THE PRINCIPAL COMMISSIONER OF INCOME TAX-4 vs. M/S AROMA HIGHTECH LTD.

The appellant - revenue, in this appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'), has challenged the order dated 19.06.2019 made by the Income Tax Appellate Tribunal, Ahmedabad, Bench 'B', Ahmedabad (hereinafter referred to as 'the Tribunal') in ITA No. 3340/Ahd/2014, by proposing the following two questions, stated to be the substantial questions of law: "(A) Whether the Appellate Tribunal has erred in law and on facts in upholding the decision of CIT(A) in deleting the addition made on account of unaccounted sales of Rs.2,98,78,393/-? (B) Whether the Appellate Tribunal has erred in law and on facts in upholding the decision of CIT(A) in deleting the addition made on account of power and fuel expenses of Rs.23,76,828/-?”

The assessment year is 2010-11 and the relevant accounting period is the previous year, 2009-10. 3. Insofar as proposed question (A), which relates to addition made on account of unaccounted sales of Rs.2,98,78,393/- is concerned, during the course of assessment proceedings, the Assessing Officer noticed that the assessee has achieved total sales at Rs.37,96,30,697/-. The consumption of raw-material was valued at Rs.32,88,66,469/-. This consumption in terms of ratio to sales came to 0.866. The Assessing Officer found that there was increase in ratio of material consumption to sales in comparison to the sales of preceding year, which was 0.801. Based on this calculation, the Assessing Officer estimated sales at Rs.41,01,09,077/- and treated the difference of estimated sales and sales in profit and loss account of Rs.3,04,78,393/- as sales outside the books of accounts and added the same to the total income of the assessee. The assessee carried the matter in appeal before the Commissioner (Appeals), who, vide order dated 09.09.2014, partly allowed the appeal and deleted the addition to the extent of Rs.2,98,78,393/- and confirmed the addition of Rs.6,00,000/-. The revenue carried the matter in appeal before the Tribunal, but did not succeed.

1 Mrs. Mauna Bhatt, learned Senior Standing Counsel for the appellant, submitted that the assessee had not maintained stock register and hence, the consumption and production of finished goods was not verifiable. It was submitted that the Assessing Officer, in the assessment order, has clearly mentioned that there was increase of expenses of raw-material though there was no increase in the price of the same. It was further submitted that in the assessment order, it has been recorded that there was fall in gross profit rate in comparison to the preceding year and that the assessee could not produce details of purchase of raw material and increase in cost of per unit raw material over the preceding year. It was submitted that the assessee not having maintained the stock register, the Assessing Officer was justified in making the addition in question and that the Commissioner (Appeals) was not justified in reducing the amount of addition and the Tribunal was not justified in confirming the order passed by the Commissioner (Appeals).

2 A perusal of the order passed by the Commissioner (Appeals) reveals that he has recorded that the Assessing Officer has not pointed out any defects in the books of accounts and that, the book results have been accepted and no rejection of books of accounts under section 145 of the Act has been made. The Commissioner (Appeals), after considering the material on record, has found that since the assessee has not maintained the stock register for each of the items consumed and purchased, the possibility of leakage of revenue cannot be ruled out, more particularly, due to the fall in gross profit rate. He, therefore, found it reasonable to make lump- sum disallowance of Rs.6,00,000/- as against the addition of suppressed sales made by the Assessing Officer as the consumption of raw material and production of finished goods and work-in-progress was not open for verification due to non- maintenance of daily stock register.

3 The Tribunal, in the impugned order, has concurred with the findings recorded by the Commissioner (Appeals).

4 Thus, while the assessee had not maintained a stock register, the Assessing Officer had accepted the books of account maintained by the assessee. On a perusal of the order passed by the Commissioner (Appeals), it is evident that the Commissioner (Appeals) has made lump-sum disallowance of Rs.6,00,000/- after recording a finding that the book results have been accepted. Having regard to the fact that the Assessing Officer has accepted the books of account maintained by the assessee, no infirmity can be found in the approach adopted by the Commissioner (Appeals) in making a lump-cum disallowance after appreciating the material on record. The finding of the Commissioner (Appeals) is basically a finding of fact, to which, the Tribunal has concurred. Under the circumstances, the conclusion arrived at by the Tribunal being based upon a concurrent finding of fact recorded after appreciating the material on record, cannot be stated to give rise to any question of law.

As regards proposed question (B) which relates to deleting the addition made on account of power and fuel expenses of Rs.23,76,828/- during the course of assessment proceedings, the assessee had debited total power and fuel expenses of Rs.73,44,543/- which included power and fuel related store items of Rs.23,76,828/-. The assessee, however, could not explain the purpose of gas and other fuel related store items and only stated that in the previous year, expenses of stores and spares of Rs.29,94,274/- were transferred to CWIP - R&D expenses. Considering these expenses, there was reduction in overall expenses of power and fuel and store and spares in the current year. The Assessing Officer observed that the assessee was not following proper method of accounting and claiming expenses as per its benefit and disallowed the expenses of Rs.23,76,828/- towards gas and other fuel related stores items. The assessee carried the matter in appeal before the Commissioner (Appeals) who deleted the addition of Rs.23,76,828/-. The revenue carried the matter before the Tribunal but failed.

1 Mrs. Mauna Bhatt, learned Senior Standing Counsel for the appellant submitted that the decision of the Tribunal is erroneous inasmuch as the assessee had transferred expenses of stores and spares of Rs.29,94,274/- to CWIP – R&D expenses in the previous year and was not following the proper method of accounting and claiming expenses as per its benefit. It was, accordingly, urged that the matter requires consideration on the question as proposed or as may be deemed by this court.

2 A perusal of the order passed by the Commissioner (Appeals) reveals that the Commissioner (Appeals) has found that the Assessing Officer, while making disallowance of Rs.23,76,828/- towards power, fuel, store items debited along with power and fuel expenses of Rs.73,44,543/-, has observed that in the preceding year, the assessee was not following proper method of accounting and claiming expenses for its benefits. The Assessing Officer has observed that in the preceding years, stores and spares of Rs.29,94,274/- were transferred to CWIP – R&D expense. The Commissioner (Appeals) further found that the Assessing Officer has not given any reasons for making such a huge disallowance, nor had any bogus claims been proved nor was it proved as to why those store items were to be transferred to CWIP – R&D expenses. The Commissioner (Appeals) was of the view that merely because some items in the preceding year were debited to the CWIP – R&D, it does not indicate that the same nature of the expenditures had been incurred in the year under consideration also. He, accordingly, was of the view that since there was no question as regards the genuineness of the expenditure, the allowability thereof could not be doubted. According to the Commissioner (Appeals), when the assessee itself had bona fide transferred some stores and spares expenses to CWIP – R&D in the preceding year, then in the year under consideration with the same bona fides, he had not transferred the same because it was not required to do so. The Commissioner (Appeals) was of the view that the onus was on the Assessing Officer to disprove the stand, which he had not discharged; moreover, the Assessing Officer had not disproved that the expenditure was not made for the business purpose. He, accordingly, deleted the disallowance made by the Assessing Officer.

3 Thus, the Commissioner (Appeals) has based his

In the light of the above discussion, this court does not find any legal infirmity in the impugned order passed by the Tribunal so as to warrant interference. The appeal therefore, fails and is, accordingly, summarily dismissed. [ Harsha Devani, J. ] [ Sangeeta K. Vishen, J. ] hiren