M/s. Vintage Wines Pvt. Ltd., Nashik V. ACIT, Circle-1, Nashik

ITA 2206/PUN/2012

• Counselvise Citation: 220624514 RSA 2012
• Duration Of Justice: 2 year(s) 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 06-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: C H NANIWADEKAR RAJESH DAMOR
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.2206/PN/2012 ASSESSMENT YEAR: 2007-08 M/S. VINTAGE WINES PVT. LTD., S-4, JALDHARA COMPLEX, NEAR BYTCO POINT, NASHIK ROAD, NASHIK . APPELLANT PAN: AABCV7248K VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 1, NASHIK . RESPONDENT APPELLANT BY : C.H. NANIWADEKAR RESPONDENT BY : RAJESH DAMOR DATE OF HEARING : 12-01-2015 DATE OF PRONOUNCEMENT : 20-02-2015 ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A)-II, NASHIK, DATED 27.08.2012 RELATING TO ASSESSMENT YEAR 2007 -08 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II ERRED IN NOT G RANTING RELIEF AS CLAIMED I.E. FULLY DELETING AN ADDITION OF RS. 14,29,290/- U/S 40A(2)(B) AND RETAINING ADDITION OF RS.9,98,038/- THE APPELLATE CRAVES LEAVE TO ADD, AMEND, SUPPLEMENT, ALT ER AND/OR DELETE OR MODIFY OF THE ABOVE GROUND OF APPEAL. 3. THE ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST THE ADDITION OF RS.9,98,038/- MADE UNDER SECTION 40A(2)(B) OF THE ACT. ITA NO.2206/PN/2012 VINTAGE WINES PVT. LTD 2 4. THE BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE WA S ENGAGED IN THE MANUFACTURING OF GRAPE WINES. THE ASSESSEE DURING TH E YEAR UNDER CONSIDERATION HAD SHOWN PURCHASES OF RS.74,56,079/ -, OUT OF WHICH, THE PURCHASE OF GRAPES WERE TO THE TUNE OF RS.72, 68,184/-. THE ASSESSING OFFICER CALLED FOR PARTY-WISE DETAILS OF PURCHAS ES OF GRAPES AND IN REPLY, THE ASSESSEE FURNISHED THE DETAILS OF QUANTITY AND RATE PER UNIT OF PURCHASES FROM DIFFERENT PARTIES. THE ASSESSING OFFIC ER NOTED THAT OUT OF THE TOTAL PURCHASES OF GRAPES OF RS .72,68,184/-, THE ASSESSEE HAD PURCHASED GRAPES WORTH RS.61,83,359/- FRO M THE RELATED PARTIES I.E. SHRI SURESH VISHWNATH PATIL (HUF) AND SHRI VAIKUN TH VIJAY PATIL. BOTH THE PARTIES WERE RELATED PARTIES AS PER T HE DEFINITION UNDER SECTION 40A(2)(B) OF THE ACT, AS REPORTED BY THE AUDITORS IN THE AUDIT REPORT IN FORM NO.3CD. THE ASSESSEE HAD PURCHASED TOT AL QUANTITY OF 1,52,275 KGS. OF GRAPES FROM THE SAID TWO PARTIES FOR A TOT AL COST OF RS.61,83,359/-. THE AVERAGE RATE PER KG. WORKED OUT TO RS.40.6. ON THE OTHER HAND, THE ASSESSEE HAD PURCHASED THE GRAPE S WORTH RS.10,84,825/- FROM OTHER THREE PARTIES, WHICH WERE NOT RE LATED TO THE ASSESSEE. THE TOTAL QUANTITY PURCHASED FROM THE SAID PA RTIES WAS 40836.6 KGS AND THE PURCHASE PRICE OF UNIT PER KG WORKE D OUT TO RS.26.56. THE PARTY-WISE DETAILS OF PURCHASES MADE BY TH E ASSESSEE WERE TABULATED BY THE ASSESSING OFFICER AT PAGE 2 OF THE ASSESSMENT ORDER. IN VIEW OF THE DIFFERENCE IN PURCHASE PRICE PAID TO THE RELATED PARTIES AND NON-RELATED PARTIES, THE ASSESSING OFFICER SOUG HT INFORMATION FROM DRAKSHA BAUG BAGAYATDAR SANGH, OZAR REG ARDING MARKET PRICE OF THE WINE GRAPES AT WHICH THE FARMERS HAV E SOLD THEIR PRODUCE TO THE WINERIES FOR THE SAID PERIOD. THE SAID ASS OCIATION FURNISHED THE INFORMATION SUGGESTING THAT THE RATE PER KG OF GRAPES OF ITA NO.2206/PN/2012 VINTAGE WINES PVT. LTD 3 ALL THE QUALITIES RANGED FROM RS.25 TO RS.30 PER KG. THE A SSESSEE WAS CONFRONTED WITH THE SAME AND ASKED TO EXPLAIN THE DIFFEREN CE. IN REPLY, IT WAS SUBMITTED BY THE ASSESSEE THAT IT WAS PRIM ARILY ENGAGED IN PRODUCING QUALITY WINES AND FOR PRODUCING QUALITY WINE, THE MOST IMPORTANT ASPECT WAS THE QUALITY OF RAW MATERIAL I.E. GRAPES . IT WAS FURTHER EXPLAINED BY THE ASSESSEE THAT SPECIAL AND HIGH Q UALITY GRAPES WERE GROWN BY THE FARMERS AND SHRI S.V. PATIL HUF WAS O NE OF SUCH FARMERS, WHO WAS RELATED PARTY TO THE ASSESSEE. THE AS SESSEE FURTHER EXPLAINED THAT THE RATE OF GRAPES WAS DECIDED ON THE BA SIS OF CRITICAL QUALITY PARAMETERS I.E. SUGAR (BRIX), PH AND ACIDITY. THE R ATE OF PURCHASE PER KG WAS DETERMINED AFTER TESTING THE SAMPLE GRAPES BROUGHT FROM THE FARMERS TO THE WINERY AND FURTHER, THE RATES WERE DETERMINED ON THE BASIS OF CHART SUBMITTED. THE ASSESSE E HAD ENTERED INTO AGREEMENTS WITH THE FARMERS FOR PRODUCING SPECIAL Q UALITY OF SYRAH, CHARDONNAY AND CABERNET SAUVIGNON VARIETIES OF GR APES. THE AGREEMENT DATED 03.04.2006 BETWEEN THE ASSESSEE AND SHRI SURESH V. PATIL HUF WAS PRODUCED BEFORE THE ASSESSING OFFICER. THE A SSESSING OFFICER NOTED THAT THE GRAPES WERE PURCHASED IN APRIL, 200 6 AND IN FEBRUARY & MARCH, 2007 AND QUESTIONED THAT THE ASSESS EE HAD MADE THE PURCHASES IN THE MONTH OF ENTERING INTO THE AGREEME NT. SINCE THE GRAPE VINE TAKES ALMOST THREE YEARS TO BEAR THE FRUITS , THE ASSESSING OFFICER QUESTIONED THE DATE OF ENTERING INTO THE AGREEMENT BY THE ASSESSEE AND ITS ENFORCEMENT. THE ASSESSING OFFICER THEN CONSIDERED THE PROCESS OF MAKING THE WINE AND OBSERVED THAT THE QUALITY OF WINE DEPENDS UPON THE QUALITY OF GRAPES USED, WHICH IN TURN, DE PENDS ON THE GENETIC VARIETY OF GRAPES. AS PER THE ASSESSING OFFICE R, THE FACTORS HAVING MAJOR BEARING ON THE QUALITY OF GRAPES GROWN WERE SOIL AND CLIMATIC CONDITIONS. THE CONTENTION OF THE ASSESSEE THAT THE GRAPES ITA NO.2206/PN/2012 VINTAGE WINES PVT. LTD 4 WERE PURCHASED DEPENDENT ON QUALITY OF JUICE, WAS BRUSH ED ASIDE BY THE ASSESSING OFFICER. FURTHER, THE ASSESSING OFFICER NOTED THAT THE RATES OF GRAPES PURCHASED BY ANOTHER WINERY IN THE AR EA AND FROM THE INFORMATION PROVIDED BY THE ASSOCIATION WHERE THE MARKET RATE FOR ALL THE VARIETIES OF GRAPE WERE BETWEEN RS.25/- TO RS.35/-, T HE ASSESSING OFFICER WAS OF THE VIEW THAT THE PROVISIONS OF SECTION 40A(2 )(B) OF THE ACT HAD AN APPLICATION AND THE ASSESSEE WAS FOUND TO HA VE MADE EXCESSIVE PAYMENTS TO THE RELATED PARTIES TO THE EXTEN T OF RS.14,29,290/-. AS PER THE TABULATED DETAILS AT PAGE 5 OF THE ASSESSMENT ORDER, THE LOSS DECLARED BY THE ASSESSEE WA S THUS, REDUCED BY THE ASSESSING OFFICER. 5. THE CIT(A) REDUCED THE DISALLOWANCE TO RS.9,98,038/- AS AGAINST THE DISALLOWANCE OF RS.14,29,290/- WORKED OUT BY THE ASSES SING OFFICER HOLDING AS UNDER:- 5. I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDE R, SUBMISSION OF THE APPELLANT AND THE MATERIAL AVAILABLE ON RECORD. WHILE THERE CAN'T BE ANY DISAGREEMENT ON APPELLANT'S CONTENTION THAT THE PURCHASE PRICE OF THE SAME VARIETY OF GRAPE S WOULD DIFFER DEPENDING UPON PHYSICAL (COLOR, SHAPE, SIZE ETC.) AND C HEMICAL (PH, BRIX, SUGAR CONTENT ETC.) PROPERTIES, PAYMENT OF H IGHER PRICES TO RELATED PARTIES CANNOT ALSO BE RULED OUT. AO HAS M ADE THE ADDITION STATING THAT APPELLANT HAD PURCHASED GRAPES FROM 2 RELATED PARTIES I.E. SHRI. SURESH V. PATIL (HUF) AND SHR I. VAIKUNTH V. PATIL AT A HIGHER RATE (RS.40.6/KG) AS AGAINST RS.2 6.56/KG FROM SOME OF THE NON-RELATED PARTIES. AS STATED ABOVE, PRIC E OF AGRICULTURAL GOODS WOULD DIFFER DEPENDING UPON THEN P HYSICAL AND CHEMICAL PROPERTIES. SMALLER GRAPES OF IRREGULAR SIZE WITH LOW SUGAR CONTENT WOULD FETCH LOW PRICE AS COMPARED TO LA RGE GRAPES OF HIGHER SUGAR CONTENT IRRESPECTIVE OF THE FACT TH AT BOTH BELONG TO THE SAME VARIETY. HENCE, IN MY CONSIDERED VIEW AO IN THE FIRST PLACE WAS NOT JUSTIFIED IN CLUBBING ALL THE VARIETIES OF GRAPES TOGETHER AND ARRIVING AT AN AVERAGE PRICE PER KG. TO APPRECIATE THE FACTS CORRECTLY EACH VARIETY VIS-A-VIS ITS PURCHA SE PRICE WOULD REQUIRE SEPARATE CONSIDERATION. APPELLANT WAS CO NFRONTED WITH THE PRICES GIVEN BY M/S MAHARASTRA RAJYA DRAKSH A BAGAITDAR SANGH, PUNE DURING THE APPELLATE PROCEEDINGS. 6. I FIND FROM THE RECORDS THAT APPELLANT HAS PURCHA SED 'SYRAH' FROM SHRI. SURESH V. PATIL (HUF) @ RS.40/KG AS AGAINST RS.30/KG FROM ANOTHER RELATED PARTY I.E. SHRI. VAIKUN TH VIJAY PATIL. M/S. MAHARASHTRA RAJYA DRAKSHA BAGAITDAR SANGH, PUNE ITA NO.2206/PN/2012 VINTAGE WINES PVT. LTD 5 ON WHICH THE AO HAS RELIED UPON HAS QUOTED THE PRIC E OF SHYRAJ @ RS.30-35/KG. AO HAS DISALLOWED RS.5,91,140/- IN CASE OF 'S YRAH' VARIETY BY TAKING THE PRICE @ RS.32 FOR APPLYING TH E PROVISION OF SEC. 40 A(2)(B) OF THE ACT. 7. I FIND THAT WHILE THE APPELLANT HAS GIVEN DIFFEREN TIATION IN REGARD TO PHYSICAL & CHEMICAL PROPORTION BETWEEN THE ' SYRAH' PURCHASED FROM THE TWO RELATED PARTIES AT DIFFERENT RATES I.E. RS. 40/KG FROM SHRI. SURESH V. PATIL (HUF) AND RS.30/KG F ROM SHRI. VAIKUNTH V.PATIL, IT HAD FAILED TO PROVE EMPIRICALLY TH AT 'SYRAH' PURCHASED AT HIGHER RATE HAD LED TO HIGHER RETURNS A S CLAIMED BY IT. APPELLANT'S CONTENTION THAT SHRI. SURESH V. PATIL (HUF ) HAD VAST EXPERIENCE BY ITSELF IS NO JUSTIFICATION TO PAY RS.4 0/KG. IN FACT APPELLANT HAS FAILED TO PRODUCE ANY DOCUMENTARY EVIDE NCE IN REGARD TO COSTING OF GRAPES BY SHRI. SURESH V. PATIL (H UF). IT MAY NOT BE OUT OF PLACE TO MENTION THAT BOTH THESE PERSO NS SUPPLY THEIR ENTIRE PRODUCTION TO THE APPELLANT COMPANY AND THERE IS NO COMPARABLE SALE INSTANCE BY THESE TWO PERSONS TO ANY TH IRD PARTY. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, PRICE DI FFERENTIAL OF RS.10/KG (33%) BETWEEN THE 'SYRAH' PURCHASED FROM SH RI. SURESH V. PATIL(HUF) AND SHRI. VAIKUNTH VIJAY PATIL ESPECIALLY IN ABSENCE OF ANY MATERIAL TO PROVE THAT DIFFERENCE IN THEIR RES PECTIVE PHYSICAL AND CHEMICAL PROPERTIES LED TO ANY SIGNIFICANT INCREA SE IN NET RETURNS CANNOT BE JUSTIFIED. HOWEVER, KEEPING IN VIEW THE PRICE RANGE GIVEN BY THE ABOVE REFERRED DRAKSHA SANGH FOR 'SYRAH' AND PRESUMING THAT THE APPELLANT WENT FOR THE BEST GRAPE S, PRICE OF RS.35/KG WILL BE APPROPRIATE FOR THE PURPOSE OF APP LYING SEC. 40A(2)(B) AS AGAINST RS.32/KG APPLIED BY THE AO. HENCE TOTAL DISALLOWANCE IN CASE OF 'SYRAH' FOR THE PURCHASES MAD E FROM SHRI. SURESH V. PATIL (HUF) WOULD BE 73,889.7 KG X RS.5 I.E. RS.3,69,448/-. THE APPELLANT GETS A RELIEF OF RS.2.21.692/ - IN RESPECT OF 'SYRAH' VARIETY (RS.5,91,140 RS.3,69,448/- ). AS REGARDS 'CABERNET SAUVIGNON' PURCHASED @ RS.50/KG F ROM SHRI. SURESH V PATIL AS AGAINST MAXIMUM PRICE OF RS.35/KG R EFLECTED BY DRAKSHA SANGH, PUNE, I FIND THAT APPELLANT HAS NOT MAD E ANY PURCHASE OF THIS .VARIETY FROM ANY OTHER PRODUCER DUR ING THE YEAR. APPELLANT HAS FURNISHED A PURCHASE BILL OF M/S VINSURA WINERY (P) LTD. DT. 15/03/2009 (AY2009-10) SHOWING PURCHASE OF 'C ABERNET WHITE' @ RS.40/KG. IN VIEW OF THE ABOVE, I AM INCLINED TO TAKE RS.35/KG FOR 'CABERNET' FOR AY 2007-08 AS SUGGESTED BY MAHARSHTRA RAJYA DRAKSHA BAGAITDAR SANGH, PUNE AS AGA INST RS.30/KG TAKEN BY THE AO FOR THE PURPOSE OF APPLYING SEC. 40A(2)(B) OF THE ACT. THE PRICE VARIATION OF RS.10/KG W OULD TAKE CARE OF THE PRICE VARIATION DEPENDING UPON THE PHYSI CAL AND CHEMICAL PROPERTIES OF THE 'CABERNET' VARIETY. ASSUMI NG AGAIN THAT THE APPELLANT GOT THE BEST PRODUCT, MAXIMUM PRICE OF R S.35/KG IS TAKEN AS AGAINST THE MINIMUM PRICE OF RS.25/KG. HER E ALSO THE APPELLANT HAS FAILED TO PROVE OR JUSTIFY CONCLUSIVELY THAT 'CABERNET' PURCHASED FROM SHRI. SURESH V. PATIL @ RS.50/KG LED TO SIGNIFICANT INCREASE IN NET RETURNS. NO DOCUMENTS IN REGARD TO C OSTING OF 'CABERNET' BY SHRI. SURESH V. PATIL WERE PRODUCED BEFO RE ME. APPELLANT'S CONTENTION THAT IT WAS INCURRING LOSS AND THEREFORE, THERE WAS NO NEED TO INFLATE PURCHASES IS NOT LEGALLY T ENABLE. THE VERY EXISTENCE OF SEC. 40A(2)(B) SUGGESTS THAT HIGHER PAYMENT TO RELATIVES WAS NOT RULED OUT ESPECIALLY IN THE CASE OF AGRICULTURAL PRODUCE WHERE NO PROPER RECORDS WERE MAINTAINED BY THE ITA NO.2206/PN/2012 VINTAGE WINES PVT. LTD 6 PRODUCER. APPELLANT RELIANCE ON HON'BLE ITAT, MUMBAI IN THE CASE OF ORCHARD ADVERTISING (P) LTD. IS NOT RELEVANT AS FACT S OF THIS CASE ARE DIFFERENT. IN THE ABSENCE OF DETAILS OF COST OF P RODUCTION FOR DIFFERENT VARIETIES OF GRAPES BY SHRI. SURESH V. PATI L (HUF), PRICES SUGGESTED BY THE MAHARSHTRA RAJYA DRAKSHA BAGAITDAR SANGH, PUNE (MAHARSHTRA STATE GRAPE GROWER ASSOCIATION) FOR VARIOUS VARIETIES OF GRAPES FOR NASHIK REGION CANNOT BE BRU SHED ASIDE. THE DRAKSHA SANGH IS A SPECIALIZED BODY AS FAR AS PR ODUCTION, MARKETING AND OTHER ASPECTS OF GRAPES ARE CONCERNED . TOTAL DISALLOWANCE IN CASE OF 'CABERNET' WOULD BE RS.6,28,590 /- I.E. 41906KG X RS.15 AS AGAINST RS.8,38,150/- DISALLOWED BY AO TAKING PRICE @ RS.30/KG THE APPELLANT GETS A RELIEF OF RS.2,09,560/- (41906KG X RS.5). TOTAL DISALLOWANCE FOR BOTH 'SYRAH' AND 'CABERNET' COMES OUT TO BE RS.9,98,038/- A S AGAINST RS.14,29,290/- DISALLOWED BY AO. THE APPELLANT GETS A REL IEF OF RS.4,31,2 52/-. 6. THE ASSESSEE IS IN APPEAL AGAINST THE PARTIAL DISALLOWANC E MADE BY THE CIT(A). IT WAS POINTED OUT BY THE LEARNED AUTHOR IZED REPRESENTATIVE FOR THE ASSESSEE THAT IN THE MANUFACTURIN G OF WINE, THE BASIC MATERIAL WAS GRAPES AND THERE WERE VARIETY OF GRAP ES, RATES OF WHICH WERE DEPENDING ON THE VARIETY. FURTHER, WITHIN EA CH VARIETY, THERE WERE DIFFERENT CATEGORIES DEPENDING ON THE QUALITIES I.E. PERCENTAGE OF SUGAR (BRIX), PH CONTENT, ACIDITY AND ALKALOID CONTENT. IT WAS FURTHER POINTED OUT BY THE LEARNED AUTHORIZED REPRE SENTATIVE FOR THE ASSESSEE THAT, FOR PURCHASING THE GRAPES, THE MANUFA CTURER ENTERS INTO AGREEMENTS WITH THE GRAPE GROWERS AND THE RATES AS SCHEDULED BY THE WINE MANUFACTURER ASSOCIATION ARE AGREED UPON BETWE EN THE PARTIES. THE RATES SO PRESCRIBED ARE AS PER THE TABLE WERE MADE PART OF THE AGREEMENT. IT WAS CONTENTED BY THE LEARNED AUTHO RIZED REPRESENTATIVE FOR THE ASSESSEE THAT MORE THAN ABOVE 80% OF PURCHASES WERE MADE FROM THE RELATED PARTIES AND ONLY 20% OF PURCHASES WERE MADE FROM NON-RELATED PARTIES. THE ASS ESSEE FURTHER EXPLAINED THAT IN TEST LAB, THE SAMPLE WAS MEASURED AND DEPENDENT ON THE QUALITY, THE RATE WAS FIXED AND THE SAID RATES MAY V ARY EVEN IN EACH VARIETY. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ITA NO.2206/PN/2012 VINTAGE WINES PVT. LTD 7 REFERRED TO THE ORDER OF ASSESSING OFFICER AND POINTED OUT THAT HE HAD ADOPTED THE AVERAGE RATES PRESCRIBED BY GRAPE MANUFAC TURERS ASSOCIATION AND NOT BY THE WINE MANUFACTURERS ASSOCIATION . OUR ATTENTION WAS DRAWN TO THE TABLE AT PAGE 2 OF THE ASSE SSMENT ORDER AND IT WAS POINTED OUT THAT IN RESPECT OF PARTY NO.1, WH ICH WAS RELATED PARTY, ADDITION WAS MADE BY THE ASSESSING OFFICER. HOWEVER , IN RESPECT OF TRANSACTION WITH PARTY NO.3, WHICH WAS ALSO RE LATED PARTY, NO ADDITION WAS MADE. FURTHER, THE PARTY NO.4 WAS A NON -RELATED PARTY FROM WHOM THE GRAPES WERE PURCHASED AT SIMILAR RA TES AS FROM THE PARTY NO.1. OUR ATTENTION WAS ALSO DRAWN TO THE DE TAILS AT PAGE 65 OF THE PAPER BOOK AND IT WAS POINTED OUT THAT THE ASSE SSEE WAS SELLING THE WINES AT HIGH RATES IN THE MARKET AS COMPARED TO O THERS. IN OTHER WORDS, THE ASSESSEE WAS USING HIGH QUALITY OF GRAPES FOR T HE MANUFACTURE OF WINES, WHICH FETCHES HIGHER PRICE IN THE MARK ET. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTH ER REFERRED TO THE AGREEMENT WITH SHRI VAIKUNTH VIJAY PATIL (HUF) DATED 03.04.2006 AND THE LIST OF RATES WERE PLACED AT PAGE 50 OF THE PAPE R BOOK ALONG WITH ENGLISH TRANSLATION AT PAGES 51 ONWARDS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ALSO REFERRED TO AN IDE NTICAL AGREEMENT WITH NON-RELATED PARTY PLACED AT PAGES 53 OF THE PAPER BOOK, WHICH WAS DATED 03.04.2006, WHICH WAS ENTERED INTO FOR A PERIOD OF THREE YEARS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE A SSESSEE AT THE CLOSE OF HEARING POINTED OUT THAT FOR THE PAST 8-10 YEA RS, THE ASSESSEE WAS SUFFERING LOSSES AND THERE WAS NO NEED TO BOOK EXTR A EXPENDITURE SINCE THE LOSSES AVAILABLE WITH THE ASSESSEE COULD NOT BE SET OFF AGAINST ANY INCOME. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLA CED RELIANCE ON THE ORDER OF CIT(A). ITA NO.2206/PN/2012 VINTAGE WINES PVT. LTD 8 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE WAS ENGAGED IN THE MANUFACTURE OF GRAPE W INES. THE CLAIM OF THE ASSESSEE BEFORE US WAS THAT, IT WAS PRODUCING HIGH END GRAPE WINE WHICH FETCHES HIGHER VALUE IN THE MARKET THAN THE WINE MANUFACTURED BY OTHER CONCERNS. THE BASIC CONSTITUENT OF GRAPE WINE MANUFACTURED BY THE ASSESSEE WAS THE GRAPES AND IN OR DER TO PRODUCE HIGH END WINES, BETTER QUALITY OF GRAPES WERE PICKED UP FRO M THE MARKET. THE ASSESSEE FURTHER CLAIMS THAT IT WAS ENTERING INTO AGREEMENTS WITH THE GRAPE PRODUCERS FROM WHOM THE PUR CHASES WERE MADE BY THE ASSESSEE. THIS WAS A BUSINESS PRACTICE FOLLOW ED IN THE TRADE BY WINE MANUFACTURING UNITS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD MADE TOTAL PURCHASES O F RS.74,56,079/-, OUT OF WHICH, THE PURCHASES ON ACCOUNT OF G RAPES CONSTITUTED RS.72,68,184/-. THE ASSESSEE HAD PURCHASED GRAPES TOTALING RS.61,83,359/- FROM THE RELATES PARTIES I.E. SHRI SURE SH VISHWNATH PATIL (HUF) AND SHRI VAIKUNTH VIJAY PATIL. IT IS NOT DISPUTED THAT BOTH THE PARTIES WERE RELATED PARTIES. IN ADDITION, PURCHASES WERE MADE FROM THREE OTHER PERSONS. THE AS SESSING OFFICER AT PAGE 2 HAS TABULATED THE PARTY-WISE DETAILS OF PURCHASE MADE BY THE ASSESSEE DURING THE YEAR, WHICH ARE AS UNDER:- NAME OF SUPPLIER VARIETY OF GRAPES QUANTITY IN KGS. RATE/ KG. IN RS. AMOUNT RS. DATE OF PURCHASE SHRI SURESH V. PATIL HUF 1) CHENIN BLANC 2) CABERNET 16,482 27033.80 30.00 50.00 4,94,472.00 1351690.00 07.04.2006 09.04.2006 SAUVIGNON 3) SYRAH 4) CABERNET 54847.60 14872.20 40.00 50.00 2193904.00 743610.00 12.04.2006 28.03.2007 SAUVIGNON 5) CHARDONNAY 717.80 50.00 35890.00 29.03.2007 6) SYRAH 19042.10 40.00 761684.00 31.03.2007 ITA NO.2206/PN/2012 VINTAGE WINES PVT. LTD 9 MR.ATMARAM DATE CHENIN BLANC 34,044.50 25.00 851112.50 31.03.2007 MR. VAIKUNTH VIJAY PATIL SYRAH SAUVIGNON 19,282.40 787.90 30.00 30.00 578472.00 23,637.00 26.2.2007 30.3.2007 MR.SURESH THUBE CHENIN BLANC 6,4,19.20 33.50 215043.20 28.2.2007 M/S.MARUTI MANDIR CHARDONNARY 37340 50. 00 18670.00 29.03.2007 9. ANOTHER CONTENTION RAISED BY THE ASSESSEE WAS THAT , IT WAS PURCHASING DIFFERENT VARIETIES OF GRAPES AND IN EACH VARIETY OF THE GRAPES, THERE WERE DIFFERENT QUALITIES AND THE RATE OF PURC HASE WAS DEPENDENT UPON THE CERTAIN FACTORS I.E. SUGAR (BRIX), PH C ONTENT, ACIDITY AND ALKALOID CONTENT. THE PRACTICE FOLLOWED BY THE A SSESSEE WAS THAT, AT THE TIME OF EXECUTION OF AGREEMENT BETWEEN THE ASSESSEE AND THE GRAPE GROWERS, THE RATES OF GRAPES DEPENDENT ON ITS QUALITY, WERE FIXED. THE SAID RATES WERE PRESCRIBED BY THE WINE MANUFACTURERS ASSOCIATION, DEPENDING ON THE VARIOUS CONTENTS IN THE DIFFER ENT QUALITIES OF GRAPES. THE ASSESSEE HAS PLACED THE COPY OF AGREEMENT EXECUTED BETWEEN ITSELF AND SHRI VAIKUNTH VIJAY PATIL (HUF ) AT PAGES 45 TO 50 OF THE PAPER BOOK ALONG WITH ENGLISH TRANSACTION AT PAGES 51 AND 52 OF THE PAPER BOOK. AT PAGE 50 OF THE PAPER BO OK IN ANNEXURE- A, THE RATES OF DIFFERENT VARIETIES OF THE GRAPE ARE PROVIDE D. THE SAID AGREEMENT WAS EXECUTED BETWEEN THE ASSESSEE AND ITS RELATED PARTY FROM WHOM MAJOR PURCHASES HAVE BEEN MADE BY THE ASSE SSEE. THE ASSESSEE HAS ALSO PLACED ON RECORD ANOTHER AGREEMENT EXECUTED BETWEEN ITSELF AND M/S. MARUTI MANDIR AT PAGES 53 TO 58 A ND ANNEXURE-A IS ANNEXED TO THE SAID AGREEMENT ALSO. THE RATES WERE FIXED BY THE WINE MANUFACTURERS ASSOCIATION AND ARE BINDIN G ON ALL THE GRAPE GROWERS, WHO ENTER INTO AGREEMENT WITH WINE MANUFA CTURING UNITS. THE RATES ARE APPLIED AGAINST PURCHASES MADE FROM GRAPE GROWERS DEPENDENT ON THE VARIETY / QUALITY OF THE GRAP ES PURCHASED BY ITA NO.2206/PN/2012 VINTAGE WINES PVT. LTD 10 THE GRAPE GROWERS. FOR THE PURPOSE OF DETERMINING THE QUALITY OF THE GRAPES IN EACH CATEGORY OF DIFFERENT VARIETY OF GRAPES, SAM PLE PIECES WERE TESTED IN THE LAB AND THE RATE AS PER THE QUALITY WAS FIXED IN LINE WITH THE RATES PRESCRIBED BY THE WINE MANUFACTURERS ASS OCIATION. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD MADE MAJOR PURCHASES FROM ITS RELATED PARTY I.E. SHRI SURESH VISHWNATH PATIL (HUF) AND SHRI VAIKUNTH VIJAY PATIL. 10. THE ASSESSEE ENTERS INTO AGREEMENT WITH THE FARMER S FOR PRODUCING SPECIAL QUALITY OF SYRAH, CHARDONNAY AND CABERNE T SAUVIGNON VARIETIES OF GRAPES. IN THE CASES OF CONTRACT FARMING OF WINE GRAPE, THE QUALITY OF GRAPES IS DEPENDENT ON ITS PH CONTE NT, BRIX OF GRAPE WINE VARIETIES YIELD, PLANTATION TYPE, ETC. THE PERUSA L OF THE TABULATED DETAILS OF PURCHASES REFLECTS THAT IN RESPECT OF THE VARIETY OF CABERNET SAUVIGNON PURCHASED FROM SHRI SURESH V. PATEL H UF, RATE PER KG OF RS.50/- HAD BEEN FIXED. FURTHER, IN RESPECT O F CHARDONNAY, THE RATE OF RS.50/- PER KG WAS ALSO FIXED. SIMILARLY, IN RES PECT OF PURCHASES MADE FROM M/S. MARUTI MANDIR WHO IS A NON-RELA TED PARTY FOR THE PURCHASE OF CHARDONNAY, RATE OF RS.50/- PER KG H AS BEEN FIXED. THE ASSESSING OFFICER HAS ACCEPTED THE PURCHASES MADE BY THE ASSESSEE, EXCEPT THE PURCHASE OF CABERNET SAUVIGNON VA RIETY OF GRAPES, WHEREIN THE ASSESSEE HAD PURCHASED 27033.80 KG S OF GRAPE @ RS.50/- AND SYRAH VARIETY OF GRAPES TOTALING 19042.10 KGS @ RS.40/- AND REST OF THE PURCHASES MADE BY THE ASSESSEE HAVE BEEN ACCEPTED BY THE ASSESSING OFFICER. THE REASON FOR NON-ACCEPTANCE OF T HE RATES PAID BY THE ASSESSEE WAS THE INFORMATION GATHERED FROM GRAPE S MANUFACTURERS ASSOCIATION REGARDING MARKET PRICE OF WINE G RAPES. THE SAID ASSOCIATION HAD FURNISHED THE INFORMATION SUGGESTING T HAT THE RATES PER KG FOR GRAPE FOR ALL THE QUALITIES RANGED FROM RS .25/- TO ITA NO.2206/PN/2012 VINTAGE WINES PVT. LTD 11 RS.30/-. IN ITS COMMUNICATION TO THE ASSESSING OFFICER, THE ASSOCIATION HAD REPORTED THAT IT WAS ENGAGED MAINLY IN RESEARCH ACTIVITIES RELATED TO GUIDANCE ON GRAPE GROWING, FERTILIZERS, P ESTICIDES, LABOUR PRACTICES AND VARIOUS OTHER TREATMENTS CARRIED O UT IN GRAPE CULTIVATION. IT WAS ALSO REITERATED BY THEM THAT AS REGA RDS THE INFORMATION CALLED BY THE ASSESSING OFFICER, THEY DO NOT COLLE CT AND HAVE NO AUTHENTIC DATA FROM THE FARMERS WITH THE REGARD TO INPUT, INPUT COST, OUTPUT EXPORT, DOMESTIC SALES MARKET, ETC. AND HENCE, THEY WERE NOT IN A POSITION TO GIVE CORRECT INFORMATION. FURTH ER, THEY EXPLAINED THE REASONS WHICH AFFECT THE YIELD OF GRAPES AND ON TENTATIVE BASIS ALSO PROVIDED THE AVERAGE YIELD PER ACRE. AS REGAR DS THE PRICE OF DIFFERENT VARIETIES, IT WAS ADMITTED BY THE SAID ASSOCIATION T HAT THEY DO NOT HAVE AUTHENTICATE DATA AVAILABLE WITH THEM. HOWEVER, IT WAS POINTED OUT THAT NASHIK GRAPES WERE MARKETED ALL OVER T HE COUNTRY AND NET REALIZATION DIFFERS FROM PLACE TO PLACE DEPENDING UPON TH E VARIETIES, COLOUR, TASTE, SIZE, ETC. THE SAID INFORMATION GATHERED BY THE ASSESS ING OFFICER WAS FROM GRAPE GROWERS ASSOCIATION AND NOT FROM T HE WINE PRODUCING ASSOCIATION. THE ASSESSEE HAD FURNISHED ON REC ORD AT PAGES 42 TO 44 OF THE PAPER BOOK, THE COMMUNICATION BETWEEN A LL INDIA WINE PRODUCERS ASSOCIATION AND THE ACIT, UNDER WHICH IT WAS P OINTED OUT THAT THE ASSESSEE WAS A MEMBER OF THEIR ASSOCIATION AND THEY WERE MANUFACTURER OF PREMIUM QUALITY WINE AND HAVING CONTRACT FA RMING WITH THE WINE GRAPE GROWERS. IT WAS FURTHER EXPLAINED TH AT IN THE CONTRACT FARMING OF WINE GRAPES, THE GRAPE RATES DEPENDE NT ON MANY QUALITIES, PARAMETERS OF GRAPES, SUCH AS PH CONTENT, BRIX OF GRAPES, WINE VARIETIES, YIELD, PLANTATION TYPE, ETC. IT WAS ALSO CLARIFIED THAT EACH WINERY HAD THEIR OWN CONTRACT WITH THE FARMERS BAS ED ON ABOVE QUALITY PARAMETERS. FURTHER, THE SAID ASSOCIATION SUBMITTE D THAT THE ITA NO.2206/PN/2012 VINTAGE WINES PVT. LTD 12 ASSESSEE HAD SIGNED CONTRACT WITH THEIR CONTRACT FARMER S AS PER ATTACHED QUALITY PARAMETER TABLE IN THE FINANCIAL YEAR 200 6-07. IT WAS FURTHER CONFIRMED BY THE SAID ASSOCIATION THAT THE RATES AND QUALITY PARAMETERS GIVEN BY THE ASSESSEE WERE WORLDWIDE ACCEPT ED. THE TABULATED RATES WERE DEPENDING ON DIFFERENT QUALITIES WERE ANNEXED TO THE SAID LETTER, WHICH ARE AT PAR WITH THE TABULATED DET AILS OF RATES ANNEXED AS ANNEXURE-A TO THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH ITS GRAPE GROWERS. IN THE TOTALITY OF THE ABOVE FAC TS AND CIRCUMSTANCES, WHERE THE PURCHASES HAVE BEEN MADE AT MARKET RATE AND AT PRE-DECIDED RATES AGREED UPON BETWEEN THE PAR TIES, WHICH HAS BEEN SETTLED BY THE WINE MANUFACTURERS ASSOCIATION TO BE AT PAR FOR ALL WINERIES TO ADOPT, THE DISALLOWANCE MADE ON THIS REGARD IS NOT WARRANTED. 11. THE OBJECTION OF THE AUTHORITIES BELOW WAS THE INFORMA TION GATHERED FROM GRAPES MANUFACTURERS ASSOCIATION AND THE RATES GIVEN BY THE SAID ASSOCIATION WHICH WERE THE RATES AT WHICH T HE GRAPES WERE CONSUMED / SOLD IN THE MARKET FOR HUMAN CONSUMPTION. TH E RATES PRESCRIBED BY THE WINE MANUFACTURERS ASSOCIATION ON THE OTHER HAND, WERE IN RESPECT OF DIFFERENT VARIETIES OF GRAPES WHICH WERE TO BE USED FOR THE PURPOSE OF WINE MANUFACTURING. IN VIEW THEREOF, WE FIND NO MERIT IN THE ORDERS OF AUTHORITIES BELOW IN RELYING UPON T HE INFORMATION GATHERED FROM GRAPES MANUFACTURERS ASSOCIATION. ONE MOR E OBJECTION RAISED BY THE ASSESSING OFFICER WAS THAT THE AGREEMENT E NTERED INTO BETWEEN THE PARTIES ON 03.04.2006 AND THE ASSESSEE HAD PURCHASED GRAPES IN THE MONTH OF APRIL, 2006 ITSELF. FURTHER, PURCHASE S WERE MADE IN THE MONTH OF FEBRUARY AND MARCH, 2007. THE AGR EEMENT ENTERED INTO BY THE ASSESSEE WAS FOR A PERIOD OF THREE YEARS. IT IS THE EXPLANATION OF THE ASSESSEE THAT EVEN IN EARLIER YEARS, SA ME ITA NO.2206/PN/2012 VINTAGE WINES PVT. LTD 13 AGREEMENTS WERE EXECUTED BETWEEN THE PARTIES. IT IS N OT THE CASE OF THE DEPARTMENT THAT THE GRAPES WERE PURCHASED BY TH E ASSESSEE IN THE MONTH OF APRIL, 2006 PRIOR TO THE EXECUTION OF AGREEMENT B ETWEEN THE PARTIES ON 03.04.2006. IN VIEW OF THE PECULIAR NATURE OF PE RISHABLE COMMODITY INVOLVED AND ALSO TAKING INTO CONSIDERATION THE R ATES FIXED BY THE WINE MANUFACTURERS ASSOCIATION, WE FIND NO MERIT IN T HE ORDER OF ASSESSING OFFICER IN THIS REGARD AND THE SAME IS DISMISSED. 12. ANOTHER OBSERVATION OF THE ASSESSING OFFICER THAT TH E QUALITY OF GRAPES IS DEPENDENT ON SOIL AND CLIMATIC CONDITIONS, IS ALSO N OT CORRECT IN VIEW OF THE OBSERVATIONS OF THE WINE MANUFACTURERS ASSO CIATION, WHICH WE HAVE ALREADY REFERRED TO IN THE EARLIER PARAS O F THIS ORDER. FURTHER, MERELY BECAUSE ANOTHER WINERY I.E. SANKALP PVT. LTD. HAD PURCHASED SIMILAR QUALITY OF GRAPES AT RATES DIFFERING FROM TH E RATES AT WHICH THE ASSESSEE HAD MADE PURCHASES, DOES NOT MERIT ANY ADDITION IN THE HANDS OF THE ASSESSEE WHERE, DIFFERENT VARIETIES OF W INE ARE AVAILABLE IN THE MARKET AND THE SELLING PRICES DIFFER FROM RS.35 0/- TO RS.745/-. THE ASSESSEE CLAIMS THAT IT IS SELLING ITS PRODUCT S @ RS.745/- FOR A BOTTLE OF 750 ML IN RESPECT OF THE GRAPES QUALITIES OF CABERNET SAUVIGNON, WHEREAS SANKALP PVT. LTD. PURCHASING SAME CABERNET SAUVIGNON @ RS.35/- PER KG. AND IS SELLING SIMILAR B OTTLE OF WINE AT RS.400/- AND RAJDHER WINES PVT. LTD. IS SELLING THE SIMILAR BOTTLE AT RS.350/-. IN THE TOTALITY OF THE ABOVE FACTS A ND CIRCUMSTANCES, WE FIND NO MERIT IN THE ORDERS OF AUTHORITIES BELOW IN MAKING THE AFORESAID DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B). 13. ONE MORE ASPECT TO BE CONSIDERED IN THE HANDS OF T HE ASSESSEE WAS THAT IT WAS INCURRING LOSSES FROM YEAR TO YEAR AND O VER THE PAST 7- ITA NO.2206/PN/2012 VINTAGE WINES PVT. LTD 14 8 YEARS, IT HAD INCURRED HUGE LOSSES WHICH HAVE NOT BEEN SET OFF AGAINST ANY INCOME EARNED BY THE ASSESSEE. IN SUCH CIR CUMSTANCES, THE PLEA OF THE ASSESSEE WAS THAT THERE WAS NO WARRAN T FOR BOOKING EXTRAORDINARY EXPENDITURE. WE FIND MERIT IN THE PLEA OF T HE ASSESSEE IN THIS REGARD AND IN VIEW OF OUR DELETING THE ADDITION MADE BY THE ASSESSING OFFICER, WE ALLOW THE GROUNDS OF APPEAL RAISED BY T HE ASSESSEE. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 20 TH DAY OF FEBRUARY, 2015. SD/- SD/- (R.K. PANDA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 20 TH FEBRUARY, 2015. GCVSR COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-II, NASHIK; 4) THE CIT-II, NASHIK; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE