DEPUTY COMMISSIONER OF INCOME-TAX vs. SHRI SUBHASH LALASAHEB DESHMUKH,, OSMANABAD

आदेश / ORDER PER R.S. SYAL, VP : This appeal by the Revenue arises out of the order dated 25-03-2016 passed by the CIT(A)-2, Aurangabad in relation to the assessment year 2011-12. 2. The first ground is against the deletion of addition amounting to Rs.1,46,94,904/- on account of capital gain. 3. Briefly stated, the facts of the case are that the assessee is a manufacturer and supplier of Tyre Bullock carts and other fabrication works. Return was filed declaring total income at Rs.44,83,560/-. During the course of assessment proceedings, the

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Assessing Officer (AO) observed that the assessee along with

someone else relinquished right over certain property for a total

consideration Rs.1.67 crore vide Acquisition Agreement dated

01-11-2010. From the perusal of the details of properties given in

para 2.18 of the Agreement, the AO inferred that 27.10 acres of

land was sold for Rs.1.67 core and the assessee’s share of 25 Acres

was worth Rs.1.54 crore. On being called upon to state the

position, the assessee submitted that the land pertained to Adlers

Bio Energy Ltd., which was sold through the shares of Adlers. Not

convinced, the AO presumed cost of acquisition of such rights at

Rs.1.00 lakh as on 01-04-1981. With the relevant indexation, he

worked out the indexed cost of acquisition at Rs.7.11 lakh and the

resultant capital gain of Rs.1,46,94,904/-. This amount was added

to the total income of the assessee, which got deleted in the first

appeal. Aggrieved thereby, the Revenue has come up in appeal

before the Tribunal.

relevant material on record. From narration of the above factual

panorama above, it is seen that the AO inferred the assessee to

have sold his share of land for a sum of Rs.1.54 crore. The

3 ITA No.1224/PUN/2016 Subhash L. Deshmukh

property in question belonged to Adlers Bio Energy Ltd., which

was purchased by it during the F.Y. 2007-08. A change in

ownership of Adlers took place with the transfer of shares. On

perusal of the Agreement, it can be seen that there was outstanding

liability of Adlers amounting to Rs.1.67 crore to M/s. Terranuova

Integrated Industries Pvt. Ltd. (TIPL). The buyer of Adlers

undertook the liability due to TIPL. It was the obligation of Adlers

worth Rs.1.67 crore, which was taken over by the buyer. Nowhere

is there any reference to sale consideration of Rs.1.67 crore having

been received by the assessee and another person, as has been

inferred by the AO. The ld. DR could not controvert such factual

position recorded by the ld. CIT(A) in the impugned order, which

amply demonstrates that there was no transaction of sale of

property worth of Rs.1.67 crore. In that view of the matter, there

cannot be any question of capital gain becoming chargeable to tax

in the hands of the assessee. We, therefore, affirm the impugned

order on this score. This ground is not allowed.

purchases. The AO noticed that the assessee did not have evidence

of material purchased amounting to Rs.75,50,210/- from M/s

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Manish Steel Centre, Kolhapur. In the absence of the assessee

filing truck numbers, transportation and delivery challans with toll

tax receipt etc., the AO held that the purchases amounting to

Rs.75.50 lakh were bogus. He, therefore, made addition for the

said sum. The ld. CIT(A) restricted the addition to 15% of the

purchase price as profit element in the bogus purchases.

relevant material on record, it is seen that the assessee recorded

purchases worth Rs.75.50 lakh. Such purchases were of steel,

which is consumed in the manufacture of Bullock carts. The

assessee could not lead proper evidence before the authorities

below to substantiate the genuineness of the purchases.

Admittedly, no appeal has been preferred by the assessee before

the Tribunal against the impugned order. When certain goods are

recorded in the books of account as purchased, then these would

either get consumed in the manufacturing process or appear in the

closing stock. There cannot be a situation in which the purchase of

raw material is recorded and the same does not get reflected either

in the manufacturing or in the closing stock. As the assessee could

not establish the genuineness of purchases recorded in the books of

5 ITA No.1224/PUN/2016 Subhash L. Deshmukh

account, what follows, as a corollary, is that steel was actually

purchased from some other parties at lower rates but recorded at

higher purchase price in the books of account through bogus bills.

In such circumstances, only the additional profit, which the

assessee suppressed by recording bogus purchases at higher value

instead of actual purchases at lower value, can be subjected to tax

and not the whole amount of purchases as was done by the AO.

Considering the entirety of facts and circumstances of the instant

case, we are satisfied that the ld. CIT(A) was justified in

computing such extra profit embedded in bogus purchase value at

15% and sustaining the addition pro tanto. We, therefore, uphold

the impugned order on this issue. This ground fails.

steel consumption. The AO observed that the assessee

manufactured 2583 bullock carts during the year. Sale price of

bullock cart was found to be ranging from Rs.26,000/- to

Rs.37,900/-, with capacity of bullock cart varying from 3 MT to

3.5 MT. In the absence of the assessee maintaining any day-to-day

record of steel consumption and production of finished goods and

further observing that lesser capacity meant lesser consumption of

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steel, the AO presumed steel consumption for 3.5 MT bullock cart

at 250 kgs. and for 3 MT bullock cart at 200 kgs. Taking the

actual quantity of steel shown to have been purchased and

consumed by the assessee, the AO computed excess consumption

of steel at 51500 kgs. and held the same as unrecorded. Applying

the average rate of Rs.34.01 per kg., he made an addition of

Rs.17,51,515/-. The ld. CIT(A) deleted the addition.

relevant material on record, it is seen that the entire addition is

based on the AO’s premise that the assessee manufactured two

varieties of 3 MT and 3.5 bullock carts with the consumption at

200 kgs. and 250 kgs. respectively. The assessee successfully

demonstrated before the ld. CIT(A), with the help of sale invoices,

that all the bullock carts sold by it were only of 3 MT and there

was no bullock cart of 3.5 MT, as was inferred by the AO.

Nothing has been placed on record to show that this finding of the

ld. CIT(A) is erroneous. In that view of the matter, the entire

edifice of the addition erected on such misunderstanding, falls flat.

We, therefore, countenance the impugned order on this score and

dismiss this ground of appeal.

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payments. The AO noticed that the assessee claimed wages of

Rs.87.95 lakh on a turnover of Rs.8.79 crore. He compared it with

the figures of last year of wages at Rs.38.03 lakh and turnover of

Rs.16.65 crore. He found certain infirmities in the labour

payments inasmuch as the signatures of 6 persons were not

matching. In that view of the matter, he allowed wages to the

extent of Rs.37.95 lakh and made the disallowance of Rs.50.00

lakh. The ld. CIT(A) reduced the disallowance to Rs.19.49 lakh.

relevant material on record, it is seen that the AO disallowed

Rs.50.00 lakh out of Rs.87.95 lakh paid by the assessee as Labour

charges. The AO found difference in signatures of 6 persons only.

Without quantifying the amount of wages pertaining to such 6

persons, an ad hoc disallowance was made. The ld. CIT(A) took

note of the fact that there was 62 percent increase in the turnover of

the assessee over the preceding year. By giving 80% increase in

the labour cost, he restricted the disallowance to Rs.19.49 lakh. In

our considered opinion, the verdict given by the ld. CIT(A), in the

instant facts and circumstances of the case, is appropriate as

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against the ad hoc disallowance made by the AO. We, therefore,

uphold the impugned order on this issue. This ground is not

allowed.

of Rs.20,27,068/- made by the AO on account of Vehicle expenses.

