PARRISONS ROLLER FLOUR MILLS (P) LTD vs. THE ASST.COMMISSIONER OF INCOME TAX

Most of the assessments are made under Section 153A after conducting search in the premises of the assessees and after recording statements from employees. The percentage of production loss claimed by Parrisons Roller Flour Mills is 2.87%, whereas the officer allowed only 1%. In the case of Yenkey Roller Flour Mills, the claim was 2.44% and the Assessing Officer allowed 1.57%. Counsel for the assessee contended that the Tribunal has no justification to disallow the percentage of loss claimed because during inspection department could not detect any unaccounted production or sale by the assessee. Further, counsel has relied on other orders of the Tribunal and even assessment orders in the case of similar assessees, where the loss allowed is ranging from 2.05% to 2.42%. Counsel for the assessee pointed out the yardstick applied by the Tribunal in allowing production loss in the case of different assessees. He has also pointed out that while the Assessing Officer allowed 1.57% loss in one case, in the other case he has allowed only 1% which itself is arbitrary and indicative of irrational basis adopted for estimation of output.

Standing Counsel appearing for the Revenue contended that the main loss suffered by Flour Mills is the refraction loss which is the loss arising in the original processing of raw wheat which contains impurities. According to Standing Counsel, the assessee's claim of refraction loss is only 3% and the same is allowed in full. The department's main case is that the entire refraction loss is made up by making addition of water of 3 to 4% which goes into the product as moisture content which is retained in the product and so much so, the output should be only more than the input by weight. However, counsel for the assessee has relied on the certificate issued by the Central Food Technological Research Institute, Mysore, wherein they have stated that output in the case of wheat products may range from 95 to 102% depending on the quality of wheat.

After hearing both sides and after going through the records, we are of the view that the input output ratio in respect of wheat products will essentially depend on the quality of wheat. We certainly find force in the contention of Revenue that refraction loss is made up by water addition and the fact that wheat product retains the moisture content when sold is also admitted by the assessee. However, counsel for the assessee rightly pointed out that in the course of packing and in manufacturing process itself there is likelihood of loss and the only reason for making disallowance is that assessee has not accounted quantity loss at each stage of production, which according to the assessee, is not required at all. After hearing both sides we feel this is certainly a case for remand because Tribunal has not considered the statements recorded from the employees, the orders issued and the claim allowed in similar cases. Further, the department also did not choose to conduct trial production under their supervision which would have established the input output ratio by weight. However, we feel for the sake of finality we can modify the orders of the Tribunal by capping wastage at 2% in both the cases. In other words, input-output ratio should be adopted at 100-98. The Assessing Officer will revise the assessments reducing the disallowance to the above extent. Appeals are allowed in part as above. However, we make it clear that the percentage of loss allowed in this case should not be treated as either industrial average or rate of loss applicable in all cases which is certainly a varying factor depending on the quality of wheat used in manufacture, age of the machine and manufacturing and packing process engaged. C.N.RAMACHANDRAN NAIR Judge P.S.GOPINATHAN JudgeP.S. to Judge pms