Case Law Details
Brief of the Case
In the case of Shree Hari Agro Industries Ltd. Vs. DCIT, the Kolkata Tribunal on the issue of disallowance of alleged excess consumption claim of chemical ‘Hexane’ held that The AO has to compute income from business according to the books of accounts of the Assessee. It is only when the book results are rejected the question of estimation of income arises for consideration. The AO has to specifically point out the defects in the books or incomplete and incorrectness in the books of accounts and call upon the Assessee as to why the books of accounts should not be rejected.
Fact of the Case
The two separate appeals filed by the Revenue and the assessee are dealt with in the present case. The assessee company was engaged in the business of manufacturing of agro products. During the assessment proceedings, the A.O. noted that there is an increase in the sum of capital reserve in the balance sheet as compared to last year figure. The Assessee explained that the increase in the capital reserve was because of waiver of loans which the Assessee had obtained for the purpose of its business, by the creditors owing to financial crisis which the Assessee faced. The waiver of loan comprises the two components i.e, interest on loan and the principal of loan which was sought to be taxed u/s 41(1) of the Act r.w.s.28(i) & (iv) of the Act as remission or cessation of liability which profit arising in the course of business. AO accordingly added a sum of Rs.14,58,61,553/- to the total income of the assessee. On an appeal CIT(A) found that the provision of Section 28(iv) not applicable on the interest portion of Rs.7,09,96,285/- and the sum in question was not income within the purview of section 2(24) of the Act. Further Rs.7,48,65,268/- being the principal amount of loan waived was added since the assessee did not discharge the onus to prove the purpose of loan i.e, whether being for project finance or for day to day working of the company. Aggrieved by the relief granted by the CIT(A) the revenue filed appeal before Tribunal. Aggrieved by the order of CIT(A) upholding the addition on account of waiver of principal amount of the loan the assesee is in appeal before Tribunal.
Beside the above the another important ground of appeal by the assessee was against the confirmation of disallowance of Rs.76,07,212/- by the CIT(A) on account of alleged excess consumption of Hexane in Solvent Extraction Plant. The consumption of hexane by the assessee during the previous year was 3,46,753 lts. The AO found that the hexane chemical was used in the process of manufacture of oil from oil cake. The consumption of oil cake in the process of oil extraction by the assessee during the previous year was 48,149 MT. The consumption of hexane with reference to oil cake consumption was 7.20 lts which worked out as 3,46,753/ 48,149= 7.20 In this regard AO relied on the report of Prof. P.J.Rao, Department of Chemical Engineering , Andhra University, Visakhapatnam who has opined that the consumption of hexane can be a maximum of 1.5 lts. per MT of oil cake consumption. The AO based on the report of the expert came to the conclusion that the consumption of the hexane shown by the assessee is excessive. The AO thereafter made addition of Rs.76,07,212/-. On an appeal the CIT(A) confirmed the order of the AO.
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