The assessee claimed deduction towards Vehicle expense, vehicle

insurance, interest on vehicle loan and depreciation totalling in all

to Rs.20,27,068/-. On a specific requisition, the assessee could not

produce log books of the cars etc. The AO, therefore, made the

disallowance of the entire Vehicle expenses and depreciation. The

ld. CIT(A) deleted the addition.

relevant material on record, we find it is an admitted position that

the assessee did not maintain log book for the vehicles. In that

view of the matter, personal use of vehicles cannot be ruled out.

Considering the entirety of facts and circumstances of the case, we

are satisfied that it would be just and fair if the disallowance on

account of Vehicle expenses, vehicle insurance, interest over

vehicle and depreciation is restricted for personal use to 10% of the

expenses, at Rs.2,02,706/-. This ground is partly allowed.

9 ITA No.1224/PUN/2016 Subhash L. Deshmukh

and Repair and maintenance expenses. The assessee claimed

Travelling, conveyance, Repair and maintenance expenses at

Rs.2,21,054/-. Since the expenses were in cash and claimed on the

basis of self-made vouchers, the AO disallowed 20% thereof. The

ld. CIT(A) deleted the addition.

self-made vouchers. Considering the entirety of the facts and

circumstances of the case, we are of the considered opinion that it

would be just and fair if the disallowance of 10% of total expenses,

namely, Rs.22,105/- is sustained. We order accordingly. This

ground is partly allowed.

Rs.31,74,278/- out of addition of Rs.32,38,592/- made by the AO

on account of other items consumption. The facts of this ground

are that the AO took note of the fact that the assessee sold 2583

bullock carts. He noticed that the assessee had shown purchase of

4296 tyres. With the opening stock of 60 tyres and closing stock of

28 tyres, the figure of tyres consumption was determined at 4328

tyres. Multiplying the number of bullock carts manufactured for

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the year at 2583 with the figure of 2 (two tyres per bullock cart), he

held that the consumption of tyres ought to have been 5166 as

against the consumption available as per record at 4328, thereby

giving excess consumption of 838 tyres. By applying the average

purchase rate of Rs.3573 per tyre, he made an addition towards

excess consumption of tyres at Rs.29,94,174/-. In the same

manner, he computed excess value of tubes consumed at

Rs.6846/-; excess value of axle wheels at Rs.1,11,160/-; and excess

value of axles at Rs.1,26,412/-, thereby making total addition on

this count at Rs.32,38,592/-. The ld. CIT(A) deleted the addition

except sustaining Rs.64,314/- in tyres due to actual excess 18

pieces of tyres.

material on record. It is not disputed that the assessee

manufactured 2583 bullock carts during the year. The AO made

all the above additions on the ground that the consumption of tyres,

tubes, axel wheels and axel was shown on lower side. The assessee

produced necessary sale bills before the ld. CIT(A) to show that

some of the bullock carts were sold without tyres. The difference

in the quantity of tyres as worked out by the AO has been properly

11 ITA No.1224/PUN/2016 Subhash L. Deshmukh

reconciled by the assessee before the ld. CIT(A) except 18 tyres,

for which the addition has been restricted in the first appeal. The

ld. DR could not point out any infirmity in the figures recorded in

the impugned order on this score. Similar is the position regarding

tubes, axle wheels and axles for which the assessee properly

explained the difference as calculated by the AO with necessary

evidence. In view of the above discussion, we are satisfied that no

exception can be taken to the view canvassed by the ld. CIT(A).

This ground is not allowed.

Rs.1,95,075/- towards depreciation on JCB Machine. The assessee

claimed depreciation on JCB Machine amounting to Rs.1,95,075/-.

The AO held that there was no use of JCB machine in the

assessee’s business and hence made disallowance, which came to

be deleted in the first appeal.

evident that the reason for the AO to make the disallowance is that

there was no use of JCB machine in the assessee’s business. On

the contrary, the assessee proved before the ld. CIT(A) that the

JCB machine was utilized in the course of its business because

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each bullock cart with axle wheels, tyres, tubes and axle weighed

around 400 kgs. The JCB machine was used for manual loading

and unloading of the finished goods, which otherwise would have

required huge manpower. Since the JCB machine was used for

loading and unloading of material and finished products, we see no

reason to interfere in the impugned order overturning the

assessment order on the ground that there was no use of JCB

machines in the assessee’s business. This ground is not allowed.

Rs.77,07,819/- from agricultural income. The facts of this ground

are that the assessee declared agricultural income of Rs.98,25,210/-

On being called upon to substantiate the agricultural income, the

assessee produced photocopies of cash sale of the agricultural

produce, which has been tabulated at pages 15 to 17 of the

assessment order along with necessary details of expenses incurred

for agriculture purpose. The assessee brought it to the notice of the

AO that a loan of Rs.93.50 lakh was also taken from Bank of

Maharashtra for the agriculture activity. The assessee also

furnished total area under cultivation pertaining to him and his

family members along with the necessary 7/12 extracts. The AO

13 ITA No.1224/PUN/2016 Subhash L. Deshmukh

conducted inquiry in respect of 4 persons to whom the assessee

claimed to have sold the agricultural produce. Three letters were

returned unserved and one letter was received by wife of the fourth

buyer of agriculture produce. She informed, with the medical

certificate, that her husband had suffered paralysis attack. The AO

deputed an Inspector to verify the factual position in this regard.

The Inspector reported to the AO that he went and met wife of Mr.

Ganesh S. Bharadiya, proprietor of Dayaram Ramadhan

Bharadiya, Grain merchant and Commission Agent, New Mondha,

Nanded. His wife informed that her husband was suffering from

paralysis attack and he was unable to attend to official work. The

AO found infirmity in purchase bills issued by Dayaram

Ramadhan Bharadiya with certain bills having larger number with

earlier dates vis-a-vis lower numbers with the later dates. He, ergo,

treated the entire income as unexplained cash credit for which an

addition u/s.68 of the Act was made. The ld CIT(A) noticed that

gross agricultural receipts were of Rs.1.26 crore and the assessee

had shown expenditure to the tune of Rs.28.42 lakh, which was

22.44%. Taking note of the Tribunal order passed by the Pune

Benches in Vishwas Narayan Patil in ITA No.317/PUN/2006, the

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ld. CIT(A) held that expenses of crop of sugarcane be taken at 50%

of yield and of other crops at 35% of the yield. Aggrieved thereby,

the Revenue has approached the Tribunal.

relevant material on record, it is found as an admitted position that

the assessee furnished purchase receipts of some parties who had

purchased agricultural crop from the assessee. The AO disputed

the correctness of only 4 parties out of total 44 in total. Even

though letters were not served to three parties and the fourth party

was paralysed, the fact remains that there was no denial by any

party. At the same time, it is equally true there is some

inconsistency in the Bill Numbers and Dates of M/s. Dayaram

Ramadhan Bharadiya. It is also true that the assessee took

agricultural loan of Rs.93.50 lakh from bank which shows that the

agricultural activity was carried on by the assessee. Existence of

the agricultural land is not disputed because the assessee furnished

7/12 extracts also. Considering the entirety of the facts and

circumstances of the case, we are of the considered opinion that the

ld. CIT(A) was justified in restricting the addition to the above

level. This ground is not allowed.

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Sd/- Sd/- (S.S. VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 11th July, 2022 Satish

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order is forwarded to: 1. अपीलाथ� / The Appellant; 2. ��यथ� / The Respondent; 3. The CIT(A)-2, Aurangabad 4. The Pr.CIT-2, Aurangabad िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “A” / 5. DR ‘A’, ITAT, Pune गाड� फाईल / Guard file 6.

आदेशानुसार/ BY ORDER,

// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

16 ITA No.1224/PUN/2016 Subhash L. Deshmukh

Date 1. Draft dictated on 07-07-2022 Sr.PS 2. Draft placed before author 11-07-2022 Sr.PS 3. Draft proposed & placed before the JM second member 4. Draft discussed/approved by Second JM Member. 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order.

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