MESERS MEHAK FOOD LIMITD, AMRITSAR V. DEPUTY COMMISIONER OF INCOME TAX , AMRITSAR

ITA 175/ASR/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 3326 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 27-08-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 02-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PADAM BAHL
• Keywords: Recovery proceedings; Set aside
• Section: 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE SH. B. R. BASKARAN, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A. NO. 175/ASR/2018 A SSESSMENT YEAR: 2013-14 M/S MEHAK FOOD LIMITED, 258-BASANT AVENUE, AMRITSAR [PAN: AAECM 8853G] VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-II, AMRITSAR (APPELLANT) (RESPONDENT) APPELLANT BY : SH. PADAM BAHL (C.A.) RESPONDENT BY: SH. CHARAN DASS (D.R.) DATE OF HEARING: 27.08.2019 DATE OF PRONOUNCEMENT: 27.08.2019 ORDER PER B. R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER DATED 22-12- 2017 PASSED BY LD CIT(A)-1, AMRITSAR AND IT RELATES TO THE ASSESSMENT YEAR 2013- 14. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN CONFIRMING THE ADDITION OF 333.64 LACS MADE BY THE ASSESSING OFFIC ER BY ENHANCING THE GROSS PROFIT. 3. THE FACTS RELATING TO THE ABOVE SAID ISSUE ARE S TATED IN BRIEF. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING , TRADING OF MILK AND MILK PRODUCT LIKE DESHI GHEE, SKIMMED MILK PRODUCT, WHOL E MILK POWDER, CONCENTRATED MILK ETC. THE AO NOTICED THAT THE ASSESSEE HAS DECL ARED GROSS LOSS DURING THE YEAR ITA NO. 175/ASR/2018 (AY 2013-14) MEHAK FOOD LIMITED V. DY. CIT 2 UNDER CONSIDERATION. AFTER EXAMINING THE FINANCIAL STATEMENTS AND EXPLANATIONS FURNISHED BY THE ASSESSEE IN SUPPORT OF THE GROSS L OSS INCURRED BY IT, THE AO TOOK THE VIEW THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE NOT RELIABLE. THE AO HAS SUMMARIZED IS CONCLUSION IN THIS REGARD AS UNDER: FROM THE TOTALITY OF FACTS & CIRCUMSTANCES AS DISCUSSED ABOVE, FOLLOWING INFERE NCES ARE DRAWN: (I) INSPITE OF INCREASE IN SALES, THE ASSESSEE WHO DEAL S IN A PERISHABLE ITEMS LIKE MILK & MILK PRODUCTS, THE ASSESSEE HAS SHOWN GROSS LOSS WH ICH IS NOT POSSIBLE AS ON THE RATES OF PURCHASE & SALE OF MILK INCREASE OR DECREASE SUBSTANTIALLY. AT BEST ASSESSEE MAY INCUR A MINOR LOSS IN A RARE CONSIGNMENT DUE TO MIL K GETTING SPOILED BUT IT CANNOT BE A ROUTINE AND RECURRING FEATURE FOR 365 DAYS OF THE Y EAR. SO THE ASSESSEE APPARENTLY UNDERSTATED ITS MILK SALES. (II) THE ASSESSEE HAS SHOWN LARGE NUMBER OF CASH PAYMENT S OF AMOUNT IN THE RANGE OF RS.20,000/- MADE TO REGULAR HUSK SUPPLIERS, WHICH R EFLECTS THE FINANCIAL IRREGULARITIES IN WORKING OF A LIMITED COMPANY. (II)(A) EVEN MOST OF THE REGULAR MILK SUPPLIERS HAV E BEEN GIVEN PAYMENTS IN CASH ON A NUMBER OF OCCASIONS BY KEEPING THE AMOUNTS AT RS.20,000/- OR BELOW. (III) THE ASSESSEE HAS ITSELF ADMITTED THAT IT HAS NOT MA INTAINED DAY TO DAY PRODUCTION RECORDS & STOCK REGISTER, WHICH IS VERY ESSENTIAL R ECORD FOR THE NATURE OF ASSESSEE'S BUSINESS, BECAUSE EVERY MILK CONSIGNMENT PURCHASED HAS TO BE PAID ACCORDINGLY TO ITS QUALITY, %AGE OF FAT/5NF(SOLID NON FAT) CONSTIT UTED IN IT. SIMILARLY THE SALE RATES HAVE TO BE DETERMINED ACCORDINGLY. IT IS NOT POSSIB LE THAT ASSESSEE PURCHASES MILK AT A HIGHER RATE IN THE MORNING AND SELLS THE SAME AT LE SSER RATE IN THE AFTERNOON. SALES RATES WOULD BE DIRECTLY DETERMINED CORRESPONDING TO THE PURCHASE RATES FOR EVERY DAY AND EVERY CONSIGNMENT. (IV) THE ASSESSEE HAS NOT SUBSTANTIATED EVEN ITS PURCHA SE RATES, ITS DIRECT EXPENSES WITH COMPLETE EVIDENCE & PROPER CONFIRMATIONS WHETHER IT WAS IN RESPECT OF PURCHASES, FREIGHT EXPENSES, WAGES ETC. SIMILARLY THE SALE BIL LS HAVE NOT BEEN CORRELATED WITH THE ITA NO. 175/ASR/2018 (AY 2013-14) MEHAK FOOD LIMITED V. DY. CIT 3 CORRESPONDING COST OF PURCHASES AND VALUE ADDITIONS DUE TO DIRECT EXPENSES INCURRED ON CHILLING AND EVAPORATION OF MILK. (V) THE ASSESSEE HAS NOT PROVIDED THE COMPLETE DETAILS OF ITEMS WISE AND CORRESPONDING QUANTITY & RATE WISE VALUATION OF OPENING & CLOSING STOCK AS ALSO THE DETAILS OF THE NATURE OF WORK IN PROGRESS. ACCORDINGLY THE AO REJECTED THE BOOKS OF ACCOUNT A ND ESTIMATED THE GROSS PROFITS AT THE RATE OF 2.9%. THE AO ALSO ESTIMATED THE SAL ES AT RS.102 CRORES AS AGAINST THE SALE OF RS.10.19 CRORES REPORTED BY THE ASSESSEE. A CCORDINGLY HE MADE AN ADDITION OF RS.331.46 LACS TO THE TOTAL TO THE TOTAL INCOME OF THE ASSESSEE. 4. BEFORE LD CIT(A), THE ASSESSEE SUBMITTED THAT EV ENTHOUGH, IT DID NOT MAINTAIN DAY TO DAY STOCK REGISTER, YET IT HAS FURN ISHED QUANTITY DETAILS OF FINISHED PRODUCTS. THE ASSESSEE ALSO GAVE A FRESH EXPLANATIO N BEFORE LD CIT(A) WITH REGARD TO THE GROSS LOSS AND THE OBSERVATIONS MADE BY THE LD CIT(A) IN THIS REGARD ARE EXTRACTED BELOW: IT IS FURTHER SUBMITTED THAT THE MAIN REASON FOR T HE TRADING LOSS WAS THE FACT THAT THE SKIMMED MILK POWER (SMP) MANUFACTURED BY THE ASSESE E AND LYING IN STOCK BECAME UNFIT FOR HUMAN CONSUMPTION AS IT DID NOT CONFORM TO THE FOOD SAFETY AND STANDARDS (FOOD PRODUCT STANDARDS & FOOD ADDITIVES) REGULATION, 201 1. A COPY OF THE REPORT DATED 27.5.2013 IS ENCLOSED IS SUED BY BALI LABORATORIES, LUDHIANA. THE REPORT CLEARLY STATES THAT THE SAMPLE SMP DID N OT CONFORM TO THE SAFETY STANDARDS. IT WAS SUBMITTED THAT THERE WAS NO OCCASION TO FILE THIS CERTIFICATE AT THE TIME OF ASSESSMENT AS NO QUERY IN THIS REGARD WAS RAISED BY THE ASSESSING OFFICER. THIS IS A FRESH EVIDENCE AND MAY KINDLY BE ADMITTED UNDER RULE 46A OF THE INCOME TAX RULES, 1962. THE ASSESSSEE'S BANK ACCOUNT HAD BECOME NPA IN MAY, 2013 & PUNJAB NATIONAL BANK HAD LOCKED THE PREMISES OF THE ASSESSEE IN FEB 2004 AN INITIATED RECOVERY PROCEEDINGS ITA NO. 175/ASR/2018 (AY 2013-14) MEHAK FOOD LIMITED V. DY. CIT 4 AGAINST THE ASSESSEE COMPANY. THE EVIDENCE IN THIS REGARD IS ALSO ENCLOSED. THIS RESULTED IN COMPLETE STOPPAGE OF THE BUSINESS AND SMP (SKIMM ED MILK POWDER) LYING IN STOCK BECAME UNFIT FOR HUMAN CONSUMPTION AND HAD TO BE TA KEN OUT OF THE CLOSING STOCK LIST. IT IS FURTHER SUBMITTED THAT TOTAL TURNOVER OF THE ASSESSEE WAS RS.1,01,92,09,997/- AND THERE WAS NO BASIS FOR ESTIMATING THE SAME AT RS.10 2 CRORES BY THE LEARNED ASSESSING OFFICER. 5. THE LD CIT(A) NOTICED THAT THE REPORT GIVE BY BA LI LABORATORIES WITH THE REGARD TO THE QUALITY OF PRODUCT PERTAINED TO ONLY 500 GMS AND ACCORDINGLY TOOK THE VIEW THAT THE SAME CANNOT BE APPLIED TO ENTIRE LOT. ACCORDINGLY HE TOOK THE VIEW OF THE AO WAS RIGHT IN REJECTING THE BOOKS OF ACCOUNT, IN ESTIMATING SALES AND ALS IN ESTIMATING THE GROSS PROFIT. ACCORDINGLY, HE CONFIR MED THE ADDITION MADE BY THE AO. 6. THE LD AR SUBMITTED THAT THE ASSESSEE HAS MAINTA INED A PROPER BOOKS OF ACCOUNT AND THE SAME HAS BEEN SUBJECTED TO AUDIT. T HE SAID BOOKS OF ACCOUNT HAVE BEEN ADOPTED IN THE ANNUAL GENERAL MEETING AND ALSO FILED WITH THE REGISTRAR OF THE COMPANIES. THE LD AR FURTHER SUBMITTED THAT THE ASS ESSEE HAS FURNISHED PROPER EXPLANATIONS BEFORE THE AO/CIT(A) FOR THE GROSS LOS S INCURRED BY IT. HE SUBMITTED THAT THE LOAN TAKEN FROM THE PUNJAB NATIONAL BANK H AD BECOME A NON-PERFORMING ASSET AND THE BANK HAD LOCKED THE PREMISES OF THE A SSESSEE IN ITS RECOVERY PROCEEDINGS. THIS HAS RESULTED IN COMPLETE STOPPAGE OF BUSINESS AND SKIMMED MILK POWDER LYING IN STOCK BECAME STALE AND UNFIT FOR HU MAN CONSUMPTION. THIS WAS ALSO CONFIRMED BY THE LABORATORY REPORT. HE FURTHER SUBMITTED THAT THE LD CIT(A) HAS NOT APPRECIATED THE FACT THAT ONLY SMALL QUANTI TY, OUT OF THE TOTAL LOT, SHALL BE USUALLY SENT FOR LAB TESTING. HE SUBMITTED THAT A LL THE ABOVE SAID FACTS ARE ITA NO. 175/ASR/2018 (AY 2013-14) MEHAK FOOD LIMITED V. DY. CIT 5 SUPPORTED BY THE VARIOUS EVIDENCES AND ALSO BOOKS O F ACCOUNTS. ACCORDINGLY HE SUBMITTED THAT THE LD CIT(A) WAS NOT JUSTIFIED IN C ONFIRMING THE ADDITION. 7. ON THE CONTRARY LD DR SUPPORTED THE ORDER PASSED BY LD. CIT(A). 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. 9. THE ADMITTED FACTS ARE THAT THE ASSESSEE HAS MAI NTAINED THE BOOKS OF ACCOUNT AND THE SAME HAS BEEN SUBJECTED TO AUDIT. WE NOTICE FROM THE ASSESSMENT ORDER THAT THE ASSESSEE FURNISHED EXPLANATIONS WITH REGARD TO THE GROSS LOSS AND THE MAIN REASON SUBMITTED WAS THAT IT WAS SUFFERING FROM WOR KING CAPITAL SHORTAGE AND HENCE IT WAS CONSTRAINED TO SELL ITS PRODUCT AT LOW ER RATE, SINCE THE PRODUCTS ARE PERISHABLE IN NATURE. IT WAS FURTHER SUBMITTED THAT THERE IS VARIATION IN SELLING RATES ON THE BASIS OF THE QUALITY OF PRODUCTS. BEFORE LD CIT(A) THE ASSESSEE HAS FURNISHED FURTHER EXPLANATION BY STATING THAT THE S KIMMED MILK POWDER HAS BECOME UNFIT FOR HUMAN CONSUMPTION AND HENCE NO VALUE WAS GIVEN TO THE SAID STOCK. THE ASSESSEE HAS FURNISHED COPIES OF LAB REPORT IN SUPP ORT OF THE ABOVE SAID CONTENTIONS. 10. WE NOTICED THAT BOTH THE TAX AUTHORITIES HAVE N OT EXAMINED THE ABOVE SAID SUBMISSIONS OF THE ASSESSEE BY CRITICALLY EXAMINING THE BOOKS OF ACCOUNT AND OTHER DOCUMENTS FURNISHED BY THE ASSESSEE. THERE IS ALSO MERIT IN THE CONTENTION OF THE ASSESSEE THAT A SAMPLE FROM THE WHOLE LOT SHALL ONL Y BE SENT TO THE LAB FOR TESTING. ACCORDINGLY WE ARE OF THE VIEW THAT THE ASSESSING O FFICER HAS REJECTED THE BOOKS OF ACCOUNT BY DRAWING CERTAIN INFERENCES AND BY DIS REGARDING THE BOOKS OF ACCOUNT OF THE ASSESSEE. WITH REGARD TO THE NON MAINTENANCE OF STOCK REGISTER, THE LD AR SUBMITTED THAT THE ASSESSEE HAS MAINTAINED STOCK DE TAILS WITH REGARD TO THE FINISHED GOODS. HENCE THE AO WOULD BE IN A POSITION TO CORRE LATE THE FINISHED GOODS WITH THE QUANTITY OF PURCHASE OF MILK MADE BY THE ASSESS EE. ITA NO. 175/ASR/2018 (AY 2013-14) MEHAK FOOD LIMITED V. DY. CIT 6 11. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE REASONS CITED FOR REJECTION OF BOOKS OF ACCOUNT COULD NOT B E JUSTIFIED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. ACCORDINGLY WE ARE OF THE VIEW THAT THE ENTIRE ISSUE REQUIRES RE-EXAMINATION AT THE END OF THE ASSESSING OFFICER BY DULY CONSIDERING THE BOOKS OF ACCOUNTS AND EXPLANATIONS OF THE ASSESSEE. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) AND RESTORE ALL THE ISSUE S TO THE FILE OF THE AO FOR EXAMINING THEM AFRESH. THE ASSESSEE IS ALSO DIRECT ED TO FURNISH ALL THE DOCUMENTS AND INFORMATION AND EXPLANATIONS IN SUPPORT OF ITS CONTENTIONS AND ALSO THAT MAY BE CALLED FOR BY THE AO. AFTER AFFORDING ADEQUATE OPPO RTUNITY OF BEING HEARD TO THE ASSESSEE, THE AO MAY TAKE APPROPRIATE DECISION IN A CCORDANCE WITH LAW. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN CO URT ON AUGUST 27, 2019 SD/- SD/- (N. K. CHOUDHRY) (B. R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 27.08.2019 /GP/SR. PS. COPY OF THE ORDER FORWARDED TO: (1) THE APPELLANT: (2) THE RESPONDENT: (3) THE CIT(APPEALS) (4) THE CIT CONCERNED (5) THE SR. DR, I.T.A.T TRUE COPY BY ORDER