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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
IN THE INCOME TAX APPELLATE TRIBUNAL “J” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER
ITA no.4023/Mum./2002 (Assessment Year : 1996–97)
Dy. Commissioner of Income Tax ……………. Appellant Central Circle–25, Mumbai v/s M/s. Parle Products Ltd. North Level Crossing Vile Parle (East) ……………. Respondent Mumbai 400 057 PAN – AAACP0486A
ITA no.3806/Mum./2002 (Assessment Year : 1996–97)
M/s. Parle Products Ltd. North Level Crossing Vile Parle (East) ……………. Appellant Mumbai 400 057 PAN – AAACP0486A v/s Dy. Commissioner of Income Tax ……………. Respondent Central Circle–25, Mumbai Revenue by : Shri Alok Johri Assessee by : Shri Percy Pardiwala
Date of Hearing – 05.09.2017 Date of Order – 29.11.2017
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O R D E R PER SAKTIJIT DEY, J.M.
Aforesaid cross appeals are directed against order dated 6th May 2002, passed by the learned Commissioner (Appeals), Central–V, Mumbai, for the assessment year 1996–97.
ITA no.4023/Mum./2002 – Revenue’s Appeal
In ground no.1, Revenue has challenged deletion of addition of ` 3,43,237.
Brief facts are, the assessee a company is engaged in the business of manufacturing different verities of biscuits and confectionaries. Besides undertaking the manufacturing activity in its own manufacturing unit at Mumbai, it also gets the products manufactured on contract basis through a number of contract manufacturing units located in different parts of the country. For the assessment year under dispute, the assessee filed its return of income on 29th November 1996, declaring total income of ` 33,39,71,830. During the assessment proceedings, the Assessing Officer called upon the assessee to furnish itemwise details of valuation of closing stock of raw material after verifying the details furnished by the assessee, the Assessing Officer found that the value of raw materials under the head “Others” is shown at ` 1,05,00,833. From the monthly details of item–
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wise raw materials purchased and consumed with opening and closing stock in respect of Mumbai unit, it was found that total value of closing stock of entire raw material was shown at ` 2,15,72,514 out of which the value of closing stock of major items of raw materials like Maida, Vanaspati, Sugar, Glucose, Milk Power, coco vita oil was found to be ` 1,07,28,443=86. From the aforesaid figures of closing stock, the Assessing Officer worked out the value of raw materials of Mumbai Unit in respect of items “Others” to be ` 1,08,44,078. Whereas, the assessee has accounted for stock of “other” raw material at ` 1,05,00,833. He, therefore, held that the assessee has suppressed closing stock of raw materials “others” to the extent of ` 3,43,237. Accordingly, he added back the amount to the income of the assessee. Assessee challenged the addition before the learned Commissioner (Appeals).
The learned Commissioner (Appeals) after considering the submissions and examining the materials produced before him including the reconciliation of closing stock of raw material, found that the difference of 3,43,237 in the value of closing stock was due to wrongly taking rate of cheese at ` 98=35 as against ` 75=87 as per original stock register. The learned Commissioner (Appeals) being satisfied with the reconciliation statement furnished by the assessee deleted the addition.
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Learned Departmental Representative submitted, before the first appellate authority the assessee has furnished additional evidence by way of reconciliation chart which was not filed before the Assessing Officer. He submitted, learned Commissioner (Appeals) was not justified in deleting the addition without allowing an opportunity to the Assessing Officer to examine the additional evidence.
Learned Authorised Representative submitted, in the course of assessment proceedings, the Assessing Officer never put across to the assessee the issue of difference in valuation of closing stock of raw materials “Others”. He submitted, had the Assessing Officer called upon the assessee to reconcile the difference, the assessee could have explained it.
Learned Authorised Representative drawing our attention to the reconciliation statement produced before the learned Commissioner (Appeals), a copy of which is at Page–233 of the paper book, submitted that the assessee has reconciled the difference in value of closing stock of raw material and others. He submitted, reconciliation chart was duly forwarded to the Assessing Officer by the learned Commissioner (Appeals) which is evident from the submissions made by the assessee before the Assessing Officer in the course of remand.
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We have heard rival contentions and perused the material available on record. From the facts and material on record, it is evident that the Assessing Officer without calling for an explanation from the assessee to reconcile the difference has made the addition alleging suppression of closing stock. However, before the first appellate authority, the assessee has reconciled the difference with supporting evidence which was sent for verification of Assessing Officer. That being the case, we do not find any reason to interfere with the decision of the learned Commissioner (Appeals) on this issue. Ground no.1, raised by the Revenue is dismissed.
In ground no.2, the Revenue has challenged deletion of addition made of ` 24,89,077 on account of inflated purchases.
Brief facts are, during the assessment proceedings, the Assessing Officer noticed that the consumption of raw materials for biscuits and confectionaries for Mumbai unit was shown at 49103.146 MTs. However, from the monthly details of purchases and consumption furnished by the assessee the consumption of material worked out to ` 49280.481 MTs. The Assessing Officer, therefore, concluded that the assessee has inflated the purchases to the extent of ` 177.335 MTs Considering the fact the total consumption reported at ` 126826.558 MTs was valued at ` 17801.40 lakh, the Assessing Officer adopted
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average rate of ` 1,40,361 per MTs and multiplying that to the alleged difference in consumption of raw material at 177.335 MTs he worked out the inflation in purchases at ` 24,89,077 and added back to the income of the assessee. The assessee challenged the addition before the first appellate authority.
Before the learned Commissioner (Appeals), it was submitted by the assessee that as per materials brought on record, the correct consumption of raw material as per monthly statement should be 46136.446 MTs. It was submitted, in letter dated 31st March 1999, it was stated by the assessee that stores issued sugar was wrongly entered at 1.60 lakh kgs instead of 16,000 kgs. Therefore, a Credit Note no.3002 dated 31st January 1996 dated 31st January 1996, for difference of 1.44 lakh kgs was accounted for. The assessee also filed a chart reconciling the difference in consumption of raw material. The learned Commissioner (Appeals), after considering the submissions of the assessee in the light of the materials on record found that the reconciliation of consumption of raw material furnished by the assessee is on the basis of books of account, hence, is to be accepted. He, therefore, held that there being no difference in consumption of raw material as alleged by the Assessing Officer the addition of ` 24,89,077 cannot be sustained.
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We have heard rival contentions and perused the material available on record. The only contention before us by the Learned Departmental Representative is, learned Commissioner (Appeals) has deleted the addition on the basis of additional evidence submitted before him. Learned Authorised Representative on the other hand submitted that all the evidences produced before the learned Commissioner (Appeals) was sent for examination of the Assessing Officer.
Having considered the submissions of the parties, we are of the view that there is no need to interfere with the finding of the learned Commissioner (Appeals). As could be seen, on the basis of a monthly statement filed by the assessee, the Assessing Officer has made the addition alleging purchase suppression. However, before the first appellate authority, the assessee has reconciled the difference and the learned Commissioner (Appeals) after examining the reconciliation statement having found that it is on the basis of the books of account of the assessee has deleted the addition. Further, it is evident on record, the first appellate authority has sent the evidences filed in the paper book for the examination of the Assessing Officer. Therefore, the allegation of the Learned Departmental Representative that the Assessing Officer was not given opportunity to examine additional evidence is unacceptable. It is further to be noted, the Learned
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Departmental Representative has not been able to controvert the factual finding of the first appellate authority that the reconciliation submitted by the assessee is on the basis of books of account. In view of the aforesaid, we uphold the order of the learned Commissioner (Appeals) on this issue by dismissing ground no.2, raised by the Revenue.
In ground no.3, the Revenue has challenged deletion of addition of ` 23,05,600, made by the Assessing Officer alleging suppression of production resulting in unaccounted sales.
In the course of assessment proceedings, on the basis of information from contract manufacturing units, through notice issued under section 133(6) of the Act, the Assessing Officer found that the quantity of production shown by contract manufacturing units in their books of account is more than the quantity of production for contract manufacturing units as shown in the books of account of the assessee. As per the information obtained, the Assessing Officer found the difference in quantity produced in respect of one contract manufacturing unit at 9,217 kgs and in respect of another at 53,822 kgs. He, therefore, called upon the assessee to reconcile the difference. In response, it was submitted by the assessee that 2,560 cartoons of cream biscuits produced by Bunty Food were exported to
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Abu Dhabi and the sale proceeds have been considered in the Profit & Loss account, but, the quantity of production was left to be recorded in the production register. The Assessing Officer, however, was not convinced with the explanation of the assessee. He proceeded to work out the difference in production vis–a–vis the closing stock which ultimately resulted in a difference of 64 MTs which according to the Assessing Officer was not accounted for in the books. The Assessing Officer adopting the rate of ` 31,561 per MT as adopted by Parle Biscuits Ltd. a sister concern for valuation of closing stock, worked out the sale consideration of unaccounted sales at ` 23,05,600 after adding profit margin of 10%. Accordingly, the said amount was added to the income of the assessee. The assessee challenged the addition before the first appellate authority.
The learned Commissioner (Appeals) after considering the submissions of the assessee and examining the material brought on record before him deleted the addition.
We have heard rival contentions and perused the material available on record. The only submission made by the Learned Departmental Representative before us is, the learned Commissioner (Appeals) has deleted the addition on the basis of additional evidence which were not filed before the Assessing Officer. The learned
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Authorised Representative strongly supported the finding of the learned Commissioner (Appeals). As could be seen, only on the basis of information obtained from the two contract manufacturing units, the Assessing Officer has made the addition alleging suppression of sales. However, before the first appellate authority, the assessee through proper documentary evidences has been able to reconcile the difference. As could be seen from the facts on record, difference in production of biscuits as per the books of account of contract manufacturing units and the books of assessee arose due to export and depot transfer of biscuits which were demonstrated through documentary evidence. The learned Commissioner (Appeals) having examined the documentary evidences brought on record being satisfied with the claim of the assessee has deleted the addition. As far as the contention of the Learned Departmental Representative that learned Commissioner (Appeals) has deleted the addition on the basis of addition evidence is concerned, we are unable to accept the same. As could be seen from the impugned order of the learned Commissioner (Appeals), the documentary evidences furnished by the assessee before the first appellate authority in a paper book were sent to the Assessing Officer for his examination and comments. It also emerges from record that during the remand to the Assessing Officer, the assessee has made ground–wise submissions before the Assessing
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Officer by referring to the relevant supporting documents. In view of the aforesaid, we uphold the order of the learned Commissioner (Appeals) by dismissing the ground raised.
In ground no.4, the Revenue has challenged the deletion of addition of ` 2,29,64,845, made on account of sale of waste biscuits / biscuit powder / broken biscuit.
Brief facts are, from the details of other income of ` 228.18 lakh shown in the Profit & Loss account, the Assessing Officer found that the assessee has sold waste biscuit powder, weighing 660.500 MTs for an amount of ` 9,77,569 at 1.47 per kg. The Assessing Officer, however, did not find the claim of the assessee acceptable. He observed, any prudent manufacturer will not sell broken and burnt biscuit and biscuit powder at a low rate of ` 1.47 per kg. instead of re– using part of such biscuit for manufacture as followed by contract manufacturing units. From the details submitted, the Assessing Officer found that the assessee had accounted for waste biscuit weighing 664.600 MTs while reconciling the production of 31007.300 MTs disclosed in RT–12 register to Excise Department. He also noticed that the assessee had paid full Excise duty on the biscuit produced at an uniform rate of 10% on the total production of 31007.300 MTs. On consideration of the aforesaid facts, the Assessing Officer concluded
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that 664.590 MTs of biscuit were sold at normal rate. Alleging that assessee did not furnish item–wise details of sales, the Assessing Officer adopted the average sale price of biscuit of ` 36,025 per MT and made addition of ` 2,29,64,845. While doing so, the Assessing Officer also observed that on a physical enquiry made in the factory of the assessee, it was found that the manufacturing process was automatic and through sophisticated machines, hence, there was no scope for having defective biscuit as claimed by the assessee before the Excise authorities. Assessee challenged the addition before the first appellate authority.
The learned Commissioner (Appeals) after considering the submissions of the assessee qua the materials brought on record, deleted the addition.
Learned Departmental Representative submitted, on a physical enquiry conducted by the Assessing Officer at the factory premises of the assessee, it was found that the entire manufacturing process is automated and there is very little scope of wastage. He submitted, even in case of wastage by way of broken biscuits, etc., they are re– usable which is found from contract manufacturing unit. He submitted, before the first appellate authority, the assessee produced additional evidence which were not brought to the notice of the Assessing Officer.
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Therefore, he submitted, learned Commissioner (Appeals) was not justified in deleting the addition.
Learned Authorised Representative submitted, there is difference between the broken biscuit on the one hand and burnt and powder biscuit on the other. He submitted, while broken biscuits are reusable in the manufacturing process burnt biscuits are of no use. He submitted, biscuit powder is only sold as cattle feed at ` 1 per kg. He submitted, though, the rate of Excise duty is same on broken biscuit, burnt and powder biscuits, however they are shown as separate items in RG–1 Register. He submitted, all these facts were brought to the notice of the Assessing Officer through detail submissions made during the remand proceedings.
We have heard rival contentions and perused the material available on record. As could be seen, other income shown by the assessee is from sale of broken biscuits, and powder biscuits. While burnt biscuits are of no use, broken biscuits are re–usable in manufacturing process and they have been sold at ` 26 per kg. Whereas, biscuit powder is not fit for human consumption, hence, sold at ` 1.48 per kg. These facts have been demonstrated through documentary evidence including Central Excise registers before the first appellate authority. Notably, the learned Commissioner (Appeals)
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after verifying the production records, Excise records, has found that the uniform rate cannot be applied to regular biscuit and burnt / broken / power biscuits. It is a fact on record that the evidences produced by the assessee were sent for examination of the Assessing Officer in remand and before the Assessing Officer the assessee has made detailed submissions justifying its claim. Thus, the learned Commissioner (Appeals) having recorded a purely factual finding based on documentary evidence and which could not be controverted by the Department through contrary material brought on record, we uphold the order of the learned Commissioner (Appeals) by dismissing the ground raised.
In ground no.5, the Department has challenged the decision of the learned Commissioner (Appeals) in restricting the disallowance of entertainment expenses to ` 50,000.
Brief facts are, during the assessment proceedings, the Assessing Officer on examining the details found that the entertainment expenses of ` 7,36,706, shown by the assessee did not include expenditure on food and beverages of employees accompanying guests and expenses on food, beverages during training program, conference and product launch. Accordingly, the Assessing Officer disallowed an amount of ` 1 lakh out of the expenses claimed. The
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learned Commissioner (Appeals) considering assessee’s submissions that expenditure on training program and conference is not in the nature of entertainment and further, the assessee voluntarily having disallowed an amount of ` 3,60,353, restricted the disallowance to ` 50,000. While doing so, he followed the reasoning of his predecessor in assessment year 1995–96.
We have heard rival contentions and perused the material available on record. We find that in assessment year 1995–96, while deciding department’s appeal in ITA no.66/Mum./1999, dated 28th October 2003, the Tribunal has restricted the disallowance to ` 75,000. Following the aforesaid order of the Tribunal, we direct the Assessing Officer to restrict the disallowance to ` 75,000. Ground raised is partly allowed.
In ground no.6, Department has challenged deletion of addition of ` 20,57,746 on account of disallowance of expenditure on foreign travel.
During the assessment proceedings, the Assessing Officer noticing that the assessee has claimed foreign travel expenses of ` 40,95,492, called upon the assessee to produce the relevant details and justify its claim. After examining the details furnished by the assessee, the Assessing Officer found that the foreign travel expenses
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related to foreign trips made by the directors of the company and executives. The Assessing Officer observed, except the Board Resolution the assessee did not file any correspondence entered with foreign party to indicate the purpose of oversea visits. Though, the assessee explained that the foreign visits were to explore markets and to find new business venues and to have discussion with foreign parties for joint venture in those countries, however, in the absence of supporting evidence, the Assessing Officer refused to accept the claim of the assessee and disallowed 50% out of expenses claimed. The assessee challenged the disallowance before the learned Commissioner (Appeals). The learned Commissioner (Appeals) though found that in the preceding assessment year, 50% disallowance out of such expenses was upheld by his predecessor, however, following the order of the Tribunal for earlier assessment years he deleted the addition.
Learned Departmental Representative submitted in assessee’s own case for assessment year 1995–96, the Tribunal has upheld disallowance of 50% out of total expenditure claimed.
Learned Authorised Representative submitted, in assessment year 1984–85 to 1986–87, the Tribunal has deleted similar disallowance. He also referred to CBDT circular no.4 dated 19th June 2005.
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We have heard rival contentions and perused the material available on record. As could be seen from the facts on record, the specific allegation of the Assessing Officer is, except the board resolution and few fax messages, the assessee has failed to bring on record supporting documentary evidence to demonstrate the purpose of foreign travel undertaken by the directors and executives. Though, in the assessment year 1984–85 and 1986–87, the Tribunal has deleted the addition, however, as could be seen from the order dated 30th September 2004, passed in ITA no.157/Mum./1999, in assessee’s own case for immediately preceding assessment year, i.e., 1995–96, the Tribunal has upheld 50% disallowance of foreign travel expenses in respect of the very same persons. Therefore, respectfully following the aforesaid order of the Tribunal, we restore the disallowance made by the Assessing Officer. This ground is allowed.
In ground no.7, the Department has challenged deletion of addition made of ` 1,11,71,412, on account of unutilised MODVAT credit.
We have heard the parties and perused the material on record. The Assessing Officer following similar disallowance made in the preceding assessment year has made the impugned disallowance. However, the learned Commissioner (Appeals) following the decision of
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the Hon'ble Jurisdictional High Court in Indo Nippon Chemicals Co. Ltd., 245 ITR 384 (Bom.) deleted the addition.
Learned Counsels appearing before us have agreed that the issue stands decided in favour of the assessee by the decision of the Hon'ble Supreme Court in CIT v/s Indo Nippon Chemicals Co. Ltd., [2003] 261 ITR 275 (SC). Considering the aforesaid submissions of the parties, we uphold the order of the learned Commissioner (Appeals) by dismissing the ground raised.
