M/s. PBS Foods Pvt. Ltd., Faridabad V. JCIT, Gurgaon

ITA 3254/DEL/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0761 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 22-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHASH VERMA
• Assessee Lawyers: DAKSH S BHARDWAJ
• Keywords: Rejection of books of accounts; Rule of consistency
• Section: 69C; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C, NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO. 3254/DEL/2015 ASSESSMENT YEAR: 2011-12 PBS FOODS PVT. LTD., 126 - 127, FIRST FLOOR, VARDHMAN STAR SHOP MALL, SECTOR-19, FARIDABAD PAN-AADCP6496R VS. JCIT, RANGE - II GURGAON [APPELLANT] [RESPONDENT] ASSESSEE BY: SH. DAKSH S. BHARDWAJ, ADV RESPONDENT BY: SH. SUBHASH VERMA, SR. DR DATE OF HEARING: 1 3 09 2018 DATE OF PRONOUNCEMENT: 19 09 2018 O R D E R N.K. SAINI, AM THIS IS AN APPEAL BY THE ASSESSEE AND IS DIRECTED AGAINST THE ORDER DATED 16.3.2015 OF THE LEARNED CIT(A)-I, GURGAON. F OLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL. I. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL)-1, GURGAON, ERRED IN LAW AS WELL AS ON FACTS, IN CONFIRMING ADDITION OF RS. 34,75,574/-, MADE TOWARDS THE EXCESS CONSUMPTION OF RAW MATERIAL. II. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL)-1, GURGAON, ERRED IN LAW AS WELL AS ON FACTS, WHILE CONFIRMING THE ABOVE STATED ADDITION, WHICH WAS BASED UPON THE REJECTION OF BOOKS OF ACCOUNTS U NDER SECTION 145(3) OF THE I.T. ACT, 1961, AND ALLOWING ASSESSEES APPE AL AGAINST THE REJECTION OF BOOKS OF ACCOUNTS. ITA NO. 3254/DEL/2015 2 2. FROM THE AFORESAID GROUNDS IT IS GATHERED THAT T HE ONLY GRIEVANCE OF THE ASSESSEE RELATES TO THE CONFIRMATION OF ADDITIO N OF RS. 34,75,574/- MADE BY THE AO ON ACCOUNT OF EXCESS CONSUMPTION OF RAW MATE RIAL. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LEARNED COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS HAS ALREADY BEEN DECIDED BY THE ITAT BENCH E , NEW DELHI IN ITA NO. 3818/DEL/2015 FOR THE ASSESSMENT YEAR 2010-11 IN AS SESSEES OWN CASE VIDE ORDER DATED 19.6.2018 WHEREIN BY FOLLOWING THE EARL IER ORDER OF THE CO- ORDINATE BENCH IN ASSESSEES OWN CASE FOR THE ASSES SMENT YEAR 2009-10, THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. C OPY OF THE SAID ORDER WAS FURNISHED WHICH IS PLACED ON RECORD. 4. IN HIS RIVAL SUBMISSIONS, THE LEARNED CIT DR ALT HOUGH SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW BUT COULD NOT CONTR OVERT THE AFORESAID CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE. 5. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON TH E RECORD. IT IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS HAS ALREADY BEEN DECIDED BY THE ITAT DELHI BENCHE E, NEW DELHI IN ASSESSEES OWN CASE. THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARA 6 TO 10 OF THE AFORESAID REFERRE D TO ORDER DATED 19.6.2018 WHICH READ AS UNDER:- THE LD. AR FOR THE ASSESSEE CONTENDED THAT THIS ISS UE IS COVERED IN ASSESSEES OWN CASE VIDE ORDER DATED 08.03.2018 PAS SED BY DELHI BENCH OF TRIBUNAL IN ITA NO. 1848/DEL/2014 IN THE CASE OF DCIT VS. M/ S PBS FOODS PVT. LTD, FOR A.Y. 2009-10. HOWEVER, ON THE OTHER HAND, THE LD. D/R FOR THE REV ENUE RELIED UPON THE ORDER PASSED BY THE AO/ CIT(A). 7. WHEN ASSESSING OFFICER HAS NOT MADE ANY ADDITION IN AY 2008-09, 2009-10, 2012-13, 2013-14 BY DISALLOWING THE SHORTAGE IN PRODUCTION O N ACCOUNT OF MOISTURE LOSS CLAIMED BY THE ASSESSEE, THE ASSESSING OFFICER FOR THE YEAR UN DER CONSIDERATION SHOULD HAVE BEEN COME UP WITH COGENT REASON THAT RULE OF CONSISTENCY, WHI CH HE IS OBLIGATED TO FOLLOW, IS NOT APPLICABLE IN THIS CASE BEFORE MAKING ANY SUCH ADDI TION. MOREOVER, A CO-ORDINATE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2009-10 HA S CONFIRMED THE FINDING RETURNED BY LD. CIT(A) VIDE ORDER DATED 08.03.2018 WHEREIN THE IDEN TICAL ISSUE WAS INVOLVED AND AO HAD ITA NO. 3254/DEL/2015 3 MADE AN ADDITION ON ESTIMATED BASIS BY REJECTING TH E BOOKS OF ACCOUNTS. FOR READY PERUSAL, THE FINDING RETURNED BY CO-ORDINATE BENCH OF TRIBUN AL IN ASSESSEES OWN CASE FOR A.Y. 2009- 10 ARE AS UNDER:- 5.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE MATERIAL BEFORE US. WE FIND THAT OUT OF SEVEN YEARS (AY.2008-09 TO AY.2014-15) THE A O HAD NOT MADE ANY ADDITION FOR FOUR YEARS, THAT IN ONE YEAR THE FAA HAD ALLOWED THE REL IEF TO THE ASSESSEE, THAT IN THE A.YS. 2010-11 AND 2011-12 ORDER OF THE AO HAS BEEN CONFIR MED BY THE FAA .THUS, THE ISSUE OF LOSS DUE TO MOISTURE HAS BEEN DELIBERATED UPON AT L ENGTH BY THE DEPARTMENTAL AUTHORITIES. WHILE PASSING THE ORDER FOR THE YEAR UNDER APPEAL, THE AO HAS NOT MENTIONED ANYTHING AS TO WHY HE WAS NOT FOLLOWING THE ORDER OF HIS PREDEC ESSOR ABOUT MOISTURE LOSS.LT IS TRUE THAT THE PRINCIPLES OF RES-JUDICATA DOES NOT APPLY TO TH E INCOME TAX PROCEEDINGS, BUT RULE OF CONSISTENCY CANNOT BE IGNORED. IN THE MATTER OF GOD REJ & BOYCE MANUFACTURING CO. LTD., THE HONBLE APEX COURT(394 ITR 449) HAS OBSERVED AS UND ER: WHILE IT IS TRUE THAT THE PRINCIPLE OF RES JUDICATA WOULD NOT APPLY TO ASSESSMENT PROCEEDINGS UNDER THE ACT, THERE IS NEED FOR CONSIS TENCY AND CERTAINTY AND EXISTENCE OF STRONG AND COMPELLING REASONS FOR A DEPARTURE FROM A SETTLED POSITION HAS TO BE SPELT OUT. WE FIND THAT THE ASSESSEE HAD FURNISHED THE COPIES OF THE REPORTS OF COD EX STANDARD FOR WHEAT FLOUR AND INDIAMILLER.COM AND THAT THE AO HAD NOT COMMENTED UPON THOSE REPORTS. IN OUR OPINION, THESE REPORTS SHOULD NOT H AVE BEEN GIVEN PROPER WHEIGHTAGE, AS THEY ARE PREPARED BY PROFESSIONAL