MARIE PRODUCTS PRIVATE LIMITED,JAIPUR vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 7, JAIPUR

2.1 Based on that information the case of the assessee was selected for "compulsory Scrutiny" assessment under the E-assessment Scheme, 2019 on the issue of "Specific information pointing tax evasion has been received from other agency". Statutory notices as required u/s. 142(1) of time.

2.2 The assessee company, vide e-communication dated 11.02.2021, has submitted that during the search operation on 10.11.2017 by the officers of DGGI, physical stock verification of various types of raw material and finished goods was done and the officers found certain differences.

The company has deposited an amount of Rs. 1.5 Cr against the Central Excise Duty/CGST liability under protest only. It was further submitted by the assessee company that the DGGI issued the SCN 03.01.2020 on the basis of electricity consumption demanding Central Excise duty of Rs.1.22 Cr and interest of Rs.0.35 Cr and proposing appropriation of Rs.1.5Cr. In its reply the assessee has stated that statement recorded were retracted within time. The same has also been mentioned in the SCN. Further, the assessee company has provided the calculation of the demand raised by Directorate General of Goods & Services Intelligence of Rs.1.5 Cr. The relevant portion of the calculation pertains to the assessment of year under consideration.

2.3 The assessee also submitted a copy of the Show Cause Notice dated 03.10.2020 issued by the Addl. Director, Directorate General of Goods & Notice ld. AO noted the following points :-

(i) As per the Show Cause Notice, during the course of search proceedings on 10/11.11.2017 at factory premises of the assessee company at Plot No. H- 20A, RICO, Industrial Area, Kukas, Tehsil Amer, Jaipur-28, physical stock verification was carried out and excess of stock of raw material, packaging material, semi-finished goods and finished goods valued at Rs.68,04,678/- was found against the quantity recorded in the stock register. (ii) The officers found excess stock of perfume/compounded valued at Rs. 15,79,200/- belonging to the assessee company from the residence of the director. (iii) The officers found excess stock of sweet supari valued at Rs. 4,78,640/- belonging to the assessee company from the premises of M/s. Shubham Agency clearing and forwarding agent of the assessee company. (iv) The officers found excess stock of raw betel-nut valued at Rs. 13,20,800/- belonging to the assessee company from the premises of M/s. Agarwal & Company. (v) The officers found excess stock of raw material, WIP and Finished Goods from the premises of M/s. Singhal Flexi-Pack for an amount of Rs. 43,89,371/- belonging to the assessee company. The above stock so found in excess was tabulated at page 4 & 5 of the assessment order which amounted to Rs. 1,45,72,690/-. On this issue statement of Shri Ashok Agarwal was recorded on 10.11.2017 u/s 14 of the Central Excise Act, 1944. In that statement he admitted that the discrepancies found in their stock verification on 10.11.2017 was due to purchase & sale of their goods without any bill. The assessee was asked to reconcile the excess goods found from the above-mentioned premises. The assessee company submitted various reasons like the excise officer has considered WIP as finished goods, material issued for R&D work, material not considered during the search proceedings, the officers considered other premises, material under process goods not considered etc. The submission of the assessee company was considered as afterthoughts and not tenable. Therefore, a sum of Rs. 1,45,81,700/- being the amount of excess stock considered as unexplained expenditure as per provision of section 69C of the Act.

2.4 During that proceeding statements of various persons were recorded u/s. 14 of the Central Excise Act, 1944. Based on the statement of Shri Sushil Shah, labour of M/s. MPPL, recorded u/s. 14 of the Central Excise Act, 1944 on 10.11.2019 and the statement of Shri Ashok Agarwal, director of M/s. MPPL recorded on 11.11.2017, they hold a view that 36 Bori of raw betel-nut purchased by M/s. MPPI on daily basis, which results in manufacturing of 2180 Kg. of scented supari per day. Based on the statement of the various person, average weight per pouch was calculated at page 7 of the assessment order at 3.6875 gms. Based on the excise ER- 1 return actual production and based on the electric consumption unaccounted production for an amount of Rs. 8,15,28,076/- was considered and accordingly same was also added as per provision of section 69C of the Act.

Center, assessee preferred an appeal before the ld. CIT(A). Apropos to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below:

“Ground No. 1 and 4 6. These grounds of appeal challenges the assessment made in the appellant's case. 6.1 The appellant during the appellate proceedings has stated that:- "5. The assessment order dated

7. April 2021 passed under section 143(3) read with sections 143(3A) and 143(3B) of the Act is bad in law, illegal and void-ab-inito as sections 143(3A) and 143(3B) of the Act had ceased to exists from 1. April 2021 in terms of section 143(3D) of the Act. Relevant extracts are as under. "143 (3D) Nothing contained in sub-section (3A) and sub-section (3B) shall apply to the assessment made under sub-section (3) or under section 144, as the case may be, on or after the 1st day of April, 2021."

1. As evident from page number 1 of the assessment order, the order has been passed under section 143(3) read with sections 143(3A) & 143(3B) of the Act. Passing of an order under a non-operative section vitiates the applicability of the order itself and therefore the order is bad in law and be quashed. The order ought to have been passed by the AO under section 1448 of the Act which was applicable from 1 April 2021 The date of assessment order is 7 April 2021 and, thus non-passing of order under the applicable sectin order voidab initio fer has been passar MENT makes the assessment void-ab-initio/NC

2. Also, the assessment by the AQ without following the mandatory procedure laid out in the Acl As per paragraph 5(2)(xvi) of the Faceless Assessment Scheme 2021 (PB 288)/ section 1448(1)(xvi) of the Act, the AO is required to provide an opportunity to the assessee in case any variation proposed is prejudicial to the interest of the assessee. Relevant extracts are as under: "(xvi) the National Faceless Assessment Centre shall examine the draft assessment order in accordance with the risk management strategy specified by the Board, including by way of an automated examination tool, whereupon it may decide to- 1. finalise the assessment, in case no variation prejudicial to the interest of assessee is proposed, as per the draft assessment order and serve a copy of such Marie Products Pvt. Ltd. vs. ACIT order and notice for initiating penalty proceedings, if any, to the assessee, along with the demand notice, specifying the sum payable by, or refund of any amount due to, the assessee on the basis of such assessment, or

2. provide an opportunity to the assessee, in case any variation prejudicial to the interest of assessee is proposed, by serving a notice calling upon him to show cause as to why the proposed variation should not be made, or

3. assign the draft assessment order to a review unit in any one Regional Faceless Assessment Centre, through an automated allocation system, for conducting review of such order

6.3 CIT-NFAC called for the remand report in the appellant's case for comments/information from the AO; the relevant part of the same is as under:-

"The AO in the instant case has failed to issue draft assessment order cum show cause notice and, thus not followed the mandatory provisions of the Act..."

In this connection, kind attention is invited to the provisions of sec 2928 of the IT ACT, relevant provision is as follows:-

Return of income, etc., not to be invalid on certain grounds.

292B. No retum of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have been furnished or made or issued or faken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason/of any mistake, defect or omission in such return of income, assessment, notice summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.

In view of the above, it is submitted that the assessment made u/s 143(3) r.w.s. 143(3A) and 143(38) of the Act dated 07/04/2021 is not illegal.

Further, the contention of the assessee that FAO has failed to issue draft assessment order cum show cause notice in this case does not hold any ground as after examination of the ITBA note sheets it is gathered that the FAO has issued the draft assessment order on 31/03/2021 to the assessee (copy enclosed). "

6.4 The appellant filed its comments on the remand report issued by the AO vide letter dated 20/10/2023. The relevant part related to this ground of appeal is as under:-

1. The FAO has passed the assessment order dated 7 April 2021 under section 143(3) r.w.s. 143(3A) and 143(3B) of the Act. Those sections were applicable only Marie Products Pvt. Ltd. vs. ACIT till 31 March 2021. With effect from 1 April 2021, all the assessment orders have to be passed under section 1448 of the Act and therefore passing of the assessment order in an incorrect section which was not having enforcement under the law as on the date of passing of the assessment order is a substantive illegality/ jurisdictional defect and not a procedural violation of the nature adverted to in section 2928 of the Act. Reliance in this regard is placed on the decision of Hon'ble Delhi High Court in the case of Ranu Promoter Private Limited vs Add CIT wherein the Hon'ble Delhi High Court held that the assessment order could have been passed in consonance with section 144B of the Act alone on or after 1 April 2021. For relevant extracts of the decision, kindly refer to the detailed CIT (A) submission.

Thus, the defect in the assessment order cannot be cured by relying on section 2928 of the Act as it is not a procedural defect rather a substantive/jurisdictional defect.

1. Further the FAO has mentioned that of the ITBA note gathered that the FAchas issued the draft assessment order sheets, it is gath on 31 March 2021 to the assessee (copy enclosed). At the outset, it is submitted that the copy of the draft assessment order has not been provided to the Appellant along with the subject notice dated 20 October 2023 issued by your honours and therefore the Appellant cannot comment on its legality and valid issuance.

2. Without prejudice to above, it is submitted that as per the screenshot of the e- filing portal of the Appellant (enclosed at PB 291-292 of the paperbook), no notice has been issued to the Appellant after 2 March 2021. Thus, the Appellant was not served with any draft assessment order/ show cause notice and therefore the observations of the FAO that draft assessment order was issued on 31 March 2021 is incorrect."

6.5 On the issue, I am inclined to agree with the AO that he order u/s 143 (3) of the Act is valid. The record has shown that a show cause notice/draft assessment order was issued on ITBA prior to issuing the final order. The grounds of appeal challenging the validity of the assessment order [grounds 1 and 4) are thus dismissed.

Ground 2

7. This ground of appeal challenges the addition amounting to Rs. 1,45,81,700/- on account of excess stock determined by Directorate General of Goods and Service Tax Intelligence.

7.1 As per the information available with the Department, the Officers of Directorate General of Goods and Services Tax intelligence, Jaipur Zonal Unit (DGGSTI, JZU) conducted a search on 10/11/2017 at various premises of M/s

7.2 Physical verification of stock of raw materials and finished goods at the company premises was carried out by the officers of Directorate General of Goods and Services Tax Intelligence and detected the shortage of raw materials and excess of finished goods.

7.3 A statement of the Director of the appellant company was recorded u/s 14 of the Central Excise Act 1944 r.w.s. 174 of CGST Act, 2017 and admitted the fact of clearance of goods without payment of duty/tax and shortage of raw material as well as excess of their finished goods, and paid Rs. 1.50 Cr against their Central Excise Duty/CGST liability.

7.4 Notice u/s 142(1) of the Act dated 20/01/2021 and subsequent letters dated 09/02/2021; 24/02/2021 & 02/03/2021 were issued and duly served upon the appellant to file details along with documentary evidences related to the issue. The appellant company vides e-communication, has submitted that during the search operation on 10/11/2017 by the officers of DGGI, physical stock verification of various types of raw material and finished goods was done and the officers found certain differences. The company has deposited an amount of Rs. 1.5 Cr against the Central Excise Duty/CGST liability under protest.

7.5 It was further submitted by the appellant company that the DGGI issued the show-cause notice on the basis of electricity consumption demanding Central Excise duty of Rs.1.22 Cr and interest of Rs.0.35 Cr and proposing appropriation of Rs.1.5Cr. In its reply to the show cause notice the appellant company stated that statement recorded were retracted within time.

7.6 Shri Rajesh Agarwal, brother of the directors of M/s. MPPL and Proprietor of M/s. Shubham Agency, Jaipur, in his statements recorded, could not submit any plausible reason for discrepancies found in the stock of Marie Brand Supari found at the premises of M/s. Shubham Agency. Statement of Shri Jitendra Kumar Agarwal, Partner of M/s. Singhal's Flexi-Pack was also recorded on and in his statement, he admitted that Shri Ashok Agarwal, Director of M/s MPPL was also one of the partners in Mis. Singhals Flexi Pack till 28/08/2017; the firm was engaged in manufacturing of printed flexible packaging material since 2015 and the M/s. MPPL was one of the major buyers of their products. He further agreed that they received & sold goods without bills and generated invoices of only 80% of goods cleared to M/s. MPPL and rest is cleared clandestinely without bill.

7.7 During the appellate proceedings, the appellant stated that the AO referring to the search proceedings conducted by DGGI at the factory premises of the appellant and its Director made addition alleging that excess stock was found during search conducted by the officials of DGGI. At the outset, it is submitted that Marie Products Pvt. Ltd. vs. ACIT the observation of the DGGI is incorrect as the DGGI has not considered the stock recorded in the books of accounts as on the date of search and has assumed that the entire physical stock as excess stock. It may be noted that Mr Ashok Agarwal, Director of the Appellant Company in his statement dated 11 November 2017 recorded at the factory premises has specifically stated that stock register was maintained in computer, but the indirect tax authorities ignored the same and considered the entire physical stock to be excess. It was further submitted that the Appellant is maintaining day-to-day books of accounts along with stock register which are duly audited.

7.8 The AO in his remand report stated that:-

"In this connection, it is submitted that the addition of Rs. 1,45,81,700/- has been made by the FAQ on the basis of the information gathered through Show Cause notice issued by the GST Deptt in the assessment order the FAO has discussed all the facts in detail while making this addition of Rs 1,45,81,700/-. It is further mentioned that Sh. Ashok Agarwal in his statement dated 11/11/2017 recorded u/s 14 of the Central Excise Act, 1944 has himself admitted that M/s MPPL is indulged in clandestine clearance of their finished goods without issuance of tax invoice. He also admitted that the perfume found at their residence situated at Plot No. 41, Gupta Garden, Behind Amor Hotel Tilak Marg Govind Nagar (West), Jorawar Singh Gate, Amer Road, Jaipur belongs to Mis MPPL and ownership of the said premises belongs to him only, and he could not produce any invoices against the illicit purchase of compound/perfume found at the residence during the course of search operation conducted by the CGST Deptt.

During the course of assessment proceedings the assessee was asked to reconcile the excess goods found from the above mentioned premises, however, the submissions made by the assessee company were not found tenable by the FAO."

7.9 The appellant's comments on the remand report in relation of this ground is as under:-

"2.1 In the remand report, the FAO has only reiterated which has already been mentioned in the assessment order and has not provided any arguments against the submission made by the Appellant. The Appellant had provided detailed reconciliation of the stock quantity recorded during physical verification and as per books during the assessment proceedings vide submission dated 4 February 2021 and 2 March 2021 (PB 1-2 and 265-269). The FAO has mentioned that the submission provided by the Appellant was not found tenable but the reasons for not accepting the submission/reconciliation of the Appellant by the FAO has not been explained.

2.2 It is submitted that the FAO blindly relied upon observation of the GST department without looking into the detailed submission filed by the Appellant. The Marie Products Pvt. Ltd. vs. ACIT statement of Sh Ashok Agarwal dated 11 November 2017 wherein he admitted clandestine removal of goods by the Appellant was retracted by Sh Ashok Agarwal by filing a letter to the GST department just after 1 day of the search operation ie on 13 November 2017 (refer PB 60 of the paperbook). Thus, the statement of Sh Ashok Agarwal dated 11 November 2017 holds no validity.

2.3 Further, in the remand report, the FAO has not commented upon the information submitted by the Appellant on the stock details which was already recorded in the books of accounts as on the date of search ie 11 November 2017 which has been submitted at PB 378 of the paperbook. Also, the FAO has not commented upon as to how the alleged excessive stock found at premises of M/s Shubham Agency, proprietorship concern of Mr Rajesh Agarwal amounting to to INR 4,78,640, at M/s Agarwal & Company, proprietorship concem of Mr Akash Agarwal, s/o Mr Ashok Agarwal of INR 13,20,800 and at M/s Singhal Flexi-Pack amounting to INR 43,89,371 Mr Ashok Agarwal COME TAX DEPARTMPodra partner along with Mr Jit Appellant. in which Kumar Agarwal is of the 7.10 In view of the above view and facts, it is clear that the appellant was unable to reconcile the difference in closing stock inspite of various opportunities being granted by the AO for the same. The discrepancy was also factually noted in the operational verification carried out by the GST Department wherein the clandestine removal of goods from the premises was accepted by Sh. Ashok Agarwal. In view of the same, the comment of the unexplained difference in stocks by the AO is upheld and the ground of appeal is dismissed.

Ground No. 3

8. This ground of appeal challenges the addition amounting to Rs. 8,15,28,076/- on account of unaccounted production.

8.1 The AO on the physical verification of goods at various premises related to the appellant company, data extracted devices seized, statements recorded u/s. 14 of the Central Excise Act, 1944 of various persons, electric consumption, Kacchi Parchhi, the DGGI department made quantification of Central Excise Duty on clandestine clearance made by the appellant company.

