Income Tax Appellate Tribunal - Amritsar
Chhatar Extractions (P) Ltd. vs Income Tax Officer on 9 January, 2004
Equivalent citations: [2004]91ITD385(ASR), (2004)85TTJ(ASR)405
ORDER
R.K. Bali, A.M.
1. These two cross-appeals--one by the assessee and the other by the Revenue relating to asst. yr. 1984-85 are disposed of by a common order for the sake of convenience.
2. ITA No. 1035/Asr/1989 is the appeal by the Revenue wherein the following grounds have been taken :
"1. On the facts and in the circumstances of the case the learned CIT(A) erred in directing not to reduce the subsidy from the actual cost of assets for computing depreciation and investment allowance.
It is prayed that the order of the CIT(A) may be vacated on the above grounds of appeal and that of the ITO/DC be restored."
2.1 After hearing the parties, we are of the view that the appeal of the Revenue has to be allowed in view of the binding decision of Hon'ble Punjab & Haryana High Court in the case of CIT v. Jindal Bros. Rice Mills (1989) 179 JTR 470 (P&H). Accordingly, the AO is directed to reduce the subsidy received by the assessee from the actual cost of the assets for the purpose of allowing depreciation and investment allowance.
2.2 Accordingly, the appeal filed by the Revenue is allowed.
3. ITA No. 785/Asr/1989 is the appeal by the assessee in which the following grounds have been taken :
"1. The learned CIT(A) has erred in sustaining addition of Rs. 4,38,040/- by treating the same as unexplained investment or sales of 466 MT of rice bran extraction.
2. The learned CIT(A) has erred in not appreciating the assessee's explanation regarding loss caused in storage and transit of rice bran extraction from Bhatinda to Gujarat.
3. The learned CIT(A) has erred in sustaining addition of Rs. 52,957/- as unexplained investment, on 9800 litres of hexane. There is no justification for rejecting the assessee's explanation."
4. Grounds of appeal Nos. 1 and 2 relate to the addition of Rs. 4,38,040/- made by the AO which has been confirmed by the CIT(A) relating to alleged unaccounted sales of 466 MTs of rice bran extraction.
Briefly the facts are that the AO while examining Schedule XVII of the balance sheet found the position of rice bran extraction as under :
MTs Opening stock 876 Rice bran produced 14289
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15165
Less : sold during the year 14269
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Balance 896
Rice bran shown in the closing stock. 430
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Balance rice bran shortage : 466
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The AO found the shortage of 466 MTs of rice bran extraction as highly excessive and required the assessee to explain as to why addition should not be made in respect of 466 MTs of rice bran extraction, which was not accounted for in the books of account and which, according to the AO, must have been sold by the assessee outside the books. The assessee explained that the shortage of rice bran extraction had been caused due to moisture loss and storage loss and during transportation from Bhatinda to the port town and subsequent loading and unloading at the port town for shipment. However, the AO did not accept the explanation given by the assessee as reasonable and made addition of Rs. 4,38,040/- on account of non-disclosure of sales of 466 MTs of rice bran extraction @ Rs. 940/- per MT.
4.1 The assessee appealed and the learned CIT(A) confirmed the addition for the reasons given in the impugned order and particularly the fact that the assessee has not been able to furnish information in respect of any comparable case to show the percentage of loss in respect of rice bran extraction in similar circumstances and also the fact that there was greater gap of period between the despatch from the factory and loading in the ships which could result in moisture loss.
4.2 In second appeal before us, Sh. Mohan Lal, advocate, learned representative of the assessee, submitted that the Departmental authorities were not justified in considering the shortage claimed in the rice bran extraction due to transportation and storage as excessive. Sh. Mohan Lal, advocate, has furnished a chart at p. 1 of the paper book indicating the shortage claimed in two other comparable cases of Bhatinda namely, M/s Bhatinda Chemicals Ltd. and M/s Roshan Lal Oil Mills Ltd., Bhatinda. According to the data furnished before us the shortage claimed by the assessee in the asst. yr. 1984-85 was 3.07 per cent whereas in the case of M/s Bhatinda Chemicals Ltd. for the asst. yr. 1983-84, the shortage claimed was 3.62 per cent and the trading results were accepted. For the asst. yr. 1984-85 the shortage claimed by that assessee, i.e., M/s Bhatinda Chemicals Ltd., was 2.43 per cent and the AO made an addition of Rs. 50,000/- which was reduced to Rs. 25,000/- by the GIT(A). In respect of M/s Roshan Lal Oil Mills Ltd., for the asst. yr. 4985-86 the shortage claimed was 2.35 per cent which was accepted by the AO. Sh. Mohan Lal, advocate, learned representative of the assessee, was, however, fair enough to admit that this information was not furnished before the AO as well as the CIT(A).
4.3 Sh. Mohan Lal, advocate, has furnished a chart at p. 1A of the paper book indicating the net loss of weight and shortage which occurred on account of transportation from the assessee's factory to the port and further loss from the port to the ship on account of loading and unloading in respect of five lots as a sample. It was submitted that the rice bran extraction is despatched from the factory of the assessee in trucks, it is unloaded at the railway station for loading in train and subsequently unloaded at the railway station in Gujarat and then taking the same to godown and loss occurs when bags are loaded from godown in the trucks and unloaded at port before finally being loaded in the ships. Accordingly, it was submitted that the Departmental authorities have erred in not accepting the explanation of the assessee and had wrongly made the addition rejecting a bona fide explanation given by the assessee.
5. Sh. S.S. Kanwal, learned Departmental Representative, on the other hand, supported the order of the CIT(A) and further submitted that the loss claimed by the assessee this year was not at all verifiable and as such the Departmental authorities were justified in holding that the loss in the form of shortage claimed was in fact sold by the assessee outside the books of account. It was submitted that in the immediately preceding year the assessee has claimed a sum of Rs. 36,670/- as material handling charges whereas this year the expenses have been claimed at Rs. 1,77,302/- and as such the shortage on account of transportation loss should have been quite less. He accordingly submitted that the Departmental authorities were justified in making the disputed addition of Rs. 4,38,040/- representing the value of rice bran extraction, which was wrongly claimed by the assessee as shortage.
6. We have considered the rival submissions. A perusal of the assessment order as well as the order passed by the CIT(A) indicates that the shortage claimed by the assessee in the transportation and shipment of rice bran extraction was 3.07 per cent, which was considered as excessive by the AO. Before the AO as well as the CIT(A), the assessee has not furnished any comparable cases. However, in appeal before us, the assessee has furnished details with regard to the shortage claimed in the rice bran extraction on account of transportation in comparable cases of M/s Bhatinda Chemicals Ltd., Bhatinda and M/s Roshan Lal Oil Mills. Admittedly these details were not furnished before the AO. Even before us the information in relation to M/s Roshan Lal Oil Mills Ltd., Bhatinda, for the asst. yr. 1984-85 is not available. In this view of the matter, it is considered fair and reasonable to restore the matter with regard to the addition on account of excessive claim of shortage in the transportation of rice bran extraction to the file of the AO for fresh adjudication after giving due and proper opportunity to the assessee to furnish the date with regard to the comparable cases of M/s Bhatinda Chemicals Ltd., as well as M/s Roshan Lal Oil Mills Ltd., or any other case of that region. The addition should be made after considering the explanation of the assessee and the information furnished in relation to the comparable cases as well as the result of appeal filed by these assessees before the CIT(A) as well as the Tribunal.
7. Coming to ground of appeal No. 3, it is seen that the assessee has shown the stock of hexane in its books of account at 23160 litres whereas as per the statement furnished to the bank as on 15th Oct., 1983 the closing stock of hexane was shown at 33040 litres. Thus, the assessee has shown the closing stock of hexane in its books less by 9880 litres. When required to explain about this discrepancy, the explanation given by the assessee was that hexane in the pipeline was not accounted for in the books of account and this was the method regularly employed by the assessee in earlier years also. However, it was conceded that the actual closing stock of hexane was 33040 litres as shown to the bank. Accordingly the AO made an addition of Rs. 52,957/-representing the value of 9880 litres of hexane @ Rs. 5.36/- per litre to the income of the assessee which has been upheld by the learned CIT(A).
7.1 The factual position has not been denied by Sh. Mohan Lal, advocate, learned representative of the assessee. Accordingly, we do not find any infirmity in the reasoning and conclusion of the Departmental authorities that the closing stock of hexane has been understated by the assessee to the extent of Rs. 52,957/-. Accordingly, the addition made by the Departmental authorities to this extent is upheld and this ground of appeal is decided against the assessee.
8. In the result, whereas the appeal filed by the Revenue is allowed the appeal filed by the assessee is partly allowed for statistical purposes only.
S. GROVER, J.M.: 25th Feb., 1994
9. I have gone through the proposed order dt. 13th Jan.., 1994 by my learned brother Shri R.K. Bali but have not been able to reconcile myself to the conclusions reached by him as far as the assessee's appeal is concerned.
10. The facts regarding the assessee's appeal has been dealt with by my brother in paras 3, 4.1, 4.2 and 4.3 and, therefore, need not be repeated.
11. Para 4.3 of my learned brother's order speaks of loss of weight and shortage, which occurred on account of transportation from the assessee's factory to the port and further loss/shortage from the port to the ship on account of loading and unloading.
12. However, my brother has not closely perused the chart at p. l(a) of the paper book though he had referred to the same in para 4.3. He has taken the chart to be indicating the loss of weight occurring from the assessee's factory upto the stage of loading in the ship. Chart at p. l(a) indicates the loss of weight on high seas, which, as a specimen, was explained from shipping stage onwards supported by shipping bills and weight for which actual bill was issued by the assessee. Pages 2 and 3 are the photocopies of shipping bills indicating that goods shipped weighed 250 Mt. tonnes (p. 2-150 Mt. tonnes and p. 3-100 Mt. tonnes), whereas p. 4 is the photocopy of the bill actually submitted which was for 239.700 Mt. tonnes. Therefore, clearly in addition to the loss, which occurred on account of transportation from the assessee's factory to the port, there was further loss in respect of two lots alone as a specimen weighing 20.300 Mt. tonnes.
13. Note appended at p. l(a) is to the effect that loss in weight on the high seas was in addition to the loss of weight which occurred in the process of despatch from factory to the ships.
14. Likewise pp. 8 to 10, which are photocopies of lot No. 3 show that weight as per shipping bill was 50 MT. tonnes whereas final bill was issued only for 32.250 Mt. tonnes. Page 9 is the certificate of analysis intimating the net weight at 32.250 Mt. tonnes and it is considered expedient to reproduce the said final bill as follows :
"European Grain & Shipping Ltd., Chhatar Extractions (P) Ltd.,
16. Finsbury Circus, London Bhatinda
Through : Globe Marketing Service, Bombay
Your Ref. Our Ref. FLB Date : 15th Feb., 1983
Dear Sirs,
s.s. "Metohija" (025720) C/D31-8-1982
No. 30965/211
Ref: MT 32.250 Indian Rice Bran Extractions Bedi/Cork
B/L 20-12-1982 No. BCL-16. Certificate No. 83. B6292.
We enclose first certificate of analysis and ask you to advise us
whether you accept this result.
Yours faithfully,
or European Grain & Shipping Ltd.
Sd/-"
15. The CIT(A) upheld the action of the AO on the ground that no comparable cases were brought to his notice. However, it is considered important that Bhatinda case have been brought to the notice of the Bench at p. 1 of the paper book.
16. The IT authorities proceeded on the assumption that no loss of weight at all occurs in the transportation and the assessee might have sold the extraction, which had been claimed as shortage. Barring suspicion, there is nothing to suggest that any unaccounted sales, whatsoever, was made. Inference regarding any sale having been made/might have been made unaccounted, was sheer presumptuous and no addition on that account can be upheld.
17. My brother has referred to the comparable cases in para 4.3 of his order but has thought it fit to restore the matter back with regard to the addition on account of excessive claim on shortage in the transportation of rice bran extraction to the file of the AO for fresh adjudication. According to me, there was simply no case for resorting to such course because for the Revenue, it was not even suggested that the information of comparable cases furnished as early as on 11th Oct., 1993 was wrong and needed verification particularly because Bhatinda Chemical's cases had come up for adjudication before the Tribunal and in the assessee's own case earlier, addition had been reduced to Rs. 41,260/- and in the case of M/s Roshan Oil Mills Ltd., no addition was made. Mr. Mohan Lal further submitted that primarily the export was being done by the assessee only and, therefore, the shortage as per the assessee's version, which Worked out to 3.07 per cent could not be said to be excessive or unreasonable, which required further verification. In such view of the matter, the addition of Rs. 4,38,040/- is deleted.
18. Coming to the remaining contentions in the assessee's appeal and the addition of Rs. 52,957/-, my brother has dealt with in paras 7 and 7.1 of his proposed order. He has also stated that the variation between the closing stock as shown to the bank and as per books was on account of the assessee not accounting for hexane in the pipelines, as explained by Shri Mohan Lal, advocate. However, he has not appreciated that such position was in the earlier years also and since pipelines could contain particular quantity of hexane, it followed that 9880 litres of hexane had been in the pipelines unaccounted for as in the beginning of the year also and, therefore, the variation got neutralised automatically because adjustment had to be given. In such view of the matter, there was no case for making addition as understated closing stock and in any case in the year under appeal, which is deleted.
19. In the result, according to me, the assessee's appeal is to be allowed on both the counts as also the Revenue's appeal because the dispute therein is covered by the Hon'ble jurisdictional Punjab and Haryana High Court as noted in para 2.1 of my brother's order.
REFERENCE UNDER SECTION 255(4) OF THE IT ACT, 1961 25th Feb., 1994 As there is a difference of opinion between us on the following point, we refer the same to the Hon'ble President of the Tribunal for further action as provided under Section 255(4) of the IT Act, 1961 :
"Whether the proposed order by the learned AM restoring the matter back to the AO in relation to the addition of Rs. 4,38,040/- and confirming the addition of Rs. 52,957/- in respect of assessee's appeal can be said to be correct or the proposed order of the JM allowing the assessee's appeal or both the counts can be said to be correct and justified?"
B.M. KOTHAR1, A.M. (AS THIRD MEMBER): 9th Jan., 2004 There was a difference of opinion between the learned Members of Amritsar Bench, who heard these appeals. The following point of difference was referred by them to the Hon'ble President under Section 255(4) of the IT Act, 1961, vide order dt. 25th Feb., 1994 :
"Whether the proposed order by the learned AM restoring the matter back to the AO in relation to the addition of Rs. 4,38,040/- and confirming the addition of Rs. 52,957/- in respect of assessee's appeal can be said to be correct or the proposed order of the JM allowing the assessee's appeal on both the counts can be said to be correct and justified?"
The Hon'ble President has nominated me as Third Member to hear the aforesaid matter under Section 255(4) of the IT Act, 1961.
2. Accordingly, the matter was fixed for hearing on 11th Dec., 2003. The application for adjournment was submitted on behalf of the assessee on that date in which it was, infer alia, stated that the aforesaid company has been ordered to be wound up by the Hon'ble High Court of Punjab & Haryana and, therefore, the notice of hearing may be served on the official liquidator and the hearing was accordingly adjourned. The next notice for hearing dt. 31st Dec., 2003 for hearing on 8th Jan., 2004 was sent to the official liquidator by speed post.
3. The learned Departmental Representative supported the order proposed by the Hon'ble Shri R.K. Bali, the then AM, who had restored the matter back to the. AO in relation to the addition of Rs. 4,38,040/- and confirmed the addition of Rs. 52,957/-. The learned Departmental Representative submitted that the order proposed by the Hon'ble Shri S. Grover, the learned JM of deleting both the aforesaid additions is not justified. He placed reliance on elaborate reasons given in the orders of the learned Departmental authorities.
4. I have carefully considered the submissions made by the learned Departmental Representative, Shri Naval Kumar, and have gone through the orders of the learned Departmental authorities. I have also carefully gone through the orders proposed by the learned AM and the learned JM.
5. The facts relating to the addition of Rs. 4,38,040/- made by the AO in respect of shortage of 466 MTs of rice bran extraction by treating the same as unexplained investment or undisclosed sales have been elaborately discussed in the orders proposed by the learned AM and the learned JM. I; therefore, do not consider it necessary to repeat those facts.
6. Before dealing with the merits of both points of difference, it would be imperative to state that Board for Industrial and Financial Reconstruction has, after making an enquiry under Section 16 of the Sick Industrial Companies (Special Provisions) Act, 1985 recorded its opinion that it is just and equitable that M/s. Chhatar Extractions Ltd. (the appellant) should be wound up. The said opinion was forwarded to the Hon'ble High Court for taking suitable action for winding up the company. The Hon'ble High Court, in view of the aforesaid opinion of BIFR ordered the company to be wound up and the official liquidator was ordered to take into custody all the properties and effects and the books of account of the company. This fact clearly shows that the company was ordered to be wound up on account of bad financial position. The matter relates to the asst. yr. 1984-85 and the period of about 20 years have already passed.
7. The AO, on the basis of facts and details given in Schedule XVII of the balance sheet, found that the assessee has disclosed shortage in manufacturing process of rice bran extraction to the tune of 466 MTs while the quantity of rice bran produced by them in the year under consideration was 14289 MTs. The assessee explained before the learned Departmental authorities that shortage of rice bran extraction had been caused due to moisture loss, storage loss, loss during transportation and during the process of loading and unloading at the port town for shipment. The AO did not accept the explanation for such shortage and made the addition of Rs. 4,38,040/- relating to alleged unaccounted sales of 466 MTs of rice bran. The learned CIT(A) confirmed the same.
8. I have carefully gone through the orders proposed by the learned AM and the learned JM. The correctness and completeness of the books of account have not been doubted by the learned Departmental authorities. The accounts maintained by the assessee were duly audited. The assessee also maintained complete quantitative details on the basis of which the quantity of rice bran produced, sold and lying in the stock and also the quantitative details of shortage were furnished. The assessee gave certain explanation for shortage so suffered in the process of manufacturing and shortage suffered at various other stages. The correctness of the declared trading results is also supported by various other records required to be maintained by such industries.
9. It will be relevant here to make a useful reference to the decision of the Tribunal, Amritsar, Special Bench, in the case of Shankar Rice Co. v. ITO (2000) 67 TTJ (Asr)(SB) 84 : (2001) 245 ITR 44 (Asr)(SB). The Tribunal, Special Bench, has considered almost a similar issue in the aforesaid case. The relevant extract from the head notes of the said decision is reproduced below :
"In respect of assessee engaged in running rice shellers, additions on account of yield of rice and its by-products are not called for where by and large the following facts exist : (1) the accounts are audited; (2) the statutory registers required by the State authorities to be maintained are kept and no defects are pointed out in such registers, records, etc.; (3) sales and purchases are fully vouched; (4) the yield in any given year compares favourably with the earlier years as also with reference to the norms fixed by the Department of Food & Civil Supplies; (5) the orders of the tax authorities have proceeded on surmises and conjectures without pointing out any defect in the accounts and other records maintained. The aforesaid are "illustrative" and not exhaustive and particular facts in a given case have to be kept in mind.
It is the duty of the Tribunal to correctly assess the tax liability of an assessee by considering all such grounds including additional grounds raised which go to the root of the matter and are relevant and incidental to the issue raised, provided the facts on the record. The estimation on account of percentage of rice and various by-products entails application of the proviso to Section 145(1).
The rule of consistency is an important aspect of tax proceedings and views should not be changed on the same set of facts and the position of law remaining the same, the rule of res judicata notwithstanding.
On the question of estimation of income from paddy :
Held, (i) that it was not the endeavour of the Special Bench of the Tribunal to decide the percentages of yield applicable to each and every assessee as these would depend on the facts of each case and vary from assessee to assessee depending on numerous factors.
(ii) That, in the case of Shankar Rice Co., the following facts emerging from the record were not challenged by the Revenue : (1) Regular books of account were maintained and were duly audited by the chartered accountants; (2) Statutory registers prescribed by the Government were maintained and these were periodically subjected to check by the Department of Food and Civil Supplies. These registers were : (i) Register showing purchases, receipts and disposal of paddy; (ii) Milling register; and (iii) Rice register; (3) Purchases and sales were regulated by the relevant provisions of the Punjab Agriculture Produce Markets Act, 1961; (4) Paddy was liable to purchase-tax under the Punjab General Sales-tax Act and the purchases made had been duly accepted by the Excise and Taxation Department, Government of Punjab. The tax authorities had clearly ignored the aforesaid facts and proceeded to reject the books of account on the grounds which were not valid. The addition of Rs. 1,31,054/- had to be deleted on the ground that the proviso to Section 145(1) was not applicable and there was no material on record with the Department to show that the yield of rice was higher than the figure stated by the assessee and that there was any sale outside the regular books of account maintained. There was no valid basis on the part of the AO to make the impugned addition on account of Khudi Phak and on the part of the CIT(A) to confirm the same. The said addition had, therefore, to be deleted. The addition of Rs. 1,872/- in the rice bran account had been made only with a view to reject the results shown by the assessee. As against percentage of 4.92 shown, the AO applied five per cent without any basis."
10. The view proposed by the learned JM of deleting the said addition of Rs. 4,38,040 is fully supported by the aforesaid decision of Tribunal, Special Bench. The-learned AM has proposed to send back the matter to the AO in relation to this point. The appeal relates to the asst. yr. 1984-85. More than 20 years have already passed. The company has also been ordered to be wound up by the Hon'ble High Court. The company has suffered losses and is under bad financial position. The possibility of recovery of any tax appears to be negligible. Considering all these facts, I am inclined to agree with the view proposed by the learned JM of deleting the said addition of Rs. 4,38,040/-.
11. As regards the next addition of Rs. 52,957/- made in respect of alleged unexplained investment in relation to 9880 litres of hexane, being excess stock notified to the bank in the stock statement as compared to the stock as per books of accounts, the assessee explained before the learned Departmental authorities that variation between the closing stock shown to the bank and as per books of account was on account of the fact that some quantity of hexane remains in the pipelines, at the end of the year, which was not accounted for till the end of the relevant accounting year but was accounted for in the next year in consonance with such practice consistently adopted by the assessee for last several years. The addition so made in respect of closing stock on the basis of stock statement submitted to the bank by disbelieving such an explanation will require value of opening stock of next year to be increased by an equivalent amount which will result in reduction of assessable income of next year by an equal amount. Such an addition will not result in any gain to the Revenue. The learned Departmental authorities have not challenged the correctness of the assessee's explanation that according to the consistent method of accounting regularly employed by the assessee some hexane purchased by them will always remain in the pipeline at the end of the accounting year. The quantity of such stock in pipeline at the beginning of the accounting year has also not been taken into consideration. It may be relevant here to make a useful reference to the judgment of the Hon'ble Punjab & Haryana High Court in the case of CIT v. Punjab Rice and 'General Mills (2003) 264 ITR 582 (P&H) in which the Hon'ble High Court after taking into consideration various judgments arrived at the conclusion that on the facts and circumstances of the said case, the so-called discrepancy between the bank statement and the account books could not be made the basis for making the additions in the declared income of the assessee. The facts of the said case may not be exactly similar with the facts of the present case but the principles of law laid down by the Hon'ble High Court have to be kept in view while considering such an addition made on the basis of difference in the stock as per bank statement and the stock as per books. On a careful consideration of the entire relevant facts and also keeping in view the facts that the company has been ordered to be wound up, I am inclined to agree with the view taken by the learned JM of deleting the addition of Rs. 52,957/- also.
12. In view of the aforesaid facts and discussion, I am of the view that the order proposed by the learned JM should be preferred over the order proposed by the learned AM. I, therefore, agree with the view taken by the learned JM on both the points.
13. The matter may now go to the regular Bench for passing an order in accordance with majority view.