Income Tax Appellate Tribunal - Amritsar
R. K. Vishal Rice & General Mills vs Income Tax Officer. Ito V. R. K. Vishal ... on 17 April, 1995
Equivalent citations: (1995)53TTJ(ASR)46
ORDER
R. K. BALI, A.M. :
These two cross appeals - one by the assessee and the other by the Revenue as well as the cross-objection by the assessee relating to the asst. yr. 1988-89 are taken up together and disposed of by a common order for the sake of convenience.
2. ITA No. 889/Asr)/1989 is the appeal filed by the assessee wherein the following grounds of appeal have been taken :
"1. That the learned CIT(A) has erred in facts to sustain the addition as made by the ITO on account of Bardana loss.
2. That the proper details as filed should have been considered on merits and then the issue should have been decided rather than summarily dismissing the ground of appeal.
3. That the learned CIT(A) has erred both on facts on law in setting aside the matter regarding the addition in respect of cash credits as made by the ITO to the file of ITO.
4. That the learned CIT(A) should have on the basis of material on record with the ITO decided the issue in favour of the appellant.
5. That the appellant craves leave to add or to amend any of the grounds of appeal before the appeal is finally heard or disposed of."
At the time of hearing, Shri Sudhir Sehgal, Advocate, learned representative of the assessee, has submitted that he did not want to press ground of appeal Nos. 3, 4 and 5 which are accordingly dismissed as having not been passed.
3. Ground of appeal Nos. 1 and 2 relates to the action of the CIT(A) in confirming the disallowance of loss of Bardana claimed by the assessee at Rs. 15,000. Shri Sudhir Sehgal, learned representative of the assessee submitted that in the books of accounts the assessee had claimed a loss of Rs. 15,000 under the head 'Bardana'. It was pleaded that the assessee does not deal in Bardana but the loss claimed in this account was on account of general wear and tear of bardana which is used for bringing paddy from the market to the sheller and thereafter is used to store rice prior to its sale. It was submitted that in the assessment year under consideration the assessee has purchased bardana at an average rate of Rs. 8.20 paise per bag but it has received only Rs. 7.64 per bag on the supply of rice to the Govt. and as such incurred loss. Accordingly it was submitted that the AO was not justified in disallowing the claim and the CIT(A) has erred in sustaining the action of the AO in this regard.
4. Shri P. P. Makker, the learned Departmental Representative supported the order of the Departmental authorities.
5. We have considered the rival submissions and have also gone through the orders passed by the AO as well as the CIT(A) as well as the Bardana Account furnished to us to pages 17 to 18 of the paper book. From the Bardana Account, it is seen that the assessee was having 28,600 pieces of bags as on 1st April, 1987, valued at Rs. 1,32,500. In the assessment year under consideration, the assessee purchased 68531 pieces at a cost of Rs. 3,40,889. It has sold 37997 pieces at a price of Rs. 258438.50 and it was having 30614 pieces in the closing stock valued at Rs. 1,99,849 the loss of Rs. 15,000 has been estimated by the assessee to be on account of 1520 bags, which has been written off. On a specific query from the Bench, Sh. Sudhir Sehgal, Adv. could not give the basis for arriving at the figure of 1520 bags, which was written off and whose valuation was estimated by the assessee at Rs. 15,000 for the purpose of claiming loss in the Bardana Account. He only submitted that on physical verification at the end of the year the bags were found to be 30614 and as such the assessee wrote off the difference of 1520 bags. He, however, admitted that the assessee has not accounted for the disposal of 1520 discarded bags, whose value at Rs. 15,000 has been claimed as a loss in the Bardana Account. In this view of the matter, we are of the opinion that the assessee's claim at Rs. 15,000 cannot be allowed as the assessee has not accounted for the scrap value of Bardana in the books. However, the action of the Departmental authorities in disallowing the entire claim is also not justified. Keeping in view the totality of the facts and the circumstances of the case, we are of the opinion that it will be fair and reasonable to restrict the loss under the head 'Bardana' to Rs. 7,500 as against Rs. 15,000 claimed by the assessee. Accordingly this ground of appeal is partly allowed and the assessee gets relief of Rs. 7,500.
6. In the result, the appeal filed by the assessee is partly allowed.
7. ITA No. 1057(Asr)/1989 is the appeal by the Revenue wherein the following grounds have been taken :
(a) On the facts and in the circumstances of the case, the learned CIT(A) has erred in deleting the addition of Rs. 1,83,042 after holding that provisions of s. 145(1) of the IT Act, are not applicable.
(b) While deleting the above addition the learned CIT(A) failed to appreciate the finding of the Assessing Officer that :
(i) There was no basis or evidence on which a yield was recorded in the milling register.
(ii) There was no record of production of paddy chhilka and phak.
(iii) Cash sales of chhilka were not verifiable.
(iv) The yield of the assessee was low in comparison to the yield of PCI.
(c) It is prayed that the order of the learned CIT(A) be set aside and that of the ITO restored.
(d) The appellants requested for leave to add or amend the grounds of appeal before the appeal is heard and disposed of."
8. The grounds of C.O. No. 120(Asr)/1989 taken by the assessee are as under :
"1. The learned CIT(A) has rightly deleted the addition of Rs. 1,83,042 by holding that the provisions of s. 145(1) are not applicable to the facts and circumstances of the case.
2. That the learned CIT(A) has considered in detail each and every finding of the Assessing Officer, and after considering all the facts on the file and material before him has rightly observed that the Assessing Officer did not have any material to hold the application of yield at a flat rate and thus rightly deleted the addition.
3. That is prayed that the order of the CIT(A) being based on proper appreciation both on facts and law should be maintained.
4. That the learned CIT(A) has not properly appreciated the material evidence on record while confirming the addition of Rs. 15,000 with regard to the losses in Bardana and it is thus prayed that the addition as confirmed by the CIT(A) may pleased be deleted.
5. That the respondent craves leave to add or to amend any of the grounds of cross-objections before it is finally heard or disposed off."
Regarding ground No. 4 in the CO, the same has been dealt in while disposing of appeal in ITA No. 889(Asr)/1989 filed by the assessee.
9. As regards the ground of appeal taken by the Revenue and the other grounds of the cross-objection, they are relating to the addition of Rs. 1,83,042 made by the AO by invoking the provisions of s. 145(1) , which has been deleted by the CIT(A).
10. While framing the assessment, the AO held that the accounts of the assessee was such which suffers from certain defects as pointed out in the assessment order and also the fact that yield of rice in relation to FR-106 and JR-8 was not upto the mark as per the specification of FCI. He accordingly made an addition of Rs. 1,63,318 on account of lesser yield of rice as per discussion in para 7 of the assessment order and further credit of Rs. 10,724 on account of lesser yield of rice bran and rice phak shelled as per the reasoning given by in para 8 of the impugned order.
11. During the course of assessment proceedings, the AO found that in respect of PR-106, the assessee has shown a yield of 64.50% for the accounting period ending 31st March, 1988. For IR-8, the yield was shown at 68%. The AO also found that with regard to the chilka, the assessee has valued the closing stock at Rs. 19.72 per quintal and the sales have been effected at the rates varying from Rs. 12 to Rs. 19 per quintal. The AO also found that all the sales of chilka were made on cash basis and as such he held that the assessee had not accounted for the profits earned by it correctly in the books of accounts. He estimated the yield of rice PR-106 at 67% and IR-8 at 69% and made the disputed addition of Rs. 1,63,318 representing the price of 551.75 quintals of rice which according to the AO were the result of showing lesser yield by the assessee.
12. The AO further made an addition of Rs. 19,724 on account of lesser yield of rice bran and phak chhilka.
13. On appeal, the learned CIT(A) for reasons given in detail in the impugned order has held that the provisions of s. 145(1) are not applicable to the facts of the case as the assessee has maintained proper production record of rice from the paddy husked and that record was duly checked by the officials of the Food and Civil Supplies Department and as such the correctness of the accounts maintained by the assessee could not be doubted. The learned CIT(A) has accepted the plea of the assessee that this was the year of draught and as such the yield from PR-106 at 64.50% and of IR-8 at 69% shown by the assessee was quite reasonable and the AO was not justified in making any addition. He accordingly deleted the entire addition made by the AO on account of lesser yield of rice as well as suppression of profit on account of lesser yield of rice bran and phak and for valuation of closing stock of chhilka. The Revenue is aggrieved with the above finding of the CIT(A) and has filed this appeal, whereas the assessee in its cross-objection has supported the action of the CIT(A).
14. We have heard the rival submissions and have gone through the orders passed by the AO as well as the CIT(A). We have also perused the photo copies of production register, which were maintained by the assessee during the normal course of business and which were furnished to be in the form of paper book and we have also seen those registers which are duly signed by the officials of the Food & Civil Supplies Department and as such the observations of the AO that the assessee was not maintaining any production record of paddy husked and rice produced is factually found to be incorrect. Shri Sudhir Sehgal, Advocate, the learned representative of the assessee, has submitted a copy of the Tribunal's order in ITA No. 105 & 190(Asr)/1990, order dt. 18th September, 1990, in the case of M/s Ashok Rice Mills, Muktsar for the asst. yr. 1988-89 wherein the Tribunal has upheld the yield at 64.50% in the case of PR-106. Accordingly, we will hold that the CIT(A) was perfectly justified in deleting the addition made by the AO on account of lower yield of rice in regard to PR-106 and IR-8.
15. However, with regard to the addition made on account of lesser yield of rice bran and chhilka for undervaluation of closing stock, it is seen that the assessee has not maintained any record indicating the yield of rice bran and chhilka on the plea that these are merely by products and are rather cheap and the assessee has accounted for the sales at the rates at which they were actually sold on cash basis to trollywalas, who come to the factory of the assessee. It was submitted by Shri Sudhir Sehgal that there is no ban in law on marking cash sales and simply because entire sales are cash, the AO was not justified in making the addition and the CIT(A) has rightly deleted the same. However, the fact remains that the sales have been made at cash basis, the rates varied from Rs. 15 to Rs. 20 per quintal, whereas the AO has noted in the assessment order that some of the concerns at Muktsar have valued the closing stock of chhilka at Rs. 50 per quintal. Thus, we are of the opinion that some addition is called for on account of suppression of sales/undervaluation of closing stock of chhilka and phak/rice bran. Keeping in view the facts and the circumstances of the case, it will be fair and reasonable to restrict the addition under this head to Rs. 10,000 as against Rs. 19,724 made by the AO.
16. In the result, the appeal filed by the Revenue is allowed partly whereas the CO filed by the assessee is dismissed.