Income Tax Appellate Tribunal - Kolkata
Shree Hari Agro Industries Ltd., ... vs Department Of Income Tax on 16 October, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH "B",
KOLKATA
[Before Hon'ble Shri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM]
ITA No.86/Kol/2013
Assessment Year : 2009-10
(APPELLANT ) (RESPONDENT)
Shree Hari Agro Industries Ltd. -versus- D.C.I.T., Circle-9,
Kolkata Kolkata
(PAN:AADCS 7756 H)
ITA No.284/Kol/2013
Assessment Year : 2009-10
D.C.I.T., Circle-9, -versus- M/s. Shree Hari Agro Industries
Ltd.
Kolkata Kolkata
(PAN AADCS 7756 H)
(APPELLANT) (RESPONDENT)
For the Department : Shri Niraj Kumar, CIT(DR)
For the Assessee : Shri A.K.Tibrewal, FCA & Shri Amit Agarwal, Advocate
Date of Hearing : 05.10.2015.
Date of Pronouncement : 16.10.2015.
ORDER
Per Shri N.V.Vasudevan, JM
ITA No.86/Kol/2013 is an appeal by the assessee while ITA
No.284/Kol/2013 is an appeal by the revenue. Both these appeals are directed against the order dated 08.11.2012 of CIT(A)-VIII, Kolkata relating to A.Y.2009-10.
ITA No.86/Kol/2013 (Assessee's appeal) :2. Ground Nos. 1 and 2 raised by the assessee in this appeal and the grounds of appeal raised by the revenue in its appeal can be conveniently taken together. The assessee is a company engaged in the business of manufacture of agro products. In the course of assessment proceedings, the AO noticed that the 2 ITA No.86/Kol/2013& 284/Kol/2013 M/s. Shree Hari Agro Industries Ltd..
A.Yr.2009-10 Assessee has shown a sum of Rs.14,58,61,553 as 'capital reserve' in the liability side of the Balance Sheet. The Assessee explained that the increase in the capital reserve was because of waiver of loans which the Assessee had obtained for the purpose of its business, by the creditors owing to financial crisis which the Assessee faced. The loan creditors agreed for waiver of part of the loans and accordingly, the amount of loans together with interest so waived has been treated as 'capital reserve' brought to the balance sheet. The assessee furnished the party-wise details of loans and the interest waived, which was as under :
Name of the loan Balance as on Amount waived Balance as on creditor 01.04.2008 31.03.2009 Deepak Vegpro P 45000,000 31500,000 13500,000 Ltd (secured loan) KN Ravindra 1250,000 1000,000 250,000 Kumar (HUF) Shree Hari 1685,145 1348,117 337,028 Industries Versa Trading Co. 896,439 717,151 179,288 Anita Agarwal 1250,000 1000,000 250,000 Deepak Vegpro P 28500,000 22800,000 5700,000 Ltd (unsecured loan) Total 78,581,584 58,365,268 20,216,316 Further, the perusal of the assessee's balance sheet showed that the following items of loans and their interests have been reduced from the closing balances as on 31.03.2008 to the present balances as on 31.03.2009 -
Particulars Balance as on Balance as on Difference 31.03.2008 31.03.2009 3 ITA No.86/Kol/2013& 284/Kol/2013 M/s. Shree Hari Agro Industries Ltd..
A.Yr.2009-10
Unsecured loans 1,70,09,882 1,41,94,613 28,15,269
from associate
concerns
Unsecured loans 9,49,55,478 2,41,13,612 7,08,41,886
from others
Secure loan 4,50,00,000 1,35,00,000 3,15,00,000
Deepak Vegpro P
Ltd
Interesst accrued 7,09,96,285 0 7,09,96,285
& Due
Total 17,61,53,420
The above difference of Rs.17,61,53,420 was mainly due to the waiver of loans and their interest. In other words, the waiver of loans together with interest (which was considered as capital reserve by the assessee) was out of the above difference of Rs.17,61,53,420.
3. Though the loan and interest waived was Rs.17,61,53,420/-, the addition to the capital reserve account which was considered by the AO for the impugned addition made was only a sum of Rs.14,58,61,553/-. The capital reserves shown by the Assessee in the balance sheet comprised of interest accrued and due and Rs.7,09,96,285/- which was interest on loans which were debited from time to time. The remaining amount of Rs.7,48,65,268/- was on account of benefit obtained by the assessee consequent to waiver of principal amount by the banks and other creditors. The AO was of the view that the amount of waive of loan and interest due thereon was taxable u/s 41(1) of the Act r.w.s.28(i) & (iv) of the Act as remission or cessation of liability which profit arising in the course of business. AO accordingly added a sum of rs.14,58,61,553/- to the total income of the assessee.
4 ITA No.86/Kol/2013& 284/Kol/2013M/s. Shree Hari Agro Industries Ltd..
A.Yr.2009-10
4. On appeal by the assessee the CIT(A) held that in so far as the waiver of the principal amount of the loan by the banks are concerned the same was liable to be taxed for the reasons that the assessee had not established by evidences that the loans waived by the banks and other creditors were borrowed for the purpose of meeting the capital expenditure. In so far as the interest portion which was waived by the bank and creditor is concerned the CIT(A) found that interest portion which was waived had been claimed as deduction by the assessee by computing this taxable income provision of section 41(1) of the Act were not attracted. CIT(A) also held that the income in question cannot be added u/s 28(iv) of the Act for the reasons that the benefit was in terms of money and the provision of section 28(iv) of the Act will apply only when the benefit or perquisite is received in kind.
5. The following observations of the CIT(A) in this regard are as follows :
"I have carefully considered the submission of the appellant along with the supporting evidences/details furnished & case laws relied upon, perused the facts of the case including the impugned assessment order, remand report and rejoinder to the remand report and other materials brought on record. I do not find any force in the argument put forward by the appellant. Therefore, these grounds of the appeal of the appellant regarding the addition of Rs.7,48,65,268/- on account of waiver of unsecured loan and of Rs.7,09,96,285/- on account of waiver of interest on secured loan are decided as under :-
(i)It is not in dispute that the appellant has written off in books of accounts interest of Rs.7,09,96,285/- As per the ld AR the appellant has not been allowed deduction of this interest in view of provision of section 43B of the Act. The AO in his report has submitted that this plea was not raised during the assessment proceeding year and for this reason the applicability of section 28(iv) of the Act was not considered during the assessment proceeding. The AO has submitted that even if the addition of Rs.7,09,96,285/- is not sustained under section 41(1) of the Act then the same may be sustained under section 28(iv) of the Act. A copy of remand 5 ITA No.86/Kol/2013& 284/Kol/2013 M/s. Shree Hari Agro Industries Ltd..
A.Yr.2009-10 report was given to ld AR and he was directed to state why the addition be not sustained under section 28(iv) of the Act.
In reply the ld AR has relied in Madras High Court decision in the case of Iskraemeco Regent Ltd CIT (2011) 331 ITR 317. In this case the Hon'ble Madras High Court relying on Bombay High Court decision in the case of Mahindra & Mahindra Ltd. V CIT (2003) 261 ITR502 and Hon'ble Delhi High Court decision in the case of Ravinder Singh v CIT (1994) 205 ITR 353, has held as under :-
"That section 28(iv) of the Act speaks about the benefit or perquisite received in kind and has no application to any transaction which involves money. The transaction in question being a loan transaction having no application with respect to section 28(iv) of the Income-tax Act, the sum in question was not income within the purview of section 2(24) of the Act."
In view of the above discussed legal and factual position the addition of Rs.7,09,96,285/- on account of waiver of interest at the time of one time settlement of the loan cannot be sustained either under section 28(iv) or under section 41(1) of the Act and accordingly the addition of Rs.7,09,96,285/- is deleted.
(ii) The ld AR has submitted that the appellant has taken secured loan of Rs.340 lacs from Industrial Reconstruction Bank of India and 450 lacs. From IDBI Bank in the year 1996-97 under project finance scheme. However, neither the sanction letter nor any other evidence to support the contention that these loans were taken for the acquisition of capital asset was filed. Similarly no evidence was produced to sustain the claim that the loan return of during the year were the same loan which were taken in the financial year 1996-97.
Since the appellant has not discharged onus cast on it either before the AO or before me hence I am constrained to presume that the factual position is not in favour of the appellant and these loans were obtained for day to day working of the company.
In the Logitronics Pvt. Ltd. V CIT (ITA NO.1623 OF 2010) the Hon'ble Delhi High Court has held as under :-
"The answer to the question whether the waiver of a loan is taxable as income or not depends on the purpose for which the loan was taken. If the loan was taken for acquiring a capital asset, the waiver thereof would not amount to any income exigible to tax u/s 28(iv) or 41(1). On the other hand, if the loan was taken for a trading purpose and was treated as such from the very beginning in the books of account, its waiver would result 6 ITA No.86/Kol/2013& 284/Kol/2013 M/s. Shree Hari Agro Industries Ltd..
A.Yr.2009-10 in income more so when it was transferred to the P&L A/c in view of Sundaram Iyengar 222 ITR 344(SC).
In view of above discussed legal and factual position I am of the view that the AO was justified in adding Rs.7,48,65,268/- to the income. Accordingly the addition of Rs.7,48,65,268 is confirmed."
6. Aggrieved by the relief granted by the CIT(A) the revenue in appeal before this Tribunal. Aggrieved by the order of CIT(A) upholding the addition on account of waiver of principal amount of the loan the assesee is in appeal before this Tribunal.
7. We have heard the submissions of the ld. DR and the learned counsel for the Assessee on the aforesaid issues. The ld. Counsel for the assessee placed reliance on the decision of the Hon'ble Madras High Court in the case of Iskraemeco Regent Ltd. Vs CIT 331 ITR 317(Mad). His submission was that the Hon'ble Madras High Court in the aforesaid decision has held that the provision of section 41(1) of the Act can be applied only when the borrowing is by a financial institution for which money was an item of trading transactions and in respect of all other businesses borrowings should be considered only on capital account. His submission was that in the light of the judicial pronouncement it was unnecessary to go into the question as to whether the principal amount waived was in respect of loan borrowed for meeting the capital requirements or for meeting the revenue expenditure.
8. We have considered his submissions and are of the view that the same cannot be accepted. It is no doubt true that in the aforesaid case the Hon'ble Madras High Court has observed that the assessee was not trading in any money transaction and on the ground of loan by a bank cannot be termed as trading transaction and it cannot be construed in the course of business. This observation in our view cannot be read in isolation and out of context. The 7 ITA No.86/Kol/2013& 284/Kol/2013 M/s. Shree Hari Agro Industries Ltd..
A.Yr.2009-10 Hon'ble Madras High Court in the aforesaid decision found that the undisputed fact prevailing in that case was that the assessee obtained loan for the purpose of investment in its capital asset. It is only on this basis that the Hon'ble Madras High Court held that the provision of section 41(1)of the Act or section 28(iv) of the Act are not attracted. The Hon'ble Supreme Court in the case of Sun Engineering Works Pvt. Ltd. 198 ITR 287 (SC), has held as follows:
"It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete "law"
declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the Courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasoning. It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete "law" declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the Courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasoning."
9. Section 41(1) enacts a statutory fiction and the operation of such fiction should be limited to the language of the section. In Mahindra & Mahindra Ltd. vs. CIT 261 ITR 501 (Bom) followed in CIT vs. Tosha International Ltd. 331 ITR 440 (Del) it was held that amount of loan and interest due by assessee to banks and financial institutions having never been claimed by assessee as deduction, waiver of interest and part of principal amount by banks/financial institutions did not give rise to profits chargeable to tax under s. 41(1). In 8 ITA No.86/Kol/2013& 284/Kol/2013 M/s. Shree Hari Agro Industries Ltd..
A.Yr.2009-10 Rollatainers Ltd. vs. CIT (2011) 339 ITR 54 (Del), it was held that loan taken by assessee on cash credit account which was used in purchase of capital asset waived by bank. Loan was received in the course of carrying on day-to-day business and after waiver, was taken to P&L a/c. Thus, even if s. 28(iv) was not applicable, s. 41(1) was clearly applicable.
10. We are therefore of the view that it was necessary for the assessee to establish the purpose of the loans in question had been borrowed.
11. We have perused the documents filed by the assessee in support of its contentions that the amount of loan that was waived by the creditors was for meeting the capital requirements. At the time of hearing it was noticed that the evidence filed by the assessee in this regard does not conclusively establish the assesses case. For e.g. the assessee had availed two major loans which are the subject matter of waiver. The first loan is one which was availed form IDBI on 13.06.1996. The other major loan is one availed by the assessee from IRBI on 22.01.1997. Copy of the loan sanctioning letters are at pages 76 and 83 of the assessee's paper book. It is no doubt true that that these loans refer to project finances thereby it can be sent that these loans were meant for meeting capital expenditure. It is however seen that the loan amount waived was by one Depak Vegpro Private Limited. When this was pointed out by the ld. Counsel for the assessee it was submitted that IDBI had assigned the loans to M/S.Deepak Vegpro Pvt.Ltd. A copy of the assignment agreement is placed at pages 15 to 31 of assessee's paper book no.2. This does not correlate with the loan borrowed by the assessee from IDBI, as a person referred to therein is Stressed Assets Stabilisation Fund which is stated to be a trust formed by IDBI, to whom IDBI is stated to have assigned the loan given by it to the assessee.
