TMI Blog2012 (3) TMI 701X X X X Extracts X X X X X X X X Extracts X X X X ..... ings by seeking numerous opportunities is against facts and law. 2. The observation of the ld. CIT(A) that the appellant throughout the appellant proceedings resorted to 'running with the hare and hunting with the hounds' is uncalled for in the facts and circumstances of the case. 3. The ld. CIT(A) has erred both on facts and law in confirming the rejection of accounts books u/s 145(3) on the ground that no stock registers were maintained. 4. The ld. CIT(A) has erred in confirming addition of Rs. 2619720/- on account of unaccounted production and sale when there is not a single instance of unaccounted purchase or sale. The addition is based on surmises and conjectures only. 5. The ld. CIT(A) has erred in confirming addition of Rs. 436620/- on account of alleged capital employed in unaccounted production. 6. The ld. CIT(A) has erred both in law and facts in not confirming disallowance of interest of Rs. 133185/-. 7. The ld. CIT(A) has erred both in law and facts in confirming addition of Rs. 1686721/- on the ground that out of expenses debited in 'repair and maintenance account' expenses worth Rs. 1686721/- were of capital nature. 8. The ld. CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 011 AY 2007-08 and ITA No. 267/Chd/2011, AY 2007-08 are reproduced hereunder: 3. The ld. 'AR', for the assessee, offered no serious comments in respect of ground Nos. 1 2. It appears that the ld. 'AR', for the assessee, was prompted by certain observations of the ld. CIT(A) to raise such grounds of appeal. Therefore, these two grounds of appeal need no separate adjudication, in the interest of propriety and non-pursing the same, by the ld. 'AR', for the assessee. The ld. 'DR' for the revenue relied on the order of ld. CIT(A). Hence, these two grounds of appeal are dismissed as not pressed. 3. In respect of ground No. 3, the ld. 'AR', for the assessee, referred to various pages of the paper book and written synopsis filed by him. The ld. 'DR' for the revenue placed reliance on the orders passed by the lower authorities. 4. We have carefully perused the rival submissions, facts of the case, relevant pages of paper book and case laws relied upon by the parties. Briefly stated, the facts of the case are that the assessee filed return of income, on 31.10.2007, declaring an income of Rs, 20,62,950/-. The assessee is a manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 803.2 units per MT, in the year under consideration. The ld. CIT(A), also found that consumption of electricity, in the month of July 2006 and October 2006 not in consonance with the material used. The assessee failed to file any documentary evidence, for such high consumption of electricity. The ld. CIT(A), upheld the action of the AO u/s 145(3) of the Act and the relevant findings of the ld. CIT(A) are reproduced hereunder: In view of the facts and circumstances of the case and from the rival contentions of both the AO in his various remand reports and the contentions of the counsel in his written submissions filed on various dates, it is clear that the appellant has not maintained the books of account and other relevant documents as was required to be done. There is no proper co-relation between the electricity consumed and the production of finished goods shown. The appellant was required to show how various inputs used in the manufacturing process tally with its production account. He has admitted that no stock register was maintained for many of the consumables. The presence or absence of stock register is one of the relevant aspects to be taken into account in considerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of raw material and consumption of raw material as well as consumables and the Assessing Officer has not found any fault in such voluminous record of day to day manufacturing. Refer to letter, dated 30.12.2009. Page 51, Clause (D). 3. All purchases and sales are fully vouched and no discrepancy noticed by the Assessing Officer or by the CIT (A). 4. During the course of assessment proceedings, the numerous details were filed which were crossed verified by the Assessing Officer and after scrutinizing the details, the AO has framed the assessment on wrong figures and facts which have partly been sustained by the CIT (A), Patiala, which is also against the factual facts and circumstances. 5. In the above said case, we have filed written submissions on various grounds of appeal and, accordingly, each of the ground of appeal is being argued on the basis grounds of appeal taken before the Worthy CIT (A) as under: i. Regarding first two grounds of appeal, which relate to the observation made by the CIT (A) in para-3 of the order, we have given our comments at page 1 and 2 of our submissions and briefly, it is stated there has never any chance, where the counsel of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii Consumption of electricity in the month of July, 2006 and October, 2006 is highly variable. The corrected figures supported by bills of electricity department placed at pages 184B and 184C read with certificate from electricity department placed at page 300 of the paper book. iii No documentary evidence produced for increase in the electric consumption The reasons for increase in the electricity units explained to the AO as per letter, dated 28.12.2009 placed at paper book pages 56 to 58 read with reply dated 30.12.2009 placed