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Income Tax Appellate Tribunal, DELHI BENCH ‘B’ : NEW DELHI
(PAN : AAACJ1322R) (APPELLANT) (RESPONDENT) ASSESSEE BY : Ms. Monika Aggarwal, Advocate REVENUE BY : Ms. Indu Bala Saini, Sr. DR Date of Hearing : 16.03.2023 Date of Order : 22.03.2023 ORDER
PER SHAMIM YAHYA, ACCOUNTANT MEMBER :
This appeal by the Revenue is directed against the order of ld. CIT (Appeals)-16, New Delhi dated 08.03.2019 pertaining to the Assessment Year 2014-15.
The ground of appeal taken by the Revenue reads as under :-
“Whether on the facts and the circumstances of the case, the CIT (A) has erred in deleting the addition of Rs.4,68,76,451/- made by the AO as unexplained purchased relating to the gain of 84.860 MT and 101.30 MT of FAT & SNF respectively in trading account of assessee.”
Rs.6,51,87,540/- was e-filed on 29.11.2014. The case was selected for scrutiny. Statutory notices were issued and served upon the assessee. The assessee-company is engaged in the business of manufacturing, sales and contract manufacturing of Dairy products. During the course of assessment proceedings, the AO noted that the assessee company is also doing job work for 'Mother Dairy'. The AO ascertained, during the course of assessment proceedings, that M/s. LVP Food Pvt. Ltd. (a related concern of the assessee) has a contract with Mother Dairy for supplying/processing of milk which has been sub-contracted to the assessee concern. The assessee further stated that besides the conversion cost they also keep certain amount of milk with them as the mother dairy/ M/s. LVP Food Pvt. Ltd. allows them a certain percentage of processing loss but by their processing operations they are able to supply it below that loss and in turn they keep the milk which is not covered in the losses.
The AO ascertained that in the assessment orders of earlier years passed in the case of assessee company, additions on account of unexplained purchases were made on account of identical facts. The AO concluded that the unexplained gains of FAT & SNF appearing in the trading account are arising from the unexplained/unaccounted purchases made by the assessee company. AO, accordingly, made an addition of claimed depreciation of Rs.2,07,165/- on account milk analyzers which were not put to use during the year under consideration.
Upon assessee’s appeal, ld. CIT (A) elaborately discussed the issue and referring to CIT (A)’s order for AYs 2011-12 & 2013-14 in assessee’s own case being the facts identical and following those orders, he decided the issue in favour of the assessee. The concluding portiono9f the ld. CIT (A)’s order read as under :-
“From a perusal of the above detailed finding of the CIT(A)-9, New Delhi in the appellant's case for A.Y 2011-12 in ITA 393/14-15 dated 27.11. 20 18, detailed supra, it is crystal clear that the facts of the case for A.Y 2011-12 are identical to the facts of the case for A.Y 2014-15 which is in appeal before me. It may be added that a similar adjudication in favour of the appellant has been given by the CIT(A)-9 New Delhi in dated 28.12.2018 in the case of the appellant for A.Y 2013-14. In the light of my detailed discussion in foregoing paras as also the adjudication of the CIT(A)-New Delhi in the aforementioned appeals for A.Y 2011-12 and A.Y 2013-14, I have no reason to depart from the findings of the CIT(A) in the aforementioned appellate orders in identical issues. The appeal of the appellant is, accordingly allowed.”
Against this order, assessee is in appeal before us. We have heard both the parties and perused the records.
Ld. DR for the Revenue relied upon the order of AO.
Per contra, ld. Counsel of the assessee submitted that the issue is squarely covered in favour of the assessee by the decision of ITAT for decided the issue in favour of the assessee.
8. ITAT in for AY 2011-12 vide order dated 28.02.2023 referred to the earlier order of ITAT in assessee’s own case in ITA No.1036/Del/2019 for AY 2013-13 order dated 22.07.2022 and confirmed that the additions were similar in those cases, hence the matter was decided in favour of the assessee. Operative part of the aforesaid ITAT order read as under :-
“4. We have heard the parties and perused the material available on record and gave our thoughtful consideration. It is found that the similar additions have been made by the A.O. which has been ultimately challenged in in Assessee’s own case for Assessment Year 2012-13 wherein the Coordinate Bench of the Tribunal has allowed the appeal the appeal of the assessee wherein it is held as under:-
“5. Heard and perused the record. Ld. Sr. DR submitted that Ld CIT(A) has fallen in error in deleting the unexplained purchases discovered by Ld. AO by extensive discussion of matter. Ld. AR however, relied the findings of Ld CIT(A), submitting that the evidence has been appreciated in correct perspective.
