M/s Saraswati Tobacco Company., Chikodi V. Income Tax Officer, Nipani., Nipani

CO 15/PAN/2015

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 1062 (ITAT-PANAJI)
• Duration Of Justice: 3 month(s) 4 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 13-07-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 13-07-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 08-04-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANAND SHANKAR MARATHE
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI N.S. SAINI , HONBLE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, HONBLE JUDICIAL MEMBER ITA NO. 409 /PNJ/201 4 (ASST. YEAR : 20 11 - 1 2 ) ITO, NIPANI, DIST. BELGAUM VS. M/S. SARASWATI TOBACCO CO . , 1043 - A , SHIVAJI CHOWK, AT POST : GALATAGA, TQ : CHIKODI, DIST. BELGAUM. PAN NO. AAOFS 3729 F (APPELLANT) (RESPONDENT) C.O. NO. 15 /PNJ/201 5 (ASST. YEAR : 20 11 - 1 2 ) M/S. SARASWATI TOBACCO CO., 1043 - A, SHIVAJI CHOWK, AT POST : GALATAGA, TQ : CHIKODI, DIST. BELGAUM. VS. ITO, NIPANI, DIST. BELGAUM PAN NO. AAOFS 3729 F (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PRAMOD VAIDYA ADV. DEPARTMENT BY : SHRI ANAND SHANKAR MARATHE - DR DATE OF HEARING : 13 / 0 7 /2015 . DATE OF PRONOUNCEMENT : 13 / 0 7 /201 5 . O R D E R PER N.S. SAINI , ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) BELGAUM , DATED 24 /0 9 /201 4 . 2 ITA NO. 409 /PNJ/2014 & C.O.NO. 15/PNJ/2015 2. THE SOLE ISSUE INVOLVED IN THE APPEAL OF THE REVENUE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT ONLY THE GROSS PROFIT RATE CAN BE APPLIED IN RESPECT OF EXCESS WASTAGE WORKED OUT BY THE ASSESSING OFFICER EVEN THOUGH HE CONFIRMED THAT THERE WAS EXCESS WASTAGE . 3 . WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. 4 . THE ASSESSEE IS A FIRM TRADING IN TOBACCO BOTH PROCESSED AND UNPROCESSED . DURING THE YEAR , THE ASSESSEE HAS DISCLOSED TOTAL SALES OF PROCESS E D AND UNPROCESSED TOBACCO OF RS. 2,39,72,373/ - AND THE NET PROFIT OF RS. 9,77,762/ - WHICH WORKS OUT TO 4.07%. DURING THE COURSE OF ASSESSMENT PROCEEDINGS , FROM THE TRADING ACCOUNT OF THE ASSESSEE, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD ANAGAD TOBACCO OF 594001 KGS . OUT OF WHICH SALE OF ANAGAD TOBACCO AND ANAGAD TOBACCO HELD AS CLOSING STOCK WAS DEDUCTED. THE BALANCE OF 240445 KGS OF ANAGAD T OBACCO WAS CONSIDERED AS PROCESS ED AGAINST WHICH THE ASSESSEE HAS SHOWN THE YIELD OF PROCESSED TOBACCO OF 170886 KGS. THUS, THE ASSESSEE HAD CLAIMED PROCESS LOSS OF 69559 KGS. IN THIS PROCESS LOSS, THE FIRM HAD MADE TWO CATEGORIES, ONE UNDER THE HEAD BY - PRODUCT OF 32443 KGS . AND ANOTHER UNDER THE HEAD SHORTAGES OF 37116 KGS . THE FIRM SOLD BY - PRODUCT OF 32443 KGS. FOR RS. 2,62,252/ - WHICH WAS CREDITED TO THE TRADING ACCOUNT. THE SALE OF BY - PRODUCT WORKS OUT AT RS. 8/ - PER KG. THE ANAGAD TOBACCO PURCHASES WORKS OUT TO RS. 40.45 PER KG . WHEREAS THE SALE OF JARDI TOBACCO WORKS OUT TO RS.70/ - PER KG. THE ASSESSING OFFICER CALCULATED THE MONETARY VALUE OF THE SHORTAGE CLAIMED OF 69559 KGS @ SELLING PRICE OF 70/ - PER KG. WHICH W ORKED OUT TO RS. 48,69,130/ - AND AFTER ALLOWING CREDIT FOR RS. 2,62,252/ - SHOWN BY THE ASSESSEE BY SALE OF BY - PRODUCT, THE NET 3 ITA NO. 409 /PNJ/2014 & C.O.NO. 15/PNJ/2015 MONETARY LOSS CLAIMED AND CALCULATED WAS WORKED OUT AT RS.46,06,878/ - . 5. ACCORDING TO THE ASSESSING OFFICER, SINCE THE FIRM IS ENGAGED IN TRADING OF TOBACCO, THE ASSESSEE COULD N O T SUSTAIN SUCH A HUGE LOSS ON ACCOUNT OF SHORTAGE . THE ASSESSEE SOUGHT TO EXPLAIN THE LOSS DUE TO MUD IMPURITIES AND MOISTURE CONTENT AT THE TIME OF PURCHASES . THE ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE ON THE GROUND THAT THERE W ERE NO BASIC DOCUMENTS TO PROVE THE GENERATION OF BY - PRODUCT AND ALSO THE TOTAL PROCESS LOSS. THE ASSESSING OFFICER FURTHER OBSERVED THAT THERE WAS NO SCIENTIFIC METHOD AND BASIC ACCOUNTING AT EVERY STAGE OF PROCESS IS NOT AVAILABLE WITH THE ASSESSEE. THEREFORE, THE PROCESS LOSS AND GENERATION OF BY - PRODUCT CLAIMED BY THE ASSESSEE WAS FOUND TO BE TOTALLY BASELESS BY THE ASSESSING OFFICER AND NOT ACCEPTED BY HIM. 6 . THE ASSESSING OFFICER CONSIDERED THE COMPARABLE CASES QUOTED BY THE ASSESSEE. HOWEVER , HE DID NOT ACCEPT THE ASSESSEES CONTENTION IN THIS REGARD . THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE CLAIMED PROCESS LOSS OF 69559 KGS. WHICH WORKED OUT TO 29%. CONSIDERING THE FACT THAT AN ELEMENT OF PROCESS LOSS IS INVOLVED AND CONSIDERING THE EXPLANATION FILED BY THE ASSESSEE, THE ASSESSING OFFICER ALLOWED PROCESS LOSS OF 15%. THE TOTAL TOBACCO FOR PROCESS BEING 240445 KGS , 15% OF TH IS WORKS OUT TO 36066 KGS. ACCORDING TO THE ASSESSING OFFICER, IF THE VALUE OF 36066 KGS . IS WORKED OUT AT THE AVERAGE RATE OF RS. 40.45 , THE PURCHASE PRICE OF ANAGAD TOBACCO WORKS OUT TO RS. 14,58,869/ - . FOR THE QUANTITY OF LOSS WHICH THE ASSESSING OFFICER HAS ALLOWED, HE WORKED OUT THE MONETARY VALUE AT RS. 40.45 BECAUSE WHAT THE ASSESSEE HAD LOS S IS ONLY WHAT HE HAS PAID FOR THE LOSS OF 36066 KGS. THEREFORE, THE ASSESSING OFFICER CONSIDERED THE LOSS OF RS. 14,58,869/ - AS A LLOWABLE 4 ITA NO. 409 /PNJ/2014 & C.O.NO. 15/PNJ/2015 OUT OF THE TOTAL LOSS CLAIMED AT RS. 48,69,130/ - . H E DISALLOWED THE REMAINING LOSS OF RS. 34, 10,261/ - A F T E R A L L O W I N G C R E D I T F O R S A L E O F B Y - P R O D U C T O F RS. 2 , 6 2 , 2 5 2 / - . H E M A D E D I S A L L O W A N C E O F RS. 3 1 , 4 8 , 0 0 9 / - . 7 . ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT AS THE ASSESSEE HAS NOT BEEN ABLE TO PROVE WITH THE HELP OF SCIENTIFIC PROCESS ES OR ANY DOCUMENTARY EVIDENCE THAT THE LOSS CLAIMED OF 29% BY IT IS GENUINE , THE ACTION OF THE ASSESSING OFFICER IN CONSIDERING THE LOSS OF RS. 31,48,009/ - AS EXCESSIVE IS UPHELD . HOWEVER , HE HELD THAT THE ENTIRE LOSS ON ACCOUNT OF WASTAGE HAS BEEN CONSIDERED AS THE ASSESSEES SUPPRESSED SALES AND THE ENTIRE SALES CANNOT BE CONSIDERED AS ASSESSEES INCOME AS HELD IN THE CASE OF CIT VS. PRESIDENT INDUSTRIES (2002) 258 ITR 654 (GUJARAT HIGH COURT) . THEREFORE , HE DIRECTED THE ASSESSING OFFICER NOT TO TAX THE ENTIRE SUPPRESSED SALES/EXCESS WASTAGE OF RS. 31,48,009/ - AND TO BRING THE TAX ONLY THE AMOUNT REPRESENTING THE GROSS PROFIT IN RESPECT OF UNACCOUNTED SALES OR EXCESS WASTAGE CLAIMED BY THE ASSESSEE. 8 . BEING AGGRIEVED BY THIS ORDER, THE REVENUE IS IN APPEAL BEFORE US. 9 . THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUPPORTED THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS) AND SUBMITTED THAT THE ENTIRE PROCESS LOSS SHOWN BY THE ASSESSEE CANNOT BE TAXED AS SUPPRESSED SALE OF THE ASSESSEE AND ONLY GROSS PROFIT ON THE SAME CAN BE CONSIDERED AS INCOME OF THE ASSESSEE. HE SUBMITTED THAT IN THE CROSS OBJECTION FILED BY THE ASSESSEE , THE ASSESSEE HAS CHALLENGED THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMING THE PROCESS LOSS AT RS. 3 1 , 4 8 , 0 0 9 / - . HE SUBMITTED THAT IN THE IMMEDIATELY SUCCEEDING ASSESSMENT YEAR 2013 - 14 , THE ASSESSEE HAS SHOWN SHORTAGE OF PROCESS LOSS A T 15% AND SUBMITTED THAT THE ESTIMATION MADE BY THE 5 ITA NO. 409 /PNJ/2014 & C.O.NO. 15/PNJ/2015 ASSESSING OFFICER O F PROCESS LOSS AT 15% WAS ON THE BASIS OF THE TRADING RESULTS OF THE ASSESSEE ITSELF FOR THE ASSESSMENT YEAR 2013 - 14 . 10 . ON THE OTHER HAND, DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE COMMISSIONER OF INCOME TAX(APPEALS) WAS NOT JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO TAX THE GROSS PROFIT ONLY ON THE EXCESS PROCESS LOSS OF RS. 3 1 , 4 8 , 0 0 9 / - SHOWN BY THE ASSESSEE AND NOT THE ENTIRE PROCESS LOSS . I N THE CASE OF THE ASSESSEE , THE ENTIRE PURCHASES HAS BEEN CLAIMED AS EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT . THEREFORE , THE EXCESS PROCESS LOSS IS THE INCOME OF THE ASSESSEE ON WHICH GROSS PROFIT PERCENTAGE CANNOT BE APPLIED. 11 . WE FIND THAT IN THE INSTANT CASE, THE ASSESSEE CLAIMED PROCESS LOSS OF TOBACCO AT RS. 34,10,261/ - WHICH WORKED OUT TO 29% OF THE TOTAL PURCHASES MADE BY THE ASSESSEE. THE ASSESSING OFFICER FOUND THAT THE SAME WAS EXCESSIVE AND NOT SUPPORTED BY ANY SCIENTIFIC METHOD OR DOCUMENTS AND ESTIMATED SUCH LOSS AT 15% OF THE TOTAL PURCHASES OF THE ASSESSEE AND THEREBY MADE AN ADDITION OF RS. 3 1 , 48 , 009 / - TO THE INCOME OF THE ASSESSEE. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE FINDING OF THE ASSESSING OFFICER REGARDING THE ESTIMATION OF PROCESS LOSS FROM TOBACCO AT 15% OF PURCHASES WHICH WORKED OUT TO RS. 31,48,009/ - . THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS FAIRLY CONCEDED THAT THE ESTIMATION OF PROCESS LOSS FROM TOBACCO AT 15% WAS IN ACCORDANCE WITH THE BOOK RESULTS OF THE ASSESSEE FOR THE IMMEDIATELY SUCCEEDING ASSESSMENT YEAR 2013 - 14. THEREFORE, THE GROUND OF THE CROSS OBJECTION OF THE ASSESSEE CHALLENGING THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMING THE PROCESS LOSS AT 15% OF THE PURCHASES IS DISMISSED. 12 . REGARDING THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DIRECTING THE ASSESSING OFFICER NOT TO TREAT THE ENTIRE PROCESS LOSS AS 6 ITA NO. 409 /PNJ/2014 & C.O.NO. 15/PNJ/2015 SUPPRESSED SALE OF THE ASSESSEE AND ONLY TO TAX THE INCOME OF THE ASSESSEE F ROM THE SAME BY TAKING THE GROSS PROFIT RATIO , THE REVENUE IS IN APPEAL BEFORE US . THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUPPORTED THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. 13 . WE FIND THAT COMMISSIONER OF INCOME TAX(APPEALS) HAS RELIED ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF PRESIDENT INDUSTRIES (SUPRA) WHEREIN THE FACTS WERE THAT THE SURVEY PARTY FOUND THAT IN THE EXCISE RECORDS AT GODOWN , THE ASSESSEE HAS SHOWN SALES WHICH WAS NOT DISCLOSED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THE ASSESSING OFFICER TAXED THE ENTIRE SALE PROCEEDS AS THE INCOME OF THE ASSESSEE WHICH WAS CONFIRMED BY THE COMMISSIONER OF INCOME TAX (APPEALS) AND THE TRIBUNAL. ON THE ABOV E FACTS , THE HONBLE GUJARAT HIGH COURT HELD THAT THE AMOUNT OF SALES COULD NOT REPRESENT THE INCOME OF THE ASSESSEE, WHO HAD NOT DISCLOSED THE SALES. IN THE INSTANT CASE, WE FIND THAT THE ASSESSEE HAD DEBITED THE ENTIRE PURCHASES OF TOBACCO . IT HAS FURT HER CLAIMED PROCESS LOSS AT 29% WHICH HAS BEEN ESTIMATED BY THE ASSESSING OFFICER AT 15% AND THE ASSESSING OFFICER HAS DISALLOWED THE BALANCE AMOUNT OF PROCESS LOSS CLAIMED BY THE ASSESSEE AT RS. 31,48,009/ - . THUS, IN THE CASE OF THE ASSESSEE, THE ASSESSEE HAS CLAIMED DEDUCTION OF PROCESS ED AS WELL AS UN PROCESS ED LOSS IN EXCESS A CCORDING TO THE ASSESSING OFFICER AT RS. 31,48,009/ - , WHICH HAS BEEN ADDED BY THE ASSESSING OFFICER TO THE INCOME OF THE ASSESSEE. THUS, IT IS NOT A CASE WHERE THE SALES SHOWN BY THE ASSESSEE ARE NOT REFLECTED BY IT IN ITS REGULARLY MAINTAINED BOOKS OF ACCOUNTS. THIS IS A CASE OF CLAIM OF DOUBLE DEDUCTION ONCE ON ACCOUNT OF THE PURCHASE S MADE AND THE OTHER ON ACCOUNT OF EXCESS PROCESS LOSS. THEREFORE, THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF PRESIDENT INDUSTRIES (SUPRA) RELIED UPON BY THE COMMISSIONER OF INCOME TAX(APPEALS) IS NOT APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE. 7 ITA NO. 409 /PNJ/2014 & C.O.NO. 15/PNJ/2015 THEREFORE, IN OUR VIEW, THE DISALLOWANCE OF EXCESS PROCESS LOS S OF RS.31,48,009/ - MADE BY THE ASSESSING OFFICER WAS FULLY JUSTIFIED IN THE GIVEN FACTS AND CIRCUMSTANCES OF TH E CASE, HENCE, WE SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS) AND RESTORE BACK THE ORDER OF THE ASSESSING OFFICER. THUS, THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED. 14. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED AND THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE COURT AT THE CLOSE OF THE HEARING ON MONDAY , THE 13 TH DAY OF JULY , 201 5 AT GOA . S D / - S D / - (GEORGE MATHAN) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 13 TH JU LY , 201 5 . VR/ - COPY TO: 1 . THE ASSESSEE. 2 . THE DEPARTMENT 3 . THE CIT 4 . THE CIT(A) 5 . THE D.R 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR I.T.A.T., PANAJI 8 ITA NO. 409 /PNJ/2014 & C.O.NO. 15/PNJ/2015 DATE INITIAL ORIGINAL DICTATION PAD & D R A F T A R E ENCLOSED IN THE FILE 1. DRAFT DICTATED ON 13 .0 7 .2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 14 .07 .2015 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 14 /07 /2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 14 /0 7 /2015 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 14 /07 /2015 SR.PS 6. DATE OF PRONOUNCEMENT 13 /0 7 /2015 SR.PS 7. FILE SENT TO THE BENCH CLERK 14 /07 /2015 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER