M/S. SWASTIK OIL INDUSTRIES,TONK vs. DCIT, CIRCLE-7, , JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES ‘B’, JAIPUR Jh lanhi xkslkbZ] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA Nos. 1179 & 1180/JP/2019 fu/kZkj.k o"kZ@Assessment Years : 2013-14 & 2014-15 cuke M/s Swastik Oil Industries, DCIT, Vs. F-5 to 8, Industrial Area, Circle-07, Jaipur Newai, Tonk LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAJFS8180J vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Mahendra Gargieya (Adv.) & Sh. Devang Gargieya (ITP) jktLo dh vksj ls@ Revenue by : Smt. Runi Pal (Addl.CIT) lquokbZ dh rkjh[k@ Date of Hearing : 18/06/2021 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 22/06/2021 vkns'k@ ORDER

PER: VIKRAM SINGH YADAV, A.M. These are two appeals filed by the assessee against the orders of ld. CIT(A)-03, Jaipur dated 13.09.2019 for A.Ys 2013-14 & 2014-15 respectively. Since common issues are involved, both these appeals were heard together and are being disposed off by this consolidated order.

2 ITA Nos.1179 & 1180/JP/2019 M/s Swastik Oil Industries, Tonk Vs. DCIT, Circle-07, Jaipur

and hence the same may kindly be quashed and in any case, the impugned addition/s be deleted. 2.1 Rs. 1,50,000/-: The ld. CIT(A) erred in law as well as on the facts of the case in confirming the application of section 145(3). The provision so invoked and confirmed by the CIT(A) being contrary to the provisions of law and facts, the same may kindly be quashed. Consequently, the trading addition partly confirmed by the ld. CIT(A) of Rs. 1,50,000/- may kindly be deleted in full. 2.2. Alternatively and without prejudice the above The ld. CIT(A) erred in law as well as on the facts of the case in partly confirming the trading addition upto Rs. 1,50,000/- out of Rs. 9,44,277/- made by the AO. The addition so made and partly confirmed by the CIT(A) being contrary to the provisions of law and facts, the same may kindly be deleted in full. 3. Rs. 1,02,656/-: The ld. CIT also erred in law as well as on the facts of the case in fully confirming the disallowances made by the AO out of the following expenses claimed by the assessee: S. No. Head of Expenses Expenses claimed Disallowed by Disallowance by the assessee the ld. AO (Rs.) 3.1 Telephone Expenses Rs. 1,34,874/- 10% of total 13,487/- expenses 3.2 Travelling Expenses Rs. 1,15,898/- 11,589/- 3.3 Building Repair & Rs. 5,77,516/- claimed 57,751/- i.e. Rs. Maintenance Expenses 10,26,581/- 3.4 Office Expenses Rs. 1,98,293/- 19,829/- Total Rs. 10,26,581/- 102,656/-

The disallowance so made being contrary to the provisions of law and facts of the case. Hence, the same kindly be deleted in full.”

3 ITA Nos.1179 & 1180/JP/2019 M/s Swastik Oil Industries, Tonk Vs. DCIT, Circle-07, Jaipur 3. During the course of hearing, the ld. AR submitted that the assessee doesn’t want to press ground No. 1 of its appeal. Hence, the same is dismissed as not pressed.

4 ITA Nos.1179 & 1180/JP/2019 M/s Swastik Oil Industries, Tonk Vs. DCIT, Circle-07, Jaipur honest estimation of income, keeping in view the material available on record, past history of the case, local knowledge and repute of the assessee. It was further submitted that regarding low yield, the assessee has made detail submissions before the Assessing Officer. However, the same has not been correctly appreciated by the Assessing Officer. It was submitted that the results declared by the assessee this year are much better in as much as the GP declared this year at 4.83% on sales of Rs. 53,20,85,035/- as against GP rate of 3.54% on sales of Rs. 62,51,07,501/- in the immediately preceding year.

5 ITA Nos.1179 & 1180/JP/2019 M/s Swastik Oil Industries, Tonk Vs. DCIT, Circle-07, Jaipur

“6. We have considered the rival submissions as well as relevant material on record. The A.O. has noted that for the year under consideration, the assessee has declared low yield ratio in respect of groundnut, mustard and Tarameera seeds in comparison to the preceding years. The details of the perspective yield ratio were given by the A.O. as under: Product Yield Ratio in A.Y. 2011-12 Yield Ratio in A.Y. 2012-13 Ground nut 28.19% 27.9% Mustard 35.92% 34.37% Taramira 29.23% 27.35%

Yield Chart Ground Nut Seeds (In KG) Mustard Seed (In Kg.) Taramira Seed (In Kg. Oil 1170204.600 27.90% 134646.040 34.37% 1185437.500 27.35% Cake 1991570.000 47.48% 255040.000 65.11% 3131509.00 72.42% Shortage 1032476.400 24.62% 2015.960 00.52% 10304.900 00.23% Total 4194251.000 100% 391702.000 100% 4324251.400 100%

The A.O., accordingly, proceeded to make the addition by adopting yield ratio of the preceding year i.e. A.Y. 2011-12 and made the addition in respect of all three oil products i.e. groundnuts, mustard and Tarameera seeds total amounting to Rs. 18,74,102/-. On appeal, the ld. CIT(A) has accepted the contention of the assessee on the point that when the A.O. has not rejected books of account then such addition is not justified. However, the ld. CIT(A) has sustained the addition to the extent of Rs.3.00 lacs as against Rs. 18,74,102/-. The relevant finding of the ld. CIT(A) in para 7.2 as under:

6 ITA Nos.1179 & 1180/JP/2019 M/s Swastik Oil Industries, Tonk Vs. DCIT, Circle-07, Jaipur “7.2. I have considered the assessment order, appellant's submissions and documents on record. The assessee had maintained the complete books of accounts along with various ledgers and journals. The purchase, sales and expenses were fully vouched & verifiable and these facts were also accepted by the AO. The AO had invoked the provisions of section 145(3) and issued a show cause notice after noticing discrepancies such as non maintenance of stock register, production registers, inward registers outward registers etc. but also considered the written submission of the appellant and had not rejected the books of account at all u/s 145(3). In a similar issue, The Hon'ble High Court, Rajasthan in the case of Malani Ramjivan Jagannath vs. ACIT 20T CTR (Raj) 19 held as under:-

"In doing so, it had ignored all admitted facts in the face of which there about the sales and purchases, non maintenance of stock register lost its significance so far as arriving at GP rate is concerned."

Further the Hon'ble ITAT, Jaipur in the case of Ambika textile Industries vs. DCIT held that huge trading addition can't be made without pointing any defect in the books of accounts. Apart from this the Hon'ble ITAT, Jaipur in the case of DCIT vs. Mewar Textile Mills Ltd. held that the AO had nowhere invoked the provisions of section 145(1) and if the provisions was not invoked then the estimate of profit would not possible in the eyes of law.

Further, the AO made trading addition considering the yield ratio of similar business carrying out same job at same station in the same conditions. Here I am of view that if the same businesses with same raw material even the party from whom raw material was purchased was, more or less same; carrying out function at the same station should yield more or less the same result and; this fact pointed out by the AO cannot be neglected. Therefore, respectfully following ratio laid down case laws and facts as discussed above I hereby restricted the addition of Rs. 3,00,000/-, the

7 ITA Nos.1179 & 1180/JP/2019 M/s Swastik Oil Industries, Tonk Vs. DCIT, Circle-07, Jaipur appellant gets relief of Rs. 15,74,102/-. Accordingly, the ground is treated as partly allowed.”

Thus, the ld. CIT(A) has accepted the contention of the assessee that a trading addition cannot be made without pointing out defects in the books of account. Though, in the case in hand, the addition made by the A.O. is not in the nature of trading addition but it is the addition on account of low production of oil from the oil seeds in comparison to the earlier years. We find variation in the yield ratio is very meager and in some of the cases it is less than 1%. Once the difference is very negligible which can be due to various factors and reasons including the quality of seed, oil contents in the seeds due to climate condition for a particular season which affects the quality of crop itself. Ignoring all these factors as explained by the assessee in the reply to the show cause notice of the A.O., the addition made by the A.O. and sustained by the ld. CIT(A) is not justified. The ld. CIT(A) has also not given any basis for sustaining the addition of Rs. 3.00 lacs and therefore, such an ad hoc addition without specifying the basis is not permissible, accordingly, the addition sustained by the ld. CIT(A) is deleted.” 10. In the year under consideration, the ld CIT(A) has taken note of slight downfall in ground nut oil yield ratio by 0.31% and mustard oil yield ratio by 0.23% as compared to average of past three years and the reasons for such variance as apparent from his findings which read as under:

“I have perused the record I find that there is slightly downfall in the yield shown by the appellant in this year as compare to the average of 3 years which is as under:-

8 ITA Nos.1179 & 1180/JP/2019 M/s Swastik Oil Industries, Tonk Vs. DCIT, Circle-07, Jaipur Item Average of 3 Year Yield This Year Yield Ground Nut Oil 27.89% 27.58% Mustard Oil 35.03% 34.80%

The difference is Ground Nut Oil is 0.31% and difference in mustard seeds oil is 0.23%. The A/R argued that the yield difference is due to the quality of the seeds and the oil content therein largely depend upon rains. This year, there were lesser rain as compared to the preceding year and hence there is a minor fall. There are various other factors which affect the rate of yield however, to keep the same rate of yield every year is beyond human control.

There is substance in the submission of the A/R that yield % depends on the quality of Ground Nut, Mustard Seeds and it cannot same in every year. The Gross profit of the appellant is better in this year as compare to the last year. The appellant this year declared GP rate of 4.83% on sales of Rs.53,20,035/-. The Gross profit rate of this year is better as compare to the last year GP rate of 3.54% on sales of Rs.62,51,07,501/-. Therefore considering the facts of the case and nature of business and considering the slight decline in yield percentage as compare to average yield. I find that it would be reasonable to restrict the addition of Rs.1,50,000/- and balance addition of Rs.7,94,277/- is deleted. This ground is partly allowed.”

Inspite of above, the ld CIT(A) has sustained the addition of Rs 1,50,000/- without giving any basis for sustaining and therefore, such an adhoc addition without specifying the basis is not permissible, accordingly, the addition sustained by the ld. CIT(A) is deleted.

9 ITA Nos.1179 & 1180/JP/2019 M/s Swastik Oil Industries, Tonk Vs. DCIT, Circle-07, Jaipur 11. Regarding Ground No.3, the ld. AR submitted that a bare reading of the order of the AO shall reveal that in almost all the cases the disallowances have been made on ad hoc basis, simply on mere suspicion, surmises and conjectures. No specific instance of any nature whatsoever has been given by the AO in the impugned order to support his contention with the documentary evidence that the expenditures were incurred for non-business purposes, element of personal user was there. An allegation remains a mere allegation unless proved. Suspicion cannot take the place of reality are the settled principles (Dhakeshwari Cotton Mills 26 ITR 775 (SC)).

10 ITA Nos.1179 & 1180/JP/2019 M/s Swastik Oil Industries, Tonk Vs. DCIT, Circle-07, Jaipur our reference was drawn to the findings of the Co-ordinate Bench which are contained at para 10 of its order which reads as under:-

“10. We have heard the ld AR as well as the ld DR and considered the relevant material on record. The A.O. has disallowed 10% of the telephone expenses on the ground that the assessee did not maintain any call register and in absence thereof, personal element cannot be ruled out. Once the telephone expenses are verifiable from the telephone bills itself then this cannot be a case of unverifiable expenses. Further the personal element is only suspected by the A.O. and not found. Even otherwise, when the telephones are used in the business premises of the assessee and the expenses are verifiable from the telephone bills itself then the same cannot be disallowed on mere suspicion.

Similarly, the travelling expenses were also disallowed as 10% on the ground of personal element. The A.O. has not doubted the expenditure incurred by the assessee and if the expenses are not found to be excessive having regard to the nature of business and volume of business of the assessee then such an ad hoc disallowance on personal element is not justified.

In case of building repair and maintenance expenses, the A.O. has made 10% disallowance on account of non-verifiability of the expenses as the same were paid in cash and supported with self-made vouchers. Since this expenditure was incurred in cash and the assessee has produced only self-made vouchers then in absence of supporting documentary evidence, 10% disallowance of expenditure is justified.

Regarding other office expenses, the assessee has shown office expenses of Rs. 2,85,200/- and most of these were paid in cash and supported by the self-made vouchers. However, it is to be noted that if

11 ITA Nos.1179 & 1180/JP/2019 M/s Swastik Oil Industries, Tonk Vs. DCIT, Circle-07, Jaipur the expenditure is not found to be excessive and it is inevitable for the business of the assessee then the petty expenses incurred by the assessee on day to day basis is bound to be incurred in cash and without any vouchers from the other side due to such a small and petty expenses. Accordingly, once the said expenditure is not found to be excessive having regard to the nature of business and volume of the business of the assessee then an ad hoc disallowance is not justified. Accordingly, in view of the above facts and circumstances, except 10% of building repair and maintenance expenses, all other disallowances made by the A.O. and sustained by the ld. CIT(A) are deleted.”

12 ITA Nos.1179 & 1180/JP/2019 M/s Swastik Oil Industries, Tonk Vs. DCIT, Circle-07, Jaipur 17. It was submitted that due to inadvertent mistake, this ground was not raised before the Tribunal at the time of filling memorandum appeal i.e. Form-36. This ground does not require any fresh investigation of facts in as much as the same are available on record. Per contra, the ld. DR objected to the raising of the additional ground of appeal. After hearing both the parties and considering the fact that the assessee has taken this ground before the ld. CIT(A) and therefore, emerging from the impugned order and all the relevant facts being available on record, the additional ground being raised is hereby admitted for necessary adjudication.

“6.3 I have carefully considered the observation made by the AO in the assessment order, submission and additional evidences filed by the A/R of the appellant, remand report of the AO and rejoinder filed by the A/R of

13 ITA Nos.1179 & 1180/JP/2019 M/s Swastik Oil Industries, Tonk Vs. DCIT, Circle-07, Jaipur the appellant. I find that this issue was already decided by CIT(A)-1, Jodhpur in the appellant own case for A.Y. 2012-13 as under:- "I have considered the assessment order, appellant's submissions and documents on record The AO stated that commission payment to a HUF being a separate entity could not enjoy any physical entity to perform any act. Therefore, only resource based income may be earned by a HUF such as interest, income house property income etc but an HUF itself have not any skill or expenses in its own therefore could not render any service for promoting business. On perusal of appellant's submission, 1 find that the appellant had claimed commission of Rs. 27,15,336/- which was 0.43% of total turnover as against Rs. 4,22,420/- claimed in the preceding year, out of total commission Rs 21.00,000/- was paid to related persons covered u/s 40A(2)(b) of the act. Since the commission was paid to increase its sales which was reflected in its higher turnover. During the year under consideration the turnover of the appellant was Rs. 62.51 lacs with GP rate of 3.54% as compared to Rs. 42.42 lacs with GP rate of 3.23% in proceeding AY. It is also a fact that members of an HUF can very well discharge the functions for their HUF. Here I am of view that the commission is an expenditure incurred solely and exclusively for the purpose of the business and fully allowable. Further there had been no loss of revenue as all the payees had already declared the said amount in their hands and paid tax accordingly. The objected that for entering into an agreement or contract at least two person is required. This means for a valid contract/ agreement, minimum two separate parties are essential. In the instant case, when the members and karta of HUF are the very same persons, they are entering into agreement and negotiating rates of commission and terms of agreement only and this cannot be ignored. Accordingly, the addition made by the AO is hereby

14 ITA Nos.1179 & 1180/JP/2019 M/s Swastik Oil Industries, Tonk Vs. DCIT, Circle-07, Jaipur restricted to the tune of 15% i.e. Rs. 3,15,000/- appellant gets relief of Rs.17,85,000/-. The ground is treated as partly allowed" The facts of this case are totally similar as decided by the CIT(A)-1 Jodhpur. In this case the commission are paid to the same persons and the service also rendered by the recipient. The total commission in this year is Rs.28,76,659/- which is 0.54% of total turnover. In the last year the commission payment is Rs.27,15,336/- which 0.43%. The Net profit in this year is 1.07% as compute to last year 0.87% which is better in this year. It is also a fact that members of an HUF can very well discharge the functions for their HUF. Here I am the view that the commission is an expenditure incurred solely and exclusively for the purpose of the business and fully allowable. Further there had been no loss of revenue as all the payees had already declared the said amount in their hands and paid tax accordingly. The objected that for entering into an agreement or contract alteast two person is required. This means for a valid contract/ agreement, minimum two separate parties are essential. In the instant case, when the members and karta of HUF are the very same persons, they are entering into agreement and negotiating rates of commission and terms of agreement only and this cannot be ignored. Accordingly I restrict the addition 15% of the commission paid to person covered u/s 40A(2)(b) which comes of Rs.3,60,000/-. Hence I confirm the addition of Rs.3,60,000/- and balance amount of Rs.20,40,000/- is deleted. This ground is partly allowed.”

