Asstt. CIT, Sonepat V. Ch. Devi Lal Co-Operative Sugar Mills Ltd., Sonepat

ITA 7/DEL/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9655 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-08-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 02-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: STEPHEN GEORGE
• Assessee Lawyers: R D GUPTA
• Keywords: Gross profit estimation; Business income; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `B : NEW DELHI) BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER ITA NO.07/DEL./2009 (ASSESSMENT YEAR : 2005-06) ACIT, CIRCLE SONEPAT, VS. CH. DEVI LAL COOPERATIVE SUGAR MILLS, VILL. AHULANA TEHSIL GOHANA, DISTT. SONEPAT (PAN/GIR NO.AAATC3088Q) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.D. GUPTA, ADV. REVENUE BY : SHRI STEPHEN GEORGE, CIT(DR) ORDER PER K.D. RANJAN: AM THIS APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 20 05-06 ARISES OUT OF THE ORDER OF CIT(A), ROHTAK. 2. THE FIRST ISSUE FOR CONSIDERATION RELATES TO DEL ETING THE ADDITION OF RS.5,02,35,793/- ON ACCOUNT OF LOW GROSS PROFIT RAT E IN COMPARISON TO EARLIER YEARS. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSE SSEE IS A COOPERATIVE SUGAR MILL. THE ASSESSEE MAINTAINED BOOKS OF ACCOUNT LIKE LEDGER, C ASH BOOK, BILLS AND VOUCHERS. DURING THE COURSE OAF ASSESSMENT PROCEEDINGS, THE ASSESSIN G OFFICER NOTICED THAT THE ASSESSEE HAD SHOWN TOTAL SALES OF RS.59,66,24,620/- AND GROS S PROFIT OF RS.13,99,65,555/- YIELDING A GROSS PROFIT RATE OF 23.46% AS COMPARED TO 31.88% IN IMMEDIATE PRECEDING YEAR. THE ASSESSEE WAS ASKED TO FURNISH REASONS FOR FALLING I N G.P. RATE. IT WAS EXPLAINED BY THE ASSESSEE THAT MANUFACTURING EXPENSES HAVE INCREASED BY RS.399.35 PER BAG DURING FINANCIAL YEAR 2004-05 AS COMPARED TO FINANCIAL YEA R 2003-04 AND AVERAGE SALES REALIZATION INCREASED BY RS.287.97 PER BAG. ACCORD INGLY, THE GROSS PROFIT RATE CAME DOWN FORM 31% TO 23% IN THE YEAR UNDER CONSIDERATION. T HIS CONTENTION OF THE ASSESSEE WAS REJECTED BY ASSESSING OFFICER ON THE GROUND THAT TH E ASSESSEE WAS WORKING IN THE SAME VICINITY OF MEHAM COOPERATIVE SUGAR MILLS WHICH HAD BEEN DECLARING G.P. OF 31.73%, THE ASSESSING OFFICER FURTHER NOTED THAT MANUFACTUR ING EXPENSES UNDER THE YEAR UNDER I.T.A. NO.07/DEL./2009 (A.Y. : 2005-06) 2 CONSIDERATION HAD ACTUALLY DECREASED TO RS.88,11,27 .24 AS COMPARED TO PREVIOUS YEAR OF RS.2,14,88,649.82/-. THEREFORE, THE CONTENTION OF THE ASSESSEE THAT THERE WAS INCREASE IN THE MANUFACTURING EXPENSES WAS NOT CORRECT. THE AS SESSING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE AND ADDED THE AMOUNT OF RS.5,02,35,793/- EQUIVALENT TO FALL IN GROSS PROFIT RATE OF 8.42%. 3. BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), THE ASSESSEE SUBMITTED THAT GROSS PROFIT RATE OF ONE YEAR COULD NOT BE COMPARED WITH THE RATE OF PREVIOUS YEAR. THE MAIN REASON IN LOW GROSS PROFIT RATE WAS DUE TO YIE LD OF SUGAR WHICH DEPENDED UPON QUALITY OF SUGARCANE. THE QUALITY OF SUGARCANE DEP ENDS ON AVAILABILITY OF WATER, CONDITIONS OF CLIMATE AND QUALITY OF THE SEED USED FOR GROWING THE CROP. THE ASSESSEE FURTHER SUBMITTED THAT - (I) SUGAR IS AN ESSENTIAL COMMODITY CONTROLLED BY THE