MULA SAHAKARI SAKHAR KARKHANA LTD, AHMEDNAGAR V. ASSTT COMMISSIONER OF INCOME TAX, AHMEDNAGAR CIRCLE , AHMEDNAGAR

ITA 542/PUN/2020

AI Insights

The case involves Mula Sahakari Sakhar Karkhana Ltd, a sugar manufacturing cooperative, which appealed against the assessment order of the Deputy Commissioner of Income Tax, Aurangabad. The dispute centered on the addition of Rs. 35,04,060 to the appellant's income, representing the value of unaccounted bagasse stock. The Income Tax Appellate Tribunal examined the methods used by the tax authorities to estimate the production and valuation of bagasse, which is a by-product of sugar production. The Tribunal found that the tax authorities had reasonably estimated the production of bagasse based on industry standards and expert inputs, and had correctly valued the unaccounted stock for taxation purposes.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 136192 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-11-2022
• Assessment Year: 1991-1992
• Appeal Filed On: 23-09-2020
• Other Referred Cases: CIT Vs British Paints India Ltd
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Section: 145; 143(3); 250; 13

Judgement Text

॥ आयकर अपीलीय न्यायाधिकरण, पुणे “ए” न्यायपीठ, पुणे में ॥ ITAT-Pune Page 1 of 12 IN THE INCOME TAX APPELLATE TRIBUNAL, PUNE “A” BENCH, PUNE BEFORE HON’BLE SHRI S.S. GODARA, JUDICIAL MEMBER AND SHRI G. D. PADMAHSHALI, ACCOUNTANT MEMBER आयकर अपऩलसं. / ITA No. 542/PUN/2020 निर्धारण वर्ा / Assessment Year : 1991-92 Mula Sahakari Sakhar Karkhana Ltd At Post Sonai, Tal. Newasa, Ahmednagar – 414105. PAN:AAAAM1145M . . . . . . . अपऩलधथी / Appellant बनाम / V/s. Deputy Commissioner of Income Tax Spl. Range-2, Aurangabad. . . . . . . .प्रत्यथी / Respondent द्वारा / Appearances Assessee by : None Revenue by : Shri Ramnath Murkunde सपिवधई की तधरऩख / Date of conclusive Hearing : 29/11/2022 घोर्णध की तधरऩख / Date of Pronouncement : 06/01/2023 आदेश / ORDER PER G. D. PADMAHSHALI, AM; The order of first appellate authority [for short “FAA” / “CIT(A)”] dt. 16/03/2020 passed u/s 250 of the Income-tax Act, 1961 [for short “the Act”] partly confirming the addition made by the Deputy Commissioner of Income Tax, Spl. Range-2, Aurangabad [for short “AO”] vide its order dt. 27/10/1993 passed u/s 143(3) of the Act, is challenged by the assessee on the following grounds; Mula Sahakari Sakhar Karkhana Ltd ITA No.542/PUN/2020 PAN: AAAAM1145M ITAT-Pune Page 2 of 12 “1) On the facts and circumstances of the case the ld. CIT(A) has erred in holding that the amount of Rs. 35,04,060/- towards bagasse stock not accounted & added to income. While arriving at this decision the ld CIT(A) has erred in – 1) Adding to income Rs. 35,04,060/- towards bagasse stock not accounted & added to income. The addition made by the Assessing Officer be deleted. 2) On the facts and in the circumstance. The ld. CIT(A) has erred not considering the decision in Shankar SSK for A.Y. 1990-91 – 63 TTJ 158 (Pune ITAT) Pad. Dr. V. V. Patil SSK Ltd in ITA No. 255/PN/95 for A.Y. 1991-92. 3) Bagasse stock register is duly maintained & was produced before CIT(A). 4) Such addition to stock cannot be made based on Bagasse Bailing expenses of assessee. Such bagasse bailing expenses are low cost & have many ingredients & hence cannot be used for comparison. The appellant craves leave to add, alter, amend or revise the above grounds of appeal at the time of hearing of the above appeal. Mula Sahakari Sakhar Karkhana Ltd ITA No.542/PUN/2020 PAN: AAAAM1145M ITAT-Pune Page 3 of 12 2. The grounds raised in the present appeal are inconsonance with rule 8 of the Income Tax Appellate Tribunal Rules, 1963 [for short “ITAT-Rules”], for the reason it shall suffice to articulate that, the sole and substantive ground in the extant appeal revolves alleging around impugned addition of excess bagasse stock without appreciating the regular method of valuation followed by the appellant. 3. Briefly stated facts of the case are; 3.1 The appellant assessee is a registered society engaged in the business of manufacturing & sale of sugar, had for the assessment year 1991-92 [for short “AY”] filed its return of income [for short “ITR”] on 31/10/1991 declaring total income at ₹6,24,83,892/-, which was subjected assessment u/s 143(3) of the Act and after making various addition/disallowance, the assessment was framed assessing “NIL” income post allowing set-off of brought forward losses. 3.2 One of such addition under adjudication is on account of suppression of sale of bagasse stock Mula Sahakari Sakhar Karkhana Ltd ITA No.542/PUN/2020 PAN: AAAAM1145M ITAT-Pune Page 4 of 12 ₹43,31,700 worked out by the Ld. AO in the absence of stock records showcasing the details of bagasse produced, consumed as fuel in production of sugar, partial sale thereof and balance stock (if any) as at the closure of financial year relevant to AY, which has been expounded at page 4-5 of the assessment order. 3.3 Aggrieved by aforesaid addition, the assessee filed an appeal before the Ld. CIT(A) and later before this Tribunal in ITA No. 721/PN/2004, whereby the Tribunal had remanded the matter back to the file of Ld. FAA for de-nova consideration of the issue in the light of decision of Hon’ble Supreme Court in “CIT Vs British Paints India Ltd” reported in 188 ITR 44. 3.4 Successively, in the second round of appeal before the Ld. FAA, the assessee fruitfully contended the loss of loose stock of bagasse due to fire by placing evidential documents and justification for rate of valuation to be applied for loose stock, pursuant to which the assessee could get partial relief and for the balance addition confirmed by the Ld. FAA, the Mula Sahakari Sakhar Karkhana Ltd ITA No.542/PUN/2020 PAN: AAAAM1145M ITAT-Pune Page 5 of 12 appellant brought up the matter before the Tribunal on the grounds laid at para 1) hereinbefore. 4. When case was called up at pre-scheduled physical hearing, none represented the assessee, mindful to the conduct of the appellant showing no appearance on many occasions and to rest elongated adjudication, in the interest of justice we proceed to adjudicate the matter following rule 24 of the ITAT-Rules, which empowers the Tribunal to decide the appeal ex–parte on merits where appellant does not appear in person or through its authorised representative and the same is done placing on record a no-objection from the respondent revenue. It is needless to mention that, proviso to said rule carves out an exception empowering the Tribunal to recall ex–parte order if appellant appears afterwards and satisfies placing evidential material to the effect that, there was sufficient cause for its non–appearance when appeal was called for hearing, however in the event of failure to substantiate non-appearance in the evince of evidentiary material, the recall exercise turns futile. Mula Sahakari Sakhar Karkhana Ltd ITA No.542/PUN/2020 PAN: AAAAM1145M ITAT-Pune Page 6 of 12 5. During the course of physical hearing, the learned departmental representative [for short “DR”] adverting to page 62-63 of paper book, has submitted that, in the absence of stock record the balance stock of bagasse available for sale computed by the Ld. AO cannot be faulted with on the basis of expert certificate obtained subsequently from Vasantdada Sugar Institute. The Ld. DR further placing a strong reliance on the order of tax authorities below [for short “TAB”] contended that, in the absence of stock records after rejecting the book results, the addition carried out by the Ld. AO finds force in the light of Hon’ble Apex Court decision in “CIT Vs British Paints India Ltd” (supra) for the reasons the addition deserves to be sustained. 6. After hearing to rival contentions of both the parties; and subject to the provisions of rule 18 ITAT, Rules, 1963 perused case records, case laws relied upon by the appellant as well the respondent and duly considered the facts of the case in the light of settled legal position forewarned to parties present. Mula Sahakari Sakhar Karkhana Ltd ITA No.542/PUN/2020 PAN: AAAAM1145M ITAT-Pune Page 7 of 12 7. We note that, there was a complete absence of records pertaining to production of bagasse, consumption thereof as fuel in the production of sugar, sales effected during the year under consideration and the figure of balance stock available for sale, for the reason, the Ld. AO vide para 13 of assessment order following the industry standards has meticulously estimated the production of bagasse at 1,62,592MT i.e. 32.97% of crushed sugarcane and considering 4/5 thereof as used for consumption as fuel in the process of production of sugar, and has finally arrived at stock of 32,518MT available for sale in the hands of appellant. The Ld. AO further on the basis of bailing expense incurred by the appellant, has valued the aforestated stock into bailed bagasse and loose bagasse available for sale and framed the assessment by even addition, which Ld. CIT(A) in first round of appeal echoed and confirmed; Bagasse Estimated Stock (MT) Sales (MT) Balance Stock (MT) Rate (₹) Value (₹) Bailed 16789 2995 13794 200 27,58,800 Loose 15729 0 15729 100 15,72,900 Total 32518 2995 29523 - 43,31,700 Mula Sahakari Sakhar Karkhana Ltd ITA No.542/PUN/2020 PAN: AAAAM1145M ITAT-Pune Page 8 of 12 8. We also note that, post assessment, the appellant challenging the estimation of Ld. AO, has obtained a certificate of estimated bagasse production for the varied period 01/10/1990 to 30/09/1991 from Vasantdada Sugar Institute in support of its claim that estimated production of bagasse was only 1,62,595.475MT i.e. 32.97% of sugarcane crushed during the aforestated period. 9. When the Tribunal remanded the matter to the file of Ld. CIT(A) with a clear direction to re-adjudicate the issue a fresh in the light of judgement of Hon’ble Supreme Court in “CIT Vs British Paints India Ltd.” (Supra), the Ld. CIT(A) finding force in the submission of the appellant, accepted certain quantity of loose bagasse as lost due to fire and reconsidered the rate of valuation thereof and sustained the addition to; Bagasse Estimated Stock (MT) Sales / Loss (MT) Balance Stock (MT) Rate (₹) Value (₹) Bailed 16789 2995 13794 200 27,58,800 Loose 15729 3308 12421 60 7,45,260 Total 32518 2995 29523 - 35,04,060 Mula Sahakari Sakhar Karkhana Ltd ITA No.542/PUN/2020 PAN: AAAAM1145M ITAT-Pune Page 9 of 12 10. In this factual background, coming to adjudication, we voice that, the department has set a case against suppression of sales of bagasse for the reasons the case laws relied upon by the appellant is clearly misplaced as those deals with valuation of closing stock, which is not the subject matter under adjudication, hence the ground number 2 of the appeal falls out of our consideration. We are mindful to state that, remaining grounds are also directed against the addition made on account of unaccounted stock of bagasse & its valuation, whereas the records reveals that the addition is carried out alleging suppression of sales of bagasse produced. 11. After vouching the facts, we find that, the estimation of production of bagasse worked out by the Ld. AO approximately & closely ties with the estimation figured in the certificate issued by Vasantdada Sugar Institute and the said estimation of Ld. AO also finds solidified by the excise records RT8(C) produced by the appellant during the second Mula Sahakari Sakhar Karkhana Ltd ITA No.542/PUN/2020 PAN: AAAAM1145M ITAT-Pune Page 10 of 12 round before Ld. FAA, thus the estimation of quantity of bagasse produced arrived by the Ld. AO remains without any dispute and this ispo-facto fortifies the authenticity of procedure adopted by the Ld. AO in arriving the stock of bagasse available for sale. 12. Further, insofar as the computation of saving of stock of bagasse available for sale is concerned, the Ld. AO in the absence of records, after rejecting the books results followed the industry standards in arriving at the estimated the stock available for sale i.e. @ 1/5 of estimated bagasse produced by the appellant. After considering the bailing expenses incurred during the AY under consideration, the Ld. AO classified them into bailed bagasse and loose bagasse and then worked out the value of suppressed sales for the purpose taxing as revenue. 13. From the audited financial statement (page 70 of the paper book), it ostensibly transpires that, the appellant showed no closing stock of bagasse. The Ld. AO, underlining the absence of stock records, after Mula Sahakari Sakhar Karkhana Ltd ITA No.542/PUN/2020 PAN: AAAAM1145M ITAT-Pune Page 11 of 12 allowing the standard consumption from the estimated production of bagasse, the revenue from the suppressed sales of surplus stock of bagasse has carried out the addition as expounded at para 13.1 to 13.4 of his order. 14. Since the appellant failed to negate the estimation of excess stock of bagasse available for sale and its valuation with depreciative & cogent material on record leaves the computation made by the Ld. AO doubtless, thus finds force in taxing the same as revenue from suppressed sales. And the said action of Ld. TAB finds force in the light of judgement of Hon’ble Supreme Court in “CIT Vs British Paints India Ltd.” (Supra), wherein their lordship vide para 19 have held that; “19. Section 145 confers sufficient power upon the officer- nay, it imposes a duty upon him - to make such computation in such manner as he determines for deducing the correct profits and gains. This means that where accounts are prepared without disclosing the real cost of the stock-in-trade, albeit on sound expert advice in the interest of efficient administration of the company, it is the duty of the ITO to determine the taxable income by making such computation as he thinks fit.” Mula Sahakari Sakhar Karkhana Ltd ITA No.542/PUN/2020 PAN: AAAAM1145M ITAT-Pune Page 12 of 12 15. In view of aforestated discussion, we see no reasons to interfere with the action of the Ld. TAB in bringing to tax the revenue from suppressed sales of surplus stock of bagasse, ergo we order accordingly. 16. Resultantly, the appeal of the appellant stands DISMISSED in above terms. In terms of rule 34 of ITAT Rules, the order pronounced in the open court on this Friday 06 th day of January, 2023. -S/d- -S/d- S. S. GODARA G. D. PADMAHSHALI JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / PUNE ; दिन ांक / Dated : 06 th day of January, 2023. आदेश की प्रधिधलधप अग्रेधिि / Copy of the Order forwarded to : 1.अपील र्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The Pr. CIT, Pune 4. The Pr. CIT(E), Pune 5. DR, ITAT, Pune “A” Bench, Pune 6. ग र्डफ़ इल / Guard File. आिेश नुस र / By Order, वररष्ठदनजीसदिव / Sr. Private Secretary आयकर अपीलीय न्य य दिकरण, पुणे / ITAT, Pune.