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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI A.MOHAN ALANKAMONY & SHRI DUVVURU RL REDDY
आदेश / O R D E R
Per A. Mohan Alankamony, AM:-
These appeals by the assessee are directed against the orders passed by the learned Commissioner of Income Tax(Appeals), Salem, both dated 29.09.2017 in 16 & 225/2015-16 for the assessment year 2012-13 passed U/s. 250(6) r.w.s. 143(3) & 271(1)(c) of the Act respectively.
The assessee has raised several grounds in its appeal however the cruxes of the issues are that:- (i) The Ld.CIT(A) has erred in confirming the order of the Ld.AO who had denied the claim of deduction U/s.80JJA of the Act for Rs.95,88,017/-. (ii) The Ld.CIT(A) has erred in confirming the order of the Ld.AO who had made addition of Rs.15 lakhs towards short disclosure of sales in the statement of affairs. (iii) The Ld.CIT(A) has erred in confirming the order of the Ld.AO who had made addition of Rs.5,556/- towards inflated purchases. (iv) The Ld.CIT(A) has erred in sustaining the addition made by the Ld.AO to the extent of Rs.2,30,897/- towards disallowance of expenditure incurred towards wages for want of bills and vouchers. (v) The Ld.CIT(A) has erred in confirming the order of the Ld.AO with respect of levy of interest U/s.234A, 234B & 234C of the Act. assessee has raised several grounds in its appeal however the crux of the issue is that the Ld.CIT(A) has erred in confirming the penalty levied by the Ld.AO by invoking the provisions of Section 271(1)(c) of the Act.
The brief facts of the case are that the assessee is a firm engaged in the business of poultry farm and manufacturing organic manure out of poultry waste, filed its return of income for the assessment year 2012-13 on 02.11.2012 admitting total income of Rs.2,75,590/-. Initially the return was processed U/s.143(1) of the Act and subsequently the case was selected for scrutiny under CASS. Notice U/s. 143(2) of the Act was issued on 07.08.2013. Finally assessment order was passed U/s.143(3) of the Act on 11.03.2015 wherein the Ld.AO made several additions and thereafter initiated penalty proceedings and levied penalty U/s.271(1)(c) of the Act.
Ground No.2(i) : Denial of exemption U/s.80JJA of the Act for Rs.95,88,017/-. During the course of scrutiny assessment proceedings it was observed by the Ld.AO from the statement of accounts, that the assessee had purchased poultry waste for Rs.45,12,008/- and thereafter manufactured and sold organic manure produced from the poultry waste for Rs.1,41,00,025/- and thereby earned profit of Rs.95,88,017/- which was claimed as deduction U/s.80JJA of the Act. In order to justify the claim the assessee produced its books of accounts with respect to purchase and sale of organic manure, however failed to produce bills and vouchers. Thereafter the Ld.AO obtained information from the director Soil & Crop Management, Tamilnadu Agricultural University, Coimbatore regarding the process of manufacturing organic manure from poultry waste. Subsequently the Ld.AO by tabulating the data collected from the books of accounts produced by the assessee came to a conclusion that the assessee did not manufacture organic manure from poultry waste and therefore denied the benefit of deduction U/s.80JJA of the Act. On appeal the Ld.CIT(A) confirmed the order of the Ld.AO by agreeing with his view.
5.1 Before us the Ld.AR produced a certificate from the World Poultry Science Association / Indian Poultries Science Association dated 30.08.2014 signed by Prof. Dr. D. Narahari stating that the assessee firm is producing organic manure from poultry droppings. Further the Ld.AR also argued by stating that in the case of the assessee for the assessment year 2011-12 and 2013-14, the claim of deduction U/s.80JJA of the Act was made for Rs.96,85,720/- and Rs.50,00,000/- respectively which was allowed as deduction by the Ld.AO by passing orders U/s.143(1)(a) & 143(3) of the Act respectively. The Ld.AR further submitted that in the case of the assessee’s sister concern M/s. Kandhian Feeds (PAN No.AAGFK3229F), the claim of deduction U/s. 80JJA of the Act was made for the assessment years 2011-12, 2012-13 & 2013-14 for Rs.1,04,51,800/-, Rs.96,60,284/- & Rs.50,05,578/- which was allowed by the Ld.AO U/s.143(1)(a), 143(3) & 143(3) of the Act respectively. The Ld.AR also produced before us the voluminous files containing bills and vouchers and submitted that the same was produced before the Revenue Authorities; however they failed to examine the same. It was therefore pleaded that the finding of the Ld.AO that the assessee did not produce organic manure from poultry droppings is not appropriate. The Ld.AR further pleaded that the claim of the assessee with respect to the deduction U/s.80JJA of the Act, for the relevant assessment year is in parity with the claim made during the earlier assessment years and therefore the same may not be rejected. The Ld.AR also produced the photographs of the poultry farm before us to justify his stand. The Ld.DR on the other hand argued in support of the orders of the Ld.Revenue Authorities and prayed for confirming the same.
5.2 We have heard the rival submissions and carefully perused the materials on record. From the order of the Ld.Revenue Authorities it is apparent that the Ld. Revenue Authorities had rejected the claim of deduction U/s.80JJA of the Act because the assessee has not produced bills and vouchers with respect to purchase of poultry waste and sale of organic manure manufactured from poultry waste and also all the transitions were in cash. The Ld.Revenue Authorities has also observed that it is not possible for the assessee to produce organic manure from poultry waste since it does not have the requisite machinery to produce the same. Further the Ld.Revenue Authorities were of the view that from the data observed from the books of the assessee and information gathered from the relevant Authorities and Universities proves that the organic manure from the poultry waste cannot be produced in such short span of time as stated by the assessee. For the above said reasons, the entire claim of deduction U/s.80JJA of the Act was denied by the Ld.Revenue Authorities by holding that the assessee did not produce organic manures from poultry waste. On perusing the facts of the case we do agree with the Ld.Revenue Authorities that the assessee is bound to produce bills and vouchers in order to establish its claim. However when the assessee failed to do so, the Ld. Revenue Authorities ought to have examined the activities conducted by the assessee and thereafter decided the issue judiciously because there is no dispute with respect to the existence of the assessee’s poultry farm and the business is a running business. Moreover the process of manufacturing organic manure from poultry waste is an ancillary activity in poultry farming. The assessee has also produced before us the photograph of its poultry farm with certain infrastructure that is required for the business of the assessee and the voluminous files containing bills and vouchers. Further the assessee has stated that in its own case for the assessment year 2011-12 & 2013-14, the claim of deduction U/s.80JJA of the Act, was granted for Rs.96,85,720/- & Rs.50,00,000/- vide order U/s.143(1)(a) & 143(3) of the Act respectively and the same is not disputed by the Revenue. From the written submission of the assessee, it is also observed by us that in the case of the assessee’s sister concern also, the claim of deduction U/s.80JJA of the Act was allowed by the Ld.Revenue Authorities vide orders passed U/s.143(3) of the Act, for the assessment years 2011-2012 to 2013-14 and the same is also not disputed by the Revenue. Further, in the case of the assessee, though the assessee had only made cash purchase and sale, the Revenue has not pointed out any violations of the provisions of the Act. Further from the order of the Ld.AO with respect to the addition made for Rs.15 lakhs towards understated sales and the addition made for Rs.5,556/- towards inflated purchases, it is apparent that the Ld.AO has neither rejected the books of accounts of the assessee nor disbelieved the transactions recorded in it. The claim of the Ld.Revenue Authorities that from the data collected from the books and records of the assessee it proves that the assessee did not manufacture organic manure produced from poultry droppings is not well established before us. In this situation, it cannot be stated that the assessee did not manufacture organic manure from poultry droppings and thereby deny the claim of deduction U/s. 80JJA of the Act towards the profits earned for Rs.95,88,017/- from those activates by treating the business of the assessee as non-genuine or unrealistic. Therefore considering the facts and circumstance of the case, we are of the considered view that the assessee is entitled for the claim of deduction U/s.80JJA of the Act. Accordingly we hereby direct the Ld.AO to grant the deduction U/s.80JJA of the Act to the assessee for an amount of Rs.95,88,017/-. However we also make it clear that by this order we do not give blanket sanction to the assessee for not maintaining/producing the bills and vouchers for the purchases and sales made by it as for the relevant assessment year we have only taken a lenient view considering the bonafide conduct of the business by the assessee during the preceding and succeeding assessment years.
Ground No.2(ii) : Addition of Rs.15 lakhs towards short disclosure of sales in the statement of affairs:- During the course of examining the books of accounts and the statement of affairs of the assessee, it was noticed by the Ld.AO that in the Profit & Loss account, sale of organic manure was stated as Rs.1,41,00,025/- while as in the books of accounts it was recorded as Rs.1,56,00,025/-. Therefore the Ld.AO came to a conclusion that the assessee had not admitted its entire turnover before the Revenue Authorities which works out to Rs.15 lakhs (Rs.1,56,00,025 – Rs.1,41,00,025). Hence the Ld.AO added the amount of Rs.15 lakhs to the income of the assessee being the sales that was treated as understated by the assessee. On appeal the Ld.CIT(A) confirmed the order of the Ld.AO by agreeing with his view.
6.1 The Ld.AR submitted before us that the discrepancy in the sales was due to arithmetic error committed in the books of accounts of the assessee which was duly rectified while preparing the P&L account. Further the Ld.AR argued stating that when the assessee under the bonafide belief was claiming deduction on the entire profit earned from the sale of its produce U/s.80JJA of the Act, there was no valid reason to understate the sales. It was therefore pleaded that the addition made by the Ld.AO may be deleted. The Ld.DR on the other hand relied on the orders of the Ld.Revenue Authorities.
6.2 After hearing both sides we find merit in the submission of the Ld.AR. When the assessee is under the bonafide belief that it is eligible for deduction U/s.80JJA of the Act towards the entire profit arising out of the sale of its produce then there is no reason for the assessee to understate the sales. Moreover it appears that the discrepancy has resulted due to mathematical errors. Hence we do not find any merit in the order of the Ld.Revenue Authorities on this issue. Accordingly we hereby direct the Ld.AO to delete the addition made on account of understating the sales for Rs.15 lakhs.
Ground No.2(iii) : Addition of Rs.5,556/- towards inflated purchases:- Similar to the issue discussed herein above, the Ld.AO observed that the assessee had disclosed purchase of poultry waste for Rs.45,12,008/- while as in the books of accounts it was stated as Rs.45,06,452/-. The Ld.AO was of the view that the discrepancy of Rs.5,556/- (Rs.45,12,008 – Rs.45,06,452) was due to inflated purchase and therefore added to the income of the assessee. On appeal the Ld.CIT(A) confirmed the order of the Ld.AO by endorsing his view.
7.1 We do not find any reason to sustain the orders of the Ld.Revenue Authorities on this issue, because this issue is also similar to the issue decided by us herein above with respect to the understated sales of Rs.15 lakhs as both the issues have the same effect of decreasing the profit. Therefore we hereby direct the Ld.AO to delete the addition of Rs.5,556/- made towards inflated purchases.
Ground No.2(iv) : Sustaining the addition of Rs. 2,30,897/- towards wages:- It was observed by the Ld.AO that the assessee has incurred expenditure towards wages for Rs.15,42,050/-, however the assessee could not produce the bills and vouchers with respect to the same. Therefore the Ld.AO estimated the disallowance @ 20% of the wages claimed as deduction which works out to Rs.3,08,000/-. On appeal the Ld.CIT(A) restricted the disallowance @ 15% of the expenditure and thereby sustained the addition of Rs.2,30,897/-.
8.1 At the outset we find that this issue is also similar to the other two issues decided by us herein above with respect to understated sales and overstated purchases, as the issues have the same effect of decreasing the profit. Further in the case of the assessee, we have held that the assessee is entitled for claiming deduction U/s.80JJA of the Act with respect to the profit earned by it towards sale of organic manure manufactured from poultry droppings. Hence we hereby direct the Ld.AO to delete the addition made towards disallowance of expenditure incurred for wages.
Ground No.2(v) : Levy of interest U/s.234A, 234B & 234C of the Act:- Levy of interest U/s.234A, 234B & 234C of the Act is consequential in nature. Therefore there is no merit in the ground raised by the assessee on this issue.
Ground No.3 : Levy of penalty U/s.271(1)(c) of the Act:- Since we have decided the quantum appeal of the assessee in its favour herein above, the penalty levied U/s.271(1)(c) of the Act does not survive.
Order pronounced on the 24th December, 2018 at Chennai.