SOLAN FILLING STATION,SOLAN vs. ITO, WARD -1, SHIMLA

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 ITA No. 431/Chd/2024 was taken as a lead case for discussion wherein the Assessee has raised the following grounds:

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 juri iction, and void abinitio.

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.

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.

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.

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:

3891%

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/H 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:

75% on quantity sold up-to and annual average of 600 KLs;and0.60% on additional quantity beyond an annual average of 600 KLs.

25% on quantity sold up-to annual average of 600KLs; and 0.20% on additional quantity beyond an annual average of 600KLs.

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

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).

Further, reliance was placed on the decision of Coordinate Chandigarh Benches in case of ACIT Vs M/s Sukhna Automobiles Petrol Pump (in ITA Nos. 912 & 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. 8. 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

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:

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 :-

Similarly, the assessee has shown sale of High Speed Diesel of 2711677 litres. Therefore, shortage/evaporation of H 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 H . By applying the average rate of H 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 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.

अपीलाथᱮ/ The Appellant 2. ᮧ᭜यथᱮ/ The Respondent 3. आयकर आयुᲦ/ CIT 4. िवभागीय ᮧितिनिध, आयकर अपीलीय आिधकरण, च᭛डीगढ़/ DR, ITAT, CHANDIGARH 5. गाडᭅ फाईल/ Guard File