Income Tax Appellate Tribunal - Jaipur
Bhawani Silicate Industries, Jaipur vs Department Of Income Tax on 13 February, 2015
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k
BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM
vk;dj vihy la-@ITA No. 750/JP/2012
fu/kZkj.k o"kZ@Assessment Year : 2008-09
The I.T.O. cuke M/s Bhawani Silicate Industries,
Ward 7(3), Jaipur. Vs. F-143, Udyog Vihar, Chomu Road,
Jetpura, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABFB 8373 Q
vihykFkhZ@Appellant izR;FkhZ@Respondent
izR;k{[email protected]. No. 67/JP/2012
(Arising out of vk;dj vihy la-@ITA No. 750/JP/2012)
M/s Bhawani Silicate Industries, cuke The I.T.O.
F-143, Udyog Vihar, Chomu Road, Vs. Ward 7(3), Jaipur.
Jetpura, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABFB 8373 Q
izR;k{ksid@Objector izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 751/JP/2012
fu/kZkj.k o"kZ@Assessment Year : 2009-10
The I.T.O. cuke M/s Bhawani Silicate Industries,
Ward 7(3), Jaipur. Vs. F-143, Udyog Vihar, Chomu Road,
Jetpura, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABFB 8373 Q
vihykFkhZ@Appellant izR;FkhZ@Respondent
2 ITA 750, 751 & 733/JP/2012 & C.O. 67/JP/2012_
ITO Vs. M/s Bhawani Silicate Industries
vk;dj vihy la-@ITA No. 733/JP/2012
fu/kZkj.k o"kZ@Assessment Year : 2009-10
M/s Bhawani Silicate Industries, cuke The Addl. CIT
F-143, Udyog Vihar, Chomu Road, Vs. Range-7, Jaipur.
Jetpura, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABFB 8373 Q
vihykFkhZ@Appellant izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by : Mrs. Neena Jeph Sr. DR.
fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (CA).
lquokbZ dh rkjh[k@ Date of Hearing : 15/12/2014
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 13/02/2015
vkns'k@ ORDER
PER: R.P. TOLANI, J.M. This is a set of revenue's appeals for A.Y. 2008-09 and 2009-10 and assessee's C.O. for A.Y. 2008-09 and cross appeal for A.Y. 2009-10 filed against the respective orders of learned CIT(A)-III, Jaipur. common grounds raised by revenue appeals as well as C.O. and cross appeals are as under:-
Grounds in Revenue Appeal for A.Y. 2008-09 "On the facts and in the circumstances of the case, the Learned CIT(A) has erred in:-
(1) The CIT(A) has erred in restricting the trading addition of Rs. 15,80,694/- made by the A.O. to Rs.
2,80,383/-, even while upholding the application of 3 ITA 750, 751 & 733/JP/2012 & C.O. 67/JP/2012_ ITO Vs. M/s Bhawani Silicate Industries section 145(3), in the facts and circumstances of the case.
(2) The CIT(A) has erred in holding that the G.P. rate of 1.75% would suffice, even when the G.P. rate of 1.98% applied by the A.O. was on the basis of the past history of the appellant.
(3) The CIT(A) has erred in assuming that the G.P. rate of 1.75%, adopted by him was justified and was in proposition to the increase in turnover."
Grounds in Cross Objection "1. The Learned CIT(A) has erred on facts and in law in confirming the action of A.O. by invoking the provision of Section 145(3) and rejecting books of account of the assessee.
2. The Commissioner of Income Tax (Appeals) has erred on fact and in law in confirming the trading addition of Rs. 2,80,383/- by applying the G.P. rate of 1.75% as against the G.P. rate of 1.70% declared by the assessee."
Grounds in Revenue Appeal for A.Y. 2009-10 "On the facts and in the circumstances of the case, the Learned CIT(A) has erred in:-
(1) The CIT(A) has erred in restricting the trading addition of Rs. 47,07,724/- made by the A.O. to Rs.
