This is a bunch of three appeals and a cross -objection-two appeals filed by the assessee and one appeal and a cross-objection filed by the revenue, directed against two orders of Commissioner (Appeals), Patiala for the assessment years 1991-92 and 1992-93. Since the issues involved in these appeals and the cross-objection are common and interconnected, these were heard together and are being disposed of by this consolidated order for the sake of convenience.
First we deal with the cross-objection filed by the revenue for the assessment year 1991-92 and the cross-appeals filed by the revenue and the assessee against two orders of Commissioner (Appeals) for the assessment year 1992-93. In the cross-objection, the revenue has taken the following grounds : "1. That the learned Commissioner (Appeals), Patiala, has wrongly and illegally deleted the additions of Rs. 7,69,269 on account of inflation in the consumption of nickel catalyst.
2. That the learned Commissioner (Appeals), Patiala, has erred on facts and in law in deleting the addition of Rs. 60,000 made on account of disallowance of a part of advertisement and publicity expenses.
3. That the learned Commissioner (Appeals), Patiala, has further wrongly and illegally deleted the addition of Rs. 22,72,920 made on account of suppression of yield.4. While deleting the additions at Serial Nos. 1, 2, 3 above, the learned Commissioner (Appeals), Patiala, has simply gone by the assessee's contention in complete disregard of the facts and evidence available on record.
5. That the learned Commissioner (Appeals), Patiala, has erred in law in ignoring the conduct of the assessee in the earlier assessment years and in the subsequent assessment year as discussed in details in the assessment year. That the past and subsequent history of the case is ignored by the learned Commissioner (Appeals), Patiala." In the appeal filed by the revenue for the assessment year 1992-93, it has raised the following grounds : "1. That the learned Commissioner (Appeals), Patiala, has erred both in law and on facts in deleting the addition of Rs. 13,71,954 made by the assessing officer on account of excessive consumption of nickel catalyst.
2. The learned Commissioner (Appeals) further erred in law and on facts in deleting the addition of Rs. 6,73,326 made by the assessing officer on account of suppression in the sale of 'oxygen gas'.
3. While allowing the reliefs at 1 and 2 above, the learned Commissioner (Appeals) misdirected himself in simply accepting the assessee's contentions in complete disregard of the correct, legal and factual position brought out by the assessing officer on assessee's case records to the effect that the additions made by the assessing officer were based on the actual figures of production of ghee vis-a-vis the consumption of nickel catalyst required for that production and the 'oxygen gas' resulting from such production.
4. The learned Commissioner (Appeals) has also erred in law and on facts in reducing the addition made by the assessing officer unaccounted for sales and suppression.of yield of vanaspati.
5. While allowing relief at (4) above, the learned Commissioner (Appeals) was influenced by the assessee's arguments only disregarding the legal and factual position available on records to the effect that after having upheld application of section 145(2) based upon unaccounted for sale detected by the Sales-Tax Department on which the addition made by the assessing officer, was based, there was no justification with the Commissioner (Appeals) to disturb the assessing officer's working which in turn was supported by actual figures of sales outside the books of accounts." The assessee has raised the following grounds in its appeal for the assessment year 1992-93 : 2. That the learned appellate authority wrongly and illegally confirmed the rejection of books of accounts under section 145(2) against the facts and circumstances of the case and has considered irrelevant material and ignored the relevant material.
3. That the learned appellate authority wrongly and illegally confirmed the addition of Rs. 15,50,306 besides being highly excessive, arbitrary and unjustified on the facts of the case.
4. That there is no justification for the learned appellate authority in rejecting the yield and GP rate shown by the appellant and consequently confirming the addition of Rs. 15,50,306 by adopting higher yield of 93.13 per cent without any basis and material on record and erred in ignoring the fact that variation of yield in different years had been accepted in past and appellant's result are better in comparison of other cases.
5. That the explanation and evidence furnished by appellant in support of yield and gross profit rate either have not been considered or has been rejected without reason.
6. That the learned appellate authority failed to consider the fact that the inspection/search by central enforcement wing of excise and taxation office, Patiala, and consequently seizure of alleged documents and books are illegal, invalid and incorrect in as much as neither the search warrant were issued or served nor punchnama was prepared or no statement was recorded and as such no legal or valid presumption of correctness of the alleged four invoices of Rs. 4,98,939 could be taken without any corroborative evidence particularly in view of total turnover of about Rs. 30 crores.
7. Without prejudice even the addition of Rs. 15,50,306 is highly excessive and arbitrary merely on the basis of alleged four invoices of Rs. 4,98,939 against the total turnover of Rs. 30 crores.
8. That the levy of interest under sections 234B and 234C is wrong and illegal particularly when the delay of two years in finalising the assessment is not at all attributable to the appellant.
9. That the appellant craves permission to amend, alter, add or delete any ground of appeal at the time of hearing.
It is, therefore, prayed that appeal may kindly be accepted and addition of Rs. 15,50,306 may wholly be deleted or any other relief to which the appellant may be found entitled may kindly be granted." In nutshell, revenue is aggrieved by deletion of additions of Rs. 7,59,259 on account of excess consumption of nickel catalyst, Rs. 22,72,920 on account of suppression of yield and low GP and deletion of disallowance of Rs. 60,000 out of advertisement and publicity expenses for the assessment year 1991-92. As regards assessment year 1992-93, revenue is aggrieved with the order of the Commissioner (Appeals) in deleting the addition of Rs. 13,71,954 made on account of excessive consumption of nickel catalyst, Rs. 6,73,326 on account of suppression of sales of oxygen gas and reducing the addition from Rs. 66,16,865 to Rs. 15,50,306 made on account of suppression of unaccounted sale for the assessment year 1992-93. The assessee is also aggrieved with the order of the Commissioner (Appeals) in confirming the finding of the assessing officer about rejecting the books of accounts under section 145(2) for the assessment year 1992-93.
The assessee derived income from manufacture and sale of vanaspati ghee, rice bran oil (hard), rice bran oil (Soft), washing soaps and various by-products. The facts and background of the case and the reasons given by the assessing officer for making the aforesaid additions are summarized as under : (i) The assessing officer observed that in the assessment years under reference, there was substantial fall in GP rate as also the yield of vanaspati ghee. The details are as under Thus, the assessing officer observed that there was a gradual fall in the GP rate and yield of vanaspati ghee. He also observed that assessee's explanation that there was increase in the yield of by-products was without any basis as the assessee had admitted that yield of by-products was shown on the basis of experience. There was no evidence to support the claim of the assessee.
(ii) The assessing officer observed that in both the assessment years, the assessee had shown excessive consumption of electricity. The assessee had shown consumption of 49,67,016 units and 50,85,071 units of electricity for the assessment years 1991-92 and 1992-93, respectively. The same worked out to 477 units and 543 units of electricity per MT of oil consumed for the assessment years 1991-92 and 1992-93, respectively, as against consumption of 270 units, 312 units and 388 units of electricity per MT of oil for the assessment years 1986-87, 1987-88 and 1988-89, respectively. The assessing officer also observed that a Government- owned company, namely, Markfed Vanaspati & Allied Industries, Khanna, had shown average consumption of 350 units and 357 units of electricity per MT of oil consumed for the assessment years 1990-91 and 1991-92, respectively. He further observed that such consumption of electricity was also very erratic in the various months for which no satisfactory explanation was submitted.
(iii) The assessee had shown excessive consumption of nickel catelyst at 1.026 kg and 1.340 kg per MT of oil for the assessment years 1990-91 and 1991-92 as against consumption of 0.442 kg of nickel catalyst per MT of oil for the assessment year 1986-87. The assessing officer further observed that there was wide variation in the consumption of nickel catalyst in various months, which varied from 0.319 kg to 1.607 kg in the assessment year 1991-92 and 0.273 kg to 3.597 kg for the assessment year 1991-93. Thus, the assessing officer concluded that the assessee had inflated the consumption of nickel catalyst for both the assessment years.
(iv) The assessee has not maintained any separate accounts for the expenses relatable to different units.
(v) Survey was conducted at the business premises of the assessee on 10-10-1988, which resulted in detection of incriminating documents showing unaccounted sales and other unaccounted transactions. As a result, the assessee disclosed income of Rs. 23.5 lakhs, Rs. 7.5 lakhs and Rs. 4 lakhs for the assessment year 1986-87, 1987-88 and 1988-89, respectively. Thus, the assessing officer concluded that the past history of the case showed that assessee had been effecting sales outside the books of accounts.
(vi) On 23-1-1993, Central Enforcement Wing of Excise & Taxation department, Patiala, inspected the office premises and seized certain documents. The same revealed unaccounted sales of vanaspati ghee amounting to Rs. 5 lakhs and soap amounting to Rs. 40,000 for the assessment year 1992-93.
Thus, in view of the excessive consumption of nickel catalyst and electricity coupled with low GP and low yield, the past history of the case resulting in detection of unaccounted income and inspection carried out by the central enforcement wing of Excise & Taxation Office, Patiala, indicating unaccounted sales of vanaspati ghee, and soap, the assessing officer came to the conclusion that books of accounts were not correct and liable to be rejected. The assessing officer thus rejected the book results and estimated the income for both the assessment years under consideration by resorting to provisions of section 145(2) of the Income Tax Act.
For the assessment year 1991-92, the assessing officer observed that assessee had shown excess consumption of nickel catalyst as compared to assessment year 1986-87. Therefore, the assessing officer considered the consumption of 0.450 kg of nickel catalyst for processing one metric ton of oil on the basis of 0.442 kg of nickel catalyst/MT of oil for the assessment year 1986-87 as reasonable and worked out the actual consumption of 4048 kgs as against shown at 9225 kgs. Taking the average cost of nickel at Rs. 146.66 per kg, the assessing officer worked out the addition at Rs. 7,59,259 (5177 x 146.66) for the assessment year 1991-92. As regards assessment year 1992-93, the assessing officer worked out the addition at Rs. 13,71,954 on account of excess consumption of nickel catalyst. Similarly, the assessing officer adopted the yield of vanaspati ghee at 94 per cent for the assessment year 1991-92 and thereby worked out the yield of vanaspati ghee at 8455 MT as against the yield shown at 8377 MT. Thus, the assessing officer observed that the assessee had suppressed the yield of 78 MT of vanaspati (8455-8377) for the assessment year 1991-92. By taking the average rate at Rs. 29,140 per MT, the assessing officer made an addition of Rs. 22,72,920 on account of suppression of yield for the assessment year 1991-92. The assessing officer further observed that in this manner, the GP rate worked out to 6.15 per cent as against 6.11 per cent for assessment year 1990-91 and 7.17 per cent for the assessment year 1989-90, which, according to him, was fair and reasonable.
As regards assessment year 1992-93, the assessing officer observed that documents found during the course of survey carried out by the central enforcement wing of excise & taxation office, Patiala,, clearly indicated suppression of sales of vanaspati to the extent of Rs. 5 lakhs, which was reflected in the sale vouchers found but not disclosed in the regular books of accounts. He further observed that documents found indicated 53 sale vouchers where original and duplicate copies were taken but after making the sales and only one copy out of the three kept blank was retained. Since no amount was mentioned in the third copy, the assessing officer worked out the average sale per bill based on four bills indicating sales of Rs. 4,99,386. By taking the average value per bill and multiplying the same with 53, the assessing officer worked out the total unaccounted sale of vanaspati ghee at Rs. 66,16,865. He also observed that after including the amount of Rs. 66,16,865, the yield percentage worked out to 94.91 per cent which was the yield for the earlier assessment years.
Besides the aforesaid additions made for the assessment year 1992-93, the assessing officer also observed that the assessee had installed capacity of oxygen gas of 50 MT per day. He observed that oxygen gas was a precious product and the same was sold at Rs. 54 per cyclinder.
He observed that the ratio of production of oxygen gas and ghee per mertic ton was 1:3. Thus, the assessee had suppressed sales of oxygen gas amounting to Rs. 6,73,326.
Aggrieved, the assessee impugned the above additions in appeal before the Commissioner (Appeals) for both the assessment years. It was submitted before the Commissioner (Appeals) that the assessee had maintained complete books of accounts. No specific defects in the same had been pointed out by the assessing officer. All the purchases and sales were duly recorded and fully vouched. It was submitted that the various queries raised by the assessing officer were duly replied and explained. As regards low yield, it was submitted before the Commissioner (Appeals) that the assessing officer had conveniently overlooked the yield for the assessment year 1990-91, where yield of 92.78 per cent was declared and accepted by the assessing officer. As against this, the yield for the assessment year 1991-92 was 93.13 per cent and for the assessment year 1992-93 it was 92.57 per cent. It was also submitted that the yield depended on several factors such as quality of oil, the presence of FFA, moisture contents, sediments, colour and refractive index of oil besides, operational conditions and human factors. Thus, it could never remain the same. It was submitted that the observation made by the assessing officer for the excessive consumption of nickel catalyst was also not correct. In fact, in the immediately preceding assessment year 1990-91, the assessee had shown consumption of nickel catalyst at 1.337 kg per MT. As against this, the consumption of nickel catalyst for the assessment year 1991-92 and 1992-93 was 1.260 kg and 1.340 kg per MT, respectively. The assessing officer had wrongly compared the case of the assessee with the consumption for the assessment year 1986-87 overlooking the consumption for the assessment year 1990-91, which was accepted by the assessing officer. It was further submitted that consumption of nickel catalyst depended on several factors like quality of oil consumed, hydrogenation, reaction conditions, operational conditions, quality and concentration of nickel catalyst, human factors, etc. Evidence was also placed before Commissioner (Appeals) to show that consumption of nickel catalyst varied from 1 kg to 1.5 kg per MT depending upon melting point of vanaspati and temperature condition, pressure and quality of nickel catalyst. It was also submitted that the quality varied in regard to nature of oil used i.e., rapeseed oil, sunflower, rice bran, cottonseed etc. It was submitted that earlier, the assessee used to get palm oil from the Government which was better in quality. However, the supply of the same was not made by the Government in the assessment years under reference. It was submitted that in the assessment year 1987-88, the assessee had used cottonseed oil only to the extent of 35.12 per cent, in assessment year 1988-89 it was 12.48 per cent, in assessment year 1989-90 it was 45.02 per cent, in assessment year 1990-91 it was 56.18 per cent and in assessment year 1991-92 it was 60.19 per cent. The reasons for the variation in the consumption of electricity were also explained. As regards fall in GP rate, the assessee had explained that in the accounting year relevant to assessment year 1991-92, the input and raw material cost had gone up by 42 per cent. As against the same, the sale price had increased by 36 per cent. Thus, there was a fall in G.P. It was, therefore, contended that the assessing officer was not justified in rejecting the book results merely on account of low yield, low GP rate, etc. Accepting the contentions of the assessee, the Commissioner (Appeals) held that for the assessment year 1991-92, there were no valid reasons for rejecting the book results. As regards assessment year 1992-93, the documents found during the course of inspection carried out by the central enforcement wing of excise & taxation office, Patiala, had revealed sales outside the books of accounts. Therefore, the learned Commissioner (Appeals) held that rejection of book results for the assessment year 1992-93 was justified.
As regards specific additions made by the assessing officer for the assessment years 1991-92 and 1992-93, learned Commissioner (Appeals) held that no addition on account of excessive consumption of nickel catalyst was called for in view of the fact that for the assessment year 1990-91, the assessee had shown consumption of nickel catalyst at 1.337 kg per MT which was higher than the consumption shown for the assessment year 1991-92 and the same had been accepted by the assessing officer. The assessee had produced necessary evidence and explained the reasons for variation in such consumption. As mentioned above, the variation was due to different varieties of oil used by the assessee.
All purchases and sales of nickel catalyst were fully vouched. This being an excisable commodity, the assessee had maintained complete record as prescribed by the Excise department. The assessee had duly accounted for spent catalyst, which remained after use. Comparison of assessee's case with that of Markfed Vanaspati & Allied Industries, Khanna was wholly unjustified as the facts were not confronted to the assessee. Even in that case, the consumption of nickel catalyst amounted to 0.77 kg per MT. Thus, learned Commissioner (Appeals) deleted the addition of Rs. 7,59,259 made on this account.
For the same reasons, learned Commissioner (Appeals) deleted the addition of Rs. 13,71,954 made for the assessment year 1992-93 on account of excessive consumption of nickel catalyst.
As regards addition made on account of low yield of Vanaspati for the assessment year 1991-92, learned Commissioner (Appeals) deleted the same on the ground that the assessee had maintained complete books of accounts and even yield shown for the assessment year 1991-92 at 93.13 per cent was higher when compared with the yield of 92.78 per cent for assessment year 1990-91 and 93.04 per cent for assessment year 1989-90.
The learned Commissioner (Appeals) also relied on the decision of Tribunal Chandigarh Bench, in assessee's own case for the assessment year 1985-86 where the Tribunal has held that when yield of vanaspati ghee was higher than what was shown by the assessee and, accepted by the revenue in the immediately preceding year, no addition for alleged suppression of vanaspati ghee could be made. The Tribunal further held that when no defect at all had been pointed out in the books of accounts, no addition could be made even if the yield is slightly low.
As regards fall in GP, the assessee had duly explained the reasons to be due to increase in the input cost corresponding increase in the sale price. The assessing officer has not controverted such reasons given by the assessee.
As regards assessment year 1992-93, learned Commissioner (Appeals) observed that the evidence found during the course of inspection by the Excise & Taxation department clearly indicated suppression of sales.
Therefore, addition on this account was called for. However, learned Commissioner (Appeals) observed that the addition made by the assessing officer was excessive. He observed that for the assessment year 1991-92, the yield of 93.13 per cent per MT had been accepted by him in his appellate order. Therefore, the yield for this assessment year should also be taken at 93.13 per cent. In this manner, learned Commissioner (Appeals) reduced the addition from Rs. 66,16,865 to Rs. 15,50,000.