at paper book pages 50 to 55. Our load had increased from 990 KWs to 2450 KWTs on 19.4.2006 (immediately at the beginning of the year) placed at pages 184A of the paper book. The production capacity had increased from 7300 MT to 18250 MT placed at paper book page 66 and in this year the total production was 13948.5820 MT giving an increase by 78.96%. New plant and machinery worth 2.61 crores installed and put to use during the year. Refer to page 269 of the paper book. The electric Motor and equipment worth 1.55 crores installe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r electricity consumption. Copy enclosed in the judgment set. No case is made out by the Central Excise department for higher production in respect of alleged excessive consumption of electricity. Even no case made out by Sales Tax depreciation[artment for any sales outside the books and the Central Excise Audit also completed for the year under consideration and no adverse view taken. Since, we had installed the new machinery during the year, some trial runs had to be made and which had led to increase in the consumption of electricity has totally been ignored by the AO/ld. CIT(A). 2 Non-maintenance of stock register for Steam, Chemicals and consumables There are no consumables at all and only chemicals are there. The steam is being purchased from M/s Vishal Cotton Ltd. And no doubt has cast upon by the AO and such purchases have been made from sister concern. It is practically impossible to maintain stock register of steam used, for drying of the paper. The same is fed through the pipes only. The steam do not increase weight of finished products. For chemicals, all the purchases are fully vouched and each type ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts deals with method of accounting and the judgment as reported in 167 ITR 344, wherein the facts are absolutely different in the sense, that no purchases detail were there and no stock register was maintained. In our case, day to day stock register of waste paper is maintained and opening and closing stock details are there and no defects pointed out therein. We rely upon the following judgment that rejection of books cannot be made in the circumstances as mentioned in our cases, besides the judgment enclosed in the paper book from pages 69 to 132: a. PyarelalMittal v. CIT 291 ITR 214 (Gau) b. Income Tax Officer V. Girish M. Mehta, 105 ITD (Trib-Rajkor)585 c. International Forest Co. V. CIT, 101 ITR 721 (J K) d. CIT V. Om Overseas, 315 ITR 185 a. CIT v. R.K. Rice Mills, 319 ITR 173 b. Judgment of the Jurisdictional Bench of the ITAT, Chandigarh Bench, Chandigarh in the case of M/s BabuJewellers Bearing ITA No. 126/Chd/2011 for AY 2007-08. c. Shiva Exports V. ITO, 28 SOT (Chd-Trib) 512 h. Reliance on the written submissions field as para 3 from page 3 to 11 5 Ground No. 4 5 read with Groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IB has not been disputed and it is allowable on the income finally determined. Reliance is being placed on the judgment of Allied Industries as reported in 31 DTR 323. This issue is otherwise covered if the Hon'ble Bench deletes the addition as made by the AO. 7 Ground No. 7 The AO has discussed this issue at page 25 to 38 of the order with regard to the capital nature of expenses. The ld. CIT(A) has discussed this issue in para 9.8 to 9.12 of the order. This ground is common with the ground No. 2 of the department's appeal. A separate chart is being filed herewith to indicate the parawise additions made by the AO and relief/confirmation of addition made by the ld. CIT(A). We had field detailed submissions in our written submissions to the ld. CIT(A) from page 26 to 39 of the paper book read with pages 156 to 160 along with annexures from pages 161 to 179 is the chart of each and every item at pages 172 to 179 of the paper book. Our is an integrated manufacturing process in as much as that the raw material of chemicals are different from one end and from the other end, the finished product is retrieved. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a re a t pages 42 to 48 of the paper book. The AO has held that expense is disallowable because it is in the nature of contract where packing material is being purchased on the basis of specific sizes. The CIT has discussed this issue in appellate proceedings a10.1 of the order and the finding has been given in para 10.5 of the order There is no contract and neither we are supplying any material to the persons from whom, the packing material is being purchased. It is simply a case of purchases from other party and all the invoices a re raised as per Punjab VAT Act and there is no job work involved. The issue covered by the judgment of Hon'ble Punjab Haryana High Court as reported in 304 ITR 17. Even, there has been clarificatory amendment to section 194C sub clause (7)(iv). Reliance on the written submissions before the CIT is at pages 42 to 48 and we rely upon the another submissions made before the Hon'ble Bench. 