Samsons Distillers Pvt. ltd., V. Addl.C.I,.T., Bangalore

ITA 300/BANG/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5298 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 19-04-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 07-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G R REDDY I
• Keywords: Commercial expediency
• Section: 14A; 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 300/BANG/2013 ASSESSMENT YEAR: 2007-08 M/S. SAMSONS DISTILLERIES PVT. LTD., NO. 627, ANEKONDA, DAVANGERE. PAN: AACCS 7708L VS. THE ADDITIONAL COMMISSIONER OF INCOME TAX, DAVANGERE RANGE, DAVANGERE. APPELLANT RESPONDENT ITA NO. 552/BANG/2013 ASSESSMENT YEAR: 2007-08 THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 1, DAVANGERE. VS. M/S. SAMSONS DISTILLERIES PVT. LTD., NO. 627, ANEKONDA, DAVANGERE. PAN: AACCS 7708L APPELLANT RESPONDENT ASSESSEE BY : MS. SHEETAL BORKAR, ADVOCATE REVENUE BY : SHRI G.R. REDDY, CIT-DR(I) DATE OF HEARING : 19.04.2017 DATE OF PRONOUNCEMENT : 31.05.2017 ITA NOS. 300 & 552/BANG/2013 PAGE 2 OF 18 O R D E R PER SHRI VIJAY PAL RAO, JUDICIAL MEMBER THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 29.01.2013 OF CIT(A) FOR THE ASSESSMENT YEAR 2007-08. FIRST WE T AKE UP THE APPEAL FILED BY THE ASSESSEE WHEREIN THE LD. AR OF THE ASSESSEE HAS RAISED VARIOUS GROUNDS HOWEVER AT TIME OF HEARING LD. AR OF ASSESS EE SUBMITTED THAT THE SUMMARIZED EFFECTIVE GROUND IS ONLY GROUND NO. 1 (A ) TO (E) WHICH READS AS UNDER: 1. BECAUSE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN LAW AS WELL AS ON FACTS WHILE CONFIRMING / MAKING THE ADDITIONS / DISALLOWANCES MADE BY THE ASSESSING OFF ICER, A) DISALLOWANCE OF JOWAR PURCHASES U/S 37 OF THE IN COME TAX ACT, 1961 AMOUNTING TO RS. 19,59,000/-. B) DISALLOWANCE OF HUSK PURCHASES U/S 37 OF THE INC OME TAX ACT, 1961 AMOUNTING TO RS. 7,77,757/-. C) ADDITIONS OF SUNDRY CREDITORS DISALLOWANCE OF LIABILITY U/S 41(1) OF THE INCOME TAX ACT, 1961 AMOUNTING TO RS. 7,68,453/. D) DISALLOWANCE OF TECHNICAL CONSULTANCY FEES PAID U/S 37(1) OF THE INCOME TAX ACT, 1961 AMOUNTING TO RS. 10,50, 000/-. E) DISALLOWANCE OF INTEREST U/S 14(A) OF THE IT ACT, 1 961 AMOUNTING TO RS. 79,53,780/-. 2. AT THE TIME OF HEARING THE LD. AR OF THE ASSESSEE H AS STATED AT BAR THAT THE ASSESSEE DOES NOT PRESS GROUND NO. 1(A)(B) & (C) AND THE SAME MAY BE DISMISSED AS NOT PRESSED. THE LD. DR H AS NOT OBJECTED IF THE GROUND NO. 1(A)(B) & (C) OF THE ASSESSEES A PPEAL ARE DISMISSED AS NOT PRESSED. ACCORDINGLY THE GROUND N O. 1(A)(B) & (C) OF THE ASSESSEES APPEAL ARE DISMISSED BEING NOT PR ESSED. ITA NOS. 300 & 552/BANG/2013 PAGE 3 OF 18 3. GROUND NO. 1(D) IS REGARDING DISALLOWANCE OF TECHNI CAL CONSULTANCY FEE. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUN D FROM THE PROFIT AND LOSS ACCOUNT THAT SHRI S.S. MALLIKARJUN, S/O SRI SHAMANUR SHIVASHANKARAPPA HAS RECEIVED RS. 42 LAKHS AS PAYMENT TOWARDS PROVIDING TECHNICAL CONSULTANCY TO THE ASSE SSEE COMPANY. THE AO ASKED THE ASSESSEE TO EXPLAIN THE BASIS ON W HICH THIS PAYMENT IS MADE TO SHRI S.S. MALLIKARJUN WHO IS THE SON OF THE PERSON CONTROLLING THIS COMPANY. THE AO OBSERVED T HAT THE ONLY QUALIFICATION OF SHRI S.S. MALLIKARJUN IS THAT HE I S SON OF SRI SHAMANUR SHIVASHANKARAPPA WHO IS CONTROLLING THE AF FAIRS OF THE COMPANY. ACCORDINGLY, THE AO HAS HELD THAT THE ASS ESSEE COMPANY HAS FAILED TO PROVE THE SERVICES RENDERED BY TECHNI CAL CONSULTANT FOR WHICH RS. 42 LAKHS HAS BEEN PAID AND DISALLOWED THE AMOUNT OF RS. 42 LAKHS IN QUESTION. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE CIT(A) AND CONTENTED THAT THE AO DID NOT CONSIDER THE SERVICES RENDERED BY THE TECHNICAL PERSONS IN S PITE OF THE FACT THAT FULL PARTICULARS OF HIS SERVICES WERE EXPLAINE D AT THE TIME OF ASSESSMENT. THE CIT(A) RESTRICTED THE DISALLOWANCE TO 25% OF THE TOTAL PAYMENT AMOUNTING TO RS. 10,50,000/-. ITA NOS. 300 & 552/BANG/2013 PAGE 4 OF 18 4. BEFORE US THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT SHRI S.S. MALLIKARJUN IS THE CHIEF PROMOTER OF DISTILLERY AND UPGRADATION. BECAUSE OF HIS SUPPORT THE EXPANSION AND TECHNICAL UPGRADATION WAS POSSIBLE. ONLY BECAUSE OF HIS KNOWLEDGE AND TECHNI CAL EXPERTISE THE ASSESSEE COULD SET UP A PLANT TO MANUFACTURE TH E SPIRIT OUT OF GRAIN. THE LD. AR HAS REFERRED TO THE TECHNICAL AN D INDUSTRIAL TRAINING UNDERGONE BY SHRI S.S. MALLIKARJUN AS RECO RDED BY THE CIT(A) AND SUBMITTED THAT HIS COMMERCIAL DEGREE AS WELL AS THE TECHNICAL KNOWLEDGE MADE IT POSSIBLE FOR THE ASSESS EE TO SET UP AND MANAGE THE SUGAR FACTORIES, RICE AND DHAL MANUFACTU RING UNIT AS WELL AS DISTILLERIES. THUS THE LD. AR HAS CONTENTED THA T BECAUSE OF HIS TECHNICAL KNOWLEDGE AND SERVICE PROVIDED THE ASSESS EE WAS ABLE TO INCREASE ITS PRODUCTION AND PROFITABILITY SINCE 199 9-2000 TILL THE YEAR UNDER CONSIDERATION. SHE HAS REFERRED TO THE PRODUCTION DETAILS AND PROFITS DURING THE SAID PERIOD AND SUBMITTED TH AT PRODUCTION OF THE ASSESSEE COMPANY WAS INCREASED MANIFOLD IN THIS PERIOD AND CORRESPONDINGLY THE PROFITS OF THE COMPANY ARE ALSO INCREASED. THUS THE LD. AR HAS SUBMITTED THAT WHEN THE ASSESSE E HAS PROVED THE TECHNICAL KNOWLEDGE AND EXPERTISE OF SHRI S.S. MALLIKARJUN THEN NO DISALLOWANCE IS CALLED FOR IN RESPECT OF TECHNIC AL / CONSULTANCY FEE PAID BY THE ASSESSEE. ITA NOS. 300 & 552/BANG/2013 PAGE 5 OF 18 5. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON THE O RDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE PAYMENT IS MADE TO THE RELATED PERSON AND ASSESSEE HAS FAILED TO PRODUCE A NY EVIDENCE TO SHOW THAT ANY TECHNICAL SERVICE WAS ACTUALLY RENDER ED BY SRI S.S. MALLIKARJUN TO THE ASSESSEE. THEREFORE IN THE ABSE NCE OF ANY SUPPORTING MATERIAL OF ACTUAL SERVICE RENDERED TO T HE ASSESSEE THE PAYMENT IS NOT ALLOWABLE U/S. 37(1) BEING THE EXPEN DITURE NOT LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSIN ESS OF THE ASSESSEE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS CLAIMED THAT SHRI S.S. MALLIKARJUN IS THE CHIEF PROMOTER OF DISTILLERIES A ND BECAUSE OF HIS DYNAMIC SUPPORT THE ASSESSEE COULD EXPAND ITS PRODU CTION AND TECHNICAL UPGRADATION. THE ASSESSEE EXPLAINED THE COMPETENCE OF SHRI S.S. MALLIKARJUN IN TECHNICAL AND INDUSTRIAL F IELD AND PARTICULARLY IN DISTILLERIES, SUGAR, RICE INDUSTRY MANAGEMENT IN LATEST TECHNOLOGY. HAVING ACCEPTED THIS CONTENTION OF THE ASSESSEE THE QUESTION REMAINS WHETHER SHRI S.S. MALLIKARJUN HAS RENDERED ANY SERVICE APART FROM HIS CAPACITY OF MANAGING DIRECTO R OF THE ASSESSEE COMPANY. THE ASSESSEE HAS PRODUCED CERTAI N CERTIFICATES ITA NOS. 300 & 552/BANG/2013 PAGE 6 OF 18 IN THIS REGARD SHOWING HIS KNOWLEDGE AND UNDERGOING TRAINING AND TECHNICAL QUALIFICATIONS. HOWEVER, NO DOCUMENTS OR MATERIAL HAS BEEN PRODUCED BY THE ASSESSEE TO SHOW WHICH SERVICE HAS BEEN RENDERED BY SHRI S.S. MALLIKARJUN TO THE ASSESSEE. THE ASSESSEE BEING A COMPANY WAS REQUIRED TO PRODUCE ATLEAST SOM E DECISION TAKEN BY THE BOARD OF DIRECTORS REGARDING THE TECHN ICAL CONSULTANCY SERVICES TO BE RENDERED BY SHRI S.S. MALLIKARJUN AG AINST WHICH THE FEE WAS TO BE PAID OVER AND ABOVE THE SALARY AND OT HER REMUNERATION BEING A DIRECTOR / MANAGING DIRECTOR OF THE ASSESSE E COMPANY. IN THE ABSENCE OF ANY MATERIAL EVIDENCE REGARDING THE SERVICE ACTUALLY RENDERED BY SHRI S.S. MALLIKARJUN THE MERE COMPETEN CE OR QUALIFICATION CANNOT BE A CRITERIA FOR ALLOWING THE PAYMENT MADE BY THE ASSESSEE ON ACCOUNT OF TECHNICAL CONSULTANCY FE E. ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE WE DO NO T FIND ANY REASON TO INTERFERE WITH THE IMPUGNED ORDER OF THE CIT(A) QUA THIS ISSUE. 7. GROUND NO. 1(E) IS REGARDING DISALLOWANCE OF INTERE ST U/S. 14A. THE AO FOUND THAT THE ASSESSEE HAS INVESTED RS. 7,52,23 ,804/- IN THE SHARES OF INDIAN CANE POWER LTD., AND RS. 6,71,76,3 68/- IN UNIVERSAL BOTTLES PVT. LTD., BEGUR. THUS THE AO NO TED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE MADE TOTA L INVESTMENT IN ITA NOS. 300 & 552/BANG/2013 PAGE 7 OF 18 SHARES OF TWO COMPANIES OF 13.24 CRORES HOWEVER THI S INVESTMENT WAS SHOWN IN THE BALANCE SHEET UNDER THE HEAD LOANS & ADVANCES. THE AO FURTHER NOTED THAT THE SOURCE OF INVESTMENT IS THE MONEY AVAILABLE IN THE OVERDRAFT ACCOUNT FROM INDIAN BANK . THE OVERDRAFT LIMIT TO THE COMPANY GIVEN BY THIS BANK IS RS. 7.5 CRORES. THE ASSESSEE HAS ALSO TAKEN LOAN OF RS. 53,53,730/- FRO M THE DIRECTORS AND SHARE HOLDERS. THE ASSESSEE HAS DEBITED TO PRO FIT AND LOSS ACCOUNT RS. 79,53,780/- UNDER HEAD FINANCIAL CHARG ES. THE AO ACCORDINGLY DISALLOWED THE INTEREST OF RS. 79,53,78 0/- DEBITED UNDER THE HEAD FINANCIAL CHARGES BY INVOKING THE PROVIS IONS OF SECTION 14A. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE CIT(A) AND CONTENTED THAT THE INVESTMENT IN QUESTIO N HAVE BEEN MADE EXCLUSIVELY AND ONLY FOR THE PURPOSE OF BUSINE SS AND NOT FOR THE PURPOSE OF EARNING DIVIDEND. AN INVESTMENT HAS BEEN MADE IN THE COMPANIES WHICH ARE IN THE SAME BUSINESS OF SUG ARCANE PROCESSING UNIT WHERE MOLASSES IS AVAILABLE. IT WA S FURTHER CONTENTED THAT THE INVESTMENT WAS MADE IN THE SHARE S OF INDIAN CANE POWER LTD. TO GET THE BENEFIT OF SUPPLY OF MOL ASSES WHICH IS RAW MATERIAL FOR THE ASSESSEE COMPANY. THE SAID CO MPANY WAS SUBSEQUENTLY MERGED WITH THE ASSESSEE COMPANY AND T HEREFORE THIS WAS THE REASON FOR MAKING THE INVESTMENT. SIMILAR CONTENTION WAS ITA NOS. 300 & 552/BANG/2013 PAGE 8 OF 18 RAISED IN RESPECT OF UNIVERSAL BOTTLES PVT. LTD. T HE CIT(A) WAS NOT IMPRESSED WITH THE EXPLANATION AND CONTENTION OF TH E ASSESSEE AND UPHELD THE DISALLOWANCE MADE BY THE AO. 8. BEFORE US THE LD. AR OF THE ASSESSEE HAS REITERATED ITS CONTENTION AS RAISED BEFORE THE AUTHORITIES BELOW AND SUBMITTED T HAT THE INVESTMENT WAS MADE FOR COMMERCIAL EXPEDIENCY AND N OT FOR EARNING THE DIVIDEND INCOME. SHE HAS FURTHER SUBMI TTED THAT INCREASE IN THE OVERDRAFT / CASH CREDIT LIMIT DURIN G THE YEAR IS ONLY RS. 2,79,18,345/-. THEREFORE THE DISALLOWANCE IF A NY ON ACCOUNT OF INTEREST U/S. 14A CAN BE ONLY IN RESPECT OF THE INC REASE IN THE OVERDRAFT / CASH CREDIT LIMIT DURING THE YEAR. SHE HAS FURTHER SUBMITTED THAT THERE IS A CORRESPONDING INCREASE IN THE CURRENT ASSETS FROM 18.64 CRORES ON 31.03.2006 TO RS. 33.07 CRORES AS ON 31.03.2007. THUS THERE IS AN INCREASE OF RS. 14.43 CRORES IN THE CURRENT ASSETS. THE AO HAS CONSIDERED THE ENTIRE O VERDRAFT FACILITY AS UTILIZED FOR INVESTMENT IN SHARES WHEREAS THE SA ME WAS UTILIZED FOR IMPROVEMENT OF CURRENT ASSETS ONLY. THUS THE L D. AR HAS SUBMITTED THAT THE BORROWED FUND WAS NOT UTILIZED F OR INVESTMENT PURPOSE. ON THE OTHER HAND, THE LD. DR HAS SUBMITT ED THAT THE AO HAS GIVEN A FINDING THAT THE OVERDRAFT FACILITY WAS USED FOR THE ITA NOS. 300 & 552/BANG/2013 PAGE 9 OF 18 PURPOSE OF INVESTMENT. THEREFORE, THERE IS A DIREC T NEXUS BETWEEN THE BORROWED FUND AND THE INVESTMENT. HE HAS RELIE D UPON THE ORDERS OF THE AUTHORITIES BELOW. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. AS REGARDS THE CONTENTION OF T HE ASSESSEE THAT THE INVESTMENT WAS MADE FOR THE PURPOSE OF THE BUSI NESS OF THE ASSESSEE, WE ARE OF THE VIEW THAT THIS CONTENTION I S RELEVANT IN RESPECT OF THE DISALLOWANCE MADE U/S. 37(1) AND NOT FOR THE PURPOSE OF DISALLOWANCE U/S. 14A. SO LONG THE ASSESSEE IS SHOWING THE INVESTMENT IN THE SHARES THE SAID TRANSACTION CLEAR LY FALLS IN THE AMBIT OF SECTION 14A AS A DIVIDEND INCOME FROM THE INVESTMENT IS EXEMPT U/S. 10(38) OF THE IT ACT. FURTHER THE ASSE SSEE HAS RAISED THE CONTENTION BY POINTING OUT THAT THE INCREASE IN THE OVERDRAFT LIMIT DURING THE YEAR IS ONLY RS. 2,79,00,000/- AND THERE IS MUCH MORE CORRESPONDING INCREASE IN THE CURRENT ASSETS. HOWEVER WE NOTE THAT NEITHER THE AO NOR THE CIT(A) HAS ANALYSE D THESE FACTS OR GIVEN ANY FINDING ON THIS ISSUE. THIS ASPECT IS RE LEVANT ONLY WHEN THERE IS NO DIRECT NEXUS BETWEEN THE BORROWED FUND AND INVESTMENT. IN CASE THERE IS A DIRECT NEXUS BETWEEN THE BORROWE D FUND AND INVESTMENT AND IF IT IS FOUND THAT THE INVESTMENT H AS BEEN DIRECTLY ITA NOS. 300 & 552/BANG/2013 PAGE 10 OF 18 MADE FROM THE OVERDRAFT ACCOUNT THEN THE INCREASE I N THE CURRENT ASSETS IS NOT RELEVANT. ACCORDINGLY, WE SET ASIDE THIS ISSUE TO THE RECORD OF THE AO FOR PROPER VERIFICATION AND ADJUDI CATION AFTER CONSIDERING ALL THE RELEVANT FACTS AS POINTED OUT B Y THE ASSESSEE. REVENUES APPEAL IN ITA NO. 552/BANG/2013:- 10. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS. 1.THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), HUBLI, IS OPPOSED TO LAW AND NOT ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), HUBLI, IS NOT A SPEAKING ORDER. 3. THE ORDER OF THE CIT(A) IS PERVERSE WITH REGARD TO REWORKING OF GRAIN PRICE BY ADOPTING AT THE AVERAGE RATE AT RS. 950/- PER QUINTAL (INCLUDING THE EXPENSES FOR CONVERSION TO FLOUR) AND ALLOWING ASSESSEES APPEAL PARTLY ON THIS ISSUE. 4. THE COMMISSIONER OF INCOME TAX (APPEALS), HUBLI , HAS NOT GIVEN ANY FINDING ON THE CORRECTNESS OR OTHERWI SE OF THE DISALLOWANCES MADE BASED ON DETAILED VERIFICATION M ADE BY THE ASSESSING OFFICER WITH REGARD TO THE ISSUES OF PAYMENT MADE TO HUSK SUPPLIERS, SUNDRY CREDITORS AD DED U/S 41(1) OF THE ACT & PAYMENT MADE TO TECHNICAL CONSULTANCY. 5. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED U PON AT THE TIME OF HEARING. 6. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND ANY OF THE GROUNDS. 11. GROUND NOS. 1 AND 2 ARE GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. ITA NOS. 300 & 552/BANG/2013 PAGE 11 OF 18 12. GROUND NO. 3 IS REGARDING REWORKING OF GRAIN PRICE BY ADOPTING THE AVERAGE RATE OF RS. 950 PER QUINTAL. THE AO HAS ST ATED IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAS INSTALLED A GRAIN PLANT DURING THE YEAR UNDER CONSIDERATION FOR PRODUCTION OF SPIR IT FROM GRAIN AND CEREALS. THE AO NOTED FROM THE LEDGER ACCOUNT THAT THE ASSESSEE HAS PURCHASED JOWAR FLOUR OF RS. 7,64,01,000/- AT T HE RATE OF RS. 975/- PER QUINTAL DURING THE YEAR. THE ASSESS EE PRODUCED COPY OF BILLS ISSUED BY M/S. KALLESHWARA BIO-PRODUCTS, D AVANAGERE. THE AO CONCLUDED THAT THE ASSESSEE PAID EXCESS AMOUNT O F RS. 2,93,85,000/- TO M/S. KALLESHWARA BIO-PRODUCTS, DAVANAGERE FOR PURCHASE OF JOWAR FLOUR. THE AO TOOK THE EXCES S RATE OF RS. 375/- PER QUINTAL TO WORK OUT THE DISALLOWANCE. ACCORDINGLY, THE AO HAS DISALLOWED THIS AMOUNT OF RS. 2,93,85,00 0/- ON THE GROUND THAT THIS WAS EXCESS PRICE PAID TOWARDS PURC HASE OF JOWAR FLOUR. THE ASSESSEE CHALLENGED THE ACTION OF THE A O BEFORE THE CIT(A) AND CONTENTED THAT THE AO ADOPTED RATE OF RS . 600/- AS COLLECTED FROM AGRICULTURAL PRODUCE MARKETING COMMI TTEE (APMC), DAVANAGERE AND APMC, HAVERI FOR THIRD GRADE JOWAR INSTEAD OF CONSIDERING THE RATE FOR MODERATE GOOD J OWAR. THE CIT(A) AFTER CONSIDERING THE RATE OF APMC, BAGALKOT , APMC, ITA NOS. 300 & 552/BANG/2013 PAGE 12 OF 18 MAHALINGAPUR AND APMC, DAVANAGERE COME TO THE CONCL USION THAT THE AVERAGE PRICE PER QUINTAL COMES AROUND RS. 950/ - AND ACCORDINGLY BY APPLYING THE SAID RATE OF RS. 950/- PER QUINTAL RESTRICTED THE DISALLOWANCE TO RS. 19,59,000/- AS A GAINST THE DISALLOWANCE MADE BY THE AO OF RS. 2,93,85,000/-. 13. BEFORE US THE LD. DR HAS SUBMITTED THAT THE AO HAS APPLIED THE APMC RATE OF DAVANAGERE WHICH IS THE PLACE M/S. KAL LESHWARA BIO- PRODUCTS BELONGS TO. WHEREAS THE CIT(A) HAS CONSID ERED THE RATES OF THREE DIFFERENT PLACES WHICH ARE NOT RELEVANT FO R ESTIMATING THE AVERAGE RATE. HE HAS FURTHER CONTENTED THAT THE CI T(A) HAS APPLIED THE HIGHEST RATE PREVAILING AT THREE PLACES INSTEAD OF THE AVERAGE RATE PREVAILING AT THESE THREE APMCS. ON THE OTHER HAND , THE LD. AR HAS SUBMITTED THAT M/S. KALLESHWARA BIO-PRODUCTS PURCHA SES THE GRAIN FROM BAGALKOT, BIJAPUR AND OTHER PLACES DEPENDING U PON THE AVAILABILITY OF THE GRAIN AND THEREFORE THE RATE PR EVAILING AT APMC OF BAGALKOT, BIJAPUR AND OTHER PLACES ARE RELEVANT. HE HAS THUS CONTENTED THAT THE AVERAGE PRICE PREVAILING IN THE MARKET OF MODERATE GOOD JOWAR IS MUCH MORE THAN THE RATE ADOP TED BY THE CIT(A) AND THEREFORE NO DISALLOWANCE IS CALLED FOR. ITA NOS. 300 & 552/BANG/2013 PAGE 13 OF 18 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE A O WHILE MAKING THE DISALLOWANCE HAS ADOPTED THE RATE OF JOWAR AS P REVAILING AT APMC DAVANAGERE AT RS. 600/- PER QUINTAL. THE CIT( A) HAS TAKEN INTO CONSIDERATION THE RATES PREVAILING AT THREE AP MCS NAMELY BAGALKOT, MAHALINGAPUR AND DAVANAGERE. HOWEVER WE FIND THAT THE AVERAGE RATE COMPUTED BY THE CIT(A) IS THE MAXI MUM RATES PREVAILING AT THESE THREE APMCS. THE ASSESSEE CLAI MED BEFORE THE CIT(A) THAT THE AO SHOULD HAVE CONSIDERED THE RATES FOR MODERATE GOOD JOWAR. THEREFORE THE ASSESSEE ITSELF HAS NOT CLAIMED THAT IT HAS PURCHASED THE BEST JOWAR AVAILABLE IN THE MARKET. ACCORDINGLY, HAVING CONSIDERED THE FACTS AND CIRCUMSTANCES OF TH E CASE WE ARE OF THE VIEW THAT THE MEAN RATE WHICH IS MINIMUM + MAXI MUM / 2 OF ALL THREE APMCS TO BE CONSIDERED FOR WORKING OUT THE AV ERAGE MARKET PRICE OF JOWAR DURING THE YEAR UNDER CONSIDERATION. THE CIT(A) HAS APPLIED THE RATES AS UNDER. SL.NO. AREA FINANCIAL YEAR MINIMUM (RS.) MAXIMUM (RS.) 1 APMC, BAGALKOT (2006-07) 600.00 1100.00 2 APMC, MAHALINGAPUR (2006-07) 750.00 1100.00 3 APMC, DAVANGERE (2006-07) 400.00 850.00 ACCORDINGLY, THE AVERAGE RATE OUGHT BE COMPUTED BY CONSIDERING THE MINIMUM AND MAXIMUM OF EACH OF THE APMCS AS UND ER. 1. APMC BAGALKOT RS. 850/- PER QUINTAL 2. APMC MAHALINGAPUR RS. 925/- PER QUINTAL ITA NOS. 300 & 552/BANG/2013 PAGE 14 OF 18 3. APMC, DAVANAGERE RS. 625/- PER QUINTAL THE AO IS DIRECTED TO APPLY THE RATE OF RS. 800/- P ER QUINTAL. 15. GROUND NO. 4 IS REGARDING DISALLOWANCE MADE ON ACCO UNT OF HUSK PURCHASE. THE AO FOUND THAT THE ASSESSEE HAS DEBIT ED RS. 1,21,25,517/- IN THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF HUSK PURCHASE AS AGAINST RS. 46,25,517/- SHOWN IN THE LA ST YEAR UNDER THE HEAD POWER AND FUEL. FROM THE LEDGER ACCOUNTS OF T HE PARTIES THE AO NOTED THAT THE ASSESSEE HAS PURCHASED HUSK AMOUN TING TO RS. 70,16,985/- FROM SHRI KALEEMULLA AND RS. 7,60,2 59/- FROM SHRI DAYAMAPPA. FROM THE PARTY LEDGER ACCOUNT THE AO FOUND THAT THE ASSESSEE HAS ALSO PURCHASED HUSK FROM MR. MUSHT AQ AHMED OF RS. 8,84,000/- AND THE TOTAL PURCHASE FROM SHRI DAY AMAPPA IS RS. 26,70,829/- AND FROM SHRI KALEEMULLA IS RS. 30, 83,977/- WHEREAS THE LEDGER ACCOUNT OF POWER AND FUEL EXPEND ITURE SHOWS ONLY TWO HUSK SUPPLIERS I.E. SHRI KALEEMULLA AND SH RI DAYAMAPPA FROM DAVANAGERE. BY CONSIDERING ALL THESE FACTS AN D PAYMENT MADE BY THE ASSESSEE TO KARNATAKA ELECTRICITY BOARD FOR PURCHASE OF POWER THE AO DOUBTED THE GENUINENESS OF THE QUANTIT Y OF PURCHASE OF HUSK FROM THE PARTIES CLAIMED BY THE ASSESSEE. ACCORDINGLY, THE AO ALLOWED THE PURCHASE OF HUSK TO THE EXTENT OF RS . 3,10,000/- AND DISALLOWED THE BALANCE AMOUNT OF RS. 74,67,244/-. ITA NOS. 300 & 552/BANG/2013 PAGE 15 OF 18 16. BEFORE THE CIT(A) THE ASSESSEE FURNISHED THE DETAIL S OF STEAM GENERATED DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND ALSO GIVEN THE DETAILS OF T HE REQUIRED HUSK TO GENERATE THE SAID AMOUNT OF STEAM. AFTER CONSID ERING THE RELEVANT DETAILS THE CIT(A) RESTRICTED THE DISALLOW ANCE TO 10% OF THE TOTAL PURCHASES OF RS. 77,77,579/- AMOUNTING TO RS. 7,77,757/-. 17. BEFORE US THE LD. DR HAS SUBMITTED THAT THERE IS A STEEP RISE IN THE FUEL CONSUMPTION DURING THE YEAR UNDER CONSIDERATIO N IN COMPARISON TO THE EARLIER YEARS. HE HAS FURTHER SU BMITTED THAT THERE IS NO EXTRA GENERATION OF POWER DURING THE YEAR UND ER CONSIDERATION IN COMPARISON TO THE EARLIER YEAR AND THEREFORE THE ASSESSING OFFICER HAS RIGHTLY POINTED OUT THIS FACT THAT THE ASSESSEE HAS SHOWN EXCESS CONSUMPTION OF HUSK DURING THE YEAR IN COMPA RISON TO THE EARLIER YEAR WHEN THERE IS NO INCREASE OF GENERATIO N OF POWER. HE HAS RELIED UPON THE ORDERS OF THE ASSESSING OFFICER . ON THE OTHER HAND, THE LD. AR HAS SUBMITTED THAT THE ASSESSEE FU RNISHED ALL THE DETAILS OF STEAM GENERATED DURING THE YEAR. THE DE TAILS ARE FURNISHED MONTHWISE GENERATION OF STEAM AND THEREFO RE THE FUEL REQUIRED FOR GENERATION OF THIS TOTAL STEAM GENERAT ED DURING THE YEAR HAS NOT BEEN DISPUTED BY THE DEPARTMENT. HE HAS SU PPORTED THE ORDERS OF THE CIT(A). ITA NOS. 300 & 552/BANG/2013 PAGE 16 OF 18 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE AO HAS MADE A DISALLOWANCE ON ACCOUNT OF EXCESS PURCHASE OF HUSK ON THE GROUND THAT DURING T HE EARLIER YEAR THE ASSESSEE HAS SHOWN THE PURCHASE OF RS. 46,25,20 0/- WHEREAS IN THIS YEAR THE ASSESSEE HAS DEBITED RS. 1,21,25,527/ -. THEREFORE THE AO FOUND THAT THERE IS AN EXCESS OF PURCHASE RS. 74 ,67,244/- DURING THE YEAR UNDER CONSIDERATION. WE FIND THAT IN RESP ECT OF EXAMINING THE ACTUAL PURCHASES AND CONSUMPTION DURING THE YEA R UNDER CONSIDERATION THE AO HAS MADE THE DISALLOWANCE ONLY BY COMPARING THE EXPENDITURE ON THIS ACCOUNT IN THE EARLIER YEAR . BEFORE THE CIT(A) THE ASSESSEE FURNISHED THE MONTHWISE DETAILS OF STEAM GENERATED AS UNDER: MONTH STEAM GENERATED (MTS) APRIL,06 3061.000 MAY,06 9932.000 JUNE,06 8401.000 JULY,06 8138.000 AUG,06 9732.000 SEPT,06 6359.000 OCT,06 10387.000 NOV,06 9656.000 DEC,06 10166.000 JAN,07 8149.000 FEB,07 8919.000 MAR,07 10394.000 TOTAL 103294.000 THESE DETAILS HAVE NOT BEEN DISPUTED BY THE REVENUE BEFORE US. THEREFORE THE TOTAL HUSK REQUIRED FOR GENERATION OF THIS QUANTITY OF ITA NOS. 300 & 552/BANG/2013 PAGE 17 OF 18 STEAM WAS COMPUTED AT 25,379 MTS AGAINST WHICH THE ASSESSEE HAS SHOWN THE PURCHASE OF 10,312.75 MTS OF HUSK DURING THE YEAR AND THE REMAINING FUEL WAS USED AS BIOGAS. THE CIT(A) AFTER CONSIDERING ALL THESE FACTS HAS RESTRICTED THE DISA LLOWANCE TO 10% OF THE TOTAL DISALLOWANCE MADE BY THE AO. IN VIEW OF THE ABOVE FACTS WE DO NOT FIND ANY REASON TO INTERFERE WITH THE IMP UGNED ORDER OF THE CIT(A) QUA THIS ISSUE WHEN THE REVENUE HAS NOT BROUGHT BEFORE US TO COUNTER THE FACTS RECORDED BY THE CIT(A). 19. THE AO HAS ALSO DISALLOWED THE AMOUNT OF RS. 67,43, 296/- ON ACCOUNT OF SUNDRY CREDITORS BY INVOKING THE PROVISI ONS OF SECTION 41(1). THE AO HELD THAT THE AMOUNTS IN THE BOOKS O F ACCOUNTS ARE COMING FROM EARLIER YEARS AND THERE IS NO TRANSACTI ON DURING THE YEAR. THE CIT(A) HAS RESTRICTED THIS DISALLOWANCE AS UNDER. I HAVE GONE THROUGH THE FACTS OF THE CASE, CONTENTS OF THE ASSESSMENT ORDER AND WRITTEN SUBMISSION OF THE ASSE SSEE. OUT OF THE OUTSTANDING CREDITORS RS. 67,43,296/- TH E ASSESSEE FILED THE DETAILS FOR ALL CASES, EXCEPT TH REE CASES ([I] M/S. MALVI MANUFACTURED POWER ASSOCIATION RS. 12,626/- [II] M/S. NAGENHALLI INDUSTRIES, HARIHAR RS. 5,97,8 86/- [III] M/S. BEM SEALS RS. 1,57,941/- TOTAL AMOUNT RS. 7,68,453/ - HENCE OUT OF THE TOTAL DISALLOWANCE OF RS. 67,43,29 6 AND AMOUNT OF RS. 7,68,453 WAS UPHELD AND REMAINING AMO UNT IS ALLOWED. AS A RESULT THIS GROUND OF APPEAL IS PART LY ALLOWED. 20. THUS IT IS CLEAR THAT THE ASSESSEE FILED THE DETAIL S OF ALL THE CASES EXCEPT THE THREE CASES FOR WHICH THE CIT(A) HAS CON FIRMED ITA NOS. 300 & 552/BANG/2013 PAGE 18 OF 18 DISALLOWANCE. THE DETAILS FILED BY THE ASSESSEE HA VE NOT BEEN DISPUTED BY THE REVENUE AND THEREFORE WE DO NOT FIN D ANY ERROR OR ILLEGALITY IN THE ORDER OF THE CIT(A) QUA THIS ISSU E.0 21. IN THE RESULT THE APPEAL OF THE ASSESSEE AS WELL AS REVENUE ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF MAY, 2017 SD/- SD/- (A.K. GARODIA) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 31 ST MAY, 2017. / MS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.