ITAT CHANDIGARH BENCH ‘A’
Vishal Paper Industries
versus
Joint Commissioner of Income-tax
IT Appeal Nos. 267 & 348 (Chandi.) of 2011
[ASSESSMENT YEAR 2007-08]
MARCH 26, 2012
ORDER
Mehar Singh, Accountant Member
The present cross appeals filed by the assessee and the revenue for the Assessment Year 2007-08 vide ITA No. 348/Chd/2011 and ITA No. 267/Chd/2011 respectively are directed against the order of ld. CIT(A), Patiala, dated 24.1.2011, passed u/s 250(6) of the Income-tax Act, 1961 (hereinafter referred to, in short as “the Act”).
2. In its appeal the assessee has raised the following grounds:
“1 The observation of the ld. CIT(A) that Shri Yash Paul Goyal has persistently elongated the proceedings 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. 74,62,190/- 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. 12,34,686/- on account of alleged capital employed in unaccounted production.
6. The ld. CIT(A) has erred both in law and facts in not allowing deduction u/s 80IB on total assessed income when the entire assessed income is undisputedly derived from industrial undertaking.
7. The ld. CIT(A) has erred both in law and facts in confirming addition of Rs. 45,22,937/- on the ground that out of expenses debited in ‘repair and maintenance account’ expenses worth Rs. 45,22,937/- were of capital nature.
8. The appellant craves leave to add or amend any ground of appeal during the course of appellate proceedings.”
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.
4. 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.
5. 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 manufacturer of paper. The AO, in the course of assessment proceedings, on examination of books of account and information filed by the appellant, noticed certain discrepancies therein. These discrepancies have been incorporated by the ld. CIT(A), in his order, in para 5.1. In sum and substance these discrepancies pertain to un-even consumption of electricity, in the production of paper. The AO observed that the assessee had shown per metric consumption of electricity, for financial year 2005-06, at 638.9 units while in financial year 2006-07, the per MT consumption of electricity was 803.2 units. The AO also noticed that the nature, quality and material used during the year under consideration, was the same as that of the last year. The AO also observed steep rise in consumption of electricity per MT done, in financial year 2006-07 vis-à-vis shown by the assessee in financial year 2005-06. No satisfactory explanation was filed by the assessee in the matter. Further, the AO pointed out that the assessee failed to maintain record of monthwise consumption of chemicals or consumables which made it difficult for the AO to verify the manufacturing results. No stock register was maintained for phuk which was main input for generating steam in the boiler. The AO, further, noticed that total production of paper for financial year 2005-06 was 7794.22 MT against which total electric units consumed were 4506677 units. Thus, average production per unit worked out to 0.172 and average consumption per MT was 638.9 units. Apart from total production in the current financial year i.e. 2006-07 was 13948.58 MT for which the total of electricity units consumed were 11203170 units. This gave average production unit of 0.124 and average consumption of electricity per MT of 803.02 units. The AO, further, observed that no proper production record had been maintained, in the regular course of business and the figures appeared to be doctored. The AO held that 10-20% variation can be acceptable but not a 121% increase. Accordingly, the AO invoked the provisions of section 145(3) of the Act.
6. The ld. CIT(A), upheld the finding of the AO, in the matter of rejection of books of account u/s 145(3) of the Act. The basis of upholding the action of the AO, by the ld. CIT(A), was founded on higher consumption of electricity specifically from 638.9 units consumed per MT in financial year 2005-06 to 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 considering the acceptability of the book results as held in CIT v. Pareck Bros [1987] 167 ITR 344 (Patna). Further the absence of stock register is one of the material grounds for rejection of the books as held in CIT v. British Pains India Ltd . [1999] 188 ITR 44 (SC). It is correct to say that it was not possible for the AO to deduce the true profits of the business and profession carried on by the appellant from the state of affairs prevailing and that too without a stock register. The books of account being in such a state the AO was within his rights not to accept the figures returned. In all the factors and circumstances that have been mentioned by the AO, it is clear that all was not well with the books of account. In view of all these variations, discrepancies pointed out by the AO and the rival contention of the counsel for the appellant I find that the AO has drawn a very reasonable inference that the higher consumption of electricity has gone towards unaccounted production which has not been fully reflected in the in the books of account. He has gathered sufficient material to make the impugned addition. The ld. counsel himself admits in reply that there has been higher consumption of electricity, but he does not admit to the unaccounted production. In view of these facts and findings it can be safely held that the AO has rightly rejected the books of account maintained by the appellant on the ground that these are false, cooked up and he has rightly done the calculation for arriving at the impugned addition on the basis of records made available by the appellant.”
7. The assessee justified the increase in consumption of electric units on various grounds in the written synopsis and the same is reproduced here under:-
“This is an appeal filed by the appellant and cross appeal by the Department and we first take up the assessee’s appeal.
1. The appellant is engaged in the manufacture of Paper and the basic raw material required is waste paper and also chemicals are being used in the manufacture process. The appellant is maintaining regular books of accounts which are subject to audit for which the audit report is at Pages 255 to 288 of the Paper Book.
2. The Unit of the appellant is under the supervision and control of Central Excise department and the appellant is maintaining RG-1 and RG-23 register, which reflects day to day to production, receipt 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 had tried to delay the proceedings by taking dates and the’ order of the CIT(A) itself speaks about the fact that besides, the written submissions made by the counsel of the Appellant, there were two remand reports for which further replies were given along with relevant Annexures, wherever, required in order to prove the case of the assessee that the additions as made by the AO were not justified. The observation of the CIT(A) are really painful and, therefore, it is prayed that such observations as made by the CIT(A) be ignored, since it is against the factual facts and circumstances and even not borne out from the records. We are filing separately the details of order sheet entries of CIT(A) to prove that there was no delay from the side of the counsel to submit the replies or to represent before CIT(A).
ii. The sequence of events described by the CIT(A) in his order in Para-2 clearly clinches the issue in favour of the counsel of the assessee that – no time was taken to reply to the remand reports or other evidences, which were filed before the Worthy CIT(A).
Ground No. 3: For rejection of books of accounts u/s. 145(3)
i. The Assessing Officer’s paragraph-1 page 2 to 5, submissions of the assessee have recorded from pages 5 to page 14.
ii. The Assessing Officer’s finding on rejection o books of accounts have been contained at pages 14 to 21.
iii. Before the CIT (A), the finding on this issue is there as under:-
a. Para-5.1 Page 2 to 4
b. Our submissions have been discussed in Para 5.2 and 5.3.
c. The Assessing Officer’s remand report has been discussed in Para 5.4 and by recording our submissions to remand report in Para 5.5, the finding has been given by the CIT(A) in Para 5.6.
We are submitting herewith the basis of rejections of books of accounts made by the AO/CIT and our contentions are tabulated form as under:
