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Income Tax Appellate Tribunal, JAIPUR BENCHES “A”, JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 1305/JP/2018
ORDER PER: VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 20/09/2018 of ld. CIT(A)-1, Jodhpur for the A.Y. 2012-13. The assessee has raised following grounds of appeal:
1. The impugned order u/s 143(3) dated 20.09.2018 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.3,00,000/- : The Id. CIT erred in jaw as well as on the facts of the case in making addition Rs. 18,74,102/- on account of the suspected the yield ratio of 35.45% as against 34.37% declared in Mustard Seeds and yield ratio of 28.07% as against 27.35% 2 ITA 1305/JP/2018_ M/s Swastik Oil Industries Vs DCIT declared in Tarameera Seeds and thus, thereby making addition of Rs 300,000/-. The additions so made and partly confirmed being contrary to the provisions of law and facts of the Case and contrary to the submissions & evidences available on record hence, the same kindly be deleted in full. 2.2 The impugned addition seriously racks jurisdiction and hence, the same kindly be deleted in full.
3. Rs.2,40,217/-: The Id. CIT further erred in law as well as on the facts of the case in confirming the disallowance made by the AO out of the expenditure incurred on transportation expenses though wrongly and mistakenly named as loss on sale of vehicle" Ignoring the submissions/clarification furnished before her. The disallowance so made being contrary to the provisions of law and facts of the case and contrary to the submissions & evidences available on record. Hence, the same kindly be deleted in full.
4. Rs.90,600/-: The Id. 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 Disallowed by claimed by the the ld. AO assessee 5.1 Telephone expenses Rs. 1,27,809/- 10% of total 5.2 Travelling Expenses Rs. 2,80,637/- expenses claimed i.e. Rs. 5.3 Building Repair & Rs. 2,12,376/- 90,600/- Maintenance Expenses 5.4 Office expenses Rs. 2,85,200/- Total Rs. 9,06,022/- Rs. 90,600/- The disallowance so made being contrary to the provisions of law and facts of the case. Hence. the same kindly be deleted in full.
5. The Id. AO further erred in law as well as on the facts of the case in charging interest u/s 234B & 234C of the Act. The appellant totally denies its liability of charging of any such interest. The interest so charged, being contrary to the provisions of law and facts, kindly be deleted in full.
3 ITA 1305/JP/2018_ M/s Swastik Oil Industries Vs DCIT 6. The appellant prays your honour indulgences to add, amend or alter of or any of the grounds of the appeal on or before the date of hearing.”
At the time of hearing, the ld AR of the assessee has stated at bar that the assessee does not want to press ground No. 1 of the appeal and the same may be dismissed as not pressed. The ld DR has raised no objection if ground No. 1 of the assessee’s appeal is dismissed as not pressed. Accordingly, ground No. 1 of the assessee’s appeal is dismissed being not pressed.
Ground No.2 of the appeal is regarding trading addition sustained by the ld. CIT(A) on account of low yield ratio in comparison to the preceding year. The assessee is a partnership firm engaged in the manufacturing and trading of edible oil, oil cakes from mustard, Tarameera and groundnuts. The assessee filed its return of income on 26/09/2012 declaring total income of Rs. 54,63,390/-. However, the assessment was completed at Rs. 97,68,310/- by making additions by the A.O. on account of low yield of oil from seeds i.e. from groundnuts, mustard and Tarameera seeds as well as certain expenses were also disallowed on ad hoc basis. The assessee challenged the action of the A.O. before the ld. CIT(A), who has restricted the trading addition made by the A.O. of Rs. 18,74,102/- on account of low yield ratio to Rs. 3.00
4 ITA 1305/JP/2018_ M/s Swastik Oil Industries Vs DCIT lacs. The assessee is aggrieved by the order of the ld. CIT(A) sustaining the trading addition of Rs. 3.00 lacs.
Before the Tribunal, the ld AR of the assessee has submitted that the assessee declared yields of groundnut oil at 27.90%, mustered oil at 34.37% and Tarameera oil at 27.35%. The A.O. asked the reasons to the assessee for downfall in the yield and production for the year under consideration in comparison to the previous years. The ld AR has submitted that the assessee has duly explained the reasons for low yield for the year under consideration in comparison to the earlier years and since the difference is very negligible and in some cases less than .5%, therefore, the explanation of the assessee ought to have been accepted when no contrary fact was found by the A.O. He has further submitted that the ld. CIT(A) has restricted the addition to Rs. 3.00 lacs without any basis or justification, therefore, the ad hoc addition sustained by the ld. CIT(A) is not justified and the same may be deleted. Alternatively, the ld. AR has submitted that when the A.O. has not rejected the books of account of the assessee then no trading addition can be made on the basis of estimation. In support of his contention, he has relied on the following decisions:
(i) CIT Vs Maharaja Shree Umaid Mills Ltd. 192 ITR 565 (Raj)
5 ITA 1305/JP/2018_ M/s Swastik Oil Industries Vs DCIT (ii) Pr.CIT Vs Bhawani Silicate Industries (2015) 93 CCH 0419 (Raj). (iii) Prem Cables (P) Ltd. Vs. ACIY (1996) 54 TTJ 421 (JP) (iv) Malani Ramnivan Jagannath Vs ACIT (2009) 207 CTR 19 (Raj). Hence, the ld AR has submitted that the addition sustained by the ld. CIT(A) may be deleted.
