessee s activities comes under the jurisdiction of State Mining Department and both its production and dispatches are closely monitored by the Mining Department As held in case of CIT vs. Shri Girija Smelters (P) Ltd [ 2014 (10) TMI 890 - TELANGANA AND ANDHRA PRADESH HIGH COURT] the occasion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.2 That, the Ld. CIT(A) has further erred in upholding the application of provisions of section 145(3) of the Act merely by alleging that the primary record of production was not maintained by assessee by completely ignoring the fact that daily production recorded maintained at mines was itself the primary record of production. Therefore, the action of Ld. AO in rejecting the books of account of assessee deserves to be held bad in law. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in sustaining the trading addition of ₹ 70,00,000/- out of the addition of ₹ 75,00,000/-made arbitrarily by Ld. AO being a lump sum / estimated addition without any basis. Thus, the addition of ₹ 70,00,000/- sustained by Ld. CIT(A) deserves to be deleted. 2. Briefly stated, the facts of the case are that the assessee owns 3 mines situated at Radhera and Sankhla Ki Basti in and around the vicinity of Bikaner and engaged in the business of mining of the clay. The assessee also owns 3 grinding units for converting clay lumps into clay powder and these units are situated at Guda. The assessee is also engaged in trading of clay. It purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies amounting to ₹ 1,13,06,791/- and held that from the perusal of trading sales, it reveals that gross profit rate in trading of clay varies from 18.57% to 32.85%. It is also seen that the assessee has made purchases from its sister concern M/s Hemendra Minerals at higher rate as compared to other concerns hence the gross profit earned on such transaction is lower. Similarly, when sales are made to sister concern, the gross profit earned is lower. Hence it is not possible to verify the actual gross profit earned by the assessee on the trading of clay clay powder. The said findings of the AO have been confirmed by the ld CIT(A), however, there is no reasoning which is discernable from the order of the ld CIT(A) on the basis of which he has confirmed the findings of the AO. 5. During the course of hearing, the ld AR submitted that as regards the trading activities with the persons specified u/s 40A(2)(b) is concerned, the same are at the prevailing market rates. The details of the same were furnished before learned Assessing officer during the course of hearings and it was submitted that in Shri Kolayatji, there were different areas of clay, where different quality of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so recorded by the Assessing Officer, he has restricted his findings limited to discrepancies in consumption of diesel, and expenses pertaining to transportation and cartage. As per the Assessing Officer, on the basis of test check basis of the vouchers produced by the assessee, it is found that the expenses have been incurred on number of vehicles which are not owned by the assessee. It was further observed that the expenses pertaining to sister concern M/s Hemendra Minerals were also debited in the accounts of the assessee. Further, the assessee has lifted 100 litres of diesel however, the assessee did not maintain day to day consumption of the diesel so lifted. Regarding transportation and cartages expenses, it was noticed by the Assessing Officer that as against claim of ₹ 6,87,269/- in the preceding year, the assessee has claimed transportation expenses of ₹ 30,85,671/- and therefore, the assessee was asked to produce complete bills and vouchers as well as to link transportation and cartages expenses with sales bills. In response, the assessee filed details and records which were put to test check by the AO. The assessee has also explained that due to increase i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of non-verifiability need to be read along with other discrepancies to arrive at the final conclusion regarding non-reliability of books of accounts which we shall be discussing in the subsequent paragraphs. 11. Now coming to the main issue of suppression of production by the assessee and apparently the main reason for rejection of books of accounts as discernable from the assessment order. 12. In the show cause notice, the Assessing Officer has stated that the production shown by the assessee is to be verified vis-a-vis the facts revealed from the examination of the records produced and examination of the mining mate (the person employed at the site) and other factors. It was found that the firm is running mines at 3 places. In the process of mining, firstly the overburden is removed to reach the clay bed and for the purposes, the excavator the dumper/tipper are mainly hired and labour is hired on daily wages. The expenses of excavator dumper/tipper are booked under the head mining expenses and expense of tractor trolley is booked under the head Cartage expenses . The detail of labour on contract is maintained in wages register of overburden removal. However, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r keeping in mind the volume of men and machinery employed by the assessee on the available mine at the time of relevant year i.e, F.Y 2009-10, I have come to the conclusion that the assessee s A/R s submission is without any valid basis and not supported with the primary records as such is not tenable and it is established that the assessee has suppressed production at least to the tune of 29,925.30 MT of clay which is valued at ₹ 66,43,417/-. Against the said findings of the AO, the assessee carried the matter in appeal before the ld. CIT(A) who has since confirmed the said findings and now the assessee is in appeal against the said findings. 13. During the course of hearing, the ld. AR submitted that books of accounts of assessee were subject to audit by qualified chartered accountant and who had not pointed out any defect in the books so examined. The appellant had produced such audited books of accounts alongwith the supporting vouchers before ld.AO during the course of assessment proceedings, which were examined on test check basis by the learned assessing officer and no discrepancy whatsoever was observed. However, ld.AO has invoked the provisions of section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were verified while doing the royalty assessment by the mining department. No difference was pointed out by the Mining Officer in the production declared by the appellant and sales made in the assessment made. In support of such contention, Copy of royalty assessment Order, copy of monthly return for the fraction period, details of production at mines and dispatches from the mines with reconciliation with the production and dispatches as per monthly returns shown by the appellant and assessed by the mining office were furnished before lower authorities, however the same were brushed aside without pointing out any single discrepancy therein. Moreover, ld. AO has also not found any sales without issuing sale bills. 15. It was submitted that in the instant case, production register itself is Primary record, wherein no discrepancies have been pointed out by the Royalty Department or by the AO, thus the allegations made by ld. AO are not sustainable. So far as the case of assessee is concerned, production records as furnished before mining department were accepted without any adverse findings and in fact, copy of royalty assessment order was filed before the ld. AO alongwith monthly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout appreciating that AO has merely done round about and rather reverse working and even for this working ld. AO has taken estimated generalized figure instead of a specific and day-to-day production figure which are maintained by assessee. 18. Without prejudice to above, it was further submitted that estimation of production by considering overburden removal, length and width of the space available for mining depth / height of instant mine, volume and density of clay etc. is purely a technical matter. It would be appreciated that AO is not entitled to make his own estimation upon technical issues as has been held by Hon ble Supreme Court in the case of Saraswati Industrial Syndicate Ltd. Ltd. reported in 237/ITR 1/ 103 Taxman 395 (SC). Thus, if at all, ld.AO had any reservations in accepting the production declared by assessee, proper course of action was to seek the opinion of Mining department officials and only if the same is found against the assessee, AO could have made addition after giving opportunity. It is a trite law that action of rejecting books and trading results declared by assessee cannot be made so light heartedly and ld. AO has to have strong evidences agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents of two persons, one Sh. Raghavendra [mining mate of Guda Radhera I mines and another Sh. Rupa Ram (Labour)]. Both these persons were not responsible for quantity of mined clay on day-to-day basis or even otherwise also. In the statements so recorded, various questions were asked about the procedure and mining process, mainly overburden removal, digging of mine etc. Apart from it Shi Raghvendra was asked about quantum of production with machines and without machines, which was not exactly in his domain. Same is evident from the perusal of the statement of Shri Raghvendra. It is seen that at Q. No. 4 he was asked about who are working on mine where he is working and what are their works. He has replied that his work is related to safety of mine and to tell the labour for work for digging (as to where and to what depth labour should dig considering the overall safety of mines). Shri Mittal was Mining engineer and overall incharge. He also stated that details related to production are looked after by Shri Murlidharji. For the sake of ready reference his statement is reproduced: 22. Thus, it is evident that statements of these persons cannot be relied upon in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pa Ram labour recorded on 18.02.2013. After relating the statements of above two persons, ld.AO observed that as Sh. Raghavendra stated that 200 M.T. clay was produced by the manual labour per day and Sh. Roopa Ram mentioned that per day manual production per labour is 8 M.T. Accordingly, 25 labour are required continuously to produce the 200 M.T. clay @ 8 M.T. per day per labour, which was not at all the actual position in the assessment year 2010-11. In period relevant to A.Y. 2010-11 on an average 20 labours were appointed in all and that too not continuously as per actual attendance of labours for excavation of clay by adopting 23 working days (as considered by the learned assessing officer). 25. It was submitted that even for the argument sake, if it is presumed that each labour gives 8 MT production per day uniformly (but not admitting) the tentative production would be worked out as below: Month Number of labours Working days Total attendance of male lab our for Production in 23 days Production done @ 8 M.T. April,09 26 23 559 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 M.T. only. As such the learned assessing officer had taken 19,920 M.T. more production in his calculation. As per calculation, the appellant did not have external excavator for 17.5 days out of the total working days of 276 days. The production effected by it is 17.5 x 500 = 8,750 M.T. The total effect of the above working is 19,920 +8,750 = 28,670 M.T. less production by the appellant from his calculation of production.- to be modified suitably as AO has already given benefit of 17.5 days. As per learned assessing officer calculation the total production at Radhera I mines comes to 1,40,086 M.T. (168756 - 28670). The appellant had shown the total production of 1,43,099 M.T. There is no suppression of production by the appellant as calculated by the learned assessing officer. On the similar basis, there is no suppressed production in other mines. 26. It was further submitted that calculation of suppressed production is the statement of Shri Raghavendra Singh Mining Mate which were recorded on 18.02.2013 who stated prevailing general working position at the mines. Other than that no evidence for the suppressed production and sale of the same by the appellant was given by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer in the sales bills issued during the year. Then there was no reason to calculate the undisclosed income of the appellant and make addition of ₹ 66,43,417/- without mentioning any discrepancy in the sale bills. 