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Facts
The assessee claimed excess shortage/evaporation of petrol and diesel. The AO treated this as a mistake apparent from the record and made an addition under section 154. The CIT(A) sustained these additions, and the assessee is in appeal.
Held
The Tribunal held that the assessee's claim for shortage/evaporation was within the permissible limits, considering norms for hill areas. The additions made by the AO and sustained by the CIT(A) were deleted.
Key Issues
Whether the AO was justified in making additions under Section 154 for claimed shortage/evaporation of petrol and diesel, and whether the CIT(A) erred in sustaining these additions.
Sections Cited
154, 143(3)
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Order PER VIKRAM SINGH YADAV, AM Both the above appeals have been filed by the Assessee against the respective orders of the Ld. CIT(A)/NFAC, Delhi each dt 20/02/2024 pertaining to Assessment Year 2013-14 & 2014-15 respectively. 2. Since both the above appeals were heard together, they are being disposed off by this consolidated order. With the consent of both the parties, appeal in was taken as a lead case for discussion wherein the Assessee has raised the following grounds: “
1. The impugned order is both against facts and erroneous in law.
2. On the facts and circumstances of the case, the Ld.CIT(Appeals) NFAC, Delhi, has erred in having confirmed the action of the Ld.AO in having passed an order u/s 154 of the Income Tax Act, which was without jurisdiction, and void abinitio.
3. On the facts and circumstances of the case the Ld.CIT(Appeals) NFAC has erred in having confirmed the order u/s 154 dated 30.03.2021 passed by the Ld.AO having no DIN.
2 4. The impugned order has been passed without any application of mind by the CIT(Appeals) NFAC on assessee's submissions and on the material evidence filed during appellate proceedings and therefore same is not sustainable under the law.
5. On the facts and circumstances of the case the Ld. CIT(Appeals) NFAC has erred in having sustained an addition of Rs.4,51,355/- made by the Ld.AO on account of excess loss/shortage/evaporation of Petrol calculated at 6261 Liters, by resorting to provisions of section 154 treating the same as mistake apparent from the record.
6. On the facts and circumstances of the case the Ld. CIT(Appeals) NFAC has erred in having sustained an addition of Rs.3,17,802/- made by the Ld.AO on account of excess loss/shortage/evaporation of High Speed Diesel calculated at 7991 Liters, by resorting to provisions of section 154 treating the same as mistake apparent from the record.
Briefly the facts of the case are that the assessment in this case was originally completed under section 143(3) dt. 26/08/2015 at an assessed income of Rs. 7,27,170/- as against the returned income of Rs. 6,27,170/-. Thereafter, the AO observed that the assessee has claimed excess shortage/evaporation of petrol and diesel as per the prescribed norms by the Oil Company and therefore, there is a mistake which is apparent from record and notice under section 154 was issued and thereafter taking into consideration the submissions filed by the assessee but not finding the same acceptable, an amount of Rs. 4,51,355/- was brought to tax being the amount of excess loss/shortage/ evaporation of petrol and an amount of Rs. 3,17,802/- on account of excess / shortage / evaporation of diesel which, on appeal, has been sustained by the Ld. CIT(A) and against which, the assessee is in appeal before us.
During the course of hearing, the Ld. AR submitted that the AO has passed the order under section 154 without appreciating the fact and provisions of law that provisions of Section 154 were not applicable in the present case as proper stock record were maintained by the assessee and all necessary information / details/ records were produced during the course of assessment proceedings and after due consideration thereof the assessment was framed. It was further submitted that the quantum of evaporation / shortage depends upon the fact of the individual case and therefore varies from case to case and there is no hard and fast rule regarding the incurrence of loss due to evaporation of petroleum products and only certain norms have been prescribed by the oil companies which the assessee has duly complied with.
It was submitted that during the course of Section 154 proceedings, detailed submissions were filed before the AO submitting that the shortage / shrinkage so claimed by the assessee was on a lower side as against the permissible norms and rules of the Oil Company, however, the AO has failed to appreciate the same and in this regard, our reference was drawn to the submissions so filed by the assessee before the AO which read as under:
Most respectfully please refer to your office notice DIN:ITBA/COM/F/17/2020-21/1030342854(1) Dated 04.02.2021 for rectifying the order passed u/s 143(3) for the assessment year 2013-14 (Wrongly mentioned as 2014-15 in the Captioned narration), fixing the hearing for 15.02.2021.In reply to the said notice the assessee respectfully submits as under:- That the assessment in this case was framed under section 143(3) and the complete books of accounts, stock register and vouchers etc. were also produced at the time of assessment and on thorough examination of the records and submissions made during the course of hearing, the assessment was finalized. The alleged discrepancies Viz. not discussing the issue of loss/shortage on sale of unleaded petrol and Diesel by the ITO while passing the order U/s 143(3) is totally out of purview of section 154. Moreover in the impugned notice the allowance of Loss/Shortage is stated to be in violation of the Rules/rates as prescribed by the Oil Company. In the notice under reply, there is no mention of the Rules/Rates said to have been violated by the assessee while claiming Loss/Shortage. Further, it is most respectfully submitted that the claim of shortage/Evaporation by the assessee was in complete compliance of company rules as prescribed and the same was allowed by the learned Assessing Authority after due verification during the course of assessment proceedings. In the notice under reply, you have only calculated the permissible limit of shortage whereas over and above the shortage/evaporation the company allows shrinkage allowance for hill areas for which a method is prescribed. As per the Company norms/rules/rates shrinkage is allowed as under: Petrol Diesel 0.5357% 0.3891% The method of calculation for allowance of shrinkage is stated in the MDG (Marketing Discipline Guide) I am enclosing herewith a calculation sheet Marked as A" by taking one bill no.1182056479 of Petrol and bill no 1182055453 of Diesel, copy of the shrinkage allowance chart is also enclosed herewith which would bring home the point. Moreover a copy of the E-mail from The Asst Manager Sales Solan/Ambala Territory is also attached herewith where in shrinkage allowance in MS/Speed is stated to be allowable @0.5357% and Diesel@ 0.389% in the case of the assessee. I am also enclosing herewith-detailed calculation on the basis of the above which shows that the assessee has not claimed excess loss on shortage, Evaporation/shrinkage. The assessee further submits as under:- 1. The retail of Sale of Petroleum Products is governed by the Ministry of Petroleum & Natural Gas. The comprehensive Rule for this are contained in the MS/HSD Control Order 2005 in the extraordinary Gazette of India No.518 dated 21" December, 2005. A copy of the same is Enclosed Marked as ANNEXURE 1. On Page 20 of the Gazette, the norms for the stock variation are explained and as per the Gazette, should be considered by taking into account the different facts. The relevant portion of the Gazette read as under: (i) Evaporation/handling losses in Motor Spirit (ie. Petrol) as follows:- 0.75% on quantity sold up-to and annual average of 600 KLs;and0.60% on additional quantity beyond an annual average of 600 KLs. (ii) Handling losses in HSD Diesel as follows: 0.25% on quantity sold up-to annual average of 600KLs; and 0.20% on additional quantity beyond an annual average of 600KLs. (Shrikage losses and temperature variation allowance quantities on Motor Spirit/High Speed Diesel to be taken into account wherever applicable)
A mail from the Assistant Manager, Sales, Bharat Petroleum Corporation Ltd dated 12th June, 2017 converting the shrinkage allowance into %tage was received wherein applicable shrinkage in the case of the assessee was calculated. A Copy of the said mail attached herewith as ANNEXURE -2 and Shrinkage Chart of Locations applicable as on 31.08.2012 showing/mentioning our station Location "Solan" at Serial No.62 (ANNEXURE-3) 2. The Calculation Sheet for the Shrinkage/Shortage/loss claimed by the assessee on Petrol and Diesel is attached herewith for detailed working explanation of losses under the head is attached as ANNEXURE-4 3. Further evidence on admissibility and methodology of loss calculation is given by India Oil Corporation Ltd in its reply dated 20.02.2017 to an RTI Application( ANNEXURE -5) and a sample calculation illustration from the Marketing Discipline Guidelines on Page No.62 (ANNEXURE-6). The factors stated above in the annexure 1 to 4 were also explained to the Assessing Authority on the consideration of which the assessment was finalized. In view of the above facts and position, it is submitted that the shortage/shrinkage/loss claimed by the assessee was on the lower side what would have been otherwise permissible as per the Gazzette and the Rules of the Oil Companies and the calculations. It is, therefore most respectfully requested that the proceedings under section 154 of the Income tax Act may please be dropped there being no mistake apparent on records and rectifiable under the Act has crept in the assessment order passed under section 143(3) of the Act.
6. Further, reliance was placed on the decision of Coordinate Chandigarh Benches in case of ACIT Vs M/s Sukhna Automobiles Petrol Pump (in & 913/Chd/2012) wherein the shortage of 1% was held eligible. It was submitted that in the instant case, the loss/shortage claimed by the assessee is much below 1% inspite of the fact that the assessee is operating in hilly areas where higher loss on account of shortage / evaporation/shrinkage is permissible.
It was further submitted that over and above the shortage / evaporation loss as per the well laid down norms, the assessee company is also eligible for shrinkage allowance for hill areas which is 0.5357% for Petrol and 0.3891% for diesel and which the AO has failed to appreciate which has resulted in the addition so made by him. In this regard, our reference was drawn to the calculation of shortage / shrinkage loss and it was submitted that taking into consideration the shrinkage loss, the assessee has claimed 12681 Ltrs of Petrol loss as against the permissible limit of 11349 Ltrs and in respect of Diesel, it was submitted that the assessee has claimed loss of 13715 Ltrs as against the permissible loss of 16274 Ltrs and therefore, excess petrol loss is more than offset by reduced claim towards diesel and thus, overall, no excess loss has been claimed by the assessee.
Similarly for A.Y. 2014-15, It was submitted that the facts and circumstances of the case are exactly identical and both in respect of petrol as well as diesel, the 5 assessee has claimed shortage / shrinkages lower than the permissible limit and the necessary evidence are also placed on record before the AO which he has again failed to appreciate and our reference was drawn to the calculations so submitted as part of the assessee’s paperbook.
Per contra, the Ld. DR relied on the orders of the lower authorities and our reference was drawn to the findings of the AO which are contained at para 4-6 of the assessment order and the same read as under: 4. In view of these facts, notice under section 154 was issued to the assessee proposing the rectification of mistake apparent from records. In response to the said notice, the assessee has furnished reply and stated that as per the company norms/rules/rates shrinkage is allowed as under :-
Petrol Diesel 0.5357% 0.3891% The. reply and other documents furnished by the assessee have carefully been considered and found not tenable as there is mistake in the rates of evaporation applied by the assessee. The assessee has shown sale of unleaded petrol of 920062 litres. Therefore, 5. shortage/evaporation of petrol upto 6,00,000 Itrs is allowable at 4500 litres @ 0.75% and above 6,00,000 Itrs, shortage/evaporation is allowable at 1920 @ 0.60%, totaling to 6420 litres as against claimed by the assessee at 12681 Itrs. Thus, the assessee has claimed excess shortage/evaporation of 6261 (12681-6420) litres of petrol. By applying the average rate of petrol of Rs.72.09/- per litre, the amount of excess loss/shortage/evaporation comes to Rs.4,51,355/- (6261 x 72.09), the same is added to the total income of the assessee.
Similarly, the assessee has shown sale of High Speed Diesel of 2711677 litres. Therefore, shortage/evaporation of HSD upto 6,00,000 Itrs is allowable at 1500 litres 0.25% and above 6,00,000 Itrs, shortage/evaporation is allowable at 4224 @ 0.20%, totaling to 5724 litres as against claimed by the assessee at 13715 litres. Thus, the assessee has claimed excess shortage/evaporation of 7991 (13715- 5724) litres of HSD. By applying the average rate of HSD of Rs.39.77/- per litre, the amount of excess loss/shortage/evaporation comes to Rs.3,17,802/- (7991X39.77), the same is added to the total income of the assessee.
Have heard the rival contentions and purused the material available on record. The AO has examined the norms laid down by the oil marketing companies in terms of evaporation and handling loss of motor spirit and high speed diesel and has held that the assessee has claimed excessive loss. The guidelines so laid down have to be seen in the facts of the present case where the assessee is operating the filling station in a hilly 6 area where, besides evaporation and handling loss, the assessee is also eligible for shrinkage losses and temperature variation allowance quantities on Motor Spirit/High Speed Diesel which as per material on record as applicable to the assessee is 0.5357% for Petrol and 0.3891% for diesel. Further, the ld AR has suitably demonstrated through the workings as noted above that the loss/allowance so claimed is within the permissible limits for the both the impugned assessment years. In the result, the addition so made and sustained by the ld CIT(A) is hereby deleted.
In the result, both the appeals are allowed.