TMI Blog2010 (11) TMI 548X X X X Extracts X X X X X X X X Extracts X X X X ..... F payment by invoking the provisions of s. 43B of the IT Act though the disallowance is covered by s. 36(1)(va) of IT Act. 2.2 The above referred issue stands decided by Hon'ble apex Court in the case of CIT vs. Atom Extrusions Ltd. (2009) 227 CTR (SC) 417 : (2009) 32 DTR (SC) 49 : (2009) 319 ITR 306 (SC). The Hon'ble apex Court affirmed the decision of Hon'ble Karnataka High Court in the case of CIT vs. Sabari Enterprises (2007) 213 CTR (Kar) 269 : (2008) 2 DTR (Kar) 394 : (2008) 298 ITR 141 (Kar). In the case of Sabari Enterprises (supra), the issue of allowability of ESI and PF contribution relating to the employees contribution was decided in favour of the assessee in case such contributions are paid before the due date of filing of return. Hence, the learned CIT(A) was justified in deleting the disallowance of Rs. 22,021. 3.1 The second ground of the Revenue is that the learned CIT(A) has erred in deleting the addition of Rs. 43,12,908 made on account of the trading addition. 3.2 The AO during the course of the assessment proceedings compared the yield of oil from Taramera and groundnut as shown by the assessee as compared to the result shown in the preceding year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent of the last year. The turnover has also increased by three times. The AO noticed that the assessee is having its own laboratory and is also claiming laboratory expenses. In spite of that, the assessee has not submitted the laboratory report regarding oil contents in seeds for the year under consideration. The fact is that the assessee has not produced the laboratory report as production of such evidence would have adversely affected the assessee. The AO has mentioned that two concerns namely, M/s Swastik Oil Industries and M/s Suresh Oil Mills have shown yield of oil from groundnut at 28.83 per cent and 28.72 per cent respectively and these two concerns have also purchased groundnut seeds from Newai Mandi. From the comparable cases, the AO was of the opinion that yield and oil in groundnut should have been around 28 per cent though the assessee has shown only 25.58 per cent. The yield of oil also depends upon the quality though it may also depend upon seed purchased from various Mandis. One will have to consider the Mandi from which the seeds have been purchased as well as one will have to consider the purchase price. Hence, simply on the basis that yield of oil from grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of s. 145 of the Act. For applying the provisions of s. 145, the AO relied on the following judgments:- 1. Chhabildas Tribhuvandas Shah and Ors. vs. CIT (1966) 59 ITR 733 (SC); 2. Howrah Trading Co. (P) Ltd. vs. CIT (1968) 67 ITR 582 (Cal); 3. Orissa Fisheries Development Corporation Ltd. vs. CIT (1978) 111 ITR 923 (Ori); 4. Ram Partap Oil Extractions (P) Ltd. vs. Asstt. CIT (2006) 154 Taxman 388 (P and H); 5. Shakti Rice and General Mills vs. ITO (1999) 63 TTJ (Asr) 428; 6. Hira Oil and Dal Mills vs. ITO (2001) 72 TTJ (Jd) 683. 3.5 Before the learned CIT(A), the assessee made following submissions:- 1. The assessee has maintained all the books of account. The entire sales, purchases are fully vouched. In some of the cases where accounts were similarly maintained in the similar industry. Sec. 145 though invoked was quashed. Reference was made to the following decisions:- (i) Haridas Parikh vs. ITO (2008) 113 TTJ (Jd) 274 : (2008) 1 DTR (Jd)(Trib) 390; (ii) ITO vs. Arun Oil Industries (1985) 23 TTJ (Jp) 378; (iii) Ambalal Manohar Singh vs. ITO 27 Tax World 280 (Jp); (iv) Asstt. CIT vs. Shiv Agrevo Ltd. (2009) 122 TTJ (Jp) 416 : (20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancies as such was found in the books of account maintained by the assessee. Where there is no major deficiency found in the books of account then addition to the income of estimation of higher GP rate is not permissible under s. 145. In the present case even the provision of s. 145 is not applicable.' 5.4 It has been held by the Hon'ble Tribunal, Jaipur Bench in the case of Prasadilal Devkinandan in ITA No. 653/Jp/2003 (1997-98) and Hon'ble Tribunal, Jodhpur Bench in the case of Hindustan Processors Ltd. (ITA No. 693/SDPR/2006) that non-maintenance of quantitative details is not sufficient to reject books of account and to invoke the provisions of s. 145. 5.5 In the case of Haridas Parikh vs. ITO (2008) 113 TTJ (Jd) 274 : (2008) 1 DTR (Jd)(Trib) 390 Hon'ble Tribunal, Jodhpur Bench made following observation:- 'Unless the AO is able to point out certain transactions which have been left to be entered in the books of account or that the assessee has sold some of the items at a price higher than what is disclosed in the books of account or if proper particulars, bills, vouchers are not forthcoming etc. the books of account cannot be rejected without assigning specific rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incorrect valuation of closing stock is also not justified because AO has taken prices prevailing on certain dates only. It is well-known fact that price of oil keep fluctuating on daily basis. Moreover, if a consistent method of valuation of closing stock has been followed from year to year, there is no point in disturbing the same without pointing out any specific defects. I therefore, hold that AO is not justified to reject audited books of account in which there are no adverse comments of auditor. Estimation of yield by AO in groundnut and Taramera account is also not justified. No comparison can be made with yield of oil declared by other manufacturers until and unless comparison is also made with reference to purchase price of oil seeds in every case. Appellant on other hand argued that in case of Suresh Oil Mills and Swastik Oil Industries percentage yield of oil was 28.70 and 28.82 but of cost of raw material for appellant are Rs. 1,724 and Rs. 1,686 per quintial. As against this cost of raw material for appellant was Rs. 1,560 per quintial. In such a case AO is not justified to estimate yield on the basis of these concerns ignoring the impact on price of raw material. I t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). 2. The assessee is an old and well-known manufacturer of oil and oil cake from oil seeds. Its product is known as Swastik Brand which is most popular. It is incorrect because the product of the assessee is known as Swadeshi or Shublabh and not Swastik. Swastik brand belongs to M/s Swastik Oil Industries, who are other family members, already separated, therefore, the assessee cannot take advantage of the Swastik brand more particularly, when the present partners of the firm were prohibited to use the trade name as per para 14 of the partnership cum retirement deed (paper book 138). 3. There is no need of vast enhancement in plant and machinery regarding manufacturing of oil and oil cake from different types of seeds except minor enhancement and there is no necessity to gain more experience and expertise. Depreciation chart shows no major additions in plant and machinery in asst. yrs. 2004-05 and 2005-06. Irrelevant objection as assessee never raised such contention. Secondly purchases of seeds certainly required experience in as much as it is the quality of seed which makes a lot of difference. The learned AO did not rebut our contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. Kindly refer Dhakeswari Cotton Mills Ltd. vs. CIT (1954) 26 ITR 775 (SC). 6. The yield of oil % is totally dependent on rain conditions or irrigation facilities in the concerning area where it is grown up. It does not depend on location and site. During the year the rain condition in the Newai area and nearby area was good as well as irrigation facilities is also better than other areas thus the oil % in groundnut of Newai and nearby area was definitely better. It is submitted that we are unable to understand that on what basis he has stated so. The AO is not an expert of the subject. He has not brought any evidence on record to support his contention. On the other hand we are filing herewith certificate (paper book 28) received from the Jr. Engineer, water resources, Newai who certified that the rain in Newai area in year 2003 (asst. yr. 2004-05), was 604 mm and in year 2004 was 502 mm (asst. yr. 2005-06), which disproved the contentions of the AO. The AO has not provided any basis of his conclusion that the quality of the crops does not depend on its location and site (but depends only on rairi conditions or irritation facility). It is submitted that loca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall reveal that had the appellant purchased same quantity but of good quality, it would have to pay Rs. 55.55 lacs and Rs. 42.71 lacs extra respectively which would have reduced the GP rate to this extent whereas the disputed addition itself is of Rs. 42 lacs. (iii) Moreover the opening stock of groundnut seed as on 1st April, 2004 in case of M/s Swastik Oil Industries was 22.19% of their production and in case of M/s Suresh Oil Mills it was 23.43% whereas the assessee had such stock at 5.15% only (paper book 140). The opening stock of seeds was of good quality, having more oil content and therefore, resulted in better yield in the last year i.e., asst. yr. 2004-05 ranging between 28% to 30% in all cases including assessee. In other words, where the assessee purchased and consumed around 95% seeds this year only of lower quality resulting into lower yield, those two parties not only consumed better quality of seeds out of the opening stock as also out of new purchases this year, obviously resulting in a better yield. (iv) Thus, it is the quality of seeds which directly affect the yield and depending upon quality, the market rate of seeds greatly varies. In support, we are enclosi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by assessee. Hence the assessee claimed excessive shortage of 2.77 % (24.12 -21.35) and low yield at 2.44% (28.02 - 25.58). It is submitted that it cannot be said with a mathematical precision that the purchase price of the seeds must result in a particular rate of yield. Further there are other factors also which affect the productivity (yield). (i) For example if there is more moisture, the yield will be less. The moisture varies between 4 to 10% (ref. laboratory report paper book 18-20 and 23-24) e.g. at the time of new season moisture content are always much higher. No such requirement was made by the AO during the assessment. Hence these reports are being submitted to meet with the allegation of the AO. (ii) The dust (fibre) content also reduces the yield. (iii) Other reasons of variation may be that due to obsolence of machinery, inefficiency, low steam, the oil content varies in the oil cake between 6.5 to 8.5% (ref. laboratory report dt. 1st Dec., 2007 paper book 25-27). (iv) It is not necessary that the seed purchased in a particular month is always consumed in the same very month. It may be used in next month or even later kindly refer a month-wise chart showing pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hine. (v) In the month of October in various dates over-writing has also been noticed. (vi) No incoming and outgoing register were produced for verification. (vii) The inventory of stores and small packing as well as consumption of it on day-today basis is not maintained. (i) The assessee maintained stock register quality-wise i.e., Mustard, Tar ameer a and groundnut. Therefore, it is wrong to say that there is no quality-wise maintenance of the registers. The AO however expected a further quality break-up of the commodity, based on the purchases of seeds. Though there is a quality difference however there is no prevailing trade practice to recognize different quality by a different name. This is evident from the fact that there is no quality difference in oil. The only way to ascertain quality difference is the purchase rates. The purchases are made in open auction at different rates. For example on 2nd Nov., 2004 assessee purchased 110 lots (ranging between 50 kgs. to 500 kgs.) (Paper book 34-68). The contention of the AO that in absence of mention of quality, a proper analysis of yield is not possible is devoid of merit as the entire purchases are fully vouched. Further th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. (vii) The AO never asked the same and it is not practically possible for the reason that there are 100 types of items of small amounts viz. nuts, bolts, table, PVC, tape etc. (see photos, paper, book 88). However, the inventories of small packing items are maintained and available (paper book 89). Kindly refer Asstt. CIT vs. Rawat Enterprises (P) Ltd. 24 TW 411 (Jp). 13.1 The value of closing stock of mustard oil was undervalued by Rs. 0.42 per, kg. i.e., by Rs. 8,273 (19,695.57 x 0.42). The assessee produced three bills dt. 1st April, 2005 for Rs. 38.69, dt. 3rd April, 2005 for Rs. 35.82 and dt. 6th April, 2005 for Rs. 38.92. The AO ignored first two bills and took the last bill only. The assessee has taken average of these three bills. Further the amount is negligible and the assessee has sold the closing stock till 3rd April, 2005. Otherwise, it is irrelevant. He had not made separate addition. 13.2 The value of closing stock of groundnut oil was undervalued by Rs. 1.50 per kg. i.e. by Rs. 7,001 (4,667.5 kg. x Rs. 1.50). The assessee produced bill dt. 3rd April, 2005 for Rs. 48.53 (paper book 90-91) and the AO considered the bill of 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aper book. 3.12 The AO has noticed that the assessee valued the closing stock of mustard oil at 38.50 per kg. while last bill shows the value of mustard oil at Rs. 38.90 per kg. In the explanation, the assessee has given the rates from three bills dt. 1st April, 2005, 3rd April, 2005 and 6th April, 2005. The valuation of the closing stock was to be done at the selling rate as on the last date as finished products are valued at market value. Hence, the sales price of different dates of April is not relevant. The AO was therefore, justified to give a finding that there was undervaluation of closing stock of mustard oil to the extent of Rs. 8,273. The AO has noticed that groundnut oil has been valued at Rs. 48.50 per kg. while the last sale on 19th March, 2005 was at Rs. 53 per kg. In respect of this objection, the assessee has given the explanation at serial No. 13.2. Considering the explanation, it is clear that there was no undervaluation of groundnut oil to the extent of Rs. 7,001. In respect of Taramera, the AO has noticed that undervaluation to the extent of Rs. 1,650. The assessee in the reply stated that undervaluation will be to the extent of Rs. 834. Hence, the undervalu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned CIT(A). In doing so, it had ignored all the admitted facts noticed by us above, in the face of which there was no occasion for the AO to have resorted to the estimate method. The gross profit is primarily result of excess of sales over purchases, opening stock, closing stock, the unsold stock at two terminals is only a balancing factor. Admittedly, out of this four components of trading results, there could not have been any ground for the Revenue to arrive at different results. So far as closing stock is concerned, inventories of the existing stock were not found to be incorrect by the AO, i.e. that position of stock as shown in the account books was not incorrect. There being no dispute about the sales and purchases, non-maintenance of stock register lost its significance so far as arriving at the gross profit is concerned. Therefore, the learned CIT(A) was right in his reasoning about the admitted state of affairs. Resorting to estimate of the GP rate was founded on no material. It was merely a case of making certain additions on the basis of certain defects pointed out by the AO and which he has shown in different account by giving margin of unvouched expenses. He ..... X X X X Extracts X X X X X X X X Extracts X X X X
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