6. At the outset it is pertinent to mention that admittedly assessee has earned FAT & SNF gain which has already been offered for tax. Ld. AO has found a case of unexplained purchase. In this context Ld. CIT(A) has rightly observed and reasoned that then disallowance can be made by Ld. AO only in a case where claim for deduction for the purchases is also made. In the present case, no deduction qua purchase has been claimed so the Ld. AO erred in making addition for the so called alleged unexplained purchases. The question thus involved was
7. Now primarily the Ld. CIT(A) has considered the agreement and remand report to conclude that the nature of business module was such that the gains were attributable to the contract work for Mother dairy. It can be observed that Ld. AO has proceeded on his own belief of the matter and assuming that ideally the quantum of FAT & SNF received from the Mother Dairy should tally with the FAT & SNF sent back in the contract processing work under taken by the assessee. Ld. CIT(A) relied Annexure: A-6 of Written submission, which the assessee company had submitted that w.e.f 01.04.2014, Mother Dairies Foods & vegetable Pvt. Ltd has reduced the processing loss from 1% to 0.8%. It was also evident from correspondence exchanged by it and thus, Ld. CIT(A) has rightly held these facts are not theoretical.
Factually the Ld. AO concluded that MMPO returns submitted by the assessee do not include the contract/job work done by the assessee for Mother Dairy. Also, the trading account for the year does not includes stocks related to contract manufacturing. Ld. AO noted that the total quantities of opening stocks and procurement of milk during the year is reflected by the assessee as 36707.30 M.T. where as the milk procurement for contract manufacturing is only 1594.33 M.T. which is very about 4.34% of the total milk shown in the trading account. Thus, Ld AO doubted that the entire gain is owing to contract manufacturing.
However, what is established before Ld. CIT(A) is that the gain on account of reduction in process loss due to modern facilities is used for manufacturing of Ghee/Butter/SMP/DW/Other products, which is part & parcel of closing stock factored in trading account (part of MMPO report)/audited annual accounts. Therefore, the same is attributable to the contract work for Mother Dairies Ltd.
./2019 10. The assessee company established before the Ld. CIT(A) that there was typographical mistake in reporting of quantification of milk procured for contract manufacturing which was actually 159433 M.T (1594.33 lacs litres) instead of 1594.33 M.T as mentioned in audited reports. To substantiate the correct figure, a certificate given by the Mother Dairy Fruit and Vegetable Private Limited was submitted during the appellate proceedings which was also re-verified by Ld. CIT(A). This was bolstered by Ld. CIT by findings ; “The audited annual accounts of the appellant company reveals that it has earned conversion/job charges of Rs.16.83 Cr in the year under consideration and if per ltr conversion charges is calculated considering the figure of 1594.33 M.T milk processed as per AO allegation then it comes to Rs.105.56 per Ltr whereas on certified figure, it comes to Rs. 1.06 per Ltr..”
The Bench is of considered opinion that assessment order under the Act has to be passed on cogent evidence and sound reasoning which is on the basis of verifiable events. The reasons may be subjective, however the reasons inducing the said belief must always be objective. The objective reasons should lead to the formation of the subjective belief that, income is liable for assessment. In the case in hand the Ld. AO has relied his belief that ideally the quantum of FAT / SNF received from Mother Dairy should tally with the FAT & SNF sent back on completion of processing work. However, he failed to appreciate that every business activity has some inherent peculiarities which bring some incidental profits to the businessman than may actually appear to a prudent mind. When raised before Revenue, same need to be appreciated without much emphasis on evidence of every thing being incorporated in agreements. In present case, even the assumptions on which, the Ld. AO proceeded, in absence of evidence, have been factually corrected by Ld. CIT(A) on basis of additional evidence and no interference in the same is called for. The grounds no 1 and 2 raised by the revenue have no substance. The same are determined against the Revenue.
./2019 12. As with regard to substantive ground no 3 Ld Sr DR was unable to cite any proposition of law then relied by Ld CIT(A), in its impugned order, to distinguish. So the same is also decided against the Revenue.”
5. Since there is no change of circumstances emerges out of the record and also not been pointed out by the parties, by respectfully following the order of the Co-ordinate Bench for the Assessment Year 2012-13 in Assessee’s own case, we do not find any merit in the grounds of appeal of the Revenue, accordingly, the Appeal filed by the Revenue is dismissed.”
9. Since ITAT on similar circumstances has decided the issue in favour of the assessee vide two orders as referred above and ld. DR could not point out any distinction in the current year. Following the precedent as above, we do not find any infirmity in the order of ld. CIT (A) and uphold the same.
In the result, the appeal filed by the Revenue stands dismissed. Order pronounced in the open court on this 22nd day of March, 2023.