The ACIT, Mehsana Circle, Mehsana V. Sardar Dairy Ltd., Mehsana

ITA 654/AHD/2006

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6749 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 01-04-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 13-03-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHELLEY JINDAL
• Assessee Lawyers: J P SHAH
• Keywords: Rejection of books of accounts; Unexplained investment; Income from undisclosed sources
• Section: 69C; 145

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI D.K. TYAGI, JM AND D.C.AGRAWAL, AM ASSTT. CIT, MEHSANA CIRCLE, MEHSANA. VS. SARDAR DAIRY LTD., NR. GUJCOMOSOL PALAVASANA, MEHSANA. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI SHELLEY JINDAL, CIT,DR RESPONDENT BY:- SHRI J.P. SHAH, AR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE RAISING FOL LOWING GROUNDS :- (1) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE UNEXPLAINED INVESTMENT IN STOCK OF RS.1,37,24,651/- U/S 69 OF THE I.T. ACT. (2) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.20,00,000/- MADE ON ACCOUNT OF SUPPR ESSION OF SALES. (3) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.5,50,140/- MADE U/S 69 ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK OF CURD. (4) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.3,56,624/- MADE U/S 69 ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK OF PANEER. ITA NO.654/AHD/2006 ASST. YEAR 2002-03 ITA NO.654/AHD/2006 ASST. YEAR2002-03 2 2. THE FACTS RELATING TO THE CASE ARE THAT THE ASSE SSEE COMPANY IS ENGAGED IN THE BUSINESS OF SALE OF MILK AND DAIRY P RODUCTS. IT HAD FILED RETURN OF INCOME ON 30.10.2002 FOR ASST. YEAR 2002- 03 DECLARING NIL INCOME. EARLIER RETURN WAS PROCESSED U/S 143(1) BUT LATER PICKED UP FOR SCRUTINY. DURING THE YEAR UNDER CONSIDERATION THE A SSESSEE COMPANY HAS SHOWN TOTAL TURNOVER OF RS.19.85 CRORES WITH GP OF RS.26,92,000/- AS AGAINST TURNOVER OF RS.20.76 CRORES AND GP OF (-) R S.10,32,000/-. IN THE ASSESSMENT PROCEEDINGS THE AO CARRIED OUT ENQUIRIES AND FOUND THAT ASSESSEE HAS EFFECTED SALE OF MILK IN EXCESS OF WHA T IS PURCHASED OR PRODUCED BY IT. THE AO WORKED OUT FOLLOWING CHART T O SUPPORT HIS INFERENCES:- MONTH OPENING STOCK (K.F.) PURCHASE (K.F.) CONSUMPTION/SALE (K.F.) (CLOSING STOCK (K.F.) APRIL 1503 45837 43750 3592 MAY 3590 46091 50704 -1023 JUNE NIL 44991 50930 -5939 JULY NIL 46550 62850 -16300 AUGUST NIL 52652 62777 -10125 SEPTEMBER NIL 47951 52582 -4631 OCTOBER NIL 46053 56532 -10479 -48,497 NOVEMBER NIL 51199 49727 1472 DECEMBER 1472 63381 46414 18439 JANUARY 18439 64062 47457 35044 FEBRUARY 35044 61279 49122 47201 CLOSING STOCK AS PER CHART 57033 CLOSING STOCK AS PER BOOKS 1404 --------- DIFFERENCE 55629 ---------- ITA NO.654/AHD/2006 ASST. YEAR2002-03 3 ON THE BASIS OF ABOVE CHART THE AO WORKED OUT THAT ASSESSEE HAS SOLD EXCESS FAT OF 48497 KG. DURING THE PERIOD APRIL, 20 01 TO OCTOBER, 2001. HE TREATED IT AS UNDISCLOSED INVESTMENT IN PURCHASE OF FAT. APPLYING AVERAGE RATE OF RS.283/- PER KILO HE PROPOSED AN AD DITION OF RS.1,37,24,651/-. 3. THE AO ALSO WORKED OUT THAT CLOSING STOCK OF FAT AS PER ABOVE CHART SHOULD HAVE BEEN 57033 KG. WHEREAS AS PER BOOKS IT IS ONLY 1404 KG. THUS THERE IS A DIFFERENCE OF 55629 KG. OF FAT WHIC H ACCORDING TO HIM SHOULD HAVE BEEN IN THE BOOKS WHOSE VALUE HE WORKED OUT @ RS.283/- PER KG. AT RS.1,57,43,007/-. 4. IN ADDITION TO ABOVE THE AO ALSO POINTED OUT THA T IN THE OPENING STOCK ASSESSEE HAD 304 KILO OF CURD, BUT NO PURCHAS E OF CURD HAS BEEN SHOWN AND 2611 KG. CURD HAS BEEN SOLD. HE WORKED OU T THE INVESTMENT IN SALE OF SUCH CURD AT RS.5,50,140/-. 5. SIMILARLY, THE AO WORKED OUT THAT EVEN IN THE CA SE OF PANEER, SALES OF 891 KG HAS BEEN SHOWN WHEREAS IN THE OPENING STO CK THERE WAS ONLY 10 KG OF PANEER. THUS THERE WAS EXCESS AVAILABILITY OF PANEER OF 881 KG. WHOSE VALUE WAS WORKED OUT AT RS.3,50,400/-. 6. IN RESPECT OF FIRST ISSUE REGARDING EXCESS FAT W HOSE VALUE WAS WORKED OUT AT RS.21,37,24,651/-, THE ASSESSEE SUBMI TTED THAT INPUT OF MILK ITA NO.654/AHD/2006 ASST. YEAR2002-03 4 VARIES FROM SEASON TO SEASON. IN WINTER INPUT IS MO RE THAN OUTGOING. IN SUMMER OUTGOING IS MORE THAN INPUT. WHEN THERE IS H IGHER INPUT THE MILK IS CONVERTED INTO CREAM/BUTTER AND PRESERVED AND WH EN DEMAND OF MILK IS HIGH, IT IS RECONVERTED INTO MILK. THE ASSESSEE SUB MITTED THAT EXCESS AVAILABILITY OF CREAM/BUTTER FROM WINTER SEASON IS USED IN CREATING OTHER PRODUCTS IN LEAN SEASON AND SOLD. IT WAS FURTHER EX PLAINED THAT MAIN INGREDIENTS OF NATURAL MILK ARE MILK FAT-S.N.F. AND WATER. FROM THE NATURAL MILK, PRODUCTS LIKE GHEE, BUTTER, CHEESE, P ANEER, ETC. ARE PRODUCED. MECHANICALLY MILK FAT CAN BE SEPARATED AND PRESERVE D. FURTHER, MECHANICALLY ALSO, SNF, WATER AND MILK FAT CAN BE COMBINED IN REQUIRED PROPORTION AND MILK CAN BE PRODUCED. SUCH MILK CALL ED RE-CONSTITUTED MILK IS SUPPLIED DURING SHORTAGE OF FRESH MILK. THE ASSESSEE THEN EXPLAINED THE QUANTITY TALLY OF FAT AS UNDER :- PARTICULARS KILO FAT OPENING STOCK OF KILO (KILO FAT) 1503 ADD PURCHASE DURING THE YEAR 628088 ADD RECEIPT FROM BUTTER & CREAM 54714 684305 LESS SALES OF MILK (KILO FAT) 621055 LESS KILO FAT USED IN VARIOUS PRODUCT- LIKE GHEE, CREAM, BUTTER ETC. 61846 CLOSING BALANCE OF MILK (KF)) 1404 ON THE ABOVE BASIS IT WAS SUBMITTED THAT THERE IS N O SHORTAGE OF FAT OF 48497 KG. OR SHORTAGE OF CLOSING STOCK OF 55629 KG. AS WORKED OUT BY THE ITA NO.654/AHD/2006 ASST. YEAR2002-03 5 AO. THE ASSESSEE ALSO PROVIDED TO THE AO HOW FAT WA S USED IN RECONVERTING INTO MILK AND IT GAVE FOLLOWING QUANTI TATIVE TALLY : PARTICULARS KILO FAT OPENING STOCK OF BUTTER 76348 ADD RECEIPT FROM MILK 55419 131767 LESS SALES OF BUTTER 20116 LESS USED FOR GHEE 18397 LESS USED FOR RECOMBINATION OF MILK 54000 92513 CLOSING BALANCE 39254 7. THE AO, HOWEVER, DID NOT ACCEPT ABOVE EXPLANATIO N. HE CARRIED OUT ENQUIRIES PUT UP SOME QUESTIONS AND OBTAINED INFORM ATION FROM MEHSANA DISTRICT CO-OPERATIVE MILK PRODUCERS UNION LTD. (M DCMPUL IN SHORT) WHICH INFORMED TO THE AO AS UNDER:- 16(III) PLEASE STATE WHETHER MANUFACTURED BUTTER ( BUTTER FAT) INTO MILK. IN CASE, IF MANUFACTURED BUTTER CAN NOT BE RECONVER TED INTO MILK, THEN PLEASE EXPLAIN THE REASON THE REASONS FOR THE SAME IN VIEW OF ITS TECHNICAL ASPECTS. IN THIS REGARD, KINDLY FURNISH THE REPORT OF TECHNICAL PERSON DOING THE JOB OF PROCESSING AND MANUFACTURING OF MILK PRO DUCTS. NO. THE BUTTER CANNOT BE RECONVERTED INTO MILK AS S UCH. BECAUSE ONCE BUTTER IS MANUFACTURED THE PHASE REVERSAL OF FAT TA KES PLACE. THEREFORE, IF WE MELT THE BUTTER THE ORIGINAL CHARACTERISTICS OF THE MILK FAT IS NOT ATTAINED. 16(IV) LIKEWISE, PLEASE EXPLAIN WHETHER CREAM, GHE E, CURD, ETC. CAN ALSO BE RECONVERTED INTO MILK. IF YES, THEN PLEASE FURNI SH RECONVERTING OF SUCH ITEMS INTO MILK. IF NO, THEN PLEASE FURNISH THE REA SONS FOR THE SAME. PLEASE ALSO STATE THE QUANTITY OF INPUTS OF CREAM AND OUTP UT OF CONVERTED MILK IN THE RATIO OF PERCENTAGE. ITA NO.654/AHD/2006 ASST. YEAR2002-03 6 THE CREAM, GHEE AND CURD CANNOT BE RECONVERTED INTO MILK. THE CREAM MOSTLY CONTAINS FAT AND DOES NOT CONTAIN SUFFICIENT SNF TO BE ABLE TO BE RECONVERTED INTO MILK. THE GHEE IS ALSO NOT CONVERT IBLE INTO MILK BECAUSE OF CHANGE OF STATE OF FAT. IN CURD, THE LACTOSE IS CONVERTED INTO LACTIC ACID AND ALSO CHANGE OF STATE OF OTHER CONSTITUTES LIKE PROTEIN ETC. WHICH CAN NOT BE REVERSED. THIS REPLY WAS SUBMITTED BY DY. GENERAL MANAGER, MD CMPUL AND ON THIS BASIS THE AO WAS OF THE VIEW THAT BUTTER AND C REAM CANNOT BE RECONVERTED INTO MILK. HOWEVER, ASSESSEE OBTAINED L ETTERS FROM DR. C.V.PATEL, (PH.D. USA), DR. PILKHANE, PUNE AND SHET H M.C. COLLEGE OF DAIRY SCIENCE, ANAND. THE ASSESSEE ALSO SUBMITTED D AIRY PROCESSING MANUAL OF NATIONAL DAIRY DEVELOPMENT BOARD, ANAND, WHEREIN IT IS MENTIONED THAT WHITE BUTTER AND BUTTER OIL CAN BE R ECONVERTED INTO MILK. THE AO, HOWEVER, DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE THAT IT COULD HAVE CONVERTED 54000 KG. BUTTER/FAT INTO MILK AS ACCORDING TO HIM ASSESSEE FAILED TO PRODUCE ANY STOCK REGISTER, CONS UMPTION REGISTER OR ANY RECORD WHICH COULD SHOW THE STAGES OF CONSUMPTION O F ABOVE QUANTITY OF BUTTER INTO MILK. THUS REJECTING THE ABOVE EXPLANAT ION OF THE ASSESSEE THE AO TREATED THE SUM OF RS.1,37,24, 651/- AS UNDISCLO SED INCOME BEING THE INVESTMENT IN NEGATIVE STOCK OF MILK FAT WHICH WAS LATER SOLD BY THE ASSESSEE. 8. THE AO ALSO HELD THAT ASSESSEE SHOULD HAVE STOCK OF MILK FAT TO THE EXTENT OF 55,629 KG. WHOSE VALUE WAS WORKED OUT BY HIM AT RS.1.57 CRORES. HE ALLOWED THE MARGIN OF 1.37 CRORES BEING THE ADDITION PROPOSED ITA NO.654/AHD/2006 ASST. YEAR2002-03 7 IN RESPECT OF FIRST ITEM AND THE DIFFERENCE BEING R S.20 LACS WAS FURTHER PROPOSED AS ADDITION ON ACCOUNT OF SUPPRESSION OF C LOSING STOCK. 9. ACCORDING TO THE AO, INVESTMENT IN CURD AND PANE ER SOLD IN EXCESS WAS ALSO NOT EXPLAINED AND ACCORDINGLY PROPOSED THE ADDITION RS.5,50,140/- AND RS.3,56,624/- RESPECTIVELY. 10. WHEN THE MATTER CAME UP BEFORE THE LD. CIT(A), HE OBSERVED THAT THE AO HAS NOT POINTED OUT ANY SINGLE INSTANCE OF U NACCOUNTED PURCHASES AND FURTHER THAT THERE IS A HIGHER TREND OF CONSUMP TION OF ELECTRICITY DURING THE LEAN PERIOD SHOWING THAT THE ASSESSEE HA S WORKED OUT RE- CONVERSION OF MILK FAT INTO MILK. THE LD. CIT(A) IN THIS REGARD OBSERVED AS UNDER :- 7.1 I FIND THAT THE AMOUNTS OF SALES OF WHITE BUTT ER STATED IN THIS CHART FOR VARIOUS MONTHS FOR THE MONTH OF MAY TO OCTOBER CANNOT CREATE ANY DOUBT ABOUT THE CLAIM THAT THE VARIOUS QUANTITY OF WHITE BUTTER USED FOR PRODUCTION OF MILK SHOWN IN THE COLUMN NO.6 WAS NOT ACTUALLY UTILIZED FOR THAT PURPOSE. ON PERUSAL OF STATEMENTS OF ELECTRICI TY BILL CONSUMPTION CHART ON PAGE 81 OF THE PAPER BOOK, I FIND THAT THE ELECTRICITY CONSUMPTION FOR THE MONTH OF MAY TO OCTOBER WAS MUCH MORE THAN THE AVERAGE CONSUMPTION OF ELECTRICITY IN OTHER MONTHS OF THE Y EAR. THIS TREND OF CONSUMPTION OF ELECTRICITY APPEARS TO SUPPORT THE C LAIM THAT THERE HAS BEEN PRODUCTION OF RECOMBINED MILK AND THEREFORE HI GHER ELECTRICITY WAS CONSUMED IN THESE MONTHS. IT IS ALSO SEEN THAT THE AO HAS REJECTED THE CLAIM OF THE APPELLANT OF PRODUCTION OF RECOMBINED MILK AND HAS HELD THAT THE APPELLANT HAS MADE PURCHASES OUT OF UNDISCLOSED SOURCES. HOWEVER, NOT A SINGLE INSTANCE OF ANY UNACCOUNTED PURCHASES MADE BY THE APPELLANT HAS BEEN BROUGHT ON RECORD. IN VIEW OF TH IS I HOLD THAT THE FINDING OF THE AO THAT THE APPELLANT HAS MADE PURCH ASES OUT OF UNDISCLOSED SOURCES IS NOT WELL FOUNDED AND NOT JUS TIFIED. ITA NO.654/AHD/2006 ASST. YEAR2002-03 8 7.2 THE AO HAS ALSO BASED HIS DECISION FOR THE ADDI TION ON HIS FINDING FOR REJECTION OF BOOK RESULTS SHOWN BY THE APPELLAN T. I FIND THAT FOR REJECTING THE BOOKS OF ACCOUNTS OF THE APPELLANT U/ S 145(3) OF THE IT ACT THE AO HAS MAINLY EMPHASIZED THE FACT THAT THE APPE LLANT HAS NOT MAINTAINED DAY TO DAY STOCK REGISTER. FOR THIS, THE LD. AR OF THE APPELLANT CONTENDED THAT MERELY ON THE BASIS THAT DAY TO DAY STOCK REGISTER WAS NOT BEING MAINTAINED WITHOUT THERE BEING ANY DEFECTS IN THE BOOKS OF ACCOUNTS, THE BOOK RESULTS SHOWN BY THE APPELLANT C ANNOT BE REJECTED. THE LD. AR RELIED UPON VARIOUS DECISIONS. IT WILL BE RE LEVANT TO REFER TO THE DECISION OF HONBLE ITAT AHMEDABAD IN THE CASE OF A CIT VS. LMP TRACTOR (P) LTD. 148 TAXMAN 52. IN THIS CASE THE AS SESSEE HAD NOT MAINTAINED DAILY QUANTITATIVE STOCK REGISTER OF INV ENTORY FOR TRACTORS AND SPARE PARTS AND THERE WAS DIFFERENCE IN SALE OF TRA NSFER IN QUANTITATIVE TALLY. THE HONBLE TRIBUNAL HELD THAT NON-MAINTENAN CE OF QUANTITATIVE DETAILS OF SPARE PARTS CANNOT BE A GROUND FOR REJEC TION OF BOOKS OF ACCOUNTS. IT WAS ALSO HELD THAT WITHOUT PINPOINTING SPECIFIC DEFECTS, REJECTION OF BOOKS OF ACCOUNT BY THE AO WAS NOT JUS TIFIED. 7.3 FROM THE PERUSAL OF JUDGMENTS OF THE VARIOUS HI GH COURT AND TRIBUNAL MENTIONED ABOVE, IT IS CLEAR THAT EVEN IN THE CASE OF ASSESSEE WHERE GP% FOR THE CURRENT YEAR WAS LOWER THAN THE G P PERCENTAGE OF THE IMMEDIATE PREVIOUS YEARS, THE REJECTION OF BOOKS OF ACCOUNTS BY THE AO ON THE GROUND THAT DAILY STOCK REGISTER WAS NOT MAI NTAINED WAS HELD NOT JUSTIFIED. IN THE CASE OF THE APPELLANT GP% FOR THE CURRENT YEAR IS 10.29% AS AGAINST THAT OF THE FY 5.94%. IN VIEW OF THIS, I HOLD THAT THE REJECTION OF BOOKS OF ACCOUNTS BY THE AO U/S 145 IS NOT JUSTI FIED. 8. I ALSO NOTICE THAT THE AFFIDAVITS FILED BY THE A PPELLANT OF THE M.D. OF THE APPELLANT COMPANY AND OTHER EXPORTS IN THE FIEL D OF DAIRY WERE REJECTED BY THE AO SIMPLY HOLDING THAT THESE ARE SE LF SERVING DOCUMENTS. HOWEVER, I FIND THAT IN VIEW OF THE DECISION OF HON . GUJARAT HIGH COURT IN THE CASE OF GLASS LINES EQUIPMENTS CO. LTD. VS. CIT 253 ITR 454, THE FACTS STATED IN THE ABOVE AFFIDAVITS HAVE TO BE ACC EPTED IN ABSENCE OF CROSS-EXAMINING OF THE DEPONENTS OF THE AFFIDAVITS. 9. AS MENTIONED EARLIER THE AO HAS NOT BEEN ABLE TO DETECT EVEN A SINGLE INSTANCE OF PURCHASE MADE BY THE APPELLANT O UT OF UNDISCLOSED SOURCES. HOWEVER, EVEN IF FOR THE SAKE OF PRESUMPTI ON IF IT IS CONSIDERED THAT THERE HAS BEEN ANY UNACCOUNTED PURCHASE, THE C ORRESPONDING SALES HAVE ALREADY BEEN ACCOUNTED FOR IN THE BOOKS OF ACC OUNTS BY THE APPELLANT. ON THIS ISSUE, IT IS RELEVANT TO REFER T O THE DECISIONS OF JODHPUR TRIBUNAL WHICH HAS HELD AS UNDER :- ITA NO.654/AHD/2006 ASST. YEAR2002-03 9 'THE INCOME TAX OFFICER PROCEEDED WITH THE ASSUMPTI ON THAT ALL THE SALES HAVE BEEN ACCOUNTED FOR AND THAT ONLY PART OF THE PURCHASES H AVE BEEN MADE OUTSIDE THE BOOKS. WHATEVER ADDITION IS REQUIRED TO BE MADE IN THIS RE GARD WILL HAVE TO BE AGAIN GIVEN CREDIT FOR AS A COMPONENT OF PURCHASE IN ARRIVING A T THE REAL PROFIT OF THE BUSINESS. IT IS TO BE REMEMBERED THAT THIS IS NOT A CASE WHERE A PART OF THE BUSINESS CONSISTING OF THE PURCHASE AND SALES OPERATION TOTALLY ARE OUTSID E THE BOOKS. HENCE THE SEPARATE ADDITION AS MADE BY THE INCOME-TAX OFFICER IS TOTAL LY UNWARRANTED. ON THE ISSUE OF UNACCOUNTED PURCHASES, THE BANGLORE TRIBUNAL IN THE CASE OF INDUSTRIAL TRADING COMPANY VS. ITO HAS ALSO HELD AS UNDER :- INCOME FROM UNDISCLOSED SOURCES-ADDITION UNDER S.6 9C-UNACCOUNTED PURCHASES ITO ON FINDING THAT IN CERTAIN MONTHS, THE FIGURES OF OPENING STOCK AND PURCHASES WERE EITHER NIL OR FOR LESS THAN AMOUNT OF SALES SH OWN IN BOOKS OF ASSESSEE, MADE ADDITION OF SUCH EXCESS SALES AS UNACCOUNTED PURCHA SES HOWEVER, THERE WAS NO SALES TRANSACTIONS OUTSIDE THE BOOKS ADDITION HAVING BEE N MADE OVER AND ABOVE THE NORMAL NET PROFIT COMPUTED BY HIM ON THE BASIS OF F IGURES ADOPTED IN SALES-TAX ASSESSMENT, COULD NOT BE JUSTIFIED. 10. IN VIEW OF THE ABOVE DISCUSSION, I HOLD THAT TH E AO IS NOT JUSTIFIED IN MAKING THE ADDITION ON ACCOUNT OF INVESTMENT IN THE PURCHASES OF RS.1,37,24,651/- OUT OF UNDISCLOSED SOURCES U/S 69C OF THE IT ACT. HENCE, THE ADDITION OF RS.1,37,24,651/- IS DELETED. 11. IN RESPECT OF OTHER THREE ADDITIONS NAMELY RS. 20 LACS, RS.5,50,140/- AND RS.3,26,624/-, THE LD. CIT(A) GAV E SIMILAR FINDING THAT ONCE ASSESSEE HAS PRODUCED RECOMBINED MILK THEN ALL OTHER SHORTAGES ARE EXPLAINED AND HE ACCORDINGLY DELETED THE ADDITIONS. 12. BEFORE US, THE LD. DR SUBMITTED THAT LD. CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT MILK CAN BE PRODUCED FROM BUTTER. ACCO RDING TO HIM WHEN MILK FAT IS CONVERTED INTO WHITE BUTTER WHICH IS PR ESERVED, IT CANNOT BE CONVERTED BACK INTO MILK AS A CHEMICAL REPOSITIONIN G OF MOLECULES TAKES PLACE WHICH CANNOT BE UNDONE. HE STRONGLY RELIED ON THE ORDER OF AO. ITA NO.654/AHD/2006 ASST. YEAR2002-03 10 13. ON THE OTHER HAND, LD. AR HEAVILY RELIED ON THE ORDER OF LD. CIT(A) AND SUBMITTED THAT RECOMBINED MILK CAN BE PRODUCED FROM MILK FAT. SOME STATEMENT OF DY. GENERAL MANAGER, MDCMPUL IS INSIGN IFICANT. IT SEEMS THAT HE HAS MISUNDERSTOOD THE QUESTION. IN FACT REC OMBINED MILK FAT WITH OTHER INGREDIENTS TO PRODUCE MILK IS A COMMON PHENO MENA IN THE DAIRY INDUSTRY. THE LD. AR REFERRED TO THE CERTIFICATE IS SUED BY THE PROFESSOR AND HEAD, DAIRY TECHNOLOGY DEPARTMENT, SMC COLLEGE OF D AIRY SCIENCE, ANAND AGRICULTURAL UNIVERSITY, ANAND, WHEREIN HE HA S STATED AS UNDER :- I, DR. M.J.SOLANKY, WORKING IN SMC COLLEGE OF DAIR Y SCIENCE, ANAND AGRICULTURAL UNIVERSITY, ANAND SINCE LAST 25 YEARS, CERTIFY THAT RECOMBINED MILK CAN BE MADE BY MIXING FAT SOURCE (I N THE FORM OF BUTTER OR BUTTER OIL (GHEE) OR CREAM), SOLID NOT FA T (SNF) SOURCE (IN THE FORM OF SKIM MILK POWDER, ETC.) AND WATER. IT IS HO MOGENIZED AND PASTEURIZED AND MADE IN TO MILK OF DESIRED FAT AND SNF. ACCORDING TO PREVENTION OF FOOD ADULTERATION (PFA) ACT, 1954, A LEGAL STANDARD APPLICABLE IN INDIA, RECOMBINED MILK MEANS THE HOM OGENIZED PRODUCT PREPARED FROM MILK FAT, NON-FAT MILK SOLIDS (I.E. S NF) AND WATER. RECOMBINED MILK SHALL BE PASTEURIZED AND SHALL SHOW A NEGATIVE PHOSPHATES TEST (PFA ACT, ITEM NO.A11.01.07) AS PE R THE PFA STANDARD, IF THE NAME OF MILK RECOMBINED MILK IS GI VEN THEN IT MUST CONTAIN MINIMUM 3.0% FAT AND MINIMUM 8.5% SNF (ITEM NO.A.11.01.11). HE ALSO REFERRED TO CLAUSE A 11.01.07 OF THE PREVE NTION OF FOOD ADULTERATION RULES, 1955 ALSO STATED AS UNDER :- A.11.01.0. RECOMBINED MILK MEANS THE HOMOGENIZED PRODUCT PREPARED FROM MILK FAT, NON-FAT-MILK SOLIDS AND WAT ER. RECOMBINED MILK SHALL BE PASTEURIZED AND SHALL SHOW A NEGATIVE PHOS PHATES TEST. ITA NO.654/AHD/2006 ASST. YEAR2002-03 11 14. THE LD. AR SUBMITTED THAT RELIANCE SHOULD NOT B E PLACED ON THE STATEMENT OF DY. GENERAL MANAGER, MDCMPUL ON THE FA CE OF CERTIFICATE ISSUED BY THE EXPERTS IN THE FIELD. IN ANY CASE, TH E TWO CONTRA STATEMENTS WOULD NEUTRALIZE EACH OTHER AND, THEREFORE, NO ADDI TION ON THAT BASIS CAN BE MADE. HE SUBMITTED THAT IT IS A KNOWN PHENOMENA IN DAIRY INDUSTRY TO CREATE RECONVERTED MILK, OTHERWISE SUPPLIES IN LEAN SEASON CANNOT BE MET. NOTWITHSTANDING THE LD. AR SUBMITTED THAT GP SHOWN BY THE ASSESSEE IS BETTER THIS YEAR AS COMPARED TO EARLIER YEARS AS UN DER :- ASST. YEAR G.P.% 1999-2000 5.96 2000-2001 8.33 2001-2002 5.94 2002-2003 10.29 2003-2004 10.30 2004-2005 9.20 2005-2006 8.30 15. THE LD. AR HAD REFERRED TO A MAGAZINE PUBLISHED BY DAIRY INDIA IN THE YEAR 2002 ON VARIOUS TECHNOLOGIES USED IN MILK PRODUCTION ABOUT RE- COMBINATION OF MILK. IT HAS BEEN MENTIONED AS UNDER :- RECOMBINATION OF MILK: IN THIS PROCESS, FRESH MILK IS MIXED WITH RECONSTITUTED MILK (SKIM MILK POWDER + WATER) AND BUTTER OIL OR WHITE BUTTER OR CREAM FOR PRODUCTION OF STANDARD MILK OF DESIRE FAT PERCENTAGE. THE RECOMBI NED MILK IS USED LARGELY FOR MARKETING AS STANDARDIZED MILK (4.5% FAT, 8.5% SNF) , TONED MILK (3% FAT, 8.5% SNF), DOUBLE TONED MILK (1.5% FAT 9% SNF). BESIDES RECOMB INED/STANDARDIZED MILK, CREAM IS ALSO USED TO MANUFACTURE PRODUCTS LIKE DAHI,CHEE SE, PANEER, ICE CREAM, ETC. WHEN THERE IS SHORTAGE OF FRESH MILK. THE RECOMBINATION PROCESS CONSISTS OF - MILK POWDER BLENDING WITH WATER (RECONSTITUTION); ITA NO.654/AHD/2006 ASST. YEAR2002-03 12 BUTTER OIL/UNSALTED BUTTER MELTING AND INJECTION I N THE RECONSTITUTED MILK; AND HOMOGENIZATION AND PASTEURIZATION OF MILK. THEREFORE, IT IS INCORRECT TO HOLD THAT MILK CANNOT BE PRODUCED BY COMBINATION OF VARIOUS INGREDIENTS AS AGAINST FRESH MILK. 16. THE LD. AR ALSO SUBMITTED THAT LD. CIT(A) HAS G IVEN SPECIFIC FINDING THAT AO CANNOT REJECT THE BOOKS OF ACCOUNT WITHOUT POINTING OUT ANY DEFECT IN THE BOOKS. HE REFERRED TO PARA 7.3 (R EPRODUCED ABOVE) FROM THE ORDER OF LD. CIT(A). HE SUBMITTED THAT REVENUE HAS NOT RAISED ANY SPECIFIC GROUND AGAINST THIS FINDING OF LD. CIT(A) AND, THEREFORE, NO ADDITION IN TRADING RESULTS CAN BE MADE. 17. IN REJOINDER THE LD. DR SUBMITTED THAT THE AO H AS NOT MADE THE ADDITION IN TRADING RESULTS BUT UNDER DEEMING SECTI ON-69. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. WHAT WE FIND FROM THE PERUSAL OF THE ASS ESSMENT ORDER, ORDER OF THE LD. CIT(A) AND ARGUMENTS OF THE LD. REPRESEN TATIVES OF THE PARTIES THAT ASSESSEE FAILED TO PRODUCE VARIOUS REGISTERS S UCH AS STOCK REGISTER, CONSUMPTION REGISTER OR ANY RECORD WHICH COULD SHOW THE STAGES OF CONSUMPTION OF BUTTER TO CONVERT INTO MILK. FURTHER NO RECORD HAS BEEN PRODUCED BEFORE HIM WHICH COULD SHOW SALE OF SEPARA TE QUANTITY OF ITA NO.654/AHD/2006 ASST. YEAR2002-03 13 PASTEURIZED RE-COMBINED MILK. THUS THERE IS A FAILU RE OF PRODUCTION OF BASIC RECORDS BEFORE THE AO. HOWEVER, THE ISSUE WHE THER RE-COMBINED MILK CAN BE PRODUCED OR NOT HAS NOT BEEN DEALT WITH PROPERLY BY THE AO. HE HAS SIMPLY RELIED ON STATEMENT OF DY. GENERAL MA NAGER, MDCMPUL WITHOUT FURTHER LOOKING INTO THE TECHNOLOGY OF MILK PRODUCTION OR TO STANDARD BOOKS ON THE SUBJECT. IT IS NOT A MATURE A CTION TO EXPRESS OPINION ON ANY ASPECT OF TECHNOLOGY WITHOUT EITHER BEING AN EXPERT ON THE SUBJECT OR REFERRING TO STANDARD BOOKS ON THAT SUBJECT. THE TECHNOLOGY IS SO ADVANCED THAT SOMETHING WHICH COULD APPEAR IMPOSSIB LE IN THE PAST WOULD BECOME POSSIBLE SUBSEQUENTLY. THE DY. GENERAL MANAGER IN FACT HAD ONLY OPINED THAT BUTTER CANNOT BE RECONVERTED I NTO MILK AS SUCH BECAUSE ONCE BUTTER IS MANUFACTURED THE PHASE REVER SAL OF FAT TAKES PLACE AND ORIGINAL CHARACTERISTICS OF MILK FAT IS NOT ATT AINED. THE AO OUGHT TO HAVE CALLED OTHER EXPERTS WHOSE CERTIFICATES ASSESS EE HAS PRODUCED, SHOULD HAVE ALSO CALLED THE DY. GENERAL MANAGER, MD CMPUL, CONFRONT THEM AND SHOULD HAVE COME TO A CONSENSUS AFTER CONS ULTING THE STANDARD BOOKS. AFTER ALL IF OTHER EXPERTS OPINED THAT MILK CAN BE PRODUCED FROM FAT OR BUTTER OIL THEN THERE MUST HAVE BEEN SOME BASIS IN THEIR MIND AND SOME OTHER TECHNOLOGY THEY WOULD BE KNOWING. WITHOUT CRO SS-VERIFICATION, CONFRONTING EACH OTHER AND REFERENCE TO STANDARD TE XT BOOKS, THE AO SHOULD NOT HAVE ADHERED ONLY ON THE OPINION OF THE DY. GENERAL MANAGER. WE ACCORDINGLY REJECT THE CONTENTION OF LD. AO AND THE LD. DR IN THIS ITA NO.654/AHD/2006 ASST. YEAR2002-03 14 REGARD. EVEN THOUGH REVENUE HAS NOT SPECIFICALLY RA ISED ANY GROUND IN THE DEPARTMENTAL APPEAL BUT THE LD. DR SUBMITTED TH AT HE IS RAISING SPECIFIC ARGUMENTS THAT IN ABSENCE OF BASIC RECORDS AND NOT BEING ABLE TO PROVE RECONVERSION OF MILK OF THE SAME QUANTITY AS SHOWN BY THE ASSESSEE AS SALES, BOOKS ARE NOT RELIABLE AND CORRECT PROFIT S CANNOT BE DEDUCED FROM THEM. 19. THE ONLY INFERENCE THAT CAN BE DRAWN FROM THE A BOVE IS THAT BOOKS OF ACCOUNTS OF THE ASSESSEE AS SUCH ARE NOT RELIABL E IN ABSENCE OF BASIC RECORDS NOT PRODUCED BEFORE THE AO. BUT THE REVENUE HAS NOT RAISED ANY SPECIFIC GROUND BEFORE US IN RESPECT OF THE FINDING OF THE LD. CIT(A) THAT THE AO HAS NOT FOUND THE DEFECTS IN THE BOOKS OF AC COUNT AND, THEREFORE, BOOKS CANNOT BE REJECTED U/S 145. IN OUR CONSIDERED VIEW, THE FINDING GIVEN BY LD. CIT(A) CANNOT BE REVERSED IN ABSENCE O F SPECIFIC GROUND. HOWEVER, WE UPHOLD THE ARGUMENTS OF LD. DR THAT BOO KS ARE NOT RELIABLE AS STATEMENT OF ACCOUNTS SUBMITTED BY THE ASSESSEE CANNOT HELP IN DEDUCING THE CORRECT, PROFITS THEREFROM IN ABSENCE OF SUPPORTING BASIC RECORDS. THOUGH THE ASSESSEE HAS SHOWN HIGHER PROFI TS THIS YEAR AS COMPARED TO EARLIER YEARS BUT LOOKING TO THE TOTALI TY OF FACTS AND CIRCUMSTANCES OF THE CASE PARTICULARLY THAT ASSESSE E WAS NOT ABLE TO EXPLAIN MONTHLY SHORTAGES OF MILK BY SHOWING UPTO D ATE RECORDS OF RECONVERSION WE CONSIDER IT PROPER TO UPHOLD AN ADD ITION OF RS.5 LACS IN ITA NO.654/AHD/2006 ASST. YEAR2002-03 15 THE TRADING ACCOUNT WHICH WOULD COVER ALL THE FOUR GROUNDS RAISED BY THE REVENUE AS THEY RELATE TO THE SAME ISSUE OF RECONVE RSION. AS A RESULT, REVENUES APPEAL IS PARTLY ALLOWED. 20. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 6/5/11. SD/- SD/- (D. K. TYAGI) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 6/5/11. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 3/5/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 5/5/ 2011 MEMBER .OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..