8.2 During the assessment proceedings the AO found that on the basis of the statement of Shri Sushil Shah, labour of M/s. MPPL, recorded u/s. 14 of the Central Excise Act, 1944 on 10/11/2019 and the statement of Shri Ashok Agarwal, Director of Mis. MPPL recorded on 11/11/2017, it was clear that 36 Bori of raw betel-nut purchased by M/s. MPPI on daily basis, which results in manufacturing of 2180 Kg. of scented supari per day.

8.3 The AO in his assessment order has stated that:-

Marie Products Pvt. Ltd. vs. ACIT (iv) Shri Ashok Agarwal in his statement dated 10.11.2017 recorded u/s. 14 of the Central Excise Act, 1944 admitted that the discrepancies found in their stock verification on 10.11.2017 was due to purchase & sale of their goods without any bill. Shri Ashok Agarwal in his statement dated 11.11.2017 recorded u/s. 14 of the Central Excise Act, 1944 admitted that M/s MPPL is indulged in clandestine clearance of their finished goods without issuance tax invoice. It is also admitted that the perfume found at their residence situated at Pot No. 41, Gupta Garden, Behind Amer Hotel, Tilak Marg, Govind Nagar (West), Jorawar Singh Gate, Amer Road, Jaipur belongs to M/s. MPPL and ownership of the said residence premises belongs to him only and he could not produce any invoices against the illicit purchase of compound/perfume found at the residence during the course of Search operation.

In the statement recorded u/s. 14 of the Central Excise Act, 1944 of Shri Ashok Agarwal on 14.11.2019, it is stated by him that average price of the scented supari is Rs.275-285 (approx- average 280) therefore considering the daily production 2180 kg per day the production for the period from 01.04.2017 to 09.11.2017 (222 days) the total value of total production comes to Rs.2180 X 222 X 280 =Rs. 13,15,08,800/-

(v)Shri Rajesh Agarwal, Proprietor of M/s. Shubham Agency, Jaipur in his statements recorded on 17.04.2018 & 27.04.2018 could not submit any plausible reason for discrepanciesfound in the stock of Marie Brand Supari found at the premises of M/s. Shubham Agency.

(vi)Shri Vindo Agarwal, Director of M/s. MPPL in his statements dated 20.11.2017 and 22.11.2017 also agreed with the content of statements of Shri Shushil Shah, Labour of M/s. MPPL, Shri Lalit Kumar, Labour Supervisor of M/s. MPPL and Shri Ashok Agarwal.

(vii)A statement u/s. 14 of the Central Excise Act, 1944 of Shri Gurjinder Singh Gill, Partner of M/s. G. G. Carriers, 11/14, Automobile Nagar, Jaipur was also recorded on 17.06.2019 wherein he admitted that not all goods transported by them to M/s. MPPL were accompanied by invoice and on some occasions, they transported supari in excess of the quantity shown in the invoices. (viii) Considering the physical verification of goods at various premises related to the assessee to the assessee company, data extracted devices seized, statements recorded u/s. 14 of the Central Excise Act, 1944 of various persons, electric consumption, Kacchi Parchhi, the DGGI department made quantification of Central Excise Duty on clandestine clearance made by the assessee company.

(ix) On the basis of statements of various persons, average weight per pouch is calculated as under.

Sr. No. Particulars Weight in grams 1 Pouch of 50 paisa 1.25 Marie Products Pvt. Ltd. vs. ACIT 2 Pouch of Rs. 1 2.00 3. Pouch of Rs. 2 3.50 4. Pouch of Rs. 5 8.00 ` Total 14.75 Average weight per pouch = 14.75/4 = 3.6875 Gm ……………… ………………… (xi) In view of the above, total unaccounted production worked out for the period from 01.04.2017 to 09.11.2017 12911717 Kg and the value of the unaccounted production is Rs. 8,15,28,076-(=291171.7X 280 approx. average), which is added to the total income of the assessee for A. Y. 2018-19 as per the provisions of section 69C of the IT Act as the assesee had made unaccounted production from unaccounted sources of purchases of raw materials The same is liable to tax as per the provisions of section 115BBE of the IT Act, 196 271AAC (1) of the IT Act is initiated SY DEPARTME proceedings u/s separately.

8.4 During the appellate proceedings, on remand report the AO added that:-

"In this connection, it is submitted that the addition of Rs. 8,15,28,076/- has been made by the FAO on the basis of the information gathered through Show Cause notice issued by the GST Deptt. In the assessment order the FAO has discussed all the facts in detail while making this addition of Rs. 8,15,28,076/-It is further mentioned that the unaccounted production has been calculated for the period from 01/04/2017 to 09/11/2017 and this addition has been made after detailed study / examination and analysis of the data of ER-1 returns submitted for the period from 01/04/2017 to 09/11/2017 and electricity bills seized from the factory premises of M/s MPPL. Kukas, Amer, Jaipur."

8.5 The appellant on rejoinder has taken the stand that:-

3.1 In the remand report, the FAO has only reiterated what has already been mentioned in the assessment order and has not provided any arguments against the submission made by the Appellant. The Appellant has provided detailed explanation as to how the electricity method used for computing the alleged unaccounted production is faulty and cannot be relied upon. Further, jurisdictional Rajasthan High Court in the case of CIT Vs Sulabh Marbles (P) Ltd (decision enclosed at PB 404-406 of the main paperbook) has held that where AO has not pointed out any defect in the books of accounts of the assessee or method of accounting followed by the assessee and there was no material placed on the record to show any instance of suppression of sale or inflation of purchase by the assessee, AO was wrong in drawing adverse inference against assessee by only referring to the electricity expenses. Further, reliance is also placed on other case laws which have laid down similar principle.

Marie Products Pvt. Ltd. vs. ACIT 3.2 Further, the addition has been made under section 69C of the Act which is not applicable as the FAO has no where in the assessment order proved that the Appellant had incurred expenditure and plainly relied on the show cause notice/ order passed by the indirect tax authenties for making addition under section 69C of the Act The hypothetical numbers of alleged alleged suppressed is based on a theory which is not proved by any production is by any corroborative Appellant without bill." 8.6 Taking in account all the above details and counter arguments of the AO and the appellant as well as the report of the DGGI Department after a physical inspection of the production facility of the appellant; it is quite clear that the appellant has indulged in production of goods which have not been properly reported in its regular books of accounts. In view of the same, the addition of such unaccounted production by the AO u/s 69C of the IT Act is upheld and the ground no. 3 of the appeal is accordingly dismissed. Ground No. 5 9. This ground of appeal states that the assessee craves right to add, alter or amend any of the grounds of appeal. No such option has been exercised during the appellate proceedings and this ground of appeal is, therefore, academic in nature and considered to be a dismissed ground for statistical purposes. In the result the appeal is dismissed.”

4. Feeling dissatisfied with the findings so recorded by the ld. CIT(A), the assessee preferred the present appeal before this tribunal on the following grounds:

“1. Based on facts and circumstances of the case and in law, the CIT(A) has erred in not appreciating that the assessment order dated 7 April 2021 passed under section 143(3) r.w.s 143(3A) & 143(3B) of the Act is illegal and bad in law as the assessment order has been passed in an inoperative section which is substantive/jurisdictional defect and not merely a procedural defect.

2. Based on facts and circumstances of the case and in law, the CIT(A) has erred in stating that the show cause notice/ draft assessment order was issued on ITBA prior to issuing of the final assessment order dated 7 April 2021 without providing a copy of the same/ evidence in support of the same and therefore in absence of framing a draft assessment order as per Paragraph 5(2)(xvi) of Faceless Assessment (Ist Amendment), Scheme 2021 and in absence of providing an opportunity to the Appellant, the final assessment order is illegal, bad in law and against the principles of natural justice.

3. Based on facts and circumstances of the case and in law, the CIT(A) has erred in confirming addition of Rs 1,45,81,700 on account of alleged excess stock determined by Directorate General of Goods and Service Tax Intelligence ("DGGSTI") in the search dated 10 November 2017 carried out at the various premises without pointing out any discrepancy in the reconciliation statement submitted by the Appellant and by not appreciating that a part of the alleged excess stock was not even found on the premises of the Appellant.

4. Based on facts and circumstances of the case and in law, the CIT(A) has erred in confirming addition of Rs 8,15,28,076 on account of alleged suppressed production under section 69C of the Act worked out by DGGSTI basis electricity consumption method by not controverting the detailed explanation of the Appellant and by not appreciating that the electricity method used by DGGSTI is faulty, incorrect and only on surmises and conjectures. He has further erred in taxing such amount under section 115BBE of the Act instead of taxing the income earned from sale of alleged suppressed production under the normal provisions of the Act.

5. Based on facts and circumstances of the case and in law, the CIT(A) has erred in not adjudicating the ground of the Appellant as to the confirmation of addition for the sale value of alleged suppressed production instead of applying a gross profit rate for working out the alleged income and therefore, the addition so made is illegal and bad in law. 6. Based on facts and circumstances of the case and in law, the CIT(A) has erred in not adjudicating the ground of the Appellant that the Ld. AO, NEAC has erred on facts and in law in making addition for the alleged suppressed production and also on account of alleged excess stock without setting of the alleged suppressed production against the alleged excess stock resulting into double addition to that extent. 7. The appellant craves to alter, amend and modify any ground of appeal

8. Necessary cost be awarded to the assessee.”

5. The ld. AR of the assessee appearing on behalf of the assessee has filed a detailed written submissions in respect of the various grounds raised by the assessee and the same is reproduced herein below:

Submission dated 09.04.2024 “Ground No 1:

Marie Products Pvt. Ltd. vs. ACIT Based on facts and circumstances of the case and in law, the CIT(A) has erred in not appreciating that the assessment order dated 7 April 2021 passed under section 143(3) r.w.s 143(3A) & 143(3B) of the Act is illegal and bad in law as the assessment order has been passed in an inoperative section which is substantive/ jurisdictional defect and not merely a procedural defect

Facts:- 1. The Appellant is engaged in the business of manufacturing and processing of scented betel nut (supari). Return was filed declaring total income of Rs 18,86,090/-. The Assessing Officer (“AO”) issued notice under section 142(1) dated 21 January 2021 seeking certain information. Reply was filed by the Appellant vide submissions dated 4 February 2021 (PB 1-12) and 2 March 2021 (PB 264).

2. Thereafter, the AO passed assessment order on 7 April 2021 (PB 277- 285) at total income of Rs 9,79,95,866/-, thereby making an addition of INR 9,61,09,776 to the returned income. The assessment order was issued under section 143(3) r.w.s 143(3A) & 143(3B) of the Act.

Submission:-

3. The assessment order dated 7 April 2021 passed under section 143(3) read with sections 143(3A) and 143(3B) of the Act is bad in law, illegal and void- ab-inito as sections 143(3A) and 143(3B) of the Act had ceased to exists from 1 April 2021 in terms of section 143(3D) of the Act. Relevant extracts are as under:

143 (3D) Nothing contained in sub-section (3A) and sub-section (3B) shall apply to the assessment made under sub-section (3) or under section 144, as the case may be, on or after the 1st day of April, 2021.

4. As evident from page number 1 of the assessment order, the order has been passed under section 143(3) read with sections 143(3A) & 143(3B) of the Act. Passing of an order under a non-operative section vitiates the applicability of the order itself and therefore the order is bad in law and be quashed. The order ought to have been passed by the AO under section 144B of the Act which was applicable from 1 April 2021. The date of assessment order is 7 April 2021 and, thus non-passing of order under the applicable section makes the assessment order void-ab-initio.

5. The CIT(A) obtained a remand report from the AO wherein the AO has placed reliance on section 292B of the Act and therefore have held that the assessment order is not illegal. Section 292B is reproduced as under:

“Return of income, etc., not to be invalid on certain grounds.

Marie Products Pvt. Ltd. vs. ACIT 292B. No return of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.”

6. It is submitted that passing of the assessment order in an incorrect section which was not having enforcement under the law as on the date of passing of the assessment order is a substantive illegality/ jurisdictional defect and not a procedural violation of the nature adverted to in section 292B of the Act.

10. Since the present case primarily pertains to interpretation and effect of Section143(3D),the same is reproduced here in below :- "(3D) Nothing contained in sub-section (3A) and sub- section (3B) shall apply to the assessment made under sub- section 144, as the case may be, on or after the 1st day of April, 2021."

11. Keeping in view the mandatory language of Section 143(3D) of the Act, this Court is of the view that after 01st April, 2021, the assessment orders could have been passed in consonance with Section 144 B of the Act alone.

15. Consequently, this Court sets aside the impugned assessment order dated 6th April, 2021 as also the notice of demand issued under Section 156 of the Act and the notice for initiating the penalty proceedings under Section 274 read with Section 270A of the Act.”

16. However, the respondent/revenue will be at liberty to proceed with the assessment process, albeit, under the provisions of Section 144B of the Act. Needless to add, if a show cause notice-cum-draft assessment order is served on the petitioner, an opportunity would be given to the petitioner to file its response/objections to the same. Furthermore, if there is a variation proposed in the income of the petitioner, an opportunity of personal hearing will also be accorded. In sum, the procedure prescribed under Section 144B of the Act will have to be followed by the respondent/revenue.”

Marie Products Pvt. Ltd. vs. ACIT (emphasis supplied) • Margita Infra vs. National W-assessment Centre, Delhi (2023) 458 ITR 0101 (Guj): Relevant extracts of the decision are as under:

“8. One of the grounds of challenge is that assessment order is also contrary to the scheme of I.T Act because the additions are made beyond the scope and issues in the show cause notice resulting in actual income assessed at 50 times then proposed to be assessed in the show cause notice. Thus, on both the counts non- grant of virtual hearing, though asked for repeatedly by the petitioner, and because the additions are made beyond the scope and issue of the show cause notice, the final assessment order passed deserves to be interfered with.

9. Resultantly assessment order dated 23.9.2021 and the demand notice issued under Section 144 of the self same date are hereby quashed and set aside giving the permission to the respondent to issue a fresh show cause notice. All contentions available under the law would be open for the petitioner to be raised in the fresh proceedings.” • Trendsutra Client Services Pvt. Ltd. Vs. ACIT and Ors. (2021) 112 CCH 0242 MumHC: Relevant extracts of the decision are as under: “16. We find from the impugned assessment order that there are variations from the return filed by Petitioner by containing additions/disallowances. The final assessment order is not made in accordance with the procedure laid down under Section 144B (xvi)(b) of the Act as inspite of the variation being prejudicial to the interest of assessee, no opportunity has been provided to the assessee by having him served with a show cause notice as well as draft assessment order calling upon him to show cause as to why the proposed variation should not be made. Thus, the impugned assessment order dated 18th April, 2021 is non est as the assessment is not made in accordance with procedure laid down under Section 144B of the Act. Hence, we pass following order:- (a) The assessment order issued by Respondent No.2 dated 18th April, 2021 along with consequential demand notice is quashed and set aside. (b) The Respondents may take such denovo proceedings as required in accordance with law. (c) Writ Petition is accordingly disposed in the above terms. There shall be no order as to costs.” • Pr CIT vs Maruti Suzuki India Limited (2019) 416 ITR 0613 (SC): The Hon’ble Supreme Court of India held that passing of the assessment order on a non- existing company is a substantive illegality and not a procedural violation of the nature adverted to in Section 292B of the Act and further clarified that participation in the proceedings by the appellant in the circumstances cannot operate as an • CIT vs Norton Motors 275 ITR 595: The Hon’ble Punjab & Haryana High Court stated the effect of section 292B in in the following manner:-

"A reading of the above reproduced provision makes it clear that a mistake, defect or omission in the return of income, assessment, notice, summons or other proceeding is not sufficient to invalidate an action taken by the competent authority, provided that such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the provisions of the Act. To put it differently, Section 292B can be relied upon for resisting a challenge to the notice, etc., only if there is a technical defect or omission in it. However, there is nothing in the plain language of that section from which it can be inferred that the same can be relied upon for curing a jurisdictional defect in the assessment notice, summons or other proceeding. In other words, if the notice, summons or other proceeding taken by an authority suffers from an inherent lacuna affecting his/its jurisdiction, the same cannot be cured by having resort to Section 292B. • CIT Vs. Harjinder Kaur (2009) 222 CTR 254 (P&H): In the said case, return in question filed by the assessee was neither signed by the assessee nor verified in terms of the mandate of Section 140 of the Act. The Court was of the opinion that such a return cannot be treated as return even a return filed by the assessee and this inherent defect could not be cured inspite of the deeming effect of Section 292B of the Act. Therefore, the return was absolutely invalid and assessment could not be made on a invalid return. In the process, the Court observed as under:-

"Having given our thoughtful consideration to the submission advanced by the learned Counsel for the appellant, we are of the view that the provisions of Section 292B of the 1961 Act do not authorize the AO to ignore a defect of a substantive nature and it is, therefore, that the aforesaid provision categorically records that a return would not be treated as invalid, if the same "in substance and effect is in conformity with or according to the intent and purpose of this Act". Insofar as the return under reference is concerned, in terms of Section 140 of the 1961 Act, the same cannot be treated to be even a return filed by the respondent assessee, as the same does not even bear her signatures and had not even been verified by her. In the aforesaid view of the matter, it is not possible for us to accept that the return allegedly filed by the assessee was in substance and effect in conformity with or according to the intent and purpose of this Act. Thus viewed, it is not possible for us to accept the contention advanced by the learned Counsel for the appellant on the basis of Section 292B of the 1961 Act. The return under reference, which had been taken into consideration by the Revenue, was an absolutely invalid return as it had a glaring inherent defect which could not be Marie Products Pvt. Ltd. vs. ACIT cured in spite of the deeming effect of Section 292B of the 1961 Act." • Sri Nath Suresh Chand Ram Naresh Vs. CIT (2006) 280 ITR 396: The Allahabad High Court held that the issue of notice under Section 148 of the Income Tax Act is a condition precedent to the validity of any assessment order to be passed under section 147 of the Act and when such a notice is not issued and assessment made, such a defect cannot be treated as cured under Section 292B of the Act. The Court observed that this provision condones the invalidity which arises merely by mistake, defect or omission in a notice, if in substance and effect it is in conformity with or according to the intent and purpose of this Act. Since, no valid notice was served on the assessee to reassess the income, all the consequent proceedings were null and void and it was not a case of irregularity. Therefore, Section 292B of the Act had no application.

Thus, it is submitted that the defect in the assessment order cannot be cured by relying on section 292B of the Act as it is not a procedural defect rather a substantive/ jurisdictional defect. Ground No 2:

Based on facts and circumstances of the case and in law, the CIT(A) has erred in stating that the show cause notice/ draft assessment order was issued on ITBA prior to issuing of the final assessment order dated 7 April 2021 without providing a copy of the same/ evidence in support of the same and therefore in absence of framing a draft assessment order as per Paragraph 5(2)(xvi) of Faceless Assessment (Ist Amendment), Scheme 2021 and in absence of providing an opportunity to the Appellant, the final assessment order is illegal, bad in law and against the principles of natural justice.

Facts and submission:-

Further, the contention of the assessee that FAO has failed to issue draft assessment order cum show cause notice in this case does not hold any ground as after examination of the ITBA note sheets it is gathered that the FAO has issued the draft assessment order on 31/03/2021 to the assessee (copy enclosed).

9. It is submitted that the CIT(A)/ AO has not provided copy of the draft assessment order dated 31 March 2021. The Appellant has placed on record screenshot of the e-filing portal evidencing that a draft assessment order cum Marie Products Pvt. Ltd. vs. ACIT show cause notice was not issued to the Appellant (PB 292). Thus, the assessment order has been passed without following the mandatory procedure laid out in the Act and therefore is against the principles of natural justice. As per paragraph 5(2)(xvi) of the Faceless Assessment Scheme 2021 (PB 288)/ section 144B(1)(xvi) of the Act, the AO is required to provide an opportunity to the assessee in case any variation proposed is prejudicial to the interest of the assessee. Relevant extracts are as under:

(xvi) the National Faceless Assessment Centre shall examine the draft assessment order in accordance with the risk management strategy specified by the Board, including by way of an automated examination tool, whereupon it may decide to— (a) finalise the assessment, in case no variation prejudicial to the interest of assessee is proposed, as per the draft assessment order and serve a copy of such order and notice for initiating penalty proceedings, if any, to the assessee, along with the demand notice, specifying the sum payable by, or refund of any amount due to, the assessee on the basis of such assessment; or (b) provide an opportunity to the assessee, in case any variation prejudicial to the interest of assessee is proposed, by serving a notice calling upon him to show cause as to why the proposed variation should not be made; or (c) assign the draft assessment order to a review unit in any one Regional Faceless Assessment Centre, through an automated allocation system, for conducting review of such order

4. The final nail in the coffin is addition of Rs.3,24,98,451/- and Rs.3,79,58,450/-, both under Section 68 of the Act. In the petition, in one of the grounds there is a specific allegation that there is not even a whisper of these additions either in the alleged draft assessment order or in any of the notices issued in the course of assessment proceedings and no opportunity whatsoever was given to petitioner to file its objections against these additions. In the affidavit in reply of respondent, there is no denial of this fact. In the affidavit in reply, the affiant has gone on the merits of the two additions but does not deny the fact that neither the alleged draft assessment order or any of the notices have not even referred to this proposed additions under Section 68 of the Act. Issuance of show cause notice is the preliminary step which is required to be undertaken. The purpose of show cause notice is to enable a party to effectively deal with the case made out by respondent (Om Shri Jigar Association Vs. Union of India), 1994 SCC Online Guj.77 Therefore, on this ground also the impugned order is required to be set aside.

5. In our view, having heard Mr. Syal and Mr. Pinto and having considered the petition and the affidavit in reply, the prayer as prayed for in prayer clauses (a) and (c) of the petition has to be granted and is hereby granted. The same read as under: "(a) that this Hon'ble Court be pleased to issue a Writ of Certiorari or any other writ, order or direction under Article 226 of the Constitution of India calling for the records of the case leading to the passing of the impugned order dated 24th May2021 under Section 143(3) r.w.s. 144B of the Act for the assessment year 2018-19 and after going through the same and examining the question of legality there of quash, cancel and set aside such impugned order. (c) that this Hon'ble Court be pleased to issue a Writ of Prohibition or any other writ, order or direction under Article 226 of the Constitution of India ordering and directing respondent no.1 not to take any action in furtherance to the impugned order." In view of the above, considering that the order has not been passed under correct section of the Act and the mandatory provisions as provided in the Act have not been followed, the assessment order be quashed.

Ground No 3:

Based on facts and circumstances of the case and in law, the CIT(A) has erred in confirming addition of Rs 1,45,81,700 on account of alleged excess stock determined by Directorate General of Goods and Service Tax Intelligence (“DGGSTI”) in the search dated 10 November 2017 carried out at the various premises without pointing out any discrepancy in the reconciliation statement submitted by the Appellant and by not appreciating that a part of the alleged excess stock was not even found on the premises of the Appellant.

Facts:-

12. Basis the show cause notice (PB17-24)/ order passed by the DGGI, the AO made the following addition under section 69C of the Act.

S No Particulars Amount (INR) A For alleged excess stock at factory premises of the Assessee at Plot No H 68,04,689 20A, RIICO Industrial Area, Kukas B For alleged excess stock at residence of the director of the Appellant Mr 15,79,200 Ashok Agarwal C For alleged excess stock at Shubham Agency, proprietorship concern of Mr 4,78,640 Rajesh Agarwal D For alleged excess stock at M/s Agarwal & Company, proprietorship 13,20,800 concern of Mr Akash Agarwal, s/o Mr Ashok Agarwal E For alleged excess stock at M/s Singhal Flexi-Pack. Mr Ashok Agarwal is 43,89,371 partner in the firm along with Mr Jitendra Kumar Agarwal Total 1,45,72,690

13. The Appellant, during the course of the assessment proceedings, vide submission dated 4 February 2021 (PB 1-2) provided reasons for difference in stock during physical verification and vide submission dated 2 March 2021 (PB 265-269) provided complete reconciliation of stock quantity recorded during physical verification and as per books. However, the AO without considering the detailed submission filed and without issuing a show cause notice added the above amount to the total income of the Assessee as unexplained expenditure under section 69C of the Act. The CIT(A) at para 7.10 of the order held that the Appellant was unable to reconcile the difference in closing stock inspite various opportunities and confirmed the addition without considering the submission of the Appellant.

Submission:-

14. The reasons for alleged excess stock of INR 1,45,72,690 for which addition has been made by the AO is explained hereunder:

A. For alleged excess stock at factory premises of the Assessee at Plot No H-20A, RIICO Industrial Area, Kukas amounting to INR 68,04,689.

B. For alleged excess stock at residence of the director Mr Ashok Agarwal amounting to INR 15,79,200. 14.1 The AO referring to the search proceedings conducted by DGGI at the factory premises of the Appellant and its director made addition alleging that excess stock was found during search conducted by the officials of DGGI. At the outset, it is submitted that the observation of the DGGI is incorrect as the DGGI has not considered the stock recorded in the books of accounts as on the date of search and has assumed that the entire physical stock as excess stock. It may be noted that Mr Ashok Agarwal, director of the Appellant company in his statement dated 11 November 2017 (PB 293-299) recorded at the factory premises has specifically stated that stock register in maintained in computer, but the indirect tax authorities ignored the same and considered the entire physical stock to be excess. The Assessee again explained this fact before the indirect tax authorities in reply to the show cause notice but the same was again ignored and thus only on the basis of incorrect finding recorded by the indirect tax authorities, the presumption of excess stock drawn by the AO is incorrect (letter filed with indirect tax authorities is enclosed at PB 300-304).

14.2 In course of assessment proceedings, the Appellant filed detailed submission vide letter dated 2 March 2021 (PB 265-269) where quantity wise bifurcation of raw material and work in progress of stock recorded in books of accounts as on the date of search and actual stock found during physical verification by indirect tax authorities was submitted along with reasons for any excess/ shortage of stock. The summary of the explanation given is tabulated as under:

S Item/ Actual stock as Amount of Stock as per Excess/ Remarks product per physical stock as per books as 10 (shortage) [A- No verification – A physical November B] verification 2017 (date of (INR) search) – B 1 Cherry 160 kg 7,840 300 kg (140 kg) Stock issued for R&D papaya work was not entered in the ledger account. Thus, there is no deviation in this stock 2 Dry dates 2750.7 kg 1,76,045 5608.75 kg (1127.80 kg) Stock issued for cutting production and present in (Chhuara) (1730.2 kg) semi-finished goods. Thus, there is no 3878.5 kg deviation in this stock

1730.2 kg represents purchase bill received from S R Products which was received after 10 November 2017 but the bill was dated 4 November 2017 3 Menthol 219.60 kg 3,07,440 198.13 kg 21.48 kg Minor variation and within Crystal the tolerance limit 4 Plastic 834.56 kg 1,25,189 1014.60 kg 180.01 kg Stock issued for material Outer under process. However, (Laminated during search, material outer) under process was not considered at all. Thus, there is no deviation in this stock 4 Plastic roll 3821.41 kg 3314.58 kg (506.83 kg) Weight considered by (Polyster excise department is on Roll) improper sample basis and therefore the difference. If correctly done, there is no deviation in this stock 5 Palm oil/ 806.40 kg 77,056 1,224.78 kg 273.79 kg Difference of 273.79 kg is Refined on account of stock (144.59) kg corn oil issued to R&D to check oil quality. Thus, there is 1080.19 kg no deviation in this stock.

144.59 kg represents oil issued for production and therefore has been reduced 6 Perfume 114 kg 16,53,680 191.47 kg 37.57 kg Difference of 37.57 kg is compound (including stock due to normal (40.00 kg) at Gupta evaporation loss, Garden of considering the nature of 151.57 kg 15,79,200 product. Thus, there is no which represents 100 deviation in this stock kg of perfume. 200 kg was water) 40 kg represents a bill dated 10 November 2017 of supplier S.H. Kelkar & Co. Ltd. which was received later 7 Plastic 2300 pcs 39,100 4018 pcs 1003 pcs Plastic bags and boris bags & occupied in raw material, (715 pcs) bori semi-finished goods, finished goods and 3303 pcs wastage not considered. Also, plastic bags and boris not found proper were removed from stock. Thus, there is no deviation in this stock

715 pcs represents packing material issued for production 8 Plastic tich 163.12 kg 17,780 275.04 kg 81.19 kg Plastic tich strip already strip used in finished goods (30.73) kg and lying in stock not considered. If 244.31 kg considered, there is no deviation in this stock

30.73 kg represents packing material issued for production 9 Saunf 42.43 kg 6,110 60.50 kg 18.07 kg Stock issued for R&D work was not entered in the ledger account. Thus, there is no deviation in this stock 10 Sodium 40.80 kg - 84.42 kg 43.62 kg Deviation represents Sacreen material under process. During search, the 11 Sugar and 4226 kg 1,60,588 5,407.07 kg 1181.07 kg material under process mishri was not considered. Thus, there is no deviation in this stock 12 Sugar - - 40 kg 40 kg Stock issued for R&D Coated work was not entered in the ledger account. Thus, Fennel there is no deviation in this stock 13 Raw 11,819.00 kg 2535 kg represents material invoice number 95 of Jain (2,535.00 kg) sabut Enterprises dated 7 Supari November 2017 which (7,139.00 kg) was received later. 7139 kg represents conversion 2145.00 kg 2,145.00 kg - of raw material supari into supari cutting

Products very speedily absorbs moisture and 35,80,785 therefore the stock found Supari in excess is cumulative Cutting result of this property of the stock. For detailed 19,014.84 kg 15,913.42 kg -3,101.39 kg reconciliation, refer page 269 of PB 14 Zintan 3.4 kg 170 20 kg 16.60 kg Stock issued for R&D (Sugar work was not entered in Ball) the ledger account. Thus, there is no deviation in this stock Add: Product in work in progress 22,32,096 considered as finished goods by excise officer Total 83,83,879 Aggregate of Rs 68,04,689 and 15,79,200

From the above table, it can be noted that stock was properly recorded in the books of accounts and any excess/ shortage of stock in comparison to physical verification is duly verifiable and explainable. The indirect tax authorities failed to 14.3 Even at para 4.1 of the order (PB 306), the indirect tax authorities have incorrectly mentioned that “excess stock was found as against the quantity recorded in the stock register” and have mentioned in the table below as “excess stock”. On perusal of the table (PB 307-310), your goodself will appreciate that the indirect tax authorities have not provided any details/ comparison of “stock found at physical verification” and “stock as per stock register”. They have only mentioned “stock details” which is actually the “physical stock”. Copy of stock register as per books of accounts evidencing the above quantity which is recorded in books is enclosed as PB 378. Therefore, without considering the stock as per the stock register, the excess stock determined is incorrect and cannot be the basis for making addition on account of alleged excess stock.

14.4 It is further submitted that the Appellant is maintaining day-to-day books of accounts along with stock register which are duly audited. The opening stock, purchases, sales and closing stock has been accepted by the AO. No discrepancy has been pointed out by the AO in the same. The quantitative details of closing stock along with its valuation supported by tax invoices were provided to the AO vide submission dated 4 February 2021. The same has been accepted. Hence, the addition made on account of alleged excess stock without pointing out any discrepancy in unjustified and uncalled for.

C. For alleged excess stock at Shubham Agency, proprietorship concern of Mr Rajesh Agarwal amounting to INR 4,78,640

14.5 Shubham Agency is engaged in trading of scented supari and buys supari from the Appellant and sells it throughout India except Jaipur. Purchase and sale transaction undertaken by Shubham Agency is independent of transactions undertaken by the Assessee and therefore the alleged excess physical stock found at the premises of Shubham Agency is not stock of the Assessee company but is stock of the Shubham Agency. As the alleged excess physical stock is not the stock of the Assessee, the same cannot be treated as unexplained stock of the Assessee.

14.6 In the assessment order, the AO has incorrectly mentioned that the alleged excess physical stock is of the Assessee company. Even at paragraph 5.1 of the show cause notice F No DGGSTI/JZU/INT/CE/02/2017/9802 dated 3 January 2020 (PB 22) and order passed by the indirect tax authorities pursuant to the show cause notice (PB 312), it has not been mentioned that the alleged excess physical stock is the stock of the Assessee company. Further, Mr Rajesh Agarwal, proprietor in Shubham Agency in the statement recorded on 17 April 2018 and 27 April 2018 has not mentioned that the alleged excess physical stock is the stock of the Assessee company and thus no addition can be made on stock which does not belongs to the Assessee.

14.7 Further, search was conducted by the indirect tax authorities at the premises of Shubham Agency located at Geeta Palace, Amer Road, Jaipur, Rajasthan which does not belong to the Appellant. Thus, the stock found at the premises of third party cannot be stock of the Appellant, more so due to the reason that the AO has not produced any evidence to prove that the stock belonged to the Appellant.

D. For alleged excess stock at M/s Agarwal & Company, proprietorship concern of Mr Akash Agarwal, s/o Mr Ashok Agarwal of INR 13,20,800

14.8 M/s Agarwal & Company is engaged in procuring raw betel nut and supplies the same to the Assessee. Purchase and sale transaction undertaken by M/s Agarwal & Company is independent of transactions undertaken by the Assessee and therefore the alleged excess physical stock found at the premises of M/s Agarwal & Company is not stock of the Assessee company but is stock of the M/s Agarwal & Company. As the alleged excess physical stock is not the stock of the Assessee, the same cannot be treated as unexplained stock of the Assessee.

14.9 In the assessment order, the AO has incorrectly mentioned that the alleged excess physical stock is of the Assessee company. Even at paragraph 6.1 of the show cause notice F No DGGSTI/JZU/INT/CE/02/2017/9802 dated 3 October 2020 (PB 23) and order passed by the indirect tax authorities (PB 313) pursuant to the show cause notice, it has not been mentioned that the alleged excess physical stock is the stock of the Assessee company. Further, Mr Akash Agarwal, proprietor of M/s Agarwal & Company in the statement recorded on 10 November 2017 has not mentioned that the alleged excess physical stock is the stock of the Assessee company and thus no addition can be made on stock which does not belongs to the Assessee.

14.10 Further, search was conducted by the indirect tax authorities at the premises of M/s Agarwal & Company located at Plot No 212, Manga Marg, Near Samrat Gate, Brahmpuri, Jaipur, Rajasthan which does not belong to the Appellant. Thus, the stock found at the premises of third party cannot be stock of the Appellant, more so due to the reason that the AO has not produced any evidence to prove that the stock belonged to the Appellant. E. For alleged excess stock at M/s Singhal Flexi-Pack amounting to INR 43,89,371. Mr Ashok Agarwal is partner in the firm along with Mr Jitendra Kumar Agarwal

14.11 M/s Singhal Flexi-Pack is engaged in manufacture of printed flexible packaging material since 2015. Purchase and sale transaction undertaken by M/s Singhal & Flexi-Pack is independent of transactions undertaken by the Assessee and therefore the alleged excess physical stock found at the premises of M/s Singhal Flexi-Pack is not stock of the Assessee company but is stock of the M/s Marie Products Pvt. Ltd. vs. ACIT Singhal Flexi-Pack. As the alleged excess physical stock is not the stock of the Assessee, the same cannot be treated as unexplained stock of the Assessee. 14.12 In the assessment order, the AO has incorrectly mentioned that the alleged excess physical stock is of the Assessee company. Even at paragraph 7.1 of the show cause notice F No DGGSTI/JZU/INT/CE/02/2017/9802 dated 3 October 2020 (PB 24) and order passed by the indirect tax authorities (PB 313- 314) pursuant to the show cause notice, it has not been mentioned that the alleged excess physical stock is the stock of the Assessee company. Further, Mr Jitendra Kumar Agarwal, partner in M/s Singhal Flexi-Pack in the statement recorded on 10 November 2017 has not mentioned that the alleged excess physical stock is the stock of the Assessee company and thus no addition can be made on stock which does not belongs to the Assessee. 14.13 Further, search was conducted by the indirect tax authorities at the premises of M/s Singhal Flexi-Pack located at Plot No E-39-A, RIICO Industrial Area, Bassi, Jaipur, Rajasthan which does not belong to the Appellant. Thus, the stock found at the premises of third party cannot be stock of the Appellant, more so due to the reason that the AO has not produced any evidence to prove that the stock belonged to the Appellant. 14.14 Without prejudice to above, in the statement of Mr Jitendra Kumar Agarwal recorded on 10 November 2017, it has been mentioned that major buyers of their products are M/s Marie Products Pvt Ltd (Assessee), M/s Ajay Landmark Pvt Ltd, Alwar, M/s Marie Tea Packaging India Pvt Ltd, M/s Mayank Food Products, etc. Thus, there are multiple buyers of the products produced by M/s Singhal Flexi-Pack and therefore treating the alleged excess stock found at the premises of third party cannot be considered as unexplained stock of the Assessee. In light of above, it is submitted that the addition made by the AO by incorrectly relying on the show cause notice/ order passed by the indirect tax authorities be directed to be deleted due to the following reasons: • The indirect tax authorities failed to consider the stock register maintained by the Assessee as on the date of search and concluded that the entire physical stock found was excess. • The indirect tax authorities purposefully did not consider the response filed by the Assessee explaining the position of stock as per stock register and as found during physical verification and therefore the order passed by the indirect tax authorities cannot be relied as it contains material mistakes and improper facts. • The Assessee has not accepted the order passed by the indirect tax authorities and has challenged it before the indirect tax appellate authority which is pending as of the date.

Marie Products Pvt. Ltd. vs. ACIT • The AO has failed to consider the detailed explanation and reconciliation provided for stock found on physical verification and as per books of the Appellant and plainly relied upon the incorrect facts recorded in show cause notice/ order passed by the indirect tax authorities without independently verifying the same. • In relation to stock of perfume compound, day to day stock register has been maintained. Copy of daily stock register of perfume compound from 1 April 2017 to 10 November 2017 is enclosed at PB 379-397. On perusal of the stock register, your honour will appreciate that the quantity purchased is duly entered into stock register and the quantity issued for production is also duly recorded in stock register. Thus, the indirect tax authorities have incorrectly considered 314 kgs as actual stock whereas out of 314 kgs, 200 kgs was water and remaining 114 kgs was perfume compound. Reconciliation of actual stock with books has already been provided above. • Alleged excess physical stock found at M/s Shubham Agency, M/s Agarwal & Company and M/s Singhal’s Flexi-Pack is not of the Assessee company and therefore cannot be added to the total income of the Assessee company. In the show cause notice, order passed by the indirect tax authorities, statement recorded by respective owner of these entities, it has not been stated that the stock is of the Assessee company and the AO has incorrectly assumed it to be of the Assessee company. In view of above, the addition for alleged unexplained stock be directed to be deleted. Ground No 4: Based on facts and circumstances of the case and in law, the CIT(A) has erred in confirming addition of Rs 8,15,28,076 on account of alleged suppressed production under section 69C of the Act worked out by DGGSTI basis electricity consumption method by not controverting the detailed explanation of the Appellant and by not appreciating that the electricity method used by DGGSTI is faulty, incorrect and only on surmises and conjectures. He has further erred in taxing such amount under section 115BBE of the Act instead of taxing the income earned from sale of alleged suppressed production under the normal provisions of the Act. Facts:

15. The AO, in order to make addition on account of alleged suppressed production, relied upon the show cause notice issued by the indirect tax authorities and referred to the recorded statements of Mr Shushil Shah, labour, Mr Lalit Kumar, labour supervisor, Mr Ashok Agarwal, director of the company, Mr Rajesh Agarwal, proprietor of Shubham Agency, Vinod Agarwal, director of the company, Mr Gurjinder Singh Gill, partner of M/s G.G. Carriers.

16. The indirect tax authorities made an arbitrary calculation of the estimated production taking electricity consumption as a base and arrived at a ratio of 8.45 being the highest production ratio i.e for the period 1 November 2017 to 9 November 2017, 20,834 kgs were manufactured utilizing 2466 units of electricity. This gives a ratio of 8.45. This ratio was applied to the electricity units consumed for the period April 2017 to October 2017 to arrive at estimated production. The estimated production was compared with the actual production for this period and an alleged shortfall of 2,91,171.7 kgs was arrived at. Applying rate of 280 per kg the alleged short production of Rs 8,15,28,076 for the period April 2017 to 9 November 2017 was determined and added to the total income of the Assessee under section 69C of the Act. The CIT(A) at para 8.6 of its order upheld the addition without considering the detailed submission filed by the Appellant and without providing any reasons.

Submission: Order passed by indirect tax authorities has been challenged before the appellate authority and therefore cannot be relied 17. At the outset, it is submitted that that order passed by the indirect tax authorities has not been accepted by the Appellant and an appeal has been filed before the appellate authority challenging the order. Thus, addition on the basis of an order which is under litigation is unwarranted. Also, the order passed by the indirect tax authorities is full of factual errors (elaborated in subsequent paragraphs) and therefore cannot be relied upon. Faulty method used by indirect tax authority for computing alleged suppressed production and therefore cannot be relied 18. The AO on the basis of the observations of indirect tax authorities has considered the average weight of pouch at 3.6875 grams per pouch. The computation of weight of 3.6875 grams per pouch is as under:

Particulars Weight in grams Pouch of 50 paisa 1.25 Pouch of Re. 1 2.00 Pouch of Rs 2 3.50 Pouch of Rs 5 8 Total 14.75 Average weight per pouch = 14.75/4 = 3.6875 Gm

19. The weight of 3.6875 gram was multiplied with total number of pouches manufactured in a month to arrive at total kilograms of production per month. Thereafter, the total kilogram of production was divided with the electricity consumed per month, to arrive at ratio of production per unit of electricity. The highest ratio of 8.45 for the period 1 November 2017 to 9 November 2017 was applied to all the months to arrive at anticipated actual production and the difference between anticipated actual production and the production recorded in the books was considered as suppressed production. On such suppressed production, a rate of 280 per kg was applied and an addition of Rs 8,15,28,076 was made for the period April 2017 to 9 November 2017. The calculation is given at page 7 and 8 of the assessment order.

20. It is submitted that the entire working is faulty as the computed average weight per pouch of 3.6875 grams is without considering the actual pouches manufactured and its weight. Thus, weighted average method should be considered to computed the average weight of the pouch. The pouches are manufactured in the MRP of Re 0.50, Rs 1, Rs 2 and Rs 5 as the weight per pouch (in grams) is increased basis the MRP (as mentioned in the above table). The average weight per pouch as computed by the Appellant is 1.7382 Gm as against 3.6875 Gm computed by the DGGSTI officials, detailed as under:

Particulars Weight Average As per Appellant in weight grams computed by Actual % of Average (I) DGGSTI production in Producti Weight in officials pouches on (II) Grams (III=I*II)

Pouch of 50 paisa 1.25 3.6875 Gm 59055840 34% 0.4249 basis 14.75/4 Pouch of Re. 1 2.00 110336780 64% 1.2701 (1.25 + 2 + 3.5 Pouch of Rs 2 3.50 999540 1% 0.0201 + 8 = 14.75) Pouch of Rs 5 8 3340032 2% 0.1538

Total 173732192 100% 1.8690

Ratio – Grams per Weight In Kg No of Electricity Production Particulars Product (A) Pouches (B) consumption Pouch (C) D=B*C/1000 per unit/electrici (E) ty F = D/E April 2017 Supari Rs. 0.50 3528000 1.25 4410 Supari Rs. 1 4605600 2 9211 Supari Rs. 2.00 54000 3.5 189 Supari Rs. 5.00 67200 8 538 Total 8254800 14348 9960 units 1.44 May 2017 Supari Rs. 0.50 2736000 1.25 3420 Supari Rs. 1 4653600 2 9307 Supari Rs. 2.00 42000 3.5 147 Supari Rs. 5.00 91200 8 730 Total 7522800 13604 10180 units 1.34 June 2017 Supari Rs. 0.50 313200 1.25 3915 Supari Rs. 1 4082400 2 8165 Supari Rs. 2.00 72000 3.5 252 Supari Rs. 5.00 91200 8 730 Total 7377600 13061 9400 units 1.39 July 2017 Supari Rs. 0.50 7116480 1.25 8896 Supari Rs. 1 4490700 2 8981 Supari Rs. 2.00 56280 3.5 197 Supari Rs. 5.00 112800 8 902 Total 11776260 18976 9500 units 2.00 August 2017 Supari Rs. 0.50 6570720 1.25 8213 Supari Rs. 1 7187580 2 14375 Supari Rs. 2.00 151110 3.5 529 Supari Rs. 5.00 177600 8 1421 Total 14087010 24538 11500 units 2.13 September Supari Rs. 2017 0.50 7397280 1.25 9247 Supari Rs. 1 9421380 2 18843 Supari Rs. 2.00 111690 3.5 391 Supari Rs. 5.00 218022 8 1744 Total 17148372 30224 9560 units 3.16 October 2017 Supari Rs. 0.50 6140160 1.25 7675 Supari Rs. 1 11011320 2 22023 Supari Rs. 2.00 111690 3.5 391 Supari Rs. 5.00 204984 8 1640 Total 17468154 31729 9380 units 3.38

1 Supari Rs. November 0.50 2027040 1.25 2534 to 9 Supari Rs. 1 3521520 2 7043 November 2017 Supari Rs. 2.00 39420 3.5 138

Supari Rs. 5.00 65481 8 524 Total 5653461 10239 2466 units 4.15

Thus, by not considering the above important factors of production, the production estimated by the indirect tax authorities and blindly relied upon by the AO is misplaced and arbitrary.

Month Electricity Production Actual Suppressed Suppressed production consumption using ratio of production (refer production (kg) in Rs, applying rate of assessment (units) 4.15 (in kgs) order) Rs 280 per kg April 2017 9960 41334 30440 26986 75,56,080 May 2017 10180 42247 27740 28643 80,20,040 June 2017 9400 39010 27205 25949 72,65,720 July 2017 9500 39425 43338 20449 57,25,720 August 11500 47725 49241 23187 64,92,360 2017 September 9560 39674 54837 9450 26,46,000 2017 October 9380 38927 63137 7198 20,15,440 2017 1 to 9 2466 10234 20834 -5 -1,428 November 2017 Total 141857 3,97,19,932

Thus, the amount of suppressed production using the above method of calculation comes to Rs 3,97,19,932 as against Rs 8,15,28,076 computed by the AO. 24. Further, the basis of using the highest ratio has not been explained/ provided by the AO. As explained above, the ratio has been increasing due to a number of factors which were totally ignored by the indirect tax authority and therefore the working of alleged suppressed production cannot be relied to make any addition.

Grams Ratio – Electricity per Weight In Kg Production per No of consumption Particulars Product (A) unit/electricity Pouches (B) Pouch D=B*C/1000 (E) (C) F = D/E 15 Supari Rs. 0.50 2282880 1.25 2854 November Supari Rs. 1 8592736 2 17185 to 31 November Supari Rs. 2 19710 3.5 69 2017 Supari Rs. 5 153738 8 1230 Total 11049064 21338 5754 units 3.71 December Supari Rs. 0.50 6258240 1.25 7823 2017 Supari Rs. 1 11169104 2 22338

Supari Rs. 2 98550 3.5 345

Supari Rs. 5 316017 8 2528 Total 17841911 33034 7460 units 4.43 January Supari Rs. 0.50 4388640 1.25 5486 2018 Supari Rs. 1 12561000 2 25122

Supari Rs. 2 124830 3.5 437

Supari Rs. 5 392886 8 3143 Total 17467356 34188 7540 units 4.53 February Supari Rs. 0.50 4565760 1.25 5707 2018 Supari Rs. 1 13845935 2 27692

Supari Rs. 2 39420 3.5 138

Supari Rs. 5 535236 8 4282 Total 18986351 37819 7360 units 5.14 March 2018 Supari Rs. 0.50 2912640 1.25 3641

Supari Rs. 1 15193905 2 30388

Supari Rs. 2 78840 3.5 276

Supari Rs. 5 552318 8 4419 Total 18737703 38723 10000 units 3.87 (Bill raised for adhoc units by JVVNL)

As evident above, the ratio has varied for all the months and has increased even after the date of search of 10 November 2017 (except for the month of March 2018). Thus, the increasing trend which can be seen even before the date of Marie Products Pvt. Ltd. vs. ACIT search by indirect tax authority, continued even after the date of search. As the pattern of production per unit of electricity has remained same, it cannot be assumed that the Appellant has suppressed the production. As mentioned above, the increasing trend is due to a variety of factors such as additions of new and efficient machines, better productions, use of DG set, skilled labour, etc. Thus, electricity cannot be any basis for computing suppressed production. Electricity consumption cannot be a basis for computing suppressed production 26. The only basis for making alleged addition to the total income of the Appellant is ratio of production with electricity. It is submitted that addition cannot be made using electricity consumption as a basis. Reliance in this regard is placed on following decision: • CIT Vs. Sulabh Marbles (P) Ltd 165 Taxman 258 (Raj.) (PB 404-406): The fact of this case that by taking the amount paid by assessee for electricity consumption as base, AO assumed actual production to be more then what is disclosed and made the addition. It was held that where AO has not pointed out any defect in the books of accounts of the assessee or method of accounting followed by the assessee and there was no material placed on the record to show any instance of suppression of sale or inflation of purchase by the assessee, AO was wrong in drawing adverse inference against assessee by only referring to the electricity expenses.

• St. Teresa's Oil Mills Vs. State of Kerala 76 ITR 365 (Ker) (PB 407-410): The mere fact that there was wide disparity in the consumption of electricity would not justify the rejection of the accounts without any other supporting circumstances, because such variation could be due to various factors outside the control of the assessee. • Prem Cables (P) Ltd. Vs. Asstt. CIT 56 ITD 0382 (JP) (PB 411-418): Though consumption of energy was a relevant factor for knowing quantity of goods produced, yet since quality of raw material, constant or irregular supply of energy, manufacturing process involving consumption of energy without giving any production and similar other factors might affect ratio of consumption of energy to production of goods, it would be wrong to make a trading addition on ground that where there was more consumption of energy, there should be more production. • ACIT Vs. Khambhata Family Trust 67 ITD 0411 (Ahd.): Merely because the consumption of electricity was more and the production was less was no ground for rejection of the trading version. • Rakesh Kumar Jayantilal Vs. ACIT 55 ITD 0097 (Ahd.) (TM): In the light of the judgments in the case of N Raja Pullaiah Vs. DCTO 73 ITR 224 (AP) and in the case of St. Teresa’s Oil Mills Vs. State of Kerala 76 ITR 365 (Ker.), the DCIT’s view regarding estimating the income of the assessee to determine the net income from the business of plying of trucks on the basis of consumption of diesel was not justified. • G. K. Auto Vs. ACIT, dated 23.3.2007: Hon’ble Bench in para 5 of the order held that on the basis of variation in electricity consumption, section 145(3) is not justified. It further held that when decline in GP rate is explained, books of accounts are maintained and supported by vouchers, sales and purchases are fully vouched, no specific defect is pointed out except making general observation. Addition by applying higher profit rate is unjustified.

Statements of director and labour recorded by indirect tax authority cannot be relied as the same were under duress and were retracted well within time 27. It is further submitted that the statement of Mr Shushil Shah, labour, Mr Lalit Kumar, labour supervisor, Mr Ashok Agarwal, director of the Appellant company recorded by the indirect tax authorities on 11 November 2017 was under duress and was duly retracted by them well within the time. Copy of letter dated 13 November 2017 filed by Mr Ashok Agarwal retracting the statement is enclosed at page number 60 of paperbook. The fact that the statements were retracted by the concerned persons has not been mentioned in the show cause notice and therefore the show cause notice and the order passed cannot be relied. Further, the addition is not warranted on the basis of a statement which was under duress and thereafter retracted. No cash recovered during search conducted by the indirect tax authority 28. Further, it may kindly be noted that during the search conducted by the indirect tax authorities, no cash has been recovered from the factory premises of the Appellant or the residential premises of the directors of the Appellant. Had there been unrecorded under production of the goods and subsequent sale of such a huge amount, cash should have recovered by the indirect tax authorities for any of the premises where search was conducted. Non recovery of cash, thus, thereby proves that the entire addition on account of alleged suppress production is not warranted and is based on hypothetical calculation of indirect tax authorities.

Section 69C is not applicable 29. Section 69C of the Act (under which the addition has been made) is reproduced as under: 30. “Unexplained expenditure, etc. 69C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year : Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.”

Addition basis borrowed satisfaction without independent examination cannot be made 32. The AO should have independently examined the alleged suppressed production and the information from the show cause notice could have relevance only for formation of opinion. As the AO has not independently verified the allegation and simply replied upon other of other authority, addition cannot be sustained. Reliance in this regard is placed on the following decision:

• ITO vs Arora Alloys Ltd (2011) 12 ITR 0263 ChdTrib. Relevant extracts of the decision are as under: 17. Perusal of the assessment order passed by the AO shows that the AO worked out unaccounted sales on the basis of unaccounted production calculated by the Central excise authorities solely on the basis of statement of Shri Harmesh Arora as recorded by them on 25th March, 2004. As regards the evidentiary value of a statement containing admission, it has been held in Thiru John vs. Returning Officer AIR 1977 SC 1724, 1726- 7 that an admission, if clearly and equivocally made, is the best evidence against the party making it and, though not conclusive, shifts the onus on to the maker on the principle that "what a party himself admits to be true may reasonably be presumed to be so and until the presumption was rebutted the fact admitted must be taken to be established". It has been held in Narayana Bhagwantrao Gosavi Balajiwale vs. Gopal Vinayak Gosavi AIR 1960 SC 100, 105 that an admission is the best evidence that an opposing party can rely upon and though not conclusive, is decisive of the matter unless successfully withdrawn or proved erroneous. The legal position that emerges from catena of authorities on the subject is that the proposition that an admission is decisive of the matter is subject to four qualifications, namely, (1) The admission must have been voluntarily made; an admission cannot be acted upon unless the facts available on record show that it was voluntarily made; (2) The admission must be clear and unequivocal; (3) An admission cannot be acted upon if it is proved by the person making it that it is incorrect or erroneous; and (4) An admission cannot be acted upon if it is inconsistent with the materials available on record. Unless an admission falls under any of the aforesaid four situations, an admission is decisive of the matter. The question as to whether an admission, which is not corroborated by independent materials, can form the sole basis for decision can better be answered with reference to the facts of the case. There is no universal rule that an admission or confession is never decisive unless it is corroborated. Similarly there is no universal rule that an admission/confession is always decisive in all cases. The answer to the question as to whether a statement containing admission/confession is decisive in a given case depends upon the nature of admission, contents of admission, and several other relevant factors.

18. Applying the aforesaid principles, we shall now examine as to whether the statement made by Shri Harmesh Arora before the Central excise authorities in the context of levy of excise duty on unaccounted production can form the sole basis for making the impugned additions by the AO. First and most important aspect is that the said statement was not recorded by the IT authorities but by the Central excise authorities. As held by the Hon’ble High Court (reproduced supra), proceedings under the Central Excise Act have relevance only for formation of opinion of escapement of income and thereafter the IT authorities have to independently finalise the reassessment irrespective of the final view in excise proceedings. We find that the AO has reassessed the income and made the impugned additions solely on the basis of the information received by him from the Central Excise Department without bringing any material on record to justify or support the additions. The impugned additions are liable to be cancelled on this ground alone and are accordingly cancelled. ….. 22. In view of the foregoing, the statement of Shri Harmesh Arora cannot by itself form the basis for making the impugned additions. The AO has given no other basis to support the additions made by him. In this view of the matter, the order passed by the CIT(A) in this behalf is confirmed. Ground No. 2 is dismissed. A copy of the decision is enclosed at PB 419-441. • ACIT vs Cremica Frozen Food Pvt Ltd (2012) 32 CCH 0056 Chd Trib. Relevant extracts of the decision are as under: “8. We have heard the rival submissions and have also perused the materials available on record. As per the Assessing Officer, the Special Auditors had prepared the weight wise consumption of materials consumed in Annexure A-3. In para 11.1 of the assessment order, the Assessing Officer has mentioned that "it is observed from the special audit report that during the year there was manufacturing of 240519 Lts. As per the information obtained, one liter of ice cream weight is 555 gms. So in Kgs the production of ice cream is 1,33,488.600 Kgs. However, the weight of all the ingredients comes to 1,48,186.568 Kg thereby giving a difference of 14,697.968 Kg in production. The weight wise details of raw material consumption are given in A-15 of the Special Audit Report. You are hereby given the final opportunity to explain this discrepancy." In para 11.3, the Assessing Officer has calculated the value of extra consumption of raw material of 14697.968 by taking average rate of the material @ 80.84 and made an addition of Rs. 11,88,224/- on account of excess consumption of raw material in the manufacturing of ice cream relying on the report of the Special Auditor's. The Assessing Officer has taken the weight of one liter of ice cream equal to 555 gms. The Assessing Officer assumed that since the net weight of one liter of ice cream is 555 gms, the consumption of raw material to produce one liter ice cream should also be 555 gms. In our view, this assumption of the Assessing Officer is not based on any supporting material. In our considered view there is a merit in the submission of Shri Subhash Aggarwal, Ld. Counsel for the assessee that there is no process or equipment whereby one liter of ice cream can be calculated to be equal to 555 gms. He further submitted that even otherwise the weight of ice cream varies from flavour to flavour and the variation is from 540 gms to 580 gms per liter and there is always a variation of + /—in the weight to liter ratio due to air content variation at the time of production of ice cream. It is true that in any manufacturing process, the production losses cannot be ruled out. In this case, the Assessing Officer has made addition relying on the opinion of Special Auditors and he has not applied his mind independently. Shri Subhash Aggarwal, Ld. Counsel for the assessee pointed out that the Special Auditor have not taken into consideration the following important point relating to manufacturing of ice cream. • Evaporation loss of milk, cream and other raw materials during the pasteurization (heating & boiling) process. • Process Line losses during Homogenization (processed raw material which is left in the pipe line and cannot be taken out.) • Loss of processed raw material in ageing vats where the raw materials are store prior to freezing. • Losses during the freezing of processed raw material to ice cream occur when the freezer is cleaned for batch change over.

9. In our view, the Assessing Officer has not correctly appreciated the process of manufacturing of ice cream. In this regard, the CIT(A) has observed that the manufacturing of ice cream involves heating and boiling of milk etc. and, therefore, there have to be evaporation losses. He further observed that the production of food products involves dealing in perishable items where again wastage cannot be avoided. In our view, there was no ground for making the addition particularly when the assessee has maintained complete details of the purchases / sales duly supported by bills and vouchers which were produced before the Assessing Officer. The books of account of the assessee are subject to audit and the Assessing Officer has not found any discrepancy / defect in the books of account regularly maintained by the assessee. We have already observed herein above that the Assessing Officer has made the impugned addition merely on the basis of opinion of Special Auditor which is not based on any scientific formula. We have also observed hereinabove that the Special Auditor has also not taken into consideration certain important point relating to manufacturing of ice cream, therefore, the Assessing Officer was not justified in relying upon the Special Report of Auditors. In view of the above, we hold that Ld. CIT(A) has erred in sustaining the addition of Rs. 1,78,234/- . In fact no addition is called for. Accordingly, we allow ground No.2 of the assessee's cross objection and dismiss ground No.1 of the Revenue's appeal. In light of above, it is submitted that the addition made by the AO by incorrectly relying on the show cause notice/ order passed by the indirect tax authorities be directed to be deleted due to the following reasons: • Order passed by indirect tax authorities has been challenged before the appellate authority and therefore cannot be relied. The appeal is pending disposal. • As explained in detailed, method used by indirect tax authority for computing alleged suppressed production is faulty and comprises of various errors and therefore cannot be relied. • Electricity consumption cannot be a basis for computing suppressed production as held by jurisdictional High Court and Income Tax Appellate Tribunal. • Statements of director and labour recorded by indirect tax authority cannot be relied as the same were under duress and were retracted well within time. • No cash recovered during search conducted by the indirect tax authority. Had the Marie Products Pvt. Ltd. vs. ACIT Appellant been engaged into suppressed production of such a huge amount computed by the indirect tax authority, the indirect tax authorities would have found cash during search proceedings. Since, no cash was recovered, computation of suppressed production by indirect tax authority cannot be relied. • The AO has made addition under section 69C of the Act, which is not applicable at all. • As held by various jurisprudence, addition basis borrowed satisfaction, and without independent examination by the AO cannot be made.

Ground No 5:

Based on facts and circumstances of the case and in law, the CIT(A) has erred in not adjudicating the ground of the Appellant as to the confirmation of addition for the sale value of alleged suppressed production instead of applying a gross profit rate for working out the alleged income and therefore, the addition so made is illegal and bad in law.

Facts and submission:

34. The AO calculated the value of alleged suppressed production at Rs 8,15,28,076 which is factually incorrect as explained in ground number 3 above. Had the AO correctly calculated the suppressed production by taking the correct numbers, the amount of suppressed production would have been Rs 3,97,19,932 as stated above. On this value, if gross profit rate of 8.42 percent (reported in Form 3CD) is applied, the addition amount comes to Rs 33,44,418 (Rs 3,97,19,932 * 8.42%). Further, the same should be taxed as business income at normal rate of tax and not under section 115BBE of the Act.

35. It is further submitted that the Income tax department for AY 2016-17 has accepted that the gross profit rate should be applied to arrive at the amount of alleged income and the same has to be taxed as “Business Receipt” under the normal rate of tax of 30% as against higher rate of tax under section 115BBE of the Act. Copy of the assessment order of AY 2016-17 is enclosed as Annexure. Thus, the addition made by the AO is otherwise grossly incorrect. Ground No 6:

Based on facts and circumstances of the case and in law, the CIT(A) has erred in not adjudicating the ground of the Appellant that the Ld. AO, NEAC has erred on facts and in law in making addition for the alleged suppressed production and also on account of alleged excess stock without setting of the alleged suppressed production against the alleged excess stock resulting into double addition to that extent.

Facts and submission: 36. At the outset, it is submitted that the Ld. CIT(A) has not adjudicated this ground of appeal and after adjudicating ground number 3 has directly concluded the order as dismissed. Thus, the order of the CIT(A) is bad in law.

37. The AO made addition both of alleged excess stock and alleged sale value of suppressed production. This is incorrect both factually and legally for the reason that once sale value of alleged suppressed production is the same is a source for alleged excess stock. Since the alleged value of suppressed production added by the AO is more than the alleged excess stock, no addition could have been made for the alleged excess stock.

In view of the above, it is submitted that the addition made by the AO and confirmed by the CIT(A) be directed to be deleted.”

6. As per the ongoing argument during the hearing process the ld. AR appearing on behalf of the assessee also submitted following submission;

“This is with reference to the hearing held on 11.06.2024 where the Hon’ble Bench has directed the assessee to furnish a brief synopsis of the addition challenged before it. In this connection, we are to submit as under:

Addition of Rs.1,45,81,700/- on account of alleged excess stock :-

1. Addition of Rs.1,45,72,690/- comprise of the alleged excess stock of the following parties/ persons: -

Name of Person / Parties Amount of alleged excess stock Assessee (68,04,689 + 15,79,200) Rs.83,83,889/- M/s Subham Agencies Rs.4,78,640/- M/s Agarwal & Co. Rs.13,20,800/- M/s Singhal Flexi Pack Rs.43,89,371/- Total Rs.1,45,72,690/-

2. The alleged excess stock of Rs.4,78,640/- was found from the business premises of M/s Subham Agencies at Geeta Palace, Amer Road, Jaipur. Sh. Rajesh Kumar Agarwal is the proprietor of this concern. The Assistant Commissioner of Central Goods & Service Tax Division vide order dt.06.04.2020 (PB 1-21 filed on 23.04.2024) has confiscated the above goods in the hands of M/s Subham Agencies. The assessee has sold goods to this concern in the year under consideration of Rs.8,46,70,365/- (PB 223-256) out of which sales made till 10.11.2017 is Rs.3,91,76,532/-. Thus, when the alleged excess stock is of M/s Subham Agencies, the same cannot be added in the hands of the assessee.

3. The alleged excess stock of Rs.13,20,800/- was found from the business premises of M/s Agarwal & Co. at Plot No.212, Manga Marg, Near Samrat Gate, Brahampuri, Jaipur. Sh. Aakash Agarwal is proprietor of this concern. The Assistant Commissioner of Central Goods & Service Tax Division vide order dt.18.05.2020 (PB 30-48 filed on 23.04.2024) has confiscated the above goods in the hands of M/s Agarwal & Co. The assessee purchases raw beatle nut from this concern. The assessee has purchased goods from this concern in the year under consideration of Rs.32,33,600/- (PB 203-204) till 10.11.2017. Thus, when the alleged excess stock is of M/s Agarwal & Co., the same cannot be added in the hands of the assessee.

