Income Tax Appellate Tribunal - Amritsar
Mesers Mehak Food Limitd, Amritsar vs Deputy Commisioner Of Income Tax , ... on 27 August, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH, AMRITSAR
BEFORE SH. B. R. BASKARAN, ACCOUNTANT MEMBER
AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER
I.T.A. No. 175/Asr/2018
Assessment Year: 2013-14
M/s Mehak Food Limited, vs. Deputy Commissioner of Income
258-Basant Avenue, Amritsar Tax, Circle-II, Amritsar
[PAN: AAECM 8853G]
(Appellant) (Respondent)
Appellant by : Sh. Padam Bahl (C.A.)
Respondent by: Sh. Charan Dass (D.R.)
Date of Hearing: 27.08.2019
Date of Pronouncement: 27.08.2019
ORDER
Per B. R. Baskaran, Accountant Member:
The appeal filed by the assessee is directed against the order dated 22-12- 2017 passed by Ld CIT(A)-1, Amritsar and it relates to the assessment year 2013-
14.
2. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the addition of 333.64 lacs made by the Assessing Officer by enhancing the gross profit.
3. The facts relating to the above said issue are stated in brief. The assessee company is engaged in the business of manufacturing, trading of milk and milk product like deshi ghee, skimmed milk product, whole milk powder, concentrated milk etc. The AO noticed that the assessee has declared gross loss during the year 2 ITA No. 175/Asr/2018 (AY 2013-14) Mehak Food Limited v. Dy. CIT under consideration. After examining the financial statements and explanations furnished by the assessee in support of the gross loss incurred by it, the AO took the view that the books of account of the assessee are not reliable. The AO has summarized is conclusion in this regard as under:
"From the totality of facts & circumstances as discussed above, following inferences are drawn:
(i) Inspite of increase in sales, the assessee who deals in a perishable items like Milk & Milk Products, the assessee has shown gross loss which is not possible as on the rates of purchase & sale of Milk increase or decrease substantially. At best assessee may incur a minor loss in a rare consignment due to milk getting spoiled but it cannot be a routine and recurring feature for 365 days of the year. So the assessee apparently understated its milk sales.
(ii) The assessee has shown large number of cash payments of amount in the range of Rs.20,000/- made to regular Husk Suppliers, which reflects the financial irregularities in working of a Limited Company.
(ii)(a) Even most of the regular milk suppliers have been given payments in cash on a number of occasions by keeping the amounts at Rs.20,000/- or below.
(iii) The assessee has itself admitted that It has not maintained day to day production records & stock register, which is very essential record for the nature of assessee's business, because every Milk Consignment purchased has to be paid accordingly to its quality, %age of FAT/5NF(Solid Non Fat) constituted in it. Similarly the sale rates have to be determined accordingly. It is not possible that assessee purchases Milk at a Higher rate in the morning and sells the same at lesser rate in the afternoon. Sales rates would be directly determined corresponding to the purchase rates for every day and every consignment.
(iv) The assessee has not substantiated even its purchase rates, its direct expenses with complete evidence & proper confirmations whether it was in respect of purchases, freight expenses, wages etc. Similarly the sale bills have not been correlated with the 3 ITA No. 175/Asr/2018 (AY 2013-14) Mehak Food Limited v. Dy. CIT corresponding cost of purchases and value additions due to direct expenses incurred on chilling and evaporation of milk.
(v) The assessee has not provided the complete details of items wise and corresponding quantity & rate wise valuation of opening & closing stock as also the details of the nature of work in progress."
Accordingly the AO rejected the books of account and estimated the gross profits at the rate of 2.9%. The AO also estimated the sales at Rs.102 crores as against the sale of Rs.10.19 crores reported by the assessee. Accordingly he made an addition of Rs.331.46 lacs to the total to the total income of the assessee.
4. Before Ld CIT(A), the assessee submitted that eventhough, it did not maintain day to day stock register, yet it has furnished quantity details of finished products. The assessee also gave a fresh explanation before Ld CIT(A) with regard to the gross loss and the observations made by the Ld CIT(A) in this regard are extracted below:
"It is further submitted that the main reason for the trading loss was the fact that the skimmed milk power (SMP) manufactured by the assesee and lying in stock became unfit for human consumption as it did not conform to the food safety and standards (Food Product Standards & Food additives) regulation, 2011.
A copy of the report dated 27.5.2013 is enclosed issued by Bali Laboratories, Ludhiana. The report clearly states that the sample SMP did not conform to the safety standards.