On the other hand, the ld DR has submitted that the ld. CIT(A) has granted more reasonable relief to the assessee. Further it is undisputed fact that the yield of the assessee for the year under consideration is decreased in comparison to the previous years and therefore, in absence of satisfactory explanation for such a decrease in all categories of oil seeds as justified the addition made by the A.O. by taking the yield ratio of the earlier years. He has relied upon the orders of the authorities below.
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:
6 ITA 1305/JP/2018_ M/s Swastik Oil Industries Vs DCIT 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:
“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
7 ITA 1305/JP/2018_ M/s Swastik Oil Industries Vs DCIT 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 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 8 ITA 1305/JP/2018_ M/s Swastik Oil Industries Vs DCIT 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.
Ground No. 3 of the appeal is regarding disallowance of expenditure incurred on transportation. During the course of assessment proceedings, the A.O. noted that the assessee has claimed a loss of Rs. 2,40,217/- on vehicles in its P&L account. The assessee explained that these expenses are on account of diesel and other related expenses which was incurred on trucks. However, the A.O. rejected this claim on the ground that there is no truck appearing in the fixed assets of the 9 ITA 1305/JP/2018_ M/s Swastik Oil Industries Vs DCIT assessee and further no documentary evidence has been furnished by the assessee in support of the claim. On appeal, the assessee has submitted that the loss on sale of vehicle is in fact not the loss incurred on sale but due to clerical mistake, it is shown under wrong head. It was submitted that it is an expenditure incurred on transportation of the goods delivered at the doorsteps of the buyer, hence, this figure represents the delivery charges in the shape of diesel and other related expenses which were incurred on the trucks. The ld. CIT(A) did not find any merits in this explanation of the assessee when the assessee has not produced any documentary evidence or no such trucks were hired by the assessee either from the partners or any other party.
We have heard the ld AR as well as the ld DR and considered the relevant material on record. The ld. AR of the assessee has reiterated his contention as raised before the ld. CIT(A). The ld. CIT(A) has considered this issue in para 9.2 as under:
“9.2. I have considered the assessment order, appellant's submissions and documents on record. During the course of assessment proceedings, The AO taking cognizance of the fact that the assessee had sold vehicle during the year under consideration, therein leading to a resultant loss of Rs. 2,40,217/-, which was claimed by the assessee and the same was disallowed by the AO. During the course of appellate proceedings the AR of the appellant stated that in many
10 ITA 1305/JP/2018_ M/s Swastik Oil Industries Vs DCIT cases the assessee had to deliver the goods at the door step of the buyer and hence that figure therefore represents the delivery charges in the shape of diesel and other related expenses which were incurred on the trucks and wrongly shown as loss on sale of vehicle. However, I am not inclined to agree with this argument of the AR of the appellant. The appellant had separately claimed fuel expenses, delivery expense for Rs. 2,85,206/- in its Profit and Loss Account and further this truck also was not appearing in the fixed asset chart of the appellant or if it had been hired from partners then also no documentary evidence for the same had been provided. The appellant is just trying to cover up this entry as clerical mistake, therefore the loss of Rs. 2,40,217/- arising on the sale of the vehicle could not be allowed and had rightly been disallowed by the AO. Thus in light of the aforesaid observations the ground raised by the appellant is hereby dismissed.”
Thus, it is clear that the assessee has separately claimed fuel expenses, delivery expenses of Rs. 2,85,206 in its P&L account, therefore, even if the said claim of loss on sale of vehicle is wrongly or mistakenly shown instead of delivery expenses, it cannot be accepted when the assessee has already claimed the delivery and fuel expenses separately. Hence, we do not find any error or illegality in the order of the ld. CIT(A) qua this issue.
Ground No.4 of the appeal is regarding disallowance of 10% of certain expenses by the A.O. On verification of the expenses debited in the P&L account, the A.O. found that some of the expenses are not fully
11 ITA 1305/JP/2018_ M/s Swastik Oil Industries Vs DCIT verifiable and may involve personal element also. Accordingly, the A.O. disallowed 10% of the telephone expenses, travelling expenses, building repair and maintenance expenses and office expenses total amounting to Rs. 90,600/-. The assessee challenged the action of the A.O. before the ld. CIT(A) but could not succeed.
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 12 ITA 1305/JP/2018_ M/s Swastik Oil Industries Vs DCIT 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 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
13 ITA 1305/JP/2018_ M/s Swastik Oil Industries Vs DCIT and maintenance expenses, all other disallowances made by the A.O. and sustained by the ld. CIT(A) are deleted.
In the result, appeal of the assessee is allowed in part. Order pronounced in the open court on 21st October, 2019.
Sd/- Sd/- ¼foØe flag ;kno½ ¼fot; iky jko½ (VIKRAM SINGH YADAV) (VIJAY PAL RAO) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 21st October, 2019 *Ranjan आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- M/s Swastik Oil Industries, Tonk. 1. izR;FkhZ@ The Respondent- The D.C.I.T., Circle-7, Jaipur. 2. vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 1305/JP/2018) 6. vkns'kkuqlkj@ By order,
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