The Dcit, Spl. Range Vs. United Vanaspati Ltd. - Court Judgment

Excerpt:
1. there was a difference of opinion between the hon'ble members of 'a' bench, chandigarh and the following point of difference was referred by them to the hon'ble president u/s 255(4) of income-tax act, 1961 : - "whether on the facts and in the circumstances of the case, trading addition of rs. 96,09,720/- made by the assessing officer and deleted by the commissioner of income-tax (appeals) should be sustained or deleted?" 2. the hon'bel president, income-tax appellate tribunal nominated my name as third member. the case was accordingly, heard on 8.12.2003.3. the assessee, a public limited company is engaged in the business of manufacture and sale of vanaspati ghee. the assessing officer, in view of elaborate reasons recorded in the assessment order, arrived at the conclusion that the.....

Judgment:
1. There was a difference of opinion between the Hon'ble Members of 'A' Bench, Chandigarh and the following point of difference was referred by them to the Hon'ble President u/s 255(4) of Income-tax Act, 1961 : - "whether on the facts and in the circumstances of the case, trading addition of Rs. 96,09,720/- made by the Assessing Officer and deleted by the Commissioner of Income-tax (Appeals) should be sustained or deleted?" 2. The Hon'bel President, Income-tax Appellate Tribunal nominated my name as Third Member. The case was accordingly, heard on 8.12.2003.

3. The assessee, a Public Limited Company is engaged in the business of manufacture and sale of Vanaspati ghee. The Assessing Officer, in view of elaborate reasons recorded in the assessment order, arrived at the conclusion that the assessee must have suppressed production to the extent of 438 MT of Vanaspati ghee and also must have sold such suppressed production by way of suppressed sales. He, therefore, applied the average selling price of Rs. 21,940/- per MT on the alleged suppressed sales of 438 MT and thereby made an addition of Rs. 96,09,720/-. The Assessing Officer has discussed various aspects in the assessment order but the aforesaid addition has been made by him by applying the ratio of raw material consumed in the production of vanaspati ghee as estimated and assessed by Assessing Officer in assessment year 1988-89.

4. The learned Commissioner of Income-tax (Appeals) in view of the elaborate reasons given in his order, has deleted the aforesaid addition, The learned Commissioner of Income-tax (Appeals) has given detailed reasons in the impugned order passed by him and has also relied upon the order passed by the Commissioner of Income-tax (Appeals) in the case of the assessee for the immediately proceeding year 1988-89 in which the addition of Rs. 45,39,600/- made on similar basis by estimating suppressed production and suppressed sales, was deleted. The Revenue accepted the said order of the Commissioner of Income-tax (Appeals) for assessment year 1988-89 and did not prefer any further appeal before the Tribunal for that year.

5. The Revenue preferred the present appeal against the order passed by the Commissioner of Income-tax (Appeals) for assessment year 1989-90.

6. Hon'ble Shri Vimal Gandhi, the than learned Vice Present (Now President) in his proposed order has upheld the deletion of the aforesaid addition. He has elaborately discussed all the relevant facts and has given detailed findings in the order proposed by him.

7. Hon'ble Shri P.K. Bansal, the learned Accountant Member has passed a separate dissenting order, in which he has confirmed the addition of Rs. 96,09,720/- made by the Assessing Officer. The order passed by the Commissioner of Income-tax (Appeals) has been set aside and that of the Assessing Officer has been restored by him in relation to the aforesaid ground.

8. The learned Sr. Departmental Representative relied upon the elaborate reason given in the assessment order, as well as in the order proposed by the learned Accountant Member. The learned Departmental Representative candidly admitted that the facts relating to the year under consideration are similar as that in assessment year 1988-89 and the only difference in the year under consideration is that the assessee did not produce the relevant books of account and vouchers in spite of various opportunities granted by the Assessing Officer. The Assessing Officer was, therefore, justified in resorting to estimation of production, sales and profit thereon. He drew my attention to the order-sheet entry dated 28.2.1992 of the assessment records pertaining to the year under consideration, in which it was inter alia stated that a camp was fixed by the Assessing Officer at Chandigarh on 28.2.1992 to facilitate the production of the books of account and complete vouchers. On 28.2.1992, the books were only partly produced. Cash book, most of the vouchers and purchase books were not produced. The learned Departmental Representative strongly urged that the view expressed by the learned Accountant Member is supported by convincing reasons and the same would be accepted.

9. The learned counsel appearing for the assessee strongly relied upon the detailed reasons given in the order proposed by the then learned Vice President deleting the aforesaid addition. He submitted that voluminous records were produced before the Assessing Officer during his camp at Chandigarh on 28.2.1992. The Assessing Officer in the afternoon required the assessee to produce some more records for which the assessee requested for grant of some reasonable time. The learned counsel appearing on behalf of the assessee made a statement at bar that the himself was present during the course of hearing on 28.2.1992 and requested fro some reasonable time for producing the remaining records. The learned counsel then drew my attention to page 3 of the assessment order in which it has been stated that Sh. V.K. Puri, Company Secretary attended the office of the Assessing Officer at Solan on 3.3.1992 alongwith voluminous set of books of account. The Assessing Officer refused to examine those books of account and other records on the ground the proceedings has already been closed on 28.2.1992. The learned counsel pointed out that the assessment order was passed by the Assessing officer on 25.3.1992. The Assessing Officer simply wanted to find out some pretext of showing some default on the part of the assessee so as to justify the pre-determined arbitrary addition on the basis of assessment made in the case of the assessee for assessment year 1988-89. The learned counsel also submitted that the order passed by the learned Accountant Member is not based on proper appreciation of facts and material existing on record. The learned Accountant Member has inter alia observed that there is no judgment reported in 68 ITR 1 as referred to by the learned Commissioner of Income-tax (Appeals) on page 5 in para (a) of his order. The learned counsel submitted that citation given in the order of Commissioner of Income-tax (Appeals) as 68 ITR 1 is incomplete but not incorrect because the judgment relied upon by the Commissioner of Income-tax (Appeals) is resorted in 68 ITR 1 (Short Notes) which squarely supports the assessee's contention that records maintained as per Excise Laws and found to be correct by the Excise authorities, are important evidence to support the correctness of the declared trading results.

10. The learned counsel submitted that the question relating to alleged non-production of some of the records have been very aptly and elaborately discussed by the learned Vice President in the order proposed by him. The addition has been made by the Assessing Officer by following the addition made on similar basis in assessment year 1988-89. The addition so made in assessment year 1988-89 has been deleted by the Commissioner of Income-tax (Appeals). The order of the Commissioner of Income-tax (Appeals) for assessment year 1988-89 has been accepted by the revenue and no further appeal has been filed. The rule of consistency fully applied to the facts of the present case, as the facts relating to the year under consideration are exactly similar and identical as that in assessment year 1988-89. The Assessing Officer has made the addition on the basis of findings given by him in assessment year 1988-89. The learned counsel placed reliance on the judgment reported in 26 ITR 159, 7. ITR 192, 250 ITR 584, 101 ITR 721, 72 ITR 726, 95 ITR 401 and 52 TTJ 162 to support his contention that the rule of consistency will apply to the facts of the present case and the addition made in the declared manufacturing/trading results has rightly been deleted by the Commissioner of Income-tax (Appeals).

11. The learned counsel also drew my attention to the GP Chart placed at page 7 of the Paper Book. He submitted that GP rate declared and accepted by the assessee from assessment year 1986-87 to 1989-90 raised between 2.03% to 6.90%. The declared gross profit was always accepted in the past. Additions were made in assessment year 1986-87 to 1988-89 in the declared trading results. Those additions were deleted by the Commissioner of Income Tax (Appeals) and no second appeal was filed by the Department in assessment year 1986-87to 1988-89. The learned counsel also submitted that the correctness of the declared trading results have also been accepted by the Department in the assessments made u/s 143(3) for assessment year 1991-92 to 1997-98.

12. The learned counsel further submitted that the learned Accountant Member has erred in observing that there was a non-cooperative attitude on the part of the assessee in not complying with the various notices requiring the assessee to produce the books of account and other records and also the project report. He submitted that the assessee extended fullest possible cooperation and produced all the relevant books of account and records before the Assessing Officer. The project report prepared 10 years ago could not be produced as the same was not readily traceable and, therefore, it was produced before the Commissioner of Income-tax (Appeals). The learned Commissioner of Income-tax (Appeals) has rightly observed that the projected figures given in the project report prepared 10 years ago cannot provide any reasonable comparison for determining the correctness of ratio of actual consumption of raw material, coal and power etc. The learned counsel submitted that all the submissions made on behalf of the assessee have been very aptly discussed in the order proposed by the then learned Vice President and, therefore, it is not necessary to repeat all those arguments.

13. I have considered the rival submissions made by the learned representatives and have gone through the orders of the learned departmental authorities. I have also gone through the relevant documents submitted in the compilation, to which my attention was drawn during the course of hearing. I have also carefully gone through the orders proposed by the then learned Vice President and the learned Accountant Member. I have also gone through all the judgments cited by the learned representatives.

14. The relevant facts have already been elaborately discussed in the orders proposed by the them learned Vice President and the learned Accountant Member. I, therefore, need not repeat the facts, once again.