AGENCIES. WITHOUT POINTING OUT ANY DEF ECT IN THE REPORTS OR WITHOUT BRINGING SOME MATERIAL ON RECORD THAT COULD PROVE THAT THE R EPORTS OF THE AGENCIES WERE BIASED, THE AO SHOULD NOT HAVE REJECTED THE CLAIM OF MOISTURE L OSS IN CASE OF WHEAT, S OYABEN FLOUR ETC.THE BASIS FOR ACCEPTING THE MOISTURE LOSS FOR C ERTAIN ITEMS AND REJECTING CLAIM OF MOISTURE FOR OTHER ITEMS IS NOT CLEAR FROM THE ORDER OF THE AO. IT IS A KNOWN FACT THAT THERE WOULD BE VARIATION IN MOISTURE LOSS FOR VARIOUS ITEMS. THE Q UALITY OF GRAIN, THE SEASONAL CHANGES AT THE TIME OF RIPENING OF HARVEST, AND SEEDS USED ARE SOM E OF THE FACTORS THAT AFFECT MOISTURE CONTENT .IN ALL MANUFACTURING PROCESSES LOSS OR WAS TAGE IS AN ACCEPTED FACT AND VARIATION IN PERCENTAGE OF SUCH LOSS IS ALSO RECOGNIZED FACT. HERE, WE WOULD LIKE TO REFER TO THE CASE OF CERAMIC INDUSTRIES (396 ITR 50) OF THE HONBLE RAJASTHAN HIGH COURT. THE FACTS OF THE CASE WERE TH AT THE ASSESSEE WAS A MANUFACTURER OF CERAMIC PRODUCTS. ON THE ISSUE OF THE ESTIMATE OF T HE WASTAGE AND DELETED THE ADDITIONS, THE TRIBUNAL ACCEPTED THE REPORT OF THE RESEARCH LABORA TORY WHICH STATED THAT THE PERCENTAGE OF WASTAGE WAS VARIABLE DEPENDING ON VARIOUS FACTORS.L T HELD THAT THE AO HAD NOT FOUND ANY DEFECTS IN THE PURCHASES, SALES, OPENING AND CLOSIN G STOCKS. IT FURTHER HELD THAT THE AO HAD NOT BROUGHT ON RECORD ANY COGENT MATERIAL TO PROVE THAT THE ASSESSEE HAD SOLD UNDER- PRODUCTION OUT OF THE BOOKS OF ACCOUNT. ON THE QUES TIONS WHETHER THE APPELLATE TRIBUNAL ERRED, (A) IN DELETING THE ADDITIONS MADE ON ACCOUN T OF EXCESSIVE WASTAGE WHICH WAS RESTRICTED TO 25 PER CENT, BY THE AO, (B) IN DELETI NG THE ADDITIONS MADE UNDER SECTION 69C OF THE ACT AND (C) IN OVERRULING THE DECISION OF THE F AA AND THE AO REGARDING THE REJECTION OF BOOKS OF ACCOUNT INVOKING THE PROVISIONS OF SECTION 145(3),THE HONBLE COURT HELD THAT THE TRIBUNAL HAD NOT COMMITTED ANY ERROR IN DELETING TH E ADDITIONS AND HOLDING THAT THE REJECTION OF BOOKS OF ACCOUNT INVOKING SECTION 145(3) WAS NOT JUSTIFIED. CONSIDERING THE ABOVE, WE HOLD THAT THE FAA HAD RIG HTLY ALLOWED MOISTURE CONTENT FOR WHEAT- FLOUR AND RAGI. HE WAS JUSTIFIED IN HOLDING THAT THE AO SHOULD NOT HAVE INVOKED THE PROVISIONS OF SECTION 145(3)OF THE ACT FOR REJECTIN G THE CLA IM OF THE ASSESSEE ABOUT MOISTURE LOSS. ITA NO. 3254/DEL/2015 4 5.1..NOW ,COMING TO THE REJECTION OF BOOKS OF ACCOU NTS, WE FIND THAT THE AO HAD NOT POINTED OUT ANY PARTICULAR DEFECT OR DISCREPANCY IN THE ACC OUNT BOOKS MAINTAINED BY THE ASSESSEE. HE HAD NO MATERIAL BEFORE HIM TO TREAT THE ACCOUNTS OF THE ASSESSEE AS DEFECTIVE OR INCOMPLETE. IT WAS NOT THE CASE OF THE AO THAT THE ASSESSEE HAD NOT FOLLOWED EITHER THE CASH OR MERCANTILE SYSTEM OF ACCOUNTING STIPULATED IN SUB-S ECTION (1) OF SECTION 145 OF THE ACT OR THAT THE CENTRAL GOVERNMENT HAD NOTIFIED ANY PARTICULAR ACCOUNTING STANDARDS TO BE FOLLOWED BY MANUFACTURERS FLOURS OR THE ITEMS MANUFACTURED BY T HE ASSESSEE. HENCE, THE SECOND PART OF SUB-SECTION (3) OF SECTION 145 WOULD NOT APPLY. IT IS FACT THE AO HAD NOT POINTED OUT ANY DEFECT IN THE ACCOUNT BOOKS MAINTAINED BY THE ASSES SEE. IN OTHER WORDS, THE ACCOUNTS MAINTAINED BY THE ASSESSEE WERE NEITHER DEFECTIVE N OR INCOMPLETE.LT IS SAID THAT BEFORE REJECTING THE BOOKS OF ACCOUNT, THE AO HAS TO PROVE THAT ACCOUNTS ARE UNRELIABLE, INCORRECT OR INCOMPLETE, THAT THE ACCOUNTS REGULARLY MAINTAINED IN THE COURSE OF BUSINESS, DULY AUDITED UNDER THE PROVISIONS OF ACT AND FREE FROM ANY QUALI FICATION BY THE AUDITORS, SHOULD BE TAKEN AS CORRECT UNLESS THERE ARE STRONG AND SUFFICIENT R EASONS TO INDICATE THAT THEY ARE UNRELIABLE. EVEN THOUGH, IT IS NOT POSSIBLE TO LAY DOWN THE EXA CT CIRCUMSTANCES IN WHICH ACCOUNTS SHOULD BE REJECTED AS UNRELIABLE OR INCORRECT, YET THE ACC OUNTS MAY BE REJECTED AS UNRELIABLE IF IMPORTANT ENTRIES AND TRANSACTIONS ARE OMITTED THER EFROM OR IF PROPER PARTICULARS AND VOUCHERS, BILLS, ETC. ARE NOT FORTHCOMING OR IF THE Y DID NOT INCLUDE ENTRIES RELATING TO PARTICULAR CLASS OF BUSINESS TRANSACTION. IN SHORT, BOOKS OF A CCOUNT SHOULD NOT BE REJECTED LIGHT- HEARTEDLY. THE REJECTION OF BOOKS IS BASED ON ALLEG ED SUPPRESSION OF PRODUCTION. IN OUR OPINION, THE ALLEGED SHORTFALL IN PRODUCTION COULD HAVE BEEN THE BASIS FOR OTHER ADDITIONS BUT NOT FOR INVOKING THE PROVISIONS OF SECTION 145(3) O F THE ACT. WE WOULD LIKE TO REFER TO THE CASE OF PARADISE HOLI DAYS (325 ITR 13) OF THE HONBLE DELHI HIGH COURT, WHEREIN THE COURT HAS HELD AS FOLLOWS: THE ACCOUNTS WHICH ARE REGULARLY MAINTAINED IN TH E COURSE OF BUSINESS AND ARE DULY AUDITED, FREE FROM ANY QUALIFICATION BY THE AUDITOR S, SHOULD NORM ALLY BE TAKEN AS CORRECT UN LESS THERE ARE ADEQUATE REASONS TO INDICATE THAT TH EY ARE INCORRECT OR UNRELIABLE. THE ONUS IS UPON THE REVENUE TO SHOW THAT EITHER THE BOOKS O F ACCOUNT MAINTAINED BY THE ASSESSEE WERE INCORRECT OR INCOMPLETE OR THAT THE METHOD OF ACCOUNTING ADOPTED BY HIM WAS SUCH THAT TRUE PROFITS OF THE ASSESSEE CANNOT BE DEDUCED THEREFROM. IN LIGHT OF THE ABOVE DISCUSSION, WE HOLD THAT THE ORDER OF THE FAA DOES NOT SUFFER F ROM ANY LEGAL OR FACTUAL INFIRMITY, AS FAR AS REJECTION OF BOOKS OF ACCOUNTS IS CONCERNED. SO, CONFIRMING THE SAME WE DECIDE THE SECOND LIMB OF THE GROUND AG AINST THE AO. 8. ASSESSEE HAS BROUGHT ON RECORD THE CONSUMPTION OF R AW MATERIALS IN A.Y. 2012-13 IN TABULATED FORM, WHEREIN SHORTAGE ON ACCOUNT OF MOIS TURE AND OTHER WASTAGE IN WHEAT, SOYABEAN, RAGI & RAGI FLOUR, VITAMINS & MINERALS AN D SUGAR HAS BEEN CLAIMED AND ALLOWED BY THE AO AS WELL AS LD. CIT(A) WHICH IS EXTRACTED AS UNDER:- CHART SHOWING TREATMENT OF CONSUMPTION OF RAW MATER IAL AY 2012-13 ITEM MOISTURE AND OTHER WASTAGES CLAIMED BY THE ASSESSEE MOISTURE AND OTHER WASTAGES ALLOWED BY AO MOISTURE AND OTHER WASTAGES ALLOWED BY CIT(APPEALS) WHEAT 14 14 NO APPEAL WAS PREFERRED SOYABEAN 12 12 SOYABEAN POWDER 6.2 6.2 ITA NO. 3254/DEL/2015 5 RAGI AND RAGI FLOUR 12 12 VITAMINS AND MINERALS 1 1 SUGAR 1 1 9. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, FIRSTLY, WE ARE OF THE CONSIDERED VIEW OF THAT THERE IS NO MATERIAL BROUGHT ON RECORD BY THE AO AS WELL AS LD. CIT(A) TO DEPART FROM RULE OF CONSISTENCY IN THE PRECEDING AND SUCCEEDING YEARS, SHORTAGES ON ACCOUNT OF MOISTURE LOSS HAS BEEN ALLOWED BY AO AS WELL AS LD. CIT(A). SECONDLY, THE ASSESSING OFFICER HAS DISALLOWED THE SHORTAGES CLAIMED BY THE ASSESSEE ON ACCOUNT OF MOISTURE LOSS MERELY ON ESTIMATED BASIS. THIRDLY, THE ASSESSING OFFICER HA S REJECTED THE BOOKS OF ACCOUNTS WITHOUT BRINGING ON RECORD ANY DEFECTS AND MATERIAL DISCREP ANCIES, PARTICULARLY WHEN THE BOOKS OF ACCOUNTS ARE DULY AUDITED HAVING BEEN MAINTAINED IN THE ORDINARY COURSE OF BUSINESS, SO THE REJECTION OF BOOKS OF ACCOUNTS BY THE AO WITHOUT HA VING ANY COGENT MATERIAL IS NOT PERMISSIBLE UNDER LAW. 9.1 FOURTHLY, SHORTAGES ON ACCOUNT OF MOISTURE LOSS DEP END ON NUMEROUS REASONS LIKE QUALITY OF GRAINS, MODE OF ITS STORAGE ETC. LIKEWI SE IN THE MANUFACTURING PROCESS LOSS OR WASTAGE IS A UNIVERSAL PHENOMENON AND IT CANNOT BE AVOIDED BY THE MANUFACTURER. 10. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE AND FO LLOWING THE DECISION RENDERED BY CO- ORDINATE BENCH OF TRIBUNAL IN ASSESSEE'S OWN CASE F OR A.Y. 2009-10, WE ARE OF THE VIEW THAT ADDITION MADE BY AO BY DISALLOWING THE SHORTAGES CL AIMED BY THE ASSESSEE IN THE PRODUCTION ON ACCOUNT OF MOISTURE CONTENT IN THE RAW MATERIAL AS WELL AS IN THE PROCESSING PROCESS CONFIRMED BY THE LD. CIT(A) IS NOT SUSTAINABLE IN T HE EYES OF LAW, HENCE ORDERED TO BE DELETED, CONSEQUENTLY, PRESENT APPEAL FILED BY THE ASSESSEE IS ALLOWED. 6. SO RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER DATED 19.6.2018, THE ADDITION SUSTAINED BY THE LEARNED CI T(A) IS DELETED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . (ORDER PRONOUNCED IN THE OPEN COURT ON 19.09.2018. ) SD/ - SD/ - [ KULDIP SINGH ] [ N.K. SAINI ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 19.09.2018 SH ITA NO. 3254/DEL/2015 6 COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT AS SISTANT REGISTRAR DATE OF DICTATION 13/9/2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 13/9/2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P S/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER DATE OF UPLOADING 19/9/2018