Ground no.8 of Revenue corresponding to grounds no.4 and 5 of the assessee will be taken up at later part of this order.
Ground no.9, of Revenue corresponding to ground no.6 by assessee is on ad–hoc disallowance made by the Assessing Officer on account of suppressed sale of confectionary.
Brief facts are, during the assessment proceedings, the Assessing Officer noticed that Mumbai unit has given yield of 94.82% for confectionary item. According to him, if the raw material under the head “Others” is accounted for, the percentage of yield would come down to 91.5%. Whereas, the contract manufacturing unit has shown yield of confectionary items ranging from 86.80% to 102.67%. Accordingly, he worked out the average yield of contract
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manufacturing units at 100.24%. Though, the assessee submitted before the Assessing Officer that Mumbai unit manufactures various items of confectionary, the Assessing Officer did not accept the claim of the assessee. Finding some discrepancy in the consumption of raw materials by the contract manufacturing units as per their books and as per assessee’s book, the Assessing Officer proceeded to make ad– hoc disallowance of ` 10 lakh after rejecting the book result. Assessee challenged the addition before the learned Commissioner (Appeals).
The learned Commissioner (Appeals) after considering the submissions of the assessee vis–a–vis the facts and material on record though, agreed that major discrepancy found by the Assessing Officer is on account of maida, which is not a raw material for confectionary, however, he upheld disallowance of ` 2 lakh.
We have heard rival contentions and perused the material available on record. The learned Commissioner (Appeals) has recorded a factual finding that most of the discrepancies found by the Assessing Officer are on account of maida which is not a raw material for confectionary. That being the case, there is no justification for even sustaining a part of ad–hoc disallowance made by the Assessing Officer in respect of confectionary. Therefore, we delete the addition sustained by the learned Commissioner (Appeals). Ground no.9 by the
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Revenue is dismissed, whereas, corresponding ground raised by the assessee being ground no.6 is allowed.
Ground no.10, raised by the Revenue corresponding to ground no.7 in assessee’s appeal are on the issue of part disallowance of deduction claimed on account of spoilt and damaged goods.
During the assessment proceedings, the Assessing Officer noticed that the assessee has claimed deduction on account of spoilt and damaged goods as under:–
i) Mouthwash and tooth brush ` 14.04 lakh; ii) Confectionary ` 19.66 lakh; and iii) Biscuits ` 98.96 lakh;
When the Assessing Officer called upon the assessee to justify its claim, the assessee submitted debit notes issued by the distributors for damaged goods. The Assessing Officer, however, was not convinced with the submissions of the assessee. He observed that the agreement with the distributors did not bind the assessee to pay any amount towards spoilt and damaged goods. Accordingly, he made ad– hoc disallowance of 5% out of the total claim made by the assessee which worked out to ` 6,63,300. Assessee challenged the disallowance before the first appellate authority.
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The learned Commissioner (Appeals) agreed with the assessee that defective goods cannot be ruled out in manufacturing process and further, manufactured items do have a self–life and there can be defects in packaging and goods may be damaged in transit also. He also agreed with the assessee that dealers / distributors will not bear the cost of damaged goods and will get it reimbursed from the assessee who is the manufacturer. However, he held that such deduction can only be allowed to the assessee in respect of goods manufactured by it. He observed, as far as the goods manufactured by the affiliates of the assessee like mouthwash an tooth brush, the assessee is at liberty to get it reimbursed from the manufacturer. Accordingly, he sustained the disallowance @ 5% out of the deduction claimed on account of mouthwash and toothbrush amounting to ` 14.04 lakh which resulted in disallowance of ` 70,200.
Having heard rival contentions, we do not find any infirmity in the order of the learned Commissioner (Appeals). We are of the opinion that assessee’s claim of deduction on account of spoilt and damaged goods insofar as it relates to biscuits and confectionaries is allowable, since, assessee itself manufactures such items. However, as far as mouthwash and toothbrush are concerned, the assessee has not manufactured such products, therefore, the assessee could have returned such damaged goods to the manufacturer and claimed
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reimbursement. In view of the aforesaid, accepting the reasoning of the first appellate authority we dismiss the grounds raised by the Department as well as by the assessee.
Ground no.8 raised by the Revenue corresponding to ground no.5 raised by the assessee are on the issue of addition made with regard to suppressed production resulting in suppressed sales of biscuits.
Brief facts are, during the assessment proceedings, the Assessing Officer while examining tax audit report of the assessee found that as per quantitative details of consumption in production mentioned therein, percentage of yield works out to 92.55%. He, therefore, called upon the assessee to furnish quantitative details of raw material consumed in the manufacture of biscuit and confectionary separately; percentage of yield in respect of biscuits and confectionery; percentage of shortage / wastage in the process of manufacturing biscuits and confectionery separately; monthly statement of item–wise purchases of raw materials; monthly statements of item–wise consumption of raw materials and packing materials in the process of manufacturing biscuits and confectionery separately; monthly yield of final products item–wise; monthly statement of sales item wise and so on. After verifying the details submitted by the assessee, he found that overall percentage of yield both in respect of biscuit and confectionary
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comes to 84.50%. Whereas, as per the audit report, the yield works out to 92.55%. Further, the Assessing Officer observed, in the statement of quantitative details submitted before him, the assessee has shown 1059 MTs of coco vita oil as against 1860 MTs reported by the auditor. Further, though, the assessee in the statement furnished before the Assessing Officer has claimed consumption of “other materials” at 3335 MTs. It was not mentioned in the tax audit report. Further, the assessee has revised the figures of consumption of Mumbai unit from 36690 MTs to 38490 MTs. To further verify the percentage of yield the Assessing Officer sought information from the contract manufacturing units. From the information obtained from contract manufacturing units, he found that consumption of other materials were shown at nil. He also found variation in the consumption of material as recorded in the books of the assessee for contract manufacturing units. He also observed, all the raw materials are provided by the assessee to the contract manufacturing units. He further observed, as per revised statement filed during the assessment proceedings, the yield for Mumbai Unit worked out to 82.67% for Biscuit and 85.99% for confectionary. Whereas, the corresponding figure for contract manufacturing unit were 91.65% and 100.24% respectively. When the Assessing Officer called upon the assessee to explain the difference in consumption, the assessee submitted that the