15. The learned Accountant Member in the order proposed by him has inter alia observed that the assessee failed to produce the required books of account before the Assessing Officer. The Assessing Officer was justified in not examining the books of account when produced on 3.3.1992 as the proceedings has been closed on 28.2.1992. He has also observed that the correctness of the declared results as per books of account could not be accepted as the same was not produced and verified by the Assessing Officer. The learned Accountant Member has also observed that the reliance placed by the Commissioner of Income-tax (Appeals) on the decision reported 68 ITR 1 is not correct as no such decision has been reported there. He has also observed that the principles of rest judicator will not apply to income-tax matters and, therefore, no reliance can be placed on the order of the Commissioner of Income-tax (Appeals) for assessment year 1988-89. He has observed that the addition was deleted in assessment year 1988-89 because the Commissioner of Income-tax (Appeals) has set aside the order of the Assessing Officer for examination for the books of account and other records. On set aside, the Assessing Officer, in fact, has examined the books of account in the earlier-year. The addition was made after examining the books of account, which was deleted by the Commissioner of Income-tax (Appeals). Therefore, in the absence of production of books of account, the correctness of the book results cannot be accepted in the year under consideration. The learned Accountant Member has also placed reliance on judgment of Hon'ble Supreme Count in the case reported in 90 ITR 271 and 254 ITR 449. The learned Accountant Member has proposed confirmation of addition of Rs. 96,09,720/-.

16. The return of income was filed on 29.12.1989. The facts discussed in the assessment order indicate that the first notice was sent u/s 142(1) on 13.11.1991 i.e. after about two years of the furnishing of the return of income by the assessee. In the said notice, dated 13.11.1991. the Assessing Officer has specifically required the assessee to state as to why addition should not be made in the year under consideration on the same lines as they were made in assessment year 1988-89. The previous year of the assessee was a transitional previous year consisting of 21 months. The first period ended on 306.1988 consisted of 12 months and the second period ended on 31.3.1989 consisted of 9 months. The Assessing Officer in para 5 of his order has given the figures of oil consumed per MT of production, by products manufactured, coal consumption, power consumption and processing cost per MT of production for both the periods falling in assessment year and 1989-90 and has compared the same with the corresponding figures of assessment years 1987-88 and 1988-89.

17. The Assessing Officer has thereafter computed the alleged hypothetical/suppressed production on the basis of ratio of by-products, ratio of consumption of electricity and ratio of consumption of raw material by comparing the figures pertaining to the year under consideration with the corresponding figures of assessment year 1987-88 and 1988-89. The relevant extracts from the assessment order have been reproduced in para 22 of the order proposed by the then learned Vice President. It is pertinent to note that the Assessing Officer did not make the impugned addition on the basis of variation in the consumption ratio of electricity or on the basis of ratio of by-products obtained in the process of manufacture of vanaspati ghee.

The entire addition of Rs. 96,09,720/- was made by the Assessing Officer by applying the ratio of consumption of raw material for manufacturing of 1 MT of vanaspati ghee as assessed by him in assessment year 1988-89. The learned Assessing Officer has applied the same formula as was applied by him in the assessment year 1988-89 and has thereby estimated the alleged suppressed production to the tune of Rs. 438 MT. He has further observed that the average selling price during the year was Rs. 21,940/- per MT. The Assessing Officer applied this rate to suppressed/hypothetical production of Rs. 438 MT and made an addition of Rs. 96,09,720/-. It is, therefore, clear that the addition was made by the Assessing Officer by placing reliance on the assessment order for assessment year 1988-89.

18. The then learned Vice President in paras 26 to 32 of the proposed order has discussed the facts relating to addition of Rs. 45,43,600/- made by the Assessing Officer on similar basis in assessment year 1988-89. He has also elaborately discussed the facts stated in the original assessment order as well as in the fresh order passed by the Assessing Officer in assessment year 1988-89, in which he had estimated the alleged suppressed production of 234 MT of vanaspati ghee and made an addition of Rs. 45,43,600/- by applying the average selling price on similar basis. The then learned Vice President has thereafter elaborately discussed the findings given by the Commissioner of Income-tax (Appeals) in his order for assessment year 1988-89. The learned Commissioner of Income-tax (Appeals) has given as specific finding in his order for assessment year 1989-90 that the facts and circumstances so discussed in the assessment order for assessment year 1988-89 and assessment year 1989-90 as well as in the order passed by the learned Commissioner of Income-tax (Appeals) in assessment year 1988-89 clearly show that the facts and circumstances relating to the aforesaid addition of Rs. 96,09,720/- made in the year under consideration are similar as that in assessment year 1988-89. Since the Commissioner of Income-tax (Appeals) has deleted the said addition for assessment year 1988-89 in view of the elaborate reasons recorded by him and the Revenue accepted the said decision by not filing any further appeal against the said order before the Tribunal, there is no justification for sustaining the impugned addition in the year under consideration.

19. It is true that the order of Commissioner of Income-tax (Appeals) for assessment year 1988-89 is not like any judgment of Hon'ble Jurisdictional High Court or Apex Court and is not binding. But when the facts and basis for making the addition in assessment year 1988-89 is the foundation for making the impugned Addison of Rs. 96,09,720/- in assessment year 1989-90, the decision of the Commissioner of Income-tax (Appeals) in assessment year 1988-89 would surely be the valid basis for deletion of the impugned addition in the year under consideration also. It is also true that principles of res judicata do not apply to income-tax proceedings but equally important, is the rule of consistency, which has been held to be applicable in tax proceedings by Hon'ble Apex Court in various cases. If the facts and circumstances of the earlier year are similar, the same view should ordinarily be followed in subsequent years. It may be relevant here to refer to some of the judgments of Hon'ble Supreme court which support the application of rule of consistency in cases where facts and circumstances are similar as in the earlier years. The Hon'ble Supreme Court in the case of Commissioner of Income-tax (Appeals) Vs. Narendra Dosi, 254 ITR 606, held that the Department had not challenged the correctness of the two decisions of Gujarat High Court, the Revenue was therefore, bound by the principles laid down therein. The Civil appeal filed by the Commissioner of Income-tax was dismissed on this ground. The Hon'ble Supreme Court in the case of Union of India Vs. Satish Panalal Shah, 249 ITR 221, dismissed the appeal submitted by the Department holding that it was not open to the Revenue to accept the earlier judgment in the case of one assessee and challenge it correctness without just cause in the case of the other assessee. In the case of Union of India & Others Vs. Kaumudini Narayan Dalal & Another, 249 ITR 219,the Hon'ble supreme Court had rendered a similar decision and dismissed the appeal submitted by the Government. The Hon'ble Apex Court in the case of CIT Vs. Shiv Sagar Estate (2002) 257 ITR 59 comprising of three Hon'ble Judges, as in earlier judgments, dismissed the appeal submitted by the Commissioner on the ground that no appeal has been taken to the Supreme Court for the earlier years. The then learned Vice President has, therefore, rightly observed in para 34 of page 24 of his order that it is known why for this year on identical circumstances the matter has been brought in appeal before the Tribunal when similar addition made in assessment year 1988-89 were deleted by the Commissioner of Income-tax (Appeals) and such deletion was accepted by the Revenue Authorities.

20. The learned Accountant Member in his order has pointed out that the only distinguishing feature is that certain books of account, the correctness of the declared results could not be verified. The question relating to alleged non-production of books has been elaborately discussed by the them learned Vice President in para 18 to 21 of the order passed by him. It is also evident from the facts discussed in the assessment order that the assessee had brought voluminous records on 3.3.1992 for examination by the Assessing Officer. The Assessing Officer refused to examine the same on the ground that proceedings had already been closed on 28.2.1992. The assessment order in the aforesaid case was passed on 25.3.1992. In the interest of fairness and justice, the Assessing Officer ought to have granted a short/reasonable time to the assessee to produce the remaining records on any other date, if it was not convenient for him to examine those records on 3.3.1992. The Assessing Officer has also not explained the relevancy of alleged non-production of cash book and other documents for determining the correctness of the disclosed quantity of the finished goods produced by the assessee. It would be worthwhile to repeat that assessment has been made by the Assessing Officer u/s 143(3) and he has not initiated any penalty for any alleged non-compliance of notices u/s 142(1) or 143(2).

Even assuming that there was some default of non-producing some of the records, the Assessing Officer was only entitled to make the assessment according to his best judgment. The limits of powers are implicit in the expression "bet of his judgment". The judgment is a faculty to decide matters, which weighs with wisdom, truly and legally, The judgment does not depend upon an arbitrary caprice of a Judge but on settled and invariable principles of justice. It should not be wild one but should have a reasonable nexus to the available material and circumstances of each case. The Assessing Officer adopted the basis on which similar additions were made in assessment year 1988-89. He has estimated the hypothetical suppressed production and suppressed sales by adopting the ratio of consumption of raw material adopted and assessed in assessment year 1988-89. Since the addition made in assessment year 1988-89 on similar basis has been deleted by the Commissioner of Income-tax (Appeals), the very foundation and basis on which the impugned addition was made in the year under consideration has disappeared.

The addition on similar reasoning will, therefore, have to be deleted, as has been deleted by the Commissioner of Income-tax (Appeals) in assessment year 1988-89, which decision has been accepted by the Revenue. The alleged non-production of some books was not the basis for making the impugned addition, nor it can in any manner justify the stand of the department that the deletion of similar addition accepted by the Revenue in assessment year 1988-99 cannot be made the basis for deletion of impugned addition in the year under consideration.

21. It would be worthwhile to reproduce the GP Chart submitted by the assessee at page 7 of the Paper Book:-Asstt. Year GP Rate shown GP Rate accepted addition made by A.O.1985-86 2.03% 2.03% Nil1986-87 6.90% 6.90% 5,33,728.001987-88 4.97% 4.97% 7,00,000.001988-89 3.60% 3.60% 45,39,600.001989-90 3.72% 3.72% 96,09,720/- 22. The additions made for assessment years 1986-87 to 1988-89 have been deleted by the Commissioner of Income-tax (Appeals) and no second appeal was filed by the department for all these years. The deletion of additions made on similar basis in earlier years, has thus been accepted by the department. The aforesaid chart also indicates that the GP rate varied between 2.03% to 6.90%. It is, therefore, clear that GP rate or yield varied from year to year depending upon various factures and such variation in the declared GP has been accepted by the Revenue Authorities in assessment year 1986-87 to 1988-89. The then learned Vice President has further given the details of declared trading results of assessment years 1990-91 to 1992-93 in para 12 of his order.

The correctness of the declared trading results has been accepted by the Revenue Authorities in these subsequent years also.

23. The Assessing Officer in para 3 of the assessment order has clearly observed that the assessee has declared GP rate of 3.73% on sales of 66.59 crores as against GP rate of 3.6% on sales of 34.75 crores declared in the last year (now stand accepted by the department after deletion of addition made in assessment year 1988-89). Thus, the GP rate declared by the assessee is better than as compared to GP rate shown and accepted in assessment year 1988-89. The then learned Vice President has compared the GP rate declared in the year under consideration with GP rate declared in preceding year in para 14 of his order. He has observed that after excluding depreciation claim, the GP rate in the year under consideration comes to 4.14% as against corresponding figure of 4.42% in the preceding year. He has further observed that the meagre decline in GP rate after excluding depreciation in both the years is considered to be reasonable keeping in view the fact that the turnover in assessment year under consideration is almost double than that of the last year. Such a view taken by the then learned Vice President appears to be most reasonable and justified.

24. The learned Accountant Member in his order has inter alia relied upon the judgment of Hon'ble Supreme Court in the case of commissioner of Sales Tax Vs. H.M. Esufali H.M. Abdulali, 90 ITR 271. The facts of the said case are clearly distinguishable. In that case, the assessments were made primarily on the basis of returns filed by the assessee and the books of account. Subsequently, the flying squad of Sales Tax department inspected the business premises of the assessee and found a bill book for the period from September 1 to 19, 1960 showing sales of the value of Rs. 31,171.28, which had not been entered in the assessee's accounts book. In such a situation, the Hon'ble Supreme Court held that it was open to the officer to infer that the assessee had large scale dealings outside the accounts. In the present case, the Assessing Officer has brought no positive material or evidence on records to show the existence of any un-accounted production or un-accounted sales. The Assessing Officer has simply presumed hypothetical production/suppressed production by calculating presumed production on the basis of certain ratios. The increase in the power consumption or consumption of raw material by themselves cannot justify rejection of the books of account, nor it can justify the charge of suppressed production or suppressed sales made outside the books of account, particularly, in a case where the correctness of the declared results are supported by regular books of account which are duly audited and which are also supported by various statutory registers required to be maintained as per Excise laws.

25. It may be useful to make a reference to the judgments of some of the Hon'ble courts in order to properly understand as to under what circumstances the correctness of the book results can be disputed : The relevant extracts from head note appearing at page 160 are reproduced below :- Held, that there was no definite finding by the Income-tax Officer that the case fell within the proviso to Section 13. Even if such finding were to be implied from his order it could not be said that there was material before him which would enable him to come to such a finding. The fact that the profits appeared to him to be insufficient and the fact that no stock register was maintained by the assessee were not materials upon which such a finding could be given, but they were circumstances which might provoke an enquiry.

The Income-tax Officer must discover evidence or material aliunde before he could give such a finding. In increasing the taxable income the Income-tax Officer did not adopt any method or basis and he was not acting according to the provisions of the statute" The relevant extracts from head note appearing at page 261 are reproduced below:- "The officer's right under the proviso to section 13 arises only after a finding is recorded as to the unacceptability of the method and irregularly of he accounts kept. In the absence of such a finding recorded by the authorities, the book results cannot be ignored or brushed aside. The mere fact that the percentage of dead loss of cotton is high in a particular year cannot lead to an inference that thereby there has been a suppression of the production in a spinning mill. Therefore, the addition of Rs. 50,000/- to the total income of the assessee on account of the alleged under-stated production of yarn and soft waste was not justified." "The accounts of the assessee were accepted in all years up to and inclusive of 1957-58 but in 1958-59 the Income-tax Officer rejected the accounts and applied the proviso to section 13 on the grounds that no day to day dryage register had been maintained and that in another case the yield proposed to be adopted by him was held to be reasonable by the Tribunal, and added Rs. 32,053/- to the income disclosed by the assessee. The Appellate Assistant Commissioner, on appeal, confirmed the applicability of the proviso to section 13 but reduced the addition to Rs. 15,000. The appeal to the Tribunal was dismissed. On a reference: Held, (1) that the method of accounting adopted by the assessee having been accepted by the department in the previous years and the income computed on that basis, there were not sufficient grounds for applying the proviso section 13 to the facts of the case; (2) that even assuming that the proviso was attracted, the income-tax authorities, not having determined any basis or manner of computation of the true income, profits and gains of the assessee-firm, were not justified in arbitrarily adding Rs. 15,000 in round figure to the income of the assessee-firm." 26. The learned Accountant Member in para 7 of his order has discussed the relevancy of statutory registers and records maintained by the assessee as per Excise rules and has also mentioned that the reliance placed by the Commissioner of Income-tax (Appeals) on the decision reported in 68 ITR 1 is not correct as no such case was reported on the given page of the said report. It was contended on behalf of the assessee before the departmental authorities as well as before the Tribunal that the correctness of the declared production and sales are supported by various registers required to be maintained as per the provisions contained in Excise Laws. The learned Commissioner of Income-tax (Appeals) in para 4.3(a) of his order has observed that the appellant's manufacturing process is under strict supervision of Excise authorities, who regularly inspect the records maintained under the Central Excise Rules. He relied upon judgment in the case of Seetharama Mining Co. Vs. CIT, 68 ITR 1 (Short Notes) to support his conclusion that where no defects have been found in the books of account and statutory stock registers so maintained, estimation of higher production would not be proper by ignoring these records. The citation of the said judgment given as 68 ITR 1 is incomplete. The decision in the aforesaid case is reported in 68 ITR 1 (Short Notes). The Hon'ble Andhra Pradesh High Court in the case of Seetharama Mining Co. Vs. CIT, 68 ITR 1 (Short Notes) has held as under:- "Held, that it was not proper or just for the Income-tax department to throw doubt on the inspection of the royalty register without any proper basis and that the estimate made by the department ignoring the royalty register which the assessee had to maintain statutorily was arbitrary and capricious." 27. The Hon'ble Patna High Court in the case of Motipur Sugar Factory (P) Ltd. Vs. CIT, 95 ITR 401 considered the question relating to addition of Rs.2,25,000/- made by the Assessing Officer mainly on the ground that production of sugar was not correctly disclosed. The Assessing Officer was of the opinion that the yield of 8.86% shown by the assessee was lower as some other mills situated in North Bihar had shown recovery of 9.3% and 9.5% of sugar respectively. The Hon'ble High Court at page 409 observed that every factory owner producing sugar has to maintain various registers required under Central Excise Rules, 1944. The entire manufacturing process of sugar from weighment of cane to the bagging of sugar was subject to the supervision and checking of the Central Excise Officer posted at the factory. The cane cess register as prescribed by the State Government was also produced by the assessee. The books of account had been audited by a firm of Chartered accountants. Considering the aforesaid facts alongwith other reasons given in the said judgment, the Hon'ble High Court held that the Tribunal was wrong in drawing adverse inference and in rejecting the assessee's accounts and sustaining the addition of Rs. 2,25,000/- merely because the "parchas" were not produced by the assessee. The relevance and significance of maintenance of statutory registers as per Excise Rules, periodical physical verification by Excise Authorities audit of accounts by Chartered Accountants are the factors which have been taken into consideration by the Hon'ble Patna High Court while deleting the aforesaid addition. The manufacture of vanaspati ghee is subject to strict supervision and checking by Central Excise Authorities. The accounts of the appellant company are also audited as per provisions of Companies Act and Section 44AB of the Act and correctness of the declared production is supported by Excise records.

28. The Income-tax Appellate Tribunal "Special Bench" in the case of Shanker Rice Company Vs. ITO, 72 ITD 139, has inter alia observed at page 158 & 159 as under:- "Coming now to another aspect of the arguments of the learned Departmental Representative namely, the submission that the books of account and records maintained by the assessee were "manufactured".

In our opinion, this is a highly irresponsible statement unsupported by any material or evidence. It must be emphasized that the assessee maintains regular books of account and other statutory registers the latter prescribed by the State Govt. authorities and these are not only subject to audit by Chartered Accountants but periodical checks by the state Govt. officials as well At page 159: After all, the facts of one's own case cannot be ignored and audited accounts and checking by State authorities of statutory registers cannot be brushed aside in a casual manner. Just because the Assessing Officer feels that so and so fact is not correct and he should straightway draw adverse inference. Section 145(1) is not to be casually invoked and assumptions and presumptions have no role to play where the books are to be rejected. The Assessing Officer must proceed on positive evidence and material and in the case of Shankar Rice Co., there is nothing to show that the yield was more than the figure stated and that it had been sold outside the books of account.

In our opinion, the rule of consistency is an important aspect of tax proceedings and views should not be changed on the same set of facts and the position of law remaining the same the rule of res judicata not withstanding.

29. The order proposed by the then learned Vice President deleting the impugned addition is fully supported by the aforesaid decision.

30. The learned Accountant Member has also placed reliance on decision reported in 254 ITR 449 in para 18 of his proposed order. In this case, the Hon'ble Delhi High Court has held that adverse inference can be drawn in cases of failure of the assessee to produce documents as if those documents, if produced, would have gone against the assessee. The aforesaid judgment does not, in any manner, apply to the facts of the present case. The addition was made by the Assessing Officer on the basis of addition made on similar lines for assessment year 1988-89.

That addition has been deleted by the Commissioner of Income-tax (Appeals) and deletion has been accepted by the department by not filing any further appeal in that year. I have already mentioned here-in-above that the rule of consistency will apply on the facts of the present case justifying deletion of the said addition in the year under consideration.

31. I have carefully gone through the order proposed by the then learned Vice President. He has given elaborate and convincing reasons in support of his conclusion that the Commissioner of Income-tax (Appeals) has rightly deleted the addition of Rs. 96,09,720/-. The facts and discussions made here-in-before fully support the view taken by the then learned Vice President.

32. After giving a very deep and thoughtful consideration to the entire relevant material, I am inclined to agree with the view taken by the then learned Vice President holding that the Commissioner of Income-tax (Appeals) has rightly deleted the said addition of Rs. 96,09,720/-.

33. The matter will now go before the regular Bench for decision according to the majority opinion.

1. We, the Members of Income-tax Appellate Tribunal, 'A' Bench, Chandigarh have differed and, therefore, refer the following point of difference to the Hon'ble President u/s 255(4) of the Income-tax Act for appropriate action so that the appeal may be disposed of.

"Whether on the facts and in the circumstances of the case, trading addition of Rs. 96,09,720/- made by the Assessing Officer and deleted by the Commissioner of Income-tax (Appeals) should be sustained or deleted ?" 1. This appeal by the Revenue for assessment year 1989-90 is directed against the order of the CIT(A) dated 26.10.1992 deleting addition of Rs. 96,09,720/- made in the trading account.

2. The assessee, a limited company, in the relevant period carried on business of manufacture and sale of vanaspati ghee. The AO on scrutiny of accounts found that the assessee had disclosed G.P. rate of 3.73% on sales of Rs. 66.53 lacs. It was considered to be low when compared with G.P. rate of assessment years 1986-87 and 1987-88. The AO observed that if claim of depreciation was ignored, the G.P. would come down to 4.14% against 7.46% for assessment year 1986-87. He asked the assessee to show-cause why addition should not be made for fall in G.P.3. The AO further found that previous year of the assessee consisted of 21 months which was divided into two periods. - first period of 12 months upto 30.6.1988 and second period of 9 months upto 31.3.1989. He further examined consumption of various raw-materials and production in the two periods and compared them with results of assessment years 1987-88 and 1988-89. The chart is given in para 5 of the assessment order. AO the basis of above analysis, the AO concluded that operations of the assessee showed downward productivity. He found that there was increase in consumption of coal, power and other raw-material used in manufacture. He, therefore, asked the assessee to explain the above increase in consumable items. It is observed in the assessment order that no satisfactory explanation was rendered. The AO, therefore, refused to accept increased consumption of electricity and coal without corresponding increase in manufactured items. He concluded that production was suppressed in record.

4. The AO further found that there was increase in the by-products from 1188 MT of last year to 2427 MT in the year under appeal. He also took into account figures of by-product in assessment years 1987-88 and 1988-89 to show that increase in by-products was not justified - he insisted on record relating to consumption of different items and production batch wise. Such record, according to the AO, was not produced. The AO also required the assessee to furnish copy of project report submitted to financial institutions, banks, etc. as such a report, according to the AO, normally contains figure or relating to costs, sales, quantity of consumption etc. Such a report was also not furnished. The AO also records that number of opportunities were allowed to the assessee but information sought was not furnished.

Having regard to over all consumption of raw-material in assessment year 1987-88 and production figures of that year and of assessment year 1988-89, the AO worked out suppressed production of 438 MT of finished product. The above production was held to have been sold outside the books of account and profit on such sale was worked out at Rs. 96,09,720/- by applying flat sale rate of Rs. 21,940/- per MT. The above addition was made in the income returned by the assessee.

5. The assessee impugned above addition in appeal before the CIT(A) and made detailed submissions which are noted in para 1(iii) onwards. The assessee explained circumstances for fall in G.P. and higher cost of production. It was explanained that raw-material was not available in state of HP and, therefore, it was brought out of the state on payment on CST and higher carriage cost. The electricity charges and cost of other material had increased. It was explanained that regular accounts as required under law were maintained and all expenditure were fully vouched. The unit was subject to Central excise and those authorities made regular check of purchases, consumption and production and stock available with the assessee. Stock registers maintained were also subject to periodical check by Excise Deptt.

6. The assessee further explained that G.P. had not been constant in different assessment years. It ranged between 2% to 7%. The figures are noted by the Ld. CIT(A) i para 1(iii) (a) of the order. There can be variation in the ratio of production to the consumption of raw-material from batch to batch. The assessee furnished figures of consumption ratio in different assessment years.

7. It was further explained that books of account were produced before the AO from time to time. At chandigarh camp and at Solan, tables of computive production on the basis of norms and standards disclosed by the assessee in the earlier assessment years were produced before the AO. The AO having regard to assessment order for assessment year 1988-89 held that the assessee suppressed the production of 438 MT of vanaspati ghee having value of Rs. 96,09,720/- sold outside the books of account. It was thus submitted that addition has been made by the AO an account of low G.P. rate and lower production, and on account of higher consumption of electricity. The assessee explained increase in expenditure and this explanation is noted in para 2(iii) at page 3 of the impugned order.

8. The assessee further submitted that no addition could be made for the low G.P. rate and cited two decisions which are noted in para 2(iii)(a) of the order. It was further explained that payment of electricity was duly supported by bills issued by the Electricity Department and, therefore, it could not be said that there was any excessive payment on account of electricity charges. It was further explanained that addition made in earlier years was deleted on appeal.

The system of accountancy regularly followed by the assessee was accepted all along and addition could not be made merely that in some year become profit was lower than other years.

9. The Id. CIT(A) asked the assessee to furnished the project report.

In this connection, it was explained that project report was obtained more than 10 years earlier and had no relevancy with the actual working of the company. figures given in the project report were not comparable with actual working of the company after 10 years. Certain other reasons for fall in profit were given by the assessee.

"2(iv) I have considered the submissions of the Id. counsel for the appellant and also gone through the documents and details made available to me. It is seen during the year under appeal the AO has made the addition on account of production shortages making the previous year's assessment order as basis. The issue had also come up for discussion before the undersigned in the case of the appellant in assessment year 1988-89. It was discussed at length in appellate order dated 18.5.1992, in appeal No. IT/362/224/P-37/91-92/sm. at paga 4 thereon. In the assessment year under appeal the AO has made efforts to find out the authenticity of manufacturing account when he noticed that the raw material and electricity was consumed on higher side as compared to preceding year. The head office of the appellant company was at chandigarh, for the convenience of the appellant, for the production of books of accounts he held his comp office at Chandigarh but these books of account have been made available to him in part. These books of accounts were produced before him when he had already finalised the case and could not examine them. As per assessment order he has done lot of labour to look into the manufacturing results of the appellant he had to rely on the assessment order of the assessment year 1988-89, which has already been adjudicated by the undersigned as stated above.

(a) As already held in the immediately preceding year that the manufacturing process of the appellant company is strictly supervised by the Excise Authorities who regularly inspect the records maintained under the Central Excise Rules. In the case of Seetharam Mining Co. Vs. CIT 68 ITR 1, it was held that where statutory registers have been maintained, estimation of higher production would not be proper. Therefore, I feel there was no reason to doubt the manufacturing account of the appellants.

(b) Secondly the AO has doubted the manufacturing account on the ground that consumption of material was higher as compared to preceding year. The production of finished goods with respect of consumption of material mainly depends upon the quality of material is used. The more better quality of material is used the more quantity of finished goods can be manufactured leaving behind a small portion of wastage. In the present case the cotton seed oil (indigenous) for the manufacturing of Vanaspati Ghee in the earlier years. Therefore, oil losses were lower due to better quality of raw-material consumed. In the preceding years the appellant could import 80% of oils for the purpose of manufacturing of Vanaspati Ghee, thereafter this import was curtailed by the Government. The appellant had to use the other non-conventional oils on bulk quantity like rice bran oil, mustard oil, solvent mahuwa oils etc.

Since the quality of raw material consumed was reduced the production of finished goods was to come down. During the year under appeal it has consumed that non-conventional oils more in quality as compared to preceding years as under : -Rice Bran 300.615 1560.242 2632.414Mustard Oil 399.460 1059.657 2270.738 Therefore, this factor alone shows that the production of finished goods i.e. Vanaspati Ghee was impeded by consumption of lower quality raw-materials. The consumption of material also vary from year to year due to insufficient working, break downs, technical faults and depreciation of plant etc. The recovery of bye-products also depend upon the oil mix used, which has differed in the present case from year to year.

(c) As regards the observations of the AO that excessive consumption of electricity tent amounts to higher production of finished goods, it is seen that the appellant has consumed electricity 309 units per M. Tonn of production as against 298 units consumed last year. There is not steep increase in the consumption of electricity when compared to the preceding year. The consumption of more electricity cannot go to prove that the appellant must have manufactured more bye-products irrespective of other factors responsible for it.

In the light of above observations and also for the reasons mentioned in the appellate order for the assessment year 1988-89 in the case of the appellant, I am of the opinion that the AO was not justified in making addition of Rs. 96,09,720/-. The same is deleted and the appellant gets relief of Rs. 96,09,720/-." 11. The Revenue is in appeal before the Tribunal. we have heard both the parties. The Id. D.R. Placed strong reliance on the order of the AO. It was emphasised that there was fall in the G.P. and increase in raw-material and electricity consumed. The AO had made a detailed analysis of the working of the assessee for the period under consideration and in other assessment years and rejected the book results under extra-ordinary circumstances. The assessee was not able to explain increase in production expenses and decrease in production.

Therefore, the rejection of books of account was quite in order. The AO had further applied reasonable rate of G.P. as per history of the case.

In these circumstance, the additions made was quite in order.

12. The Id. Counsel for the assessee supported the impugned order. He argued that similar additions were made in assessment years 1985-86 to 1988-89 but were deleted in appeal. The Revenue authorities accepted those orders and no appeal was brought before the Appellate Tribunal.

He further pointed out that books of account are audited and production was carried under the supervision of Excise Department. All regular registers relating to raw-material & consumption were maintained, checked and verified by the excise authorities. all the relevant material and vouchers were produced before the AO. No defect in any account was found by the AO. The G.P. rate and production cannot remain constant and there is variation from year to year. Slight fall in G.P.was also explained in the AO and also to the CIT (A). The latter rightly accepted the explanation of the assessee. The assesse further placed on record the trading results of three subsequent years as under : -Asstt. Year G.P. rate Sales (in Crores) Remarks1990-91 4.37% Rs. 41.69 Trading a/c accepted bythe Income-tax Department.1991-92 4.29% Rs. 39.16 Trading a/c accepted bythe Income-tax Department.1992-93 4.24% Rs. 51.79 Trading a/c accepted bythe Income-tax Department.

13. We have given out careful through to the rival submissions and examined them in the light of material available on record. We have already extracted relevant portion of the order of the CIT(A) to show the basis for deleting the impugned addition. It is evident that the Id. CIT(A) has relied on his order for the assessment year 1987-88 and similar orders of the CIT(A) for the earlier assessment years. Before considering in deep the impugned orders of the CIT(A), it is important and necessary to see the basis of the addition made by the AO.14. Reference to assessment order reveals that in para 3, the AO has observed that GP rate in the rate in the year under appeal is 3.73% on turnover of Rs. 66.53 crores against G.P. rate of 3.6% on sales of Rs/ 34.75 crores of the last year. After excluding depreciation claimed, the G.P. would come to 4.14% against 4.42% of the last year. A relevant fact to betaken into consideration is that turnover in the assessment year under consideration is almost double than that of the last year.

15. In para 5 of the assessment order, the AO noted consumption of oil, coal and electricity for one MT of production of ghee and by-products in the first period and in the second period and then compared them with assessment years 1988-89 and 1987-88. The total consumption of raw-material and production of ghee is also noted. This is aimed at providing that there was downward treed in the production. he then observed that vide order-sheet entry dated 23rd January, 1992, the assessee was required to furnish explanation of disproportionate increase in manufacturing cost. He held that explanation of the assessee was not satisfactory. The composition of change of raw-material consumed could to affect production. He concluded that consumption of higher electricity and oil only showed that there was production and consequent sale not recorded in the books of account.

16. After drawing above inherence, AO has addressed the question as to what was the addition to be made. He first compared G.P. rates. He then looked to the ratio between oil production and the by-products. He then took note of the addition which he made in assessment year 1088-89 and found that the ratio of the finished products to by-products, if above addition is taken into account, would be 14.56 times in weight of the by-products. If above multiplier is applied to by-products of the year under consideration, the main finished product should be 35337 MT against 32812 MT disclosed by the assessee. But he did not make above addition.

17. The AO then considered consumption of power and found that 309 units of electricity were consumed against 298 units of the last year and 286 units of assessment year 1987-88. This way there was increase of over 6% in quantity of power consumed. If this was taken into account, there could be an addition of 1968 Mt. But the AO did not make this addition also.

18. That AO then referred to the notice issued by him u/s 142(1) and served on the assessee on 16.11.1991 for production of regular basis of account, sale vouchers etc. It is not recorded that above books of account were not produced. Vice order-sheet entry dated 8.1.1992 and 23.1.1992, the AO called upon the assessee to produce books of account and production registers. It is noted that books of account were not produced by the assessee and it was stated by the assessee that same would be produced after all the details otherwise required filed. There is nothing on record to show that the AO rejected the request of the assessee for production of books of account after all the details required were filed by the assessee.

19. In the next para, he has, however, noted that the assessee was required to produce batchwise production indicating quantity of raw-material utilised in each batch. If above records were not available batchwise, there would certainly be daily production and daily consumption record, the AO has further observed. He then observed that cost audit report was furnished for assessment year 1987-88 but not in assessment years 1988-89 and 1989-90. The AO then made the following pertinent observations : - "Thus in the absence of production record and in the absence of cost audit report, it was not possible to ascertain the truth or genuineness of the assessee's explanation regarding trading and manufacturing results." It is pertainent to mention that the assessee was never obliged by the AO to furnish cost audit report for the year under consideration.

Further the assessee did furnish all the details of consumption of raw material and production inclusive of by-products for the first period as also for the second period. Unless such material was furnished, the chart available in the assessment order could not have been prepared.

It is not clear from record whether batchwise consumption or production is available with the assessee or not. In our considered opinion, when details for production and consumption of raw-material were filed and not doubted by the AO and when inference was clearly drawn the there was higher consumption and higher by product with downward trend in production, there was no need to call again and again for production register of batch and for daily production and consumption records.

20. In the next para, the AO has referred to non-Production of Project report. The said project report was not filed before the AO but filed before the CIT(A). The production report based on hypothetical figures has rightly been held to be of no use by the Id. CIT(A) as the assessee's factory had been running for several years. There are actual figures of consumption and production which have been used by the AO.Therefore, in the circumstances, we entirely agree with the CIT(A) and submissions of the Id. Counsel for the assesse that documents not relevant were being insisted upon for production by the AO.21. There is no dispute that percentage of production of oil vis-a-vis consumption of raw-material, electricity and coal is lesser than in earlier assessment year. The pertinent question to be considered was whether there was reasonable explanation for this decrease in production or not. If there was no reasonable explanation, the addition made has to be held to be justified but if the explanation of the assessee is held to be plausible, then there is no case for the addition in the trading account. We shall, a letter late, address this question.

22. The AO then worked out projected production for the year under consideration based on three analysis : This has been done on the basis of assessed and returned figure of income from assessment years 1987-88 and 1988-89. It would be useful to lift the following paragraph from the order of the AO to appreciate the basis of the addition : - "The table below gives the projected production of this assessment year if computed on the basis of norms and standards disclosed by the assesse in earlier assessment years. Column 1 refers to the factors from which the production can be derived on the basis of data available for a.y. 1987-88 and 88-89 : -Consumption rate of raw Projected production for Actual Differencematerial A.Y. 89-90 production1.044 (A.Y. 87-88) 30735 29833 9021.060 (A.Y. 88-89 The assessee has disclosed the consumption of 1.75 tonns of raw material for each tonn of finished product. The projected production on the basis of by-products is given below :22.2 Times (1987-88) 53879 29833 2404614.53 (A.Y. 88-89 assessed) 35264 29833 943114.36 times (A.Y. 88-89 assessed) 43861 29833 5018 The assessee has disclosed production of finished goods only 13.51 times of the weight of by products totalling 24.27 metric tonns. The projected production on the basis of consumption of electricity is given below : -286 units/tonns (A.Y. 87-88) 35253 29833 5420298 Units/tonns (A.Y. 88-89 returned) 33980 29833 4147 The assessee has disclosed consumption of 309 units of electricity per metric tonn.

From the above three tables it is evidently clear that the assessee has suppressed its production and consequently the sale of finished products. Keeping in view the assessment order for asstt. year 1988-89 ad other record as well as explanation given by the assessee in this regard the assessee is held to have suppressed production and consequently sale of 438 metric tonn of vanaspati ghee which is the least figure of difference in the above 3 tables. The average selling price during the year was Rs. 21940/- per metric tonn.

Applying this rate of 438 metric tonn of suppressed production an addition of Rs. 96,09,720/- is made to the assessee's income on account of suppressed production as well as suppressed sales.

Penalty proceedings for concealment of income are initiated accordingly." 23. The AO was quite generous in taking the least figure of addition of 438 MT although it was very much within his powers to add difference of 9431 MT as concealed production and add 20 times more than the addition proposed by him in the assessment order. Why that was not added is not explained. However, the wise variation in results projected production in the formulas adopted by the AO demonstratively show that criteria adopted by the AO was faulty. The variation in consumption and production from year to year is quite natural if facts are considered in an objective manner. Be that as it may, addition made is of 438 MT of ghee allegedly sold outside the books of account. This is made on account of the projected production added based on the assesseed figure for assessment year 1988-89. It has direct nexus for what the AO had done in assessment year 1988-89. It may be mentioned here that assessment for assessment year 1989-90 was completed on 25.3.1992. The appellate order for assessment year 1988-89 was passed on 18.5.1992. It is, therefore, clear that above order was to available to the AO while making the assessment. However, the order of CIT(A) for assessment year 1988-89 was passed shortly after the assessment order in question and reasons given in the said order were accepted by the Revenue by not filing any appeal against the said order. Having regard to the basis of the addition, the assessee is entitled to relief as trading results in the period under consideration are not bad when compared with the period relating to assessment year 1988-89. The Production is almost double and fall in G.P. in only from 4.42% to 4.14% i.e. 28%. It is this addition and this additional alone and its basis which was the subject matter of appeal before the CIT(A) and now in appeal before the Appellate Tribunal.

24. One of the main arguments raised before the Tribunal was that the assessee failed to produce the books of account. We have already noted that the assessee produced all the relevant details and promised to produce the books of account after al the requisite details were furnished. It is not recorded by the AO that above request of the assessee was rejected. There is evidence in the assessment order that books and records were produced before the AO. There are the following pertinent observations in the assessment order : - "The undersigned fixed camp at Chandigarh on 28.2.1992 as the Admn.

office of the assessee company are located near Chandigarh. This has been done to facilitate the production of the books of accounts and complete vouchers. On 28.2.1992 books wee only partly produced. Cash book was not produced nor were most of the vouchers and purchase books. This was duly recorded in the order sheet on 28.2.1992 and the proceedings were closed." It is evident that all books of account were produced by the assessee except cash book. How cash book or bouchers were relevant for the issue raised by the AO is not evident from records. Again it is recorded that on 3.3.1992 i.e. two days after the above date, the assessee produced again voluminous records and the AO observed as under : - "On 3.3.1992 Sh. V.K. Puri, Company Secretary attended office at solan alongwith voluminous set of books of accounts. However, his offer that these be examined was rejected as the proceedings had already been closed on 28.2.1992." The assessment order is dated 25.3.1992. Books of account other than cash books were produced on 28.2.1992. The cash book alognwith other columinous records was admittedly produced on 3.3.1992. The AO having regard to date of order has sufficient time at this disposal to examine the books of account if he wanted to. But from the order an impression is gathered that AO was looking for a chance to reject the books of account without putting in labour to find defects therein. It has been contended before us that the AO has rejected the books of account and, therefore, the CIT(A) should not have considered the accounts or other production register more particularly the record maintained under the Excise Rules.

25. We do not find any force in the above submission. it is evident from the assessment order that the AO called for numerous details not only for assessment year under consideration but also for earlier assessment years and asked the assessee to make out comparative chart of consumption of various items, production of main item, by-products and yield of rest period and second period. It is nobody's case that any of the information placed by the assessee before the AO was wrong.

The above information could not be provided without the maintenance of regular books of account. Besides, the assessee is a company and its books of account were audited under the statutory provisions of the Act. The assessee furnished audit reports and information as sought by the AO. As a large number of details were asked for, the assessee contended that books of account would be produced after details requisitioned by the AO were filed. The AO is not shown to have objected to above request of the assessee during the course of assessment proceedings. It is further recorded in the assessment order, and those relevant observations are extracted in earlier part of this order, that the AO fixed camp at chandigarh on 28.2.1992 to facilitate the production of books of account by the assessee. It is recorded that books of account were produced on that date alongwith voluminous records except cash book and some vouchers. The AO has not shown in the assessment order how cash book was relevant to the controversy raised by him relating to production. which of the bouchers not produced was relevant is also not clear from the assessment order. However, in order to avoid complications, the assessee took volumnious records to Solan for examination of the AO on 3.3.1992. The assessment order was passed on 25.3.1992. Thus between 3rd March and the date of the order, there were clearly 22 days period available and the AO could have very easily examined and seen whatever he wanted to see with reference to the books of account. We may taken liberty to add that how entires in the books of account were relevant for examining the explanation of the assessee relating to fall in production of main item and increase in production of by-products, is not stated by the AO. With reference to entries in the books of account, he prepared charts relating to production and projected production if there was no fall in production or increase in by-products or consumption of higher raw-material and electricity. The addition has been made on account of low production and by taking into account figures of estimated production (projected) and, therefore, short question which arises from the order of the AO was whether there as short production and whether addition made was justified. Having regard to totality of facts and circumstances narrated above, it is clear that the AO was looking for reasons to justify his rejection of books of account. Otherwise, rejection of books of account was to based on any examination of accounts and it would be wring to say that accounts were not produced before the AO. On the other hand, the AO did not examine the books of accounts as he was of the view that there was understatement of production in the books of account as per information produced by the assessee and used by AO in the assessment order. We, therefore, do not find any substance in the criticism of the Revenue that the CIT(A) was not right in relying on the books of account of assessee as also on the fact that such books of account were regularly checked by central Excise Authorities and no error was found. The citation given by the CIT(A) in the impugned order i.e. 68 ITR may not be correctly cited but it is settled law that importance has to be attached to the fact that item manufactured by the assessee are excisable items and that registers required under the excise rules relating to consumption of raw material and production were maintained and periodically checked by those authorities and found to be correct and complete. Having regard to the manner in which investigation has been carried by the AO, the aforementioned circumstances cannot be ignored and were rightly considered importance by the Id. CIT(A).

26. As noted earlier, the assessment year 1988-89 is very relevant for disposal of present appeal. We have already noted that GP rate in the year under consideration is quite comparable with GP rate of assessment year 1988-89 although production and sale in the period under consideration is almost double than that of assessment year 1988-89. It may be noted that production capacity was increased from 15000 MT last year to 18750 MT and, therefore, efficiency should have increased as it takes time to get established. The Production capacity was raised and in fact there has been a higher production but whether higher production led to higher production led to higher efficiency is a relative question. What is efficiency - A higher production or higher profit or higher by -Product? In our considered opinion, we need not give importance to the above question. It would be important to examine whether addition made by the AO for under production of 438 MT is justified. It is evident from the chart that conclusion of suppressed production of 438 MT is based on the assessed production taken by the AO in the period relevant to assessment year 1988-89, as in that year also, the AO has concluded that there was suppression of 234 MT and this way addition of Rs. 45,39,600/- was made in the income of the assessee. The addition was deleted by the CIT(A) in appeal and the said order accepted by the Revenue. the said order was passed after the assessment order in question and, therefore, the AO has not the advantage of going through the order of the Id. CIT(A). He though that basis adopted by him in assessment year 1988-89 was good basis and, therefore, it was applied in the assessment year under consideration for making the impugned addition.

27. It is, therefore, relevant to consider what was observed by the CIT(A) in his order for the assessment year 1988-89. In the said assessment year, the AO in the first assessment order made the following additions : - ii) Addition for alleged higher consumption of power and electricity : Rs. 10,00,000/- iii) Addition for alleged higher consumption of coal : Rs. 10,00,000/- 28. The above assessment was set aide by the CIT(A) and the AO was directed to re-examine the case. In the fresh assessment, the AO found that the assessee produced 17069.250 MT of vanaspati by consumption of 18341.746 MT of edible oils. The AO found that average consumption of il was 1.074 MT for 1 MT of vanaspati produced. This was considered to be higher, as according to him, in earlier year, such consumption varied from 1.044 MT to 1.062 MT for production of 1 MT of vanaspati.

Since the average consumption was in excess, the AO concluded that there was unaccounted production. He worked out the production on the basis of average consumption of 1.06 MT of consumption of oil and this ways concluded that there was shortage in production of 234 MT of vanaspati. The average selling price of above was taken at Rs. 45,43,600/- and added to the income of the assessee. It is relevant to mention that in that year also, no cost audited report was obtained.

But in the immediately preceding assessment year as per such audited report, consumption of oil per MT of production was found to 1.044 MT against 1.074 MT in the period relevant to assessment year 1988-89.

Consumption of coal and electricity was also found to be higher. On above reasoning, the AO justified the addition.

29. On appeal before the CIT(A), the assessee raised the following contentions : - "i) That the appellate is a public limited coy. Engaged in manufacture of vanaspati and its bye-products which are all excisable goods. The entire manufacturing process starting from raw materials to finished products are done under supervision of Excise Authorities and records as maintained under Central Excise Rules are periodically checked by such authorities. Hence there is no scope of suppressed production.

ii) Consumption of materials may vary from year to year due to inefficient working, break downs of machinery, technical foults and such other factors.

iii) Out of total total consumption, D-Grade coal which is of much inferior quality accounted for 47.34 of total consumption. This explains higher coal consumption.

iv) As regards excessive electricity, it was pointed out that during this year more rice bran oil. solvent extract-mustard oil and Mohva oil were used. Due to change in product-mix, the processing time was longer which resulted in higher consumption of electricity." It was submitted that the AO did not take into account objections/explanation rendered by the assesseeing the proper perspective and the addition was made in an arbitrary manner without application of mind. The Id. CIT(A) found force in the submissions advanced on behalf of the assessee and deleted the addition. His reasoning can be summarized below : - a) That manufacturing unit of the assessee was under the strict supervision of excise authorities who regularly inspected the record maintained under the Excise Rules. Day t day record and stock tally was also available. No defect was found by the excise authorities or by the AO in the books of account maintained by the assessee.

b) That consumption of material may vary from year to year due to in-efficient working, break-down, technical faults and other human failures. The CIT(A) accepted that production would depend upon the edible oil used. He held that oil mix inter se varied from year to year and this variation is based on techno-economical consideration like availability of oil, specification of oil, quality of final product as well as sale rate in the market. There would be more oils loss when con-conventional oils were used. Vanaspati rice-bran oil, mustard oil (solvent) are non-conventional oils. The Id. CIT(A) further found that more non-conventional oils were used in the period under consideration and quoted the following figures : -Rice Bran Oil 300.615 1560.242Mustard Oils S.E. 399.460 1059.657" In his view the above consumption of higher non-conventional oils would make a material difference to the quality of end product. The CIT(A) also took into account higher by-product and noted the following comparative figures :- 30. He thus found that by-product in the period relevant to assessment year 1988-89was much higher and held that 6.48% of in-put had been recovered by way of by-product. The quantity of end product i.e.

vanaspati has to be less. He observed that the AO has failed to appreciate the logic of above facts and acted in an illogical manner against the appellant. The Id. CIT(A) also noted that as per chart issued by Vanaspati Manufacturers Association of India, consumption ratio should be 1.73 MT against 1.74 MT of the assessee. The difference was insignificant.

31. The Id. CIT(A) also addressed the question of higher consumption of coal and electricity. He held that when D grade of inferior quality of coail was consumed, quantity will go up. The CIT(A) took into account figures furnished by Bureau of Industrial Cost and Price (BICP) and held that assessee's consumption was more than 419 MT against 430 MT reflected in the figures of the Bureau. Likewise, he found that 12 units of electricity in excess were consumed for production of MT of vanaspati. He found that consumption of power would not be compared from year to year as in one year there may be more break-down, tripping and line loss than the other. This fact was not taken into account. In the final analysis, he held that assessee had consumed rice bran oil, mustard oil, muhuva oil and due to change in oil mix, more power was consumed as processing of these oils is much longer than other oils (conventional). He accordingly held that consumption of coal and electricity cannot be held to be excessive. The Id. CIT(A) accordingly deleted the addition in assessment year 1988-89.

32. In the appeal for the assessment year under consideration, the Id.

CIT(A) held that books of account were maintained in a similar fashion.

Facts and circumstances were also identical. The consumption of raw-material was also reasonable. He produced comparative chart in the order and deleted the addition of Rs. 96,09,720/-.

33. The main submission of the Id. DR. in appeal before us was that book of account were not produced before the AO, and that circumstances under which there was fall in main product were not explained. The assessee also failed to explain increase in consumption of raw-material and electricity. Reliance was placed on the order of the AO which according to the Id. D.R. was quite reasonable. The Id. counsel for the assessee, on the other hand, placed strong reliance on the order of the Id. CIT(A) for assessment year 1988-89.

34. It is evident that similar additions were made in the trading account for the assessment year 1988-89 and also in earlier years, but the same could not stand in appeal and were deleted. It was held that books of account maintained by the assessee particularly when supported by regularly maintained consumption and production registers duly checked by the excise authorities could not be rejected. No defect to Justify rejection of books of account was pointed out by the AO. slight variation in consumption ratio to production in attributable to several factors beyond the control of the assessee. The deletion of similar additions in assessment year 1988-89 and in earlier years was accepted by the Revenue and no further appeal was filed. We do not know why for this year on identical circumstances the matter has been brought in appeal before the Tribunal. No distinguishable feature has been brought to our notice. Gross profit rates lower than one disclose din this year wee accepted in the earlier and subsequent years and, therefore, we do not see any ground to sustain addition on account of low gross profit rate. We are of the view that the Id. CIT(A) in his detailed order took into account all relevant facts and circumstances while deleting the impugned addition. All the points raised by the AO have been met in the impugned order. We do not find any legal error in the approach of the Id. CIT(A) and confirm his order. Deletion of addition is hereby upheld.35. In the next ground of appeal, the Revenue has challenged the deletion of disallowance of Rs. 19,339/- made on account of foreign traveling of Managing Director. The AO disallowed the above amount as not relating to business. On appeal, the CIT(A) held that the Managing Director went abroad in connection with the assessee's business and this tour was authorised by the Board of Directors. He accordingly deleted the disallowance.

36. The Revenue has come up in appeal. However, during the course of hearing, the Id. D.R. Could not point out any mistake in the impugned order of the Id. CIT (A). The deletion of disallowance of Rs. 19,339/- is here by confirmed.

1. I have gone through the order proposed by my id brother (Hon'ble Vice President) and on having considered all the relevant facts, I have not been able to persuade myself to agree with the conclusion reached at by him in deleting the impugned addition. So, I am writing my separate order. For proper appreciation of the controversy involved, I recapitulate the facts, in brief.

2. The assessee, a limited company, carried on the business of manufacture and sale of vanaspati ghee. The accounting year was for 21 months during the assessment year. The assessing officer noted that there was fall in Gross Profit and productivity ratio consequently, the assessing officer required the assessee : - a) To explain the reasons for fall in the trading result vide notice dt. 13.11.91.

b) Vide notice dt. 16.11.91, the assessee was required to produce the books of account.

c) Vide order sheet entry dt. 8.1.92, the assessee was required to furnish production record.

d) Vide order sheet entry dated 19.2.92, the assessee was required to produce project report.

When the assessee did not produce the books of account, consumption and production records, the assessing office put camp at Chandigarh on 28.2.92 to facilitate the production of books by the assessee but assessee did not produce books as desired by the AO. The cash book, production records including batchwise production, consumption records and most of the vouchers and purchase vouchers were not produced.

Therefore the assessing officer could not be able to examine, verify and testify the authenticity of the results declared and detailed filed by the assessee and also whether the assessee was maintaining proper books of account or not. In this background, the A.O. left with no alternative but to analysis the available data and past records and compared it with the results for a.ys. 87-88 and 88-89. AO noted the following figures : -Item 1st Period 2nd Period Total Last YearsOil consumption PMT production 1.084 1.064 1.075 1.074 1.044By products manufactured 1412 1015 2427 1188 615Coil consumption PMT of production 3769 5225 3959 419 338 of production 292 334 309 298 286Processing cost MT of production 853 1074 884Actual consumption of oil 18885 13203 32088 18341Installed capacity 18750 14062 32812 18750Sale of vanaspati ghee in MT 17486 12211 29697 17728 Sale of vanaspati ghee in amount 379604671 271970359 651557503 347593394" The assessing officer after considering the explanation of the assessee came to the conclusion : - i. that the coal consumption per MT is higher this year as compared to previous year.

ii. that the electricity consumption is higher per MT, vis-a-vis pervious year.

iii. that finished goods to consumption of raw material and with by products is understated.

For the above reasons, the assessing officer estimated that there has been suppression of production and sale of vanaspati ghee by 438 Mt. by the assessee during the assessment year under consideration and valued the same at Rs. 96,09,720/- on the basis of average rate realized by the assessee and thus made the addition of this amount in the income of the assessee.

2.1. The assessee went in appeal before the CIT(A), who deleted the addition. The observations of the CIT(A) have been reproduced in para 10 of the proposed order of my learned brother. The revenue has come in appeal before us against the said deletion.

3. I have gone through the rival submissions made and produced by my learned brother in the proposed order, material on record as well as the orders of the tax authorities. In my opinion, the addition made by the assessing office is justified and the order of the CIT(A) deleting the additions cannot be sustained due to the following reasons : - 1. The contention of the assessee before Id CIT(A) and before us that one of the reasons for fall in g.p. is higher cost of consumption of raw material as the factory is situated in Himachal Pradesh,where raw material is not available and as such the same has to be procured from outside the State, which entails payment CST and cartage etc. This reply of the assessee is totally irrelevant on facts of the case before us as AO has not compared the results of the assessee with another assessee situated in other State where raw material is freely available. AO has compared the results of the assessee with its own case and in its own case, this factor of higher cost remains constant for all the years because every year the assessee has to procure raw materials from other States. In facts, he reply of the assessee has side tracked the issue and cannot be considered at all.

2. In respect of the contention of the assessee that the electricity expenses are duly supported by bills and as such it cannot be said that there has been excessive payment of electricity, it may be mentioned that the AO never made this issue that electricity charges were more. On the contrary, AO's observation was that per unit consumption of electricity is more. It was due to this fact that AO observed that there has been suppression of production and sale outside the books made by the assessee during the year under consideration.

3. The submissions of the assessee that the books of account were produced from time to time at Chandigarh camp and at Solan, it totally alien to the facts as books of accounts as desired by the assessing officer were never produced in spite of repeated opportunities. Production record was never produced.

This observation has been made by Id CIT(A) under para (b) at page 2 of the impugned order .

4. In this case, in my opinion, the issue is when there is fall in g.p., AO can investigate the matter and the investigation cannot be thwarted by the assessee by adopting non-cooperative attitude and come up with all sorts of legal and technical pleas at higher appellate forum avoiding production of complete books of account before lower authorities.

5. There is no dispute on this settled law that when regular system of accounting is followed, no addition can be made but the fact remains that whether the assessee has been following a regular system or not has to be established by the assessee, which can be done by producing books of account claimed to have been maintained. In case, the assessee fails to produce the books, this plea has not legs to stand. Therefore, under these peculiar facts, it cannot be held that the assessee had been following regular system of accounting.

6. The action of the CIT(A) to accept the project report from the assessee and the reasons of irrelevancy is not justified. On the contrary, Id CIT(A) should have asked for reasons of non-furnishing the same before AO. Principles of natural justice demands that AO's comments should have been called for the same, especially when he had demanded the same. CIT(A) has accepted the reasons of irrelevancy of project report furnished by the assessee without quoting in the order what was the field or raw material consumption and production output ratio, g.p., electricity consumption per MT. given in the project report. The nature of the need for the assessee to discard the project report was not stated in the impugned order.

7. The reliance has been placed by id CIT(A) on the decision reported in 68 ITR 1, as reproduced in para 10 of the proposed order, I do not find any such case reported in 68 ITR 1. From record, it appears that this case was never cited by the assessee before the CIT(A). The contention of the assessee that when its books of accounts are verified by excise department, its manufacturing results cannot be doubted. In my opinion this finding of CIT(A) is very strange. If this is the law, the revenue will not have any right to inspect the books in the case of manufacturing concern where the production is subject to excise duty because they are examined by the excise authorities. The finding of CIT(A) under the facts of the case will tantamount to certifying the correctness of the accounts maintained by the assessee even through these were never examined by the AO. There may be a situation that the books are impounded by the excise department or the excise department would have raised objection. For this opportunity is required to be given to the assessing officer. In my opinion if the proposition of law as laid down by CIT(A) is upheld, the purpose of assessment get defeated and the provisions of section 143(3) and 142(1) would become otiose.

8. In para 10 of the proposed order, in which the finding of CIT(A) under para 2(iv)(b) is produced there is a finding that in earlier years, the assessee could import 80% of oil. In the later years there was curtailment on imports and the assessee had to use non conventional oil like rice bran and mustard oil, I find from the record that this aspect was not before the AO and nor the assessee made it in its submission before the CIT(A) in which the assessee had discussed some sketch facts about project report. No reason is given about the non-submission of project report before AO and its acceptance by the CIT(A) without giving any opportunity to the AO. The submission does not reveal the input-output ratio, GP, electricity consumption ratio in the project report. It has been mentioned that the assessee could import 80% and not 55% but it has not been mentioned what was the actual import figure during the year under appeal and in the earlier years. Even the nature of the imported oil not given. The CIT(A) has finally mentioned that rice bran and mustard oil was used by the assessee in larger quantity this year and are of inferior quality and this had led to low input output ratio. The consumption figures for the last three years are given in quantity no in yield ratio. One cannot agree for this proposition due to the following reasons : - "a. The CIT(A) has compared the consumption of oil in quantity rather than in terms of % age. In this year under appeal the period of accounting is for 21 months and as such total oil consumption is 75% more than of the preceding year (the total oil consumption in preceding year is 18241 for 12 months while for current a.y. (21 months), it is 32088). This increase is only due to the fact that the A.Y. under consideration is for21 months. The rice bran oil and mustard oil (non-conventional oil) as compared by CIT(A) is 4903.154 Mt (for 21 months) for the year and 2619.899 for the proceeding year. The consumption of the non-convention oil is 15.2% for the current A.Y. while for the preceding year it is 14.3% if the ratio is worked out to the total oil consumed. Thus is percentage there is no significant change.

b. CIT(A) while justifying the excessive loss, the non conventional oil which constitutes only 15% of the total oil consumed is compared ignoring the comparison of the mix of total oil consumed. Nothing is on record whether, in balance 85% superior or inferior oil is consumed. Therefore, in the absence of correct date which can be provided by the assessee, this pick and choose method of the CIT(A) cannot be accepted.

c. That nowhere, assessee has specified the basis that the oil wastage is more in non-conventional oil.

d. That price factor of conventional and non-conventional oil has not been looked into." 9. In para 2 (iv)(c) of the CIT(A) order as produced in para 10 by Id.

Brother, the addition was deleted on the basis of the finding given in the preceding years. It is pertinent to note that in the preceding year CIT(A) has held that the assessee's production capacity has increased from 15000 MT to 18750 MT and since that was the fist year of expansion, losses are bound to be more than earlier year because it takes time of stabilization of plant and the efficiency will increase in the next year. In my view, this reason cannot be the basis for the current assessment year nor the assessee has raised this plea before CIT(A). Therefore, reliance on preceding year is misplaced on the peculiar facts of the assessee. If the finding of CIT(A) applied to this year, there should have been significant improvement in the trading results of the assessee. This vital aspect was not examined. In the preceding year, it has been mentioned that B grade coal was more consumed but no such fact has been brought on record during this year.

The power consumption could be more due to more tripping and composition of oil mix consumed. It is found that only generalization has been done and no effort has been made to bring on record the no. of tripping in earlier year and this year. This is possible if complete electricity register is maintained in the plant. Similarly, consumption of raw material mix should have been compared for justifying more consumption of electricity rather than stating that this could be possibility. Again, in the preceding year, it was held that no defects were pointed out in the books of account. This finding cannot help the assessee in this year specially when all books as desired by AO have not been produced by the assessee and examined by the AO.10. In my opinion, results in the books of account cannot be accepted as the same were not produced and verified by AO. So, it cannot be held that the assessee has maintained proper books. The addition cannot be deleted even on the basis of preceding year, as the account in this year is for 21 months and Id CIT(A) has given different reasons for deletion of addition. The facts and figures submitted by the assessee in support of his contention cannot be verified without examination of books of account and, therefore, these cannot be relied upon. I have even gone through the written submissions given by the assessee before Id CIT(A) , copy filed before us but I do not find any discussion by the assessee in the written submissions about the production of books of account nor there is any submissions by Id AR that the assessee made a request on 28.02.92 that it be given further time to produce the books and the same were not considered or rejected by the AO. Even the books were not produced before Id CIT(A) and he has also not examined the same.

11. The fact remains the AO asked for books of account as early as in Nov 91 and the assessee did not produce the same for one reason or the other till 28.02.92, the date when AO had already completed proceedings, in spite of the fact that AO camped at Chandigarh, only to verify the books, as per order sheet entry dated 28.02.92, which is clear from the following observations in the assessment order : - "The undersigned fixed camp a Chandigarh on 28.2.1992 as Admn.

Office of the assessee company are located near Chandigarh. This has been done to facilitate the production of the books of accounts and complete vouchers. On 28.2.1992 books were only partly produced.

Cash Book was not produced nor were most of the vouchers and purchase books. This was duly recorded in the order sheet on 28.2.1992 and the proceedings were closed." 12. It is clear that books were not produced. There is no assertion by the assessee also wither before the AO or even before us that the books of account were procured on 28.2.92.

13. In my opinion, AO is correct in law in not examining the books when produced on 3.3.92, although order passed on 26.03.92, hearing concluded on 28.02.92. It has to be kept in in that AO was not doing only one assessment. March is the moth of time barring assessment. Once hearing is concluded by giving due and adequate opportunity, it would be unfair to ask AO the closure of the proceedings that he should examine books of account and when the assessee walked in his office, as per its whims and fancies. it seems to be merely a plank on the part of the assessee. If assessee's intentions were bona fide, it could have produced the books of account before Id CIT(A) or Tribunal but it was not done. This plea of the assessee should not have been accepted by Id CIT(A).

14. Before us, there is no assertion by the assessee that it was not given fair and adequate opportunity to produce the books of account.

All that the assessee can agitate in the appeal is that despite, fair and adequate opportunity by AO, there were reasons beyond his control not to produce books in time.The assessee has not given any explanation why books could to be produced on due date. Accordingly, the books of account could not be examined in appeal and the same has to be decided as the books were not produced.

15. When the books are not produced. AO has to estimate income to the best of his knowledge. In may view, estimation made by AO is correct under the facts and circumstances of the case. What should be an estimate, in this regard Hon'ble Supreme Court in the case of Commissioner of Sales-tax H.M. Esufali HM Abdulali 90 ITR 271 (SC) has held as under : - "....In such a situation, it was not possible for the officer to find out precisely the turnover suppressed and he could only make an estimate of the suppressed turnover suppressed and he could only make a estimate of the suppressed turnover on the basis of the material before him. So long as the estimate made by him was not arbitrary and has a reasonable nexus with the facts discovered, it could not be questioned. It was wrong to hold that the officer must have material before him to prove the exact turnover suppressed." 16. Principles of res judicator will not apply to income-tax matters.

Moreover, the earlier year order is the order of Id CIT(A) and not ITAT, if the additions were deleted because Id CIT(A) set aside the order for examination of books of account and other record. On set aside, in fact the AO has examined the books of account in the earlier year and after examining the books of account the additions were made which were deleted by Id CIT(A). Thus the issue in the earlier year was of appreciation of evidence which was duly produced by the assessee before AO but in the case before us, the evidence in the shape of books of account was not produced before AO. Therefore, in the absence of non-production of books of account, the result in the books cannot be accepted.

17. Further, the determination of income is dependent on the books of account regularly maintained by the assessee. The proceedings under the Income-tax Act are different from the criminal proceedings. In criminal proceedings, the oral evidence is relevant to decide whether the accused has committed an offence or but this is not the case in income-tax proceedings. The income cannot be determined on the basis of oral evidence and on the saying of the assessee that it has maintained regular books of account, without producing the same before the AO for his examination/verification.

18. The core issue in this case is related to the property of the assessment. The AO repeatedly called for books assessee did not produce the same and came for relief a the higher level. If this is allowed, the provisions of section 143(3), 142(1) and 144 will become otiose.

This has a support from the ratio laid down by Delhi High Court in the case of CIT v. Motor General Finance Ltd 254 ITR 449, in which it was held " As the assessee could not produce any document in this regard an adverse inference in terms of section 114 of the Evidence Act should be drawn to the effect that had those documents been produced the same would have gone against the interest of the assessee".

19. I, therefore, by considering the totality of facts and circumstances of the case, the order of the assessing office needs to be upheld by setting aside the impugned order of the CIT(A). Hence the appeal filed by the revenue is allowed by upholding the addition of Rs. 96.09.720/- made by the assessing officer. The order of the first appellate Authority is hereby set aside.