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2010 (1) TMI 1226

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..... r:- Total No. of bags consumed 28449 Weight of Maida in above bags @ 90 Kg. 2560410 Weight of empty jute bag (i.e. 900 gms) in 90 kg. Packing 25604.1 Loading/ unloading/transportation/Moisture @ 250 gms per 90 kg bag. 7112.25 Shortage of Maida while taking it out from 90 Kg of packing @250 gms per kg. 7112.25 Powering 1 Kg. of Maida while taking it out from 90 Kg of packing @ 2 Kg. per bag. 56898 Final consumption of Maida 2463683.4 Yield of Bread in Kg. after fermentation (consumption) in bowl of 45 Kg. 70/45 3832396.4 Balance (after) : 1% loss during the packing. 3794072.436 After 1% loss in packing/slicing and dispatching 3756131.712 After loss on rejection @2% 3681009.077 Net Maida considered for production of bread in Kg. 3681009.07 .....

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..... ity of manufacturing bread was having done manually where wastage of raw material are higher resulting in the reduction of production ratio as compared to the industries which are having modern technique. It was further pointed out before the ld. CIT(A) that rate of sale of bread is comparatively large less than that of Britannia industries, Modern Food industries and Harvest Gold etc. All these facts about the assessee duly placed before the A.O. but the A.O. has totally ignored all these factors. It was further pointed out that in the assessee s case, search was conducted on 08.01.004 and sale rate of 1 KG of bread was worked out by the A.O. at ₹ 11.56 per KG for organized industries, which was also applied to the assessee s case though the assessee s plant is totally based on conventional method than the modern organized method adopted by Britannia industries etc. He further submitted that in the present assessment year 1998-99, the addition has been made on the basis of the rate of bread in the case of Britannia industries etc. pertaining to the assessment year 2004-05 and, therefore, the addition made in the present assessment year have no basis. The assessee placed befo .....

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..... e has been worked out by the A.O. to be 2.5%. On the other hand, the assessee has also filed stepwise yield of bread, both before the A.O. and before me, as per which the wastage works out to 3.7%. In this regard it was submitted that the wastage has been worked out on the basis of actuals. It was also submitted tht sometimes the crystals of maida stick to the bag on account of moisture and this fact has not been properly appreciated by the A.O. alongwith other facts relevant to determine the actual wastage which occur in the unorganized sector where bread loafs are made manually. It was also submitted that in the immediately preceding years the wastage worked out by the assessee, on actuals, has been accepted and, in such facts and circumstances of the case, the A.O. could not have rejected the claim of wastage without assigning good reasons and without relying on good evidence. 4.2 I have considered the facts and circumstances of the case, the reasoning of the A.O. and the submissions of the assessee. No doubt the issue is a very complex one as shortage in maida does occur more so in the unorganized sector where bread loafs are manufactured manually. Also, there is no .....

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..... same price of ₹ 7.17 per loaf of bread and recompute the suppression of sales. 10. From the aforesaid order of the ld. CIT(A), it is seen that as against estimating the shortage at 2.5% by the A.O. and 3.7% claimed by the assessee, the ld. CIT(A) adopted the wastage at 3.1% and directed the A.O. accordingly. It is further seen that as against the sale price of ₹ 9.24 per 800 grams of loaf of bread estimated by the A.O., the ld. CIT(A) directed the A.O. to adopt the sale price of ₹ 7.17 per loaf of bread and recompute the suppression of sales. 11. Against the ld. CIT(A) s order, the assessee is not in appeal. However, the department has filed this appeal by taking a ground that the ld. CIT(A) has erred in deleting the addition on account of suppression of sales. 12. The ld. D.R. has submitted that the working made by the A.O. in Annexure-A annexed to the assessment order to determine the suppressed sale is justified inasmuch as the assessee has not been able to produce and furnish necessary evidences and books of accounts to prove and establish that the book results are true and correct and no sale has been suppressed by the assessee during the year unde .....

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..... sclosed in the return of income. In the course of the search, no material or documents or evidences were found to show and indicate that the assessee made sales outside the books of account. The addition has been made by the A.O. purely on the basis of his working where the shortage of Maida and other factors have been estimated by the A.O. without there being any material on record to support them. No document was found during the course of the search to show that the assessee had sold the bread at 11.56 per KG of bread. The ld. CIT(A) has directed to adopt the sale price at 7.17 per loaf of bread by 800 grams meaning thereby that the rate per KG applied by the CIT(A) would be ₹ 8.96 per KG. The total sales shown by the assessee has been shown at the rate of 8.96 per KG. The A.O. has estimated the sales at ₹ 11.56 per KG for all the assessment years i.e. from assessment years 1998-99 to 2003-04 but nothing has been pointed out by the A.O. to say that the breads were sold by the assessee at 11.56 per KG in all the years. Therefore, the rate applied by the A.O. at 11.56 per KG in this assessment year 1998-99 cannot be sustained. The ld. CIT(A) has adopted the rate of 7.1 .....