4. The alleged excess stock of Rs.43,89,731/- was found from the business premises of M/s Singhal Flexi Pack at Plot No.E-39A, RIICO Indusrtrial Area, Bassi, Jaipur. Sh. Jitendra Kumar Agarwal is one of the partners of this concern. The Assistant Commissioner of Central Goods & Service Tax Division vide order dt.28.12.2023 (PB 56-72 filed on 23.04.2024) has confiscated the above goods in the hands of M/s Singhal Flexi Pack. The assessee purchases polyester roll from this concern. The assessee has purchased goods from this concern in the year under consideration of Rs. 1,06,55,659/- (PB 225-228) out of which purchases made till 10.11.2017 is Rs.51,74,143. Thus, when the alleged excess stock is of M/s Singhal Flexi Pack., the same cannot be added in the hands of the assessee.

5. In case of the assessee, the panchnama of goods found is placed at PB 79-94 filed on 23.04.2024. It comprises of three annexures. Annexure B-1 is of Raw Material (PB 88-90 filed on 23.04.2024), Annexure B-2 is of Semi-Finished goods (PB 91-92 filed on 23.04.2024) & annexure B-3 is of Finished Goods (PB 93-94 filed on 23.04.2024). Thereafter as per PB Page 82 shortage in stock of raw material was determined in respect of sugar, perfume & supari and excess stock of Marie Supari. Sh. Ashok Agarwal when questioned about the difference stated that their accountant who maintains the record relating to daily production & clearances is not coming to the factory since last few days and therefore the daily stock could not be maintained properly. The officers observed that without documented stock in books of account of raw material & finished goods it is not possible to ascertain

the actual stock of the factory. The statement of Sh. Ashok Agarwal, director of the assessee company was recorded on 11.11.2017 (PB 293-299) where in reply to question no. 15 & 16 he admitted sale of goods without invoice and offered to pay excise duty of Rs.1,50,00,000/-.

6. Sh. Ashok Agarwal retracted from his statement vide letter dt.13.11.2017 (PB 60) but in order that goods are not confiscated paid Rs.1,50,00,000/- on the same date (PB 61-64). Further the letter explaining the reasons for alleged excess stock as observed by the officers of DGGSTI was sent through speed post on 13.11.2017 (PB 300-304) since the excise authorities did not acknowledge this letter on record (PB 335-336, Para 38.1.3). Through this letter assessee explained the difference in respect of each of the item inventorised as per annexure B1 to B3 of panchnama dt.10/11.11.2017. In course of assessment proceedings also assessee vide its reply dt.02.03.2021 (PB 264) filed the reconciliation of stock physically found vis-a-vis the stock as per the books of accounts and the reasons for such variation (PB 265-269). The AO has not pointed out any discrepancy in such reconciliation and has made the addition only on the basis of the value of stock physically found without considering the stock as per the books of accounts.

7. It is submitted that against the order passed by Principal Commissioner CGST dt.31.12.2020 (PB 305-377) the assessee has filed appeal to CESTAT which is pending disposal.

Addition of Rs.8,15,28,076/- on account of alleged suppressed production :-

1. The indirect tax authorities have made out the case against the assessee for clandestine removal of goods on the basis of alleged production per unit of electricity consumption. It is submitted that electricity consumption cannot be a basis for computing suppressed production as explained at Page 22-23 of the written submission filed on 09.04.2024.

2. Without prejudice to above even the calculation made by the indirect tax authorities is incorrect. This is for the reason that assessee produces pouches of different weights, the details of which is as under:

Particulars Weight in grams Pouch of 50 paisa 1.25 Pouch of Re. 1 2.00 Pouch of Rs 2 3.50 Pouch of Rs 5 8 Total 14.75 Average weight per pouch = 14.75/4 = 3.6875 Gm

3. The average weight was multiplied to the total number of pouches manufactured in a month to arrive at the total kg of production per month. The total kg of production so arrived at was divided by the electricity unit consumed in that month to arrive at the ratio of production per unit of electricity. The highest ratio was of 8.45 for the period 01.11.2017 to 09.11.2017 which was applied to all the months to arrive at the notional production & the difference between the notional production & actual production was considered as suppressed production.

Particulars Weight in Average weight As per Appellant grams (I) computed by DGGSTI Actual % of Average officials production in Producti Weight in pouches on (II) Grams (III=I*II) Pouch of 50 paisa 1.25 3.6875 Gm 59055840 34% 0.4249 Pouch of Re. 1 2.00 basis 14.75/4 110336780 64% 1.2701 Pouch of Rs 2 3.50 (1.25 + 2 + 3.5 999540 1% 0.0201 + 8 = 14.75) Pouch of Rs 5 8 3340032 2% 0.1538 Total 173732192 100% 1.8690

5. Thus, after considering the correct weight and pouches manufactured the production per unit of electricity consumption would vary between 1.44 gms to 4.15 gms between the month of April 2017 to November 2017 as calculated at Page No.18 to 19 of the written submission filed on 09.04.2024. This variation is on account of various factors as explained at Page 20 of the written submission filed on 09.04.2024. Even if the explanation of the assessee for the variation is not considered the value of the suppressed production would be Rs.3,97,19,932/- as against Rs.8,15,28,076/- computed by the AO as worked out at Page 20-21 of the written submission filed on 09.04.2024. Hence the value of suppressed production computed by the AO is arithmetically incorrect.

In view of above and in the absence of any evidence of suppressed production found in search by the indirect tax authorities, the addition made only on the basis

7. Further, in addition to the above written submission, the ld. AR appearing on behalf of the assessee submitted that;

“This is with reference to the hearing held on 20.06.2024 where the Hon’ble Bench has directed the assessee to furnish the comparative chart of the defects in the calculation of alleged suppressed production made by the department and a note on the incriminating material referred in the excise order as pointed out by the Ld DR. In this connection, the following is submitted:

1. The comparative chart of the defects in the calculation of alleged suppressed production made by the department is enclosed at PB 3-4. For the same it can be noted that department uniformly applied average weight per pouch of 3.6875 grams ignoring that the pouches are of different selling price containing different weights. As per the correct calculation the actual weight of goods produced as per books is 1,56,719 kgs whereas according to the department, the actual weight of goods produced as per books is 3,16,773 kgs. Thus, by taking the incorrect weight of goods produced, the highest ratio of production with electricity consumption is worked out at 8.450 whereas by taking the correct weight of goods produced, the highest ratio of production with electricity consumption is worked out at 4.15. On this basis, if method used by the department is applied to compute alleged suppressed production, it would be 1,41,857 kgs valued at Rs 3,97,19,960 as against 2,91,171 kgs valued at Rs 8,15,27,807.

2. The Ld DR referred to the order passed by the Excise Commissioner placed at PB 305 to 377 by referring to para 22.1 and 22.2 where in by referring to the statement of Sh Gurjinder Singh Gill of M/s G G Carriers it is stated that supari supplied by the suppliers of the assessee and transported by them is partly without invoice. Further, Ld DR referred to para 23.1 and 23.2 relating to the statement of Sh Gaurav Sharma, sales manager of the assessee to point out that supari was sold out of books. It is submitted that statement of Sh Gurjinder Singh Gill was recorded by the excise authorities on 17.06.19 and statement of Gaurav Sharma was recorded on 19.06.19. Copy of both the statements which are recorded after 19 months from the date of search carried on 10-11 November 2017 are enclosed at PB 5-10 and at PB 11-15.

3. On these statements, Sh Ashok Agarwal, director of the assessee was confronted on 14.11.2019 wherein in reply to question number 3, he stated that Marie Products Pvt. Ltd. vs. ACIT he do not agree with the statement of Sh Gurjinder Singh Gill at all. Again in question number 5, with reference to the statement of Gaurav Sharma, he stated that he has no information about sale of supari of 106 bags at Jhunjhunu and 34 bags at Jodhpur without invoice. He further stated that print out of other papers taken from the laptop of Gaurav Sharma is either relate to the free sample sent in the market or relate to tea business of the group. Copy of the statement of Sh Ashok Agarwal is enclosed at PB 16-18. Further, these papers relate to the period of March 2017 falling in AY 2017-18 and not in the AY under consideration and therefore has no relevance for the year under consideration. Thus, even as per the excise order, no incriminating material for the year under consideration has been referred. In view of above and in the absence of any evidence of suppressed production found in search by the indirect tax authorities, the addition made only on the basis of electricity consumption without controverting the explanation filed by the assessee is unjustified and unlawful.”

8. Further, in addition to the above written submission, the ld. AR appearing on behalf of the assessee submitted that;

This is with reference to the hearing held on 11.07.2024 where the Hon’ble Bench has directed the assessee to link the consolidated summary of stock as per books provided at PB 378 with the reconciliation statement of stock as per show cause notice (PB 307-310) and as per books (PB 378) provided at PB 265. In this connection, the following is submitted:-

1. Copy of PB 378 and PB 265 reconciling it with the stock found in search conducted by DDGSTI as mentioned in show cause notice dt. 31.12.2010 (PB 307-310).

In view of above, since the stock found in search is duly reconciled with the stock as per books, the addition made on account of excess stock is unjustified and the same be deleted.

9. Further, in addition to the above written submission, the ld. AR appearing on behalf of the assessee submitted that;

This is with reference to the hearing held on 4 February 2025 where the Hon’ble Bench has directed the assessee to file the grounds of appeal taken by the Appellant before the Hon’ble Customs, Excise And Service Tax Appellate Tribunal (“CESTAT”) in the case of the Assessee. In this connection, the following is submitted:-

1. A complete chart of assessment proceedings by the Excise Officer and appeals fled by the Assessee and other entities is enclosed at PB 1.

2. Appeal filed before CESTAT by the Assessee is on levy of excise duty of Rs 1.22 crores on alleged suppressed production and clandestine clearance of goods. The grounds of appeal

taken before CESTAT is enclosed at PB 2-74.

3. Summary of submission and paperbook filed so far is as under: a. Submission and paperbook filed on 17 January 2024 – Contains detailed submission and various documents filed during assessment proceedings and case laws b. Paperbook filed on 23 April 2024 – Contains orders, show cause notices stock tally in case of Shubham Agency, Agarwal & Company, Singhal Flexi Pack and the Assessee c. Submission filed on 20 June 2024 – Summary of arguments on alleged excess stock of Rs 1,45,81,700 and alleged suppressed production of Rs 8,15,28,076 d. Submission dated 11 July 2024 – Comparative chart of defects in calculation of alleged suppressed production and note on the incriminating materials referred in excise order e. Submission dated 23 July 2024 – Consolidated stock summary and reconciliation of stock as per show cause notice and books of accounts

4. Copy of the assessment order (PB 75-78) in Assessee’s own case of AY 2016-17 taxing income from alleged suppressed productions as business income @ 30% and not income taxable under section 69C @ 60%.

In view of above, the addition made on account of excess stock and alleged suppressed production is unjustified and the same be deleted.

10. To support the contention so raised in the written submission reliance was placed on the following evidence / records / decisions:

S.No. Particulars Page No. Filed before AO/ CIT(A)

• Reconciliation of value and quantity of goods as per 265-272 books of account and per physical verification on the date of search 273-276 • Comparison of figures between books, GSTR and SCN 4. Assessment order dated 7 April 2021 277-285 Both

5. Faceless Assessment Scheme 2021 286-290 Both

6. Screenshot of e-filing portal 291-292 Both

7. Statement of director Shri Ashok Agarwal recorded by DGGSTI 293-299 Both officials

8. Explanation filed by the Appellant with indirect tax authority on 300-304 Both difference in stock as per books and on physical verification

10. Copy of stock register as per books of accounts evidencing 378 Both quantity recorded in books as on 10 November 2017

11. Copy of daily stock register of perfume compound from 1 April 379-397 Both 2017 to 10 November 2017

12. Invoices for purchase of 5 new mixer machines 398-402 Both

14. Decision of Rajasthan High Court in the case of CIT Vs. Sulabh 404-406 Both Marbles (P) Ltd 165 Taxman 258 (Raj.)

15. Decision of Kerala High Court in the case of St. Teresa's Oil 407-410 Both Mills Vs. State of Kerala 76 ITR 365 (Ker)

16. Decision of Jaipur Tribunal in the case of Prem Cables (P) Ltd. 411-418 Both Vs. Asstt. CIT 56 ITD 0382

17. Decision of Chandigarh Tribunal in the case of ITO vs Arora 419-441 Both Alloys Ltd (2011) 12 ITR 0263 ChdTrib

18. Copy of the hearing notice issued by the National Faceless 442-449 Both Appeal Centre enclosing remand report obtained from the Assessing Officer

19. Rejoinder submission filed by the Appellant on 30 October 2023 450-455 CIT(A)

Paper book Index filed supplementary paper book

S No Particulars Page no 1 In case of M/s Shubham Agency Order dated 4 June 2020 passed by the Asst Commissioner CGST 1-21 Show cause notice dated 8 May 2018 22-27 Stock tally/ panchnama dated 10 November 2017 28-29 2 In case of M/s Agarwal & Company Order dated 18 May 2020 passed by the Asst Commissioner CGST 30-48 Show cause notice dated 7 May 2018 49-54 Stock tally in the books of accounts of M/s Agarwal & Company 55 3 In case of M/s Singhal Flexi-pack Order passed by the Asst Commissioner CGST 56-72 Show cause notice dated 7 May 2018 73-78 4 In case of the Appellant Stock tally/ panchnama dated 10 November 2017 79-94 Panchnama dated 15 November 2017 95-97 11 The ld. AR of the assessee in addition to the above written submission so filed vehemently argued that the assessee there were three issue in the present appeal, legal issue, excess stock and suppressed production addition made by the ld. AO. As regards the excess stock the addition were made in the separate concerns and therefore, the same cannot be made in the hands of the assessee and as regards the addition for suppressed production he relied upon the written submission and chart produced by the ld. AR of the assessee. and more particularly advanced the similar contentions as stated in the order of the ld. CIT(A). The ld. DR also filed a detailed report of the ld. AO and the status of the appeal filed by the assessee with the relevant authority in the indirect taxes. The contention of those reports reads as under :

Ld. DR also filed various orders passed in the indirect tax proceedings by way of paper book.

Ld. DR in addition vehemently argued that as regards the excess stock demand in the various concerns since they have disputed the matter before the CESTAT the addition may not be deleted. As regards the suppressed production ld. DR relied upon the detailed working made based on the scientific basis thereby the suppressed production was derived and that addition being the suppressed production addition be sustained as done by the lower authority. The working has been done by considering the electric consumption and the excise return filed by the assessee. While making the addition ld. AO relied upon the various statement recorded by the excise department. Considering the facts of the case the contention of the assessee to considered GP is not correct and alternative even the liability of excise to be added in the income of the assessee. and that of the income tax is sperate. Since that appeal is not decided the appeal of the assessee cannot be kept pending. As regards the excess stock of various concerns cannot be added in the hands of the assessee.

As regards the excess stock alleged to have been of the assessee the assessee filed a detailed retraction statement on the very next day page 300-304 a detailed retraction statement placed on record. There is no tangible material regarding suppressed sales. No cash in excess was found and therefore, the addition of suppressed production is based on the surmises and conjectures and thus required to be deleted.

is concerned ld. CIT(A) has held that the defect in the assessment order that it was issued under section 143(3A) and 143(3B) of the Act on 7. April 2021 when those sections were inoperative is curable under section 292B of the Act and also held that as per the records draft assessment order was issued. Thus, the we have considered the rival submission and perused the material available on record. The assessment order is dated

7. April 2021 which has been passed under sections 143(3A) and 143(3B) of the Act. The said sections were operative till

31. March 2021 as section 143(3D) provides that nothing contained in section sub-sections (3A) and (3B) shall apply to assessment made on or after

1. April 2021. Section 292B of the Act provides that no assessment shall be treated as invalid merely by reason of a mistake or defect and in substance the proceedings is in intent and purpose of the Act.

The assessment order has duly been made by the Ld AO and the Assessee has responded to the various notices issued during the assessment proceedings. Thus, the assessment order cannot be held to be bad in law only because it was issued in incorrect section which was operative till 31 March 2021. Further, as per the Ld CIT(A), the draft assessment order was also issued. Thus, ground of appeal no 1 & 2 raised by the assessee are dismissed.

15. Now coming to the ground of appeal no. 3 raised by the assessee the bench noted that ld. AO made addition of Rs 1,45,81,700 on account of alleged excess stock determined by Directorate General of Goods and carried out at the various premises of the assessee and its related parties which is tabulated as under:

S No Particulars Amount (INR) A For alleged excess stock at factory premises of the 68,04,689 Assessee at Plot No H-20A, RIICO Industrial Area, Kukas B For alleged excess stock at residence of the director of the 15,79,200 Appellant Mr Ashok Agarwal C For alleged excess stock at Shubham Agency, 4,78,640 proprietorship concern of Mr Rajesh Agarwal D For alleged excess stock at M/s Agarwal & Company, 13,20,800 proprietorship concern of Mr Akash Agarwal, s/o Mr Ashok Agarwal E For alleged excess stock at M/s Singhal Flexi-Pack. Mr 43,89,371 Ashok Agarwal is partner in the firm along with Mr Jitendra Kumar Agarwal Total 1,45,72,690 The Ld CIT(A) at para 7.10 of its order held that the assessee was unable to reconcile the difference in the closing stock despite various opportunities were granted and thereby he confirmed the addition. Record reveals that stock found for Rs. 4,78,640/- at Shubham Agency, is the proprietorship concern of Mr Rajesh Agarwal. Stock found for Rs. 13,20,800/- belonging to M/s Agarwal & Company, proprietorship concern of Mr Akash Agarwal.

Stock found with M/s Singhal Flexi-Pack, wherein Mr Ashok Agarwal is partner in the firm along with Mr Jitendra Kumar Agarwal and that firm legal. As regards the difference in the stock of the assessee’s record, assessee submitted a copy of stock tally as per books of account of these parties. As regards the stock of various entities show cause notices were issued by the GST authority and order passed by the GST authority in the name of Shubham Agency, M/s Agarwal & Company and M/s Singhal Flexi-Pack. It was argued that from these documents, it is evident that this stock is not belong and relates to the assessee and it is the stock of these three concerns only.

Since the stock is not of the assessee, it cannot be added to the total income of the assessee and therefore, the same cannot added in the hands of the assessee because as is evident from the record that the alleged excess stock of Rs.4,78,640/- was found from the business premises of M/s Subham Agencies at Geeta Palace, Amer Road, Jaipur.

Sh. Rajesh Kumar Agarwal is the proprietor of this concern. The Assistant Commissioner of Central Goods & Service Tax Division vide order dt.06.04.2020 (PB 1-21 filed on 23.04.2024) has confiscated the above goods in the hands of M/s Subham Agencies. The assessee has sold goods to this concern in the year under consideration of Rs.8,46,70,365/- (PB 223-256) out of which sales made till 10.11.2017 is Rs.3,91,76,532/-. cannot be added in the hands of the assessee.

As regards the stock worth Rs.13,20,800/- found from the business premises of M/s Agarwal & Co. at Plot No.212, Manga Marg, Near Samrat Gate, Brahampuri, Jaipur. Sh. Aakash Agarwal is proprietor of this concern.

The Assistant Commissioner of Central Goods & Service Tax Division vide order dt.18.05.2020 (PB 30-48 filed on 23.04.2024) has confiscated the above goods in the hands of M/s Agarwal & Co. The assessee purchases raw betel nut from this concern. The assessee has purchased goods from this concern in the year under consideration of Rs.32,33,600/- (PB 203- 204) till 10.11.2017. Thus, when the alleged excess stock is of M/s Agarwal & Co., the same cannot be added in the hands of the assessee.

As regards the alleged excess stock of Rs.43,89,731/- found from the business premises of M/s Singhal Flexi Pack at Plot No.E-39A, RIICO Indusrtrial Area, Bassi, Jaipur, wherein Shri Jitendra Kumar Agarwal is one of the partner. The Assistant Commissioner of Central Goods & Service Tax Division vide order dt.28.12.2023 (PB 56-72 filed on 23.04.2024) has confiscated the above goods in the hands of M/s Singhal Flexi Pack. The assessee purchases polyester roll from this concern. The assessee has purchased goods from this concern in the year under consideration of Rs.

Rs.51,74,143. Thus, when the alleged excess stock is of M/s Singhal Flexi Pack., the same cannot be added in the hands of the assessee.

Now coming to the stock of the assessee found excess for Rs.

68,04,689 at factory premises of the Assessee at Plot No H-20A, RIICO Industrial Area, Kukas and of Rs 15,79,200 found at residence of the director of the Appellant Mr Ashok Agarwal, the Assessee has contended that the GST authority had not considered the stock recorded in the books of accounts of the assessee and has considered the entire physical stock as excess stock. To verify this fact, the Assessee was asked to file the panchanama recorded by the GST authority at the time of search. In the case of the assessee, the panchnama of goods found is placed at PB 79- 94 filed on 23.04.2024. It comprises of three annexures. Annexure B-1 is of Raw Material (PB 88-90 filed on 23.04.2024), Annexure B-2 is of Semi- Finished goods (PB 91-92 filed on 23.04.2024) & annexure B-3 is of Finished Goods (PB 93-94 filed on 23.04.2024). Thereafter as per PB Page 82 shortage in stock of raw material was determined in respect of sugar, perfume & supari and excess stock of Marie Supari. Sh. Ashok Agarwal when questioned about the difference, assessee stated that their accountant who maintains the records relating to daily production and maintain the daily stock properly. However, the GST officers mentioned that without having documented stock in books of accounts of raw material as well as finished goods, it is not possible to ascertain factual stock of factory and therefore the entire available physical stock was placed vide detention memo dated 11.11.2017. Further, the Ld AR placed on record letter dated 13.11.2017 addressed by the assessee to Additional Director General, GST Intelligence retracting the statement of the director recorded by the GST authority and the reconciliation statement of stock as per books of the assessee vis-à-vis the physical stock to contend that no excess stock was found in search. This reconciliation statement was also filed with the Ld AO during the assessment proceedings vide submission dated 2.3.2021 but the AO without pointing out any discrepancy in such reconciliation added the entire physical stock found in search of Rs 68,04,689 and Rs 15,79,200 which cannot be made without dealing with the submission of the assessee. The ld DR referring to the order of the GST authority dated 31.12.2020 and statements recorded of Shri Ashok Agarwal, director of the assessee prayed that the stock found at all the premises is that of the assessee only and therefore the AO has rightly added it to the total income of the assessee. The ld DR also requested the (Appeals), CGST Jaipur and the grounds of appeal taken by the assessee before the CESTAT to verify whether any ground of appeal in relation to the alleged stock found at the premises of other three concerns has been taken by the assessee or not. In response to those arguments of the ld. DR in the rejoinder, the AR of the Assessee filed the grounds of appeal taken by the assessee before the CESTAT and also the orders of the Commissioner (Appeals), CGST Jaipur. The ld. AR also submitted that even in the Commissioner (Appeals), CGST Jaipur in its order has not held that the stock found at the premises of other three concerns is that of the assessee.

Further, the grounds of appeal taken before the CESTAT also do not include any ground that it is not of these three concerns.

Considering that factual aspect of the matter and the submissions filed, explanation furnished arguments of the rival parties we hold that the stock found at the three concerns namely Shubham Agency of Rs 4,78,640, at M/s Agarwal & Company of Rs 13,20,800, M/s Singhal Flexi- Pack of Rs 43,89,371 is that of those concerns only. Even the GST authority has passed orders confiscating the goods in the name of these concerns only and not in the name of the Assessee. The AR of the Assessee has furnished the stock tally of these three concerns wherein the the books of accounts of these three concerns only. Further, appeals before the GST appellate authority have been filed by these three concerns only in relation to the alleged excess stock. Thus, the alleged excess stock of Shubham Agency of Rs 4,78,640, M/s Agarwal & Company of Rs 13,20,800, M/s Singhal Flexi-Pack of Rs 43,89,371 cannot be added to the total income of the Assessee and therefore, we direct the ld. AO to delete the same.

Now coming to the excess stock of the Assessee of Rs 68,04,689 and Rs 15,79,200, it is noted that the assessee has provided detailed reconciliation of the physical stock with the books and reasons for short/ excess, if any exist. That working so provided by the ld. AR of the assessee were also submitted to the ld. DR and the same was disputed on the veracity of the facts presented by the assessee based on the records already in the file of the ld. AO. The books of account of the assessee are maintained as per provision of the Companies Act as well as in accordance with the provision of the Income Tax Act which was not rejected. The ld.

AO also not pin pointed any defects or has not raised any doubts or suspicion on those books of accounts. Contrary to it, the AO has accepted the books of accounts, purchase register, sales register, stock register also has only held that the assessee was unable to reconcile the difference in closing stock and relied upon the GST order without considering the reconciliation filed by the Appellant. Even we found that the contention of the assessee that how the stock found can be considered without giving credit to the book stock which was not given because the accountant dealing with the excise record was not attending the office when the GST searched the premises of the assessee. Based on this discussion we direct the ld. AO to delete the addition of Rs 68,04,689 and of Rs 15,79,200.

Thus, ground no 3 of the appeal of the assessee is allowed.

“9. The indirect tax authorities made an arbitrary calculation of the estimated production taking electricity consumption as a base and arrived at a ratio of 8.45 being the highest production ratio i.e for the period 1 November 2017 to 9 November 2017, 20,834 kgs were manufactured utilizing 2466 units of electricity. This gives a ratio of 8.45. This ratio was applied to the electricity units consumed for the period April 2017 to October 2017 to arrive at estimated production. The estimated production was compared with the actual production for this period and an alleged shortfall of 2,91,171.7 kgs was arrived at. Applying rate of 280 per kg the alleged short production of Rs 8,15,28,076 for the period April 2017 to 9 Marie Products Pvt. Ltd. vs. ACIT November 2017 was determined and added to the total income of the Assessee under section 69C of the Act. The CIT(A) at para 8.6 of its order upheld the addition without considering the detailed submission filed by the Appellant and without providing any reasons.

Order passed by indirect tax authorities has been challenged before the appellate authority and therefore cannot be relied

At the outset, it is submitted that that order passed by the indirect tax authorities has not been accepted by the Appellant and an appeal has been filed before the appellate authority challenging the order. Thus, addition on the basis of an order which is under litigation is unwarranted. Also, the order passed by the indirect tax authorities is full of factual errors (elaborated in subsequent paragraphs) and therefore cannot be relied upon.

Faulty method used by indirect tax authority for computing alleged suppressed production and therefore cannot be relied

The AO on the basis of the observations of indirect tax authorities has considered the average weight of pouch at 3.6875 grams per pouch. The computation of weight of 3.6875 grams per pouch is as under:

Particulars Weight in grams Pouch of 50 paisa 1.25 Pouch of Re. 1 2.00 Pouch of Rs 2 3.50 Pouch of Rs 5 8 Total 14.75 Average weight per pouch = 14.75/4 = 3.6875 Gm

The weight of 3.6875 gram was multiplied with total number of pouches manufactured in a month to arrive at total kilograms of production per month. Thereafter, the total kilogram of production was divided with the electricity consumed per month, to arrive at ratio of production per unit of electricity. The highest ratio of 8.45 for the period 1 November 2017 to 9 November 2017 was applied to all the months to arrive at anticipated actual production and the difference between anticipated actual production and the production recorded in the books was considered as suppressed production. On such suppressed production, a rate of 280 per kg was applied and an addition of Rs 8,15,28,076 was made for the period April 2017 to 9 November 2017. The calculation is given at page 7 and 8 of the assessment order.

It is submitted that the entire working is faulty as the computed average weight per pouch of 3.6875 grams is without considering the actual pouches manufactured and its weight. Thus, weighted average method should be considered to computed the average weight of the pouch. The pouches are manufactured in the MRP of Re 0.50, Rs 1, Rs 2 and Rs 5 as the weight per pouch (in grams) is increased basis the MRP (as mentioned in the above table). The average weight per pouch as computed by the Appellant is 1.7382 Gm as against 3.6875 Gm computed by the DGGSTI officials, detailed as under:

Particulars Weig Average As per Appellant ht in weight gram computed Actual % of Average s (I) by productio Produc Weight DGGSTI n in tion (II) in officials pouches Grams (III=I*II) Pouch of 50 1.25 3.6875 Gm 59055840 34% paisa basis 0.4249 Pouch of Re. 1 2.00 14.75/4 110336780 64% 1.2701 (1.25 + 2 + Pouch of Rs 2 3.50 999540 1% 0.0201 3.5 + 8 = Pouch of Rs 5 8 3340032 2% 0.1538 14.75) Total 173732192 100% 1.8690

Thus, after considering the correct weight and pouches manufactured, the actual production and production per unit of electricity works out as under:

Ratio – Producti Grams Weight In Electricity No of on per Particulars Product (A) per Kg consumption Pouches (B) unit/ele Pouch (C) D=B*C/1000 (E) ctricity F = D/E April 2017 Supari Rs. 0.50 3528000 1.25 4410 Supari Rs. 1 4605600 2 9211 Supari Rs. 2.00 54000 3.5 189 Supari Rs. 5.00 67200 8 538 Total 8254800 14348 9960 units 1.44 May 2017 Supari Rs. 0.50 2736000 1.25 3420 Supari Rs. 1 4653600 2 9307 Supari Rs. 2.00 42000 3.5 147 Supari Rs. 5.00 91200 8 730 Total 7522800 13604 10180 units 1.34 June 2017 Supari Rs. 0.50 313200 1.25 3915 Supari Rs. 1 4082400 2 8165 Supari Rs. 2.00 72000 3.5 252 Supari Rs. 5.00 91200 8 730 Total 7377600 13061 9400 units 1.39 July 2017 Supari Rs. 0.50 7116480 1.25 8896 Supari Rs. 1 4490700 2 8981 Supari Rs. 2.00 56280 3.5 197 Supari Rs. 5.00 112800 8 902 Total 11776260 18976 9500 units 2.00 August 2017 Supari Rs. 0.50 6570720 1.25 8213 Supari Rs. 1 7187580 2 14375 Supari Rs. 2.00 151110 3.5 529 Supari Rs. 5.00 177600 8 1421 Total 14087010 24538 11500 units 2.13 September Supari Rs. 0.50 7397280 1.25 9247 2017 Supari Rs. 1 9421380 2 18843 Supari Rs. 2.00 111690 3.5 391 Supari Rs. 5.00 218022 8 1744 Total 17148372 30224 9560 units 3.16 October 2017 Supari Rs. 0.50 6140160 1.25 7675 Supari Rs. 1 11011320 2 22023 Supari Rs. 2.00 111690 3.5 391 Supari Rs. 5.00 204984 8 1640 Total 17468154 31729 9380 units 3.38 1 Supari Rs. 0.50 2027040 1.25 2534 November Supari Rs. 1 3521520 2 7043 to 9 Supari Rs. 2.00 39420 3.5 138 November 2017 Supari Rs. 5.00 65481 8 524 Total 5653461 10239 2466 units 4.15

On perusal of the above table, your honour will notice that the highest ratio of production per unit of electricity is 4.15 as against ratio of 8.45 considered by the indirect tax authorities and relied upon by the AO. Thus, the method used by indirect tax authority is arbitrary and only on an ad-hoc basis and therefore cannot be relied upon. Further, it is submitted that the ratio is different for different months, mainly due to the following reasons: (a) Number of machines: During the year, the Appellant purchased 5 new mixer machines during 18 July 2017 to 30 October 2017 (bills enclosed at PB 398- 402). Since, these were new and efficient machines, the electricity consumption reduced and therefore the production per unit of electricity increased in the month of July 2017 to 9 November 2017. (b) Capacity of machines & skilled/ unskilled labours: The capacity of machine varies from 0 to 300 pouches per minute. The speed of the machine has to be varied according to the person operating the machine. Where an unskilled person operates the machine, it produces lesser pouches per unit whereas when skilled person operate the machine, it produce more pouches per unit of electricity consumption. (c) Use of DG set for generation of electricity and manufacturing: The Appellant used DG set for generation of electricity and manufacturing which was completely overlooked by the indirect tax authorities. The diesel expenditure increased during the impugned period due to which the ratio of production per unit of electricity increased. Ledger account of diesel expenditure for the entire year is enclosed at PB 403. The indirect tax authority only looked at the electricity units consumed as per the electricity bill without considering the diesel expenditure and ratio of electricity produced by DG set in 1 liter of diesel.

Thus, by not considering the above important factors of production, the production estimated by the indirect tax authorities and blindly relied upon by the AO is misplaced and arbitrary.