As regards condition of Rs. 6,73,326 made by the assessing officer on account of suppression of sales of oxygen gas, learned Commissioner (Appeals) observed that the assessing officer was not correct in assuming the production of 3 cylinders of oxygen gas per MT of vanaspati ghee produced. He observed that production of oxygen gas cannot be co-related with the production of vanaspati ghee. In view of the limited storage facility and the heavy cost of cylinders, it was not economically viable. He further observed that in the assessment year 1987-88, the assessee had manufactured 10,049.60 MT of vanaspati ghee. But the production of oxygen gas was only 36 cylinders. In the assessment year 1988-89, it was 10,049.67 MT and the production of oxygen gas was 6,365 cyhnders. In assessment year 1989-90, the production of vanaspati ghee was 634.495 MT and oxygen gas was 4759 cylinders. In assessment year 1990-91, production of vanaspati ghee was 10145 MT and production of oxygen gas was 11,336 cylinders. In assessment years 1991-92 and 199293, the production of vanaspati ghee was 8367.783 MT and 7840.058 MT and production of oxygen gas was 13,735 and 12,334 cylinders, respectively. These figures indicated that production of oxygen gas was not directly related to production of vanaspati ghee. Moreover, the production for the assessment years 1991-92 and 1992-93 was better than earlier assessment years. Thus, there was no justification for making the addition of Rs. 6,73,326. The learned Commissioner (Appeals) accordingly deleted the impugned addition. Both the revenue and the assessee are aggrieved with the orders of learned Commissioner (Appeals) for the assessment year 1992-93 and revenue is also aggrieved with the order of the Commissioner (Appeals) for the assessment year 1991-92 in regard to deletion of aforesaid additions.
The learned departmental Representative, Smt. Geet Mala, heavily relied on the order of assessing officer for making the addition of Rs. 7,59,269 on account of excessive consumption of nickel catalyst and also addition of Rs. 22,72,920 on account of suppression of yield. She drew our attention to the various reasons given by the assessing officer in the assessment order for making the addition of Rs. 7,59,269. She submitted that not only the consumption of nickel catalyst was found much higher but also the same was highly erratic in various months. She drew our attention to para 3.2 of the assessment order, where the consumption of nickel catalyst for the month of February was shown at 0.319 kg. per MT and the same was shown at 1.607 kg for the month of June and 1.430 kg for the month of April. Thus, she submitted that there was huge variation in the consumption of nickel catalyst in various months. She further submitted that for the assessment years 1991-92 and 1992-93, the assessee had also shown excessive consumption of electricity. She particularly referred to the figures of electricity consumption given by the assessing officer in the assessment orders as compared to the units of electricity consumed in the earlier assessment years. Thus, she submitted that the assessing officer was justified in making the addition of Rs. 7,59,269 on account of excessive consumption of nickel catalyst for the assessment year 1991-92. She drew our attention to para 3.2 of Commissioner (Appeals)'s order where he has observed that in the assessment year 1990-91, the consumption of nickel catalyst @ 1.337 kg per MT had been shown and accepted by the revenue. The mere fact that higher consumption of nickel catalyst was accepted in the earlier assessment year would not lead to the conclusion that no addition could be made in the subsequent year, more so when there was fall in the GP rate and yield. Besides, the assessee had not maintained separate accounts of expenses relatable to different units. No bifurcation of the power consumed for manufacture of vanaspati ghee, hard oil and soap had been maintained.
Thus, she submitted that the addition in this regard was fully justified.
As regards addition of Rs. 22,72,920 made on account of suppression of yield, the learned Departmental Representative drew our attention to the relevant pages of the assessment order. She submitted that for the assessment year 1991-92, there was substantial fall in the GP rate as compared to earlier assessment years. There was excessive consumption of electricity. Survey carried out in 1988 revealed suppression of sales and detection of undisclosed income of Rs. 23.5 lakhs, Rs. 7.5 lakhs and Rs. 4 lakhs for the assessment years 1986-87, 1987-88 and 1988-89, respectively. Further, inspection carried out by the Excise & Taxation department, Patiala, revealed undisclosed sales of vanaspati ghee amounting to Rs. 5 lakhs and soap to the tune of Rs. 40,000. Thus, the past history of the case and the facts revealed for the assessment year 1992-93 established that the assessee had been indulging in tax evasion by not recording all sales in its books of accounts. She further submitted that the assessing officer had only taken the yield at 94 per cent for making the impugned addition. Drawing our attention to the written submissions filed by the revenue, she submitted that the yield shown for the assessment years 1986-87, 1987-88 and 1988-89, varied from 94.6 per cent to 96.8 per cent. Thus, the yield taken by the assessing officer at 94 per cent was most fair and reasonable and GP rate thereon also worked out to 6.15 per cent, which was almost near to the GP rate of 6.11 per cent for the assessment year 1990-91. She also relied on the following judgments : Where the rate applied to assessee's case for the earlier assessment years was treated as comparable and reasonable for the purpose of estimating assessee's income.
In this case, the assessee had not maintained accounts in the regular course of business. The assessing officer rejected the book results and estimated the income by applying a flat rate of turnover to ascertain profit as in earlier year. Such action of the assessing officer was upheld by the High Court with the observation that after rejecting the books of accounts, the assessing officer can estimate the profit upon such basis and in such manner as he thinks proper and it was open to him in adopting flat rate of profit on the sales as adopted in the earlier year. : Where rejection of accounts was upheld on the ground that books of accounts were not reliable and there was no reason for steep fall in GP estimation of income by applying flat rate was also confirmed.
Relying on the judgment of Delhi High Court in the case of Sohan Singh v. CIT (1986) 158 ITR 174 (Del), the learned Departmental Representative submitted that principle of estoppel does not apply to income tax proceedings. Similar submissions were made for the assessment year 1992-93.
The learned counsel for the assessee, Shri Sudhir Sehgal, raised legal objections to the maintainability of the cross- objection. He submitted that revenue did not file an appeal within the time allowed. It filed only cross-objection arising out of the appeal filed by the assessee on altogether a separate issue, He submitted that filing of cross-objection was not authorized by the Commissioner and hence it should not be maintained. He further submitted that for the assessment year 1991-92, the assessing officer had made the addition by rejecting the book results. The learned Commissioner (Appeals) has held that on the facts of the case, rejection of book results was not valid. Revenue has not taken a specific ground in regard to such finding of learned Commissioner (Appeals). Therefore, such finding has become final.
Consequently, no addition on account of excessive consumption of nickel catalyst and low yield could be made. He further reiterated all the submissions, which were made before the authorities below. He submitted that assessee had maintained complete books of accounts and all purchases and sales were recorded and fully vouched. The assessing officer had not pointed out any defects in the books of accounts, The very fact that in the assessment years 1986-87, 1987-88 and 1988-89, the assessee had disclosed income based on survey action carried out by the department does not mean that books of accounts could be rejected for all the years to come. He further drew our attention to page 14 of the paper book, which shows that the yield of vanaspati was 93.13 per cent for the assessment year 1991-92. He drew our attention to page 15 of the paper book, which shows the yield of vanaspati at 92.78 per cent for the assessment year 1990-91 and page 16 of the paper book, which shows the yield at 93.04 per cent for the assessment year 1989-90. He submitted that the yield shown by the assessee for the assessment year 1990-91 was accepted by the assessing officer and the assessment for the assessment year 1990-91 was completed under section 143(3) of the Income Tax Act. A copy of the order is placed at pages 44E to 44K of the paper book. Thus, the assessee had shown better results as compared to earlier assessment years. As regards consumption of nickel catalyst, the learned counsel reiterated the submissions, which were made before the authorities below. He submitted that the consumption of nickel catalyst varied due to several factors such as quality of oil, type of oil, FF contents, moisture, colour, etc. He drew our attention to pages 1 to 6 of the paper book. He further submitted that the consumption of nickel catalyst for assessment year 1991-92 was lower than the consumption of nickel catalyst for the assessment year 1990-91. He further submitted that earlier the assessee used to get palm oil from the Government which was of superior quality and consumed lesser quantity of nickel catalyst, but such supply was stopped by the Government and the assessee had to use cottonseed oil and other varieties of oil. He further submitted that additions on account of low yield and excessive consumption of nickel catalyst cannot be made. He submitted that comparison of assessee's case with that of Markfed Vanaspati & Allied Industries, Khanna was not correct as the assessee was not confronted with the facts thereof. He relied on the following judgments Where it has been held that oral evidence of witness relied on by the Income Tax authorities without allowing an opportunity to the assessee to cross-examine the witness violated the principles of natural justice. Comparative instances of other assessees in the same business supplied by the assessee deserve to be considered by the assessing officer.
Where it has been held that addition made by relying on certain documents without affording an opportunity to the assessee to rebut the material contained in these documents was not proper.Gadireddy Peda Narasimhalu Naidu & Sons v. CIT (1952) 21 ITR 70 (Mad).
Where it was held that the assessee was entitled to get such of the information regarding the comparable cases as could possibly be disclosed by the department with a view to apprise him on the basis of which the estimate was made, but it was not entitled to information regarding the business of those assessees whose profits were taken as the standard of comparison.
Thus, the learned counsel submitted that learned Commissioner (Appeals) was fully justified in deleting the additions for the assessment year 1991-92.
As regards assessment year 1992-93, the learned counsel reiterated the same submissions, which were made before the authorities below. He submitted that during the course of inspection by the Excise & Taxation department, certain vouchers indicating undisclosed sales were found.
The assessee disclosed such sales amounting to Rs. 4,32,364 to the Central Excise department under the KVSS, 1998. He placed a copy of the order dated 5-6-1998, of the Deputy Commissioner Central Excise, Jalandhar, where value of Rs. 4,32,364 under the KVSS, 1998, was accepted by the central excise authorities. He submitted that in case it is held that addition for the assessment year 1992-93 was called for, the addition should only be made to the extent of Rs. 4,32,364.
As regards deletion of addition on account of suppression of sales of oxygen gas, he relied on the order of the Commissioner (Appeals).
The learned Departmental Representative stated ' in rebuttal that as per provisions of section 253(4) of the Income Tax Act, the assessing officer is empowered to file crossobjection within a period of 30 days of the receipt of the notice of an appeal filed by the assessee and such cross-objection is required to be disposed of by the Tribunal as if it were an appeal presented within the time specified in sub-section (3). She submitted that there is no restriction on the authority of the assessing officer in filing a cross-objection and, therefore, it has to be treated and disposed of like an appeal. She relied on the judgment of Bombay High Court in the case reported in (1981) 131 ITR 357 (there is no such judgment in this ITR). However, she submitted that section 253(4) confers an independent right of appeal on the assessing officer and, therefore, the objection raised by the learned counsel was not correct. She further submitted that principle of estoppel does not apply to income-tax proceedings.
We have heard both the parties and given our utmost consideration to the rival submissions. We have also examined the facts, evidence and material on record. We have also perused the orders of the authorities below and referred to the various judgments cited by both the parties at the Bar. As regards the first objection of the learned counsel about maintainability of cross-objection for the assessment year 1991-92, we do not find any substance in the submission of the learned counsel. The provisions of sub-section (4) of section 253 read as under : "(4) The assessing officer or the assessee, as the case may be on receipt of notice that an appeal against the order of the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) has been preferred under sub-section (1) or sub-section (2) by the other party, may, notwithstanding that he may not have appealed against such order or any part thereof, within thirty days of the receipt of the notice, file a memorandum of cross- objections, verified in the prescribed manner, against any part of the order of the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals), and such memorandum shall be disposed of by the Tribunal as if it were an appeal presented within the time specified in sub-section (3). " A bare reading of the sub-section (4) shows that the assessing officer or the assessee has unrestricted right to file cross-objection, on receipt of notice for appeal filed against the order of first appellate authority by either of the parties. Such cross-objection is required to be filed within a period of thirty days of the receipt of notice. It is not the case of the assessee that the cross-objection was filed beyond time allowed of 30 days of service of notice. The Tribunal is required to dispose of such cross-objection as if it were an appeal presented within the time prescribed under sub-section (3) of section 254. Thus, the objection raised by the learned counsel is rejected being devoid of any merit.
We also do not find any substance in the submission of the learned counsel that since the revenue has not raised a specific ground with regard to the finding recorded by learned Commissioner (Appeals) that on the facts of the case, book results were not liable to be rejected the additions deleted by learned Commissioner (Appeals) could not be subject-matter of appeal. The assessing officer has no doubt made the addition by rejecting the book results for the assessment year 1991-92, learned Commissioner (Appeals) has not deleted the addition purely on the ground that book results were not liable to be rejected. The learned Commissioner (Appeals) has held that even on merits, the additions were not called for. In any case, the revenue has raised specific grounds for deleting the additions. Therefore, the cross-objection of the assessee cannot be dismissed purely on this ground alone.
The next issue that requires to be considered by this bench is, whether Commissioner (Appeals) was justified in deleting the impugned additions for the assessment year 1991-92 The facts detailed above clearly show that assessee had maintained complete books of accounts. All purchases and sales were duly recorded in the books of accounts and were fully vouched. The assessing officer has not pointed out any defect in the maintenance of books of accounts for the assessment year 1991-92. There is not even a single instance indicating suppression of sales or purchases made outside the books of accounts. As regards the finding of the assessing officer in regard to low yield for the assessment year 1991-92, we find that the yield shown by the assessee for the assessment year 1991-92 was higher than the yield shown by the assessee for the assessment year 1990-91. The assessment for the assessment year 1990-91 had also been completed under section 143(3). Therefore, the assessing officer was in error in comparing the yield of the assessee for the assessment year 1991-92 with that of assessment year 1987-88.
As regards excessive consumption of nickel catalyst, the assessee had again explained the reasons for such variations depending upon type of oil, quality of oil and several other factors mentioned above. All the purchases of nickel catalyst were duly reflected in the books of accounts and vouched. No defect in the purchase vouchers has been pointed out. Further, the consumption of nickel catalyst for the assessment year 1991-92 was lower than the consumption of nickel catalyst for the assessment year 1990-91 for which the assessment had been completed by the assessing officer under section 143(3).
Therefore, this could also not be the ground for rejecting the book results.
As regards fall in GP rate, the assessee had explained the reasons for the same. The assessee had stated that the cost of inputs and raw materials had increased by 42 per cent. As against the same, the increase in the sale price was only 36 per cent. It was further explained that profit on sale per kg was higher as compared to earlier year. But the fall in GP was due to increase in cost of inputs without matching increase in the sale price. The explanation of the assessee was summarily rejected by the assessing officer without making any further examination about the submissions of the assessee by calling for the bills and vouchers of the comparative cost and comparative sale price of both the assessment years.
As regards survey carried out in the year 1988 resulting in deletion of undisclosed income by way of suppressed sales, which was also admitted by the assessee, and the inspection carried out by the Central Excise department in January, 1993, we observe that none of the transactions relate to the assessment year 1991-92. Therefore, books of accounts cannot be rejected merely by relying on the past history and the subsequent developments without pointing out any defects in the maintenance of books of accounts or the method of accounting followed by the assessee. In any case, excessive consumption of raw material or low GP could only be grounds for making indepth inquiries, yet these could not by themselves be grounds for rejecting the book results in the absence of any specific defects having been pointed out in the books of accounts. This view also finds support from the order of the Tribunal for the assessment year 1985-86 as extracted on page 9 of the impugned order, where the Tribunal has held that where the yield of vanaspati is higher than what was shown by the assessee and accepted by the revenue in the immediately preceding year, an addition for alleged suppression of Vanaspati Ghee could not be made. When no defects have at all been pointed out in the books of accounts, no addition could be made even if the yield is slightly low. The learned Departmental Representative emphatically argued that past records of the assessee could be referred to for estimating assessee's income for the subsequent assessment year. She has relied on the various judgments referred to and discussed above in the preceding paragraphs. We are in full agreement with the learned Departmental Representative that past records of the assessee serve as a good guide for estimating the income of the assessee. But need for referring to the past records would arise only if it is held that on the basis of facts and circumstances of the case, the books of accounts were liable to be rejected. In a case where it is held that books of accounts were not liable to be rejected, no estimate of income could be made by merely referring to the past records of the assessee. Thus, in the light of these facts and circumstances of the case and in the absence of specific defects having been pointed out in the books of accounts of the assessee, we are of the considered opinion that the Commissioner (Appeals) was justified in holding that book results could not be rejected. As regards quantum of addition made on account of excessive consumption of nickel catalyst and low yield for the assessment year 1991-92, we have already pointed out that yield shown by the assessee for the assessment year under reference and consumption of nickel catalyst were favourable as compared to assessment year 1990-91 for which the assessment had been completed under section 143(3). Thus, we do not find any merit in the additions made by the assessing officer on account of excessive consumption of nickel catalyst and low yield of vanaspati. Learned Commissioner (Appeals) has rightly deleted these additions for the assessment year 1991-92. We confirm the order of the Commissioner (Appeals) and dismiss the respective grounds of appeal of the revenue for the assessment year 1991-92.
As regards assessment year 1992-93, we find that facts of the case are clearly distinguishable from the facts of the case for the assessment year 1991-92. As mentioned above, the central enforcement wing of the Excise department carried out inspection at the premises of the assessee on 23-1-1993. During the course of such inspection, certain documents and vouchers were found, which clearly indicated suppressed sale of vanaspati amounting to Rs. 4,98,939. In addition, single copy of blank 53 vouchers was also found. The same indicated that assessee had taken out other two copies of the same vouchers for making unaccounted sales. These four bills indicating the sales of vanaspati included the amount of sales-tax and surcharge collected from the purchasers. Besides, the same director who had signed the other regular vouchers also signed these. The investigation made by the assessing officer is detailed on pages 8 to 16 of the assessment order. Further, the assessee also disclosed sales covered by these four vouchers before the Central Excise department under the KVSS, 1998, admitting sales of Rs. 4,32,364. Thus, detection of such evidence and admission of the assessee clearly prove that assessee had not accounted for all the sale~s in the regular books of accounts. Therefore, the assessing officer was justified in rejecting the book results and learned Commissioner (Appeals) was also justified in sustaining such action of the assessing officer. We confirm the finding of learned Commissioner (Appeals) in this regard and dismiss this ground of appeal of the assessee for the assessment year 1992-93.
The next question that requires to be decided for the assessment year 1992-93 is about estimation of income after rejecting the book results.
Even if the book results are rejected, the assessing officer is dutybound to make a fair and reasonable estimate of income based on evidence and material on record. The assessing officer cannot make an arbitrary and unreasonable estimate of income, which is not based on material and evidence on record. The assessing officer has made addition of Rs. 66,16,865 on account of suppressed sales of vanaspati.
The basis adopted by the assessing officer is that he has taken the average of 4 bills showing sales aggregating to Rs. 4,99,386 and thereafter multiplied the same with 53 vouchers whose two copies had been removed for making the unaccounted sales. No doubt these four bills contained specific details of unaccounted sales aggregating to Rs. 4,99,386. No such specific details were found recorded in the remaining vouchers. Therefore, taking average of these four bills would not show the correct estimate of income. Learned Commissioner (Appeals) has reduced the addition to Rs. 15,50,000 by taking the yield of vanaspati at the same rate as shown for the assessment year 1991-92. We have already upheld the order of the Commissioner (Appeals) for the assessment year 1991-92. Thus, the yield shown by the assessee for the assessment year 1991-92 to 93.13 per cent stands accepted. Therefore, we are of the considered opinion that the basis adopted by the Commissioner (Appeals) is fair and reasonable. Thus, he was justified in reducing the addition to Rs. 15,50,306 on account of suppression of sales.. We may, however, mention that the learned counsel had argued that central excise authorities had accepted sales of Rs. 4,32,364 indicated by four bills referred to above. He vehemently argued that only such sales should be accepted as unaccounted. We are unable to accept such submission of the learned counsel. We find that in the same bill book, where three copies of the same bill were intact, the assessing officer has already excluded the same for computation of undisclosed sales. Such bill book was found from the possession of the assessee during the course of inspection. The onus was on the assessee to explain the reason for removing the other two copies of the bills.
No valid explanation has been tendered. We find that the basis adopted by learned Commissioner (Appeals) is in conformity with the past records. Therefore, this submission is rejected.
We are also unable to accept the submission of the learned counsel that if yield of 93.13 per cent is accepted for the assessment year under reference, the aggregate of yield of vanaspati and by-products would exceed 100 per cent. As rightly mentioned by the assessing officer, the assessee was unable to indicate the percentage of yield of by-products on the basis of any direct evidence. The assessee had merely stated that the yield of by-products was based on experience. Thus, we do not find any substance in this submission of the assessee.
To sum up, we confirm the order of the Commissioner (Appeals) in sustaining the addition of Rs. 15,50,306 on account of suppression of sales and dismiss the respective grounds of appeals of both the assessee and the revenue.
The next ground of appeal of the revenue for the assessment year 1992-93 relates to deletion of addition of Rs. 13,71,954 made by the assessing officer on account of excessive consumption of nickel catalyst. Here also, the assessing officer made the addition by comparing consumption of nickel catalyst with the assessment year 1986-87. Such consumption in the assessment year under reference was 1.340 kg per MT of oil. The same was at 1.337 kg per MT of oil in the assessment year 1990-91. While confirming the order of the Commissioner (Appeals) for the assessment year 1991-92, we have held that assessee has properly explained the variation in the consumption of nickel catalyst and the assessing officer was not justified in comparing the consumption of the assessment year under reference with the assessment year 1986-87. The consumption for the assessment year 1992-93 is at 1.340 kg per MT of oil, which is almost near to the consumption of nickel catalyst at 1.337 kg/MT of oil for the assessment year 1990-91.
Therefore, for the reasons stated in confirming the order of learned first appellate authority for the assessment year 1991-92, we are of the opinion that the Commissioner (Appeals) was justified in deleting the impugned addition for the present assessment year as well. We, may, however, add that even if books of accounts are rejected, the assessing officer is dutybound to make a fair and reasonable estimate of income.
Thus, we find that addition made by the assessing officer on this account was not justified. We confirm the order of the Commissioner (Appeals) and dismiss this ground of appeal of the revenue.
The next ground of appeal of the revenue for the assessment year 1992-93 relates to deletion of an addition of Rs. 6,73,326 made on account of suppression of sales of oxygen gas. The facts leading to such addition has already been discussed in the preceding paragraphs.
In nutshell, the basis for addition is linkage of production of vanaspati with oxygen gas. This point has been elaborately dealt with by the learned Commissioner (Appeals) where he has observed that production of oxygen gas is not relatable to the production of vanaspati ghee. He has given the following details of production of oxygen gas and vanaspati for the assessment years 1987-88 to 1992-93 : Thus, from the above statistics, it is obvious that production of oxygen gas is not relatable to production of Vanaspati. It is dependent on several factors, i.e., storage capacity and economic viability of such production. Considering the fact that the assessee had a limited number of gas cylinders, i.e., 1,600 cylinders or so, it could not be said that the assessee had produced/stored and sold more gas cylinders than shown in the books, particularly when there is no evidence to show unaccounted sales. That apart, the production of gas cylinders for the assessment years 1991-92 and 1992-93 is much better as compared to the production for the earlier assessment years. Therefore, we are of the opinion that the Commissioner (Appeals) was justified in deleting the addition of Rs. 6,73,326 made on this account. We confirm his order and dismiss this ground of appeal.
The next ground of revenue's cross-objection for the assessment year 1991-92 relates to deletion of disallowance of Rs. 60,000 made out of advertisement and publicity expenses. The facts of the case are that the assessing officer observed that assessee had incurred advertisement and publicity expenses of Rs. 2,56,642 as against last year's expenses at Rs. 1,30,104. In response to the query raised by the assessing officer, it was submitted that increase in the expenses was with a view to increase in sales of the assessee. While examining the details of expenses, the assessing officer observed that there were two bills dated 14-11-1990, and 6-3-1991, of M/s Bhardwaj Chemical Lamination Lab., Ludhiana, for Rs. 44,750 and Rs. 47,972 for the purchase of 500+500 pieces of wall clocks. The assessee had not maintained any stock register regarding distribution of wall clocks among the customers. The assessing officer further observed that wall clocks purchased in March 1991, could not have been distributed in the month of March. Thus, the assessing officer disallowed a sum of Rs. 60,000 under rule 6B.Aggrieved, the assessee carried the matter in appeal before the Commissioner (Appeals). It was submitted before the Commissioner (Appeals) that items purchased were distributed in the ordinary course of business. Considering the fact that total turnover of the assessee was about Rs. 30 crores, incurring of expenditure of Rs. 2,56,642 could not be considered as excessive or unreasonable. Accepting the contentions of the assessee, the Commissioner (Appeals) deleted the disallowance. Revenue is aggrieved by the order of the Commissioner (Appeals).
The learned Departmental Representative on the other hand, heavily relied on the order of the assessing officer. She submitted that assessee had not maintained any details about the distribution of wall clocks in the accounting year under reference. Thus, she submitted that the disallowance could have been upheld.The learned counsel for the assessee, on the other hand, relied on the order of the Commissioner (Appeals).
We have heard both the parties and carefully considered the rival submissions. Considering the total turnover of the assessee of Rs. 30 crores, incurring of advertisement and publicity expenses to the tune of Rs. 2,56,642 appears to be normal and reasonable. We do not find any infirmity in the order of the Commissioner (Appeals) in deleting the impugned disallowance. We confirm his order and dismiss this ground of the cross-objection filed for the assessment year 1991-92.
We now take up assessee's appeal for the assessment year 1991-92. At the outset, the learned counsel for the assessee submitted that the assessee does not want to press ground Nos. 1 and 2 of the appeal. The learned Departmental Representative did not raise any objection. These grounds are, therefore, dismissed as not pressed.
The only effective issue, which requires adjudication relates to charging of interest under sections 234B and 234C. The facts of the case are that while completing the assessment, the assessing officer made certain additions. The assessing officer also directed the office to issue demand notice and challan. No specific directions for charging of interest under sections 234B and 234C were given in the body of the assessment order. However, in the demand notice, interest aggregating to Rs. 79,761 under sections 234B and 234C had been charged.
Aggrieved, the assessee impugned the levy of interest in appeal before learned Commissioner (Appeals). However, learned Commissioner (Appeals) dismissed the same on the ground that charging of interest under sections 234B and 234C was mandatory. Assessee is aggrieved by the order of the Commissioner (Appeals). Hence, this appeal before us.
The learned counsel for the assessee submitted that the assessing officer had not passed specific order for charging interest under sections 234B and 234C. Thus, no such interest could have been charged in the demand notice. He relied on the judgment of Supreme Court in the case of CIT v. Ranchi Club Ltd. (2001) 247 ITR 209 (SC) where the Supreme Court has held that specific directions giving reference to the section under which interest is to be charged is required to be given in the assessment order. In the absence of such direction, charging of interest under sections 234A, 234B and 234C would not be valid.
The learned Departmental Representative on the other hand, relied on the order of the Commissioner (Appeals). She drew our attention to last page of the assessment order, where the assessing officer had ordered 'issue demand notice and challan'. She submitted that levy of interest under sections 234B and 234C is mandatory. Therefore, interest could be charged in the demand notice itself. She further relied on the judgment of Punjab & Haryana High Court in the case of Vinod Khurana v. CIT (2002) 253 ITR 578 (P&,H), where the Hon'ble High Court has held that demand notice issued simultaneously mentioning quantum of interest and section under which interest is charged by the assessing officer is valid in law. Thus, she submitted that the order of the Commissioner (Appeals) deserves to be upheld.We have heard both the parties and carefully considered the rival submissions. From the facts discussed above, it is clear that the assessing officer has not passed a specific order mentioning therein specific sections under which interest was chargeable. His directions are only for issue of demand notice and challan. Now the question is, whether in the absence of specific directions in the body of assessment order, interest under sections 234B and 234C could be charged in the demand notice? This issue has been considered by the Hon'ble Supreme Court in the case of CIT v. Ranchi Club Ltd. (supra) where the Hon'ble Apex Court has held that specific directions with reference to particular section under which interest is chargeable is necessary in the assessment order and further that without recording such directions in the body of assessment order, interest under sections 234A, 234B and 234C could not be charged. Further, in the case of Vinod Khurana v. CIT (supra), the Hon'ble Punjab & Haryana High Court has held that a notice of demand is somewhat like a decree in a civil suit, which must follow the order. When a judgment does not specifically mention any amount to be charged under any particular section, the decree cannot contain any such amount. Similarly, when the assessment order is silent if any interest is leviable, the notice of demand under section 156 of the Act cannot go beyond the assessment order and the assessee cannot be served with any such notice demanding interest. But in the case before the Punjab & Haryana High Court, the assessing officer had given direction in the body of assessment order to charge interest as per law, which is not the case here. Such directions were followed by levy of interest under specific section in the demand notice. Therefore, charging of interest by the assessing officer was upheld by the High Court. But in this case, facts are distinguishable. Therefore, even the judgment of Punjab & Haryana High Court, relied upon by the learned Departmental Representative supports the case of the assessee. However, we wish to add that this ground is only of academic interest. Levy of interest under sections 234A, 234B and 234C is mandatory. At the time of filing the return, the assessee is required to quantify the interest leviable under sections 234A, 234B and 234C in the return and make the payment of the same before filing the return. Even if the levy of interest charged under sections 234A, 234B and 234C is held to be bad in law, the assessee cannot claim refund of the amount of interest payable/paid on the basis of returned income. Reliance in this regard is placed on the judgment of Hon'ble Supreme Court in the case of CIT v. Shelly Products (2003) 261 ITR 367 (SC). In this case, Hon'ble Supreme Court has held that on the basis of income disclosed, the assessee is required to make self-assessment and to compute the tax and interest payable on such income and to pay the same in the manner provided by the Act. Thus, the filing of the return and the payment of tax thereon computed at the prescribed rates amount to an admission of tax liability, which the assessee admits to have incurred in accordance with provisions of the Finance Act and the Income Tax Act. Both the quantum of tax payable and its mode of recovery are authorized by law and do not depend on the assessment being made by the assessing officer. Failure to frame valid assessment or even if such assessment is declared null and void does not entitle the assessee to claim refund of advance tax/tax paid on self-assessment, because to that extent the assessee has admitted his liability to pay tax in accordance with law.
In the present case, the additions made by the assessing officer have been deleted by the learned Commissioner (Appeals) and the order of the Commissioner (Appeals) has been upheld. Therefore, it virtually amounts to acceptance of returned income on which tax payable under sections 234B and 234C already paid/payable cannot be refunded. Thus, in the light of the facts and the legal position discussed above, we set aside the order of the Commissioner (Appeals) and quash the order of the assessing officer so far as it relates to charging of interest under sections 234B and 234C. However, interest leviable under these sections on the basis of returned income shall stand. This ground succeeds to the extent mentioned herein.
In the result, the appeal filed by the assessee for assessment year 1991-92 is partly allowed, cross-objection filed by the revenue for the assessment year 1991-92 is dismissed and the cross-appeals filed by the assessee and the revenue for the assessment year 1992-93 are dismissed.