9 ITA No.86/Kol/2013& 284/Kol/2013M/s. Shree Hari Agro Industries Ltd..
A.Yr.2009-10
12. We are of the view that the correlation of the loans borrowed by the assessee and the purpose for which they were borrowed and the loans waived at Rs.7,48,65,268 to the assessee has to be established by the assessee. In the absence of correlation it is not possible to decide the purpose for which the loan has been availed by the assessee. It is only when the purpose of the loan is ascertained it can be decided as to whether the provision of section 41(1) of the Act will be attracted or not. We therefore set aside the order of the CIT(A) in so far as the addition of Rs.7,48,65,268/- sustained by the CIT(A) and remand the issue to the AO for fresh consideration in the light of the observations made above. The assessee is at liberty to file the required documents to substantiate its case regarding non applicability of the provision of section 41(1) of the Act or section 28(iv) of the Act.
13. In so far as the appeal of the revenue is concerned it is quite clear that from the order of the CIT(A) that the interest which was waived was not claimed as an expenditure by the assessee in the past and therefore the addition of the said sum u/s 41(1) of the Act cannot be sustained. In so far as the applicability of the provision of section 28(iv) of the Act is concerned the benefit in question was not received in kind and therefore the addition on the above said provision cannot be sustained. The decision referred to by the CIT(A) in the impugned order on this issue clearly support the conclusion arrived at by the CIT(A). We therefore do not find any ground to interfere. Consequently the appeal filed by the revenue is dismissed.
14. Ground No.4,5 and 6 raised by the assessee are in relation to addition of Rs.2 crores made by the assessee on account of unexplained share application money. The facts in this regard are that the AO noticed form the perusal of the balance sheet that the assessee has received share application money of Rs.,2 crores. The assessee was asked to give the details of the names and addresses of 10 ITA No.86/Kol/2013& 284/Kol/2013 M/s. Shree Hari Agro Industries Ltd..
A.Yr.2009-10 the share applicants, mode of receipt of share application money, copy of application form etc. According to the AO the assessee had not filed the required details. The AO therefore treated the receipt of share application as expenditure and added the aforesaid sum to the total income of the assessee.
15. Before the CIT(A) the assessee pointed out that a sum of Rs.2 crores had been given as share application money by one M/s. Saurabh Agrotech (P) Ltd who is assessed at Alwar, Rajasthan and also gave the assessment particulars of the share applicant. The CIT(A) called for remand report from the AO on the information provided by the assessee. The AO of the assessee thereupon had written a letter to ACIT, Circle-1 Alwar assessing the share applicant. The ACIT, Circle-1, Alwar in his letter dated 9.10.2012 confirmed that M/s. Saurabh Agrotech (P) Ltd was a regular assessee of his circle having a turnover of Rs.150 crores and that the transaction of share application money given to the assessee of Rs.2 crores is duly reflected in the balance sheet.
16. In the remand report filed by the AO of the assessee before CIT(A) this aspect was not highlighted nor the CIT(A) took cognizance of this letter of ACIT, Circle-1, Alwar. The CIT(A) confirmed the order of the AO by observing that the assessee had not filed the required documents to explain the credit entry satisfactorily. Aggrieved by the order of the CIT(A) the assessee has raised ground nos. 4,5 and 6 before the Tribunal.
17. We have heard the rival submissions. In our view and in the light of the letter of the AO to Saurabjh Agrotech (P) Ltd., a copy of which is placed at pages 32 to 39 of the assessee's paper book No.2, the additions sustained by the CIT(A) deserves to be deleted. It is clear from the evidence that identity, capacity and genuineness of the transaction of the receipt of share application money of the assessee has been clearly established. In fact the additional 11 ITA No.86/Kol/2013& 284/Kol/2013 M/s. Shree Hari Agro Industries Ltd..
A.Yr.2009-10 evidence in the form of confirmation from the share applicant ought to have admitted by the CIT(A) as additional evidence and in the light of the enquiry carried out by the AO which clearly established the receipt of share application money as genuine, the addition ought to have been deleted. We therefore direct that the addition sustained by the CIT(A) in this regard should be deleted. Ground Nos.4 to 6 raised by the assessee are accordingly allowed.
18. Ground nos. 7 and 8 raised by the assessee read as follows :-
"7. That the learned Commissioner of Income Tax (Appeals) has erred in law in confirming the disallowance of Rs.76,07.212 on account of alleged excess consumption of Hexane in Solvent Extraction Plant made by the Assessing Officer despite the fact that the learned Assessing Officer neither rejected the books of accounts nor invoked the provisions of Section 145(3) of the Income Tax Act, 1961.
8. That without prejudice to Ground No.7 above, the learned Commissioner of Income tax (Appeals) has erred in confirming the disallowance of rs.76,07,212 on account of alleged excess consumption of Hexane relying on an unauthenticated report of some unidentified person named Mr. P.J.Rao, and without considering the details, evidences and submissions of the appellant."
19. As far as the aforesaid grounds of appeal raised by the assessee are concerned the facts are that the assessee is in the business of manufacturing of agro products. Hexane is a chemical which is used in the manufacturing process by the assessee. The consumption of hexane by the assessee during the previsous year was 3,46,753 lts. The cost of 1 lt is Rs.37.71 and the total cost incurred by the assessee on use of hexane claims as an expenditure in the Profit and loss account at Rs.96,08,526/-. The AO found that the hexane chemical was used in the process of manufacture of oil from oil cake. This process has to be distinguished from the manufacture of oil from oil seeds. The consumption of oil cake in the process of oil extraction by the assessee during the previous year 12 ITA No.86/Kol/2013& 284/Kol/2013 M/s. Shree Hari Agro Industries Ltd..
A.Yr.2009-10 was 48,149 MT. The consumption of hexane with reference to oil cake consumption was 7.20 lts which worked out as follows :-
3,46,753/ 48,149= 7.20.
20. The AO was of the view that consumption of hexane per MT of oil cake consumed in extraction of oil has to be 1.5 lts. Maximum and the consumption shown by the assessee was excessive. In this regard AO relied on the report of Prof. P.J.Rao, Department of Chemical Engineering , Andhra University, Visakhapatnam who has opined that the consumption of hexane can be a maximum of 1.5 lts. Per MT of oil cake consumption. The AO based on the report of the expert came to the conclusion that the consumption of the hexane shown by the assessee is excessive. The AO thereafter made addition of Rs.76,07,212/- making following observations. :-
"By the above discussion, it is amply clear that the assessee inflated expenses by showing more hexane losses and reduced the profit.
The by-products such as oil cake, which is rich in protein content is having high demand from the pharma, food and cattle feed industry is also misrepresented by showing less sales. Similarly, other chemicals such Caustic soda, acids are also shown as expenditure and corresponding usage is not shown by the assessee's technical and production expertise. The production register, purchase and sales vouchers, stock registers and receipts are not produced before me despite repeated reminders. Therefore, the excess losses/consumption of hexane is determined as under:
Oil cake consumed during the FY 2008-09 : 48,149 MT
Probably consumption/loss of hexane @ 1.5 lt/MT : 72,223.50 litres
Total consumption/loss of hexane claimed by assessee: 3,46,753.00 litres Excess consumption/loss of the hexane : 2,74,529.50 litres In view of the above discussions, there is excess claim of consumption/loss of hexane in the solvent extraction of 2,74,529.50 liters and the corresponding cost of the said excess consumption of hexane is Rs.76,07,212. Therefore Rs.76,07,212 is disallowed and brought to tax, being excess claim of expenses. Since the assessee concealed income by inflating the expenses by showing excess losses/consumption of hexane, 13 ITA No.86/Kol/2013& 284/Kol/2013 M/s. Shree Hari Agro Industries Ltd..
A.Yr.2009-10 penalty proceedings u/s 271(1)(c) of the Income tax Act are separately initiated."
21. On appeal by the assessee the CIT(A) confirmed order of the AO. The CIT(A)'s observations are as follows :-
"After carefully considering the Remand Report of the AO and the rejoinder of the appellant to such report of the AO and perusing the entire facts of the case, this ground of appeal of the appellant regarding the disallowance on account of excess claim of consumption of Hexane in solvent extraction plant is decided against the appellant for the following reasons :-
(i) The AO relying on the opinion of expert has worked out the claim of excess consumption of Hexane of Rs.76,07,212/-. It is not in dispute that the report of expert was provided to the appellant.
(ii) During the assessment proceeding, the appellant ahs not produced stock register etc. required by the AO. Due to dilatory tactics of the appellant, the AO was not able to verify the correctness of consumption of Hexane and hence it is held that the AO was fully justified in relying on the report of expert and working out the excess consumption of Hexane amounting to Rs.76,07,212/-. Accordingly, the addition of Rs/.76,07,212/- made by the AO is confirmed. "
22. Aggrieved by the order of the CIT(A), the Assessee has raised the aforesaid grounds of appeal before the Tribunal.
23. Before us the contention of the ld. Counsel for the assessee was that the books of accounts have not been rejected by the AO u/s.145 of the Act and therefore the impugned addition cannot be sustained. His next submission was that the identity of Prof. P.J.Rao is not clear and the assessee did not have opportunity of cross examination of Prof.P.J.Rao. It was also submitted that consumption of hexane during the previous year compares favourbly with the past history and there was no reason to ignore the past history in assessee's own case. It is also pointed out that the assessee company was a sick company and 14 ITA No.86/Kol/2013& 284/Kol/2013 M/s. Shree Hari Agro Industries Ltd..
A.Yr.2009-10 there was no reason for the assesse to show higher cost of production. The ld. DR, on the other hand, relied on the orders of the AO and CIT(A).
24. We have given a careful consideration to the rival submissions. The provisions of Sec.145 of the Act, reads as follows:
"145. Method of accounting.--(1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.
(2) The Central Government may notify in the Official Gazette from time to time [income computation and disclosure standards] to be followed by any class of assessees or in respect of any class of income.
(3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) [has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub-section (2),] the Assessing Officer may make an assessment in the manner provided in section 144."
The AO did not reject the book results before resorting to an estimation of income. For rejecting the book results, the provisions of Sec.145(3) of the Act requires that the Assessing Officer should be not be satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided u/s.145(1) of the Act or accounting standards as notified under Section 145(2) of the Act have not been regularly followed by the Assessee. The AO has to compute income from business accounting to the books of accounts of the Assessee. It is only when the book results are rejected the question of estimation of income arises for consideration. The AO has to specifically point out the defects in the books or incomplete and incorrectness in the books of accounts and call upon the Assessee as to why the books of accounts should not be rejected.
15 ITA No.86/Kol/2013& 284/Kol/2013M/s. Shree Hari Agro Industries Ltd..
A.Yr.2009-10
25. The above principle is applicable even when the AO doubts the correctness of the claim of expenditure made in the Profit and Loss Account. The AO has not doubted the purchase of Hexane. He has indulged in a guess work regarding the quantity of Hexane that is to be consumed in the process of manufacture of oil from oil cake. The AO has done this on the basis of a report of an expert. As to whether the report of the expert can be applied to all manufacturers of oil from oil cake and as to whether these are ideal quantity of consumption, is not spelt out in the order of the AO. The entries in the regular books of accounts which are duly audited have not been shown to be suffering from any infirmities. The past history of consumption of Hexane compares favourably with the consumption in the past and the AO has nothing to say about the past history. No such addition has been made in the past. In such circumstances, we are of the view that the addition made by the AO and confirmed by the CIT(A) was without any basis and cannot be sustained. We therefore direct that the addition made in this regard be deleted. The relevant grounds of appeal of the Assessee are allowed. In view of the above conclusion, we have not considered the additional evidence filed by the Assessee in the form of report of another expert supporting the consumption of hexane by the Assessee.
26. In the result the appeal by the Revenue is dismissed while the appeal by the Assessee is partly allowed.
Order pronounced in the court on 16.10.2015.
Sd/- Sd/- [Waseem Ahmed] [N.V.Vasudevan] Accountant Member Judicial Member Date: 16.10.2015. R.G.(.P.S.) 16 ITA No.86/Kol/2013& 284/Kol/2013 M/s. Shree Hari Agro Industries Ltd.. A.Yr.2009-10 Copy of the order forwarded to:
1. M/s. Shree Hari Agro Industries Ltd., M.C.Jagwayan & Co., Chartered Accountants, 46, Kali Krishna tagore Street, 2nd Floor, Kolkata-700007.
2 The D.C.I.T., Circle-9, Kolkata.
3. The CIT-III, Kolkata, 4. The CIT(A)-VIII, Kolkata.
5. DR, Kolkata Benches, Kolkata True Copy, By order, Deputy /Asst. Registrar, ITAT, Kolkata Benches