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..... As regards this issue the A.O. observes, that as per trade practice the assessee receives most of the sale moneys in cash being coins/ small denominations notes. Further, he assessee could not produce any bank counter foils in respect of deposit of coins/ small denomination notes in the bank account. Accordingly, the A.O. estimated 2% of the total sales, as commission u/s 69C amounting to ₹ 6,21,029/-. 5.1 It is the assessee s case that the A.O. felt into error the moment he assumed that the entire sale proceeds are received in coins/ small denomination notes. It is also the assessee s case that hardly 5% of the total sales are received in small coins/ torn notes. 5.2 I have considered this issue and I agree with the assessee that the A.O. has to be faulted for assuming that the entire sale proceeds are received in coins/ torn notes. Keeping in view the particular facts and circumstances of the case, I am of the opinion that the commission on conversion worked out at ₹ 31,050/- by the assessee is reasonable. While holding so, I have also kept in mind the fact that in past assessment years no such disallowance was made, and the claim of the assessee had been .....

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..... s of accounts and the computers of the assessee were seized the course of search and seizure operation alongwith certain bills and vouchers. Further, no specific defect has been pointed out by the A.O., and, keeping in view the fact that the major head of expenses is interest to bankers, salaries and wages, diesel and electricity etc., I am of the opinion that the adhoc disallowance of expenditure incurred is unwarranted as the claim of expenses is quite reasonable compared to the scale of business. While holding so I have kept in mind the fact that in the past no such disallowance were made. Accordingly the addition of ₹ 1,26,839/- is also deleted. 25. It is pertinent to note that in all the assessment years from assessment year 1998-99 to 2003-04, the A.O. has disallowed on adhoc basis 20% of the total expenses. 26. On an appeal, in the assessment year 2000-01, 2002-03 and 2003-04, the ld. CIT(A) has reduced the disallowance to 10% against which neither the assessee nor the department is in appeal. However, in the assessment year 1998-99, 1999-2000 and 2001-02, the ld. CIT(A) has deleted the whole of the disallowance made by the A.O. to the extent of 20% of the tot .....

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..... penses made by the A.O. is reduced to 10% of the expenses as so held by us in A.Y. 1998-99. 32. Coming to the ITA No. 1554/Del/2007 pertaining to the assessment year 2001-02, where the identical additions were made by the A.O. on account of suppressed sale, commission on exchange of coins and torn notes and disallowance of expenses, we find that the ld. CIT(A) has decided this issue by holding as under:- (i) The ld. CIT(A) directed the A.O. to adopt the rate of wastage in Maida at 3.1% as against rate of 2.5% estimated by the A.O. and the rate of 3.2% claimed by the assessee. (ii) The ld. CIT(A) further directed to adopt the sale price of 7.80 per loaf of bread and recompute the suppression of sales accordingly. The rate of 7.80 per loaf of bread is with regard to the 800 grams of loaf of bread. (iii) The addition of ₹ 6,02,878/- made on account of commission on exchange of coins/ torn notes has been deleted by the ld. CIT(A) in the light of his decision in the past year. The ld. CIT(A) further hold that the commission of conversion worked out at ₹ 34,144/- by the assessee is reasonable. (iv) Similarly, the adhoc disallowance of 20% out of expenses has be .....

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..... himself declared sale price of bread at ₹ 8.22 per 800 gms of loaf price of bread. There is no clarity or material available on record to support of this contention. Therefore, the matter is restored back to the file of the A.O. for verification as to whether the sale price declared by the assessee is ₹ 8.22 per 800 gms loaf of bread as against the rate of bread of ₹ 7.66 per 800 gms directed to be applied by the ld. CIT(A). In case, it is found that the assessee had himself declared sale price of bread at ₹ 8.22 per 800 gms of load of bread, the A.O. shall work out or recompute the suppressed sale by applying the rate declared by the assessee as against rate of bread of 7.66 per 800 gms of loaf directed to be applied by the ld. CIT(A). If the rate declared by the assessee is below ₹ 7.66 per 800 gms of loaf of bread, the A.O. shall recompute suppressed sale by applying the rate of bread at 7.66 per 800 gms of loaf of bread as so directed by the ld. CIT(A). With this observation, the ground with regard to the recomputation of suppressed sale is decided accordingly. 39. With regard to the addition of ₹ 7,16,019/- on account of commission allege .....

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..... cision in the assessment year 2001-02, this limited issue about applying the rate of bread is restored back to the A.O. for verification in the light of our observation made in the assessment year 2001-02 and the A.O. then applied the rate accordingly to recompute suppressed sale. With regard to the addition on account of commission on exchange of coins/ torn notes, the ld. CIT(A) has held that the commission on conversion worked out by the assessee at ₹ 37,275/- is reasonable as it is equal to 2% of 5% of the sales. The ld. CIT(A), therefore, deleted the addition. We do not find any infirmity on this aspect in the order of the ld. CIT(A), which is accordingly upheld. 43. With regard to the disallowance of expenses, the ld. CIT(A) has restricted the disallowance to 10% which has neither been challenged by the assessee nor by the A.O. 44. Now, we shall come to the last appeal being ITA No. 1916/Del/08 pertaining to the assessment year 2003-04 where the grounds have been taken as under:- 1. The order of the ld. CIT(A) is not correct in law and facts. 2. On the facts and in the circumstances, the ld. CIT(A) has erred in directed the A.O. to recompute suppressed .....

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