28. With respect to allegation of ld.AO regarding variation in electricity consumption in factories pointed out by Ld. A.O, it was submitted that there is no variation in the consumption of electricity at factories. In the assessment order, the Ld. A.O. erroneously calculated consumption by dividing units of electricity by production in MT, whereas production after converting in Kg. is to be divided by the unit of electricity consumed. The chart showing the production of clay powder of factories as per unit consumption of electricity is as under: Month Units of Electricity Consumed Production of clay powder in M.T. Working Days Production Per unit consumption of Elec. in Kg Production Per day In M.T. Production Per unit in M.T. April,09 17820 925 25 51.90 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnover. In other words, there is just marginal decrease in GP rate. Also, if trading addition of ₹ 70,00,000/- as confirmed by CIT(A) is added back to the GP, it would result in GP rate as high as 23.37%, which is exorbitantly high to achieve practically. It is thus submitted that trading addition of ₹ 70 lacs is completely imaginary and deserves to be deleted. In support, reliance was placed on the decision in case of Income Tax Officer Vs. Chohtan Construction Co. 84 TTJ 693 (Jodh) and Sardar Kehar Singh Vs. Commissioner of Income Tax and Others. 195 ITR 769 (Raj). In view of above, it was submitted that trading addition confirmed by ld. CIT(A) at ₹ 70 lacs deserves to be deleted. 30. The ld DR is heard who has submitted that the AO has discussed in detail in the assessment order the discrepancies /defects in the books of account of the assessee and had come to a conclusion that production of clay at mines and also the production of clay powder, quantity of clay and clay powder traded by the assessee recorded in the books of accounts are not reliable. Further, the expenses debited in the trading account were also found not verifiable by the AO. Hence, the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and logical manner, keeping in view the entire working environment of the mines of the appellant. In view of the facts discussed by the AO in the assessment order, the action of the AO rejecting the book results by invoking the provisions of section 145(3) of the I.T. Act, 1961 is to be upheld. It was further submitted that inspite of discrepancies so noticed by the AO and also by ld CIT(A), the latter is more than reasonable as he has restricted the addition of ₹ 75,00,000/- made by the AO to ₹ 70,00,000/- and no further relief may be granted to the assessee. He accordingly relied on the findings of the lower authorities. 31. We have heard the rival submissions and perused the material available on record and carefully examined the factual matrix of the matter. 32. In respect of one of the mines owned by the assessee, we find that the Assessing officer has estimated the quantum of suppressed production by considering the removal of overburden from such mine by the excavators and dumpers hired from the external agencies as well as those owned by the assessee. Thereafter, he referred to the period for which the excavators dumpers were hired from external agencie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f determination of royalty. It was further submitted that the assessee could not making any sales from the mines without the ravana receipts, and the bills were made for all the ravanas issued and no difference was pointed out by the Mining Department in the production and sales declared by the assessee. In support of such contention, copy of royalty assessment orders, copy of monthly returns, details of production at mines and dispatches from the mines with reconciliation with the production and dispatches as per monthly returns declared by the assessee and assessed by the Mining Department were furnished before lower authorities, however the same were not considered nor any discrepancy was pointed out. It was further submitted that royalty assessment was made by the Mining Department after verifying all the records maintained i.e. production register, ravana register and sales bills etc. There is no difference in the day to day production shown by the assessee and worked out by mining department officials and that recorded in the production register maintained at the mines. There is also no difference in production and dispatches made by the appellant as shown in the royalty asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onmental and related regulatory matters. Therefore, where the Assessing officer had some apprehension in terms of non declaration of the requisite production/extraction, as we can see from reading of initial part of the assessment order, in our view, he is well within his jurisdiction to carry out further examination and can also record the statement of employees of the assessee working at the mining sites but at the same time, before arriving at the final conclusion, he should have referred the matter to the State Mining Department and sought the opinion and assistance of the domain experts in the field of mining who have the requisite qualification and experience in the matter. We find that similar matter had come up for consideration before the Hon ble Andhra Pradesh High Court in case of CIT vs. Shri Girija Smelters (P) Ltd., (Supra) wherein the relevant findings read as under: 14. All said and done, the occasion to levy income tax would arise, only when the product in question was found or alleged to have been sold, and the sale proceeds, constituting income were not reflected in the returns. It was not even alleged that the product shown in the form of discrepancies, was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down on record and the relevant findings reads as under:- 6. We can understand that the authorities declined to rely the experts' opinion because he was not produced for cross-examination. But neither the ITO nor, indeed, the High Court were entitled to make statements on technical matters for which no basis had been laid on the record by either the revenue or the assessee. If the High Court was of the view that further material was required, the appropriate course was to require the Tribunal to take further evidence and draw up a supplemental statement of case. 36. In the instant case, however, we find that the Assessing Officer has proceeded ahead and basis his own investigation and understanding of the mining process involved, and basis his own calculation and understanding of variables has worked out the quantum of clay which could be extracted from one of the mines owned by the assessee without referring the matter to the domain experts in the field of mining such as geologists and mining engineers. Such an action on the part of the Assessing officer cannot be upheld especially in light of aforesaid decisions wherein the Courts have held that an Income Tax Of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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