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Income Tax Appellate Tribunal, DELHI BENCH: ‘C’, NEW DELHI
Before: SHRI BHAVNESH SAINI & SHRI O.P. KANT
Date of hearing 21.08.2019 Date of pronouncement 03.09.2019 ORDER PER O.P. KANT, A.M.: Out of the captioned two appeals, the appeal by the assessee is directed against order dated 20/12/2010 passed by the Ld. Commissioner of Income-tax (Appeals)-IX, New Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2006-07 and the appeal by the Revenue is directed against order dated 30/08/2012 passed by the Ld. Commissioner of Income-tax (Appeals)-V, New Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2008-09. Both appeals being connected with the same assessee, these were heard together and disposed off by way of this consolidated order for sake of convenience.
AY : 2008-09 2. First, we take up the appeal of Revenue. The grounds of appeal raised by the Revenue in for assessment year 2008-09 are reproduced as under:
1. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting the disallowance of Rs.31,05,390/- made on the issue of expenses of chilling charges.
Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting the addition of Rs.1,00,00,000/- made by the AO u/s 68 on account of share application money received by the assessee company despite the fact that during the remand proceeding in examination of additional evidences, concerned parties didn’t/t make any compliance before the AO and these evidences remained unverified. 3. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing.
3. At the outset, Ld. DR submitted that the tax effect involved in the appeal filed by the Revenue is below the prescribed monetary limit in CBDT Circular No. 17 of the 2019 dated 08/08/2019, however, he submitted that said circular may not apply on the pending appeals. The Ld. DR further submitted that whether the appeal falls under exclusion criteria as per para 10 of the Circular No.3/2018 as amended on 20/08/2018, need verification at the end of the Assessing Officer. 3.1 The Ld. counsel of the assessee, on the other hand, submitted that said circular is applicable equally on the pending appeals also, therefore, the appeal of the Revenue might be dismissed as withdrawn. 3.2 We have heard the rival submissions of the parties. In view of the amount of addition of Rs.1,31,05,390/- involved in the appeal of the Revenue, there is no dispute between the parties that the tax effect involved is less than the prescribed monetary limit of tax effect of Rs. 50 Lakhs for filing appeals before the Income Tax Appellate Tribunal (ITAT) vide Circular No. 17 of 2019 and the dispute raised is only in respect of the applicability of the circular on the pending appeals. We find that Ahmedabad Bench of the Tribunal in a batch of 628 appeals having lead case of ITA No.1398/Ahd/2004 in the case of Income Tax Officer Vs. Dinesh Madhavlal Patel for assessment year 1998-99, has held that the circular is applicable on pending appeals as well. We also note that the CBDT in letter dated 20th of August, 2019 has clarified that said circular is applicable on pending appeals. The relevant para 3 of said letter is reproduced as under:
“3. Therefore, it is clear that the revised monetary limits so mentioned in circular 17/2019 is applicable, to all pending SLPs/appeals/cross objections/references. All such pending appeals within the revised limits shall be withdrawn on or before 31.10.2019 and a fortnightly report as to progress on withdrawals should be submitted to Board, by 15th & 31st of every month.” 3.3 In view of said letter of the CBDT, now there is no dispute as to the applicability of the Circular No. 17 of 2019, on pending appeals and, thus, tax effect involved in the appeal being less than the prescribed monetary limit of Rs.50 Lakhs, the Department was required to withdraw this appeal or not pressed if not falling under exclusion provided in para 10 of circular No. 3/2018 as amended on 20/08/2018. Accordingly, the appeal of the Revenue is dismissed as infructuous with liberty to file application for recall, if found to be covered by the exceptions provided in Circular No.3/2018 as amended on 20/08/2018.