It was submitted that there was no occasion to file this certificate at the time of assessment as no query in this regard was raised by the assessing officer. This is a fresh evidence and may kindly be admitted under rule 46A of the income tax rules, 1962.
The assesssee's Bank account had become NPA in May, 2013 & Punjab National Bank had locked the premises of the assessee in Feb 2004 an initiated recovery proceedings 4 ITA No. 175/Asr/2018 (AY 2013-14) Mehak Food Limited v. Dy. CIT against the assessee company. The evidence in this regard is also enclosed. This resulted in complete stoppage of the business and SMP (Skimmed milk Powder) lying in stock became unfit for human consumption and had to be taken out of the closing stock list.
It is further submitted that total turnover of the assessee was Rs.1,01,92,09,997/- and there was no basis for estimating the same at Rs.102 crores by the learned assessing officer."
5. The Ld CIT(A) noticed that the report give by Bali laboratories with the regard to the quality of product pertained to only 500 gms and accordingly took the view that the same cannot be applied to entire lot. Accordingly he took the view of the AO was right in rejecting the books of account, in estimating sales and als in estimating the gross profit. Accordingly, he confirmed the addition made by the AO.
6. The Ld AR submitted that the assessee has maintained a proper books of account and the same has been subjected to audit. The said books of account have been adopted in the annual general meeting and also filed with the Registrar of the companies. The Ld AR further submitted that the assessee has furnished proper explanations before the AO/CIT(A) for the gross loss incurred by it. He submitted that the loan taken from the Punjab National Bank had become a non-performing asset and the bank had locked the premises of the assessee in its recovery proceedings. This has resulted in complete stoppage of business and skimmed milk powder lying in stock became stale and unfit for human consumption. This was also confirmed by the laboratory report. He further submitted that the Ld CIT(A) has not appreciated the fact that only small quantity, out of the total lot, shall be usually sent for lab testing. He submitted that all the above said facts are 5 ITA No. 175/Asr/2018 (AY 2013-14) Mehak Food Limited v. Dy. CIT supported by the various evidences and also books of accounts. Accordingly he submitted that the Ld CIT(A) was not justified in confirming the addition.
7. On the contrary Ld DR supported the order passed by Ld. CIT(A).
8. We have heard the rival contentions and perused the record.
9. The admitted facts are that the assessee has maintained the books of account and the same has been subjected to audit. We notice from the assessment order that the assessee furnished explanations with regard to the gross loss and the main reason submitted was that it was suffering from working capital shortage and hence it was constrained to sell its product at lower rate, since the products are perishable in nature. It was further submitted that there is variation in selling rates on the basis of the quality of products. Before Ld CIT(A) the assessee has furnished further explanation by stating that the skimmed milk powder has become unfit for human consumption and hence no value was given to the said stock. The assessee has furnished copies of lab report in support of the above said contentions.
10. We noticed that both the tax authorities have not examined the above said submissions of the assessee by critically examining the books of account and other documents furnished by the assessee. There is also merit in the contention of the assessee that a sample from the whole lot shall only be sent to the lab for testing. Accordingly we are of the view that the Assessing Officer has rejected the books of account by drawing certain inferences and by disregarding the books of account of the assessee. With regard to the non maintenance of stock register, the Ld AR submitted that the assessee has maintained stock details with regard to the finished goods. Hence the AO would be in a position to correlate the finished goods with the quantity of purchase of milk made by the assessee.
6 ITA No. 175/Asr/2018 (AY 2013-14)Mehak Food Limited v. Dy. CIT
11. In view of the foregoing discussions, we are of the view that the reasons cited for rejection of books of account could not be justified in the facts and circumstances of the case. Accordingly we are of the view that the entire issue requires re-examination at the end of the Assessing Officer by duly considering the books of accounts and explanations of the assessee. Accordingly we set aside the order passed by Ld CIT(A) and restore all the issues to the file of the AO for examining them afresh. The assessee is also directed to furnish all the documents and information and explanations in support of its contentions and also that may be called for by the AO. After affording adequate opportunity of being heard to the assessee, the AO may take appropriate decision in accordance with law.
12. In the result, the appeal filed by the assessee is treated as allowed for statistical purposes.
Order pronounced in the open court on August 27, 2019
Sd/- Sd/-
(N. K. Choudhry) (B. R. Baskaran)
Judicial Member Accountant Member
Date: 27.08.2019
/GP/Sr. Ps.
Copy of the order forwarded to:
(1) The Appellant:
(2) The Respondent:
(3) The CIT(Appeals)
(4) The CIT concerned
(5) The Sr. DR, I.T.A.T
True Copy
By Order