THE COMMISSIONER OF INCOME TAX(CENTRAL) vs. M/S.PARISONS AGROTECH PVT.LTD.,

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON MONDAY ,THE 29TH DAY OF OCTOBER 2018 / 7TH KARTHIKA, 1940 ITA.No. 1056 of 2009 AGAINST THE ORDER/JUDGMENT IN ITA 739/2006 of I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: THE COMMISSIONER OF INCOME TAX(CENTRAL) COCHIN. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: M/S.PARISONS AGROTECH PVT.LTD., CHEROOTY ROAD, CALICUT. BY ADV. SRI.E.K.NANDAKUMAR (SR.) SRI.P.GOPINATH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 29.10.2018, ALONG WITH ITA.1164/2009, ITA.1132/2009, ITA.1544/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

I.T.A.1056,1132,1164&1544 of 2009 2 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON MONDAY ,THE 29TH DAY OF OCTOBER 2018 / 7TH KARTHIKA, 1940 ITA.No. 1164 of 2009 AGAINST THE ORDER/JUDGMENT IN ITA 67/2007 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 05-05-2008 APPELLANT/S: THE COMMISSIONER OF INCOME TAX COCHIN(CENTRAL), COCHIN. BY ADVS. SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH SC FOR INCOME TAX RESPONDENT/S: M/S. PARISONS AGROTECH (P) LTD. CHEROOTY ROAD, CALICUT. BY ADV. SRI.E.K.NANDAKUMAR (SR.) SRI.P.GOPINATH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 29.10.2018, ALONG WITH ITA.1056/2009, ITA.1132/2009, ITA.1544/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

I.T.A.1056,1132,1164&1544 of 2009 3 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON MONDAY ,THE 29TH DAY OF OCTOBER 2018 / 7TH KARTHIKA, 1940 ITA.No. 1132 of 2009 AGAINST THE ORDER/JUDGMENT IN ITA 66/2007 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 05-05-2008 APPELLANT/S: THE COMMISSIONER OF INCOME TAX (CENTRAL), KOCHI. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: M/S.PARISONS AGROTECH PVT LTD CHEROOTY ROAD, CALICUT. BY ADV. SRI.E.K.NANDAKUMAR (SR.) SRI.P.GOPINATH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 29.10.2018, ALONG WITH ITA.1056/2009, ITA.1164/2009, ITA.1544/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

I.T.A.1056,1132,1164&1544 of 2009 4 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON MONDAY ,THE 29TH DAY OF OCTOBER 2018 / 7TH KARTHIKA, 1940 ITA.No. 1544 of 2009 AGAINST THE ORDER/JUDGMENT IN ITA 738/2006 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 05-05-2008 APPELLANT/S: THE COMMISSIONER OF INCOME TAX (CENRTAL)COCHIN. BY ADV. SRI PKR MENON SR SC FOR GOI TAXES SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: M/S.PARISONS AGROTECH PVT.LTD CHEROOTY ROAD, CALICUT. BY ADV. SRI.E.K.NANDAKUMAR (SR.) SRI P GOPINATH OTHER PRESENT: THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 29.10.2018, ALONG WITH ITA.1056/2009, ITA.1164/2009, ITA.1132/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

I.T.A.1056,1132,1164&1544 of 2009 5 JUDGMENT [ ITA 1056/2009,ITA.1164/2009,ITA.1132/2009, ITA.1544/2009 ] Ashok Menon, J. The Revenue is in appeal challenging the common order dated 05.05.2008 of the Income Tax Appellate Tribunal, Cochin Bench, in which four appeals filed by the Revenue were dismissed; while the assesse's appeal was allowed. 2. The assessment pertaining to the years 2001-02 to 2004-05 were challenged in four appeals filed by the Revenue, while there was a cross-appeal filed by the assessee pertaining to the year 2004-05. 3. The appeals arise from the assessments completed under Section 153A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'), except for the assessment year 2004-05, which was competed under Section 143(3) of the Act. Since the issues involved were common, it was disposed of by a common order by the Tribunal.

I.T.A.1056,1132,1164&1544 of 2009 6 4. The facts in brief are thus: The assessee company is engaged in the business of manufacturing and trading in edible oil (refining of crude palm oil and palmolein). That apart, the company is also involved in the processing of hydrogenation for manufacture of Vanaspathi, out of the by-products generated.

I.T.A.1056,1132,1164&1544 of 2009 7 6. Shortage was also claimed on transportation, which was disallowed. Moreover, unaccounted sales to M/s Arafa Trading Company, Manjeri and M/s Sulekha Traders, Kanpur were also noticed by the A.O. It is observed that there was suppression of sale by under-invoicing of cash sales. The following questions of law, as re-framed by us, arise for consideration: i) Whether the additions made by the A.O. for the various years on account of excess claim of wastage was proper ? ii) Whether the shortage claimed on transportation for the year 2002-03 to 2004-05 was appropriate ? iii)Whether the findings on suppression of sale by under-invoicing and unaccounted sale is to be upheld ? 7. We heard the Senior Counsel, Government of India (Taxes) and the learned Counsel appearing for the assessee. 8. Regarding the percentage of waste in the refining process of palm oil and palmolein, the assessee claimed

I.T.A.1056,1132,1164&1544 of 2009 8 wastage at 7.90%. The A.O. on visiting the premises of the assessee's factory and based on the statement of the Production Manager, who had allegedly admitted that the wastage of the oil in the bleaching process was not more than 0.25%, made an assessment that the wastage could not be more than 0.65%. It was found that the wastage claimed for all the years was calculated at a higher rate and additions made. The A.O. could not have on his own assessment, arrived at a conclusion regarding the quantity of wastage in a technical process involved in refining the crude palm oil or palmolein. The alleged admission of the Production Manager also cannot be given too much importance to arrive at a decision regarding the assessment of wastage since it is not a statement taken on oath. The Tribunal has discussed in detail the process of refining the crude palm oil and palmolein, by means of re-treatment, bleaching and deodorizing. It is on findings on fact that the A.O's observations, were overturned by the First Appellate Authority and that confirmed by the Tribunal. The Tribunal has found that

I.T.A.1056,1132,1164&1544 of 2009 9 the reasoning given by the A.O. was a general one and not scientifically based. The statement given by the Production Manager is only regarding a part of the process, and therefore, the additions made on account of wastage was improper. The Tribunal was justified in not agreeing with the A.O.'s determination as to the wastage. We find no reason to interfere with the fact finding of the Tribunal. 9. The next question that arises for consideration is on the estimation of the shortage claimed on transportation and the additions made by the A.O. on the basis that there was an excess claim for the assessment years 2002-03 to 2004-05. The Tribunal has observed that the assessee is using crude palm oil transported from Malaysia and Singapore, through ships. Every year there is some percentage of shortage claimed by the assessee. The A.O. though noticed that the assessee relied on the certificates issued by Marine Surveyors on loss in transportation; found the claim to be excessive for reason of no claim was raised before the insurer. The A.O. found

I.T.A.1056,1132,1164&1544 of 2009 10 that the assessee has not furnished any evidence to the effect of having made a claim with the Insurance Company for the alleged loss in transportation and therefore, the A.O. restricted the transport loss at 0.25% and disallowed the excess claimed by the assessee for the assessment years 2002-03 and 2003-04. With respect to assessment year 2004-05, the A.O. has observed that as per the Marine Surveyors Certificate, loss to the extent of 0.1% was permissible and above the said loss, the assessee could have lodged a claim to the Insurance Company for reimbursement and the claim for that assessment year was disallowed as excess. In the order of the C.I.T. (Appeals), which has been upheld by the Tribunal, it was observed that the appellant not having made any insurance claim for the loss sustained in excess of the permissible percentage does not automatically lead to a presumption that there is excess shortage, or loss claimed by the assessee. The non-claiming of insurance amount according to the C.I.T. (Appeals) could be due to various reasons, including technical flaws. The A.O. had not relied on any

I.T.A.1056,1132,1164&1544 of 2009 11 documentary evidence to prove that the claim of the assessee in this regard is bogus. From this, it is very clear that the A.O. arrived at a conclusion to disallow the shortage on transportation on mere surmises, without any evidence. On appreciation of evidence and facts, both the Appellate Authorities have rightly found that the additions made by the A.O. in this regard was improper. We are in agreement with that finding. 10. The A.O. has observed that there is suppression of sale to M/s Arafa Trading Company by under-invoicing cash sales for the assessment years 2002-03 and 2003-04. During the course of search, hard-disk of the computer was seized. Appreciation of this issue is mainly on facts, and the C.I.T. (Appeals) deleted the entire addition made by the A.O. for the assessment years, and it has been upheld by the Tribunal. It is the argument of the Department that the assessee was duty bound to prove that the rates found in the seized diary were changed due to subsequent negotiation and the assessee had utterly failed to bring on record anything on this count. The learned

I.T.A.1056,1132,1164&1544 of 2009 12 Counsel for the assessee would argue that the diary was in the form of an order book and no adverse inference could be drawn against the assessee as the hard-disk of the computer was seized during the course of search. It is also submitted that the rates of palm oil and palmolein are different. The Tribunal has observed that the A.O. has not made any attempt to separate the quantity of the cash sales of palm oil and palmolein, but has taken an average rate. That could not have been done because the rates are different. The diary, which was seized, is only an order book and additions could not have been made on the presumption that the order book is final, and therefore, the additions made by the A.O. was rightly reversed by the C.I.T. (Appeals) as well as the Tribunal. 11. It is the case of the Department that for the assessment years 2003-04, there was under-invoicing of sale of Rs.5,04,957/- in respect of sales made to M/s Arafa Trading Company and Rs.3,69,946/- in respect of M/s Sulekha Traders. According to the assessee, the A.O. had taken those as alleged suppression from the entries

I.T.A.1056,1132,1164&1544 of 2009 13 in the oil dispatch register, wherein some of rates were struck off and changed and new rates were entered. The explanation given by the assessee regarding the changes, did not satisfy the A.O. According to the assessee, the rates changed whenever the bottom cargo, which were of inferior quality were used. The addition of Rs.8,74,903/- is made for the assessment year 2003-04 in respect of such suppression of under-invoicing of sale to M/s Arafa Trading Company and M/s Sulekha Traders. This also is a question of fact, which has been dealt with in great detail by the C.I.T. (Appeals) as well as the Tribunal. It is observed that the rates are finalised only after negotiations and at the time of booking, the rates are put as it is applicable to good quality oil. Apart from the two rates pointed out by the A.O., there is absolutely no other evidence to substantiate the case of under-invoicing as found by the A.O. The Tribunal has found that crude palm oil was imported from Malaysia and Singapore, through ships and necessarily the oil settled at the bottom is bound to be

I.T.A.1056,1132,1164&1544 of 2009 14 inferior than the oil at the upper level of the container. It is rightly pointed out that there are no duplicate books maintained with two rates contradicting each other and therefore the C.I.T. (Appeals) and the Tribunal rightly came to the conclusion that the additions made on this count were not appropriate. 12. The assessee's appeal before the Tribunal was pertaining to the confirmation by the CIT (Appeals) of the additions made by the A.O. on alleged suppression of sales by under-invoicing sales to M/s Sulekha Traders to the tune of Rs.1,63,346/- for the assessment year 2004- 05. The Tribunal has found that this is an issue identical to that of the Revenue's appeal for the assessment year 2003-04 and for the very same reason the addition on account of under-invoicing was improper and therefore the finding of the First Appellate Authority was overturned by the Tribunal, and rightly so. We find absolutely no reason to interfere with the finding of the Tribunal. The questions framed; all arise on

I.T.A.1056,1132,1164&1544 of 2009 15 facts which are all answered against the Revenue, and the I.T.Appeals are rejected. No order as to costs. Sd/- K.VINOD CHANDRAN JUDGE Sd/- ASHOK MENON dkr JUDGE

I.T.A.1056,1132,1164&1544 of 2009 16 APPENDIX OF ITA 1056/2009 APPELLANT'S/S ANNEXURES: ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER. ANNEXURE B TRUE COPY OF THE ORDER OF THE CIT (A). ANNEXURE C TRUE COPY OF THE ORDER OF THE ITAT. ANNEXURE D1 TRUE COPY OF STATEMENT OF PRODUCTION MANAGER. ANNEXURE D2 TRUE COPY OF STATEMENT OF ACCOUNTANT. ANNEXURE E1 TRUE COPY OF LETTER DATED 9.3.2006. ANNEXURE E2 TRUE COPY OF LETTER DATED 20.8.2005. APPENDIX OF ITA 1544/2009 APPELLANT'S/S ANNEXURES: ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER ANNEXURE B TRUE COPY OF THE ORDER OF THE CIT(A) ANNEXURE C CERTIFIED COPY OF THE ORDER OF THE ITAT ANNEXURE D1 TTRUE COPY OF STATEMENT OF PRODUCTION MANAGER ANNEXURE D2 TRUE COPY OF STATEMENT OF ACCOUNTANT ANNEXURE E1 TRUE COPY OF LETTER DATED 09.03.2006 ANNEXURE E2 TRUE COPY OF LETTER DATED 20.08.2005.

I.T.A.1056,1132,1164&1544 of 2009 17 APPENDIX OF ITA 1164/2009 APPELLANT'S/S ANNEXURES: ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER ANNEXURE B TRUE COPY OF THE ORDER OF THE CIT(A) ANNEXURE C CERTIFIED COPY OF THE ORDER OF THE ITAT ANNEXURE D1 TTRUE COPY OF STATEMENT OF PRODUCTION MANAGER ANNEXURE D2 TRUE COPY OF STATEMENT OF ACCOUNTANT ANNEXURE E1 TRUE COPY OF LETTER DATED 09.03.2006 ANNEXURE E2 TRUE COPY OF LETTER DATED 20.08.2005. APPENDIX OF ITA 1132/2009 APPELLANT'S/S ANNEXURES: ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER ANNEXURE B TRUE COPY OF THE ORDER OF THE CIT(A) ANNEXURE C CERTIFIED COPY OF THE ORDER OF THE ITAT ANNEXURE D1 TTRUE COPY OF STATEMENT OF PRODUCTION MANAGER ANNEXURE D2 TRUE COPY OF STATEMENT OF ACCOUNTANT ANNEXURE E1 TRUE COPY OF LETTER DATED 09.03.2006 ANNEXURE E2 TRUE COPY OF LETTER DATED 20.08.2005.