As mentioned above, the Appellant is not in agreement with the addition made by the AO to its total income as explained above. Without prejudice to above and assuming (only for the sake of discussion), if suppressed production is computed using the highest ratio of 4.15 kg per unit of electricity, the suppressed production will come as under:

Month Electricity Production Actual Suppressed Suppressed consumption using ratio production production production in Rs, (units) of 4.15 (in (refer (kg) applying rate of Rs kgs) assessment 280 per kg order) April 2017 9960 41334 30440 26986 75,56,080 May 2017 10180 42247 27740 28643 80,20,040 June 2017 9400 39010 27205 25949 72,65,720 July 2017 9500 39425 43338 20449 57,25,720 August 11500 47725 49241 23187 64,92,360 2017 September 9560 39674 54837 9450 26,46,000 2017 October 9380 38927 63137 7198 20,15,440 2017 1 to 9 2466 10234 20834 -5 -1,428 November 2017 Total 141857 3,97,19,932

Thus, the amount of suppressed production using the above method of calculation comes to Rs 3,97,19,932 as against Rs 8,15,28,076 computed by the AO.

Further, the basis of using the highest ratio has not been explained/ provided by the AO. As explained above, the ratio has been increasing due to a number of factors which were totally ignored by the indirect tax authority and therefore the working of alleged suppressed production cannot be relied to make any addition.

If the above methodology is extended for the remaining period of FY 2017-18, ie from 15 November 2017 to 31 March 2018, the ratio of production per unit of electricity will be as under:

Ratio – Production Grams Electricity No of Weight In Kg per Particulars Product (A) per consumption Pouches (B) D=B*C/1000 unit/electri Pouch (C) (E) city F = D/E 15 Supari Rs. 0.50 2282880 1.25 2854 November Supari Rs. 1 8592736 2 17185 to 31 Supari Rs. 2 19710 3.5 69 November Supari Rs. 5 153738 8 1230 2017 Total 11049064 21338 5754 units 3.71 December Supari Rs. 0.50 6258240 1.25 7823 2017 Supari Rs. 1 11169104 2 22338 Supari Rs. 2 98550 3.5 345 Supari Rs. 5 316017 8 2528 Total 17841911 33034 7460 units 4.43 January Supari Rs. 0.50 4388640 1.25 5486 2018 Supari Rs. 1 12561000 2 25122 Supari Rs. 2 124830 3.5 437 Supari Rs. 5 392886 8 3143 Total 17467356 34188 7540 units 4.53 February Supari Rs. 0.50 4565760 1.25 5707 2018 Supari Rs. 1 13845935 2 27692 Supari Rs. 2 39420 3.5 138 Supari Rs. 5 535236 8 4282 Total 18986351 37819 7360 units 5.14 March Supari Rs. 0.50 2912640 1.25 3641 2018 Supari Rs. 1 15193905 2 30388 Supari Rs. 2 78840 3.5 276

Supari Rs. 5 552318 8 4419 Total 18737703 38723 10000 units 3.87 (Bill raised for adhoc units by JVVNL)

As evident above, the ratio has varied for all the months and has increased even after the date of search of 10 November 2017 (except for the month of March 2018). Thus, the increasing trend which can be seen even before the date of search by indirect tax authority, continued even after the date of search. As the pattern of production per unit of electricity has remained same, it cannot be assumed that the Appellant has suppressed the production. As mentioned above, the increasing trend is due to a variety of factors such as additions of new and efficient machines, better productions, use of DG set, skilled labour, etc. Thus, electricity cannot be any basis for computing suppressed production.

Electricity consumption cannot be a basis for computing suppressed production

produced, yet since quality of raw material, constant or irregular supply of energy, manufacturing process involving consumption of energy without giving any production and similar other factors might affect ratio of consumption of energy to production of goods, it would be wrong to make a trading addition on ground that where there was more consumption of energy, there should be more production. • ACIT Vs. Khambhata Family Trust 67 ITD 0411 (Ahd.): Merely because the consumption of electricity was more and the production was less was no ground for rejection of the trading version. • Rakesh Kumar Jayantilal Vs. ACIT 55 ITD 0097 (Ahd.) (TM): In the light of the judgments in the case of N Raja Pullaiah Vs. DCTO 73 ITR 224 (AP) and in the case of St. Teresa’s Oil Mills Vs. State of Kerala 76 ITR 365 (Ker.), the DCIT’s view regarding estimating the income of the assessee to determine the net income from the business of plying of trucks on the basis of consumption of diesel was not justified. • G. K. Auto Vs. ACIT, dated 23.3.2007: Hon’ble Bench in para 5 of the order held that on the basis of variation in electricity consumption, section 145(3) is not justified. It further held that when decline in GP rate is explained, books of accounts are maintained and supported by vouchers, sales and purchases are fully vouched, no specific defect is pointed out except making general observation. Addition by applying higher profit rate is unjustified.

Statements of director and labour recorded by indirect tax authority cannot be relied as the same were under duress and were retracted well within time

No cash recovered during search conducted by the indirect tax authority

Section 69C is not applicable

“Unexplained expenditure, etc.

69C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year :

Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.”

Addition basis borrowed satisfaction without independent examination cannot be made

only for formation of opinion. As the AO has not independently verified the allegation and simply replied upon other of other authority, addition cannot be sustained. Reliance in this regard is placed on the following decision: • ITO vs Arora Alloys Ltd (2011) 12 ITR 0263 ChdTrib. Relevant extracts of the decision are as under:

18. Applying the aforesaid principles, we shall now examine as to whether the statement made by Shri Harmesh Arora before the Central excise

authorities in the context of levy of excise duty on unaccounted production can form the sole basis for making the impugned additions by the AO. First and most important aspect is that the said statement was not recorded by the IT authorities but by the Central excise authorities. As held by the Hon’ble High Court (reproduced supra), proceedings under the Central Excise Act have relevance only for formation of opinion of escapement of income and thereafter the IT authorities have to independently finalise the reassessment irrespective of the final view in excise proceedings. We find that the AO has reassessed the income and made the impugned additions solely on the basis of the information received by him from the Central Excise Department without bringing any material on record to justify or support the additions. The impugned additions are liable to be cancelled on this ground alone and are accordingly cancelled. …..

22. In view of the foregoing, the statement of Shri Harmesh Arora cannot by itself form the basis for making the impugned additions. The AO has given no other basis to support the additions made by him. In this view of the matter, the order passed by the CIT(A) in this behalf is confirmed. Ground No. 2 is dismissed.

A copy of the decision is enclosed at PB 419-441. • ACIT vs Cremica Frozen Food Pvt Ltd (2012) 32 CCH 0056 Chd Trib. Relevant extracts of the decision are as under:

“8. We have heard the rival submissions and have also perused the materials available on record. As per the Assessing Officer, the Special Auditors had prepared the weight wise consumption of materials consumed in Annexure A-3. In para 11.1 of the assessment order, the Assessing Officer has mentioned that "it is observed from the special audit report that during the year there was manufacturing of 240519 Lts. As per the information obtained, one liter of ice cream weight is 555 gms. So in Kgs the production of ice cream is 1,33,488.600 Kgs. However, the weight of all the ingredients comes to 1,48,186.568 Kg thereby giving a difference of 14,697.968 Kg in production. The weight wise details of raw material consumption are given in A-15 of the Special Audit Report. You are hereby given the final opportunity to explain this discrepancy."

In para 11.3, the Assessing Officer has calculated the value of extra consumption of raw material of 14697.968 by taking average rate of the material @ 80.84 and made an addition of Rs. 11,88,224/- on account of excess consumption of raw material in the manufacturing of ice cream relying on the report of the Special Auditor's. The Assessing Officer has taken the weight of one liter of ice cream equal to 555 gms.

The Assessing Officer assumed that since the net weight of one liter of ice cream is 555 gms, the consumption of raw material to produce one liter ice cream should also be 555 gms. In our view, this assumption of the Assessing Officer is not based on any supporting material. In our considered view there is a merit in the submission of Shri Subhash Aggarwal, Ld. Counsel for the assessee that there is no process or equipment whereby one liter of ice cream can be calculated to be equal to 555 gms. He further submitted that even otherwise the weight of ice cream varies from flavour to flavour and the variation is from 540 gms to 580 gms per liter and there is always a variation of + /—in the weight to liter ratio due to air content variation at the time of production of ice cream. It is true that in any manufacturing process, the production losses cannot be ruled out. In this case, the Assessing Officer has made addition relying on the opinion of Special Auditors and he has not applied his mind independently. Shri Subhash Aggarwal, Ld. Counsel for the assessee pointed out that the Special Auditor have not taken into consideration the following important point relating to manufacturing of ice cream.

• Evaporation loss of milk, cream and other raw materials during the pasteurization (heating & boiling) process. • Process Line losses during Homogenization (processed raw material which is left in the pipe line and cannot be taken out.) • Loss of processed raw material in ageing vats where the raw materials are store prior to freezing. • Losses during the freezing of processed raw material to ice cream occur when the freezer is cleaned for batch change over.

9. In our view, the Assessing Officer has not correctly appreciated the process of manufacturing of ice cream. In this regard, the CIT(A) has observed that the manufacturing of ice cream involves heating and boiling of milk etc. and, therefore, there have to be evaporation losses. He further observed that the production of food products involves dealing in perishable items where again wastage cannot be avoided. In our view, there was no ground for making the addition particularly when the assessee has maintained complete details of the purchases / sales duly supported by bills and vouchers which were produced before the Assessing Officer. The books of account of the assessee are subject to audit and the Assessing Officer has not found any discrepancy / defect in the books of account regularly maintained by the assessee. We have already observed herein above that the Assessing Officer has made the impugned addition merely on the basis of opinion of Special Auditor which is not based on any scientific formula.

We have also observed hereinabove that the Special Auditor has also not Marie Products Pvt. Ltd. vs. ACIT taken into consideration certain important point relating to manufacturing of ice cream, therefore, the Assessing Officer was not justified in relying upon the Special Report of Auditors. In view of the above, we hold that Ld. CIT(A) has erred in sustaining the addition of Rs. 1,78,234/-. In fact no addition is called for. Accordingly, we allow ground No.2 of the assessee's cross objection and dismiss ground No.1 of the Revenue's appeal.

In light of above, it is submitted that the addition made by the AO by incorrectly relying on the show cause notice/ order passed by the indirect tax authorities be directed to be deleted due to the following reasons: • Order passed by indirect tax authorities has been challenged before the appellate authority and therefore cannot be relied. The appeal is pending disposal. • As explained in detailed, method used by indirect tax authority for computing alleged suppressed production is faulty and comprises of various errors and therefore cannot be relied. • Electricity consumption cannot be a basis for computing suppressed production as held by jurisdictional High Court and Income Tax Appellate Tribunal. • Statements of director and labour recorded by indirect tax authority cannot be relied as the same were under duress and were retracted well within time. • No cash recovered during search conducted by the indirect tax authority. Had the Appellant been engaged into suppressed production of such a huge amount computed by the indirect tax authority, the indirect tax authorities would have found cash during search proceedings. Since, no cash was recovered, computation of suppressed production by indirect tax authority cannot be relied. • The AO has made addition under section 69C of the Act, which is not applicable at all.

• As held by various jurisprudence, addition basis borrowed satisfaction, and without independent examination by the AO cannot be made.”

17. While hearing the appeal of the assessee ld. AR submitted that the NeAC [ld.AO] simply relied upon the order of the GST authority and 1 April 2017 to 9 November 2017 of Rs 8,15,28,076 basis the electricity consumption method without dealing with the submission and merits of the contention. While calculating the simple average weigh per pouch of 3.6975 grams and used the said weight to multiply with the total number of pouches to arrive at total kilograms of production per month GST authority has erred in making that working. The total kilogram was divided by electricity consumed per month to arrive at ratio of production per unit of electricity. The highest ratio of 8.45 for the period 1.11.17 to 9.11.2017 was applied to all the months to arrive at anticipated actual production and the difference between the anticipated actual production and the production recorded in the books was considered as suppressed production. As argued by the assessee that simple average method used by the GST authority is incorrect as by using simple average, the weight per pouch of 3.6875 grams is incorrect and very high. The reason behind of the fact and as is evident that the sale is maximum of pouches of 50 paisa and Re 1 which accounts for 98% of total sale where the weigh is 1.25 gram and 2 gram respectively. Thus, by applying the simple average, the method used by GST authority is incorrect and cannot be adopted to arrive at the correct figure even on the contention of the GST is accepted. That order of the issue and that appeal is pending for hearing. On the other hand, ld. DR referring to the statement recorded by the GST authority of Shri Ashok Agarwal, director of the assessee, Shri Lalit Kumar, supervisor at assessee company, Shri Gaurav Sharma, sales manager, Shri Gurjinder Singh Gill, partner of M/s G G Carriers submitted that the assessee is engaged in clearance of goods without invoices and held that these incriminating documents were found during the search which indicates evasion of excise duty and clandestine clearance of finished goods. The ld. DR referred to the order passed by the Excise Commissioner placed at PB 305 to 377 by referring to para 22.1 and 22.2 where in by referring to the statement of Shri Gurjinder Singh Gill of M/s G G Carriers it is stated that supari supplied by the suppliers of the assessee and transported by them is partly without invoice. Further, ld DR referred to para 23.1 and 23.2 relating to the statement of Shri Gaurav Sharma, sales manager of the assessee to point out that supari was sold out of books. Countering those arguments in the rejoinder reply ld. AR of the assessee submitted that statement of Shri Gurjinder Singh Gill was recorded by the excise authorities on 17.06.19 and statement of Gaurav Sharma was recorded on 19.06.19. Copy of both the statements which are recorded after 19 months from the date of search

The CIT(A) also relied upon the GST order without analyzing the assessee that 98 % sales present of minor denomination sale and therefore, the working of the average on simple average method is incorrect as it does not take into consideration the actual production and sale of pouches. It is an undisputed fact that as per excise returns filed by the assessee and accepted by the excise department, the sale of pouches of 50 paisa and Re 1 is the highest ie 98% of the total sales. The weight of these pouches is 1.25 grams and 2 grams respectively which is very low as compared to the simple average weight of 3.6875 gram computed by the GST authority. Thus, the method is apparently faulty and cannot be relied upon fast the allegation of alleged suppressed production. The Assessee during the assessment proceedings have filed complete books of accounts, purchase register, sale register, etc which have been accepted by the Ld AO without commenting any mistake on it. The ld AO has not rejected the books of account which are audited before making such an allegation. The co-ordinate bench of Chandigarh in the case of ITO vs Arora Alloys Ltd (supra) held that proceedings under the Central Excise Act have relevance only for formation of opinion of escapement of income and thereafter the IT authorities have to independently finalise the reassessment irrespective of the final view in excise proceedings. Further, Rajasthan High court in the taking the amount paid by assessee for electricity consumption as base, AO assumed actual production to be more then what is disclosed and made the addition which is incorrect. It was held that where AO has not pointed out any defect in the books of accounts of the assessee or method of accounting followed by the assessee and there was no material placed on the record to show any instance of suppression of sale or inflation of purchase by the assessee, ld. AO was wrong in drawing adverse inference against assessee by only referring to the electricity expenses. Also, the co- ordinate bench of Jaipur ITAT in the case of Prem Cables (P) Ltd. Vs. Asstt. CIT 56 ITD 0382 (JP) held that though consumption of energy was a relevant factor for knowing quantity of goods produced, yet since quality of raw material, constant or irregular supply of energy, manufacturing process involving consumption of energy without giving any production and similar other factors might affect ratio of consumption of energy to production of goods, it would be wrong to make a trading addition on ground that where there was more consumption of energy, there should be more production.

The bench also noted from the record made available there is no allegation of having found the alleged unaccounted cash of such huge amount or that of the unaccounted investment in the hands of the assessee. The ld. AO that provision of the Act reads as follows:

Unexplained expenditure, etc. 69C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year : Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income. As is not the case of the assessee that he was found have incurred any expenditure which are apparently found unrecorded by the GST team but in fact it was made based on the presumptions and assumptions and that too was not correct. If that computation, even if for the sake of moment considered with that of the mistake pointed out by the assessee, the amount of suppressed production using the above method of calculation comes to Rs 3,97,19,932 as against Rs 8,15,28,076 computed by the AO.

Such a vast variation that too on presumption and assumption without bringing any material having incrimination material the result reflected through regular books of account maintained in accordance with the law cannot be disbelieved and therefore, we see no reason to fasten of the alleged addition in the hands of the assessee under the provision of section ground no. 4 raised by the assessee is allowed.

In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open court on 21/04/2025.

Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 21/04/2025 *Ganesh Kumar, Sr. PS आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Marie Products Private Limited, Jaipur izR;FkhZ@ The Respondent- ACIT, Circle-07, Jaipur 2. vk;dj vk;qDr@ The ld CIT 3. 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत xkMZ QkbZy@ Guard File (ITA No. 771/JP/2023) 6. vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत