TMI Blog2009 (3) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... w the appeals by the assessee are coming before us for the second time. There was a search in the premises of the assessee on January 8, 2004. Accordingly all these assessments have been completed under section 153A. The first appeals have been disposed of by the Commissioner of Income-tax (Appeals)-I, Kochi through his orders dated September 11, 2006 and October 10, 2006. In all the six appeals filed by the assessee, only a single issue is raised. The said single issue is that the Commissioner of Income-tax (Appeals) has erred in sustaining the additions made by the assessing authority against the alleged sale of used gunny bags. In first appeals, the additions sustained by the Commissioner of Income-tax (Appeals) for the impugned six assessment years stood as below: --------------------------- Assessment year Amount --------------------------- 1998-99 79,704 2000-01 70,369 2001-02 3,00,859 2002-03 1,47,414 2003-04 5,54,036 2004-05 2,89,135 --------------------------- In the course of search, the assessee had admitted that sufficient number of unused gunny bags are generated in the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isposal of empty gunny bags, what is to be presumed is the normal things of life on the rule of preponderance of probability. We cannot presume extraordinary things. Presumption should answer the test of normal human reasoning. As far as this case is concerned, the assessee carrying on a large scale flour mill generates substantial quantity of empty gunny bags and does not maintain any record whatsoever to support the disposal of those gunny bags. The assessee gives an explanation that the gunny bags were not usable. In the facts and circumstances of the case, we find that it is only an argument for the sake of argument. We are not able to accept it. Therefore, the Assessing Officer has rightly estimated the sales turnover of empty gunny bags in the hands of the assessee. While making the estimate, the assessing authority has given discount for unusable gunny bags at 10 per cent. of the estimate. This is reasonable. In the facts and circumstances of the case, we find that the orders of the lower authorities on this point are just and sustainable in law. The additions are accordingly, confirmed. The appeals filed by the assessee are liable to be dismissed. Next we will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ails are missing in the stock particulars maintained by the assessee. That is why the Assessing Officer has limited the claim of wastage made by the assessee in its manufacturing process. But the Commissioner of Income-tax (Appeals) held that the assessee has been following the same method for all the assessment years in the past and the assessee has been maintaining reasonable records in respect of the movement of stock and in such circumstances, there was no reason to make an estimated addition on the ground of process wastage. The Commissioner of Income-tax (Appeals) also found that the output ratio reflected in the accounts of the assessee is supported by the industrial standards as certified by the Centre for Food Technology and Research Institute (CFTRI) at Mysore. The Commissioner of Income-tax (Appeals) also considered the legality of making additions on an estimate basis in the assessments made as a result of search. He has relied on a number of decisions so as to bring home the point that in a search assessment addition could be made only on the basis of materials collected in the course of search. On the basis of the above detailed discussions, the Commissioner of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plained that in such circumstances, it is the legitimate duty of the Assessing Officer to come to a reasonable finding on the basis of fair estimates. He also explained that in such circumstances, estimate is the only safe course of action available to the Assessing Officer to complete the assessments. The learned Additional Commissioner further stated that the additions have been made by the Assessing Officer towards the value of excess loss claimed by the assessee on the basis of valid materials collected, in the course of search and in the absence of positive details of stock etc. In these circumstances, the Commissioner of Income-tax (Appeals) has gone wrong in deleting the additions and therefore the order of the Commissioner of Income-tax (Appeals) on this point may be set aside. Shri A.S. Narayanamoorthy, learned chartered accountant appearing for the assessee argued the case in detail. First of all he submitted that section 145 provides for computation of business income in accordance with the method of accounting regularly employed by an assessee. The assessment of income ignoring the method of accounting regularly followed by the assessee is permitted only in such c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... International Ltd. v. Deputy CIT [2008] 22 SOT 315. He further contended that the Assessing Officer has not appreciated that the assessee's process is a continuous one and it is not only impractical but impossible to measure the output at each stage of production to ascertain the loss. The only practical and possible way in which the loss in processing could be ascertained was to compare the quantity of wheat introduced for processing and the quantity of finished goods obtained at the end of the process. It is not fair on the part of the assessing authority to estimate his own rate of wastage, only for the reason that stage wise loss is not ascertained and recorded. Thereafter, the learned chartered accountant relied on the decision of the Income-tax Appellate Tribunal, Cochin Bench, in the case of Kodandaram Roller Flour Mills (P) Ltd., Calicut v. Asst. CIT dated March 24, 2008. The learned chartered accountant explained that in that common order also, the Tribunal has considered exactly the very same issue and held that there was no reason for the Assessing Officer to make any such addition on account of process loss. He has relied on the discussion made by the Tribunal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax Appellate Tribunal, Co chin Bench, passed the above order, another order passed by the same Bench in the case of Asst. CIT v. Parrisons Roller Flour Mills Pvt. Ltd., dated January 8, 2008, consisting of Dr. O. K. Narayanan, and Shri K. Balan, was available on record. The issue considered by the Tribunal in both the cases cited above was the same regarding the addition made by the Assessing Officer on the ground of excess process wastage. The earlier decision of the Tribunal dated January 8, 2008 was in fact placed before the Bench while passing the later order on March 24, 2008. In paragraph 11 of the order, the Bench has observed that the learned senior Departmental representative has heavily relied on the decision of this Tribunal in the case of Asst. CIT v. Parrisons Roller Flour Mills Pvt. Ltd., in I.T.A. Nos. 737,73 to 77(Coch)/2006 dated January 8, 2008. After observing certain factual aspects considered in that order, the Bench observed as follows: "In both the cases, nothing has been discussed in respect of the actual stock of raw material, i.e. wheat found at the time of search on physical verification. Moreover, from the decisions of this Tribunal cited supra, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect the accurate quantitative position in the manufacturing process carried on in its line of business. The assessee itself has made approximations. The search carried out by the Department has brought out that the records maintained by the assessee on day-to-day basis were not flawless. The statements recorded from the technical personnel of the assessee working in its plant have clearly supported the factual propositions made by the Assessing Officer. The Assessing Officer has considered the refraction loss, which may be around to 3 per cent. He has considered the water added by the assessee to soak the wheat. He has stated that this compensates each other. The findings of the assessing authority are again very much comparable to the details furnished by the Central Food Technological Institute at Mysore. It is stated in the certificate that in many mills the total output is always less than 100 per cent. based on cleaned wheat. The rate adopted by the Assessing Officer is again within the limit certified by the CFTRI, Mysore. There may be an element of estimate in the output ratio adopted by the Assessing Officer. But the credibility of the true accounts of input/output cl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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