The DCIT.Circle-(2, Ahmedabad V. Havmor Restaurant-Baroda, Ahmedabad

ITA 1693/AHD/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0209 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-09-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 22-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEETA SHAH
• Assessee Lawyers: SANJAY MAJUDAR
• Keywords: Block assessment
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE SHRI P.K.BANSAL, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.1693/AHD/2009 ASSESSMENT YEAR: 2005-06 DATE OF HEARING:11.9.09 DRAFTED:16.10.09 DCIT, CIRCLE-2, AHMEDABAD, 2 ND FLOOR, INSURANCE BUILDING, ASHRAM ROAD, AHMEDABAD V/S . HAVMOR RESTAURANT BARODA, C/U. HAVMOR, RELIEF ROAD,AHMEDABAD PAN NO. AACFA2765H (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SMT. NEETA SHAH, SR. DR RESPONDENT BY:- SHRI SANJAY MAJUDAR, AR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY THE REVENUE IS ARISING OUT OF THE O RDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-VII AHMEDABAD IN APPEAL NO. CI T(A)-VII/158/CIR.2 /07-08 DATED 09-03-2009. THE ASSESSMENT WAS FRAMED BY THE DCIT, CIRCLE-2, AHMEDABAD U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTE R REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 10-12-2007 FOR ASSESSMENT YEAR 2005-06. 2. THE ONLY ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INFLATION IN FOOD PRODUCTION COST. 3. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE RELIE D ON THE WRITTEN SUBMISSION AND STATED THAT THE TRIBUNAL AFTER ANALYZING THE WO RKING OF THE ASSESSEE IN ASSESSEES OWN CASE IN ITA NO.215/AHD/2005 DATED 22-05-2009, WHEREIN THE ITA NO.1693/AHD/2009 A.Y. 2005-06 DCIT CIR-2 ABD V. HAVMOR RESTAURANT BARO DA PAGE 2 TRIBUNAL HAS DELETED THE ADDITION BY GIVING FOLLOWI NG FINDING IN PARA-6 AND 7 AS UNDER:- 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO PERUSED TH E CASE RECORDS INCLUDING THE BLOCK ASSESSMENT ORDER, THE ORDER OF CIT(A) AS WELL AS THE WRITTEN SUBMISSIONS AND PAPER BOOK FILED BY THE ASSESSEE. CONSEQUENT TO THE SEARCH ON THE PREMISES OF THE ASSESSEE ON 04-09-200 2, THE AO WORKED OUT THE UNDISCLOSED INCOME OF THE BLOCK PERIOD BY ASSUM ING THE FOOD COST AS PER THE BOOKS OF ACCOUNT OF THE ASSESSEE AS ALLEGEDLY I NFLATED AS COMPARED TO THE STANDARD FOOD RATIO. THE AO MAINLY RELIED ON THE S EIZED DOCUMENTS / REGISTERS INVENTORIED AS ANNEXURE A/2, 3 AND A/10 A T PAGES 90 TO 99 WHICH CONTAINS THE COSTING OF VARIOUS FOOD ITEMS PREPARED & SOLD FROM THESE PREMISES AND THESE DOCUMENTS WRITTEN BY ONE SHRI HI TESH A SANGHAVI, THE GENERAL MANAGER-IN-CHARGE OF THE RESTAURANT, WHEREI N HE HAS CONFIRMED THE CONTENTS OF THE ABOVE DOCUMENTS. ON THE BASIS OF AB OVE DOCUMENTS AND PAST RESULTS, HE WORKED OUT STANDARD COST RECIPE AND AVE RAGE FOOD COST RATIO COMPARING THE SAME WITH AVERAGE SALE PRICE AS PER T HE MENU INCLUSIVE THE SALES TAX AND OTHER DUTIES. HE WORKED OUT ACTUAL F OOD COST RATIO BY COMPARING THE ACTUAL COST OF RAW MATERIALS AS PER THE BOOKS O F ACCOUNT WITH FOOD TURNOVER OF THE RESPECTIVE YEARS FALLING IN THE BLOCK PERIOD . THE AO AFTER COMPARING THE STANDARD FOOD COST RATIO AS ABOVE, WITH THE ACTUAL FOOD COST RATIO AS ABOVE, AND AFTER ALLOWING A TOKEN DEDUCTION OF 3% FOR THE WASTAGE ETC. DETERMINED THE INFLATION IN THE FOOD COST RATIO AND APPLIED TH E SAME ON AN AVERAGE BASIS FOR THE ENTIRE BLOCK PERIOD, SO AS TO DETERMINE THE TOTAL AMOUNT OF INFLATION IN THE EXPENDITURE. THIS AMOUNT HAS BEEN THUS CONSTRUE D TO BE EXCESS EXPENDITURE CLAIMED BY THE APPELLANT AND THE SAME H AS BEEN ADDED AS THE INCOME OF THE BLOCK PERIOD. WE FIND THAT THE SO-CA LLED RECIPE SHEETS FOUND AND SEIZED DURING THE COURSE OF SEARCH WERE WORKED OUT BY THE RESTAURANT STAFF I.E CHEF AS WELL AS RESTAURANT MANAGERS MOR E FOR THEIR INTERNAL EXERCISE AND THEY REPRESENT MORE OF STANDARD COSTIN G SO AS TO DETERMINE THE VARIANCES AND ALSO WORK OUT THE EFFECTIVE INTERNAL CONTROL MEASURES ON THE COST. WE ARE OF THE VIEW THAT THIS COVERS ONLY THE DIRECT COST OF MATERIAL AND THEY IGNORE SEVERAL OTHER ITEMS OF INDIRECT COST WH ICH ARE ACTUALLY DEBITED TO THE RAW MATERIAL COST IN THE BOOKS OF ACCOUNTS. THE COST OF ITEMS SUPPLIED FREE LIKE PICKLES, LEMON, GREEN CHILLIES, SPRING ONION, SAUCES, MOUTH FRESHNER ETC ADDS TO THE COST OF FOOD AND THE DETAILS OF THE SAME WERE SUBMITTED TO THE A.O. BY THE ASSESSEE AND EVEN NOW BEFORE US THE SAM E ARE SUBMITTED AT PAGE NO. 9 OF ASSESSEES PAPER BOOK. THE STAFF FOOD COST I. E. COST REQUIRED TO BE INCURRED IN GIVING FREE FOOD TO THE STAFF OF THE RESTAURANT WHOSE DETAILS ARE ALSO CONTAINED ON PAGE NO. 9 AND 10 OF THE ASSESSEE S PAPER BOOK ALSO ADDS TO THE COST OF FOOD ITEMS. EVEN THE NORMAL WASTAGE THAT OCCURS IN THIS BUSINESS CONSIDERING THE FACT THAT RAW MATERIAL CON STITUTES MAINLY THE PERISHABLE ITEMS LIKE VEGETABLES, DAIRY PRODUCTS, B AKERY PRODUCTS ETC. WHICH HAVE TO BE DESTROYED AFTER THEIR SHELF LIFE IS OVER AND THEY GENERALLY CONSTITUTE AROUND 1 TO 2% OF SALES. THE ASSESSEE HAS ALSO PROV IDED THE DETAILS OF THE SAME ARE GIVEN AT PAGE NO.10 OF THE ASSESSEES PAPE R BOOK. THE NORMAL DISCOUNT THAT IS REQUIRED TO BE GIVEN TO THE CUSTOM ERS FROM THE MENU PRICE ALSO ADDS TO THE COST OF THE FOOD. THE HAS GIVEN TH E DETAILS OF THE SAME ON PAGE NO.11 OF ASSESSEES PAPER BOOK THUS THE SUMMAR IZED IMPACT OF THE ITA NO.1693/AHD/2009 A.Y. 2005-06 DCIT CIR-2 ABD V. HAVMOR RESTAURANT BARO DA PAGE 3 ABOVE ITEMS HAS BEEN BROUGHT ABOUT ON PAGE NO.12 OF THE AFORESAID LETTER (PAGE NO. 12 OF PAPER BOOK) THUS, IT WILL BE SEEN T HAT THE TOTAL COST AS A PERCENTAGE OF THE SALES OF THE ABOVE COME TO 8.21% OF THE SALES IN FISCAL 1999-2000 AND 8.48% OF SALES IN FISCAL 2000-2001. E VEN BEFORE US, AS ARGUED BY THE LD. COUNSEL FOR THE ASSESSEE, THE ABOVE FACT ORS IN TOTALITY WILL SEE THAT THE TOTAL COST AS PERCENTAGE OF SALES OF THE ABOVE COMES ABOUT 8.21% IN F.Y. 1999-00 AND 8.48% IN F.Y. 2000-01. WHEREAS THE AO HAS TAKEN ONLY LUMP SUM FIGURE OF 3% FOR ADJUSTING THE AVERAGE FOOD COS T. THE ASSESSEE HAS FIELD A COST CHART INCLUDING THE ADJUSTMENTS AND THEN REC ONCILED THE FOOD COST RATIO AS UNDER : (%) PARTICULARS FY 1999- 00 FY 2000- 01 RATIO AS WORKED BY THE LEARNED ASSESSING OFFICER 22.33 22.33 ADD : A) COST OF FREE ITEMS, STAFF FOOD COST, 4.54 4.58 AND WASTAGES B) DISCOUNTS ON THE MENU PRICE 3.67 3.9 C) SALES TAX DIFFERENCE 5.45 5.45 (12%+SURCHARGE-7.75%) ADJUSTED RATIO 35.99 36.26 APPX 36.00 36.25 RATIO AS PER ACTUALS BOOKS OF ACCOUNTS 36.42 36.34 7. WE FURTHER FIND THAT WHILE ARRIVING AT THE WEIG HTED AVERAGE FOOD COST AS A PERCENTAGE OF SALES THE A.O. HAS TAKEN THE WEIGHT ED AVERAGE SELLING PRICE AS PER THE MENU, AFTER INCLUDING THE STANDARD SALES TAX, WHICH IS COMING TO 12% PLUS SUR-CHARGE I.E. 13.2%. THE ONLY EXCEPTION IN THE ABOVE APPEALS IS THAT OF IT(SS)A 193/AHD/ 2005 IN THE CASE OF HAVMOR AHMEDABAD, WHEREIN THE ISSUE IS REGARDING THE ADDITION MADE BY THE AO ON THE BASIS OF AVERAGE SALE PRICE INSTEAD OF MENU PRICE. THE FACTS IN THI S APPEAL ARE EXACTLY SAME AND THE ISSUE IS ALSO SAME. BEFORE US AS WELL AS D URING THE COURSE OF BLOCK ASSESSMENT PROCEEDINGS, THE ASSESSEE AD DEMONSTRATE D THAT THE SALES-TAX IS NOT APPLICABLE TO MANY ITEMS, AND ALTHOUGH THE STAN DARD RATE OF SALES TAX IS 12% + SUR-CHARGE, THE ACTUAL EFFECTIVE SALES TAX WA S COMING IN THE RANGE OF 8%. ACCORDINGLY, THE AO HAS TAKEN A HIGHER WEIGHTED AVERAGE COST BY ALMOST 3.5% TO 4%. WE FIND THAT THE A.O. HAS ERRED IN ASS UMING THAT THE SAME COST WILL PREVAIL FOR THE SUBSEQUENT YEARS AS WELL IN TH E BLOCK PERIOD. THUS, THIS COST WAS DETERMINED IN THE YEAR 2000 AND IT HAS BEE N ASSUMED THAT IT WILL REMAIN THE SAME IN THE YEAR 2001 AS WELL AS 2002. W E FIND THAT IN REALITY AS IT WILL BE SEEN FROM THE COST OF INFLATION INDEX THERE IS A AVERAGE INCREASE IN THE COST BY 5% TO 7% YEAR OVER YEAR. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE FILED THE NORMAL FOOD COST RATIO PREVALENT IN THE I NDUSTRY BY WAY OF INDEPENDENT INDUSTRY STATISTIC WHERE IT WAS CLEARLY PROVED THAT AVERAGE FOOD COST IN THIS TYPE OF INDUSTRY VARIES FROM TO 40 TO 45% OF FOOD S ALES AND THE SAME IS ITA NO.1693/AHD/2009 A.Y. 2005-06 DCIT CIR-2 ABD V. HAVMOR RESTAURANT BARO DA PAGE 4 ENCLOSED BY THE ASSESSEE AT PAGE NO.90 OF ASSESSEES PAPER BOOK. WE FIND THAT EVEN NOW BEFORE US THE LD. DR COULD NOT ADDUCE ANYTHING, WHICH IS FOUND DURING THE COURSE OF SEARCH, WHICH SUGGEST THAT THE WEIGHTING AVERAGE FOOD COST AS TAKEN BY THE AO FOR ASSESSING THE UNDISCLOS ED INCOME IS CORRECT. WE FIND THAT DURING THE SEARCH NOT A SINGLE PIECE OF I NCRIMINATING EVIDENCE WAS FOUND WHICH COULD LEAD A RATIONAL HUMAN BEING TO BE LIEVE THAT THE ACTUAL BOOKS OF ACCOUNTS WERE FALSE OR MISLEADING EXCEPT A NNEXURE-A/2, 3, ANNEXURE-10 AND PAGES 90 TO 99, WHICH IS A RECIPE S HEET WORKED OUT BY THE RESTAURANT STAFF INCLUDING THE CHEF AS WELL AS REST AURANT MANAGERS MORE FOR THEIR INTERNAL EXERCISE AND REPRESENTS MORE OF STAN DARD COSTING SO AS TO DETERMINE THE VARIANCES AND ALSO WORK OUT THE EFFEC TIVE INTERNAL CONTROL MEASURES ON THE COST. ACCORDINGLY, WE ARE OF THE VI EW THAT THE AO WHILE MAKING ADDITION OF UNDISCLOSED INCOME FOR ASSESSING THE BLOCK PERIOD IS WITHOUT ANY CORROBORATIVE AND SUPPORTIVE EVIDENCES AND IN IT(SS)A NO.193/AHD/2005 IN THE CASE OF HAVMOR RESTAURANT THE MERE DISPUTE WAS WHETHER THE AVERAGE SALE PRICE IS TO BE TAKEN OR TH E MENU PRICE, WHICH IS BASELESS. THE ENTIRE EXERCISE OF THE AO IS JUST BA SED ON CONJECTURES & SURMISES. IN VIEW OF THE ABOVE FACTS, ARGUMENTS OF BOTH THE SIDES, DATA AVAILABLE ON RECORDS, ETC., WE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY DELETED THE ADDITION AND WE CONFIRM THE SAME. ACCOR DINGLY, THIS COMMON ISSUE IN ABOVEMENTIONED APPEALS OF THE REVENUE IS D ISMISSED. RESPECTFULLY FOLLOWING THE SAME, AS THE FACTS BEING EXACTLY IDENTICAL IN THE PRESENT CASE ALSO, WE DISMISS THIS ISSUE OF THE REVENUES A PPEAL. 4. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 30/10/2009 SD/- SD/- (P.K.BANSAL) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED :30/10/2009 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-VII, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITA NO.1693/AHD/2009 A.Y. 2005-06 DCIT CIR-2 ABD V. HAVMOR RESTAURANT BARO DA PAGE 5 ITAT, AHMEDABAD