Income Tax Appellate Tribunal - Jaipur
S.R. Protiens Pvt. Ltd, Jaipur vs Dcit, Jaipur on 31 May, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No.978/JP/16
fu/kZkj.k o"kZ@Assessment Year : 2011-12
M/s S.R. Proteins Pvt. Ltd., cuke The DCIT-Circle-4, Jaipur.
D-97, Shanti Sadan Ambabari, Vs.
Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN No.: AAICS0896F
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No.962/JP/16
fu/kZkj.k o"kZ@Assessment Year : 2011-12
The ACIT, Circle-4, Jaipur. cuke M/s S.R. Proteins Pvt. Ltd.,
Vs. D-97, Shanti Sadan
Ambabari, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN No.: AAICS0896F
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrhdh vksj ls@Assessee by : Shri Shrawan Kumar Gupta (Adv.)
jktLo dh vksj ls@Revenue by : Shri R.A. Verma (Addl.CIT)
lquokbZ dh rkjh[k@Date of Hearing : 18/05/2017
?kks"k.kk dh r kjh[k@Date of Pronouncement: 31/05/2017.
vkns'k@ORDER
PER: SHRI VIKRAM SINGH YADAV, A.M. These are the cross appeals filed by the assessee and the Revenue directed against the order of ld. CIT(A)-2, Jaipur dated 24.08.2016 for A.Y. 2011-12. Since common issues are involved, both the appeals were heard together and are being disposed off by this consolidated order.
ITA No. 978 & 962/JP/16 M/s S.R. Proteins Pvt. Ltd. vs. ACIT, Jaipur.
ITA No. 978/JP/2016The assessee has taken following grounds of appeal:
"1. That the impugned assessment order u/s 143(3) dated 26.03.2014 is bad in law and on facts of the case for want of jurisdiction and for various other reasons and hence the same may kindly be quashed.
2.1 The ld. CIT(A) has grossly erred in law as well as on the facts of the case in confirming the invoking of the provisions of S. 145(3) of the Act by the AO. The provisions so invoked and confirmed by the CIT(A), being contrary to the provisions of law and facts of the case, hence the same may kindly be quashed and the consequent trading addition of Rs. 7,66,080/- may kindly be deleted.
2.2 Rs. 7,66,080/-: The ld. CIT(A) has grossly erred in law as well as on the facts of the case in sustaining the trading addition of Rs. 7,66,080/- out of Rs. 53,55,740/- by applying the yield % of 34.90% as against 34.71% declared by the assessee and 36% by the AO on mustered oil. The addition so made and yield % applied by the AO and partly confirmed by the CIT(A) is being absolutely, contrary to the provisions of law and facts of the case and not in conformity with the law, hence the same may kindly be deleted in full.
2.3 The ld. AO has also erred in law as well as the facts of the case in adopting higher yield % on the basis of other case without confronting or providing the details of that case asked for and seriously erred in ignoring the vital evidences, explanation and material provided and brought on record by the assessee and the ld. CIT(A) has also erred in considering the same in partly. Thus the addition so made and partly confirmed by the ld. CIT(A) is being absolutely, contrary to the provisions of law and facts of the case and not in conformity with the law, hence the same may kindly be deleted in full.
3. Rs. 45,729/-: The ld. CIT(A) has grossly erred in law as well as on the facts of the case in confirming the action of the ld. AO in allowing the depreciation @10% on AC, D.G.Set, electronics items and water cooler as against 15% claimed by the assessee and allowable as per 2 ITA No. 978 & 962/JP/16 M/s S.R. Proteins Pvt. Ltd. vs. ACIT, Jaipur.
law and sustaining the disallowance of depreciation of Rs. 45,729/- on these items. The disallowance so made and sustained by the CIT(A) is being absolutely, contrary to the provisions of law and facts of the case and not in conformity with the law, hence the same may kindly be deleted in full.
4. Rs. 71,795/-: The ld. CIT(A) has grossly erred in law as well as on the facts of the case in confirming disallowance of Rs. 71,795/- @v 10% on account of various expenses i.e. conveyance exp., office exp., staff welfare exp., Vehicle Exp., and Telephone Exp.. The disallowance so made and confirmed by the CIT(A) is being absolutely, contrary to the provisions of law and facts of the case and not in conformity with the law, hence the sme may kindly be deleted in full.
5. The ld. AO erred in law as well as on the facts of the case in charging of interest u/s 234B, 234C & 234D as consequential in nature. The appellant totally denies it liability of charging of any such interest. Hence the interest so charged, being contrary to the provisions of law and facts, may kindly be deleted in full."