7 (i) We have carefully perused and considered the rival submissions, facts of the case and relevant records. The assessee has filed correct chart of figures of consumption of electricity vis- -vis the chart relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d closing stock details are there and no defects were pointed out therein. The assessee placed reliance on the following decisions: a) Pyarelal Mittal V. CIT, 291 ITR 214 (Gau) Accounting - Rejection of accounts - Estimate of income - No fault found with books of account or method of accounting - No suppression of material facts - Rejection of Accounts and estimate of income - Not justified - Income-Tax Act, 1961. Appeal (High Court) - Jurisdiction of High Court - Interference with findings of fact - where the findings of fact by the Tribunal are perverse and contrary to materials on record and based on surmises and conjectures, the High Court under sec 260A would be competent to interfere. b) I.T.O. V. Girish M. Mehta, 105 (ITD (Trib-Rajkot) 585 Accounts - Rejection-Estimation of income-Burden of proof, scope and validity-Before rejecting the books of account, the Department has to prove that accounts are unreliable, incorrect or incomplete-The accounts regularly maintained in the course of business, duly audited under the provisions of IT Act and free from any qualification by the auditors, should be taken as correct unless there are strong and sufficient reasons t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substance rejected the books of account of the assessee on the basis of consumption of high electricity vis- -vis the production therefrom. So far as the consumption of steam chemicals and consumable is concerned, the submissions filed by the assessee remains un-rebutted. Thus, we do find any merit in the rejection of books of account by the AO u/s 145(3) of the Act and confirmation of the same by the ld. CIT(A). Therefore, this ground of appeal of the appellant is allowed. 8. In ground No. 4, the assessee contended that the ld. CIT(A) erred in confirming the addition of Rs. 74,62,190/-, on account of unaccounted production and sale when there is no single instance of unaccounted purchase or sale, the addition is based on surmises and conjectures only. 9. The findings of the ld. CIT(A) as contained in para 5.7 are reproduced hereunder: 5.7 As stated earlier the AO in his latest remand report dated 17.1.2011 has afresh determined the unaccounted production for 3-047 MT instead of 5008 MT taken earlier on the basis of the July and October, 2006 figures of electricity consumption. These figures are as per latest confirmations made from PSEB authorities. He has also stated tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent did not find any adverse features and, hence, did not make any adverse view in the matter. The assessee placed reliance, on the decision of Hon'ble Rajasthan High Court in the case of CIT V. Dr. A.P. Bahal, 322 ITR 71 (Raj) and the decision of Gujarat High Court, in the case of CIT V. Gurubachhan Singh J. Juneja, 302 ITR 63 (Guj). 11. In the case of CIT V. Dr. A.P. Bahal, (supra) Hon'ble Rajasthan High Court held that the question that the AO rejected books of account of the assessee and main judgment u/s 145 of the Act making certain additions under different heads. The Commissioner deleted certain additions. The Tribunal upheld the order of the ld. CIT(A). The Tribunal upheld the order passed by the Commissioner (Appeals) and the Tribunal's findings were questions of fact and would not tantamount to any substantial question of law. 12(1). Hon'ble Gujarat High Court in the case of CIT V. Gurubachhan Singh J. Juneja (supra) held that in the absence of any material on record, to show that there was any unexplained investment made by the assessee which was reflected by the alleged unaccounted sales, the finding of the Tribunal that only gross profit on the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chand Bhagat Ambika V CIT (1959) 77 ITR 288 (S.C) clearly held that no addition can be made on the foundation of mere surmises and conjectures. 14(i). Similarly the Hon'ble Supreme Court, in the case of State of Kerala V. C. Vellukutty, 60 ITR 239 (S.C) held that it is necessary for existence of reasonable nexus to the available material, for making best judgment assessment. The AO can not make estimate without any support of any foundational facts. 14. In the present case, the ld. CIT(A) presumed that consumption of higher electricity would directly and invariably lead to the higher production, not accounted for by the assessee in his books of account. There is fundamental fallacy in the conclusions and findings of the ld. CIT(A) in attributing unaccounted production, to such sole factor. The ld. CIT(A), failed to bring on record, to demonstrate that the assessee indulged in the purchases of raw material outside the books of account and sales of the manufactured goods outside the books of account allegedly produced by way of higher consumption of electricity. In the real manufacturing world, there is hardly any direct and uniform correlation with consumption of electric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case and relevant records. In this context, the findings given by us on ground No. 4, pertaining to the addition made by the AO and upheld by the ld. CIT(A), in respect of unaccounted production are relevant and applicable, to this ground of appeal, being directly linked to each other. We have deleted the addition made by the ld. CIT(A), in the context of unaccounted production, based on higher consumption of electricity on the ground of non-existence of corroborative and cogent evidence and other factors as recorded in our above findings in respect of ground No. 4. The issue raised in ground No. 5 is directly linked to the issue raised in ground No. 4. This Ground of appeal is directly an off-shoot of the addition made by the AO and upheld by the ld. CIT(A) in respect of unaccounted production. Therefore, such addition made by the AO and sustained by the ld. CIT(A) of Rs. 12,43,686/-, on account of alleged capital employed, in such unaccounted production, cannot be upheld. The core issue in the present ground of appeal is that in the absence of unaccounted production, there can not be a case for employment of unaccounted capital. Therefore, we do not find any substance and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In ground No. 7, the assessee contended that the ld. CIT(A), erred in confirming the addition of Rs. 45,22,937/-, on the ground that out of the expenses debited under the head 'repair and maintenance account' expenses worth Rs. 45,22,937/- were of capital nature. The issue in question is that the AO disallowed certain expenses incurred on repair and maintenance as capital in nature. The assessee contended that having regard to the integrated manufacturing process, expenses incurred, on repair and maintenance of machinery are patently in the nature of revenue expenses which are admissible u/s 31(1) of the Act. The ld. CIT(A) after detailed discussions of the fact-situation of the present case and various items of repair and maintenance gave a finding, in para 9.10 of his order whereby items listed in para 9.11 of his order amounting to Rs. 49,77,172/- were allowed as revenue expenses and the balance expenses were treated as capital in nature. The assessee contended that the detailed submissions was filed before the ld. CIT(A) which is annexed at page 26 to 30 of the paper book read with pages 156 to 160 along with annexure from page 161 to 179, with the chart of each and ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcial expediency. The AO relied upon the decision of the Hon'ble jurisdictional High Court in the case of CIT v. Abhishek Industries, 286 ITR 1 and the decision of CIT v. Munjal Sales Corporation, 298 ITR 294 and disallowed the interest on proportionate basis as the investment made in the purchase of shares is not the business of the assessee nor it is incidental to its business. Hence the question of expediency does not arise. 4(iii). The ld. CIT(A) sought remand report of the AO on the submissions made by the assessee before him and concluded his findings in para 7.4 which are reproduced hereunder: 7.4 In view of the facts and circumstances of the case and rival submissions of both the AO in his remand report and the submission of the ld. counsel it is seen that out of the borrowings made for the purposes of business the appellant has diverted funds for purchase of shares in the sister concern M/s DSG Papers (P) Ltd. The purchase of these shares can not be held to be for purposes of business. The borrowings have thus been diverted for purposes other than business and interest of Rs. 1,33,185/- has been rightly disallowed by the AO. 4(iv). Having regard to the facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding, electric motors and machinery accounts of Rs. 38452705/- had been made in the financial year 2005-06 i.e. a year prior to the current assessment year. In fact these assets had been put to use only on 19.4.2006 and the addition made during this financial year 2006-07 was very nominal. All the investments had not been made out of unsecured loans or secured loans but only out of the profits of the firm and out of non-interest bearing funds. 26. The AO did not accept the contention of the assessee and made the impugned addition u/s 36(1)(iii) and proviso thereunder. 27. The ld. CIT(A) deleted the impugned addition, on the ground that the appellant has own capital as well as borrowed funds and hence the AO's presumption that the borrowed funds have been utilized for purchase of capital asset is too far-fetched conclusion. It is, further, observed by the ld. CIT(A) that the AO presumed that out of funds available from secured and unsecured loans, the appellant made payments for purchase of assets, even though the same was far in excess of profits earned. The ld. CIT(A), further, observed as also, interest cannot be disallowed merely because the asset was never used and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt repairs. 30. We have considered the rival submissions and facts of the case. The issue raised by the revenue in ground no. 2 has been adjudicated in assessee's appeal, under ground No. 7. Therefore, the findings recorded thereunder are applicable to this ground of appeal. Consequently, this ground of Revenue is dismissed having regard to the findings given in respect of Ground No. 7 of assessee's appeal. 31. In Ground No. 3, the revenue contended that the ld. CIT(A), erred in deleting the addition of Rs. 18,74,947/- made by the AO, on account of disallowance u/s 40a(ia) of the Act without appreciating the fact that the assessee had failed to deduction TDS u/s 194C on payments made in lieu in contract with Amba Ply Chrome Pvt Ltd. 32. We have perused the rival submissions and relevant record. The ld. 'DR', for the revenue placed relied, on the assessment order whereas the ld. 'AR' for the assessee contended that there is neither contract and nor the assessee supplied any material, to the persons from whom, material is being purchased. It is simply a case of purchases from other parties and all the invoices are raised as per Punjab VAT Act. There i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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