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difference in consumption of coco vita oil was on account of clerical mistake and the actual consumption was 1860 MTs. Thus, on the basis of difference found in the percentage of yield as per tax audit report and the statements filed by the assessee as well as the information obtained from the contract manufacturing units regarding percentage of yield, the Assessing Officer called upon the assessee to submit further details and also the standard formula applicable for consumption and production. In response, the assessee submitted, itemwise details of consumption and production cannot be filed as it was manufacturing various items and the details submitted before the Assessing Officer were as per books of account. The assessee also submitted, quantity of itemwise ingredients for various items of confectionary was taken as a whole and no separate records were available. To explain reason for difference in percentage of yield between its manufacturing unit at Mumbai and the contract manufacturing units assessee submitted, its unit at Mumbai was manufacturing various items of biscuits and confectionary for many years while the contract manufacturing unit have started recently and were mainly manufacturing ParleG biscuit. The assessee, though, admitted that there is a standard formula but the theoretical form is not scientific and practical for working out consumption and production. Further, the assessee submitted, the standard formula
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cannot be applied due to various other factors as enumerated before the Assessing Officer. The assessee also advanced various other reasons for difference in percentage of yield between its Mumbai unit and contract manufacturing units. The Assessing Officer, however, did not accept the contention of the assessee on various grounds as summarized in Para–19.5 of the first appellate order. Further, the Assessing Officer comparing the production and sales at Mumbai unit with that of contract manufacturing units found that the sales at Mumbai unit was much less than the quantity available for sale, while for contract manufacturing units the quantity sold was more than the quantity available for sale. The Assessing Officer observed, as per standard formula, the yield should work out to 92.59%. He observed, the contract manufacturing units were showing average yield of 91.65% whereas, the Mumbai unit was showing yield of 82.69%. Thus, the Assessing Officer inferred that the assessee did not maintain records for consumption, production and sales of Mumbai Unit in a proper manner or the details were withheld purposely. Thus, on the aforesaid reasoning, the Assessing Officer taking into consideration the difference in percentage of yield shown by the contract manufacturing units and the assessee concluded that such difference of 8.96% was suppressed production resulting in suppressed sales. Taking into consideration consumption of raw material of Mumbai unit at 37498
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MTs, he worked out the suppressed production at 3359.820 MTs and by adopting ` 36,025, as average sale price, the Assessing Officer worked out the suppressed production of biscuits resulting in suppressed sales at ` 12,10,44,000 and added it to the income of the assessee. Being aggrieved of such addition, assessee preferred appeal before the first appellate authority.
In the course of hearing of appeal before the learned Commissioner (Appeals), assessee contesting the addition made by the Assessing Officer submitted that the Assessing Officer did not appreciate the facts properly. It was submitted, the difference in coco vita oil was on account of typographical error. It was submitted, the quantity of other raw material though specifically not mentioned in the printed account but the value was shown. Reiterating the stand taken before the Assessing Officer, it was submitted that contract manufacturing units were manufacturing less number of brands as compared to Mumbai unit. It was submitted, the standard formula of manufacturing cannot be applied due to various factors including wastage in the manufacturing process. In this context, the assessee submitted the different variety of biscuits and confectionary manufactured by contract manufacturing units. The assessee furnishing a statement of reconciliation of sales submitted that the Assessing Officer did not consider the sales from depots and the
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outstandings available at different units and depots. In this context, the assessee specifically pointed out all discrepancies in figures taken by the Assessing Officer. The assessee also furnished copies of excise record to substantiate the production as recorded in the books of account. It was submitted, since, the assessment year 1992–93 the percentage of yield shown by the assessee was about 83% and in assessment year 1995–96, it was shown at 81.65%. In this context, the assessee submitted the working of yield for Mumbai unit for ParleG biscuit after considering wastage and operational loss of 350 MTs, heating loss of 1978 MTs, moisture of 405 MTs and excess weight of packaging in 642 MTs are worked out at 88.24%. It was submitted, in respect of contract manufacturing units also the percentage of yield varied between 87.85% to 100.35%. Thus, it was submitted, there is no suppression of production therefore, addition made should be deleted.
After considering the submissions of the assessee in the context of facts and materials on record, learned Commissioner (Appeals) upheld the rejection of books of account accepting the reasoning of the Assessing Officer. As far as the quantum of yield is concerned, after examining the material on record he observed that the yield of Mumbai unit is less than the yield of contract manufacturing units. However, he accepted assessee’s contention that in the manufacturing process,
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standard formula cannot be applied strongly though it may be a guiding factor for appreciating the result. From the material on record, he found that the yield of contract manufacturing units vary between 87.85% to 100.35%. Therefore, adopting average yield of 91.65% for all contract manufacturing unit will give a distorted picture. Referring to the percentage of yield of few contract manufacturing units, the learned Commissioner (Appeals) held that the percentage of yield of contract manufacturing unit can be taken at 91%. The learned Commissioner (Appeals) observed, as per the bifurcation of consumption of raw material for confectionary and biscuit, the assessee has worked out yield of 84%, whereas, after taking into account various aspects like heating, moistures and other factors, assessee has reconciled the yield for biscuits at 88.4%. The learned Commissioner (Appeals) also accepted assessee’s plea that mixtures if rejected results in heavy loss and the work force at Mumbai unit is not as disciplined as at contract manufacturing units. He also accepted assessee’s contention that while packing the biscuits extra weight of 5% to 10% is given. Thus, taking into consideration these aspects the learned Commissioner (Appeals) held that the percentage of yield of biscuit of the Mumbai unit can be fixed at 88% which leaves a gap of 2% which is unexplained. The learned Commissioner (Appeals) observed, taking into account consumption of raw materials at 37,498
29 M/s. Parle Products Ltd.
MTs, the production @ 2% shall work out to 750 MTs which valued at ` 36,205 per MT will work out to ` 2,71,53,750. Therefore, he sustained the addition to the extent of ` 3 crore while deleting the balance addition of ` 9,10,44,000.
Learned Departmental Representative extensively referring to the observations of the Assessing Officer in the assessment order submitted that the assessee was supplying all the raw materials to the contract manufacturing units. He submitted, as per the tax audit report yield of the Mumbai unit of the assessee worked out to 92.55%. Whereas, as per the statements filed before the Assessing Officer by the assessee, percentage of yield worked out to 84.50%. He submitted, in the reconciliation statement also, discrepancy was found which was again revised by the assessee. He submitted, as per the reconciliation statement, the discrepancy was found in consumption of vanaspati, sugar, maida, coco vita oil. He submitted, as per the information obtained from contract manufacturing units, percentage of average yield was found to be 91%. He submitted, before the Assessing Officer assessee could not prove that it was manufacturing a large variety of biscuits compared to contract manufacturing units. He submitted, the Assessing Officer has worked out the yield by applying a standard formula which was accepted by the Tribunal in assessee’s own case. Learned Departmental Representative submitted, in the
30 M/s. Parle Products Ltd.
course of assessment proceedings, the assessee was given full opportunity to reconcile the differences and prove the fact that percentage of yield is as per the standard formula. He submitted, the learned Commissioner (Appeals) without properly appreciating the reasoning of the Assessing Officer has deleted major part of the addition without proper reasoning and in a non–speaking manner. He submitted, even additional evidence produced before the learned Commissioner (Appeals) were not forwarded to the Assessing Officer for examination. Finally, the learned Departmental Representative submitted, once the Assessing Officer has rejected the books of account and made estimation on a scientific basis and to the best of his judgment, the learned Commissioner (Appeals) cannot interfere with the same. In support of such contention, he relied upon the decision of the Hon'ble Supreme Court in Commissioner of Sales Tax v/s H.M. Esufali H.M. Yusuf Ali Abdul Ali, [1973] 90 ITR 271 (SC).
Learned Authorised Representative submitted, no defect was found in the books of account. He submitted, if there was any discrepancy, it was in the statement submitted before the Assessing Officer, that too, due to bonafide mistake. He submitted, in the tax audit report, there is no mention of percentage of yield. He submitted, as per Form no.3CD, prescribed under Income–tax Rules, 1962, in case of manufacturing concern, full quantitative details of principal
31 M/s. Parle Products Ltd.
items of raw material and finished products are to be given. He submitted, in Annexure to the tax audit report, the auditor has furnished the quantitative details of principal items of raw materials and finished products. In this context, he drew our attention to Annexure–V to the tax audit report at Page–211 of the paper book. He submitted, when the Assessing Officer called for details of “Others”, the assessee furnished statement of consumption of raw materials wherein coco vita oil was wrongly shown at 1056 MTs which was subsequently corrected in the revised statement. He submitted, the raw materials shown as “Others” since was not a principal item was not shown in the tax audit report. Learned Authorised Representative submitted, if at all there is any mistake / discrepancy it is in the statement furnished and not in the audit report or books of account. He submitted, books of account can be rejected if conditions of section 145(3) of the Act are fulfilled. Learned Authorised Representative submitted, only if the conditions of sub–section 3 of section 145 are satisfied, the Assessing Officer can make a best judgment assessment. He submitted, the Assessing Officer has not pointed out a single instance of sales outside the books. The purchases made by the assessee have not been doubted. The production of biscuit and confectionary are fully supported by and as per Central Excise records. He submitted, all excise registers were produced before the Assessing
32 M/s. Parle Products Ltd.
Officer and nothing adverse was found. Reiterating the stand taken before the Departmental Authorities, learned Authorised Representative submitted, the reason for low yield is due to the factors explained before the Departmental Authorities. He submitted, because of labour problem ultimately assessee had to close down its factory at Mumbai. He submitted, it is not possible to maintain itemwise stocks considering the variety of products manufactured by the assessee qua the contract manufacturing units which primarily manufacture ParleG. He submitted, when the consumption of raw material and production of biscuit and confectionary are regulated by the Central Excise law and the assessee is maintaining Central Excise records which were verified by the Central Excise authorities and have not been found to be defective the Assessing Officer cannot question on the consumption and manufacture recorded in the books of account. In this context, he relied upon the decision of the Hon’ble Motipur Sugar Factory (P.) Ltd. v/s CIT, [1974] 95 ITR 401. Strongly opposing the contention of the Learned Departmental Representative regarding applicability of standard formula, the learned Authorised Representative submitted, such formula cannot be applied as the Tribunal in assessee’s own case has held against applicability of such formula. Learned Authorised Representative submitted, compared to the yield for earlier years, the percentage of yield shown in the impugned assessment year is more.
33 M/s. Parle Products Ltd.
Therefore, the inference drawn by the Departmental Authorities regarding suppression of sales is baseless and unfounded. He submitted, even the contract manufacturing units have not shown any standard yield as their yield varies from 87% to 100%. That being the case, on the basis of yield shown by the contract manufacturing units, the books of account of the assessee should not have been rejected and no addition should be made.
We have heard rival contentions and perused the material available on record. On a perusal of the order of the Departmental Authorities as well as factual aspect of the issue, it is very much clear that the issue in dispute is purely a factual one and has to be decided after considering the facts brought on record. As could be seen, the Assessing Officer inferred suppression of sales by the assessee primarily taking into account the percentage of yield of biscuits of the assessee compared to the percentage of yield of the contract manufacturing units. The allegation of the Assessing Officer is, as per the tax audit report the percentage of yield works out to 92.55%, whereas, as per the statement and revised statement showing consumption of different raw material and manufacture furnished by the assessee, the yield works out to 84%. He has also referred to the information obtained from contract manufacturing units to conclude that the average yield of contract manufacturing units work out to
34 M/s. Parle Products Ltd.
91.55%. In this context, the Assessing Officer has also referred to the standard formula applicable and the physical enquiry conducted by him at the factory premises, wherein, it was found that the manufacturing of products at Mumbai unit is through sophisticated machinery. In the course of assessment proceedings, the assessee has explained comparative lesser yield qua contract manufacturing units due to the following reasons:–
i) Variety of biscuits manufactured at Mumbai unit compared to few variety of biscuits manufactured in contract manufacturing units;
ii) In case of contract manufacturing units, due to similar size of production and type of machinery used biscuit fall on the belt and tray which are manually picked up and sorted and identified for re–use or waste. Whereas, in case of Mumbai unit production being faster it is difficult to have such control and also costs for employing labour to pick and sort out biscuit fallen on the belt and tray is much higher;
iii) Due to different products lines at Mumbai unit, the average give away is much higher as compared to contract manufacturing units;
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iv) Mumbai unit has a much higher production capacity as compared to contract manufacturing units and due to sheer volume wastages are higher in Mumbai unit;
v) Since, the contract manufacturing units are receiving processing charges which in turn is directly proportionate to production they exercise a better control over the labour, machine and the processing methods;
vi) Mumbai unit has a trade union and employees being of permanent nature there is always labour problem. Whereas, contract manufacturing units have small work force, hence, were able to supervise efficiently;
vii) The assessee being the mother unit effort is put on new formulas and research and development;
viii) Part of biscuit produced are consumed by the employees, therefore, cannot be reflected in the accounts; and
ix) Waste before production takes place on account of wheat flour remaining in jute bags, grinding loss
36 M/s. Parle Products Ltd.
sweepage, etc., compared to the loss suffered by contract manufacturing units.
Notably, the learned Commissioner (Appeals) has found some of the reasons shown for lesser yield at Mumbai unit acceptable. As far as the discrepancies pointed out by the Assessing Officer with reference to the audited accounts and the statements of consumption of raw material filed before him, it is noticed that in the audited accounts while furnishing the quantitative details of principal items of raw materials and finished products, there is no mention of the percentage of yield. Therefore, allegation of the Assessing Officer that as per the audit report, the assessee has shown yield of 92.55% is factually incorrect. This is evident from Annexure–5 of the audit report copy of which is at Page–211 of the paper book. As far as the discrepancies pointed out in the original statement of consumption of raw materials and the revised statement furnished during the assessment proceedings, it is a fact that the quantity of coco vita oil has been shown at 1059 MTs instead of 1860 MTs shown in the audit report. However, in the revised statement, the quantity of coco vita oil has been shown at the correct figure of 1859 MTs. Therefore, the assessee’s explanation that the figure of 1059 MTs shown in the original statement was due to a mistake is believable. As far as the allegation of the Assessing Officer that the raw material “others” were
37 M/s. Parle Products Ltd.
not shown in the audit report, we are of the view that non–mentioning of the said item in the Annexure to the audit report may be for the reason that as per Form no.3CD, only primary raw materials are required to be shown. Therefore, non–mentioning of raw material “others” in the Annexure to the audit report cannot be considered to be very serious lapse so as to infer suppression of sales and unreliability of books of account. It is a matter of record that the goods produced by the assessee are excisable goods and subject to scrutiny and regulatory measures of Central Excise authorities. It is also a fact on record that the assessee has maintained all Central Excise registers with regard to consumption of raw materials, production of biscuits and confectionary which have been verified by the Central Excise authorities periodically and the authenticity of the entries made in the said registers have not been questioned by them. It is also a fact on record that the Central Excise registers were produced before the Assessing Officer as well as the learned Commissioner (Appeals).
There is no allegation by the Departmental Authorities that the consumption of raw materials and production of finished products as recorded in the Excise registers were doubted by the Central Excise authorities. It is also a fact on record that the Assessing Officer has not doubted the purchases made by the assessee. It is also a fact that the assessee has maintained all books of account as required under
38 M/s. Parle Products Ltd.
the Income–tax Act, 1961, Companies Act, 1965 and Central Excise norms. Further, the accounts maintained by the assessee were subject to statutory audit. No specific defect or discrepancy in the books of account maintained by the assessee has been pointed out by the Assessing Officer. The alleged difference in yield was worked out on the basis of the statement and revised statement of quantitative details of consumption of raw materials and production filed by the assessee in the course of assessment proceedings as well as the information obtained from contract manufacturing units. Further, the Assessing Officer has worked out the yield by applying the standard formula as mentioned by him in the assessment order. It is relevant to observe, in the impugned assessment year, the dispute is with regard to the manufacture of finished products in assessee’s own unit at Mumbai. In the preceding assessment year, while dealing with similar addition made by the Assessing Officer, the Tribunal in assessee’s own case in ITA no.5320/Mum./2006 and other dated 31st August 2010, held that no addition by applying the standard formula can be made. Facts are no different in the impugned assessment year as well. The Assessing Officer has not found a single instance of sale made by the assessee outside the books. At least, no adverse material to indicate out of book sales has been brought on record by the Assessing Officer. In these circumstances, making addition on estimate basis by rejecting
39 M/s. Parle Products Ltd.
the books of account in the absence of any adverse material brought on record cannot stand legal scrutiny. It is also a fact on record that as per the information obtained from the contract manufacturing units, the yield varies between 87% to 100%. Therefore, average yield cannot be standardized to a particular percentage. Moreover, the yield of Mumbai unit for preceding assessment years has been shown by the assessee as under:–
A.Y. Percentage 1992–93 83.11% 1993–94 83.32% 1994–95 82.27% 1995–96 81.65%
Thus, compared to the yield of Mumbai unit in the preceding assessment years as noted above, the assessee has shown a higher yield for the Mumbai unit in the impugned assessment year. Therefore, on over all consideration of facts and circumstances of the case, we are of the considered opinion that rejection of books of account and addition made on estimate basis alleging suppression of sale is not in accordance with law. Therefore, even a part of addition made by the Assessing Officer cannot be sustained. Accordingly, we delete the addition made by the Assessing Officer fully. Ground no.8 of the
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Department is dismissed and grounds no.4 & 5 raised by the assessee are allowed.
In the result, Department’s appeal is partly allowed.
ITA no.3806/Mum./2002 Assessee’s Appeal
In ground no.1, assessee has challenged disallowance of deduction claimed under section 80I and 80IA of the Act.
Brief facts are, in the course of assessment proceedings, the Assessing Officer noticing that the assessee had claimed deduction under section 80I and 80IA of the Act called upon the assessee to justify the claim. After considering assessee’s submissions, the Assessing Officer rejected the claim of deduction under section 80I and 80IA of the Act on the reasoning that the assessee has not claimed the deduction in the return of income and has also not quantified such deduction and secondly the assessee is not eligible to claim such deduction in view of the adverse finding on such issue in assessment year 1995–96. Though, the assessee challenged the disallowance before the first appellate authority, he also concurred with the finding of the Assessing Officer.
