ITO, SRIGANGANAGAR V. M/s. Shree Mahaveer Oil & General Mill, SRIGANGANAGAR

ITA 225/JODH/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4896 (ITAT-JODHPUR)
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 24-09-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 12-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Assessee Lawyers: U C JAIN
• Keywords: Business expenditure; Additional evidence

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENC H : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 225/JODH/2013 (A.Y. 2009-10) ITO, VS. M/S. SHREE MAHAVEER OIL & WARD-3, GENERAL MILL, SURATGARH ROAD SRIGANGANAGAR. SRIGANGANAGAR PAN NO. AADFS 6887 L (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI U.C. JAIN & SHRI RAJENDRA JAIN. DEPARTMENT BY : SHRI N.A. JOSHI - D.R. DATE OF HEARING : 24/09/2013. DATE OF PRONOUNCEMENT : 27/09/2013. O R D E R PER N.K.SAINI, A.M THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE OR DER DATED 30/01/2013 OF LD. CIT (A), BIKANER. THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN:- 1. DELETING ADDITION OF RS. 33,55,257/- MADE ON AC COUNT OF JOB WORK. 2 2. RESTRICTING DISALLOWANCE OUT OF ELECTRICITY AND BARDANA REPAIR EXPENSES TO 10% FROM 20% 2 VIDE GROUND NO.1, THE GRIEVANCE OF THE DEPARTMENT RELATES TO THE DELETION OF ADDITION OF RS. 33,55,257/-. 3. FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 14/09/2009 DECLARING AN INCOME OF RS. 2,74,870/-. THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT TH E ASSESSEE WAS RUNNING OIL MILL AND DURING SOME PART OF THE YEAR UNDER CON SIDERATION AND IN THE EARLIER YEARS, IT WAS CRUSHING MUSTARD SEEDS OF NAF ED ON JOB BASIS, FOR WHICH NECESSARY AGREEMENT WAS EXECUTED. THE ASSESS ING OFFICER NOTED THAT IN THE JOB WORK ACCOUNT, THE ASSESSEE DEBITED A SUM OF RS. 17,22,430/- AND RS. 16,32,827/-, TOTALING TO RS. 33 ,55,257/- AGAINST THE JOB WORK RECEIPTS. THE DEBIT NOTES ISSUED BY THE N AFED WERE FOR SHORT SUPPLY OF MUSTARD OIL THAN THE OIL TO BE PROCURED A S PER MATERIAL BALANCING FORMAT AND LABORATORY REPORT. THE ASSESS ING OFFICER ENQUIRED FROM THE NAFED ON THE ISSUE AND AS PER THE INFORMAT ION RECEIVED FROM NAFED, THE MUSTARD SEEDS SUPPLIED BY THEM AFTER OBT AINING A LABORATORY REPORT, WHICH GAVE COMPLETE DETAILS AS REGARDS THE PERCENTAGE OF OIL CONTENTS AND QUANTITY OF OIL CAKE TO BE EXTRACTED A ND TO BE SUPPLIED BY 3 THE ASSESSEE AFTER EXTRACTING FROM MUSTARD SEED. T HE ASSESSING OFFICER FOUND THAT IF THE ASSESSEE WAS NOT SATISFIED WITH T HE YIELD SHOWN IN THE LABORATORY REPORT SUPPLIED BY NAFED, THEN THE ASSES SEE WAS AT LIBERTY TO REFER THE MATTER TO ANOTHER LABORATORY KNOWN AS EMP IRE LABORATORY AND THEN PARAMETERS OF NEW REPORTS SHOULD BE ADOPTED. THE ASSESSING OFFICER ALSO NOTICED THAT THE ASSESSEE DID NOT OBJECT THE L ABORATORY REPORT OF NAFED AS HE DID NOT REFER THE SAME TO OTHER LABORAT ORY AS SUGGESTED IN THE AGREEMENT, AS SUCH THE ASSESSING OFFICER ISSUED A SHOW-CAUSE NOTICE AS TO WHY THE AMOUNT DEBITED IN JOB WORK ACCOUNT BE ING THE DEBIT NOTE ISSUE BY THE NAFED BE DISALLOWED. HE ALSO OBSERVED THAT ONE DEBIT NOTE AMOUNTING TO RS. 16,32,827/-, WHICH WAS ENTERED BY THE ASSESSEE IN HIS BOOKS OF ACCOUNTS ON 01/04/2008 WAS ISSUED BY THE N AFED ON 29/03/2008 AND AS SUCH IT PERTAINS TO THE PRECEDING ASSESSMENT YEAR AND WAS NOT ALLOWABLE IN THE YEAR UNDER CONSIDERATION. THE ASS ESSING OFFICER ACCORDINGLY, DISALLOWED THE TOTAL CLAIM OF RS. 33,5 5,257/- FOR MAKING THE SAID DISALLOWANCE, THE SUBSTANCE OF THE REASONS ASS IGNED BY THE ASSESSING OFFICER AS SUMMARIZED BY THE LEARNED CIT(A) WERE A S UNDER:- A) THAT WHEN THE MUSTARD SEEDS SUPPLIED BY THE NAF ED, STANDARD OUTPUT FROM THE LOT WAS DETERMINED ON THE BASIS OF LABORATORY REPOT AND AS THERE WAS A LABORATORY REPORT, THE OUTPUT OF MUSTERED OIL BOUND TO BE AT THE SAME STANDARD AS THE LABORATORY REPORT SUGGEST. 4 B) THAT AS PER AGREEMENT BETWEEN THE ASSESSEE AND NAFE D, THE ASSESSEE HAD RIGHT TO CHALLENGE THE REPORT OF LABORATORY, TH EREFORE IN ABSENCE OF ANY SUCH CHALLENGE THE DEBIT NOTE ISSUED BY THE NAF ED FOR THE SHORT SUPPLY OF MUSTARD OIL NOT ALLOWABLE. C) THAT THE CLAIM OF DEBIT NOTES FROM THE PROCESSING C HARGES IS NOT ALLOWABLE AT ALL BECAUSE THE ASSESSEE HAD FAILED TO FILE ANY DOCUMENTS EVIDENCES THAT THERE WAS SHORT SUPPLIES OF MUSTARD OIL TO NAFED DUE TO LOW YIELD. D) THAT NO PRUDENT BUSINESSMAN WILL CONTINUE THE LOSS MAKING BUSINESS. E) THAT THE ASSESSEE WAS NOT BOUND BY ANY CONTRACT FOR COMPULSORY MILLING OF MUSTARD SEED FOR NAFED. F) THAT THE MATTER PERTAINS TO MORE THAN TWO YEARS BAC K AND THE CONDUCT OF THE ASSESSEE CANNOT BE MONITORED BY THE REVENUE ON DAY TO DAY BASIS. IN SUCH CASES CIRCUMSTANTIAL EVIDENCE HAS TO BE RELIED UPON. 4. BEING AGGRIEVED, ASSESSEE CARRIED THE MATTER TO TH E LEARNED CIT(A) AND FILED ADDITIONAL EVIDENCE IN THE FORM OF INVENT ORY RECORD MAINTAINED FOR MUSTARD SEED AND OIL ETC. WHICH WERE RETURNED T O THE NAFED AFTER COMPLETION OF THE CONTRACT. THE ASSESSEE SUBMITTED THAT SUCH EVIDENCE COULD NOT BE FURNISHED DURING THE COURSE OF ASSESSM ENT PROCEEDINGS AS THE SAME WERE HANDED OVER TO THE NAFED AFTER COMPLE TION OF CONTRACT AS PER TERMS OF CONTRACT. THE LEARNED CIT(A) ADMITTED ADDITIONAL EVIDENCE, FOR WHICH THE ASSESSING OFFICER HAD NOT MADE ANY OB JECTION BY OBSERVING AS UNDER:- A) ADDITION OF RS. 33,55,257/- 5 DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE TH EN AO MADE AN ADDITION OF RS. 33,55,257/- ON ACCOUNT OF DEBIT NOT E RAISED BY NAFED FOR DIFFERENCE IN STANDARD PRODUCTION WHILE AT THE APPE LLATE STAGE THE ASSESSEE HAS PRODUCED THE ADDITIONAL EVIDENCES AND AFTER MAK ING NECESSARY ENQUIRIES THE SAME WERE ACCEPTED. 5. THE SUBMISSION OF THE ASSESSEE AS INCORPORATED B Y THE LEARNED CIT(A) AT PAGES 5 TO 12 OF THE IMPUGNED ORDER ARE R EPRODUCED VERBATIM AS UNDER:- THE SUBMISSION OF THE ASSESSEE'S AR ON THE ISSUE I S SUMMARIZED AS UNDER: A) THAT LD. AO ARBITRARILY DISALLOWED THE DEBIT NO TE RAISED BY THE NAFED ON THE SURMISE AND WITHOUT ANY EVIDENCE OF MANIPULA TION, PARTICULARLY WHEN THE LD. AO HIMSELF ENQUIRED THE MATTER WITH NA FED AND RECOVERING THE SAID AMOUNT BY NAFED BY ISSUING DEBI T NOTE IS NOT UNDER DISPUTE. THE LD. AO BEING A QUASI JUDICIAL AU THORITY IS SUPPOSED TO PASS THE ASSESSMENT ORDER CONSIDERING THE RELEVA NT MATERIAL AND THE ASSESSMENT SHOULD NOT BE BASED ON THE HYPOTHETI CAL PRESUMPTIONS AND ASSUMPTIONS WHICH HAS NO RELEVANCY TO THE MATTE R. THE LD. AO PASSED DISALLOWED THE DEBIT NOTE WITHOUT ASSIGNING COGNATE REASONS FOR THE SAME. RELIANCE IS PLACED ON FOLLOWING JUDIC IAL DECISIONS: I) VASUDEO VISHWANATH SARAF VS. NEW EDUCATION INSTI TUTE [(1986) 161 ITR 835 (SC)] [PB PG 101 TO 107] II) DHAKESHWARI COTTON MILLS LIMITED VS CIT [1954) 26 ITR 775 (SC)] [PB PG 108 TO 111] III) SEWDUTTROY RAMBULLAV & SON VS. CIT [204 ITR 5 80 (CAL)] [PB PG 112 TO 113] B) THAT HON'BLE RAJASTHAN HIGH COURT IN THE CASE O F FAKARI AUTOMOBILES VS. CIT [126 ITR 417 (RAJ)] [PB PG 114 TO 124] HELD THAT: '13. WHEN A COURT OF FACT ACTS ON MATERIAL PARTLY R ELEVANT AND PARTLY IRRELEVANT, IT IS IMPOSSIBLE TO SAY TO WHAT EXTENT THE MIND OF THE COURT WAS AFFECTED BY THE IRRELEVANT MATERIAL USED BY IT IN ARRIVING AT ITS 6 FINDING. SUCH A FINDING IS VITIATED BECAUSE OF THE USE OF INADMISSIBLE MATERIAL' C) THAT THE APPELLANT FIRM DURING THE YEAR UNDER C ONSIDERATION AS WELL IN THE EARLIER YEARS ENGAGED IN THE PROCESSING THE MUS TARD SEED SUPPLIED BY THE NAFED ON CONTRACT BASIS [PB PG 8 TO 28]. AS PER TERMS OF THE CONTRACT THE APPELLANT FIRM IS REQUIRED TO ENSURE T HAT THE PRODUCTION OF OIL AND KHAL ETC. SHOULD MEET THE STANDARD OF TH E NAFED AND IF THE OUTPUT FALL SHORT OF THE STANDARD THE APPELLANT HAS TO BEAR THE COST OF SHORTFALL EITHER BE PROCURING THE SHORTFALL FROM OP EN MARKET OR VALUE OF THE SAME MAY BE RECOVERED BY THE NAFED FROM THE COM PANY. D) THAT DURING THE YEAR UNDER CONSIDERATION ASSESS EE RECEIVED TWO DEBIT NOTE ISSUED BY NAFED AMOUNTING TO 33,55,257/- (RS. 17,22,430/- AND RS. 16,32,827/-) [PB PG 29 32] FOR THE VALUE OF T HE LESSER EXTRACTION OF THE MUSTARD OIL THAN STANDARD, FROM THE MUSTARD SEE D SUPPLIED BY THE NAFED AND THE SAME WERE DEBITED TO PROFIT & LOSS A/ C AND CLAIMED AS BUSINESS EXPENDITURE. THE AMOUNT OF DEBIT NOTE WERE RECOVERED BY THE NAFED FROM THE ASSESSEE AS PER TERMS OF THE CON TRACT AND SUCH EXPENDITURE WAS ALLOWABLE EXPENDITURE INCURRED IN T HE NORMAL COURSE OF BUSINESS, WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. E) THAT THE ASSUMPTION OF THE LD. AO THAT THE ACTU AL PRODUCTION OF THE MUSTARD OIL SHOULD BOUND TO BE AS PER LABORATORY RE PORT IS INCORRECT AS: I) THE SAMPLE PROCESSED IN THE LABORATORY BY THE T ECHNICAL PERSON IN THE STANDARD ENVIRONMENT, WHILE THE ACTUAL PRODUCTI ON WAS CARRIED OUT AT THE FACTORY IN A CONTINUOUS PROCESS BY THE LABOUR. II) THE SIZE OF THE SAMPLE PROCESSED IN THE LABORA TORY WAS LESSER. III) IN THE ACTUAL PROCESSING OF THE MUSTARD MANY TIMES DUE TO POWER FAILURE AND / OR MACHINE BREAKDOWN THE OIL COULD NO T BE EXTRACTED AS PER STANDARD. F) THAT THE LESSER PRODUCTION OF THE MUSTARD OIL W AS DUE TO LESSER YIELD OF THE OIL THAN STANDARD CAN BE EASILY VERIFIABLE FROM THE FACT THAT THE PRODUCTION OF MUSTARD CAKE WAS MORE THAN THE STANDA RD. IF THE ACTUAL OUTPUT OF MUSTARD CAKE WAS MORE THAN STANDARD OUTPU T, THE ACTUAL 7 OUTPUT OF THE MUSTARD OIL WAS BOUND TO LESSER THAN THE STANDARD PRODUCTION. THIS ASPECT WAS COMPLETELY IGNORED BY T HE LD. AO THOUGH THE FACT THAT THE PRODUCTION OF MUSTARD CAKE WAS MO RE THAN THE STANDARD WAS BROUGHT TO THE NOTICE OF LD. AO. IN SU BMISSION MADE BY THE ASSESSEE, WHICH WAS REPRODUCED IN THE ASSESSMEN T ORDER AT PAGE 3 IT WAS CLEARLY STATED THAT THE PRODUCTION OF THE OI L CAKE WAS MORE THAN THE STANDARD IN THE PERIOD FOR WHICH DEBIT NOTES IS SUED. THE LESSER SUPPLY OF THE MUSTARD OIL WAS ONLY BECAUSE OF THE L OWER YIELD THAN THE STANDARD AND FOR NO OTHER REASON. G) THAT BY CRUSHING THE MUSTERED SEED, MUSTERED OI L PRODUCED AS MAIN PRODUCT AND MUSTERED CAKE PRODUCED AS BY PRODUCT. A S PER STANDARD SET OUT BY THE NAFED ON 100 KG INPUT OF MUSTERED SE ED, 31.81 KG MUSTERED OIL AND 65.05 KG MUSTERED CAKE PRODUCED. I N CASE PRODUCTION OF MUSTERED OIL IS LESSER THAN THE STAND ARD, PRODUCTION OF MUSTERED CAKE BOUND TO BE INCREASED. H) THAT AS PER CONTRACT WITH THE NAFED IF THE MATE RIAL PRODUCED FROM THE PROCESSING OF THE MUSTARD SEED IS LESSER THAN THE T ECHNICAL STANDARDS OF NAFED THE ASSESSEE HAS TO BEAR THE LOSSES DUE TO SUCH LESSER PRODUCTION. IN THE EVENT OF EXCESS PRODUCTION NO EX TRA BENEFIT WILL BE ALLOWED TO THE ASSESSEE. [PB PG 12] I) THAT IF THE YIELD OF MUSTARD OIL AND MUSTARD CAK E TAKEN TOGETHER, THE RESULTANT DIFFERENCE IN THE YIELD IS ONLY FOR 0.48% FOR THE PERIOD COVERED BY FIRST DEBIT NOTE AND 0.75% FOR THE SECON D DEBIT NOTE AS SHOWN IN THE TABLE BELOW: DEBIT NOTE RS. 1722430/ - DEBIT NOTE RS. 1632827/ - STANDARD YIELD ACTUAL YIELD DIFFERENCE STANDARD YIELD ACTUAL YIELD DIFFERENCE MUSTARD OIL 31.70% 30.31% - 1.39% 32.31% 31.40% - 0.91% MUSTARD CAKE 65.29% 66.20% 0.91% 64.44% 64.60% 0.16% TOTAL YIELD 96.99% 96.51% - 0.48% 96.752% 96.00% - 0.75% J) THAT THE DIFFERENCE IN THE ACTUAL PRODUCTION OF MUSTARD OIL WAS NOT BECAUSE OF INCORRECT TECHNICAL REPORT OF THE LABORA TORY, BUT THE SAME WAS DUE TO LESSER YIELD OF THE MUSTERED OIL FOR THE REASONS STATED ABOVE. IF THE LOWER PRODUCTION OF THE MUSTARD OIL W AS DUE TO REASONS REFERRED ABOVE AND ARE NORMAL, THE AMOUNT CHARGED B Y THE NAFED AS 8 PER TERMS OF THE CONTRACT BY RAISING DEBIT NOTES HA S TO BE BEAR BY THE ASSESSEE AND ALLOWABLE WHILE COMPUTING THE TAXABLE INCOME. K) THAT THE LD. AO WITHOUT JUDICIOUSLY EXAMINATION OF THE AGREEMENT RECORDED THE FINDING THAT IN CASE, THE ASSESSEE IS NOT SATISFIED WITH THE REPORT GIVEN BY THE NAFED, HE IS AT LIBERTY TO REFER THE MUSTARD SEED TO OTHER LABORATORY KNOWN AS EMPIRE LABORATORY . THE INFERENCE DRAWN BY THE LD. AO THAT SINCE THE ASSESSEE HAS THE OPTION OF GETTING REPORT FROM ANOTHER LABORATORY, NON-EXERCISE OF SUC H OPTION LEAD TO DISALLOWANCE OF AMOUNT RECOVERED BY THE NAFED BY DE BIT NOTE IS ERRONEOUS AND ARBITRARY. THE CONTRACTUAL LOSS SUFFE RED DUE TO DEBIT NOTE BECAUSE OF LESSER PRODUCTION OF THE MUSTARD OI L IS ALLOWABLE EXPENSES. FURTHER THE FINDING RECORDED BY THE LD. A O IS CONTRARY TO THE CONDITIONS LAID IN THE AGREEMENT. CLAUSE 6(A) OF T HE AGREEMENT BETWEEN THE ASSESSEE AND NAFED IS REPRODUCED AS UND ER: [PB PG 12) '6. SAMPLING (A) MUSTARD SEED:- THE SAMPLE OF MUSTARD SEED STOCK SHALL BE DRAWN AT WAREHOUSE JOINTLY IN PRESENCE OF NAFED SURVEYORS/REPRESENTATIVE AND M ILL REPRESENTATIVE ON DAY TO DAY BASIS. THE SAMPLE OF DELIVERED STOCK SHALL BE KEPT IN FOUR SEALED PACKETS OUT OF WHICH TWO WIL L BE GIVEN TO MILLER AND ONE SAMPLE WILL BE RETAINED BY NAFED AND LAST S HALL BE SENT TO AN INDEPENDENT AGENCY FOR ANALYSIS. THE ANALYSIS REPORT OF THE INDEPENDENT AGENCY APPO INTED BY NAFED WILL BE ACCEPTABLE TO NAFED AND MILLER. HOWEVER, FO R THEIR OWN SATISFACTION MILLERS MAY GET THE SAME ANALYSED THEM SELVES AND IN CASE VARIATION OF MORE THAN 1% IS FOUND THEN A VIEW MAY BE TAKEN FOR GETTING THE ANALYSIS OF THE SAME STOCK ANALYSED BY ANOTHER REPUTED LABORATORY AND AVERAGE OF THE RESULT OF TWO INDEPE NDENT LABORATORY SHALL BE TREATED AS FINAL FOR THE PURPOSE OF MATERI AL BALANCING.' L) THAT IT WAS CLEARLY STATED IN THE AGREEMENT THA T THE ANALYSIS REPORT OF THE INDEPENDENT AGENCY APPOINTED BY NAFED WILL BE A CCEPTABLE TO NAFED AND MILLER. THE ONLY EXCEPTION TO THIS WAS TH AT IF THE ASSESSEE GET THE TECHNICAL ANALYSIS THEMSELVES AND THERE IS VARIATION OF MORE 9 THAN 1% FOUND, THEN ONLY A VIEW MAY BE TAKEN FOR OB TAINING TECHNICAL REPORT OF ANOTHER LABORATORY REPUTED. EVEN AFTER SO THE ANALYSIS DONE BY THE ASSESSEE WILL NOT BE FINAL BUT THE AVERAGE O F THE RESULT OF TWO INDEPENDENT LABORATORIES SHALL BE TREATED AS FINAL FOR THE PURPOSE OF MATERIAL BALANCING. THEREFORE THE FINDING RECORDED BY THE LD. AO IS PERVERSE AND MERELY BASED ON HIS SURMISE ONLY. THER EFORE, THE INFERENCE DRAWN BY THE LD. AO THAT THE AMOUNT OF DE BIT NOTE ISSUED BY THE NAFED DUE TO LESSER PRODUCTION OF MUSTARD OI L IS NOT A BUSINESS EXPENDITURE OF THE ASSESSEE SO AS TO ALLOWABLE U/S 37(L) IS ERRONEOUS AND CONTRARY TO THE MATERIAL ON RECORD. M) THAT THE FINDING RECORDED BY THE LD. AO THAT TH E ASSESSEE FAILED TO FILE ANY DOCUMENTS EVIDENCES THAT THERE WAS SHORT SUPPLI ED OF MUSTARD OIL TO NAFED DUE TO LOW YIELD IS CONTRARY TO THE MATERI AL AVAILABLE ON RECORD. THE DETAILS SUBMITTED BY THE ASSESSEE CLEAR LY DEMONSTRATE THAT THE LESSER PRODUCTION OF MUSTARD OIL WAS RESULTED I N EXCESS OUTPUT OF MUSTARD CAKE AND BOTH MUSTARD OIL AND MUSTARD CAKE WERE HANDED OVER TO NAFED. QUANTITY OF MUSTARD OIL AND MUSTARD CAKE HANDED OVER TO NAFED IS NOT IN DISPUTE, PARTICULARLY WHEN THE LD. AO HIMSELF ENQUIRED WITH THE NAFED IN THE MATTER. IN SUCH CIRC UMSTANCE, WHAT IS THE BASIS OF THE FINDING RECORDED BY THE LD. AO THA T THE ASSESSEE FAILED TO FILE ANY DOCUMENTS EVIDENCES THAT THERE WAS SHOR T SUPPLIED OF MUSTARD OIL TO NAFED DUE TO LOW YIELD. THE LD. AO A RBITRARILY NOT CONSIDERED THE SUBMISSION OF THE ASSESSEE AND MEREL Y ON HIS SURMISE MADE THE UNWARRANTED ADDITION FOR THE SACK OF MAKIN G HIGH PITCH ASSESSMENT. SUCH ARBITRARY ACTION OF THE LD. AO HAS NO LEGS TO STAND ON THE JUDICIAL EXAMINATION OF THE SAME. N) THAT AS PER CLAUSES 18(X) AND 18(XI) OF THE CON TRACT, THE ASSESSEE WAS REQUIRED TO MAINTAIN ALL THE QUANTITY DETAILS. THE QUANTITY DETAILS MAINTAINED FOR THE PERIOD OF CONTRACT WERE HANDED O VER TO THE NAFED AFTER THE END OF THE CONTRACT AS PER CLAUSE 18(XXVI ) OF THE CONTRACT AND NO PHOTOCOPY OF SUCH RECORD KEPT BY THE ASSESSEE, T HEREFORE THE SAME COULD NOT BE PRODUCED BEFORE THE LD. AO. COPIES OF THE DAILY 10 PROCESSING REPORT MAINTAINED BY THE ASSESSEE FOR TH E PERIOD UNDER CONTRACT ARE OBTAINED FROM THE NAFED AND ARE FILED BEFORE YOUR GOOD SELF AS ADDITIONAL EVIDENCE BY A SEPARATE APPLICATI ON UNDER RULE 46A OF I.T. RULES. FROM THE PERUSAL OF THE DAILY PROCESSIN G REPORT IT WILL REVEAL THAT THE ALLEGATION OF THE LD. AO THAT THE SHORT SU PPLY OF THE MUSTERED OIL THAN STANDARD WAS OTHERWISE THAN THE LOW YIELD WAS INCORRECT AND HAS NO FORCE. THEREFORE THE VERY BASIS OF THE DISAL LOWANCE OF DEBIT NOTE AMOUNTING TO RS. 33,55,257/- WAS INCORRECT AND THEREFORE THE DISALLOWANCE MADE BY THE LD. AO MAY KINDLY BE DELET ED. O) THAT THE INFERENCE DRAWN BY THE LD. AO THAT SIN CE NO PRUDENT BUSINESSMAN WILL CONTINUE TO DO BUSINESS IN WHICH H E INCUR LOSS CONTINUOUSLY AND THE ASSESSEE IS INCURRING LOSS IN MILLING OF MUSTARD SEED FOR NAFED THEREFORE THE ASSESSEE IS NOT A PRUD ENT BUSINESSMAN. HAD THE LD. AO ACTED JUDICIOUSLY HE CANNOT OVERLOOK THE PECULIAR FACT THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSES SEE WAS NOT WORKING FOR THE NAFED FOR THE WHOLE YEAR BUT ONLY F OR THE FRACTION OF THE YEAR. THE LD. AO WITHOUT ANY MATERIAL AGAINST T HE ASSESSEE MERELY ON HIS SURMISE AND IRRELEVANT CONSIDERATION THAT (I ) NO PRUDENT BUSINESSMAN WILL CONTINUE THE LOSS MAKING BUSINESS, (II) THE ASSESSEE WAS NOT BOUND BY ANY CONTRACT FOR COMPULSORY MILLIN G OF MUSTARD SEED FOR NAFED AND (III) THE ASSESSEE DID NOT UNDERTOOK THE TECHNICAL ANALYSIS FROM LABORATORY AS THE DIFFERENCE IN THE S TANDARD PRODUCTION AND ACTUAL PRODUCTION OF MUSTARD OIL WAS MORE THAN 1%. THE EXPENSE WHICH WAS A NORMAL BUSINESS EXPENDITURE AND ALLOWAB LE, WAS NOT ALLOWED MERELY BECAUSE OF THE SURMISE OF THE ASSESS EE. 6. LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE AMOUNT CHARGED BY THE NAFED FOR T HE SHORT PRODUCTION FOR MUSTARD OIL FROM THE MUSTARD SEEDS SUPPLIED WAS IN THE NORMAL COURSE OF BUSINESS AND ALLOWABLE DEDUCTION AS BUSINESS EXP ENSES, AS OIL COULD NOT 11 BE EXTRACTED IN THE SAME RATIO, WHICH WAS DETERMINE D ON THE BASIS OF SAMPLES. HE FURTHER OBSERVED THAT THE CONDITION OF THE MACHINERY EMPLOYED BY THE ASSESSEE WAS NOT FULLY AUTOMATIC AN D OLD COULD NOT BE EXPECTED TO OBTAIN THE SAME PERCENTAGE AND AS SUCH SOME VARIATION WAS BOUND TO OCCUR. LEARNED CIT(A) FURTHER OBSERVED TH AT THE TOTAL OUTPUT OF CAKE AND OIL WAS ALMOST NEARER TO THE TOTAL QUANTIT Y EXPECTED BY THE LABORATORY TEST AND AS SUCH FOR MINOR VARIATION, NO ADVERSE VIEW COULD BE TAKEN AS TAKEN BY THE ASSESSING OFFICER AND THAT TH E CLAIM OF DEBIT NOTE WAS ALLOWABLE. THE LEARNED CIT(A) OBSERVED THAT THE DEBIT NOTE ISSUED BY THE NAFED ON 29/03/2008 WAS RECEIVED BY THE ASSESSE E AFTER 31/03/2008 AND AS SUCH THE LIABILITY TO THE ASSESSEE AROSE ON THE DATE OF THE RECEIPT OF DEBIT NOTE, WHICH WAS ON 01/04/2008 AND AS SUCH THE LIABILITY AROSE IN THE YEAR UNDER CONSIDERATION AND WAS ALLOWABLE. EV EN OTHERWISE, IF IT WAS TO BE TREATED AS EXPENDITURE PERTAINING TO A.Y. 2008-09 THEN ALSO AS PER RATIO OF THE DECISION OF THE ITAT, AHMEDABAD BE NCH IN THE CASE OF PERFECT EQUIPMENTS VS. DCIT [85 ITD 50 (AHD)] A DIR ECTION WAS TO BE ISSUED TO THE ASSESSING OFFICER TO ALLOW THE SAME I N THE A.Y. 2008-09 AND SINCE IN THE A.Y. 2008-09 THERE WAS CARRY FORWARD O F LOSSES AND EVEN AFTER SUCH DIRECTION THE QUANTUM OF LOSS OF THE A.Y. 2008 -09 WOULD BE INCREASED FOR THE SAME AMOUNT AND WAS REQUIRED TO B E ADJUSTED FROM THE 12 PROFIT ASSESSED IN THIS YEAR AND AS SUCH IT WOULD H AVE NO IMPLICATION ON THE TOTAL INCOME OF THIS YEAR. LEARNED CIT(A) INST EAD OF AFORESAID DIRECTION TO THE ASSESSING OFFICER CONSIDERED IT AP PROPRIATE TO ALLOW THE SAME IN THIS YEAR. NOW, THE DEPARTMENT IS IN APPEAL. 7. LEARNED D.R. STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND REITERATED THE OBSERVATIONS MADE BY THE ASSESSI NG OFFICER FOR MAKING THE IMPUGNED DISALLOWANCE. 8. IN HIS RIVAL SUBMISSIONS, LEARNED COUNSEL FOR TH E ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND STRONGLY SUPPORTED THE IMPUGNED ORDER PASSED BY THE LEARNED CIT(A). 9. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT C ASE, IT APPEARS THAT AS PER TERMS OF THE CONTRACT WITH NAFED, THE ASSESSEE WAS REQUIRED TO ENSURE THAT THE PRODUCTION OF OIL AND (OIL CAKE) ET C SHOULD MEET THE STANDARD OF THE NAFED AND IF THE OUTPUT FALL SHORT OF THE STANDARD, THE ASSESSEE HAS TO BEAR THE COST OF SHORTFALL EITHER B Y PROCURING THE SHORTFALL FROM THE OPEN MARKET OR VALUE OF THE SAME MAY BE RE COVERED BY THE 13 NAFED FROM THE ASSESSEE FOR THE YEAR UNDER CONSIDER ATION. THE ASSESSEE RECEIVED TWO DEBIT NOTES ISSUED BY THE NAFED FOR TH E VALUE OF LESSER EXTRACTION OF MUSTARD OIL THAN STANDARD FROM THE MU STARD SEEDS SUPPLIED BY THE NAFED AND THE SAME WERE DEBITED TO THE PROFI T AND LOSS ACCOUNT AND CLAIMED AS BUSINESS EXPENDITURE. THE ASSESSING OFFICER HIMSELF ENQUIRED FROM THE NAFED ABOUT THOSE DEBIT NOTES AND NOTHING ADVERSE WAS BROUGHT ON RECORD, THEREFORE, THE EXPENDITURE W AS ALLOWABLE AS INCURRED IN THE NORMAL COURSE OF BUSINESS WHOLLY AN D EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. SINCE, THE NORMS WERE SUPPLIED ON THE SAMPLE PROCESSED IN THE LABORATORY BY THE TECHNICAL PERSON IN THE STANDARD ENVIRONMENT WHILE THE ACTUAL PRODUCTION WAS CARRIED OUT AT THE FACTORY IN A CONTINUES PROCESS BY THE LABOUR, THEREFORE, IN SU CH CASES, VARIATION WAS BOUND TO HAPPEN. IN THE INSTANT CASE, THE PRODUCTI ON OF MUSTARD OIL WAS LESSER BUT THE PRODUCTION OF MUSTARD CAKE WAS MORE THAN THE STANDARD. THE ASSESSING OFFICER WHILE MAKING THE DISALLOWANCE , HAD NOT BROUGHT ANY MATERIAL ON RECORD TO SUBSTANTIATE THAT THE YIELD O BTAINED BY THE ASSESSEE WAS LESSER IN COMPARISON TO THE ANOTHER COMPARABLE CASES, WORKING IN SIMILAR ENVIRONMENT AND ON SIMILAR TERMS AND CONDIT IONS. IN THE PRESENT CASE, THE ASSESSEE WAS REQUIRED TO MAINTAIN ALL THE QUANTITATIVE DETAILS AS PER CLAUSE 18 (X) & 18 (XI) OF THE CONTRACT THOSE D ETAILS WERE HANDED OVER 14 BY THE ASSESSEE TO THE CONTRACTOR AT THE END OF THE CONTRACT, HOWEVER, COPIES OF THE SAME WERE OBTAINED AND PRODUCED BEFOR E THE LEARNED CIT(A) BY THE ASSESSEE AS AN ADDITIONAL EVIDENCE. THE ASSESSING OFFICER DID NOT OBJECT FOR ADMISSION OF THE ADDITIONAL EVID ENCE ON THE BASIS OF THOSE DETAILS. LEARNED CIT(A) WAS SATISFIED WITH T HE EXPLANATION GIVEN RELATING TO THE YIELD OBTAINED BY THE ASSESSEE, THE REFORE THE ADDITION MADE BY THE ASSESSING OFFICER BY REJECTING THE EXPE NSES DEBITED BY THE ASSESSEE ON THE BASIS OF DEBIT NOTES ISSUED BY THE NAFED FOR THE SHORT PRODUCTION OF THE MUSTARD OIL WAS DELETED. THE ASS ESSEE EXPLAINED THE REASON FOR THE LOW YIELD OF MUSTARD OIL, WHICH HAD NOT BEEN CONTROVERTED, WE THEREFORE, DO NOT SEE ANY VALID GROUND TO INTERF ERE WITH THE IMPUGNED ORDER PASSED BY THE LEARNED CIT(A) ON THIS ISSUE A S SUCH DO NOT SEE ANY MERIT IN THE DEPARTMENTAL APPEAL ON THIS ISSUE. 10. VIDE GROUND NO.2 THE GRIEVANCE OF THE DEPARTMEN T RELATES TO THE RESTRICTION OF DISALLOWANCE OUT OF ELECTRICITY AND BARDANA REPAIR EXPENSES TO 10% FROM 20%. 11. FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT T HE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTICE D THAT THE ASSESSEE HAD INCURRED RS. 22,439/- ON ACCOUNT OF ELECTRICAL REPAIRS AND RS. 42,710/- ON ACCOUNT OF BARDANA REPAIRS. THE ASSESS ING OFFICER DISALLOWED 15 20% OF THE SAID EXPENSES BY STATING THAT EITHER COM PLETE VOUCHERS WERE NOT AVAILABLE OR WHERE AVAILABLE THEY WERE ONLY INT ERNAL VOUCHERS WHICH WERE NOT CAPABLE OF VERIFICATION. 12. BEING AGGRIEVED, ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A) AND SUBMITTED THAT THE ACCOUNTS OF THE ASSESSEE WE RE DULY AUDITED AND NO SPECIFIC DEFECT WAS POINTED OUT BY THE ASSESSING OFFICER IN THE DETAILS FILED. IT WAS FURTHER STATED THAT BY CONSIDERING T HE TURNOVER OF THE ASSESSEE, THE DISALLOWANCE MADE WAS UNJUST AND EXCE SSIVE. LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASS ESSEE OBSERVED THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS ON H IGHER SIDE, HE THEREFORE, CONSIDERING THE VOLUME AND NATURE OF BUS INESS OF THE ASSESSEE, HELD THAT IT WOULD BE FAIR AND REASONABLE TO RESTRI CT THE DISALLOWANCE FROM 1/10 TH OF SUCH EXPENSES. NOW, THE DEPARTMENT IS IN APPEA L. 13. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE P ARTIES, IT IS NOTICED THAT THE ASSESSING OFFICER WHILE MAKING THE IMPUGNE D DISALLOWANCE AT THE RATE OF 20% OF THE EXPENSES INCURRED BY THE ASSESSE E HAS NOT POINTED OUT ANY SPECIFIC INSTANCES WHERE THE EXPENSES WERE NOT INCURRED FOR BUSINESS PURPOSE, THEREFORE, LEARNED CIT(A) WAS JUSTIFIED IN RESTRICTING THE DISALLOWANCE TO 10% TO COVER UP THE LEAKAGE, IF ANY . THEREFORE, WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTA L APPEAL. 16 14 . IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMISS ED. (ORDER PRONOUNCED IN THE COURT ON 27 TH SEPTEMBER, 2013). SD/- SD/- (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 27 TH SEPTEMBER, 2013. VR/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD.CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR, ITAT, JODHPUR.