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Income Tax Appellate Tribunal, ‘D’ BENCH
Before: Shri M.Balaganesh & Shri S.S.Viswanethra Ravi
This appeal by the assessee is directed against the order dated 20-11-2012 passed by the Commissioner of Income Tax(Appeals), Jalpaiguri for the assessment year 2009-10.
In this appeal, the Assessee has raised the following grounds of appeal:-
A. For that the Learned Commissioner (Appeals) (hereinafter referred to as 'the appellate authority') has failed to pass a well reasoned order in the instant case to the extent of a part of the appellate order concerned. B. For that the appellate authority failed to consider that the rate of consumption of electricity per unit quantity of crushing, as submitted by the assessee was correct and appropriate. C. For that the appellate authority failed to consider that the assessee has his books of account audited by a reputed Chartered Accountant who has made no adverse comment in his report regarding consumption of electricity. D. For that the appellate authority failed to consider that the withdrawal of cash from bank by issuing a self cheque was made following the normal practice and no malafide or disorder could actually be attributed to the said transaction. Sunil Tarafdar 1
E. For that the appellate order dated 20.11.2012, passed by the Commissioner(Appeals) Jalpaiguri is wrong and illegal only to the extent it makes addition to the returned income of the assessee and as such the same is liable to be modified or set aside at this stage. F. For that the impugned appellate order dated 20.11.2012, passed by the Commissioner(Appeals), Jalpaiguri, is otherwise wrong and illegal and liable to be modified or set aside. G. For that the appellant craves leave to add, amend or alter any or any other grounds later on at the time of or before hearing of this appeal.
The Assessee is an individual and whole seller of Rice, wheat and Mustard and has his own mill through which produces mustard oil, besides, derives his income from retail business from Oil Mill & Truck plying business. The return of income was filed on 22.09.2009 declaring a total income of Rs. 1,94,949/-. Under scrutiny notices u/s. 143(2) & 142(1) were issued. In response to the aforesaid notices AR of the assessee appeared and produced Cash book, ledger, bank statement, name and address of the persons from whom wheat were purchased and debit vouchers showing payment of rent for godown.
Ground nos. A,C,E,F and G are general in nature need no order and is dismissed.
5. Ground no-B is relating to the addition of Rs.5,83,510/- on account of difference in electricity consumption and quantity of crushing of mustard seeds.
6. The AO found on verification of the audited accounts that the assessee has crushed 200 quintals of mustard seeds in his own mill and consumed electricity @ 18 units per quintal and consumed 7821 units for 200 quintals. The AO doubted the consumption of 7821 units of electricity as stated by the Assessee, according to him, the quantity of mustard seeds should have been 434.53 quintals, but not 200 quintals. The AO show caused the assessee why the difference of 234.53 quintals (434.53-200) should not be treated as concealed purchase. For non-compliance, an amount of Rs.5,83,510/- (234.53 x Rs. 24.88 being value per kilo gram is added to the total income of the assessee.
Apart from above, The AO found that the assessee debited in Profit & Loss account towards electric charges for Rs.2,71,162/- and received crushing charges of Rs.4,47,281/- from the audited report. Taking into consideration the consumption of electricity of 3240 units as above to the 3239.67 quintals as found to be crushed, the AO of calculated crushing charges of Rs.9,71,901/- (3239.67 quintals x crushing charge @ Rs.300 per quintal) and added the difference of Rs. 5,24, 620/- (Rs.9,71,901/-Rs. 4,47,261/-) to the total income of the assessee as concealed income.
Before the CIT-A, the contention of the Assessee was that the AO had applied incorrect rate of electricity consumption for milling of mustard seeds and seeds to be crushed twice or thrice in order to get refined mustard oil and 37.57 units of electricity is required for crushing of one quintal of mustard seeds and the average rate of electric charge was Rs. 4.84 per unit. The assessee stated that it had consumed 63,615 units of electricity which was distributed proportionately to the manufacturing account and Profit & Loss account for crushing of own mustard seeds and for others and submitted the photo copies of the electricity bills. The Assessee was contended the additions made by the AO were on suspicion and surmises, which has no basis and relied on the decisions in Lalchand Sunil Tarafdar 3 Baghat vs. CIT 37 ITR 288 (SC), CIT vs Ashim Kr. Mondal 270 ITR 160 (Cal) etc.
9. The CIT-A deleted the addition regarding suppressed purchase and confirmed the crushing charges of R.5,24,620/- and the relevant portion of which is reproduced herein below:
“I have carefully considered the submission of the Ld AR and also perused the assessment order. Apparently, the Ld AO had discovered the suppression of production, but he could not arrive at a reasonable conclusion. Firstly, the AO has estimated the suppressed production of oil solely based on electricity consumption and attributed part of the same on account of undisclosed purchase. Secondly, the addition made on account of cost of suppressed purchase of oil seeds cannot be made on the basis of the electricity consumption. Excess electricity consumption only indicates the suppressed crushing of oil seeds which may either be in the case of the assessee or in the case of the others. In case of suppression of production of oil for own business, the addition on account of suppressed profit was more reasonable instead of addition on account of undisclosed purchase. At the same time, the submission of the assessee has no sound basis. There was no mistake as highlighted by the assessee in calculation made by the AO regarding total oil seeds milled during the year applying the rate of consumption of electricity. The AO has rightly worked out the total processing of 3234 qntls of oil seeds for the public against which the crashing charges were received. On the other hand, there was no basis in his submission that for milling of one qntl of oil seeds, the estimated power consumption is 37.57 units. He did not furnish any comparative chart showing the consumption of electricity as claimed by the other oil mills in the locality or any other authoritative evidence. In view of the above facts, it is held that the AO has rightly estimated the consumption of electricity of 18 units for milling of one qntl of oil seeds. Accordingly, the AO is required to recomputed the suppressed income as under: Total Electricity Consumption as shown by the assessee was 63,615 units Total Oil Seeds could be crushed @18 units per/qntl was 3,534 qntls Assessee crushed Oil Seeds for own business 200 qntls ( considering that no suppressed purchase was made in absence of adequate evidence) Total Mustard Seeds crushed for public 3,334 qntls Total crushing charges received @Rs.3001- per qntl Rs.10,00,200/- As the AO has considered it as Rs.9,71 ,901/-, the actual crushing charges received is restricted to Rs. 9,71,901/- Thus, suppressed crushing charges received was Rs. 5,24,620/-
To sum up the addition made by the AO on account of suppressed purchase of Rs.5,83,510/-is ordered to be deleted, but the addition of Rs.5,24,620/- on account of suppressed crashing charge is confirmed.
In second appeal, the Ld.AR adopted the arguments as canvassed before the lower authorities and relied on the decision of Hon’ble High Court of Gauhati in the case of I.T.O Vs. Satyanarayan Pareek reported in (2001) 71 TTJ Gau 997 referred to para-5 and submitted that estimating the suppressed milling only on the basis of variations in electric consumption was not legally tenable unless the AO brings comparative position of any other mill owner regarding consumption of electric power, vis-a-vis, production was not brought on record by the assessing officer. Further argued that the Hon’ble High Court of Gauhati while dealing with case on hand referred to the decision of the Hon’ ble Andhra Pradesh High Court in the case of N. Raju Pullaiah v. Dy. CTO & Ors. reported in (1969) 73 ITR 224 (AP) drew our attention to the para-6 and argued the consumption of electricity by itself cannot form a reliable test for determining the yield of oil, the yield depends upon various factors viz., the quality of the seeds, the condition of the machine, the skill of the driver and the surroundings of electric equipment. The Ld.AR also referred to the decision of the Hon’ble Kerala High Court in the case of St. Teresa’s Oil Mills vs. State of Kerala reported in 76 ITR 365 and submitted that it is unsafe to uphold the rejection of the accounts purely on the ground that there has been divergence in the consumption of electricity.
On the contrary Ld.DR relied on the order of AO and regarding the case laws as relied on by the Ld.DR submits that the Hon’ble High Courts decided the issues based on the local conditions and the ratio therein cannot be applied in the present case and sought to dismiss the appeal.
Heard rival submissions and perused the material available on record. We find that the AO taking into consideration the consumption of electricity of 3240 units as above to the 3239.67 quintals as found to be crushed calculated crushing charges @ Rs.300 per quintal to the quantity as found by him basing on the consumption of electricity as shown by the Sunil Tarafdar 5 Assessee is, according to us bad. As rightly pointed by the Ld.AR as held by the Hon’ble High Court of Gauhati estimating the suppressed milling only on the basis of variations in electric consumption was not legally tenable and the relevant portion of which is herewith reproduced herein below:
We have heard the submissions of the learned authorised representative of the assessee and the learned Departmental Representative both and gone through the orders of the lower authorities. We are of the considered opinion that the assessing officer was not justified in rejecting the books of account merely because there was no consistency between monthly consumption of electrical energy and milling done in terms of quintals, without bringing on record any other supporting circumstances corroborating the assertion of the assessing officer that lead to suppression in the milling shown by the assessee. Such inconsistency in electric consumption vis-a-vis milling, could be due to various other reasons beyond the assessees control. Nowhere the assessing officer has observed that any sales were found which were not recorded in the books of accounts which admittedly was maintained by the assessee. There was also no whisper that the assessee was indulging in unaccounted sales. No defect in stock register was pointed out by the assessing officer. Therefore estimating the suppressed milling only on the basis of variations in electric consumption was not legally tenable. The comparative position of any other mill owner regarding consumption of electric power, vis-a-vis, production was not brought on record by the assessing officer. Moreover, the electric consumption depends on so many other factors like erratic power supply, low voltage, high moisture contents of the paddy, etc. Further, nowhere it was indicated by the assessing officer that entries of purchase or sales were not tallying with the purchase bills/voucher or sales bills. It means purchase and sales were regularly entered in the books of accounts. This was also not the case of the department that any sales/millings were made which were not recorded in the sales account. Therefore, there was no reason or justification for making estimate of suppressed milling/sales. While invoking the provisions of section 145 of the Act, no defect either in the system of accounting or in the method of accountancy principles, was brought on record by the assessing officer. Moreover, accounts regularly maintained in the course of business have to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable. The department has to prove satisfactorily that the account books are unreliable, incorrect or incomplete before it can reject the accounts.
The Honble Andhra Pradesh High Court in the case of N. Raju Pullaiah v. Dy. CTO & Ors. reported in (1969) 73 ITR 224 (AP) held the consumption of electricity by itself cannot form a reliable test for determining the yield of oil, the yield depends upon various factors viz., the quality of the seeds, the condition of the machine, the skill of the driver and the surroundness of electric equipment and the relevant portion at para-6 as referred by the Hon’ble High Court of Gauhati is reproduced herein below:
Similarly it was held by the Honble Andhra Pradesh High Court in the case of N. Raju Pullaiah v. Dy. CTO & Ors. (1969) 73 ITR 224 (AP) that the assessing authority rejected the accounts of the assessee, a groundnut oil miller and estimating the turnover on the basis of consumption of electricity and the result of tests conducted in other mills, was not justified. It was observed in this case that consumption of electricity by itself cannot form a reliable test for determining the yield of oil, the yield depends upon various factors viz., the quality of the seeds, the condition of the machine, the skill of the driver, the surroundness of electric equipment, etc. There may be several other disturbing factors which affect the net yield. Moreover, the consumption of electricity itself is affected by various factors.
On the basis of above observation we are of the considered view that only on the circumstances relied on by the authorities below (AO), for rejection of the accounts is lack of consistency in the monthly consumption of electrical energy and milling done in terms of quintals. In our opinion, this factor by itself without any other supporting circumstances does not justify the rejection of the accounts. Such variation in the consumption of electricity vis-a- vis output can be due to various factors beyond the control of the assessee. These factors are condition of machine, skill of machine operator/driver, the soundness of electric equipments, uninterrupted/continuity of electric supply, etc. Our opinion also get support from the order of the Tribunal, Ahmedabad Bench, in the case of Asstt CIT v. Khambhatta Family Trust (1998) 62 TTJ (Ahd) 685. It was held in this case that merely because the consumption of electricity was more and the production was less it would be no ground for rejection of the trading version. As the estimation of suppression in the milling by the assessing officer is deleted, the consequential addition on account of estimated capital employed in the suppressed milling, is also deleted.
We may refer to the decision of the Hon’ble Kerala High Court in the case of St. Teresa’s Oil Mills vs. State of Kerala reported in 76 ITR 365 held that it is unsafe to uphold the rejection of the accounts purely on the ground that there has been divergence in the consumption of electricity and the relevant portion at para no-5 is reproduced herein below:
5. In the case on hand, the only circumstance relied on by the authorities below for the rejection of the accounts is that there was wide disparity in the consumption of electricity. In our opinion, this factor by itself without any other supporting circumstance does not justify the rejection of the accounts. Such variation in the consumption of electricity can be due the various factors outside the control of the assessee. It is unsafe to categorically say that because there is variation in the consumption of electricity the accounts are incorrect or unreliable. It sometimes happens that current supply falls far below the usual voltage and on such occasions the output will necessarily be much lower than the normal rate. The efficiency of the crushing machine as also the moisture content in the copra would also be relevant factors to be taken into account in arriving at the output. It is, therefore, unsafe to uphold the rejection of the accounts purely on the ground that there has been divergence in the consumption of electricity. In this case, there is also the additional circumstance that the department itself has admitted variations ranging from 10 to 12 units per quintal; and the petitioner's consumption of electricity is 12 units per quintal, which cannot be said to be wide off the accepted consumption. We are of the opinion that in these circumstances the rejection of the accounts is not legally justified.
in the light of observations of in the aforementioned decisions supra, we find that the AO basing on the consumption of electricity as stated by the Assessee added the impugned addition as concealed income and it is unsafe to hold that the Assessee could have crushed more quantity than what he stated and concealed income basing on the variations in consumption of electricity, in our opinion, the AO came to such conclusion on mere presumptions and assumptions and is not in accordance with law. Therefore, we delete this addition and accordingly, ground no. B raised by the assessee in this appeal is allowed.
Ground No-D involving an amount of Rs.1,OO,OOO/- added as unexplained cash credit u/s.68 of the Act.
The AO found a person withdrawn an amount of Rs.1,00,000/- from the Bank on 12-05-2008 through a self- cheque belonging to Assessee and the same was shown as cash withdrawn from the Bank in books as the assessee failed to offer any explanation, the AO treated the such amount of Rs.1,00,000/- as unexplained cash credit and added the same to the total income of the Assessee.
Before the CIT-A, the AR submitted that the assessee maintained the Bank account in Malda town which is 48 kms away from the business place of the assessee. He has given the cheque to one of his friends Gopal Prasad Keshri for encashment and entered the same in the Cash Book as cash withdrawn and filed declaration of such friend Sri Keshri and pleaded the provisions of Sec.68 of the Act does not attract. The CIT-A confirmed the addition as made by the AO on the ground that the plea of the cash was withdrawn through self cheque was not raised before the AO and the relevant portion of which is reproduced herein below: Sunil Tarafdar 8
I have carefully considered the submission of the Ld AR and also perused the assessment order. The fresh explanation and the evidence of the assessee cannot be admitted at this stage because no such explanation was offered before the AO. On the other hand, on going through the Bank Statement, it is found that it was neither cash withdrawal from the Bank nor a clearing cheque. The Bank had passed a transfer entry which means, the amount was transferred to another A/c of this Bank. It is, thus, held that the declaration of Sri Keshri and the submission of the assessee had no merit or any basis and the AO has rightly treated the amount as undisclosed cash credit. His action is confirmed.
Before us, the Ld.AR submits the same arguments were advanced before the CIT-A and referred to the documents filed before us by way of paper book containing pages 1 to 6. He further argued that the finding of the CIT-A regarding taking a plea of withdrawing money on self cheque was taken for the first time before him is wrong and referred to page-1 of the paper book and submitted that the assessee has ready taken such plea that it is self cheque and payments made thereon was not to others. He also referred to page 2 & 3 of the paper book and argued that the affidavit was deposed by one, Sri Gopal Prasad Keshri supporting the contentions of the assessee. He further referred to page-4 of the paper book and argued that it was a self cheque of assessee and the same was encashed on 12-05-2008 and referred to page-5 of the paper book.
On the contrary, the ld.DR submits that the bank statement as produced by the assessee clearly shows that the money was transferred through cheque and it was not withdrawn through a self cheque and referred to page-4 of the paper book. He also submits that whatever may be the documents as produced by the assessee by way of evidence are far from truth and accordingly prayed to dismiss the appeal.
Heard rival submissions and perused the material available on record. We find that the CIT-A dismissed the appeal of assessee only on the ground that the plea of withdrawing of cash by self cheque was for the first time before him. But however, it can be seen from page-1 of the paper book clearly shows that the plea was taken by the assessee before the AO by way of reply to show cause issued and the same was received by the AO on 26-09-2011 well before passing of assessment order on 26-12-2011. Therefore, the finding of the CIT-A in this regard is incorrect. The other aspect of page nos. 4 & 5 of the paper book regarding the self made cheque and bank statement clearly shows that the cheques admittedly belonged to assessee and it shows the signature of assessee and cheque nos. thereon are reflected the bank statement on 12-05-2008. Therefore, all these evidences prove the contentions of assessee and it substantiates the claim of assessee. In any case, no addition could be made u/s. 68 of the Act for the withdrawal of the amount made by the assessee as the same does not constitute credit. Therefore, we hold that the addition u/s. 68 is not maintainable in view of the our discussions made hereinabove. Accordingly, the ground no- D raised by the assessee is allowed. In the result, the appeal of assessee is allowed as stated above. 22.