15 ITA Nos.1179 & 1180/JP/2019 M/s Swastik Oil Industries, Tonk Vs. DCIT, Circle-07, Jaipur detailed paper book, which has been reproduced in verbatim from Pg-20 to 28 of his order. The assessee fully justified and proved the necessity of such expenditure as also established the genuineness and the fact of making payment and that such expenses were incurred purely out of commercial expediency. It was submitted that the advantages of making transactions through the agents were also explained and established. The fact of rendering services was duly and fully established with the help of various evidences. It was submitted that the payments were made through cheque and TDS were deducted thereon. Moreover, the payees duly declared the receipt of commission in their hands and paid the taxes thereon. Moreover, there was no loss to the revenue and this rather resulted in a case of double taxation in as much as all the payees have already declared the income and paid taxes. Even otherwise had the assessee did not pay commission, it could have made payment of remuneration to the payees, within the permissible limit u/s 40(b), which was more than Rs.35,00,000/- as against which, the assessee had claimed only Rs. 24,00,000/-.

16 ITA Nos.1179 & 1180/JP/2019 M/s Swastik Oil Industries, Tonk Vs. DCIT, Circle-07, Jaipur have been made as held in the case of Upper India Publishing House (P) Ltd. vs. CIT (1979) 117 ITR 0569 (SC) held as under:

“Reference—Question of fact/Academic question—The question whether a particular expenditure on rent is excessive and unreasonable or not is essentially a question of fact—The other question as regards applicability of s. 40A(2)(a) becomes academic as the same cannot have any application unless it is first held that the expenditure on rent was excessive or unreasonable.”

In fact, a reading of the order of the ld. CIT(A) clearly shows that the disallowance has been partly sustained only due to suspicion but absolutely without any basis.

17 ITA Nos.1179 & 1180/JP/2019 M/s Swastik Oil Industries, Tonk Vs. DCIT, Circle-07, Jaipur the earlier decision of his predecessor CIT(A), where the ld CIT(A) for the impugned assessment year has restricted the disallowance to 15%, we don’t see any infirmity in the said decision and findings of the ld CIT(A) and are not inclined to interfere in the said findings and the ground of appeal so taken by the assessee is thus dismissed.

“1. The impugned order u/s 143(3) dated 19.12.2016 is bad in law and on facts of the case, for want of jurisdiction and for various other reasons and hence the same may kindly be quashed and in any case, the impugned addition/s be deleted. 2.1 Rs. 6,50,796/-: The ld. CIT(A) erred in law as well as on the facts of the case in confirming the application of section 145(3). The provision so invoked and confirmed by the CIT(A) being contrary to the provisions of law and facts, the same may kindly be quashed. Consequently, the trading addition partly confirmed by the ld. CIT(A) of Rs. 6,50,796/- may kindly be deleted in full. 2.2. Alternatively and without prejudice the above The ld. CIT(A) erred in law as well as on the facts of the case in partly confirming the trading addition upto Rs. 6,50,796/- out of Rs. 59,90,090/- made by the AO. The addition so made and partly confirmed by the CIT(A) being contrary to the provisions of law and facts, the same may kindly be deleted in full. 3. Rs. 1,00,000/-: The ld. CIT also erred in law as well as on the facts of the case in fully confirming the disallowances a lump sum amount of Rs. 1,00,000/- made by the AO on account of Telephone Expenses,

18 ITA Nos.1179 & 1180/JP/2019 M/s Swastik Oil Industries, Tonk Vs. DCIT, Circle-07, Jaipur Travelling Expenses, Building Repair & Maintenance Expenses and Office Expenses. The disallowance so made being contrary to the provisions of law and facts of the case. Hence, the same kindly be deleted in full.”

Order pronounced in the open Court on 22/06/2021.

Sd/- Sd/- ¼ lanhi xkslkbZ ½ ¼foØe flag ;kno½ (Sandeep Gosain) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 22/06/2021 *Ganesh Kr. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- M/s Swastik Oil Industries, Tonk 2. izR;FkhZ@ The Respondent- DCIT, Circle-07, Jaipur 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA Nos. 1179 & 1180/JP/2019} vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेज. त्महपेजतंत