GOVT. OF INDIA. THE MONTHLY QUOTA IS BEING RELEASED BY GOVT. OF INDIA A ND THE RELEASED QUANTITY IS TO BE SOLD COMPULSORY. (II) MERE FACT THAT THE PERCENTAGE OF LOSS OR GROSS PROFIT IS HIGH OR LOW IN A PARTICULAR YEAR DOES NOT LEAD TO AN INFERENCE THAT THERE HAS BEEN SUPPRESSION OF PRODUCTION. (III) WHERE NO DEFECTS ARE POINTED OUT BY THE ASSES SING OFFICER IN THE ACCOUNTS OF THE APPELLANT, THERE IS NO REASON TO INVOKE PROV ISO TO SECTION 145(1) TO THE CASE OF THE APPELLANT. (IV) IN CASES WHERE TAX AUDIT IS DONE AND AUDIT RE PORT FILED WITH THE RETURN AND ALL THE SALE AND PURCHASES ARE DULY VOUCHED, THERE IS NO RULE OF LAW FOR MAKING ANY ADDITION WITHOUT POINTING OUT ANY DEFECT IN THE ACCOUNTS. RELIANCE IS PLACED ON THE CASE OF 24 INDIAN TAXATIO N REPORTS PAGE 219 (ITAT AMRITSAR BENCH). RELIANCE IS ALSO PLACED ON THE DECISION OF HONBLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF CIT, KARNAL VERSUS OVERSEAS SHIV NAGAR, KRISHANPURA, PANIPAT, 3 61 T. REP. 340 WHEREIN THE HONBLE HIGH COURT HAS HELD THAT THE RE JECTION OF AUDITED BOOKS OF ACCOUNTS AND APPLYING A HIGHER RATE OF G.P . WAS NOT PROPER WITHOUT POINTING OUT ANY DEFECTS IN THE BOOKS OF AC COUNTS. THE BOOKS OF ACCOUNTS HAVE BEEN DULY AUDITED U/S 44AB OF THE I.T . ACT. (V) EXCISE PEOPLE REMAIN IN THE MILL ROUND THE CLOC K BECAUSE SUGAR IS AN EXCISABLE COMMODITY. COMMISSIONER OF INCOME-TAX (APPEALS) AFTER CONSIDER ING THE SUBMISSIONS MADE BY THE ASSESSEE OBSERVED THAT THE ASSESSEE HAD BEEN MAINTA INING REGULAR BOOKS OF ACCOUNT WHICH HAVE BEEN DULY AUDITED. THE ASSESSING OFFICER HAD NOT POINTED OUT ANY DEFECTS IN THE PRODUCTION AND SALE OF SUGAR. THE SUGAR OUTPUT COU LD NOT BE ACCEPTED WITH A SPECIFIC STANDARD BECAUSE IF IT WAS SO, THERE WOULD NOT BE A NY VARIATION IN PROFIT AND LOSS ACCOUNT I.T.A. NO.07/DEL./2009 (A.Y. : 2005-06) 3 OF BUSINESS AS COMPARED TO OTHER YEARS. THE COMMIS SIONER OF INCOME-TAX (APPEALS) ACCORDINGLY DELETED THE ADDITION. 4. BEFORE US, CIT(DR), SUPPORTED THE ORDER OF THE A SSESSING OFFICER. ON THE OTHER HAND, LD.AR OF THE ASSESSEE SUBMITTED THAT SUGAR IS AN EXCISEABLE COMMODITY. THE PRODUCTION OF SALE HAS BEEN DULY ACCOUNTED FOR IN T HE BOOKS OF ACCOUNT. NO ADVERSE MATERIAL WAS BROUGHT ON RECORD FOR REJECTION OF BOO K RESULT. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE SUGAR MILL IS MANAGED BY THE OFFICERS OF HARYANA STATE GOVT. THE SUGAR IS AN EXCISABLE COMMODITY. THE PRODUCTION OF SUGAR D EPENDS ON QUALITY OF SUGARCANE AND CLIMATIC CONDITIONS OF THE AREA IN WHICH THE SUGARC ANE IS GROWN. THE ASSESSING OFFICER HAS COMPARED THE RESULTS OF ANOTHER SUGAR MILL WHIC H IS OPERATIVE IN THE SAME DISTRICT. NO OTHER MATERIAL WAS BROUGHT ON RECORD TO JUSTIFY THE ESTIMATION OF GROSS PROFIT. THE ASSESSING OFFICER HAD NOT POINTED OUT ANY DISCREPAN CY IN THE BOOKS OF ACCOUNT. HE HAS NOT REJECTED THE BOOKS OF ACCOUNT. THEREFORE, THE BOOK RESULT WHICH ARE AUDITED BY THE AUDITORS CANNOT BE IGNORED. IN OUR CONSIDERED OPIN ION, COMMISSIONER OF INCOME-TAX (APPEALS) WAS JUSTIFIED IN DELETING THE ADDITION. 6. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DE LETING THE ADDITION OF RS.76,60,650/- ON ACCOUNT OF LOW YIELD RECOVERY OF SUGAR IN COMPAR ISON TO EARLIER YEARS. THE FACTS OF THE CASE RELATING TO THIS GROUND OF APPEAL ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOUND THE RECOVERY @ 9.62% A S COMPARED TO THE RECOVERY OF SUGAR AT 10.14%. SINCE THE ASSESSEE HAD NOT GIVEN ANY JUSTIFICATION FOR FALL IN SUGAR RECOVERY, THE ASSESSING OFFICER ADOPTED THE RECOVER Y OF SUGAR @ 10% OF THE CANE CRUSHED DURING THE YEAR. HE DETERMINED THE TOTAL PRODUCTIO N OF SUGAR AT RS.1,17,252 QTLS. AS AGAINST RS.1,12,789 QTLS. SHOWN BY THE ASSESSEE. H E ADDED THE VALUE OF 4463 QTLS OF SUGAR AMOUNTING TO RS.76,60,650/- AS SUPPRESSED PRODUCTIO N. 7. BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), IT WAS SUBMITTED THAT THE YIELD OF SUGAR DEPENDED UPON THE QUALITY OF SUGARCANE USE D. THE RAW MATERIAL WAS AN AGRICULTURAL PRODUCE AND AVAILABILITY OF WATER, CON DITION OF EXTREME CLIMATE AND SEED EFFECTED RECOVERY THE SUGAR. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAD MAINTAINED REGULAR RECORDS OF DAY-TO-DAY YIELD OF RECOVERY OF SUGAR WHICH WAS PRODUCED BEFORE THE I.T.A. NO.07/DEL./2009 (A.Y. : 2005-06) 4 COMMISSIONER OF INCOME-TAX (APPEALS). THE COMMISSI ONER OF INCOME-TAX (APPEALS) AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSES SEE DELETED THE ADDITION. 8. BEFORE US, LD.CIT(DR) SUPPORTED THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND, LD.AR OF THE ASSESSEE SUPPORTED THE ORD ER OF THE COMMISSIONER OF INCOME- TAX (APPEALS). 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE, AS MENTIONED ABOVE IS MANUFACTURING S UGAR FROM SUGARCANE. SUGAR IS AN EXCISABLE COMMODITY AND PRODUCTION THEREOF IS SUPER VISED BY THE EXCISE DEPARTMENT. THE RECOVERY OF SUGAR DEPENDS ON QUALITY OF SUGARCA NE, THE CLIMATE CONDITIONS ETC. THE ASSESSING OFFICER HAD NOT BROUGHT ANY MATERIAL ON R ECORD TO SUGGEST THAT THE SUGAR WAS MANUFACTURED IN EXCESS OF WHAT HAS BEEN SHOWN IN TH E PRODUCTION REGISTER. THE BOOKS OF ACCOUNT ARE AUDITED. THEREFORE, IN OUR CONSIDERED OPINION, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN ESTIMATING THE YIELD FROM SUGARCANE CR USHED DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, THE COMMISSIONER OF IN COME-TAX (APPEALS) WAS JUSTIFIED IN DELETING THE ADDITION. HENCE, NO INTERFERENCE IS C ALLED FOR. 10. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DEL ETING THE ADDITION OF RS.1,40,53,613/- ON ACCOUNT OF INTEREST CALCULATED BY THE ASSESSING OFFICER ON LOANS AND ADVANCES WHEREAS THE ASSESSEE HAD PAID INTEREST ON THE LOANS RAISED @ 12%. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER NOTICED THAT ASSESSEE HAD MADE ADVANCES TO VARIOUS PARTIES AMOUNTING TO RS.1,71,13 ,444/-. THE ASSESSING OFFICER FURTHER NOTED THAT ASSESSEE WAS PAYING INTEREST ON LOAN RAI SED FROM VARIOUS INSTITUTIONS AND STATE GOVT. ON THE OTHER HAND, NO INTEREST WAS CHARGED B Y THE ASSESSEE ON ADVANCES MADE TO THE PARTIES. HE, THEREFORE, DISALLOWED THE NOTIONA L INTEREST @ 12% ON AMOUNT OF ADVANCE GIVEN TO THE VARIOUS PARTIES WHICH RESULTED IN AN A DDITION OF RS.1,40,53,613/-. 11. ON APPEAL, IT WAS SUBMITTED THAT IN THE CASE OF SONEPAT SUGAR MILLS, SIMILAR ADDITION WAS DELETED. THE COMMISSIONER OF INCOME-T AX (APPEALS) AFTER CONSIDERING THE REPLY OF ASSESSEE AND FOLLOWING HIS DECISION IN THE CASE OF SOPNEPAT SUGAR MILLS DELETED THE ADDITION. 12. BEFORE US, LD.CIT(DR), SUPPORTED THE ORDER OF T HE ASSESSING OFFICER. ON THE OTHER HAND, LD.AR OF THE ASSESSEE SUBMITTED THAT T HE ADVANCES WERE PAID AGAINST PURCHASE OF MACHINERY. I.T.A. NO.07/DEL./2009 (A.Y. : 2005-06) 5 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TOTAL BILLS RECEIVED FROM THE SUPPLIERS WERE AT RS. 12,27,99,021.86, WHILE THE MILL HAD MADE PAYMENT OF RS.11,71,13,448.98. HENCE, NET AMO UNT PAYABLE HAS BEEN AT RS.56,85,576/-. WE ALSO FIND THAT IN THE CASE OF S ONEPAT COOPERATIVE SUGAR MILLS LTD., SIMILAR DISALLOWANCE WAS MADE BY THE ASSESSING OFFI CER IN RESPECT OF ADVANCES MADE TO SUPPLIERS FOR SUPPLYING THE MACHINES AND OTHER ITEM S. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAD DELETED THE NOTIONAL DISALLOWANCE OF INTEREST ON THE GROUND THAT SUPPLIERS DID NOT SUPPLY THE MATERIAL WITHOUT GETTING THE ADV ANCE PAYMENT. IN THE INSTANT CASE AS SEEN FROM THE DETAILS FILED BY THE ASSESSEE THAT TH E ASSESSEE HAD MADE PAYMENT OF RS.1,71,13,444/- FOR PURCHASE OF MACHINERY AND OTH ER ITEMS. SINCE THE PAYMENT HAS BEEN MADE BY THE ASSESSEE FOR MAKING THE PURCHASES FROM DIFFERENT PARTIES, NO DISALLOWANCE OF INTEREST CAN BE MADE. ACCORDINGLY, IN OUR CONSIDER ED OPINION, THE COMMISSIONER OF INCOME-TAX (APPEALS) WAS JUSTIFIED IN DELETING THE ADDITION. 14. THE LAST ISSUE FOR CONSIDERATION RELATES TO DEL ETING THE ADDITION OF RS.1,27,843/- ON ACCOUNT OF VEHICLE MAINTENANCE AND DEPRECATION. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER DISALLOWED 1/5 TH OF VEHICLE MAINTENANCE AND DEPRECIATION ON THE GROUND THAT LOG BOOK WAS NOT PR ODUCED TO JUSTIFY THE EXPENDITURE. HE ACCORDINGLY DISALLOWED THE AMOUNT OF RS.1,27,843/-. 15. ON APPEAL, THE COMMISSIONER OF INCOME-TAX (APPE ALS) DELETED THE ADDITION FOLLOWING HIS DECISION IN THE CASE OF MEHAM COOPER ATIVE MILLS LTD. 16. BEFORE US, LD.CIT(DR) SUPPORTED THE ORDER OF TH E ASSESSING OFFICER. ON THE OTHER HAND, LD.AR OF THE ASSESSEE SUBMITTED THAT T HE ASSESSEE IS CONTROLLED BY THE OFFICERS APPOINTED BY THE STATE GOVT. ON DEPUTATION . THE VEHICLES ARE USED AS PER TERMS OF APPOINTMENT AND, THEREFORE, NO DISALLOWANCE IN RESP ECT OF VEHICLE MAINTENANCE AND DEPRECIATION CAN BE MADE. 17. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE THAT THE ASSESSEE IS A COOPERAT IVE SOCIETY CONTROLLED AND MANAGED BY THE STATE GOVT. OF HARYANA. THE SENIOR OFFICERS WHO ARE ENTITLED FOR VEHICLE ARE THE OFFICERS OF STATE GOVT. THE VEHICLES ARE PROVIDED AS TERMS OF THEIR APPOINTMENT. THEREFORE, NO DISALLOWANCE IN THE CASE OF ASSESSEE CAN BE MADE OUT OF VEHICLE I.T.A. NO.07/DEL./2009 (A.Y. : 2005-06) 6 MAINTENANCE AND DEPRECATION. ACCORDINGLY, WE DO NO T FIND ANY INFIRMITY IN THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) DELETING THE ADDITION. 18. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 19. ORDER PRONOUNCED IN OPEN COURT ON 25.09.2009. [ I.P. BANSAL ] [ K. D. RANJA N ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : SEPT. 25, 2009. *SKB* COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), ROHTAK. 5. DIT(DR), ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT.