ACIT, Nashik V. Vishwabhari Foods Pvt Ltd., Nashik

ITA 1587/PUN/2012

• Counselvise Citation: 158724514 RSA 2012
• Duration Of Justice: 1 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 26-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Keywords: Capital asset; Depreciation; Corroborative evidences; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 1587/PN/2012 (ASSESSMENT YEAR : 2009-10) ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1, NASHIK .. APPELLANT VS. VISHWABHARTI FOODS PVT. LTD., KALANTRI HOUSE, SHIVAJI ROAD, NASHIK ROAD, NASHIK PAN NO. AAACV7785N .. RESPONDENT ASSESSEE BY : SHRI PRAMOD SHINGTE REVENUE BY : SHRI S.P. WALIMBE DATE OF HEARING : 17-06-2014 DATE OF PRONOUNCEMENT : 30-06-2014 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 24-05-2012 OF THE CIT(A)-I, NASHIK RELATING T O ASSESSMENT YEAR 2009-10. 2. GROUND OF APPEAL NO. 1 BY THE REVENUE READS AS U NDER: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A)-I, NASHIK WAS JUSTIFIED IN DELETING THE ADD ITION OF RS.11,75,768/- WHICH WAS ADDED ON ACCOUNT OF DIFFEREN CE IN CLOSING STOCK. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE IS A COMPANY ENGAGED IN THE BUSINESS OF ROLLER FLOUR MILLS (MANU FACTURING OF WHEAT PRODUCTS) ACTIVITY AND HAS FILED ITS RETURN OF INCO ME DECLARING TOTAL INCOME OF RS.73,48,200/-. DURING THE COURSE OF ASS ESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THERE ARE CERTAIN 2 DISCREPANCIES BETWEEN THE QUANTITATIVE DETAILS MENT IONED BY THE AUDITORS IN THE AUDIT REPORT AND THE SUBMISSIONS MA DE BY THE ASSESSEE. HE, THEREFORE, ASKED THE ASSESSEE TO RECONCILE THE SAME AND ALSO TO PRODUCE THE STOCK REGISTER MAINTAINED BY IT. FROM THE DETAILS FURNISHED BY THE ASSESSEE AND THE STOCK LEDGER PRINT OUT SUBM ITTED BEFORE HIM THE A.O. NOTED THAT THERE IS A DIFFERENCE IN THE STOCK TO THE TUNE OF 862 QUINTAL. ON BEING FURTHER QUESTIONED BY THE A.O. I T WAS SUBMITTED THAT MAJOR DIFFERENCE IN THE FIGURES OF PRODUCTION OF AT TA WAS DUE TO REPACKING OF THE ATTA FROM 50 AND 90 KGS. PACKETS T O 5, 10 AND 30 KGS. PACKETS, WHICH WAS GETTING DULY REFLECTED IN THE ST OCK REGISTER UNDER THE HEAD KATTAI. THE ASSESSEE SUBMITTED THAT IT WAS NOT HAVING SEPARATE MANUFACTURING UNIT/VALVE FOR DIRECT PACKING OF THE SMALL PACKETS. IT WAS SUBMITTED THAT THE PURCHASES IN THE STOCK REGISTER WERE COMBINED WITH SALES RETURNS UNDER THE HEAD GRN AND THESE WERE T HE REASONS FOR THE MISMATCH. THE FOLLOWING POINTS WERE SUBMITTED TO S UBSTANTIATE THE REASONS FOR WRONG QUALITATIVE REPORTING : A. CONTRA ENTRIES IN STOCK REGISTER FOR CAPTIVE CONSUM PTIONS OF QUANTITY OF FINISHED GOODS REMOVED FROM 90 KGS./50 KG S. BAGS AND USED IN REPACKING OF SMALL PACKS. B. RECORDING OF QUANTITIES OF PURCHASE OF FINISHED PRO DUCTS AND SALES RETURN OF FINISHED PRODUCTS IN A SINGLE COLUMN OF THE STOCK REGISTER AS THERE IS NO PROVISION OF SEPARATE COLUMNS IN THE COMP UTER PROGRAMMING FOR BOTH THE TRANSACTIONS. C. ERRORS IN INTERNAL BIFURCATION/CLASSIFICATION OF QU ANTITIES BETWEEN DIFFERENT FINISHED PRODUCTS. 2.2 THE ASSESSEE FURTHER SUBMITTED THE FOLLOWING RE ASONS AS MENTIONED BY THE AO AT PAGE 3 OF HIS ORDER. WHILE COMPILING THE DATE FOR PURPOSE OF REPORTING I N NOTES TO BALANCE SHEET, SEGREGATION OF SALES RETURN QUANTITY FORM PURCH ASE OF FINISHED GOODS QUANTITY IS REQUIRED TO BE DONE PROPERLY WITH D UE CASE. WHILE SEGREGATING THE SALES RETURN QUANTITY FROM FINISHED PRO DUCT PURCHASE QUANTITY, CERTAIN MATHEMATICAL ERRORS HAVE CREPT IN. THE PURCHASE OF FINISHED GOODS AS REPORTED IN THE NOTES IS WITHOUT PROPE R EXCLUSION OF 3 SALES RETURN QUANTITIES. SOME PORTION OF SALES RETURN QUANTITIES IS EXCLUDED, BUT