ACIT, Kota V. SHRI BAL KISHAN NAYTI HUF KARTA, BUNDI

ITA 1189/JPR/2010

• Counselvise Citation: 118923114 RSA 2010
• Duration Of Justice: 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 04-10-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D K MEENA
• Assessee Lawyers: DEVENDRA KUMAR
• Keywords: Depreciation
• Section: 145

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO.1189/ JP/2010 ASSESSMENT YEAR: 2006-07 PAN: AAAHN 5696 N THE ACIT VS. SHRI BAL KISHAN NAYTI, HUF KARTA CIRCLE- 1 M/S. SH. BALAJI INDUSTRIES KOTA CHITTOR ROAD, BUNDI (APPELLANT ) (RESPONDENT) ASSESSEE BY : SHRI DEVENDRA KUMAR AND SHRI DINESH KUMAR DEPARTMENT BY : SHRI D.K. MEENA ORDER PER N.L. KALRA, AM:- THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDE R OF THE LD. CIT(A), AJMER DATED 09-07-2010 FOR THE ASSESSMENT YEAR 200 6-07. 2.1 THE FIRST GROUND OF APPEAL OF THE REVENUE IS T HAT THE LD. CIT(A) HAS ERRED IN DELETING THE TRADING ADDITION OF RS. 11,61 ,800/-. 2.2 THE ASSESSEE DERIVES INCOME FROM MANUFACTURING OF RICE. THE AO HAS PREPARED A CHART IN RESPECT OF YIELD AND WASTAGE F OR THREE ASSESSMENT YEARS AS UNDER:- 2 S.N. PARTICULAR A.Y. 2004-05 %AGE A.Y. 2005-06 %AGE A.Y. 2006-07 %AGE 1. PADDY CONSUMED 48659.76 100% 79796.70 100% 78854 .88 100% 2. RICE PRODUCTION 31602.58 64.95% 51606.69 64.76% 50679.19 64.29% 3. BHUSI 6353.80 13.06% 8142.45 10.20% 7830.45 9.93 % 4. SHORTAGE / WASTAGE 10703.38 21.99% 20047.56 25.1 2% 20327.24 25.78% THE AO FROM THE ABOVE CHART NOTICED THAT THE YIELD OF RICE DURING THE YEAR IS LESS AS COMPARED TO LAST YEAR AND THEREFORE, BY-PRO DUCT SHOULD HAVE BEEN MORE AS COMPARED TO LAST YEAR. HOWEVER, IN THE CASE OF THE ASSESSEE, THE POSITION IS DIFFERENT. THE YIELD IN BY-PRODUCT HAS ALSO DECREASED THOUGH YIELD IN RICE IS ALSO LESS. THE AO AT PAGE 3 HAS PREPARED A CHART TO SHOW THE POWER EXPENSES PER QTL OF RICE IN DIFFERENT MONTHS. IN TH E MONTH OF JULY, THE POWER EXPENSES ARE AT RS. 728.12 WHILE IN OTHER MONTHS, I T IS LESS THAN RS. 65/-. THE AO HAS REFERRED TO YIELD SHOWN BY OTHER TWO RICE MI LLS. IN THOSE CASES, THE YIELD WAS AT. 65% AND 65.27%. THE ASSESSEE WAS REQU IRED TO EXPLAIN THE DISCREPANCIES NOTICED BUT THE AO WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. THE AO INVOKED THE PROVISION S OF SECTION 145(3) OF THE ACT. THE AO ESTIMATED THE YIELD OF RICE AT 65.1 0% AND ACCORDINGLY MADE THE ADDITION OF RS. 11,61,800/-. 2.3 BEFORE THE LD. CIT(A), THE ASSESSEE CONTENDED T HAT ALL THE PURCHASES AND SALES ARE VOUCHED. THE YIELD OF RICE DEPENDS UP ON MANY FACTORS. THERE IS NO SUBSTANTIAL DIFFERENCE IN THE YIELD OF RICE AS C OMPARED TO PRECEDING YEAR. 3 IT IS NOT THE CASE OF THE REVENUE THAT PURCHASE PRI CE OF PADDY IN THE CASE OF THE ASSESSEE WAS THE SAME AS IN THE CASE OF OTHER TWO CONCERNS. IT WAS HOWEVER, SUBMITTED THAT THE AO HAS WRONGLY CALCULAT ED THE POWER CONSUMPTION. BEFORE THE LD. CIT(A), FOLLOWING SUBMI SSIONS WERE MADE IN ORDER TO EXPLAIN THE POWER CONSUMPTION PER QTL OF R ICE. THE AO HAS ERRED IN WORK OUT THE PER QTL. POWER EXPENSES. WHILE CALCULATING THE AVERAGE POWER CONS UMPTION FOR A PARTICULAR MONTH THE AO HAS TAKEN THE AMOUNT OF POWER BILL PAID IN THAT MONTH. IN FACT DURING A PARTICULA R MONTH PRECEDING MONTHS POWER BILL IS PAID. FOR EXAMPLE I N THE MONTH OF MAY, 05, THE POWER BILL WOULD BE PAID FOR THE IM MEDIATELY PRECEDING MONTH POWER CONSUMPTION I.E. APRIL 2005. THEREFORE, THE ACTUAL PER QTL. POWER EXPENSES WOULD BE AS UNDE R:- MONTH PADDY CONSUMED RICE PRODUCTION YIELD IN % POWER CONSUMPTION PER QTL, POWER EXPENSES APRIL 05 9563.10 6187.22 64.70 259764 41.89 MAY 09 6700.00 4288.00 64.70 221895 51.75 JUNE 05 8791.20 5656.35 64.00 319743 56.83 JULY 05 680.56 439.13 64.52 64869 147.77 AUG.05 - - - 60706 - SEP.05 - - - 58008 - OCT.05 - - - 50962 - NOV.05 7596.55 4861.79 64.00 192427 39.59 DEC.05 12188.92 7805.91 64.04 289856 37.13 JAN.06 12968.50 8324.35 64.19 301815 36.26 FEB.06 10278.79 6636.23 64.56 245333 36.97 MAR 06 10087.26 6528.21 64.71 264229 40.48 4 IT IS WORTHWHILE TO MENTION HERE THAT THERE IS MINI MUM POWER THAT HAS TO BE PAID BY THE ASSESSEE EVERY MON TH. THEREFORE, WHEN PRODUCTION OF RICE IN A PARTICULAR MONTH IS LOW THAN THE POWER CONSUMPTION PER QNTL WOULD BE HIGHER AS COMPARED TO OTHER MONTHS IN WHICH THE MILLING OF PA DDY AND PRODUCTION OF RICE IS HIGHER. FOR EXAMPLE IN THE MONTH OF JULY, 05, THE POWER CONSUMPTION IN THE MONTH OF JULY COMES TO RS. 147.7 7/ QTL BECAUSE OF LOW PRODUCTION OF RICE THAT IS ONLY 439. 13 THE LD. AO IS NOT JUSTIFIED TO REJECT PRODUCTION RE SULT ON THE GROUND THAT THE YIELD OF RICE DURING THE MONTHS OF NOV.-FEB IS LOWER AS COMPARED TO APRIL-MAY. SIR AS MENTIONED EARLIER DURING THE COURSE OF HEARING DETAILED BOOKS OF ACCO UNTS REGARDING MILLING AND PRODUCTION OF RICE WERE PRODU CED BEFORE THE AO ALONGWITH PURCHASE AND SALE VOUCHERS, DAY TO DAY MILLING OF PADDY AND PRODUCTION OF RICE WERE ALSO V ERIFIED BY THE LD. AO IN MILLING REGISTER WHERE NO DISCREPANCI ES WAS FOUND BY THE AO FURTHER ALL THE BOOKS OF ACCOUNTS WERE AUDITED, QUANTITATIVE TALLY8 AND DETAILS OF OPENING STOCK P RODUCTION, PROCESSING AND CLOSING STOCK OF PADDY AND RICE WERE ALSO PLACED ON RECORD. 2.4 THE LD. AR BEFORE THE LD. CIT(A) RELIED UPON T HE FOLLOWING DECISIONS. 1.CIT VS. GOTAN LIME KHANIJ UDYOG, 256 ITR 243 (R AJ.) 5 2.PRASADILAL DEVKINANDAN (ITA NO.653/JP/2003 ASSESS MENT YEAR 1997-98), ITAT JAIPUR BENCH 3. HINDUSTAN PROCESSORS LTD. (ITA NO.639/SDPR/2006) , ITAT JODHPUR BENCH 4. HARIDAS PARIKH VS. ITO, ITAT JODHPUR BENCH 5. ARUN OIL INDUSTRIES, ITAT JAIPUR BENCH 6. SHIV AGREVO LTD., ITAT JAIPUR BENCH 2.5 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE LD. AR DELETED THE ADDITION AFTER OBSERVING AS UNDER:- 4.10 THE VARIOUS OBSERVATIONS MADE BY AO REGARDING BOOKS OF ACCOUNTS MAINTAINED BY THE APPEL LANT COULD HAVE BEEN A CAUSE OF SUSPICION THAT PROBABLY BOOK RESULTS ARE NOT RELIABLE, BUT NO ADDITION CAN BE MA DE TO TOTAL INCOME ON THE BASIS OF SUSPICION OF AO ALONE. AO WAS REQUIRED TO MAKE THIRD PARTY ENQUIRY AND BRING SOME SPECIFIC MATERIAL ON RECORD TO PROVE THAT BOOK RESU LTS ARE NOT RELIABLE. EVEN THE CONCLUSION REGARDING VARIATI ON IN POWER CONSUMPTION WITH RESPECT TO PRODUCTION OF RIC E IN DIFFERENT MONTHS IS NOT JUSTIFIED BECAUSE AO HAS MA DE THE COMPARISON WITH REFERENCE TO POWER UNITS CONSUM ED IN THE EARLIER MONTH. SIMILARLY, THE COMPARISON WIT H REFERENCE TO POWER BILL OF THAT MONTH, WHEREAS THE PAYMENT IN EVERY MONTH IS IN RESPECT OF POWER UNIT S CONSUMED IN THE EARLIER MONTH. SIMILARLY, THE COMPARISON OF YIELD DECLARED BY APPELLANT WITH YIEL D 6 DECLARED BY TWO OTHER PARTIES OF BUNDI IS OF NO HEL P BECAUSE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD T O PROVE THAT THEIR CASES ARE COMPARABLE WITH THE CASE OF APPELLANT. EVEN OTHERWISE COMPARISON OF YIELD WITH ANOTHER PARTY DOES NOT GIVE CORRECT PICUTURE UNTIL AND UNLESS THE PURCHASE AND SALE PRICE ARE ALSO COMPARE D. NO SUCH COMPARISON HAS BEEN MADE BY AO. AO HAS NOT IDENTIFIED ANY INSTANCE OF PURCHASE OR SALE, WHICH IS NOT RECORDED IN REGULAR BOOKS OR INCORRECTLY RECORDED. IT WAS POINTED OUT BY APPELLANT THAT IT IS PRACTICALLY NOT POSSIBLE TO MAINTAIN QUALITYWISE DETAILS IN THIS LINE OF TRA DE. AO ON THE OTHER HAND HAS NOT BROUGHT ON RECORD TO PROV E THAT SUCH DETAILS ARE MAINTAINED BY THE ASSESSEE OF THIS TRADE. THE ACCOUNTS ARE AUDITED AND THERE ARE NO ADVERSE COMMENTS OF AUDITOR. IN SUCH A SITUATION, THE REJEC TION OF BOOKS OF ACCOUNTS AND ESTIMATION OF INCOME BY INVOK ING THE PROVISIONS OF SECTION 145 IS NOT JUSTIFIED. 2.6 DURING THE COURSE OF PROCEEDING BEFORE US, THE LD. DR SUPPORTED THE ORDER OF THE AO. 2.7 ON THE OTHER HAND, THE LD. AR SUPPORTED THE ORD ER OF THE LD. CIT(A). IN RESPECT OF POWER CONSUMPTION, THE LD. AR SUBMITTED THAT THE ASSESSEE HAS TO PAY MINIMUM POWER CHARGES. MOREOVER, THE CONSUMPTIO N OF POWER DEPENDS UPON THE QUANTITY MILLED. THE POWER TO BE CONSUMED BY THE FACTORY PER QUINTAL OF RICE WILL BE MORE IN CASE THE QUANTITY O F RICE IS LESS . THE 7 MACHINERIES DO NEED MINIMUM CONSUMPTION OF POWER. FROM THE CHART GIVEN TO THE LD. CIT(A), THE LD. AR HAS STATED THAT AS AN D WHEN QUANTITY OF PADDY IS MILLED THEN THE CONSUMPTION OF POWER PER QTL. OF R ICE HAS GONE DOWN. THE LD. AR HAS RELIED UPON THE FOLLOWING DECISIONS.. 1. CIT VS. R.K. RICE MILLS, 319 ITR 173 (P&H) 2. JHANDU MAL TARA CHAND RICE MILLS VS. CIT , 73 ITR 1 92 (P&H) 3. HARAKCHAND RADHA KISHAN VS. CIT, 46 ITR 196 (ASSAM) 4. ITO VS. ARUN OIL INDUSTRIES, 23 TTJ 378 (SB), ITAT JAIPUR 5. ACIT VS. SHIV AGREVO LTD. 123, TTJ 416 (JAIPUR BENC H) 6. B.F. VARGHESE VS. STATE OF KERALA, 72 ITR 726 (KER. ) 7. PAWAN INDUSTRIES VS. ITO, 12 TTJ 264 (INDOR BENCH) 8. ITO VS. KRISHNA BONE CRUSHING INDUSTRIES, 11 TTJ 60 (MAD). 9. CIT VS. GOTAN LIME KHANIJ UDYOG, 256 ITR 243 (RAJ.) 2.8 WE HAVE HEARD BOTH THE PARTIES. THERE IS AN ABN ORMALITY OF POWER EXPENSES PER QUINTAL IN THE MONTH OF JULY. THE ASSE SSEE HAS PAID A SUM OF RS. 50,962/- IN OCT. 2005 THOUGH THERE HAS BEEN NO PRODUCTION. THUS THE POWER CONSUMED DURING THE MONTH OF JULY CANNOT BE C ONSIDERED AS MINIMUM POWER CHARGES. WE AGREE WITH THE CONTENTIONS OF THE LD. AR THAT CONSUMPTION OF POWER PER QUINTAL WILL PROPORTIONATE LY DECREASE AS AGAINST 8 INCREASE IN THE QUANTITY OF PADDY MILLED. WE FEEL T HAT THE ASSESSEE HAS NOT BEEN ABLE TO SPECIFICALLY EXPLAIN THE ABNORMALITY I N THE MONTH OF JULY. LOOKING TO THE PADDY CONSUMED IN THE MONTH OF JULY AND POWER CONSUMPTION SHOWN AT RS. 147.77 AS AGAINST MAXIMUM OF RS. 56.83 IN EARLIER MONTH, WE FEEL THAT IT WILL BE FAIR AND REA SONABLE TO RESTRICT THE TRADING ADDITION TO RS. 1.00 LAC 3.1 THE SECOND GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF INTEREST OF R S. 1,04,040/-. 3.2 BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT TH E ASSESSEE IS HAVING TWO DIFFERENT ACCOUNTS OF M/S. KAMAL TRADING COMPANY, H ANUMANGARH. THE ASSESSEE HAS PURCHASED PADDY TO THE EXTENT OF RS. 4 8.06 LACS DURING THE YEAR AND THE ENTIRE SUM HAS BEEN PAID DURING THE YEAR. T HE ASSESSEE HAS SOLD RICE OF M/S. KAMAL TRADING COMPANY, HANUMANGARH. THE ASS ESSEE IS NOT CHARGING INTEREST FROM TRADE DEBTORS. THE LD. CIT(A ) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE DISALLOWANC E. 3.3 WE HAVE HEARD BOTH THE PARTIES. IT HAS BEEN EST ABLISHED BY THE ASSESSEE BEFORE THE LD. CIT(A) THAT THE ASSESSEE IS HAVING B USINESS TRANSACTIONS WITH M/S. KAMAL TRADING COMPANY, HANUMANGARH. THE ASSESS EE IS ALSO MAKING PURCHASES AS WELL AS SALES. IN VIEW OF THE DECISION OF HON'BLE APEX COURT IN THE CASE OF S.A. BUILDERS LTD VS. CIT, 288 ITR 1, I T IS HELD THAT INTEREST 9 CANNOT BE DISALLOWED IN CASE THE ADVANCES MADE ARE FOR THE PURPOSE OF BUSINESS. THUS THE LD. CIT(A) WAS JUSTIFIED IN DELE TING THE DISALLOWANCE OF RS. 1,04,040/-.. 4.1 THE THIRD GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 30,103/-. 4.2 THE AO HAS MADE DISALLOWANCE OF RS. 64,103/- FO R ELEMENT OF PERSONAL USE OF CAR AND MOTOR CYCLE. 4.3 THE LD. CIT(A) HAS RESTRICTED THE DISALLOWANCE TO RS. 30,000/- AS AGAINST RS. 64,103/- MADE BY THE AO. 4.4 WE HAVE HEARD BOTH THE PARTIES. THE AO HAS DISA LLOWED 20% OF THE EXPENSES. THE LD. CIT(A) HAS NOT CONSIDERED THE DEP RECIATION ON CAR AND MOTOR CYCLE FOR DISALLOWANCE. IT IS NOT THE CASE OF THE ASSESSEE THAT IT IS HAVING PERSONAL VEHICLE. IF CAR AND MOTOR CYCLE ARE BEING USED FOR NON- BUSINESS PURPOSES THEN DEPRECIATION CAN BE DISALLOW ED U/S 38(2) OF THE ACT. HOWEVER, THE DISALLOWANCE MADE BY THE AO IS EXCESSI VE. WE THEREFORE, FEEL THAT 1/10 TH OF THE EXPENSES BE DISALLOWED . THE DISALLOWANCE W ILL COME TO RS. 32,051/- AS AGAINST DISALLOWANCE CONFIRMED BY THE L D. CIT(A) TO THE EXTENT OF RS. 30,000/-. 5.1 THE FOURTH GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 30,000/- ON A CCOUNT OF LOW DRAWINGS. 10 5.2 THE ASSESSEE HAS SHOWN WITHDRAWALS TO THE EXTEN T OF RS. 1.50 LACS. BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT THERE A RE FIVE MEMBERS IN THE FAMILY WHILE THE AO HAS TAKEN SIX MEMBERS IN THE FA MILY. CONSIDERING THIS FACTUAL POSITION, THE LD. CIT(A) DELETED THE DISALL OWANCE. LOOKING TO THE FACTS ON RECORD, WE FEEL THAT THE LD. CIT(A) WAS JU STIFIED IN DELETING THE ADDITION. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 08-07 -2011 SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 08 /07/2011 *MISHRA COPY FORWARDED TO :- 1. THE ACIT, CIRCLE- 1, KOTA 2. SHRI BAL KISHAN NAYATI, HUF KARTA 3. THE LD. CIT (A) JAIPUR 4. THE LD. CIT BY ORDER 5. THE LD.DR 6. THE GUARD FILE (ITA NO.1189/JP /10) A.R, ITAT, JAIPUR 11 12