DCIT, Gurgaon V. M/s. PBS Foods Pvt. Ltd., New Delhi

ITA 1848/DEL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3312 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Appeal Filed On: 28-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVIKANT GUPTA
• Assessee Lawyers: SH
• Keywords: Rejection of books of accounts; Rule of consistency; Difference of opinion
• Section: 69C; 143(3); 145

Judgement Text

, , , , INCOME-TAX APPELLATE TRIBUNAL F BENCH, NEW DELHI. , , BEFORE S/SH. RAJENDRA, ACCOUNTAN T MEMBER & BINA PILLAI,JUDICIAL MEMBER ./I.T.A. NO. 1848/DEL/2014, /ASSESSMENT YEAR: 2009-10 DY. COMMISSIONER OF INCOME TAX, CIRCLE : 2, GURGAON. VS. M/S. PBS FOODS PVT. LTD., 1592/3, GOBINDPURI, KALKAJI, NEW DELHI PAN: AADCP 6496 R APPELLANT/ RESPONDENT / ! ! ! ! REVENUE BY: SHRI RAVI KANT GUPTA, SR. D.R.; ASSESSEE BY: SHRI G. C. SRIVASTA VA; ADV.; SHRI DAKSH BHARDWAJ, ADV.; & SHRI SUVINAY DOSHI , ADV. / DATE OF HEARING : 08.03.2018 / DATE OF PRONOUNCEMENT : 08.03.2018. ,1961 ' '' ' 254(1) #$ #$ #$ #$ ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , / PER RAJENDRA, AM - THE ASSESSING OFFICER(AO)HAS CHALLENGED THE ORDER D ATED 30/01/2014 OF THE COMMISSIONER OF INCOME TAX (APPEALS)2,FARIDABAD.ASSESSEECOMPANY,E NGAGED IN THE BUSINESS OF MANUFACTUR - ING OF AMYLASE RICH ENERGY FOODS, FILED ITS RETURN OF INCOME ON 24.9.2009, DECLARING INCOME OF RS.5.92 CRORES.THE AO COMPLETED THE ASSESSMENT,U/S. 143(3) OF THE ACT,ON 30.12. 2011, DETERMIN -ING ITS INCOME AT RS.6.41 CRORES. 2. FIRST GROUND OF APPEAL IS ABOUT REJECTION OF BOOKS OF ACCOUNTS ON BASIS OF VARIABILITY OF MOISTURE CONTAIN IN RESPECT OF DIFFERENT ITEMS OF F OOD GRAIN.DURING THE ASSESSMENT PROCEEDING, THE AO FOUND THAT THE TOTAL QUANTITY OF MATERIAL CO NSUMED DURING THE YEAR, WAS 1150931.89 QUINTALS.THAT THE ASSESSEE HAD SHOWN FINISHED PRODU CTS OF 10.66 LAKH QUINTALS, THAT THERE WAS A SHORTAGE/WASTAGE OF 84835 QUINTALS.HE DIRECTED IT T O FILE AN EXPLANATION IN THAT REGARD.THE ASSESSEE FILED A DETAILED REPLY ABOUT LOSS DUE TO M OISTURE.IT ALSO FURNISHED REPORT OF GOVERNMENT AGENCIES WHICH GAVE MOISTURE CONTENT IN DIFFERENT T YPES OF FOOD GRAINS LIKE WHEAT,SOYABEAN, SOYABEAN FLOUR AND RAGI ETC.AFTER CONSIDERING THE A SSESSEES SUBMISSION,THE AO ALLOWED MOISTURE CONTENT OF 12% WHEAT, 10% IN SOYABEEN AND 6.2% %IN SOYABEAN POWDER. HE DID NOT ITA. NO. 1848 (DEL) OF 2014. M/S. PBS FOODS PVT. LT D. 2 GIVE ANY ALLOWANCE FOR LOSS OF MOISTURE IN WHEAT FL OUR AND RAGI FLOUR.BESIDES,HE REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE,INVOKING THE PROV ISIONS OF SECTION 145(3) OF THE ACT AND MADE AN ADDITION OF RS.44.74 LAKHS TO THE INCOME OF THE ASSESSEE. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA)AND MADE ELABORATE SUBMISSIONS.IT AL SO HE RELIED UPON CERTAIN CASE LAWS. AFTER CONSIDERING AVAILABLE MATERIAL,THE FAA HELD T HAT THE SHORTAGE ARRIVED AT BY THE AO WAS ON ACCOUNT OF DIFFERENCE OF OPINION REGARDING MOISTURE CONTENT, WHICH HAD TO BE ALLOWED WHILE COMPUTING THE TOTAL WEIGHT OF THE FINAL PRODUCT,THA T IF MOISTURE CONTENT OF 4 %AND 1 %FOR RAGI AND WHEAT FLOUR WAS TAKEN THEN IT WOULD APPEAR THAT CALCULATION FILED BY THE ASSESSEE WAS NOT SUFFERING FROM ANY DEFICIENCY.HE REFERRED TO THE CO PY OF CODEX STANDARD FOR WHEAT FLOUR WHICH GAVE MOISTURE CONTENT OF 15.5 % FOR THE WHEAT FLOUR .HE ALSO REFERRED TO INDIA MILK .COM.,THAT GAVE MOISTURE CONTENT OF 13.5 % WITH REGARD TO WHEAT FLO UR.HE HELD THAT FOR WHEAT FLOUR SOME MOISTURE CONTENT COULD NOT BE RULED OUT.SIMILARLY F OR RAGI, HE HELD THAT MOISTURE CONTENT HAD TO BE ACCEPTED THAT WOULD BE LOST IN PRODUCTION PROCES S.HE TOOK NOTICE OF THE ASSESSMENT ORDER OF THE IMMEDIATELY SUCCEEDING YEAR WHEREIN MOISTURE CO NTENT IN CASE OF RAGI WAS ALLOWED TO THE EXTENT OF 4 % BY THE AO.CONSIDERING THESE FACTS HE HELD THAT REJECTING OF BOOKS OF ACCOUNTS ON BASIS OF SHORTAGE OF FINAL PRODUCT COULD NOT BE UPH ELD,THAT THE AO SHOULD HAVE CONSIDERED ALL THE FACTS IN TOTALITY BEFORE REJECTING THE BOOKS OF ACC OUNTS.HE REFERRED TO THE CASES OF LUDHIANA STEEL ROLL MILLS (295 ITR 111);OM OVERSEAS (315 ITR 185); HANUMAN SAGAR (KHANDSARI) MILLS PVT. LTD.(38 TAXMAN.COM 53)AND HELD THAT THE AO HAD ERRE D IN REJECTING THE BOOKS OF ACCOUNTS ON THE BASIS OF VARIABILITY OF MOISTURE CONTENT IN RESPECT OF DIFFERENT ITEMS OF FOOD GRAINS.HE FURTHER HELD THAT IF MOISTURE LOSS WAS CONSIDERED IN CASE OF RAG I, WHEAT FLOUR AND RAGI FLOUR, THERE WOULD NOT BE ANY SHORTAGE IN THE PRODUCTION PROCESS,AS HELD B Y THE AO.FINALLY,HE DELETED THE ENTIRE ADDITION AND ALLOWED THE APPEAL OF THE ASSESSEE. 4. DURING THE COURSE OF HEARING BEFORE US,THE DEPARTME NTAL REPRESENTATIVE(DR)STATED THAT AO HAD ALLOWED MOISTURE CONTENT FOR CERTAIN ITEMS, THA T THERE WAS NO JUSTIFICATION FOR ALLOWING MOISTURE CONTENT IN THE REMAINING ITEMS,THAT HE HAD RIGHTLY REJECTED THE BOOKS OF ACCOUNTS. THE AUTHORISED REPRESENTATIVE (AR) CONTENDED THAT T HERE WAS NO BASIS FOR INVOKING THE PROVISIONS OF SECTION 145(3),THAT NO DEFECTS WERE POINTED OUT BY THE AO IN THE AUDITED BOOKS OF THE ASSESSEE,THAT THE AO HAD ALLEGED THAT THERE WAS SHO RTAGE IN THE FINAL PRODUCT, THAT ASSESSEE WAS ITA. NO. 1848 (DEL) OF 2014. M/S. PBS FOODS PVT. LT D. 3 MAINTAINING STOCK REGISTER, THAT IT WAS MAINTAINING QUALITATIVE DETAILS OF RAW / FINISHED PRODUCTS, THAT THE ASSESSEE HAD FILED THE COPIES OF THE REPOR TS OF CODEX STANDARD FOR WHEAT FLOUR AND INDIAMILLER.COM,THAT IN THE IMMEDIATE SUCCEEDING YE AR THE AO HAD ALLOWED THE MOISTURE LOSS IN CASE OF RAGI.ON A QUERY FROM THE BENCH ABOU T ALLOWING THE MOISTURE LOSS IN THE SUCCEEDING YEARS,IT WAS STATED THAT IN THE ASSESSME NT YEARS 2012-13, 2013-14 AND 2014-15,THE AO HAD NOT MADE ANY ADDITION WHILE COMPLETING THE A SSESSMENT U/S.143(3) OF THE ACT, THAT IN THE REMAINING TWO YEARS THE AO HAD MADE ADDITIONS AND T HE SAME WAS CONFIRMED BY THE FAA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT OUT OF SEVEN YEARS (AY.2008-09 TO AY.2014-15) THE AO HAD N OT MADE ANY ADDITION FOR FOUR YEARS, THAT IN ONE YEAR THE FAA HAD ALLOWED THE RELIEF TO THE A SSESSEE,THAT IN THE A.YS. 2010-11 AND 2011-12 ORDER OF THE AO HAS BEEN CONFIRMED BY THE FAA.THUS, THE ISSUE OF LOSS DUE TO MOISTURE HAS BEEN DELIBERATED UPON AT LENGTH BY THE DEPARTMENTAL AUTH ORITIES.WHILE PASSING THE ORDER FOR THE YEAR UNDER APPEAL,THE AO HAS NOT MENTIONED ANYTHING AS T O WHY HE WAS NOT FOLLOWING THE ORDER OF HIS PREDECESSOR ABOUT MOISTURE LOSS.IT IS TRUE THAT THE PRINCIPLES OF RES-JUDICATA DOES NOT APPLY TO THE INCOME TAX PROCEEDINGS,BUT RULE OF CONSISTENCY CANN OT BE IGNORED.IN THE MATTER OF GODREJ & BOYCE MANUFACTURING CO.LTD.,THE HONBLE APEX COURT( 394 ITR 449) HAS OBSERVED AS UNDER: WHILE IT IS TRUE THAT THE PRINCIPLE OF RES JUDICATA WOULD NOT APPLY TO ASSESSMENT PROCEEDINGS UNDER THE ACT, THERE IS NEED FOR CONSISTENCY AND CE RTAINTY AND EXISTENCE OF STRONG AND COMPELLING REASONS FOR A DEPARTURE FROM A SETTLED POSITION HAS TO BE SPELT OUT. WE FIND THAT THE ASSESSEE HAD FURNISHED THE COPIES OF THE REPORTS OF CODEX STANDARD FOR WHEAT FLOUR AND INDIAMILLER.COM AND THAT THE AO HAD NOT C OMMENTED UPON THOSE REPORTS.IN OUR OPINION,THESE REPORTS SHOULD NOT HAVE BEEN GIVEN PR OPER WHEIGHTAGE,AS THEY ARE PREPARED BY PROFESSIONAL AGENCIES.WITHOUT POINTING OUT ANY DEFE CT IN THE REPORTS OR WITHOUT BRINGING SOME MATERIAL ON RECORD THAT COULD PROVE THAT THE REPORT S OF THE AGENCIES WERE BIASED,THE AO SHOULD NOT HAVE REJECTED THE CLAIM OF MOISTURE LOSS IN CAS E OF WHEAT,SOYABEN FLOUR ETC.THE BASIS FOR ACCEPTING THE MOISTURE LOSS FOR CERTAIN ITEMS AND R EJECTING CLAIM OF MOISTURE FOR OTHER ITEMS IS NOT CLEAR FROM THE ORDER OF THE AO.IT IS A KNOWN FACT T HAT THERE WOULD BE VARIATION IN MOISTURE LOSS FOR VARIOUS ITEMS.THE QUALITY OF GRAIN,THE SEASONAL CHANGES AT THE TIME OF RIPENING OF HARVEST, AND SEEDS USED ARE SOME OF THE FACTORS THAT AFFECT MOIS TURE CONTENT.IN ALL MANUFACTURING PROCESSES LOSS OR WASTAGE IS AN ACCEPTED FACT AND VARIATION I N PERCENTAGE OF SUCH LOSS IS ALSO RECOGNISED FACT. ITA. NO. 1848 (DEL) OF 2014. M/S. PBS FOODS PVT. LT D. 4 HERE,WE WOULD LIKE TO REFER TO THE CASE OF CERAMIC INDUSTRIES(396 ITR 50)OF THE HOBLE RAJASTHAN HIGH COURT.THE FACTS OF THE CASE WERE THA T THE ASSESSEE WAS A MANUFACTURER OF CERAMIC PRODUCTS. ON THE ISSUE OF THE ESTIMATE OF THE WASTA GE AND DELETED THE ADDITIONS, THE TRIBUNAL ACCEPTED THE REPORT OF THE RESEARCH LABORATORY WHIC H STATED THAT THE PERCENTAGE OF WASTAGE WAS VARIABLE DEPENDING ON VARIOUS FACTORS.IT HELD THAT THE AO HAD NOT FOUND ANY DEFECTS IN THE PURCHASES, SALES, OPENING AND CLOSING STOCKS. IT FU RTHER HELD THAT THE AO HAD NOT BROUGHT ON RECORD ANY COGENT MATERIAL TO PROVE THAT THE ASSESS EE HAD SOLD UNDER-PRODUCTION OUT OF THE BOOKS OF ACCOUNT.ON THE QUESTIONS WHETHER THE APPELLATE T RIBUNAL ERRED, (A) IN DELETING THE ADDITIONS MADE ON ACCOUNT OF EXCESSIVE WASTAGE WHICH WAS REST RICTED TO 25 PER CENT. BY THE AO, (B) IN DELETING THE ADDITIONS MADE UNDER SECTION 69C OF TH E ACT AND(C)IN OVERRULING THE DECISION OF THE FAA AND THE AO REGARDING THE REJECTION OF BOOKS OF ACCOUNT INVOKING THE PROVISIONS OF SECTION 145(3),THE HONBLE COURT HELD THAT THE TRIBUNAL HAD NOT COMMITTED ANY ERROR IN DELETING THE ADDITIONS AND HOLDING THAT THE REJECTION OF BOOKS O F ACCOUNT INVOKING SECTION 145(3) WAS NOT JUSTIFIED. CONSIDERING THE ABOVE,WE HOLD THAT THE FAA HAD RIGH TLY ALLOWED MOISTURE CONTENT FOR WHEAT- FLOUR AND RAGI.HE WAS JUSTIFIED IN HOLDING THAT THE AO SHOULD NOT HAVE INVOKED THE PROVISIONS OF SECTION 145(3)OF THE ACT FOR REJECTING THE CLAIM OF THE ASSESSEE ABOUT MOISTURE LOSS. 5.1.. NOW,COMING TO THE REJECTION OF BOOKS OF ACCOUNTS,WE FIND THAT THE AO HAD NOT POINTED OUT ANY PARTICULAR DEFECT OR DISCREPANCY IN THE ACCOUNT BOOKS MAINTAINED BY THE ASSESSEE.HE HAD NO MATERIAL BEFORE HIM TO TREAT THE ACCOUNTS OF THE AS SESSEE AS DEFECTIVE OR INCOMPLETE. IT WAS NOT THE CASE OF THE AO THAT THE ASSESSEE HAD NOT FOLLOWED E ITHER THE CASH OR MERCANTILE SYSTEM OF ACCOUNTING STIPULATED IN SUB-SECTION (1) OF SECTION 145 OF THE ACT OR THAT THE CENTRAL GOVERNMENT HAD NOTIFIED ANY PARTICULAR ACCOUNTING STANDARDS TO BE FOLLOWED BY MANUFACTURERS FLOURS OR THE ITEMS MANUFACTURED BY THE ASSESSEE.HENCE, THE SECON D PART OF SUB-SECTION (3) OF SECTION 145 WOULD NOT APPLY.IT IS FACT THE AO HAD NOT POINTED O UT ANY DEFECT IN THE ACCOUNT BOOKS MAINTAINED BY THE ASSESSEE.IN OTHER WORDS, THE ACCOUNTS MAINTA INED BY THE ASSESSEE WERE NEITHER DEFECTIVE NOR INCOMPLETE.IT IS SAID THAT BEFORE REJECTING THE BOOKS OF ACCOUNT, THE AO HAS TO PROVE THAT ACCOUNTS ARE UNRELIABLE,INCORRECT OR INCOMPLETE,THA T THE ACCOUNTS REGULARLY MAINTAINED IN THE COURSE OF BUSINESS, DULY AUDITED UNDER THE PROVISIO NS OF ACT AND FREE FROM ANY QUALIFICATION BY THE AUDITORS,SHOULD BE TAKEN AS CORRECT UNLESS THER E ARE STRONG AND SUFFICIENT REASONS TO INDICATE THAT THEY ARE UNRELIABLE.EVEN THOUGH, IT IS NOT POS SIBLE TO LAY DOWN THE EXACT CIRCUMSTANCES IN ITA. NO. 1848 (DEL) OF 2014. M/S. PBS FOODS PVT. LT D. 5 WHICH ACCOUNTS SHOULD BE REJECTED AS UNRELIABLE OR INCORRECT,YET THE ACCOUNTS MAY BE REJECTED AS UNRELIABLE IF IMPORTANT ENTRIES AND TRANSACTIONS AR E OMITTED THEREFROM OR IF PROPER PARTICULARS AND VOUCHERS, BILLS, ETC. ARE NOT FORTHCOMING OR IF THE Y DID NOT INCLUDE ENTRIES RELATING TO PARTICULAR CLASS OF BUSINESS TRANSACTION.IN SHORT,BOOKS OF ACC OUNT SHOULD NOT BE REJECTED LIGHT-HEARTEDLY.THE REJECTION OF BOOKS IS BASED ON ALLEGED SUPPRESSION OF PRODUCTION. IN OUR OPINION,THE ALLEGED SHORTFALL IN PRODUCTION COULD HAVE BEEN THE BASIS F OR OTHER ADDITIONS BUT NOT FOR INVOKING THE PROVISIONS OF SECTION 145(3)OF THE ACT. WE WOULD LIKE TO REFER TO THE CASE OF PARADISE HOLI DAYS(325 ITR 13)OF THE HONBLE DELHI HIGH COURT,WHEREIN THE COURT HAS HELD AS FOLLOWS: THE ACCOUNTS WHICH ARE REGULARLY MAINTAINED IN THE COURSE OF BUSINESS AND ARE DULY AUDITED, FREE FROM ANY QUALIFICATION BY THE AUDITORS, SHOULD NORMALLY BE TAKEN AS CORRECT UNLESS THERE ARE ADEQUATE REASONS TO INDICATE THAT THEY ARE INCORREC T OR UNRELIABLE. THE ONUS IS UPON THE REVENUE TO SHOW THAT EITHER THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WERE INCORRECT OR INCOMPLETE OR THAT THE METHOD OF ACCOUNTING ADOPTED BY HIM WAS SUCH THAT TRUE PROFITS OF THE ASSESSEE CANNOT BE DEDUCED THEREFROM. IN LIGHT OF THE ABOVE DISCUSSION,WE HOLD THAT THE O RDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY,AS FAR AS REJECTION OF BOOKS O F ACCOUNTS IS CONCERNED.SO,CONFIRMING THE SAME WE DECIDE THE SECOND LIMB OF THE GROUND AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON : 08.03.2018 . : 08.03.2018 (BEENA PILLAI) (RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER NEW DELHI. / DATED : 08 TH MARCH, 2018 . *MEHTA* SR. P.S. / COPY OF THE ORDER FORWARDED TO :- 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR F BENCH, ITAT, NEW DELHI / , F , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, NEW DELHI. ITA. NO. 1848 (DEL) OF 2014. M/S. PBS FOODS PVT. LT D. 6