ITA No. 962/JP/2016The Revenue has taken following solitary ground of appeal:-
"(i) Whether on the facts and in the circumstances of the case and in law, ld. CIT(Appeals) has erred in restricting the trading addition of Rs. 53,55,740/- made by the AO to Rs. 7,66,080/- without appreciating the fact that the AO has pointed out defects in the Books of Accounts & citing comparable case AO apply yield percentage of 36%."
2. Briefly the facts of the case are that the assessee company is engaged in the business of crushing mustard seeds and manufacturing oil and mustard oilcake. During the year under consideration, assessee reported turnover of Rs. 69,45,17,405/- and gross profit rate of 2%. During the course of assessment proceedings,the Assessing Officer observed that the yield percentage of mustard oil during the year is 34.71% in comparison 3 ITA No. 978 & 962/JP/16 M/s S.R. Proteins Pvt. Ltd. vs. ACIT, Jaipur.
to 34.90% in the previous year. In order to verify the fall in the yield percentage, the Assessing Officer examine the purchase details and lab reports of mustard seeds filed by the assessee which shows yield percentage ranging from 37.84% to 42%. Further, AO observed that M/s Pooja Enterprises, Bharatpur which is in the same line of business has shown yield percentage of 36.47% and thereafter looking into other defects in terms of non maintenance of daily consumption and production details and the variation in the consumption of electricity and coal in different months, the AO held that the assessee is not recording correct production of mustard oil in its books of accounts and the books of accounts were therefore rejected under section 145(3) of the Act and AO applied the yield percentage of 36% drawing support from yield percentage shown by M/s Pooja Industriesat 36.47%. The AO accordingly computed suppressed production by 2677.87 quintal and by applying average rate of mustard oil at Rs. 2,000 per quintal, an amount of Rs. 53,55,740 was added to the income of the assessee.
3. Being aggrieved the assessee carried the matter in appeal before the ld. CIT(A) who confirmed the rejection of books of accounts and applied the yield percentage of 34.90% as disclosed by the assessee in the previous year as against 36% applied by the Assessing Officer. Now both the parties are in appeal before us challenging the said findings of the ld. CIT(A).
4. We now refer to the finding of the ld. CIT(A) as held as under:-
"3.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. The Assessing Officer noticed that during the year under reference there was increase in shortage of 0.10% and decrease in yield of 0.19% of mustard oil when compared to the previous year. The Assessing Officer enlisted the defects found in examination of books of accounts at points from 1 to 7 in the assessment order.4
ITA No. 978 & 962/JP/16 M/s S.R. Proteins Pvt. Ltd. vs. ACIT, Jaipur.
He further noted that process loss had increased by 0.10% in comparison to the preceding year; crushing expenses had increased from 6.87% lakhs to Rs. 10.30 lakhs, percentage of oil cake expenses have increased by 50% product of assessee is not excisable, hence there is no check on production. Further, the Assessing Officer show caused the assessee on the above points and also asked to explain as to why its yield percentage was low whereas in a similar case of M/s Pooja Industries, the same is shown at 36.47% and why the same rate be not applied to the assessee's case. After considering the submissions of the assessee, the Assessing Officer rejected the books of account under section 145(3) of the I.T. Act, 1961 and applied the yield percentage of 36% as against 34.71% shown by the assessee.
In the present proceedings, it has been submitted that the Assessing Officer has made the addition only and only on the basis of yield % shown by another party. Further, that all books of accounts have been maintained and better trading result is shown compared to the previous year and reliance was placed on some case laws. As regards, the specific points raised by the Assessing Officer, it was submitted, that yield % has decreased in a very minor way and so should be ignored. Further, as regards the crushing expenses also, the increase is very less and should be ignored. A reconciliation for closing stock was submitted and it was further contended that the lab reports produced by the assessee at the time of assessment proceedings, were ignored by the Assessing Officer.
As seen from the discussion above, the assessee admits that there is process loss increase and also that its yield percentage has decreased. The Assessing Officer on examination of books found certain defects, which he has enumeraged in the order, hence rejection of accounts under section 145(3) is upheld. Now coming to the application of yield rate of 36% by relying on the case of M/s Pooja Industries, the assessee has stated that complete details were not provided to it and so the same could not be properly explained.
It is submitted that comparisons could be made with M/s Pooja Enterprises only after considering the complete details with that enterprise which were not available with the assessee and also not 5 ITA No. 978 & 962/JP/16 M/s S.R. Proteins Pvt. Ltd. vs. ACIT, Jaipur.
provided to the assessee by the Assessing Officer. Hence, I agree with the assessee as regards the application of yield rate. The yield rate shown by the assessee in the previous year is 34.90%, the same would be more appropriate and hence, to be applied and the addition to be made accordingly."
5. We now refer to the submission made by the ld. AR as under:-
5.1 Firstly, it is not disputed that the assessee has maintained all the books of accounts consisting of cash book, ledger, Purchase vouchers, cash payment vouchers, bank statement, loan statement, stock register, production register etc. The accounts are audited u/s 44AB of the IT Act and as per Company Act by the qualified person the Auditor examined all the books of accounts and gave his audit report in which he did not point out any defects. Further all the books of accounts admittedly were duly produced before the AO vide assessment order.
The AO though made some allegation however, none of them are such so as to be based making addition as submitted below and more particularly when they are contrary to facts, details, legal position and submissions of the assessee were not considered judiciously.
5.2 Better result and past history: It is also pertinent to note that the appellant has declared better G.P. rate in this year. During the year under consideration assessee has declared G.P. rate of 2.03% on the total turnover of Rs. 69,45,17,405/- as against G.P. rate of 1.817%in last year on the total turnover of Rs. 67,51,40,725/- and G.P. rate of 1.5% in the year before last. Thus in the year under consideration the turnover as well as G.P. Rate has increased than to last year but the ld. AO has ignored this vital facts and proceed on mere assumption and guess work and estimated the yield % of oil on the basis of comparable case which is not applicable in the case of the assessee unless any material evidence and any comparable of same area case in support of him has been brought. As per normal prevailing practices in the market in order to increase the turnover the business man has to sacrifice about the rate of profit on turnover. In this particular case in the year under consideration the turnover of the appellant is increased by 1.94 Crore and also increased the G.P. rate as above. The assessee has also stated that there was no change in the nature of business in the year under consideration. But the Ld. AO has not appreciated the position of income and the explanations furnished in this respect in their true perspectives and 6 ITA No. 978 & 962/JP/16 M/s S.R. Proteins Pvt. Ltd. vs. ACIT, Jaipur.
sense. The above basic facts and vital issue that the Gross profit declared by the assessee in the year under consideration was much more/better in all respect. Hence the entire addition so made on wrong base is deserved to be deleted.
5.3 Hence if any defects are found in the books of accounts then same should be rejected by invoking the provisions of section of 145(3) after giving show cause notice. After then only course is left with the AO to estimate the income or applying the G.P. rate by taking in to considerations the past history of the assessee in place of applying of higher Yield %. Here the AO has applied the Yield rate from 34.72% to 36% on the basis of comparable cases of different area without confronting. And when in the past the yield of 34.90% in A.Y. 2010-11 and 33.29% in A.Y. 2009-10 then there should be no question to estimate the same at 36% at higher. Hence the addition so made may kindly be deleted in full. And it is very settled law that the past history of the assessee is the best guide in comparison to any comparable cases.
5.4 In the case of International Forest Co. vs. CIT101 ITR 0721(J&K) held that The mere fact that lesser out-turn of sawn timber has been shown by the assessee in the accounting year in question as compared to previous year could not be treated as a valid ground for rejecting its accounts and as indicative of any attempt on the part of the assessee to defraud the IT Department. The yield would vary from year to year to a large extent, depending on several factors and the yield obtained in one year would not furnish any guidance for estimating the yield for any subsequent year. In the absence of any omission, irregularity or other defect in the method of maintaining the accounts or positive evidence to show that the accounts did not disclose the whole income of the assessee, his books of accounts cannot be rejected.--B.F. Varghese vs. State of Kerala (1969) 72 ITR 726 (Ker) : TC1R.655 and Raghubar Mandal Harihar Mandal vs. State of Bihar (1957) 8 STC 770 (SC) relied on.
Even if the ITO considered the material placed before him by the assessee to be unreliable keeping in view the comparative statement of accounts of the previous years, he could not proceed to make an arbitrary addition and base his conclusion purely on guess-work. He ought to have related his estimate to some evidence or material on the record as it is now well- settled that if the profits shown by the assessee in his return are not 7 ITA No. 978 & 962/JP/16 M/s S.R. Proteins Pvt. Ltd. vs. ACIT, Jaipur.
accepted, it is for the taxing authorities to prove that the assessee made more profits.
5.5. In the case of N. Raja Pullaiah vs. DCIT (1969) 73 ITR 0224(AP)Held thatThe main complaint of the petitioners is that the method adopted by the taxing officer cannot afford a sure or reasonable basis for determination of the turnover. The consumption of electricity by itself cannot form a reliable test for determining the yield of oil. The yield depends upon various factors, viz., the quality of the seeds, the condition of the machine, the skill of the driver, the soundness of electric equipment, etc. There may be several other disturbing factors which affect the net yield of oil. The consumption of electricity itself is affected by various factors. That apart, the results of the tests carried on in other concerns or undertakings, which may not be similarly circumstanced for various reasons, cannot form a reasonable basis for determining the yield of the petitioners' concerns. It is on these grounds that the assessments have been brought into question.
To our mind, there is force in the argument advanced by Mr. Venkataramaiah, ld. counsel for the petitioners. There is no strong or valid reason why the authority did not carry out the test in the rotaries of the petitioners themselves. The fact that the meter is inconveniently placed is no ground against carrying on the experiment. It is pointed out to us that in like cases the Tribunal itself had set aside the assessments in view of the wide disparity in electricity consumption from mill to mill for the required quantity of oil yield. Be that what it may, it is plain knowing it for certain, that the turnover depends on various factors and circumstances peculiar to the rotaries concerned, the taxing authority rested their conclusions on the tests carried out in other rotaries. The basis furnished by tests conducted in other undertakings cannot be of much relevance for the purpose of these mills about which it cannot be said that they are similarly circumstanced in all respects. As the data relied upon by the assessing authorities, which is made the basis of best judgment assessment, thus smacks of arbitrariness, the best judgment assessment is liable to be set aside 5.6 In the case of ACIT V/s Shiv Agrevo 123 TTJ 416(JP) held that Accounts--Rejection--Absence of finding as to specific defect--AO invoked the provisions of s. 145(3) and made additions to assessee's income on account of decline in GP rate and yield of mustard oil as compared to the proceeding year--Not justified--AO has not pointed out any specific defect 8 ITA No. 978 & 962/JP/16 M/s S.R. Proteins Pvt. Ltd. vs. ACIT, Jaipur.
in the method of accounting regularly employed by the assessee-- Estimation of yield could not be made without pointing out any specific defect--Therefore, accounts could not be rejected and addition was rightly deleted.
In this case the yield % has been shown only 30.99% when in our case the yield % is 34.72% 5.7 In the case of ITO vs. Swastik Udyog (2011) 137 TTJ 0065 (UO)(JP) held that Accounts--Rejection--Trading addition vis-a-vis low yield of oil--Assessee engaged in business of oil extraction from Taramera and groundnut--AO compared the yield of oil from Taramera and groundnut as shown by the assessee as compared to the result shown in the preceding year--AO was of opinion that yield and oil in groundnut should have been 28 per cent but assessee has shown only 25.58 per cent--AO was not justified in enhancing yield by rejecting the books of account--Accounts of the assessee cannot be termed as incorrect or incomplete--There is no case of rejection of books of account except some variation in valuation of closing stock--Provisions of s. 145(3) are not applicable on account of not following the Accounting Standard notified or by not following the accounting method as followed in earlier years--In respect of closing stock of Taramera seed, the assessee has given valid explanation and there is no case of under-valuation of stock of Taramera--Assessee is maintaining the production register and the AO was not justified in enhancing yield by rejecting the books of account.
5.8 Here we submitting our submissions against the allegations has been made by the AO.
i) The allegation of the AO that daily record of production mustered oil and oil cake not maintained is incorrect because all the details and stock register has been produced to the AO which is also the part of books of account.
ii) The unit consumption of electricity for crushing of per quintal seeds was ranging between 6.85 to 7.89 varying quite widely. In this regard we submits that it is not in the hand of the assessee the consumption depends upon the quality of seeds condition of machinery and other factor when the bill of electricity has issued by the Govt. The consumption of electricity by itself cannot form a reliable test for determining the yield of oil. The yield 9 ITA No. 978 & 962/JP/16 M/s S.R. Proteins Pvt. Ltd. vs. ACIT, Jaipur.
depends upon various factors, viz., the quality of the seeds, the condition of the machine, the skill of the driver, the soundness of electric equipment, etc. There may be several other disturbing factors which affect the net yield of oil.
iii) Day to day quantitative/qualitative and daily consumption and production details has not been maintained is incorrect because all the details and stock register has been produced to the AO which is also the part of books of account. And also producing before your honor.
iv) Yield % during the year is 34.72% as against 34.90% in the last year, process loss (shortages) increased 0.10% (wrongly typed by the AO 10%). In this regard we submits that the difference is very minor i.e 0.18%, and it is general thing that in every year the quality of seeds is not remained the same, some time due to climate effects the produce of crop. The yield depends upon various factors, viz., the quality of the seeds, the condition of the machine, the skill of the driver, the soundness of electric equipment, etc. There may be several other disturbing factors which affect the net yield of oil.
v) On the allegation of crushing expenses we have to submit that crushing Exp. in A.Y 2010-11 was of Rs. 2,09,60,921/- on the turnover of Rs. 67,51,40,725/- which comes 3.10% and during the year the crushing exp. was of 2,17,92,053/- on the turnover of Rs. 69,43,70434/- which comes to 3.14% i.e there is only 0.04% increase which is very normal and reasonable because every year there is increase of labor exp. electricity and other expenses about 10% looking to this there is no higher expenses have been claimed and when the AO has not pointed out any instance that there are bogus claim.
vi) The AO wrongly stated that there is difference in closing stock because he has the figure of gross purchase however he ignore the deduction which is being made and issued the debit notes the closing stock after net which has been explained by the assessee during the course of assessment proceeding and accepted by him.
5.9 Lab reports ignored: The ld. AO has also ignored the very vital facts that when the assessee has purchased the seeds he send the same to the laboratory for testing the oil % and according to that he made the payment in support we are furnished some lab report slip before lower authority.
10ITA No. 978 & 962/JP/16 M/s S.R. Proteins Pvt. Ltd. vs. ACIT, Jaipur.
However the AO has not considered this very vital facts and the ld. CIT(A) considered in part. If he was having any doubt he should verified the same. When an evidence is available on record the same must be deemed to be accepted unless is not rebutted.
5.10 Comparable cases not confronted to the appellant and not comparable:The ld. AO has applied yield rate of 36%by relying upon the comparable case of M/s Pooja Industries, wherein yield % of 36.47% has been shown. However he has not provided the trading result, method of process followed by it, purchases rate, quality and full detailed that case, despite the request made by the assessee vide letter dt. 26.03.2014(PB1-2) he has only stated that M/s Pooja Industries has shown yield rate of 36.47% in Mustard seeds and assessee declared yield % abnormally in lower side. Thus the case which he has relied was never confronted to the appellant before the date of order and the full details have not been provided to the assessee to give its comments despite the request made. Needless to say that unless the material gathered at the back of the assessee which is being made use while making the assessment, is confronted or the assessee is given an opportunity to cross examine the same, the law totally prohibits the AO to use the same. Although the law is well settled and there are several judicial pronouncement on this point yet it will be sufficient to refer to Sec.142(3) itself which provides that the material collected by the AO must be confronted to the assessee before making any addition.
5.11 The AO has taken the case of M/s Pooja Enterprises which is the case of Bharatpur which is 200 KM far from Jaipur. The atmosphere and soil condition of Bharatpur are different from the Jaipur and the Seed and soil are better than to Jaipur Area. The assessee used to purchase Seed through the Broker while the businessman of Bharatpur area they directly purchased from the open Mandi and chose the better seed also checked oil content on purchase spots after that they decide the rate. Thus the method of purchase is different in both area. The Quality of seed of Bhartpur are better than to Jaipur area.
The assessee make payment on the basis of oil contents in the seed and on perusal of the chart it is very clear that the assessee has made the payment on seed purchase at the average rate of 34.22% in the year while shown yield 34.72% which is more than to purchase condition. Hence how the AO 11 ITA No. 978 & 962/JP/16 M/s S.R. Proteins Pvt. Ltd. vs. ACIT, Jaipur.
can alleged that the assessee has shown less yield. But the ld. AO blindly ignored this very vital facts.
The Quality of Mustard seed of Bharatpur area is better and the climate for Mustard seed is also better of Bharatpur are than to Jaipur Area the assessee has purchased the mustard seed of west Raj. Area where quality and atmosphere of soil is lower than to Bharatpur.
All these facts were very well in the knowledge of the AO but he ignored the same hence it cannot be said that the case of M/s Pooja Industries is comparable to the case of the assessee. While he has not cited the case of very same area and same nature of business. It shows contradictory approach of the AO and the AO did not follow a uniform practice and applies different yardsticks in similar cases then such action is hit by Art. 14 of the Constitution and becomes arbitrary and capricious.
If the ld. AO has considered all these thing in their true perspective and sense he could not have made the addition.
6. The ld DR is heard who has vehemently argued the matter and took us through the findings of the AO and how the findings of the ld CIT(A) towards reducing the yield percentage is perverse.
7. We have heard the rival contentions and pursued the material available on record. The limited issue under consideration relates to rejection of books of accounts in view of low yield shown by the assessee in respect of mustard oil as compared to previous year and the correct yield percentage which should be applied on mustard oil in the facts and circumstances of the case. The Hon'ble Jammu & Kashmir High Court in case of International Forest Company (Supra) has held that lesser out-turn of sawn timber as compared to previous year could not be a treated as a valid ground for rejection of books of accounts and as indicative of any attempt on the part of the assessee to defraud the IT department. It further held that the yield would vary from year to year depending upon various factors and yield obtained in one year would not furnish any guidance for 12 ITA No. 978 & 962/JP/16 M/s S.R. Proteins Pvt. Ltd. vs. ACIT, Jaipur.
estimating the yield for any subsequent year in absence of any omission, irregularity or other defect in the method of maintaining the accounts or positive evidence to show that accounts didn't disclose the whole income of the assessee. Though the said ruling has been rendered in the context of sawn timber but the legal proposition that has been laid down in the said case would squarely apply in the instant case. The legal proposition is that the yield is a function of various factors and in absence of any other positive evidence, merely on account of low yield as compared to previous years, the books of accounts cannot be rejected. In the facts before us, the case of the Revenue rests on the sole basis that the assessee company has declared lower yield on mustard oil as compared to previous year. The purchase, consumption and closing stock of mustard seeds has been accepted by the Revenue and there is no dispute either in terms of price or quantity so purchased and consumed. Even the process loss which is 0.95% and which has increased by 0.10% as compared to last year has been accepted by the Revenue. In respect of methodology for determining the expected yield percentage on the mustard seeds, the Assessing officer noted that whenever any seller approaches the assessee company or the purchases are made by the assessee company, a sample of mustard seeds is drawn and it is sent to the laboratory for determining the expected yield percentage and basis that, the prices are determined and the purchases are made. Further, the Assessing officer acknowledged the fact that the assessee company has obtained the said lab reports in respect of purchased so made during the year and furnished the same during the course of assessment proceedings along with purchase details and also the fact that these lab reports disclose a range of yield percentage from 37% to 42%. At the same time, the Assessing officer stated that the assessee company has not adduced relevant evidence/proof to substantiate its claim. In our view, once the lab reports, which are third party evidence in support of the 13 ITA No. 978 & 962/JP/16 M/s S.R. Proteins Pvt. Ltd. vs. ACIT, Jaipur.
expected yield percentage on the mustard seeds, are submitted before the Assessing officer along with other purchase details in terms of purchase invoice, vendors, etc, the assessee company has duly complied with its obligations to justify the price, quantity as well as quality of the mustard seed so procured during the year. It is for the Assessing officer to examine the said lab reports and if he has any prima facie concern regarding such reports or inability to deduce the correct technical position arising out of such reports, he is at liberty to seek opinion of subject matter experts. However, there is no such action that has been taken by the Assessing officer. Therefore, in absence of any findings by the Assessing officer disputing the lab reports, the yield percentage as disclosed by these reports have to be accepted.
7.1 Now, the next question that arises for consideration is where the yield percentage as per lab report ranges from 37% to 42%, why the final yield percentage as disclosed by the assessee is 34.71%. In this regard, it was submitted by the ld AR that the yield percentage as per lab reports is indicative of the potential yield and depending upon various factors involved in the production process and timing thereof, it can vary. It was also submitted that where the process loss of 0.95% is also taken into consideration which is not disputed by the Revenue, the yield percentage would come to 35.66%. It was further submitted that annual yield percentage of 34.71% is a function of averaging and determined as a overall yield percentage for the purposes of disclosure and reporting in the annual financial statements. However, the actual yield will vary from time to time depending on the lot of mustard seed which goes in crushing and production cycle having its own moisture content, yield potential, other process loss, etc and the same will broadly be in range of expected yield percentage but at the same time, practically, it is difficult to carry out one- to-one correlation between the expected yield and actual yield of a 14 ITA No. 978 & 962/JP/16 M/s S.R. Proteins Pvt. Ltd. vs. ACIT, Jaipur.
particular mustard lot as the same loses its individual identity once the same is stocked alongwith other lot of mustard seeds. We find the said explanation as a plausible explanation especially in absence of any contrary material on record.
7.2 Now coming to yield percentage of 36.00% as disclosed by M/s Pooja Industries and which has been adopted by the Assessing officer for substituting the yield of 34.71% as disclosed by the assessee company, the ld CIT(A) has given a finding that complete details about M/s Pooja Industries and how the same is comparable to assessee's case was not confronted to the assessee inspite of the latter requesting for the same during the course of assessment proceedings and accordingly, she has confirmed the non-applicability of said comparable in the instant case. Similar contentions have been raised before us by the ld AR and it was submitted that yield percentage cannot be compared in absence of specific facts in case of M/s Pooja Industries which were never confronted to the assessee company. Further, there is nothing on record which has been brought to our notice by the Revenue in terms of comparability of M/s Pooja Industries as a tested comparable vis-a-vis the yield disclosed by the assessee company. In light of that, M/s Pooja Industries cannot be used as a tested comparable in the instant case.
7.3 Now, coming to applicability of the yield percentage of 34.90% as disclosed in the previous year and which has been substituted by the ld CIT(A) in place of 34.71% as disclosed by the assessee company for the year under consideration, as we have noted above, there are various factors which goes in the determination of yield of a particular product and yield obtained in any particular year cannot entirely form the basis for the subsequent year. In the instant case, it is noted that the assessee company has disclosed a yield of 33.29% in AY 2009-10, 34.90% in AY 2010-11, 15 ITA No. 978 & 962/JP/16 M/s S.R. Proteins Pvt. Ltd. vs. ACIT, Jaipur.
34.72% in the year under consideration and an yield of 35.18% in the subsequent AY 2012-13. The trend is thus reflective of the business being accried on and the industry in which the assessee company operates and therefore, yield of immediate past year cannot form the basis for determination of yield for the year under consideration. At maximum, it would act as a guiding force to determine the range of yield on products and cannot be substituted in entirety replacing the actual yield shown by the assessee company especially in absence of any other contrary positive evidence to dislodge the position as disclosed by the assessee company.
7.4 In light of above discussions and taking into consideration the entirety of the facts and circumstances of the case, the books of accounts cannot be rejected and yield percentage as disclosed by the assessee company is hereby confirmed. In the result, ground no. 2 taken by the assessee is allowed and the sole ground of the Revenue is dismissed.
8. Now we come to ground No. 3 of the assessee's appeal in respect of depreciation claim on AC, D.G. Set, Electronic items and Water Cooler. The AO noticed that the assessee has claimed excess depreciation on these assets and he allowed depreciation @ 10% as against 15% claimed by the assessee company. The ld. CIT(A) held that the depreciation on AC, DG Set has been correctly allowed by the AO @ 10% and depreciation @ 15% on Electronic Items has been sent back to AO for verification.
9. The ld AR submitted that the ld. AO and ld CIT(A) both have proceeded on misconception of law. The ld. AO has stated that the depreciation on AC, D.G. Set, Electronics item and Water Cooler are allowable @10%, he treated the same under the head "furniture and fixture" as against 15% allowable being under the head "Machinery". The subject items are machinery and not furniture and fittings and depreciation is allowable @ 15% as per the Act. In the head "furniture and fixture", only 16 ITA No. 978 & 962/JP/16 M/s S.R. Proteins Pvt. Ltd. vs. ACIT, Jaipur.
electrical fittings are included and not electric machinery. Electric fitting includes electric wiring, switch, sockets other fittings and fans. Hence, the Ld. AO may kindly be directed to allow the same at the rate of 15% and delete the disallowance so sustained.
10. We have heard the rival contentions and perused the material available on record. The Air conditioning units, D.G Set and water cooler are classifiable under the head "plant and machinery" which is eligible for 15% depreciation. As far as electronic items are concerned, the ld CIT(A) has already agreed with the assessee's contention regarding claim of depreciation @ 15% and has remanded the matter back to AO for verification and thus no grievance lies before us. In the result, the ground of the assessee is partly allowed.
11. Regarding ground No. 4 in respect of disallowance of various expenses, the AO noted that the voucher of expenses are not supported by proper bills and are self made vouchers. Majority of expenses have been paid by cash. Personal involvement cannot be ruled out. Hence he made 10% disallowance on the expenses on account of conveyance, office, staff, vehicle and telephone and an amount of Rs. 71,795/- was disallowed and added in the income of the assessee company. The ld CIT(A) observed that the disallowance has been made as expenses were not properly vouched and due to the element of personal use 10% of such expenditure has been disallowed which is reasonable and the same was confirmed.
12. The ld AR submitted that in the entire order of the AO on all the disallowance of expense the only allegation is personal use, payment made in case and self made vouchers. Only on these basis no disallowance can be made without bringing any material, evidence, instance or proof on record. However he ignored that the assessee has produced the ledger account of expenses along with the bills and vouchers.
17ITA No. 978 & 962/JP/16 M/s S.R. Proteins Pvt. Ltd. vs. ACIT, Jaipur.
12.1 Mere suspicion: A bare reading of the order of the AO shall reveal that the disallowances of expenses have been made on ad hoc basis, simply on mere suspicion, surmises and conjectures and on wrong method, without verifying or looking to the nature of business. No single specific instance of any nature whatsoever has been given by the AO in the impugned order to support his contention with the help of documentary evidence that the expenditures were incurred for non-business purposes, excess and element of personal user etc were there. An allegation remains a mere allegation unless proved. Suspicion may be strong however cannot take the place of reality, are the settled principles kindly refer Dhakeshwari cotton Mills 26 ITR 775 (SC), Uma Charan Shaw v/s CIT 37 ITR 271 (SC). All the disallowances deserve deletion on this submission alone.
12.2 Businessman is the best judge: It is settled that a businessman is the best judge to take care of its own interest & to take decisions and the AO is not supposed to intervene therein nor he can replace the assessee. Here, whatever decisions were taken by the assessee, has to be understood as taken out of commercial expediency. Kindly refer T.T. Pvt Ltd v/s CIT 121 ITR 551 (Kar), 139 ITR 827 (MP) JK Woolen Manufacturers 72 ITR 612 (SC).
12.3 Wrong basis at all: It is further submitted that the ld. AO has taken own imaginary basis which is not a good basis looking to the nature of expenses or business of the assessee and made higher estimated disallowance. The AO has not brought any other single evidence or material on record before making disallowance. Therefore, also the entire disallowance, so made may kindly be deleted in full. And it is settled that no disallowance and addition can be made without any basis and material.
18ITA No. 978 & 962/JP/16 M/s S.R. Proteins Pvt. Ltd. vs. ACIT, Jaipur.
12.4 Reasonable Claim made: It is submitted that looking to a turnover of more than Rs.69.43 Crore (approx), claim of above expenditure is 0.10 % which otherwise very lesser or reasonable or meager looking to the business of the assessee. Thus such a claim to achieve such a turnover is not at all unjustified when the assessee is a distributer and commission agent where the margin of profit almost fix and very low.
12.5 Business Purpose: All these expenses were incurred exclusively for the purpose of businesses and are under the provisions of the Act. On bare perusal of the expenses it shall revel that the expenses has been claimed for the business and on these account there is no expenses which can be said as personal as wrongly alleged by the AO and looking to the nature of the business these expenses are not higher. The AO blindly disallowance of 10 % expenses without going on the facts, nature of exp., comparable cases and also ignored that the G.P. rate which is very higher in this year as against the last year and the ld. AO has blindly ignored these very vital facts and made the disallowance without any basis and hence, the same may kindly be deleted in full.
13. We have heard the rival contentions and pursed the material available on record. The disallowance of expenses has been made on account of non- verifiability of the expenses on an adhoc basis and on merely suspicion that the personal element cannot be ignored. There is no basis for adhoc disallowances in the eyes of law. Further, suspicion of personal involvement should be supported by positive evidence which is not present in the instant case. In the result, the disallowance of Rs 71,795 is hereby deleted. In the result, ground no. 4 of assessee's appeal is allowed.
19ITA No. 978 & 962/JP/16 M/s S.R. Proteins Pvt. Ltd. vs. ACIT, Jaipur.
14. The ground no. 1 is general in nature and no arguments have been taken in this regard. The same is hereby dismissed as infructuous.
15. Ground No. 5 is consequential in nature and need no separate adjudication and hence dismissed.
16. In the result, the appeal of the assessee is partly allowed and the appeal of the Revenue is dismissed.
Order pronounced in the open court on 31/05/2017.
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(Kul Bharat) (Vikram Singh Yadav)
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Jaipur
Dated:- 31/05/2017
Santosh
vkns'k dh izfrfyfi vxzsf"kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s S.R. Proteins Pvt. Ltd., D-97, Shanti Sadan Ambabari, Jaipur.
2. izR;FkhZ@The Respondent- DCIT/ ACIT, Circle-4, Jaipur.
3. vk;dj vk;qDr@CIT
4. vk;dj vk;qDr¼vihy½@The CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT,
6. xkMZ QkbZy@Guard File (ITA No.978 & 962/JP/2016) vkns'kkuqlkj@By order, lgk;d iathdkj@Assistant. Registrar.20