41 M/s. Parle Products Ltd.
We have heard rival contentions and perused the material available on record. Learned Counsel for the assessee fairly submitted that the issue has been decided against the assessee by the Tribunal in its own case for assessment year 1994–95 and 1995–96. On a perusal of the order dated 30th September 2004, in ITA no.157/ Mum./1999, in assessee’s own case for assessment year 1995–96, we find that the Tribunal has upheld the disallowance of deduction claimed under section 80I and 80IA of the Act. Respectfully following the aforesaid decision of the Tribunal, we uphold the order of the learned Commissioner (Appeals) on this issue by dismissing the ground raised.
In ground no.2, the assessee has challenged the disallowance of depreciation on guest house.
We have heard rival contentions and perused the material available on record. Learned Counsels appearing for both the parties have submitted before us that the issue has been decided against the assessee by the Tribunal in the preceding assessment years as well as by the decision of the Hon'ble Supreme Court in Britannia Industries Ltd. v/s CIT, 278 ITR 546 (SC). Notably, in assessee’s own case for assessment year 1995–96, in ITA no.157/Mum./1999 dated 30th September 2004, the Tribunal has upheld the disallowance of depreciation on guest house. Respectfully following the aforesaid
42 M/s. Parle Products Ltd.
decision of the Co–ordinate Bench we uphold the disallowance made by the Assessing Officer and confirmed by the learned Commissioner (Appeals). This ground is dismissed.
In ground no.3, the assessee has challenged the disallowance of depreciation of ` 14,18,541 on certain plant and machinery.
Brief facts are, during the assessment proceedings, the Assessing Officer for verifying the claim of depreciation on plant and machinery called for necessary details. He found that the assessee had shown addition to the plant and machinery for an amount of ` 1,13,48,325 on which depreciation of ` 14,18,541 was claimed. From the details submitted, he found that the particular machine was actually imported by Parle Biscuits Ltd., a subsidiary of assessee in January 1991, since, it wanted to go into manufacturing of chocolate and other permitted items. However, as Parle Biscuits Ltd., could not finalise the idea of manufacturing of chocolate the machine was not used and lying idle until they were sold to Parle Products Ltd. on 26th February 1996. To verify the authenticity of assessee’s claim, the Assessing Officer made a physical enquiry by visiting the factory premises of the assessee on 15th March 1999. In the course of physical enquiry, when the assessee was called upon to produce the documentary evidence in respect of installation of machinery in the factory premises and its use, as alleged
43 M/s. Parle Products Ltd.
by the Assessing Officer, no documentary evidence was produced to substantiate the claim that such machineries were directly brought into the factory premises from the Dock in January 1991. He further observed, the assessee could not substantiate its claim that machinery was transferred to one of the contract manufacturing units through documentary evidence. In respect of another machinery viz. Verso Flour Machine, the assessee could not furnish documentary evidence to demonstrate installation and use of machinery. Therefore, he disallowed assessee’s claim of depreciation for an amount of ` 14,18,541.
The learned Commissioner (Appeals) also confirmed the disallowance in appeal proceedings by accepting the reasoning of the Assessing Officer.
Learned Authorised Representative submitted that the machine on which the assessee has claimed depreciation is a packaging machine and has no relationship with production. He submitted, detail use of machine was submitted before the Departmental Authorities. He submitted, not only the machine was installed in the relevant financial year but it was also used in the impugned year. In this context, he drew our attention to the commissioning certificate issued by the Chief Engineer, a copy of which is at Page–602 of the paper book. He
44 M/s. Parle Products Ltd.
submitted, in the subsequent assessment year, the first appellate authority has allowed assessee’s claim of depreciation on this particular machine.
Learned Departmental Representative relying upon the observations of the Assessing Officer and the learned Commissioner (Appeals) submitted that onus is on the assessee to prove the use of machinery. Since the assessee failed to prove such facts, deprecation was rightly disallowed.
We have heard rival contentions and perused the material available on record. As could be seen from the impugned order of the learned Commissioner (Appeals), he has accepted that the assessee has produced evidence to prove that the machines were purchased through import and it was commissioned and form part of the fixed assets in the impugned assessment year. The only reason on which the learned Commissioner (Appeals) has rejected assessee’s claim of depreciation is, the assessee was unable to prove that the machinery was used in production. As could be seen from the materials placed before us, which were also before the Departmental Authorities, the machine in question is used for cutting and wrapping confectionary toffees and were delivered at ready to use condition. Thus, it is evident that the machine has no role to play in the production activity.
45 M/s. Parle Products Ltd.
Therefore, when the learned Commissioner (Appeals) has accepted the fact that the machine was purchased and commissioned and formed part of the fixed asset in the relevant financial year, there is no reason to disallow assessee’s claim of depreciation. Moreover, the fact that in the subsequent assessment year, assessee’s claim of depreciation on such machinery has been allowed has not been controverted by the learned Departmental Representative. Therefore, we delete the disallowance made by the Assessing Officer and confirmed by the learned Commissioner (Appeals). This ground is allowed.
Grounds no.4 and 5 having already been disposed–off while deciding ground no.8 of Department’s appeal in ITA no.4023/Mum./ 2002, vide Para–51 to 54, no separate adjudication is required at this stage.
Grounds no.6 and 7 have already been disposed off while deciding grounds no.9 and 10 of Department’s appeal in ITA no.4023/ Mum./2002. Hence, no separate adjudication is required in respect of these grounds now.
In ground no.8, assessee has challenged levy of interest under section 234B of the Act. Both the parties admitted before us that this ground is consequential in nature. Accordingly, we direct the Assessing Officer to give consequential effect while re–computing the income of
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the assessee keeping in view our findings given above and in accordance with the provisions of law.
In the result, assessee’s appeal is partly allowed.
To sum up, both the appeals are partly allowed. Order pronounced in the open Court on 29.11.2017
Sd/- Sd/- SAKTIJIT DEY N.K. PRADHAN ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, DATED: 29.11.2017 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary
(Dy./Asstt. Registrar) ITAT, Mumbai
.