8,82,962/-, even while upholding the application of section 145(3), in the facts and circumstances of the case.
(2) The CIT(A) has erred in holding that the G.P. rate of 1.5% would suffice, even when the G.P. rate of 1.98% applied by the A.O. was on the basis of the past history of the appellant.
4 ITA 750, 751 & 733/JP/2012 & C.O. 67/JP/2012_ ITO Vs. M/s Bhawani Silicate Industries (3) The CIT(A) has erred in assuming that the G.P. rate of 1.5%, adopted by him was justified and was in proposition to the increase in turnover."
Grounds in assessee's Cross Appeal for A.Y. 2009-10 "(1) The learned Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the action of the A.O. in rejecting the books of accounts by applying the provisions of Section 145(3).
(2) The Commissioner of Income Tax (Appeals) has erred on fact and in law in confirming the trading addition of Rs. 8,82,962/- by applying the G.P. rate of 1.50% as against the G.P. rate of 1.39% declared by the assessee.
(3) The learned Commissioner of Income Tax (Appeals) has erred on fact and in law in confirming the disallowance of employee's contribution towards P.F. of Rs. 4824/-.
(4) The learned Commissioner of Income Tax (Appeals) has erred on fact and in law in confirming the disallowance of Rs. 38,855/- out of telephone expense."
2. Brief facts of the case are that the assessee is engaged in the business of manufacturing of edible mustered oil and oil cake there from as a bye product. During the course of assessment proceedings, assessee was asked to produce production register in respect of manufacturing; stock details on day to day basis in respect of input and output and shortage. According to the assessee production register and other record was produced before AO, however he was not satisfied in this behalf and viewed that:
5 ITA 750, 751 & 733/JP/2012 & C.O. 67/JP/2012_ ITO Vs. M/s Bhawani Silicate Industries
(i) The quality wise registers are not maintained in respect of mustered oil and oil cake, therefore, they are not properly maintained.
(ii) The registers do not contain day to day details of shortage from particular lots of mustard, which did not reflect the correct picture of the assessee's yield and shortage. It was observed that the daily details of oil and oil cake showed shortage in the month of August, September, December and March only.
(iii) Some of the raw material remained under process in the machines but in the production register, daily record thereof was not maintained.
(iv) No registers of incoming and outgoing of raw material and finished products was produced for verification and no supporting details of daily production have been produced. The stock details are maintained in computer and entries are made on the basis of information passed on by the accountant. Year vise yield of oil and the G.P. was low in comparison to last year as reflected by following chart:
S.No. A.Y. Turn over/receipts Gross Profit GP Rate
1. 2007-08 33,62,70,234/- 66,74,372/- 1.98%
2. 2008-09 56,53,52,743/- 96,13,290/- 1.70%
3. 2009-10 79,68,25,598/- 1,10,69,422/- 1.39% In view of these infirmities, the Assessing Officer proposed to reject the books of account of the assessee.
6 ITA 750, 751 & 733/JP/2012 & C.O. 67/JP/2012_ ITO Vs. M/s Bhawani Silicate Industries 2.1 The assessee furnished following explanation in this behalf:
"i. Your goodself has mentioned in the notice that assessee has not maintained the quality wise stock register for seed. Here we wish to submit that all the mustard seeds are of same type. Therefore, it is not possible to separate the seeds in different qualities. In respect of yield we wish to submit that every lot purchased is sent for testing at an independent laboratory. We have already submitted the few test reports for every month. From the test reports your good self can verify that yield as books of accounts are matched with the laboratory test reports. Therefore, when assessee has maintained complete stock register and yield is supported by independent laboratory test report, yield as per books should be accepted.
ii. Assessee has maintained complete day to day stock register. Assessee is manufacturer and trader of mustard oil. He maintains following stock register:-
(a) Raw Material (Mustard Seed):- In raw material register day to day purchases of raw material, issue for production, opening and closing stock are properly entered. Further by product Cake can also verified from this register.
(b) Mustard Seed Process:- In this register daily raw material received for production and issue for production are entered.
7 ITA 750, 751 & 733/JP/2012 & C.O. 67/JP/2012_ ITO Vs. M/s Bhawani Silicate Industries
(c) Mustered Oil own production:- In this register daily production oil and issue for packing can be verified.
(d) Mustard Oil Finished Goods:- In this register opening stock of loose oil, daily production of oil, daily purchase of oil and issue for packing of oil are entered.
(e) Item wise register of finished goods:- In this register item wise register of packed oil with opening stock, packed during the year, sale during the year and closing stock are maintained.
(f) Daily production register and sale register of cake.
All above registers are interlinked and can be verified from each other. Therefore, assessee has maintained complete day to day stock and production register. Daily production is entered in the register maintained in computer system.
(iii) Accounting of day to day shortage is not practical and possible in this industry. Shortage was accounted for when plant shut for maintenance. Therefore actual shortage was accounted for in the accounts.
(iv) Assessee has maintained the daily production records.
Every day production was entered by Stock Register. Register for production of oil and cake is maintained on day today basis. Raw material or finished oil that remained in the machine at the end of the day does not affect the daily production as it is a continuous process.
8 ITA 750, 751 & 733/JP/2012 & C.O. 67/JP/2012_ ITO Vs. M/s Bhawani Silicate Industries One day residual in machine will automatically used in the next day. Therefore, it is not correct that stock remained in machine will affect the results of production.
(v) Your good self has compared the monthly expenses incurred on electricity and production and found variations. In this regard, we are to say total production amounts to only 9.31% of the quantity produced and purchased. Since both packing and manufacturing of oil are carried out through machines, therefore, substantial portion of electricity is also utilized in packing of oil. The electricity expenses reduce with the increase in production which is evident from the facts. Further, there is certain amount electricity in the office and factory, which is fixed in nature. Hence, production shown by the assessee is correct and should not be compared with the electricity consumed which was used for various purposes. Further, we have already submitted that our yield was supported by independent test laboratory.
(vi) Your good self is of the view that nil shortage is not possible during the process of packing and forwarding. In this regard, we are to say that packing of oil is processed through machines, therefore, there are very less chances for shortage. Further if any waste oil is refined and reused.
(vii) Your good self has asked about the reasons for the excess of production of mustard oil and cake produced over the mustard seed consumed. In this regard we are 9 ITA 750, 751 & 733/JP/2012 & C.O. 67/JP/2012_ ITO Vs. M/s Bhawani Silicate Industries to say that the assessee is engaged in production of oil from mustard seeds. When seeds are processed oil is produced. Further, a byproduct mustard cake is also produced from the seeds. The lumps of cakes are also produced along with cake. These lumps are not salable in this condition hence they assessee kept aside. During these months, these lumps were crushed and accounted for and due to which excess cake was produced.
(viii) Assessee has paid wages of Rs. 1603660/- most of these labours are low educated and does not have any printed bills, etc. These people are from nearby villages of the factory. Therefore, assessee has paid the wages on self made vouchers.
(ix) Assessee has maintained complete books of accounts alongwith the stock register. The turnover has substantially increased by more than 40% during the year as compared to previous asst.year 2008-09 and further 140% as compared to A.Y. 2007-08. Since the oil produced and purchased is sold at market price which keeps on fluctuating.
Hence, when assessee has maintained complete books of accounts and stock register, GP as per books of accounts should be accepted and it is requested to your goodself not to apply the provisions of Sec. 145(3)."
2.2 The learned Assessing Officer, didn't controvert these contentions, however stuck to his stand that deficiencies exist in the 10 ITA 750, 751 & 733/JP/2012 & C.O. 67/JP/2012_ ITO Vs. M/s Bhawani Silicate Industries books of accounts due to which assessee's profits could not be properly ascertained, on the basis thereof he rejected assessee's the books of accounts by relying on the following judgments:
(i) Chhabiladas Tribhuvandas Shah & Ors. Vs./ CIT (1996) 59 ITR 733.
(ii) S.N. Namasivyam Chettiar Vs. CIT (1960) 38 ITR 579.
(iii) Orrisa Fisheries Development Corporation Ltd. Vs. CIT (1978) 111 ITR 923.
Learned Assessing Officer thus held that the books of account maintained by the assessee were not proper as the taxable profits could not be deduced therefrom. Therefore, they were rejected by applying Section 145(3) of the Act and impugned trading additions were made in both the years.
3. Aggrieved, the assessee preferred first appeal, assessee filed detailed explanation supported with it's record. The learned CIT(A) after considering the same though upheld the rejection of books of accounts u/s 145(3), however held that the GP rate applied by the assessee was excessive and the same was scaled down in both the years.
4. Aggrieved, both the parties are before us. Assessee, against upholding the rejection of books of accounts and retention of part addition. The department is against the part relief given to the 11 ITA 750, 751 & 733/JP/2012 & C.O. 67/JP/2012_ ITO Vs. M/s Bhawani Silicate Industries assessee. In A.Y. 2009-10, the assessee has further agitated the grounds about disallowances of PF amount and telephone expenses.
5. Learned Counsel for the assessee Shri P C Parwal contends that the assessee maintains regular books of account, which are duly audited. The learned Assessing Officer has not found any specific defect in the books of the assessee.
(i) In absence of demonstration of any specific defects, the books of account cannot be rejected; the act of rejection of books of account is a serious matter and cannot be done in a casual or routine manner. The rejection of books can be recoursed only and only when specific defects are demonstrated which impede the ascertainment of assessee's profits.
(ii) The learned Assessing Officer and learned CIT(A) both have emphasizes the reason of reduction in GP rate as compared to earlier years as their main reason for rejecting the books of account.
(iii) The assessee's nearly 80% dealings are in trading of mustards oil and 20% of crushing of mustard seeds for production of edible mustard oil and its byproduct oil cake. The assessee's business is covered by Essential Commodity Act and has to maintain statutory quantity wise details, which has also been accepted by the learned 12 ITA 750, 751 & 733/JP/2012 & C.O. 67/JP/2012_ ITO Vs. M/s Bhawani Silicate Industries Assessing Officer. The profitability in edible oil industry is volatile and depends on the success of crop, demand and supply position of the market, other market conditions and import policy of edible oils. Therefore, there is no universal rule that the mustard oil trader/manufacturer will earn same profit year after year.
(iv) Mustard seed is only single commodity used by the assessee for its manufacture of one main product i.e. mustard oil. It is impracticable to maintain day to day stock on the basis of quality of the lot of mustard seed as all the lots are combined for the crushing process which is continuous in nature. In regular practice, the quantity of mustard seed purchased is reflected in the stock register as well as the quantity wise production of oil and oil cake. The fact that day to day stock of mustard seed and mustard oil is maintained by the assessee is not disputed by the lower authorities.
(v) To support the yield of mustard oil, the assessee for its own, obtains laboratory tests about the yield of mustard seed, these reports tally with the assessee's actual yield.
(vi) Since feeding and crushing of mustard seed and extraction of mustard oil is continuous in nature, no business entity in such line of business maintains lot wise stock details of seeds and oil. Thus the 13 ITA 750, 751 & 733/JP/2012 & C.O. 67/JP/2012_ ITO Vs. M/s Bhawani Silicate Industries adverse inference drawn by the Assessing Officer in this behalf is baseless, imaginary and superfluous. The assessee cannot be expected to maintain such record, which is not the trade practice and nearly impossible to maintain.
(vii) The assessee vide letter dated 24/12/2010 filed the yield percentage for two months, in which, no discrepancy is found by the Assessing Officer. The production of mustard oil is a continuous process and the seeds are fade into the milling for continuous oil extraction. The oil is measured by dip system and the cake by number of bags filled. It is only at the time of maintenance of plant, the oil cake is packed and the months in which the maintenance is carried out, shortage is reported, therefore, there is no incredibility in the fact that in August, September, December and March, there is low yield as it is attributable to maintenance work of the plant. The supplies are purchased by the assessee on requirement basis and therefore, no stock record for the same is maintained.
(viii) During the course of assessment proceedings, the assessee explained that 80% of its mustard oil is by way of trading sale, qua which no defects whatsoever have been found i.e. in respect of the traded mustard oil. Therefore, any inference could be drawn vis-a-vis 14 ITA 750, 751 & 733/JP/2012 & C.O. 67/JP/2012_ ITO Vs. M/s Bhawani Silicate Industries manufactured oil and not the traded oil which is simply bought and sold. Surprisingly, both the authorities have not appreciated this aspect and applied the GP rate of 1.98% across the board on the traded mustard oil also.
5.1 It is pleaded that the books of account of the assessee have been rejected without any justification; without pointing out any specific defects; the alleged defects do not exist as the furnishing of such record is nearly impossible. It is neither a trade practice nor requirement of ICAI standards and is impossible to maintain. Thus the books of accounts have been willy-nilly rejected without any justification. It has not been appreciated that on 80% of traded mustard oil no such defects are pointed out. Reliance is placed on the following case laws:-
(i) ACIT Vs. Vijay Solvex Limited ITA No. 676/JP/2011 A.Y. 2006-07 dated 210/01/2012.
(ii) DCIT Vs. Vijay Industries ITA 952/JP/2010 A.Y. 2006-07 order dated 23/09/2011.
For the proposition that when day to day stock records of the assessee are reasonably maintained, the books of account cannot be rejected and GP cannot be applied. Similar situation arose in the case of Pankaj Diamond Vs. ACIT 5 ITR 469 (Trib.) (Ahd.), ld. Assessing Officer 15 ITA 750, 751 & 733/JP/2012 & C.O. 67/JP/2012_ ITO Vs. M/s Bhawani Silicate Industries insisted on quality wise details of diamond lots and the assessee had reflected lesser GP, books were rejected and profits estimated. The Ahmadabad Tribunal quashed the rejection of books and consequent additions by holding that merely because the assessee's GP was reduced, it cannot be a reason for rejection of books. The quality wise details are maintained by the assessee as per prevalent practice and AO demanded the record which was not industry provided. In assessee's case also, in earlier and subsequent years, the books of account which are maintained on same method of stock keeping, valuation and system have been accepted. Thus, the method of accounts including stock valuation consistently maintained by assessee cannot be disturbed on whims and fancies. Further reliance is placed on the following case laws:-
(i) DCIT Vs. Associated Stone Industries Limited 22 TW 155 (JP).
(ii) Ambika Textile Industries Vs. DCIT 22 TW 199 (JP).
(iii) Vadayattu Jewellery Vs. State of Kerela (1997) 104 STC 121, 126 (Ker.).
(iv) ST. Terrsa Oil Mills Vs. State of Kerala (1970) 76 ITR 365 (Ker.).
(v) CIT Vs. Smt. Poonam Rani 41 DTR 194 (Del.) (2010).
(vi) CIT Vs. Om Overseas 315 ITR 185 (P&H)
16 ITA 750, 751 & 733/JP/2012 & C.O. 67/JP/2012_
ITO Vs. M/s Bhawani Silicate Industries
(vii) DCIT Vs. Paras Dyeing and Printing Mills P. Ltd. 4 ITR 29 (Trib.) (Ahd.) (2010).
(viii) CIT Vs. Jacksons House 198 Taxman 385 (Delhi).
(ix) CIT Vs. Jas Jack Elegance Exports 324 ITR 95/233 CTR 398 (Del.) (2010).
5.2 It is pleaded that the rejection of books of account in the case of assessee is arbitrary, unjustified and uncalled for. The books should be upheld as no specific defects have been pointed out and no addition can be made to the assessee's income on estimation.
6. Learned D.R. supported the order of the Assessing Officer.
7. We have heard the rival contentions of both the parties and perused the material available on the record. From the facts on the record, it clearly emerges that:
(i) Books of account of the assessee are maintained on the same policies and methods of accounts as in earlier and subsequent years when the assessee's books of account have been upheld.
(ii) The assessee's business model consists of 80% of trading of i.e. purchase and sale oil and 20% of manufacturing of oil. These facts have not been disputed by the ld. DR.
(iii) Being a single commodity manufacturer, the assessee cannot be expected to stop the plant as and when a new lot of mustard 17 ITA 750, 751 & 733/JP/2012 & C.O. 67/JP/2012_ ITO Vs. M/s Bhawani Silicate Industries seed is subjected to crushing as the manufacturing of mustard oil as a continuous process, this is also not disputed by the department. In these circumstances, it is unreasonable to expect from the assessee to shut the plant for crushing of every lot of mustard seed, the yield and maintain impossible day to day, lot wise stock in this behalf. Thus, the corresponding compliance insisted by the learned Assessing Officer is beyond the business reality and not a prevalent trade practice.
(iv) Otherwise, the assessee has maintained proper day to day stock register of the inward and outward day to day stock of mustard seed, and mustard oil; traded as well as manufactured. We are unable to see any infirmity in the record and book keeping of the assessee in both these years. In view thereof, we are inclined to hold that the assessee's books of accounts have been unjustifiably rejected; our view is supported by the plethora of case laws cited above. Therefore, we reverse the action of the lower authorities in this behalf. 7.1 Since we have upheld the books of account, the next question which arises is whether low yield or GP can be a factor to make the trading addition when the assessee otherwise maintains proper books of accounts and quantity wise details. In our considered view, when the books of account of the assessee are upheld mere low yield or low GP 18 ITA 750, 751 & 733/JP/2012 & C.O. 67/JP/2012_ ITO Vs. M/s Bhawani Silicate Industries cannot be ground for addition on account of trading results. This is more so as the edible oil business profitability is volatile and depends on various factors i.e. the abundance of crops, demand and supply ratio, market trends and import policy of edible mustard oil. It cannot be expected as a universal policy that the assessee will earn a fixed rate or increasing rates of GP year after year.
7.2 In view of the forgoing we see no justification in making any trading addition in the case of the assessee. The same is deleted.
8. Apropos the other additions agitated by the assessee for A.Y. 2009-10, the employees contribution of Rs. 4824/- has been paid before filing of the return, therefore, the same is allowable.
9. Apropos the last ground of assessee's appeal for A.Y. 2009-10 regarding disallowance of Rs. 38,855/- out of telephone expenses. The same was disallowed as the assessee did not maintain any call register in respect of use of telephone. The learned counsel for the assessee contends that a reasonable view may be taken.
10. We have the rival contentions and perused the material available on the record. On the issue of telephone expenses, the ends of justice will be made if the disallowance in respect of the telephone expenses is 19 ITA 750, 751 & 733/JP/2012 & C.O. 67/JP/2012_ ITO Vs. M/s Bhawani Silicate Industries restricted to 10% instead of 20% as retained by the learned CIT(A). Thus, this ground of the assessee is partly allowed.
11. In the result, both the revenue's appeals for A.Y. 2008-09 and 2009-10 are dismissed, assessee's C.O. for A.Y. 2008-09 is allowed and assessee's appeal for A.Y. 2009-10 is partly allowed.
Order pronounced in the open court on 13/02/2015.
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(T.R. Meena) (R.P.Tolani)
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Tk;iqj@Jaipur
fnukad@Dated 13th February, 2015.
*Ranjan.
vkns'k dh izfrfyfi vxzsf'kr@Copy of the Order forwarded to:
1. vihykFkhZ@The Appellant- The I.T.O., Ward 7(3), Jaipur & the Addl.
CIT, Range-7, Jaipur.
2. izR;FkhZ@ The Respondent- M/s Bhawani Silicate Industries, 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, Jaipur
6. xkMZ QkbZy@ Guard File (ITA 750, 751 & 733/JP/2012 & C.O. 67/JP/2012) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar