Shri Manoharlal Hanumanbags Sarda, Sangli V. Joint CIT, Range-1, Sangli

ITA 1084/PUN/2013

• Counselvise Citation: 108424514 RSA 2013
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 14-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Assessee Lawyers: BHARAT V SHAH
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.1084/PN/2013 (ASSESSMENT YEAR : 2009-10) SHRI MANOHARLAL HANUMANBAGS SARDA, 112, MARKET YARD, SANGLI 416416 PAN NO.ADWPS1495A .. APPELLANT VS. JT.CIT, RANGE-1, SANGLI .. RESPONDENT ASSESSEE BY : SHRI BHARAT V. SHAH REVENUE BY : SHRI S.P. WALIMBE DATE OF HEARING : 20-05-2014 DATE OF PRONOUNCEMENT : 23-05-2014 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 06-03-2012 OF THE CIT(A), KOLHAPUR RELATING TO ASSE SSMENT YEAR 2009-10. 2. GROUND OF APPEAL NO.1 BY THE ASSESSEE READS AS U NDER : 1. THE LEARNED COMMISSIONER OF INCOME OF TAX (APPE ALS) HAS ERRED IN RESTRICTING TOTAL DISALLOWANCE ON ACCOUNT OF CLAIM O F LOSS OF TURMERIC AND BEDANA AT RS.10 LAKHS WITHOUT VERIFYING THE CIRCUMSTAN CES AND WRITTEN SUBMISSION ON RECORDS WHICH IS TO BE DELETED IN FULL. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF WHOLESALE TRADER IN TURM ERIC AND BEDANA. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASS ESSING OFFICER NOTICED THAT THE ASSESSEE HAS SHOWN SHORTAGE OF TURMERIC OF 2,09,351 KGS IN THE TURNOVER OF 75,53,182 KGS WHICH WAS 2.74% OF THE TU RNOVER. SINCE THE PURCHASE OF 76,48,915 KGS OF TURMERIC WAS FOR RS.30 ,27,87,294/- HE 2 WORKED OUT THE AVERAGE PRICE PER KG OF TURMERIC AT 39.50 PER KG. AFTER APPLYING THE SAID RATE TO THE SHORTAGE OF 20,93,511 KGS HE DETERMINED THE SHORTAGE AT RS.82,69,364/-. 2.2 SIMILARLY, IN THE BEDANA TRADING ACCOUNT THE AO NOTICED THAT THERE IS SHORTAGE OF BEDANA OF 17,622 KGS IN THE TURNOVER OF 30,73,153 KGS WHICH WAS 0.57% OF THE TURNOVER. SINCE THE PURCHASE OF 3 5,34,669 KGS OF BEDANA WAS FOR RS.19,02,70,098/-, HE DETERMINED THE AVERA GE PRICE OF BEDANA AT RS.53.82/KG. APPLYING THE SAID RATE TO THE SHORTAG E OF 17,622 KGS, HE DETERMINED THE SHORTAGE AT 9,48,416/-. THEREAFTER, HE ASKED THE ASSESSEE TO FURNISH SPECIFIC DETAILS AND ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE SAID SHORTAGE SHOULD NOT BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3. IN RESPONSE TO THE SAME THE ASSESSEE REPLIED AS UNDER WHICH HAS BEEN REPRODUCED BY THE ASSESSING OFFICER IN THE BODY OF THE ASSESSMENT ORDER : TURMERIC AND BEDANA (RESINS) IS PURCHASED FROM MARKET. RAW TURMERIC, BEING NATURAL PRODUCT REQUIRES POLISHING TO MAKE IT F IT FOR MARKETING AND BEDANA (RESINS) REQUIRES WASHING PROCESS. DURING THE POLI SHING/ WASHING PROCESS, IT LOOSE WEIGHT. FURTHER, RAW TURMERIC AND BE DANA (RESINS) ARE WET/ CONTAINS MOISTURE. IT HAS TO BE DEHYDRATED, SO THAT IT WOULD HAVE LONGER LIFE, THIS PROCESS A/SO RESULTS IN LOSS OF WEIGHT OF THE PRODUCT. FURTHER IN PROCESS OF REPACKING OF PRODUCTS, THERE IS LOSS IN WEIGHT DUE TO WASTAGE THUS, SHORTAGE IS THE EFFECT OF CLEANING, POLISH ING AND DEHYDRATION OF PRODUCTS.' 4. HOWEVER, THE ASSESSING OFFICER HELD THAT THE ABO VE SUBMISSION OF THE ASSESSEE CANNOT BE ACCEPTED IN FULL. ACCORDING TO HIM THE SHORTAGE CLAIMED BY THE ASSESSEE OF 2,09,351 KGS IN TURMERIC AND 17,622 KGS IN RESIN (BEDANA) IS QUITE EXCESSIVE. HE HELD ALTHOUG H THE EXPLANATION OF THE ASSESSEE HAS GOT SOME MERIT, HOWEVER, THE SAME CANN OT BE FULLY ACCEPTABLE SINCE THE ASSESSEE COULD NOT SUBSTANTIATE THE WORKI NG OF SHORTAGE TO THAT OF THE TURNOVER AND HOW THE SAME WAS DETERMINED PROPER LY. HE, THEREFORE, 3 DISALLOWED 25% SHORTAGE OF TURMERIC TO THE EXTENT O F RS.20,67,341/- AND 25% OF BEDANA TO THE EXTENT OF RS.2,37,104/- ON EST IMATE BASIS BEING EXCESSIVE SHORTAGE CLAIMED BY THE ASSESSEE. THUS, HE DISALLOWED AN AMOUNT OF RS.23,04,445/- ON ACCOUNT OF EXCESS SHORT AGE CLAIMED IN TURMERIC AND BEDANA ON ESTIMATE BASIS. WHILE DOING SO, HE RELIED ON THE DECISION IN THE CASE OF VIKAYKUMAR MILLS VS. CIT RE PORTED IN 194 ITR 197 (MAD.). 5. BEFORE CIT(A) THE ASSESSEE REITERATED THE SAME A RGUMENTS AS MADE BEFORE THE ASSESSING OFFICER. IT WAS SUBMITTED THA T THE ASSESSEE MAINTAINS MONTH-WISE QUANTITATIVE STOCK. FURTHER, IN PROCESS ING OF TURMERIC AND BEDANA SOME LOSSES ARE EXPECTED BECAUSE RAW TURMERI C AND RAW BEDANA CONTAIN WATER AND THERE IS ALSO WEIGHT LOSS DUE TO POLISHING, WASHING AND DRYING PROCESS. A CERTIFICATE FROM THE SANGLI CHAM BER OF COMMERCE WAS PRODUCED TO THE PROPOSITION THAT THERE IS WEIGHT LO SS OF 5% TO 6% IN PROCESSING OF TURMERIC. 6. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) RESTRICTED THE TOTAL DISALLOWANCE ON ACCOUNT OF CLA IM OF LOSS OF TURMERIC AND BEDANA TO RS.10 LAKHS AS AGAINST RS.23,04,445/- ADDED BY THE AO. WHILE DOING SO, HE HELD THAT THE ASSESSEE MAINTAINS QUANTITATIVE STOCK. THE ASSESSING OFFICER HAS NOT POINTED OUT ANY SPECIFIC INSTANCE IN THE ABSENCE OF WHICH THE DISALLOWANCE OF 25% OF LOSS IS EXCESSI VE. 6.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 7. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY OPPOSE D THE ORDER OF THE CIT(A). HE SUBMITTED THAT THE ASSESSEE MAINTAINS REGULAR BOOKS OF 4 ACCOUNTS WHICH ARE AUDITED. FULL QUANTITATIVE DETA ILS ARE MAINTAINED IN RESPECT OF STOCK. THE LOSS CLAIMED BY THE ASSESSEE AT 2.74% ON ACCOUNT OF TURMERIC IS LESS THAN THE INDUSTRY STANDARD AT 5% T O 6%. SIMILARLY, THE LOSS ON ACCOUNT OF BEDANA IS ALSO NEGLIGIBLE. THER EFORE, THERE SHOULD NOT HAVE BEEN ANY ADDITION ON ACCOUNT OF SHORTAGE OF ST OCK. 8. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSEE, I N THE INSTANT CASE, IS MAINTAINING BOOKS OF ACCOUNTS WHICH ARE AUDITED. T HE ASSESSEE ALSO MAINTAINS QUANTITATIVE DETAILS REGARDING THE STOCK. NO DISCREPANCY WHATSOEVER HAS BEEN POINTED OUT BY THE ASSESSING OF FICER IN THE BODY OF THE ASSESSMENT ORDER. WE FIND THE ASSESSEE BEFORE THE ASSESSING OFFICER HAD EXPLAINED THAT RAW TURMERIC AND BEDANA ARE WET/ CONTAINS MOISTURE AND HAS TO BE DEHYDRATED SO THAT IT WOULD HAVE LONGER L IFE WHICH RESULTS IN LOSS OF WEIGHT OF THE PRODUCT. IT WAS FURTHER EXPLAINED BEFORE THE ASSESSING OFFICER THAT IN THE PROCESS OF RE-PACKING OF PRODUC TS THERE IS LOSS IN WEIGHT DUE TO WASTAGE. THE EXPLANATION OF THE ASSESSEE BE FORE THE ASSESSING OFFICER IS A PLAUSIBLE EXPLANATION. WE FIND THE S HORTAGE OF TURMERIC AT 2.74% OF THE TURNOVER IS LESS THAN THE INDUSTRY STA NDARD OF 5% TO 6% IN THE PROCESS OF TURMERIC. SIMILARLY THE SHORTAGE ON BED ANA ACCOUNT IS ALSO MINIMAL. SINCE THE ASSESSING OFFICER IN THE INSTAN T CASE HAS NOT POINTED OUT ANY SPECIFIC INSTANCES AND BOTH THE AUTHORITIES HAVE GONE ON ESTIMATE BASIS, THEREFORE, IN ABSENCE OF SPECIFIC DEFECT IN THE ACCOUNTS MAINTAINED BY 5 THE ASSESSEE IN TURMERIC AND CONSIDERING THE FACT T HAT THE LOSS DECLARED BY THE ASSESSEE IS LESS THAN THE INDUSTRY STANDARD OF 5% TO 6% AS PER THE CERTIFICATE FROM SANGLI CHAMBER OF COMMERCE AND THE SHORTAGE IN BEDANA ACCOUNT IS MINIMAL WHICH IS INEVITABLE, THEREFORE, WE FIND FORCE IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT NO DISALLOWANCE ON THIS ACCOUNT SHOULD HAVE BEEN MADE. IN THIS VIEW OF THE MATTER, WE SET-ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND THE GROUN D RAISED BY THE ASSESSEE IS ALLOWED. 10. GROUND OF APPEAL NO.2 BY THE ASSESSEE READS AS UNDER : 2. THE LEARNED COMMISSIONER OFFICER HAS ERRED IN MAK ING 10% DISALLOWANCE FROM DEPRECIATION ON CARS OF RS.3,07,355/ - TREATING AS PERSONAL EXPENDITURE. THE DEPRECIATION IS FIXED AS PER CENTAGE ON ASSETS VALUE ONLY AND NOT ON EXPENDITURE. THEREFORE THIS A DDITION IS REQUESTED TO BE REDUCED TO NIL. 10.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASS ESSING OFFICER DISALLOWED AN AMOUNT OF RS.3,07,355/- ON ACCOUNT OF DEPRECIATI ON ON MOTOR CARS HOLDING THAT PERSONAL USE OF THE CARS CANNOT BE RUL ED OUT BY THE FAMILY MEMBERS OF THE ASSESSEE. IN APPEAL THE LD.CIT(A) R ESTRICTED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER TO 10% O F SUCH DISALLOWANCE. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSE E IS IN APPEAL BEFORE US. 10.2 AFTER CONSIDERING THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, WE FIND THE DISALLOWANCE OF DEPRECIATION ON MOTOR CARS AT 10% FOR PROBABLE PERSONAL USE APPEARS TO BE ON HIGHER SIDE. WE, THER EFORE, DIRECT THE ASSESSING OFFICER TO RESTRICT SUCH DISALLOWANCE TO 5% OF THE EXPENSES. THUS, GROUND NO.2 IS PARTLY ALLOWED. 6 11. GROUND OF APPEAL NO.3 BY THE ASSESSEE READS AS UNDER : 3. THE LEARNED COMMISSIONER OFFICER HAS ERRED IN MAK ING 10% DISALLOWANCE FROM TELEPHONE ,VEHICLE & TRAVELING EXP ENSES OF RS 9,46,149/- TREATING AS PERSONAL EXPENDITURE. THE PERSONAL TELEPHO NE BILL WERE PAID FROM DRAWING AND THE TRAVEL IN OWN VEHICLE OR HIRED ONE WAS INCURRED SOLELY FOR BUSINESS PURPOSE. THEREFORE THIS ADDITION IS REQUE STED TO BE REDUCED TO NIL. 11.1 AFTER HEARING BOTH THE SIDES, WE FIND THE ASSE SSING OFFICER DISALLOWED AN AMOUNT OF RS.15,93,608/- BEING VARIOU S EXPENSES ON THE GROUND THAT SOME OF THE VOUCHERS ARE NOT FULLY VERI FIABLE BEING SELF MADE AND PERSONAL EXPENDITURE OF FAMILY MEMBERS CANNOT B E RULED OUT. THE DETAILS OF SUCH EXPENDITURE ARE AS UNDER : SR.NO. EXPENSES HEAD AMOUNT DEBITED 1 TELEPHONE EXPENSES 183102 2 VEHICLE EXPENSES 474388 3 TRAVELLING EXPENSES 288659 4 DEPRECIATION ON CARS 307355 5 REPAIRS AND MAINTENANCE 340104 TOTAL 1593608 11.2 WE FIND IN APPEAL THE LD.CIT(A) DELETED THE DI SALLOWANCE ON ACCOUNT OF REPAIRS AND MAINTENANCE HOLDING THAT THE RE CAN BE NO PERSONAL EXPENSES ON THIS ISSUE. THE DEPRECIATION ON CARS W AS ALREADY DECIDED BY US IN THE PRECEDING GROUND. SO FAR AS THE REMAINING E XPENSES OF RS.9,46,149/- IS CONCERNED, WE FIND THE LD.CIT (A) RESTRICTED SUC H DISALLOWANCE TO 10% OF THE EXPENSES. AGAINST SUCH PART RELIEF, THE ASS ESSEE IS IN APPEAL BEFORE US. 11.3 AFTER CONSIDERING THE RIVAL ARGUMENTS, WE FIND THE CIT(A) RESTRICTED THE DISALLOWANCE TO 10% OF THE EXPENSES. THE LD. C OUNSEL FOR THE ASSESSEE COULD NOT CONTROVERT THE FINDING GIVEN BY THE ASSES SING OFFICER THAT SOME OF THE AFORESAID EXPENSES HAVE BEEN SUPPORTED BY ON LY SELF-MADE VOUCHERS 7 WHICH ARE NOT VERIFIABLE. THERE IS NO LOG BOOK FOR TELEPHONE EXPENSES TO BIFURCATE WHETHER THE TELEPHONES INSTALLED AT THE B USINESS PREMISES ARE USED FOR PERSONAL USE OR NOT. HOWEVER, CONSIDERING THE T OTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND CONSIDERING THE FACT THAT SUCH DISALLOWANCE IS ON THE HIGHER SIDE, WE RESTRICT THE DISALLOWANCE TO 5% OF THE EXPENSES. WE ACCORDINGLY SET-ASIDE THE ORDER OF THE CIT(A) ON TH IS ISSUE AND DIRECT THE ASSESSING OFFICER TO RESTRICT SUCH DISALLOWANCE TO RS.47,307/- ON ACCOUNT OF THE ABOVE EXPENSES. THIS GROUND BY THE ASSESSEE IS ACCORDINGLY PARTLY ALLOWED. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 23-05-2014. SD/- SD/- (R.S. PADVEKAR) (R.K. PAND A) JUDICIAL MEMBER ACCOUN TANT MEMBER PUNE DATED: 23 RD MAY, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A), KOLHAPUR 4. THE CIT, KOLHAPUR 5. THE D.R, B PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE