INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Power and fuel expenses - Disallowance on basis of table and details furnished by assessee and Annual Report -

AO observed that the assessee during the year has claimed 'power and fuel' expenses of Rs. 1721.22 lakhs as compared to Rs. 1372.59 lakhs claimed in immediate preceding assessment year on the similar amount of consumption of raw material, i.e., 12200.01 MT in the year under consideration and 12898.6 MT in the immediate preceding assessment year. The AO, on the basis of the details furnished by the assessee in Annexure 'A' prepared a chart containing the details of unit-wise and product wise which was showing the consumption of actual units with respect to Furnace Oil, Wood, High Speed Oil and electricity in the process of production. This chart was compared with the details furnished by the assessee in the Annual Report wherein certain discrepancies were found. The discrepancies observed by the AO. There was huge difference in quantitative consumption of Power and Fuel as per the Annual report in comparison to the chart prepared from the data submitted by the assessee. Regarding the electricity consumption AO held that it has been seen that power for production has been used for 24% only whereas on the other hand the balance power, i.e., 76% has been consumed for other activities such as research and development, staff colonies, streetlights and stores which is not acceptable for the simple reason that manufacturing activity is the main business of assessee where electricity should have been used more. The AO, similarly held that the Furnace oil, wood and high-speed diesel cannot be used other than the production process. Accordingly, the AO disallowed an expense of Rs. 4,71,53,581. CIT(A) after considering the submission of the assessee and other facts deleted the addition made by the AO.Held: The question arises whether the information furnished in the annual report can be basis for making the disallowance. The answer stands in negative. It is because to make the disallowance of the expenses, the AO has to establish the fact that the expenses were bogus or were not incurred in connection with the business. But, the AO has not brought anything on record suggesting that the expenses were bogus or these expenses were not incurred in the course of the business. Even for the sake of understanding, Tribunal assume that the assessee has incurred more expenses under the head power and fuel as discussed above in comparison to the immediate preceding assessment year which resulted the high cost of production to the assessee but the same cannot be disallowed on the reasoning that the assessee has incurred more expenses than the immediate preceding assessment year. It is because the test which has been provided under section 37 was that any expense which is not capital in nature/personal in nature incurred in course of the business has to be allowed while computing income under the head business and profession. Indeed, the cost incurred by the assessee under the head power and fuel is not capital in nature and there was no allegation by the AO that such expenditure was not incurred in the course of the business. As such, AO cannot decide to allow or disallow the expenses on noticing difference between the annual report and the details submitted by the assessee during the assessment proceedings until and unless there are supporting evidences. Accordingly there was no infirmity in the order of the CIT(A). Hence the ground of appeal of the revenue was dismissed.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2011-2012

INCOME TAX ACT, 1961

Section 143(3) & 37(1)

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