THROUGH OVERSIGHT, BALANCE SALES RETURN QUANTITY WAS NOT EXCLUDED RESULTING INTO OVERSTATEMENT OF PURCHASE QUAN TITY OF 608 QTLS. SIMILARLY, ERROR WAS COMMITTED IN REPORTING OF SALES Q UANTITY. SALES QUANTITY WAS OVER-REPORTED BY 1,470 QTLS. ON ACCOUNT OF THESE ERRORS, THE REPORTED AMOUNT OF PU RCHASE QUANTITY IS NOT RECONCILED WITH OTHER QUANTITIES. FOR RECONCIL IATION OF THESE QUANTITIES, BIFURCATION OF THE BOTH IS REQUIRED. FOLLOWING IS THE BREAK-UP OF THE INWARD QUANTITY: PARTICULARS QUINTALS AS PER STOCK REGISTER TOTAL INWARD QUANTITY AS PER STOCK REGISTER 4224 LESS: SALES RETURN OF FINISHED GOODS 1470 PURCHASE QUANTITY OF FINISHED GOODS 2754 AS PER NOTES TO ACCOUNTS PURCHASE QTY. AS REPORTED IN NOTES TO ACCOUNTS 3362 LESS: PART OF SALES RETURN QUANTITY INCLUDED IN ABOVE ( OUT OF 1470 QUINTALS) 608 PURCHASE QTY. OF FINISHED GOODS 2754 3. HOWEVER, THE A.O. WAS NOT SATISFIED WITH THE EXP LANATION GIVEN BY THE ASSESSEE. HE NOTED THAT THE ACTUAL PURCHASE S OF FINISHED GOODS WERE CLAIMED TO BE 2754 QUINTALS AND SALES RETURN W ERE TO THE TUNE OF 1470 QUINTALS. AS AGAINST THIS, THE FIGURES SUBMIT TED BY THE ASSESSEE IN THE TABLE TOWARDS THE PURCHASES ETC. COMES TO 3362 QUINTALS. THUS, THERE IS A DIFFERENCE OF 862 QUINTALS WHICH THE ASS ESSEE COULD NOT EXPLAIN PROPERLY. APPLYING THE RATE OF 1364/- PER QUINTALS, WHICH IS THE RATE OF VALUATION OF CLOSING STOCK ADOPTED BY THE A SSESSEE, THE A.O. MULTIPLIED THE SAME BY 862 QUINTALS AND MADE ADDITI ON OF RS.11,75,768/- TO THE TOTAL INCOME OF THE ASSESSEE. 4. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE ADDI TION MADE BY THE A.O. IS BASED ON CERTAIN CLERICAL ERRORS. HOWEVER, THE A.O. HAS NOT TAKEN INTO CONSIDERATION THE ACTUAL FACTS AND POSIT IONS. IT WAS SUBMITTED THAT THE ERROR WAS ONLY IN THE QUANTITY COLUMN AND THERE WAS NO DIFFERENCE IN THE AMOUNT. IT WAS SUBMITTED THAT TH ERE WAS SUBSTANTIAL 4 OTHER RECORDS AVAILABLE WITH THE COMPANY FROM WHICH IT WAS VERY EASY TO VERIFY THAT THE QUANTITY REPORTING OF PURCHASE O F FURNISHED GOODS IN THE NOTES TO ACCOUNTS WAS A CLERICAL ERROR. ALTHOU GH THE MISTAKE WAS BROUGHT TO THE NOTICE OF THE A.O. HE HAS IGNORED TH E SAME. IT WAS ARGUED THAT THE COMPANY HAS MAINTAINED A COMPLETE I NVENTORY ACCOUNTING SYSTEM. ENTRIES ARE MADE IN THE INVENTO RY ACCOUNTING ON DAY TO DAY BASIS WHICH IS VERY EXHAUSTIVE SYSTEM FR OM WHICH THE CONSUMPTION OF RAW MATERIAL, PRODUCT WISE MANUFACTU RING OF FINISHED GOODS, PURCHASES OF FINISHED GOODS, SALE OF FINISHE D GOODS, SALES RETURN OF FINISHED GOODS, MOVEMENT OF MATERIAL AND CLOSING STOCK QUANTITY ARE READILY AVAILABLE ON DAY TO DAY BASIS AS WELL AS ON CUMULATIVE BASIS UP TO THE DATE OF PREPARATION OF FINANCIAL STATEMENTS. IT WAS ARGUED THAT THE STOCK REGISTER WAS PRODUCED BEFORE THE A.O. FOR VER IFICATION. THE SUMMARY OF QUANTITY ACCOUNTING AND CLOSING STOCK AS ON 31-03-2009 WAS GENERATED FROM THE INVENTORY ACCOUNTING SYSTEM AND WAS SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN SUPP ORT OF CLAIM OF THE COMPANY. THE CLOSING STOCK VALUE AS TAKEN IN THE B ALANCE SHEET WAS BASED ON INVENTORY ACCOUNTING MAINTAINED BY THE COM PANY. IT WAS ARGUED THAT THE A.O. COULD NOT FIND OUT ANY MISTAKE OR ERROR IN THE DETAILS OF THE VALUE WHICH WAS FULLY MATCHING WITH BOOKS AND THE FINANCIAL STATEMENTS. IT WAS FURTHER ARGUED THAT T HE ADDITIONAL STOCK OF FINISHED GOODS CAN BE EITHER OUT OF UNACCOUNTED PUR CHASES OR UNDER ACCOUNTING OF SALES OR MANUFACTURING OF MATCHING QU ANTITY OF FINISHED GOODS. HERE THE ADDITION IS ON ACCOUNT OF ERROR IN REPORTING OF PURCHASE/SALES RETURN QUANTITY OF FINISHED GOODS GI VEN BY WAY OF ADDITIONAL INFORMATION. THE A.O. WAS SATISFIED WIT H THE OVERALL INPUT OUTPUT RATIO OF RAW MATERIAL AND FINISHED GOODS. I T WAS FURTHER ARGUED 5 THAT THE A.O. WITHOUT CONSIDERING THE VARIOUS DETAI LS GIVEN MADE THE ADDITION DUE TO CERTAIN CLERICAL ERRORS WHICH WAS R ECONCILED BEFORE HIM. 5. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE CIT(A) CALLED FOR A REMAND REPORT OF THE A.O. WHO REITERAT ED HIS EARLIER FINDINGS. AFTER CONFRONTING THE SAME TO THE ASSESS EE AND AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE IN HIS REJOINDER TO THE REMAND REPORT THE CIT(A) DELETED THE ADDITION BY OB SERVING AS UNDER: 5.5. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE, THE ASSESSMENT ORDER, THE REPORT OF THE A.O. AND THE RIVAL CONTENT IONS. ADMITTEDLY, THERE IS A CLERICAL MISTAKE IN REPORTING OF PURCHASES OF FINISHED GOODS FROM SISTER CONCERNS. THE ASSESSEE HAS EXPLAINED THAT THER E IS A DIFFERENCE IN QUANTITY ONLY AND NOT IN VALUE. SO I T DOES NOT AFFECT THE PROFITABILITY. THE ASSESSEE HAS FURNISHED COMPLETE DETA ILS OF SALES, PURCHASES, CONSUMPTION WHICH WAS ALSO TEST CHECKED BY THE ASSESSING OFFICER AND NO SPECIFIC DISCREPANCY WAS NOTICED. ON G OING THROUGH THE RELEVANT ACCOUNTS, IT IS FOUND THAT THE CLERICAL ERRO R IS ONLY IN QUANTITY COLUMN AND THERE IS NO ERROR IN VALUE OF PURCHASE AND SALES. THERE IS A MERIT IN THE ARGUMENT MADE ON BEHALF O THE APPELLAN T THAT THE A.O. HAS ASSUMED THAT THERE IS A DIFFERENCE IN CLOSING STOCK OF 8 62 QUINTALS. ON AN EXAMINATION OF THE RELEVANT DATA PLACED BEFORE M E, NO DIFFERENCE IN THE CLOSING STOCK HAS BEEN FOUND AND THE ASSESSEES ACCOUN TS ARE PROPERLY RECONCILED WITH THE DETAILS OF FINISHED PROD UCTS, PURCHASES, SALES RETURN OF FINISHED GOODS AND STOCK REGISTER. THE ONLY GROUND ON WHICH THE IMPUGNED ADDITION IS MADE THAT THE QUANTIT Y FIGURES HAVE BEEN INCORRECTLY REPORTED. HOWEVER, THE CLOSING STOC K HAS BEEN PROPERLY RECONCILED BY THE ASSESSEE. IN VIEW OF THESE F ACTS AND IN THE CIRCUMSTANCES, NO DIFFERENCE IN THE CLOSING STOCK IS ESTA BLISHED. CONSEQUENTLY, THE IMPUGNED ADDITION OF RS.11,65,768/- IS WITHOUT ANY BASIS AND THE SAME IS DIRECTED TO BE DELETED. THIS GROU ND OF APPEAL IS ALLOWED. 5.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REV ENUE IS IN APPEAL BEFORE US. 6. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY CHA LLENGED THE ORDER OF THE CIT(A) DELETING THE ADDITION MADE BY T HE A.O. HE SUBMITTED THAT THE CIT(A) DELETED THE ADDITION ON T HE BASIS OF SUBMISSION OF THE ASSESSEE WHO STATED THAT THE MIST AKE WAS ONLY A CLERICAL ERROR. HE SUBMITTED THAT HOW SUCH A MISTA KE COULD OCCUR AND CONTINUED FOR A LONG TIME ESPECIALLY WHEN THE ACCOU NTS ARE AUDITED AND 6 STOCK FIGURES CERTIFIED BY THE AUDITOR HAS NOT BEEN ADDRESSED BY THE CIT(A). HE HAS NOT DISCUSSED THE ISSUE AT ALL ON M ERIT AND WAS CARRIED AWAY BY THE SUBMISSIONS MADE BEFORE HIM. HE, ACCOR DINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) BE REVERSED AND THAT O F THE A.O. BE RESTORED. 7. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HA ND STRONGLY SUPPORTED THE ORDER OF THE CIT(A). REFERRING TO PA GE NO. 70 OF THE PAPER BOOK. HE DREW THE ATTENTION OF THE BENCH TO THE STOCK LEDGER FOR THE PERIOD FROM 01-04-2008 TO 31-03-2009 WHOSE GIVE S THE VARIOUS STATEMENTS IN A TABULAR FORM SUCH AS OPENING STOCK, GRN, PRODUCTION, SORTING, TRANSFER, DC, KATTAI, CASH SALE AND CLOSIN G STOCK GIVING THE WEIGHT IN QUINTALS. REFERRING TO THE PAGE NO. 70 O F THE PAPER BOOK WHICH IS A PART OF THE AUDIT REPORT. HE SUBMITTED THAT THE SALES RETURN HAS NOT BEEN INCLUDED IN THE PURCHASE FOR WHICH ALL THESE CONFUSIONS AROSE. HE SUBMITTED THAT IT WAS A CLERICAL ERROR A ND THERE WAS NO EVIDENCE WITH THE REVENUE THAT THE ASSESSEE HAS MAD E ANY SALES OUTSIDE THE BOOKS OF ACCOUNT. HE SUBMITTED THAT ALL THE DE TAILS WERE BEFORE THE A.O. HAD HE CONSIDERED THE DETAILS FURNISHED BEFORE HIM THERE WOULD HAVE BEEN NO CONFUSION AT ALL. HE, ACCORDINGLY, SU BMITTED THAT THE ORDER OF THE CIT(A) BEING BASED ON PROPER APPRECIATION OF FACTS, THE SAME SHOULD BE UPHELD. 