THE ACIT CIR 6(1), MUMBAI V. M/S. JAYCHANDRA AGRO IDUSTRIES PVT. LTD, MUMBAI

ITA 52/MUM/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1583 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Assessment Year: 2004-2005
• Appeal Filed On: 03-01-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L K AGRAWAL
• Assessee Lawyers: HARSHAL AGRAWAL
• Keywords: Business expenditure; Revenue expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH: MUMBAI BEFORE SHRI D K AGARWAL, JUDICIAL MEMBER AND SHRI J S REDDY, ACCOUNTANT MEMBER ITA NO 52/MUM/2008 (ASSESSMENT YEAR: 2004-05) ACIT CIR 6(1), R NO 506, 5 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI 400 020 VS M/S JAYCHANDRA AGRO INDUSTRIES PVT LTD, 2ND FLOOR, B-WING, MHATRE PEN BUILDING, SENAPATI BAPAT MARG, DADAR, MUMBAI -400 068 PAN: AAACJ 1052 C APPELLANT RESPONDENT APPELLANT BY: SHRI L K AGRAWAL RESPONDENT BY: SHRI HARSHAL AGRAWAL ORDER PER D K AGARWAL, JUDICIAL MEMBER THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER DATED 20.09.2007 PASSED BY THE LEARNED CIT (A) FOR THE AS SESSMENT YEAR 2004-05 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF DEALERSHIP IN MAIZE RAW OIL, MAI ZE REFINED OIL, PROCESSORS OF MAIZE GERM, MAIZE REFINED OIL & GENERATION OF ELECTRICITY . THE RETURN WAS FILED DECLARING TOTAL INCOME AT RS 2,08,38,225/-. DURING THE COURS E OF ASSESSMENT PROCEEDINGS, IT WAS FOUND BY THE ASSESSING OFFICER THAT THE ASSESSE E DEBITED TOTAL IN THE PROFIT AND LOSS ACCOUNT ADMINISTRATIVE AND OTHER EXPENSES AT R S 1,54,09,113/- TREATING IT AS BUSINESS EXPENDITURE. THE ASSESSEE WAS ASKED TO GI VE DETAILS OF MANUFACTURE AND OTHER EXPENSES AND TO PRODUCE COPIES OF BILLS AND V OUCHERS ALONG WITH BOOKS OF ACCOUNTS. HOWEVER, THE ASSESSEE FAILED TO PRODUCE ALL THE BOOK OF ACCOUNTS, BILLS AND VOUCHERS FOR VERIFICATION EXCEPT LEDGER BOOK FOR WH ICH THE ASSESSEES ACCOUNTANT PRESENT WAS UNABLE TO EXPLAIN THE ENTRIES RECORDED THEREIN, THEREFORE, THE ASSESSING OFFICER DISALLOWED PART OF THE EXPENSES I.E. 15% NO T INCURRED FOR THE PURPOSE OF BUSINESS AND ACCORDINGLY MADE A DISALLOWANCE OF RS 23,11,367/-. APART FROM THIS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HA S SHOWN PRODUCTION LOSS IN ITA 52/M/2008 JAYCHANDRA AGRO INDUSTRIES PVT LTD 2 MANUFACTURING MAIZE REFINED OIL AT 9.37%. THE ASSE SSEE WAS ASKED TO JUSTIFY THE PRODUCTION LOSS SHOWN BY IT. IN RESPONSE IT WAS EX PLAINED BY THE ASSESSEE VIDE HIS LETTER DATED 29.8.2006, WHICH READS AS UNDER:- MAIZE RAW OIL IS OBTAINED BY CRUSHING GERMS. THE OIL OBTAINED IS IN ITS CRUDE FORM AND IS UNFIT FOR HUMAN CONSUMPTION. THE OIL CONSUMED BY THE HUMANS ARE CLEAR LIQUIDS WITH NO EXTRA PARTICLES. RAW O IL CONTAINS SUSPENDED PARTICLES AND THEREFORE HAS HAZY LOOKS. THIS OIL HAS TO BE H EATED AND PASSED TO A FILTRATIONS PROCESS DUE TO WHICH SUCH IMPURITIES AR E REMOVED. IT MAY BE MENTIONED THAT THESE IMPURITIES ALSO CONTAIN WEIGHT AND THEREFORE WHEN WEIGHT OF RAW OIL IS OBTAINED IT CONTAINS THE WEIGH T OF SUCH IMPURITIES ALSO. ON REFINING THE SAME, THE IMPURITIES ARE SEPARATED AND THE WEIGHT OF THE FINISHED GOODS FALLS. . THE PRODUCTION COLUMN SHOWS THE DET AILS OF SOAP STOCK OBTAINED ON REFINING OF RAW MAIZE OIL. THIS SOAP STOCK IS N OTHING BUT SUCH IMPURITIES WHICH IS REMOVED. THIS STOCK IS UTILIZED BY CERTAI N ENTITIES, TO MANUFACTURE CRUDE SOAP, UTILIZED FOR WASHING OF CLOTHES AND ANI MALS BY POOR PEOPLE. IT IS A KNOWN FACT THAT THE EVERY PROCESS THERE IS SOME SOR T OF PROCESS LOSS AND THE SAME IS TRUE FOR OUR INDUSTRY ALSO. .SIMILAR LOSS IS OCCURRING YEAR AFTER YEAR AND THE SAME IS NATURAL TO THE PROCESS OF OBTAINING REFINED OIL BY ANY EDIBLE OIL PRODUCING COMPANY. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE A SSESSEES SUBMISSION. THE ASSESSING OFFICER WAS OF THE VIEW THAT IN THE ABSEN CE OF PROPER EXPLANATION AND NECESSARY EVIDENCE, THE LOSS SHOWN BY THE ASSESSEE CANNOT BE ACCEPTED IN TOTO. HOWEVER, KEEPING IN VIEW THAT THE ASSESSEE MUST HAV E INCURRED SOME LOSS ON PRODUCTION, THE ASSESSING OFFICER ALLOWED THE LOSS AT 5% AND BALANCE LOSS OF 4.37% WAS DISALLOWED AND ACCORDINGLY THE ASSESSING OFFICE R WORKED OUT THE PRODUCTION AT 8.398 MT AND BY APPLYING THE SELLING PRICE SHOWN BY THE ASSESSEE AT RS 48,324/- PER MT, MADE AN ADDITION OF RS 4,05,837/- WHICH WAS ADD ED TO THE INCOME OF THE ASSESSEE. THE ASSESSING OFFICER AFTER MAKING CERTA IN OTHER DISALLOWANCES COMPLETED THE ASSESSMENT AT AN INCOME OF RS 2,96,28,870/- VID E ORDER DATED 8.12.2006 PASSED U/S 143(3) OF THE IT ACT, 1961 (THE ACT). ON APPEA L, THE LEARNED CIT (A) WHILE OBSERVING THAT THE ASSESSING OFFICER HAS NOT POINTE D OUT ANY DEFECT IN THE BOOKS OF ACCOUNT OR METHODOLOGY ADOPTED BY THE APPELLANT IT CANNOT BE SAID THAT THE PROPER PROFIT COULD NOT BE ASCERTAINABLE, DELETED THE DISA LLOWANCE OF EXPENSES OF RS 23,11,367/-. THE LEARNED CIT (A) ALSO DELETED THE ADDITION OF PRODUCTION LOSS OF RS 4,05,837/- ON THE GROUND THAT IT HAS BEEN DISALLOWE D BY THE ASSESSING OFFICER WITHOUT GIVING ANY COMPARABLE CASE AND SINCE THE ASSESSING OFFICER HAS NOT REJECTED THE BOOK RESULT, NO DISALLOWANCE IS CALLED FOR. ITA 52/M/2008 JAYCHANDRA AGRO INDUSTRIES PVT LTD 3 3. BEING AGGRIEVED BY THE ORDER OF LEARNED CIT (A) THE REVENUE IS IN APPEAL BEFORE US. 4. GROUND NO 1 IS AGAINST THE DELETION OF DISALLOWA NCE OF EXPENDITURE OF RS 23,11,367/-. 5. AT THE TIME OF HEARING, THE LEARNED DEPARTMENTAL REPRESENTATIVE WHILE RELYING ON THE ORDER OF THE ASSESSING OFFICER SUBMITS THAT SINCE THE ASSESSEE HAS FAILED TO PRODUCE BOOKS OF ACCOUNTS AND BILLS AND VOUCHERS OF EXPENSES, THE LEARNED CIT (A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE OF E XPENSES OF RS 23,11,367/-. HE, THEREFORE, SUBMITS THAT THE DISALLOWANCE OF EXPENSE S MADE BY THE ASSESSING OFFICER BE RESTORED. 6. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE SUBMITS THAT DURING THE YEAR THE SALES HAVE GONE UP TO RS 12,26,93,981/ - AS AGAINST RS 10,85,77,244/- SHOWN IN IMMEDIATELY PRECEDING YEAR. HE FURTHER SU BMITS THAT THE ASSESSEE HAS PRODUCED THE BOOKS OF ACCOUNTS AND DETAILS OF EXPEN SES WHICH IS ALSO EVIDENT FROM THE ASSESSEES LETTERS DATED 7 TH SEPTEMBER 2006 AND 26TH SEPTEMBER 2006 APPEARING AT PAGE 8 TO 12 OF THE ASSESSEES PAPER BOOK. HE F URTHER SUBMITS THAT SINCE THE ASSESSEE HAS PRODUCED THE DETAILS OF EXPENSES, THE ASSESSING OFFICER WITHOUT POINTING OUT ANY ITEM OF DISALLOWANCE NATURE HAS MADE ADHOC DISALLOWANCE OF 15% OF TOTAL EXPENDITURE WHICH IS NOT PERMISSIBLE, THEREFORE, TH E LEARNED CIT (A) WAS FULLY JUSTIFIED IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND, THEREFORE, THE ORDER PASSED BY THE LEARNED CIT (A) BE UPHELD. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE RE IS NO DISPUTE THAT THE ASSESSEE HAS PRODUCED LEDGER ACCOUNT SHOWING DETAILS OF EXPE NSES WHICH HAVE BEEN CLAIMED BY THE ASSESSEE AS REVENUE EXPENDITURE IN THE P&L A CCOUNT APPEARING AT PAGE 5 OF THE ASSESSEES PAPER BOOK. THE DETAILS OF THE SAME ARE REPRODUCED AS UNDER:- ITA 52/M/2008 JAYCHANDRA AGRO INDUSTRIES PVT LTD 4 SCHEDULE 12 RUPEES FOR THE YEAR ENDED 31.03.2004 RUPEES INSURANCE 163637 RATES & TAXES 191710 SERVICE CHARGES 445325 LEGAL & PROFESSIONAL FEES 97965 BANK CHARGES 69315 TRAVELLING EXPENSES 1023997 CONVEYANCE 32809 VEHICLE EXPENSES 386253 PRINTING & STATIONERY 59719 COMMUNICATION EXPENSES 85325 OCTROI DUTY 644 COMMISSION & DISCOUNT 2143572 ADVERTISEMENT 181000 PACKING MATERIAL 8193049 CARRIAGE OUTWARD 67616 MARKET FEES 437375 SALES TAX PAID 560514 WHEELING CHARGES 271075 WIND MILL EXPENSES 234322 AUDITORS REMUNERATION 19836 OTHER EXPENSES 744055 TOTAL 15409113 8. WE FURTHER FIND THAT IT HAS BEEN CLAIMED BY LEAR NED COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE HAS PRODUCED ALL THE BOOKS OF ACC OUNTS AND STOCK REGISTER AND HAS ALSO FILED DETAILS OF CERTAIN EXPENSES VIDE LETTERS DATED 7.9.2006 AND 26.9.2006 APPEARING AT PAGES 8 TO 12 OF THE ASSESSEES PAPER BOOK. SINCE THE DISALLOWANCE OF 15% OUT OF THE ABOVE EXPENSES WAS MADE BY THE ASSES SING OFFICER ON ESTIMATE BASIS WITHOUT POINTING OUT ANY ITEM OF DISALLOWABLE NATUR E AND IN THE ABSENCE OF ANY FINDING THAT SOME OF THE EXPENSES ARE PERSONAL OR C APITAL IN NATURE, WE ARE OF THE VIEW THAT THE ESTIMATED DISALLOWANCE MADE BY THE AS SESSING OFFICER IS NOT SUSTAINABLE AND ACCORDINGLY WE ARE INCLINED TO UPHO LD THE FINDING OF LEARNED CIT (A) IN DELETING THE SAME. THE GROUND TAKEN BY THE REVE NUE IS, THEREFORE, REJECTED. 9. GROUND 2 IS AGAINST THE DELETION OF DISALLOWANCE OF PROCESS LOSS OF RS 4,05,837/-. ITA 52/M/2008 JAYCHANDRA AGRO INDUSTRIES PVT LTD 5 10. AT THE TIME OF HEARING LEARNED DEPARTMENTAL REP RESENTATIVE SUPPORTS THE ORDER OF THE ASSESSING OFFICER. 11. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFORE THE ASSESSING OFFICER AND LEARNED CIT (A) FURTHER SUBMITS THAT SINCE THE ASSESSEE HAS MAINTAI NED PROPER BOOKS OF ACCOUNTS AND THE PROCESS LOSS HAS BEEN INCURRED IN THE NORMAL CO URSE OF BUSINESS, WHICH IS COMPARABLE WITH THE ASSESSMENT YEARS 2003-04 AND 20 05-06, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE PROCESS LOSS O F 4.37% AND MADE ADDITION OF RS 4,05,837/- AND THE LEARNED CIT (A) WAS FULLY JUSTIF IED IN DELETING THE SAME AND HIS ORDER BE UPHELD. 12. HAVING CAREFULLY HEARD THE SUBMISSIONS OF RIVAL PARTIES AND PERUSING THE MATERIAL ON RECORD WE FIND THAT THE ASSESSEE HAS FI LED COMPARATIVE QUANTITATIVE DETAILS OF RAW MATERIAL CONSUMED AND PRODUCTION OBT AINED AS UNDER : PARTICULARS QUANTITY AY 05-06 QUANTITY AY 04-05 QUA NTITY AY 03-04 MAIZE RAW OIL-CONSUMED 295.195 192.180 140.085 PRODUCTION OF REFINED OIL 185.247 174.162 126.805 SOAP STOCK 15.385 13.453 8.230 LOSS RATIO IN CONVERSION OF RAW OIL TO REFINED OIL 10.15% 9.37% 9.48% LOSS RATIO IF SOAP IS CONSIDERED 2.69% 2.37% 3.60% WE FURTHER FIND THAT IT HAS BEEN CLAIMED BY THE ASS ESSEE THAT THE ASSESSEE HAS MAINTAINED PROPER BOOKS OF ACCOUNTS INCLUDING THE S TOCK REGISTER WHICH HAS NOT BEEN CONTROVERTED BY THE REVENUE EVEN AT THIS STAGE. IT WAS ALSO CLAIMED BY THE ASSESSEE THAT PRODUCTION LOSS IS MAINLY DUE TO IMPURITIES IN THE RAW OIL, WHICH HAS BEEN SEPARATED RESULTING LOSS IN WEIGHT OF THE FINISHED GOODS. THIS YEAR THE ASSESSEE HAS SHOWN PROCESS LOSS IN RATIO IN CONVERSION OF RAW OI L AT 9.37% WHICH IS LOWER THAN IN ASSESSMENT YEAR 2003-04 AT 9.48% AND ASSESSMENT YEA R 2005-06 AT 10.15%. SINCE THE ASSESSEE HAS MAINTAINED PROPER BOOKS OF ACCOUNT S AND HAS EXPLAINED THE REASONS FOR PROCESS LOSS AND ALSO KEEPING IN VIEW THAT NO D EFECT WAS POINTED OUT BY THE ASSESSING OFFICER IN THE MAINTENANCE OF THE BOOKS O F ACCOUNTS, WE ARE OF THE VIEW ITA 52/M/2008 JAYCHANDRA AGRO INDUSTRIES PVT LTD 6 THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAK ING THE ADDITION OF RS 4,05,837/- ON ACCOUNT OF PROCESS LOSS AND THE LEARNED CIT (A) WAS FULLY JUSTIFIED IN DELETING THE SAME, AND, HENCE, WE ARE INCLINED TO UPHOLD THE FIN DING OF LEARNED CIT (A) IN DELETING THE SAME. THE GROUND TAKEN BY THE REVENUE IS, THEREFORE, REJECTED. 13. IN THE RESULT, REVENUES APPEAL STANDS DISMISSE D. ORDER PRONOUNCED TODAY ON THE 27TH DAY OF NOVEMBER 2009. SD/- (J S REDDY) ACCOUNTANT MEMBER SD/- (D K AGARWAL) JUDICIAL MEMBER MUMBAI, DATE: 27TH NOVEMBER 2009 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) VI, MUMBAI. 4) THE CIT CITY-6, MUMBAI. 5) THE DR J BENCH, ITAT, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR CHAVAN* I.T.A.T., MUMBAI ITA 52/M/2008 JAYCHANDRA AGRO INDUSTRIES PVT LTD 7 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 13.11.09 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 16/18.11.09 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS 7 FILE SENT TO THE BENCH CLERK SR.PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER