M/s Patiala Flour Mills Co. Ltd., Patiala V. ACIT, Patiala

ITA 346/CHANDI/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5443 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 05-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: ASHOK MALIK
• Keywords: Depreciation; Earning of tax free income; Rule 8D; Set aside
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI D.K.SRIVASTAVA, ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 346/CHD/2011 ASSESSMENT YEAR: 2007-08 M/S PATIALA FLOUR MILLS VS. THE ACIT, CIRCLE, CO. LTD., PATIALA PATIALA PAN NO. AAACT6370P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHOK MALIK RESPONDENT BY: SHRI N.K.SAINI ORDER PER SUSHMA CHOWLA, JM THE APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A), PATIALA DATED 22.2.2011 RELATING TO ASSESSMENT YEAR 2007-08 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT, 1961. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LD. CIT(A) HAS GROSSLY ERRED ON FACTS OF THE CA SE AND IN LAW IN SUSTAINING THE ADHOC TRADING ADDITION OF RS. 3,00,000/- IN THE INCOME OF THE ASSESSEE. 2. THE LD. CIT(A) HAS GROSSLY ERRED ON THE FACTS OF TH E CASE AND IN LAW IN SUSTAINING THE 1/5 TH DISALLOWANCE OUT OF THE TELEPHONE EXPENSES, TRAVELLING EXPENSES, VEHICLE EXPENSES, VEHICLE DEPRECIATION FOR THE PERSONAL USAGES OF DIRECTOR. 3. THE LD. CIT(A) HAS GROSSLY ERRED ON THE FACTS OF TH E CASE AND IN LAW IN SUSTAINING THE ADDITION OF RS. 59,966/- MADE U/S 14A ON THE GROUND THAT THE RULE 8 D, IS NOT APPLICABLE FOR THE ASSESSMENT YEAR 2007-08. 2 3. SHRI ASHOK KUMAR GOEL APPEARED FOR THE ASSESSEE AND SHRI N.K. SAINI APPEARED FOR THE REVENUE AND PUT FORTH THEIR CONTENTIONS. 4. THE GROUND NO.1 RAISED BY THE ASSESSEE IS AGAINS T THE TRADING ADDITION OF RS. 3 LACS. 5. THE LD. AR FOR THE ASSESSEE AT THE OUTSET POINTE D OUT THAT THE ISSUES RAISED IN THE PRESENT APPEAL VIDE GROUND NOS.1 & 2 ARE IDENTICAL TO THE ISSUE RAISED BY THE ASSESSEE IN ITA NO. 534/CHD/201 0 RELATING TO ASSESSMENT YEAR 2006-07 WHEREIN BOTH THE ISSUES HAV E BEEN DECIDED IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 30.3.2011. THE LD. DR, HOWEVER, RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 6. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE FOUND CERTAIN DISCREPANCIE S IN THE RESULTS SHOWN BY THE ASSESSEE, IN ITS BUSINESS OF MANUFACTURE OF WHEAT PRODUCTS I.E. ATTA, MAIDA, RAWA ETC. THOUGH THE YIELD SHOWN BY THE AS SESSEE DURING THE YEAR WAS HIGHER THAN THE YIELD SHOWN IN THE EARLIER YEARS BUT AS THERE WAS FALL IN GP RATE AND ALSO BECAUSE OF THE RESULTS OF BY-PRODUCTS REFLECTED IN THE MANUFACTURING PROCESS AND THE VALUATION OF THE CLOSING STOCK, AN ADDITION OF RS. 3 LAC WAS MADE BY THE ASSESSING OFF ICER BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT. THE CIT(A ) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 7. WE FIND THAT TRADING ADDITION WAS MADE IN THE HA NDS OF THE ASSESSEE ON SIMILAR GROUNDS IN THE EARLIER YEARS AND THE SAM E WAS ADJUDICATED UPON BY THE TRIBUNAL IN THE CASE OF ASSESSEE ITSELF IN I TA NO. 534/CHD/2010 RELATING TO ASSESSMENT YEAR 2006-07. THE TRIBUNAL V IDE ITS ORDER DATED 3 30.3.2011 HAD DECIDED THE ISSUE IN FAVOUR OF THE AS SESSEE VIDE PARA 10 TO 13, WHICH ARE AS UNDER:- 10. WE HAVE HEARD BOTH THE PARTIES. IT IS NOT IN DI SPUTE THAT THE YIELD SHOWN BY THE ASSESSEE IN THE YEAR UN DER APPEAL IS 101.42% AS AGAINST 101.41% IN THE IMMEDIATELY PR ECEDING ASSESSMENT YEAR, I.E., AY 2005-06. ASSESSMENT FOR A SSESSMENT YEAR 2005-06 WAS COMPLETED AFTER SCRUTINY U/S 143(3 ). IT CANNOT BE SAID THAT THE YIELD SHOWN BY THE ASSESSEE IN THE YEAR UNDER APPEAL IS LOWER THAN THE LAST YEAR. 11. THE AO HAS HOWEVER APPLIED AVERAGE RATE OF YIEL D OF LAST THREE YEARS WHICH IS MARGINALLY DIFFERENT FROM THE ONE SHOWN BY THE ASSESSEE IN THE YEAR UNDER APPEAL. THE YIELD CANNOT REMAIN STATIC IN ALL THE YEARS. THE AO HAS B ROUGHT NO MATERIAL ON RECORD TO ESTABLISH THAT THE YIELD SHOW N BY THE ASSESSEE IN THE YEAR UNDER APPEAL WAS LOWER THAN TH E YIELD ACHIEVED BY OTHERS IN SIMILAR LINE OF BUSINESS. HE HAS PLACED NO EVIDENCE ON RECORD TO ESTABLISH THAT THE YIELD I N THIS LINE OF BUSINESS IS HIGHER THAN WHAT THE ASSESSEE HAS AL ONG BEEN SHOWING SUBJECT TO MARGINAL VARIATIONS. THE AO HAS ALSO NOT WORKED OUT THE YIELD OF EACH AND INDIVIDUAL ITEM OF WHEAT PRODUCT LIKE ATTA, MAIDA, SUJI, ETC. 12. APROPOS THE ORDER PASSED BY THE LD. CIT(A) SUST AINING THE ADDITION TO THE EXTENT OF 25%, IT IS OBSERVED T HAT THE LD. CIT(A) FIRST CAME TO THE CONCLUSION THAT THE YIELD SHOWN BY THE ASSESSEE WAS BETTER IN THE YEAR UNDER APPEAL AN D THAT THE AO WAS NOT JUSTIFIED IN NOT ACCEPTING THE BETTER RE SULTS SHOWN BY THE ASSESSEE. AFTER HAVING COME TO THE AFO RESAID CONCLUSION, THE LD. CIT(A) HOWEVER SUSTAINED THE AD DITION TO THE EXTENT OF 25% OF ADDITION MADE BY THE AO ON THE GROUND THAT THE VOUCHERS EVIDENCING CASH SALES DID NOT GIV EN ADDRESSES OF THE PURCHASERS AND THAT THE ASSESSEE H AD NOT MAINTAINED STOCK REGISTER OF BARDANA. BOTH THE AFOR ESAID FACTS ARE IRRELEVANT FOR JUDGING THE REASONABLENESS OF YIELD. 13. IN VIEW OF THE FOREGOING, THE AO IS DIRECTED TO ACCEPT THE YIELD SHOWN BY THE ASSESSEE IN THE YEAR UNDER A PPEAL. IT IS HOWEVER CLARIFIED THAT THIS ORDER WILL NOT OPERA TE AS PRECEDENT FOR THE REASON THAT THE YIELD SHOWN BY TH E ASSESSEE IN THE YEAR UNDER APPEAL IS BEING ACCEPTED FOR WANT OF ANY RELEVANT MATERIAL IN THE ASSESSMENT ORDER JUSTIFYIN G HIGHER YIELD THAN THE ONE SHOWN BY THE ASSESSEE. GROUND NO . 1 TAKEN BY THE ASSESSEE IS ALLOWED WHILE THE APPEAL FIELD B Y THE DEPARTMENT IS DISMISSED. 8. WE FIND THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD SHOWN A YIELD OF RS. 102.20% AS AGAINST YIELD OF RS . 101.42% SHOWN IN THE PRECEDING YEAR. FURTHER, ISSUE IN CONNECTION W ITH THE IMPURITIES IN 4 RAW MATERIAL I.E. DUST AND STONE IN THE YIELD PERCE NTAGE AT A HIGHER FIGURE BEING RELATABLE TO THE YIELD PERCENTAGE SHOWN BY TH E ASSESSEE WAS ALSO THE BASIS OF REJECTION OF RESULTS SHOWN BY THE ASSESSE E IN THE PRECEDING YEAR. HOWEVER, IN THE YEAR UNDER CONSIDERATION THE ASSESS ING OFFICER ALSO NOTICED THAT THE VALUATION OF THE CLOSING STOCK DEC LARED BY THE ASSESSEE WAS ON THE LOWER SIDE AS COMPARED TO THE SALE RATE S SHOWN BY THE ASSESSEE. THE EXPLANATION OF THE ASSESSEE IN THIS REGARD WAS THAT IT WAS FOLLOWING THE SAME METHOD OF VALUING ITS STOCK FOR THE PAST MANY YEARS AND NO DISCREPANCY IS FOUND IN ANY OF THE EARLIER Y EAR OR LATER YEARS IN THE SAID VALUATION OF THE CLOSING STOCK BY THE ASSESSIN G OFFICER IN ANY OF THE YEAR. THE ASSESSEE WAS FOLLOWING A FIFO METHOD OF VALUATION OF ITS STOCK. WE FIND THAT THE ISSUE RAISED BY THE ASSESS EE VIDE GROUND NO.1 IS IDENTICAL TO THE ISSUE RAISED IN THE ASSESSMENT YEA R 2006-07 AND FOLLOWING THE FOLLOWING THE RATIO LAID DOWN BY THE TRIBUNAL, WE FIND NO JUSTIFICATION IN THE TRADING ADDITION OF RS. 3 LACS AND THE SAME IS DIRECTED TO THE DELETED. THE GROUND NO.1 RAISED BY THE ASSE SSEE IS THUS ALLOWED. 9. THE ISSUE IN GROUND NO.2 IS AGAINST THE DISALLOW ANCE OUT OF TELEPHONE EXPENSES, TRAVELLING EXPENSES, VEHICLE EX PENSES, VEHICLE DEPRECIATION FOR THE PERUSAL USAGES OF THE DIRECTOR . SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL (SUPRA) IN ASSESSMENT YEAR 2006 -07 AND ITS WAS OBSERVED AS UNDER:- 18. WE HAVE HEARD BOTH THE PARTIES. THE AO HAS NOT SUBSTANTIATED HIS FINDING AS TO HOW THE IMPUGNED EX PENSES WERE EXCESSIVE OR PARTLY VOUCHED. HE HAS BROUGHT NO MATERIAL ON RECORD TO ESTABLISH EITHER OF THE AFORE SAID FINDINGS. ON APPEAL, THE LD. CIT(A) HAS CONFIRMED T HE IMPUGNED DISALLOWANCE ON A TOTALLY DIFFERENT GROUND , I.E., PERSONAL USER OF THE FACILITIES. HE HAS HOWEVER, NO T CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE BEF ORE HIM THAT THE ASSESSEE HAD ALREADY PAID FRINGE BENEFIT T AX ON THE AFORESAID ITEMS. IN THIS VIEW OF THE MATTER, THE OR DERS PASSED 5 BY THE AO AND THE LD. CIT(A) IN THIS BEHALF ARE LIA BLE TO BE VACATED AND ARE ACCORDINGLY VACATED AND GROUND NO. 2 ALLOWED. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE ISSUE RAISED BEING IDENTICAL TO THE ISSUE RAISED IN THE EARLIER YEAR AND FOLLOWING THE SAME WE SET ASIDE THE ORDER OF CIT(A) IN THIS REGARD AND ALLOW THE CLAIM OF THE ASSESSEE IN ENTIRETY AS IN T HE YEAR UNDER CONSIDERATION ALSO, FRINGE BENEFIT TAX HAD BEEN PAI D ON THE SAID EXPENDITURE. THE GROUND NO.2 RAISED BY THE ASSESSE E IS THUS ALLOWED. 11. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO.3 IS IN RESPECT OF THE SUSTAINING OF ADDITION BY THE CIT(A) MADE U/S 14A O F THE ACT ON THE GROUND THAT THE RULE 8-D IS APPLICABLE FOR ASSESSME NT YEAR 2007-08. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE TOTAL DIVIDEND INCOME RECEIVED BY THE ASSESSEE DURI NG THE YEAR IS RS. 67,516/-. THE ASSESSING OFFICER HAD DISALLOWED A S UM OF RS. 67,516/- U/S 14A OF THE ACT WHICH WAS RESTRICTED TO RS. 59,966/- BY THE CIT(A) BY APPLYING THE PROVISIONS OF SECTION 8-D OF THE I.T. RULES. THE CONSTITUTIONAL VALIDITY OF SECTION 14A(2)&(3) OF I. T.ACT AND RULE 8D OF THE INCOME TAX RULES WAS CHALLENGED BEFORE THE HON' BLE BOMBAY HIGH COURT IN GODREJ & BOYCE MFG.CO.LTD V DCIT & ANR, [ 234 CTR 1 (BOM)]. THE COURT HELD THAT THE PROVISIONS OF RULE 8D WERE NOT ULTRA VIRUS THE PROVISIONS OF SECTION 14A AND IT WAS ALSO HELD THAT THE SAME DO NOT OFFEND ARTICLE 14 OF THE CONSTITUTION. IT W AS FURTHER HELD THAT THE PROVISION OF RULE 8D WAS TO BE APPLIED PROSPECT IVELY W.E.F. 01.04.2007 I.E. IN RELATION TO ASSESSMENT YEAR 2008 -09 AND SUBSEQUENT YEARS AS THE MEMORANDUM EXPLAINING THE PROVISIONS O F THE FINANCE BILL 6 2006 STATES THAT THIS AMENDMENT WOULD TAKE EFFECT F ROM 01.04.2007. THE COURTS FURTHER HELD THAT EVEN IN THE ABSENCE OF SUB-SECTION (2) AND (3) OF SECTION 14A AND RULE 8D, THE ASSESSING OFFIC ER WAS NOT PRECLUDED FROM MAKING APPORTIONMENT ON ACCOUNT OF E XPENDITURE RELATABLE TO EARNING OF EXEMPT INCOME. 13. IN VIEW OF THE ABOVESAID RATIO LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT (SUPRA), WE HOLD THAT THE ENDS OF JUSTIC E WOULD BE MET BY DISALLOWING A SUM OF RS. 10,000/- BEING RELATABLE T O THE DIVIDEND INCOME EARNED BY THE ASSESSEE AND THE SAME IS DISALLOWED I NVOKING THE PROVISIONS OF SECTION14A OF THE ACT. THE GROUND OF APPEAL RAI SED BY THE ASSESSEE IS PARTLY ALLOWED. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF MAY, 2011. SD/- SD/- (D.K.SRIVASTAVA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 13 TH MAY, 2011 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH 7