8. 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. THE SU BMISSION OF THE ASSESSEE BEFORE THE BENCH THAT THERE IS ONLY DIFFER ENCE IN QUANTITY AND 7 NOT IN VALUE AND THEREFORE, IT DOES NOT AFFECT THE PROFITABILITY COULD NOT BE CONTROVERTED BY THE LD. DEPARTMENTAL REPRESENTAT IVE. THERE IS NO EVIDENCE ON RECORD BEFORE THE A.O. THAT THE ASSESSE E HAS MADE ANY SALES OUTSIDE THE BOOKS OF ACCOUNT AND MONEY HAS COME BAC K TO THE ASSESSEE IN SOME WAY OR OTHER. THE LD. COUNSEL FOR THE ASSE SSEE HAS BEEN ABLE TO RECONCILE THE CLOSING STOCK BEFORE THE CIT(A) AS WELL AS BEFORE US. IN THIS VIEW OF THE MATTER, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) DELETING THE ADDITION. WE, ACCORDINGLY, UPH OLD THE SAME AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 9. GROUND OF APPEAL NO. 2 BY THE REVENUE READS AS U NDER: 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A)-I, NASHIK WAS JUSTIFIED IN DELETING THE ADD ITION OF RS.3,86,022/- WHICH WAS ADDED ON ACCOUNT OF LOSS OF REP ACKING OF ATTA. 9.1 FACTS OF THE CASE, IN BRIEF, ARE THAT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERV ED THAT THE ASSESSEE CLAIMED LOSS OF 294 QUINTALS OF WHEAT WHIC H HAS ARISEN DUE TO REPACKING OF ATTA AND CLAIMED THAT THIS ATTA ON FLO OR WAS BEING CONSIDERED AS BRAN AND SOLD AS SUCH. ON BEING QUES TIONING BY THE A.O. THE ASSESSEE EXPLAINED AS UNDER: 'IN SHORT, THE REPORTED QUANTITIES OF PRODUCTION IN T HE NOTES TO BALANCE SHEET ARE OVERSTATED BY 20,715 QTLS. ON ACCOUNT OF IM PROPER EFFECT OF CONTRA ENTRY. ON ONE HAND, THE INPUT QUANTITY OF FI NISHED GOODS OF ATTA IS RIGHTLY EXCLUDED FROM CONSUMPTION QUANTITY AS CONSUMPT ION QUANTITY CONTAINS ONLY WHEAT, WHICH IS THE BASIC RAW MATERIAL. HOWEVER, MATCHING EXCLUSION FROM PRODUCTION QUANTITIES FOR CAP TIVE CONSUMPTION WAS NOT DONE. ON ACCOUNT OF THIS ERROR, THE ATTA PROD UCTION WAS OVERSTATED BY 20,715 QTLS. AS THERE WAS DOUBLE COUNTING OF THE SAME PRODUCTION. AS REGARD DIFFERENCE OF 294 QTLS. IN INPUT AND OUTPUT , WE WISH TO BRING TO YOUR KIND NOTICE THAT IT IS NOT A PROCESS LOSS. THE B ALANCE QUANTITY OF 294 QTLS. IS CONVERTED INTO BRAN. THE ENTIRE PROCESS OF REPACKING WAS CARRIED OUT MANUALLY. AS A RESULT, DURING HANDLING OF FINISHED ATTA, FLOOR DROPPING OF SOME PORTION OF ATTA WAS INEVITABLE. THIS ATTA CANNOT BE REPACKED BUT IT IS MIXED IN BRAN WHICH IS ULTIMATELY USED AS CATTLE FEED. 8 THE LOSS ARISING OUT OF REDUCTION IN VALUE ON ACCOUNT OF CONVERSION INTO BRAN IS VERY NEGLIGIBLE AND AS COMPARED TO VALUE ADDI TIONS BY WAY OF IMPROVED SALE RATE. THUS THE OVERALL VALUE ADDITION O N ACCOUNT OF SMALL PACKS IS MORE AND THE OVERALL PROFITABILITY IS ALSO MOR E.' 9.2 HOWEVER, THE A.O. WAS NOT SATISFIED WITH THE EX PLANATION GIVEN BY THE ASSESSEE IN ABSENCE OF ANY PROOF TO HIS SATI SFACTION. HE, THEREFORE, DISALLOWED LOSS OF 294 QUINTALS. AFTER CONSIDERING THE AVERAGE VALUE OF CLOSING STOCK OF ATTA IS RS.1,313/ - PER QUINTAL, THE A.O. DETERMINED THE ADDITION AT RS.3,86,022/- (RS.1,313 X 294 QUINTALS). 10. BEFORE THE CIT(A) THE ASSESSEE OPPOSED THE SAME ADDITION. IT WAS SUBMITTED THAT THE MONTHLY QUANTITATIVE DETAILS OF REPACKING OF ATTA IN SMALL PACKS OF 5 KGS./10 KGS. WERE FILED BEFORE THE ASSESSING OFFICER FOR 20715 QUINTALS OF ATTA. THE QUANTITY RE PACKED WAS 20421 QUINTALS. THE BALANCE 294 QUINTALS OF ATTA COULD NO T BE REPACKED DUE TO FLOOR DROPPING. HOWEVER, THERE IS NO 100% LOSS OF T HE SAME. THIS 294 QUINTALS OF FINISHED GOODS WAS NOT REPACKED FOR REA SON OF MAINTAINING APPROPRIATE QUALITY OF FINISHED GOODS AND ALSO TO M AINTAIN THE GOODWILL OF THE COMPANY IN THE MARKET. THIS QUANTITY OF 294 QUINTALS GOT MERGED WITH BRAN QUANTITY WHICH WAS SOLD AS BYE- PRODUCT. HOWEVER, THE CLAIM FOR MERGING THE QUANTITY OF 294 QUINTALS IN BRAN QU ANTITY WAS NOT ACCEPTED BY MAKING REMARK THAT 'NO PROOF COULD BE S UBMITTED BY ASSESSEE AS NO BACKGROUND DOCUMENTS WERE MAINTAINED BY THE ASSESSEE.' THE ASSESSEE SUBMITTED THAT DURING COURS E OF ASSESSMENT IT WAS BROUGHT TO THE NOTICE OF A.O. THAT THE REPACKIN G WAS CARRIED BY MANUAL PROCESS. FLOUR DROPPING IS INEVITABLE DURING MANUAL REPACKING. THIS ATTA LYING ON FLOOR COULD NOT BE USED IN REPAC KING ON ACCOUNT OF QUALITY NORMS AND IT WAS ULTIMATELY MERGED IN BRAN AND WAS SOLD AS SUCH. IT WAS ARGUED THAT THE ASSESSING OFFICER SHOU LD HAVE TAKEN INTO 9 ACCOUNT THE CIRCUMSTANTIAL EVIDENCE AND SHOULD HAVE ADOPTED PRACTICAL VIEW. IT CANNOT BE SAID THAT THE ENTIRE PACKING IS WITHOUT ANY FLOUR DROPPING OF MATERIAL. IN FACT IT IS PRACTICALLY NOT POSSIBLE AS WELL AS IT IS MEANINGLESS TO AGAIN MEASURE THE QUANTITY OF THE SA ME AND TO CREATE THE RECORD OF THE SAME. AS THE FLOOR DROPPING IS MERGED IN BRAN THERE IS NO POINT IN KEEPING SEPARATE RECORD FOR THE SAME. THER E IS NO 100% LOSS OF 294 QUINTALS. IT IS JUST CONVERSION INTO BRAN WHICH IS SOLD AS CATTLE FEED AT LOWER RATE. EVEN THE OVERALL INPUT OUTPUT RATIO OF 100.14% IS ACCEPTED BY THE AO. THUS THERE IS NO PROCESS LOSS' ALSO. IT WAS ARGUED THAT IT IS NOT CLEAR FROM THE ADDITION WHETHER IT IS ADDITION TO CLOSING STOCK OR DISALLOWANCE OF PROCESS LOSS. IN FACT, FROM THE INV ENTORY RECORD IT IS CLEAR THAT THERE IS NO PROCESS LOSS BUT JUST CONVER SION FROM ONE PRODUCT TO ANOTHER, I.E. FROM FINISHED GOODS TO BYE-PRODUCT . 11. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) CALLED FOR A REMAND REPORT FROM THE A.O. WHO REITER ATED HIS EARLIER FINDINGS ON THIS ISSUE. AFTER CONSIDERING THE REMA ND REPORT AS WELL AS THE REJOINDER OF THE ASSESSEE TO SUCH REMAND REPORT THE CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER: 6.5. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE, THE ASSESSMENT ORDER, THE REPORT OF THE AO AND THE RIVAL SUBMISSIONS. THE AO HAS DISCUSSED THIS ISSUE IN PARA 3 OF THE IMPUGNED ASSESSMENT ORD ER. IT IS NOTICED THAT IN THIS BUSINESS THERE IS A DIFFERENCE OF P RODUCTION AND REPACKAGING OF ATTA IN SMALL PACKETS AND THE SAME HAS R ESULTED ON ACCOUNT OF FLOOR DROPPING. THE ASSESSING OFFICER HAS NOT ED THAT THERE IS A CLAIM OF LOSS OF 294 QUINTALS OF WHEAT. HOWEVER, THE ASSESSEE HAS EXPLAINED THAT THERE IS NO SUCH CLAIM MADE BY IT EIT HER IN THE ACCOUNTS OR BEFORE THE ASSESSING OFFICER DURING ASSESSMENT PROCEEDIN GS. IN THIS BUSINESS, FLOOR DROPPING IS A COMMON FEATURE WHILE REPA CKING ATTA IN A MANUAL MANNER. IT IS TRUE THAT THE ATTA LYING ON THE FLOOR CANNOT BE USED IN REPACKING AND IT GETS MERGED IN BRAN. THE ASSESSEE HA S MENTIONED PROPER INVENTORY/RECORD OF CONVERSION FROM ONE PRODU CT TO ANOTHER I.E. FROM THE FINISHED GOODS TO THE BYE-PRODUCTS. THE ASSESSING OFFICER HAS NOT DISPUTED THESE FACTS. THE ONLY GROUND ON WHICH THE AO HAS MADE THE IMPUGNED ADDITION IS THAT THERE WAS A CLAIM OF LO SS OF 294 QUINTALS OF WHEAT. ON THE TOTALITY OF THE FACTS, IT IS FOUND T HAT NO SUCH CLAIM HAS 10 BEEN MADE. THE ACCOUNTS ARE PROPERLY MAINTAINED. T HERE IS NO EVIDENCE OF EITHER ANY PROCESS LOSS. ON THESE FACTS AND IN THE CIRCUMSTANCES, IT IS HELD THAT THE IMPUGNED ADDITION I S MADE ON WRONG ASSUMPTION THAT THERE WAS A CLAIM OF LOSS OF WHEAT. SUC H ASSUMPTIONS CANNOT LEAD TO ANY ADDITION WITHOUT SUPPORTING MATER IAL ON RECORD. CONSEQUENTLY, THE IMPUGNED ADDITION OF RS.3,86,022/- IS DIRECTED TO BE DELETED. THIS GROUND OF APPEAL STANDS ALLOWED. 11.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 12. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY OP POSED THE ORDER OF THE CIT(A) STATING THAT THE FINDING GIVEN BY THE LD. CIT(A) IS STRANGE AND BASELESS. HE SUBMITTED THAT THIS IS PR OCESS LOSS AND THEREFORE, THERE IS NO REQUIREMENT TO SHOW IT SEPAR ATELY. HE SUBMITTED THAT WHEN THE ASSESSEE WAS UNABLE TO GIVE EVIDENCE TO SUPPORT HIS CLAIM THAT THE ATTA LYING ON THE FLOUR WAS MIXED IN BRAN WHICH IS ULTIMATELY USED AS CATTLE FEED, THEREFORE, THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION. 13. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER H AND WHILE SUPPORTING THE ORDER OF THE CIT(A) SUBMITTED THAT W HEN THE ASSESSEE IS FOLLOWING MANUAL PROCESS OF REPACKING OF ATTA FROM LARGER POCKETS TO SMALLER POCKETS THERE IS BOUND TO BE SOME FLOUR DRO PPING. SINCE THIS ATTA LYING ON THE FLOOR CANNOT BE REPACKED, THE SAM E WAS MIXED WITH THE BRAN WHICH IS SUBSEQUENTLY SOLD IN THE MARKET. HE, ACCORDINGLY, SUBMITTED THAT THE ORDER OF THE CIT(A) BEING BASED ON FACTS SHOULD BE UPHELD AND THE GROUNDS RAISED BY THE REVENUE ARE DI SMISSED. 14. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIN D FORCE IN THE SUBMISSION MADE BY THE LD. COUNSEL FOR THE ASSESSEE THAT WHEN THE 11 REPACKING WAS CARRIED OUT BY MANUAL PROCESS THEREFO RE, FLOOR DROPPING IS INEVITABLE AND SUCH ATTA LYING ON THE FLOOR COUL D NOT BE USED FOR REPACKING ON ACCOUNT OF QUANTITY NORMS FOR WHICH IT WAS MIXED WITH BRAN. FROM THE DETAILS FURNISHED BY THE ASSESSEE W E FIND THE ASSESSEE DURING THE YEAR HAS PRODUCED 503812 QUINTALS OF VAR IOUS WHEAT PRODUCTS. THEREFORE, SOME LOSS IS INEVITABLE WHILE REPACKING THE ATTA FROM BIGGER PACKS TO SMALLER PACKS OF 5 KGS. TO 10 KGS. FURTHER THE OVERALL INPUT OUTPUT RATIO OF 100.14% HAS NOT BEEN DISPUTED BY THE A.O. ON THESE CIRCUMSTANCES AND IN VIEW OF THE DETAILED REASONING GIVEN BY THE LD. CIT(A) WE FIND NO INFIRMITY IN HIS ORDER DE LETING THE ADDITION. ACCORDINGLY, THE SAME IS UPHOLD AND GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 15. GROUNDS OF APPEAL NO. 3 BY THE REVENUE READS AS UNDER: 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A)-I, NASHIK WAS JUSTIFIED IN DELETING THE ADD ITION OF RS.5,00,000/- WHICH WAS ADDED ON ACCOUNT OF DISCREPANC IES IN STOCK REGISTER. 15.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE A.O. MADE ADDITION OF RS.5 LAKHS BY OBSERVING AS UNDER : 4. ON PERUSAL OF THE DETAILS FURNISHED, THE FOLLOWING DISCREPANCIES WERE NOTICED IN THE COMPUTERIZED STOCK REGISTER MAINT AINED BY THE ASSESSEE: A. RECORDING OF QUANTITY OF PURCHASE OF FINISHED GOOD S AND SALES RETURN IN A SINGLE COLUMN (GRN) AS SUBMITTED BY TH E ASSESSEE. B. MISTAKES CLAIMED TO BE DUE TO INTERNAL CLASSIFICATIO N OF QUANTITIES BETWEEN DIFFERENT FINISHED PRODUCTS RESULTI NG IN NEGATIVE STOCK IN SOME CASES [KESAR RAVA (-) 4.86 QUINTA LS] AS PER THE STOCK REGISTER OF THE ASSESSEE. C. MISTAKE IN SOFTWARE (CLAIMED TO BE DUE TO THE INIT IAL STAGE OF WORKING OF SOFTWARE) DUE TO WHICH PACKING MATERIA L EMPTY BAGS WERE ALSO BEING SHOWN AS HAVING SOME WEIGHT AND THE ASSESSEE SUBMITTED THAT THESE WEIGHTS WERE NOT BEI NG CONSIDERED FOR COUNTING OF THE CLOSING STOCK OF RAW MA TERIAL AND FINISHED GOODS. THE NUMBER OF BAGS WERE ONLY COUNTED FOR 12 PACKING MATERIAL VALUATION. OTHER MISTAKES IN STOCK R EGISTER WERE ALSO POSSIBLE DUE TO SOFTWARE PROBLEMS IN STOCK REGI STER MAINTAINED ON COMPUTER. 4.1 FURTHER, IT IS SEEN THAT THE AVERAGE MONTHLY CONSU MPTION OF RAW MATERIAL TO FINISHED PRODUCT RATIO OF THE ASSESSEE VARIE D BETWEEN DIFFERENT MONTHS WHICH WAS CLAIMED TO BE DUE TO MATER IAL LYING IN THE PIPELINES (STOCK IN PROCESS), BUT FULL SUPPORTING EVIDEN CES IN THIS REGARD WERE NOT AVAILABLE WITH THE ASSESSEE. IN VIEW OF THE VA RIOUS DISCREPANCIES IN THE STOCK REGISTER AND THE SOFTWARE PR OBLEMS, THERE IS EVERY POSSIBILITY OF MISTAKES IN REPORTING OF THE STOCK FIGURES & PRODUCTION FIGURES. TO COVER-UP ALL SUCH DISCREPANCIES, A FURTHER ADDITION OF RS.5,00,000/- IS MADE TO THE CLOSING STOCK OF THE ASSESSEE. 16. IN APPEAL THE CIT(A) DELETED THE ADDITION BY OB SERVING AS UNDER: 7.5 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE , THE ASSESSMENT ORDER, THE REPORT OF THE AO AND THE RIVAL SUBMISSIONS. THE ASSESSING OFFICER WHILE EXAMINING THE MONTHLY CONSUMPTION OF R AW MATERIAL TO FINISHED PRODUCTS FOUND THAT IN THE PROCESS OF PRODUCT ION, CERTAIN RAW MATERIAL REMAINS WITHIN THE PIPELINES. THIS IS AN ADMI TTED FACT. IT IS ARGUED ON BEHALF OF THE APPELLANT THAT IN THE PRODU CTION CERTAIN RAW MATERIAL REMAINS WITHIN THE PIPELINE IN RESPECT OF VA RIOUS RAW MATERIAL. THE ASSESSING OFFICER WHILE MAKING THE IMPUG NED ADDITION HAS NOTED THAT SUPPORTING EVIDENCES IN THIS REGARD WAS NOT FILED AND HE, THEREFORE, ASSUMED THAT THERE IS A POSSIBILITY OF MI STAKES IN REPORTING THE STOCK FIGURES AND PRODUCTION FIGURES. HE , THEREFORE, MADE AN ADHOC ADDITION OF RS.5,00,000/-. IN MY CONSIDERED VIEWS, IN THIS LINE OF BUSINESS, ADMITTEDLY, CERTAIN RAW MATERIAL DOES REMA IN WITHIN THE PIPELINE, FOR WHICH NO SPECIFIC EVIDENCE IS AVAILABL E. HOWEVER, IT HAS BEEN FOUND THAT THERE IS NO DISCREPANCY IN QUANTITY A ND VALUE OF PACKING MATERIAL. THE ASSESSEE HAS MAINTAINED MONTHWISE QUANTITY AND PRODUCTION AND CONSUMPTION THAT WERE PLACED BEFO RE THE ASSESSING OFFICER AND ALSO BEFORE ME. TOTALITY OF THE FA CTS LEAD TO THE CONCLUSION THAT THERE IS AN INSIGNIFICANT VARIATION IN THE RATIO OF PRODUCTION TO CONSUMPTION. IN THE ACCOUNTS, STOCK OF PACKING MATERIAL IS SHOWN IN WEIGHT AND THE FINISHED PRODUCT IS PROPERLY ACCOUNTED IN THE STOCK REGISTER. THE ASSESSING OFFICER HAS NOT STATED C LEARLY AS TO WHAT SUPPORTING EVIDENCE WAS REQUIRED. THE IMPUGNED A DDITION IS, THEREFORE, FOUND TO BE ON ASSUMPTION AND IS WITHOUT A NY BASIS. THERE IS NO STOCK VARIATION IN THE AGGREGATE QUANTITY OF PROD UCTION. IT IS, HOWEVER, NOTICED THAT THERE IS A WRONG CLASSIFICATION OF KESARI RAVA WHICH IS VALUED AT RS.6,380/- AND IT IS THIS INSIGNIFICA NT AMOUNT WHICH HAS POSSIBLY LED THE ASSESSING OFFICER TO ASSUME THERE ARE DISCREPANCIES. IN VIEW OF THE FACT THAT THERE IS NO VA RIATION IN THE AGGREGATE QUANTITY OF PRODUCTION, THE MINOR ERROR I N CLASSIFICATION OF KESARI RAVA OF RS.6,380/- GETS EXPLAINED. THE IMPUGNE D ADDITION OF RS.5,00,000/- IS, THEREFORE, WITHOUT ANY BASIS AND THE SAME IS DIRECTED TO BE DELETED. THIS GROUND OF APPEAL IS ALLOWED. 16.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 13 17. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. THE LD . DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY MISTAKE IN T HE REASONED ORDER OF THE CIT(A) WHO DELETED THE ADDITION MADE BY THE ASS ESSING OFFICER ON PRESUMPTIONS AND ADHOC BASIS. THE GROUND RAISED B Y THE ASSESSEE IS ACCORDINGLY DISMISSED. 18. GROUND OF APPEAL NO. 4 BY THE REVENUE READS AS UNDER: 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A)-I, NASHIK WAS JUSTIFIED IN DELETING THE ADD ITION OF RS.46,130/- WHICH WAS ADDED ON ACCOUNT OF CESSATION OF LIABILITY. 18.1 FACTS OF THE CASE, IN BRIEF, ARE THAT DURING T HE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER ASKED THE ASSESSEE TO PRODUCE THE LIST OF CREDITORS OF VARIOUS ACCOUNTS W HICH ARE OUTSTANDING FOR MORE THAN 2 YEARS AS ON 31-03-2009. THE ASSESS EE CLAIMED THAT IN MANY CASES OUTSTANDINGS HAVE BEEN WRITTEN-OFF AND A MOUNTS HAVE BEEN OFFERED TO TAX. HOWEVER, WITH RESPECT TO CREDITORS OF RS.32,663/- FOR PURCHASE AND RS.13,472/- FOR BROKERAGE AND COMMISSI ON WHICH ARE OUTSTANDING FOR MORE THAN 2 YEAR, THE ASSESSEE COUL D NOT PROVE THAT THESE LIABILITIES ARE STILL PAYABLE. THE A.O., THE REFORE, MADE ADDITION OF RS.46,130/- TO THE TOTAL INCOME OF THE ASSESSEE U/S . 41(1) OF THE I.T. ACT. 19. IN APPEAL THE CIT(A) DELETED THE ADDITION BY OB SERVING AS UNDER: 8.4. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE, THE ASSESSMENT ORDER, THE REPORT OF THE AO AND THE RIVAL CONTENTIO NS. ON PERUSAL IT IS NOTICED THAT THE APPELLANT HAS STILL NOT PAID THE CRE DITORS FOR PURCHASES AMOUNTING TO RS.32,663/- AND BROKERAGE AND COMMISSION OUTSTANDING AMOUNTING TO RS.13,472/-. THEREFORE, THESE ARE OUTSTAN DING AND HAVE TO BE PAID. THE APPELLANT HAS NOT DONE REMISSION OR CE SSATION OF THESE LIABILITIES. IN VIEW OF THE ABOVE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AO IS NOT JUSTIFIED IN MAKING ADDITION OF RS. 46,130/-. THE AO 14 IS DIRECTED TO DELETE THE ADDITION OF RS.46,130/-. TH IS GROUND OF APPEAL IS ALLOWED. 19.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 20. AFTER HEARING BOTH THE SIDES WE FIND NO INFIRMI TY IN THE SAME. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. SU GAULI SUGAR WORKS P. LTD. REPORTED IN 236 ITR 519 HAS HELD THAT THE MERE UNILATERAL TRANSFER ENTRY IN THE ACCOUNTS BY THE ASSESSEE WILL NOT ENABLE THE DEPARTMENT TO SAY THAT SECTION 41(1) WOULD APPLY AN D THE AMOUNT SHOULD BE INCLUDED IN THE TOTAL INCOME OF THE ASSES SEE. IN THE INSTANT CASE THE ASSESSEE HAS NOT EVEN WRITTEN-OFF THE AMOU NTS AND HAS STILL SHOWN THE SAME AS PAYABLE. UNDER THESE CIRCUMSTANC ES, MAKING THE ADDITION BY APPLYING THE PROVISIONS OF SEC. 41(1), IN OUR OPINION IS UNWARRANTED. WE, THEREFORE, UPHOLD THE ORDER OF TH E CIT(A) ON THIS ISSUE AND GROUNDS RAISED BY THE REVENUE ARE DISMISS ED. 21. GROUND OF APPEAL NO. 5 BY THE REVENUE READS AS UNDER: 5. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A)-I, NASHIK WAS JUSTIFIED IN DELETING THE ADD ITION OF RS.53,040/- WHICH WAS ADDED ON ACCOUNT OF CAPITAL EXP ENDITURE. 22. AFTER HEARING BOTH THE SIDES WE FIND THE A.O. M ADE ADDITION OF RS.53,040/- BY TREATING RS.62,400/- SHOWN BY THE AS SESSEE UNDER THE HEAD REPAIRS AND MAINTENANCE AS CAPITAL ASSET ON WHICH HE ALLOWED DEPRECIATION AT THE RATE OF 15%. WE FIND IN APPEAL THE CIT(A) DELETED THE ADDITION ON THE GROUND THAT THE EXPENDITURE WAS INCURRED TOWARDS REPAIRS OF THE VENTILATION SYSTEM WHICH THE ASSESSE E INCURS IN EVERY TWO YEARS. THEREFORE, THIS EXPENDITURE IS NOT A CAPITA L EXPENDITURE AND HAS TO BE TREATED AS REVENUE EXPENDITURE. THE LD. DEPA RTMENTAL 15 REPRESENTATIVE COULD NOT POINT OUT ANY MISTAKE IN T HE ABOVE FINDING GIVEN BY THE CIT(A). UNDER THESE CIRCUMSTANCES WE FIND NO INFIRMITY IN HIS ORDER. ACCORDINGLY, WE UPHOLD THE SAME AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 23. THE OTHER GROUNDS RAISED BY THE REVENUE BEING G ENERAL IN NATURE ARE DISMISSED. 24. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 30-06-2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: 30 TH JUNE, 2014 RK/SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A)-I, NASHIK 4. THE CIT-I, NASHIK 5. THE D.R, B PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE