TMI Blog1999 (12) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... ed representative of the revenue to argue the appeals but which after some submissions was not pressed. Similarly, Shri Rakesh Goel raised a preliminary objection to the constitution of this Special Bench but which he could not substantiate by any effective argument. It may be mentioned that this issue is no longer res integra having been settled by the Hon'ble Supreme Court in the case of ITAT. v. Dy. CIT [1996] 218 ITR 275. 3. After dealing with the aforesaid preliminary objections we come to the specific facts in each of the appeals which are henceforth decided. 4. M/s. Shanker Rice Co. -- It is a registered firm which has taken on lease a rice sheller belonging to M/s. Ganesh Rice Mills, Moga Road, Kotkapura. During the year of assessment, the paddy milled was 37,500 qtls. giving production of khudi phak at 445 qtls. According to the Assessing Officer, this was on the lower side as other concerns had shown the yield at more than 2% and if this percentage was applied in the assessee's case, the yield would come to 750 qtls. as against 445 qtls. shown, the difference being 305 qtls. The Assessing Officer accordingly applied 2% and consequentially the difference of 305 qtls. w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat of another assessee of Bhikhi area where the CIT(A) had upheld yield of 65.66%. 9. As against the aforesaid, the Assessing Officer came across the following facts :--- (i) The capacity of the sheller was 1.5 tons per hour whereas paddy milled was at more than the aforesaid capacity. (ii) The assessee had made purchases varying from Rs. 163 per qtl. to Rs. 206 per qtl. but did not furnish any evidence in support of the contention that there was rise in prices. (iii) In the case of the assessee the paddy was available in the open market in abundance and it could not be said that the assessee purchased the same quality of paddy for the whole season. (iv) If the paddy had been purchased for a higher rate then the yield would be higher and if it had been purchased for a lower rate then the yield of rice would be on the lower side. (v) The assessee's contention that the paddy of the area in which it was located gave a yield of 64.50% could not be accepted as on going through the paddy milling register on a number of dates it was seen that the assessee had shown yield at almost the same figure which was fixed by the Govt. If in any month a higher yield had been shown then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintained and regularly checked by them from time to time. It was stated by the ld. counsel that 75% of the lice milled was taken by the Govt. and it was only the balance 25% which was sold in the open market after taking due permission from the authorities. 11. The ld. counsel also invited attention to the certification of the various statutory registers by the Govt. authorities concerned highlighting that no defects had been pointed out by the said authorities in any of the registers so maintained. It was also the further plea that the trade was regulated by the Punjab General Sales Tax Act. According to the ld. counsel, husk was tax-free whereas the rice and bran were taxable being liable to sales tax whereas the purchase tax was levied on paddy. Attention was invited to the fact that E.T.O. had checked the assessee's records and it was also the further submission that the trade was regulated by the Market Committee concerned which was a requirement of the Punjab Agricultural Produce Markets Act, 1961. 12. The ld. counsel further stated that the Assessing Officer at page 3 of the assessment order referred to the figures of paddy husked for a period of three months only whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot consist of quality milling. The plea in other words was that the facts and figures pertaining to F.C.I. were not relevant and a specific reference was made to page 22B of the compilation filed contending that large stocks were found unfit for human consumption. As against the aforesaid it was stated that the purchases by the Food Civil Supplies Deptt. of the State Government were of quality produce and there could, therefore, be no comparison with the facts and figures pertaining to F.C.I. According to the ld. counsel, the tax authorities were comparing like to unlike. The ld. counsel at this stage referred to the fact that even F.C.I. was giving benefit of 2% to bring it in conformity with the D.F.C. pattern. 15. At this stage the ld. counsel stated that in the subsequent assessment years the yield shown by the assessee had been accepted by the department although in proceedings under section 143(1). Further, the total wages paid in the subsequent assessment years were more and these stood allowed. As regards purchases of paddy, the ld. counsel stated that these were all made from approved markets and in any case not doubted by the Assessing Officer and further all relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of making the addition. 18. Coming to the addition on account of rice bran, the ld. counsel stated that as against percentage of 4.92 shown, the Assessing Officer had applied 596 leading to a minor addition of Rs. 1872 which was once again without any basis. In respect of this addition as also the one on account of khudi phak, the ld. counsel urged that these be deleted. 19. At this stage Shri Gopal K. Sood, Advocate, advanced the following arguments in the capacity of an intervenor :--- (i) Yield of rice and its by-products depended on numerous factors such as unseasonal rain, climate, moisture contents of the paddy etc. (ii) Data of any type filed by either the assessee or the department would not be accurate and the same was bound to differ from year to year. (iii) There was an absence of high quality rice shellers in Punjab and most of them were operating with old rice manufacturing machinery. (iv) Yield to a large extent depended on the type of machinery used. The ld. counsel also placed on record an article in a Newspaper to support his arguments contending that ground realities were duly taken care of in the said article. He also relied heavily on the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stand rejected and the authorities are not found applicable in the light of our finding that the ground raised is not in the nature of an "additional ground". 23. The decision of the Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383/97 Taxman 358, enjoins upon the Tribunal a duty to correctly assess the tax liability of an assessee by considering all such grounds including additional grounds raised which go to the root of the matter and are relevant and incidental to the issue raised, provided the facts are on the record. 24. Another objection was raised by the ld. D.R. and that being to the effect that the arguments of Shri Gopal K. Sood, Advocate, be not considered as he was not representing any assessee before the Tribunal. According to him, an "intervenor" could only be an assessee who had an appeal pending before the Tribunal on an identical issue. This Special Bench notes that the arguments of Shri Sood are more or less a reiteration of those raised by the ld. counsel for the first-mentioned assessee before us and already reproduced earlier. In other words, we do not find it necessary to decide the issue raised by the ld. D.R. on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ured" and periodic verification and signing by "any other authority" was not relevant for income-tax purposes. Further the entries on the date of verification may be valid but not on the other days during the year. The ld. D.R. further referred to the fact that a constant yield percentage had been shown for a period of 30 days which did not reflect a normal situation. According to him there were bound to be power failures and various other adverse factors during the shelling process and it was therefore not possible to show a uniform percentage. The assessee as stated by the ld. D.R. had shown percentage yield of rice at little above the norm of 64.5% as prescribed by the D.F.C., Punjab. The audit report under section 44AB, according to the ld. D.R., was not relevant as this only represented a certification of accounts and did not throw any light on the yield percentage. 28. The absence of a wages register to substantiate working on Sundays/ other holidays as also the production more than the alleged capacity was also highlighted. As regards the state of plant and machinery the ld. D.R. stated that the latest technology was available in the rice shellers in Punjab. As regards the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. [1987] 167 ITR 344 (Pat.); (ix) Amiya Kumar Roy Bros. v. CIT [1994] 206 ITR 306 (Cal.); (x) Bastiram Narayandas Maheshri v. CIT [1994] 210 ITR 438/74 Taxman 454 (Bom.); (xi) Vazhakkala Estates (P.) Ltd. v. State of Kerala [1994] 209 ITR 461 (Ker.). The ld. D.R. also placed reliance on the various unreported decisions of the Amritsar Bench of the ITAT appended at pages 25 to 83 of the departmental paper-book. 32. In respect of the other two additions, sustained by the CIT(A) on account of rice bran and khudi phak, the ld. DR. vehemently supported the action of the tax authorities in making and confirming the additions of Rs. 1,872 and Rs. 25,100 respectively. 33. In reply the ld. counsel for the first mentioned appellant stated that the fresh evidence placed by the ld. D.R. on the paper-book of the department pertained to the correspondence between various departments of the Government and this did not throw any light on the point at issue as these documents only contained facts, figures and % ages in normal situations irrespective of the actual facts in a given case. According to the ld. counsel, some of these documents in fact supported the assessee's line of argu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leading to impugned additions. 35. Coming to the various decisions relied upon by the ld. D.R., the ld. counsel stated that Chhabildas Tribhuvandas Shah's case had been considered in Jhandu Mal Tara Chand Rice Mills' case and in the same very judgment S.N Namasivayam Chettiar's case had been distinguished. As regards Orissa Fisheries Development Corpn. Ltd.'s case, the submission of the ld. counsel was to the effect that in that case no stock register had been maintained and the C.A. had given adverse report whereas this was not so in the present case. In respect of the other decisions cited, the ld. counsel contended that these were not on maintenance/non-maintenance of stock registers and therefore not relevant to the facts of the assessee's case. The ld. counsel also sought to distinguish the various other decisions of the Amritsar Bench of the Tribunal relied upon by the ld. D.R. once again reiterating reliance on the decisions cited by him including those of the various Benches of the Tribunal including Chandigarh and Amritsar. 36. We have considered the rival submissions and also perused the material on record to which our attention was invited during the course of the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer categorically stated that it had purchased only one quality of paddy for milling i.e. PR- 106 and that also at the market rate and the entire purchases had been made during a period of 39 days only. The Assessing Officer without any rebuttal chose to assume that different qualities must have been purchased and a better quality would give higher yield. Similarly, an adverse inference was drawn on the variation in the purchase price between Rs. 163 and Rs. 206 per qtl. when it was the assessee's case that this represented the market price. Further it is seen that these figures are from 21-9-1988 to 12-10-1988 only and Rs. 163 is the rate on 29-9-1988 whereas on other dates the variation is between Rs. 186 and Rs. 206. As already stated by us earlier it is a fact not disputed by revenue that the purchases are not doubted either by the department or any of the other authorities such as the DFC or the Sales Tax Department. 39. On the allegation of the Assessing Officer that a uniform yield of rice had been shown, the assessee's explanation was that stock registers were maintained and these were subjected to regular checks by State Govt. authorities and the yield shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 112 is an analysis of PR-111 variety and the period apparently is the beginning of 1994 whereas we have before us assessment year 1989-90 in the first-mentioned appeal. At page 112 is the comparative data between 3 varieties i.e. PR- 111, PR- 110 and PR-106. The ld. D.R. has heavily relied on the percentage shown i.e. 73.21 for PR-106 but it must be appreciated that neither is the period relevant nor the data and it must be seen that the percentages are worked out on the basis of data processed in laboratories as page 111 states "data recorded under artificial inoculation conditions'. The other pages/documents referred to are also not found relevant once again with reference to the period or the point at issue. The ld. D.R. has been quick in highlighting percentages without taking this Bench through the entire document. For instance, page 117 relied upon is part of the documents beginning page 113 which has the heading "Proposal for release of rice varieties PR- 108 and PR- 109'. Similarly, reference to document at page 122 is neither here nor there as it is part of the documents starting with page 118 and the learned D.R. has not adverted to either page 118 or the subsequent pages ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted upon the Tribunal unless there is conclusive evidence to support them and it must be emphasised that this is a Special Bench constituted to deal with important issues. 43. Another allegation against the assessee is that it is showing production more than its capacity and that it has milled the paddy even on gazetted holidays and Sundays there being no proof tendered in the form of attendance register etc. We really to not appreciate the logic for drawing any adverse inference on this score. It is not the case of the revenue that the production on such days i.e. Sundays and gazetted holidays is not reflected in the books of account maintained in the normal course. 44. The revenue in the present case has not been able to point out any difference between the manner in which the assessee is carrying on its business and the way in which the others in the same line are carrying on theirs. The application of yield at 65.66% in respect of rice relying on the order of CIT(A) in the case of M/s Ganesh Rice Mills, Bhikhi is improper as similarity between the two cases is not detailed in the orders of the tax authorities. It would be great hardship to an assessee carrying on a particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw remaining the same the rule of res judicata notwithstanding. In respect of application of proviso to section 145(1), the Benches at Amritsar and Chandigarh have been consistently taking the view that the same cannot be invoked where the accounts are audited, proper books of account are maintained, statutory registers and records as required by the State Government are kept and no defect is pointed out either in the books of account or the statutory registers maintained. The yield percentage fixed by the Food Civil Supplies Deptt. was duly taken into account by the Tribunal. All the aforesaid facts are clear from the decision of the Amritsar Bench in the case of ITO v. Mahavir Rice General Mills [IT Appeal No. 216 (Asr.) of 1989 dated 30-11-1993] when the following decision of the CIT(A) came to be confirmed :--- "5. I have given a careful consideration to the submissions of the learned counsel, firstly, the appellant firm had been maintained the stock register and no defect had been pointed out by the Assessing Officer. As observed by the Hon'ble Punjab and Haryana High Court in 73 ITR 192 that the business of the assessee-firm is controlled by the Food Civil Supplies De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing capacity. That apart the Assessing Officer has adopted the yield confirmed by the CIT(A) in another case. It is seen from a study of a number of case heard by the Benches at Chandigarh and Amritsar that the figure of yield is always disturbed irrespective of the percentage shown. It is the practice with the department to increase whatever the assessee shows whether it is near 64.5% which is the norm fixed by the DFC or more than this figure. There is no reasonable basis or justification to reject the books of account and make an addition in such cases as is the consistent view of the Chandigarh and Amritsar Benches all along. In the decision of the Amritsar Bench in the case of Shakti Rice General Mills, there is no mention about the norms fixed by the DFC and why these are to be rejected and those of FCI are preferable and are to be treated as the views of an expert. The Bench in the decision impugned has not given any benefit of the audited accounts and maintenance of statutory registers prescribed by the State Govt. and which admittedly have undergone periodical checks. Their Lordships of the Punjab Haryana High Court in the case of Jhandu Mal Tara Chand Rice Mill, at page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 13. Even if such finding were to be implied from his order it could not be said that there was material before him which would enable him to come to such a finding. The fact that the profits appeared to him to be insufficient and the fact that no stock register was maintained by the assessee were not materials upon which such a finding could be given, but they were circumstances which might provoke an enquiry. The Income-tax Officer must discover evidence or material aliunde before he could give such a finding. In increasing the taxable income the Income-tax Officer did not adopt any method or basis and he was not acting according to the provisions of the statute." 47. Similarly, in the decision of the Hon'ble Bombay High Court in the case of R.B. Bansilal Abirchand Spg. Wvg. Mills, their Lordships took the view that the mere fact that the percentage of dead loss of cotton was high in a particular year cannot lead to an inference that there had been a suppression of production in a spinning mill. Their Lordships further emphasised the recording of a specific finding before applying proviso to section 13 as to the unacceptability of the method and irregularity of the acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lture Income-tax Act, 1950, their Lordships of the Kerala High Court confirmed the view taken by the ITO on all the grounds. The facts in the present case are quite distinguishable and this judgment would therefore not apply. Bastriram Narayandas Maheshri's case This was a case of a bidi manufacturing business where no day-to-day records of manufacture were kept. The ITO rejected the books of account and their Lordships of the Hon'ble Bombay High Court confirmed the view taken by the ITO on the ground that day-to-day record of manufacture had not been produced and the Tribunal under these circumstances had correctly held that the ITO was not satisfied about the fairness or correctness of the accounts of the assessee and, therefore, best judgment assessment under section 144 was valid. In the present case, the assessee has maintained books of account in the normal course of business and it has also maintained statutory records and registers required by the State Govt. vis-a-vis the trade of rice shelling in which it is engaged. The assessee cannot be expected to maintain books of account or records which are not practicable or keep records for which there is no requirement eithe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that profit rate should be applied to the gross turnover including sales-tax. No defect has been pointed out by the tax authorities in the case before us and this decision would therefore not help the revenue. Bharat Milk Products' case This was a case of manufacture of condensed milk, cream, khoya and skimmed milk and on examination of the accounts, the ITO found that purchases and cash sales were not verifiable and no day-to-day production and manufacturing record had been maintained. On these facts he invoked proviso to section 145(1) and made an addition. On further appeal, the AAC allowed some relief and both the parties filed appeals to the Tribunal. The assessee pursuant to the decision of the Tribunal made a reference to the Hon'ble High Court which confirmed the view taken by the Tribunal in rejecting the accounts of the assessee and sustaining the addition on account of quantum. This is also a case of specific defects having been pointed out and would not apply to the facts of the present case. Orissa Fisheries Development Corpn. Ltd.'s case The assessee in this case carried on trade in fish and it was noted as a fact that no proper accounts were maintaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing authority on a rational basis without any bias and the said authority should not be vindictive or capricious. It was further held by their Lordships that if the estimate made by the assessing authority was a bona fide one based on a rational basis and the fact that there was no good proof in support of that estimate was immaterial. The issue in the present case is entirely different and this decision would therefore not apply. Punjab Trading Co. Ltd.'s case Their Lordships of the Hon'ble Punjab High Court in the aforesaid decision took into account the earlier judgment of the same Court in the case of Pandit Bros. to hold that the ITO was not bound to compute the income in accordance with the method of accounting regularly employed by the assessee if that method in fact did not show the true income. Their Lordships further observed that the view that if accounts are regularly and prima facie kept and the ITO cannot find any particular flaw in the method of accounting, he is bound to accept the profits disclosed is not correct. According to their Lordships it was for the income-tax authorities to consider all the material placed before them and if after taking into acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en given to the submissions made by the ld. D.R. In our opinion, the decision already given while dealing with the yield of rice would squarely apply as, in our opinion, the addition on account of khudi phak has also been made purely on surmises and conjectures and "considering" the percentage of yield shown by others in the same line of business. The assessee has declared 1.91 % and the Assessing Officer has applied 2%. The ld. counsel for the assessee referred to page 18 of the department's paper-book whereas in the case of Singla Rice Mills, Rampura Phool, yield of phak for assessment year 1989-90 had been shown/adopted at 1%. In other words, the department wants to make an addition in respect of each item although on the basis of assessment orders passed in various places in Punjab and as is the experience of the Division Benches at Amritsar and Chandigarh, the yield is higher or lower figure stated by the present assessee and the former having been accepted. We, therefore, find no valid basis on the part of the Assessing Officer to make the impugned addition on account of khudi phak and on the part of the CIT(A) to confirm the same. The said addition is, therefore, deleted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as contended in the first-mentioned appeal. 55. Coming to the addition on account of phak, the total paddy milled by the assessee was 49,773 qtls. which included 28,750 qtls. own paddy and 21,023 qtls. of paddy belonging to FCI. The yield of phak was shown at 482 qtls. at which represented less than 1% of the total paddy milled. In the course of the assessment proceedings, "comparative cases" were cited where the yield had been shown at a higher figure. In response to the query of the AO, the assessee contended that the yield of phak was to be in respect of the yield of rice and not the paddy milled. This contention was rejected. In concluding, the Assessing Officer applied a rate of 2% of the total paddy milled and worked out a yield of 995 qtls. as against which the assessee had shown 482 qtls. The monetary value of the difference i.e., 513 qtls. was added on average sale price of Rs. 76.50 per qtl. leading to an addition of Rs. 39,240 which on further appeal was confirmed by the CIT(A). 56. The arguments of both the parties were the same as raised in the earlier appeal where we have deleted the addition not only in respect of the yield of rice but also in respect of phak. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) it was contended that the yield adopted at 3% was highly excessive and so was the rate of Rs. 100 per qtl. applied. A reference was made to certain assessment orders passed by the different Assessing Officers where yield of 1% and 1.5% had been accepted. As regards the rate to be applied, it was urged that khudi phak was being sold in Moga and Dharmkot at Rs. 35 to Rs. 40 per qtl. and applying a rate of Rs. 100 per qtl. was excessive. The aforesaid submissions did not find favour with the CIT(A) and he in turn proceeded to refer to certain other cases of Bhatinda and Ferozepur Districts where the yield higher than 3% had been taken. The CIT(A) also referred to certain other cases in which he had upheld the yield of khudi phak at 3% as reasonable. Taking into account the various defects pointed out by the Assessing Officer, he confirmed the addition and further rejected the question of application of rate by referring to the sales effected by the assessee itself at Rs. 79 per qtl. and Rs. 77.50 per qtl. on two different occasions. The CIT(A) also highlighted the absence of 19 bills from the bill book of the assessee. In confirming rate of Rs. 100 per qtl. the CIT(A) referred to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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