Contact us   Feedback   Annual Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (10) TMI 921 - ITAT JAIPUR

2016 (10) TMI 921 - ITAT JAIPUR - TMI - Disallowance of trading losses - non maintenance of day to day stock register - Held that:- Being the first year of operation, there are certain inherent challenges in terms of procurement and supply of milk and related products as well as pricing thereof given the market dynamics which have been encountered by the assessee and duly explained in the instant year which has resulted in manufacturing/ trading losses which have been reduced in the subsequent y .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e are of the view that the AO was not right in rejecting the books of accounts and disallowing the whole of the manufacturing/trading loss - Decided in favour of assessee - Disallowance of Telephone expenses and staff welfare expenses and travelling expenses - Held that:- Considering the submission of assessee that it has paid FBT on telephone, staff welfare and travelling expenses and when the same have been considered for the purposes of Fringe Benefit Tax (FBT), the same are provided by t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nue : Shri R.S. Dagur(Add.CIT) ORDER PER SHRI VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of Ld. CIT(A)-II, Jaipur dated 27.03.2015 wherein the assessee has taken following grounds of appeal: (i) The ld. CIT(A) has erred by confirming disallowance of trading losses of ₹ 62,77,969/- merely taken shelter of provisions of section145(3) of the IT Act, 1961 and allegedly non maintenance of day to day stock register, inspite of justification & various a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rs and after pasteurizing and other relates processes, sold it in the market to various retail outlets/milk booths. The assessee submitted its return of income declaring net loss of ₹ 1,54,14,140/- as per audited books of accounts. The books of accounts were produced before ld. AO and same were examined in detail, but the same were rejected by the AO by invoking provisions of section 145(3) of the Act and thereafter AO disallowed the whole of the manufacturing/trading loss of ₹ 62,77 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

see has not maintained any quantitative day to day stock register of raw milk purchases, daily production of milk from SMP, sales thereof and the closing stock in quantity at the end of each day. Thus no verification with regard to the quantities can be made in respect of opening stock purchase, sales and closing stock shown in the books of account. Hence, the rejection of books of accounts u/s 145(3) is held to be justified and the appellant has not filed any written submission in this regard. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ble that new details were prepared and furnished which were favourable to him. But those details could not be verified due to non maintenance of day to day stock records. During the appeal hearing the AR for the appellant reiterated the submission filed before the AO. The appellant does not explain the issue properly. Hence considering the entire facts and circumstances of the case the addition made by the AO is held to be justified and the same is sustained. The appellant fails on this ground. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and therefore villagers/milk suppliers were offered higher rates alongwith upfront cash payments as incentive which ultimately resulted in higher cost of raw milk. 1.3 On the sales side, assessee s brand ( Milk Boy ) had to face tough competition from the established milk brands such as Saras , Amul and Mother Dairy etc. With a view to gain the market foothold in highly competitive retail market, the assessee had to offer the various schemes to retail outlets which included marketing offers suc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of account by the AO u/s 145(3), the ld AR has submitted as under: ALLEGATION BY LD. AO ( Serial No. 1.1 on Page No. 2 of the Assessment Order): 1.5 The assessee has shown the purchase of raw milk from various villagers for which self made vouchers were maintained for payment without mentioning the complete addresses of the persons from whom said purchases have been made. The payments of raw milk purchases were also made in cash of which no verification could be made for the reason that assesse .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ilk vendor, signature of vendor on revenue stamp etc. (See PB No. 17 to 26 for sample voucher/ledger). Ld. AO had leveled these Bills cum Vouchers as self-made. Villagers would, normally, not accept the bank payment of milk and therefore the payment to milk vendors was made in cash. Even, the Rule 6DD of Income Tax Rules, 1962 permits the cash payment in excess of ₹ 20000/- per day for dairy produce (including milk) as under: No disallowance under sub-section (3) of section 40A shall be ma .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e for the assessee to ensure the presence of milk vendors at a short notice of Ld. AO on 16/12/2008, that too at the fag end of assessment proceedings, especially when the assessee had stopped milk purchases from these villagers after 31/03/2007 in view of the heavy losses. ALLEGATION BY LD. AO (Serial No. 1.2 on Page No. 2 of the Assessment Order): 1.6 The assessee has not maintained any quantitative day to day stock register of raw milk purchase, daily production of milk from SMP, sales thereo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ds and submitted a quantitative tally on 14/10/2008(without including SMP milk) and on 10/11/2008 (after including SMP milk)(See PB No. 27 to 28). Without quantitative records, how could the assessee submit the Q-Tally to the Ld. AO in the course of assessment proceedings. ALLEGATION BY LD. AO ( Serial No. 1.3 on Page No. 2 of the Assessment Order) 1.7 The assessee has manufactured Ghee also during the year, for which no quantitative day to day stock register showing opening stock, purchase, sal .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ls under the Essential Commodities Act and question of no maintaining quantitative details relating to the production/stock/sale etc. does not arise. ALLEGATION BY LD. AO ( Serial No. 1.4 on Page No. 2 of the Assessment Order): 1.8 The assessee has manufactured Chhach and Lassi also during the year for which no quantitative day to day stock register showing opening stock, purchase, sales and closing stock had been maintained, hence the production of those items shown by the assessee remains unve .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er items also the assessee has made the self made vouchers without mentioning name and complete addresses of the Booth Holder/customers. Further the collection from them are mostly by way of cash, hence, the sale rate / sale value shown by the assessee also remains unverifiable. SUBMISSION OF APPELLANT: Assessee had appointed various retail booths/kirana shops for sale of its products. Dues from such debtors (running into more than 289 Nos. as on 31/03/2006) amounted to ₹ 26,53,749/46 as p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

2 of the Assessment Order): 1.10 It is noticed that in each month the raw milk purchase rate was higher than the sale rate which resulted into huge trading loss during the year as per the details submitted by the assessee. SUBMISSION OF APPELLANT: Assessee had submitted the average purchase and average sale rate of the different months before the Ld. AO on 14/10/2008 which has been reproduced by Ld. AO on page No. 3 of his assessment order: MONTH RAW MILK PURCHASE RATE PR KG. COST OF MILK PER K .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

MMF Ltd.(Amul) and the prices of these items were beyond the control of assessee. ALLEGATION BY LD. AO ( Serial No. 1.9 on Page No. 2 of the Assessment Order): 1.11 It is also noticed that various quantities of opening stock, purchases of raw milk, stock of raw material shown are different in the two separate details furnished by assessee vide its letter dated 14/10/2008 and 10/11/2008. These discrepancies are noted below……… SUBMISSION OF APPELLANT Assessee had submitted two .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

14/10/2008) 3109170 274275 CHART(10/11/2008) 3097443 265332 SHORTAGE CALCULATED BY Ld. AO 11727 8943 20670 KGS. PROCESSING AND HANDLING LOSS 99277 KGS Ld. AO finally concluded at the end of the page No. 4 of his assessment order that closing stock shown by assessee is short by 21389 Kgs of Milk ( including 20670 Kgs.). Even if AO conclusion is accepted at the face value for once, the addition by enhancing Closing Stock should had not exceeded 224584/- (21389 Kgs. multiplied by sales rate of S .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s furnishing the details of following major expenses (of Manufacturing Account) for kind consideration before the Hon ble Bench: NATURE OF EXPENSES AMOUNT IN RS. PAPER BOOK PAGE NO. Water & Electricity Expenses 1278645/- 35 Processing Charges 1090047/- 36 Packing Material 2006809/- 37 to 38 Furnace Oil 779013/- 39 Purchases of Chemicals 309610/- 40 All purchases exceeding ₹ 1 Lacs 35999069/- 41 to 42 Ld. AO had not doubted the incurrence of above expenditure in any manner. 1.13 Now the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e goods mentioned in the purchase bills were actually received or not and the goods not consumed are taken in the closing stock or not. Given this reasoning, the Ld. AO has disallowed Gross Loss (Rs. 6277969/-). The question is when the whole of the expenses/income were not verifiable as per opinion of Ld. AO, then what is the basis for 100% disallowance of Gross Loss. Being the first year of business, the assessee did not have any past history and the Ld. AO also did not bring any comparable ca .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

absolute arbitrary authority to assess at any figure he likes. He must be guided by the rule of justice, equity and good conscience. 1.14 Besides the so-called factual defects in the books of accounts, Ld. AO also relied upon following case laws of Hon ble Supreme Court to justify the rejection of books of accounts of assessee: S. N O. Case Laws relied upon the by Ld. AO Factual Matrix of Assessee vis-à-vis case law a) N. Namasivayam Chettiar Vs. CIT(1960) ITR 579(SC) which deals with a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

erial cost without adding the overhead expenses. No such issue was raised by Ld. AO c) Commissioner of Sales Tax Vs. H Esuf Ali, HM Abduli Ali 90 ITR SC 1973 231 where Sales Tax Authorities had inspected the premises of assessee and found proof that there is sales outside the books of account and therefore estimate of unrecorded sales was made for the bill books not entered in the books of account No such issue was raised for assessee by Ld. AO The facts and circumstances of the each of the case .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

stification for coming to the conclusion that sustaining an addition of ₹ 34,000 would be justified. Thus, the finding had been reached on the ground that in the absence of recording any finding by the Commissioner (Appeals) that the expenses incurred on any account appeared to be unreasonable or excessive, the additions sustained merely on suspicion of pilferage or leakage were not justified. This conclusion was a finding of fact keeping in view that the addition in the profits and gains .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

uesswork. Lower GP r rate shown in the books of account during current year and fall in GP rate was justified and also admitted by the Assessing Officer as well as CIT(A) as well as the Tribunal. Therefore, fall in GP rate lost its significance. Having accepted the reason for fall in GP rate, namely, stiff competition in market and also that huge loss caused in particular transaction, neither the rejection of books of account was justified nor resort to substitution of estimated GP by rule of th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ain the order of the Tribunal . 1.15.3 Dhakeswari Cotton Mills Ltd., v/s. CIT (1954) 26 ITR 775, Hon ble Supreme Court concluded: The rule of law on this subject has been well settled that estimates framed without giving the basis for their fixation or without furnishing to the assessee the material on which the rate of gross profit is arrived at or without giving an opportunity to the assessee to rebut it are bad 1.15.4 Maharaja B P Singh Deo 76 ITR 690, Hon ble Supreme Court concluded: The mer .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

been explained over and over again by this court. 2.3 The ld DR is heard who has vehemently argued the matter and relied upon the order of the lower authorities. 2.4 We have heard the rival contentions and perused the material available on record. The assessee derives income from manufacturing and supply of milk and milk products. The assessee collects raw milk from villagers, process it and thereafter supply the same to various dairy booths and retail outlets in Jaipur and adjacent areas. The y .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he ld. CIT(A). The assessee has submitted that being the first year of its operations, the staff of the assessee was untrained to handle the procurement and supply and there were losses on account of milk processing and rejections. On the purchase side, given the presence of other established players in the market, villagers were offered high rates alongwith upfront cash payments as incentive which resulted in higher cost of raw milk. Similarly, on the sale side, given the market dynamics and co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

.79 crores in the instant year after stabilization of its operation and the losses have been reduced in the subsequent years. Regarding each of the contentions raised by the AO while rejecting the books of account u/s 145(3) of the Act, the assessee has filed detailed submissions. Regarding purchase of raw milk from the various villages, the assessee has submitted that complete details of milk purchases including ledger account of milk vendors and sample vouchers were submitted to the AO and giv .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed that it has pointed out to the AO that it has sold its milk and milk products to a large number of milk booths and retail outlets running into more than 289 nos. and dues from such debtors have been duly recorded in the audited financial statement and details have been submitted to the AO. Regarding sale collections in cash, the assessee has submitted that this is normal industry practice that the cash is collected in the afternoon by the delivery persons alongwith the empty milk crates for t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

etter dated 14.10.2008 and subsequent letter dated 10.11.2008, the ld. AR submitted that the first quantitative tally which was submitted on 14.10.2008 was without including the details regarding SMP milk and subsequently the assessee realized the data was not correctly submitted and revised quantitative tally including SMP milk was submitted on 10.11.2008 and later quantitative tally is duly supported by the quantitative records maintained by the assessee and the books of accounts. The AO howev .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

AO to disregard the same without any valid reasons. The ld. AR has further submitted that even if the contentions of the AO is accepted that there is a shortage in closing stock, the AO is not justified in disallowing whole of the manufacturing loss of ₹ 62,77,969/- as against the value of closing stock of ₹ 2,24,584/- in respect of shortage of stock as determined by the AO. Regarding the processing and handling loss of 99,277/- Kgs, the ld AR has submitted that the details were sub .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

has not challenged these expenses and in the absence of that, there is no basis for the AO to disallow the whole of the manufacturing/trading loss which includes all these expenses as well. In light of above, we are of the view that being the first year of operation, there are certain inherent challenges in terms of procurement and supply of milk and related products as well as pricing thereof given the market dynamics which have been encountered by the assessee and duly explained in the instant .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version