Income Tax Appellate Tribunal - Amritsar
M/S. Vohra Foods Pvt. Ltd., vs The Income-Tax Officer,, Ferozepur on 13 February, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH, AMRITSAR (SMC)
BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER
I.T.A. No. 86/Asr/2014
Assessment Year: 2010-11
Vohra Foods Pvt. Ltd., vs. Income Tax Officer,
Mohan Ke Road, Ward III(1), Ferozepur
Mandi Guruharsahai
[PAN: AABCV 1106A]
(Appellant) (Respondent)
Appellant by : Written Submissions
Respondent by: Sh. Charan Dass (D.R.)
Date of Hearing: 05.02.2019
Date of Pronouncement: 13.02.2019
ORDER
Per Sanjay Arora, AM:
This is an Appeal by the Assessee agitating the Order by the Commissioner of Income Tax (Appeals), Bathinda ('CIT(A)' for short) dated 21.11.2013, dismissing the assessee's appeal contesting its' assessment u/s. 143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) dated 08.02.2013 for the Assessment Year (AY) 2010-11.
2. The appeal raises five grounds, which I shall take up in seritam. The assessee has vide its letter dated nil submitted written submissions, requesting that its' appeal be decided considering the same. Hearing was accordingly proceeded with.
3. Ground 1 is general in nature, warranting no adjudication.
2 ITA No. 86/Asr/2014 (AY 2010-11)Vohra Foods Pvt. Ltd. v. ITO
4. Ground 2 is in respect of an addition for Rs.50,000 towards low yield of rice and chhilka. The assessee mills paddy, yielding rice and other by-products viz. rice, bran, phuk and chhilka. The Assessing Officer (AO) during the assessment proceedings observed a fall in the yield of rice, i.e., with reference to the paddy milled, being at 63.45% as against 67.02% for the immediately preceding year. Similarly, phuk stands shown at 3.15%, as against 3.27% for the immediately preceding year. Accordingly, a sum of Rs.35000 and 15000 was estimated as the additional revenue on unexplained lower yield of rice and phuk respectively.
5. I have heard the party before me, as also perused the orders by the Revenue authorities and the assessee's written submissions. The lower yield of rice was explained in assessment proceedings to be on account of milling of 1121-Paddy and DB-Paddy, yielding basmati rice, as against permal paddy for the preceding year (i.e., AY 2009-10). This explanation of the assessee, i.e., that the yield of basmati rice is lower than that of the permal rice, has not been examined by the Revenue authorities. How, then, one may ask, can the assessee be faulted with? In fact, the primary facts pertaining to the assessee's explanation, i.e., of having milled largely (11,414 quintals out of a total of 12,358 quintals) the paddy varieties yielding basmati rice, as against predominantly milling of permal rice in the immediately preceding year, has not been verified in-as-much as there is no finding by the lower authorities in its' respect. The assessee is maintaining proper record, including stock register, which is further audited. The assessee is in business for long, so that its' own record for the preceding years, as well also of the succeeding years, could be referred to for/in verification of the assessee's claim. The assessee is also milling for outside agencies, the yield/s obtaining for which could also be called into aid in vetting the assessee's claim. Rejecting the stated yield on the basis of the assessee's declared results in the past - yield being not a constant 3 ITA No. 86/Asr/2014 (AY 2010-11) Vohra Foods Pvt. Ltd. v. ITO factor, but a function of various parameters, as indeed a reference to the assessee's records for the other years would reveal, is not valid or for cogent reason/s and, therefore, not valid in law. The lower yield of phuk stands also explained by the assessee with reference to a part of it being captively consumed in the boiling plant, which again has not been subjected to verification, in the absence of which its' rejection is suspect. Accordingly, I find no valid basis for the addition made and sustained on account of low yield in the instant case. The same is accordingly directed for deletion.
6. Ground 3 is in respect of unverifiable labour, salary and wage expenses. The same were found by the AO as not fully supported by work slips and paid in cash to payees, whose details were not maintained. Accordingly, the AO estimated the inflation in the expenditure at 3% of the total claim of Rs.24.49 lacs.
7. I have heard the party before me, and perused the material on record. No doubt, the power of the assessing authority in the matter of assessment is plenary, and the primary burden to satisfy the Assessing Officer with regard to the veracity of its' claims, i.e., to prove its' return and the claims preferred thereby, is on the assessee, who has also not rebutted the AO's findings as to the vouchers being not properly maintained and not verifiable, as well as not fully supported by work slips. However, how has the AO arrived at a figure of 3% of the total claim, inclusive also of salary expenditure, the quantum of which is not specified? In other words, the challenge of the assessee is primarily on the quantum of the estimation, even as there is no reference thereto, viz., the missing work slips, etc. in the assessment order. This now results in a situation that while a disallowance is otherwise justified, there is no disclosed basis for its estimation. It would not, given the quantum of disallowance, and the period that has since lapsed, be proper 4 ITA No. 86/Asr/2014 (AY 2010-11) Vohra Foods Pvt. Ltd. v. ITO to remit the matter back to the file of the AO for the same. Under the circumstances, I only deem it proper that the disallowance be restricted to a token amount of Rs. 25000 in view of the observed deficiencies, particularly considering that there is no adverse comment on the quantum of the labour expenditure, i.e., in ratio, with reference to the output, for the current or the earlier years, even the same itself is not a constant factor, and liable to change from year to year. The assessee accordingly gets part relief.
8. Ground 4 relates to a disallowance of Rs.20,800 in respect of milling charges. The assessee during the relevant year has milled paddy for Government agencies, receiving Rs.18,70,002/-. The milling charges paid to outside concerns, namely, Surinder Kumar Subhash Chander and Shiv Shankar Rice Mills, are at Rs.11,32,065 and Rs.7,58,735, i.e., at an aggregate of Rs.18,90,800, incurring thus a loss of Rs.20,798, on account of outside milling. The same stood disallowed, as well as confirmed in appeal, in the absence of any reason for undertaking the milling work at a loss being stated; the same therefore assuming the nature of an ex-gratia payment, which could not be allowed.
9. I have heard the party before me and, perused the material on record. The assessee has nowhere explained the loss or the reason for incurring excess payment. In fact, additional transportation as well as administrative costs, viz. on supervision, etc. would also stand to be incurred, which have not been taken into account while computing the loss. The commercial expediency of the incurring the expenditure has to be explained, if not established, which has not been at any stage, including before me. All that the assessee states per its written submissions before the tribunal is that the disallowance of loss on paddy milled for Government agency is illegal and, thus, bad in law, without in any manner explaining the basis 5 ITA No. 86/Asr/2014 (AY 2010-11) Vohra Foods Pvt. Ltd. v. ITO on which it states so. The question is not whether the paddy milled is of a Government agency or a private party; the assessee has in fact not milled the paddy itself but subcontracted the work to another, the validity of which, i.e., as per protocol and terms of milling, is also not under question. The only question relevant therefore is the business purpose or the commercial reason for accepting a contract rate higher than that being fetched by the assessee. So, however, on a question raised by the Bench during hearing to the ld. DR, Sh. Charan Dass, he fairly conceded to some paddy being mandatorily required to be milled for Government agencies, whose rates for the same are also fixed? This, materially changes the complexion of the assessee's claim, as the subcontract to outside parties would, on the other hand, be at market determined rates, which may be in excess of the former. Accordingly, the nominal loss is considered as incurred in the normal course of business, and hence directed to be allowed. I decide accordingly.
10. The fifth and last ground is in respect of disallowance of Rs.55000, made and confirmed at 1/10th of the expenditure on vehicles, being cars, toward the estimated personal (non-business) user of the same by the directors. Without doubt, the user of the cars of the assessee-company by it's directors and their family members for their personal purposes cannot be ruled out, and neither in fact being claimed at any stage, including before us. The only issue therefore that survives is its quantification, which at 1/10th thereof cannot but be regarded as reasonable, which aspect (reasonability) has been assailed before the tribunal without stating as to how it could be regarded as excessive. Estimation is a process known to assessment, and which would necessarily include an element of subjectivity. Rather, it is the assessee, who ought to have maintained the record of user thereof, to question the reasonability of the estimation. Further, no reason for including general expenses while computing this disallowance has been stated in the order by 6 ITA No. 86/Asr/2014 (AY 2010-11) Vohra Foods Pvt. Ltd. v. ITO the assessing or the first appellate authority. The same therefore cannot be sustained. Subject to this, no interference is called for. I decide accordingly, and the assessee gets part relief.
11. In the result, the assessee's appeal is partly allowed.
Order pronounced in the open court on February 13, 2019 Sd/-
(Sanjay Arora) Accountant Member Date: 13.02.2019 /GP/Sr. Ps.
Copy of the order forwarded to:
(1) The Appellant: Vohra Foods Pvt. Ltd., Mohan Ke Road, Mandi Guruharsahai (2) The Respondent: Income Tax Officer, Ward III(1), Ferozepur (3) The CIT(Appeals), Bathinda (4) The CIT concerned (5) The Sr. DR, I.T.A.T. True Copy By Order