M/s. H. Hero Agro Export Pvt. Ltd, Distt.Ferozepur V. The Income-tax Officer, Ferozepur

ITA 324/ASR/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85942 (ITAT-AMRITSAR)
• Duration Of Justice: 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 02-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 15-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SSH ASHWANI KUMAR; JAGJIWAN LALCAS
• Keywords: Depreciation; Principle of natural justice; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.324(ASR)/2014 ASSESSMENT YEAR:2009-10 PAN :AAACH5302H M/S. H.HERO AGRO EXPORT PVT. LTD. VS. THE INCOME TA X OFFICER, VPO MAKHU, DISTT. FEROZEPUR. WARD-III(2), FEROZEP UR. (APPELLANT) (RESPONDENT) APPELLANT BY:S/SH. ASHWANI KUMAR & JAGJIWAN LAL,CAS RESPONDENT BY:SH.TARSEM LAL, DR DATE OF HEARING:02/02/2015 DATE OF PRONOUNCEMENT: 17/03/2015 ORDER PER B.P.JAIN,AM: THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER OF THE CIT(A), BATHINDA, DATED 05.03.2014 FOR THE ASSESSMENT YEAR 2009-10. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT ORDER PASSED U/S 250(6) OF THE INCOME TAX ACT, 1961 BY THE LD. CIT(A), BATHINDA IS AGAINST LAW AND FACTS O N THE FILE IN AS MUCH HE FAILED TO ADJUDICATE ON THE ISSUE OF DIR ECTIONS GIVEN BY THE LD. JCIT U/S 144A, WHICH WERE PREJUDICIAL TO THE INTEREST OF THE APPELLANT, WITHOUT AFFORDING ANY OPPORTUNITY OF HEARING. 2. THAT THE LD. CIT(A) WAS NOT JUSTIFIED TO UPHOLD DISALLOWANCE OF ELECTRICITY EXPENSES AMOUNTING TO RS.10,87,987/- BY RESORT TO PROVISIONS OF SECTION 40A(2)(B). ITA NO.324(ASR)2014 2 3. THAT THE LD. CIT(A) WAS NOT JUSTIFIED TO UPHOLD DISALLOWANCE OF RS.1,35,398/- IN RESPECT OF BOILER EXPENSES BY RESO RT TO PROVISIONS OF SECTION 40A(IA). 4. THAT THE LD. CIT(A) WAS NOT JUSTIFIED TO UPHOLD DISALLOWANCE OF RS.23,333/- IN RESPECT OF DEPRECIATION, RUNNING EXP ENSES AND INSURANCE OF MOTOR CYCLE. 5. THAT THE LD. CIT(A) WAS NOT JUSTIFIED TO UPHOLD DISALLOWANCE OF RS.25,000/- OUT OF VARIOUS EXPENSES SUCH AS BARDANA REPAIR, STATIONERY EXPENSES AND MISCELLANEOUS EXPENSES ON E STIMATED BASIS IGNORING THE FACT THAT THE EXPENDITURE WAS FU LLY VOUCHED. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE-COMPANY IS A RICE MILLER AND ASSESSEE HAS DECLARED ADDITION OF MOTOR CYCLE IN THE FIXED ASSETS AMOUNTING TO RS.82,980/-. IT WAS OBSERVED BY THE AO THAT THE SALE CERTIFICATE AND THE REGISTRATION CERTIFICATE ARE IN THE NAME OF A THIRD PERSON, WHO IS STATED TO BE AN EMPLOYEE OF THE ASSESSEE-COM PANY. THE ASSESSEE SUBMITTED THE EXPLANATION THAT THE BILL OF THE MOTO R CYCLE AND INSURANCE COVER ARE IN THE NAME OF THE ASSESSEE-COMPANY AND T HE FUNDS UTILIZED FOR PURCHASE OF THE MOTOR CYCLE ARE OF THE ASSESSEE-COM PANY AND MOTOR CYCLE IS FULLY USED FOR THE PURPOSE OF BUSINESS OF THE ASSES SEE AND THEREFORE, THE ASSESSEE HAS FULFILLED THE CONDITIONS FOR CLAIM OF DEPRECIATION. IT WAS DUE TO CLERICAL MISTAKE OF THE REGISTRATION AGENT THAT RE GISTRATION WAS MADE IN THE NAME OF THE PERSON I.E., HARPREET SINGH, WHO WAS SENT TO PURCHASE MOTOR CYCLE. THE ASSESSEE RELIED UPON DECISION OF HONBLE ALLAHABAD HIGH COURT ITA NO.324(ASR)2014 3 IN THE CASE OF CIT VS. VARANASI AUTO SALES (P) LTD. 238 CTR 107. WHERE A TRUCK WAS PURCHASED OUT OF FUNDS OF THE COMPANY AND WAS USED FOR THE PURPOSE OF THE BUSINESS OF THE COMPANY AND THE TRUC K WAS PURCHASED IN THE NAME OF THE DIRECTOR OF THE COMPANY WAS ENTITLED FO R DEPRECIATION. THE AO DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE AND ACCORDINGLY DISALLOWED THE TOTAL EXPENDITURE OF RS.82980/- AND ADDED TO THE IN COME OF THE ASSESSEE. 3. THE ASSESSEE HAS INCURRED RS.1,428/- ON THE INSU RANCE OF THE ABOVE SAID MOTOR CYCLE AND MOTOR CYCLE EXPENSES TO THE TU NE OF RS.9,358/- AND DEPRECIATION ON THE SAID WAS RS.12,447/- AND ACCORD INGLY THESE EXPENSES TOTALING RS.23,233/- WERE DISALLOWED AND ADDED TO T HE INCOME OF THE ASSESSEE. 4. BEFORE THE LD. CIT(A), THE ASSESSEE MADE SUBMISS IONS AND SUBMITTED THE DOCUMENTS WITH REGARD TO HIS CLAIM WHICH WAS SE NT TO THE AO FOR REPORT. THE AO SUBMITTED THE REPORT THAT THE ASSESSEE DID N OT PRODUCE ANY EVIDENCE DURING THE ASSESSMENT PROCEEDINGS AND NO PRUDENT PE RSON WILL ALLOW PAYMENT FOR AN ASSET AND REGISTRATION IN THE NAME O F SOMEBODY ELSE AND THEREFORE, THE AO HAS CORRECTLY MADE THE ADDITION. THE ASSESSEE IN THE COUNTER COMMENTS SUBMITTED THAT THE ASSESSEE HAS NE VER CLAIMED THE COST OF MOTOR CYCLE OF RS.82,980/- AS EXPENDITURE AND THE C OPY OF THE PROFIT & LOSS ITA NO.324(ASR)2014 4 ACCOUNT WAS ENCLOSED WITH EARLIER SUBMISSIONS AND T HEREFORE, SUBMITTED THAT THE AO WAS NOT JUSTIFIED TO MAKE THE ADDITION. 4.1. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE, THE REPORT OF THE AO AND COUNTER COMMENTS OF THE ASSESS EE OBSERVED THAT THE ASSESSEE NEVER CLAIMED THE ADDITION OF RS.82,980/- AS REVENUE EXPENDITURE AND THEREFORE, DIRECTED THE AO TO DELETE THE SAID ADDITION OF RS.82,980/-. BUT AT THE SAME TIME, CONFIRMED THE ADDITION OF RS. 23,233/- WITH REGARD TO THE MOTOR CYCLE EXPENSES ON ACCOUNT OF INSURANCE, M OTOR CYCLE RUNNING EXPENSES AND DEPRECIATION AFTER OBTAINING THE REMAN D REPORT AND COUNTER COMMENTS OF THE AO, SINCE THE ASSESSEE HAD FAILED T O ESTABLISH THE OWNERSHIP OF THE VEHICLE AND THE ASSESSEE WAS NOT ENTITLED TO CLAIM EXPENSES FOR RUNNING THE SAME AS THE ASSESSEE HAS NOT PROVED THA T THE VEHICLE WAS USED FOR THE BUSINESS OF THE ASSESSEE-COMPANY. 5. THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE SUBMISSIONS MADE BEFORE THE LD. CIT(A). 6. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE O RDER OF THE LD. CIT(A). 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE H AD PURCHASED THE MOTOR CYCLE THOUGH IN THE NAME OF AN EMPLOYEE OUT OF FUND S OF THE ASSESSEE- ITA NO.324(ASR)2014 5 COMPANY. THERE IS NOTHING ON RECORD PLACED BY THE A SSESSEE BEFORE THE AO OR LD. CIT(A) OR EVEN BEFORE US THAT THE MOTOR CYC LE SO PURCHASED HAS BEEN WHOLLY AND EXCLUSIVELY USED FOR THE PURPOSE OF BUSI NESS. BUT AT THE SAME TIME, THE USE OF VEHICLE FOR THE PURPOSE BUSINESS C ANNOT BE RULED OUT AS WELL AS PERSONAL ELEMENT CAN ALSO NOT BE RULED OUT. IN T HE FACTS AND CIRCUMSTANCES AND IN THE INTEREST OF JUSTICE, 75% OF THE EXPENSES I.E., MOTOR CYCLE RUNNING, INSURANCE AND DEPRECIATION ARE DIRECTED TO BE DELET ED AS USED FOR BUSINESS PURPOSES AND 25% ARE DIRECTED TO BE TREATED AS PER SONAL ELEMENT. ACCORDINGLY, THE AO IS DIRECTED TO SUSTAIN A DISALL OWANCE @ 25% I.E., 25% OF RS.23,233/- AND ACCORDINGLY THE ORDERS OF BOTH T HE AUTHORITIES ARE MODIFIED. THUS, GROUND NO.4 OF THE ASSESSEE IS PAR TLY ALLOWED. 8. AS REGARDS GROUND NO.2, THE BRIEF FACTS OF THE C ASE AS PER AOS ORDER IN PARA 3 TO 3.5 AT PAGES 3 TO 5 ARE REPRODUCED FO R THE SAKE OF CONVENIENCE AS UNDER: FROM THE PERUSAL OF THE PARTICULARS OF THE PAYMENT S MADE TO THE PERSONS SPECIFIED U/S 40A(2)(B), IT HAS BEEN NOTICED THAT THE ASSESSE E HAS MADE PAYMENT OF RS.22,05,527/- TO THE SISTER CONCERN M/S. H. HERO A GRO INDUSTRIES PVT. LTD. NATURE OF PAYMENT HAS BEEN MENTIONED AS ELECTRICITY CHARGES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASS ESSEE WAS ASKED TO JUSTIFY THE REASONABLENESS OF THE PAYMENT MADE TO THE SISTER CO NCERN OF RS.22,05,527/-. ASSESSEE HAS STATED THAT THE ELECTRICITY EXPENSES A RE PAID AT COST PRICE. IN ITS LETTER DATED 26.12.2011, THE ASSESSEE HAS STATED AS UNDER: IT WAS MUTUALLY AGREED BETWEEN BOTH THE COMPANY TH AT ELECTRIC LOAD AND BOILER SHALL BE JOINTLY USED AND EXPENSES SHALL BE SHARED BETWEEN THEM ON ACTUAL USE OF EACH COMPANY. ITA NO.324(ASR)2014 6 THE ADMISSION OF THE ASSESSEE SHOWS THAT THE ASSESS EE AND ITS SISTER CONCERN HAVE MUTUAL AGREEMENT TO SHARE BOILER AND ELECTRICITY EX PENSES AS THE ASSESSEE DO NOT HAVE ITS OWN BOILER AND ELECTRIC CONNECTION. THE AS SESSEE HAS MILLED 67698.80 QTLS. OF PADDY (44055.20 QUINTALS OWN AND 23643.60 GOVERNMENT), MILLING OF GOVERNMENT PADDY WAS DONE FOR RAW RICE AND SELF-MIL LING WAS DONE OF SELA RICE. DURING THE FINANCIAL YEAR 2008-09 RELEVANT TO THE A Y 2009-10 GOVERNMENT MILLING CHARGES INCLUDING TRANSPORTATION CHARGES WI THIN A DISTANCE OF 8 KMS FROM MILLS ON PADDY AS WELL AS RICE WERE RS.15/- PER QTL . FOR RAW RICE AND RS.25/- FOR PAR-BOILED RICE. IF THE ASSESSEE HAD GOT THE MILLING DONE FROM EITHE R FROM THE OUTSIDE CONCERNS OR EVEN FROM ITS SISTER CONCERN BY NO MEANS HE WAS GOI NG TO PAY MORE THAN THE RATES PRESCRIBED BY THE GOVERNMENT. THE FOLLOWING CHART S HOWS THAT IF THE ASSESSEE GOT THE PADDY MILLED FROM OTHER PERSONS IT WOULD HAVE P AID THE FOLLOWING CHARGES: PADDY MILLED FOR RAW RICE DURING THE YEAR RATES PRESCRIBED BY THE GOVERNMENT FOR MILLING OF PADDY FOR RAW RICE PER QUINTAL (RS.) TOTAL PAYMENT IF THE MILLING IS GOT ONE FROM THIRD PARTY PADDY MILLED FOR PAR- BOILED RICE RATES PRESCRIBED BY THE GOVERNMENT FOR MILLING OF PADDY FOR PAR-BOILED RICE PER QUINTAL (RS.) TOTAL PAYMENT IF THE MILLING IS GOT DONE FROM THIRD PARTY GRANT TOTAL ( 3+6) 1 2 3 4 5 6 7 23643.60 15/- 3,54,654/- 44055.20 25/- 1101380/- 1456034/- PURPOSE OF THE ABOVE CHART IS TO SHOW THAT IF THE ASSESSEE IS GIVEN MAXIMUM BENEFIT BY TREATING THAT IT HAS PAID FULL M ILLING CHARGES AS ELECTRICITY EXPENSES TO ITS SISTER CONCERN EVEN THEN IT SHOULD NOT HAVE PAID MORE THAT RS.14,56,034/-. BUT, IT IS PERTINENT TO MENTION HER E THAT THE MILLING DOES NOT REQUIRE ONLY ELECTRICITY. IT ALSO REQUIRE A LOT OF LABOUR WORK WHICH IS EVIDENT FROM THE FACT THAT THE ASSESSEE HAS DEBITED RS.6,42,550. 81 AS LABOUR EXPENSES IN THE TRADING ACCOUNT WHICH MEANS THAT FOR MILLING 67698. 80 QTLS. OF PADDY LABOUR OF APPROXIMATELY RS.9.40 PER QTL. IS REQUIRED. HOWEVER , GOING BY THE PRINCIPLE OF NATURAL JUSTICE AND ALSO KEEPING IN VIEW THAT THE L ABOUR IS ALSO USED FOR PADDY LYING IN THE CLOSING STOCK, LABOUR USED FOR THE PAD DY MILLED IS TAKEN AT RS.5/- PER QTL. TO ARRIVE AT THE ELECTRICITY CHARGES WHICH SH OULD HAVE BEEN PAID BY THE ASSESSEE COMPANY TO ITS SISTER CONCERN, THIS LABOUR OF RS.5/- PER QTL. IS SUBSTRACTED FROM THE MILLING RATES FOR RAW RICE AND PADDY MILLE D FOR SELA RICE PRESCRIBED BY THE GOVERNMENT. FROM THE FOLLOWING TABLE, IT WOULD BECOME CLEAR TH AT HOW MUCH ELECTRICITY EXPENSES THE ASSESSEE SHOULD HAVE ACTUALLY PAID TO THE SISTER CONCERN. PAR-BOILE D (SELA RICE) RATES PRESCRIBED BY RATE OF LABOUR ELECTRICITY CHARGES (1-2) PADDY MILLED FOR PAR-BOILED PAYMENT OF ELECTRICITY ITA NO.324(ASR)2014 7 THE GOVERNMENT FOR MILLING OF PADDY FOR PAR- BOILED RICE PER QUINTAL (RS) RICE EXPENSES SHOULD HAVE BEEN MADE ( 3 X 4) 1 2 3 4 5 25/- RS.5/- 20/- 44055.20 8,81,104/- RAW RICE RATES PRESCRIBED BY THE GOVERNMENT FOR MILLING OF PADDY FOR RAW RICE PER QUTL. RATE OF LABOUR ELECTRICITY CHARGES PADDY MILLED FOR RAW RICE DURING THE YEAR PAYMENT OF ELECTRICITY SHOULD HAVE BEEN MADE 15/- 5/- 10/- 23643.60 2,36,436/- THEREFORE, THE ASSESSEE SHOULD HAVE MADE THE PAYME NT OF RS.11,17,540/- (RS.881104 + RS.236436) TO ITS SISTER CONCERN WHERE AS THE ASSESSEE HAS MADE EXCESS PAYMENT TO THE SISTER CONCERN TO THE T UNE OF RS.10,87,987/- (RS.22,05,527 RS.11,17,540/-) ON A/C OF ELECTRICI TY CHARGES. THIS EXCESS PAYMENT IS DISALLOWED U/S 40A(2)(B) OF THE ACT AND ACCORDINGLY ADDITION OF RS.10,87,987/- IS MADE TO THE INCOME OF THE ASSE SSEE. PENALTY PROCEEDINGS U/S 271(1)(C OF THE ACT ARE INITIATED F OR FURNISHING INACCURATE PARTICULARS OF INCOME. 9. AS REGARDS GROUND NO.3, THE BRIEF FACTS OF THE C ASE AS PER AOS ORDER ARE REPRODUCED HEREINBELOW FOR THE SAKE OF CONVENIE NCE: DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT HA S BEEN NOTICED THAT THE ASSESSEE HAS PAID RS.1,35,398/- TO ITS SISTER CONCE RN M/S. H. HERO AGRO INDUSTRIES PVT. LTD. FOR USE OF THE BOILER. AS HAS BEEN STATED ABOVE, IN ITS LETTER DATED 26.12.2011, THE ASSESSEE HAS STATED AS UNDER: IT WAS MUTUALLY AGREED BETWEEN BOTH THE COMPANY TH AT ELECTRIC LOAD AND BOILER SHALL BE JOINTLY USED AND EXPENSES SHALL BE SHARED BETWEEN THEM ON ACTUAL USE OF EACH COMPANY. THE ABOVE ADMISSION BY THE ASSESSEE CLEARLY INDICAT ES THAT THE ASSESSEE COMPANY HAS USED THE BOILER OF THE SISTER CONCERN O N RENTAL BASIS WHICH FORMS PART OF THE PLANT AND MACHINERY OF THE SISTER CONCERN M/S. H.HERO ITA NO.324(ASR)2014 8 AGRO INDS. PVT. LTD. AND SISTER CONCERN IS CLAIMING DEPRECATION ON IT. AS SUCH THE SAME IS COVERED U/S 194-I OF THE INCOME T AX ACT, 1961. EXPLANATION TO SECTION 194-! IS REPRODUCED AS UNDER : EXPLANATION: FOR THE PURPOSES OF THIS SECTION, - (I) RENT MEANS ANY PAYMENT, BY WHATEVER NAME CALL ED, UNDER ANY LEASE, SUB-LEASE, TENANCY, OR ANY OTHER AGREEMENT OR ARRAN GEMENT FOR THE USE OF (EITHER SEPARATELY OR TOGETHER) ANY, - (A) LAND; OR (B) BUILDING (INCLUDING FACTORY BUILDING); OR (C) LAND APPURTENANT TO A BUILDING (INCLUDING FACTORY BUILDING);OR (D) MACHINERY; OR (E) PLANT; OR (F) EQUIPMENT; OR (G) FURNITURE; OR (H) FITTINGS; OR WHETHER OR NOT ANY OR ALL OF THE ABOVE ARE OWNED BY THE PAYEE;] II) WHERE ANY INCOME IS CREDITED TO ANY..SHA LL APPLY ACCORDINGLY.] THE ABOVE EXPLANATION SHOWS THAT THE ASSESSEE WAS R EQUIRED TO DEDUCT THE TAX AT SOURCE WHILE MAKING PAYMENT TO THE SISTER CO NCERN WHICH THE ASSESSEE HAS FAILED TO DO. THEREFORE, SECTION 40(A) (IA) IS CLEARLY APPLICABLE IN THIS CASE. SINCE THE TAX WAS REQUIRED TO BE DEDU CTED UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED BY THE AS SESSEE, THE AMOUNT PAID OF RS.1,35,398/- TO THE SISTER CONCERN M/S. H. HERO AGRO INDUS. PVT. LTD. CANNOT BE ALLOWED AS DEDUCTION. THIS SUM OF RS .1,35,398/- IS DISALLOWED AND ADDITION OF RS.1,35,398/- IS MADE TO THE INCOME OF THE ASSESSEE. PENALTY PROCEEDINGS U/S 271(1)(C) ARE INI TIATED FOR FURNISHING INACCURATE PARTICULARS OF INCOME. 10. THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO F OR THE REASONS MENTIONED IN HIS ORDER. 11. THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON TH E SUBMISSIONS MADE BEFORE THE LD. CIT(A) AND BEFORE THE AO IN THE REMA ND REPORT AND THE LD. DR RELIED UPON THE ORDER OF THE AO IN THE SAID GROUND S NO. 2 & 3. ITA NO.324(ASR)2014 9 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE ASSESSEE COMPANY HAS MADE PAYMENT OF RS.22,05, 527/- TO THE SISTER CONCERN H. HERO AGRO INDUSTRY PVT. LTD., AS ELECTRI CITY CHARGES AT COST PRICE. THE ASSESSEE IN THE EXPLANATION DATED 26.12.2011 SU BMITTED THAT AS IT HAS MUTUALLY BEEN AGREED BETWEEN BOTH THE COMPANY THAT ELECTRIC LOAD AND BOILER SHALL BE JOINTLY USED AND EXPENSES SHALL BE SHARED BETWEEN THEM ON ACTUAL USE OF EACH COMPANY. SINCE THE ASSESSEE DID NOT HAVE ITS OWN BOILER AND ELECTRIC CONNECTION, IT WAS OBSERVED BY THE AO THAT THE ASSESSEE HAS MILLED 67698.80 QTLS. OF PADDY INCLUDING 23643.30 QTLS OF PADDY OF THE GOVERNMENT. IT WAS OBSERVED BY THE AO THAT THE GOVE RNMENT MILLING CHARGES INCLUDING TRANSPORT CHARGES WITHIN A DISTAN CE OF 8 KMS FROM MILLS ON PADDY AS WELL AS RICE WERE RS.15/- PER QTL. FOR RAW RICE AND RS.25/- FOR PAR-BOILED RICE. THEREFORE, THE ASSESSEE BY NO MEAN S SHOULD PAY MORE THAN THE RATE PRESCRIBED BY THE GOVERNMENT. TO ARRIVE A T THE MARKET VALUE, THE AO PREPARED A CHART, WHICH IN FACT, WOULD HAVE BEEN PAID BY THE ASSESSEE AND CALCULATED THE SAME AT RS.14,56,034/-. THE AO KEPT IN VIEW THAT THE LABOUR IS ALSO USED FOR PADDY LYING IN THE CLOSING STOCK, LABOUR USED FOR THE PADDY MILLED IS TAKEN AT RS.5/- PER QTL. AND THEREF ORE, TO ARRIVE AT THE ELECTRICITY CHARGES WHICH SHOULD HAVE BEEN PAID BY THE ASSESSEE COMPANY TO ITS SISTER CONCERN, THE LABOUR OF RS.5 PER QTL. WAS SUBSTRACTED FROM THE MILLING ITA NO.324(ASR)2014 10 RATES FOR RAW RICE AND PADDY MILLED FOR SELA RICE P RESCRIBED BY THE GOVERNMENT. ACCORDINGLY, THE AO MADE A TABLE FOR E STIMATING ELECTRICITY EXPENSES WHICH SHOULD HAVE BEEN PAID BY THE ASSESSE E TO THE SISTER CONCERN I.E., THE AO WORKED OUT THE ELECTRICITY CHARGES WHI CH SHOULD HAVE BEEN PAID TO THE SISTER CONCERN AT RS.1117540/- WHERE THE ASS ESSEE PAID PAYMENT TO SISTER CONCERN AT RS.22,05,527/- EXCESS BY RS.10,87 ,987/-. 12.1. BEFORE THE AO, IT WAS SUBMITTED BY THE ASSES SEE THAT ELECTRICITY AND BOILER EXPENSES ARE SHARED BY THE ASSESSEE AND THE SISTER CONCERN ON THE BASIS OF THEIR RESPECTIVE PRODUCTION AS UNDER: COMPANY PADDY MILLED % OF TOTAL PRODUCTION SHARE OF ELECTRICITY EXPENSES (RS.) SHARE OF BOILER EXPENSES (RS.) H. HERO AGRO IND. PVT. LTD. 80420.82 QTL. 54.30% 2619994.00 135396 H. HERO AGRO EXPORTS PVT. LTD. 67698.80 QTL. 45.70% 2205527.00 135396 TOTAL PRODUCTION 148119.62 100% 4825521.00 296207 TOTAL ELECTRICITY EXPENSES RS.4825521.00 TOTAL BOILER EXPENSES RS.296209.00 IN FACT, THE AO AVOIDED EXAMINATION OF SUCH AN IMP ORTANT ASPECT OF DISTRIBUTION OF THE EXPENSES ESPECIALLY WHEN THE AS SESSEE DOES NOT OWN ITS OWN ELECTRIC CONNECTION AND BOILER THOUGH; THE MATT ER WAS REFERRED BY AN ITA NO.324(ASR)2014 11 APPLICATION U/S 144A TO THE JCIT ON 27.12.2011 AT THE FAG END OF THE COMPLETION OF THE ASSESSMENT WHICH HAS RIGHTLY BEEN REJECTED BY THE LD. CIT(A). THOUGH IN THE REMAND REPORT, THE AO HAS REP EATED AND CONFIRMED THE ORDER OF THE AO BUT AT THE SAME THE AO HAS AVOI DED EXAMINATION OF THE FOLLOWING ISSUES: I) BY PRODUCT (RICE BRAN, PHAK KHUDI AND CHILKA) R ETAINING BY THE COMPANY ARE HIGHLY PROFITABLE AND MAIN REASONS THAT JOB WORK IS DONE AT RS.15 OR 25 PER QTL. II) IN THE CASE OF OWN PRODUCTION PROFIT PER QUINTAL T HE PROFIT IS MANIFOLD THAN THE COST OF ELECTRICITY. III) THE COMPANY HAS EARNED CASH PROFIT BEFORE ELECTRICI TY EXPENSES, DEPRECIATION AND INCOME TAX RS.3627884(275205 + 102 8313 + 163839 + 2205527) ON THE PRODUCTION OF RS.67698.80 QTL. . PROFIT PER QTL IS RS.53.58 PER QTL. WHEREAS THE ELECTRICIT Y EXPENSES ARE ONLY RS.32.58 PER QTL. THE COMPANY HAS EARNED CASH PROF IT OF RS.21.00 AFTER MEETING ELECTRICITY AND OTHER PRODUCTION EXPE NDITURE. V) THE AO HAS NOT APPRECIATED THAT ELECTRICITY EXPENDITURE ARE PAID AT THE MARKET RATE AT WHICH ITS SISTER COMPANY PAYS TO ELECTRICITY BOARD AND SHARED FROM JOINT EXPENDITURE ACCOUNT. 13. IN THE FACTS AND CIRCUMSTANCES, WE ARE OF THE V IEW THAT NO ADDITION U/S 40(2)(B) CAN BE MADE WHEN THE EXPENDITURE HAS BEEN PAID AT THE MARKET VALUE WITHOUT SAVING ANY INCOME TAX BY EITHER PARTY FOR THE REASON THAT THE ASSESSEE AND THE SISTER CONCERN ARE TAXED AT THE SA ME SLAB AND ARE BEING ASSESSED WITH THE SAME AO. ACCORDINGLY, THE LD. CIT (A) IS NOT JUSTIFIED IN CONFIRMING THE ACTION OF THE AO AND ADDITION SO SUS TAINED IS DIRECTED TO BE DELETED. THUS, GROUND NO.2 OF THE ASSESSEE IS ALLO WED. 14. AS REGARDS GROUND NO.3, BEING THE DISALLOWANCE ON ACCOUNT OF BOILER EXPENSES AT RS.1,35,398/- CONFIRMED BY THE LD. CIT( A), IN FACT, LABOUR ITA NO.324(ASR)2014 12 PAYMENT WHICH HAS BEEN SHARED BY THE ASSESSEE WITH THE SISTER CONCERN THAT CANNOT BE A SUBJECT MATTER OF TDS U/S 194-I OF THE ACT AND ACCORDINGLY, THE AO IS NOT JUSTIFIED IN CONFIRMING THE ACTION OF THE A.O. THEREFORE, THE SAID ADDITION IS DIRECTED TO BE DELETED. 15. AS REGARDS GROUND NO.1, THAT THE LD. CIT(A) FA ILED TO ADJUDICATE THE ISSUE OF DIRECTIONS GIVEN BY THE JCIT U/S 144A OF THE ACT (IN GROUND NO.1). AS MENTIONED HEREINABOVE, THE ASSESSEE HAS SUBMITTE D THE APPLICATION BEFORE THE JCIT AT THE FAG END OF THE YEAR I.E. ON 27.12.2 011 WHEREAS THE ASSESSMENT WAS COMPLETED JUST AFTER TWO DAYS I.E. ON 29.12.201 1 AND THE LD. CIT(A) HAS RIGHTLY DEALT WITH THE SAME AT PAGE 4, PARA 1.4 OF HIS ORDER AND WE CONCUR WITH THE VIEWS OF THE LD. CIT(A) IN THIS REGARD. AC CORDINGLY, GROUND NO.1 IS DISMISSED. 16. AS REGARDS GROUND NO.5, THE AO MADE A DISALLOWA NCE OF RS.25,000/- OUT OF BARDANA REPAIR, STATIONERY EXPENSES AND MISC ELLANEOUS EXPENSES, SINCE THESE EXPENSES WERE NOT FOUND TO BE FULLY VERIFIABL E FROM THE VOUCHERS PRODUCED BY THE ASSESSEE. THE LD. CIT(A) CONFIRMED THE ACTION OF THE A.O. 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE T HE LD. CIT(A) THAT NO SPECIFIC DEFECT IN THE BOOKS OF ACCOUNT HAS BEEN PO INTED OUT. THE AO IN THE REMAND REPORT HAS REPEATED THAT THE EXPENSES WERE N OT VERIFIABLE AND ITA NO.324(ASR)2014 13 ACCORDINGLY ADDITION WAS RIGHTLY MADE BY THE AO IN THE ASSESSMENT PROCEEDINGS. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE CONCUR WITH THE VIEWS OF THE LD. CIT(A) THAT IN THE ABSENCE OF COM PLETE VERIFICATION OF THE EXPENSES, THE LD. CIT(A) HAS RIGHTLY CONFIRMED THE ACTION OF THE AO DISALLOWING RS.25,000/- OUT OF BARDANA REPAIR, STA TIONERY EXPENSES AND MISCELLANEOUS EXPENSES. WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND THE SAME IS UPHELD. THUS, GROUND NO.5 OF THE AS SESSEE IS DISMISSED. 18. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO.324(ASR)/2014 IS PARTLY ALLOLWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17TH MARCH, 2015. SD/- SD/- (A.D.JAIN) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 17TH MARCH, 2015 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. H. HERO AGRO EXPORT PVT. LTD. 2. THE ITO, WARD-III(2), FEROZEPUR. 3. THE CIT(A), FEROZEPUR. 4. THE CIT, FEROZEPUR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.S