MR. VENKATESHAPPA VENKATARAMANA ,KOLAR V. INCOME TAX OFFICER, WARD-1, , KOLAR

ITA 1497/BANG/2024

AI Insights

The case involves Shri Venkateshappa Venkataramana, who appealed against the assessment order for the year 2018-19, which included additions to his income and disallowances related to his poultry farming business. The primary issues were the additions made to the closing stock of eggs and maize, and a disallowance of expenses under section 37 of the Income Tax Act. The Tribunal examined the evidence presented, including delivery challans, invoices, and bank statements, and found that the additions made by the lower authorities were not substantiated by the facts of the case.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 24927 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 20-11-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 09-08-2024
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: G.S.PRASHANTH
• Keywords: Tax effect; Principle of natural justice
• Section: 143(3); 234B; 37; 80IA; 20

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT AND SHRI PRAKASH CHAND YADAV, JUDICIAL MEMBER ITA No.1497/Bang/2024 Assessment year : 2018-19 Shri Venkateshappa Venkataramana, No.14, Kenchapura Village, Shillengere Post, Kolar Taluk, Kolar – 563 101. PAN : AFCPV 7493R Vs. The Income Tax Officer, Ward 1, Kolar. APPELLANT RESPONDENT Appellant by : Shri. G. S. Prashanth, CA Respondent by : Smt. Neha Sahay, Jt.CIT(DR)(ITAT), Bengaluru. Date of hearing : 20.11.2024 Date of Pronouncement : 29.11.2024 O R D E R Per Prashant Maharishi, Vice President 1. This appeal is filed by Shri Venkateshappa Venkataramana (the assessee/appellant) for the assessment year 2018-19 against the appellate order passed by the National Faceless Appeal Centre, Delhi (NFAC) [ld. CIT(A)] dated 11.06.2024 wherein appeal filed by the assessee against the assessment order passed u/s. 143(3) r.w.s. 144B of the Income-tax Act, 1961 (the Act) by National Faceless Assessment Centre, Delhi (ld. AO) dated 27.09.2021, is dismissed. ITA No.1497/Bang/2024 Page 2 of 10 2. The assessee is aggrieved with the same and has preferred the appeal on the following grounds of appeal:- Sl. No. GROUNDS OF APPEAL Tax Effect in Rs. 1 The orders of the authorities below in so far as these are against the appellant is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the appellant's case. 2 The appellant denies himself liable to be assessed on a total income of Rs. 67,54,381/- as against the returned income of Rs. 30,24,100/- under the facts and circumstances of the case. 3 Addition of Rs.25,00,000/- being difference in Closing Stock: a. The learned assessing officer erred in making an addition of Rs.25,00,000/- to the value of the closing stock being purchases of eggs from Mrs. Bhagyamma and Mrs. Shruthi under the facts & circumstances of the case. b. The authorities below failed to appreciate that the eggs are perishable and are immediately sold to M/s. Premium Chick Feeds and thus the same was not included in the closing stock. Therefore, the addition made by the assessing officer by stating that the appellant has suppressed closing stock needs to be deleted on the facts of the case. c. The learned CIT(A) failed to appreciate that the sales during the month of March 2018 was Rs.27,61,454/- and not Rs. 10 Lakhs as alleged by the authorities below under the facts & circumstances of the case. d. The learned CIT(A) erred in confirming the additions made by the assessing officer without taking cognisance of the confirmation letters filed by the appellant substantiating the purchases from Mrs. Bhagyamma and Mrs. Shruthi and hence the addition made needs to be deleted on the facts of the case. 8,58,000 4. Disallowance of Rs.2,73,300/- under section 37 of the Act: a. The learned assessing officer erred in disallowing payments made towards purchase of maize amounting to Rs.2,73,300/-under section 37 of the Act on the facts & circumstances of the case. b. Without prejudice, the disallowance ought to have been restricted to Rs.2,55,000/-, as against the disallowance of Rs.2,73,300/-made by the learned assessing officer under the facts and circumstances of the case. 93,797 5. Addition of Rs.9,56,980/- being suppression in closing stock: a. The learned assessing officer erred in making an addition of Rs.9,56,980/- by stating that there has been huge consumption of maize in the month of March 2018 under the facts and circumstances of the case. b. The learned authorities below failed to appreciate that the consumption of feed by the hens depends on various factors like age, biological changes, status of health, weather conditions etc., and it cannot be expected to consume evenly during the entire year and thus the addition made by the assessing officer needs to be deleted on the facts of the case. 3,28,436 ITA No.1497/Bang/2024 Page 3 of 10 3. The brief facts of the case show that assessee is an individual carrying on business of poultry farming and solar power generation, filed his return of income on 26.10.2018 at a total income of Rs.30,24,100. The return was selected for scrutiny for the reason of verification of genuineness of expenses and deduction u/s. 80IA of the Act. Notice u/s. 143(2) of the Act was issued on 28.9.2019. Assessment order was passed u/s. 143(3) r.w.s. 144B of the Act on 27.9.2021 wherein total income of assessee was assessed at Rs.67,54,831 wherein 3 additions were made:- (i) difference in closing stock of eggs of Rs.25 lakhs; (ii) disallowance u/s. 37 of Rs.2,73,300 in absence of vouchers; & (iii) suppression in closing stock of maize of Rs.9,56,980. 4. Assessee, aggrieved with the same, preferred appeal before the ld. CIT(A) wherein the additions challenged at sl.nos.(1) & (iii) above were confirmed. Therefore now assessee is in appeal before us contesting all the three additions/disallowances made by the AO. 6 a) The appellant denies himself liable to be levied interest under sections 234A, 234B and 234C of the Act, as the computation of interest was not provided to the appellant as regard to the rate, period and method of calculation of interest under the facts and circumstances of the case. The appellant expressly urges that the period of levy of interest is not in accordance with the provisions of the Act. 5,92,780 b) Without prejudice, the interest under sections 234A, 234B and 234C of the Act is not leviable and ought to have been waived on the facts of the case. The appellant craves leave of your Honours to add, alter, delete or substitute any of the grounds urged above. In view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity. ITA No.1497/Bang/2024 Page 4 of 10 5. Ground Nos.1 & 2 of the appeal are general in nature and ground no.6 of the appeal is consequential, therefore, ground Nos.1, 2 & 6 are dismissed. 6. Ground No.3 is with respect to addition of Rs.25 lakhs for difference in closing stock of eggs. The facts related to this addition show that the ld. AO found that in the month of March, 2018, cash transactions are usually high, therefore, on examination he found that purchase figure is higher in the month of March. He also compared the same with monthly sales figures. He found that in the month of March the sales figures are also down. He also noted that compared to the purchase and sales figure, the closing stock shown by the assessee is low. Therefore, he analysed the details of month-wise purchases in the month of March and found that hatching eggs were purchased from 2 vendors for Rs.25 lakhs. The AO noted that to whom these goods are sold is not appearing so it is to be shown in closing stock. He noted that there is no evidence of slae after 23.3.2018 and these purchases were booked in earlier period, but paid on 28.3.2018. Therefore he proposed to make addition of Rs.25 lakhs to the closing stock. 7. The assessee submitted that the above purchases have been made from Smt. Shruthi of Rs.16 lakhs and Smt. Bhagyamma of Rs.9 lakhs. These persons are located in rural and remote areas doing small family business activities. These two persons deliver eggs to the firm of assessee as soon as the eggs are laid and delivered in small lots to the assessee. At the time of delivery they send it through delivery challans. Soon after delivery is offered, invoices are issued and those invoices are paid by cheque to those entities. The eggs hatched in the farm being ITA No.1497/Bang/2024 Page 5 of 10 perishable in nature cannot be held and those are sold immediately to the buyers. Assessee produced all the delivery notes of receipt of hatching eggs showing their quantity, date, rate and total amount duly signed by the supplier and also by the person who has taken the delivery. The assessee has also shown that subsequently, invoices are also raised by these two entities. Assessee also showed that when the goods are delivered those are sold. The ld. AO rejected all these contentions and held that as assessee has not furnished any confirmation from the parties that they have delivered eggs and subsequently issued the invoices, he found that there is a clear suppression of closing stock of Rs.25 lakhs and made the addition. He also rejected the contention of the assessee that sales have already been recorded of the above goods to the premium chick feeds and profit thereon is already accounted for. 8. On appeal before the ld. CIT(A), the same argument was reiterated and further complete details of delivery challans and invoices by the suppliers and consequent invoices for sale raised on the buyer were produced. Assessee also produced the confirmation of parties from whom eggs were purchased and bank statements of the assessee to whom the payments were made for the purchases. The quantitative details of total delivery of 89,587 eggs for purchases and the invoices raised by assessee of the hatching eggs were also tabulated by the ld. CIT(A). However, as the delivery of goods is earlier and invoices of purchases are received by assessee later on, the ld. CIT(A) confirmed the addition. 9. The ld. AR submitted a paperbook and reiterated the same submissions as raised before the lower authorities. ITA No.1497/Bang/2024 Page 6 of 10 10. The ld. DR supported the orders of lower authorities. 11. We have carefully considered the rival contentions and perused the orders of ld. lower authorities. We find that assessee has purchased hatching eggs from Shruthi Farms and Bhagyamma Farms for the whole year which were delivered on the basis of delivery challan showing the quantity and challan no. along with date of delivery. Subsequently invoices were raised by both the suppliers to the assessee. The assessee has demonstrated that when the goods were delivered, same were sold to the buyers of the goods. The purchase consideration is paid by the assessee through account payee cheque and sale consideration is also received which is recorded as income. The number of hatched eggs and hatching eggs purchased by the assessee and sold are also tabulated. Merely because the assessee has received the goods on delivery challan basis earlier and invoices of such purchases are received later and meanwhile such goods have been sold, this addition is made as suppressed closing stock of assessee. The only contention of the lower authorities is that as per purchases, invoices are later on and subsequently no sales have been account for, these goods should have been in the closing stock of assessee. Assessee has demonstrated with adequate evidence that as soon as goods are delivered to him, those goods are sold, as these are perishable items. Neither the purchase is doubted, nor the sales are held to be not accounted for as income. This whole exercise is carried out by the lower authorities on the basis of comparison of monthly sales and purchase figures of assessee. Moreover, when this amount is stated to be suppressed closing stock of assessee, naturally in subsequent year, the ld. lower authorities should have considered that as the opening stock. No such credit is given to ITA No.1497/Bang/2024 Page 7 of 10 assessee in the subsequent year. Even otherwise, as the goods purchased are duly accounted for and those goods are sold also which is demonstrated by producing enough evidence, could not have been in the closing stock of the assessee. Accordingly, we reverse the findings of the ld. lower authorities and delete the addition of Rs.25 lakhs towards closing stock difference. Accordingly ground No.3 and its sub-grounds are allowed. 12. Ground No.4 is with respect to disallowance of Rs.2,73,300 u/s. 37 of the Act. We find that though the AO has made this addition in the assessment proceedings, but same was also not challenged before the ld. CIT(A), but now before us this addition is challenged. It is found that only addition of Rs.25 lakhs and Rs.9,56,980 were under challenge before the ld. CIT(A). Therefore, now assessee could have challenged the same before us. When the ld. AR was asked about this, he agreed to withdraw the grounds. Accordingly, ground No.4 of the appeal is dismissed. 13. Ground No.5 is with respect to addition of Rs.9,56,980 being suppression in the closing stock. The fact shows that as assessee is engaged in the business of poultry farming, maize is feed for the poultry business. The ld. AO found that assessee has booked purchases of Rs.2,39,25,501 out of which purchase of Rs.43,77,410 being 18.3% of the total purchases is booked in the month of March and found that as the sales is low in the month of March, maize consumption for feeding in the month of March should also be low and therefore there is suppression of closing stock. The assessee was issued show cause notices and asked to explain that 4% of total purchases being the ITA No.1497/Bang/2024 Page 8 of 10 percentage of purchases in the month of March reduced by average monthly purchase percentage of 8.33%, resulting into 4% in excess of Rs.2,39,24,591 and added as closing stock of maize. Accordingly addition was made of Rs.9,56,980 as the assessee did not supply any reason. 14. When the matter reached before the ld. CIT(A), assessee submitted all the details. However, the ld. CIT(A) rejected the contention of the assessee for the reason that according to him, assessee has failed to prove that majority of the birds are in young stage and abnormal consumption of feed was found without corresponding sales. He rejected the contention of assessee that sales are low in the month of March because of the birds not reaching the right weight gain. The ld. CIT(A) was of the view that assessee has to show health conditions of the bird and consumption of the feed. Thus, he rejected the explanation and confirmed the addition. 15. The ld. AR referred to pages 30 to 66 of the paperbook (PB) to show that there is closing stock of maize is disclosed by the assessee sowing quantity and rate. As assessee is running poultry farm birds have been fed with the maize. There is no direct corelation between the sale and consumption of the feed. He further referred to reply filed by assessee, placed at pages 85 to 95 of PB. He submits that assessee is running a small poultry farm and the details for consumption of feed asked by the ld. lower authorities are not possible in such a small level of business. He submits that the assessee has explained this issue before the ld. AO and the ld. CIT(A) which is at page 20 of the order of the ld. CIT(A). He submits that the closing stock of maize available with assessee is ITA No.1497/Bang/2024 Page 9 of 10 only of Rs.16,200 which is 900 kgs and the addition made by the ld. AO is on incorrect assumption. He submits that there cannot be a direct corelation between the feed to the hen of maize and sale of eggs. 16. The ld. DR supported the orders of ld. lower authorities. 17. We have carefully considered the rival contentions and perused the orders of ld. lower authorities. The maize for poultry feed of 900 kgs. has been shown by the assessee in the closing stock. Addition is made by ld. AO on comparison of consumption of feed of hen and corresponding figure of sales of eggs. He found that in the month of March itself, the purchase is 18.3% of the whole year, whereas it is only 8.33% on average basis in other months. Therefore, he made addition of Rs.9,56,980 considering the excess 4% of the total purchases. When the matter reached before the ld. CIT(A), he accepted the genuineness of the purchases, but has confirmed the addition rejecting the explanation of assessee about the consumption of feed to the birds. He asked the assessee to show the number of birds in his farm and how they have consumed Maize according to their weight and resultant sale of eggs. We find that none of the lower authorities have doubted the purchases of maize. Though addition is made in the closing stock of maize, no corresponding credit for opening stock for the subsequent year is allowed to assessee. Even the assessee has given the details of closing stock in quantity as well as value. The onerous burden placed on the assessee to show the age of birds, weight of birds and to prove the consumption of birds is not practicable. It is not the case of revenue authorities that consumption of maize compared to earlier years is on the higher side. The addition is made merely on the basis of statistical ITA No.1497/Bang/2024 Page 10 of 10 analysis, without looking into merits of the case and pointing out any defect in the details of purchase of maize. In view of this, we do not find any merit in the addition made by the ld. AO. Therefore, the orders of the ld. lower authorities are reversed. The ld. AO is directed to delete the addition and consequently ground No.5 is allowed. 18. In the result, the appeal filed by the assessee is partly allowed. Pronounced in the open court on this 29th day of November, 2024. Sd/- Sd/- ( PRAKASH CHAND YADAV) ( PRASHANT MAHARISHI ) JUDICIAL MEMBER VICE PRESIDENT Bangalore, Dated, the 29th November, 2024. /Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore. "