ITA No.2856/Del/2011 for AY: 2006-07 4. Now, we take up the appeal of the assessee in for assessment year 2006-07. The grounds raised in the appeal are reproduced as under:
(1) That the Hon’ble Commissioner of Income Tax (Appeals) has erred in law and on the facts of the case by upholding the disallowance made by the learned Assessing officer with respect of the Rs.38.00 lacs paid as Chilling Charges' for chilling the milk at various Chilling Centres before it is brought to the factory of the appellant company for further processing. The Hon'ble Commissioner of Income Tax (Appeals) has upheld the said disallowance without appreciating the fact that the increase in expenditure is due to a substantial increase in the quantity of milk send to the Chilling Centres for chills as compared to the previous years. The appellant company paid chilling charges for 2,17,95.182. kgs of milk during the year under appeal as compared to 1,66,963 kgs of milk chilled during the previous year. (2) That the Hon’ble Commissioner of Income Tax (Appeals) has erred in law and on the facts of the case by upholding the disallowance of Rs. 1,02,232/- made by the learned Assessing Officer by providing half year depreciation on tetrapack machine by the appellant company without appreciating the fact that the said machinery was bought, installed and put to use by the appellant company in the month of September, 2005 itself, thus entitled to a full year depreciation. (3) That the Hon’ble Commissioner of Income Tax (Appeals) has erred in law as much as on the facts of the case by upholding the disallowance of Rs.2,50,000/- made by the learned Assessing Officer on account of expenses incurred under the head “Repairs & Maintenance of Machineries, Generator Running and Maintenance and Miscellaneous Expenses”. The disallowance has been made arbitrarily and on an estimated basis which is not sustainable in law. It is, therefore, kindly prayed that the unwarranted disallowances erroneously uphold by the Hon'ble Commissioner of Income Tax (Appeals) may kindly be deleted after providing an opportunity of being heard to the appellant.
Briefly stated facts of the case are that, the assessee company was engaged in trading of milk and rice and manufacturing of dairy products. For the year under consideration, the assessee filed return of income on 08/11/2006, declaring total income of Rs.1,23,68,714/-. The case of the assessee was selected for scrutiny and notice under section 143(2) of the Income Tax Act, 1961 (in short ‘the Act’) was issued and complied with. In the assessment completed under section 143(3) of the Act on 10/12/2008, the Assessing Officer made certain additions/disallowances to the returned income totalling to Rs.58,16,683/- and assessed the total income at Rs.1,81,85,397/-. On further appeal, the Ld. CIT(A) partly allowed the appeal of the assessee. Aggrieved with the addition sustained by the Ld. CIT(A), the assessee is in appeal before the Tribunal raising the grounds as reproduced above.
In ground No. 1, the assessee has challenged addition of Rs.38 lakh towards ‘Chilling Charge’ as sustained by the Ld. CIT(A). The facts, qua the issue in dispute are that the assessee procured milk from villagers and before processing in its factory, the milk was sent for ‘chilling’ process. The assessee claimed that the facility of chilling of milk not being sufficient in its own factory, the assessee sent milk for chilling to other parties or procured ‘chilled’ Milk. The Assessing Officer observed ‘chilling’ expenses of Rs.39,31,943/- claimed by the assessee in the year under consideration as against ‘chilling’ expenses of Rs.25,043/- claimed by the assessee in the immediately preceding year. It was explained by the assessee before the Assessing Officer that in preceding year 70% of the milk was purchased as chilled from the ‘Milan Dairy’, which didn’t not require chilling, however, in the year under consideration, the assessee only purchased 30% of the total purchases from Milan Dairy Food (Pvt.) Ltd. and balance milk procured was subjected to ‘chilling’ from other parties, which was the main reason for increase in chilling expenses. The Assessing Officer verified ledger and vouchers for the ‘chilling’ expenses produced by the assessee, however, he found that all the vouchers were self generated and most of the payments were made in cash. According to the Ld. Assessing Officer, as per version of the assessee, if in immediately preceding year, 30 % of the purchase were made from parties other than Milan Dairy (70% purchases were claimed from Milan Dairy), the milk purchase amount from third parties would work out to Rs.38,27,89,101/- which undergone chilling process, whereas the chilling charges of Rs.25,043/- were only debited. But in the year under consideration, 33% purchase of milk has been claimed from the Milan Dairy and balance 67% of the purchase of milk, amount of which, works out to Rs.88,79,05,218/-, for which chilling charges has been claimed at Rs.9,31,943/-. In view of the Assessing Officer when comparison of the ‘chilling’ charges with the ‘purchase price’ of the milk undergone chilling in the year under consideration with the preceding assessment year is made, the expenses incurred in the year under consideration were found to be quite unrealistic. The learned Assessing Officer corresponding to the expenses incurred in the immediately preceding year, worked out the expenses on ‘chilling’ proportionately at Rs.58,100/-, however, considering other factors, he estimated the chilling expenses for the year under consideration at Rs.1,31,943/- and disallowed the balance expenses of Rs.38,00,000/-. 6.1 Before the Ld. CIT(A), the assessee attempted to justify the expenses on the basis of quantity of milk which undergone ‘chilling’ process in the assessment year under consideration as well as in the immediately preceding assessment year. The detail of comparison of the expenses furnished by the assessee before the Ld. CIT(A) is reproduced as under:
AY 2005-06 166,963 kgs 0.15 per kg. Rs.25,043/- AY 2006-07 217,95,182 kgs 0.15 per kg. Rs.32,69,277/- Add increase in rates by 20% Rs.6,53,855/- Estimated Total for AY 2006-07 Rs.39,23,133/- Actual Expenses debited in P&L A/c Rs.39,31,943/- 6.2 The contention of the assessee was that increase in ‘chilling’ charges was as a result of more quantity of milk collected at the chilling centers, for which proportionately more amount was paid as compared to preceding year. The assessee claimed that TDS was deducted on the said chilling charges as per the rate applicable. In respect of the rate of the chilling charges, the assessee submitted that variation in rate of the chilling charges at different centres was due to multiple factors including location of the chilling centre, position and status/financial influence of the owner of the chilling center, facility provided by the chilling centre and quantum of milk processed at the Centre. Regarding cash payment, the assessee explained that milk industry being unorganized, consisting mainly of villagers and illiterate/semiliterate people, not believing in bank accounts, cash purchases and cash sales were unavoidable in the dairy business. 6.3 The Ld. CIT(A) after analyzing submission of the assessee, rejected the contention raised by the assessee. Regarding the quantity of milk of 2,17,95,182 Kgs. of milk as compared to only 1,66,963 kgs. milk chilled in the immediately preceding year, the assessee failed to brought any evidence/explanation on the record. The Ld. CIT(A) was not convinced with contention that rate of the chilling charges varies from Rs.0.10 to Rs.0.25 per kg due to factors like position/status/financial influence of the owner or facility provided by the chilling centre or quantum of milk processed at the Centre etc. The explanation in respect of the cash payment was also not found justified by him as the payment in the range of Rs.5 lakh -10 lakh had been made in cash to the chilling centres which were neither under unorganized sector nor run by illiterate people. In view of the observations, the Ld. CIT(A) held that the expenses were not ITA No.2856/Del/2011 incurred wholly and exclusively for the purpose of the business and accordingly, sustained the disallowance made by the Assessing Officer. 6.4 Before us, the Ld. counsel of the assessee filed a paperbook containing pages 1 to 190 and relied on the submission made before the Ld. CIT(A). He referred to page 8 of the paper book and submitted that trading results of the assessee during the year under consideration are better as compared to immediately preceding assessment year. He submitted that expenses on chilling was justified in view of the quantity of milk chilled during the year under consideration as compared to the quantity of milk which was chilled from outside parties in the immediately preceding year. He further submitted that the lower authorities have disallowed the expenses mainly on the ground of cash expenditure, which according to the Ld. counsel was one of the regular business practice being in the rural area, where people preferred to accept cash. Accordingly, he submitted that Assessing Officer and Ld. CIT(A) were not justified in disallowing the chilling expenses incurred by the assessee. 6.5 The Ld. DR, on the other hand, relied on the orders of the lower authorities and submitted that the argument of the Ld. Counsel of the assessee that trading results of the assessee are better as compared to immediately preceding assessment year, are not relevant to the controversy in hand. According to him, the assessee was required to justify, whether the expenses claimed on chilling charges were genuine and incurred wholly and exclusively for the purpose of the business. He submitted that all the expenses have been paid in cash and vouchers have been found to be self-made and the explanation filed by the assessee have been rejected by the Ld. CIT(A), which the assessee has failed to rebut before the Tribunal. Accordingly, he submitted that addition in dispute might be sustained. 6.6 We have heard the rival submissions and perused the relevant material on record. The issue in dispute is whether the ‘chilling’ expenses of Rs.38 lakhs disallowed by the Revenue Authorities are genuine and incurred wholly and exclusively for the purpose of the business of the assessee. The Ld. Assessing Officer observed an exceptional increase in chilling charges as compared to the preceding assessment year. Before the Ld. CIT(A) the assessee explained following reasons for increasing chilling charges :
(i) During the year 2,17,95,182 kgs. of milk was chilled as compared to 1,66,963 Kgs. in the immediately preceding year. (ii) There was an increase of about 15 to 20% in the chilling charges. (iii) During the year, chilling charges were paid to six centres as compared to one centre during assessment year 2005- 06. (iv) The chilling charges were subjected to TDS. (v) Variation in rate of chilling charges was due to multiple factors like- location of chilling centres; availability of other chilling centres in the area/locality; position/status/financial influence of the owner of the chilling centres; facility provided by the chilling centres; and quantum of milk processed at the centre.
6.7 Regarding increase in expenses as compared to last year, on being asked by the Ld. CIT(A) to support the claim of chilling of 2,17,95,182 Kgs. of milk during the year under consideration as compared to only 1,66,963 kgs milk chilled in the immediately preceding assessment year, the assessee failed to submit any evidence before the Ld. CIT(A). Before us also, the assessee did not file any evidence to rebut the finding of the Ld. CIT(A) in this regard . Various explanation regarding variation in rate of chilling charges have also been rejected by the Ld. CIT(A) observing as under:
5.4.3 It is seem that the rates of the chilling charges vary from Rs.0.10 to Rs.0.25 per Kg. The explanation given by the appellant that the rates of chilling charges depend upon the position/ status/ financial influence of the owner, facilities provided by the chilling centre, quantum of milk processed at that centre, etc. do not appear sound or convincing. It is a matter of common knowledge that business transaction are not carried out on the basis of position/status/financial influence of the owner of a unit as claimed by the appellant. Similarly, it is not understood as to how the facilities provided by the chilling centre would vary from place to place. The chilling centers only carry out the job of chilling the milk and apart from that what other facilities they would provide or for that matter some other facilities were actually provided by some of the centers is not known. If the explanation of the appellant that the rates depend upon the quantum of the milk chilled is accepted, then the rates for the three chilling centers i.e. Bullandshehar, Sodawas and Ringus would have been the same as at all the three centers maximum quantity of milk i.e. more than 53,00,000 Kgs. was chilled, whereas the rates for the three centers vary from the minimum of Rs.0.10 per Kg. to the maximum of Rs.(X25 per Kgs. Thus the explanation furnished by the appellant appear to be lame excuses in order to somehow justify the increase. Apart from giving such vague and unsubstantiated excuses, the appellant has not brought any material on record to justify the increase.
6.8 Before us, also the assessee neither could substantiate the variation in chilling charges from Rs.0.10 to Rs.0.25 along with any supporting evidences nor could rebut the finding of the Ld. CIT(A). The contention of the assessee that expenses incurred in cash due to business compulsion have also been rejected by the Ld. CIT(A) observing as under:
5.4.4 It is further seem that the whole amount of Rs.39,31,943/- was paid in cash. The above has been tried to be justified by the appellant by taking a plea that the' payments were made in cash because the chilling centre demanded in the same. The aforesaid plea is not tenable as the chilling centers do not fall in an unorganized sector and are not run by illiterate/semi literate people as claimed by the appellant. It is also not acceptable that the chilling centers do not maintain bank accounts. It is seen that to two of the chilling centers payments of more than Rs.10 lakhs were made during the year and to other two payments close to Rs.5 lakhs were made. Surprisingly, despite being such heavy amounts, the same were paid in cash. It is difficult to believe that a well establish chilling centre would refuse to receive payment by cheque/ demand draft. The appellant’s contention that the payments were subjected to TDS cannot bring a colour of genuineness to the transaction, if otherwise, it does not appear to be genuine.
6.9 Before us also, the assessee could not justify as why huge sums of cash payments have been made to the industrial units engaged in chilling process. 6.10 As the assessee has failed to rebut any of the finding of the Ld. CIT(A) with cogent evidences, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute and accordingly, we uphold the same. The ground No. 1 of the appeal is accordingly dismissed.
The ground No. 2 of the appeal is regarding disallowance of Rs.1,02,232/- for depreciation on ‘Tetra Pack’ machine. The issue of contention between the parties is regarding whether the machine was put to use before 30th September, 2005 or not. The Ld. counsel of the assessee before us claimed that the machine was purchased on 30/09/2005, whereas according to learned DR this machine was received on 03/10/2005 and, therefore, it was put to use by the assessee for less than 180 days and, thus, assessee was entitled for half of the depreciation admissible for the entire year. The Ld. CIT(A) sustained the disallowance observing as under:
6.2 During the proceedings before me, it was submitted that the appellant company had purchased a Tetra Pack machine for Rs. 13,63,090/- vide invoice no. 2563059 dated 13.09.2005. The machine was received at the plant on 19.09.2005 and was installed in the plant immediately and put to use by 22.09.2005. However, the invoice was processed by the appellant company for payment on 03.10.2005, which should not have been a basis for the Ld. A.O. to disregard the date of use of the machine and depreciation thereon. 6.3 It is seen that apart from submitting that the machine under question was received and installed in the factory in the month September, 2005, the appellant did not produce an evidence to that effect either during the assessment proceedings or even subsequently during the appellate proceedings. Hence, the said contention carries no weight and is, therefore, liable to rejected. Accordingly, the order of the AO is sustained and the ground No. 4 is dismissed.
7.1 On being specifically asked by the Bench to the Ld. counsel of the assessee to submit any evidence of machinery put to use or ready to put to use before 30th September, 2005, he expressed his inability in producing any such evidence. In view of the facts and circumstances of the case, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute and accordingly, we uphold the same. The ground No. 2 of the appeal of the assessees is dismissed.
The ground No. 3 of the appeal relates to disallowance of Rs.2,50,000/- on account of repair and maintenance of machinery, generator running and maintenance and miscellaneous expenses. 8.1 Before us, the learned counsel of the assessee has submitted that disallowance has been made on ad-hoc basis without identifying specific vouchers of expenses, whereas learned DR submitted that vouchers in respect of the expenses under reference were found to be self-made and not verifiable in absence of the bills of third parties and, therefore, action of the Ld. CIT(A) in upholding the same is justified. 8.2 We have heard the rival submissions of the parties on the issue in dispute. We find that the Ld. CIT(A) has uphold the disallowance observing as under:
7.7 As regards the disallowance of Rs.2,50,000/- out of various expenses, the Id. AO as per the assessment order has mentioned that the same has been disallowed after discussion and examination of various documents. Since, the amount has been disallowed after discussion during the assessment proceedings, I am not inclined to interfere with the order of the Id. AO. Moreover, the Id. AO has also pointed out discrepancies in the vouchers maintained that the same were self made and hence unverifiable. If the vouchers are self made, the appellant’s contention that personal transactions were entered with third parties and, therefore, the vouchers cannot be treated as self generated is liable to be rejected for the simple reason that the transactions might have been carried out with third parties but the appellant was not in possession of the third party vouchers and could only produce self made vouchers before the AO. Undoubtedly, the self made vouchers cannot be subjected to any verification and hence, I do not find any infirmity in the order of the Id. AO while disallowing a some of Rs.2,50,000/- out of the total unverifiable expenditure of Rs.2,35,99,591, being only about 1% of the total claim. The ground No. 6 is accordingly rejected.
8.3 Before us, the assessee failed to rebut the finding of the Ld. CIT(A) regarding the self made vouchers made by the assessee which were not found to be verifiable. In absence of any scope of verification by the Assessing Officer of the relevant expenses claimed, a lump sum disallowance made by the Assessing Officer cannot be treated as unreasonable. Accordingly, we uphold the finding of the Ld. CIT(A) on the issue in dispute and the ground of the appeal is accordingly dismissed.
In the result, the appeal of the assessee is dismissed.
As a summary, the appeals, both of Revenue and assessee, are dismissed. Order is pronounced in the open court on 3rd September, 2019.