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Income Tax Appellate Tribunal, JODHPUR BENCH,
Before: SHRI SANDEEP GOSAIN & SHRI MANOJ KUMAR AGGARWAL
IN THE INCOME TAX APPELLATE TRIBUNAL, JODHPUR BENCH, JODHPUR BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL ACCOUNTANT MEMBER ITA No. 191/JODH/2019 (Assessment Year: 2015-16) D.C.I.T. Vs. M/s Kanda Edible Oil Pvt. Ltd. Circle, E 173, Udyog Vihar Sriganganagar. Sriganganagar. PAN No. AACCK 7754 Q
C.O. No. 17/JODH/2019 (Arising out of ITA No. 191/JODH/2019 (Assessment Year: 2015-16) M/s Kanda Edible Oil Pvt. Ltd. cuke D.C.I.T. Vs. E 173, Udyog Vihar Circle, Sriganganagar. Sriganganagar. PAN No. AACCK 7754 Q Objector iRespondent Revenue by Shri A.S. Yadav, JCIT DR Assessee by Shri P.C. Parwal, CA Date of Hearing 04.11.2020 Date of Pronouncement 01/02/2021
O R D E R PER BENCH These are the appeal filed by the Revenue and the Cross-Objection filed by the assessee against the order of Ld. CIT(A), Bikaner dated 20.03.2019 for AY 2015-16, wherein the department in its appeal and assessee in its appeal have raised following grounds of appeal:
2 ITA 191/Jodh/2019 & CO 17/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. “Grounds of Revenue’s Appeal 1. On the facts and in the circumstances of the case the Ld. CIT(A) has erred in deleting the addition of Rs.8,04,606/- made on account of non- charging of interest on the diverted funds of Rs.52,37,136/- to M/s Krishna Industries PDP, ignoring the fact that the assesse paid interest on the said amount and that neither any goods were supplied by debtors to the assesse nor the amount was returned to the assessee. 2. On the facts and in the circumstances of the case the Ld. CIT(A) has erred in deleting the addition of Rs.4,96,17,950/- made by the AO after rejecting the books of accounts of the assessee on the basis of documents impounded during survey proceedings which showed that assessee is indulged in crushing unrecorded sarson and the selling the same out of books. Ground of Assessee’s Cross objection 1. The Ld. CIT(A) has erred on facts and in law in confirming the adhoc disallowance of mustard oil expenses and other expenses of Rs.2,50,000/- by holding that the personal use cannot be ruled out.” 2. The hearing of the appeal and cross objection was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic.
The brief facts of the case are that the assessee is engaged in the manufacturing and trading of mustard oil and Khal. A survey was carried out at the business premises of the assessee on 08.10.2014. In the assessment order AO has made a reference of short cash and short stock found in survey but no adverse inference has been drawn in the assessment order for the same. However, the additions have been made on other issues which were challenged by the assessee before Ld. CIT(A). The Ld. CIT(A)
3 ITA 191/Jodh/2019 & CO 17/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. allowed relief on certain issues and upheld the addition on certain issues. Accordingly, the department has filed an appeal on the issues where additions are deleted and assessee has filed cross-objection on the issues where additions are confirmed. Accordingly, we first take up the departmental appeal and thereafter the cross objection of the assessee.
In the first ground of appeal, the department has challenged the deletion of addition of Rs.8,04,606/- made by the AO on account of non- charging of interest from M/s Krishna Industries PDP. The AO observed that assessee has claimed interest expenses of Rs.2,94,60,982/- but has not charged interest on the amount due from M/s Krishna Industries PDP which at the beginning of the year was Rs.52,37,156/- against which Rs.50,000/- was received back on 03.02.2015. Accordingly, he calculated notional interest at the rate of 18% per annum on this amount and made disallowance of Rs.8,04,606/- by applying section 36(1)(iii) of the Income Tax Act, 1961 (in short, the Act).
The Ld. CIT(A) at Para 2.3 of its order after considering the submission of assessee observed that advance on which notional interest has been computed is for purpose of business. AO has not brought any evidence that assessee has charged interest from this party and not disclosed in the books. Notional interest cannot be brought to tax for which
4 ITA 191/Jodh/2019 & CO 17/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. he referred to the decision of Hon’ble Supreme Court in case of CIT Vs. Shoorji Vallabhdas And Co. (1962) 46 ITR 144 and Hon’ble Gauhati High Court in case of B and A Plantations and Industries Ltd. Vs. CIT 242 ITR 22. This party is not related to assessee. Accordingly he deleted the addition made by the AO.
The Ld. D/R has relied on the order of AO.
On the contrary, the Ld. A/R appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and also filed a written submission and submitted that the advance given to M/s Krishna Industries PDP was towards purchase from the party. However, this party neither supplied mustard seed nor repaid the amount advanced. This party is not related to the assessee. The AO has also not brought any evidence that assessee has received interest from this party or the advance is given for personal purpose. Hence, disallowance of notional interest on such advance is uncalled for. It is further submitted that income tax is a tax on real income. No tax can be imposed on an amount which is not earned. There is no provision in the Income Tax Act to make disallowance out of interest by computing notional interest on the business debtors/advances. The assessee is otherwise having interest free funds of Rs.2,72,59,717/- as on 31-03-2014 which is much more than the above advances. Hence the
5 ITA 191/Jodh/2019 & CO 17/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. disallowance made by the AO by applying section 36(1)(iii) is not as per law for which reliance is placed on the following decisions:
(i) CIT Vs. Shoorji Vallabhdas And Co. (1962) 46 ITR 144 (SC) (ii) B and A Plantations and Industries Ltd. Vs. CIT 242 ITR 22 (Gauhati) (HC) 8. We have heard the Ld. Counsels of both the parties and have perused the material placed on record. We have also deliberated upon the decisions cited in the orders passed by the authorities below as well as cited before us and we have also gone through the orders passed by the revenue authorities. We find that AO has calculated the notional interest on the debit balance in the name of M/s Krishna Industries PDP. This party is not related to the assessee. There is no evidence that interest has been charged from this party but not disclosed in the books. The Supreme Court in case of CIT Vs. Shoorji Vallabhdas And Co. (1962) 46 ITR 144 has held that income tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income, if income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a "hypothetical income " which does not materialize. In this case also, no interest has been charged from
6 ITA 191/Jodh/2019 & CO 17/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. the party. Considering the entirety of the facts, we uphold the finding of Ld. CIT(A) and dismiss this ground of department.
In the second ground of appeal, the department has challenged the deletion of addition of Rs.4,96,17,950/- made on account of unrecorded production and out of book sales. The fact of this ground is that assessee is engaged in the manufacturing and trading of mashed oil and Khal. During the year under consideration, the assessee declared yield of mustard oil at 34.77% as against 33.68% in the last year. AO observed that as per DIP file for August 2014assesee crushed 17164.65 quintal of mustard seeds but in the books, it is disclosed at 17090.44 quintals and thus 74.21 quintals of mustard seeds was crushed without recording the same in books of accounts. For this reason, he rejected the books u/s 145(3) of the Act. He further observed that average electricity unit consumed for the month of October 2014 for crushing one quintal of sarson is 10.88 units whereas it ranges between 10.88 to 13.72 units on month to month basis. Accordingly, by considering average consumption of electricity unit at 10.88, he worked out the quantity of mustard seed crushed at 186162 quintal whereas seed crushed as per the books was 172338.74 quintals. Thus he presumed that assessee crushed unaccounted mustard seeds to the extent of 13823.70 quintals and the same was sold without recording in the books of account
7 ITA 191/Jodh/2019 & CO 17/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. and by applying the declared yield percentage he worked out an addition of Rs.4,96,17,950/- calculated as under:- Name of Yield (%) Quantity Average Addition product sale rate M/seed oil 34.77% 4806.50 Rs. 7246/- 3,48,27,900/- per qtl. M/seed 64.22% 8877.58 Rs. 1666/- 1,47,90,050/- cake per qtl. Total 4,96,17,950/- 10. The Ld. CIT(A) in para 3.7-3.10 after considering the explanation of assessee held that assessee has maintained day to day books of accounts along with stock register. AO has not pointed out any defect in the books, in survey no unaccounted purchase or sales was found, difference in the yield as per the DIP file has been properly explained, variation in electricity consumption on month to month basis depends on various factors, yield is comparable with earlier years, in AY 2013-14 AO in the assessment completed u/s 263/143(3) after the date of the present order has not made any addition on the basis of variation in electricity consumption, decision of Hon’ble Rajasthan High court on similar facts are in favour of the assessee and therefore, he deleted the addition made by the AO.
The Ld. D/R relied on the order of AO by arguing that there is variation in the average unit of electricity consumed for crushing 1 quintal of sarson from 10.88 per unit to 13.72 per unit. The assessee has not given
8 ITA 191/Jodh/2019 & CO 17/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. any cogent reason for such wide variation in the electricity consumption from one to one basis and therefore, the AO has rightly made the addition on account of sale of suppressed production as worked out in the assessment order. The Ld. CIT(A) without appreciation of facts has deleted the addition and therefore, the order of AO be restored.
The Ld. A/R on the other hand has reiterated the same arguments as were raised before the ld. CIT(A) and also filed a written submission and submitted that the assessee maintains day to day books of accounts along with day to day stock register which are subject to audit. These books are duly audited. The quantitative details have been duly verified by the statutory auditor and the tax auditor. In survey the stock register was found. No unaccounted purchase or sale or production was found in survey. Even the AO has not brought any material on record to allege that assessee is indulged in unaccounted purchase sale or production. The minor variation in the seeds crushed as per DIP register and as per the stock register is due to the fact that the DIP file is concerned only with the measurement of oil. In the DIP file no adjustment of bardana, moisture, shortage etc is taken into account while recording the mustard seeds crushed. Therefore, for such insignificant discrepancies as alleged by the AO the rejection of books of accounts is not justified as held by Rajasthan High Court in case of
9 ITA 191/Jodh/2019 & CO 17/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. PCIT vs. Bhawani Silicate Industries (2016) 236 Taxman 596. In these facts the Ld. CIT(A) has rightly held that the rejection of the books of accounts by the AO is not justified. Against this finding the department has not taken any specific ground of appeal. Hence for this reason itself the ground of the department is liable to be dismissed.
The Ld. A/R further submitted that the comparative position of the quantity of mustard seeds crushed, mustard oil and cake produced and the shortage is as under: -
Particulars AY 2013-2014 AY 2014-2015 AY 2015-2016 Quantity Yield Quantity Yield Quantity Yield (Quintals) (%) (Quintals) (%) (Quintals) (%) INPUT Mustard Seed 82031 94005.39 172338.74 OUTPUT Mustard Oil 27058.7 32.99% 31663.08 33.68% 59924.08 34.77% Mustard Cake 53933.3 65.75% 61112.76 65.01% 110681.82 64.22% Shortage 1039 1.27% 1229.55 1.31% 1732.84 1.01% It is argued that the yield percentage and shortage is not only comparable with the earlier years rather the yield declared is higher and shortage claimed is lower as compared to earlier two years. Such variation is on account of the fact that mustard seed is an agricultural product, the quality of which cannot be same in every lot. In any case the yield percentage for the year is better as compared to the earlier year and therefore the addition made by AO on surmises and conjectures is uncalled for.
10 ITA 191/Jodh/2019 & CO 17/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. 13.1 The Ld. A/R further argued that the only reason given by the AO for presuming the unaccounted production is on account of variation in the electricity consumption on month to month basis. He took the electricity consumption for the month of October 2014 at 10.88 units per qtl. as base and wherever electricity unit consumption is more, he presumed that assessee had crushed more quantity of Sarson and made addition for estimated sale price of the same. This is incorrect because the consumption of electricity units varies on month to month basis would depend upon the moisture content in the seed, machine breakdown, extra electricity consumed on start of machine/plant if it is not run continuously, inefficiency of labour and various other factors on which assessee has no control. Hence variation in the electricity consumption cannot be a basis for assuming the unrecorded production. Reliance in this connection is placed in the following cases:- i. CIT Vs. Sulabh Marbles (P.) Ltd 165 Taxman 258 (Raj.) ii. St. Teresa's Oil Mills Vs. State of Kerala 76 ITR 365 (Ker.) iii Prem Cables (P) Ltd. Vs. Asstt. CIT 56 ITD 0382 (JP) iv ACIT Vs. Khambhata Family Trust 67 ITD 0411 (Ahd.) v. Rakesh Kumar Jayantilal Vs. ACIT 55 ITD 0097 (Ahd.) (TM) vi. G. K. Auto Vs. ACIT, ITA No. 616/JP/05 dated 23.3.2007
11 ITA 191/Jodh/2019 & CO 17/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. 13.2 Finally the Ld. A/R submitted that for AY 13-14, PCIT Bikaner vide order u/s 263 dated 20.03.2018 set aside the assessment order with the direction to AO to pass the assessment order afresh after proper examination of the issues mentioned in that order. Subsequent to these directions the AO has raised an issue about the variation in the electricity unit consumed for crushing per quintal mustard seeds on month to month basis but after considering the explanation a lump sum addition of Rs.3,00,000/- was made to mitigate the possible leakage of revenue. This order was passed on 29.12.2018 i.e. after completion of the assessment order for the year under consideration. Thus, when in the immediately previous year this issue was raised but no charge of unrecorded productions levied against the assessee, on the same facts, the charge of unrecorded production levied against the assessee in the year under consideration is whimsical and on surmises and conjectures. 14. We have heard the Ld. Counsels of both the parties and have perused the material placed on record. We have also deliberated upon the decisions cited in the orders passed by the authorities below as well as cited before us and we have also gone through the orders passed by the revenue authorities. We note that in this case a survey was carried out on 08.10.2014. In the assessment order the AO has not referred to any
12 ITA 191/Jodh/2019 & CO 17/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. tangible material for any suppressed production or sales outside the books of accounts. The minor variation in the production as per DIP file and stock register is for the reason that in DIP register production is measured by putting scale in the oil tank every day and in rounded units for internal purpose. The small difference of 1 cm in taking the DIP file may result in variation. The total variation is less than 0.5% due to estimation. Therefore, the Ld. CIT(A) has right held that the rejection of books is not justified by referring to the decision of Hon’ble Rajasthan High Court reported in 236 Taxman 596. The department has not taken any specific ground against the finding of CIT(A) where the rejection of books of accounts by the AO was held unjustified. We further note that the addition is made on the basis of electricity consumption on crushing of per quintal mustard seeds in the month of August, 2014 where the consumption was lowest. This is on assumption only as neither any document for purchase of unaccounted sarson nor production or sales thereof is brought on record by the AO. For variation in the electricity consumption assessee has filed the detailed explanation which is acceptable. The decision of Hon’ble Rajasthan High Court in case of CIT Vs. Sulabh Marbles Pvt. Ltd. 165 Taxman 258 support the case of assessee inasmuch as in this case also the AO by taking the amount paid by the assessee for electricity consumption as base
13 ITA 191/Jodh/2019 & CO 17/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. assumed the actual production to be more then what is disclosed and made the addition. It was held that where AO has not pointed out any defect in the books of accounts of the assessee or method of accounting followed by the assessee and there was no material placed on the record to show any instance of suppression of sale or inflation of purchase by the assessee, AO was wrong in drawing adverse inference against assessee by only referring to the electricity expenses. We also note that on same facts the AO in the assessment completed u/s 263/ 143(3) for AY 2013-14 on 29.12.2018, i.e. after passing of the above order did not make any addition on the basis of electricity consumption variation by giving the following finding:-
“The reply of the assessee has been considered and the same has not been found to be acceptable because parameters like efficiency, seasonal factor, moisture content etc remain almost same for the months of July and august, still there is difference of nearly one unit of average consumption of electricity units for crushing per quintal of mustard seeds between these two months. No explanation on this query has been offered. Further, the assessee has contended that production is average of two units having different stock levels, different labour and different efficiency, but details of above parameters of two units have not been submitted to substantiate its claim. In view of above discussion, lump-sum addition of Rs. 3,00,000/- is made on this issue to mitigate possible leakage of revenue on this issue.
14 ITA 191/Jodh/2019 & CO 17/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. Considering all these facts, the decision of Rajasthan High Court and the subsequent order passed for AY 2013-14, we concur with the finding of Ld. CIT(A) and dismissed the ground of department.
Now we take the cross objection of assessee.
In the only ground of cross objection, the assessee has challenged the disallowance of mustard oil expenses and other expenses of Rs.2,50,000/-.
The fact of this ground is that during the year assessee has debited mustard oil settlement expenses of Rs.7,90,924/-, mustard cake settlement expense of Rs.1,69,095/-, car expenses of Rs.3,37,644/-, telephone expense of Rs.1,92,487/- and depreciation on vehicle at Rs.9,67,322/-. The AO observed that the expenses on mustered oil settlement account are not fully verifiable and personal use of vehicle and car cannot be ruled out. Accordingly, he made lumpsum disallowance of Rs.2,50,000/- out of the above expense.
The Ld. CIT(A) confirmed the disallowance holding that assessee could not controvert the finding of the AO.
The Ld. A/R argued that during the assessment proceedings assessee had submitted ledger and supporting vouchers for all the expenses claimed.
15 ITA 191/Jodh/2019 & CO 17/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. Mustard oil settlement expenses represent quality claim and shortage which is supported by debit or credit note. The AO has not pointed out any specific item of expenses/claim which are not supported, hence, lump sum disallowance out of these expenses are uncalled for. It was further submitted that in case of company, no disallowance on account of personal use of vehicle and car can be made. For this purpose reliance has been placed on the following cases:-
i. ACIT Vs. Ganpati Enterprises Ltd. (2013) 142 ITD 118 (Delhi) (Trib.) ii. CIT Vs. Oracle India (P) Ltd. 199 Taxman 181 (Del) (HC) iii. Arthur & Anderson & Co. Vs. ACIT (2010- TIOL-416-ITAT) iv. Seasons Catering Services (P) Ltd. Vs. DCIT 43 DTR 397 (Del) (Trib) v. Metallizing Equipment Co. (P.) Ltd. Vs. ACIT 70 TTJ 365 (Jodh.) vi CIT Vs. Dinesh Mills Ltd. 148 Taxman 76 (Guj.) vii Surya Credits Ltd. vs. DCIT 22 Tax World 90 (Jaipur Bench) 19. The Ld. D/R on the other hand relied on the order of lower authorities.
We have heard the Ld. Counsels of both the parties and have perused the material placed on record. We have also deliberated upon the decisions cited in the orders passed by the authorities below as well as cited before us and we have also gone through the orders passed by the revenue authorities. From the assessment order we note that AO has not made a
16 ITA 191/Jodh/2019 & CO 17/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. sweeping remark that assessee has not tender any explanation to justify the mustard oil settlement expenses claimed/ mustard cake settlement expenses and no record for personal use of telephone and log book for car and other vehicles has been kept. Before CIT(A), it stated that the ledger account and supporting voucher of all expenses were submitted and the mustard oil settlement expenses is supported by debit/ credit note. However, the Ld. CIT(A) has upheld the disallowance stating that A/R could not controvert the finding of AO. Thus, we find that assessee has given reasonable explanation in support of mustard oil settlement expenses and the expenses claimed in respect of telephone expenses, car expenses and depreciation. In case of a company, disallowance on account of personal use of telephone or vehicle should not be made as held by the coordinate bench in case of Metallizing Equipment Co. (P.) Ltd. Vs. ACIT 70 TTJ 365 (Jodh.). Otherwise also, no lump sum disallowance can be made as held in various cases referred above. In these facts of the case, the lump sum disallowance of Rs.2,50,000/- is directed to be deleted. This ground of CO is allowed.
In the result, appeal of the revenue is dismissed and CO of the assessee is allowed.
17 ITA 191/Jodh/2019 & CO 17/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962 by placing the details on the notice board. Sd/- Sd/- (MANOJ KUMAR AGGARWAL) (SANDEEP GOSAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : Jodhpur Dated 01/02/2021 *Ranjan
Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT (A) 5. The DR 6. Guard File Assistant Registrar Jodhpur Bench